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Operator: Good day, and thank you for standing by. Welcome to the Hexagon Q1 Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead, sir. Anders Svensson: Thank you, operator. Good morning, everyone, and welcome to Hexagon's First Quarter 2026 Conference Call. First, I will direct you to the standout cautionary statement, and then we turn into the next slide. Before I begin, a reminder that the upcoming potential spin-off of Octave, we are now presenting Octave as discontinued operations. We have provided this first bridge here for you to understand the performance of continuing Hexagon, Octave and taking them both together, meaning the former Hexagon Group. Looking at the headline numbers for the first quarter. Hexagon continuing operations delivered a revenue of EUR 964 million, with an organic growth of 8%. EBIT was EUR 251 million, giving us an operating margin of 26%. Octave generated EUR 327 million in revenues, organic growth was 1% and EBIT1 of EUR 83 million, delivering an operating margin of 25%. At the former group level, including Octave, revenues were EUR 1.29 billion, with organic growth of 6% and an operating margin of 26%. During the quarter, we also completed the sale of our Design & Engineering business on the 23rd of February, and the business was deconsolidated as of that date. Today, unless I mention otherwise, I will discuss Hexagon, the continuing operations, excluding Octave and with D&E deconsolidated as of the 23rd of February. Mattias will cover the Octave business separately after Norbert. So turning to the agenda for today on the next slide. So I will start with taking you through Hexagon's performance in the first quarter, and then dive into our business area performance. Norbert Hanke, our interim CFO, will then take you through the Hexagon financial performance. He will then hand over to Mattias Stenberg, CEO of Octave, who will then cover the Octave performance in the quarter. We will then, of course, have time for your questions at the end of the presentation. So next slide. Starting with the first quarter performance then for Hexagon on the highlights of the quarter slide. The first quarter of '26 was a strong start of the year and also a busy one for us at Hexagon. We delivered 8% organic growth with a gross margin of 63% and operating margin of 26% and cash conversion at 77%. Alongside this strong financial performance, we continue to take decisive portfolio actions to sharpen Hexagon's focus on the core precision measurement and positioning opportunities. We completed the Design & Engineering business sale to Cadence for approximately EUR 2.7 billion in cash and stock. And here in April in the second quarter, we announced the agreement to acquire Waygate Technologies from Baker Hughes for approximately $1.45 billion. And this is then expanding Manufacturing Intelligence into the very attractive area of nondestructive testing. And I will cover this more in detail on the next slide. Mattias and Octave team held Investor Day in New York on March 26 with the spin-off expected to become effective on May 22. We also continue to build the new Hexagon executive team. Renée Rädler has been announced as the Chief People Officer on the 1st of April, and Enrique Patrickson, who will join us as Chief Financial Officer on the 24th of April, meaning tomorrow. And I wish Enrique welcome to Hexagon, and both of them welcome to the executive team. And I'm happy to have you on board. Finally, a humanoid robot, AEON, is making excellent progress in the past quarter. AEON successfully completed a pilot at BMW and will be deployed in production at the Leipzig facility. It is a significant milestone in demonstrating the real-world industrial capabilities of AEON. In parallel to this, our pilot at Schaeffler has resulted in an agreement to deploy up to 1,000 AEONs in the next 7 years. This is a big step that we communicated here in April as well. Then we expect commercialization of AEON by the end of 2026. So a very active quarter of delivery. Let me now give you the overview of the Waygate acquisition. So next slide. Acquiring Waygate is a natural next step for us at Hexagon as a market leader in the nondestructive testing, they fit very well into our portfolio focus on precision measurement and positioning technologies. They're completing the measurement chain from surface to the interior of components. The computed tomography hardware combined with our volume graphic software creates a unique value position for customers. And the business also brings exposure to maintenance, repair and operation markets with recurring utilization-driven demand, which boosts our exposure to the growing aerospace markets. Waygate has a portfolio of assets with different growth and margin profiles. This brings a meaningful opportunity for us to create value. RBI is already growing very well at good and healthy margins of about 30% EBIT. Radiography is a strong business where we can leverage our manufacturing and sales footprint to really drive synergies across the business and leverage shareholder value. The ultrasonic testing and imaging solutions are also very good assets. But here, we will assess the position of those assets. They are either challenged by not being market leaders or they have a -- not a perfect strategic fit for us. So we will look at these assets from different perspectives, and we will try to then either through acquisitions make them into market leaders or we will have also the possibility to go through strategic reviews or do turnarounds of these assets. Now turning to our organic growth performance in more detail for the quarter on the next slide. So we delivered a strong organic growth of 8% in the first quarter and that's a significant acceleration from the prior year. This was primarily driven by Autonomous Solutions, which grew 13%; Manufacturing Intelligence, which grew 9%. Both businesses benefited from growth in aerospace and defense. Geosystems grew 2%, while completing the channel destocking program that I talked to you about in the fourth quarter report. Excluding this impact, the underlying growth would have been 4% for Geosystems, which gives us the confidence in that the momentum is again building within Geosystems. Recurring revenues grew 6% driven by continued momentum in construction software subscriptions and also GNSS correction services. You can see the rolling 12-month figures in the chart on the right. For the full transparency, excluding the impact of our Design & Engineering business, software & services account for 44% of sales for the remaining Hexagon corresponding to recurring revenues of around 28%. The new product adoption is also progressing very well, especially if you look at our laser tracker, ATS800, and also our new robotics total station, TS20, and this is, of course, supporting the growth trajectory across our businesses. Turning now to the development by region and industry in the quarter. So on the next slide. Here, you have a snapshot of the development, and I'll start with the geography. The Americas was the strongest region delivering a 15% organic growth with a positive performance across all of our business areas. North America was especially strong, while South America was weaker. EMEA recorded 4% organic growth with broad-based contributions across the portfolio. China reported a decline of 4%. Performance in Manufacturing Intelligence was very solid, but the wider China business was impacted by the weaker Geosystems business and also by the completion of the destocking actions taken within Geosystems in China. Without the destocking initiative of roughly EUR 8 million in the quarter, there was actually also single-digit growth in China as a whole. The rest of Asia delivered 7% organic growth, a solid performance, reflected the good momentum in several of our key markets in this region, and especially a strong India. By industry, if we look at it like that, construction remains our largest vertical, and we recorded a strong growth in Americas with also good growth in Western Europe. General manufacturing, the second largest vertical showed broad-based strength across all the regions. Aerospace and defense continued to perform strongly, while Mining was more mixed with uncertainty impacting the demand in South America. We also had some pull-in of deliveries from the first quarter into the fourth quarter last year, and that had some negative impact for the first quarter. Automotive remained under pressure, particularly in the EMEA, but we also saw signs of weakness in China. Electronics was very strong in the quarter, and this is primarily then in China and rest of Asia. That's where a strong majority of our exposure is, and it was very strong growth. Agriculture, while only being 2% of our sales, still remains weak globally. I now turn into profitability on the next slide, and I'll start with the gross margin. And I want to say first that the Design & Engineering that normally operates with strong margins had a challenged start to the year. So while it was very strong in the first quarter of 2025, which is the reference period, it performed quite badly during the 6, 7 weeks that it was within our business before it was sold on the 23rd of February. There's a lot of reasons for that. But if we exclude the impact of Design & Engineering in both periods, both in the first quarter of '26 and the first quarter of '25, the gross margin was 62%, and in the comparison period, 62.6%. So it's 60 bps down year-on-year. Gross margin was, however, stronger in this quarter than in the last 2 quarters, quarter 4 and quarter 3 of 2025. And you will also be able to see this in the appendix slide attached to this presentation. The ramp-up of new product sales continue to support cost volumes, but this was offset by a full quarter of tariff impact. And in the comparison period, there was very little tariff impact. And we also had input cost inflation and also on freight, and this is driven then by the Middle East conflict primarily. If you look at the currency for the quarter, that also created a significant headwind. Going forward, we will mitigate these pressures through pricing and also freight surcharges, et cetera, and actions are already taken at the end of the quarter. But the full impact of this given our delivery times should be seen in the third quarter. Turning now to operating earnings. During the first quarter, we delivered an operating margin of 26.1% versus 25.9% in 2025. Importantly, excluding also here the full impact of Design & Engineering business in both periods, the operating margin grew 80 basis points versus the previous year. And this, I would say, is a meaningful improvement, driven by the organic growth performance and benefiting from our restructuring program that we communicated in the second quarter report. With some of the contributions also a gain from a sale of a building within the quarter of about EUR 8 million. Offsetting our good performance was, like as mentioned, a weak Design & Engineering performance and tariffs and cost inflation. We also saw the strong currency headwind on EBIT, and that corresponded to a negative 60 basis point performance. Year-on-year reduction in capitalization to amortization gap, which we have talked about before, had an impact of 70 basis points negative. A key driver for the margin improvement was the cost reduction program. We benefited here about EUR 10 million during the quarter, and the program remains on track for a total savings within Hexagon at EUR 74 million at the end of the year. We also had generally good cost control despite the growth, and that also, of course, supported the performance. Now turning to the business area performance. I'll start with Manufacturing Intelligence. MI delivered a revenue of EUR 433 million and an organic growth of 9%. We also had a very strong order intake in the quarter, which is positive for the coming 2 or 3 quarters. If I start with the geography, the Americas was the strongest region, but we also saw growth in EMEA and Asia. By industry, Aerospace & defense continue to perform very strong and the automotive business remained under pressure, particularly in the European markets, but as I mentioned, also in China. Operating margins came in at 23.7%, down from 24.6% in the first quarter of last year. And this reflects the impact of currency headwinds and tariffs and the weak D&E performance in this year, which more than offset the positive operating leverage from higher volumes. Again, if we eliminate D&E as we have divested these parts from both periods, the operating margin improved from 23.1% to 23.6%, so 50 bps up. Looking ahead, we had an agreement to acquire Waygate Technologies, and this is a transformative step for Manufacturing Intelligence, and it expands, as I mentioned, into the adjacent nondestructive testing market and positions us to offer customers a truly end-to-end precision measurement solution from the surface to the interior and through the life cycle of products. And as I mentioned earlier, we did divest D&E on the 23rd of February. If I move then into Geosystems slide. Revenue was EUR 349 million with an organic growth of 2%. And even if -- great to see a return to growth here, I should note again that if we disregard the China destocking program, which now has ended, the actual underlying growth of Geosystems was around 4%, which is a more accurate read of the demand environment within the business. By geography, America was the strongest. EMEA was broadly flat. And we saw solid performance in the Western Europe, offsetting the weakness we saw in Middle East. In Asia, China reflected a destocking that I mentioned, but India performed very well. By end markets, construction software & services delivered double-digit growth, very good to see, and we are seeing also the contribution of the TS20 total station. Operating margins were 26.9% compared to 27.4% in the prior year. The decline primarily reflects currency headwinds, which were partially offset by strong cost discipline and favorable product mix. Turning now to our superstar of the quarter, Autonomous Solutions on the next slide. Revenue was EUR 176 million and organic growth of 13%. By industry, aerospace and defense continues to be a major growth driver with very strong demand. Mining was more mixed in the quarter. Customers remain cautious with capital expenditure, which also softened the demand for equipment investment, but our mining and safety business remained resilient during the quarter. Agriculture, as I mentioned, is subdued globally. We are not worried about the mining business in the midterm. There is a lot of activity. But as I said, a bit of hesitation with high oil prices for capital investments. By geography, both America and EMEA delivered strong double-digit growth, and APAC declined. Within the product portfolio, demand for anti-jamming solutions and GNSS correction services was particularly strong in the quarter, benefiting from the growing need for a secure and reliable positioning in defense, but also in critical infrastructure applications like aerospace. Operating margins expanded to 34.1%, up from 31.6% in the prior year, 250 basis points improvement is strong, and that's driven primarily by the strong operating leverage on the higher volumes and also a favorable product mix. Of course, also here, partially offset by currency headwinds and tariffs. That concludes my overview of the business area performance, and I will now hand over to Norbert, who will take you through the Hexagon continuing operations financials. Go ahead, Norbert. Norbert Hanke: Thanks, Anders. I will take you now through the Q1 performance. Unless stated otherwise, the slides and my comments will relate to continuing operations, so it will exclude Octave. Turning to the next slide, please. Let us begin with the Q1 2026 income statement, taking the sales bridge first. Revenues were EUR 964 million with a reported growth essentially flat year-over-year. Currency had a negative impact of 6%, and there was a 1% negative structural effect from the sale of D&E, resulting in organic growth of 8%. Gross earnings were EUR 606 million with a gross margin of 62.9% compared with 64.4% in Q1 last year. The 150 basis point decline reflects currency headwinds, tariff impacts and cost inflation that Anders discussed earlier. As he also mentioned, excluding the full impact of D&E, the decline would reduce to 60 basis points. EBIT1 was EUR 251 million with an operating margin of 26.1%, up 20 basis points year-on-year or up 80 basis points, excluding D&E. This improvement was supported by the cost restructuring program and organic growth in the quarter, partially offset by a reduction in the R&D gap of 70 basis points and currency. Earnings before taxes grew 4% to EUR 224 million supported by the operating improvements. Earnings per share were at EUR 0.067, up 3%. Next slide, please. Now moving to the bridge. As discussed, net sales were essentially flat on a reported basis with organic growth of 8%, offset by currency headwinds and the structural impact from D&E. On operating earnings, EBIT1 increased to EUR 251 million from EUR 249 million last year. The improvement was driven by the cost restructuring program and the net gain of the sale of the facility, supporting organic performance in the quarter. Currency represented a meaningful headwind with a 35% drop through, primarily reflecting the weaker dollar. On the margin bridge, we expanded 20 basis points to 26.1%, both organic and structural effects were accretive, while currency diluted margins by around 60 basis points. Next slide, please. Turning now to the restructuring program. We are targeting EUR 74 million of annualized savings with the full run rate expected by the end of 2026. In Q1, we delivered EUR 10 million of incremental savings, bringing the annualized run rate to EUR 51 million. We are therefore well on track and progressing towards our targets. As shown on the chart, we expect continued ramp-up through 2026, reaching the full EUR 74 million run rate by year-end. This program continues to be a meaningful contributor, and we remain confident in the delivery. Next slide, please. Turning to cash flow, where we continue to demonstrate strong operational discipline. Adjusted EBITDA was EUR 351 million, up 3% year-on-year, reflecting organic growth and benefits from the restructuring program, partly offset by currency headwinds. Capital expenditure amounted to EUR 76 million, down 38% versus the prior year, partly driven by proceeds from the sale of a building following our footprint rationalization. This resulted in cash flow post investment of EUR 250 million, up 16% year-on-year. Working capital was an outflow of EUR 56 million, reflecting the normal seasonal pattern in Q1 as we see activity ramping up through the quarters. As a result, operating cash flow before tax and interest was EUR 194 million. This translate into a cash conversion of 77%, a significant improvement from 60% in Q1 last year. After taxes of EUR 46 million and net interest of EUR 24 million, cash flow before nonrecurring items was EUR 124 million, up 84% year-on-year. Next slide, please. This slide shows working capital to sales on the new Hexagon base, providing a view of the underlying trend. On this base, Q1 performance is in line with normal seasonal patterns. Net working capital was an outflow of EUR 56 million compared to EUR 68 million in the prior year. The rolling 12 months working capital to sales ratio improved to 11.9%, trending down versus last year. So to conclude, we delivered organic growth of 8% with stable margin despite significant currency headwinds and gross margin pressure on tariffs and input cost inflation. Cash conversion improved to 77% and the restructuring program continues to deliver with EUR 10 million of savings in the quarter and an annualized run rate of EUR 51 million. Looking ahead, currency is expected to remain a headwind, and we remain focused on execution. I will now hand over to Mattias. Next slide, please. Mattias Stenberg: Thank you very much, Norbert. Let's take a look at the first quarter results for Octave. What you're seeing in the numbers this quarter, it's not just a transition to recurring revenue. It truly reflects the early impact of connecting workflows across the asset life cycle, which is where the real value in this business sits. Recurring revenue grew 6% organically compared to the prior year, with SaaS revenue continuing to grow at strong double-digit rates. Reported organic total revenue grew 2%, whereas reported revenue is down year-over-year, driven by currency impact and the disposal of the federal services business that we did last year. If you look at monthly project-driven subscription license revenue, that was roughly flat with the prior year period, while perpetual licenses and professional services revenue declined, reflecting the deliberate shift we are doing towards subscription-based models. The EBIT for the first quarter reflects the lower perpetual license contribution together with lower levels of R&D capitalization and higher related amortization. Excluding these factors, underlying profitability was in line with the prior year period as disciplined cost savings offset incremental public company costs. Cash conversion was a healthy 118% in the quarter. Next slide, please. If we look at our workflow environment in Q1, the trends were consistent with our expectations. In Design, perpetual license sales declined, while monthly subscription licenses continued their sequential improvement. Build delivered strong double-digit growth driven by SaaS adoption in construction and project controls. Operate also saw strong revenue growth across quality management, APM and EAM. And in the Protect area, recurring revenue continued to grow offset by lower perpetual licenses and services revenue. Our advantage, however, is not in a single product. It is in how these workflows connect. Intelligence created in design, build, operate and protect becomes more valuable when it is shared across the life cycle. Next slide, please. To the left here, you can see the monthly subscription licenses. We saw a step down as earlier discussed in the activity level in early 2025. However, since then, we've seen sequential improvement, and that positive trend continued in Q1, and we do expect year-over-year comparisons to get easier as we move through 2026. In the middle chart, you can see that excluding this short-term volatility from project-driven licenses, the underlying trend is, in fact, strong. Recurring revenue continues to grow at a high single-digit rate, reflecting healthy underlying momentum across the portfolio. And on the right, you can see that our quarterly perpetual licenses continue to decline in line with expectations as we shift towards recurring revenue models. We do expect this shift from perpetual to continue to pressure total revenue growth for the remainder of this year. Next slide. If we turn towards some of the information we shared at Octave's first Investor Day in March, and if you haven't watched it yet, you can access the videos and presentations at the Investors page at octave.com. One of the key takeaways that we discussed there was that we expect to accelerate organic recurring revenue growth to 10-plus percent over the medium term. Approximately 2/3 of that ARR growth is expected to come from our existing customer base. What underpins this is that expansion within our installed base is driven by the multi-workflow adoption where we see a clear step-up in ARR as customers move beyond a single workflow. We expect the remaining 1/3 of growth to come from new customers as we invest in growth areas and expand the partner channel to broaden our coverage across geographies as well as customer segments. Next slide, please. Turning to customer highlights in the quarter. We had a number of important wins, both for new logos as well as expansion. And I think these wins really reinforce several of the strategic themes we outlined at our Investor Day in March. If we start with new logos, we added Visa CashApp Racing Bulls for enterprise asset management to handle their logistics and operations in their F1 business through a multiyear SaaS contract. We signed both BNSF Railroad and Spokane 911 on multiyear SaaS deals for our OnCall Dispatch platform. We also landed a leading U.S.-based LLM developer on a design subscription for their facilities infrastructure. And these wins demonstrate 2 things that we emphasized at our Investor Day: the diversity of our addressable market across mission-critical industries and our ability to land new customers on recurring SaaS-based contracts as we accelerate the shift towards recurring revenue. On the expansion side, I want to highlight 2 deals that could not have happened a year ago, frankly, from an organizational perspective as these businesses then sat in separate Hexagon divisions. The first, a global motion and control leader and existing design customer expanded into operate through a 4-year strategic agreement, adding both our EAM and ETQ solutions across their global manufacturing operations. The other one was Kimberly-Clark, who signed a deal that consolidates over 700 of their systems onto our platform in a 5-year SaaS conversion spanning design and operate. And I think this is a great illustration of our -- how our opportunity for ARR per customer expansion where customers adopting 3 or more workflows consistently reach 7-figure ARR levels. And while the 86% of our customer base is still on a single workflow, and that is the expansion runway embedded in this business. We also expanded with a leading European chemical producer displacing a competitor for critical communications across their production plants. This customer now runs on Octave across all 4 workflow environments, design, build, operate and protect, validating both our platform strategy as well as the value customers see in consolidating onto our solutions. And lastly, we cross-sold our build solutions into a long-standing design customer with a major copper mine operator, extending our relationship to include project controls. So to me, what these examples really show is that once we land in one workflow, expansion into adjacent workflows is not theoretical. It is happening, and it materially increases our ARR. So in summary, the Q1 customer activity validates our strategy. We're winning new logos on SaaS, expanding within our base across the workflows and displacing competitors where our integrated life cycle approach gives us a clear right to win. And this is what differentiates us. We are not competing as a point solution. We are competing as a life cycle partner for mission-critical assets where failure is not an option. Next slide, please. So if we turn to our Investor Day outlook, in the nearer term, 2026 is a transition year as we become an independent public company. We're targeting 3% to 4% total revenue growth on the back of 6% to 8% ARR growth with adjusted operating margins stepping down modestly as we absorbed roughly 100 basis points of public company costs and up to 100 basis points from revenue model shift, net of savings. We do expect revenue growth to be second half weighted, reflecting both the recovery in monthly subscriptions and the typical back half seasonality of enterprise software bookings. For the second quarter on a U.S. GAAP basis, we expect organic recurring revenue growth of 6%, so similar to Q1. And we expect organic total revenue growth to be flattish year-over-year due to the declines in perpetual licenses that we have discussed. On a reported basis, which will reflect, again, then the disposal of the federal services business, we expect second quarter total reported revenue to be down approximately 4% over the prior year. Next slide, please. Our medium-term ambitions remain as we laid out in March. ARR growth of 10-plus percent and total organic revenue growth of 6% to 8%. Over time, of course, these growth rates will converge as recurring revenue becomes a larger and larger part of total revenue. We also expect free cash flow margins to expand from today's level of roughly 20% to 23% to 24% of the medium term. Next slide. So I'd like to close by reiterating why we believe Octave is a compelling investment. We operate in a large and growing market. It's $28 billion today, reaching $40 billion by 2029. We have a deeply embedded sticky installed customer base with 97% gross retention and significant room to expand. Our recurring revenue base of $1.1 billion continues to grow as a share of the mix. AI amplifies the value of 3 decades of domain data and context that is very hard for anyone to replicate. We are leaders in our product categories as recognized by basically all the major industry analyst firms. We operate in mission-critical environments where failure is not an option. And as customers connect workflows across the life cycle, value compounds and expansion becomes more predictable. That is the foundation for sustainable growth and profitability as we scale as an independent company. So final slide, please. So as a reminder, on the key dates for the separation. The Hexagon AGM vote is tomorrow, April 24. And assuming approval, the record date and effective date for the distribution is May 22, with Octave SDRs expected to begin trading on Nasdaq Stockholm on May 26, and the Class B shares on Nasdaq New York on May 28. So with that, thank you very much. And I'll hand back to you, Anders. Anders Svensson: Thank you, Mattias. Let me jump forward directly into the Q1 summary slide. So Hexagon delivered a strong financial performance. Our cost restructuring program is clearly on track and delivering. On the portfolio side, we completed the sale of our Design & Engineering business to Cadence, and we also announced here in April an acquisition of Waygate Technologies. As we have heard, the Octave spin is remaining on track. And all these actions are then sharpening Hexagon's future focus on the core positioning measurement technologies, positioning technology and autonomy opportunities. Our full executive team is now in place, as I mentioned, with Enrique and Renée. And looking ahead, we have a solid foundation entering into the second quarter. We had a strong order intake within Manufacturing Intelligence. And with the closure of the Geosystems destocking program, we provided a clean base for growth of Geosystems going forward. We remain, of course, attentive to the macroeconomic situation, particular to the tariffs, currency dynamics and also what's happening in the Middle East situation. We are, however, very confident on the momentum of our different businesses going forward. And as we have just heard from Mattias, Octave generated another very strong quarter of SaaS growth, contributing to recurring revenue growth in the mid-single digits. Before I move forward, I want to take this opportunity to thank you, Norbert Hanke, who has been an excellent interim CFO, covering from the gap in August 2025 when David Mills was stepping down. And now handing over to Enrique Patrickson. Norbert will remain as an Executive Vice President at Hexagon, leading our ventures operations and also strategic projects. And I'm very much looking forward to continue working with you, Norbert, in that capacity. Before we move to the Q&A, I would like to draw your attention to an upcoming event on the next slide. We will be hosting our Capital Markets Day in April, at April 30. That's next week, Thursday, in London. And this will include strategy updates from each of our business areas. And also importantly, we will present the new updated financial targets for Hexagon, reflecting the new portfolio composition that I have spoken about today. So of course, I encourage all of you to join us in London or follow the event via the webcast. And details and registration are available on our Investor Relations website. So with that, we are now happy to open up for questions. And in the room, we have Mattias Stenberg, Norbert Hanke, Ben Maslen, and myself. So please go ahead, operator. Operator: [Operator Instructions] We will now go to your first question, and your first question today comes from the line of Alice Jennings from Barclays. Alice Jennings: I've got a couple. So the first one is just on, I guess, the outlook for Q2. So you've expressed some confidence, but then also recognized a bit of uncertainty. So could you perhaps outline where in the business, like which divisions you have the most visibility or also the most uncertainty? So thinking about divisions, but then also the industries. And then I just have a question on the Waygate acquisition. So I understand that we're expecting to see some revenue synergies from cross-selling. But how long after the deal is closed? Can we expect to start seeing some of these synergies? And how meaningful could these be? Anders Svensson: All right. Thanks, Alice. So I can start a bit and Norbert, you can maybe contribute as well. So if we look at the different businesses and the outlook for Q2, of course, we don't give forecasts on the future. But we have a very strong order intake in our Manufacturing Intelligence business, and that will, of course, benefit us in the coming quarters. And as I mentioned within the Geosystems area, we have completed the destocking initiative. So we don't have -- we don't start every quarter with a negative sort of EUR 8 million to EUR 10 million that is already sort of cleaned, and we have now a clear base to move forward from. And as I said, the underlying growth has now turned positive within Geosystems, and we expect that to continue also going forward. In the Autonomous Solutions, we have a very strong demand in different sectors like aerospace and defense, et cetera. And we don't see any signs of that changing. And we don't see any signs of the weak business of agriculture improving dramatically either. So many of the businesses are expected to remain in a similar level. Mining, perhaps not growing very much in the second quarter because that's related to what I said in the presentation. But more in the midterm, we don't see any risk for our mining business as the activities is still very strong. If you look at electronics, for example, we expect that to continue to be a strong business for us also going forward. Automotive will be challenged in Europe. I think also we have seen now some negative growth for us in automotive in China, and that might remain. But given also the high oil prices, you might come back to more electric cars and that will also benefit our automotive sales in China. So we have to wait and see what happens within that business. General manufacturing is a strong business across all the different businesses, basically, and we expect that to continue on similar levels. So I think that's a summary of what we can say about the outlook. If I then should comment on the Waygate acquisition. So of course, there is a process here that we need to go through until we have actually closed this acquisition. And then there is an integration of the acquisition. And we will start seeing benefits, I think, quite quickly of the synergies because we have similar exposure to customers. We will also complement our offering, and we will go to market with the same people across the different geographies. So I think you will see synergies coming quite quickly after the integration of the business into Manufacturing Intelligence. Operator: Your next question comes from the line of Daniel Djurberg from Handelsbanken. Daniel Djurberg: Congrats to a nice growth profile here. I was wondering, Anders, if you could -- you mentioned some pulls from Q1 into Q4, still strong organic growth, 8%. And my question is, did you experience any prebuys for some reason? And how much of the organic growth was a result of this, if so? And also, if so, would it impact you negatively later on? Anders Svensson: Thanks, Daniel. The pull-in from Q1 to Q4, which I referenced was primarily within deliveries in mining. And I wouldn't say that, that has a significant impact for -- with the performance in the first half year here in 2026. Of course, the first part of the quarter was a bit weaker within mining, of course, due to that. But not any permanent effects in any way. Pre-buys, we actually don't see across the different businesses to any extent that we can recognize that this is a typical prebuys. So we don't see that as a future negative impact for us either. Daniel Djurberg: Super. May I ask you another question on Waygate, obviously, early days, but you mentioned that you will do a strategic review of imaging solution and ultrasonic testing. So my question is, can you already start to plan for this right now? Or do you need to await the full consolidation and then see and plan later on? Or more or less, can you do theoretically a divestment or something at the same time as you do the transaction later in 2026? A little bit hypothetical question, perhaps. Anders Svensson: Yes, I would agree with you, Daniel. I think we are here, first, making sure that we do the acquisition before we do anything else and close the acquisition. Then I didn't say that we will divest these businesses. I will say that we will evaluate them to see if we can make them into a market-leading position, #1 or #2 within those businesses as well. That could be with complementary acquisitions. We will also evaluate if we can do a turnaround of the business to improve the performance and create shareholder value. And then we don't exclude to do strategic reviews of businesses, which we don't exclude for any of our businesses, actually. We are always evaluating our portfolio. Operator: Your next question for today comes from the line of Johan Eliason from SB1 Markets. Johan Eliason: Just two questions from my side, just starting on the cash conversion, obviously, a good improvement, 77% in this quarter and then 60%, I guess, on some sort of comparable basis a year ago. But is -- I think your target has historically been 80% to 90% cash conversion. But considering Octave bringing all the SaaS and subscription prepayments with it. I guess, one should assume that this 80%, 90% target will be more difficult to achieve going forward? Or how do you see it? Norbert Hanke: Yes, Johan, I will take it here. For the time being, yes. I would agree, 77% was a good performance, as we said as well from our point of view. But say, we will have the CMD next Thursday, and I think you will hear quite a bit from Enrique as well going forward, what will be the target and how to achieve this. And I think I would then say, wait until Thursday. Hopefully, you are there. Johan Eliason: Yes, I am. Okay. Just trying. Then another question. On the robotics, you mentioned the Schaeffler, 1,000 robots coming 7 years or so. Are those on commercial terms? So can you sort of indicate what sort of price tags you are targeting for your type of robotics? I remember when you showed us them in September, I think it was -- there was a wide range of assumptions on what price tags robots could fetch from the consumer side to the professional industrial use? So do you have any indications here? And are you sort of satisfied with the returns for your clients, obviously, but with the returns for you as well in the deals you seem to have struck right now? Anders Svensson: Yes. Johan, I think we are not going out with any numbers, as you can see from the release. So we are very happy with this deal. I think the key thing for us here, it proves that this solution with AEON is commercially viable and implementable in an industrial application. And we could also see that with the BMW announcements. We are happy with the outcome for our customer here, and we are also happy with the situation for ourselves in the deal. But we don't comment on anything else regarding the deal. Operator: We will now take our final question for today, and the final question comes from the line of Mikael Laséen from DNB Carnegie. Mikael Laséen: I have a question for Mattias about Octave, and specifically, how we should think about the capitalized software development costs going from 8% to 4% over the medium term? And my question is about the total R&D expenditures. How should you think about stats in '26 and going forward? Mattias Stenberg: Yes. No, thanks, Mikael. I think I'll pass to you, Ben, for the detail. But I mean it is correct that we are stepping down capitalization. But I'll let you take it, Ben. Benjamin Maslen: Yes. Mikael, so as we said at the Analyst Day, there's no plans at the moment to change the gross level of R&D expenditure, which has been about 18% to 19% of revenues the last few years. I think there are areas where as we implement AI, we could get savings, but the priority at the moment is to reinvest in the product and drive growth. That was the message from a few weeks ago. Obviously, we're moving the product development more and more towards SaaS, where you have continuous development cycles, and it doesn't really make sense under the accounting standards to capitalize. So this will be gradual at first, and we'll go from 8% of capitalized software development costs in 2025. It will come down this year. And then we think by in the medium term, it will come down to about 4%, as we said a few weeks ago. Mikael Laséen: Okay. So the cash effect from the R&D activities will essentially then develop in line with sales? Benjamin Maslen: Yes. I think that's probably the best guide at this point, yes. Mikael Laséen: Okay. Can I also follow up with a quick question on the stock-based compensation. That probably is expected to go from 1% to 4%. Will you have a step up now when you have been separated and listed? Or will that be a gradual process? How does it work? Benjamin Maslen: Yes. It will be a gradual process as the new program gets approved and kicks in, and it layers and stacks up kind of year-over-year. So I would say it's fairly linear between the 1% and the 4%. Operator: There are no further questions. I will now hand the call back to Anders for closing remarks. Anders Svensson: Thank you very much, and thank you, everyone, for participating and engaging with questions. Looking forward to seeing you all then on next Thursday in London. And we wish you all a great day from here. Bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the ConnectOne Bancorp, Inc. first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press 1. I would now like to turn the conference over to Siya Vansia, Chief Brand and Innovation Officer. You may begin. Siya Vansia: Good morning, and welcome to today’s conference call to review ConnectOne Bancorp, Inc.’s results for the first quarter of 2026 and to update you on recent developments. On today’s conference call will be Frank Sorrentino, Chairman and Chief Executive Officer, and William Burns, Senior Executive Vice President and Chief Financial Officer. I would like to caution you that we may make forward-looking statements during today’s conference call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings. The forward-looking statements included in this conference call are only made as of the date of this call. The company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company’s earnings release and accompanying tables or schedules, which have been filed today on Form 8-K with the SEC and may also be accessed through the company’s website. I will now turn the call over to Frank Sorrentino. Frank, please go ahead. Frank Sorrentino: Thank you, Siya, and good morning, everyone. We kick off 2026 with strong momentum, firing on all cylinders as demonstrated by our results. Twelve months ago, we detailed our strategic objectives heading into the largest merger in our company’s history. I am pleased to report that we are not only delivering on those goals, we are exceeding initial expectations. Today, our franchise is stronger and better balanced. We diversified our client base and revenue streams, materially improved our deposit mix, including core and noninterest-bearing deposits, and diversified our loan portfolio. We scaled the balance sheet from under $10 billion to nearly $15 billion in assets, increased our market capitalization to over $1.4 billion, and built a valuable franchise, accelerating our presence across Long Island. Our geographic footprint now spans the entire New York City Metro Region and naturally extends to the growing South Florida market. We are positioned for a very strong start to 2026, and we are confident that momentum will continue for the year ahead. Turning quickly to our first quarter performance, we delivered loan growth, margin expansion, accelerating return metrics, and increased tangible book value per share. Reflecting our success and confidence in future performance, we opportunistically repurchased shares in the first quarter and increased our common dividend. William will provide more details regarding our financial performance this quarter and our continued confidence in further margin expansion for 2026. On the expense side, we remain highly disciplined as we continue to realize merger synergies and steadily return to best-in-class efficiency levels. To ensure we continue to operate as a top-tier efficient bank, this discipline is being further enhanced by our focus on optimizing all systems, products, and services, along with the thoughtful integration of AI across the organization. Taken together, these initiatives will drive continued improvement in our expense metrics going forward while also enhancing scalability as we continue to grow. Our first quarter credit quality remained solid. Net charge-offs declined to a recent low. Our nonaccrual loan ratio also decreased, while criticized and classified assets remained at historically low levels. However, as disclosed in our earnings release, delinquencies increased due to an isolated client relationship collateralized by 19 multifamily New York City rent-stabilized properties. The client, whom we are working closely with, has had a strong track record of payment performance spanning more than five years; significant portions of the credit remain fundamentally sound. While it may be too early to determine any financial impact, William, in a minute, will review with you the significant reserves we have recorded against the entire rent-stabilized portfolio. Look, we have always been supporters of affordable housing in all the markets we serve. New York City is a somewhat unique market with its rent-stabilized portion of affordable housing. Our interest continues to be to support the owners that work hard every day to provide solutions for all in the greatest city in the United States. Just a reminder, ConnectOne has a strong track record of successfully resolving credits either through negotiated adjustments to interest rates and payment terms with clients or, alternatively, through sub loans. Next, turning to noninterest income, growth momentum continues to build. Subsequent to quarter-end, we saw accelerating activity in SBA loan sales supplemented by BoeFly, and William will share more details on that shortly. Notwithstanding headline economic uncertainties and volatility, we are confident ConnectOne Bancorp, Inc. will deliver sustained long-term value for shareholders in 2026 and beyond. With that, I will turn the call over to William to walk through our performance in a little more detail. William Burns: Alright. Thank you, Frank. Good morning to everyone on the call. As Frank laid out, we delivered another excellent quarter characterized by accelerating operating performance, robust loan growth, and a significant widening of our net interest margin. For the first quarter, we reported operating earnings per share of $0.79 and operating PPNR as a percentage of average assets of 1.81%. That is up 3.5% from last quarter and up 35% from a year ago. A clear highlight of the quarter was our net interest margin, which expanded by 12 basis points sequentially to 3.39%, building upon a 16 basis point widening in the prior quarter. This quarter exceeded our initial projections and was primarily driven by contractual loan repricings and improved deposit costs. Looking ahead, advancing loan portfolio yields are expected to support continued margin expansion, even without the benefit of further rate cuts. On the asset side, loan originations were strong, with the portfolio growing at an annualized rate of approximately 10%. This was $300 million of growth for the quarter, double the pace we saw in each of the two prior quarters. The pipeline remains strong, and portfolio growth net of payoffs is anticipated to be in the mid-single digits. Maintaining deposit growth that keeps pace with loan growth is a primary focus for our team. While we achieved client deposit growth this quarter, our accelerated loan growth was also funded through a reduction in cash and investment securities and supplemented with some wholesale deposits. In terms of margin outlook, we are maintaining our previous guidance for a year-end spot margin of 3.50%. This factors in a lower probability of rate cuts—maybe there is one to come—loans repricing higher, and a competitive deposit pricing environment, which we are seeing unfold. Now turning to asset quality, the broader portfolio metrics continue to show strength. Our total nonperforming assets declined to just 0.29% of total assets, and our criticized and classified loans dropped to a historically low level of 2.26% of total loans. Further, net charge-offs on our non-PCD portfolio were exceptionally clean at just 0.08% annualized, a recent low. As Frank mentioned, we did experience an increase in 30 to 59 day delinquencies, which rose to 0.81% due to one relationship we are in the process of working out. We recognize the market’s focus on the New York City rent-stabilized space, which is why we provided additional information in this morning’s release. Our total rent-stabilized portfolio has been reduced over the past year to $675 million through paydowns, payoffs, and loan sales. It was $750 million at merger close. Now, $413 million, or 61% of that $675 million, is attributable to the First of Long Island acquisition. That portion was fully reviewed in our merger due diligence and was marked down aggressively, with reserves and yield adjustments aggregating to $66 million, bringing today’s carrying value on that part of our portfolio to less than 85¢ on the dollar. The remaining $263 million, which was originated by ConnectOne, represents just 2.2% of total loans and also has an elevated reserve of $15 million. Between the general reserves and the purchase accounting marks, we have a 12% offset to our aggregate rent-stabilized exposure, providing more than $80 million in total value-absorbing cushion. The provision for loan losses for the first quarter was $5.2 million, reflecting strong loan growth and increased qualitative factors tied to the multifamily portfolio. The provision was partially offset by improved economic forecasts in our CECL model. Our total allowance for credit losses to loans remains healthy at 1.3%. Turning to the income statement, operating expenses remain well controlled across the bank. Excluding merger and restructuring charges, noninterest expenses were $55.7 million for the quarter, and I am targeting a 1.5% per quarter sequential growth rate going forward. On the revenue side, noninterest income was $6.8 million. SBA gains were approximately $0.4 million for the quarter, plus $1.1 million in additional SBA gains recorded in April, putting us ahead of our 2026 target, with a third generated by BoeFly. Finally, our capital position continues to strengthen through solid retained earnings. Tangible book value per share increased by 1.7% to $23.93, bringing us very close to our pre-merger tangible book value of $24.16. The tangible common equity ratio at the Bancorp advanced to 8.64%, and the bank’s leverage ratio to 10.81%. Reflecting confidence in our capital generation and forward margin outlook, the Board declared an 8.3% increase in our common dividend. In addition, we repurchased 90 thousand shares in the quarter at $26.21 per share, and we will continue to opportunistically repurchase shares, taking into account market pricing and asset growth. We have more than 500 thousand shares remaining in our repurchase authorization. Before we get to Q&A, I will turn it back over to Frank for some closing comments. Frank Sorrentino: Thanks, William. To wrap things up, our earnings profile is solid and growing, credit quality remains sound, and we have a well-positioned balance sheet. We are incredibly proud of what we have accomplished so far, having established a powerful and strong framework for our next phase of growth. Our tech-forward, highly efficient culture is driving continuous optimization across the organization, allowing us to maintain our relationship-focused banking model as we continue to scale. Our teams are energized and are executing on the momentum we have created. In short, our franchise has never been stronger. At our current valuation, we believe ConnectOne Bancorp, Inc. represents an interesting opportunity to own a high-quality franchise in one of the most desirable markets in the country. I want to thank you for joining us today, and as always, we appreciate your interest in ConnectOne Bancorp, Inc. We will now open the call for questions. Operator? Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star then the number 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 again. If you are called upon to ask your question and are listening via speakerphone, please pick up your handset to ensure that your phone is not on mute when asking your question. Our first question comes from Tyler Cacciatore from Stephens Inc. Please go ahead. Analyst: Good morning. This is Tyler on for Matthew Breese. Frank Sorrentino: Yes. Hi, Tyler. Hi, Tyler. Analyst: Just starting with loan growth for the quarter, can you walk us through some of the dynamics there, and if there were any accelerated pull-throughs or lower-than-anticipated payoff activity? And then with the stronger growth here, is there any opportunity to be on the higher end of that mid-single-digit guide? Frank Sorrentino: I would say the answer is yes. Payoffs have come down a little bit, which helped to bolster loan growth. The pipeline is strong, and we are seeing the types of business we are looking for in all of the markets we serve. We are executing on our objectives. As far as loan growth for the rest of the year, mid-single digits is where we feel most comfortable. It could be a little higher or a little lower. Analyst: Okay, great. And then just on new originations, what are you putting new loans on at, and are you seeing any compression? William Burns: The pipeline right now is about 6.35%, and the loans that we put on most recently were at about 6.20%. Spreads are being maintained nicely. Analyst: Okay, great. And then if I could just squeeze one more in on the rent-regulated side. I know the release had an uptick in past-due loans. Was that from the legacy portfolio or from FLIC? And then if you could talk about the portfolio as a whole and potential impacts from the new insurance program for rent-regulated properties? Frank Sorrentino: Maybe I will give a quick overview. It is from the legacy ConnectOne portfolio. It is a relationship that goes back a number of years, and we have been working very closely with them. There are challenges in the rent-stabilized space across portfolios, particularly for value-add components, which we generally stayed away from. This is a combination of higher interest rates and other factors within New York City, predominantly the 2019 change in the rent stabilization laws. That said, we have a great track record of working with borrowers to provide solutions. I am optimistic that, based on how we have positioned the portfolio—and as William detailed regarding provisioning—we are well prepared going forward. William Burns: The strong reserves we provided give us comfort on the total portfolio. About 60% of the portfolio came through the acquisition, which gave us the opportunity to take significant reserves that have turned out to be probably overly conservative. Plus, we have added to reserves over the past couple of years, putting us in a very good position. Analyst: Understood. That is all I had. Thank you. William Burns: Thank you. Operator: Our next question comes from Raymond James. Please go ahead. Analyst: Hey, good morning, guys. This is Tim filling in this morning. Thanks for taking my questions. Frank Sorrentino: Sure. Analyst: Could we get an update on your Florida markets and how activity is trending there? In conjunction with that, you recently opened an LPO in Orlando. Any details on recent or planned hires there, or your longer-term view of that market? Frank Sorrentino: We are very bullish on the Florida market. We have been growing there in a measured way. We started with four or five individuals and are now at 18 or 19. The mix of business is steady—a great mix of C&I, owner-occupied, and nonowner-occupied real estate—very similar to our primary New York markets. A decent portion of the business there is related to our New York business. I have joked before that Southeast Florida is like the sixth borough of New York, and it becomes more true every day. We are optimistic about a lot of different parts of Florida, but again, we are growing in a measured way. Analyst: Great, thanks for the color, Frank. Switching to the margin, maybe for you, William. You mentioned the competitive landscape for deposit costs remains challenging. Any thoughts on where deposit costs might trend absent further rate cuts through the rest of the year? William Burns: About flat. We are planning for flat for the year. Most of our margin widening is coming from the repricing of the loan portfolio. Analyst: Understood, appreciate that. And a quick modeling question: do you happen to have the purchase accounting accretion that impacted the margin during the quarter? William Burns: Accretion in net interest margin—yes. We will get back to you on the specific amount included in net interest income. Analyst: Okay, great. I appreciate it. That is all I had. I will step back. William Burns: Alright. Thank you. Operator: Our next question comes from Feddie Strickland from Halti Group. Please go ahead. Feddie Strickland: Hey, good morning. Ex-multifamily, it seems like you had solid progress on already strong credit metrics. Is there anything else in the existing criticized and classified or NPAs that we could see work out later in the year to make those balances fall even further? William Burns: Nothing more than typical. There are always a few assets we are working on, but nothing out of the ordinary in terms of dollar amounts. Feddie Strickland: Got it. And just to clarify your spot margin comment of 3.50% at year-end, should I take that to mean you expect the margin to be 3.50% for the fourth quarter, or is that more as you exit the year in December? William Burns: I would say as we exit the year. That is similar to what we have said before, which was 3.45% or so for the fourth quarter. It is hard to predict exactly. We could get a little more on the loan repricing side, but we also could see deposit costs go up. That is why we are providing a conservative estimate of 3.45% in the quarter and 3.50% spot at year-end. Feddie Strickland: And just one more: do you have the quantity of fixed-rate loans coming up for repricing? William Burns: Put simply, about $100 million a month. It fluctuates a little, but that is a good way to model it. Feddie Strickland: Perfect. That is it for me. Thanks for taking my questions. William Burns: Thank you so much. Operator: Again, if you would like to ask a question, please press star then the number 1 on your telephone keypad. Our next question comes from KBW. Please go ahead. Analyst: Hi, everyone. This is Emily Lee stepping in for Timothy Switzer. Thanks for taking my question, and congrats on the quarter. William Burns: Hi, Emily. Thank you. Analyst: Great to see the dividend increase. Where would you like the payout ratio to go over time? You also mentioned you plan to continue repurchasing shares. How should we think about capital allocation and deployment for the rest of the year? William Burns: On repurchases, we did 90 thousand in the quarter. Our plan is about 100 thousand per quarter for the rest of the year, depending on the stock price and our growth rates. In tandem is our payout ratio. We have always liked a lower payout ratio. I see us continuing to increase dividends each year, with expected increases in earnings going forward and into 2027. I would say our payout ratio would be similar. Analyst: Understood, thank you. And you provided a bit more color on the past-due credits coming from legacy CNOB. Do you have any metrics, such as LTVs, to provide more comfort? William Burns: Nothing at this time. The rent-regulated market is in a bit of flux, and it is difficult to determine exact current LTVs. The majority of our portfolio is current and nonimpaired, and we feel pretty good about the whole portfolio. Analyst: Okay, great. That is all for me. Thank you. William Burns: Thank you so much. Operator: Next question comes from Daniel Tamayo from Raymond James. Please go ahead. Daniel Tamayo: Hey, guys. Hi. Morning. Thanks. I know you took some questions from Tim earlier—appreciate that. I think everything has mostly been asked, so I will ask you, Frank, about the state of the M&A market. We have had some changes in the macro environment—how has that impacted conversations? Where do you stand in those, and is there anything noteworthy from your standpoint within general conversations in the market? Frank Sorrentino: Dan, I know my answer is somewhat standard. We are highly focused on organic growth, expanding within our markets, and taking advantage of opportunities. We did a fantastic job with the First of Long Island merger. It has been integrated well and is providing tremendous opportunities. While we see headlines about M&A, we have been opportunistic and have only done a couple of deals in our existence. We will talk to anyone to understand the environment, but it is difficult to get to a place where something makes a lot of sense, given our size, scale, capability, and opportunities. We are building capital and providing return to shareholders—that is incredibly important. If the right opportunity presented itself, of course we would take a look. Those are becoming fewer and farther between as the ramp-up in other M&A has occurred. We are happy to participate either way. If we get the opportunity, great. If we do not, we will take advantage of opportunities to serve clients who feel negatively impacted or disaffected by other transactions. That is a long way of saying there is a lot in the headlines, but I do not see anything compelling at the moment. Daniel Tamayo: Great. Thanks for taking the question. I think we have hit on everything else. I appreciate it. I will step back. William Burns: I want to follow up with the answer on purchase accounting interest: it was $9.3 million in the most recent quarter, averaging $9 million per quarter for this year, and for 2027 it would be $8 million per quarter. Operator: Our next question comes from KBW. Please go ahead. Analyst: Hi, just a quick follow-up. In your opening remarks, you mentioned the implementation of AI within your organization. Could you provide some color on potential use cases or opportunities for further efficiencies related to AI? Thank you. Frank Sorrentino: Emily, AI is pervasive. If you are not thinking about it or utilizing it in day-to-day operations, you have to question what you are doing. We see it in two ways. First, there are many opportunities for our teams to use AI tools to make processes better, more streamlined, and more effective, cutting down on repetitive tasks. We are seeing tremendous opportunities across the bank. We use tools like nCino, Slack, and Google—our email platform has Gemini built in. All of these provide AI components that make our jobs easier. I am proud of the team for surfacing use cases—sometimes small but highly effective—that help us do more accurate work more efficiently. Second, many vendors we work with—whether nCino, Google, Verafin, or others—are incorporating AI into their platforms. We are seeing a groundswell of opportunities with modern platforms that enable us to do things more efficiently, potentially allowing us to scale faster and better with fewer human resources, while providing additional accuracy and new ways to run the business rather than just designing a faster horse. We are using AI from the smallest opportunities to some of the largest, and it is a great tool going forward. Analyst: That is great. Thank you so much for taking my question. I appreciate it. Operator: That concludes the question and answer session. I would now like to turn the call back over to management for closing remarks. Frank Sorrentino: I want to thank everyone for joining us today and for the great questions. We look forward to speaking with you during our second quarter conference call in a few months. Have a great day. Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.
