加载中...
共找到 17,942 条相关资讯
Operator: Ladies and gentlemen, welcome to the Q1 2026 Results Conference Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christopher Sheldon, Head of Investor Relations. Please go ahead, sir. Christopher Sheldon: Good morning, everyone, and thank you for joining us for our first quarter 2026 conference call. I'm here with our CEO, Vincent Warnery; and our CFO, Astrid Hermann. As always, we will start with a presentation of our sales performance of the quarter, followed by a Q&A session. And with that, I'd like to hand over to Vincent. Vincent Warnery: Thank you, Christopher, and good morning. Welcome to today's conference call. Astrid and I will walk you through our sales figures for the first 3 months of 2026 and update you on the key strategic initiatives we are executing to strengthen our business. This includes an update on our ongoing NIVEA rebalancing. Our Q1 sales were in line with our full year 2025 a few weeks ago, we anticipated a chart 2026 with several factors impacting La Prairie and NIVEA new sales performance. Our Derma business continue to demonstrate outstanding growth, fully delivering on its strategy. La Prairie faced headwinds through disruptions in the U.S. department channel and travel retail in China. Finally, NIVEA's first quarter net sales development is challenged, but we are making progress on NIVEA rebalancing. I will share more details on this a bit later. How does this translate into numbers? In Q1, we saw an organic net sales decline of 4.6% at group level. Our consumer business declined by 4.7% organically. Derma delivered an outstanding plus 8.2% organic sales growth. Healthcare was up plus 1.9% on top of a difficult prior year comparison base. NIVEA and La Prairie faced headwinds with net sales declining by 7% and 14.9%, respectively. The underlying sellout performance, however, showed an improving trend, making us more optimistic for the coming quarters. Tesa ended the first quarter with an organic net sales decline of 4.3%, mainly as a result of phasing-related double-digit growth in the first quarter of 2025. Our first difficult quarter performance was anticipated and reflected in our full year guidance for 2026. We continue to believe in our ability to return to growth as the year progresses. Let's review the derma performance with our brands, Eucerin and Aquaphor. With an outstanding 8.2% organic sales growth, we again significantly outperformed the derma market, which is growing at low single-digit rates. This underscores the strength of our portfolio and the successful execution of our growth strategy. Our success is driven by 2 pillars. First, our innovations. With our breakthrough in ingredients, Epicelline and Thiamidol endorsed by dermatologists, Eucerin continues to lead the way. Consumers are increasingly seeking science-backed efficacious derma products. And second, our successful expansion into white spaces. Three examples of these white space expansions are North America, Brazil and China. North America, Derma's largest region delivered strong 7% organic sales growth driven by double-digit Aquaphor performance and the continued momentum of Eucerin Face, including Thiamidol. Eucerin in Brazil was able to more than double its net sales in Q1 and is close to the #3 position on the market only years after being #15. A key driver of the recent success is Eucerin Epicelline. Lastly, our Derma business in China is showing continued high double-digit growth, a clear testament to the successful rollout of Thiamidol on the domestic market. Let's continue with La Prairie. Q1 was impacted by disruptions in the U.S. department store channel as well as travel retail in China. Both had a significant negative effect on the Q1 sell-in performance with net sales declining by 14.9% organic. However, this was not an indication of the underlying sellout demand. Retail sales, excluding disruptions, grew close to 10% in the first quarter. A key growth driver continued to be China in the fourth consecutive quarter. We remain cautious on the outlook of La Prairie in a volatile luxury skin care market environment, but continue to see green shoots from its reposition strategy. Now let's have a closer look at NIVEA. In line with what we showed you at our full year call several weeks ago, the mass market environment remains challenging, which is negatively affecting NIVEA performance. As we ended the year 2025, market volumes were flat and continue to be flat in the first months of 2026. In addition to the market environment, 4 main factors negatively impacted NIVEA net sales in Q1. First, NIVEA lapped 2 strong prior year first quarters, leading to a more difficult baseline. Second, certain trade negotiation conflicts in Europe have had a negative net sales effect. Third, the sell-in of our major innovations, Epicelline and Derma Control lifted NIVEA net sales in the fourth quarter of 2025, while most of the corresponding sell-out was absorbed in Q1 and no new countries were launched in the new year. Lastly, NIVEA's core portfolio has not returned to growth yet. However, the dynamics are improving as we are implementing our rebalancing strategy to restore NIVEA growth. But before we deep dive into the rebalancing, I want to demonstrate that also global innovations remain a cornerstone of NIVEA's strategy. NIVEA Epicelline continues to be on track. We have already been satisfied with the sell-in and sell-out performance and are pleased to confirm that also the repurchase rates looks promising. In fact, the initial repurchase rates and intentions to repurchase figures of the NIVEA Epigenetic Serum in Europe are comparable to the figures of Eucerin in 2025. Let me now take a few moments to remind you of our NIVEA strategy recalibration, the rebalancing of the portfolio. What do we mean by rebalancing? It's a shift in how we allocate resources and drive growth at NIVEA along 3 pillars. First, portfolio. We are broadening our focus across our key franchises, face care, body care and deodorants. In practical terms, this means that we are shifting marketing and innovation efforts to strengthen all 3 categories. Second, accessible face care. We are rebalancing the focus also to popular face care products at a more accessible price range next to the premium face care lines like Luminous and Epicelline. And third, local relevance. Next to major global franchises, we will support important local product lines by giving key markets, for example, China, the U.S., India, Japan and Brazil, greater flexibility in local execution. This is what we call localization within a frame, empowering our regional teams to develop and activate products that resonate with local consumers while maintaining the integrity of the NIVEA brand. Let me elaborate on 3 specific initiatives. First, body care in emerging markets. In our emerging market regions, we began to rebalance our marketing budget to body care in September last year. In addition, we focused our portfolio on the right franchisees with the right assortment in the right countries and reached our global advertising approach with local storytelling. We also stepped up our efforts with the influencers and further improve in-store execution. As an initial results, we have seen NIVEA body care and also overall skin care market shares in emerging markets moving to positive territory this year in terms of both value and volume. Second example, deodorants in Europe. As part of the Derma Control launch in the fall of 2025, we shifted marketing budget towards deodorants. This did not only help to promote Derma Control by the positive [ alloy ] effect on NIVEA Deo as a category. Together with assortment optimizations, it led to regain customer and consumer attention for NIVEA deodorants. As a result, the NIVEA Deo market share situation in Europe improved and recorded market share gains in the first months of this year. And third example, Luminous Glow in emerging markets, a global innovation adapted to local needs. NIVEA Luminous initially struggled to scale in emerging markets due to its premium positioning. To unlock the full growth potential, the product was locally adapted across assortment, packaging, pricing and activation. This was implemented at the launch of the Luminous Glow line. Thailand was the most prominent proof point. The launch of sachet formats, stronger claim communication and intensified influencer activation drove rapid consumer uptake. As a result, Luminous Skin Glow achieved a significant market share uplift and quickly became the #1 serum in the market. As demonstrated by these examples, the rebalancing of NIVEA is underway. The measures will take some time to show their full impact, but NIVEA's current sellout dynamics already show a substantially better performance than the net sales decline in Q1. In fact, NIVEA's year-to-date sellout grew by 1.7% following 2 quarters of negative growth. These early indications make us optimistic that we are on the right track and that our rebalancing strategy is working. Before I hand over to Astrid for tesa in the financial review, I would like to turn your attention to China, one of our key white space markets. At this time last year, I presented to you our ambitious plan in China to put our house in order. We implemented comprehensive restructuring measures, especially for NIVEA to lay the foundation for future success in this important white space market for Beiersdorf. Our efforts are starting to pay out -- off. And we saw impressive growth across all 3 major brands in the first quarter of 2026. NIVEA increased net sales by 1/3 and Eucerin net sales grew in high double-digit territory. Also, La Prairie showed an impressive 12% retail sales growth, which is not a reflection of the weaker net sales performance in the quarter. And with that, finally over to you, Astrid. Astrid Hermann: Thank you, Vincent, and good morning, everyone. Let's take a look at tesa's performance in the first quarter. Net sales declined by 4.3% organically, in line with expectations and as reflected in the full year guidance. The decline can be attributed to a high prior year comparison base in the electronics business. This was related to shifts in some customers' production footprint as well as adjusted order patterns. The automotive sector remained challenging with tesa outperforming the market, especially in applications for new energy vehicles. The Consumer segment was impacted by strong performance in e-commerce. Let me now take you through some further details of our Q1 performance. Beiersdorf Consumer business net sales declined to EUR 2.077 billion in the first quarter of 2026 at an organic growth rate of minus 4.7%. Adverse foreign exchange effects resulted in lower nominal growth of minus 7.7%. Our tesa business recorded an organic net sales decline of minus 4.3% in the same period, closing the quarter with net sales of EUR 407 million. Due to unfavorable foreign exchange effects, nominal sales declined in line with the consumer business by minus 7.7%. As a result, the group generated net sales of EUR 2.484 billion at organic and nominal growth rates of minus 4.6% and minus 7.7%, respectively. Looking at our Consumer business across regions. The negative performance across regions is mostly attributable to the challenging net sales performance of NIVEA and La Prairie in the first quarter, while the underlying sell-out performance is positive. North America, Western Europe and the Africa/Asia/Australia regions were impacted by additional factors I would like to explain in more detail. North America was negatively impacted by the retail disruption affecting La Prairie as well as Coppertone. Coppertone weighed on the first quarter performance as we are streamlining the portfolio to focus on the sports segment as well as promotional phasing shifts of net sales between quarters. Excluding these factors, the organic net sales growth of North America increases to plus 3.2%, mainly driven by the strong Derma performance. Western Europe was adversely affected by the disruption of travel retail in China. As you will remember, we record La Prairie's travel retail business in Western Europe, which was 130 basis points headwind to growth in Q1. Lastly, the crisis in the Middle East weighed on the Africa/Asia/Australia region with 170 basis points headwind on growth. Excluding the Middle East, Africa/Asia/Australia would have grown by 1.1%. Back to you, Vincent. Vincent Warnery: Thank you, Astrid. To conclude, Q1 was a challenging start to the year, but in line with our expectations. Our Derma business remains strong. NIVEA and La Prairie showed an unfavorable net sales performance, but positive sell-out dynamics point to an improvement in the quarters to come. Based on this, we are confirming our 2026 guidance. For both our Consumer and tesa business, we continue to expect net sales to be flat to slightly growing organically with an EBIT margin, excluding special factors, slightly below the previous year. At group level, this translates to net sales flat to slightly growing organically with an EBIT margin, excluding special factors, slightly below 2025. With that, we're happy to answer your questions. Over to you, Christopher, for the Q&A. Christopher Sheldon: Thank you, Vincent. Now we're ready to go to the Q&A. [Operator Instructions] And we will start with Jeremy Fialko from HSBC this morning. Jeremy Fialko: Just one sort of technical one to start with is whether you can give us the NIVEA sort of full Q1 number, whether you have any data that goes to the end of March. I saw the slide just took you to the end of February. And then secondly, perhaps you could just talk a little bit about the kind of the cost situation and what you'll see from that perspective given some of the higher inputs and to what extent that puts greater risk on the margin side of your guidance? Vincent Warnery: I will -- Jeremy, I will take the first question and Astrid will take the second one. Your question about NIVEA. So the market share, the data we have is only until end of February, and that's why we're looking at year-to-day February. In fact, you have -- if you -- the bridge between the net sales and the sell-out, you have 3 factors which explain that. The first one, which is obvious, I mentioned that already in the yearly call, we have an innovation phasing. And we did 100% of the sell-in of the 2 big launches, which are Epicelline and Derma Control in the Q4 2025 and even more in November, December. So obviously, all the countries have been sold in, we have to absorb the sell-out in the first quarter. The second element, which is also important is that we have a market dynamics, which is flat. It's really 0% growth, and it has an effect on the core business, which remains negative, and this is what we have to correct. Third element, which we were not expecting, obviously, is the Middle East crisis. I think Astrid mentioned that. It cost us 50 basis points of NIVEA growth. And the last element, which took place partly in March, we have some retailer conflicts. We have clearly some discussions with retailers, particularly in Germany and France, which are willing us to decrease prices. We are not willing to do that, and we will not accept any pressure to go in this direction, especially at a time when we have this uncertainty with the Middle East crisis. So all of that makes a difference between a negative quarter in net sales and a positive quarter in sell-out at plus 1.7%. On your second point. Astrid Hermann: Jeremy, on the cost situation. So the immediate impact, given that the direct impact of oil and gas on us is relatively limited, primarily on the logistics side, has been manageable so far. We're obviously really watching the supply situation and ensuring that we are set there, really emphasizing that. We are working through, obviously, many different scenarios, as you can imagine, on what could come if this crisis is staying for longer that clearly could trigger significant cost increases. And we will then obviously look at all the tools we have to ensure that we can offset the impact from that pressure. Jeremy Fialko: Sorry, just a follow-up. Could you give us a bit more color on the retailer disputes and to what extent those are resolved or to what extent they will carry on affecting the business into Q2? Vincent Warnery: So it's under negotiation right now. And hopefully, we'll have some good results in the weeks to come. It's clearly focusing on, as I said, France and Germany. It's about a few retailers which are willing us to decrease prices, which is absolutely something we'll refuse. So we are discussing, we are exchanging. Hopefully, we'll have a solution because it's really limited to a few specific retailer in the coming days or weeks. Christopher Sheldon: The next question is from Callum Elliott of Bernstein. Callum Elliott: Maybe I could just start with following on from Jeremy's theme, looking at your slide on sell-out. If I look at the Q4, it shows sell-out basically flat and you reported kind of plus 2-ish on NIVEA. So let's call it 2 percentage points of inventory build on NIVEA in Q4. Then you show positive 1.7% year-to-date versus the negative 7% that you've reported. So there's sort of 2 percentage points of stock build in Q4 and negative 9 percentage points of drag in Q1. Should I infer from that, that the majority of the negative 9 percentage points gap between sell-in and sell-out is the retail dispute rather than destocking? And maybe you can just help us understand the discrepancy between the plus 2 percentage points in Q4 and the negative 9% in Q1. Vincent Warnery: I will give you the bridge. It's just to get the figures right. You have a decline in Q1 of NIVEA of minus 7% and you have an increase of sell-out of plus 1.7%. If you try to separate the different elements, as you mentioned quite clearly, you have 2 points of growth, which is the sell-out of the sell-in we did in Q4, you're absolutely right. You have 2 points which are linked to the retailer conflict. You have, I would say, 50 basis points, which are linked to Middle East. And the rest is the evolution of the core business, let's say, 3%, which we have not yet been able to turn around, and this is what we are looking at with a good example I mentioned to you and deo in Europe, body in emerging markets and body and face in emerging market. This is what we are willing to improve through this rebalancing, but you got the math right. Callum Elliott: Okay. Perfect. And maybe just a follow-up on the other sales, Coppertone, Chantecaille, et cetera. I think by my calculation, that sort of division, if I can call it that, is down 25% in reported terms in Q1. And I don't think you talk about it at all in the press release. So could you just give us some color on exactly what's happening in that division? Is it still just ongoing Coppertone weakness? Or is there something else going on there? Vincent Warnery: So Coppertone, there was clearly a phasing change. The fact that one of the biggest U.S. customer decided to order in December because the Easter it was earlier than planned, makes us -- make a very nice Q4, but a very low Q1. So it does not impact the sell-ut. The sell-ut is pretty good now that we are focusing on sport. We are growing. We are even growing in sport at 7.6% in sell-out, which is something we never had since we bought the brand. So that's more this phasing issue in terms of net sales. The rest of the brand, Chantecaille is obviously hit by the same phenomenon as La Prairie. So we have the Saks Fifth Avenue issue that is not sold. We sold -- we are selling back to Saks since March. And you have the change of travel retail operators in China. But the rest of the business is doing well. And particularly, we are pretty happy with the U.S., if you exclude the Saks issue because we are growing in the U.S. and gaining market share. That's the 2 main brands. You have other small local brands, but not really relevant for the figures. Christopher Sheldon: And the next question is from Warren Ackerman with Barclays. Warren Ackerman: Yes, a couple from me as well. The first one is just on the organic growth guidance. Given the slow start, Vincent, the minus 4.6%, how do you get confident on the full year guide. I mean you've obviously got a lot to do in the balance of the year. It doesn't look like you've got much wiggle room. Can you maybe sort of give us some of the building blocks to give us the confidence that, that guide is realistic? And maybe if you're able to say whether you think the Q2 organic growth might be positive given the sort of sell-in, sell-out dynamics you've talked about? And then the second one is maybe a little bit on emerging markets because we still got Eastern Europe down, I think, 8.2% and LatAm down maybe a bit better than it's been trending. But can you maybe sort of outline the rebalancing of NIVEA, how confident you are that you can get some of these big emerging markets back into better territory? How long is it going to take to see that kind of negative swinging back? That would be helpful. Vincent Warnery: Sure, Warren. So we are maintaining the guidance for 2026, as I mentioned. We are -- indeed, I would say what is pretty safe is Derma. We are seeing clearly very nice growth ahead of us. We have not only ambitions for Eucerin, but also for Aquaphor. And the fact that we have this extremely strong results in all our white spaces. I also could have mentioned India, I could have also mentioned Japan. We just launched in Japan, make us pretty optimistic. So Derma will continue to be the growth driver of Beiersdorf for the quarters to come. We are also expecting now that we are out of the disruptions in luxury that now we are selling back to Saks Avenue. We have also the 2 new retail operators in Beijing and Shanghai. They are working. The app is working. So we are back to normal, and we see some pretty nice traction. We have also, as you might remember, a very interesting launch with a more affordable line for La Prairie, which will allow us also to enlarge our distribution, not only to Amazon in the U.S., but also to other retailers in which we are not today because of the price level of La Prairie. So pretty positive about La Prairie. The question is NIVEA. What is making us optimistic is that we are growing in sell-out. The plus 1.7% I was mentioning includes positive sell-out in all regions. And Europe, for example, which obviously is important for us, we are growing also in sell-out, plus 1.1%, which is the first time since a long time. So we see that the rebalancing is starting to pay off. Obviously, one of the questions for Q2 will be the sun season. We've been very successful in the last 2 years. So we are ready to embrace a pretty nice season. So on this basis, we believe that Q2 will be flattish back to growth, slight growth, but we will clearly do better than Q1, and this is why we maintain the guidance. On your second question about Eastern Europe. Eastern Europe was not so much linked to the focus on premium face care because this is -- we are mostly selling personal care and the body product, was more the strong development of local and Korean brands. and also some retailer issue that we have to tackle. So retailer issues, we are good. We have a good conversation with the retailers, and we have also -- I think we'll be more proactive in the way we embrace the strategy. We will develop some exclusive partnership with some retailers. And back to growth on the key categories. As I mentioned, we are positive on the deodorants, and this is essential for Europe, not only for the growth, but also for the profit. And we are also preparing a pretty nice launch in body and face. So we are not yet positive on Eastern Europe, but I think we have a good plan, and we should see some progress in the -- starting in Q2. Christopher Sheldon: And the next one is Celine Pannuti from JPMorgan. Celine Pannuti: So my first question is on Middle East and the impact of the geopolitics. So from what you said, there was 170 bps impact on AAA. And so at the group level, I think it's like 40 basis points only for a month. So could you explain what that is and whether there was as well extra impact on travel retail? And what have you baked in for the potential impact of that in the second quarter? And coming back on the COGS, I mean, clearly, we don't know -- there's a lot of things we don't know, but we also see that the spot prices is higher, that there are potential shortages of some derivatives of oil. So at this stage, is it fair to assume that already in the second half of the year, you are going to see a higher COGS inflation than what you thought at the beginning? And if you could give us a bit of an idea on that? And what measures are you planning to take whether pricing or cost savings to offset that? My second question is regarding AAA. So I understand that there was an impact from Middle East, but nevertheless, growing 1.1% versus, I think, growing 9% in the fourth quarter. I was quite surprised because you should have had the positive impact of comp from China as well as the strong sell-in that you did in Thiamidol. So can you say how much -- how China was growing in the quarter. What happened maybe in other regions if it was not the issue in China? And then how should we think about that region going forward? Astrid Hermann: So Celine, I will answer your question related to the impact on costing. So as you might imagine, we are currently protected at least in the current quarter, to some extent also in the next quarter through the contracts that we have, which is good. Immediate impact, as I already mentioned, obviously, on logistics, clearly, and we are managing that. Yes, as we are looking into, obviously, contract negotiations for the back half, we will start to see some pressure there. We are looking at various scenarios. I cannot give you here numbers at the moment because it is very fluid. And of course, we will need to then make plans on how to offset those. It will be looking at everything, including, to be honest, pricing that we will need to look at for the back half if this continues. Vincent Warnery: Your second question, Celine, as you know very well, China is not a big part of our business, at least on the NIVEA and Eucerin in France. So the fact that we are growing double digit in China is obviously very important for us. But we have also a big part of the business, which is done in Southeast Asia, where we are suffering from the same issue that we had in other part of the world with NIVEA being done on core. So the good news, as I mentioned, that we are back to growth on face care with the launch of the sachet glow. We have also some local issue. Thailand is obviously impacted by the border conflicts with Cambodia. Thailand is a very big country for us. We don't sell in some big areas of Thailand. We have also a big pressure from local brands in Indonesia. So I would say in the good side, you have a very strong business in Northeast Asia and India, double digit. Low side, you have the Thailand and you have Indonesia. This is why all in all, you end up with plus 1.1%, knowing also, as I mentioned, that we are also destocking further in China. We want to be extremely by the books in terms of stocking in the brick-and-mortar La Prairie China. So we have also managed to reduce our stock to the absolute best situation possible in the first quarter in order to embrace also the coming launches in Q2 and Q3. Celine Pannuti: Sorry, just to follow up. Can you give me what exactly the number is for China? Because like double digit seems to be for Eucerin. So what is China all inclusive La Prairie, Eucerin and NIVEA? And then can you explain the Middle East impact that you saw in Q1 for 1 month? And what should we expect for the coming quarter? Vincent Warnery: Okay, good. So in China, we're doing pretty well. We have a very strong NIVEA growth. We are growing NIVEA at plus -- India, we're in India, plus 18% net sales, gaining market share on every category. You might remember that we launched Luminous. Luminous has got a very good start. We launched a specific galenics with tubes in order to be accessible for the majority of consumers. So we are already a pretty good market share. We're also relaunching our core business. NIVEA Soft. India is the #1 country in the world for NIVEA Soft. We are gaining 5 points market share, which is pretty -- so you're asking about China or India, Celine? Celine Pannuti: China. Vincent Warnery: China. Sorry, my mistake. Sorry, sorry. My mistake. So China, we are growing in -- on NIVEA at plus 22%, and we're growing on Eucerin at plus 87%. So if you look at China NIVEA, the biggest part of the growth is coming from face care. I know this is a category we have been launching with Thiamidol. We are going on NIVEA face care at 71%, gaining more than 2 points market share, which is very big for us on NIVEA. Eucerin is flying. Eucerin, we are growing at 87%, so which means that we have already, after only 6 months on the market, we -- our euro product, which is the Thiamidol serum is the #1 derma anti-pigment serum on the market. So we are extremely happy with Eucerin and I'm very, very optimistic with NIVEA. And the last information was La Prairie, the retail sales, we are at plus 12%, and this is the fifth quarter in a row that we are growing double digit in China. So this is a mix of both brick-and-mortar and also a very strong success online and particularly with Douyin, which is TikTok. Celine Pannuti: Okay. And Middle East? Vincent Warnery: Middle East. Do we have the figures of Middle East evolution? We are -- so Middle East is 3% of our sales. If you look at the total, and we are at minus 50% in Middle East. So we are not so much suffering... Celine Pannuti: 50%? Vincent Warnery: 50%, 5-0 in Middle East for NIVEA and Eucerin. It's a small business for La Prairie. We are not suffering in sellout. That's a good news because we've been able to find ways to stock the retailer in due time. We are suffering in net sales, so which means that no issue on the consumption on the sellout, but we hope to be able to continue to find ways. We are extremely creative using all the means you can imagine to drive our product to Middle East. So we are using the other routes like everybody is using [ Salala, Core Fegan, Yeda]. We are rerouting as much as we can to be sure that we can serve our consumers. So again, nobody can say what will happen, especially now today, but we have found ways to serve our consumers as much as we can. Christopher Sheldon: Thank you, Celine. Then the next one is David Hayes from Jefferies. David Hayes: Just to quickly follow up on that. Just that minus 50% Middle East, I guess, that's March you're talking about. Is that right rather than the quarter? Just to clarify that first. Vincent Warnery: Yes. David Hayes: The 2 questions I have, just again sort of reconciliation. So 2nd of March, you reported the full year, you guided to low single-digit decline in the quarter is gone -- first quarter. Obviously, you did mid-single-digit decline. You talked about the Middle East circa 50 basis points. So I'm still struggling to see what happened in the month of March that was not expected? I guess the SAC dynamic, the La Prairie travel retail dynamic, all of that would have been known. So just trying to still reconcile why there was that underperformance relative to what you expected 5 or so weeks ago. And then secondly, on the profitability and delivering on the margin, there's a very big contribution last year, EUR 90 million in other income and expenses that is within the underlying margin. I think a big chunk of that was a reversal of provisions. So I just wonder whether you can give us any visibility or guidance on what that number looks like this year in terms of delivering on the operating margin guide, whether that's going to be a similar number or even bigger potentially, which helps with the profit delivery. Vincent Warnery: I'll take the first question, and Astrid will answer the second one. Very simple, 2 news, which we're not expecting. One, as you mentioned, the Middle East crisis. So we were not expecting to lose sales in this part of the emerging market. The second element, we got tremendous pressure from some retailers to close the deal before the quarter according to their expectations. I didn't want to accept that. So I don't want to decrease our prices. So we refused that, which impacted obviously March. Astrid Hermann: In terms of profitability, David, obviously, we manage our SOI overall. We are actively managing also that line of the SOI, and that is built into our guidance. Thank you. Christopher Sheldon: Then the next question is from Guillaume Delmas of UBS. Guillaume Gerard Delmas: A couple of questions for me, please, both on NIVEA actually. The first one is on the NIVEA recalibration strategy. Vincent, can you maybe shed some light on the marketing support you are planning behind this initiative? Because I think your margin outlook seems to signal relatively flat A&P spend, both as a percentage of sales and in absolute terms. So just wondering how you will make sure you get the maximum traction on all these initiatives under NIVEA recalibration. And then my second question, it's still on NIVEA, but the brand declining by 7% in Q1. Could you maybe share by how much volumes contracted in the quarter? And which key categories, regions you are seeing the most pronounced volume share losses? And still on the volume point, I mean, what does it do to your capacity utilization and more broadly to your operational leverage? Vincent Warnery: On your first question, if you -- you might remember that what I explained also that the face care category is extremely expensive in terms of working media. So you have to -- when you do a launch, you have to spend at least [ 10% ] of the net sales in marketing budget, which is what we did for Luminous and Epicelline. But overall, you are clearly above 40% of your net sales in working media, while the other categories are much cheaper. If you look at body care, if you put at deo, you are more into the high single digit or low double single digits -- low double digits. So in fact, rebalancing part of this extra investment on face care on deo and body is already making a huge difference on deo and body without impacting so strongly the investment you put on face care. This is what we have been doing. We started to do that in September on deo in Europe, and you saw already the results. We are doing that also in emerging markets since September on body, and it is also paying off. So we believe that with a pretty stable marketing budget, just by having this rebalancing, we can have a pretty nice effect on the sell-out. And again, this is what we are seeing in both regions on the 2 major categories, which are deo and body. I think Astrid, you take the second one. Astrid Hermann: Sure. So Guillaume, on NIVEA, it is primarily -- the decline is primarily driven by volume. And we do see -- as you would have seen also from the regional chart and impact pretty much across all of the regions. We do have some bright spots in certain countries, but from a regional perspective, it's quite broad, kind of reflecting also what we have showed you, obviously, from a marketing -- market development, which is quite global in terms of the development of our mass market. Christopher Sheldon: Then the next question is from Olivier Nicolai from Goldman Sachs. Jean-Olivier Nicolai: Just on Europe, competition has been intensifying, particularly in Germany. We talked about Mixa last quarter, but you also have now Korean brands entering the market aggressively. What is the risk to your market share in Germany specifically, but in Europe in general? And do you think that you can maintain share with NIVEA? And then I guess it's a bit early, but do you see any sign of consumer weakness in Europe so far? Vincent Warnery: Sure, Olivier. On Europe, yes, Mixa and the Korean brands took market share away from us, and this is also why we reacted already in September by putting more investment into the core categories, which are body on one side and which are accessible face care on the other side. So we are expecting -- we have not yet regaining market share in Germany. We are a strong plan on NIVEA Soft. We have strong plan on the NIVEA Repair Care, which is also an answer to the brand you are mentioning. We're also coming with a much more ambitious plan on affordable face care, launching a new line soon. We expect also to be able to fight against these brands. And also, we are coming with a very smart innovation. We just launched NIVEA Sun Stick coming from Korea, which is clearly one of the best seller we have been putting on the market in sun care. So also leveraging, we have also our own expertise in Korea, also leveraging what we know from Korea. The good news that we clearly see and we have some kind of long-term view on the market, we see that those Korean brands are not really sustainable. They are not even strong in Korea. So they go up and down. So they take market share away from us, but after they disappear. So we just have to be smarter. And this is, for example, one of the thing we are doing in Eastern Europe. We'll be able to be much more visible on shelf. We have also been extremely aggressive in terms of influencers. So we are learning from those brands without trying to copy them. So we are not yet positive in Germany, but I'm pretty optimistic starting this quarter that we see some good results in those categories. Christopher Sheldon: Thank you, Olivier. Then the next one is Misha Omanadze from BNP Paribas Exane. Mikheil Omanadze: I have 2, please. So first, you mentioned that you may be looking at pricing actions to offset input cost pressures in H2. Does your full year guidance of flat to slightly positive growth for Consumer already embed an assumption of some pricing benefiting the second half? And the second question would be on growth by brands. I know you don't guide specifically, but if you could maybe just comment directionally what you expect for each of the brands for Q2 and the full year? Astrid Hermann: Misha, I will take your first question. So we are currently working through various scenarios on the impact of our costing. We have not built those into our guidance, and we have also not built in, obviously, the countermeasures. It's an extremely fluid situation. We're obviously looking at what that could be for the second half. As you can imagine, it's really hard to pinpoint the exact impact, but we're managing that as much as we can again via scenarios. So neither the pricing, but neither the cost. Vincent Warnery: Your question, so I will not guide, but I think I mentioned already that we are expecting a flat to slightly increasing Q2 mostly driven by the success of Derma, but also some much better figures on La Prairie and Chantecaille and also on NIVEA. So I would say on the year, if you look at the guidance, I'm expecting, again, strong growth with Derma, should stay the same across the year, recovery in the second semester on La Prairie, Chantecaille and finishing the year with NIVEA slightly positive, a bit in line with the market, and that should give the guidance we gave you. Christopher Sheldon: Thank you, Misha. Then the next question is from Tom Sykes from Deutsche Bank. Tom Sykes: Firstly, just on the margin. Could you give a view on the cadence of margin change in the year, so H1 movement versus H2? And just why doesn't consumer need a more significant margin reset? I mean, to cement the longer-term growth, you could invest more. You're facing a lot of competition from smaller peers in the brands, you pick out more competition in EM. Why doesn't it need a more significant margin reset? And then on the Sun season sell-in, you mentioned it's obviously a very high-margin business for you. Could you just talk about the scope of that sell-in and in particular, the move or the sell-in online -- to online distributors or retailers and offline? And is that initial sell-in the same scope as it always has been, please? Astrid Hermann: Tom, I will take your first question. So we typically have a stronger margin, EBIT margin in the first half than we have in the second half, and we expect similar in this year with obviously a stronger first half versus the second half. Again, we will see what impacts we do see from the Middle East. Again, the attempt or the ambition is to offset those impacts. And in terms of your question around whether or not we need an even stronger margin reset. Look, this is the plan we have made. We feel like we can with this plan, deliver on the guidance we have committed to. We are starting to see some green shoots, as we've mentioned also in our presentation, also seeing the sellout moving in the right direction. We're not yet happy completely about, obviously, how strong that is, but we do think we will see continued impact from all the changes we are making. Vincent Warnery: To your second question... Tom Sykes: I was just going to say on the -- sorry, Vincent. The change year-on-year in margin rather than obviously the seasonality, but the year-on-year change in margin, are you expecting -- how are you expecting that to progress? Sorry, Vincent. Astrid Hermann: Yes, it will be a similar impact throughout the year. We don't see it -- Thank you. Vincent Warnery: Question on sun care. We are ready. We have done the sell-in, which is in line with last year. What is the good news for us is that we're doing better in the emerging markets. Last year, the success was really more driven by Europe. So at this stage, sell-in, again, sell-in driven, we are good in everywhere. So again, what we are expecting is the sun, but we are ready. We have also a very strong plan with influencers. We are also, as I said, new products, which I think will be interesting also for Gen Z. It's something we are willing to do this year. So more to come. As you know, it's starting now and the sell-out will be clearly in Q2 and I hope to be able to share some good figures at the end of this quarter. Christopher Sheldon: Thank you, Tom. And then the next one is Fulvio Cazzol from Berenberg. Fulvio Cazzol: My question, which is on the investment rebalancing. Vincent, I remember when you became CEO a few years ago, you highlighted the strategy change away from the decentralized model that Beiersdorf had previously. At the time, you highlighted the inconsistency across countries on product launches, on marketing practices, which basically resulted in lower returns from investments in categories like body wash, sun, deo, et cetera. Now it sounds like you are taking the business back to that more decentralized model, investing in products with lower price points that generate lower margins. So what will be different in the next few years that gives you the confidence of a better return on investments versus, say, 6, 10 years ago? Vincent Warnery: Fulvio, this is the right question, and thank you for asking. I think we clearly -- the situation in 2021 was indeed that we were ultra localized. So every country was doing what they wanted in terms of launches, in terms of advertising campaign, in terms of support of key initiatives. And we did up into a kind of patchwork of different look and feel, different visualization of the brand and clearly no return on investment. So clearly, on top of the direction into premium face care, I went into a very strong globalization, and I went too far. I was clearly -- it's obvious when you look at the results. I went too far into the globalization because there are some local franchises, which suffered from the fact that they were no longer invested. So are we back to what we were before? Not at all. What we are talking about is the localization in a frame, which means that clearly, we are controlling everything from the center. So when, for example, I'm talking about the new support towards some local franchises in emerging market, it is driven by Hamburg with our own R&D organization, our own marketing organization, and we don't give the right to everybody to do what they want. I mentioned 5 countries, and it's not just a coincidence. We consider that countries like Brazil, India, China, Japan and the U.S. are different and that they deserve a specific treatment, and we expect the neighboring countries to follow exactly the same logic. So what I do in Brazil, I was last week in Brazil, Argentina and Chile. I can tell you that what we are doing in Brazil will be followed by Argentina, Chile, Mexico, Colombia and all the other countries. The second element also is important. We are leveraging the global franchises, but accepting local execution. I gave the example of a sachet, which seems to be clearly not rocket science. But the fact that we are able to have the exact same formula with the exact same concentration of Thiamidol with different galenic is something new. Yes, you have the product you know the dispenser in Europe, which is pretty premium. But you have a tube in India, you have a sachet in Thailand, and you have something even more premium in China with NIVEA Thiamidol. So we are much more, I would say, open in terms of Galenics, which are following -- which are using the same global platform. And last but not least, in terms of communication, together with Publicis, which is our global agency on both NIVEA, Eucerin and Hansaplast, we have created some specific hubs in specific countries and those 5 countries I were mentioning, where we have the global marketing team and the Publicis team working together in order to be sure that what we are doing locally is also consistent with the global look and feel of the brand and the way we want to push forward our initiatives. So it's clearly more freedom. It's also more ability to the countries to test new ideas, but it is clearly control. We don't want to come back to the kind of food salad we had in the past with so many different look and feels and different executions. Christopher Sheldon: Thanks, Fulvio. And the next one is Fon Udomsilpa from RBC. Wassachon Fon Udomsilpa: Just a few questions on NIVEA Body Care, please. So you gave color on regional performance for body care, but could you confirm the market share momentum for NIVEA Body Care globally? And tying to that, with the early results you've seen on the rebalancing strategy, momentum in the Body Care in many markets improving and with the lower media costs that you mentioned, has your view towards investment in the body care category change? Does improved momentum give you confidence in increasing investment for the rest of the year and how much flexibility to do so considering higher cost inflation in the second half? Vincent Warnery: I think I shared a few examples already in the call, and they are very important for us. It's the emerging market body. This is also the emerging market face and the European deodorants category. So they are products. There are categories where we started the rebalancing in September. It's, I would say, easier in emerging markets because we have a lot of local franchises that we just had to revamp, and this is what we've been doing. And we see -- and this is really important for us, we saw clearly that we are gaining market share in those regions. Globally, we have been gaining market share for the first time, if you look at the total NIVEA brand in January. And this was the first time we are gaining market share on NIVEA global since end of '24. So pretty good news. We are slightly down in February, but it's really, I mean, just a few base points. So overall, we see clearly a dynamic which is positive, which is very positive for deodorants, as I mentioned, which is positive for body, which is not yet as positive as we expected on face care. So face care is clearly the category will push forward. There are some launches coming in affordable face care. As I mentioned, I was last week in Brazil, we have a fantastic line called [ Facial, ] which has a 25% market share. We are revamping this line with new initiatives, new ingredients also, not only the one coming from Brazil, but also some very well-known ingredients. So all of that should materialize in the Q2, Q3. So hopefully, I will also get the same kind of growth figures in the months to come. Christopher Sheldon: Thank you, Fon. Then the next one is Eno Tilly from Morgan Stanley. Tilly Eno: The first one was on the NIVEA Epicelline launch. I'm just wondering if you're seeing any cannibalization in the Eucerin Epicelline product because just looking at the last couple of months, there seems to have been a bit of a slowdown in Eucerin in Europe. And then on the second part, on the areas where you've seen improved sellout in NIVEA, could you just give any steer on the magnitude of the gross margin differential of the parts of NIVEA that are starting to perform better with the rebalancing strategy? Vincent Warnery: On your first question, absolutely 0 cannibalization. That's a very good news. It's particularly easy, I would say, in Europe because we are not sold in the same retail environment. You find NIVEA Epicelline in mass market, you find Eucerin Epicelline pharmacies. But even in regions and partly the case for the U.K., but also for emerging markets where we are sold in the same drugstores, we have absolutely 0 effect on the sellout. Epicelline is really doing extremely well on Eucerin. We are also adding new SKUs. We are enlarging the routine, so coming with a day and night product. And NIVEA Epicelline also will benefit also from the same kind of addition. What is great is I mentioned that in the call that the repurchase rates are absolutely amazing for NIVEA. We are reaching level between 35% and 48% depending on the countries, which is even above Eucerin, which is also more expensive. So we feel pretty safe with both products. You have also to remember that we decided also not to launch NIVEA Epicelline everywhere. So for example, it's clearly a brand which is skewed towards Europe. We didn't launch NIVEA Epicelline in countries like Mexico and Brazil because it's too expensive. So we obviously -- this is -- the field is totally open for Eucerin, and this is also where we are reaching very, very high level of net sales market share and repurchase. On the second question, Astrid? Astrid Hermann: Yes. So gross margin, as you can imagine, across our various categories is quite different subcategory by subcategory and tends to be obviously quite a bit lower on our personal categories than our skin care categories. That said, when we're looking at what we call margin 2, so the margin, including also our marketing spend, we see a much more even picture. And in fact, there our face care business has some of the lowest margin too. So as we are rebalancing that, we can manage this margin to pool and thereby managing our profitability. Christopher Sheldon: Thank you. Then we have 2 more questions. First, we have [ Annelie Payman ] from Thomson Reuters. Unknown Analyst: I have some questions on what oil price is the forecast based? And has the company taken any specific measures due to the higher gasoline or kerosene costs, for example, allowing more working from home, reducing business travel by plane. And last, do you have to pay any tariffs in the U.S.A.? And are you now claiming back them? Astrid Hermann: Thank you so much, [ Annelie ], for your question. So we are in the midst of working on our forecast. And as I mentioned, we have various scenarios that we're looking at. Obviously, one scenario with a quite high oil price than kind of a middle ground and one where it doesn't quite return to the previous place pre this crisis, but significantly lower than what we're seeing this minute, and we're working towards what that means then in terms of the actions. What I can tell you that we anyhow have very much watched T&E and so on or travel cost over the last years, absolutely. We continue to want to save there. And that's what's also contributed to managing our overheads quite well over the last years and is a continued impact even in this year. In terms of your questions on tariffs, as we've mentioned in the previous calls, our impact from the U.S. tariffs has been quite limited. We are, in that sense, more lucky, I'll call it, given our footprint of producing quite a bit of our sales in the U.S. itself or in Mexico and thereby, the impact was low. Of course, we will still use what we can in terms of refunding and so on to offset the limited impact we have had. Christopher Sheldon: Thank you, [ Annelie. ] And then the next one is Ulrike Dauer from Dow Jones. Ulrike Dauer: I hope you can hear me properly. Christopher Sheldon: Yes. Ulrike Dauer: Okay. I have one question related to the Middle East. What would be the maximum impact on margin that could you envisage in your worst-case scenarios for the full year? And also in terms of retail related, so I better understand, what was the problem with the U.S. department stores? And you mentioned delays of innovations getting in stores. Is that related -- could that threaten your innovation timing this year? Astrid Hermann: On the Middle East, Ulrike, we are not sharing a max impact because to be honest, we really want to manage that impact. And again, it can have a substantial impact on our cost, which we will try to find measures to obviously offset. Given the size of our business in the Middle East, the direct impact will be quite low, but we know, obviously, this could lead to a much more global impact and then obviously have a much larger impact on us. Vincent Warnery: Department store. The issue on department store is sold. We -- I mean, it's public knowledge that axis Avenue was in a difficult situation, and we were not selling anything to Saks Avenue until we had an agreement on the other dues. Where they were still selling in store and they still had some product they could sell, but we are not selling to them. And this is now over. We have a deal with them, and we are back absolutely back to normal. We are selling La Prairie and Chantecaille in each and every Saks store in the U.S. No issue on that. Ulrike Dauer: Okay. And you mentioned the pricing discussions with European retailers. And at the same time that some innovations were not getting in the store or there was a delay between delivery and getting into the stores. Is that threatening or could that threaten somehow your innovation timing this year? Vincent Warnery: No. No, no. The only -- what happened regularly when we have some customer conflicts. And again, it's mostly about NIVEA, it's mostly about France and Germany. There is this kind of black mail that might delay some innovation, but that's normal business. Retailers are smart enough to bet on the right products. So we are not suffering from that. We are able to put the right product on shelf when we want them to be on shelf. Christopher Sheldon: Thank you, Ulrike, and thank you, everyone. That was our last question. This concludes our conference call. Beiersdorf's next Investor Relations event will be the release of our half year results on August 5, 2026. We appreciate your interest in Beiersdorf, and look forward to seeing you back here again in the summer. Thank you very much. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Good day, ladies and gentlemen, and welcome to the Genuine Parts Company First Quarter 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Tim Walsh, Vice President of Investor Relations. Please go ahead, sir. Timothy Walsh: Thank you, and good morning, everyone. Welcome to Genuine Parts Company's First Quarter 2026 Earnings Call. Joining us on the call today are Will Stengel, Chair-Elect and Chief Executive Officer; and Bert Nappier, Executive Vice President and Chief Financial Officer. In addition to this morning's press release, a supplemental slide presentation can be found on the Investors page of the Genuine Parts Company website. Today's call is being webcast, and a replay will also be made available on the company's website after the call. Following our prepared remarks, the call will be open for questions. The responses to which will reflect management's views as of today, April 21, 2026. If we're unable to get to your questions, please contact our Investor Relations department. Please be advised this call may include certain non-GAAP financial measures, which may be referred to during today's discussion of our results as reported under generally accepted accounting principles. A reconciliation of these measures is provided in the earnings press release. Today's call may also involve forward-looking statements regarding the company and its businesses as defined in the Private Securities Litigation Reform Act of 1995. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings, including this morning's press release. The company assumes no obligation to update any forward-looking statements made during this call. With that, I'll turn it over to Will. William Stengel: Thank you, Tim. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. I want to start this morning by recognizing and thanking our 65,000 teammates around the world for their continued dedication and hard work. Their commitment, expertise and focus are the foundation of our success as they work every day to deliver parts and solutions to our customers. This morning, I'll review our first quarter financial results by business segment, followed by an update on our announced plan to separate our Global Automotive and Global Industrial businesses into 2 publicly traded companies. In short, the separation work is on track and progressing well. As we execute our separation plan, our top priorities remain the same: stay focused on key strategic initiatives, operate the business with discipline and deliver excellent service to our customers. During the first quarter, our teams did this well and delivered financial results ahead of our expectations. The war in the Middle East will require us to remain agile and disciplined in a dynamic global environment. The war is impacting the flow of certain goods across the global supply chain, adding inflationary pressure to certain product and logistics costs and adding incremental uncertainty for customers. Despite the environment, we did not experience a material impact to our financial results during the first quarter. Our teams have demonstrated the ability to manage through temporary economic and geopolitical disruptions in the past. We have global scale, playbooks and capabilities to deploy as needed. Moments of disruption create opportunities to gain market share and strengthen customer loyalty, especially when we respond with speed, discipline and focus. Bert will share more about how we're thinking about the conflict and the implications for our outlook. Turning to our financial results. A few highlights for the quarter include: total GPC sales of $6.3 billion, an increase of approximately $400 million, approximately 7% compared to 2025, with sequential improvement in all 3 business segments; continued overall gross margin expansion despite tough year-over-year comparisons driven by strategic pricing and sourcing initiatives; and Global Industrial segment EBITDA margin expansion of 90 basis points or 13.6% of sales. Now looking at our business segments. Total sales for Industrial were $2.3 billion, an increase of over $100 million or up approximately 5% versus the same period in the prior year, with comparable sales up approximately 4%. During the quarter, the benefit from price inflation was approximately 3%. From a cadence perspective, all 3 months of the quarter saw mid-single-digit average daily sales growth. Motion delivered a strong first quarter with balanced growth across our large corporate account customers as well as with our small- to medium-sized local accounts. We remain cautiously optimistic about the outlook for industrial market conditions. While we're encouraged by 3 consecutive PMI readings over 50 in the first quarter and solid performance fundamentals, we balance that optimism with geopolitical realities and potential near-term uncertainty. That said, we're confident in Motion's ability to execute in every market environment and leverage its size and scale diverse end markets, extensive product offering and strong customer-centric execution to differentiate it from the market. Looking at the performance across our end markets in the first quarter, we saw growth in 10 of our 14 end markets we track, which is up from 9 in the fourth quarter of 2025 and 3 in the same period of the prior year. During the quarter, we saw notable growth in food products, automotive, iron and steel, mining and fabricated metals. This growth was slightly offset by softer demand in pulp and paper, lumber and wood and rubber and plastic. Our core MRO business, which accounts for approximately 80% of Motion sales was up over 5% during the quarter. We continue to see an increase in planned outage projects to start the year where customers stop operations to do maintenance and repair work as deferred maintenance needs are being addressed. Looking at the remaining 20% of Motion sales, which originates from more capital-intensive projects, we saw encouraging sequential improvement in customer activity with sales up approximately 4% during the quarter. Industrial segment EBITDA in the first quarter was $314 million, up approximately 13% and 13.6% of sales which represents a 90 basis point increase from the same period last year. Turning to our automotive segments. Starting with North America Automotive, we saw sequential improvement with total sales for the first quarter, increasing approximately 4.5% and comparable sales growth increasing approximately 2%. During the quarter, North America Automotive segment EBITDA was $156 million, up 6% and 6.6% of sales. This represents a 10 basis point increase from the same period last year and a 110 basis point increase from the fourth quarter. The increase year-over-year reflects ongoing strategic initiatives, partially offset from pressure from cost inflation in salary and wages, health care, rent and freight. Within North America, total sales in the U.S. were up approximately 4% for the quarter, with comparable sales up approximately 3% and price contribution of approximately 3%. Average daily sales were positive in all 3 months, with 2-year stack consistent across the quarter. We continue to see strong sales performance at our company-owned stores. In the first quarter, comparable sales at our company-owned stores increased approximately 5.5%. Independent same-store purchases during the quarter increased approximately 1%. We remain pleased with our company-owned store initiatives as well as the work we're doing to partner closely and grow with our independent owners. Looking at the comparable sales performance to the end customer, which includes our company-owned sales as well as the sales out to the end customer from our independent stores, the NAPA system delivered sales growth of 4% in the first quarter, up from 2% in the fourth quarter. By customer type, comparable sales to our commercial customers for the quarter were up approximately 5%, while comparable sales to our retail customers increased approximately 1%. Within commercial, we saw mid-single-digit growth in all 4 customer segments. Across our product categories during the quarter, we saw continued relative strength in our nondiscretionary repair and maintenance and service categories, which were both up mid-single digits. As a reminder, combined, these categories account for approximately 85% of our U.S. business. Discretionary categories sequentially improved in the first quarter and were up low single digits. Looking at our performance in Canada, our team is executing well despite soft market conditions. Total sales increased approximately 4% in local currency versus the same period last year, with comparable sales down approximately 2%. Trade disputes, tariffs and low consumer confidence over the past few quarters have cumulatively impacted the market environment. However, the Benson acquisition provided a nice tailwind this quarter and we're ahead of our financial and operational target plans. Moving to our international automotive business. Total sales during the quarter increased approximately 13%, with comparable sales slightly positive. International Automotive segment EBITDA for the quarter was $145 million, up 5% and 9.1% of sales, which represents an 80 basis point decrease from the same period last year. The decrease in EBITDA margin was predominantly driven by ongoing inflationary cost pressures from higher salaries and wages, rent and freight, which was partially offset by our restructuring initiatives and cost actions. By geography, in Europe, total sales for the quarter increased approximately 1% in local currency, with comparable sales down approximately 0.5%. Overall results for the first quarter sequentially improved from the fourth quarter with improvement across each geography. Despite challenging market conditions, we believe we continue to perform in line or better than the market, driven by strength with key account customers, the NAPA brand offering and accretive bolt-on acquisitions. The investments in supply chain and technology across the region, combined with productivity initiatives position the business well as the market recovers. Finally, our team in Asia Pac had another solid quarter, with both total sales and comparable sales increasing approximately 4%. Both trade and retail businesses posted solid results during the quarter with retail performance continuing to stand out. Australia and New Zealand are reliant on oil from the Middle East and have recently been impacted by reduced fuel availability, elevated fuel prices and corresponding negative consumer sentiment. Australia has also raised interest rates twice in 2026. Despite a challenging market environment, our in-flight initiatives are working as designed and have translated into impressive relative share gains. The local team remains energized and action-oriented. Before I turn to an update on the business separation, I'd like to take a moment to recognize and thank Paul Donahue, who will retire from our Board of Directors at our Annual Meeting next week. Paul's retirement from the Board will conclude an exceptional career with GPC, which includes his impactful service as CEO and Chairman. For more than 20 years, Paul played a pivotal role in transforming the company and enhancing our long-term strategic foundation. While his legacy includes transformational leadership and performance, his most enduring impact is on our culture, which he helped cultivate, evolve and position for the future. He represents the best of who we are at Genuine Parts Company, leading with respect, fostering teamwork and maintaining a deep sense of service to each other and our customers. On behalf of the Board and the entire global organization, I want to deeply thank Paul for his many contributions and years of dedicated service. We wish Paul all the best in retirement and hope he enjoys the well-deserved time with his family and friends. Before I close, I can provide an update on our announced plan to separate our Global Automotive and Global Industrial businesses into 2 independent public companies. Overall, the announcement has been well received by investors, customers, suppliers and employees. All stakeholders are looking forward to additional details as we advance our planning. To ensure the organization can focus on daily priorities, we've been mindful to create a disciplined, centralized process and operating cadence with our advisers, business units and functional project leaders. We increased our internal communication rhythm to provide global updates to ensure teams are informed and managing through change. Our leaders are doing an exceptional job leading and partnering as a global team. As mentioned on our call in February, our automotive and industrial businesses maintain independent operations. Since our work stream has been to refine our initial estimates developed during our strategic review of potential dissynergies and incremental stand-alone costs that will be needed for 2 public companies. We expect the cost to be manageable and in the range of $100 million to $150 million, essentially in line with our initial estimates. Bert will share additional [indiscernible] his remarks. In addition, there is ongoing work to evaluate and identify leadership, prepare financial matters and organize stand-alone operational plans. We're progressing well and on track with our time line to complete the separation in the first quarter of 2027. In closing, thank you to our customers, owners, suppliers and shareholders for your continued trust and support. As we look to the second quarter, we're focused to build on the positive momentum as we manage the current market environment. We're prioritizing serving our customers reliably and timely and have a proven and resilient team that positions us well. I want to offer again my sincere thanks to our global GPC teammates for their continued effort and teamwork. I'll now turn the call over to Bert. Herbert Nappier: Thanks, Will, and good morning, everyone. Our teams delivered in the first quarter with sales in line and profit ahead of expectations. Our results reflect disciplined execution across the organization against evolving market conditions, particularly with the added uncertainties surrounding the conflict in Iran. During the first quarter, adjusted EBITDA was up 5% and adjusted EPS of $1.77 was slightly above prior year. Our results were driven by higher sales and the benefits from our global restructuring initiatives, partially offset by cost inflation and operating expenses. Our previously communicated headwinds from depreciation and interest expense negatively impacted our earnings by $0.09. This morning, I will review the details of our first quarter results and then share a few comments around our 2026 outlook, which we reaffirm this morning. Then I'll close with additional details on our estimated range of dis-synergies and stand-alone costs of our separation. Before I take you through the details of the quarter, my comments this morning will focus on adjusted results which include nonrecurring costs related to our global restructuring program and costs related to the planned separation of our automotive and industrial businesses. Collectively, these items totaled $75 million of pretax costs or $56 million after tax. Now let's turn to the details of the first quarter. Total GPC sales increased 6.8%, which included a 240 basis point improvement in comparable sales, a 130 basis point benefit from acquisitions and a 320 basis point benefit from foreign currency. Of note, each of our 3 segments delivered comparable sales growth that sequentially improved from the prior quarter. Price inflation was up low single digits in each segment, with North American Auto at approximately 3%, international auto at approximately 2%, and industrial at approximately 3%. Our gross margin was 37.3%, an increase of 20 basis points from last year and relatively in line with our expectations. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives, partially offset by the impact of inflation and tariffs on product costs. Our adjusted SG&A as a percentage of sales in the first quarter was 29.4%, an increase of 50 basis points from the prior year. On an adjusted basis, SG&A grew year-over-year in absolute dollars by approximately $145 million. Foreign currency and acquisitions represented approximately $95 million of the growth year-over-year with foreign currency being the large majority of the increase. The remaining $50 million of core SG&A growth was up 2.9% from the prior year. Within our core SG&A, we experienced higher costs year-over-year in 2 main categories. Approximately half of the increase was driven by people-related costs associated with our merit increases a year ago and mandatory minimum wage increases outside the U.S. The remaining increase was largely driven by cost inflation in health care, rent and freight. We continue to take actions to adjust our cost structure through our restructuring initiatives. During the quarter, we incurred restructuring costs of $59 million and realized $26 million of cost savings or a benefit of $0.14 per share. For the quarter, total adjusted EBITDA increased approximately 5% with an adjusted EBITDA margin of 7.9%, down 20 basis points year-over-year. Our EBITDA performance within the 3 business segments includes the following highlights. For the North American Auto segment, EBITDA increased approximately $10 million or 6.3% and with EBITDA margin of 6.6%, up 10 basis points from last year. The primary driver of the increase was higher gross profit, partially offset by approximately $30 million of higher operating costs from cost inflation in people, health care and freight expenses as well as the impact of acquired businesses. International Auto segment EBITDA increased $6 million or 4.6% with EBITDA margin of 9.1%, down 80 basis points from the prior year. The decrease in EBITDA margin was primarily driven by a 100 basis point headwind from inflation in salaries and wages, rent and freight. This was partially offset by a 50 basis point tailwind from the benefits of our restructuring and cost actions. Industrial segment EBITDA increased approximately 13%, representing a margin of 13.6%, up 90 basis points year-over-year. The increase was driven by both gross margin expansion and leverage and operating costs, driven by our global restructuring initiatives, and disciplined cost control. Turning to our cash flows. For the quarter, we generated approximately $64 million in cash from operations. Our cash flow from operations benefited from an improvement in working capital of approximately $200 million, partially offset by payments related to tax planning initiatives. In the first quarter, we invested approximately $100 million back into the business in the form of capital expenditures as we continue to modernize our supply chain infrastructure and IT systems. We also returned approximately $142 million back to our shareholders in the form of dividends. Now turning to our outlook. As we detailed in our press release this morning, we are reaffirming our outlook for 2026. For the full year, we continue to expect diluted earnings per share, which includes the expenses related to our restructuring efforts to be in the range of $6.10 to $6.60 and adjusted diluted earnings per share to be in the range of $7.50 to $8, up 5% at the midpoint of the range versus 2025. With respect to our outlook, our expectations take into account our performance in the first quarter, which was ahead of our expectations. However, we have balanced our performance to date against a more prudent view of the second and third quarters, given uncertainty of the conflict in Iran, leaving our expected range of performance for 2026 unchanged. As we consider the shape and timing of our performance in 2026, key themes remain, the market conditions in Europe, the performance of our independent owners in our U.S. NAPA business and the impact from the conflict in Iran, including their duration of any disruptions. We expect near-term cost pressure from the impact of the conflict as we turn into the second quarter and have incorporated those views into our outlook. As we've previously noted, we continue to expect depreciation and interest expense to be a headwind of approximately $0.30 in 2026 as we continue to invest in the business for growth. With respect to the conflict in Iran, our outlook incorporates updated views across the various elements of our P&L as follows: first, our revenue outlook considers the impact of demand from higher oil and energy prices, which has the potential to drive lower consumer sentiment, miles driven and industrial and manufacturing output. Broadly speaking, during March, when the conflict was in its early stages, consumer behavior across our segments remained fairly resilient. It's difficult to predict how the conflict will play out but the duration of higher oil and energy costs will be something for us to watch. Our outlook for gross margin reflects anticipated cost increases from our suppliers as they face higher input and shipping costs. We have also considered the cost of adjustments to our own supply chain to mitigate any disruption to inventory availability. Our global teams are working with our supplier and vendor partners to manage any potential increases in a strategic and thoughtful manner. Broadly, we expect to pass through many of these cost increases. On a consolidated basis, our exposure to products sourced from the Middle East is less than 0.5% of our total purchases. Finally, we have incorporated revised assumptions on operating expenses, including freight and fuel costs. Our freight expense, which represents the cost of moving product to our stores and branches is approximately 3% of our revenue. While we maintained our guidance, I will reemphasize a few points within our fiscal 2026 outlook, starting with sales. We continue to expect total GPC sales growth in the range of 3% to 5.5%. Our outlook assumes that the market growth will be roughly flat and that the benefit from pricing, including inflation and tariffs will be approximately 2%. Our sales outlook also assumes the benefit from M&A carryover and about 1 point of growth from our strategic initiatives and about 1 point of benefit from foreign exchange. We continue to expect expenses associated with the transformation activities and cost actions to be in a range of $225 million to $250 million with an anticipated benefit in 2026 of $100 million to $125 million. These expenses do not include any costs associated with the separation of the businesses. Beyond these aspects, the remaining elements of our guidance remain unchanged, including the individual segment sales growth projections as well as gross margin, SG&A, corporate costs, EBITDA, cash flow and capital allocation expectations. The details of these assumptions are included in our earnings presentation on our website. Before I close, I'd like to add some additional details on the dis-synergies and stand-alone costs of our planned separation. We've done extensive work with our internal team as well as our external advisers, validating our estimates around the incremental run rate dis-synergy costs and stand-alone costs for the new public company. As we have outlined on Slide 11 of our earnings presentation, our estimated range of cost is $100 million to $150 million. This range of cost includes 2 components: first, dis-synergy costs from activities associated with indirect sourcing due to loss of scale and back office and technology functions that will have to be replicated. We estimate this category to be in a range of $50 million to $75 million, and it would be evenly split between Global Automotive and Global Industrial. The second category is incremental stand-alone costs associated with the design of the new public company and would include: new facilities, personnel, public company functions and costs. We estimate this category to also be in a range of $50 million to $75 million, the vast majority of which would be at Global Industrial. This range of cost does not include onetime costs associated with the separation, such as legal, banking and other professional fees. Further, it is important to note that this does not include the allocation of current corporate expense at Genuine Parts Company. We will share additional details on our views on the allocation of the existing corporate costs as that work progresses over the coming months. In closing, we are pleased with our first quarter performance and the disciplined execution demonstrated across the organization. As we move forward, we remain focused on running the business effectively while continuing to make steady progress toward our intended separation. At the same time, we will stay agile and attentive to all market dynamics, including the ongoing conflict in Iran. Above all, we are confident in our teams and their ability to navigate uncertainty while delivering for our customers and our shareholders. Thank you, and we will now turn it back to the operator for your questions. Operator: [Operator Instructions] First, we will hear from Greg Melich at Evercore ISI. Gregory Melich: Thanks for all the additional detail. I want to follow up on, I think, Bert, some of your comments about the conflict in Iran and some of the spillover and how it inflects the outlook. I think you mentioned pricing was up low single digits. I think it was [ 3% ] in North American auto and then similar in Industrial and International. How do you think the increased cost, as you mentioned on freight, you said it would pass through? So do you expect pricing to now for the year be running at that 3%? Or do you think it decelerates equally across the businesses? Herbert Nappier: Greg, thanks for the question. Look, I think I'll start -- I'll pull it up just a little bit and then come back to the pricing point and maybe give everybody a little bit more color on Q2 when we think about the next 100 days or so. And again, start with pointing back to my prepared remarks on those various elements of the P&L that I outlined where we think the impact comes from, when we think about the conflict, whether it's revenue, cost of goods sold or operating expenses. When we look across the balance of the year, I think we've been pretty prudent and pragmatic. That balancing, we finished ahead of expectations for Q1 against all these new dynamics we're dealing with the conflict. And so when you think about the forecasting, obviously, we're thinking about your pricing question within that. But I think the biggest variable, which gets to the question you've asked about the duration of pricing for the year is the duration of the disruption itself and the conflict. And obviously, there's a wide range of outcomes and scenarios when we think about this and we've really tried to refine our perspective to the next 100 days because I think that's what we have the best insight to, which is obviously a bit arguable when you think about the strait opening and closing from morning to afternoon or just the point around oil prices, I think in the last 45 days, we've had 6 days of double-digit moves in oil prices with some of those swings at nearly 20%. So with that backdrop, I think I'll give you just a little bit more precise color on Q2. We expect the impact to the forecast for us to be most pronounced in Q2. And when we've taken all the variables into consideration pricing, cost of goods sold and operating expenses, we see some downside risk that we've incorporated into our guidance of about $10 million to $20 million of EBITDA as the net negative impact of the conflict to the business. And so I'll give you a little bit more color there. The headwind that we see is really the product of both increased cost of goods sold and operating expenses, which will be freight-in, freight-out and fuel, balanced against what we think our assumptions are for pricing benefits that will be likely offset by muted expectations on demand from the environment itself. So I would say that we think the pricing environment stays more in line with what we see for the full year that I shared in my prepared remarks, split evenly between tariff and just overall inflation. But obviously, this conflict will have a lot to say about how long that lasts. And I think it gets back to the duration of the environment that we face. As I mentioned, we've incorporated all of this, including a very solid first quarter into our reaffirmed guidance for the year. And as we look beyond updating the guidance this morning. I would just say that April has started steady and helped inform our views. When we look about the rest of the year, I would remind everybody that we do have interest and depreciation headwinds. Those abate in the second half but we also expect the Q2 impact of those 2 items to be roughly in line with the first quarter. And then finally, I would just say, look, our teams have been here before. We've problem solved. We had the problem solved. And that gives us confidence as we look to our full year guide about our strategic initiatives, the transformation activities we're running, our restructuring actions, which will also build sequentially across the year. Gregory Melich: That's great. And for a follow-up, I would love to ask Will, as you're going through this big separation process and -- how do you think it could impact the culture and how do you think about working that through the thinking just bolt-on M&A along the way or even thinking of selling some of the businesses, if that's what makes sense along the way? William Stengel: Yes, Greg, I think this is a moment where our culture really shines. It's based in team. It's based in hard work. It's based in collaboration. I referred to the way in which we've set up the project team, it's cross-functional, it's cross-business unit, it's global. We meet every week. So I think the operating rhythm and the way in which we're all working is a perfect reflection of how this company works as a team and has built its culture over 100 years. As I've talked about before, we have a very consistent culture, both geographically and across business units. So that's part of our special sauce, and I wouldn't expect anything about the work that we're doing in 2026 or our strategy going forward. to change that. And in fact, I would argue that it amplifies the depth and the way in which we work together. So we feel really good about where we are. Operator: Next question will be from Bret Jordan at Jefferies. Bret Jordan: Could you give us a little more color on the European backdrop, I guess, or regional performance, competitive landscape, are there stronger and weaker markets over there that should be [indiscernible]? William Stengel: Yes, happy to, Bret. As I said in the prepared remarks, we were really encouraged -- we saw sequential meaningful sequential improvement versus the fourth quarter in all of our geographies. So we're seeing continued good execution and arguably improving market fundamentals across each of the geographies. We had some nice progress in our Germany business this past quarter. They're doing a nice job relative to competition, and we continue to show really nice progress in our Iberia platform that has done a lot of work to build its national supply chain, work closely with its vendors. It's accelerating its NAPA brand offering in the market that's new and different in the marketplace. So those are 2 highlights. And as I said, the other markets improved, and we're cautiously optimistic that as we go through 2026, we'll continue to build that momentum. Bret Jordan: Great. And then I guess sort of early thoughts on the dividend policy for the [ spincos ]. Obviously, it will be a sort of a different business profile, but how do you think about that capital allocation? Herbert Nappier: Yes, Bret, look, I think we've got more work to do on capital allocation. We're obviously mindful of the dividend and the importance of that to the various customer base -- or the various shareholder bases. One thing that I would say is that we have -- we've increased the dividend again for 2026. It's an important part of the current GPC capital allocation structure, and it will be going forward as well. I think as we shared a few weeks ago at the conference with Michael, this is a moment in which we'll ensure that the capital allocation strategy of the 2 businesses follows its growth strategy. And those will be different. And that's a backdrop for why the separation of the businesses make sense. Each business has a different trajectory going forward, both super positive, and we're both -- and we're excited about both. But when we think about it, I think you'll see an automotive business that has a focus on shareholder returns, first and -- first and foremost, and secondarily, probably an indexing towards capital CapEx investments and a little bit of bolt-on M&A. And when you think about industrial, I think you'll be thinking about a profile of more M&A. It's a little less capital-intensive business, so CapEx as well, but also shareholder returns. So early innings, we're doing that work right now, and we'll continue to progress that work and share thoughts later. But the most important thing will be to continue to focus on shareholder returns and make sure the capital allocation strategies follow the business strategies and in the end, make sure that we stay faithful to our intention to have both companies investment-grade ratings. Operator: Next question will be from Christopher Horvers at JPMorgan. Christopher Horvers: So I had a couple pricing follow-ups. So first on Section 232, the new steel tariffs, to what extent do you expect that to be inflationary? And I guess, to what degree and is that baked into your guidance as you look to the balance of the year? And then you mentioned potentially pricing through some of the freight costs. Just wanted to understand is like freight costs that get capitalized into inventory. You passed -- it sounds like you're willing to pass those through, but the periodic costs of domestic freight, is that something that you would anticipate passing through over time? Or is that something more of a TBD, we're going to have to eat that now, figure out the need to pass that into price later? Herbert Nappier: Yes, Chris, maybe I'll start with -- that's a long question. I'll start with the second part on the current environment with respect to the conflict and how we're thinking about that, and then I'll come back to the Section 232 tariffs. Look, I think this is going to be a steady as it goes kind of environment. We're dealing with something that's incredibly dynamic. As I mentioned a few minutes ago, just oil prices alone and the volatility changing from day to day. On the freight end, which does get capitalized into inventory, that would be part of our pricing strategy. We'll be thinking about how do we pass that through balanced against our regular playbook on pricing and where we're considering the moves of pricing across markets, geographies, SKUs and what elasticity is out there. I think the consumer has a lot to consider right now. Customers and consumers have a lot to consider on the pricing front. And we'll have to be thoughtful about this environment on top of overall inflation and then tariffs. When we think about the freight out and so that's the cost that we're incurring to move product inside the U.S. or inside a certain geography from DC to the branch or store. Again, we're having to absorb increases in cost, and that's why I shared the thoughts I shared on the second quarter about those additional downside risks to the business in the near term. That also will factor in how do we think about pricing on that front as well. I mean all of these things factor into our operating costs and the cost to serve our customers, and we put them first. And so we're being super thoughtful about how do we balance the additional costs we have in the business with what we can push through to price and then how can we be more efficient, which is an important part of our model as well and that we have to control costs. So it's a lot of algebra, it's a lot of 3D chest, when we think about it, but we're also trying to make sure that we put customer first and make sure that we balance all of that across those considerations. So there are good thoughts. I think we've thoughtfully incorporated them into our views. And that's why we see the conflict as a near-term net negative. When I think about Section 232, we're managing this just like we manage the overall tariff situation. Our command center is still up and running. Our teams are still focused on it. At this point, we have not seen any additional requests from customers on Section 232. Same thesis here to the extent we started to see those increases from suppliers or request for increases from suppliers, we factor in that into our models for pricing and how we pass that through. Again, our intent would be to pass through where we can. I would say that the overall tariff environment, I think, has finally found it's at risk of jeopardizing my views. I think it's found its normalized point. We're in a normalized rhythm and cadence. We're heading into the full anniversary of the tariff landscape. I think the noise has died down largely, and the request that we're seeing coming in from suppliers have become more normal conversations around annual price increases and negotiations versus specific to tariffs. So we'll continue to deal with whatever dynamic comes up tomorrow, but at the same time with respect to Section 232, we haven't seen any material increases. And anything we would see we'd be sure to think about how we pass that through and how we manage the overall cost. Christopher Horvers: And then staying on the pricing topic, you talked about 3% inflation roughly. You also talked about a gross margin headwind with respect to tariffs. So is it that you're not passing -- and that number lags -- that 3% lags what Zone and O'Reilly have talked about, albeit in line with Advance. So is that gross margin headwind essentially indicative that you're holding back on some of the tariff costs and as a mean to maybe narrow price gaps? Or are you trying to adjust for prices that are perhaps too high in certain markets and just trying to get back down to normal? Herbert Nappier: No, I don't think there's anything to see there other than we had a really strong Q1 a year ago, a 120 basis point expansion in gross margin. So we had a tough comp to begin with. The second element would just be that don't forget that the first quarter of last year had no tariff impact. And so for Q1 this year, we're actually carrying all the increases in cost of goods sold with the top line benefit and all of those things are hunting in the low single-digit range. So when we think about how we've expanded gross margin over the past several quarters, we've had the benefit at moments in time of lags and where we sit in terms of the delta between price and cost. And in this particular quarter, I think they're pretty lined up. And so that created a little bit of attention on expansion to gross margin for the quarter. But nothing concerning from our perspective, in line with our expectations. And as I -- as we mentioned in my prepared remarks, we've reaffirmed our outlook for the full year, 40 to 60 basis points of gross margin expansion. And that's going to come on this great work we're doing across the business, which is going to build benefits across the course of the year. Operator: Next question will be from Scot Ciccarelli at Truist. Scot Ciccarelli: Scot Ciccarelli, two auto-related questions. First, I don't know if you guys are willing to provide anything at this stage, but any more detail around the profitability of your North American company-owned stores versus the independent biz? And then secondly, kind of on a related basis, where do you think company-owned profit -- company-owned store profitability can go over time, just given what we can see from some of your biggest competitors? William Stengel: Yes, Scot, on the first one, I hope you can appreciate, I'm not sure we prefer to disclose that level of detail on the profitability. On the second question, maybe we won't talk with specific numbers, but I can tell you with a lot of empirical data behind it as you think about our 2025 strategic review, obviously, we spent a lot of time looking at what we call our entitlement in all of our businesses, but in particular, in our automotive business, and it's really compelling. And it's a material improvement in the business. The exciting part about it is, we've got best-in-class examples that are already at the level of entitlement. And so it's not pie in the sky in the sense that we've got to go out and do something unnatural. We have to get all of our opportunities up to best-in-class. And I think we'll bring that to life in the Investor Day to put some numbers around it. But we're excited about the work we're doing and the sequential improvement in company-owned stores is the early days work of executing that road map and that playbook to get the best of breed to teach the others and work with the others to get to that level. So more to come on it. It's a good question. It's a fair question. I would note, we are a B2B business. So we are different than your traditional retailers. So we'll have our own benchmark for what we view as entitlement and best of breed that might potentially look different than a traditional retailer. Scot Ciccarelli: Can I just ask a follow-up, given the lack of information on the first question there. What are you hearing just in terms of your conversations with your independents, given their appetite for inventory and given some of the cost pressures that they've been under with the interest expense related to inventory? William Stengel: We had a -- I should mention, we had 20 of our largest owners here in the U.S. in the Atlanta headquarters 2, 3 weeks ago and the tone and the discussions are very positive and optimistic, honestly, sequentially improved, as you saw in our results, which I think reflects the cautious optimism as we go through 2026. Alain Masse and the NAPA team here in the States, part of his expertise and his experience working with independent owners is playing out as we thought. There's really good alignment in terms of the priorities of the business and the investments we're making in the business on behalf of the independent owners. And we're also spending time thinking creatively about different ways to support their inventory investments, and there's more to come on that topic as well. So we're working as well as we've ever worked with our independent owners over the recent years. Obviously, it's been a tough market backdrop for them in all small businesses and part of our strategy today and going forward is to make sure that they're in a position to win in the local markets. And their sales outperformance is encouraging. And as long as we're all selling out in the markets there, I think the independent owners have a real opportunity to be successful and we're here to support them to be successful in the same. So more to come on it, but a fair question and a good question. Operator: Next question will be from Michael Lasser at UBS. Michael Lasser: It's essentially a follow-up on that last topic, which is, is there a trade-off for GPC corporate in the Auto segment where you have to balance the free cash flow generation of the North American auto business versus the top line growth for your independents, meaning you have an opportunity potentially to sacrifice some of the free cash flow generation. If you were to extend more capital or longer terms to your independents? And if that's the case, how is that going to impact the free cash flow generation of a stand-alone auto business? Herbert Nappier: Michael, it's Bert. I think the short answer to that is it doesn't impact the medium or long-term outlook for cash flow generation for the business. The bottom line is that we've been using our very strong balance sheet for many, many years to support our independent owners whether that's capital programs that we guarantee, that we disclose to support their growth and loans that they need to grow, which gives them access to capital at a more favorable -- at a little bit more favorable rate than they could on their own to payment terms, to deeper investments in inventory to make sure they have the availability. We've been using the GPC balance sheet long before I got here to support the independent owners, and that's in our run rate. And so I think when we think about how we look ahead to the global automotive business on a stand-alone basis, we'll continue to do that. And as Will just mentioned, we're reimagining even as we speak, how we support independent owners. The independent owner has a -- it's the backbone of this business. It's how the aftermarket grew up and it will always have a place. We just have to find a way to optimize it in a maximized way and continue to grow together and do the right thing for our customers. And so we're going to continue to do that. I don't think even with some of the new things we're considering, it changes the long-term view on cash generation or how we've used the balance sheet. We're just going to use it in a different way, and we'll have more to come on that. Look, I think all of these questions build into what will be a very exciting Investor Day for Global Automotive. We'll be talking about the strength of the 2 channels, the company-owned stores, the independent owners and what we can do as we look ahead. And so that's why we're excited. And that's why I think everyone should be excited about the separation of these 2 businesses and will be 2 great public companies. Michael Lasser: Got you. Very helpful. And you also provided some really helpful commentary on sizing the incremental EBITDA impact from all the geopolitical issues, $10 million to $20 million of EBITDA. Putting a couple of points together, you mentioned that April has been steady for the business. So should we be modeling pretty consistent top line performance in the second quarter with what you experienced in the first quarter and yet take into account this $10 million to $20 million EBITDA hit? And how does that play into your expectations in the back half of the year and how we should be modeling that? Herbert Nappier: Look, maybe I'll answer that on a core basis, Michael. So don't forget the first quarter had a nice tailwind from currency. I think that's the one element that we've assumed about 1 point of FX growth for the rest of the year. We had 320 basis points of FX tailwind in Q1. So let's not -- let's not everybody run out and remodel on that kind of FX tailwind as we look to the balance of the year. When I look at core revenue growth for Q2, I think it will be pretty steady. April has started out steady, March was pretty resilient, April a steady start. And April helped inform the downside risk that I shared earlier. But within that, I think the top line will continue to perform. The things we watch on the top line are the European market conditions, which, as Will mentioned, we're cautiously optimistic have improved from the fourth quarter. They're still muted, but they are improved from the fourth quarter, so we'll continue to watch that. Independent owners had a sequentially improved quarter. We'll continue to stay focused there. And as I shared earlier, I think when we think about revenue in Q2, we'll have what we think is maybe a little bit more pricing benefit from some of the things that are happening with the costs we're passing on to perhaps more muted demand, and that leaves us neutral in our assumptions. So I'd say, keep the core kind of in line and don't model in a bunch of additional FX tailwind, if that's helpful. Operator: And at this time, we have no other questions registered. I will turn the call over to Mr. Tengel -- Stengel. Please go ahead. William Stengel: Thank you, everybody, for joining us today. We look forward to updating you on the transaction and our progress as we move through the quarter on the July earnings call. Thanks again for being with us, and thanks for your support. Have a great day. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Jane Lowe: Hello, everyone, and welcome to the Lumos Diagnostics investor briefing to discuss the Q3 FY '26 results that were lodged with the ASX yesterday. My name is Jane Lowe, and I'll be your moderator for this session. With us this morning we have Lumos Diagnostics Chairman, Sam Lanyon. I'll say good morning to you, Sam. Samuel Lanyon: Good morning, Jane. Jane Lowe: Also CEO and Managing Director, Douglas Ward, afternoon to you. Douglas Ward: Good morning. Jane Lowe: And also CFO, Barrie Lambert. Good morning, Barrie. Barrie Lambert: Good morning, Jane. Good morning, everyone. Jane Lowe: Okay. So the format for today is that Sam, Doug and Barrie will walk us through a presentation that was released to ASX this morning, should take about half an hour or so. And after that, we'll follow on with a Q&A session. We plan to wrap up in about 45 minutes today. If you'd like to ask a question, please click on the Q&A tab in the ribbon at the bottom of your screen and type your question into the box provided. The webinar is being recorded today as usual. So with that, I'd now like to hand over to Doug, who will get us on the road. Thanks, Doug. Douglas Ward: Thanks very much, Jane. I really appreciate that. Welcome, everyone. As always, it's always thrilling to speak to our investors and give you an update on the business. We obviously have an updated picture that all 3 of us will go through. I'll do the lion's share of the talking today. What you'll notice is a lot of these slides, you may have seen before from the previous investor presentation that we put out on the ASX. With some modifications here and there as we did release our quarterly results, so we've added some of that information into the deck. And certainly, 1 of the most important things to talk about will be the SPP and a little bit of an update on that process going forward. So with that, let's start going here, Barrie, and we'll go down to the first presentation slide. So this slide here, we've updated with quarterly information. It's just 1 of my favorite slides, right? In regard to what we have accomplished as an organization. Number one, just talking about who we are, right? We're an IVD medical diagnostic products company. But most importantly what we're really geared to is to point-of-care applications where we can deliver actionable information right there at the patient bedside. And really hopefully transform that practice of medicine for the doctor and the patient right there at the bedside. So we're thrilled, as everyone knows, we've received the 510(k) clearance with CLIA waiver from the FDA here in the U.S. This is something that I've been here for almost 4 years now in a couple of more months, and this is something that is really than something that we knew would be transformative for the company, and we're just thrilled that we finally have that and can start to implement our game plan going forward. In regard to that game plan, that CLIA waiver is what now allows us to go after 270,000 different locations or healthcare provider sites in order to access about 80 million patients a year that are diagnosed with acute respiratory infection. So in general, that's really an untapped $1 billion market for us that we're just thrilled to now be able to access. And getting ready for that, right, we signed a deal with PHASE Scientific. They are our exclusive distributor in the U.S., and they signed up for a 6-year commitment to us with a minimum volume that equates to a $317 million revenue to Lumos over that 6-year time frame. Now to speaking briefly about how did the business do and with the quarterly update, boy, we're feeling great, right? This is all based on really significant business that happened throughout the year or the first 3 quarters without CLIA waiver. Now we did get it at the very, very end, and we did get a great order from PHASE in relation to that. But we're having a fundamentally solid year as we are here with almost USD 11 million here in about 11% year-on-year growth so far. But probably the most exciting number is the fact that we did secure so far in the year, $3.9 million or almost $4 million in sales revenue for FebriDx. So that's just a great start. And we're looking forward to capitalize on CLIA waiver and continue to drive that number going forward. Overall, the services business continues to perform totally in line with what we expect with good, consistent margin for the business, and you would have seen throughout the quarter updates with Hologic and Aptatek and MicroPak in our quarterly as well. And then lastly, we continue to make sure that we're trying to do our level best to continue to bring money into the company. In addition to the terrific opportunities we've had to raise cash in capital into the company. Likewise, we try very hard to bring in non-dilutive funding into the company. And what I just represent there is that right, that's over $20 million in nondiluted funding that we've brought in over the last 3 years into the business, right? And very proud of that fact and things that we're trying to be very good stewards to the business and to our investors in that regard. Next slide, Barrie. So we get this slide. I'm kind of a little bit off center here. On the right-hand side to the left is the Board, including myself that have been together since I've been here. And then a few of my key people on the management team on the right-hand side. Really the takeaway here is that both from the Board and from leadership and management, we have a number of players on our team that not only have been very good at developing product and getting products registered and getting it on the market. We've also been very, very good about bringing products and launching those products successfully into global markets. So that's really a key point here is -- it's 1 thing to get a product to market. That basically gives us the license to hunt now, right, we're going to be held accountable to now we'll implement that and drive that revenue going forward. So we're really excited to begin to show and demonstrate our capabilities going forward in that regard. Go ahead, Barrie. Okay. For those new to the business, what are we trying to solve for here? I always like to think of things in terms of unmet medical need, right? So prior to FebriDx coming to market, the real question that people had when they had an acute respiratory infection, they go to the doctor and they say, well, what do I have, number one? And how can I best be treated, number two. And really, other than getting mostly, especially here in the U.S., a COVID and a flu test with flu A&B, called the combo test here. They get that test and then they take their other clinical symptoms. And the problem that presents itself to the clinician here is that whether your infection is caused by bacteria or whether it's caused by virus, you present with the same clinical symptoms. So it's very, very difficult on the physician to decide who should get antibiotics and who should not. And quite frankly, that is the rub here. What you see is that almost close to half the time, antibiotics should not be prescribed to patients because they have a viral infection, not a bacterial infection. And for us, what we love about FebriDx and what we think the market, both the clinicians as well as the consumer market from a standpoint of the customer mean a patient going to see their doctor, we can now solve this question. Is it cause? Is that a bacterial -- is that infection caused by bacteria or by virus. Next slide, Barrie. So this is the test, FebriDx, a simple finger-prick blood sample and in 10 minutes, you do the test, and it just gives you just wonderful performance, right? It can rule out a bacterial infection over 99% of the time. So that really helps the physician know. This is not a bacterial infection. Therefore, I should not give antibiotics. And it's a very, very simple test that's looking at what's called the host immune response, condition of the patient. We're measuring 2 biomarkers, one's called CRP, the other is called MXA and based on what this test shows up on its test line, it will tell that doc. What is this bacterial or in the U.S., non-bacterial answer. Go ahead, Barrie. Now what's also terrific about this for Lumos, for FebriDx and for our investors is the fact that, we do have just a wonderful patent estate, I'll call it, around FebriDx. As you can see here, 59 patents that we've applied for, we've now been granted 50 of those patents. And equally as important as the time still for -- before expiry of those patents. The earliest ones that are core to this begin to expire around 2038, and that's without any of the big extensions that we have that are pending. So we're feeling very, very good about being able to go to market, build this market and having time to actually be able to show the rewards of that work that we'll do over the next decade plus of time. Go ahead, Barrie. So a key item is just how does it work here in the U.S. from -- if you have an infection, you go to see the doctor or the urgent care. You present, you go to the check-in desk, you fill out your insurance information, they ask you what your symptoms and then they say, "Okay, we need to go triage". You go in a room to do your vitals and so forth, your temperature and all that. But if you present with acute respiratory infection like symptoms, they then will also give you a COVID flu test at that time in about 15, 20 minutes later after the triage. After the triage, you'll see the doctor. The doctor will have in hand that triage test of COVID flu and along with all your other vitals. And then that doctor will make that treatment decision based on that limited information. And as I said before, 40% of the time or more, they get that wrong about whether or not they should give you antibiotics. And then they will bill the insurance carrier to get covered for the visit by the patient as well as the COVID flu test. What we present as a solution to the doctor going forward, quite frankly, is something that just fits side-by-side with the COVID flu test. So now when you go into that triage room, everything still stays the same. But now in addition, you'll take a simple finger prick 10 minutes, you'll get the answer. And the doctor now will have 5 answers going into this. Do you have COVID? Do you have flu A? Do you have flu B? Is it caused by bacteria or some other virus? We don't know, but in general a virus. You have these 5 results plus your clinical symptoms, now they can make the most appropriate decision around antibiotic treatment, and then they'll do the billing, okay? I will point out just 1 thing that happens in the U.S. the physician does not get reimbursed or they don't bill nor do they get reimbursed for actually writing a script, okay? That's a pharmacy play, and it's something that happens elsewhere. So what they're just trying to do is let me make the right decision so that I do not have the patient reoccurring and coming back in a few days, and there's penalties in the payment system and so forth, if that happens. So they want to get this right and take care of the patient. Go ahead, Barrie. So as we've said before, we did launch this product over a year ago, but in the moderate complex. That's really to ERs and hospitals and so forth. The product isn't, I'd say the best product for that market. This is really geared for a simple ease of use like a COVID flu test for physician offices or urgent cares. So by getting the CLIA waiver, huge market expansion for us, huge opportunity, and we're really excited about going after this huge market of 270,000 different locations. Barrie? A key item to understand is how is that segmented, okay? Here on the left-hand side, you can see all the groups that are fit into this point-of-care CLIA waived environment. And what I just represent here is that there's 2 really critical areas. One is called the urgent care center. These are 24/7 medical offices that patients can go in with certain types of conditions and get certain types of tests and scripts and so forth or you go to your primary care physician, right, the GP office. These are the 2 key areas, okay? And then there are further put into how many locations are there. So 14,000 urgent care locations, but what's critical about that and what we're going after in that segment. About 300-plus ownership groups owns those 14,000 different urgent cares, okay? So that's 300. So that's an area that both PHASE and Lumos together are really driving, right? It's a pretty, I'd say, nice condensed group to go after at the C-suite to really drive this test uptake in, and we'll talk more about what we're doing there with WellStreet and other sites. And then the primary care groups, that's the 160,000 GP locations. That's a lot harder to hit, right, with just PHASE and/or Lumos. So that's where you use the huge U.S. distributor networks like Henry Schein, McKesson and others that will hit those primary care sites for us. So we're really, really excited about the opportunity to now take FebriDx into these environments. Go ahead, Barrie. So listen, we think that we -- on 1 of these guys go simple. And if you have a simple story and if it's understood, typically, it's going to work, right? So this is a very simple story about how you position this. Number one, to be successful, you have to have a clinical benefit. As we started out talking about, we're the only test that can do this. we can help the physician at the point of care easily with a very time-limited -- time to see that patient know is that acute respiratory infection being caused by a virus or by a bacteria, right? We're the only ones. It's an unmet medical need that we can address. Secondly, U.S. system is a pay-to-play healthcare system. So everyone who participates must make money, okay? So think of that as us as the manufacturer PHASE as the exclusive distributor to us, the sub distributors like McKesson and the doctor's offices, right? Everyone must participate in covering their costs and making some profit. So with our dedicated PLA code, right, which we secured well before our CLIA waiver, clearance from the U.S. FDA, we were able to secure that at $41.38. And given our COGS, we make money and all the other participants make money. We'll talk about that on the next slide. And then lastly, the final thing is this has to be very simple for a physician just to put it into their workflow. They have patient care continuum where they present, right, and then they triage, then they make the therapeutic decision and then they bill. And it needs to just fit into that tight little continuum very nicely, and this does it side by side with a COVID flu. Next slide. So this just gives you, I'm not going to spend too much time on it, and you can read this on your own, but suffice it to say, all the major players here are going to make profit on this to represent our interest. We'll make to start from day 1 about 60% gross margin on this product. Barrie and the ops team and so forth are working to plan that with volume growth and with our contracts with our suppliers, we'll be able to grow that to about 80% gross margin over the time frame of the PHASE agreement. So we're really excited about that. And then you can see here some good margin, healthy margin for the other players in this continuum. Next slide, Barrie. So a lot of people ask about the PHASE contract that we have and how it breaks down. This gives you a breakdown right, of what we've done with PHASE and you can see about the payments that they made to date. So here, you can see, so far, they've paid us $8.5 million to date, okay? And now we just have CLIA waiver. Now the real work begins, and quite frankly, the real revenue and real margin begins for all of us because now they're committed to another $308 million over the next 5-plus years here, okay, for years 2 through 6. So we're very, very excited about this. And this is 1 of those moments as a person who's been in this field for like 35 years. We're very, very eager now to go out there and demonstrate. Well, this is how we launch a product and driving in to use here in the U.S. market. Go ahead, Barrie. So we've talked about that continuum, right, from when the patient presents all the way to the billing. So understand that, that is a critical component here, right? You can have a great test addresses an unmet medical need. And it's pretty simple to use. But quite frankly, if the payers don't pay you for it or pay to a healthcare provider, it will not work. So right, we talked about those 3 boxes that are critical, that second box is the economics. And this is really critical for repeat customers and for the healthcare providers to be able to not only use the test initially to help, but then ongoing use of the test it requires them to get paid by their -- by the insurance companies in order to cover the cost of this test. So what you can see here is that, right, we are getting paid for this, Medicaid, Medicare, which accounts for 25% of payments, okay? We have secured that at the full amount of $41.38. So that's great news for all of us. Private insurance, which covers the remaining 75% of the patients out there, that is an active and ongoing process of getting them to ultimately write what would be called the formal payment policy to have it automatic. Right now, what we're seeing is, with working with WellStreet, and we monitor this with them, that 5 out of 8 of the national private insurers had been paying at the $41.38 or above, okay? So that is -- to be quite frank about it, that's just phenomenal, okay? A lot of companies, what they end up doing, they get their CLIA waiver, they get their FDA clearance, then they go try to get a CP -- they use a CPT code or try to get a PLA code, and then they get the amount that is going to be -- and that can take you like 3 years. We did all this prior, so it really sets this market up for us. And then we're monitoring this and a keen, effort is to work with 2 of our consultants, one is PRO-spectus, and the other is AcuityMD, and really tracking this in helping the clinicians get paid because ultimately, we can get our PLA code, we can get the CMS dollar value of $41.38, but ultimately, the physician must get paid by the insurers. Now we hire PRO-spectus to help them get it. And that is going to be a critical next step is just getting that momentum of the payments going from the payers to the healthcare providers. Go ahead, Barrie. So I talked about the -- I think what was that number, 14,000, Barrie, I think, of the Urgent Care's locations out there, and that's covered by about 300 ownership groups. Well, 1 of those groups, WellStreet, is made up of 163 Urgent Care locations, and we started a pilot program with them to basically kind of go back to that 1 little slide with those the triage room and the doctor and then the treatment decision. Just making sure this made sense and was simple and they could do it and WellStreet implemented that at 3 of their locations. And then as soon as we get ahead, received CLIA waiver, they said, "Okay, great." We can now put this into 43 additional sites and start rolling on this. Now what they also plan to do is right after that 43 are up and running, then they're going to bring on the rest of their 163 locations. And what's great about this is, right, they did 1.1 million ARIs, right, in 2024, okay? So that's going to be a great customer. Now they are a top 10 Urgent Care in the U.S., right, of those 300 different ownership groups. This is a top 10. So what we started to do now is we take the learnings from this, kind of turn us into a playbook for us with PHASE to now go after the other 300-plus of these ownership groups to get this implemented. And right now, as we've communicated before, we have this going, right, at pilots going similar to what we did at WellStreet at 8 other locations or 8 other groups across the U.S. currently. So a very, very exciting area. This is what we call in this business. You're going for the wells, right? These turning these on 1 at a time has a really large impact because all of these sites get activated, right? So that is a real critical step in our strategy going forward. Go ahead, Barrie. So this is FebriDx first from WellStreet. This is their turn that they used with us and everything. And what they're doing is something even a little bit different than what I was representing where we'll just add CLIA waiver -- I mean add FebriDx to a COVID flu test. They actually think it's in our best interest to get the right answer for the patient first, and they're going to do FebriDx first. And then based on that answer, they'll decide what other testing do they do, whether that's rapid strep, if it's a bacterial or should they do other tests like COVID flu and other tests. So this is just a terrific example of how they will go forward with FebriDx. Next slide, Barrie. So I'm going to be very, very brief here. I've already talked about this. A critical element aside from -- of the Urgent Care is just to go after a primary care. The GP offices. This is where we will use the huge distributors in the U.S. to go after that. Paul and team have been extraordinarily active over the last weeks, and implement -- it's almost been a month, I think, since we actually obtained a CLIA waiver. So they have gone to, I think, 3 different distributor annual meetings for training. They've been 2 significant conferences and showing how this test works and getting distributors up and running. So we're really looking forward to getting these distributors online, more than 2,000 of them across the U.S. to go after that primary care market. And then another item, which is really core to our use of proceeds is driving awareness, both to the physician and to the patient. And we're in the process of getting that project off the ground and running here over the next, let's call it, month. So very exciting from that standpoint. Next slide, Barrie. Okay. So the other large part of the use of proceeds is our scale-up operations. So that's a photo of our facility in Carlsbad, California. We will be significantly renovating that space to add the capacity needed to supply PHASE over the next 6 years what they need to sell to, to deliver the $308 million in revenue to us over the next 6 years. Next slide, Barrie. And Barrie, I'll turn it over to you for the financial summary. Barrie Lambert: All right. Thanks, Doug. I just wanted to go over some of the quarterly numbers in a bit more detail. Here, we've got the same charts we've presented previously. So we've got revenue on the left, revenue mix in the center and then net cash flow on the right there. So please, obviously, review this chart -- this chart, this slide in conjunction with the quarterly announcement yesterday, which has more detail in it. But just a few comments. And also just to remind everyone, our reporting currency is in U.S. dollars. So these are all in -- all these numbers are in U.S. dollars here. So revenue for the quarter was $4.8 million. You can see that in the chart there on the left, on the right-hand side, $4,822 thousand, which was 37% higher than the prior corresponding period, so Q3 FY '25. And you can see that in the chart there was $3.47 million on the far left, which brings our year-to-date revenue number to $10.9 million, which is, as Doug said, is up 11% year-on-year. Products revenue for Q3 was $2.4 million. So that's compared to $0.7 million in the prior corresponding period, with the majority of that product revenue being sales of FebriDx. So that's up over, I think, over 240-odd percent year-on-year versus the corresponding quarter. On the services side, revenue was $2.4 million for the quarter versus $2.8 million in the prior corresponding period across our 12 projects still. Strong contribution from the projects with Hologic. And the IP agreement with Hologic, but also the other projects we've announced recently with Aptatek and MicroPak. And MicroPak also recently just signing a supply agreement for us to manufacture their product for them, so the reader and the assay for MicroPak. One thing I would just point out, the IP revenue recognized in Q3 FY '26 was actually $0.8 million than the prior corresponding period. So excluding that item, our actual consulting revenue in Q3 actually grew year-on-year. It was just a reduction in the IP revenue that we recognized that caused the service revenue to drop there by $0.4 million. Just turning to the cash flow. You can see our net cash outflow for the quarter was $3.1 million. And just the definition of net cash flow on the bottom there is comprised of operating and investing cash flow plus lease payments. And if you actually -- so compare that to the prior corresponding period was $1.6 million. If you add up the 3 quarters for the year, you'll also get a cash outflow of around $3 million as well. Cash balance at the end of March was $1.1 million. And you would have seen in our half year financial accounts, we did draw down the line facility of $1 million just during the quarter. And just a couple of last comments on the cash flow. So as per our announcement on the 8th of April, we did receive placement proceeds, $20 million before costs. On the 14th of April, we did receive the $5 million prepayment from PHASE, and we have invoiced BARDA for the $0.5 million, their final milestone payment under the CLIA waiver contract. That $0.5 million will come in, in the next couple of weeks. So just some cash flow receipts since the end of the quarter. I think that's it for me, Doug, I'll pass it back to you. Douglas Ward: So overall, I'm really pleased. I think what we're seeing is we're delivering as we have said we would deliver for the company and, hopefully, for our investors from a standpoint of hitting our revenue growth numbers and seeing just the terrific increase in the FebriDx revenue number, especially from in this last quarter. So feeling great about that. And likewise, really, really positive in regard to now we can get rolling in implementing this PHASE deal and a significant uplift in revenue that we expect to get from them over the next 6 years as a business. So really, really just pleased with the results that we had in the last quarter, getting the CLIA waiver and now starting to implement our plan and the success that we've had in our first pilot with WellStreet, and then looking forward to translating that into just continued, what I believe will be a very, very successful launch for FebriDx for years to come. So with that, I think we can turn it over to the capital slides. Barrie, if you're going to go through those... Barrie Lambert: Yes, I'll go through those, Doug. So given we're still in the SPP window, which closes this Friday, the 24th, we thought we'd just go over a couple of the capital raise slides to remind folks, mainly around the SPP not going over the placement. So as many of you know, it opened last week. I think the key point here on this slide, a couple of key points. So new shares issued under the SPP offer issued on the identical terms of the placement. So the price per share is $0.225 -- so $0.225. We can see here the discount to the last close and the VWAP. Just moving down, I'll go through the use of funds on the next slide. Just moving down a little bit under the SPP, given that terms are identical, SPP offer participants will also be invited to apply for 1 option for every 2 new shares subscribed for. The exercise price on those options is $0.34, and they expire on the December 31, 2027. So those options are identical to the option offeror that the institutional investors received. The options are not quoted on the ASX. And obviously, new shares issued under the SPP ranked equally with all other fully paid ordinary shares. I won't go through this in too much detail. I mean the use of funds was outlined previously. Just a couple of comments. If you look on the right there, and primarily in the last command, the U.S. dollar common -- use of funds is really in 2 areas. Manufacturing expansion for FebriDx. You can see the $2.5 million and the $4 million there. And then sales and marketing activities for FebriDx. Marketing at 7.8% in the medical implementation team as well, which is really a team to go around and assist the clinics with the implementation of the product in their clinics. And just to remind everyone, again, quickly on the dates. As I said, it opened on the 27th and it closes this Friday. SPP closing date, Friday, the 24th of April. We'll do the allotment straight after that, on the 1st of May, and then they can commence trading on the Monday, the 4th of May. I think I've got -- just 1 final slide here. So I thought it would just be useful to put a little bit of information about the current share register for Lumos. So as at the record date, there was 3,744 shareholders on the register. And as I said, the SPP terms are identical to that offer to institutional investors. And majority of shareholders, so you can see there in the chart, 3,202 shareholders have a holding of less than about 133,000 shares. So the majority of shareholders have the potential to maintain their pro rata ownership post the capital raise by participating in the SPP. So I just thought it'd be worthwhile providing a little bit of color on the share register to just sort of highlight the number of shareholders that currently hold less than 133,000 shares. You can see the numbers for various other ranges as well. Sorry, Sam, go ahead. Samuel Lanyon: I think I was going to jump in as well before we jump into Q&A about this as well because these slides are in response to questions we've received before. And about the actual share register, composition, et cetera, and some of the decisions around capital raising. I think Jane has got a long list of questions alongside George, and we're trying to respond to them as fast as we can. We've got a relatively limited team. Most of the questions can be asked -- answered by Jane and George, but sometimes it involves the rest of the team to actually provide a response. So please be patient, doing our best to do that. When you look at this particular slide, one of the other questions that we had, which was to do with Barrie's last statement about pro rata. As a Board, we consider that with the SPP because the $30,000 cap is obviously legislated. We can't go above that. But we did look at that as part of the SPP and what percentage of the share register could do pro rata if an individual wanted to do that. It's actually 92%, so slightly different to this lens here of our register could actually put in up to $30,000 and maintain that position. We thought that was actually a really important point. The Board is always going to look to try and make sure that whether it's institutional, sophisticated or retail that they are the same terms. I guess in the SPP, there is a limit in terms of cap, but the Board did suggest that there was potential for oversubscriptions. I wanted to emphasize also because we've had to get into Q&A that Q&A is really important because it does influence us. We put this information in because we received questions around the SPP and the ability to get to the pro rata position and maintain position, et cetera. So this information is in response to some questions we've received from investors. Similarly, the PHASE Scientific announcement regarding the $5 million, that was large -- it was constructed a lot based on investor feedback as well. And we had questions about revenue versus cash and wanting to make sure it's very, very clear as to that new $5 million coming in, whether that was to do with old or new orders to be received. So I'm just encouraging everyone, if you got questions, please, by all means, get to us. If they're constructed professionally, we'll try and answer them very, very quickly as best we can. And we -- Doug and I had a call with a retail investor, I'm pretty sure you won't mind me referencing this. And here, it's really great questions that we went through with them one-on-one. He also mentioned some online information that he received, which he believed potentially came from the company, and it didn't. And it was really important for him to mention that to us because we could actually give him our position. And so for that reason, what I'm saying to you as investors, please feel free if you hear something or you want something clarified, get in touch with us, we will respond as quickly as we can. We've got a little bit of a backlog now. So please be patient, but we will get to it. One more thing, Jane, I want to mention in terms of investor engagement to the end of year financial results. Obviously, coming up later this year, the intention is for Doug to be in Australia. And to give you all an opportunity for -- if it works out, one face-to-face investor update. Details will follow at some later date once we lock those dates. Jane? Jane Lowe: Great. Thank you, Sam. Barrie Lambert: I'll just stop sharing, Jane. I think rest of the presentation is just the risks, which everyone has seen, I think. Jane Lowe: Okay. Yes. If you'd like to look at those, please review the presentation that's up on the ASX. So with that, thank you, we'll open up the floor to Q&A. Jane Lowe: We have received a lot of questions for a limited time. We'll get through as many as we can. So first few that came through via e-mail in the lead-up to the session. So in relation to FebriDx, is there an update on progress for Medicare rebates in Australia, Doug? Douglas Ward: Yes. Thanks so much for the question. And I think as you guys know, we've talked about this before. We are actively pursuing that process. Our initial attempt, we were unable to secure that, but we did get some great information to be able to proceed with another route through collecting additional local data and using the study, I think it's from -- Barrie help me out here, Wollongong, I think, is how you pronounce it, and I apologize... Barrie Lambert: University of Wollongong. Douglas Ward: Yes, sorry for that. So we'll be conducting a study there with a significant size, comparative study. We test more than just the FebriDx test, but that would go a long way to helping us in being able to justify and securing reimbursement there in Australia. So it is something that we're pursuing. But as most of you probably know, it does take time to be able to secure that. Jane Lowe: Thanks, Doug. Okay. Following on from that. Also, is it thought that Australia and other jurisdictions that the company is entering will follow the U.S. with its National Action Plan for combating antibiotic-resistant bacteria mandate that was recently enacted? Douglas Ward: Yes. So number one, I would say, listen, this is something that other countries have already done as well. So U.S. wasn't the first to do this. In fact, as I think Australia had something very, very similar back in 2023, if I remember when that was started there. We think that this is very positive, right, for healthcare on the whole and certainly can be for diagnostics, and we expect other countries will continue to drive diagnostics as well as antibiotic stewardship going forward. So yes, we think this is a good thing, and hopefully, we can leverage that at a high level. Jane Lowe: Thanks, Doug. What impact is expected from the recent decision in relation to the U.S. National Action Plan for combating antibiotic resistant bacteria? Douglas Ward: Yes. This is the same thing really just -- the U.S. version. So it's -- again, it's a positive thing. And we'll look to see how we leverage this over time. But as with most government programs and so forth, they take time to enact and move forward in, but we think it's a good thing for FebriDx and for Lumos possibly. Jane Lowe: Yes, great. Okay. Have you commenced discussions with other large clinical groups about FebriDx? Or is this PHASE's responsibility? Douglas Ward: Yes, that's a great question. And we get a few and we always get, hey, what is PHASE doing? What are they spending money on marketing-wise versus us and so forth? So I think -- let me give you this in a nutshell. One is both organizations are trying to do what is in the best interest for implementing in launching the product, meaning we, at times, do some things by ourselves like we're going after all the reimbursement stuff ourselves and working with our consultants, PRO-spectus and AcuityMD in driving getting all that in there. To go after these large sites like WellStreet, that's actually a tag team affair, right? We are both driving those together. Bob Gergen in his team and Paul Kase in my team -- in his team, these guys know each other very well. They know this market very well. They have great relationships. And together, we're stronger, right? So we aren't doing these things together. Now what I would say is, so they have -- they're going to be accountable for like managing all the dealers and distributors. So they have to buy, if you will, invest in the infrastructure and the people and everything to really drive that. They will also invest in all the conference marketing stuff and the ad board stuff, this classic marketing spend that does get expensive. And you got to go everywhere with it, and they'll be accountable for that and representing the product into the customers. We are going to, though, spend our marketing dollars in regard to that reimbursement app, but also creating product awareness, right, for physicians and for the consumer market as well. So again, it's a tag team affair. We think it's the best way to go after this, and drive this going forward. Jane Lowe: Thanks, Doug. I think you've covered a couple of questions at the 1 time in that response. So I appreciate that... Douglas Ward: Yes, I'm trying to do that. Jane Lowe: Yes. Well done. There is a specific 1 here, though. With the funds earmarked for marketing, do you plan to give regular updates on the use and benefit to Lumos of the marketing spend? Douglas Ward: Yes. Let me say, right, number one, just I know there was a question or 2. We don't provide guidance around the revenue numbers and our volume numbers at this stage, right? But we really think it's critical that we understand and have a dashboard of key leading indicators of, hey, how are we being successful and how are we driving that? What I just represent is that is a place where we want to get to. We're not ready for that today. So I can't commit to exactly what that is and what the exact time frame. But that's a great question. And one, the Board has right asked us as management for us to deliver to the Board. And then obviously, we can think about once we do that, how do we "appropriately" share that market at the appropriate time and makes sense. So it is something that we will work towards. Samuel Lanyon: Can I add a little bit of detail to that, Doug, as well -- because, obviously from the Board side, you from the management side, both of us have worked actually as competitors in our long distance past, Doug. And I think we both appreciate that in a distributor network, sometimes you lose fidelity of data because there's a couple of steps in the chain. And so the reason why Doug is saying that it takes some time to develop those leading indicators is because it's naturally difficult to get all the right data that's actually a really good useful leading indicator that you can continue to get day after day, month after month. So it's not atypical for that to be the case, which is the reason why I was referencing our past live because we had exactly the same situation. Jane Lowe: Thank you, both. Okay. And there are a few questions in here around forecast revenue, et cetera. I think you've tried to answer those here, Doug, at the moment. It's -- it would be -- we're not quite ready for that. But thanks for the questions. So back to the PHASE agreement. So of the initial orders from PHASE as per the agreement upon signing and CLIA waiver submission, how much is still outstanding from that $2.5 million, Barrie? Barrie Lambert: Yes. So from the $2.5 million that was prepaid, all of that product has been shipped and recognized as revenue. So that's fully consumed, okay. From the $5 million that we just received last week, none of that product is shipped, yes. So it's still to be manufactured by us. And when we ship it, we'll recognize it as revenue. So hopefully, that answers the question clearly. Jane Lowe: Yes. That's great. Conscious we're slightly over time but let's just get through a few more of these, if we can, and then we'll let everyone go on their days. So Doug, could you please provide a progress update on the pediatric study? When do you anticipate you will submit to FDA? Douglas Ward: Yes. So as I think when we do the last -- was it in our quarterly, Barrie, from last quarter... Barrie Lambert: Yes... Douglas Ward: You gave the update on the $720 million (sic) [ $720,000 ] I think it was called milestone 6... Barrie Lambert: $720,000 -- million would be good thing... Douglas Ward: Sorry. A better number, Barrie. Yes, like that. So anyway, milestone 6, so we received that. We're in process of moving forward toward milestone 7, and that would be the next announcement associated with this once that's achieved, and we're able to bill and invoice against that and get payment, then we would announce that in -- right on the ASX as normal. But it continues. It's not a short trial. We've -- I think we've consistently tried to say that that's something that's going to definitely go into the end of the calendar year, okay? So we'll give appropriate updates as we can. But as with any clinical trial, it's just, okay, you're accruing patients. That's the way it is. Jane Lowe: Excellent. Okay. Question here, do we need to wait until late July for the next sales and revenue update? That has been our cadence around quarterly reporting. Barrie Lambert: I guess 2 points from me on this one. Yes, the next quarterly will obviously be the Q4, which will be released at the end -- towards the end of July. I think as Sam and Doug have already said, if there's anything material, and we need to meet our continuous disclosure obligations, we'll announce those if they're material. But otherwise, it will be in the quarterly update. Douglas Ward: One thing to just add, I think around that is especially for FebriDx because right, that's the lightning rod of everything for us, and we love that. In the U.S., we have -- this is a seasonal -- this is going to be a seasonal play, right? Flu season for us is, let's say, at widest October to February and March. That's kind of the very, very widest time point for flu season. So as you can imagine, those off-season, your revenue numbers are much lower. In-season, your revenue numbers are much higher. I just say that to set expectations for people that there is seasonality to this. And we are now going to be coming up on our summer time, which is the lowest time for respiratory infection here in the U.S. So just -- I give you that, it's just some education on the market dynamic here. Jane Lowe: Couple of interesting segue questions from there. So the first 1 is ever considered expansion into veterinary healthcare as more antibiotics are prescribed for animals than for humans. Douglas Ward: Whoever gave that question, if they have expertise in that, I'd love to talk to them, right? Listen, it sounds like an opportunity, right? I'd always look at opportunities. And that's a great market, especially in the U.S., I assume it's the same for Australian, right? I have 2 labs and you'll do anything for them. So listen, the vet market is a great market. Barrie Lambert: Well, we are doing -- in the service business, we are doing a project for a vet healthcare company. We're not allowed to provide the name or the type of product, but it is certainly -- it was certainly 1 of our clients who is very interested in that space. Samuel Lanyon: Can I give a slightly different response, Jane. I mean, work in diagnostics as well. 1 of veterinary yet lower regulatory requirements and the clinical trial costs and all that sort of stuff. So when Doug talks to the cost of clinical trials, the seasonal nature of our business, all of those sort of things, it's really great to be sitting here with the first product in market with all of those barriers to entry for competition because we do have competitors. We are aware of companies that are working on things that are striving to get to the point that we're at. And so focus is a really important thing that we, as the Board continue to talk about with management and our services is naturally quite broad in terms of who we work with and if people pay us, then obviously, it builds capability and all those sort of things. But I also want to stress the CLIA waiver is a transformational opportunity. There's a lot of work to be done there. So for that question that came in from that shareholder whilst it's an interesting thing that Doug might want to follow up on. I do think it's really important that we make sure that rubber meets the road. Jane Lowe: Thanks, Sam. Good focus. We do have a question on pipeline. I'll ask that quickly in a minute, but let's just go back to FebriDx for a second. How much of the U.S. groundwork translates to progressing Canada, U.K. and EU markets? Douglas Ward: Yes. Good question. Just so that you guys noticed I did run point-of-care diagnostics for what was Bayer and Siemens at 1 time and lived over in the U.K. for many years. So I think I know these markets pretty well. The good news is they do translate, but there is a time lag. And a lot of that has to do with the whole reimbursement system and nationalized healthcare and getting payments and payment for the product and so forth. So yes, I definitely see this as something that will translate, but there will be a time lag before it really starts to take off there. Jane Lowe: Okay. And we might just make this one our last question. Again, we've probably got another 10 in the queue. If we didn't get to few, apologies. But as Sam mentioned earlier, please feel free to follow up with IR and we'll get back to you as quickly as we can. So final question, noting your comment around focus, Sam, any quick comments on other potential products in the pipeline, Doug? Douglas Ward: So we continue to work with our women's health portfolio, but you guys understand, right? That is a feasibility stage. And you'll note that we have, I'd say, small R&D dollars dedicated to that currently. And that's what we need to have from a focus standpoint, right? We'll work on the women's health portfolio at a feasibility stage. And when it's appropriate, appropriate stage, we'll announce to the market, hey, how did we do? I mean, what comes out of that or not going forward. But yes, we continue to progress that. It's just -- right now, the focus is FebriDx. So you get most of the comments are going to be around FebriDx right now. Samuel Lanyon: And I think the -- add to it. I know the comment about focus, Jane, but we're looking for synergies in the organization where -- so the second and third and fourth products don't cost the same as the first one, right? So whether that be strategic relationships, whether that be cost synergies and commercialization, all those things, and the Board along with management proposed the women's health opportunities to us, and we could see some of those synergies. And so that's the reason why we're working on it. Jane Lowe: Okay. Well, thank you. Appreciate everybody's time. We've gone over a little bit, and there are still a lot of people on the line. So thank you for that. Doug, I might just hand back to you for any closing comments. Douglas Ward: Yes. I would just say thank you very much for taking the time today to talk to us. We do sincerely appreciate that. We greatly appreciate the support of our investors, and we'd love to have new investors, but also the SPP is live and will continue here, and we'd love to get people and further invest in take advantage of, I think, a great opportunity right now to invest in the company. Well, we are just at the very, very beginning of what I think is going to be a transformative company in the medical diagnostics space here. So again, thank you, everyone. We greatly appreciate it, and we look forward to giving you more updates as we go. Jane Lowe: Perfect. Well, with that, I'll add my thanks to everyone, including Sam, Doug and Barrie for your time today. And with that, invite everyone to disconnect. Thank you for your time. Samuel Lanyon: Thank you. Douglas Ward: Thanks, everyone.
