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Operator: Good morning, ladies and gentlemen. Welcome to Galp's First Quarter 2026 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations. Joao Pereira: Good morning, everyone, and welcome to Galp's First Quarter 2026 Q&A session. I'm joined today by our Co-CEOs, Maria Joao Carioca and João Marques da Silva as well as the full executive team. But before passing the mic for some quick opening remarks, let me start with our usual disclaimer. During today's session, we will be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. Having said this, Joao, would you like to say a few words? Joao Diogo da Silva: Of course. Thank you, Joao, and good morning, everyone. Galp had a strong start to 2026 in a quarter marked by higher volatility and geopolitical tensions in the Middle East. Galp has no direct exposure to the region. Our operations are mainly Atlantic-based. Still, we are closely monitoring developments, and the impact can be felt globally. Due to disruptions across parts of the value chain, our Midstream team has actively managed crude and refined product supply, well done. This allowed us to so far to secure a healthy position for Galp and for Portugal. In our Commercial business, we have also reinforced campaigns and discount mechanisms to help our customers to manage the impact of higher fuel prices. And overall, during the quarter, we have continued to run our operations efficiently. In March, our Upstream and Industrial assets showed strong availability, allowing us to benefit from higher commodity prices. Maria Joao, over to you. Maria Joao Carioca: Thank you, Joao. Good morning, everyone. The quarter's solid operational performance that Joao just highlighted flowed through to the P&L and actually further supported Galp's robust financial position. I would highlight the fact that net debt remained stable quarter-on-quarter despite the balance sheet working capital impact from the sharp increase in commodity prices. We're focused on managing ongoing market volatility and supply disruptions, but this has not at all hindered our continued execution in the strategic initiatives that are currently underway across our portfolio. We continue to strive for both pace and discipline in our execution. In Namibia, procurement activities are progressing, and that allows us to remain on track to start drilling activities on the next exploration and appraisal campaign by Q4. At the same time, discussions with NV shareholders regarding the merger of our downstream businesses continue to evolve positively. So we continue to have a potential agreement still expected by midyear. Overall, 2026 is indeed shaping up to be a challenging but also a rather exciting year for Galp. Operator, we are now ready to take questions. Operator: [Operator Instructions] And our first question today comes from the line of Matt Smith, Bank of America. Matthew Smith: I wanted to focus on the Upstream business first. I think you mentioned Bacalhau contributed 10,000 barrels to performance in the quarter, which would make the underlying Brazil performance look extremely strong versus recent history. So I was just hoping you could give us a bit of color there and any context how that's running versus your full-year guidance, that would be useful. And then I just also wondered price dislocations has been a hot topic for April. Is there any color you could give us in terms of the realizations that you're achieving on your crude post quarter end? And then I guess, on the other side of the same coin, what Refining margins have done since the quarter end? That would be useful. Maria Joao Carioca: Thanks, Matt. Thanks for the question. So let me try and tee it off with some comments on Bacalhau and I guess, overall on the performance of our Brazil Upstream business. So overall, rather good performance. I think it maps out against what we had in terms of the guidance we had given. We've given 125,000 to 130,000 barrels, and we've delivered at the very top end of that guidance. Bacalhau has indeed been a part of that [ up end ] guidance. I would, nevertheless, stress that we're still ramping up the unit. So it's good indications. We now -- we've had 2 producers already registering significant flow rates, and the third producer is already connected. And that has indeed been delivering according to our expectations of a good reservoir. But in any case, we're ramping up. So it's still commissioning. It's still, I'd call them maybe hiccups to expect. Plateau is still expected later in 2026. So overall, very good indications, good performance, but I would nevertheless remain conservative and remain within the estimated time frame for plateauing and for the overall ramp-up to take place. So other than that, our legacy business in Brazil continues to perform rather well. You know that there are ongoing works in Tupi to continue to maintain the current good performance of the wells. You know that this is still ongoing set of partnerships that have been the cornerstone of our performance. So no major comments there, just general good performance. On the realizations of our different businesses, but I believe your question referred particularly to equity crude. I think, as you know, about 70% of our exports flow through to China. We, in any case, normally deliver on index to dated Brent circa 2 months ahead. So the fluctuations that you saw throughout this period did not necessarily capture the full breadth of the impacts we suffered. In any case, in equity crudes, we registered a discount of approximately $5 per barrel. And this just fundamentally reflected the fact that what we were seeing throughout the period in terms of the costs underlining our activity, particularly when you saw it during the period concerning freight costs was indeed a lot of fluctuation and a lot of volatility. Thank you. Joao Diogo da Silva: Allow me to complement on the Refining margins, your question. Of course, when we compare ourselves with the highs of March, we are observing an average of between $10 to $12 per barrel. On the last couple of days, additional volatility, margins increased up to the [ 20s ]. But more importantly, what we are expecting is to operate at full availability during the next couple of quarters. Reminding that [ Siemens ] refinery outputs are 45% on mid-distillates. Jet will account for less than 10% of that. And if we look at the downtrend from March, it reflects a bit of margin squeezing by rising input costs, and I'm speaking about utility, freight cost inflation. But we are also looking at some decrease on the oil product prices, mainly on diesel and jet as pricing is reflecting a probable resolution on the conflict. And finally, Europe margins declined more versus other regions, again, representing a different higher utility gas prices situation. And I'll stop here. Operator: Your next question today comes from the line of Alejandro Vigil from Santander. Alejandro Vigil: Congratulations for the strong results. The first question is about the guidance of '26. You started the year with very conservative guidance. If in the current context of higher energy prices, you are considering some increase in this guidance. And particularly more important, the implications in terms of shareholder distributions, you're expecting some additional cash flow to shareholders driven by these high energy prices. And the second question is about the Moeve joint ventures in the Iberian downstream. If you are close to closing these transactions, if you are seeing some releverage opportunities in the joint ventures that you are setting with Moeve? Maria Joao Carioca: Alejandro, on the updating of guidance, we acknowledge, obviously, that the macro that was underlying our existing guidance is, to a large extent, no longer directly applicable. It no longer holds. We've seen significant changes in terms of most commodity prices and most underlying adjacent costs. But in any case, what we are at this stage acknowledging is that the situation continues to be of high volatility, way too many moving pieces. So we don't feel that this is the time to pin down the new guidance. We will be looking and most likely doing so as we publish our second quarter results. Right now, sensitivities are for us, the tool that's guiding us through the period. So what we're looking is fundamentally approximately numbers that you've seen in the past for Galp, but it's approximately $160 million for each $5 of Brent impact and a bit under that. But well, if you take each $5 of Refining margin, I'd say that the sensitivity is approximately $200 million. So we're navigating the volatility using uncertainties, and we're certainly looking into what are the underlying large trends in the market to support this. And then once we see some more firm ground, we will look to revise the guidance. The second part of your question on distributions, I think it follows through from my initial comments. So again, we will not be revising distribution. It's really early to assess all the full impact of everything that's going on. So we do see that our distribution policy, the 1/3 OCF in itself already embeds flexibility to capture part of what is the current circumstance. And I think this will give a great segue for Joao to comment next on Moeve, particularly because this business is in itself rather transformative. Our expectation is that it will be value accretive, and there will indeed be elements of releveraging that Joao will comment on. But those again speak to our not moving our distribution policy at this stage. Joao Diogo da Silva: Alejandro, well, just giving you some [ sequence ] from Ms. Joao's words, we've highlighted a number of times that both companies are to be designing as self-funded ring-fencing industrial versus retail businesses differences. At this point, well, I need to say that we've seen a lot of traction in the market. That's what we've been receiving from the investor side, from the financing side and these companies to be independently run with financial flexibility. Of course, we will be looking at the optimal finance structure and leverage all the way down. So that's what we are expecting. That's the flexibility that we need to enhance. And you are absolutely right, the macro scenario will, of course, releverage some opportunities. Operator: Your next question today comes from the line of Biraj Borkhataria from RBC. Biraj Borkhataria: Two, please. Just the first one is just on Bacalhau. If once we get to a full ramp-up phase, how should we think about the Upstream sort of DD&A and OpEx per barrel at the blended rate, given the mix of assets there? And second question is just on the Venture Global offtake that you have. Could you let us know how much of those volumes you've hedged for 2026 and how much is sort of exposed to the upside and widening spreads? Maria Joao Carioca: [Technical Difficulty] the low 2 digits. I'm not sure you picked up my -- the initial part of my answer. I think there was some technical issue here. So I'll just very quickly repeat through. On Bacalhau, right now, the numbers you're seeing are fundamentally numbers that reflect the fact that we're still ramping up. Now having said this and going straight to your question, what we're seeing in terms of DD&A expectations is in the low 2 digits, of course, once you plateau. And this should bring us to operating costs that are not too dissimilar to what we have right now, maybe slightly above what we have right now as we truly perform in the upper 2s, lower 3s right now. And what we expect for Bacalhau is to be fundamentally in the 3 to 4 operating cost figures. I'll let Joao comment on the hedging numbers for LNG. Joao Diogo da Silva: And Biraj, really quick one. So consider between 70% to 75% hedged on the venture contracts in 2026. Operator: And the next question comes from the line of Josh Stone from UBS. Joshua Eliot Stone: Just building on the last question, I wanted to ask about the Midstream and the outlook there, just given the widening of gas spreads and your ability to capture that. So just talk about, one, how the business actually performed if you adjust out the time lag? And two, what you're thinking about the outlook? And secondly, I wanted to ask on Refining because you spoke back about some Refining margin trends. And based on -- I presume that's based on an indicator. I'm curious as to how do those indicators match with what you're seeing on the ground in terms of Refining profitability. And with the extreme backwardation we've seen, has that had created any disconnect between like on-the-ground profitability versus the indicators you're looking at? And maybe as part of that, can you can talk about the role of hedges and your hedging position in Refining? Joao Diogo da Silva: Thank you, Josh. you should consider on our latest guidance to our Midstream above 500 million into 2026. We still see some supportive but narrower gas spreads. Consider that the trading gas is contributing around 70% of our total performance. And that largely, as I've just mentioned, a large portion of that is already locked for 2026, around 70%. Of course, we have some flexibility on the portfolio, and we have an increased footprint in Brazil. And that's basically what we have. On the Refining side, our crude procurement is based on the physical products. And you know that -- well, we have mainly selling products at the market condition in the Iberian Peninsula. Of course, we are long on the gasoline side, and that's one of the products that we are long in. But namely, we are counting on a fully operational refinery to capture the market conditions, and I'll stop here. Operator: Your next question today comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: The first one, thinking about the recent view on onshore wind, I was keen to hear more about the rationale to increase exposure in renewables at the moment, how to think about the long-term positioning in this division? And if we should be expecting more opportunistic deals like this one over the coming quarters? And then secondly, going to your Commercial segment, I know that in your opening remarks, you commented about campaigns and discount mechanisms to move the impact of higher prices to consumers. I was keen to see if you are seeing some sort of slowdown in sales, even though you have implemented those measures, or not so far? Joao Diogo da Silva: Thank you, Guilherme. Maybe I'll start on your second one. And it's true, we are observing different behaviors on the Spanish side and on the Portuguese side. Of course, the different framework that the Spanish market has changing prices on a daily basis, influences demand and pricing in a different way. On the Portuguese side, on the retail -- namely on the retail, we change -- we have weekly prices. And those discounts and those campaigns are reflecting an additional help that we think our customers need today. That's why we've launched the recent campaign on the [ Mundo Gulf ]. But more than that, since early this year, we've started a more broader campaign cross-selling oil, gas and power and also in the retail side. We have observed, namely in March, an increase on the volumes. And it was like a push before the prices going up on the Portuguese side, and that's something very normal. That will be, of course, neutralized on the April volumes. It was more on the Spanish side, if we compare the two markets, the Spanish market, namely on the March volumes, had a more substantial increase than the Portugal one. But of course, we are operating in a high prices context, and that's something that will affect the average ticket volumes that we have. Substantial contribution from the nonfuel business also around 22% of the overall Commercial business. Going back to your first question and on the offshore, on the wind rationale and thinking ahead, I need to tell you that, of course, this recent acquisition allows us to have a much more balanced portfolio. Wind now represents around 25% of our generation mix. And of course, if we think further, it will enhance eventual long-term strategic optionalities and partnerships that we may have. I need to remind you that we are challenging -- almost every day, we challenge ourselves if we are the best owners of this business and of course, if we have the best structure to manage this business. But all in all, we are trying to diversify and to optimize our Renewables business, and that's where we stand today. And that's where we will be standing on the next couple of months. Operator: Your next question today comes from the line of Sasikanth Chilukuru from Jefferies. Sasikanth Chilukuru: I had two, please. The first was in Refining and getting back to the hedges. I was just wondering if you could further elaborate on your hedging strategy in Refining. It would be helpful to understand the rationale, the hedge profile for the current year and into 2027 and the type of hedging structures you're using there. The second one was on Bacalhau and the ramp-up. I was just wondering if you could comment on the cash taxes paid there and the impact that this field has at the group cash tax rate this year and for 2027? Maria Joao Carioca: Thank you for your question. So let me maybe complement what João has already shared with us on our hedging strategy. So we have hedging strategies in place for both Refining and Midstream. I would highlight the fact that there's no hedging in place for Upstream. But on Refining, in particular, which I believe was your question, the policy we have -- and again, this is a hedging policy that's been syndicated with the Board. It goes through Board oversight. It goes through all of our risk management and internal control processes. So it's under strict limits and triggers. Now the limits we have on board right now, the ones we're acting against are for Refining, circa 1/3 of our throughput. So if you look at what we have in place right now for 2026, and that's fundamentally flat throughout 2026. What we have in place is about 28 million barrels. That's locked at approximately $8 per barrel, again, flat throughout the year. Into 2027, we don't have any significant positions. We don't have any hedging into 2027 for Refining, again. Now on Bacalhau, the regime under which Bacalhau is, is still a shared regime. So it's 50-50 between concession and PSC. So that gives us a relatively benevolent tax regime vis-a-vis the remaining assets we have in Brazil. So we acknowledge that this is overall a lower SPT rate than what we have, for instance, in Tupi, and that is going to be obviously a part of what we believe will be the approximately 400 million of OCF that Bacalhau will be delivering once it plateaus. Operator: [Operator Instructions] And our next question today comes from the line of Michele Della Vigna from Goldman Sachs. Michele Della Vigna: Congratulations again for the strong performance. Two questions, if I may. First, on exploration, it's going to be very exciting in Q4 in Namibia. I was also wondering if you could update us on your thinking about Sao Tome and the attractiveness of that basin. And secondly, I wanted to come back to the carry that you're getting for -- in Namibia for both exploration and then the Mopane development and how that is likely to be accounted, whether that will be -- effectively, whether your CapEx will be net of that or whether that will be considered as a financing and the gross CapEx will reflect the full spend on Mopane? Maria Joao Carioca: Thank you, Michele. So on exploration, I know that exploration is all that the industry is talking about these days, quite a change from a few years ago. But on exploration, in particular, we are very focused on Namibia right now, as you well put it. So we're trying to make sure that all the conditions are in place and everything is going according to plan to a large extent. So we do expect to have news towards the end of the year. On Sao Tome, as you know, that's a much earlier-stage basin. So nothing too significant going on here. So it's still in our forward-looking plans, and there are no major developments in recent days or recent times that I would highlight at this stage. As for Mopane carry, how will you reflect it, I'm afraid at this stage, that is still being fully assessed with our auditors and our accounting. So of course, we'll be looking for a very clean disclosure. And so ideally, we would be reporting CapEx just for that component that reflects our responsibilities once the deal is closed. So once that is closed and confirmed, we actually hold 25% of full responsibilities, and that will be what we will be trying to show as explicitly as possible in our financial statements. The exact way in which we'll be doing that is still under discussion, while the deal isn't fully closed yet. So we're still waiting for Namibian authorities to close that component and then for the GOA to be fully detailed. So we will get back to you on that, of course. But for now, it's the 25% financial responsibilities, and we will be showing that through our accounts. Operator: Our next question today comes from the line of Matt Lofting from JPMorgan. Matthew Lofting: Most of mine have been asked. I'll just ask a couple of follow-ups downstream related. I think you mentioned earlier sort of a near 10% jet fuel yield that Galp can generate at Sines. That's high or sort of high end relative to industry averages. So I wondered if you could just talk about what enables Galp to generate that kind of jet yield from Sines and whether you see any additional upward flex in the context of almost inevitable tightening in jet supplies in Europe now over the coming weeks? And then secondly, when you sort of think forward, uncertain backdrop, but if we do see a sort of prolonged knock-on effect from Middle East conflict for middle distillate supplies in Europe over the coming months. To what degree could the combination with Moeve enhance Galp's ability to produce and source middle distillate supply for Iberia and Europe as a whole? Joao Diogo da Silva: Thank you, Matt. So going back -- and we need to go back in history to understand that. We've made a couple of investments that allow us to be today as we are producing such a yield. I'll go back to 2012, where we've done a couple of investments on the idle cracker. And that's why we are getting such a yield on the jet side. Of course, we will be trying eventually to reduce additionally the jet volumes blended into the diesel pool. We are, of course, also increasing the average inventories, but that's a different thing, managing the whole context that we have from the Middle East. On the Moeve combination, of course, we are getting scale, additional scale. We are getting complementary assets also, but it's still very early for us to speak about that. Of course, that we were thinking about the SAF and the SAF production units that we have been building through the last years, ourselves and Moeve. And that's a very important asset to look at on the synergies. But it's still very, very early to say that. Complementary optimized logistics, supply chains, that's what we are looking at, turnaround efficiencies, higher trading firepower. So that's where we are when we look at the transaction. Thank you. Operator: We will now take our final question for today. And the final question comes from the line of Paul Redman from BNP Paribas. Paul Redman: I had two questions. Firstly, I just wanted to ask about Namibia. Is there any update on the drilling campaign? And I wanted to ask about timing of FIDs and development. Is there any opportunity to accelerate Mopane? The previous plan had been Venus first and Mopane second. Could there be a world in which that changes and Mopane could be brought forward? And then secondly, I know it's early, and clearly, you have a lot of strategic moving parts at the moment. But this quarter, you kept net debt flat despite a EUR 200 million working capital build, EUR 160 million at [ year ] out for 2P. So if I ran this forward on the 1Q scenario, your balance sheet is going to materially delever through 2026. that's even before we get to the world of if Rovuma LNG gets sanctioned, you get cash in from that. So I wanted to ask how you're thinking about the balance sheet at the moment? And then how you're thinking about allocating capital going forward? Is this -- could you see more M&A? Is it all back to shareholder? So just kind of get your early thoughts on how to think about it. Maria Joao Carioca: Paul, thank you for your questions. So let's start with Namibia. Maybe just an overall status and next step, so I think it's relevant to say that at this stage, where we are concerning the partnership is, good pace moving forward. I think one of the critical steps that was concerning the preemption rights, that timeline has expired. No preemption rights were exercised. So right now, we're just looking on to the local authorities to make sure that government approval comes as swiftly as authorities find it viable to come through. I think that the tone continues to be a very positive one. I think if you're looking into Namibia, just recently, the discussions on the basin, the conference that took place are all very, very positive and very mindful of the current context and the implications that has for a new location such as Namibia. So once we get that approval, we then will be in a condition where we will be able to discuss the more operational aspects. So the details on the GOA, the operatorship transfer. So all in all, what we are expecting for Mopane, in particular, is still that we will be able to initiate the next campaign in 2026. If the first drills are positive, we will then look into the DSTs. So I remind you that the work we're doing -- that we will be doing now in this stage will fundamentally be work towards making sure that we have the optimal development concept. So without that development concept mature, that's clearly too early stage to be discussing any significant changes in what were the underlying time lines both for Mopane but also for Venus, of course. And I will remind you that for Venus, until the operation is closed, we're not yet in the consortium. So I'm not going to comment extensively. I think it's public, and we have visibility over the fact that everything is moving and we're working clearly towards having an FID in mid-2026. So that is, of course, well in advance of the current stage that we have for Mopane. I will again remind you that Venus has always been at least 2 years ahead of Mopane. So these time lines, we may be able to work through some aspects, but it's to have a fundamental turnaround and shift would be a significant departure. So yes, we'll be looking to accelerate. Yes, once we get everything closed and Total comes in full steam, that is hopefully a fast track towards Mopane. But at this stage, doesn't fundamentally change the sequential timeline that we had. On the second part of your question, so jumping from Namibia and Upstream to the overall portfolio, as I understand, your question was overall, how do we see the portfolio moving forward? I think, again, Paul, we have a distribution policy that's been pretty stable and that we cherish as such fundamentally because we believe that our financial strength has been very value accretive in what we've been doing with the portfolio. I think we've demonstrated extensively that we're not sitting on the portfolio. We're actively managing it, both upstream, downstream and even in the way we're delivering on renewables. That speaks of a portfolio that leverages on our current financial strength, leverages on our balance sheet and fundamentally has allowed us to do what we believe to be a unique case in the sector. We're delivering growth with a very clear line of sight, and we intend to stay that way. We have a very strong engine in upstream, and that engine is being upholstered as we speak and strengthen. So that's where we want to be. It's -- if we continue to deliver on this investment case, this is a unique investment case, and that's what's going to drive us forward. And that's what we're going to be looking at in terms of capital allocation. Thank you. Operator: Thank you. This concludes the Q&A and today's conference call. Thank you for participating. You may now disconnect.
Kotaro Yoshida: This is Kotaro Yoshida from Daiwa Securities Group Inc. Thank you very much for taking the time to participate in our conference call today. I will now explain the financial results for the fourth quarter of FY 2025 announced today following the presentation materials available on our website. First, please turn to Page 4. I will begin with a summary of our consolidated financial results. Percentage changes are in comparison to the third quarter of FY 2025. In Q4 FY 2025, despite the continued highly volatile market environment, our profit base, primarily driven by asset-based revenues, functioned steadily, allowing us to maintain a high level of consolidated profit. Net operating revenues were JPY 197.8 billion, up 1.7%. Ordinary income was JPY 67 billion, down 3.6% and profit attributable to owners of parent was JPY 49.8 billion, up 7.3%. Looking at the results by division in the Wealth Management division, as a result of our focus on total asset consulting, both the contract amount and net inflow for wrap account services reached record highs and net asset inflows also expanded. In Securities Asset Management and real estate asset management, assets under management grew steadily, continuing to expand our revenue base. Global Markets accurately captured customer flows amid market fluctuations, resulting in increased revenues in both equity and FICC. In Global Investment Banking, domestic M&A remained strong. As a result of these factors, the annualized ROE was 11.5%. The year-end dividend is JPY 35 per share. Combined with the interim dividend of JPY 29, the annual dividend will reach a record high of JPY 64, resulting in a dividend payout ratio of 50.8%. Please turn to Page 8. This page shows base profit, our KPI for stable earnings as outlined in the medium-term management plan. FY 2025 base profit grew steadily to JPY 182.7 billion, up 32.9% year-on-year. We have achieved a level that significantly exceeds the JPY 150 billion target set for the final year of the medium-term management plan, doing so in just the second year of the plan. Please turn to Page 11. I will now explain the statement of income. Commissions received was JPY 131.2 billion, up 2.0%. A breakdown of commission received is provided on Page 26. Brokerage commissions increased significantly to JPY 31.9 billion, driven by an increase in customer flow. Please turn to Page 12. Selling, general and administrative expenses were JPY 138.3 billion, plus 4.1%. Personnel expenses increased due to an increase in performance-linked bonuses. Please turn to Page 14. This slide shows the annual trends in revenues and SG&A expenses. Whilst performance-linked costs and strategic expenses such as IT investments have increased in tandem with business expansion, the increase in fixed cost has been constrained, keeping overall costs at a well-controlled level. Please turn to Page 15. Total ordinary income from overseas operations was JPY 6.9 billion, down 17.6% quarter-on-quarter. By region, Asia and Oceania saw an increase in profit, supported by equity-related revenues driven primarily by Asian equities. On the other hand, the Americas recorded a decrease in profit due to a decline in M&A revenues. Next, I will explain the financial results by segment. Please turn to Page 16. First is the Wealth Management division. Net operating revenues were JPY 81 billion, plus 5.2% and ordinary income was JPY 33.1 billion, plus 12.1%. We believe that the results of our ongoing efforts in the asset management type business have manifested in our sales performance despite the persistent high volatility in the market environment. By product, equity saw a revenue increase of JPY 1.1 billion due to increased trading in Japanese equities. Fixed income revenues also increased by JPY 500 million as we accurately captured investment needs. Sales of fund wrap increased significantly, driven by growing demand for long-term diversified investment and portfolio management. In addition to inflation hedging, wrap-related revenues reached a record high of JPY 18 billion. Asset-based revenues reached a new record high of JPY 33.4 billion, driven by increase in agency fees for investment trust and wrap-related revenues. The fixed cost coverage ratio based on asset-based revenue in the Wealth Management division was 120%, and the total cost coverage ratio was 76.5%. Please turn to Page 17. This slide shows the status of sales and distribution amount by product within our domestic Wealth Management division. Our wrap account service reached a record high level with total contract AUM rising to JPY 6.4046 trillion. New contract amounted to JPY 386.2 billion, and net inflows came to JPY 276.2 billion, both marking all-time highs. Our fund wrap also continues to grow strongly. Its characteristics have been well received by clients in both favorable market conditions and during periods of adjustment, resulting in a significant expansion in assets under contract. In addition, collaboration with external partners such as Japan Post Bank and Aozora Bank has been progressing steadily, contributing further to the growth in the new contracts. Please turn to Page 18. This section outlines the progress of our wealth management business model. Cumulative balance-based revenues for fiscal 2025 increased to JPY 123.2 billion. Net inflow of assets also remained high, totaling JPY 1.6342 trillion. In line with our group's fundamental management policy of maximizing clients' asset value, we will continue to provide optimal portfolio proposals based on each client's total assets while working to build a revenue base, which is less susceptible to market fluctuations. Please turn to Page 19. Here, we show the status of Daiwa Next Bank. NII, net interest income, totaled JPY 11.2 billion, up 11.2% and ordinary profit reached JPY 6.2 billion, up 30.2%. The increase in policy rates contributed to an expansion in net interest margins. The promotion of total asset consulting, together with initiatives such as competitive deposit interest rates, including a 1.2% 1-year time yen time deposit for retail customers proved effective and deposit balance surpassed JPY 5 trillion. And now turning to Page 20. Let me explain the Asset Management segment, beginning with Securities Asset Management. Net operating revenues were JPY 19.7 billion, up 5.9%; and ordinary income was JPY 11.4 billion, up 11.6%. Daiwa Asset Management publicly offered securities investment trust AUM topped JPY 37 trillion, hitting record high. And then moving on to Page 21 for real estate asset management. Net operating revenues were JPY [ 9.9 ] billion, down 10.6% and ordinary income was JPY 9.8 billion, down 5.6%. While revenues and profits declined on a quarterly basis, mainly due to the absence of property sales gains recorded in the previous quarter, real estate asset management is a business in which the profit grew in line with AUM. AUM at Daiwa Real Estate Asset Management surpassed JPY 1.6 trillion, and we expect stable midterm growth in line with continued AUM accumulation. In addition, equity method investment gains from Samty Holdings contributed to maintaining a high level of profit. On Page 22 is Alternative Asset Management. Net operating revenues were negative JPY 2.6 billion and ordinary income was negative JPY 4.8 billion. And the Renewable energy, we recorded provisions and impairments due to the revaluation of certain portfolio investments. On Page 23, lastly, let me explain the Global Markets and Investment Banking division. First, Global Markets, net operating revenues were JPY 51.3 billion, up 13.4% and ordinary income was JPY 17.7 billion, up 48.6%. Both equities and FICC performed strongly, resulting in a significant increase in revenues and profits. In equities, trading flows in Japanese stocks increased substantially, particularly among overseas investors, leading to a 6.2% rise in revenues. By offering a diverse range of execution methods, we successfully captured large-scale trading mandates contributing to revenue growth. In FICC, revenues increased 20%, driven by strong performance in JGBs and credits. We effectively captured customer order flows in both domestic and foreign bonds and the position management remained solid even in a highly volatile market environment. And now turning to Page 24. In Global Investment Banking, net operating revenues were JPY 24.1 billion, down 7.4% and ordinary income was 2.1 billion, down 60.5%. But M&A advisory remained strong in Japan and the revenues increased in Europe within our overseas operations. That concludes the explanation of our financial results for the fourth quarter of fiscal 2025. Fiscal 2025 on a full year basis experienced high volatility in stock price and interest rates, but the year itself was quite active overall. And the entire business portfolio had higher stability so that income was stable and the market response capability also improved. We were able to benefit from both of them. As a result, the second year of this midterm plan hit record high in terms of the profit and the ordinary income was hitting the highest in the last 20 years. Well, towards the end of the midterm plan, we think that we have a very good strong result. Now we'd like to move on to the announcements that we have made about the subsidiary of the ORIX Bank, as we have explained on our website. I will explain the overview, objectives and financial impact in accordance with the materials published on our website. Please turn to Page 2 of the document entitled regarding the acquisition of ORIX Bank as a subsidiary. This is a transaction summary. In this transaction, Daiwa Next Bank will make ORIX Bank a wholly owned subsidiary. We also plan a merger of the 2 banks in the future. The acquisition price is JPY 370 billion, and the final acquisition price will be determined after price adjustments stipulated in the share transfer agreement. The acquisition will be funded entirely by our own funds, strategically utilizing the capital buffer we have accumulated to date. Next, the primary objective of this transaction is to continuously expand the stable revenues of the Daiwa Securities Group and improve ROE and EPS through the strengthening of the Wealth Management division. By integrating Daiwa Next Bank and ORIX Bank, which have different strengths, we aim to enhance our ability to provide solutions for our clients' challenges regarding both assets and liabilities, thereby significantly improving the corporate value of both banks. Specifically, we will realize sustainable growth by combining the outstanding lending and trust capabilities cultivated by ORIX Bank with the deposit gathering capabilities backed by our group's solid customer base and sales network. There are 3 pillars to this strategy. First, deepening the total asset consulting tailored to the life stages of each individual client. Second, establishing a sustainable growth model through a virtuous cycle of deposit and lending expansion. Third, maximizing synergy effects through functional integration by a future merger. I will explain each of these in turn. Please turn to Page 3. The post-integration bank will have total assets of JPY 9 trillion and approximately JPY 400 billion in equity capital, evolving into a comprehensive bank, combining advanced lending and trust functions with strong deposit gathering capabilities. By offering competitive deposit rates backed by ORIX Bank's high investment capabilities, we aim to establish a sustainable growth model through a virtuous cycle of deposit and lending expansion. Regarding the impact on consolidated financial results, there is a potential to improve net interest income as a synergy effect. In addition to the over JPY 1.5 trillion of drawable funds from Daiwa Next Bank's current account at the Bank of Japan, we aim to accumulate JPY 2 trillion in deposits over the next 5 years as a synergy effect, separate from the stand-alone deposit growth of both banks through the provision of competitive deposit rates. We plan to invest a total of JPY 3.5 trillion in real estate investment loans and securities-backed loans to improve net interest income. Assuming we can secure a 1% interest rate margin improvement, our estimates indicate a potential improvement of JPY 35 billion in net interest income. In addition to these synergy effects, ORIX Bank's stand-alone performance will be consolidated into our financial results. The bank's average ordinary income over the past 5 years is approximately JPY 30 billion with a net income of approximately JPY 20 billion. On the other hand, we expect to incur amortization expenses for goodwill associated with the acquisition. Next, regarding capital and regulatory aspects. We will maintain financial soundness while effectively utilizing our capital buffer. Whilst the implementation of this transaction will lower the consolidated total capital adequacy ratio by 5 percentage points, it will still exceed 14% on a fully loaded Phase III finalization basis, securing a certain level of capital buffer. However, to expand our capacity for future growth investment and shareholder returns, we will also consider issuing perpetual subordinated bonds. Please note that we are not considering equity financing. Now moving on to Slide 4. Let me see the strength of Daiwa Next Bank. That is the strong deposit gathering capability. In the meanwhile, it has to challenge with the limited lending and the trust functions. Against that, the ORIX Bank has a strong lending and trust function. That's their strength, while the challenge is the deposit gathering capability. So while we are complementing or we are able to complement each other with the strength and the challenge, we think this is an ideal match between the 2. And moving on to Slide 5. I may be repeating myself, but the objective of making them a subsidiary is to strengthen the wealth management division and also a great leap in terms of the stability of the income as a result of that. The stronger Wealth Management division is not coming from one point. It comes from some pillars, the deepening total asset consulting, virtual cycle of deposit and loan expansion and accelerating growth through collaboration with the Asset Management division. Those are going to be the 3 pillars to enhance the management division and the stability of the income. And then moving on to Slide 6. We are trying to see the deeper total asset consulting capability for the clients. The assets and liabilities of our customers would change from life stage to life stage. That's the reason why not only the assets, but the liabilities all included. It's quite important to have the total asset consulting capability to optimize our capability of designing the balance sheet of the customers. By utilizing the ORIX strength, which is the lending and the trust, we are going to be providing the solutions for the pains of the customers depending upon their life stage. And then moving on to the Slide 7. We're thinking about accelerating the growth spiral by leveraging the strength of the banks. we look at those banks alone, the balance is going to be accumulated. But as a result, in addition to the growth of each bank's deposit balance, we aim to expand the deposit by over JPY 2 trillion in the next 5 years as a synergy effect, the asset -- the loan asset of the ORIX is quite competitive. So based upon which we're going to offer the Daiwa Securities customers a competitive deposit interest so that we are able to get -- acquire the [ stucki ] deposit. And then eventually, that is going to increase the deposit balance. That is going to be a great spiral of the growth of the banks overall. And then on Slide 8, this shows the changes of the balance sheet structure as a result of the integration of the 2. On the asset side, the lending and securities and on the liability side, the ordinary deposit and the time deposits are going to be all balancing so that the balance sheet is going to have a good risk diversification. The explanation is over with that. The details is going to be explained by our CEO, Ogino, at the management strategy meeting, which is scheduled to be held next month. By responding flexibly to the variety of needs by the customers, we're going to be capturing the changes in the market environment. And as a leader of the financial and capital market, we are going to pursue sustainable growth. We sincerely appreciate your continued support, and thank you very much for your kind attention. With that, we finish our explanation. Now let us move on to the Q&A session. Kana Nakamura: [Operator Instructions] I would like to introduce the first person, SMBC Nikko, Muraki-san. Masao Muraki: This is Muraki from SMBC Nikko Securities. So I have a question related to ORIX Bank's acquisition. The first point relates to Slide 3. You talked about the synergy and how it supplements with one another. So deposit is JPY 2 trillion increase. That is the number you've mentioned already, so 1.05% to 2%, that is the time deposit level. So going forward, do you intend to actually increase this to a competitive level? That is the first question. And also, you would have a loan increase by JPY 3.5 trillion. So you have the real estate loan and the secured loans. What is the breakdown in terms of the loan growth? So second part of the question relates to your capital strategy. So this is Slide 12 of the material. You have the image here. So this will be over 14%. The capital ratio will come down. But if you look at the future from the current level, the capital level intends to be built. So I don't know if it's 17% or 18%, it's hard to tell from this diagram. So whilst you're increasing this level, what are some prospects of the share buybacks? What are some of the ideas we should have? In the past, the share buybacks they conducted even amongst the high level of capital. But now if the capital is going to be depressed, perhaps there will be less allocated or different allocation to the share buybacks. So please give us some idea. Kotaro Yoshida: Thank you very much for that question. The first part of the question, so what are the JPY 2 trillion of deposit as part of the synergy? So what is the outlook? So related to this point, we are confident that we can acquire. We believe there is a fair chance that we can achieve that number. So within this fiscal term -- so after the rate hike, so Daiwa Securities, there has been a 2% of provision in the year. So last year, in terms of the time deposit, so about JPY 650 billion increase in terms of the time deposit. So if you can provide a competitive -- the deposit, right, given the fact that Daiwa Securities have a nationwide network and the high-level consulting capabilities and through our consultants, we should be able to acquire the deposit. So of course, there has been a shift away from savings to investment. But this is not just the deposit into equities. But also, we have been providing consulting to their entire asset, inclusive of deposit. So within that process, the larger the pie is, the better chance that we may have for the acquisition of deposits. So JPY 2 trillion is feasible. That is our expectation. Also about the JPY 3.5 trillion of the loan, so real estate loans and also the securities, the back loans, the breakdown of that, we don't have the exact number as we speak. But already, what ORIX Bank is providing, that is an investment use in real estate loan, it is for the one mansion for the single-family hold in the metropolitan area. So the number of banks have been on the decline. But in terms of the number of households, single households in the metropolitan area is expected to rise. Therefore, we do believe there is sufficient demand. In the past several decades, ORIX Bank has built this lending capability. So in relation to that, it is very possible that we can achieve that JPY 3.5 trillion of lending. Also the second part of your question about the capital, the strategy. Please hold. So through this acquisition, so in terms of the consolidated total capital adequacy ratio will be out -- will be down by mid-5% or so. So right now, it's over 14%. So that is the level that we're expecting at this moment. So going forward, how the capital policy may change, and that is the intent of your question. But as of this moment, no change vis-a-vis our basic policy. So the dividend -- the payout ratio is at 50% or higher. And also the floor for the annual dividend of JPY 40, we'd like to maintain that. So through this acquisition, there will be some level of decline in terms of the total capital adequacy ratio. However, we can ensure the financial soundness. And also by steadily building on the profit, we can continuously keep this financial soundness. Also in order to ensure flexibility, AT1 bonds issuance is also under explanation. Of course, the actual amount is still under consideration. But again, we'd like to further have a solid capital base. Also in terms of share buybacks, the question was what are our plans going forward. Again, no change in terms of our general stance. So based on the assumption of financial soundness, in light of the different operating environment, gross investments will be considered. But of course, that is necessary for future shareholders' return. So we definitely like to prioritize on that. So looking at the gross investment and the buyback, we need to strike the right balance and be agile and flexible. So this particular deal, this is an impact of the profitability of ORIX Bank. And also through the realization of the synergy, we can expect to enhance the capital generation within the group as a whole. So ultimately, this would actually lead to increase in the source for shareholders' return. So going forward, the capital allocation, capital policy is a very important policy. So given the current operating environment, we'd like to make a comprehensive approach. Masao Muraki: Related to the second part of my question. So at this particular timing, you didn't announce the share buybacks. So in terms of the perpetual subordinate bonds utilization, related to that point, so what is the potential amount AT1 bond issuance that is? What is the amount they have in mind? And once you announce that, in light of the credit rating, we expect you to conduct share buybacks at that timing. Kotaro Yoshida: Thank you for that question. So in terms of the AT1 bonds, the issuance, so it will be within the part of the consideration. But in terms of concrete details, we will consider those going forward. Also in terms of the credit rating, so we would like to definitely conduct meticulous communication with the credit rating companies. So we may also incorporate those ideas. So based on that, so whether there's a possibility of buybacks, again, we'd like to take a comprehensive approach in making that decision. So that has been my answer. Kana Nakamura: The next question is by Morgan Stanley, Sato-san. Koki Sato: This is JPMorgan, Sato speaking. Well, I have several questions about the bank. One, we simply this consolidation, you're going to make them a subsidiary. After that, how should we think about how you're going to be executing it? On the material, you're talking about the recurring income of about JPY 30 billion and the net profit of about JPY 20 billion. What kind of upside are you expecting from that baseline? I think that, of course, depends on the analyst, but the depreciation or the amortization of the goodwill and also the sourcing cost, probably a part of that needs to be recognized as well. So when you explain that to the market participants, what kind of a level are you going to say to them on the annual contribution? What is going to be the level that you think you're going to be talking in that communication to the market? The second question is about this -- by the acquisition of this ORIX Bank, you still have an external partners. Are there going to be any changes in the relationship with those partners? Like Aozora Bank, you are currently accounting for them under equity method. So your business alliance with them, is it going to be changing because of your acquisition? There might be some changes in terms of like focal point that you are working together with those external partners. And also when it comes to the asset-backed ones, partly, you are working together with Credit Saison. What are you going to be thinking about those asset-backed securities? Kotaro Yoshida: Thank you very much for your questions. The first question about the bank. Well, as you say, the average of the ordinary income is about JPY 30 billion of the ORIX and the profit is about JPY 20 billion. At Daiwa Shoken Daiwa Securities Group, our capital average is about JPY 1.7 trillion, meaning that on a simple calculation, it has the positive impact of pushing up the ROE by 1.2%. The equity finance is not likely to happen. So that's the scenario that we are seeing at this point. But the amortization of the goodwill and assuming that AT1 is going to be issued, which we, of course, need to examine. But anyway, setting that aside, we think that is a basic simple calculation that we are currently having our basis. And the second question, first of all, we do have the external partnership with Aozora Bank. And regarding that partnership, we assume there's no impact. Well, regarding the integration, it's for strengthening the wealth management business. The total asset consulting business for the retail business, the asset to support from the total asset consulting is going to be stronger. And the trust functions in order to work in our wealth management business for the retail market, it's important to have the trust function. Well, organically within the company, we did not really have much capability to grow itself. And by having the external partners, we have provided some instruments. But from now on, we think we'll be able to do that in-house. That's going to be another one big pillar. Well, regarding Aozora Bank, our partnership with Aozora Bank, there are some corporates that are listed and private. We have been providing the referral to the Aozora Bank and also the LBO financing, for example, have been provided and have been providing in the past so that the customer trade is quite different in Aozora Bank. So we think both can actually stand. And also for the real estate-backed loans, well, Credit Saison is a part of the business that we've been engaged with. But Fintertech is jointly operating -- operated by Credit Saison. So they have the asset -- the real estate asset-backed loans. But of course, the market size is limited so that the capacity is not that big. And this time, thinking about the capability being much bigger. I think the issuance coming from the business is going to be having new opportunities for us to grow our pie itself. Does that answer my question? Koki Sato: What about the amortization of the goodwill. Any color on that scale? Kotaro Yoshida: The amortization amounts and the cost for the amortization we're going to be discussing in details more. So at this point of time, there's nothing that we can comment. So please be patient. During the time comes for the closing, we think we'll be able to come to that point. Kana Nakamura: So let us move on to the next question. BofA Securities, Tsujino-san, please. Natsumu Tsujino: The last point about the goodwill amortization, it could be as long as 20 years, but some say it could be 10 years. So you should have some sort of image in terms of the amortization. And also in terms of decision of the dividend, it would be -- so the net profit -- so would you be using the same sort of net profit regardless of the amortization. So 20 years or 10 years, I don't think that you have no image as to the amortization. If you can give us some color, that would be helpful. That is the first question. Kotaro Yoshida: Thank you very much for that question. So of course, we have some image or some ideas. So the duration that you've mentioned, it will be within the time frame that you've mentioned. But as of this moment, we're working together with the auditors. So we would like to refrain from giving you an exact answer. Also, as far as dividend is concerned, as you rightly mentioned, no change in terms of the dividend payout ratio. So 50% or higher of the earnings. So no change in terms of the dividend policy. Also in terms of ORIX Bank, so they have the Tianjin report. So as of September end, so in terms of the J-GAAP, excuse me, J-GAAP earnings, JPY 7.4 billion, and ordinary income was JPY 10.6 billion. So it is actually quite lower in comparison to 5-year average. So in order to drive this, do we just work towards that JPY 8.6 trillion. I think that is the direction we should aim for. But right now, it's a midterm -- sorry, interim times 2. Natsumu Tsujino: Is that the image that we should have in mind for ORIX going forward? The interim number, double that number? Kotaro Yoshida: First of all, as of September 2025, the interim results for the company -- so within ORIX Bank, there were some rebalancing of the securities. So there were some loss from sales. So that is why the amount has ended to that one. So somewhat lower that is. That is our understanding. So in terms of the underlying capability, then it is closer to 5-year average then. Natsumu Tsujino: Okay. Understood. So the third point -- the third question I have, this is a question related to the results. So FICC has been very favorable. So Q3, there was a growth. In Q4, there was a further growth in FICC. So how sustainable is this? So for the March quarter, how has been the recent performance? And how is it trending now as we speak? Kotaro Yoshida: Thank you very much for that question. So in terms of FICC, amidst this very high level of volatility, we were able to capture the customer