Operator: Good morning, and welcome to Bread Financial Holdings, Inc.'s first quarter 2026 earnings conference call. My name is Michelle, and I will be coordinating your call today. At this time, all parties have been placed on a listen-only mode. Following today's presentation, the floor will be open to your questions. To register a question, please press star followed by 11. It is now my pleasure to introduce Mr. Brian Vereb, Head of Investor Relations at Bread Financial Holdings, Inc. The floor is yours, sir. Please go ahead. Brian Vereb: Thank you. Copies of the slides we will be reviewing and the earnings release can be found on the Investor Relations section of our website at breadfinancial.com. On the call today, we have Ralph Andretta, President and Chief Executive Officer, and Perry Beberman, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are based on management's current expectations and assumptions, and are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Also on today's call, our speakers will reference certain non-GAAP financial measures which we believe will provide useful information for investors. Reconciliations of those measures to GAAP are included in our quarterly earnings materials posted on our Investor Relations website. With that, I would like to turn the call over to Ralph Andretta. Ralph Andretta: Thank you, Brian, and good morning to everyone joining the call. Before speaking to our results, as we celebrate 30 years in business and 25 years as a public company in 2026, I want to take a moment to thank our current and former associates. Your commitment to excellence in how we serve both our brand partners and customers is reflective of our enduring value-driven culture. We are extremely proud of our history and the continued transformation of our company. We remain committed to delivering on our brand promise each and every day. Today, Bread Financial Holdings, Inc. reported strong first quarter results, which were underscored by a return to loan growth alongside increasing growth in credit sales and continued improvement in our credit metrics. Credit sales grew 7% year over year in the first quarter, driven by successful new partner launches across our full product suite and increased shopping activity with our long-standing partners, especially among Gen Z and millennials. Consumers are being thoughtful and budgeting actively amid lower sentiment and confidence and higher fuel costs. In the quarter, we saw year-over-year sales growth across a broad set of categories including health and beauty, jewelry, and travel and entertainment. Additionally, our expanding home vertical grew nicely in the quarter. In the current macroeconomic environment, consumers continue to demonstrate resilience as highlighted by credit sales growth as well as improving delinquency rates. We will continue to closely monitor and adapt appropriately to consumer spend and payment behaviors. On the new brand partner front, we were excited to launch new credit card relationships with Ford and Ethan Allen in the quarter. Our long-term agreement with Ford, which has one of the largest dealer networks in the U.S. with nearly 3 thousand franchise dealerships, includes co-brand credit card and installment loan programs. Leveraging our deep expertise in the automotive retail landscape, the program will increase customer loyalty by enhancing their car ownership experience to earn rewards and increasing accessibility to subscriptions, parts, and services. The addition of Ethan Allen, America's number one premium furniture retailer with nearly 140 design centers and a significant online presence in the U.S., strengthens our prominence in the home vertical with flexible financing options. We are also offering Bread Pay installment loans for AAA, Dell, and Ford, as we continue to expand this product offering. Additionally, we are pleased to announce the new comprehensive suite of payment options with Academy Sports, including co-brand, private label, and installment loans. Our full product suite, technology advancements, sophisticated underwriting, enhanced loyalty programs, and a differentiated partner model are central to our success in winning new partnerships and retaining and strengthening existing relationships and driving higher lifetime customer value. Our first quarter financial results highlight our company's strong capital and cash flow generation, earning net income of $181 million, generating revenue growth of 5% year over year, and growing tangible book value per common share by 26% to $61.57. Additionally, during the quarter, we continued to build shareholder value as we retired a total of 3.5 million shares of common stock, or 8% of our outstanding shares at year-end 2025. This was a result of both our ongoing stock repurchase activity and the unwind of our capped call transactions. For six consecutive quarters, we have seen improvement in our credit metrics via the year-over-year change in our delinquency and net loss rates. We are pleased with this trend and remain confident that this improvement will continue over time. We believe our emphasis on disciplined credit risk management, coupled with product diversification towards co-brand credit cards and installment products, continues to positively impact our risk distribution. Overall, our solid, sustainable results underscore the success of our efforts and emphasis on allocating capital efficiently, growing responsibly, and advancing our operational excellence initiatives. Finally, moving to our investment priorities, we continue to invest in our business to drive growth for both Bread Financial Holdings, Inc. and our partners. These investments include digital and technology advancements across our business, including AI. We are deploying AI responsibly across the enterprise to accelerate operational excellence, which includes increasing productivity and efficiency, driving innovation, and strengthening risk management. Our investments are reinforced by a disciplined value-tracking framework ensuring a strong return on investment. Supported by technology advancements, strong capital levels, and cash flow generation, we are well-positioned to execute on our growth priorities while delivering sustainable long-term value for our shareholders. We remain confident that we will deliver on our 2026 financial targets, which Perry will discuss in more detail. Now I will pass it over to Perry. Perry Beberman: Thank you, Ralph. Slide 3 highlights our first quarter performance. During the quarter, credit sales of $6.5 billion increased 7% year over year, which can be attributed primarily to new partner growth as well as increased general-purpose spending. We are pleased that loan growth has inflected positively as average loans increased 1% to $18.3 billion, and end-of-period loans increased 2% to $18.1 billion. We plan to continue building on this momentum throughout 2026. Direct-to-consumer deposits increased 10% year over year to $8.7 billion at quarter end, with our average direct-to-consumer deposits representing 48% of total funding, up from 43% a year ago. Revenue increased $48 million, or 5%, primarily reflecting the implementation of pricing changes and lower interest expense, partially offset by lower billed late fees and higher retailer share arrangements. In total, we generated net income of $181 million and diluted EPS of $4.15. Note that our EPS calculations now reflect dividends paid on preferred equity. Looking at the financials in more detail, on Slide 4, first quarter total net interest income increased 6% year over year, driven by the gradual build of our pricing changes and lower interest expense. Noninterest income was $13 million lower year over year, driven by higher retailer share arrangements, which includes both higher credit sales-related partner payments and increased profit share driven by improved loan yields and credit losses. Total noninterest expenses decreased $5 million, or 1%, reflecting our ongoing expense discipline and a credit received during the quarter. Looking at the expense line item variances, which can be seen in the appendix, employee compensation and benefits cost increased $5 million primarily due to higher wages related to annual merit increases and incentive compensation. Information processing and communication expenses decreased $5 million primarily due to lower outsourced data processing costs as a result of a credit received in the quarter. Finally, PPNR was strong as it increased $53 million, or 11% year over year. This is a result of risk-based pricing discipline driving higher revenue yield while at the same time delivering sound operating expense management. Turning to Slide 5, net interest margin of 19.3% increased year over year and sequentially as loan yield continued to benefit from the gradual build of pricing changes and funding costs continued to improve. To that end, we are seeing interest expense decrease as our cost of funds benefits from the actions we took last year to reduce our parent senior notes from $900 million to $500 million and reduce the rate paid from 9.75% to 6.75%. Additionally, during the quarter, we repurchased $50 million of our subordinated debt using excess cash and now have $350 million in principal outstanding. Moving to Slide 6, our liquidity position remains strong. Total liquid assets and undrawn credit facilities were $6.4 billion at the end of the quarter, representing nearly 29% of total assets. At quarter end, deposits comprised 78% of our total funding, with the majority being FDIC-insured direct-to-consumer deposits. Shifting to capital, we ended the quarter with a CET1 ratio of 13.3%, up 130 basis points compared to last year. As you can see in the upper right table, our CET1 ratio benefited by 340 basis points from core earnings. Common stock repurchases and preferred and common stock dividends reduced our capital ratios by 210 basis points, while the impact from costs related to debt repurchases accounted for approximately 40 basis points of impact to CET1 since 2025. Additionally, we are very pleased with the outcome of our capped call transactions, which we retained after fully repurchasing our convertible notes last year. We elected to unwind the capped call in exchange for shares of common stock, and the result of the full unwind was the retirement of 1.5 million shares in the quarter. As of quarter end, our remaining stock authorization was $690 million. Our share repurchase cadence going forward will be contingent upon capital generation from our business, our growth outlook, incremental investment expectations, and the resulting capital levels against our capital policy targets. Additionally, we look to further optimize our capital structure by issuing additional preferred shares. The timing of potential additional preferred share issuances will be predicated on market conditions. That timing will influence the cadence of subsequent common share repurchases. Finally, looking at the bottom right of the slide, our total loss absorption capacity comprising total company tangible common equity plus credit reserves ended the quarter at 25.5% of total loans, demonstrating a strong margin of safety should more adverse economic conditions arise. We have a proven track record of accreting capital and generating strong cash flow and remain well positioned from a capital, liquidity, and reserve perspective. This provides stability and financial flexibility to successfully navigate an ever-changing economic environment while generating increased value for our shareholders. Moving to credit on Slide 7, delinquency rate for the first quarter was 5.59%, down 34 basis points from last year and down 16 basis points sequentially. Our net loss rate was 7.33%, down 83 basis points from last year and down 10 basis points sequentially. We remain pleased with the ongoing gradual improvement in our credit metrics, which continue to benefit from our prudent credit risk management framework, ongoing product mix shift, and overall consumer resilience. New investors often ask how to think about our portfolio and typical customer. Our typical customer represents a middle-income American. For context, our new customers have an average annual income of around $100 thousand. As Ralph mentioned, our consumers remain resilient as evidenced by improving credit trends in our monthly external credit performance data, what we are seeing in our internal data, and what we are hearing from customers contacting us that our teams monitor continuously. The first quarter reserve rate improved 73 basis points year over year to 11.46% due to our improving credit metrics and higher credit quality new vintages, as well as stability in our credit risk distribution with 64% of cardholders having a greater than 650 prime credit score. Note that per investor request, we have updated our published credit risk distribution ranges to more closely match peer ranges. Compared to the prior quarter, the reserve rate increased 26 basis points, which was impacted by the seasonal paydown of holiday-related balances during the first quarter. We continue to apply prudent weightings on the economic scenarios used in our credit reserve modeling given the wide range of potential macroeconomic dynamics, including ongoing uncertainty regarding trade policy and global conflicts, and the downstream impacts on inflation and unemployment. These weightings remained unchanged from the prior quarter. Turning to Slide 8 and our full year 2026 financial outlook. Our 2026 outlook is unchanged and is based on our strong first quarter business results, continued consumer resilience, inflation remaining above the Federal Reserve target of 2%, and a generally stable labor market. As we mentioned earlier, we are pleased to have reached an inflection point with positive loan growth in the first quarter. We expect full-year 2026 average credit card and other loan growth to be up low single digits compared to 2025. Growth will continue to be supported by our stable partner base and new business launches, credit sales growth, and continued credit loss rate improvement, partially offset by higher cardholder payment rates. Total revenue growth is anticipated to be up low single digits, largely in line with average loan growth. We anticipate full-year net interest margin to be higher than 2025 as a result of continued benefits, albeit slowing, from implemented pricing changes and improving funding costs. The incremental benefits tied to pricing changes slow throughout the year as the majority of our portfolio will have repriced. These NIM tailwinds will be partially offset by lower billed late fees from improving delinquency trends, higher payment rates, and a continued shift in risk and product mix. For noninterest income, we expect meaningfully higher retailer share arrangements, or RSAs, going forward as a result of both higher credit sales-related partner payments and increased profit share driven by improved loan yields and credit losses. Specifically for the second quarter, we expect this dynamic to pressure noninterest income by up to $40 million compared to the first quarter of 2026. We manage expense growth based on revenue generation and investment opportunities and expect to deliver positive operating leverage in 2026, excluding the pretax impacts from debt repurchases. We expect second quarter total expenses to be up sequentially from the first quarter as we continue to invest in our business to drive growth, build new capabilities for our partners and customers, and deliver future efficiencies. Initial estimates of the second quarter expenses are just under $500 million. Given the ongoing gradual improvement in our credit metrics, we are on track to achieve a net loss rate at the low end of our 7.2% to 7.4% targeted range for 2026. This guidance contemplates stable macroeconomic conditions, continued risk and product mix shifts, and a resilient consumer. We continue to expect our full-year normalized effective tax rate to be in the range of 25% to 27%, with quarter-to-quarter variability due to the timing of certain discrete items. Our strong results in 2026 are a testament to the successful execution of our company's transformation efforts, the capital generation power of our business model, and our financial resilience due to our relentless and disciplined focus on capital and risk management. We are proving that we will deliver on what we say we will. Our PPNR growth, continued improvement in our credit metrics moving toward our historical loss target, and ongoing capital optimization demonstrate our commitment and path to achieving our longer-term mid-20% ROTCE target in the coming years. In closing, we remain confident in achieving our 2026 outlook and further in our ability to generate attractive returns and increase value for our shareholders throughout the dynamic economic and regulatory environments. Operator, we are now ready to open up the lines for questions. Operator: Thank you. Star followed by 11 on your telephone keypad. If you change your mind, please press 11 again. When preparing to ask your question, please ensure your phone is unmuted locally. One moment for our first question. Our first question will come from the line of Vincent Caintic with BTIG. Your line is open. Please go ahead. Vincent Caintic: Hi, good morning. Thanks for taking my questions. First one, kind of a broad question on guidance. First quarter was strong. Revenues grew 5% year over year and your credit sales were up 7%, and loan growth is nice to see that be positive. I am a bit surprised to see loan growth and revenue growth guidance at low single digits. So I was just wondering maybe if you can talk about what is baked into guidance and any conservatism there and how we should kind of expect that cadence of growth to be for the rest of the year? Thank you. Perry Beberman: Vincent, thanks for the question. Look, we are really pleased with the first 90 days of results, and our thoughts on guidance are we are off to a really good start, and that gives us a high degree of confidence to share that we are able to reaffirm guidance and feel very confident in our ability to achieve the guidance across all the things that you just talked about. With the degree of uncertainty in the macro environment, it feels a little premature to declare a big change such that we can then up it. But, again, if the trends continue on into the second quarter, I think there is some optimism there. On average loan growth, remember that is an average. So what you are seeing is we are up almost 2% on ending. Expect that will continue to grow throughout the year to get us to that low single digit on average. So that is going to build, but we expect ending loans to be higher than low singles. Vincent Caintic: Okay. Great. That is helpful. Thank you for that. And then second question on the share repurchases. Very nice to see the strong quarter and also nice to see the increased authorization. You talked a little bit about it, but if you could maybe help us on how to think about cadence, how much of future share repurchases are based on having to raise those preferred equities, and then any thoughts on kind of long-term CET1 framework? Thank you. Perry Beberman: Yes. When you think about the cadence, when we announced the additional share buyback program, we did not time-bound it, so it is open-ended. The cadence will be informed by, first, the amount of growth that we have in any particular quarter, making sure that we maintain our capital ratios, that we are supporting the growth first and foremost, and then, if we have additional capital at that point, we will try to return it to keep closer to our capital targets. As for the cadence around additional share repurchases beyond that, we have talked before about the opportunity around preferred share issuance, and that will be largely market-dependent. You cannot wake up any morning and know what is going to be the news cycle and what the markets are going to demand. So, obviously, we are actively monitoring those markets, and we will opportunistically issue. That would then generate some additional opportunity for capital return should that happen. That is cared for in the overall share authorization. So the cadence and the amount that we are able to use this year will somewhat be dependent on earnings generation and the preferred share issuance. As you look longer term, we said during our investor day back in 2024 that we are looking to optimize our capital stack, and the preferred issuance is a component of that. The new-to-story would be the Basel III endgame opportunity, should that go into effect. For us, we would look at that as the standardized approach, and that could be an opportunity where, if it lowers our risk weighting for our assets, that could free up maybe another 100 basis points of opportunity around capital. More to come on that. Obviously, everybody is looking at it, and we are very pleased that the Federal Reserve is thoughtfully looking to simplify in some cases and free up capital for banks. But, again, that is in proposal stage, so nothing we can bank on yet. Operator: One moment for our next question. Our next question will come from the line of Mihir Bhatia with Bank of America. Your line is open. Please go ahead. Natalie Howe: Hey, thanks for taking my question. This is Natalie Howe on for Mihir. I wanted to ask a little bit about how pricing changes are flowing through the model. You talked about how it would be a tailwind through 2027 and you highlighted it as a driver for the quarter. As that flows through, what else are you looking at for the year as levers for NIM stability? And along with that, where are rate cuts or increases fitting into this? Thank you. Perry Beberman: Yes. On the pricing changes, that has been a nice tailwind for us. Largely, it is working its way through, and so the degree of benefit that we are going to see incrementally throughout the year is going to slow. It will gradually still be accretive, but it is slowing, as most of the portfolio is repriced. With net interest margin, as we look outward, I would like to say it is going to be reasonably stable because we do have some rate cuts still playing in there, and we are slightly asset sensitive at this point. You also have ongoing product mix that will affect NIM. Cash mix will affect NIM. Credit quality has puts and takes: as your credit quality improves, you may have some lower top-line APRs; you will have lower reverse fees, which is good, but you also have lower late fees, which is a drag. There are a lot of moving parts in net interest margin as well. On funding, with the work that our treasury team has done to increase direct-to-consumer deposits, that has been a positive. There are a lot of moving parts, so we think about it as stability, and we are very pleased with where we are. Our philosophy as it comes to underwriting is to pay for the risk that we take and make sure that we are appropriately assigning APRs at that time. You can see that with our strong risk-adjusted margin that we have been delivering. Natalie Howe: Got it. Thank you. And if I could ask about travel and entertainment, you said that there was strength there in the quarter, but right now, with current fuel prices and sentiment, how durable is that as a driver right now, and how are you looking at the rest of the year? Ralph Andretta: Yes. This is Ralph. The consumers are being thoughtful on how they spend their money. As gas prices go up, they may decide to pull back on T&E. But T&E has been a strong category for us for some time. We see it being a strong category in the future. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Bill Ryan with Seaport Research Partners. Your line is open. Please go ahead. Bill Ryan: Hi. Good morning, and thanks for taking my questions. First question is on the loan growth. I know you made some pricing changes in terms of how payments are applied that has led to an increase in the accrued interest and fee component of the portfolio. It was up fairly nicely in Q1. Looking forward, how much impact is that going to have on receivables growth? Is it going to stabilize at some point as a percentage of the portfolio, or do you still expect that to increase? Perry Beberman: Yes, Bill. I appreciate the question. What you are referring to is the change that we made last year to our minimum payment due payment hierarchy, and we adjusted it to conform with what we are able to do with the CARD Act. It changes the mix a little bit between what portion of interest and fees would be paid versus principal. If you are looking at trust data or principal-only data, that is what includes it. But total loans include both principal and interest, so there is no effect in total. Bill Ryan: Okay. And just one follow-up question related to the NFL portfolio. I know there were some announcements during the first quarter. Maybe if you could highlight for investors what those changes were. Are you expecting some acceleration in the portfolio growth? Just give us some highlights of that. Thanks. Ralph Andretta: Yes. The announcement was about American Express being now the partner for the NFL, and we are thrilled about that because we are partners with both the NFL and American Express. We are still the issuer of the NFL card, so we believe between the NFL, American Express, and us, it is a real touchdown in terms of good for our consumers and good for the fans. We are excited about it. Yet to be determined what we will do together, but rest assured, it will be a very exciting partnership. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Moshe Orenbuch with TD Cowen. Your line is open. Please go ahead. Moshe Orenbuch: Great. Thanks. I was hoping you could talk a little bit about the competitive dynamic in terms of new customers. What is out there, and are there specific verticals of yours that you are thinking about as areas for potentially either new partnerships or portfolio purchase-type opportunities? Ralph Andretta: Yes. Moshe, how are you doing? The home vertical has been really strong for us. With the addition of Ethan Allen, we have Raymour & Flanigan and Furniture First. We find that vertical to be extremely strong. Our vertical in beauty with our beauty partners is extremely strong as well. Adding Ford to our automotive vertical continues to strengthen that with our existing partners. We have a number of de novo opportunities in the pipeline, and the pipeline continues to be robust. We win more than our fair share because of our product set and the sophistication of how we underwrite, as well as the reputation our teams have in the marketplace. We feel confident that as we move forward, we will continue to add partners to each of our verticals. Moshe Orenbuch: Got it. Thanks. The macroeconomic variables that are out there and the outlook have kind of bounced around, and obviously gas prices matter a lot to your customer. Can you talk a little bit about how you took that into account and how you are thinking about that in terms of your outlook for both credit and spend? Perry Beberman: Yes. Thanks, Moshe. You are right. There are a lot of moving parts with the economy right now. As we look at it top line, with full employment and wages outpacing inflation, that continues to provide resilience to the consumer. You have seen that come through in both the spend and credit metrics we put out there. While that looks good, sentiment and confidence are really low, some historic lows. With the good of the employment and wage growth, consumers are still engaging and purchasing, and they are managing their credit obligations, so the payments have been solid. They are probably adjusting their lifestyle, which is good, and that is how we have used the word “choiceful” in the past. Related to elevated oil prices, that is something we are watching because consumers are immediately feeling that at the pump. It has not yet really pulled through in the form of other price increases on goods and services because, as you know, higher oil can end in higher fertilizer costs and heating costs. It is going to pull through; it is just a matter of when. That is something we are cautious about, and we have it cared for in our outlook in terms of being cautious with the reserve rates. On tax refunds, overall it has been a good guide and has helped consumers weather the hopefully short-term price impacts in fuel. We have not seen an overwhelming amount of that used to pay down credit card debt and really improve payments more than you otherwise would have thought. A number of customers under $100 thousand are saying they are going to try to save a little bit, maybe to build a buffer for what is to come. Those things are what we are watching. We were cautiously optimistic entering the year; now I would say we are more cautious for what is happening out there. But the consumer, as of right now, is resilient, and that is encouraging. We are monitoring it very carefully. Operator: Thank you. And as a reminder, if you would like to ask a question, please press star followed by 11. Our next question will come from the line of Sanjay Sakhrani with KBW. Your line is open. Please go ahead. Sanjay Sakhrani: I first wanted to talk a little bit about the late fee mitigation impacts, Perry. I think you mentioned in the press release that that is coming on. I am curious, as we think about the magnitude of the contribution of those mitigation impacts, how does it sequence over the course of the year? Does it get more significant as the loan growth materializes more? And then how does it continue into next year? Perry Beberman: When you look at the new portfolio coming on, that is at our target-state pricing. When the repricing on the existing portfolio has taken hold and the portfolio is churning through payments and new purchases coming on at the higher pricing, we are largely most of the way through that pricing pulling through. Over the course of the year, you will see a gradually declining amount of benefit. Think about this first quarter and where net interest margin is landing: it is expected to be more stable throughout the year, not really expanding as a result of pricing because other things influencing net interest margin are going to play into effect, which is a more diversified product suite. As more customers come in with better credit risk, they have lower APRs, and that is going to pull through. Similarly, you are going to see maybe some rate cuts. There are a lot of things happening there. On credit, there will be lower billed late fees as credit continues to improve. A lot of influences in there, which allowed for those pricing changes that have been made to offset what would have been headwinds. But as you go throughout the year, the benefit of pricing changes alone will start to be muted, as most of it will have been reflected in actuals. Sanjay Sakhrani: Got it. And then I have a higher-level question about the charge-off rate. We tend to compare it relative to the historical averages, but the mix has shifted on the portfolio as well. You have moved more toward co-brand, maybe upmarket a little bit more. As we think about the path toward normalization, is the target the same or a little bit lower than it was in the past? And since we are talking about credit quality, you alluded to tax refunds and people saving more. How should we think about the magnitude of the impact of tax refunds in the first quarter, and is there any residual impact into the April month? Perry Beberman: Thanks, Sanjay. I will start with the target state of our losses. There is a view that all co-brands are created equal. We do have some top-of-wallet type of co-brands that you hear Ralph talk about—the NFL partner earlier, or AAA, or our Caesars partnership—but we also have a lot of retail partner co-brands. In those partner programs, we are still underwriting deep, and we are getting paid for that risk. So the loss profile is kind of replacing what was just only private label. When we talk about our loss rate target, we are still looking to get to a loss rate target that is around 6% or below. If the product mix really shifts strongly towards top of wallet, you may end up with something lower than that, but largely for what we expect and how we underwrite, how we get paid for the risk, and the ROTCE targets that we put out there, around 6% is where we want to live because that is where you get the best return. If we went too far upstream, then we would not be able to deliver the returns that we are looking for. Specifically to tax season, consumers have seen $300 to $350 of higher tax refunds on average, which is nice, but many who are below $100 thousand have stated that they are looking to save more of that, and we have not seen a material increase in payments to date above what you otherwise might have expected. I think it is helping, but they are probably using some of that to offset near-term gas price impacts that they felt at the pump. We are encouraged overall. In some years, that might have been more of a stimulus to pay down debt, but consumers are always looking to use it different ways—spend on near-term needs, save, or pay down debt. In this case, it has not really bent the curve in payments. That said, our credit metrics for the quarter and even starting through April show that payments are remaining strong. It just is not excessively better than what we would like to see. Operator: Thank you. I will pass it back to Ralph Andretta for closing remarks. Ralph Andretta: I want to thank you all for joining the call and your continued interest in Bread Financial Holdings, Inc. Looking forward to our next quarterly call, and everybody have a wonderful day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Nasdaq's First Quarter 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Ato Garrett, Senior Vice President and Investor Relations Officer. Please go ahead. Ato Garrett: Good morning, everyone, and thank you for joining us today to discuss Nasdaq's First Quarter 2026 Financial Results. On the line are Adena Friedman, our Chair and Chief Executive Officer; Sarah Youngwood, our Chief Financial Officer; and other members of the management team. After our prepared remarks, we will open the line for Q&A. The press release and earnings presentation accompanying this call can be found on our Investor Relations website. I would like to remind you that we will be making forward-looking statements on this call that involve risks. A summary of these risks is contained in our press release and a more complete description in our annual report on Form 10-K. We will discuss our financial performance on a non-GAAP basis, excluding the impact of acquisitions and divestitures as well as the impact of changes in FX rates. Definitions and reconciliations of U.S. GAAP to non-GAAP plus adjustments can be found in our earnings presentation as well as in a file located in the Financials section of our Investor Relations website at ir.nasdaq.com. And with that, I will now turn the call over to Adena. Adena Friedman: Thank you, Ato, and good morning, everyone. Today, I'll start with a review of our first quarter financial results, and we'll then review the operating performance across our divisions. I will then hand the call over to Sarah to walk through the financial results in more detail. Nasdaq entered 2026 with strong momentum, and our first quarter performance reflects one of the strongest starts to a year in our company's history. We delivered the highest Q1 organic growth since 2021 across net revenue solutions revenue and operating income as well as our highest ever quarterly revenue growth in the Financial Technology division. The results this quarter demonstrate the breadth and depth of the client engagement we are experiencing across our platform, which is resulting in meaningful growth. As we outlined at Investor Day, the power of our platform enables us to serve as a trusted transformation partner to our clients, underpinned by our embedded client community, deeply integrated solutions, gold standard data and engineering excellence. This is a dynamic moment for the world and for markets, underpinned by an accelerated pace of technological change, persistent geopolitical tensions and concerns about the stability of the private credit market as well as overall complexity across the global economy. In the U.S., softer labor conditions and inflation pressures are offset by resilient spending from higher income households and continued capital deployment in AI. Investment in AI continues to be a meaningful driver of economic activity, especially in the United States through large-scale data center and infrastructure build-out. Within this overall environment, macroeconomic growth remains balanced and constructive in the U.S. and across other major economies. Smart regulation is also starting to take shape across the capital markets and banking industry. And as a result, clients are moving forward with investments in the modernization of their core infrastructure. Within the banking sector, we're experiencing increasing demand for cloud-based mission-critical solutions that include AI features to support workflow automation. Within Capital Markets, we're experiencing demand for solutions and services related to the transition to always on markets and the tokenization of assets. As the industry addresses these trends, Nasdaq is well positioned to reinforce its role as the trusted fabric of the global financial system. Turning to our financial results. In the first quarter, we delivered $1.4 billion in net revenue, a 13% year-over-year increase. Our overall annualized recurring revenue, or ARR, grew 12% year-over-year to $3.2 billion. Expenses were $608 million, up 8% year-over-year. Operating income was $799 million, up 17%, and we delivered 21% diluted EPS growth. Within our divisions, Capital access platforms generated 10% revenue growth and 7% ARR growth. Financial Technology delivered 18% revenue growth and 16% ARR growth. And Market Services delivered 10% net revenue growth. As we move into divisional performance, I'll cover how our results reflect disciplined execution against our expand, evolve and transform growth framework from delivering on 1 Nasdaq across our core franchises to evolving our solutions with new innovations to transforming the business in key strategic areas. Starting with capital access platforms, where I'll first discuss data and listings. In our U.S. listings franchise, we welcomed 15 new operating companies raising over $5 billion in proceeds during the quarter, including 7 of the top 10 IPOs. Early in the second quarter, we were pleased to welcome Arxis and Kailera Therapeutics, 2 of the biggest IPOs in Q2 so far. While the IPO environment has been uneven amid market volatility, issuer engagement remains strong. Companies in our pipeline continue to prepare for market entry. We see encouraging environment -- we are seeing an encouraging environment for improving IPO activity entering the second quarter, and we believe that we are well positioned to support that activity as momentum builds. In our data business, we continue to deliver strong revenue growth, highlighted by 32% year-over-year growth of enterprise license agreements and continued momentum in Asia and the Middle East. Looking ahead, we see continued progress towards always-on markets, creating meaningful operations for our data business, enabling trading activity in regions where demand for Nasdaq's proprietary market data is already rising. Our index franchise delivered $79 billion in net inflows over the last 12 months, including $6 billion in the quarter, exiting the quarter with ETP AUM of $836 billion. Our average AUM this quarter increased 32% year-over-year to reach a record of $877 million. Net inflows were modestly positive, impacted by sector rotation and a risk-off environment tied to market uncertainty in March. We view this impact as short-term tactical behavior and not representative of structural trends. Although we don't view early quarter flows as predictive, we are encouraged by the momentum we've seen to date in the second quarter with $15 billion of net ETP inflows as of April 20. Our index performance has been underpinned by our success in product innovation. 46% of inflows were driven by product launches over the last 5 years and 25% were driven by launches over the last 3 years. Institutional adoption of our index products grew among annuity providers contributing to a 30% increase in insurance-related revenues. International expansion was driven by strong demand from EMEA and APAC this quarter. This contributed to 19% of total ETP AUM coming from non-U.S. clients. We launched 31 new products in the quarter, including 12 international products and 11 in the institutional annuity space. We also launched the Nasdaq Private Capital indexes, a way for investors to benchmark private market investment allocations, an asset class that has historically lacked transparency. We were also pleased to announce that we will expand access to the Nasdaq-100 later in the spring with 2 new carefully selected partners, BlackRock and State Street, while continuing to work closely with our long-standing partner, Invesco. The pricing terms related to the index license for these upcoming new U.S.-listed ETFs will be consistent with the QQQ pricing terms. We are excited to continue to grow and expand distribution of our flagship index to new investors across the U.S. and globally with all of our high-quality partners. For example, with Invesco, we continue to create new marquee products to address investors' evolving needs. Recently, we expanded the Invesco QQQ innovation suite with the launch of the Invesco QQQ Equal Weight ETFs. Additionally, with the expanded partnerships with BlackRock and State Street, we look forward to working with them to make the Nasdaq 100 more accessible to their investor universe and to help drive additional institutional adoption. Turning to workflow and insights. Revenue grew 6%, driven by continued strength in analytics. Analytics delivered solid revenue growth, underpinned by eVestment's strong performance, which benefits from powerful network effects and sustained demand in volatile markets. With an investment, we continue to expand the reach of our data assets to meet the evolving needs of our clients and to enhance the value that we bring to asset owners and asset managers, including in private markets. This quarter, we integrated our data with Databricks to broaden entitled access to eVestment's comprehensive institutional investor data. Across analytics, we're leveraging our gold standard data assets to support our clients' AI strategy. The investment AI-ready data has been adopted by global asset managers, GPs and institutional investors representing over $9 trillion in assets under management. and helped drive a 29% year-over-year increase in Q1 bookings. In Corporate Solutions, AI adoption is strong with 74% of IR Insight users and 51% of Boardvantage users leveraging our AI solutions. Overall, the corporate buying environment remains muted, driven by lower IPO activity compared to historical levels. Turning to Financial Technology. We delivered record revenue growth of 18%, driven by sustained global demand for our mission-critical technologies. We continue to deliver on our One Nasdaq strategy with strong bookings performance for Q1 signing 64 new clients, 1 cross-sell and 85 upsells during the quarter. The division sustained compelling land and expand momentum, driving more than 50% year-over-year growth in ACV bookings. while supporting clients transition to cloud. Cloud-based solutions accounted for 80% of ACV bookings in the quarter. I would like to call out a key expansion this year of an existing AxiomSL and Calypso Tier 1 bank client that brings our cloud, AI and on Nasdaq strategy to life. In Q1, we completed a significant renewal and expansion of AxiomSL driven by our ability to deliver cloud and AI-enabled regulatory solutions. Early in the second quarter, we expanded the relationship further with a cross-sell for Nasdaq Verafin, our cloud-based AI native financial crime management solution. The expansion of this relationship illustrates the power of our platform as we deliver innovative technology to address our clients' top regulatory and risk management needs. Turning now to a review of the subdivisions, starting with financial crime management technology. Nasdaq Verafin delivered another strong quarter with 21% revenue growth across a growing client base of more than 2,800 clients representing nearly $12 trillion in collective assets. During the quarter, we signed 58 new SMB clients, driving a 24% year-over-year increase in ACV bookings from that client segment. In enterprise, we signed 2 renewals and 1 expansion with existing clients and early in the second quarter, we added further momentum with an enterprise upsell and a new Tier 1 client cross-sell that I mentioned a moment ago. Nasdaq Verafin is evolving its platform through strategic partnerships, including our recently announced partnership with FIS. This agreement expands our ability to deliver leading AML and fraud solutions to FIS' banking and payments clients. We continue to lead through advanced AI-driven innovation. Our Agentic-AI workforce is now deployed by more than 500 clients, up 40% since Investor Day. Later this quarter, we will launch our new drug trafficking analytic, which embeds generative AI directly into our models and synthesizes open-source intelligence, social media, and third-party research to help clients more effectively detect potential drug trafficking activity. Regulatory technology delivered sustained momentum supported by new capabilities introduced across our product suite as well as structural trends impacting the industry. These trends include the transition to always-on markets, sustained investment in infrastructure modernization and improving clarity of the regulatory environment. Specific to AxiomSL, this momentum is translating into meaningful client expansion and new wins across regions as global institutions deepen their use of our regulatory reporting and capital management solutions. For instance, a large international bank significantly expanded its U.S. footprint with us, extending the use of our platform to support CCAR reporting. Another large bank expanded into cloud-based broker-dealer capital management and regulatory reporting, underscoring growing confidence in our cloud-enabled regulatory infrastructure. We also secured a new client in Europe for consolidated reporting across capital, liquidity and financial regulatory requirements, highlighting continued momentum across the continent. We are realizing the benefits from investments we've made in our cloud capabilities as approximately 90% of AxiomSL ACV bookings in Q1 have been for cloud-based solutions. We're also experiencing strong interest in our AI solutions within AxiomSL, including Reg-Copilot, REG Simplify, RegNavigator and REG Investigator, the products we detailed during Investor Day. In surveillance, we delivered strong growth this quarter, supported by upsells and renewals, including a renewal of a global Tier 1 bank. We are experiencing interest in our crypto surveillance services, both with new clients and upsell opportunities. We are also continuing to invest in our core product to sustain strong client engagement and demand. For example, we recently introduced our calibration copilot, an AI-powered tool that's enabling clients to optimize workflows, reduce false positives and increase accuracy of detection. In the second quarter, we will release our Gen AI platform extension, which connects news and market events to trade data. In beta, this capability has proven to be an effective solution for clients to uncover risks faster and more effectively. Capital Markets Technology delivered an excellent quarter with strong demand driven by broad-based growth across the sub division. In trade management services, we had outstanding results, driven by robust demand and pricing increases that Sarah will address in her remarks. In Market Technology, we continue to experience momentum in our managed trading services business with a new cloud-hosted trading client for tokenized assets in addition to an expansion of services with several of our large clients. We also continued progress on the rollout of our Eclipse product suite with 2 significant client implementations for trading and clearing completed in the first quarter. This progress demonstrates the strength and readiness of our modern cloud-enabled platform. Calypso, we delivered 4 new sales, including on cross-sell. One of these wins was a new cloud-based booking for an enterprise-wide derivatives platform with a large U.S. insurance company, supporting the company's broader technology transformation efforts. Now turning to Market Services. The division delivered 10% organic net revenue growth driven by record volumes in our U.S. markets in both U.S. equity options and U.S. equities as well as elevated volumes in our European markets. We're experiencing strong industry-wide momentum and short-dated options and our market share and volumes align with our established leadership and equity options. We also continue to expand our opportunity within index options with revenue more than doubling year-over-year. Looking ahead, we're excited to be leading the transition to always-on markets. With SEC approval to extend our market operations to 23-5, we are focused on expanding access, resiliency and continuity for global market participants with the projected launch of December 6, 2026. We are excited to set a new standard for how regulated markets operate in an increasingly global and digital economy. In parallel, the FCC's approval of our proposal to enable the trading of tokenized securities allows us to enhance how investors access markets and how issuers connect with shareholders. We will continue to collaborate with DTCC and the industry to build the infrastructure needed to launch tokenized equities. Building on this foundation, we're advancing the Nasdaq equity token design that takes modernization a step further by putting issuers at the center of ownership rights. This approach will give issuers greater control over how their shares are represented and managed in tokenized form. As stated in our initial announcement, we expect to provide early benefits of the Nasdaq Token design in the first half of 2027. Looking ahead, the broader forces shaping the global financial system, including rising complexity, investment in AI and the need for resilient trusted infrastructure continued to reinforce the role that Nasdaq plays at the center of the financial ecosystem. Supported by the scale of our platform and disciplined execution across our priorities, we remain confident in our ability to create durable value for clients as well as long-term value for our shareholders. And with that, I'll turn the call over to Sarah to walk through our financial results in more detail. Sarah Youngwood: Thank you, Adena, and good morning, everyone. In the first quarter of 2026, Nasdaq delivered exceptional results. headlined by solutions revenue growth of 14%, record financial technology revenue growth of 18% and diluted EPS growth of 21%. The strong performance in the quarter demonstrates the engine of profitable and durable growth we have created and the outstanding execution of our teams, particularly in the context of the volatile macro environment throughout the quarter. Let's start with quarterly results on Slide 11. We reported net revenue of $1.4 billion, up 13% with solutions revenue of $1.1 billion, up 14%. Operating expense was $608 million, up 8%, leading to an operating margin of 57% and an EBITDA margin of 60%, both up 2 percentage points. This resulted in net income of $549 million and diluted EPS of $0.96, up 21%. Slide 12 shows the drivers of our 13% net revenue growth for the quarter. We generated 10 percentage points of offer, driven by new and existing clients and product innovation. Meanwhile, beta factors contributed 3 percentage points of growth this quarter, driven by higher overall volumes in market services, onetime items in FinTech, representing just under 1 percentage point of beta and higher volumes in index derivatives. Let's review division results starting on Slide 14. In capital access platforms, we delivered revenue of $565 million, up 10% with ARR growth of 7%. Data and listings revenue was up 9% in the quarter with ARR up 8%. Data revenue growth was strong and driven primarily by upsells and pricing. Listings revenue benefited from the improving IPO environment, pricing increases and a $2 million onetime benefit from prior period application fees partially offset by delisting and lower amortization of prior period initial listing fees, in line with our previous comments. Index revenue was up 14% in the quarter, with ARR up 6%, driven by record average ETP AUM of $877 billion. The quarter's performance reflects Index's ability to deliver inputs in a volatile macro environment, including the Nasdaq-100 declining 6% in market performance in the first quarter. ETP AUM reflected $79 billion in net inflows over the last 12 months, including $6 billion in the first quarter. As Adena said, we are encouraged by the momentum of ETP inflows we are experiencing earlier in the second quarter with $15 billion of net inflows as of April 20. Annual rent based growth was partially offset by a decline in volume-based revenue versus the prior year period, driven by continued mix shift in derivative volumes from higher-priced muni contracts to lower-priced micro and mini contracts due to higher retail volumes and a year-over-year decline in capture. Those factors were partially offset by record derivative volumes, up 9% in the quarter. In Workflow and Insights, revenue was up 6% in the quarter with ARR growth also at 6%. The revenue increase was driven primarily by analytics, mainly investment and Datalink, with both businesses benefiting from strong sales momentum, client engagement to the platform's AI capabilities and demand for data to power AI. Corporate Solutions revenue was essentially flat, driven by the trends we have previously described. Quarterly operating margin for the division was 62%, up 2 percentage points versus the prior year period. Moving to Financial Technology on Slide 15. The quarter reflected record revenue and ARR growth. Revenue was $517 million, up 18%, with ARR growth of 16%. Our business continues to experience strong demand across all fintech subdivisions and high levels of client engagement. We had very strong ACV bookings growth of more than 50% in the quarter versus the prior year period, setting a new first quarter bookings record as we executed on our land and expand strategy. 80% of those ACV bookings were cloud-based deals, reflecting our position as the trusted transformation partner to drive modernization for our clients. The division signed new clients, 85 upsells and 1 cross-sell in the quarter with another cross-sell signed early in the second quarter. Gross sales continue to represent over 15% of the Financial Technology division pipeline with strength across all 3 subdivisions. Financial client management technology revenue grew 21% in the quarter. with AR growth of 17% and net revenue retention of 110%. We signed 58 new SMB clients in the first quarter compared to 35% in the prior year period with a 24% year-over-year increase in ACV bookings from SMBs. In enterprise, we signed 1 expansion and 2 renewal deals during the quarter as well as 1 new Tier 1 cross-sell and on upsell early in the second quarter. As we discussed last quarter, the sequential revenue improvement in the fourth quarter was primarily driven by professional services fees related to SMB and enterprise client implementations. And as such, we did not expect to maintain those levels over the first half of 2026 based on the implementation timing for deals signed in the second half of 2025. Regulatory Technologies delivered revenue growth of 12% and ARR growth of 13%. Revenue growth in the quarter reflects strong performance in surveillance and solid growth in AkzoMasel, driven by our successful sales execution as well as sequentially improved professional services revenue, consistent with our previous comments. Capital Markets Technology revenue grew 20% with AR growth of 18%. This quarter's exceptional performance reflects ongoing momentum and broad-based demand across Calypso, Market Technology and trade management services. Specifically, we had strong demand for data center services in trade management services. A large increase in upfront revenue recognition versus a year ago related to on-prem Calypso deals signed and renewed in the quarter and 2 onetime items which were termination fees related to M&A in Market Tech operators, representing 4 percentage points of capital market tech revenue growth in the quarter. Financial Technology quarterly operating margin was 47%, up nearly 3 percentage points versus the prior year period. Turning to Market Services on Slide 16. We had record net revenue of $317 million, up 10%. Growth was primarily driven by record market volumes in U.S. equities and U.S. options volumes increasing in European equities and strong volumes in Canadian equities due primarily to market volatility in commodities. We also continued to deliver alpha as reflected in strong revenue growth in index options elevated market share in U.S. equities and U.S. options, strong initial adoption of newly launched short-stated options products and elevated capture in European derivatives. This was partially offset by lower capture in U.S. equities and U.S. options driven by the strong volumes we mentioned in the quarter coming with a mix shift towards lower revenue capture order flow. We continue to manage effectively the balance between capture and market share while maintaining our strong lead in U.S. equities capture and in U.S. options market share. Quarterly operating margin for the division was 63%, up 2 percentage points versus the prior year period. Moving to expense on Slide 17. We had operating expense of $608 million in the first quarter, an increase of 8%, driven by investments in people and technology to support revenue and drive innovation and higher compensation costs related to delivering strong revenue performance. The first quarter operating margin was 57%, and the EBITDA margin was 60%, both up 2 percentage points versus the prior year period. We are updating our non-GAAP expense guidance for the year to a range of $2.485 billion to $2.545 billion from $2.455 billion to $2.535 billion. given the strong revenue performance we have experienced year-to-date. Our updated guidance assumes an FX impact consistent with our previous expectations. Looking ahead, we expect a higher expense growth rate in the second quarter than the first quarter, driven in part by the timing of our annual compensation cycle consistent with the prior year. We maintain our 2026 non-GAAP tax rate guidance of 22.5% to 24.5%. Turning to capital allocation on Slide 18. Nasdaq generated free cash flow of $629 million in the first quarter and $2.1 billion in free cash flow over the last 12 months at a conversion ratio of 12%. Without the impact of the timing of tax payments, the conversion ratio would have been 108%. We paid a dividend of $0.27 per share or $153 million in the quarter representing a 29% annualized payout ratio. As a reminder, we announced at Investor Day that our Board has approved an increase in our dividend by $0.04 per share to $0.31 per share going forward, which will be reflected in the June payment. We ended the quarter with a gross leverage ratio of 2.8x within the mid- to high to target we established at Investor Day. We took advantage of market volatility and accelerated our share repurchases. In the first quarter, we repurchased $548 million as compared to a total of $616 million of repurchases in all of 2025. In combination with the dividend, Nasdaq returned over $700 million to shareholders in the first quarter. In closing, Nasdaq delivered excellent results in a dynamic operating environment. reinforcing our track record of delivering profitable and durable growth across macro cycles. As we highlighted at our Investor Day in February, we are the trusted transformation partner to our clients as they navigate structural shifts in the financial markets and accelerate their AI journey. The exceptional solutions revenue growth and record financial technology performance we delivered in the first quarter are important proof points of the Nasdaq story. They give us the confidence that we are achieving our ambitious strategic objectives and generating long-term value for our investors. With that, I'll open the call for Q&A. Operator: [Operator Instructions] And I show our first question comes from the line of Bill Katz from TD Cowen. William Katz: So at the Investor Day, I thought you guys did a great job of just sort of debunking some of the concerns around Agentic AI and it seems like there's some really good stats here this morning as well to that score. So maybe a 2-part question. Number one, can you maybe step back and help us frame out the Agentic AI capabilities for the Nasdaq platform itself? And then secondly, can you unpack some of the growth that you saw in the first quarter from clients just in terms of where you see the greatest uptake around Agentic-AI adoption? Adena Friedman: Bill, and when you say -- just so I can understand, when you say the Nasdaq platform itself, are you -- what do you mean? What are you referring to? William Katz: So your core business, like your expense structure, innovation, that kind of efficiencies, et cetera. Adena Friedman: I just wanted to make sure. Okay, great. I just wanted to make sure we were on the same page. So thank you for the comments and the question. So as we mentioned at Investor Day, we do have an internal program to drive AI adoption within the operations of Nasdaq, and we say that's AI on the business. And we are focused in some key areas, and we have a program in place where we are striving to achieve $100 million of expense efficiencies by the end of 2027 and we also did mention that the majority of that will show up in 2027 because we also are making investments in AI to make sure that we can achieve those efficiencies. And so as we are focused -- where we're focused is certainly on making sure we're automating key elements of the product development life cycle, making sure we're creating new automations and capabilities for our clients in the client success area in terms of client service, implementations and managing our client interactions as they're working with our systems and our products. And then also, we have other areas across our expert teams, too. We have automation and finance, in marketing, legal, HR, all of those areas have benefits that are coming in from the Gen AI capabilities that we see across the business. It's an exciting time. I have to tell you to understand and tap into the technology and the benefits it can provide. If I were to highlight on product development, I think the most exciting part of that is our ability to speed up the ability to deliver new capabilities to clients. to use automation to really make sure that the code that we're delivering is really clean. It's fit for purpose. It's really and you can be more creative as a product team, if you know you can deliver things faster. So it's pretty exciting in terms of how we're thinking about the product road maps as well. So hopefully, that answers your question on that. In terms of the areas where our clients are seeing the most benefit from our AI capabilities, anti-fincrime is a key area because we have so many ways to automate workflows associated with financial crime management in terms of there's a lot of manual work that goes into investigating potential actors to managing on the regulatory reports. And that -- all of that, we have automation tools around. We're now bringing some of those automation tools into the surveillance area and into the AxiomSL regulatory reporting areas. So we're also kind of building once deploying many in terms of the skills that we're learning from these deployments. And then as we mentioned, AxiomSL, we have some clients that are signing up and going to our cloud-based solutions because we are only offering our AI capabilities through the cloud-based solutions, and they really like the automation that we can bring in from a regulatory reporting perspective. And then in CAP, we have AI deeply embedded in our Boardvantage tool to summarize Board documents and board and also Board agendas to make it so you can auto build board agenda in addition to an IR. So it's kind of everywhere. Some of the products we purposely charge for and some of the products are embedded in the products so that we work with our clients on thinking about the value that they're getting upon renewal. Operator: And I share your next question comes from the line of Alexander Blostein from Goldman Sachs. Alexander Blostein: I was hoping we can double-click on trends you're seeing in fintech, in particular, in Capital Market stack. Sarah, you highlighted to a couple of drivers this quarter. But given the really strong momentum in ARR even sequentially, I was hoping you can give us a little more detail on where you're seeing the incremental uptake, particularly within cap markets as well as your view for the rest of the year within that segment. Adena Friedman: Great. Thank you. So there -- as we mentioned, there's actually good momentum across all 3 elements of the Capital Markets Tech business. We start with trade management services where we offer connectivity services to our clients who trade within the Nasdaq exchanges. There, we're definitely seeing more and more interest in having -- bringing in more connectivity capabilities to make sure that they can manage the volumes in the markets, but also to drive new strategies that they want to execute within our markets. And so that has been -- and also, as a reminder, we did expand our data center last year. So I think that -- 2 years ago, sorry. So we have more opportunity to offer capabilities to our clients now with the larger data center footprint that we have. But it does -- and we're working on some new innovations within the data center, too, in terms of making some investments in like cooling and other things to really continue to allow our clients to drive new strategies in the markets. So that's exciting. And as Sarah mentioned, and I think I did too, that we did have a pricing increase as well in that business this year. With regard to Calypso, the key areas that we're really seeing -- we're seeing a lot of demand across the world for 1 thing. The second thing is collateral management, as you know, is one of our strongest modules within Calypso and we definitely are seeing really strong momentum in collateral management demand from our clients. And then I think that within -- and also international, it's really -- we have a lot of demand actually both, I think, domestically and internationally in Calypso. So in market technology, we definitely see a lot of trading opportunities with new asset classes, new areas of new markets that are coming up. In addition to modernizing our core clientele, we have had really good success and bringing our clients into the next-generation trading and clearing solutions. And then also, we launched an intelligence suite, which we kind of allow our clients, we have it internally. But basically, a modern way for them to manage all their data within their infrastructure. And that's been a really great, I would say, add-on sale to our clients as they're thinking about how they leverage AI they're leveraging us to kind of help them modernize their data management infrastructure. So those are the areas of demand, Alex, that we're really focused on, and it is driving good momentum. We don't give outlook kind of specifically we give long-term or medium- to long-term outlook. But we are definitely seeing really good demand and momentum across all 3 areas of fintech and Capital Markets day. Operator: And our next question comes from the line of Dan Fannon from Jefferies. Daniel Fannon: I wanted to expand upon your comments on the strength in data. I think you've mentioned 24/5 and some of the growth internationally from clients. So I was hoping you could just expand a bit upon that and how you see that progressing as we think about the year. Adena Friedman: Sure. Well, it's been interesting over the last really 5 to 6 years, we've seen a broad-based increase in demand internationally for Nasdaq's market data. And I think part of it is the fact that there's just more demand for the companies that are listed on Nasdaq and U.S. equities in general from global investors. The second thing is that retail investors have really kind of grown and expanded around the world, and there's just more accessibility to the U.S. markets by retail investors. And so retail brokerage platforms around the world want to be able to provide real-time access to the market data from our markets. And so all of that has been driving kind of a longer-term trend of global expansion of data. We have though seen some acceleration of that in the last, I would say, a year, so it's not just in this quarter but over the last year, as 23/5 trading in U.S. equities is both there is some trading that already occurs in the dark today. But as these firms are getting ready for 23/5 trading with lit markets like ours and central transparency, I think they're getting themselves ready to be able to offer those capabilities so they can trade in domestic hours and that is definitely driving more demand for enterprise license deals with our clients around the world. Operator: And I share your next question in the queue comes from the line of Ben Budish from Barclays. Benjamin Budish: I wanted to ask about index revenues in the quarter they were down a bit sequentially when your volumes are quite good. Average AUM was up. I know there's a dynamic with the CME fee sort of resetting at the beginning of the year, but it looks like the volumes are quite strong. So I'm curious if there's anything else going on in the quarter, if there's any color on the timing of that fee reset and what that means for Q2. Sarah Youngwood: So what we've experienced is a mix shift in futures. And I talked about that as the retail is driving more micro volumes and that at a lower capture than the mini. So that was the main driver. The volume in futures was actually good. And then there is a second, but let's say, smaller driver, which is in a little bit of a continued mix shift, and that's the story we've been telling in the ETP AUM as we go towards a bit more institutional. Adena Friedman: And on the reset, I think that definitely, we achieved -- you're right that the fees -- the kind of sharing agreement resets of the year-over-year -- and we saw that we kind of had -- we've now gone to the higher tier as of the end of Q1. So that will come in -- start to come in at a higher level in Q2. Operator: And I share our next question in the queue comes from the line of Owen Lau from Clear Street. Owen Lau: So far your tokenization strategy, could you please give us an updated time line on your tokenized trading capabilities? I know you have 23/5 trading going on, but what are the remaining hurdles you need to cross before you can execute the first 3? Adena Friedman: Sure. Well, we are very active in working with DTCC and with the industry can make sure that we're doing this in lockstep and we're doing it in an organized way. I think that DCCC has significant efforts underway, and they have at least expressed an interest in trying to get to that first trade that you mentioned before the end of the year. So that's, I think, the goal that they have and they're working collaboratively with us as well as with industry players to goes through the whole process, make sure that they're advancing their systems, doing some -- they're going to want to do test trades as they get further into the year and that allows us to be able to get to that, as you said, kind of first trade. I would say though, it's likely that this will still be an early -- kind of an early phase by the end of the year to make sure that we're -- the end-to-end is working seamlessly. So it's going to be a little while, Owen, but it's -- I mean, we're doing a lot of work together and it's going well so far. Operator: I show our next question comes from the line of Brian Bedell from Deutsche Bank. Brian Bedell: Maybe just Adena, you talked about the impact of always on markets, helping data, but can you also talk about the potential impact across your fintech platform as the clients increasingly need to respond to always on, particularly in the Calypso and Capital Markets business. I know we talked about in the past the initial guidance from the Adenza businesses didn't contemplate crypto as much and that's already been a help. To what extent do you see this always on dynamic advancing growth in these businesses? Adena Friedman: Yes. So I think that the areas that we're seeing -- we're having a lot of conversations with clients, and in some cases, already clients are signing up for expanded services I would say the first one is surveillance. So even without the established markets being there, they do want to be able to surveil activity, trading activity, if they are, in fact, offering it to clients during the during the international hours that exist today. So that's already driving demand in terms of surveillance clients. also our trading. So our clients around the world who are other markets who are looking at how do they want to expand their trading hours and really kind of continue to modernize our infrastructure around trading that is driving more demand for our Eclipse trading platform because it is built to be able to support 24/7. And then the third thing is in Calypso, as you mentioned, collateral management, risk management, capital management, just core trade infrastructure. While Calypso generally supports OTC instruments, there is just a move and desire to make sure that they are able to support collateral management across all their markets and they are connected into both clearing firms and clearing houses. And certainly, the U.S. markets move there. I think that, that's something that they're definitely seeing more demand for collateral management. And then trade management services within Capital Markets Tech also as firms are thinking about how are they going to be support 23/5 markets themselves, and they want to come in and have more colocation capabilities that's also driving some demand. So those are areas that we are having active dialogue with clients as we prepare for 23/5. Operator: And our next question comes from the line of Michael Cho from JPMorgan. Y. Cho: I just wanted to touch on the index business again. I think one of the benefits you cited in terms of licensing it to BlackRock and State Street is on access to new investors. And so I was wondering what kind of incremental investor segments do you think BlackRock and State Street might provide for Nasdaq? And then just longer term, how are you thinking about the potential for AUM and product expansion from the index licensing versus any licensing fee changes that might M&A in the coming years. I'm just looking at the evolution of other flagship index providers who have been more susceptible to that than Nasdaq in the past. Adena Friedman: Sure. So well, just to touch on the pricing point, just to make sure we're clear, with the new relationships that we have with BlackRock and State Street, the index pricing licensing terms are the same as for QQQ. So that's not changing our pricing paradigm. What we're really focused on with BlackRock and State Street is they have their own unique investor universe. So they have incredible distribution out into the institutional ecosystem as well as broad-based retail investor base. And they complement Invesco, who has been and continues to be an amazing partner to us. So we're at this point where the Nasdaq-100 is really becoming a core component of an investment strategy. among asset owners, insurance companies. And we want to make sure that we can distribute it out through the channels that they usually use right? So they're not having to -- they can leverage the relationships they already have with BlackRock or State Street in order to get access to these products in a seamless way. And so it does feel like the right next step for us, in a way, a new chapter of growth and expansion for the Nasdaq-100 as we continue to execute on global growth, as well as institutional growth of that index. It also -- we already do work with State Street and BlackRock and other product areas. So it just kind of continues to -- an evolution of our relationships there. to make sure that we can leverage the strength of their platforms for our flagship product, while we also work with them on new product expansion. In terms of just generally across the index business, we are very fortunate to have an index franchise that's really focused on innovation oriented and thematic indexes that we work really collaboratively with our partners. We use all of our marketing assets to be able to drive distribution and adoption of these products. And I think the way that we partner with our clients allows us to have a fee base that we feel very confident that we're delivering great value to them, but also value to us. And we would expect that to continue as we launch other new products. Operator: And our next question comes from the line of Elias Abboud from Bank of America. Elias Abboud: Anthropic's new Mythos model is expected to post significant cybersecurity risks for financial institutions. So as one of the largest bank software vendors, I was wondering if you previewed Mythos and if you can speak to the extent to which the release poses risks or creates liability for Nasdaq. And then separately, does it create any new opportunities? Is bank cybersecurity an interesting adjacency for you? Or is that too far afield from your current business? Adena Friedman: So I'll answer the second question first, which is that there are amazing cyber companies, many of which are listed on Nasdaq that provide very, very advanced cyber capabilities to us and to our bank clients. And we would expect that we will continue to partner with them and we'd expect the banks to continue to partner with them. And speaking of them, we have a lot of engagement with our cyber partners, with our hyperscaler partners with the banks and with the government on how new models are being introduced into the financial industry. We're very careful in how we bring new models into Nasdaq. We do leverage Bedrock, which is AWS' AI platform infrastructure to support a lot of our AI infrastructure here at Nasdaq as well as we work with Microsoft and like Azure. So we have these great partners that help us make sure that we're protecting ourselves. We do a lot of extra production. And then we will test models extensively before we bring any new models into our infrastructure, we do a lot of testing of models. So we're not going to just race forward with any new model and bring it in. We do a lot of work first to determine if it's got utility and then to do incredible IT security reviews on it. And then we'll bring it in and determine how it can be best used for our purposes. I also think as these new models come in, there obviously are going to be new protections that both the LLM providers, but also their partners will provide to make sure that they can be brought in securely. Operator: And I show our next question comes from the line of Patrick Moley from Piper Sandler. Patrick Moley: Big picture one for me on tokenization. You mentioned the equity token design, putting issuers at the center of ownership rights, governance, investor experience. So is tokenized settlement and 24/5 trading becomes a reality, Adena, I'm wondering if you see this fundamentally transforming the IPO process itself particularly as it relates to expanding global retail access and reducing some of the frictions and costs associated with traditional underwriting. And if so, does this represent any sort of structural opportunity that investors might not be Nasdaq's ability to grow the list. Adena Friedman: Yes. So I think the first thing I'd say is there are multiple paths to the public markets today in terms of you can have a direct listing, you can have a SPAC combination, you can have an IPO. So there are choices. In terms of trading and organization changing, I mean, I do think that the nature of securities, I mean, the actual construct of the underlying CUSIP and the technological capabilities that provides are interesting and obviously allow for the free flow of capital allowed potentially for companies to have more direct interaction with investors over time. But I also think that the IPO process or the go public process is a huge after taking to engage with both institutional and retail investors to make sure that you're unlocking that demand prior to the day that you enter the public markets. And there is value to that process. Whether it's through a direct listing or through an IPO or SPAC combination, that engagement with investors leading up to it, and in some -- certainly, the underwriting for new capital being raised and making sure that you're getting support in the stock in the first few days and weeks of trading, I think, is important. But I can't say that I think that tokenization has an opportunity to unlock and expand investor reach during that process. It can improve engagement with retail investors as they're going through that process. But I'm not envisioning a fundamental change in the IPO process, I have to say. I think only time will tell if that's an opportunity. Operator: And our next question comes from the line of Jeff Schmitt from William Blair. Jeffrey Schmitt: You'd mentioned you're working on outcome-related options in Market Services. Would these be similar to prediction market products? And could you just provide some more detail on what you're doing there? Adena Friedman: Yes, sure. Yes, they are -- essentially, you can call them outcome-oriented or event options. Think about them as -- and the first one that we are seeking approval from the SEC is an option on predicting the future performance of the Nasdaq 100. So it's some people call binary option, I guess, now, is it going to go up or down kind of thing. And so it is a way to bring the notion of our prediction market construct into a regulated market. The nice thing is with our options business is it is fully overseen by the SEC, and we have a lot of regulatory controls in place. We're working with OCC, which is the clearing house to make sure that we think about the risk models around it and the margin models so that we can kind of introduce the notion of, what I would call, entry-level options into a marketplace that has a regulatory framework that's very well established. So it is our first effort in that area. Operator: And I share our next question comes from the line of Ashish Sabadra from RBC Capital Markets. Ashish Sabadra: Very strong ACV momentum in Verafin and you also talked about the Tier 1 plant signed in 2Q. My question was, can you talk about the pipeline for Tier 1, Tier 2 clients. And just a follow-up there would be, as we think about these implementations going live, is it fair for us to assume that we start getting the ARR growth back into the midterm range as we get into the back half of the year? Adena Friedman: Great. Thank you. Well, actually, as Sarah had mentioned, with a lot of the signings that we had in the latter half of last year. So our momentum in enterprise signings really picked up as we went through last year, we had, I think, more than double -- it's not triple the number of signings last year versus the prior year. But a lot of it has happened in the second half. So -- and we don't recognize ARR in the clients until they're fully implemented. So we are still in implementation mode for a fair number of those clients in addition to obviously, anything we signed in the first quarter. So we do anticipate that the benefits of those deals will start to flow in later in this year. I think the second thing is that our pipeline is very strong. We have amazing engagement across a wide range of clients either in POC where they're testing us or in contract negotiation or we're having really just good dialogue with them as you're thinking about modernizing their [ ASC ] capabilities. So the pipeline is strong. The activity and the signings have been very strong, and we're excited to start to show the benefit of that as we implement the clients. Operator: And I show our next question comes from the line of Alex Kramm from UBS. Alex Kramm: Just wanted to come back quickly on the capital markets disclosures that Sarah gave on those cancellations. So first of all, is that fully in the run rate? Or is that still coming out of I think you mentioned a 4% onetimer. So does that mean that maybe there's a 1% headwind to growth? Or maybe you can just size up what kind of headwind that is? And then overall, as we think longer term with the expectation that bank M&A may be picking up, do you expect to see more of these? Or do you think these are kind of like onetime events here or unusual events. Sarah Youngwood: Yes. So I would say that the impact going forward is actually not very much that the 4 percentage points you have very correct, which is that is a positive this quarter which we have put on as described as M&A related. It's a of market operators, which is really different than bank M&A. And so we're not seeing very much of that happening. It just so happens that we had that hit this quarter. And those have been a long time in coming in terms of like our awareness of them. So we're not seeing a sequence of those as a trend at all. Adena Friedman: And I think Sarah also, the termination fees are not commensurate with the actual ACV value. It's different. So the ACV value of these as they're going to come out of ARR is quite modest versus the termination fees that we received as a result of the changes. Operator: And I share our last question in the queue comes from the line of Michael Cyprys from Morgan Stanley. Michael Cyprys: Just wanted to ask about 23/5 trading that's expected to launch. I heard you mentioned on December 6. I was hoping could update us on the steps that you're taking between now and then, how do you see this rolling out? What sort of milestones do you anticipate in the first year. We also hear some hesitation from certain market participants out there, some hesitation just around including around potentially limited liquidity in the overnight session. So I guess, just what sort of steps are you taking to address some of those concerns out there? Adena Friedman: Sure. So in terms of -- I'll actually take the last question first. I would say anytime that you have change in the industry, there are people who are excited about it and people who get nervous about it. That's just -- I think that's actually quite healthy because you want to make sure that you're thinking through concerns as you're trying to progress the market. Today, if you look at the volumes that occur today. So we operate from 4:00 a.m. to 8 p.m., our systems are open for trading during that period of time outside of our hours. So from 8 p.m. to 4 a.m. U.S. time, the -- there is about 2% of volumes is occurring today. So 2 percentage points of volume. So there is volume occurring outside the hours of operations for our business. So we are excited to be able to tap into that demand that market activity, but also to really use the infrastructure that we're putting in place and that the industry is putting in place to make sure we can grow that. And so what we're doing is making sure that as we go forward, as of December not only is Nasdaq launching its venue, but the tape has announced that they're launching the consolidated tape to be -- make it so that all national best bid in offer and less sale will be available. Obviously, our market data will be available. And so you'll have a more market environment. You'll also have -- we also have MarketWatch, expanding our hours of Market Watch, expanding hours of our market operations team, our tech ops, our network ops, all of those organizations will be expanded to make sure we can we can support the clients that are coming in and trading across the globe. And then we also will make sure that as we launch that we have a lot of investor education. We want to make sure that we're working with retail brokers and through the -- when we make a sale of our market data, we often work with them also on education and other things that they can do to promote and make sure that their investors are ready to be able to trade our securities. So it's a holistic effort, and we would expect over time, but I also would say it's an evolution, not a revolution to see expansion of investor interest across the globe to have the opportunity to trade in their home hours and to have liquidity throughout the 23-hour period. I would point out that the Nasdaq futures, Nasdaq-100's futures trades 24/5 today. So the idea of being able to trade in the future, trade the ETFs and trade the underlying all in domestic hours for that -- for those stocks is exciting, but it is going to be offered to every stock across the U.S. equities market. So I see it as a natural next step here, but it will take time to make it so that there's a lot of penetration. Operator: That concludes our Q&A session for today. I would now like to turn the conference back over to Adena Friedman, President and CEO, for closing remarks. Adena Friedman: Great. Well, thank you very much. We are very pleased with the performance and momentum across Nasdaq as we execute our strategy to modernize markets power the innovation economy and build trust in the financial system. Thank you very much for joining the call, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Ms. Deanna Hart, Head of Investor Relations. You may begin. Deanna Hart: Good morning, and thank you. Welcome to First Citizens First Quarter 2026 Earnings Call. Joining me on the call today are our Chairman and Chief Executive Officer, Frank Holding; and Chief Financial Officer, Craig Nix. They will provide first quarter business and financial updates referencing our earnings call presentation, which you can find on our website. Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined on Page 3 of the presentation. We will also reference non-GAAP financial measures. Reconciliations of these measures against the most directly comparable GAAP measures can be found in Section 5 of the presentation. Finally, First Citizens is not responsible for and does not guarantee the accuracy of earnings transcripts provided by third parties. I will now turn it over to Frank. Frank Holding: Thank you, Deanna. Good morning, and welcome, everyone. Thank you for joining us. I'll start by highlighting our overall performance for the quarter before turning it over to Craig Nix to take you through our financial results and outlook for 2026 in more detail. Starting on Page 5. We were pleased with our first quarter results. This morning, we reported adjusted earnings per share of $44.86, representing an adjusted ROE and ROA of 10.39% and 0.97%, respectively. While lower rates were a headwind, we saw strong deposit growth. Credit quality remains strong and expenses came in below our expectations. Deposit growth accelerated this quarter, up by 5.7% sequentially, anchored by increased client activity in tech and health care and global fund banking. In addition, deposits grew in the General Bank segment and the direct bank. This growth was also supplemented by the strategic use of broker deposits to further bolster our liquidity position. We also achieved solid increases in off-balance sheet client funds driven by the tech and health care and global fund banking businesses. We continue to optimize our capital stack, returning another $900 million to shareholders through share repurchases. Due to our strong liquidity position, we were able to prepay another $2.5 billion to the FDIC -- on our FDIC promissory note, money note during the quarter. Turning to our announcement this morning. We are expanding our commercial solutions and optimizing our brand portfolio to better serve our clients and drive growth. In 2026, we are accelerating our strategic road map by expanding capabilities in payments, international banking and digital assets. As part of this growth, we will transition to a united brand structure in the fourth quarter, featuring innovation banking and fund banking sub-brands under the First Citizens umbrella. Now brand adjustments always generate questions, and we want to be perfectly clear that while names are changing, the client experience is not. Our relationship teams remain the cornerstone of our service, providing the same deep specializations that our clients rely on. This brand alignment simply opens the door to a larger platform of solutions and a more connected network of experts for the future. Despite a complex global backdrop, we continue to operate from a position of strength. Our capital, liquidity and risk discipline provide a solid foundation that allows us to focus on what matters most, serving our clients and customers and continuing to drive long-term shareholder value. We are confident in our strategy, disciplined in our execution and very optimistic about the path ahead. I'll conclude with that and pass it over to Craig Nix to take us through the financial results for the quarter and guidance for the remainder of the year. Craig? Craig Nix: Thank you, Frank, and good morning, everyone. I will anchor my comments to Page 8 of the presentation, Pages 9 through 27 provide details underlying our first quarter results. In the first quarter, we delivered adjusted earnings of $44.86 per share on net income of $560 million. The sequential decline of $6.41 per share largely reflects the impact of lower interest rates on our net interest margin. However, we were pleased that lower noninterest expense helped offset a portion of the net interest income decline. In line with our previous guidance, net interest income declined by $101 million, with NIM compressing 11 basis points to 3.09%. This decline was primarily driven by lower earning asset yield following the Fed's rate cut in late 2025, alongside a shorter day count this quarter. However, these headwinds were moderated through strong organic loan growth, lower funding costs and a reduction in average borrowings. Noninterest income was down $9 million from the linked quarter, but in line with our previous guidance. The majority of the decline centered in other noninterest income, which was down $15 million, largely attributable to a decrease in other investment income, a line item subject to fluctuation on a quarterly basis. Outside of the decline in other noninterest income, our core fee categories performed well. We saw solid growth in deposit fees and lending-related capital market fees though these increases were partially tempered by seasonal declines in factoring commissions. Additionally, while the Fed funds rate environment pressured client investment fees, we successfully mitigated that impact through a $3.9 billion increase in average off-balance sheet client funds. Adjusted noninterest expense was $38 million lower sequentially, outperforming our previous guidance. This reduction reflects a $16 million decline in professional fees as we successfully completed several technology and risk management projects at the end of 2025. Marketing costs also declined by $15 million as we pivoted our funding strategy this quarter to leverage lower cost broker deposits rather than higher cost deposits in the direct bank. While the direct bank remains a critical funding source, and we expect marketing expense to normalize in the future, we will remain agile, balancing deposit growth with cost efficiency to protect our margins. Finally, we saw a $16 million seasonal normalization and other expenses. These reductions were partially offset by seasonally higher benefits expense due to resets as well as continued deliberate investments in our technology platforms, which are essential to scaling our operations and enhancing our client experience. Turning to the balance sheet. Period-end loans grew $762 million or 0.5% sequentially, driven by global fund banking, which was up $1 billion on record production of over $6 billion, surpassing the record set just last quarter. With average line utilization also trending higher, we see evidence of higher client demand and a robust pipeline moving forward. In middle market banking, we added $327 million in growth and stable production was bolstered by lower prepayments. While we are pleased with this quarter's growth, we maintain a guarded outlook given the broader macro environment. General bank loans decreased $591 million, primarily reflecting a strategic decision to move $365 million in SBA loans to held for sale. Excluding this balance sheet optimization, the decline was driven by typical first quarter seasonality. On an average loan basis, loans increased $2.2 billion sequentially, led by our global fund banking business. Turning to the right-hand side of the balance sheet. Period-end deposits grew by $9.3 billion or 5.7% sequentially. This growth reflects strong organic growth in our core business segments as well as execution of our balance sheet optimization strategies. Within SVB Commercial, we saw significant momentum in global fund banking and tech and health care where deposits grew sequentially by $5.6 billion, driven by a visible pickup in VC investment and exit activity. Growth here underscores the strength of our franchise within the innovation economy. While these inflows were encouraging, we remain disciplined in our outlook as a portion of this growth stem from large short-term deposits. As we've noted before, these inflows can be lumpy and we have already observed some anticipated outflows in April. We are managing these balances with a strict focus on liquidity and funding cost optimization in mind. In the General Bank, deposits grew by $1.1 billion. This was largely driven by successful seasonal campaign within our [ CAB ] business and solid growth in our branch network, demonstrating our ability to consistently execute on core deposit gathering initiatives. To support the transition away from the purchase money note and limit impacts to net interest income, we also tactically utilized $1.8 billion in broker deposits. This was a flexible lever for us this quarter as the all-in cost was lower than leading rates in the direct bank as we continue to monitor pricing and tenor to ensure a resilient and cost-effective funding mix. On an average basis, deposits also performed well, growing by $2.7 billion or 1.7% sequentially, driven primarily by tech and health care banking and [ CAB. ] Finally, off-balance sheet momentum was equally strong. SVB commercial client funds rose $8.1 billion to nearly $78 billion, while average off-balance sheet funds grew by $3.9 billion. Turning to credit. Provision was $103 million for the quarter, up $46 million from the linked quarter. The increase was driven almost entirely by a larger reserve release last quarter rather than a negative shift in credit quality. In fact, the net charge-off ratio came in 9 basis points lower than the linked quarter at 30 basis points with net charge-offs totaling $111 million. This was favorable to our previous guidance, though I'd characterize the beat as a matter of timing on specific resolution efforts, particularly within our general office book rather than a significant change in our overall outlook. While nonaccrual loans moved slightly higher to 96 basis points, the change was isolated to a few specific credits. We do not view this as a signal of broader migration or systemic pressure across the portfolio. This is supported by our $8 million reserve release this quarter, which was underpinned by growth in high-quality segments like Global Fund Banking and changes to the macroeconomic outlook. Given the heightened market focus on private credit and NDFI exposures, we've included a new slide today to provide additional transparency. Our NDFI exposure stands at $38.8 billion, but it is critical to look at the structure, 83% of this book consists of capital call lines. These are backed by contractual LP commitments, not investment performance, and historically carry exceptionally low credit risk. The remainder of the book is diversified, well collateralized and supported by structural protections. Traditional private credit represents approximately 8% of the NDFI portfolio and includes lines provided to credit funds and warehouse lines, both of which are well secured. To summarize, our exposure to the private credit ecosystem is defined by conservative structures, significant sponsor equity and rigorous covenant protections. While we remain vigilant in a volatile macro environment, our credit culture is built for this backdrop. We are confident that our disciplined standards and resilient portfolio position us well to navigate the cycles ahead. Turning to our capital position. We continue to execute on our commitment to a disciplined capital return. As of April 21, 2026, we have made significant progress on our 2025 share repurchase plan having repurchased over 20% of total common shares outstanding for a total of $5.7 billion. This includes the successful completion of our 2024 plan, and roughly 52% of our current $4 billion authorization. Our first quarter CET1 ratio stood at 10.83%. While this represents a 32 basis point sequential decrease, it was a deliberate outcome as we balance loan growth and share repurchases against first quarter earnings. As part of our annual capital planning and informed by internal stress testing, we adjusted our CET1 target range down by 50 basis points to 10% to 10.5%. We believe this recalibrated level provides the ideal balance of ensuring we remain strong for severe stress events while maximizing our flexibility to support both client growth and shareholder returns. Regarding the pace of repurchases moving forward, we returned $900 million to shareholders this quarter. However, as we approach our new target capital range, we anticipate a slower pace for the remainder of the year. This shift reflects prudent management of the balance sheet, accounting for anticipated organic growth, the shifting economic backdrop and our commitment to a conservative capital buffer. Finally, we are encouraged by the revised Basel III proposal released in March. Our initial assessment indicates a potential 70 to 100 basis points benefit to our CET1 ratio, primarily driven by lower risk-weighted assets under the new standardized approach. While the proposal includes the phase-in of AFS and pension-related AOCI, we don't expect a material impact given our short duration investment strategy and limited AOCI risk. Overall, these regulatory developments represent a clear step forward providing us with enhanced capital flexibility to drive long-term value for our shareholders. Turning to Page 29, I'll conclude with our outlook for the remainder of 2026. The macroeconomic backdrop remains fluid, making it difficult to narrow the range of potential impacts on the broader economy and our business lines and clients. Accordingly, we have not made significant changes to our previous guidance, but do continue to monitor the environment and how it could impact our performance. Starting with the balance sheet. We expect loans to land between $149 billion and $152 billion at the end of the second quarter. In the Commercial Bank, we expect loan growth to be anchored in Global Fund Banking where we are managing a robust $12 billion pipeline. While we expect long-term expansion, we remind everyone that ending balances can ebb and flow based on the timing of client draws and we anticipate some quarter-to-quarter volatility here even as absolute levels grow. Outside of growth in Global Fund Banking, we are projecting growth in commercial finance industry verticals and middle market banking portfolios. In the General Bank, as seasonal headwinds abate, we expect growth to be supported in the branch networks business and commercial loan portfolios. For the full year, we are reiterating our loan guidance of $153 billion to $157 billion, inclusive of the $1 billion in the BMO acquisition. To optimize our balance sheet, we continue to evaluate strategic sales similar to this quarter's $365 million SBA securitization to efficiently fund the repayment of our purchased money note. Now to deposits and funding. We anticipate second quarter deposits between $171 billion and $174 billion. We expect growth in the General Bank segment and in the direct bank as we are seeing strong momentum in both where competitive pricing and marketing are helping us capture share. Growth in these channels will help mitigate expected outflows in Global Fund Banking and within tech and health care as those clients continue to utilize cash for operations or move to off-balance sheet investment products. For the full year, we reaffirm our range of $181 billion to $186 billion, including the $5.7 billion BMO infusion. This range continues to include significant growth in the direct bank as we look to continue to prepay the purchase money notes. We've made significant progress on the purchase money note with $5.5 billion in total prepayments through today, including $2.5 billion this quarter and another $500 million in April. Moving forward, we expect to pay down at least $500 million to $1 billion per month, utilizing excess liquidity, broker deposits or other funding levers as interest rates and market conditions dictate. Next, our net interest income and rate outlook covers a range of 0 to 2, 25 basis point rate cuts where the Fed funds rate may decline from a range of 3.50% to 3.75% today to a range of 3% to 3.25% by year-end. We expect second quarter headline net interest income to be in the $1.6 billion to $1.67 billion range. While we expect strong earning asset growth, we think it will be partially offset by modest increases in funding costs as deposit competition remains intense across all channels. For the full year, we are marginally tightening our range to $6.5 billion to $6.8 billion. This accounts for the persistent pressure on DDA balances in a higher for longer environment, continued deposit competition and a projected $100 million reduction in loan accretion. Moving to credit. We expect second quarter net charge-offs in the 35 to 45 basis point range. We are actively managing the commercial general office portfolio and the SCB commercial books where we expect losses to remain elevated in the medium term, while the equipment finance portfolio losses have largely stabilized, we are watching one larger deal that could result in elevated losses in the second quarter. Reflecting first quarter performance, we are lowering our full year net charge-off outlook to 30 to 40 basis points with the range reflective of the fact that a handful of large deals can cause lumpiness in the ratio. Moving to noninterest income. We expect it to be in the $520 million to $550 million range in the second quarter. Overall, we continue to see strength in many of our business lines, such as fees from wealth, rail and credit card and merchant services. For the full year, we are raising our adjusted noninterest income guidance to $2.12 billion to $2.22 billion, driven by our rail business, repricing momentum, deposit fees and service charges, growth in wealth and lending-related fees as we continue to benefit from loan growth and capital markets activity. On to expenses. We expect the second quarter to be in the $1.34 billion to $1.38 billion range, slightly up from the first quarter. We expect the growth to come primarily from higher direct bank marketing costs given our focus on client acquisition in that channel. As we continue to focus on bending the cost curve, we are reducing our full year range to $5.34 billion to $5.43 billion. The increase in full year expenses includes merit-based increases, marketing costs, tech scaling and the BMO acquisition impact, which will add less than 1% to our overall expense growth in 2026. As Frank mentioned earlier, we are excited to implement a united brand strategy to continue to align platforms and provide expanded solutions for our clients. While we are still assessing the impact of this announcement, we believe it will add an additional $20 million to $30 million to full year noninterest expense. We expect that our adjusted efficiency ratio will be in the lower 60% range in 2026 as the impact of prior year rate cuts have put downward pressure on net interest income. We believe that the investments we have made in our franchise while driving up costs in the short and medium term are foundational to delivering positive operating leverage over time. Meanwhile, exercising disciplined expense management is a top priority for us given headwinds to net interest income, and while we are not providing guidance beyond 2026, we are committed to returning to positive operating leverage as the interest rate environment normalizes, and we begin to recognize some of the efficiencies from the investments in our franchise. Longer term, our goal remains to operate an efficiency ratio in the mid-50s. And finally, for both the second quarter and full year 2026, we expect our tax rate to be in the range of 24.5% to 25.5%, which is exclusive of any discrete items. To conclude, our first quarter results are reflective of the strength and resilience of our diversified business model. Thanks to our long-term focus and continued investments in our business, we're well positioned to continue delivering value to our clients, customers and shareholders. This concludes our prepared remarks. I will now turn it over to the operator for instructions for the question-and-answer portion of the call. Operator: [Operator Instructions] Our first question comes from Chris McGratty with KBW. Christopher McGratty: Great. Craig or Frank, on the new CET1 target, I just want to make sure I got all the pieces, 10%, 10.5% is the new target. And then on top of that, there's a 70 to 100 benefit on the Basel III. How should we think about -- I hear you on the near term on the buybacks. But is there any bias within the range near term? Any changes in uses of capital near term? Craig Nix: Yes. If you go back to '25 and so far '26, our repurchases have ranged from $600 million to $900 million per quarter. And as we move closer to that range, the 10% to 10.5%, we would expect to moderate to the lower end of that range for the next 2 quarters. Christopher McGratty: Okay. And then on the NII guide, I appreciate the fluidity of the curve. But any -- last quarter, you gave some comments on troughing expectations and margin expectations. Any refresh of that, both on a core and a reported basis, Craig? Craig Nix: Sure. In terms of just the tightening of the guidance, we would still, for the full year, expect low single-digit percentage decline in the absolute dollar amount of net interest income. If we look at the trajectory, though, for 2Q '26, we would expect both headline and ex accretion, net interest income to be down low single digits percentage points. And NIM to be in the mid-3.0s, and ex accretion in the high 2.90s. As far as fourth quarter exit we expect both headline and ex accretion net interest income to be up mid-single-digit percentage points and expect headline NIM to be in the high 3.0s and ex accretion in the low 3.0s. And in terms of troughing, I think you asked about that. We would expect that headline net interest income and ex accretion net interest income to have already troughed in the first quarter, but the NIM will trough in the third quarter. Operator: Our next question comes from Casey Haire with Autonomous Research. Casey Haire: Great. I wanted to touch on the deposit growth outlook, very good start here in the first quarter, a lot of it coming from the SVB side of things. Craig, I think I heard you say that you expect direct bank to drive a lot of the growth going forward. But just wondering what the outlook is on the SVB side of things after a strong quarter. Craig Nix: Why don't you do the SVB, and Marc, you can weigh in on this as well. Unknown Executive: Yes. I'll start with the SVB. I mean we do expect continued growth through the end of the year. I think when you look at the balances, as Craig mentioned, we did have some very large inflows, client accounts that we do expect to either go back out and/or transition to off balance sheet. And so I think second quarter from a Silicon Valley perspective, we do think moderate, but we do see growth really through the end of the year. Marc Cadieux: And nothing to add. Craig Nix: What do you think, Marc? Nothing to add, Marc. Okay. Marc Cadieux: Nothing to add. Casey Haire: Okay. Great. And then on the credit quality front, on the NPL uptick, Craig, I heard it's nothing systemic. But I was just wondering if you could provide a little more color as to what drove that, those credits, what type of credits they were and resolution efforts to reduce the NPL ratio of around 1% going forward? Craig Nix: Andy, would like to take that one, please? Andrew Giangrave: Yes, sure. The increase was driven specifically by 3 main credits, 2 of which were our multifamily that have moved to nonaccrual. We really don't see a lot of loss content on those 2, reviewed them for specific reserves and are working through resolution on those. The third was an account in our innovation portfolio, been criticized for some time. It's currently up for sale, and we hope to have resolution on that credit at some point this year. In terms of efforts to bring down our NPLs. The majority of our NPLs really reside in our general office. And so as Craig noted at the beginning, charge-offs in our general office portfolio were down this quarter, and we anticipate -- and a lot of that was timing on resolution. So we would anticipate, as we work through this year, to see some of those resolutions come to fruition. And as a result, we would anticipate NPLs to come down. Operator: Our next question comes from Anthony Elian with JPMorgan. Anthony Elian: Craig or Frank, I appreciate the new slide you have on the NDFI book. Could you help us quantify your exposure to companies in the software industry for both loans and deposits? I don't think this has been disclosed since you acquired SVB a few years ago. Craig Nix: Yes. I will let Andy elaborate. But in terms of on-balance sheet, software is $8.1 billion and about $14.4 billion of exposure. But I'll let Andy talk about what that portfolio looks like. Andrew Giangrave: Sure. Thanks, Craig. So having back the innovation economy for quite a while, we obviously had some very deep experience managing tech credit portfolios through multiple economic cycles and changes in tech shifts there. We have seen improvement throughout the last several quarters on our criticized levels within the [indiscernible] portfolio. And if you think about our portfolio, couple of main buckets, if you will. The first would be emerging growth, VC-backed type companies. And they are focused on being kind of the disruptors themselves and are really AI native or investing heavily in AI. And so you can think about those really being the investor-dependent type transaction. So they're really focused on access to capital, and that's where the risk would be. The other large bucket would be the middle market software companies kind of PE controlled or the late-stage venture-backed companies. These are actively focused on AI adoption and the evolution to address any potential disruption. And that would be the second bucket. And then there's also within that $8 billion, there's probably 25-ish, 30% of which are either cash-secured or ABL transactions. So we feel good about that credit risk as well. We have done a deep dive into the portfolio to evaluate any attributes for vulnerability or strength within each of those borrowers, including looking at, are they a system of record? Do they have proprietary data? What is the level of switching costs, et cetera. So we've got a good sense for strengths or weaknesses with each of those borrowers. We're also leveraging our deep relationships with the VC firms themselves to get additional insight. And as we go through the second quarter, we will be doing additional focal reviews at a finer segmentation. That's kind of the overview, high level overview of our software exposure. I think you touched on NDFI as well. Within our private credit book, we did a deep dive there this quarter as well. The software exposure within that portfolio average is about 14% of software exposure for any given fund, so not too outsized. And as Craig said, those structures are very well collateralized and have a lot of structural protections. And then finally, as part of that deep dive, we did a stress scenario and assume some very conservative either default rates and recovery rates and found that any losses would be manageable coming out of that portfolio. Anthony Elian: Great, Andy. And then my follow-up from an earlier question. Craig, on the exit NII guide you gave earlier, you gave a range of up mid-single digits. Could you make clear what time period that was for? And what comparison period was the base? Craig Nix: The up mid-single digits was the first quarter to fourth quarter exit. Anthony Elian: Both for core and GAAP NII? Craig Nix: That's correct. Operator: Our next question comes from Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: So just a question on the competition that remains intense in deposits. Could you just maybe provide some commentary on just thoughts in your franchise or what you're seeing with terms and pricing from peers? Craig Nix: I think competition is intense, pricing betas haven't moved much given pricing pressures. So I would describe competition as intense. I will let Marc maybe talk about a little bit what he's seeing at SVB, and Elliot a little bit of what we're seeing in the branch network in the direct bank. Marc Cadieux: So I will start. It's Marc Cadieux on SVB. And as Craig mentioned, the competition is intense. We see it from all manner financial institutions, neobanks, fintechs, et cetera, competing for balances. And as I think the quarter indicates, we are holding our own, notwithstanding the competition, allowing as already mentioned that there is some volatility to the balances and all of which is reflected in our guide. I will pass it along. Elliot Howard: Yes. And I think as it relates to both the branch network and especially the direct bank, where we're really seeing the pressure is on a lot of the money market promos, CD rates do now with kind of the expectation of really net rate cuts. And so we're seeing competitors still out there with really kind of a 4% type rate. I think our hope would be that betas would have shifted down a little bit that we would assume something kind of more in the high 3s, but competition has really remained and those lead rates have really stayed elevated through the first quarter. Bernard Von Gizycki: Great. And just as a follow-up. The commentary about the broker deposits being all in lower cost versus the direct bank. Just any commentary you can provide on what the -- maybe the spread differences between the 2, just to give us a sense? Tom Eklund: Yes, sure. This is Tom. If you look at the broker deposits, I mean, during the first quarter, you were able to raise those what I would consider in the high 3s. Whereas to Elliot's point earlier, some of the competition we've seen in the direct bank and even some of the branch network, we've seen rates north of 4% there. Obviously, the brokered market is efficient. Marketing costs are sort of fixed at that 10 basis points. So you have an all-in cost below that 4% handle in that channel. So that's really what drove us to shift a little heavier into that space. And again, we'll continue to monitor market conditions as we move ahead. Operator: Our next question comes from David Chiaverini with Jefferies. David Chiaverini: So on the loan outlook, it sounds like the pipelines for Global Fund Banking are robust, but you sounded more guarded on the middle market side of the business. Can you talk about what's driving this? Is it macro uncertainty or geopolitical risk? Just any color there would be helpful. Unknown Executive: Yes. I think in the middle market and really, come to the industry vertical space, I think we still do expect growth. I think, certainly, with the geopolitical events occurring right now, a little bit of uncertainty. We did see prepayments pick up a little bit in the first quarter. But I think all is equal, we are expecting growth really kind of in the, call it, mid-single digits in industry verticals and really that middle market space. So still optimistic. But I think we do have a little bit of hesitation just with kind of the uncertainty that's out there right now. David Chiaverini: Great. And in terms of the loan pricing environment and the competitive environment there, can you provide some commentary there? It's clearly very intense on the deposit side, curious about the loan pricing side. Unknown Executive: Yes. We've -- generally, I think over the past few quarters seen spreads come in a little bit just due to the competition. What I'd say is I think we're reaching more of a stabilization on really those spreads. So I think competition is fierce right now, but I think we'd characterize it really throughout '25 and certainly in first quarter '26 as remaining intense. Operator: Our next question comes from Christopher Marinac with Brean Capital, LLC. Christopher Marinac: Is there a further goal on the FDIC purchase money note beyond what you've already done in April? Craig Nix: With further goal, we would anticipate at a minimum, based on the roll-off of the loans collateralizing our U.S. treasuries collateralizing the note to pay down an additional $500 million to $1 billion per month, so that sort of gives you an idea of the trajectory we're on. Christopher Marinac: Sure. And then back to the other conversation about broker deposits, you really are a long ways away from having any restraints on how many brokered funds you can do. Is that correct? Tom Eklund: Yes, that's correct. I mean these were really sort of the first deposits. We had another slug of broker deposits that matured. I believe it was back in October last year. So we're really coming off of a very low base here. And really, the way we look at that is we look at those deposits in conjunction with the direct bank and sort of look for, as I spoke about earlier, opportunities from a cost perspective where we can get the best execution. Christopher Marinac: Great. But in general, in the big picture, the direct bank is still going to grow. It might just be more of a timing difference in terms of where you are this year, next year, et cetera? Tom Eklund: Yes, that's right. We still expect the direct bank to continue to grow. It's just that we might moderate some of the expectations if we continue to put on broker deposits to augment that growth if that turns out to be cheaper. Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to our host, Ms. Deanna Hart for any closing remarks. Deanna Hart: Thank you, and thanks, everyone, for joining our call today. We appreciate your ongoing interest in our company. And if you have further questions or need additional information, please feel free to reach out to the Investor Relations team. We hope you have a great rest of your day. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a wonderful day.
