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Fredrik Ruben: Right. It's 9:00. Good morning, and welcome to this earnings call where we will cover the first quarter in 2026, summarizing our business in January, February and March. I'm Fredrik Ruben. I am the CEO of Dynavox Group. Linda Tybring: And I'm Linda Tybring. I'm the CFO of Dynavox Group and will cover the financials. Fredrik Ruben: All right. And before -- for some of those of you who have participated in this call before, you might be familiar with, but we'll start with a quick recap about what Dynavox Group does. And then we will summarize the main takeaways from the quarter. We will then dive deeper into the financials, and thereafter, there will be a Q&A session. And you can submit your questions during the Q&A session in the function here in Teams or you can ask them live by raising your hand in Teams and of course and of course unmute yourself, when we will invite you to speak. And of course, you're always welcome to offline questions sent by e-mail to the above e-mail, which is Linda's, linda.tybring@dynavoxgroup.com. So a brief overview of Dynavox Group. First and foremost, it's important to reiterate our mission and our vision, which I know is very dear not only to our now over 1,000 colleagues around the world, but also to our ecosystems of partners and investors. And our vision is a world where everyone can communicate, and we will contribute to this via focusing on our mission, which reads to empower people with disabilities to do what they once did or never thought possible. And this also summarizes 2 of our main user stories. The first one, the do what you once did, that may refer to a person who led a normal life until a diagnosis such as ALS, which rendered her then unable to control the body or communicate like before. The other one, the never thought possible can refer to a child with a condition such as autism or cerebral palsy, where thanks to our solution, she can do much more than the world around him or her ever thought possible. On the picture here, you have Linnea. She's a 12-year-old girl from Gothenburg here in Sweden, and she was diagnosed with cerebral palsy at early age, and she's a great example of this. And Linnea presented at the Women in Tech Conference here in Stockholm earlier this week together with our colleague, Griet, that you see on the picture. And thanks to our solution, she was able to fulfill one of her dreams to give a lecture about assistive communication in front of thousands of people, and Linnea has been a user since she was about 2 years old. The market that we service is hugely underserved. Some 50 million people have a condition so grave, they simply cannot communicate unless they have a solution like ours. And every year, some 2 million people are being diagnosed, and yet we estimate that only 2% of those are actually being helped and the rest literally remain silent. And the main reason for this spells lack of awareness, also among the professionals and the prescribers that are tasked to assist these users and combined with poor healthcare reimbursement systems. We operate this company on a global footprint. Today, almost 3/4 of our business stems out of the U.S., largely because of a reasonably well-functioning funding system that was established some 20, 30 years ago. And our comprehensive solutions are sold in more than 65 markets around the world, which 12 are markets where we sell directly, while the others are serviced by a network of some 100 reseller partners. Our staff is distributed in a similar way as our revenue, meaning some 50% of our staff are based in North America with our U.S. headquarters in Pittsburgh in Pennsylvania. And then our second largest office is our headquarters here in Stockholm, but we also have branch offices in several European countries as well as in Suzhou in China, in Adelaide in Australia. And as of today, as I mentioned, we're just over 1,000 employees in total in the group. We provide a comprehensive portfolio of solutions that ranges from the content and the language system, such as the world's leading library of communication symbols, they're called PCS, and a leading solution of off-the-shelf custom-made synthetic voices of the highest quality and a large diversity, of course, of languages, ages, ethnicities and so forth. We also make highly sophisticated communication software that's tailored to the type of user, and that can, of course, vary greatly based on the needs. Three, we develop and design devices with cutting-edge technology, and they're typically medically certified and very durable, and that includes communication aids that are controlled via eye tracking and accessories such as the Rehadapt mounting systems. If we move on, we have a services portfolio to help our users through the complexity of obtaining and getting funding or reimbursement for their solutions. And then last but not least, we're there to help our users, the therapists, the caregivers through a global system of support resources. And we operate this model globally. And it's important to note that each piece on this picture is critically important and also a significant differentiator for us, making us absolutely unique. Our go-to-market model is predominantly as prescribed aids. So that means some 90% of our revenue comes from public or private insurance providers. And that also means that we have solid paying customers and have always been resilient towards changes in the overall economic climate. But now we will go back and focusing on the main topic of today, namely our earnings report for the first quarter in 2026. If I just look at the highlights, we delivered a solid start to the year with continued revenue growth in the quarter. The growth compared to the same quarter previous year sums up to 15% after adjusting for currency effects. North America, our largest market, was hit, however, by unusually severe winter weather in January and in February. And that led to closures among schools and institutions. And this, of course, impacted our ability to meet with customers and deliver products. These effects are, however, expected to normalize and the deferred business to be regained during the remainder of this year. The month of March isolated, for example, was back at historic growth levels in North America. Our business in markets outside of North America continued on the good trajectory from the previous quarters. The demand -- the underlying demand for our solutions remains high, and that's proving the solidity of our underlying business, and we see robust underlying growth across basically all markets where we operate. EBIT came in at SEK 57 million, and that's a 35% increase compared to the same quarter last year despite continued FX headwinds and, of course, the named weather impact in the U.S. Our Product and Solutions development hub, which was formed last year here in Stockholm is now fully operational. And then the global rollout of our new ERP system is now almost concluded. And now with also our Swedish parent company successfully transitioned earlier this month here in April, leaving only a few small local entities remaining. On 1st of April, we also completed the acquisition of our Italian reselling partner, SR Labs Healthcare, and we welcome new colleagues to the team. That's very exciting. And then last but not least, we announced a couple of changes to the executive management team. On March 1, we welcome Marie-Josée Leblond or MJ, as we refer to her as the new Chief Digitalization and Information Officer. And also, we welcome Luis Mustafa, who joined as our new Chief Operating Officer. He's replacing Tony Pavlik, who is about to enter retirement. We also announced that Linda here will leave her position as our CFO, but will remain in full capacity until the end of January, next year, 2027, hopefully boding for a smooth and structured transition after we have recruited her replacement. And now I actually do hand over to Linda, who indeed is still here and on top of things to take us deeper into the financials. Linda? Linda Tybring: Thank you, Fredrik. Yes, still live and kicking. Let's take a closer look at the Q1. Revenue for the first quarter, which is typically our seasonally weakest quarter, came in at SEK 588 million, a 15% year-on-year growth after adjusting for currency effects. Recent acquisition contributed with 3% and the organic growth was 11%. Currency fluctuations had a 14% negative impact on revenue. Sales continued to grow across all markets and the gross margin ended up at 69% (sic) [ 67% ], a decrease of 0.9 percentage points. Gross margin benefit from favorable currency effect, but was offset by higher component costs and higher cost base following increased staffing to support the continued growth journey. Fredrik Ruben: I'll make one correction. The gross margin was 67%. Linda Tybring: 67%? Okay. Did I say something wrong? Fredrik Ruben: Yes. Linda Tybring: Okay. Sorry about that. Before we move on, I would like to take a little bit deeper dive into our typically seasonality patterns. Over the past couple of years, we have seen a recurring pattern over the quarters that is slightly connected to our access to public and private reimbursement system. We maintain some 675 contracts with private and public payers. And Fredrik mentioned before, 90% of our revenue comes out of that. In January, many payers, specifically in U.S., are resetting their insurances, which means that the funding process slowed down in the beginning of the year, which impacts our revenue in the first quarter. The pace is then picking up, and we normally see an acceleration over the following quarter that end with the sprint in Q4, when the fiscal year closes. Hence, the fourth quarter is typically our strongest. As you know, there is no rules without exception. And as you can see in the chart, we had an exceptionally strong Q1 last year. This was due to good business momentum and the successful product launch that we did in Q3 2024. And we then allow existing orders to be replaced. Consequently, deliver and revenue was pushed forward to the following quarter. This is a pattern that we recognize and have seen before in conjunction when we do product launches. So to sum up, we have a clear seasonality pattern impacting our revenue distribution. This is also why our financial growth target is set to annual average growth of 20%. We clearly see variations over the quarters. So moving back to the Q1. EBIT for the quarter was SEK 57 million, and the EBIT margin was 9.8%, which is a growth of 56% FX adjusted. Our OpEx increased by 7% organically. The OpEx increase relates mainly to continued investments in sales and marketing staff, but also within our IT organization. During the quarter, we continued investing in system and tools, including a new ERP platform to strengthen scalability. These nonrecurring investments totaled to SEK 9 million, a decrease of SEK 5 million versus last year. Acquisition contributed with SEK 14 million increase of our operating expenses versus prior year, and we saw a decline in long-term incentive cost of SEK 5 million year-on-year. Costs for research and development after capitalization and amortization decreased by SEK 24 million compared to the same quarter last year, mainly driven by higher costs in prior year related to organizational restructuring, higher capitalization related to launch of new products and lower amortization contributed further. In addition, the currency effects both from lowering exchange rates versus prior year and together with transactional timing effect had a negative impact of SEK 7 million on our EBIT for the period. If we look at the basic earnings per share, it totaled to SEK 0.33 (sic) [ SEK 0.36 ] per share to compared with last year SEK 0.23 per share, which is close to 60% improvement. For the quarter, cash flow after continuous investment was positive with SEK 56 million, more than doubled. It's encouraging to see that our work on improving processes and operations have had positive effects on our cash flow compared to last year. Cash at hand by the end of the quarter was SEK 243 million. Net debt was SEK 865 million. The total unused credit facility at the end of the quarter was SEK 300 million. And the net debt over last 12 months EBITDA was 1.7x. Fredrik? Fredrik Ruben: Yes. Linda Tybring: Back to you. Fredrik Ruben: Thank you, Linda. Okay. So before we open up for questions, I'd like to reiterate some of the main takeaways and bring further nuance to our performance and outlook. So we continue on our strong growth trajectory, a trend that started early spring of 2022, so that's almost 4 years ago. We grew revenue by 15% adjusting for currency and despite the North America being temporarily impacted by severe weather in January and February. And we see that sales continue to grow across all our markets. Our profitability and cash flow improved notably, reflecting strong operating leverage as investments-related to cost -- as investment-related costs continue to taper off. We also note that the currency headwinds have decreased, as we enter now into Q2 with the SEK versus the U.S. dollar fluctuations seemingly having stabilized. We delivered a very strong cash flow, further underscoring the improved operational efficiency, which we have put a lot of energy into achieving. We continue to expand our direct market presence by closing the acquisition of our Italian reseller partner. Our overall exposure to import tariffs to the U.S. remains limited since our products are classified as medical certified assisted devices, and that exempts them from tariffs under the Nairobi Protocol. We continue to monitor, obviously, all macroeconomic and policy changes development closely. And while currency effects and the broader macro environment, I mean, can create volatility quarter-to-quarter, Dynavox Group is well positioned to continue delivering long-term sustainable growth in a severely underpenetrated market while, of course, advancing our mission to provide life-changing solutions to those who need them the most. And we reiterate our current financial targets, which were communicated in February of 2024 with a time horizon of 3 to 4 years. And the first target reads to, on average, grow revenue by 20% per year adjusted for currency effect, including obviously then contributions from acquisitions. And in local currencies, the first quarter growth was 15%, which means we continue on the growth trajectory. And as Linda talked about earlier, we have clear seasonality variations over the years. We -- the market that we serve remains hugely underserved, but also quite immature. And with the example of growth levers such as sales teams expansion, adding direct markets and then, of course, operational excellence, we continue to build on our growth journey. The second target reads to deliver an annual EBIT margin that reaches and exceeds 15%. So we feel that we have proven to build strong growth within -- with incremental improvements in profitability this quarter too. We need to continue to invest in future growth with improvements in scale, but the recipe for achieving this is rather simple, continued revenue growth, high and stable gross margins and then operating expenses that increase at a lower pace than the revenue growth. And as a consequence, we see good opportunity to further leverage how revenue growth translates to reaching and exceeding a full year EBIT of 15%. And then lastly, we expressed our dividend policy, and we have an attractive cash flow profile. And given the growth opportunity, we need to maintain a capital structure that enables strategic flexibility to pursue growth investments and also, of course, acquisitions. But it's still expected to, over time, generate excess cash. And our policy is, therefore, to distribute at least 40% of available net profits to the shareholders via either dividends, share purchases or similar programs and when so allows and when we deem it's the right prioritization. And as you could see for the Annual General Shareholders Meeting that is happening on May 8 this year, the Board of Directors earlier proposed that a cash dividend of SEK 0.5 per share shall be distributed for the shareholders. All right. With that said, we are now inviting our Corporate Communications Director, Elisabeth Manzi, who will help to moderate and also enable us to take questions from the audience. Hi, Elisabeth. Elisabeth Manzi: Hello. Thank you very much. [Operator Instructions] So we do have people -- a couple of people who have raised their hands, and I will then start with the first one, who is Daniel Djurberg. Daniel Djurberg: Yes, I have a question on the growth. And importantly, you said that March growth level was back at historical levels in the U.S. I was wondering, is it possible to quantify what is the historical growth level in the U.S. and/or possibly also quantify the negative effect from the winter storms in terms of deferred revenues or the impact on the organic growth level is seen in the U.S., it would be super helpful. Fredrik Ruben: I understand that. I can't quantify it precisely. But what I can say, if you look at historic growth levels, I mean, we are leaving a period where we've had -- we've been actually quite well above our FX-adjusted target of 20%. And we saw obviously that in total, the revenue growth, FX adjusted for the quarter was, how should I say, only 15%. And that is a consequence of weak order growth in January and February and then to some degree, partially mitigated by a strong March, but not all the way back to kind of where we think that the business should operate at. But I don't have specific numbers in dollars or SEK to help you quantify them, I'm afraid. Daniel Djurberg: Okay. And would it be fair to assume that you have deferred revenues coming from Q1 into Q2 then? Or... Fredrik Ruben: Yes. Our assumption is that none of the lost revenue, if you will, that didn't happen due to weather impact, et cetera, are actually lost. They will happen later on in the year, whether it happens in Q2 or further down in the year, I cannot specify that because there are -- these are quite slow and I don't know, call it, bureaucratic systems. And of course, if you miss the first date, it might take some time before you get a second chance. But typically, we do not see that weather or these kinds of short-term impacts have lasting impact. So there will be a rebound one way or the other. Daniel Djurberg: Perfect. And if I may ask you also on Europe, showing off 40% organic growth. Can you comment a little bit on the variation seen in various segments like Nordics, Germany, France, Italy, et cetera, and if needed to secure a little bit higher growth also in Europe? Fredrik Ruben: I think if you take Europe as an example, it's actually quite difficult to quantify the difference between organic and acquired growth because of the fact that when we acquire companies, we acquire our own resellers. It's not like we buy a completely new business unit where there's new revenue. So in totality, if you adjust for FX in Europe, the underlying growth was 32%. But of course, part of that was us acquiring a reseller, but it's the same products being sold in the market by the same people. It just happens to be that they are now employees of ours and not owned by a third party. So -- but if I would kind of answer your question on where do we see growth, there is still a fair amount of -- these markets differs from quarter-to-quarter and market-to-market. The market that we currently feel maybe the most excited about is for sure, Germany, where we are going direct since -- it's September 1, right, Linda? Linda Tybring: Yes. Fredrik Ruben: Yes. So that's a market where we believe there is a lot of potential in many, many ways. And that's also a market that did perform well. Daniel Djurberg: Fantastic. And I will just finish off with the ERP, it was SEK 9 million in the quarter. Should we expect a similar level in Q2? Or will it be even a bit lower than this SEK 9 million? And will Q2 be the last quarter with any highlighted negative impact? Fredrik Ruben: It's very much within that... Linda Tybring: Yes. It will fall off during Q2. And our hope is that the majority of our existing entities will be over in the coming months. Daniel Djurberg: Congrats to a strong ERP implementation then. Linda Tybring: Thank you. It's a fantastic work by all the members in the team, I would say. It's a true team effort. Elisabeth Manzi: So thank you very much, Daniel. And I also have a question here from Mikael Laseen, who's asking, "Gross margin was 67% in Q1 versus around 69% in H2 2025. Could you break down the key drivers behind the decline and comment on how we should think about the gross margin ahead?" Linda Tybring: A couple of things. Comparing with H2, then you have a higher revenue as part of that, which means some of the set cost is still the same going into Q1. So we're going into a new quarter. We also added more people to be able to handle the growth. I think the gross margin will continue to be stable. Of course, we also -- we wrote that in the report, seeing some challenges when it comes to components and freight. But we should remember, it's a small part of our gross margin considering that it's close to, I mean, 67% and 78% (sic) [ 68% ]. Fredrik Ruben: I think we sometimes try to help that what's the portion of fixed cost as part of our COGS? Linda Tybring: About 20% is fixed cost. Fredrik Ruben: And that should scale quite well, as revenue go up and then, of course, the remaining is related to how many products we ship, et cetera. Linda Tybring: Yes. Elisabeth Manzi: Good. Thank you. And then we have someone else who would like to ask a question. So I do invite Jakob Lembke. Jakob Lembke: I have a few questions. I'll start maybe on North America. If you can elaborate on the weakness you saw in January and February, let's say, how much sales declined in those months? Fredrik Ruben: And this is the same response as to Daniel then. No, we don't quantify exactly the weakness, and it's not -- it's actually a little bit difficult to quantify what was the consequence of that, et cetera. But we can just summarize that in totality of 2 highly impacted months of January and February and then a normal month in March didn't bring us all on top of the bar. At the same time, we don't see any changes in reimbursement. We don't see any changes in demand. So we believe that the effects are more or less temporary and exactly how temporary something is. In a different setting earlier this morning, we also quantified the fact that if you think about our North American business, we deliver every day. We ship devices almost -- I mean, up to USD 1 million per day. And of course, if you have a day when roads and streets and institutions are closed, we will not ship anything that day. The question is how much can we kind of make up for when the business is back to normal, and that is difficult to quantify. But that's how vague I can be on that, Jakob. Jakob Lembke: Okay. Then a follow-up on that, I guess, is just the growth you're seeing now in North America, is that in line with your sort of targets or above your target sort of implying that catch-up effect? And also if you're seeing the same trends into March -- or into April from March? Fredrik Ruben: I think we do a pass on commenting on the current quarter, but I just want to reiterate the fact that we believe that this is a business that should deliver an FX adjusted or in local currencies growth of 20%. U.S. is a market where we do not have resellers to acquire, et cetera. So it is kind of same-store sales also going forward. We believe in that. I think we can definitely say that 2025 was a very strong year, and we obviously then delivered way above the 20% FX-adjusted growth. We still -- we reiterate our target, and we believe in it. Jakob Lembke: Okay. And then another one, just -- I don't know, can you see that -- let's say, that in California, the growth is exactly in line with the targets or normal and that in maybe Massachusetts, it's way down. Do you see those sort of variations? Fredrik Ruben: Now you're putting us on the spot here, as I actually don't have that. What we did learn was that the winter weather, that was unusually in that, was affecting 50% of the U.S. states. You had sub-zero Celsius degrees in Texas and some of our biggest states. So it was a nationwide, but I don't have a number on top of my head whether California was kind of untouched. I think we need to also understand that our operation, which is based out of Pennsylvania, that was probably in one of the epicenters of the storm. So it's not necessarily just on the client side, it's also our capabilities. Jakob Lembke: Okay. And maybe one more is that you seem quite confident that you will regain all of these sales, but on the other hand, you don't really know sort of how much you have been impacted. So just maybe some more comments on that you are confident in regaining this and how you can be that? Maybe, I don't know, can you see internally that you have a larger backlog now or more processes ongoing or something like that? Fredrik Ruben: Sure. One of the reasons why we can't tell whether a specific order was not happening because of weather because there is no such kind of check in the box in our CRM systems, et cetera. So we don't know whether it was that or something else. What we can say is that nothing has changed. The reimbursement rules and laws are the same, reimbursement levels are the same. The underpenetrated market remains as underpenetrated now, as it was a year ago, et cetera. So none of the fundamental fact -- and there's no new competitor or other type of macroeconomic impact that affects us. So all things alike, we should be able to deliver on the target. And we do indeed remain confident. But I also want to stress the fact that we express our targets on a full year basis. There will be fluctuations between quarters and months, et cetera, and that's part of the business. And we also have then the more seasonality patterns that Linda talked about. So we look at this business on a full year basis, and hence, we do reiterate the target. Jakob Lembke: Okay. Maybe just a final question... Linda Tybring: Well, final? Jakob Lembke: Yes, sorry. Just on the R&D expense, both the sort of gross expense looks lower and then there's also higher capitalization. So just the question is, what is behind that and if that is representative going forward? Linda Tybring: I mean mainly the big discrepancy is that we don't have the restructuring costs that we had last year, the same period. But then we also launched more products, which means that you have a higher capitalization. We launched the product in beginning of April. And then we are also rolling out there some -- not end of life, but from an amortization is actually lower amortization in the quarter as well. Fredrik Ruben: I think you can read between the lines that the new R&D organization that we have here in Stockholm is not just kind of fully staffed, they're obviously also delivering and hence, there is more innovation coming out of that. And that's obviously quite reassuring. Linda Tybring: Very good point. Elisabeth Manzi: Thank you very much, Jakob. And I think this was also the answer to a question that Mikael Laseen had on the capitalization of R&D. So I hope you also got that answer, Mikael. But we do have some more people that would like to ask questions. So I invite [indiscernible] to join. Unknown Analyst: Just one short one on sales. I know it's repeating, but how does like the paying pattern look like from customers? I mean, if sales accelerated in March, shouldn't trade receivables be up more? Linda Tybring: Yes, absolutely. But you had a strong Q4 as well, and it takes a little bit longer to see that. And so we've also received payments during the quarter for our trade receivables, since Q4 is higher in that perspective. Unknown Analyst: Got you. And then you touched a little bit on the R&D being down, but I also noticed the selling and admin expenses being up quite a bit in percent of sales from previous quarters, comparing quarter-over-quarter and year-over-year. What's the reason behind that? And yes, some color on that would be really helpful. Linda Tybring: Yes. A couple of things. When it comes -- you have to remember going into a new year, you kind of enter into -- with the same OpEx level as you had in Q4, which means that if you have lower sales, the ratio will then go up. But of course, we continue to invest in sales and marketing to be able to continue to grow. That's one of our key. And we have also invested more in our IT organization. Unknown Analyst: Can you say anything about how big part of selling expenses and admin expenses? They are fixed or variable? Linda Tybring: Majority of our OpEx is salaries. I would say almost 80% of our OpEx is salaries. Fredrik Ruben: And maybe to add on that, commissions is obviously, specifically, in North America. But then you need to kind of take it down to just the field reps, et cetera. We typically say that commission as a part of salary is in the range of 5%... Linda Tybring: Yes, 4% or 5%. Unknown Analyst: But then if you sold less in Q1, shouldn't selling expenses have been down a little bit then? Fredrik Ruben: But we have more people. Linda Tybring: But we have more people. Elisabeth Manzi: Thank you, Philip. And then I would like to also invite [ Nicola Kalinowski ], who is on the line. Unknown Analyst: Yes, just a few questions of a clarifying nature from my end. Would you say that the U.S. -- or the bad weather in the U.S. in Q1 has also caused a delay in the recruitment or, say, onboarding of new U.S. solutions consultants? Fredrik Ruben: What a good question... Linda Tybring: Yes, that's a good question. I would say no. It hasn't. Unknown Analyst: Yes. Fair enough. Fredrik Ruben: No, you got feeling, I agree. We have no chart to prove that, but that's... Linda Tybring: You have to remember a lot of our -- I mean, majority of our salespeople are remote in that perspective. Fredrik Ruben: Yes, true. So they don't necessarily have to come in physically for interviews, et cetera. It's a remote machine to a large degree, already from the start. Unknown Analyst: Yes. That sounds very good. And just -- this is maybe a more difficult question, but has there been any notable direct or indirect impacts from the situation in the Middle East in your case at all? Is there anything we should keep in mind going forward that you think, just so we don't miss anything? Fredrik Ruben: I can look at kind of more of a macro. I think the uncertainty that we are looking at, that affects us all. We are, of course, waking up every morning to new news, et cetera, and then you start to kind of -- how will this impact us. As our infrastructure look like, the markets that we are exposed to, but of course, cost base. I think Linda covered a little bit on freight costs and inflation components that might have some impact. I don't know if you want to quantify that more, but it's nothing... Linda Tybring: It's not material... Fredrik Ruben: Major material, yes. Unknown Analyst: Yes. So there's nothing direct to keep in mind, at least? Fredrik Ruben: No. And I think you should also -- if you -- just from a very practical perspective, our products are typically produced in Southeast Asia. Taiwan is a big market. They are shipped predominantly by boat to the U.S. West Coast. Hence, they don't go through any straits. I mean, they pass Hawaii. That's how exciting that trip is. So there is no kind of physical impact on our ability to produce and receive products. But of course, it's likely so that the part of our COGS that is represented by freight costs will, to some degree, go up. Elisabeth Manzi: Thank you so much, Nicola. and then we have a question from Erik Larson. He's asking, "How do you think about the balance sheet here, acquisitions versus giving back to shareholders?" Linda Tybring: I mean we are -- the Board is proposing to AGM, which is in 2 weeks that we are doing a dividend of... Fredrik Ruben: SEK 0.5. Linda Tybring: SEK 0.5 per share. So we are definitely -- that's part of our dividend policy, and we have said that net available profit of 40% should be either paid back in dividend or share buybacks. Fredrik Ruben: And I think we can say, if you look at the cash flow in this quarter, for example, it's very strong. It pretty much more than doubles compared to the same period last year. We have what we feel is a totally acceptable debt leverage. We have additional credit and RCFs that we can use. But more importantly, the type of acquisitions that we're doing, they are small. We don't buy massive companies, which will affect us. It's largely these reseller acquisitions, and these are small companies, and that's a business which, a, has a very low risk in terms of acquisition. We know exactly how to do it, and it's -- we pay it more or less through our own cash flow, at least over quarters. So we feel quite confident in our ability to going forward, being able to share whatever is left or the excess cash with our shareholders in some clever way. Elisabeth Manzi: Good. And we also have another question on acquisitions from an anonymous user here. But the question is the acquisition of SR Labs Healthcare in Italy was completed shortly after the quarter. Given your stated strategy of increasing local presence to organically scale the business, are there other key European markets where you still rely on resellers and where we should expect similar direct acquisitions during the remainder of 2026? Fredrik Ruben: Good question... Linda Tybring: Good question. Fredrik Ruben: We're probably not going to open up our M&A playbook fully. With that said, I think it's also important to us that we feel that the big markets with well-functioning reimbursement systems are still very underpenetrated. So we have very little reason to go far away and kind of try to find new money elsewhere because most of our growth for a long foreseeable future will probably happen in the established markets. And then I think it's a function of GDP, population and the reimbursement system. And if you look at the markets where we currently operate, the Nordics, U.S., obviously, and Canada, adding now France, Italy and maybe most notably Germany, that's where we feel that there is ample opportunity to grow. So our stress levels to just for the sake of doing it, add more markets, is if there is a good opportunity, we will do it. Otherwise, we feel that we can keep ourselves busy and run both fast-growing and profitable company. Linda Tybring: And remember that when we acquired this company, it's important of the organic growth after acquired them. Fredrik Ruben: Correct. I think that's maybe one thing that should be deciphered from this report. When we acquire a company, like I mentioned, it's mainly just the difference between what we sold to that reseller and what then they sell out on the street in that specific market, that's actually what's gaining and it's quite small. Elisabeth Manzi: And I do believe the question was actually from Jessica at Redeye, who also has another question. You reiterate that the rules have not changed for financing. Furthermore, the weather affects the sales. What, if any, would indicate that there are more competitors taking market share? Fredrik Ruben: We don't feel that. I think if there is anything, I think, that the biggest competitor that we have is lack of awareness and then bureaucracy is probably a competitor, too. But we cannot say that there is any changes to the dynamic on the players of the market, and we don't see that there is any changes in market share or anything like that. So that's as good of an answer, Jessica, that I can give at this point. Elisabeth Manzi: And also a question from Jessica. Last year, you communicated every quarter that the demand was constant throughout the quarter. Am I understanding it right now that this was not the case in Q1 due to weather and other? Fredrik Ruben: Yes. Linda Tybring: Yes. Fredrik Ruben: 100% correct. With a small nuance, demand indicates that -- I think the demand is definitely -- it's the ability to turn demand into orders that was impacted. Elisabeth Manzi: Yes. And Mikael Laseen has another question. Could you elaborate on how you are leveraging AI across your offering, specifically to enhance speech generation, language, personalization and user experience and whether you also see opportunities to streamline clinical workflows and the reimbursement process? Fredrik Ruben: Sure. If I start with the product and et cetera, AI has been -- machine learning has been part of our DNA for decades. Obviously, we, in the same way -- specifically now with a partly brand-new organization on product and development here in Stockholm, we also see the magnificent impact of Claude Code and the likes to basically speed up the ability to increase quality, but also launch new features. In all honesty, though, I don't think that is the biggest impact on us. The biggest impact that we currently feel and see in -- with AI is more on the administrative functions, the reimbursement systems, which is -- it's a perfect example for how to operate AI. You have complex, high volumes of bureaucracy, et cetera, where, of course, up until now, we need to have human eyes and humans sitting in phone lines, reading 50,000 pages of fax every month. The advancement that we're doing on applying AI to that, I am genuinely excited and it's -- the engineer in me is quite excited. That being said, we can also apply it on how we operate more efficiently within the company, with a new ERP system, with a much more kind of data-driven platform. There's, of course, all kinds of operational improvements that we can do on anything from accounts receivable to financial reporting or data. Linda Tybring: Which we already see... Fredrik Ruben: Which we already see. Yes. So I would say that to summarize, AI within our products, well, that's what we do. We can just do it faster, but I think we have a high degree of -- we're quite mature and have a good understanding, whereas to me, at least the bigger impact is operating leverage on the internal processes, doing more with less. Elisabeth Manzi: Good. Thank you for that answer. Jakob Lembke has a follow-up question here also. When you say that growth has normalized, does that mean that we should expect you to grow in line with target in coming quarters or that you should go faster than your target to recover the lower growth in Q1? Fredrik Ruben: We believe that we will meet our financial targets on a full year basis, and that is 20% in local currencies. And if you start the quarter with 15%, that obviously means that there is -- there needs to be some sort of acceleration there. Elisabeth Manzi: Good. And let's see, there was actually another question here, and I think it might be also from Jessica. I asked about the demand during the full quarters. If the awareness increased day-to-day, which is totally reasonable in such an area of which you operate, then the demand for new sales would increase from any given time to any given time. Fredrik Ruben: Yes. I mean you're right, Jessica. I think what -- if you compare this quarter with last quarter, the underlying demand is obviously higher. We also have more people on the street to kind of educate the market, et cetera. Maybe I'm kind of a little bit stuck on the word demand because in my world, the demand is enormous. It's just our -- the market isn't really there to capture it. And that is unfortunately, to a large degree, our responsibility because this is not a market that kind of happens by itself. We have to be out there, educate, train and to some degree, handhold the prescribers of these products, at least for the first couple of times they work with the patient. But in absolute terms, the activity level, which is maybe a better term, is higher this quarter versus the past quarter. It -- just as you note, it's higher in March than it was in January. But this is not a pattern that is different this year. This is our kind of standard operating model. Elisabeth Manzi: And last curiosity question here relating to the AI also from Jessica. How effective is your clone within the organization? Does it actually help solve problems and support employees? Fredrik Ruben: So Jessica is referring to the fact that I have taken the leading flag of creating an AI version of myself that is available to every staff member. I think that we should read that as a conviction that AI has to happen, and I want everyone in our organization to fully embrace it. And the way for me to lead by example as the CEO is to make an AI clone of myself. I would doubt that a huge part of our current or future revenue or profitability growth is a consequence of that. But hopefully, indirectly, by having an organization where everybody feels that automating, digitalizing and applying AI to pretty much every piece of work in this company is not optional. It's something we have to do, and it's part of us being able to meet our targets. That's how I see it. But as of today, no, it's not a magnificent revenue nor profitability driver. Elisabeth Manzi: Very well. Fredrik Ruben: Yes. Elisabeth Manzi: I think that was all. Fredrik Ruben: Okay. Thank you. I love that there is so much questions. Glad that technology seem to be with us today. So now we're going back and delivering -- continue to deliver every day. The next time that we will meet in this fashion will be on the 22nd of July when we will present our quarters and our earnings -- or quarterly earnings for the second quarter of this year. Thank you very much. Linda Tybring: Thank you. Elisabeth Manzi: Thank you.
Maria Gabrielsen: Welcome to Yara's First Quarter Results Presentation. The presentation today will be held by Yara's CEO, Svein Tore Holsether; and Yara's CFO, Magnus Krogh Ankarstrand. I would like to mention that we have a change in how we do our Q&A session today. Once the presentation is done, we will move straight into the Q&A session. [Operator Instructions] But first, let's start the presentation. It is my pleasure to hand over to our CEO, Svein Tore Holsether. Svein-Tore Holsether: Thank you, Maria. Good morning, good afternoon, good evening, depending on where you're dialing in from. And thank you for joining our first quarter presentation. As always, I'm starting with our safety performance. Our license to operate is creating a safe working environment for all our employees and contractors. And we have a lot to be proud of our performance in the first quarter, but safety is not one of them. We continue to see an increase in accidents, and this has also been the case in April, which means that we will likely see further deterioration as we get into the second quarter. And there is only one responsible for it, and that is me. And I take that responsibility very seriously. I'm now in my 30th year in industry. And what I've learned from safety is that you cannot dictate your way to safety and also that campaigns, they only have a short-term impact. It is what we do every day, every week and every year that matters. And we know what to do. We will continue to work according to our Safe by Choice approach that has now been in place for 12 years. This is our joint commitment to safety throughout the whole organization because at the end of the day, 1.2 TRI, that's a ratio. But behind that, there are 59 accidents, 59 colleagues, someone's mother, father, brother, sister, friend that got injured at work during the last 12 months. We can, and we will bring that to 0. But for now, we need to turn the negative trend. On Tuesday next week, we will have our Annual Safety Day, and that is another opportunity for us to spend time together and get this right. That was the low light. Now let's take a look at some of the key highlights for the first quarter. Yara delivered a strong quarter with an EBITDA, excluding special items of $896 million. This is an increase of 40% compared to last year, and that's reflecting higher nitrogen upgrading margins in a tight market in the start of 2026. And in addition, Yara has increased deliveries to customers in the quarter, reflecting a strong commercial execution. And this also enables us to maximize production volumes and consequently also capital efficiency. First quarter results mostly reflect pre-war markets, but the Middle East conflict has disrupted global fertilizer markets since the end of February. The blockage of the Strait of Hormuz disrupts around 1/3 of global traded urea. It also has other key raw materials for fertilizer production such as its gas, its ammonia, its phosphates, and sulfur. And this supply shock has led to significant increase in global fertilizer prices. And that, coupled with weak crop prices and high regulatory burdens, farmer affordability has increasingly come under pressure. And the high prices are increasing volatility and also risk premiums across the fertilizer value chain and eventually into the food markets as well. As we said at our Capital Markets Day in January, Yara is a battle-proven organization due to our global diversification, our energy flexibility in Europe and also our highly competent workforce. And now that is being put to the test again, and we are demonstrating the strength of our business model where our global system enables us to uphold production and to ensure the continuity of supply. And this means that we are uniquely positioned in the current situation with strong commercial and operational execution in a disrupted nitrogen market. And I want to thank all my colleagues in Yara for their strong performance this quarter. Looking then at the EBITDA variance for the quarter. The increase of 40% since last year mainly reflects the increased nitrogen spreads. Nitrogen prices have seen a significant increase since first quarter of 2025. And gas price changes are typically reflected after 2 months in our earnings. So this quarter, EBITDA is largely based on pre-war market dynamics. Volumes are also up, reflecting strong commercial execution in the season to date. And keep in mind here that we also had a strong fourth quarter on volumes. We continue to see a positive impact on EBITDA from our fixed cost reduction program and a further $18 million down from last year. Return on invested capital has doubled from 6% last year to 12.2% on a rolling 12-month basis. And that's above our through-the-cycle target of 10%. Global fertilizer markets are currently heavily affected by the ongoing conflict in the Middle East. Around 1/3 of globally traded urea is exported through the Strait of Hormuz, but also 1/4 of the world's ammonia as well as 50% of sulfur, which is significantly impacting the availability of phosphate fertilizer. And furthermore, 20% of global LNG trade is disrupted, and that's leading to urea production curtailments as well, such as in India. The disruption to urea availability has led to a significant price increase, so far, 47% since February. And urea FOB Egypt is up even more at 77%. TTF gas prices have also increased, however, less so than urea and phosphate prices. Farmers' situation was challenging before the war driven by weak crop prices and cost inflation across many input factors as well as regulatory burdens and global market volatility, which all add to this pressure, and this is concerning. And those that will be hit the hardest are smallholder farmers in the poorest parts of the world because of lower ability to pay. But it's actually a double hit because it's likely also impacting the farmers where the yield curves are the steepest, meaning that marginally lower fertilizer application will have a higher yield impact. Fertilizers are essential for food production and stable access is really critical for farmers to produce the food that the world needs. Yara's role is to remain robust and to ensure the continuity of our production and also the deliveries to the farmers. Building on long-term operational improvements, our production system has seen a steady increase in output. And this is also our core focus in the current situation. And as you see here, deliveries to customers are also up in the same period. Volumes on this slide are not adjusted for turnarounds, but it's reflecting actual production and actual deliveries. And ensuring a high uptime of our assets is really a key objective, and it improves our capital utilization and also our energy efficiency. In addition, our energy flexibility enables us to import ammonia if needed in order to keep finished goods production running. And this has enabled Yara to be a reliable source of fertilizer in this critical period as well, alleviating some of the pressure on markets and serving farmers around the world. Yara's position is unique globally and the flexibility in our system continues to limit cyclical downside as well as maximizing output in the current situation. And with that, I'll now hand over to our CFO, Magnus Krogh Ankarstrand. Magnus Ankarstrand: Thank you, Svein Tore. As mentioned, EBITDA is up more than 40% on a strong first quarter 2025, predominantly driven by increased nitrogen operating margins before the effects of this ongoing conflict in the Middle East. This translated into a 60% increase in earnings per share as depreciation, interest and tax remained stable. Return on invested capital increased to 12.2% on a 12-month rolling basis, reflecting both increased earnings as well as portfolio adjustments. The quarter saw a USD 35 million increase in operating capital, driven by an increased price environment. However, this was more than offset by an increase in cash from operations, resulting in a significant increase in free cash flow of USD 196 million as net investments were flat. This increase in cash returns is attributable both to the improvements undertaken as well as the constructive nitrogen market in the first quarter. Turning to deliveries. We see an increase of 3% in Crop Nutrition deliveries compared to first quarter last year. This was primarily driven by increases in the Americas, but worth noting that stable deliveries in Europe, comes on top of a strong first quarter last year that saw a 15% increase over the year before and a 6% increase in volumes in Q4 2025. That means that season-to-date deliveries in Europe are up 2.5% and are among the highest in the last 5 years. In Africa and Asia, we saw a reduction of commodity volumes, however, an increase in deliveries of our premium products. And deliveries in Industrial Solutions are down 5% for the quarter, following plant closures in Brazil. However, these portfolio changes have a positive impact on our cash flow. Yara has focused through the last months to ensure both production and supply chains flow in the extreme situation to safeguard deliveries to our customers worldwide, and we have not experienced major disruptions to our production or supplies. This then increases our cash earnings further and strengthens our balance sheet, putting Yara in a robust position in the ongoing market volatility. Cash earnings are partly offset by an increase in net operating capital, which despite the seasonal release of inventory is up due to the increased values driven by prices. We are currently experiencing a strong market for all nutrients, especially nitrogen and phosphate. This increase in Yara's nitrogen and phosphate operating margins and increases the bar for our premiums, which we measure above commodity value for the nutrients. That, combined with lower crop prices in general, exercised some pressure on our premiums in certain markets. For the fourth quarter, strong demand and pre-buying in Europe supported European nitrate premiums ahead of the year-end and premiums in the first quarter of 2026 were comparable to the fourth quarter, but lower than first quarter last year given the higher nitrogen prices in general. NPK premiums are somewhat pressured, and primarily driven by Asia, we see a contraction towards more normalized premium levels at a very high commodity price base. Yara has a robust commercial organization and is on a day-to-day assessing the market environment on how to optimize volumes and margins globally. This also underlines flexibility of our business model and the ability to create value both on the upstream margin as well as the premiums, which also limits the commodity downside through the cycle. And building on that, there is no doubt that the current global situation puts significant stress on supply chains, and this is particularly visible in the fertilizer space. Yara's global reach and flexibility is uniquely positioned to navigate this. The current price environment, coupled with weak crop prices, is already leading to a substantial difference in buying appetite in prompt markets versus off-season markets. Despite moving into the end of the season in the Northern Hemisphere, the significant loss of nitrogen and phosphates as described by Svein Tore, means a supply and demand shortage in several Southern Hemisphere market as well in addition to India being a main driver for demand in the period to come. And due to Yara's global reach, we are able to optimize global deliveries and ensure we can keep our production system running at full speed, also by changing from locally produced to imported ammonia, if necessary, due to gas prices in Europe. And this is vital to keep serving a market in severe shortage of nutrients in our core markets such as Latin America. Ensuring our assets are uninterrupted is a core part of our operational excellence. However, we have had an unfortunate outage in Pilbara since mid-March, expecting to come back on stream in May. That is our ammonia plant that was stopped. In addition, we will execute a long-planned major turnaround in Belle Plaine after the season is over in June. And this will lead to a reduction of approximately 150,000 tonnes of urea in Belle Plaine compared to a full year of production and a loss of 140,000 tonnes of ammonia in Pilbara due to the outage. Diving deeper into this market situation, it is clear that the ongoing crisis in the Middle East has an unprecedented impact on global supply, not only urea and phosphate, but also other raw materials essential for fertilizer production such as sulfur are stranded and limiting fertilizer supply globally. And with as much as 1/3 of urea supply impacted and further supply reductions from Russian plants as well as reduced production in India due to LNG shortages, global availability is severely reduced and in an already tight urea market without spare capacity, significant demand reduction is required to balance the lack of supply. And naturally, market prices go up to balance the market and ration demand. This has been exacerbated by the ongoing season in Europe and the U.S., and it's obviously an extraordinary situation given the crisis in the Middle East. Market development going forward will depend a lot on the duration of the blocked Strait of Hormuz, the level of damage to infrastructure and the ramp-up time required to get back on stream. Demand reduction is a balancing factor as is potential exports out of China. In the medium term, as previously illustrated at our Capital Markets Day, there's a limited number of supply additions from ongoing urea projects, and this already seem to increase market tightness versus historic demand growth. And recently and recent announcements suggest that several of these projects are -- that were announced to be commissioned in 2027 will be further delayed, driven by both the Middle East situation and other factors. Capacity and export out of China is likely to remain the balancing factor in the medium term. And for Yara, this medium-term constructive nitrogen outlook is set to drive further value creation. However, our strategic priorities are designed to increase shareholder value irrespective of market developments. As presented at our Capital Markets Day, our strategic priorities rest on 2 pillars: driving performance and competitiveness and growing from our core. The former is the operationalization of our improvement program, focus on asset utilization, logistical optimization, capital reallocation and commercial excellence, all aimed at increasing our EBITDA and cash flow. Our medium-term goal of diversifying our energy position further remains a core part of that agenda. Meanwhile, growing from our core is key to increase value creation, scale and return to our shareholders. This includes healthy organic growth from recent and future production increases, up to 1 million tonnes on premium products as we announced in January. In addition, this includes realization of recent growth projects such as the NPK expansion in Cartagena, our YaraVita plant in the U.K. and the CCS project in Sluiskil, all to be completed this year. In addition, Yara will explore further growth opportunities linked to our core, all within our commitment to strict capital discipline and focus on cash returns. As mentioned on the previous slide, energy diversification is core for Yara and the collaboration with Air Products is a strong strategic fit to deliver this. The combination of Yara's significant ammonia system, including import infrastructure in Europe and Air Products advanced projects in the ammonia space is a strong strategic fit for both parties. For Yara, the drivers are threefold: access to low-cost gas, asset competitiveness and renewal through scale and the ability to harness carbon premiums. Predominantly through CBAM and with our collaboration with Air Products, we get all of these 3. At the same time, Yara is able to place volumes from Air Products more cheaply and efficiently into the core markets without the significant infrastructure investments otherwise needed. Commercial negotiations are proceeding according to plan with a priority on the NEOM project that is due to commission in 2027, and the U.S. project is progressing according to the previously announced time line. Yara is fully underway to materialize the improvement program announced in January. And summarizing the first part, our cost program that we launched almost 2 years ago, we already have a head start on that. Excluding currency changes, our fixed cost level on a 12-month basis is at USD 2.3 billion, down approximately USD 230 million from the second quarter of 2024, and this incorporates the underlying inflation in those 2 years as well. Going forward, we will include this into our improvement program, which expands the value levers into a range of other areas as well, but having achieved a strong cost control environment upfront provides us with a very solid starting point. And the improvement program remains a core focus going forward, aiming at more than USD 200 million EBITDA improvement by the end of 2027 and USD 350 million by the end of 2030. This includes our 10% ROIC target through the cycle, and we are starting to see strong financial metrics through a combination of market developments and improvements. It is, however, important that our aim of improvements irrespective of market developments. Looking at the last 12 months, we see a significantly increased EBITDA of about USD 3 billion, and accumulated cash flow close to USD 1.2 billion and perhaps most importantly, a return on invested capital firmly above 12%. And with that, I will give the word back to Svein Tore. Svein-Tore Holsether: Thank you, Magnus. The current situation is really unprecedented for the global markets, and the fertilizer industry is no exception to that. Together with the Ukraine war, the current conflict in the Middle East adds to the geopolitical volatility. Yara's business model is well adapted to navigate such volatility. And as we said at our Capital Markets Day, we have improved our resilience, building on our experience over recent years. And our competitive edges are really key in achieving this. The bedrock of this is our scale and global optimization, which is even more vital in the current situation. Operational excellence combined with flexible energy sourcing helps us to uphold finished fertilizer production. And our premium and diversified product portfolio provides a strong foundation helping to mitigate earnings volatility when commodity prices fluctuate. Finally, a disciplined and flexible investment approach, clearly anchored in our strategic priorities, will continue to strengthen our long-term competitiveness. Then to conclude our presentation, it is important to highlight that our ambitions and commitments remain firm despite the current market turmoil, further maturing our resilient business model and delivering on the improvement program launched at our Capital Markets Day back in January. They remain core focus areas. And our long-term goals of diversifying our exposure to lower gas costs and enabling low-carbon ammonia opportunities remain key priorities with a strong balance sheet, capital discipline maintained and a clear commitment to our credit rating, Yara is well positioned to deliver sustainable long-term value creation. And with that, I'll hand back to Maria. Maria Gabrielsen: Thank you, Svein Tore. That concludes today's presentation. We will now take a short break to set up and get ready for the Q&A session. [Operator Instructions] With that, we'll see you in a short bit. Thank you. [Break] Maria Gabrielsen: Okay. Welcome back to everyone. We are now ready for the Q&A session. This is Maria speaking. I'm here joined by today's presenters, our CEO, Svein Tore Holsether; and our CFO, Magnus Krogh Ankarstrand, in addition to our Head of Market Intelligence, Dag Tore Mo. [Operator Instructions] Christian Faitz, please unmute yourself and ask your question. Christian Faitz: Two questions, if I may. First of all, can you remind us how you deal with the volatility in gas prices at this point in time? And are you considering hedging at some point? And how are you secured through the rest of the year on the gas side? That's the first question. And then the second question, obviously, yes, thanks for the helpful slides you had in the presentation and in the slide deck. And you did show, obviously, that a large part of the European -- of the Northern Hemisphere is actually covered in terms of fertilizer demand. But if I was a farmer, I would obviously try to optimize costs and maybe also skip one or the other topping during the season. Is that what you see? And could that also be an inventory issue at some point heading into the '27 season? Svein-Tore Holsether: Yes. It's Svein Tore. I can start with the first and then I'll hand over to my colleagues on the second one. When it comes to gas prices, we're not hedging that. And that's been our practice over a very long time period because we see a very strong correlation between global energy prices and nitrogen prices that we have that flexibility to move with the market. And then we've built in additional robustness in our system by also being able to switch between producing ammonia and then I can use Europe as an example, where it's most exposed. So we don't have to produce the ammonia in Europe for about 75% of our finished goods. We can bring ammonia into Europe, and that gives us flexibility to switch if it should not be economical to use gas to produce ammonia in Europe. For the time being, the upgrading margins from gas to ammonia in Europe are also at a level that justifies continued operation, and we're running at full blast. And should that, for some reason, change, well, then we will do like we did back in 2021 and 2022 to bring ammonia in. And that's part of the strength in our business model where we can utilize the global network that we have on ammonia. We're one of, if not the largest ammonia traders in the world, and we have ships that can transport ammonia across the world, and we're utilizing that to maintain finished goods production. And should we have hedged, then we would have lost some of that flexibility. So that's the reason we have that structure in place. And then I'll hand over to Dag Tore or Magnus on the second question. Dag Mo: Yes. When it comes to, let's say, markets like Europe or North America, in some ways, they are kind of well covered when you talk about the import situation and urea in particular, I think I should mention that we are still seeing nitrogen demand. I mean we are delivering both from Belle Plaine and from our production system in Europe now in the second quarter as well. But if you look at -- if you just look at the urea situation, both the U.S. Gulf, which is far away from the application areas in North America at the moment and in Europe, pricing now is such that they do not match, let's say, the India price or the peak pricing elsewhere. So from that perspective, at the current global urea values, there is very low demand, import demand and probably not the need for it either if you look at relative pricing between nitrates and urea, for instance, in Europe. So in that sense, covered on the application, I think that nitrogen application, most areas that are exposed to the global values today will see some demand destruction more or less, you have kind of -- you have China and India covers almost half of global demand for urea, which are not covering -- which are not following the global market and have their own domestic pricing, which is way below. So that leaves kind of half the global market that has to do the demand rationing in a situation where there are significant supply losses. So if we again take Europe as an example, just to give some more details, I think that the industry deliveries in Europe are fairly stable, season over season. And we see that imports according to Eurostat and the numbers from the European Union, so far this season through March, Europe or EU has imported 4.2 million tonnes of urea, which is down from 4.9 million tonnes of urea same period last year, and there's probably been some declines also in other products or there has been some declines in other products, although urea is the dominant one. So I think that just looking at the current supply situation, it's logical to expect, let's say, a short fall of demand or a drop in demand of 5% to 10%, something like that in Europe probably. On your question of inventories, that is something that I kind of concerned us or we have been trying to follow that as well. And what we hear from the field is that from our commercial units is that the farmers are generally using the fertilizer they have bought. So no big carryover risk there into next season, we think, and that distributors and retailers are also back-to-back mostly so that in Europe, and that is normal, there are kind of regularly -- people are quite careful about not having too much inventories. North America, that can be a little bit different because of the longer lead times on the import side that it could end up with a situation where, let's say, imports are a little bit more than what is needed. So I hope that helps. Maria Gabrielsen: The next question is then from Magnus Rasmussen. Magnus Rasmussen: Magnus Rasmussen, SEB. I wanted to touch upon volumes as well. And I wonder if you can give some comments about what you are thinking for Q2. You stated in the presentation that Europe had among the highest season-to-date levels, but also strong volumes in America in Q1. I think Dag Tore touched upon it a bit as well, but some further comments sort of for Yara specifically as well would be helpful. Also a question on price realization in Q2. I mean we see urea prices skyrocketing and nitrate prices not so much and Profercy also reduced their European nitrate prices yesterday. Your sensitivities cover a mix of different products. Is there anything that we should keep in mind and be aware of in terms of price realization into Q2? And also how do you read the low nitrate prices in Europe relative to urea from, call it, demand or market perspective in Europe? Magnus Ankarstrand: Yes. I can maybe start a bit on the volume side. We don't -- as normal, we don't give any future guiding on volumes as such. I think what we can comment, as we also said in our presentation, is that Yara has a global system. And of course, that's also in normal circumstances, obviously, benefit given the difference between season in the Northern Hemisphere and the Southern Hemisphere. And we think that will be even more so the case this year. And of course, beyond that, I mean, our production levels are a question of whether we are -- whether we have sufficient margin to actually produce at different times. And so in a way, looking at market prices and gas prices throughout the quarter, that will kind of explain that situation. But of course, in addition to that, it's important to keep in mind the fact that we also can import ammonia from -- into Europe if gas prices were to go up. But obviously, as everyone can see right now in the current situation, nitrogen prices have increased a lot more than gas prices. So I mean, so that in terms of what we produce and then ultimately sell, that's really what determines that. And of course, where we sell it depends a bit on how markets develop. And I think on maybe the urea nitrate pricing, I can give to you, Dag Tore. Dag Mo: Yes. I think it's, of course, a bit more challenging for you and others to monitor this now that prices are so extremely high because it leads to some more fragmentation and regional differentiation than otherwise. When prices are more normal, then you can use fairly straightforward sensitivities, right, because everything is kind of correlating very strongly. Some of that is now kind of a little bit distorted. Let's say, if you put in spot prices in the Arab Gulf, that is basically the netback from the India tender which they paid kind of $950, say, there are very few regions now in the world that are willing to pay $100 -- $950 for urea, as you can observe, if you observe carefully in the regional prices that the publications quotes, nothing secret about that. You see that U.S. Gulf is discounted. Even Europe is somewhat discounted. Brazil is discounted. So just putting in, let's say, $910, $920 for Arab Gulf, for instance, is giving a little bit exaggerated picture probably. So that is one thing that, of course, we have to be a little bit careful about. When it comes to Europe, of course, I mean, if you were a farmer now that needs urea for March, would you buy it now, question mark. And of course, that is an understandable dynamic. I think that for a while now, maybe the urea import parity is not really the main driver of nitrogen prices in Europe for a period and that we see already as you were hinting at, right? You have 0, say, round numbers, 0 nitrate premiums right now based on the publication references. And it wouldn't be a surprise if you, let's say, with a starting price for next season that you will see a negative nitrate premium versus urea unless urea comes down a bit. So I think that as Svein Tore was saying, I mean, the farmer affordability is so stretched that I think that there will be more regional differentiation based on what farmers need the product right now and what -- and those farmers that can defer the purchasing to closer to their application season. So a bit more challenging, I think, to be very precise on price realization than normal. Maria Gabrielsen: And just to remind everyone as well, the sensitivities are based on high-level easy assumptions, right, 1-month lag and 2 or 3 market prices in volatile markets and with increased regionalization, like you say, it's natural that they will be less precise than in a more stable market environment, yes. Moving to the next question is from John Campbell. John Campbell: It's John from Bank of America. I have 2 quick questions. So maybe if we continue kind of on the NPK and nitrate premium. If I remember properly, I think second quarter '25 had pretty robust reported NPK, I think it was $265 per tonne. I think you've discontinued the practice of actually quoting the specific figure. But presumably, based on what you're kind of saying, gathering the comments you've made on this call, it sounds like that will be down maybe quite steeply into the second quarter. That was my first question. Second question, just very quickly, any comments or assumptions or expectations for resumption of Chinese exports of urea in 2026? I think Bloomberg had a comment saying that it could be something like 3 million tonnes, which should be down year-on-year, but anything you've heard interesting, given, as you say, it's kind of one of the market balancing areas of supply. Dag Mo: Should I take the China question first. Nobody knows, of course. I think there is discussions ongoing in Beijing as we speak. So our understanding, they are debating this right now. The flow started in July last year, so a little bit of time left for that. We also see that there are quite a few market players that have already started to move products to ports. I mean, effectively removing that product from the domestic market already. And that has caused some reactions both from the government and from the nitrogen association. It seems that are a little bit upset about this development ahead of approval. So that there are even some discussions of maybe that -- whether that could lead to some delays in the export approvals. Let's see how that fits. And I also said you referred to those 3 million tonnes. I've also seen those referred. And to me, I haven't seen anything concrete yet nor from our experts in the market. So I tend to believe that must be some kind of speculation. But I also saw 3 million tonnes mentioned. I would think that would be a first tranche then in that case and not necessarily the total volume for the year. But that's what they also did last year, right? They first approved 2 million tonnes and then they added to that quota as they saw that the domestic market did not react to the export volumes. So I don't think you should conclude -- I wouldn't have concluded that those 3 million tonnes, that's it. But be open that this is a really important factor in the market for the rest of the year. Magnus Ankarstrand: And on NPK premiums, and again, of course, we don't give guiding on premiums, exact premium levels as such. But I think it's fair to say that the last couple of years, NPK premiums have been very high and higher than maybe average over a longer time period. But obviously, now with commodity prices increasing as much as they have and nitrogen, as we talked about, but also phosphates with a significant increase in -- due to -- well, same reasons that for nitrogen in the current crisis. It's also natural that, that puts some pressure on the premium that farmers are -- can pay on top of that, of course, also considering the farmer economics. But -- so even though NPK premiums are somewhat down since last quarter and a year ago, it's still holding up quite well, and we'll see how that plays out, which will depend as well on the commodity development in the next quarter. But of course, for Yara, we -- I mean, we, of course, make money both on the premium as well as the operating margin or the commodity margin. And there, of course, on both end, but also particularly phosphate, of course, there's been a significant increase. And I think also worth to mention in our production system, roughly only 1/3 of our NPK production depends on sulfur in the production system. And of course, sulfur is right now being a significant cost driver in phosphate or DAP production and phosphate prices. That's, of course, an advantage that we have on the margin side. Maria Gabrielsen: [Operator Instructions] The next question is from David Symonds. David Symonds: It's David from BNP. I have 3, I think, please. First one, could you talk about your assessment of damage to Middle Eastern nitrogen and LNG facilities so far? How much do you think we've lost longer term? And if the war ends this weekend, let's say, what would be the time lag before we get back to a more normal situation in nitrogen? Second, could you -- this is more just a modeling question. You very generously gave us the 150,000-tonne number for the Belle Plaine turnaround. Is there an estimate of how much you might lose from the India and Australia outages and curtailments that you announced in the second quarter? And then thirdly, what could the policy response to this current crisis be? Is there an increased likelihood of CBAM suspension for fertilizers in the near term? Do you think we might see reopening of plants as we saw Brazil do with Petrobras? Any thoughts on that would be great. Dag Mo: On the Middle East, it's, of course, hard for us to know. We -- what has been announced is that Qatar has had some damage to their natural gas infrastructure that will take quite some years to repair. We don't think that the fertilizer plant is damaged, so that should be able to restart very quickly. There has been some damage in Bahrain and some damage in Saudi Arabia also we hear, a little bit unclear how much and how long it will last. And in Iran, there is quite a lot of damage to the gas infrastructure, and there are only a few of the plants in Iran that has been able to start up. So -- but to your question about how long time this would take to normalize, I think it's hard for us to speculate around that. It certainly takes some time, how much -- yes, it's hard to estimate. Magnus Ankarstrand: I think on your questions on India and Australia, I mean, on the Indian side, the impact to -- I mean, to our results is fairly limited from the current curtailment there. On the Australian part -- sorry, Australian ammonia plant, as I said, we assessed roughly 140,000 tonnes in total. I think we also said in the market that we expect start-up sometime in the first half of May. So then -- I mean, from a -- you can sort of do math on how much that -- because -- I mean, when the plant went down, so how much of that will be in the second quarter versus the first quarter policy? Svein-Tore Holsether: Policies, here. You mentioned CBAM. I think the last thing that Europe should do right now is to create any uncertainty around CBAM because that's in place in order to create a level playing field so that imported volume pays the same emission cost as European players do. And if there's one region that has felt the consequence of dependencies, it's Europe, look at what happened in the energy sector on the energy crisis and what that meant for households and industries that we're still struggling with in Europe right now. So then -- to then weaken such a vital industry as fertilizer and farming would further emphasize the challenges in Europe. So I think what the policymakers should consider here is rather use the CBAM revenue and redirect that towards farmers to not put a burden on the shoulders of the farmers. They don't have the margins to support this, but we need food production in Europe, and we need a healthy fertilizer production system in Europe as well. And if we're -- as a result of this creating an uneven or not a level playing field, that would maybe come at a very short-term relief maybe, but a very high-cost long term because then we would be even more dependent on imports. So it's important to keep the long term in mind here as well. But any uncertainty on CBAM in Europe for the industry right now will have impact on the ability to invest in long-term projects. But of course, as we look globally and with fertilizer being responsible for half of the world's food production, I understand that this is something that is very high on the agenda for politicians all over right now, but it's important that we balance the short-term need with the long-term implications for that interventions could have. But we really do think that CBAM is an important lever and that in combination with ETS, if you are to reach the Paris Agreement to reach the emission targets for Europe, that needs to stay here. And that's also important for the long term of actually growing food because we also have to solve the climate challenge here. And I would say that one of the occupations hardest hit by climate change is actually farming. They work out in nature, and they work, whether it's floods or droughts or record heat or record cold, that's where they have to produce food. So it is in our interest that we deal with the climate challenge as well, but it's not something that we could just put on the shoulders of farmers. Maria Gabrielsen: Let's move to the next question, which is from Tristan Lamotte. Tristan Lamotte: Tristan Lamotte, Deutsche Bank. Two questions, please. The first one is how high is the risk that the CapEx number that you quoted for central blue ammonia projects has to move up given the developments in the world since you first gave those numbers and given that the final agreement is yet to be signed? And the second question is, I'm just wondering if you could talk about any opportunities for permanent market share gains relating to the conflict. Magnus Ankarstrand: Yes. When it comes to the project with Air Products, as we said when we had the announcement, I mean, the time we spend towards midyear to the next phase of that project, including the preparations of the potential FID is sort of around the contracting market and evaluating the technical side the project together with AP. And I think that work is still ongoing, and there's nothing particular that's happened since then that sort of changed anything substantial in that regard. So I mean, it depends on the market, depends on the bids. And so yes, there's nothing new as such there and sort of things are proceeding according to the plan that we had. I think in terms of market share, I would say -- our primary objective also sort of reflected in our improvement program is to increase organically production output for organic growth from our production system, so up to 1 million tonnes of additional premium products through production improvement and debottlenecking. And in addition, we have a few projects coming online now with NPK expansions in Cartagena as well as YaraVita biological plant in the U.K. and so on. So obviously, that will go into increasing our market share as we sell what we produce. But in addition to that, and also as a part of the improvement program, we are looking at optimizing our global system, taking more market share in our most profitable markets. I think -- and as we also communicated there, Europe is one, not the only, but one core market for us, of course. And I think that is also why it is very important for us to keep production running now as we have, take some risk in doing that. But of course, at the current levels so far, we have good production margin on finished products. We also had good operating margin on ammonia. And if gas prices were to go up further, we also have the possibility to import ammonia and keep finished fertilizer production going. So we believe that Yara as such as a quite strong competitive edge also against competition, also in Europe in terms of being a very stable, reliable supplier for the European market and gaining market share. Svein-Tore Holsether: And to add on, you put it very well, Magnus. And as we said at our Capital Markets Day back on January 9th as well, we said that we're a battle-proven organization, and we've been tested again now. And I want to thank all our colleagues for an outstanding performance where finished goods production is at one of the highest levels we've seen. But one thing is to produce, but also to get it out to our customers as well and it's been an outstanding performance on really working hard throughout our whole supply chain in order to get that done. And we've used the robustness and the flexibility that we knew that we had in our business model before the energy crisis and before Russia's war in Ukraine, but the learnings that we had from that, we've also built in even more flexibility in our system, and that's what we're fully utilizing now to maintain production at high levels, but also moving the product. Maria Gabrielsen: [Operator Instructions] With that, we'll move to the next question, which is from Mazahir Mammadli. Mazahir Mammadli: So 2 questions from my side. Sorry, firstly, as we near the planting season in the Southern Hemisphere and if the situation stays the same, how should we think about the market development, whether it's volumes, demand destructions, acreage decisions and also perhaps some relief from amsul substitution in Brazil from Chinese imports? And my second question is, with the free cash flow that you are generating now and perhaps in the next few quarters, what's the plan first, in the scenario where you decide to go ahead with the Air Products project? And second, in the scenario where you decide not to do that, what would be the capital allocation decision there? Dag Mo: On the first, I think it's hard to -- at least for me here in Oslo now - to have a full picture on exactly how the decision-making is going to be on the Southern Hemisphere by the farmers. What we have heard -- it's logical that the topic is on the agenda, right? We hear from Australia, for instance, where -- which has a peak import season for urea now in the second quarter and maybe one of the regions that are hardest hit by the timing of this conflict. There are some talks about reducing wheat acreage, for instance, to go for maybe barley, maybe some canola, find some other crops that are a little bit less nutrient demanding. And I would think that, that would be also a topic in places like Brazil, Argentina. We know South Africa is struggling with high prices and low margins. So exactly -- I think a good -- very good questions, but I think it's hard for us to speculate on exactly how that will play out. But surely, there will be efforts to try to find solutions that would maybe require less nutrients. Magnus Ankarstrand: To the question on cash flow and capital allocation, I mean, for us, it obviously starts with strong capital discipline and as we outlined in January, investing into U.S. projects, as we said, is a core priority for our energy diversification strategy. And then we outlined there as well roughly over the period up to 2030, how much money we sort of -- or much CapEx we plan to spend on that. I think irrespective of sort of FID decision there, I mean, capital discipline will stay strong. Potentially, we would do other projects, pursue other similar type projects for the same objective, but still with the same discipline. And that's really driven by how much we believe that we can take on at one point in time, not only sort of from a balance sheet perspective, but also to make sure we actually deliver a strong return on those projects. And that's kind of the guiding star for that. And of course, if our cash flow was to increase significantly in the period as well, I mean, that doesn't change our plans on the investment side materially necessarily as such. But of course, then we would look at the levers that we have at hand. And of course, as we've said, additional distribution is also something that we would always consider, right, in such a scenario. And I think also on that note, of course, also important to mention that with the current market volatility that we see, we also, of course, need to keep in mind that there could be changes in the market as well. And I think particularly with what we see now, of course, maintaining a very strong balance sheet is extremely important for our flexibility, both to navigate the market, but also to sort of make shareholder-friendly decisions. But sort of regardless, of course, our capital discipline remains even though our cash flow would increase. But that said, we are sticking to our capital allocation policy, our dividend policy, and we will, as a part of that, always consider additional distributions. Maria Gabrielsen: The next question is then from Angelina Glazova. Angelina Glazova: Angelina Glazova from JPMorgan. I just have one question left actually, and that's on the U.S. blue ammonia project. I am wondering how you think about the time line for mid-2026 FID that you provided us with. Do you view it as a hard deadline? Or do you think that this is a goalpost that can be moved potentially? And the reason I'm asking is that we had quite a detailed discussion on policy earlier on the conference call. And it is a possibility that we might not get final certainty on CBAM regulation in Europe by mid-2026. And I'm wondering, in this case, how would you approach the decision? Would you still make the decision in conditions of uncertainty? Or would you rather wait until we get this final certainty on regulation? Magnus Ankarstrand: Yes. Thank you for the question. I think when it comes to certainty around political decisions, whether it's CBAM or tax rates for that matter, you never get that right. They never get 100% certainty. So I think we, as such, are -- always have to make decisions knowing that there is that level of uncertainty. Everything that's politically decided could, of course, be undecided. That being said, I think sort of the tendency that we see on CBAM now as well, also politically and the signals that are public out there is that the appetite for changing it seems to meet with resistance in many places and importantly, among those European parliament as an example. That being said, when we do a project like this, obviously, we don't base that solely on subsidies or sort of political incentives like that, right? As we've said many times before, basically 3 main objectives. It's lower gas prices, it's increased scale and with that comes lower fixed cost and CapEx per tonne. And then it's tapping into carbon -- sort of carbon margin as well. So all 3 are important and play a role in the business case. Obviously, if you take one away, then the business case is less strong. But I mean, still, for us as a big ammonia producer, the 2 first ones are very important. When it comes to the time line, I think that is our plan, and we work by the plan. But I mean, what's important both for us and for Air Products is to make the right decision. So I mean, if there's outstanding technical matters or any other good reason that it makes more sense to wait a little bit, that's, of course, what we do. I mean there's nothing forcing our hand to make a decision on a certain date. I mean we will make the right decision for both companies, and that is one that is value-creating for all our shareholders. Maria Gabrielsen: Thank you. We only have one more question so far. So if anyone else has a burning question, they should raise their hand now. First, Bengt Jonassen, the line is yours. Bengt Jonassen: Bengt Jonassen, ABG. Just one follow-up question on the comment on the Industrial segment. I think you stated in the webcast that there were some curtailments or permanent curtailments of some capacity in the industrials. Could you confirm that? And how much of the capacity was curtailed? Magnus Ankarstrand: So yes, so it's -- on the volume side, we have made -- we announced last year a few closures of segments in Brazil for the industrial side. In addition to that, we had some smaller production issues as well in Cubatao this quarter that also impacted on the volumes. So it was a bit remiss not mentioning that in the presentation as well. Maria Gabrielsen: It's the hibernation of the sulfuric acid plant in Paulinia which we've mentioned last year, if you remember. Smaller plants as such or a smaller volume impact. Okay. There are no further questions, it seems like. So that means that we will end the Q&A session now. Should you have any need for follow-ups, the IR team remains at your disposal. But with that, thank you for joining, and we wish you a pleasant day. Thank you.