Operator: Ladies and gentlemen, welcome to the Q1 2026 Results Conference Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christopher Sheldon, Head of Investor Relations. Please go ahead, sir. Christopher Sheldon: Good morning, everyone, and thank you for joining us for our first quarter 2026 conference call. I'm here with our CEO, Vincent Warnery; and our CFO, Astrid Hermann. As always, we will start with a presentation of our sales performance of the quarter, followed by a Q&A session. And with that, I'd like to hand over to Vincent. Vincent Warnery: Thank you, Christopher, and good morning. Welcome to today's conference call. Astrid and I will walk you through our sales figures for the first 3 months of 2026 and update you on the key strategic initiatives we are executing to strengthen our business. This includes an update on our ongoing NIVEA rebalancing. Our Q1 sales were in line with our full year 2025 a few weeks ago, we anticipated a chart 2026 with several factors impacting La Prairie and NIVEA new sales performance. Our Derma business continue to demonstrate outstanding growth, fully delivering on its strategy. La Prairie faced headwinds through disruptions in the U.S. department channel and travel retail in China. Finally, NIVEA's first quarter net sales development is challenged, but we are making progress on NIVEA rebalancing. I will share more details on this a bit later. How does this translate into numbers? In Q1, we saw an organic net sales decline of 4.6% at group level. Our consumer business declined by 4.7% organically. Derma delivered an outstanding plus 8.2% organic sales growth. Healthcare was up plus 1.9% on top of a difficult prior year comparison base. NIVEA and La Prairie faced headwinds with net sales declining by 7% and 14.9%, respectively. The underlying sellout performance, however, showed an improving trend, making us more optimistic for the coming quarters. Tesa ended the first quarter with an organic net sales decline of 4.3%, mainly as a result of phasing-related double-digit growth in the first quarter of 2025. Our first difficult quarter performance was anticipated and reflected in our full year guidance for 2026. We continue to believe in our ability to return to growth as the year progresses. Let's review the derma performance with our brands, Eucerin and Aquaphor. With an outstanding 8.2% organic sales growth, we again significantly outperformed the derma market, which is growing at low single-digit rates. This underscores the strength of our portfolio and the successful execution of our growth strategy. Our success is driven by 2 pillars. First, our innovations. With our breakthrough in ingredients, Epicelline and Thiamidol endorsed by dermatologists, Eucerin continues to lead the way. Consumers are increasingly seeking science-backed efficacious derma products. And second, our successful expansion into white spaces. Three examples of these white space expansions are North America, Brazil and China. North America, Derma's largest region delivered strong 7% organic sales growth driven by double-digit Aquaphor performance and the continued momentum of Eucerin Face, including Thiamidol. Eucerin in Brazil was able to more than double its net sales in Q1 and is close to the #3 position on the market only years after being #15. A key driver of the recent success is Eucerin Epicelline. Lastly, our Derma business in China is showing continued high double-digit growth, a clear testament to the successful rollout of Thiamidol on the domestic market. Let's continue with La Prairie. Q1 was impacted by disruptions in the U.S. department store channel as well as travel retail in China. Both had a significant negative effect on the Q1 sell-in performance with net sales declining by 14.9% organic. However, this was not an indication of the underlying sellout demand. Retail sales, excluding disruptions, grew close to 10% in the first quarter. A key growth driver continued to be China in the fourth consecutive quarter. We remain cautious on the outlook of La Prairie in a volatile luxury skin care market environment, but continue to see green shoots from its reposition strategy. Now let's have a closer look at NIVEA. In line with what we showed you at our full year call several weeks ago, the mass market environment remains challenging, which is negatively affecting NIVEA performance. As we ended the year 2025, market volumes were flat and continue to be flat in the first months of 2026. In addition to the market environment, 4 main factors negatively impacted NIVEA net sales in Q1. First, NIVEA lapped 2 strong prior year first quarters, leading to a more difficult baseline. Second, certain trade negotiation conflicts in Europe have had a negative net sales effect. Third, the sell-in of our major innovations, Epicelline and Derma Control lifted NIVEA net sales in the fourth quarter of 2025, while most of the corresponding sell-out was absorbed in Q1 and no new countries were launched in the new year. Lastly, NIVEA's core portfolio has not returned to growth yet. However, the dynamics are improving as we are implementing our rebalancing strategy to restore NIVEA growth. But before we deep dive into the rebalancing, I want to demonstrate that also global innovations remain a cornerstone of NIVEA's strategy. NIVEA Epicelline continues to be on track. We have already been satisfied with the sell-in and sell-out performance and are pleased to confirm that also the repurchase rates looks promising. In fact, the initial repurchase rates and intentions to repurchase figures of the NIVEA Epigenetic Serum in Europe are comparable to the figures of Eucerin in 2025. Let me now take a few moments to remind you of our NIVEA strategy recalibration, the rebalancing of the portfolio. What do we mean by rebalancing? It's a shift in how we allocate resources and drive growth at NIVEA along 3 pillars. First, portfolio. We are broadening our focus across our key franchises, face care, body care and deodorants. In practical terms, this means that we are shifting marketing and innovation efforts to strengthen all 3 categories. Second, accessible face care. We are rebalancing the focus also to popular face care products at a more accessible price range next to the premium face care lines like Luminous and Epicelline. And third, local relevance. Next to major global franchises, we will support important local product lines by giving key markets, for example, China, the U.S., India, Japan and Brazil, greater flexibility in local execution. This is what we call localization within a frame, empowering our regional teams to develop and activate products that resonate with local consumers while maintaining the integrity of the NIVEA brand. Let me elaborate on 3 specific initiatives. First, body care in emerging markets. In our emerging market regions, we began to rebalance our marketing budget to body care in September last year. In addition, we focused our portfolio on the right franchisees with the right assortment in the right countries and reached our global advertising approach with local storytelling. We also stepped up our efforts with the influencers and further improve in-store execution. As an initial results, we have seen NIVEA body care and also overall skin care market shares in emerging markets moving to positive territory this year in terms of both value and volume. Second example, deodorants in Europe. As part of the Derma Control launch in the fall of 2025, we shifted marketing budget towards deodorants. This did not only help to promote Derma Control by the positive [ alloy ] effect on NIVEA Deo as a category. Together with assortment optimizations, it led to regain customer and consumer attention for NIVEA deodorants. As a result, the NIVEA Deo market share situation in Europe improved and recorded market share gains in the first months of this year. And third example, Luminous Glow in emerging markets, a global innovation adapted to local needs. NIVEA Luminous initially struggled to scale in emerging markets due to its premium positioning. To unlock the full growth potential, the product was locally adapted across assortment, packaging, pricing and activation. This was implemented at the launch of the Luminous Glow line. Thailand was the most prominent proof point. The launch of sachet formats, stronger claim communication and intensified influencer activation drove rapid consumer uptake. As a result, Luminous Skin Glow achieved a significant market share uplift and quickly became the #1 serum in the market. As demonstrated by these examples, the rebalancing of NIVEA is underway. The measures will take some time to show their full impact, but NIVEA's current sellout dynamics already show a substantially better performance than the net sales decline in Q1. In fact, NIVEA's year-to-date sellout grew by 1.7% following 2 quarters of negative growth. These early indications make us optimistic that we are on the right track and that our rebalancing strategy is working. Before I hand over to Astrid for tesa in the financial review, I would like to turn your attention to China, one of our key white space markets. At this time last year, I presented to you our ambitious plan in China to put our house in order. We implemented comprehensive restructuring measures, especially for NIVEA to lay the foundation for future success in this important white space market for Beiersdorf. Our efforts are starting to pay out -- off. And we saw impressive growth across all 3 major brands in the first quarter of 2026. NIVEA increased net sales by 1/3 and Eucerin net sales grew in high double-digit territory. Also, La Prairie showed an impressive 12% retail sales growth, which is not a reflection of the weaker net sales performance in the quarter. And with that, finally over to you, Astrid. Astrid Hermann: Thank you, Vincent, and good morning, everyone. Let's take a look at tesa's performance in the first quarter. Net sales declined by 4.3% organically, in line with expectations and as reflected in the full year guidance. The decline can be attributed to a high prior year comparison base in the electronics business. This was related to shifts in some customers' production footprint as well as adjusted order patterns. The automotive sector remained challenging with tesa outperforming the market, especially in applications for new energy vehicles. The Consumer segment was impacted by strong performance in e-commerce. Let me now take you through some further details of our Q1 performance. Beiersdorf Consumer business net sales declined to EUR 2.077 billion in the first quarter of 2026 at an organic growth rate of minus 4.7%. Adverse foreign exchange effects resulted in lower nominal growth of minus 7.7%. Our tesa business recorded an organic net sales decline of minus 4.3% in the same period, closing the quarter with net sales of EUR 407 million. Due to unfavorable foreign exchange effects, nominal sales declined in line with the consumer business by minus 7.7%. As a result, the group generated net sales of EUR 2.484 billion at organic and nominal growth rates of minus 4.6% and minus 7.7%, respectively. Looking at our Consumer business across regions. The negative performance across regions is mostly attributable to the challenging net sales performance of NIVEA and La Prairie in the first quarter, while the underlying sell-out performance is positive. North America, Western Europe and the Africa/Asia/Australia regions were impacted by additional factors I would like to explain in more detail. North America was negatively impacted by the retail disruption affecting La Prairie as well as Coppertone. Coppertone weighed on the first quarter performance as we are streamlining the portfolio to focus on the sports segment as well as promotional phasing shifts of net sales between quarters. Excluding these factors, the organic net sales growth of North America increases to plus 3.2%, mainly driven by the strong Derma performance. Western Europe was adversely affected by the disruption of travel retail in China. As you will remember, we record La Prairie's travel retail business in Western Europe, which was 130 basis points headwind to growth in Q1. Lastly, the crisis in the Middle East weighed on the Africa/Asia/Australia region with 170 basis points headwind on growth. Excluding the Middle East, Africa/Asia/Australia would have grown by 1.1%. Back to you, Vincent. Vincent Warnery: Thank you, Astrid. To conclude, Q1 was a challenging start to the year, but in line with our expectations. Our Derma business remains strong. NIVEA and La Prairie showed an unfavorable net sales performance, but positive sell-out dynamics point to an improvement in the quarters to come. Based on this, we are confirming our 2026 guidance. For both our Consumer and tesa business, we continue to expect net sales to be flat to slightly growing organically with an EBIT margin, excluding special factors, slightly below the previous year. At group level, this translates to net sales flat to slightly growing organically with an EBIT margin, excluding special factors, slightly below 2025. With that, we're happy to answer your questions. Over to you, Christopher, for the Q&A. Christopher Sheldon: Thank you, Vincent. Now we're ready to go to the Q&A. [Operator Instructions] And we will start with Jeremy Fialko from HSBC this morning. Jeremy Fialko: Just one sort of technical one to start with is whether you can give us the NIVEA sort of full Q1 number, whether you have any data that goes to the end of March. I saw the slide just took you to the end of February. And then secondly, perhaps you could just talk a little bit about the kind of the cost situation and what you'll see from that perspective given some of the higher inputs and to what extent that puts greater risk on the margin side of your guidance? Vincent Warnery: I will -- Jeremy, I will take the first question and Astrid will take the second one. Your question about NIVEA. So the market share, the data we have is only until end of February, and that's why we're looking at year-to-day February. In fact, you have -- if you -- the bridge between the net sales and the sell-out, you have 3 factors which explain that. The first one, which is obvious, I mentioned that already in the yearly call, we have an innovation phasing. And we did 100% of the sell-in of the 2 big launches, which are Epicelline and Derma Control in the Q4 2025 and even more in November, December. So obviously, all the countries have been sold in, we have to absorb the sell-out in the first quarter. The second element, which is also important is that we have a market dynamics, which is flat. It's really 0% growth, and it has an effect on the core business, which remains negative, and this is what we have to correct. Third element, which we were not expecting, obviously, is the Middle East crisis. I think Astrid mentioned that. It cost us 50 basis points of NIVEA growth. And the last element, which took place partly in March, we have some retailer conflicts. We have clearly some discussions with retailers, particularly in Germany and France, which are willing us to decrease prices. We are not willing to do that, and we will not accept any pressure to go in this direction, especially at a time when we have this uncertainty with the Middle East crisis. So all of that makes a difference between a negative quarter in net sales and a positive quarter in sell-out at plus 1.7%. On your second point. Astrid Hermann: Jeremy, on the cost situation. So the immediate impact, given that the direct impact of oil and gas on us is relatively limited, primarily on the logistics side, has been manageable so far. We're obviously really watching the supply situation and ensuring that we are set there, really emphasizing that. We are working through, obviously, many different scenarios, as you can imagine, on what could come if this crisis is staying for longer that clearly could trigger significant cost increases. And we will then obviously look at all the tools we have to ensure that we can offset the impact from that pressure. Jeremy Fialko: Sorry, just a follow-up. Could you give us a bit more color on the retailer disputes and to what extent those are resolved or to what extent they will carry on affecting the business into Q2? Vincent Warnery: So it's under negotiation right now. And hopefully, we'll have some good results in the weeks to come. It's clearly focusing on, as I said, France and Germany. It's about a few retailers which are willing us to decrease prices, which is absolutely something we'll refuse. So we are discussing, we are exchanging. Hopefully, we'll have a solution because it's really limited to a few specific retailer in the coming days or weeks. Christopher Sheldon: The next question is from Callum Elliott of Bernstein. Callum Elliott: Maybe I could just start with following on from Jeremy's theme, looking at your slide on sell-out. If I look at the Q4, it shows sell-out basically flat and you reported kind of plus 2-ish on NIVEA. So let's call it 2 percentage points of inventory build on NIVEA in Q4. Then you show positive 1.7% year-to-date versus the negative 7% that you've reported. So there's sort of 2 percentage points of stock build in Q4 and negative 9 percentage points of drag in Q1. Should I infer from that, that the majority of the negative 9 percentage points gap between sell-in and sell-out is the retail dispute rather than destocking? And maybe you can just help us understand the discrepancy between the plus 2 percentage points in Q4 and the negative 9% in Q1. Vincent Warnery: I will give you the bridge. It's just to get the figures right. You have a decline in Q1 of NIVEA of minus 7% and you have an increase of sell-out of plus 1.7%. If you try to separate the different elements, as you mentioned quite clearly, you have 2 points of growth, which is the sell-out of the sell-in we did in Q4, you're absolutely right. You have 2 points which are linked to the retailer conflict. You have, I would say, 50 basis points, which are linked to Middle East. And the rest is the evolution of the core business, let's say, 3%, which we have not yet been able to turn around, and this is what we are looking at with a good example I mentioned to you and deo in Europe, body in emerging markets and body and face in emerging market. This is what we are willing to improve through this rebalancing, but you got the math right. Callum Elliott: Okay. Perfect. And maybe just a follow-up on the other sales, Coppertone, Chantecaille, et cetera. I think by my calculation, that sort of division, if I can call it that, is down 25% in reported terms in Q1. And I don't think you talk about it at all in the press release. So could you just give us some color on exactly what's happening in that division? Is it still just ongoing Coppertone weakness? Or is there something else going on there? Vincent Warnery: So Coppertone, there was clearly a phasing change. The fact that one of the biggest U.S. customer decided to order in December because the Easter it was earlier than planned, makes us -- make a very nice Q4, but a very low Q1. So it does not impact the sell-ut. The sell-ut is pretty good now that we are focusing on sport. We are growing. We are even growing in sport at 7.6% in sell-out, which is something we never had since we bought the brand. So that's more this phasing issue in terms of net sales. The rest of the brand, Chantecaille is obviously hit by the same phenomenon as La Prairie. So we have the Saks Fifth Avenue issue that is not sold. We sold -- we are selling back to Saks since March. And you have the change of travel retail operators in China. But the rest of the business is doing well. And particularly, we are pretty happy with the U.S., if you exclude the Saks issue because we are growing in the U.S. and gaining market share. That's the 2 main brands. You have other small local brands, but not really relevant for the figures. Christopher Sheldon: And the next question is from Warren Ackerman with Barclays. Warren Ackerman: Yes, a couple from me as well. The first one is just on the organic growth guidance. Given the slow start, Vincent, the minus 4.6%, how do you get confident on the full year guide. I mean you've obviously got a lot to do in the balance of the year. It doesn't look like you've got much wiggle room. Can you maybe sort of give us some of the building blocks to give us the confidence that, that guide is realistic? And maybe if you're able to say whether you think the Q2 organic growth might be positive given the sort of sell-in, sell-out dynamics you've talked about? And then the second one is maybe a little bit on emerging markets because we still got Eastern Europe down, I think, 8.2% and LatAm down maybe a bit better than it's been trending. But can you maybe sort of outline the rebalancing of NIVEA, how confident you are that you can get some of these big emerging markets back into better territory? How long is it going to take to see that kind of negative swinging back? That would be helpful. Vincent Warnery: Sure, Warren. So we are maintaining the guidance for 2026, as I mentioned. We are -- indeed, I would say what is pretty safe is Derma. We are seeing clearly very nice growth ahead of us. We have not only ambitions for Eucerin, but also for Aquaphor. And the fact that we have this extremely strong results in all our white spaces. I also could have mentioned India, I could have also mentioned Japan. We just launched in Japan, make us pretty optimistic. So Derma will continue to be the growth driver of Beiersdorf for the quarters to come. We are also expecting now that we are out of the disruptions in luxury that now we are selling back to Saks Avenue. We have also the 2 new retail operators in Beijing and Shanghai. They are working. The app is working. So we are back to normal, and we see some pretty nice traction. We have also, as you might remember, a very interesting launch with a more affordable line for La Prairie, which will allow us also to enlarge our distribution, not only to Amazon in the U.S., but also to other retailers in which we are not today because of the price level of La Prairie. So pretty positive about La Prairie. The question is NIVEA. What is making us optimistic is that we are growing in sell-out. The plus 1.7% I was mentioning includes positive sell-out in all regions. And Europe, for example, which obviously is important for us, we are growing also in sell-out, plus 1.1%, which is the first time since a long time. So we see that the rebalancing is starting to pay off. Obviously, one of the questions for Q2 will be the sun season. We've been very successful in the last 2 years. So we are ready to embrace a pretty nice season. So on this basis, we believe that Q2 will be flattish back to growth, slight growth, but we will clearly do better than Q1, and this is why we maintain the guidance. On your second question about Eastern Europe. Eastern Europe was not so much linked to the focus on premium face care because this is -- we are mostly selling personal care and the body product, was more the strong development of local and Korean brands. and also some retailer issue that we have to tackle. So retailer issues, we are good. We have a good conversation with the retailers, and we have also -- I think we'll be more proactive in the way we embrace the strategy. We will develop some exclusive partnership with some retailers. And back to growth on the key categories. As I mentioned, we are positive on the deodorants, and this is essential for Europe, not only for the growth, but also for the profit. And we are also preparing a pretty nice launch in body and face. So we are not yet positive on Eastern Europe, but I think we have a good plan, and we should see some progress in the -- starting in Q2. Christopher Sheldon: And the next one is Celine Pannuti from JPMorgan. Celine Pannuti: So my first question is on Middle East and the impact of the geopolitics. So from what you said, there was 170 bps impact on AAA. And so at the group level, I think it's like 40 basis points only for a month. So could you explain what that is and whether there was as well extra impact on travel retail? And what have you baked in for the potential impact of that in the second quarter? And coming back on the COGS, I mean, clearly, we don't know -- there's a lot of things we don't know, but we also see that the spot prices is higher, that there are potential shortages of some derivatives of oil. So at this stage, is it fair to assume that already in the second half of the year, you are going to see a higher COGS inflation than what you thought at the beginning? And if you could give us a bit of an idea on that? And what measures are you planning to take whether pricing or cost savings to offset that? My second question is regarding AAA. So I understand that there was an impact from Middle East, but nevertheless, growing 1.1% versus, I think, growing 9% in the fourth quarter. I was quite surprised because you should have had the positive impact of comp from China as well as the strong sell-in that you did in Thiamidol. So can you say how much -- how China was growing in the quarter. What happened maybe in other regions if it was not the issue in China? And then how should we think about that region going forward? Astrid Hermann: So Celine, I will answer your question related to the impact on costing. So as you might imagine, we are currently protected at least in the current quarter, to some extent also in the next quarter through the contracts that we have, which is good. Immediate impact, as I already mentioned, obviously, on logistics, clearly, and we are managing that. Yes, as we are looking into, obviously, contract negotiations for the back half, we will start to see some pressure there. We are looking at various scenarios. I cannot give you here numbers at the moment because it is very fluid. And of course, we will need to then make plans on how to offset those. It will be looking at everything, including, to be honest, pricing that we will need to look at for the back half if this continues. Vincent Warnery: Your second question, Celine, as you know very well, China is not a big part of our business, at least on the NIVEA and Eucerin in France. So the fact that we are growing double digit in China is obviously very important for us. But we have also a big part of the business, which is done in Southeast Asia, where we are suffering from the same issue that we had in other part of the world with NIVEA being done on core. So the good news, as I mentioned, that we are back to growth on face care with the launch of the sachet glow. We have also some local issue. Thailand is obviously impacted by the border conflicts with Cambodia. Thailand is a very big country for us. We don't sell in some big areas of Thailand. We have also a big pressure from local brands in Indonesia. So I would say in the good side, you have a very strong business in Northeast Asia and India, double digit. Low side, you have the Thailand and you have Indonesia. This is why all in all, you end up with plus 1.1%, knowing also, as I mentioned, that we are also destocking further in China. We want to be extremely by the books in terms of stocking in the brick-and-mortar La Prairie China. So we have also managed to reduce our stock to the absolute best situation possible in the first quarter in order to embrace also the coming launches in Q2 and Q3. Celine Pannuti: Sorry, just to follow up. Can you give me what exactly the number is for China? Because like double digit seems to be for Eucerin. So what is China all inclusive La Prairie, Eucerin and NIVEA? And then can you explain the Middle East impact that you saw in Q1 for 1 month? And what should we expect for the coming quarter? Vincent Warnery: Okay, good. So in China, we're doing pretty well. We have a very strong NIVEA growth. We are growing NIVEA at plus -- India, we're in India, plus 18% net sales, gaining market share on every category. You might remember that we launched Luminous. Luminous has got a very good start. We launched a specific galenics with tubes in order to be accessible for the majority of consumers. So we are already a pretty good market share. We're also relaunching our core business. NIVEA Soft. India is the #1 country in the world for NIVEA Soft. We are gaining 5 points market share, which is pretty -- so you're asking about China or India, Celine? Celine Pannuti: China. Vincent Warnery: China. Sorry, my mistake. Sorry, sorry. My mistake. So China, we are growing in -- on NIVEA at plus 22%, and we're growing on Eucerin at plus 87%. So if you look at China NIVEA, the biggest part of the growth is coming from face care. I know this is a category we have been launching with Thiamidol. We are going on NIVEA face care at 71%, gaining more than 2 points market share, which is very big for us on NIVEA. Eucerin is flying. Eucerin, we are growing at 87%, so which means that we have already, after only 6 months on the market, we -- our euro product, which is the Thiamidol serum is the #1 derma anti-pigment serum on the market. So we are extremely happy with Eucerin and I'm very, very optimistic with NIVEA. And the last information was La Prairie, the retail sales, we are at plus 12%, and this is the fifth quarter in a row that we are growing double digit in China. So this is a mix of both brick-and-mortar and also a very strong success online and particularly with Douyin, which is TikTok. Celine Pannuti: Okay. And Middle East? Vincent Warnery: Middle East. Do we have the figures of Middle East evolution? We are -- so Middle East is 3% of our sales. If you look at the total, and we are at minus 50% in Middle East. So we are not so much suffering... Celine Pannuti: 50%? Vincent Warnery: 50%, 5-0 in Middle East for NIVEA and Eucerin. It's a small business for La Prairie. We are not suffering in sellout. That's a good news because we've been able to find ways to stock the retailer in due time. We are suffering in net sales, so which means that no issue on the consumption on the sellout, but we hope to be able to continue to find ways. We are extremely creative using all the means you can imagine to drive our product to Middle East. So we are using the other routes like everybody is using [ Salala, Core Fegan, Yeda]. We are rerouting as much as we can to be sure that we can serve our consumers. So again, nobody can say what will happen, especially now today, but we have found ways to serve our consumers as much as we can. Christopher Sheldon: Thank you, Celine. Then the next one is David Hayes from Jefferies. David Hayes: Just to quickly follow up on that. Just that minus 50% Middle East, I guess, that's March you're talking about. Is that right rather than the quarter? Just to clarify that first. Vincent Warnery: Yes. David Hayes: The 2 questions I have, just again sort of reconciliation. So 2nd of March, you reported the full year, you guided to low single-digit decline in the quarter is gone -- first quarter. Obviously, you did mid-single-digit decline. You talked about the Middle East circa 50 basis points. So I'm still struggling to see what happened in the month of March that was not expected? I guess the SAC dynamic, the La Prairie travel retail dynamic, all of that would have been known. So just trying to still reconcile why there was that underperformance relative to what you expected 5 or so weeks ago. And then secondly, on the profitability and delivering on the margin, there's a very big contribution last year, EUR 90 million in other income and expenses that is within the underlying margin. I think a big chunk of that was a reversal of provisions. So I just wonder whether you can give us any visibility or guidance on what that number looks like this year in terms of delivering on the operating margin guide, whether that's going to be a similar number or even bigger potentially, which helps with the profit delivery. Vincent Warnery: I'll take the first question, and Astrid will answer the second one. Very simple, 2 news, which we're not expecting. One, as you mentioned, the Middle East crisis. So we were not expecting to lose sales in this part of the emerging market. The second element, we got tremendous pressure from some retailers to close the deal before the quarter according to their expectations. I didn't want to accept that. So I don't want to decrease our prices. So we refused that, which impacted obviously March. Astrid Hermann: In terms of profitability, David, obviously, we manage our SOI overall. We are actively managing also that line of the SOI, and that is built into our guidance. Thank you. Christopher Sheldon: Then the next question is from Guillaume Delmas of UBS. Guillaume Gerard Delmas: A couple of questions for me, please, both on NIVEA actually. The first one is on the NIVEA recalibration strategy. Vincent, can you maybe shed some light on the marketing support you are planning behind this initiative? Because I think your margin outlook seems to signal relatively flat A&P spend, both as a percentage of sales and in absolute terms. So just wondering how you will make sure you get the maximum traction on all these initiatives under NIVEA recalibration. And then my second question, it's still on NIVEA, but the brand declining by 7% in Q1. Could you maybe share by how much volumes contracted in the quarter? And which key categories, regions you are seeing the most pronounced volume share losses? And still on the volume point, I mean, what does it do to your capacity utilization and more broadly to your operational leverage? Vincent Warnery: On your first question, if you -- you might remember that what I explained also that the face care category is extremely expensive in terms of working media. So you have to -- when you do a launch, you have to spend at least [ 10% ] of the net sales in marketing budget, which is what we did for Luminous and Epicelline. But overall, you are clearly above 40% of your net sales in working media, while the other categories are much cheaper. If you look at body care, if you put at deo, you are more into the high single digit or low double single digits -- low double digits. So in fact, rebalancing part of this extra investment on face care on deo and body is already making a huge difference on deo and body without impacting so strongly the investment you put on face care. This is what we have been doing. We started to do that in September on deo in Europe, and you saw already the results. We are doing that also in emerging markets since September on body, and it is also paying off. So we believe that with a pretty stable marketing budget, just by having this rebalancing, we can have a pretty nice effect on the sell-out. And again, this is what we are seeing in both regions on the 2 major categories, which are deo and body. I think Astrid, you take the second one. Astrid Hermann: Sure. So Guillaume, on NIVEA, it is primarily -- the decline is primarily driven by volume. And we do see -- as you would have seen also from the regional chart and impact pretty much across all of the regions. We do have some bright spots in certain countries, but from a regional perspective, it's quite broad, kind of reflecting also what we have showed you, obviously, from a marketing -- market development, which is quite global in terms of the development of our mass market. Christopher Sheldon: Then the next question is from Olivier Nicolai from Goldman Sachs. Jean-Olivier Nicolai: Just on Europe, competition has been intensifying, particularly in Germany. We talked about Mixa last quarter, but you also have now Korean brands entering the market aggressively. What is the risk to your market share in Germany specifically, but in Europe in general? And do you think that you can maintain share with NIVEA? And then I guess it's a bit early, but do you see any sign of consumer weakness in Europe so far? Vincent Warnery: Sure, Olivier. On Europe, yes, Mixa and the Korean brands took market share away from us, and this is also why we reacted already in September by putting more investment into the core categories, which are body on one side and which are accessible face care on the other side. So we are expecting -- we have not yet regaining market share in Germany. We are a strong plan on NIVEA Soft. We have strong plan on the NIVEA Repair Care, which is also an answer to the brand you are mentioning. We're also coming with a much more ambitious plan on affordable face care, launching a new line soon. We expect also to be able to fight against these brands. And also, we are coming with a very smart innovation. We just launched NIVEA Sun Stick coming from Korea, which is clearly one of the best seller we have been putting on the market in sun care. So also leveraging, we have also our own expertise in Korea, also leveraging what we know from Korea. The good news that we clearly see and we have some kind of long-term view on the market, we see that those Korean brands are not really sustainable. They are not even strong in Korea. So they go up and down. So they take market share away from us, but after they disappear. So we just have to be smarter. And this is, for example, one of the thing we are doing in Eastern Europe. We'll be able to be much more visible on shelf. We have also been extremely aggressive in terms of influencers. So we are learning from those brands without trying to copy them. So we are not yet positive in Germany, but I'm pretty optimistic starting this quarter that we see some good results in those categories. Christopher Sheldon: Thank you, Olivier. Then the next one is Misha Omanadze from BNP Paribas Exane. Mikheil Omanadze: I have 2, please. So first, you mentioned that you may be looking at pricing actions to offset input cost pressures in H2. Does your full year guidance of flat to slightly positive growth for Consumer already embed an assumption of some pricing benefiting the second half? And the second question would be on growth by brands. I know you don't guide specifically, but if you could maybe just comment directionally what you expect for each of the brands for Q2 and the full year? Astrid Hermann: Misha, I will take your first question. So we are currently working through various scenarios on the impact of our costing. We have not built those into our guidance, and we have also not built in, obviously, the countermeasures. It's an extremely fluid situation. We're obviously looking at what that could be for the second half. As you can imagine, it's really hard to pinpoint the exact impact, but we're managing that as much as we can again via scenarios. So neither the pricing, but neither the cost. Vincent Warnery: Your question, so I will not guide, but I think I mentioned already that we are expecting a flat to slightly increasing Q2 mostly driven by the success of Derma, but also some much better figures on La Prairie and Chantecaille and also on NIVEA. So I would say on the year, if you look at the guidance, I'm expecting, again, strong growth with Derma, should stay the same across the year, recovery in the second semester on La Prairie, Chantecaille and finishing the year with NIVEA slightly positive, a bit in line with the market, and that should give the guidance we gave you. Christopher Sheldon: Thank you, Misha. Then the next question is from Tom Sykes from Deutsche Bank. Tom Sykes: Firstly, just on the margin. Could you give a view on the cadence of margin change in the year, so H1 movement versus H2? And just why doesn't consumer need a more significant margin reset? I mean, to cement the longer-term growth, you could invest more. You're facing a lot of competition from smaller peers in the brands, you pick out more competition in EM. Why doesn't it need a more significant margin reset? And then on the Sun season sell-in, you mentioned it's obviously a very high-margin business for you. Could you just talk about the scope of that sell-in and in particular, the move or the sell-in online -- to online distributors or retailers and offline? And is that initial sell-in the same scope as it always has been, please? Astrid Hermann: Tom, I will take your first question. So we typically have a stronger margin, EBIT margin in the first half than we have in the second half, and we expect similar in this year with obviously a stronger first half versus the second half. Again, we will see what impacts we do see from the Middle East. Again, the attempt or the ambition is to offset those impacts. And in terms of your question around whether or not we need an even stronger margin reset. Look, this is the plan we have made. We feel like we can with this plan, deliver on the guidance we have committed to. We are starting to see some green shoots, as we've mentioned also in our presentation, also seeing the sellout moving in the right direction. We're not yet happy completely about, obviously, how strong that is, but we do think we will see continued impact from all the changes we are making. Vincent Warnery: To your second question... Tom Sykes: I was just going to say on the -- sorry, Vincent. The change year-on-year in margin rather than obviously the seasonality, but the year-on-year change in margin, are you expecting -- how are you expecting that to progress? Sorry, Vincent. Astrid Hermann: Yes, it will be a similar impact throughout the year. We don't see it -- Thank you. Vincent Warnery: Question on sun care. We are ready. We have done the sell-in, which is in line with last year. What is the good news for us is that we're doing better in the emerging markets. Last year, the success was really more driven by Europe. So at this stage, sell-in, again, sell-in driven, we are good in everywhere. So again, what we are expecting is the sun, but we are ready. We have also a very strong plan with influencers. We are also, as I said, new products, which I think will be interesting also for Gen Z. It's something we are willing to do this year. So more to come. As you know, it's starting now and the sell-out will be clearly in Q2 and I hope to be able to share some good figures at the end of this quarter. Christopher Sheldon: Thank you, Tom. And then the next one is Fulvio Cazzol from Berenberg. Fulvio Cazzol: My question, which is on the investment rebalancing. Vincent, I remember when you became CEO a few years ago, you highlighted the strategy change away from the decentralized model that Beiersdorf had previously. At the time, you highlighted the inconsistency across countries on product launches, on marketing practices, which basically resulted in lower returns from investments in categories like body wash, sun, deo, et cetera. Now it sounds like you are taking the business back to that more decentralized model, investing in products with lower price points that generate lower margins. So what will be different in the next few years that gives you the confidence of a better return on investments versus, say, 6, 10 years ago? Vincent Warnery: Fulvio, this is the right question, and thank you for asking. I think we clearly -- the situation in 2021 was indeed that we were ultra localized. So every country was doing what they wanted in terms of launches, in terms of advertising campaign, in terms of support of key initiatives. And we did up into a kind of patchwork of different look and feel, different visualization of the brand and clearly no return on investment. So clearly, on top of the direction into premium face care, I went into a very strong globalization, and I went too far. I was clearly -- it's obvious when you look at the results. I went too far into the globalization because there are some local franchises, which suffered from the fact that they were no longer invested. So are we back to what we were before? Not at all. What we are talking about is the localization in a frame, which means that clearly, we are controlling everything from the center. So when, for example, I'm talking about the new support towards some local franchises in emerging market, it is driven by Hamburg with our own R&D organization, our own marketing organization, and we don't give the right to everybody to do what they want. I mentioned 5 countries, and it's not just a coincidence. We consider that countries like Brazil, India, China, Japan and the U.S. are different and that they deserve a specific treatment, and we expect the neighboring countries to follow exactly the same logic. So what I do in Brazil, I was last week in Brazil, Argentina and Chile. I can tell you that what we are doing in Brazil will be followed by Argentina, Chile, Mexico, Colombia and all the other countries. The second element also is important. We are leveraging the global franchises, but accepting local execution. I gave the example of a sachet, which seems to be clearly not rocket science. But the fact that we are able to have the exact same formula with the exact same concentration of Thiamidol with different galenic is something new. Yes, you have the product you know the dispenser in Europe, which is pretty premium. But you have a tube in India, you have a sachet in Thailand, and you have something even more premium in China with NIVEA Thiamidol. So we are much more, I would say, open in terms of Galenics, which are following -- which are using the same global platform. And last but not least, in terms of communication, together with Publicis, which is our global agency on both NIVEA, Eucerin and Hansaplast, we have created some specific hubs in specific countries and those 5 countries I were mentioning, where we have the global marketing team and the Publicis team working together in order to be sure that what we are doing locally is also consistent with the global look and feel of the brand and the way we want to push forward our initiatives. So it's clearly more freedom. It's also more ability to the countries to test new ideas, but it is clearly control. We don't want to come back to the kind of food salad we had in the past with so many different look and feels and different executions. Christopher Sheldon: Thanks, Fulvio. And the next one is Fon Udomsilpa from RBC. Wassachon Fon Udomsilpa: Just a few questions on NIVEA Body Care, please. So you gave color on regional performance for body care, but could you confirm the market share momentum for NIVEA Body Care globally? And tying to that, with the early results you've seen on the rebalancing strategy, momentum in the Body Care in many markets improving and with the lower media costs that you mentioned, has your view towards investment in the body care category change? Does improved momentum give you confidence in increasing investment for the rest of the year and how much flexibility to do so considering higher cost inflation in the second half? Vincent Warnery: I think I shared a few examples already in the call, and they are very important for us. It's the emerging market body. This is also the emerging market face and the European deodorants category. So they are products. There are categories where we started the rebalancing in September. It's, I would say, easier in emerging markets because we have a lot of local franchises that we just had to revamp, and this is what we've been doing. And we see -- and this is really important for us, we saw clearly that we are gaining market share in those regions. Globally, we have been gaining market share for the first time, if you look at the total NIVEA brand in January. And this was the first time we are gaining market share on NIVEA global since end of '24. So pretty good news. We are slightly down in February, but it's really, I mean, just a few base points. So overall, we see clearly a dynamic which is positive, which is very positive for deodorants, as I mentioned, which is positive for body, which is not yet as positive as we expected on face care. So face care is clearly the category will push forward. There are some launches coming in affordable face care. As I mentioned, I was last week in Brazil, we have a fantastic line called [ Facial, ] which has a 25% market share. We are revamping this line with new initiatives, new ingredients also, not only the one coming from Brazil, but also some very well-known ingredients. So all of that should materialize in the Q2, Q3. So hopefully, I will also get the same kind of growth figures in the months to come. Christopher Sheldon: Thank you, Fon. Then the next one is Eno Tilly from Morgan Stanley. Tilly Eno: The first one was on the NIVEA Epicelline launch. I'm just wondering if you're seeing any cannibalization in the Eucerin Epicelline product because just looking at the last couple of months, there seems to have been a bit of a slowdown in Eucerin in Europe. And then on the second part, on the areas where you've seen improved sellout in NIVEA, could you just give any steer on the magnitude of the gross margin differential of the parts of NIVEA that are starting to perform better with the rebalancing strategy? Vincent Warnery: On your first question, absolutely 0 cannibalization. That's a very good news. It's particularly easy, I would say, in Europe because we are not sold in the same retail environment. You find NIVEA Epicelline in mass market, you find Eucerin Epicelline pharmacies. But even in regions and partly the case for the U.K., but also for emerging markets where we are sold in the same drugstores, we have absolutely 0 effect on the sellout. Epicelline is really doing extremely well on Eucerin. We are also adding new SKUs. We are enlarging the routine, so coming with a day and night product. And NIVEA Epicelline also will benefit also from the same kind of addition. What is great is I mentioned that in the call that the repurchase rates are absolutely amazing for NIVEA. We are reaching level between 35% and 48% depending on the countries, which is even above Eucerin, which is also more expensive. So we feel pretty safe with both products. You have also to remember that we decided also not to launch NIVEA Epicelline everywhere. So for example, it's clearly a brand which is skewed towards Europe. We didn't launch NIVEA Epicelline in countries like Mexico and Brazil because it's too expensive. So we obviously -- this is -- the field is totally open for Eucerin, and this is also where we are reaching very, very high level of net sales market share and repurchase. On the second question, Astrid? Astrid Hermann: Yes. So gross margin, as you can imagine, across our various categories is quite different subcategory by subcategory and tends to be obviously quite a bit lower on our personal categories than our skin care categories. That said, when we're looking at what we call margin 2, so the margin, including also our marketing spend, we see a much more even picture. And in fact, there our face care business has some of the lowest margin too. So as we are rebalancing that, we can manage this margin to pool and thereby managing our profitability. Christopher Sheldon: Thank you. Then we have 2 more questions. First, we have [ Annelie Payman ] from Thomson Reuters. Unknown Analyst: I have some questions on what oil price is the forecast based? And has the company taken any specific measures due to the higher gasoline or kerosene costs, for example, allowing more working from home, reducing business travel by plane. And last, do you have to pay any tariffs in the U.S.A.? And are you now claiming back them? Astrid Hermann: Thank you so much, [ Annelie ], for your question. So we are in the midst of working on our forecast. And as I mentioned, we have various scenarios that we're looking at. Obviously, one scenario with a quite high oil price than kind of a middle ground and one where it doesn't quite return to the previous place pre this crisis, but significantly lower than what we're seeing this minute, and we're working towards what that means then in terms of the actions. What I can tell you that we anyhow have very much watched T&E and so on or travel cost over the last years, absolutely. We continue to want to save there. And that's what's also contributed to managing our overheads quite well over the last years and is a continued impact even in this year. In terms of your questions on tariffs, as we've mentioned in the previous calls, our impact from the U.S. tariffs has been quite limited. We are, in that sense, more lucky, I'll call it, given our footprint of producing quite a bit of our sales in the U.S. itself or in Mexico and thereby, the impact was low. Of course, we will still use what we can in terms of refunding and so on to offset the limited impact we have had. Christopher Sheldon: Thank you, [ Annelie. ] And then the next one is Ulrike Dauer from Dow Jones. Ulrike Dauer: I hope you can hear me properly. Christopher Sheldon: Yes. Ulrike Dauer: Okay. I have one question related to the Middle East. What would be the maximum impact on margin that could you envisage in your worst-case scenarios for the full year? And also in terms of retail related, so I better understand, what was the problem with the U.S. department stores? And you mentioned delays of innovations getting in stores. Is that related -- could that threaten your innovation timing this year? Astrid Hermann: On the Middle East, Ulrike, we are not sharing a max impact because to be honest, we really want to manage that impact. And again, it can have a substantial impact on our cost, which we will try to find measures to obviously offset. Given the size of our business in the Middle East, the direct impact will be quite low, but we know, obviously, this could lead to a much more global impact and then obviously have a much larger impact on us. Vincent Warnery: Department store. The issue on department store is sold. We -- I mean, it's public knowledge that axis Avenue was in a difficult situation, and we were not selling anything to Saks Avenue until we had an agreement on the other dues. Where they were still selling in store and they still had some product they could sell, but we are not selling to them. And this is now over. We have a deal with them, and we are back absolutely back to normal. We are selling La Prairie and Chantecaille in each and every Saks store in the U.S. No issue on that. Ulrike Dauer: Okay. And you mentioned the pricing discussions with European retailers. And at the same time that some innovations were not getting in the store or there was a delay between delivery and getting into the stores. Is that threatening or could that threaten somehow your innovation timing this year? Vincent Warnery: No. No, no. The only -- what happened regularly when we have some customer conflicts. And again, it's mostly about NIVEA, it's mostly about France and Germany. There is this kind of black mail that might delay some innovation, but that's normal business. Retailers are smart enough to bet on the right products. So we are not suffering from that. We are able to put the right product on shelf when we want them to be on shelf. Christopher Sheldon: Thank you, Ulrike, and thank you, everyone. That was our last question. This concludes our conference call. Beiersdorf's next Investor Relations event will be the release of our half year results on August 5, 2026. We appreciate your interest in Beiersdorf, and look forward to seeing you back here again in the summer. Thank you very much. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Greetings, and welcome to Zions Bancorp's First Quarter Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. It is now my pleasure to turn the conference over to Andrea Christoffersen. Thank you. You may begin. Andrea Christoffersen: Thank you, Julian, and good evening, everyone. Welcome to our conference call to discuss Zions Bancorporation's First Quarter 2026 Results. My name is Andrea Christoffersen, Director of Investor Relations. Before we begin, I would like to remind you that during this call, we will make forward-looking statements. Actual results may differ materially. We encourage you to review the forward-looking statements and non-GAAP disclosures in our press release and on Slide 2 of today's presentation, which apply equally to statements made during this call. A copy of the earnings release and presentation are available at zionsbancorporation.com. For our agenda today, Chairman and Chief Executive Officer, Harris Simmons, will provide opening remarks. Following Harris' comments, Chief Financial Officer, Ryan Richards, will review our financial results and outlook. Also with us today are Scott McLean, President and Chief Operating Officer; Derek Steward, Chief Credit Officer; and Chris Kyriakakis, Chief Risk Officer. After our prepared remarks, we will hold a question-and-answer session. This call is scheduled for 1 hour. I will now turn the time over to Harris. Harris Simmons: Thanks very much, Andrea, and good evening, everyone. We are reasonably pleased with our performance and financial results for the first quarter, which reflect meaningful year-over-year improvement and continued progress against our long-term strategic priorities. Our Capital Markets division continues to be an important driver of fee income growth. Since launching the business in 2020, we have invested heavily in talent, technology and product capabilities, expanding our presence across investment banking, sales and trading and real estate capital markets. In late March, we announced an agreement with Basis Investment Group to acquire their Fannie and Freddie lending programs. Related mortgage servicing rights and an experienced team supporting those platforms. Subject to regulatory and customary closing approvals, we expect this transaction will meaningfully enhance our ability to serve commercial real estate clients across the Western United States and beyond and to further strengthen our capital markets franchise. We continue to invest in our consumer and small business franchises. Following the launch of our new gold account consumer deposit product in the second half of 2025, we recently introduced its companion offering for small business customers, branded as "beyond the business." We began piloting the product in Colorado and Arizona late in the quarter, and it's expected to roll out more broadly across our affiliate banks later this quarter. This tiered checking solution is designed to support clients as they grow from basic banking needs to more complex cash flow and money movement capabilities. Our focus on small business is also reflected in continued momentum in SBA lending, where we now rank 11th nationally in SBA 7(a) loan approvals during the first half of the SBA's fiscal year. Shifting now to the financial results for the quarter, slide 3 presents certain first quarter results versus the prior quarter and prior year. First quarter results reflected typical seasonal expense patterns, while revenue and profitability improved meaningfully relative to the prior year period. Net earnings were $232 million or $1.56 per diluted share, up 37% from a year ago, driven by revenue growth, a lower provision for credit losses and a lower effective tax rate. Compared to the fourth quarter of 2025, earnings declined 11%, primarily reflecting lower revenue, including the impact of 2 fewer days in the period and significantly lower securities gains as well as seasonal compensation expenses. The net interest margin was 3.27%, down 4 basis points from the prior quarter, reflecting lower earning asset yields and the decline in average demand deposits partially offset by improved funding costs. Average loans grew 2.4% on an annualized basis, led by commercial lending. While average customer deposits showed a modest seasonal decline, period end customer deposits grew $1.3 billion or 1.8% from year-end. Credit losses were very modest at 3 basis points annualized of average loans. On Slide 4, diluted earnings per share were $1.56, down from $1.76 in the prior quarter and up from $1.13 a year ago. As a reminder, the year-ago quarter included an $0.11 per share headwind related to the revaluation of deferred tax assets due to newly enacted state tax legislation. There were no notable items in the first quarter with an impact greater than $0.05 per share. As shown on Slide 5, adjusted preprovision net revenue was $301 million, declined 9% from the prior quarter, reflecting some of the items noted earlier, including a slightly lower day count adjusted tax equivalent net interest income. Pre-provision net revenue increased 13% versus the year ago quarter on improved revenue and positive operating leverage. With that overview, I'll turn the call over to our Chief Financial Officer, Ryan Richards, to walk through the quarter in more detail and to walk through our outlook. Ryan? R. Richards: Thank you, Harris, and good evening, everyone. Beginning on Slide 6, you can see the 5-quarter trend for net interest income and net interest margin. Taxable equivalent net interest income was $662 million, down $21 million or 3% from the prior quarter and up $38 million, or 6% from the year ago quarter. Earning asset yields fell faster than funding costs during the quarter, most notably in January, and loan repricing reflected the impact of the December rate cuts. Term deposit costs also moved lower, but with a lag over the quarter. Net interest margin was 3.27%, down 4 basis points linked quarter and up 17 basis points year-over-year. Slide 7 provides additional detail on the drivers of net interest margin. The linked quarter walks reflect the lower asset yields mentioned previously as well as a lower contribution from average demand deposit balances. These factors were partially offset by improved deposit costs. Year-over-year, the improvement in margin primarily reflects deposit and borrowing repricing and our continued focus on optimizing the balance sheet. For the first quarter of 2027, our outlook for net interest income is moderately increasing given the uncertain path of benchmark rates. The forward curve as of March 31 assumed no rate changes over the next 12 months. As that plays out, we estimate net interest income growth of about 7% to 8%, which would exceed our guide. Moving to noninterest income on Slide 8. Customer related noninterest income was $172 million compared to $177 million in the prior quarter and $158 million a year ago. Excluding net credit valuation adjustment, adjusted customer-related noninterest income was $174 million compared with $175 million in the prior quarter, and up $16 million or 10% from the year ago quarter. We are particularly pleased with the broad-based growth achieved during the quarter relative to the last year, which reflects higher residential mortgage loan sales activity and growth in retail and business banking, commercial account and wealth management fees. We continue to see attractive opportunities in capital markets and have strong pipelines going into the second quarter. For the first quarter of 2027, our outlook for adjusted customer-related fee income is moderately increasing versus the first quarter 2026 results of $174 million, with broad-based growth and capital markets continue to contribute in an outsized way. We currently expect results towards the top end of that range. Turning to Slide 9. Adjusted noninterest expense was $558 million. Expenses increased versus the prior quarter, driven primarily by seasonal compensation and were higher year-over-year, reflecting increased marketing, technology costs, professional and outsourced services, and higher incentive compensation. We will continue to manage expenses prudently, while investing to support growth. Our first quarter 2027 outlook for adjusted noninterest expense is moderately increasing versus the first quarter of 2026. Based on first quarter performance and full year expectations, we continue to expect positive operating leverage for full year 2026 in the range of 100 to 150 basis points. Slide 10 presents trends in average loans and deposits. Average loans grew 2.4% annualized during the quarter, primarily within the commercial and industrial portfolio and increased 2.5% year-over-year. Loan yields declined sequentially as benchmark rate cuts in the latter part of 2025 were reflected in variable rate repricing. Average deposits were modestly lower than the prior quarter by $540 million. Approximately 1/2 of the decline was due to average broker deposits while the remainder can be attributed to seasonal runoff across business operating accounts early in the quarter. Importantly, period-end customer deposits increased by $1.3 billion or 1.8% from year-end. The cost of total deposits declined sequentially, benefiting from both repricing and a more favorable mix within interest-bearing deposits. Slide 11 presents the 5-quarter trend of our average and ending funding sources. Our total funding costs declined 8 basis points linked quarter to 1.68%, largely as a result of the aforementioned deposit repricing. Period end customer deposits grew $1.3 billion and short-term borrowings declined significantly as we continue to replace higher cost wholesale funding with customer deposit growth and securities cash flows while also remixing into senior debt. Turning to Slide 12. The investment securities portfolio continues to serve as an important source of on-balance sheet liquidity and a tool to balance interest rate risk through deep access to the repo markets. During the quarter, principal and prepayment-related cash flows from investment securities of $493 million were partially offset by reinvestment of $299 million. The continued paydown of lower yielding mortgage-backed securities supports earning asset remix or reduction in wholesale funds. The estimated price sensitivity of the portfolio, inclusive of hedging activity was 3.7 years. Credit quality remained strong, as shown on Slide 13. Net charge-offs were 3 basis points annualized of average loans and the nonperforming assets ratio declined to 48 basis points. Classified and criticized balances also declined during the quarter. The allowance for credit losses ended the quarter at 1.16% and remains well positioned relative to our risk profile with a 239% coverage of nonaccrual loans. Slide 14 provides an overview of our $13.7 billion commercial real estate portfolio, which represents approximately 22% of total loans. The portfolio remains granular and well diversified by property type and geography with conservative loan-to-value characteristics. Credit metrics remain favorable, including low levels of nonaccruals and delinquencies. Our capital position remains strong, as shown on Slide 15. The Common Equity Tier 1 ratio was 11.5%, flat during the quarter as earnings growth was somewhat offset by the $77 million in common shares repurchased and dividends paid in addition to the growth in risk-weighted assets. We continue to expect net capital generation through earnings and continued improvement in AOCI. Tangible book value per share increased 19% versus the prior year, reflecting earnings generation and continued balance sheet normalization. Slide 16 summarizes the outlook we've discussed across loans, net interest income, fee income and expenses. This outlook reflects our best estimate based on current information and is subject to the risks and uncertainties discussed in our forward-looking statements. Andrea Christoffersen: This concludes our prepared remarks. [Operator Instructions] Julian, please open the line for questions. Operator: [Operator Instructions] And our first question comes from the line of John Pancari from Evercore ISI. John Pancari: On the -- just on the margin side, I know you -- your loan yield compressed about 14 basis points linked quarter. I think you had mentioned that it was largely a function of the rate cuts and variable rate repricing. I guess that linked quarter change, was that all the benchmark rate change? Any other impact to loan yields in the quarter? And maybe if you can give us your new money loan yields, just to give us an idea of where originations are coming on the books. R. Richards: Thanks, John. Really appreciate that. Yes. So listen, I think you picked up on the main thrust of it. So we would have had some benchmark repricing and expectation of the rate cut that came in the middle of December, and some of that trailed thereafter. And where we remain just skewing a little bit more on the asset-sensitive side that, that was the biggest contributor. In terms of the repricing characteristics, of course, we've got the nice material in our appendix that I know you're familiar with, but I think maybe the question that you're getting at on front book versus back book for the loan portfolio is really the most meaningful part of that as we sort of think about trajectory moving forward is for those fixed rate loan portfolios, or things that have yet to reprice through. And there, we're seeing a 72 basis point spread on the front book vis-a-vis the back book. John Pancari: Okay. All right. And then I guess, in terms of your positive operating leverage expectation of 100 to 150 basis points, that is -- that's for the year. And so what rate assumption does that imply? I know you mentioned if there's no rate changes consistent with the forward curve, your next 12-month NII outlook could come in at 7% to 8% above the range. Does that 100 to 150 basis points expectation imply the forward curve? And maybe if you can give us a little bit more detail in terms of that NII expectation. Harris Simmons: Yes. Thank you for that, John. Listen, we -- in the past, we've brought a view of kind of latent emergent. It's less interesting this quarter since we -- there's not much to talk about in the forward curve in terms of rate changes that were implied at least as of the quarter end. So those are kind of right on top of each other. So we were able to firm up our guide for the full year. As you sort of think about the trajectory of that, where we normally guide on a 1-year, 4-quarter basis. We believe you'll see there is a much more powerful positive operating leverage, probably not unlike what we've seen this quarter relative to last quarter, where and Harris' quoted in his remarks, you will see positive operating leverage of 270 basis points. So we think that as our repricing plays through from the investment securities into loans, as we have less of those headwinds associated with our terminated swaps. Some of the other things play through, we do see really good prospects for 1 year fourth quarter. Later when we were with you, we were anticipating as part of our sensitivity in our guidance that we could have had great cuts. I think we were anticipating in June and September. And based upon the forward curve, those are now off the table. So that having no cuts is embedded into our full year positive operating leverage guide. Operator: And our next question comes from the line of Manan Gosalia with Morgan Stanley. Manan Gosalia: On the deposit cost side, deposit costs, I guess, they came down quarter-on-quarter, but they were pretty flat relative to the spot rate as of December 31. And it looks like the spot rate as of March 31 has moved lower again. So can you just help us connect the dots on the trajectory there? Maybe give us an update on deposit pricing and competition and also what you're expecting in terms of CD rolls coming up? Harris Simmons: And I'll try to unpack that in a few places and invite my colleagues to jump in as well. Listen, I think -- and I've seen the questions coming in other calls in this earnings cycle about where deposit costs go if rates kind of stay static here for the remainder of the year. There's still some trailing activities, some repricing down on term deposits, thinking about customer time deposits that yet to play through. So that would definitely be an element of this. You will have heard us talking increasingly quarter-over-quarter. And when you catch us at conferences about some of our strategic initiatives. We think that those are going to be really valuable to us and driving deposit balances as well. So you heard Harris talk about in his prepared remarks, the gold account, the business beyond, there's a lot that we've talked about with SBA lending that brings deposits with us. We think that's useful. There's some other work we've been doing around wholesale deposits with customers relative to other sources of wholesale funding that we think can defray deposit costs moving forward. So while we don't have explicit deposit guidance, then we don't explicitly guide towards deposit costs. All of that would be embedded into our , I believe, to be very constructive for your NII guidance. I think there's a deposit proposition comment on that too. Scott McLean: Yes. Manan, this is Scott McLean. And I would just add to that, that this deposit campaign we've had going on to bring some of our off-balance sheet deposits back on balance sheet. We've had anywhere from $7 billion to $12 billion in off-balance sheet deposits and it's really just a client decision as to where they want to sit. But we've been successful at bringing more of those back on balance sheet at rates that are attractive, they're accretive versus broker deposits and overnight cost of borrowings. At various points in time, we focused on that. And so we've been very successful at bringing those deposits back on. And all of it is I would say 25 to 30, 35 basis points accretive to brokered deposits. You'll see us continue to do that. And in terms of deposit costs in general, it's I'm not sure I've ever seen a time when it wasn't real competitive other than maybe 2020 and 2021. So -- but we -- all of these -- almost all of this, our relationship deposits that we're bringing on, and it's not just coming from off balance sheet. Quite a bit is coming from new clients or existing clients that we didn't have their deposits to begin with. Manan Gosalia: Got it. I appreciate the color there. And then maybe on the buyback side, buybacks were up this quarter, but the CET1 ratio is still relatively flat as you accrete more capital through earnings. So maybe if you can talk about the level of buybacks that you think you can do for the rest of the year, especially as you narrow the gap with peers in that CET1 including AOCI ratio? R. Richards: Manan, thank you. I think you said that very well because our nominal CET1 ratio has been kind of hanging in there and as we said before, we see the path for AOCI coming in is becoming unreasonably predictably over time and something that's really contributed to our kind of outperformance on tangible book value add year-over-year. So I think those all things are encouraging. We've also taken note of the Basel III end game proposal. As others have noted in this earnings cycle. There are some good things in that proposal for us and others, in terms of what it would imply about RWA moving forward. So I never like to get in front of our Board, Head of our Board. It's usually a pretty poor practice for management. But it looks like that we could be in a position to talk about share repurchases moving forward responsibly as our Board will allow and as regulators sign off. As Harris mentioned during his remarks, we're really, really excited about the acquisition of the multifamily agency program that's still pending, it's pending regulatory approvals. Should that see all the way through as we expect, not knowing the time line for all that, not trying to predict any of that, that would be a source of consuming capital. But there's some other things that are happening in the environment, including things like these exchanges that could be considered by our team as well. So that's a long-winded way of saying, I think the prospect of share repurchases are still on the table, subject to Board approval. Operator: And our next question comes from the line of Dave Rochester from Cantor Fitzgerald. David Rochester: On the guidance, I know we shifted back to the 1 year ahead quarter-over-quarter look, but I was curious how you feel about the annual guide for '26 you gave last time. It seems like given everything that you're saying together, you would still feel pretty good about that and maybe with a little bit of upside. Is that fair? R. Richards: Yes. Dave, I think it's a reasonable observation, particularly given my earlier comments here about having those two rate cuts off the table that we would have been talking about last quarter. So definitely -- I mean, we don't make a practice of doing this all the way through the year, but firming up that the things that we talked about last quarter were better. David Rochester: Yes. Yes. Sounds good. Maybe just as a follow-up on the loan outlook. I was wondering how things were shaping up in 2Q at this point. How does the pipeline look overall heading into the quarter versus where you started at the beginning of the last quarter? And what are you seeing on the C&I front that has you excited? And maybe if you could talk about a little bit of a pullback on the consumer side, that would be great. Derek Steward: Sure. Thanks, Dave. This is Derek. The pipelines looking healthy actually at this point. We're seeing lots of activity in small business, middle market, corporate banking syndications. Just general C&I, we're just seeing lots of activity. Another thing that's coming back is we're seeing increased CRE activity. We're cautious there, but we are seeing increased activity as some of the markets have reached more stabilization. And so I think we'll continue to see growth coming from those areas. R. Richards: So probably pricing pressure on CRE. I mean, I hear our people talking about the you're seeing as much pricing pressure in CRE as they've seen for some time. Scott McLean: I would -- Dave, I would just add also, and I made this comment at the RBC conference back in early March that I think investors increasingly really need to peel back the onion on the type of loan growth that banks are producing. The NBFI kind of issue that has sprung up has just -- I mean, there are massive differences in bank's reliance on NBFI growth. It should be a good asset class for many, many reasons, managed responsibly, as you know, for us, as we report, it's about $2 billion of our portfolio outstandings and has not grown in 5 years. And you can see that our peers and banks smaller and larger are pretty much gulping down these loans just as there has been a difference in CRE growth. And so I think what investors if they'll really peel back the onion will find that if they're worried about NBFI, if they're worried about rapid CRE growth, if they're worried about personal unsecured lending, that's not us. So again, I think it just requires a little more investigation of the topic. Operator: And our next question comes from the line of Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: I know we're talking about deposit balances earlier. You had a nice pickup in the noninterest-bearing deposits of about $1.3 billion versus 4Q. I believe the migration of the legacy gold accounts was done last quarter. But Harris, you mentioned the rolling out of the companion offering for small business customers beyond the business. Just what drove the sequential increase? And any color you can share on customer acquisitions on the goal and the beyond the business accounts for the quarter? Harris Simmons: Yes. So first of all, I have -- I'm dyslexic with this product. It's actually a business beyond is what we feel the product is called. And I can't read my own words here on the front page. But the business beyond, this product suite, it's too new to have had any impact in the first quarter and won't have much in the second. We rolled it out in Arizona and Colorado beginning on March '26. But the early reaction to it with a very limited sample of -- it's the first really new product offering we've had for small businesses for quite some time, and it's been really well received. And so I'm excited about the prospects for it. But we'll be rolling it out across the rest of the organization in -- later in May. And it will be kind of in the third and fourth quarter before we start to understand what the impact might be. On the Gold Account, the first quarter, I mean we -- again, we started rolling this out in the second half of last year and really the full impact started to come kind of in the fourth quarter. We've -- in terms of new account activity, we opened about 4,000 new accounts in the first quarter. And I'm hopeful that we'll see that kind of ramp up to kind of 20,000 new accounts for the year. What we're seeing is over time, the total relationship balances are somewhere around $100,000. And it's not immediate, but it's kind of -- we're seeing accounts build up to that. And so anyway, we think that this is a really great opportunity for us, and we have a lot of energy, and we'll be devoting a lot of marketing to it. So it's still early innings, but I'm hopeful that, that will really contribute to not only a well-priced deposit base, but one that's granular and really sturdy with the kinds of customers that we can do a lot of business with. Bernard Von Gizycki: Great. And just on capital markets fees, the $28 million, slightly higher year-over-year, but down $9 million versus a strong 4Q. Just anything to call out during the quarter and Ryan, I think you called out the strong pipelines in capital markets going into 2Q. So if you could just unpack the quarter and trends you're seeing right now? Scott McLean: Yes. This is Scott. I'd be happy to do that. we had a -- it was a tough quarter to compare against last year because of a really large M&A transaction fee that we reported on. So we were delighted with the quarter as it ended and really all of the businesses continue to show good opportunity. In the first quarter, we saw real strength with our syndications and our interest rate hedging businesses and also with a new commodity hedging, oil and gas hedging practice that we started in the third, fourth quarter of last year. We think it has the potential to generate, I don't know, $7 million to $10 million a year in revenue, and we're just getting started there. But it's -- basically, that business is positioned against about 80 of our energy reserve-based lending clients. We've already had about 30 of those, 35 transact with us on this interest rate -- this oil and gas hedging activity. And so I think between syndications interest rate hedging, our foreign exchange business, commodity hedging. Our real estate capital markets business, it was a soft quarter for them. And -- but the second quarter that can kind of ebb and flow, they're still very confident they're going to have a real solid second, third and fourth quarter. In our M&A business, again, which is sporadic, we've invested quite a bit in new colleagues there and deal flow looks good. So we -- it's been a high-growth business for us. We've made a lot of investments there, and we don't anticipate it will disappoint this year. Operator: And our next question comes from the line of David Chiaverini with Jefferies LLC. David Chiaverini: Wanted to go back to -- you alluded to the Basel III end game benefit of a -- it sounded like a modest net benefit. But are you able to quantify what that benefit could be for Zions? R. Richards: Thanks for the question, David. I'm happy to provide some color there. Listen, we're still working all the way through the process, but our scoping on the standardized approach would suggest some RWA relief as others have reported. Right now, we would size that between 9% to 10% of RWA relief, would I contribute all else being equal, about 93 basis points to common equity Tier 1. We are still studying the ERBA just to understand the puts and takes there with the risk sensitivity compared to the operational risk RWA. So probably more to be said there in future quarters. As you know, we've been sort of talking capital, both nominally and including AOCI and by formalizing AOCI into the standard moving forward, albeit with a pretty lengthy phase-in. Of course, that cuts the other way, but we've already been operating as though AOCI is something that we're cognizant of in setting our capital glide path. So hopefully, that helps. David Chiaverini: Yes, very helpful. And then you alluded to pricing pressure on the CRE side, could you talk about the C&I pricing environment? Derek Steward: Sure. This is Derek again. Yes. I mean we're -- while the activity levels are healthy and it certainly is a competitive market out there today. So we're seeing some price competition. But it's not significant, but it's something that we're definitely very aware of. Operator: And our next question comes from the line of David Smith with Truist Securities. David Smith: Can you please talk a little bit about where you're spending the most time managing credit today? Obviously, it was a really strong quarter with just 3 basis points of net charge-offs and criticized, nonaccruals, pretty much all the forward indicators all trending down versus the fourth quarter. But to the extent that you're seeing problem or areas of concern in the portfolio, where those might be and what trends you're seeing specifically for those subportfolios. Derek Steward: Yes. Thanks for the question. Overall, we're seeing -- continuing to see improvement in commercial real estate and as you can see from the number of criticized and classified and nonaccruals continue to decrease there. If anything, we're focused on the commercial and industrial space, it's over -- actually, year-over-year, our criticized and classifieds have improved there, saw a slight increase this quarter. But that's the area where we're -- our attention -- where we're paying the most attention. We are not seeing a lot of impact from tariffs or from the events in the Middle East at this point, but watching really just focused on some just increases to expenses in certain areas such as restaurants and consumer-focused businesses that seems to be what we're watching the most these days. David Smith: Do you have a sense of how long oil prices might have to be elevated before that plays through more broadly with some of your industrial client base? Derek Steward: Yes. It's a great question. The forward curve on oil right now is going out a year at a little higher level, but it starts to drop actually pretty fast. And by next year, it's back to a lower level. So we'll just have to watch and see where the curve goes. Operator: And our next question comes from the line of Ken Usdin with Autonomous Research. Kenneth Usdin: Ryan, can I just ask a follow up on the NII comments. When you mentioned the 7% to 8% growth with no rate cuts, were you referring to the full year 2026 commentary? Or were you referring to the 1Q '27 over 1Q '26? R. Richards: Yes. For our NII guide, that's the shorter view is how we guide that. So certainly at the upper end of moderately increasing and we think the ability to overachieve if rates hang in for us. Kenneth Usdin: Okay. Got it. And then I just wanted to make sure because it was a little bit back and forth between talking about like the full year versus the standard guide. So it's on the standard guide. Okay. And then on the -- as you go forward, the earning asset base has been pretty steady for the last couple of quarters. And as you kind of have reworked the mix of the balance sheet from here, do we start to see more AEA growth? Or is the benefit that you get from NII going to come more from the margin expansion from here? R. Richards: It's a very fair question, Ken, because you're right. I mean, if you look year-over-year, average earning assets are kind of hanging in around the same levels. And so the loan growth that we're seeing has sort of been offset by the average investment securities and money market funds. Listen, one of the things that we're probably getting closer to, I talked about in my prepared remarks, the reinvestment that's occurring for investment securities, where we've still been allowing a decent amount of that to flow over to paying for loans or paying down wholesale funding. We're getting close to the point in time when we would think about reinvesting fully, just to make sure we keep the same comfortable headroom on our liquidity measures and the like. But if you see in our guide, we certainly expect for loans to build from here. And you all, I think, are very attuned to where we expect to see that. One of the things that maybe it could be potentially a little bit lost in the message this quarter is we had a really nice loan fee result. You'll see that and that was on the back of some of the things that we said we were going to do. Part of our strategy was saying, hey, going forward, we want to do more held-for-sale activity around residential mortgage loans. And that showed up in this quarter. So we had a pool in excess of $500 million that we sold out of the book that would have otherwise been part of our story for loan growth. Another thing that we haven't yet featured on this call, but would be in the earnings release, is we did roll out an accounting change this quarter moving forward on the netting of derivative assets and derivative liabilities and cash collateral things associated with that. And that would also have sort of a knock-on effect on some netting down of some loan balances to the tune of about $100 million difference. So I acknowledge that our loan growth looks modest. But there were some other pieces in there that were they in our base results would have looked like a stronger loan growth story. So moving forward, it's going to be both, long-winded answer. It's definitely going to be a margin expansion and growth in average earning assets. Harris Simmons: I'd just add that the consumer book, the 1 to 4 family residential jumbo arms, I'd expect that, that will remain flat to kind of drifting down over time. We're just trying to remove some of the risk in a world where higher rates may be the norm and so some of the convexity risk there. So really trying to focus more on a held for sale and turning that activity into more fee-based activity. So that will be a little bit of a drag, but we think that we'll see moderate loan growth despite that. Operator: And our next question comes from the line of Peter Winter with the D.A. Davidson. Peter Winter: I was wondering, with the outlook of fee income coming in at the upper end of your range and you continue to make these investments, which are clearly working. Would you expect expenses to also come in at the upper end of that range of moderately increasing? R. Richards: And I'm sure the others will have something to say here but my spoken remarks, I purposely kind of guided towards the upper end of the range and NII and fee income. I'm glad you picked up on that. I didn't do that for expense so we'll see. But from where I sit here today, I think it's a reasonable guide just as it is. I wouldn't guide on the operator or the lower end. I just leave the degrees of freedom within that. Scott McLean: I would just add that most of the broad-based growth we're seeing in fees now is -- I mean, capital markets, we clearly have invested a lot. The others we're not having to -- the incremental investment is not that significant. We're just -- I think we're seeing a lot of our sales practices flowing through. I think we're seeing our call programs are stronger. And we're just -- this is the best broad-based growth we've seen in a long time. Peter Winter: I just thought with the growth in the fee income, also maybe higher incentive comp as well. That's why I was thinking about it. Scott McLean: Well, that's true. That's true, and you can see that a little bit in the first quarter. Harris Simmons: But it's in the context of a $2.1 billion expense number. So it's not going to move it materially. Peter Winter: Okay. And then just if I can ask a separate question but with these growth initiatives under way, is there anything tangible that you can point to that the investments that you made in the FutureCore to modernize the core systems. Has that been additive to your growth or helping attract more customers, just given -- we're seeing some nice organic growth from you guys. And I'm just wondering if the FutureCore is playing into that? Harris Simmons: Yes, although it's -- I think it's hard to quantify exactly, but it's helping us just get things done faster. I mean customers don't choose a bank because of your core systems, especially the lending side. They're looking for execution and price and relationship, et cetera. But it's giving us -- I mean, I go back in time. We did an exceptional job during old PPP thing and that's ancient history now, we couldn't have done it without this new core. We are quickly doing the real land office business in PPP with a great process. So that's just an example of how it's allowing us to get things done faster. Scott McLean: Well, the other couple of other points that I would add is the real-time data and the fact that all of our loans and deposits are on one data system, again, that doesn't send tingles through clients' minds. But in a data-driven world, it's absolutely critical that it'd be accurate. And we -- it also, we're -- we said on our last call that we were close to closing a transaction with TCS to bring their Quartz -- to have a product called Quartz that is a tokenized deposit, stable coin application. And because we're on their platform, the ability to start innovating with tokenized deposits or stablecoin is infinitely cheaper than anybody else trying to do this. And so we think it's going to be an interesting way to compete way beyond our size in that arena should we choose to. We've not announced that we are, and we just -- we've got a platform that we would not have had if it not been our core conversion. Operator: And our next question comes from the line of Janet Lee with TD Cowen. Sun Young Lee: Just to go back on -- just to go back on your 7% to 8% NII growth, assuming no rate cuts. Is it fair to say that, that assumption is baking in moderately increasing loan growth, so call it mid-single digit or so. But that would also imply a pretty meaningful step up in net interest margin expansion throughout the course of 1Q '26 to 1Q '27 in order to get to the 7% to 8%? R. Richards: Yes. Listen, I think you're right about that. In terms of allowing for loan growth to be embedded in that figure and margin expansion. We don't guide -- it hasn't been our practice to guide on margin. But we see ample opportunity to expand the margin throughout the course from this point in time to that point in time in the years, hence -- so both of those are encompassed within our guide. And I can rehearse all those different contributing factors, if you like. But I gave you the short form answer. Sun Young Lee: I would take that. R. Richards: So yes, listen, I think there's different things that are playing through and you've heard us probably talk a little bit about this before. We do have the latent effect of those fixed asset repricing that has yet played through. There's still some sizable books that have longer repricing cutoff patterns. So if you think about things like muni, if you think about owner occupied, if you think about some 1 to 4 family resi. So all that, together with things like less -- these headwinds for those terminated swaps, this quarter, we had about a $10 million headwind through the fourth quarter this year, it goes down to about $5 million. We've got some disclosures in our 10-K that talked about that. All those things blend to an improvement in earning asset yields kind of 1 year in and along the way. We've sort of sized that about 2 to 3 basis points improvement in earning asset yields. We are doing some roll-off of our investment securities portfolio to other gainful places like loan growth and paying down wholesale sources of funding. We sized that as a 1 basis point kind of accretive earning assets. So it's that together with some -- a little bit of a taper of things yet to play through and repricing down of term deposits are all things that contribute to a better NIM story moving forward. Sun Young Lee: Got it. That's very helpful. And your 150 basis points POL for 2026, you seem very comfortable achieving it in a no rate cut scenario. I would -- is it fair to assume that's still the case if we were to get a change in -- if we do end up getting a rate cut? Or does it get more challenging? R. Richards: So we were prepared with something analogous to that last quarter where we were seeing 2 rate cuts. So I wouldn't necessarily back away from that. I would just say, as with all things, it will all depend on our success in driving through those lower-cost bonds and our deposit growth through the course of the year. That's our biggest variable and not knowing day-to-day, week-to-week, what the forward markets are going to tell us. I just feel like we're at least as good or better place than we were last quarter. Operator: And our question comes from the line of Anthony Elian with JPMorgan. Anthony Elian: On M&A, last month, you announced the acquisition of the agency lending business from Basis. right? Last year, you acquired 4 branches in the Coachella Valley. Harris, are these the types of acquisitions we should expect going forward? Or would you cast a wider net at some point, inclusive of bank acquisitions for what you'd look at? Harris Simmons: Well, the first thing I'd say is it's not so much that we're casting a net. We're waiting for fish to swim into the pond that we are comfortable with. We're not out looking to try to -- it's not an objective to do M&A to grow. I've been pretty consistent about that. But I -- but as we see opportunities, we ask ourselves the question, is it a good fit strategically? Is it something that strengthens the franchise and it's all about price at the end of the day, too. And so we'd be opportunistic about it. I think both of these kind of hit that. These agency relationships, the Fannie, Freddie business, we've been talking about here. That is something we have been looking to do. We live in a part of the country where you have a combination of a reasonably young population, a high-cost housing affordability. All of that creates demand for more multifamily over time. It's about -- where about 80% of the population of the nation is taking place. through the Mountain West, the Southwest, et cetera. And so being able to be a one-stop shop for developers of multifamily product fits really nicely into the capital market strategy we have. And fits nicely with the real estate talent we have in-house to originate that kind of product. So I would expect that anything we do would have kind of a story to it in terms of how it fits with the strategy of becoming a stronger presence in the Western United States. Anthony Elian: Okay. And then my follow-up on deregulation. So Harris, you addressed this in your annual letter. We had the capital proposals a few weeks ago. I know we have the comment period now, but I'd like to get your thoughts on if you think those proposals are largely sufficient or what more you'd like to see from those proposals? Harris Simmons: No, I think we're pretty pleased with what -- I -- one of the things -- what I said in the shareholders letter is, the pendulum -- what happens is you get a crisis and a reaction. And that's the history of bank regulation. And the statutes that are passed to turn that into law. And the -- what happened in the wake of the passage of Dodd-Frank was there were a lot of things that I think that with the benefit now of looking back over the last 1.5 decade, regulator sensible people looking at this would say, okay, some of that was actually really useful and needed necessary. And some of it is overkill. And from my perspective, I think the current cast in place and the agencies is doing a really nice job of trying to say, let's focus on the basics because the risk is you get so involved in the thick of thin things that you missed the main event. And I think that's one of the things that happened with the bank failures 3 years ago, things that are kind of hiding in plain sight. It wasn't about some of the -- I mean, everybody -- the industry is actually pretty good at self-regulating. I mean after you've been through the great financial crisis, you don't need to be told a lot about how you adjust your portfolio to make sure that doesn't happen again. And yet that's kind of where the system tends to pile on. And so a lot of things were done in terms of ability to repay qualified mortgages and everything that it's part of the housing affordability problem we have today. It's just more expensive to get a mortgage, for example. I think they're trying to be sensible about how do we get back to kind of the center point. And so I'm actually quite pleased with what we're seeing. Operator: And our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Jon Arfstrom: I wanted to ask you about the agency businesses, but you -- I think you cleared those up, Harris, but that's just a P&L. It's not really use of balance sheet on those businesses. Is that correct? Harris Simmons: Yes. Yes. That -- it shouldn't -- I mean we use the balance sheet for the origination of the deal, the construction, the stabilization, but without fail, our customers who are developing this kind of product, they need a long-term takeout. And so it just allows us to be in the stream for that. R. Richards: One way of maybe stitching together, Harris' a very good response on the regulatory environment. And if there was anything on the wish list, going back to Basel III end game, getting some more risk sensitivity on the commercial loan side of the business would be helpful. It looks like they may have MSRs and scope of things to at least nominally reconsider getting away from the dollar -- for dollar exclusion above certain levels and maybe rethinking of the risk weighting. For this type of business, it's agency multifamily business, there will be some MSR generation that would come from it. So we'll have to see where that falls out. Jon Arfstrom: Yes. I know there are rare licenses and very valuable, so that will be good. Scott, maybe just to go back on lending, energy and lending appetite. Just curious how you're approaching the business with so much volatility. And then can you touch a little bit on the Texas or Amegy C&I growth and what's driving that? Scott McLean: Sure, Jon. Let me -- on the Amegy side, they had -- I'll take the second one first. They had really strong loan growth last year, really broad-based C&I growth and their CRE is holding in there. Energy really did not grow much last year for them. They are seeing better growth in smaller businesses. Principally, they've played more in the middle market, the kind of middle of the middle market and the upper end of it. But just good progress there. Their call programs are great. The bank in the metroplex, their activities in the Dallas-Fort Worth metroplex and in San Antonio are doing well. And so they just have a lot of momentum that they brought into this year, and I know they feel very optimistic about leading the way in terms of loan growth for the company this year, too. On the energy side, holy cow, we've been sitting at $2 billion in outstanding for a long time. And we would love to see that grow, the credit metrics, the pricing metrics have never been better as probably 40% of the banks that play in the reserve-based lending, what I would call middle market of energy lending, about 40% of the banks that used to have exited. And a lot of this business is originated by private equity firms that we know extremely well and have decades of experience with. And so -- and the way we do it, we have about 75 reserve-based loans. So these are highly secured, they modulate based on pricing. And the -- that has done very well through many cycles. What didn't do well was financing oilfield service companies. We have long since reduced our engagement with those companies dramatically. It's about 12% of the book now. It was as high as 35%, 40% at one time. So that was decades it was 15 to 18 years ago. So anyway, I think we've got the portfolio structured right. The midstream side of the portfolio is very good. And we have a great energy lending team. They're widely recognized across the industry as being pros. And adding this oil and gas commodity hedging activity, it just has been terrific, and we'll see a lot of strength from that because our clients want to do business with us. So anyway, I'm optimistic about it. And if that business grew 10% a year for 3 or 4 years, we'd be really happy with it. We had outstandings of $3 billion some years ago. So it's the level that we're not afraid to the level. We just need to see the activity. Operator: Thank you. And our next question comes from the line of Chris McGratty from KBW. Christopher McGratty: Great. Harris, on AI, could you speak to perhaps the near-term opportunity for the company, but maybe over time, any risks that you see out there on the revenue side? Harris Simmons: Sure. I mean we have a variety of things going on with where we're using AI. I don't suspect we're particularly different than most peers this way other than the fact that I think we have -- going back the core replacement project over the last decade, I mean it forced us to do something that I think few others were forced to do. And that is to dramatically focus on the quality of data and its organization. So I felt -- we cleaned the house before we moved into a new house. We threw away a lot of the junk. We organize things. And that's proving to be -- I think that's going to really prove to be useful, in terms of speeding up our -- the delivery of solutions. The kinds of things we're using it for -- I mean just examples, we're using it for things like appraisal review all kinds of document review, contract review, we're using it in our credit exam or credit review function to expand the population of deals that we're looking at and to basically, instead of having people finding needles in the haystacks. They're now -- people are now looking at the needles that we find with other tools. And so the -- I mean, the use cases go on. People are looking for savings through technology. I came across something earlier today. I was looking -- I came across just our headcount back in 2008, that was 18 years ago, there's nothing magic about the year, except that our headcount is down 20% and our -- back then, we were about $54 billion company, you have to inflation adjust that. But even with that, I mean, it's about a 25% improvement in productivity per dollar of real assets. And AI is becoming a part of that. So my view is AI isn't -- it's a new shiny object, but a lot of different technologies have led to improvement in productivity over the years. I think this has the promise of accelerating it somewhat. I mean, we'll be looking at it in -- we -- I touched on the surface of a few things, but we've got a variety of projects going on. As to the threat from AI, there's certainly, there's a concern about agentic AI on margins, et cetera. But I also think that some of these things get overplayed. I think that's probably going to be the case in some places. But a lot of the balances we have -- a lot of the free balance we have actually aren't free balances, they're paying for services. A lot of it's analyzed. And in a world where if you see more agentic AI optimizing, you'll see -- I mean the economies, I'm a great believer that the magic of our free enterprise economy is it's really resilient and responsive to change. And so you'll see things priced that maybe are free today that maybe get charged for. Everybody will kind of figure out their way. And I think back to -- I've been around long enough. I remember when Reg Q was removed. And if you told me that 4 years later, we have more in way of noninterest-bearing demand deposits as a percentage of total deposits and we had in 19 -- in the early 1980s, I'd have said that's impossible. And yet that's the case. And so I think the -- you have to take with a grain of salt, sort of the sky is going to fall because companies adjust, pricing adjust, et cetera. So I think the important thing is to make sure that you're not -- you don't have your head in the sand, you're keeping focused on what customers want that you're supplying solutions and that's where it is right now is kind of how do we develop and participate in solutions that actually help customers and improve the relationships we have with them. I think as long as we're doing that, it's going to work out fine. Operator: Okay. And with that, it looks like that's all the questions we have. I would like to now turn the floor back over to Andrea Christoffersen for closing remarks. Andrea Christoffersen: Thank you, Julian, and thank you to all for joining us today. We appreciate your interest in Zions Bancorporation. If you have additional questions, please contact us at the e-mail or phone number listed on our website. We look forward to connecting with you throughout the coming months. This concludes today's call. Operator: Thank you. And with that, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.