Bong Kwon: Greetings, everyone. I am [ Jerry Kwon ], Head of KBFG's IR Department. We will now begin 2026 Q1 Business Results Presentation. Thank you very much for participating in today's earnings release. We have here with us our CFO, Sang-Rok Na as well as other executives from the group. Regarding the agenda today, we will first have our Group CFO, deliver the 2026 Q1 major business results and then engage in a Q&A session. I would like to invite our Group CFO to deliver a presentation on our 2026 Q1 performance. Sang-Rok Na: Greetings, everyone. I am KB Financial Group CFO, Sang-Rok Na. I would like to express my deepest gratitude to everyone for taking part in 2026 Q1 business results presentation. Before I share the details of our business results, I would like to briefly cover our group's shareholder return policy and major highlights. Let's go to Page 1. KBFG established a market-leading shareholder return model through our industry's first implementation of quarterly even dividend, share buyback and Korea's only CET1 ratio linked corporate value enhancement policy. Based on this strong policy direction today, our BOD in order to once again demonstrate our firm commitment to enhancing shareholder value, resolved to cancel the entirety of our existing treasury shares. The shares subject to cancellation amount to approximately 14.26 million shares, representing about 3.8% of total issued shares. This constitutes the largest ever single cancellation in the industry in terms of value. Following the recent amendment to the commercial code, the cancellation of treasury shares has been mandated with a grace period of 1 year and 6 months. However, despite this grace period, KB Financial Group has decided to proceed with the immediate cancellation of all treasury shares currently held upon the amendment to the law. This reflects the strong commitment of our BOD and management to prioritize shareholders as well as the firm decision to proactively align with the government's policy direction and the advancement of Korea capital market. As a result, the group's number of total issued shares have been reduced by 15.2% compared to 10 years ago. You can see that significantly widening the extent of the reduction. As a result, key per share indicators such as EPS and DPS have also demonstrated growth comparable to that of leading global financial institutions. Next, let's go to Page 2. Bank core deposits have increased by approximately KRW 9.8 trillion compared to last year. And through strategic efforts to reduce funding costs, we have maintained a solid NIM. Despite concerns over potential fund outflows to capital markets, we are stably securing a stable interest income base. Accordingly, while stably guarding stable core earnings, we have actively leveraged our money move environment towards investment assets to elevate the profitability of our noninterest and nonbanking segment to the next level, and this has become a strong driver of our group's overall fundamentals. In particular, the bank's WM income has expanded meaningfully driven primarily by trust fees, while the securities business has substantially strengthened its profit-generating capacity through increased brokerage income and higher WM fees, thereby further enhancing its contribution to the group's earnings. In addition, securities and asset management business' AUM increased by 55.9% and 18.4% Q-o-Q, respectively, thereby further strengthening the noninterest income base that supports improved RORWA efficiency. With the nonbanking subsidiary driving approximately 72% of the group's fee income, KB plans to further solidify our fee income base through efficient capital allocation, leveraging the competitiveness of our nonbanking portfolio. Next, I will address shareholder returns for Q1. Today's Board meeting, we resolved to approve, a, quarterly cash dividend of KRW 1,143 per share totaling KRW 405.4 billion as well as the second round of share buybacks and cancellations in the first half of 2026 amounting to KRW 600 billion. Q1 cash dividend per share, reflecting the share buyback increased by KRW 231, a 25.3% increase year-on-year. The current share buyback and cancellation program follows the completion of the initial purchase of KRW 600 billion out of total KRW 1.2 trillion of buyback and cancellation plan for the first half of 2026, and we plan to proceed with additional purchases immediately. For your reference, the -[ 3.9 billion ] shares, share acquired in the first round will be canceled in a single batch on May 15, together with the 14.26 million treasury shares already held as previously mentioned. Next, I will walk you through KBFG's financial performance. To begin with the key highlights of Q1 of 2026 can be summarized as a demonstration of KBFG's strong fundamentals that remains resilient despite unprecedented dual headwinds, including a sharp rise in exchange rates and the war in the Middle East. The group's 2026 Q1 net income posted KRW 1,892.4 billion, while the bank's interest income base was managed in a stable manner, net fee income from the bank, securities and asset management businesses grew significantly, resulting in a 11.5% Y-o-Y increase. In addition, the group's Q1 ROE improved by 0.9 percentage points Y-o-Y, posting 13.94%, demonstrating solid growth across both profitability and capital efficiency. I will now provide a more detailed breakdown of our financial performance by business segment. For Q1 of 2026, the KBFG's net interest income recorded KRW 3.3348 trillion, representing a 2.2% increase Y-o-Y. Despite a challenging environment marked by strong capital outflows to the capital markets, this was achieved through effective cost control via an optimized funding mix strategy, including the expansion of core deposits. Such strengthening of the earnings structure supported qualitative growth in interest income alongside an improvement in net interest margin. Next, we will discuss the growth of the bank's Korean won denominated loans. As of the end of March 2026, the bank's Korean won loans totaled KRW 379 trillion, showing a slight increase of 0.4% compared to year-end. Household loans due to household debt management regulations and rising market interest rate recorded a slight decrease of 0.4% compared to year-end. For corporate loans, loans to large corporations continue to grow, while solid growth in high-quality SME loans centered on productive finance was added, resulting in an overall increase of 1.2% compared to year-end. Going forward, KBFG for household loans will make portfolio adjustments that take into account overall profitability to enhance profitability and strengthen our earnings from [indiscernible]. In parallel for corporate loans, in line with productive finance, KBFG plans to continue to identify and expand high-quality customers with strong growth potential to maintain a growth framework that ensures sustainable growth and stable earnings base. Next, we will turn to the net interest margin shown in the lower right. For Q1, KBFG and the bank recorded NIMs of 1.99% and 1.77%, respectively. The bank's NIM driven by the expansion of core deposits and the repricing of high rate term deposits as the rebalancing of the funding portfolio materialized into tangible cost reductions improved by 2 bps Q-o-Q. In addition, KBFG's NIM supported by the expansion of the bank's NIM as well as broad-based improvements in card assets, including credit card, receivables and installment financing improved by 4 bps Q-o-Q. Next, we will discuss noninterest income. For Q1, KBFG's noninterest income recorded KRW 1.6509 trillion, representing a significant increase of 27.8% Y-o-Y and marking the highest quarterly noninterest income in the group's history. In particular, for Q1, KBFG's net fee and commission income recorded KRW 1.3593 trillion, increasing by 45.5% Y-o-Y, approximately KRW 425.3 billion. This was driven by a significant expansion in fee income from capital market-related subsidiaries, including securities and asset management. In addition, the bank's wealth management fee income also improved meaningfully, providing further support. Meanwhile, for Q1, other operating profit amid intensified competition for new contracts across the industry and increased downward pressure on insurance operating profit due to a rise in the loss ratio for the long-term insurance recorded KRW 291.6 billion, decreasing 18.5% Y-o-Y. Next, we will cover G&A expenses. For Q1, G&A expenses recorded KRW 1.7649 trillion. Despite continued efforts to improve cost efficiency focused on recurring operating expenses due to higher tax induced following the tax reform at the year-end, it recorded an increase Y-o-Y. However, in the case of the group's CIR supported by an all-time high total operating income of approximately KRW 5 trillion and strong top line growth, combined with ongoing efforts to enhance workforce efficiency and optimize the cost structure recorded 35.4%. This once again demonstrates that the group's cost efficiency is being managed in a stable manner. Next is Page 9, the group's provision for credit losses. For Q1, credit loss provisions recorded KRW 493.2 billion, representing a significant decrease of 24.8% Y-o-Y or KRW 162.4 billion. The decrease was mainly due to the elimination of the base effect from last year's one-off large-scale provisioning at the bank and supported by the proactive efforts to secure loss absorption capacity and the group's conservative risk management efforts, the burden of the provisioning was reduced. In addition, the group's credit cost ratio, despite a slowdown in the asset growth, driven by improvements in credit quality also recorded a significant decline of 14 bps Y-o-Y to 40 bps. Lastly, we will discuss the group's capital ratios. On a preliminary basis, as of end of March 2026, the group's BIS ratio recorded 15.75% and its CET1 ratio recorded 13.63%. The CET1 ratio decreased by approximately 19 bps Q-o-Q. However, despite a sharp rise in the Korean won USD exchange rate by nearly KRW 80 during the quarter and the downward pressure from large-scale shareholder returns at the beginning of the year, presenting a challenging managing environment, solid earnings generation capacity and strategic capital management focus on RORWA enabled us to keep the ratio at a stable level. As you are well aware of, since shareholder returns in the second -- half of the year are linked to the CET1 ratio as of the first half, KBFG will continue to maintain disciplined capital management in Q2 to align with market expectations. Meanwhile, as of end of March 2026, the group's RWA amounted to KRW 366 trillion, increasing by approximately KRW 9 trillion or 2.5% compared to year-end. However, excluding the impact of the increase in exchange rate, the increase was limited to KRW 4 trillion or 1.1% Y-o-Y, remaining within the group's target level showing appropriate growth. The group will continue to implement qualitative growth, efficient capital allocation and stringent limit management as part of a sophisticated RWA management strategy in order to keep the growth rate at an appropriate level. The following pages provide detailed supporting materials of the earnings just presented for your reference. This concludes the presentation of KBFG's 2026 Q1 business results. Thank you very much for your attention. Bong Kwon: Thank you very much, CFO. We will now entertain questions. Operator: [Operator Instructions] I believe we have the first question from [indiscernible] Securities, [indiscernible]. Unknown Analyst: I have a question related to the company or KBFG's capital policy. And first of all, core bank and nonbank and securities like securities, capital and cards. Can you tell us about the RWA allocation and RORWA as well? If you can share it with us, it would be greatly appreciated. Secondly, we have the efficiency making the capital ratio more efficient. So I think there is some deregulation trend. So that -- I think that probably has been reflected in your second half. So can you tell us about the reflection of those changes? Operator: We will hold and then we will soon answer your question. Sang-Rok Na: Thank you very much for the insightful questions. Related to the capital ratio predictions, as you have mentioned, there has been the rationalization of capital regulations. There are some positive aspects stemming from that. However, the FX rate trend and ELS, the fees and other productive finance products are increasing. So I think there are plus factors and minus factors that are mixed in. So I believe that regarding the impact of these policies, I believe that it will not happen very short term, but I think everything will be mixed and offset. So this will be all mixed together. And from last year, we have been emphasizing that our goal is to -- in capital ratio management to have a very stable management and continuous flow, so that is our goal going forward. So we will do our best with that goal in mind. So that is something that I wanted to mention in the beginning. And regarding the RWA allocation, well, I don't think that I can answer that to you in detail right now. But regarding our group's RWA, 70% is for the bank and 15% is for securities. And I think for the rest, 15% or so, we have capital and other subsidiaries that are actually spreading it around. And for RORWA and ROE, well, when we try to compare those indicators for securities and asset management and capital, for those related to financial investment rather than group ROE, group's RORWA, you can see that it is managed at a higher level. And recently, the bank's RORWA or ROE, well, we have the group's ROE also that has been greatly improved. So I hope that will answer your question. Operator: The next question is from Jun-Sup Jung from NH Securities. Jun-Sup Jung: This is Jun-Sup Jung from NH Securities. I have 2 questions in total. The first one is with regards to the efficiency of capital ratio and the plans to achieve that and the capacity you have on hand. So the CET1 ratio, I think definitely has a lot of pressure and potential for upside. Of course, there will be an impact from your earnings, but also impact from regulations as well. So as of Q2 end, the increase -- standing of 13.5% CET1 ratio is quite positive, but then there is going to be a shareholder buyback and additional cancellation of shares that would have an impact on that. So I would like to ask for your plan and commitment to -- with regards to maintaining that number. And the second question is with regards to the role of the nonbank subsidiaries. The increase in RWA, I would like to know the group-wide strategy that you have. So for example, [indiscernible], is it to maintain that at current levels and for securities to increase the portion of RWA. Do you have an internal strategy? If so, please provide some more information. Operator: Yes, please allow some time to ask the questions and prepare the answers. Sang-Rok Na: Yes, I would like to answer the question now. As you asked, with regards to our shareholder return policy, it's 13% and to have the surplus earnings and use that for the shareholder return policy, the exceeding amount. And from 2 years ago, we have been committed to execute this strategy. And this year, this holds steady as well. Compared to other companies, we would say we don't have an internal number target, but we have a logic and a system-wide number, and we provide that as a result of our shareholder return, and we will continue to carry out such commitment and efforts. And as you asked, in terms of the role of the nonbank subsidiaries, of course, it is quite important and compared to the peer groups, we have the highest contribution from the nonbank subsidiaries at the moment. And as of now, we would say we have a complete portfolio, and we are trying to accelerate the growth engine, and we are at that phase now. In terms of the RWA allocation, what I can say from a group perspective, RORWA and ROE, the ones that are lower than that, we would try to reduce the capital and also recover more. And for banks in line with the expansion of productive finance, we are looking at overall profitability and securing additional customers and securing future growth potential, focusing on SMEs and productive finance. So RWA allocation will be allocated more towards that. I think for banks, though, it's not going to be that we're going to reduce and downsize RWA as a whole, but we're looking at the role of our expanded presence in the capital markets and also our expanded contribution for productive finance to set and execute our RWA allocation strategy. For securities, there was a paid-in capital increase of KRW 700 billion. And as of last year, ROE of securities was higher than the group, and it was improved at that level. And recently, we're expecting that there will be continuous improvement. There was additional capital injected as a result. So for growth areas, we will say that RWA will be increased further for such growth areas. So overall, the principle will be, as I mentioned before, it is kind of repetitive. But for areas that are expected to show growth and are showing high profitability, we will allocate more RWA, and that principle will continue to be upheld. Operator: We will take the next question from Mirae Asset Securities, Jeong Tae Joon. Tae Joon Jeong: I'm Jeong Tae Joon from Mirae Asset Securities. I have one question. So you see NIM that is actually on an upward trend and other positive numbers. And for the margin guidance, can you talk about any new guidance news that you might have? Sang-Rok Na: Regarding the bank NIM, maybe I can answer the question. In Q1 for bank NIM, 1.77%. And compared to the previous quarter, 2 bps increase. So the market rate has gone up, and you can see household loan profitability has been on a rebound. So for high interest rate, time deposits, we had that funding, but through rebalancing, we had the funding structure that was made more even. And when we made a prediction last year, we thought that the [indiscernible] rate, it would go down is -- was our prediction. But recently looking at the base interest rate, I think increasing it is coming up. So compared to our plans last year, I think that it will probably have a slight increase and end there. Operator: Next question is from Do Ha Kim, Hanwha Investment & Securities. Do Ha Kim: Yes. Thank you f or the opportunity to ask a question. So I think the questions are regarding CET1 a lot. I think this is probably the most important number that we look at. So we are looking at that for future guidance. I think for RWA in Q1, you said the FX impact was KRW 4 trillion, 1.1%. So if we do a simple calculation, the FX impact was about 15 bps negative to the profitability. So this kind of sensitivity, would that be the right number to take into account for the impact? And for Q1, the Basel III capital recognition related requirements and the RWA down impact as of that, I think you did also cover that. But for Q1, the specific numbers were not released. So the RWA Q2, the external factors, of course, not the FX impact, but what would be the external factors for investors to look out for? And it would be great to have that in reference for us to look out for the second half. And next question is quite similar to the one asked before, the NPL coverage ratio in Q1, it has come down significantly about Q-o-Q 20%. And it is above 120% recently. Of course, it's not necessary to be as high as COVID. But compared to the recent levels, it's not at a high level as of now. So are we going to record additional provisioning for this? Or is there any expectation or a factor that you think that will contribute to the downward pressure on the NPL ratio? Operator: So please wait a bit, while we prepare to answer your question. Sang-Rok Na: So I think 2 questions in total regarding RWA, and the NPL coverage ratio downward trend. So first on the RWA. So as you mentioned, the FX impact in terms of the CET1 ratio was about 19 bps in the first half. So in Q2, Q3 and Q4, there has been a lot of downsizing to the potential for growth throughout the year. However, despite that, the downward impact is -- majority is driven by the FX impact. So the RWA related sensitivity, we're trying a lot to try to reduce that. So for example, the over-the-counter derivatives, managing the duration and a lot of the maturity and duration related efforts are being taken to reduce the sensitivity. And on top of that, data refinement, portfolio rebalancing, additional RWA leverage options and plans are underway. As you mentioned, so additional rationalization of the capital ratio, there is not a lot of room of buffer we have, but we do have some room. So with regards to RWA, I think that would be the extent I could answer now. And in terms of the NPL coverage ratio, on a continuous basis, we have maintained quite a cautious stance in terms of provisioning and we have maintained a high CCR as a result. And managing NPL, we have been quite aggressive in rebalancing of it. Moving forward, we will continue to remain conservative in our provisioning stance. But what is of more focus now is reducing the NPL with active write-off and sell-off and an exit strategy for the existing real estate exposures we have. We will try to actively reduce our NPLs and have that ultimately improve the NPL coverage ratio as well. Operator: We will take the next question. From HSBC Securities, we have Won Jaewoong. Jaewoong Won: Despite a challenging environment, thank you very much for the great results. I have 2 questions. The first question is operational risk RWA deregulation. And I know that this was -- is applied to you. And I think in 2024, maybe 2 years ago, there was ELS-related operational risk that you had accumulated. So at that time, when it's deregulated, then in 2027, how much of CET1 improvement would you enjoy? If you can explain that positive impact, it will be greatly appreciated. And second question is for KB Kookmin Bank and to my recollection, I think you had actually turned the profit from last year. There were great improvements. So for this year, including KB Kookmin Bank for overseas earnings contribution or increase of their profit. Can you share it with us? Operator: Please hold and we will soon answer your questions. Unknown Executive: Regarding ELS, operational risks and RWA loss recognition exemption. You asked about the impact. And at that time, there was about KRW 745 billion voluntary compensation that we paid to the customers. So that is actually earmarked as losses. But in the first half of next year, if it is recognized, then there will be 20 bps positive impact on CET1. Sang-Rok Na: Yes, I'm the CFO. Regarding the question regarding RWA. Maybe I can add a little more to my answer. So we're doing a lot of the work to reduce the sensitivity to foreign exchange rate. So we talked about 15 bps of sensitivity that was mentioned by Do Ha Kim, and there are the fines that it's not actually confirmed yet, the amount. So I think we will have to reconsider how much of the finder penalties will be derived. And we believe that we have KRW 97 billion that has been recognized, we're provisioning for that amount. And related to the optimization or rationalization of capital regulations, well, regarding, I think, the details of that, it hasn't been finalized. So we are talking with the regulators regarding this. So we cannot really pinpoint a clear-cut answer to that. So I hope for your kind understanding and for the past ELS-related operational risk, well, as our CRO just mentioned, from next year, I believe that it will be gradually reflected. In the case of Bukopin and Global about the contribution to our earnings, Bukopin had restructuring for many years until now. And their IT system was upgraded. So now we have set a strong foundation so that the operational base has been laid very firm. And regarding the acquisition of CASA deposits, we are doing our best to reduce funding costs and there's the Korea desk. So we are doing wholesale retail that actually is being done. And we cannot really say that it will improve in a significant percentage, but you can see that the profit contribution of the Global was about 5% last year. And this year, we believe that it will be hike up to maybe 6% to 7% and we have a very prudent prediction that it may raise to that level this year. Operator: Next, it's from Jihyun Cho from JPMorgan. . Jihyun Cho: Well, thank you for the opportunity to ask questions. So I think definitely, the fee income was increased considerably. And at the early start of the year, I think NIM, you said the guidance was quite conservative, and thus saw a slight increase, was the comment that you provided. In 2026, in terms of guidance, the loan growth of 5% and household loan 2.2% to 3% as I recall. I think if we look at Q1, and if you look at the overall market environment, the loan growth target of 5%, is this sustainable? And the SG&A it did increase by 10%. I think early start of the year, the guidance was 4%. So is this at a manageable level? And in Q1, most importantly, the credit cost was around 40% at bps level. And considering inflation and the macro environment overall, I do think there will be some time lag and the credit cost, so the 40 bps early in that range, is this going to be attainable. So could you provide guidance on the credit cost? Does it need to be upwardly revised? Operator: Please allow some time for us to prepare for the answer. Unknown Executive: Yes. In terms of loan growth, the bank's CFO will provide an answer for you. And the CCR guidance and projections, our CRO, will provide an answer. So after that, I will also follow up with some additional answers. Sang-Rok Na: So in terms of loan asset growth, so as of end of March, Korean won loan balance was an increase of 0.4% compared to year-end. And in terms of household loan compared to year-end, it was a decrease of 0.4% and corporate loans was an increase of 2.2%. So as you well know, in terms of household loans, there is the total cap, and it's linked to such policies and directions, which does present us with some restrictions. However, within the cap, we are trying to leverage how we can increase our loan book, and there are the policy loans, the [indiscernible] loans that is provided to the young population and the elderly population. So we are trying to increase that portion. So the household loan is targeted to increase by 1% to 2%. In terms of corporate loans, so under the productive finance direction, so we're expecting a growth of 6% to 7%, and that is our target. So of course, there's going to be intensified competition to attract corporate loans. So in line with the productive finance, we will be preemptive in our efforts to try to convert to our growth momentum and diversify our portfolio to secure future growth areas. And for SMEs, loans, we will also follow the productive finance to focus on prime assets. And for SOHO, we will be quite selective to have an adequate level of growth there as well. So in total, we would say for household loan, growth target is 1% to 2%, corporate loans is about 6% to 7%. So for the bank as a whole, the credit growth is on average expected to be around 4% in our target for the year. And with regards to credit loss provisions. So as you mentioned in Q1, we have had the conservative stance in terms of provisioning and the qualitative improvement in our portfolio and this materialized. And despite the declining numbers in our NPL and such, we have remained a CCR of around 40%. But with the Middle East war and with that the high pressure on the FX rate and such, this could pose additional impact on our asset quality. So in the future, we will continue to -- and we do think it's necessary to maintain a conservative provisioning stance. Despite that, for the ones that we view with as vulnerable borrowers with a considerable risk for loss, we will have preventive provisioning for NPL. And for the existing real estate projects, if possible, we will have a sufficient loss absorption capacity for restructuring and also sell off to reduce our distress and potential exposure. And if so, the 40 bps, mid -- early to mid level of that is thought to be attainable as of now. So we currently hold that to be the same as now. And in terms of SG&A, you asked about the upward pressure on that part and I think as you know, for education tax and corporate tax, the tax rate was increased and the G&A was increased as a result. And in addition to that, securities and banks, we did have very solid performance and definitely from securities, very strong earnings. So the actual adjustments made to the bonus and such, we did have to reflect that accordingly, and that resulted in increase in G&A. So if there is an increase in the G&A, of course, this is attributable to the top line growth that we have. So we would say we are trying to manage it within the overall group level and continue our efforts for cost optimization. And if that does not undermine our cost efficiency target in plans, we do believe that it is at a manageable sustainable level. So considering the tax increase rate impact and also the strong earnings leading to additional set aside of bonus and such related payments, we do believe that the range of the SG&A increase is continued going to be -- continue to be at a manageable level. Operator: Thank you very much for your answer. There are no questions in the queue for now. So we will wait to see if other questions come in. Bong Kwon: It seems that about 40 minutes has passed since we started our earnings presentation. If you have any further questions, please contact our IR department, and we'll be happy to provide you with answers. Because we have no questions in the queue, we will conclude 2021 (sic) [ 2026 ] Q1 business results presentation. Thank you for your attention. .
Operator: Good day, ladies and gentlemen, and welcome to the Medpace Holdings, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question, please press 11 on your phone. If your question has been answered and you would like to remove yourself from the queue, simply press 11 again. As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference call, Lauren Morris, Medpace Holdings, Inc.’s Director of Investor Relations. You may begin. Lauren Morris: Good morning, and thank you for joining Medpace Holdings, Inc.’s first quarter 2026 earnings conference call. Also on the call today is our CEO, August James Troendle, our President, Jesse J. Geiger, and our CFO, Kevin M. Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties, as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC. We undertake no obligation to update forward-looking statements even if estimates change. Accordingly, you should not rely on any of today’s forward-looking statements as representing our views as of any date after today. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or replacements for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in our earnings press release and earnings call presentation slides provided in connection with today’s call. The slides are available in the Investor Relations section of our website at medpace.com. With that, I would now like to turn the call over to August James Troendle. August James Troendle: Good day, everyone. Before reviewing Q1 results, I would like to acknowledge that this will be our last earnings call with Jesse J. Geiger, our President. I would like to thank Jesse for his eighteen and a half years of service. Thank you, Jesse. 2026 saw cancellations rise again with backlog cancels reaching their highest point in over a year. Net bookings were below the level seen in Q4, but well above those in Q1 2025 with a net book-to-bill ratio of 0.88. RFPs were down in the quarter sequentially and year over year. Initial award notifications and win rate were strong. We continue to view the quality of opportunity flow as good. While there is nothing we can do to alter our cancellation rate, we are focused on expanding our pipeline of opportunities and have implemented a number of initiatives to improve our win rate. Jesse will now comment on Q1. Jesse J. Geiger: Good morning, everyone. Revenue for the first quarter of 2026 was $706.6 million, which represents a year-over-year increase of 26.5%. Net new business awards entering backlog in the first quarter increased 23.7% from the prior year to $618.4 million, resulting in the 0.88 net book-to-bill. Ending backlog as of 03/31/2026 was approximately $2.9 billion, an increase of 2.9% from the prior year. We project that approximately $1.94 billion of backlog will convert to revenue in the next twelve months, and backlog conversion in the first quarter was 23.3% of beginning backlog. Now, before I turn the call over to Kevin, I want to add that it has been a true honor to serve the company all of these years. I wish all of my Medpace Holdings, Inc. colleagues well, and I am so proud of what we have accomplished together. With that, I will turn the call over to Kevin. Kevin? Kevin M. Brady: Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $706.6 million in the first quarter of 2026. This represented a year-over-year increase of 26.5% on a reported basis and 25.8% on a constant currency basis. EBITDA of $149.4 million increased 25.9% compared to $118.6 million in the first quarter of 2025. On a constant currency basis, first quarter EBITDA increased 28.6% compared to the prior year. EBITDA margin for the first quarter was 21.1%, compared to 21.2% in the prior year period, as the impact of higher reimbursable costs was offset primarily by lower employee-related costs. In the first quarter of 2026, net income of $123.9 million increased 8.1% compared to net income of $114.6 million in the prior year period. Net income growth below EBITDA growth was primarily driven by a higher effective tax rate in the quarter. Net income per diluted share for the quarter was $4.28, compared to $3.67 in the prior year period. Regarding customer concentration, our top five and top ten customers represent roughly 28% and 37%, respectively, of our last twelve months’ revenue. In the first quarter, we generated $151.8 million in cash flow from operating activities, and our net days sales outstanding was negative 58.8 days. As of 03/31/2026, we had $652.7 million in cash. Our 2026 guidance ranges for revenue, EBITDA, net income, and EPS are unchanged from our prior quarter, based on an effective tax rate of 19% to 20% and interest income of $27.5 million. There are no additional share repurchases in our guidance. With that, I will turn the call back over to the operator so we can take questions. Operator: Thank you. We will now open the call for questions. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. Our first question comes from Maxwell Andrew Smock with William Blair. You may proceed. Maxwell Andrew Smock: Hi. Good morning, everyone. Thanks for taking our call. Maybe just following up on the cancellations point. August, I know you mentioned the highest that you had seen in about a year. Just wondering if you could dive into the dynamics behind those cancellations. I know last quarter you called out not really macro-related, more project-specific. I am wondering if that was the case here in the first quarter, and then any detail you can provide around how cancellations have trended so far in the second quarter? And just any other drivers in terms of therapeutic modality, indication, any themes behind outsized cancellations that you saw here in the first quarter? Thank you. August James Troendle: Sure. Hi, Max. Cancellations were again just the kind of random items you would expect: product performance, reprioritization, etc. It was not particularly informed by acute financial shortages or anything like that. So it was the usual factors, but higher than we have historically averaged, and it put pressure on our book-to-bill. Cancellations in the quarter were largely in oncology and cardiovascular, which is fairly typical for us. There is really nothing to call out beyond that. For the second quarter, it is too early to get any kind of read on the cancellation rate and whether it is going to be high again in Q2. It is too early to make any assessment. Maxwell Andrew Smock: Understood. Maybe following up and sticking on the cancellations theme. I think last quarter you also mentioned cancellations were occurring both in terms of your backlog and also in initial awards. A couple of quarters ago, you called out, I think, the initial awards bucket had about $4 billion worth of signed work. Can you provide any update around cancellations out of that bucket in particular and where the size of that bucket is today relative to maybe that $4 billion from a couple of quarters ago? Just trying to get a sense for your visibility and level of confidence into that initial awards bucket converting into backlog moving forward. August James Troendle: We are not going to get into quantifying our pipeline size. We have never quantified that. Cancellations in that initial awards bucket were not particularly elevated in Q1. It was more backlog-related cancellations that were problematic for us. I do not think that impairs our future items rolling into backlog. The last couple of quarters of higher cancellations overall, including in that pre-backlog bucket in prior periods, does influence things, but that was not a particular factor this quarter. Obviously, higher cancellations take away from total revenue opportunities in the year, but with a reduction in cancellations, if we hopefully see that, conversion can proceed at a more normalized rate. Operator: Thank you. Our next question comes from David Howard Windley with Jefferies. You may proceed. David Howard Windley: Hi. Thanks for taking my question. Good morning. I wanted to clarify on the cancellations, a follow-up to Max’s question. August, you said oncology and cardiovascular. I believe you all would treat cardiovascular independent of metabolic, and I just wanted to make sure I heard that right and that we are interpreting that correctly. So metabolic cancellations were actually not part of your callout. Is that correct? August James Troendle: That is correct. We break out our therapeutic areas in our earnings release and in the presentation deck, and cardiovascular is separate from metabolic. There can be overlap in certain programs, but we do break them out separately. David Howard Windley: A market concern is that metabolic has been a significant revenue growth driver, as evidenced by the pie chart you include in the deck. I think the callout on the fairly sizable cancellation that shaded down net bookings last quarter was metabolic. Do you have a GLP-1 concentration that is becoming more volatile, perhaps because of changes in price or market dominance by a couple of players that would cause biotech to think twice about pursuing GLP-1s? Could you provide color on whether you have that exposure? August James Troendle: We have talked about roughly 50% of our obesity work being GLP-1 related. There is a fair amount of work there, but I do not see it as more volatile. For new opportunities, there may be some truth to the market becoming a bit saturated and competitive and pricing-sensitive, but it has not resulted in higher cancellations, even in pre-backlog. Historically, metabolic has the lowest cancellation rate as a percent of opening backlog among the therapeutic areas we break out. Metabolic was higher last quarter because it is a large category and had a slight uptick, while oncology had a downtick in percentage. Generally, oncology is riskier and has more cancellations. GLP-1 is actually a pretty safe therapeutic area for us, and things are going fine. David Howard Windley: That is helpful. On revenue guidance and cadence, given the immediacy of your bookings recognition to revenue—when you recognize a booking the project is already going—and you are highlighting higher cancellations and a sub-one book-to-bill, yet maintaining revenue guidance. Perhaps you or Kevin could speak to the durability or the ability to hold revenue where it is despite backlog not really growing. August James Troendle: Under 606, revenue timing is tough. We have not been great at predicting when pass-through investigator costs will hit, and they have been a larger portion lately. That is always at risk, but our current modeling is that we will be within our guidance range on revenue despite the cancellations. Certainly, we have to worry about future cancellations. Kevin M. Brady: Dave, you are exactly right. Despite the headwind from cancellations we saw in the first quarter, we feel very good about the range we have out there, which is why we reconfirmed guidance. Future cancellations could potentially impact that because cancellations can have a near-term impact, but right now we feel good about the guidance ranges. Operator: Our next question comes from Ann Kathleen Hynes with Mizuho. You may proceed. Ann Kathleen Hynes: Great. Thank you, and good luck, Jesse. On the gross bookings side, can you give us what gross bookings grew and if it was in line with your internal expectations? August James Troendle: We do not break out gross bookings; we just report net bookings. Ann Kathleen Hynes: But directionally, was it? August James Troendle: Directionally, gross awards were on the low end. It was not overwhelmingly cancellations that drove us down from what would have been a great book-to-bill. New gross awards were also on the low end, so it was a combination of both cancellations and weak gross bookings, obviously impacted by prior pre-backlog cancellations in the past. Ann Kathleen Hynes: There is a lot of biopharma M&A with big pharma buying biotech. How should we view your exposure to that going forward? If a big pharma purchases one of your biotech clients, what happens to current trials? August James Troendle: That is frustrating and happens all the time. Generally speaking, we are cut out of future work. Usually, the ongoing work we continue with, although there are cases where they fold that into their current provider or internal resources. Acquisitions are not good for us, but we have a very broad portfolio of clients, and it is something we work around. Operator: Our next question comes from Charles Rhyee with TD Cowen. You may proceed. Charles Rhyee: Thanks for taking the question. Following up on Anne’s question, would you attribute any of the heightened level of cancellations as a result of past M&A? August James Troendle: I do not think any of the cancellations we had in the quarter were related to M&A activity. Maybe I am wrong on some small part, but that was not a driver. Charles Rhyee: Could you give a sense for the mix in the cancellations between drugs canceled in-flight because of futility versus canceled ahead of start because of a change in direction by sponsors? August James Troendle: We do not track that breakdown because the buckets overlap and are difficult to categorize. Nothing struck us as specifically funding-related, which we are sensitive to. Funding is always one factor, but these categories overlap, so we do not try to break them out. Charles Rhyee: In the net bookings, is the level of pass-through revenues in the future work at the same rate you are seeing today, or lower? Kevin M. Brady: In terms of current bookings, there is still some influence of higher pass-throughs. As I mentioned last quarter, I do expect pass-throughs as a percentage of revenue to end the year lower than where we started this year. We were pretty high this quarter at about 44%. I do expect that to come down as some of these metabolic studies wind down, but it depends on future work and bookings as well. Operator: Our next question comes from Eric White Coldwell with Baird. You may proceed. Eric White Coldwell: I will hit this cancel topic a different way. If cancels were average this quarter—understanding gross awards were lower than you would like—what book-to-bill would we have been looking at? August James Troendle: I have not done that math, but directionally it would still have been weak, somewhere around one, I would assume. It was not just massive cancellations that knocked us down from a great 1.15 to 0.88. It was a mixture of the two. Eric White Coldwell: Sometimes these rates are impacted by one or two larger cancels. What would be the quantum? Was it one largest cancel, or was it several? August James Troendle: It was several—two, three. There was not one outsized cancellation that drove it. Some were meaningful in size, but no single cancellation dominated. Eric White Coldwell: One last thing. Your backlog shows a next-twelve-month revenue visibility figure and a total backlog figure. Over time, subtracting the NTM from total, we have seen a deterioration in the backlog coverage beyond one year for six consecutive quarters. Walk us through why there is not a looming “patent cliff”-like dynamic a year plus away that could upend the revenue growth profile. Are you concerned about this, and what would it take to get that number going back up? August James Troendle: There is area for concern. Several quarters back it was not a concern because our pre-backlog was growing fast and I thought cancellations were coming down. That has not happened. Cancellations have continued at a much higher rate in both backlog and pre-backlog. It results in us facing a tougher revenue trajectory. Looking at Q1 versus the remainder of the year, we do not have sequential revenue growth. We will on a year-over-year basis, but not sequentially. As for 2027, it is too far out to get a handle on. Our sequential growth profile now and over the next six months is a real question. We need either cancellations to abate or gross awards to improve—bigger pipeline and better win rates—which is why we are focused on expanding the pipeline and accommodating what could be a higher cancellation rate than historical. I cannot dodge it—sequential growth is not projected at what we would consider a reasonable rate without improvement in one of those factors. Operator: Our next question comes from Jailendra P. Singh with Truist Securities. You may proceed. Jailendra P. Singh: Good morning, and thanks for taking my questions. On RFP trends, you said they were down year over year. Can you elaborate? Any particular areas of weakness? With biotech funding remaining stable over the past eight or nine months, it is surprising to see RFP weakness. Any more color? August James Troendle: It is hard to categorize by sector or therapeutic area. I do not pay a lot of attention to the numerical RFP counts. The industry focuses on RFPs, so I feel compelled to comment, but the bouncing around in RFPs is overwhelmed by quality. There is also the question of whether more RFPs simply means more CROs are being invited to the same opportunities. Measuring it is difficult. I tend to ignore the numerical value on a sequential basis and focus on the quality of opportunities, which I believe remains high. We have seen deterioration in the past tied to funding problems and scenario-planning RFPs, but I do not see that prevailing now. The trend in quality is pretty good, so I do not put a lot of stock in the headline count in a given quarter. Jailendra P. Singh: Do you see the biotech CRO market getting more competitive over the last six months? Some large peers and biotech venture funds are helping secure early-stage work—has that had any impact? August James Troendle: I do not know the impact. The market is very competitive; I have not seen a large change. Our biggest factor over the last eighteen months has been cancellations. We do think we need to work on our win rate. Whether that is due to increasing competitiveness is hard to measure. Certainly, we would like to win more. Jailendra P. Singh: Last quarter you mentioned that in 2026 you do not expect a net productivity benefit from AI as investments would offset gains. Given continued advancements, has there been any change in your thinking on potential impact of AI on your business? August James Troendle: I reiterate what I said before. For AI to yield savings in the next year or two, it would either have to be so transformative as to upend the industry in the short term or be mostly hype. I believe AI has real value, but achieving that value will take a lot of investment. There is low-hanging fruit, but net of investments, we expect to be investing more than we gain over at least the next two years. We are seeing efficiencies in places now, but net benefit is a few years out for us. Operator: Our next question comes from Luke England Sergott with Barclays. You may proceed. Analyst: Hey, this is Jake on for Luke. Thanks for the question. I know large pharma is not a big focus for you, but if they spend ahead of patent cliffs and scoop up more biotechs, and assuming their demand is less volatile, when would it make sense to take on more of this work, or will it always make sense to prioritize biotech? August James Troendle: We have made a strategic decision not to play in large pharma. To be there, you need a very flexible delivery model involving staffing and a lot of functional outsourcing. Large pharma generally expects those services. We have chosen not to do that because we think it detracts from our focus on full-service internal expertise and driving our own efficient clinical development processes, which is of value to virtual and smaller companies. Large pharma tends to focus on incorporating CROs into their systems. It is a different model. It is not unachievable, but it is not for us. Operator: Our next question comes from Sean Dodge with BMO Capital Markets. You may proceed. Sean Dodge: Thanks, and good morning. August, you mentioned in your prepared remarks some initiatives you are putting in place to improve your win rate. Could you tell us a bit more about what you are doing there and how quickly those could pull through to impact gross wins? August James Troendle: I am not going to get into individual items—we would prefer not to broadcast specifics to competitors—but we are very focused on this and see opportunities to expand both our pipeline and win rate to combat higher cancellations and get back to the growth rate we want. In terms of timing, I am hoping over the next few quarters we will see real improvement. We already had a good win rate in Q1, and I am hoping it is sustainable as our enhancements take hold. Sean Dodge: Taking that and going back to the revenue outlook, you continued to hire in the quarter despite cancellations and softer gross wins. Any more context you can share there? It seems to signal confidence that you will continue to grow revenue. How should we square declining net wins with increased headcount? August James Troendle: Your interpretation is correct. We are still hiring. That reflects our confidence. Operator: Our next question comes from Michael Aaron Cherny with Leerink Partners. You may proceed. Michael Aaron Cherny: Maybe to flip the AI question a different way, August. As you engage with clients, do you see any commercial usage of AI being done by your clients right now? We see new models designed to address clinical trial work and drug discovery. Is any of that factoring into dynamics relative to bookings performance and the slowdown you noted? August James Troendle: No. I do not think there are real applications our clients are using that affect our provision of services or interaction with them at this time. Everyone uses AI in places, often embedded in other systems, but nothing that is impacting us currently. Michael Aaron Cherny: I know you said, Kevin, no buyback in the guidance, but given the way the stock has reacted, any thoughts on capacity and capability—not just authorization, but cash flow availability—given the amount of cash on the balance sheet? Kevin M. Brady: We have authorization in place—over $800 million—and we will continue to execute as we always have and look for opportunities to do that, consistent with our plan and strategy. Operator: Thank you. As a reminder, to ask a question, please press 11. Our next question comes from Ryan Halstead with RBC. You may proceed. Ryan Halstead: Morning. Thanks for taking the questions. Going back to SG&A, it looked like there was a pretty nice improvement sequentially. Can you talk about what drove the improvement, and how should we think about SG&A going forward, especially in light of the comments that you are continuing to hire? What are the efficiencies and how should we think about that? Kevin M. Brady: SG&A was up slightly sequentially. Because of improved retention rates we continue to see efficiencies, probably at a slower pace than we have previously, but we expect margins to remain in a very good spot at the midpoint of guidance. We continue to see some benefit flowing through because of retention, and that is reflected in our guidance. Ryan Halstead: On cancellations, do you see within cancellations any trials that are suspended and have the potential to restart in the future? August James Troendle: For both items in backlog and items that have not reached backlog, one of the biggest risks is timing—when something makes it to backlog and when it starts. Sometimes awards happen before funds are raised or as part of sequential studies. There is always the question of delays. Generally, if something is canceled, it is probably dead. Things do not generally come back from the cancel bucket. But there are items that did not make it into backlog in a given quarter that might come in future quarters if delayed. Items put on hold remain in backlog; we do not cancel solely due to a hold. They may restart or eventually cancel. Operator: Our next question comes from Eric White Coldwell with Baird. You may proceed. Eric White Coldwell: Thanks for the follow-up. I am curious what level of net bookings dollars you are using internally to help guide the revenue outlook. I know calling quarters is unreasonable, and you do not know what cancels will be at this point, but you do have a forecast. Directionally, where are you steering us over the next quarter or next three quarters? August James Troendle: Book-to-bill is a poor modeling measure under 606. It can be useful to see if the bucket is filling commensurate with revenue, but you do not model off book-to-bill. You can miss a book-to-bill target because revenue ran up so fast even if bookings exceeded expectations. We are not going to guide to book-to-bill. We hope to have improving bookings over time, and certainly 0.88, where things are contracting, is not something we would expect going forward, but cancellations can drive lower levels occasionally. Eric White Coldwell: Bookings dollars are important. You just did roughly $618 million in the quarter. Are you internally modeling an increase—$650 million, $700 million? What do you need to be within the revenue guidance range for the year? August James Troendle: We anticipate an increase, but we are not going to quantify it or guide bookings by quarter. There are no guarantees. Eric White Coldwell: On pre-backlog, in the past you have given ballparks and said it was comparable to backlog. Any update? Kevin M. Brady: Because we include items that are authorized but have not moved into the three-year window yet, pre-backlog is generally comparable in size to backlog. August James Troendle: We have never tried to consistently quantify it due to variability, but historically it has been comparable, and at times larger. Operator: Our next question comes from Justin D. Bowers with Deutsche Bank. You may proceed. Justin D. Bowers: Hi. Good morning, everyone. August, to understand the moving parts on gross versus net, it seems like you have grown net bookings 25% year over year, but you are calling out cancellations. On the overall gross environment, was this an RFP dynamic or a win-rate dynamic? It seems like your win rates were okay or stepping up. Were the opportunities just not there in the quarter? August James Troendle: In the current quarter, our awards were good and our win rate was good. If we had a backlog policy that put anything awarded in a quarter into backlog—as some CROs have done—we would have had a good book-to-bill. We do not do that because those awards are often based on future plans, and there is a lot to be done, including financing. In our client base, there are many moving parts and risk that a study never starts. We only recognize into backlog items that have started. What is actually starting in the quarter is based on items awarded in prior quarters—sometimes as far back as two years. There is a disconnect between current environment and our bookings; current environment is better reflected in bookings two to three quarters out, with a lag. Justin D. Bowers: To bridge that, it sounds like awards or wins were good but not starting soon. Is pre-backlog growing? August James Troendle: Pre-backlog did grow. We are not providing metrics on the size of the growth. We had a good quarter in terms of new authorizations—not in backlog, but clients indicating they plan to use us. If you add up those authorizations, the pool grew in the quarter. Justin D. Bowers: On those authorizations, how do you risk-adjust the quality of awards? Any change in trends—how well-capitalized or funded these programs are? August James Troendle: We assess, on a project-by-project basis, the likelihood and timing of progression based on a number of factors, including funding. We do not bucket and track counts by high- versus low-risk categories, but our planning tools probability-adjust opportunities and schedule when we think they will convert to backlog and revenue. I do not have metrics indicating an increase in very-high-risk projects. Operator: Next question comes from David Howard Windley with Jefferies. You may proceed. David Howard Windley: Thanks for the follow-up. I want to confirm a few mechanics so we can better explain them. First, you have said an award-to-booking interval could be as short as one to two quarters or as long as a couple of years. Historically, average is maybe three to five quarters—call it about four. Do you agree? August James Troendle: That is in the ballpark. David Howard Windley: When you recognize a booking, that is basically coincident with first patient in? August James Troendle: Yes. David Howard Windley: So at that point, Medpace Holdings, Inc. has already done a significant amount of setup work that is revenue-recognizable? August James Troendle: Frequently, yes. David Howard Windley: In a cancellation where the client decides not to move forward before first patient in, more times than not that is a pre-backlog cancellation, not a backlog cancellation. Correct? August James Troendle: Correct. Before first patient in, costs are relatively small compared to launching the trial. Items can cancel at any stage up to FPI. Once patients are in, cancellation usually reflects a significant event such as toxicity or lack of efficacy. Before FPI, we often have an LOI or startup task order that covers costs and limits liability. David Howard Windley: In this quarter, where cancellations of backlog were relatively high and several in number, those are trials that already had patients in and the client chose to cancel, typically due to futility or toxicity? August James Troendle: Generally product failure, especially in oncology—lack of efficacy or unexpected toxicity. Sometimes things go really well and finish early; you recruit faster, and the total budget ends up lower than bid, effectively reducing backlog. David Howard Windley: Lastly, different subject: congrats to Jesse on the retirement. August, what is your commitment and view of your own longevity in your current role? August James Troendle: I am committed to the company and passionately interested in Medpace Holdings, Inc. and its success. I will be here for quite a while. I will retake duties as President as I have in the past. We have a very strong and deep management team. We will eventually fill that spot, but not in the near term. We have plenty of management strength to continue to move Medpace Holdings, Inc. forward. Operator: I would like to turn the call back over to Lauren Morris for any closing remarks. Lauren Morris: Yes. Thank you for joining us on today’s call and for your interest in Medpace Holdings, Inc. We look forward to speaking with you again on our second quarter 2026 earnings call. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Angus Bean: Good morning, everyone. Welcome to DroneShield's First Quarter of '26 4C results. It's a pleasure to be speaking with you this morning. So my name is Angus Bean. I'm the CEO and Managing Director for DroneShield. And I've got with me Josh Bolot, who is our Head of Investor Relations and Strategy and we're pleased to present our results to you this morning. Firstly, many of you have seen the news. DroneShield completed a leadership transition in the last couple of weeks of both our CEO, Oleg Vornik and our chair. We announced the market that our chair, after 10 years, Peter James, would not be standing for reelection, and we have had the appointment of -- sorry, for election our incoming Chair, Hamish McLennan. The news of this leadership transition has been received very well. And I'd like to thank, obviously, the whole 500 staff of DroneShield for their support during the last 2 weeks as well as our investors, various stakeholders and our partners around the world in the support of this transition. We'd also like to invite you to attend or join online, our AGM at the end of May, and we look forward to having another update of the business at that time. I'd like to also touch on what I've been up to in the first 2 weeks as CEO of DroneShield. Many of you have seen me in the past over the last 10 years in previous roles as Chief Technology Officer and Chief Product Officer. And it's a pleasure and an honor to step into the CEO role. In my first 2 weeks, it's a bit about listening. It's been about speaking with our team, understanding what they need, what their challenges are and making sure that we're all working together. DroneShield is now a sizable global entity and making sure that the team are moving together is a core part of my role. We've also been speaking to shareholders, understanding their views on the business, learning how we can improve and really listening to where they believe the business can be taken in the future. And we thank you for all the input from all our shareholders around the world. And lastly, we've been speaking with our partners who more and more we rely on to provide great commercial and technical opportunities for us around the world. So thank you for all of our partners. Let's move into the presentation. As many of you would have seen by now, we released our numbers yesterday, and these are outstanding results. This is the second highest quarter in terms of revenue on record for the business, and it demonstrates the continued momentum that -- and leadership that DroneShield has in the counter-drone market. Already, by this early stage in 2026, we have $155 million of committed revenue, which is an outstanding result for a business that only a few years ago was doing sub-$50 million on an annualized basis. So to be here in April with $155 million revenue committed for the year is an outstanding result. Interestingly enough, we are seeing, in our opinion, a better ratio between the larger military contracts that we at DroneShield have become known for, but also an increase in repeat and recurring smaller orders which is lending itself to allow the business to be much more predictable and allow us to make better decisions in the future. We are just as comfortable executing on these large military contracts as we are with the more sustained revenue streams from both military and the emerging nonmilitary market, which by dollar value individually are less, but certainly at a much significantly higher volume. And that's really good to see. It allows us to make better decisions as a business. You'll also note an increase in our Software-as-a-Service revenue stream for the quarter. One of our objectives, and we'll speak more about this later in the presentation, is to get to the point where we have above 30% recurring revenue as part of our business strategy. And so this is a great first step in moving in that right direction. In terms of financial discipline, you will also recognize this is our fourth consecutive quarter of positive net operating cash flow. Again, an important milestone for the business as we are proving operating leverage is increasing and our ability to operate the business is improving. In terms of momentum, I'd like to give a -- I'd like to give a bit more of a history analysis of the numbers. What you can see from the years of 2021 and 2022, is the early adopters, some small trial and test evaluations of our technology. Through 2023 and '24, we had a significant increase in those revenues, and that was primarily through first-time buyers and customers rolling out our products in a minor way. In 2025, we had an outstanding year. And this really represented the first time that militaries were buying as part of defense programs of record and part of much larger military programs that takes a number of years to come to fruition. 2025 really recognize that for us and as you can see in 2026, the results so far are very positive as both militaries are continuing to buy as part of much larger planned procurement activities. And this is where DroneShield really sees a lot of our business coming through in the future. We've spoken to some of the company highlights and the financials but it's important to understand what the future and also the company's position. Our sales pipeline remains strong at $2.2 billion. This is the same update we provided just over 2 weeks ago in March -- sorry, at the end of March. We have 312 deals in the pipeline, 15 of which have a value over $30 million. So the pipeline remains strong. We do have a number of deals that are outside of these 312 , but these are yet to be fully qualified. And so these are unweighted and not -- and at various stages of development in terms of the sales maturation cycle, but $2.2 billion pipeline remains a strong pipeline for the next couple of years. Operationally, we're in a great place. We have over 500 staff now in 7 different countries with a large portion of our capital being invested into research and development, which is becoming the norm in the defense and military industry where companies are being asked to self-fund programs and then the output of those programs is being procured at scale by militaries around the world. Our cash balance remains strong, again above $200 million cash balance, which really gives us the ability to be flexible and jump on opportunities when we see them. Globally, we are increasingly seeing a very turbulent and perhaps a chaotic environment where the world is moving to a multipolar order, and that is causing large tensions around the world. Our 2 primary markets remain the United States and Europe. The U.S., for example, we are seeing the confluence of 2 really significant trends. One is the regulatory environment and the second is the unlocking of significant revenue -- significant -- of significant budgets for defense and non-defense spending. In terms of the regulatory environment, we recently saw the Safer Skies Act, which unlocks 17,500 state and local law enforcement to actually start going through the process to procure counter-drone equipment, which was previously unavailable to them. The programs of records such as JIATF401 now are really taking -- starting to take place. We have the Department of Homeland Security also allocating significant budgets to Counter-UAS. A headline for us for this update is the recent receipt of a FIFA World Cup associated order, which is critically important, as DroneShield has done a number of headlines, both executive protection and sporting events around the world in the past. But the FIFA World Cup is an important one because it demonstrates, again, this idea that local law enforcement, who is the end customer are also starting to adopt counter-drone technologies, specifically those that DroneShield offer. This is a very positive sign. Europe and the U.K. remain a core part of DroneShield's strategy. Many of you are aware, we moved our Chief Commercial Officer, Louis Gamarra, and his family to Europe. And so our center of sales gravity is now in Amsterdam where we've recently opened our new headquarters. We've also opened up production in Europe as well, and we'll continue to expand that. And that allows us to be compliant with the Readiness 2030 or ReArm Europe Plan where we need to be at 65% European industry content to be part of that program. So we are now compliant and we have already started receiving orders through that umbrella. Outside of those 2 major markets, we still see strong growth in Asia, Latin America and the Middle East. And these are -- we are continuing to grow our sales and commercial operations in these areas. Australia remains our home, and we are really proud as an Australian business. We are part of the flagship LAND 156 program on both Line of Effort 2 and Line of Effort 3, and we anticipate to see additional orders from Australia in the months and years to come. In terms of our competitive differentiators, we have both technical and commercial differentiators. Our technical team, which I'm incredibly proud of, we have over 350 world-class engineers, developers and designers. We are able to take this technology from the ground up from the chip all the way through to the end product manufacturing. So we have full in-house capabilities to provide these world-leading technologies and we are in full control of that manufacturing cycle. Additionally, over the last 10 years, DroneShield has developed significant amounts of data on various types of drones, whether that be radio frequency recordings through to radar data, through to acoustic recordings. And so DroneShield holds one of the largest counter-UAS appropriate datasets in the world, which is a core tool and a core differentiator for us. This is something that is incredibly hard to replicate in a short space of time. Commercially, we are a truly global company now. You've seen that we've bolstered our -- both our U.S. and our European presence as well as our presence here in Australia. And fundamentally, our 70 distributors around -- 70 partners around the world remain a core part of the business and that the DroneShield's hub-and-spoke model continues to prove to be effective. In terms of the vision for 2030, this is something that Josh and I will be speaking more and more about over the next few months. It's exciting. We're seeing continued growth of our military market. In addition, we are seeing that now the green shoots of this commercial or nonmilitary market, which we have anticipated for almost a decade. DroneShield is incredibly well positioned as our technologies can be utilized in both military and nonmilitary markets, particularly with the regulatory change we discussed. DroneShield will remain a flexible organization in terms of how we approach the market. And so we have a multichannel market approach where we can either be the prime, the subprime, the partner or go through a regional distributor, or go direct to end users. So DroneShield, we take a multichannel approach there, and it really depends on the environment and the requirements of that location. In terms of the revenue target, we have a -- our big goal is to hit $1 billion annualized revenue with 30% of that is recurring revenue in the next few years. This is a substantial uplift on numbers that were already a 4x increase on previous years. But to fuel that, we are seeing strong diversification across our end users, geographies and our products, both hardware and software. And so we feel that the DroneShield business is in a very strong position in terms of its diversification across all those metrics. We also -- you'll also see, and you'll hear from us again in the next few months around DroneShield beginning to monetize our whole of lifecycle solutions. Today, we do some of the harder parts, which is new sales and new product development. DroneShield will be getting into additional services, both software and recurring services to continue to -- continue to strive towards that $1 billion annualized revenue and that 30% recurring revenue number. Our global presence, as I mentioned, remains strong with headquarters now in Australia, the United States and Europe, but you'll also see us continue to expand on our regional hubs in Asia, Middle East and Latin America. And finally, regional manufacturing in core markets will be a core part of the strategy over the next few years. I think this slide does a lot of work in terms of explaining how we see the counter-UAS ecosystem. DroneShield is very well positioned, providing layers 1 and 2 of the counter-UAS industry. In most cases, for most customers, the first technology they will look to employ is a radio frequency detection, and if they're able to, defeat solution. This, as many of you know, is DroneShield's bread and butter and has been a core technology that we continue to build on today. This is the most cost-effective and most reliable way to down the most amount of drones or deal with the most amount of drones that we see in the market today. So radio frequency continues to be a core technology being deployed by Tier 1 militaries and security operators around the world. Once the customer buys enough and they're starting to scale up their usage of those RF protection devices, often the next thing they need is a way to orchestrate them together. And that's where our DroneSentry-C2 comes in. DroneSentry-C2 allows an operator to have multiple devices deployed on a Google map style interface and they can then operate those devices fully remotely. We also released DroneSentry-C2 Enterprise at the end of -- excuse me, of last year that allows customers to also manage multiple sites themselves, so another layer above that DroneSentry-C2. From there, often, our customers ask us for additional layers of protection, and that's where we rely on our partner network of radar, optical and various other technologies where DroneShield provides layer 3, 4 and 5 solutions as part of that C2 solution. This is a constantly evolving technology field, where new technologies or various adaptations of existing technologies is constantly changing. And DroneShield can remain relevant in all of these areas by partnering, and through our extremely good test and evaluation team we can find the best sensors and effective technologies around world, integrate them into our C2 and offer them to our end users. You would have seen recently this included the recent signing of an MOU with Origin Robotics, an interceptor drone company out of Latvia. Over the last 10 years, DroneShield has developed a comprehensive suite of solutions across the 3 core operational scenarios that we see in counter-drone and these are dismounted, on the move and fixed site. DroneShield now offers solutions for all of these categories. And in addition, late last year -- sorry, in 2025, we offered our first SentryCiv product, a product that is specifically designed for the nonmilitary market. This is something that you'll continue to see from us in the future as we refine our approach to the emerging nonmilitary market. We've talked a little bit about the Software-as-a-Service, and we'd like to unpack exactly how that works. So we have 3 layers of software at DroneShield at the device layer, the site layer and at the enterprise layer. DroneShield now, again, over the last few years developed all their solutions from the ground up ourselves. And we can now successfully apply a Software-as-a-Service subscription to each of these layers, meaning that customers that are utilizing all 3 layers have a multi-software SaaS applied to their solution. And if you think of this as close to antivirus analogy, this is something that our customers are really fond of in terms of they need ways to keep their software updated to the latest software as similar again to antivirus. The longer you go without updating the software, the more likely that the drone technology may have changed and you may miss some significant change. So DroneShield has a strong pull to its Software-as-a-Service revenue streams through the need to keep those software up-to-date on each level of those devices. I'd like to acknowledge our senior leadership team. Again, over the last few years, we've strengthened our leadership team and we now feel very well positioned to continue to refine that and continue to build out the organization to achieve our significant revenue targets in the future. Lastly, as we mentioned at the top of this presentation, we have announced