Operator: Good morning, everyone, and welcome to the Q1 2026 USCB Financial Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Luis de la Aguilera, Chairman, President and CEO. Sir, please go ahead. Luis de la Aguilera: Good morning, and thank you for joining us for the USCB Financial Holdings First Quarter 2026 Earnings Call. I'm Luis de la Aguilera, Chairman, President and CEO of USCB Financial Holdings. Joining me today are Rob Anderson, our Chief Financial Officer; and Bill Turner, our Chief Credit Officer. Rob will walk you through our financial results in detail, and Bill will review credit quality and portfolio trends. We are very pleased to report on another record quarter, highlighted by strong core earnings, disciplined balance sheet execution and our continued focus on maintaining strong credit quality. . For the quarter ending March 31, 2026, the company generated net income of $9.4 million or $0.51 per diluted share on a GAAP basis. On an operating or adjusted basis, diluted EPS was $0.47, operating ROAA was 1.25%, ROAE was 15.92% and an efficiency ratio of 52.36%. These results reflect consistent execution of our long-term business model focused on disciplined growth, prudent risk management and sustainable profitability. At a high level, total assets reached $2.8 billion, up 6.3% year-over-year. Loans increased 10.1% year-over-year from $2.2 billion driven by continued strong diversified production. Deposits grew 8% year-over-year to $2.5 billion, supported by specialized business verticals as well as well-diversified deposit base. Our deposit-focused business verticals, namely Association Banking, our Private Client Group and correspondent banking have delivered -- have steadily grown 30% of deposits or $747 million as of March 31, 2026, a $62 million quarter-over-quarter increase. Net interest margin expanded to 3.27%, up from 3.1% the prior year, reflecting effective asset deployment and improving funding costs. Importantly, this growth has not come at the expense of credit quality. Nonperforming loans remain exceptionally low at 0.16% of total loans, and net charge-offs were effectively 0 for the quarter. Our first quarter's performance demonstrates the benefits of actions we have taken over the past several quarters to enhance earning power and balance sheet resilience. Loan production was strong during the quarter with $188 million in gross loan production over half of which occurred in March, positioning us for continued momentum into the second quarter. While the timing of production limited full quarter earnings contribution, the pipeline supports future net interest income expansion. On the funding side, we continue to see the benefits of our specialized deposit franchises. Average deposits increased by nearly $212 million year-over-year while deposit costs declined to 2.2%, improving by 29 basis points from the first quarter of last year. Capital remains a key strength for the company. During April, our Board declared a quarterly cash dividend of $0.125 per share, reflecting confidence in our earnings durability and capital generation. Tangible book value per share increased to $12.23 and 8.9% year-over-year increase even after absorbing the market-related AOCI impacts. Overall, this was a balanced quarter with strong earnings, solid growth, stable margins and strong credit quality, all while maintaining conservative capital levels. The following page is self-explanatory, directionally highlighting 9 select historical trends since recapitalization. Consistent, efficient, profitable performance based on conservative risk management is what a team focuses on consistently delivering. Noting this overview, I'll now turn over the call to Rob to review our financial results in greater detail. Robert Anderson: Okay. Thank you, Luis, and good morning, everyone. Looking at Pages 5 and 6, I would describe the first quarter of 2026 as a highly successful quarter for USCB. The team posted very solid results, which I'm proud to share with you today. The balance sheet, specifically the loan book continues to grow within our stated range of high single to low double-digit growth. Deposits increased this quarter, outpacing loan growth and ensuring sufficient liquidity for future lending. Credit remains solid, and our profitability ratios came in line with internal projections. While we made $0.51 on a GAAP basis, the company recognized a $619,000 income tax benefit in the quarter due to an adjustment of the deferred tax asset relating to 2025. Adjusting our GAAP figures for this 1 item, you'll find the operating or adjusted numbers on Page 6. This includes operating return on average assets of 1.25%, operating return on average equity of 15.92%, efficiency ratio of 52.36%, operating diluted earnings per share of $0.47, NPA to assets of 0.13%, allowance for credit losses stable at 1.16%, total risk-based capital at 14.09% and last tangible book value per share at $12.23. So with that overview, let's discuss deposits on the next page. Average deposits for the quarter totaled approximately $2.4 billion, representing an increase of $212 million year-over-year. On a linked-quarter basis, average deposits declined by $26 million, and that sequential movement requires some context. Late in the fourth quarter, a large commercial plant drew approximately $130 million, which reduced our average balance deposit entering the first quarter. Importantly, this was anticipated and managed outflow. And at the end of the period chart demonstrates, we have since recovered from that decline. On an end-of-period basis, total deposits increased by $149 million during the quarter, highlighting both the resilience of our franchise and our ability to respond quickly to a large discrete plant movements. Equally important is the deposit -- total deposit costs declined 8 basis points quarter-over-quarter to 2.2%, which played a meaningful role in allowing us to keep the net interest margin stable. With ongoing rate volatility, we anticipate deposit costs will stay near current levels, although some competitors are offering higher rates, a relationship-driven deposit base should ensure stable pricing and funding. So with that, let's move on to the loan book. On an average basis, loans increased $46.8 million quarter-over-quarter, which equates to an 8.9% annualized growth rate. Year-over-year, average loans grew 9.6% and well within management's expectations. Net loan growth at the end of the period was $52 million, showing strong production momentum and 2 key dynamics stood out on this. First, A significant portion of our loan production occurred late in the quarter and second loan payoffs occurred early in the quarter. This timing is visible on the chart and translates to a lower earnings impact in the quarter. More specifically on Page 9, gross loan production totaled $188 million during the quarter with $114 million or 60% closing in March. Additionally, [indiscernible] rates were lower for most of the quarter, further influencing loan yield metrics. Correspondent banking loans represented 30% of quarterly production and carried a new loan yield of 5.13%. Excluding this segment, the weighted average yield on the new loan production was 6.2% for the quarter. It's important to remember that these correspondent loans are short term in nature, typically 180 days tied to SOFR and serve a strategic purpose by adding asset sensitivity and optionality to the balance sheet. Additionally, these banks have over $250 million in low-cost deposits with significant wire volume, a very profitable business vertical for USCB. Looking ahead, we expect new loan production yields to remain around these levels. Turning to Page 10. Net interest margin was flat at 3.27% for the quarter. Despite successfully lowering deposit costs, overall margin was impacted by lower-than-expected loan interest income, largely driven by timing and volatility rather than structural pressure. Specifically, interest income was constrained as mentioned before by a combination of factors. Loan closings that occurred late in the quarter, elevated payoffs early in the period and lower SOFA rates throughout much of the quarter. These pressures were partially offset by improvements in deposit pricing and higher yields in the securities portfolio, which helps stabilize our margin. Importantly, we have now expanded the NIM quarter after quarter and the underlying trajectory remains intact. As recently originated loans seasoned into earnings, we expect incremental improvement in interest income, which should support a very modest margin expansion later this year. That said, ongoing rate volatility may limit the degree to which deposit costs can move materially lower from here, and our focus remains on disciplined pricing, balance sheet mix and execution, all aimed at protecting the margin while positioning the franchise for improved profitability. So with that, let me pass it over to Bill to discuss asset quality. William Turner: Thank you, Rob, and good morning, everyone. As you can see from Page 11, the first perhaps shows the allowance for credit losses increased to $26.1 million at the end of the first quarter and at an adequate 1.16 in the loan portfolio. We made a $602,000 loan provision to the allowance that was driven mostly by the $52 million in net loan growth. There were no loan losses during the quarter. The remaining graphs on Page 11 shows the nonperforming loans in the quarter and grew by 6 basis points or almost $500,000. The nonperforming ratio stands at 0.16% of the portfolio, and these loans are well covered by the allowance and compare favorably to peer banks at year-end 2025. The increase was related to 2 pass-through residential real estate loans that are in the process of collection. All nonperforming loans are well lateralized and no loss is expected. Classified loans also increased during the quarter to $6.8 million or 0.3% of the portfolio and represent 2.2% of capital. The increase is related to the 2 nonperforming residential loans previously mentioned. No losses are expected from the classified loan pool. The bank continues to have no other real estate. Overall, the quality of the loan portfolio is good. Now let me turn it back over to Rob. Robert Anderson: Thank you, Bill. Total noninterest income for Q1 was $4.2 million, up from the previous quarter and accounting for 15.8% of total revenue. Service fee income reached $3.1 million, mainly driven by record swap fees of $1.6 million amidst strong loan activity and strong sales execution with rate volatility in the quarter. While fee performance was exceptional this quarter, we expect swap-related fees to normalize in Q2 as market conditions stabilize. Overall, noninterest income performance in the quarter highlights the diversification of our revenue streams and the value of our fee-based capabilities. Let's take a look at our expenses. Our total expenses amounted to $13.7 million, which is $564,000 less than the previous quarter, predominantly due to various onetime items in Q4 of last year. The efficiency ratio stood at 52.4% for the quarter, which is consistent with prior periods. Additionally, head count increase this quarter and more hires are planned for Q2. You should expect expenses to increase, but at a measured pace, and the efficiency ratio should remain in the low 50% range. In a minute, Luis will speak about some specific strategies that will tie this together. So with that, let's move on to capital. Capital ratios remain robust and continue to strengthen. Total risk-based capital currently stands at 14.09%. The dividend remains at $0.125 and our projected earnings and capital generation profile, we anticipate further improvement in capital ratios over the coming quarters. So with that, let me turn it back to Luis for some closing comments. Luis de la Aguilera: Thank you, Rob. Before we conclude, I would like to briefly expand on how our operating model is translating into tangible growth opportunities across South Florida, particularly in Miami Dade, Broward and Palm Beach counties. In March of this year, we launched a new lending team located in our recently remodeled Doral headquartered or banking center. This new production unit will focus on developing one of Miami-Dade's densest small business high-growth areas, the Airport West market, encompassing the adjacent cities of Doral, Hile and Medley. . U.S. Century Bank has banking centers in each of these markets, and this new lending team will partner with each respective branch to leverage business development opportunities, led by a proven senior lender as team leader, along with 2 business development officers and supported by portfolio manager and lending assistant, existing staff has been reassigned to largely field this team. To round off this new production unit, a new senior C&I lender has been hired. And in fact, this new team will have a total of 2 new production hires as the rest is composed from current team members. Another production unit, which is expanding is our association banking team, which was launched as a business vertical focus on the deposit rise condominium market. This unit has grown to serve over 470 condominium associations in the Tri-County market, of which 136 are in the Broward Palm Beach markets. At quarter end 2026, this business unit totaled $160 million in deposits, posting a 29% year-over-year deposit growth rate. The association banking team also closed Q1 2026 with $126 million in loans, reflecting an 11.5% annual growth rate. Led by an experienced Senior Vice President of the Association Banking unit, has hired a new production officer who will focus on developing Palm Beach and the Treasure Coast from Port St. Lucie North to Vero Beach. The Tri-County Miami-Dade MSA, reports approximately 13,000 condominium associations housing over 600,000 condo units be noting a clear opportunity for growth. Since 2015, U.S. Century Bank has tactically adopted a branch-light technology-enabled model, consolidating our physical footprint from 18 locations to 10, while more than tripling the size of our balance sheet. This approach has allowed us to scale efficiently, deploy capital productively and service clients through relationship-driven high-touch model without the overhead associated with additional large branch network. Our investments in digital capabilities and centralized operations enable our bankers to focus on what matters most, local market knowledge, speed of execution and client service. The results in Broward and Palm Beach County provide compelling proof of concept. As of March 31, 2026, the bank serves over 2,100 clients across these 2 counties, with approximately $445 million in loans and $415 million in deposits despite operating only 1 physical branch location between them. In Broward County alone, we have built a base of 1,850 customers supported by $234 million in loans, $259 million in deposits, while Palm Beach County has grown to 253 customers, $122 million in loans and $156 million in deposits. Importantly, this growth has been driven primarily through referral activity, direct calling efforts and our specialized verticals rather than reliance on a legacy branch traffic. These metrics reinforce our belief that there is substantial unmet demand by commercially focused relationship-driven bank led by local decision makers who understand the market. As a result, we believe the time is right to thoughtfully extend our physical presence by opening 2 to 4 strategically located branches in Broward and Palm Beach counties over the next 3 years. These locations will be designed to complement, not duplicate our existing branch-light strategy and will be staffed by proven local talent with deep market relationships, allowing us to further capture market share, deepen client penetration and accelerate organic growth while maintaining strict discipline around returns and expense efficiency. We view this next phase of expansion, not as a departure from our model, but as a natural evolution, deploying physical offices where the data already demonstrates scale, profitability and long-term opportunity. The 3 strategies I have just outlined aligned well with USCB's relationship-driven business model, growth in professional firms, closely help businesses and income-producing real estate continues to generate high-quality loans and deposit opportunities. Our specialized verticals and conservative underwriting allow us to participate in this growth while maintaining excellent credit quality. Simply put, Florida's strength maintains a powerful headwind for USCB while we believe the state's long-term fundamentals continue to support sustainable growth opportunity for our franchise. With that said, Operator, we are now ready to open the line for Q&A. Operator: [Operator Instructions] Our first question today comes from Will Jones from KBW. William Jones: Rob, I wanted to start firstly on the margin this quarter. It felt like just with some of the loan dynamics with the payoffs early and the growth late that we didn't really get to see or realize fully optimized margins just from the bond structure that you guys did and some of the liquidity deployment that you guys had planned. Is there a way to look at like what a March NIM would have looked like just as we think about a good starting point for the margin going forward? Robert Anderson: Yes. On the margin, I mean, our net interest income was down slightly. I mean you had the day count in there, of course. But also, we had elevated payoffs real early in the quarter. We had some properties -- clients that sold some properties that left and then over -- around 60% of our loan production occurred in March. The March margin was right around 3.28%. So it's been pretty steady for the 3 months. I would anticipate all the additional earning assets that came in mainly in the last 2 weeks of March to help fuel the net interest income for the second quarter. We have a very strong pipeline right now, probably one of the strongest we've seen April activity was strong on the loan side as well. So I would anticipate flat to slightly higher margin given what we're doing on the deposits, and we don't have to pay up for deposits either. So I would model flat to slightly up near term. William Jones: Yes. Do you have that -- just the new incremental deposits this quarter, just what that's costing and kind of what the competitive dynamics are looking like today? Robert Anderson: Yes. So we grew about $149 million in the quarter, and it was very broad-based. Luis mentioned about $62 million of that came from our specialty verticals, meaning the Private Client Group, correspondent banking and our homeowners association, which you know we've been emphasizing and we'll continue to put a lot of resources behind. The balance of it came across the board. And in the meantime, we decreased the cost of the entire deposit book by 8 basis points in the quarter. So it's not like we are paying up for that funding. Our DDA has been strong in the early parts of April. So we feel pretty confident about maintaining kind of our deposit costs in or around the current levels. And I could tell you the specialty verticals have a much lower deposit cost than overall. For instance, our Private Client Group deposit cost in that book, which is about little over 2%, correspondent banking is probably around 1.65% and our HOA loans are probably around a similar amount. William Jones: Yes. All right. That's great. This is very helpful color. And then I guess just kind of a little on some of your final thoughts there. I feel like the next call it, 2, 3, 4 or 5 years is going to be a pretty transformational period for you guys just in terms of what you want to do with the growth of the franchise. And I guess within that comes a little bit of upfront investment, as you guys talked about, but it still feels like you're going to carry some pretty solid revenue momentum just from that group. So what is the right way to think about operating leverage as we look out maybe over this year and next, and then maybe curtail that on just some near-term profitability goals that you guys might have? Robert Anderson: Yes. It's a good question, Will, and we've been modeling that out. But we do have a really strong 3-year strategic plan. It does involve some investments, mainly moving up to Broward and Palm Beach in addition to investing heavily in Miami-Dade. I think the word that I would use will be measured. We're clocking a 1.25% ROA, 16% on equity. I do not see those materially moving down. Of course, asset quality has been our cornerstone, but we will be making investments. I think you can expect the expenses to tick up, but we're still growing the balance sheet at a double-digit pace and compounding our equity around 16%. So that should translate into good earnings. And returns for our shareholders that are well within kind of what I'd say is our current performance. Luis de la Aguilera: And we'll add to that -- this is Luis. To add to that, the fact that we've built out in Broward and Palm Beach, the portfolios we have in loans and deposits over $445 million in loans, over $415 million in deposits. That is as large as some smaller banks that are up there that have multiple branches. So we already have the demand. It's clear that proof of concept, over 2,100 customers. And we feel that strategically opening banking centers, we can not only service those customers more readily, but also attract new ones. As you know, over the last decade, there's been a lot of M&A activity in Broward and Palm Beach, and there's, I think, a wide open opportunity for us. William Jones: Yes. Well, it's certainly a fun growth story to cover. So I look forward to seeing what you guys do over the next few years. Operator: Our next question comes from Michael Rose from Raymond James. Michael Rose: Just wanted to follow up on kind of some of the deposit commentary. And I know that was kind of your #1 priority coming into the year. You guys really executed both on the interest-bearing front, but especially on the NIB front, mix remained relatively stable. Just as we think about some of the efforts to ramp up our continued loan growth at kind of higher levels, and I think Luis, you did a really good job kind of outlining some of the priorities and strategies as we move forward. And I know you described some of the deposit aspects as well. But should we anticipate any change in that mix? And then maybe just from a shorter-term perspective, Rob, I mean, what are you assuming in terms of rate cuts, if any, it seems like the forward curve doesn't have any in there, just the ability to kind of put a cap on deposit costs for some of the growth in some of the specialty verticals. I know a lot in there, but just trying to kind of frame up the deposit conversation. Robert Anderson: Yes. So maybe I'll start. I would say early in the quarter, February time frame, I mean, it seemed like rates were starting to move down and then March it and rates start moving back up. We're not anticipating rate cuts near term, but there's still, I think, one in the forward in the forward curve going forward. As a reminder, we still profile liability-sensitive just slightly, which I think would benefit us, and we've been able to outperform our modeling. So I think if we do get the rate cuts that will be beneficial to the margin. We have put a lot of emphasis on our deposit book because we feel that's where we add franchise values having small, granular low-cost deposits across the board. So we've made investments in our private client group, in our HOA space, in our correspondent banking, and of course, in our business banking and just how we price and go after deposits across the board, we're talking to the sales team constantly, whether it's in pipeline meetings or monthly leadership meetings, that is a heavy focus for us. But I think you can continue to see both the loans and deposits growing at double digits. We've given that guidance before. This quarter was a little outsized on the deposit side, but we needed that given what we had at year-end. But I don't think the deposit cost is going to move materially next quarter unless we have a rate cut, which isn't anticipated at this time. So I would stop with that color unless Luis wants to add anything else to it. Michael Rose: Okay. Perfect. I appreciate it. And then just -- I think I heard Rob earlier that you expect swap fees to normalize, not surprised there. I think you kind of previously thought and the service charges were up this quarter, which was nice to see. I think previously, you talked about a $4 million to $4.5 million a quarter kind of run rate for fee income. I know it's a smaller piece relative to spreading time for sure, but any updated thoughts there as we kind of move forward and you kind of grow out on the deposit side? Robert Anderson: Yes. On the noninterest -- on the fee side, swaps were the outstanding item in the quarter. I think the sales team really knows how to work with their customers, position that as a product where they can choose either a fixed rate or swap, and that was elevated in February. We had a fair amount that locked in at a little bit tighter spreads. March came in a little tighter, but February was a good month. I think you'll see the swap number come back down to maybe $700,000 a quarter, and that would put maybe total fees all else being equal, right around maybe 3.7% somewhere around there for the quarter. But certainly, 4.1% was a nice quarter for us and a standout and the team did a great job. Michael Rose: Okay. Great. And then maybe just one final one for me. Obviously, you guys continue to have really strong capital levels. They bumped up higher this quarter despite pretty strong balance sheet growth. Any sort of thoughts around normalized capital levels as you kind of execute upon these growth plans? And maybe what that could translate to from either a ROCE or an ROA perspective just over the next kind of the intermediate to longer term as we think about the story playing out with all the growth initiatives that you talked about earlier? Robert Anderson: Yes. This year, we increased our dividend to $0.125 a quarter. I think that will remain at that level for a current time. Our capital was really supporting our growth. But when we're compounding our capital at 16%, 17%, which I think is a great return for a bank our size, we're going to build capital. We're growing our earnings faster than our balance sheet. So that should continue to grow our capital levels. And I think our capital levels are good from where they are, but we'll continue to deploy them at a profitable pace as well. So we may rethink the dividend, but I would say that's pretty safe at the current levels for the balance of the year. Operator: Our next question comes from Feddie Strickland from Hovde. Feddie Strickland: It sounds like there's maybe still a little bit of room for the margin to grow from here, maybe on the yield side. And it looks like the weighted average yield on new production, I think, was around [ 620 ] is what you had in the deck. What's the pickup you're seeing there versus what you're seeing the loans rolling off, particularly maybe fixed-rate CRE coming up for repricing? Robert Anderson: Yes, it's a good question. I mean, I think our production, I mentioned this, the pipeline is really strong right now. It's probably one of the strongest that we've had in a long time, and it's more balanced earlier in the quarter. Outside of the correspondent piece, which was a little bit lower this past quarter, the yields were around $6.20. I think today, they're hovering right around that for a really solid gold-plated CRE type properties. But I would anticipate that we would be right around the same level. I don't see that moving significantly higher or significantly lower on the loan yield. We haven't changed our pricing significantly and our pipeline is really strong at those levels. So we tend to want to keep the sales team fix with volume and pricing that is in the market today where we don't have to go chase up. And I think given where we are in terms of our growth and what we're putting on, we don't have to go out and chase a lot of lower-yielding assets. So I would say at or near the current levels would be good for modeling, Feddie. Feddie Strickland: And Rob, just what I was trying to get out of it, do you have anything that's coming off at lower rates that's being replaced with that $6.20 or so. That's what I'm curious about. Robert Anderson: Yes, we do. We have some stuff that we are originating and that were still at lower rates that will be moving off. I think we had a payoff the other day, I think it was at $4.85. That was probably maybe $7 million to $10 million loan that came off. But we do -- I don't have the exact number that's rolling off. But we would anticipate we had over $50 million of net loan growth. I think that's a good model -- a number to model for the coming quarter as well, given our pipeline is similar to what we had maybe a little bit more elevated. . Feddie Strickland: Appreciate that. That's helpful. And then on the correspondent banking side, obviously, super strong growth there this quarter. Was that expected or seasonal? Or was any of that driven by some of the geopolitical turmoil we've seen lately, maybe you have some customers coming more there? Or is that not really a direct impact? Luis de la Aguilera: No, that was planned, Feddie. We want to grow that book responsibly. Our focus is the Caribbean Basin in Central America. To that effect, we have onboarded 3 new banks in this quarter, and we are looking at an additional 5. Our team just visited with one -- with our lead director Central America, we do kind of quarterly visits. And just like a domestic customer, they're eager for customer service execution, and I think that we're poised to do that. And again, on the loans, keep in mind that the term of these loans are 180 days and the business is really relationship-driven because the loans, not all the banks borrow but all of them have deposits and they're low-cost deposits, and we do a tremendous amount of wire activity. So for us, it's a very good business, and it gives us diversity on the loan side, cheap funding, and these are very established banks. We look very carefully at country risk. And the banks, by and large, are very well capitalized and very, very established. Feddie Strickland: Great color. And just one last quick one here, Rob. I know you guys had a onetime tax item this quarter. What should we expect as a good kind of normalized tax rate going forward? Robert Anderson: Yes. For modeling, I'd use about 26.4%. I think that's a good rate to use going forward. . Operator: [Operator Instructions] Our next question comes from Howard angles from Prem Capital. [Operator Instructions] And it's showing no additional questions at this time. I'd like to turn the floor back over to the management group for any closing comments. Luis de la Aguilera: Thank you. In closing, the first quarter was an excellent start to 2026, effectively a strong kickoff to our 3-year strategic plan. We delivered record earnings continue to grow the balances prudently maintaining strong margins and preserve the outstanding credit quality while returning capital to shareholders. Our franchise remains well positioned in one of the most attractive banking markets in the country, supported by a differentiated business model, specialized vertical and a proven management team. We appreciate the continued confidence and support of our shareholders, clients and employees and look forward in speaking with you in the next quarter. So I wish you all a great day, and thank you for your continued confidence in U.S. Century Bank. Operator: And with that, we'll be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Ben Jenkins: Good morning, everyone. Thank you for joining us. There's obviously a lot to get through in the announcements today. So alongside the presentation, the Aura-Qoria team is going to be in the ground in Australia next week, meeting with as many of you as possible. In terms of the call today we have Peter, Tim, Ben and Crispin joining from Qoria alongside Brian from Aura. Everyone's going to be available with the line of Q&A at the end of this call. Hari is unfortunately, already in transit to Australia. But we do have some comments from him played shortly. So with that, Peter, I'll pass over to you to make a start. Peter Pawlowitsch: Thanks, Ben. And good morning, and thank you all for joining us. So today, we announced some changes to our merger arrangements with Aura. These changes reflected deliberate set of decisions by our respective boards to ensure that the combined group AXQ is positioned for long-term success in a rapidly evolving global technology landscape. We've announced that Aura secured binding commitments for an increased equity placement of USD 100 million. That's a significant increase from the original USD 75 million. And importantly, it's fully supported by existing Aura shareholders, demonstrating their confidence and strong conviction to the mission. Also it ensures that we have a strong balance sheet for the group on when the merger completes with only a modest dilution. We also announced today a new organizational structure, one designed to get the best out of the capabilities of the group, combining U.S.-based technology and growth leadership with Qoria's global market presence, regulatory expertise and customer footprint. Hari, Sujay and Brian have all agreed to continue in their current roles as CEO, Chairman and CFO, respectively, of Aura. And the group has been secured by the continued service of Tim to drive our ambition to be the global trusted name in online safety and Ben to support Brian as Australia's CFO. The Qoria Board is delighted to announce today's changes and continues to unanimously recommend the transaction. They ensure that Aura enters the ASX as a well-capitalized global platform, has the ability to execute through integration and invest in growth and is unconstrained in this area of significant technological change. We believe this structure, both capital and ownership gives shareholders the best opportunity to participate in the long-term value creation. Regretfully, Hari is currently on a plane coming to Australia to meet with investors. We wish he could have joined us on this call and has recorded a few comments. Tim, can you please roll the play? Timothy Levy: Sure. Hari Ravichandran: Hello, everyone. I'm really disappointed. I cannot be on this call live as I'm on my way to Australia to meet our investors and the Qoria team. I'm extremely excited and looking forward to meeting with the investors and engaging with all of you over the course of next week. What we are building here is something very significant. This is a global platform for digital safety and security at a time when the problem set is accelerating, it's not slowing down. The change announced today will reflect a very thoughtful and conscious decision to prioritize strength. The markets have moved, everyone in global SaaS knows that. We want to position Aura to win with both capital and capability. Sujay and I are excited to get behind the merger and commit a further $25 million to its success on top of our previous investments. The leadership structure here also reflects our commitment with me and Sujay continuing. My role here is to bring the businesses together and ensure that we hit our numbers and to drive global innovation, replatforming and growth. I'm also really looking forward to continuing my work with Tim Levy, who will support me at Aura through a leading Aura Alpha. Aura Alpha is a critical part of our strategy. This is how we will build new growth vectors across partnerships, markets and corporate development. This is not a site initiative. It focuses Tim on his unique vision, his global relationships and his skill set. And this is how we'll ensure that we stay ahead of the market as it evolves. We now have the platform, the leadership and the capital to build a global category leader. Again, I'm very sorry I'm not live on this call. However, I'm sure I'll get some baseline with many of you next week. With that, I'd like to now hand it over to Tim, Brian and Ben to deliver our results. Thank you all. Timothy Levy: Thanks, Hari. Thanks, Peter. That's great. So what I'll do now is I'll do a highlights of the Qoria, Aura and the group, and then I'll hand over to Brian DeCenzo who's going to run through Aura's results, which are fairly impressive. And then we'll cover off our typical Qoria results operational update with Crispin and Ben and then a brief Q&A at the end. So I guess if I was to summarize this slide, which is becoming increasingly complex. The overall thematic here is that the Qoria business, if you look through FX movements for the falling U.S. dollar and the transactional costs that we've been spending is actually performing extremely strongly. In the March quarter, it was probably a surprise to all of us. I think we outperformed analysts' expectations in terms of ARR added and net ARR growth at 49% improvement on what we did in the equivalent period last year, so that was pretty remarkable and not just in K-12. And one real highlight actually, which I do want to call out now is the K12 business in the U.K. that's been battling some headwinds for a while, particularly around funding and the lack of product. Now both of those things seem to be solving themselves. And so we had over a 60% PCP improvement in the performance of the U.K. operation in the March quarter. So it was tremendous. But really the But really the standout clearly continued to be still Qustodio's $2.7 million of ARR, which is more than double what they did in the equivalent period last year. So Victoria and the team are doing an outstanding job there with very modest increases in investments. On a constant currency basis, we ended at -- we would have ended at $169 million of recurring revenue, which would have been beyond everybody's expectations, I feel. But of course, we were buffeted by FX. The FX in our -- when we started the year was $0.64, that is $0.72 now. Now turning to Aura, if I can speak just briefly for Brian. Let me speak with admiration, added $26 million of recurring revenue in the quarter, 40% up versus the prior period with less marketing spend, improved AOV, improved CAC. It's an astonishing result. Just to remind everybody, when we started talking to Aura, I think they had $180 million or thereabout of recurring revenue. This is in October, November last year, ended the year with $216 million and now at $241 million. That's astonishing. And the businesses in combination now have $345 million in ARR. And if you extrapolate the March result, you get to a very big number. And remember, for those people that know Qoria well, the June quarter is our biggest period of growth. Last June, we added $14 million recurring revenue, around $10 million we added in the June quarter. If we replicate that, then a very big number will appear on the right-hand side of the screen in July. So all of those numbers are really, really strong. The unit economics of Aura in particular, I would like you to note because they're the things that give us the confidence as to why this deal is the right thing for our shareholders to do. So that being said, I might hand over to Brian. Brian DeCenzo: Yes. Thanks, Tim. So as Tim alluded to, very pleased to report that the performance that we had indicated through February on the call that we had about a month ago at this point, continued through the end of March. So GAAP revenue or statutory revenue was $59 million for the quarter with ARR ending at $241.5 million. That represents 31% up year-over-year for both metrics. Again, sort of reiterating some of the themes that we talked about at that March session, a lot of this has to do with strong unit economics in our D2C business, not only the CAC that Tim talked about, but really being able to mitigate the burn on account of the sales within our D2C business and then the deliberate upsell motions that we were able to employ to drive incremental AOV. Adjusted EBITDA for the quarter was negative AUD 14.3 million. So that was an improvement of AUD 1.1 million year-over-year. And while that is an improvement over last year, we would note that it does not reflect the full run rate impact of the cost actions that we executed in February, which we discussed on that call about a month ago or any additional planned cost savings, including the performance marketing spend pullback that we've indicated to the market we will do in the back half of the year. So just to summarize, I think these results reflect our ability to achieve the targets that we've set out and very much as we think about the performance in the first quarter and as we roll forward in the year, aligned with the prior communication that on a combined basis, we will be free cash flow positive from the time of closing through the end of 2026. On the next slide, if you turn there -- thank you. So as Tim noted, what we wanted to highlight here was when we first spoke with the market in February around this transaction, we indicated a commitment, again, free cash flow positive on a combined basis from the time of closing through the end of the year. And one of the ways that we would get there was through improved efficiency in our performance marketing spend. And so what we want to highlight here is we were able to both bring CAC down and then on account of the reduction in CAC and that improved AOV that I referred to on the prior page, we were able to see a very dramatic improvement, not only in CAC, but also in the overall burn rate through the first quarter at that $5 million number. If you flip to the next 2 pages, Tim, I also wanted to provide the market just a roll forward of the metrics that we've shared in prior sessions, so people can get a sense of how everything is trending. Obviously, as we talked about, we'll be in front of investors over the coming days and happy to answer any further questions. So with that, I'll turn it back to Tim. Timothy Levy: Thanks, Brian. So yes, I'll quickly skip through the quarter highlights. Obviously, I'm sure there are going to be a lot of questions and thorough side of things is probably less interesting, but I'll go through them. At the end of the year, actually, it should be 31 million children now. So we've added a further 1 million students since we last reported 10 million parents. All of the kind of operational metrics within Qoria are performing really well. Growth within the regions, U.S. is growing north of 26%. We expect to improve that through June. Qustodio is a standout, 30%. I think we're talking at the beginning of the year, 30% growth, and that's comfortably doing that. EMEA is the U.K. and now operation in Spain called Qoria Spain that's starting to target international schools globally and now recently in the Middle East. It's subdued at 6%, but you'll see that really picking up, particularly as we're launching this Qoria Connect product, the unified Qoria K12 platform is literally rolling out now. We've got customers using it now. So this year, I think I've said many times, for Qoria, it's about retention in the U.K. and next year, it's about growth. and we're seeing some really, really positive signs. The team there are doing outstanding work. And as I said, for now about a year, Australia is our best-performing K12 market with the community proposition of selling parental controls through schools in the Australian private school system. It's an outstanding performance. I think their PCP performance was like 80% above what they did in the prior year. That's just extraordinary growth out of this market here. So the contributors to ARR, obviously, Qustodio is a standout there at $2.7 million. Remember, that's net of churn, so that's a fabulous result. There's a modest amount of price optimization in that. They run a number of price optimization trials in January, February. They launched those at the back end of February. They've had to pull them back a bit tweak because it was elevating churn, but you will definitely see a flow through the year, particularly in that key renewal period in back-to-school and Christmas period. So there's something like a 5%, possibly 10% natural growth rate, net dollar retention and price increases coming to that business. So that's really exciting. And then the K12, as I said, a big contribution from new, increasingly strong contribution from existing cross-sells and upsells. I think our target was 33% or 34% contribution of growth through existing customers, and we're easily outperforming that. So Crispin and his team are doing a fantastic job. Obviously, the big story is the big red line on the right-hand side, we are being buffeted by the FX movement of the U.S. dollar. But the underlying business is really strong. And fortunately, for us, from July, we'll be reporting in U.S. dollars. So that will become much less of a problem for us and much less of an issue to explain to analysts. K12, I mean the numbers here speak for themselves. The real highlight for us, given our focus on that back to -- so the June quarter in the U.S. is the pipeline. $40 million of pipeline with a weighted value of $19 million. It is the highest I think we've ever had or equivalent to the highest that we had last year. We're set up really well. And of course, we have a number of [ whales ] that are outside that pipeline that give us a lot of confidence to outperform. So feeling really good about that. I think I touched on all these metrics, everything else is pretty stable. Average sales order, average price per unit, they really -- the June quarter is a really important period for us. So you'll see a turn in that chart down the bottom, average sales price per order, you'll see that click up in the June quarter again, as you saw last year. Qustodio performing on all metrics, profitable business growing really well. As I said, there's been price optimizations. We've given Victoria an extra 30%, 40% in marketing spend, and she's spending it very, very wisely. She's -- as compared to the -- and I'm not being disparaging but the Qustodio business is selling parental controls, they have the benefit of a positive cash burn in marketing. And so we've told Victoria, you can spend up to that burn and no more. So basically manage your cash flow and grow as hard as you can. And she is doing very well. School promotions continuing to grow. The old community stuff that we spoke about is going really well, 540 districts now. So I think we're now about 18% of our districts on that program, which is equivalent to 1.3 million parents. So the parents of 1.3 million students are being promoted Qustodio. That's pretty exciting. We're still getting those schools that launched our program north of 20% taking up the freemium offer and of those 1% taking up the premium offer. We're launching monthly subscriptions to those customers literally this quarter actually. So we're now starting to get into the cadence of promoting and seeing how we can monetize that pretty big audience. So stay tuned. Okay. It's obviously very, very cyclical. I would urge investors to not read too much into our December quarter or March quarter -- sorry, the March quarter or June quarter cash flows because really the key selling period for us, the key is June and the cash comes in, in that December half. 65% of our growth is typically in the June quarter. So I should be on our ARR performance for June. And you can see in this chart that the business is growing every year, and there's a high cyclicality now in our numbers. These charts are hard to interpret given the FX movements and what we've tried to do is show that our net ARR is growing, which is the -- on the bottom chart is the green box, the green shaded area. And the column on the right-hand side is our FX adjusted underlying cost structure. And you can see that there is -- it's moderated now with these -- we announced some changes in the last couple of months. We're pulling some costs out of the business, essentially reducing new hires and replacements to make sure that any operational cost expansion in our business is covered by cost outs or any delays in cash flows are similarly covered by very careful spending. But I'll let Ben talk more about that at the end of this deck. Over to you, Ben. Ben Jenkins: Thanks Tim. I'll just touch on a couple of things here quickly so that we can get into questions sooner rather than later. One of the main things that people will notice is the customer collections, the cash receipts are only slightly up year-on-year. Tim has touched on the seasonality of that. The December quarter is what feeds the March quarter receipts, so December sales and the December quarter is -- the U.S. is about 5% of its business in that quarter. And so it's more about Australia and New Zealand. So it's very hard to shift the March cash flows. But as noted here, the U.K. had a good quarter. That was largely in the month of March. So very little collections, if any, related to that in the March quarter, and that will flow through to a good growth in year-on-year comparisons for cash collections in the June quarter. On to a little bit more of the detail around the costs. Obviously, you can see direct costs in the quarter were up significantly. There's 2 things at play there. December quarter was down. It's just timing of cash flow payments falling into January. So some of that related to December. But also there's an annual billing cycle for some of the Google costs and that occurs at the end of November, invoiced in December, paid in the March quarter. So you'll see the direct costs come back down into line with the June, September quarter from last year. There's nothing structural that's changing that spend to be up on an annualized basis. It's a little bit in line with growth in students, but it's not linear. So we do get economic benefits there as we grow. Marketing costs are obviously up year-on-year, but as we flagged in the December quarter would be down from December, which is one of the biggest spending periods. The June quarter should be a similar number and staff costs well under control, some changes made during the March quarter that we announced as part of the half year results. So we've taken some cost out of the business, a slowdown on recruitment, and we've got that well under control, fixed other down as well and leases down as well. So overall, costs very much under control. And if you project that forward with the growth in ARR that Tim is talking about in the June quarter, you'll be able to see the growth in cash flows and cash generation over that period. So very comfortable with where we're at the moment, got line of sight through to July where the cash starts to flow strongly again and comfortable that the June quarter will significantly outperform the March quarter in terms of free cash flow. That's probably all I'll cover on that and happy to jump into questions there. Unknown Executive: We can. Ben Jenkins: Thanks a lot. We have some restrictions in place given around what we answer given the scheme booklet publication late May, early June. However, that being said, happy for you to ask whatever is top of mind around the update today. And if we're restricted from answering it, we'll just take it on notice and address later on. So with that, I think we'll go to Lindsay for our first question. Lindsay Bettiol: I think like probably today's results, there's kind of 3 parts to it. So maybe like first question just on the stand-alone Qoria business. Your pipeline is $44 million and your weighted pipeline is $19 million, which more or less is the exact same numbers you printed this quarter last year. So like how should we think about the June quarter in terms of -- if I'm just taking the pipeline as a gauge, it doesn't look like you're going to have much improvement year-over-year in the June quarter. Could you just maybe talk to that and explain where I'm not wrong, please? Timothy Levy: Crispin, you want to take that? Crispin Swan: Yes. So it is the biggest pipeline we've had, as you correctly state marginally. Yes. So from the North American market, as we know, it's the biggest selling period, and they are on track to have their largest ever quarter, Lindsay. We've also -- I don't know if you remember, we changed the structure of the team with an individual call Adam leading that team recently. And he's really implemented a lot of additional focus on deal management. So we're seeing extremely strong conversion ratios at this point in time as well. And as an example, we've got 30 deals in the pipeline with over 40,000 students each, which represents 2.5 million students with a [ fee ] of $350,000. So it will be our biggest ever quarter in the U.S. And then if you add the U.K. on top of that, as Tim said, they've had a really strong performance. They've essentially hit their annual budget year-to-date with 1 quarter to go and are projecting a strong Q4 as well and similarly for Australia. So all in all, I'm incredibly confident where we're at and the pipeline is definitely sufficient for us to have -- if you're focusing on the U.S., our biggest ever quarter. Lindsay Bettiol: Okay. So summary is absolute dollars is the same, but they're probably higher quality dollars. Crispin Swan: Yes. Lindsay Bettiol: Very good. Okay. Maybe a question on that. You've given us some updated figures versus, say, the Feb update. I look at the CAC that you've given for the first quarter, it's $169 in the D2C business. It was $173, I think, in the last update you gave, but that was only weeks ago. So just backsolving it implies like the CAC has collapsed in March. So one, like is that math correct? And two, could you just talk to what you're seeing on the CAC front, please, in the D2C business? Brian DeCenzo: Yes, absolutely. So yes, that math is correct. We saw some really favorable CACs towards the last few weeks of March. The prior update that we had given was only through the February month. So we had a full another month of performance, and it was a favorable month from a CAC standpoint. Look, it's a dynamic market. And so you look at what channels you're in, who is bidding on words in certain of those channels at different rates at different points in time. And then ultimately, there's the end market demand that exists at any point in time. And so based on those combination of factors, I think we were able to meet demand at a really attractive rate over the course of the month of March. Lindsay Bettiol: Okay. Brilliant. And I'll sneak in a third question just on the merger update. I think like probably one of the biggest critiques on the proposed merger I got is that it didn't make a lot of sense for what is essentially a U.S. business to run out of Perth. So you've obviously changed that. But my question is like is there not maybe an element of overcorrecting here? I mean Qoria is still going to be 1/3 of the combined business. And it just feels like -- I guess my question is who runs the legacy Qoria business inside the combined entity with both Tim and stepping back a bit. Timothy Levy: I'll take that one. So the structure, not everyone on this call will understand kind of the organizational structure of our businesses. But Crispin, who you see here on the call, who runs K12, he'll be reporting to Hari in the structure. So that's signaling the importance, the critical importance of K12 in this broader strategy. Victoria, who runs our Qustodio business will fall under Tom Clayton, who runs is the COO, current COO of Aura. And so he will essentially be looking after all of the consumer-facing revenue. And then our kind of functional product and engineering kind of security people and finance people will fall under their functional head. So in many ways, it's BAU to Crispin in particular, he's running his team. They're responsible end-to-end for revenue. And he has a product person, Nabil, and he has an engineering person, Rick, that will keep doing the things that he needs done, with their new reporting line. So but below the surface, not much difference. And the message internally is constantly reiterated, we're hitting our numbers, road maps aren't changing, plans aren't changing, hit your numbers, hit your numbers, don't break, [ it is not broken ]. Ben Jenkins: Thanks Lindsay. Owen, over to you. Owen Humphries: A quick question for me. Just we're getting to know the Aura business a bit better. I'm keen to learn more around the seasonality of that business. A critique this morning has been around the Jan and Feb run rate when you gave an update in March, running at around $11 million per month for Aura and then stepped down to, call it, $3 million for the month of March. Just keen to understand a little bit around seasonality of that business. What was March last year? Brian DeCenzo: I don't have those numbers. I don't have the March numbers at my fingertips. Ben Jenkins: Yes. Year-on-year ARR added is 39% up. So it's significantly up. Growth was around about $16 million in the March quarter last year. So it's not all seasonality. It's a really good quarter from the Aura business. Owen Humphries: So I guess the concern in the market has been around run rating a March number -- the March net add number? Brian DeCenzo: Yes. So there's a high degree of recurrence in that number. The -- when you look at the business, we have the big step up in January on the employee benefit side. And in the -- on the consumer side, there does tend to be some seasonality in the business. It actually tends to correlate a little bit more with a couple of things. One is the holiday period when you have people getting new devices and wanting to bring protection on those devices. You tend to see in the U.S. actually in the March and early April tax quarters around tax season with tax day being April 15, so anticipation of people getting their return checks. And then there are certain historical events that have driven excess demand. We've talked about those in prior forums, in particular, data breaches and so what you'll see is you'll see a little bit not necessarily on a new cash basis, but on a P&L overall basis, including renewal, you'll see slight bumps in late April and then a bigger bump in sort of the August, September period every year because of a prior event in 2024, if I'm understanding your question the right way. Crispin Swan: Yes. I think if I can jump in. This chart here, I think, shows you what you need to see, which is the EB business has an annual step change in the first quarter of the year, and that's magical, like it just -- they sell new logos and then they do essentially upselling within existing employers. That's a great business. So that's probably what the question is actually -- answering the question that you received. I think that's the answer to it, which is the March comp there was definitely step changes in that kind of more enterprise motion of the EB channel. And then the light blue is the typical consumer model. There is cyclicality far less than in the Family Safety business. But you also see in that Q1 '25, a jump that I think it was Q1 '25 when there was that big data leak in the U.S. And so there's also a consumer bump in that period as well. But they're the 2 cycles that flow in. Owen Humphries: And I guess a question for you guys then is just to understand the confidence of ARR growth. I understand the Qoria side of the growth in ARR in the second quarter of the calendar year. Maybe, Brian, if you can give us an indication of the expectations of where ARR growth would lie in the second quarter? Brian DeCenzo: Yes. Look, we continue -- so we grew at 31% year-over-year through the first quarter, as we talked about. We wouldn't necessarily view that as being the year-over-year run rate going forward. But we -- I think what we would say is we anticipate it growing sufficient to achieve the objectives that we put out to the market in terms of growing 20% on a combined basis year-over-year. Owen Humphries: So that is rolled over on the same ARR in the second quarter of last year, I'm not sure of the nuances in the D2C business. I'm guessing you'd expect to exceed that in the second quarter this year? Brian DeCenzo: Yes. So there were some issues around, frankly, Google algorithm changes and then also the shift to AI search that occurred in the second quarter of last year that I think we don't expect to see those same types of headwinds this year. Ben Jenkins: Sorry, I just realized you were asking about the March month. But the March quarter last year was $18.5 million. The March month last year was $1 million. So the $3.5 million of written this year is significantly up on last year as well. [indiscernible] over to you. Unknown Analyst: Just a couple of questions from me. Just with the new products flagged with Aura Enterprise, for example, can you just talk through how big the potential is there, sort of when that should be contributing to revenue? And then more broadly, just the road map and the opportunity across the 1.75 million subscribers that you've got and sort of what you think you can do with that over time? Brian DeCenzo: The first question, James, specifically relates to the Aura MSP business, if you will? Unknown Analyst: Yes. Yes, that's right. Brian DeCenzo: Yes. So that business is early days. We just moved the product out of beta. It's a sales channel that we find very compelling from a sales dynamic standpoint because it's a very large sales channel in the MSP network. We've seen estimates 30,000 MSPs plus in the United States alone. And then there's a multiplier effect underneath those 30,000 MSPs where they'll each have a number of small business clients who will each have a number of endpoints for each one of their SMB customers that are addressable. And it tends to be a very levered sales channel because these 30,000 MSPs, many of them don't compete with one another because they don't cover either the same industry or in the same geography. But they do tend to get together at large sort of conference-type events and sort of compare notes. So we find that to be a very interesting and levered sales channel when you can tap something that really appeals to that customer base. Again, early days, the feedback and the early returns have been good. It's growing off a base of 0. So I'd say it would take a period of time before it's going to be a material contributor. I think we'll start to see more momentum in that next year and then really start to see some ramp in sort of '28 and '29. Unknown Analyst: Excellent. And then second part of the question, just in terms of monetizing the existing user base over time with additional functionality and the like, maybe things like pace or locations and these type of things. Brian DeCenzo: Yes. Look, I think I'd say core to the discussion between the 2 of us, say Qoria and Aura is how do we deliver more value to the customer in the first instance based on the things that we each bring to the table today. And so as we go through and think about the back half of the year operating as a combined entity, we're thinking a lot about how to deliver value across the 2 different customer bases, one to the other, how do you take a Qustodio customer as an example, and make them an Aura customer. And then as we go forward, I think we're going to be very deliberate in terms of adding new products and features that they can deliver value to the existing customer base as well as new customers and also be very thoughtful about the way that we merchandise new product features, I'd say, in line with the merchandising that we have demonstrated with our upsell motion over the past couple of 6 months or so as we've talked about with the boost in AOV. I don't know, Tim, would you add anything to that? Timothy Levy: I think you answered it perfectly. Unknown Analyst: No, that's great. That all makes sense. Maybe just a couple more. Just on the rationale for taking the extra cash. I suppose the merged group is slated to be breakeven on completion. So strategically, is there a pathway to accelerating some strategic ambitions or just the thinking on taking that cash given the breakeven? Brian DeCenzo: Yes. So the way I would characterize it is given the dynamic operating environment that I think we all find ourselves in, we feel it's prudent from a balance sheet standpoint to capitalize ourselves in that way. Unknown Analyst: Okay. Great. And then just last one, I think you might have touched on it with Owen's question a little bit. But just with the ARR growth ambition of 20% this year and the performance marketing rolling off, I suppose you're growing at 28% currently, and we're 1/4 of the way through the year. So I suppose how do you get visibility in terms of what the growth does sort of post deal completion with that performance marketing reduction? Brian DeCenzo: Yes. So again, I didn't fully grasp Owen's question while he was asking it. And I think one of the things to highlight that's sort of embedded in the ARR growth year-over-year is the step-up, as I think Tim mentioned, around our employee benefits business that happens really in January and then a little bit of an incremental effect in February. Because of -- there is ballast from that business that continues through the course of the year on a year-over-year basis. So that gives us some visibility into the overall ARR growth. And then the remaining visibility that we have is it's very formulaic the way that we think about modeling out spend versus return in the D2C business and ensuring that we spend in order to be able to hit certain top line performance targets that we have. Unknown Analyst: Great. And maybe just last one, I'm not sure if we touched on it during the presentation, I dropped off. Just in terms of time line and catalysts and I suppose what we can expect to hear out of the company forward over the next 6 months? Brian DeCenzo: Yes. So in the first instance, I think the -- we have the deal process to get through. We've highlighted the time line to get through that process. So you'll be hearing a lot from us, frankly, through a regulatory lens over the course of the next 2 months, scheme booklet, et cetera, which will be published. And so you move forward with that. In terms of other announcements, we will be obviously having the Qoria fourth quarter announcements at some point in July, I would assume. And at that point, I think we'll have more updates, obviously, on the deal process, which should be near hopefully completion as well as incremental actions that we've taken to sort of put the business in the position what we've indicated to the market we will get it in. Ben Jenkins: Wei-Weng, go ahead. Wei-Weng Chen: I guess one of the announcements today was the creation of Aura Alpha, which is, I guess, a strategic sort of corporate dev-type division. Given the near-term sort of post-merger is very much about driving the path to positive free cash flow. Wondering what the near term looks like for that division? Timothy Levy: Yes, that's a good question. Thanks for that. There's seems to be things that we can -- we have to do actually that unlocks. And that when you're busy -- and we've been through this, Crispin and I have been tortured by a unification process that's been running way too long, probably 4 years. You don't get to do them when you're in BAU or the grind of unifying businesses. So what Hari wants me to do is to not get distracted by the day-to-day operations, hitting quarterly numbers, restructuring and so on and focus on those things that unlock value and not on the quarterly results, but unlock value in 2 or 3-year horizons. Some of those, of course, are going to be corporate, but they don't have to be. Some of those will definitely be partnerships. A lot of that is in relation to the work that I've been doing in a sense,, part time in advocacy, government relations, competition law reform, safety law reform, things that are really starting to change. One -- something that came up today is not -- I wouldn't claim in any respect that I or Qoria drove this, but there is this push for digital safety globally, and that's now manifested in California with an obligation for schools to limit screen time. And that's everything we've been talking about for 10 years in our business, and now that's coming to law in California. And who is better placed to organize to respond to that opportunity or that challenge than us with the parental control tools we have with the Octopus acquisition that allows us to measure time, use of on school devices, on school and other apps, like it's such an opportunity, and we're in the right place at the right time. So my job is to look for those opportunities and where I can internally or externally, make sure that we're pursuing them. We're already in discussions and have been prior to this deal, but since the deal was announced, we've opened up some new discussions with some really interesting strategic partnerships. So look, there is -- my problem actually is there's too much opportunity, not too little. As this business comes together and we get the confidence of the capital market, so our cost of capital comes down, then I think there's probably more corporate things that we can do. But for now, look, there's some really interesting stuff that I can do in my day-to-day and partnerships that will add a lot of value, I think, pretty quickly. So look, that's a stay tuned thing, but I'm hoping to very regularly update the market on that progress. Wei-Weng Chen: Yes, cool. And there's been, I guess, a few changes to the structure of the deal announced today. At the time of the announcement, I guess -- would it be correct to say, firstly, that you had no intention for, I guess, your announcement to be in negotiation, but it seems like you've taken on some feedback and kind of obviously restructured things in what I view as kind of a pretty logical manner. But I guess is the work now on, I guess, negotiating the structure in terms of the deal now kind of over and now it's just all about just kind of executing on the deal? Crispin Swan: Do you want to take that? Peter Pawlowitsch: Yes. So it wasn't an intention to have that, but a lot has changed since January, we're finalizing this what's happened with Claude AI, what you can now do from a development point of view and the AI stuff coming through is a dramatic change. And I think what we want to be known as a dynamic organization that adapts to what's happening to the market quickly. So there's a factor of that tied into it. We're not -- right here today, we're not expecting other changes. And we think we've got the structure that can handle that dynamism for the next period of time. So we're confident with that. And now it's just let's get this thing done and execute as quickly as we can. We put our timetable today. Obviously, some of these changes take a few weeks, but we're pushing [indiscernible] to get it done as quickly as we can and hit that strong growth. Wei-Weng Chen: Yes. And then just one more, just, I guess, to follow up on a prior question. The upsized raise, the $25 million, is that additive to your prior net cash guidance of $65 million to $70 million post transaction? Or -- and I guess, if not, does this reflect potentially higher-than-expected deal costs or... Brian DeCenzo: It is additive to the anticipated net cash position. Ben Jenkins: Possibly to be higher, we're still tracking in line with what we're expecting originally. So strong net cash position is the -- I guess, the outcome of the higher placement. Owen has a followup question. Owen Humphries: Yes. Just hitting directly on that, can you guys give an indicative guidance on -- or an update or reiteration around what the cash balance will be post transaction, noting that your guidance is free cash flow positive in the second half or July or close in July to December. So what the cash balance would be and then the undrawn debt facility? Brian DeCenzo: The cash balance at the time of the transaction, like in pro forma for day 1? Owen Humphries: Yes. Brian DeCenzo: Yes. So I would say that is still moving around on the basis of, I'd say, balance sheet management with respect to the various debt facilities that are in place. But we're currently anticipating somewhere in the order of magnitude of net cash of $20 million. Owen Humphries: Which is? Peter Pawlowitsch: At the time of merger, we said [ 0.5 negative ] so plus 25... Ben Jenkins: I've got a written question come through. So on today's announcement, the additional funds from the Aura founders, a figure of $0.40 was mentioned. I'm unclear as to what the jargon means. Will Qoria's shareholders still receive 1 AXQ share for average 17.2 Qoria shares? Unknown Executive: Yes, they will. There's no change to the relative valuation of the merger still a 35-65 split preplacement money. So the 17.2 exchange ratio that was disclosed when we originally announced deal still holds. Ben Jenkins: Awesome. I think that's all the questions I can see in the queue. Lindsay just put hand up actually. Lindsay Bettiol: Yes, I might just ask a third way on the balance sheet piece. So like rather than looking at it from a net debt perspective, just think about like the available liquidity. So you're going to raise $100 million, you have a debt facility of $100 million. Could you just remind us again like what the plans are in terms of existing debt facilities and like how much liquidity you're thinking you're going to have on day 1 post merger completion, please? Brian DeCenzo: Yes. So the anticipation is as quickly as practicable to consolidate all forms of debt that we choose to have outstanding into the new facility with the Banc of California. Again, as you highlighted, that would be a $100 million facility. And so I guess the math on that liquidity-wise would be we'd have, let's call it, $80 million drawn and $20 million of cash, so about $40 million of liquidity. $20 million of net cash. So $100 million of cash total and an additional $20 million of liquidity from the facility. Ben Jenkins: Tim, I'll pass back to you for closing remarks. Timothy Levy: Yes, cool. Thank you. Look, so this might be my last time closing one of these sessions. So first, I'd like to say thanks for everybody for supporting us to where we've got to. I'm very excited about this merger. I guess if I could position the bringing together these businesses and the most recent changes, what we're trying to do here is concentrate on setting up something that is globally significant. And the moves of the last announced today are really about setting this company up for success to tackle that immense opportunity with a heightened focus on the speed of pace of change in valuations, [indiscernible] and so on. So setting the organization up with the right division of labor with the right focus on engineering capability, where our revenue is based in the U.S., but also having an eye to the future with the role of Aura Alpha, setting up the business with the right capital structure, taking advantage of the extraordinary network of connections that the Aura team have, which is something I'm incredibly excited about. And so yes, that's what this whole thing is about is not creating a nice little business that's growing and making a little bit of profits, but to solving a global challenge and doing so in a really big way. And that's really the underlying message. And one final thing I'd add is the Aura leadership team are here with us in Perth. The senior leadership team of Aura are going to be in Sydney talking to investors next week. So please find the time to speak to them and be as excited about what we're creating. I'm sure we will be loving that process. Thanks for your time, everybody. I'll see you all very soon.