Ulrika Hallengren: Welcome to the presentation of Wihlborgs' first 3 months report 2026. Growth, cash flow and core business is our mission. And even if the world gives us some challenges, our region continues to deliver not only [Audio Gap] quarter in 11 years, but I see no new trend in this, just a reminder that a quarter is a short period. Net debt to EBITDA at 10.5x, good access to financing continues, and we have acquired our first premises in Carlsberg Byen in Copenhagen. And with some figures on that, the rental income was SEK 1.150 billion, a new record, the operating surplus SEK 800 million and in terms of property management SEK 520 million. The result for the period increased to SEK 548 million, corresponding to SEK 1.78 per share and EPRA NRV has increased by 10% to SEK 101.14 per share adjusted for paid dividend. A comparison of the rental income Q1 '25 and Q1 '26, indexation, plus SEK 13 million; acquisition, plus SEK 46 million; currency effect, minus SEK 12 million; additional charges, plus SEK 23 million, and completed projects, new leases and renegotiation plus SEK 35 million. And the net letting was negative with minus SEK 35 million, the first negative quarter after 43 quarters in a row with positive numbers. New leases of SEK 49 million and terminations of SEK 84 million. Even if every single termination is a loss, the volume of termination as such is close to last year and no drama in that, but the amount of new leases in Q1 are too low to meet that. The year started quite slowly, picked up a bit. But then when the war in the Middle East was a fact, all discussions were pushed forward. Over 50% of the termination was in Denmark, and we know that the market there is quite strong, so I expect that we will see a pickup. We also had SEK 8 million in Sweden from bankruptcies that affected the result with minus SEK 1 million, but terminations had a yearly rental value of SEK 8 million. Now, in April, things have changed, and I think the list of possibilities and the ongoing discussions actually are quite good. That doesn't mean that things will be easy ahead, and I cannot promise positive net lettings in the coming 4 to 3 quarters, but at least we have a number of good discussions ongoing. Here are some of the tenants that we have signed during Q1, the defense industry, which, for example, the new and expanded lease with MilDef is a growing sector. And we also see some examples of interesting and growing tech companies like Intermail and the tech hub Hedge in Helsingborg also continues to attract innovative AI companies. Here, we have the net letting in a historical perspective, lettings in green, terminations in light blue and dark blue stacks are the net letting. We don't win every lease opportunity, which is annoying, but the hit rate over time is good, and let's see how we can develop this further on. And the list of our 10 largest tenants in alphabetic order, strong customers, and they contribute with 90% (sic) [ 9% ] 90% of rental income, 7 out of 10 are governmental tenants and the public sector contributes with 22% of rental income. The rental value as of 1st of April '26 is SEK 5.157 (sic) [ 5.127 ] billion per year, first time over SEK 5 billion, plus 11.6% and rental income, SEK 4.523 billion, plus 10.3%. Strong figures, and this is an effect of acquisitions, indexation, investments and, of course, tenants willing to pay for the right quality. Looking at the like-for-like figures, the properties we owned a year ago, excluding projects compared with updated figures, we can see that rental value is up 2.2% and rental income is up 1.1%. Like-for-like does not include the large acquisition we did 1st of April '25. As said last report, it's good with the growth also in the like-for-like stock, but to get the growth we aim for, acquisition and investments will continue to be important, especially in times of higher vacancy. Changes in the market value of our properties, we started the year with SEK 64.414 billion in accordance with the external valuation of 100% of our portfolio. We have made acquisitions, which add on SEK 534 million; investments SEK 562 million; divestment, minus SEK 4 million; changes in valuation, plus SEK 19 million and together with currency translations of SEK 117 million, that summarized to a value of SEK 65.642 billion. Valuation parameters haven't changed since last -- since year-end, and that includes assumed indexation of 1%. So very small changes of valuations that growth comes mainly from investments and the transaction we made in Copenhagen. Here's a long-term trend for portfolio growth from SEK 7 billion to SEK 65.6 billion in 21 years and growth every year without taking in any new equity from our shareholders. These figures, the running yield show how we actually perform in relation to the valuation, so this is not the valuation yield. For the whole portfolio, the occupancy rate is 90%, excluding project and land, and with an operating surplus of SEK 3.356 billion that gives a running yield of 5.5%. Fully let, the portfolio would give around a running yield of 6.3%. Good earnings capacity in relation to the value of the portfolio and good cash flow generation is the foundation also ahead. The occupancy has improved in some areas and lost a bit in others. What we know is that of the total vacancy, approximately 14% are already signed, but not entered yet and for additional 6% of the vacancy, we have ongoing discussions with possible tenants. So a lot of positive work in that, but we will also add on vacancy from terminations. Additional new build projects will move from the project line to the running portfolio line and possible transaction may also affect vacancy, so no exact guiding ahead. But I expect occupancy numbers for the portfolio to be relative flat next quarter, but with somewhat increased income from the base rent figure. Parking and additional charges may vary. In the office portfolio, the market value is SEK 51.451 billion with an occupancy rate of 90%, 90% in Malmo, continue with small improvements in Helsingborg to 91%, 89% in Lund and 91% in Copenhagen. The operating surplus from offices summarized to SEK 2.781 billion and a running yield of 5.4%, 6.2% fully let. The logistics production portfolio have a value of SEK 9.315 billion, 92% occupancy in Malmo, 83% in Helsingborg, 95% in Lund and 97% in Copenhagen. In all, 88% occupancy with a running yield of 6.2%, 7.3% fully let. The development of our total portfolio running yield, 5.5% brings stability, not least since the portfolio overall has a high quality and good location. As noticed before, a good increase of the running yield since 2021. Some sustainability highlights. We have improved from 0% to 35% certified area in our Copenhagen portfolio within 1 year, and there is more to come. We have also new sustainability targets from 1st of January and we will report on a wider spectrum with focus on energy efficiency, carbon dioxide emissions and climate adaptation as well as important social and governance measurement. More on that topic in the report, but I'll show you some figures here. It was a cold start of the year but to be able to compare how we improve our energy use, we also present figures normal year corrected, and of course, also in kilowatt hours per square meters. Here you can see the improvements quarter-by-quarter and year-by-year. We present the carbon dioxide emissions from Scope 1 and 2 in the same way. Here, we have higher emissions in Q1 according to more gas used in Denmark during this period of energy uncertainty in the world. We also compare energy production from solar cells and not at least, we have a new goal till 2020 (sic) [ 2030 ] to replace refrigerants in our cooling systems to more environmental neutral gases, and this work continues. A catalog of our value and properties in our 4 cities end Q1 '26, 38% of the value is in Malmo, 23% in Helsingborg, 17% in Lund and 22% in Copenhagen. Commuting across the Oresund Strait continues to increase and the entire region benefits from the fact that Sweden and Denmark complement each other's economic cycles. The increased focus on defense and resilience also contributes to investments in the region, not only correlated to industries such as Saab and MilDef, but also due to the fact that 90% of the important food to Sweden passes through our region. That means that Sweden depends on the infrastructure in the region and harbors, highways, railways and of course, the Oresund Bridge must be in good condition and well protected. The region as such benefits from that also in a long-term perspective. During the first quarter, we have acquired 10,300 square meters office and retail in Caroline Hus in Carlsberg Byen, property value of DKK 370 million and location that attractive both for living and working. A high density close to the city center, interesting mix of older refurbished building and new build, and as we see it, potential for growth rent in the area. And time for financials. Over to you, Arvid. Arvid Liepe: Thank you very much, Ulrika, and good morning, everyone. If we look at the income statement for the quarter, Ulrika has touched upon the figures already, but I would like to highlight that the rental income of SEK 1.150 billion is actually a record for the fourth quarter in a row when it comes to rental income in an individual quarter, up 10% versus the same quarter 2025. And as we write in the report, we had a positive one-off effect of SEK 15 million coming from a terminated lease in the Danish portfolio, which was settled with a so-called termination fee. But nevertheless, we had a good growth of 10% of the rental income. The operating surplus amounted to SEK 800 million, up 9%, and that is despite, as you can imagine, having higher costs for snow removal and for heating during Q1. For those of you living in Sweden, you know that the winter was colder and longer than most winters, not least so here in Southern Sweden. Income from property management amounted to SEK 520 million, which is up 12% versus the same quarter previous year. Value changes in the property portfolio were basically flat, plus SEK 19 million, so no big changes at all. And the underlying assumptions, as Ulrika mentioned, was also basically the same as at year-end. We had positive value changes in our interest rate derivatives portfolio, plus SEK 191 million and in total, a profit for the period of SEK 548 million. On the next slide, looking at the balance sheet, investment properties versus 12 months previously went up by SEK 6.5 billion and stood at SEK 65.6 billion in total. Is the presentation of the slides working or not? Ulrika Hallengren: Not sure. Let's see again. Arvid Liepe: Let's see, if we can get a signal from somebody if the slides are visible. Looks okay over there. Equity end of March stood at SEK 24.9 billion, up SEK 1.4 billion versus 12 months previously. And then we've, of course, during that period, paid almost SEK 1 billion in dividends. The borrowings stood at SEK 34.2 billion, up SEK 5 billion versus 12 months previously. And as you remember, we have made acquisitions of approximately SEK 3 billion during that period. And also, we've had a high investment level in our project portfolio. Moving to the next slide, looking at our key numbers, the equity assets ratio now stands at 36.8%, the LTV has gone up slightly to 52.1% and the interest cover ratio continues to be at a strong level at 2.9x. Looking at per share numbers, the EPRA NRV stands at SEK 101.14 per share, which adjusted for paid dividend is up 10% versus 12 months previously. Looking at the next slide, the long-term development of EPRA NRV is visible in this graph and the average annual growth still stands at 15% adjusted for dividends, so a strong long-term growth trend in EPRA NRV. On the next slide, you see the long-term trend for the other financial ratios that we continuously monitor. On the left-hand side, you see the interest cover ratio. And as you remember, it was on extremely high levels during the 0 interest rate period 2019, 2020, 2021. But the 2.9x level where we are currently is well above the long-term goal of or the goal that we have of a minimum of 2.0x. On the right-hand side, you can see the equity assets ratio, well above our threshold of 30%, stands at 36.8% currently. And the loan-to-value is well below our limit of 60% at 52.1%. On the next slide, you can see our net debt in relation to EBITDA. Also there, we have a long-term stable development; this ratio now stands at 10.5x. And we think it's a very relevant number since it reflects the cash flow that we actually generate in our core business. On the next slide, you can see our sources of funding as of end March. Half of our funding comes from bilateral bank agreements with Nordic banks, 16% from the bond market, 34% from the Danish real mortgage system. The bond market is, of course, more sensitive to the geopolitical development than the bank market is. But I would still claim that the bond market works in a quite okay way also over the past month or so. The beginning of the year, the bond market was actually quite strong, and we issued some new bonds in January, beginning February on attractive levels, I would claim. Our ongoing discussions with our banking relationships tells us that the banks are continuously willing to lend money. So a positive sentiment from that front. And the Danish real mortgage system, I would claim has a stable positive development as always. On the next slide, you can see the structure of our loan portfolio with lots of details. The average interest rate that we're paying currently is 3.21%, 3.24% if you include the cost of committed credit agreements. This means that our marginal cost of debt is actually pretty close to the average cost of debt that we're paying currently. On the next slide, you can see the development of the fixed interest period, which now stands at 2.6 years and the average loan maturity, which stands at 4.8 years. No drama in the development of these numbers, and we continue to work according to our financial risk management policy. On the next slide, you can see the development since 2019 of available funds, currently SEK 2.6 billion, which gives us day-to-day flexibility to manage our operations in a good way. And with that, I hand the word back to you, Ulrika. Ulrika Hallengren: Thank you. I'll give you an update on our investments and progress and a quick overview of our largest project. During Q1, we have invested SEK 562 million, and it remains SEK 1.738 billion to invest in approved projects. We continue to expect yield on cost at 6% or a bit over 6% for new build offices and 7% or a bit above for industrial and a good mix of refurbishment and new build in the portfolio. Let's start with projects soon to be completed. In Malmo and Hyllie, we continue with Blackhornet 1, Vista, an SEK 884 million investment. The mobility hub was completed end '24 and now the first tenants are in place. One new lease signed in Q1, but we work hard for the next ones, yield on cost 6.2% and approximately 40% pre-let. From 1st of January, the total area of the building are included in Malmo offices best classified as project. And during Q2, we will count the project as completed even if adaptations for tenants will continue, of course. In Lund, Posthornet Phase 2, a new modern office right beside the Central Station will also be completed in Q2, but moving in continues rest of '26, 10,100 square meters, SEK 448 million, yield on cost 6.5%, a very successful project. In the southern part of Lund, we continue the development of Tomaten; this project is for BPC, will also be completed in Q2 '26, and we invest SEK 79 million, 3,600 square meters and yield on cost 7%. And next to that at Surkalen 1, Note have started to move in and Lund University will move in, in Q4. Well-used land area and long leases in total, 14,500 square meters, investment SEK 260 million and yield on cost 9.2%. The large project at Amphitrite 1 in Malmo for Malmo University is running well in accordance with plan, a bit above 20,000 square meters for Malmo University at a 10-year lease, investment SEK 1.130 billion and completion is planned to late Q4 '27. Discussion is ongoing regarding a positive -- a possible prolonging of the lease to 20 years, both positive and possible. At Kranen 7 in Malmo, we will invest approximately SEK 136 million in a preschool for the municipality, 2,900 square meters zoning plan approved and completion is expected to Q3 '27. Public Procurement Act for the contractor is still ongoing. And at Skrovet 6 in Malmo, we refurbished 11,000 square meters, 50% is pre-let to Cloetta and Media Evolution with completion starting Q3 '26, investment SEK 149 million for a total technical shift in the building and a quick change from a quite closed building for Saab and now open up to being the new entrance to the Dockan area. Good interest from tenants and several ongoing discussions. A new project in Helsingborg at Muskoten 20, where we invest for our tenant MilDef, a combination of refurbishment of an existing vacant building of 2,400 square meters. We have new build 3,400 square meters and adding on the existing lease of 4,400 square meters. So in total, 10,200 square meters and SEK 97 million investment, including value of the land. Yield on cost, 7.2% and completion in Q3 '27. And the new project started at Sunnana 12:26. It will be a mix of tenants and a flexible building for smaller industrial logistics. It's a good product where we have very low vacancy in Malmo, pre-let 30% to one tenant, investment SEK 87 million, and completion is planned to Q4 '27. That was some of the ongoing project and just to touch on future possibilities, just as a reminder that we always look for new opportunities and are ready to start when we think the timing is right. Here are some office possibilities in Malmo in the area of Nyhamnen and Dockan, where we continue to work with the zoning plans, high interest for the future, of course and even if the figures on gross floor area are estimates, the volume are interesting as a part of the other development in the area. And 4 other possibilities in Malmo, industrial at Spannbucklan, research and offices at Medeon site, housing at Kranen 5 and offices at Naboland 3. In Lund, we continue to develop the land at Brysselkalen in the southern part of Lund. At the Ideon site, we have 3 project possibilities for offices and laboratories, 2 of them on these pictures, Ideontorget and Delta 2. And at Vasterbro, the work with the zoning plan continues. In Helsingborg and Landskrona, we also have a mix of different possibilities and the main part is in the Logistics and Industrial segment. And just a summary of Q1 again. Rental income up 10%; operating surplus plus 9%; income from property management plus 12%; negative net letting minus SEK 35 million; net debt to EBITDA at 10.5x. We see good access to financing, and we continue to grow this quarter an acquisition in Carlsberg Byen. And it goes without saying we continue with our focus on cash earnings and our future growth. And with that, we are open for questions. Operator: [Operator Instructions] The next question comes from Tobias Kaj from Nordea. Tobias Kaj: First question regarding the EU income in Q1 in Denmark. How large was the annual rental income in that contract? And did that already impact the occupancy rate in Q1? Or will we see the effect first in Q2? Arvid Liepe: Let me think if I have that number off the top of my head. It relates to Slotsmilen [indiscernible], where ATP have left the building. So it is vacant currently. I don't have the annual rental income off the top of my head, but giving a bit more flavor of what -- the way it works in the Danish market is that when a tenant terminates a lease, they're obliged to restore the premises to the shape the premises were when they moved in, which basically means that when a tenant leaves, you end up in a negotiating position to see how much should they actually pay to restore the premises to the original shape. And it's that type of payment that these SEK 15 million relates to in this quarter. Tobias Kaj: Okay. I understand. Also regarding the general occupancy rate, I think you previously have said that you expect some improvement during this year, and you write in the report that 14% of the vacancy is already pre-leased. Does that indicate that we should expect roughly a 1 percentage point increase in occupancy rates during the remainder of the year? Or will it take longer time to see that positive effect? Ulrika Hallengren: You should not expect that it's too early to say that because we also have terminations, of course. So what I see now is that we will be quite flat until Q2. And then it depends on what will happen with project completions and terminations ahead. But I definitely see as we have also given some notice before that the rental income continues to increase. Tobias Kaj: Yes. Regarding your interest expenses, how much do you capitalize related to project? And should we expect a significant increase in coming quarters as you expect lots of projects, both in the first quarter and in the second quarter? Arvid Liepe: SEK 9 million were capitalized in interest in the first quarter this year. And given that the project volume was very high during 2025, and it will still be reasonably high in 2026, but probably not as high, I wouldn't expect that number to go up. Tobias Kaj: Okay. And one final question. I think you have a swap contract of SEK 1.25 billion with very low interest rates that matures during this year. Is that like one contract in one single quarter? Or will it be a gradual effect in [indiscernible]? Arvid Liepe: No, it's spread out over Q2, Q3, Q4. It's not one contract. Operator: The next question comes from Lars Norrby from SEB. Lars Norrby: I'm looking at that net letting chart, Page 7. Looking at the termination volumes, which is, as I think you pointed out, is quite similar to the past few quarters. It's more an issue of, I guess, the amount of leases signed during the quarters that haven't been high enough to get a positive figure. But just on the termination figures, can you mention, are there any individual contracts of size that you can mention? And if so far, in that case, where geographically? Ulrika Hallengren: We have two leases with PostNord, one in Sweden of SEK 2.5 million and one in Denmark of -- I think it was SEK 7 million or something. Arvid Liepe: SEK 6 million, SEK 7 million. Ulrika Hallengren: In Denmark? No, SEK 4 million in Denmark. So in total, SEK 6 million, SEK 7 million. And we have Ahlsell here in Malmo with minus SEK 7 million. And then just a few on minus SEK 2 million. So nothing really large or something like that. But what we see is that the large portion of these smaller leases that always is a great motor in the business during Q1, the cautiousness was very -- everybody was very worried about what will happen, and we really saw that in the discussion. So we missed that volume in the new leases. Arvid Liepe: On the termination side, Ulrika also mentioned it during the presentation, but we had tenant bankruptcies, a few different, not one big one. But those bankruptcies have an annual rental value affecting the net lettings of between SEK 7 million and SEK 8 million in the quarter. That does not mean that we have credit losses of that amount. But in the net letting figure, it affects the numbers negatively. Lars Norrby: One more question. You mentioned here earlier on the call, I think, something along the line that after what happened in the Middle East, lease discussions ongoing were prolonged or delayed. Have you had cases where they've been -- the discussions have actually been terminated without having a signed contract related to what's happened geopolitically? Ulrika Hallengren: No, not what I can -- no. And as I mentioned, the list of ongoing discussion have increased significantly since February, March. So April and ahead looks quite decent, I would say. Operator: The next question comes from Fredrik Stensved from ABG Sundal Collier. Fredrik Stensved: I have three questions, if I may. First one is a follow-up to one of the earlier questions about the nonrecurring item in Denmark. Is -- the way I understand the answer, Arvid was that they moved out in Q1, but is this a large material lease in terms of annual rent? And if so, did they contribute fully throughout Q1 and then moved out in late March? I'm just trying to... Ulrika Hallengren: They moved out earlier, I think, in Q4 or something. So this was just a negotiation about the termination fee that were decided during Q1. Fredrik Stensved: Okay. Very good. Very clear. Perfect. Second answer, also, I think, pretty straightforward. Arvid, you talked about the bond market and the banking relationships and they were still sort of eager to lend, et cetera. Have you seen any moves in terms of margins with bank discussions during these, call it, 2 months of geopolitical uncertainty and the general uncertainty in the market? Arvid Liepe: We haven't had any refinancings or new financings. So we don't have any, so to speak, hard evidence of the prices. But my take is that the bank margins during March, April have basically been stable. I have not gotten the impression that they have moved much over the past couple of months. Fredrik Stensved: Very good. Then last question on the project completions that you talked a little bit during the presentation, Ulrika, Blackhornet and Posthornet now completed in Q2. But the way I understand it, at least Blackhornet, probably some move-ins already in Q1 and then some Q2 and then maybe Q3. How should we think about sort of the contribution in Q1, Q2? Will the tenants start paying in Q2 or later? And did they contribute anything to Q1 at all? Ulrika Hallengren: Yes, we had contribution during Q1, and we will see contribution during the autumn as well. But in a slower pace, no large significant moment where things suddenly will contribute in a more smooth, I would say. Fredrik Stensved: Okay. Is it similar for Posthornet? Or is that more binary? Ulrika Hallengren: Posthornet has the largest contribution during Q2 and -- but also during the autumn continued. Fredrik Stensved: Okay. So a little bit in Q2 and then fully or 70%, at least given the occupancy rate from Q3 and onwards? Ulrika Hallengren: Yes. We have something assigned for moving in, in Q4 as well in Posthornet, but most of it is now in Q2. Operator: The next question comes from James Cattell from Green Street. James Cattell: I had a question on the EPRA CapEx table on Page 25 of the report. I noticed that tenant incentives have increased quite significantly by almost SEK 100 million versus the first quarter last year. And also on the annualized basis was higher than full year '25. Is this going to be the run rate going forward for the whole of '26? Or is this just due to some one-off items? Arvid Liepe: To be open and frank with you, James, predicting the split of CapEx into these different categories is not extremely easy. So the tenant adaptations or the tenant or what EPRA calls tenant incentives will continue to be an important part of our CapEx because into that category falls a number of measures when we adapt premises to new tenants, and that will continue to be an important part of our ongoing business. But predicting the magnitude of these different parts of our CapEx is still tricky. Operator: [Operator Instructions] Ulrika Hallengren: Are there any written questions? Arvid Liepe: I have seen nothing arriving digitally. Okay. Operator: There are no more phone questions at this time. So I hand the conference back to the speakers for any closing comments. Ulrika Hallengren: Okay. Thank you for this. And of course, if you have further questions, you know just reach out to us, and we'll answer. So thank you for today. Arvid Liepe: Yes. Thank you, everyone, for listening in.
Operator: Good day, ladies and gentlemen, and welcome to Northrop Grumman Corporation's First Quarter 2026 Conference Call. Today's call is being recorded. My name is Josh, and I will be your operator today. At this time, all participants are in a listen-only mode. I would now like to turn the call over to your host, Todd Ernst, Vice President, Investor Relations. Mr. Ernst, please proceed. Todd Ernst: Good morning, and welcome to Northrop Grumman Corporation's First Quarter 2026 Conference Call. Before we start, matters discussed on today's call, including guidance and outlooks for 2026 and beyond, reflect the company's judgment based on information available at the time of this call. They constitute forward-looking statements pursuant to safe harbor provisions of federal securities laws. Forward-looking statements involve risks and uncertainties, including those noted in today's press release and our SEC filings. These risks and uncertainties may cause actual company results to differ materially. Today's call will include non-GAAP financial measures that are reconciled to our GAAP results in our earnings release. In addition, we will refer to a presentation that is posted to our Investor Relations website. On today's call are Kathy Warden, our Chair, CEO and President, and John Green, our CFO. At this time, I would like to turn the call over to Kathy. Kathy? Kathy Warden: Thanks, Todd. Good morning, everyone, and thanks for joining us today. The Northrop Grumman Corporation team is proud of the work we do in support of the world's most important national security imperatives. As we are seeing in recent military operations, many of our systems are playing a critical role in successfully executing the mission and returning our service members home safely. We contribute enduring assets like the B-2 stealth bomber and the E-2D that continue to demonstrate tremendous value decades after their first flight. Our ISR and C2 systems provide the needed intelligence to plan and conduct successful operations across all domains, and our munitions are instrumental to execute these missions. We share in the responsibility and urgency of our customers to provide our nation and allies with the best technologies in the world, and we are increasingly focused on the speed with which we deliver them. With this goal in mind, we have been investing in our business for several years to build capability and capacity and provide the solutions at the scale our customers need to compete in this environment. In fact, in the last two years, we have opened over 20 new facilities and added more than 2 million square feet of manufacturing space across the United States. Since the beginning of 2026, we have agreed with our customers on plans to accelerate the Sentinel program, increase the rate at which we build the B-21, become a second source supplier of solid rocket motors on several programs, and ramp our rate of production on another handful of programs. And we are just getting started. We are in discussions on numerous additional opportunities to help achieve the department's goal for speed and scale. Central to all these agreements is our partnership with our customers as we transform the way we work together. Our teams are aligned in unprecedented ways to deliver on our commitments and enable our armed forces to win. Earlier this morning, we released our first quarter results which reflect strong demand, solid operating performance, and progress we are making on key programs. First quarter organic sales were up 5%, a great start to the year and consistent with our full year expectations. Sales were largely driven by growth in our work on modernizing the triad, which is a top priority in the U.S. National Defense Strategy. We had another quarter of solid bookings, reinforcing the foundation for continued growth over the coming quarters and into next year. Our results and our confidence in our outlook are supported by a robust demand environment driven by rising global defense budgets. Countries around the world are recognizing a fundamental shift in the geopolitical environment, leading to global military spending rising approximately 40% over the past decade, and it is expected to continue to rise as Western nations modernize and grow their forces. In the Middle East particularly, there is a heightened sense of urgency for our solutions, such as IBCS, GATOR, and Counter-UAS solutions. In the U.S., $1 trillion has been appropriated for fiscal year 2026, and funding from this budget and reconciliation are starting to flow to industry. Earlier this month, the administration submitted a $1.5 trillion defense budget request for fiscal year 2027. The budget emphasizes modernization and represents a 44% increase over current funding levels. The budget proposal is made up of several components, with a base budget of $1.1 trillion. The base budget alone, compared with the FY 2026 base budget, represents nearly a 30% increase, and it sustains support for many of our key programs including B-21, Sentinel, IBCS, E-2D, and numerous restricted programs. If enacted, the 2027 budget would bring spending to about 5% of GDP, and while this represents an increase to the 3% we have seen in recent years, it is closer to the levels we saw during the Cold War. We are encouraged by the strong bipartisan support for strengthening U.S. defense budgets aligned to the global security challenges we are facing, and we look forward to working with policymakers as they consider this budget request. In response to these high levels of global demand for our solutions, the administration is working closely with industry to provide clear, long-term demand signals through structured production frameworks. So let me share details of some of the agreements I referenced earlier in the call. Our Defense Systems business growth is fueled by the growing demand for solid rocket motors, smart munitions, ammunition, and tactical missiles. We are a key SRM supplier of more than 15 systems including GMLRS, PrSM, Hellfire, and AIM-9X among others, and we are taking the necessary steps to qualify as a supplier on other high-demand systems such as PAC-3. To position the company for this growing market, we invested more than $1 billion over the past several years in SRM and munition technologies, and in modernizing our facilities. This proactive approach established a strong U.S. manufacturing base with capacity available today to support our customers' growing demand for critical munitions. Our tactical SRM production capacity has already doubled, and we have further expansion which will be completed by 2027. These modern production facilities provide us modular, adaptable production lines that can produce multiple products allowing us to flex with demand. Overall, our weapons business is nearing 10% of total company sales and is positioned to grow at a pace well above the company average. In addition to a focus on munitions, we and the Department of Defense remain committed to accelerating the triad modernization. For Sentinel, we are working closely with the Air Force and making significant progress advancing missile development, command and control systems, and maturing the design and construction approach. In March, we broke ground on a prototype of the Sentinel launch silo tube which will validate the structural design and construction approach, a key enabler to accelerate fielding. We expect to reach the Milestone B decision later this year, first flight in 2027, and initial operating capability in the early 2030s. We expect strong growth from Sentinel throughout the year as we ramp up on the new baseline, with the program already delivering double-digit growth in the first quarter. On the B-21 program, we are moving through testing at an aggressive pace, including aerial refueling trials beginning earlier this month. We are on a path through both testing and production for B-21 to arrive at Ellsworth Air Force Base in 2027. Consistent with this progress, we received a Lot 4 LRIP award in the first quarter, closely following the Lot 3 award received in Q4 last year. As previously announced, we finalized an agreement with the Air Force to increase the annual production rate of the B-21 by 25%. This agreement demonstrates the strong operational requirements for the platform and confidence in our team to accelerate the delivery of this generation capability for the warfighter. The production ramp up will be supported by customer funding included in last year's reconciliation package, alongside approximately $2.5 billion of company-funded investment primarily for new facilities. These investments will be phased in over multiple years. Importantly, this agreement accelerates production for our customer, enhances the program's long-term economics, and creates the potential for a larger program of record. We are pleased to have this agreement in place, and excited for this transformative technology to begin arriving on Air Force bases next year. In another area of our portfolio, widespread adoption of ballistic missiles and drones by potential adversaries is reinforcing the urgent need for air and missile defense capabilities. Demand in this area has been exceptionally strong, and today, our missile defense business accounts for nearly 10% of company sales. Northrop Grumman Corporation is well positioned to capitalize on opportunities such as Golden Dome, as well as other program areas. Our advanced interceptors, sensor systems, and command and control technologies remain critical to strengthening layered defense architectures. Shortly after the close of the quarter, we secured an award to accelerate development of the Glide Phase Interceptor, bringing the total contract value to $1.3 billion. GPI is designed to intercept hypersonic missiles that can evade traditional missile defense systems, a critical capability given the proliferation of hypersonic weapons. Before concluding, I would like to highlight our role in the historic Artemis II launch. It is a reflection of the diversity of our space business, which extends across a wide range of missions. Two Northrop Grumman-built solid rocket motors generated an astounding 7.2 million pounds of thrust—over 75% of the rocket's total thrust—to propel the SLS rocket and the astronauts on their journey around the moon. We are incredibly proud of our team, and I would like to congratulate NASA and the Artemis II crew on a successful mission. In summary, we continue to see an opportunity-rich environment. Our investments in our business, rigor in program execution, and the speed with which we are bringing innovative solutions to our customers give us confidence in our position today and into the next decade. When coupled with our strong backlog and unprecedented opportunity set, we are optimistic we can continue growing our business and creating value for all of our stakeholders. I will now turn the call over to John Green for the financial results. John? John Green: Thank you, Kathy, and good morning, everyone. I will start with our first quarter segment results on Slide 4. We continue to experience robust demand for our products and capabilities. Awards totaled $9.8 billion in Q1, and we ended the period with $96 billion in backlog. First quarter sales were $9.9 billion, up 4% year over year. Organic sales increased 5%. On the bottom line, segment operating income increased to over $1 billion and segment margins improved to 10.8%. First quarter results were driven by higher sales and improved performance in Aeronautics Systems. AS sales increased by 17%, driven by higher sales on B-21 and other restricted programs. TACAMO sales were also higher as the program continues to ramp. Higher sales on B-21 reflected the inclusion of the agreement with the Air Force to expand production capacity, which I will address in a moment. The sales increases were partially offset by lower volume on F/A-18. On the bottom line, first quarter AS operating margins improved to 9.3%. The increase was driven by the absence of the B-21 loss provision booked in 2025. As Kathy mentioned, we are pleased to have an agreement in place to increase the production rate on the B-21 program. To support the acceleration of aircraft deliveries, we agreed to sell an aircraft to the Air Force that was previously planned to be utilized as a company-owned test asset. The asset sale accelerated revenue into the quarter but does not change the total number of aircraft we expect to deliver in the LRIP phase of the program. Additionally, after reviewing our profitability estimates on the LRIP phase of the program, which now includes the agreement, there were no significant changes to the EAC. We had some increased production cost on earlier lots, which were offset by improved profitability on the remainder of the program. With the agreement in place, we are accelerating the program and have an opportunity to earn improved returns over a multiyear period. Moving to Defense Systems, Q1 sales increased 5% year over year. Organic sales increased 10%. This was driven by higher volume on Sentinel as the program continues to ramp. Sales were also higher due to increased volume on tactical solid rocket motors and integrated battle command programs. First quarter operating margins at DS were solid at 9.7%. Mission Systems first quarter sales increased by 2%, driven by increased volume on restricted airborne radar and marine programs. These increases were partially offset by lower volume on SABR and electronic warfare programs. MS operating income increased by 20%, driven by a higher level of net favorable earnings adjustments. This increased their first quarter OM rate to 15.1%. In the Space segment, first quarter sales and operating income were down compared to the prior year. This was driven by two factors. First, the NGI program recognized $98 million in first quarter sales last year as part of the contract closeout. This created a year-over-year headwind in Q1 this year. Secondly, we recognized an unfavorable earnings adjustment of $71 million on the GEM 63XL program. This adjustment lowered sales and operating income in the period. Performance elsewhere in the Space portfolio was strong, with growth on SDA programs and restricted space. Turning to earnings per share on Slide 5, first quarter diluted EPS was $6.14, up substantially compared to the prior year. This was driven by higher sales and segment operating income partially offset by lower net pension income. In terms of cash flow, the first quarter reflected a use of approximately $1.8 billion, in line with the prior year. Consistent with our historical patterns, we expect cash flows to ramp throughout the year with the most significant cash generation in Q4. We expect CapEx to follow the same pattern as we continue to invest to support the strong demand environment and our future growth. As I indicated on the fourth quarter call, we repaid $527 million of fixed-rate debt in Q1. We ended the quarter with over $2 billion of cash on the balance sheet. Turning to our 2026 guidance, we are reaffirming our outlook for sales, earnings, and cash. We ended the first quarter with positive momentum and continue to expect full year results within the existing guidance ranges. This includes full year sales between $43.5 billion and $44 billion. We continue to expect sales to accelerate throughout the year, similar to the cadence in 2025. For the second quarter, we expect high single-digit sequential sales growth, and for the full year, we continue to expect broad-based sales growth across the portfolio. Segment operating income guidance reflects continued strong performance and a low-to-mid 11% margin rate. Margins are expected to improve over the course of the year driven by strong performance, production timing, and mix. Our capital deployment strategy remains focused on driving growth, reinvesting in the business to scale capacity, and maximizing shareholder value. This includes an additional $200 million we expect to invest this year to support the increased production capacity on B-21. As a result, we now expect $1.85 billion in 2026 capital expenditures. However, we are maintaining the free cash flow guidance range of $3.1 billion to $3.5 billion. Given the increased capital investments, we are working to offset the free cash flow impacts. To summarize, we continue to generate strong financial results. I am confident that we are well positioned for continued profitable growth and value creation. Before we open the call for questions, I would like to take a moment to congratulate Todd on his retirement at the end of this month. We appreciate his contribution over the past seven years. Todd has been a highly valued team member and a trusted business partner. We wish him well as he embarks on the next chapter. We will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Please limit yourself to one question and one follow-up. One moment for questions. Our first question comes from Robert Stallard with Vertical Research. You may proceed. Robert Stallard: Thanks so much. Good morning. First of all, thanks, Todd, for all your help over the years—much appreciated. And then, second, on the B-21, Kathy, you have this 25% production capacity situation sorted out now. Can you give us some idea of how the timeline progresses here in terms of Northrop Grumman Corporation spending on CapEx and how the production flows through? And also, if you have protections in here against a B-2-style curtailment? Thank you. Kathy Warden: Yes, Rob. We expect about $200 million of CapEx this year, and that is why we reflected that increase in our CapEx guidance for 2026. As we have said before, we expect the majority of the capital to happen in the 2027–2029 time frame and largely be completed this decade. The additional capacity that is coming online does give us a meaningful increase in throughput, which will generate revenue over the life of the program. But as I have stated, it takes a while for us to get that online, so you should expect the revenue profile to follow the production facility completion. Why it is not like the B-2? In terms of this contract, we have a committed quantity on the contract, and we know that the Air Force is considering increasing the program of record as we sit here today. That decision has not been taken, but we believe there is strong support by the administration for this capability that manifests itself in their commitment to the triad modernization in the U.S. National Defense Strategy, and we believe it reflects the view of multiple administrations on the need for this platform as an effective deterrent, as we have seen recently with the B-2 in conducting military operations. Operator: Thank you. Our next question comes from Gautam Khanna with TD Securities. You may proceed. Gautam Khanna: Yes. Good morning. I was wondering if you could elaborate on some of the Sentinel developments that you mentioned on IOC and how that program is progressing with respect to timing. And congrats to Todd as well. Thank you. Kathy Warden: For the Sentinel program, in partnership with the Air Force in the past quarter, we have agreed to an acceleration of the program that would have completion of Milestone B later this year and then would allow us to move forward with the program, as I said, to first flight in 2027 and an initial operating capability early in the 2030s. We are doing a series of things together with the Air Force to enable the schedule acceleration. One I mentioned that got started in the quarter is a prototype of the missile's launch silo, and that will help us further increase the fidelity of our design for the silo itself. That is just one example of numerous things that are happening across the program to mature the design and progress toward that first flight milestone in 2027. Operator: Thank you. Our next question comes from Peter Arment with Baird. You may proceed. Peter Arment: Yes, thanks. Good morning, Kathy and John. Congrats, Todd. Kathy, on the color on international—if we could click into that a little bit. You were up 20% in 2025. A lot has changed in the last few months. Can you talk about opportunities? Is there anything on international that can be pulled to the left? I know you are expecting a healthy book-to-bill of over one this year. Any dynamics there that can accelerate the timing? Kathy Warden: Peter, we see the opportunity to accelerate timing on international in areas where urgency has increased over the last couple of months. I specifically called out the Middle East, where clearly the conflict with Iran has created a heightened sense of urgency, and we are seeing those opportunities move to the left. With that said, we see high demand for products that we produce across the entire globe, including Europe, and our team is working in any way possible to accelerate demand and turn that demand into sales. International does tend to have a longer cycle than domestic; that has not changed, just in terms of the steps we must go through to get that demand signal translated into contract. We are working with the department on a number of things that help to accelerate export approval, and we are looking at aggregating international demand. Those are all positive steps forward in the way the process is working that could lead to acceleration, but I largely see those things impacting us beyond this year. Peter Arment: Got it. And as a follow-up, you mentioned missile defense is roughly 10% of your overall revenue mix today. Can you talk about opportunities in the counter-drone area? We have seen a lot of focus on lower-cost solutions. How do we think about Northrop Grumman Corporation’s position there? Thanks. Kathy Warden: We have opportunities in counter-drone, including low-cost solutions that are based on work we have been doing in that arena for a number of years. Programs like our FADC2 program and even IBCS are effective in connecting sensors and shooters in that counter-drone space. We have seen an increase in demand both from the U.S. and international, and we expect the international contribution to be greater than the domestic in counter-UAS solutions. We see that developing over the next couple of years. We are already seeing some revenue today in that space, and, as I noted, now nearly 10% of company sales is in missile defense, which is a significant increase from where we were just a few years ago. Operator: Our next question comes from Kristine Liwag with Morgan Stanley. You may proceed. Kristine Liwag: Great. Good morning, everyone. Good morning, Kathy, John, and Todd—congrats on your retirement. Maybe a high-level question. Kathy, when you look at the backlog of $96 billion—it is near record, providing sales coverage for over two years. Mid-single-digit growth seems reasonable in a more normal environment, but in the past few years you have called out urgency now in the geopolitical environment, and it seems like things continue to deteriorate. We are seeing the Pentagon seek out new players, and the White House has called out potentially firing up the Defense Production Act for the auto industry to increase capacity. Can you give more color about how you think about overall output for Northrop Grumman Corporation? Where are the areas of bottleneck, and what has to happen for the company to deliver on double-digit growth? Kathy Warden: We are seeing an opportunity-rich environment. It is only early 2026, and we are just starting to see reconciliation dollars flow into our contracts. Our performance this quarter was in line with our full-year guide of mid-single-digit growth. For higher sales growth, it would come from winning numerous new competitive opportunities—we would expect to continue to see a high competitive win rate on those opportunities. We would also need to see an accelerated ramp on the demand for our missile components—I talked about solid rocket motors earlier on the call. We have the capacity; we need to get that on contract and start producing. We need to convert our international pipeline to sales, as I referenced earlier. And our suppliers need to be able to scale with us. We are doing the work to remove those bottlenecks in our supply chain—first by identifying them, second by helping those suppliers to resource their own scaling and have the capacity that we need from them. We are working on all of these strategies to increase our growth rate beyond the mid-single digits. I have a lot of confidence in our longer-term outlook for sales based on the growing backlog and the opportunity to add to that backlog this year. The real question is timing—when do we reach that inflection point—and it is based on all of the factors I just shared. Kristine Liwag: Super helpful. And as a follow-up, the Chief of Naval Operations said yesterday that one of the two companies vying for the F/A-XX contract lacks the capacity to deliver the fighter on time. With the potential down-select in August for this program, can you discuss how you think about Northrop Grumman Corporation’s positioning? And if you are selected, how should we think about the potential upside to the 2026 outlook? Is the funding for this program clear to potentially provide upside for 2026? Kathy Warden: This is a good example of one of those competitive opportunities I just mentioned, and we do expect the department to make an award selection in the third quarter. We are confident in our ability to deliver our solution to the Navy. We and our suppliers are prepared to bring the workforce and infrastructure needed to execute the program, and our track record on B-21 demonstrates the ability to deliver a complex aircraft on schedule. Regarding the financials, we would expect upside to sales and earnings from our current guidance if we are selected to build F/A-XX, and it would be a top priority for our company. Operator: Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. You may proceed. Sheila Kahyaoglu: Thank you. Good morning, Kathy and John, and thank you, Todd, for everything over the years. Kathy, in your prepared remarks, you gave us lots of color on the growth drivers of missiles. You said missile defense is 10%, weapons at 10%. Can you size B-21 and Sentinel? How do we think about these four growth drivers from both the revenue and earnings perspective? Kathy Warden: Let me start with Sentinel. The program is about 6% to 7% of company revenue today, and we expect it to grow low double digits this year, which is in line with how it performed in the first quarter. We then expect it to continue to grow annually, growing toward 10% of revenue over time. Its real inflection point is when we start to have long lead for production, which we expect later this decade. For the B-21 program, it is nearing 10% of revenue, and with this accelerated production rate, we expect that over the next several years it will likely begin to exceed 10% of company revenue and sets the program up for enduring growth as well. For weapons, we expect that to continue to be one of, if not the, fastest-growing segments of our business. It includes opportunities where we are currently qualified to provide components like solid rocket motors, and also our prime position as a weapons integrator that we expect to grow over time as programs like AARGM-ER and Stand-in Attack Weapon mature into production. That part of the portfolio today in aggregate is also about 10%, but we expect it to be one of the fastest growers and proportionally become larger over the next several years. The growth rate will be dependent on how many new programs we add to the portfolio. On margins, the margin profile on Sentinel, B-21, and our weapons portfolio are all expected to increase as we move into production, because many of them are in various stages of development at the moment. John Green: Most of that work is in our Defense Systems business. You can see the guide we provided at the beginning of this year in terms of the growth we will see there—approaching 10%. And Sentinel, as Kathy said, is about 6% of total sales; it is about a third of the sales in the Defense Systems guide. That will help you triangulate what we think the drivers are there and support the acceleration of potential growth into the future. Operator: Thank you. Our next question comes from Seth Seifman with JPMorgan. You may proceed. Seth Seifman: Good morning. I wanted to ask on B-21 and the impact of the production agreement. I think you mentioned some pluses and minuses in terms of the estimate. You have noted before that the agreement could potentially lead to higher profitability on the LRIP units. Should we assume that higher profitability on the LRIP units and reversal of charges is still a possibility depending on company performance over the next several years, or should we be thinking about the increased profitability coming more on later units and beyond? John Green: The agreement we reached with the Air Force was a great outcome for both the company and the customer. As that agreement plays out, a good portion will be subject to our execution on the LRIP phase. Based on how it came together, there was no meaningful change in the overall EAC. There were some increased production costs that were offset with increased profitability in later phases of the program. Positive overall. As the program matures, manufacturing capability will continue to improve, production rates will improve, and it gives us an opportunity to expand margins and hopefully sales with the increased rate of production. Seth Seifman: Great. And as a follow-up, after this year there is probably $2 billion-plus of B-21 CapEx over 2027–2029. When we think about the 2028 cash flow target, you were able to offset the impact of incremental B-21 CapEx this year, but it is obviously in the future. How should we think about the ability to offset that? John Green: That is a substantial investment. We guided and held our 2026 cash flow guidance and intentionally did not give guidance on 2027 or 2028 for two reasons: large awards outstanding—one of which we hope to hear sometime in the third quarter—and the investment we are making, the $2.5 billion, with the lion’s share in 2027 and 2028. As we roll things forward, we will take a look at what free cash flow looks like. Not to be lost is the cash generation power of this business—it will continue to generate substantial free cash flows, and the investment will be subject to the opportunities we see. Operator: Our next question comes from Richard Safran with Seaport Research Partners. You may proceed. Richard Safran: Todd, congrats to you. This question could be for either Kathy or John. Could you talk generally about the contracting environment overall? Are you seeing a more favorable environment—specifically, revised contract language with award or incentive fees or other incentives for good execution—and what might that mean for margins and cash? Kathy Warden: We are seeing the department engage with industry in several positive ways. One is the sense of urgency to get work on contract. Two is the desire to give a long-term sustained demand signal and commitment around demand to both help us plan and drive down costs that come with change or production gaps if there is not certainty of demand. We are also seeing more use of OTAs and other nontraditional contracting mechanisms. All of these are positive for industry, and I do not see a desire by the department to push industry profitability down; quite the contrary. Helping reduce costs benefits both the customer and industry profitability, and placing incentives on contracts to drive early delivery is in everyone's best interest. I see real alignment and an opportunity to create better economics for industry and the government. Operator: Thank you. Our next question comes from Scott Mikus with Melius Research. You may proceed. Scott Mikus: Morning, Kathy. Backlogs for you and your peers are already elevated, and it seems like a lot of the reconciliation funding from the big supplemental is yet to be put on contract. We could also have a $1.5 trillion defense budget and another supplemental for Operation Epic Fury. The demand signals are great, but are we starting to see European customers become wary about ordering equipment from U.S. companies given uncertainty on delivery timing? Kathy Warden: There is definitely a desire for European countries to buy U.S. product, and we are still seeing robust demand there. There is sensitivity to buy local if possible where there is a comparable product that can meet requirements, and there is sensitivity around timelines for U.S. companies to deliver, particularly given increased demand from the U.S. For the Northrop Grumman Corporation portfolio specifically, we have been investing in capacity—I talked about the 20 facilities we have opened in the last 24 months and the over 2 million square feet of manufacturing space we have added. This gives us the capacity to do both. We are supplying demand for both the U.S. and Europe, and we foresee the ability to continue to do that. Scott Mikus: The administration has also talked about trying to increase significantly the number of space-related FMS approvals. Are you starting to see the administration speed up that process, and are you engaged with international customers about building a pipeline of opportunities for your Space Systems segment? Kathy Warden: We are engaged with international customers related to space, and we see that pipeline growing. We have seen some contract awards; in the quarter, we announced a relationship with a Hungarian company and are pursuing work there. We are starting to see the maturation of that demand signal turning into pipeline and even contract award. It is the business that has the least international pipeline of our four segments, but it is growing, and we expect five to ten years from now international to be a key contributor to our Space business just as it is in our other three segments. Operator: Thank you. Our next question comes from Scott Deuschle with Deutsche Bank. You may proceed. Scott Deuschle: Hey, good morning. John, is the customer providing any incremental cash advances or working capital support to help offset some of these increased capital investments in the B-21 program? John Green: We are making significant investments to support the program, and the customer is making significant investments to support the program. The cash flow timing related to the program loosely will align with the investment rate, but there are certainly components that will not. That is about as much detail as I can get into on the nature of the cash flows related to the program given the classified nature of the contract and the program itself. Kathy Warden: I will add that the deal improves the economics for the program for the government and Northrop Grumman Corporation. When we look at the return on invested capital over the life of this program, this deal has improved that outlook. For the government, we are able to produce and deliver capability faster. In our view and the Air Force's view, this is a win-win—both contributing and both benefiting. Scott Deuschle: For the life of the program, do you see the ROIC now meaningfully above your cost of capital? Kathy Warden: We do. Scott Deuschle: And there have been news reports stating that many F-35 aircraft are delivering without radars. Could you give us an update on that program and how performance has been tracking more recently on your F-35 radar production line? Kathy Warden: We are somewhat limited in what we can share given the classified nature of the program, so I will refer to comments the Joint Program Office has made. We are building an advanced radar and, in coordination with the JPO, taking on concurrent development and production. This was a known risk when we started down this path to ensure we could deliver the capability as quickly as possible. The JPO has stated plans to accelerate the production capacity to deliver the radars that meet the requirements, and we are working with them. We are continuing to work to complete development, which includes testing, and then quickly ramp production. One of the facilities I referenced earlier in the call is being built for the purpose of accelerating production on this program in particular. We have opened that facility, have the tooling, and are working to train the workforce, so we are ready to go as soon as we get through test milestones on the program and are already starting to produce. The important takeaway is we are moving as expeditiously as possible to get this radar delivered because we understand what a game changer it is for the capability. Operator: Thank you. Our next question comes from Analyst with BTIG. You may proceed. Analyst: Thanks. Good morning, Kathy and John, and congrats, Todd. In the past couple months, we saw you get tapped to support the C2 layer of whatever the Golden Dome initiative ends up looking like. What additional color can you give there, and how might that eventually materialize in the financials as we progress in the coming quarters and years? Kathy Warden: We were selected to be part of a broad set of companies developing the C2 layer, and we are looking forward to contributing to a very aggressive timeline for both developing and demonstrating that capability. It is one of General Guetlein’s top priorities, and we are optimistic that we bring a lot of legacy experience and knowledge, both in C2 and in understanding layered defense in the missile defense arena, to that team. Analyst: Got it. Maybe pivoting to the YFQ-48—there are a lot of CCA opportunities with the Navy, Air Force, Marine Corps. Where are you in bidding for those, and what are your expectations as we move forward? Kathy Warden: We are pursuing a number of opportunities with the Air Force and were given the YFQ-48 designation so that we can continue to test our offering as we progress toward Increment 2. We have also been awarded for the Marine Corps our MUX TAC Air offering, and have been announced as one of the participants in the Navy CCA program. There is a broad set of activities underway to take our unmanned experience—over 500,000 flight hours—and the investments we have made in Talon, both Talon Blue, the aircraft, and TalonIQ (formerly known as Beacon), to test and mature vehicle management systems and autonomy. We hit some key milestones on that effort in the quarter that we announced as well, and we are bringing all of that expertise forward to all three services pursuing CCAs and putting our best foot forward for their next competitions. Operator: Josh, we have time for one more question. Thank you. Our last question comes from Matt Akers with BNP. You may proceed. Matt Akers: Congrats, Todd, on the retirement. Kathy, could you touch on the classified/restricted portion of your business? It is a big chunk that is difficult for us to track. Based on what you are seeing and the budget request, do you think that grows faster or slower than the other parts of your business? Kathy Warden: We had seen it growing faster than the other part of our business, but with the strong demand in munitions and missile defense—which are not part of our restricted portfolio—on a go-forward basis I could envision that the restricted business will grow more in line with the rest of the portfolio. The key takeaway is we see growth in both, and that is a nice position to be in. Matt Akers: Great. Thanks. I will leave it at one. Thank you. Kathy Warden: Great. Thank you. I want to close the call by once again thanking our entire team for their contributions to national security and space exploration. Since the beginning of this year alone, we have boosted North American astronauts back to the proximity of the moon, and we have helped our military in several operations in multiple regions across the globe return home safely after completing their mission. I know our team has been working tirelessly to support these efforts, and I am very proud of them. I would also like to recognize Todd. As many of you have mentioned, he is completing his final earnings call with us today. It has been my pleasure to work with him over the last seven years, and we are glad that he chose Northrop Grumman Corporation as the place for the capstone for his career as he transitions into what is a well-deserved retirement. Congratulations, Todd. Thank you all for joining us today. We look forward to continuing to engage with you throughout the quarter. That concludes our call for today. John Green: Thank you. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