changes to our Board and our Chairman of 10 years, Peter James has decided to retire from the Board and he will not seek reelection at our next AGM. And Hamish McLennan has been -- will be appointed as the Chairman following our AGM in May. All right, and for last point on the Board. As we have previously announced, we will be -- we are reviewing and we have an ongoing process to seek additional Board members to continue to grow the experience and also the skill sets that our Board can offer the business to support that growth. Thank you for listening to the presentation this morning. I think one of the most important part of these presentations is to dive into some Q&A. And I'll hand over to Josh to start that process, and we'll also start taking some questions from the Q&A posted in the Zoom link. So Josh? Joshua Bolot: Thanks, Angus. And thank you for those investors and interested parties who have submitted questions in advance. That's been very useful. I will also combine those with some that we've received online and please continue to submit those. One question which has come through has been regarding the global conflict and escalation of global conflict and the widespread commitments in higher defense spending in the counter-drone space and how that's feeding into our revenue pipeline -- potential revenue pipeline. So maybe you want to talk a little bit about that and also the commercial fields that we're now moving towards. Angus Bean: Thanks, Josh. That's right. Well, firstly, the global situation, as we mentioned, does seem to continue to deteriorate and that puts DroneShield in a very important position as drone technology is one of the core disruptors and is essentially revolutionizing the military and security environment. DroneShield we find ourselves as an Australian business in a strong position to create these solutions and provide them to our end users, our Western allies around the world. Even in the last week, we've seen significant budget allocations from Australia, from the Philippines and from the United States specifically calling out counter-UAS as a core part of their expanded defense budgets. Our view is that this is driving the exceptional results that we've announced this morning with $155 million of committed revenue for 2026 at this very early stage. And so we'll continue to execute well, keeping our heads down and focus on both our product development strategies as well as our commercial strategies to take full advantage of these additional budgets being allocated at a rapid clip. Joshua Bolot: Thanks. The next question relates to revenue and profit guidance assessments. I'll address that one. DroneShield does not provide revenue or profit -- or earnings guidance. We share information about our progress, which includes, obviously, periodic financial reporting, the presentations to investor groups, including these and those which we lodge with the ASX and material contracts and that threshold for material contracts is over $20 million now and as well as other trading updates. And we feel this is the right approach given the nature of the industry we operate in. And as the company moves towards a more predictable style of revenue, for example, the recurring revenue, the SaaS lines over the next few years, that will help provide a greater granularity around that. In regards to the material contracts of $20 million, and this may cover off a few other questions. There was a question about the frequency with which we announced those. I think what's important right now is that 3 weeks ago -- just under 3 weeks ago, we announced the revenue pipeline. So the committed revenue for the year was at $140 million. Today, it's sitting at $155 million and we have not announced any material contracts over that period. So that provides an indication of a number of smaller sub-$20 million orders that are constantly being received from existing end users as well as new end users. And that's a very important sign of just the general maturity of the business as it's growing. So that kind of addresses that one. The other part, which we want to talk about is that the revenue and the trading update that was provided at the -- in the early days of April was prepared just as April was beginning. And there was a slight variation between the Q1 revenue change in -- on the 8th of April and what we've ultimately reported yesterday. That they should be taken in context that a comprehensive month end takes longer than a few days. An order delivery, which was made in the closing days of March was only notified to DroneShield during that month end process. And we recognize revenue when customers confirm the receipt of the day that they receive it. The suggestion that this might lead to bringing forward revenues is incorrect, and it still remains our second highest revenue quarter and the highest cash receipts quarter. Angus, the next one, which I might put to you is we're on government panels both in Australia and other jurisdictions. What's the commentary around the Australian panels? Angus Bean: That's right. So Australia's flagship defense counter-UAS program is called LAND 156, it's run by the Australian Army. And we are on 2 of the 3, and we hope to be on the third when the time is right, but we are in 2 of the 3 of those lines of effort. We've already received orders under the second line of effort, and we are on the panel, as you mentioned, Josh, for Line of Effort 3 and things are starting to move quickly where we're involved in a lot of good discussions with the Australian Department of Defense around LAND 156. Joshua Bolot: Great. The other discussion has been -- it's come through a few times. I'll address it because it will take a few questions off the register. The question is regarding dividends and the intention to pay off the dividend reinvestment scheme. DroneShield is a high-growth focused company and it has not paid dividends today. There is no current intention to do so as it is maintaining cash balances for reinvestment in product, potential acquisitions and other such opportunities. The Board does assess the situation from time to time, and will advise the market when there are updates to the dividend policy. A broader question here, Angus, is regarding the movement of technology towards other drone and robotic technologies seen in the market. There's been a question received online regarding non-aerial counter-drone defeat and maybe that expands the conversation towards our product development pipeline as well. Angus Bean: Thanks, Josh. So DroneShield, absolutely. We've updated our approach. And if you look at a lot of our documentation, we now refer to instead of just counter-UAS, which is counter uncrewed aerial vehicle. We often say UXS. And the X means multi-domain, okay? And so over the next few years, we are going to see an increase in ground UGVs, the surface of the water, USVs, and even underwater autonomous vehicles emerging. DroneShield and DroneShield's Technologies, we believe, are very applicable as these new types of threats emerge, and we have some of the core building blocks, whether it be the radio frequency, the radar and obviously, our C2 is the core orchestration layer to counter these emerging multi-domain assets. And so DroneShield, yes, we are opening our aperture as the technologies change and as we see essentially the super cycle and the trend go towards replacing human inventory and humans on the battlespace with a more robotic and autonomous vehicle selection. So DroneShield, we are one of a handful of companies around the world that has the proven expertise to execute the technology stack that will be utilized against these types of technologies in the future as well as the vision to counter these types of technologies in the future. Joshua Bolot: Thanks. The next question we've received is in relation to the staff costs and administration and corporate costs and that we've received this offline as well as online. So first I'll address that. The comment in -- this refers to a comment in 1.2F of the 4C, where there were some additional wordings regarding the salaries of the engineering team. This is an inadvertent error from a version control in the preparation of the 4C only. It has never appeared in prior 4C's and it does not impact the underlying numbers or methodology. The engineering team has always been in the staff costs of Line 1.2E and as they are in this 4C. So the commentary there is an inadvertent comment. On the matter of staff costs more generally, during the fourth quarter of 2025, there were some exceptional one-off items in the staff cost number. This led to it being higher in that quarter compared to those of the current Q1 2026. Without these one-off costs, Q4 staff costs, which were higher and would have set somewhere between those of this current quarter and those in Q3. So that addresses those matters. The next question regarding -- we've received online is regarding the transition changes. And I think it's fair to say we've addressed those quite thoroughly in the communications in early April. But importantly, there has been a considered plan with Angus joining and with Oleg's decision to step back. He still remains an adviser to the company and has -- and provides regular support where required, including in discussions with staff, with end users and with partners around the world. So we obviously understand that, that news would have been a surprise to some, particularly after so many years and developing the company from it's really embryonic stage. But after nearly over a decade after nearly 12 years, a decision for someone to step back and have personal reasons why they'd like to do that, I think, should be respected. The next question, which I'll bring to from the floor, let me just bring that up for a second. Perhaps you just want to talk a bit about the head count and where you see the main areas of our head count moving. Angus Bean: Sure. So as we've mentioned, we have about 500 staff across the world at the moment. We've -- over the last couple of years, many of you know, we've substantially increased our head count and we will continue to do so in a controlled way throughout '26 and '27, and you'll see a lot of that head count growth will be in our critical regional hubs of our new headquarters for Europe in Amsterdam and our headquarters for the U.S. outside of Washington, D.C. And so control growth will continue into the future in terms of the head count. And obviously, that is in response to the dramatically increasing demand that we're seeing for our products. Our demand on our commercial and sales teams, but also as we are rolling out larger and larger amounts of our multisite multi-center solutions, our field service engineering, training staff to provide those full programs into those end customers around the world. Joshua Bolot: There's been a question regarding the sales pipeline. I know we've addressed that. And a little bit about the frequency with which that's going to be reported. At the moment, it has been reported at the end of March and was there a decision to update it again now? Angus Bean: Thanks, Josh. So look, we felt that it wasn't appropriate to update the pipeline again so quickly after updating it only just 2 weeks ago. So the pipeline we've published for this update is the one that is relevant for this allocation of reporting and so we felt that was the appropriate way, and we'll continue to update the pipeline and obviously, our progress towards that pipeline throughout the year. Joshua Bolot: Great. A question regarding local and international competitors and how we differentiate ourselves in the global marketplace. Angus Bean: Thanks, Josh. DroneShield has a number of critical differentiators, both technical and commercial, as we mentioned. We are one of the most experienced, if not the most experienced counter-UAS company globally. And so although the DroneShield is a core part of this massive groundswell towards counter-UAS, there are competitors around the world. But very little have the scale of operations, the experience to roll out their solutions now at the quality level but also at the scale that many of our end users now demand. So DroneShield, we're in a very strong position. Additionally, being an Australian business and as we mentioned, around defense we are only regulated in most cases by our Australian Defense Export Controls office, which is a really good thing because we have no U.S. defense export controls on our -- most of our core product line items. We are bound by EAR out of the U.S. government for some of the radar technology that we integrate and we import from the U.S. but our core product lines are only controlled by the Australian Defense Export office, which we have a great relationship with. Joshua Bolot: Thanks. There's been a few questions online and also in advance regarding governance and remuneration. So I'll take those ones on. In terms of remuneration, the question is about the remuneration structure and incentives that align with shareholder value. I think there's been a clear move in making sure that their alignment and structures that work with both the shareholder expectations of value creation and growth and retention of staff. This includes the setting of performance metrics, which involve strong revenue growth targets of $300 million, $400 million and $500 million in 12-month periods over the next 3 years, also includes staggered vesting periods, 50% on achievements of that target and 50% after 12 months of continued service as well as minimum shareholding policies for key management personnel. The Remuneration Committee of the Board receives advice benchmarking and feedback from consultants as well as shareholder advisory groups. There will be further discussion of this in the Notice of Meeting for the Annual General Meeting, and we encourage everyone to read through that as well as attend and ask at the AGM. In terms of the remuneration and incentive structure of Angus, of the newly appointed CEO and Managing Director, these were shared in the leadership transition announcement. In relation to that, more generally, there have been questions regarding the governance steps, which have been initiated as a result of entering the S&P ASX 200. As indicated, we did -- we did initiate a search for additional non-exec director. And in that process, Hamish McLennan was identified. In speaking and identifying Hamish and his engagement with the company, we found a global leader who had worked across many industries, both in Australia and international markets, bringing a range of skills, both of a business nature and of the governance nature, which are highly useful in our business. So we look forward to welcoming him on the Board. The search for additional directors has not ended, and we will continue to do so and update the market along the way. We believe that the Board will evolve as the company matures, and that's consistent with any other company of this nature. The next question, which I'll address to you, Angus, is regarding the interplay of third-party products, the interoperability and how the -- how those conversations are sold to end users in the context and trends of our product versus the interoperable third-party products. Angus Bean: Sure. That's a great question. So DroneShield has those really core technology building blocks of radio frequency RF detection and defeat. We have our C2 and our sensor fusion layer. And as we mentioned, in layers 3, 4 and 5, which we offer to end users. That is a conversation mostly that happens with the end user. We have deep relationships now as we are on some really important programs around the world with what are they seeing in terms of the needs of the operators in the field. What are they seeing in terms of the need to secure low-altitude airspace, to secure air bases. And so we understand we have a very strong funnel of information in terms of the future needs and requirements of those operators. And so we take that into account and then we essentially do global searches around the world for best-of-breed types of sensor and effector technologies. And as we've announced of 3 almost consecutive partnerships over the last few months, Origin Robotics, OpenWorks and Robin Radar. We believe these are 3 absolutely exceptional organizations providing a great product and also opens up new markets and new regions for us. So you'll continue to see us do that. DroneShield, we are very focused on our C2 and our core technologies. But we acknowledge that we will need additional layers to be able to be that full turnkey counter-UAS provider but that doesn't mean that DroneShield needs to develop all of these technologies in-house ourselves, and specialization is really important. And so you'll see us continue to partner with the best of the best around the world. Joshua Bolot: There is a question regarding -- and we received this question outside of reporting periods as well regarding the large contract, which is a -- large possible contract, which is sitting in the pipeline. And I think we've previously talked about a number of $750 million, the status on that at the moment. Angus Bean: That's -- yes, that's right. That's a significant goal for us, and it's a contract that, as we've previously discussed, is a follow-on contract from some of the larger contracts that DroneShield received in previous financial years. So we are essentially the incumbent in terms of the technology provider for that contract. And so we feel in a strong position. And I myself have, recently in the last couple of months, met with the end user and decision-makers around that contract. We will continue to update the market on any -- with any confirmed information around that contract, but we won't be advising anything further at this stage outside of the contract remains in the pipeline, and we have great relationships with end user. Joshua Bolot: Thank you. There are a few questions regarding manufacturing. And I think those have largely been dealt with, but just to reiterate, at the moment, the majority -- the vast majority of our product is manufactured in Australia, and that's very important because that allows us to service the markets that we do and with relative ease. We have recently announced the manufacturing capability in Europe, and that is a very important facilitator for us to work towards the ReArm Defense Readiness Program in Europe, and we're very pleased to have that in effect now. The U.S. will come -- had a similar arrangement in place later in the year, and we'll update the market regarding that through a press release. I think more generally, a discussion regarding our approach to manufacturing might be worthwhile sharing. Angus Bean: Sure. So DroneShield, we generally take a light CapEx approach to manufacturing, where we are not involved in the fabrication of most of the parts, and we outsource that to a great supply chain of partners, as Josh mentioned, most of which are here in Australia. And so we don't need to be -- we can be very light on CapEx in terms of manufacturing. We don't require to essentially buy and maintain large mechanical equipment to do that. We utilize our supply chain for that. But what we do are the really important high IP and high-value add components of that manufacturing process. And so that often is the electronics subassembly process, the quality assurance and checking process and the final field testing of the solution prior to it being deployed into the field. So that's where -- that's how we do our manufacturing process. And as you've seen recently in Europe, we've successfully now transplanted our manufacturing setup to a completely external manufacturer -- contract manufacturing arrangement in Europe and that, again, shows that the way we design and develop our solutions. This model is very possible. While there is a lot of IP and know-how in terms of the manufacturing of these goods, the core really difficult part of what we do is actually the software and the encryption of that software that gets loaded onto the devices and so we successfully transplanted that production into Europe, which we're really happy with now. And as Josh mentioned, we are also looking at production options for the United States. But again, the core technology and the core software platform will be distributed from our team here in Australia. Joshua Bolot: One of the questions which has come through is regarding our views around profitability versus growth. I think the company has worked exceptionally hard to reach the pivot point that it has in the last 12 to 18 months, where particularly over the last 4 quarters, it is operational net cash flow positive. And in 2025, announced underlying EBITDA of close to $37 million, which is a 17% margin. I think what we've indicated to the market regarding our operating cost base provides an indication that we are looking at profitable growth within the business as we bring additional product lines and solutions online matched with the growth in the recurring revenue stream. In essence, we do look at -- when we are at opportunities we look at the payback period of new product investment. We do look at that from a number of angles both in terms of the return on investment that it will generate from delivering it into the market. The other thing that we've thought about is when we are looking at acquisitions, is the speed with which we may be able to do a similar thing or the same thing versus acquiring that. So to date, the company has not made any acquisitions, and it constantly is put different ideas and different opportunities. We balance that off with our internal investment and the payback period for those. I think that's quite a useful thing to think about because we do have a useful level of cash available for growth, be it organic or acquisition based. There's been a few questions, particularly around the commercial market. So one question is regarding the progress on SentryCiv to date and the types of customer scenarios that has been used and the growth that we expect there. I think we both know have some really good interesting case studies around that. And also how that will play out over time with things like Safer Skies and the split between commercial and military. So that's a broad question, but I think they go together. Angus Bean: Thanks, Josh. That's right. So the commercial market, as we mentioned, we believe, is now after almost a decade of talking about and monitoring the situation is coming online. Let's say, the nonmilitary market. And DroneShield, as I mentioned, we are in a strong position with already our first product. It's really specifically designed for that nonmilitary market, our SentryCiv product. The SentryCiv product is a high SaaS, almost entirely SaaS-based product, again, feeding another strategy that we developed to feed into that 30% recurring revenue base over the next few years. And it is -- we've made now a number of sales around the world of the SentryCiv product. But these sales, obviously, we don't publish as they are below the $20 million revenue number. But I'm really encouraged and excited to see the quality of the customers who are procuring this. We are talking about really major law enforcement and major, let's say, commercial operators around the world. And so our relationships are deepening with those commercial operators and those law enforcement markets that were previously unavailable to us, either through regulatory or through their lack of finances to actually go out and procure counter-drone equipment. So we are monitoring the commercial space very closely. We are starting to move the business more in that direction, bringing on our product teams specifically designed for that growing segment. But similarly to the way we have successfully penetrated the military market over the last decade, we will -- we don't want to go too early -- too hard too early. We want to mature that approach with the market and make sure every step along the way we take to capture that market is the correct one. And so we will -- you'll continue to see sort of a steady stream of movement in that direction as we continuing our core short-term revenue driver of the military market is self-sustained as well. So yes, we're really excited about the potential emergence of this commercial sector and the green shoots we saw in the first quarter of this year. Joshua Bolot: Thank you. There's a lot of -- a few questions regarding how we interact with the primes of the industry, both as customers, competitors and partnership arrangements with them. I think that's a broader question, particularly some of the companies that people have talked about in the U.S. and Europe. Angus Bean: Sure. So I think one of the most common misconceptions about DroneShield, and we get the question a lot, which is are you concerned about these really significant defense primes who have traditionally been very dominant players in the defense space for many years? And do you see them as a threat to the business? Our honest answer is in almost all cases, these defense primes are our customers much more than they are our competitors. And so whether it be in the U.S. or even now across Europe, we are actively selling to defense primes who are taking our technologies and our products and integrating them into their existing defense programs or into their larger defense rollouts as they capture them. So often, the defense primes are a partner of DroneShield. And as I mentioned previously, DroneShield, we remain very flexible with our approach to market where we can go direct, we can be the prime, subprime, contractor or even engage the market through an authorized distributor in country. So we're really flexible with that, and it will really depend on the region and on how we approach each of those markets. Joshua Bolot: There's a couple of short ones, which I'll just quickly rattle off. Do we deal with the Ukraine? I think we previously identified that we have less than 5% of our revenues currently based on sales to the Ukraine market. To market, obviously, that we've been very supportive of in the earlier stages of the conflict there. And the -- it is still a presence in our revenue, but it is not more than 5% at the moment. A question regarding our security and processes to ensure that we, I guess, commercially and militarily cautious in our approach, both in terms of making sure that our intellectual property is protected and our employees are appropriately vetted. So I don't know if you want to talk about that. Angus Bean: Yes, sure. No, that's a great question. So DroneShield, we are a DISP-certified organization, DISP, defense industry security program. And that is the major defense and security program that's rolled out here in Australia. And we are then -- we essentially govern the business via the rules of DISP. And that sets out very clearly what we need to do from an employee vetting perspective through to a cybersecurity and physical security controls perspective as well as provides a lot of insight in terms of the governance, policies and procedures that we need to have as part of an organization. So it's great actually to work with the DISP team as they provide for you the frameworks that you need to implement and then our significant security team then essentially rolls that out across the business. We are continuing to uplift that DISP certification, but also our general security posture across the organization and globally as DroneShield becomes a supplier of main stage, as we mentioned, larger programs of record. Our security needs to mature and continue to mature to make sure we meet the market where it is and make sure we protect the business. Joshua Bolot: Interesting question, actually. And it's inventory related. I think I'll start off with the answer and then we'll work towards the forward-looking part of the answer. So it's regarding inventory obsolescence. And what's happened in the past, I mean, we announced a one-off inventory impairment, the significant item of $8.5 million in the FY '25 results. That product is still in our warehouses and available for sale, it is still an effective product, and there are still sales of those, albeit at a slower rate. I think more generally, though, the question which comes through, which is how we deal with inventory obsolescence with the release of new hardware as we move into that expanded product set. Angus Bean: That's a great question, Josh. So yes, certainly, that is something that we are considering deeply. And one of the things we're going to talk about, particularly in the second half of this year as we bring on our next-generation platforms which I am dying to speak about, but we will hold off for now, is obsolescence. The good news here is the products that initially we'll bring on to the market do not directly replace any product lines that we see today. And so the product lines that you see on the website currently, we will continue to provide to end users for the next few years to come. And so this is not an immediate impact and much of the next-generation platforms will be slight variation in terms of product positioning or a completely different technology itself. And so we will -- there won't be any necessary disruption in terms of obsolescence but it's certainly something we need to manage. And as we grow our product lines, we are trying to be very strategic about the use of our core components. And for example, using the same chipset, if we can across multiple product lines, allowing us to then order at much higher volumes of an individual item, therefore, getting a better price per item. But then that product -- that chipset that is being used -- utilized in multiple different DroneShield product lines. So we've already started to roll this out in a lot of the core technology platforms that you'll see from us over the next 2 years. Essentially, we'll use a lot of the same family of chips and same core componentry. So again, reducing the chance of either component obsolescence or product obsolescence. Joshua Bolot: There are actually a number of questions, which are very interesting in relation to different trends and different things which people see in social media and whether they're kamikaze drones, whether they're fiber optic, whether they're real, whether they're AI. Maybe you just want to talk about how we assess each one of those developments and where it leads into our product road map. Angus Bean: Thanks, Josh. It's a broad question, but I will do my best. Look, essentially, counter-drone, this is, as we've discussed, one of the most -- drone technology itself is one of the most disruptive elements to the defense and security apparatus around the world as we speak, and DroneShield is one of a handful of companies that are incredibly well positioned with the experience, but also the operations and funds to execute on that emerging trend. There is a lot of noise. There is a lot of diverging technologies being developed. And there's no question, we need to make really good decisions around the technologies we invest in the future, whether that be technologies we choose to develop ourselves. The potential use of an M&A activity to acquire technology new to the business, or as you've seen from us recently, just choose to partner and create really good agreements that are beneficial to DroneShield with Tier 1 technology providers around the world. So we're going to take a balanced approach to that, and we'll assess each of those technologies based on its own merit as to which one of those 3 avenues we want to go down to attain that technology for our end users. The great hedge, I guess, we have from a technology perspective is our DroneSentry-C2 platform that essentially allows us to roll with the technology and integrate various different types of technologies, sensor or effector and provide that as a fully consolidated solution, full turnkey for our operators or if technologies evolve and our customers more increasingly so already have our technology in country in operation, we can augment their existing solutions with this new technology over time. So -- and it is one of the reasons I believe that when Oleg decided to step down as CEO and the Board ran their process that they did end up selecting the Chief -- previous Chief Technology Officer to essentially run the business as I believe that my personal -- personally one of the best positioned people in the organization to make some of those hard calls. Joshua Bolot: I think we'll use this as the last closing question, and it might tie nicely to some closing remarks as well. In relation, I think we've answered the vast majority of questions. And there are some questions, which, unfortunately, we're just not able to answer in a public forum or generally because of operational security reasons or for other reasons, it's just not appropriate for us to provide commentary on those matters. But I think the one which might encourage towards a broader answer and a closing statement is regarding the things that you see happening in the next 2 to 5 years in the business, which will help to get us towards that 2030 vision. Angus Bean: Sure. Thanks, Josh. So look, in terms of what do we need to do? The position that the DroneShield company finds itself in is very strong. And that is, again, to highlighted and demonstrated by this first quarter of '26 update. And so both financially, operationally and technically, we are in a good position. Many of you have mentioned in the comments, these are lofty ambitions, the $1 billion annualized revenue and 30% of that being recurring revenue. These are significant uplifts on where we are today. But we do believe these are achievable. And certainly, we are redesigning and reshaping the organization, gearing up to really go after these ambitious goals. And I certainly wouldn't have stepped into the role and wouldn't have the excitement that I do have if I didn't feel these were achievable. In terms of what we need to do, it's a continuation of our current existing R&D strategy. We currently hold a 2-year product and technology road map that we believe will set the business up really well for the growth that's required to hit those numbers from a product and technology perspective. You will see us, as I mentioned, continue to grow our regional hubs in both the U.S. and Europe. Both of these footprints now are generating good revenue for the business. You've seen a number of those larger deals, most recently out of Europe, but I think there were some comments before about not announcing any U.S. contracts, and I'd like to highlight what Josh was mentioning is that we have received a number of U.S. contracts, but many of them, if not all of them, have fallen under the $20 million, but the volume of those contracts has increased. And that's perfectly fine for us as a business as well. And if anything, it allows us more predictability and more certainty in the organization. So outside of growing the regional hubs, we'll continue to grow our partner base both commercially and technical in the future. And this is something that DroneShield as an Australian business, one that is highly trusted and respected in the sector, we are in a great position to utilize that goodwill and utilize the trust that we do have to partner with some of these great organizations and either enter new markets or augment existing solutions around the world. Joshua Bolot: Thank you. Thank you very much, Angus. I think we're just on 10:00. So we appreciate the time that many hundreds of people -- hundreds of people have used to listen to this update. And as Angus mentioned, we have our Annual General Meeting with the Notice of Meeting coming out in the -- by the end of the month. The Annual General Meeting is on the 29th of May, and we encourage everybody to either attend in person or online. Thank you. Angus Bean: Thank you, everyone.
Operator: Ladies and gentlemen, welcome to the STMicroelectronics First Quarter 2026 Earnings Release Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead. Jerome Ramel: Thank you, Moira. Thank you, everyone, for joining our first quarter 2026 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO; and Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of STMicroelectronics Strategy, System Research and Applications and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in ST's most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO. Jean-Marc Chery: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q1 2026 earnings conference call. I will start with an overview of the first quarter, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So starting with Q1. Our first quarter net revenues were $3.1 billion, including about $40 million revenues associated with NXP's MEMS sensor business, which we acquired during the quarter. Excluding this contribution on a sequential basis, net revenues were above the midpoint of our business outlook range, driven mainly by higher revenues in our engaged customer programs in Personal Electronics and in Communication Equipment and Computer Peripherals. Gross margin was 33.8% or 34.1%, excluding the impact of the purchase price allocation, so-called PPA, following our acquisition of NXP's MEMS sensor business. Excluding impairment, restructuring charges and other related phase-out costs and purchase price allocation, PPA effects from our acquisition of NXP's MEMS sensor business, non-U.S. GAAP diluted earnings per share was $0.30. During the first quarter, inventory in our balance sheet increased slightly, and we continue to work down inventories in distribution. They are now normalized. We generated a negative $720 million free cash flow, including $895 million cash out related to the payment of our acquisition of NXP MEMS sensor business. Let's now discuss our business dynamics during Q1. Well, first, we had a strong booking momentum during Q1 with book-to-bill well above 1 across all end markets and regions. In Automotive, during the quarter, revenue declined 10% sequentially. Year-over-year, revenues increased 15%, marking the return to year-over-year growth. Automotive design momentum progressed with various OEM and Tier 1 ecosystems. We had design wins across electric, hybrid and traditional vehicles, spanning onboard chargers, DC-DC converters, powertrain active suspension and vehicle control electronics. Key products include power semiconductors, smart power devices, automotive microcontrollers, analog devices and sensors. In February, we completed the acquisition of NXP's MEMS sensor business. The acquired technology and product portfolio are highly complementary to STs and strengthen our automotive sensor business. We are progressing as planned with the integration into our portfolio and operational flows. Industrial decreased by 1% sequentially and improved 26% year-over-year. Importantly, inventories in distribution further decreased and are now normalized. In Industrial, our broad portfolio of microcontrollers, sensing, analog and power devices is strongly aligned with industrial transformation trends and the evolving needs of physical AI. During the quarter, we saw design wins across industrial automation and robotics, building automation, power systems, health care and home appliances. We announced our collaboration with NVIDIA to integrate ST sensors, microcontrollers and motor control solutions with NVIDIA Robotics ecosystem. This aims to help developers design, train and deploy humanoid robots and other physical AI systems with higher efficiency, reliability and scalability. We are also proud to have been ranked the #1 vendor worldwide for general purpose microcontrollers for the fifth consecutive year based on research by Omdia. During March, we announced that the first batch of STM32 wafers fully produced in China for ST by our partner, Huahong, has been delivered to customers in China. This was a major step forward in ST China for China supply chain strategy. For Personal Electronics, first quarter revenues were down 14% sequentially, reflecting the seasonality of our engaged customer programs and up 21% year-over-year, reflecting increasing content. During the quarter, we reinforced our position in mobile platforms and connected consumer devices, supported by both engaged programs and a broad open market portfolio spanning sensors, secure solutions and power management. We announced support for motion sensing and secure wireless technology on Qualcomm Technologies' newly launched Personal AI platform based on ST smart sensor and secure NFC controllers. For Communications Equipment and Computer Peripherals, first quarter revenues were above our expectations, up 3% sequentially and 41% year-over-year. We continue to reinforce our position as a supplier of critical semiconductors that power cool and connect AI data centers from the grid to the core and from the core to the user. ST is now strategically positioned to capture upside from new AI-driven program, leveraging specialized technologies to enable the evolving AI infrastructure. We confirm our data centers revenue expectation to be nicely above USD 500 million for 2026 and well above $1 billion for 2027. In a major development, we expanded our strategic engagement with Amazon Web Services through a multiyear multibillion U.S. dollar commercial engagement to enable new high-performance compute infrastructure for cloud and AI data centers. This engagement covers a broad range of semiconductor solutions, leveraging ST portfolio of proprietary technologies. During the quarter, we secured multiple design wins for silicon and silicon carbide-based power solutions. These supports the drive for higher power density and increased energy efficiency for next-generation AI compute and data center architectures. We announced the expansion of our 800-volt DC AI data center power conversion portfolio with new 12-volt and 6-volt architectures in collaboration with NVIDIA. With this, ST now provides a complete portfolio for the 800-volt VDC power distribution inside gigawatt scale compute infrastructure, leveraging ST power, analog and mixed signal and microcontroller products. We also announced the start of high-volume production for our silicon photonics-based photonics ICs 100 -- PIC100 platform used by hyperscalers for optical interconnect for data centers and AI clusters. The technology enables higher bandwidth, low latency and greater energy efficiency. As I mentioned last quarter, the momentum in optical interconnect technologies is also driving demand growth for our high-performance microcontrollers in pluggable optics. We are also seeing initial demand for our secure element in data server power supply units to support authentication and detect data manipulation attacks. Our low-earth-orbit satellite business based mainly on our BiCMOS and panel-level packaging technologies strongly progressed during the quarter. We were selected to develop a power amplifier controller for direct-to-cell satellites based on our proprietary BCD technology by our main low earth orbit customer, and we continued to ramp shipments to our second largest customer. For sustainability, we issued our annual integrated report during the quarter. This report integrates our sustainability statement detailing our performance in 2025. We made further progress and remain on track for our commitment to becoming carbon neutral by '27 on Scopes 1 and 2 and on product transportation, business travel and employee commuting for Scope 3. We also target the sourcing of 100% renewable electricity by 2027 and achieve 86% in 2025. Now over to Lorenzo, who will present our key financial figures. Lorenzo Grandi: Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the first quarter, starting with revenues on a year-over-year basis. By reportable segment. Analog products, MEMS and Sensors grew 23.2%, mainly due to Imaging and MEMS and to a lesser extent, Analog. Power and Discrete products decreased 1.8%. Embedded Processing revenues were up 31.3% due to general purpose MCU and to a lesser extent, custom processing and RF and optical communication grew 33.9%. By end market, Communication Equipment and Computer Peripherals grew 41%; Industrial 26%, Personal Electronic, 21% and Automotive 15%. Year-over-year, sales to OEMs and distribution increased 24.5% and 19.2%, respectively. On a sequential basis, Analog product, MEMS and Sensor decreased by 9.1%, Power and Discrete by 5.4%, Embedded Processing by 4% and RF & optical communication by 9%. by end market, on a sequential basis, Communication Equipment and Computer Peripheral was up 3%, while the other end markets declined. Industrial was down 1%, Automotive, 10%; and Personal Electronic, 14%. Turning now to profitability. Gross profit in the first quarter was $1.05 billion, increasing 24.3% on a year-over-year basis. Gross margin was 33.8%, increasing 40 basis points year-over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin decreased by 140 basis points. Gross profit included $11 million purchase price allocation PPA effects from our acquisition of NXP's MEMS sensor business. Non-U.S. GAAP gross margin, excluding this item, was 34.1%, excluding the impact of NXP's MEMS sensor business and related PPA effects, gross margin stood at 33.9%, 20 basis points better than the midpoint of ST guidance, which did not include any impact related to our acquisition of NXP's MEMS sensor business. Q1 gross margin included about 50 basis points of negative impact resulting from a nonrecurring cost related to our manufacturing reshaping programs. The negative impact on gross margin from the just mentioned nonrecurring cost is expected to remain at similar level over the rest of the year. Total net operating expenses, excluding restructuring, amounted to $904 million in the first quarter. Excluding the purchase price allocation PPA effects from our acquisition of NXP's MEMS sensor business, non-U.S. GAAP OpEx stood at $885 million. Non-U.S. GAAP net OpEx included OpEx related to the acquired NXP MEMS sensor business and a one-off impact related to a settlement with a supplier. Excluding these 2 items, non-U.S. GAAP net OpEx was broadly in line with the expectations given in January, which did not include any impact related to our acquisition. For the second quarter of 2026, we expect non-U.S. GAAP net OpEx to stand between $950 million and $960 million. The sequential increase is mainly due to calendar base effect, start-up costs and 1 incremental month of OpEx related to the acquired NXP's MEMS sensor business. Excluding these items, Q2 '26 non-U.S. GAAP net OpEx would slightly decrease sequentially. In light of our acquisition of NXP's MEMS sensor business and the new AI revenues opportunity, let me give you some more color on the 2026 OpEx. For full year 2026, we now expect like-for-like net OpEx to be up mid- to high single digit year-over-year versus our previous expectation for a low single-digit increase as we are accelerating our investment in new business opportunities, including NXP's MEMS sensor business acquisition and the exchange rate impact, net OpEx should be up low double digit year-over-year. In the first quarter, we reported $70 million of operating income, which includes $71 million for impairment, restructuring charges and other related phase-out costs. These charges are related to the execution of the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Q1 operating income also included $30 million purchase price allocation effects from our acquisition of NXP's MEMS sensor business. Excluding these items, Q1 non-U.S. GAAP operating income stood at $171 million and non-U.S. GAAP operating margin was 5.5% with Analog product, MEMS and Sensors at 12.2%, Power and Discrete negative 21.5%, Embedded Processing at 16.9% and RF & Optical Communication at 14.9%. First quarter 2026 net income was $37 million compared to a net income of $56 million in the year ago quarter. Diluted earnings per share were $0.04 compared to $0.06 1 year ago. Non-U.S. GAAP net income stood at $122 million and non-U.S. GAAP diluted earnings per share stood at $0.13. Net cash from operating activities totaled $534 million in the first quarter compared to $574 million in the year ago quarter. Net CapEx was $362 million in the first quarter compared to $530 million in the year ago quarter. Free cash flow was negative at $723 million in the first quarter compared to a positive $30 million in Q1 2025. Q1 '26 free cash flow includes $895 million cash out related to the payment for the acquisition of NXT's MEMS sensor business. Inventory at the end of this quarter was $3.17 billion compared to $3.14 billion in Q4 2025 and $3.01 billion in Q1 2025. Days sales of inventory at quarter end were 140 days, in line with our expectation compared to 130 days of the previous quarter and 167 days in the year ago quarter. Cash dividend paid to stakeholders in the first quarter of 2026 totaled $71 million. ST maintained its financial strength with a net financial position that remained solid at $2 billion as of March 28, 2026, reflecting total liquidity of $4.57 billion and total financial debt of $2.57 billion. Now back to Jean-Marc, who will comment on our outlook. Jean-Marc Chery: Thank you, Lorenzo. Now let's move to our business outlook for Q2 2026. We are expecting Q2 2026 revenues at $3.45 billion, plus/minus 350 basis points. At the midpoint, our Q2 2026 net revenues will increase 11.6% sequentially and by 24.9% year-over-year. We expect our gross margin to be about 34.8%, plus/minus 200 basis points, including about 100 basis points of unused capacity charges. Non-U.S. GAAP gross margin is expected to be about 35.2%. This business outlook does not include any impact for potential further change to global trade tariffs compared to the current situation. To conclude, in the first quarter, despite the macroeconomic uncertainty, we saw improving demand with strong booking and normalized inventory in distribution. In the second quarter, we expect revenues well above average seasonality as well as an increased gross margin. We have a clear path to improve gross margin while staying at the forefront of innovation. We expect 2026 revenues to show double-digit growth beyond our addressable market dynamics and our already engaged customer programs. This growth will be driven by new AI programs for which we leverage our specialized technologies to enable the evolving AI infrastructure. Before handing over to Jerome, I am pleased to announce that as we did in March for Cloud AI and intelligent sensing, on May 4, we will host a dedicated call on ST's low-earth-orbit satellites, explaining how we are going to achieve our ambition of well above $3 billion cumulative revenues over the period '26 to '28 for this opportunity. You will receive the invitation today. Thank you, and we are now ready to answer your questions. Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter from TD Securities. Joshua Buchalter: Congrats on the very solid results. So you have a lot of idiosyncratic growth drivers hitting this year across data center, silicon photonics, LEO satellite and then your largest customers, normal seasonal ramp. Can you sort of help us with the shape of the year and how we should expect them to layer into the model? Like should we expect 3Q and 4Q this year to also be above seasonal because of these company-specific growth drivers? Jean-Marc Chery: I am taking the question. Well, of course, I will not guide on '26, but maybe we can share a few elements. First of all, okay, the strong booking of Q1 has shown absolutely no pull-in order. It is, let's say, a well-balanced loading of the 2026 quarter-to-quarter. So the billable on '26 from the booking we received in Q1 represent approximately 85% to 90% of the booking we received. So this is positive to make us confident that in H2, we could achieve the usual seasonality H2 versus H1. Then what will be again positive on the year 2026, looking at the current dynamic in terms of growth. In automotive, we confirm that '26 will be a growth for ADAS for sensor, of course, and also with the boost of the acquisition of MEMS from NXP and for silicon carbide. In Industrial, we will see a solid and strong growth on general purpose microcontroller. In Personal Electronics, okay, as we have already seen in Q1, our engaged customer programs in Sensor and Analog will be, let's say, a contributor of the growth but not a big one in H2 because a change of profile in the introduction of the new device. Well, in data center, it is clear that here we are seeing a really strong growth in terms of demand, acceleration, including cloud optical interconnect, both for our PIC100 for our BiCMOS but I repeat for our general purpose microcontroller and analog and power discrete as well. So we confirm the revenue nicely well above USD 500 million. But the only negative aspect of the revenue in '26 is capacity reservation fees that will decrease, okay, $140 million compared last year. So this is how we see the year 2026. So I repeat, backlog now well loaded, great confidence level to have H2 versus H1 at the usual seasonality on top of ADAS, SiC, sensor, general purpose micro, clearly, AI infrastructure and low-earth-orbit satellite will be very strong contributor to the performance of ST in 2026. Joshua Buchalter: Really appreciate it. I was hoping you could comment on the pricing backdrop. I mean, one of your large competitors last night said it was coming in a little bit better than they originally planned and now expect flat pricing. Have you seen changes in the pricing environment over the last 3 months? And sort of what are your expectations on pricing for the year? Jean-Marc Chery: So, here, I'll let Lorenzo comment. Lorenzo Grandi: Yes. Thank you for the question. If you remember last quarter, we were talking about pricing decline on low to mid-single-digit expectation. But clearly, there is some evolution in respect to this expectation. I would say that in Q1, our price decline was as expected, low single digit. What today we see, we see an environment in which actually there is some selected price increase that also we expect. So at this point, I would say that in terms of pricing, our expectation is to have a very low single-digit, let's say, price decline. So it means that actually, in terms of pricing, we see a better situation in respect to what was a few months ago. Operator: The next question comes from Francois Bouvignies from UBS. Francois-Xavier Bouvignies: Maybe just a follow-up on the pricing. I mean we have seen some announcements that you will increase your pricing in April and you are not the only one. So can you just give us an idea of how much of your revenues would be impacted by the margins? And also, Lorenzo, what about the gross margin with this pricing increase? I mean, should we -- I would imagine it takes a bit of time to fuel into your P&L. So when should we expect some gross margin impact from this gross margin increase that we see in the press? That's my first question on pricing, gross margin. Lorenzo Grandi: No. Clearly, let's say, when we look at the price environment, I would say that at this stage, yes, there is some selective price increase. It's not a price increase for what concern us across all, let's say, customer and products. Anyway, what I can say is that when we look at the dynamic, of course, of the -- dynamic of our gross margin moving from Q1 to Q2, and we may say that pricing is quite neutral in respect, let's say, to this dynamic, means that at the end, it's not a boost but it's not even a detractor. It will remain substantially flattish when we look at the evolution of the gross margin. That is not what is the normal trend when we look, let's say, the seasonality between these 2 quarters. For sure, as a positive when we look at our gross margin, there is the mix. Mix is continuing to be, let's say, positive on our gross margin evolution. But clearly, there is also lower unused capacity charges. Our fabs that are better loaded capacity charges is declining moving from Q1 to Q2. But there are still some negative. The negative is mainly related to our manufacturing efficiency. Why? Because there is some temporary suboptimal efficiency in the context of our reshaping plan. We are moving technologies, products from 200-millimeter fab to 300-millimeter from the 150-millimeter of silicon carbide to 200-millimeter. And we are really in the middle of this kind of programs that, for sure, let's say, are somehow impairing a little bit the efficiency of our fabs. And this, I would say, is the main detractor when we look at the evolution over the -- on a sequential basis of our gross margin. Pricing, as I said, is really neutral at this stage. Francois-Xavier Bouvignies: Maybe one for Jean-Marc. I mean, if we look at your customer programs, if I exclude the Personal Electronics, so if I take silicon carbide, photonics and satellites, so your big programs. Should we expect your revenues to grow quarter-on-quarter from here, like the fundamental that is increasing gradually. So no seasonality, I would imagine. So you should be able to see a growth across the board here quarter-on-quarter for the year. Is that the right assumption excluding Personal Electronics? Jean-Marc Chery: Of course, excluding Personal Electronics, this is what we expect. Operator: Next question comes from Janardan Menon from Jefferies. Janardan Menon: Just a follow-up on gross margin, Lorenzo. Looking into the second half, what would you see as the various puts and takes on that gross margin evolution? Your top line is growing perhaps much faster than what we had thought a few months ago. So would it be that, that utilization and underloading charges will get used up faster? And what is -- there's normally a lag between the revenue trend and the gross margin. So just if you could give us any commentary on how -- not in terms of actual numbers but just the puts and takes perhaps of the second half? And how do you feel about your sort of your model of getting to 45% given the kind of strength that you're seeing in end markets and the favorable product mix that you're seeing right now? Lorenzo Grandi: No. What I can say about the gross margin is definitely that the gross margin, let's say, this year will improve in respect to what has been in last year, definitely and will improve sequentially when we look Q1, Q2, Q3 and Q4. This is something that definitely we expect. This is what we expect to continue to see a sequential increase and sequential improvement over Q3 and Q4. What are, let's say, the driver we expect? Clearly, as you said, the unused capacity charges will improve, thanks to the fact that we will have higher revenues, even if I confirm that will not completely disappear. We will still have some areas in which especially related to the legacy technology that we will still have a little bit of unused capacity charge but much lower than what we saw, let's say, last year definitely. There will be progressively some manufacturing efficiency improvement. Even if I repeat what I said before, we are not yet optimized because, let's say, we are in this transition. We will start to see this benefit of the transition mainly in 2027 more and then in 2026. But for sure, there will be some improvement moving forward from Q2. Mix will be another positive impact. We will continue positive impact on mix. But clearly, we know that capacity reservation fees now are out. There will not be, I mean, much lower, let's say, there will not be a significant variation moving from Q2, Q3 and Q4, but are much lower in respect to what it was, let's say, last year. As I said, there is this cost related to this transformation of our manufacturing infrastructure. Maybe what we will have, let's say, in the second half is a little bit higher input cost for our manufacturing considering, let's say, the overall situation. But definitely, I confirm that starting from our, let's say, 35.2% Gross margin in the second quarter, we will continue to see progressively improvement in Q3 and Q4. Janardan Menon: And maybe just a quick follow-up. On your Q2 outlook of 11.6%, is there already a very significant contribution from the optical connectivity on the data center, which is driving that upside? Or is the Q2 more driven by a pickup in industrial, general purpose microcontrollers, et cetera, and the optical kicks in more meaningfully into the second half of the year? Jean-Marc Chery: The optical are starting to contribute. In fact, since Q1 is mainly through the high-performance microcontroller. But the main part of the optical overall with photonics by BiCMOS will be in H2 but microcontroller are already participating to the growth. Operator: The next question comes from Gianmarco Bonacina from Banca Akros. Gianmarco Bonacina: I have a question more for the midterm. You gave some figures for your, say, AI revenues for next year, above $1 billion. I just wanted to understand in terms of the commercial activity, we read -- we commented the big contract with AWS. So are you working on a commercial basis just to get potentially the revenues with other hyperscaler? And how confident you are that, let's say, the opportunity you realized with AWS can be also generated with other hyperscaler maybe, I mean, in the midterm, not just in the near term? Jean-Marc Chery: If we speak about midterm, our strategy on hyperscaler are the following. Basically, if you break down this, let's say, infrastructure in 3 main application domain. What we call the network flow. This is where we have spoken about, let's say, the optical cable and near technology, let's say, evolution with packaged co optic or near-packaged optics clearly here, one of the main driver will be AWS but clearly, ST is positioned to provide -- to be a provider of product and solution for optical cable far beyond, only AWS. This is the point number one. And then the second big domain is clearly well known is what we call the power flow. So it means the capability for electronics to enable the supply of the processor from 20,000 volt to 0.8 volt. And here, ST is engaged now with a large product portfolio from, let's say, SPS, low-voltage MOSFET, microcontroller, driver, sensing and so on and so forth. And this will come far beyond AWS. Of course, AWS okay, will use this component but we will provide and we will compete far beyond AWS. Then last but not the least is all the infrastructure around the thermal cooling of this infrastructure, and we are already there with our power solution, microcontroller and analog. So clearly, AWS will be a fantastic driver for ST for the growth of the revenue during the next 3, 5 years. But our ambition is well above, thanks to our product portfolio. And I repeat ST is a unique company capable to provide on this infrastructure from photonic solution, MEMS solution that will come pretty soon, microcontroller definitively, power switches, power drivers, controllers and including other sensor. So this unique position, clearly position ST in the future, to be an important contributor in terms of supply to this business line. Gianmarco Bonacina: Okay. Just a quick follow-up for Lorenzo, if I can. The change in the guidance in the OpEx, just to understand correctly. So you are talking about your clean OpEx excluding PPA and restructuring. Lorenzo Grandi: Yes. Yes. Of course, we exclude PPA and restructuring. And as I was saying before, at the end, yes, apart of the fact that we have the addition of NXP that when we were talking previously was not taken into consideration. But I have to say that thanks to the fact that we see significant, let's say, opportunity in terms of revenues, we have some programs accelerating in terms of, let's say, development and bringing a little bit more level of expenses. I have to say that in any case, when we look at our net OpEx, the expense to sales ratio 2025 compared to 2026, let's say, in 2026, the expense to sales ratio will materially decline with respect to the previous year. Operator: The next question comes from Andrew Gardiner from Citi. Andrew Gardiner: Just a couple of, I suppose, follow-ups to some of the topics that have already been discussed. First, on the AI side, Jean-Marc, you've -- I think it's a reiteration of what you were saying last month in terms of the "nicely above $500 million of revenue for this year" and "well above $1 billion for next year." Just things are moving very quickly in this part of the market to put it mildly. What is the potential for upside there? And I suppose, more importantly, for you, where are you seeing capacity constraints at the moment that may indeed limit the level of upside relative to the demand that you're seeing? And then a quick one for you, Lorenzo, just again on the OpEx. You said a low double-digit gain '26 on '25 on one of the items that you were looking at. Could you just provide us the baseline of that? I missed that when you were saying it in the prepared comments. Jean-Marc Chery: Never mind. It is clear that we are on some part of the technology and components that are enabling the solution we provide to customers, we are in ramp-up mode. Clearly on photonics and associated technology, we are in a ramp-up mode. Overall, what I can confirm today that the unconstrained demand we have today for '26 and '27 is well above the nicely above $500 million and well above $1 billion. And our ambition is to fulfill this unconstrained demand but the company first has to ramp up, okay, the capacity already installed in the second half of the year to implement additional capacity. And our ambition is to fulfill as much as we can the unconstrained demand of customers. I will provide more color in July, clearly during our next meeting. But I really confirm that '26 will show a significant breakthrough in our revenue linked to AI data center. Lorenzo Grandi: For what concern OpEx, I confirm that net OpEx sales ratio will decrease in 2026 compared to 2025. What we expect, now we expect when we say OpEx like-for-like means, let's say, the same FX and same perimeter means not including the NXP acquisition to be up mid- to single digit, let's say, in 2026 compared to 2025. You have to consider that half of this increase is related to the start-up cost that we have, let's say, in the fab 300-millimeter and, let's say, 200-millimeter for silicon carbide that is, let's say, related to our transfer from 200 to 300, 150 to 200 for silicon carbide. So it means that this is something that is not structural is coming this year but will not stay forever. If we include the NXP MEMS business acquisition, and also include the impact of the exchange rate, excluding the restructuring, we should be up low double digit versus 2025. This is assuming an exchange rate effective in the range of [ 1.15, 1.16 ] and is, of course, including, let's say, the operation of NXP MEMS business that we can estimate in the range of $50 million additional expenses for us in this year. Operator: The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: On the transformation program, where are you standing right now in terms of capacity build and so on? And when do you expect to have the full synergies benefit? Is it for '27 or more for 2028? And the second question is on silicon carbide and your JV with Sanan in China. Where are you in the ramp-up mode with the JV? And when do you expect the first volume to start to ramp up meaningfully in China? Jean-Marc Chery: For the transformation program, clearly now we are in the middle of the execution. Clearly, we have to respect the customer qualification time, when for analog technology, we move from 200-millimeter to 300-millimeter. This is -- they have a good incentive to do it because clearly, our capacity potential increase is related to Agrate in 300-millimeter. We expect that the benefits of Agrate at full speed will be more in the end of '27 and entering in '28, not related to the fact that we don't go at the right speed in terms of qualification internal, but more related to the customer normal constraint they have to qualify their own application. On silicon carbide, it's a bit similar, in fact, okay, because here, we are moving from 6-inch to 8-inch, and this is mandatory to do it here is the same. We are not limited by our own capability, both in Catania and in Sanan in Chongqing. The limitation is more related to the qualification time of our customer. And you know that we are engaged in a very, very famous platform with an important player in Europe, which currently has a great success for this new platform in electrical car. And here, of course, we cannot take any risk and it takes time before to move to 8-inch. So for sure, are the same. The benefits will be more end of '27 and entering in '28, and in Sanan, we expect to start the production and to load this nice infrastructure starting the end of 2026. Operator: The next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding the acquisition of the NXP sensors business. How -- I mean, how did that business grow in the past? And how will that contribute to growth in the current year? And then my follow-up question is regarding the gross margin of the company. You've said that your underutilization charges do not fully go away this year. But should we assume that in '27, the underutilization charges go away and with the mix shifting more to the AI products as well as some of the satellite products, et cetera, that there could be a much bigger move in the gross margin in full year '27? Jean-Marc Chery: Thank you, Sandeep. So Marco Cassis will take the first question on NXP -- former NXP MEMS. And Lorenzo, of course, the second question. Marco Cassis: Yes. On NXP, the combination of the capabilities of the 2 companies is translating in acceleration, of course, related to a market, which is automotive and clearly is moving at the speed of the automotive but it's an acceleration of opportunities of design-in and design win because we are putting together the best of the 2 worlds, which is a very strong positioning of NXP MEMS in accelerometers, where they do use -- sorry for a little bit of technical but monosilicon crystal, which are extremely good in terms of temperature performance for automotive and our capabilities on the 6-axis. So we do see that we are going to grow with NXP at faster speed than what is typically the market growth in safety application. So it's going to be a contribution of the growth of the overall MEMS business. I hope I'm answering to your question, Sandeep. Sandeep Deshpande: So how much was the growth in the past couple of years in that business? Marco Cassis: Well, it was in the range around low single-digit growth, which is the typical growth of safety application in automotive. Sandeep Deshpande: And you expect that to accelerate is what you're saying? Marco Cassis: I am expecting this one to accelerate, yes. Sandeep Deshpande: Understood. Lorenzo Grandi: Okay. Maybe I take the one of the gross margin, let's say, confirm what I was saying before, the gross margin will improve starting from our 35.2% this quarter of Q2 after, let's say, quarter after quarter this year driven by the seasonality of the revenues, the continued reduction of the unused capacity. As I said before, let's say, still there will be some but reducing over the second part of the year and then the continued improvement of the mix. Clearly, let's say, this is our trend to the path above 40%. We said that when the company, let's say, will be with revenues above $4 billion quarterly revenues, let's say, we expect to have our gross margin at 40%. After that, our reshaping plan will be completed. So this is going in this direction, let's say. So what I can say today is that clearly, let's say, in our gross margin, there is still some negative impact on this reshaping plan, temporary negative impact due to the activity that we are doing that we will progressively go down and transform, let's say, positive impact when we will start to have, let's say, the benefit of these programs. So yes, I confirm that at the end, let's say, there will be -- you will see a progressive improvement in our gross margin moving in Q3 and Q4 and then, of course, in 2027. Jerome Ramel: Thank you, Sandeep. We have time for a very last question. Operator: The last question for today is from Lee Simpson from Morgan Stanley. Lee Simpson: Great. Maybe just a couple of questions, if I could, around data center power and then on the photonics side. Just on the data center power, it did look as though you were saying you've seen some design wins. It looked as though with silicon, silicon carbide, most all of it first stage. I just wondered if you could give us a sense for the engagements you're seeing around gallium nitride, where regionally that may emerge? And then maybe just on the voltage regulation side on the second stage, anything really happening there, certainly as we look out to '27? Jean-Marc Chery: So Marco will answer the detail. Interestingly, for all of you, guys, maybe what I can tell you that the nicely above USD 500 million in '26 will be spread approximately between 40% related to analog and power and 60% related to microcontroller and radio frequency optical cable. Just for you to have the span of our revenue for 2026. And I'll let Marco to answer the detail. Marco Cassis: Yes. For what is related to power compared to our positioning 1 year ago, we put a major effort in expanding the portfolio to be sure that we can cover basically from grid up to driving the GPUs. And this goes through the full portfolio of ST, which is silicon-based, silicon carbide with different voltages and new packages that we are introducing where we are not present. And of course, the GaN, which is an important for the 800 volt where we are in sockets that I think will come to life during this year and next year. So the position overall in terms of portfolio is now much stronger than it was, and this will translate in revenues during '26 but mainly during '27. And this goes across the different ecosystem of suppliers, which means power supply makers based in many cases in Taiwan and of course, the ecosystem that we have in U.S. So overall, the trend is going through the full portfolio of ST, again, with a portfolio that has been expanded and now is rich and covering all the stages of the power conversion. Lee Simpson: That's very clear. Maybe if I sort of move it on to the photonics side. It always seems ST is extremely good at getting a big lead customer, pipe cleaning a new market opportunity and creating advantages, if you like, in technology, leveraging some of the IP in-house. But that transition to a standard product in the market for us always feels like the real ROI where margins can be accretive. Are we seeing when we look at the PIC and some of the engagements you have in the market, the possibility that this PIC100 becomes a standard product in the market? Jean-Marc Chery: Standard product, okay, I will not classify it as a standard product, okay? Maybe application standard specific, maybe yes. But one thing, I prefer to share with you again to show how ST is and will be a reference on silicon photonics. First of all, we are the unique company capable to provide silicon photonics technology on 12-inch. So we have the capability to increase our capacity in both in Crolles and possibly later on in Agrate. So for sure, ST, will compete on this market, largely to become a pure standard, you will have many innovation coming in the optical cable and optical solution. Again, the near-packaged optic, the co-package optics, all this will come maybe faster than expected. And silicon photon is a key enabler of all these technologies. Jerome Ramel: Okay. Thank you. Thank you, everyone. This is the end of this call. So thank you for joining us today, and we remain at your disposal if you have any follow-up questions. So sorry for the one who we couldn't squeeze into the question. So thank you very much. Have a good day. Lorenzo Grandi: Thank you. Jean-Marc Chery: Thank you. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Ladies and gentlemen, welcome to the Schindler Q1 Results 2026 Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] the conference is being recorded. The presentation will be followed by a Q&A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Brorson, Head, Investor Relations. Please go ahead. Lars Wauvert Brorson: Thank you, Valentina. Good morning, ladies and gentlemen, and welcome to our Q1 2026 results conference call. My name is Lars Brorson. I'm Head of Investor Relations at Schindler. I'm here together with Paolo Compagna, our CEO, and Carla De Geyseleer, our CFO. As usual, Paolo will discuss the highlights of our Q1 results and our 2026 market outlook, and Carla will take us through the financials. After the presentation, we are happy to take your questions. We plan to close the call at 11:00. With that, I hand over to Paolo. Paolo, please go ahead. Paolo Compagna: Thank you, Lars. Good morning, everyone. Glad to be back to report on our Q1 results. And overall, I'm pleased with the start we made in '26, continuing our strong operational momentum from the last year. At the same time, we faced a very volatile macro environment, which we are responding to more during this call. Let me start with growth. In terms of order intake, we grew close to 3% in Q1. Well, this is still not the growth level we would be happy with, but let us look together at 3 important points. First, we are pleased with our product momentum. We are seeing very good traction with our new modular platform and the new installation markets. You remember this was started to be rolled out '24 in Europe, and continued in other zones in '25. Not only is growth picking up here, but we are also seeing very visible improvements in terms of field installation efficiencies, which helps. Secondly, the ramp-up in our new mid-rise product in the U.S. continues to exceed our expectations. And thirdly, the rollout of our standardized modernization packages is gathering pace. Also increasingly facilitating growth in modernizations outside of our existing maintenance portfolio. And finally, in terms of large projects, we are seeing some improvements here, too. Large projects grew in Q1 versus the first quarter of last year, and our project pipeline looks promising for the rest of '26. An additional word on modernization. Growth here continues to stand out. Order intake was up 15% in the quarter. And I'm really pleased to see that our revenue growth was even higher. Our backlog execution continues to move in the right direction globally, and all our regions grew modernization revenue by double digits in the first quarter. We continue to expand our supply chain and field installation capacities which make us confident that we will continue to execute our modernization backlog successfully throughout '26. Looking at total group revenue growth, we were off to a slightly softer start in '26 growing 1.7% in Q1. Revenue in our new installations business was down high single digits in the quarter, with China still the main headwind. But we confirm our full year guidance of a low to mid-single-digit growth as Carla will share with you the details later. Now operationally as I said, I'm very pleased with the quarter. Our operating margin expanded by another 100 basis points to 13% in Q1. Seasonally, our lowest margin quarter of the year. And operating cash flow was strong again this quarter at over CHF 500 million. But let me briefly also talk about the broader operational environment as we see it today. It is clear that the crisis in the Middle East brings some challenges we need to respond to. As the revenue contribution from the Middle East makes up less than 2% of the Schindler Group, the top line actually -- the top line impact actually remains modest. But serving our customers in this region has been met with some challenges in the past 2 months, particularly for the new installation deliveries. We have currently around 200 units produced, which I don't hold or in transit and which we are actively looking to deliver to customer sites via alternative routing to still active parts. But outside of that, even the broader impact on our supply chain remains limited, we are facing some additional cost inflation in terms of logistics, fuel and energy costs and commodities. Carla will provide you all the details on the expected cost impact. In terms of mitigation measures, we are actively working on pricing actions in order to offset this cost pressure. Both list prices as well as surcharges across new installation, modernization and our service businesses. as well as working closely with our supply chain to manage efficiencies on the supplier side as well. Currency translation is significantly impacting our financial performance with the continued appreciation of the Swiss franc. This quarter, we faced an FX headwind of over CHF 200 million to our order intake at 7%. And Q1 match with that 1 of the highest hit quarters on record in terms of FX headwinds. Last but not least, a word on sustainability and our consistent effort in product development. We are pleased to be awarded the ESG Award '26 for our low carbon emission steel elevator pilot at the MIPIM '26. Many of you know the MIPIM is one of the leading real estate events globally in the annual calendar. The award comes at a time when we all are reminded of the importance of energy efficiency, and we are proud to be leading the industry with the first ever low carbon emission steel elevator installation. Turning now to Slide 4 and our order intake in the first 3 months of the year. In service, our maintenance portfolio continued to expand with the strongest growth in Asia Pacific, excluding China. In Americas, while we saw growth in value terms, our selectivity was leading in units recaptured to a modest decrease, confirming our overall strategy. But next, we expect to see a gradual improvement over the coming quarters. In modernization, we have been able to continue with the strong momentum recorded in '25, with the only exception being Asia Pacific, excluding China, where orders marginally decreased primarily due to lack of large projects in the quarter. China again was the standout with growth well into double digits as we continue to benefit from the bond program further scaled up from '26 -- up for '26 from the 120,000 elevators units replaced last year. In new installations, our global order volumes declined by more than 5% to China. In the rest of the world, our NI, New Installation orders grew double digit, driven by EMEA and Asia, again, excluding China. Moving to the market outlook on Slide 5. We have decided to keep our outlook unchanged for the time being, while continuing to closely monitor the effects from heightening geopolitical tensions on construction markets, both in Middle East and globally. Foreign investment has played a significant role in driving growth within Middle Eastern real estate markets in recent years. Therefore, we remain attentive to any potential impact on investment flows to the region. Construction input costs were still at elevated levels already prior to the onset of the conflict in Iran 8 weeks ago. These, together with rising oil and gas prices are likely to contribute to further cost increases placing burden on builders and subsequentially on homebuyers. The surge in inflation has also altered the global interest rate outlook from a trajectory of steady reductions to one that now carries an increased risk of further rate hikes with implication for both demand and supply within the real estate sector. In spite of these challenges, we did observe robust activity modernization markets across nearly all regions. However, at this time, we are not revising our outlook upwards, preferring to await confirmation of the continued strength in the coming quarters. In installation, just to call out a few selected markets, construction activities continued to gradually pick up in Germany with multifamily building permits up close to double digits on the 12-month rolling basis and strong growth in new orders recorded by builders in the residential sector. Activity in Brazil remains solid, driven by affordable housing. And in the U.S., there have been mixed signals as multifamily permits and starts have risen in spite of Architectural Billings Index remaining below 50 for 33 consecutive months. In China, construction remains under pressure with all key lead indicators such as floor space started and real estate investment down by more than 10% again in Q1. With that, let me turn over to Carla to walk us through our financial results in more details. Carla Geyseleer: Thank you, Paolo. Good morning, everybody. A pleasure to have you on the phone. So let's take a look at the financial results. So Slide 7, so the usual summary slide of the current quarter compared to the last 4 quarters. As Paolo said, we are pleased with the operational momentum in the first quarter. Margins up 100 basis points year-on-year, both reported and adjusted EBIT. And another quarter with a very good operating cash flow, even if we didn't quite hit last year's exceptional high level for the first quarter. Finally, we moved our net profit margin into double digits, which is also a very pleasing development. Now a quick word on currency. As mentioned, we have been facing accelerating FX headwind in recent quarters. And in terms of the revenue impact, it amounted to more than CHF 180 million in the first quarter, so close to 7%. And this obviously comes from the appreciation of the Swiss franc versus our main currency exposures, particularly the dollar. But the headwinds from some of our smaller exposure such as the Indian rupee are also having a notable impact. Now looking back over the last 10 years, the cumulative FX impact shaved off over CHF 3 billion of our top line and over CHF 350 million of EBIT. Now moving to our top line development on Slide 8. So giving you some insights what we see in our different regions and in our different segments. So first of all, regionally, we grew the order intake and the revenue in local currencies in all regions outside of China. At the order level, China cut 1.5 percentage points of group growth in the quarter with order growth as a result, 4.3%, excluding China compared to the reported 2.8%. The standout region was Europe, particularly Northern Europe, which showed high single-digit order growth in the first quarter on a reasonably tough comparison from last year. So overall, very pleasing to see growth here, including a very good development in Germany. Now looking at our business segments, as Paolo mentioned already, modernization contributed strongly to the order intake and the revenue in the first quarter, both growing at 15%. New installations saw order intake stabilized this quarter, but revenues declined high single digit with China down over 20%. And finally, growth in service business continues to be accretive to the group growth overall. From this slow start of the year, now we expect to see a modest but gradual improvement over the next 3 quarters, consistent with our full year guidance of low to mid-single-digit growth. Growth in our order backlog was up 2.5% year-on-year, 3% sequentially in local currency, driven by modernization, which was up 15% year-on-year and the backlog margin improved somewhat sequentially. Now moving to EBIT and EBIT adjusted. So you can see here on the slide, the FX impact is also hitting our EBIT bridge. This quarter, minus CHF 23 million. Now the good news is that we are more than offsetting this by operational improvements, which was plus CHF 33 million in the first quarter, which is in line with the quarterly levels we saw throughout '25. So we are maintaining our productivity momentum with savings coming from SG&A, procurement, supply chain and field efficiencies. Particularly, the latter has picked up in recent quarters, which is pleasing. Now price and mix were contributors to the CHF 33 million operational improvement, but less so than efficiencies. So our equation, pricing plus efficiency outweighing inflation remains firmly positive with both inflation and pricing likely to gradually increase over the coming quarters. Now moving on to the net profit and the operating cash flow on Slide 10. So good development in net profit driven by our operational improvement, which is more than offsetting a decline in financial income as well as FX headwinds. And now margins into double digits. And operating cash flow was good, reaching CHF 532 million for the quarter, just shy of last year's exceptionally strong performance. Again, uptick in our operating earnings drove the strong performance whilst net working capital improved, but less so than in the first quarter last year and hence, a bit of a headwind in our year-on-year bridge. We will continue making progress on our net working capital initiatives, and I expect us to have another good year for operating cash flow in line with the last 2 years. And I expect as a result that we continue to show industry-leading cash conversion levels that means converting well above 100% again in '26. Now moving to the next slide. In terms of full year guidance, obviously, we confirm the full year guidance. So in terms of our revenue growth guidance of low to mid-single digits in local currency in '26, we expect a modest gradual acceleration in -- from the 1.7% in quarter 1. And that assumes continued strong double digit in modernization, stable mid-single-digit growth in service and a gradual easing of the headwind in new installation from the high single-digit decline in quarter 1. Now on to the margin guidance of 13% in '26. So the improvement versus '25 is clearly driven by continued productivity improvement, increasingly from field efficiencies. So we expect an acceleration here to offset a moderation in procurement and SG&A savings such that we can achieve the same overall level of incremental savings in '26 as we did in '25. Now a little reminder on the mix, which we have as a headwind in '26. Mix was a tailwind in quarter 1, but we expect that to neutralize over the coming quarters. Let me also say a few words on cost inflation. So based on our current assessment, we face some additional inflation from energy, commodity and commodity. So firstly, on logistics and fuel cost, we estimate that each of these add approximately CHF 15 million, 1-5, to our annual cost. So CHF 30 million in total on a 12-month basis. Outside of that, energy is a small cost category for Schindler and the inflation would amount to less than CHF 1 million. That is electricity usage in building and so on. And finally, on raw materials, there is no change to the CHF 15 million, CHF 20 million annual cost inflation estimate that we shared with you in February. And so that is primarily associated with the higher copper and aluminum prices. So putting all of this together, we face up to CHF 50 million of additional cost inflation on an annual basis from the elements I just outlined. And obviously, we are working hard on mitigating to offset these elements. Now touching on tariffs. It remains a bit of a moving picture, but our estimate of the annual gross P&L impact remains largely unchanged from what we shared in February. That is approximately CHF 15 million, 1-5, based on current tariff levels. And again, we continue to work hard at mitigating the impact, including making appropriate price adjustments. So in conclusion, let me end by thanking together with my colleagues in the Executive Committee, all our employees around the world. And as you know, unfortunately, many of them are operating in exceptionally challenging circumstances, not least in the Middle East currently. So a big thank you to our colleagues there. And with that, I hand over to Lars. Lars Wauvert Brorson: Thank you, Carla. Let me remind you of our Capital Markets Day, which is scheduled for the 3rd of June this year at our headquarter in Ebikon. Switzerland. We look forward to seeing many of you here as our campus. Please note that the registration to the event closes on the 15th of May, and the number of participants are limited. So with that, we are happy now to take your questions. I would like you please to limit yourself to 2 questions only, given the limited time we have available. With that, operator, please. Operator: [Operator Instructions] The first question comes from Andre Kukhnin from UBS. Andre Kukhnin: Really, the main question I have is that now we are heading into this, again, heightened inflation environment. And given the track record across the whole industry of, say, 2022. Can you really confirm to us that the industry attitude towards pricing has changed structurally and now that you have the contract price escalation clauses in place and that you can price proactively as inflation ramps up and therefore, avoid that kind of gap in potential gap in profitability. If we could talk about that, that would be great. And then yes, I have a quick follow-up on U.S. service orders as well, if that's okay. Paolo Compagna: Andre, thank you for the good question. Yes, obviously, we can confirm your expectation that the lessons learned in '22, how to face inflationary jumps up and down has shaped the industry as well as ourselves. So number one. Number two, in the actual situation, what is happening is a very proactive pricing, number one, you mentioned yourself, following the -- in the meantime, established discipline in contracts and all that as well as, as I mentioned before, that we are applying where possible, surcharges to address the super high-speed increasing gasoline, oil costs, energy costs. which maybe was not very much the case in '22, right? It was more on commodities and material. So well, to summarize, your assumption is right. We are executing pricing according to the contracts, yes. And obviously, all of you know, there might be also a timing effect how these pricing actions will come to the books as when you price NI, it comes then when you build NI with a longer term, right? Modernization somewhere in between. And on services, the timing to see the pricing and the subsequent benefit of it might be shorter. Andre Kukhnin: That's really helpful. My second question is just on the U.S. service orders in your slides that showed us down in Q1. I think that's in units. Could you just talk about how it's done and how it's performed in value? And how do you see the outlook for this segment for the rest of the year, please? Paolo Compagna: Yes, very good question. Thank you for that. That helped me clarifying something which I was mentioning before. In value, important to know, we grew in Americas and U.S., too. So service value is growing. On units, as we report on units, we have a slightly decrease, which is mainly due to some -- yes, I call it, selectivity, some larger accounts we on purpose didn't rebook as we didn't pursue to continue to fully stick with our overall strategy we have. So now to the second part of your question, Andre, very clear. We and also myself expect in the course of the year also to -- not to recall to recap or to catch up on unit growth. So value is already and units should follow during the year. Operator: The next question comes from Daniela Costa, Goldman Sachs. Daniela Costa: Just wanted to ask you sort of on the path of light savings and efficiency from here and also on mix, you gave great detail on the whole inflation items and commented already a lot on price. I wonder on those 2 elements and the cadence from here. That's the first question. And the second question, just for an update on where -- how do your view stand regarding when service regulation could change in China? Paolo Compagna: Maybe, Carla, you can elaborate on the efficiency gains, and then we can come back on China. Carla Geyseleer: Daniela, so happy to take your question. So yes, as I said earlier, it is clear that we have these inflationary impacts, but we expect them to be offset by the pricing. Paolo just outlined our view in terms of pricing. There might be here or there a bit of a timing effect, but that clearly will not realize. So from that perspective, the increased inflation will be offset by the pricing. Coming to the real efficiency, there is not as such a big change to what we shared before. So we are still looking for the approximately CHF 200 million of efficiency coming in, mainly the 4 pillars that you're well aware of. So it's clear that the composition slightly changed, but the overall numbers, they stay in line with the projections that we shared. Does that answer your question, Daniela? Daniela Costa: Yes. Maybe just of the CHF 200 million sort of how much is left? Carla Geyseleer: Well, I mean, it's clearly that the main contributions are coming from supply chain and procurement saving and what is currently picking up is the field efficiency savings. So whatever now in the future will be a bit going on the moderate side in terms of incremental from supply chain procurement or the SG&A will be picked up or will be offset by the pickup in the field efficiency, both in the -- well, actually in the 3 activities and NI, Mod and in the service. Paolo Compagna: Coming -- let me catch up on China. That's a very good question. And so regulation in China, let me start. Whenever it will come, I said it also before, you remember, this will have a positive and welcome impact to the industry and also to us. However, it has been just postponed for another 6 months. Now it's expected that it would be published earliest, end of this year and being enforced end of next year. So well, if we put these 3 informations together, it's become obvious that any impact can only be expected in the course of '28. Well, now we can be philosophical and it's quarter 2, quarter 3, I don't know. So hence, we have to be a bit more patient, then I think we can have a full insight into the expected benefits first when we have studied documents, again, maybe Q1 next year, we have a better insight. However, it's important to know that by now, in all our plans, expectation outlooks, we didn't include yet any significant contribution of it already now. So therefore, yes, we have all to be patient and catch up on this in my personal opinion, in 1 year from now. Unfortunately, we can see. Operator: The next question comes from Midha Vivek from Citi. Vivek Midha: I have 2 questions. My first is on the order intake, particularly in Europe, EMEA up double digits for the quarter. The market outlook is still for 0% to 5% growth on a full year basis. I was wondering if you might be able to give us some color maybe breaking that down between how much you think was underlying market developments in the quarter itself? How much was a pickup in the larger project orders and whether you think there was any contribution from any market share gains? Paolo Compagna: Vivek, thank you for the question. I'll address all the points one after the other. Number one, EMEA up, yes. It's not a big secret, maybe with some differences between Central, Northern European countries and yes, most famous EMEA at the moment. But we are pleased to see that Europe, as EMEA for us, or Europe is contributing positively to our order intake, which was a bit expected, so number one. Number two, how it is between pickup on large projects and rest of the business. This is also, I must say, different country by country, as you can imagine, we see now also to be anticipated a bit of a slowdown in large projects signed in the whole Middle East region is not a secret, the large project pipeline list was or is including also a portion of those projects. And we are always a bit more on the conscious side. Now we don't have to say we keep it on the list, but we don't count on them short term, while the rest of the projects still look promising. Talking countries and markets, well, I was mentioning before, we are happy to see Germany picking up as we were saying last year, let's keep the fingers crossed that now the darkest period is behind us in Germany, and we can confirm at the moment, everything is confirming is right. But also other markets are coming nicely in Spain, Italy, there's many more. So summarizing on the commodity sector going well in the commercial segment, different country by country, large projects, as you can imagine yourself, is now a bit in the light of geopolitical movements, different between infrastructure projects, which continues and private finance projects, which one could say, they might be a bit delayed until the financial situation now globally speaking, has been clarified. Vivek Midha: Very clear. My second question is a follow-up on the cost inflation topic. One cost item you didn't mention, particularly on the raw material side with steel. Would you be able to give us a quick summary of your exposure there and what sort of assumptions you've made around that? Carla Geyseleer: When it -- Actually, when it comes to the steel, we locked in actually for the longer term. So it creates less volatility for us for the remainder of the year, to be honest. That's why I didn't mention it. Vivek Midha: Very clear. So is there a -- how much of a price increase do you need to put through just relating to the steel on the new orders? Paolo Compagna: That's a good question. But actually, the price increases placed in the new orders now are less related to one single component, right? It's a more general price increase you place, right, to the customers. At the moment, obviously, there are more items contributing to the price increases. And I was mentioning before to Andre, we have learned in '22, I guess, the whole industry, but we Schindler -- we also learned in '22 how to address pricing much better than ever done in the past. So that here, I must say it's a bit difficult to assign to each inch of the price increase, one component. And we also have copper moving, we have oil moving, we have energy moving. We have wage inflations moving, very different country by country. So actually the pricing you set in the new orders now is a combination of all these and also not a secret, is also a bit different country by country as reflecting on especially wage inflation, this varies a lot among the countries. Operator: The next question comes from Nick Housden from RBC Capital Markets. Nicholas Housden: Firstly, I was just hoping you could comment on the growth components in service, so kind of the mix of unit growth, price net of mix and churn and then also dynamics in the repair business, which from competitors, it sounds like that's been quite strong recently. Paolo Compagna: Well, looking at value growth in service, I must say the unit growth and the value growth, one could say is quite aligned. So it's not that we are generating an additional value growth by overpricing anything. So at the moment, we can confirm that our growth in value is, if you look to the different markets, very much in line with our growth in business -- sorry, in units. Carla, something? Carla Geyseleer: Yes. Well, I mean maybe just adding when it comes to the portfolio and in units, we definitely are positioned very favorable when it comes to the churn rates when we see what is going on in the market. And I think that is a very, very good point. And we still are on a neutral basis when we compare the churn with the recoveries overall. So that is -- yes, that is where we are in terms of portfolio evolution. And as Paolo mentioned already, in terms of pricing, I think we remained also very disciplined there, and we will continue. So whatever comes from inflation, we will definitely make sure that it is recovered. Nicholas Housden: Okay. Great. And then my second question revolves around the sequencing of growth for sales in Americas new installations. I think we've had a couple of decent years of order intake in units. And I would imagine that pricing has also been quite solid there. So I'm just curious as to when we start to see that feeding through a bit more meaningfully into new equipment sales growth. Paolo Compagna: Well, difficult to say in which months we see it, but we can confirm that at the moment, the positive trend we were also referring in the past continues. So now let us keep the finger crossed, nothing changes, right? So now very soon, we will also see it contributing subsequentially to our order intake as well as I was also mentioning last quarter, and it is unchanged. We are also participating more and more in large projects, which then going forward will also contribute on both order intake. And then yes, with the time line you have for -- to generate -- sorry, to create the revenue also contributing there. So we don't change our constructive positive outlook on the U.S. in terms of new installations. So yes, your observation is right. Revenue will be subsequently generated large projects a bit slower, commodities coming linear, not to forget modernization, which is also coming very strongly and with a shorter delivery time, obviously, right, between the order intake and contribution to revenue. Operator: The next question comes from Martin Flueckiger from Kepler Cheuvreux. Martin Flueckiger: First one is on your remarks regarding building permits ramping up in Europe over the last few quarters. Now I appreciate those comments, but I've recently also checked that according to ECB, European Central Bank data, the mortgage volumes in Europe have started to turn more or less flattish. They were down in January, but slightly up in February. If you compare that to the growth we have seen, which was clearly double digit, up to 40%, 50% or more percent in 2025, depending on the month, that seems to be noteworthy. I was just wondering whether you had any thoughts on that development with regards to financing decisions in Europe being postponed, which ultimately could hit your residential exposure to the region? That's my first question. And my second question is on CapEx. I noticed CapEx was up sharply year-on-year in Q1. Just curious how we should think about that number going into the remaining quarters and what kind of comments you could make on CapEx guidance for the full year? Paolo Compagna: Martin, let me take the first one and the second one, I will happily pass to Carla for the CapEx. That's a good one. How would we expect the financing structures, availability, especially in Europe, I think, is your question, might impact the green shoots we have seen coming, especially let's talk about the largest markets we have like Germany, Spain, Italy and so on. So first of all, by now, in the residential segment, and allow me to split briefly in 20 seconds in segments, then we and we personally expect in the worst case, a bit of a different scenario in residential, one could expect based on the strong demand we have in all large markets and already made decisions on financing, on building permissions and so on, we would expect a more resilient new installation order intakes going forward. So other words, the expected growth rates in commodity -- sorry, in residential, we might still expect. When it goes to large projects, I was moving -- mentioning before, I would move to a more differentiated picture. We see at the moment everything which is more related to infrastructure, public investments is continuing as planned. So here, I would also -- I see your point of volatile mortgages and so on, but it doesn't play a big role here for the moment. And yes, you have a good observation. Fully private finance developments might see a bit of a delay. However, if I look over Europe at the moment, day-to-day, still decisions made to progress on projects, excluding Middle East. So all in all, if we have to expect some changes going forward, I think it's appropriate to be more conscious on large projects, private finance, followed by large projects, infrastructure which we see more safe kind of sort of saying. And residential, we would expect for '26, more or less flat. I hope this addresses your first question, and Carla takes up on CapEx. Carla Geyseleer: Yes, Martin. So thank you for the question. Good observation. So yes, our CapEx investments in Q1, they amount to CHF 46 million versus indeed CHF 18 million last year. And that is actually a replacement -- a real estate replacement investment. So it comes from the purchase of a land plot in Switzerland, yes, for replacement of a factory. So that is actually what's there. So it's not like a trend to further increase now the CapEx going forward. So it's actually, I would say, a one-off that you see there. Operator: The next question comes from Martin Husler from Zurcher Kantonalbank. Martin Huesler: I have 2 questions. The first one, when it comes to claiming a refund of overcharged U.S. tariffs, what is your approach here? Carla Geyseleer: Yes. Obviously, we are looking into that. We are doing our homework, and then we will conclude at the right time to file for it. Martin Huesler: But your guidance of impact of U.S. tariffs doesn't actually include any, let's say, payback of what you paid? Carla Geyseleer: No, no, absolutely not given the uncertainty about the timing, et cetera. So when it comes, it comes, yes. So it's an upside, but we don't count on it in the numbers that I shared. Martin Huesler: And then the next question, maybe a bit of a broader one. When it comes to consolidation in the sector and the opportunities to expand your service footprint, mainly, I guess, what is the reason for a rather cautious approach for external growth that we see for Schindler? Paolo Compagna: Martin Well, conscious approach, I leave it to you to judge. What we said and we are working on is, yes, we like to expand our portfolio footprint also by inorganic investments, I think, is what you referred to, right? What we said is, at the same time, we would not jeopardize our overall strategy, which we call profitable growth. by doing things which afterwards look good but aren't. So this being said, when we look at external opportunities, is what Carla always calls the bolt-on acquisitions and even maybe large acquisitions, we always prove them against our midterm strategy, and we will talk a lot also on the upcoming Investors Day with you guys. So therefore, I would not confirm that we are not interested in expanding our footprint inorganically, you were saying externally. But yes, I would confirm that we still make sure it fits to us and it fits to what we promise to every one of our investors we intend to do in the next many years with the portfolio. Carla Geyseleer: Yes. If I just -- Martin, we have our own criteria for actually assessing opportunities and if they fit our plans, yes or no. So we stick to this criteria. What is clear for us, what we are not going after that is overpriced assets and also loss-making business. So there, we are -- stay away from because we -- I think we would -- if we acquire things, we want to actually generate a return on it. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: On modernization, I'm wondering if you could characterize what you see as the trajectory on contribution margins over the next 2 to 3 years? And also maybe a bit of color here, given the strength of China on unit counts and the bond program, how you see kind of mix geographically evolving from current level, I suppose? Paolo Compagna: John, let's take the second part first. Now do we see a geographical mix. First of all, well, I must say, if we look at the distribution of the installed units on this planet, obviously, there will be over the years, an increasing contribution also modernization coming from China. So the longer term, we look at the modernization business, and I'm talking 5 to 10 years, the more the contribution will be out of China, obviously, right, as the half of the units installed on this planet are, for whatever reason, installed in China. So this is anticipated at the moment, obviously, the biggest potential for the very next years in terms of value, in terms of margins is obviously there where the installed base is much more aged and the market is much more mature. So obviously, you can -- it's the Americas, Europe and Asia Pacific outside of China. This is the second part of the question. So the first one, and then I will leave to Carla to give more color, if you like. Well, we expect the modernization business also in terms of contribution to the bottom line to continuously improving and continuously evolving. As mentioned before, we are doing a lot in terms of products, in terms of processes, in terms of expanding capacities, production as well as installation. We talked about in the past also here, we will have some more points for you when we see us in June. So there, we can only expect over the course of the next years, an increasing contribution. But Carla, please, anything to add on that? No? Okay. John-B Kim: And one follow-up, if I may. Historically, you provided some very useful color on segmentation in Chinese real estate markets, tiers of cities and so forth. I'm wondering if there's anything you could help us on here in the current outlook. Paolo Compagna: I think with more details, we can also touch on China. But for now, we have segmentation in tiers, I must say one has to ask if we -- if you focus on profitability, and we have reassessed a lot of our organization in China and also going forward, there's still a big difference between Tier 1, Tier 2, Tier 3 cities. Segmentation remains very similar in terms of business opportunities. And hence, when we will share with you where we like to go in the next couple of years, you will also understand what we plan to do in which segment within China to secure that China contributes to our overall plan going forward. Operator: The next question comes from Lewis Merrick from BNP Paribas. Lewis Merrick: You mentioned wanting to grow in the U.S. service market and reverse the trend you've seen in 1Q. One of your peers is also seeing challenges growing there. I'm just wondering, are you seeing the competitive environment potentially heat up in the U.S. market? Or are there any early green shoots you can point to supporting a turnaround? Paolo Compagna: Yes. Lewis, that's a very good question. Now I think you're referring more to the service segment, right? U.S. to U.S., and allow me that I talk about us and not about competition. In the U.S., what we see is a clear trend of increasing presence, let me do it very politely this way, of the ISPs, very active in the market, which are shaping kind of, if I may say, the service business in the U.S. It's not Americas, it's the U.S. There's a lot of contribution into that from private equity going into that segment in the ISPs. And hence, yes, the service market environment is changing in the U.S. Is it changing for stay there forever? I don't know. But what I can confirm is that we are adjusting and working on it heavily and in high speed. And it's the reason why before I was confirming that we expect our numbers to catch up and continue to improve throughout the year. Operator: The next question comes from Philip Buller from JPMorgan. Philip Buller: I have 2 questions, please. Firstly you're obviously working very hard to mitigate input cost inflation. Is your policy regarding hedging on some of those costs changing in any way given the volatility? And the same on FX. The underlying results are obviously good, but FX has been overshadowing that now for quite a long time. So is there anything you plan to do differently in relation to hedging, be that on the cost or FX side? And the second question, I know you don't want to front run the CMD, but can you remind us of what the right level of leverage is for Schindler. I appreciate the comments on M&A needing to have the right returns profile. So how does that pipeline look today and the valuation of those assets? Is that screening well for you relative to potential cash returns to shareholders? Carla Geyseleer: Yes. Thank you very much for the multiple questions. So I try to take them one by one. So obviously, we have -- when it comes to the hedging of the raw materials, there is no change in policies because I believe that we hedge what we can hedge. Now in terms of the FX impact there, of course, we did quite some work over the prior periods and especially then contracts that are in our -- yes, strong Swiss franc. I mean we convert most of them already in non-Swiss currency. So quite a lot of energy went into that. So in order to de facto come to a hedge. And when it comes to the capital allocation question, I'm actually yes, looking forward to give you more insight into the Capital Markets Day, also what the next follow-up is because, yes, our share buyback program advances very well. So if you can give a bit of patience there, I will definitely give full insight into that topic. Operator: The next question comes from Rizk Maidi from Jefferies. Rizk Maidi: Just maybe a little bit of clarification on the pricing element when it comes to service. It doesn't feel like this according to my calculations that pricing was not a big component within the service growth. Maybe if you could just shed a bit of light there and give us a flavor on how do you see it sort of by region? And then secondly, I would like to shift away, hope you don't mind me doing this from -- away from the results, but just take your view on potential large consolidation in the industry. We know this is quite a very consolidated industry. So what kind of impact do you see in the market in terms of density pricing if 2 of the largest -- your largest peers merge? Paolo Compagna: Maybe, Carla, I'll take this one. So the first one. The first one on the contribution of the pricing to the service and bear with me that we don't go now into region by region. But overall, we can say the contribution from pricing is in the mid-single-digit range. So therefore, I was saying the overall growth is not overinflated by pricing. This was my message before, and thank you for helping me clarifying it. So -- but nonetheless, the pricing contribution is in the mid-single-digit area, and that's actually what normally you do every year as you cope normally also with inflation. We did in the past, we do now and maybe now actually right now with an additional component to offset the Middle East crisis FX, as mentioned before. Coming to your second question about larger consolidations and without looking at any specific one, our view is, first of all, if there's a consolidation on highest level, and we can name it, if the 1, 2 of the big 4 would go together, I personally already expressed our opinion and my personal opinion very clearly in the past, one has to ask mid-first and long first, where is the benefit for whom. And this explains for me also the subsequential impact on what you were just mentioning, pricing and movement in the markets. Consolidation on high level always, we have to ask, is there a benefit for the customer? Yes, no, the answer you can give yourself. Is a benefit for employees? You can give your benefit -- the answer yourself. Is there a benefit on underlying efficiencies by consolidation, which could bring some benefits to the bottom line? Well, here, one can speculate and say, yes. Good. Let's take this one. To get to these benefits, you have to do a lot before. And here, I like to share our and my very personal opinion. You have to put it in the timing. It is quite often intense time, which is not 1, 2 years. It will be longer until you can at all generate these underlying efficiency benefits in your books. In all that period, this consolidation would just work against benefits for customers and employees. If you put it on this high level, then the answer is, for me, quite subsequentially logical that it might have a short-term impact on pricing. However, the opportunity also for others to grow and expand customer and business baseline would also increase. So here, I must say for the industry, there might be a reshaping, there might be changes. However, this also bears opportunities for the others. Different when you look at consolidation on lower levels is what we have talked a lot about in the past is what then has a totally different consequence to the market. But you were explicitly mentioning, I think, the larger scale consolidations. Operator: The next question comes from Aron Ceccarelli, Bank of America. Aron Ceccarelli: My first one is on tariffs. I understand the situation remain extremely fluid at the moment. You highlighted the CHF 15 million that you announced at the beginning of the year. Could you perhaps elaborate a little bit on the new 232 regime, perhaps expanding on your exposure to Mexico and Canada? And if this CHF 15 million, you think could be revised upward because of these new changes? That would be my first question. Paolo Compagna: Thank you. Talking exposure to tariffs for us, it remains unchanged since the last adjustments, which you know they were adjusted for Switzerland. So there is no change. And Carla has mentioned before, in our numbers, we are sharing with you today and in the outlook we don't foresee any downside at all and also, for the moment, no upside. So first part of the answer. Second part of the answer, special exposure to Canada and Mexico. This is for us quite limited as we have our supply chain base distributed in other markets. So it's not Canada and Mexico. It's 5 other places in the world. And this actually reduced our exposure to tariffs a lot. So for the moment, no impact to our bottom line and to the numbers presented by Carla. Carla Geyseleer: Yes. Just maybe to add and to be concrete on numbers. So initially, we talked about around CHF 20 million. This CHF 20 million, they came down now to CHF 30 million. So yes, so we go clearly as it just decreases the impact for the reason mentioned here. Aron Ceccarelli: That's clear. The second question is on pricing and your backlog. I understand there will be a lag on the effect of pricing on new orders. I wanted to understand to what extent if there's any kind of ability to go and reprice some of your existing orders in new equipment and perhaps maybe modernization eases because of the churn. But trying to understand, considering the current situation, if there's any chance you are able to go to your customers with an existing orders and say, look, things have changed, we might have to revise price upward. Paolo Compagna: Thank you. First of all, do we do it where it is possible? Yes. Is it everywhere possible and in every contract? No. So therefore, do we expect some impact on the backlog positively from pricing? Yes, but it might remain minor that it is not critical to be now disclosed here, right? So therefore, the effort we are doing, and I said before, we are quite diligent in our pricing discipline, I must say. However, looking explicitly at new installation orders, it also plays a role how old this order is. So therefore, it's quite of -- not volatile, it's quite of a diverse picture. So -- but I can confirm where possible and together with the customers, we address it. In some cases, it's obvious, it doesn't work. Lars Wauvert Brorson: Thank you, Aron. Thank you. We'll take the final question, please, and then we'll close out for today. Operator: Last question comes from Midha Vivek from Citi. Vivek Midha: It's a follow-up on one of the questions on CapEx, just more broadly on cash conversion. You mentioned earlier, this should be again a year of over 100% cash conversion. Your cash conversion has been very strong over the last few years. For how long can you continue with this sort of level of cash conversion? And what should we bear in mind regarding the moving items within that? Carla Geyseleer: Well, I'm actually, yes, very convinced that we can continue with this nice cash generation. Yes, first of all, I mean, we believe or we are clear, I think, where we go in terms of profit. And when I look at the net working capital, I can tell you, I still see my pockets where I can further optimize and I will not let go. So based on the combination of the 2, I feel comfortable making that statement. So I don't know if that answers your question, but I'm very passionate, I must say, about it. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Lars Brorson for any closing remarks. Lars Wauvert Brorson: Thank you very much, operator, and thank you all for attending this call today. Please feel free to reach out to me and the Investor Relations team for any follow-ups you might have. The next scheduled event is our Capital Markets Day on the 3rd of June, and we look forward to seeing many of you there here in Ebikon, of course. With that, thank you, and goodbye. 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Even Westerveld: Good morning, everyone. Welcome to the presentation of the first quarter results for DNB and also welcome to everyone following the stream. Just for information, the emergency exits are in the front and also in the back, and there are no planned drills this morning. Spring is here. The sun is shining, and we are really eager to present the results for you. CEO, Kjerstin Braathen, will kick off and then our CFO, Rasmus Figenschou, will continue with the details. And there will be time for questions afterwards. Kjerstin, the floor is yours. Kjerstin Braathen: Thank you so much, Even, and a particularly warm welcome, we can say, since it's spring, as Even said, and the sun outside is shining. That, nonetheless, does not mean that there are calm waters around us in the world because this quarter, the turbulence around geopolitics has continued certainly with the increasing conflict and the war in the Middle East. This is something that has led to high and very volatile energy prices and the level of uncertainty is, as we have seen now for several quarters and years, higher than what we have been used to. Despite the geopolitical backdrop and despite energy prices being higher, the market reactions overall, we would qualify as relatively benign. And the Norwegian economy continues to be resilient in this environment. Business activity overall across the Nordic markets, which does represent the majority of our activity, we would consider at healthy levels and the Norwegian households are robust. So despite a turbulent environment, we are relentless in our focus, which remains with our customers, focusing on giving them good customer experiences contributing with value creation and focus on the business short term and longer term. As always, I would like to start also with the customer and demonstrate how we are working towards our mission, which is really to simplify life and help our customers prosper. In terms of simplification, we have this quarter launched a new equity trading platform in our digital savings app, Spare. This was launched in March. And already in the month of March, we saw that 1 out of 4 trades in shares were actually done on the platform, and I don't think we can get better feedback from our customers than that, that this is actually contributing both to simplicity and efficiency. We continue to see that our customers are putting their trust in us with their savings and their investments, and this is demonstrated by a record net inflow in our Asset Management business this quarter of NOK 20 billion. Making it easier for the young children and adolescents to become customers is also something that we've done this quarter. Now young people below the age of 18 can become a customer with DNB in less than 2 minutes. For our Sbanken customers in chat, we have introduced an all AI -- generative AI chatbot, meaning it's not a chatbot that we have trained, it trains itself. And this has rapidly taken over 75% of the responses in chat and inquiries from our customers in Sbanken with very good customer satisfaction. Across Large Corporates and DNB Carnegie, we continue to see a confirmation of our strengthened position and the offering. First, from Prospera in the Grand Total survey for Norway, where we are qualified as the leading bank in terms of customer satisfaction. And for DNB Carnegie this quarter in equities, where individually, we are #1 in each of the 4 Nordic countries and also with the overall number 1 position. And as always, I am very proud of the efforts that our team put in every day for our customers. On to the results. The return on equity comes in at 14% this quarter, 15.5% on a rolling 12-month basis. This does represent a solid contribution from all our customer segments and also the macroeconomic development with lower rates than we saw this time last year. We do see profitable growth both in loans and deposits, a stronger development in deposits than loans this quarter. And the growth is offset by repricing effects and also a fewer number of interest days in the first quarter. And NII as a result of this is down by 5.4% compared to the previous quarter. Net commission and fees is up by 18%. Contributions materially from all various product areas, the strong point, again, I would highlight is Asset Management, where we see a strong net inflow. We see assets under management grow despite values coming down. And we also see a record flow for the past 12-month period. The portfolio in a turbulent environment, again, remains very robust and well diversified. We do not see any structural changes or any negative migration in the portfolio as such. We do book impairments of NOK 644 million in the quarter in all its -- not in all its entirety, but primarily related to customer-specific events and no systematic development in the portfolio. Capital position remains solid, 18.1% core equity Tier 1 ratio, 170 basis points headroom to the required and expected level and a strong earnings per share, we believe, with NOK 6.5 in the first quarter. The Norwegian economy is impacted by what goes on around us in the world. We are an open economy. We are an economy that trades with others. As a net exporter of oil and gas, we are partly benefiting also from higher energy prices and somewhat less impacted by inflation stemming from higher energy prices than other countries, but we emphasize that there is an increased uncertainty in the environment around us. This has led to growth estimates for the year coming somewhat down, but to what we would still qualify as healthy levels with an expected GDP growth in the Mainland economy of 1.4% this year and 0.9% next year. Unemployment is something that we follow very clearly and talk to you about every quarter, still a stable level. We would qualify it with 2.1%, and we expect it to stay low and relatively stable in the time ahead of us. We do expect yet again this year to see real wage growth for consumers. This leads to increases in disposable income, and it does support consumption as a key driver for economic growth. Given the development in inflation that has been more sticky than expected, I think, by both the Norwegian Central Bank and markets, we have seen a shift in the outlook for interest rates during this quarter, both in the messaging from the Central Bank as well as in the messaging from our own team in DNB Carnegie. The outlook for rates is now an expectation that we will see 2 rate increases this year, each by 25 basis points up to the level of 4.5% for the key policy rate, and rates are expected to come down by the similar amount in the year 2027 and stabilize around 4%. So again, in an uncertain world, the robustness of the Norwegian economy continues to be demonstrated as well as the resilience in households, and we do qualify this as a very healthy environment for us to run a sustainable business in. A few highlights on the customer segments. And I would underline that we continue to see a very solid underlying performance across all of our customer segments in a competitive environment. The growth platform we've talked about in Norway as well as outside of Norway continues to deliver, and we see strongest growth on the lending side in Large Corporates. And in this quarter, the nominal growth in Large Corporates is offset by a somewhat stronger Norwegian kroner. We see a very healthy deposit growth across Personal customers as well as Corporate customers in Norway. In Large Corporates, we are more, I would call it, opportunistic. We qualify pricing towards the cost of funding in treasury and the volumes develop accordingly. For Personal customers, we see that the activity in the housing market is somewhat more muted this quarter, but I would highlight the very strong results that we see in our brokerage business in Personal customers. I would like to highlight the pace of innovation that we experienced from the team in Personal customers as well as a strong cost control development in this area. In Corporate customers Norway, last quarter, we talked to you about some larger transactions that were closed towards the end of the quarter in commercial real estate and the plan to syndicate and distribute these. This has been done successfully, both in terms of syndicating to other banks as well as taking out parts of the volume in the bond market. This has impacted volumes along a more stable development of volumes also across the SME market and volumes are slightly down in Corporate customers Norway. We do note a strong growth in other income in Corporate customers Norway compared to the same quarter last year, and this reflects not only an increased level of activity with DNB Carnegie, but also the systematic effort over time to work broadly on cross-selling in this area. Large Corporates that delivers the strongest growth this quarter comes in at 2.3% for the quarter, 9.1% if we look at the year overall currency adjusted. We are working and making progress in terms of strengthening the team in Sweden, and we are getting positive feedback from that process and also how the cooperation is developing with the team across DNB Carnegie. And we see that half of the growth that we deliver is outside of Norway. And again, I reiterate the robustness and the strong quality of the portfolio and that we do not see other systematic risk outside of customer-specific situations. So all in all, a robust development we see for our customer segments. We continue to talk about our activity across DNB Carnegie and across wealth management as the key growth drivers in our business going forward. And we saw a very strong start to the year that has been somewhat -- has been somewhat impacted by more turbulence towards the month of March. But despite this, we continue to see that the level of revenue growth both in DNB Carnegie and our Wealth Management business. One year now after closing the Carnegie transaction, the integration is progressing well, and we continue to reap the benefits from having an improved and more competitive and broader offering towards our customers. We saw a very strong start to the year again across all product areas, I would say, in Investment Banking. With the conflict in the Middle East, we have seen and experienced that some of our clients naturally have decided to postpone some of their investment activity and activity related to stock listing and others, but we have not yet seen this leading to any cancellations of any plans. So the pipeline in the business remains strong going into the second quarter. On Asset Management, again, I would highlight the strong point being net flows, NOK 20 billion for the quarter, NOK 65 billion for the year. This last quarter, more than NOK 5 billion stems from the retail market. And this is an effort we are systematically working on to grow that part of the business as it's more sticky, more recurring. And we have seen that customers are changing their positions, but they are more comfortable remaining in their investments in the market compared to what we saw during the turbulence that stemmed from Liberation Day during 2025. So all in all, a robust quarter. And with that, I will hand over to my excellent CFO, Rasmus, who will take it from here. Rasmus Aage Figenschou: Thank you, Kjerstin. I will now take you through the Q1 results in more detail. And please keep in mind that for 2025, Carnegie's results were included in 1 month of the first quarter. We note continued high activity across all segments with FX-adjusted loan growth up 0.3%. Looking at the Retail Personal Customer segment, the growth is up by 0.2%. As mentioned by Kjerstin and as mentioned last quarter to the market, the growth in the commercial real estate was -- had a planned syndication of -- in Q1 and has been taken out with other banks as well as in the bond markets and thus leading to a volume reduction of 1.2%. Within the Large Corporate area, FX-adjusted volumes were up by 2.3%, driven by increasing volumes across industries and across geographies, mainly in low-risk customers. And we see that more than 50% of the growth comes from our international growth platform. Currency-adjusted deposits were up by 2.6%, driven by positive development both in the Personal customer segment and Corporate customers in Norway. We maintain a strong deposit-to-loan ratio within the customer segment of 73.8%. As in every -- almost every first quarter, activity is slower. This naturally impacts net interest margin, which was down by 7 basis points, ending at 174 basis points. The reduction reflects narrowed combined spreads and other NII not included in the customer segments. Combined spreads in the customer segments were down by 5 basis points, driven by repricing effects, product portfolio mix effects and margin pressure and continued strong competition. NII is down 5.4% in the quarter. We note that spreads are down by NOK 449 million, where roughly 1/3 stems from the full effects of the most recent repricing in November, roughly 1/3 comes from portfolio and product mix effects and slightly less than 1/3 comes from stronger competition. Higher average volumes during the quarter increased -- offset this with NOK 231 million and then having a negative FX effect of NOK 86 million. The reduction of 2 fewer interest days in the quarter was -- came in at NOK 248 million. Amortization effects and fees are down by NOK 176 million, reflecting lower activity, as mentioned in the quarter. No treasury effects in other NII of roughly NOK 150 million. Moving on to commission and fees. Our fee platform is strong and well diversified in total, up 18% from the corresponding quarter last year. Real estate broking was up 3%, reflecting strong performance in a slower market where fewer properties were sold compared to Q1 last year. Investment Banking Services was up by 38%. We note strong development despite of market uncertainties. Our pipeline remains strong, as mentioned by Kjerstin, noting though the transaction in recent months have been postponed. Asset Management and custodial services was up by 34% and assets under management were down 1.2% due to high volatility and negative market developments. However, and more importantly, we noted the positive net flow of NOK 20.4 billion this quarter, a record high, but also a record high when looking at the last 12 months of NOK 65 billion, well balanced between the retail and institutional investors. Money transfer and banking services were down by 17%. We note high customer activity, offset by costs related to payment services and use of credit insurance related to corporate exposures, which is part of our OAD model, driving profitability for the group as a whole. Sale of insurance products was up by 19%, supported by positive development from the non-life insurance commissions and continued strong income from defined contribution in our life insurance business. In addition to what can be seen on this slide, we also note positive momentum in other income with strong results from our life insurance company, DNB Liv, and our non-life insurance provider, Fremtind. Operating expenses are down by NOK 920 million compared to Q4, of which NOK 51 million is currency effects. The reduction reflects seasonally lower activity as well as a persistent cost culture to drive efficiency. Activity is exemplified by the decrease in expenses related to variable salaries and IT and the nonrecurring effects booked last quarter of NOK 200 million. Low return on the closed defined benefit pension scheme is related to market development contribution and that contributes to lower cost this quarter. The scheme is partly hedged and reflected in our financial instruments. Due to seasonality, the second quarter generally carries higher activity-related costs and as well -- compared to the first quarter as well as the effects from the annual salary increases adjustment from May 1. Now moving on to portfolio quality, which remains robust and well diversified with 99.4% being in Stages 1 and 2. In the Personal customers portfolio, which accounts for approximately 50% of our exposure, remains strong. We continue to note record low request for installment holidays and fewer loans with interest only compared to last quarter. Impairment provisions in the Personal customer segment is affected by a model adjustment on inputs on consumer finance and the underlying portfolio remains solid. For the Corporate customer, impairments totaled NOK 556 million. The portfolio remains robust and well diversified across industries and geographies. There is no structural change to our portfolio or general negative migration to note. The impairments in Stage 3 are related to customer-specific situations, and these are typically exposures we've been following over time. And most are -- recent are industries that have been challenging for some time, such as construction. We remain comfortable with the quality of our portfolio. Now moving over to capital. Our CET ratio -- CET1 ratio remains strong at 18.1% with 170 basis point headroom to the regulatory expectations. It was positively affected by the profit generation in the quarter as well as ordinary dividend of NOK 1.9 billion from DNB Liv. In line with previous years, the AGM on Tuesday gave the Board of Directors authority to buy back up to 3% of outstanding shares and an application has been sent to the FSA for approval. The leverage ratio remains strong at 6.5%, well above the regulatory requirements of 3% and combined with a CET1 ratio of 18.1%, our capital position remains strong and enables us to continue to deliver on our dividend policy and continue to support our customers. Summing up, we delivered a strong set of results in the first quarter, having return on equity coming in at 14%, cost/income ratio of 38.7% and an earnings per share of NOK 6.5. We also mentioned that for 2026, tax rate is expected to be 22%, but our long-term guiding remains unchanged at 23%. With that, I thank you for your attention, and we open up for questions. Even Westerveld: Thank you so much, Rasmus and Kjerstin. We have a few microphones in the room, please. Yes, Roy Tilley from Arctic. Roy Tilley: A couple of questions from me. Just on the -- touch upon the margin side, just on the competitive picture on retail, in particular. Have you -- has it changed anything recently? Or is it kind of still the same pressure? And is there anything similar on the corporate side? That's the first question. And then a question on funding. So money market rates have come up quite significantly in the last few weeks. So on the funding side, you've already got a rate hike in your funding cost, I guess, and spreads have also widened somewhat. So I was just wondering, are you able to mitigate any of that on pricing on the asset side? I guess, repricing mortgages will be difficult until we get an actual rate hike, but have you done anything on deposits? And then the third one, just on buybacks. Have you sent an application to the FSA? And if you have, when would we expect an answer? Kjerstin Braathen: Thank you, Roy. I can do the first and Rasmus, the 2 following. Competition is fierce. I would say it's gradually intensifying. We've seen that over the past year. It does reflect that there is ample capacity in the market that surpasses the credit demand overall. It is fierce in Personal customers. It's definitely fierce also in Corporate customers in Norway, including in the commercial real estate sector that we usually see when there is capital looking for employment across the market. Still, we are very pleased to see that there is a high activity and interest coming into the business as such. In particular, we are focusing on our position towards young people. We have 12,000 people buying their first home, young people buying their first home during the course of last year. We continue to see stable to growing volumes even in a competitive market. For us, it's a demonstration of the performance in our team overall, and we are able to continue to grow at sustainable levels, and that continues to be a priority for us, and it will be. But overall, the market is impacted by competition, yes. Rasmus Aage Figenschou: Very good. And on the funding side, of course, there is -- when there is volatility, I'm very happy that we have a strong set of treasury team that plans ahead. So for us, we are not affected by the day-to-day developments in that funding. And I will not go into detail of when we move in the market, but we are well funded. And we, of course, when the whole key policy -- well, when the market has moved in total, we are, of course, affected by that, and then that will feed on to our customers. But the volatility that you're referring to, we are funding our way through it, so to speak. When it comes to the FSA application, we have applied similar to -- as previous years for 1%, and we'll refer to the market when we have their answer. Kjerstin Braathen: And just as Rasmus is saying very correctly, we have -- our team has funded a bit early in terms of expecting market development to be more volatile. But do keep in mind that relative to the LIBOR and the money market rate, our position is more or less stable. And this is in view of how our assets and liability size are matched in terms of margin-related exposure to customer versus what we are funding in the third-party market. So there is a slight impact from rate movement. But really, overall, I think you should see that more or less stable. And then what matters beyond that is, of course, the level of spreads. And coming into the year, we saw the lowest risk premiums that we've seen in a long time. They have come out somewhat, but not to a very large extent. And our goal is always to fund ourselves better than our peers. That increases our competitiveness towards customers, and we continue to see that we get very, very competitive funding. Even Westerveld: Thank you. Herman Zahl from Pareto. Herman Zahl: Just following up on competition. Could you say something about what kind of peers are driving competition in Norway Corporate segment, specifically? Since it seems like both larger savings banks and your Nordic peers have stepped up a bit. Kjerstin Braathen: I think we have a clear principle that we'd rather talk about our performance and not so much specifically about others. I think what we can contribute and shed light on is that it's a broad specter of players that are active in the market. Changes that have been made to capital structures that has improved the position of standard banks as a more general example has taken an impact. We can see that, that has made that category of banks more competitive. Otherwise, there is a larger number of players who are very actively driving competition in the market. Herman Zahl: Yes. And then just on some of the core banking fees, I think you mentioned some margin changes in guaranteed on the slides and money transfer fees as well. Is there something structural we should bear in mind there? Or is it mix effect? Kjerstin Braathen: It's an element impacting over the past 4 or 5 quarters or so, where we have more actively engaged in ensuring part of the exposure that we provide for some of our clients in larger corporates. So it's an added tool in the toolbox to originate and distribute. So when we look at that on a transaction per transaction basis, the return on the transaction and the customer and then to the group is improved because we have less exposure, but the cost related to this does appear in the commission and fee part of the book and has an impact there. Even Westerveld: Thank you. Thomas Svendsen, SEB. Thomas Svendsen: First, a question to commercial real estate. Now that the hope for interest rate declines have diminished and rates are going up, one could imagine that impacts the cash flow and the liquidity for these companies. So how do you look at commercial real estate? Kjerstin Braathen: We continue to remain comfortable with commercial real estate, Thomas. But as you know, of course, rates are very important in that sector of activity, and we have followed it closely. And I would say since rates topping out the last time around, there has been a restructuring and a shift in values that now is more or less 2 years back in time where some players that needed to reposition have positioned. We are now going back to interest rate levels we were at not too long ago, at least that's the expectation in the market. We do not see this as a particularly concerning factor related to our commercial real estate exposure overall. Keep in mind that it is 10% of our book, and it's limited to that. 72% of the exposure is in low-risk customers. It is a diversified exposure across geographies, but mainly concentrated in the larger cities in Norway, and it's diversified across offices, across hotels, across the shopping malls and others. And there is no particular concern that we would like to highlight in view of rates coming somewhat back up again. Thomas Svendsen: Okay. And just a second question on your latest CMD, you said you were targeting NOK 3 billion in gross cost cutting. Now that more than 1 year has passed, how are you according to this target? And should we expect it to be sort of linear over the planning period? Rasmus Aage Figenschou: So we are progressing according to plan on that. And we are -- as our cost slide represented, we are working adamantly on the cost efficiency in the bank, and we see numerous specific targets or areas that we're working on. We're not going into detail on that, except that we are progressing according to plan. Kjerstin Braathen: But I think roughly, we can share that we feel that we are more or less on track. Our cost-income ratio this quarter is somewhat north of 38%. So it's higher than what you've seen in previous quarters. This is an expected impact from the Carnegie acquisition. We have bought a meaningful piece of business that has a higher cost income component, but an improved return for the business overall. And of course, we acknowledge that it's more difficult for you to follow gross cost-saving initiatives, but you have seen us taking several initiatives in terms of restructuring and making changements to our staff. We are working in areas such as digitization and automation, but I would also add innovation in terms of simplifying and reinventing value chains. And of course, AI is a very important tool for us in this area. Also simplifying business, increasing the magnitude of straight through processing in more complex processes. I talked about a couple of examples in simplifying life for our customers, and we like doing that. But of course, simplifying life for customers also means improved efficiency for us. So we are on plan. It's not necessarily linear. Of course, we will also see what can be done with AI. That is a moving picture. But I think it's hard to give you sort of any guidance in terms of how you will see it being linear or not. Even Westerveld: Thank you. Any questions from the online audience? Yes, if we can pass the mic to Rune? Rune Helland: We have a question from Markus Sandgren from Kepler Cheuvreux. Nordea recently highlighted that Norwegian saving banks are currently competing quite aggressively, particularly on pricing. Are you seeing and sharing this view? And how is this affecting your ability to grow volumes without sacrificing margins? More specifically, how should we think about the trade-off between defending market share and protecting net interest margin in the current environment? Kjerstin Braathen: Thank you. I think we've touched upon parts of this question already, and it is a very important question. We recognize that there is competition in the market. I don't think we would limit it to a specific category of banks. I think we see it more broadly. But we also see that our team continues to perform and that we are able to continue to do profitable and sustainable business. Our growth platform stems across all of our customer segments. This is part of the strength that we have highlighted both in Norway and outside of Norway. And across the sectors, we will continue to prioritize growth. And I think we have proven that in periods if growth is somewhat slower in Norway, we are able to leverage other parts of that growth platform to deliver profitable growth in the area of 3% to 4%, which we continue to target. Growth in the previous 12-month period has been 3.5% in terms of lending, non-currency adjusted. Currency adjusted, I believe it has been somewhat stronger. And we have seen a growth in Personal customers of 1.6%. We have seen in Corporate customers, 5.6% and then Large Corporates, 5% noncurrency adjusted for the year as a whole. And I think this demonstrates also in what has been a competitive market, our ability to deliver growth. The priority remains very firm also on profitability. Even Westerveld: Thank you. Any more questions, Rune? Rune Helland: No. Even Westerveld: I think we will close the session, if I don't see any more hands. Management will be available for members of the press, like we always are in the couch area afterwards. And I wish you all a very nice Thursday.