Operator: Good morning, and welcome to the Sigma Foods First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. A replay will be available on Sigma Foods Investor Relations website later today. I will now turn the call over to Hernan Lozano, Sigma Foods IRO. Hernan Lozano: Thank you, operator, and good morning to everyone joining us today. Further details regarding our first quarter results can be found in our press release and earnings presentation that were distributed yesterday. Both documents are available in the Investor Relations section of our website. Before we begin, please note that today's discussion will include forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially. Sigma Foods undertakes no obligation to update these statements. It is my pleasure to participate in today's call together with Rodrigo Fernandez, Chief Executive Officer; and Roberto Olivares, Chief Financial Officer. Our agenda today is straightforward. Rodrigo will begin with a strategic and operational overview of the quarter. Roberto will then review our financial performance in more detail, and we will conclude with a Q&A session. With that, I'll turn the call over to Rodrigo. Rodrigo Martinez: Thank you, Hernan, and good morning, everyone. 2026 started on a strong note with record first quarter volume and revenues as well as the second highest comparable EBITDA for the period. Results were supported by disciplined execution, early signs of improvement in certain raw materials and stronger currencies benefiting our operations outside the U.S. Sigma operates from a position of financial strength. Our investment-grade balance sheet has no material debt obligations over the next 2 years as we proactively refinance those maturities through a successful issuance of the local notes during the first quarter. From a capital allocation perspective, we recently held our first Annual Ordinary Shareholders Meeting at Sigma Foods, where shareholders approved total cash dividends of $150 million for 2026. This reflects our strong cash generation, which supports our balanced approach to drive growth while returning capital to our stockholders. Disciplined investment in high-return strategic projects is fundamental to continue growing our core. Let me highlight several key developments on this front. In Mexico, we continue expanding yogurt capacity to meet strong demand. Our yogurt team has done an outstanding job recently climbing to the #1 position of this product category nationwide. In the United States, we're advancing the expansion of our cheese operations in California, supporting the continued growth of our Hispanic brands as they gain traction in mainstream channels. In Europe, we're encouraged by the steady improvement in profitability and the progress of our capacity recovery in Spain. The expansion of La Bureba facility is almost complete and our new packaged meats plant in Valencia is on track to start operations in 2027. Both projects are key to restoring lost capacity and further strengthening our competitive position through efficiencies. Turning briefly to the global macro environment. Conditions remain fluid given the broad effects of the ongoing conflict in Iran. The recent spike in oil prices increases uncertainty and pressure for consumers across many markets. We are actively managing to mitigate short-term headwinds related to energy, plastic packaging and transportation, among others. At the same time, we're encouraged by positive external developments around meat, raw material cost and foreign exchange trends. Combined with the diversification and scale of our operations, these factors provide flexibility as well as we navigate the current environment. Overall, the balance of external headwinds and tailwinds remain supportive of our 2026 guidance, which remains unchanged. With that, I will now turn the call over to Roberto for a more detailed review of our first quarter financial results. Roberto Olivares: Thank you, Rodrigo, and good morning, everyone. Our consolidated results reflect solid execution, complemented by a favorable currency translation effect. Total revenues increased 13% year-on-year. Supported by volume growth and higher average prices in Mexico, Europe and Latin America. Similarly, comparable EBITDA increased 18% year-on-year, driven by robust growth in Mexico, Europe and LatAm. Regarding performance by region. Mexico was a standout once again this quarter, delivering record first quarter volume, revenues and EBITDA. Growth was mainly driven by strong results in the dairy category across all channels as well as solid packaged meat performance in proximity retail channels. By brand segment, our value-oriented brands continued to grow at a higher pace than the rest of the portfolio. Europe delivered solid progress with volume increasing 4%, supported by double-digit growth in the fresh meat business, which benefited from temporarily lower live hog prices in Spain. EBITDA was $25 million, marking Sigma Europe's highest first quarter figure since 2021. Regarding the Torrente plant floating insurance, let me remind you that we received 2 types of reimbursements, property damage and business interruption. During first Q '26, we received reimbursements exclusively related to business interruption, which replicate the plant's operation and therefore, are considered part of our operating results. Only property damage reimbursements are considered extraordinary items for purposes of comparable EBITDA. For the avoidance of doubt, we did not receive any property damage reimbursements in first Q '26. On the strategic front, we continue advancing to obtain regulatory approval for the previously announced fresh meat transaction in Spain as soon as possible. In the United States, the consumer environment remains softer relative to other regions. Yet continued progress in Hispanic brands across mainstream channels helped offset lower demand in national brands. Sequential improvements in volume, revenues and EBITDA were in line with expectations as pricing actions continue to better align with cost. We expect this trend to accelerate in the second quarter as seasonal effect kicks in. Latin America continued its positive trend recovery trend, delivering year-over-year growth in volume, revenues and EBITDA, supported by ongoing operational initiatives and improved execution. Turning to the balance sheet. We continued strengthening our debt profile during the first quarter, successfully issuing approximately $580 million in local notes and extending our average tenure to 8 years by refinancing short-term term maturities. These notes received the highest local credit ratings from Fitch and Moody's and attractive demand of roughly 3x the initial target. We benefit from a diversified financial structure that provides flexibility to meet our funding needs across different currencies, maturities and credit instruments. Net debt totaled $2.8 billion at the close of the first quarter, up $127 million year-to-date. The increase was mainly driven by higher net working capital, reflecting supplier payments related to year-end CapEx projects and seasonal inventory investments. Importantly, net working capital investments was 18% lower compared with the first quarter of 2025. Regarding leverage, our net debt-to-EBITDA ratio ended the quarter slightly above our long-term target of 2.5x, reflecting the previously discussed working capital dynamics. This concludes our prepared remarks. I will now turn the call back to Hernan for Q&A. Hernan? Hernan Lozano: Thank you, Roberto. [Operator Instructions] We will now open the line for questions. Operator, please. Operator: [Operator Instructions] Our first question comes from Fernando Olvera of Bank of America. Fernando Olvera Espinosa de los Monteros: Keeping this to one question, I want to ask you, I mean, based on the volatility of whole prices that you highlight in the initial remarks, can you give us some color of the potential impact that this could have on margins and how relevant are from your cost structure, the freight cost? Roberto Olivares: Fernando, this is Roberto. Thank you for your question. Regarding the Iran conflict and the potential and the impact that it has on the market, the potential effect will depend on the conflict duration. Yes, we have some exposure to -- in some categories, particularly in the packaging category. So we have some plastic packaging. We have the freight costs as well as some utilities. In regards to utilities, particularly in Europe, where we are seeing that the markets are -- have more volatility, we're mostly hedged for the year. We have around 80% of the utilities hedged in Europe. And in regards of the other categories, the impact so how that we have seen has been manageable through other efficiencies and initiatives within the company. Let me just put this into relative context. We are seeing as well favorable raw material dynamics, particularly in the Turkey segment as well as fresh field. And also the FX has continued to help during this year. So we do not expect any material impact coming from the conflict. And as we mentioned, we remain confident to reach our guidance for the year. Operator: Our next question comes from Enrique Maguero of Morgan Stanley. Enrique Maguero: My question will be on Mexico EBITDA margins. We were a bit surprised to see a margin decline in Mexico this quarter, given the current Mexican peso level and the raw material benefits you just mentioned as well. So on that matter, if you could just dive a little bit deeper on the drivers behind this margin decline in Mexico. It would be very helpful. So for instance, if you saw any tailwinds from the stronger Mexico peso this quarter, if you should -- maybe if we should see that only later on, any relevant raw material or SG&A components this quarter as well? And still on Mexico margin, if you could comment on how you're seeing the latest developments on raw materials? And how does that affect your initial expectations on Mexico profitability for the year as well would be very helpful. Rodrigo Martinez: Let me start and then Roberto can complement. We see Mexico very strong. And something important to mention is that dairy has been growing at a higher pace and the margins between dairy and packaged meats, both are very positive, but there is a mixed part on that. And if you want to complement, Roberto? Roberto Olivares: Yes, sure. And not only will be a mix in categories, but also in brands, we have been seeing value brands growing a little bit more than premium and mainstream brands. So that will also have an effect on mix. On the part of raw materials, as we have mentioned, we have seen particularly since the start of the year, Turkey bad decreasing sooner than we expected. And positively, we've recently seen Turkey ties start to move. In the last couple of years, the market of Turkey tie has decreased so far MXN 0.02, but it's signaling that we do expect the Turkey market to decrease in the coming months. That will -- particularly Turkey will potentially have a benefit in COGS. We, as always, will take a more balanced approach in terms of margin and volume. We want to incentivize volume. So particularly this year, as we're seeing the consumer a little bit softer than in previous years. So we will take a balanced approach to see how much of that potential improvement in COGS will be go up down to the margin. Enrique Maguero: Let me just give a quick clarification about the tie price increase. This is a very recent development over the last couple of days. Rodrigo Martinez: Correct. Operator: Our next question comes from Froylán Méndez Solther of JPMorgan. Fernando Froylan Mendez Solther: Is there anything that makes the first quarter in terms of margins and cash generation seasonally weaker versus the rest of the year? Because my question comes because if we extrapolate the margin performance seen in the first quarter, it would be hard to think that guidance is achievable. And my second question, if I may, you mentioned improved penetration of Hispanic cheese in the mainstream channels. Should this be margin accretive? Are you able to price Hispanic products in the mainstream channel as, let's say, more premium product that should command a higher margin? Rodrigo Martinez: Let me just very briefly start that we do see a good start of the year. And as Roberto mentioned, we're actively managing to mitigate impacts from the conflict, so that shouldn't be a problem. We do see lower raw materials cost going forward. We do see favorable FX trends within the geographies. We do see by the end of the quarter, positive strength within each one of the geographies. So with that, we feel comfortable with the 2026 guidance. Roberto Olivares: And I will only complement for that there's usually a seasonality effect in terms of EBITDA generation, particularly coming from the U.S. and Europe during the second quarter is a stronger quarter for the U.S. And as the year advances, Europe generates more -- generally more EBITDA. In particular in the fourth quarter, it's a very strong quarter for Europe. So yes, there is a seasonal effect on EBITDA. As we have mentioned, the $260 million that we delivered during first Q is in line with what we expected for the first Q and what we are seeing, as Rodrigo mentioned, will be to very align or aligned with our guidance. In terms of -- you also mentioned cash generation, there's usually more investment in net working capital during the first quarter that has to do with either CapEx payments of projects that were approved in the fourth quarter of last year and seasonal investment in inventories that we do expect that investment in net working capital to normalize a little bit through the year. Fernando Froylan Mendez Solther: And regarding Hispanic... Rodrigo Martinez: I would say that the margins are -- I don't think that you will see a change in the mix by Hispanic [ press ] or Hispanic cheese compared to packaged meats. At the same time, I would say that as of today, we have a very good position on the unitary margin on packaged meats in the U.S. in anticipation of the seasonal demand, including the bulk of this year. So we feel very comfortable with the margins going forward. Operator: Our next question comes from Ulin Sarawate from Santander. Ulin Sarawate: I think it's -- you partially mentioned this in the previous question, but I wanted to get maybe some more thoughts there on the working capital dynamics, maybe understand a bit more where these investments and where this pressure that we saw in the quarter was coming from. And just to understand also going forward, Roberto, you alluded obviously to some seasonal effects there as well, the first quarter being a bit more heavy or loaded there on the investments on working capital. So just to understand if this is something specific to this year and how you're thinking about it? Or is this kind of the run rate that we should think about for the following years kind of model-wise? Rodrigo Martinez: I'll let Roberto talk about seasonality, but let me start just commenting on the part of inventory within working capital. We found a couple of good opportunities to secure some Turkey and some beef for both the retail on the side of Turkey and for be for the food service during last year. So we have more inventories at the beginning of the year. That will translate -- definitely, we're in a better position, but that would translate that during the year, we might be buying a little less on that, especially more on the Turkey's more breast more than the Turkey type. So again, that will allow -- that leaves us today with a little more inventory, but with good prices. And during the year, we should buy a little less of that. And by the middle of the year, end of the year, we should be lining [ gap ] Roberto Olivares: And just to complement, Rodrigo, Luis, in general, the working capital has a seasonality effect. Usually, it is similar to what Rodrigo mentioned during the first quarter, we built up some inventory because usually prices of raw materials are higher in summer because of supply. I'm talking specifically about, for example, pork, pork during summer usually is higher because of the weather and that makes the pigs to gain less weight and that implies less kilos of supply, et cetera. So you should see this dynamic usually through the year, and we will delever net working capital by the end of the year. In terms of this particular investment for the first quarter, as Rodrigo mentioned, there's this investment in inventory as well as payments that we did regarding CapEx of projects that we approved at the end of last quarter. And you will see that number to normalize through the year. Hernan Lozano: Thank you very much for your question. And I think we can move on to a question that we got from our chat from the webcast. And this is from Vanessa Quiroga asking about any changes in consumer behavior we have identified in the U.S. or Europe resulting from rising inflation recently. Roberto Olivares: Thank you, Vanessa. So in general, if you see -- I mean, I will talk about 2 different markets, the U.S. and Europe. Let me first approach the U.S. If you see the consumer sentiment in the U.S. is the softest that we've seen relative to other regions. And also within the U.S., I think it's record low in many, many years. That has exacerbated with the gasoline prices recently increasing in the U.S. and all that dynamics. In terms of what we are seeing with our consumer stories, the U.S. consumer is taking more -- much more affordability approach to grocery shopping and that is -- I mean, moving the dynamics of the market, we have been following those dynamics and trying to change our strategy as the consumer changes. I think we're well positioned with our brand portfolio to take over a lot of the consumption of our categories. if the consumer or as the consumer trade down within our categories. Our biggest brand in the U.S., Bar-S is positioned as a smart choice more on the mainstream to value segment of the consumers. In regards of the U.S., I would say -- in regards of Europe, I'm sorry, I will say a little bit different particularly last year and through the beginning of this year, we have not seen as much inflation yet. I mean, obviously, this conflict with Iran will and depending on the duration will potentially change that. But actually, branded volume growth has consistently grown in Europe, and that is a signal for us that consumers in Europe are not necessarily that focused on affordability and more focus on the value that they receive from the products. So we see different dynamics in both regions. Rodrigo Martinez: And just important to complement, if you see the categories where we participate, it's a great [indiscernible] quality at a very good price. So we should be in a good position within the categories where we participate in those geographies. Operator: [Operator Instructions] We got a follow-up question of Fernando Olvera of Bank of America. Fernando Olvera Espinosa de los Monteros: Sorry, I was muted. Can you hear me now? Yes, right? Rodrigo Martinez: Yes. Perfect Fernando. Fernando Olvera Espinosa de los Monteros: Now I have just 2 quick ones. The first one is if you can explain the higher tax rate that we are seeing in this quarter? And what should we expect in the quarters ahead? And the other one is if you have any update regarding the Grupo GAL transaction in Europe. Roberto Olivares: Fernando. This is Roberto. Yes, regarding the tax rate, first, let me say that first Q tax rate is not representative of the annual tax rate as there is some volatility from quarter-to-quarter. Factors behind this volatility may include the FX and some other adjustments, particularly labor liabilities and others. The income taxes are comprised of incurred taxes and deferred taxes. Let me first start with the incurred tax and the incurred tax of the operation reflects a lower rate, which is very aligned with the statutory rates. This quarter, we have a deferred tax effect that we recognize, and that is the one that is raising the implied rate to the figure. And that deferred tax is related to a labor liability change that was the effect of the end of ALFA's transformation process. And regarding the update on the fresh meat transaction with Grupo GAL, we are advancing. We actually are moving forward in the process of -- with the competition authorities. We were seeing the transaction to closes to soon. It has taken a little bit more time, not because there has been anything related to the process, but just because of the time the transaction was reviewed by the competition authorities. We do expect to close hopefully during the second quarter of this year. Fernando Olvera Espinosa de los Monteros: Okay. Great. Roberto, regarding what you mentioned about labor liability, I mean, is it something that we can see in coming quarters or it was just this quarter? Roberto Olivares: No, no. Thank you, Yes, it was a nonrecurring effect. So we do not expect that to see in the coming quarters. We do expect the tax rate to lower in the coming quarters -- the implied tax rate to lower in the coming quarters. Operator: Our next question is a follow-up from Froylan Mendez Solther of JPMorgan. Fernando Froylan Mendez Solther: Could you help us just frame how has the reaction of the consumer been so far in Mexico? I remember you saying that part of the benefits from raw materials would be translated into the consumer, probably being a little bit more promotional, more strategic given the health of the consumer. But how would you frame the consumption environment and the reaction of the consumer in Mexico versus your original expectations? Roberto Olivares: First, let me say that -- I mean, if you see volume in Mexico is increasing around 2%, and that has more to do with the retail channels than the foodservice channel. And within retail, particularly dairy is increasing mid- to high single digits versus packaged goods. In general, we're seeing good dynamics in most of our categories where continue improving the position of our brands with consumers. As Rodrigo mentioned in his initial remarks, for example, in the case of yogurt, we are now the #1 player in the yogurt category, and that has to do a lot with our portfolio and that consumers are preferring our brand and our products. In regards to other dairy categories, cheese, particularly coming from value-added cheeses, slice and shredded cheese, and that has also helped us capture more clients. And in the case of packaged meats, particularly those segments that are more value segments and those regarding to specific needs. For example, everything that is regarding grilling has increased a lot in Mexico recently. So we have take this careful approach of incentivizing volume, but also protecting margins as particularly as this very recent improvement in the tight market evolves, we do expect to continue looking into other ways to incentivize volume and also maintain margins. Rodrigo Martinez: And Froylan, I will just complement if you see the unitary EBITDA in Mexico, we have been able to maintain or even grow a little compared to last year. And we have done that with a lot of cost increments of raw materials. So what we're thinking going forward is that balance between maintaining our unitary margins that are very important to make sure that the short-term results are there. But at the same time, the volume that will allow us to keep growing within the geographies. And we do plan to maintain that balance between those 2. And hopefully, with that, we'll be able to keep giving good results in Mexico in the short, medium and long term. Operator: Our next question comes from Felipe Ucros of Scotiabank. Felipe Ucros Nunez: Just a quick one on SG&A. Just wondering if there was any unusual seasonality for the quarter? Or do you expect any unusual seasonality throughout the year with your expenditure and marketing? And just wondering more or less what level of SG&A as a percentage of sales you guys are thinking about for the rest of the year? Roberto Olivares: Thank you, Felipe. This is Roberto. Yes, regarding SG&A, we don't necessarily see a lot of seasonality other than usually, S&A changes a little bit with sales mix. So whenever -- let me give you an example of Mexico. So whenever there's changes even in the categories or the channel mix or even the region where in Mexico, there are some changes in SG&A as we're now selling a little bit more yogurt than relative to the other categories, particularly sales expenses are a little bit higher. Even with that, yogurt margin has increased significantly in the last years due to a better mix coming from value-added products. But yes, there's some changes in SG&A regarding mix. But seasonal effects not necessarily. So yes, Rodrigo. Rodrigo Martinez: And within marketing, Felipe, I would say that we have been -- we have a very strong position in all the markets we participate, but we still see that there might be opportunity to do things even better. We have been putting a lot of effort on the marketing side of the company. We have a couple of good campaigns on the pipeline that should be coming out. In the long term, we definitely will be investing more money in marketing, but this is not something that is going to be radical. What we're seeing is pushing some new products that will be coming out of the market and gradually be spending more time on that, more money on that. So with that, the idea is to put some effort on campaigns that will also bring more volume and more margin and at the net of that should be positive. But again, I don't think that it's going to be anything that will be outside of the [ gradually ] way of saying it. And with that, I don't think that you should see any spike or any change within market, even though as time goes by, we should be spending more on that side. Felipe Ucros Nunez: Okay. Great. So we should expect SG&A levels to be similar to the last 2, 3 quarters for the short term for the next couple of quarters? Rodrigo Martinez: Yes, correct. Operator: There being no further questions, I would like to return the call to management. Hernan Lozano: Let me turn the call back to Rodrigo for a closing comment. Rodrigo Martinez: Thank you, Hernan. We're encouraged by the strong start of the year. These results underscore the resilience of our business model and a high-performing team. We remain focused on operational excellence to stay ahead of consumer needs and preferences in a dynamic environment. We greatly appreciate the continued support of our investors and business partners. We look forward to updating you next quarter. Operator: Thank you all for your interest in Sigma Foods. This concludes today's conference call. You may disconnect.
Leonardo Karam: Good morning. Welcome to the conference call of Usiminas in which the results of the first quarter of 2026 will be discussed. I'm Leonardo Karam, Investor Relations Officer at Usiminas. [Operator Instructions]. This conference call is being recorded and simultaneously broadcast on the Usiminas YouTube channel. We would like to remind you that this conference call is intended exclusively for investors and market analysts. We kindly ask you to identify yourself so that your question can be addressed. We also request that any questions from journalists be directed to the media relations team at Usiminas via e-mail, imprensa@usiminas.com. Before proceeding, I would like to clarify that any forward-looking statements that may be made during this conference call regarding the prospects of the company's business as well as projections, operational and financial goals related to its growth potential constitute forecasts based on management's expectations regarding the future of Usiminas. These expectations are highly dependent on the performance of the steel sector, the country's economic situation and the situation on international markets. So they are subject to change. With us here today is our President, Marcelo Chara, the Vice President of Finance, Investor Relations, Diego Garcia; and our Commercial Vice President, Miguel Homes. First, Marcelo will make a few initial remarks, then Diego will present the results. Afterwards, the questions asked in the Q&A session will be answered. Now I give the floor to Marcelo. Please, Marcelo. Marcelo Chara: Thank you, Leonardo. Ladies and gentlemen, good morning, everyone. It's a pleasure to be here with you to share the results of the first quarter of 2026. We started the year with an improvement in the results of our company, recording a consolidated EBITDA of BRL 653 million that accounts for a growth of 56% in relation to the previous quarter. As to steel sector, there was an increase of 5% in the net per ton, especially as a result of the better mix of sales, the better share in the automotive sector and a reduction of the COGS. And this was driven by the appreciation of the real and the higher efficiency in our industrial activities. In mining, we had a reduction as a result of the rainy season in the region that impacted the production and the logistics. And also due to the prioritization of mining activities with better performance. Considering the present moment, we see a challenging scenario for the next quarters, especially due to the adverse effect of the Iran war at the global economy. And this is due to the expressive increase in the natural gas and oil prices, higher inflation and lower speed in the drop of interest rates and also the maritime aspects that have been impacted. In spite of this complex scenario, we have expectation of consolidated results relatively stable. In steel sector, volumes of sales should remain at the same levels maintaining the segment in the automotive due to the high level of imports. The increase of cost, especially of energy and logistic inputs should be accompanied by the increase in the net revenue per ton. We expect sales volumes to be recovered and also considering the freight prices and fuel prices. There are positive measures that were imposed by the government with antidumping duties related to coated steel, and this should strike a balance in the future. Considering the perspective of the changes, importers responded internalizing an expressive volume of steel in February and March that increased the inventory levels of imported materials in the Brazilian market. In addition to the measures that have been implemented, there is an investment of in China, and we believe that we are going to close them in July 2027. It's important to mention that there's a risk of the oversupply at the structural level with an increase of imports of steel from Asia and China and with an increase of 78% when compared to the first quarter of 2025, especially from South Korea and Vietnam. In addition to Egypt, Internally, we continue with our focus and safety and a continuous improvement in our environmental performance in our operations, increasing competitiveness so as to reduce costs and also have a higher industrial efficiency and basically with a strong financial discipline. In relation to investments, we continue executing priority projects of the company, such as the PCI plant who is to complete it in the second quarter -- second half of 2026. But the benefits have already been captured in the first half of 2026 and also the retrofitting of the coke [ oven ] and also all the activities on the way. We would like to thank all our employees for their efforts, for the engagement as well as the suppliers, clients and shareholders and the community at large for the confidence and for the solid relationship we have been building along those years. Thank you very much. And I turn the floor to our CFO, Diego. Diego Garcia: Thank you, Marcelo. Good morning, everyone. And before beginning the presentation of the results, I would like to remind you that these are the first results that were converted in reals from dollars. Let's move on to the highlights. Steel sales were decreased by 7% in relation to the fourth quarter '25. And this is a result of the strategy of giving more importance to the most effective activities. So there was a lower production due to the stronger rain during the period. EBITDA shows a significant moment in relation to the previous quarter. This was driven by a better mix of products in the steel sector and higher profitability that more than offset the drop in volumes. This improvement in the mix is reflected in an improvement of nearly 5% of the revenue per ton in the steel sector as the increase more than offset the drop in the mining activities. The cost per ton had a slight drop due to the expenses with retrofitting, and this is the impact of the appreciation of the real against the dollar. Let's move on Leo to talk about the consolidated results. Net revenues reflects the significant reduction in the iron ore and also steel products that were not totally offset by the increase of the increase per ton. This is an improvement of the steel unit as a result of the better mix, reaching to levels that the company had reached since the first quarter of last year. Consolidated net income reflects in addition to the best operating results, the positive FX fluctuation in relation to our operations and also an accounting impact and noncash of deferred taxes due to the appreciation of the real as well. Steel sales recorded a drop of 6.9% concentrated in industry, distribution and exports and partially offset with a significant increase in the automotive area, leading to a better sales mix. And there was also a better mix in exports due to a better share in the Argentinian auto market. This better mix led to a better mix of revenue per ton. And as for exports, there was an improvement of nearly 9%. Adjusted EBITDA more than improved and it was very much in line with the first quarter of 2025. This was a result of the better mix, as we mentioned, and the best cost per ton. A better cost per ton. And here, we can see the effect of the improvement in EBIT over EBITDA. COGS was positively impacted by reduction of maintenance costs and major retrofitting, as we mentioned. In addition, we have a better mix that was offset by the lower exchange rate when converting to reals. This positive result apply especially by lower sales of prices and costs and higher volumes. In the mining sector, during the quarter, we had a significant reduction of 21% in the sales volume as it was driven by the seasonal rainfall on production and also on logistics. We also prioritized some areas with best operating performance. Net revenue reflects this drop in volume and the net revenue per ton was maintained stable at $87, the same level as last quarter. The reference price were practically stable with a slightly increase of 0.9%, but they were offset by the higher level of discounts and the different -- differentials as prescribed by the market. Adjusted EBITDA per ton reflects especially the impact of the absorption of fixed costs as a result of lower sales. And now in relation to the financial indicators for the quarter, Usiminas frozen an operating cash flow of BRL 370 million was driven by the EBITDA generation, partially offset by the increase of working capital of BRL 120 million. The working capital variation is associated to a lower accounts payable and an increase of receivable accounts and also due to a reduction in inventory levels. We had a reduction of BRL 67 million in [ trading ] in order to reduce the cost of expenses for the company. It's a movement that we want to continue implementing along the next quarter. We had a CapEx of BRL 285 million, a reduction of 23% in relation to the previous quarter. As a result, we ended the quarter with a free cash flow of BRL 84 million. We ended the quarter maintaining a net cash position at levels which were very similar to the previous quarter. This movement reflects a proportional reduction in the gross debt and also to the cash level influenced by the appreciation of the in relation to the dollar, considering the conversion in the statements. The indicator of net debt over EBITDA also remained stable, reinforcing the consistency in our capital structure. Finally, we have a debt profile, which is very comfortable without relevant maturity in the next years and with the cash and investments enough to cover the indebtedness of the company. Leo, over to you. Thank you. Leonardo Karam: Thank you, Diego. Now we're going to start our Q&A session. Our first question is for you, Diego. Now we have most questions about costs. So we are going to try to address them all, breaking them down so that we can avoid confusion. So the first question comes from Caio Ribeiro from Bank of America. And this is what they ask from XP. Could you provide more color about the cost evolution of the input of the second quarter in relation to the first quarter? Which are the main drivers? How do you expect the cash per ton to increase? [ Guilherme ] completes -- asking for more details about the impact in the context of the increase in inputs and raw materials and freight that you mentioned in the outlook. Diego, over to you. Diego Garcia: Thank you very much for the question. In relation to the inputs for the next quarter, all raw materials will have an increase. We have already been seeing in slabs and this has no impact in the previous quarter due to the timing considering the moment when the slabs were purchased, but there will be an impact for the next quarter. And we also see that higher price in cokes and also in the coal. And Marcelo has mentioned that we see an impact caused by the freight increases that would affect mining activities, especially. However, as of the second quarter, they will start causing impact on the supply of raw materials. So these are the main drivers. Leonardo Karam: Thank you. Still about costs Rafael Barcellos, Bradesco, Gabriel Barra from Citi, and [ Emerson ] from Goldman Sachs. They ask the following. So what's the magnitude of cost reduction when you reduce maintenance costs? Is this something we are going to have an effect in the next half of the year? And the retrofitting will be offset in the next quarters? Or do you see that the cost will have some level of sustainability? And is there a space for room for better performance in the operations in terms of energy and raw materials? Diego? Diego Garcia: The cost per ton was at $15 per ton. So divided by ton, we made some savings. In relation. Leonardo Karam: I'm sorry, Diego, just to specify that you're talking specifically about major repairs, right? Unknown Executive: Yes, major repairs and maintenance. Yes, these are the 2 factors that explain the savings that we had. So I mentioned, we have $15 per ton. So it's an temporal or permanent effect. This was the question. We believe that this is going to be permanent. We have no expectations of anything changing unless something unexpected change happens. So this -- the cost may come back in the future, and this will be reflected in the activities. And these are the activities we are trying to do more efficiently. And to add Diego's comments, as I had mentioned in the previous calls, we are deeply focused in improving industrial efficiency, and we started important initiatives in order to improve efficiency. We have adopted tools to optimize and make all the repairs in a more effective way, especially the planned repairs. And in terms of cash control and in terms of asset controls, we have [ mentioned ] all the dimension in order to optimize all the flows and all the related costs. And we can see the results because we have been doing this for more than 2 years. And this is a continuous process as the expectation is to continue improving efficiency along those lines. Leonardo Karam: We have here another question related to cost, but I believe it's more directed to Miguel. Caio Ribeiro from Bank of America. He asks if the price increases were enough to offset the cost pressure? Or do you think more increases will be necessary? Miguel Angel Camejo: I think your question is very important so that we can clarify and apply the dynamics that we use for our prices along the quarter. And also for the present moment. The increase of January had the purpose of improving the margins of the steel sector after a long period of lean margins, considering that we were in conditions of unfair competition as we have observed in the last 3 years in Brazil. After the beginning of the war in 28th of February, we saw the pressure on costs, as Marcelo and Diego mentioned. And this leads the need for increasing prices as of April. As of now, we are always mentioning the negotiations in relation to spot businesses and the distribution. So we are in a scenario of high volatility and uncertainties. So we are going to be analyzing very cautiously the profitability of each operation in terms of imposing new prices for the spot prices. The industrial sectors will continue this trend. We'll continue making adjustments in the spot prices as we renew the agreements. Leonardo Karam: Thank you, Miguel. Diego, still related to costs. Now focusing on the ForEx. We have questions by Gabriel Barra and Ricardo Monegaglia from Safra. He says, should we expect 2-digit levels? Or should there be any pressure should the ForEx fluctuation revert? The functional currency helped us in nonrecurring manner. Or how -- what were the changes? And what were the exchange rate used? Ricardo ask saying the following. What was the estimated impact on the COGS price for the first quarter, considering this FX rate? And can we think about the aid of BRL 50 million in the EBITDA of the quarter compared to the previous methodology? And what's the evolution that we can expect in relation to the FX fluctuations? Miguel Angel Camejo: Thank you, Gabriel and Ricardo. In relation to the margins that we are -- what we are estimating for the next quarter, as Marcel has mentioned, we are expecting an EBITDA level, which should be stable. And we are likely to have an improvement in the steel sector to offset the mining activities. In relation to the functional currency effects, the main effects that we can see is on the one side, we should consider the net position in reals in a consolidated way. Because that will lead it to FX gain of BRL 110 million. And also, there is an impact in the deferred credit, which was something very significant, amounting to BRL 450 million, which is a very large -- a large share of the net income. And that will depend on the future FX variation. If there's no variation, we are going to see the effect on the results. If the FX is maintained what we saw yesterday, for sure, we are going to have a very similar result. And then the type of FX rate used. If I'm not mistaken, -- at the end of December, it was 5.5. And at the end of the March, it was 5.2. It had an impact on the cash cost of the steel sector in dollars. So it is cash cost. It's in dollars, so there will be no changes. So when we convert into reals, we use FX, FX rate, which was lower in relation to the previous period. Leonardo Karam: So there was another question. No, that's it. Okay. The next question is still about costs. Diego, Edgard and Daniel from Itau, [indiscernible], would like to understand this line in our cost of others. So they are asking us to give more color because when we look at the history track, there may be a seasonality influencing. So what can we expect for the second quarter? Is this already considering the outlook of the cost increase that was shared with us? So from BRL 240 million, we saw a drop of BRL 89 million in the line. And what can we expect? So they want details about this reduction, and this is what [ Guilherme ] asks us. Diego. Diego Garcia: This line is very pulverized, but we're not likely to see a seasonality influence. Now answering your last question in relation to the bonus payment. So except for this, all the others are very [polarized]. Leonardo Karam: Now Miguel, about third-party slabs, [indiscernible] they say it attracted our attention, the level of purchases that you made of slabs. So how does slab price has impacted the production of rolled steel in Cubatao. So how do you use the blast furnaces of Ipatinga? And can we expect the slab price level to be maintained at the same level? So the question is, is the level of purchase likely to be maintained? Miguel Angel Camejo: Of course, you have been following the international indicators for slabs. We have been suffering a lot of pressure since the Iran war started. And based on this, we can simulate the allocation of our production between Ipatinga and Cubatao. Of course, this will be a result of the best economic decision. Obviously, so we have to meet the need of each client at a certain moment. So what to expect for the future, we can expect our production to increase in Ipatinga with the blast furnaces and a reduction of activities in Cubatao in the short term. We are going to continue monitoring the market opportunities and alternatives so that we can go back to the levels at Cubatao that we want or to look for profitable alternatives for the company. Leonardo Karam: Thank you, Miguel. Marcelo There's a question by Gabriel Barra from Citi about the Iran conflict. This is a question. The effect of conflict did not affect the quarter of the steel sector is not so affected by the war. Marcelo, could you answer this? Marcelo Chara: Gabriel, thank you very much for the question. We all know the impact of the gas, of the oil barrel, which has a significant increase. And this impacts the cost of transportation and energy in all the logistics and production chain in general. In the first quarter, we hadn't seen this reflected on the results yet. But as we update all the indicators and all the contracts related to the indicators, we are sure to see those impacts. All industrial sector will have this impact and other sectors in the economy will also have the impact. The freight will have a significant impact. So the maritime transportation imports and exports will be impacted. I would say that this is inevitable. So the cost will be impacted eventually. Leonardo Karam: Thank you, Marcelo. Miguel -- now about sales. We have many questions about sales, and I'll try to concentrate them. of Goldman Sachs, [ Guilherme ] of XP and Caio Greiner of UBS asked the following questions. Considering the stable volume of production, considering the strategy of the company, is there room for gain in market share? The focus would be in maximizing the revenue per ton and profitability. And the expectation -- what's the expectation to imports to drop? And what you expect the stable volumes? And the first quarter was lower than we expected. Do you see any deterioration of the demand and [ Guilherme ] adds about the performance of the domestic market. And if we already have a tighter scenario for some specific products, especially those related to antidumping. And Caio Greiner also asks about the strategy. Are you going to continue with the same strategy? Or are you going to go for higher market share? Are you going to prioritize the old over volume? Miguel Angel Camejo: I'm going to give answers. And Leo, you can help me if I did not answer some questions. In relation to the market, we see a very important resilience of the main consuming sectors of steel. The first would be the automotive sector with an increase in production of auto and also in the formalization of those cars. And ANFAVEA estimates a 4% increase in production. Sectors related to consumption has a very resilient level with the expectations of growth, not very high, but following the macroeconomic indicators of the country. On the other hand, we have sectors that are being affected more in relation to consumption. And they have been facing tough times, especially the sector related to the agribusiness, roads implements, agricultural machineries, which have been drops in consumption. Considering this context and since imports have been increasing in the first quarter, in spite of the measures that have been implemented by the government, especially antidumping and cold rolling mill and coated rolling mill, but we see that the inventories will be very high. And as a consequence, there will be a stability in the apparent consumption of steel that could be better in the second half of the year when the inventory levels are more normalized. And then we expect a stability in the sales in the second quarter. In relation to the share, it would be fair to think we can talk about the second half of the year. We can talk about export -- import of steel, especially those with unfair competition will have some improvements. And Usiminas will then be a very important player in increasing the share of supply of local or domestic market. In relation to the prioritization of value over volume and profitability, it's fair to think that in a scenario of high volatility after the year on war, we tend to be more demanding in our decisions. so that we can make spot negotiations and also in relation to important projects in the medium and long term. Leonardo Karam: Thank you, Miguel. There is a follow-up on the functional currency. [ Gabriel Simoes ] and Marcelo Arazi from BTG. So what would be a follow-up on the cost and the function currency, especially those which have higher consumption. For example, the change of functional currency helped to reduce the cost of the raw materials after the conversion in real. And Marcelo asks us to quantify the effect of this variation should the function of currency remains intact, if there were no changes, what would be the evolution of the cost? What would be the cost behavior? Yes, Diego. Diego Garcia: Thank you, Ricardo and Marcelo. The costs are in dollar, the slab cost, coal or they were all converted into dollars. And the costs are accounted for. And then what happens is the conversion into real that happens every month. If the currency is lower, the cost will be shown in real. But it doesn't mean that the functional currency helped to reduce the cost. So we convert into real that will show this effect. In relation to the second question, if you're going to make a quantification, it's something very complex to be done because we would have to redo of the previous quarter that used a different functional currency. We -- it's not something that is required to be done. So it's very complex to redo the previous accounting of the previous quarter. Leonardo Karam: Thank you, Diego. Miguel, now about exports. [ Rodolfo Angele ] JPMorgan and Igor from Genial asks about exports. Steel sector volumes were lower. So what do you expect for the next period? And Igor asks more details about the prices. And he says that there was a better mix, especially what happened in Argentina. So are you going to continue with this price over volume now in the external market? Are you going to apply this as well to the external market? So what are the expectations for exports? Miguel Angel Camejo: Thank you, Leo. Our expectations for the second quarter of this year is to maintain a stability, both in terms of mix and the market -- exports market. So we don't see a lot of changes, a lot of variations in this regard. The higher average price is a result of the better mix. As we anticipated in the fourth quarter of last year in the call, we ended the deliveries of oil and gas that we had in the past. We maintain a positive expectation in the sector of oil and gas, especially in Argentina. In the short term, we do not see any closures. For the second half of the year, we have been negotiated important projects that we hope to have -- to be very successful in the negotiations. Leonardo Karam: Thank you, Miguel. Still about imports. Gabriel, Barra, Citi, [indiscernible] JPMorgan, they ask the following. In spite of the expectation of normalizing the exports, galvanized products has high levels still. So how do you see the competitive dynamics in this specific segment? Should we expect an accommodation of exports in the short run? And Igor says he understand that there was a raise of importers in order to go for the volumes before the measures were applied. So how long do you believe that the market will absorb this excess volume? And lastly,[ Thais ] asks about cold rolling products. So we saw that the volumes dropped, but we still have some inventories in the chain. So some volumes in other regions were also coming in. And we heard about volumes coming in, in other regions. Could you provide some more information about this? Miguel Angel Camejo: Gabriel, Igor Guedes. For sure, imports of the first quarter were very high, increasing by 30% when we compare to the previous quarter. This suggests a very big pressure in the inventories in the chain. And this will cause impact in the apparent consumption of steel, especially in the domestic market in the next months. The inventory levels cannot be calculated very accurately. But there is an expectation of increasing consumption. But -- so we believe it will take some levels. We believe that this inventory levels will be normalized in the second half of the year. And at that moment, the steel industries, including Usiminas will have more chances of opportunities in relation to the steel consumption in Brazil. What was the other question, Leo, please help me. The question was very relevant. In addition to the increase in imports, we can see an increase of imports, especially in the Southeast Asia. It's very relevant to understand that the world oversupply will be maintained. Even though the Chinese steel in March stands at BRL 120 million per year and generate an imbalance in different countries. This situation generates an indirect impact in the Southeast Asia countries that is to direct those oversupply to Brazil. So it's very important to continue monitoring together with the government, and we must take the right measures so that we can avoid the indirect impact generated by the Chinese oversupply. Leonardo Karam: Miguel still for you. A question about automotive. [ Diego Mora ] from Goldman Sachs says Ricardo Monegaglia from Safra has 2 questions. The stronger sales mix is sustainable. What are the negotiations of the agreements related to prices? What were the agreements for the automotive industry in April? And what are the impact of the coated and galvanized products in relation to agreements? In the first quarter, we had a big influence of the automotive sector. So how do you expect this to play out in the future? Miguel Angel Camejo: So let's start from the agreements. The agreements have showing reductions of 2% or 3%, similar to what we negotiated with the agreements that we had in January. We expect the automotive sector to continue the way it is. March was a very relevant month in production, especially in the first 15 days of April, we see this materializing. And ANFAVEA expects an increase of 4% for the year. However, it's very important to mention that both the steel sector and the automotive sector and other sectors of the economy and the Brazilian industry have been facing challenges in relation to imports, both for final products and also in relation to business models that will that are coming to Brazil. So we have a lower impact and lower impact in the production chains in Brazil. It's important, therefore, to continue with our agenda of reindustrialization and also with the public policies to reinforce the productive chain in different sectors. The galvanized products in the auto sector and also the coated products account for 70% of our installed capacity. So 30% of this is impacted by spot businesses and also other industrial sectors. that follow their own agreements. In relation to the favorable mix of the first half of the year, the expectation is to maintain this favorable mix for the second half of the year. In the second half of the year, we have to understand the dynamics of different sectors, the potential reduction of imports in Brazil after the implementation and also the inspection of the measures that were to be implemented by the government. Leonardo Karam: Thank you, Miguel. Miguel and Diego now. In relation to the outlook that we provided, Rafael Barcellos with Bradesco and Ricardo Monegaglia with Safra asked the following. What is the magnitude of price increase and cost in the steel sector as we're projecting in the outlook? So it's the same questions. They want to know the magnitude. They want to know about the cost and the price for the next quarter. Miguel Angel Camejo: I'll start, Diego. In terms of price, we have already mentioned, there was an increase in price as of April 1 for the distribution and the spot prices, as we mentioned previously. As -- in relation to the industry, the industrial agreement as of April will follow the trend of the mix of spot prices as we observed in the first quarter of the year. In the automotive sector, we continue with the agreements that we mentioned previously according to the negotiations that have been completed. So we are looking at the raw materials, especially plates and also Coke and coal. And this will have an impact that we will try to handle. However, I cannot provide you with exact numbers or precise magnitude. Leonardo Karam: Still about outlook related to prices, Guillermo [indiscernible] from JPMorgan and Carlos from Morgan Stanley, they said, what is the domestic performance along the second quarter? And do you see a more positive impact for the dumping -- for the local industry during the antidumping measures? So when will the price pass-through will happen? And how has this been impacted by the imported products? And [indiscernible] asks for more color about the increases in April that you have already mentioned. And if you expect any price changes for May and June, do we expect movements to happen, Miguel? Miguel Angel Camejo: In relation to the positive scenario for the local industry based on commercial measures, we do not see the impact of the measures that were defined in the beginning of the year. Why? Because as we mentioned previously, there were there was an increase of the import of there was an increase of the inventory level. So the results will take a bit longer. So there was a drop in the local production. So as the local mills cannot increase their share in the apparent consumption of steel in the country. Of course, the measures will then have the expected results. In relation to prices, we implemented a 5% increase in the spot sector as of April 1 and we're going to continue monitoring the pressure of costs in the international market, the cost of energy. And based on that, we will see the -- what will happen to the new adjustments for the next months. We still do not have the adjustments already defined, but we are monitoring all the situation very closely. And this will also be related to higher volatility in our local costs. Leo, did I miss anything? Leonardo Karam: No, I think you answered his questions. I said that the cost would be the most successful question, but no, there's a very long section about the commercial aspect. Carlos asks if you could mention this percentage of increase in April for the spot price as distribution and industrial segment industrial agreements. Miguel Angel Camejo: For the distribution sector, the adjustments implemented was at 5% as of April 1, the industrial agreements that start as of April should follow the dynamics that was observed in the spot price in the first quarter that had a very similar level of 5% or 6% in the distribution sector. Not all the agreements are updated on April 1. Some of them will have the update only on July 1. Leonardo Karam: Thank you, Miguel. We're moving towards the end, and I still have a lot of questions here with me. So I'm going to try to select the main ones. Miguel, about price parity. As Brian and Marcelo has asked about what's the import parity for the rolling and coated product? And what are we to expect for the future? The calculation of the parity is very interesting and why is that? Miguel Angel Camejo: Because different from what we saw in the past, when we talked about parity, the calculation used to be made based on market prices and outside of unfair competition and oversupply situation. When we compare, for example, the domestic market price against the price -- domestic price in Europe and the United States, we still are at lower levels that have defense -- commercial defense so as to balance the commercial market in the -- internally. So you can make recalculations. So it could be about 15% nowadays. But with impact on this price which is a price, which is impacted by the oversupply conditions of the international market. Leonardo Karam: Now, Miguel, commercial defense, Gabriel Barra, [indiscernible] of UBS ask the following: Gabriel asks about the hot rolling product. When the antidumping was not implanted, can we see this reflected in imported volumes? Do you think there will be other drop in hot coils and what are the measures to be implemented along the year? Marcelo completes asking about the share. If you have seen alternative routes for the imports of steel, such as Korea or Vietnam. And the price -- have the prices being more competitive than those are Chinese products. And could this increase the parity of the industries and [indiscernible] completes, asking about the vision about the implementation of the antidumping measures. After the implementation of antidumping measures, we will see an increase of prices and how you see the import parity of coated products? Yes, please. Miguel Angel Camejo: It's very relevant to implement the antidumping measures for hot rolling product. So we see what we saw in the cold rolling and coated products that have been very important. We still do not see a reduction in the results. So we are likely to see this when the -- there was a raise for anticipating those purchase of those materials. In terms of Vietnam and Korea, as an alternative route, we have observed a significant increase of imports from other origins China, especially Korea, Vietnam and other countries from the Southeast Asia. In commercial conditions, very similar to those offered by China. So this is a result of the high pressure that China has in the local market, leading those countries or leading those industries to have unfair competition in their exports. So this is very relevant, and we are very attentive to those cases so that we can activate the tools that we have for commercial defense so as to avoid the impacts that we have seen in the last 3 years, with a high increase of Chinese imports. So it's very important to keep monitoring and working with the local authorities, so that we can make -- adopt the right measures of defense. In relation to the price, I think I answered previously in relation to the parity and how we see the prices to play out in the future. Leonardo Karam: Thank you, Miguel. There is a follow-up. But I think you have already answered. Luis from -- asks about the price of Asia, you have heard Asia about Vietnam and Korea. So we are moving towards the end. So let's try it a bit quick. Diego, about deferred, Gabriel Barran says, the income was very favored by deferred tax credits and FX effects. How can we expect the effective tariff or liquid for the next quarter. How can you see that? Gabriel? Miguel Angel Camejo: The impact of the tax credit with deferred taxes will depend on the type of FX rate because the accounting base is in dollars and when the real is appreciated against the dollar, there's an increase. And then this credit is increased. We have the inverse movement we would have a negative result on this. So that will depend the kind of effects. In relation to the financial result, and this is more linked to the net position in reals will also depend on the evolution of net cash in reals that we have. So we are going to continue monitoring this, so that we can minimize the effect. Leonardo Karam: Marcelo, one question for you about compacters. Gabriel Barra from Citi, and Ricardo from Safra ask the following: what are the analysis of compact analysis can be done in phases, which is the most likely scenario and the friable, what the duration of the life of the mine. Is there any decision to be made still this year and the environmental permitting and all the documents at MUSA, what would be the expected timing for those -- and for the FID and approval? Marcelo, can you answer that? Marcelo Chara: Thank you, Leo, Rafael, Gabriel and Ricardo. I'm going to try to summarize. As we have been mentioning, the permitting is working well. According to the time line, considering magnitude and complexity of the project. In 2026, we believe we can have the confirmation, so that we complete all the permitting process. In relation to the friables, we have been making a new sizing of all the reserves and by using different strategies, we have been able to extend the useful life of the friables. And this is very important for us, the strategic view in addition to optimizing the assets that are already existing for the operation of friables. I would say that these are the main components. And as we evolve and we continue with the process of permitting, so at the end of 2026 and the beginning of 2027, we expect to have a proposal and also to analyze the alternatives. And this is a highly complexity project. And we have different alternatives. We have very good engineering team in order to optimize each of the possible steps. And we are very likely to have a very competitive and efficient split. So this proposal can be callinated in phases. Leonardo Karam: Thank you, Marcelo. Marcelo and Diego. We have questions about projects. So Gabriel Coelho Barra . Gabriel asks about the advances of the PCI project. Can it give an additional upside in the margin still this year. Can you comment on the evolution of other projects of the efficiency of the company, such as Coke batteries and gas holders. And how can we think about the PCI implementation leading to lower cost per ton. What can we expect in terms of efficiency after the implementation? And would it would reduce the purchase of still called for by third parties -- from third parties? Miguel Angel Camejo: The PCI project is a project that is in the final stage. And as I mentioned in the remarks, we are already capitalizing on it because there's a part in the blast furnace that has already been completed and that helps us to make the distribution of fuel and blast furnace in a very efficient manner. So we have been able to implement our PCI and our blast furnace 3 is where this investment is mostly concentrated. So we have already started to capitalize on this on the efficiency of the field as of this quarter, the second quarter and we are likely to capitalize it on full as of the fourth quarter without a doubt. And this will allow us to reduce the purchase of external Coke because this is going to be a replacement from this coal to Coke because this is a field that we are going to be applying internally. And the other projects are moving in alignment to our plan in a very efficient manner. For example, our Coke plant has two main sectors. One of the sector is undergoing hot repair. We have already advanced by 50% in this activity. So this will improve our environmental performance and we also have a very good thermal efficiency and there is a complete construction destruction of the other section of the Coke plant. And next month, we'll be able to see the construction works. So we had auction process and also the technical part, the technical dimensions in order for the implementation to happen. And the engineering side is also very advanced. So in 2 years' time, 2.5 years' time, we will have a very good improvement. And also for gas holders, we will see a very important evolution of the gas holders that will allow us to recover a large quantity of internal gas and we improve the overall efficiency. The sum of all those projects -- we'll be capitalized in a progressive manner in the next quarter until the full completion. In the calls, we are going to share with you the progression of all those activities. And Marcelo, in fact, the hot repair and the PCI plant used up most of the CapEx for the quarter. Leonardo Karam: Okay. Last question now, we are running out of time. It's about sales at MUSA. Caio Ribeiro with Bank of America, they ask the following: and the mining sector, then with increase of cost and freight, will there be a decrease in the shipping to the external market. MUSA operations were affected in the volumes because of the rainfall. And in the second and third quarters, which are dryer periods, do you believe that you can recover the volumes at the same levels that we had in 2025? Yes, Diego? Diego Garcia: In fact, we exported to Asia, but those cost increases impacted our profitability, but it's still profitable. As we can see in the results of MUSA. The diesel cost impact has not had a significant increase. So the higher consumption was associated with internal movement. So in terms of volume, as we mentioned at the beginning of the presentation, we expect a recovery volumes, especially due to higher production. And we are going to prioritize the area with higher grades so that we can continue exporting. Leonardo Karam: Thank you very everyone. We end the Q&A session now. We would like to thank you for taking part in this event. And if you have any questions, we would like to remind you that the IR team is available to take your questions. Have a good day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, everyone, and welcome to the Fibra Danhos First Quarter 2026 Conference Call. [Operator Instructions] Please note, this call is being recorded, and I'll be standing by for assistance. Now I'll turn the call over to your host, Rodrigo Martinez. Please go ahead, Rodrigo. Rodrigo Chavez: Thank you, Elise. Hello, everyone. I am Rodrigo Martinez, and I run Investor Relations for the company. At this time, I'd like to welcome everyone to Fibra Danhos 2026 First Quarter Conference Call. We issued our quarterly report yesterday. If you did not receive a copy, please do not hesitate in contact us. Please be aware that they are also available on our website and in Mexico Stock Exchange website. Before we begin our call today, I would like to remind you all that forward-looking statements made during today's call do not account for future economic circumstances, industry conditions and company performance or financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance to IFRS standards and are stated in nominal Mexican pesos unless otherwise noted. Joining today from Fibra Danhos in Mexico City is Mr. Salvador Daniel, CEO of Fibra Danhos; Mr. Jorge Serrano, CFO of Fibra Danhos; and Mr. Elias Mizrahi. Now I will turn the call to Jorge Serrano for opening remarks and financial and operating indicators. Jorge, please go ahead. Jorge Esponda: Good morning. Thanks for joining us today. Fibra Danhos posted sound financial and operating results for the first quarter 2026. Fixed rent, an 8% growth explained by the full contribution of Cuautitlan and Palomas industrial projects, indexation of lease agreements and improved occupancy levels in our office portfolio. Overage and parking revenues increased almost 13% and 18%, respectively, based on strong sales from our tenants and tariff adjustments in our properties. Consequently, total revenue during the quarter increased 9.4% year-over-year, while operating expenses did so by 7%, resulting in a 10% increase in net operating income and 11% on EBITDA with margin improvements. AFFO per CBFI accounted for MXN 0.76, equivalent to MXN 1.2 billion and almost 16% high year-on-year. Distribution was determined at MXN 0.45 per CBFI, that represents a payout ratio of 59%. GLA on our operating portfolio increased by 15% year-over-year. And overall occupancy level grew 220 basis points, reaching almost 92%. Lease spread on 20,000 square meter renewal agreements on our operating portfolio was 4.3%. Our CapEx pipeline continues to gain momentum, particularly in Palomas and EdoMex III industrial projects that are due to deliver by year-end. While Parque Oaxaca and Nizuc are making progress and running on schedule as well. Balance sheet remains with only 13.6% leverage. During the quarter, Fitch ratified a AAA rating for Fibra Danhos CBFIs and our debt bond issuances. Fibra Danhos shareholders' meeting took place on March 27, with a general quorum of assistance of more than 80% and resulting on the approval of all the agenda items with a favorable vote of more than 95% on each of them. Thanks, and we may now turn to the Q&A session. Operator: [Operator Instructions] Our first question today comes from Igor Machado of Goldman Sachs. Igor Machado: So the first one is on lease maturities. You have a significant amount of lease maturities coming due for retail portfolio, so 28% of total. And your leasing spread is around 7% this quarter. So just want to better understand what could we expect the lease spreads going forward with the lease-up. And also given the significance of the maturities... Jorge Esponda: Something happens with -- we cannot understand well. Can you repeat the question? Igor Machado: Yes, sure. Can you hear me well? Jorge Esponda: We can hear you, it's distortion. I mean we did not hear you clearly. Igor Machado: Can you hear me? Jorge Esponda: Yes, that's better. I think you're closer now to the microphone. Igor Machado: Yes. So the first question is on [ lease maturities ]. So you have a significant amount of maturities due this year for the retail portfolio. So I just want to understand why could we expect the lease spreads going forward with the lease-up? And also given the significance of the maturities, if you see this is an opportunity to do a material change in your tenant book for the retail portfolio? Elias Mizrahi: Igor, this is Elias Mizrahi. So the maturities for our retail portfolio, historically, we have a weighted average term of approximately 4 years. So around 25% of our contracts expire every year, and we actually do renovations on a 3- to 5-year renewals at the most precisely to have these renovation windows, and that's where we can push rents up and have leasing spreads. So on retail, we continue to see lease spreads above inflation in general. And I think that's the question, right? Igor Machado: Yes. Operator: Was there anything further, Igor? Igor Machado: Sorry, if it's possible, I have another question here. Could you comment on why are you seeing the potential increase in construction costs given the conflict in the Middle East? Elias Mizrahi: We haven't seen an impact in costs because of the war in the Middle East. Let me pass this to [indiscernible] to give you some further remarks. Salvador Daniel Kabbaz Zaga: I mean we haven't still seen a significant change in prices. None of our contractors have let us know that we have to be prepared for it. So we're not expecting a big change on the increases in cost of construction, at least for the moment. Operator: Our next question today comes from Gordon Lee of BTG Pactual. Gordon Lee: Two questions. I was wondering on the industrial side. Now that, that segment is becoming more relevant for you, will you be looking at any sort of potential M&A opportunities? And I'm not thinking of Macquarie, but I'm thinking more of -- this is the expectation that there will be a pipeline through the maturation of [indiscernible] properties hitting the market. Would you look to acquire properties? Or do you prefer to focus 100% on developing them? And then the second question is just on Torre Virreyes, that's one of your sort of flagship office properties where we really haven't seen sort of improvements in occupancy in the last 2 or 3 quarters. So I was wondering whether you think that's still something that's just cyclical? Or do you think there's something about the property that may require more work, repositioning, something of that nature? Salvador Daniel Kabbaz Zaga: This is Salvador. I mean, talking about Torre Virreyes, it's 100% leased. Gordon Lee: Sorry, I meant Toreo. I said Torre Virreyes, but I meant Toreo. Sorry about that. Salvador Daniel Kabbaz Zaga: Okay. I mean, Toreo, we've been working very hard. It was hit by the pandemic and we lost some tenants. But we're seeing a gradually increase in occupancy, and we expect it to be even better in the next trimester. So we feel comfortable with it. And we're going to see -- we believe we're going to see good numbers in the next years to come. So as you know, the office segment is still just recuperating after the pandemic. But we've seen a lot more movement in clients and interest in spaces, especially in the last trimester. I mean, I hope this -- we can -- we were able to fulfill into contract [ with ] expectation. But we're -- I mean, happy with it. And in terms of industrial, of course, we are always open to new opportunities. As you know, we prefer to develop because in that way, we can actually get much higher yields with it. But -- but if we find a good opportunity in the market, we'll take advantage of it. Operator: And from JPMorgan, we have Felipe Barragan. Felipe Barragan Sanchez: So we've seen a good uptick on the office occupancy, now coming close to 80%. I just want to get an update from what you guys commented last quarter. If we could see perhaps you guys breaking above the 80% threshold that you guys have been struggling to recover. Salvador Daniel Kabbaz Zaga: Yes. We are expecting this to grow. I mean it's not an easy task. Office, it's much better, but it's not still, I mean, driving. So we expect it to be a better number each trimester and to actually fill up our buildings in the next year, something like that. Felipe Barragan Sanchez: Okay. And I have a second question real quick. So last quarter, you said there was a softer consumer demand that wasn't extremely prominent. Could you guys give us an update on what you guys are seeing on the consumer environment for this quarter? Salvador Daniel Kabbaz Zaga: I mean, we're seeing it to be basically just based on the line, not increasing, not decreasing. It's not a high consumer option, but we believe that things are getting much better, especially with the World Cup coming into Mexico. We expect that -- as you know, our shopping malls are in Mexico City, so we expect this to contribute in a positive way to the portfolio. But the truth is that we're basically just flat online. Operator: Next, we have Alan Macias of Bank of America. Alan Macias: Just a question on land bank. If you can remind us your strategy of acquiring land in Mexico City for the industrial sector? And what are you seeing there in terms of land prices? And perhaps has anything changed in terms of licensing and permits? Salvador Daniel Kabbaz Zaga: I think we're on a good place on acquiring some land with licensing and permitting. We're working very hard on it. We've been doing it in the past couple of years, and they're getting just mature to be almost ready to be developed. So we expect to give good notice in the next probably 6 months about it. But we're going to continue into the industrial development. We feel comfortable with it. I think we're doing a good job with it. And we are working very hard to basically just be able to -- in the next few months or 4 months or 2 trimesters able to give a good notice to the market on it. Operator: [Operator Instructions] And we have no further questions at this time. Rodrigo, back over to you for any additional or closing comments. Rodrigo Chavez: Thank you very much, Elise, and thank you, everyone, for joining us today. Please do not hesitate to contact us, Salvador, Elias, Jorge and myself for any further questions. We are always available, and we'll see you on the next conference call. Thank you very much. Operator: That concludes our meeting today. Thank you for joining. You may now disconnect.