flow, and we've been able to turn those into profit. So that has been very positive. Also in terms of products, that's been all around. So we have JGBs and also, we have some domestic derivatives and so forth. So within this high level of volatility, we do have a high level of activities amongst the customers. So the customer flow, we were able to capture that through the communication with the customers. We can anticipate the customer flow and conducted the positioning. So through this control, that has led to a positive impact of the earnings. So that has been the experience of this past quarter. So for FY 2025, in the first part of the year at the phase of rate increase, I think we have also mentioned there were some difficulties in conducting the position control. But we have addressed these issues, conducted communication with the customers and also develop customers and also address the diverse needs of the customers. We've been able to have more strengths in the position management. But just because that we were able to do that. That doesn't mean we can sustain this without doing anything because, of course, the market is changing every day. So accordingly, we would like to enhance our capability to capture the customer flow. And also, we'd like to steadily strengthen the position management system. Also for the fourth quarter, so for the March quarter, that is FICC, the revenue image that is, so January 3 and February is 2 and March is 5. So in terms of the month of April, so in comparison to the fourth quarter average, maybe it is somewhat subdued for the month of April. But again, the customer flow continues to be fairly active. So of course, the environment continues to be uncertain, but we would like to have a closer communication with the customers. And we are hoping that we can turn it to our better performance. Kana Nakamura: Next question is Nomura Securities, Sasaki-san. Futoshi Sasaki: This is Sasaki of Nomura Securities. One question about the earnings call results and one about ORIX. Well, I'd like to talk about the wealth management. The AUM in the first half was declined and the previous quarter was down, but the asset inflow was making an improvement. I would understand that, that is because of the drop in the U.S. equity price. For the retail investors, there was some sales for the realization sales. Am I right to understand that? If I'm not, then please correct me. And the second question is about the acquisition of ORIX Bank. So-called -- are there any binding contracts for like a key man close that you are going to be able to retain the key men or the management people. I will also be able to get those words from the ORIX side. The ORIX side, the asset is very characteristic is because of the support getting from their parent company, which is ORIX. Is that also something that you have captured? Or do you think the business is going to be continuing based upon your strength as a stand-alone basis? Kotaro Yoshida: Well, thank you very much for your questions. First of all, about the asset inflow. On the earnings announcement material, Slide -- just a moment. For the fiscal 2025, we have had the inflow. So compared to the year before, the inflow amount was about the same as the 2024. Futoshi Sasaki: I'm sorry. The fourth quarter is my question. The fourth quarter inflow. Kotaro Yoshida: Okay, Q4 only. But regarding the AUM, on this quarter, the amount has declined. However, the U.S. stock was one reason. And also the fall in the stock price in domestic as well. So the asset inflow, the net inflow has increased has surpassed as a result. But the asset inflow itself, as I mentioned earlier, has been quite active and quite strong. Well, since 2007, the asset flow side has been really big. Futoshi Sasaki: Okay. And regarding the acquisition of M&A in the contract, do we have any key men close about the retention of the management people. Kotaro Yoshida: Well, regarding the close of the contract, I should not make any remarks. But after the merger or after the integration, the smooth integration is going to be, of course, the most important. And ORIX and ORIX Bank, both are, of course, making effort for the smooth and continual operation. So as a large direction, we, of course, have had the agreement to come to this agreement or decision so that we shall make an effort to deliver results. Futoshi Sasaki: So assuming that, for example, the real estate finance, the property sourcing is basically coming from partly support from ORIX. Am I correct? The support from the ORIX Group. Is it also coming? Kotaro Yoshida: I didn't really understand. Well, from the very beginning for the sourcing, the ORIX Bank has been acquired by using their own network. So the support from ORIX is, as far as we understand, is limited, if any. Kana Nakamura: I would like to move on to the next question. SBI Securities, Otsuka-san, please. Wataru Otsuka: This is Otsuka from SBI Securities. Can you hear me? Kotaro Yoshida: Yes, we can hear you. Please go ahead. Wataru Otsuka: So one question at a time. So related to the -- you've talked about the asset inflow related to the previous question. So in terms of the cash in the past 2 years, it has been the strongest. So if you can actually tell us the reasons behind that. This is Page 49, Slide 49 about the actual the cash that is. Kotaro Yoshida: Thank you very much for that is. So we have the bank deposits as cash and it may turn into investment trusts and fund wraps. So there are different objectives for that. But roughly speaking, Q4 fund wraps, in order to contract the fund wraps, there are a lot of cash paid in from other banks. So we did see a lot in the past quarter. Also for Daiwa Next Bank deposit, so there were some cash paid in for Daiwa Next Bank's deposit. That was another reason. Also, there has been active transaction of the Japanese equities for the March quarter. So in order to buy the equities, a lot of people have actually cashed in. On the other end, the share price actually peaked in the month of February, some may actually sold their holdings. So actually, they may have withdrawn the cash. So on a net basis, this is the number that we had. Wataru Otsuka: Understood. So fund wraps then. So for additional and also new purchases, both have been strong then? Kotaro Yoshida: Yes, both. Wataru Otsuka: Second question relates to ORIX Bank. So this is Slide 6 of the presentation material. So in terms of the clients' life stage, I'd like to understand this accurately. So with the acquisition of ORIX Bank, the question is, where would you like to focus? So according to Slide 6, so 60s, 70s, 80s, actually, the asset exceeds the liabilities. So those who are in excess of assets and those generation, ORIX excels in the best real estate investment loans. So do you intend to actually provide those to those elderly customers? Or are you actually focusing on more those in 30s and 40s where the liability is larger for assets? We will be focusing on extending credit to them. So for those in 30s to 40s, so they will be the first house the purchases. So this is different from the investment real estate loans. So this may be an area ORIX Bank is not necessarily strong. So how do you intend to actually approach the different life stages of the clients? Kotaro Yoshida: Thank you very much for that question. So according to the Slide 6 on the bottom part about the image of asset and liability balance by generation. So generally speaking, by different age, so the younger, you would have more liabilities. So you may have the housing loans or investment loans. So basically, liabilities tends to be higher in comparison to assets. But once you exceed over the age of 60, net assets would start to increase. So for Daiwa Securities, the main customers for Daiwa Securities are mainly those 60s or above. So as you can tell from this image, so asset on a net basis, it is larger. And so we have been providing different consultation for the management of their assets. So in other words, for those customers in the 40s and 50s, asset formulation type of proposals by NISA, that has been conducted. But of course, the inherent needs of these generation is how they can actually extend and also repay the loans. And also for those who wish to actually invest in real estate, we didn't have the facility to actually provide credit towards that end for those in the 40s and 50s. Now for ORIX Bank, the real estate, the bank loans, the main customer image is to share with you is in the metropolitan area. And so those in the 30s and 40s, family men working for listed companies, they account for a large proportion of ORIX Bank. So generally speaking, they do have high level of income. And of course, they have their own the housing. But at the same time, they are investing in the metropolitan one-room mansions, one-room condos. So that has been the main customers that ORIX Bank has been cultivating. So going forward, what ORIX banks provide. So they have the apartment loans that is another part of the loan product offerings. So this is more towards high net worth individuals and also more of the more elderly customers. So we can actually provide these products to the Daiwa Securities customers for these apartment loans. Also from what we have received, the securities from the Daiwa Securities customers, we can actually use them. The securities can be backed and use it as part of the business. But of course, we do have -- we are connecting that already. But because of the capital regulation and so forth, it has been somewhat restricted. So with the addition of the ORIX Bank, we could expect to see further accumulation of the loans with the securities backed loans. Wataru Otsuka: I couldn't quite understand that point. So you mentioned those in 30s and 40s working for listed companies. And those who already have credit with ORIX Bank, you mentioned that. So already, they are customers of ORIX Bank. So whether ORIX Bank will become a subsidiary of Daiwa Securities, it doesn't really matter, doesn't it, because they are already customers. So is my understanding correct? Kotaro Yoshida: So if they're going to start the transaction with Daiwa Securities, that is positive. But taking this opportunity, it is not likely -- to be honest with you, I cannot actually imagine that they would all start doing business with Daiwa Securities. Actually, we do believe there could be a positive impact. So those who have the real estate loans from ORIX Bank, it is not so large in terms of number in comparison to Daiwa Securities customer base. So the impact could be limited. But in terms of the real estate investment loans, the customer base or customer potential is much larger, not just confined to those who are customers of ORIX Bank. So we also intend to develop new customer base together with ORIX Bank, so we can further expand the customer base. Wataru Otsuka: Understood. So perhaps at the IR meetings and also at the business strategy meeting, we'd like to continue the discussion. Kana Nakamura: Next is going to be the last questioner, UBS, Niwa-san. Koichi Niwa: This is Niwa of UBS. Can you hear me? Kotaro Yoshida: Yes. Koichi Niwa: Well, regarding the bank, I have 2 questions. One, I'd like to know the background of the acquisition. Which one has made the first comment and how long did it take? And also, you're talking about the margin of 1%, the interest margin of 1% as a guideline. How realistic that is going to be? According to your model, 1% of the interest margin seems to be easy to achieve. If that's the case, then that's going to be the image that we should consider as conservative? Or should we think about that a challenging target? That is the question about the bank. The second part of the question is that the U.S. private asset is now going through some turmoil. Any impacts on your business? Or do you have any exposure? And also the response of the retail investors, are there anything that you can share with us? Kotaro Yoshida: Thank you very much for your questions. First of all, the background of this M&A. We, with the ORIX as a company for our group, well, they have been an important business client for a long time. Including the management, we have had very good relationships. And there is much complementarity between the 2 banks. The possibility of working together, we have sounded out to the ORIX Bank from our side. In the last few years, because we entered into a world with positive interest rate, as I mentioned earlier, we have a high expectation of the complementary synergy to deliver. So since last fiscal year, we have made some serious proposals. So the 2 companies continued discussion. And as a result, we decided to work together as one company. That is the background. And talking about the interest margin, Daiwa Next has the deposit to BOJ, of course, at 0.75%. But the weighted average of the bank is about 2.1% for the lending. So thinking about the better yield for our companies, that's going to be 1.36%. So if we're going to have the calculation on a test basis at 1%, that was the scenario that we wanted to provide with you. And then moving on to the private credit, our exposure and the impact. First of all, our exposure is the one that we do have an origination, there's nothing. For the group as a whole, as an exposure, it's very limited and very much of the indirect exposure. So on a consolidation basis, there's no impact on our margin. And for the retail investors -- alternative asset -- for alternative assets -- as Daiwa Securities, the alternative investment is an option for less liquidity, but higher diversification so that the return profile can improve. So alternative is a very important asset class for us. But liquidity is limited. So when our clients decide to buy, then we do have the higher compliance guideline to follow. When there is enough assets and also the exposure should be just one portion of the total asset, especially given the consideration of the low liquidity, those are the items that need to be fully explained and then understood by the customers. The credit -- the private credit trust investment is managed and then consigned to Blackstone. The minimum amount of the investment is USD 50,000. So the subject is the high net worth customers. Though recently, we do see the mass media coverage. And that is causing some concern for the customers. So for all the customers who have those exposures, we are following up for all of them. For the Daiwa Asset and for ourselves, we have been very flexible and trying to provide the information that is user-friendly. So at present, we do see the situation where the cancellation request is mounting or anything. There are some number of people who are considering the cancellation, but it's not that high. So continuously, we will monitor the situation and then think about the follow-up to our customers. Kana Nakamura: Niwa-san, thank you very much for your questions. With that, we want to finish our Q&A session. Unknown Executive: [indiscernible] speaking from Daiwa Securities Group. Well, thank you very much for joining today for investors and analysts who would like to have a continued communication. So thank you very much for your continued support. If you have any further questions, please send us to IR team. Thank you very much for your attention today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Kotaro Yoshida: This is Kotaro Yoshida from Daiwa Securities Group Inc. Thank you very much for taking the time to participate in our conference call today. I will now explain the financial results for the fourth quarter of FY 2025 announced today following the presentation materials available on our website. First, please turn to Page 4. I will begin with a summary of our consolidated financial results. Percentage changes are in comparison to the third quarter of FY 2025. In Q4 FY 2025, despite the continued highly volatile market environment, our profit base, primarily driven by asset-based revenues, functioned steadily, allowing us to maintain a high level of consolidated profit. Net operating revenues were JPY 197.8 billion, up 1.7%. Ordinary income was JPY 67 billion, down 3.6% and profit attributable to owners of parent was JPY 49.8 billion, up 7.3%. Looking at the results by division in the Wealth Management division, as a result of our focus on total asset consulting, both the contract amount and net inflow for wrap account services reached record highs and net asset inflows also expanded. In Securities Asset Management and real estate asset management, assets under management grew steadily, continuing to expand our revenue base. Global Markets accurately captured customer flows amid market fluctuations, resulting in increased revenues in both equity and FICC. In Global Investment Banking, domestic M&A remained strong. As a result of these factors, the annualized ROE was 11.5%. The year-end dividend is JPY 35 per share. Combined with the interim dividend of JPY 29, the annual dividend will reach a record high of JPY 64, resulting in a dividend payout ratio of 50.8%. Please turn to Page 8. This page shows base profit, our KPI for stable earnings as outlined in the medium-term management plan. FY 2025 base profit grew steadily to JPY 182.7 billion, up 32.9% year-on-year. We have achieved a level that significantly exceeds the JPY 150 billion target set for the final year of the medium-term management plan, doing so in just the second year of the plan. Please turn to Page 11. I will now explain the statement of income. Commissions received was JPY 131.2 billion, up 2.0%. A breakdown of commission received is provided on Page 26. Brokerage commissions increased significantly to JPY 31.9 billion, driven by an increase in customer flow. Please turn to Page 12. Selling, general and administrative expenses were JPY 138.3 billion, plus 4.1%. Personnel expenses increased due to an increase in performance-linked bonuses. Please turn to Page 14. This slide shows the annual trends in revenues and SG&A expenses. Whilst performance-linked costs and strategic expenses such as IT investments have increased in tandem with business expansion, the increase in fixed cost has been constrained, keeping overall costs at a well-controlled level. Please turn to Page 15. Total ordinary income from overseas operations was JPY 6.9 billion, down 17.6% quarter-on-quarter. By region, Asia and Oceania saw an increase in profit, supported by equity-related revenues driven primarily by Asian equities. On the other hand, the Americas recorded a decrease in profit due to a decline in M&A revenues. Next, I will explain the financial results by segment. Please turn to Page 16. First is the Wealth Management division. Net operating revenues were JPY 81 billion, plus 5.2% and ordinary income was JPY 33.1 billion, plus 12.1%. We believe that the results of our ongoing efforts in the asset management type business have manifested in our sales performance despite the persistent high volatility in the market environment. By product, equity saw a revenue increase of JPY 1.1 billion due to increased trading in Japanese equities. Fixed income revenues also increased by JPY 500 million as we accurately captured investment needs. Sales of fund wrap increased significantly, driven by growing demand for long-term diversified investment and portfolio management. In addition to inflation hedging, wrap-related revenues reached a record high of JPY 18 billion. Asset-based revenues reached a new record high of JPY 33.4 billion, driven by increase in agency fees for investment trust and wrap-related revenues. The fixed cost coverage ratio based on asset-based revenue in the Wealth Management division was 120%, and the total cost coverage ratio was 76.5%. Please turn to Page 17. This slide shows the status of sales and distribution amount by product within our domestic Wealth Management division. Our wrap account service reached a record high level with total contract AUM rising to JPY 6.4046 trillion. New contract amounted to JPY 386.2 billion, and net inflows came to JPY 276.2 billion, both marking all-time highs. Our fund wrap also continues to grow strongly. Its characteristics have been well received by clients in both favorable market conditions and during periods of adjustment, resulting in a significant expansion in assets under contract. In addition, collaboration with external partners such as Japan Post Bank and Aozora Bank has been progressing steadily, contributing further to the growth in the new contracts. Please turn to Page 18. This section outlines the progress of our wealth management business model. Cumulative balance-based revenues for fiscal 2025 increased to JPY 123.2 billion. Net inflow of assets also remained high, totaling JPY 1.6342 trillion. In line with our group's fundamental management policy of maximizing clients' asset value, we will continue to provide optimal portfolio proposals based on each client's total assets while working to build a revenue base, which is less susceptible to market fluctuations. Please turn to Page 19. Here, we show the status of Daiwa Next Bank. NII, net interest income, totaled JPY 11.2 billion, up 11.2% and ordinary profit reached JPY 6.2 billion, up 30.2%. The increase in policy rates contributed to an expansion in net interest margins. The promotion of total asset consulting, together with initiatives such as competitive deposit interest rates, including a 1.2% 1-year time yen time deposit for retail customers proved effective and deposit balance surpassed JPY 5 trillion. And now turning to Page 20. Let me explain the Asset Management segment, beginning with Securities Asset Management. Net operating revenues were JPY 19.7 billion, up 5.9%; and ordinary income was JPY 11.4 billion, up 11.6%. Daiwa Asset Management publicly offered securities investment trust AUM topped JPY 37 trillion, hitting record high. And then moving on to Page 21 for real estate asset management. Net operating revenues were JPY [ 9.9 ] billion, down 10.6% and ordinary income was JPY 9.8 billion, down 5.6%. While revenues and profits declined on a quarterly basis, mainly due to the absence of property sales gains recorded in the previous quarter, real estate asset management is a business in which the profit grew in line with AUM. AUM at Daiwa Real Estate Asset Management surpassed JPY 1.6 trillion, and we expect stable midterm growth in line with continued AUM accumulation. In addition, equity method investment gains from Samty Holdings contributed to maintaining a high level of profit. On Page 22 is Alternative Asset Management. Net operating revenues were negative JPY 2.6 billion and ordinary income was negative JPY 4.8 billion. And the Renewable energy, we recorded provisions and impairments due to the revaluation of certain portfolio investments. On Page 23, lastly, let me explain the Global Markets and Investment Banking division. First, Global Markets, net operating revenues were JPY 51.3 billion, up 13.4% and ordinary income was JPY 17.7 billion, up 48.6%. Both equities and FICC performed strongly, resulting in a significant increase in revenues and profits. In equities, trading flows in Japanese stocks increased substantially, particularly among overseas investors, leading to a 6.2% rise in revenues. By offering a diverse range of execution methods, we successfully captured large-scale trading mandates contributing to revenue growth. In FICC, revenues increased 20%, driven by strong performance in JGBs and credits. We effectively captured customer order flows in both domestic and foreign bonds and the position management remained solid even in a highly volatile market environment. And now turning to Page 24. In Global Investment Banking, net operating revenues were JPY 24.1 billion, down 7.4% and ordinary income was 2.1 billion, down 60.5%. But M&A advisory remained strong in Japan and the revenues increased in Europe within our overseas operations. That concludes the explanation of our financial results for the fourth quarter of fiscal 2025. Fiscal 2025 on a full year basis experienced high volatility in stock price and interest rates, but the year itself was quite active overall. And the entire business portfolio had higher stability so that income was stable and the market response capability also improved. We were able to benefit from both of them. As a result, the second year of this midterm plan hit record high in terms of the profit and the ordinary income was hitting the highest in the last 20 years. Well, towards the end of the midterm plan, we think that we have a very good strong result. Now we'd like to move on to the announcements that we have made about the subsidiary of the ORIX Bank, as we have explained on our website. I will explain the overview, objectives and financial impact in accordance with the materials published on our website. Please turn to Page 2 of the document entitled regarding the acquisition of ORIX Bank as a subsidiary. This is a transaction summary. In this transaction, Daiwa Next Bank will make ORIX Bank a wholly owned subsidiary. We also plan a merger of the 2 banks in the future. The acquisition price is JPY 370 billion, and the final acquisition price will be determined after price adjustments stipulated in the share transfer agreement. The acquisition will be funded entirely by our own funds, strategically utilizing the capital buffer we have accumulated to date. Next, the primary objective of this transaction is to continuously expand the stable revenues of the Daiwa Securities Group and improve ROE and EPS through the strengthening of the Wealth Management division. By integrating Daiwa Next Bank and ORIX Bank, which have different strengths, we aim to enhance our ability to provide solutions for our clients' challenges regarding both assets and liabilities, thereby significantly improving the corporate value of both banks. Specifically, we will realize sustainable growth by combining the outstanding lending and trust capabilities cultivated by ORIX Bank with the deposit gathering capabilities backed by our group's solid customer base and sales network. There are 3 pillars to this strategy. First, deepening the total asset consulting tailored to the life stages of each individual client. Second, establishing a sustainable growth model through a virtuous cycle of deposit and lending expansion. Third, maximizing synergy effects through functional integration by a future merger. I will explain each of these in turn. Please turn to Page 3. The post-integration bank will have total assets of JPY 9 trillion and approximately JPY 400 billion in equity capital, evolving into a comprehensive bank, combining advanced lending and trust functions with strong deposit gathering capabilities. By offering competitive deposit rates backed by ORIX Bank's high investment capabilities, we aim to establish a sustainable growth model through a virtuous cycle of deposit and lending expansion. Regarding the impact on consolidated financial results, there is a potential to improve net interest income as a synergy effect. In addition to the over JPY 1.5 trillion of drawable funds from Daiwa Next Bank's current account at the Bank of Japan, we aim to accumulate JPY 2 trillion in deposits over the next 5 years as a synergy effect, separate from the stand-alone deposit growth of both banks through the provision of competitive deposit rates. We plan to invest a total of JPY 3.5 trillion in real estate investment loans and securities-backed loans to improve net interest income. Assuming we can secure a 1% interest rate margin improvement, our estimates indicate a potential improvement of JPY 35 billion in net interest income. In addition to these synergy effects, ORIX Bank's stand-alone performance will be consolidated into our financial results. The bank's average ordinary income over the past 5 years is approximately JPY 30 billion with a net income of approximately JPY 20 billion. On the other hand, we expect to incur amortization expenses for goodwill associated with the acquisition. Next, regarding capital and regulatory aspects. We will maintain financial soundness while effectively utilizing our capital buffer. Whilst the implementation of this transaction will lower the consolidated total capital adequacy ratio by 5 percentage points, it will still exceed 14% on a fully loaded Phase III finalization basis, securing a certain level of capital buffer. However, to expand our capacity for future growth investment and shareholder returns, we will also consider issuing perpetual subordinated bonds. Please note that we are not considering equity financing. Now moving on to Slide 4. Let me see the strength of Daiwa Next Bank. That is the strong deposit gathering capability. In the meanwhile, it has to challenge with the limited lending and the trust functions. Against that, the ORIX Bank has a strong lending and trust function. That's their strength, while the challenge is the deposit gathering capability. So while we are complementing or we are able to complement each other with the strength and the challenge, we think this is an ideal match between the 2. And moving on to Slide 5. I may be repeating myself, but the objective of making them a subsidiary is to strengthen the wealth management division and also a great leap in terms of the stability of the income as a result of that. The stronger Wealth Management division is not coming from one point. It comes from some pillars, the deepening total asset consulting, virtual cycle of deposit and loan expansion and accelerating growth through collaboration with the Asset Management division. Those are going to be the 3 pillars to enhance the management division and the stability of the income. And then moving on to Slide 6. We are trying to see the deeper total asset consulting capability for the clients. The assets and liabilities of our customers would change from life stage to life stage. That's the reason why not only the assets, but the liabilities all included. It's quite important to have the total asset consulting capability to optimize our capability of designing the balance sheet of the customers. By utilizing the ORIX strength, which is the lending and the trust, we are going to be providing the solutions for the pains of the customers depending upon their life stage. And then moving on to the Slide 7. We're thinking about accelerating the growth spiral by leveraging the strength of the banks. we look at those banks alone, the balance is going to be accumulated. But as a result, in addition to the growth of each bank's deposit balance, we aim to expand the deposit by over JPY 2 trillion in the next 5 years as a synergy effect, the asset -- the loan asset of the ORIX is quite competitive. So based upon which we're going to offer the Daiwa Securities customers a competitive deposit interest so that we are able to get -- acquire the [ stucki ] deposit. And then eventually, that is going to increase the deposit balance. That is going to be a great spiral of the growth of the banks overall. And then on Slide 8, this shows the changes of the balance sheet structure as a result of the integration of the 2. On the asset side, the lending and securities and on the liability side, the ordinary deposit and the time deposits are going to be all balancing so that the balance sheet is going to have a good risk diversification. The explanation is over with that. The details is going to be explained by our CEO, Ogino, at the management strategy meeting, which is scheduled to be held next month. By responding flexibly to the variety of needs by the customers, we're going to be capturing the changes in the market environment. And as a leader of the financial and capital market, we are going to pursue sustainable growth. We sincerely appreciate your continued support, and thank you very much for your kind attention. With that, we finish our explanation. Now let us move on to the Q&A session. Kana Nakamura: [Operator Instructions] I would like to introduce the first person, SMBC Nikko, Muraki-san. Masao Muraki: This is Muraki from SMBC Nikko Securities. So I have a question related to ORIX Bank's acquisition. The first point relates to Slide 3. You talked about the synergy and how it supplements with one another. So deposit is JPY 2 trillion increase. That is the number you've mentioned already, so 1.05% to 2%, that is the time deposit level. So going forward, do you intend to actually increase this to a competitive level? That is the first question. And also, you would have a loan increase by JPY 3.5 trillion. So you have the real estate loan and the secured loans. What is the breakdown in terms of the loan growth? So second part of the question relates to your capital strategy. So this is Slide 12 of the material. You have the image here. So this will be over 14%. The capital ratio will come down. But if you look at the future from the current level, the capital level intends to be built. So I don't know if it's 17% or 18%, it's hard to tell from this diagram. So whilst you're increasing this level, what are some prospects of the share buybacks? What are some of the ideas we should have? In the past, the share buybacks they conducted even amongst the high level of capital. But now if the capital is going to be depressed, perhaps there will be less allocated or different allocation to the share buybacks. So please give us some idea. Kotaro Yoshida: Thank you very much for that question. The first part of the question, so what are the JPY 2 trillion of deposit as part of the synergy? So what is the outlook? So related to this point, we are confident that we can acquire. We believe there is a fair chance that we can achieve that number. So within this fiscal term -- so after the rate hike, so Daiwa Securities, there has been a 2% of provision in the year. So last year, in terms of the time deposit, so about JPY 650 billion increase in terms of the time deposit. So if you can provide a competitive -- the deposit, right, given the fact that Daiwa Securities have a nationwide network and the high-level consulting capabilities and through our consultants, we should be able to acquire the deposit. So of course, there has been a shift away from savings to investment. But this is not just the deposit into equities. But also, we have been providing consulting to their entire asset, inclusive of deposit. So within that process, the larger the pie is, the better chance that we may have for the acquisition of deposits. So JPY 2 trillion is feasible. That is our expectation. Also about the JPY 3.5 trillion of the loan, so real estate loans and also the securities, the back loans, the breakdown of that, we don't have the exact number as we speak. But already, what ORIX Bank is providing, that is an investment use in real estate loan, it is for the one mansion for the single-family hold in the metropolitan area. So the number of banks have been on the decline. But in terms of the number of households, single households in the metropolitan area is expected to rise. Therefore, we do believe there is sufficient demand. In the past several decades, ORIX Bank has built this lending capability. So in relation to that, it is very possible that we can achieve that JPY 3.5 trillion of lending. Also the second part of your question about the capital, the strategy. Please hold. So through this acquisition, so in terms of the consolidated total capital adequacy ratio will be out -- will be down by mid-5% or so. So right now, it's over 14%. So that is the level that we're expecting at this moment. So going forward, how the capital policy may change, and that is the intent of your question. But as of this moment, no change vis-a-vis our basic policy. So the dividend -- the payout ratio is at 50% or higher. And also the floor for the annual dividend of JPY 40, we'd like to maintain that. So through this acquisition, there will be some level of decline in terms of the total capital adequacy ratio. However, we can ensure the financial soundness. And also by steadily building on the profit, we can continuously keep this financial soundness. Also in order to ensure flexibility, AT1 bonds issuance is also under explanation. Of course, the actual amount is still under consideration. But again, we'd like to further have a solid capital base. Also in terms of share buybacks, the question was what are our plans going forward. Again, no change in terms of our general stance. So based on the assumption of financial soundness, in light of the different operating environment, gross investments will be considered. But of course, that is necessary for future shareholders' return. So we definitely like to prioritize on that. So looking at the gross investment and the buyback, we need to strike the right balance and be agile and flexible. So this particular deal, this is an impact of the profitability of ORIX Bank. And also through the realization of the synergy, we can expect to enhance the capital generation within the group as a whole. So ultimately, this would actually lead to increase in the source for shareholders' return. So going forward, the capital allocation, capital policy is a very important policy. So given the current operating environment, we'd like to make a comprehensive approach. Masao Muraki: Related to the second part of my question. So at this particular timing, you didn't announce the share buybacks. So in terms of the perpetual subordinate bonds utilization, related to that point, so what is the potential amount AT1 bond issuance that is? What is the amount they have in mind? And once you announce that, in light of the credit rating, we expect you to conduct share buybacks at that timing. Kotaro Yoshida: Thank you for that question. So in terms of the AT1 bonds, the issuance, so it will be within the part of the consideration. But in terms of concrete details, we will consider those going forward. Also in terms of the credit rating, so we would like to definitely conduct meticulous communication with the credit rating companies. So we may also incorporate those ideas. So based on that, so whether there's a possibility of buybacks, again, we'd like to take a comprehensive approach in making that decision. So that has been my answer. Kana Nakamura: The next question is by Morgan Stanley, Sato-san. Koki Sato: This is JPMorgan, Sato speaking. Well, I have several questions about the bank. One, we simply this consolidation, you're going to make them a subsidiary. After that, how should we think about how you're going to be executing it? On the material, you're talking about the recurring income of about JPY 30 billion and the net profit of about JPY 20 billion. What kind of upside are you expecting from that baseline? I think that, of course, depends on the analyst, but the depreciation or the amortization of the goodwill and also the sourcing cost, probably a part of that needs to be recognized as well. So when you explain that to the market participants, what kind of a level are you going to say to them on the annual contribution? What is going to be the level that you think you're going to be talking in that communication to the market? The second question is about this -- by the acquisition of this ORIX Bank, you still have an external partners. Are there going to be any changes in the relationship with those partners? Like Aozora Bank, you are currently accounting for them under equity method. So your business alliance with them, is it going to be changing because of your acquisition? There might be some changes in terms of like focal point that you are working together with those external partners. And also when it comes to the asset-backed ones, partly, you are working together with Credit Saison. What are you going to be thinking about those asset-backed securities? Kotaro Yoshida: Thank you very much for your questions. The first question about the bank. Well, as you say, the average of the ordinary income is about JPY 30 billion of the ORIX and the profit is about JPY 20 billion. At Daiwa Shoken Daiwa Securities Group, our capital average is about JPY 1.7 trillion, meaning that on a simple calculation, it has the positive impact of pushing up the ROE by 1.2%. The equity finance is not likely to happen. So that's the scenario that we are seeing at this point. But the amortization of the goodwill and assuming that AT1 is going to be issued, which we, of course, need to examine. But anyway, setting that aside, we think that is a basic simple calculation that we are currently having our basis. And the second question, first of all, we do have the external partnership with Aozora Bank. And regarding that partnership, we assume there's no impact. Well, regarding the integration, it's for strengthening the wealth management business. The total asset consulting business for the retail business, the asset to support from the total asset consulting is going to be stronger. And the trust functions in order to work in our wealth management business for the retail market, it's important to have the trust function. Well, organically within the company, we did not really have much capability to grow itself. And by having the external partners, we have provided some instruments. But from now on, we think we'll be able to do that in-house. That's going to be another one big pillar. Well, regarding Aozora Bank, our partnership with Aozora Bank, there are some corporates that are listed and private. We have been providing the referral to the Aozora Bank and also the LBO financing, for example, have been provided and have been providing in the past so that the customer trade is quite different in Aozora Bank. So we think both can actually stand. And also for the real estate-backed loans, well, Credit Saison is a part of the business that we've been engaged with. But Fintertech is jointly operating -- operated by Credit Saison. So they have the asset -- the real estate asset-backed loans. But of course, the market size is limited so that the capacity is not that big. And this time, thinking about the capability being much bigger. I think the issuance coming from the business is going to be having new opportunities for us to grow our pie itself. Does that answer my question? Koki Sato: What about the amortization of the goodwill. Any color on that scale? Kotaro Yoshida: The amortization amounts and the cost for the amortization we're going to be discussing in details more. So at this point of time, there's nothing that we can comment. So please be patient. During the time comes for the closing, we think we'll be able to come to that point. Kana Nakamura: So let us move on to the next question. BofA Securities, Tsujino-san, please. Natsumu Tsujino: The last point about the goodwill amortization, it could be as long as 20 years, but some say it could be 10 years. So you should have some sort of image in terms of the amortization. And also in terms of decision of the dividend, it would be -- so the net profit -- so would you be using the same sort of net profit regardless of the amortization. So 20 years or 10 years, I don't think that you have no image as to the amortization. If you can give us some color, that would be helpful. That is the first question. Kotaro Yoshida: Thank you very much for that question. So of course, we have some image or some ideas. So the duration that you've mentioned, it will be within the time frame that you've mentioned. But as of this moment, we're working together with the auditors. So we would like to refrain from giving you an exact answer. Also, as far as dividend is concerned, as you rightly mentioned, no change in terms of the dividend payout ratio. So 50% or higher of the earnings. So no change in terms of the dividend policy. Also in terms of ORIX Bank, so they have the Tianjin report. So as of September end, so in terms of the J-GAAP, excuse me, J-GAAP earnings, JPY 7.4 billion, and ordinary income was JPY 10.6 billion. So it is actually quite lower in comparison to 5-year average. So in order to drive this, do we just work towards that JPY 8.6 trillion. I think that is the direction we should aim for. But right now, it's a midterm -- sorry, interim times 2. Natsumu Tsujino: Is that the image that we should have in mind for ORIX going forward? The interim number, double that number? Kotaro Yoshida: First of all, as of September 2025, the interim results for the company -- so within ORIX Bank, there were some rebalancing of the securities. So there were some loss from sales. So that is why the amount has ended to that one. So somewhat lower that is. That is our understanding. So in terms of the underlying capability, then it is closer to 5-year average then. Natsumu Tsujino: Okay. Understood. So the third point -- the third question I have, this is a question related to the results. So FICC has been very favorable. So Q3, there was a growth. In Q4, there was a further growth in FICC. So how sustainable is this? So for the March quarter, how has been the recent performance? And how is it trending now as we speak? Kotaro Yoshida: Thank you very much for that question. So in terms of FICC, amidst this very high level of volatility, we were able to capture the customer flow, and we've been able to turn those into profit. So that has been very positive. Also in terms of products, that's been all around. So we have JGBs and also, we have some domestic derivatives and so forth. So within this high level of volatility, we do have a high level of activities amongst the customers. So the customer flow, we were able to capture that through the communication with the customers. We can anticipate the customer flow and conducted the positioning. So through this control, that has led to a positive impact of the earnings. So that has been the experience of this past quarter. So for FY 2025, in the first part of the year at the phase of rate increase, I think we have also mentioned there were some difficulties in conducting the position control. But we have addressed these issues, conducted communication with the customers and also develop customers and also address the diverse needs of the customers. We've been able to have more strengths in the position management. But just because that we were able to do that. That doesn't mean we can sustain this without doing anything because, of course, the market is changing every day. So accordingly, we would like to enhance our capability to capture the customer flow. And also, we'd like to steadily strengthen the position management system. Also for the fourth quarter, so for the March quarter, that is FICC, the revenue image that is, so January 3 and February is 2 and March is 5. So in terms of the month of April, so in comparison to the fourth quarter average, maybe it is somewhat subdued for the month of April. But again, the customer flow continues to be fairly active. So of course, the environment continues to be uncertain, but we would like to have a closer communication with the customers. And we are hoping that we can turn it to our better performance. Kana Nakamura: Next question is Nomura Securities, Sasaki-san. Futoshi Sasaki: This is Sasaki of Nomura Securities. One question about the earnings call results and one about ORIX. Well, I'd like to talk about the wealth management. The AUM in the first half was declined and the previous quarter was down, but the asset inflow was making an improvement. I would understand that, that is because of the drop in the U.S. equity price. For the retail investors, there was some sales for the realization sales. Am I right to understand that? If I'm not, then please correct me. And the second question is about the acquisition of ORIX Bank. So-called -- are there any binding contracts for like a key man close that you are going to be able to retain the key men or the management people. I will also be able to get those words from the ORIX side. The ORIX side, the asset is very characteristic is because of the support getting from their parent company, which is ORIX. Is that also something that you have captured? Or do you think the business is going to be continuing based upon your strength as a stand-alone basis? Kotaro Yoshida: Well, thank you very much for your questions. First of all, about the asset inflow. On the earnings announcement material, Slide -- just a moment. For the fiscal 2025, we have had the inflow. So compared to the year before, the inflow amount was about the same as the 2024. Futoshi Sasaki: I'm sorry. The fourth quarter is my question. The fourth quarter inflow. Kotaro Yoshida: Okay, Q4 only. But regarding the AUM, on this quarter, the amount has declined. However, the U.S. stock was one reason. And also the fall in the stock price in domestic as well. So the asset inflow, the net inflow has increased has surpassed as a result. But the asset inflow itself, as I mentioned earlier, has been quite active and quite strong. Well, since 2007, the asset flow side has been really big. Futoshi Sasaki: Okay. And regarding the acquisition of M&A in the contract, do we have any key men close about the retention of the management people. Kotaro Yoshida: Well, regarding the close of the contract, I should not make any remarks. But after the merger or after the integration, the smooth integration is going to be, of course, the most important. And ORIX and ORIX Bank, both are, of course, making effort for the smooth and continual operation. So as a large direction, we, of course, have had the agreement to come to this agreement or decision so that we shall make an effort to deliver results. Futoshi Sasaki: So assuming that, for example, the real estate finance, the property sourcing is basically coming from partly support from ORIX. Am I correct? The support from the ORIX Group. Is it also coming? Kotaro Yoshida: I didn't really understand. Well, from the very beginning for the sourcing, the ORIX Bank has been acquired by using their own network. So the support from ORIX is, as far as we understand, is limited, if any. Kana Nakamura: I would like to move on to the next question. SBI Securities, Otsuka-san, please. Wataru Otsuka: This is Otsuka from SBI Securities. Can you hear me? Kotaro Yoshida: Yes, we can hear you. Please go ahead. Wataru Otsuka: So one question at a time. So related to the -- you've talked about the asset inflow related to the previous question. So in terms of the cash in the past 2 years, it has been the strongest. So if you can actually tell us the reasons behind that. This is Page 49, Slide 49 about the actual the cash that is. Kotaro Yoshida: Thank you very much for that is. So we have the bank deposits as cash and it may turn into investment trusts and fund wraps. So there are different objectives for that. But roughly speaking, Q4 fund wraps, in order to contract the fund wraps, there are a lot of cash paid in from other banks. So we did see a lot in the past quarter. Also for Daiwa Next Bank deposit, so there were some cash paid in for Daiwa Next Bank's deposit. That was another reason. Also, there has been active transaction of the Japanese equities for the March quarter. So in order to buy the equities, a lot of people have actually cashed in. On the other end, the share price actually peaked in the month of February, some may actually sold their holdings. So actually, they may have withdrawn the cash. So on a net basis, this is the number that we had. Wataru Otsuka: Understood. So fund wraps then. So for additional and also new purchases, both have been strong then? Kotaro Yoshida: Yes, both. Wataru Otsuka: Second question relates to ORIX Bank. So this is Slide 6 of the presentation material. So in terms of the clients' life stage, I'd like to understand this accurately. So with the acquisition of ORIX Bank, the question is, where would you like to focus? So according to Slide 6, so 60s, 70s, 80s, actually, the asset exceeds the liabilities. So those who are in excess of assets and those generation, ORIX excels in the best real estate investment loans. So do you intend to actually provide those to those elderly customers? Or are you actually focusing on more those in 30s and 40s where the liability is larger for assets? We will be focusing on extending credit to them. So for those in 30s to 40s, so they will be the first house the purchases. So this is different from the investment real estate loans. So this may be an area ORIX Bank is not necessarily strong. So how do you intend to actually approach the different life stages of the clients? Kotaro Yoshida: Thank you very much for that question. So according to the Slide 6 on the bottom part about the image of asset and liability balance by generation. So generally speaking, by different age, so the younger, you would have more liabilities. So you may have the housing loans or investment loans. So basically, liabilities tends to be higher in comparison to assets. But once you exceed over the age of 60, net assets would start to increase. So for Daiwa Securities, the main customers for Daiwa Securities are mainly those 60s or above. So as you can tell from this image, so asset on a net basis, it is larger. And so we have been providing different consultation for the management of their assets. So in other words, for those customers in the 40s and 50s, asset formulation type of proposals by NISA, that has been conducted. But of course, the inherent needs of these generation is how they can actually extend and also repay the loans. And also for those who wish to actually invest in real estate, we didn't have the facility to actually provide credit towards that end for those in the 40s and 50s. Now for ORIX Bank, the real estate, the bank loans, the main customer image is to share with you is in the metropolitan area. And so those in the 30s and 40s, family men working for listed companies, they account for a large proportion of ORIX Bank. So generally speaking, they do have high level of income. And of course, they have their own the housing. But at the same time, they are investing in the metropolitan one-room mansions, one-room condos. So that has been the main customers that ORIX Bank has been cultivating. So going forward, what ORIX banks provide. So they have the apartment loans that is another part of the loan product offerings. So this is more towards high net worth individuals and also more of the more elderly customers. So we can actually provide these products to the Daiwa Securities customers for these apartment loans. Also from what we have received, the securities from the Daiwa Securities customers, we can actually use them. The securities can be backed and use it as part of the business. But of course, we do have -- we are connecting that already. But because of the capital regulation and so forth, it has been somewhat restricted. So with the addition of the ORIX Bank, we could expect to see further accumulation of the loans with the securities backed loans. Wataru Otsuka: I couldn't quite understand that point. So you mentioned those in 30s and 40s working for listed companies. And those who already have credit with ORIX Bank, you mentioned that. So already, they are customers of ORIX Bank. So whether ORIX Bank will become a subsidiary of Daiwa Securities, it doesn't really matter, doesn't it, because they are already customers. So is my understanding correct? Kotaro Yoshida: So if they're going to start the transaction with Daiwa Securities, that is positive. But taking this opportunity, it is not likely -- to be honest with you, I cannot actually imagine that they would all start doing business with Daiwa Securities. Actually, we do believe there could be a positive impact. So those who have the real estate loans from ORIX Bank, it is not so large in terms of number in comparison to Daiwa Securities customer base. So the impact could be limited. But in terms of the real estate investment loans, the customer base or customer potential is much larger, not just confined to those who are customers of ORIX Bank. So we also intend to develop new customer base together with ORIX Bank, so we can further expand the customer base. Wataru Otsuka: Understood. So perhaps at the IR meetings and also at the business strategy meeting, we'd like to continue the discussion. Kana Nakamura: Next is going to be the last questioner, UBS, Niwa-san. Koichi Niwa: This is Niwa of UBS. Can you hear me? Kotaro Yoshida: Yes. Koichi Niwa: Well, regarding the bank, I have 2 questions. One, I'd like to know the background of the acquisition. Which one has made the first comment and how long did it take? And also, you're talking about the margin of 1%, the interest margin of 1% as a guideline. How realistic that is going to be? According to your model, 1% of the interest margin seems to be easy to achieve. If that's the case, then that's going to be the image that we should consider as conservative? Or should we think about that a challenging target? That is the question about the bank. The second part of the question is that the U.S. private asset is now going through some turmoil. Any impacts on your business? Or do you have any exposure? And also the response of the retail investors, are there anything that you can share with us? Kotaro Yoshida: Thank you very much for your questions. First of all, the background of this M&A. We, with the ORIX as a company for our group, well, they have been an important business client for a long time. Including the management, we have had very good relationships. And there is much complementarity between the 2 banks. The possibility of working together, we have sounded out to the ORIX Bank from our side. In the last few years, because we entered into a world with positive interest rate, as I mentioned earlier, we have a high expectation of the complementary synergy to deliver. So since last fiscal year, we have made some serious proposals. So the 2 companies continued discussion. And as a result, we decided to work together as one company. That is the background. And talking about the interest margin, Daiwa Next has the deposit to BOJ, of course, at 0.75%. But the weighted average of the bank is about 2.1% for the lending. So thinking about the better yield for our companies, that's going to be 1.36%. So if we're going to have the calculation on a test basis at 1%, that was the scenario that we wanted to provide with you. And then moving on to the private credit, our exposure and the impact. First of all, our exposure is the one that we do have an origination, there's nothing. For the group as a whole, as an exposure, it's very limited and very much of the indirect exposure. So on a consolidation basis, there's no impact on our margin. And for the retail investors -- alternative asset -- for alternative assets -- as Daiwa Securities, the alternative investment is an option for less liquidity, but higher diversification so that the return profile can improve. So alternative is a very important asset class for us. But liquidity is limited. So when our clients decide to buy, then we do have the higher compliance guideline to follow. When there is enough assets and also the exposure should be just one portion of the total asset, especially given the consideration of the low liquidity, those are the items that need to be fully explained and then understood by the customers. The credit -- the private credit trust investment is managed and then consigned to Blackstone. The minimum amount of the investment is USD 50,000. So the subject is the high net worth customers. Though recently, we do see the mass media coverage. And that is causing some concern for the customers. So for all the customers who have those exposures, we are following up for all of them. For the Daiwa Asset and for ourselves, we have been very flexible and trying to provide the information that is user-friendly. So at present, we do see the situation where the cancellation request is mounting or anything. There are some number of people who are considering the cancellation, but it's not that high. So continuously, we will monitor the situation and then think about the follow-up to our customers. Kana Nakamura: Niwa-san, thank you very much for your questions. With that, we want to finish our Q&A session. Unknown Executive: [indiscernible] speaking from Daiwa Securities Group. Well, thank you very much for joining today for investors and analysts who would like to have a continued communication. So thank you very much for your continued support. If you have any further questions, please send us to IR team. Thank you very much for your attention today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Matt Sealy, Director of Corporate Strategy. Please go ahead. Matthew Sealy: Thank you. Good morning, and thank you all for joining. Earlier today, we issued our first quarter 2026 earnings press release, a copy of which is available on our website, along with the slide presentation that we'll reference during today's call. Please refer to Slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on Page 6 of our earnings press release that was filed with the SEC today. All comments made during today's call are subject to those safe harbor statements in our slide presentation and earnings release. I'm joined this morning by Business First Bancshares CEO and Chairman, Jude Melville; Chief Financial Officer, Greg Robertson; Chief Banking Officer, Philip Jordan; and President of b1BANK, Jerry Vascocu. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you, Jude. David Melville: Okay. Thanks, Matt. Good morning, and thank you for joining us today. We know there are plenty of things you all could be doing on a Monday morning in a world environment as complex as the one in which we find ourselves, and we appreciate you choosing to spend this time with us. This was one of, if not the best, first quarters that we have had as a company. We continue to improve earnings, strengthen capital levels and improve quality of our liquidity posture while consummating our second material acquisition in the past 3 years and making a number of nonacquisitive investments that will pay off over the course of the next few years. A highlight for the quarter was the addition of a substantial number of new teammates. As I just mentioned, we closed the Progressive transaction on January 1. In balance sheet terms, the acquisition adds over $700 million in assets and 9 branches across North Louisiana, deepening our footprint in an area in which we are already a market leader. Asset quality of the acquired portfolio is stellar as is the makeup of the expanded client base. On a very promising note, since we announced the acquisition, construction on the Meta data center project in Northeast Louisiana has accelerated and been expanded, and we expect tens of billions of dollars of private investment in a region in which we are as well situated to capture the benefits as any financial institution, large or small. The morale among our former Progressive teammates is high, and the working partnership is off to a smooth start as any acquisition that we've had the honor to participate in, which bodes well for our ability to operate as one team over the course of this year, even before conversion is executed. We also added a material number of bankers organically. In our last call, I mentioned the addition of Jon Heine, our new market President in Houston, former Market President from Veritex Bank. To date, Jon has attracted an additional 11 teammates, including 7 production officers, the majority of which are also former Veritex bankers. Also in Houston, we are honored to add Ben Marmande to lead our corporate banking activities in Texas. Ben was a long-time banker for IBERIA and then First Horizon, serving in leadership capacities across South Louisiana, and for the past 5 years as President of the FHN Financial's Houston market. These new partners have already begun building a pipeline of opportunities, and we anticipate them contributing meaningfully to our growth in the second half of the year as we seek to take advantage of M&A-led disruption in the Houston market. We announced and have begun a partnership with Covecta, a provider of Agentic AI capabilities. I include this in my discussion on new teammates because over time, we anticipate this partnership leading to both our more efficiently leveraging the talent we have on board and to our minimizing hiring as we continue to grow. We are beginning this effort focused on our consumer workflows in which we have already identified over 300 policy rules for potential automation and anticipate expanding utilization of the partnership across broader use cases throughout the bank, including deposits and credit. This effort will take time to unfold, but we are more confident with each day that the potential is actionable and will prove to be meaningful. It's important to note that as we explore the potential of Agentic AI, we remain focused on governance, validation and human oversight so that as models, policies and industry requirements change, we retain our ability to manage that evolution in a disciplined and controlled way. A very positive note for the quarter is that even as we grow the team, we remain focused on cost control with noninterest expenses for the quarter lower than anticipated. After accounting for the increased costs associated with the Progressive current run rate, our core expenses were essentially flat quarter-over-quarter as well as in comparison to last year's first quarter. We do anticipate the cost of the new hires adding incrementally to our expense rate over the second quarter, but note that the super majority of the hires were production-oriented, which should lead to further operating leverage improvements. As a key component of our positive earnings results, we are pleased to note the contribution of our noninterest income, primarily through the Financial Services group and in particular, their work providing interest rate swaps and SBA loan gains on sale. As you know, we've been working in the past 3 years in diversifying our revenue streams with investments in this arena, in part so that we might be able to continue to produce consistent earnings even in quarters in which our spread income was not as strong as we hoped. The potential of this effect was put to test in the first quarter as loan volumes were lower than anticipated due primarily to heightened loan payoffs and paydowns. In addition to the contribution to current earnings, we utilized the Financial Services Group to successfully complete a fully self-managed private placement of subordinated debt just after quarter end, raising $85 million within our cohort of correspondent banking relationships. Of the $85 million raised, we utilized $67 million to redeem existing sub debt, some of which crossed the 5-year mark and already lost about $10 million in capital treatment. The successful debt raise is important in and of itself, but I'm most excited about the way in which we accomplished it, both utilizing and contributing to our growing network of community bank partners. In closing, we feel very positive about the first quarter on a number of fronts and anticipated to be the start of a solid full year. We reiterated full year loan guidance on loan growth based on our sooner-than-expected hiring of production officers, and we continue to forecast a 1.25% ROAA end-of-year run rate. One of our guiding principles is belief in the compounding power of our incremental improvement, and we see that principle in action in our first quarter results. Thank you again for being with us. And with that, I'll turn it over to Greg. Gregory Robertson: Thank you, Jude, and good morning, everyone. As always, I'll spend a few minutes reviewing our results and we'll discuss our updated outlook before we open up to Q&A. First quarter GAAP net income and EPS available to common shareholders was $22.2 million and $0.68 and included $2.2 million merger-related expenses, $28,000 gain on former bank premises and $80,000 gain on sale of securities. Excluding the noncore items, non-GAAP core net income and EPS available to common holders was $24 million and $0.73 per share. From our perspective, first quarter results marked another quarter of strong financial performance, generating a 1.10% core ROAA and a core efficiency ratio of 62% for the quarter. Our first quarter earnings results were highlighted by continued discipline on the expense side and a meaningful contribution from our financial services and correspondent banking group that Jude mentioned. Also during the quarter, we completed the acquisition of North Louisiana-based Progressive Bank, which closed on January 1 of this year and added $774 million in total assets and 9 new locations. From a balance sheet perspective, total loans held for investment increased $494.8 million or 32% annualized on a linked quarter basis. Excluding the acquired Progressive loans, total loans held for investment declined $102.7 million or 6.2% annualized. Excluding acquired Progressive loans, organic commercial and commercial real estate loans decreased $58.6 million and $23 million, respectively, compared to the linked quarter. Texas-based loans ended the first quarter at 35% of total loans. This was anticipated due to the closing of the Progressive Bank transaction in early January. The lower-than-expected loan growth was driven primarily by an overall increase in loan paydowns and payoffs. Specifically, total paydowns and payoffs during the first quarter totaled $579 million, which compares to the total new and renewed loan production of $476 million during the quarter. If you recall, in the previous quarter, we experienced slightly higher new and renewed loan production at $500 million, while paydowns and payoffs during the quarter were lower at just $332 million. Total deposits increased $766.4 million due to increases in interest-bearing deposits and noninterest-bearing deposits of $513.3 million and $253 million, respectively. The increase in interest-bearing deposits was largely driven by approximately $325 million in commercial money market accounts and $185 million in personal money market accounts. Excluding acquired Progressive deposits, organic deposit growth was $81.5 million or 4.4% annualized on a linked quarter basis. Lastly, on the funding side of the balance sheet, we took advantage of the improved liquidity position from softer overall net loan growth and repaid FHLB balances and broker deposits. Total FHLB borrowings decreased $170.4 million and broker deposits were reduced by $112.5 million from the linked quarter. Moving on to the margin. Our GAAP reported first quarter net interest margin decreased 6 basis points linked quarter to 3.65%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, decreased 4 basis points from 3.64% to 3.60% for the quarter ended March 31. A driver to the lower-than-expected margin performance during the quarter was loan discount accretion falling lower than expected at $1.1 million, which is primarily caused by the lower actual rate marks from the Progressive acquisition. We would expect quarterly loan discount accretion to be in the low $1 million range for the balance of 2026. On a linked quarter basis, cost of deposits decreased 18 basis points, while total loan yields decreased 27 basis points. Core loan yields, excluding loan discount accretion for the first quarter were 6.54%, down 24 basis points from the prior quarter. Total cost of deposits for the month ended March was 2.33%, which compared to the weighted average of the first quarter was 2.34%. We are pleased with our ability to hold the line in new loan yields during the quarter with a weighted average new and renewed loan yield of 7.20% for the quarter. I would like to make a note of a few takeaways on Slide 19 in our investor presentation. We continue to see 45% to 55% overall deposit betas as achievable regarding any future rate cuts. I would also like to point out overall core CD balance retention rate was 81% during Q1. This impressive statistic reflects on our team's continued focus on maintaining core deposit relationships. Our baseline assumption is that we do not receive any further rate cuts in 2026. We have worked hard to manage our balance sheet in a relatively neutral position and believe we can achieve modest margin improvement in a slightly down or up rate environment. Moving on to the income statement. GAAP noninterest expense was $57.5 million and included $2.2 million in acquisition-related expense. Core noninterest expense for the first quarter was $55.2 million, up $5 million from the prior quarter and included a full quarter impact of the Progressive expense base mentioned earlier. Core expenses for the first quarter did come in lower than we expected, mostly due to the timing of certain investments and marketing spend not hitting in the quarter, which we do expect to recognize going forward. We also did recognize a small amount of the Progressive cost saves during the quarter. As a reminder, we should recognize remaining potential cost saves post conversion, which is scheduled for late third quarter this year. First quarter GAAP and core noninterest income was $14.1 million and $13.9 million, respectively. GAAP results did include $80,000 gain on sale of securities and a $28,000 gain on former bank premises. Core noninterest income results for the first quarter were slightly better than we expected, primarily due to continued strong swap fee revenue and gain on sale from SBA activity. Lastly, I'd like to provide some context to the credit migration during the first quarter. Total loans past due 30 days or more, excluding nonaccruals as a percentage of total loans held for investment decreased from 0.64% to 0.42% at March 31. The ratio of nonperforming loans compared to loans held for investment increased 29 basis points to 1.53% at the end of the first quarter, while the ratio of nonperforming assets compared to total assets increased 29 basis points to 1.38% compared to the linked quarter. That concludes my prepared remarks. I'll hand the call back over to you, Matt, and we'll open it up for questions. Matthew Sealy: Yes. Thanks, guys. I think we will go ahead and open up to Q&A now. Operator: [Operator Instructions] Our first question comes from the line of Feddie Strickland with Hovde Group. Feddie Strickland: Just wanted to start on credit. I just wanted to ask, you mentioned in the release you expect the migration we saw this quarter to be resolved over the next couple of quarters. And can you just help us understand kind of the full opportunity set maybe here and how much we could maybe see NPAs come down by year-end, assuming no further migration? Gregory Robertson: Yes. Thanks, Feddie. Good question. So we think in the near term, let's talk about just specifically what we think will happen in Q2 and then more so during the later parts of the year. I'll caveat all that by saying we've kind of been talking about some of these credits for almost a year now and the process through moving them to resolution is sometimes precarious and moves at different speeds. So Q2, we think about 30% of the current NPA list will go through to resolution. So as we move past that, we would see it kind of breaking up into thirds as we go through the rest of the year. So I think another pretty decent amount of it in the third quarter and hopefully some resolution with maybe only a few pieces hanging over past year-end. Feddie Strickland: Got it. And then the increase this quarter, I apologize, I cut out for a second when you were mentioning this in your opening comments. Was that the Houston medical facility? Or which credits contributed to the higher NPAs this quarter? Gregory Robertson: We had about $25 million increase this quarter, which were mostly attributable to we have a relationship with one client. It's about $16 million of exposure. Those are varying types of collateral and the timing of that resolution on that, some of it could be imminent. Some of it could last 2, 3 quarters to resolve it. So that was the majority of the increase this quarter. The previously mentioned medical facility was already in the list. Feddie Strickland: Got it. And just one quick follow-up on the margin. I saw you paid down the FHLB in the broker this quarter, but you also issued the sub debt. Should we expect the margin to -- I guess, the GAAP margin to still directionally move higher in the second quarter? Or is more flat your expectation? Gregory Robertson: No. We think we're going to -- we think low to mid-single-digit margin expansion as we move forward. Part of that will be reliant on moving some of those NPAs back into accruing assets as well. But that's a little trickier to forecast. But we do think that just the core margin should tick up low to mid-single digits. If you look at the spread we had during the quarter, spread was relatively flat quarter-over-quarter. And we think with the increase in loan volumes, we should get a little bit of pickup. Operator: Our next question comes from the line of Matt Olney with Stephens. Matt Olney: Just want to follow up on the credit discussion. I think, Greg, you mentioned expectations of some resolution in the next few quarters. That's great to hear. Any thoughts as far as loss recognition, what kind of allowances do you have on some of these credits? Just trying to anticipate if we should anticipate the charge-offs being a little bit higher in the near term. Gregory Robertson: Yes. So far -- Matt, it's a good question. So far, we are seeing reserves versus loss recognition going forward to remain pretty consistent with what the Street has forecast for us from a loss standpoint. All of that is kind of incremental as we move on. But so far, what we're seeing, we feel like we'll be in line. If you look at the main driver that gives us a little comfort with that is moving past dues back down below 50 basis points. We feel like that the stuff that we've been talking about is kind of in the list, and we'll just move forward with hopefully no change from that. Matt Olney: Okay. And then going back to the loan balances. Greg, I think you mentioned some higher paydowns this quarter. Any more color on those paydowns, whether by loan type or by market? Or just any color as far as what you're hearing from your customers given some of the volatility in the market right now? Gregory Robertson: Yes. I think it was -- the majority of our paydowns were in the Texas franchise. And I think that's -- you could really draw a line back to some of our larger growth years, the '22, '23 years -- '22, '23; some of those projects came to end. Some of them, we just made the decision, whether it rate or credit to move away from relationships. So it's kind of a mixed bag. But I think that's the general guidance is it's more commercial stuff probably in the Dallas first and the Houston markets. David Melville: Yes. I think it's not a small thing that we've really dramatically downshifted our exposure to construction. And so we're not -- we don't have the same large dollar construction projects funding up as we -- as some of these older construction projects come off the books. And so there's not [indiscernible] replacement there for that particular type of credit, which we feel comfortable with. We want to have a diversified portfolio and minimize our concentrations. And then I would also say that Greg mentioned our loan yields staying pretty flat quarter-over-quarter, which we certainly are prioritizing the need to get paid for what we do over just loan growth. And so I would echo his thoughts about that was part of the rationale there, but just from a competitive standpoint, seem to be disciplined on pricing, which I think is the right choice to make. Operator: Our next question comes from the line of Michael Rose with Raymond James. Michael Rose: Just wanted to kind of dig back on to the expenses as we move from here. So on the one hand, obviously, this quarter on a core basis, good expense control. But I think, Jude, in the press release, you talked about some additional hires by the end of the quarter. And then in your prepared comments, I think you mentioned even a few more. I assume you're continuing to hire. So how should we expect those expenses to -- from a timing and magnitude perspective to layer in? And then as you kind of think about the layering in of the cost saves from Progressive, understanding that the systems conversion will happen late in the quarter. Just trying to frame out the expense outlook over the next few quarters. Gregory Robertson: Yes. Thanks, Michael. I think in the near term, Q2, we would expect the mid- to upper 50s and then migrating slightly from there. I think the cost saves, if we continue to have success hiring teammates, some of the cost saves will be offset by the hiring. But I think we would see that trickle up into the upper 50s as we move through the end of the year. David Melville: But we still remain confident in our projections on the cost saves around the Progressive acquisition, achieving most of them in the fourth quarter. Greg, I think out of the $21 million Progressive run rate, we expect to achieve about $11 million -- that's on an annualized basis on cost. So certainly, still anticipate recognizing the benefits of that -- those efficiencies, primarily in the fourth quarter. Michael Rose: Perfect. And then maybe just following up on some of the initial and the final marks on the portfolio. It looks like the accretion is going to be less kind of as we move forward. So can you just walk us through maybe some of the purchase accounting adjustments from initial to when it actually closed? Gregory Robertson: Yes. I think it was just mainly that when we announced the yield curve was a lot different by the time we closed. So the interest rate mark piece of it was less, credit still the same. So we felt like from a total dilutive standpoint for us, I think it is a little bit different, but I think it's all relative. We had forecasted about 44 basis points of tangible book value dilution, $0.44 and it ended up being ex AOCI about $0.04. So we feel really good about the way everything kind of shook out now. David Melville: So it will be less accretion going forward ,but the trade-off is that we had less dilution than we modeled. So it's a good thing, yes. So I did want to mention real quick since we're talking about tangible book value. We last raised capital in October of '22. And beginning with the end of '22 going to now, we've grown tangible book value at about 16% annualized rate. So we remain focused on growing tangible book value, and we've done so during that period. We've consummated two acquisitions and grown assets by about $2 billion. And so the news on the accretion front versus tangible book value dilution on the Progressive deal is good. And then we look forward to continuing in future quarters to grow tangible book of ours. And so we're pleased with that result. Gregory Robertson: Michael, will be about $1 million going forward for accretion per quarter. Michael Rose: Yes. Heard that. And maybe if I could just sneak one last in on the -- just as it relates to the tangible book value growth and the focus there. The buybacks this quarter were a little bit higher than I think I was looking for. How should we balance that now with a little bit higher starting capital just from the change in marks from the deal? Could we expect you guys to continue to be active with repurchases? Or is now a time to kind of recoup and build tangible book value and capital? David Melville: Yes. I think it's a balance between the two, the market -- if we feel the market is undervaluing are worth, then we do have the -- we've now built our capital levels and our tangible book value to a level that we can take advantage of that perceived discrepancy. And so we felt like in the first quarter, we had probably a little more opportunity there than we might have guessed at the beginning of the quarter. So I think our average TBV multiple of the buybacks was about 1.19x. And so we felt like that was certainly an undervaluation relative to the worth of the franchise, and we'll continue to look for opportunities there. We're not going to -- we don't have mandatory buybacks and not going to do it just for the sake of doing it. But when we do see opportunities in that kind of sub-$120 level, we do believe we're in a position to take advantage of it. And that will be a higher priority than seeking out M&A opportunities in the near term. Operator: [Operator Instructions] Our next question comes from the line of Gary Tenner with D.A. Davidson. Gary Tenner: I want to ask about your -- I just want to ask about your commentary around loan growth. I think you're kind of sticking to the mid-single-digit growth outlook at this point. And I'm just wondering how much of that is -- kind of what's the balance between that projection on the production versus payoff perspective? Do you have a lot more visibility into kind of a reduction in payoffs just as construction projects are maturing? Or maybe just walk us through kind of how you're looking at the next couple of quarters from a net growth perspective? Gregory Robertson: Yes, I think from a net growth perspective, as we get further away from kind of the impacts of bringing on '22 and '23 deals in those years, as we move through the year, we should see payoffs slightly reduce. I think the way we're thinking about net loan growth as we go forward with the addition of the new teammates, we're thinking about high single digits to 10% maybe in the second and third quarter, which would end up offsetting kind of the slow first quarter with the mid-single digits, 6% to 8% -- 5% to 6% range loan growth on an annualized basis. David Melville: I'll just add, this is -- things aren't always smooth lines. And you'll remember in the third quarter of last year, if I remember correctly, that we had elevated paydowns and lower growth in the third quarter, but then we had a -- I don't want to say a record fourth quarter loan growth, but it was a strong quarter, fourth quarter. And if you balance the two, it ended up being kind of at this about 6% range. And we had more paydowns in the third quarter than we did in the fourth quarter. And I would anticipate that same effect helping us from a net loan growth over the remainder of the year. Greg is right that there will be a point at which those larger dollar construction projects don't -- aren't material in terms of their continued impact on the portfolio. And then again, we've hired, I think, to date, about 11 new producers and more production-oriented staff, and we'll continue to look for talent as we see the opportunity. So -- and none of their pipelines, obviously, have been manifested in terms of actual loan growth yet. And so we anticipate seeing some of that in the second quarter, but really the third and fourth quarters being reflective of that additional strength. Gary Tenner: Got it. Appreciate that. And just on the construction segment topic just for another second, where do you see that segment kind of bottoming out or stabilizing as a percentage of the overall portfolio? You're right over 10% right now. Where do you see that trending? Like where is your appetite and comfort level with that? Gregory Robertson: I think we're getting close to the bottom now. I think you can see it bounce in the high single digits to 10% range on a go-forward basis would be comfort spot. Operator: Our next question comes from the line of Matt Olney with Stephens. Matt Olney: Just want to go back to the net interest margin. And I'm trying to appreciate if there's any more noise in that margin in this quarter. I went back to my notes last quarter, and it looks like there was that interest reversal that impacted the margin by about $1 million in the fourth quarter from that Houston loan that we discussed. Was there any kind of interest reversal again this quarter with the uptick of nonaccruals? Yes, I'll just leave it there. Gregory Robertson: Yes. Yes, you're right. There was some noise. I think when you think about relative to the nonaccruals, there was about $1.2 million in interest reversal. That was probably attributable to 6 or 7 basis points impact on the margin. That was due to the movement of about $25 million in loans to NPL during the quarter and the reversal. Kind of as we go forward, I think we'll start inching back toward reclaiming some of that as an earning asset. But as I mentioned, I think earlier, the timing of how that comes back to an earning or converts back to an earning asset is a little bit tricky because we're still having to resolve these in real time and the twists and turns sometimes of a conflict resolution of some of these credits, it's a little bit unpredictable. But we see some opportunity on the horizon with that for sure. Operator: And at this time, we have no further questions. That concludes our Q&A session. I will now turn the call back over to Jude Melville for closing remarks. David Melville: Okay. Well, again, I appreciate everybody being with us and the questions and the attention and energy that you're giving to our calls. We again feel very positive about the first quarter and not only the performance in the first quarter, but also some of the investments and additions that we've made in the first quarter, which will lead to even more positive results in the future. We like our footprint. We like our people and I just look forward to turning the wheels over the course of the year and showing some of that incremental progress, which will lead to increased ROAA and ultimately, tangible book value. We just keep doing what we do. So I appreciate our team for all their effort. And again, I appreciate your attention this morning. Feel free to reach out if you want to talk any more detail about anything. Thank you all. Have a good week. Operator: This concludes today's conference call. You may now disconnect your lines at this time. Thank you for your participation, and have a pleasant day.
Operator: Good morning, ladies and gentlemen. Welcome to Galp's First Quarter 2026 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations. Joao Pereira: Good morning, everyone, and welcome to Galp's First Quarter 2026 Q&A session. I'm joined today by our Co-CEOs, Maria Joao Carioca and João Marques da Silva as well as the full executive team. But before passing the mic for some quick opening remarks, let me start with our usual disclaimer. During today's session, we will be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. Having said this, Joao, would you like to say a few words? Joao Diogo da Silva: Of course. Thank you, Joao, and good morning, everyone. Galp had a strong start to 2026 in a quarter marked by higher volatility and geopolitical tensions in the Middle East. Galp has no direct exposure to the region. Our operations are mainly Atlantic-based. Still, we are closely monitoring developments, and the impact can be felt globally. Due to disruptions across parts of the value chain, our Midstream team has actively managed crude and refined product supply, well done. This allowed us to so far to secure a healthy position for Galp and for Portugal. In our Commercial business, we have also reinforced campaigns and discount mechanisms to help our customers to manage the impact of higher fuel prices. And overall, during the quarter, we have continued to run our operations efficiently. In March, our Upstream and Industrial assets showed strong availability, allowing us to benefit from higher commodity prices. Maria Joao, over to you. Maria Joao Carioca: Thank you, Joao. Good morning, everyone. The quarter's solid operational performance that Joao just highlighted flowed through to the P&L and actually further supported Galp's robust financial position. I would highlight the fact that net debt remained stable quarter-on-quarter despite the balance sheet working capital impact from the sharp increase in commodity prices. We're focused on managing ongoing market volatility and supply disruptions, but this has not at all hindered our continued execution in the strategic initiatives that are currently underway across our portfolio. We continue to strive for both pace and discipline in our execution. In Namibia, procurement activities are progressing, and that allows us to remain on track to start drilling activities on the next exploration and appraisal campaign by Q4. At the same time, discussions with NV shareholders regarding the merger of our downstream businesses continue to evolve positively. So we continue to have a potential agreement still expected by midyear. Overall, 2026 is indeed shaping up to be a challenging but also a rather exciting year for Galp. Operator, we are now ready to take questions. Operator: [Operator Instructions] And our first question today comes from the line of Matt Smith, Bank of America. Matthew Smith: I wanted to focus on the Upstream business first. I think you mentioned Bacalhau contributed 10,000 barrels to performance in the quarter, which would make the underlying Brazil performance look extremely strong versus recent history. So I was just hoping you could give us a bit of color there and any context how that's running versus your full-year guidance, that would be useful. And then I just also wondered price dislocations has been a hot topic for April. Is there any color you could give us in terms of the realizations that you're achieving on your crude post quarter end? And then I guess, on the other side of the same coin, what Refining margins have done since the quarter end? That would be useful. Maria Joao Carioca: Thanks, Matt. Thanks for the question. So let me try and tee it off with some comments on Bacalhau and I guess, overall on the performance of our Brazil Upstream business. So overall, rather good performance. I think it maps out against what we had in terms of the guidance we had given. We've given 125,000 to 130,000 barrels, and we've delivered at the very top end of that guidance. Bacalhau has indeed been a part of that [ up end ] guidance. I would, nevertheless, stress that we're still ramping up the unit. So it's good indications. We now -- we've had 2 producers already registering significant flow rates, and the third producer is already connected. And that has indeed been delivering according to our expectations of a good reservoir. But in any case, we're ramping up. So it's still commissioning. It's still, I'd call them maybe hiccups to expect. Plateau is still expected later in 2026. So overall, very good indications, good performance, but I would nevertheless remain conservative and remain within the estimated time frame for plateauing and for the overall ramp-up to take place. So other than that, our legacy business in Brazil continues to perform rather well. You know that there are ongoing works in Tupi to continue to maintain the current good performance of the wells. You know that this is still ongoing set of partnerships that have been the cornerstone of our performance. So no major comments there, just general good performance. On the realizations of our different businesses, but I believe your question referred particularly to equity crude. I think, as you know, about 70% of our exports flow through to China. We, in any case, normally deliver on index to dated Brent circa 2 months ahead. So the fluctuations that you saw throughout this period did not necessarily capture the full breadth of the impacts we suffered. In any case, in equity crudes, we registered a discount of approximately $5 per barrel. And this just fundamentally reflected the fact that what we were seeing throughout the period in terms of the costs underlining our activity, particularly when you saw it during the period concerning freight costs was indeed a lot of fluctuation and a lot of volatility. Thank you. Joao Diogo da Silva: Allow me to complement on the Refining margins, your question. Of course, when we compare ourselves with the highs of March, we are observing an average of between $10 to $12 per barrel. On the last couple of days, additional volatility, margins increased up to the [ 20s ]. But more importantly, what we are expecting is to operate at full availability during the next couple of quarters. Reminding that [ Siemens ] refinery outputs are 45% on mid-distillates. Jet will account for less than 10% of that. And if we look at the downtrend from March, it reflects a bit of margin squeezing by rising input costs, and I'm speaking about utility, freight cost inflation. But we are also looking at some decrease on the oil product prices, mainly on diesel and jet as pricing is reflecting a probable resolution on the conflict. And finally, Europe margins declined more versus other regions, again, representing a different higher utility gas prices situation. And I'll stop here. Operator: Your next question today comes from the line of Alejandro Vigil from Santander. Alejandro Vigil: Congratulations for the strong results. The first question is about the guidance of '26. You started the year with very conservative guidance. If in the current context of higher energy prices, you are considering some increase in this guidance. And particularly more important, the implications in terms of shareholder distributions, you're expecting some additional cash flow to shareholders driven by these high energy prices. And the second question is about the Moeve joint ventures in the Iberian downstream. If you are close to closing these transactions, if you are seeing some releverage opportunities in the joint ventures that you are setting with Moeve? Maria Joao Carioca: Alejandro, on the updating of guidance, we acknowledge, obviously, that the macro that was underlying our existing guidance is, to a large extent, no longer directly applicable. It no longer holds. We've seen significant changes in terms of most commodity prices and most underlying adjacent costs. But in any case, what we are at this stage acknowledging is that the situation continues to be of high volatility, way too many moving pieces. So we don't feel that this is the time to pin down the new guidance. We will be looking and most likely doing so as we publish our second quarter results. Right now, sensitivities are for us, the tool that's guiding us through the period. So what we're looking is fundamentally approximately numbers that you've seen in the past for Galp, but it's approximately $160 million for each $5 of Brent impact and a bit under that. But well, if you take each $5 of Refining margin, I'd say that the sensitivity is approximately $200 million. So we're navigating the volatility using uncertainties, and we're certainly looking into what are the underlying large trends in the market to support this. And then once we see some more firm ground, we will look to revise the guidance. The second part of your question on distributions, I think it follows through from my initial comments. So again, we will not be revising distribution. It's really early to assess all the full impact of everything that's going on. So we do see that our distribution policy, the 1/3 OCF in itself already embeds flexibility to capture part of what is the current circumstance. And I think this will give a great segue for Joao to comment next on Moeve, particularly because this business is in itself rather transformative. Our expectation is that it will be value accretive, and there will indeed be elements of releveraging that Joao will comment on. But those again speak to our not moving our distribution policy at this stage. Joao Diogo da Silva: Alejandro, well, just giving you some [ sequence ] from Ms. Joao's words, we've highlighted a number of times that both companies are to be designing as self-funded ring-fencing industrial versus retail businesses differences. At this point, well, I need to say that we've seen a lot of traction in the market. That's what we've been receiving from the investor side, from the financing side and these companies to be independently run with financial flexibility. Of course, we will be looking at the optimal finance structure and leverage all the way down. So that's what we are expecting. That's the flexibility that we need to enhance. And you are absolutely right, the macro scenario will, of course, releverage some opportunities. Operator: Your next question today comes from the line of Biraj Borkhataria from RBC. Biraj Borkhataria: Two, please. Just the first one is just on Bacalhau. If once we get to a full ramp-up phase, how should we think about the Upstream sort of DD&A and OpEx per barrel at the blended rate, given the mix of assets there? And second question is just on the Venture Global offtake that you have. Could you let us know how much of those volumes you've hedged for 2026 and how much is sort of exposed to the upside and widening spreads? Maria Joao Carioca: [Technical Difficulty] the low 2 digits. I'm not sure you picked up my -- the initial part of my answer. I think there was some technical issue here. So I'll just very quickly repeat through. On Bacalhau, right now, the numbers you're seeing are fundamentally numbers that reflect the fact that we're still ramping up. Now having said this and going straight to your question, what we're seeing in terms of DD&A expectations is in the low 2 digits, of course, once you plateau. And this should bring us to operating costs that are not too dissimilar to what we have right now, maybe slightly above what we have right now as we truly perform in the upper 2s, lower 3s right now. And what we expect for Bacalhau is to be fundamentally in the 3 to 4 operating cost figures. I'll let Joao comment on the hedging numbers for LNG. Joao Diogo da Silva: And Biraj, really quick one. So consider between 70% to 75% hedged on the venture contracts in 2026. Operator: And the next question comes from the line of Josh Stone from UBS. Joshua Eliot Stone: Just building on the last question, I wanted to ask about the Midstream and the outlook there, just given the widening of gas spreads and your ability to capture that. So just talk about, one, how the business actually performed if you adjust out the time lag? And two, what you're thinking about the outlook? And secondly, I wanted to ask on Refining because you spoke back about some Refining margin trends. And based on -- I presume that's based on an indicator. I'm curious as to how do those indicators match with what you're seeing on the ground in terms of Refining profitability. And with the extreme backwardation we've seen, has that had created any disconnect between like on-the-ground profitability versus the indicators you're looking at? And maybe as part of that, can you can talk about the role of hedges and your hedging position in Refining? Joao Diogo da Silva: Thank you, Josh. you should consider on our latest guidance to our Midstream above 500 million into 2026. We still see some supportive but narrower gas spreads. Consider that the trading gas is contributing around 70% of our total performance. And that largely, as I've just mentioned, a large portion of that is already locked for 2026, around 70%. Of course, we have some flexibility on the portfolio, and we have an increased footprint in Brazil. And that's basically what we have. On the Refining side, our crude procurement is based on the physical products. And you know that -- well, we have mainly selling products at the market condition in the Iberian Peninsula. Of course, we are long on the gasoline side, and that's one of the products that we are long in. But namely, we are counting on a fully operational refinery to capture the market conditions, and I'll stop here. Operator: Your next question today comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: The first one, thinking about the recent view on onshore wind, I was keen to hear more about the rationale to increase exposure in renewables at the moment, how to think about the long-term positioning in this division? And if we should be expecting more opportunistic deals like this one over the coming quarters? And then secondly, going to your Commercial segment, I know that in your opening remarks, you commented about campaigns and discount mechanisms to move the impact of higher prices to consumers. I was keen to see if you are seeing some sort of slowdown in sales, even though you have implemented those measures, or not so far? Joao Diogo da Silva: Thank you, Guilherme. Maybe I'll start on your second one. And it's true, we are observing different behaviors on the Spanish side and on the Portuguese side. Of course, the different framework that the Spanish market has changing prices on a daily basis, influences demand and pricing in a different way. On the Portuguese side, on the retail -- namely on the retail, we change -- we have weekly prices. And those discounts and those campaigns are reflecting an additional help that we think our customers need today. That's why we've launched the recent campaign on the [ Mundo Gulf ]. But more than that, since early this year, we've started a more broader campaign cross-selling oil, gas and power and also in the retail side. We have observed, namely in March, an increase on the volumes. And it was like a push before the prices going up on the Portuguese side, and that's something very normal. That will be, of course, neutralized on the April volumes. It was more on the Spanish side, if we compare the two markets, the Spanish market, namely on the March volumes, had a more substantial increase than the Portugal one. But of course, we are operating in a high prices context, and that's something that will affect the average ticket volumes that we have. Substantial contribution from the nonfuel business also around 22% of the overall Commercial business. Going back to your first question and on the offshore, on the wind rationale and thinking ahead, I need to tell you that, of course, this recent acquisition allows us to have a much more balanced portfolio. Wind now represents around 25% of our generation mix. And of course, if we think further, it will enhance eventual long-term strategic optionalities and partnerships that we may have. I need to remind you that we are challenging -- almost every day, we challenge ourselves if we are the best owners of this business and of course, if we have the best structure to manage this business. But all in all, we are trying to diversify and to optimize our Renewables business, and that's where we stand today. And that's where we will be standing on the next couple of months. Operator: Your next question today comes from the line of Sasikanth Chilukuru from Jefferies. Sasikanth Chilukuru: I had two, please. The first was in Refining and getting back to the hedges. I was just wondering if you could further elaborate on your hedging strategy in Refining. It would be helpful to understand the rationale, the hedge profile for the current year and into 2027 and the type of hedging structures you're using there. The second one was on Bacalhau and the ramp-up. I was just wondering if you could comment on the cash taxes paid there and the impact that this field has at the group cash tax rate this year and for 2027? Maria Joao Carioca: Thank you for your question. So let me maybe complement what João has already shared with us on our hedging strategy. So we have hedging strategies in place for both Refining and Midstream. I would highlight the fact that there's no hedging in place for Upstream. But on Refining, in particular, which I believe was your question, the policy we have -- and again, this is a hedging policy that's been syndicated with the Board. It goes through Board oversight. It goes through all of our risk management and internal control processes. So it's under strict limits and triggers. Now the limits we have on board right now, the ones we're acting against are for Refining, circa 1/3 of our throughput. So if you look at what we have in place right now for 2026, and that's fundamentally flat throughout 2026. What we have in place is about 28 million barrels. That's locked at approximately $8 per barrel, again, flat throughout the year. Into 2027, we don't have any significant positions. We don't have any hedging into 2027 for Refining, again. Now on Bacalhau, the regime under which Bacalhau is, is still a shared regime. So it's 50-50 between concession and PSC. So that gives us a relatively benevolent tax regime vis-a-vis the remaining assets we have in Brazil. So we acknowledge that this is overall a lower SPT rate than what we have, for instance, in Tupi, and that is going to be obviously a part of what we believe will be the approximately 400 million of OCF that Bacalhau will be delivering once it plateaus. Operator: [Operator Instructions] And our next question today comes from the line of Michele Della Vigna from Goldman Sachs. Michele Della Vigna: Congratulations again for the strong performance. Two questions, if I may. First, on exploration, it's going to be very exciting in Q4 in Namibia. I was also wondering if you could update us on your thinking about Sao Tome and the attractiveness of that basin. And secondly, I wanted to come back to the carry that you're getting for -- in Namibia for both exploration and then the Mopane development and how that is likely to be accounted, whether that will be -- effectively, whether your CapEx will be net of that or whether that will be considered as a financing and the gross CapEx will reflect the full spend on Mopane? Maria Joao Carioca: Thank you, Michele. So on exploration, I know that exploration is all that the industry is talking about these days, quite a change from a few years ago. But on exploration, in particular, we are very focused on Namibia right now, as you well put it. So we're trying to make sure that all the conditions are in place and everything is going according to plan to a large extent. So we do expect to have news towards the end of the year. On Sao Tome, as you know, that's a much earlier-stage basin. So nothing too significant going on here. So it's still in our forward-looking plans, and there are no major developments in recent days or recent times that I would highlight at this stage. As for Mopane carry, how will you reflect it, I'm afraid at this stage, that is still being fully assessed with our auditors and our accounting. So of course, we'll be looking for a very clean disclosure. And so ideally, we would be reporting CapEx just for that component that reflects our responsibilities once the deal is closed. So once that is closed and confirmed, we actually hold 25% of full responsibilities, and that will be what we will be trying to show as explicitly as possible in our financial statements. The exact way in which we'll be doing that is still under discussion, while the deal isn't fully closed yet. So we're still waiting for Namibian authorities to close that component and then for the GOA to be fully detailed. So we will get back to you on that, of course. But for now, it's the 25% financial responsibilities, and we will be showing that through our accounts. Operator: Our next question today comes from the line of Matt Lofting from JPMorgan. Matthew Lofting: Most of mine have been asked. I'll just ask a couple of follow-ups downstream related. I think you mentioned earlier sort of a near 10% jet fuel yield that Galp can generate at Sines. That's high or sort of high end relative to industry averages. So I wondered if you could just talk about what enables Galp to generate that kind of jet yield from Sines and whether you see any additional upward flex in the context of almost inevitable tightening in jet supplies in Europe now over the coming weeks? And then secondly, when you sort of think forward, uncertain backdrop, but if we do see a sort of prolonged knock-on effect from Middle East conflict for middle distillate supplies in Europe over the coming months. To what degree could the combination with Moeve enhance Galp's ability to produce and source middle distillate supply for Iberia and Europe as a whole? Joao Diogo da Silva: Thank you, Matt. So going back -- and we need to go back in history to understand that. We've made a couple of investments that allow us to be today as we are producing such a yield. I'll go back to 2012, where we've done a couple of investments on the idle cracker. And that's why we are getting such a yield on the jet side. Of course, we will be trying eventually to reduce additionally the jet volumes blended into the diesel pool. We are, of course, also increasing the average inventories, but that's a different thing, managing the whole context that we have from the Middle East. On the Moeve combination, of course, we are getting scale, additional scale. We are getting complementary assets also, but it's still very early for us to speak about that. Of course, that we were thinking about the SAF and the SAF production units that we have been building through the last years, ourselves and Moeve. And that's a very important asset to look at on the synergies. But it's still very, very early to say that. Complementary optimized logistics, supply chains, that's what we are looking at, turnaround efficiencies, higher trading firepower. So that's where we are when we look at the transaction. Thank you. Operator: We will now take our final question for today. And the final question comes from the line of Paul Redman from BNP Paribas. Paul Redman: I had two questions. Firstly, I just wanted to ask about Namibia. Is there any update on the drilling campaign? And I wanted to ask about timing of FIDs and development. Is there any opportunity to accelerate Mopane? The previous plan had been Venus first and Mopane second. Could there be a world in which that changes and Mopane could be brought forward? And then secondly, I know it's early, and clearly, you have a lot of strategic moving parts at the moment. But this quarter, you kept net debt flat despite a EUR 200 million working capital build, EUR 160 million at [ year ] out for 2P. So if I ran this forward on the 1Q scenario, your balance sheet is going to materially delever through 2026. that's even before we get to the world of if Rovuma LNG gets sanctioned, you get cash in from that. So I wanted to ask how you're thinking about the balance sheet at the moment? And then how you're thinking about allocating capital going forward? Is this -- could you see more M&A? Is it all back to shareholder? So just kind of get your early thoughts on how to think about it. Maria Joao Carioca: Paul, thank you for your questions. So let's start with Namibia. Maybe just an overall status and next step, so I think it's relevant to say that at this stage, where we are concerning the partnership is, good pace moving forward. I think one of the critical steps that was concerning the preemption rights, that timeline has expired. No preemption rights were exercised. So right now, we're just looking on to the local authorities to make sure that government approval comes as swiftly as authorities find it viable to come through. I think that the tone continues to be a very positive one. I think if you're looking into Namibia, just recently, the discussions on the basin, the conference that took place are all very, very positive and very mindful of the current context and the implications that has for a new location such as Namibia. So once we get that approval, we then will be in a condition where we will be able to discuss the more operational aspects. So the details on the GOA, the operatorship transfer. So all in all, what we are expecting for Mopane, in particular, is still that we will be able to initiate the next campaign in 2026. If the first drills are positive, we will then look into the DSTs. So I remind you that the work we're doing -- that we will be doing now in this stage will fundamentally be work towards making sure that we have the optimal development concept. So without that development concept mature, that's clearly too early stage to be discussing any significant changes in what were the underlying time lines both for Mopane but also for Venus, of course. And I will remind you that for Venus, until the operation is closed, we're not yet in the consortium. So I'm not going to comment extensively. I think it's public, and we have visibility over the fact that everything is moving and we're working clearly towards having an FID in mid-2026. So that is, of course, well in advance of the current stage that we have for Mopane. I will again remind you that Venus has always been at least 2 years ahead of Mopane. So these time lines, we may be able to work through some aspects, but it's to have a fundamental turnaround and shift would be a significant departure. So yes, we'll be looking to accelerate. Yes, once we get everything closed and Total comes in full steam, that is hopefully a fast track towards Mopane. But at this stage, doesn't fundamentally change the sequential timeline that we had. On the second part of your question, so jumping from Namibia and Upstream to the overall portfolio, as I understand, your question was overall, how do we see the portfolio moving forward? I think, again, Paul, we have a distribution policy that's been pretty stable and that we cherish as such fundamentally because we believe that our financial strength has been very value accretive in what we've been doing with the portfolio. I think we've demonstrated extensively that we're not sitting on the portfolio. We're actively managing it, both upstream, downstream and even in the way we're delivering on renewables. That speaks of a portfolio that leverages on our current financial strength, leverages on our balance sheet and fundamentally has allowed us to do what we believe to be a unique case in the sector. We're delivering growth with a very clear line of sight, and we intend to stay that way. We have a very strong engine in upstream, and that engine is being upholstered as we speak and strengthen. So that's where we want to be. It's -- if we continue to deliver on this investment case, this is a unique investment case, and that's what's going to drive us forward. And that's what we're going to be looking at in terms of capital allocation. Thank you. Operator: Thank you. This concludes the Q&A and today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Groupe SEB 2026 First Quarter Sales Presentation. Today's conference will be hosted by Stanislas de Gramont, Chief Executive Officer; and Olivier Casanova, Senior Executive Vice President and Chief Financial Officer. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Stanislas De Gramont: Good afternoon. Thank you for attending this call. I'm Stanislas de Gramont. I will be managing this presentation together with Olivier Casanova, our CFO. We will start with a short presentation, I think, and then we'll carry on with answering your -- all the questions you may have. Olivier, you want to get started? Olivier Casanova: Okay. Thank you, Stanislas. So moving on to the key figures for the quarter. Our sales stood at EUR 1.885 billion, up 2.7% on a like-for-like basis. ORfA stood at EUR 72 million, up 42% and operating margin was up 1.2 percentage points at 3.8%. So moving on to the highlights on the next page. As I said, 2.7% organic growth. Of course, we have been operating in Q1 in an environment with a lot of uncertainty on the macroeconomic and geopolitical front. And of course, it has deteriorated in the latter part of the quarter. We'll come back to that, no doubt in the Q&A. In this environment, however, we have delivered balanced growth between activities and region, driven in large part by our innovation portfolio. ORfA has increased year-on-year, of course, supported by a favorable base effect because the Q1 ORfA of last year was low by historic standards, but also supported by organic sales growth and a decrease in operating expense. And finally, we have launched the rollout of our Rebound plan, and it is progressing in line with the announced schedule. So moving on to the top line. So as I said, 2.7% organic growth. We have a currency effect of minus 3.8% and no change in scope because La Brigade de Buyer, which was acquired in -- at the beginning of 2025 was consolidated for a full quarter. So let's describe briefly the currency effect. Of course, we have a negative impact from the depreciation of the CNY and the U.S. dollar. We all remember that they were actually quite firm in the first quarter of last year. And the CNY has depreciated year-on-year 6% and the U.S. dollar 11%. Secondly, we have also suffered from the depreciation of the Turkish lira and the Japanese yen. We can expect, in particular, for the U.S. dollar and the CNY, of course, a lower impact later in the year given the depreciation that we experienced in '25. Now let's look at the split of our turnover by business unit. So our Professional business unit had EUR 231 million sales in Q1, up 1.1% on a like-for-like basis and Consumer sales stood at EUR 1.654 billion, up 2.9% on a like-for-like basis. So overall, as we said, a balanced organic growth, 1.1%, as I mentioned, on Professional. And you can see that on the Consumer side, it's also quite balanced by region with 2.5% growth in EMEA, 2.2% growth in Asia and a hefty 6.7% growth in the Americas. So now I turn over to you, Stanislas, to cover these results in detail. Stanislas De Gramont: Thanks, Olivier. Let's look now at the detailed description of our activities per activity -- sorry, sales performance per activity. Starting with the Professional business, where we experienced a slight organic growth with an activity that is up 1% organically, which is very much in line with our Q4 2025 trend. What we can see on the less positive side is that a persistent client wait-and-see attitude, of course, in the United States. This has not changed materially since the last quarter or the last quarter of last year, but also in the Middle East for obvious reasons, and that's intensified by the geopolitical context, of course. Yet we see a continuation of the positive commercial momentum, consolidating our leadership in China with Luckin Coffee, our biggest customer out there, but also new contracts in tea chain segment with a customer called Cha Panda, which is progressively expanding -- where we are progressively expanding our coverage. We also see new customers coming in, in North America, a chain called Scooter's of restaurants, that's a very good customer for us. And last but not least, Europe has shown positive performance, driven in particularly by the service business, which is more than elsewhere compensating the wait-and-see attitude on new machines purchase. We see and we are expanding our new growth levers. You know that by now that we've opened our Chinese hub in Shaoxing for production and development of new coffee machines, new ranges of coffee machines. And the 2 first new models we've developed called Peak and Elevation have seen great reception, particularly in the small businesses and offices segments, be it in Asia or in Europe. Now when it comes to the Consumer business, Olivier was saying that we have a balanced organic growth with total Consumer up 2.9%, EMEA up 2.5%, Asia up 2.2% and Americas up 6.7%. And before going into the details of these performance, it's interesting to look at the innovations that drive this performance. The big hit of last year, the washer category with X-Clean 10, which category we've reached EUR 100 million in 2025. We launched and are expanding last year -- we launched last year and are expanding this year, AeroSteam, which is the first vacuum garment steamer. We have a great expansion of our Titanium wok in Supor in China. The big success of Q4 last year that is continuing into Q1 is Cookeo Infinity, which is combining great multi-cooker programming and cooking programs together with air fryer function and the storing function. And the last 2 newcomers in the market that have been launched in France in March are Pizza Pronto, which is an electric pizza oven outdoor and Coffee Crush which is a revolutionary bean-to-cup coffee machine, which again, has started in France in March and is really giving promising results at the start. But beyond products and product innovations, we've also moved forward in the way we interact with consumers. We've made 2 kind of great activities. We had -- we organized in early April in Paris, a SEB Fashion Domestic Show with a digital show and staging, showcasing our consumer innovations, staging products as iconic pieces with lights, music, narration, a very original way to portray and to display our products. We've done great stunts on collections and immersion with product demos, with interactive experiences, with a gallery of innovations in best sellers, outdoor spaces, conviviality and tastings. And last but not least, we had great following and attendance by influencers. We've generated premium content on site that have boosted the visibility of those innovations. We had over 60 influencers with a cumulative reach of 16 million people. And in the very day of the event, we had already 1 million views on content generated that day. So that's what we did generally to introduce our innovations in France. But we also did a very specific dedicated event for the Coffee Crush launch, which started actually 2 months before the event with a prelaunch phase with influencers. We co-created content with them, the Crush Crew, as we call them, with a claim that is all the taste, less space. This machine is only 15 centimeters wide. So it is the most compact bean-to-cup coffee machine. And during that event at the end of March, we gathered 75 influencers with a total reach cumulated over 20 million. And since launch, we've generated over 5 million views. And last but not least, we've launched it in France, but we are now fast rolling out in over 50 markets by the end of 2026. So you've heard us say in the last few months that we will evolve our go-to-market, and we will intensify and accelerate our innovation strategy. And I think these are prime examples of what is changing in the way we connect and interact with consumers. Now back to numbers. EMEA had a pretty good quarter at 2.5% growth like-for-like, with Western Europe up 4.8% and other EMEA countries down 1.8% or is organic. In Western Europe, we had some positives with a good flow of loyalty programs. In fact, it is more than the flow of loyalty programs. Q1 last year was historically weak. So we are back this quarter on a regular flow of loyalty programs for the first quarter, maybe a little bit high, but still in line with what we usually do. That's the positive and the negative. Our German market remains challenging, and that continues the 2025 trend, which we are working very hard to fix. And the great super positive is France that delivered 21% growth, 5%, excluding loyalty programs, gaining market share and strengthening our digital activation strategies. So all in all, Western Europe that has been holding up quite well. Whilst in the other EMEA countries, we've experienced a slight decline in organic sales. Comps driven mainly for Eastern Europe. We had a very, very strong Q1 last year. We see growth in Turkey. That's great. And we have, of course, significant direct disruptions in the Middle East. Middle East is circa 2% of the total group revenue, but around 10% of that region, and that weighs somewhat materially on the performance of that subregion. If we go west to the Americas, we've confirmed in Q1 the improvement of sales in North America. We are up 4.7% like-for-like, driven by market share growth in cookware and in linen care in the U.S. And those market share gains are driven by innovation in a somewhat deteriorating market. Mexico shows negative sell-in impacted by still high inventories from retailers and fans, but positive sell-out, leaving a room for an improvement through the year. When it comes to South America, we've experienced a return to growth, up 10.9% in the subcontinent, driven by range expansion into new categories, coffee-based products, floor care, blenders, a less pronounced decline in fan sales. You know that we are still comping strong numbers. And of course, this La Niña effect is fading away, a favorable comparison base in Brazil, which was pretty slow last year in Q1 and a very healthy continuous double-digit growth in Colombia. If we go East, China growth momentum is maintained at 2.3%, that continues 2025 trend. The environment is highly promotional still in China, and we are managing the balance between sales growth and profitability growth. Our growth is multi-category driven by cookware. I mentioned the Titanium wok as one of the key innovations for the year, but also kitchen utensils, garment steamers, rice cookers with new heating systems, which are catching up very well in the market. And we are confirming notable success for Supor in social commerce. We are #1 in Douyin. Douyin is, as you know, the Chinese name for TikTok. Going around the other Asian countries. Overall, it's a positive quarter with continued growth in Japan and continued growth in South Korea, where the market is still very complex. We have good momentum in most Southeast Asian countries, especially online and in social commerce, 2 strong platforms, Shopee and Lazada, where we are driving the bulk of our growth up there. And we're expanding our ranges of products in Australia with blenders, spot cleaners and others. Now how does that materialize in [ profitability ]? Olivier Casanova: Okay. Thank you. So first, let's say, a reminder, which we, of course, provide every year for the first quarter. As you know, this is historically providing a limited contribution to the full year results given the seasonality of sales. And secondly, of course, we need to be cautious and not draw too many conclusions on the full year trajectory. And of course, in addition, last year was a particularly, let's say, low quarter for Groupe SEB. That being said, we are delivering EUR 72 million of ORfA in the first quarter, up 42% on Q1 last year. This translates into 3.8% operating margin, up 1.2 percentage points. This is the result of positive organic sales growth, which is driving increased contribution at the gross margin level. We are benefiting, as we had announced from positive currency effect in the quarter. Of course, the positive contribution of short currencies. You remember that those benefits, let's say, took some time to filter through our P&L last year. But finally, in Q4, we benefited from this positive contribution. And as expected as well, we are seeing in Q1 this year, a better offsetting of the long currencies depreciation through price increases. In addition to these elements, we are benefiting this quarter from decreasing operating expenses, which is, let's say, principally the result of selectivity in terms of growth driver engagement, but also reduced structural costs, in particular, on G&A, which is evidence to some extent also from the [indiscernible] initial benefit of the Rebound plan. Stanislas De Gramont: [Foreign Language] Olivier, I will now go on the outlook with 2 parts. The first one is still fairly qualitative, but I think it's worth mentioning. It's on the Rebound plan. We are deploying that plan and the deployment is in line with our objectives and deadlines. As you remember that the Rebound plan was with 2 dimensions. One was to reinvent our growth model and you see that there is an acceleration of the innovation. You see that there is an evolution of our marketing transformation, and we are deploying this marketing transformation throughout our market companies. We have an ambitious target of reducing our SKU ranges by 20% to 30%, depending on the categories. We've identified 80% of the candidates and are now in the execution phase of that project. And when it comes to the second dimension, which is about reducing our cost, we've launched almost all initiatives related to indirect purchasing. And we already see in the first quarter some initial benefits in the P&L. So that's great. I mean that is what supports the first quarter that is ahead of expectations in terms of profits. And when it comes to the dimensions of industrial efficiency and overheads, we started our negotiations with employee representatives the day after the announcement on the 25th of February. And today, those negotiations are in line with the set schedule we've set ourselves. So we confirm what we've said as a time line for the Rebound plan. Now when it comes to the outlook for 2026, we've added a comment -- the outlook is the same as the one for 2026 as the one we shared back in February. We've added one comment, which is about the uncertain and deteriorating macroeconomic and geopolitical environment. Even with that, we confirm our ORfA growth in 2026 together with a more normative free cash flow generation. And we also confirm our ambition to lower our financial leverage in 2026 with the objective of returning to the group standards of around 2x, excluding acquisitions by 2027. [Foreign Language] It's been pretty fast. It's now your turn to come up with your questions that we'll be delighted to answer. Thank you very much. Operator: [Operator Instructions] The next question comes from Ope Otaniyi from GS. Opeyemi Otaniyi: Just 2 from my end on sort of what you're seeing from consumers, but also maybe addressing sort of anything that's changed from -- on logistics and costs just given the current crisis. So do you mind just giving a sense of what you've seen through the quarter in terms of consumer behavior and how you see that translating into sort of underlying demand? And then just given the Middle East crisis, could you sort of comment on how to think through costs for the rest of the year, sort of any impact on logistic costs as well or any commodity inputs as well? Stanislas De Gramont: Thank you for your question. Not surprising question. I think it's in everybody's mind. Well, let's say that the first quarter hasn't really seen any impact either on the cost or on the consumer demand or consumer confidence, except, of course, the direct exposure to the Middle East, which I commented in the EMEA segment. The second comment as I would make is we are -- we don't have clarity as anybody else on what is the scenario and what is the impact of that crisis. It depends on the length of the crisis. It depends on the depth of that crisis. And maybe what I can say is that we are confirming our perspective for the full year, having considered the likely scenarios, which are currently being evaluated by the various institutes or economist reports. Maybe the third thing I'd like to add is a lot of our profit because you can ask, well, you would be -- it would be fair to ask but why are you still confident? I think the bulk of our profit improvement comes from our own actions. First, we have a favorable base effect, and we know that we have some negative contractual effects last year that will not materialize or are not -- do not seem to be materializing this year to any extent. So that's the base effect that is probably supporting part of our profit development. Our innovations, we see that our market even in more difficult market conditions when we have powerful innovations that are well activated, we're able to generate some sales and margins development. So I would say the third argument that makes us stick to our forecast is that most of the improvement will be driven by our own actions. Opeyemi Otaniyi: And maybe just -- I appreciate maybe Q1 and Q2 sort of maybe not the most important quarters, but do you mind just commenting on working capital and what you've seen in terms of logistic costs and sort of inventory levels? Stanislas De Gramont: Yes, sorry. Maybe I should have added, but that's -- I made it in my comment of the first quarter performance. We have the Rebound, of course, which will be a contributor to that recovery or that development of the profit base. Sorry, I skipped it because I said it in the last sentence of the [ expose ]. Now logistics, today, what we see is fuel surcharges, be it on the sea freight or on the road transport. Those surcharges are well identified. We know how much they impact. It's a bit early again to share a number. But what we -- the actions we put in place are more than enough to compensate and offset those negative impacts. That's for the cost -- the direct cost side. On the current product access and ability to ship products, we do not see at this stage any impact on our ability to ship products from Asia to Europe or to the United States. And we don't foresee in the current scenario [ maybe ] because the Strait of Hormuz is not a route that we use to ship our products. Does that answer your question? Opeyemi Otaniyi: No, that's yes. Operator: The next question comes from Natasha Brilliant from UBS. Natasha Brilliant: Just to come back to the previous question, just on kind of current trading. You said that Q1 hadn't really had any impact so far. But just to confirm, any color you can give us on the first few weeks of Q2? And if there's been any change, that would be helpful. Second question is just on the Professional business. I think you mentioned some new contracts in China and some new clients in the U.S. So if there's any more detail you can share on those and if you have any visibility on other contracts in the pipeline? And then my last question is just on the Rebound plan and as you start to implement it, if you can tell us what the cost has been so far in Q1? Stanislas De Gramont: I will -- okay, thank you very much. I think that the general comment on all these 3 questions is they're probably a bit early to be able to give you more color. I can answer the first one that today, we don't see any material change in Consumer sentiment in the first 3 or 4 weeks of April. I've been speaking to a couple of customers in the last few days in a couple of countries, and they don't see any material impact. Of course, there's seasonal impact, but nothing where they can say, there's a shift. On the Professional contracts, we don't disclose our contracts. We use those examples to illustrate the fact that the activity, albeit slightly growing only still is collecting and is gathering new contracts in our core business. And we have a pipeline that is not bigger, not smaller than usual on large contracts. And for the cost of the Rebound plan, it's very early. I mean the bulk of the savings that we've collected so far are on indirect purchasing, and they are mostly savings with no cost attached to it. The bulk of the cost of the Rebound plan is linked to the social activities, and those have not been booked yet. Olivier, do you want to complement on that point? Olivier Casanova: As you said, we've indicated during the full year results call that we expect to be booking most of these, let's say, provisions in the second quarter before the June close. We expect at that time to have sufficient clarity on especially the social terms in order to be able to book the provision. So far in Q1, it's still too early, as Stan mentioned. Operator: The next question comes from Marie-Line Fort from Bernstein. Marie-Line Fort: I just want to come back on the currency impact on your first quarter earnings. I know it's not really representative. I just want to know what is the phasing all over the year because you started to benefit to better currencies on Q4. On the top line, currencies will fade in negative terms on your top line as soon as Q3, probably. How do you see the momentum in terms of currency and positive impact on your earnings? That's my first question. The second question is about your -- the indirect savings that you made in Q1. Could you confirm the envelope that you are targeting for the full year? I've got in mind EUR 50 million, 5-0. Could you just confirm these figures? And my last question is about Coffee Crush. Just wanting to know where the machine is produced. The machine is sold at very low prices. Is it still margin-wise, same-wise -- same margins at the consumer? Or would it be dilutive on margin? And also, when do you plan to increase the coverage over the European market? Stanislas De Gramont: Okay. I'll start with the third one, and then Olivier will answer the last 2 -- the first 2, sorry. Coffee Crush is margin dilutive to the Consumer business. It is made in China. It is sold at EUR 350, EUR 320 and EUR 300, which is -- which delivers pretty good margins. It will be expanded in 50 countries beyond France by the end of 2026. So it's a very good business. And it is made today outside of SEB in OEM manufacturer in China. Olivier? Olivier Casanova: So on the currency impact, if I split between long and short. So on the short side, of course, if the CNY and the U.S. dollar remain at the current level, we should continue to benefit from a positive impact throughout the year as we've indicated in the past. On the other -- the long currencies, in particular, currencies from emerging markets, we are seeing maybe less depreciation than we were expecting. Of course, it's impossible to say whether that's going to last or not. But if it does, we'll probably see, let's say, a lower impact than expected. But as you know, in those countries, we are able to compensate the depreciation by price increases. So if there is less depreciation, by definition, there will be less compensation. So net-net, we are probably operating in a slightly more favorable environment in terms of currencies, but I think we need to be very prudent given, let's say, the high volatility in the current geopolitical and macroeconomic environment. On indirect savings, we said that the bulk of the EUR 200 million savings that we are expecting to generate should come from the effort on the structural cost base and that indirect savings will represent a smaller portion. So you say EUR 60 million. I don't recall precisely stating a number, but it's not a million miles away. I think we are confirming that this is very much our objective. We'll see. It's a bit too early to say whether we can exceed that objective, but it's certainly being confirmed by all the more detailed work that we have been carrying on. And as we said, we have already implemented the vast majority of these actions. They are currently already starting to produce some positive results. Operator: The next question comes from Alessandro Cecchini from Equita. Stanislas De Gramont: We can't hear you. Operator: The next question comes from Fraser Donlon from Berenberg. Fraser Donlon: Just checking, you can hear me? Stanislas De Gramont: Yes. Fraser Donlon: So the first question was just about the loyalty programs. Could you maybe help understand what would be the organic growth in Western Europe ex LPs? I know sometimes you gave that number in the past. And then how should we think about the phasing impact on loyalty through the rest of the year? If you could just give a reminder there. And then the second question was just thinking about the changes to tariffs on aluminum and steel products in April. Could you kind of highlight how we should think about that basically for the kind of Tefal products primarily? Stanislas De Gramont: Change of aluminum and steel tariffs in April. So Olivier will take both questions, Fraser. Olivier Casanova: Okay. Thank you. Fraser. On the loyalty program, I mean, the first thing that we should maybe restate is that loyalty programs are, of course, part of our business. They're an integral part of the Consumer business. They are just one of the different ways in which we are doing business. The reason why we sometimes highlight the importance of this loyalty program is that it's the same with large contracts for Professional. They can provide some distortion in the reading of the number. And it's true that last year, our loyalty program were particularly low. And this year, as we said, they are, let's say, back to a more normalized level, and they provide a significant positive tailwind for this quarter. I think the thing to bear in mind is that France is where we have the largest impact. And France, excluding loyalty program, is up 5%. And this is evidence of market share gains in many product categories, thanks to our strong product pipeline. On the second topic, which is the input cost, well, first, yes, we have seen some tensions on raw material. You name aluminum, but of course, we have the same with plastics and, let's say, a few other input costs. The extent of this increase, of course, will depend to some -- on the length of the current crisis in the Middle East. And so we are monitoring this situation, of course, very closely. We have identified already some, let's say, counter-measures and some of them are being implemented, and we will adjust as the situation develops. But as we mentioned, we don't think that they are of a nature at this stage to change our forecast for the full year. On aluminum, more specifically, you will remember that we have a rather prudent hedging policy. And in particular, on purchases for Europe, we are very well hedged above 80% at the beginning of the year. So that is, of course, limiting the negative impact on our results from aluminum increases. Operator: [Operator Instructions] Stanislas De Gramont: Maybe it's Alessandro from Equita? Operator: No, we don't have him back. Stanislas De Gramont: Okay. Operator: The next question comes from Geoffrey d'Halluin from BNP Paribas. Geoffrey d'Halluin: I will have one question regarding to the U.S. tariffs and the Section 232. I guess there is a new proposal from early April, which has been put in place. Just wondering if you have any thoughts and if you could be impacted by this new proposal, please? Stanislas De Gramont: Olivier? Olivier Casanova: Okay. So thank you for the question. It's a fascinating topic, of course. We have to distinguish 2 things: the reciprocal tariff on the one hand and the Section 232, which is applicable for aluminum and steel derivatives. So on the reciprocal tariff, first -- the first topic for us, of course, is to obtain the benefit of the reimbursement after the U.S. Supreme Court decision earlier this year. So we can confirm that we have put a request for reimbursement after the opening of the CAPE platform on the 20th of April, and those claims have been accepted. So we will wait, of course, until -- wait for the reimbursement to hit our bank account before we can, let's say, disclose more details, but that, of course, should be although an exceptional, but it should be a positive for us this year. With regards to the 232, there has been a change in the way this is calculated. It was until the recent change calculated, it was a 50% surcharge calculated on the aluminum or steel content. It's been replaced by a new method of calculation, which is 25% on the overall product. That change is almost neutral for us. So there is no big difference in terms of the -- given the content of aluminum and steel in the product. The final change is the, let's say, removal of the reciprocal tariff and the implementation of a 10% surcharge for all countries. That probably has a moderate net positive impact for us, but we remain very cautious because, of course, these things are fluctuating and we are, of course, monitoring the impact this has on selling prices. So I think net-net, let's say, no material adverse impact, potentially slightly positive. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Stanislas De Gramont: All right. Thank you very much for your questions. No surprising questions. I think this is a solid quarter, one that we were expecting to drive through. We've started the year saying that we would be managing our business with a strong priority of recovering profitability. I think, as Olivier said, the first quarter is only a mere 10% or 8% of the total year. But still, I think it represents the way we want to drive the year. We feel the context is getting more and more uncertain and deteriorated, yet we are on track to implement the right level of actions in terms of margin protection, in terms of cost savings, and we're confident that we will be able to navigate this year with what we see today. Thank you very much for your support. Thank you very much for your analysis, and I wish you all a great result season. Thank you.
Operator: Welcome to the Groupe SEB 2026 First Quarter Sales Presentation. Today's conference will be hosted by Stanislas de Gramont, Chief Executive Officer; and Olivier Casanova, Senior Executive Vice President and Chief Financial Officer. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Stanislas De Gramont: Good afternoon. Thank you for attending this call. I'm Stanislas de Gramont. I will be managing this presentation together with Olivier Casanova, our CFO. We will start with a short presentation, I think, and then we'll carry on with answering your -- all the questions you may have. Olivier, you want to get started? Olivier Casanova: Okay. Thank you, Stanislas. So moving on to the key figures for the quarter. Our sales stood at EUR 1.885 billion, up 2.7% on a like-for-like basis. ORfA stood at EUR 72 million, up 42% and operating margin was up 1.2 percentage points at 3.8%. So moving on to the highlights on the next page. As I said, 2.7% organic growth. Of course, we have been operating in Q1 in an environment with a lot of uncertainty on the macroeconomic and geopolitical front. And of course, it has deteriorated in the latter part of the quarter. We'll come back to that, no doubt in the Q&A. In this environment, however, we have delivered balanced growth between activities and region, driven in large part by our innovation portfolio. ORfA has increased year-on-year, of course, supported by a favorable base effect because the Q1 ORfA of last year was low by historic standards, but also supported by organic sales growth and a decrease in operating expense. And finally, we have launched the rollout of our Rebound plan, and it is progressing in line with the announced schedule. So moving on to the top line. So as I said, 2.7% organic growth. We have a currency effect of minus 3.8% and no change in scope because La Brigade de Buyer, which was acquired in -- at the beginning of 2025 was consolidated for a full quarter. So let's describe briefly the currency effect. Of course, we have a negative impact from the depreciation of the CNY and the U.S. dollar. We all remember that they were actually quite firm in the first quarter of last year. And the CNY has depreciated year-on-year 6% and the U.S. dollar 11%. Secondly, we have also suffered from the depreciation of the Turkish lira and the Japanese yen. We can expect, in particular, for the U.S. dollar and the CNY, of course, a lower impact later in the year given the depreciation that we experienced in '25. Now let's look at the split of our turnover by business unit. So our Professional business unit had EUR 231 million sales in Q1, up 1.1% on a like-for-like basis and Consumer sales stood at EUR 1.654 billion, up 2.9% on a like-for-like basis. So overall, as we said, a balanced organic growth, 1.1%, as I mentioned, on Professional. And you can see that on the Consumer side, it's also quite balanced by region with 2.5% growth in EMEA, 2.2% growth in Asia and a hefty 6.7% growth in the Americas. So now I turn over to you, Stanislas, to cover these results in detail. Stanislas De Gramont: Thanks, Olivier. Let's look now at the detailed description of our activities per activity -- sorry, sales performance per activity. Starting with the Professional business, where we experienced a slight organic growth with an activity that is up 1% organically, which is very much in line with our Q4 2025 trend. What we can see on the less positive side is that a persistent client wait-and-see attitude, of course, in the United States. This has not changed materially since the last quarter or the last quarter of last year, but also in the Middle East for obvious reasons, and that's intensified by the geopolitical context, of course. Yet we see a continuation of the positive commercial momentum, consolidating our leadership in China with Luckin Coffee, our biggest customer out there, but also new contracts in tea chain segment with a customer called Cha Panda, which is progressively expanding -- where we are progressively expanding our coverage. We also see new customers coming in, in North America, a chain called Scooter's of restaurants, that's a very good customer for us. And last but not least, Europe has shown positive performance, driven in particularly by the service business, which is more than elsewhere compensating the wait-and-see attitude on new machines purchase. We see and we are expanding our new growth levers. You know that by now that we've opened our Chinese hub in Shaoxing for production and development of new coffee machines, new ranges of coffee machines. And the 2 first new models we've developed called Peak and Elevation have seen great reception, particularly in the small businesses and offices segments, be it in Asia or in Europe. Now when it comes to the Consumer business, Olivier was saying that we have a balanced organic growth with total Consumer up 2.9%, EMEA up 2.5%, Asia up 2.2% and Americas up 6.7%. And before going into the details of these performance, it's interesting to look at the innovations that drive this performance. The big hit of last year, the washer category with X-Clean 10, which category we've reached EUR 100 million in 2025. We launched and are expanding last year -- we launched last year and are expanding this year, AeroSteam, which is the first vacuum garment steamer. We have a great expansion of our Titanium wok in Supor in China. The big success of Q4 last year that is continuing into Q1 is Cookeo Infinity, which is combining great multi-cooker programming and cooking programs together with air fryer function and the storing function. And the last 2 newcomers in the market that have been launched in France in March are Pizza Pronto, which is an electric pizza oven outdoor and Coffee Crush which is a revolutionary bean-to-cup coffee machine, which again, has started in France in March and is really giving promising results at the start. But beyond products and product innovations, we've also moved forward in the way we interact with consumers. We've made 2 kind of great activities. We had -- we organized in early April in Paris, a SEB Fashion Domestic Show with a digital show and staging, showcasing our consumer innovations, staging products as iconic pieces with lights, music, narration, a very original way to portray and to display our products. We've done great stunts on collections and immersion with product demos, with interactive experiences, with a gallery of innovations in best sellers, outdoor spaces, conviviality and tastings. And last but not least, we had great following and attendance by influencers. We've generated premium content on site that have boosted the visibility of those innovations. We had over 60 influencers with a cumulative reach of 16 million people. And in the very day of the event, we had already 1 million views on content generated that day. So that's what we did generally to introduce our innovations in France. But we also did a very specific dedicated event for the Coffee Crush launch, which started actually 2 months before the event with a prelaunch phase with influencers. We co-created content with them, the Crush Crew, as we call them, with a claim that is all the taste, less space. This machine is only 15 centimeters wide. So it is the most compact bean-to-cup coffee machine. And during that event at the end of March, we gathered 75 influencers with a total reach cumulated over 20 million. And since launch, we've generated over 5 million views. And last but not least, we've launched it in France, but we are now fast rolling out in over 50 markets by the end of 2026. So you've heard us say in the last few months that we will evolve our go-to-market, and we will intensify and accelerate our innovation strategy. And I think these are prime examples of what is changing in the way we connect and interact with consumers. Now back to numbers. EMEA had a pretty good quarter at 2.5% growth like-for-like, with Western Europe up 4.8% and other EMEA countries down 1.8% or is organic. In Western Europe, we had some positives with a good flow of loyalty programs. In fact, it is more than the flow of loyalty programs. Q1 last year was historically weak. So we are back this quarter on a regular flow of loyalty programs for the first quarter, maybe a little bit high, but still in line with what we usually do. That's the positive and the negative. Our German market remains challenging, and that continues the 2025 trend, which we are working very hard to fix. And the great super positive is France that delivered 21% growth, 5%, excluding loyalty programs, gaining market share and strengthening our digital activation strategies. So all in all, Western Europe that has been holding up quite well. Whilst in the other EMEA countries, we've experienced a slight decline in organic sales. Comps driven mainly for Eastern Europe. We had a very, very strong Q1 last year. We see growth in Turkey. That's great. And we have, of course, significant direct disruptions in the Middle East. Middle East is circa 2% of the total group revenue, but around 10% of that region, and that weighs somewhat materially on the performance of that subregion. If we go west to the Americas, we've confirmed in Q1 the improvement of sales in North America. We are up 4.7% like-for-like, driven by market share growth in cookware and in linen care in the U.S. And those market share gains are driven by innovation in a somewhat deteriorating market. Mexico shows negative sell-in impacted by still high inventories from retailers and fans, but positive sell-out, leaving a room for an improvement through the year. When it comes to South America, we've experienced a return to growth, up 10.9% in the subcontinent, driven by range expansion into new categories, coffee-based products, floor care, blenders, a less pronounced decline in fan sales. You know that we are still comping strong numbers. And of course, this La Niña effect is fading away, a favorable comparison base in Brazil, which was pretty slow last year in Q1 and a very healthy continuous double-digit growth in Colombia. If we go East, China growth momentum is maintained at 2.3%, that continues 2025 trend. The environment is highly promotional still in China, and we are managing the balance between sales growth and profitability growth. Our growth is multi-category driven by cookware. I mentioned the Titanium wok as one of the key innovations for the year, but also kitchen utensils, garment steamers, rice cookers with new heating systems, which are catching up very well in the market. And we are confirming notable success for Supor in social commerce. We are #1 in Douyin. Douyin is, as you know, the Chinese name for TikTok. Going around the other Asian countries. Overall, it's a positive quarter with continued growth in Japan and continued growth in South Korea, where the market is still very complex. We have good momentum in most Southeast Asian countries, especially online and in social commerce, 2 strong platforms, Shopee and Lazada, where we are driving the bulk of our growth up there. And we're expanding our ranges of products in Australia with blenders, spot cleaners and others. Now how does that materialize in [ profitability ]? Olivier Casanova: Okay. Thank you. So first, let's say, a reminder, which we, of course, provide every year for the first quarter. As you know, this is historically providing a limited contribution to the full year results given the seasonality of sales. And secondly, of course, we need to be cautious and not draw too many conclusions on the full year trajectory. And of course, in addition, last year was a particularly, let's say, low quarter for Groupe SEB. That being said, we are delivering EUR 72 million of ORfA in the first quarter, up 42% on Q1 last year. This translates into 3.8% operating margin, up 1.2 percentage points. This is the result of positive organic sales growth, which is driving increased contribution at the gross margin level. We are benefiting, as we had announced from positive currency effect in the quarter. Of course, the positive contribution of short currencies. You remember that those benefits, let's say, took some time to filter through our P&L last year. But finally, in Q4, we benefited from this positive contribution. And as expected as well, we are seeing in Q1 this year, a better offsetting of the long currencies depreciation through price increases. In addition to these elements, we are benefiting this quarter from decreasing operating expenses, which is, let's say, principally the result of selectivity in terms of growth driver engagement, but also reduced structural costs, in particular, on G&A, which is evidence to some extent also from the [indiscernible] initial benefit of the Rebound plan. Stanislas De Gramont: [Foreign Language] Olivier, I will now go on the outlook with 2 parts. The first one is still fairly qualitative, but I think it's worth mentioning. It's on the Rebound plan. We are deploying that plan and the deployment is in line with our objectives and deadlines. As you remember that the Rebound plan was with 2 dimensions. One was to reinvent our growth model and you see that there is an acceleration of the innovation. You see that there is an evolution of our marketing transformation, and we are deploying this marketing transformation throughout our market companies. We have an ambitious target of reducing our SKU ranges by 20% to 30%, depending on the categories. We've identified 80% of the candidates and are now in the execution phase of that project. And when it comes to the second dimension, which is about reducing our cost, we've launched almost all initiatives related to indirect purchasing. And we already see in the first quarter some initial benefits in the P&L. So that's great. I mean that is what supports the first quarter that is ahead of expectations in terms of profits. And when it comes to the dimensions of industrial efficiency and overheads, we started our negotiations with employee representatives the day after the announcement on the 25th of February. And today, those negotiations are in line with the set schedule we've set ourselves. So we confirm what we've said as a time line for the Rebound plan. Now when it comes to the outlook for 2026, we've added a comment -- the outlook is the same as the one for 2026 as the one we shared back in February. We've added one comment, which is about the uncertain and deteriorating macroeconomic and geopolitical environment. Even with that, we confirm our ORfA growth in 2026 together with a more normative free cash flow generation. And we also confirm our ambition to lower our financial leverage in 2026 with the objective of returning to the group standards of around 2x, excluding acquisitions by 2027. [Foreign Language] It's been pretty fast. It's now your turn to come up with your questions that we'll be delighted to answer. Thank you very much. Operator: [Operator Instructions] The next question comes from Ope Otaniyi from GS. Opeyemi Otaniyi: Just 2 from my end on sort of what you're seeing from consumers, but also maybe addressing sort of anything that's changed from -- on logistics and costs just given the current crisis. So do you mind just giving a sense of what you've seen through the quarter in terms of consumer behavior and how you see that translating into sort of underlying demand? And then just given the Middle East crisis, could you sort of comment on how to think through costs for the rest of the year, sort of any impact on logistic costs as well or any commodity inputs as well? Stanislas De Gramont: Thank you for your question. Not surprising question. I think it's in everybody's mind. Well, let's say that the first quarter hasn't really seen any impact either on the cost or on the consumer demand or consumer confidence, except, of course, the direct exposure to the Middle East, which I commented in the EMEA segment. The second comment as I would make is we are -- we don't have clarity as anybody else on what is the scenario and what is the impact of that crisis. It depends on the length of the crisis. It depends on the depth of that crisis. And maybe what I can say is that we are confirming our perspective for the full year, having considered the likely scenarios, which are currently being evaluated by the various institutes or economist reports. Maybe the third thing I'd like to add is a lot of our profit because you can ask, well, you would be -- it would be fair to ask but why are you still confident? I think the bulk of our profit improvement comes from our own actions. First, we have a favorable base effect, and we know that we have some negative contractual effects last year that will not materialize or are not -- do not seem to be materializing this year to any extent. So that's the base effect that is probably supporting part of our profit development. Our innovations, we see that our market even in more difficult market conditions when we have powerful innovations that are well activated, we're able to generate some sales and margins development. So I would say the third argument that makes us stick to our forecast is that most of the improvement will be driven by our own actions. Opeyemi Otaniyi: And maybe just -- I appreciate maybe Q1 and Q2 sort of maybe not the most important quarters, but do you mind just commenting on working capital and what you've seen in terms of logistic costs and sort of inventory levels? Stanislas De Gramont: Yes, sorry. Maybe I should have added, but that's -- I made it in my comment of the first quarter performance. We have the Rebound, of course, which will be a contributor to that recovery or that development of the profit base. Sorry, I skipped it because I said it in the last sentence of the [ expose ]. Now logistics, today, what we see is fuel surcharges, be it on the sea freight or on the road transport. Those surcharges are well identified. We know how much they impact. It's a bit early again to share a number. But what we -- the actions we put in place are more than enough to compensate and offset those negative impacts. That's for the cost -- the direct cost side. On the current product access and ability to ship products, we do not see at this stage any impact on our ability to ship products from Asia to Europe or to the United States. And we don't foresee in the current scenario [ maybe ] because the Strait of Hormuz is not a route that we use to ship our products. Does that answer your question? Opeyemi Otaniyi: No, that's yes. Operator: The next question comes from Natasha Brilliant from UBS. Natasha Brilliant: Just to come back to the previous question, just on kind of current trading. You said that Q1 hadn't really had any impact so far. But just to confirm, any color you can give us on the first few weeks of Q2? And if there's been any change, that would be helpful. Second question is just on the Professional business. I think you mentioned some new contracts in China and some new clients in the U.S. So if there's any more detail you can share on those and if you have any visibility on other contracts in the pipeline? And then my last question is just on the Rebound plan and as you start to implement it, if you can tell us what the cost has been so far in Q1? Stanislas De Gramont: I will -- okay, thank you very much. I think that the general comment on all these 3 questions is they're probably a bit early to be able to give you more color. I can answer the first one that today, we don't see any material change in Consumer sentiment in the first 3 or 4 weeks of April. I've been speaking to a couple of customers in the last few days in a couple of countries, and they don't see any material impact. Of course, there's seasonal impact, but nothing where they can say, there's a shift. On the Professional contracts, we don't disclose our contracts. We use those examples to illustrate the fact that the activity, albeit slightly growing only still is collecting and is gathering new contracts in our core business. And we have a pipeline that is not bigger, not smaller than usual on large contracts. And for the cost of the Rebound plan, it's very early. I mean the bulk of the savings that we've collected so far are on indirect purchasing, and they are mostly savings with no cost attached to it. The bulk of the cost of the Rebound plan is linked to the social activities, and those have not been booked yet. Olivier, do you want to complement on that point? Olivier Casanova: As you said, we've indicated during the full year results call that we expect to be booking most of these, let's say, provisions in the second quarter before the June close. We expect at that time to have sufficient clarity on especially the social terms in order to be able to book the provision. So far in Q1, it's still too early, as Stan mentioned. Operator: The next question comes from Marie-Line Fort from Bernstein. Marie-Line Fort: I just want to come back on the currency impact on your first quarter earnings. I know it's not really representative. I just want to know what is the phasing all over the year because you started to benefit to better currencies on Q4. On the top line, currencies will fade in negative terms on your top line as soon as Q3, probably. How do you see the momentum in terms of currency and positive impact on your earnings? That's my first question. The second question is about your -- the indirect savings that you made in Q1. Could you confirm the envelope that you are targeting for the full year? I've got in mind EUR 50 million, 5-0. Could you just confirm these figures? And my last question is about Coffee Crush. Just wanting to know where the machine is produced. The machine is sold at very low prices. Is it still margin-wise, same-wise -- same margins at the consumer? Or would it be dilutive on margin? And also, when do you plan to increase the coverage over the European market? Stanislas De Gramont: Okay. I'll start with the third one, and then Olivier will answer the last 2 -- the first 2, sorry. Coffee Crush is margin dilutive to the Consumer business. It is made in China. It is sold at EUR 350, EUR 320 and EUR 300, which is -- which delivers pretty good margins. It will be expanded in 50 countries beyond France by the end of 2026. So it's a very good business. And it is made today outside of SEB in OEM manufacturer in China. Olivier? Olivier Casanova: So on the currency impact, if I split between long and short. So on the short side, of course, if the CNY and the U.S. dollar remain at the current level, we should continue to benefit from a positive impact throughout the year as we've indicated in the past. On the other -- the long currencies, in particular, currencies from emerging markets, we are seeing maybe less depreciation than we were expecting. Of course, it's impossible to say whether that's going to last or not. But if it does, we'll probably see, let's say, a lower impact than expected. But as you know, in those countries, we are able to compensate the depreciation by price increases. So if there is less depreciation, by definition, there will be less compensation. So net-net, we are probably operating in a slightly more favorable environment in terms of currencies, but I think we need to be very prudent given, let's say, the high volatility in the current geopolitical and macroeconomic environment. On indirect savings, we said that the bulk of the EUR 200 million savings that we are expecting to generate should come from the effort on the structural cost base and that indirect savings will represent a smaller portion. So you say EUR 60 million. I don't recall precisely stating a number, but it's not a million miles away. I think we are confirming that this is very much our objective. We'll see. It's a bit too early to say whether we can exceed that objective, but it's certainly being confirmed by all the more detailed work that we have been carrying on. And as we said, we have already implemented the vast majority of these actions. They are currently already starting to produce some positive results. Operator: The next question comes from Alessandro Cecchini from Equita. Stanislas De Gramont: We can't hear you. Operator: The next question comes from Fraser Donlon from Berenberg. Fraser Donlon: Just checking, you can hear me? Stanislas De Gramont: Yes. Fraser Donlon: So the first question was just about the loyalty programs. Could you maybe help understand what would be the organic growth in Western Europe ex LPs? I know sometimes you gave that number in the past. And then how should we think about the phasing impact on loyalty through the rest of the year? If you could just give a reminder there. And then the second question was just thinking about the changes to tariffs on aluminum and steel products in April. Could you kind of highlight how we should think about that basically for the kind of Tefal products primarily? Stanislas De Gramont: Change of aluminum and steel tariffs in April. So Olivier will take both questions, Fraser. Olivier Casanova: Okay. Thank you. Fraser. On the loyalty program, I mean, the first thing that we should maybe restate is that loyalty programs are, of course, part of our business. They're an integral part of the Consumer business. They are just one of the different ways in which we are doing business. The reason why we sometimes highlight the importance of this loyalty program is that it's the same with large contracts for Professional. They can provide some distortion in the reading of the number. And it's true that last year, our loyalty program were particularly low. And this year, as we said, they are, let's say, back to a more normalized level, and they provide a significant positive tailwind for this quarter. I think the thing to bear in mind is that France is where we have the largest impact. And France, excluding loyalty program, is up 5%. And this is evidence of market share gains in many product categories, thanks to our strong product pipeline. On the second topic, which is the input cost, well, first, yes, we have seen some tensions on raw material. You name aluminum, but of course, we have the same with plastics and, let's say, a few other input costs. The extent of this increase, of course, will depend to some -- on the length of the current crisis in the Middle East. And so we are monitoring this situation, of course, very closely. We have identified already some, let's say, counter-measures and some of them are being implemented, and we will adjust as the situation develops. But as we mentioned, we don't think that they are of a nature at this stage to change our forecast for the full year. On aluminum, more specifically, you will remember that we have a rather prudent hedging policy. And in particular, on purchases for Europe, we are very well hedged above 80% at the beginning of the year. So that is, of course, limiting the negative impact on our results from aluminum increases. Operator: [Operator Instructions] Stanislas De Gramont: Maybe it's Alessandro from Equita? Operator: No, we don't have him back. Stanislas De Gramont: Okay. Operator: The next question comes from Geoffrey d'Halluin from BNP Paribas. Geoffrey d'Halluin: I will have one question regarding to the U.S. tariffs and the Section 232. I guess there is a new proposal from early April, which has been put in place. Just wondering if you have any thoughts and if you could be impacted by this new proposal, please? Stanislas De Gramont: Olivier? Olivier Casanova: Okay. So thank you for the question. It's a fascinating topic, of course. We have to distinguish 2 things: the reciprocal tariff on the one hand and the Section 232, which is applicable for aluminum and steel derivatives. So on the reciprocal tariff, first -- the first topic for us, of course, is to obtain the benefit of the reimbursement after the U.S. Supreme Court decision earlier this year. So we can confirm that we have put a request for reimbursement after the opening of the CAPE platform on the 20th of April, and those claims have been accepted. So we will wait, of course, until -- wait for the reimbursement to hit our bank account before we can, let's say, disclose more details, but that, of course, should be although an exceptional, but it should be a positive for us this year. With regards to the 232, there has been a change in the way this is calculated. It was until the recent change calculated, it was a 50% surcharge calculated on the aluminum or steel content. It's been replaced by a new method of calculation, which is 25% on the overall product. That change is almost neutral for us. So there is no big difference in terms of the -- given the content of aluminum and steel in the product. The final change is the, let's say, removal of the reciprocal tariff and the implementation of a 10% surcharge for all countries. That probably has a moderate net positive impact for us, but we remain very cautious because, of course, these things are fluctuating and we are, of course, monitoring the impact this has on selling prices. So I think net-net, let's say, no material adverse impact, potentially slightly positive. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Stanislas De Gramont: All right. Thank you very much for your questions. No surprising questions. I think this is a solid quarter, one that we were expecting to drive through. We've started the year saying that we would be managing our business with a strong priority of recovering profitability. I think, as Olivier said, the first quarter is only a mere 10% or 8% of the total year. But still, I think it represents the way we want to drive the year. We feel the context is getting more and more uncertain and deteriorated, yet we are on track to implement the right level of actions in terms of margin protection, in terms of cost savings, and we're confident that we will be able to navigate this year with what we see today. Thank you very much for your support. Thank you very much for your analysis, and I wish you all a great result season. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Domino's Pizza Earnings Conference Call. [Operator Instructions] Again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Greg Lemenchick, Vice President of Investor Relations and Sustainability. Please go ahead. Gregory Lemenchick: Good morning, everyone. Thank you for joining us today for our first quarter conference call. Today's call will begin with our Chief Executive Officer, Russell Weiner; followed by our Chief Financial Officer, Sandeep Reddy. The call will conclude with a Q&A session. The forward-looking statements in this morning's earnings release and 10-Q, both of which are available on our IR website, also apply to our comments on the call today. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our filings with the SEC. In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This morning's conference call is being webcast and is also being recorded for replay via our website. We want to do our best this morning to accommodate as many of your questions as time permits. As such, we encourage you to ask 1 question only. With that, I'd like to turn the call over to Russell. Russell Weiner: Thanks, Greg, and good morning, everybody. Q1 represented another quarter of positive order count and market share growth for Domino's in the U.S. While I was pleased with our start to the year, performance for the rest of the quarter did not meet our expectations, resulting in same-store sales of 0.9%. We are very clear on the drivers of our results, and we'll do everything within our control to address them by adjusting our plans in the second half of the year. Looking back at Q1, pressure intensified throughout the quarter, in particular, in March because of growing consumer uncertainty. Consumer sentiment hit COVID level lows and ongoing inflation continued to impact purchase decisions. Weather also affected our business in the quarter, including the beginning of our carryout special boost week. Competition within the QSR pizza space also increased in Q1 as the national pizza players offer deals comparable, if not identical, to the renowned value Domino's has made famous. While this created some short-term pressure, we believe Domino's wins in the sustained value environment. Our advantage is profit power, the ability to offer compelling ongoing value while driving profit growth for Domino's franchisees. Our industry-leading advertising budget drives the order counts needed to make this value model work profitably over time. Our pizza competitors simply don't have that same capability. As a result, we believe that when competitors match our value, it places significant pressure on their franchisee economics. Over time, we expect this pressure to contribute to more store closures on top of the roughly 450 closures our 2 public pizza competitors have already announced for 2026. I believe these dynamics will translate into more sales, more stores and more profits for Domino's franchisees. In Q1, we continued to make strong progress on our Hungry for MORE strategy. I want to call out a couple of areas, particularly within the operational excellence pillar that we believe will play a major role in driving our future success. We fully launched our new app, including improvements to our world famous pizza tracker, which has tracked more than 2.5 billion orders since 2008. This new modernized app is much easier for our customers to use and will allow for more personalization over time. And the updated tracker provides more precise ready time based on new AI technology, live activities for iOS users and a more detailed view of each orders progress. The closer we can deliver our products to the time we promise our customers, the more they come back in the future. The updated tracker helps us do just that. In addition to the consumer-facing app, we made progress in our back-of-house DomOS orchestration agent that makes production more efficient and effective. This orchestration agent allows in order to be prepared hot and fresh for our customers in the most efficient way possible. For example, if there's not going to be a driver back in time to pick up a pizza when it exits the oven, this technology can alert a store to hold that order so it isn't made until a driver is there. Our goal at the end of the day is just in-time pizza making, which will result in a more consistent, higher-quality product for our customers. As I finish up, I want to highlight why I remain so bullish on our business now and in the long term. On our February earnings call, I shared my view on the QSR pizza category growth and my confidence that we can outperform the competition and capture meaningful market share in 2026 and beyond. That view remains unchanged. I'll start with 2026. We are committed to doing everything we can to deliver 3% same-store sales in the U.S. for the year. While I already addressed why we believe we missed our plan in Q1, those were reasons, not excuses. Our team is hard at work making the adjustments we believe are necessary to drive an even bigger impact in the current macro environment. I'm especially energized by the product innovation we're bringing in the second half of the year, particularly around pizza, which goes beyond what we originally planned. It's bold, exciting and has real potential to elevate our brand. Now to my belief in the long term, which is as strong as it has ever been. You've heard me talk about how we've taken 11 points of market share over the past 11 years in the U.S., let's go a little bit deeper, let me tell you how we gained that market share. We did it by driving more sales, more stores and more profits. First, sales. Our same-store sales have grown on average more than 5% annually over that time period. Next, stores. We've opened more than 2,000 net new stores over the last 11 years amidst a backdrop of significant competitive closures. And finally, profits. Our average franchisee has increased profits almost $80,000 per store. This means the Domino's franchise system is earning $740 million more in profits than it did just 11 years ago. This has been and will remain our formula for success. More sales, more stores and more profits drive more market share, more market share, drive scale, which strengthens our competitive advantage. That is the Domino's effect, working for over a decade, delivered again in Q1 and one we expect to continue well into the future. I'll now hand the call over to Sandeep. Sandeep Reddy: Thank you, Russell, and good morning, everyone. Income from operations increased 4.2% in Q1, excluding the impact of foreign currency and a gain on the sale of the company's corporate aircraft. This increase, which came in below our expectations, was primarily driven by higher U.S. and international franchise royalties and fees as well as gross margin dollar growth within supply chain. Excluding the impact of foreign currency, global retail sales grew 3.4% in the quarter due to positive U.S. comps and global net store growth of more than 900 stores over the past 12 months. In Q1, retail sales grew by 2.8% in the U.S., driven by same-store sales and net store growth. The U.S. QSR pizza category grew again in the quarter, and we continue to take share. Same-store sales grew 0.9% for the quarter, driven by our marketing promotions and continued growth in our aggregator business. Our business was impacted by a challenging macro environment, which continues to pressure consumers as well as increased competitive activity. Our comp was driven by a balance of positive order counts and a positive average ticket. Ticket benefited from 0.9% of pricing, partially offset by a negative mix impact. Our carryout comps were up 2.4% and delivery was down 0.3%. Shifting to U.S. unit count. We added 19 net new stores, bringing our U.S. system store count to more than 7,200. International retail sales grew 4%, excluding the impact of foreign currency in the quarter. This was driven by net store growth over the last year, inclusive of 161 stores in Q1 that was slightly offset by same-store sales decline of 0.4%. Excluding the headwind on our comp sales from Domino's Pizza Enterprises in the quarter, we would have met our expectations. Moving to capital allocation. Through April 21, we repurchased approximately 446,000 shares for a total of $170 million year-to-date in fiscal 2026. As of April 21, we had approximately $1.29 billion remaining on our share repurchase authorization. This is inclusive of the additional $1 billion share repurchase authorization that the board approved in April. I wanted to take some time to remind everyone of the incredible profit and cash flow generation of our earnings model. If you go back to 2015, Domino's generated approximately $400 million in operating income and approximately $230 million in free cash flow. In 2025, that grew to approximately $950 million and $670 million, respectively. Over the same time period, we have returned approximately $7.7 billion to shareholders through share repurchases and a dividend that has grown annually by more than 20% on average. We have done all of this while maintaining a leverage ratio in our expected range of 4 to 6x. We expect to deliver meaningful cash to shareholders in 2026 and beyond, in line with our capital allocation priorities, and will look to drive the best possible returns for our shareholders as we evaluate our options. Now turning to our updated outlook for 2026, which excludes the impact of the 53rd week. First, U.S. same-store sales. As a result of the challenging start to the year and increased macro pressure, we now expect our U.S. comp to be up low single digits in 2026. As Russell noted, we're actively optimizing our marketing calendar to meet the moment and ensure we're well positioned despite the current macro environment. Second, we now expect our international same-store sales growth to be low single digits, primarily as a result of the macro and geopolitical uncertainty across the world. Third, we continue to expect 175 plus net stores in the U.S. and approximately 800 net stores in our international business. As a result of our revised same-store sales outlook, we now believe our global retail sales growth will be up mid-single digits for the year. Due to our lower sales expectations, we now expect operating income growth of mid- to high single digits, excluding the impact of foreign currency, refranchising gains and the gain on the sale of our corporate aircraft. As I close, I want to be clear that our team is fully aligned and working with urgency to deliver our 2026 outlook and that our belief in the long-term algorithm of the Domino's business through 2028 has not changed. Thank you. We will now open the line for questions. Operator: [Operator Instructions] And our first question comes from David Tarantino with Baird. David Tarantino: Russell, I just wanted to ask your thoughts on the comps outlook for the remainder of the year. It looks like you're guiding to continued positive comps even though the comparisons look like they get quite a bit more difficult. So I'm just wondering if maybe you can unpack why you think the business might be able to accelerate on an underlying basis? And I know you mentioned some innovation that's coming and adjustments to your plans. And maybe as part of the adjustments, does that mean perhaps a bit more focus on value? Or I guess, what -- if you could elaborate on that, that would be great. Russell Weiner: Thanks, David. I'd like to say, even though Sandeep talked about a revised guidance, my objective, his objective, everyone at our company, our objective continues to be for the year in the U.S. 3% same-store sales. And we had a pretty light first quarter last year and folks asked whether or not we thought we could hit 3% for the year, and we did, and that remains our focus, that remains our objective. You're right, though, we have absolutely looked at our calendar and asked ourselves within what we can control, how do we change things? How do we see what out there in the environment? And it's not just value, I think we can do a little bit more on pizza innovation as well. And so starting as soon as May you're going to see things on the calendar or in media from Domino's that weren't on our calendar to start the year. So our plans moving forward will look very different than they were starting the year, and that's because we adapt to what's going on in the broader environment. Sandeep Reddy: And David, I'm just going to add on the guidance specifically on positive low single digits. I want to emphasize the positive. I think we're really confident that even with the macro environment and the volatility that we see in the macro environment, with all the leading in that Russell just talked about, we are still confident of driving positive low single digits. That's point number one. Point number 2 is, we're still growing stores. We are expecting 175 stores. We grew 172 stores last year as well. And we are expecting to drive retail sales growth definitely well above the same-store sales growth that we're talking about, continuing to drive market share growth in a category that we believe will continue to grow. Operator: Our next question comes from Greg Francfort with Guggenheim. Gregory Francfort: I just want -- maybe just wanted to follow up on that. And Russell, anything you're seeing competitively in the environment right now that maybe as your competitors are acting a little bit more rationally or anything you can see from that front? And then do you expect with your competitors maybe closing stores later this year? Is that something you could see from an [indiscernible] basis? Russell Weiner: Thanks, Greg. On the competitive side, I think what they're doing is they're seeing what has made Domino's successful. And if you look at Q1, one of the things I talked about in my opening remarks is a lot of the promotions they had there were really out of our playbook, kind of their version of best deal lever, our mix and matches, and to that, we say bring it on because we're built to do that stuff over time. Now you add that to some of the macros, and was that a little bit of a headwind for us in Q1, yes. But I think it really delves really well into your second point, which is the closures that they've already announced for the year. Greg, I know the kind of volumes that need to be done in order to make deals like the ones we have out there profitable. And I do not believe that our competition can drive those kinds of volumes because their advertising budget, ours is as big as the biggest 2 competitors combined, just can't do that. And so believe me, I was not pleased with our results for the quarter. But I do think that there was potentially a little bit more structural damage behind the scenes. And you'll see that, I think, in future quarters and future years coming up in store closures and then in kind of lighter franchise profits for our competitors. Sandeep Reddy: And Greg, what I'll add is, Russell talked about the 450 stores that are national competitors that are publicly traded or have quoted. But really speaking, if I go back into '25, they closed about the same number of stores last year too. So our playbook has been to continue to squeeze their profits, they close stores, we take sales, we take share. What is happening in '26 is no different. It's a continuation of the same play and that continuation of the same play should continue well beyond '26. And that's why I think what Russell said on the profit power is super critical. We are able to actually continue to drive this playbook forward. Operator: Our next question comes from David Palmer with Evercore ISI. David Palmer: I just want to present maybe a common investor view and push back, and that is that it's not a pushback that Domino's will gain share in the pizza category and especially from the near-end big 3 players. It's really that Domino's operates in the pizza category and that you've talked about 1% to 2% growth for that category in the past, and that, with your share gains, which I think people can believe in, will get you to that 3% comp growth while growing units. So the concerns about the pizza category in light of the fact that other categories are more available on in delivery channels now, and I guess the concern is that maybe 3% is not appropriate in light of that, even though your long-term delivery has been strong and, in fact, better than 3%, the concern is that the reality is different today. Could you just speak to any of that and how it informs your strategy? Russell Weiner: Thanks a lot, David, for the question. I've been here, this is my 18th year at Domino's, and I feel like every year when I get in front of our team and I talk about category growth, it's 1% to 2%. And we've talked -- if you remember last quarter, I had a lot of questions -- I'm sorry, first quarter last year, a lot of questions about the pizza category, which got off to a slow start last year, but guess what, ended up at 1% to 2% for the year. And so this is a trend that has been pretty consistent, and we just don't see falling off. And maybe just getting to your delivery question, I'd answer it in a little bit different way. Look, delivery, certainly other folks are getting into this game have gotten into this game. But you've got to remember, we're now -- we've changed our strategy, and we're on the aggregators. And essentially, this last quarter, on delivery, we held serve on total delivery. That is something, in the past, domino's would not have done because of the structure of our consumers. And what we talk about a lot is lower income consumers, which we have a QSR pizza and Domino's have a good amount of those customers, when it comes to delivery, when times are tight, what happens is we don't lose those customers, we may lose an occasion, those people come back. And so this quarter, with all the headwinds out there with consumer confidence being low, this normally would have been a quarter where we took our total delivery business that I think even a bigger hit. But the fact is us being on aggregators with a higher-income customer, the incrementality of that, our full delivery strategy results are probably a little different than they would have been in the past. And I'd point to as well is this carryout business that just continues to grow for us, it's a bigger portion of the pizza category, bigger portion of the QSR category, and we can continue to grow that in addition to opening up all those new stores, which helps us with carryout as well. And so David, net-net, history hasn't changed. We're a couple of months -- a few months into a year. And I'm really bullish about our ability to grow in a category that can continue to grow. Sandeep Reddy: And I'm just going to dimensionalize some of the numbers that Russell talked about. I think the delivery category in QSR pizza is a $17 billion category, of which the aggregator business is, call it, $5 billion roughly. And -- but now to Russell's point, we're playing in both the 1P as well as the aggregated piece, which is why we were able to actually drive the kind of results that we were able to drive in Q1 despite a very tough environment. But the really important thing over here is we have a 33% share in the delivery business today. But if I actually look at the carryout business, the carryout category size is $21 billion. That's about half of all of QSR pizza. Our share there is just 20%. We have significant runway of growth on the carryout business that we can actually tap into. And I think that's the exciting part about the strategy. And it goes back to what we talked about at our Investor Day in 2023. The aggregators was certainly a very important piece of it, but is significantly underpenetrated in carryout and that's a big part of how we actually look at the 3% same-store sales growth objective we have. Operator: Our next question comes from Brian Bittner Bittner with Oppenheimer. Brian Bittner: So you talked a lot in your prepared remarks about some of the sources of pressure you experienced in the first quarter, and the first quarter was something in that 300-basis-point trend change from where you were in the fourth quarter. But you also said in the first quarter that you did take market share and that the industry remained in solid shape, the QSR pizza category. So when you look at that trend change that occurred for Domino's comps in 1Q, was it more driven by taking less share than you've been taking? Or did the QSR pizza category see some type of trend change for the entire industry? Can you just kind of maybe unpack the current trends we're seeing in the business right now versus where we were? Sandeep Reddy: So Brian, I think when we look at Q1, there was a lot of noise in Q1. And I think we talked about some of the weather issues that we had earlier in the quarter. But then starting in March, we saw a significant macro and competitive pressures weigh on the business as well. Through all that noise, we still saw the QSR pizza category grow. And through that noise, we actually grew faster than the pizza category. And we did take share to the point that we made in the prepared remarks. What I think is important to note is Russell talked about the fact that competitive activity is stepping up did have a short-term impact in the quarter. But in the long term, we believe that the competition is not going to be able to drive the profitability they need to sustain that. So we look at share really on a much longer-term basis. And on a longer-term basis, we've continued to gain significant share. And even in a quarter that was a bit tough for us in Q1, we gained share. So we feel really good about what the long term holds for us, and we'll keep on running the play we are. Operator: Our next question comes from John Ivankoe with JPMorgan. John Ivankoe: I'm interested to hear that some of your previously unplanned innovation is around pizza. And certainly, I'll be very curious to see what type of pizza innovation that you can do at this time. That's the first point. Secondly, there are significantly growing categories around premium chicken and also sandwiches. Your operating platform does permit both of those. So to what extent is there an opportunity for you to extend both in terms of your capability of your stores and your supply chain into some non-pizza categories, which are actually quite large like premium chicken and sandwiches? Russell Weiner: Yes. Thanks, John. We've got a multiyear product innovation strategy and funnel. And so what we're able to do in times like this is to say, okay, what's going on in macro, and what can we do to inflect any kind of negative externalities that we're seeing right now. And I think we're going to do that with some of this pizza innovation. And this is stuff that's either moved up in the calendar this year or didn't even exist on our calendar before that got started. And as I said, I'm really excited about those. And I guess you'll have to just wait and see, but I promise you, you will be as well. You're right about the overall product portfolio we've got. Of 40-plus percent of what we sell is not pizza. One of the first things I did actually when I was at the company in 2008, we launched sandwiches. And so we've had sandwiches well back for a very long time. We've got a wide variety of chicken products. As you know, we're also globally testing something called Chicken Dip in the U.K. And so far, DPT is very excited about the performance of that. And so product innovation pipeline is something that is very robust here. We do think what we've got right now with our pizza oven, all of our products can go through that, and we can make the most delicious food there. But obviously, things are on the table if needed, but that's where our focus is. Operator: Our next question comes from Peter Saleh with BTIG. Peter Saleh: Great. Maybe I just want to come back to the health of the consumer in 1Q. Can you maybe talk a little bit about that performance by income cohort as you've talked about it in the past? And just curious if you think the shortfall this quarter was really due to the competitive pressure in pizza, which might be a little bit more transitory? Or do you feel like this was an overall QSR kind of pressure in the quarter? Russell Weiner: Yes. The -- when we look at the consumer this quarter, the kind of the uncertainty there when you look at the surveys or kind of at COVID level lows, and that is particularly magnified when you look at the lower income customer. And so I do -- pretty confident both in pizza and QSR. You're going to see pressures there. And that's why not only in pizza but in the rest of QSR, you saw a lot of value out there. Companies are going to give consumers what they're looking for. And so clearly, they're looking for that, and that's why the competition is leaning in on value. The thing I'd say about the quarter, certainly wasn't the quarter that we had initially expected. But if you look at the composition of our 0.9%, a couple of things. One is from a retail sales point, and maybe this gets to Brian's question a little bit beforehand, we're up 2.8%. And so when we grow, it's not just in same-store sales, it's total source -- I'm sorry, it's total retail sales. And then when you look even beyond the composition of the same-store -- within the composition of same-store sales, and you look at every income cohort for us, and I don't think this is going to be the same for the rest of the QSR, we grew, including in the lower income cohort. So there are definitely some bright spots when you think about what the rest of the year has in store for a pressured customer. Operator: Our next question comes from Chris O'Cull with Stifel Financial Group. Christopher O'Cull: Russell, you mentioned that you expect competitors to close additional stores. Just wondering if the company has a sense of the sales lift franchisees are getting in markets where competitors stores have already closed. And are there certain geographies where you're seeing more closures by the competitive set? Russell Weiner: Thanks, Chris. Yes. No, certainly, we're seeing a lift when there are closures. A couple of things. One is, I think in general, we expect to see our fair share, so you take our share of piece of sales in that area. That's kind of what we expect to see when they close. Now the thing to remember is these closures happen because of business pressures over time. So when the stores close, they're not million-dollar stores in AUV, they're probably close to half of that. So while the flow-through continues to come at those levels, it happened, and the attrition happens over time. What I was trying to say before is, I think the attrition will continue. So whether it's in store closures or just in less sales that lead to less profits that lead to eventual closures, this is something we've been doing for a long time. And I think it's just proof that this strategy is working. 11 years, 11 points of market share, and 11 points of market share in a category that's growing. This was not a increase in a declining category. This was sales averaging more than 5% annually over those 11 years, 2,000 new stores over those 11 years, and franchisee profits increasing over those 11 years, and that's why we're so bullish on the future. I mean, last year, Q2, Q3, Q4 were all really strong quarters. Q1 wasn't where we thought it would be, but that doesn't mean it's a predictor of the future. The predictor of the future is what we've done in the past, what we have and will have on the calendar and our ability economically with our franchisees to continue to push within a category that we expect to still grow, gain that market share and continue to gain sales. It's not at all something that should not continue. Operator: Our next question comes from Dennis Geiger with UBS. Dennis Geiger: I wanted to ask another on value and value positioning and sort of a little more on what you've seen maybe from some of the recent promos. But more importantly, as you think about competition from the large pizza brands, maybe even from C-store and then the non-pizza QSR players that you kind of touched on, do you feel over the near term that you've got to do even more on the discounting front or more generous offers? Or do you do you weight out the competitive intensity, I guess, as you touched on the fact that it's not sustainable longer term? Just curious on that front, how you approach it over the coming quarters or so? Russell Weiner: Yes. Thanks, Dennis. When I think of competitive intensity, I think of us as the driver of competitive intensity. Renowned value is one of the core pillars of our Hungry for MORE strategy as well as the E, which is our -- everything we do is enhanced by our franchisees. So we drive renowned value and still drive profit, and profits were up last year. with our franchisees. So I think on this one, we're actually the ones in the lead. We're the ones that can drive profitable volume growth through this and other folks that are kind of trying to follow that lead, certainly, in the short term, they may keep more of their customers. But in the long term, I think this makes it more difficult for them to compete more difficult for them to have those franchisee conversations about promoting the next offer. So we can continue this well on into the future in a way that gives consumers what they're looking for, and gives our franchisees what they deserve, which is profit growth. Operator: Our next question comes from Lauren Silberman with Deutsche Bank. Lauren Silberman: Just a level set of on, I guess, what are you defining as low single digit to the 0% to 3%? And then my actual question is just on the gas prices, obviously, we've seen a big increase. How does that impact Domino's across a few different fronts? If you can comment on U.S. and international, maybe, one, on consumer demand; two, and just the impact on the supply of delivery drivers, and then any thoughts on the commodity cost outlook? Russell Weiner: Maybe I'll take the gas prices one, maybe you can talk a little bit about guidance. Thanks for the question, Lauren. The gas prices right now, what we're seeing there is really more of the impact on consumer disposable income. And as long as that continues, I think that will continue to be a driver of both consumer confidence and what our customer is able to afford if gas prices are higher, which is why the companies that are going to exceed during this -- to succeed during this time frame are the ones who can continue to drive profitable value because that is not going to change. On the availability of drivers, we are staffed to levels that I'm very, very happy with, and that's been consistent for a long time, and we're not seeing anything there. Sandeep, on the guidance? Sandeep Reddy: Yes. So I think what I said positive low single digits. That's exactly what it is. Anything positive in the low single digits would be what the guidance implies. And this applies to the U.S. as well as the international business. And that's why we just clarified that language in the guidance update. Operator: Our next question comes from Andrew Charles with TD Cowen. Andrew Charles: Great. Carryout had been a bright spot of U.S. business in recent years, appealing more to value-conscious consumers. And while the carryout same-store sales at 2.4%, we're still positive. I'm curious if you could speak to the narrowing performance between delivery and carryout year? You called out some weather impacting carryout Boost week, but what further kind of led that narrowing performance? Sandeep Reddy: Yes. So Andrew, I think we're actually -- when we talk about the total comp and the total impact of the business, the impact was both to the delivery as well as the carryout side, the macro impact that we talked about coming in March, the competitive pressures that we talked about coming in as well and the weather impact earlier in the quarter. So all of that actually had that impact. But I think just keeping in perspective that the carryout business still grew 2.4%, and we did grow sales stores pretty materially as well. So the retail sales growth continued to be compelling. Our our share growth on carryout continued to be very good. And we're happy with the fact that we're growing, we just would like to grow more. And I think that's why all the initiatives that Russell talked about that the team is working very hard on are going to be impactful to the carryout business as well as we move forward. Russell Weiner: I think I would just add to that, too, is we're talking a lot about our belief in continued category growth, but also continued Domino's growth. And I pointed to past success before. But I'd also point to that the people who have the most insight into the ability of Domino's to grow in the future and the folks who are spending their money betting on that growth are franchisees. And the pipeline is really, really, really strong. And so if you're looking for what are the people who are investing their own money and expertise and time would they think about the future perspective, it's not just here, the CEO and the CFO talking about what the future looks like, it's our franchisees are talking with their investments as well. Sandeep Reddy: And then Andrew, I'll come back, sorry, I should have mentioned this the first time. I mean, the fact that we have a 20% share on carryout is super exciting. I just look at it as a huge opportunity. We have a right to win and actually gain share pretty significantly over there and get to, at the very least, the 33% share that we have on delivery and more as we get past it. So we're super excited about the carryout business. I think we've -- all the things that Russell talked about in terms of technology innovations are going to impact the carrier business as well, which I think is going to be a very significant driver of continued share growth as we move forward. Operator: Our next question comes from Christine Cho with Goldman Sachs. Hyun Jin Cho: I'd like to discuss the international business. You mentioned that you're still expecting low single-digit same-store sales growth for the year. But have you seen any impacts from the war? And how does that compare to what you experienced in '23 and '24? Additionally, Sandeep, I think you mentioned that excluding DPE, your international business would have met expectations. Can you elaborate on that a little bit? And with the new CEO are now in place. Are you seeing any leading indicators that the turnaround is progressing in the right direction? Russell Weiner: Yes, I think -- and we can tag on this one, Sandeep. On the international business being in over 90 countries, things impact things in a different way. When you look at our business specifically in the Middle East, One is we've -- we're in constant contact with our franchisees over there. And so far, they've not seen an impact from the war. And even they did, I'm not saying this is something we still don't hold dear, but it's just for perspective. That part of the world is probably about 2% of our operating income. Andrew Gregory, the new CEO of Domino's Pizza Enterprises actually starts in August, Christine, but we are still working very closely with their team. Actually, I've got -- on Wednesday, I've got a conference call with Jack Cowen, who is the Executive Chairman of DPE, and we're leading in -- we continue to lead with a big time to turn around that business. There, it's all about getting the value equation right, to start order count driving again, which then leads to sales growth. So we're continuing to lean in with them there. And as Sandeep said, look, our job is to give reasons, but they're not excuses. If you took out DPE, the rest of our international business performed exactly as we had hoped it would for the quarter. So our job is, it's a pretty big focus right now on 1 part of the business, and that's what we're all doing. Sandeep Reddy: And then just to add a little text here to the performance and then a little bit about the guidance itself. I think when we look at the bright spots, and Russell talked about excluding DPE, we were on track. And I think the European business, and that was driven a lot by the U.K., we just had an update that they announced recently was pretty good, and we were pleased with the Americas business as well and the performance over there. So when we talk -- when I'm moving to the guidance itself, when we talk about low single digits, we're just taking into account pretty much -- the answers are driven by your questions. I mean there's macro and geopolitical uncertainty, which has developed since the time we provided our February guidance, and we're taking that into consideration as we've updated to low single digits. And we're just monitoring this very carefully, but we feel the underlying business, excluding the impact of DPE, is where we expected it to be. Operator: Our next question comes from Jeff Farmer with Gordon Haskett. Jeffrey Farmer: Just following up on an earlier question. So relative to that initial 3% U.S. same-store sales guidance that you guys had as of late February, which income cohorts or channels would you say saw trends fall for this below your expectations? Sandeep Reddy: Yes. So Jeff, I think when we go back to what Russell talked about, when we look at the broad industry, of course, with the macro environment and the pressure on the low-income consumer, there will be broadly industry-wide impact that we would expect. But specifically to our own performance, the great news was we were actually pretty consistent across all income cohorts and grew across all income cohorts, which means a pretty narrow band in terms of performance. The part that I would actually bring back, and I don't remember who asked the question and who made the comment, but the competitive activity did make a difference in the quarter, but that's a very short-term and transitory impact that we think over the long term will sort itself out. And we feel that, that's all taken into account in the guidance that we provided because we have ideas and plans that are going to be implemented as we move through the balance of the year. Russell Weiner: I'd just say that maybe another way to think about it is that short-term headwind competitively, I think, is a long-term tailwind so... Operator: Our next question comes from Danilo Gargiulo with Bernstein. Danilo Gargiulo: I want to ask a question on leverage. And specifically, Sandeep, during Investor Day, you laid out a decision tree that was informing how you were thinking about leveraging or deleveraging the business. Now with the increased uncertainty on macro and geopolitical environment, why is it the best option to continue to do share repurchases versus driving down the leverage to, say, 3 to 4x in anticipation of maybe volatility in the rate? Sandeep Reddy: Yes, Danilo. I think when I go back to where we were at the time of the Investor Day, December 23, we actually were running at a leverage of 5.4x, if I remember right. And since that time, we've continuously delevered and we've gotten down to 4.3 as of this most recent quarter. And -- but I think the more important thing I would say on the decision tree was we were very clear based on where interest rates were and interest rates were pretty volatile at that time, too, that if interest rates remain at the level at which they were we would just refinance existing debt load while growing earnings and naturally deleverage. And if interest rates did go up, we would actually reduce our leverage, but partial debt paydown. And so since that time, I think what we've seen is that interest rates have been volatile, the tenure was about 4.2 at that time, now it's probably close to 4 -- somewhere in the same range, 4.3, 4.2. And so I think that decision tree does not change. And I think the part that I wanted to really address in the prepared remarks is, we stay very consistent in returning capital to shareholders and returning value to shareholders. And we've been very committed to the dividend. We've actually raised it by 15% this year, but on average, over the last decade, has been going up about 20% annually. And share repurchases is another vehicle that we actually believe delivers great value to shareholders over a period of time. And so we're committed. We talked about the share repurchase authorization that we had approved by the Board. And we will lean in, but with discipline. We will make sure that from a decision tree perspective, we're paying very close attention to where interest rates are. We will be paying attention to where market volatility is. But we believe that by staying close to that low end of the 4 that we've talked about, we've demonstrated that we will stay disciplined. Russell Weiner: I think the repurchase, in addition to what Sandeep talked about, is driven by a belief. It's driven by belief in the Domino's brand, a belief in what we can do over the long term and a belief that's a right spend on behalf of our shareholders. Operator: Our next question comes from Sara Senatore with Bank of America,. Sara Senatore: Maybe 2 clarifications. The first is, you mentioned, excluding the headwind from the DPE comp, you would have met expectations. I guess, DPE has been a drag now for, I think, probably 3 years. Is there a point at which you think about perhaps lowering long-term algo or the growth for the international market just because it seems like it's been a drag either from a unit or comps perspective for a while? And the other follow-up is, you mentioned promotional impact is kind of transitory, which makes. Is this related to the closures? Is it possible that sort of the remaining stores are healthier? Or conversely, that maybe it's kind of the last gasp of struggling competitors? Just Russell, especially given how much perspective you have, what -- I guess, how long does this type of thing last in the context of pressured margins? Russell Weiner: Thanks, Sarah. The potential for the markets that DPE is in long term and short term is far too big for us to ever think about taking down long-term guidance. What we need to be focused on is helping them untap that potential, one that they had been doing for a long time, but they're clearly not doing now. I talked before about value. But we're in constant conversations with them. 1 of the things that Jack Cowin talked about on a couple of calls ago is that they're open to looking at changing the structure of their portfolio, maybe what markets they own versus don't own. You should know that we've got contractual powers that we can leverage as well to drive change, and we're going to be doing all of those things. But the long term for the market that DPE has is way too high for us not to continue to tap that. Sandeep Reddy: And I think just on the promotional impact being potentially transitory, yes, I mean, I think what we expect is the promotional intensity is high as potentially store closures are looming. And maybe there's some leaning in that's going on. But regardless of whether it's short term or not, I think the sustainability of that promotion is not going to work for the franchisee profitability of the competition. So either the stores will end up closing, or they'll have to stop doing the promotions because they can't afford the profits. Russell Weiner: You're talking about the U.S. business? Sandeep Reddy: U.S. business. Russell Weiner: Yes, I just want to be clear, that's about the U.S. business and really back to what I was talking about before, which is potentially, in addition to some of the kind of the external headwinds, competition was a headwind for us in the quarter, but I actually really do truly think this will be a long-term tailwind because this is doing damage to the P&L of -- I believe, of their franchisees. Operator: Our next question comes from Jon Tower with Citi. Jon Tower: Maybe just first, starting on the expectation for the macro in your guidance. Are you effectively just carrying forward what you saw in the month of March for the balance of the year. And then secondarily, obviously, the channel shift between delivery and carryout will impact mix. But what else is going on with check in your business in the U.S.? Sandeep Reddy: So Jon, I think you're right. I think your question actually framed exactly how we're thinking about guidance. I think we've taken into account the incremental pressure that we saw in the macro and to the guidance that we've updated this time, and that's the base assumption. And I think in terms of channel shifts, delivery and carryout, we expected to grow both businesses. And I think when we look at this year and all the things that we're planning on, we're looking to have a balance between ticket and order count growth. And I think that's embedded in our assumptions. And that really didn't change. I think the timing of when all those sales would come obviously shifted a little bit based on how we started the first quarter. But that's pretty much how we're thinking about the year. Russell Weiner: And I just maybe saying it in a little bit of a different way. The guidance has been updated. The goals have not been updated at all. And that's our job this year, and that's what we're doing in moving around things on the calendar. Everything that we are focused on is delivering on the goal, which is the high end of that guidance. Operator: Our next question comes from Brian Harbor with Morgan Stanley. Brian Harbour: I'm curious if you think advertising effectiveness has changed to some extent? I mean, was it less in the quarter, how people respond to that and how people respond to some of the deal-driven advertising? Is that something that you plan to change as you go through the year? Or is this more just about kind of new products? Russell Weiner: Yes, Brian, we can get better in everything that we do in all aspects of our business. And so absolutely, are we going to continue to drive the renowned value and come up with new products, but our job is to develop great stories, stories that supersede or build upon what is great value or great innovation. And so our CMO, Key Trimble, is working very closely with the advertising agency. I mean the lights on every evening here. And I know not only some of the products on the calendar, but I know some of the stories on the calendar. You may know, my first job here at the company was Chief Marketing Officer. And I am really excited about the stories we're going to tell. It's not just spending the most amount of money at all, but it certainly helps, it's on top of the money is having the most compelling stories, and we're going to do both of those things in the second half of the year. Operator: Our next question comes from Chris Carroll with KeyBanc Capital Markets. Christopher Carril: Can you expand a bit more on the margin outlook for both the supply chain business and your company-owned stores for the balance of the year, maybe puts and takes around the food cost basket, potential impact from higher energy costs and maybe for the supply chain and how you're thinking about productivity gains at this point? And then specifically, just on the company-owned store margins, I think they seem to come in a little bit lower than anticipated in the 1Q. So just curious how you're thinking about the various dynamics impacting the company store margins in the 1Q as we are thinking about the balance of the year here? Sandeep Reddy: So thanks for the question, Chris. So let me start with the supply chain margins. And I think this is a story that's been really very, very strong for the last few years. And I think we're really proud of the work the team is actually doing on the supply chain side to actually navigate some of the cost pressures that we're seeing in the current environment as well. And we've actually been driving a lot of procurement productivity and the team keeps on pushing hard to actually get more value out of that business. And that's showing up in the profit growth that you're seeing on the margins over there. But also, I think we're driving gross profit dollar growth on the back of the volume that we actually are continuing to drive and expect to drive. So I'd say that's the supply chain business. And our expectation for the year is to see positive margin outlook on the supply chain business, as we talked about in February. And so I'm going to now go to the company stores. And the company stores, there's a subtle tweak that we made in the earnings release. We actually did not talk about that as one of the KPIs from a profit perspective and a profit margin perspective, we have the disclosure in the 10-Q. The reason this was the case was this was really -- it's becoming less and less material. Last year, we still had Maryland in the portfolio, but we did refranchise it. And as we actually get to a place where the size of the portfolio of company stores is less, it's less material to the profitability of the company. And that's why we keep the disclosure in the 10-Q, but I think as the read-through to what's happening in our franchisees really isn't there when we only have 5 markets in which we are operating. And again, we had some discrete issues that we dealt with in the first quarter. We had some pressure from [indiscernible]. We had some pressure from the food basket, which actually was impacting on the business. We had some pressures in insurance as well as we outlined. But really speaking, when we look at the big picture on the total company, we feel like this is not that material to what's going to happen to the company. We believe that operating margins will continue to expand this year at the company level and where we feel pretty good about where that's going as we manage the puts and takes between the revenues and investments we need to make in the P&L to dive profit growth for the company. Russell Weiner: And maybe just to add to that, Sandeep, the company store profit is not reflective of the profit for our franchisees, which continues to be strong. Operator: And our final question comes from Jeffrey Bernstein with Barclays. Jeffrey Bernstein: Great. Just wanted to talk again about the U.S. competition. I know Rusty, you noted the intensification, but yet good to see your increasing confidence taking share. I was hoping to maybe look a little bit more at the broader QSR segment. I mean, I know your largest pizza peers are increasingly aggressive on value, but it seems like the QSR peers with their values and deals and they have lots more outlets. And I know I'm guessing they're better positioned in terms of their franchisee health to be able to offer extended value without having to see closures. So maybe that's a potential risk to the historical 1% to 2% pizza category growth if we see again all the big burger and chicken players more sustainably pushing value, which seems to be on their agenda. Any color there would be great. Russell Weiner: Yes, Jeff, certainly, what you're seeing throughout the industry is competitors, both pizza and not non-pizza, giving customers what they want. We actually talked about this last year, if you remember, there's a lot of value pressure last year. And one of the things I said was you need to give customer not just value for value's sake, but they need to value the things that you're putting value on. And that's why we were so excited about and continue to be so excited about promotions like Best Deal Ever, because there, it's not, "Hey, I want a large pizza, you're going to give me a small pizza at a discount." it's we're going to give you the large pizza at the discount. And what I think you're starting to see this year is competition in pizza and non-pizza realizing they need to do the same thing. At the end of the day, I think what that allows us to do is not only continue continue to put pressure on our competition and continue to grow there, but also just this value environment is not going to change, I don't believe, for the rest of this year. When I look at our Q1 results and we look at some of the macros, we didn't see non-pizza be a significant impact, if we did, we would have called it out. But yes, I think we're going to just have a year where we're going to continue to compete. And I'm really glad we have the resources and our franchisees have the resources to do that. Gregory Lemenchick: Thank you, Jeff. That was our last question of the call. I want to thank you all for joining our call today, and we look forward to speaking to you all again soon. You may now disconnect.