Operator: Ladies and gentlemen, welcome to the Schindler Q1 Results 2026 Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] the conference is being recorded. The presentation will be followed by a Q&A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Brorson, Head, Investor Relations. Please go ahead. Lars Wauvert Brorson: Thank you, Valentina. Good morning, ladies and gentlemen, and welcome to our Q1 2026 results conference call. My name is Lars Brorson. I'm Head of Investor Relations at Schindler. I'm here together with Paolo Compagna, our CEO, and Carla De Geyseleer, our CFO. As usual, Paolo will discuss the highlights of our Q1 results and our 2026 market outlook, and Carla will take us through the financials. After the presentation, we are happy to take your questions. We plan to close the call at 11:00. With that, I hand over to Paolo. Paolo, please go ahead. Paolo Compagna: Thank you, Lars. Good morning, everyone. Glad to be back to report on our Q1 results. And overall, I'm pleased with the start we made in '26, continuing our strong operational momentum from the last year. At the same time, we faced a very volatile macro environment, which we are responding to more during this call. Let me start with growth. In terms of order intake, we grew close to 3% in Q1. Well, this is still not the growth level we would be happy with, but let us look together at 3 important points. First, we are pleased with our product momentum. We are seeing very good traction with our new modular platform and the new installation markets. You remember this was started to be rolled out '24 in Europe, and continued in other zones in '25. Not only is growth picking up here, but we are also seeing very visible improvements in terms of field installation efficiencies, which helps. Secondly, the ramp-up in our new mid-rise product in the U.S. continues to exceed our expectations. And thirdly, the rollout of our standardized modernization packages is gathering pace. Also increasingly facilitating growth in modernizations outside of our existing maintenance portfolio. And finally, in terms of large projects, we are seeing some improvements here, too. Large projects grew in Q1 versus the first quarter of last year, and our project pipeline looks promising for the rest of '26. An additional word on modernization. Growth here continues to stand out. Order intake was up 15% in the quarter. And I'm really pleased to see that our revenue growth was even higher. Our backlog execution continues to move in the right direction globally, and all our regions grew modernization revenue by double digits in the first quarter. We continue to expand our supply chain and field installation capacities which make us confident that we will continue to execute our modernization backlog successfully throughout '26. Looking at total group revenue growth, we were off to a slightly softer start in '26 growing 1.7% in Q1. Revenue in our new installations business was down high single digits in the quarter, with China still the main headwind. But we confirm our full year guidance of a low to mid-single-digit growth as Carla will share with you the details later. Now operationally as I said, I'm very pleased with the quarter. Our operating margin expanded by another 100 basis points to 13% in Q1. Seasonally, our lowest margin quarter of the year. And operating cash flow was strong again this quarter at over CHF 500 million. But let me briefly also talk about the broader operational environment as we see it today. It is clear that the crisis in the Middle East brings some challenges we need to respond to. As the revenue contribution from the Middle East makes up less than 2% of the Schindler Group, the top line actually -- the top line impact actually remains modest. But serving our customers in this region has been met with some challenges in the past 2 months, particularly for the new installation deliveries. We have currently around 200 units produced, which I don't hold or in transit and which we are actively looking to deliver to customer sites via alternative routing to still active parts. But outside of that, even the broader impact on our supply chain remains limited, we are facing some additional cost inflation in terms of logistics, fuel and energy costs and commodities. Carla will provide you all the details on the expected cost impact. In terms of mitigation measures, we are actively working on pricing actions in order to offset this cost pressure. Both list prices as well as surcharges across new installation, modernization and our service businesses. as well as working closely with our supply chain to manage efficiencies on the supplier side as well. Currency translation is significantly impacting our financial performance with the continued appreciation of the Swiss franc. This quarter, we faced an FX headwind of over CHF 200 million to our order intake at 7%. And Q1 match with that 1 of the highest hit quarters on record in terms of FX headwinds. Last but not least, a word on sustainability and our consistent effort in product development. We are pleased to be awarded the ESG Award '26 for our low carbon emission steel elevator pilot at the MIPIM '26. Many of you know the MIPIM is one of the leading real estate events globally in the annual calendar. The award comes at a time when we all are reminded of the importance of energy efficiency, and we are proud to be leading the industry with the first ever low carbon emission steel elevator installation. Turning now to Slide 4 and our order intake in the first 3 months of the year. In service, our maintenance portfolio continued to expand with the strongest growth in Asia Pacific, excluding China. In Americas, while we saw growth in value terms, our selectivity was leading in units recaptured to a modest decrease, confirming our overall strategy. But next, we expect to see a gradual improvement over the coming quarters. In modernization, we have been able to continue with the strong momentum recorded in '25, with the only exception being Asia Pacific, excluding China, where orders marginally decreased primarily due to lack of large projects in the quarter. China again was the standout with growth well into double digits as we continue to benefit from the bond program further scaled up from '26 -- up for '26 from the 120,000 elevators units replaced last year. In new installations, our global order volumes declined by more than 5% to China. In the rest of the world, our NI, New Installation orders grew double digit, driven by EMEA and Asia, again, excluding China. Moving to the market outlook on Slide 5. We have decided to keep our outlook unchanged for the time being, while continuing to closely monitor the effects from heightening geopolitical tensions on construction markets, both in Middle East and globally. Foreign investment has played a significant role in driving growth within Middle Eastern real estate markets in recent years. Therefore, we remain attentive to any potential impact on investment flows to the region. Construction input costs were still at elevated levels already prior to the onset of the conflict in Iran 8 weeks ago. These, together with rising oil and gas prices are likely to contribute to further cost increases placing burden on builders and subsequentially on homebuyers. The surge in inflation has also altered the global interest rate outlook from a trajectory of steady reductions to one that now carries an increased risk of further rate hikes with implication for both demand and supply within the real estate sector. In spite of these challenges, we did observe robust activity modernization markets across nearly all regions. However, at this time, we are not revising our outlook upwards, preferring to await confirmation of the continued strength in the coming quarters. In installation, just to call out a few selected markets, construction activities continued to gradually pick up in Germany with multifamily building permits up close to double digits on the 12-month rolling basis and strong growth in new orders recorded by builders in the residential sector. Activity in Brazil remains solid, driven by affordable housing. And in the U.S., there have been mixed signals as multifamily permits and starts have risen in spite of Architectural Billings Index remaining below 50 for 33 consecutive months. In China, construction remains under pressure with all key lead indicators such as floor space started and real estate investment down by more than 10% again in Q1. With that, let me turn over to Carla to walk us through our financial results in more details. Carla Geyseleer: Thank you, Paolo. Good morning, everybody. A pleasure to have you on the phone. So let's take a look at the financial results. So Slide 7, so the usual summary slide of the current quarter compared to the last 4 quarters. As Paolo said, we are pleased with the operational momentum in the first quarter. Margins up 100 basis points year-on-year, both reported and adjusted EBIT. And another quarter with a very good operating cash flow, even if we didn't quite hit last year's exceptional high level for the first quarter. Finally, we moved our net profit margin into double digits, which is also a very pleasing development. Now a quick word on currency. As mentioned, we have been facing accelerating FX headwind in recent quarters. And in terms of the revenue impact, it amounted to more than CHF 180 million in the first quarter, so close to 7%. And this obviously comes from the appreciation of the Swiss franc versus our main currency exposures, particularly the dollar. But the headwinds from some of our smaller exposure such as the Indian rupee are also having a notable impact. Now looking back over the last 10 years, the cumulative FX impact shaved off over CHF 3 billion of our top line and over CHF 350 million of EBIT. Now moving to our top line development on Slide 8. So giving you some insights what we see in our different regions and in our different segments. So first of all, regionally, we grew the order intake and the revenue in local currencies in all regions outside of China. At the order level, China cut 1.5 percentage points of group growth in the quarter with order growth as a result, 4.3%, excluding China compared to the reported 2.8%. The standout region was Europe, particularly Northern Europe, which showed high single-digit order growth in the first quarter on a reasonably tough comparison from last year. So overall, very pleasing to see growth here, including a very good development in Germany. Now looking at our business segments, as Paolo mentioned already, modernization contributed strongly to the order intake and the revenue in the first quarter, both growing at 15%. New installations saw order intake stabilized this quarter, but revenues declined high single digit with China down over 20%. And finally, growth in service business continues to be accretive to the group growth overall. From this slow start of the year, now we expect to see a modest but gradual improvement over the next 3 quarters, consistent with our full year guidance of low to mid-single-digit growth. Growth in our order backlog was up 2.5% year-on-year, 3% sequentially in local currency, driven by modernization, which was up 15% year-on-year and the backlog margin improved somewhat sequentially. Now moving to EBIT and EBIT adjusted. So you can see here on the slide, the FX impact is also hitting our EBIT bridge. This quarter, minus CHF 23 million. Now the good news is that we are more than offsetting this by operational improvements, which was plus CHF 33 million in the first quarter, which is in line with the quarterly levels we saw throughout '25. So we are maintaining our productivity momentum with savings coming from SG&A, procurement, supply chain and field efficiencies. Particularly, the latter has picked up in recent quarters, which is pleasing. Now price and mix were contributors to the CHF 33 million operational improvement, but less so than efficiencies. So our equation, pricing plus efficiency outweighing inflation remains firmly positive with both inflation and pricing likely to gradually increase over the coming quarters. Now moving on to the net profit and the operating cash flow on Slide 10. So good development in net profit driven by our operational improvement, which is more than offsetting a decline in financial income as well as FX headwinds. And now margins into double digits. And operating cash flow was good, reaching CHF 532 million for the quarter, just shy of last year's exceptionally strong performance. Again, uptick in our operating earnings drove the strong performance whilst net working capital improved, but less so than in the first quarter last year and hence, a bit of a headwind in our year-on-year bridge. We will continue making progress on our net working capital initiatives, and I expect us to have another good year for operating cash flow in line with the last 2 years. And I expect as a result that we continue to show industry-leading cash conversion levels that means converting well above 100% again in '26. Now moving to the next slide. In terms of full year guidance, obviously, we confirm the full year guidance. So in terms of our revenue growth guidance of low to mid-single digits in local currency in '26, we expect a modest gradual acceleration in -- from the 1.7% in quarter 1. And that assumes continued strong double digit in modernization, stable mid-single-digit growth in service and a gradual easing of the headwind in new installation from the high single-digit decline in quarter 1. Now on to the margin guidance of 13% in '26. So the improvement versus '25 is clearly driven by continued productivity improvement, increasingly from field efficiencies. So we expect an acceleration here to offset a moderation in procurement and SG&A savings such that we can achieve the same overall level of incremental savings in '26 as we did in '25. Now a little reminder on the mix, which we have as a headwind in '26. Mix was a tailwind in quarter 1, but we expect that to neutralize over the coming quarters. Let me also say a few words on cost inflation. So based on our current assessment, we face some additional inflation from energy, commodity and commodity. So firstly, on logistics and fuel cost, we estimate that each of these add approximately CHF 15 million, 1-5, to our annual cost. So CHF 30 million in total on a 12-month basis. Outside of that, energy is a small cost category for Schindler and the inflation would amount to less than CHF 1 million. That is electricity usage in building and so on. And finally, on raw materials, there is no change to the CHF 15 million, CHF 20 million annual cost inflation estimate that we shared with you in February. And so that is primarily associated with the higher copper and aluminum prices. So putting all of this together, we face up to CHF 50 million of additional cost inflation on an annual basis from the elements I just outlined. And obviously, we are working hard on mitigating to offset these elements. Now touching on tariffs. It remains a bit of a moving picture, but our estimate of the annual gross P&L impact remains largely unchanged from what we shared in February. That is approximately CHF 15 million, 1-5, based on current tariff levels. And again, we continue to work hard at mitigating the impact, including making appropriate price adjustments. So in conclusion, let me end by thanking together with my colleagues in the Executive Committee, all our employees around the world. And as you know, unfortunately, many of them are operating in exceptionally challenging circumstances, not least in the Middle East currently. So a big thank you to our colleagues there. And with that, I hand over to Lars. Lars Wauvert Brorson: Thank you, Carla. Let me remind you of our Capital Markets Day, which is scheduled for the 3rd of June this year at our headquarter in Ebikon. Switzerland. We look forward to seeing many of you here as our campus. Please note that the registration to the event closes on the 15th of May, and the number of participants are limited. So with that, we are happy now to take your questions. I would like you please to limit yourself to 2 questions only, given the limited time we have available. With that, operator, please. Operator: [Operator Instructions] The first question comes from Andre Kukhnin from UBS. Andre Kukhnin: Really, the main question I have is that now we are heading into this, again, heightened inflation environment. And given the track record across the whole industry of, say, 2022. Can you really confirm to us that the industry attitude towards pricing has changed structurally and now that you have the contract price escalation clauses in place and that you can price proactively as inflation ramps up and therefore, avoid that kind of gap in potential gap in profitability. If we could talk about that, that would be great. And then yes, I have a quick follow-up on U.S. service orders as well, if that's okay. Paolo Compagna: Andre, thank you for the good question. Yes, obviously, we can confirm your expectation that the lessons learned in '22, how to face inflationary jumps up and down has shaped the industry as well as ourselves. So number one. Number two, in the actual situation, what is happening is a very proactive pricing, number one, you mentioned yourself, following the -- in the meantime, established discipline in contracts and all that as well as, as I mentioned before, that we are applying where possible, surcharges to address the super high-speed increasing gasoline, oil costs, energy costs. which maybe was not very much the case in '22, right? It was more on commodities and material. So well, to summarize, your assumption is right. We are executing pricing according to the contracts, yes. And obviously, all of you know, there might be also a timing effect how these pricing actions will come to the books as when you price NI, it comes then when you build NI with a longer term, right? Modernization somewhere in between. And on services, the timing to see the pricing and the subsequent benefit of it might be shorter. Andre Kukhnin: That's really helpful. My second question is just on the U.S. service orders in your slides that showed us down in Q1. I think that's in units. Could you just talk about how it's done and how it's performed in value? And how do you see the outlook for this segment for the rest of the year, please? Paolo Compagna: Yes, very good question. Thank you for that. That helped me clarifying something which I was mentioning before. In value, important to know, we grew in Americas and U.S., too. So service value is growing. On units, as we report on units, we have a slightly decrease, which is mainly due to some -- yes, I call it, selectivity, some larger accounts we on purpose didn't rebook as we didn't pursue to continue to fully stick with our overall strategy we have. So now to the second part of your question, Andre, very clear. We and also myself expect in the course of the year also to -- not to recall to recap or to catch up on unit growth. So value is already and units should follow during the year. Operator: The next question comes from Daniela Costa, Goldman Sachs. Daniela Costa: Just wanted to ask you sort of on the path of light savings and efficiency from here and also on mix, you gave great detail on the whole inflation items and commented already a lot on price. I wonder on those 2 elements and the cadence from here. That's the first question. And the second question, just for an update on where -- how do your view stand regarding when service regulation could change in China? Paolo Compagna: Maybe, Carla, you can elaborate on the efficiency gains, and then we can come back on China. Carla Geyseleer: Daniela, so happy to take your question. So yes, as I said earlier, it is clear that we have these inflationary impacts, but we expect them to be offset by the pricing. Paolo just outlined our view in terms of pricing. There might be here or there a bit of a timing effect, but that clearly will not realize. So from that perspective, the increased inflation will be offset by the pricing. Coming to the real efficiency, there is not as such a big change to what we shared before. So we are still looking for the approximately CHF 200 million of efficiency coming in, mainly the 4 pillars that you're well aware of. So it's clear that the composition slightly changed, but the overall numbers, they stay in line with the projections that we shared. Does that answer your question, Daniela? Daniela Costa: Yes. Maybe just of the CHF 200 million sort of how much is left? Carla Geyseleer: Well, I mean, it's clearly that the main contributions are coming from supply chain and procurement saving and what is currently picking up is the field efficiency savings. So whatever now in the future will be a bit going on the moderate side in terms of incremental from supply chain procurement or the SG&A will be picked up or will be offset by the pickup in the field efficiency, both in the -- well, actually in the 3 activities and NI, Mod and in the service. Paolo Compagna: Coming -- let me catch up on China. That's a very good question. And so regulation in China, let me start. Whenever it will come, I said it also before, you remember, this will have a positive and welcome impact to the industry and also to us. However, it has been just postponed for another 6 months. Now it's expected that it would be published earliest, end of this year and being enforced end of next year. So well, if we put these 3 informations together, it's become obvious that any impact can only be expected in the course of '28. Well, now we can be philosophical and it's quarter 2, quarter 3, I don't know. So hence, we have to be a bit more patient, then I think we can have a full insight into the expected benefits first when we have studied documents, again, maybe Q1 next year, we have a better insight. However, it's important to know that by now, in all our plans, expectation outlooks, we didn't include yet any significant contribution of it already now. So therefore, yes, we have all to be patient and catch up on this in my personal opinion, in 1 year from now. Unfortunately, we can see. Operator: The next question comes from Midha Vivek from Citi. Vivek Midha: I have 2 questions. My first is on the order intake, particularly in Europe, EMEA up double digits for the quarter. The market outlook is still for 0% to 5% growth on a full year basis. I was wondering if you might be able to give us some color maybe breaking that down between how much you think was underlying market developments in the quarter itself? How much was a pickup in the larger project orders and whether you think there was any contribution from any market share gains? Paolo Compagna: Vivek, thank you for the question. I'll address all the points one after the other. Number one, EMEA up, yes. It's not a big secret, maybe with some differences between Central, Northern European countries and yes, most famous EMEA at the moment. But we are pleased to see that Europe, as EMEA for us, or Europe is contributing positively to our order intake, which was a bit expected, so number one. Number two, how it is between pickup on large projects and rest of the business. This is also, I must say, different country by country, as you can imagine, we see now also to be anticipated a bit of a slowdown in large projects signed in the whole Middle East region is not a secret, the large project pipeline list was or is including also a portion of those projects. And we are always a bit more on the conscious side. Now we don't have to say we keep it on the list, but we don't count on them short term, while the rest of the projects still look promising. Talking countries and markets, well, I was mentioning before, we are happy to see Germany picking up as we were saying last year, let's keep the fingers crossed that now the darkest period is behind us in Germany, and we can confirm at the moment, everything is confirming is right. But also other markets are coming nicely in Spain, Italy, there's many more. So summarizing on the commodity sector going well in the commercial segment, different country by country, large projects, as you can imagine yourself, is now a bit in the light of geopolitical movements, different between infrastructure projects, which continues and private finance projects, which one could say, they might be a bit delayed until the financial situation now globally speaking, has been clarified. Vivek Midha: Very clear. My second question is a follow-up on the cost inflation topic. One cost item you didn't mention, particularly on the raw material side with steel. Would you be able to give us a quick summary of your exposure there and what sort of assumptions you've made around that? Carla Geyseleer: When it -- Actually, when it comes to the steel, we locked in actually for the longer term. So it creates less volatility for us for the remainder of the year, to be honest. That's why I didn't mention it. Vivek Midha: Very clear. So is there a -- how much of a price increase do you need to put through just relating to the steel on the new orders? Paolo Compagna: That's a good question. But actually, the price increases placed in the new orders now are less related to one single component, right? It's a more general price increase you place, right, to the customers. At the moment, obviously, there are more items contributing to the price increases. And I was mentioning before to Andre, we have learned in '22, I guess, the whole industry, but we Schindler -- we also learned in '22 how to address pricing much better than ever done in the past. So that here, I must say it's a bit difficult to assign to each inch of the price increase, one component. And we also have copper moving, we have oil moving, we have energy moving. We have wage inflations moving, very different country by country. So actually the pricing you set in the new orders now is a combination of all these and also not a secret, is also a bit different country by country as reflecting on especially wage inflation, this varies a lot among the countries. Operator: The next question comes from Nick Housden from RBC Capital Markets. Nicholas Housden: Firstly, I was just hoping you could comment on the growth components in service, so kind of the mix of unit growth, price net of mix and churn and then also dynamics in the repair business, which from competitors, it sounds like that's been quite strong recently. Paolo Compagna: Well, looking at value growth in service, I must say the unit growth and the value growth, one could say is quite aligned. So it's not that we are generating an additional value growth by overpricing anything. So at the moment, we can confirm that our growth in value is, if you look to the different markets, very much in line with our growth in business -- sorry, in units. Carla, something? Carla Geyseleer: Yes. Well, I mean maybe just adding when it comes to the portfolio and in units, we definitely are positioned very favorable when it comes to the churn rates when we see what is going on in the market. And I think that is a very, very good point. And we still are on a neutral basis when we compare the churn with the recoveries overall. So that is -- yes, that is where we are in terms of portfolio evolution. And as Paolo mentioned already, in terms of pricing, I think we remained also very disciplined there, and we will continue. So whatever comes from inflation, we will definitely make sure that it is recovered. Nicholas Housden: Okay. Great. And then my second question revolves around the sequencing of growth for sales in Americas new installations. I think we've had a couple of decent years of order intake in units. And I would imagine that pricing has also been quite solid there. So I'm just curious as to when we start to see that feeding through a bit more meaningfully into new equipment sales growth. Paolo Compagna: Well, difficult to say in which months we see it, but we can confirm that at the moment, the positive trend we were also referring in the past continues. So now let us keep the finger crossed, nothing changes, right? So now very soon, we will also see it contributing subsequentially to our order intake as well as I was also mentioning last quarter, and it is unchanged. We are also participating more and more in large projects, which then going forward will also contribute on both order intake. And then yes, with the time line you have for -- to generate -- sorry, to create the revenue also contributing there. So we don't change our constructive positive outlook on the U.S. in terms of new installations. So yes, your observation is right. Revenue will be subsequently generated large projects a bit slower, commodities coming linear, not to forget modernization, which is also coming very strongly and with a shorter delivery time, obviously, right, between the order intake and contribution to revenue. Operator: The next question comes from Martin Flueckiger from Kepler Cheuvreux. Martin Flueckiger: First one is on your remarks regarding building permits ramping up in Europe over the last few quarters. Now I appreciate those comments, but I've recently also checked that according to ECB, European Central Bank data, the mortgage volumes in Europe have started to turn more or less flattish. They were down in January, but slightly up in February. If you compare that to the growth we have seen, which was clearly double digit, up to 40%, 50% or more percent in 2025, depending on the month, that seems to be noteworthy. I was just wondering whether you had any thoughts on that development with regards to financing decisions in Europe being postponed, which ultimately could hit your residential exposure to the region? That's my first question. And my second question is on CapEx. I noticed CapEx was up sharply year-on-year in Q1. Just curious how we should think about that number going into the remaining quarters and what kind of comments you could make on CapEx guidance for the full year? Paolo Compagna: Martin, let me take the first one and the second one, I will happily pass to Carla for the CapEx. That's a good one. How would we expect the financing structures, availability, especially in Europe, I think, is your question, might impact the green shoots we have seen coming, especially let's talk about the largest markets we have like Germany, Spain, Italy and so on. So first of all, by now, in the residential segment, and allow me to split briefly in 20 seconds in segments, then we and we personally expect in the worst case, a bit of a different scenario in residential, one could expect based on the strong demand we have in all large markets and already made decisions on financing, on building permissions and so on, we would expect a more resilient new installation order intakes going forward. So other words, the expected growth rates in commodity -- sorry, in residential, we might still expect. When it goes to large projects, I was moving -- mentioning before, I would move to a more differentiated picture. We see at the moment everything which is more related to infrastructure, public investments is continuing as planned. So here, I would also -- I see your point of volatile mortgages and so on, but it doesn't play a big role here for the moment. And yes, you have a good observation. Fully private finance developments might see a bit of a delay. However, if I look over Europe at the moment, day-to-day, still decisions made to progress on projects, excluding Middle East. So all in all, if we have to expect some changes going forward, I think it's appropriate to be more conscious on large projects, private finance, followed by large projects, infrastructure which we see more safe kind of sort of saying. And residential, we would expect for '26, more or less flat. I hope this addresses your first question, and Carla takes up on CapEx. Carla Geyseleer: Yes, Martin. So thank you for the question. Good observation. So yes, our CapEx investments in Q1, they amount to CHF 46 million versus indeed CHF 18 million last year. And that is actually a replacement -- a real estate replacement investment. So it comes from the purchase of a land plot in Switzerland, yes, for replacement of a factory. So that is actually what's there. So it's not like a trend to further increase now the CapEx going forward. So it's actually, I would say, a one-off that you see there. Operator: The next question comes from Martin Husler from Zurcher Kantonalbank. Martin Huesler: I have 2 questions. The first one, when it comes to claiming a refund of overcharged U.S. tariffs, what is your approach here? Carla Geyseleer: Yes. Obviously, we are looking into that. We are doing our homework, and then we will conclude at the right time to file for it. Martin Huesler: But your guidance of impact of U.S. tariffs doesn't actually include any, let's say, payback of what you paid? Carla Geyseleer: No, no, absolutely not given the uncertainty about the timing, et cetera. So when it comes, it comes, yes. So it's an upside, but we don't count on it in the numbers that I shared. Martin Huesler: And then the next question, maybe a bit of a broader one. When it comes to consolidation in the sector and the opportunities to expand your service footprint, mainly, I guess, what is the reason for a rather cautious approach for external growth that we see for Schindler? Paolo Compagna: Martin Well, conscious approach, I leave it to you to judge. What we said and we are working on is, yes, we like to expand our portfolio footprint also by inorganic investments, I think, is what you referred to, right? What we said is, at the same time, we would not jeopardize our overall strategy, which we call profitable growth. by doing things which afterwards look good but aren't. So this being said, when we look at external opportunities, is what Carla always calls the bolt-on acquisitions and even maybe large acquisitions, we always prove them against our midterm strategy, and we will talk a lot also on the upcoming Investors Day with you guys. So therefore, I would not confirm that we are not interested in expanding our footprint inorganically, you were saying externally. But yes, I would confirm that we still make sure it fits to us and it fits to what we promise to every one of our investors we intend to do in the next many years with the portfolio. Carla Geyseleer: Yes. If I just -- Martin, we have our own criteria for actually assessing opportunities and if they fit our plans, yes or no. So we stick to this criteria. What is clear for us, what we are not going after that is overpriced assets and also loss-making business. So there, we are -- stay away from because we -- I think we would -- if we acquire things, we want to actually generate a return on it. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: On modernization, I'm wondering if you could characterize what you see as the trajectory on contribution margins over the next 2 to 3 years? And also maybe a bit of color here, given the strength of China on unit counts and the bond program, how you see kind of mix geographically evolving from current level, I suppose? Paolo Compagna: John, let's take the second part first. Now do we see a geographical mix. First of all, well, I must say, if we look at the distribution of the installed units on this planet, obviously, there will be over the years, an increasing contribution also modernization coming from China. So the longer term, we look at the modernization business, and I'm talking 5 to 10 years, the more the contribution will be out of China, obviously, right, as the half of the units installed on this planet are, for whatever reason, installed in China. So this is anticipated at the moment, obviously, the biggest potential for the very next years in terms of value, in terms of margins is obviously there where the installed base is much more aged and the market is much more mature. So obviously, you can -- it's the Americas, Europe and Asia Pacific outside of China. This is the second part of the question. So the first one, and then I will leave to Carla to give more color, if you like. Well, we expect the modernization business also in terms of contribution to the bottom line to continuously improving and continuously evolving. As mentioned before, we are doing a lot in terms of products, in terms of processes, in terms of expanding capacities, production as well as installation. We talked about in the past also here, we will have some more points for you when we see us in June. So there, we can only expect over the course of the next years, an increasing contribution. But Carla, please, anything to add on that? No? Okay. John-B Kim: And one follow-up, if I may. Historically, you provided some very useful color on segmentation in Chinese real estate markets, tiers of cities and so forth. I'm wondering if there's anything you could help us on here in the current outlook. Paolo Compagna: I think with more details, we can also touch on China. But for now, we have segmentation in tiers, I must say one has to ask if we -- if you focus on profitability, and we have reassessed a lot of our organization in China and also going forward, there's still a big difference between Tier 1, Tier 2, Tier 3 cities. Segmentation remains very similar in terms of business opportunities. And hence, when we will share with you where we like to go in the next couple of years, you will also understand what we plan to do in which segment within China to secure that China contributes to our overall plan going forward. Operator: The next question comes from Lewis Merrick from BNP Paribas. Lewis Merrick: You mentioned wanting to grow in the U.S. service market and reverse the trend you've seen in 1Q. One of your peers is also seeing challenges growing there. I'm just wondering, are you seeing the competitive environment potentially heat up in the U.S. market? Or are there any early green shoots you can point to supporting a turnaround? Paolo Compagna: Yes. Lewis, that's a very good question. Now I think you're referring more to the service segment, right? U.S. to U.S., and allow me that I talk about us and not about competition. In the U.S., what we see is a clear trend of increasing presence, let me do it very politely this way, of the ISPs, very active in the market, which are shaping kind of, if I may say, the service business in the U.S. It's not Americas, it's the U.S. There's a lot of contribution into that from private equity going into that segment in the ISPs. And hence, yes, the service market environment is changing in the U.S. Is it changing for stay there forever? I don't know. But what I can confirm is that we are adjusting and working on it heavily and in high speed. And it's the reason why before I was confirming that we expect our numbers to catch up and continue to improve throughout the year. Operator: The next question comes from Philip Buller from JPMorgan. Philip Buller: I have 2 questions, please. Firstly you're obviously working very hard to mitigate input cost inflation. Is your policy regarding hedging on some of those costs changing in any way given the volatility? And the same on FX. The underlying results are obviously good, but FX has been overshadowing that now for quite a long time. So is there anything you plan to do differently in relation to hedging, be that on the cost or FX side? And the second question, I know you don't want to front run the CMD, but can you remind us of what the right level of leverage is for Schindler. I appreciate the comments on M&A needing to have the right returns profile. So how does that pipeline look today and the valuation of those assets? Is that screening well for you relative to potential cash returns to shareholders? Carla Geyseleer: Yes. Thank you very much for the multiple questions. So I try to take them one by one. So obviously, we have -- when it comes to the hedging of the raw materials, there is no change in policies because I believe that we hedge what we can hedge. Now in terms of the FX impact there, of course, we did quite some work over the prior periods and especially then contracts that are in our -- yes, strong Swiss franc. I mean we convert most of them already in non-Swiss currency. So quite a lot of energy went into that. So in order to de facto come to a hedge. And when it comes to the capital allocation question, I'm actually yes, looking forward to give you more insight into the Capital Markets Day, also what the next follow-up is because, yes, our share buyback program advances very well. So if you can give a bit of patience there, I will definitely give full insight into that topic. Operator: The next question comes from Rizk Maidi from Jefferies. Rizk Maidi: Just maybe a little bit of clarification on the pricing element when it comes to service. It doesn't feel like this according to my calculations that pricing was not a big component within the service growth. Maybe if you could just shed a bit of light there and give us a flavor on how do you see it sort of by region? And then secondly, I would like to shift away, hope you don't mind me doing this from -- away from the results, but just take your view on potential large consolidation in the industry. We know this is quite a very consolidated industry. So what kind of impact do you see in the market in terms of density pricing if 2 of the largest -- your largest peers merge? Paolo Compagna: Maybe, Carla, I'll take this one. So the first one. The first one on the contribution of the pricing to the service and bear with me that we don't go now into region by region. But overall, we can say the contribution from pricing is in the mid-single-digit range. So therefore, I was saying the overall growth is not overinflated by pricing. This was my message before, and thank you for helping me clarifying it. So -- but nonetheless, the pricing contribution is in the mid-single-digit area, and that's actually what normally you do every year as you cope normally also with inflation. We did in the past, we do now and maybe now actually right now with an additional component to offset the Middle East crisis FX, as mentioned before. Coming to your second question about larger consolidations and without looking at any specific one, our view is, first of all, if there's a consolidation on highest level, and we can name it, if the 1, 2 of the big 4 would go together, I personally already expressed our opinion and my personal opinion very clearly in the past, one has to ask mid-first and long first, where is the benefit for whom. And this explains for me also the subsequential impact on what you were just mentioning, pricing and movement in the markets. Consolidation on high level always, we have to ask, is there a benefit for the customer? Yes, no, the answer you can give yourself. Is a benefit for employees? You can give your benefit -- the answer yourself. Is there a benefit on underlying efficiencies by consolidation, which could bring some benefits to the bottom line? Well, here, one can speculate and say, yes. Good. Let's take this one. To get to these benefits, you have to do a lot before. And here, I like to share our and my very personal opinion. You have to put it in the timing. It is quite often intense time, which is not 1, 2 years. It will be longer until you can at all generate these underlying efficiency benefits in your books. In all that period, this consolidation would just work against benefits for customers and employees. If you put it on this high level, then the answer is, for me, quite subsequentially logical that it might have a short-term impact on pricing. However, the opportunity also for others to grow and expand customer and business baseline would also increase. So here, I must say for the industry, there might be a reshaping, there might be changes. However, this also bears opportunities for the others. Different when you look at consolidation on lower levels is what we have talked a lot about in the past is what then has a totally different consequence to the market. But you were explicitly mentioning, I think, the larger scale consolidations. Operator: The next question comes from Aron Ceccarelli, Bank of America. Aron Ceccarelli: My first one is on tariffs. I understand the situation remain extremely fluid at the moment. You highlighted the CHF 15 million that you announced at the beginning of the year. Could you perhaps elaborate a little bit on the new 232 regime, perhaps expanding on your exposure to Mexico and Canada? And if this CHF 15 million, you think could be revised upward because of these new changes? That would be my first question. Paolo Compagna: Thank you. Talking exposure to tariffs for us, it remains unchanged since the last adjustments, which you know they were adjusted for Switzerland. So there is no change. And Carla has mentioned before, in our numbers, we are sharing with you today and in the outlook we don't foresee any downside at all and also, for the moment, no upside. So first part of the answer. Second part of the answer, special exposure to Canada and Mexico. This is for us quite limited as we have our supply chain base distributed in other markets. So it's not Canada and Mexico. It's 5 other places in the world. And this actually reduced our exposure to tariffs a lot. So for the moment, no impact to our bottom line and to the numbers presented by Carla. Carla Geyseleer: Yes. Just maybe to add and to be concrete on numbers. So initially, we talked about around CHF 20 million. This CHF 20 million, they came down now to CHF 30 million. So yes, so we go clearly as it just decreases the impact for the reason mentioned here. Aron Ceccarelli: That's clear. The second question is on pricing and your backlog. I understand there will be a lag on the effect of pricing on new orders. I wanted to understand to what extent if there's any kind of ability to go and reprice some of your existing orders in new equipment and perhaps maybe modernization eases because of the churn. But trying to understand, considering the current situation, if there's any chance you are able to go to your customers with an existing orders and say, look, things have changed, we might have to revise price upward. Paolo Compagna: Thank you. First of all, do we do it where it is possible? Yes. Is it everywhere possible and in every contract? No. So therefore, do we expect some impact on the backlog positively from pricing? Yes, but it might remain minor that it is not critical to be now disclosed here, right? So therefore, the effort we are doing, and I said before, we are quite diligent in our pricing discipline, I must say. However, looking explicitly at new installation orders, it also plays a role how old this order is. So therefore, it's quite of -- not volatile, it's quite of a diverse picture. So -- but I can confirm where possible and together with the customers, we address it. In some cases, it's obvious, it doesn't work. Lars Wauvert Brorson: Thank you, Aron. Thank you. We'll take the final question, please, and then we'll close out for today. Operator: Last question comes from Midha Vivek from Citi. Vivek Midha: It's a follow-up on one of the questions on CapEx, just more broadly on cash conversion. You mentioned earlier, this should be again a year of over 100% cash conversion. Your cash conversion has been very strong over the last few years. For how long can you continue with this sort of level of cash conversion? And what should we bear in mind regarding the moving items within that? Carla Geyseleer: Well, I'm actually, yes, very convinced that we can continue with this nice cash generation. Yes, first of all, I mean, we believe or we are clear, I think, where we go in terms of profit. And when I look at the net working capital, I can tell you, I still see my pockets where I can further optimize and I will not let go. So based on the combination of the 2, I feel comfortable making that statement. So I don't know if that answers your question, but I'm very passionate, I must say, about it. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Lars Brorson for any closing remarks. Lars Wauvert Brorson: Thank you very much, operator, and thank you all for attending this call today. Please feel free to reach out to me and the Investor Relations team for any follow-ups you might have. The next scheduled event is our Capital Markets Day on the 3rd of June, and we look forward to seeing many of you there here in Ebikon, of course. With that, thank you, and goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Emelie Alm: Good morning, everyone, and welcome to the presentation of the first quarter results 2026 for Husqvarna Group. My name is Emelie Alm, and I'm joined here today by our CEO, Glen Instone; and our CFO, Terry Burke. So Glen and Terry will walk you through the presentation, and then we will have a Q&A session. [Operator Instructions] So with that, I would like to hand over to you, Glen. Glen Instone: Thank you, Emelie, and a warm welcome from my side. So let's jump straight into the presentation. Q1, to summarize, off to a very solid start despite, of course, the continued uncertain market sentiment that we see out there, particularly around geopolitical tensions. We've seen a strong growth in our core portfolio, our key strategic growth areas. We're very pleased that our EBIT has expanded with some 10% given the strong product mix, but also a very good start to our savings program. From a strategic execution perspective, we've got a very good 2026 ahead of us in terms of product launches, and Q1 has started very well when it comes to our product launches ahead of the season. We made a very good start around the strategic portfolio management that we launched back in December, and we'll come back to that later in the presentation. So all in all, 2% organic sales growth, EBIT expansion to just over SEK 1.7 billion and a 12.3% operating margin. So to highlight some of the strategic areas during the quarter. Innovation. We're very, very proud, and I'm really happy to really talk about our innovation that we're bringing to the market in season '26. All 3 divisions are contributing here. Very happy to see the strong range of residential robotic lawnmowers that are coming for the small and midsized gardens, our 300 Series range, really moving the needle towards boundary wire-free AI vision technology. We also have an enhanced range of 400 Series product under the NERA brand, NERA range that also continues to expand and enhance our vision offering. Likewise, in the Gardena division, a strong range of watering products that really enhanced the first quarter result with the simply classic range of nozzles and sprayers as well as a strong range of watering controls. In Construction, we've actually brought a good new range of floor saw blades to the market that really enhances our sawing and drilling business portfolio unit. So that's just a flavor of what we brought during the first quarter. So a strong innovation pipeline already coming through in the first quarter. From a portfolio management perspective, when we launched this in December, we continue to enhance our operating model. This is where we will look much more strategically at our portfolio, grow in certain areas and, where we are not performing as well as we should be, we clearly need to turn it around or, in some cases, exit that portfolio. What I am pleased to see is we already see early signs of this coming through, and we see that in the results. We've enhanced a lot of our leaders. We've changed some leaders during the first quarter of this year to really drive those business portfolio units. So the operating model starts to get traction. Operational excellence. I'm really pleased that we got off to a good start when it comes to our savings program. We launched a SEK 4 billion cost-out program, and we've made a good start with some SEK 245 million in the first quarter, really coming through from some savings we found in sourcing and actually simplifying design, really, really supported by a strong complexity reduction already during the first quarter. So all in all, off to a good start. If we look at the sales development. Then as reported, our sales was minus 5%. That is actually including a currency headwind of minus 7%. So organically, we grew with 2%. We've seen organic growth in the Husqvarna Forest & Garden division with 3%, growth in the Construction division with 1% and a 1% organic sales decline in Gardena. As mentioned, very strong growth in our key portfolio areas, particularly around robotics, watering and handheld products. What I am pleased to say is actually we've seen a growth in all of our regions so far in quarter 1. So we're very pleased to see that. It's been some time since we've reported a strong growth or growth across all of the regions. Just to remind you what we launched back in December around the business portfolio units. We'll come back to this time and time again. We have clear segments that we're operating in what we call profitable growth. You see there are 5 key business portfolio units. Really pleased to actually say 4 of the 5 have shown growth actually during the first quarter of 2026. In the middle of the page, we have 3 which we are in increased profitability, where we really expect to grow in line with the market. In the profitable growth segment, we expect we can grow actually beyond the market. On the left-hand side is the turnaround segments where actually we've seen a continued challenge during the first quarter in all 3 of those areas. We'll come back -- and I'm very pleased actually with the plans we have in place around all of the areas, but particularly around the turnaround business portfolio units. And we'll come back to you in due course and report on them. From an earnings perspective, Terry will take us through the bridge later in the presentation. But as mentioned, we managed to expand the operating income to just over SEK 1.7 billion from SEK 1.56 billion in the prior year, resulting in a 12.3% operating margin corresponding to 10.6% last year. And really, this is a volume increase, a price increase, improved product mix, but also the result of strong cost savings. We did, however, have a currency headwind as well as a tariff headwind that culminated to some SEK 115 million and, again, Terry will take us through more of the details later in the presentation. Going into the divisional performance. If we look at Husqvarna Forest & Garden first. We saw a 3% organic sales growth, growth in all regions, which we're very pleased to see and growth in our key segments: key segments of robotic lawnmowers and key segments of handhelds. Both residential robotic lawnmowers grew as well as the professional robotic lawnmowers. So very pleased to see. So from an earnings perspective, of course, we got an improvement from the volume and improvement from the mix, but also, of course, a contribution from the cost-out program. There was a slight positive tailwind from FX impacting the Forest & Garden division, which, of course, also improved the margin. From a Gardena perspective, the top line organically declined with 1%. However, I would say it is fairly polarized. And by that, I mean we saw a strong growth in the strategically important watering business portfolio unit and a continued decline in the Powered Garden area. So strong, strong growth in watering, as I said, and we're very pleased to see that. However, the challenge remains around the Powered Garden business portfolio unit, and we'll continue to define and refine that turnaround plan, and we'll come back in due course. But I'm very pleased with the plans that the team have in place to turn around this BPU. So despite the tough top line, actually, the division managed to improve the earnings, which we're very pleased to see. So we actually saw a 10% expansion in the EBIT, really driven by strong product mix because of the watering growth and a continued strong development around the savings program, negative impact from lower volumes, negative impact from tariffs and also a slight negative impact from FX of some SEK 13 million. Moving over to Husqvarna Construction division. We actually saw a growth of 1% organically. Actually, we saw a growth in the North America region and a softer European situation. However, strong growth when it comes to sawing and drilling, one of the profitable growth areas within the portfolio, and also growth when it comes to surface preparation as well as a strong aftermarket development in the quarter. However, a continued negative when it comes to the Compaction Placement and Demolition part of the portfolio, again, in the left-hand side of that previous page I showed you. Construction is actually more exposed to FX, and we saw a negative headwind of some SEK 43 million because of the heavy presence in North America but also actually a negative headwind by way of tariffs and raw materials. So despite those headwinds, we still managed SEK 110 million in operating income in the quarter for Construction. So all in all, we're very pleased with the divisional performance. At that, Terry, I pass over to you. Terry Burke: Thank you, Glen, and good morning from my side to everybody. The Q1 EBIT bridge: 2% organic sales growth and a 10% EBIT growth moving to a 12.3% margin. If I walk you through the bridge, starting from the left going over to the right. We had a positive volume impact in the quarter. As we talked about, we had organic sales growth and we also had favorable mix. The favorable mix was really coming from robotics growth, handheld growth and watering growth. Those were the main drivers for the positive mix. However, this was partly offset by inflationary cost pressures that we've incurred during the first quarter. Moving on to the next bucket, cost savings. We've delivered SEK 245 million of cost savings during Q1, and we feel very pleased about that. We have guided roughly SEK 800 million for the year. We still hold to that SEK 800 million. We were able to take, let's call it, perhaps some of the lower-hanging fruit early in the year. So that feels good that we're able to address that, and we continue to drive our cost saving program. As Glen mentioned earlier, cost savings predominantly coming through from sourcing and design to value. Moving on to price. We had a small positive price. This is a net price improvement in the quarter. We did have price decline in the robotics. And of course, the other categories had a positive price development, ending up with a small net positive in price. Transformational initiatives is something, of course, we want to continue to invest in. These are our strategic areas. And we invested some SEK 50 million during quarter 1. Currency, we had quite a significant currency headwind last year. This has now slowed down. We only have a negative SEK 30 million in quarter 1. So that was good to see that, that's starting to play out. Just to give you some feel for how we see currency for the rest of the year, we expect another negative quarter in quarter 2 and then a slightly positive in the second half of the year. So for the full year, we expect a negative currency of some SEK 60 million to SEK 100 million negative, depending, of course, how it plays out. Tariffs in quarter 1 was a gross negative SEK 85 million. Our previous predictions, previous tariff rates, we talked about some SEK 200 million to SEK 250 million gross headwind for this year. We now see that being around a negative SEK 150 million, so a slightly improved situation from the tariffs. So negative SEK 85 million, and the rest of that SEK 150 million negative direction will come during Q2. So with that, we landed just above SEK 1.7 billion of EBIT, 12.3% margin. Cash flow. Maybe the first thing to point out is we have changed the way we report cash flow, just to make people aware that now, going forward, we will talk about free operating cash flow. Previously, we reported on direct operating cash flow. What you can see in the quarter was a negative SEK 1.1 billion. And really, this is impacted by timing, and the real movement was the change in net working capital. There's two elements to that. One is we currently stand with higher accounts receivable at the end of Q1, and that was really driven by a stronger sales development in the second half of Q1, which meant we ended the quarter with higher accounts receivable. The second one was we had lower trade payables. And I would say we are more normalized on our trade payables levels now. Last year was slightly inflated. So a more normalized situation there. But there are timing issues for both of them, and worth pointing out, quarter 1 is traditionally a negative cash flow quarter. Return on capital employed, one of our new financial targets and metrics that we launched in the Capital Markets Day in December. We've improved our return on capital employed to 7.6% from a 6.5% same time last year. So it's good to see how we've started to see an improved situation here. That's really driven by a couple of factors. First of all, we have an improved operating income. And secondly, we are seeing lower capital employed, which you can see on the chart in front of you, around SEK 3.5 billion on average lower capital employed over the last 12 months. And that's really driven by we've lowered our borrowings. We've had a couple of good years of cash flow, we've been able to lower our borrowings, and that has had a positive effect. So good development on the return on capital employed. Balance sheet. We continue with a solid balance sheet and a good financial position. Maybe a couple of things to call out here. Inventory, we are some SEK 900 million higher. If you adjust for currency, it's actually just above SEK 1 billion higher inventory. And we would say we are ready for the season to start. Quarter 1 is a sell-in season. Quarter 2 is really, we talk about, where the music plays and the sellout when the season starts. So we have good season readiness. We have good inventory around us. So we're ready to go for the season. Trade payables, I did already cover that in the cash flow part. But just again to highlight, we have higher trade receivables. It's a timing effect due to the stronger sales development in the second half of Q1. Borrowings, we've lowered by some SEK 1.5 billion compared to March '25, as you can see. And trade payables, as I mentioned earlier, some SEK 1 billion lower, and that's really again a normalized situation this year compared to slightly above normal last year timing effects. So moving on to our debt position. Our net debt/EBITDA ratio is now at 2.0 compared to 2.5 this time last year. So again, we're driving this in the right way. We lower our borrowings. Our net debt position is SEK 13.8 billion, which is pretty flat to previous year, which was around SEK 13.7 billion at that time. So a good progress on our net debt/EBITDA. Our debt maturity profile, I would say, is healthy, as you can see in the bottom chart here. And we also successfully refinanced a new 5-year bond of some SEK 1.1 billion during February 2026. We remain investment grade, BBB- with a stable outlook. With that, Glen, I pass back to you. Glen Instone: Thank you, Terry. And just to wrap up the quarter 1 presentation. So as said, a solid start to the season despite the uncertainty we see in the world. Organic sales growth of some 2%, growth in 2 divisions and a slight decline in one. A good expansion of our operating income, some 10% expansion driven from volume improvement, a stronger mix and a good start to the savings program. From a strategic perspective, just zooming out, good product launches, a great innovation pipeline. We're making good progress with the strategic portfolio management. So I'm very, very pleased with the start of the year. Good savings, good innovation and operating model starts to get momentum. So with that, Emelie, I think I'll pass back to you. Emelie Alm: Super. Thank you, Glen, and thank you, Terry. So with that, we would like to open up the Q&A session. And I will actually start with one question from the webcast, and it's from Adela Dashian from Jefferies. And I mean, we updated the tariff guidance already so you have this scenario in there already. But how do you see the April change to the Section 232 impacting our tariffs? Terry Burke: Yes. And that is all included in the communication that I gave you. We think we see a roughly exposure of SEK 150 million gross tariff impact for the year. As I said, SEK 85 million is already taken in Q1. So there's a little bit more to come. But I think the important thing is, of course, mostly mitigated through price increases. Emelie Alm: Thank you. And operator, do we have any questions on the conference call? Operator: [Operator Instructions] We have a question from Fredrik Ivarsson, ABB. Fredrik Ivarsson: Maybe first question on demand. We've seen consumer confidence coming down quite significantly, at least in some countries. Can you say anything about how consumers have reacted initially? I know it's early in the season, but any signs from that in terms of consumer behavior? Glen Instone: Fredrik, I think it's fairly early to say. Of course, as we mentioned, Q1 is our sell-in quarter, really preparing for the season. And now we're hoping that Q2 is, we often say, where the music plays, where the demand really happens. So I think it's a little bit early to say, but we're very, very happy with our sell-in and very, very happy with our strong product launches. But too early to say around the consumer demand at this point. Fredrik Ivarsson: Okay. Fair enough. And then a follow-up on the amendment of the 232 tariff. So you lowered the tariff guidance a little bit. Is that due to the amendment of Section 232? Terry Burke: It's all factors considered. Of course, there's been quite some changes. So I think it's a lot of moving parts. But ultimately, it's everything that we know of today and, of course, it can change. But everything that we know of today is all baked into those numbers that we communicate now. Fredrik Ivarsson: Okay. But should we assess that under this new sort of tariff structure, you actually expect lower tariffs? Terry Burke: Yes, yes. Fredrik Ivarsson: Okay. Okay. Good. And then on the current raw material cost inflation, can you say anything about what you're expecting in terms of input cost inflation and where you potentially could expect that to hit your P&L in terms of timing? Glen Instone: Yes. If we look at this, of course, what's going on in the world right now, particularly the Strait of Hormuz impact, we're seeing that would impact us across two areas, raw materials and logistics. We think full year impact this year would be around SEK 300 million as we know today, if it continues through the remainder of the year. That will be SEK 100 million secreting to logistics and SEK 200 million relating to raw materials. And really, the main raw materials that are impacted are plastics, aluminum and steel. And they take account of about 60% of our raw materials, and they are three main raw materials that are exposed. But we would see again around SEK 200 million from raw materials in the remainder of the year given what we know today. But just to highlight though, of course, mitigated by price. We will pass that price on. Yes, that's the gross impact. Fredrik Ivarsson: Very clear. And last one maybe. And potentially I missed this, the line broke up a little bit, but did you say anything about the growth in robotics? Glen Instone: We did. So we had a strong growth in robotics actually, particularly if I look at this in the three areas, we should say. Strong growth in professional robotics under the Husqvarna brand, strong growth in residential Husqvarna robotics as well. And we actually saw a decline in the Gardena-branded robotics, but overall, a growth in robotic lawnmowers. Operator: The next question is from Bjorn Enarson, Danske Bank. Björn Enarson: Talking a little bit about the good development in Q1 and what that is telling you. I mean, are we basically saying that the expectation are kind of downbeat and this is kind of a normalization? Or do you believe that retailers and dealers are turning more positive on the season, betting on the staycation kind of environment, if you understand that? Glen Instone: Yes. There's probably a part of that in there, Bjorn. I think the big thing is during your Q1, it's very much preparing for the season. Strong portfolio, strong innovation, so a strong sell-in in preparation for the season. That's how we're seeing this. Anything to add, Terry? Terry Burke: I think we can only control, of course, what we can control and we feel in a good position going into the season. Of course, it's highly uncertain how things are playing out. But there is an argument for a positive staycation effect, but there is also a counterargument of weak consumer sentiment, holding their money given the highly uncertain times and cost of living increases. So it's very, very difficult for us to judge and have an opinion. But we're ready for the season to start. Björn Enarson: But given that Q1 developed well, I mean, that must say something about sentiment among dealers, although they're coming from low level, if you understand what I mean. Glen Instone: Yes. That's absolutely valid, Bjorn. We do see maybe a positivity from our channel partners that are willing to take in the inventory. And of course, they've selected Husqvarna Group as their supplier. So that is a positivity. And again, well prepared for the season with what we have in the channels. Björn Enarson: Yes. And second question, I mean, you're talking a bit about the inventory situation that you are well prepared but, also again, that it's very uncertain given where the world is here and now. How should we think about that, I mean, if it's not developing along the lines of your expectation? Are we in a difficult situation? Or how should we look upon this level of inventories? Glen Instone: So I think you look at inventory in sort of two lenses here. One, of course, is our inventory that we hold in preparation for the season. And as Terry mentioned, this is slightly higher in preparation for Q2, and we feel well prepared. And then, of course, is the inventory with our trade partners as well that we monitor. And again, we seem to be on a somewhat normalized level overall with our trade partners, 1 or 2 high levels on some segments. But we're keeping a very, very close eye on the inventory levels both, of course, with our trade partners and also making sure we address our own internal inventory levels. Björn Enarson: Okay. And then maybe a quick one on the Gardena robotics. You talked about it was a decline. Was this a little bit of an intentional decline? Or I mean, are you losing share due to that you don't want to participate full out? Or is it a mix within the mix situation, where low end of the low-end robotics are perhaps growing better, et cetera? Glen Instone: No, we did expect a decline this year. It's a double-digit decline for robotics. We knew that from the listing situation. We knew that from the competitive landscape. So it was very much in line with what we thought going into the year. At the same time, the new product launches we've had under the Gardena brand in robotics, particularly the Gardena SILENO sense, that's been well received. So we've got some positivity within the general decline for Gardena robotic lawnmowers, but in line with our expectations for Q1. Operator: Next question is from Alexander Siljestrom, Pareto Securities. Alexander Siljeström: A couple of questions from me. Starting off with the cost savings program that came through there in Q1. Obviously, very impressive. Do you expect sort of the same rate here in Q2? And also if you could talk about the sort of full year guide on the run rate. Terry Burke: Yes. First of all, I absolutely agree. We feel pleased with quarter 1, how that has developed, and SEK 245 million is a good number for quarter 1. As I did say, perhaps we picked up on a little bit of the low-hanging fruit during that first quarter. So that was also important. We are working hard. We are driving cost out of this organization. We were very clear on that at the Capital Markets Day. We have a big target and we are working hard towards that target. We hold at the SEK 800 million for now. Again, we are working hard towards it. So we'll have to see how that plays out. But for now, we still stay with the SEK 800 million as the guidance for the year. Alexander Siljeström: Okay. Cool. And anything for Q2? Should we expect sort of SEK 200 million then there given the target or SEK 250 million? Or is it too early to say? Terry Burke: It's too early to say. But I mean, directionally, I'm thinking it's going to be around the same, SEK 200 million, SEK 250 million. Alexander Siljeström: Yes. Cool. And then maybe just on the growth in the robotics segment. You mentioned that Gardena was down double digits. Could you talk about the growth for sort of the non-Gardena robotics, so residential Husqvarna and professional? Was that in the sort of double digits or high single digits? Or any color there? Glen Instone: So if we look at the Husqvarna robotics, we did have a double-digit growth very much across two different segments, professional and residential, and very much in line with the guidance we provided at Capital Markets Day. So we're pleased with the start for Husqvarna. Very strong innovation pipeline, great product launches in Q1, and we feel we're very well prepared and we're really taking the shift as we move over to boundary wire-free and different vision technology. Alexander Siljeström: Cool. And maybe just a final one on North America. Impressive that you're back to growth there as well. Could you talk about sort of the main product segment drivers that you saw there and also maybe the impact from the storms? Glen Instone: Yes. So I think it's a valid point you raised on storms. We actually saw a good growth in handheld products in North America, which is good to see. Actually, a decline with wheeled. We saw a growth in the whole construction assortment in the quarter as well in North America, and we also saw a growth in watering under the Orbit brand in the Gardena division in the quarter. So growth in construction, growth in handheld products and growth in watering products in the U.S. Operator: Next question is from Johan Eliason, SB1. Johan Eliason: Yes. I guess this was me. It's Johan Eliason from SB1. Can you hear me? Emelie Alm: Yes, Johan. Johan Eliason: So I was just wondering a little bit about the robotics, coming back to that. You mentioned strong growth for the professional and the Husqvarna-branded residential. How would you say the margins for you are developing on those products and categories in a year-over-year perspective? Are you holding up the margins on that part of the robotics business, improving or declining? And any indications there would be helpful. Glen Instone: By and large, Johan, we are holding up margins with the Husqvarna-branded robotics, very much in line with our business plans. So holding up the margins, to answer, yes. Johan Eliason: Good. And on the Gardena where you see the decline, is there a mix? So you said that the new introductions are at least doing well there. Is that allowing you for a sort of a positive margin mix so you can hold it there as well? Or how should we think about the margin year-over-year on those products? I remember you did have some price cuts a year ago maybe and then still some sellout. So maybe that is also helping that part of your robotics offering more. Glen Instone: Yes. We mentioned price in the presentation. And the negative price on robotics, it really came from the Gardena assortment, particularly the older technology. Whereas the newer technology, the new launch I mentioned, that held up. So we see more positive margin from the new products and a negative margin from the older products. But all in all, margin has moved down for the Gardena robotics assortment. Terry Burke: And maybe just to be clear. The Gardena robotic is margin decretive both to the division and to the group. Johan Eliason: Okay. Okay. Good to know. Then if we look at the consumer segment now when you are transitioning to the wire-free solution. The total cost for the consumer, including with the old solution, wires and then maybe having some external help to install it vis-a-vis buying the wire-free solution today, is that a bigger total ticket for the consumer on the Husqvarna-branded side? Or is it lower? Or it's basically the same? Glen Instone: It's basically the same. Actually, Johan, we see very comparable prices year-on-year in the marketplace if we -- say, for 1,000 square meter machine, we see very comparable prices. Of course, it's higher technology and, hence, we need to take cost out of the system to maintain those margins. And that's exactly what we're doing. Emelie Alm: Thank you. Before we go on with the conference call, we can maybe have a follow-up. It's from Stefan Stjernholm regarding the inventory level at resellers. So if you can elaborate a bit on the regions and so on. Glen Instone: Yes. Stefan, so if we look at the inventory in the trade, which I understand your question is, we actually we see it normalized in Gardena, per se, with the exception of watering, and it's slightly higher given we've had a strong Q1 sell-in. So that's where it actually stands out as being slightly higher. I say that's applicable globally. If we go to Husqvarna Forest & Garden division, handheld is normalized globally. We have wheeled normal in Europe, normal to slightly higher in North America. And robotics is normal to slightly higher globally as well, again, with a very, very strong sell-in in Q1 in preparation for the Q2 season. And Construction, I would say across the board is normalized. There is still a reluctance to take on too much inventory from our construction partners. That has been the case for the past couple of years given the uncertain times we're living in. So I would say a normalized situation within Construction. Operator: We have a follow-up question from Fredrik Ivarsson, ABG. Fredrik Ivarsson: A short follow-up on the cash flow and the timing impact. Should we expect that to sort of fully reverse in Q2? Terry Burke: Yes, Fredrik. As I said during that slide, it's really a timing issue. And of course, having a stronger second half to quarter 1 from a sales perspective meant that the accounts receivable landed higher at the end of the quarter. It's purely a timing impact, and that will flush through during Q2. So yes, I would say it will all get corrected just as the timing flows through. Glen Instone: We're happy to have higher accounts receivable, Fredrik. Good indication of strong sales. Emelie Alm: Thank you. And with that, operator, I don't think we have any further questions. Or do we? Operator: There are no more questions from the phone. Emelie Alm: Okay. And we've been through all the questions on my iPad here. So with that, would you like to wrap up a little bit? Glen Instone: Absolutely. So again, thank you for joining our quarter 1 report. Off to a solid start. This is a journey we're on and it's a long transformation journey, but again, good to get a strong Q1 behind us. We are executing on our strategic areas, very strong portfolio management, good cost savings and a very strong innovation pipeline. So at that, we wrap up. Thank you. Emelie Alm: Yes. Thank you. Thank you for listening. Terry Burke: Thank you.
Tuukka Hirvonen: Good afternoon, and welcome to Orion's Q1 2026 Results Webcast and Conference Call. My name is Tuukka Hirvonen, and I'm the Head of IR here at Orion. In a few moments, we will kick off with the presentation by our CEO, Liisa Hurme, after which you will have the possibility to ask questions either from Liisa or from our CFO, René Lindell. We will be first taking the questions through the conference call lines. And after that, we will turn on to the webcast chat function. So you may also type in your questions using the chat function of this webcast. And to our Finnish-speaking viewers, this event is held in English. But afterwards, later this afternoon, you will find a Finnish interview of Orion's CEO, Liisa Hurme on Orion's website. And just before letting Liisa to step in, just a reminder about this disclaimer regarding forward-looking statements. With these words, I'd like to hand over to Liisa. Liisa Hurme: Thank you, Tuukka, and good afternoon on my behalf as well, and welcome to listen Orion Q1 2026 results. Some highlights from this Q1. All our businesses performed solid in a solid way and very well, I would say so. And we also have good news regarding our clinical pipeline. We've been granted -- ODM-212 has been granted orphan drug designation in mesothelioma by FDA now in April. And we also started a new Phase Ib/II study called TEADCO which is a basket trial evaluating ODM-212 in combination with standard of care treatments in patients with selected advanced solid tumors. And I will talk more about that later on. Also, we have strengthened our executive team. We've appointed Berkeley Vincent as an Executive Vice President to lead Innovative Medicines division and as a member of my executive team, as of April 8. So let's look at the financials. Net sales, a healthy growth of almost 18% compared to the previous year's quarter 1. Also, operating profit growth 47%, which brought us to operating profit margin of 27.5%. And earnings per share increased 47%. Looking at net sales in more detail. Innovative Medicines drove net sales growth with royalties and tablet sales. But as I already mentioned, all the divisions are performing well, of course, in relation to the size of the division. So branded products growth was EUR 5.2 million, generics EUR 1.9 million; and Animal Health, EUR 1.1 million. And even Fermion external sales grew EUR 1.8 million, ending up to EUR 480 million of net sales during Q1. And the operating profit consists, of course, the royalties here in the Column 3, close to EUR 41 million and change in sales volume of EUR 21 million. We, of course, see some effect on decreasing prices, as we usually see the biggest products suffering of this are, of course, Simdax and Dexdor, but there are the generics as well. This comprises of EUR 9.3 million. That also includes FX and changes in cost of goods. No major milestones received in Q1, and then we also see increase in our fixed cost. And thus, our operating profit was close to EUR 150 million during Q1. Now to Innovative Medicines. The division growth was close to 54%. And here, we can see the Nubeqa royalties and tablet sales of EUR 145 million -- close to EUR 145 million, some other business of EUR 5.4 million, which is usually sales of services to our partners resulting EUR 150 million of net sales. And as we remember from the previous years, we start with the lower royalty rate from Bayer in the beginning of the year. So the royalties are tiered during the financial year. And we see in Q1 clearly lower income of Nubeqa compared to the last quarter of previous year, but clearly, a higher revenue, Nubeqa revenue compared to the previous year's quarter 1. And royalties were EUR 95 million and tablet sales to Bayer, EUR 50 million. Branded products, close to 7% growth compared to previous year with EUR 82.2 million. Easyhaler continues to drive growth in this division, especially budesonide-formoterol as the recent changes in treatment guidelines from last year favor the use of combination products over the mono products, and we've been able to really increase our sales according to this new guideline. And the good growth momentum in women's health therapy area continues with the HRT products. Generics and Consumer Health, 1.4% growth. It's according to market growth, maybe slightly below that, but this is only 1 quarter, and we all know that this is really a very wide portfolio in many different geographies. So this is a very good achievement for the first quarter. And Animal held 3.3% growth. Of course, again, a very wide portfolio, both for companion animals, and livestock and a global portfolio and the growth comes from all of the different geographies in both segments or both units. When we look at the top 10 products, of course, we see the Nubeqa as we discussed, driving the growth; Easyhaler, 7% growth; Entacapone slightly minus compared to the previous year's quarter 1. But this is mainly, again, timing issue of deliveries to different regions and different partners. Same goes with the Dexdomitor and the Animal Health DDA portfolio #4 here, which grows almost 11%, and that is, again, a result of deliveries leaving during Q1. And as I mentioned, women's health continues good growth trajectory with almost 15% growth. Burana slightly decreasing, almost 6%. And that's also a kind of more of a timing issue and depends on the season. But then we see 3 of our generics; Trexan, Quetiapine and Fareston which have a very, very healthy growth. This is partly due to the previously mentioned timing of deliveries to our partners but also showing that, for example, Trexan is a golden standard treatment, globally used both in cancer and autoimmune diseases and also solid position in our top 10 products. And Simdax, as I already mentioned, facing a heavy generic competition in Europe. Now Innovative Medicines during the quarter 1 comprised 36% of our net sales and generics, 32% and branded products, 20%. Animal Health and Fermion together were 11%, 12% of our net sales. Our clinical development pipeline has now -- the list is now a bit longer with the new combination study for ODM-212, but I'll go through the list to remind us what we have now going on. So the two 1st ones are studies on Nubeqa, the DASL-HiCaP for the neo-adjuvant use of darolutamide in prostate cancer; ARASTEP for the biochemically reoccurring prostate cancer; OMAHA-003 and 004 studies for metastatic castrate-resistant prostate cancer with opevesostat molecule that Orion has developed and then out-licensed to MSD. Then a bit of an odd product on this list, which is otherwise oncology products or molecules is levosimendan. It's a old classic from Orion's portfolio, the same molecule as we have in Simdax and that's developed for pulmonary hypertension, and there are two Phase III studies ongoing with that by our partner Tenax. Then two Phase II studies, again, with opevesostat for women's cancers like breast, endometrial and ovarian cancer -- MSD -- by MSD. And this is, of course, to test whether this mechanism of action would also work for hormonal cancers in women. CYPIDES is still ongoing. That was the Phase II study that was used when the Phase III studies with opevesostat started. So the results of that study were used for planning of that -- those Phase IIIs. TEADES is a monotherapy study, a Phase II study for ODM-212 for malignant pleural mesothelioma, and also for epithelioid hemangioendothelioma. These are 2 very rare cancers, solid tumors, and we think that this molecule, based on its mechanism of action, should have a direct antitumor activity to these cancer types. And the newest addition, TEADCO, co referring to combinations. The indications here, the cancers are mesothelioma, non-small cell lung cancer and pancreatic cancer. Here, we are combining ODM-212 with some known drugs that are used for these specific cancers. And we use the other kind of a mechanism of the inhibition, which would fight for the drug resistance or prevent the drug resistance, that patients usually throw to these currently used treatments. Sustainability is another topic. Some key figures of Orion sustainability programs. We've been able to decrease our greenhouse gas emissions by 13%, and this is scope 1 and 2, so doesn't include the Scope 3. Our injury rate is 4.9, and there is clearly room to improve there. For this year, we have very ambitious targets for LTIF. And then 2 things regarding more of a kind of code of conduct or how we operate within own company and with our suppliers, this has to do with the code of conduct. In Orion, 98% of our employees have carried out or done the training for code of conduct. Also, we do this code of conduct training and agreement with our suppliers, and 96% of our suppliers are also adhered to code of conduct, our third-party code of conduct practices. We have specified our outlook for this year. We gave our outlook in January. And now after Q1 when 1/4 of the year has already passed, we are a bit more wiser, and we are able to increase the lower limit of our range by EUR 50 million, both on net sales and operating profit. So the net sales range was EUR 1.9 billion to EUR 2.1 billion in the original outlook, and now it's from EUR 1.95 billion to EUR 2.1 billion. And same with the operating profit, which was previously EUR 550 million to EUR 750 million, and now it's from EUR 600 million to EUR 750 million. And here are some upcoming events for this year. And I think at this point, I thank you for your attention, and I think it's time for questions. Tuukka Hirvonen: Yes. Thank you, Liisa, for the presentation and set up for today. And now let's turn on to the question. We will first start with questions on the conference call line. So at this point, I would like to hand over to the operator. Operator: [Operator Instructions] The next question comes from Alex Moore from Bank of America. Alexander Moore: Two for me, both on Nubeqa. So you previously mentioned a quarterly royalty reporting can be impacted by last month estimates and some reconciliation effects. I was just wondering for Q1, is there any particular conservatism or phasing assumptions baked into your sales estimate for March? And then separately, can you give me high level color on whether the reconciliation for sales in December was meaningfully positive or negative in terms of impact on your reported royalty for the quarter? And then secondly, based on your current assumptions for full year sales run rate and tiered royalty rate, do you see consensus expectations of around 50% growth for Nubeqa sales this year as achievable? Rene Lindell: Yes. Maybe I can take that one. So I'll start first with basically December numbers. So we always try if possible to close the year with the actual reports and that we managed to do last year. So there was no reconciliation or overflow from '25 to '26. Naturally, as we said in the last month of the quarter, within the year are based on estimates that we then have and the latest data we have, and then we'll be updating in the second quarter, and then we will discuss that, of course, in Q2, but we are not giving details between -- in between months of how the Nubeqa accruals and actuals go. And then, yes, we are very happy, of course, that Bayer is also optimistic on the full year of Nubeqa and so are we. And of course, we do our own scenarios and try to make a balanced outlook for the year that includes various scenarios. But other than that, not commenting on Bayer's estimates. Operator: The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have 2 questions. Starting from the guidance upgrade, I think you mentioned that you were just wiser after Q1. Can you specify was the upgrade just based on Q1 performance? Or have you also upgraded assumptions related to the rest of the year? Rene Lindell: Yes. Maybe I can comment that. So as Liisa said, of course, we have 1 quarter behind us, and that was solid across the businesses. And also, I think Nubeqa performing very nicely in the numbers and in the market. So I think it's a general -- I think if we look at really the lower boundary, we also see that the probability for that old outlook, lower limit starts to be quite low and made sense to raise that lower limit to a bit higher. And when it comes to other aspects, some also effect from the fact that we have a little bit more information on the U.S.A. tariffs for pharma for this year that the impact would be earliest for October quarter. And that -- as that information came through that also reduces a little bit of the downside risk, although being said, it is still something of which is then end of the year, what the impact will be, if any, at that point of time. Sami Sarkamies: Okay. And then my second question would be related to Nubeqa product deliveries. These grew only 30% in Q1. I think they were also a bit small in Q4. So should we just assume that inventories at Bayer have become lower in the last couple of quarters, and these product deliveries will pick up at some point in time during the rest of the year? Liisa Hurme: Well, I think the tablet deliveries from Orion to Bayer is not a very good -- I would say, not a very good lead indicator how Nubeqa sales would develop or how the inventories that the supply chain is really, really long if you think the global supply chain. So it's -- I would advise not to look at that tablet number or tablet sales. We ship according to buyer's forecast. Of course, here for the shipments there is the same factor than for any other shipments that sometimes they leave on a certain -- last day of a certain month or then first day of the next month. So there might also be a big change or big differences depending on when the shipments leave Orion. So that's not a very good and reliable indicator for prognosing inventories or future sales. Rene Lindell: Perhaps I can continue here a little bit that we do expect for the full year that we will have higher tablet deliveries than what we had in Q1. So it wasn't yet I think, representative of the average level for the year. Liisa Hurme: No, no. This is exactly what I mean, and -- yes. Sami Sarkamies: Okay. And then, actually, I have one more question regarding the new combination study for ODM-212. Can you tell a bit more about the study, how many patients were recruited? When are you expecting readouts? And then it would be interesting to hear what is currently the market for the drugs that you will be combining ODM-212 with? Liisa Hurme: Well, I think I'll start with the studies. These are not huge studies. I don't have the exact number of patients unless my colleagues here have that. But let's remember that both of these indication, even though they are big ones. So we are now carrying out Phase Ib/2. So we are even first trying different dosing with some of the combined drugs. So -- and for the results and readouts, I would be on a safe side to say that we can expect those during '28. And the markets for the drugs that we are combining, I'm not going to share here the market details of those drugs, but those are listed -- the ones that we combine with, are listed in the press release currently. Sami Sarkamies: Okay. So assuming additional studies for these patients. . Liisa Hurme: Yes. . Sami Sarkamies: Are these blockbuster products? Liisa Hurme: Oh, yes. Indeed, some of them are. Tuukka Hirvonen: They are. But then again, 1 needs to remember that their indication may be wider than the one we are targeting with this combination. So we have listed the active ingredients in the press release we announced earlier this morning. So with that, you can definitely find out the brand names for these products. But again, please bear in mind that their indication may be wider than the one we are targeting with these trials. Sami Sarkamies: Okay. Thank you. I don't have any further questions . Operator: The next question comes from [ Matty Carola ] from OP Corporate Bank. Unknown Analyst: Firstly, about royalty rate. So what should we think about during this Q1? Is it comparable what we saw last year, first quarter? Or is it higher as now the sales, of course, grew from Bayer to Q1 last year? Tuukka Hirvonen: Apologies, Matty, the line was a bit bad right now. There's somewhat echo. Could you please repeat your question? Unknown Analyst: All right. Hopefully, it's better now. Yes, I was asking about the royalty rate during the Q1. So is it at the same level than last year? Or is it higher now as the Nubeqa sale has grew from last year? Rene Lindell: I don't think we comment on the royalty rates in that perspective as to where the tier breakpoints or so you'll have to probably wait for that calculation to be done a bit later during the year. Tuukka Hirvonen: Growing faster compared to previous year, we will be reaching the higher tiers earlier than last year. So in that sense, in Q1, also probably the average is somewhat higher than last year. Unknown Analyst: All right. Maybe then another question regarding the sales and marketing costs as they've been increasing. So could you roughly say how much there is like the actual costs? And how much are the end royalties? These are kind of causing the cost growth. Rene Lindell: Yes, of course, and he royalties are paying a role in their part, but also we have added sales force also to support, especially branded products in some European countries. So you will see both effects there visible that, of course, with Nubeqa growing quite a lot from last year's Q1, then, of course, those would be also visible in the sales and marketing. Unknown Analyst: Okay. And one more question regarding the R&D pipeline. So as you did have said that there is this one kind of the old study, which is not covering oncology. So I think it was last year exactly when you were putting this Tenax study in your pipeline. And could you remind us what was the reason to add that study back then to your pipeline? Why it was not there prior to year ago? You want to [indiscernible]? Liisa Hurme: Yes. That's a very good question, and thank you for asking so that we can remind -- I think that was the time when Tenax started the Phase III program for pulmonary hypertension. They had been working with levosimendan for a while, doing some confirmatory studies, but that was exactly the time when they were able to start the first study and then eventually later on last year, they started the next study or the second study for pulmonary hypertension. So there is no other reason for that. Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB. Anssi Raussi: Ssian Ssirau from SEB. One question from me regarding Nubeqa. So when we think about this early-stage indication for Nubeqa, what would be a reasonable time line to expect that you would expense for you because I have understood that Bayer is fully responsible for the development for now. Liisa Hurme: Indeed. This relates to the DASL-HiCaP study and the readout for this study, if I remember correctly, it's '28. Tuukka Hirvonen: Estimated in '28. Liisa Hurme: Estimated in '28. I think that the latest point for us to jump in and use our opt-in would be when we see the results of the study. Operator: The next question comes from Iiris Theman from DNB. Carnegie. Iiris Theman: I have just 1 question. So what pipeline is do you expect in the next 12 to 18 months? Liisa Hurme: Well, I'll start with our ambition to start Phase I study, at least one Phase I study with our biologics during this year, by the end of '26. And then if you ask for the next 12 months, of course, then we move to enter in clinical stage. So I think those are the one -- the major initiations of new projects. And then regarding the results, no major results that we would be expecting this year. Tuukka Hirvonen: With the exception of the LEVEL trial -- Phase III trial by Tenax in Q3 this year. Liisa Hurme: Yes. Thank you, Tuukka. But then in '27, the... Tuukka Hirvonen: ARASTEP. Liisa Hurme: ARASTEP will -- there will be a readout for ARASTEP in '27. Then again,-- what else did we have in '27? Tuukka Hirvonen: Current estimate for the women's trials with opevesostat. Current estimate is in the end of '27. We'll see how that pans out. And also for our first ODM-212 Phase II, so with the mono trial, current estimate is also in the end of '27, but it may move either direction, depending on recruitment rates and so forth. Iiris Theman: Okay. And anything about opevesostat, ODM-208 for prostate cancer? Liisa Hurme: Readout for both of the studies is '28. Tuukka Hirvonen: Yes. The estimated final readout is in summer '28 for both of these trials. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Tuukka Hirvonen: Thank you, operator. Then we'll turn to the webcast questions. So again, you still have the opportunity to type in your questions by using the webcast chat, if you wish. We have here 1 question coming from Shan Hama from Jefferies. So Shan is interested to hear that could we please provide an update on opevesostat timing. And if we could still see interim data this year following Merck's comments in '25 ASCO, so last year. Liisa Hurme: Well, I think I can only repeat what we said a minute ago that the readout for both -- the readouts for both of the studies are estimated to happen in '28. And regarding any interim results or interim analysis, I don't have information on that. So that should be asked from MSD. Tuukka Hirvonen: Exactly. Thank you, Liisa. So we have no further questions either from the webcast, and I think that we don't either have any follow-ups on the conference call line. So I think it's time to wrap up and some closing words, if we wish, Liisa. Liisa Hurme: Yes. I thank you for your attention and very good questions. And of course, I hope that you will be attending our upcoming events this year and have a nice rest of the day. Thank you.