Operator: Good afternoon. Welcome to the First Business Financial Services First Quarter 2026 [Audio Gap]. I would now like to turn the conference over to First Business Financial Services Inc. CEO, Corey Chambas. Please go ahead. Corey Chambas: Good afternoon, everyone, and thank you for joining us. We appreciate your time and your interest in First Business Bank. Joining me today is our President and Chief Operating Officer, Dave Sailor; and our CFO, Brian Spillman. Today, we'll discuss our financial performance, followed by a Q&A session. I'd like to direct you to our first quarter earnings release and supplemental earnings call slides, which are available through our website at ir.firstbusiness.bank. We encourage you to review these along with our other investor materials. Before we begin, please note, this call may include forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's most recent annual report Form 10-K and as may be supplemented from time to time in the company's other filings with the SEC, all of which are expressly incorporated herein by reference. There you can also find information related to any non-GAAP financial measures we discuss on today's call, including reconciliations of such measures. We are very pleased with our strong start to 2026. Our team's execution was exceptional. We won new relationships in a highly competitive environment, growing loans and deposits at a pace that well exceeded our expectations. We grew fee income by nearly 16% year-over-year with strong contributions from multiple sources. I'll highlight our Private Wealth business, which again produced record revenues and provides annuity-like support for our revenue growth and diversification goals. Asset quality remained stable in our core performing portfolio, and we were pleased to see some swift progress toward resolving our largest nonperforming asset, which was downgraded last quarter. At the bottom line, we grew net income and earnings per share by more than 9% over last year's first quarter, even as our margin returned to a more normalized level after being elevated in early 2025, which was residual from the period of rapid Fed tightening. And perhaps most importantly, our strong earnings and disciplined capital deployment drove 14% year-over-year growth in tangible book value per share. This success reflects our commitment to 4 key objectives: prioritizing high-quality relationship-based growth, diversifying our revenue streams, maintaining long-term positive operating leverage and preserving a culture that attracts and keeps the highest quality talent. We are very pleased with the momentum of our first quarter results, which Dave will discuss more now. Dave? David Seiler: Thank you, Corey. Our outstanding first quarter growth positions us well to achieve our long-term goals. As you know, we aim for 10% loan and core deposit growth on an annual basis. In the first quarter, we grew loans by $126 million or 15%, far outpacing our plan. Growth came from across our markets, led by Madison, Milwaukee and Kansas City, as well as from asset-based lending, which is generating some great momentum under the new leader we brought on a year ago. The growth occurred late in the quarter with $90 million or 72% in March. That had margin implications, which Brian will cover and it included some pull forward of growth we had forecasted for the second quarter. After an extremely strong first quarter, our pipelines are lighter going into Q2, and we will have some known payoffs in the second quarter. Therefore, we expect the second quarter to be lighter on growth than Q1 with normalization in the second half of the year, placing us on track to achieve our 10% annual growth goal for 2026. Our 10% growth expectations are driven by continued positive trends in our businesses and the banking industry. Our largest markets in Southern Wisconsin continue to benefit from a strong regional economy. Our clients in the manufacturing and distribution space are doing well. Commercial real estate occupancies have remained strong particularly in multifamily properties. We are also seeing signs that new development is picking up after a slight slowdown in 2024 and 2025. Additionally, we continue to expect the 2026 changes to federal tax policy should be a tailwind for our business clients and C&I portfolio. We continue to see tangible benefits from talent acquisitions as well. We recently hired a new President for our Private Wealth business. We are also seeing positive results from producers and asset-based lending who were hired in the second half of 2025. Obviously, we are looking at the same wildcards as everyone else, and we'll continue to monitor for any impact of oil prices and geopolitical uncertainty. So far, it's been business as usual. I also want to highlight our exceptional double-digit growth in core deposits this quarter. First quarter balances were up 18% from the linked quarter and up 14% year-over-year. That's not an easy feat in this environment. Our focus on hiring the best treasury management talent and maintaining a disciplined approach to business development continues to pay off. We are pleased to see this core deposit growth coming from multiple bank markets and our private wealth group. Our strength is in taking market share, as you saw this quarter. So we are confident in our team's ability to not only maintain existing client relationships, but also to continue bringing in new deposit balances. As with loans, we continue to target 10% growth on an annual basis. Another highlight was our strong noninterest income, which grew 16% compared to last year's first quarter. Private Wealth produced record revenue of $3.9 million, up 11% year-over-year. This business consistently generates more than 40% of our total quarterly fee income. Strong deposit growth contributed to service charges increasing more than 26% year-over-year, displaying our team's impressive success in adding and expanding full business banking relationships and our other fee income sources, which tend to be variable from quarter-to-quarter, posted favorable results for the quarter. Moving to credit. We saw some rapid progress on our largest nonperforming asset. Recall that we downgraded $20.4 million in CRE loans from a single Southeast Wisconsin based client relationship on nonaccrual status last quarter. In Q1, $3.4 million of land development loans in this portfolio were sold at par. You can see the benefit of this to our nonperforming asset ratio on Slide 12 of the earnings supplement. Appraisals exceed carrying values on the land and the remaining $17 million of loans with no specific reserves recorded. We expect ongoing resolution, but the timing will be variable, based on current activity, we don't anticipate additional progress to occur before the second half of 2026. The remainder of our portfolio was stable, and you can see our favorable trends on Slide 11. Before I hand it off to Brian, I'll note that this is Corey's last call before his retirement next week. I want to thank Corey for his leadership and service to first business bank, it's difficult to summarize as many contributions to our company, so I'll leave you with this. During Corey's tenure as CEO, First Business Bank has produced cumulative shareholder returns of nearly 700% outperforming bank and regional bank indices by a multiple of more than 3x and the Russell 2000 by more than 200 percentage points. This is no coincidence. Cores are visionary, and we are grateful for his leadership and friendship. We are also very happy that Corey will be continuing to serve on our Board. Now I'll hand it off to Brian. Brian Spielmann: Well said, Dave, thanks. First quarter net interest margin increased 3 basis points to 356 and there are some noise in both the first and linked quarters. You can see a breakdown of this on Slide 6 of our earnings supplement. First quarter NIM included the 5 basis point impact of fewer accrual days in the quarter. Excluding this impact, first quarter NIM was 361, which will be in line with our internal budget expectations. As a reminder, fourth quarter NIM included 10 basis points of compression from the nonaccrual interest reversal on the downgraded CRE NPL. Excluding this, fourth quarter NIM would have measured [ 3.63 ]. There was no nonaccrual interest reversal activity in Q1. The 2 basis point difference in these adjusted NIM measurements primarily reflects the late quarter timing of loan growth. As Dave mentioned, the bulk of our significant loan growth came late in the quarter. Two-thirds of the growth was from our C&I portfolios, which are higher yielding than CRE, and we expect this to benefit our net interest margin going forward. You can see the historical trend of this yield differential on Slide 5 of the earnings supplement. Looking out at the year, we think the early momentum of C&I loan growth in Q1 positions us well to operate within or toward the lower to middle portion of our targeted $3.60 to $3.65 range for the year. Our outlook assumes a stable to modestly changing interest rate environment. Margin performance is expected to be driven primarily by balance sheet mix and our targeted annual 10% loan and core deposit growth rather than additional rate tailwinds. On the funding side, ongoing core deposit growth has improved our funding mix over time, and we continue to manage deposit pricing with discipline in a competitive environment. Where needed, we supplement with wholesale funding to match fund fixed rate loans and maintain NIM stability. On noninterest income and expense, I'll remind you that quarterly comparisons are impacted by last quarter's accounting classification change related to limited partnership investments. Specifically, last quarter, we reclassified $904,000 out of our other noninterest expense and into other noninterest income to net against the related revenue. This expense represented the bank's share of costs for the first 9 months of 2025 related to our latest run of limited partnership investments. Our strong first quarter fee income supports our expectation of 10% growth for the full year compared to 2025, and we view first quarter as a good starting point for quarterly fee income in 2026. Looking at expenses, we saw the typical first quarter increases related to compensation. Compensation expense increased by about $1.4 million in Q4, mainly due to first quarter resets for payroll taxes and 401(k) match contributions along with annual merit increases and higher average FTEs, which were up about 5.7% from a year ago. Looking ahead, payroll taxes will come down throughout the year, but new FTE adds will go up. Professional fees were also higher in Q1, increasing by about $445,000 in Q4. Elevated recruiting costs and seasonal legal fees related to the company's annual 10-K and proxy filings drove the increase. We typically base our full year expense forecast on first quarter actuals, which remain an appropriate run rate for 2026. I'll reiterate that our primary expense management objective is achieving annual positive operating leverage that is annual expense growth at some level modestly below our target level of 10% annual revenue growth. The effective tax rate was 15.2% for the first quarter. Our effective tax rate varies modestly quarter-to-quarter, in part due to the timing of tax benefits received from our investment and limited partnerships and the timing of stock compensation vesting activity. We continue to expect our effective tax rate will be within our expected annual range of 16% to 18% for 2026. Finally, our strong earnings have continued to generate excess capital to facilitate organic growth. We continue to believe reinvestment in the growth of the company provides the best return for our shareholders. We do, of course, evaluate all capital management tools at our disposal to maximize shareholder returns. And now I'll hand it back over to Cory. Corey Chambas: Thank you, Brian and Dave. Dave was the architect of our current 5-year strategic plan, and you can see our outstanding progress toward achieving the goals of this plan on Slide 15. I believe nothing has been more instrumental to achieving the success than our culture. So I'll take a final opportunity to bang the drum on this. Our culture defines us and it is our secret sauce. It is in the DNA of First Business Bank to be passionate about our people and obsessed with our strategic plan, and it's foundational to our mission to be an entrepreneurial partner to our clients, investors and communities. This intense cultural focus has been fundamental in achieving our superior long-term shareholder returns. It has been my north star of sorts, and I'm confident Dave's leadership will bring continued success. We have the right team in place to continue achieving both strong earnings and above industry growth, and I'm excited for the future of First Business Bank. Thank you for taking time to join us today. We're happy to take your questions now. Operator: Thank you. The floor is now open for questions. [Operator Instructions]. Your first question comes from the line of Daniel Tamayo of Raymond James. Daniel Tamayo: Thank you. Good afternoon, everybody. First, I just wanted to say congratulations on your retirement, Cory. It's been a pleasure working with you over the last few years and obviously, good luck to Dave. I guess on the heels of that, I'll throw out a longer-term question here for you, Dave, as you look to the future. Looking at Slide 15 with your goals and progress on it in the 2024 to 2028 goals from a profitability perspective, you guys, obviously, have talked about this 10% growth, and I think that certainly holds. But just curious how you think about from a profitability perspective, I guess, if it's efficiency or return on tangible common equity, how do you anticipate changing any of these long-term goals and progress, the slide or anything like that as you think about your leadership. And if not, what's the plan over the next few years to get these to get or keep these numbers kind of at these levels? David Seiler: Yes, good question. So we are -- our strategic plan is a 5-year strategic plan. We're a little over 2 years into it. And every quarter or more often, we look at all of these metrics and and evaluate if there's still the right metrics for us to be looking at. And I would say right now, you look at our efficiency ratio, for example, that blipped up a little bit this quarter for reasons that I think we've outlined in some of our comments already. So we expect that to kind of return to where we wanted to be over the next -- over the balance of the year and in the upcoming quarters. At this point, we still think these are good metrics for us to be working on, and we've identified 5 strategies from our strategic plan, and we have teams of leaders working on each of the strategies. And at this point, I think we think they're all -- these are the right targets for us. Daniel Tamayo: All right. Good start, Dave. David Seiler: I am not official yet, Danny. Daniel Tamayo: All right. Fair enough. And then I think I get what you guys are saying on the margin. I'm assuming this is going to be an annual thing. I mean it's just the math, right, of the fewer days in the first quarter. But as we think about modeling the margin we should think about modeling that down a bit in the first quarter going forward and then popping back up in the second quarter remaining in that -- the targeted range, Brian? Brian Spielmann: Yes. That's a fair statement. I would say we're always going to have the first quarter accrual mechanics issue, right? But for us, specifically for this quarter, to me, it was more of a timing difference on when our funding came in versus when we deployed that funded in the quarter. That to me is more of the driver on why the NIM was reported outside of our range. If we would have had the loan growth aligned with that funding growth earlier in the quarter, the NIM would have been within our range. So that's more of it. But I think your point is bad, though in terms of the quarterly first quarter estimates that there's going to be that day basis impact us all. Daniel Tamayo: Okay. And as it relates to that dynamic with the late in the quarter loan growth, like you're thinking basically the margin comes back up into the range in the second quarter and then relatively stable from there? Brian Spielmann: Yes. Daniel Tamayo: Okay. All right. I will step back -- appreciate it. Operator: Your next question comes from the line of Jeff Rulis of D.A. Davidson. Jeff Rulis: I wanted to check on the expenses. Brian got your comments there. I just seemed a little high. I mean maybe I'm just still updating the model on the reclass a little bit. But if I heard that right, that this level kind of flat line for the year? If I guess, if I just annualize it and then run it off of across full year '25, something in the high single digits. Is that kind of where we should be thinking? Brian Spielmann: Exactly, spot on. Jeff Rulis: Okay. while I got you, Brian, on the -- do you have the margin for the month of March, just to try to jump off point. Brian Spielmann: We don't have that. And it would be influenced by the late growth. That's kind of the point behind the late growth commentary is that the more Q1 margin of $359 million being impacted -- sorry, by 356 being impacted by that. So it's going to be pushing us back into our range based on that March activity. Jeff Rulis: Okay. Fair enough. You were pretty clear about the resuming back into that range. So I'll stick with that. Just was curious. Maybe just the last 1 on the growth. Dave, I think you alluded to the geography, but maybe the -- do you have a breakout of maybe the mix of that growth pretty strong, but was it the mix of existing customers versus new? I think you mentioned maybe that was a 60-40 split last quarter or something, but just trying to get a sense for market share gains or existing customers? Brian Spielmann: Yes. Well, we don't have a mix between existing clients and new clients. I think it was as we stated before, it was really across all of our Southern Wisconsin bank market. It's in Kansas City as well as asset-based lending. I would say within those groups, it really wasn't concentrated in any particular area. It was spread fairly evenly. And I would say, always our growth is going to be driven by new. We do more loans to existing clients over time. but the driver of our growth is always going to be new client relationships. Well, I think 1 of the things you can look at that reinforces that is the growth in our service fee income. Debt. We've had very rapid growth in our service fee income, and you don't get that without adding new clients. On service charges? Jeff Rulis: Yes, Yes. Okay. And Corey, thanks for the conversations over the years, all the best and appreciate what you've done, and Dave, I look forward to catching up in Nashville in a couple of weeks. So thanks. Brian Spielmann: Thanks, Jeff. Thanks, Jo. Operator: Your next question comes from the line of Nathan Race of Piper Sandler. Nathan Race: Comments earlier. Congratulations, Cory, Dave. -- been great. I wanted to checking on just the fee income outlook, Brad, I think you mentioned kind of a stable outlook. Just curious kind of what momentum you're seeing on the SBA front. Obviously, Wealth Management has shown some nice growth year-over-year as well. So just curious how you're thinking about kind of the overall year-over-year trajectory? Brian Spielmann: I can speak to the total broader fee income piece and then maybe Dave has a couple of comments on SBA. But the total fee income line, I think, is consistent with the prior messaging around 10%. And year-over-year growth expectations with Q1 being a good starting point for that? I know we had some noise in Q4, but really strong performance from those more consistent annuity streams for us, private wealth service charges and other, which now includes starting to build more of our SBIC investment product there that will start kicking off more returns as well over time. But that's really the primary drivers of that fee income, which again, we believe is a 10% growth in total for us throughout '26. Dave. David Seiler: Yes. And on the SBA side, we actually expected that to be a little bit higher this quarter after the shutdown late last year. But I think as we look at pipelines we expect it to be relatively flat going forward. Nathan Race: Okay. Got it. And Dave, I think you mentioned earlier, you're expecting some softer growth in the same quarter, just given maybe some pull-through and some expected payoffs this quarter. So is it fair to expect maybe like mid- to low single-digit growth in the same quarter and then get back up to that kind of high to low double -- high single digit to low double-digit trajectory in the back half of the year. David Seiler: Yes, I think that's probably reasonable for Q2, Nate. A little bit depends on payoffs and those aren't -- some of those are in flux right now. So we can't predict them 100%, but I think that's a reasonable point, and we still expect to be at 10% for the year. Nathan Race: Okay. And then maybe 1 last one. Any color that you could shed on the charge-offs in the quarter and just how you're budgeting or thinking about charge-offs over the balance of this year. It doesn't sound like there's been much movement on the ABL credit that we've talked about, which again, shouldn't really result in any loss content. But -- and within that context, it also seems like the Southeast properties are still slated to sell that part similar to what we saw this quarter. So we're just hoping to get any color along those lines, please. David Seiler: So I can talk about the Southeast properties and the asset-based lending credit that we have. So on the Southeast properties last -- last quarter, we talked about how we're going to work this out of this over time. And we started that with a little over $3 million in payoffs with no losses in the past quarter. Right now, we are pursuing foreclosure on the rest of the properties in that nonperforming portfolio. And so we shouldn't really expect any resolution in Q2. That's probably more the back half of the year based on how long those proceedings take in Wisconsin. And again, as it relates to the asset-based lending credit that's going to be an end of the year type of end most likely. But there -- we've had no negative news there. It's just moving through the court system very, very slowly. But we're being told that's what we should expect in this case. Nathan Race: Okay. That's helpful. I appreciate the color. David Seiler: Hey, on the broader charge-off question. I would say for Q1, nothing kind of unusual to report kind of a broad mix of charge-offs coming from SBA, C&I. I will say that EF finance improved from a charge-off perspective from Q4 to Q1. So that's a good indication that we're improving and working for that portfolio. I think we had about 25 basis points of charge-offs in the quarter. little higher than we would think. We tend to think around 20 basis points on average for the year. So -- but nothing that's alarming to us by a means. Corey Chambas: Just to add to that, Nate, that transportation segment of that equipment finance portfolio, which started out at about $61 million is down to $18.1 million or $18.2 million, something like that. So we're making nice progress on that. Nathan Race: Okay. Got you. Very helpful. I appreciate all the color. Thanks, guys. Hope have a great weekend. Operator: Your next question comes from the line of Damon DelMonte of KBW. Damon Del Monte: First off, Corey, congratulations on the retirement. I think I've been covering you guys for probably close to 12 years. So it's been an enjoyable run. And Dave, I look forward to working with you in your new role. So congrats. David Seiler: Thank you. Damon Del Monte: Sure. So with that, I guess, most of my questions have been asked and answered. But Brian, I may have missed this, but do you know what the fees and low of interest were included in the margin this quarter? Brian Spielmann: We're about $2.2 million. So that's more in line with kind of run rate, a little bit higher than the run rate. That's up from the prior quarter. But remember, the prior quarter had the nonaccrual interest rate reversal in Q4, so... Damon Del Monte: Right, right. That's right. Okay. And then kind of along the lines of credit and trying to figure out provisioning going forward. The reserve do you expect to kind of maintain this reserve level? And then if you kind of have average net charge-offs of 20 basis points kind of just back into the provision that way? Is that a good way to think about it? Brian Spielmann: Yes. That's all I think about it, Dan. I think the macro piece of this equation with the subscribed to Moody's, right? So that's the wildcard. -- with geopolitical, but I think all else equal, you're provisioning for growth off this reserve level with the 20 basis points that's appropriate. And we saw -- for example, this quarter, $1 million of the provision was due to loan growth of about 2.9% in the quarter. So that will come back down. Obviously, as we talked about with Q2 growth coming back down, but yes, with the uncertainty around the macro, to me, that's no change is a reasonable place to be. Damon Del Monte: Got it. Okay. Great. That pretty much covered everything else. So thanks for taking my questions and take care. Operator: Your next question comes from the line of Brian Martin of Brand. Brian Martin: Just maybe [Audio Gap] where you're optimistic going into the year? [Audio Gap] And maybe areas that aren't really optimistic about in terms of delivering the targeted growth this year. Brian Spielmann: Sure. Well, I mean, I think if you look for the -- where it's going to come from for the rest of the year, I think we're going to continue to see nice growth in our -- from our ABL team also from our accounts receivable finance team. Kansas City is looking really good. We continue to add talent in Kansas City. And our -- particularly our Southern Wisconsin markets are still strong. We have good teams in both of those markets. So we should continue to see growth there. Brian Martin: Okay. And in terms of the build-out, it sounds like you're still adding some folks in Kansas City. Is that primarily complete at this point? So you've got a full team there just more areas you're adding down there? Brian Spielmann: I don't think we'll have a lot more ads down there, Brian, but we could have another ad. And in order for us to continue to grow at 10%, we have to continue to add folks really across our markets. So I think we will likely have another ad in Kansas City this year. Brian Martin: Got you. Okay. And then maybe just jumping to the -- just the fee income per section. And I appreciate the color you guys have already given your comments, Brian. Just in terms of the lumpiness that kind of seems within this portfolio. Do you still expect some lumpiness count throughout the year? I know the movie made or reclasses just kind of trying to think about the quarterly movement or progression? Is it -- do you expect a little bit more consistency? Is it still going to be a little bit lumpy as we go along? Brian Spielmann: I would say, yes, is the answer. There's still going to be lumpiness, but that's something we're working on and trying to improve, right? We talked about the success of our private wealth and our service charges, those are becoming more and more consistent in annuity like more so than they had before. And then I also just really kind of briefly talked about our investments in small business investment company funds, -- we're deploying more capital there. There's a 5% limit, right, for regulatory capital, but we're doing that over time to add a more stable level of fee income to the quarterly run rate. So that will take some time, but that's the part of our process to smooth those earnings out on a quarterly basis. But it's just the nature of swap fees and SBA gains -- it's just going to be lumpy still, but it's why we're really focused on that 10% year-over-year growth. Brian Martin: Yes. Okay. Okay. that covers -- Damon got the credit cards other than that, I'm good and just the same comment that both guys have made. It's been great working with you over the years, Corey, and I wish you the best in retirement and Dave, it's been good to continue to know you and continue to work going forward. So congrats on everything, and thanks for taking the question. Brian Spielmann: Thanks, Brian. Thanks, Brian. Operator: That concludes our Q&A session. I will now turn the conference over back to CEO, Corey Chammas, for closing remarks. Corey Chambas: Thanks. First, I'd just like to say I appreciate all the relationships I've dealt with all of you over the years. So I will definitely miss that. I miss you all. Overall, I just want to say thanks, everybody, for your interest in First Business Bank joining us today, and I hope everybody has a great weekend. Operator: This concludes today's conference call. You may now disconnect.
Operator: Welcome to the Indutrade Q1 presentation for 2026. [Operator Instructions] Now I will hand the conference over to CEO, Bo Annvik; and CFO, Patrik Johnson. Please go ahead. Bo Annvik: Welcome, and good morning on our behalf as well. As usual, let's start with some overall highlights from the quarter. We can begin with the demand situation. Order intake continued to improve versus last year. Organically, the order intake increased with plus 1%, with slightly more than half of the companies showing a positive order intake. The strongest segments were medical technology and pharmaceuticals, energy and parts of the process industry. Net sales were unchanged from last year, both in total and organically. Contributions from acquisitions improved compared to the last quarters and was at a good level. EBITA margin came in at 13.3%, in line with the underlying margin last year, and we will comment more on this further on in the presentation. Operating cash flow was also in line with last year. Our companies continue to improve management of working capital. Inventories are lower than last year and the inventory in relation to sales is on a historically low level. In Q1, we managed to acquire 2 larger companies, and we also made one more acquisition in April, adding SEK 625 million in revenue on a yearly basis, and the pipeline is continued strong. We are obviously not satisfied with the overall performance in the quarter. However, there are good progress in several areas, which I will comment more upon throughout the presentation. Looking more specifically at the order intake and sales trends, demand was stronger than last year, but still varied across companies, geographies and segments. Book-to-bill is seasonally strong in Q1 for us, but improved from 105% last year to 107% now. As mentioned, companies with customers within MedTech, Pharma, the Energy sector experienced a strong demand and also parts of the process industry. Order intake for companies with customers in infrastructure and construction and engineering was aggregated slightly down compared to last year. In terms of sales, acquisitions contributed positively with plus 5%, a sequential improvement from the 4 -- plus 4% we had in Q4 2025. However, currency movements had a negative impact of 5% and organic sales was flat, leading to an unchanged top line development in total. We had a stronger order book coming into the quarter, but the sales development was impacted by a weak start of the year, mainly due to the challenging weather and also by the composition of the order book with a higher share of orders connected to the Energy sector and the process industry with longer lead times in general. The sales development gradually improved during the quarter, starting with a weak January and ending with a strong March. Moving into sales per market. In the Nordics, sales was up in Norway, flat in Sweden and Finland and down in Denmark. Flow technology for marine applications, water treatment and the Energy sector were drivers for the positive development in Norway, while the lower sales to Novo Nordisk was the main reason for the decline in Denmark. In the rest of Europe, starting with the Benelux, sales was lower within engineering and in some of the Life Science companies. U.K., Ireland was a good development within, for instance, railway rolling stock. And in Germany, flat overall, but slightly improved situation in the engineering sector. Switzerland and Austria was weaker, mainly due to lower sales within valve for power generation and within the Construction segment. In North America, sales improved compared to last year due to good development within medical technology. In Asia, sales declined due to difficult references from last year in the Marine segment. In terms of profitability, total EBITA decreased 2%, corresponding to an EBITA margin of 13.3% compared to 13.6% last year. However, in Q1 last year, we had some positive one-offs. So the underlying EBITA margin was 13.3%, in line with this year's EBITDA margin. The main reason for the EBITA margin not being on a higher level is the organic sales development in combination with slightly higher expenses. Underlying expenses grew around 1%. But on top of this, we also had some nonrecurring costs for downsizing. Patrik will explain more details in his presentation. But perhaps good to elaborate on the type of companies we have and why some of them haven't reduced more. If we go back to late -- the situation late 2025, then I would say that expectation was that in 2026, we would see better and better order and sales situations. And this could be based on that we had an organic order intake improvement of plus 3%, both in Q3 and Q4 last year. So most companies had a somewhat positive outlook, I would say, for 2026. And we have, as you know, quite a lot of trading companies, and they are, in general, people lean. It's difficult to find qualified replacements. Hence, there was not sort of on top of their agenda to downsize and there is a hesitation to downside if they don't really need to in order linked sort of to the situation that it is difficult to find really good replacement employees. In addition to this, we obviously also have a lot of growing companies, and they need to add people in order to manage their businesses in a professional way. So that's a bit of an explanation, I would say, to why we had a plus 1% expense increase year-over-year. Positive, though, that the gross margin was continued strong, amounting to 36%, very well managed. There will be some more challenges going forward now in quarter 2 raw material price increases. But I am optimistic that our companies will handle this in a good way. We have done that for very many years historically. Looking at the sales development per business area, 2 of them grew organically, Industrial & Engineering and Life Science, mainly as a broad result of the strengthened order book coming into the quarter. In Industrial & Engineering, for instance, railway rolling stock was a sort of positive situation with -- they have had large orders from companies like Alstom, Porterbrook in the U.K. They also had a good situation in terms of specialty chemicals. And I think it's worth to note that they had actually an all-time high order intake in March in the quarter. In Life Science, particular companies within the medical technology had a good development. We usually comment on the single-use business. I think that's still good. And we made a Spanish acquisition or first company in Spain last year, and they are into single-use and the first quarter was all-time high for them. So a good start this year for them in Indutrade. Just to give some other flavors, we have a broad portfolio of MedTech companies. It's everything from -- we sell communication equipment to Swedish hospitals, and that business has grown really well. We have a growing business in Poland. We sell medical equipment to hospitals, also consumables to hospitals. And that's also a growing situation. We have companies on Ireland, which sell medical technology to large international customers and in the quarter now sold successfully to the U.S. So it's not sort of a single company. It's a broad base of companies doing well in medical technology. Infrastructure and Construction and Technology & Systems Solutions continues to be weaker due to demand being subdued on the back of the general market uncertainty and lower investment levels in some customer segments. Process, Energy & Water had a good order book coming into the quarter, but there are generally longer lead times within the energy sector and the process industry. So the minus 3% is more of a timing effect. They now have a record high order book and a good condition for stronger development going forward. And March was actually the second best month ever in terms of order intake for Process, Energy & Water. In general, I would say that the challenging weather in the beginning of the year also impacted the sales development negatively, mainly in Infrastructure & Construction and Process, Energy & Water. If we then turn to profitability for the business areas, it was 3 business areas improving the EBITA margin in the quarter. Industrial & Engineering had the strongest margin development, supported by the gross margin improvements, leverage on the organic sales and margin accretive acquisitions. Infrastructure & Construction has for a longer time, work with restructuring measures and keep costs in a really good way and some divestments to improve its margin. In Life Science, the gross margin further strengthened due to good sales development within the MedTech cluster, as I mentioned, as well as margin-accretive acquisitions contributing positively. Process, Energy & Water was impacted by the lower sales, as I talked about earlier, and the EBITA margin development in Technology & Systems Solutions was mainly driven by lower organic sales together with slightly higher expense levels. Acquisitions, positive situation. So far this year, we have acquired 3 companies, of which 2 slightly larger company for us, with a total annual turnover of SEK 625 million. We are very glad to have welcomed Belman, CAT Ricambi and Axotan to the group. They have all good track record of sustainable profitable growth and are also margin accretive to the group. In 2025, the average company size was slightly lower than a normal acquisition year for Indutrade. And this year, so far, it's slightly higher. This shouldn't be seen as a strategic shift. We are opportunity oriented, as you know, and we act on opportunities we believe to be accretive and successful. Consequently, there will be times when we have periods of larger acquisitions and periods with smaller acquisitions being made. The acquired EBITA was on a high level in quarter 1, as can be seen on the graph to the right, just over SEK 70 million. Also looking at the EBITA margin of the acquired companies, it was on a strong level of 19.5% for the quarter and above 17% for rolling 12 months. Good to note that this includes transaction costs, so the underlying margin is even higher. Our business areas are successful in the acquisition work, being proactive and building pipeline. Our business segment leaders are spending more time on acquisitions now compared to a year ago and the current acquisition pipeline is on a high level. By that, I leave the word over to Patrik to comment more on the financials. Patrik Johnson: Yes. Thank you, Bo. Total growth for orders and sales was 2 -- plus 2% and 0%, respectively, in the quarter. Book-to-bill was positive, as Bo talked about. Orders 7% higher than sales and on or above 1% in all business areas actually, strongest performance in Process, Energy and Water. As previously mentioned, our gross margin was strong at 36% compared to 35.4% last year. Total EBITA declined 2%. Acquisitions had a strong positive impact of 7%, but this was offset by currency movements and slightly higher expense levels in combination with positive one-offs we had last year. And these ones, they were primarily connected then to earn-outs and amounted to net plus SEK 27 million, which corresponds to around 2.5% on the EBITA. If we comment a little bit more on the sort of the expense situation, the total increase in expenses, fixed currency, excluding acquisitions, was around SEK 45 million, corresponding to 2% on the total expense base. But underlying, as already mentioned, it's only half of this, around 1% -- we have had some one-offs connected to layoffs, personnel reductions in several companies. And also last year, the cost level was somewhat pushed down actually because of some LTI provision releases we had. So underlying, it is plus 1%. EBITA margin came in for the quarter at 13.3%, which is then the same as the underlying EBITA last year. We are, of course, not satisfied with the margin, but it's important to note that Q1 is historically a seasonally low margin quarter for us. Going down further in the P&L, finance net decreased with 18%, mainly due to lower interest rates. Tax costs actually increased 5%, but it's mainly due to some onetime effects underlying the tax rate, I would say, is the same as before. Earnings per share was down 4%. Return on capital employed declined slightly to 18%. Capital employed end of the quarter increased with 8% because of the higher acquisition pace since second half of last year and slightly higher working capital, also mostly connected to increased receivables at the end of the quarter. Cash flow from operating activities, seasonally low also then in quarter 1, but was in line with Q1 last year. All in all, group financial position is still very solid with a net debt-to-EBITDA ratio of 1.5x at the end of quarter. So let's elaborate a little bit more on the cash flow. As mentioned, cash flow is seasonally low in Q1, which you clearly can see from the graph, but it was stable. And after CapEx, it was actually slightly higher than last year. Our companies continue to show progress in the management of working capital. I think inventories are lower than last year and inventories in relation to sales on a rolling 12-month basis is actually now on a historically low level. Overall, working capital efficiency is also then slightly better than last year. Cash conversion continue to be on a stable high level and even slightly improved versus last year. Continuing to the EPS, earnings per share situation, and that has developed in a bit weak way the last couple of years, as you know. The driver has been a weak organic development, which is mainly due to the general weaker macro situation that we have experienced and the lower general demand from that. But also worth to note that the higher interest rates compared to a few years back and currency headwinds lately has also then had actually a significant impact on the situation. In the quarter specifically, EPS was down 4% because of the lower operational result and lower interest costs compensated slightly. And we are obviously not satisfied with this -- with the EPS development, but we are now fully focused on coming back to good growth levels in line with our targets. And with that, we will also for sure and deliver EPS growth. And then lastly, the financial position. The interest-bearing net debt increased versus last year and also slightly sequentially because of the increased acquisition pace. However, the net debt ratios are stable and low from a longer historical perspective. Net debt equity ratio at 45% versus 47% last year. Net debt-to-EBITDA was slightly higher than last year at 1.5x, but still on a comfortable level. And if you exclude earn-outs, it was on 1.3x versus 1.2x last year. The financial net debt, which is then the part of the debt that relates to borrowing that needs to be refinanced is also historically low on a level of 1x. So all in all, in conclusion, our financial position is very strong, and that creates a good foundation for continued value-accretive acquisitions and also room for organic growth investments and initiatives. I think I end there and leave back to you, Bo. Bo Annvik: Thank you. So let's summarize some of the key takeaways before we open up for questions. The demand situation improved and the order backlog was further strengthened. Good acquisition contribution, but total sales were negatively affected by currency movements and a flat organic development due to a weak start of the year and longer lead times in the order -- in part of the order book. EBITA margin was in line with the underlying margin last year. The gross margin was on a continued high level. So we expect a good leverage on the organic sales growth when the market improves. Looking ahead, as I said, we have a larger order backlog, and we saw clear improvements throughout the quarter, which is positive. But the general market uncertainty remains on a high level linked to the geopolitical situation. We have a good momentum in terms of acquisitions and a strong pipeline, providing good conditions for a gradual increased acquisition pace. Finally, we are not satisfied with the quarter, but there are positive signs in many areas, and we are fully focused and determined to deliver in line with our financial targets. By that, we end our formal presentation and open up for potential questions. Thank you. Operator: [Operator Instructions] The next question comes from Oscar Ronnkvist from SEB. Oscar Ronnkvist: So I have 3 questions. My first one would be on Process, Energy & Water, the longer lead times that you mentioned. Are those lead times are longer than sort of a normalized situation? Bo Annvik: No. I would say that we have, as you know, a mix of companies in that business area and the segment in the business area is the Energy segment. And there, we have certain companies who sell to power generation facilities and things like that. And that's a usual sort of lead time of minimum 6 months, I would say, to more 12 months and beyond. So that's -- but that's a normal situation. We've had that for many years. Segment, I would say, is -- has potentially grown more than other segments in the business area. So that's why maybe that there is a bit of a shift like this. Oscar Ronnkvist: Perfect. And the next question on the cost development going forward. So do you expect to align volumes and costs in the coming quarters? I think you gave some comments about the Middle East situation, but as you see, potential cost pressure on raw mats, et cetera. But do you expect that to align more in the coming few quarters? Bo Annvik: Yes. We haven't seen much of those price increases in quarter 1. Obviously, a lot of suppliers have brought forward information about cost increases now towards the end of the quarter and early in quarter 2. But as I said, I'm quite confident that our companies are prepared for this and will manage this and transfer those costs to price increases to the customers. So I'm hopeful that we will manage our gross margins in a good way, also going forward. Was that your question? Oscar Ronnkvist: Yes, more on the operational expenses side as well, and if you can see anything on that. I think on the gross margin, your comment about the price increases was good. Bo Annvik: Yes. No, we are -- were not cost conscious in our culture. And it's a weighing situation for primarily, I would say, our trading companies. So as I said, towards the end of last year, I think most of them had a more positive perspective outlook on 2026 and hence, sort of refrain from certain downsizing. Even if there is now uncertainties linked to the geopolitical situation, there is still some sort of underlying optimism that the markets are improving slightly. So -- but obviously, we will be sort of engaged from the Boards in our companies to manage overhead cost situations actively. So it's definitely not -- if anything, it will improve from -- sequentially from Q1, I would say. Oscar Ronnkvist: Understood. Just a final short one, but you say a strong M&A pipeline, but just wanted to hear about the geopolitical turbulence, if that has made any changes in the appetite for M&A as we saw like last year following the Liberation Day. Bo Annvik: Yes. No, we think -- we take every case, case by case. But in general, we are not in general, hesitant right now, I would say. So the plan is to continue, obviously, being professional, obviously, being cautious in case by case. But it's -- as it looks now going to be a high activity level in quarter 2 and onwards. Operator: [Operator Instructions] The next question comes from Johan Dahl from Danske Bank. Johan Dahl: Just a question on the sort of the outlook you presented in Q4. As you know, when you presented the year-end numbers, you talked about the harvesting phase in Indutrade late January, and you conclude now that January was a disappointment to you, guys. Are you able to sort of box in exactly in the beginning of the year what was the disappointment? I mean invoicing is what it is, but was that on cost? Or is that isolated to some certain events? Or was it more broad-based? Bo Annvik: It was a very slow market from a sales perspective in January. And I think you can relate to that also. It's not Indutrade specific, at least not in my perspective, it was quite broad in the industry that it was a harsh winter, I think, and bad weather in large parts of Western Europe. installation companies delaying projects. So for some reason, altogether, then sales in January started out very slow. So it was slower than the general market underlying need, I would say. So it was unexpectedly slow in January, and that created a very weak result. And we weren't able to catch up completely from that situation in February and March. But as you probably have understood by the presentation, March ended in a really strong way, both in terms of order intake sales and profitability. So -- so yes, it's a good trend to have into quarter 2, I would say. Johan Dahl: Got you. Just a follow-up on the one-offs you talked about in the fourth quarter '25. Were you able to sort of box those in the -- towards the end of the year? Has that had any follow-on effects here now during the beginning of the year? And could you also talk possibly about sort of quantifying cost savings that you have carried out here in the first quarter? Bo Annvik: Yes. I would say that those one-offs were -- they are boxed in, but it was linked to 2 specific companies. And when you experience a situation like that, we have changed management, as I've said. Obviously, the situation in those 2 companies is slower, weaker. They need to restart, and we have definitely done that. We have helped them with everything from restructuring to strategic analysis to strategic activity prioritization, growth-oriented activity, basically a new business strategy. So the new MDs are coming in towards a fairly served table in terms of what to do going forward. So we have lost momentum, but compared to what it could have been, I think the momentum going forward will still be a lot better based on all that activity we have done. So yes, that had some impact on our Technology & System Solutions business area. Now what was your other question, Johan? Sorry. Johan Dahl: If you can talk about sort of how much cost you've taken out in terms of sort of rolling 12-month basis, if it's measurable at all? Bo Annvik: Can you comment on that, Patrik? Patrik Johnson: No we are continuously working with cost and number of employees in entities that are struggling with demand. So that we are doing. I don't know if I have a sort of a relevant number on that. But I think we have -- in those on a rolling 12-month basis since sort of mid last year, we have taken down a number of employees in these type of entities with around 200 people then, which is -- you can always do more, but I mean, it's small companies and so on. So I think -- and we have some more coming here in quarter 2. So we are continuously pushing on this parameter. Operator: The next question comes from Zino Engdalen Ricciuti from Handelsbanken. Zino Engdalen Ricciuti: I joined a bit late, so sorry if you have answered this. But looking at high level on the order book, which you have been building up, could you say something about how the composition looks now and what your expectations are in terms of converting into sales? Bo Annvik: Yes. So we have a relatively higher share of the order book linked to the Energy segment and some longer lead time Life Science segments. But you will see sort of positive release effects from this in quarter 2 and the further improvement step in quarter 3 and onwards this year. So it's about to happen, a positive step in Q2 and an even bigger step in Q3. Patrik Johnson: And if I add, if you elaborate a little bit on the order book sort of development and compare it to last year, we have seen order book increases in Process, Energy & Water, Life Science and also Technology & Systems Solutions with the highest increase in Process, Energy & Water. And it's basically flat, you can say, in the Industrial business area and Infrastructure & Construction has actually a lower order book than we had last year. So this sort of this mix change, you can say then, prolongs a little bit the lead time on the order book. Zino Engdalen Ricciuti: Understood. And just on the similar topic, specifically in TSS, which saw a bigger step-up in the order intake, if it's possible to get some color on expected conversion of that. Bo Annvik: Yes, it's not that long in that business area. So it will -- it basically relates to what I said earlier in a bit of a step-up in Q2 and then even more in Q3 and onwards. So it's the same for that specific business area as well, I would say. Zino Engdalen Ricciuti: Very clear. And just a last question on the gross margin, which continued to be strong. It was just interesting to hear more about the drivers behind that. Bo Annvik: I mean it's been strong for many, many years and stable, slightly increasing, and it's part of the Indutrade DNA to really work with pricing and try to manage potential cost increases from suppliers and transfer that to customers, and watch that situation and step-by-step work more and more and more with value-based pricing versus -- yes, just some sort of more simplified pricing approach. So I also talked a little bit about that the war in the Middle East will drive up and has driven up oil prices, which will affect plastics and other raw materials. So there is going to happen even more in this area, I think, in quarter 2 and onwards, but I'm quite optimistic that we will continue to manage the situation in a good way. Operator: The next question comes from Gustav Berneblad from Nordea. Gustav Berneblad: It's Gustav here from Nordea. I thought maybe just to follow up there on the development in Technology & System Solutions. Was the margin weakness basically only driven by the weaker volumes? And should we then sort of expect them to jump back up now and we see volumes pick up in Q2 as you comment on... Bo Annvik: I think they will sequentially improve Q1 to Q2. But it's linked to that -- yes, they are suffering, I would say, as a business area from cautious demand from industrial customers broadly internationally. So it's not going to be a drastically quick pickup and they suffer a little bit from a difficult situation in these 2 U.K. companies and so on. Obviously, we have done the restructuring, as I said, and so on, but it will go -- take some time to improve the situation there to be above average Indutrade levels again. But sequentially, improvements, but not very quickly. So don't expect that they go from 14% to 18% in 2 quarters. That's not going to happen, I don't think, but they will improve. Gustav Berneblad: That's very helpful. And then maybe on the topic of medical technology, Life Science here. I mean, you comment on the single-use products being quite solid. I mean those sounds more recurring, I would assume. So it sounds like the margins here would be rather sustainable unless there are any larger orders you want to flag? Bo Annvik: I think that's a good assumption. Gustav Berneblad: Yes. Is it possible to say anything regarding start to Q2? It sounds like it was a slow start to Q1 and then finished very strongly. So should we anticipate that April started quite solid as well or... Bo Annvik: Yes. We ended the quarter 1 in a really good way. And usually, Q2 is seasonally a good sort of demand quarter for Indutrade companies. So... Patrik Johnson: You have a lot of holidays in April and May, which sort of makes the situation a little bit foggy, but we have no real news of a sort of a demand change. We hope and believe that sort of March 7 will continue with the sort of reservation for holidays, et cetera. Operator: The next question comes from Victor Forss from SB1 Markets. Victor Forss: So just starting off with the nonrecurring downsizing costs. Just wondering if you could break down the split by business area and maybe comment on whether most of those costs are in Technology & Systems Solutions or if they're spread across the board? Patrik Johnson: No, not that much in Technology & Systems Solutions, to be honest. It's a little bit better. I think most part of that is actually in Life Science. They have -- even though they are trending on a good way, I think they -- as all business areas have a few companies that need to work with costs. So that particular -- those particular one-offs I talked about, they are mostly actually in Life Science. And then the LTI costs I mentioned, but those are on a group level. So that's part of the reason why there's a sort of a deviation compared to last year on group level. Victor Forss: Okay. And should we expect any more of this going forward -- or are you sort of done with the larger part of it? Bo Annvik: There will -- I assume always be some smaller restructurings in a difficult market, but I don't expect them to sort of increase at least, if anything, on a smaller level, I would assume. Victor Forss: Okay. Perfect. And then just back to the 2 U.K. companies and Technology & Systems Solutions. Just wondering if we look at the greater picture, is essentially all of the margin pressure coming from those 2 companies still, just given the 4% organic order growth? Or is it sort of spread across the entire segment? Bo Annvik: No, there is not like a delta between 14%, 18% coming from those 2 companies, but they have a significant sort of impact. But then there is a broader set of companies who have more of a flat, I would say, sales situation and weaker EBITA margins than normally. But I'm optimistic, as I said, that they will step-by-step improve during this year and onwards. And the plan ambition commitment from that management team is to come back to the previous levels for sure. Victor Forss: Okay. And just a final one on acquisition multiples because I mean in 2024 and 2025, we saw some acquisitions coming in at higher multiples. And then looking at the acquisitions here in Q1, it seems like you're back on the sort of 6% to 7% range. Just any commentary on future multiples would be helpful. Bo Annvik: Yes. We are where we are, as you said now. And as we predict right now. I think we will be on that level for -- yes, that's where we can close successful deals currently. And I don't foresee any big multiple level increases in the short or medium term. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Bo Annvik: Yes. Then we thank you for listening in and asking relevant and good questions. We close the conference and wish you a great day.
Operator: Hello, everyone, and thank you for joining us, and welcome to WSFS Financial Corporation First Quarter Earnings Call. [Operator Instructions] I'd now like to turn the call over to your host for today, Mr. David Burg, Chief Financial Officer. Sir, you may begin. David Burg: Thank you very much. Good afternoon, and thank you, everyone, for joining our first quarter 2026 earnings call. Our earnings release and earnings release supplement, which we will refer to on today's call, can be found in the Investor Relations section of our company website. With me on this call is Rodger Levenson, Chairman, President and CEO. Prior to reviewing our financial results, I would like to read our safe harbor statement. Our discussion today will include information about our management's view of our future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by these forward-looking statements due to risks and uncertainties, including, but not limited to, the risk factors in our annual report on Form 10-K and our most recent quarterly reports on Form 10-Q as well as other documents we periodically file with the Securities and Exchange Commission. All comments made during today's call are subject to the safe harbor statement. I will now turn to our financial results. WSFS had a strong start to 2026, continuing to demonstrate the strength of our franchise and diverse business model. Our first quarter results included a core EPS of $1.68, core ROA of 1.65% and core return on tangible common equity of 20.7%, which are all up versus the prior quarter and prior year. On a year-over-year basis, core net income increased 35% and core PPNR increased 10%, resulting in core EPS growth of 49% and tangible book value per share growth of 15%. These results include the previously disclosed loan recovery of $15.7 million. Excluding this recovery, core EPS was $1.45, which is up 28% year-over-year, and core ROA was 1.43%, which is up 14 basis points year-over-year. Core results for the first quarter exclude 2 items related to the sales of real estate properties as we continue to optimize our office footprint and bring more associates together in fewer locations. These items resulted in a $2.2 million negative impact to net income and $0.04 impact to EPS. Net interest margin of 3.83% was flat linked quarter while absorbing the interest rate cuts that occurred in the fourth quarter. We continue to successfully reprice our deposits, and this margin reflects a reduction of 12 basis points in total client deposit costs to 1.33%. Our interest-bearing deposit beta was 46% for the quarter, an increase relative to the prior quarter. Core fee revenue, which represents nearly 1/3 of total revenue, grew 11% year-over-year. This was driven by broad-based growth across our fee businesses and led by Wealth & Trust, which grew 25% year-over-year. Within Institutional Services, Corporate Trust, which performs trustee and agency services for mortgage-backed and asset-backed securitizations, and Global Capital Markets, which performs trustee and agency services for distressed debt and bankruptcies were each up over 40% year-over-year as we continue to win new mandates and capture market share. The Bryn Mawr Trust company of Delaware, our personal trust business, also delivered very strong year-over-year growth of 27%, driven by continued new account and client growth. In addition to Wealth & Trust, we also had other businesses that delivered strong double-digit growth, including capital markets within our commercial division and mortgage banking. Cash Connect fees declined quarter-over-quarter due to the impact of interest rate cuts and lower volumes, but the business delivered a strong profit margin of 15%, more than doubling its profit margin year-over-year. Client deposits increased 5% linked quarter, driven by growth in Commercial and Trust. While some deposits in both of these businesses are transactional and maybe short term, we continue to see solid momentum. On a year-over-year basis, our deposits are up over 9%, driven by growth across Trust, Commercial and Private Wealth Management. Importantly, noninterest deposits grew 14% linked quarter and now represents 34% of our total deposits, up from 29% in the first quarter of last year. Gross loans were up slightly linked quarter. In Commercial, strong momentum in C&I lending was partially offset by elevated payoffs in commercial mortgages. Annualized C&I growth was 7% linked quarter, driven by robust fundings. We also saw strong momentum in Small Business Banking, which had annualized growth of 11% linked quarter. In Consumer, despite seasonal trends, we continue to see solid originations in residential mortgage, which were up over 70% year-over-year. Residential mortgage and WSFS originated consumer loans at annualized growth of 3% linked quarter and are up 14% year-over-year. Turning to asset quality. We saw meaningful improvement across delinquencies and problem assets. Delinquencies are down 32% year-over-year and problem assets are down 26% year-over-year. Nonperforming assets, which are down 25% year-over-year, increased linked quarter driven by 2 loans, a C&I loan and a multifamily loan, both of which are well secured. Net recoveries for the quarter were $3.5 million as the previously disclosed $15.7 million recovery more than offset the charge-offs. Excluding the impact of this recovery, net charge-offs were $12.2 million, which is a 19% decrease from the prior quarter. During the quarter, we continued to execute on our capital return framework and returned $94 million of capital, including $85 million in buybacks, which equates to 2.5% of our outstanding shares. Since the beginning of 2025, WSFS has repurchased approximately 12% of our outstanding shares. In addition, the Board approved an 18% increase in the quarterly dividend to $0.20 per share, along with an additional share repurchase authorization of 15% of our outstanding shares as of quarter end. This brings our total authorization to 19% of outstanding shares, reflecting our intention to continue to execute on our capital return framework and maintain an elevated level of buybacks in line with our previously communicated targets and framework. As shown on Slide 11 of the supplement, we updated our annual outlook for net charge-offs as a result of the recovery. Our new outlook is now 25 to 35 basis points for the year, down from the previous outlook of 35 to 45 basis points. As part of our typical process, we will provide an updated full year outlook when we present our 2Q results in July. We're pleased with these results to start the year, and we remain committed to delivering high performance. We will now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Russell Gunther at Stephens. Russell Elliott Gunther: I'd like to start on the deposit growth, please, and if we could touch on just the overall sustainability. Would love to get some incremental color in terms of the Wealth & Trust vertical, maybe just parsing the drivers of growth here between the impact of market share gains versus the comment some of this is short term and transactional in nature? David Burg: Yes. Sure, Russell. Happy to address that. Thanks for the question. So as you know, as you saw, our deposit growth was very strong this quarter. And as we noted in our remarks, we did have some elevated transactional deposits at the end of the quarter, and those were both in Commercial and Trust. Having said that, we do feel like we continue to have momentum across these businesses and continue to have momentum in our deposit growth. Certainly, would not take this quarter and extrapolate it out in terms of the growth rate for the year. We're very pleased with the results, but not something that we feel is sustainable even though we feel like we're strategically well positioned. When you look at our -- for example, when you look at the Trust business -- and by the way, 2/3 of the growth was really driven in Trust, you can think about it 1/3 in Commercial of those deposits. And when you think about our Trust business, it is a combination of both strong growth in the market as well as our ability to take share and grow faster than the market. So we are benefiting from strong market growth there, but in addition, continue to take share on top of that. I would also add, Russell, that -- yes, I would just add one comment. We are -- I think it's worth calling out that we are seeing more deposit competition for sure, really across all the businesses. That's in Commercial and Consumer. And so that pressure is going to continue to be there. But again, we feel like we're well positioned competitively. Russell Elliott Gunther: Okay. Excellent. And then my second question would just be to kind of parse your original 2026 guide where you have 3 rate cuts embedded in there, the environment looking more like probably none. So could you just maybe sensitize to that and walk us through some of the puts and takes? Obviously, a bit of an asset-sensitive position on the margin, maybe Cash Connect overall profitability diminishes a bit, but what impact does removing those 3 cuts have on that ROA target of 1.40% plus or minus? David Burg: Yes. Yes. So one is, as I mentioned, when we come out in July, as you know, the rates have been very volatile and the expectations have changed a lot, and we'll see what happens in the back half of the year. When we update our outlook, we will certainly provide kind of a more clear picture. Clearly, the March cut didn't happen. And as you noted, we are asset sensitive, so that does provide a little bit of a tailwind for us. What we have said in the past, what I had said is that generally kind of about 2 basis points per rate cut across the year was the cost to us of the rate cut. And so I would expect the same the other way, but I think it is important to note, and I'll come back to my question on competition. We are seeing more deposit competition really across the board and more pricing competition and that's both in Commercial and Consumer across businesses. So I think that's definitely something that's in the market. We have a number of promotional products out there as we continue to try to grow clients and win market share. And so putting that all together, we do have a bit of a tailwind because of not having the cuts, but there're also other puts and takes there. And so putting that all together, I think the current rate where we're at is probably a good place to be. The other thing I would note is just as always in the first quarter, just because of the technical nature of the seasonality, just the NIM is always a bit higher. Operator: The next question comes from Janet Lee at TD Cowen. Sun Young Lee: So the total loan growth was on a period-end basis was muted, but it looks like the commentaries around C&I utilization and pipelines are pretty strong, and a lot of that growth seems to have been offset by some CRE payoffs and partnership consumer loans. So as you think about -- as we think about the loan growth in the coming quarters, how should we think about the cadence of partnership consumer loan runoffs as well as the paydown impacts? Should we see a pickup in loan growth? David Burg: Yes. So I'll start off. So yes, exactly as you summarized it. I think we saw -- we're very happy and pleased with the fundings and the momentum that we have on the C&I side of the Commercial business, and I'll touch on both Commercial and Consumer. We -- especially if you look at it across the last 2 quarters, we had annualized growth in C&I of 7% this quarter. Last quarter, we had annualized growth of 15%. And when you look at the fundings across both of those quarters, they've been really strong and up materially over where they were a year ago. So we feel good about the C&I momentum. And as you know, C&I is really our primary product with respect to commercial lending. That's where we want to lead with, that's the product that also delivers our deposit growth and the broader relationship as well as transactional activity. And so that is the product that we're very focused on. So when you look across the 2 quarters, we had good momentum. We had increased line utilization in both quarters, which is a good indication of client activity and the pipeline is pretty healthy. We are contending with a higher rate of payoffs in commercial real estate. Some of that has also helped our decline in problem assets. Some of them had lower yields and so we were happy to see those run off. But it's something that we will have to contend with as we're dealing with -- we are dealing with a bit of an elevated maturity pipeline with respect to commercial real estate. And what I would add also with commercial real estate is, we are -- as we said before, we are primarily a recourse lender, and so we're very selective in how we do commercial real estate and the type of clients that we do business with. And so we're really focused on accretive growth and not just growth for growth's sake. So I think this is a pattern. The pattern that you're seeing this quarter is we were pleased with our momentum. There're certainly pockets where we'd like to see a little bit more growth, but overall, we feel good about the momentum. And for example, Small Business, which had an uneven year last year, also had a very solid quarter, 11% annualized growth. And so we feel good about that where we are. Rodger Levenson: Yes. This is Rodger, Janet. I would just add to that. I think over time, on the consumer side, we -- the spring portfolio will continue to roll off consistent with what you saw this quarter. It may be impacted by rate cuts a little bit so there's a little bit of refi risk in that. But that's sort of, I think, a pretty good going rate of attrition there. I think our goal is and some of the progress that you've seen in our home lending business is to offset as much as possible of that growth and hopefully, over time, overcome that with our home lending products that we have. And then the Commercial business will operate exactly as David has said. We're obviously taking a very hard look at those maturing loans along the criteria that David outlined. Much of that is acquired loans. And we want to make sure that to the extent we're going to extend those loans or refinance those loans, they fit our overall criteria from an asset quality and return standpoint. So that's just a little bit of kind of longer picture of what you should see. C&I should be the primary driver and then hopefully, the growth of the home lending to offset the continued runoff of spring. Sun Young Lee: Got it. That's very helpful. And not to put words in your mouth, but if I were to interpret your prior commentary on net interest margin earlier, with no rate cuts, your earning asset yields would obviously benefit more, but you're expecting deposit costs to go up versus the 1.33% level in the first quarter. So that mitigates -- that results in a flattish NIM from here. Is that the right way to think about it? David Burg: Yes. Janet, I wouldn't say necessarily go up. The way I would think about it is, as you know, with the rate cuts, we had -- we would have repricing in our loans and so our yields have been coming down, which we've been offsetting with our deposit decreases. So in the absence of the rate cuts, we would see the stabilization in the loan yields. So on the deposit pricing side, we've had good repricing, but what I was suggesting with my earlier comments is we have seen more price competition come into the market. And when you look at our deposit prices, whether that's the CD that we have, for example, flagship CDs of 3%, our money market product is also at 3%, we're definitely far away from the high point in the market. And we see many competitors who did not move in the last rate cut and some competitors that have held or increased their pricing in some of these products. So I think there's definitely more deposit competition in the market. We still have a little bit of a repricing tailwind from some of the maturing CDs that we have. But because our CDs have been shorter and -- shorter term, a lot of that repricing is already behind us. And so that's why, really, I said kind of the NIM environment -- there're puts and takes, but the NIM environment -- our NIM should be more or less stable other than that some of that first quarter seasonality with the account. Operator: Your next question comes from the line of Christopher Marinac at Brean Capital, LLC. Christopher Marinac: I wanted to ask about the capital plans. And curious if the regulatory changes that may be happening this year kind of would cause you to revisit that again as you continue to execute the authorization quarter-to-quarter? David Burg: Chris, the -- yes, with respect to the buybacks, I guess I'll take you back to our framework that we laid out when we launched really the -- when we updated our buyback framework at the beginning of last year, and we said that we will be on a multiyear glide path returning capital towards a 12% CET1 target. And we said that we would approximately return about 100% of our net income, plus or minus. Some quarters a little bit more, some quarters a little bit less, and that's generally -- when you look at the last 5 quarters, that's really generally where we've been. When we think about capital return in general, it's -- obviously our #1 priority is to invest in the business, and we want to continue to grow the business. We feel good about our growth prospects, and we continue to invest in our businesses. And when we think about capital return, we look at both -- we look at a couple of different considerations there. One is the regulatory ratios and the other ones are also rating agency ratio. So for example, we look at -- in addition to CET1, we also look at TCE. We look at our AOCI volatility and rate volatility. And so we want to manage all of those factors to ensure that we have the right view on excess capital and our glide path. And so that's why those are really the drivers behind why we tend to stick around 100% because of those factors. We saw more interest rate volatility in the last quarter, and you saw a little bit of pressure on our TCE, and that's an example of the kind of things that we're carefully monitoring. With respect to the capital changes, we've -- obviously, this is in common period. And so we'll see how the final rules shake out. But we feel like it will have some incremental capital to us on the regulatory side because of the risk weightings and changes to assets, based on our preliminary modeling maybe a 4% to 5% benefit to capital. But again, that's on the risk-weighted side. And we look at multiple capital ratios and multiple indicators including our total capital to assets and those types of metrics. So we're going to weigh all of that, but that could potentially provide a little bit more capacity. Christopher Marinac: Great, David. That's very helpful. And I guess kind of a related question. I mean, as you sort of have the ability to be picky about the new loans that you do, have kind of your internal thresholds for return gone up over the past several quarters in terms of what would be acceptable versus not acceptable for a new credit? David Burg: I would say, Chris, no necessarily changes in our thresholds. We do look at -- I think what's really important to us is looking at the relationship pricing altogether rather than thinking about loans in a transactional level. And so we put all of that into the mix. The deposits are obviously a big part of that, other fee activity are a big part of that. And we're certainly not -- we're not the low price point in the market. And so we think about credit, we think about relationship pricing, and those are the things that drive our hurdle. Operator: Your next question comes from Manuel Navas at Piper Sandler. Manuel Navas: On the Corporate Trust side and the Global Capital Markets side, those 40% great revenue quarters up year-over-year, is there some better way to track that? How should we think about that going forward? You said that this is a great quarter, not all of them can be this great, but how should we think about those businesses over the course of the whole year? David Burg: Yes. So yes, those 2 businesses are essentially what comprises our Institutional Services business. The -- as you know, the Corporate Trust business really focuses on ABS and MBS securitizations. The Capital Markets business focuses on distressed debt and bankruptcies, and we saw good momentum across both businesses. We've been -- there've been a couple of drivers behind that. When you look at -- we've been investing in headcount and technology across the businesses. And those businesses are very important. Referrals and relationships are very important in those businesses. And we have developed over time, unique product expertise across those businesses. We have the ability to be innovative, we can respond faster to clients. And as we continue to do more work in those businesses, our reputation has really spread, and we continue to win other and new mandates. And so that's been a great trend. In addition, our -- the strength of our balance sheet and our credit ratings, and as you know, we have 3 strong investment-grade ratings, those are also very important support factors for our ability to do these deals because clearly, this is about our ability to be there for the long term to be there as a trustee and a custodian of these assets. And the last point I would make is there have been strong market growth, particularly when you look at the asset-backed and mortgage-backed security market, the market growth there has been about 20% per year. And so we have been able to ride that market. We've been able to actually win share and grow in excess of that growth rate, as you can see from the numbers, but we benefited from that market growth. So certainly, we don't expect that market growth to continue at that rate. It may slow down to a more normalized growth rate, but we feel good about our ability to continue to win share. Manuel Navas: Okay. I appreciate that. In terms of the loan growth potential, can you speak to customer sentiment beyond what's captured in the better pipelines that are up 35% and line utilization is up. But just kind of what -- how are your footprint thinking about what's going on in the environment? Or is it seems like it's business as usual? Rodger Levenson: Manuel, it's Rodger. So you can imagine, been spending a fair bit of time out and about with our clients and prospects. And I would say generally that it's business as usual. I think all this volatility, including what's going on right now overseas, I think it's kind of set in that there's going to be some volatility and that businesses are kind of moving on, and they're investing and they're seeing opportunities to grow as a general statement. I would say, at the beginning of the year, some of our local businesses had some exposure to the weather. We had a pretty rough period of time there in the early part of the year, but we -- businesses have kind of moved past that. And I'd say, generally, optimism is at a pretty reasonable level at this point. And you think you see that in not only the fundings, but some of the comments on our pipeline and other things. So we feel good about that, supporting the overall C&I growth going forward. Manuel Navas: I appreciate that commentary. Is there any opportunity to add talent, any talent that you feel like you need to add to keep that lending trajectory going? Rodger Levenson: So we're always interested, as David said, investing in the business and in the Commercial business, in particular, that's all about adding talent. And I think the bar for us, though, is very high. So we're looking at people who can move books of business, have deep relationships in the market and are culturally consistent with us across the commercial platform. Just as a reminder, an example of that last year, in the sort of right between the third and the fourth quarter, we hired the M&T Market President for the Greater Philly region, Greater Philly and Delaware region, somebody we've known for a long period of time to join us and that was a significant pickup for us. And I think that's indicative of the fact that very well-known individual proven person in the marketplace could have gone wherever pretty much I think he wanted to go and he chose WSFS. And so I think that shows that we're kind of the provider of choice for people who are at larger institutions who want to be part of something that has a balance sheet big enough to support larger customers with a product offering at a bigger bank, but in a much more nimble service-driven way. So I would expect that we will see more talent like that coming to us over time as it has for as long as I can remember. Operator: [Operator Instructions] Next up, we have Charlie Driscoll from KBW. Charles Driscoll: This is Charlie on for Kelly Motta. Circling back on the capital priority question with the possible regulatory relief boosting capital and still meaningfully above your medium-term CET1 targets? And I understand you're already pretty aggressive on the buyback and with the premium valuation giving you optionality. Just wondering your updated thoughts on M&A here? If you're looking for a more traditional bank or something less traditional? Just anything there. Rodger Levenson: So no update, Charlie, on that topic. Clearly, we -- we've talked about, we'd love to find opportunities, particularly in our fee businesses for investment, whether they're one-off talent or small acquisitions or potentially even something larger. I think our profile is growing in that space significantly, particularly the Wealth & Trust area. So we'll continue to look for those opportunities. In terms of whole bank, we think we have a great opportunity to execute on our strategic plan with the footprint that we have today focusing on this Greater Philadelphia and Delaware region, and a lot of headroom to grow in a very distracted large bank competitive set. That being said, if something came along that we think would be additive to that, we would certainly consider it, but the bar would be, I think, very high because we do think there's so much opportunity right in front of us. But we always keep our eyes open for those kinds of situations, but I would also just reiterate, we feel we can execute on our strategic plan by focus -- in the banking business by focusing on the organic growth opportunity right in front of us to take market share. Charles Driscoll: Great. And then just on credit broadly, you booked a big recovery in the quarter. Maybe any inside baseball you can give on that specific credit? And any broader kind of commentary on what you're seeing in your portfolio? Is there any areas you're more concerned about or