Operator: Hello, everyone, and welcome to Noble Corporation Plc First Quarter 2026 Earnings Call. Please note that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star and then one on your telephone keypad. Thank you. I would now like to hand the call over to Ian MacPherson, Vice President of Investor Relations. You may now go ahead. Ian MacPherson: Thank you, Operator, and welcome, everyone, to Noble Corporation Plc First Quarter 2026 Earnings Call. You can find a copy of our earnings report along with the supporting statements and schedules on our website at noblecorp.com. We will reference an earnings presentation that is posted in the Investor Relations page of our website as well. Today’s call will feature prepared remarks from our President and CEO, Robert W. Eifler, as well as our CFO, Richard B. Barker. We also have with us Blake Denton, Senior Vice President of Marketing and Contracts, and Joey Kowaja, Senior Vice President of Operations. During the course of this call, we may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon current expectations and assumptions of management and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially from these forward-looking statements. Noble Corporation Plc does not assume any obligation to update these statements. Also note, we are referencing non-GAAP financial measures on the call today. You can find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation, in our earnings report issued yesterday and filed with the SEC. Now I will turn the call over to Robert W. Eifler, President and CEO of Noble Corporation Plc. Robert W. Eifler: Thanks, Ian. Welcome, everyone, and thank you for joining us. I will open today’s call with a brief summary of our Q1 highlights and recent contract awards, followed by an update on the market. Richard will then cover the financials before I wrap up with closing remarks and we move to Q&A. During the first quarter, we earned adjusted EBITDA of $277 million and generated free cash flow of $169 million. We again distributed our $0.50 quarterly dividend and yesterday our Board declared a $0.50 per share dividend for the second quarter, maintaining our consistent and highly differentiated return-of-cash strategy. Overall, it was a solid start to the year, and I would like to thank our outstanding men and women of Noble Corporation Plc around the world for your fantastic teamwork in helping us to realize our first-choice offshore performance standards. While it is an understatement to say that energy markets have seen extreme volatility over the past couple of months since the outset of the Iran conflict, we are fortunate to have experienced limited operational disruption, confined to just one jackup in the Middle East, the Mick O’Brien, which we sold in January but have continued to operate under a bareboat agreement. All of our crew and related personnel were safely evacuated from the rig during the early days of the conflict, and Richard will expand on the rig’s current status. Outside of the war-impacted region in the Middle East, commercial momentum throughout the offshore drilling market remains brisk, irrespective in many ways of the recent oil price surge. However, the recent reawakening of energy security concerns around the world and the corresponding move higher in the oil futures strip are clearly supportive of the already steadily improving demand trends evident in the deepwater and harsh environment offshore markets where we operate. Over the past three months, we have secured new contract awards totaling approximately $565 million. First, the Noble Courage received an extension with Petrobras of slightly more than three years, which will keep that rig committed in Brazil through 2030. This extension represents net incremental backlog of $330 million, with the current dayrate reduced from $290 thousand to $280 thousand from April 1, 2026 through late 2027, followed by the extension of slightly over three years at just over $309 thousand per day. Next, I am pleased to announce that the Noble Deliverer has been awarded a five-well contract from Woodside in Australia, which will support that rig’s reactivation. This contract is valued at $121 million based on an estimated 300 days of firm scope, excluding options, and also does not include revenue for additional services or potential rig upgrades. In Guyana, the Noble Developer has been awarded a one-well contract with ExxonMobil at $375 thousand per day, which is scheduled to slot in after the rig’s current program right around year-end. Next, the Noble Black Rhino has recently commenced an exercised option well for Beacon in the U.S. Gulf of Mexico with an estimated duration of 100 days. In Ghana, the Noble Venture has been awarded a one-well contract with Planet One in Ghana at a dayrate of $430 thousand, expected to commence late this year with an estimated duration of approximately 45 days, with two unpriced options. And finally, in Southeast Asia, the Noble Viking has received an additional one-well contract in Malaysia, which is expected to extend the rig through October this year. With these awards, our current backlog stands at $7.5 billion. Now I will share a few observations on recent developments in the market. In short, all measurable and anecdotal indicators of deepwater rig demand are flashing green. I would submit that this is not a reflection of $100 oil, because most of what we are seeing in the market today has been in motion for months or longer. But, of course, recent events absolutely have elevated energy security priorities around the world, and improved upstream cash flows will only serve to enhance the already strong and expanding demand picture and deepwater thesis. In parallel, the volume of deepwater contract fixtures has spiked in the early part of this year, partially but not entirely due to the execution of Petrobras’ wide-reaching contract extensions. The first quarter saw 32 rig-years of UDW fixtures, which was roughly double the average quarterly run rate of last year. And with the conclusion of Petrobras’ extensions in April, this month alone has already had more than 40 additional UDW rig-years fixed, bringing year-to-date backlog additions significantly above the entirety of last year’s contracting volumes for the full year. Petrobras has comprised over half of 2026 year-to-date deepwater rig-years fixed, and non-Petrobras contracting activity has also continued at a healthy level. Notably, despite this recent surge in contract fixtures, the pipeline of open demand in the form of tenders and pre-tenders has actually continued to expand rather than deplete. Last quarter, we observed slightly over 100 rig-years of open floater demand, which was a 33% year-on-year increase. This figure has now eclipsed 110 rig-years. All this tendering activity has developed alongside an increasingly tightening supply-demand balance. Total UDW contracted utilization is currently 105 rigs, or 95% of marketed supply. This is approaching recent peak contracted demand levels of two years ago, albeit with markedly different directional momentum, especially considering the renewed length of backlog across the South America region juxtaposed against open demand throughout the rest of the world that is now more than 55% higher compared to the previous high watermark two years ago. The contracted UDW count of 105 includes 14 rigs on future contracts that are not yet working today, six of which happen to be Noble Corporation Plc rigs. We have been anticipating the convergence of future contracted utilization and present utilization as a critical factor that could substantially eliminate industry white space and result in a comprehensively tight market. This convergence becomes increasingly tangible as these 14 future contracted assets ramp up over the next six to twelve months with average contract durations of two years per rig. Taken together, all these market dynamics are resulting in upward dayrate pressure. Therefore, we believe it is likely that we will begin to see floater rates move higher as we move through the rest of this year. So overall, with the continuing positive development of our backlog as well as the state of the drilling market more broadly, we are even more optimistic about the years ahead than we were last quarter. Now I will pass the call over to Richard for the financial review. Richard B. Barker: Thank you, Robert, and good morning or good afternoon all. In my prepared remarks today, I will briefly review the highlights of our first quarter and then discuss the outlook for the remainder of 2026. Starting with our quarterly results, contract drilling services revenue for the first quarter totaled $742 million, adjusted EBITDA was $277 million, and adjusted EBITDA margin was 35%. Q1 cash flow from operations was $273 million, capital expenditures were $104 million, and free cash flow was $169 million. I would like to touch on a few discrete cash flow-related items during the first quarter. Firstly, we received $210 million in cash proceeds from the jackup sale to Borr Drilling, in addition to the $150 million seller’s note, which is recorded in other assets on the balance sheet. Secondly, we completed the lease buyout on the first two of the four Black ships’ BOP systems for $36.5 million. The buyout of the remaining two BOP systems is expected to occur during Q2 and Q4 this year for approximately $18 million each. In total, the lease buyout for all four systems is expected to cost $73 million. The cash outflow for these payments is not part of capital expenditures, but instead is part of financing activities on our cash flow statement. Lastly, during the first quarter, we redeemed $55 million principal amount of the 8.5% senior secured notes at 103, as an opportunistic and efficient use of capital. As summarized on page five of the earnings presentation, our total backlog as of April 26 stands at $7.5 billion. As a reminder, our backlog excludes reimbursable revenue, as well as revenue from ancillary services. Our current backlog includes approximately $1.8 billion that is scheduled for revenue conversion during the remainder of 2026 and $2.4 billion scheduled for 2027. Referring to page nine of the earnings presentation, we are maintaining full-year 2026 guidance for total revenue between $2.8 billion and $3.0 billion, which includes approximately $150 million in reimbursable and other revenue, and adjusted EBITDA between $940 million to $1.02 billion. Capital expenditures guidance for this year has increased by $25 million, and this is due to the contract award supporting the reactivation of the Noble Deliverer. The lower side of our adjusted EBITDA range is fully contracted by current backlog. Although we have banked a somewhat stronger than expected first quarter in terms of adjusted EBITDA, this is offset by a few discrete items, including a recent notice of early contract termination on the Mick O’Brien, the lower near-term dayrate revision resulting from the Courage’s blend-and-extend, and slightly later estimated contract commencement dates for the Jerry D’Souza and Endeavor driven by customer schedules. Regarding the Mick O’Brien, recall that we closed the sale to Borr Drilling in January and have continued to manage the rig through the completion of its current contract in Qatar, with a corresponding bareboat that we pay to Borr into early December 2026. On April 12, we received notice of early release from the customer, Qatari LNG, and we are now in the process of winding down operations. The contract termination is effective after 30 days, and this will result in an estimated negative impact of approximately $15 million due to our remaining bareboat obligations through early December as well as stacking costs for the rig. To sum up, we have had a very solid start to 2026 from a financial point of view. With continued contract wins in the quarter and solid project execution, we continue to solidify the expected path to a healthy inflection in both EBITDA and free cash flow starting in 2027, as we outlined in detail on our call last quarter. With that, I will now pass it back to Robert for concluding remarks. Robert W. Eifler: Thank you, Richard. Starting this summer with the Voyager, Jerry D’Souza, and Interceptor startups, followed by the Valiant and Endeavor later this year, and then the Great White, Deliverer, and Venturer throughout next year, we have a sharp organizational focus on project execution. This is a large slate of projects to deliver in a “normal” time, and these are, of course, hardly normal times given the various dislocations resulting from the Strait of Hormuz impasse. But overall, I am pleased to report that all of our projects are progressing very well so far, and we are incredibly excited to be preparing for commencement on these important drilling campaigns for our customers. These programs span virtually all of the major non-OPEC offshore basins around the world and are increasingly critical to current and future energy supply. To wrap up, as the outlook for our business continues to improve, Noble Corporation Plc is very well positioned to grow into the next leg of the offshore drilling cycle with a strong balance sheet, $7.5 billion of backlog, and repricing opportunities across some of the most capable drillships and jackups in the world. If anything, we feel better about 2027 today versus last quarter, given the Deliverer contract as well as the improving market dynamics confronting our open drillship capacity. Meanwhile, we will continue to drive shareholder value through our robust return of capital program. With that, I will turn it back to the Operator for questions. Operator: We will now open the call for questions. If you would like to ask a question, again, that is star followed by one on your telephone keypad. Kindly limit your question to one question and one follow-up. Your first question comes from the line of Arun Jayaram of JPMorgan Securities LLC. Your line is now open. Arun Jayaram: Good morning, gentlemen. Robert, one of the themes of OFS earnings thus far has been the potential impact from rising energy security concerns on the CapEx cycle and, in your case, what this means for offshore rig demand. Historically, when we have seen a sharp move up in commodity prices, it tends to accelerate activity. I was wondering if you could elaborate on how some of these energy security concerns could impact deepwater. Are there projects that the majors have been sitting on that they may not have pursued in a lower commodity price environment that may come back into the fold at strip? Robert W. Eifler: Thanks, Arun. It is a good question and the topic on everyone’s mind right now, including ours. I would say a couple things. First, I would reiterate that all of the positive indicators that we mentioned in our prepared remarks and that we are focused on right now started before the conflict in Iran. So this growing narrative around deepwater is very real. There are certain regions that respond more quickly to oil prices in deepwater than others. Traditionally, the U.S. Gulf of Mexico has been one of those, so we are hopeful that we see something that comes perhaps as an early indicator out of the U.S. I think it is less likely that at this point today our customers have rewritten their budgets or made huge five- or ten-year moves—that would obviously be a question for them. From what we see and hear, we do not have necessarily really tangible evidence today of positive changes that have hit us, but we do hear positive narrative as you do, and we are pretty hopeful. We do not really see any way that this does not turn out positively for our business on top of everything else that we have already seen. These are not the end-all be all indicators, but the numbers we used a moment ago are really striking when you think about the amount of deepwater backlog that has been printed so far this year by Noble Corporation Plc and our competitors and compare that against the amount of outstanding activity that we see—including not just open tenders, but direct negotiations and everything that comes along with our business. Arun Jayaram: Got it. And maybe just a housekeeping question. You are buying in your lease options on the BOPs, which you talked about in the prepared remarks. Can you help us think about the impact on OpEx from buying in those BOPs—impact in 2026 and then 2027 on a go-forward basis when you buy in all four of those leases? Richard B. Barker: Yes. We are buying in the leases during the course of this year. On an annualized basis, it will have a benefit to EBITDA of about $25 million. In 2026, probably about half of that will be realized. Operator: Your next question comes from the line of Scott Gruber of Citigroup. Your line is now open. Scott Gruber: Good morning, Robert and Richard. Kind of following on Arun’s question around how customers may respond to higher oil prices. I know it is early days, but in the conversations you are having, are customers starting to indicate incremental interest in exploration? People were talking about it even before the conflict, but is there a sense there will be incremental interest in more exploration or in infill activity with quick paybacks? Any additional color on what conversations indicate for potential incremental activity? Robert W. Eifler: Thanks, Scott. For sure, yes, there is an increase in narrative and discussion around exploration work. I do not know that we can put our finger on a specific example that has a direct cause and effect related to Iran. But generally we are seeing conversations gain momentum, and across the board, the realization that deepwater is going to play a really important part in the supply stack post everything that has happened here. Our hope is that some of the demand we have seen, whether it be from India or elsewhere, is more likely to solidify than before the Iran issue, but today I am not sure that there is a direct link so far. Scott Gruber: Understood. And on the Developer/Deliverer—on that rig, you bumped full-year CapEx by $25 million for the reactivation cost. Is that the total cost of restart, or is there more spend required next year? And does the incremental spend include upgrade investment that would add to the dayrate, or is that just a pure restart cost? Richard B. Barker: The $25 million is the total required for the Woodside contract. If there are any incremental rig upgrades beyond the contract scope, then there will be incremental capital to that. But think about the $25 million as what is needed for the Woodside contract. Operator: Your next question comes from the line of Eddie Kim of Barclays. Your line is now open. Eddie Kim: Hi. Good morning. You highlighted the high UDW contracted utilization currently at 95% and that the market is beginning to tighten, which results in higher pricing over time. We have not quite seen that move up in dayrates yet; it feels like leading edge pricing is still in the low $400 thousands. Based on the current backdrop and the amount of tendering and activity you expect over the next year or two, do you think by sometime in 2027 we could be back up into the mid to high $400 thousands, where leading edge pricing was a year or two ago? Is the market currently setting up for that based on what you see today? Robert W. Eifler: I would say we definitely see the market tightening, because of the convergence I mentioned and because of the demand behind that 95% figure. Tight mindshare leads to higher dayrates. We will see what happens, but we are optimistic about a really tight market. Eddie Kim: Got it. Follow-up on the Petrobras blend-and-extends. It seems like they handed out a lot of extensions. Were you at all surprised by the number of rig-years they extended, or was this in line with your expectations? Robert W. Eifler: It is in line with our expectations. We had thought Petrobras on total rig count would be flat, and they are going to end up dropping by a couple of rigs at least in the near term. We are still hopeful that through time their number remains flat and there is some possibility it could go up. Petrobras is very savvy, and this is in line with their behavior through time. They have secured their rig supply and probably done it at a pretty good time. Operator: Your next question comes from the line of Keith Beckman of Pickering Energy Partners. Your line is now open. Keith Beckman: Thanks for taking my question. We have talked about the strong contracting we have seen to start the year, a lot of it driven by Petrobras in Brazil. Are there other regions where you have stronger confidence now for more significant tender conversion throughout the rest of the year? Any regions in particular you would highlight that could see stronger contract conversion? Robert W. Eifler: I mentioned the U.S. earlier, which sometimes responds quickly—we do not have anything tangible to report there, but fingers crossed. The real meat of your question sits in two places. First, Asia, where we had growing demand even before the Iran conflict, and we think that is likely to solidify going forward because of renewed security concerns—good outcomes for the Viking and follow-on work, also in Australia. Second, West Africa, where a lot of the growth we have been forecasting has been. Higher oil prices help that region; if not incremental work, then projects already on the table are more likely to come through in time. Keith Beckman: Thanks. And my second question is the outlook for a few rigs—the Black Rhino, the Globetrotter I, and Apex—systems that could still pick up some work as they roll off or are already off contract. Could the Black Rhino still find work in the Gulf, or might it head elsewhere? And any potential work scope for the Globetrotter I or Apex at this time? Robert W. Eifler: The Black Rhino could easily stay in the U.S.; that is most likely to be 2027 work, but our fingers are crossed about potentially some 2026 work popping up. It is also bid outside of the region, so it is too soon to tell where it will end up. The GT1 is in the same place it has been—we are chasing primarily intervention work. We believe in that market, and everything that has happened makes us believe at least as much, if not more, in that market. We are hopeful to have news on that rig in the next couple of quarters. It remains focused on intervention work, and there are a couple of jobs out there—like one in the Black Sea—that fit that rig well. We are not bidding it into very many drilling programs, but there are a couple things we are chasing right now; that would be a 2027 start. The Apex is an older unit, and we are evaluating options for that rig right now. There are some opportunities, and we will make a decision over the next couple of quarters as well. Operator: Your next question comes from the line of Fredrik Stene of Clarksons Securities. Your line is now open. Fredrik Stene: Thank you for the prepared remarks and the market commentary. I wanted to circle back briefly on Brazil and the Remacom. You got the extension on the Courage, which keeps that rig working till end 2030. But I was wondering about the Faeq Kozak as well. That is rolling off later this year or early next year, and nothing has been announced. Does that mean it has not been part of Remacom? Can we expect it to be extended nonetheless, or did you feel like the terms that were potentially agreeable for Petrobras are not agreeable for you and that you might see that rig working elsewhere? Robert W. Eifler: The Faeq Kozak is not part of the blend-and-extends that have been announced. We did have it very close on a different program. There are opportunities in South America for the rig that we are chasing, but we are also starting to bid that rig elsewhere. It is not impossible for that rig to continue working for Petrobras, but it is not part of the current blend-and-extend discussions. Fredrik Stene: Thank you. Then one for Richard. In addition to buying out two of your BOPs, with two more following later this year, you also brought back some of your 2030s secured bonds. I think you said you bought back $55 million, which would suggest a price of 103—good versus market pricing. Should we read more into this given the core structures of the bond—early stages of a potential refi—since you are still siloed in a way with Legacy Noble/Legacy Diamond debt structures? Richard B. Barker: There was a specific clause in the legacy notes that allowed us to buy back 10% at 103. The bond was trading at 105–106, so we think it was a very value-accretive move to retire that debt. The Legacy Noble bonds are callable now; the Legacy Diamond bond is callable later this year. At the right time, we will refinance the capital structure and collapse that back down into one silo. Through that process, we would expect to realize material cash interest savings on an annual basis. Both bonds are trading well in excess of par today, but we will find the right time to move. Operator: Your next question comes from the line of Doug Becker of Capital One. Your line is now open. Mr. Becker, your line is now open. Doug Becker: Thank you. Robert, as the market evolves, do you see an opportunity for some upgrades on the drillships to improve their competitiveness even further? Robert W. Eifler: Good question. As a reminder, we feel we have one of the most competitive fleets globally right now. All of the drillships will have MPD here in the not too distant future, and we believe we have more of NOV’s automation equipment installed on our rigs than the entire rest of the world combined. We are really proud of where we sit on rig technology. We have upgraded or will upgrade a couple of the rigs for direct capacity, which is a pretty easy upgrade for a couple of our rig classes. I could see us doing something like that for certain programs. By and large, we are happy with where everything sits now. We constantly communicate with our customers around technology they value and work with them in the normal course of business to find technology that works for our rigs. There is always some discussion around who pays for that, but we are seeing a real push by customers to have the best technologies as a lot of things are proving their value, whether in safety—red zone management—or in efficiency—MPD, automation, and other things. We think that trend will continue. Some of that will come from customer-supplied CapEx; some possibly from us. But we are starting from a high place as a company. Doug Becker: Richard, a quick one. You mentioned the low end of the range was de-risked through contracting. What would we need to see to get to the high end of the range for this year? Richard B. Barker: A few parts to get to the high end. In Q1, we had great uptime performance and fantastic cost control across the company—there are opportunities to drive cash flow that way. Specific to the Black Rhino, if opportunities come to fruition for that rig in the back half of the year, that would lead us toward the higher end of the range. Operator: Your next question comes from the line of Analyst of BTIG. Your line is now open. Analyst: Good morning, and thanks for taking my questions. First, on your comments that the U.S. Gulf is a basin that typically reacts quickly to changes in oil prices—have you heard anything yet from customers in the region? And thinking about your fleet, implications for the Black Rhino? Robert W. Eifler: I wish I had a great story for you. Our customers continue to preach discipline and will continue to be disciplined. The U.S. is a place where some smaller independents can be a little more price sensitive in the near term than some majors. Related to Richard’s statement, to the extent something pops up for the Black Rhino, that is upside in 2026 for us. We are hopeful this environment eventually translates to a little incremental work. Analyst: Thank you. And turning to the jackup fleet—now with the closing of the sale behind us—anything you want to highlight on the longer-term outlooks in Norway and the UK? A lot of 2026 is spoken for, but thinking about 2027 and beyond. Robert W. Eifler: For the CJ70s in 2027, we feel really good about having four of those rigs contracted, with multiple paths to having all five contracted. We are probably a little bit short of scarcity in that market on programs that genuinely require CJ70s, but broadly we would characterize our view as flat to up for CJ70s. We are cautiously optimistic. Operator: Your next question comes from the line of Joshua Jayne of Daniel Energy Partners. Your line is now open. Joshua Jayne: Thanks. I wanted to touch on inflation and supply chains. You highlighted a number of project and rig startups you will have over the next twelve months and the focus on execution. What are you seeing with respect to global supply chains—not just the Strait, but outside of it—and how are you managing things to ensure projects start on time with no delays? Robert W. Eifler: Thanks. It is something we are extremely focused on. Logistics are strained—some of that started before Iran—but fuel prices are up now and that adds a bit of cost. Cost-wise, we are not seeing material effects directly correlated to the war. Transportation costs are up, yes. Everything else we are buying for these projects has been built effectively, so we feel reasonable, although there is risk given everything happening. We are really focused on timing right now, and that is where we are seeing a lot of pressure. We are going multiple layers deep to track the equipment we need and ensure we get everything on time so we are ready for our customers. We are optimistic and working hard to stay on time. There is a lot of pressure on the groups trying to pull everything together. Joshua Jayne: Understood. And a follow-up on autonomy. There was a release in March where Noble Corporation Plc, in conjunction with Halliburton and Exxon, automated rig operations and subsurface interpretation, real-time hydraulics. Can you speak to that and where you think we are going over the next couple of years with respect to advances in autonomy on the rig floor? Robert W. Eifler: That is going to continue; that is the path of everything. Noble Corporation Plc does not do anything specifically subsurface. We are focused on having the most efficient rigs and some of the logistics around that. We work very closely with other service companies and with our customers. A hallmark of where things are headed is that everyone is much more collaborative today so maximum efficiency is achieved by service companies and operators working together early, collaborating on shared technologies like what you referenced—there are a number of examples like that. That is the path of drilling today. We have said before we have shifted from the concept of drilling ourselves out of a job to drilling ourselves into a job. We have seen that work directly in Guyana, where they have had FID under circumstances that were probably not possible even three or four years ago given the efficiency then. Technology and automation are really enablers for deepwater work going forward. The further deepwater comes down the cost curve, the more there is for the entire industry. We are very optimistic about that. Operator: Your next question comes from the line of Analyst of Melius Research. Your line is now open. Analyst: Good morning, Robert and Richard. Robert, thinking about the various regions around the world that you participate in, which one or two over the last ninety days have started to show more urgency on moving FIDs forward or getting FIDs done as this deepwater cycle steps up? Robert W. Eifler: Asia, for sure—we have seen a real change in the amount of demand and urgency there. And then Terracom, where there is an enormous amount of work: in Guyana, and Venezuela seems more open, and a number of other shallower-water trends that are creating a lot of demand through that region. It is all pretty interesting. Analyst: And on managed pressure drilling—you mentioned all of your rigs will be outfitted with MPD. What percentage of wells now are being drilled with MPD, and how much of the well is drilled with MPD? Robert W. Eifler: To clarify, it will be all the drillships that have MPD. I may not have a precise percentage; it is a high percentage. There are certain technologies that can be used outside of MPD, but over the past ten years, MPD is going the path of the top drive—almost ubiquitous. We are happy with where we are on having the rigs outfitted. It is a $25–$30 million expense depending on where your piping is, and you have out-of-service time, so we are happy to have that pretty much paid for. Operator: Your next question comes from the line of Noel Parks of Tuohy Brothers. Your line is now open. Noel Parks: Good morning. One artifact of tightening in the rig market could be lengthening of contract term. I have not really seen that yet, but I have noticed more prompt contract extensions, maybe suggesting operators who were betting on lower-for-longer dayrates are losing that bet. Are you seeing that? Robert W. Eifler: On length of contract: two or three years ago, the last time we hit this inflection, average contract term was still less than a year. An important point we made is we are seeing more big development projects driving demand. I think the average contract term was at least two years on some of the recent contracting. That is a huge change compared to where we were. Think about approaching a similar utilization point as the last time dayrates hit $500 thousand, but with more term and a lot more open demand—like double the open demand—than before. We are pretty optimistic. Noel Parks: You mentioned producers’ capital discipline is still in place. Comparing to 2022’s uncertainty, how are they deciding during the current turmoil—looking past it and thinking about what comes next? Robert W. Eifler: Our customers are very long-term minded. There has been a big movement toward exploration in deepwater, which to me is the most important test of the market. That started before Iran and has not slowed. We hope it is solidified by what is happening now. We would not expect our customers to waver from their commitment to discipline, and our optimism does not require them to abandon discipline. Operator: Your next question comes from the line of Analyst of JPMorgan. Your line is now open. Analyst: Good morning, and thanks for the time. Can you elaborate on the moving pieces with the Mick O’Brien? You called out a $15 million impact. How much is the bareboat piece versus stacking costs? And when the rig goes stacked, does that end the relationship between the two entities and the rig is free to seek work elsewhere, or are there any other items we should be aware of? Richard B. Barker: It is an early termination for the rig. The $15 million is about six months of the bareboat charter plus stacking costs—that is essentially the $15 million. That is the extent of the impact; we do not see any other impact to our financials. Once we get to early December, the rig will move over to Borr. Operator: As of right now, we do not have any pending questions. I would now like to hand the call back to Noble Corporation Plc management for closing remarks. Ian MacPherson: Thanks for joining us today, everyone. We appreciate your interest, and we look forward to speaking with you again next quarter. Have a great day. Operator: Thank you for attending today’s call. You may now disconnect. Goodbye.
Kotaro Yoshida: This is Kotaro Yoshida from Daiwa Securities Group Inc. Thank you very much for taking the time to participate in our conference call today. I will now explain the financial results for the fourth quarter of FY 2025 announced today following the presentation materials available on our website. First, please turn to Page 4. I will begin with a summary of our consolidated financial results. Percentage changes are in comparison to the third quarter of FY 2025. In Q4 FY 2025, despite the continued highly volatile market environment, our profit base, primarily driven by asset-based revenues, functioned steadily, allowing us to maintain a high level of consolidated profit. Net operating revenues were JPY 197.8 billion, up 1.7%. Ordinary income was JPY 67 billion, down 3.6% and profit attributable to owners of parent was JPY 49.8 billion, up 7.3%. Looking at the results by division in the Wealth Management division, as a result of our focus on total asset consulting, both the contract amount and net inflow for wrap account services reached record highs and net asset inflows also expanded. In Securities Asset Management and real estate asset management, assets under management grew steadily, continuing to expand our revenue base. Global Markets accurately captured customer flows amid market fluctuations, resulting in increased revenues in both equity and FICC. In Global Investment Banking, domestic M&A remained strong. As a result of these factors, the annualized ROE was 11.5%. The year-end dividend is JPY 35 per share. Combined with the interim dividend of JPY 29, the annual dividend will reach a record high of JPY 64, resulting in a dividend payout ratio of 50.8%. Please turn to Page 8. This page shows base profit, our KPI for stable earnings as outlined in the medium-term management plan. FY 2025 base profit grew steadily to JPY 182.7 billion, up 32.9% year-on-year. We have achieved a level that significantly exceeds the JPY 150 billion target set for the final year of the medium-term management plan, doing so in just the second year of the plan. Please turn to Page 11. I will now explain the statement of income. Commissions received was JPY 131.2 billion, up 2.0%. A breakdown of commission received is provided on Page 26. Brokerage commissions increased significantly to JPY 31.9 billion, driven by an increase in customer flow. Please turn to Page 12. Selling, general and administrative expenses were JPY 138.3 billion, plus 4.1%. Personnel expenses increased due to an increase in performance-linked bonuses. Please turn to Page 14. This slide shows the annual trends in revenues and SG&A expenses. Whilst performance-linked costs and strategic expenses such as IT investments have increased in tandem with business expansion, the increase in fixed cost has been constrained, keeping overall costs at a well-controlled level. Please turn to Page 15. Total ordinary income from overseas operations was JPY 6.9 billion, down 17.6% quarter-on-quarter. By region, Asia and Oceania saw an increase in profit, supported by equity-related revenues driven primarily by Asian equities. On the other hand, the Americas recorded a decrease in profit due to a decline in M&A revenues. Next, I will explain the financial results by segment. Please turn to Page 16. First is the Wealth Management division. Net operating revenues were JPY 81 billion, plus 5.2% and ordinary income was JPY 33.1 billion, plus 12.1%. We believe that the results of our ongoing efforts in the asset management type business have manifested in our sales performance despite the persistent high volatility in the market environment. By product, equity saw a revenue increase of JPY 1.1 billion due to increased trading in Japanese equities. Fixed income revenues also increased by JPY 500 million as we accurately captured investment needs. Sales of fund wrap increased significantly, driven by growing demand for long-term diversified investment and portfolio management. In addition to inflation hedging, wrap-related revenues reached a record high of JPY 18 billion. Asset-based revenues reached a new record high of JPY 33.4 billion, driven by increase in agency fees for investment trust and wrap-related revenues. The fixed cost coverage ratio based on asset-based revenue in the Wealth Management division was 120%, and the total cost coverage ratio was 76.5%. Please turn to Page 17. This slide shows the status of sales and distribution amount by product within our domestic Wealth Management division. Our wrap account service reached a record high level with total contract AUM rising to JPY 6.4046 trillion. New contract amounted to JPY 386.2 billion, and net inflows came to JPY 276.2 billion, both marking all-time highs. Our fund wrap also continues to grow strongly. Its characteristics have been well received by clients in both favorable market conditions and during periods of adjustment, resulting in a significant expansion in assets under contract. In addition, collaboration with external partners such as Japan Post Bank and Aozora Bank has been progressing steadily, contributing further to the growth in the new contracts. Please turn to Page 18. This section outlines the progress of our wealth management business model. Cumulative balance-based revenues for fiscal 2025 increased to JPY 123.2 billion. Net inflow of assets also remained high, totaling JPY 1.6342 trillion. In line with our group's fundamental management policy of maximizing clients' asset value, we will continue to provide optimal portfolio proposals based on each client's total assets while working to build a revenue base, which is less susceptible to market fluctuations. Please turn to Page 19. Here, we show the status of Daiwa Next Bank. NII, net interest income, totaled JPY 11.2 billion, up 11.2% and ordinary profit reached JPY 6.2 billion, up 30.2%. The increase in policy rates contributed to an expansion in net interest margins. The promotion of total asset consulting, together with initiatives such as competitive deposit interest rates, including a 1.2% 1-year time yen time deposit for retail customers proved effective and deposit balance surpassed JPY 5 trillion. And now turning to Page 20. Let me explain the Asset Management segment, beginning with Securities Asset Management. Net operating revenues were JPY 19.7 billion, up 5.9%; and ordinary income was JPY 11.4 billion, up 11.6%. Daiwa Asset Management publicly offered securities investment trust AUM topped JPY 37 trillion, hitting record high. And then moving on to Page 21 for real estate asset management. Net operating revenues were JPY [ 9.9 ] billion, down 10.6% and ordinary income was JPY 9.8 billion, down 5.6%. While revenues and profits declined on a quarterly basis, mainly due to the absence of property sales gains recorded in the previous quarter, real estate asset management is a business in which the profit grew in line with AUM. AUM at Daiwa Real Estate Asset Management surpassed JPY 1.6 trillion, and we expect stable midterm growth in line with continued AUM accumulation. In addition, equity method investment gains from Samty Holdings contributed to maintaining a high level of profit. On Page 22 is Alternative Asset Management. Net operating revenues were negative JPY 2.6 billion and ordinary income was negative JPY 4.8 billion. And the Renewable energy, we recorded provisions and impairments due to the revaluation of certain portfolio investments. On Page 23, lastly, let me explain the Global Markets and Investment Banking division. First, Global Markets, net operating revenues were JPY 51.3 billion, up 13.4% and ordinary income was JPY 17.7 billion, up 48.6%. Both equities and FICC performed strongly, resulting in a significant increase in revenues and profits. In equities, trading flows in Japanese stocks increased substantially, particularly among overseas investors, leading to a 6.2% rise in revenues. By offering a diverse range of execution methods, we successfully captured large-scale trading mandates contributing to revenue growth. In FICC, revenues increased 20%, driven by strong performance in JGBs and credits. We effectively captured customer order flows in both domestic and foreign bonds and the position management remained solid even in a highly volatile market environment. And now turning to Page 24. In Global Investment Banking, net operating revenues were JPY 24.1 billion, down 7.4% and ordinary income was 2.1 billion, down 60.5%. But M&A advisory remained strong in Japan and the revenues increased in Europe within our overseas operations. That concludes the explanation of our financial results for the fourth quarter of fiscal 2025. Fiscal 2025 on a full year basis experienced high volatility in stock price and interest rates, but the year itself was quite active overall. And the entire business portfolio had higher stability so that income was stable and the market response capability also improved. We were able to benefit from both of them. As a result, the second year of this midterm plan hit record high in terms of the profit and the ordinary income was hitting the highest in the last 20 years. Well, towards the end of the midterm plan, we think that we have a very good strong result. Now we'd like to move on to the announcements that we have made about the subsidiary of the ORIX Bank, as we have explained on our website. I will explain the overview, objectives and financial impact in accordance with the materials published on our website. Please turn to Page 2 of the document entitled regarding the acquisition of ORIX Bank as a subsidiary. This is a transaction summary. In this transaction, Daiwa Next Bank will make ORIX Bank a wholly owned subsidiary. We also plan a merger of the 2 banks in the future. The acquisition price is JPY 370 billion, and the final acquisition price will be determined after price adjustments stipulated in the share transfer agreement. The acquisition will be funded entirely by our own funds, strategically utilizing the capital buffer we have accumulated to date. Next, the primary objective of this transaction is to continuously expand the stable revenues of the Daiwa Securities Group and improve ROE and EPS through the strengthening of the Wealth Management division. By integrating Daiwa Next Bank and ORIX Bank, which have different strengths, we aim to enhance our ability to provide solutions for our clients' challenges regarding both assets and liabilities, thereby significantly improving the corporate value of both banks. Specifically, we will realize sustainable growth by combining the outstanding lending and trust capabilities cultivated by ORIX Bank with the deposit gathering capabilities backed by our group's solid customer base and sales network. There are 3 pillars to this strategy. First, deepening the total asset consulting tailored to the life stages of each individual client. Second, establishing a sustainable growth model through a virtuous cycle of deposit and lending expansion. Third, maximizing synergy effects through functional integration by a future merger. I will explain each of these in turn. Please turn to Page 3. The post-integration bank will have total assets of JPY 9 trillion and approximately JPY 400 billion in equity capital, evolving into a comprehensive bank, combining advanced lending and trust functions with strong deposit gathering capabilities. By offering competitive deposit rates backed by ORIX Bank's high investment capabilities, we aim to establish a sustainable growth model through a virtuous cycle of deposit and lending expansion. Regarding the impact on consolidated financial results, there is a potential to improve net interest income as a synergy effect. In addition to the over JPY 1.5 trillion of drawable funds from Daiwa Next Bank's current account at the Bank of Japan, we aim to accumulate JPY 2 trillion in deposits over the next 5 years as a synergy effect, separate from the stand-alone deposit growth of both banks through the provision of competitive deposit rates. We plan to invest a total of JPY 3.5 trillion in real estate investment loans and securities-backed loans to improve net interest income. Assuming we can secure a 1% interest rate margin improvement, our estimates indicate a potential improvement of JPY 35 billion in net interest income. In addition to these synergy effects, ORIX Bank's stand-alone performance will be consolidated into our financial results. The bank's average ordinary income over the past 5 years is approximately JPY 30 billion with a net income of approximately JPY 20 billion. On the other hand, we expect to incur amortization expenses for goodwill associated with the acquisition. Next, regarding capital and regulatory aspects. We will maintain financial soundness while effectively utilizing our capital buffer. Whilst the implementation of this transaction will lower the consolidated total capital adequacy ratio by 5 percentage points, it will still exceed 14% on a fully loaded Phase III finalization basis, securing a certain level of capital buffer. However, to expand our capacity for future growth investment and shareholder returns, we will also consider issuing perpetual subordinated bonds. Please note that we are not considering equity financing. Now moving on to Slide 4. Let me see the strength of Daiwa Next Bank. That is the strong deposit gathering capability. In the meanwhile, it has to challenge with the limited lending and the trust functions. Against that, the ORIX Bank has a strong lending and trust function. That's their strength, while the challenge is the deposit gathering capability. So while we are complementing or we are able to complement each other with the strength and the challenge, we think this is an ideal match between the 2. And moving on to Slide 5. I may be repeating myself, but the objective of making them a subsidiary is to strengthen the wealth management division and also a great leap in terms of the stability of the income as a result of that. The stronger Wealth Management division is not coming from one point. It comes from some pillars, the deepening total asset consulting, virtual cycle of deposit and loan expansion and accelerating growth through collaboration with the Asset Management division. Those are going to be the 3 pillars to enhance the management division and the stability of the income. And then moving on to Slide 6. We are trying to see the deeper total asset consulting capability for the clients. The assets and liabilities of our customers would change from life stage to life stage. That's the reason why not only the assets, but the liabilities all included. It's quite important to have the total asset consulting capability to optimize our capability of designing the balance sheet of the customers. By utilizing the ORIX strength, which is the lending and the trust, we are going to be providing the solutions for the pains of the customers depending upon their life stage. And then moving on to the Slide 7. We're thinking about accelerating the growth spiral by leveraging the strength of the banks. we look at those banks alone, the balance is going to be accumulated. But as a result, in addition to the growth of each bank's deposit balance, we aim to expand the deposit by over JPY 2 trillion in the next 5 years as a synergy effect, the asset -- the loan asset of the ORIX is quite competitive. So based upon which we're going to offer the Daiwa Securities customers a competitive deposit interest so that we are able to get -- acquire the [ stucki ] deposit. And then eventually, that is going to increase the deposit balance. That is going to be a great spiral of the growth of the banks overall. And then on Slide 8, this shows the changes of the balance sheet structure as a result of the integration of the 2. On the asset side, the lending and securities and on the liability side, the ordinary deposit and the time deposits are going to be all balancing so that the balance sheet is going to have a good risk diversification. The explanation is over with that. The details is going to be explained by our CEO, Ogino, at the management strategy meeting, which is scheduled to be held next month. By responding flexibly to the variety of needs by the customers, we're going to be capturing the changes in the market environment. And as a leader of the financial and capital market, we are going to pursue sustainable growth. We sincerely appreciate your continued support, and thank you very much for your kind attention. With that, we finish our explanation. Now let us move on to the Q&A session. Kana Nakamura: [Operator Instructions] I would like to introduce the first person, SMBC Nikko, Muraki-san. Masao Muraki: This is Muraki from SMBC Nikko Securities. So I have a question related to ORIX Bank's acquisition. The first point relates to Slide 3. You talked about the synergy and how it supplements with one another. So deposit is JPY 2 trillion increase. That is the number you've mentioned already, so 1.05% to 2%, that is the time deposit level. So going forward, do you intend to actually increase this to a competitive level? That is the first question. And also, you would have a loan increase by JPY 3.5 trillion. So you have the real estate loan and the secured loans. What is the breakdown in terms of the loan growth? So second part of the question relates to your capital strategy. So this is Slide 12 of the material. You have the image here. So this will be over 14%. The capital ratio will come down. But if you look at the future from the current level, the capital level intends to be built. So I don't know if it's 17% or 18%, it's hard to tell from this diagram. So whilst you're increasing this level, what are some prospects of the share buybacks? What are some of the ideas we should have? In the past, the share buybacks they conducted even amongst the high level of capital. But now if the capital is going to be depressed, perhaps there will be less allocated or different allocation to the share buybacks. So please give us some idea. Kotaro Yoshida: Thank you very much for that question. The first part of the question, so what are the JPY 2 trillion of deposit as part of the synergy? So what is the outlook? So related to this point, we are confident that we can acquire. We believe there is a fair chance that we can achieve that number. So within this fiscal term -- so after the rate hike, so Daiwa Securities, there has been a 2% of provision in the year. So last year, in terms of the time deposit, so about JPY 650 billion increase in terms of the time deposit. So if you can provide a competitive -- the deposit, right, given the fact that Daiwa Securities have a nationwide network and the high-level consulting capabilities and through our consultants, we should be able to acquire the deposit. So of course, there has been a shift away from savings to investment. But this is not just the deposit into equities. But also, we have been providing consulting to their entire asset, inclusive of deposit. So within that process, the larger the pie is, the better chance that we may have for the acquisition of deposits. So JPY 2 trillion is feasible. That is our expectation. Also about the JPY 3.5 trillion of the loan, so real estate loans and also the securities, the back loans, the breakdown of that, we don't have the exact number as we speak. But already, what ORIX Bank is providing, that is an investment use in real estate loan, it is for the one mansion for the single-family hold in the metropolitan area. So the number of banks have been on the decline. But in terms of the number of households, single households in the metropolitan area is expected to rise. Therefore, we do believe there is sufficient demand. In the past several decades, ORIX Bank has built this lending capability. So in relation to that, it is very possible that we can achieve that JPY 3.5 trillion of lending. Also the second part of your question about the capital, the strategy. Please hold. So through this acquisition, so in terms of the consolidated total capital adequacy ratio will be out -- will be down by mid-5% or so. So right now, it's over 14%. So that is the level that we're expecting at this moment. So going forward, how the capital policy may change, and that is the intent of your question. But as of this moment, no change vis-a-vis our basic policy. So the dividend -- the payout ratio is at 50% or higher. And also the floor for the annual dividend of JPY 40, we'd like to maintain that. So through this acquisition, there will be some level of decline in terms of the total capital adequacy ratio. However, we can ensure the financial soundness. And also by steadily building on the profit, we can continuously keep this financial soundness. Also in order to ensure flexibility, AT1 bonds issuance is also under explanation. Of course, the actual amount is still under consideration. But again, we'd like to further have a solid capital base. Also in terms of share buybacks, the question was what are our plans going forward. Again, no change in terms of our general stance. So based on the assumption of financial soundness, in light of the different operating environment, gross investments will be considered. But of course, that is necessary for future shareholders' return. So we definitely like to prioritize on that. So looking at the gross investment and the buyback, we need to strike the right balance and be agile and flexible. So this particular deal, this is an impact of the profitability of ORIX Bank. And also through the realization of the synergy, we can expect to enhance the capital generation within the group as a whole. So ultimately, this would actually lead to increase in the source for shareholders' return. So going forward, the capital allocation, capital policy is a very important policy. So given the current operating environment, we'd like to make a comprehensive approach. Masao Muraki: Related to the second part of my question. So at this particular timing, you didn't announce the share buybacks. So in terms of the perpetual subordinate bonds utilization, related to that point, so what is the potential amount AT1 bond issuance that is? What is the amount they have in mind? And once you announce that, in light of the credit rating, we expect you to conduct share buybacks at that timing. Kotaro Yoshida: Thank you for that question. So in terms of the AT1 bonds, the issuance, so it will be within the part of the consideration. But in terms of concrete details, we will consider those going forward. Also in terms of the credit rating, so we would like to definitely conduct meticulous communication with the credit rating companies. So we may also incorporate those ideas. So based on that, so whether there's a possibility of buybacks, again, we'd like to take a comprehensive approach in making that decision. So that has been my answer. Kana Nakamura: The next question is by Morgan Stanley, Sato-san. Koki Sato: This is JPMorgan, Sato speaking. Well, I have several questions about the bank. One, we simply this consolidation, you're going to make them a subsidiary. After that, how should we think about how you're going to be executing it? On the material, you're talking about the recurring income of about JPY 30 billion and the net profit of about JPY 20 billion. What kind of upside are you expecting from that baseline? I think that, of course, depends on the analyst, but the depreciation or the amortization of the goodwill and also the sourcing cost, probably a part of that needs to be recognized as well. So when you explain that to the market participants, what kind of a level are you going to say to them on the annual contribution? What is going to be the level that you think you're going to be talking in that communication to the market? The second question is about this -- by the acquisition of this ORIX Bank, you still have an external partners. Are there going to be any changes in the relationship with those partners? Like Aozora Bank, you are currently accounting for them under equity method. So your business alliance with them, is it going to be changing because of your acquisition? There might be some changes in terms of like focal point that you are working together with those external partners. And also when it comes to the asset-backed ones, partly, you are working together with Credit Saison. What are you going to be thinking about those asset-backed securities? Kotaro Yoshida: Thank you