Alexander Bergendorf: Good morning, this is the Axfood First Quarter 2026 Telephone Conference. And with me today are Simone Margulies, President and CEO; and Anders Lexmon, CFO. In the Investors section of our website, you will find the presentation material for today's call. We encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. A recording of this call will be made available on our website. So with that, I will now hand over the word to Simone. So please go to Page 2. Simone Margulies: Thank you, Alex, and good morning, everyone. We summarized the quarter with volume growth, improved efficiency and increased profitability, and that's in a market that is characterized by a high activity level. Through a clear customer focus and collaboration, we continue to create value with our strong and distinctive concepts. Before we start the presentation, I briefly want to comment on the situation in the world around us. It is clear that global uncertainty has increased over the past few months, and it's currently very difficult to assess the long-term effects of the war in the Middle East. In recent years, we have successfully navigated a volatile and uncertain environment, adapting quickly as conditions have changed, and we're carefully monitoring developments. Turning to Page 3. With that very brief introduction, let me now take you through the recent market development and Axfood's first quarter performance. So next page is #4. Market growth amounted to 4.4% during the quarter, a similar level compared to the fourth quarter last year. Stronger volumes contributed to this development as the annual rate of food price inflation came down and amounted to 1.7% according to Statistics Sweden. Inflation decreased gradually during the quarter and particularly in March when the overall price level was unchanged compared to the prior year. This was mainly driven by the dairy category, but prices were also lower in several other categories, including fruits and vegetables. In addition to the improved volume trend, a 0.5% positive calendar effect from Easter also contributed to the market development this quarter. So please go to next slide, #5. As a result of positive volume traffic and high volumes, Axfood retail sales increased 3.8% in the quarter. This was below the market and also lower than what we had hoped for. Excluding City Gross, where sales have been impacted by recent store closures, growth was in line with the market. Over a 2-year period, we continue to clearly outperform with contributions from City Gross. Competition remains intense and in general, market dynamics continue to be characterized by a strong focus on price value. As you all probably know, the VAT on food was halved on April 1 from 12% to 6%, and this measure was implemented just before Easter, which typically is an important holiday for the industry. With this, the overall activity level of the market was particularly high. In Axfood, we worked intensively during the quarter to prepare for and implemented VAT reduction. Through extensive collaboration and focus on execution throughout the organization from stores and support functions to Dagab and Axfood IT, the price points on millions of items were updated in a very short amount of time. We are now on Page 6. Consolidated net sales for Axfood grew 2.6% in the quarter. And as I just mentioned, this was mainly driven by higher volume. We saw growth in all of our segments, except City Gross. And there, as I just mentioned, it is, of course, important to consider that total growth was impacted by store closures. So please go to the next Page #7. We report a strong financial development in the quarter. Group operating profit increased to SEK 806 million, and the operating margin was higher at 3.7%. Operating profit included items affecting comparability of minus SEK 6 million related to City Gross. Last year's items affecting comparability also related to City Gross and then amounted to minus SEK 38 million. Operating profit and margin on an adjusted basis, which excludes items affecting comparability also increased. Adjusted operating profit was SEK 812 million, and the adjusted operating margin amounted to 3.8%. The improved profitability was primarily driven by higher sales volumes and growth in both total and like-for-like sales, a stable gross margin, improved efficiency and also an effective cost control. So now let's turn to Willys on Page 8. Willys continued to demonstrate volume growth in the quarter through an increased number of customer visits and a high ticket -- average ticket value, but total growth was below the rate of the market. Store establishments contributed to growth, although the new stores in the first quarter were established late in March and as such, only contributed to a small extent. In recent months, Willys has temporarily closed 2 stores ahead of relocation and together with ongoing larger store modernizations, this impacted growth negatively in the first quarter. Earnings grew to SEK 498 million, which corresponded to an operating margin of 4.1%. The increase in operating profit was primarily driven by the increased sales volumes and a stable gross margin development. Willys is Sweden's leading discounter and 2 days before the VAT reduction, Willys chose to lead the way by reducing prices corresponding to the lower VAT. This, together with the increased marketing activities, which were largely concentrated to the end of the quarter, negatively impacted sales and profitability. As I mentioned, Willys store expansion progress was also concentrated to the end of the quarter. Even though the expansion pace remains high and based on the chain's strong position among consumers, there is significant potential to increase the market presence. We are now on Slide 9. Hemkop displayed a strong performance in the first quarter and clearly increased its market share, delivering retail sales growth of almost 6%. Growth was primarily driven by an increase in customer traffic and in addition, a higher average ticket value that contributed positively. Like-for-like growth was also strong, contributing to solid earnings performance. With a focus on modernizing stores and enhancing its offering in terms of price value, fresh produce and meal solutions, Hemkop has made excellent progress in recent years. The current growth clearly demonstrates that customers truly appreciate Hemkop. In total, operating profit increased to SEK 114 million, and the operating margin also increased to 5.1%. The increase in operating profit was mainly driven by the increased sales volumes, a stable gross margin development and solid cost control. Earnings in the prior year was impacted by new store establishments. Turning to Page 10. Our efforts to develop City Gross into a long-term competitive hypermarket chain is proceeding according to plan. City Gross continued to deliver a positive performance in the first quarter with healthy like-for-like growth of 3.6% and a positive earnings trend. Our improvement initiatives to develop the customer offering and streamlining operations are clearly yielding results. City Gross' loss for the quarter amounted to minus SEK 48 million on an adjusted basis, corresponding to an operating margin of minus 2.4%. This was an improvement compared to the prior year, which came from the positive like-for-like growth effects from structural measures as well as efforts to streamline operations. Similarly to Willys, City Gross went ahead and reduced prices corresponding to the VAT cut 2 days prior to implementation. And together with increased marketing activities, this negatively impacted sales and profitability. On a reported basis, the operating loss amounted to minus SEK 54 million, which corresponds to an operating margin of minus 2.7%. This included the items affecting comparability I mentioned, which refers to structural measures for stores. We are now on Page 11. Growth for Snabbgross amounted to 1% in the quarter with weak sales development for B2B consumers. The trend in the B2C sales through Snabbgross Club was, however, strong, both in total and like-for-like sales. In terms of the operating profit, Snabbgross managed to offset the weak growth through strict cost control and delivering earnings on par with last year. In total, operating profit amounted to SEK 25 million, corresponding to an operating margin of 2%. Next, Page #12. Dagab's first quarter net sales increased by almost 4%, driven by sales to food retail customers and especially Axfood's own concepts. Operating profit also increased to SEK 298 million, and the operating margin was unchanged at 1.5%. The performance was primarily due to the sales growth and a lower cost level with increased productivity and logistics. Operating profit was, however, negatively impacted by lower gross margin due to market investments. Late in the quarter, Dagab also negatively was impacted by higher fuel costs and weaker Swedish krona. That concludes the first part of the presentation. So now it's time for our CFO, Anders, to take you through the financials. And we are now on Page 13, but please go to the next Page #14. And Anders, please go ahead. Anders Lexmon: Thank you, Simone. During the first quarter, the cash flow was minus SEK 692 million, which was almost SEK 300 million lower compared to last year. The strong operational performance was offset by a negative working capital effect due to inventory build ahead of Easter. This resulted in a somewhat weaker cash flow from operating activities of almost SEK 1.1 billion, SEK 129 million lower compared to last year. The negative cash flow from investment activities of minus SEK 560 million included the initial payment of SEK 185 million for automation in the logistics center in Kungsbacka. Excluding this automation investment, the capital expenditure in the quarter was in line with last year. By the end of Q1, Axfood utilized approximately SEK 3.1 billion of our credit facilities compared to SEK 3.3 billion in Q1 last year and SEK 2.7 billion as year-end 2025. The cash flow from financing activities of SEK 1.2 billion was in line with last year and included the first dividend payment of just below SEK 1 billion. We are now on Page 15. The net debt increased compared to year-end 2025 due to dividend payout. The net debt-to-EBITDA was improved compared to Q1 last year due to a strong EBITDA development despite increased leasehold debt. The equity ratio amounted to 17.3%, which was lower than in December 2025 due to the dividend improved. The Q1 equity ratio was, however, 0.5 percentage points higher compared to Q1 2025. Total investments, excluding leasehold and acquisitions amounted to SEK 561 million in Q1 compared to SEK 371 million last year. During the quarter, we established 4 new group-owned stores, 2 more than last year. Our investments in store establishments have therefore increased during Q1 compared to last year. And as I mentioned before, the investments included the first payment of SEK 185 million connected to automation in the new logistics center in Kungsbacka. And then let's turn to Page 16. When we look at the capital efficiency, we have a stable development in our rolling 12-month net working capital and also in relation to net sales. Capital employed has increased over the last years, mainly due to the acquisitions of Bergendahls Food and City Gross as well as the investments in Balsta. The level of capital employed, however, decreased slightly during Q1 as equity was reduced not only by dividend paid, but also the dividend to be paid in Q3 later this year. The effect was partly offset by higher leasehold debt. Thanks to an improved earnings trend and the reduced capital employed, ROCE improved by 1 percentage points during the first quarter compared to year-end 2025. And by that, Simone, I have come to the end of my presentation and hand over to you again. Simone Margulies: Thank you, Anders. And we are now on Page 17, and it's time for me to give you an update on our strategic agenda and priorities. So let us turn to Page 18. We have a clear house of brand strategy in our group, and this makes us unique in Swedish food retail. We aim to deliver the strongest customer experiences, and we are present in all segments of the market with our different concepts. Please turn to next Page #19. To create the right conditions for our retail concepts to be able to succeed on the market, we leverage our strengths as a group and focus on 6 strategic development areas. We have shown you this before, and I would now like to go through some recent key strategic developments. So please turn to next Page 20. Our ambition is to provide the most attractive assortment on the market with a distinctive offering on branded as well as private label products to meet customers' diverse needs and preferences. During the first quarter, we had a high pace in developing our private label portfolio and launched more than 100 new products. We had product launches across many categories, but I would like to highlight our focus on expanding range of our international assortment. In addition, we expanded the Mevolution brand to strengthen our offering in personal care. Our private labels represent quality and innovation, and we also focus a lot on sustainability and health with a wide selection of sustainability labeled and organic products. In addition, we have a large selection of products with Swedish origin with more than 400 products under the Garant brand. In the space of sustainability and health, we have previously launched several innovative hybrid products. And this quarter, we launched ready-made meatballs made from a combination of minced meat, vegetables and legumes, an exciting launch that really can contribute to better eating habits, not least among younger people. Our private labels, including the Garant and Eldorado brands are a significant competitive edge. And with all the new products, we complement our existing portfolio and improve the offerings within our various concepts. So overall, our private label share of sales increased in the quarter and amounted to just over 32%, driven by high penetration in Hemkop and City Gross. We are now on Page 21. We will continue to develop our attractive store network in the coming years by accelerating the pace of expansion while maintaining a high rate of modernization of existing stores. This work creates new growth opportunities by ensuring that our concepts provide the best possible store experience for their customers. Willys focuses on significantly expanding its presence, but at the same time, the chain gradually rolls out its most recent store concept, 5.0. Hemkop is maintaining a high pace in modernizing the stores and in addition, expands its presence when it sees good potential to do so. For City Gross, focus in the past year has been on closing underperforming stores with 1 store closure in the first quarter this year and 1 planned for the second. This is really about creating a healthy core in City Gross' store base from which the chain can grow from. That said, City Gross has also established a new store recently in February in Norrtalje. Lastly, to create better conditions for both the restaurant trade and the convenience trade to achieve long-term growth with improved profitability, we have made the decision to bring the 2 operations together into a single organization. The convenience trade business, which is currently part of Dagab, will be transferred to Snabbgross as of January next year. The logistics operation will, however, remain in Dagab. With consolidation opportunities are being created to further strengthen the customer meetings and offerings, both for restaurants and convenience trade customers. Moving on to Page 22. We are also improving our competitiveness by maintaining a clear focus on efficiency and productivity. We are enhancing the way we work, increasing use of data and AI in all our processes. More than 100 AI models have been taken into production in recent years, and we focus a lot on developing and empowering employees through AI tools and training and assistance. We are also further optimizing our new logistics structure. And during the quarter, we completed the rollout of a new order and purchasing system that will further strengthen our supply chain. With this new system, we can be more accurate in forecasts and planning and really strengthen how we manage our order flows to balance supply and demand. As previously communicated, we plan to establish a new highly automated logistics center in Kungsbacka that will be completed in 2030 and ensure increased capacity and efficiency for future growth in Southern Sweden. During the first quarter, work continued according to plan with this project, and we will get back to you when the property lease contract is entered into. Now let's turn to Page 23. Sustainability is an integral part of our operations and strategies. We aim to be a positive force in society and to take the lead in promoting a sustainable food system by influencing decision-makers, leading the way through own initiatives and driving industry issues. Last year, we completed the transition to renewable fuels and electricity, both in our own and procured transports, a truly important achievement. And consequently, we have seen a significant decrease in emissions. Using comparable emissions factors, emission from own transport decreased 15% in the first quarter compared to the prior year. In addition to the increased use of renewable fuels, this reduction was due to a higher number of electrical vehicles and route optimization. Diversity and inclusion are also areas that are of great importance to us. And by 2030, we aim to be Sweden's most inclusive food company. During the quarter, we concluded the first work placements under so-called SAO program at Willys and Hemkop. This program aims to help young people in vulnerable areas to strengthen their position in the labor market and motivate them to study. We have been a part of this initiative since the start, and we will be offering more young people jobs in the future as the program is developed and scaled up. Lastly, I want to highlight our efforts to promote sustainable food consumption. Hemkop is the leading -- industry leader with regards on organic products and helps customers to shop more sustainably. Recently, an independent survey showed that Hemkop leads the market in terms of promoting organic food through campaigns. Willys is also doing a lot in this area and came out second in the survey. In a market where price awareness among consumers remains high, campaigns are important. And I think this really shows that we continue to push forward and take our responsibility. Moving on from our strategic agenda, and we are now on Page 24. Our outlook for the year is unchanged, and it covers investments, new store establishments and items affecting comparability. With regards to the new establishments, as Anders talked about, in total, we opened up 4 new group-owned stores in the quarter, of which 2 Willys, 1 Hemkop and the new City Gross store I mentioned earlier. So please now turn to Page 25. And let me sum up. We summarize a quarter with positive customer traffic, volume growth and increased profitability. We are investing in line with our long-term plan to gain further market share and create the conditions for continued profitable growth. And that was all for today. So now please turn to Page 26, and I hand over to the operator to open up the line for questions. Thank you. Operator: [Operator Instructions] The next question comes from Magnus Raman from SB1 Markets. Magnus Raman: I could start off asking about the temporary negative effects on Willys sales growth from major store refurbishment. Can you help quantify in any way the effects here? Is it correct that it's one store that is closed altogether pending the build of replacing store? And then are there other stores that have a significant amount of store space closed for renovation currently? Simone Margulies: No, it is -- as you said, there are some phasing effects, I would say, in the quarter regarding Willys stores. The first thing is that we had a little less new stores and the stores that were opened, opened in the end of the quarter. However, we will have a high pace as we earlier communicated in establishing new Willys stores this year. And the other thing that you said is that we have closed 2 stores for relocating them. So they are closed and they will reopen in new places. And then we also have some large modernizations in large stores that's also affecting the like-for-like growth. So this, in total, have a negative effect in the sales growth in Willys for the quarter. Magnus Raman: Great. And these 2 stores that are temporarily closed altogether, have they been closed sort of for the major of the duration of Q1 for the most of that period? Simone Margulies: Yes, yes. They closed by the end of the last year for relocating them. Magnus Raman: So if these 2 stores would have been in operation, retail sales growth in Willys should have been around 1 percentage point higher. That is fair to assume? Simone Margulies: I would say that the phasing in the stores for the Q1, together with that the marketing investment came in the late of the quarter together have a negative effect and make Willys grow a little bit less than we hoped for. Magnus Raman: Right. And then I also wanted to ask if there's any way to quantify the cost you have been taking here in terms of having the food VAT 2 days in advance in both Willys and in City Gross. Any help there to quantify? I mean, should we do 2 divided by 90 and then a little bit more because those were more trading-intensive days times 5.4%? Or do you think -- could you help us there with any figure... Simone Margulies: The reduction of prices that we made both in Willys and in City Gross and Eurocash 2 days in advance had a negative effect and also increased marketing activities in the quarter -- by the end of the quarter together that we had increased personnel cost since it was a lot of manual work of changing millions of prices in stores. And also, we've had IT development costs during the quarter. And of course, also, as you said, the real effect of reducing the prices. Magnus Raman: But is it fair to say also that the sort of short-term top line strengthening effect of this was maybe less than what you had hoped for? Simone Margulies: Yes. The purpose of doing that was to strengthen the position for Willys as the leading discounter on a long-term effect and by that leading the price reduction. But as you said, we didn't really -- we didn't get the volumes as we had hoped for. So the sales for Easter came as it normally does from -- in the middle of the week until -- and by the end of the week. So we didn't really got the volumes that we had hoped for. Magnus Raman: Understood. So sort of subsidizing the ordinary spending, but not being able to push forward the Easter shopping so to say. Simone Margulies: Yes. However, I mean, one large purpose for us was to strengthen the position as a leading discounter. So -- and that is more on a long-term effect regarding the brand. So I mean, Yes. Magnus Raman: That was mission accomplished. I understand. All right. And then final one from me here. The effects of the war in the Middle East, you mentioned here in the report that the early -- or late into the quarter, the early effects you've seen on fuel costs and then you acknowledge the currency change, the weakening of the Swedish krona. But you have not seen any negative effects on electricity prices. Is that correct? Anders Lexmon: We have seen a little bit higher electricity prices, but we work with hedge -- we hedge the prices. So we have a more sort of long-term effect when it comes to electricity. Magnus Raman: Right. And then when thinking about possible inflationary effect on food commodities, is it, in your opinion, even if this is more for the farmers maybe, is it fair to assume that the price increase and possible supply squeeze as well of fertilizers, i.e., the urea prices, that, that would mainly have an effect on next year's crops rather than this year's crop season? Simone Margulies: It's -- I mean, if you look on the direct effects on the fuel cost, that will have -- it, of course, depends on how the development will be going on forward in the Middle East. Regarding the fertilizers, it also depends a lot on the development going on forward. This summer's crops, of course, are already done, but then you have the autumn crops and also going for next year. So depending on how the development will be, there will be some delays, but there could be effects also in this autumn since we do -- you have crops not only once a year. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Just coming back to sort of you start out saying that sort of the recent months have brought increased uncertainty, and we can all sort of acknowledge that and that the focus on value for money is still very high. And I hear you when you say that you didn't get the volumes that you expected when it came to the price cuts that you made a couple of days before the 1st of April. But sort of this uncertainty in itself, wouldn't that sort of have been a tailwind for especially Willys in the quarter since early March that you didn't expect before we went into this conflict in the Middle East? And I was just wondering sort of why are you growing slower than the market? And I hear you in terms of refurbishments and all that, but you do have more stores now than you had last year. And sort of what is the dynamics? What sort of happened in the market in Q1, you think? Or is it just sort of these things that you mentioned in terms of refurbishments and closed -- temporary closed stores? Simone Margulies: Those -- I'll try to give you an answer. I mean if we look upon the first quarter, as the market as a whole, we had a good growth in the market that was primarily coming from volumes since the inflation was low and also we had deflation in March. By that, also, as you said, the activity level in the quarter also increased. And in that environment, we also had the phasing of refurbishments going on, closing down 2 stores. The new stores that we opened up came in late in the quarter, together with the VAT or our price reduction that we made, that together made us go a little bit lower than we had hoped for. So that was all. And then I would say that the cost levels for the customers, it will, of course, depend a lot on what is happening going forward. I mean the increased fuels came later in the quarter and also -- so I mean, there are many things that is happening for the consumers in the quarter, but also in the market. However, I would like to zoom out a little bit and say like Willys has a really strong position. It's one of Sweden's strongest food retailer. They are the most recommended chain. And we will continue to have a high expansion pace for Willys since we see there's a great potential to accelerate our expansions in Willys. Daniel Schmidt: Yes. Okay. But do you see that sort of these issues that we've talked about now, have they corrected themselves as we go into the second quarter of this year and you had the lowering of the VAT and all that is basically behind us now. Are you seeing a better market on the back of the lowering of the VAT? Or is that still too early to call? Simone Margulies: I think it's too early. There is still uncertainties. There are -- the VAT and the initiatives to strengthen the consumers' buying power are, of course, positive. On the other hand, also consumers have high prices for electricity and also fuels, how the increased buying power, how large that will, by the end of the day, become and also how the consumers will use their consumption, it's difficult, and it's a little bit too early to say anything actually about that. Daniel Schmidt: Yes. Okay. And just the last one on the cost for the repricing. Was all that taken in Q1? Or is there anything taken in Q2, early Q2 for Hemkop? Simone Margulies: For Hemkop? Daniel Schmidt: Given that they didn't do the changes 2 days before. Simone Margulies: Yes. Do you mean the cost for personnel and marketing and so on? Daniel Schmidt: Exactly. Exactly [indiscernible] repricing. Simone Margulies: Yes, that was taken for Hemkop -- all the chains were taking in the first quarter. I mean, both marketing, personnel costs, yes. Daniel Schmidt: Okay. And just the fact that you have to reprice the entire assortment, is that sort of -- is that resulting in a number that you want to share in terms of extra staff to just get that done? Simone Margulies: Extra -- could you please... Daniel Schmidt: Staff. Staff. Simone Margulies: Extra staff. Okay. No, we don't give any details about that. But as you say, there were a large cost, of course, for personnel to doing the job and also marketing and also the price reduction by itself. Operator: The next question comes from Erik Sandstedt from Kepler Cheuvreux. Erik Sandstedt: Erik Sandstedt here with Kepler. Three questions, please. The first one is a follow-up on one of the earlier questions here. Because you say that gross margins at Willys were stable in the quarter, right? And given these pre-VAT price reductions, which I assume had a slight negative impact on gross margins. Can you just explain then what sort of supported gross margins to offset that impact? And given that gross margins were stable and the EBIT margin were down, I suppose OpEx to sales then must have driven that margin contraction. I know it's not a big margin decline, but I'm just trying to understand the underlying drivers a bit better here. Simone Margulies: Yes. So the offset was according to, as we said in the report that the marketing investment came in the later part of the quarter. And that also, on the other hand, had marketing cost and cost of personnel that made the margin a little bit softer. Erik Sandstedt: Yes. But there must have been some positive gross margin impacts as well then if the pre-VAT reductions had a negative impact. Simone Margulies: Yes. And that was because that the marketing investment came late in the quarter. Erik Sandstedt: Okay. But marketing, is that -- that's an OpEx, right? Simone Margulies: It could be both. It could be marketing costs, but it could also be price reduction campaigns. Erik Sandstedt: Okay. Okay. You're talking about price campaign. Yes. Okay. That makes sense. Perfect. Then secondly, if input costs now go up on the back of the geopolitical tensions, will it be tougher to pass that sort of underlying price inflation on given the price competition we're seeing in the market presently? Simone Margulies: I mean increasing costs, of course, there are some, how is it time -- there's a [ lead ] time from when they appear until you can see it in the stores. And you haven't seen them in the stores. And also that depends on development going on further. But if the development continues with increased costs, you will, of course -- we are a low-margin industry. And if that will continue, you will see it in the stores also. But it also depends on how the -- yes, how the situation will develop from now. And also, it's difficult to assess what the long-term effect. But I mean, as we wrote the first -- in the end of the quarter, we saw increased costs for fuels. And there also the war affects the fertilizers and that also affects I mean, the entire food industry, it could be both animal production, but also from all the crops. So we will see how that will assess the effect in short and long term. Erik Sandstedt: Yes. But maybe to frame it differently, do you see the market being more price competitive now than, let's say, just a few quarters ago or a couple of years ago? Simone Margulies: Yes. We've seen a high competition in the market. I mean, for the last 18 months, there's been a really, really -- or forever, but I mean, the increased competition for the last 2 years, I would say. And that's also why I'm so happy that we can see that the effects we're doing on cost control, also the efficiency that we're seeing coming from the investments that were made both in Balsta and logistics structure, but also now we have implemented a new buying and forecasting system that will also help us to become more efficient. And also, of course, the help of AI and data helps us to be more efficient and also help improve our customer meetings. Erik Sandstedt: Okay. And then just finally, in terms of joint group costs, they were higher both versus the same period last year as well as versus Q4, but you have done some cost initiatives on that line, I think. So what drove the costs here? And what's a normalized level going forward? Anders Lexmon: Yes. As you mentioned, I mean, it can vary from quarter-to-quarter. We have seen that in the past as well. And now we have, in this quarter, a little bit higher level, and that is due to a couple of projects that we have done in -- for the whole group and that we have taken now. So a little bit high this quarter. And I would say it's more fair to look at the first quarter last year, if you want to have a decent level of the joint group costs. Operator: The next question comes from Fredrik Ivarsson from ABG. Fredrik Ivarsson: Two questions from my side, and sorry if you have to repeat yourself. I came in a bit late in the call. But first, if you could say anything about the consumer behavior since the VAT reductions. Have you seen any changes to, let's call it, shopping patterns so far? Simone Margulies: It's -- yes, it's a little bit early to say that since we have also effects from Easter moving within the month. So it's too early, I would say. There's still -- there's only a couple of weeks going in with the lower VAT. And also there, as we talked a lot about today, there are other -- there's a turbulent environment around our consumers with the war going on in the Middle East and increased cost for fuels and energy. So it's too early to say what effects that will have on the consumers. Will the increased buying power, how large will that be? They are important measures that have been taken with the lowering on the VAT, but how much will that by the end of the day, when the increase of fuels and increase of energy on our consumers have and will they buy more food, will they buy a new sofa or will they save more money? It's really too early actually to say that. We see that the price value is really important and that the focus on price and price worthiness is important for the consumers. And here, we are really well positioned with Willys, who choose to clarify its position by going 2 days in advance with the price reductions and also City Gross that has strengthened its price worthiness and also Hemkop the last couple of years. Fredrik Ivarsson: Okay. And second one, if you could say anything about the monthly performance in Willys, did you see January, February being more in line with the market and then somewhat weaker in March? And where I'm getting at is that historically, we've seen the market leader performing better than the competition during Easter due to, I guess, its locations of its store network and so on. Simone Margulies: I would say that the phasing of the stores that they came lately in the quarter and also that we made the price reduction that had an effect. But as we also know, Willys has a really, really strong position, but we have also had natural a little bit extra positive effects during the years of high inflation. And also last year, in the first 6 months, we had a high inflation. So we got a little bit extra, of course, growth and that when you look upon the comparison figures -- that was difficult to say, comparison figures that also, of course, have an effect in -- if you look on Willys growth for the first quarter. Operator: [Operator Instructions] The next question comes from Rob Joyce from BNP Paribas. Robert Joyce: Just a couple from me. Just the first one, have we seen any changes in your relative price positions since the VAT cut came in? I mean, have any of your competitors gone and cut prices lower or even less? So has there been any change there? And has that marketing spend or noise in the market died down since the beginning of April? That's the first one. Simone Margulies: Yes. We do not comment our pricing strategies and the price gaps. For us, it's always important to be clear with the price position, of course, for Willys as the market leader in discounting. And also, it's important for all our chains to have an attractive price position. I mean -- and since the entire -- the VAT, it was the same for all the -- say, all the actors -- not actors, all the chains in the market. That was -- I mean, that was relatively the same for all the players in the market. Robert Joyce: And in terms of marketing spends that you saw yourself were elevated, I guess, the whole market picked up at the end of the quarter. Has that died down as the second quarter started or is it still high? Simone Margulies: Could you please repeat? I didn't really understand. Robert Joyce: So you pushed marketing spend higher into the end of the quarter behind the new prices. I'm guessing the whole market did as well. Have you -- firstly, have you pulled your spend back since then? And has the market done the same? Or has the market pulled back on spend? Simone Margulies: We only commented, I mean, the first quarter. And as I said, the entire market had a really high activity level in the -- by the end of the quarter regarding to the Easter, but also for the VAT reduction. What we did that we also went ahead with the price reduction 2 days in advance for City Gross Willys and also Eurocash. So we made some extra marketing investments due to that. Robert Joyce: Okay. And I guess the second question I have is just maybe a bit more theoretical, but I guess Hemkop and City Gross, which would be your higher-priced chains seem to have traded better in the quarter on a like-for-like basis as inflation fell. Is there any concern that Willys may see a continuation of the kind of underperformance as prices fall further with the VAT reduction? Simone Margulies: I would say if we start with Hemkop, Hemkop's result is the result of a job that's been made for many years now in modernizing stores. We've had some really good modernization done in the last month. Also a job in improving both the price position, but also improving the assortment and focus on meal solution and fresh produce. So Hemkop is the result of a long-term job that's been made, and we're really happy about the performance they made in the quarter. City Gross is also a result of the job that we made a couple of months -- for a couple of months now since we made the acquisition 1.5 years ago. And so we continue to see a positive growth in City Gross. Willys still have a really strong position and has been growing for many years, no matter what economy we're in, both in good economies and bad economies. But with that said, also, Willys have had some extra push during the high inflation. We had high inflation in 2023. And also last year in the first 6 months, we had high inflation. So I mean, I think, and we see still a high focus on price and price value. I don't think that, that behavior will -- I think that behavior will last. And in that, Willys has a really, really strong position also going forward. And on top, we have a pretty low discounter share in Sweden. So there's a great potential to continue to grow Willys. Operator: There are no more questions at this time. So I hand the conference back to the speakers for closing comments. Simone Margulies: So by that, I would like to thank you all for joining today and all the questions, and I wish you a good end of the day. Thank you very much.
Unknown Executive: [Interpreted] Distinguished leaders, investors and analysts, good afternoon. Thank you for joining us today for the China Oilfield Services Limited, COSL First Quarter Earnings Conference Call. COSL is one of the world's largest integrated oilfield-service providers. Our services span every stage of oil and gas exploration, development, and production. Our operations are categorized into 4 segments: geophysical and engineering exploration, drilling services, well services and marine support services. By leveraging our integrated capabilities, we provide clients with full life-cycle oilfield solutions. We remain highly responsive to evolving trends in the international oil and gas market while steadfastly prioritizing technological innovation as our leading strategic driver. We continue to refine our lean cost-control measures and actively promote the synergy between domestic and international markets, the so-called dual circulation strategy. We are committed to translating our premium equipment and technical prowess into a leading market position, striving to deliver robust performance to reward our shareholders and society at large. Please allow me to introduce the members of our management today joining us, Mr. Qie Ji, our Chief Financial Officer. Today's conference will consist of 2 parts. First, our CFO, Mr. Qie Ji, will provide an overview of the company's performance for the first quarter of 2026, and then this will be followed by a Q&A session. I will now turn the floor over to our CFO, Mr. Qie. Ji Qie: [Foreign Language] Unknown Executive: [Interpreted] Thank you, Mr. Qie, for the presentation. We will now proceed to the Q&A session. To allow more investors the opportunity to participate, please limit yourselves to no more than two questions. Before asking your question, please state your name and the company's relation. Please note that [indiscernible] interpretation will be provided throughout the Q&A session. We kindly ask you to [indiscernible] after each question to allow time for interpreter. [Operator Instructions] Unknown Analyst: [Interpreted] So I am [indiscernible] Everbright Securities. I have 2 questions, starting by the first question. As we can observe that with China's national strategy of ensuring national energy security, COSL has seen increased production output as well as reserves, in particular, with remarkable achievements in the deepwater area and South China Sea. We have also seen that you have increased the utilization of your semi-sub platform in deepwater area in Q1. So the first question concerns, can you give us a guide on the day rate forecast and operational volume of your deepwater platform throughout the year? So that's the first part of the first question. And the second part is, how do you see your competitiveness against international oil service giants? And the second question is we have observed that oil prices have been skyrocketing since beginning of March and have remained at high level, in particular, given the high oil prices and given the current geopolitical conflict, China's national energy security becomes all the more important. Me and a lot of other investors all agree that Chinese government will do more in safeguarding its national energy security. So the question is, how do you see the status quo of your operational volume? And do you have any forecast for your operational volume down the road as well as CapEx forecast? Do you feel the same as I have just introduced, in particular, how is your order reflecting such a new situation? Unknown Executive: [Interpreted] So you have touched upon 2 questions. One more concerning the macro side and other more about our forecast. I'll try to answer both of the questions briefly. So firstly, on the whole, our deepwater semi-sub platforms have been doing quite well for the first quarter of this year, mostly benefiting from our overseas operations, especially operations in Brazil, south part of Brazil, which have seen obvious -- clearly improved operational days because that platform was not became operational until September last year. As for the Chinese business, our semi-sub platform's operational days or operational volume have maintained relatively stable as new prices become executed. While to be honest, some of the semi-sub platforms, the price have increased slightly. This offset the slight decrease of the actual operational days of our semi-sub, which maintained the overall increase of our drilling platform services. As for the full year cost because we are waiting for the whole year cost, from our clients, we maintain dynamic conversations with them, hoping to satisfy their requirements of resources in either against the geopolitical situation in the Middle East or in the new era of the 15th Five-year plan period. As for the second question, I think that we still need to investigate and analyze how things change regarding the oil prices and regarding the Middle East situation because we were seeing spot prices as high as more than $110 or $120 and even higher. And at one time, WTI was even higher than Brent. However, over the past couple of days, we do see spot went down to about $80 plus. So such volatility has already become something that we can barely make any forecast about. I still believe that oil and gas suppliers will make sustainable and rational judgment on their part. As for domestic China situation, CNOOC is working to become a leading supplier contributing to oil and gas production increase in China domestic. And we have also seen that their crude output for Q1 increased and they contributed a large part of the output increase of crude oil coming from China. So again, to align with the first question, we will keep observing CapEx adjustment and whole year forecast adjustment made by CNOOC, and we will provide resources to provide guarantee to their request. Lawrence Lau: [Interpreted] Lawrence from BOCI, Bank of China International. I also have 2 questions. The first question is that I've seen that in the first quarter of your finance expenses, there was a large part of exchange losses. So can you walk us through to what extent or how large such losses and why there was such a loss? And secondly, I would like you to walk us through the income and profit performance of the first quarter. Unknown Executive: [Interpreted] Okay. Thank you very much for asking the questions. Regarding your first question about our finance costs, indeed, in Q1 2026, we have seen exchange losses to the amount of around CNY 300 million, CNY 303 million to be more specific, which is CNY 208 million higher than the same period last year, mainly because of the accounting denomination currency that we use, and we have business dealings with overseas subsidiaries and the balance contributing to such number that you have seen. It's not necessarily a result of our increased business scale overseas. However, as we keep dealing with our overseas intermediaries, the balance and the number will always be there. To elaborate further on this question, we are very much aware of either exchange profits or losses as a result of the situation that I just introduced and how it affects or even disturbance the operating performance of the company, we are even bothered by that. So we are currently examining and looking at some possible solutions to take measures at the right time, we choose the timing to take measures for the purpose of closing any influence on the normal operation of the company as a result of such FX exposure arising from accounting treatment. Measures include, but not limited to, adjusting the functional currency that we use in bookkeeping. And then when it comes to a specific breakdown of our revenue and profitability, on the whole, things are better than expectation in terms of segment breakdown. For our drilling service, domestic and overseas revenue, operating margin, and operating profit, all 3 are better compared with the same period last year. In terms of the well services, domestic and overseas, with especially overseas revenue performed better than expectation. Operating profit margin reached around 18%, 1-8-percent and both domestic and overseas well service revenue and profit have increased year-on-year. As for geophysical and vessel service, both performed stable. And to add one more thing about the operating profit. So for the first quarter of this year, operating profit of COSL reached CNY 1.53 billion, an increase of 22% year-on-year. Both domestic and overseas have increased 20% year-on-year, which means that the company's normal operations have been rather good, excluding or aside from whatever impact that we suffer from the exchange losses. Beina Yan: [Interpreted] Yan Bei Na From CICC. I have 2 questions. The first question is about your jackup because I've noticed that your jackup platforms utilization days in Q1 of this year went down a little bit because of some scheduled repair and maintenance scheme. So the question is, after the maintenance and repair complete, do you see their utilization days increase in Q2 compared with this quarter? And my second question is about your business in the Middle East because we do see some pause in the operation of some contractors in the Middle East in March. However, starting from mid-April, a lot of contractors have recovered their operations. So I wonder how that will impact your Middle East operation. Unknown Executive: [Interpreted] So to firstly answer your first question. Indeed, in Q1, our jackups repair days have increased significantly compared with the same period last year. Such repair has already been planned for by the company. And you will find that throughout the year of this year, there will be more repair days -- scheduled repair days of our platforms compared with previous years. And for Q1, mostly such repairs are concentrated in our jackup platforms domestic, and our semi-subs repair have maintained stable. But you will also find that whatever impact the increased repair days of our platforms has on our company's revenue has already been offset by the high day rate of China domestic jackups and semi-subs and the execution of the high day rate in Norway and increased part contribution by Brazil. There is one more thing I want to add for the first question because there is a part about our repair plan for Q2. Such plan will be very much aligned with the operational plan of our clients. So that's about the first question. As for the second question, the situation in the Middle East, the war occurred or took place in the Middle East on the 20th of February. So in Q1, the situation didn't impact us in a major way. However, we do gradually start to feel such impact starting from mid or late March. Specifically, our jackup and semi-subs in Saudi Arabia and Kuwait maintain operational and keep charging. However, the land rigs in Iraq have been affected by the decreased output in Iraq and such impact is already being felt. Then regarding your question about the Middle East changing situation, we basically will take 2 measures in response. One is to try to scale up our businesses in the Middle East. Let me give you some examples. We have recently secured a long-term large value contract for our well service in that region. And also, we have secured a turnkey or EPC contract for our drilling service in Iraq. In addition to that, given our global landscape, leveraging such advantage as a global player, we try to have opportunities in ASEAN as well as in America as an EPC contractor. We already see progress in both fronts. The increased business, we hope, can hopefully offset the impact as a result of Middle East. And on the other hand, we keep a close eye on the Middle East situation and make plans so that we are always ready when our clients are ready to resume their operations in that region. In another -- thirdly, we will seek opportunities as maximum as we can try to replace some of the players. Unknown Analyst: [Interpreted] From Guosen Securities. My question is, I noticed that a couple of days ago, COSL announced a cooperation framework agreement with a player in Kazakhstan because when it comes to the Middle Asia, COSL is a new player. Middle East -- Middle Asia features new in your global landscape. So can you walk us through the overall market of oilfield services in the Middle Asia or specific in Kazakhstan? And I would appreciate it very much if you can give us more details on how -- when do you expect the cooperation become more of a substantiality. Unknown Executive: [Interpreted] Thank you for the question. Due to the limitation of my professional knowledge, I can only share with you to the best of my knowledge for COSL and for CNOOC, Middle Asia or Central Asia has been an area that we have left for a long time and the reentry into this place is something of significance. So not long ago, the Chair of the Board, Mr. Zhao, went personally to Kazakhstan to sign the cooperation framework agreement that you have just mentioned, which will add a very promising point to the global landscape of COSL. So we did have conducted some preliminary investigation into the basic oil reserve situation of that country, and we find that mostly the reserves are in the mudflat area and very much prone to extremely cold weather. So the plan will mostly request efforts by our colleagues from the cementing business area, directional drilling, LWD and the colleagues specializing in other areas to work together. We are currently having discussions on doing some -- on creating operational plans for some test wells. As more of the details of such plans are coming out, we will be happy to share with all of you more details. Unknown Analyst: [Interpreted] From Bank of America. I have 2 questions. So for the first question, I would like to pursue further on the exchange losses because we know that exchange profits or losses, only transactional differences are recorded in your profit. As for translational differences, such differences are recorded in your OCI. So I wonder whether the appreciation of RMB has affected your dollar-denominated contracts already signed. And also, I would like to ask because you mentioned that your semi-sub platform day rates have increased. So may I ask whether such increase is observed in domestic China? Or is it because you have made adjustment of your day rate because of the RMB appreciation trend that you expect will continue down the road? And one more part of the question is if RMB keeps appreciating, whether exchange losses will keep being recorded in your profit in the future? And my second question is regarding your well service; can you walk us through it more? Unknown Executive: [Interpreted] So to answer the question, let me give you a very simple example using specific numbers so that you understand it more easily. Let's assume that the parent company, transmits USD 100,000 to its overseas subsidiary, so the USD 100,000 is reflected on the balance sheet of the parent company at RMB 700,000 if the exchange rate is RMB 7. In an extreme situation, if the exchange rate goes to RMB 6, which means on the balance sheet of the parent company, the RMB 700,000 becomes RMB 600,000 and the RMB 100,000 is naturally recorded as the exchange loss. For the overseas subsidiary because the RMB 100,000 is not -- USD 100,000 does not change because everything is priced in U.S. dollars. In doing balance sheet consolidation, USD 100,000 can be balanced out, but the RMB 100,000 as a result of exchange loss is recorded as finance expense. So if, say, RMB keeps appreciating against the U.S. dollar, the exchange loss that you will find on our balance sheet will expand as a result of the example that I just mentioned. So we are working on taking different measures, trying to narrow the USD 100,000 exposure, taking different means, for example, including narrowing it from USD 100,000 to USD 10,000 in order to minimize the impact. But if you take a look at a longer timeframe, throughout the 14th Five-year plan period in between the 2 years of '21, '22, there was 1 year a major exchange profit and the next year, a major exchange loss. But the overall impact on the company's balance sheet throughout the 14th Five-year plan period was CNY 40 million, 4-0-million. As for the second part of your first question, you have actually raised 3 questions. So the second part of your first question regarding the semi-subs, on the whole day rate of our semi-subs for this year did not change in any major way. However, there was indeed one semi-sub in domestic China, the day rate has increased significantly in Q1, and its utilization rate reached almost 100%, which greatly contributing to the revenue increase of our semi-sub. As for overseas semi-sub platforms, because we have signed long-term fixed rate contracts with the clients, therefore, didn't -- there wasn't any major change. As for the well-service business segment, in Q1, the revenue was CNY 6.07 billion, an increase of 5% year-on-year, mainly benefiting from the integration trend of our overseas business, which is growing very fast. In Q1, net margin was CNY 1.11 billion, an increase of 18% year-on-year. Both domestic and overseas have increased, especially overseas net margin has increased. As for the well service margin rate, in Q1, the margin rate was 18.2%, an increase of 2 percentage points year-on-year. Domestic margin rate exceeded 20%, becoming a main contributor of our profit margin increase in Q1, mainly because last year, there were certain one-off factors reducing our margin and such factors becoming absent this year contributed to the margin increase. Going forward, we will continue to work harder in securing new contracts for our well-services. As mentioned, despite the worst in the Middle East, we still managed to secure one high-value long-term contract for cementing service. I believe that the impact -- for all the impact, there will be such impact is only short term. As you can see, we still have 4 well-leader drill lock systems operating simultaneously in Iraq, which will help us to gain increasing market recognition and help us accelerate our business scale up in Middle East. Operator: [Interpreted] In the interest of time, this will be the last investor. Unknown Analyst: [Interpreted] From Changjiang Securities, the question is about your shareholder return plan for the 15th Five-year plan period. Do you have any plan to increase your dividend payout to the shareholders? Unknown Executive: [Interpreted] Thank you very much for the question. Giving back to investors or investor return, it is fair to say it's a purpose and the center of focus of all the business and operational activities of the company. As you can see, the increased EPS is a reflection of the 20% net margin increase of the net profit attributable to the shareholders, which is a testament to the fact that we respect and give back to shareholders. So for the -- throughout the 14th Five-year plan period, you noticed that our revenue or our turnover increased from CNY 30 billion to CNY 40 billion and to CNY 50 billion, exceeding CNY 50 billion. We are still making plans and adjusting plans for the 15th Five-year plan period. But the hope is in the next 5 years, our revenue can achieve another milestone increase as we have seen before. As for the dividend payout, we, of course, hope to fully share our growth with shareholders. This is very much dependent on the business growth of the company and strong cash flow situation of the company. And on the whole, the payout ratio, we hope the payout ratio shall be stable with the increase. Operator: [Interpreted] Thank you for the questions, and thanks to Mr. Qie and the management team for their detailed insights. We would also like to express our sincere gratitude to everyone for your ongoing interest in and support for COSL. Due to time constraints, this earnings conference call is now drawing to a close. If you have any further questions, please feel free to reach out to our IR department any time. This concludes our conference call for today. Thank you all and have a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: As well as the press release regarding the transaction at each company's Investor Relations website. The press release regarding Helix Energy Solutions Group, Inc.'s first quarter 2026 results can be found at Helix Energy Solutions Group, Inc.'s Investor Relations website as well as the earnings presentation. I would now like to turn the call over to Erik Staffeldt, Executive Vice President and Chief Financial Officer at Helix Energy Solutions Group, Inc. Please go ahead. Erik Staffeldt: Thank you, and good morning. As highlighted, any forward-looking statements we make during today's conference call are given in context of today only and are subject to important risks as discussed in the presentation. Actual results and events could differ materially from those discussed here. Please also refer to the additional information discussed on this slide as well as in our SEC filings. I will now turn to a brief overview of Helix Energy Solutions Group, Inc.’s first quarter 2026 results. Helix Energy Solutions Group, Inc.’s team delivered another well executed quarter, safely and efficiently providing our customers with world-class service. Our first quarter results reflect expected seasonal levels during the winter in the North Sea and Gulf of America shelf, impacting our Well Intervention, Robotics, and Shallow Water Abandonment segments, and they reflect the cost of the successful workover of Thunder Hawk Field. Revenues for the first quarter were $288 million with a gross profit of $9 million, resulting in a net loss of $13 million. Adjusted EBITDA for the quarter was $32 million with operating cash flow of $62 million, resulting in free cash flow of $59 million. Highlights for the quarter include strong utilization on the Q4000 performing well intervention work at improved rates; the successful workover and recommencement of production of our Thunder Hawk field; a return to a two-vessel market in the North Sea with the Seawell reactivation and return to operations; good utilization expected in 2026; and strong cash flow generation of $59 million as I shared earlier. With that, our cash position and liquidity remain strong with $501 million of cash and $612 million of liquidity at the end of the quarter. Overall, our first quarter results were as expected, perhaps even marginally better than expected. The current macro environment remains uncertain, but we are seeing some positive developments in the markets we serve. Oil supply disruptions, increased commodity prices, and increased regulatory enforcement in the North Sea are providing positive catalysts that may drive increased activity by our customers for the balance of 2025 and into 2026 and into 2027. We also expect momentum to continue to build in the offshore market. With the results we delivered in Q1 and supported by our backlog and several key contracts, we are maintaining our guidance for 2026: revenue of $1.2 billion to $1.4 billion in line with 2025; EBITDA of $230 million to $290 million impacted by the Thunder Hawk workover in Q1 and the upcoming c Helix One docking; CapEx of $70 million to $80 million primarily a mix of inventory maintenance on our vessels and intervention systems and fleet renewal by Robotics ROVs; and free cash flow of $100 million to $160 million. We expect continued meaningful free cash flow generation, with variability driven by ultimate working capital movements. Key forecast drivers for our annual guidance include second-half utilization on the Q4000 and Q7000, a late season North Sea intervention market, strong markets for our Robotics fleet, and a stable Shallow Water Abandonment segment. Our quarterly financial performance in 2026 is expected to follow the same cadence as previous years’ results, with the second and third quarters being our most active quarters and the first and fourth quarters impacted by winter weather. Our balance sheet is strong with $10 million of funded debt, $501 million of cash, and strong cash flow generation expected in 2026. If you have any questions on our quarterly results or our outlook for 2026, please feel free to reach out to our team directly. With that, we will transition to the transaction announcement portion of the call. For that, I am joined by Bill Transier, Helix Energy Solutions Group, Inc.’s Chairman of the Board; Scott Sparks, Helix Energy Solutions Group, Inc.’s Executive Vice President and Chief Operating Officer; Todd Hornbeck, Hornbeck’s Chairman, President, and Chief Executive Officer. Also joining us for the question and answer portion of the call will be Jim Hart, Hornbeck’s Executive Vice President and Chief Financial Officer, and Potter Adam, Hornbeck’s Senior Vice President of Finance. Now before I kick it over to Bill, I do want to note you have available supporting information on each company's investor relations website, so please feel free to refer to those as we go through the call. With that, Bill, over to you. Bill Transier: Thanks, Erik. By combining Helix Energy Solutions Group, Inc. and Hornbeck, we are bringing together two market leaders and establishing a premier integrated offshore services company poised to create value for current shareholders of both Hornbeck and Helix Energy Solutions Group, Inc. There are many compelling benefits to this combination. First, the strategic combination will create a recognized leader in offshore operations with a diversified and expanded high-specification fleet of specialty vessels supported by subsea robotics, well intervention, and technical service capabilities, including trenching subsea pipelines and cables. Also, the combined company will provide innovative and integrated subsea and marine transportation solutions to customers across deepwater energy, defense, and renewables, thereby expanding service offerings moving forward. Further, combining Helix Energy Solutions Group, Inc.’s well intervention and robotic vessels with Hornbeck’s specialty and ultra high-specification offshore support vessels will allow us to offer a complementary end-to-end service offering that will materially expand the combined company's ability to meet a broader share of customers' deepwater needs spanning the offshore cycle. All of this, in combination with the significant annual revenue and cost synergies the transaction is expected to generate of $75 million or more within three years following the close, make for a strong combination rationale. We will dig deeper into the strategic and financial benefits shortly, and I do want to cover the terms of the transaction in more detail too. First, I would be remiss if I did not take the opportunity to acknowledge Owen Kratz, Helix Energy Solutions Group, Inc.’s President and Chief Executive Officer, for the significant role he has held in building Helix Energy Solutions Group, Inc. into what it is today. He announced last year his plan to retire from Helix Energy Solutions Group, Inc.; I am sure you saw his quote in the press release reiterating his support for the transaction. He has agreed to support Todd through the close of the deal and will remain available thereafter as needed. He, along with the entire executive management team, are committed to getting this combination across the line. With that, I will turn to the highlights of the transaction. This is structured as an all-stock transaction, which will allow shareholders from both sides to participate in the significant upside potential of the combined company. The terms of the agreement, which are outlined in the press release we issued this morning, have been approved by the Boards of Directors of both companies. At closing, which we expect to occur in 2026, subject to approval by Helix Energy Solutions Group, Inc. shareholders, the receipt of applicable regulatory approvals, and the satisfaction of other customary closing conditions, Helix Energy Solutions Group, Inc. shareholders will own approximately 45% of the combined company and Hornbeck shareholders will have approximately 55% ownership. I will note the parties representing a significant majority of the ownership of Hornbeck, including Ares Management funds, have delivered written consents approving the transaction. Through this combination, we will bring together two best-in-class teams with aligned cultures. Following the close, Todd Hornbeck will serve as President and Chief Executive Officer of the combined company. The combined company's Board of Directors will comprise seven directors, three of whom will be from Helix Energy Solutions Group, Inc. and four from Hornbeck, including Todd. I will serve as Chairman of the combined company's board. Post closing, the combined company will operate under the Hornbeck Offshore Services name and trade on the New York Stock Exchange under the ticker symbol HOS, with the Helix brand to be retained for well intervention services. The combined company's headquarters will be in Houston, Texas, and Covington, Louisiana. I also want to touch on why we are stronger and more competitive together as a combined company. In 2025, Helix Energy Solutions Group, Inc. had revenue and EBITDA of $1.3 billion and $272 million, respectively, with more than $500 million in cash at the end of the first quarter. When you include Hornbeck's 2025 annual results, the combined company will increase revenue and EBITDA by 56% and 106%, respectively. As well, we will have incremental growth drivers of two new build MPSVs and 23 vessels that will be available for reactivation. In summary, we believe this unique combination is a compelling opportunity to enhance value for Helix Energy Solutions Group, Inc.’s shareholders and deliver sustainable long-term growth. Now Todd will provide you an overview of Hornbeck. Todd Hornbeck: Thank you, Bill. Let me start by sharing some background on Hornbeck, one of the preeminent market-leading providers of ultra high-spec marine logistics services to a broad range of offshore energy, infrastructure, and defense customers. We have a leading deepwater high and ultra high-spec suite with geographic footprint across the U.S., Gulf of America, Mexico, the Caribbean, Guyana, Suriname, and Brazil. Our focus at the end of the day is tailored logistics solutions that address a broad spectrum of unique customer life-of-field requirements, and we have proven operational capabilities and an unwavering commitment to safety and risk management, as Helix Energy Solutions Group, Inc. does as well. We have also included key highlights of the company by the numbers, including approximately 71 vessels in our current fleet, with two MPSVs under construction and expected to deliver in 2027 giving us a pro forma fleet of 73 vessels with a fair market value of $2.8 billion. We generated adjusted EBITDA of $288 million and an adjusted EBITDA margin of 40% for fiscal year 2025. I would also like to note that if you have any additional questions about Hornbeck as a company and our financials, you can find that information in the appendix section of this presentation. We are also confident that this transaction maximizes value and provides the best long-term prospects to deliver superior returns for our combined investors. We are pleased that this all-stock consideration will allow Helix Energy Solutions Group, Inc. and Hornbeck investors to participate in the upside of this combination. With that, I will turn it over to Scott Sparks, Helix Energy Solutions Group, Inc.’s Executive Vice President and Chief Operating Officer, to walk you through the combined company's global presence and complementary business offerings. Scott Sparks: Thank you, Todd. Another important benefit of this transaction is the geographical alignment of our two companies. Helix Energy Solutions Group, Inc.’s regional presence in West Africa, Asia Pacific, and the North Sea regions, as well as the United States and Brazil, and Hornbeck’s concentration in the Americas, including Brazil and Mexico, creates a combined global footprint spanning the key offshore basins worldwide. The combined company's footprint will include cabotage-protected markets and will have direct access to leading offshore customers, enabling the delivery of premier deepwater services through technologically advanced traffic. This global presence translates into a diversified revenue stream, with approximately half of the combined company's revenue expected to come from the United States followed by Brazil and then the North Sea region. We also want to share more information on our combined customer base and how we expect to serve customers as a combined company. We provide essential services to many of the key organizations and companies that fuel the global economy. We see the integration of complementary service offerings increasing our combined company's relevance with customers, creating unique cross selling opportunities that will drive growth and improve margins. Further, the combined fleet of vessels and specialty equipment enable a comprehensive suite of combined services as a one-stop shop for customers, while enhancing profitability through asset optimization and enhanced scale. Both companies have high-quality blue-chip customers, with whom we have developed strong in-depth relationships. Among our customers are global market-leading companies operating at the forefront of innovation in their respective fields. We are looking forward to delivering an enhanced offering of integrated solutions to our expanded customer base. I will turn it back to Todd to talk through our world-class deepwater fleet and our leading position in the detention industry. Todd Hornbeck: Thank you, Scott. We mentioned a moment ago that together, Helix Energy Solutions Group, Inc. and Hornbeck will have a fleet of high-quality, deepwater, high-spec vessels. The combined company will focus on drill intervention, subsea and specialty services, robotics, marine transportation, and emerging technologies to support the deepwater energy, defense, and renewables markets. The combined company will have the highest-specification fleet of specialty vessels designed to support deepwater life-of-field services globally. It will be the only company capable of providing riser-based well intervention, subsea operations and IRM, and surface vessel logistics support. Additionally, we are combining Helix Energy Solutions Group, Inc.’s market-leading position in subsea trenching of pipeline and cable with Hornbeck's leading position in providing support to offshore energy development. It is also important to note that the combined company will have increased exposure to the defense industry through a cutting-edge fleet supporting military operations and related capabilities. Together, Helix Energy Solutions Group, Inc. and Hornbeck will have operations that provide multiple types of defense services. This includes surface and subsea vessels, vessel management, and emerging technologies such as marine autonomy and artificial intelligence. These capabilities, along with advantages like trusted relationships with key officials and decades of experience in the industry, will position the combined company extremely well to increase revenue with defense customers. Now I would like to transition to a central element of growth: the combined company's scale and growth platform and the significant synergy potential. We are confident that the combined company will be poised for future growth and shareholder value creation with a strong balance sheet, low leverage, and significant cash at the closing to advance the combined company's value-driven strategy. Importantly, this financial strength and projected substantial free cash flow generation will provide significant flexibility for organic growth and investments in the business, or other strategic M&A, to increase long-term shareholder value creation. The combined company’s scaled life-of-field business is expected to mitigate through-cycle earnings volatility while also enabling flexible global asset deployment where the demand is strongest. As you will see in the slide deck, another key part of why we are so confident in this combined company's strong financial profile going forward is the significant synergy opportunities this transaction presents. Scott Sparks: Specifically—We expect to realize $75 million or more in annual cost and revenue synergies within three years following the transaction. The synergies are expected to result from combined and integrated service offerings, as well as expanded services offered to existing customers driving revenue pull-through. The scale of the combined company's fleet will enable asset optimization, reducing reliance on third-party vessel charters, and delivering efficiencies across maintenance, procurement, and operations. In short, we expect to operate more efficiently and benefit from growth opportunities post closing. I would now like to turn it back to Bill to close it out. Bill Transier: I will wrap things up by reiterating that we believe this transaction represents an incredibly exciting opportunity for Helix Energy Solutions Group, Inc. and Hornbeck, as well as both companies’ shareholders and other stakeholders. By bringing these two leaders together, we will create an even stronger combined company designed to innovate, execute with scale, and grow. I would also like to take a moment to thank the talented teams of both Helix Energy Solutions Group, Inc. and Hornbeck. This transaction reflects their continued hard work and dedication, and we would not have been able to reach this milestone without their efforts. I know I speak for the leadership teams of both companies when I say we are grateful for your many contributions. Thank you for joining us today. We will now open the call for questions. Operator, we will take our first question now. Operator: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. And your first question comes from the line of Keith Beckman with Pickering Energy Partners. Your line is open. Analyst: Hey, thanks for taking my question, and congratulations, guys. Unknown Speaker: Thank you. Thank you. Analyst: So I just wanted to ask first, could you bucket the $75 million of synergies a little bit better? And then maybe that is over three years. What do you expect the initial capture to be maybe within the first six months to a year or so? Todd Hornbeck: I think the capture will be revenue synergies and being able to combine these assets together to offer a full, plentiful offering to the customers. That should increase utilization across the board on ROVs, the supply vessels, the subsea construction vessels, and well intervention. So that combination and offering life-of-field services to be able to take to the full field development or full field decommissioning is a real added value to the customer base. Scott Sparks: Yes. The crossover services that we pull together as one company provide some very good revenue synergies, but then there is also the size of the fleet that provides good cost synergies with procurement and engineering and all those things as we create a much bigger fleet on a global basis. Analyst: Awesome. Thanks. And then my second question, obviously Hornbeck has had an advantage in cabotage-protected markets on a lot of the OSVs in the Americas. Now with the merger of the two companies, is there any plan over time to move some of the vessels outside of cabotage markets and potentially go outside of the Americas, maybe West Africa, etcetera? Just any thoughts on that at all. Todd Hornbeck: Our plan is we are going to be a growth company, and we plan to continue to grow every segment of the business, but we are going to move the assets where they are most valuable to the company and returns for the company. So we do have assets that can move across the globe and some of the largest and best assets in the industry, and we are going to move where the business is. Analyst: Awesome. Really appreciate you guys taking my questions, and congratulations again. Unknown Speaker: Thank you. Thanks. Thanks. Operator: Your next question comes from the line of Benjamin Sommers with BTIG. Your line is open. Benjamin Sommers: Hey. Good morning, and congrats on the announcement. So my first question is just on the $2 billion of backlog that you guys noted in the presentation. Just kind of curious around the duration of this backlog and any color you can give on the makeup across the various business lines. Todd Hornbeck: So Helix Energy Solutions Group, Inc. reports their backlog, and ours is close to $1 billion covering a significant portion this year and into next year. Erik Staffeldt: So the Helix Energy Solutions Group, Inc. portion of it is about $1 billion. Todd Hornbeck: Yep. Jim Hart: Hornbeck's about $1 billion as well, and that includes our long-term contracts with the military and the specialty vessels as well. As you know, we have been primarily a shorter-term player because of the type of assets we have. We have been able to, on shorter-term contracts, get a lot better returns. But this is the biggest backlog we have had, I think, in our history. It is showing you where the market is going and a lot of opportunity also in our fleet to turn and mark-to-market those vessels as well. Benjamin Sommers: Awesome. Thank you. Super helpful. And then I know you guys mentioned it in the prepared remarks, but just on the strong balance sheet of the combined company. Any color on what you are seeing in the market and then just detailing a bit more on the potential growth opportunities or creation of shareholder value from that strong balance sheet? Todd Hornbeck: Yes. I think we have a superior balance sheet, a lot of cash on the balance sheet. Like I said, we are going to grow all the divisions between the ROV Subsea Group and Well Intervention and Supply Vessels. So we are looking forward to growing it to be an international player worldwide, not just our main focus right now, or has been with the company, about 50% of revenue coming out of the U.S. Gulf, or the America Gulf of America. But we see great opportunities of growth in Brazil, the whole South America, the northern flank of South America with Colombia and Guyana and Suriname and that whole region. Also, West Africa is showing great signs of opportunity as well. So with this balance sheet, we should be able to really move the company forward with a lot of opportunities, whether they are organic or acquisitions as well. Benjamin Sommers: Great. Thank you guys, and congrats again. Unknown Speaker: Thanks. Thank you. Operator: Your next question comes from the line of James Schumm with TD Cowen. Your line is open. James Schumm: The $75 million of synergies, did you say what the split was between revenue and cost synergies there? Bill Transier: No, we have not. We are going to have more of that in the merger proxy, but the majority of it probably will be from revenue synergies and cost efficiencies by putting the companies together and streamlining our services. Todd Hornbeck: But the companies do not really overlap that much in services. That is what makes this combination such a strong combination, putting together, because we did not have robotics and all the tooling and whatnot. We had the MPSVs, the heavy iron. Helix Energy Solutions Group, Inc. has all that. We were not in well intervention or decommissioning. When you are in that business as well, they need supply vessels, MPSVs, and all the things that we have. So we do not overlap a lot. That is what is great about this. We are going to be able to build all of that and retool the business model to be able to grow in all of those areas. Scott Sparks: Whilst we start with that, what we will be able to do is offer a very good bundled service. If you take a deepwater field decommissioning program, we have the Helix Energy Solutions Group, Inc. assets that can do all the deepwater P&A and the well work. Now we have the construction assets to take away the subsea infrastructure. We have the supply boats to support the subsea infrastructure takeaway and the wells P&A work. We can offer that to one client, take away their procurement costs, and give them one contract. That is quite compelling. There will always be some oil procurement companies out there that will not like that, but there will be a bunch of oil companies out there that will see the cost benefits of one contract and one service. James Schumm: Okay. Great. Thank you. And I have not covered OSVs in 12 or 13 years. Can you help me with what the capital intensity of this business is now, just in terms of CapEx to sales? Todd Hornbeck: Well, I will tell you on the OSV side, we are strictly deepwater, ultra deepwater, the largest PSVs in the world. A lot of them are cabotage-protected in the U.S. We have a big presence in Brazil and Mexico and the whole South America. Right now, the market is basically at equilibrium. By the second half of this year, just with the demand coming from the additional rigs coming online, we see that market getting very tight and a lot of revenue growth there or day rate expansion there as well. With the subsea construction market, you know how many trees and installations are going in in deepwater over the next several years. Those vessels also work very, very well in the subsea construction area and also in renewables and the defense market. Our defense market is really looking good, and you know why. Just read the paper. And they like the large PSVs to accommodate that business. You have vessels to bring back into the market too. Yes, it will cost really minor capital. Minor capital, yes. We have 23 vessels that we can reactivate as this market goes undersupplied, whether it is renewables, defense, or drilling support or subsea support. Those are vessels that have been preserved and in good shape, and very low cost to reactivate to put into the market. James Schumm: Thanks. And I was just going to ask about the two new MPSVs that you have. What capital requirements are left on those? Are they substantial, or can you say? Todd Hornbeck: We really do not have any capital requirements to talk about very much left. We have about $50 million, I think, left to spend on those vessels for delivery, but very low-cost entry for those vessels. Unique in nature, they will be the largest MPSVs in the U.S.