Operator: Good morning, and welcome to the AGNC Investment Corp. First Quarter 2026 Shareholder Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katie Turlington in Investor Relations. Please go ahead. Katherine Turlington: Thank you all for joining AGNC Investment Corp.'s First Quarter 2026 Earnings Call. Before we begin, I'd like to review the safe harbor statement. This conference call and corresponding slide presentation contain statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecasts due to the impact of many factors beyond the control of AGNC. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in AGNC's periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website at sec.gov. We disclaim any obligation to update our forward-looking statements unless required by law. Participants on the call include Peter Federico, President, Chief Executive Officer and Chief Investment Officer; Bernie Bell, Executive Vice President and Chief Financial Officer; and Sean Reid, Executive Vice President, Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico. Peter Federico: Good morning, and thank you all for joining our first quarter earnings conference call. Agency MBS performance in the first quarter was driven by 2 very divergent investment themes. In January and February, the administration's focus on reducing interest rate volatility, maintaining mortgage spread stability and improving housing affordability and drove strong performance across the fixed income markets. Agency MBS performance was particularly strong during this period as President Trump's January 8 directive instructing the GSEs to purchase $200 billion of agency mortgage-backed securities, pushed spreads through the lower end of the recent 3-year trading range. In March, however, uncertainty associated with the war in Iran and the potential for a more widespread conflict in the Middle East caused interest rate volatility to increase investor sentiment to turn negative and Agency MBS spreads to widen significantly. As a result, AGNC's economic return in the first quarter was negative 1.6%. Despite the spread widening to swaps quarter-over-quarter, Agency MBS outperformed U.S. treasuries and investment-grade corporate bonds in the first quarter, again demonstrating the diversification benefits of this unique, high credit quality fixed income asset class. At the beginning of the year, I discussed a number of factors that we believe would benefit Agency MBS performance in 2026. Among these were low interest rate volatility and an accommodative monetary policy stance. In the first quarter, however, the Middle East conflict caused interest rate volatility to increase and Fed rate cuts to become more uncertain. While the duration and economic implications of the conflict are still unknown, recent developments are encouraging, and these factors could once again be positive catalysts for Agency MBS performance. More importantly, many of the other factors that I discussed actually improved in the first quarter and now further strengthen the outlook for Agency MBS. Most notably, at current spread levels, the return profile on Agency MBS is more attractive. At the time of our fourth quarter earnings conference call, the spread differential between current [ coupon ] MBS and a blend of swaps was 135 basis points. Over the last 2 months, that spread has ranged between 150 and 175 basis points as a result of heightened geopolitical and macroeconomic risks. We believe Agency MBS in this spread range represent compelling value on both an absolute and relative basis. The supply outlook for Agency MBS also improved in the first quarter. At the start of the year, the net new supply of Agency MBS was expected to be approximately $250 billion assuming a mortgage rate of just below 6% with mortgage rates now about 50 basis points higher, MBS supply could be $50 billion to $70 billion lower this year. The demand outlook for Agency MBS improved in the first quarter as well. Money manager demand for MBS increased materially in the first quarter as bond fund inflows came in about double the pace of the previous 2 years. U.S. bank regulators also released their proposed bank regulatory capital framework for common. As expected, the proposal includes lower capital requirements for high-quality mortgage credit. These favorable capital requirements could lead banks to retain a greater share of mortgage credit in whole loan form or to utilize the private label securitization path to a greater extent, thereby reducing the GSE footprint over time. Finally, with mortgage spreads wider and the mortgage rate now in the low to mid-6% range, the administration may take further actions to improve housing affordability. Such actions could include more aggressive GSE purchases or increases in GSE portfolio size limits. Either or both of these actions would benefit mortgage performance. In addition, while the funding markets for Agency MBS are deep and liquid, further actions by the Fed to improve the functionality and accessibility of the standing repo program could also be catalysts for tighter mortgage spreads and lower mortgage rates. In summary, although the sharp increase in geopolitical and macroeconomic risk, creates a more challenging investment environment over the near term, the return profile and technical backdrop for Agency mortgage-backed securities improved in the first quarter. In addition, actions by the administration to improve housing affordability are more likely. As we are continually reminded, market conditions change quickly. A prompt resolution to the Middle East conflict while at times difficult to predict could lead to a substantial reduction in volatility and inflationary pressures. Collectively, these conditions support our favorable outlook for agency mortgage-backed securities. Moreover, AGNC remains well positioned to capitalize on these favorable conditions and build upon our lengthy track record of generating strong risk-adjusted returns for our stockholders over a wide range of market cycles. With that, I will now turn the call over to Bernie Bell to discuss our financial results in greater detail. Bernice Bell: Thank you, Peter. For the first quarter, AGNC reported a comprehensive loss of $0.18 per common share. Our economic return on tangible common equity was negative 1.6% for the quarter, consisting of $0.36 of dividends declared per common share and a $0.50 decrease in tangible net book value per share, driven by wider mortgage spreads to benchmark rates. As of late last week, our tangible net book value per common share was up approximately 6% for April or 5% net of our monthly dividend accrual. With the recovery in April through the end of last week, our tangible net book value has now largely reversed the first quarter decline. We ended the first quarter with leverage of 7.4x tangible equity up slightly from 7.2x as of Q4, while average leverage for the quarter was unchanged at 7.4x. We also ended the quarter with a significant liquidity position of $7 billion of unencumbered cash and Agency MBS, representing 60% of tangible equity. Net spread and dollar roll income was $0.42 per common share for the quarter, up $0.07 from the fourth quarter. The increase was largely due to a 25 basis point increase in our net interest spread, which was driven by a combination of a greater allocation of interest rate swaps in our hedge portfolio, lower repo funding costs, more favorable TBA implied financing levels and a modest increase in the yield on our asset portfolio. Our quarter-over-quarter results also benefited from reduced compensation expense as our fourth quarter results included year-end incentive compensation accrual adjustments. The average projected life CPR of our portfolio increased 70 basis points to 10.3% at quarter end from 9.6% as of Q4. The increase was largely due to prepayment model updates implemented in the first quarter and portfolio composition changes, partly offset by higher mortgage rates. Actual CPRs averaged 13.2% for the quarter compared to 9.7% in the prior quarter. Lastly, during the first quarter, we issued $401 million of common equity through our at-the-market offering program at a significant premium to tangible net book value per share, continuing our active capital management strategy and generating meaningful accretion for our common stockholders. And with that, I will now turn the call back over to Peter to discuss our portfolio. Peter Federico: Thank you, Bernie. Agency MBS performance varied meaningfully by coupon and hedge type in the first quarter. Low coupon MBS meaningfully outperformed high-coupon MBS due to heavy index buying from money managers in response to outsized bond fund inflows. This variation in performance by coupon was significant with lower coupon MBS tightening about 10 basis points to treasuries during the quarter, while higher coupon MBS widened about 5 basis points on average. MBS performance also varied materially by hedge type as swap spreads tightened during the quarter. 10-year swap spreads, for example, tightened by almost 10 basis points. As a result, and MBS position hedged with a 10-year pay fixed swap versus a 10-year treasury, experienced spread widening of about 10 basis points, all else equal. This tightening in swap spreads was directly related to Middle East uncertainty. The market value of our portfolio totaled $95 billion at quarter end, during the quarter, we purchased $1.7 billion of predominantly low coupon specified pools. In addition, we rotated a portion of our portfolio down in coupon. Consistent with these changes, the weighted average coupon on our portfolio declined to 4.95% from 5.12% the prior quarter, and the percentage of our assets with favorable prepayment characteristics increased slightly to 77%. The notional balance of our hedge portfolio increased to $64 billion due to the addition of shorter-term pay fixed swaps prior to the sharp sell-off in interest rates in March. We also reduced our exposure to treasury-based hedges during the quarter. As a result, in duration dollar terms, our swap hedge allocation increased to 78% from 70% the prior quarter. Lastly, in the current environment, we continue to favor operating with a positive duration gap which we view as additional prepayment protection in a down rate scenario. With that, we'll now open the call up to your questions. Operator: [Operator Instructions]. The first question comes from Bose George with KBW. Bose George: Peter, you mentioned for spreads that you compared to spread level at the earnings call last time where it is now. But if you compare it from the end of the fourth quarter to where it is now, are the returns pretty comparable? And what is the ROE currently imply? Peter Federico: Yes. Thanks for that question, Bose. Yes, that's a good way of putting it. In fact, Bernie mentioned that our year-to-date book value is almost unchanged from the end of the fourth quarter. So when you think back about where mortgage spreads were, again, I always kind of refer to them off the current coupon to the blend of the swap curve, but they were right in that neighborhood of around 150 basis points. And then when we got the announcement on the purchases of the -- from the GSEs, it really pushed them, as you recall, about 15 -- maybe 16 basis points tighter got us down to the [ 135 ] level. And now we're right back to where we were this morning, there are about 151 basis points. And at that level, that's the swap curve. The current coupon to treasuries is about 120-or-so basis points to the curve, not to a specific point on the treasury curve. But you're looking at an average spread of somewhere between 140 and 150 depending on what amount of swaps we use. And at that level, I would say returns are kind of broadly in the 15% to 17% range. centered right around 16%, which aligns pretty well with our total cost of capital. Bose George: Okay. Great. And then actually, it looks like specialness improved a little bit. Can you just talk about that and how much of a contribution that is now? Peter Federico: Yes. No, that's a very significant change from what we've really observed over the last couple of years, the TBA position, we've talked about it, our TBA position has not been very significant because the implied financing levels on TBA have really been unattractive. And in fact, for a lot of the last 2 years, TBA implied financing levels were well through, in some cases, the repo levels. And that really dates back to the regional banking crisis in 2023, where it was the combination of the regional banking crisis. It was QT, it was regulation. It was just a lot of things putting a lot of pressure on balance sheets. And that really had an implication for TBA funding. What we've seen is a lot of that pressure easing, and we really got the benefit of it in the fourth quarter. Obviously, the Fed has stopped Q2. Importantly, at the end of last year, they started reserve management purchases and growing their balance sheet with really eased funding pressures. They rebranded the standing repo facility to be the standing repo program. And then, of course, we now, as we expected, got reform to the original Basel [ Endgame ]. All those things have been really positive for funding, reducing balance sheet constraints. And as a result, the TBA implied financing levels are generally back to through or equal to repo levels. And in fact, for several coupons, they've actually been meaningfully better than TBA finance. So we were able to take advantage of that in the first quarter with our TBA position. We actually had both longs and shorts in our TBA position, which contributed to the uptick in our dollar roll income. So we expect these implied financing levels to sort of remain in this level in this area. So it's a new opportunity for us that we haven't had over the last couple of years. Operator: The next question comes from Crispin Love with Piper Sandler. Crispin Love: Just on quarter earnings. [ Net spread ] dollar roll income, very strong in the first quarter. I think since a year ago, can you just some of the dynamics there, the sustainability yields higher cost of [indiscernible], and you just had mentioned some of those financing dynamics. But can I think that's even if you just going a little bit down in coupon. So just as you look forward, would you expect core earnings to compress a little bit closer to the dividend. Just any thoughts there? Peter Federico: Yes. No, great question. You're right. When you think about our net spread and dollar roll income and our margin, our margin, as Bernie mentioned, did increase 25 basis points to 2.06. And if you think about that on a return on equity basis, that's really close to 20%. I would describe that as being above the long-run economics of the current environment. But if you're looking for sort of a range, and we talked about this when our net spread and dollar roll income was down around $0.35, $0.36, we said generally that we thought it was going to move up. So I would say that probably a good range of expectation over the relatively near term mean several quarters would be high 30s and low 40s. And some of the things that we talked about definitely showed up, particularly, as I just mentioned, the same benefits that we saw in the TBA implied financing levels, obviously, that's a tailwind now. But just more broadly and more importantly, the easing of repo pressures that we -- thanks to the Fed and their activities really made a big difference. If you recall, we were seeing real significant month end and quarter end pricing pressure in the repo market that has abated and repo is now trading right where the Fed wants it in the middle of the Fed funds target. Obviously, the timing of capital raises and how we deploy that capital can have a little bit of period-to-period implications. But generally speaking, I feel like the range that I talked about is probably the right range, somewhere in the high 30s, low 40s in terms of net spread and dollar roll income. Crispin Love: Okay. That makes sense. And then just on hedging. Hedge ratio, it ticked up a little bit, but still fairly low when you look at historical levels. So just in today's environment, the war rate fall the administration being supportive of the housing sector. Just how comfortable are you with the current levels in that 65% to 75% range versus if you, going back a little bit, you were at 90% plus in the past? Peter Federico: Well, it goes back to the -- really what we talked about in the fourth quarter is we were positioned and we still are positioned. You're right. Our hedge ratio increase -- and the hedge ratio that I'd like to look at is the 1 net of our receiver swaptions, which is about 8%. And that tells you that we are still positioned to benefit from lower short-term rates, meaning that if short-term rates go down, we would ultimately could close that hedge ratio. And we did some of that in the first quarter because there was a period of time in the first quarter, where if you recall, the 2-year rate and 2-year swap spreads really got down into the -- I think they dropped down to around [ 3.18 ], maybe it was the lowest, right? So not that far off of where the Fed's neutral target is. Obviously, that's not known right now, but it's probably somewhere in the -- right around 3% as to Fed's neutral target. So as short-term rates approach that long-run neutral target, it would make sense for us to close our hedge ratio and move higher, essentially lock in that of funding. Obviously, there's a lot more uncertainty about the direction of short-term rates right now. In fact, during the first quarter, we went from pricing in 2 eases at least to, in effect, at one point during the quarter when the really going there was expectation of Fed tightening. So we have more uncertainty on that, but still long run, we think that this ultimately will be resolved and that some of the underlying fundamentals will come back and that the Fed will ultimately adopt a more accommodative monetary policy stance later in the quarter, and we should stand to benefit from that. So I would describe us as sort of as neutral right now in terms of changes to our hedge position. But we did close it a little bit when we had the opportunity. Operator: The next question comes from Marissa Lobo with UBS. Ameeta Lobo Nelson: So how do you think about optimal leverage in a policy supportive environment, but where near-term volatility keeps remaining a recurring feature? Peter Federico: Yes. Certainly, an important question in today's environment. I guess I would start by saying, from our perspective, when we think about our leverage, we obviously are thinking about our leverage and setting our leverage according to the spread range that we expect to be operating and we saw that really play out really well for us in terms of being well positioned for the volatility and the spread volatility that we incurred in the first quarter. Obviously, you saw us grow our portfolio. And the key as a levered investor is you want to make sure that you have sufficient excess liquidity to withstand all of the uncertainty and stressful environments that we ultimately encounter on a regular basis and not have to change the asset composition, not have to delever your portfolio. And we've been able to successfully do that because we sized our position accordingly. And during the quarter, for example, our leverage sort of stayed right in this range, maybe got as low as 7% and maybe got as high as 7.5%. And so we have to wait and see how the environment unfolds. Obviously, there's a lot that can change and a lot that will change over the next quarter or 2, both with respect to the economic outlook, the monetary policy outlook, the geopolitical uncertainty that we face. And then the administration and what actions that they may take that will ultimately impact housing affordability. All those will go to inform us as to what the right the right leverage level is. But importantly, we are able to operate now in today's environment where spreads are, and particularly since spreads have widened, with a very reasonable leverage position and still generate excellent returns for shareholders. That gives us a lot of ability. What we're trying to do is we're trying to generate the best return we can while putting ourselves in a position to preserve book value across a wide range of market conditions. So we're always trying to optimize that. We will be informed over time whether or not we have to take our leverage up or take our leverage down based on the market conditions and the stability of spreads. If we get the war resolved, if the inflation pressures come down, Fed's more accommodative. And importantly, the administration goes back to focusing as they were on interest rate, volatility, in reducing interest rate value and importantly, reducing agency spread volatility, then ultimately, it would be a favorable environment we could operate with potentially a different leverage profile. But we certainly like the leverage profile that we're operating right now. Ameeta Lobo Nelson: And then moving to GSE activity. It's been framed as more opportunistic than programmatic. How does that shape your trading strategy and your coupon selection relative value trade? Peter Federico: Yes, that's a great question because it goes back to your previous point about leverage. One of the things that we did expect, and it's very difficult to tell what we kind of realized with the GSEs is while they put out their portfolio numbers to their monthly volume summary is about a month after the fact. I don't believe that those numbers capture their TBA position. So it's not quite clear exactly what the growth is of the GSEs quarter-over-quarter. But what I would say, and I would fully expect and I believe that they do this is that they would approach this from a really economic perspective. And when mortgage spreads widen, particularly like they did, in March, I would expect the GSEs to take advantage of that. They're not only putting on more profitable book of business, but importantly, they're serving a very important role in the market, which is to reduce interest rate volatility. And excuse me, not interest rate but mortgage spread volatility. And that ultimately is beneficial to the mortgage rate. So I do think that they would approach it that way from an opportunistic perspective and ultimately, the more that they do that, the more other capital gets attracted to the system. And one of the things that really will benefit mortgage rates and mortgage spreads is having a more diverse investor base. And we're starting to see that now. We're seeing that on the bank side, with the changes in bank capital. I do believe that banks will be a bigger buyer. We're seeing that with money managers. We're seeing foreign investors start to come back into the market. And obviously, to the extent that mortgage spread volatility comes down, in part due to the actions of the GSEs that allows more levered money to come into the system. That's a virtuous cycle that will ultimately lead to lower mortgage rates. So I think that's a critical role that the GSEs do play and can continue to play. Operator: The next question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: Peter. A follow-up on the question you were just talking about with leverage. It looks like you guys didn't really add much to the portfolio during the widening in March, at least based on the quarter end numbers. Can you talk about kind of what you would need to see in the future belts of volatility in order to significantly add to the portfolio? And if the GSE is sort of being there is a potential buyer and widening scenarios sort of gives you any added confidence and potentially adding if spreads are to widen again in the future? Peter Federico: Yes, you're right. We didn't -- our portfolio growth in the first quarter was, as I mentioned, $1.7 billion. And that was true, obviously, at the end of the quarter. Obviously, we have seen more stability in the market since quarter end, importantly, obviously, given the change in tone and what's happening in the conflict. And so to the extent, as I mentioned that in my prepared remarks, to the extent that we continue to see positive developments that will ultimately change the macroeconomic outlook and particularly the inflationary implications it would be positive from a growth perspective. So we do -- as I mentioned, I do believe that mortgages in this 150 to 160 range where we've been trading our attractive long run, and I do expect mortgage spreads to tighten over time once we have more resolution and once the monetary policy outlook starts to become more clear. So over time, that can all happen. And I do -- again, I do think that the GSE is stepping in and buying mortgages when they [ cheap ], if the fact that's what they have done, I think that would ultimately be positive. Trevor Cranston: Okay. That makes sense. And I think you said with the -- for the purposes you guys made during the first quarter, they were in lower coupons. Can you just maybe add some detail around that kind of where you guys are buying in the coupon deck and finding the best value right now? Peter Federico: Yes. We did both is our purchases, even though it was less than $2 billion, our purchases were concentrated in lower coupon specified pools. And importantly, we also did rotate a portion of our portfolio into lower coupons. And the reason why we did that is because we track on almost a daily basis, bond fund inflows, and we did see that bond fund inflows were coming in materially faster in the first quarter than the previous couple of years. So we knew that, that would ultimately translate to the outperformance of lower coupons. And now that has abated somewhat. So we are always looking for opportunities to move up in coupon, move down in coupon, be opportunistic. We're able to do that in the first quarter to some extent and we'll continue to look for opportunities. We have seen bond fund inflows starting to actually slow down quite a bit. In fact, I think quarter-to-date, they're probably running slower than the pace of the previous 2 years in the second quarter of the year. So we'll watch that closely, but there was an opportunity in low coupons. So we took advantage of that. and we'll continue to be opportunistic. Any follow-up on that, Trevor? Trevor Cranston: No. That's very helpful. Operator: And our last question comes from the line of Harsh Hemnani with Green Street. Harsh Hemnani: Peter, maybe can you talk a little bit about the timing of the equity raises last quarter on the prior earnings call, it sounded like it would be more opportunistic and given everything that happened with spreads this quarter. Could you share some color on timing of those equity raises? And then can we expect the rest of the year to be similarly opportunistic? Peter Federico: Yes. Thank you for that, Harsh. Yes, I think you characterized at least my expectation from the last call that I did -- if I go back to the fourth quarter earnings call, I would say that my expectation for the capital issuance would have been a little slower than what we ultimately did. As Bernie mentioned, it was about $400 million in the first quarter. And the reason why that ended up being a little faster than the pace that I had anticipated was, obviously, I didn't anticipate all of the volatility that we saw. And so having more capital certainly is beneficial from that perspective. But importantly, when you think about the economic benefit to our existing shareholders of that capital, it was significant in the first quarter. Obviously, the capital that we raised was accretive from a book value perspective given the fact that we are trading at a premium to book. But also it was significantly accretive from an earnings perspective because we're able to deploy those proceeds. And we haven't deployed them all yet, by the way, but we have deployed most of them. We were able to deploy that at returns, call it, like, as I mentioned, at around [ 16 or so percent ]. And you can compare that to what the dividend yield on the stock is around 13.5%. So it's accretive from an earnings perspective. It's accretive from a book value perspective and having more capital in times of volatility is certainly beneficial and it gives us the opportunity now to take advantage of that. We -- there's a lot of times when -- the issuance of the capital does not align perfectly from a timing perspective with the deployment of it. Part of it is our risk management strategy, part of it is trying to be opportunistic, waiting for the right opportunity to deploy those proceeds and assets at really attractive return levels. And so that's the approach we took in the first quarter and feel like we're in a good position as we start the second quarter. Harsh Hemnani: Got it. That's helpful. And then maybe you talked early in the call about [ role ] specialists improving and that should lead to more DDA in the portfolio. I guess how are you comparing those percentages versus maybe capitalizing on the better [ role ] specialists versus still seeking some prepayment protection with specified pools? Peter Federico: Yes. So a couple of points there. One, it doesn't necessarily -- the role specialists may not necessarily translate into an a net TBA position that's materially bigger. For example, our average TBA position in the first quarter was, I think, 10.3% versus 9.6% the previous quarter, yet our income was materially higher. And that is because, as I mentioned, we can't have offsetting positions there that will allow us to take advantage of the TBA specialness in particular, also not only did conventional TBA implied specialist levels improve, but we have as we -- as has been the case for now several quarters, there's significant specialists in the Ginnie Mae market. So we'll continue to do that. You may not necessarily see though, an uptick in the aggregate size of our TBA position. To your point about specified pools, we obviously still are in this environment very focused on managing prepayment exposure. We do believe that over time, once this uncertainty abates, that prepayment risk will be sort of our predominant risk. And as I mentioned, we are operating now with -- from a positive prepayment pool characteristic perspective, a significant portion of our portfolio, 75% -- 77% of our portfolio, for example, has some prepayment characteristics that we deem to be valuable, and we will continue to do that. What's important is, in this environment, because TBA implied financing levels are where they are, we are able to now deploy capital quickly in TBA, not lose carry because of the funding levels. It gives us more time to then slowly over time rotate out of TBAs into specified pools when those opportunities exist. That has not been the case for the last couple of years. To have a TBA position while you holding that while you wait for the opportunity to rotate into specified pools actually has cost us carry today in this environment, that's not the case. So it gives us a lot of flexibility to deploy capital and then ultimately rotate into specified pools, but we will continue to operate with a high percent of specified pools in this environment. We also, as I mentioned in my prepared remarks, we'll likely continue to operate with a positive duration gap. In fact, our duration gap in the first quarter was a little higher than what we've reported for the last couple quarters because we do want to position our portfolio to benefit from that in a lower rate scenario. Operator: We have now completed the question-and-answer session. I'd like to turn the call back over to Peter Federico, for concluding remarks. Peter Federico: Well, again, I appreciate everybody joining the call this morning. We look forward to talking to you again after our second quarter. Operator: Thank you for joining the call. You may now disconnect.
Sonja Horn: Good morning all, and welcome Entra's first quarter presentation, moving directly to the highlights. Rental income in the quarter of NOK 800 million. That's NOK 26 million up or 3.3% compared to same quarter last year. Net income from property management of NOK 357 million in the quarter, up with NOK 37 million or approximately 11.6% compared to the first quarter last year. Net value changes of minus NOK 52 million in the quarter and value changes on investment properties were negative with NOK 199 million this quarter. Profit before tax of NOK 205 million and the NRV per share currently at NOK 170, up with NOK 1. We continue to see improvements in our key debt metrics and very pleased to see that Moody's have affirmed their investment-grade rating and also provided a positive outlook this quarter. Operationally, it was a solid quarter. However, net letting isolated in Q1 was minus NOK 20 million. The underlying net letting was NOK 6 million positive when adjusting for timing effects related to a relocation, which I will get back to shortly. We have also started reporting on a new project this quarter in Christian Krohgs gate 2, where we are developing the asset in a joint venture with Skanska. It has been a good momentum operationally this quarter, and we have signed new and renewed leases with a rental income of NOK 121 million this quarter and contracts with an annual rent of NOK 64 million were terminated in the quarter. Net letting, as mentioned, of minus NOK 20 million in the quarter. This includes a negative net letting effect of approximately NOK 26 million from the relocation of Circle K, which was required to enable a large contract signed with [ Court Norway ] in the second quarter. Adjusted for the negative net letting effects of this relocation, the underlying net letting in the first quarter would have been positive with [ NOK ] 6 million. Due to these timing effects between the first and second quarter, it is more appropriate to assess net letting for the first half under a whole. And based on what we have signed so far this year and also what we see of current lease activities, we expect that we will have a positive net letting for the second quarter and also for the first half of this year. In the table at the bottom of the page, you can see the largest contracts signed in the quarter. A few comments on a couple of them. In Verkstedveien 1 at Skoyen in Oslo, we were pleased to renew a contract with the Norwegian Public Service Pension Fund for 8,000 square meters. This means that we now are preparing also to start the refurbishment of this building in a sequential phase. We have also signed with Circle K in Stenersgata 1. Circle K is currently our largest tenant in Schweigaards gate 16. This is a building which originally was developed as a new headquarter for Circle K. And over the last 10 years, they have gradually reduced their presence in this building and subleased material parts of their space. So we have, over some time now, been working with Circle K to find suitable alternatives for them within our portfolio and are now very pleased to see that they chose to sign with us in Stenersgata 1. This enables us now also to start the second phase of the refurbishment of that building as we have signed 2 leases in this property. And by moving Circle K, we were also in a position where we could sign with Coop for their new headquarter building in Schweigaards gate 16. And very happy to see that we yesterday also could announce that we have signed a contract for 15,500 square meters with Court Norway and taking the entire building in Schweigaards gate 16. The relocation of Circle K was executed in the first quarter, while the new contract with Coop was signed in the second quarter, which is why we need to assess the net letting for these 2 quarters as a whole. Our occupancy is currently at 94.3%, up from 93.8% last quarter. The change in occupancy is mainly explained by the fact that we now taken the investment decision in Stenersgata 1 to start the refurbishment, meaning that quite a lot of that space, which was vacated has been moved over to the project portfolio. And I have, over the last quarters, been commenting on that we expect to see more fluctuations in occupancy ratios in the short term. This is mainly explained by 3 factors. Firstly, we are completing projects, which will be feeding into the management portfolio with different vacancy levels. Secondly, it depends on the timing of when we start new projects as exemplified by this quarter's changes. And thirdly, it depends on the timing of when we sign new leases on space which has already been terminated. When we terminate a contract, it is immediately reflected in our net letting graph at the bottom right. It is also immediately reflected in the net rental income bridge, as Ole will go through, but it is not necessarily reflected in the occupancy rate as some of this terminated space has a cash flow for quite some time following the termination. Last quarter, we announced that we had sold 50% of this property in Christian Krohgs to Skanska. This transaction was settled in the first quarter, and we have now established a joint venture, started the redevelopment of this building. This building is located only 3 minutes walk from Oslo Central Station. And here, Skanska has signed a lease contract for 35%. We have also signed a contract for the construction. It's a combination of refurbishment and new build volumes with Skanska at a fixed price contract. And the total project cost, including the initial land and property value is NOK 1.8 billion. And the remaining CapEx for Entra's 50% is approximately NOK 617 million. So this is a very capital-efficient way for us to start this project. And also continuing the ongoing transformation in this very important part of our portfolio. Entra has approximately 200,000 square meters of management portfolio in the area around Oslo Central Station and also some projects in our pipeline further down. So very good to continue this transformation for us. This building will be a top modern building, energy class A EU Taxonomy aligned and BREEAM certified, and we expect to see a yield on cost for this asset of around [ 5.7% ], which can compare to the current prime yields in Oslo around 4.5%. The completion of this building is planned for the fourth quarter of '29. If we move on to our ongoing development portfolio, we have now included Christian Krohgs gate 2 as a project we will report on. And the 2 other projects on this list have a remaining CapEx of NOK 195 million, and they are both progressing on -- according to plan, on time and at cost. We have announced quite a lot of new leases over the last quarters. This also means that we are now starting to report -- in the coming quarters, we'll be starting to report on some more refurbishment projects, 1 in Kaigaten in Bergen, 1 in Verkstedveien at Skoyen, as already mentioned today, and the 1 Stenersgata where Circle K has signed. But this should feed into our list of reporting over the next couple of quarters. A few comments on the Norwegian economy. During the first quarter, inflation in Norway has picked up somewhat, and the headline CPI came in at 3.6% for March, while the core inflation, which is the basis for Norges Bank's interest rate models is currently at 3.0%. In response to this, Norges Bank has adjusted its communication, while the policy rate has been held at 4%, the interest rate path has been revised upwards and the Central Bank has indicated that 1 to 2 rate increases may be required in 2026, depending on inflation developments. Before gradually then rate cuts are indicated from 2027 towards 3.5% in 2028, as you can also see from the graph at the bottom right. Mainland GDP for Norway growth is expected to be around 1.5% in the years to come and also with a positive employment growth, as you can see from the top right picture. In Oslo, the employment growth has been somewhat lower than on the national basis, specifically within the private sector, which has not been benefiting the demand for offices in the Oslo market, where we currently also are seeing that public tenants are transitioning into more space-efficient workplace solutions. With heightened geopolitical tensions and increased volatility in energy markets weighing over inflation and growth prospects, it is, of course, more uncertainty on these kind of outlooks. However, having said that, Norway remains in a strong position with its ability to both stimulate and support the economy through fiscal policies and public spending as they have proven to do in the past. A few words on the letting market. Having a well-planned and central office is increasingly seen as a key productivity -- a key aspect for improving productivity, culture and attracting talent. We clearly hear this in all the discussions we have with C-level executives at our -- with our customers. This also entails that the decision on where to locate your office and how to organize your office has become much more strategic and thorough which entails that these processes are much more time-consuming. As an example, when Coop Norway came out, the first meeting on a search, the first meeting we had with them is more than a year ago. So it is a lot of work, and it takes a lot of time to get to these kind of large contracts. Last quarter, I commented that the signed lease volumes in 2025 were in line with historical normal levels. However, based on [ Areal ] statistic database of lease expiries expected for '27 and '28, we had expected to see that the activity would be slightly higher. When we dive into the numbers for the first quarter, we are seeing that the activity in the letting market in Oslo was at a historic low. This may be a reflection of the increased uncertainty we are experiencing around us. We typically see that decisions are postponed, take more time in times of uncertainty. So we will be following this closely going forward. But based on what we see from the lease expiry databases for Oslo, we would expect activity to pick up in the short term. However, we may also see that tenants now opt to make more short-term prolongations. The vacancy in Oslo remains stable between 7% and 8%. Differences in different parts of the city in the secondary markets and some of the fringes, vacancy is above 10%. When you look at the market rental growth we've had in the past, it's been a fairly broad market rental growth and robust. And the consensus report, which Entra reports every quarter, expects now to see around 12% market rental growth in the next 3 years. In our ongoing discussions, we clearly see that we are able to take out more market rental growth in the city center. The most -- we are located slightly below CBD pricing. So still a good sentiment to take out market rental growth there also based on the CapEx required to deliver the quality the tenants want. But somewhat more differentiated in the fringes and secondary market, depending on what kind of supply-demand balance you have locally. A few words on the transaction market. The commercial property transaction volumes came in at around NOK 16 billion for the first quarter. That is more or less in line with normal first quarter. We are seeing quite a lot of market -- real estate deals marketed. But the broader transaction market continues to be a bit in a wait-and-see mode now with all the uncertainty emerging around us and also more -- less clarity on interest rate cuts based on the inflation. The financing markets remain accessible with good lending sentiment and also credit margins are currently favorable. As you can see from the top right graph here, Entra's consensus report, the prime office yield is now projected to increase slightly from current levels of 4.5% towards 4.7% in the short term before gradually assuming a downward trajectory again. I think that leaves it for me now. And the word is yours, Ole. Ole Gulsvik: Thank you Sonja. In Q1, our financial performance improved compared to the same quarter last year. Rental income came in at NOK 800 million, up from NOK 774 million in the fourth quarter last year. We had net positive impact from finalized project of NOK 4 million and NOK 24 million in rental growth, mostly from annual CPI adjustments, which feeds into our income from 1st of January. The rental income is NOK 5 million higher compared to the bridge that we presented in the fourth quarter. This is mostly due to better letting effects than we had forecasted. Net income from property management came in at NOK 357 million. This is up from NOK 320 million in the first quarter last year. This is due to higher rental income, as explained earlier, and lower financing cost. In the fourth quarter of 2025, we had positive gain from the forward sold development project, Holtermanns [ veg ] in Trondheim which had a positive impact, especially gain of NOK 101 million. Adjusted for this gain, we report underlying result improvement in net income from property management of NOK 33 million, and this is supported by both rental income growth, lower cost level and reduced financing costs. Profit before tax came in at NOK 287 million, and this includes net value adjustments negative with NOK 52 million. This is down from NOK 476 million in pretax profit in the fourth quarter, which included both the mentioned gain from the development project in Trondheim and a positive NOK 56 million in value changes, which explains then the reduction in pretax profit from the fourth quarter to the first quarter. I have already gone through the rental income part, but I give you some more flavor on the other P&L items. OpEx came in at NOK 67 million or 8.4% of rental income. This is in line with historical levels and also in line with the same quarter last year. In the fourth quarter, the OpEx was particularly high due to timing of maintenance costs, which explains the reduction from the fourth quarter to the first quarter. Admin cost is also stable at NOK 49 million and in line with expectations. In Q4, we had a couple of nonrecurring items, which also -- which explains basically reduction in admin costs from the fourth quarter to the first quarter. The negative results from share of profit in joint venture is higher than normal as one of our partners sold the property below book values, and our share of that loss is reported in this line item. Net realized financials came in at minus NOK 336 million or down NOK 10 million compared to last quarter. This is due to lower debt level as well as slightly lower commitment fees as we are working to optimize our funding costs. Value changes in our investment properties came in at negative NOK 199 million, and I will come back with more on this later on. While we had positive value changes in our financial instruments of NOK 147 million, and this is caused by higher medium and long-term interest rates. And this gave then the profit before tax of NOK 287 million. Moving then to our rental income development. Looking forward, the model indicates rental income in Q2 will be NOK 786 million, which is NOK 5 million higher compared to the bridge that we presented in the fourth quarter. For 2026 as a whole, the rental -- the total rental income in the bridge is NOK 24 million higher compared to the bridge we presented in the fourth quarter, and this is due to letting effects. For 2027, we have also increased the impact of estimated CPI -- estimated high CPI in 2026, which then feeds into our 2027 rental income. The new CPI adjustment is 3.25%, which is the average forecast from Bank of Norway and Statistics Norway. This graph is not a guidance. It just highlights the rental income based on reported events in existing contracts. As mentioned in previous quarters, we believe that there is upside to this bridge. Firstly, we aim to let out existing vacant space, which has a rental income potential of NOK 193 million per year. Secondly, we also have market rent reversion potential of NOK 135 million per year. And lastly, we have significant potential in our ongoing and upcoming project portfolio, although most of this is outside the bridge period. Moving then over to our property value, which is slightly down to NOK 63.3 billion in the quarter. Divestments of negative NOK 553 million is related to the Christian Krohgs gate 2 project or joint venture project we have with Skanska, which we announced in the fourth quarter. 50% of that value totaling NOK 276 million is moved from investment properties to JVs and reported under other, as you can see in this graph to the left. Value changes were negative with NOK 199 million in the quarter, a limited value reduction of 0.3%. The negative value impact is predominantly value reduction in our Sandvika portfolio. The deviation between the appraisers has come gradually down every quarter over the last few years and is now insignificant. Investments or CapEx came in at NOK 185 million in the quarter, which has also come gradually down over the last few years. We will continue to have a disciplined investment strategy and prioritize defensive CapEx to increase occupancy and realize market uplift. Having said that, some more development projects are in the pipeline and the CapEx in the first quarter is below the full year run rate expectations. Portfolio net yield is slightly increasing to 5.13%, up from 5.04% in Q4, while the fully let at market rate, the portfolio yield is at 5.70%, which is unchanged from the fourth quarter. On the right-hand side, you can see that the net asset value increased slightly per share from NOK 169 in the fourth quarter to NOK 170 per share in the first quarter. Moving then to our debt metrics, which also continued to improve in the first quarter. The ICR looks like have bottomed out and improved to 2.17x and that's measured over the last 12 months. Leverage ratio also improved from 48.8 -- sorry, 48.0% to 47.6%, while net interest-bearing debt to EBITDA is down to 10.8. We will continue to have a conservative approach when it comes to both leverage and interest risk to secure and improve our investment-grade rating. In March, Moody's affirmed our Baa3 rating and changed our outlook from stable to positive. Further, the ICR trigger was reduced to 2.3 from 2.5, highlighting our high-quality real estate portfolio together with creditworthy customer base. We have created a solid financial platform and the average time to maturity for our total debt increased to 4.1 years from 3.6 years in the fourth quarter. We had a very active financing quarter. We started with reopening a fixed bond with 5.5 years maturity and issued NOK 250 million, which we swapped to LIBOR plus 104 bps. While the debt capital market was somewhat muted since the war in Iran started, we are now starting to see some more interest in the market at attractive terms. Secondly, we also extended NOK 8.3 billion in secured bank financing with 1 year to 2030. The bank spreads has come gradually down every quarter, and the bank market remains open with competitive dynamics. And lastly, we did a new 12-year sustainable-linked loan of NOK 1.5 billion with Nordic Investment Bank at attractive terms, which is then linked to our science-based targets. The proceeds was used to repay the existing NIB loan, which is due in the second quarter 2027. As you can see in this graph to the right, we have undrawn bank credit lines of NOK 7.7 billion due in 2028 and 2030. We did reduce our bank lines with NOK 600 million during the quarter and an additional NOK 600 million after quarter end. This is to improve our funding -- total funding cost. With the financing activities we have now completed in the first quarter, we still have available liquidity in the next 24 months, and we will continue to work to optimize our funding costs during 2026. To the left, you can see that 70% of our debt financing is now green, and we have capacity to issue more green debt going forward due to our existing environmental-friendly property portfolio. Moving then lastly to the cost of debt. The all-in net financial cost is down to 4.24%, while the interest rate on our interest-bearing debt is slightly up to 4.01%. As you can see from this graph, the forward curve has shifted significantly up in the period, although coming slightly down from peak levels. Our interest rate forecast in this graph is based on the forward curve from April 17. Assuming this level, our cost of debt may increase going -- somewhat during 2026, and this is partly offset then by interest hedges, which total 65% of our debt portfolio with 3.4 years time to maturity. To give you some sensitivity, if the forward curve shifts up or down 0.5 percentage points, the impact on financial cost is approximately NOK 35 million in 2026 and NOK 70 million in 2027, all else equal. Sonja Horn: So there, you were a bit fast. Closing remarks. First of all, I'm pleased to see that our rental income growth was 3.3% year-on-year and also net income from property management growth of 11.6% year-on-year, so providing stable rental income growth in operations in the quarter. And the net letting was positive when we take into account the timing effects as I have commented on. And we expect also to see positive net letting for the first half of this year based on what we now see in our pipeline. We have done a good job on the financial platform as Ole was summarizing. Very happy to see that our investment grade has been reaffirmed and also given a positive outlook and extended our debt maturity profile and the new sustainability-linked loan we did with NIB based on our science-based targets is also clearly demonstrating that we are able to achieve tangible commercial value based on the environmental qualities of our portfolio. And we've continued to see improvements in our debt metrics. Profitability continues to be our key priority in 2026, and we will continue to see rental income growth driven by CPI, but also operationally by increasing our occupancy levels and capturing the reversion potential in our portfolio as well as getting the ongoing development back into the management portfolio. We continue to work selectively with accretive project development as exemplified by Christian Krohgs gate 2 this quarter and asset rotations also. And we will continue to have a disciplined approach to capital allocation going forward. we are working in a market environment where we see supportive long-term letting market fundamentals. We have a backdrop of a resilient Norwegian economy with a positive employment growth outlook. We have limited new office supply coming into the market also supporting occupancy and market rents. And based on the lease expiry database for Oslo we would expect also to see support in the letting activity going forward. I think that concludes it for now, and we'll just check with Isabel if we have any questions? Isabel Vindenes: Sonja and Ole we will then transition to the Q&A session. Sonja occupancy rate increased to 94.3% this quarter. What is the expected run rate here over the next year? Sonja Horn: I think we got that question last quarter also. I think it's difficult to be very specific on the number because it's affected by the 3 factors as I commented on in my presentation, how much have we managed to let the projects before they come back into the management portfolio. And when do we start a new project based on assets, which currently are being optimized before we are ready to start some project development. I don't want to give a number on that, to be honest, but we will be moving plus/minus the levels we've had through the year. And let's see, our clear target is to bring it back up above 95% into historic levels. We have the locations and the qualities, which should enable that. But it takes time. It's very dependent on also the market dynamics we're working in. Isabel Vindenes: Thank you. Is it possible to get some color on the portion of larger contracts maturing this year relative to the given maturity profile? Sonja Horn: The proportion of -- sorry, just repeat once again. Isabel Vindenes: The larger contracts maturing this year relative to the given maturity profile? Sonja Horn: Okay. If we look at our maturity profile in the management portfolio, we currently -- we don't have any very large contracts maturing in 2026, not 2027. So the larger ones are from '28 onwards. And I am seeing that we -- every year, we go through the contracts at risk and how we're doing, and I'm very comfortable with the way we're working now for '26 and '27. So I don't see a very big risk in the 2 next years, but we have a big job to do from '28 and onwards. Isabel Vindenes: Admin costs decreased a bit quarter-on-quarter. What is your expectations for 2026? Ole Gulsvik: Yes. We guided a little bit on this in the fourth quarter presentation. So we have been able to scale our admin costs every year over the last few years, meaning as a percentage of rental income, it's coming down. And we expect basically to continue that trend in 2026. So we assume that admin cost as part of rental income will be slightly lower than last year. But these are -- it's kind of difficult to exactly target it, but slightly improved scaling also in 2026 as a whole, the whole year. Isabel Vindenes: Okay. Moving on. How do you view the risk of further outward yield movement given the higher market rate outlook? And how sensitive is the portfolio to additional yield expansion from here? Ole Gulsvik: Yes. So we used 2 external appraisers in our valuation and average of that goes into our balance sheet. The appraisers, they need observable transactions, while this expectation in our consensus report is basically a year-end assumption. And it's important also that the recent increase in yield expectation is driven by high interest rates, which is driven by, again, a higher CPI expectation. So when the appraisers adjust their valuation, they will not only increase the yield, they've also increased their CPI assumptions in their forecast, which basically creates an offsetting factor in the valuation. So maybe there's 2 messages here. One is that there's an offsetting factor from the CPI and then there's a kind of a timing effect. These changes usually happens over time as you have proofs of observable transactions in the market. And then obviously, all else equal, we will have a positive improvement in our values, right? So you have a timing effect on top of this. So if this increase gradual over time, it will be also partly offset by the timing effect that our values in the portfolio will increase with higher CPI. Isabel Vindenes: Thank you. And with that, we'll conclude the Q&A session for today. Sonja Horn: Okay. Thank you so much for joining us today, and have a nice day.