very much for your questions. The first question about the bank. Well, as you say, the average of the ordinary income is about JPY 30 billion of the ORIX and the profit is about JPY 20 billion. At Daiwa Shoken Daiwa Securities Group, our capital average is about JPY 1.7 trillion, meaning that on a simple calculation, it has the positive impact of pushing up the ROE by 1.2%. The equity finance is not likely to happen. So that's the scenario that we are seeing at this point. But the amortization of the goodwill and assuming that AT1 is going to be issued, which we, of course, need to examine. But anyway, setting that aside, we think that is a basic simple calculation that we are currently having our basis. And the second question, first of all, we do have the external partnership with Aozora Bank. And regarding that partnership, we assume there's no impact. Well, regarding the integration, it's for strengthening the wealth management business. The total asset consulting business for the retail business, the asset to support from the total asset consulting is going to be stronger. And the trust functions in order to work in our wealth management business for the retail market, it's important to have the trust function. Well, organically within the company, we did not really have much capability to grow itself. And by having the external partners, we have provided some instruments. But from now on, we think we'll be able to do that in-house. That's going to be another one big pillar. Well, regarding Aozora Bank, our partnership with Aozora Bank, there are some corporates that are listed and private. We have been providing the referral to the Aozora Bank and also the LBO financing, for example, have been provided and have been providing in the past so that the customer trade is quite different in Aozora Bank. So we think both can actually stand. And also for the real estate-backed loans, well, Credit Saison is a part of the business that we've been engaged with. But Fintertech is jointly operating -- operated by Credit Saison. So they have the asset -- the real estate asset-backed loans. But of course, the market size is limited so that the capacity is not that big. And this time, thinking about the capability being much bigger. I think the issuance coming from the business is going to be having new opportunities for us to grow our pie itself. Does that answer my question? Koki Sato: What about the amortization of the goodwill. Any color on that scale? Kotaro Yoshida: The amortization amounts and the cost for the amortization we're going to be discussing in details more. So at this point of time, there's nothing that we can comment. So please be patient. During the time comes for the closing, we think we'll be able to come to that point. Kana Nakamura: So let us move on to the next question. BofA Securities, Tsujino-san, please. Natsumu Tsujino: The last point about the goodwill amortization, it could be as long as 20 years, but some say it could be 10 years. So you should have some sort of image in terms of the amortization. And also in terms of decision of the dividend, it would be -- so the net profit -- so would you be using the same sort of net profit regardless of the amortization. So 20 years or 10 years, I don't think that you have no image as to the amortization. If you can give us some color, that would be helpful. That is the first question. Kotaro Yoshida: Thank you very much for that question. So of course, we have some image or some ideas. So the duration that you've mentioned, it will be within the time frame that you've mentioned. But as of this moment, we're working together with the auditors. So we would like to refrain from giving you an exact answer. Also, as far as dividend is concerned, as you rightly mentioned, no change in terms of the dividend payout ratio. So 50% or higher of the earnings. So no change in terms of the dividend policy. Also in terms of ORIX Bank, so they have the Tianjin report. So as of September end, so in terms of the J-GAAP, excuse me, J-GAAP earnings, JPY 7.4 billion, and ordinary income was JPY 10.6 billion. So it is actually quite lower in comparison to 5-year average. So in order to drive this, do we just work towards that JPY 8.6 trillion. I think that is the direction we should aim for. But right now, it's a midterm -- sorry, interim times 2. Natsumu Tsujino: Is that the image that we should have in mind for ORIX going forward? The interim number, double that number? Kotaro Yoshida: First of all, as of September 2025, the interim results for the company -- so within ORIX Bank, there were some rebalancing of the securities. So there were some loss from sales. So that is why the amount has ended to that one. So somewhat lower that is. That is our understanding. So in terms of the underlying capability, then it is closer to 5-year average then. Natsumu Tsujino: Okay. Understood. So the third point -- the third question I have, this is a question related to the results. So FICC has been very favorable. So Q3, there was a growth. In Q4, there was a further growth in FICC. So how sustainable is this? So for the March quarter, how has been the recent performance? And how is it trending now as we speak? Kotaro Yoshida: Thank you very much for that question. So in terms of FICC, amidst this very high level of volatility, we were able to capture the customer flow, and we've been able to turn those into profit. So that has been very positive. Also in terms of products, that's been all around. So we have JGBs and also, we have some domestic derivatives and so forth. So within this high level of volatility, we do have a high level of activities amongst the customers. So the customer flow, we were able to capture that through the communication with the customers. We can anticipate the customer flow and conducted the positioning. So through this control, that has led to a positive impact of the earnings. So that has been the experience of this past quarter. So for FY 2025, in the first part of the year at the phase of rate increase, I think we have also mentioned there were some difficulties in conducting the position control. But we have addressed these issues, conducted communication with the customers and also develop customers and also address the diverse needs of the customers. We've been able to have more strengths in the position management. But just because that we were able to do that. That doesn't mean we can sustain this without doing anything because, of course, the market is changing every day. So accordingly, we would like to enhance our capability to capture the customer flow. And also, we'd like to steadily strengthen the position management system. Also for the fourth quarter, so for the March quarter, that is FICC, the revenue image that is, so January 3 and February is 2 and March is 5. So in terms of the month of April, so in comparison to the fourth quarter average, maybe it is somewhat subdued for the month of April. But again, the customer flow continues to be fairly active. So of course, the environment continues to be uncertain, but we would like to have a closer communication with the customers. And we are hoping that we can turn it to our better performance. Kana Nakamura: Next question is Nomura Securities, Sasaki-san. Futoshi Sasaki: This is Sasaki of Nomura Securities. One question about the earnings call results and one about ORIX. Well, I'd like to talk about the wealth management. The AUM in the first half was declined and the previous quarter was down, but the asset inflow was making an improvement. I would understand that, that is because of the drop in the U.S. equity price. For the retail investors, there was some sales for the realization sales. Am I right to understand that? If I'm not, then please correct me. And the second question is about the acquisition of ORIX Bank. So-called -- are there any binding contracts for like a key man close that you are going to be able to retain the key men or the management people. I will also be able to get those words from the ORIX side. The ORIX side, the asset is very characteristic is because of the support getting from their parent company, which is ORIX. Is that also something that you have captured? Or do you think the business is going to be continuing based upon your strength as a stand-alone basis? Kotaro Yoshida: Well, thank you very much for your questions. First of all, about the asset inflow. On the earnings announcement material, Slide -- just a moment. For the fiscal 2025, we have had the inflow. So compared to the year before, the inflow amount was about the same as the 2024. Futoshi Sasaki: I'm sorry. The fourth quarter is my question. The fourth quarter inflow. Kotaro Yoshida: Okay, Q4 only. But regarding the AUM, on this quarter, the amount has declined. However, the U.S. stock was one reason. And also the fall in the stock price in domestic as well. So the asset inflow, the net inflow has increased has surpassed as a result. But the asset inflow itself, as I mentioned earlier, has been quite active and quite strong. Well, since 2007, the asset flow side has been really big. Futoshi Sasaki: Okay. And regarding the acquisition of M&A in the contract, do we have any key men close about the retention of the management people. Kotaro Yoshida: Well, regarding the close of the contract, I should not make any remarks. But after the merger or after the integration, the smooth integration is going to be, of course, the most important. And ORIX and ORIX Bank, both are, of course, making effort for the smooth and continual operation. So as a large direction, we, of course, have had the agreement to come to this agreement or decision so that we shall make an effort to deliver results. Futoshi Sasaki: So assuming that, for example, the real estate finance, the property sourcing is basically coming from partly support from ORIX. Am I correct? The support from the ORIX Group. Is it also coming? Kotaro Yoshida: I didn't really understand. Well, from the very beginning for the sourcing, the ORIX Bank has been acquired by using their own network. So the support from ORIX is, as far as we understand, is limited, if any. Kana Nakamura: I would like to move on to the next question. SBI Securities, Otsuka-san, please. Wataru Otsuka: This is Otsuka from SBI Securities. Can you hear me? Kotaro Yoshida: Yes, we can hear you. Please go ahead. Wataru Otsuka: So one question at a time. So related to the -- you've talked about the asset inflow related to the previous question. So in terms of the cash in the past 2 years, it has been the strongest. So if you can actually tell us the reasons behind that. This is Page 49, Slide 49 about the actual the cash that is. Kotaro Yoshida: Thank you very much for that is. So we have the bank deposits as cash and it may turn into investment trusts and fund wraps. So there are different objectives for that. But roughly speaking, Q4 fund wraps, in order to contract the fund wraps, there are a lot of cash paid in from other banks. So we did see a lot in the past quarter. Also for Daiwa Next Bank deposit, so there were some cash paid in for Daiwa Next Bank's deposit. That was another reason. Also, there has been active transaction of the Japanese equities for the March quarter. So in order to buy the equities, a lot of people have actually cashed in. On the other end, the share price actually peaked in the month of February, some may actually sold their holdings. So actually, they may have withdrawn the cash. So on a net basis, this is the number that we had. Wataru Otsuka: Understood. So fund wraps then. So for additional and also new purchases, both have been strong then? Kotaro Yoshida: Yes, both. Wataru Otsuka: Second question relates to ORIX Bank. So this is Slide 6 of the presentation material. So in terms of the clients' life stage, I'd like to understand this accurately. So with the acquisition of ORIX Bank, the question is, where would you like to focus? So according to Slide 6, so 60s, 70s, 80s, actually, the asset exceeds the liabilities. So those who are in excess of assets and those generation, ORIX excels in the best real estate investment loans. So do you intend to actually provide those to those elderly customers? Or are you actually focusing on more those in 30s and 40s where the liability is larger for assets? We will be focusing on extending credit to them. So for those in 30s to 40s, so they will be the first house the purchases. So this is different from the investment real estate loans. So this may be an area ORIX Bank is not necessarily strong. So how do you intend to actually approach the different life stages of the clients? Kotaro Yoshida: Thank you very much for that question. So according to the Slide 6 on the bottom part about the image of asset and liability balance by generation. So generally speaking, by different age, so the younger, you would have more liabilities. So you may have the housing loans or investment loans. So basically, liabilities tends to be higher in comparison to assets. But once you exceed over the age of 60, net assets would start to increase. So for Daiwa Securities, the main customers for Daiwa Securities are mainly those 60s or above. So as you can tell from this image, so asset on a net basis, it is larger. And so we have been providing different consultation for the management of their assets. So in other words, for those customers in the 40s and 50s, asset formulation type of proposals by NISA, that has been conducted. But of course, the inherent needs of these generation is how they can actually extend and also repay the loans. And also for those who wish to actually invest in real estate, we didn't have the facility to actually provide credit towards that end for those in the 40s and 50s. Now for ORIX Bank, the real estate, the bank loans, the main customer image is to share with you is in the metropolitan area. And so those in the 30s and 40s, family men working for listed companies, they account for a large proportion of ORIX Bank. So generally speaking, they do have high level of income. And of course, they have their own the housing. But at the same time, they are investing in the metropolitan one-room mansions, one-room condos. So that has been the main customers that ORIX Bank has been cultivating. So going forward, what ORIX banks provide. So they have the apartment loans that is another part of the loan product offerings. So this is more towards high net worth individuals and also more of the more elderly customers. So we can actually provide these products to the Daiwa Securities customers for these apartment loans. Also from what we have received, the securities from the Daiwa Securities customers, we can actually use them. The securities can be backed and use it as part of the business. But of course, we do have -- we are connecting that already. But because of the capital regulation and so forth, it has been somewhat restricted. So with the addition of the ORIX Bank, we could expect to see further accumulation of the loans with the securities backed loans. Wataru Otsuka: I couldn't quite understand that point. So you mentioned those in 30s and 40s working for listed companies. And those who already have credit with ORIX Bank, you mentioned that. So already, they are customers of ORIX Bank. So whether ORIX Bank will become a subsidiary of Daiwa Securities, it doesn't really matter, doesn't it, because they are already customers. So is my understanding correct? Kotaro Yoshida: So if they're going to start the transaction with Daiwa Securities, that is positive. But taking this opportunity, it is not likely -- to be honest with you, I cannot actually imagine that they would all start doing business with Daiwa Securities. Actually, we do believe there could be a positive impact. So those who have the real estate loans from ORIX Bank, it is not so large in terms of number in comparison to Daiwa Securities customer base. So the impact could be limited. But in terms of the real estate investment loans, the customer base or customer potential is much larger, not just confined to those who are customers of ORIX Bank. So we also intend to develop new customer base together with ORIX Bank, so we can further expand the customer base. Wataru Otsuka: Understood. So perhaps at the IR meetings and also at the business strategy meeting, we'd like to continue the discussion. Kana Nakamura: Next is going to be the last questioner, UBS, Niwa-san. Koichi Niwa: This is Niwa of UBS. Can you hear me? Kotaro Yoshida: Yes. Koichi Niwa: Well, regarding the bank, I have 2 questions. One, I'd like to know the background of the acquisition. Which one has made the first comment and how long did it take? And also, you're talking about the margin of 1%, the interest margin of 1% as a guideline. How realistic that is going to be? According to your model, 1% of the interest margin seems to be easy to achieve. If that's the case, then that's going to be the image that we should consider as conservative? Or should we think about that a challenging target? That is the question about the bank. The second part of the question is that the U.S. private asset is now going through some turmoil. Any impacts on your business? Or do you have any exposure? And also the response of the retail investors, are there anything that you can share with us? Kotaro Yoshida: Thank you very much for your questions. First of all, the background of this M&A. We, with the ORIX as a company for our group, well, they have been an important business client for a long time. Including the management, we have had very good relationships. And there is much complementarity between the 2 banks. The possibility of working together, we have sounded out to the ORIX Bank from our side. In the last few years, because we entered into a world with positive interest rate, as I mentioned earlier, we have a high expectation of the complementary synergy to deliver. So since last fiscal year, we have made some serious proposals. So the 2 companies continued discussion. And as a result, we decided to work together as one company. That is the background. And talking about the interest margin, Daiwa Next has the deposit to BOJ, of course, at 0.75%. But the weighted average of the bank is about 2.1% for the lending. So thinking about the better yield for our companies, that's going to be 1.36%. So if we're going to have the calculation on a test basis at 1%, that was the scenario that we wanted to provide with you. And then moving on to the private credit, our exposure and the impact. First of all, our exposure is the one that we do have an origination, there's nothing. For the group as a whole, as an exposure, it's very limited and very much of the indirect exposure. So on a consolidation basis, there's no impact on our margin. And for the retail investors -- alternative asset -- for alternative assets -- as Daiwa Securities, the alternative investment is an option for less liquidity, but higher diversification so that the return profile can improve. So alternative is a very important asset class for us. But liquidity is limited. So when our clients decide to buy, then we do have the higher compliance guideline to follow. When there is enough assets and also the exposure should be just one portion of the total asset, especially given the consideration of the low liquidity, those are the items that need to be fully explained and then understood by the customers. The credit -- the private credit trust investment is managed and then consigned to Blackstone. The minimum amount of the investment is USD 50,000. So the subject is the high net worth customers. Though recently, we do see the mass media coverage. And that is causing some concern for the customers. So for all the customers who have those exposures, we are following up for all of them. For the Daiwa Asset and for ourselves, we have been very flexible and trying to provide the information that is user-friendly. So at present, we do see the situation where the cancellation request is mounting or anything. There are some number of people who are considering the cancellation, but it's not that high. So continuously, we will monitor the situation and then think about the follow-up to our customers. Kana Nakamura: Niwa-san, thank you very much for your questions. With that, we want to finish our Q&A session. Unknown Executive: [indiscernible] speaking from Daiwa Securities Group. Well, thank you very much for joining today for investors and analysts who would like to have a continued communication. So thank you very much for your continued support. If you have any further questions, please send us to IR team. Thank you very much for your attention today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Dominik Prokop: Good morning. This is Dominik Prokop, on behalf of Alior Bank. May I welcome everyone to the results conference. We will talk about the first quarter 2026. And the first part, the bank's results as well as the trends, they will be discussed by members of the Board, President, Piotr Zabski, who will sum up the most important trends and will tell us about business results, Deputy President, Marcin Ciszewski, who will tell us about Risk; and Deputy President, Zdzislaw Wojtera, who will tell us about finance. After the end of the presentation, we will have a Q&A session. Before I hand over to Piotr, may I encourage everyone to ask questions already during the first part of the conference, which will help us smoothly move into the Q&A session. Piotr, you have the floor. Piotr Zabski: Good morning, everyone. The presentation will be composed of 4 parts. Firstly, operational activities with 2 business lines, the corporate and the individual customers, then the risk result and then financial results and other issues. So let me move on to the operational activities and about the first quarter. What you can see here is a slightly changed makeup of the presentation. We wanted to refer to our strategies. There are 3 pillars on the left, scaling up, high resilience, operational excellence. And it's within these categories that I'd like to tell you about what went on in the first quarter. But before moving on, let me just sum up. This was a good quarter for Alior Bank. Our results were PLN 1.5 billion with a 2% growth year-on-year. And taking into account that we have lower interest rates in the country, this kind of growth is really -- in revenue is really making us very happy. This is a real scaling up results. As far as net profit is concerned, we have PLN 403 million. This is a drop of 15%. The corporate income tax is the main result -- the main cause of this result. We will hear from our colleague later about more details. As far as the gross profit are concerned, we are on more or less the same level. As far as other parameters are concerned, very good return on equity, 13.8% increase, the corporate income tax is important in this regard. Very well-managed costs, 37.8% cost-to-income ratio, and we believe that this good level will be maintained. NPLs at a low level, even lower than last year. So this downward direction in the NPLs is maintained. What is crucial is, what you can see on the left-hand side and the first pillar, the scaling up. We grew in the deposit portfolio by 9% year-on-year, which is making us very happy. We want to grow in this particular area. As far as loan sales are concerned, there are 2 elements. But I want to mention mortgage loans in the first quarter 2026 in relation to the previous year, namely the first quarter 2025. It's an increase of 84%, PLN 1.8 billion was the value of the loan sales. There's been a very good quarter as far as the development of relational customers is concerned. We grew by over 100,000 in the number of relational customers. They have to meet a certain level of requirements. It is not obvious that you already become a relational customer while being a bank customer. It's been a very good quarter for Alior Leasing, which is our sister company. And that's part of our scaling up process. As far as high resilience is concerned, I want to draw your attention to our rating. We received an investment rating from S&P, which is important for us because we will be issuing bonds in the euro market, so we hope to receive a good rating level there. Our costs are stable. The credit risk is going down. And we are recommending for the third year running, the payment of dividend to the tune of 50%, PLN 8.93 per share. In the third pillar, the operational excellence, I want to draw your attention to our mobile app development. There's been a new launch of it in the current year. And compared to the previous version, it's on a much higher level. And so we are growing in terms of the users' numbers. It's the highest dynamic in the market, 90% growth at the end of March 2025 (sic) [ 2026 ]. Very good capital position, which gives us the opportunity for further growth. Liquidity is on a good level. New elements in the area of technologies, we have adopted an ambitious AI strategy. We want to be even more dedicated to this high-end use of AI in the bank, and we have very ambitious plans for the next years. That is all as far as the general summary is concerned. Now a bit more about the numbers. If you look at our balance sheet, the assets is almost PLN 105 billion, PLN 85 billion of that is deposits, which is a 9% growth. Assets grew by 8% and the gross performing loans grew by 7%. That's the performing loans, Batik 1 and 2. So these increments, which we announced in the strategy are taking place and allow us to realize higher levels of growth in spite of the drop in interest rates. In this particular slide, some more information about our customers. The relation customers grew by 6% over the year, and there's a 19% growth in mobile app users. What you can see on the right-hand side among the relational customers, which is 50% of the users of our application. And the customers are banking with us quite efficiently. In the mobile app, we have 44% sales in the general framework of our sales channels. As for the balance sheet on the left-hand side, we have the loan portfolio and the deposits on the right-hand side. Let me say a few words about the loans. The customer loans are stable in the growth. The general effort goes to maintain the portfolio and recreate the sales levels. There's a considerable growth in the Burgund Depart, namely the real estate loans. These are important. And the whole portfolio has grown by 8% over the 12 months. As far as the deposits are concerned, all the constituent parts in these bars are growing. That's a good result. The whole of the growth is 12% year-on-year, and we are very happy to see the growth in each of these constituent parts we are improving the results and that coincides with our strategic plan. As far as retail customers are concerned and the mortgage loans, there's been an 80% growth there, there's a lot of activity in the market as a whole. But on our side, the market shares in mortgages, for instance, is definitely higher than the Alior Bank share in the banking sector. So this is something that makes us very happy, and we are catching up there. As for the other loans, non-mortgage loans in the Burgund Depart, you have the installment loans. They have performed slightly worse in the first quarter, but the result was the fact that there's been some carryover of the business partner negotiations, and we haven't managed to do something in the first quarter, but I can be confident that it will be made up in the subsequent quarters. As for the cash loans quarter-on-quarter, there has been growth in spite of prepayments, in spite of the churn and short tenures. The effort that we put into the recreation of the balance is quite efficient and the balance will grow in the subsequent months. As far as the retail customers are concerned, I want to draw your attention to 2 types of activities. Our brokerage house on the left and our TFI sector on the right. What we announced in the strategy was for the second pillar of our strategy to make our results stable by use of the commission. One of the strong players in that department is the activity of our brokerage house. As you can see, there's been a 52% rise in the commission year-on-year, which is considerable with 38% growth of assets and FIO and the considerable rise in the structured product sales. On the side of Alior TFI, we are approaching the PLN 5 billion level of assets. We've even crossed over it, but March has not been a good result for that type of activity as there's been a lot of redemptions. So we hope to come back to the level of PLN 5 billion, but the 34% year-on-year rise is notwithstanding that, and we are definitely on the right track. And it is with these activities that we will be helping to stabilize the commission result. Now the business customer, the left-hand side is the business loan portfolio, which is quite stable if you compare year-on-year results. But within the portfolio, there's been some changes. The first one that means [ commenting ] is that the nonperforming loans dropped down from PLN 2.4 billion year-on-year. And this drop is mainly in the micro businesses sector. We had quite a big historical baggage of nonperforming loans in the micro companies sector. And this part is diminishing. What is important is the growing part in the middle are the segments that we want to develop, namely the small- and medium-sized companies. And here, we've seen an 11% growth. However, in the portfolio, we also have big consortium, the biggest players in the market where you can have slight movement. So the mix of the portfolio in the middle is changing. But in the general terms of its value, we have stability. And I can safely say that the mix of the portfolio is changing for the better. There is more of the healthy parts of the portfolio, which makes our business aims more viable. As far as business customers are concerned, there's been a 5% growth year-on-year in the deposit volume. The last quarter has been very important. We've had a 22% growth in the current account sales. So this is a good offer. It's been readily picked up by the customer and over 70% of the sales is online sales, the new type of banking that we have launched for business customers. And this is bringing profits in terms of current accounts sold. One more slide devoted to the corporate sector, let me draw your attention to our leasing company activity. Alior Leasing has seen record growth in sales, both in terms of leasing and loan sales, 27% is the rise year-on-year and the whole portfolio grew by 12%. So this is the kind of growth which is considerably above the level of the whole of the market. Our activity focuses on financing cars up to 3 tons. We are very strong in that particular area and the share of the market has grown by 6% from 2.9%. So you can see that the leasing is an alternative form for small and medium-sized companies, and these can readily obtain financing from our bank when they've been at least 2 years in operation and so we catch up the gap, we can sell it in the banking channels, and we are very happy with the growth that has been observed there. Some other type of information we are being appreciated in the market. We've been on the podium in the Golden Banker services. And in the Mobile Banking, our application reached the first prize. We have been a leader in the Institution of the Year ranking, so we've been appreciated there. And also, we've received 6 statuettes. Also, we've been appreciated in the top employer title. We've received the certificate for 2026. And what is crucial, but let me stress that again, the investment rating of the bank represents the appreciation of our efforts, which we put into building a quality portfolio, and this translates into the payment of the dividends, generating new sales. And this all creates a situation where Alior Bank is a bank with an investment rating, which makes us very happy. That is all from me about the first quarter, and I will hand over to Marcin for his comments about the risk management. Marcin Ciszewski: Thank you, Piotr. Good morning to all of you. The first quarter of 2026 ended with a very safe capital position. Tier 1 and TCR ratios are at the level of 17.85% with a huge excellent PLN 3.9 billion, which makes it possible to implement all the strategic endeavors. Concerning the TREA ratio, it's been at 21.60%, which is also a very safe position as far as liquidity is concerned. LCR is also at a very high level as well as NSFR, which is definitely higher than required by regulations, 236% and 152%, respectively. We are working on the transformation of our loan portfolio, and we are successively reducing the nonworking portfolio. NPL is at 5.39% at the end of the first quarter. We are maintaining our strategic goal, which is to get below 5% with this ratio at the end of this year. The cost of risk measured with the CoR 0.67%, slightly higher than during the previous period. But here, we can see the impact of our approach towards the sales of nonworking portfolios, which can be seen in the upper right graph, where we can see that at the end of the second and fourth quarters of the year, we are checking the level of the nonworking portfolio, and we are getting additional revenues, improving our CoR ratio. The nonworking portfolio went down from PLN 429 million to PLN 364 million. As far as the NPL indicator is concerned in segments for the retail customers, it's at 2.41% at the end of the first quarter market level. Concerning the business sector, we are reducing it consistently, but it's still higher than expected. At the end of the quarter, we are at the level of 11.35%. We confirm that as far as the cost of risk of our bank, it should not exceed 0.8%, which is also reflected by our strategy, which is implemented consistently. Thank you very much. And now Zdzislaw, has the floor. Zdzislaw Wojtera: Thank you, Marcin. Good morning. I'm going to discuss about the financial results right now. If we look at our income base, as Piotr has mentioned, in the business part, we are glad to see that the number of the clients and the level of loans and deposits are all increasing. With the interest rates getting down, this makes it possible for our income to grow by 2% year-to-year. Of course, the division of the results differs because on the interest rates, we are 0.3 points down. But on the commissions, we are 6% up. If we look at the net result, we can see that it's definitely lower. But as all the banking sector did, we applied a new approach for banking. But what is important is that the gross result is almost the same as the one we have obtained last year in the first quarter of '25. When we look now at the income statement, the P&L, so we can see the total income, net interest income and also the commissions. We have got dedicated slides I'm going to discuss in a moment. And we've got also results on other activities. Let me mention that we have got also the hedging transactions, plus PLN 18 million and also on the transactions with financial instruments, PLN 6 million. And in particular, the hedging transactions assessment is positive in this quarter, and it contributed in a good way to the result. It can change in the future, as you know very well. That's a positive one-off. If we look now at the total costs, they are also under good control. The costs of our activities increased by 2% only, and I'm going to discuss it more precisely on the dedicated slide. What is also important is that the legal risks costs, well, we have identified PLN 37 million as loss of risks due to foreign currency loans. And this is mainly due to the model modification. So when we extended the horizon from 2 to 5 years, the provision for that topic has increased. We do not see a major influx of mortgage in foreign currencies, claims, so this is a trend that is not deteriorating. As far as the gross result, the gross profit is almost at the same level as last year, which with lower interest rates and higher cost is quite a good result for this quarter. Concerning the net profit, we've got the impact of the corporate income tax. We have 37% of rate that has been applied to the whole year here. So getting down to more specific elements of the interest rate results, we can see a decrease by 1% quarter-to-quarter. But taking into account the fact that in February, we have 2 days less, so we can say that this is quite comparable as far as the interest rate results are concerned. When we look at the interest rate margin, which is probably more interesting for you, we can present with a big level of satisfaction this decrease because when we look at what happened as far as the reference interest rates of the National Bank of Poland is concerned, they went down by 200 basis points last year. And as we have already been saying for some time, we are changing the structure of our sales, and we have a huge growth of the mortgage loans, which is stabilizing the income of the bank in the long term, but it has got a negative impact on the margin. Taking into account those 2 basic elements. The fact that we went down from 5.88% to 5.19% only, this can be considered a huge success when we look at the general trend of this decrease. Concerning the deposits and loan ratio, it's 78.5%, which is quite a good result. Concerning the fees and commissions, it has increased by 6% year-to-year. When you look at its development in the past quarters of 2025, we can see that every quarter, it has improved. And I believe that this year, the trend should be continued, which would mean that the number of the clients will increase. The sales of our products will also result in an improved commission income. When I look at the first quarter, year-to-year, there are 2 things that needs to be commented. First of all, the increase of the brokers commissions by PLN 10 million, and this is connected with a higher volume of the investment funds and to a higher activity of our clients at the stock exchange. We've got also a second item, the sales of insurance connected with the mortgage loan sales. We have also seen here a huge growth by PLN 7 million. And my last slide on the operating expenses. As mentioned in the strategy, we want to maintain them at a comparable level, and we want to maintain them in a regime that we have adopted. In order to present it better, we have split costs, operating expenses into bank operating costs and BFG costs, which are above it. So as you can see, every quarter is getting slightly higher, but it's still comparable. When we look year-to-year, quarter-to-quarter, all we can see that there is a slight increase in costs. When we look at the last quarter, we can see that we have mainly HR costs that have increased, but this is due to the structure and to the charges we need to pay as employer for the social security. That's for the first quarter and then it's getting down in the next quarters. When we look at the general governance costs, so usually, in the last quarter, there are additional activities such as marketing activities, IT projects, consultancy services, and this all resulted in higher cost in the fourth quarter. So now we have a decrease in the first quarter of '26. What is important is that when we look at the cost/income ratio, BFG in time, 37.8% for the bank for a bank with our structure, which is a growing bank, it's a very good value. And the most important information for you, I think, we would like for the general cost of governance once BFG included to be maintained at the level of the inflation, so that it would not exceed the inflation ratio this year. Thank you very much. The floor is back to Piotr. Piotr Zabski: Thank you, gentlemen. On the last slide, I would like to comment as follows. We had quite a good quarter. I mean, the first quarter of 2026. We are changing the structure of our balance sheet, of course, it's moving progressively, but in the good direction. The P&L is increasing and even faster than expected in some segments. Mortgage, consumer loans are increasing. Concerning the business clients, the portfolio is stable, but the structure and the mix is improving. We are reducing the nonworking part. We are improving the segments in which we would like to be active. Concerning the P&L, well, all this results in higher income, PLN 1.5 billion that has been mentioned here is due to the increase of our volumes, and we are very glad because of that. Of course, our P&L is highly impacted by all kind of costs that seem to be very well managed. They are not increasing. They're not growing. We may say that in some areas, we are even able to reduce them. That's why we have a very good position on the risks and with a good road followed by the NPLs, all of the risks. The P&L is at a very good level. It's very stable, very solid, PLN 403 million of our results impacted by the corporate income tax mainly is very good. It's one of the best return on investments on the market currently. Cost-to-income, I have already mentioned that and NPLs. So we consider that this quarter has been a good one. It's a good opening of the year. The dividend is paid and our rating -- investment rating have been a strong element of this first quarter. And I think that I will end here, and we will be glad to answer to your questions. Unknown Executive: Well, first of all, what we are observing is a much better situation in terms of winning the law suit. That is why the reserve level is as it is. We are being much more efficient in the litigation process, and that's been the main reason for the drop. Thank you very much. The next question. Unknown Analyst: In the first quarter, was there a reserve for the legal risk related to SKD? And if yes, what was the amount of the reserve? Unknown Executive: Well, in the first quarter, we did not set up a reserve fund for that. We simply decreased because of the incidents of higher success rate that Piotr mentioned. What about the MREL at the end of first quarter 2026. At the capital group level, we received 11.5%. Unknown Analyst: The next question, does the Board see an impact of relational customers to the provision result? And what is the outlook as regards to the commission results for 2026? Unknown Executive: Well, I think this question is not so much about relational loans, but relation with customers. Yes, we see an impact. The relational customers give us a better level of banking. The relational customers bank more readily and use more of our products. Our aim is to increase the commission result by 4%. And we are on a good track as far as this is concerned, there's a growth trend which Zdzislaw showed us. Unknown Analyst: What was the WFD result at the end of the first quarter? Unknown Executive: 44.7%. Unknown Analyst: What is your assessment of the ECJ ruling about the para loan results? Well, what is this ECJ ruling about? Unknown Executive: ECJ said that banks can provide credit for commission, but cannot receive interest from it. However, the fact that they can't receive interest, so the loss from that can be set off by higher interest. So these are 3 important constituent parts of this ruling. We are analyzing what's going on. This is a very fresh ruling. We are very active in the Polish Bankers Union. And the whole of the sector will be very active in limiting the results of that ruling because in our view, this is about the mechanics of the calculation of the bank's remuneration. This mechanics should be modified. And ECJ said simply the potential losses that occur because you do not take interest on commission can be set off by higher interest. So ECJ agrees that remuneration is due to the bank because of that type of activity. And the next question. Unknown Analyst: What part of contract contains the cost of commission of insurance? Unknown Executive: As far as new sales are concerned, we're talking about marginal level of value. We have one as far as I remember. open line, but it is practically being wound up. As far as the other part of the portfolio is concerned, we are analyzing this. This is a fresh issue. So we cannot respond giving you any figures. But historically, we realize that this has taken place, and we are assessing the situation because there's been many changes in the contract, and it's too early to provide a definitive answer on that. Thank you very much. Dominik Prokop: The question from [indiscernible ]. Unknown Analyst: Piotr mentioned about the rise of MSP volumes by 11% year-on-year. On Slide 30, you show the drop by 16% year-on-year. Well, the drop is in the micro companies. But in other segments, we are growing. So I don't know what this is about. In one slide, we're talking about a working portfolio, the one that generates stable growth. And there, we have increased results. But in the subsequent slide, we have the total portfolio in the gross value, which includes the nonperforming loans? Another question about the ECJ ruling about SKD. Can this impact the bank's reserve levels? Unknown Executive: Well, I want to be quite definite. This particular ruling did not refer to SKD. Let us not introduce any confusion here. This ruling was about the right of the bank to obtain interest on the cost of credit like commission or whether this can be compensated. And ECJ said that this can be compensated by a higher level of interest. So this is not an SKD case. There is no sanction related to a free loan. This is about the mechanics of the calculation of revenues due to the bank stemming from commission on loans. Dominik Prokop: Thank you. That was the last question. Thank you all very much for the questions, and thank you to the Board. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Greetings. Welcome to the Easterly Government Properties, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session between the company's research analysts and Easterly Government Properties, Inc.'s management team. To ask a question during the session, analysts will need to press 11 on their telephone. They will then hear an automated message advising their hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Cole Barterwell, Director of Investor Relations. Please go ahead. Cole Barterwell: Before the call begins, please note that certain statements made during this call may include statements that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes that its expectations as reflected in any forward-looking statements are reasonable, it can give no assurance that these expectations will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors beyond the company's control, including, without limitation, those contained in the company's most recent Form 10 filed with the SEC and in its other SEC filings. The company assumes no obligation to update publicly any forward-looking statements. Additionally, on this conference call, the company may refer to certain non-GAAP financial measures such as funds from operations, core funds from operations, and cash available for distribution. You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company's earnings release and separate supplemental information package on the Investor Relations page of the company's website at ir.easterlyreit.com. I will now turn the conference call over to Darrell William Crate, President and CEO of Easterly Government Properties, Inc. Darrell William Crate: Thank you, Cole. Good morning, everyone. We continue to operate in a market defined by volatility, whether it is interest rates, geopolitical uncertainty, or broader capital market disruption. In these environments, investors tend to focus on businesses with durable cash flows, strong tenant credit, and disciplined capital allocation. We believe Easterly Government Properties, Inc. continues to stand out in each of these areas. Our portfolio supports essential government functions that continue regardless of economic cycles or external events. These are facilities tied to critical federal missions, high-credit state and municipal agencies, and select defense-related tenants. The durability of those missions and the strength of those credit relationships continue to provide a stable foundation for our business. Importantly, we believe our portfolio is often misclassified alongside traditional office real estate. That comparison misses the specialized nature of what we own. From our FBI offices in places like El Paso, New Orleans, and Pittsburgh, these facilities include secure, classified environments, SCIFs, and other controlled spaces where sensitive law enforcement and intelligence work is conducted. These are highly tailored facilities with spaces that support agency-specific operations and are difficult to replicate. They serve essential functions, benefit from long-duration leases, and are backed by some of the strongest credit tenants in the world. Against that backdrop, we remain focused on a straightforward strategy: growing earnings steadily, allocating capital thoughtfully, and continuing to improve overall portfolio quality over time. Over the past several years, we have taken deliberate steps to strengthen the company, including leadership transitions, resetting the dividend, and maintaining additional capital internally. These decisions are not always easy, but they position us to enter 2026 from a position of strength, supporting a robust and sustainable dividend while continuing to deliver consistent earnings growth that outperforms our peers. Turning to the quarter, our portfolio continued to perform at a high level. Occupancy continues to outpace our REIT peers at 97%, and weighted average lease terms stood at approximately 9.4 years. These metrics reflect both the quality of our assets and the mission-critical nature of the work taking place inside our buildings. During the quarter, we also completed our first mezzanine investment tied to the development of a new VA outpatient clinic. This transaction reflects how we are thinking about capital allocation in today's environment. While traditional acquisitions remain central to our long-term growth strategy, we are also identifying adjacent opportunities that can generate attractive current returns while preserving future optionality. This investment is expected to deliver a 12% yield, is backed by a committed federal tenant, and allows us to remain connected to an asset that may ultimately fit in our long-term ownership strategy. VA facilities represent one of our largest portfolio exposures—that is by design. These assets are highly specialized, tend to be very sticky, and are backed by the credit quality of the federal government. We were recently at our VA Jacksonville facility, and it was filled with veterans receiving the care and services they need—an important reminder that these are not traditional office buildings, but essential infrastructure supporting a critical mission. We also believe that the administration's increased focus on defense spending represents an additional tailwind for the company, particularly as it relates to external growth opportunities. As we look to the year ahead, we are encouraged by the strength of our first quarter performance and our ability to raise the low end of guidance. While broader market volatility remains, our priorities remain unchanged: disciplined capital allocation, operational execution, and consistent earnings growth. We believe our portfolio offers investors a compelling combination of income stability, long-term growth, and exceptional tenant credit quality. With a leased portfolio that generates a AA+ revenue stream, we look forward to working with the credit agencies on achieving an investment grade rating in 2027. To wrap up, we are pleased with how the year started. We are growing earnings, maintaining strong occupancy, allocating capital thoughtfully, and continuing to improve portfolio quality. We believe that disciplined execution will continue creating long-term value for shareholders. I want to thank our team for their continued focus and execution as well as our tenants and shareholders for their ongoing trust and partnership. With that, I will turn the call over to Allison. Allison E. Marino: Thanks, Darrell, and good morning, everyone. I am pleased to report the financial results for the first quarter of 2026 on this sunny Monday morning. The underlying growth in the business is clear. Total revenue increased to $91.5 million, up from $78.7 million in 2025, a 16% year-over-year increase. This was driven primarily by acquisitions completed over the last twelve months, contractual rent growth, and continued lease stability across the portfolio. EBITDA also grew meaningfully, increasing to $57.3 million from $51.0 million last year, representing approximately 12% growth, reflecting the expanding earnings power of the platform. Most importantly, that growth continued to translate into higher earnings for shareholders on a per-share basis even as we raised capital to support portfolio expansion. On a fully diluted basis, net income per share was $0.03. FFO per share increased to $0.76, up from $0.71, representing approximately 7% growth, while core FFO per share increased to $0.77 from $0.73, or roughly 5.5% growth year over year. Our cash available for distribution was approximately $32.2 million. In terms of our active development projects, we are on track to meet previously communicated timelines. Our Fort Myers, Florida lab project is expected to complete and commence its lease in 2026. That will be followed by the Flagstaff Courthouse in Arizona, which is scheduled to deliver in 2027. Finally, the Medford Courthouse in Oregon is anticipated to complete during 2027. The delivery of these development projects are natural delevering points toward our medium-term cash leverage goals, as the NOI comes online and any agreed-upon lump sums are received. Turning to leverage, our adjusted net debt to annualized quarterly pro forma EBITDA was 7.3x, edging higher during the quarter due primarily to the timing of equity issuance relating to our Commonwealth of Virginia acquisition. Given the share price volatility the broader markets experienced in the first quarter, we elected to defer issuing the majority of that equity, and we expect to complete the issuance by the end of the year. As Darrell mentioned, during the quarter we completed our first mezzanine loan investment, providing $7 million of financing for the development of a new 120 thousand-square-foot VA outpatient clinic in Kennewick, Washington. The loan carries an anticipated 12% yield and supports a 20-year firm term lease commitment from the Department of Veterans Affairs with an expected project completion date of October 2028. The transaction is backed by an experienced VA and GSA developer, SB sponsor, who our team has known for decades and Easterly Government Properties, Inc. has transacted with multiple times. This allows us the opportunity to acquire the property upon completion as well. The investment enables us to generate attractive current returns while remaining closely aligned with assets that fit our long-term portfolio strategy. With the successful closing of the mezzanine loan during the quarter, we are raising the low end of our full-year guidance by $0.10 from $3.5 to $3.6, resulting in a revised full-year range of $3.6 to $3.12. While performance year to date is trending modestly ahead of our initial expectations, we continue to take a disciplined and cautious approach as we evaluate the remainder of the year, particularly given the ongoing uncertainty in the interest rate and broader equity market environment. At the midpoint, our guidance assumes that we will have $50 million to $100 million of gross development-related investment during the year, and $50 million in wholly owned acquisitions. We continue to maintain a $1.5 billion development pipeline, and we are beginning to make meaningful progress on potential transactions that meet our investment criteria and can be executed at a spread to our cost of capital, either independently or through a partnership. We are staying disciplined on capital allocation, focused on retaining our tenants, and executing across our development pipeline, all in line with the strategic objectives we have communicated. These are the fundamentals behind Easterly Government Properties, Inc.'s stable and growing cash flows, and we believe this will drive shareholder value. Thank you for your time this morning. We appreciate your partnership and look forward to updating you on our progress. I will now turn the call back to the operator. Operator: We will now open the call for questions. As a reminder, to ask a question, you will need to press 11 on your telephone. Our first question is from Seth Eugene Bergey of Citi. Please proceed with your question. Seth Eugene Bergey: Thanks for taking my question. I guess just starting off with the mezzanine lending piece. Is the $7 million kind of a one-off transaction, or is there something you would look to do more of? And how should we think about the sizing of that if that is something that you would think about doing more of in the future? Darrell William Crate: Yes. I mean, look, it is a terrific way for us to get involved early in a project, and I think we could see ourselves allocating about $30 million to this pipeline. The VA pipeline over the next four, five, six years is quite significant. There is a set of terrific, well-respected developers who really have a knack for building these well. And as you can see, at $7 million, roughly $30 million allocated to this effort would get us involved in three or four projects, which, again, as those buildings are ready to go online in one to two years, positions us very well for them to become part of the broader portfolio. Seth Eugene Bergey: Thanks. And then it sounds like the size of the pipeline is kind of unchanged at the $1.5 billion, and with the Virginia campus closing you have kind of hit the acquisition or most of the acquisition guidance for the year. Just how active is that? What kind of catalyst do you think could unlock more of that acquisition activity? And just trying to think about how conservative that number is. Darrell William Crate: Yes. I mean, look, we are very active in working the pipeline. We are also just super judicious about making sure it is accretive. And so, as we look at our earnings that we are delivering for shareholders this year, the midpoint of the range is 3% growth, which I think is very favorable relative to the REIT sector, especially given our sort of AA+ revenue stream. I think things will pop out of that $1.5 billion. We are maintaining a very wide funnel on opportunities that are all high quality. The intent for that wide funnel is for it to then narrow down to some opportunities. Given a little bit of our cost of capital challenge with regard to stock price, as we improve on cost of capital and debt and we continue to find opportunities, we can do things that are really attractive—accretive not only to core FFO per share but also accretive to the portfolio in general. There are a couple of very large development opportunities of the VAs that I am discussing that are in that pipeline which would be very attractive. We have made some relationships with folks that are five, six, seven years old, and ultimately, I think we will be able to work some things out with each of them. We want to make sure the promises that we make on this call we can keep. I think that we are delivering strong growth, but we are very optimistic about what this pipeline can produce over the next one, two, three years. That is why we are confident in saying that our long-term growth rate for the company is 2% to 3%. As we work with the rating agencies and achieve an investment grade rating, that can also lead to our growth targets growing as we basically get that refinanced over the next three, four, five years. Seth Eugene Bergey: Great. Thank you. Operator: Our next question is from John Kim of BMO Capital Markets. Please proceed with your question. John Kim: Thank you. It sounds like you are moving forward with some investments in your acquisition pipeline of $1.5 billion. So I am just wondering why not update guidance in terms of investment activity, and can you just update us on what kind of spreads you are looking for in terms of investment versus your cost of capital? Allison E. Marino: We have thought a lot about whether or not to update guidance, particularly with respect to the acquisitions pipeline this quarter. And as Darrell mentioned, we are being conservative as we evaluate near-term opportunities within that pipeline and would look to update guidance as we are closer to those deals being fully cooked. That does not reflect at all what we think we can do; it is just about being super disciplined about how near-term the opportunities are. And then to the second part, we target a 100 basis point spread to our cost of capital. Obviously, this mezzanine financing transaction creates like a 600 basis point spread for a fairly nominal investment. So we are definitely balancing all of the opportunities—mezz is an example of one of the actionable opportunities in our pipeline today and one that, as Darrell mentioned, we will continue to evaluate as we go forward. I would say, just to reiterate, the target is 100. Fifty to 100 is our defined range. John Kim: And on the mezz book getting to $30 million potentially, is that something that could happen this calendar year, or if you could just talk about how fast you want to get to that $30 million over the next period? Darrell William Crate: Yes, over the next eighteen months, John, is when we can get that deployed. I think we have delivered some really terrific growth for this year, and I think we are really setting ourselves up for a nice 2027. I would love to be giving guidance for 2027, but Allison and Cole will not let me. We are excited again to continue to grow in a way that we think will be pleasing to shareholders. John Kim: Are these on projects that you feel comfortable owning, or do you plan to own some of these assets? Darrell William Crate: Yes, they are great assets. How we are legging our way into them I think is very attractive for shareholders, and these are assets that are, you know, 7-cap kind of assets that I think, given how we are entering and where we are in the capital structure, we can buy attractively. Allison E. Marino: And this is an area where we really do have a deep underwriting expertise—not just on the financing product, but the underlying collateral. The VA CBOC program is one that continues to expand. There are 20-plus projects that are coming through various stages of procurement, so we do expect additional opportunities in that space particularly, though there are other GSA projects coming on as well. Darrell William Crate: Not to sound too exuberant about it all, but we absolutely understand these assets. It is worth saying that we are working with folks we have known a long time. We are also good at developing mission-critical projects and working with the government. We are seeing it at our Fort Myers project that is being run by a terrific group called Seagate. Our understanding and perspective on how to move things along with the government is certainly neutral to accretive with regard to the project. We are getting to see how these buildings are built because we do work in collaborative partnership with folks that we are mezz lending to. We are not just a lender in the cap structure. We can also make suggestions along the way that can either save cost or position the building for more attractive operating costs for the next 20 years. We are a terrific mezz partner. Given where the company is today in cost of capital, it is an excellent way for us to get involved in these assets, and we are really excited for the growth that means for shareholders over the next handful of years. Operator: Our next question is from Merrill Raw of Compass Point Research & Trading. Please proceed with your question. Merrill Raw: I am sorry, was that me? Yes. Okay. The sound dropped out. Okay. So will any of those VA projects be acquired by the JV, or is that entity filled? Darrell William Crate: Great question. The answer is it could be either. While we do have this very strong pipeline, we also are being more active today with potential JV partners, and we have some excellent long-term relationships there. I think these are fantastic assets, and to the degree we can afford them and deliver growth to our shareholders, they can be wholly owned. That said, if there is an opportunity for us to lend our ability to manage these kinds of facilities in the efficient way that we do that would allow us to buy them through joint venture, we would certainly want those economics. But the north star of all of this is delivering accretion and taking on projects that have that 100 basis point premium to our cost of capital. When we think about cost of capital, we really do think about it on an accounting basis—looking at stock price and FFO as cost of equity—because that is what drives FFO accretion. When you think about the IRRs of our projects, with a dividend of 8% and growth of 2% to 3%, we can also start vectoring into different kinds of cost of equity, but we give very little credit for our future growth in our cost of equity as we allocate it and think about what the spread needs to be to deliver accretion to shareholders. Focusing on that FFO per share growth is the number one metric for this management team. Merrill Raw: Great. And as you look at your pipeline further out, is it primarily federal government? You said outside the VA there was activity, but is there also activity at the state level? Because the Florida acquisition or development is pretty lucrative. So it would be interesting to know the mix. Darrell William Crate: We love Florida. Everybody is moving to Florida. Lots of great people are moving to Florida, but there are a few criminals in that mix, so they will be building law enforcement facilities in Florida. They are pretty good at law enforcement. The one that we are working on right now will actually be delivered early—crazy as it sounds—and on budget. They have three or four more of those on the dashboard that they need to get built over the next three to five years. I think that we are very well positioned to be a good partner in doing that and can probably do it in a way that is very attractive for the taxpayers of Florida, and an opportunity for us to do something that is very accretive for shareholders. Allison E. Marino: And then the broader pipeline, you can think about it in roughly thirds. We see about a third of that $1 billion being federal, a third being state and local, and a third being government-adjacent. Between the split of regular-way wholly owned, joint venture, development, and mezz financing, it is a mix of all of that with primarily regular-way acquisitions as well as development filling that pipeline up. Darrell William Crate: The team has done a terrific job of building a toolbox of ways to generate accretion for shareholders. Allison and her team are doing a terrific job on the balance sheet, and I think we will have some nice things to talk about over the next six to nine months. Merrill Raw: I do appreciate the thought of diversity inside the portfolio. Thank you. Operator: Our next question is from Michael Carroll of RBC Capital Markets. Please proceed with your question. Michael Carroll: Darrell, I wanted to circle back on the mezz investment. I know you said a couple of times that you have the ability to potentially acquire these assets someday in the future. Is there a purchase option related to that that Easterly Government Properties, Inc. can exercise to acquire those properties, or is it just the relationship you get that would allow you to be able to negotiate a price as that deal gets completed? Darrell William Crate: We have a series of different ways where we have an advantage in the purchase. Allison, do you want to expand on that? Allison E. Marino: Yes. We have both a ROFR and a ROFO on that particular deal, and those are mechanisms we look to build into financing arrangements like this as a first look. Michael Carroll: Okay. And then when you talk about deferring funding some of these deals, does that mean that you have to be more thoughtful about deploying capital here in the near term until you fund the deals that you announced year to date? Darrell William Crate: What does that mean exactly? Michael Carroll: I guess on the call, you said that you deferred raising equity to fund the 1Q 2026 acquisitions, and correct me if I am wrong on that. So if you are waiting to fund those deals, does it make it more difficult to execute on the pipeline because you have not funded the 1Q deals yet? Allison E. Marino: Yes. I mean, look, I think it is really a pretty marginal comment and it is more geared toward our debt providers—the idea being that we are going to continue to bring our leverage down over the medium term. We are going to get something that has a six handle on it. Even though our leverage modestly ticked up a little bit this quarter, that is not a reflection of a change in our strategy to continue to properly equitize these opportunities. As we look at some of the tools with regard to mezz and some of these development transactions, I think we are going to find ourselves where we deliver the growth that we are promising and we can get our leverage in the right place. We are absolutely directionally showing us getting into the right place. I have said obtaining an investment grade rating can lead to 100 to 150 basis points of additional FFO per share growth over the next five years. Michael Carroll: Okay. Great. And then just last one for me. On the available space you have in your portfolio—the 3% vacancy—what are the prospects of being able to lease that up? Is some of this space potentially leasable within your portfolio that is currently free? Darrell William Crate: Yes, crazy enough. This is on the list of all the initiatives where I am super proud of the expanded leadership team. They are working tirelessly. The FDA lab in Atlanta that we just opened has tens of thousands of square feet that are not leased. The building is fantastic, and all the vacant space that we have now is space that we underwrote to be vacant when we purchased these buildings or were forecasting NOI. So a lot of it is a little extra, and we are pursuing that more aggressively than we ever have. That would also be incremental earnings growth on top of what we have set in our guidance. These leases do take a while with the government, and these can be six- to nine-month things. But as we look to 2027, I see the opportunity to get some of this vacant space leased and to see some things shaking out of our pipeline that are unique for us—how we are positioned to the asset and the needs of the seller can probably come together in a pretty nifty way. We are excited for the opportunity. We do not know exactly where that is going to all come from, but when you look at the pipeline of opportunities, the tools that we have, and the management team’s enthusiasm, effort, and skill, we are really excited for 2027. We are excited for 2027. Operator: Our next question comes from Analyst of Jefferies. Please proceed with your question. Analyst: Darrell, you noted in the opening remarks the intention to achieve an investment grade credit rating in 2027. Can you just speak to the deleveraging strategy and other metrics you are focusing on to achieve this? Darrell William Crate: There are a couple. One, if you just squint at it, you can see that there are other firms that are quite similar to us that have a BBB+ rating, or flat BBB—solid investment grade. Their revenue streams start from a place of being single A- to BBB+. If you look at the revenue stream that pours into the top of our business, it is basically AA+. The idea that the revenue comes in as AA+ and then all the things that happen before it gets to a bondholder is eight notches lower—that is what it would take for us to receive a non-investment grade rating. As we look at scale of the business, we are in a place that is attractive—probably a little bit on the lower end—and that is probably why we have not pursued an investment grade rating as aggressively as we could have in the past. If you look at leverage, again, we are in the zip code for obtaining an investment grade rating today, especially when we talk about that differential of us being five notches among REITs of similar credit quality. If we get into the sixes and, as you look at the scattergram of real estate REITs, again we are very much in a place. So leverage is probably the only metric that we look at—and maybe a little bit on scale—where we would not be a BBB. That said, we are working at all of those things, and we are very committed to behaving like an investment grade company. We understand what that takes, and with a WALT that is almost a decade plus all that AA+ money coming in, we are in a nice spot to be able to harvest that opportunity. It could take a little time, but we think 2027 is hopefully our year. Analyst: Makes sense. And then just on investments, acquisition target is still at $50 million. I do understand cost of capital is a constraint. Maybe just to ask more of a direct question: at what share price would you be able to become more active and aggressive on this $1.5 billion? Darrell William Crate: Look, every little bit of share price will obviously make it easier. From where we are, we do not want to have a robust call and try to get expectations ahead of where we are. We are really happy with the growth we are delivering right now. We are going to be very deliberate about making sure 2027 is right on track. To set ourselves up to disappoint anybody is not what we want to be doing. To answer your question directly: $24, $25, $26, $27—those become very, very constructive. The flywheel really gets going for what we do. Analyst: Great. Thank you for taking time. Appreciate it. Darrell William Crate: If we do not get the support from the capital markets and continue to have this 8% dividend, we can still meet these growth targets. We have built enough tools. We have strong JVs, so we are going to be able to deliver that value. But, of course, with a lower cost of capital, we are excited—the team is excited—and our disposition is to really accelerate the growth of the company. The team is very aligned in achieving those objectives consistently for a bunch of years. Operator: Thank you. Our next question is from Michael Lewis of Truist Securities. Please proceed with your question. Michael Lewis: Thank you. Regarding the mezzanine loan investments, is this now the preferred way to do developments rather than the large cash outlays and the reimbursement later? Does it make sense to do more with developers and then you become the takeout on the back end? Should we expect you to do more of that and less of the other? Darrell William Crate: It is a good question. I think it really depends on the project. You look at these FDA labs—there are seven more to be built, and we have built three of them—and each one has been a better value for the government because they have been terrific collaborators with the same team on each of those three buildings, and we have been able to get really into stride on how to save money. There are 35 thousand miles of pipe and wire and all sorts of things that go into it, and so we kind of figured it out. I think that we can build the lowest-cost FDA labs and highest quality for the U.S. government, so we should be doing exactly that. For some of these VAs, while we can build them well, there are five developers that have done a terrific job in this space. For us, the idea of competing with five quality developers—spending the search costs to do it—we might as well let one of those high-quality folks win, stand really close to them while they are building the project, and end up, I think that creates more value for our shareholders. When you look at Medford, Oregon or Flagstaff, we are very good at building courthouses. These are courthouses that are in areas where this was not a major metropolitan courthouse. We may have found ourselves with a high-cost competition with 11 other developers. The folks who are running the procurement understood Easterly Government Properties, Inc., understood the value that we deliver. They are in markets where the competition was less familiar with these types of assets. In those cases, us doing development from start to finish was the way to go. It is really about using our expertise to deliver the most value for shareholders with each of these very high-quality projects. They are terrific because you end up with a 20-year lease and find yourselves in a place where you really have significant government cash flows for years to come. Michael Lewis: No, that is great. Thank you. And then just lastly for me, you kind of alluded to a little bit of conservatism maybe in the acquisition guidance or the FFO guidance. When we annualize the first quarter results, it gets you to $3.10 for the year; the midpoint of the range is $3.09. Is that just a little bit of conservatism, or are there any drags through the rest of the year why you would not have any sequential growth? Allison E. Marino: Yes. So a few things. One, as you can imagine and have even seen in the markets recently, interest rates are really wacky right now. There is increased short-term volatility that we are seeing with respect to both SOFR and then all of the versions of Treasury we like to play in. A little bit of our conservatism is really driven by the fact that we need to see if some of that volatility calms down, which would allow us to improve our cost of capital as the year goes on as we strategically look to the debt markets to term out the revolver. That is a big piece of uncertainty. I do not think we sat here two months ago and necessarily felt that way, but I do not think we are in poor company today with that concern either. That is a big piece of the puzzle as we move throughout the remainder of the year. Obviously, as developments come online, timing is a very large piece of what underpins our guidance range. The earlier in Q4—or the closer to the beginning of Q4—we are able to deliver the FDLE lab in Florida, the more improvement in our guidance range you might see. But we are still in the critical six months here of being close enough to it on the horizon to be excited about an opening party, but still far enough where there is development risk left. We will continue, as we march closer to that, to evaluate its final projection of delivery as well. Michael Lewis: Actually, maybe I will throw in one more, because since I asked a guidance question about 2026—I know you are not going to give guidance for 2027—you said you are excited about it. The consensus number for FFO is the same as it is for 2026. Is there anything you could say about what excites you about 2027 and the growth potential there? Darrell William Crate: If you look at all the tools that we have created and the opportunity set that we are harvesting, the idea of us being flat next year would make no sense. That is my point. We have an FAA lab that finally is going to leave—it has been eight years that they are there. That is a little bit of a drag. But everything else that we are doing—from releasing to vacant space to mezz debt to harvesting a pipeline—and Allison has it just right. Look, it is 2026, so not fair to look out. But we have more stable cash flows than every other REIT out there. As we are looking forward, we are feeling a level of optimism. As things unfold here over the next six months, I think we are going to be able to be very specific about where we are going for the year. With all these tools and the team really reoriented towards growth—everyone understands what they need to do—and we are going to grow 2% to 3% a year. We have done it for two years now. If we hit the middle of our guidance this year, we are going to be there as well, and we believe that is our plan for the next handful of years to grow at that pace. Analyst: I understand Allison not wanting to give the guidance. A much bigger refi year next year than this year. So if interest rates are uncertain, they are more uncertain for next year. Thank you. Darrell William Crate: Yes. That is why we cannot give guidance, but I certainly would love to. But Allison will not let me. Operator: Thank you. I would now like to turn the conference back to Darrell William Crate, President and CEO of Easterly Government Properties, Inc., for closing remarks. Darrell William Crate: Great. We really appreciate you joining the conference call as we share our first quarter earnings. We are very excited about what we are doing. We are excited about our growth, and we really look forward to you paying attention to the company and spending some time with us. We appreciate it and we look forward to getting together at this time in about three months. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Amkor Technology First Quarter 2026 Earnings Call. My name is Diego, and I will be your conference facilitator today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jennifer Jue, Head of Investor Relations. Ms. Jue, please go ahead. Jennifer Jue: Good afternoon, and welcome to Amkor's First Quarter 2026 Earnings Conference Call. Joining me today are CEO, Kevin Engel; and CFO, Megan Faust. Our earnings press release was filed with the SEC this afternoon and is available on the Investor Relations page of our website, along with the presentation slides that accompany today's call. During this presentation, we will use non-GAAP financial measures, and you can find the reconciliation to the comparable GAAP financial measures in the slides. We will make forward-looking statements today based on our current beliefs, assumptions and expectations. Please refer to our press release for a disclaimer on forward-looking statements and our SEC filings for a discussion on the risk factors and uncertainties that may affect our future results. I will now turn the call over to Kevin. Kevin Engel: Thank you, Jennifer. Good afternoon, everyone. Thank you for joining us today. Amkor delivered a strong start to the year, achieving record first quarter revenue of $1.68 billion, up 27% year-on-year. We saw growth across all end markets, and we're encouraged by the breadth of demand we're seeing across our technology platforms. Communications delivered the strongest growth and mainstream posted its fourth consecutive quarter of both sequential and year-on-year growth. Leading chip companies continue to trust us for their advanced packaging and test needs. We are clearly benefiting from our partnerships and our leading technology as we execute on a growing set of advanced packaging programs. Earnings per diluted share were $0.33, significantly higher than last year, reflecting disciplined execution, and continued progress on our margin initiatives. Overall, this was a quarter that reflected momentum in demand, disciplined execution by our teams and continued preparation for the advanced packaging ramps we expect in the second half of the year. As we discussed last quarter, overall semiconductor demand is robust. The industry backdrop remains dynamic. We are closely monitoring export controls and evaluating trade policies. We see supply dynamics around advanced silicon, advanced substrates and memory and are managing these risks with agility alongside our customers and suppliers. Some customer supply materials are being delayed, causing nonlinear loading. This has been expected, and we are prioritizing production where materials are available to minimize impact. Uncertainty related to the geopolitical events in the Middle East have increased over the last few months. To date, we have not seen any supply disruptions related to these dynamics. However, conditions in the region are putting additional pressure on material pricing. We're working closely with our customers to offset these increases across the supply chain. Now let me share an update on our strategic initiatives. First, elevating technology leadership. We continue to invest in advanced packaging platforms, including HDFO, flip chip and test. These are critical to next-generation AI and high-performance computing. As discussed last quarter, we are engaged on several HDFO programs this year and the newest data center CPU program is expected to begin ramping this quarter. Our preparations in Korea remain on track to scale this program into high volume in the second half of the year. Overall, we see increasing opportunities for the compute market from a diverse customer base. Second, expanding our geographic footprint. In 2026, our priorities include meeting construction milestones of our Arizona facility and expanding manufacturing space in Korea. In Arizona, we are excited to see the progress as we wrap up foundation work and move towards building steel construction. Construction of Phase 1 is planned to be completed in 2027. In Korea, the new test building is on track for completion at the end of this year. This will provide incremental space to support data center demand going into 2027. Third, enhancing our strategic partnerships in key markets. We continue to strengthen collaboration with customers across the ecosystem, including foundries, fabless companies, IDMs and OEMs. As part of our partnership engagement model, our customers are making contributions that help align technology road maps, support our capital investment and enable rapid ramps as new capacity comes online. Across all 3 pillars, we remain focused on margin improvements driven by operational excellence, increased utilization, favorable pricing and a sustained mix shift towards higher-value advanced packaging. Our mainstream factories in the Philippines are seeing improving demand, and we're continuing to optimize cost in Japan. Utilization of our advanced sites in Korea and Taiwan is increasing, improving profitability. In just over 3 weeks, we will host our 2026 Investor Day. This will give us an opportunity to provide a deeper view into our strategic pillars. We will explain Amkor's position as the semiconductor industry turns to advanced packaging for value creation. We are well positioned for this shift, and we are at the beginning of a multiyear value creation journey. We're excited about our future. We look forward to sharing more of our story at the event on May 21. I'll now turn the call over to Megan to provide more details on our first quarter performance and near-term outlook. Megan Faust: Thank you, Kevin, and good afternoon, everyone. Amkor delivered record first quarter revenue of $1.68 billion, increasing 27% year-on-year. Revenue was above the midpoint of guidance, driven by stronger-than-expected performance across all end markets, except computing, where we saw softness in PCs and laptops. The communications end market was the largest contributor to our year-on-year growth, increasing 42%. We saw healthy demand across premium tier smartphones, especially iOS due to our strong footprint in the current generation. Android demand also remained healthy. For the second quarter, communications revenue is expected to be stronger than seasonal increasing mid- to high single digits sequentially, driven by continued strength in the iOS ecosystem. Revenue in the computing end market increased 19% year-on-year. Record revenue within AI data center applications was driven by broad-based strength across multiple customers. This was partially offset by softness in PCs and laptops. Computing is expected to grow mid-single digits sequentially in the second quarter, driven by the ramp of the new HDFO data center CPU device that Kevin mentioned. Automotive and industrial revenue increased 28% year-on-year. ADAS and infotainment demand drove record revenue for advanced technology in this end market. The recovery in the mainstream portion of automotive and industrial continued with Q1 marking the fourth consecutive quarter of sequential growth. Revenue within the automotive and industrial end market is expected to grow mid-single digits sequentially in Q2. Consumer revenue increased 4% year-on-year due to broad-based improvement in demand across customers. Revenue in Q2 is expected to grow low teens percent sequentially driven by wearable products. Gross margin of 14.2% exceeded the high end of our Q1 guidance range primarily due to favorable product mix. Gross profit for the quarter was $239 million, up 52% from last year due to increased volume and focused cost management. Operating expenses were $139 million for Q1. Operating income was $100 million, and operating income margin was 6%, an improvement of 360 basis points year-on-year. Our effective tax rate for the quarter was 12.8%, lower than our full year target of 20% due to discrete tax benefits recognized in the quarter. Net income was $83 million and EPS was $0.33, EBITDA was $285 million and EBITDA margin was 16.9%. As we have grown revenue by delivering high-value advanced packaging technology to our customers, we are benefiting from the operating leverage in our model. In addition, our actions to structurally manage costs are showing up in our results, demonstrating our ability to drive sustained margin improvement. As of March 31, we held $1.8 billion in cash and short-term investments and total liquidity was $2.9 billion. Total debt was $1.4 billion and our debt-to-EBITDA ratio was 1.1x. Our strong balance sheet provides the financial flexibility and liquidity for this next investment cycle. Now turning to our second quarter outlook. Building on the strong momentum in the first quarter, Q2 revenue is expected to be between $1.75 billion and $1.85 billion, representing a 7% sequential increase at the midpoint. Gross margin is projected to be between 14.5% and 15.5%. We expect operating expenses of approximately $120 million which includes a gain on the sale of real estate of approximately $20 million. Our full year 2026 effective tax rate is expected to be around 20%. Net income is forecasted to be between $105 million and $130 million, resulting in EPS between $0.42 and $0.52. Our 2026 CapEx estimate remains at $2.5 billion to $3 billion. As a reminder, 65% to 70% is projected for facilities expansion, including Phase 1 of our Arizona campus. About 30% to 35% is projected for HDFO, test and other advanced packaging capacity. The remaining spend is projected for R&D and quality programs. We anticipate elevated CapEx spend for facilities expansion through 2027 as we complete Phase 1 of our Arizona campus. At that point, we will begin recognizing depreciation and other start-up costs as we build and train the workforce ahead of production in 2028. Similar to our Vietnam ramp-up phase, these preparation costs will be recognized in OpEx until programs are qualified for production at which point they will transition to cost of goods sold. As a result, we anticipate this will start to dilute operating income margin by approximately 1% to 2%, beginning in 2027 and improving in 2028. Once at full scale, we expect Arizona will be a significant driver of operating income margin expansion reflecting the benefits of high-value advanced packaging at what is planned to be our most automated factory. To wrap up, we are pleased with our first quarter performance. and the momentum we are building in 2026. We remain confident in the full year outlook we provided last quarter, with revenue growth driven by acceleration in computing, and strong growth in advanced automotive. Our focus and discipline as we execute on our strategic pillars positions us well to continue generating improved financial results and sustain shareholder value. I would like to emphasize Kevin's remarks regarding our upcoming Investor Day. We are embarking on a multiyear value creation journey, investing today to drive materially stronger earnings power in the future. We look forward to sharing more with you at our event on May 21. This concludes our prepared remarks. We will now open the call up for your questions. Operator? Operator: [Operator Instructions] And our first question comes from Jim Schneider with Goldman Sachs. James Schneider: Given your commentary on some of the customer supply materials being delayed as well as some pricing pressure that you expect could happen. Can you maybe kind of discuss what on-net you expect to happen in terms of gross margins in the back half of this year? I mean it seems like there are some things very much in your favor, increased loadings, better mix. Maybe talk about from the Q2 baseline you just guided to what the sort of puts and takes are in terms of net impact on gross margins in the back half? Kevin Engel: So maybe let me -- and thanks, Jim. So let me start maybe with a little bit more detail on the material supply dynamics, and then Megan can cover the margin and profitability perspective. So I think when we look at the materials, obviously, we've highlighted that memory, advanced silicon, substrates, we are seeing dynamics there. Different -- slightly different dynamics. I'd say the one that we were able to kind of really see from a supply perspective is the advanced silicon. Sometimes when it comes to memory, we're not quite sure how customers are moving demand around depending on their supply, but we definitely see that from advanced silicon. So basically, what dynamics going on there is we have these situations where there's forecasted material, the wafers or the memory doesn't show up. And then we luckily we're in such a demand profile situation such that we have other material that we can typically load, so we haven't really seen a utilization impact, but that is creating a dynamic to where some of the demand is getting pushed forward. So we're definitely seeing that. And overall, we feel that this supply dynamic for Q2 will be similar as Q1. And we'll continue to manage that way. But Megan, can you talk a little bit about the margin profile? Megan Faust: Sure. So given that environment, we're also in what we would say a constructive pricing environment. So we have been working with our customers to manage some of these pricing pressures. So considering that aspect, we expect that would cover most of those cost increases. So as we look out to the second half of the year, we're still seeing our gross margins being able to rise in that mid- to high teens level given the increase in utilization as well as the ramp expected for our compute segment surrounding the data center. That will have a favorable impact on product mix in addition to that being more high-value advanced packaging. So those 3 elements, pricing, utilization and product mix are all going to support that lift in the second half. Kevin Engel: Yes. And maybe let me add a little bit more on pricing to give you a little color there. So when we go back to Q1, we started some pricing activities then that was early on focused on Japan. We had talked about some of the dynamics for Japan in the past. But what we've been doing over the last quarter is we're working with most, if not all, of our customers to look at pricing dynamics throughout the course of the year. I think, in general, customers understand that the environment is such that costs are going up, and we're seeing some ability and willingness from customers to help us in those dynamics. So we expect to see pricing will kind of increase as we go throughout the year. So that will just help offset some of these cost increases that we're seeing on the material side. James Schneider: That's great color. And then just to clarify, in terms of the computing ramp you're expecting in the back half, should we expect that to inflect in Q3? Or is that more of a kind of Q4 weighted event? Kevin Engel: So it's going to continue to ramp throughout the year. I'd say the ramp, specifically for the CPE device will start this quarter, but we'll start seeing meaningful revenue contribution in the third quarter and then just continues to ramp beyond that even going into 2027 and beyond. Operator: Your next question comes from Ben Reitzes with Melius Research. Benjamin Reitzes: I wanted to clarify your comments around the 1- to 2-point hit that comes at some point in 2027 due to the ramp of, I believe, Arizona. And when exactly should we think about that timing to [ op in ]? And then how should we be thinking about the offsetting revenue impacts there? Because I assume that there's quite a bit, but I'm not sure what -- if it hits right on time or if there's a delay. And I know you only guide 1 quarter at a time here or not that far out, but I'm wondering how you would advise us to model that as we look into '27, which is going to be a really strong year for the space. Kevin Engel: Yes. So thanks. Megan will go through a little bit of the details on the timing. I wanted to kind of step back a little bit and give you our color here. We wanted to make sure that the investment community understood the way we were looking at the dilution and the cost impacts. And part of that is thinking about obviously the building depreciation versus the equipment depreciation. And obviously, the equipment depreciation cycle is only a 7-year cycle. So that will have a larger impact as we really bring in equipment. So we wanted to just make sure that the investment community understood these dynamics and understood the timing and then, Megan, can you give me some more color there? Megan Faust: So Ben, as far as the exact timing for when in 2027, that's expected to hit, it's a bit too early. Our estimates can shift based on the timing of equipment delivery as well as the speed of qualification process. So as a reminder, this impact is really following the same framework as what we experienced in Vietnam, where those costs will begin in OpEx. And then once we call our first program, those costs move to cost of goods sold, and then those will be in margin. So as far as that 1% to 2% impact on operating income margin that was anticipated to be a full year impact based on our estimate of currently when we believe those costs will begin. And then we see that improving in 2028, which is when we're going to start scaling. And that leads to your second part of the question. We will see some modest revenue in 2028. That will then scale in 2029, where we believe exiting '29, we will have meaningful revenue such that moving into 2030, we would experience the full impact from the Arizona facility. And all that obviously is subject to customer qualification, et cetera, but that's what our current plan shows. Benjamin Reitzes: Okay. And then just with regard to the CPU ramp. This is a new product and whatnot. You've talked about it being higher margin. How should we think about -- you already mentioned, Kevin, that it's going to sustain and get bigger in '27. Do you see a strong pipeline for the CPU business, both ARM and maybe even x86, and just how would you characterize that win? Is it the first one? Is that the only one you have visibility on? Or is this a category that could become a meaningful contributor even beyond the big one that you got? Kevin Engel: Yes. Thanks for that. I would say, in general, strong tailwinds, obviously, the one device that will ramp first, we see a lot of opportunity there. Again, really ramping even beyond 2026. Other customers, we are engaged. So there are other activities going on there even in some of the more advanced package types, kind of again, kind of looking more into 2027 for the more advanced packages. But if we look at our -- this HDFO platform in general, whether this is a SWIFT technology, similar to TSMC's CoWoS-R or whether it's CoWoS-L, Amkor's S-Connect technology. The customer engagements are broadening. So those platforms now we have over 5 customers that we're engaged with, different levels of qualification. And then obviously, just to go back to the 2.5D, the silicon interposer type technologies. Again, while we're ramping down the legacy volume customer, we continue to see more customers engaging there. So that customer base, we had talked about before being half a dozen, I would say, we're over half a dozen now. So across that whole platform, that's where we're really looking at the -- when we look at our investments in equipment for this year, vast majority of that investment is going into these types of platforms in Korea and then some of the other wafer-based activities in Taiwan. Operator: Your next question comes from Randy Abrams with UBS. Randy Abrams: Yes. Okay. I wanted to ask a follow-up question on your loading level. Was it picking up across mainstream events. If you could give a sense of utilization or headroom to grow to take on projects both in Korea, Vietnam, just ahead of Arizona. And then if we look at the Phase 1, it looks like it adds about 10% to your network in terms of floor space. Should we think that's approximate revenue power or doing advanced packaging, should we take a different approach to revenue as you bring on Arizona? Kevin Engel: Okay. Yes. Thanks, Randy. So first, utilization. So at a high level, our Q1 utilization was in the low 70s, and if you compare that to Q1 last year, we were in the 50s, so pretty significant improvement year-on-year. When we think about Q2, we'll still be in the 70s. It will be a slight improvement, but a little bit of an increase from Q1. And then when we kind of think about how that split, I think, we talked about this a little bit last quarter. The advanced lines are filling up. And some of these areas, are getting to levels of high utilization. And then we still have some factories more on the mainstream side where utilization is low. I think we're seeing improvements in the Philippines and mainstream, but some other factories where we have some additional space to improve utilization. Then when we think about these more advanced programs prior to the U.S. factory coming online. For Korea, space is something that we're monitoring very closely. You may recall, we're building a new facility there now. That facility will be completed at the end of this year. So that will give us some headroom going into 2027 to continue to ramp. And then when we look at Vietnam, we talked a little bit about this in the past. We're migrating some of our SiP products from our Korea facility over to Vietnam. That will help provide additional room in Korea and then we'll also obviously improve our utilization in Vietnam. So we have continued room in Vietnam to grow from a space perspective. That building, we even have some clean room space that's yet to be facilitated. So we have headroom there. And then just to summarize again, Korea, we're expanding aggressively. I think that's an area where we see just a tremendous amount of demand going through this year and into next. Randy Abrams: Great. I appreciate the color on that. And then for the Arizona, maybe just a follow-up to the first question, Arizona, if you could run through a bit on the scale that could add? And then the second question I wanted to ask on the -- just a bit more on the computing. I think one side with the traction that Intel seeing on EMIB, if you could talk about opportunity, timing or potential to take on either foundry or internal business. If that's an opportunity. And then just curious a bit more on the CoWoS-L or S-Connect, how that's coming together with a lot more projects seem to be moving in that direction. Kevin Engel: Okay. Okay. Yes, Randy. So for Arizona, you're thinking right. I think we had mentioned roughly from a revenue perspective, we can be in the $1 billion run rate kind of range about 10% of our 2025 revenue to over 10%. So I think you're thinking around the right levels. Then when it comes to EMIB, I don't want to talk too much about that. Obviously, we had talked about how in the past that there is a collaboration with Amkor and Intel related to providing some additional outsourced modeling for EMIB, I'd say that activity is continuing. I don't think I want to go too much more into detail there. And then on the CoWoS-L, as I mentioned a little while ago, we do have 1 CPE product that we're working on with our customer. I think I would say we're still a little bit early in the development cycle with that customer, so it's going to take some time. I would say that's more likely a 2027 discussion. But because of this, the constraints in general in the supply chain and in the packaging space, these customers are very motivated to try to move as quickly as they can to develop these new technologies new supply chain options. So we really feel that's a positive benefit for us. Operator: Your next question comes from Peter Peng with JPMorgan. Peter Peng: Just on your advanced -- AI advanced packaging, I think last quarter, you mentioned that it can grow year-over-year. To what extent is that a demand number? Or is that a supply constrained number? I just want to get a sense of how much you guys can improve that number over the course of this year. Kevin Engel: Okay, Peter. So yes, I'd say we're still on track for tripling. I'd say the opportunities are there to grow beyond that. I'd say there are several dynamics that can affect it. Like you said, potentially silicon supply, memory supply, also just our ramp profile. Obviously, we're bringing in equipment as rapidly as we can to support these ramps. So I think either one of those could affect it. We'll see how the year progresses. But I think at this point, we're still very confident in that tripling. Peter Peng: Got it. And then I think last quarter, you guys mentioned that the compute is going to grow 20% and then the high end of the automotive is going to grow pretty strong and then rest of the business is kind of this low single digits. But if you kind of look at your communications, right, you guys are setting up for a strong growth. So one is, do you still see low single digit as a reasonable assumption for the remainder of the business? And if so, does that imply that you guys are probably baking in some sort of deterioration in your communication markets for the second half of the year? Kevin Engel: Yes. So I would say, if we look at communications today, a little bit stronger than we were thinking last quarter. So I'll say that. I think we guided single digits. I don't know that we've said low or mid, but we said single digits. I'd say now we're feeling a little more confident that, that market is going to be higher into low double digits. So I think that's positive. We are obviously looking at first half versus second half, the dynamics there. Typically, that second half lift is very high. We're anticipating potentially a slightly less boost in the second half related to that this was a very strong cycle we're coming off of the first half. We're seeing a little bit of strength, a little bit more than we would have anticipated. So we're a little bit hesitant to say that the first half, second half dynamic will be the same for this year. Operator: Your next question comes from Craig Ellis with B. Riley Securities. Craig Ellis: Yes. Kevin, I'll start with one there and just dig a little bit deeper into what you guys are seeing. So I think, in the data that we track, it sure looks like the supply chain built above seasonal for both smartphones, mid- to high end and PCs mid- to high end through the first quarter and our read is that, that's persisting in the second quarter. And some of that relates to memory and other component availability and there are some other things that are at play. So the question is this, can you quantify the extent to which the communications business, it may be tracking a little bit better and are you hearing any concerns from your customers about the build intensity in the back half of the year. And I was a little bit surprised to see that notebooks weren't a little stronger. Intel's client computing group comes to mind as an area of strength there. Is there something programmatic that's happening inside of that business? Or what do you see going on? Kevin Engel: Okay, Craig. I'll actually start with that one, and I'll ask Megan to help me a little bit on the communications side. So on the PC, yes, I'd say there's something a little bit different going on there. If we look at the unit volumes that we're seeing from the customers that we're supporting, it's still holding in there. So we've talked in the past about how the transition to ARM-based PCs, how more of a preference towards a premium tier that we think that will buffer us somewhat from the material constraints. And I'd say we're seeing that. One of the biggest dynamics that we're seeing is we have a customer where they were rebalancing their supply chain a bit and so we saw increases in a different market and then slight decreases in the computing in the PC space. So overall, that customer is growing significantly, but they decided to prioritize a slight different market. So I'd say that's a bigger dynamic than actual PC unit volume. So I definitely don't want to signal that we're seeing strong PC sales. So that's the first one. Megan, can you comment a little bit on comms? Megan Faust: Yes, Craig. So if I understood the question around comms, I mean, we did -- we are seeing both with our Q1 actuals and our Q2 guide the communications market coming in stronger than we expected last quarter. And just to reiterate Kevin's comments about the full year shape for comms because of that strength coming off a very successful last fall launch, we don't anticipate that the second half growth over the first half will be as pronounced because we see the first half being, I'm going to say, much stronger. And then for the full year, we do see a better outlook on comms rising into the high single-digit plus. Did that answer your question, Craig? Craig Ellis: Yes, it does. And then the follow-up, I'll direct to you, Megan. So we're looking for $2.75 billion in CapEx this year. It looks like we spent about $275 million in the first quarter. So how should we think about the linearity through the year with the balance of the CapEx investment? Megan Faust: Yes, sure. So the first quarter came in a little bit lower than what we were expecting. I will point you to the balance sheet. Our CapEx payable did increase $200 million. So that's really just timing of when those payments will be made. But as far as the shape of the year, it looks like it's going to be more of a 30% first half, 70% second half year for CapEx. Operator: Your next question comes from Denis Pyatchanin with Needham & Company. Denis Pyatchanin: I think sort of maybe partially answered in the previous question, but maybe for your end markets, could you please like rank order the expected growth or visibility going through the rest of 2026. And for all of these end markets are high memory prices showing any impact on demand at all? Kevin Engel: Okay. Thanks, Denis. So we don't want to start. So if we look at the -- trying to rank them a little bit. So the compute segment or market, as an example, we're still seeing plus 20% in that kind of a rate for the full year. Again, a couple of things there. As we mentioned, tripling on the advanced side for the data center and then muted on the PC side related to the dynamics we just spoke about. For auto industrial, we had talked about pretty strong growth there, definitely on the advanced side, a little bit modest growth on the mainstream. So that's the wire bond type packages and again, what's going on there, the dynamics you're aware of, increases in ADAS, in car computing, those types of applications. And then the more traditional drivetrain type of CPU, those types of products, they're just a little bit more muted, but at least recovering. Then when we look at the rest of the market, we had signaled again single-digit growth. We've been talking about how comms is looking a little bit better, potentially approaching double digits. So we feel better there. But in general, still a lot of different dynamics. It's hard to gauge how memory is going to impact things. I'd say a lot of customers obviously are talking about memory, prioritizing, looking at different supply chain options -- optionality for them. But in general, we're still seeing pretty strong demand. If we look at impacts related to material supply. I would try to give that a range of around $50 million to $100 million for and again, that likely is just a pushout of materials, and then we would expect a similar level in Q2. But again, we'll see how that develops over time. Denis Pyatchanin: Great. And then regarding the operating margin impact from the Arizona facility, maybe so if we look at the positive side going into 2028, how big of an impact can we expect there? Like what are your expecting CoWoS product margins? Are they significantly higher than the current corporate average? Maybe like on a related note, what are we thinking about the financing mix for the overall $7 billion outlay. Megan Faust: Sure, I can take that. So as far as the business that we are operating in our Arizona facility, that will be at a, I would say, meaningfully higher than our corporate average. So as far as impact on '28, we don't want to give too much detail here. We'll save that for our Investor Day and long-term outlooks. And then your second part of that question was about funding. So we had outlined a $7 billion investment for the 2 phases in Arizona. We have several, I would say, opportunities to help fund that. Just as a reminder, we do have government incentives in the form of chips grant funding of $400 million as well as the 35% investment tax credit. So together, that's a pretty meaningful support of $2.8 billion. In addition, we are working with our customers on different forms of support. And so that is a second part. We have some that have been executed and others that are currently in discussion. And then on the Amkor side, we have quite a bit of liquidity. We have, I would say, debt capacity. And so we're evaluating what we may need to do there as well in the future. But as far as our 2026 investments, our current liquidity provides ample flexibility for us to manage that. Operator: Your next question comes from Joe Moore with Morgan Stanley. Joseph Moore: You talked about export controls as a factor you're considering. Can you talk about what the variables might be there? Is that more around the AI-centric stuff or anything else that we should be aware of? Kevin Engel: Joe, I think what we were trying to signal more there was around pricing that basically between -- so -- well, I guess, 2 dynamics. One related to the Middle East and what's going on there. And as oil prices continue to rise and just commodity pricing in general, whether it's precious metals, things like that. Those are putting pricing dynamics in play for our suppliers. So that's one dynamic that we're watching very closely. And then the other one is just in general, whether it's trade discussions going back and forth between the U.S. and China related to different AI products. But I'd say that is at least become more normalized now for us. So we see the demand in fluctuations, but for us, there's -- whether it accelerates from a restriction perspective, or it loosens, I think, we're ready to kind of balance that. It's not a not a dynamic that has a huge impact on what we're looking at today. Operator: Thank you. And at this time, I'm showing no further questions. I would like to turn the call back over to Kevin for closing remarks. Kevin Engel: Thank you. Now for a recap of our key messages. Amkor delivered a strong start to the year, achieving record first quarter revenue of $1.68 billion, up 27% year-on-year, with growth across all markets. Utilization is improving, even as material supplies are constrained in the industry. Over the past couple of quarters, we have been preparing for growth in our advanced packaging portfolio. We are ready to support a strong Q2. Key product ramps are coming in the second half of the year. Our footprint is expanding to meet customer needs going into 2027 and beyond. Thank you for joining the call today and we look forward to seeing you at our Investor Day. Goodbye. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.