-flag fleet. We are really excited about the robotics and the subsea infrastructure and everything that Helix Energy Solutions Group, Inc. is doing and folding that into that program. So defense markets, renewable markets, and deepwater subsea construction markets are really anxious to get their hands on those vessels. Scott Sparks: When those vessels hit in 2027, they are going to be the highest-spec Jones Act vessels, and then we will be combining Helix Energy Solutions Group, Inc. Robotics into those vessels as well. So they will be quite unique and ultra high-spec vessels for the Jones Act Gulf of America fleet. James Schumm: Great. Thanks a lot, gentlemen. Appreciate it. Congrats. Unknown Speaker: Thanks. Erik Staffeldt: Thank you. Operator: Press star, then the number 1 on your telephone keypad. And our next question comes from the line of Don Kreis with Johnson Rice. Your line is open. Don Kreis: Morning, guys, and I will echo my sentiments for a good deal. Congrats. Since I cover Helix Energy Solutions Group, Inc., and have for a while, Scott, can you walk around the world and talk about demand like you normally do on an earnings call? I know there have been a lot of rig contracts let recently that soaked up a lot of white space, and can you just walk around the world and tell us how that is influencing activity for the Q4000 and Well Enhancer and Seawell going forward throughout the rest of the year? Scott Sparks: Sure. Good morning, Don. Firstly, North Sea: as you know, last year we had some headwinds against us and had to stack one of the vessels, and I am happy to report now that we have both vessels out actively working. We are expecting good utilization for the monohulls in the North Sea. We are seeing high demand for decommissioning in the North Sea and starting to see a slight improvement in rates. So that dip that went with our past year is behind us, I would like to think. In the Americas, we are seeing more production enhancement activity. We have the Q5000 out currently working for Shell. The Q4000 is out working for Oxy. Oxy and others are looking to add more wells because of the increase in the price of oil, which is looking to further enhance activity. Q7000 has recently finished up with Shell in Brazil—sorry, will finish up at the end of this month—and then we are very close to taking that vessel to Nigeria again, and that is looking good, very close to being contracted. Then we expect to take that vessel back to Brazil where there is high activity and good tendering activity for that vessel. Siem Helix 1 and Siem Helix 2 are on the long-term contracts in Brazil. So our well intervention segment looks very good at the moment, with improving activity and increasing rates going forward. Robotics side is very busy. As you know, our trenching side of the company is very, very active—high utilization, increased rates year over year. We have work booked out in 2026, 2027 on trenching; work booked out all the way to 2030; and bid activity and a very good pipeline of activity out to 2032 on the trenching side. Then the Robotics business is strengthened, and bringing these two companies together there are good opportunities for putting ROVs with high-class vessels in the Gulf of America. So very confident by the end of this year we will have no ROVs available to the market. We might have to look at starting to place capital to increase spend on growth activity. Don Kreis: I appreciate that. And can you comment on day rates? Day rates for the offshore drillers have been kind of flat on these contract renewals. Are you seeing any urgency from customers seeing white space go away and urgency in contracting given recent events in the Middle East and oil price running up? Scott Sparks: We talk about this each quarter, Don. I would say it is relatively flat at the moment in the Gulf. We are seeing increased rig activity that will lead into 2026–2027 to increased rates. We have definitely seen an increase in rates and better activity in the North Sea, and we are stable and locked into long-term contracts in Brazil. So it is a definitely increased and better environment than where we were two or three quarters ago. Don Kreis: Okay. I appreciate that. And, Todd, just one for you. Any changes in Mexico? I know you have had presence there for a while, but not really worked for the government down there. Any improvement that can soak up any of the boats that came back to the U.S. side of the Gulf of America going back to Mexico anytime soon? Todd Hornbeck: As you know, we have a large component of Mexican-flag vessels in Mexico, and that is a cabotage-protected market. Yes, there has been upside. Even though the turmoil with Pemex that unfolded over the last few years, we were not levered to that company. Woodside just started the Trion project, and we have four long-term contracts with Woodside. That has started in earnest now in February, so that will go for many years. We also have a 10-year commitment for all the marine support for supply vessels for the next 10 years for that development of that field. What we are seeing in Mexico is a little bit of change in tone with bringing IOCs back into the country. A couple of years ago under AMLO, they really wanted to get all the IOCs out and all the foreign companies out of Mexico. That has turned around. It looks like we are seeing green shoots starting to happen, and other IOCs are interested in doing structures like Woodside has done there. So it looks promising. Over the next couple of years, we are going to see some growth in Mexico. Mexico is Mexico, so we have been down there a long time and done very well in that market. Don Kreis: I appreciate the color. Congrats again, guys. Unknown Speaker: Thank you. Thank you. Okay. Operator: And your next question comes from the line of Josh Jain with Daniel Energy Partners. Your line is open. Analyst: Good morning. Thanks for taking my question. First one for me, maybe you could go into a bit more detail on your views on OSV supply and demand. You mentioned vessels going back to work. Maybe you could elaborate on your views on the market not only in the markets that you serve, but opportunities elsewhere. It would be good to hear your views today. Todd Hornbeck: I think the market on the big—look, we are really focused on above 4 thousand deadweight class all the way to 6 thousand. So ultra deepwater is where our bread and butter is. That market is traded very thinly now. A lot of capacity is term contracted because Petrobras soaked up a lot of tonnage as we know, and with the rigs in the second half of the year coming back online, we see that market tightening. Our rates—I can say leading-edge rates—are in the mid-40s. They are kind of all over the board because there has been a lot of a little sloppy with the white space. But our rates seem to have held up very well. The second half of the year is where we really see the growth opportunity, the market getting really tight from a supply-demand imbalance. The subsea construction market, renewables market, and our defense market are doing extremely well. So we are servicing a lot of that market with the PSVs today. On our total revenue, about 70% of our revenues come from the specialty business, not from the drill bit. That is a testament to the type of equipment that we have. Analyst: And then on the ROV side, it was alluded to a little bit in the last answer. Is this transaction—I know Helix Energy Solutions Group, Inc. has been a bit conservative to spend capital—but when we think about the tightness of the ROV business, is this the type of transaction that has the potential, given the tightness of that market, to accelerate capital spending over the next few years? And then could you update us on lead times for ROVs today? That is my final question. Thanks. Todd Hornbeck: I think Scott can answer the lead times, but you are correct. That market is very tight. There may be opportunities there. Besides—you can always build ROVs, and Scott will tell you how long that takes and what the cost is—but I think there may be opportunities out there now that we put this together of ROV opportunities and other opportunities in the company to do some acquisitive moves and grow our platform. Scott Sparks: One of the good sides of the ROV business is we can scale up very quickly. To build a new ROV right now is a six-month lead time, and if we did a batch build every month after, we can have another ROV. So we can scale up the ROV business very quickly. There is also Hornbeck—at this time, they hire ROVs in, and that will now be an internal cost to Hornbeck. We can scale up very quickly and bring the two services together. If we cannot find adequate equipment out there on the ROV side and the tooling side, we can be in the market very, very quickly with what I am describing. We are also seeing an increased demand for ROV activity in the renewables business in Taiwan and the APAC region as well. So there is a lot of growth potential on the ROV side, the Robotics side. We also have some plans—Helix Energy Solutions Group, Inc. Robotics has never been an IRM company—and as we bring these two companies together, we are definitely going to build an IRM division, which leads to further growth as well. Analyst: Understood. Congrats on the transaction. Thanks for taking my questions. Unknown Speaker: Thank you. Thank you. Operator: And your next question comes from the line of James Schumm with TD Cowen. Your line is open. James Schumm: Hey, thanks. I just—the Hornbeck net debt, did I calculate that right? Is that around $480 million? Unknown Speaker: No. Scott Sparks: No, that is gross debt. Unknown Speaker: Go ahead, Jim. Jim Hart: That is gross. Our cash is between $75 million and $100 million—$80 million, $90 million, something like that—and the $440 million is gross. James Schumm: I said $480 million. So what do you have as net debt? Is it $380 million or what is the net debt? Jim Hart: Actually, I forgot about the [inaudible], so we have about $380 million. James Schumm: Okay. And then maybe just one for the Helix Energy Solutions Group, Inc. guys. How do you position this for your shareholders? Why is this a good deal for the Helix Energy Solutions Group, Inc. shareholders? Bill Transier: This is Bill. I will take that on. First of all, if you cannot tell the enthusiasm these two guys across the table have been talking about their combined business, it represents a really unique opportunity for these companies to come together and do more than they could on a standalone basis. And I think that is what Helix Energy Solutions Group, Inc. has been looking at for quite a while. It was a good company, well run, like Hornbeck, with a good capital structure, but it was only so big. The ability to build scale, reduce cost of capital, and do some of the things that Scott and Todd are talking about in terms of growing the business, it just makes for a better outcome going forward—a real growth company that can deliver significant shareholder value going down the road. So I look at that as the compelling reasons why, and we are excited about it. Analyst: Okay. Thanks a lot, guys. Appreciate it. Unknown Speaker: Thank you. Thank you. Thank you. Operator: I am not showing any further questions in the queue. I will now turn it back over to the company for closing remarks. Erik Staffeldt: Thank you for joining us today. We appreciate your interest in today's call that highlighted the exciting opportunity that the combination of Helix Energy Solutions Group, Inc. and Hornbeck creates for our investors and customers. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Brandywine Realty Trust First Quarter 2026 Earnings 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 this session, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Gerard H. Sweeney, President and CEO. Please go ahead. Gerard H. Sweeney: Thank you very much. Good morning, everyone. Thank you for participating in our first quarter 2026 earnings call. On today's call with me are Dan Palazzo, our Senior Vice President and Chief Accounting Officer, and Thomas E. Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information discussed on the call today may constitute forward-looking statements within the meaning of the federal securities laws. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC. During our prepared comments today, Tom and I will briefly review first quarter results and frame out the key assumptions driving our 2026 guidance. After that, Dan, Tom, and I are available for any questions. From an operating, portfolio management, and liquidity standpoint, the first quarter produced results very much in line with our business plan. As such, as noted in our supplemental package, all of our full-year operating and financial metrics remain unchanged from our original 2026 business plan. While the first quarter was relatively quiet from a transaction announcement standpoint, it was very busy from an activity perspective. Quarterly highlights include: we have achieved 94% of our speculative revenue target at the midpoint of our guidance. Our first quarter FFO was $0.11 per share, which was in line with consensus and management guidance. We have narrowed our full-year FFO guidance while maintaining our $0.55 full-year midpoint. Our portfolio recycling and debt reduction program is progressing on schedule, with approximately $305 million of potential sales under agreement and in various stages of due diligence, with pricing in line with our guidance. We expect the majority of these transactions to close in the second quarter. Looking more closely at first quarter operations, solid operating metrics reinforced our strong market positioning, and tenants continue to like the quality of our perspective. Our wholly owned core portfolio is 88.3% occupied and 89.9% leased. Our year-end occupancy and leasing percentages will improve throughout the year as we anticipate having positive net absorption for the first time in several years, further evidence of our improving markets. Forward leasing commencing after year-end totaled 182,000 square feet, with most taking occupancy in the next couple of quarters. We have achieved 94% of our spec revenue target, which is $400,000, running ahead of last year. Leasing activity for the quarter totaled 422,000 square feet, including 268,000 square feet in our wholly owned portfolio and 153,000 square feet in our joint venture portfolio. The wholly owned leasing activity is our highest level since 2024. Tenant retention was around 45%, very much as expected, since we know there will be a number of known move-outs throughout the course of the year. Our capital ratio is below our targeted 6.4%, driven by a low- or no-capital deal within one of our portfolios, but our capital for the year will remain within our guidance range. Our GAAP mark-to-market was 4.1%. Cash mark-to-market decreased by 2.6%, both below our annual business ranges, but we anticipate improving results in the next three quarters and, as such, we are maintaining our full-year guidance range. Same-store results were a positive 0.8% on a GAAP basis and 3.3% on a cash basis, both above our current guidance ranges. Tours in 2026 exceeded 2025 by 80%, showing a continued uptick in overall leasing activity. We also continue to experience a good conversion rate from these tours. For the trailing four quarters, 53% of our tours converted to a proposal, and from proposal, 37% converted to an executed lease. A few additional comments regarding market dynamics: in Philadelphia, which includes our Central Business District and University City portfolios, we are now 94% occupied and 96% leased, with only 6% rolling through year-end 2028. Our Commerce Square joint venture property is now 93% leased, bringing our overall combined Philadelphia holdings to 95% leased. Overall activity levels in our core CBD and University City markets remain very strong, and we continue to outperform our market share. As noted on the last call, we have captured more than double our market share in each of the last five years, and this trend continued in 2026, with 41% of all new leases signed in this market at a Brandywine Realty Trust property. In the Pennsylvania suburbs, overall, we are about 90% leased and continue to see solid levels of pipeline prospects for the existing vacancies. Austin is 70% occupied; that continues to lag the rest of our portfolio and creates a 340-basis-point drop in overall company leasing levels. Tour volume, however, increased 15% over prior quarters. The operating portfolio leasing pipeline is up again this quarter by 200,000 square feet from last quarter and remains solid at 1.7 million square feet. That includes about 314,000 square feet in advanced stages of negotiations. It does not include the leasing pipelines we have at either 3151 Market Street or our project at One Uptown. We also believe our marketing position in Philadelphia will continue to improve as we monitor office-to-residential conversion projects. We are currently monitoring more than 5 million square feet, or approximately 11% of the total office inventory in the CBD, converting from office to residential or other uses. That 5 million square feet is comprised of 1.2 million square feet that has recently been converted, 1.3 million square feet in active redevelopment, and 2.5 million square feet of projects that have been announced or are in the planning phases. From a liquidity standpoint, we remain in solid shape with only $65 million outstanding on our unsecured line of credit and $36 million of cash on hand. As previously noted, our multi-year plan is designed to return us to investment-grade metrics. As such, and you will hear more from Tom, we plan to maintain minimal balances on our line of credit. The execution of our sales program will reduce overall leverage. Almost 50% of our outstanding bonds have coupons north of 8%, which we believe provide good refinancing opportunities for us over the next several years. In the second quarter, we will repay the 3025 JFK construction loan with a lower-priced seven-year financing of approximately $100 million at a rate in the mid-5s. That transaction, once accomplished, will be secured by the residential component and will unencumber the commercial component of that property for inclusion in our unencumbered asset pool. We are also in the process of extending our current unsecured line of credit and term loans and plan to complete those extensions in the next couple of quarters. We have an active portfolio recycling program, with a majority of the sale proceeds being used to further all of our balance sheet metrics that Tom will walk you through. We anticipate our CAD ratio continuing to improve during the second half of the year, after we fully burn off the remaining tenant improvement costs relating to leases done between 2020 and 2023. As a reminder, at our 3151 project, we acquired our partner's interest in 2025, which had the temporary impact of raising our leverage levels. The pipeline on that project is up by 200,000 square feet from last quarter and stands at approximately 1.2 million square feet, roughly broken down 50% office and 50% life science. Discussions with a number of prospects are very active, with several key proposals outstanding. As a reminder, we do not have any lease commencements or revenue generating from 3151 in our 2026 business plan. At One Uptown, we are now 63% leased, up from last quarter. The pipeline now stands at over 230,000 square feet, with tenant sizes ranging between 5,000 and 50,000 square feet. We have six proposals outstanding aggregating just shy of 100,000 square feet, and we continue to see the pipeline and the velocity of decision-making accelerate at our One Uptown project. In addition, in anticipation of our 2027 lease expirations at the existing buildings in our Uptown development, we will be commencing the redevelopment of one of those existing buildings. Building 902 is about 160,000 square feet. We are completing that renovation in late second quarter or third quarter of 2027. Since our marketing launch of those projects, we have generated approximately 1.2 million additional square feet of prospects. We expect to deliver pricing levels below the rents required for new construction. As some of our larger prospective tenant requirements advance, we also have planning underway for similar renovations for several other buildings. From a capital markets perspective, our business plan projects $280 million to $300 million of sales activity. We anticipate closing most of those sales within the next 60 to 90 days. We currently have $305 million under agreement and in due diligence, and we also have several other properties in the market exploring sale exits. We plan to recapitalize both One Uptown and Solaris during 2026. These recaps could range from a complete sale to a pari passu joint venture where Brandywine Realty Trust retains a minimal stake and recovers significant capital to lower debt attribution and increase liquidity. In fact, on Solaris Center, we are already in the marketplace exploring potential refinancing options. From a broad standpoint, the vast majority of our sale proceeds will reduce debt, improve liquidity, and further strengthen all of our credit metrics. While the clear priority is to lower leverage and return to investment-grade metrics, we do anticipate, given where our stock price is, utilizing a portion of those sales to repurchase our shares while lowering our leverage levels across the board. We have about $82 million available under our existing share repurchase program. We anticipate the debt reduction program will commence during the second quarter concurrent with the receipt of sale proceeds. The response from the market on assets listed for sale has been very strong. For those under agreement of sale, there has been considerable interest, with the typical marketing process producing between seven to ten qualified bids. All buyer types were engaged, including institutional investment managers, other institutional investors, and significant interest from private capital. With that, Thomas will review financial results for 2026 and the outlook for the second quarter and the balance of the year. Thomas E. Wirth: Thank you, Gerard H. Sweeney. Good morning. Our first quarter net loss was $48.9 million, or $0.28 per share. Our first quarter FFO totaled $20 million, or $0.11 per share, in line with our fourth quarter guidance and consensus estimates. Our net loss was impacted by one-time non-cash charges for property impairments totaling about $11.9 million, or $0.07 per share. Some general observations from the first quarter: property-level NOI of $70.2 million was $800,000 above our current reforecast due to better margins throughout the portfolio. G&A expense was above forecast by $300,000, primarily due to compensation expense. Other income and term fees were $2.2 million, or $300,000 below budget, primarily due to lower income from our retail operations. Third-party fees were $2.6 million, or $1.1 million above forecast, primarily due to higher third-party leasing fees. Other forecasted results were generally in line. Looking at our debt metrics, first quarter debt service and interest coverage ratios were 1.7x, both incrementally below our fourth quarter results. The decrease is primarily due to lower interest capitalization from 3151, which increased interest expense. Our first quarter annualized combined and core net debt to EBITDA were 9.18x and 8.18x, respectively. Based on our reforecast, and our forecasted sales and debt reduction, these leverage levels will decrease during the balance of the year. Regarding our portfolio, during the fourth quarter we removed one property from our core portfolio that is being held for sale. That property totals 116,000 square feet. During the second quarter, we will add 250 King of Prussia Road, our 168,000 square foot life science property located in the Radnor submarket, to our core portfolio, as we anticipate stabilizing that property in June at 100% occupancy. From a liquidity standpoint, we continue to maintain a solid liquidity position with $30 million of cash and $65 million outstanding on the unsecured line of credit at quarter end. For sales activity, we are anticipating $290 million of wholly owned sales at the midpoint, weighted toward the first half of the year, and those cap rates are roughly 8% on a cash basis and a little above that on a GAAP basis. As Gerard H. Sweeney touched on, we now have $305 million of potential sales in various stages of due diligence, and the anticipated proceeds will be used to reduce debt and continue our path toward investment grade. We also intend to use a portion of the proceeds to opportunistically buy back shares on an earnings-neutral basis. On financing activity, the $178 million consolidated construction loan at 3025 JFK matures in July 2026. We plan to complete a secured financing on the residential portion of that property totaling $100 million and use the proceeds from that loan and the unsecured line of credit to unencumber the office portion of that property. The $100 million, seven-year secured financing will be fixed at an all-in rate of roughly 5.7%. On the credit facility, our unsecured line of credit has an initial maturity date in June 2026 with extensions through June 2027, and we are working with our bank group to amend and extend the facility ahead of its maturity. Regarding capitalization of the ATX joint ventures, as our joint ventures continue to lease up and cash flow improves, we anticipate recapitalizing those projects on a pari passu common equity joint venture basis during 2026 with our owner minority stake, or an outright sale. We announced our intent to extend two existing loans on those ATX projects. While we still anticipate closing on those transactions in 2026, we felt extending the loans will allow us time to run the sales process without concern about the maturity dates. The recapitalization of both projects should generate between $40 million and $50 million of cash that we will use to further reduce our wholly owned leverage; it will be slightly accretive to earnings and improve leverage for the balance of the year. Due to the timing and the change in ownership structure being later in 2026, we have not included any benefit of these transactions in our FFO guidance. We feel incrementally more positive about executing our land sales program this year, but we have not included any land gains or losses in our results. Focusing on the second quarter guidance, property-level operating income will total about $72.3 million and will be about $1.3 million above our first quarter. The incremental improvement is primarily due to increased NOI at our CBD portfolio and the stabilization of 250 King of Prussia Road; these increases are partially offset by start-up costs at the Radnor Hotel project, which should open during this quarter. FFO contribution from our joint ventures will be a negative $900,000 for the second quarter, the decrease primarily due to higher interest rates on some of the floating-rate debt. G&A expense for the second quarter will total about $9.5 million. The sequential decrease is consistent with prior years and is primarily due to the timing of our deferred compensation recognition. Our full-year range of $36 million to $37 million remains intact. Our interest expense, including deferred financing costs, will approximate $43 million, which includes about $7.1 million of capitalized interest. Termination and other income will total about $2.5 million. Net third-party fees will approximate $1.5 million. Interest income will be about $400,000, and our diluted share count will be about 180 million. These second quarter results and share count do not take into account any potential sales and share buybacks. Turning to our capital plan, our capital plan for the balance of the year remains active and totals about $450 million. Our first quarter 2026 CAD payout was 92.7%. However, our payout ratio for the balance of the year will remain within our 70% to 90% range, as we expect incremental improvement in the payout ratio as FFO improves during the balance of the year. Looking at the larger uses for the rest of the year, we will refinance 3025 JFK with the construction loan, utilize $140 million for debt and share buyback, development spend will be about $50 million, we have $42 million of common dividends, revenue maintain will be $25 million, and revenue create will be $25 million, with $15 million of equity contributions to primarily fund tenant leasing at One Uptown and the Solaris extension. The sources to offset those uses are $80 million of cash flow after interest payments, speculative asset sales totaling $290 million, and $100 million of loan proceeds from our VERA residential project financing. Based on the capital plan, we anticipate having approximately $10 million of net outstanding on the line of credit. We anticipate net debt to EBITDA will be within the range of 8.04x to 8.08x, and our fixed charge coverage will be about 1.8x to 2.0x. Implicit in these ratios is the execution of our sales program and the recapitalization of the ATX developments. These ratios will continue to be elevated until increased revenue comes online from our development projects, particularly 3151, which is now a $250 million wholly owned investment that is currently producing operating losses. As the developments stabilize, our deleveraging will further accelerate, and we anticipate that those leverage metrics will improve as the year progresses. I will now turn the call back over to Gerard H. Sweeney. Gerard H. Sweeney: Great. Thanks very much, Tom. As we look ahead, the operating platform enables us to capitalize on improving real estate market conditions. Our plan for 2026 shows earnings growth over 2025, and we expect further improvement in 2027. As we continue to push occupancy levels across the board and, as Tom touched on, generate results coming out of our two remaining office and life science development projects, we expect incremental NOI that will be available for strengthening our balance sheet and for other uses. The groundwork has been laid, and we will continue to build on this momentum to drive long-term value. We will now open the call for questions. Operator: And our first question comes from an Analyst with Citi. Your line is now open. Analyst: Thanks. Gerard H. Sweeney, you talked about the active transaction market and lots of buyer interest in the bidder pool there. How does that inform additional sales from here beyond what is currently under contract? Gerard H. Sweeney: Great question. I think it is very helpful for us, because we put a fairly broad range of product in the marketplace by design to test what we thought investor sentiment might be. Given the velocity we saw in each of these sales and the fairly competitive final bid processes we went through to generate the price we were targeting, we certainly, as I touched on, have a number of other properties that we are thinking about that are in the market for sale or we are underwriting to see what those POVs might be. We will put those in the marketplace. The breadth of response we got—ranging from tier-one institutional investors to large private equity funds to traditional high-net-worth family offices to syndicators—was a hoped-for result. We were not sure, with some of the properties we put in the market, what the bid list would wind up being, and they wound up being a lot more robust than we thought. With the debt market showing some signs of stability, I think that has given buyers more comfort in underwriting some of the assets we put into the marketplace. We are very happy to be sitting here with this many properties under agreement, going through final due diligence, and with closings scheduled for the next 60 to 90 days to help us execute the debt reduction and liquidity program we put in place. It is another good sign of the office market recovering from different capital sources. Analyst: Makes sense. If you do lean into it more, how would you balance additional buybacks versus leverage reductions beyond what is currently contemplated? Gerard H. Sweeney: The primary objective, as both Tom and I touched on, is to improve the credit metrics. That is by far the number one objective. As we discussed last quarter, buying out our preferred partner positions in the Schuylkill Yards project temporarily raised leverage. Our number one goal is to get those leverage levels back to what we outlined in our business plan. To the extent that pricing is better, we generate more sales velocity, and we see a clear path towards achieving those balance sheet metrics, then we certainly recognize where the stock price is and want to deploy some capital there, as Tom mentioned, on a leverage-neutral, earnings-neutral basis. Analyst: Thank you. Gerard H. Sweeney: Thank you. Operator: Thank you. Our next question comes from Manus Ebbecke with Evercore. Your line is open. Manus Ebbecke: Thanks for taking the question. Could you expand a little bit on the interest you are seeing for the 902 Building and Uptown ATX? Is the interest mainly from new-to-market tenants or existing tenants in the market? Gerard H. Sweeney: Good morning. Happy to walk through that. As we discussed last quarter, we announced to the leasing marketplace that, given the significant uptick in zoning capacity we were able to achieve at One Uptown and the pending departure of a large tenant, we focused on how we could reposition several of those assets at a very attractive price point for the tenant market. That approach was very well received. We have a couple of very large prospects we are talking to. Most of them are in-market, but several have significant expansion requirements. Some of the newer tenants in the market we are seeing are really on our existing One Uptown pipeline. The larger prospects we are talking to about the renovations of the 900 buildings are mostly in-market, but a couple have significant expansion and/or consolidation opportunities. We have been very happy with the response. There is a fairly high level of active, substantive dialogue with several of these users. We have ramped up our planning efforts to ensure that, if we do get substantive results from these prospects, we can move forward with these renovations fairly expeditiously. Manus Ebbecke: Got it. Thanks. A quick follow-up on Philly and the life science market there. Any update on how you feel about life science leasing, which has been challenging over the last year? Are those tenants coming back in 2026? Gerard H. Sweeney: We are seeing the proverbial green shoots in the life science market—capital flowing a little better. Of course, there is a macro overhang of regulatory risk, but there is definitely an uptick in tone. The pipeline at 3151 includes a couple of larger institutions we are talking to that are real in their requirements but slow in their execution pace. We also have a number of smaller life science companies with whom we continue a very active dialogue about making 3151 their home. We have seen an uptick in office tenant requirements given the tightness of the Class A office market in Philadelphia. When we are sitting with our Philadelphia trophy Class A properties at 95% plus leased with a dearth of available space for the next couple of years, we have been able to pivot some of those prospects to look at 3151. The tone of those conversations is constructive as well. We are looking forward to getting some leases executed there. Generating revenue coming out of 3151, given the size of the pipeline, is visible on the near-term horizon, and it is a very important part of our balance sheet strengthening program as well. Manus Ebbecke: Great. Thank you. Gerard H. Sweeney: You are welcome. Operator: Thank you. The next question will come from Dylan Robert Burzinski with Green Street. Your line is open. Dylan Robert Burzinski: Hey, thanks for taking the question. Going back to dispositions, you mentioned a mix of different assets. Could you share the percentage of assets you plan to sell as core versus non-core within the overall Brandywine Realty Trust portfolio? Gerard H. Sweeney: We have one asset that we would consider to be core that we are selling, and the rest are, I would not say non-core, but they are less-than-core. Our approach on the sale program, as outlined last quarter, was to put a variety of assets in the marketplace to test investor appetite across asset sizes, weighted average lease terms, age, submarket positioning, etc. One of our objectives with this first phase of sales was to get insights into how we view the investor marketplace for the next four to six quarters as we look forward to our business plan execution in 2027 as well. By design, we put a wide range of properties out there and got the response we were hoping to achieve. Dylan Robert Burzinski: Great. And on 3151, I see the yield on cost remains at 7.5%. Can you talk about confidence in hitting that, given life science leasing costs are higher today? Gerard H. Sweeney: As we go through the pro forma exercise and model the existing deals we have in place, we still feel confident about hitting that target. The timing of getting leases executed has been the more challenging aspect. We have had no real price resistance. Even with the softening of the life science market, our proposals that reflect higher tenant improvement costs show we are able to get a higher going-in rental rate, lower free rent concessions, and longer lease terms, which generate the effective rent targets we are after. Dylan Robert Burzinski: Perfect. Thanks, Gerard H. Sweeney. Have a good one. Gerard H. Sweeney: Thanks, Dylan. You too. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone. Our next question comes from Upal Dhananjay Rana with KeyBanc Capital Markets. Your line is open. Upal Dhananjay Rana: Thank you. You mentioned you have six proposals out on One Uptown totaling around 100,000 square feet. Do you have any sense of the probability of those getting done and potential timing? If those were to get done, that could bring the leased percentage up over 90%. Gerard H. Sweeney: We feel optimistic, and we are pragmatic in assessing that. Our hope is that we get at least half of those across the finish line and do another full floor at Uptown. Our anchor tenant has a call right on one of the remaining floors that is exercisable later this year, so we are tracking that carefully. On the third remaining floor, given the success we had on spec suites in that building, we are also building out another floor. We have the mechanics in place, supported by the pipeline, to show continued occupancy gains at that property quarter-over-quarter. Upal Dhananjay Rana: Great, that is helpful. And on the recapitalization of One Uptown and Solaris, could you expand on demand and whether anything has shifted from what you anticipated earlier this year? Gerard H. Sweeney: Happy to. Starting with Solaris, the residential project: we achieved a significant acceleration of lease-up in a market with weak apartment demand drivers and supply imbalance. We accelerated move-ins by providing significant concessions, so initial year-one overall rent levels were below our target. Now we are heavily into the renewal season and getting about a 16% uptick across the board on renewals, which is a very positive indicator for future NOI growth. Retention has been fairly positive as well. With those data points, we have started discussions with high-quality institutional investors about recapitalizing that project with us. Feedback has been very supportive, and we expect to get that recap done in the third quarter per our plan, possibly earlier. At One Uptown, we continue to see good activity from institutions that want to partner on that project. From our perspective, we want to get a couple of additional leases done because that is the value creation proposition for us. We have no concerns about our ability to execute the recap on either Solaris or One Uptown, given the feedback to date and the pipeline we have to get One Uptown closer to the 80% to 90% leased range. Upal Dhananjay Rana: That was great. Thank you so much. Gerard H. Sweeney: Thank you. Operator: Thank you. I show no further questions in the queue at this time. I will turn the call back to Gerard H. Sweeney for closing remarks. Gerard H. Sweeney: Thank you for your help today. To all of you, thank you very much for participating in our first quarter call. We look forward to providing a further update on our business plan progress during the second quarter call. Thank you very much, and have a great day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to the STMicroelectronics First Quarter 2026 Earnings Release Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead. Jerome Ramel: Thank you, Moira. Thank you, everyone, for joining our first quarter 2026 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO; and Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of STMicroelectronics Strategy, System Research and Applications and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in ST's most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO. Jean-Marc Chery: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q1 2026 earnings conference call. I will start with an overview of the first quarter, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So starting with Q1. Our first quarter net revenues were $3.1 billion, including about $40 million revenues associated with NXP's MEMS sensor business, which we acquired during the quarter. Excluding this contribution on a sequential basis, net revenues were above the midpoint of our business outlook range, driven mainly by higher revenues in our engaged customer programs in Personal Electronics and in Communication Equipment and Computer Peripherals. Gross margin was 33.8% or 34.1%, excluding the impact of the purchase price allocation, so-called PPA, following our acquisition of NXP's MEMS sensor business. Excluding impairment, restructuring charges and other related phase-out costs and purchase price allocation, PPA effects from our acquisition of NXP's MEMS sensor business, non-U.S. GAAP diluted earnings per share was $0.30. During the first quarter, inventory in our balance sheet increased slightly, and we continue to work down inventories in distribution. They are now normalized. We generated a negative $720 million free cash flow, including $895 million cash out related to the payment of our acquisition of NXP MEMS sensor business. Let's now discuss our business dynamics during Q1. Well, first, we had a strong booking momentum during Q1 with book-to-bill well above 1 across all end markets and regions. In Automotive, during the quarter, revenue declined 10% sequentially. Year-over-year, revenues increased 15%, marking the return to year-over-year growth. Automotive design momentum progressed with various OEM and Tier 1 ecosystems. We had design wins across electric, hybrid and traditional vehicles, spanning onboard chargers, DC-DC converters, powertrain active suspension and vehicle control electronics. Key products include power semiconductors, smart power devices, automotive microcontrollers, analog devices and sensors. In February, we completed the acquisition of NXP's MEMS sensor business. The acquired technology and product portfolio are highly complementary to STs and strengthen our automotive sensor business. We are progressing as planned with the integration into our portfolio and operational flows. Industrial decreased by 1% sequentially and improved 26% year-over-year. Importantly, inventories in distribution further decreased and are now normalized. In Industrial, our broad portfolio of microcontrollers, sensing, analog and power devices is strongly aligned with industrial transformation trends and the evolving needs of physical AI. During the quarter, we saw design wins across industrial automation and robotics, building automation, power systems, health care and home appliances. We announced our collaboration with NVIDIA to integrate ST sensors, microcontrollers and motor control solutions with NVIDIA Robotics ecosystem. This aims to help developers design, train and deploy humanoid robots and other physical AI systems with higher efficiency, reliability and scalability. We are also proud to have been ranked the #1 vendor worldwide for general purpose microcontrollers for the fifth consecutive year based on research by Omdia. During March, we announced that the first batch of STM32 wafers fully produced in China for ST by our partner, Huahong, has been delivered to customers in China. This was a major step forward in ST China for China supply chain strategy. For Personal Electronics, first quarter revenues were down 14% sequentially, reflecting the seasonality of our engaged customer programs and up 21% year-over-year, reflecting increasing content. During the quarter, we reinforced our position in mobile platforms and connected consumer devices, supported by both engaged programs and a broad open market portfolio spanning sensors, secure solutions and power management. We announced support for motion sensing and secure wireless technology on Qualcomm Technologies' newly launched Personal AI platform based on ST smart sensor and secure NFC controllers. For Communications Equipment and Computer Peripherals, first quarter revenues were above our expectations, up 3% sequentially and 41% year-over-year. We continue to reinforce our position as a supplier of critical semiconductors that power cool and connect AI data centers from the grid to the core and from the core to the user. ST is now strategically positioned to capture upside from new AI-driven program, leveraging specialized technologies to enable the evolving AI infrastructure. We confirm our data centers revenue expectation to be nicely above USD 500 million for 2026 and well above $1 billion for 2027. In a major development, we expanded our strategic engagement with Amazon Web Services through a multiyear multibillion U.S. dollar commercial engagement to enable new high-performance compute infrastructure for cloud and AI data centers. This engagement covers a broad range of semiconductor solutions, leveraging ST portfolio of proprietary technologies. During the quarter, we secured multiple design wins for silicon and silicon carbide-based power solutions. These supports the drive for higher power density and increased energy efficiency for next-generation AI compute and data center architectures. We announced the expansion of our 800-volt DC AI data center power conversion portfolio with new 12-volt and 6-volt architectures in collaboration with NVIDIA. With this, ST now provides a complete portfolio for the 800-volt VDC power distribution inside gigawatt scale compute infrastructure, leveraging ST power, analog and mixed signal and microcontroller products. We also announced the start of high-volume production for our silicon photonics-based photonics ICs 100 -- PIC100 platform used by hyperscalers for optical interconnect for data centers and AI clusters. The technology enables higher bandwidth, low latency and greater energy efficiency. As I mentioned last quarter, the momentum in optical interconnect technologies is also driving demand growth for our high-performance microcontrollers in pluggable optics. We are also seeing initial demand for our secure element in data server power supply units to support authentication and detect data manipulation attacks. Our low-earth-orbit satellite business based mainly on our BiCMOS and panel-level packaging technologies strongly progressed during the quarter. We were selected to develop a power amplifier controller for direct-to-cell satellites based on our proprietary BCD technology by our main low earth orbit customer, and we continued to ramp shipments to our second largest customer. For sustainability, we issued our annual integrated report during the quarter. This report integrates our sustainability statement detailing our performance in 2025. We made further progress and remain on track for our commitment to becoming carbon neutral by '27 on Scopes 1 and 2 and on product transportation, business travel and employee commuting for Scope 3. We also target the sourcing of 100% renewable electricity by 2027 and achieve 86% in 2025. Now over to Lorenzo, who will present our key financial figures. Lorenzo Grandi: Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the first quarter, starting with revenues on a year-over-year basis. By reportable segment. Analog products, MEMS and Sensors grew 23.2%, mainly due to Imaging and MEMS and to a lesser extent, Analog. Power and Discrete products decreased 1.8%. Embedded Processing revenues were up 31.3% due to general purpose MCU and to a lesser extent, custom processing and RF and optical communication grew 33.9%. By end market, Communication Equipment and Computer Peripherals grew 41%; Industrial 26%, Personal Electronic, 21% and Automotive 15%. Year-over-year, sales to OEMs and distribution increased 24.5% and 19.2%, respectively. On a sequential basis, Analog product, MEMS and Sensor decreased by 9.1%, Power and Discrete by 5.4%, Embedded Processing by 4% and RF & optical communication by 9%. by end market, on a sequential basis, Communication Equipment and Computer Peripheral was up 3%, while the other end markets declined. Industrial was down 1%, Automotive, 10%; and Personal Electronic, 14%. Turning now to profitability. Gross profit in the first quarter was $1.05 billion, increasing 24.3% on a year-over-year basis. Gross margin was 33.8%, increasing 40 basis points year-over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin decreased by 140 basis points. Gross profit included $11 million purchase price allocation PPA effects from our acquisition of NXP's MEMS sensor business. Non-U.S. GAAP gross margin, excluding this item, was 34.1%, excluding the impact of NXP's MEMS sensor business and related PPA effects, gross margin stood at 33.9%, 20 basis points better than the midpoint of ST guidance, which did not include any impact related to our acquisition of NXP's MEMS sensor business. Q1 gross margin included about 50 basis points of negative impact resulting from a nonrecurring cost related to our manufacturing reshaping programs. The negative impact on gross margin from the just mentioned nonrecurring cost is expected to remain at similar level over the rest of the year. Total net operating expenses, excluding restructuring, amounted to $904 million in the first quarter. Excluding the purchase price allocation PPA effects from our acquisition of NXP's MEMS sensor business, non-U.S. GAAP OpEx stood at $885 million. Non-U.S. GAAP net OpEx included OpEx related to the acquired NXP MEMS sensor business and a one-off impact related to a settlement with a supplier. Excluding these 2 items, non-U.S. GAAP net OpEx was broadly in line with the expectations given in January, which did not include any impact related to our acquisition. For the second quarter of 2026, we expect non-U.S. GAAP net OpEx to stand between $950 million and $960 million. The sequential increase is mainly due to calendar base effect, start-up costs and 1 incremental month of OpEx related to the acquired NXP's MEMS sensor business. Excluding these items, Q2 '26 non-U.S. GAAP net OpEx would slightly decrease sequentially. In light of our acquisition of NXP's MEMS sensor business and the new AI revenues opportunity, let me give you some more color on the 2026 OpEx. For full year 2026, we now expect like-for-like net OpEx to be up mid- to high single digit year-over-year versus our previous expectation for a low single-digit increase as we are accelerating our investment in new business opportunities, including NXP's MEMS sensor business acquisition and the exchange rate impact, net OpEx should be up low double digit year-over-year. In the first quarter, we reported $70 million of operating income, which includes $71 million for impairment, restructuring charges and other related phase-out costs. These charges are related to the execution of the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Q1 operating income also included $30 million purchase price allocation effects from our acquisition of NXP's MEMS sensor business. Excluding these items, Q1 non-U.S. GAAP operating income stood at $171 million and non-U.S. GAAP operating margin was 5.5% with Analog product, MEMS and Sensors at 12.2%, Power and Discrete negative 21.5%, Embedded Processing at 16.9% and RF & Optical Communication at 14.9%. First quarter 2026 net income was $37 million compared to a net income of $56 million in the year ago quarter. Diluted earnings per share were $0.04 compared to $0.06 1 year ago. Non-U.S. GAAP net income stood at $122 million and non-U.S. GAAP diluted earnings per share stood at $0.13. Net cash from operating activities totaled $534 million in the first quarter compared to $574 million in the year ago quarter. Net CapEx was $362 million in the first quarter compared to $530 million in the year ago quarter. Free cash flow was negative at $723 million in the first quarter compared to a positive $30 million in Q1 2025. Q1 '26 free cash flow includes $895 million cash out related to the payment for the acquisition of NXT's MEMS sensor business. Inventory at the end of this quarter was $3.17 billion compared to $3.14 billion in Q4 2025 and $3.01 billion in Q1 2025. Days sales of inventory at quarter end were 140 days, in line with our expectation compared to 130 days of the previous quarter and 167 days in the year ago quarter. Cash dividend paid to stakeholders in the first quarter of 2026 totaled $71 million. ST maintained its financial strength with a net financial position that remained solid at $2 billion as of March 28, 2026, reflecting total liquidity of $4.57 billion and total financial debt of $2.57 billion. Now back to Jean-Marc, who will comment on our outlook. Jean-Marc Chery: Thank you, Lorenzo. Now let's move to our business outlook for Q2 2026. We are expecting Q2 2026 revenues at $3.45 billion, plus/minus 350 basis points. At the midpoint, our Q2 2026 net revenues will increase 11.6% sequentially and by 24.9% year-over-year. We expect our gross margin to be about 34.8%, plus/minus 200 basis points, including about 100 basis points of unused capacity charges. Non-U.S. GAAP gross margin is expected to be about 35.2%. This business outlook does not include any impact for potential further change to global trade tariffs compared to the current situation. To conclude, in the first quarter, despite the macroeconomic uncertainty, we saw improving demand with strong booking and normalized inventory in distribution. In the second quarter, we expect revenues well above average seasonality as well as an increased gross margin. We have a clear path to improve gross margin while staying at the forefront of innovation. We expect 2026 revenues to show double-digit growth beyond our addressable market dynamics and our already engaged customer programs. This growth will be driven by new AI programs for which we leverage our specialized technologies to enable the evolving AI infrastructure. Before handing over to Jerome, I am pleased to announce that as we did in March for Cloud AI and intelligent sensing, on May 4, we will host a dedicated call on ST's low-earth-orbit satellites, explaining how we are going to achieve our ambition of well above $3 billion cumulative revenues over the period '26 to '28 for this opportunity. You will receive the invitation today. Thank you, and we are now ready to answer your questions. Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter from TD Securities. Joshua Buchalter: Congrats on the very solid results. So you have a lot of idiosyncratic growth drivers hitting this year across data center, silicon photonics, LEO satellite and then your largest customers, normal seasonal ramp. Can you sort of help us with the shape of the year and how we should expect them to layer into the model? Like should we expect 3Q and 4Q this year to also be above seasonal because of these company-specific growth drivers? Jean-Marc Chery: I am taking the question. Well, of course, I will not guide on '26, but maybe we can share a few elements. First of all, okay, the strong booking of Q1 has shown absolutely no pull-in order. It is, let's say, a well-balanced loading of the 2026 quarter-to-quarter. So the billable on '26 from the booking we received in Q1 represent approximately 85% to 90% of the booking we received. So this is positive to make us confident that in H2, we could achieve the usual seasonality H2 versus H1. Then what will be again positive on the year 2026, looking at the current dynamic in terms of growth. In automotive, we confirm that '26 will be a growth for ADAS for sensor, of course, and also with the boost of the acquisition of MEMS from NXP and for silicon carbide. In Industrial, we will see a solid and strong growth on general purpose microcontroller. In Personal Electronics, okay, as we have already seen in Q1, our engaged customer programs in Sensor and Analog will be, let's say, a contributor of the growth but not a big one in H2 because a change of profile in the introduction of the new device. Well, in data center, it is clear that here we are seeing a really strong growth in terms of demand, acceleration, including cloud optical interconnect, both for our PIC100 for our BiCMOS but I repeat for our general purpose microcontroller and analog and power discrete as well. So we confirm the revenue nicely well above USD 500 million. But the only negative aspect of the revenue in '26 is capacity reservation fees that will decrease, okay, $140 million compared last year. So this is how we see the year 2026. So I repeat, backlog now well loaded, great confidence level to have H2 versus H1 at the usual seasonality on top of ADAS, SiC, sensor, general purpose micro, clearly, AI infrastructure and low-earth-orbit satellite will be very strong contributor to the performance of ST in 2026. Joshua Buchalter: Really appreciate it. I was hoping you could comment on the pricing backdrop. I mean, one of your large competitors last night said it was coming in a little bit better than they originally planned and now expect flat pricing. Have you seen changes in the pricing environment over the last 3 months? And sort of what are your expectations on pricing for the year? Jean-Marc Chery: So, here, I'll let Lorenzo comment. Lorenzo Grandi: Yes. Thank you for the question. If you remember last quarter, we were talking about pricing decline on low to mid-single-digit expectation. But clearly, there is some evolution in respect to this expectation. I would say that in Q1, our price decline was as expected, low single digit. What today we see, we see an environment in which actually there is some selected price increase that also we expect. So at this point, I would say that in terms of pricing, our expectation is to have a very low single-digit, let's say, price decline. So it means that actually, in terms of pricing, we see a better situation in respect to what was a few months ago. Operator: The next question comes from Francois Bouvignies from UBS. Francois-Xavier Bouvignies: Maybe just a follow-up on the pricing. I mean we have seen some announcements that you will increase your pricing in April and you are not the only one. So can you just give us an idea of how much of your revenues would be impacted by the margins? And also, Lorenzo, what about the gross margin with this pricing increase? I mean, should we -- I would imagine it takes a bit of time to fuel into your P&L. So when should we expect some gross margin impact from this gross margin increase that we see in the press? That's my first question on pricing, gross margin. Lorenzo Grandi: No. Clearly, let's say, when we look at the price environment, I would say that at this stage, yes, there is some selective price increase. It's not a price increase for what concern us across all, let's say, customer and products. Anyway, what I can say is that when we look at the dynamic, of course, of the -- dynamic of our gross margin moving from Q1 to Q2, and we may say that pricing is quite neutral in respect, let's say, to this dynamic, means that at the end, it's not a boost but it's not even a detractor. It will remain substantially flattish when we look at the evolution of the gross margin. That is not what is the normal trend when we look, let's say, the seasonality between these 2 quarters. For sure, as a positive when we look at our gross margin, there is the mix. Mix is continuing to be, let's say, positive on our gross margin evolution. But clearly, there is also lower unused capacity charges. Our fabs that are better loaded capacity charges is declining moving from Q1 to Q2. But there are still some negative. The negative is mainly related to our manufacturing efficiency. Why? Because there is some temporary suboptimal efficiency in the context of our reshaping plan. We are moving technologies, products from 200-millimeter fab to 300-millimeter from the 150-millimeter of silicon carbide to 200-millimeter. And we are really in the middle of this kind of programs that, for sure, let's say, are somehow impairing a little bit the efficiency of our fabs. And this, I would say, is the main detractor when we look at the evolution over the -- on a sequential basis of our gross margin. Pricing, as I said, is really neutral at this stage. Francois-Xavier Bouvignies: Maybe one for Jean-Marc. I mean, if we look at your customer programs, if I exclude the Personal Electronics, so if I take silicon carbide, photonics and satellites, so your big programs. Should we expect your revenues to grow quarter-on-quarter from here, like the fundamental that is increasing gradually. So no seasonality, I would imagine. So you should be able to see a growth across the board here quarter-on-quarter for the year. Is that the right assumption excluding Personal Electronics? Jean-Marc Chery: Of course, excluding Personal Electronics, this is what we expect. Operator: Next question comes from Janardan Menon from Jefferies. Janardan Menon: Just a follow-up on gross margin, Lorenzo. Looking into the second half, what would you see as the various puts and takes on that gross margin evolution? Your top line is growing perhaps much faster than what we had thought a few months ago. So would it be that, that utilization and underloading charges will get used up faster? And what is -- there's normally a lag between the revenue trend and the gross margin. So just if you could give us any commentary on how -- not in terms of actual numbers but just the puts and takes perhaps of the second half? And how do you feel about your sort of your model of getting to 45% given the kind of strength that you're seeing in end markets and the favorable product mix that you're seeing right now? Lorenzo Grandi: No. What I can say about the gross margin is definitely that the gross margin, let's say, this year will improve in respect to what has been in last year, definitely and will improve sequentially when we look Q1, Q2, Q3 and Q4. This is something that definitely we expect. This is what we expect to continue to see a sequential increase and sequential improvement over Q3 and Q4. What are, let's say, the driver we expect? Clearly, as you said, the unused capacity charges will improve, thanks to the fact that we will have higher revenues, even if I confirm that will not completely disappear. We will still have some areas in which especially related to the legacy technology that we will still have a little bit of unused capacity charge but much lower than what we saw, let's say, last year definitely. There will be progressively some manufacturing efficiency improvement. Even if I repeat what I said before, we are not yet optimized because, let's say, we are in this transition. We will start to see this benefit of the transition mainly in 2027 more and then in 2026. But for sure, there will be some improvement moving forward from Q2. Mix will be another positive impact. We will continue positive impact on mix. But clearly, we know that capacity reservation fees now are out. There will not be, I mean, much lower, let's say, there will not be a significant variation moving from Q2, Q3 and Q4, but are much lower in respect to what it was, let's say, last year. As I said, there is this cost related to this transformation of our manufacturing infrastructure. Maybe what we will have, let's say, in the second half is a little bit higher input cost for our manufacturing considering, let's say, the overall situation. But definitely, I confirm that starting from our, let's say, 35.2% Gross margin in the second quarter, we will continue to see progressively improvement in Q3 and Q4. Janardan Menon: And maybe just a quick follow-up. On your Q2 outlook of 11.6%, is there already a very significant contribution from the optical connectivity on the data center, which is driving that upside? Or is the Q2 more driven by a pickup in industrial, general purpose microcontrollers, et cetera, and the optical kicks in more meaningfully into the second half of the year? Jean-Marc Chery: The optical are starting to contribute. In fact, since Q1 is mainly through the high-performance microcontroller. But the main part of the optical overall with photonics by BiCMOS will be in H2 but microcontroller are already participating to the growth. Operator: The next question comes from Gianmarco Bonacina from Banca Akros. Gianmarco Bonacina: I have a question more for the midterm. You gave some figures for your, say, AI revenues for next year, above $1 billion. I just wanted to understand in terms of the commercial activity, we read -- we commented the big contract with AWS. So are you working on a commercial basis just to get potentially the revenues with other hyperscaler? And how confident you are that, let's say, the opportunity you realized with AWS can be also generated with other hyperscaler maybe, I mean, in the midterm, not just in the near term? Jean-Marc Chery: If we speak about midterm, our strategy on hyperscaler are the following. Basically, if you break down this, let's say, infrastructure in 3 main application domain. What we call the network flow. This is where we have spoken about, let's say, the optical cable and near technology, let's say, evolution with packaged co optic or near-packaged optics clearly here, one of the main driver will be AWS but clearly, ST is positioned to provide -- to be a provider of product and solution for optical cable far beyond, only AWS. This is the point number one. And then the second big domain is clearly well known is what we call the power flow. So it means the capability for electronics to enable the supply of the processor from 20,000 volt to 0.8 volt. And here, ST is engaged now with a large product portfolio from, let's say, SPS, low-voltage MOSFET, microcontroller, driver, sensing and so on and so forth. And this will come far beyond AWS. Of course, AWS okay, will use this component but we will provide and we will compete far beyond AWS. Then last but not the least is all the infrastructure around the thermal cooling of this infrastructure, and we are already there with our power solution, microcontroller and analog. So clearly, AWS will be a fantastic driver for ST for the growth of the revenue during the next 3, 5 years. But our ambition is well above, thanks to our product portfolio. And I repeat ST is a unique company capable to provide on this infrastructure from photonic solution, MEMS solution that will come pretty soon, microcontroller definitively, power switches, power drivers, controllers and including other sensor. So this unique position, clearly position ST in the future, to be an important contributor in terms of supply to this business line. Gianmarco Bonacina: Okay. Just a quick follow-up for Lorenzo, if I can. The change in the guidance in the OpEx, just to understand correctly. So you are talking about your clean OpEx excluding PPA and restructuring. Lorenzo Grandi: Yes. Yes. Of course, we exclude PPA and restructuring. And as I was saying before, at the end, yes, apart of the fact that we have the addition of NXP that when we were talking previously was not taken into consideration. But I have to say that thanks to the fact that we see significant, let's say, opportunity in terms of revenues, we have some programs accelerating in terms of, let's say, development and bringing a little bit more level of expenses. I have to say that in any case, when we look at our net OpEx, the expense to sales ratio 2025 compared to 2026, let's say, in 2026, the expense to sales ratio will materially decline with respect to the previous year. Operator: The next question comes from Andrew Gardiner from Citi. Andrew Gardiner: Just a couple of, I suppose, follow-ups to some of the topics that have already been discussed. First, on the AI side, Jean-Marc, you've -- I think it's a reiteration of what you were saying last month in terms of the "nicely above $500 million of revenue for this year" and "well above $1 billion for next year." Just things are moving very quickly in this part of the market to put it mildly. What is the potential for upside there? And I suppose, more importantly, for you, where are you seeing capacity constraints at the moment that may indeed limit the level of upside relative to the demand that you're seeing? And then a quick one for you, Lorenzo, just again on the OpEx. You said a low double-digit gain '26 on '25 on one of the items that you were looking at. Could you just provide us the baseline of that? I missed that when you were saying it in the prepared comments. Jean-Marc Chery: Never mind. It is clear that we are on some part of the technology and components that are enabling the solution we provide to customers, we are in ramp-up mode. Clearly on photonics and associated technology, we are in a ramp-up mode. Overall, what I can confirm today that the unconstrained demand we have today for '26 and '27 is well above the nicely above $500 million and well above $1 billion. And our ambition is to fulfill this unconstrained demand but the company first has to ramp up, okay, the capacity already installed in the second half of the year to implement additional capacity. And our ambition is to fulfill as much as we can the unconstrained demand of customers. I will provide more color in July, clearly during our next meeting. But I really confirm that '26 will show a significant breakthrough in our revenue linked to AI data center. Lorenzo Grandi: For what concern OpEx, I confirm that net OpEx sales ratio will decrease in 2026 compared to 2025. What we expect, now we expect when we say OpEx like-for-like means, let's say, the same FX and same perimeter means not including the NXP acquisition to be up mid- to single digit, let's say, in 2026 compared to 2025. You have to consider that half of this increase is related to the start-up cost that we have, let's say, in the fab 300-millimeter and, let's say, 200-millimeter for silicon carbide that is, let's say, related to our transfer from 200 to 300, 150 to 200 for silicon carbide. So it means that this is something that is not structural is coming this year but will not stay forever. If we include the NXP MEMS business acquisition, and also include the impact of the exchange rate, excluding the restructuring, we should be up low double digit versus 2025. This is assuming an exchange rate effective in the range of [ 1.15, 1.16 ] and is, of course, including, let's say, the operation of NXP MEMS business that we can estimate in the range of $50 million additional expenses for us in this year. Operator: The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: On the transformation program, where are you standing right now in terms of capacity build and so on? And when do you expect to have the full synergies benefit? Is it for '27 or more for 2028? And the second question is on silicon carbide and your JV with Sanan in China. Where are you in the ramp-up mode with the JV? And when do you expect the first volume to start to ramp up meaningfully in China? Jean-Marc Chery: For the transformation program, clearly now we are in the middle of the execution. Clearly, we have to respect the customer qualification time, when for analog technology, we move from 200-millimeter to 300-millimeter. This is -- they have a good incentive to do it because clearly, our capacity potential increase is related to Agrate in 300-millimeter. We expect that the benefits of Agrate at full speed will be more in the end of '27 and entering in '28, not related to the fact that we don't go at the right speed in terms of qualification internal, but more related to the customer normal constraint they have to qualify their own application. On silicon carbide, it's a bit similar, in fact, okay, because here, we are moving from 6-inch to 8-inch, and this is mandatory to do it here is the same. We are not limited by our own capability, both in Catania and in Sanan in Chongqing. The limitation is more related to the qualification time of our customer. And you know that we are engaged in a very, very famous platform with an important player in Europe, which currently has a great success for this new platform in electrical car. And here, of course, we cannot take any risk and it takes time before to move to 8-inch. So for sure, are the same. The benefits will be more end of '27 and entering in '28, and in Sanan, we expect to start the production and to load this nice infrastructure starting the end of 2026. Operator: The next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding the acquisition of the NXP sensors business. How -- I mean, how did that business grow in the past? And how will that contribute to growth in the current year? And then my follow-up question is regarding the gross margin of the company. You've said that your underutilization charges do not fully go away this year. But should we assume that in '27, the underutilization charges go away and with the mix shifting more to the AI products as well as some of the satellite products, et cetera, that there could be a much bigger move in the gross margin in full year '27? Jean-Marc Chery: Thank you, Sandeep. So Marco Cassis will take the first question on NXP -- former NXP MEMS. And Lorenzo, of course, the second question. Marco Cassis: Yes. On NXP, the combination of the capabilities of the 2 companies is translating in acceleration, of course, related to a market, which is automotive and clearly is moving at the speed of the automotive but it's an acceleration of opportunities of design-in and design win because we are putting together the best of the 2 worlds, which is a very strong positioning of NXP MEMS in accelerometers, where they do use -- sorry for a little bit of technical but monosilicon crystal, which are extremely good in terms of temperature performance for automotive and our capabilities on the 6-axis. So we do see that we are going to grow with NXP at faster speed than what is typically the market growth in safety application. So it's going to be a contribution of the growth of the overall MEMS business. I hope I'm answering to your question, Sandeep. Sandeep Deshpande: So how much was the growth in the past couple of years in that business? Marco Cassis: Well, it was in the range around low single-digit growth, which is the typical growth of safety application in automotive. Sandeep Deshpande: And you expect that to accelerate is what you're saying? Marco Cassis: I am expecting this one to accelerate, yes. Sandeep Deshpande: Understood. Lorenzo Grandi: Okay. Maybe I take the one of the gross margin, let's say, confirm what I was saying before, the gross margin will improve starting from our 35.2% this quarter of Q2 after, let's say, quarter after quarter this year driven by the seasonality of the revenues, the continued reduction of the unused capacity. As I said before, let's say, still there will be some but reducing over the second part of the year and then the continued improvement of the mix. Clearly, let's say, this is our trend to the path above 40%. We said that when the company, let's say, will be with revenues above $4 billion quarterly revenues, let's say, we expect to have our gross margin at 40%. After that, our reshaping plan will be completed. So this is going in this direction, let's say. So what I can say today is that clearly, let's say, in our gross margin, there is still some negative impact on this reshaping plan, temporary negative impact due to the activity that we are doing that we will progressively go down and transform, let's say, positive impact when we will start to have, let's say, the benefit of these programs. So yes, I confirm that at the end, let's say, there will be -- you will see a progressive improvement in our gross margin moving in Q3 and Q4 and then, of course, in 2027. Jerome Ramel: Thank you, Sandeep. We have time for a very last question. Operator: The last question for today is from Lee Simpson from Morgan Stanley. Lee Simpson: Great. Maybe just a couple of questions, if I could, around data center power and then on the photonics side. Just on the data center power, it did look as though you were saying you've seen some design wins. It looked as though with silicon, silicon carbide, most all of it first stage. I just wondered if you could give us a sense for the engagements you're seeing around gallium nitride, where regionally that may emerge? And then maybe just on the voltage regulation side on the second stage, anything really happening there, certainly as we look out to '27? Jean-Marc Chery: So Marco will answer the detail. Interestingly, for all of you, guys, maybe what I can tell you that the nicely above USD 500 million in '26 will be spread approximately between 40% related to analog and power and 60% related to microcontroller and radio frequency optical cable. Just for you to have the span of our revenue for 2026. And I'll let Marco to answer the detail. Marco Cassis: Yes. For what is related to power compared to our positioning 1 year ago, we put a major effort in expanding the portfolio to be sure that we can cover basically from grid up to driving the GPUs. And this goes through the full portfolio of ST, which is silicon-based, silicon carbide with different voltages and new packages that we are introducing where we are not present. And of course, the GaN, which is an important for the 800 volt where we are in sockets that I think will come to life during this year and next year. So the position overall in terms of portfolio is now much stronger than it was, and this will translate in revenues during '26 but mainly during '27. And this goes across the different ecosystem of suppliers, which means power supply makers based in many cases in Taiwan and of course, the ecosystem that we have in U.S. So overall, the trend is going through the full portfolio of ST, again, with a portfolio that has been expanded and now is rich and covering all the stages of the power conversion. Lee Simpson: That's very clear. Maybe if I sort of move it on to the photonics side. It always seems ST is extremely good at getting a big lead customer, pipe cleaning a new market opportunity and creating advantages, if you like, in technology, leveraging some of the IP in-house. But that transition to a standard product in the market for us always feels like the real ROI where margins can be accretive. Are we seeing when we look at the PIC and some of the engagements you have in the market, the possibility that this PIC100 becomes a standard product in the market? Jean-Marc Chery: Standard product, okay, I will not classify it as a standard product, okay? Maybe application standard specific, maybe yes. But one thing, I prefer to share with you again to show how ST is and will be a reference on silicon photonics. First of all, we are the unique company capable to provide silicon photonics technology on 12-inch. So we have the capability to increase our capacity in both in Crolles and possibly later on in Agrate. So for sure, ST, will compete on this market, largely to become a pure standard, you will have many innovation coming in the optical cable and optical solution. Again, the near-packaged optic, the co-package optics, all this will come maybe faster than expected. And silicon photon is a key enabler of all these technologies. Jerome Ramel: Okay. Thank you. Thank you, everyone. This is the end of this call. So thank you for joining us today, and we remain at your disposal if you have any follow-up questions. So sorry for the one who we couldn't squeeze into the question. So thank you very much. Have a good day. Lorenzo Grandi: Thank you. Jean-Marc Chery: Thank you. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Wall Street is underestimating a potential price explosion in next week's tech-stock earnings reports.