looking at more carefully? David Burg: Yes, Charlie, I would say, on that specific credit, generally, we take a conservative posture with the way we look at our assets. This was -- as a reminder, this was a loan that was an acquired loan, not a loan that we originated and was kind of unique to our portfolio, but it was a loan to a fund that was invested in office real estate. We didn't have direct collateral -- we didn't have the direct recourse to the collateral. And so we saw no value in that, and we took a full write-off, but there's a lot of liquidity in the market. And one indication of that liquidity was that the sponsor in this case was able to get a full refinancing of that loan, and we were able to get a full recovery. So I think that's an indication of kind of the liquidity that we see in the market for some of these assets. In terms of our overall portfolio, I think we feel good. As kind of I had outlined in our comments, there's always -- there're always potentially uneven deals in commercial, but generally, when you look at the trend over the last 5 quarters, we've been trending down pretty much in all of our indicators, and that makes us feel good about our portfolio. We gave you some disclosure around our NDFI portfolio, which is very small, about 3% of our assets, also very granular and distributed. We see no credit issues in that portfolio. There are no very -- almost no problem assets, no NPAs, charge-offs or delinquencies there. And so we feel good about our portfolio overall. Again, there's always 1 or 2 credits that could be specific problems, but nothing systemic that we're seeing overall and something we continue to monitor closely. Operator: And with no further questions in the queue, I would like to turn the conference back to David Burg. David Burg: Okay. Well, thank you very much, everyone, for joining the call today. If you have any specific follow-up questions, please reach out to Andrew at Investor Relations or me. Have a great day. Rodger Levenson: Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Bertina Engelbrecht: Good afternoon. Thank you for joining the webcast of our Interim Results for the 6 months ended 28th February 2026. I'm Bertina Engelbrecht, Chief Executive Officer of the Clicks Group. I am joined by Gordon Traill, our Chief Financial Officer, who is in a completely different time zone. Gordon and I will take you through the presentation of our interim results, and we'll respond to any questions you may have after the conclusion of our presentation. This slide sets out the outline of our presentation. I will, as usual, kick off with a review of our performance of the past 6 months. Gordon will then present an overview of the financial results. I will walk you through the trading performances of our operating business units, starting with Clicks, followed by UPD. And I will then close with the outlook for the group. Please feel free to submit any questions you may have via the webcast platform during or after the conclusion of our presentation. Sue Hemp will read out your questions to which Gordon and I will respond. I will now take you through the review of the period. It has been a tough 6 months. Despite some interest rate relief and signs of a slow recovery in the economic environment, trading conditions remain constrained, especially for middle-income households. Competition intensified as new players entered the market. Traditional players extended into health and beauty categories, giving rise to heightened levels of promotions aimed at capturing a greater share of the consumer's wallet. Over the period, we experienced lost sales exacerbated by low availability due to the rollout of our warehouse management system in the Western Cape DC over the peak trading period. We invested in the expansion of our store and pharmacy network, technology enablement and progress both our people and sustainability agenda. The number of pharmacy drop-ins were, however, lower than planned. In the period under review, we opened our 1,005th store and our 797th pharmacy at Kidd's Beach in the Eastern Cape. We also increased our primary care clinics to 226 as we deepen partnerships with medical funders. Our ClubCard customer membership increased by 800,000 new members over the period to 12.9 million active members and contributed 83.7% of retail turnover. We continue to be recognized as one of the strongest brands in South Africa. UPD delivered strong growth in its wholesale channel and exceptional growth in preferred bulk contracts. And whilst UPD managed every element of its income statement well, it really managed expenses in a disciplined manner. UPD extended its wholesale fleet of pharma-compliant electric vehicles, most of which have been assigned to our owner drivers. This initiative not only supports our cost savings initiative, but also our sustainability agenda. We remain strongly cash generative and in accordance with our capital allocation strategy, bought back ZAR 752 million worth of shares to the benefit of long-term investors. In the period, diluted headline earnings per share increased by 8.1%, and we increased the interim dividend by 8.4%. I now hand over to Gordon, who will take you through our financial results. Gordon Traill: Thank you, Bertina. If we consider the group's financial highlights, group turnover increased by 7.4% from the period. Retail turnover grew by 5.4% and UPD's reported turnover increased by 13% with a strong performance from wholesale and our preferred bulk contracts. The group trading margin at 9.1% was maintained despite increased promotional activity and faster growth of GLP-1s. The diluted headline earnings per share for the group increased to ZAR 6.53 per share, up 8.1% on the prior period. In the 6 months, ZAR 1.9 billion was generated in cash from operations after working capital. The group's return on equity at 45.7% has remained strong. To note that during the period, we carried out buybacks of ZAR 752 million, which will benefit return on equity and headline earnings per share for the full year. And the dividend declared for the period has been increased by 8.4% to ZAR 2.58 per share, slightly ahead of headline earnings. Retail sales increased 5.4% with same stores growing 3.1%. The warehouse management system implementation at our Western Cape distribution center had a short-term impact of ZAR 175 million on sales. This reduced sales growth by 0.9% in retail. The distribution center is now working optimally and is capable of picking as much as our Centurion distribution center, which is 1.5x its size. The distribution business continued to experience low selling price inflation of 1.5%. Nevertheless, wholesale was up 7% and our preferred bulk distribution business up 31.1% performed strongly. Sales to Clicks were up 11.1%, while hospitals were up 2% for the period. Bertina will elaborate on the detail of each business' performance later in the presentation. This slide reflects the group's total income, which has increased by 6.5% for the period. You can see the total income margin in retail was 70 basis points higher due to the growth in private label volumes. UPD's total income margin was down 50 basis points to 8.9%, which was due to the lower SEP increase. Good performance in preferred bulk distribution contracts at a lower margin, partially offset by 2 distribution contracts that were not renewed in the prior year. Overall, the high growth in the distribution business at a lower margin has resulted in the group total income margin being slightly lower by 30 basis points. The cost base in retail increased in the period, partially due to the wage increase of 7%, higher costs from the WMS implementation to ensure service levels in store were maintained and pharmacy openings. Retail costs grew overall by 6.1% with new stores contributing 2% to the cost increase with the lower rollout of stores in the first half. Over the last 6 months, we have added 14 Clicks on Unicorn stores and 17 pharmacies to the group. The IFRS 16 interest charge increased as a result of the number of renewals in the period. Comparable retail cost growth overall was well controlled, up 5.4%. In our distribution business, depreciation increased as a result of investments in the warehouse systems. Employment costs were well controlled and the increase reflects IT contractors being taken on and moving from other costs. Taking other costs and employment costs together, costs increased by 6.8%. Further investments in electric vehicles have been made, and these will be fully rolled out in the second half. Operating costs overall were well controlled. Retail grew trading profit by 11%, with the margin slightly up from last year as the Intragroup turnover elimination, as a result of the unwinding of the Unicorn unrecognized income is taken into account in the prior year. UPD's trading profit increased by 7%, with the trading margin decreasing 10 basis points due to reasons outlined earlier. Overall, the group's trading profit increased by 7.4% to ZAR 2.3 billion for the period, driven by a good performance in both businesses. Inventory levels for the group were higher by 4 days at 89 days. Retail stock days were 8 days higher than last period and increased ahead of underlying sales. Inventory was driven by higher purchases after recovery from the warehouse management systems implementation and investment in new stores and pharmacies. Retail net working capital days increased by 2 days. UPD inventory days at 49 days were 3 days lower than last year and well controlled. Net group working capital decreased by 2 days. This slide shows the movement of cash during the period. As you can see, we started the period with cash of ZAR 3.3 billion reflected in dark blue on the left-hand side and ended the period with ZAR 1.2 billion on the right-hand side of the slide. The group generated cash of ZAR 3.2 billion highlighted in green before the repayment of lease liabilities amounting to ZAR 456 million, working capital outflows of ZAR 1.4 billion and tax payments of ZAR 651 million. ZAR 311 million was reinvested in capital expenditure across the group. Of this amount, ZAR 186 million was invested in new stores as well as 34 revamps and 15 pharmacy drop-ins and ZAR 125 million was spent on IT and other infrastructure. We returned ZAR 1.5 billion to shareholders during the period through dividends and carried out ZAR 752 million of share buybacks. CapEx of ZAR 1.3 billion is planned for the full year. ZAR 662 million will be invested in our stores and pharmacies. This will include 40 to 50 new Clicks stores and pharmacies and 80 to 90 retail store refurbishments. ZAR 594 million will be spent on IT systems and infrastructure. ZAR 88 million of this amount will be invested on UPD IT and warehouse equipment, and we will invest the balance of ZAR 506 million in retail IT systems, including the further rollout of the warehouse management system and online systems. We will continue to grow our retail footprint, grow the number of pharmacies and continue investment in our IT systems. I will now hand over to Bertina. Bertina Engelbrecht: Thank you, Gordon. I will now take you through our trading performances in greater detail, starting with Clicks and UPD. Turning firstly to the retail performance. This slide reflects the retail sales growth and category contributions. Clicks delivered a muted performance with turnover up 5.4% for the period. This was due to intensified competition, a slower rollout of new pharmacies and the short-term impact of the WMS rollout. Sales turnover in comparable stores was up 3.1%, inflation slowed to 2.3% and volume was up just under 1%. Our 60 stores located in neighboring countries showed pleasing growth of 8.8%. I will now briefly turn to each of the categories on this slide. Our positioning as a trusted healthcare provider anchors on customer value proposition. Pharmacy remains a key driver of footfall traffic, repeat visits and market share gains. Pharmacy performance has been driven by the growth in chronic scripts and select therapies such as diabetes, which also influenced the margin mix. Improved availability supported the positive performance in Schedules 1 and 2 with skin health up 9%, preventive health up 13.8% and lifestyle supplements up 18.4%. The strong growth of GLP-1s is continuing with our extensive pharmacy network providing a clear competitive advantage. Front shop health performance was muted but improved margin. Branded supplements grew by 18% and health foods by 20.1%. Private label ranges such as Smartbite Food and OptiHealth, which is our premium supplements range continue to outperform. We launched 70 new OptiHealth stock keeping units and are launching further range extensions this month. A sales decline of 1% in baby reflects the impact of low availability and high deflation in diapers and accessories. We actively defended our market share and improved gross margin due to a higher private label contribution of 29% to baby sales and 56% to the category margin. Although the beauty category remains heavily competed, the biggest adverse impact was due to the WMS implementation in the Western Cape, which is our strongest beauty node. We continue collaborating with suppliers to elevate service levels in our beauty malls and fragrance counters, resulting in those stores delivering results in line with plan. Personal care delivered a strong performance, up 7.9% despite the substantial impact of lost sales. Our partnerships with key suppliers delivered exceptional outcomes. In the hand and body category, sales grew 12.3%, driven by Vaseline, Nivea, Dove, Cetaphil and Sanex. In the body freshness category, our exclusive brands grew 26% as we sold 20 million roll-ons, resulting in over 40 million very fresh armpits. Promotional sales up 12.8% was instrumental in the performance of the personal care category. Although performance in general merchandise was up just 2.9%, we achieved category share gains across cotton and small household appliances. This supports differentiation and improves the margin mix. Interestingly, over the 1-week Black Friday promotional period, we sold the equivalent of 6 months' worth of Toni&Guy hair straighteners. Turning to market shares. Despite the muted sales performance due to intensified competition, low availability and some supply out of stocks, I am proud that we gained market shares in retail pharmacy, personal care and small household electrical appliances, whilst actively defending our market shares in baby and haircare. The retail pharmacy market share gained share to 24.9% despite the delay in the issue of new pharmacy licenses. We nevertheless opened 17 new pharmacies in H1 and have a steady pipeline of licenses. This will enable us to deliver on our targeted number of pharmacies for this year. Front shop health declined by 80 basis points due to supply constraints in core lines, some manufactured product recalls and increased competitive pressure. Despite competition, we actively defended our baby market share with standard gains in baby ready-to-drink up 460 basis points and baby wet food up 140 basis points. We maintained our market share in infant milk but declined in baby diapers, which was down 30 basis points. Our market share loss of 100 basis points in skincare is due to the double-digit decline in a major brand in which we have a substantial share that experienced poor availability and lack of innovation. In response, we have embarked on range and space optimization initiatives and are also reinforcing service levels in our beauty malls and fragrance counters in collaboration with suppliers. We recognize the role that is growing of digital beauty sales and are investing in our e-commerce platform and mobile app to drive personalized customer engagement. We defended our haircare market share, gaining 10 basis points with strong gains in shampoo, hair colorants and hairspray. Personal care gained 60 basis points with strong gains in hand and body, up 80 basis points; oral health, up 60 basis points; and body fresheners up 70 basis points. The gain in market share of 150 basis points in our legacy category of small household electrical appliances is accelerating across every subcategory and every measurement period. Standout gains were recorded in beverage makers, up 300 basis points; food makers up 430 basis points and indoor cooking up 140 basis points. Great Value as a key brand pillar has sustained the group during tough economic conditions such as we are currently facing. Our strapline, "feel good, pay less" and our promotional campaigns resonate and drive shoppers to our stores and our online platform. Promotional sales were up 8.1% and contributed 47.8% of turnover, confirmation of the consumer response to value. In pharmacy, we deliver value with lower-cost generic medicines up 6%, accounting for 58% of sales by value and 72.1% by volume. The weaker value growth of generics is due to the surge in demand for GLP-1 products. In the past 6 months, we returned ZAR 527 million in cashback to ClubCard members to reward them for their loyalty and to ease financial stress. The competitive landscape is evolving due to new entrants and traditional retailers extending into product categories to capture a greater share of the customers' wallet. Competitors are forming novel strategic partnerships to enhance the customer experience. They are also investing in data capabilities to support personalization aimed at shifting customer behavior and to develop targeted loyalty mechanics that enable more precise price investment. We have an African proverb that states, "if the drum beat changes, the dance must change." We have recognized the need to adapt to the new competitive reality whilst remaining firmly anchored in affordable, accessible health care, supported by a [ fit-for-all-types ] customer loyalty program and a focused private label and exclusives portfolio. In fact, our private label and exclusives portfolio is a key strategic pillar. It mitigates against the margin impact of increasing our share of pharmacy, creates a clear point of differentiation based on consumer trust in the quality of our brands and enables us to maintain our total income margin despite competitive pricing pressures. Over the period, we sold 110 million units of private label and exclusive brands. A fun fact is that we sold enough toilet paper rolls to circumnavigate the earth 100 times. The muted performance of private label and exclusives up 4.6% is because 60% of our bath and body sales are accounted for during the peak trading period when we were most impacted by the WMS implementation. We are though reaping the benefits of working with local suppliers to develop ranges in South Africa. This supports the national agenda to drive localization and employment. Our locally produced ranges are continuing to perform exceptionally well with Expert ranges up 35%, Clicks Skincare Collection up 11% and Smartbite food ranges up 40%. Our Made 4 Tots ranges grew 75% due to range expansion and improved formulations. We also pursue differentiation through our service offering and in-store elevations. A big focus in this year will be on elevating our mens' grooming, informed by the overwhelming positive sales impact of our [ Grow Nation ] campaign and strong growth of our Sorbet Man range, up 29% I am excited at the prospect of what our in-store electronic elevation, which is strongly supported by suppliers, will achieve in elevating the customer experience whilst also growing both sales and income. Despite its challenges, The Body Shop remains our fourth most profitable exclusive brands. The improved performance of the newly introduced ranges and improved availability is therefore encouraging. The investment in the premium ARC beauty retail brand continues to add value with the ARC customer spend totaling ZAR 331 million, up 21% over the past 12 months. This is because for every ZAR 1 in cashback that the ARC customer earns at ARC, they spend ZAR 5.72 at a Clicks store. Our loyalty program is a primary demand driver. It underpins customer affiliation, enabling us to defend and grow market shares. The Clicks ClubCard loyalty program, with its strong affinity partners is our most valuable asset, with 12.9 million active members who contributed 83.7% of sales. Over the period, we added a whopping 800,000 new active ClubCard members. Encouragingly, it is the most used loyalty program in the mass market and among the youth. The ClubCard program played a significant role in easing financial strain on consumers during tough times, which is the reason we moved to monthly cashback payments. In the period, our cashback rewards of over ZAR 0.5 billion certainly brought welcome relief to ClubCard customers as the benefits of our affinity partnership with Engen and FNB's eBucks program to single out two. E-commerce, up 17.9% for the period, accelerated strongly in quarter 2, driven by increasing mobile app adoption, personalization enabled by loyalty data and improvements in our fulfillment execution. Our app shoppers contributed 46.5% of online sales with a Click and Collect option contributing 31% of online sales. We fully implemented LEAP, the only modern pharmacy management system in South Africa across all of Clicks. In response to market demand, we are now marketing the LEAP pharmacy software system to third parties. Over the past 66 months, we have, on average, increased our store count by just over 3 stores per month in pursuit of our medium-term expansion target of 1,200 stores. At the half year, we closed on 1,003 Clicks stores, 795 Clicks pharmacies, 2 UniCare specialized pharmacies and 226 primary care clinics. A week ago, we opened up our 800th pharmacy in Oudtshoorn, a rural town which is roughly 5 hours drive outside of Cape Town. Our store location strategy, which remains premised on convenience and proximity to customers is key to our consistently broad appeal. Over 53% of households reside within 5 kilometers of a Clicks pharmacy. We increased the number of primary care clinics to 226 and are also extending our virtual doctor network. In UniCare, we are extending space to doctors and partnering with medical funders to provide first-level triage after hours. We are opening another UniCare greenfield site at the end of this month and completing another UniCare acquisition in May. We remain strongly aligned to the national health care agenda and committed to providing affordable, accessible health care to all. 252 of our convenience format stores are located in lower LSM areas accounted and accounting for 23.4% of turnover. That completes the review of the retail business. I will now provide an overview of our distribution trading performance. Wholesale turnover was up 7%, boosted by the improved purchasing compliance from its core wholesale customers. Clicks accounted for 60.5% of UPD's fine wholesale turnover, up 11.1%. Clicks has improved purchasing compliance of 98% is in line with our internal targets. This is positive for UPD, but less so for competitors who benefited from Clicks byways in prior periods. UPD will continue to benefit from the growth in Clicks as it increases its pharmacy count in H2. The hospital channel remains constrained by controlled supply rather than demand as they manage their ethical generic mix and inventory levels. Purchasing compliance though has stabilized due to improved service levels. Over the period, UPD's market share of the independent acute private hospital channel improved from 30% to 33%. The dedicated hospital key account management structure, which we introduced over a year ago is yielding positive results. The stabilization of Link pharmacies is due to a relaunched Link offer and dedicated resourcing. The revised structure offer to independent pharmacies is beginning to stimulate sales in that channel. Whilst we are pleased with the improved trading performance, expense management, efficiency extraction and other income gains, there remains room for improvement. The delivery of the strategic initiatives outlined next, together with superior service to all of UPD's customers, will deliver the recovery of UPD's wholesale market share. Quality, regulatory compliance and service excellence underpins UPD's performance. Operational stability with the on-time and in-full metric at 96.4% and customer in-full rate at 99.3% resulted in improved purchasing compliance for fine wholesale customers, whilst preferred bulk contracts delivered a truly stellar performance. However, the loss of the 2 bulk contracts adversely impacted total managed turnover. Value growth continues to be impacted by the higher volume growth of generics, which contributed 76.9% to UPD's fine wholesale sales. Our strategic initiatives are progressing broadly in line with plan. I will highlight a few of these. Medical consumables remains a strategic growth opportunity. The acquisition of the medical consumables business to fuel this opportunity has been finalized. We have completed the integration process. The sales targets are being pursued in a disciplined manner, and we have extended our inventory pipeline to ensure that we have the requisite stock mix for scaling this in our core hospital channel as well as the private sector in Southern Africa. In December, a cross-dock facility located at the retail DC became fully operational with the early benefits already evident. This cross-dock facility enables us to service our core wholesale customers in the Pretoria-Noord much more effectively, which will also reduce byways to competitors. In a low-margin business such as UPD, a relentless focus on efficiencies and expense management is critical. Over the past few years, we have worked on route optimization and on reducing our fuel costs through our electric vehicle conversion program. By the end of this month, 86% of our wholesale fleet will comprise of EVs covering 74% of total kilometers covered. Over the past 12 months, fuel as a percentage of transport costs has already reduced from 40% to 35%. UPD's strong top line momentum accelerated in quarter 2, driven primarily by preferred bulk sales. The business will benefit from a stronger Clicks pharmacy opening program in half 2, improving Link purchasing appliance and the ramp-up of medical consumables. Profitability will remain under pressure. Hence, the UPD team are focusing on maintaining service excellence, working capital improvement and disciplined cost management. This completes the review of our trading performance for the period. As always, I am inspired by the proud brand ambassadors in our company. The WMS impact tested our resilience, but our people in our stores, DCs, IT, regional offices and HQ were unwavering in their commitment to getting us through that period. On behalf of our Board and the executive teams, I would like to thank each employee, team and their families for their individual and collective contribution to our results. I will now conclude the presentation with the outlook. It would appear that the only constant is change. In early January, most economists were cautiously optimistic about the economic outlook for South Africa. Because South Africa imports most of its crude and refined oil products, any increases in fuel prices will have a knock-on effect on the cost of transport and food. In turn, this will adversely impact inflation and interest rates, leading to depressed consumer spending. We too will be affected by fuel price increases. The investment to convert more than 80% of the UPD wholesale fleet to EV is already delivering fuel cost savings. This will enable us to mitigate against a fuel surcharge for our customers whilst also supporting our sustainability agenda. In half 2, we will also be absorbing the impact of the very low SEP increase, primarily in UPD but also in Clicks. We, though, have a proven capability to trade positively through constrained trading conditions. This is because of our fiercely loyal ClubCard customers, extensive private label and exclusive portfolio and our strong market shares in defensive retail categories. The investments made in ARC and Sorbet are attracting new customers to Clicks. UniCare is extending its service offering by creating space in its stores for doctors. The colds and flu season lies ahead. In May, we will trial our on-demand, over-the-counter medicine delivery service, which will be fully pharma-compliant. We will achieve our target of opening 40 to 50 new stores and 40 to 50 pharmacies this year based on data-driven insights. Despite some delays, we will open 2 additional UniCare format pharmacies by the end of May and one more by the end of this year, taking our total UniCare count to 5 by the end of this financial year. We are on track to pilot 10 clearly differentiated concept stores in this year. UPD has a clear, targeted plan to grow sales of its higher-margin medical consumables business in its core hospital channel and in the Southern African private sector. Scale is important because it provides the opportunity to pursue efficiency gains. Earlier, I shared some of UPD's strategic initiatives. All our retail businesses and shared services teams are executing plans aimed at stimulating sales and margin improvements as well as sustainable cost management initiatives to create the necessary leverage to enhance profits. We wrestled with the earnings guidance because of the high levels of uncertainty and volatility as a result of geopolitical events, which will impact on inflation, interest rates, consumer spend, supply chains, product margins and costs in the months ahead. These are the factors that weigh on us in setting on guiding for an increase in diluted headline earnings per share for this financial year of between 4% and 9%. That concludes the presentation. Thank you so much for taking the time to listen to us. We are available to take your questions or your comments. So I'm now handing over to Sue Hemp, who will facilitate the Q&A. Sue Hemp: Thank you, Bertina and Gordon. We have a number of questions here from Michael de Nobrega at Avior Capital Markets. Firstly, competition in the drug retail space appears to be intensifying, particularly around loyalty programs. How is the group thinking about maintaining its competitive position? And could this lead to any evolution of the Clicks ClubCard offering over time? Bertina Engelbrecht: I'll take that question. Michael, thank you very much. That's an excellent question. First, I guess I'm buoyed by the increase in our pharmacy market share. That's probably the clearest indication of whether or not we are winning against the heightened competition. But what will be in addition to that? The first is we are excited at the prospect of trialing our over-the-counter on-demand medicine delivery service as we've said in May month. Secondly, we are going to be hitting our target of up to 60 pharmacies in this financial year. Very well on track of this with this, and we already have a fair number of those licenses already in hand. Thirdly, we continue to see the exceptional loyalty of ClubCard within pharmacy. When we talk about ClubCard, 83.7% of total sales. In pharmacy, they're [indiscernible] over 87%. And then fourthly, we are extending UniCare, which is really a specialized pharmacy format, and we are hopeful that by the end of this year, we will get to 5. Definitely, we know that by maybe will get to 4. Sue Hemp: Second question. As the WMS will be rolled out to the Durban DC, what key lessons have you taken from the Cape Town implementation? Should we expect any further disruption during the rollout? Gordon Traill: I can take Durban. In terms of the rollout to the Cape Town, it's not a start-up from 0 again. So any bugs are operational issues but are being earned out. I think the second thing to bear in mind is that Cape Town is, in terms of complexity, our most complex distribution center, and we've tested every aspect of the warehouse management system over the last few months. And we've put in -- moved people from Cape Town to take the Durban staff through how to work with that with the new system. So there's very good change management. So in short, we are not expecting to experience the same level of issues that we had with Cape Town, and it's at a quieter part of the year. I think the last aspect to just bear in mind is the relative size of the DC. So Durban is about 1/3 of the size in terms of Cape Town in volume. So there's a very good plan to mitigate or alleviate some pressure when we go live on the stores that Durban serves. So we expect that Durban the next DC will be successful. Bertina Engelbrecht: So if I may, maybe just add to some of that because I think, Michael, what you're asking is what have we learned? The first, I think that we have learned is take a bit more time to really consider if you've had a delay, where do you go? So complexity of the distribution center, I think, will be one of the key factors that we take into account. And as Gordon said, Durban is the least complex of all of the retail DCs. The second one is have a plan B but also a plan C. The third one, I think, is that we've already put in place work towards our micro-fulfillment centers, which will alleviate the pressure on the Durban DC when we go live. And then fourthly, part of our plan is that if anything were to go wrong, which we do not anticipate at all because we've been stable now for 2 months flat is that we are able to serve our Durban customers -- stores sorry, from both Lea Glen and then also via Cape Town, the Eastern Cape part, which is really serviced out of the Durban DC at the moment. Sue Hemp: His third question. Could you maybe give us a bit of color on the key assumptions, particularly around diesel prices and inflation? Gordon Traill: Well, we did outline the impact of what the diesel price increase is going to be on our bottom line. But I don't think that is the -- that is an impact, but it's not the major impact. It's also what price increases that suppliers are going to be looking to pass through to ourselves and the impact on the wider economy because it's the consumer has less money in the pocket. It's how much are they going to pull back on spend. So just now inflation remains fairly muted. We expect it to go up in terms of the cost price inflations that were passed through or that suppliers want to pass through, we'll always negotiate for a period of time, but it is going to have some -- I think the more worrying impact is the general impact on the consumer going forward. Sue Hemp: His fourth question, the update mentioned rollout of on-demand OTC medicine delivery from May. Could you provide more detail on the scope initial regions? And how do you see this scaling over time? Bertina Engelbrecht: So I mean we're going to do the rollout trial from May, well on track on that. Much of the work, Michael, has been around really understanding the -- how we ensure that we are compliant from the very beginning. We will be first to market with this. And so I think it's important that we do that. In terms of the mechanics of all of that, I mean that's what the team are currently firming up on. When we've got a bit more detail on that, we will let you guys all know about that via Zoom. Sue Hemp: Then his fifth question and the last question of this session, could you elaborate on the delays in obtaining pharmacy licenses and how you expect approval time lines to evolve going forward? Bertina Engelbrecht: How long is a piece of string? There were two things really. I mean there are resource constraints within both the SAPC and the Department of Health. Just in terms of the inspectors, you need a physical inspection of the site. The second one really is that there was a bit of an irregular meeting schedule for some reasons that were completely understandable, such as, for example, tragedies in some of the family members that sit on that licensing committee. But we are really hoping that the meeting schedule will be more regular going forward. The important thing, I think, at this stage is to note that we have a fair number of the licenses to support our rollout program of pharmacies for the remainder of this year. Sue Hemp: And we have two questions on the same topic from Anda Tyali from NVest Securities and Ya'eesh Patel from SBG, both asking for some insight on the retail post-period trading. Has it improved from a circa 3% print from the last 6 weeks of the first half? Gordon Traill: Bottom line is, yes, it has improved from the 3% print. It's still not where we would -- we always want it higher. But it's still fairly early since we've introduced the additional ClubCard rewards at the end of February. So on the deep cut deals, which has been performing particularly well for the products that we put on promotion there, and we're seeing that our suppliers are quite excited about that and wanting to speak to us more about support around those sorts of deals. That's definitely ahead of the 3% that we saw in the last 6 weeks. Bertina Engelbrecht: And maybe then just to add to that. I mean we haven't really had a high level of new store openings since the half. But today, for example, we're going -- we're opening our doors today. I think between -- I think 5 of them today. UniCare actually goes next week on the 28th, our second -- our third UniCare store opens next week on the 28th. Sue Hemp: So you partially answered the first part of Michael Jackson Bank of America's question, which is how is your rewards program performing since implementing changes in Q1 and should we expect an increase in promotional cadence for H2. But he also asked, will this impact gross margin negatively in H2? Or can you offset this by growing private label further? Bertina Engelbrecht: Partially, the offset will always be an ongoing private label further, but it's also going to be about how you use the revised ClubCard offer in a much more selective way, as opposed to broadly. So that's some of the work that the team is looking at the moment. Sue Hemp: Ya'eesh Patel from SBG asks another question. Retail wage increases seem quite high in the context from moderate CPI for now. What led to such a high negotiated increase? Bertina Engelbrecht: It's something that happened more than 2 years ago. So it was a multiyear deal. And most certainly, what we have done is that we have had discussions with the negotiation team. They commence the negotiation with the new deal, which will be implemented in July month. So the process has kicked off. Sue Hemp: Bruce Williamson from Integral Asset Management says, congrats on continued store growth and good results and a very difficult trading environment. In deciding on the split between dividends and a share buyback, what value did you put on the Clicks share? Gordon Traill: We never disclosed what that value is. We do have a model, and we base it on -- we are expected -- our forecast results. And that's put to the Board by management and approved by the Board, but there's never a number that we disclosed. Sue Hemp: Keenon Choonoo from Investec. We've answered a couple of his questions, but he says thanks for the opportunity to ask them. Front shop health growth has lagged pharmacy. Could you provide some color on the competitive pressures faced currently? Which categories and entities do these pressures stem from? Does this mean sustained promotional activity going forward? Bertina Engelbrecht: I don't think sustained promotional activity is required. It essentially has been in the more premium vitamin and supplements range, and that's the reason we're accelerating our range extensions with the within OptiHealth, which is really performing exceptionally well. I may also say, I mean, we've seen a fantastic performance out of GNC over the last couple of months. I spoke to our Head of Healthcare last night, and he had just come back from leave and he came to tap me in the shoulder and said, "Bertina, the team are working really, really very hard on this." So vitamins and supplements, I think we're quite clear in terms of what the area is, but there were -- we had some core lines that were out of stock. And those are some of the areas that we are attending to at the moment. Sue Hemp: Sorry, we're getting multiple questions on the same things. I hope we've answered people's questions. Sa'ad Chothia from Citi has asked if we can give an inflation outlook for half 2 and for FY 2027? Bertina Engelbrecht: The mirror that I'm looking at is super opaque on that one. I mean, kind of just say, I mean the reserve bank kind of signaled that you may be looking at inflation getting closer to 4% to 4.5% by -- probably by around about the end of May. It's unclear to us at this stage as to what that would mean. I mean, clearly, I think suppliers are already knocking on the doors, talking about price increases. All of us in our personal capacities, we have already had some of our domestic service providers talk to us about fuel surcharges. So I think inflation is ticking up, but it really is all going to depend on what happens to not necessarily in this country but what happens in the Middle East. Sue Hemp: Sa'ad Chothia from Citi asks if we're able to share sales and profit of the medical consumables business. Bertina Engelbrecht: There is a plan. The reason we are not talking about any shift in the guidance as far as UPD is concerned is because those plans must now be realized. And so I think it's early days. The team, I must say, have put together a really impressive plan. They've already started engagements with hospitals, both in the acute as well as within the listed hospital space. Let's just say the margin is significantly and substantially higher than what the margin would be within UPD's final wholesale business. Sue Hemp: Kgomotso Mokabane from Sanlam Private Wealth asks, private label growth was only 4.6% despite its margin benefit. What held back the growth in pharmacy private label is still relatively low versus generic volume? What are the main barriers to scaling private label opportunity there? Bertina Engelbrecht: The biggest impact on private label growth over the period was because 60% of our bath and body, which is a massive category for us. Those sales really happen within over the peak trading period. And so that was a major impact. What would we be doing? I mean the constraint in pharmacy would be there's a regulatory process that you have to go through. You will know that we disinvested of Unicorn and we're no longer applicant on any of those products. And so it's the work really that we do with the Unipharma team. in terms of making a broader range available. And there are specific categories such as mental health, which are much more challenging to shift the patient that is on an originator product. Those probably some of the feedback that I give on that. Sorry, the final thing that I was just going to say is, of course, as well, it's the surging growth of the GLP-1s which are all of originated, at this stage. Sue Hemp: Neo Ramodike from Mazi Asset Management says, should the shift to EVs at UPD be interpreted as a move to integrate electric trucks into their logistics fleet? Maybe meaning the retail business as well? Bertina Engelbrecht: Into the retail business as well. I think, Gordon, you must help me on [indiscernible]? Gordon Traill: Yes. Sorry. The trucks that used in UPD are much smaller. We are trialing EVs in the retail fleet, but just now the economics of the larger trucks versus the traditional ICE vehicles aren't quite there just yet. But it is something that we are looking at very closely because the economics in the larger trucks are changing very, very quickly. So a few years ago, the small electric vehicles probably wouldn't have been feasible for UPD, and that's just changed in the last couple of years. That makes it very attractive. And fortuitous, just now given the recent events, but it is something that we are looking at, but we're not quite there yet. Sue Hemp: [ Pieter Drost ] from [indiscernible] Fund Management says the 1,200 stores, medium-term target. How should we think about a longer-term target or runway? Bertina Engelbrecht: Look, I mean, we're going to get to around about at least 1,040 Clicks stores probably by the end of this financial year. So the target achieving the 1,002 target is in sight. And we've said once there's close proximity to that target, we will be providing an updated target. So definitely, there's a clear understanding in our business that, that is not the final target. We will be providing that target upwards closer to reaching the target itself. Sue Hemp: I have a few -- more questions Kgomotso Mokabane at Sanlam. Has the move to a monthly ClubCard cashback changed how you think about promotions and margin management? Also from a customer perspective, what has been the impact on customer frequency and basket size? Bertina Engelbrecht: The cashback monthly payment cycle was really -- we did a lot of research and benchmarked ourselves. And it became clear especially in a constrained economic environment. Customers didn't have enough time to wait for 2 months before they could redeem. And so that's important, I think, to assist the customer. Actually, when we look at it, ClubCard customer contribution to sales is up. In fact, even as I speak, I was just looking at last year's, it's beyond the contribution that I outlined as of the half year period. So definitely, that change in shift in the ClubCard program does seem to be bearing fruits. Sue Hemp: The WMS impacted the DC MPS to have increased their inventory levels with double digits ahead of top line. Can you give some color on clearing inventory out and any potential impact on margins? Gordon Traill: So the inventory that was brought in was really as a result of not being able to get the stock in during the implementation. So we made a decision to push stock into the DC once things have settled down into January. So it's not a impact that we -- the inventory levels that we have shouldn't give rights to a significant need for any sort of markdown or clearance, et cetera. So it's not something that we're particularly worried about at this point. Bertina Engelbrecht: Actually, Gordon, I might make the point to say that given the price increases that we've been looking at, it would be fortuitous that we have the stock. Gordon Traill: Yes. But I think -- we didn't plan on that but it is fortuitous. Bertina Engelbrecht: We didn't plan on that but it is fortuitous. Sue Hemp: Can you give a bit more detail on the 10 differentiated concept stores you plan to pilot? Bertina Engelbrecht: Well, I mean, first of all, why would we even look at this as opposed to saying, you just change a Clicks and make it smaller. It's because we really want to be true to what the Clicks brand is all about integrated front shop and health care offering. The second bit is that Clicks really needs -- I mean, I don't think we've got some smaller stores, but I mean in an ideal world, Clicks really has a store size, probably a minimum of 500 square meters. We can live smaller, but I think it's in very specific lifestyle estates. That immediately constrains where you will be able to put this up. So we believe if we look at some of the most highly -- most densely populated areas in South Africa, where you've got massive transport hubs that those are the areas that we're looking at. And then, of course, we saw in some of the rural areas where the competitors are not. Sue Hemp: And a final question from Kgomotso or there might be some more still coming. But can you give some color on CEO succession planning, particularly in the context of the group's executive retirement policy of age 63? Bertina Engelbrecht: I think I can say I was actually checking the IR, and you didn't mention it, but the Board has asked and I have agreed that I would stay on as CEO until the end of August 2028. And we have started the process of both identifying and preparing succession candidates within the group, which obviously is [ the remit ] of the Board. Importantly, I think to say is that we've reinstated the Nomination Committee. We had the first Nominations Committee here about a week ago, and that is a primary focus of the Chairman and of the Nominations Committee. Sue Hemp: Now Neo Ramodike from Mazi Asset Management has another question. In 2023, you acquired a software company called 180 Degrees. Does this company have anything to do with the WMS? Bertina Engelbrecht: No, we did not, but it had a lot to do with a very successful project called LEAP, which is the only modern pharmacy management system in South Africa. It's really the implementation went extremely smoothly. And of course, now we've got overwhelming demand from the private sector, and we are starting to process to markets and roll that out within the private sector. Sue Hemp: Rendani Magalela from Absa CIB. With regards to UPD, you mentioned subdued performance in the hospital and independent segments. Could you please touch on the strategy to raise the subdued performance? Bertina Engelbrecht: Both in the hospitals really, it's about the difference between value and volume because hospitals are definitely managing their ethical generics mix as well as the inventory levels across their network. So that's the one part. What are we doing to try and increase our size of basket within hospitals? That's really all about the medical consumables. So the engagements have begun in terms of extending that into the hospitals. And we'll -- we are hopeful that we are making and we'll be able to make inroads. In the independent space, the team have just started about 4 weeks ago with the revised franchise offer and the way which has been communicated, and I must say the early uptake is really, really encouraging. So that's good to see that we are able to now look at arresting, not only arresting, but I think improving the performance in the independent pharmacy space. Sue Hemp: A technical question for Gordon from Ya'eesh Patel at SBG. How should we think about the growth in the finance cost line post double-digit growth over in the first half? Gordon Traill: That's really all about the early share buybacks that we did this year compared to the prior year. So the IFRS 16 cost has been coming down. So it was offset by the early buybacks we did in the first quarter. Sue Hemp: We're. We're running out of time, so I'm going to just ask one final question from Jandre Pieterse at Umthombo Wealth. What do you think would need to go right for Clicks HEPS to again grow around 13% to 14% going forward in the medium term? And what is your medium-term target for HEPS growth? Bertina Engelbrecht: Well, I think what needs to go right probably is that we get the pharmacies as expected. That's critically important because it's the anchor and the [ footfall traffic ] driver. Secondly, I would probably say it would be difficult to think that something that operationally we need to do differently, to be honest with you, because I look, for example, just a shrink, it's half of what it was a year ago. I mean, a year ago, we were already best-in-class globally. So I would have said the biggest for me would be to actually get the pharmacy licenses. The final one would be, I think, we're going to have to be pretty tough with suppliers. We've chosen where they invest disproportionately. And I don't think it's only our company. I think it's all of the other retailers that are knocking on those doors and saying, that was most unfortunate, but you long to have to give us the same. Let's see what they do. Now it would seem to me that we could go on for 2 more days with you guys. Thank you so much for the quality of your questions. We have responded to those that we have. Sue will get back to you if we haven't responded. So can I just say thank you once again for your time and all of the best.
Hermann Haraldsson: Good morning, and welcome to our Presentation of our Q1 2026 Report. Yes, let's just go to the agenda slide. We will have the usual agenda for the presentation, and I will present the highlights of the quarter and the strategic update before handing over to Michael for the financials. So next slide, please. We have said that 2026 would be a year of growth acceleration and the first quarter tells us that we are back on track for that. We delivered 4% constant currency growth. And while January and February were soft, momentum changed in March, which saw a significant increase. This correlated with the launch of our spring/summer assortment where we went into the season with around 35% more styles than last year and an assortment that we believe is the most relevant and inspiring we have offered for some time. And we can see that our customers are responding. So that's very positive. On profitability, the underlying margin continues to improve. Our adjusted EBIT margin increased slightly versus last year despite significant FX headwinds. Looking ahead, we are in a strong position to push harder in the second half. Our inventory is clean and healthy, and we have already committed to a significant ramp-up for the autumn/winter season to fully capture the growth momentum that we are building. We will do this from our new base as the headquarter transition to Copenhagen was completed in February. This was done without disruption and gives us the foundation to build our culture and the best team in our industry. Today, we are also initiating a new SEK 200 million buyback program. Cash generation remains solid, and we will continue to distribute excess cash in a disciplined way. And finally, on the outlook, we confirm our revenue guidance of 3% to 8% constant currency growth. But given the solid start of the year, the higher end of the revenue range is now considered being more likely. The adjusted EBIT margin guidance is raised 30 basis points to 5.6% to 6.8% to reflect the favorable currency moves. And Michael, he will take you through the details later. So now please turn to the next slide. We believe that the improvement we saw in March is due to the strategic adjustments we made to Boozt.com going into 2026. We have elevated the brand. We are providing more inspiration, and we're using AI to improve the whole customer experience. And most importantly, we have rightsized and improved our inventory in many ways. Following a year where we had to focus on cleaning our inventory, which had become too deep and without enough freshness and newness, we are now gradually building a more inspirational and a more aspirational assortment. In the first quarter, we added more than 100 new brands to Boozt.com, including well-known names like Birkenstock and Hunter in fashion and Peugeot in home. We have also widened our buying within our current brand portfolio, making slightly more fashion bets. With more than 135,000 styles launched as part of the spring/summer campaign, we brought 35% more options than in SS25 to shop, and our customers responded well by buying 40% more style variations than last year. For the second half and the autumn/winter season, the buy plan is even more ambitious. We are adding more brands and more breadth across categories, including the return of Max Mara and GAP to the site and new additions like Paul Smith. In total, we are on track to add more than 200 new brands during 2026 across our different categories. The point is simple; our customers are responding to a better and broader assortment. This gives us confidence in the acceleration that we are planning for the second half. Next slide, please. Looking at the women's category, we are also seeing a better trend here. After a number of quarters with a decline in customers engaging with the category, we are starting to see a stable improvement. Active customers buying women's fashion on Boozt.com grew 3% in Q1, but the underlying development was even more encouraging. January and February were difficult, cold weather and limited inventory held us back, but it actually got a bit warmer in the region. And as we saw the first signs of spring, women reacted very well to the SS26 launch, supporting our acceleration in March. We expect this momentum to continue as we broaden our assortment even further in the second half of the year. It goes without saying that this also has a spillover effect onto the rest of the business. When women engage with fashion, they often also move into beauty, kids, sports and home. So you might say that a healthy women's category drives the entire platform. Next slide, please. As we scale that volume, it is essential that we do so efficiently and keep the cost base lean. AI has become a key part of how we do that, allowing us to handle increasing volumes without a proportion increasing costs. A clear example is in customer service, where AI now handles 40% of all inquiries. By automating the routine cases, we have been able to reduce our staffing requirements, allowing us to operate with a more focused team while maintaining a high service level. In the supply chain, we have removed 20% of the manual workload by automating product categorization, among other things, which also ensures better data consistency. And in the warehouse, we have effectively added 5% to 10% in capacity within our existing footprint through the use of AI. So it's all about using technology to make our current infrastructure work harder and more efficiently. These are just a few examples, but they give a good idea of how broadly we work with AI to increase efficiency across the entire value chain. So next slide, please. On the customer side, we are using AI to remove friction and make the shopping experience more relevant. This is already live and already contributing. All products now have AI-generated descriptions and tags. And for the spring/summer collection, we're also using AI-generated model pictures. We're also seeing a direct commercial impact from AI-supported style suggestions. When customers see outfits mixed and matched by AI, they add more to the basket, increasing the average order value. As we've said before, AI is going to get us to a shopping experience that is very close to the experience you get when you engage with an outstanding shopping assistant in a physical store. The only thing that is missing is the ability to feel and touch the products. Our Virtual Shopping Assistant is also off to a good start. While adoption rate is still in the very early stages, the conversion rate for customers who engage with the assistant is 130% higher than those who don't engage. So even though the sample size is still quite small, results are quite encouraging. On product discovery, our recommendation click-through rate has improved from 1.5% to 5%, a meaningful step in making it easier for customers to find what they are looking for. By delivering more relevant suggestions and testing a number of AI tools, we ensure that finding the right product remains as intuitive and easy as possible for the consumer. But to wrap it up, AI is making us a more efficient business and better retail at the same time. That is not always easy to achieve, and this is why we keep investing in it. The next slide, please. We work continuously to build out our non-fashion categories, adding both strong brands and more breadth to that part of the assortment. These categories performed well in the quarter, which is also evident from the increase in customers buying from more categories. If we look at the chart, the trend is solid. Every group from 2 to 6 categories is growing in high single digits, up between 7% and 9%. This is a positive step-up from what we saw last year, and it shows that our focus on cross-selling between departments is paying off. This is fundamental for us. We know that when a customer buys more than just fashion, when they add items from home or kids, they stay with us for longer and they return fewer items. The strategy is working, and it gives us a very strong foundation for the rest of the year. With that, I will hand it over to Michael for the financial review. Michael Bjergby: Yes. Thank you, Hermann, and good morning, everyone. I will start out by presenting our financials for the quarter, followed by comments on our updated outlook for the year. I'll start on Slide #11. So as Hermann said, we grew 4% in constant currency, and this was despite of lower inventory. We thereby maintained our growth momentum from Q4, and we improved our general return profile. There are a few notables in the growth patterns that I believe are worth highlighting. First of all, our strategy with increased focus on our main premium side is firmly executed and showing results as expected, growing Boozt is growing 6% in constant currency and Booztlet is declining. Secondly, the Nordics grew quite nicely with good stable growth in Denmark and Sweden, and we saw Norway grew 13%, where we continue to see that we have very strong potential for further growth and where we believe that we are underrepresented. Finland did not grow, and here, consumer behavior appears quite weak generally. As mentioned, a couple of times, March was materially stronger than January and February, and I just want to mention that this is both because constant currency growth was stronger, but also because we now see less currency headwind. This is something that will benefit us for the rest of the year and something that will show in the reported numbers already from April. Please go to the next slide for comments on our profitability. I think it's critical to understand that the quality of earnings are actually much stronger than they appear in the headline figures. The underlying gross margin is actually up and -- but impacted by FX, 70 basis points and also timing of other revenue as well as some COGS adjustment. And this is timing. As FX effects disappear, the reported gross margin will go up, and we saw that in March. So we had a positive reported gross margin in March, and that is a trend that we see continuing into April now, and we also expect for the rest of the year. So the EBIT margin was slightly up. This was driven by less marketing spend. We have produced offline and improved efficiency, and this particularly related in this quarter to Booztlet due to reduced focus and reduced need for clearance at our outlet site. The marketing spend was completely in line with plan and expectations as when we started the quarter, so nothing out of the ordinary. Next, please -- next slide, please. In Q1, the return on our capital improved as our inventory is moving faster and performing better. As you can see on the chart to the right, our quarterly inventory turnover improved to 0.4. And this, we believe, reflects both a broader, fresher and more relevant stock profile. When you have a stock profile like that, that's a very solid foundation for us to increase stock and take bets. So we actually strive to increase stock as soon as possible, but we are also very firm and very strict on the quality that we require, and there is not much high-quality stock available at this point for the spring/summer trading. As such, the larger inventory ramp-up will be seen in the second half of the year where the increased buying budget is committed. Now please move to Slide 14 and our cash development for the year. The free cash flow was negative and in line with expectations. It's driven by the normal working capital seasonality where we have significant payments of VAT provisions, et cetera. And this was combined with an increase in inventory where we're building up for the spring/summer trading. On the bridge on the slide, you can see that the change from the same quarter last year, which is quite a representative quarter. The main difference is really related to exit tax payment in Sweden; CapEx increase due to the relocation of headquarter and then a bit of a larger increase of inventory than what we had last quarter. I want to mention also that our last 12 months' free cash flow is SEK 754 million, so far above 100% cash conversion. Please move to Slide 15. So we ended the quarter with a cash position of SEK 239 million, and we also acquired shares for SEK 97 million in Q1. And as such, we continue to have a very strong balance sheet, and we have financial room to maneuver as we take on commercial opportunities in the market. Today, we have also find liquidity and space to initiate a new share buyback program of SEK 200 million that we are returning to our shareholders, and we will continue to be disciplined in our return of excess cash. This completes my financial review, and I'll now turn to our outlook on Slide #17. I'll start out with some comments on the currency because this obviously had a relatively large impact due to the macro volatility, which had an impact on our main currencies and particularly the NOK has appreciated against the SEK supported by increasing oil prices. This has changed the expected FX impact on our financials for the year, and as such, we are increasing our EBIT margin guidance. In the first quarter of 2026, we still had significant headwinds, both on revenue and EBIT margin. But if we assume that the current exchange rates hold, then that effect is diminishing quite materially for the rest of the year. That will be visible in our reported gross margin and our reported EBIT margin already from March. The full year impact is now expected to be around 1 percentage point negative on revenue growth and a small negative impact on EBIT margin, and this is based on [ bank's ] fixing rates as of yesterday. By the end of Q1 2026, we have also hedged more than half of our NOK exposure. We found that the current levels are attractive compared to last year. Although when we hedge, it did come with some implied cost because the forward rate is lower than the spot rate due to the interest rate difference between Norwegian kroner and the Swedish krona. The hedging also means that our sensitivity on our EBIT margin and our profit is lower now, which makes our updated EBIT margin guidance relatively robust. Please go to Slide 18 for the outlook of the underlying business. So as mentioned, the spring season has started well for us, and the business is progressing in line with plan. As we said from the beginning of the year, we are targeting a growth acceleration during 2026, and we have an inventory buying plan and commercial initiatives lined up to deliver exactly that. With the current momentum, we, therefore, consider the high end of the guidance range more likely. And on top of this, we also have almost 1 percentage points less negative impact from currency than what we expected in February. The EBIT margin guidance is upgraded by 30 basis points, which corresponds to almost SEK 30 million in absolute EBIT. So with this, I will now hand the word back to Hermann for some final remarks. Hermann Haraldsson: Thank you, Michael. It has been a strong start to the spring/summer season, but we are far from claiming victory. The macro and consumer environment is uncertain, and our most important quarter of the year is still a long way off. But for now, Boozt is in a stronger position than we have been for a long time. Consumers are responding. Our inventory is excellent and commercial initiatives are yielding results. So now it is up to us to work hard to build further momentum as we move into the summer months. So this concludes our prepared part of the presentation, and we will now open up for questions. So operator, please. Operator: [Operator Instructions] The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Just a couple of questions from me. And I clearly hear you when it comes to sort of the sales momentum that you are experiencing currently, especially for March and April. And of course, that builds confidence to take more risk on inventory, but you have done that before and misjudged the market. I think you mentioned a year ago that you came into 2025 with too high inventories in the hope that the market would pick up. So what measures are you taking this time to not make that same mistake? Hermann Haraldsson: Well, experience is a good teacher, Daniel. I think if you noted that we have made quite a big change in our assortment strategy, buying more options, buying more breadth. I think we became too cautious going into '25, so buying more narrow or more depth. And unless when you do that, we're, of course, relying on existing customers to basically buy more. And by selling 40% more variants. And actually, we didn't mention that during the call -- during the presentation, but we had 250,000 new customers. So the growth is very much driven by new customers. And that gives us confidence that by changing our assortment strategy and also -- we have also changed quite heavily in our marketing setup. This gives us confidence that we are on the right track. And again, experience tells us that if we have too much stock, Booztlet is the best channel to clear that and get cash. So that gives us confidence to be -- take a bit more kind of risk or fashion risk or stock risk, you might say so. But in general, our stock is too low at the moment. And if you don't have the stock, you don't sell anything, right? So I think that kind of we are seeing that the actions we made end of last year and beginning of this year, they are paying off. Daniel Schmidt: And what do you mean by significant ramp-up? What would that sort of entail in terms of inventory risk? Hermann Haraldsson: Well, we are talking about that we want to get back to double-digit growth in the second half. So probably, hopefully, that kind of -- at the end of the year, we see double-digit growth figures again. And of course, if you want to grow double digit, then you have to buy inventory for that. We are getting a higher inventory turnover. So that's kind of -- so we probably don't need to buy kind of much more than for the double-digit growth that we're expecting. But we, of course, have to buy in advance. And we are adding something like 100 new brands in the second half as well as 35% new styles or new options. So of course, we have to ramp up because we just have -- don't have enough at the moment. Daniel Schmidt: Okay. And just your comments on current trading, basically March and April, are very upbeat. Is that you alone specifically, you think, given what you've done with the assortment being more aspirational [ inbiz.com ] offering? Or is it also the market that you are, in general, seeing a better momentum in? Hermann Haraldsson: In all modesty, I think it's very -- it's quite company-specific because we don't see a tailwind with regards to the consumers. At best, the kind of the headwind that we've been facing over the last 2, 3, 4, 5 years is still the same. We're seeing consumer confidence figures actually in Denmark going down last month. So we're not seeing increasing headwinds. And of course, we're hoping for tailwind, but it's based on the things that we have done. And as I said before, when you launch 35% more options on the site and customers are buying 40% more variants and options, and you're getting more new customers than you have been getting for a long time. I think that tells the story that it's very much company-specific what we're doing. Daniel Schmidt: And is that -- given that you're sort of widening the offering and already done so, even though we didn't see this in this quarter when it comes to other revenues and you right timing effects, is that something that should drag along other revenues to pick up basically as we go into the coming quarters? Hermann Haraldsson: Yes. Daniel Schmidt: Do they correlate basically? Hermann Haraldsson: Yes. Yes. Yes. Daniel Schmidt: Yes. And that sort of builds your confidence that, that particular line will also pick up in the second half? Hermann Haraldsson: Yes. And it's baked into the EBIT guidance, yes. Daniel Schmidt: And are you also saying that when you say that there's not much quality inventory out there for the summer and spring season that even though you are seeing a pickup, you can't expect too much in the near term in terms of growth when we look at Q2? Hermann Haraldsson: Yes. That is why we are maintaining the revenue guidance with Q1 being better than expected, then, of course, it's more likely that we would end up in the high end of our guidance, but we just don't have enough stock for the first half of the year to go faster than we have expected. Daniel Schmidt: Yes. And then just a final question. When you talk about AI and the inventory capacity, you've seen additional 5% to 10% inventory capacity at the warehouse through AI. How does that work? What have you done basically? Hermann Haraldsson: Yes. That's -- it's actually quite a complicated thing, but it has something to do with kind of the stocking and the cross stocking because you know we have a bulk stock warehouse where we -- so we kind of -- yes, it's about refilling and making the stock available to when we need it. So -- and it's a long story, but when we have the transfer cells that we introduced made it possible for us to -- I wouldn't call it just in time, but something similar that basically present the relevant stock to the warehouse when we need it for sale. And this is -- and these are, of course, tweaks because we need to start building more automation as we grow. But that's within the plan that's baked also into the CapEx that we're guiding on. Daniel Schmidt: Yes. Okay. Hermann Haraldsson: Thanks, Daniel. Operator: The next question comes from Erik Sandstedt from Kepler. Erik Sandstedt: Erik Sandstedt with Kepler. Three questions, please. Firstly, in terms of the brands, you're adding a lot of new brands to the platform now. But could you just help us understand why some of these brands are coming on board now rather than earlier? Is this driven more by sort of improved acceptances from the brands or changes in your own proposition? I'm just a bit curious why so many brands are being onboarded now. Hermann Haraldsson: It's a good question. The -- of course, we are have become a very big platform in the Nordics. And we have a lot of customers, I think, something like 2.8 million customers in -- over the last 12 months. So if you want to sell fashion or apparel, et cetera, in the Nordics, it's difficult to kind of pass by us. But of course, we did -- we've tried to make a more clear distinction between Boozt and Booztlet. So making Boozt.com a more mid- to premium site, less discounting and more kind of premium. So of course, that means that brands are seeing it being more attractive to be in Boozt.com. Also when they see how we've been able to improve the customer experience, more inspiration, more guidance on the site. But kind of it all adds up. So it has a lot to do with us being much more clear on the profile of both Boozt and Booztlet. Erik Sandstedt: That's interesting. And then on marketing, I'm just wondering to what extent the Q1 margin improvement here is basically driven by lower Booztlet-related marketing. You also talked about structural efficiency improvements and so forth. But how should we think about this dynamic if inventory levels now build again? Will you need to market more? Or is there a risk that you have sort of underinvested a bit in marketing in this quarter? Michael Bjergby: Yes. Thank you. This is Michael. So we have invested exactly as we planned. But as you said, it is correct that we have spent less on Booztlet than what we did last year. So the decline is mainly coming from Boozt in the first quarter. This was completely in line with plan. So we have definitely not underinvested, but we are also at a level in Q1, which is lower than we expected to be for the full year. So as such, we do expect to ramp up as we get into higher or important trading seasons and potentially also in Booztlet if needed. Hermann Haraldsson: If I can chip in also is that if you don't have enough stock inventory, there's no reason to spend a lot of money on marketing. So that's why we are very much data-driven on our marketing. So we spend what is needed to attract the customers. So that's why kind of -- it's not a case of pumping the EBIT. It's just by being clever on marketing that we're doing this. Erik Sandstedt: But another way to frame that is, are you mainly spending on marketing to sort of clear out stock? Or are you not also just sort of building brand? Hermann Haraldsson: No, we are totally building brand. But of course, brand building has changed a lot over the recent years. And when it used to be offline media and TV is now across a lot of channels. So we are just -- we have become much better at getting return on our marketing investment. Erik Sandstedt: Perfect. And finally, on AI, you spoke about how that's sort of driving efficiencies. And I think you touched upon the revenue side as well. But a bit curious specifically on agentic commerce, how -- is that an opportunity for you? Or is it more a way to sort of mitigate risks and how the entire market is kind of changing how consumers are interacting with platforms and brands? Hermann Haraldsson: It's both. It's an opportunity if you embrace it and it's a risk if you kind of discount it, right? So you have to embrace it. It's still small. But of course, you have to prepare for the future where agentic commerce might be big. And of course, we are doing that and they are putting a lot of resources within resources. So I think it's kind of -- it's a given that you have to -- it's a sales channel and where consumers buy. So you have to be able to kind of accommodate that. So we see this, yes, again, opportunity if you embrace it, but a risk if you don't do that. Operator: The next question comes from Sebastian Gravefrom Nordea. Unknown Analyst: I'm Michael. And also congrats on what looks like a very encouraging start to the year. Hermann, you say you're far from claiming victory at this point yet. I mean you upgrade your growth guidance, at least you indicated that you're going to end in the upper end after only a small Q1 quarter here. So I mean, I guess, in light of everything going on with energy prices and still low consumer confidence, you must be very confident with the new assortment strategy and happy with what you see here in April so far. So maybe -- could you maybe again try to elaborate a bit on the dynamics here around introducing new premiumized assortment? I mean what effects does it have on shopper behavior, engagement and potential overall -- spillover effects on the overall platform? And I guess what I'm asking is what provides you the comfort and confidence on H2 performance trending towards double-digit growth? Hermann Haraldsson: Yes. It's quite depressing to look at outside the window, seeing wars in Ukraine and in the Middle East. So kind of consumer sentiment or macros are not really helping. But what gives us confidence is that the things that we are in control of, they seem to work. And '25 was a boring year; to be honest, it was a transition year where we did some cuts on staff. We announced the move. We had too much of you could always almost claim kind of noninteresting inventory, especially for the women. So we changed that. And the learning, of course, and we knew that is that women are the key because they are buying and they are buying the best. So if we're not attractive to the women's category, they would not shop also across categories. So this is why we did actually quite a big change to our assortment and said, okay, instead of buying deep and narrow, which is kind of you tend to do when you get a bit conservative or cautious, then you just rely 100% on the data and it means that you end up buying white and blue and black, et cetera. We said, okay, we'll provide more inspiration, take a bit more fashion risk on the edges, knowing that it probably will be the stuff that will be discounted in the season, but basically if showing more freshness and more inspiration and that has paid off. And I think that the interesting KPI is that we have like 35% more variants live, but have sold 40% more. So apparently kind of inspiring a bit inspires a lot and makes them buy more. So it's kind of -- and we have kind of have done that for the spring/summer and are doing that even further in the second half. And then that combined with our site shopping experience as well as our really, really strong marketing team that gives us confidence that the things that we are in control of will make us come back to a double-digit growth. I know it was a long speech, but I get really excited about it. Unknown Analyst: And if you look at the geographical performance, it appears that rest of the Nordics ex Norway continued to be fairly sloppy. I suppose this is a Finnish market. But what is your approach really to turn this around? And is it a priority at all here? Or are your focus elsewhere at the moment? Hermann Haraldsson: Yes. If you -- there's not much time to dig into the numbers. But if you notice Boozt.com, we are growing quite well both in Sweden and Denmark. I think 7% in Sweden, 9% in Denmark constant currency. And I think that is kind of some of the most encouraging numbers because our focus has been Boozt.com. We have to get Boozt.com. It's our premium brand. It's our flagship store and getting good growth in those 2 countries, along with a very strong growth in Norway, that gives us confidence. Finland, they are still cautious and probably still a bit concerned about their big neighbor to the East. And that means that -- but again -- and Booztlet, we haven't had the need to clear stock, which -- so we have a negative growth in Booztlet. I think it's something like 33% in Denmark reported. So I think that is -- so I think that kind of the underlying numbers are quite positive for us because the changes that we've made start with Boozt.com and Booztlet only steps in when we have excess inventory. So all in all, kind of -- we are also quite happy with the Nordics, to be honest. Unknown Analyst: Okay. And what I hear you say is continue to build momentum in Sweden, Denmark and Norway and [indiscernible] today. Hermann Haraldsson: Yes. I think we will fix Finland as we get along. Unknown Analyst: Okay. And then my last question, I think and maybe this is for Michael, on the NOK appreciation. It looks like you're getting some -- obviously, some benefits in '26 as reflected in your margin guidance. However, it doesn't look like you're getting the full benefit from the recent NOK appreciation. I guess maybe you've been somewhat hedged here in the start of the year. So is it fair to assume a somewhat positive spillover into 2027 on the margins if the NOK remains at the current levels? Michael Bjergby: Thank you. Yes, that is correct that we have done some hedging that implies some losses also because the forward rate is lower than the spot rate. But -- so there will be a little bit of a positive spillover into next year if the current rates hold, but it's relatively limited in sort of the 10 to 15 basis points area. Unknown Analyst: Okay. Very clear. Great stuff. Operator: The next question comes from Benjamin Wahlstedt from ABG Sundal Collier. Benjamin Wahlstedt: So a couple of more -- let's go to the long-term questions maybe. So your USD exposure is quite limited directly, but your suppliers are most likely paying for plenty of goods in USD. What have you heard in terms of pricing intentions for the autumn/winter assortment? Do you think lower USD rates will benefit Nordic consumers or well, by extension, fashion volumes in the end, do you think? Or what are your thoughts about this? Hermann Haraldsson: The USD doesn't affect us on the autumn/winter because the buy has been done and the prices have been agreed upon. So if they have any effect, that would be at the earliest for 2027. Benjamin Wahlstedt: And have you heard anything of the guidance... Hermann Haraldsson: No. No. No. Benjamin Wahlstedt: Any sort of pricing intentions for 2027? Hermann Haraldsson: No, not yet. Not yet. Benjamin Wahlstedt: All right. And then perhaps more of a bookkeeping question. Your D&A has been rather volatile in recent quarters. Could you say anything about what you see as a reasonable run rate assumption going forward? Michael Bjergby: Yes. So our D&A is going to be relatively stable also going forward. We have, as you know, because of the IFRS 16, we have the new headquarter, which is slightly higher. And the last quarter was impacted by some one-offs. But if you consider a little bit of increase compared to the run rate in 2025, then that is a good assumption for now. Benjamin Wahlstedt: All right. So up from the Q1 '26 level? Michael Bjergby: Yes, exactly. Operator: [Operator Instructions] The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Yes. Just a follow-up on -- I think you talked about it last quarter in terms of the sort of upgraded Boozt Club that you've been introducing should have some accounting effects on Q2. Am I right? Michael Bjergby: Yes, we mentioned that at the last call. We are still fine-tuning the concept, and we have not finalized the Club benefits. We are in testing right now, and we have the technical platform in place. But it's critical for us to get in the calibration right before we launch that is essential. And it's not something that is easy to unwind once we are live. So -- but I will also say that with the performance that we see right now, we are not in a rush to relaunch the Club as it is, even though we will launch at some point in time this year. However, for Q2, you should not expect a sort of an increase in depth from deferred revenue recognition from the Club. Daniel Schmidt: So it's going to be postponed a bit? Michael Bjergby: Indeed, yes. Daniel Schmidt: Yes. Okay. And you don't know really when then basically? Michael Bjergby: But we are -- as I said, we are calibrating the benefits of the Club. And that means that it may not be a revenue -- deferred revenue recognition depending on how it launches exactly because it's only if it's cash benefit directly that you have to reduce revenue. But if you are launching the benefits in a different way, then you can actually avoid it potentially. So that is what we are considering right now. Daniel Schmidt: Okay. So it's still up for discussion. Okay. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Hermann Haraldsson: Thank you for joining the conference, and thank you for some very good questions. So this -- yes, this concludes the webcast and the presentation, and I look forward to meeting you and engaging you over the next couple of weeks. Thank you very much, and have a good day.