Sonja Horn: Good morning all, and welcome Entra's first quarter presentation, moving directly to the highlights. Rental income in the quarter of NOK 800 million. That's NOK 26 million up or 3.3% compared to same quarter last year. Net income from property management of NOK 357 million in the quarter, up with NOK 37 million or approximately 11.6% compared to the first quarter last year. Net value changes of minus NOK 52 million in the quarter and value changes on investment properties were negative with NOK 199 million this quarter. Profit before tax of NOK 205 million and the NRV per share currently at NOK 170, up with NOK 1. We continue to see improvements in our key debt metrics and very pleased to see that Moody's have affirmed their investment-grade rating and also provided a positive outlook this quarter. Operationally, it was a solid quarter. However, net letting isolated in Q1 was minus NOK 20 million. The underlying net letting was NOK 6 million positive when adjusting for timing effects related to a relocation, which I will get back to shortly. We have also started reporting on a new project this quarter in Christian Krohgs gate 2, where we are developing the asset in a joint venture with Skanska. It has been a good momentum operationally this quarter, and we have signed new and renewed leases with a rental income of NOK 121 million this quarter and contracts with an annual rent of NOK 64 million were terminated in the quarter. Net letting, as mentioned, of minus NOK 20 million in the quarter. This includes a negative net letting effect of approximately NOK 26 million from the relocation of Circle K, which was required to enable a large contract signed with [ Court Norway ] in the second quarter. Adjusted for the negative net letting effects of this relocation, the underlying net letting in the first quarter would have been positive with [ NOK ] 6 million. Due to these timing effects between the first and second quarter, it is more appropriate to assess net letting for the first half under a whole. And based on what we have signed so far this year and also what we see of current lease activities, we expect that we will have a positive net letting for the second quarter and also for the first half of this year. In the table at the bottom of the page, you can see the largest contracts signed in the quarter. A few comments on a couple of them. In Verkstedveien 1 at Skoyen in Oslo, we were pleased to renew a contract with the Norwegian Public Service Pension Fund for 8,000 square meters. This means that we now are preparing also to start the refurbishment of this building in a sequential phase. We have also signed with Circle K in Stenersgata 1. Circle K is currently our largest tenant in Schweigaards gate 16. This is a building which originally was developed as a new headquarter for Circle K. And over the last 10 years, they have gradually reduced their presence in this building and subleased material parts of their space. So we have, over some time now, been working with Circle K to find suitable alternatives for them within our portfolio and are now very pleased to see that they chose to sign with us in Stenersgata 1. This enables us now also to start the second phase of the refurbishment of that building as we have signed 2 leases in this property. And by moving Circle K, we were also in a position where we could sign with Coop for their new headquarter building in Schweigaards gate 16. And very happy to see that we yesterday also could announce that we have signed a contract for 15,500 square meters with Court Norway and taking the entire building in Schweigaards gate 16. The relocation of Circle K was executed in the first quarter, while the new contract with Coop was signed in the second quarter, which is why we need to assess the net letting for these 2 quarters as a whole. Our occupancy is currently at 94.3%, up from 93.8% last quarter. The change in occupancy is mainly explained by the fact that we now taken the investment decision in Stenersgata 1 to start the refurbishment, meaning that quite a lot of that space, which was vacated has been moved over to the project portfolio. And I have, over the last quarters, been commenting on that we expect to see more fluctuations in occupancy ratios in the short term. This is mainly explained by 3 factors. Firstly, we are completing projects, which will be feeding into the management portfolio with different vacancy levels. Secondly, it depends on the timing of when we start new projects as exemplified by this quarter's changes. And thirdly, it depends on the timing of when we sign new leases on space which has already been terminated. When we terminate a contract, it is immediately reflected in our net letting graph at the bottom right. It is also immediately reflected in the net rental income bridge, as Ole will go through, but it is not necessarily reflected in the occupancy rate as some of this terminated space has a cash flow for quite some time following the termination. Last quarter, we announced that we had sold 50% of this property in Christian Krohgs to Skanska. This transaction was settled in the first quarter, and we have now established a joint venture, started the redevelopment of this building. This building is located only 3 minutes walk from Oslo Central Station. And here, Skanska has signed a lease contract for 35%. We have also signed a contract for the construction. It's a combination of refurbishment and new build volumes with Skanska at a fixed price contract. And the total project cost, including the initial land and property value is NOK 1.8 billion. And the remaining CapEx for Entra's 50% is approximately NOK 617 million. So this is a very capital-efficient way for us to start this project. And also continuing the ongoing transformation in this very important part of our portfolio. Entra has approximately 200,000 square meters of management portfolio in the area around Oslo Central Station and also some projects in our pipeline further down. So very good to continue this transformation for us. This building will be a top modern building, energy class A EU Taxonomy aligned and BREEAM certified, and we expect to see a yield on cost for this asset of around [ 5.7% ], which can compare to the current prime yields in Oslo around 4.5%. The completion of this building is planned for the fourth quarter of '29. If we move on to our ongoing development portfolio, we have now included Christian Krohgs gate 2 as a project we will report on. And the 2 other projects on this list have a remaining CapEx of NOK 195 million, and they are both progressing on -- according to plan, on time and at cost. We have announced quite a lot of new leases over the last quarters. This also means that we are now starting to report -- in the coming quarters, we'll be starting to report on some more refurbishment projects, 1 in Kaigaten in Bergen, 1 in Verkstedveien at Skoyen, as already mentioned today, and the 1 Stenersgata where Circle K has signed. But this should feed into our list of reporting over the next couple of quarters. A few comments on the Norwegian economy. During the first quarter, inflation in Norway has picked up somewhat, and the headline CPI came in at 3.6% for March, while the core inflation, which is the basis for Norges Bank's interest rate models is currently at 3.0%. In response to this, Norges Bank has adjusted its communication, while the policy rate has been held at 4%, the interest rate path has been revised upwards and the Central Bank has indicated that 1 to 2 rate increases may be required in 2026, depending on inflation developments. Before gradually then rate cuts are indicated from 2027 towards 3.5% in 2028, as you can also see from the graph at the bottom right. Mainland GDP for Norway growth is expected to be around 1.5% in the years to come and also with a positive employment growth, as you can see from the top right picture. In Oslo, the employment growth has been somewhat lower than on the national basis, specifically within the private sector, which has not been benefiting the demand for offices in the Oslo market, where we currently also are seeing that public tenants are transitioning into more space-efficient workplace solutions. With heightened geopolitical tensions and increased volatility in energy markets weighing over inflation and growth prospects, it is, of course, more uncertainty on these kind of outlooks. However, having said that, Norway remains in a strong position with its ability to both stimulate and support the economy through fiscal policies and public spending as they have proven to do in the past. A few words on the letting market. Having a well-planned and central office is increasingly seen as a key productivity -- a key aspect for improving productivity, culture and attracting talent. We clearly hear this in all the discussions we have with C-level executives at our -- with our customers. This also entails that the decision on where to locate your office and how to organize your office has become much more strategic and thorough which entails that these processes are much more time-consuming. As an example, when Coop Norway came out, the first meeting on a search, the first meeting we had with them is more than a year ago. So it is a lot of work, and it takes a lot of time to get to these kind of large contracts. Last quarter, I commented that the signed lease volumes in 2025 were in line with historical normal levels. However, based on [ Areal ] statistic database of lease expiries expected for '27 and '28, we had expected to see that the activity would be slightly higher. When we dive into the numbers for the first quarter, we are seeing that the activity in the letting market in Oslo was at a historic low. This may be a reflection of the increased uncertainty we are experiencing around us. We typically see that decisions are postponed, take more time in times of uncertainty. So we will be following this closely going forward. But based on what we see from the lease expiry databases for Oslo, we would expect activity to pick up in the short term. However, we may also see that tenants now opt to make more short-term prolongations. The vacancy in Oslo remains stable between 7% and 8%. Differences in different parts of the city in the secondary markets and some of the fringes, vacancy is above 10%. When you look at the market rental growth we've had in the past, it's been a fairly broad market rental growth and robust. And the consensus report, which Entra reports every quarter, expects now to see around 12% market rental growth in the next 3 years. In our ongoing discussions, we clearly see that we are able to take out more market rental growth in the city center. The most -- we are located slightly below CBD pricing. So still a good sentiment to take out market rental growth there also based on the CapEx required to deliver the quality the tenants want. But somewhat more differentiated in the fringes and secondary market, depending on what kind of supply-demand balance you have locally. A few words on the transaction market. The commercial property transaction volumes came in at around NOK 16 billion for the first quarter. That is more or less in line with normal first quarter. We are seeing quite a lot of market -- real estate deals marketed. But the broader transaction market continues to be a bit in a wait-and-see mode now with all the uncertainty emerging around us and also more -- less clarity on interest rate cuts based on the inflation. The financing markets remain accessible with good lending sentiment and also credit margins are currently favorable. As you can see from the top right graph here, Entra's consensus report, the prime office yield is now projected to increase slightly from current levels of 4.5% towards 4.7% in the short term before gradually assuming a downward trajectory again. I think that leaves it for me now. And the word is yours, Ole. Ole Gulsvik: Thank you Sonja. In Q1, our financial performance improved compared to the same quarter last year. Rental income came in at NOK 800 million, up from NOK 774 million in the fourth quarter last year. We had net positive impact from finalized project of NOK 4 million and NOK 24 million in rental growth, mostly from annual CPI adjustments, which feeds into our income from 1st of January. The rental income is NOK 5 million higher compared to the bridge that we presented in the fourth quarter. This is mostly due to better letting effects than we had forecasted. Net income from property management came in at NOK 357 million. This is up from NOK 320 million in the first quarter last year. This is due to higher rental income, as explained earlier, and lower financing cost. In the fourth quarter of 2025, we had positive gain from the forward sold development project, Holtermanns [ veg ] in Trondheim which had a positive impact, especially gain of NOK 101 million. Adjusted for this gain, we report underlying result improvement in net income from property management of NOK 33 million, and this is supported by both rental income growth, lower cost level and reduced financing costs. Profit before tax came in at NOK 287 million, and this includes net value adjustments negative with NOK 52 million. This is down from NOK 476 million in pretax profit in the fourth quarter, which included both the mentioned gain from the development project in Trondheim and a positive NOK 56 million in value changes, which explains then the reduction in pretax profit from the fourth quarter to the first quarter. I have already gone through the rental income part, but I give you some more flavor on the other P&L items. OpEx came in at NOK 67 million or 8.4% of rental income. This is in line with historical levels and also in line with the same quarter last year. In the fourth quarter, the OpEx was particularly high due to timing of maintenance costs, which explains the reduction from the fourth quarter to the first quarter. Admin cost is also stable at NOK 49 million and in line with expectations. In Q4, we had a couple of nonrecurring items, which also -- which explains basically reduction in admin costs from the fourth quarter to the first quarter. The negative results from share of profit in joint venture is higher than normal as one of our partners sold the property below book values, and our share of that loss is reported in this line item. Net realized financials came in at minus NOK 336 million or down NOK 10 million compared to last quarter. This is due to lower debt level as well as slightly lower commitment fees as we are working to optimize our funding costs. Value changes in our investment properties came in at negative NOK 199 million, and I will come back with more on this later on. While we had positive value changes in our financial instruments of NOK 147 million, and this is caused by higher medium and long-term interest rates. And this gave then the profit before tax of NOK 287 million. Moving then to our rental income development. Looking forward, the model indicates rental income in Q2 will be NOK 786 million, which is NOK 5 million higher compared to the bridge that we presented in the fourth quarter. For 2026 as a whole, the rental -- the total rental income in the bridge is NOK 24 million higher compared to the bridge we presented in the fourth quarter, and this is due to letting effects. For 2027, we have also increased the impact of estimated CPI -- estimated high CPI in 2026, which then feeds into our 2027 rental income. The new CPI adjustment is 3.25%, which is the average forecast from Bank of Norway and Statistics Norway. This graph is not a guidance. It just highlights the rental income based on reported events in existing contracts. As mentioned in previous quarters, we believe that there is upside to this bridge. Firstly, we aim to let out existing vacant space, which has a rental income potential of NOK 193 million per year. Secondly, we also have market rent reversion potential of NOK 135 million per year. And lastly, we have significant potential in our ongoing and upcoming project portfolio, although most of this is outside the bridge period. Moving then over to our property value, which is slightly down to NOK 63.3 billion in the quarter. Divestments of negative NOK 553 million is related to the Christian Krohgs gate 2 project or joint venture project we have with Skanska, which we announced in the fourth quarter. 50% of that value totaling NOK 276 million is moved from investment properties to JVs and reported under other, as you can see in this graph to the left. Value changes were negative with NOK 199 million in the quarter, a limited value reduction of 0.3%. The negative value impact is predominantly value reduction in our Sandvika portfolio. The deviation between the appraisers has come gradually down every quarter over the last few years and is now insignificant. Investments or CapEx came in at NOK 185 million in the quarter, which has also come gradually down over the last few years. We will continue to have a disciplined investment strategy and prioritize defensive CapEx to increase occupancy and realize market uplift. Having said that, some more development projects are in the pipeline and the CapEx in the first quarter is below the full year run rate expectations. Portfolio net yield is slightly increasing to 5.13%, up from 5.04% in Q4, while the fully let at market rate, the portfolio yield is at 5.70%, which is unchanged from the fourth quarter. On the right-hand side, you can see that the net asset value increased slightly per share from NOK 169 in the fourth quarter to NOK 170 per share in the first quarter. Moving then to our debt metrics, which also continued to improve in the first quarter. The ICR looks like have bottomed out and improved to 2.17x and that's measured over the last 12 months. Leverage ratio also improved from 48.8 -- sorry, 48.0% to 47.6%, while net interest-bearing debt to EBITDA is down to 10.8. We will continue to have a conservative approach when it comes to both leverage and interest risk to secure and improve our investment-grade rating. In March, Moody's affirmed our Baa3 rating and changed our outlook from stable to positive. Further, the ICR trigger was reduced to 2.3 from 2.5, highlighting our high-quality real estate portfolio together with creditworthy customer base. We have created a solid financial platform and the average time to maturity for our total debt increased to 4.1 years from 3.6 years in the fourth quarter. We had a very active financing quarter. We started with reopening a fixed bond with 5.5 years maturity and issued NOK 250 million, which we swapped to LIBOR plus 104 bps. While the debt capital market was somewhat muted since the war in Iran started, we are now starting to see some more interest in the market at attractive terms. Secondly, we also extended NOK 8.3 billion in secured bank financing with 1 year to 2030. The bank spreads has come gradually down every quarter, and the bank market remains open with competitive dynamics. And lastly, we did a new 12-year sustainable-linked loan of NOK 1.5 billion with Nordic Investment Bank at attractive terms, which is then linked to our science-based targets. The proceeds was used to repay the existing NIB loan, which is due in the second quarter 2027. As you can see in this graph to the right, we have undrawn bank credit lines of NOK 7.7 billion due in 2028 and 2030. We did reduce our bank lines with NOK 600 million during the quarter and an additional NOK 600 million after quarter end. This is to improve our funding -- total funding cost. With the financing activities we have now completed in the first quarter, we still have available liquidity in the next 24 months, and we will continue to work to optimize our funding costs during 2026. To the left, you can see that 70% of our debt financing is now green, and we have capacity to issue more green debt going forward due to our existing environmental-friendly property portfolio. Moving then lastly to the cost of debt. The all-in net financial cost is down to 4.24%, while the interest rate on our interest-bearing debt is slightly up to 4.01%. As you can see from this graph, the forward curve has shifted significantly up in the period, although coming slightly down from peak levels. Our interest rate forecast in this graph is based on the forward curve from April 17. Assuming this level, our cost of debt may increase going -- somewhat during 2026, and this is partly offset then by interest hedges, which total 65% of our debt portfolio with 3.4 years time to maturity. To give you some sensitivity, if the forward curve shifts up or down 0.5 percentage points, the impact on financial cost is approximately NOK 35 million in 2026 and NOK 70 million in 2027, all else equal. Sonja Horn: So there, you were a bit fast. Closing remarks. First of all, I'm pleased to see that our rental income growth was 3.3% year-on-year and also net income from property management growth of 11.6% year-on-year, so providing stable rental income growth in operations in the quarter. And the net letting was positive when we take into account the timing effects as I have commented on. And we expect also to see positive net letting for the first half of this year based on what we now see in our pipeline. We have done a good job on the financial platform as Ole was summarizing. Very happy to see that our investment grade has been reaffirmed and also given a positive outlook and extended our debt maturity profile and the new sustainability-linked loan we did with NIB based on our science-based targets is also clearly demonstrating that we are able to achieve tangible commercial value based on the environmental qualities of our portfolio. And we've continued to see improvements in our debt metrics. Profitability continues to be our key priority in 2026, and we will continue to see rental income growth driven by CPI, but also operationally by increasing our occupancy levels and capturing the reversion potential in our portfolio as well as getting the ongoing development back into the management portfolio. We continue to work selectively with accretive project development as exemplified by Christian Krohgs gate 2 this quarter and asset rotations also. And we will continue to have a disciplined approach to capital allocation going forward. we are working in a market environment where we see supportive long-term letting market fundamentals. We have a backdrop of a resilient Norwegian economy with a positive employment growth outlook. We have limited new office supply coming into the market also supporting occupancy and market rents. And based on the lease expiry database for Oslo we would expect also to see support in the letting activity going forward. I think that concludes it for now, and we'll just check with Isabel if we have any questions? Isabel Vindenes: Sonja and Ole we will then transition to the Q&A session. Sonja occupancy rate increased to 94.3% this quarter. What is the expected run rate here over the next year? Sonja Horn: I think we got that question last quarter also. I think it's difficult to be very specific on the number because it's affected by the 3 factors as I commented on in my presentation, how much have we managed to let the projects before they come back into the management portfolio. And when do we start a new project based on assets, which currently are being optimized before we are ready to start some project development. I don't want to give a number on that, to be honest, but we will be moving plus/minus the levels we've had through the year. And let's see, our clear target is to bring it back up above 95% into historic levels. We have the locations and the qualities, which should enable that. But it takes time. It's very dependent on also the market dynamics we're working in. Isabel Vindenes: Thank you. Is it possible to get some color on the portion of larger contracts maturing this year relative to the given maturity profile? Sonja Horn: The proportion of -- sorry, just repeat once again. Isabel Vindenes: The larger contracts maturing this year relative to the given maturity profile? Sonja Horn: Okay. If we look at our maturity profile in the management portfolio, we currently -- we don't have any very large contracts maturing in 2026, not 2027. So the larger ones are from '28 onwards. And I am seeing that we -- every year, we go through the contracts at risk and how we're doing, and I'm very comfortable with the way we're working now for '26 and '27. So I don't see a very big risk in the 2 next years, but we have a big job to do from '28 and onwards. Isabel Vindenes: Admin costs decreased a bit quarter-on-quarter. What is your expectations for 2026? Ole Gulsvik: Yes. We guided a little bit on this in the fourth quarter presentation. So we have been able to scale our admin costs every year over the last few years, meaning as a percentage of rental income, it's coming down. And we expect basically to continue that trend in 2026. So we assume that admin cost as part of rental income will be slightly lower than last year. But these are -- it's kind of difficult to exactly target it, but slightly improved scaling also in 2026 as a whole, the whole year. Isabel Vindenes: Okay. Moving on. How do you view the risk of further outward yield movement given the higher market rate outlook? And how sensitive is the portfolio to additional yield expansion from here? Ole Gulsvik: Yes. So we used 2 external appraisers in our valuation and average of that goes into our balance sheet. The appraisers, they need observable transactions, while this expectation in our consensus report is basically a year-end assumption. And it's important also that the recent increase in yield expectation is driven by high interest rates, which is driven by, again, a higher CPI expectation. So when the appraisers adjust their valuation, they will not only increase the yield, they've also increased their CPI assumptions in their forecast, which basically creates an offsetting factor in the valuation. So maybe there's 2 messages here. One is that there's an offsetting factor from the CPI and then there's a kind of a timing effect. These changes usually happens over time as you have proofs of observable transactions in the market. And then obviously, all else equal, we will have a positive improvement in our values, right? So you have a timing effect on top of this. So if this increase gradual over time, it will be also partly offset by the timing effect that our values in the portfolio will increase with higher CPI. Isabel Vindenes: Thank you. And with that, we'll conclude the Q&A session for today. Sonja Horn: Okay. Thank you so much for joining us today, and have a nice day.
Operator: Good day, and thank you for standing by. Welcome to the Lynas Quarterly Results Briefing [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lynas. Please go ahead. Jennifer Parker: Good morning, and welcome to the Lynas Rare Earths Investor Briefing for the quarter ending 31 March 2026. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. Joining Amanda on the call today are Gaudenz Sturzenegger, CFO; Pol Le Roux, COO; Daniel Havas, VP Strategy and Investor Relations; Chris Jenney, VP, Sales and Market Development; and Sarah Leonard, General Counsel and Company Secretary. To Amanda to commence the briefing. Please go ahead, Amanda. Amanda Lacaze: Thank you, Jen, and thank you, everyone, for joining us again this morning. Jen tells me that we've had people registered to ask questions about a quarter 2 midday. So on that basis, I will keep my comments to a minimum. So we have plenty of time to deal with the question. But just sort of a few general comments, I often say that we've had a very busy quarter and guess what, which has had a really busy quarter, actually maybe busier than most. We were very pleased with our progress during the March quarter. When we put in place a number of initiatives which will provide foundations for the future success of the business and improved resilience and also ran an operationally a good business in the meantime in terms of continuing to be the only non-Chinese producer at scale of both NdPr of lights and heavies. So during the quarter, I mean, I think most people have observed that the price of NdPr has progressively firmed over the year. We certainly saw the benefits of that, and we recorded one of our top 3 of our quarters in terms of revenue. And it does appear that the market settings remain positive for the fourth quarter of this financial year. And in interest sort of looked back on the very first quarterly that I ever delivered and this puts into stark contrast, the difference between maybe businesses at the start of the journey in rare earth and where they may be some years later. The first quarterly that I was -- again delivered was 445 tonnes NdPr. Well, we delivered 2,000 tonnes this quarter. $31 million in revenue versus $265 million in revenue this quarter. So it's I think, a reminder of just sort of the various steps that we have taken over that period of time to consolidate our position as a global leader outside China. Well, our production is not quite at our 10,500 tonnes per year run rate, but it is moving towards it. During the quarter, we have continued to ramp up the final part of the Mt Weld expansion. And I am delighted to say that we have that ramp-up so far is at or above a McNulty 1 ramp-up curve. And I think that's the first in rare earth. But even with that, there are still some challenges as we bought that facility online, ensuring that like in the early stages, con grade was lower than it had been in a nice mature little old plant. And so the team has been working on that, and they've lifted that up, but that did give us a few challenges downstream. And we've had a few logistics challenges, but I'm sure that many of you on this call who have listened to any sort of results call would recognize that logistics has its own set of challenges at present. Heavy rare earth production, that's really the performance during this quarter just reflects the batch processing nature of our heavies at this stage. And for those of you who've been up to the lab, you will have seen that the -- we're packaging this in 25-kilo drums and you will have seen the small furnace that we use. And so we accumulate material. We run it through on a batch process. And so therefore, there's a bit more lumpiness in our production outcomes. However, suffice to say that within sort of our sales process, with respect to the heavies, we are having a great deal of success in being able to place us carefully and leverage full benefit from those sales. Of course, our sales outcome, the total revenue was very pleasing. I've seen some comments already on the sort of the price per kilo. And of course, we aim to make that clear within the report that, that reflected primarily product mix with some higher sales of lower-value La and Ce during the time. And the comparison on the NdPr is, of course, that we sell our NdPr on contracts. And with many of those, there's about a 1-month lag until we see sort of the price flow through into our revenue due to the nature of the contract. Costs remain tightly controlled, and notwithstanding we have indicated in this that we would expect that there may be some further influences from the conflict in the Middle East. This could sort of will likely reflect those materials, which are sort of directly affected by oil and gas, but also just looking at things like, for example, the Fair Work determination last night on ensuring that transport providers are able to recover costs, increased cost from fuel as a consequence of the Middle East conflict. However, I would point to you something of which we are enormously proud and that is, as we have moved to our hybrid renewable power station at Mt Weld that our diesel use now is on -- is virtually only in the mining fleet at the Mt Weld side. And the renewable power station is actually delivering significantly more than design where we're expecting renewables to be delivering around about 70% about our power requirement and the average renewable content was 95.7%. That is 870,000 liters of diesel saved just during the March quarter. So this does put us in a much better position as we're looking at sort of the various global effects at present. It's a pretty exciting quarter in terms of putting together a number of the long-term building blocks for our company. The JARE offtake agreement, which was announced on the 10th of March is really significant. And I think everybody has read that in some detail by now, but firm offtake with a small price is really important to us, an upside sharing arrangement, which is, we believe, relatively modest, although beneficial to both parties and we are sort of seeing this is really a really solid base for the business as it moves forward. Followed that up with an MoU on merging alongside our Japanese partners on further resource development, either at Mt Weld or other resources, and this is our work with JARE and JOGMEC on resource development has proven to be very constructive for our company over time, and we look forward to pursuing that further. And in addition, we announced the U.S. letter of intent -- binding letter of intent with the U.S. government, which sees the funding, which was previously allocated to Seadrift being reallocated to the purchase of rare products from our existing and planned facilities. And then, of course, as we have indicated previously, we are focused on developing strong and constructive partnerships with respect to metal and magnet making our key announcements there during the quarter as both related to Korean firms who we see as being potentially extremely good partners technically and also in terms of efficiency and economic outcomes. So LS Cable for metal making at their Vietnam plant and continued work to move to definitive agreements with JS Link for the new Magnet facility in Malaysia. So all in all, as I said, a very busy quarter where we focused on running a good business, continuing to take full advantage of the fact that we are the only ones who can take full advantage of the positive market at present. But at the same time, ensuring that we're setting ourselves up for success including with the sort of agreements, the agreements with both Japan and the U.S. the development of new capability and also within our sales group. So within our sales team, ensuring that we're setting up a customer portfolio, which will serve us well in the future and ensure that we leverage full benefit from our bundled sales. And of course, the final and really significant point also which sort of underpins the ongoing success of the business is the new license, which was renewed in Malaysia. Our operating license was renewed for 10 years from the third of March. We have been advocating for some time for an extended license rather than the 3-year license period on which we have operated to date. That requires a change to the AELA, the Atomic Energy Licensing Act in Malaysia, which was affected late last year and was then under that -- those varied conditions is the issuance of this 10-year license. It certainly, we're very pleased with that. We remain strongly committed to Malaysia, which has proven notwithstanding few twists and turns to be a very productive environment in which Lynas has operated. So having got to there. I'm really happy to take any questions now. And I think, Jen, are you the one sorting those out? Jennifer Parker: No. Maggie is going to open up for questions now. Amanda Lacaze: Back to you, Maggie, then. Operator: [Operator Instructions] First question comes from Rahul Anand from Morgan Stanley. Rahul Anand: Amanda and team, thank you for the call. Appreciate it. Look, my one question would be around Kalgoorlie. If you can please provide a bit of an update in terms of power reliability there. Is that fully remediated now at Kal? And are there any risks into the fourth quarter as we step into that just in terms of MREC availability? Amanda Lacaze: Thanks, Rahul. So since the really very serious situation towards the end of last year, we did engage very effectively, I believe, with Western Power and a couple of issues as it turned out, we're probably affecting power availability in a way that they didn't need to. And so we have had relatively stable power within the ELPS sort of framework through this quarter. It has not had the same effect on operational availability, uptime that we had seen, particularly in the previous quarter. I'm loathed to make a forecast on power in Kalgoorlie because as we have indicated previously, in Kalgoorlie, there is both a problem that she sort of the power available and also with some elements of the distribution network when everything's going well, this is not an issue, but I wouldn't want to be forecasting that everything will remain operating perfectly. I mean, I think everyone will remember the power being taken out by the lightning strikes on the transmission line -- transmission towers. So we continue to work on sort of alternatives. We have not taken the step of putting in place a diesel power station, because as I noted in my comments, we're pretty proud to make some significant savings on diesel at Mt Weld. However, even on the stated plan with respect to the network, we would see that the lead times to really making a significant change in power availability in Kalgoorlie as such that it is prudent for us to consider alternate solutions. But right now, we are not forecasting a problem in this quarter, touch wood, but I'm loathe to make any sort of definitive assertions on that basis. Rahul Anand: Okay, I understand. So I guess, tactically, it's quite hard to make a call on availability. But given that needs to be in your plans in terms of having reliable power going forward. Is there any time frame whereby you want to decide that and then flag that to the market so that there's clear visibility in terms of when you're planning to build a power plant? Amanda Lacaze: No, I don't want to make any further comment on it at this stage. Operator: Next, we have Paul Young from Goldman Sachs. Paul Young: Amanda, good progress for the quarter as you stated in Mt Weld's ramping up and tracking well. And I saw you're on top of the improved removal at Kalgoorlie which is fantastic as well. But just a question on potential shortage of chemicals in particular, sulfuric acid. Can you talk through your security of supply and maybe some of the cost sensitivities. And I'm noting I think you use somewhere between 1 to 2 tons of acid for every tonne of concentrate cracked and leached? Amanda Lacaze: Yes. Good question, Paul, and one which has our team highly exercised at present. Which, I'm sure, is the same came with most supply chain teams across the industry. So if I start first with Australia. We source -- we do not have an issue with supply in Australia at present, and we have some options for access locally, which we think is going to ensure that we're in a good position at least through to the end of the year. So the issue becomes more of an issue in Malaysia, not in Australia. And last week, I did get a few sort of inquiries when the Chinese put out an announcement that they would not be exporting acid. Well, we don't source any of our acids from China, so that's okay. The market is tight, but we're pretty confident about our ability to get the volume. So the effect will be a price effect and I think as everybody knows, that's a day-to-day event. And so we're managing that, but we would expect that sulfuric alongside some of the other sort of transport cost increases, et cetera, will make it a little more challenging for us in terms of costs in the fourth quarter, but we are all over it at present. And once again, sort of loathed to give you a forecast because as I think everyone knows, it is changing on a daily basis, but we would expect there will be some cost impacts in the fourth quarter. Operator: Next, we have Neal Dingmann from William Blair. Neal Dingmann: My question is around the MoU you have with JARE. I'm just wondering, how should we think about the timing of the mineral exploration around this MOU? And I'm also wondering, you didn't mention in the release, if there any update on the MoU around with Noveon Magnetics? Amanda Lacaze: Neal, welcome to the call. The MoU with respect to the development and the cooperation on other resource development, I would expect that we will be in a position to provide an update on that sometime during this quarter, notwithstanding that sort of definitive agreements are not going to be a bottleneck on that. I mean we have a long trusted relationship and we find, particularly in terms of resource development, geology, metallurgy that we have higher complementary skills. So yes, we think that we will be able to give you a little more on that in the coming quarter. And I'm sorry, the line branch has got cut here, I missed what was your second part of the question? Neal Dingmann: Just any update on the Noveon Magnetics MOU if there's anything going on there? Amanda Lacaze: Look, our teams are engaged there, Noveon did a further -- I think during the quarter or maybe late last quarter, did a further capital raise themselves and have a particular they're sort of completing their own internal business planning. To my understanding, we continue to work with them and particularly on offtake agreements to ensure that we are supplying relative material for some of the sort of highest priority customers. But I'll invite Chris Jenney who's on the call to add anything if there's anything there. Chris Jenney: No, nothing to add, Amanda, Yes. So obviously, there's lots of moving parts in the U.S. market. So we're just working very closely with the team at Noveon to work out the best offtake arrangements to meet their needs and obviously, to meet our needs. So we'll just give you updates as we progress through that. Operator: Next, we have Chen Jiang from Bank of America. Chen Jiang: I hope this is not the last time we speak to you on the results analyst call. First question just on this quarter's NdPr production. If I do the run rate or annualize this quarter's NdPr, it gives me roughly 8,000 tonnes of NdPr or roughly 22 metric tonnes per day of NdPr. That is likely to be 75% of your current NdPr annual capacity of 10.5. So I'm just wondering, I think previously, you mentioned a run rate of like 25 metric tonnes a day of NdPr. I'm just wondering what's the best way to think of your production versus capacity is 75% utilization rate we should apply or it should be higher. I guess the question harder. I'm just trying to get what kind of production going forward versus your current capacity of 10.5. Amanda Lacaze: Thanks, Chen. And I think as with all of these elements, as we've always indicated, the bottleneck tends to move around. We're a bit different from many mining companies. We have capacity at Mt Weld, at Kalgoorlie and then also at the LAMPS facility and each can be at a different stage. You're right. The annualized run rate at present is about 8,000 tonnes per annum. It would be our intention that, that is, again, in the coming financial year and the dependencies for that are partly the continued ramp-up bear in mind that we're only today, 6 months into the ramp-up of a big facility at Mt Weld. And so we're -- as I indicated, we didn't have an issue with the volume of material, but the con grade dropped a bit, which absolutely has an effect on downstream production. But I think that certainly, our objective would be to be moving up beyond the 25 tonnes per day. But maybe we're still sort of another year into consistent ramp-up right across the system to deliver that 10,500 tonnes. Pol, did you want to add anything to that? Pol Le Roux: Yes. Can you hear me? Amanda Lacaze: Yes. Pol Le Roux: Okay. Good. Yes, it's a good approach to address the nameplate capacity as tonnes per day. So we are way higher than what you can see in our numbers in terms of downstream daily capacity. And then you have two factors to take into account. One is a normal operation, you always face problems from time to time. So you have what we call OE, overall equipment efficiency, which is reflective of any failure you can have on equipment. So that's an 80% to 90% normal ratio. And then you have specific, as Amanda said, specific challenges for us is to adjust align the ramp-up of Mt Weld, Kalgoorlie and all the processes here in LAMPS. So -- but we're moving forward, it's in close to having an easier to forecast volume for easier to forecast. Amanda Lacaze: So the short answer, I mean, 25 tonnes a day will be the next sort of stop on the bus route, and then we will keep on moving from there. Chen Jiang: Right. So you are still ramping up. Okay. Amanda Lacaze: We are still ramping up. Chen Jiang: Yes. Got it. Can we have another follow-up of your price realization? So by looking at the China NdPr benchmark, quarter-over-quarter, it's a significant increase, almost 40% from USD 68 kilogram average in December quarter to USD 94 per kilogram in March quarter, excluding that, of course. But Lynas NdPr selling price is only up 25% quarter-over-quarter. So I'm wondering why -- or what I'm missing, why Lynas NdPr selling price is not increasing to the same scale to the index pricing in the March quarter? I understand some of your volumes are independent, but the price flow are still higher than index pricing. Is there any lagging or what I'm missing? Amanda Lacaze: Yes, yes. So I did actually try to explain that, Chen. We have our largest customers are on contracts, which referred to the prior month's pricing. So -- and I think we've tried to explain this previously. So on the way up, it lags, but on the way back down, it also lags. So generally about sort of a month lag by virtue of the fact that we are not selling into the spot market, and that's not ever our intention. Operator: Next, we have Daniel Morgan from Barrenjoey. Daniel Morgan: Just a follow-up on price basically or revenue. Can you help us in some way with the mix? I mean, you've highlighted quite clearly you did have a lower sales mix of high-value products. Just wondering if in any way you could give us a feel for how big the NdPr inventory build in the period was? And did you sell any Dy Tb and was there any marketing motivation behind the sales mix at all? Amanda Lacaze: Okay. So no, we didn't build significant inventory the sort of final numbers on sales often depend upon how many ships sale in the last week of the month. So if they didn't go at the end of the month, they've gone in the first week of April, say, for example. So no significant inventory build. Yes, more sales of La and Ce. And given that they are high volume, low price, they can -- they have an effect on that average selling price of limited sales of the heavies. And we are using our heavies very strategically. We -- we've talked about this previously, but we seek at all times to be in the business of long-term relationships with our customers. We don't sell into the spot market. We also don't sell our heavies just because somebody wants to buy a few heavies from us but don't have a broader relationship with us. So we bundle our heavies with other material and so our heavies sales and inventory management is managed in such a way that we can serve our customers say, for example, in the magnet market with sort of a magnet ratio of NdPr to Dy, Tb, something like 30:1. So the heavies are used strategically. And I think as we've talked previously, yes, they deliver margin in their own right, but it still remains that the Lynas cake is in the NdPr and the icing is the heavies. And so we continue to work on that basis. Operator: Next question comes from Reg Spencer from Canaccord Genuity. Reg Spencer: Most of my questions have been answered already. So I'm going to go somewhere where I'm not sure how you'll answer it. But clearly, there's been some M&A in the rare earth sector overnight, Amanda. And I'm certainly not expecting you guys to provide any comment on what your M&A strategy is. But when could we expect some further detail around plans for your Malaysian clay assets or your joint venture? Amanda Lacaze: So we are working through the definitive documents on the magnet factory with JS Link and hopefully, we'll be able to provide sort of additional information on that relatively soon. I mean with all of these things, it's always the case that we actually have to -- we can only control our position. I mean, negotiation is a negotiation. However, we are comfortable that project is proceeding, that material relevant equipment is being ordered, particularly the long lead time equipment and we're feeling very, very confident about that. With respect to the ionic clay assets, I think that as we work through right back at the beginning when we were talking about the JARE MoU, we will provide a bit more information on some of that resource work we're doing over the next couple of quarters, I would expect. And yes, there's lots of happy investment bankers in the world these days, aren't there? Lots of deals to be done sort of big numbers. I just would highlight the fact that we are the only ones bringing 2,000 tonnes of NdPr and Dy and Tb and now samarium to the market every quarter. And so we will continue to focus on ensuring that we have a strong position in the rare earths market. Reg Spencer: Can I ask a cheeky very quick second question, Amanda. And again, feel free not to answer it. But do you see increasing competitive tension given, obviously, the strategic importance being played from assets, especially those with enriched heavy content. Do you see evidence of that and in all of the conversations, I assume you have? Amanda Lacaze: I think that we have a very -- we know the various projects well, and we have a clear understanding of the potential and I think I might leave it at that. Reg Spencer: That's more than I was expecting. Thanks, Amanda. Appreciate it. Operator: Next, we have Austin Yun from Macquarie. Austin Yun: Just one more question on Kalgoorlie. Great to see that you finished the ramp-up of the recent process improvement I'm just keen to understand, do you have any other process improvement plan for the Kalgoorlie facility in this calendar year? And also given the tightness in the chemicals, would you actually pace the ramp-up of Kalgoorlie, given the sulfuric acid and other things, the price is going up. I understand there's no supply challenges at the moment. Amanda Lacaze: Thanks, Austin. Look, the answer to the first part of your question is we are always improving the process at every facility, right? So we are not done with process improvements at Kalgoorlie, not by a long shot. What we are flagging there is that we've done a couple of sort of major improvements in terms of process flow, some of the actual flow sheet that we've executed and that really has allowed us to step up. We look on a weekly basis, I look at it, sort of what Pol was talking to, which is the operational availability, which is really the reliability question and then also looking at quality and are we producing the quality, which is going to be able to be processed at the land cost effectively. And as we indicated, sort of early on, we had some issues associated with that, which is perfectly reasonable and to be expected and we have addressed those issues. But we are never going to stop looking for ways to continue to improve both the process and the reliability of that process. We are still assessing what are the implications of some of the price effects from the Middle East conflict. We don't think that sulfuric acid is going to be the pain point in Kalgoorlie. But I'm sure many of you would have noted the determination from the Fair Work Commission last night, which indicated that we need to be working with our suppliers on a fortnightly basis to ensure that costs are being appropriately recovered. But at this stage, we are not seeing that this would lead us to make a decision to dial back the Kalgoorlie facility. We continue to work to actually ramp that up in terms of reliability and delivering to forecast. Operator: Next, we have Jonathon Sharp from JPMorgan. Jonathon Sharp: Yes. My one question, just as previously mentioned, an acquisition of Serra Verde overnight announced. Now there's reporting that there's some offtake of Dy and Tb floor prices $575 per kilo and just over $2,000 per kilo. This looks like it's about 2 to 3x spot. How do you view this floor pricing from Lynas' perspective maybe from what you're getting yourself? Amanda Lacaze: There is a reason why we have not specifically disclosed either our floor prices or our achieved prices in this market. We actually think that this is an important part of our -- we think these are appropriate and commercial and confidence. The numbers need a surprise nor impress. Operator: Next, we have Dim Ariyasinghe from UBS. Dim Ariyasinghe: Most of my questions have been asked, but just one on what's to come on the downstream, which I think is pretty exciting. How do you think about metallization again through everything else you're doing with JS Link and then the Vietnam announcement earlier this quarter? Like is the plan to continue metallization in Vietnam or -- and build on that? Or how? Maybe you could expand a little bit on what that could look like? Amanda Lacaze: Yes. Dim, nice to talk to you. And actually Chen, yes, this may be my last quarterly report. So hopefully, we will all talk to each other at some time before a shuffle off this Lynas coil. But Dim, yes, I think we've indicated this previously that we think that metal is a somewhat unloved part of the value chain, but a crucial part of the value chain. And so we are delighted that LS Cable, which is one of the largest cable sort of manufacturers in the world still many metal processes in the world has chosen to enter the rare market. This reflects sort of encouragement, particularly from the Korean government to improve resilience in Korea, whereas we know the key industries, automotive and electronics, both rely on rare earth and rare earth magnets. The LS Cable facility into which this plant will be integrated is in Vietnam. And so we see that as being very positive in Vietnam. It is a cost environment which is constructive for the production of metals. And there is some sort of domestically developed capability there as well. But I think that we really see LS Cable as an outstanding partner for further development of metal making and we see that Vietnam is really sort of a critical step in the supply chain, not just with LS Cable, but with our current metal maker as well. Operator: Next, we have Matt Hope from Ord Minnett. Matthew Hope: Just my question was what was the motivation for having the MoU with JARE for exploration? I noticed that in your announcement, you even talked about exploration and development of Mt Weld. And I was wondering in what way would you want the Japanese actually involved in your sort of key mining asset. Amanda Lacaze: Just so you may recall -- maybe you weren't [indiscernible]. But you may recall that actually in some of the work that we've done on the carbonate, we have had access to some really some additional and highly skilled resources from JOGMEC in terms of particularly geology and metallurgy. And they work with us to both fund some of the cost of the Mt Weld carbonatite program, but also had on-site working with our team, some really experts in these areas. We have found this to be very helpful for our business. Accessing that additional expertise, and we have an extremely productive relationship with JARE and JOGMEC and are happy to extend that into additional project work. Matthew Hope: All right. Okay. So -- okay. So it's the expertise that they offer. And if I could just sneak one extra one in. I just wanted to know samarium, this seems that you've had a big priority on developing that at the moment. Is that really about price? Or is it a strategic rare earth that would allow you to sort of get involved with the U.S. and because this isn't something that nobody else produces. So is it really about strategy? Or is it about the price of samarium? Amanda Lacaze: So samarium is an excellent case study of the dysfunction that has existed in the rare earth market, we probably kind of produced samarium earlier than we have done. We were certainly not motivated to produce samarium earlier because the price has been sitting at basically a couple of dollars a kilo. So like with lanthanum and cerium, where we sort of produce those say, selectively. I mean, at a couple of dollars a kilo, it didn't make sense financially for us to produce that material. As certain customers of some of these materials have understood all of the things that everyone wanted to talk about over the last 2 or 3 years around supply chain, reliability, et cetera. They have actually indicated that, well, yes, they will be prepared to pay a price, which is a reasonable price that gives us a reasonable return or, in fact, a good return on our efforts. And so therefore, producing samarium to spec and in the volumes that the market requires, bearing in mind that we are not talking with any of these heavies about sort of the same sort of volumes as we get for our lights. But notwithstanding that, we now are in a position where it is commercially sensible for us to produce samarium. So therefore, we are producing samarium. Operator: [Operator Instructions] Jennifer Parker: Maggie, if we run out of questions, we should come into the queue. Operator: One more question, Amanda, one more. We have a follow-up from Austin Yun. Austin Yun: Just a quick follow-up. Really good news that you provide 2 offtake agreements updated during this quarter. I'm just keen to understand, given a large portion of your production is not covering those, is there any intention or interest to further expand your offtake portfolio both from a production perspective also from your geolocation customer perspective, conscious that you have Japan and covered U.S. coverage, but there's a big chunk of the world that's not covered yet. Amanda Lacaze: Yes. Good question, Austin. I think that -- I think the best way to respond is that the sales team has a very clear plan on ensuring that over time, we sell our material. We continue to sell it on a contract basis. We don't engage in the spot market. but we ensure that we have a customer portfolio that ensures that we are capturing the highest value, highest margin customers. The government contracts are beneficial in terms of setting -- and the focus on customers and concluding customer-based agreements, remains the #1 priority for our business. It is way more important than any other mechanism that we might have, because we're just like every other business, you don't exist without customers. The agreement with government, right? I really about sending a message with respect to market dynamics, I think everyone has that there is -- this market has been dysfunctional for some time. And I think that the government agreement helped to address that. And in a manner, we have advocated that these, if we have consistent amplification across those various agreements, that no government should ever actually have to write a check because the price naturally will move to that level. And we have seen some evidence of that. So the sales team's focus absolutely is on customers. We have excellent long-term agreements with a number of both magnet makers and magnet buyers, and we will remain focused on doing that with the government agreements essentially helping to address market dynamics. Operator: We have one more question. Last question, follow-up from Chen Jiang from Bank of America. Chen Jiang: I'll take my last chance, Amanda. So Amanda, as the CEO for Lynas over the last decade, and now we have 2.5 months left until the end of the current financial year. You are going to your next chapter of your life. I'm just wondering in your view, what can the CEO quality can lead Lynas to the next level of success, which is Lynas 2030 growth story, amid the backdrop of increasing geopolitical risk, supply chain development trying to decouple from China will remain dependent on China and Lynas rounding fully integrated rare mine oxide operations in Australia and Malaysia and your view what the Board is looking for and in your view? Amanda Lacaze: Okay. So I can tell you my view, I can't speak on behalf of the Board now. And I would encourage you to speak to the Chairman to get that. I mean -- and my view is only sort of a view because much as I would love and for those of you who have known me for 12 years, would know that I actually love being the final decision, in this case. I will not be the final decision maker. I wish that I was though. I wish I could say to you, this is the sort of person that we would like to see, and this is who it is. But ultimately, it will not be my decision. However, my experience of operating in Lynas is that we are -- the profile of the person to run an organization like Lynas with it stakeholder complexity process and processing complexity is maybe a little different from many of our other Australian enterprises. Certainly needs -- we operate with more risk in our environment than many Australian businesses who sort of run their operations and sell their materials inside Australia, we operate with sort of real global risk. And of course, I've been quite vocal previously about the fact that I would be delighted to see another woman appointed to this role. I think that we have made great strides in the mining industry in terms of bringing more women into the industry, but we are yet to get to the sort of many mining companies have targets of 30% or 40% women within their workforces, but we are yet to see that within the CEO ranks. And I would be very sad if my departure was the departure of present, the only woman other than Mrs. Reinhart as the owner, who is running a mining minerals company in Australia. So those are some of the things that I think are important. But we are a complex business and we are subject to sort of external factors that don't necessarily affect all Australian businesses, and I think that needs to be taken into account as the Board sort of proceeds with the appointment of my successor. And I watch it kindly because I've spent 12 years of my life on this, and I hate it to fall in a screaming heap. But on the other hand, I also recognized that I can't actually control what happens after I leave. So it's been great. I have loved every day in my job, and I still do, but it is time for the transition. And I trust that our Chairman will ensure that an excellent appointment is made. Operator: Thank you, Amanda. We have no more questions. Amanda Lacaze: Okay. Well, thank you very much, and I do look forward to you. It's not quite the end of the road yet. As Chen said it's another 2.5 months. I expect that I will have a chance during that time to touch base with most of you on this call, and I look forward to doing so. So thank you very much and talk to you all soon. Bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Jane Lowe: Hello, everyone, and welcome to the Lumos Diagnostics investor briefing to discuss the Q3 FY '26 results that were lodged with the ASX yesterday. My name is Jane Lowe, and I'll be your moderator for this session. With us this morning we have Lumos Diagnostics Chairman, Sam Lanyon. I'll say good morning to you, Sam. Samuel Lanyon: Good morning, Jane. Jane Lowe: Also CEO and Managing Director, Douglas Ward, afternoon to you. Douglas Ward: Good morning. Jane Lowe: And also CFO, Barrie Lambert. Good morning, Barrie. Barrie Lambert: Good morning, Jane. Good morning, everyone. Jane Lowe: Okay. So the format for today is that Sam, Doug and Barrie will walk us through a presentation that was released to ASX this morning, should take about half an hour or so. And after that, we'll follow on with a Q&A session. We plan to wrap up in about 45 minutes today. If you'd like to ask a question, please click on the Q&A tab in the ribbon at the bottom of your screen and type your question into the box provided. The webinar is being recorded today as usual. So with that, I'd now like to hand over to Doug, who will get us on the road. Thanks, Doug. Douglas Ward: Thanks very much, Jane. I really appreciate that. Welcome, everyone. As always, it's always thrilling to speak to our investors and give you an update on the business. We obviously have an updated picture that all 3 of us will go through. I'll do the lion's share of the talking today. What you'll notice is a lot of these slides, you may have seen before from the previous investor presentation that we put out on the ASX. With some modifications here and there as we did release our quarterly results, so we've added some of that information into the deck. And certainly, 1 of the most important things to talk about will be the SPP and a little bit of an update on that process going forward. So with that, let's start going here, Barrie, and we'll go down to the first presentation slide. So this slide here, we've updated with quarterly information. It's just 1 of my favorite slides, right? In regard to what we have accomplished as an organization. Number one, just talking about who we are, right? We're an IVD medical diagnostic products company. But most importantly what we're really geared to is to point-of-care applications where we can deliver actionable information right there at the patient bedside. And really hopefully transform that practice of medicine for the doctor and the patient right there at the bedside. So we're thrilled, as everyone knows, we've received the 510(k) clearance with CLIA waiver from the FDA here in the U.S. This is something that I've been here for almost 4 years now in a couple of more months, and this is something that is really than something that we knew would be transformative for the company, and we're just thrilled that we finally have that and can start to implement our game plan going forward. In regard to that game plan, that CLIA waiver is what now allows us to go after 270,000 different locations or healthcare provider sites in order to access about 80 million patients a year that are diagnosed with acute respiratory infection. So in general, that's really an untapped $1 billion market for us that we're just thrilled to now be able to access. And getting ready for that, right, we signed a deal with PHASE Scientific. They are our exclusive distributor in the U.S., and they signed up for a 6-year commitment to us with a minimum volume that equates to a $317 million revenue to Lumos over that 6-year time frame. Now to speaking briefly about how did the business do and with the quarterly update, boy, we're feeling great, right? This is all based on really significant business that happened throughout the year or the first 3 quarters without CLIA waiver. Now we did get it at the very, very end, and we did get a great order from PHASE in relation to that. But we're having a fundamentally solid year as we are here with almost USD 11 million here in about 11% year-on-year growth so far. But probably the most exciting number is the fact that we did secure so far in the year, $3.9 million or almost $4 million in sales revenue for FebriDx. So that's just a great start. And we're looking forward to capitalize on CLIA waiver and continue to drive that number going forward. Overall, the services business continues to perform totally in line with what we expect with good, consistent margin for the business, and you would have seen throughout the quarter updates with Hologic and Aptatek and MicroPak in our quarterly as well. And then lastly, we continue to make sure that we're trying to do our level best to continue to bring money into the company. In addition to the terrific opportunities we've had to raise cash in capital into the company. Likewise, we try very hard to bring in non-dilutive funding into the company. And what I just represent there is that right, that's over $20 million in nondiluted funding that we've brought in over the last 3 years into the business, right? And very proud of that fact and things that we're trying to be very good stewards to the business and to our investors in that regard. Next slide, Barrie. So we get this slide. I'm kind of a little bit off center here. On the right-hand side to the left is the Board, including myself that have been together since I've been here. And then a few of my key people on the management team on the right-hand side. Really the takeaway here is that both from the Board and from leadership and management, we have a number of players on our team that not only have been very good at developing product and getting products registered and getting it on the market. We've also been very, very good about bringing products and launching those products successfully into global markets. So that's really a key point here is -- it's 1 thing to get a product to market. That basically gives us the license to hunt now, right, we're going to be held accountable to now we'll implement that and drive that revenue going forward. So we're really excited to begin to show and demonstrate our capabilities going forward in that regard. Go ahead, Barrie. Okay. For those new to the business, what are we trying to solve for here? I always like to think of things in terms of unmet medical need, right? So prior to FebriDx coming to market, the real question that people had when they had an acute respiratory infection, they go to the doctor and they say, well, what do I have, number one? And how can I best be treated, number two. And really, other than getting mostly, especially here in the U.S., a COVID and a flu test with flu A&B, called the combo test here. They get that test and then they take their other clinical symptoms. And the problem that presents itself to the clinician here is that whether your infection is caused by bacteria or whether it's caused by virus, you present with the same clinical symptoms. So it's very, very difficult on the physician to decide who should get antibiotics and who should not. And quite frankly, that is the rub here. What you see is that almost close to half the time, antibiotics should not be prescribed to patients because they have a viral infection, not a bacterial infection. And for us, what we love about FebriDx and what we think the market, both the clinicians as well as the consumer market from a standpoint of the customer mean a patient going to see their doctor, we can now solve this question. Is it cause? Is that a bacterial -- is that infection caused by bacteria or by virus. Next slide, Barrie. So this is the test, FebriDx, a simple finger-prick blood sample and in 10 minutes, you do the test, and it just gives you just wonderful performance, right? It can rule out a bacterial infection over 99% of the time. So that really helps the physician know. This is not a bacterial infection. Therefore, I should not give antibiotics. And it's a very, very simple test that's looking at what's called the host immune response, condition of the patient. We're measuring 2 biomarkers, one's called CRP, the other is called MXA and based on what this test shows up on its test line, it will tell that doc. What is this bacterial or in the U.S., non-bacterial answer. Go ahead, Barrie. Now what's also terrific about this for Lumos, for FebriDx and for our investors is the fact that, we do have just a wonderful patent estate, I'll call it, around FebriDx. As you can see here, 59 patents that we've applied for, we've now been granted 50 of those patents. And equally as important as the time still for -- before expiry of those patents. The earliest ones that are core to this begin to expire around 2038, and that's without any of the big extensions that we have that are pending. So we're feeling very, very good about being able to go to market, build this market and having time to actually be able to show the rewards of that work that we'll do over the next decade plus of time. Go ahead, Barrie. So a key item is just how does it work