Alan Gallegos Lopez: Good morning. Welcome to Megacable's First Quarter 2026 Earnings Conference Call. With us this morning, we have Mr. Enrique Yamuni, CEO; Mr. Raymundo Fernández, Deputy CEO; and Mr. Luis Zetter, CFO. Let me remind you that the information discussed at today's earnings call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risks and uncertainties. Megacable undertakes no obligation to update or revise any forward-looking statements. I will now turn the call over to Mr. Enrique Yamuni. Sir, you may begin. Enrique Robles: Thank you, Esau. Good morning, everyone, and thank you for joining us today. With the solid beginning of the year, we are pleased to announce the results of the first quarter of 2026, which came in line with our expectations once again, evidencing the resilience of our operations and the strength of our market position. These results reflect outstanding performance in an economic environment that presented diverse challenges at the outset of the year, marked by uncertainty around trade policy, among other factors, reaffirming our ability to create value. In this context, we managed to present a period with continued subscriber growth, consolidating our presence in the new territories and maintaining subscriber levels in legacy territories. Outstanding mass market revenue increase, including ARPU expansion accelerated net profit growth and a seasonal CapEx increase supporting a higher cash generation. Operationally, broadband remains the main driver of business growth. Net additions of Internet subscribers remained within the quarterly range that we have been discussing in recent periods, and we expected -- we expect to increase the pace of the -- in the next quarters, as a result of better service and a very competitive commercial offer. At the same time, we continue strengthening our network, we have evolved into a predominantly fiber-based company in the few areas that still rely on legacy infrastructure would continue to migrate over time. These advancements reflect our approach to competition, capitalizing on the quality and capabilities of our network beyond just pricing. We're convinced that our infrastructure will continue to be one of the main sources of differentiation and sustainable value creation for Megacable. In terms of financial results, our consolidated revenues and EBITDA continue to grow at a single high digits, while the quarterly figure for net profit recorded one of its best performances in the last 2 years. Moreover, our balance sheet remains strong with a decreasing leverage ratio that implies that Mega has a privileged position to take on investment opportunities that might arise. Regarding CapEx, it is worth noting that CapEx for the first half of the year is typically lower as a percentage of revenues. This quarter, CapEx as a percentage of revenues reached one of the lowest levels since the launch of our expansion and evolution projects. Despite pressure stemming from geopolitical situations and the related price increase in some inputs, we successfully offset these challenges through greater efficiency in the execution of our investment and a strategy focused on a more selective CapEx deployment in the expansion territories. As a result of the above, we can expect 2026 full year CapEx to be around 24% to 27% of revenues for 2026. We have demonstrated that our growth trajectory is advancing according to the 5-year plan that we set and that we have successfully transitioned from a phase of intensive investment and growth to a phase of returns. Our efforts continue unchanged. It is clear that the next phase will be marked by pursuing operational efficiency, consolidation and digitalization. Also, advances in artificial intelligence and digitalization are a core pillar of Megacable's innovation. Under our Mega concept, we are achieving efficiencies that we'll, with no doubt, yield significant results in the coming quarters. These processes will make us more competitive in the market and open up new areas of opportunity. Before concluding, following the resolution approval -- approved yesterday at the shareholders' meeting, the company will distribute a dividend of MXN 3.2 billion. This reflects our confidence in Megacable's cash generation capacity and our commitment to delivering value to our shareholders. We expect this distribution to represent one of the highest dividend yields in the market, in line with previous periods. In summary, the first quarter will consistent -- was consistent with the seasonal trends we usually see at the beginning of the year, although we faced some challenges, none have altered our confidence in the business outlook. We remain focused on execution, capital discipline and strengthening Megacable's competitive positions in the Mexican telecom market, reinforcing our role as a key industry player with an evolving infrastructure that supports a more connected, sustainable and innovative future that with that, let me turn the call over to Raymundo for the operational review. Raymundo, please go ahead. Raymundo Pendones: Thanks, Enrique, and good morning, everyone. As Enrique mentioned, the first quarter developed broadly in line with the seasonal trends we usually see at the beginning of the year. In that context, operating trends remain sound and commercial execution continued to support growth across the business. Starting with network development, our footprint reached 19.5 million home passed at the end of the quarter, up 11% year-over-year, while our network expanded to approximately 110,000 kilometers, an increase of 7%. These figures reflect the scale we have built and more importantly, the platform we now have to continue monetizing recent investments. Fiber migration also continued to advance with approximately 86% of our subscriber base served through fiber technology at quarter end, compared to 77% in the same period last year. We have already reached a level of operational and commercial maturity comparable to that pure-play fiber operator. Turning to subscriber trends, Internet subscriber reached 5.9 million at quarter end, up 9% year-over-year, equivalent to 495,000 net additions over the last 12 months. Sequentially, we added 101,000 subscribers consistent with the range we have communicated in previous quarters. Telephony subscriber reached 5.2 million, increasing 7% year-over-year or 353,000 net additions over the last 12 months. During the quarter, net additions totaled almost 65,000. Telephony continues to play an important role within our bundle offering by reinforcing the value proposition of the mass market. In mobile, our MVNO operation continued to gain traction. We closed the quarter with 740,000 lines, representing a 29% year-over-year increase equivalent to 164,000 net additions over the last 12 months. Sequentially, net additions totaled 61,000 lines, making the best performance since early 2022, result of a commercial strategy with lower ARPU, but higher growth rate. We continue to see mobile as a relevant complement to our fixed services and as an additional tool to strengthen customer loyalty, which now also contributes with a reasonable revenue stream. In content, subscribers stood at 4 million as we continue adapting the product mix toward a broader digital proposition that is more aligned with how customers increasingly consume video. During the quarter, 3.8 million subscribers correspond to traditional video, while the remainder was contributed by the more than 2.2 million streaming app users recorded at quarter end. Our focus is on building a broader content proposition that combines linear video, apps and other nontraditional consumption models. We believe that remains an important differentiator in how we position the service and maintain value perception at the household level. Overall, RGUs reached 15.2 million an increase of 8% versus the same period last year, supported by the continued expansion of the subscriber base and the relevance of bundled services within the mass segment. Regarding churn, trends remain under control. During the quarter, churn stood at 2.0% in Internet, 2.4% in Video and 2.1% in Telephony. These levels remain manageable and do not indicate any deterioration in the underlying business. In fact, Internet, Video, Telephony improved versus first quarter '25, despite the price adjustments implemented during this quarter. On the revenue side, ARPU continued to trend positively supported by the aforementioned price adjustment. Under the new disclosure methodology adopted last quarter, ARPU calculated over Internet subscriber stood at MXN 440.9, up 2% year-over-year. We believe this methodology provides a clearer benchmark for investors and improves comparability with peers. Finally, in the Corporate segment, revenue remained softer on a year-over-year basis. The above was mainly due to the current market conditions, leading to lower average revenue along with a more competitive environment in expansion areas, which requires us to be more creative and efficient going forward. The underlying operation continue to execute, and we remain focused on service quality and commercial discipline that will allow us to go back to revenues levels before 2025. Overall, the first quarter was consistent with the operating trend we have seen in recent periods. Our platform remains strong. Our network continues to differentiate the company, and our priorities remain centered on improving penetration monetizing the scale we have built, and adapting our commercial and content offering to what customers value most. Thank you for your attention. I will now turn the call over to Luis for the financial review. Luis Zetter Zermeno: Thank you, Raymundo, and good morning, everyone. Megacable delivered another quarter of solid top line performance. Total revenues reached MXN 9.4 billion during the quarter, an increase of 9% versus the same period last year. This result was mainly supported by the continued strength of the mass market segment, where revenue rose 11% year-over-year to more than MXN 8 billion, reflecting continued subscriber growth and a positive ARPU trend. As in prior quarters, mass market remain the main driver of the business and more than offset the softer performance in corporate. Below the revenue line, cost of services reached nearly MXN 2.5 billion, an increase of 9% compared with the first quarter of 2025, while SG&A also increased 9% year-over-year to a little over MXN 2.5 billion. These movements were mainly attributed to a larger operation, including higher labor costs driven by annual minimum wage adjustments and the expansion of our workforce, particularly in newer territories. From a profitability standpoint, EBITDA reached more than MXN 4.3 billion, up 9% year-over-year with an EBITDA margin of 46.2% in line with the same period of last year. We expect margin to strengthen on a comparable basis as the year progresses. In this context, net income totaled MXN 841 million, increasing approximately 16% versus the same quarter of last year. This was one of the strongest quarterly results since the second quarter of 2023, as interest rates reduced, and despite the continued impact of depreciation associated with recent infrastructure investments. Turning to the balance sheet. Cash and investments closed the quarter at MXN 5.6 billion, while net debt stood at MXN 20.4 billion, down 3% year-over-year. The debt-to-EBITDA ratio decreased from 1.41x in the first quarter of 2025 to 1.25x this quarter, while our interest coverage ratio closed at 6.38x. This performance confirms that Megacable continues to operate with a strong liquidity position and a conservative balance sheet. Our leverage profile remains one of the strongest in the sector and continues to provide high flexibility for both operations and capital allocation decisions. Quarterly CapEx totaled MXN 2 billion, a decrease of 14% compared with the same period of 2025, as we continue moving past the peak of our expansion and network evolution cycle. In this respect, CapEx represented 21.3% of total revenues compared with the 26.8% in the prior year. It's important to note that this figure is in line with annual seasonality with a softer first half of the year, followed by an increase in the last 6 months. At this point, although we are maintaining our full year CapEx guidance of 24% to 27% of revenues, we are monitoring the potential effect of the geopolitical and trade-related developments on equipment and deployment costs. If those conditions persist for several months, we could see an increase versus the original CapEx plan. Even in that scenario, we retain enough flexibility to rephase part of the program if needed without compromising our broader strategic objectives for 2026. Finally, regarding the dividend payment approved by the shareholders' meeting, even after the distribution, we expect leverage to remain at healthy levels with the usual temporary increase in the second quarter and sequent normalization thereafter. In summary, the first quarter showed resilient revenue growth, healthy profitability, strong net income generation and continued balance sheet strength, the business remains well positioned, focusing on improving profitability and cash flow generation. Thank you for your trust. I will now open the floor for questions. Alan Gallegos Lopez: [Operator Instructions] The first question comes from the line of Marcelo Santos from JPMorgan. Marcelo Santos: The first question is regarding the CapEx. So how do you see that progressing? If you could provide us an update for the next couple of years? How do you see that going down? And the second question would be regarding, you made a comment on pursuit of consolidation. How are you seeing this? What are the opportunities you see? What kind of consolidation would you be seeking out? Raymundo Pendones: Luis, do you want to go ahead with the CapEx? Luis Zetter Zermeno: Yes. Thank you, Marcelo, for your question. On the CapEx, as we have stated, we are leading the investment cycle of the expansion and the GPON evolution project. So we are in a reduction, and also with the revenues increasing, we, for sure, continue to state that CapEx will go down as a percentage of revenues. This year, we still foresee 24% to 26% or 27%, depending on inflation created by geopolitical effects. And next year, we are seeing a reduction of 22% to 24%, and thereafter also going down in 2027, 2028. Raymundo Pendones: The second question was regarding consolidation. I believe that, that was mentioned by Enrique in his speech. It is what we meant, Marcelo, is that we have a strong period of expansion investment and an investment for the GPON evolution. Both projects has been critical, and we believe we did it in the right time. We have been able to grow in the organic markets with the GPON evolution we did, and we have expanded our footprint in the expansion territories. What we're saying about consolidation is that the period of intensive CapEx has passed by, and now is the period of consolidate our operation into continued growth and better efficiency operation in the markets where we grow. That's what we try to send the message is consolidate our operation with a much more efficient way after all this period of huge investment CapEx provided. That's what we meant. Operator: And the next question comes from the line of Phani Kanumuri from HSBC. Phani Kumar Kanumuri: The first one is regarding the AI impact on efficiency. What are the areas that you are expecting to see the impact from AI on the cost? Or do you see even the impact from revenues because of AI? The second one is regarding your Corporate segment. You mentioned that you need to be more creative in your offerings to go back to the revenue levels before. So if you could expand on that comment, it would be great. Raymundo Pendones: Thank you, Phani. Very interesting question both, as all the questions we received, but the impact of AI is going to be strong on this, but in every industry, but it's going to be strong in our industry, too. We're very happy to the process that we have, the period that we have implementing AI within Megacable. That's part of the consolidation I was talking before, because we're implementing AI in the majority of the functional and operational areas of the company. We already have virtual agents working in our contact center. We already have all the knowledge of the Megacable to be trained and to be interactive with our employees, and we already have that to have all the analysis and analytics on the NOC and the core. More than that, we've been having a third party looking at our rate of maturity of AI during -- within Megacable. And I'm really, really proud to say that we are one of the highest in terms of implementing AI within Megacable. And that what we see in the future is nothing, but continues to improve our margins and EBITDA and be a much more efficient company. On the other side, the AI market will continue to increase data center and continue to increase consumption on the cloud, and we do expect to adapt ourselves to that and bring that offer within the corporate segment that we have. Second question regarding the Corporate segment. Still, we are above the MXN 5 billion mark per year that we have -- that we passed in 2024. We haven't decreased that in that part, even though the results are not what we wanted are soft. We expect that to change because we are doing some adjustments in terms of the market that we are approaching with a new product offer that we're sending to the enterprise and the corporate segments. We've been soft in government sector that's been hurting us. We have not been able to increase the revenues coming from that segment. And overall, that's why we keep the MXN 5 billion level that we have. We expect to go this year above what we had in 2025, and trying to go back to the trends that we have before. That's the explanation of the corporate and how we see the AI. Phani Kumar Kanumuri: Excellent. Maybe can I just follow up on the -- on your comment on cloud and data centers. Are you trying to be a reseller of the cloud? Or are you trying -- would you also be going into building the data centers in Mexico? Raymundo Pendones: Good to be clear on that. No, we are not investing into cloud, as I said, the period of strong investment for Megacable has passed by. We will continue to meet what Luis was saying, a lower trend of CapEx of revenue to the future. We already have data center in the western part of Mexico, and we have a big amount -- a huge amount of data center edge for the purpose of getting into the mid- to large cities that has already been invested and ready for the future. In the years to come, data center will -- data consumption will be decentralized and will come from the central part of Mexico and the U.S., more and more into the edge, first into the north part of Mexico, and then into the western part. That one is going to give us a big value for our data center. And in the next years, that one will continue to be decentralized into the regions. Those investments has already been made, and we will be part of that data center growth, not as a significant part of Megacable, I want to say. When I meant cloud and collaboration, those are the services that we sell in MCM business Tech-Co. MCM business Tech-Co not only sales connectivity or infrastructure, but also sells cloud and collaboration under a brand name of Megacable called Symphony, that's our product, where we have the best of different suppliers to provide collaboration. And that's what I meant that we will continue to implement AI to our customers over that cloud and collaboration segment that we have. Alan Gallegos Lopez: The next questions come from Isaac Gonzalez from [indiscernible]. Unknown Analyst: I have one question only. How much traction have you seen in your price increase? And one of your main competitors recently increased speeds without raising prices. So could we interpret that margin expansion is being constrained by these competitive dynamics? Raymundo Pendones: Thank you, Isaac. Yes, we know we are aware of competition. We keep track of them like they do of us, but let me tell you that the speed, the rate -- speed that they increase, the speed they increase, we already did that and way above what they did. Our minimum amount that we are commercializing right now is 200 megabits, and we are the highest speed in the market for the low entry package of any of the companies that are in the fixed segment. So speed is something that normally we're the leaders on that part, and we continue to have that for the price that we're receiving. On the other hand, we have a price increase over this period because we have different segments of subscribers with different packages and rates. And normally, we have some space to increase rates to some of those subscribers while keeping the lowest ARPU in the market. When we see our competitors getting into a new broadband service with an aggressive price, we already have that price, and we're commercializing on that one. So I believe we are the strongest and well-positioned company of the market right now because we have a high speed, a good network and the best price, and also, I'd like to say the best service. All our indicators continue to provide that Megacable, Mega on the Máximo side continued to improve the Net Promoter Score and the customer satisfaction. So it's a killer combination when you have a good price, a good product, good service, the -- everything all around. And that's the secret of our success so far. We continue to provide good results in revenue and subscribers, and that's what we look into the future recycling. Thank you for the question. Alan Gallegos Lopez: The next questions come from Miriam Soto from Scotiabank. Miriam Soto: My question is regarding about the -- if the company could consider entering the wireless business directly by acquiring AT&T? And what is your opinion on the asset valuation? Raymundo Pendones: Well, what we're aware, it's public that it might be an intention of one of our competitors to enter and get into the AT&T. We are not moving from what we know how to do the best. We believe that we have the right size and the right technology to be a good player on this one. And as I said before, we are going to capitalize that into the future. On the other hand, we are on the wireless market. We have Mega Mobile as a service, only aimed to postpaid. We have a terrific quarter, increasing our subscriber base, better is a historical growth on that part. We almost reached the three-quarters of a million subscribers. We expect to get close to 1 million by the end of the year, slightly below that part. With no CapEx for the company, getting the best of the service, the coverage coming from two companies. One is exactly AT&T. The other one is [indiscernible]. And we are looking into how to integrate more players like to sell into the future. So our customers will have the best of the 3 companies on that part and make it competitive. So without having to invest into the frequency, we already have a good MVNO in our part. So we are happy with that, and we are providing our subscribers with the quadruple play already. Alan Gallegos Lopez: The next question comes from Emilio Fuentes from GBM. Emilio Fuentes: My question is regarding your CapEx to sales guidance for the year around 24% to 27%. I was wondering if a higher range of -- if the higher range already incorporates potential supply chain disruptions, or could we expect a worst-case scenario where it could go above this 27%? Luis Zetter Zermeno: Well, as you have seen, normally, the first half of the year, we have lower CapEx and intensifies in the second half. That's why we have to be cautious on the 21.3% that appears in this first quarter. So that is very well aligned with the results of the year that we expect around 24% to 26% or 27%, 26%, but we are just being conservative in case of additional inflation comes, if the global situation does not improve in the short term. We want to be sure that we have the right spot for our CapEx. And also, we have some buffer in the investment phase. We don't need to spend CapEx at the same speed that we're doing in the past. So we have flexibility on leverage or ways to leverage that number and be sure that we don't let that out. Raymundo Pendones: And let me complement Luis, on that part. Yes, the 24% to 26% already integrates the increase that we might receive or might have prices on the worldwide cost of products that we have. It does include exchange rate, what we know so far, it does include the increase that we might have, and it does increase the reduction of CapEx per kilometers and production that we have in the past. So you can have that 24% and 26% with a clear idea that includes everything within the reasonable amount of knowledge that we might have as of April of this year. Emilio Fuentes: Really clear. And if I may, I answer -- ask a second question on the AI, you mentioned the benefits. Do you have any rough estimate of the potential size and timing of those benefits or maybe on basis points from the margin, like what can we expect from these programs you're implementing? Enrique Robles: Yes. What you can expect, I mean, on and it's good. I don't believe that everybody knows and can check the amount of what is going to happen with AI in the next 5 years or 10 years from that, but talking about the present, what we're implementing is operational efficiency, and that aim to bring the margin of Megacable to better levels to what we have right now, even though we have the highest margin in the industry. Remember that, in the last quarters that passed by, we've been having a lot of pressure into labor as all the industry on that part plus all the maintenance and support that we need from all the CapEx that we wrote in the past. And even though that we've been managed to keep our margin and increasing margin as penetration of expansion will come into the future, and AI and efficiency will come on the organic markets, our operating margin will continue to increase in the years to come. Okay? Luis, do you want to complement? Luis Zetter Zermeno: No, that's okay. Alan Gallegos Lopez: The next question comes from Ernesto Gonzalez from Morgan Stanley. Ernesto Gonzalez: It's two. The first one is -- in the past, you had mentioned that if some of your competitors don't raise prices, you could face a more challenging outlook or ability to increase prices going forward. So I wanted to get your thoughts on this. And the second question is on with all the rumors of M&A in Mexico, potentially a competitor of yours acquiring AT&T operations. Does that change your outlook for fixed consolidation in Mexico? Raymundo Pendones: As I said before, we have the lowest ARPU in the industry. So we still have some room to increase prices according to markets, according to packages that our subscriber has into that part and not raising the prices might not good to say, but it hurts the competition more than us. There is one competitor that doesn't increase prices, which is Telmex, that's the one that's been having that, even though it has higher, higher packages. The one that they commercialize stay at the same price with lower speeds. What we've been doing is increasing our speed to those subscribers significantly, we have 200 megabits on the single package, which is broadband and Telephony. And that one will allow us to have a better price in that part than what we have with the competition. So we will continue to increase prices at the rate that we have in the past, bad to say, but it's not around the 5% per year. Normally, we increased 2% to 2.5% prices. We are more aiming to growing the EBITDA and the revenue year-over-year than just to increase prices. But I believe on a defensive move, we are the best to continue to grow because of our market price and structure that we have. The other one was the question regarding the outlook of consolidation. Enrique, I don't know if you want to say something, it is related to the AT&T on the wireless on that part. And if that is going to affect how we see everything in our position. Enrique Robles: Really, I don't really want to make any -- a lot of comments about that. Obviously, the only consolidation that is in the horizon is the AT&T decision to leave the country. They will leave the country. We don't know who is going to, at the end, keep that operation. As we saw in the past also that Telefonica finally sold its operation to a newcomer, a new player in the country. And well, we don't see a lot of consolidation in the horizon, not at this moment, other than the AT&T and what happened about a month ago with Telefonica. Raymundo Pendones: I'd like to add also regarding the market. Market has been increasing the penetration of broadband on that part. We still believe there is room to growth in Mexico. Every time that passes by, it's dry, we all know about that, because of the levels of penetration. But it's good to say for everybody that out of the penetration of the homes when you see at our industry and you look at 4 players because I don't believe we're 5, we're 4. Satellite is not part of our market. It doesn't compete significantly in our market. It does sell or 4G or 5G more than satellite, even though we respect that. We have 4 companies, but we don't have the same footprints. There is one that has the largest footprint. So there is a big percentage of comps in Mexico that only has one player, some percentage that has two, some three and very few that has four. So in those markets where there is only one, we have room to grow some markets where it's two with a lower and legacy technology compared to what we have. We have the ability to grow. So for Megacable, still, we have room into the market to grow too. Regardless whether consolidation of not, we are very focused into growing what we know how to do best. I wanted to complement that, Ernesto. Alan Gallegos Lopez: And we have a follow-up from Marcelo Santos from JPMorgan. Marcelo Santos: My question would be regarding the mobile operation that you have. Do you perceive important improvements in churn when you sell that mobile bundle together with your fixed line operation? Just wanted to get a feeling of how helpful that is to your overall operation. Raymundo Pendones: Well, remember that we have 740,000 shops out of the 5.9 million so far. What we know is that churn on the mobile comes from the promotions that we might be aggressive more than the people leaving. And yes, we have seen that those subscribers has slightly better churn than the ones that don't have the quadruple play. Marcelo Santos: Okay. So it's a slight improvement that you put in so far on this bundled plan. Raymundo Pendones: At the end, Marcelo, economics get a lot into the markets where we grow in that part. And even so when they don't have money for the fixed, they don't have money for the mobile on that part, and they go to a prepaid. Remember that we sell postpaid. But the packages that we have cover the majority of the market. And that's how we've been so successful in the last quarter. I believe it's going to increase. Mobile is going to be a terrific year for us. And those subscribers will help us to keep or reduce the churn that we have right. Remember that we also have into the churn, the content division that we have, the video content, but is not only focused our aim to the traditional video live channels and offline channels, but also to the apps, and we have a really, really good offer to the apps. And that one, we expect also to help us to keep and reduce the churn of the subscribers that has the triple play with us, not only the quadruple play. Marcelo Santos: Okay. Okay. So same idea bundling in. People have more difficulties to leave. Raymundo Pendones: Yes. That one is tough because we are not successful in keeping live traditional TV as well as the whole industry, but we've been very successful in providing apps to our subscribers. So content at the end will help us if we are continuing to be smart in how to market those apps and stream it to our subscribers. Alan Gallegos Lopez: The next question comes from Alejandro Azar from GBM. Alejandro Azar Wabi: A lot of questions on consolidation, and this is the last one, probably. In the case that consolidations were to happen in the fixed market, how do you think about the competitive position of the third smaller player that is left out? Enrique Robles: You mean what happened if one of our competitors acquirers AT&T or? Raymundo Pendones: No, no. Alejandro Azar Wabi: No. I mean. Raymundo Pendones: Third is smaller. Alejandro Azar Wabi: I mean in the case that either total play with us or with Televisa, what do you think happens with the other player? Raymundo Pendones: Okay. When you say -- yes, yes, I kept thinking about the third smaller player. There are different measures. Enrique Robles: The way I see it is that any consolidation will benefit the whole market, everyone. Raymundo Pendones: Everyone is going to be benefited from that. Enrique Robles: Not only the two that consolidate, but everyone. Alan Gallegos Lopez: Now we're going to pass some questions from the platform. We have the first one from [indiscernible]. Please could you share the average penetration rate for the expansion regions older than 12 months? Raymundo Pendones: Thank you. Yes, the penetration that we have on the expansion of territories is around 14% to 15%, 16%. We expect to reach above the 20%. Enrique Robles: It is very variable because it depends on the seniority of the areas. I mean the areas that we activated or we started to commercialize the service 3 years ago, the penetration there is above 20%, 25%, yes. That's why -- but on the average, since we've been adding new areas, the average is around 14%. Raymundo Pendones: That's why we aim to have above 20% penetration as long as those neighborhoods and areas continue to mature. Alan Gallegos Lopez: The next question comes from -- also from [indiscernible]. You mentioned that your strong balance sheet offers you flexibility to pursue investment opportunities. Are you targeting any specific opportunities at the moment? Raymundo Pendones: No. We're targeting to improve still sequentially our revenues, EBITDA and CapEx of revenue and free cash flow that looks really, really good for 2026 and 2020 and above. Enrique Robles: But that doesn't mean if the opportunities, any opportunities arise, we will look at them. That's what we mean is that any arises, we're up. Alan Gallegos Lopez: And now we have a question from Marco Battaglia from Temujin Fund Management. Can you quantify how much margin improvement you expect this year? Luis Zetter Zermeno: Yes. We have been mentioning that as the expansion territories improve on the margin, it will impact the overall margin for the company. And the organic territories stay with the same margin as they were before. So we basically are expecting 0.5 point improvement on the margins for 2026, and also for maybe a little bit higher for next year. Alan Gallegos Lopez: Okay? And we have a final question. What adaptations have you made to your expansion strategy as you have progressed in terms of regions, target customers and pricing? Raymundo Pendones: Well, the adaptations that we have is we have special offers over in the expansion of territories. We have a special motivation to the sales force and different channels that we have right now. We're adapting that the segment that we're adapting more is corporate because corporate has a stronger, stronger competition in the expansion territory, and that's why we have a growth at the same speed that we have in the massive market. That's where we create new products, low-end products for the enterprise SMBs that includes cloud and collaboration. But in the massive market, our strategy continues to be the same. The best speed 200 megabits, better than the competition, with aggressive price entry that increases into the futures and symmetry into the broadband that we have there. That's our strategy. Alan Gallegos Lopez: Okay. We have no more questions in the queue. So I pass the line to Mr. Enrique Yamuni for final remarks. Enrique Robles: Thank you, Esau. As always, it is a pleasure to discuss our results with you. Please contact our Investor Relations department if you have any more questions or concerns regarding the company. And please have a wonderful day and weekend, very, very nice weekend. Thank you. Luis Zetter Zermeno: Thank you all. Bye.
Operator: Good day, everyone, and welcome to today's Nomura Holdings Fourth Quarter and Full Year Operating Results for Fiscal Year Ended March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. [Indiscernible] Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: This is Moriuchi, CFO. Thank you for joining us. I will now give you an overview of our financial results for the fourth quarter and full year for the fiscal year ended March 2026. Please turn to Page 2. First of all, our full year results. As you can see on the bottom left, group net revenue increased 15% year-on-year to JPY 2,167.7 billion, while income before income taxes grew 14% to JPY 539.8 billion, and net income increased 6% to JPY 362.1 billion, setting a record high for the second consecutive year. We achieved full year ROE of 10.1% on target for the second year in a row since we set our ROE target range of 8% to 10% or more by 2030. Four segment income before income taxes reached an all-time high of JPY 506.9 billion. Wealth Management and Wholesale drove company-wide earnings while both divisions achieving their highest income since their respective establishments. Wealth Management achieved growth of 23% in income before income taxes as the recurring revenue-based business model gained further momentum and major KPIs also saw substantial growth. Investment Management saw its assets under management rise by more than 50% over the year to around JPY 137 trillion, with a substantial increase in the stable business revenue base. Meanwhile, wholesale saw revenue growth across all regions and both Global Markets and Investment Banking achieved record high revenue, resulting in income growth of 21%. As for banking, it has steadily expanded its business base since the division was established and is making solid progress toward implementing deposit sweep. In view of our strong performance for the period ended March 26, we expect to pay an ordinary dividend of JPY 24 per share. This brings the annual dividend to JPY 51 per share for a dividend payout ratio of 41%. Next, let me give you an overview of the fourth quarter results. Please turn to Page 3. All the percentages I mention from here on are quarter-on-quarter comparisons. First of all, group net revenue rose 5% to JPY 577.2 billion. Income before income taxes fell 20% to JPY 107.7 billion, and net income was down 19% at JPY 73.9 billion. Earnings per share came to JPY 24.34 and ROE was 8%. While four segment net revenue rose income fell due to factors, including a decrease in the amount of profit recognized from affiliates in the Other segment as well as an impairment loss at an investee company in Investment Management. Next, please turn to Page 7, and I will present an overview of each business in the fourth quarter. As you can see in the top left, in Wealth Management, net revenue was more or less flat versus the previous quarter at JPY 133.1 billion, while income before income taxes exceeded the strong previous quarter, rising 5% to JPY 61.2 billion. The recurring revenue cost coverage ratio reached 72%, and the division achieved a high level of profitability with the margin on income before income taxes remaining above 40%, which is higher than the industry average. As shown on the bottom left, recurring revenue reached an all-time high of JPY 56.8 billion. Net inflows of recurring revenue assets remained at a high level, exceeding JPY 400 billion once again this quarter. Flow revenue was down slightly, but at JPY 76.4 billion remain high in absolute terms, second only to the level of the previous quarter as we were able to effectively support customers' need amid volatile market conditions. Next, I will give you an update on total sales by product. Please turn to Page 8. Total sales rose 75 quarter-on-quarter to around JPY 11.7 trillion. This was largely due to major tender offers totaling JPY 4 trillion. But even excluding this factor, total sales remained at a high level by product. Excluding the tender offers, sales of Japanese stocks remain high, thanks to a contribution from primary deals. Sales of bonds fell by 5%, while demand for foreign products was solid, sales of Japanese bonds fell slightly in the absence of primary deals. Sales of investment trust and discretionary investments, which constitute recurring revenue assets saw some fluctuations but remained at a high level as a flow from savings to investments continued. In insurance, meanwhile, sales of foreign currency-denominated products declined on weaker yen. Next, we take a look at KPIs on Page 9. Net inflow of recurring revenue assets shown on the top left were JPY 422.8 billion, the 16th straight quarter for inflows to exceed outflows. Recurring revenue assets at the end of March, shown on the top right, were down owing to market factors, but recurring revenue came to JPY 56.8 billion, a record high even when factoring out the receipt of half yearly investment advisory fees. As shown on the bottom left, number of flow business clients rose by around 200,000 from the previous quarter, reaching 1.74 million. Business was -- has been growing against the backdrop of high market volatility, primarily in face-to-face channels. Next is Investment Management. Please turn to Page 10. As seen on the top left, net revenue increased 42% to JPY 86.2 billion, and income before income taxes was more or less flat at JPY 18.1 billion. Business revenue, which is a stable type of revenue, was at an all-time high, owing to growth in existing business and the expansion of international business through acquisitions. At the same time, expenses related to acquired businesses and losses on impairment of our equity stake in an investee company were recognized. As an explanation of the breakdown of net revenues can be found on the bottom right. Solid asset management business in the aircraft leasing business, Nomura Babcock and Brown both contributed to the increase in business revenue, while investment gains related to American Century Investments rose quarter-on-quarter. Moving on to Page 11, we look at our asset management business as a backbone of business revenue. The graph on the upper left shows that assets under management hit an all-time high of JPY 136.9 trillion at the end of March. Shifting our focus on the bottom left, we see there were net outflows of JPY 279 billion. In the domestic investment trust business, which had inflows of JPY 816 billion, funds went mostly into Japanese equity products in the ETF category and into balanced funds, Japan equity active funds and private asset-related products in the investment trust category. In the domestic investment advisory international business, outflows came to about JPY 1 trillion, mainly from business targeted for acquisition. In line with the industry trends in the U.S., we expect funds to continue flowing from active-type mutual funds for now, but we aim to grow assets under management by boosting total sales and bringing net flows close to neutral as soon as possible with enhancements to making capabilities and expansion of active ETF SMA business opportunities. Alternative assets under management on the bottom right grew to a record high JPY 3.6 trillion, an increase of about JPY 300 billion from the end of December, of which fund inflows account for more than half. Next, wholesale. Please refer to Page 12. On the top left, you can see that wholesale net revenue fell 2% to JPY 308.1 billion and income before income taxes declined 31% to JPY 43.2 billion. Looking at the breakdown on the bottom left, Global Markets net revenue split 2% and Investment Banking net revenue fell 3%. Discussion by business line can be found on Page 13. Global Markets net revenue was down 2% at JPY 252.5 billion. Please find the middle section on the right. Fixed income revenue declined 8% to JPY 125.3 billion. In macro products, rates revenue was weak in the Americas with weak volatility rising, but rose in Japan. FX emerging revenue offset some of the weakness in rates revenue as client flows were accurately captured. In spread products, securitized products revenue remained high, mainly in Americas and fell quarter-on-quarter in AEJ. Credit revenue was unchanged despite widening spreads. Equities revenue was up 6% to JPY 127.2 billion. Equity products revenue reached a record high as revenue rose sharply in Japan and AEJ on strong financing and derivatives performance. Execution Services revenue rose in all regions, benefiting from a pickup in client activity. Please go to Page 14 next. As shown on the bottom left, investment banking net revenue came to JPY 55.6 billion, down 3%, but still at a high level. By product in advisory, revenue growth momentum continued based on involvement in many M&A deals, chiefly in Japan. The range of deals was varied and included domestic realignment, privatization and cross-border deals in financing and solutions, et cetera. ECM revenue rose slightly on contributions from large-scale CB and PO deals. Solutions business continued to perform well as it tapped demand for unwinding of cross-shareholdings holdings. Let's continue to banking on Page 15. On the top left, banking net revenue was up 6% at JPY 14.5 billion, and income before income taxes was down 27% at JPY 3.0 billion. Loans outstanding accumulated steadily due to -- during the quarter as recognition of loan products on offer grew. The investment trust balance grew, thanks to both market factors and establishment of new trust. Income fell as expenses rose, including spending on IT and a part of the standardization of business processes and recognition of taxes and public charges. We would like you to view this as an upfront investment aimed for future business expansion. Next, expenses page -- on Page 16. groupwide expenses were JPY 469.5 billion, a quarter-on-quarter increase of about 13% or JPY 53 billion. Extraordinary factors that boosted expenses include impairment losses associated with our equity stake in investee company, compensation and benefits accompanying changes to remuneration regulation and effects from changes to the method of presentation of financial statements. When these factors are excluded, we think it's evident that the cost structure in place is appropriate for the revenue growth. We aim to balance revenue growth and cost controls while making steady investment in growth. Next, Page 17 for financial position. As you can see in the bottom left, the common equity Tier 1 ratio stood at 12.9% at the end of March, down 0.1 points from 13.0% at the end of December. This concludes our overview of our fourth quarter results. In closing, we announced which -- lastly, please allow me to briefly talk about the situation related to private credit. First, our group's exposure is properly diversified and managed, breaking down our exposure in wholesale business, lender financing for private credit funds comes to about $800 million. and direct lending to SMEs comes to about $1.2 billion, while in investment management, investment holdings related to private credit come to about $400 million. Lender financing is backed by a diversified corporate credit portfolio and the credit fund counterparties are, by and large, supported by long-term capital provided by institutional investors and the like. Direct lending is diversified across more than 40 companies and investment management investments are also suitably diversified and have been performing stably. In closing, we announced reaching for sustainable growth, our vision for business in 2030 in May 2024 and set as numerical targets, a consistent attainment of ROE of 8% to 10% or more and income before income taxes of more than JPY 500 billion with the targets attained now in the span of 2 years. Great strides have been made to build the franchise required to realize sustained growth of the Nomura Group. I would like to briefly touch upon the situation as of now in April. In Wealth Management, net revenue is largely at the same level as in the fourth quarter. Uncertainty remains in the market due to geopolitical risk, but the flow of funds into products and services, assuming the long-term diversification of investments remains firm and client sentiment has been recovering. In wholesale, net revenue has been trending much higher than in the fourth quarter with equity markets rebounding sharply from the end of March and rising to new all-time highs. Client activity has picked up and equity products revenue has been strong. The rates has also been steadily monetizing client flows amid moderate market volatility. We aim to monetize business opportunities while keeping mindful of appropriate risk levels and cost controls. Your continued support is appreciated. Operator: [Operator Instructions] The first question is from SMBC Nikko Securities, Muraki-san. Masao Muraki: SMBC Nikko Muraki, I have 2 questions. First, international asset management company control. On Page 10, on the footnote, 4 years ago, investment had been made forest-related asset management investment was done and JPY 12 billion of losses have been booked this time around. Can you explain the backdrop? And on Page 11, Macquarie Asset Management. Regarding the cancellation of the agreement, there is a comment. But against the plan, how is the actual performance? That's my first question. Second question is with regards to capital, Page 17. The short question is, in the next quarter, what would be the CET1 ratio? This is the new fiscal year. So I think this is a quarter where you can quite easily leverage your balance sheet. In equity derivatives, you are taking significant credit risk and private credit, U.S. division portfolio has been increasing in the past few years, which is using your balance sheet. So what's your idea regarding the use of balance sheet? And how will that impact your CET1 ratio? Hiroyuki Moriuchi: Muraki. Then let me take the first question. First, international asset management-related question. You touched upon 2 points. The forestry asset management company, we made an investment 4 years ago. And what about the loss and the history that had led to this loss. Back then, when we made the investment, ESG -- global ESG trend was on the rise globally and in the United States. And we expected that this will become a major trend. And we were also advocating public to private, and we were trying to expand our private asset business. So those have been the objectives based upon which we made a decision to make an investment into this company. On the other hand, after the investment was made, as is well known to all of you, the ESG environment had significantly changed mainly in the United States. So that had triggered some difficulties in fundraising. This company itself, AUM is top 5 in forestry. So the health doesn't change. But in comparison to the plan we had drawn back when we made the investment, the growth has decelerated. So we had to book that based upon accounting standards, and that is why we've decided to book for impairment this time around. Carbon offset requirements from operating companies, there are funds that will be introduced and those initiatives are under study. So we are hoping to further accelerate this business in the coming months and years. So that's the backdrop. Now this company is booking profits at the moment. However, the growth of profit is slower than we had expected. And international Asset Management, your second point, net outflow, I touched upon that in the initial presentation. Against the plan, what is the current situation? That was your question. Net outflow itself. From the acquisition, U.S. traditional asset management company was the industry trend. So that had been factored into the valuation in making investments. And based upon that, what about the performance? In principle, onetime of investment or excluding onetime of costs, the original revenue and expense and EBITDA expected in the CEO Forum in December, we made a presentation at the pure earning power a quarter. So 1 quarter worth has been booked. On the other hand, -- as we mentioned on that occasion, towards integration, onetime of expenses have been booked and amortization of intangibles have also been booked. So more or less -- we are more or less in line with the original expectations. But in the mid- to long run, this net outflow will be minimized, and we have to achieve net inflow. So back when we hosted the CEO forum, active ETF transition, and we will also be making J-curve investments in order to expand the business. On your second question, CET1 ratio for the next quarter. Wholesale equity and SPPC balance sheet, use of the balance sheet. Those were the points that you touched upon. Regarding wholesale, as you know, self-funding -- based upon self-funding within the border of additional capital, balance sheet is used, RWA leverage exposure is used within that framework. So based upon the earning power, they are hoping to grow business in that quarter. But additional capital within self-funding -- additional capital is within self-funding. So CET1 ratio impact through business expansion is not that significant. And then within that, what would be the positioning of equity PC and credit business? In the mid- to long run, we want to have a balanced portfolio, and that policy remains unchanged. Of course, we want to grow equity, but regarding SPPC, we will be looking at certain opportunities, and we will not deviate from that policy and quantitative control will be in place as we try to manage our portfolio. I hope I answered your question. Masao Muraki: Then in Q1, top line performance was good. CET1 ratio will not decline so significantly and ROE will improve. Is that the right interpretation? Hiroyuki Moriuchi: CET1 ratio will not decline due to this factor. We don't think so. As you rightly pointed out, we are also hopeful that this will lead to improved ROE. Operator: Next question comes from BofA Securities, Tsujino-san. Natsumu Tsujino: Regarding personnel expense on a Q-on-Q basis, it's up by more than JPY 6 billion. But in the U.K. regulatory change, there was regulatory change. And from the third quarter, there has been a change made to the deferred compensation. So what's the impact coming from them? That's my question. And also, then in the first quarter, what is going to be the impact coming from them? Could you explain? Another question relates to global markets. In April compared to the fourth quarter, wholesale outperformed compared to the fourth quarter. In other words, I believe that's due to thanks to global markets performance and Japan equity was mentioned, and it may be the case for overseas as well. But could you speak more about geographical split, equity or FIC and something like that? Hiroyuki Moriuchi: Thank you, Tsujino-san, for your questions. Regarding personnel expense, in the fourth quarter, as you pointed out, or in the third quarter, we made the announcement, but deferred compensation change, so that had an impact. And as a result, in the fourth quarter, we booked a relevant impact. Compared to the third quarter, the impact, the amount is smaller. However, it's about the same as in the third quarter. In the third and fourth quarters, deferred compensation related expense is booked. But in the third quarter, I explained it, but there is a timing gap, timing difference in terms of bookings. So for the fourth quarter, in terms of the amount, it's smaller. And this year, the impact is going to get closer to 0. As for the compensation regulation relaxation in the U.K., I am skipping details, but it's one-off in nature. So it's similar to the difference, quite a slight in the booking timing. That's my answer regarding personnel costs. Regarding April, when wholesale performance improved compared to the fourth quarter. The main factors are as follows: In wholesale, mainly rates, equity products drove the outperformance. And in the fourth quarter, rates, especially from the middle of March based upon the turmoil in the Middle East, the risk had to be controlled. So it's not just about the end of year factors, but due to risk control, revenue slowed down. And in April, we saw the significant improvement. Equity product is continuously performing well. As for nations, please give me a moment. As for the geography -- geographical split, all regions compared to the fourth quarter, we see outperformance, but regions other than the U.S. are particularly outperforming. The U.S. is performing well, but compared to other regions, growth rate is relatively lower. I hope I answered your question. Natsumu Tsujino: I have not captured everything, but U.S. was doing well as of the end of fiscal year -- previous fiscal year, if I am not mistaken, the U.S. business was strong. On the other hand, compared to the U.S. in the first quarter, growth is limited. Hiroyuki Moriuchi: Tsujino-san, sorry, I did not explain clearly, but bottom right on Page 12, you can find revenue by geography. In Americas, in the fourth quarter, revenue has come down relatively significantly in Americas compared to other regions. That's partially due to seasonality and also due to the impact from the Middle East. Since the middle of March, we had to control business. So especially macro business in Americas was particularly impacted and the timing didn't work well, especially the last 1 week of the month. And those -- that happened. And then the situation got relaxed. And then there has been a less tension after April, and we saw recovery. Operator: The next question is Daiwa Securities, Watanabe-san. Kazuki Watanabe: Daiwa Securities, Watanabe. I have 2 questions. First, private credit, $2.4 billion you explained. You also said diversification is in place, software by sector, can you give us some more detailed breakdown? And retail, private-related products, what is the redemption call? And what is your policy of sales going forward? And secondly, capital policy. You didn't announce any new buyback program. RSU, JPY 40 billion, it would be JPY 20 billion about buyback, 50% total return -- total payout ratio to shareholders. Is that the right interpretation? Hiroyuki Moriuchi: Watano-san, thank you very much. First of all, private credit sector diversification. So what is the picture? Overall, health care, business service, software and computer service, consumer, engineering and construction, these are the sectors included. Mostly health care and business service occupy quite a large proportion. Software, not necessarily high in terms of percentage. And on top of that, there is regional diversification in place as well. And regarding the second half of your first question, retail customers, private credit, what about the redemption and regarding sales policies, as client sentiments, there is some conservativeness. But at the moment, we are not seeing any calls for cancellation or requests. Originally -- or to begin with, when we sell to retail customers, we tell them that it's based upon the assumption of mid- to long-term investment. And when we obtain their understanding, we sell those products to them for the first time. So I think those communications have been effective so much so that there hasn't been any significant run. And on buyback and total payout ratio, first half, second half put together, full year RSU included 58%. Excluding RSU, it's beyond 50%. So I hope that answers your question. Kazuki Watanabe: Regarding buyback, announcement timing, if there's an announcement in 4Q, that would be fiscal year '25. Hiroyuki Moriuchi: The JPY 60 billion buyback program we announced in Q3, in Q4, we assumed the Q4 profit and we defined the amount based upon our assumption. Operator: The next question comes from JPMorgan Securities, Sato-san. Koki Sato: I am Sato from JPMorgan Securities. I have 2 questions. First question is about wholesale and wealth management expense outlook. In wholesale, performance was strong, and there was an adjustment made to the bonus, I believe. And as you explained, and there were onetime factors. So 83% of our cost-income ratio for the year and next following year onward, if top line is at the same level, then what kind of a level can we expect? And on the other hand, for wealth, in the fourth quarter, the performance was solid. The quarterly expense came down. So in this strong performance, I believe you are doing the payout to employees. And even in light of that, if this is the level you are achieving, then when recurring asset growth are bigger, then can we expect more leverage? So could you explain your outlook for expense for those 2 divisions? Secondly, in the third quarter related to laser digital loss was booked. At that time, risk control and net exposure reduction were explained. But in the fourth quarter period, what was the market situation -- based upon the market situation in the fourth quarter and based upon the result of the third quarter and what is the update on the effects achieved as a result of the countermeasure you have taken? Hiroyuki Moriuchi: Thank you for your question. First, outlook for -- the outlook for expense first, wholesale in the fourth quarter on a Q-on-Q basis, plus JPY 13 billion. Out of this increase, 30% is due to the compensation regulatory change and also end of the year performance-linked bonus adjustment. And then the last part is increase in the professional fee and the payment for services received. So the expense rate increased, but fixed cost was suppressed. So this fiscal year in the sense of the review of expense in the fourth quarter, wholesale, they had a few onetime items and also fees paid or professional fees. For example, SPPC pipeline -- so cost was incurred before the deal as we hired lawyers and the revenue recognition got delayed. So compared to the fourth quarter, we expect the expense level to come down. As for wealth management, we booked high level of margin. And can we expect the same level this year? As for this year, advanced investment in AI, also corporate cost increase due to inflation are expected. But continuously in Japan, for wealth management, we are going to tightly control cost. So even though there are timings when cost increases due to advanced investment, but it depends on revenues, but we expect we will be able to deliver a certain level of margin. And finally, regarding laser, in the third quarter, we troubled you and we got you worried with loss related to laser. But as you said, we have controlled risk volume and we have taken a more conservative stance. And in the fourth quarter, when we look at the market, Bitcoin and crypto market decline was the same level as in the third quarter. In terms of profit and loss, impact on consolidated result was limited. I hope I answered your question. Koki Sato: Regarding the latter part of your answer, the situation in the crypto market and the impact on your profitability. Simply put, you've reduced the exposure. So the benefit you've received is as a result of reduced exposure and hedging or different ways of conducting market making. In other words, what I'm getting at is previously, you said you are not intending to downsize the business. So the exposure level, I think, will increase in the future. Even with that, you have a structure in place to prevent impact on profit? Hiroyuki Moriuchi: Thank you very much. Regarding trading, the market making, the absolute amount of risk has been reduced. And of course, there are venture capital investments and asset management seed capital with our own fund. So for those areas, in nontrading areas, we have long positions. So when we have progress in asset management business, then from seed capital, we will see that transfer to equity capital by investors -- LP investment. Operator: The next question, SBI Securities, Otsuka-san. Wataru Otsuka: Otsuka of SBI Securities. Is my voice coming through? Operator: Yes. Wataru Otsuka: Could I do one question and one answer. The first question is just for confirmation purposes, but wholesale, quarter-on-quarter basis, profits declined. What's the reason? Can you recap that? Revenue, as you had explained, global markets fixed income, Q4 seasonality factor and Iran had been quite significant and expenses, expertise fee and performance -- pay for performance. And so due to the revenue and expenses, 30% decline in profit. That's quite significant, but it wasn't a surprise to you. So that's my first question. Hiroyuki Moriuchi: Thank you very much. And you've made the situation very clear. So if we divide it between revenue and cost, as far as revenue is concerned, seasonality due to the end of the fiscal year, risk position was controlled. And on top of that, due to the Middle East situation, in the mid- to late March period, there was exacerbation quite rapidly. So we had to control defensive position, and that's the big factor for the reduction of revenue. And on the cost side, I slightly touched upon this in my presentation. But due to the review of the compensation regulation and also being the end of the fiscal year, part of it is timing gap, and there has been a onetime of increase. And the remainder is increase of fees payable to experts and for transactions. But regarding this factor, the original understanding regarding SPPC we were to add one product to the lineup. So the initial investment, that was within our control. But professional fees, we paid it earlier than booking the revenue. So this was a relatively high cost increase higher than we had expected. That's my personal view. I hope I answered your first question. Wataru Otsuka: Sorry. One follow-up question. 86% expense ratio is slightly high. So there was the timing gap, but 83% for full year -- is that a normalized basis ratio? Hiroyuki Moriuchi: Q4, 86%. Obviously, it's quite significantly higher. And regarding expense ratio, rather than expense side, the impact from revenue is quite heavy. But at any rate, 86% is slightly higher than normal. Wataru Otsuka: Second question, at the end, you mentioned ROE, 10% full year basis. And 8% to 10% or higher and stably performing such ROE, you've achieved that goal. On the other hand, if we look at banks and other Japanese financial institutions or more so regarding overseas financial institutions, 8% to 10% ROE isn't that high. So plus, don't you have an intention to elevate your goal? Isn't that discussed at the Board of Directors meeting? Can you touch upon such aspects? Thank you very much. Hiroyuki Moriuchi: Otsuka-san. Your point is very true, of course, in comparison to mega banks, Japanese for financial institutions and peers overseas from the perspective of being in the investment business, 8% to 10% plus level is just a midpoint. It's not the ultimate goal. Regarding this matter, in the deliberations for the budget, there is intensive discussion on this matter. So if there are any points that we need to review, in late May, we will have the Investors Day, so we may touch upon that aspect. Thank you. That concludes my response. Wataru Otsuka: So your answer is you're discussing that point heavily, right? Hiroyuki Moriuchi: Yes, exactly. Operator: The next question comes from UBS Securities, Niwa-san. Koichi Niwa: I am Niwa. Can you hear me? Yes. Regarding wholesale cost and private asset initiatives of Nomura, I have a question about them. First, regarding wholesale cost this year and next year, on a run rate basis, what's the percentage? I do understand you have a medium-term goal. But given the environment where there is a strong cost increase pressure, what is your outlook? My second question is more long term than the earnings result. But in Americas, what's the future outlook of private asset market in the U.S.A. And on that basis, what is Nomura's strategy? So if it's in the initial phase, then there will be the room for expansion. And in the call today, listen to the tone of your explanation, it appears you remain positive. But looking at your peers, they are switching gears. So if you could give me some perspective on this, that's appreciated. Hiroyuki Moriuchi: Thank you very much. Regarding your first question on wholesale cost control and cost/income ratio target, what is the rate of progress and what is our outlook for this year? And the cost pressure may be high, as you said. But as you said, the group-wide cost control has an important theme of how to manage inflation. So certain parts of this are unavoidable, but rather than absorbing taking them 100%. The theme is to look at where we can reduce cost in other areas. For example, through location strategy, offshore can be more effectively used. So we are considering approaches, including structural approaches so that we can suppress cost increase to a certain level. And regarding cost/income ratio, we would like to grow revenue at a rate that beats inflation. That's an important factor. And for business, this is more important. So in wholesale, ROI against additional capital needs to be increased to increase ROE. That's our intention. Secondly, regarding our outlook for private credit, we need to separate my answer for midterm and long term. Regarding private credit market itself, our view is positive. In the medium to long term, market has the potential to grow. On the other hand, both the bracket and our peers have pointed out repeatedly that in the short term, credit cycle needs to be monitored closely and the risks must be controlled tightly. We do acknowledge the need to do so. So earlier, I answered to a previously asked question. But in SPPC, we have a rich pipeline with attractive opportunities, but our stance is to take selective approach and medium- to long-term portfolio, in wholesale as a whole, we would like to control so that no single product stands out too much. So that kind of control will be needed, and we have an agreement in our approach with wholesale. That's all. Koichi Niwa: Just one more thing from me. So mainly impact on you in terms of division, the impact is happening mainly in wholesale, not really in investment management, but wholesale is mainly impacted. in terms of product line? Hiroyuki Moriuchi: So as for the existing P&L, especially risk side, wholesale portion is the biggest. So your understanding is fine. But as we think about medium- to long-term growth, asset management is the area. As we have said since 2020, we are closely looking at the market opportunities and not just private credit, but we look to grow private business. And as part of that, hopefully, private credit will grow. And wealth management based upon the principle of suitability, based upon the needs of our clients, we would like to steadily accumulate assets. And going back to the previous point, in the short term, we need to control risk for wholesale, that's as you pointed out. Operator: We'd like to conclude question-and-answer session. If you have some more questions, please ask our Nomura Holdings IR department. In the end, we'd like to make closing address by Nomura Holdings. Once again, thank you for joining us. Hiroyuki Moriuchi: As I have said a few times, for 2 successive years on a full year basis, we've renewed the net profit and ROE. Yes, there were some voices saying that this may not be enough, but we exceeded 10% and we were able to achieve the goal towards the 2030 vision 2 years upfront. Recurring asset increased banking division establishment, Macquarie asset management, acquisition, these investments were done in order to make a robust platform for future growth. That was what we've done in the past 12 months. So I think we will begin to monetize out of those initiatives, and therefore, we call upon you to provide your continued support. That was Moriuchi, CFO. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines.
Operator: Greetings, and welcome to the Amerant First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Laura Rossi, Executive Vice President and Head of Investor Relations. Laura, please go ahead. Laura Rossi: Thank you, operator. Good morning, everyone, and thank you for joining us to review Amerant Bancorp's first quarter 2026 results. On today's call are Carlos Iafigliola, our Interim CEO; and Sharymar Calderon, our CFO. Additionally, we're pleased to welcome as a guest speaker this quarter, Lee Ann Cragg, Chief Credit Officer, who will share further insight into our credit risk management initiatives. As we begin, please note that discussions on today's call contain forward-looking statements within the meaning of the Securities Exchange Act. In addition, references will also be made to non-GAAP financial measures. Please refer to the company's earnings release for a statement regarding forward-looking statements as well as for information and reconciliation of non-GAAP financial measures to GAAP measures. I will now turn it over to our Interim CEO, Carlos Iafigliola. Carlos Iafigliola: Thank you, Laura. Good morning, everyone, and thank you for joining us today to discuss Amerant's first quarter 2026 results. As we begin, I want to acknowledge where we are in the execution of our strategic plan. I'm proud of the continued progress we have made on the 3 priorities we outlined last quarter, stabilizing the business, optimizing our credit portfolio and growing sustainably. I also want to thank the Amerant team for their hard work and dedication throughout the quarter. Our people are the key enabler of this plan and that continues to guide our execution. So let's begin with our primary focus, which has been credit quality and improving our loan portfolio. As a reminder, in Q4 last year, we completed a comprehensive reassessment of our portfolio in terms of risk identification and classification and subsequently exited a segment of loans from classified categories. This process continued into the first quarter, where we demonstrated proactive credit management and further refined the classifications of certain loans based on current macroeconomic data and new information received. We identified both necessary downgrades as well as meritable upgrades. Additionally, we exited and transferred to held for sale another group of loans that we no longer consider core to our business. The new process and people we have put in place has significantly improved our credit evaluation capabilities, and the team is executing well. The composition of our loan portfolio now reflects a healthier mix with a risk profile that is more consistent with our long-term goals. Lee Ann will share additional details shortly. Going forward, as we prioritize business development, we will pursue growth within credit parameters that allow for sustainable financial results. To this end, we have enhanced risk-based limits to adjust concentration risk and prevent single borrower overexposure. We have also refined our market approach by moving away from out-of-market collateral projects, except selectively for existing clients in core markets where we have deeper borrower insight. We have also fundamentally shifted underwriting, prioritizing borrowers with proven stable operating history over projection-based lending and tightening our policy exception framework by lowering allowable exception thresholds to better align with our risk appetite. Lastly, we have continued to invest in experienced talent, and we're taking a more intentional approach to growth, focusing on what we believe are the right fundamentals to drive stability, consistency and sustainable top line performance. Our top priority is continuing to improve our efficiency, which the team executed well against this quarter. Our net income for Q1 was in line with our guidance, and we have significantly reduced noninterest expenses quarter-over-quarter, supported by better-than-expected cost savings. To put this in perspective, our expense management efforts represents approximately $30 million in cost savings for 2026. Additionally, we saw strong growth in favorable low-cost international deposits as a result of the reactivation of the Venezuelan economy and our deep knowledge and experience in the market as well as the extensive work that for many years, we have done to preserve and expand our relationships in the country. In line with this, I would like to take a moment to provide some additional context on our international deposit growth. Last quarter, we highlighted Venezuela as an area of opportunity. And this quarter, we delivered, recording $188 million of total deposit growth in Q1, from which $95 million came from Venezuela and $66 million of this growth was in March alone. These deposits are quite attractive due to their stability, overall cost of funds and beta in rates-up cycle, such as the one we recently experienced, allowing for improved profitability as we continue to grow our international presence. Furthermore, these customers are well aligned with our relationship-first approach as they can be cross-sold via our wealth management offering. Moving forward, Venezuela represents a key opportunity to continue generating net interest income from a source of funds and to capture increased market share. We believe Amerant is uniquely positioned to take advantage of this opportunity and support both individual entities as the country reopens. In summary, we believe we executed well against our strategic plan. We took a focused, deliberate action to further optimize our credit portfolio while reinforcing risk management. We implemented cost savings initiatives that have reduced our expenses and improve our efficiency. We generated loan growth that is aligned with our risk appetite despite exits of certain criticized loans and significant loan prepayments, which provides a clear line of sight to sustained credit performance. And we executed well on our international strategy, particularly in Venezuela, which we view as a meaningful opportunity to further scale our international deposit franchise and drive incremental earnings. With that, I will turn it over to Shary to review our quarterly financial results in more detail. Sharymar Yepez: Thank you, Carlos, and good morning, everyone. I want to begin by saying that going forward, we will be discussing results without breaking down core versus noncore metrics in our financials. We would like to be more selective with adjustments with the goal of providing a clearer and more straightforward view of our quarterly performance. All comparisons made to last quarter's results are to our GAAP reported figures. Let's turn to Slide 4, where you will see our balance sheet highlights. Note that in the next 3 slides, I will focus on those items that are most relevant to the quarter and will not be covered in subsequent slides. Total assets were $9.9 billion as of the end of the first quarter, an increase from $9.8 billion as of the end of the fourth quarter. The increase was primarily driven by higher deposit balances. Additionally, we reallocated our assets to fund net loan growth, including selected residential loan purchases and deploy available cash into higher-yielding assets. Cash and cash equivalents were $188.7 million, down by $281.5 million compared to $470.2 million in the fourth quarter due to the purchases of investment securities at attractive yields as well as to fund loan growth. Total investment securities were $2.4 billion, up by $346.3 million compared to $2.1 billion in the previous quarter. Total gross loans were $6.8 billion, up by $56.5 million compared to $6.7 billion in the fourth quarter. While we experienced increases in certain portfolios, overall loan balances were only slightly higher than in the fourth quarter due to a high level of prepayments and some loans that we exited in line with our focus on credit quality. This was anticipated and guided to in our call last quarter. On the deposit side, total deposits were $7.9 billion, up by $152.2 million compared to $7.8 billion in the fourth quarter, primarily driven, as Carlos mentioned, by strong growth in international deposits. Our assets under management increased $148.6 million to $3.4 billion, driven by higher market valuations. As we've shared previously, we continue to see this business as an area of opportunity for us to grow fee income going forward, increasingly in light of the opportunity in Venezuela. Let's turn to Slide 5. Looking at the income statement, diluted income per share for the first quarter was $0.44 compared to $0.07 in the fourth quarter. Net interest income was $80.3 million, down $9.9 million from $90.2 million in the fourth quarter. This was primarily driven by lower average balances and yields on interest-earning assets, largely attributable to the anticipated cuts of 50 basis points in market rates, impacting the portfolio for the entire quarter. The decrease in net interest income was also driven by the asset mix reallocation. That translated into a contraction of our financial margin to 3.55% from 3.78% in the fourth quarter. Provision for credit losses was $7.8 million compared to $3.5 million in the fourth quarter. Noninterest income was $17.4 million, down $4.6 million from $22 million, primarily driven by the absence of the gain that we had in the fourth quarter from the sale and leaseback of 2 banking centers as well as lower securities gains this quarter compared to the fourth quarter. Noninterest income this quarter includes securities gains of $516,000. Noninterest expense was $66.9 million, down by $39.9 million or 37.3% from $106.8 million in the fourth quarter. The significant reduction in noninterest expenses this quarter was primarily driven by our cost savings efforts, which included $3.3 million savings in vendor contract renegotiations. The decrease in noninterest expenses in 1Q '26 was partially offset by $1.7 million in an impairment on investment carried at cost and $1.8 million in net losses on loans held for sale. Pretax pre-provision net revenue was $30.7 million compared to $5.4 million in 4Q '25. As mentioned earlier, we have significantly reduced noninterest expenses this quarter, which more than offset the lower net interest income and noninterest income, driving an improvement in PPNR. You can also see that ROA and ROE this quarter were 0.73% and 7.63% compared to 0.10% and 1.12%, respectively, and our efficiency ratio was 68.52% compared to 95.19%. These ratios were primarily impacted by the increase in net income and significant decreases in expenses this quarter. Turning now to Slide 6 to discuss our capital metrics. Our CET1 remains strong at 11.84% compared to 11.80% last quarter, mainly driven by lower risk-weighted assets and from net income during the quarter, while partially offset by $18.7 million in share repurchases and $3.7 million in shareholder dividends. We paid our quarterly cash dividend of $0.09 per share of common stock on February 27, 2026, and our Board of Directors just approved a quarterly dividend of $0.09 per share payable on May 29 of this year. During the first quarter, we also repurchased 859,493 shares at a weighted average price of $21.77 per share compared to tangible book value of $22.38 as of March 31, 2026. This represented 97% of tangible book value and 95% of book value. On Slide 7, we show our well-diversified deposit mix along with the composition of our loan portfolio. Total deposits for the quarter were $7.9 billion, up $152.2 million or 2% compared to $7.8 billion in the previous quarter. As Carlos mentioned, this increase was primarily driven by the significant deposit growth in our international deposits as a result of Venezuela's economy starting to reactivate, which we believe presents a strong opportunity for us to pursue. In terms of deposit mix, broker deposits totaled $548.1 million, up by $112.4 million compared to $435.7 million in the fourth quarter as we used mostly short-term funding to compensate for some large fund providers that left in the prior quarter. We also saw an increase in interest-bearing demand, savings and money market deposits partially offset by a reduction on noninterest-bearing deposits. Total loans were $6.8 billion, up $56.5 million or 0.8% compared to $6.7 billion in the fourth quarter. This increase was driven by a combination of originations as well as purchases of selected residential mortgages during the quarter, which were largely offset by the higher prepayments we received as well as loan sales completed in this period. Next, on Slide 8, you can see the evolution of our net interest income. You can see that we maintained a healthy net interest margin despite this first quarter fully capturing the impact of 2 rate cuts towards the end of the last year and our asset mix reallocation. We continue to reprice our interest-bearing deposits during the quarter to maintain a healthy NIM and saw the cumulative beta at 0.48% since the rate down period started. Our net interest income was also impacted by nonperforming loans and some of the exits of classified loans that I mentioned earlier. While this may have a short-term impact, it improves the long-term sustainability of our business. Now I'd like to turn it over to Lee Ann, who will speak a bit more about some of the updates we have made to our portfolio management processes as we continue improving credit quality. Lee Cragg: Thanks, Shary, and thank you for having me on today's call. As Carlos highlighted, we are taking significant steps to improve our credit quality evaluation processes, which I'd like to highlight for you today. To begin, we staffed a dedicated portfolio management team to improve the timeliness of the collection of financial information from borrowers and for the escalation of possible issues to the credit team. We've also invested in additional training for both credit and line of business teams to improve the accuracy and consistency of assigning regulatory risk ratings. We have further embedded new checkpoints throughout our monitoring process upon which updated risk rating models should be run and attested. Beyond that, we've made our review procedures more rigorous and risk focused. We redesigned our annual review format to drive deeper risk identification and recalibrated the review threshold from total credit exposures of $5 million to $3 million to expand portfolio coverage. Subsequently, and with additional process and staff build-out, we expect to review all exposures over $1 million through our standardized review. We also introduced quarterly top 20 reviews across CRE, C&I and Private Banking segments to closely monitor our largest relationships. These discussions include risk ratings, exceptions and exposure strategy. These quarterly meetings will be held for portfolio segments that may be deemed in higher-risk categories throughout the year. We have also increased the cadence of hosting multiple loan monitoring meetings. These meetings are for adversely classified loans with ongoing proactive strategy discussions, focusing on restructures or obtaining additive credit enhancements where possible. Finally, we're aligning our incentives with asset quality by incorporating portfolio management metrics into banker compensation starting in 2026. Collectively, these steps provide stronger controls, better visibility and more hands-on portfolio management. Now turning to asset quality. As shown on Slide 10, nonperforming loans were up $4.7 million or 2.7% for a total of $176.1 million or 1.78% of total assets. During Q1 '26, downgrades to NPL were primarily driven by 3 relationships that included a combination of CRE, owner-occupied and commercial loans, and were offset by payoff and note sales as noted on the slide. In the next slide, we have included similar information as it relates to the classified portfolio. During 1Q '26, downgrades to classified loans were primarily driven by the 3 relationships just mentioned in NPL as well as a large nondepository financial institution loan with underlying CRE property as collateral and one large single-family residential loan, which was adequately secured with real estate. On this slide, you can also see the results of our efforts to reduce the loan balances in this classification during this quarter, with loan payoffs totaling $59.5 million and loans sold totaling $65.7 million during the period. Now moving into Slide 12, we discuss special mention loans and their key characteristics, including portfolio composition and collateral coverage. During the first quarter of 2026, downgrades to special mention were primarily driven by 3 CRE loans, partially offset by upgrades to pass totaling $67.3 million. This is based on new year-end financial information that was received and analyzed. As of April 22, special mention loans were reduced to $117.3 million due to a $30.9 million CRE loan sale and is projected to reach a further reduced level to $88.3 million as a result of an additional CRE loan exit of $29 million. This is expected in the coming weeks. Overall, these results reflect the proactive approach to credit monitoring, evaluation and resolution that we have taken to effectively manage risk across the portfolio. You will also see the impact of these efforts as we continue to exit these credits through paydowns, payoffs and loan sales with expected balances declining as a result. And with that, I'd like to pass it back to Shary. Sharymar Yepez: Thank you, Lee Ann. Now moving on to Slide 13. Here, we show the drivers of the provision recorded this quarter and impact to the allowance for credit losses. The provision for credit losses was $7.8 million in the first quarter. The provision was driven by $6.3 million in additional reserves for charge-offs, a $1.7 million net increase in specific reserve allocations and $2.6 million attributable to changes in credit quality and macroeconomic factors. These increases were partially offset by a $2.9 million release related to held for investment loan volume changes. During the first quarter of 2026, gross charge-offs totaled $9.1 million, which includes $4.4 million related to a commercial loan participation agreement that the borrower and the company agreed to wind down in 4Q 2025, and no further charge-offs are expected from this agreement going forward. The remaining charge-offs were related to one commercial relationship and indirect consumer loans. These charge-offs were offset by $1.9 million due to recoveries. Lastly, the allowance for credit losses ratio was up slightly to 1.21% from 1.20% in the fourth quarter, primarily due to increases in specific reserves. On Slide 14, you can see our outlook for 2026. For 2Q '26, we project loan balances to reach approximately $7 billion, driven by organic originations and selective residential loan purchases, which also support a shift towards a more granular portfolio. For the full year 2026, we expect annualized loan growth of approximately 7%. These expectations will be governed by 2 deliberate and nonnegotiable priorities. First, we will continue to exit certain credits to further optimize our loan portfolio, which will offset a portion of organic production in the near term. Second, we will pursue future loan growth that is consistent with our risk appetite and supports the predictability of our credit metrics. On the funding side, we expect deposits to reach $8 billion by 2Q '26 and cumulative deposit growth between 8% to 10% for 2026. The confidence in our deposit growth outlook is supported by emerging opportunities in Venezuela, as Carlos mentioned, and our continued efforts to grow domestically. We expect net interest margin to be in the 3.4% to 3.5% range in 2Q '26, stabilizing around 3.4% towards year-end, reflecting disciplined balance sheet management and pricing. From an expense perspective, we are projecting approximately $68 million to $69 million in expenses for 2Q '26 with quarterly expenses stabilizing around $68 million by the second part of the year as we continue to make progress towards our target efficiency ratio of approximately 60%. Lastly, we continue to believe that buying back our stock represents an attractive use of capital, and we expect to continue using a portion of our cash to directly return capital to our shareholders through repurchases and dividends. And with that, I pass it back to Carlos for additional comments and closing remarks. Carlos Iafigliola: Thank you, Shary. As we wrap up today's call, I would like to reiterate, as shown on Slide 15, the continued progress we have made in stabilizing the business, optimizing our credit portfolio and growing sustainably. Our results this quarter reflect strong execution and tangible progress from the decisive actions we have taken over the past 2 quarters across these priorities. As we look ahead, we will continue to prioritize building a healthier loan portfolio that is consistent with our risk appetite and long-term goals. We will also continue our disciplined expense management efforts, driving efficiencies across the organization. And lastly, we will emphasize growth in our core business with a clear line of sight to sustained credit performance. We will continue to strengthen our relationship-first model to enhance collaboration across our business lines to unlock synergies, proactively manage deposit funding costs and capitalize on strong deposit growth opportunities, including Venezuela. We have a durable franchise, a clear strategic vision and a disciplined execution plan. While there is more work ahead, we are excited about the opportunities and remain confident in our ability to deliver value for our shareholders over the long term. With that, Shary, Lee Ann and I will take questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Our first question today is coming from Evan Yee from Raymond James. Evan Yee: So just want to start on expenses. So it looks like expenses trended a little bit better than the initial first half of 2026 expectation. Could you just give us some color into what is factoring in your outlook for the rest of the year? Carlos Iafigliola: Yes. Thank you so much for the question. So pretty much we accelerated some of the contract renegotiation that we have scheduled for later into 2026. So we had it completed in early 2026 and the run-up rate seems to be closer to the $68 million for the entire year quarter-over-quarter. So that's a collective effort that we have done to improve expenses. Shary, I'm not sure... Sharymar Yepez: Yes. Yes, Carlos, to complement that, I think it's important that we state that we're not looking into just a onetime cost reduction. We're looking more into sustainability quarter-over-quarter. So that's why you're going to see that the run rate that we have provided some guidance on it goes to the $68 million more or less in the upcoming quarters. And we continue to plan to cross the $10 billion threshold. I know we're at $9.9 billion right now, but we continue to plan to cross that threshold. We're going to have some investments in people and technology. So it means that we have to make sure that we materialize those cost savings initiatives that we have identified so that we get to that run rate of $68 million that we have guided to. Carlos Iafigliola: I guess the takeaway is that those savings are durable throughout the entire 2026. Evan Yee: Got it. That's super helpful. And then I guess switching over the capital. So it looks like you used a large utilization -- a large portion of utilization this quarter. Just kind of curious on what the appetite is there moving forward. I know you've mentioned it was an attractive option. Carlos Iafigliola: You mean in terms of the buyback, the leftover of the buyback right now is $21 million, and we are planning to complete the buyback through Q2. Sharymar Yepez: Yes. And we have -- I mean, we definitely saw opportunity, we believe, in the bank, and we saw a lot of value and opportunity in the first quarter because we were trading below tangible book. We're now over tangible book, but we continue to see opportunities through the buyback program. So as Carlos mentioned, the plan is to continue with the plan throughout the year with the remaining portion. Operator: Next question today is coming from Russell Gunther from Stephens. Nicholas Lorenzoni: This is Nick stepping in for Russell. So it's good to see progress on special mention, especially with that $31 million sale already closed. But looking ahead to that additional CRE exit you guys have targeted for mid-2Q, does that effectively wrap up the heavy lifting on derisking? I'm just trying to gauge if there are more bulk exits on the horizon or if the portfolio is finally where you want it to be. Carlos Iafigliola: Sure. Thank you for the question. And the exercise that we have been doing, and probably you noticed the progression has been risk identification. We exit the relationships that we consider that were critical exits in Q4 2024. And from now on, it will be a risk calibration exercise. So what we place in available for sale reflects a combination of line items that are either out of footprint, or they are too bulky with our new risk appetite. So the progression will be that those line items will continue to fade away out of the balance sheet. Right now, we executed on the $30 million, and there is another exit up coming weeks. So that will left with $130 million in available for sale, but the plan is to continue to execute, and the plan is to create a portfolio that is more granular going forward. So you minimize the swings between the risk rating categories. Sharymar Yepez: Yes. And Carlos, to complement that, too, if we look also at the categories of classified or NPLs, we are looking into different paths to exit those. Some have opportunities for upgrades, which we'll look into, but others have opportunities, whether it's to refi and so on. So when we think about what is the derisking that we have left over the portfolio, as Carlos mentioned, we have the available for sale that we plan to exit, and then we have the reductions of the classified portfolio as well. Nicholas Lorenzoni: Got it. Operator: Next question today is coming from Woody Lay from KBW. Wood Lay: I wanted to start on the net interest margin in the quarter. It came below the guide you all had given for the quarter, and it looks like it came from lower loan yields. One, I was just wondering, were there any elevated interest reversals in the quarter? And two, is new loan production coming on at lower yields just given the adjustment in the risk appetite and trying to put on cleaner and safer credits? Sharymar Yepez: Sure. And Woody, what I'm going to do is I'm going to walk you through some of the elements of the NIM that may be helpful to get to that response. But the first thing is we had a change -- I mean, we have the repricing of the loan portfolio due to the cuts as we had planned for. So that did happen, and that's why we had guided to a lower number versus the NIM that we had in Q4. But then after that, during Q1, we had a different asset mix. You're going to see that we had a higher proportion of investments available for sale. We had some impact due to the timing of the funding of the loan growth, which occurred later in the quarter. And then additionally, to your point, we had onboarding of production with a quality that's aligned with the current risk appetite that will come and is expected to come with an overall lower yield than the existing portfolio. And then on top of that, we also had an impact of approximately 3 basis points associated to the number of days in the quarter versus the last quarter. I think you also had a question regarding if we had certain impacts of nonaccrual. I don't -- I didn't see anything significant this quarter. But if we compare that to the last quarter, last quarter, we did have some impact due to collections or recoveries on NPL loans. So trying to create something comparable for apples-to-apples, you're going to see that because we didn't have that in Q1, the NIM is slightly lower as well. So I hope that helps with that bridge. Carlos Iafigliola: Woody, the other item that I would like to emphasize that this guidance that we're providing, and we're pending still to see the progression, international deposits started to resume. And as you know, they come with a lower cost of funds, closer to the 1% or in some cases, even lower. So we started to see that coming over. As we started to see a significant progression and we started to see a clear path towards accumulation of those deposits, that may have an impact on the cost of funds and will trigger a recalibration on the guidance for the financial margin. So for the time being, the financial margin projected includes the lower loan spreads. Remember that the production that we're looking at right now, it's probably closer to the 200 basis points, so it's even lower in some cases over SOFR. And generally speaking, what we'll have is that if the international portfolio of deposits starting to increase furthermore, we'll have additional savings in the cost of funds. But that's something that we're carefully assessing right now. We have a good quarter from that perspective and looking forward to see what's the accumulation of those line items. Okay. Sharymar Yepez: And Carlos, to add to that, now on the deposit side, given the uncertainty in the rate environment, although we are expecting some positive improvement in terms of cost of funds due to the maturities of customer time deposits and broker deposits as it relates to other interest-bearing products, we still -- there's still uncertainty as to the timing of those -- as to the timing of the repricing of those deposits. So it's something that we will continue to look and model, but that definitely will impact the guidance to the NIM. Wood Lay: That's really helpful color. I appreciate you walking me through that. And then maybe to follow up on the international deposits. As you mentioned, the growth was really impressive as Venezuelan market is opening up. But how are you shifting the strategy on your end? Do you need to hire more people that call on that market? How do you unlock the potential of Venezuela? And could you also just remind us of the cost of those Venezuelan deposits or the cost on the incremental deposits that would be helpful. Carlos Iafigliola: No. Thank you so much for the question. So definitely, we are looking to increase the staff to help us with these efforts. Something that is really important and is that we have seen a progression in the way that the jurisdiction is being looked from the perspective of sanctions. So progressively, we have seen a path towards reducing the number of sanctions towards Venezuela and the Central Bank from the country having access to their funds. So therefore, there is an incremental flow of funds through the economy, and this is happening in conjunction with the U.S. Treasury Department. So we're seeing that positive uptick. We're looking to increase the staff in the international side, and we're also resuming our outreach to the region since now traveling into the country is much easier now than it used to be before. And the cost of funds right now for the entire international portfolio sits around 1.30% actually even a little bit lower 1.15% maybe. And then we have the incremental deposits that we're getting are actually sub 1%. Wood Lay: Got it. And then maybe just last for me on credit, thinking about the charge-off expectations going forward, it's good to see the quarter-over-quarter improvement over charge-offs. But the noise in the Middle East and some of the inflation to input costs, does that make achieving resolution for some of these credits more expensive, and we would expect charge-offs to go up? Or any thoughts there? Sharymar Yepez: So we have no direct exposure to exploration or extraction on the oil piece. So we're obviously looking at our overall portfolio to see impacts there. But what I would say from a high level on our overall charge-off is that we're predicting around 30 to 35 basis points, which is in line with our guidance. We're not seeing any need for elevation at this point. Wood Lay: Got it. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Carlos Iafigliola: Thank you, everyone, for joining our first quarter earnings call as well as your continued support and interest in Amerant, and have a great day. Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good morning. And welcome to the SB Financial Group, Inc. First Quarter 2026 Conference Call and Webcast. I would like to inform you that this conference call is being recorded and that all participants are in a listen-only mode. We will begin with remarks by management and then open the conference up to the investment community for questions and answers. I will now turn the conference over to Sarah S. Mekus with SB Financial Group, Inc. Please go ahead, Sarah. Sarah S. Mekus: Thank you, and good morning, everybody. I would like to remind you that this conference call is being broadcast live over the Internet and will be archived and available on our website. Joining me today are Mark A. Klein, chairman, president, and CEO; Anthony V. Cosentino, chief financial officer; and Steven A. Walz, chief lending officer. Today’s presentation may contain forward-looking information. Cautionary statements about this information, as well as reconciliations of non-GAAP financial measures, are included in today’s earnings release materials as well as our SEC filings. These materials are available on our website and we encourage participants to refer to them for a complete discussion of risk factors and forward-looking statements. These statements speak only as of April 24, 2026, and SB Financial Group, Inc. undertakes no obligation to update them. I will now turn the call over to Mr. Klein. Mark A. Klein: Thank you, Sarah, and good morning, everyone. Welcome to our first quarter 2026 conference call and webcast. First quarter represented a solid start to the year for SB Financial Group, Inc. and really reinforces the consistency and resilience of our operating model. Results reflected balance sheet performance across the franchise, supported by loan growth, stable net interest income, improved fee-based revenue, disciplined expense management, and sound credit quality. This quarter also marked the first full anniversary of the Marblehead acquisition, and we now view that transaction as a solid contributor to our funding base, expanded presence in Northern Ohio, and overall franchise stability. While the operating environment remains competitive, we continue to feel good about our position. The balance sheet remains sound. Our credit metrics continue to compare favorably, and our business line provides a healthy mix of margin and fee-based revenue. We believe that combination, along with our disciplined approach to growth and capital deployment, supports our ability to build long-term shareholder value. Briefly, some highlights for the quarter. Net income was $4.3 million with diluted EPS of $0.90 compared to GAAP diluted EPS of $0.33 for 2025. This now marks our 61st consecutive quarter of profitability. Tangible book value per share ended the quarter at $18.45 compared to $15.79 for 2025 and $18 at year end. Adjusted tangible book value per share, excluding AOCI, now comes in at nearly $22. Our net interest income totaled $12.7 million compared to $113 million in 2025 and $12.7 million in the linked quarter. The year-over-year improvement was driven by higher interest income on loans and a stable funding profile, while the linked-quarter comparison remained relatively consistent. Balances increased by approximately $92 million from the prior-year quarter and approximately $500 thousand from the linked quarter, reflecting continued production across the franchise and extending our trend of sequential quarterly growth. Total deposits in the quarter were $1.37 billion compared to [inaudible] for 2025 and $1.3 billion at year end. On a year-over-year basis, deposits increased $100 million, or nearly 8%, reflecting continued organic deposit growth and stable client relationships across the franchise. Noninterest income improved to $4.7 million from $4.1 million in the first quarter of the year and $3.7 million from the linked quarter. Percentage of fee income to total revenue of 27% was slightly higher than the prior year and well ahead of the linked quarter. Noninterest expense totaled $11.9 million, and improved from the prior-year quarter while increasing modestly from the linked quarter. The prior-year quarter included acquisition-related expenses and incremental operating costs associated with Marblehead, which elevated that comparison period. Asset quality continues to remain a strength of SB Financial Group, Inc.; nonperforming assets totaled $4.8 million, or 0.3% of total assets, compared to $6.1 million, or 0.41%, in the first quarter. While nonperforming assets increased modestly from year end, overall credit performance remained sound, and reserve coverage remained strong. I am especially pleased with the efforts of not only our lenders, but more importantly, our collection team, which drove our total delinquency level down to just 28 basis points at quarter end. As we have revealed in prior quarters, we key on our five strategic initiatives: growing and diversifying revenue; more scale for efficiency; greater share of the client’s wallet for more scope; operational excellence; and, of course, asset quality. Looking a little closer at revenue diversity, mortgage originations totaled approximately $66 million compared to approximately $40 million for 2025, and approximately $72 million in the linked quarter. The mortgage business remains an important part of our franchise, helping us expand household relationships while also contributing meaningful fee income across the company. While volume was weaker than we anticipated in the quarter, the pipeline has stabilized at approximately $35 million, and we anticipate approximately a 25% increase in volume for the second quarter sequentially from the linked quarter. Big title continued to perform well during the quarter, benefiting from both internal referrals and continued traction of clients outside of the bank. This business remains a valuable part of our product set and an important contributor to fee-income diversification. On the scale front, the Marblehead acquisition continues to support our funding profile, and we remain pleased with the stability of those client relationships just one year after closing. Deposit growth continued to provide meaningful support to our balance sheet. We remain pleased with the stability of the Marblehead relationships and, more broadly, continue to see opportunities to grow deposits organically through client-calling efforts, treasury management activities, and the broader relationship model that has served us well across our markets, particularly with the current market disruption and consolidation. As we discussed previously, we committed to two nearby markets recently, Angola, Indiana, and Napoleon, Ohio, and these results have exceeded our admittedly aggressive goals. We have closed nearly $19 million in loans and approximately $17 million in deposits in just five months of operation. These two markets have clearly been at the forefront of the market disruption I just mentioned, and we certainly have seized on that opportunity. Client relationships—more scope—remain focused on serving clients through our relationship-based model that emphasizes responsiveness, local market knowledge, and a full suite of products and services. We continue to believe that approach, combined with our hybrid office model and expanding digital capabilities, positions us well to serve our clients across both legacy and newer urban expansion markets. Referral activity continues to be an important tool in strengthening household relationships across our business lines, and we continue to view that cross-functional approach as an important part of deepening client relationships across the franchise and delivering more scope and a greater share of the client wallet. On operational excellence, we remain focused on matching growth with disciplined execution. The first quarter reflected that mindset with expense levels improving from the prior-year period and remaining controlled relative to revenue. Plus, we continue to evaluate staffing, technology, and physical presence across the franchise to ensure resources are always aligned with current client activity and long-term market opportunities. Capital levels remain strong with improvement in total capital and higher ratios for both TCE and CET1 regulatory capital. And finally, before I turn it over to our CFO, Anthony V. Cosentino, criticized and classified loans coverage remains strong and continues to reflect our conservative approach to risk management. The allowance for credit losses at 1.39% remained strong relative to total loans, with criticized and classified loans at just $4.6 million, down $25 million, or 35%, from the prior year. We continue to emphasize disciplined underwriting, proactive management of problem assets, and prudent growth across all markets. We believe that combination remains one of the key differentiators for SB Financial Group, Inc. and an important metric for our long-term performance. I would like to ask Anthony to give us some more details on our quarterly performance. Anthony? Anthony V. Cosentino: Thanks, Mark, and good morning again, everyone. Let me outline some highlights and important details of our first quarter results. On the income statement, the first-quarter total operating revenue increased to $17.4 million, representing a 13.2% increase from the $15.4 million in the prior-year period and a 6.1% increase from the linked quarter. As Mark noted, this quarter reflected a balanced revenue performance with stable net interest income and a stronger contribution from our fee-based businesses. Mark also detailed our GAAP EPS earlier in the call, and when we adjust both years for OMSR recapture and the Marblehead merger costs, EPS would be $0.63 for the current period compared to $0.42 in 2025, up over 50% on an adjusted basis. Net interest income was up $1.4 million, or 12.7%, from 2025 and consistent with the linked quarter. The year-over-year increase was driven primarily by continued balance sheet growth, better mix, and the repricing benefits within the portfolio. Total interest expense increased modestly from the prior-year quarter as higher volume-driven deposit costs were partially offset by lower costs across other funding sources. While funding costs remain an important point of focus, the overall funding profile of the company remains well aligned with the asset growth we have achieved over the last year. Net interest margin for the quarter was 3.49% compared to 3.41% in the prior-year quarter and 3.52% in the linked quarter. Even with net interest income remaining flat sequentially, the company continued to benefit from the larger balance sheet and the repricing of interest-earning assets. Noninterest income increased to $4.7 million; on a percentage basis, that represents an increase of approximately 14.7% from the prior-year period and 27% from the linked quarter. The quarter-over-quarter and year-over-year improvement was driven by higher mortgage loan servicing fees, stronger gains on sale of mortgage loans and OMSR, and improved gains on the sale of SBA loans. The total mortgage banking contribution for the quarter was $1.8 million compared to $1.5 million in the prior-year quarter and $1.5 million in the linked quarter. We continue to utilize our hedging program, which was in the money for the quarter, as it successfully offset the disruption in the rate markets. Operating expenses totaled $11.9 million in the quarter, down $500 thousand from the prior year and up just $700 thousand from the linked quarter. The year-over-year comparison benefited from the one-time merger-related costs that were present in 2025. The linked-quarter increase was modest and reflects normal quarterly expense variability. Our efficiency ratio for the first quarter was 68.1%, representing a meaningful improvement from the prior-year period and continued stability on a sequential basis. Our adjusted efficiency ratio was down by over 500 basis points from the prior period and the adjusted operating leverage was a positive five times. Turning to the balance sheet. Loan balances ended the quarter at approximately $1.18 billion, reflecting continued year-over-year growth and a modest increase from year end, with loans-to-assets at a healthy 74%. We remain encouraged by the continued stability in production across the franchise, and we believe the current balance sheet remains well positioned to support additional disciplined loan growth during the year. Our loan-to-deposit ratio at quarter end was 86%. Although we continue to view the low to mid-90s as a reasonable long-term operating range, the current funding profile gives us flexibility to support loan growth while maintaining strong liquidity and a balanced risk posture. On capital management, during the quarter, the company repurchased approximately 29 thousand shares at an average price of $21.12. We have guided lower on the payback on the buyback for 2026 as prices are at or near our adjusted tangible book value. We are also cognizant of the impending potential call of our sub debt that would require a capital outlay, potentially impacting an aggressive buyback posture moving forward. Turning lastly to asset quality. While nonperforming assets totaled $4.8 million and were relatively unchanged compared to the linked quarter, we did foreclose on a large property that elevated OREO with a like-size reduction in NPLs. We feel confident in our collateral position and do not anticipate further write-downs from this relationship. The allowance for credit losses as a percentage of total loans is 1.39% compared to 1.36% in the linked quarter and 1.41% in the prior year. Coverage of nonperforming loans was higher than both the linked and prior-year quarters, underscoring the continued strength of the company’s reserve position and disciplined approach to credit risk management. Total delinquencies were also down substantially for both the linked and prior year, and when we exclude loans on nonaccrual, the delinquency rate is effectively zero. I will now turn the call back over to Mark. Mark A. Klein: Thank you, Anthony. We certainly remain encouraged by our positioning as we move through 2026, supported by strong credit fundamentals, a growing balance sheet, and continued discipline in expense control and capital management. We are focused on executing across all of our footprint, optimizing our lenders and lending capacity, and driving cross-sell activity to support core deposit growth while maintaining a balanced approach to risk. We will be announcing a quarterly dividend of $0.16 per share, equating to an annualized yield of approximately 2.8%, representing 25% of our earnings. We continue to believe the current environment presents attractive opportunities to build on our growth trends. Our capital levels provide flexibility. Our collective experience provides a clear path to a broader footprint. And our continued focus on improvement supports our long-term objective of scaling our franchise toward our $2 billion strategic goal of a balance sheet. We will now open the call for questions. Operator: Thank you. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, press star then 2. The first question will come from Brian Joseph Martin with Breen Capital. Please go ahead. Brian Joseph Martin: Hey, good morning, guys. Just maybe a couple things here. You talked a little bit on the call about the success you have had in the newer markets, Mark, that you mentioned. When you look at loan growth and the deposit growth going forward and the benefits from these new markets, can you frame up your outlook on loan growth here? Is there more to come from those new markets, or was that the low-hanging fruit and there is still more upside? Just frame up your outlook on loan growth and the pipeline here. Mark A. Klein: Sure. As I am sure you know, Brian, Angola was a mortgage production office originally, and when COVID hit, we left it a mortgage production office with some wealth management business. Recently, we knew there were opportunities in Angola to develop it into a full-service office, and it has been really good. We have a great staff and certainly a lot of opportunity. We used to spend some time up in that market, but when COVID hit, we pulled back. Angola is doing well, and we are right on the verge of having black numbers coming out of that with a positive P&L. Napoleon was specifically a result of the disruption in the market from consolidation and mergers. That has great potential. As I have mentioned before on prior webcasts, there is probably $1 billion in that market that has now become deposits of larger regional banks, whereas before they were deposits of smaller community banks. We feel there is a great opportunity to continue to lever that. We have a great staff, and that will provide not only lending growth but also nice deposit opportunities in a market that is longing for a community bank. Lastly, we have been in Gahanna for a period of time, generally as a mortgage loan production office, and most likely by the end of the year, we will be having more conversations about opening that as a full-service office in Columbus, because we know there are opportunities there with just the one officer we have in Dublin. That is an update on those offices in terms of opportunities for de novo expansion. Brian Joseph Martin: Okay. And as far as the pipeline and what you are expecting in the coming quarters? Mark A. Klein: Yes. Steven can speak to the pipeline. Steven A. Walz: We have had a few payoffs recently, not because clients wanted to leave us but because they sold one of their projects. Generally, the pipeline is pretty decent. As we have discussed many times, an outsized segment of our growth has come from Columbus and continues to do so. But we also indicated this year we were hoping that our other markets—Fort Wayne, Indianapolis, Toledo, and Findlay—all kick in and provide their portion of our $75 million to $100 million growth. Consistent with that, we continue to focus on expanding the breadth of growth across those markets. Columbus delivers a lot of growth for us and will continue to do so, but we are committed to expanding that growth story to those other urban markets, and that includes the Angola and Napoleon offices. There is more growth there, and we think our model serves those markets well. Mark A. Klein: Yes, a lot of disruption in those markets has played well into our hand. We could have gone there before the disruption, but it would not be quite as robust as we are finding it today. Brian Joseph Martin: Okay. With geopolitical risks out there, we have heard more people say near-term sentiment is not quite as positive on loan growth. It sounds like your pipeline is still good and you are still optimistic about achieving your targeted goals for the year. Steven A. Walz: Yes, I think that is true, Brian. We have not seen a whole lot of blowback from what is going on in the Middle East. Our ag portfolio, which is not insignificant, has by and large prepurchased supplies that could be impacted, so we would not expect any hit to our ag portfolio this year, and hopefully things do not persist beyond this year. Mark A. Klein: And I will reiterate our credit culture: we are never going to get enough yield to compensate for an undue amount of risk. We walk away from some deals. I think we could grow in the low double digits if we wanted to, but we stay disciplined. We like credit quality and we know the effect that has on profitability should we lose what we have worked hard to get. Steven A. Walz: Certainly. The markets we are in would afford that kind of opportunity, but we walk away from deals that do not make sense for our credit culture. Brian Joseph Martin: Maybe, Anthony, on the margin. The liquidity you have today seems to give you a little cover on potential deposit competition. How do you feel about the margin over the next couple of quarters in a stable rate environment? Anthony V. Cosentino: We are down, call it, five basis points from the linked quarter, really a function of being very liquid. We had a lot of deposit growth—$65 million in the quarter. We were not terribly aggressive on the rate side, even in the new markets—maybe 25 basis points above market, nothing crazy. I think there has been a little bit of money parking in the markets and we were the benefactor of that. A number of new clients we have gotten via disruption have brought in deposit dollars. I do think liquidity will wane a little in the coming quarters. We have already started to get a little stickier on deposit pricing, not really matching some aggressive rates. I think we are in a good spot. I think margin at 3.47% is probably going to move up a few basis points in the second quarter because I think we will get back to having, call it, $15 million to $20 million of loan growth in the quarter versus the roughly $1 million we had in the quarter we just finished. Brian Joseph Martin: And in terms of the cost of deposits, are we trending higher from here than lower as you go into next year with competition? Anthony V. Cosentino: I had been pretty confident that deposit costs would trend higher, and they have continued to trend a bit lower, so I have missed that so far. But I still believe the market disruption we have had will not continue indefinitely. Competitors are going to become aggressive. They are focused on growing loans and will have to fund it. Also, deviating from CRE a bit to more ag-based C&I brings a deposit base we are very happy about that we did not have prior to six months ago. Not only are we acquiring balances, the full relationship comes with deposits, which has been a real needle mover. Brian Joseph Martin: In terms of the mortgage outlook, you talked about 20% to 25% production growth next quarter. Bigger picture, where rates are today—what are you seeing for mortgage for the full year? Mark A. Klein: I have been thinking $350 million, expecting a bit of a play in the 10-year, which has been temporarily disrupted and is a bit of a fly in the ointment. We just hired a couple of new high-producing MLOs in some urban markets and we are gaining traction and more representation in some of our legacy markets. Average production has gone down, which is why we brought on more MLOs. With a larger team, and given the 80/20 rule, I am still optimistic we can deliver something closer to that $350 million to $400 million number, though I am sure Anthony has a different number. Anthony V. Cosentino: In March, we did 45% of our total first-quarter volume. We did just shy of $30 million in March. Our pipeline is around $35 million. I think we are going to do roughly $90 million in the second quarter and would suspect we repeat that in the third quarter if things stay where they are. Hiring high-performing folks in various markets tells you our model is still working and the volume is out there. That would put you on pace to get to $310 million to $325 million on the high end for the full year. I think rates will be relatively stable. Mortgage rates have fought back against the increase in the long end of the curve, and as long as we are at 6% to 5.875%, I think we can hang in there. You are starting to see a lot of secondary people get aggressive to try to get volume, and the FHLB is getting aggressive on very low-rate opportunities to sell; we will be participating, which should benefit us. Mark A. Klein: I am hopeful we will get a play in the 10-year. With a larger balance sheet, monthly contribution keeps compounding; we do not need to do $100 million of mortgages every month. We have the balance sheet size and the operating revenue now. Brian Joseph Martin: And the mortgage folks you hired—are you still planning to hire more, and were those in metro markets? Which markets did you add people in? Mark A. Klein: Yes. We have added one in Cincinnati and Indianapolis. We have a couple of individuals considering roles in some of our legacy markets. Findlay has been a gap for us, but we have had enough people to cover those markets. Having people who live, work, and play in the market is more accretive to all business lines, like in Angola. We are currently hunting down somebody in the Angola market. We are committed to the business line. We love the gain on sale, and getting another household with more products and services is a big deal. Brian Joseph Martin: Last two for me. On expenses, big picture—how you are thinking about the full year and ebbs and flows? Any initiatives to take it off the current run rate, or is the current run rate a decent level to think about in the coming quarters? Anthony V. Cosentino: I think the run rate is in pretty good shape. We have consolidated some areas in our operational sections and made efficiencies, which will continue to help us. The bulk of our technology spend on new things is largely in the rearview mirror. We do have a conversion to Fiserv at the end of the year that I think will be a net zero in 2026 and will be a bit of a headwind as we go into 2027 as we try to find opportunities. I am very hopeful on the expense side. As we have gotten bigger, we have found ways to do more with less, which is what we need to get to continually. Brian Joseph Martin: And capital—you said the buyback is a little bit lower. Near term, you talked about sub debt and maybe potentially M&A. Is that how to think about capital deployment today? Anthony V. Cosentino: Yes. We have been very aggressive on the buyback and I still think it is a great use of internally generated capital, but at the price where it is today, we can afford to slow down a bit. We have sub debt in June we have to think about. We also have a lot of opportunities to deploy, and if we do another $160 million of asset growth in 2026 like we did in 2025—which I do not anticipate—we would be stressed a bit on regulatory capital. We have to be cognizant of that. Mark A. Klein: On M&A, we continue to keep our ear to the ground—downstream as well as midstream and everything in between—but nothing transformative at this point. We know organic is great, but clearly M&A is divine. We continue to look at opportunities in the region. Brian Joseph Martin: And credit all sounds good. Continued success on the credit front—nothing really causing problems in terms of risks you are seeing? Mark A. Klein: From a high level, when you have a downturn, you get a good idea of underwriting and administration, and we have not had much of a downturn. Our clients’ balance sheets are pretty liquid. We get personal guarantees, rely on makers, and have good projects in urban markets. Generally, all is good, but as we all know, you have it until you do not. We are precautious on the risk we take and the deals we do. If we wanted to really light it up, the opportunities are there—17 different lenders out there trying to find deals—but our job is to pull back on the reins to keep this measured and on the tracks. Steven, any more perspective? Steven A. Walz: Yes. The stability of our asset quality continues. The credits we are working through are not a function of turnover and new credits coming into nonaccrual. It is largely the same ones we have talked about in the past. The wheels of justice grind a little more slowly than we might like. As Anthony referenced, we did get control of one piece of collateral, and we are very confident in our position. On those credits, we think we are going to get out where we ultimately belong. Brian Joseph Martin: And lastly, deposits and liquidity—you had good growth. Do deposits tail off a bit here? How are you thinking about deposit growth from here? Anthony V. Cosentino: I think we are going to have a down quarter in the second quarter on deposits. We already know of some larger relationships that are moving out for normal business reasons. I do not think we will have enough on the retail side to overcome that. I think we will probably be at a 90% loan-to-deposit ratio for the rest of the year, and that is a comfort level for us. We do not need to be overly priced on deposits to get there. We are only nervous about liquidity if the loan pipeline gets to the upper end of our range. We are comfortable at mid- to high-single-digit growth and funding that. If we get above that level is when we might have some stress. Mark A. Klein: I would not downplay the market disruption, which has been wonderful for us. We have garnered relationships we might not have been able to bring over otherwise. That has just begun. We are nine months into our plan to find more of disrupted companies’ assets, and we are at that $100 million to $110 million number. We are cruising along to our strategic goal of a few hundred million—lots of opportunities and a bigger job to be done. Brian Joseph Martin: Gotcha. Okay. Well, thanks for taking the questions, guys. I appreciate it. Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Mark A. Klein for any closing remarks. Mark A. Klein: Thank you, and thanks for joining us this morning. We look forward to having you join us in July for our second quarter 2026 results. Thanks for joining us. Goodbye. Steven A. Walz: Have a great day. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Hello, and welcome to Charter Communications First Quarter 2026 Investor Conference Call. [Operator Instructions] Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Anninger. Stefan Anninger: Thanks, operator, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, and we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements. As a reminder, all growth rates noted on this call and in the presentation are calculated on a year-over-year basis, unless otherwise specified. On today's call, we have Chris Winfrey, our President and CEO; and and Jessica Fischer, our CFO. With that, let's turn the call over to Chris. Christopher Winfrey: Thanks, Stefan. During the first quarter, Spectrum Mobile remained the fastest-growing mobile provider in our footprint, and we now have over 12 million mobile lines, including an increase of 370,000 Spectrum Mobile lines in the quarter. That's 1.8 million new lines over the last 12 months for growth over 17%. We're pleased with that growth given the continued intensity of mobile subsidies from the 3 big telcos. In addition, our video customer losses continued to improve year-over-year. 60,000 loss was less than 1/3 of last year's first quarter loss, driven by significant product improvements over the past couple of years. In Internet, competition for new customers remains high. In our first quarter, Internet customer loss totaled 120,000. Revenue was down 1% year-over-year, primarily driven by lower residential video revenue, while residential connectivity revenue grew 0.9% year-over-year. First quarter EBITDA, excluding transition expenses for the Cox transaction, declined by 1.8%, primarily due to a prior year benefits. Cable industry Internet growth has been pressured for several years now given new competition, a challenging housing environment and other factors like mobile substitution. But we remain confident about our ability to win in the marketplace and grow over the longer term. Ultimately, that confidence in our future success is founded on 3 building blocks. Our powerful advanced network, our core operating strategy around products and pricing, and our focus on improving customer satisfaction. Starting with customer satisfaction. Our customers remain the central focus when we make decisions for any product or service and how we allocate our resources. We have an integrated and detailed approach that starts at the highest levels of the organization. Our customer focus is not just cultural, it's also core to our incentives. Beyond the obvious share price incentives, NPS scores and other service-related metrics now drive a meaningful part of our overall annual incentive structure. Relentless improvement is also a key component of our approach and that applies to our network capability and reliability, products that we offer, and to our service. We're constantly working to improve each of these, with examples including new product innovations like our Invincible WiFi, and our Anytime Upgrade feature for mobile, and the dramatic decline we've seen in service in trouble calls per customer. We've also deployed new AI tools now used by our service agents, driving higher customer satisfaction and reducing call times with higher job satisfaction for employees as well. We have a seasoned very competitive team here at Charter fully aligned with our shareholders, and that team will only get better with the addition of top-flight talent from the Cox team, and Nick Jeffrey who joined in September. Moving to our Advanced Network. Our high-capacity network is an unrivaled asset. It offers gigabit speeds and low latency everywhere we operate. Those capabilities matter long term as customer data usage continues to increase, including in the upstream, where we're seeing 20% annual growth driven by things like self-driving cars, significantly increasing upload. By the end of this year, about 50% of the current spectrum network will be upgraded to symmetrical and multi-gig service, with significant work on the remaining 50% already in flight. By deploying remote OLTs and Mora WAN transponders, we will have fiber on-demand capabilities, and fully active telemetry in the vast majority of our footprint, giving us cost and service advantages. Our network is both wired and wireless in 100% of our footprint. It can get mobile from us wherever we offer our gigabit speeds and vice versa. And with our expanding hybrid MNO capabilities using CBRS and WiFi in conjunction with the Verizon mobile network, we are driving our seamless connectivity advantage. That is the basis for Spectrum Mobile's fastest overall mobile speeds. In addition, our network is both fiber-based and powered to its edge, which means it can uniquely provide enhanced wireless opportunities that we haven't pursued yet. If you think about our ubiquitous deployment of multi-gig unique seamless connectivity capabilities with low latency, edge compute, and the potential for fiber-powered DAZ, nobody has the set of assets that we do. You see us demonstrating those capabilities with early deployments, immersive content with Spectrum front row, authenticated offload for AWS and likely extending that to increasingly autonomous vehicles. We're also deploying other B2B products with Edge Cash and GPU as a service. Our network and data assets really lend themselves to future B2B and B2C applications, which require proximity and low latency under 10 milliseconds, which we now provide. Our industry has always excelled at finding new products and customers for our key assets. Our core operating strategy remains unchanged, offering great products at the best value with continuously improving service, and that service is uniquely delivered by our 100% U.S.-based employees, 24/7, with the customer commitment supported by money back guarantees. That core operating strategy has served us well. It fueled our organic and inorganic growth from Legacy Charter in 2013, with just 5 million customer relationships, to Charter today with nearly 32 million customers. And now pro forma for the Cox transaction with over 70 million passings. We take the responsibility that we have to our local communities personally, and it's reflected in our operating strategy. With those 3 building blocks in place, we're going to turn to what we're doing day to day right now to win in an increasingly converged market. Our competitors are all talking conversions, but we uniquely provide it now and in the future. Slide 5 of today's presentation clearly shows they offer more for less than our competitors. Our results don't yet reflect that reality given the legacy reputation of cable. So we remain focused on clearly messaging and delivering our superior value, utility and service to both new and existing customers. And we're doing that in different ways. We launched our $1,000 savings guarantee in February, which demonstrates the value we deliver in a very clear way. If you sign up for Spectrum Internet and switch to more mobile lines from Verizon, AT&T or T-Mobile, we guarantee $1,000 of savings in your first year, or we'll cover the difference. We also recently launched a new Digital Buy Flow for online channel, it better demonstrates our bundled value and savings versus competitors, and the new Buy Flow is achieving better yield. We're also actively migrating our existing base of customers to our newer pricing and packaging, giving them more product, including Internet speed increases and mobile, for the same price or slightly more than they're paying so they get more value, creating higher satisfaction and reducing their propensity to churn. Roughly 45% of our residential customers are now in the pricing and packaging launched in late 2024. With respect to providing superior utility, over 50% of our expanded basic video customers have activated at least one of our included streaming apps, with those activating, taking nearly 4 streaming apps on average. Customer churn for expanded basic customers for activate is 1/3 lower, and it is meaningfully lower across all customer tenure. Keep in mind that nearly all video customers are also broadband customers. So that's a big help. We also launched our new Invincible WiFi router in February, which effectively guarantees connectivity. When a home or business loses power Invincible WiFi's battery unit keeps the router running. It also comes with the back of 5G cellular connection keeping customers online without interruption if a network disruption occurs. The upgrade and attach rate was much higher than expected, and we've had to prioritize our supply to a smaller audience until we get the right level of supply. So a little frustrating short-term. But Invincible WiFi is a great way to add utility to our service, which improves quality, lower churn and earns more revenue. It's a great example of an innovation that provides better utility to our customers. In Mobile, we have the most value rich plans in our footprint. A market-leading Anytime Upgrade program, the most valuable repair and insurance plans and the best international service plans are out. And in Service, I'll simply highlight what we've talked about previously, our continuous service improvements through telemetry improvements with our network upgrades, the use of AI in the network and frontline employee tools, same-day service and installation guarantees, often we're at your doorstep in an hour, and the commitment to a U.S.-based service agent. We are America's connectivity company. Before I turn things over to Jessica, I just wanted to provide a brief update on where we are with the Cox transaction. We've now received all the necessary federal and state approvals that we need to close, except from California, and we're working with the California Public Utilities commission towards the summer close. Within a couple of months of closing, we will launch the Spectrum brand and our pricing and packaging within the legacy Cox footprint. Our focus is always will be on product penetration and customer ARPU not single product ARPU and, of course, growing free cash flow per pass. Cox's low mobile and video penetration rates are major opportunities. And that's what's going to assist us in migrating the customer base to our pricing and packaging in an efficient manner. That's something we've done successfully several times before, including the Time Warner Cable, Bright House and Bresnan and Charter in both 2013 and the last 18 months really. In addition to benefiting from better mobile and video products, the Cox communities will benefit from lower promotional and retail pricing, sales channel expansion, including field sales and stores, and our very complementary B2B capabilities, which will help accelerate growth in both Cox and Spectrum business. As part of the acquisition, we're picking up talent, which we expected and unexpected capabilities in B2B and network AI. And we're stepping into a very high-quality network asset. The Cox network has been very well maintained with robust investment through the years. Cox's mid-split process is nearly complete, and it gives us plenty of competitive runway to implement high split in DOCSIS 4.0 after we finish those projects within current Spectrum footprint. We can then make that move at lower cost and at faster speed, it's what was included in our original plan, although we don't have to rush it. So we're looking forward to the completion of our multiyear investment programs, the near-term actions to win in our current footprint, and the pending Cox closing and driving growth in that footprint. With that, now I'll pass it over to Jessica. Jessica Fischer: Thanks, Chris. Please note that any forward-looking financial or customer information that we provide in today's discussion or presentation does not include Cox or any transition costs related to Cox integration planning. Let's please turn to our customer results on Slide 8. Including residential and small business, we lost 120,000 Internet customers in the first quarter, driven by lower connects year-over-year, partly offset by slightly lower churn. The operating environment for new sales, in particular, Internet continues to be competitive. We continue to see expanded fixed wireless competition and higher mobile substitution as well as ongoing fiber overlap growth at a rate similar to prior quarters. Though I would point out that we also continue to have higher market share than our competitors, even in mature fiber markets. Collectively, that drove first quarter Internet sales lower year-over-year. Churn improved year-over-year, and Internet churn, including non-pay churn remains at very low levels. In Mobile, we added 368,000 lines, with higher gross additions year-over-year, more than offset by higher disconnects. Net adds in the quarter were lower due to heavy device subsidy activity by the big telco competitors, including the iPhone 17. Video customers declined by 60,000 versus a loss of 181,000 in 1Q, '25, with the improvement primarily driven by much lower video downgrades and customer churn year-over-year, resulting from the new pricing and packaging we launched in late 2024, Xumo and the Seamless Entertainment product improvements, including our programmer streaming app inclusion packaging. New connects and upgrades to our fully featured video package with apps were up year-over-year. Wireline voice customers declined by 174,000, with the year-over-year improvement primarily driven by lower churn. In Rural we continue to see strong customer relationship growth, generating 41,000 net customer additions in our subsidized rural footprint in the quarter. Subsidized rural passings grew by 89,000 in the first quarter, and by over 483,000 over the last 12 months, which is in addition to our continued nonrural construction and filling activity. Moving to first quarter revenue results on Slide 9. Over the last year, residential customers declined by 1.5%, while residential revenue per customer relationship declined by 1.4% year-over-year. Given the growth of low-priced video packages within our base, $218 million of costs allocated to programmer streaming apps and netted within video revenue, versus $47 million in the prior year period, and a decline in video customers during the last year. Those factors were partly offset by promotional rate step-ups, rate adjustments and the growth of Spectrum Mobile lines. Excluding the Programmer Streaming app allocation headwinds to residential revenue, residential revenue per customer relationship grew by 0.3% year-over-year. As Slide 9 shows, in total, residential revenue declined by 2.7%, and it was down by 1.1% when excluding costs allocated to streaming apps embedded within video revenue in both periods. Turning to commercial. Total commercial revenue grew by 1% year-over-year with mid-market and large business revenue growth of 2.1%, and when including all wholesale revenue, mid-market and large business revenue grew by 2.8%. Small business revenue grew by 0.2%, reflecting year-over-year growth in revenue per small business customer of 0.9%, mostly offset by a year-over-year decline in small business customers of 0.7%. First quarter advertising revenue grew by 5.3% given higher political revenue year-over-year. Excluding political, advertising revenue declined 3.4% year-over-year. Other revenue grew by 14.2%, driven by higher Mobile sales -- Mobile device sales, and in total, consolidated first quarter revenue was down 1% year-over-year, but increased 0.1% when excluding advertising revenue and Programmer app allocation. Moving to operating expenses and adjusted EBITDA on Slide 10. In the first quarter, total operating expenses decreased by 0.2% year-over-year. Programming costs declined by 9.3% due to $218 million of costs allocated to Programmer Streaming apps and netted within video revenue, versus $47 million in the prior period. A higher mix of lighter video packages and a 1.3% decline in video customers year-over-year, which was partly offset by higher programming rates. Other cost of revenue increased by 11.4%, primarily driven by mobile service direct costs, higher mobile device sales and higher advertising sales costs given higher political revenue. Cost to service customers, which combines field and technology operations and customer operations decreased 1.4% year-over-year, primarily due to lower labor costs. Marketing and residential sales expense declined by 3.2% year-over-year due to lower marketing expenses and labor expense. Transition expenses relating to the pending Cox transaction totaled $24 million in the quarter. Finally, other expense grew by 5.3%, primarily driven by onetime benefits of $75 million in 1Q, '25. Adjusted EBITDA declined by 2.2% year-over-year in the quarter, and declined by 1.8% when excluding transition expenses. Turning to net income. We generated a bit under $1.2 billion of net income attributable to Charter shareholders in the first quarter compared to a bit over $1.2 billion in the prior year period, primarily driven by lower adjusted EBITDA year-over-year, partly offset by lower other operating expense. Given our noncash L.A. Laker RSN balance sheet write-down in the prior year. Turning to Slide 11. First quarter capital expenditures totaled $2.9 billion, $456 million higher than last year's first quarter, driven by timing of spend with higher network evolution spend, which lands in upgrade rebuild spend, and higher CPE, driven by new WiFi 7 routers and our new Invincible WiFi unit. We continue to expect total 2026 capital expenditures to reach approximately $11.4 billion. Looking beyond 2026, we expect total capital spending in dollar terms to be on a meaningful downward trajectory. And after our evolution and expansion capital initiatives conclude, our run rate capital expenditures should be below $8 billion per year. Just to highlight that reduction in capital expenditures, on its own, from approximately $11.7 billion in 2025 to less than $8 billion in 2028, is equivalent to over $28 of free cash flow per share based on today's share count. If we take consensus 2026 free cash flow and substitute our expected 2028 CapEx for 2026 CapEx, our current stock price would imply a free cash flow multiple of only about 3.8x, and a free cash flow yield of over 25%. Turning to first quarter free cash flow on Slide 12. First quarter free cash totaled $1.4 billion, about $200 million lower than last year, given accelerated timing of capital expenditures in the year, lower EBITDA and higher cash paid for interest year-over-year, partly offset by a less unfavorable change in cable working capital. Turning to cash taxes. First quarter cash taxes totaled $64 million. We continue to expect that our calendar year 2026 cash tax payments will total between $500 million and $800 million. We finished the first quarter with $94 billion in debt principal. Our weighted average cost of debt remains at an attractive 5.2%, and our current run rate annualized cash interest is $4.9 billion. During the quarter, we repurchased 4.3 million Charter shares, totaling $963 million at an average price of $225 per share. As of the end of the first quarter, our ratio of net debt to last 12-month adjusted EBITDA remained at 4.15x, and stood at 4.22x pro forma for the pending Liberty Broadband transaction. During the pendency of the Cox deal, we plan to be at or slightly under 4.25x leverage pro forma for the Liberty transaction. Following the close of those transactions, we will target the low end of the 3.5 to 3.75x range, which we expect to achieve within 3 years following close. Even with this de-levering, we continue to expect significant ongoing capital returns to shareholders. Before turning the call over to Q&A, I want to make a few comments regarding our pending Cox transaction. We now estimate transaction synergies, or run rate operating expense synergies of at least $800 million, and are likely to grow that further. Those estimates do not include the benefits of applying Charter's operating strategy to create revenue and operating cost synergies over time or CapEx savings. We believe those operating synergies will also be significant. Turning to our reporting plans. I wanted to give you a brief preview on how we expect to report, and to mention a few things to better navigate our post-close results. Our first post-close results will reflect a full quarter for legacy Charter, plus a stub period for legacy Cox. So year-over-year actual comparisons won't be helpful. But we intend to present Charter's quarterly trending schedule with pro forma data along the lines of what you receive today. Going forward, we will report similar customer PSU and revenue data for both legacy entities for several quarters following close, both separately and on a consolidated basis. This approach will allow you to track the development of both legacy Charter and legacy Cox. We will not show expenses or capital expenditures by legacy entity. That's not really practical, given the shared nature of key large items like programming, overhead and significant centralized capital spend. We will also continue to report transition expense and capital related to the integration, and we'll provide updates on certain items, including estimates for the synergies we have realized, so that you can better isolate the organic growth of the business. At close, our outstanding share count will increase as we will issue the equivalent of just over 46 million Charter shares to Cox Enterprises, comprised of common and preferred partnership units, partly offset by net charter share reduction of about 6.8 million shares associated with the Liberty Broadband transaction. That 6.8 million figure is lower now than when we announced the Liberty Broadband transaction, primarily due to our ongoing share repurchases from Liberty Broadband. If we had closed on March 31, our stand-alone share count at close, on an as-converted as-exchanged basis, would have been about $179 million. We will provide additional post-close reporting updates as we get closer to close. And with that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question will come from Sean Diffley with Morgan Stanley. Sean Diffley: So clearly, the focus is on getting the Cox deal done, and thank you for the updates on synergies and timing with California PUC. But I was curious your assessment on the potential for further cable M&A from a regulatory standpoint. Obviously, the FCC when reviewing the Cox deal mentioned increasing competition from the likes of fixed wireless and satellite. So I'm curious how you're framing your ability and willingness to do more meaningful consolidation from here in the cable sector? Christopher Winfrey: Sure. Look, first and foremost, and make it clear, I'm not commenting on any particular company or assets. But I think as everybody knows, we like cable as an investment, I think it's a great business. We'd like to acquire more cable assets if it can be done in an appropriate price, conditions and the size of the transaction depends on -- will drive higher synergies. When you hear Jessica talked about the synergies inside of Cox, you can kind of flex that up and down based on the size. I think when you step back and take a look at the environment from a regulatory perspective, and each deal is unique, and you have to brush in its own way. But at the end, we're just regional competitors with other cable -- each of the cable companies is a regional competitor. We don't have overlap and all of us are competing against national and global competitors. That's never been the case more than it is today. When you think about fiber overbuild, when you think about national telcos with both wireless, mobile, wireless fixed wireless access, fiber overbuild themselves in many cases. If we think about the video space, which is really global competition, and each element of the space that we operate in, it's much more competitive than it was 5 or certainly 10 years ago. I think the Charter operating strategy when you think about the benefits that we provide in transactions like Cox or with Time Warner Cable Bright House, the operating strategy has been good for customers, and it's been good for employees, and we've demonstrated that. It's not just a something that we say at the time of an acquisition. It's actually been delivered 100% U.S.-based, lower pricing for retail and promotional pricing, and with innovative new products. We've used that scale to improve the quality of the service and the products. So it's helped us to be a better competitor and a better service provider against national and global competitors. And I think there's a significant rationale, but there's nothing that we're looking at today, or doing today other than just finishing the Cox transaction, but I think the opportunity is there to do more over time, and we'll evaluate it when it's available. Operator: Your next question will come from Craig Moffett with MoffettNathanson. Craig Moffett: So let's stay with the Cox transaction for a second. Once you close, you're now running in your own stand-alone business about flat year-over-year broadband ARPU. There's been a lot made of the fact that Cox's broadband prices and therefore, its broadband ARPU is significantly higher than yours. How do you think about the trajectory of how quickly you can move those customers onto Spectrum pricing. And so what does that look like as you give those generally more attractive offers to Cox customers? Christopher Winfrey: Sure. Look, you're right, the broadband ARPU is higher than ours. You can see that. But also the customer ARPU is actually not that different. And so I think that's the place to focus on is what's the customer ARPU going to do overtime and the margin at a household level. So clearly, the broadband stand-alone pricing, which is part of the rationale for getting the deal done is broadband pricing is going to be lower, both at promotional and retail and the broadband reported ARPU for Cox is going to go down. Our goal is to use video and mobile, given the super low penetration that exists to those products that Cox to make sure that customer ARPU is intact and can potentially likely increase over time and to drive margin in there. And so as a result, what you'll end up with is a financial profile and its trajectory that's being preserved based on providing more value into the household. The churn rate at Cox is higher than ours. So I think we have a real opportunity to drive benefits there. I think entering into the market, Craig, with a -- it doesn't -- the Cox is great. Spectrum, I think, is a great name. It's not one over the other. It's that you will have a new name in the marketplace in these markets with lower broadband pricing and retail and promotion with a free mobile line for a year that doesn't exist today with the fastest mobile product in the country, at the lowest price really for anything of that scale. And a video product that is fully developed. Meaning in the Spectrum footprint, we came out with Spectrum TV app, it's improved over time. It didn't have pause live TV. It didn't have Cloud DVR at the beginning, all that exists today. It exists with seamless entertainment in a way that's now easy to activate, which wasn't the case before. So in the Spectrum footprint, those products, including mobile and video, just continue to get better. And here, we're going to enter into Cox footprint with a big bang. New name, great way to save money, both at retail and promotion for broadband, excellent mobile and video products that are fully developed and brand new in the marketplace. And I think we're going to make a splash because we're new. Now that doesn't go on forever. Your service reputation has to earn that. So is that a 2-year tailwind where you're going to have much higher sales because you are new and because you're providing all this additional product and pricing and value. That will be the case. We're going to have a field sales force that don't exist today. We're going to have service hours that don't exist today. We're going to develop the in-sourcing capabilities in U.S.-based workforce that can do same-day installs and same-day service in a way that doesn't exist today. And we have the opportunity to earn a brand-new service reputation in that market and have long-term growth. All of which to go back to your question means that you can have higher sales of broadband. You can have lower churn of broadband. You can have a significantly higher attach rate for mobile and video that preserves your overall customer ARPU and margin. And have more operating and CapEx cost synergies along the way that allow you to fund that growth. So I think it's going to be a unique footprint even relative to the stand-alone Charter that you're looking at today. And pace of migration for the broadband base similar to what we've done inside the Charter stand-alone footprint many times in what we did with Time Warner Cable and Bright House. You can pace the migration based on your marketing efforts to your existing customers and how quickly do you put them into loyalty offers and see what's working. And in terms of additional product attached to offset some of the lower pricing that we're introducing into the market. So I feel really good about where we're going to go. And we're just waiting to be able to bring that type of benefit in those savings into -- not just California. California is about 1/5 of the overall Cox customers. But we have 4/5 of the footprint that is patiently awaiting. We're excited to get going and bring those benefits to the California customers and to the customers across the rest of the country. Jessica Fischer: I'd add one more, just a miracle item to that, Craig, as you're thinking about it. I mean, Chris said that the average revenue per customer is not that different from where we sit. The other interesting thing is that the EBITDA margin is also not that different from where we sit today, even though broadband makes up a much larger portion of their revenue than it does of ours, which might have linked itself to a different cost profile. So we have some space if we move the operating cost structure to look more like ours over time and in particular, as you move it that way, recognizing that it's a marginal additional business rather than an entire business that you have to fully replicate an overhead structure for. There's plenty of space to then create room for that change that you make in the revenue stream over time as well. Christopher Winfrey: Yes. I'm going in a different direction, everything that we just talked about based on the residential side, but I mentioned it in the prepared remarks. I think one of the real pleasant surprises -- we've had many pleasant surprises in evaluating the Cox assets and getting to know the team, you can better. But the B2B capabilities are entirely complementary. If you think about from Cox has best-in-class hospitality capabilities. They have the longest service reputation in B2B across the country for cable operators. They have products that, in some cases, with rapid scale that we don't have and the hope is that we can deploy that across our existing base. And we have scale in Spectrum business that can benefit the Cox footprint, but also can apply the things that they do really well and apply that across a much broader footprint even in hospitality. If you think about what they do in Las Vegas, and applying that across New York, L.A., Orlando and Dallas, all of our major markets. We're -- I'm pretty excited, and we're going to have a big nucleus of the Cox team that's really helping and driving that part of the business to higher growth for both Spectrum business and Cox's what exists today. So not our biggest portion of our overall revenue base, but I think it's going to be a big revenue contributor for both of the current operations. Operator: Your next question will come from Vikash Harlalka with New Street Research. Vikash Harlalka: I have a 2-parter on pricing and ARPU. Chris, you were ahead of the curve on pricing strategy when we compare it with your peers. But do you think you've pulled all the levers on pricing strategy? Or are there more pricing changes to come? So as an example, like a 5-year price lock that Comcast and Optimum have been be amended? And then on ARPU, broadband ARPU was flattish in 1Q. Should we expect an acceleration from here? Christopher Winfrey: Sure. Look, we're always -- we like our pricing and packaging strategy. It works. And clearly, we'd like to be having more sales on the front end. And so that are used for really thinking through are there other ways to go to market and get a better response rate from customers. And so we're constantly evaluating that. So there's no pride if we see things that are working elsewhere, we'd be happy to adopt it. So we spend time looking at it and thinking about it? When we've run some trials around 5-year guarantees or 5-year price logs that we try different things, we haven't seen the necessary lift ourselves. But maybe that's because we didn't do it at scale. So -- we also want to think about not just the promotional price, but what are the roll-off and what's the retail rates. And so it's an entire package of where you end up over time. So all of which to say, we continue to evaluate and look at things. We're very focused on returning to broadband growth. But right now, we don't see any reason to change what we're doing and continue to focus on that. It doesn't mean that we're not trying things left and right to make sure that we can get a better response rate and consideration from new customers. Jessica Fischer: And from an ARPU growth perspective across the year, I think that you've heard Chris just say that one of the things that we do in the market constantly is to tune offers to make sure that we're driving the right, sort of, total customer lifetime value for the business, but also being cognizant of what happens then inside of the year with ARPU and EBITDA. And as we do those things and look at pricing overall, there are a number of factors can drive up or down there. I think on ARPU growth for the year, it'll be close either way in terms of whether we end up with net growth. As you noted, it was pretty flat in the first quarter. But it will depend on a number of factors in how we sort of address the marketplace. Christopher Winfrey: Operationally, just so you have a sense of how that works is I talked earlier when Craig asked the question, the pace of your loyalty migrations for existing customer base, how aggressive you're leaning in that has a high customer lifetime value impact. But it can have a short-term broadband impact. So the pace of proactive and reactive migration of your existing base, and some of the -- to a lesser extent some of the offers that we try at the outset for new acquisitions. And so you have to trade off the customer lifetime value and the ROI of some of those efforts versus the short-term impact to ARPU and things that all of us like to see from an ARPU development. And that's an active -- I wouldn't say daily, but it's a monthly practice of just coming and taking a look at where we're at and making sure we're doing the right thing for the long-term health of the business, and for the customer relationship and at the same time, meet our financial commitments along the way as well. Operator: Your next question will come from John Hodulik with UBS. John Hodulik: Maybe just -- can we get some color on sort of the competitive environment? I think Chris or Jessica, you guys sort of laid out what you're seeing in sort of each of the segments. But from a -- are you seeing more pressure on fixed wireless with AT&T's efforts in that area? And then on the fiber side, it seems like there's an aggressive promotional environment, especially around converged offerings. Just wondering if that's having an impact? And then lastly, on the satellite side, obviously, a lot of focus on these LEO constellations. Are you seeing any pressure in rural markets? Or do you expect that to intensify over the next couple of years? Christopher Winfrey: Goodness, John, there's a lot in there. So let me try to start from the very top, about the operating environment and competitive environment. You've heard a little bit in our commentary. The -- our issue right now really is top of funnel issue. So what do I mean about that? Our yield at the point of sale is as strong as ever. Our churn remains at historical lows, and that's really supported by the value of the products and everything that we're doing to bundle in, which is driving churn lower. The external factors on top of that funnel, which I'll come back to some of the specifics that you asked in just a second. But the top of the funnel, external factors, they're really the same, which is that we have new competition, and any form of new competition has impact. So yes, we see the continued footprint expansion from cell phone Internet where AT&T has taken the place and others have slowed down. But A&T has filled that gap with a fixed wireless access product that originally they said they didn't think made a lot of sense. On the other hand, the pace of gigabit overbuild growth, it continues at the same pace it's been. And so there's nothing really new there. Our share in those fiber overlap areas, as Jessica mentioned, including particularly mature fiber overlap areas, that remains above the competition generally across our footprint. And the promotional activity, I guess, is the big question there, too, is, it did it there? Yes, throughout the quarter. It was up and down and varied by competitor and during the course of the quarter. But there's not a fundamental change in the level of promotional activity. And on the external side, we have a continued muted housing environment, the slow household formation. And as we talked about before, low move rates and mobile substitution growth, it's still there, but it seems to be slowing a little bit, hopefully. So what does that all mean? If you step back, our yield across all channels, it's good and improving. Churn is low. And issues about considering more consideration of sales traffic at the top of the funnel. And that really comes down to, I think, continued improvement in our service reputation, our marketing, our offer expressions and the way that we're using mobile and video really to drive broadband. And so we're fully focused on those areas. I'm not going to tell you we're sitting here waiting on a better housing environment, which I do think will happen. But in the meantime, we're focused on what we can do. And there's an opportunity to be an even better operator here along the way. And through both the external conditions and our own efforts, I think we can get back to broadband growth. That was your first big question. The second was on AT&T and fixed wireless access entry, which they are filling the gap that -- with lower growth from others to subside -- or the growth that rates are subsiding. So I think that answers that. The converged offer that we're seeing from other providers? Look, there's a bit of flattery that's going on there because everything that we do seems to be copied. And so even the branding of our Spectrum One, I think, has been mimicked and -- but its capabilities are limited in terms of footprint, where we have the ability to provide convergence in 100% of the footprint. You've seen multiple competitors come out and try to talk about a savings guarantee. They don't do that against us. We do a savings guarantee against AT&T, T-Mobile and Verizon. We guarantee $1,000 of savings. So you saw that, kind of copied. Even on the service commitment, if you take a look at the fine print on others who copied our service commitment, it's not the same. We actually provide a guarantee. And that means that we'll actually pick up the phone, not just call it back when we don't, and we'll show up on same day if you have a service or an installation. So I think the quality of what we're doing is higher, and you are seeing some people trying to mimic some of the convergence. And I think it's talking up our advantages. If you take a look at some of the slides we've shown investors in the past, our capabilities there are better. Our ability to save customers' money is higher. And the quality of our service as America's connectivity company with 100% U.S.-based sales and service. We've made that investment. And I think we're set up to deliver. We need to -- it doesn't mean that we're perfect. We have a lot of room for improvement to execute better, but we've made that investment. And so that sets us up pretty well to do that. On satellite, I would just say we don't underestimate any competitor, particularly one that is as well capitalized as they are, and as innovative as -- all, not just Starlink, but also Amazon and others. But so far, our tracking in data doesn't suggest a significant customer share loss to satellite. It might be -- we do see evidence that in some of the subsidized rural footprint, we're hitting all of our targets in subsidized rural footprint. I think we would be doing even better there if some of that market had not been preceded with satellite, which in certain markets with low density I think long term, it's actually a great product. I think if the density is low enough, it can serve enough capacity and enough customers. I think it's ideal from a full broadband coverage to the country where really fiber-based solutions can't, and probably shouldn't go. I also think from a satellite perspective, there's probably more areas there to cooperate, then to think of it as a direct competitor to in a suburban and urban environment. So if you take one way of doing that as a -- we've already done a 5G as our backup service through Invincible WiFi. There are other ways to attach satellite and to become a seller of that product to the extent that they were willing to have us as a reseller to bundle that together with our broadband service. I think there's some merit to looking at that as well, and we're thinking through all those things. So I go back to -- on satellite where I started. We don't underestimate the capabilities either from innovation or from a capital perspective, but we're keeping a close eye and so far, we don't see a major impact, and it could be more friend than foe. Operator: Your next question will come from Sebastiano Petti with JPMorgan. Sebastiano Petti: Just wanted to see if you could circle back on prior expectations for -- to grow EBITDA, ex the transition cost. Is that still the plan for the year? So that's my first question. And then thinking about, I guess, in terms of broadband ARPU. You did see a little bit of a slowdown there. But could you help us think about the expectations for the balance of the year? I mean, I think, Chris, you talked about trade-offs, near-term trade offs for the longer-term kind of health of the business. Should we anticipate your pricing strategy or the annual cadence of price increases within those comments? Is that something that we should probably contemplate maybe broadband pricing increase later this year is maybe not necessarily something we should expect as you kind of try to maybe help the CLVs in the long term, trying to keep turned down? Jessica Fischer: I'll start on the EBITDA side. We do continue to plan to grow EBITDA slightly this year with the benefit of the tailwind from political advertising. And as you point out, excluding transition costs. As we go through the year, we talked about the tuning exercise around offers, and changes in that tuning are going to have an impact on how close to the line we are on EBITDA growth. But that continues to be our plan. And... Christopher Winfrey: On broadband ARPU, Jessica can reiterate it, but I don't want to say in a different way and then somehow create daylight after the fact on broadband ARPU other than to say, the piece that you asked on pricing increase, we haven't made any determination on that yet. For obvious reasons, it's always been our strategy to try to keep prices as low as we can so that we can have enhanced competitiveness. That's been part of our philosophy. It was our philosophy and when it wasn't popular. And it allows you to have better acquisition and better retention. That's still the case. And so we try to minimize that, but also recognize that we're still in -- certain parts of the business have an inflationary environment. So we think through those real time as the year goes on. And there's a multifactor consideration that Jessica talked about, and I talked about before -- going that. So we haven't made any decisions on that front yet. Jessica Fischer: Yes. And I think because of that, from an overall Internet ARPU growth perspective, it will be close either way in terms of where we land on overall Internet ARPU growth for the year, but it will depend on a number of those factors that Chris talked about, and the tuning around offers as well, and it is what you do with the overall pricing profile across all of our products. Sebastiano Petti: And then just... Christopher Winfrey: Okay. Go ahead with your question. We'll let you cheat, go fire away. Stefan's upset, but you can go. Sebastiano Petti: Sorry. Yes. I appreciate that. Just quickly, any context, just if you could provide around the upside to the synergies at Cox? I mean, just kind of given the upgrade here today, I mean, sources of that? And then just kind of how we're thinking about that? Jessica Fischer: Yes. There's -- so moving from $500 million to $800 million, there's a portion of that related to procurement synergies, including programming, as well as we just have a better sort of picture and visibility into the financials. And so base-lining some of those costs that we see at a more detailed level against what we expect based on how we operate. It's certainly how we get them place to place. And as I said, I think there's a space for us to continue to find more there. Christopher Winfrey: Yes, I think there will be. Operator: Your next question comes from Steve Cahall with Wells Fargo. Steven Cahall: Chris, yesterday, Comcast reported a pretty strong inflection in their subscriber trends. It came on the back of a huge quarter for event marketing, and they've been pretty aggressive lately on ARPU and price locks as well. I know you all have been very, very active and proactive in the market with the way you've done pricing and packaging. You also talked about a lot of the competition. Do you feel like at this point, you need to get even more aggressive on either the marketing or the packaging front to kind of cut through this competitive noise? Or do you feel like if you just kind of continue on kind of doing what you're doing, that things will start to improve here as we get through some of this kind of competitive hump? And then just one on churn and gross adds. Traditionally, you all have done really well with jump balls when we've seen activity. It does sound like from what you said your gross add environment looks a little different now with the top of the funnel than it did historically. Any way to think about how if we do start to see a pickup in move activity you think that can drive the business forward? Christopher Winfrey: Sure. So look, first off, you should note that we were pleased, great to see the change in trajectory for Comcast and their Internet and their success in mobile as we talked about before, we don't have any overlap with Comcast, and we partnered with them on all kinds of different fronts from a technology and platform perspective. So we're cheering them on. I think it's good for everybody. They may be coming from a different place and timing going to your question related to pricing and packaging. But of course, our team immediately as of yesterday, has already started to see, is there anything -- any good nuggets there that we can get that we could see that might work for us and copy them to the extent there's something there. So far, we haven't seen that. But we know that they've been complementary of us. We want to done things around Spectrum Mobile. And we'll just take a look and see if there's anything there that's consistent with our kind of long-term competitive and financial objectives. As you mentioned, there might have been some onetime benefits and they may be coming from a different place. But it's no pride here in terms of adopting something that works. So we'll take a look. We're really pleased to see what they did. Are we going to stand still and just hold tight? No, we're not. Our head is not in the sand. I do think that our issue here is less about not that we -- we're open-minded to offer expression, but we've tried a lot of different things. I don't think that's our underlying issue. I think our ability to cut through and message to customers around our value and utility is actually the thing that's creating pain for us. Some of that ties to service reputation that we spend, feeds back in. And if you think about our willingness to think out of the box, the hiring of Nick Jeffrey as our Chief Operating Officer, really ties into those two things. And I think that could be obviously good for us, but I think it could be good for the industry as well as having somebody new to the team who has dealt with a highly competitive market, wireless market in the U.K., a global B2B business with Vodafone. And then as an over-builder an attacker successful one, frankly, here in the U.S., I think adding that skill set to an already pretty talented team that operates and executes really well. I think it's going to be good for us. But for all the reasons I talked about before, I think it could be good for the industry just because we don't compete with each other, we can watch for each other during -- learn from what we do. I think we do a pretty good job. The other question you asked is around jump balls and gross adds. The thing I would tell you is the gross adds was the variance year-over-year our churn did better. The vast majority of that came from the low income segment. And so I think we -- as we dug more into that, realize there's probably some offers that we've had in the market before that weren't as prevalent and we need to go back and reevaluate some stuff that we had that's worked. And so I think that's probably a decent size driver of the variance we had year-over-year in sales. And so we're working through that as well. So I -- again, just to come back, I don't think it's offer expression. It may be a little bit of offer availability in the low income. I think the bigger -- and that's kind of at the margin year-over-year. The bigger picture is how do you get back to full-time growth across all segments. And that really comes to doing a better job of messaging our valuing utility, and earning the service reputation that we have invested in already. So it's not about additional money. I don't think we need to spend anything more in marketing. Some sense, you may say that we're spreading too thin, maybe there's opportunities to cut back if we can simplify the message along the way, and we're thinking through all that. Jessica Fischer: One more thing I'd add on to the end there because you did talk about movers, and you hear us sometimes talk about movers. And given where the environment is, that does create confusion in some cases, actually do really well, in particular, with the mover cohort and it has to do with the scale of our footprint and what we can do with transitioning customers from one location to another. And so even when you look at sort of what's happening in overall market share shift and you might say, well, wouldn't more movement be problematic for you. Actually movement in the form of people moving from one household to the other continues to be something that we see as a net benefit to us. And so movement between homes in the marketplace, and more movers actually is an overall benefit to the extent that there is sort of recovery in the housing space. And I think as we think about joining our footprint together with the Cox footprint that will improve in that respect as well. And as we can cooperate with some of our peers, we actually try to do everything that we can to take good advantage of those good customer relationships where we have them, which is in a lot of spaces. Christopher Winfrey: Jessica kind of alluded to, not only from the Cox footprint, actually help both footprints in terms of off-footprint move retention. But I think there's a lot more that we can do within the industry. We've had some efforts in the past it's not as successful as it could and should be. And so we're actively working together with some of our partners there to do even better on that front. Stefan Anninger: Thanks, Steve. That concludes our call. Operator, back to you. Operator: Thank you for joining. This concludes today's call, and you may now disconnect.
Operator: Hello, and welcome to the Financial Institutions, Incorporated First Quarter 2026 Earnings Call. My name is Josh, and I will be the moderator for today's call. [Operator Instructions] At this time, I would like to introduce your host, Marty Birmingham. You may proceed, Marty. Kate Croft: Thank you for joining us for today's call. Providing prepared comments will be President and CEO, Marty Birmingham; and CFO, Jack Plants. They will be joined by additional members of the company's leadership team during the question-and-answer session. Today's prepared comments and Q&A will include forward-looking statements. Actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties and other factors. We refer you to yesterday's earnings release and investor presentation as well as historical SEC filings, which are available on our Investor Relations website for our safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We will also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Non-GAAP to GAAP reconciliations can be found in the earnings release filed as an exhibit to Form 8-K or in our latest investor presentation available on our IR website, www.fisi-investors.com. Please note, this call includes information that may only be accurate as of today's date, April 24, 2026. I will now turn the call over to President and CEO, Marty Birmingham. Martin Birmingham: Thank you, Kate. Good morning, everyone, and thank you for joining us today. Our first quarter results underscore the strength of our community banking franchise, reflecting disciplined execution by our team and a continued focus on sustainable profitability. We delivered net income available to common shareholders of $20.6 million or $1.04 per diluted share, representing improvement from both the linked and year-ago quarters. The first quarter operating results also supported meaningful improvement on key measures of profitability over both the linked and year-ago quarters, including return on average assets of 137 basis points, return on average tangible common equity exceeding 15% and an efficiency ratio of 57%. Our management team and Board took strategic actions during the quarter that reflect our commitment to prudent capital deployment and long-term shareholder value creation. In January, we completed the refinancing of $65 million of legacy sub-debt issuances. In addition, we repurchased a little over 163,000 shares, bringing the total repurchase since December to approximately 500,000 shares or half the 5% authorization approved under the current buyback program. In February, our Board also approved a 3.2% increase in our quarterly cash dividend to $0.32 per common share. Tangible book value per share increased 1.1% to $28.15 this quarter as strong earnings more than offset the impact of our share repurchase activity and some downward pressure in AOCI driven by interest rate volatility. Our capital actions underscore our Board's confidence in our strategy and long-term outlook, while reaffirming our commitment to disciplined capital management and long-term shareholder value. From a balance sheet perspective, total loans were down modestly on a linked-quarter basis and up 1.6% year-over-year. Commercial loans were relatively flat on a linked-quarter basis, with business loans up 1% and mortgage down modestly. Compared to the first quarter of 2025, both categories were up about 5%. On our January call, we indicated that our expectation for first quarter commercial growth would be modest, given the magnitude of loans that were closed in late 2025 and higher payoffs we anticipated to take place in the first quarter. Given geopolitical and economic uncertainty in the first quarter, we did see some of our commercial customers taking a cautious approach by tightening their balance sheets and paying down debt with cash reserves, which impacted both sides of our balance sheet in the form of lower loans and deposits. Asset line activity. In the fourth quarter of 2025, we originated approximately $270 million in commercial loans with roughly $135 million rolling off. In the first quarter of 2026, originations were $147 million with $158 million in payoffs and paydowns. Based on the size and health of the pipelines we have today, we expect to see loan growth rebound through the second half of the year and continue to expect full year loan growth of 5%, driven by commercial. In our Upstate New York markets, we are seeing demand pick up on the C&I side, particularly in Rochester and Buffalo. In Syracuse, excitement on the ground is palpable following the Micron groundbreaking earlier this year. With a seasoned local lender joining our team recently, we believe we are well positioned to support the growth that will take place in Central New York. In our Mid-Atlantic portfolio, where we have a small team of CRE lenders, we have experienced higher refinancing activity for construction loans, which is a testament to the high quality of the sponsors and the liquidity of this portfolio. Turning to consumer loans. On-balance sheet residential grew modestly, up about 1% from the end of the linked and year-ago quarters. Sold and serviced residential mortgages of $298 million were up 1.5% during the quarter and more than 6% year-over-year, as we shift more production to our off-balance sheet service portfolio, supporting fee income. In the Upstate New York metros of Rochester and Buffalo, the housing market remains hotter with home values projected to climb another 4% or more in 2026. Both mortgage and home equity applications were up 10% year-over-year, and we are enthused about our opportunity as we enter the busier spring and summer home buying season. Consumer indirect loans were down 2.4% from the end of the fourth quarter and around 8% from the first quarter of 2025 to $788 million. As we have shared previously, we have been comfortable allowing runoff to outpace originations given our focus on profitable spreads and favorable credit mix. Originations in the first 2 months of the quarter were lighter than we planned, but March was very solid, with April pacing well. We feel well positioned to capitalize on the seasonal uptick in foot traffic and car-buying activity that occurs in the summer months in our footprint. Credit remains stable on this line of business given the prime lending nature of our operations. We lend through a network of more than 360 new auto dealers across New York State. And the portfolio has an average loan size of approximately $20,000 and a weighted average FICO score exceeding 700. Period-end total deposits were $5.34 billion, up 2.5% from December 31 and down about 1% from the March 31 of 2025. We offboarded the remaining $7 million of BaaS-related deposits in the first quarter, marking the completion of our Banking-as-a-Service wind-down. This was the main driver of the year-over-year decline in total deposits and nonpublic deposits as we took BaaS deposits to 0 at the end of last month from approximately $55 million at March 31, 2025. Both the reciprocal and public deposits year-over-year has also allowed us to reduce our use of brokered wholesale deposits. Our reciprocal deposit base is differentiated, one anchored on deep and often long-tenured commercial and municipal relationships. More than 20% of these customers and 30% of the balances have had a relationship with Five Star for more than a decade, and the average relationship tenure across the portfolio is 5 years. Our reciprocal product offering helps us retain important customer relationships while reducing traditional collateralization requirements on public and institutional funds, and providing us viable liquidity, including during the 2023 banking crisis. Our public deposit base is well established through hundreds of local municipalities, school districts and other governmental entities. Balances reflect seasonality associated with tax collections and state aid, and as a result, this funding segment peaks in the first and third quarters and remains well managed. Our team remains highly focused on the retention and acquisition of core nonpublic deposits. We continue to target low single-digit deposit growth for the full year even as we allowed some higher-priced single-product CDs to roll off at maturity in the first quarter, benefiting margin. It's now my pleasure to turn the call over to Jack for more details on our results, including some favorable updates to our guidance. Jack Plants: Thank you, and good morning, everyone. Our business lines came together to achieve profitable financial performance in the first quarter, highlighted by NIM expansion, durability of key noninterest income categories and disciplined expense management. Starting with net interest margin, the 5 basis point increase on a linked-quarter basis was driven by lower interest-bearing liability costs. Cost of funds decreased 15 basis points from a linked-quarter as higher-rate CDs mature alongside overall downward deposit repricing. And as a reminder, fourth quarter margin was impacted by the level of sub-debt we were carrying in December ahead of the mid-January call of $65 million of past issuances. The 367 basis point NIM we reported for the first quarter was stronger than we anticipated due to favorable deposit pricing. While we continue to see competitive pressure on deposit pricing, we are strategically emphasizing our primary customer relationships, including those with maturing time deposits, which may modestly impact our cost of funds. We still anticipate modest incremental NIM expansion for the rest of the year and now expect to achieve full year net interest margin in the upper 360s. As a reminder, our guidance is based on a spot rate forecast, which does not factor in potential future rate cuts. Investment securities yields remained stable at 4.48% quarter-over-quarter, while average loan yields decreased 13 basis points as compared to the fourth quarter, primarily reflecting the timing of the December rate cut. As a reminder, approximately 40% of our loan portfolio is tied to variable rates, with a repricing frequency of 1 month or less. Noninterest income was $10.7 million for the quarter, compared to $11.9 million in the fourth quarter. The primary driver of the variance was lighter commercial back-to-back swap activity given the rate environment and origination activity. As a result, associated swap fee income was $239,000, as compared to $1.1 million in Q4. However, our loan pipelines are supportive of higher originations for the remainder of the year, which will positively impact swap activity and noninterest income. Investment advisory income of $3.1 million was consistent with the fourth quarter of 2025. This revenue is largely derived from Courier Capital, our wealth management subsidiary serving mass affluent and high net worth clients, businesses, institutions and foundations. New business was solid during the quarter, offset by market-driven outflows that led to a modest decline in AUM from year-end 2025. With assets under management of nearly $3.6 billion, Courier Capital remains one of the largest RIAs in our region. Company-owned life insurance revenue of $2.8 million was consistent with the linked-quarter. Limited partnership income of $244,000 was about half the level reported in the fourth quarter of 2025. Associated revenue fluctuates quarter-to-quarter given the performance of underlying investments. A net loss on other assets of $481,000 was recognized in the first quarter of 2026, compared to a net loss of $225,000 in the fourth quarter of 2025. The first quarter loss relates to the write-down of 2 branch locations, one which we are preparing to consolidate in the second quarter and another that has been held for sale from the previous branch optimization. These declines were partially offset by $1.8 million of other noninterest income, which was up about $340,000 from the linked-quarter, reflecting insurance proceeds related to a past deposit-related charge-off. We reported quarterly noninterest expense of $35.6 million, down from $36.7 million in the fourth quarter. Salaries and benefits expense, the primary driver of NIE, was down $722,000 or 3.7%, reflecting lower incentive compensation and lower medical expenses. We do expect to see annual medical expenses to be in line with our self-funded plan experienced in 2025, and that's reflected in our full year guidance. Professional service expenses were down $366,000 or about 20% for the linked-quarter, reflecting the lower level of interest rate swap transactions along with lower other professional and consulting fees. Occupancy and equipment expenses declined $239,000 or around 6%, due in part to seasonal snow plowing expense impact in the fourth quarter. These reductions were partially offset by higher computer and data processing expenses, which were up $277,000 or 4.7% from Q4. The increase was primarily due to the reversal of prior accruals associated with the termination of a vendor relationship in the first quarter. This will be largely offset by the elimination of associated recurring costs moving forward. Prudent expense management remains a top priority, reflecting our commitment to maintaining the positive operating leverage we have achieved. Given our favorable first quarter results, we now expect to deliver a full year efficiency ratio approaching 57%. We reported an effective tax rate of 15.5% in the first quarter, driven by appreciation in our stock price that positively impacted the tax deduction associated with long-term stock-based compensation that vests annually in the first quarter. The 2026 effective tax rate is now expected to be at the lower end of our guided range of between 16.5% to 17.5%, including the impact of the amortization of tax credit investments placed in service in recent years. In looking at credit costs, net charge-offs were 44 basis points of average loans, compared to 21 basis points in the linked-quarter. First quarter charge-offs included a portion of a previously disclosed commercial business relationship placed on nonaccrual status in 2023 that was fully reserved for in a prior year through a specific reserve in our allowance process. We expect to remain within our previously disclosed full year charge-off guidance of 25 to 35 basis points. Our allowance for credit losses was 97 basis points of total loans this quarter, down slightly from year-end 2025. The decline reflects lower loss rates and reduced qualitative factors, which are driven by improving seasonal trends in indirect delinquencies and favorable performance in our commercial loan pools. We did increase the qualitative factor tied to the economic environment to reflect ongoing geopolitical and macroeconomic uncertainties. Overall, the ACL remains at the lower end of our historical range and we remain comfortable with the allowance given our strong asset quality. That concludes my prepared remarks, and I'll now turn the call back to Marty. Martin Birmingham: Thanks, Jack. Our first quarter results reflect strong underlying profitability, disciplined balance sheet management and a capital position that provides flexibility as we continue to invest in our business while returning capital to shareholders. While the broader economic environment remains dynamic, we are seeing positive momentum in our lending and wealth management pipelines. Our profitable results also support the positive revisions to our NIM, efficiency ratio and tax guidance that Jack shared. Supported by a dedicated team in building a unique space in our region's banking industry, we believe we are well positioned to achieve our targets for full year 2026 and create long-term value for our shareholders. Thank you for your attention this morning and your continued support and interest in our company. That concludes our prepared remarks. Operator, can you please open the call for questions? Operator: [Operator Instructions] The first question comes from the line of Damon DelMonte with KBW. Damon Del Monte: First question is just on the margin. I appreciate the updated guidance there. And Jack, hopefully you could just kind of talk about some of the dynamics that give you confidence that you're able to maintain this upper 360s level for the remainder of the year. Jack Plants: Yes. Damon, so the margin came in a little bit above our expectations for the quarter. That was primarily driven by a benefit that we recognized through cost of funds. Our cost of interest-bearing liabilities continue to drift downward through January, February and into March. Frankly, the cost of interest-bearing liabilities ended March at 2.49%, which is about 9 basis points lower than the January print. We do see some pressure coming through from a competitive standpoint on deposits in our market. So I do believe that we are approaching the bottom from a cost of funds perspective. But given where our loan pipeline stands and the spreads that we're recognizing on originations, I think we're going to start to see some lift on the earning asset side, which is going to provide us that margin stability through the rest of the year. Damon Del Monte: Got it. Okay. And can you just remind us on the asset side, do you have a lot of back book repricing to happen this year? Jack Plants: We have, from a cash flow perspective, we have about $1 billion on a rolling 12-month basis of cash flow that comes off the loan portfolio. But just from an overall yield standpoint, we are seeing on the commercial portfolios, incremental improvement in new origination yields versus what's running off. And that's driving some of that earning asset yield benefit that we're seeing. We did have some compression that occurred on our floating rate portfolio to start the year, and that was driven by the December rate cut that we had. So about 40% of our portfolio is variable. Given our rate forecast for the year and expectations, we believe that can be tempered. Damon Del Monte: Got it. Okay. Great. And then I guess maybe a quick question on capital management. Good to see you guys are active with the buyback. Marty, just kind of wondering what your thoughts are as you kind of look out on the landscape of growth expectations and managing capital and still having around half of your buyback left. Do you think you guys are still on the trail to continue with the buyback? Martin Birmingham: We still have capacity, as I indicated. And we have a couple of [ governors ] that we're thinking about. Number one is our CET ratio, CET1, and really a floor of 11%, and as well, and before that, is ensuring we've got capacity to support growth. And we talked about our confidence in terms of being a back half of the year experience for us in terms of driving our balance sheet growth, and our pipelines are healthy and they are demonstrating vibrancy relative to all the loans that flow through at the end of the year. So I would say those are the factors. What we have done we're thrilled with, Damon, because the earn-back is at or around a year. So that's been a very good use of capital. Operator: The next question comes from the line of Manuel Navas with Piper Sandler. Unknown Analyst: This is [ Ekyu Nazir ] on behalf of Manuel. I wanted to ask a question about the loan growth. How do you guys plan to rebound to maintain the 5% guide there? And could you provide some more insight on the pipelines? Martin Birmingham: Sure. So today, the pipeline currently stands at almost $1 billion, $950 million-ish. That's up from $650-ish million at year-end, and it's up historically by other prior year period measurements. So we -- that's -- commercial has been a lumpy business historically in terms of how it flows through to the balance sheet, opportunities to ultimately the balance sheet. So we're very comfortable that -- where we stand today and the growth of the pipeline where it is, that that ultimately will translate to opportunities for growth in the balance sheet. Our C&I pipeline activities are basically 2x where we've been historically. So that's a good leading indicator. And our CRE opportunities currently stand around a little over $600 million. So we are monitoring that closely. We have a very aggressive internal process in terms -- disciplined process, I should say, relative to monitoring opportunities and processing them. And we keep a very close eye on term sheets that have been vetted by our credit folks and been issued and those that are seeking approval internally, that the customer has accepted, where we've issued commitments and where commitments have been accepted by the customer. So it's obviously a timing issue, but we're comfortable that it will ultimately flow through to the balance sheet. Jack Plants: And the other component there is we've been a very successful construction lender and we have construction commitments that are planned to draw down over the remainder of the year for projects that are in flight. And those are not represented in the $1 billion loan pipeline that Marty mentioned. So we're very confident in our ability to achieve that 5% target. Unknown Analyst: That's helpful. I also wanted to ask, are you seeing pricing get tougher on loans or deposits? And how is the competition in that regard? Jack Plants: Yes. This is Jack. So as I mentioned earlier, we are seeing the market being quite competitive on deposit rates, particularly higher-rate CDs and money market accounts. Our focus is more on relationship-based pricing, which is why we allowed some of those higher-rate single-account CD products to -- or customers to roll off during the quarter, which is where we saw some of our deposit balances declined on the retail side. But as we are out there in our commercial pipelines, we've seen success with deposit growth that supports loan originations. And as Marty mentioned, through the C&I pipeline being 2x where it's been historically, that's the portfolio that's a bit more deposit-rich on the commercial side, which should provide some balance sheet funding as those originations trickle through. On the pricing on the commercial side, it's as competitive as it has been, but spreads that we've observed have been within our tolerances and aligned with what we have budgeted for the year. So we're comfortable there. Operator: Thank you. That concludes today's question-and-answer session. I would now like to pass the call back to Marty for any closing remarks. Martin Birmingham: Thank you very much, operator, for your assistance and thanks to everyone who joined us. We look forward to updating you on our second quarter in July. Operator: Ladies and gentlemen, thank you for attending today's conference call. This now concludes the conference. Please enjoy the rest of your day. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Glacier Bancorp, 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. To ask a question during the session, you will need to press star 11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Randall M. Chesler, President and CEO. Please go ahead, sir. Randall M. Chesler: Good morning, and thank you for joining us today. With me here in Kalispell is Ronald J. Copher, our Chief Financial Officer; Tom P. Dolan, our Chief Credit Administrator; Angela Dosey, our Chief Accounting Officer; and Byron J. Pollan, our Treasurer. I would like to point out that the discussion today is subject to the same forward-looking considerations outlined starting on page 9 of our press release, and we encourage you to review this section. Last night, we issued our earnings release for 2026, and we believe it represents a great start to the year with another quarter of strong results. Net income was $82.1 million, an increase of $18.4 million, or 29%, from the prior quarter and an increase of $27.6 million, or 51%, from the prior year first quarter. Diluted earnings per share was $0.63, an increase of $0.14, or 29%, from the prior quarter and an increase of $0.15, or 31%, from the prior year first quarter. A key driver of our performance continues to be margin expansion. The net interest margin as a percentage of earning assets on a tax-equivalent basis was 3.80%, an increase of 22 basis points from the prior quarter and an increase of 76 basis points from the prior year first quarter. The loan yield of 6.16% in the current quarter increased 7 basis points from the prior quarter and increased 39 basis points from the prior year first quarter. The total earning assets yield of 5.11% in the current quarter increased 11 basis points from the prior quarter and increased 50 basis points from the prior year first quarter. The total cost of funding of 1.40% in the current quarter decreased 12 basis points from the prior quarter and decreased 28 basis points from the prior year first quarter. Turning to balance sheet trends, the loan portfolio of $21 billion at the end of the quarter increased $106 million, or 2% annualized, from the prior quarter. The Southwest Region, which includes Arizona and Texas, grew in excess of 7% annualized during the current quarter, underscoring the strength of our diversified geographic footprint. On the funding side, total deposits of $24.7 billion at quarter end increased $151 million, or 2% annualized, from the prior quarter. Noninterest-bearing deposits of $7.4 billion increased $113 million, or 6% annualized, from the prior quarter. Looking past the quarterly acquisition-related expenses, the non-GAAP operating results show the core strength of the business. Without acquisition expenses, operating EPS was $0.70 per share. Operating expenses were $188.2 million for the quarter, demonstrating consistent cost control. Our credit portfolio continues to perform very well. Nonperforming assets remain low at 25 basis points of total assets, with a slight increase from the prior quarter. Net charge-offs declined to 2 basis points of total loans, down from 6 basis points in the prior quarter. Our allowance for credit remains at 1.22% of total loans, reflecting our conservative approach to risk management. We also executed well on integration and operations. During the quarter, we completed the core conversion of Guaranty Bank, which we acquired in October 2025, and I want to thank our teams for their excellent work and focus on our customers throughout the conversion. As always, we remain committed to consistent shareholder returns. In March, we declared our quarterly dividend of $0.33 per share, representing our 164th consecutive quarterly dividend. We are very encouraged with the business performance in the first quarter and look forward to a strong 2026. Our exceptional team, expanding footprint, unique business model, strong business performance, disciplined credit culture, and strong capital base continue to provide a solid foundation for future growth. That ends my formal remarks. We will now open the call for questions. Operator: Certainly. Our first question for today comes from the line of Jeffrey Allen Rulis from D.A. Davidson. Your question, please. Jeffrey Allen Rulis: Thanks. Good morning. Randy, at a high level, I wanted to chat about the Texas market and the Southwest footprint. Larger banks entering the market often put a positive spin on out-of-market buyers and the opportunities. We have also heard from smaller banks that there are greater market share opportunities due to disruption. Given you have been in the market for some time and particularly through Guaranty, how would you characterize that environment? And, extending that to M&A conversations, could you focus on Texas first and then the broader Glacier Bancorp, Inc. footprint? Lastly, on margin, you had a north-of-4% goal coming into the quarter and saw a sizable jump. Does this reset the ceiling, or did you just get there quicker? How should we think about the margin trajectory, including the role of FHLB paydowns, and the $3 billion of loans repricing you referenced—over what period is that? Randall M. Chesler: I think to some extent the numbers speak for themselves. Texas grew in excess of 6% in the first quarter, and during the same period we were completing the conversion, so they did a great job. I really see the bulk of what is happening there as business as usual. They are continuing to grow in the markets they are in with good customers. There is some disruption as larger banks acquire some mid-sized banks there. It is still a little early to tell how extensive that will be at this point. On M&A, our model and approach have been very well received in Texas given the dynamics there and the type of banks and business—very aligned with how we do business—and I think that has been demonstrated. We have had multiple conversations already. People are on different timelines, and we are in no hurry. We continue to be very disciplined—good banks, good markets, good people. That continues across the Mountain West Region as well with some very good discussions. One of the strengths for Glacier Bancorp, Inc. is the size of the geographic area in which we can look for opportunities, and that will continue to be a very good advantage for us. Byron J. Pollan: Very pleased with our margin lift in the first quarter. Our margin was really firing on all cylinders in Q1. We have now had nine consecutive quarters of margin expansion, and the plus 22 basis points was the largest quarterly increase over that run. We do see more lift ahead. With this strong start, we are on track to hit that 4% target. I would not say we are looking to go much beyond that. It maybe accelerates a little, but I still think we will see 4% in the second half of this year, which does not change our broader 2026 guide. Regarding the levers, the drivers of our margin are shifting a bit. The FHLB payoff is complete—we finalized the payoff of our FHLB advances in Q1. From a deposit cost perspective, we might be able to squeak out another couple of basis points of reduction, but with the Fed on hold, deposit costs for the most part will be stabilizing and moving sideways from here. To this point, we have enjoyed a boost from both sides of the balance sheet; going forward, we will lean more on the asset side for further lift. Our asset repricing has momentum. You will see slow-and-steady upward movement on our active repricing through 2027. We have $3 billion of loans repricing in the next 12 months from March 31, and those will earn an incremental 75 to 100 basis points. Now that we have all the Guaranty data converted and in our reporting, that is where that increased number comes from. New loans are being originated north of 6.5%, which is very helpful. On the investment side, we are still seeing very strong cash flow, and those securities are running off at very low rates with a one handle. Putting all those drivers together, we still see lift ahead, leaning more on the asset side. Operator: Thank you. Our next question comes from the line of Matthew Timothy Clark from Piper Sandler. Your question, please. Matthew Timothy Clark: Good morning, everyone. On loan growth, 2% annualized this quarter on a period basis—a little slower start to the year, likely partly seasonality. How do you feel about full-year growth expectations—we were thinking 3% to 5%—and the pipeline coming into 2Q? And then on expenses, you came in a little below guidance this quarter. Any update there going forward, and do you still contemplate getting to a 54% to 55% efficiency ratio in the fourth quarter? Lastly, does that efficiency ratio exclude amortization expense? Tom P. Dolan: Matthew, at this point we are still comfortable with low- to mid-single-digit loan growth. The pipeline shows continued strength in both pull-through and backfill. There is uncertainty out there—geopolitical and associated economic risks could potentially change things—but we are comfortable with low- to mid-single digits. On the first quarter, there was definitely a seasonal impact. We expect improvement in the second and third quarters. Also, as Randy mentioned, the Southwestern region of our footprint does not have the same seasonality as the northern part of the footprint, which is more susceptible to colder weather that slows construction advances, etc. Ronald J. Copher: We definitely plan to get to the 54% to 55% efficiency ratio. I want to point out core operating. When you look at our reported efficiency ratio for the first quarter, it came in at 63%, which is loaded in the numerator with acquisition expenses and compensation relief coming out of that acquisition. The guidance I gave three months ago in January—$756 million to $766 million for the full year—still stands. We remain cautious on hiring and spending in general, given economic uncertainty, certainly adding in the Billings conflict. Our divisions and corporate departments have done a good job looking at where they might pull back on some expenses, which will likely show up as the year unfolds. Too early to tell precisely, but we feel very good about 54% to 55% on a core operating basis and are staying with the guide. On your question about amortization, the deposit intangible amortization would still be included in that efficiency ratio. Operator: Thank you. Our next question comes from the line of David Pipkin Feaster from Raymond James. Your question, please. David Pipkin Feaster: Hey, good morning, everybody. Switching back to Texas and the Guaranty deal for a minute. It sounds like the conversion and integration are complete, and they did about 6% growth in the first quarter. How did the conversion and integration go? And on the growth they are seeing, what is driving it—deeper relationships with existing clients now that they have more capabilities and a bigger balance sheet, or new relationships you can now service? Also, at a high level on growth, could you elaborate on pipelines across your footprint—where you are seeing growth, the complexion of the pipeline, competition, pricing, and origination yields? Lastly, on the other side of the balance sheet, deposit growth was really strong in a seasonally slower period, especially on the noninterest-bearing side. Could you touch on the competitive landscape for funding and where you are having more success driving deposit growth? Randall M. Chesler: The conversion is behind us, and the teams are doing a great job continuing to help folks in Texas get used to our systems. They really did not miss a beat—very pleased with the approximately 6% loan growth. All those things have gone well and are moving in the right direction. Tom can give you a little color on the makeup of that business. Tom P. Dolan: Good morning, David. On whether growth is coming from existing borrowers deepening relationships or new borrowers, it is a little of both. They have seen nice, strong pipeline growth that remains stable going into the second quarter. One of the main benefits is the ability now to deepen relationships that, at one point from an aggregate standpoint, might have been bumping up against their comfort level, and we are able to continue growing with those as well. New customers throughout their footprint have also been a good source of pipeline growth. As for the broader footprint, the composition of the pipeline is still largely driven by real estate, a good representation of both owner- and non-owner-occupied, spread throughout the footprint, followed by C&I opportunities. Compared to a couple of years ago, we are starting to see more construction demand; those do not fund at close, so we have seen strong top-line production levels, and as we get into the summer, we will see those lines draw, in addition to increased utilization for other segments, including agriculture as we get into the growing season. We expect stronger second and third quarters. From a competition standpoint, no significant change in the last quarter. In markets where we have a controlling market share, we generally get better pricing, which allows us to compete better in larger markets where there is more pricing competition. Production yield was about 6.75% for the quarter. We saw the middle part of the curve increase in March, and as a result, late-quarter and early second-quarter production yields have ticked up. Byron J. Pollan: On deposits, we had a great quarter. The first quarter can be a mixed bag, so to see such strong deposit growth while bringing our overall cost down was fantastic. We are encouraged by noninterest-bearing performance—it outperformed our expectations for Q1—and that bodes well for the rest of the year. We do see headwinds in Q2 from seasonal tax flows, but overall we have had a very strong start, and we are encouraged by our divisions’ success. Operator: Thank you. Our next question comes from the line of Robert Andrew Terrell from Stephens. Your question, please. Robert Andrew Terrell: Good morning. Going back to the margin, good to see you at zero on FHLB advances. I do not think there are any brokered deposits. As you look forward this year, beyond maybe eking out a little more on deposit costs, are there other changes you can make in the funding position or deposit base, acknowledging the cash flows coming off the bond book? Should we expect relative stability in the bond book, or are you starting to buy securities again—where does the excess cash go? And then on capital deployment, you have kept the dividend stable the past couple of years and the payout ratio has dropped pretty drastically. Where do you generally like to operate on dividend payout, and thoughts on capital deployment going forward? Finally, any general expectation for capital benefit if the regulatory proposal goes through as written? Byron J. Pollan: We could see a couple more basis points of deposit cost decline in Q2. I would point to our CD portfolio—over 60% of our CDs mature every quarter. In Q2, renewal rates we have seen early on are coming in a little lower than the maturing rates, so I would look for some cost decline in CDs. Beyond that, with the Fed on hold, for the most part deposit rates may move sideways for the rest of the year. With excess cash, particularly in the second half, we are evaluating investment strategies and expect to be active in the market buying bonds in the second half, looking to put excess cash to work. Randall M. Chesler: On the dividend, the payout ratio has dropped significantly, and we are very pleased to see that trend. It is going to continue to trend down—we are looking forward to seeing it drop below 50% in the next couple of quarters. We have had a lot of discussions about capital. We will be building quite a bit of capital when you take in the regulatory relief plus the position of the balance sheet. Byron and Ronald have been very active in rethinking all options, given the amount of capital that will be accumulating. Byron J. Pollan: On the regulatory proposal, it is still early, but most of the impact to us would be on the risk-weighted assets side. We expect some RWA relief. Early calculations indicate a benefit somewhere in the neighborhood of 75 to 80 basis points to our CET1 capital ratio. If the rule as proposed becomes final, we would expect a bump around 75 basis points on our risk-weighted ratio. Operator: Thank you. Our next question comes from the line of Kelly Ann Motta from KBW. Your question, please. Kelly Ann Motta: Good morning, and thanks for taking the question. When discussing the margin and excess liquidity, did you quantify what you consider to be excess cash levels currently on the balance sheet? It is tougher to see given the breakout with taxes and the tax cash baked in with securities. I am trying to get a sense of the dry powder. Also, understanding that Q1’s remarkable margin level was partly driven by liabilities where things level off from here, there still seems to be a lot of earning asset expansion—an 11-basis-point increase this quarter—which bodes well for an exit margin potentially higher than 4% by 4Q. Is that 11 basis points sustainable, and how should we think about cadence and the exit margin in 2026 and through 2027, given those dynamics seem durable? Byron J. Pollan: We do not have a specific hard target for cash, but we are looking at runoff as bonds mature and cash builds. Broadly speaking, somewhere above the $1 billion range in overall cash is where we would look to redeploy cash flows going forward. That level could ebb and flow depending on market opportunities, timing, and broader balance sheet dynamics, but probably somewhere in the $750 million to $1 billion zone in cash and beyond would be where we look to reinvest. On the 11 basis points of earning asset yield expansion in Q1, one thing to point out is day count and the way interest accrues helped Q1, so there is a little bit of an unwind we would expect to see from a day count perspective in February and beyond. The repricing lift we discussed is durable and will be there. In terms of an exit margin, there is potential to go past 4%, but we are not going to blow through it—maybe we creep above it a little. The sustainability into 2027 is supported by the longer-tail repricing story you referenced. Operator: Thank you. This does conclude the question and answer session of today's program. I would like to hand the program back to Randall M. Chesler for any further remarks. Randall M. Chesler: Thank you, and thank you, everyone, for dialing in today. We appreciate you taking time out of your Friday. We wish everyone a great weekend, and thank you again for joining us. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, and welcome to the Western Union First Quarter 2026 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. . I would now like to turn the conference over to Tom Hadley, Vice President of Investor Relations. Tom, please go ahead. Tom Hadley: Thank you. On today's call, we will discuss the company's first quarter and full year 2026 outlook, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Joining me on the call today is our CEO, Devin McGranahan, and our CFO, Matt Cagwin. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2025 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in our earnings release, attached to our Form 8-K as well as on our website, westernunion.com, under the Investor Relations section. I will now turn the call over to our Chief Executive Officer, Devin McGranahan. Devin McGranahan: Good morning, and welcome to Western Union's First Quarter 2026 Financial Results Conference Call. Today, I will spend a few minutes discussing our results in the quarter and the emerging stabilization we are seeing in the U.S. remittance market. Next, I will review our M&A strategy and our recent transactions. Then finally, I will give you a quick update on where we are with our digital asset initiatives and the near-term pending launches. . In the first quarter, we reported revenue of $1 billion. On an adjusted basis, this was a decline of 1% year-over-year. This is a 400 basis point improvement over the fourth quarter and relative stabilization year-over-year. Consumer money transfer transactions were slightly positive in the quarter for the first time since Q1 of 2025, which was a 300 basis point improvement from Q4. Cross-border principal growth was again up mid-single digits, speaking to the resilience of our customer base and their perseverance in the current difficult macro environment. This quarter, we again saw incremental improvement in our CMT transaction rates quarter-over-quarter. Q1 was better than Q4, Q4 was better than Q3, and Q3 was better than the lows that came in the second quarter of 2025. We believe this should set us up to return to a more meaningful transaction growth beginning in the second quarter of this year. Adjusted earnings per share came in at $0.25 in the quarter compared to $0.41 this quarter a year ago. This is below our expectations and is the result of a combination of some quarter-specific issues as well as a seasonal change for how quarter 1 will perform going forward given the growth of our Travel Money business. The quarter-specific issues included incremental investments associated with our strategic agent signings, product expansion and the timing of certain expenses that we believe will reverse in future quarters, which Matt will cover in more detail later in the call. In response to the slow start to the year, we have decided to accelerate our operational efficiency program that we first announced at Investor Day last fall. This program is designed to improve vendor efficiency, realize the synergies we expect to achieve from the pending Intermex acquisition, and leverages AI to rationalize our existing business processes and significantly reduce labor content. As a result, we believe we can accomplish our $150 million operating efficiency program by year-end 2028 with large contributions coming in both 2026 and 2027. Our retail business in the Americas continued to face headwinds in the quarter associated with the current geopolitical environment, though we believe we are now seeing improvement from the steep declines that we saw in the middle of 2025. We did see strong performance in the quarter in many corridors like Italy to Morocco, France to Cameroon and Kuwait to Bangladesh, offset by continued weakness in the Americas across several specific and large corridors, most notably U.S. to Mexico. Though from a transaction growth rate perspective, while still negative, the U.S. to Mexico corridor improved by 350 basis points relative to the fourth quarter. Our branded digital business increased transaction growth to 21% and adjusted revenue by 6% in the quarter, with gains driven by some of the new relationships we have signed in the Middle East last year. This is an 800 basis point acceleration in our transaction growth rate, and while the revenue growth gap has increased significantly, we are encouraged by the momentum that we are seeing on the transaction side. The revenue growth is being muted by a strong growth in lower RPT corridors continued significant increase in payout to account and some of our new customer promotional offers, which we discussed on the Q4 call. We also believe this will improve in coming quarters. In Consumer Services, adjusted revenue was up 33% in the quarter, driven by growth in Travel Money led by Eurochange as well as growth in our bill pay business. We expect Consumer Services to have another strong year in 2026, as our Travel Money business is expected to approach $150 million in revenue, up from nearly nothing a few years ago. Matt will discuss our first quarter results and 2026 outlook in more detail. later in the call. Now switching briefly to the macro and focusing on the Americas as that is where much of our focus has been over the last several quarters. As you know, remittances in the Americas have faced meaningful pressure that began early last year and continued through this winter, particularly across our key U.S. to Latin American quarters. We saw meaningful declines to markets like Mexico, Ecuador and Guatemala driven by a combination of migration dynamics and U.S. immigration policy. What we're seeing now, however, is a business that is beginning to show stabilization and even potentially signs of improvement. Trends have improved across these corridors with the most recent month March, showing revenue growth rates 800 basis points or better in each of these corridors relative to the lows that we saw last summer. Starting with U.S. to Mexico, which remains the largest remittance corridor globally, Central Bank data shows that 2025 was a down year with monthly remittance principal declining double digits at multiple points throughout last year. As we move through recent months, however, we have seen those declines moderate with inbound principal activity hovering around flat to low single-digit either positive or negative, which is a vast improvement from the relative double-digit lows we experienced last summer. When we look beyond Mexico, the story also continues to be constructive. Corridors like U.S. to Ecuador and U.S. to Guatemala are meaningfully better today than they were performing last summer and into the fall. However, I do want to be clear. This is not a sharp rebound and not all corridors have improved with U.S. to Colombia, as an example, still showing weakness. But overall, we are seeing improving trends and remain optimistic about the rest of the year. We believe that what's driving stabilization is a combination of factors. First, migrant behavior has begun to normalize. After a period of disruption tied to immigration policy and labor market uncertainty, we are seeing more consistent sending patterns. Second, remittances remain a resilient category. And many of these economies, remittances represent a significant share of GDP and are nondiscretionary for senders. And third, we are benefiting from the actions that we have been taking, expanding our retail footprint, strengthening our presence in key communities and continuing to scale our digital capabilities. So stepping back, the message is, North America is not yet back to growth, but it is stabilizing. It is meaningfully better than it was last summer and the improvement we're seeing across some of our most important corridors gives us confidence that the business is now on firmer footing as we move forward. Shifting gears, I would like to spend a few minutes talking about our M&A strategy. Over the past few years, we have spent significant time advancing our strategic position as the global leader in providing accessible financial services for the aspiring populations of the world. A central pillar of this evolution has been a disciplined but opportunistic acquisition strategy focused on strengthening our footprint in high-value corridors, accelerating our digital capabilities and broadening our financial services offering. We have deliberately shifted from a strategy of complete capital return to a model that balances capital return to shareholders with value creating and targeted capability-driven acquisitions, where each transaction is designed to either expand our geographic strength, our platform functionality or our product offering to enable us to maximize the value of our global franchise to our shareholders. Last month, we closed on the acquisition of Lana in Mexico. This transaction will help strengthen our position in 1 of the most important remittance markets in the world. The acquisition gives us the license to launch a digital wallet in the country, which we plan to do later this year on our Beyond digital platform, strengthening our wall-to-wallet capabilities. It will also enable us to build on the success we have seen with our receive strategy in Argentina and Brazil, where we have a meaningful portion of our inbound remittances ending up in our own digital wallets in those countries. This allows us not only to save on commission expense, but potentially opens up new revenue streams for the company. We believe bringing a wallet to Mexico has the potential to change the way we do business in the country by enabling our 2-sided network. We look forward to updating you on our progress as we prepare for our wallet launch later this year. Earlier this month, we also completed the acquisition of Dash, Singtel's digital wallet business in Singapore, further extending our presence in Southeast Asia. This acquisition enhances our capabilities in key remittance and payment hubs, strengthening our access to digital-first customers in that region and supports our broader ambition to build a more connected Asia Pacific network. Dash brings complementary technology and distribution capabilities that will accelerate our digital onboarding and improve cross-payment efficiency across the regional corridors. We are excited to welcome Dash employees and customers to the Western Union family. In the current quarter, we expect to close the acquisition of Intermex subject, obviously, to normal regulatory approvals. We are now down to just 1 jurisdiction and are optimistic that we can attain the final approval in the coming weeks. This transaction is expected to strengthen our agent network density, improve corridor economics and further reinforce our leadership in the U.S. As previously disclosed, we expect this combination to deliver meaningful cost synergies, and I am now more optimistic today than I was just a couple of months ago when we spoke on our Q4 earnings call. The opportunity to put these businesses together and truly take a best-of-breed approach, I believe, will substantially drive value for our shareholders beginning in the back half of this year and will continue for many years to come. Over the last 6 months, the 2 teams have been hard at work designing what the post-acquisition business will look like. The more time we spend together, the more obvious it is that the culture Intermex has built will be a true asset to Western Union. The Intermex team has a laser focus on delivering for their customers and agent partners alike, which very closely aligns with the culture that we have now been building at Western Union. The 2 teams have also been thinking through synergies, and outside of the obvious public company costs, we think there are plenty of opportunities that could prove our $30 million synergy target conservative. We had originally committed to achieving synergies over the first 2 years based on the work to date, I am optimistic that it will be front-loaded as well. And lastly, as most of you know, we completed the acquisition of Eurochange in the United Kingdom, which has added meaningfully to our scale and our Travel Money platform. This transaction expands our presence in the European Travel Money market and strengthens our ability to serve outbound travelers in the United Kingdom. Eurochange enhances our physical footprint in a strategically important market and complements our broader Travel Money ecosystem by improving distribution density and product diversification. These acquisitions reflect a clear and consistent strategy. We are selectively investing in assets that enhance our corridor leadership, digital capabilities and product offerings, while reinforcing the long-term resilience and growth profile of our global network. Importantly, these transactions are not stand-alone initiatives, they're enhancing an omnichannel platform where physical and digital channels reinforce 1 another and where the acquisition serves as a catalyst for accelerating the company's strategy. I recently returned from Asia, where I met with our new team from Dash and spent several days with our team launching our new digital wallets in Australia and the Philippines. Our goal is to have an interconnected network of send and receive digital wallets across the important corridors in Asia. I also visited Vietnam for the first time and met with a few of our new partners that will accelerate the development of our payout to account network and home delivery options in that country. We see significant opportunity in increasing our market share to this important and growing market. As we outlined at our Investor Day, our strategy is focused on growing share in higher-growth markets where, for various historical reasons, we do not have our fair share of the market. Vietnam fits this perfectly where it is a $15 billion inbound remittance market, where we have only mid-single-digit market share. Additionally, some of the largest corridors are from other Asian countries, including Japan, South Korea, Australia and Singapore, where we have a strong presence. I've also met with our team in Manila as we move forward, growing our operations center there. As part of our Beyond strategy, we are regionalizing our operations in each major region to drive efficiency and speed to market. Manila will be the primary operating center for the APAC region and thus will become part of our global operating model. Before I turn the call over to Matt, I'd like to make a brief update on our digital asset initiatives. And more importantly, where we are in the transition from launch readiness to real-world adoption and scale. Over the last few months. We've crossed an important threshold. It is no longer a question of if Western Union will be active in digital assets. It is now how fast can we scale. At the foundation of our strategy is USDPT, our U.S. dollar-backed Stablecoin. USDPT is now in its final stages of readiness and is expected to go live next month. This milestone represents the completion of a significant build across issuance, treasury operations, settlement and controls and positions us to operate a native digital dollar embedded within Western Union's global network. As we approach launch, adoption is beginning to form around the coin. We are working with a growing set of exchange partners to support access, conversion and distribution across key regions, while also engaging with banks and financial institution partners in priority corridors to enable the direct settlement and treasury use cases. Together, these relationships position USDPT as a foundational asset for scaling digital payments and settlement across our platform. Building on that foundation is our Digital Asset Network, or DAN, which operationalizes USDPT and other digital assets. Across Western Union's physical and digital footprint, we are pleased to report that we plan to launch our first partner on the DAN network next week with additional partners coming online shortly thereafter. Through DAN, millions of wallet users will be able to move from digital assets into local currency using Western Union's retail network with an experience that is simple for customers and familiar for our agents. Since announcing our initial partners, we've seen strong inbound interest, and our focus now shifts to launching and scaling, onboarding new partners, expanding corridor coverage and driving volume as the network grows. Importantly, DAN is not a point solution. Our partner pipeline represents tens of millions of crypto wallets globally, creating a powerful distribution channel that brings digital asset users directly into Western Union's retail and digital network, solving an industry-wide issue of ramping from crypto to cash as a safe and effective utility. Finally, extending USDPT and DAN directly to consumers, we are preparing to launch our U.S. dollar Stable Card later this year. This product allows customers to hold value in Stablecoin form and spend globally where ever card acceptance exists, bringing digital dollars into everyday commerce. The Stable Card is particularly compelling in inflation-sensitive markets where customers want dollar-denominated value with immediate practical utility. We expect to begin rolling this out across dozens of markets with an initial wave targeted for later this year. Over time, this card will be consumer-facing expression, connecting USDPT, digital asset, retail customers, global spending into a single, integrated, easy consumer experience. Taking together, USDPT, DAN and Stable Card operate as a connected ecosystem. With launches imminent, partners coming online, and early transactions beginning to flow through the network, we are firmly now in execution mode. The focus ahead is scaling, expanding adoption, increasing velocity and embedding digital assets more deeply into Western Union's core money movement platform. This is an exciting time for the company, and I look forward to updating you on our successes in the coming quarters. In conclusion, we entered the remainder of the year focused on disciplined execution and long-term value creation. We are continuing to modernize our platform, accelerate our efficiency programs, expand our digital capabilities, and optimize our global network to better meet the evolving needs of our customers. While we remain mindful of the macroeconomic uncertainty and competitive dynamics, our priorities are clear, drive sustainable revenue growth improve operating efficiency and deliver strong cash flow. We believe the actions we are taking position us well for the future, and as always, are committed to maintaining our financial discipline, while returning value to shareholders. I want to thank our nearly 10,000 strong colleagues around the world, who are working diligently every day to accelerate our Beyond strategy. I will now turn the call over to our CFO, Matt Cagwin, to discuss our financial results in more detail. Over to you, Matt. Matthew Cagwin: Thank you, Devin, and good morning, everyone. I'm going to walk you through our 2026 first quarter financial results and our 2026 full year outlook. In the first quarter, GAAP revenue was $983 million, which on an adjusted basis was down 1%. The decrease was driven by a continued slowing of our Americas retail business, offset by growth in Consumer Services and Branded Digital, which came in at 33% and 6%, respectively. Our expectation is Q1 will be the lowest growth rate of the year due to the benefits of the Intermex acquisition, our new agent wins, accelerated branded digital revenue growth, and the launch of our digital asset strategy that Devin just spoke about. Adjusted operating margin was 13%. As we singled last quarter, we believe that Q1 2026 would be lower margin quarter due to several factors. Those factors include a lack of vendor incentive payments, which we expect to receive in future quarters this year, and higher costs associated with our new agent signings, a foreign currency loss and the seasonal dynamics associated with our Travel Money business, which has lower fixed cost coverage in the first quarter of the year. As stated, many of these margin pressures are not expected to repeat in future quarters, and a few are expected to reverse. In addition, we expect to see a meaningful benefit from our cost efficiency program in the back half of this year, driven by the Intermex synergies and lower vendor and labor costs, which will benefit from process optimization as well as the utilization of artificial intelligence. Adjusted EPS was $0.25 in the current quarter. Adjusted EPS in the current period was affected by the lower operating profits that I just discussed, as well as higher tax rate, partially offset by fewer shares outstanding. Our adjusted effective tax rate in the quarter was 15% compared to 10% in the prior year. The increase in our adjusted tax rate was primarily due to discrete benefits in the prior year period. Now turning to Consumer Services, which contributed 14% of total revenue in the quarter. First quarter adjusted revenue was up 33%, driven by the expansion of our Travel Money business and growth in our Consumer Bill Pay business. As a reminder, we're lapping the acquisition of Eurochange on April 1, but remain excited about the organic growth, which was up double digit in the first quarter. Looking ahead, we are actively working to further expand our consumer services capabilities, in line with our Beyond strategy. The Intermex acquisition strengthens our retail reach in the Americas and introduces 6 million new customers to our broader product ecosystem. In addition to that, the launch of USDPT Stablecoin, Stable Card and our Digital Asset Network also opens up multiple new revenue streams, which we believe will help accelerate future growth. As you know, Travel Money has grown from a small business just a few years ago to what we expect to be a $150 million business this year. We are applying the same approach of leveraging our brand, our global footprint and our execution capabilities to the next-generation consumer products and look forward to seeing similar results. We believe the combination of organic expansion, inorganic activity and digital innovation gives us a durable path to double-digit growth in this segment for years to come. Now transitioning to our consumer money transfer or CMT business. CMT transactions were slightly positive in the quarter relative to a year ago. This was driven by a robust branded digital business that grew transactions 21%, offset by the continued slowdown in our retail businesses led by the Americas. CMT adjusted revenue was down 6%, which continue to reflect the challenging industry backdrop that we have been navigating over the past several quarters. U.S. immigration policy uncertainty remains a meaningful headwind. Although the comparisons get a lot easier in the second quarter, as we saw the U.S. retail business down double digit in the second quarter of last year. We remain optimistic that the worst is behind us with North America and lack of CMT adjusted revenue growth, improving 300 and 500 basis points versus the fourth quarter of last year. In the first quarter, our branded digital business grew adjusted revenue by 6%, with 21% increase in transactions. This marks the tenth consecutive quarter of solid revenue growth. The Middle East continues to be 1 of our largest growth regions, driven by our new partner wins that we discussed last year. As we have flied in the past, these are primarily account-to-account transactions with lower RPT than our license business. So the gap between transactions and revenue growth will remain elevated as we continue to ramp these partners. Account payout transactions continued their strong momentum, growing over 45% in the quarter, which is our strongest quarterly growth that we've seen in the past 4 years. As Devin highlighted, we recently closed on the acquisition in Mexico and Singapore, both our wallet businesses, and we're excited about the opportunity ahead, as they will become more digital in those regions with those acquisitions. Now turning to our retail business. Overall, the performance of our retail business was up slightly on a transaction basis and more meaningfully better on a revenue basis. We continue to see softness in the Americas, but is improving, as I mentioned earlier, and Q2 gets a lot easier from a comparison perspective. We believe there are numerous compelling opportunities for our retail business to recapture share, and the acquisition of Intermex strengthens our ability to do so. By adding about 10,000 new U.S. agent locations with deep roots in the key Latin America corridors, Intermex expands our retail footprint precisely where we need it most, which strengthens our ability to serve our customers in the United States. In addition to Intermex, we continue the rollout of our new agent wins that we announced last quarter. We have now launched 3 of the 4 agents with the German post going live last Friday and the Canadian post expected to go live later this quarter. As a reminder, we expect these new agent relationships to add roughly $100 million in revenue once they are fully rolled out, which is expected to occur over the next few quarters. We are excited about the opportunities in front of us. for retail and look forward to executing against the opportunities as we work to strengthen our retail business. Now turning to our cash flow and balance sheet. We generated $109 million in operating cash flow in the first quarter. This was down 26% versus last year, driven by the lower operating profit that we discussed earlier. As expected, the first quarter CapEx was $47 million, up year-over-year, driven by higher agent signing bonuses. As discussed previously, we remain committed to strategically investing in key areas of our business while also aligning our agent compensation to performance. We continue to maintain a strong balance sheet and cash flow, with cash flow equivalents of $900 million and debt of $2.6 billion. Our leverage ratios were 2.8x and 1.8x on a gross and net basis, which we believe provides us ample flexibility for capital returns or potential M&A, while maintaining our investment-grade credit rating. As a reminder, we will fund the Intermex acquisition with a delayed draw bank facility that we entered into in January. As a result, we expect our debt-to-EBITDA ratios to be elevated above historical levels for the 12 to 18 months post closing. In the quarter, we returned over $120 million to our owners via dividends and stock repurchases. Now moving to our 2026 outlook, which assumes no macroeconomic changes and no significant impact from the conflict of the Middle East. Based on everything we know today, we are reaffirming our guidance, which includes our adjusted revenue outlook for 2026 at 6% to 9% revenue growth, inclusive of the Intermex acquisition, which we continue to expect to close in the second quarter this year. And our adjusted EPS for the full year, we believe, will be between $1.75 to $1.85. We expect Q2 EPS to be similar to last year and then to accelerate as we move into the back half of the year, driven by higher revenue associated with improving remittance backdrop, new agent wins, and a seasonally stronger period for Travel Money, combined with accelerating pace of our operating efficiency program, the benefits of some of which affected [indiscernible] our Q1 headwinds that we expect to reverse or not repeat in future quarters. Beyond the near-term efficiency program, we do see meaningful long-term opportunities from 2 additional initiatives. First, the implementation of AI has the potential to significantly improve efficiency for our business. And second, our Stablecoin infrastructure, which we believe has the potential to reduce settlement costs by replacing the legacy correspondent banking rails with a more efficient on chain alternative. Thank you for joining the call, and operator will take your questions now. Operator: [Operator Instructions] Our first question comes to us from Will Nance at Goldman Sachs. William Nance: I want to just come back to some of the moving pieces in margins, because seems like that was the primary driver of the lower EPS this quarter. And if I'm hearing you right, it sounds like you've got incentive timing in there, you've got some vendor payments. There's all seasonality of 1Q around the Travel business. And so I guess just relative to expectations, I'm just wondering if you can help delineate like what was it that actually drove things that were below expectations versus some of these things, which are more timing in nature. And I was wondering, on the FX remeasurement, if you could size that, because I imagine that was probably 1 of those items. Devin McGranahan: Will, thanks for joining the call this morning. Let me just dimensionalize a little bit for you. So we've about 50% of the decline year-over-year is driven by things that we anticipate when we had our call 2 months ago. Those are things like the vendor incentives, which we talked about happening, last year happened in Q1, but we anticipate happening over Q2, 3 and 4 this year, just phasing it when we're actually using it. Matthew Cagwin: Fixed cost coverage, we knew that would be an impact on Q1. We bought Eurochange effective April 1 last year. It comes in with a lot of employees, some buildings, things of that nature, and their revenue and profit are higher -- revenue is higher and profit occurs in Q2 and a little bit in Q3 and 4. So we knew that was going to happen. And then costs associated with the strategic partners, we anticipated that, that would be ramping spending a fair bit of tech time and signing bonus amortization and other costs associated with that. So that was all anticipated and talked about when on the call last time. The 2 items that were not anticipating when we met 8 weeks ago, was the FX loss. It's multiple pennies of EPS. It's just timing. We've had that over the last 10 years, we've had 2 or 3 times where it's been large, but we have a little bit of gains and loss every quarter, but that was a bigger item, a little bit of a surprise here in March. And then the other item that we have is our dual track got dislocated. So we have been managing very carefully for the last 4 years the ability to manage 2 things. One is how do we continue to maintain and grow our business while reducing costs on our legacy back book while investing in the future. As you probably remember from our first Investor Day, we talked about a cost redeployment program, and we did a great job of matching up the cost in our dual track. We got a little dislocated this quarter on the pace of investments on our digital asset strategy, investing in some of our other digital assets and replacing platforms relative to how much cost we would pull out elsewhere in the business. As Devin talked a minute ago, we've doubled down on that in the last couple of weeks, and we see a path to accelerate that, both with the Intermix business, the strength of AI, process improvement, which is why we felt comfortable keeping our guidance where we were. William Nance: Got it. Okay. I appreciate all the color. That's helpful. And if I can just maybe throw in another 1 around the conflict in the Middle East. And I was just wondering if you could provide a little bit of color around what you're seeing specifically with money transfers into and out of that region. And how that could evolve over the coming months. I acknowledge that it's very uncertain. Appreciate taking the questions. Devin McGranahan: Will, we to date have seen a mixed response in the Middle East, and this is typical of kind of our business, right -- and the diversification of our business, right? So we have seen a noted decline, as you would expect, of travel from Europe to the Middle East, which had some impact on our Travel Money business, particularly in the U.K. in the first quarter, which exacerbated the fixed cost coverage issues that Matt talked about. So less people are vacationing in Dubai, and that has an impact on our Travel Money business. However, the opposite is true, which is in the early times of a conflict like this, many people move money out of the region. And so we've actually seen a moderate acceleration of outbound remittances from the Middle East. Now historically, we have seen similar patterns that then revert themselves if the conflict remains extended for some period of time, where there's less migration into the region, there's less opportunities for people economically, and thus, the overall volume of outbound remittances begins to shrink. So I think we're in the early stages of this conflict. We see mixed results in our business based on the differences of the businesses, and are keeping a close eye on how this develops over time. I think like all, we wish for a quick resolution, so that we can return back to normal course and speed, particularly in our business in the Middle East, which as you can see, is becoming a strong driver of our financial performance, particularly in digital. I want to come back just briefly on Matt's comment about the dual track in the quarter. We're very excited about the things that we're investing in, whether that be digital assets, whether it be the rollout of the digital wallets in multiple new countries around the world, the signing of new partners. The team has done an exceptionally good job over the last, call it, 24 to 36 months of managing the cost equation while we invest for the future. This is a strength of the team and our ability to get back on track I remain very confident of and the team's ability to accelerate reducing the costs in parallel with investing for the future is where we're going to be for the rest of the year. Operator: Our next question comes to us from Tien-Tsin Huang at JPMorgan. Tien-Tsin Huang: Just building on that Devin and your confidence there and the dual track pacing issue not repeating itself. I'm just curious, just, for example, the accelerating of the efficiency program. Is there execution risk there. It doesn't sound like the AI savings is a part of that, but I'm just asking that because you're also launching some of these wallets and you've got the digital asset launch. You're also absorbing 2, I guess, 3 acquisitions, including Intermix. So just thinking about the challenge of doing all of those things, but also delivering on the second half EPS acceleration that you reaffirmed there. Devin McGranahan: Thanks, Tien-Tsin. Of course, there is always execution risk. And part of what I was highlighting in my last commentary is the team has a pretty good track record over the last couple of years as we implemented the prior $150 million program and invested in Beyond digital platform and then building out the Travel Money business. And so this is a known muscle and skill for the team. So I feel confident that we can continue to flex it. We got out a little out of the line with the timing in the quarter. But think about the program basically is 3 things, right? One, there's the operating model efficiency, and in my public comments, I talked about how we're regionalizing that operating model that reduces corporate overhead that reduces some of the centralization. We're well down the path of that. and we'll continue to strengthen our regional operating model in the Americas, in Europe and then in Asia Pacific across our 3 big regional operating centers. The second is, as we're going on this journey, and we've got line of sight on these things already. We are sunsetting legacy platforms as we move to the Beyond platform as we move to the next-generation point-of-sale as we make the data infrastructure all cloud-based and in Snowflake. That allows us just to shut stuff down which we've got clear line of sight and road map on. And then the third is AI is starting to take effect. We're starting to see broader applications of it across our service operations across our tech development and in some cases, even into our marketing functions. And so we think that will accelerate. And we're building -- the most important thing is building momentum around those skills within people of the company. And so as adopt the skills and the tools that are being developed, we see that in the productivity gains. And then frankly, we just need to hire less people, all of the backfills and all the things that happen every day need to stop happening then as the tools replace the work. So I feel good about it, and I know the team can execute. Tien-Tsin Huang: Okay. No, that's clear. Just my quick follow-up, then I'd love to hear a little bit more on the 2 acquisitions, Lana and Dash. I know some of it you've been looking at those for quite a bit, but you have a great view on what's going on in the ground in a lot of these regions. Is the vision here that each of these will ultimately be portable into other countries around, say, Mexico and core Singapore. Is that the vision there that you're making bets on these regions with these individual assets and then you're going to expand from there? I'm just thinking about how -- is this the beachhead for each? Or could we expect more similar wallet acquisitions down the road? Devin McGranahan: Yes, so think about it, and we talked about this at the Investor Day, we've now kind of solidified what we call the Beyond platform. And so the Beyond platform, the most important part of it is a services layer that connects into our infrastructure for core payment processing for core risk and compliance for moving across our funds out network. And into that services layer, we can plug different experiences in different countries around the world so that we can then create a seamless network of these wallets. So that enables us to accelerate this through acquisitions by buying properties that already exist, plugging them into the beyond framework, which then takes advantage of our payout networks. And that's a great example. In Singapore with Dash, the team is now already hard at work, moving from Singtel Dash's payout network, which was, as you would imagine, significantly subscale to ours and the economics were significantly different, because they dependent on a lot of intermediary players to move the money around the world. We're basically going to turn that off and plug it right into Western Union's APN network, which will have both consumer advantages, but more importantly, format and the team economic advantages on reducing payout costs. And so the Beyond framework and platform that we've talked about enables us to more rapidly expand our digital wallets, both organically, like we're doing in Australia and the Philippines, but also inorganically, like we're now doing in Mexico and Singapore. The key to this, and Matt can talk more about it, is finding those assets that we can acquire at reasonable valuations and thus then enabling us to expand faster than we can just organically. When those opportunities present themselves, we will take advantage of them. Matthew Cagwin: And Tien-Tsin, if I could build a little bit on what Devin just said, when we looked at these wallets, for us, I wish there was a global license and you could just basically buy 1 license and do the stuff everywhere in the world. So we don't have licenses everywhere in the world would like to be today for our wallet strategy. by buying in Mexico and in Singapore that brought licenses. So that's kind of step number 1 we didn't have the license to do this. Two, as we always look at the tech stack as it brings them into us, is Devin just talked about, we feel pretty good about where we are now with our beyond platform. Back when we started talking to Dash, we were not in the same place. We were still doing a little bit of creativity in Europe in a couple of places in Latin America, and we made some evolutions in learnings and gotten stronger over the last 4 years. . So we were looking at them for the technology at that time to bring in ideas and thoughts about how to make ours better, faster and pace. We've now caught where that is. I don't think that's as paramount as it would have been before. But Devin could expand on this maybe in the after call. But he was just in Singapore with the team. The other thing we always look for is people. And when you can buy a company that brings in really strong talent, it's local knowledge base that they can help you accelerate, and we're super excited about Dash for doing that because we brought good concentration of operations folks, tech folks, market present folks and then now we can overlay the fact that we got great payment rails around the world. We've got brand recognition around the world that we can then take that in ports and fuel and then start creating a wallet payout between Singapore, our wallet in Australia, which we are taking live right now, our wallet in a couple of other places which we've not talked about. So we're building on an infrastructure within Asia where you can start doing well-to-well transactions, which has helped us do. So I'm very excited about both of them. It might have been 1 of the longest regulatory review process in my life, but we're excited to have them part of the family. Tien-Tsin Huang: Yes, a couple of years, but through that. That's great. . Operator: Our next question is from Vasu Govil at KBW. Vasundhara Govil: I guess I'll ask my first one on the Stablecoin launch. Could you maybe talk through the go-to-market strategy there? Are you targeting users in specific corridors when you first launch it? And sort of what milestones should we be tracking over the next 12 months? Devin McGranahan: Thank you. Think about it in 3 different tranches. The first, which is the launch of USDPT, we are not originally launching that as consumer facing. So we are launching it as an alternative to the interbank Swift settlement network that we use today that Matt and the treasury team use to settle with our agents, and so we are launching in a couple of countries with some important aging partners here in the next quarter to begin moving and settling between us and our agents on chain in real time at much faster speeds and again, over weekends and holidays where we have capital tied up because the traditional banking system only settles Monday through Friday and takes T+2, T+3 in some parts of the world. And so that is launch number one, and that is going to be within Western Union, modernizing our settlement platform and our money movement in between us and our major partners around the world. Launch #2, which will happen next week, is the digital asset network. So we're enabling digital wallet companies, digital asset wallet companies around the world to be able to have Western Union as a funds off ramp or payout option for their wallet customers. So it opens us up to a population of millions and millions, $10 million plus, native digital customers who own digital assets in wallets around the world, and they can now pay out those digital assets and fee out currency across the Western Union retail network. We have a pipeline of partners that have signed and more in the pipeline to time, and then we work through each and implementing them so that they have that option for their customers. As I said, the first 1 of those will go live next week. The third, which is more consumer facing is our Stable Card. And that product, we're launching in a couple of countries here and I'll call it the next 90 to 180 days that will allow us to then offer as a payout option to Western Union customers a Stablecoin backed card as an alternative to pay out to account or cash payout. So you will, as a consumer in 1 of these countries, be able to select a Western Union Visa Stable Card to receive your remittance payout. And so you can look forward to seeing the milestones of consumers having that as an option in a number of countries before the end of the year. Vasundhara Govil: That's super helpful. And just a quick follow-up, Matt, on the margins. If you could just help us with how we should think through the cadence of margins for the rest of the year so we can calibrate our models accordingly. That would be super helpful. Matthew Cagwin: Yes. So think about -- we now provided in our outlook, tax range, interest is pretty fixed. So I think you can back into the margins off the comment I intentionally gave on -- think about Q2 EPS being in the ballpark of last year, and then accelerating from there. I think you can back into margin off that because we pretty much help you below the line. . Operator: Our next question comes to us from Bryan Keane at Citi. Bryan Keane: I just wanted to ask about the digital -- adjusted digital revenue. It kind of stayed at 6% despite the surge in transaction growth to the Middle East. So if you just separate out the Middle East surge kind of what happened to the relationship on adjusted revenue to digital transactions. Devin McGranahan: Okay. So as we talked about, Bryan, back on the Q4 call, we had seen some market trends towards more aggressive new customer offers, particularly coming out of the lows of last summer. We probably followed those to the detriment of revenue to maintain new customer acquisition. And so what you are seeing is the impacts of that program along with the shift to path to account and the shift on these lower RPT corridors. So it's both mix, which are growing strongly. As Matt said, payout to account grew 45% in the quarter, which is a material acceleration for us yet again. So payout to account is growing faster, which is an impact. Payout to low RPT corridors like India is impacting. We're doing better in those kinds of quarters than we historically have. . And this new customer acquisition strategy that we are moving back from a bit, which was very aggressive new customer offers, that impacted revenue is in that mix as well. Bryan Keane: Okay. That's really helpful. And then, Devin, obviously, AI continues to evolve, and productivity gains are continuing to show some [indiscernible] results. I guess, can you quantify what you think AI could do to some of the back office costs for Western Union? Devin McGranahan: So we believe it can have significant impact. A lot of our processes, a lot of our historical support infrastructure will benefit from modernization. The most important thing is the pace at which we've been able to do that, and we've now been on this for 3 years. We've moved a lot of the data to the cloud. We started sunsetting systems. We started automating. It has always been throttled by how much tech development you can do, how much you can ramp down legacy systems, ramp up new systems. And so for a company like us, the ability to accelerate the move from the old, many times, heavily labor-intensive systems and platforms that support operations, customer service, risk and compliance, treasury functions, accounting functions, is, in fact, the elixir that allows a large legacy company to start moving a lot quicker on this modernization journey. And so that's really what the team is focused on, which is how do we accelerate the path we already know we needed to go down of getting off of these legacy processing and support and infrastructure platforms at a much faster pace, which then takes away a lot of the labor that's required to support, maintain and operate them. And so we're making good progress on that. And that is part of why I think we believe we can accelerate our most recently announced operational and efficiency improvement by at least a couple of years because we're starting to see the green shoots on it. Operator: Our final question is from Darrin Peller at Wolfe Research. Darrin Peller: I just want to go back to the comments you made about expanding the retail footprint for a minute. I know you've had in the past, touched on kind of paring down locations and being more efficient. Maybe help us understand the strategy here again, just to revisit where we're going to go geographically that you think there's real opportunity. You touched on under your prepared remarks, but I guess I'm curious if that's going to dovetail with your push on more wallets more digital, more international on the digital side as well just because it feels like it's a lot to do in 1 period where you're going more digital, more white label partner it stable going kind of revisiting some of the tenants based on the execution. Devin McGranahan: Yes. Thanks, Bryan (sic) [ Darrin ]. I think you can think about the footprint as a twofold strategy, both of which are reasonably well controlled, one, which we've talked about ad nauseam in the last 2 or 3 calls is we have ramped up and have succeeded in signing several significant retail partners Kroger going exclusive, the Deutsche Post, the Canada Post, these will expand our retail footprint. But most importantly, their competitive takeaway, and so they allow us to expand our customer base in retail through the addition of partners that on any given 1 of them will have several thousand locations up to as many as 10,000 locations. So that strategy of signing material partners and being the company that is the partner of choice for large retail networks is well underway. And as Matt talked about, we see significant revenue gains in the coming months from the implementation of those partners. The second, which we've talked about, which is more controlled distribution, which supports the digital strategy. So those are our owned locations and our concept stores, where, again, it's a small part of the distribution. Today, it's a couple of thousand. But that really allows us to control the experience. We can introduce people to the digital products, the digital wallets, we can cross-sell, Travel Money, Bill Pay, Prepaid. And so our owned retail network in New York City has the strongest performance on our Prepaid as the remittance tax came in, because it's our own employees who are helping the customer understand the value of the Prepaid product with the remittance tax. So those 2 dimensions are really the strategy. Darrin Peller: Okay. All right. One follow-up. Just timing-wise, I mean, again, some of these initiatives are exciting around both the digital wallet partnerships you went through earlier and the digital wall in terms of -- and the Stablecoin dynamics and strategy there, both on the Card side and the Network side. Just what are the timing expectations you'd expect to see some of the fruit of this? I know it's been an investment initiative for a number of years. . Devin McGranahan: Getting and expecting real benefits before the end of this year, and Matt can talk more about it. But Stablecoin products and services are all being launched as we speak. The wallets are ramping. We'll start to see the benefit of Singtel probably here in the second quarter. And as we launch in Mexico, Australia, Philippines, as those come online, we believe the value will start to accumulate, which should all happen before the end of the year. Matthew Cagwin: If I can just build on Devin's point real quick, kind of call wrapping up here. But if I work my way through the 3 topics on a Stablecoin, some are very much easier than others, just the infrastructure they're using, which I know at times we talk about how hard is to roll things out in our organization. But the Stable Card, the partner we're using and the rails we're using, we'll be able to get into dozens of locations relatively rapidly versus doing onesies and twosies. The DAN network, we're able to use our current rails in our normal payout network. So that will be able to be rolled out pretty broadly pretty quickly. The 1 that's a little bit more of a grind is getting the right partners and the pay and pay out for using USDPT to build to use for settlement processes. We're working on a few countries right now, hoping to that progress is the world will evolve and help us accelerate that. But that 1 is a little bit more of a -- we got to go push our way through it and get it to work. We're the first to have ability to get more broad-based than we normally do for a lot of our stuff. Operator: Thank you for joining the Western Union First Quarter 2026 Results Conference Call. We hope you have a great day.