here in the U.S. from -- if you have an infection, you go to see the doctor or the urgent care. You present, you go to the check-in desk, you fill out your insurance information, they ask you what your symptoms and then they say, "Okay, we need to go triage". You go in a room to do your vitals and so forth, your temperature and all that. But if you present with acute respiratory infection like symptoms, they then will also give you a COVID flu test at that time in about 15, 20 minutes later after the triage. After the triage, you'll see the doctor. The doctor will have in hand that triage test of COVID flu and along with all your other vitals. And then that doctor will make that treatment decision based on that limited information. And as I said before, 40% of the time or more, they get that wrong about whether or not they should give you antibiotics. And then they will bill the insurance carrier to get covered for the visit by the patient as well as the COVID flu test. What we present as a solution to the doctor going forward, quite frankly, is something that just fits side-by-side with the COVID flu test. So now when you go into that triage room, everything still stays the same. But now in addition, you'll take a simple finger prick 10 minutes, you'll get the answer. And the doctor now will have 5 answers going into this. Do you have COVID? Do you have flu A? Do you have flu B? Is it caused by bacteria or some other virus? We don't know, but in general a virus. You have these 5 results plus your clinical symptoms, now they can make the most appropriate decision around antibiotic treatment, and then they'll do the billing, okay? I will point out just 1 thing that happens in the U.S. the physician does not get reimbursed or they don't bill nor do they get reimbursed for actually writing a script, okay? That's a pharmacy play, and it's something that happens elsewhere. So what they're just trying to do is let me make the right decision so that I do not have the patient reoccurring and coming back in a few days, and there's penalties in the payment system and so forth, if that happens. So they want to get this right and take care of the patient. Go ahead, Barrie. So as we've said before, we did launch this product over a year ago, but in the moderate complex. That's really to ERs and hospitals and so forth. The product isn't, I'd say the best product for that market. This is really geared for a simple ease of use like a COVID flu test for physician offices or urgent cares. So by getting the CLIA waiver, huge market expansion for us, huge opportunity, and we're really excited about going after this huge market of 270,000 different locations. Barrie? A key item to understand is how is that segmented, okay? Here on the left-hand side, you can see all the groups that are fit into this point-of-care CLIA waived environment. And what I just represent here is that there's 2 really critical areas. One is called the urgent care center. These are 24/7 medical offices that patients can go in with certain types of conditions and get certain types of tests and scripts and so forth or you go to your primary care physician, right, the GP office. These are the 2 key areas, okay? And then there are further put into how many locations are there. So 14,000 urgent care locations, but what's critical about that and what we're going after in that segment. About 300-plus ownership groups owns those 14,000 different urgent cares, okay? So that's 300. So that's an area that both PHASE and Lumos together are really driving, right? It's a pretty, I'd say, nice condensed group to go after at the C-suite to really drive this test uptake in, and we'll talk more about what we're doing there with WellStreet and other sites. And then the primary care groups, that's the 160,000 GP locations. That's a lot harder to hit, right, with just PHASE and/or Lumos. So that's where you use the huge U.S. distributor networks like Henry Schein, McKesson and others that will hit those primary care sites for us. So we're really, really excited about the opportunity to now take FebriDx into these environments. Go ahead, Barrie. So listen, we think that we -- on 1 of these guys go simple. And if you have a simple story and if it's understood, typically, it's going to work, right? So this is a very simple story about how you position this. Number one, to be successful, you have to have a clinical benefit. As we started out talking about, we're the only test that can do this. we can help the physician at the point of care easily with a very time-limited -- time to see that patient know is that acute respiratory infection being caused by a virus or by a bacteria, right? We're the only ones. It's an unmet medical need that we can address. Secondly, U.S. system is a pay-to-play healthcare system. So everyone who participates must make money, okay? So think of that as us as the manufacturer PHASE as the exclusive distributor to us, the sub distributors like McKesson and the doctor's offices, right? Everyone must participate in covering their costs and making some profit. So with our dedicated PLA code, right, which we secured well before our CLIA waiver, clearance from the U.S. FDA, we were able to secure that at $41.38. And given our COGS, we make money and all the other participants make money. We'll talk about that on the next slide. And then lastly, the final thing is this has to be very simple for a physician just to put it into their workflow. They have patient care continuum where they present, right, and then they triage, then they make the therapeutic decision and then they bill. And it needs to just fit into that tight little continuum very nicely, and this does it side by side with a COVID flu. Next slide. So this just gives you, I'm not going to spend too much time on it, and you can read this on your own, but suffice it to say, all the major players here are going to make profit on this to represent our interest. We'll make to start from day 1 about 60% gross margin on this product. Barrie and the ops team and so forth are working to plan that with volume growth and with our contracts with our suppliers, we'll be able to grow that to about 80% gross margin over the time frame of the PHASE agreement. So we're really excited about that. And then you can see here some good margin, healthy margin for the other players in this continuum. Next slide, Barrie. So a lot of people ask about the PHASE contract that we have and how it breaks down. This gives you a breakdown right, of what we've done with PHASE and you can see about the payments that they made to date. So here, you can see, so far, they've paid us $8.5 million to date, okay? And now we just have CLIA waiver. Now the real work begins, and quite frankly, the real revenue and real margin begins for all of us because now they're committed to another $308 million over the next 5-plus years here, okay, for years 2 through 6. So we're very, very excited about this. And this is 1 of those moments as a person who's been in this field for like 35 years. We're very, very eager now to go out there and demonstrate. Well, this is how we launch a product and driving in to use here in the U.S. market. Go ahead, Barrie. So we've talked about that continuum, right, from when the patient presents all the way to the billing. So understand that, that is a critical component here, right? You can have a great test addresses an unmet medical need. And it's pretty simple to use. But quite frankly, if the payers don't pay you for it or pay to a healthcare provider, it will not work. So right, we talked about those 3 boxes that are critical, that second box is the economics. And this is really critical for repeat customers and for the healthcare providers to be able to not only use the test initially to help, but then ongoing use of the test it requires them to get paid by their -- by the insurance companies in order to cover the cost of this test. So what you can see here is that, right, we are getting paid for this, Medicaid, Medicare, which accounts for 25% of payments, okay? We have secured that at the full amount of $41.38. So that's great news for all of us. Private insurance, which covers the remaining 75% of the patients out there, that is an active and ongoing process of getting them to ultimately write what would be called the formal payment policy to have it automatic. Right now, what we're seeing is, with working with WellStreet, and we monitor this with them, that 5 out of 8 of the national private insurers had been paying at the $41.38 or above, okay? So that is -- to be quite frank about it, that's just phenomenal, okay? A lot of companies, what they end up doing, they get their CLIA waiver, they get their FDA clearance, then they go try to get a CP -- they use a CPT code or try to get a PLA code, and then they get the amount that is going to be -- and that can take you like 3 years. We did all this prior, so it really sets this market up for us. And then we're monitoring this and a keen, effort is to work with 2 of our consultants, one is PRO-spectus, and the other is AcuityMD, and really tracking this in helping the clinicians get paid because ultimately, we can get our PLA code, we can get the CMS dollar value of $41.38, but ultimately, the physician must get paid by the insurers. Now we hire PRO-spectus to help them get it. And that is going to be a critical next step is just getting that momentum of the payments going from the payers to the healthcare providers. Go ahead, Barrie. So I talked about the -- I think what was that number, 14,000, Barrie, I think, of the Urgent Care's locations out there, and that's covered by about 300 ownership groups. Well, 1 of those groups, WellStreet, is made up of 163 Urgent Care locations, and we started a pilot program with them to basically kind of go back to that 1 little slide with those the triage room and the doctor and then the treatment decision. Just making sure this made sense and was simple and they could do it and WellStreet implemented that at 3 of their locations. And then as soon as we get ahead, received CLIA waiver, they said, "Okay, great." We can now put this into 43 additional sites and start rolling on this. Now what they also plan to do is right after that 43 are up and running, then they're going to bring on the rest of their 163 locations. And what's great about this is, right, they did 1.1 million ARIs, right, in 2024, okay? So that's going to be a great customer. Now they are a top 10 Urgent Care in the U.S., right, of those 300 different ownership groups. This is a top 10. So what we started to do now is we take the learnings from this, kind of turn us into a playbook for us with PHASE to now go after the other 300-plus of these ownership groups to get this implemented. And right now, as we've communicated before, we have this going, right, at pilots going similar to what we did at WellStreet at 8 other locations or 8 other groups across the U.S. currently. So a very, very exciting area. This is what we call in this business. You're going for the wells, right? These turning these on 1 at a time has a really large impact because all of these sites get activated, right? So that is a real critical step in our strategy going forward. Go ahead, Barrie. So this is FebriDx first from WellStreet. This is their turn that they used with us and everything. And what they're doing is something even a little bit different than what I was representing where we'll just add CLIA waiver -- I mean add FebriDx to a COVID flu test. They actually think it's in our best interest to get the right answer for the patient first, and they're going to do FebriDx first. And then based on that answer, they'll decide what other testing do they do, whether that's rapid strep, if it's a bacterial or should they do other tests like COVID flu and other tests. So this is just a terrific example of how they will go forward with FebriDx. Next slide, Barrie. So I'm going to be very, very brief here. I've already talked about this. A critical element aside from -- of the Urgent Care is just to go after a primary care. The GP offices. This is where we will use the huge distributors in the U.S. to go after that. Paul and team have been extraordinarily active over the last weeks, and implement -- it's almost been a month, I think, since we actually obtained a CLIA waiver. So they have gone to, I think, 3 different distributor annual meetings for training. They've been 2 significant conferences and showing how this test works and getting distributors up and running. So we're really looking forward to getting these distributors online, more than 2,000 of them across the U.S. to go after that primary care market. And then another item, which is really core to our use of proceeds is driving awareness, both to the physician and to the patient. And we're in the process of getting that project off the ground and running here over the next, let's call it, month. So very exciting from that standpoint. Next slide, Barrie. Okay. So the other large part of the use of proceeds is our scale-up operations. So that's a photo of our facility in Carlsbad, California. We will be significantly renovating that space to add the capacity needed to supply PHASE over the next 6 years what they need to sell to, to deliver the $308 million in revenue to us over the next 6 years. Next slide, Barrie. And Barrie, I'll turn it over to you for the financial summary. Barrie Lambert: All right. Thanks, Doug. I just wanted to go over some of the quarterly numbers in a bit more detail. Here, we've got the same charts we've presented previously. So we've got revenue on the left, revenue mix in the center and then net cash flow on the right there. So please, obviously, review this chart -- this chart, this slide in conjunction with the quarterly announcement yesterday, which has more detail in it. But just a few comments. And also just to remind everyone, our reporting currency is in U.S. dollars. So these are all in -- all these numbers are in U.S. dollars here. So revenue for the quarter was $4.8 million. You can see that in the chart there on the left, on the right-hand side, $4,822 thousand, which was 37% higher than the prior corresponding period, so Q3 FY '25. And you can see that in the chart there was $3.47 million on the far left, which brings our year-to-date revenue number to $10.9 million, which is, as Doug said, is up 11% year-on-year. Products revenue for Q3 was $2.4 million. So that's compared to $0.7 million in the prior corresponding period, with the majority of that product revenue being sales of FebriDx. So that's up over, I think, over 240-odd percent year-on-year versus the corresponding quarter. On the services side, revenue was $2.4 million for the quarter versus $2.8 million in the prior corresponding period across our 12 projects still. Strong contribution from the projects with Hologic. And the IP agreement with Hologic, but also the other projects we've announced recently with Aptatek and MicroPak. And MicroPak also recently just signing a supply agreement for us to manufacture their product for them, so the reader and the assay for MicroPak. One thing I would just point out, the IP revenue recognized in Q3 FY '26 was actually $0.8 million than the prior corresponding period. So excluding that item, our actual consulting revenue in Q3 actually grew year-on-year. It was just a reduction in the IP revenue that we recognized that caused the service revenue to drop there by $0.4 million. Just turning to the cash flow. You can see our net cash outflow for the quarter was $3.1 million. And just the definition of net cash flow on the bottom there is comprised of operating and investing cash flow plus lease payments. And if you actually -- so compare that to the prior corresponding period was $1.6 million. If you add up the 3 quarters for the year, you'll also get a cash outflow of around $3 million as well. Cash balance at the end of March was $1.1 million. And you would have seen in our half year financial accounts, we did draw down the line facility of $1 million just during the quarter. And just a couple of last comments on the cash flow. So as per our announcement on the 8th of April, we did receive placement proceeds, $20 million before costs. On the 14th of April, we did receive the $5 million prepayment from PHASE, and we have invoiced BARDA for the $0.5 million, their final milestone payment under the CLIA waiver contract. That $0.5 million will come in, in the next couple of weeks. So just some cash flow receipts since the end of the quarter. I think that's it for me, Doug, I'll pass it back to you. Douglas Ward: So overall, I'm really pleased. I think what we're seeing is we're delivering as we have said we would deliver for the company and, hopefully, for our investors from a standpoint of hitting our revenue growth numbers and seeing just the terrific increase in the FebriDx revenue number, especially from in this last quarter. So feeling great about that. And likewise, really, really positive in regard to now we can get rolling in implementing this PHASE deal and a significant uplift in revenue that we expect to get from them over the next 6 years as a business. So really, really just pleased with the results that we had in the last quarter, getting the CLIA waiver and now starting to implement our plan and the success that we've had in our first pilot with WellStreet, and then looking forward to translating that into just continued, what I believe will be a very, very successful launch for FebriDx for years to come. So with that, I think we can turn it over to the capital slides. Barrie, if you're going to go through those... Barrie Lambert: Yes, I'll go through those, Doug. So given we're still in the SPP window, which closes this Friday, the 24th, we thought we'd just go over a couple of the capital raise slides to remind folks, mainly around the SPP not going over the placement. So as many of you know, it opened last week. I think the key point here on this slide, a couple of key points. So new shares issued under the SPP offer issued on the identical terms of the placement. So the price per share is $0.225 -- so $0.225. We can see here the discount to the last close and the VWAP. Just moving down, I'll go through the use of funds on the next slide. Just moving down a little bit under the SPP, given that terms are identical, SPP offer participants will also be invited to apply for 1 option for every 2 new shares subscribed for. The exercise price on those options is $0.34, and they expire on the December 31, 2027. So those options are identical to the option offeror that the institutional investors received. The options are not quoted on the ASX. And obviously, new shares issued under the SPP ranked equally with all other fully paid ordinary shares. I won't go through this in too much detail. I mean the use of funds was outlined previously. Just a couple of comments. If you look on the right there, and primarily in the last command, the U.S. dollar common -- use of funds is really in 2 areas. Manufacturing expansion for FebriDx. You can see the $2.5 million and the $4 million there. And then sales and marketing activities for FebriDx. Marketing at 7.8% in the medical implementation team as well, which is really a team to go around and assist the clinics with the implementation of the product in their clinics. And just to remind everyone, again, quickly on the dates. As I said, it opened on the 27th and it closes this Friday. SPP closing date, Friday, the 24th of April. We'll do the allotment straight after that, on the 1st of May, and then they can commence trading on the Monday, the 4th of May. I think I've got -- just 1 final slide here. So I thought it would just be useful to put a little bit of information about the current share register for Lumos. So as at the record date, there was 3,744 shareholders on the register. And as I said, the SPP terms are identical to that offer to institutional investors. And majority of shareholders, so you can see there in the chart, 3,202 shareholders have a holding of less than about 133,000 shares. So the majority of shareholders have the potential to maintain their pro rata ownership post the capital raise by participating in the SPP. So I just thought it'd be worthwhile providing a little bit of color on the share register to just sort of highlight the number of shareholders that currently hold less than 133,000 shares. You can see the numbers for various other ranges as well. Sorry, Sam, go ahead. Samuel Lanyon: I think I was going to jump in as well before we jump into Q&A about this as well because these slides are in response to questions we've received before. And about the actual share register, composition, et cetera, and some of the decisions around capital raising. I think Jane has got a long list of questions alongside George, and we're trying to respond to them as fast as we can. We've got a relatively limited team. Most of the questions can be asked -- answered by Jane and George, but sometimes it involves the rest of the team to actually provide a response. So please be patient, doing our best to do that. When you look at this particular slide, one of the other questions that we had, which was to do with Barrie's last statement about pro rata. As a Board, we consider that with the SPP because the $30,000 cap is obviously legislated. We can't go above that. But we did look at that as part of the SPP and what percentage of the share register could do pro rata if an individual wanted to do that. It's actually 92%, so slightly different to this lens here of our register could actually put in up to $30,000 and maintain that position. We thought that was actually a really important point. The Board is always going to look to try and make sure that whether it's institutional, sophisticated or retail that they are the same terms. I guess in the SPP, there is a limit in terms of cap, but the Board did suggest that there was potential for oversubscriptions. I wanted to emphasize also because we've had to get into Q&A that Q&A is really important because it does influence us. We put this information in because we received questions around the SPP and the ability to get to the pro rata position and maintain position, et cetera. So this information is in response to some questions we've received from investors. Similarly, the PHASE Scientific announcement regarding the $5 million, that was large -- it was constructed a lot based on investor feedback as well. And we had questions about revenue versus cash and wanting to make sure it's very, very clear as to that new $5 million coming in, whether that was to do with old or new orders to be received. So I'm just encouraging everyone, if you got questions, please, by all means, get to us. If they're constructed professionally, we'll try and answer them very, very quickly as best we can. And we -- Doug and I had a call with a retail investor, I'm pretty sure you won't mind me referencing this. And here, it's really great questions that we went through with them one-on-one. He also mentioned some online information that he received, which he believed potentially came from the company, and it didn't. And it was really important for him to mention that to us because we could actually give him our position. And so for that reason, what I'm saying to you as investors, please feel free if you hear something or you want something clarified, get in touch with us, we will respond as quickly as we can. We've got a little bit of a backlog now. So please be patient, but we will get to it. One more thing, Jane, I want to mention in terms of investor engagement to the end of year financial results. Obviously, coming up later this year, the intention is for Doug to be in Australia. And to give you all an opportunity for -- if it works out, one face-to-face investor update. Details will follow at some later date once we lock those dates. Jane? Jane Lowe: Great. Thank you, Sam. Barrie Lambert: I'll just stop sharing, Jane. I think rest of the presentation is just the risks, which everyone has seen, I think. Jane Lowe: Okay. Yes. If you'd like to look at those, please review the presentation that's up on the ASX. So with that, thank you, we'll open up the floor to Q&A. Jane Lowe: We have received a lot of questions for a limited time. We'll get through as many as we can. So first few that came through via e-mail in the lead-up to the session. So in relation to FebriDx, is there an update on progress for Medicare rebates in Australia, Doug? Douglas Ward: Yes. Thanks so much for the question. And I think as you guys know, we've talked about this before. We are actively pursuing that process. Our initial attempt, we were unable to secure that, but we did get some great information to be able to proceed with another route through collecting additional local data and using the study, I think it's from -- Barrie help me out here, Wollongong, I think, is how you pronounce it, and I apologize... Barrie Lambert: University of Wollongong. Douglas Ward: Yes, sorry for that. So we'll be conducting a study there with a significant size, comparative study. We test more than just the FebriDx test, but that would go a long way to helping us in being able to justify and securing reimbursement there in Australia. So it is something that we're pursuing. But as most of you probably know, it does take time to be able to secure that. Jane Lowe: Thanks, Doug. Okay. Following on from that. Also, is it thought that Australia and other jurisdictions that the company is entering will follow the U.S. with its National Action Plan for combating antibiotic-resistant bacteria mandate that was recently enacted? Douglas Ward: Yes. So number one, I would say, listen, this is something that other countries have already done as well. So U.S. wasn't the first to do this. In fact, as I think Australia had something very, very similar back in 2023, if I remember when that was started there. We think that this is very positive, right, for healthcare on the whole and certainly can be for diagnostics, and we expect other countries will continue to drive diagnostics as well as antibiotic stewardship going forward. So yes, we think this is a good thing, and hopefully, we can leverage that at a high level. Jane Lowe: Thanks, Doug. What impact is expected from the recent decision in relation to the U.S. National Action Plan for combating antibiotic resistant bacteria? Douglas Ward: Yes. This is the same thing really just -- the U.S. version. So it's -- again, it's a positive thing. And we'll look to see how we leverage this over time. But as with most government programs and so forth, they take time to enact and move forward in, but we think it's a good thing for FebriDx and for Lumos possibly. Jane Lowe: Yes, great. Okay. Have you commenced discussions with other large clinical groups about FebriDx? Or is this PHASE's responsibility? Douglas Ward: Yes, that's a great question. And we get a few and we always get, hey, what is PHASE doing? What are they spending money on marketing-wise versus us and so forth? So I think -- let me give you this in a nutshell. One is both organizations are trying to do what is in the best interest for implementing in launching the product, meaning we, at times, do some things by ourselves like we're going after all the reimbursement stuff ourselves and working with our consultants, PRO-spectus and AcuityMD in driving getting all that in there. To go after these large sites like WellStreet, that's actually a tag team affair, right? We are both driving those together. Bob Gergen in his team and Paul Kase in my team -- in his team, these guys know each other very well. They know this market very well. They have great relationships. And together, we're stronger, right? So we aren't doing these things together. Now what I would say is, so they have -- they're going to be accountable for like managing all the dealers and distributors. So they have to buy, if you will, invest in the infrastructure and the people and everything to really drive that. They will also invest in all the conference marketing stuff and the ad board stuff, this classic marketing spend that does get expensive. And you got to go everywhere with it, and they'll be accountable for that and representing the product into the customers. We are going to, though, spend our marketing dollars in regard to that reimbursement app, but also creating product awareness, right, for physicians and for the consumer market as well. So again, it's a tag team affair. We think it's the best way to go after this, and drive this going forward. Jane Lowe: Thanks, Doug. I think you've covered a couple of questions at the 1 time in that response. So I appreciate that... Douglas Ward: Yes, I'm trying to do that. Jane Lowe: Yes. Well done. There is a specific 1 here, though. With the funds earmarked for marketing, do you plan to give regular updates on the use and benefit to Lumos of the marketing spend? Douglas Ward: Yes. Let me say, right, number one, just I know there was a question or 2. We don't provide guidance around the revenue numbers and our volume numbers at this stage, right? But we really think it's critical that we understand and have a dashboard of key leading indicators of, hey, how are we being successful and how are we driving that? What I just represent is that is a place where we want to get to. We're not ready for that today. So I can't commit to exactly what that is and what the exact time frame. But that's a great question. And one, the Board has right asked us as management for us to deliver to the Board. And then obviously, we can think about once we do that, how do we "appropriately" share that market at the appropriate time and makes sense. So it is something that we will work towards. Samuel Lanyon: Can I add a little bit of detail to that, Doug, as well -- because, obviously from the Board side, you from the management side, both of us have worked actually as competitors in our long distance past, Doug. And I think we both appreciate that in a distributor network, sometimes you lose fidelity of data because there's a couple of steps in the chain. And so the reason why Doug is saying that it takes some time to develop those leading indicators is because it's naturally difficult to get all the right data that's actually a really good useful leading indicator that you can continue to get day after day, month after month. So it's not atypical for that to be the case, which is the reason why I was referencing our past live because we had exactly the same situation. Jane Lowe: Thank you, both. Okay. And there are a few questions in here around forecast revenue, et cetera. I think you've tried to answer those here, Doug, at the moment. It's -- it would be -- we're not quite ready for that. But thanks for the questions. So back to the PHASE agreement. So of the initial orders from PHASE as per the agreement upon signing and CLIA waiver submission, how much is still outstanding from that $2.5 million, Barrie? Barrie Lambert: Yes. So from the $2.5 million that was prepaid, all of that product has been shipped and recognized as revenue. So that's fully consumed, okay. From the $5 million that we just received last week, none of that product is shipped, yes. So it's still to be manufactured by us. And when we ship it, we'll recognize it as revenue. So hopefully, that answers the question clearly. Jane Lowe: Yes. That's great. Conscious we're slightly over time but let's just get through a few more of these, if we can, and then we'll let everyone go on their days. So Doug, could you please provide a progress update on the pediatric study? When do you anticipate you will submit to FDA? Douglas Ward: Yes. So as I think when we do the last -- was it in our quarterly, Barrie, from last quarter... Barrie Lambert: Yes... Douglas Ward: You gave the update on the $720 million (sic) [ $720,000 ] I think it was called milestone 6... Barrie Lambert: $720,000 -- million would be good thing... Douglas Ward: Sorry. A better number, Barrie. Yes, like that. So anyway, milestone 6, so we received that. We're in process of moving forward toward milestone 7, and that would be the next announcement associated with this once that's achieved, and we're able to bill and invoice against that and get payment, then we would announce that in -- right on the ASX as normal. But it continues. It's not a short trial. We've -- I think we've consistently tried to say that that's something that's going to definitely go into the end of the calendar year, okay? So we'll give appropriate updates as we can. But as with any clinical trial, it's just, okay, you're accruing patients. That's the way it is. Jane Lowe: Excellent. Okay. Question here, do we need to wait until late July for the next sales and revenue update? That has been our cadence around quarterly reporting. Barrie Lambert: I guess 2 points from me on this one. Yes, the next quarterly will obviously be the Q4, which will be released at the end -- towards the end of July. I think as Sam and Doug have already said, if there's anything material, and we need to meet our continuous disclosure obligations, we'll announce those if they're material. But otherwise, it will be in the quarterly update. Douglas Ward: One thing to just add, I think around that is especially for FebriDx because right, that's the lightning rod of everything for us, and we love that. In the U.S., we have -- this is a seasonal -- this is going to be a seasonal play, right? Flu season for us is, let's say, at widest October to February and March. That's kind of the very, very widest time point for flu season. So as you can imagine, those off-season, your revenue numbers are much lower. In-season, your revenue numbers are much higher. I just say that to set expectations for people that there is seasonality to this. And we are now going to be coming up on our summer time, which is the lowest time for respiratory infection here in the U.S. So just -- I give you that, it's just some education on the market dynamic here. Jane Lowe: Couple of interesting segue questions from there. So the first 1 is ever considered expansion into veterinary healthcare as more antibiotics are prescribed for animals than for humans. Douglas Ward: Whoever gave that question, if they have expertise in that, I'd love to talk to them, right? Listen, it sounds like an opportunity, right? I'd always look at opportunities. And that's a great market, especially in the U.S., I assume it's the same for Australian, right? I have 2 labs and you'll do anything for them. So listen, the vet market is a great market. Barrie Lambert: Well, we are doing -- in the service business, we are doing a project for a vet healthcare company. We're not allowed to provide the name or the type of product, but it is certainly -- it was certainly 1 of our clients who is very interested in that space. Samuel Lanyon: Can I give a slightly different response, Jane. I mean, work in diagnostics as well. 1 of veterinary yet lower regulatory requirements and the clinical trial costs and all that sort of stuff. So when Doug talks to the cost of clinical trials, the seasonal nature of our business, all of those sort of things, it's really great to be sitting here with the first product in market with all of those barriers to entry for competition because we do have competitors. We are aware of companies that are working on things that are striving to get to the point that we're at. And so focus is a really important thing that we, as the Board continue to talk about with management and our services is naturally quite broad in terms of who we work with and if people pay us, then obviously, it builds capability and all those sort of things. But I also want to stress the CLIA waiver is a transformational opportunity. There's a lot of work to be done there. So for that question that came in from that shareholder whilst it's an interesting thing that Doug might want to follow up on. I do think it's really important that we make sure that rubber meets the road. Jane Lowe: Thanks, Sam. Good focus. We do have a question on pipeline. I'll ask that quickly in a minute, but let's just go back to FebriDx for a second. How much of the U.S. groundwork translates to progressing Canada, U.K. and EU markets? Douglas Ward: Yes. Good question. Just so that you guys noticed I did run point-of-care diagnostics for what was Bayer and Siemens at 1 time and lived over in the U.K. for many years. So I think I know these markets pretty well. The good news is they do translate, but there is a time lag. And a lot of that has to do with the whole reimbursement system and nationalized healthcare and getting payments and payment for the product and so forth. So yes, I definitely see this as something that will translate, but there will be a time lag before it really starts to take off there. Jane Lowe: Okay. And we might just make this one our last question. Again, we've probably got another 10 in the queue. If we didn't get to few, apologies. But as Sam mentioned earlier, please feel free to follow up with IR and we'll get back to you as quickly as we can. So final question, noting your comment around focus, Sam, any quick comments on other potential products in the pipeline, Doug? Douglas Ward: So we continue to work with our women's health portfolio, but you guys understand, right? That is a feasibility stage. And you'll note that we have, I'd say, small R&D dollars dedicated to that currently. And that's what we need to have from a focus standpoint, right? We'll work on the women's health portfolio at a feasibility stage. And when it's appropriate, appropriate stage, we'll announce to the market, hey, how did we do? I mean, what comes out of that or not going forward. But yes, we continue to progress that. It's just -- right now, the focus is FebriDx. So you get most of the comments are going to be around FebriDx right now. Samuel Lanyon: And I think the -- add to it. I know the comment about focus, Jane, but we're looking for synergies in the organization where -- so the second and third and fourth products don't cost the same as the first one, right? So whether that be strategic relationships, whether that be cost synergies and commercialization, all those things, and the Board along with management proposed the women's health opportunities to us, and we could see some of those synergies. And so that's the reason why we're working on it. Jane Lowe: Okay. Well, thank you. Appreciate everybody's time. We've gone over a little bit, and there are still a lot of people on the line. So thank you for that. Doug, I might just hand back to you for any closing comments. Douglas Ward: Yes. I would just say thank you very much for taking the time today to talk to us. We do sincerely appreciate that. We greatly appreciate the support of our investors, and we'd love to have new investors, but also the SPP is live and will continue here, and we'd love to get people and further invest in take advantage of, I think, a great opportunity right now to invest in the company. Well, we are just at the very, very beginning of what I think is going to be a transformative company in the medical diagnostics space here. So again, thank you, everyone. We greatly appreciate it, and we look forward to giving you more updates as we go. Jane Lowe: Perfect. Well, with that, I'll add my thanks to everyone, including Sam, Doug and Barrie for your time today. And with that, invite everyone to disconnect. Thank you for your time. Samuel Lanyon: Thank you. Douglas Ward: Thanks, everyone.
Operator: Good day, and thank you for standing by. Welcome to Yancoal First Quarter Production Report Conference Call and Webcast. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the call over to Mr. Brendan Fitzpatrick, Head of Investor Relations. Thank you, Brendan. Please go ahead. Brendan Fitzpatrick: Thank you, Desmond, and thank you to everyone on the call for joining this briefing on Yancoal's first quarterly production report for 2026. We have several members of Yancoal's executive leadership team to recap the quarter and participate in the question-and-answer session. The commentary provided today is based on the quarterly production report published on the Australian Securities Exchange and the Stock Exchange of Hong Kong announcement platforms on the 20th of April. There is no presentation pack for this call. The Yancoal website holds past presentations for any participants who require additional information on the company. I'll hand over to our Chief Executive Officer, Sharif Burra, to provide the first quarter highlights. Sharif Burra: Thank you, Brendan. I also welcome everyone joining us on today's conference call. We would have spoken to some of you just a few days ago after announcing the Kestrel Coal Mine acquisition. The acquisition price for Kestrel is USD 1.85 billion plus a potential contingent cash consideration. Adding a long-life asset that produces hard coking coal at strong margins is a compelling step forward for Yancoal. We're working with the vendors to reach completion in late Q3 of 2026. As important as the acquisition will be, we're maintaining our focus on the existing portfolio, which underpins our financial performance and our capacity to pursue growth. In this context, let's now turn to the first quarter performance. Collectively, our operations are running to plan so far this year. When setting our 2026 guidance, we indicated the first quarter would have comparatively lower production with output increasing over the remaining quarters. This profile is similar to our 2025 production profile. ROM coal volume was 1% lower than the first quarter last year and saleable coal was 5% lower. After the first 3 months, we're in a comparable position to last year. If we can exceed last year's 12 months performance, it would be another record year for Yancoal. Understandably, we've received a number of queries about diesel supply and implications for costs. We can confirm we secured diesel supply until around the end of May and are working closely with our main suppliers. Beyond this horizon, continuity of diesel supply depends on events in the global market. As a prudent measure, we have established contingency plans should continuity of supply become less certain. Given the outlook for diesel prices, we now anticipate cash operating costs for the year could be close to the upper end of our $90 to $98 per tonne guidance range. Uncertainty in global oil and diesel markets will require ongoing assessment of our cost profile. The positive aspect of the global energy market disruption is the potential for higher realized coal prices. The international coal price indices we sell against increased 5% to 14% during the quarter despite some buyers in the thermal market running down winter stockpiles. Due to our contract structures, the benefit of rising prices will start carrying through to our realized prices from the second quarter onwards. I'll now hand over to other members of the executive team to share further details from the first quarter, starting with David Bennett, our Executive General Manager of Operations. David Bennett: Thank you, Sharif. Our positive trend for total recordable injury frequency rate continued. It reduced to 5.77 at the end of March. Although our rate is below the industry weighted average of 9.6, we remain committed and focused to further improving our safety performance. During the quarter, we produced 15 million tonnes of ROM coal, 1% less than the first quarter last year. From our ROM coal, we produced 11.9 million tonnes of saleable coal, 5% less than the first quarter last year. Sharif mentioned diesel supply. Yancoal's operations and procurement teams have been working closely with our diesel suppliers regarding continuity of delivery. Currently, operations are running normally, and we expect this to remain the case until at least the end of May. Longer term, there is some uncertainty as supply will ultimately be influenced by the availability of crude oil in the global market as well as the regional refining and shipping activity. Should diesel supply become less certain in the future, various adaptions to our open cut mine plans are possible. These adaptions include reducing lower priority fleets, slowing overburdened removal activity whilst delivering ROM coal and maximizing use of our electric rope shovels and draglines instead of diesel-powered hydraulic excavators. As our underground mines are less diesel intensive, revisions of those mine plans should be minimal. Looking at the operational performance in the first quarter, the Queensland mines, Yarrabee and Middlemount were impacted by extropical Cyclone Koji early in the quarter, but subsequently recovered the lost production. By contrast, New South Wales mines had minimal weather-related disruptions during the quarter. To facilitate production throughout the remainder of the year, we have prioritized overburden removal at most open cut mines, and this should ensure we meet our forecast production. However, as Sharif mentioned, the outlook for our cash operating costs has changed since we provided the guidance in February. In 2025, diesel comprised approximately AUD 7 a tonne of direct mining costs. This figure was consistent within our 2026 budget. However, as diesel pricing increases have started to have an effect, we now suggest cash operating costs for 2026 could push towards the top end of the range. I'll now hand over to Mark Salem, our Executive General Manager of Marketing and Logistics, to provide commentary on the coal markets. Mark Salem: Thank you, David. Our attributable sales were 8.2 million tonnes, a decrease from the prior quarter that reflected lower sales production and the timing of shipments relative to the reporting period. During the quarter, the API5 index averaged USD 81 per tonne, up 5% from the prior quarter, and the GC Newcastle Index averaged USD 120 per tonne, up 12%. In the met coal market, the Platts Low Vol PCI index averaged USD 161 per tonne, up 14%, and the Platts Semi-Soft index averaged USD 146 per tonne up, 14% as well. These increases are yet to flow through to our realized prices. After converting to Australian dollars, our first quarter average realized prices were similar to the prior quarter at AUD 134 per tonne for thermal coal and AUD 213 per tonne for metallurgical coal. Our overall average realized prices for the first quarter was AUD 146 per tonne compared to AUD 148 per tonne in the prior quarter. The year started with conditions in international coal markets gradually improving before global energy markets were disrupted due to the Middle East conflict throughout March. There was immediate increase in speculative coal trading activity, direct impacts on the physical coal markets have been slow to emerge. The general expectation across energy market participants is that reduced Middle-Eastern liquefied natural gas LNG supply prompts gas-to-coal switching for power generation. This thesis is supported by indications that Japan, South Korea and Taiwan will lift restrictions on coal-fired power generation to improve power generation stability. However, higher levels of post-winter coal stockpiles in these countries have mitigated underlying demand as many end users take a wait and see stance. Across the seaborne thermal coal market, there was a moderate decrease in supply during the first quarter compared to the same period last year. Supply from Australia was the same due to limited weather disruptions and minimal shipping queues. Indonesian exports were 5% lower due to uncertainty about export policy implementation and were also constrained by the expiry of temporary quota allowances. So far this year, there has been a mixed demand activity in seaborne thermal coal market. The 2 largest importers, China and India have reduced imports due to elevated stockpiles and domestic production. Reductions were 5% and 12%, respectively. Elsewhere, demand increased 3% in Japan, where coal is a balancing fuel source for power generation and the removal of restrictions on low-efficiency coal-fired power plants are planning to conserve LNG. Also, South Korea demand increased 25% as cost optimization in power sector favored coal-fired power stations. Looking at the metallurgical coal markets, they were broadly balanced through the quarter. One positive factor to note was an apparent shift in conditions to cost-based pricing rather than demand-driven pricing. This shift suggests supply has rebalanced to the point where the marginal cost of supply is setting spot prices. If that is the case, higher costs associated with diesel prices might be passed on to metallurgical coal customers. I will now hand over to Kevin Su, our Chief Financial Officer, to address the financial position. Ning Su: Thank you, Mark. For the past several quarters, we have talked about our strong financial position. The cash balance and access to debt allow us to continue Yancoal growth story with the cash flow acquisition. We ended the quarter with over $2 billion in the bank. As Mark mentioned, sales were lower this quarter due to factors such as the timing of the shipments, but the differential between production and sales always evens out over time. The cash flow will be caught up in the subsequent periods. In the cash flow announcement, we said between [ USD 650 million and USD 850 million ] of the upfront payment will be funded with cash. The final amount will be influenced by cash accumulation between now and completion late in the third quarter. [ Kevin ] explained how we are projecting higher operating costs than we were when we set our guidance, but Mark also alluded to the higher realized prices we are likely achieve in the near term. We will determine the optimal cash amount as the completion date approaches. One of the factors in the determination will be the outlook for the shareholders' distribution in the future periods. Speaking of distributions, just last week, we paid [ $0.12 ] per share fully franked final dividend for 2025. This took [ $161 ] million from our cash position. I'll now hand back to Brendan to coordinate the Q&A session. Brendan Fitzpatrick: Thanks, Kevin, Mark, David and Sharif for highlighting the drivers of our first quarter performance. We will now move on to the question-and-answer session, starting with questions from the phone, then moving on to questions submitted via the webcast. Desmond, could you please initiate the process for questions via the phone? Operator: [Operator Instructions] There are currently no questions on the phone. Please continue. Brendan Fitzpatrick: Thanks, Desmond. I'll come back to you shortly to check against the phone. In the meantime, let's take a look at the webcast questions coming through. Unsurprisingly, diesel is one of the topics at the top of the list. We did provide some comments through the earlier part of the webcast. But if we could look at some of the questions and address them once more, could we provide an update on the diesel shortage situation in Australia, whether we see any easing of the conditions and if coal production has been impacted as a result of diesel supply. I'll take that to mean both at a company level, but also at an industry-wide level, Sharif, could you provide an initial comment? Sharif Burra: Yes. Thanks, Brendan. At the moment, we have stability and security of supply at the very least until the end of May. We are working very closely with our suppliers. And whilst at this point in time, there is uncertainty, we are preparing the operations in the event we do get some constrained supply for our operations. We haven't adjusted our production guidance or target for 2026 at this point with the exception of the cost increases that we expect to start to see flowing through with the higher diesel price. We do have operational flexibility, and it's not an apples-for-apples across all the operations. Our underground mines use comparatively very low volumes of diesel, and we would anticipate to be materially less impacted than perhaps some of the open cut mines, albeit some of our open cut mines, we do have a higher proportion of electric powered equipment, draglines and road shovels, et cetera, that we will optimize. So at this point in time, we are looking at some options across particularly the larger open cut mines if the constrained supply does eventuate. But a direct supply constraint won't necessarily materialize as a direct impact on ROM production. And as you will note, we are prioritizing overburden removal in the front half of the year to allow us to free up the coal and production for the second half as well. So I might leave it there, Brendan. Brendan Fitzpatrick: Thanks, Sharif. It's a good and expansive answer. It covers a lot of the topics coming through -- sorry, a lot of the questions coming through on the topic of diesel. There is a question there that asks us to think ahead. And if the disruptions supply from the conflict in the Middle East was to last 50 or even 90 days, do we have a sense for what the potential diesel shortage might look like. And again, I'll ask that question both at a company level, but then more collectively at an industry level. Sharif Burra: Yes. Thanks, Brendan. I wouldn't anticipate that diesel would be turned off completely for 50 or 90 days or likely is a reduction in supply. Now that gives us the opportunity to optimize the diesel usage within our minds to optimize our portfolio in terms of output. And I would anticipate the industry would do this. This broadly would impact all mining operations throughout Australia and at different levels, given the makeup of the diesel usage for each of those operations and sites. At Yancoal, we understand this very well. We understand where we would prioritize our diesel usage to optimize our returns. But I don't, at this point in time, envisage a scenario where diesel is totally turned off. Brendan Fitzpatrick: Let's stay on that topic of diesel. With regards to our diesel supplies and having secured supplies until late May, are we able to provide any commentary about the nature of the longer-term contracts we have with refiners and suppliers or whether we have inventories on site or outside the mine site that we can draw upon? Sharif Burra: Yes. I won't go into the detailed contractual detail of our suppliers. We are -- our sites are under supply obligations. Our sites have been maintained at the requisite supply levels on site. We do carry those stocks on site, but we do rely on our suppliers to maintain those supply levels on site. I might leave it there. Brendan Fitzpatrick: Okay. Perhaps just to clarify on that -- in the context of supplies to our mines, do we see any differentiation between Yancoal and the supplies of diesel it receives relative to other industry participants in the domestic coal producing sector? Sharif Burra: I think materially, Yancoal is under long-term supply contracts. I would anticipate many of our peers to be of a similar nature, given that we are less exposed to the spot market for diesel, where some others may not be, but we're focused on Yancoal supply and security of supply. Brendan Fitzpatrick: Let's move off the topic of diesel for a moment and on to the coal markets. There's a question seeking clarification on how much thermal coal is sold at spot prices versus fixed-term contracts and how much of the increase in recent coal prices Yancoal has captured or will capture in its contract structures. Mark, could I turn to you for a comment on the contract structures and the price activity and what we're realizing now and going forward? Mark Salem: Yes. Thanks, Brendan. Happy to answer that question. Look, I suppose in line with the market shifts, we're seeing a lot more buying on index-based pricing. And even if it's a term contract, it can still be associated with an index-linked formula. So the old traditional fixed term contracts at a fixed price or at a negotiated price per quarter is changing to more of an index-linked price based on a period of time typically prior to shipment. If it's a term contract where we have multiple shipments, those shipments are typically priced ahead of the delivery period. So we have a known position still based on an index. And most of our business is contracted in that manner these days. And this is why we always talk about this lagged impact on index pricing to realize pricing aspect. Does that cover the question? Brendan Fitzpatrick: I think that's sufficient. Desmond, I'll turn it back to you. We'll check if there's any questions coming through on the phone line, please. Operator: [Operator Instructions] There are currently no questions on the phone. Please continue. Brendan Fitzpatrick: Okay. Back to the webcast questions, sticking with the topic of energy markets. The question coming through is, are we surprised by the relatively muted response from coal prices given the disruption to the global LNG market? And is it related to shoulder season demand weakness and running down of inventories. Mark, could I turn to you once again, please? Mark Salem: Sure. I suppose -- thanks, Brendan. In terms of being surprised, I think the answer is no. We realized that prior to March, most of our buyers had very high stocks. and we're well covered coming into this energy crisis caused by the Middle East conflict. As a result -- in addition to that, I should say, we're also going into the shoulder season, which the question also highlighted. So we weren't surprised that we've seen a dramatic increase in the paper prices to go up, but we've also seen a dramatic fall since the Strait has reopened. So we're assessing that. We're continually assessing. We are coming into the summer season. We hope that we'll see some more buying coming through. Brendan Fitzpatrick: Thanks, Mark. Let's move on to some questions in the financials. There's -- one of our participants has identified the relatively flat cash balance from end of December through to the end of March and seeking clarity on whether it is due to inventory build and normal seasonality, testing whether there's cost or CapEx components in the first quarter that were relevant to this outcome and any other factors that might be relevant to the circumstance. Kevin, could we turn to you, please? Ning Su: Sure. Thanks, Brendan. I think that's the right observation. The lower cash balance largely driven by lower shipment, which reflected by a higher inventory [ base ]. From a CapEx perspective, everything is pretty consistent with what we have been planning. Are there are some other potential reasons contributing to the lower cash balance such as some tax payment for timing difference. But at end of the day, is largely driven by the shipment, as I just mentioned. Brendan Fitzpatrick: And Kevin, as you indicated in the comments earlier, the shipments balance out over time. So the difference between production and sales in any one period will normalize over time. Ning Su: Yes, that's right. Yes. Brendan Fitzpatrick: Thanks, Kevin. On the topics of the financial setting, the question looking back to the acquisition of Kestrel, which we announced last week. And the question asking what is the outlook for dividends and dividend capacity going forward. Kevin, please? Ning Su: Yes. I think -- thanks, Brendan. I think that's quite a simple feedback to the investors. It's not in our company's intention to change our dividend policy. We will still pay dividend as what we've been planning as 50% free cash flow and 50% NPAT, whichever is higher at the general guidance. Brendan Fitzpatrick: Thanks, Kevin. Sharif Burra: Brendan, the other comment I'd make is the acquisition is expected to be immediately earnings per share and free cash flow accretive. Brendan Fitzpatrick: That's good observation. Thank you, Sharif. Just about through the end of the webcast questions. If anyone on the webcast has a question, please take the opportunity to type and submit as soon as you can. Desmond, I'll come back to you for a final check for questions on the phone. Operator: [Operator Instructions] There are no questions from the line. Please continue. Brendan Fitzpatrick: Okay. I see one final question on the webcast. It's returning to the topic of diesel. And then the second question has come through, I'll get to both of these. First one on the topic of diesel. With the diesel supply that we've been talking about, is there any capacity for Yancoal to consider alternative power, structures, renewable energies and the likes. Sharif given the nature of our operations, do we have any flexibility to adjust our diesel consumption and usage? Sharif Burra: I think this comes back to what David had mentioned previously, where we do have electrified equipment. So the underground operations, they're already electrified. We rely on electricity in the open cut mines, some of the mines have the electric shovels and the draglines and we would obviously see no impact on those that don't consume diesel. With regards to the heavy mobile as moving equipment, trucks and the like the transition to renewable energy on those is something at the moment that whilst the industry and we are certainly looking at is not readily available for deployment. So that would be something that couldn't be readily deployed immediately, i.e., battery electric truck technology, et cetera. That's still a little way down the track. Brendan Fitzpatrick: Now, we do have a few more questions coming through. Again, on the topic of diesel, can we comment on the influence on the potential for higher diesel prices to influence and affect our cash operating costs? Sharif Burra: Yes. I think what we would say is what we've said here is our forecast cash operating cost of $90 to $98 per tonne our guidance provided at the start of the year. Our initial forecast suggests that the higher prices could push 2026 cost towards the top end of that range. Brendan Fitzpatrick: Okay. And speaking of costs, there's a question coming through asking what realized price Yancoal would need to achieve to be cash breakeven for 2026. There are several components to this. I appreciate the cash operating costs, which we've guided to and then the subsequent elements, CapEx and the like. It's not typically something we've been specific on. But Kevin, is there some commentary we could provide that would provide context for this question? Ning Su: I think, Brendan, you made a very good summary already. It's a good indication from the guidance, we can look at operating cash cost. But at the same time, there's a big component need to be balanced, which is the CapEx. And I put these 2 together, largely going to decide what would be the cash breakeven. Yes, but at least not something we just openly disclose to the market. Brendan Fitzpatrick: Given currently, there's no debt, so there's no financing costs. We would make our tax payments typically on a monthly basis of pay-as-you-go. There'll be those components and the corporate overheads. So it would be dependent on all those elements being aggregated to reach an estimate for the breakeven price. There's a couple of questions on the acquisition. And Kevin, we momentarily -- a moment ago, we talked about the payout ratio and the dividend structure that the company has in place. If the acquisition does not affect the dividends, does that mean the payout ratio remains above or around 50%? Ning Su: Thanks Brendan. Our general guidance is about 50% of free cash and/or 50% NPAT, whichever is higher. In the case, the free cash flow is better than NPAT, which has happened in the past few years, you will notice the payout ratio could be above 50%, and we are not changing our plan. Brendan Fitzpatrick: Okay. Kevin, I'll stay with you. One of the questions coming through is regarding the cost of debt we're using to fund the acquisition. Is there anything we can say on the cost of debt that we have on that facility that we plan to put in place? Ning Su: Thanks, Brendan. I would love to share the cost but unfortunately, we are bound by the confidentiality agreement with the financiers. So we are not able to disclose precisely how much funding costs we are paying and will be paying. However, we just want to assure our investors, Yancoal is very proud about our funding history. We always have a very competitive facility with us. And then in the future, when we disclose our annual results, we normally disclose the average earning cost in our financial results. So that's a good place for any interested investors to have a look. Brendan Fitzpatrick: Thanks, Kevin. We've had several questions on these availability and production impacts at the operational level. But a different topic coming through now is the comment on shipping freight, fuel costs, what that could potentially mean for our customers and the delivery of seaborne coal to the international marketplace. Mark, do you have any thoughts you could provide on this topic? Mark Salem: Sure. Yes. Thanks, Brendan. Look, we have seen charter party rates appreciate in terms of reports due to the cost of fuel and bunkering. In the height of the crisis, we also saw some countries restrict bunkering and we saw a lot of vessel diversions from normal bunkering ports to other ports bunkering which ended up delaying some spending. But more recently, we've basically seen a return to normal bunkering and very minimal impact on the business. Vessels are reviving at their scheduled time of arrival, and we're not seeing any delays in natural physical arrivals. Brendan Fitzpatrick: Okay. So at this point in time, there's no suggestion that we could be looking at circumstances similar to 2022 with supply constraints, albeit at that point in time was largely weather related. But in terms of current market conditions and supply constraints that we might potentially encounter in the international trade? Mark Salem: Yes. No, the supply is still quite strong from a coal supply point of view. The LNG supply comes from a variety of different markets. And we haven't seen a very strong switch of the coal to -- from LNG to coal. And in terms of coal usage, we haven't seen that jump as expected due to the energy crisis. Brendan Fitzpatrick: But is it potentially still yet to play out in its entirety, given the time lag between supply and delivery in oil and gas markets and then the carryover to coal markets and then the regional impacts around the world? Mark Salem: Yes, we could still see that throughout the -- especially towards the end of Q2 coming into the summer burn period when demand picks up, we could see some impact from the crisis -- lagged impact from the crisis. Brendan Fitzpatrick: Thanks, Mark. Just one question has come back through again. It was on the topic of renewable energy and asking whether Yancoal considers renewable energy. I asked it previously in the context of operational supply, but is there a broader thought we need to contemplate in terms of general power usage and renewable energy consumption and energy mix across the company? Mark Jacobs: Look, I think -- Mark Jacobs here. We have looked at renewable energy opportunities in the past, and we considered solar in the past. The problem that we have is that all of our operations are 24-hour operations. And so we're still reliant on the grid. We are, however, very close to getting state government approval for our Stratford Pump hydro projects which will provide long duration storage of renewable energy into the grid. So that is one opportunity that we're continuing to investigate. Brendan Fitzpatrick: Thank you, Mark, and thanks to everyone on the call. I've addressed all the questions coming through on the webcast. Sharif, could I please hand across to you to provide the closing remarks. Sharif Burra: Thanks, Brendan. This is the fourth time we've engaged with the market since the start of 2026. In January, following the fourth quarter report, we highlighted the production records delivered in 2025, thanks to our world-class assets run by some of the most capable people in the industry. With all that is happening in global energy markets and our acquisition of Kestrel, it's important to remember our large-scale, low-cost thermal coal mines are the foundation of our business. We delivered a great production performance last year and hope to improve upon it this year. In February, following the 2025 results, we talked about continuing to reward our shareholders with fully franked dividends. We also highlighted the strong net cash position and continued access to debt markets that provided considerable financial flexibility. Then just last week, we were in a position to tell you how we'd utilize that financial flexibility by acquiring Kestrel Coal Mine. We strongly believe Kestrel is a high quality and attractive acquisition that will deliver on Yancoal's value-adding growth aspirations and positions the business to deliver strong performance and shareholder returns in the future. We see this acquisition as another great step forward for the business. Through all these discussions, I see a common theme, we deliver on what we say we will do. This starts with operating our mines safely and efficiently to deliver great operational performances. We reward our shareholders with dividends while being disciplined with our capital management allocations. Then when the right opportunity was available, we acted decisively to continue growing the business with a great asset that will enhance our portfolio. Thank you once again for joining us. I hope you have a great day. Brendan Fitzpatrick: Thank you, Sharif. Desmond, could you please conclude the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Sophie Arnius: A warm welcome to this call where we will focus on SKF performance in Q1 2026. And we had a strong start of the year in terms of margin successful and navigating in volatile market conditions. I am Sophie Arnius, heading up Investor Relations. And today, I'm joined by our CEO, Rickard Gustafson; and our CFO, Susanne Larsson. After the presentation, there was an opportunity to ask questions. And there are ways to do that. [Operator Instructions] So without further ado. It's a great pleasure to hand over to you, Rickard, please. Rickard Gustafson: A warm welcome to all of you for joining us at this quarterly report. During the quarter, we continued to execute on our strategic priorities to strengthen our position in high-value industrial segments and advancing the separation of our automotive business, and in the quarter, we do deliver a strong performance despite volatile market conditions. As you can see from the right-hand side of this chart, organic growth came in at 2.4%, in line with our guidance, driven by solid organic growth in Specialized Industrial Solutions and Bearing solutions that more than offset continued weakness in automotive demand. The adjusted operating margin is holding up well at 13.5% despite a significant headwind from FX or currency. And the main drivers behind this strong margin are fourfold. Firstly, we have a better and improved margin in our Specialized Industrial Solutions segment. Secondly, we have a strong mix in the quarter, primarily driven by the fact that the industrial business segments are growing faster than our automotive business segment. Thirdly, we have been successful in our rightsizing activities and actually coming in somewhat stronger than we anticipated in the beginning of the quarter, equating to some SEK 300 million of savings in the quarter, which means a slight positive net after incurred dissynergies. And fourthly, we have an increased production volume as we continue to build safety stock for ahead of the plan as the transfer for the automotive separation. Cash flow is weak in the quarter, negative SEK 0.4 billion, as you can see also on the chart. And there are 4 drivers behind this. And Susanne will shortly take you through that in more detail, but the key highlights are, that we build those safety stocks that I mentioned before that is contributing to our margin. We are taking restructuring charges for the rightsizing program that we're on. We have a somewhat higher accounts receivable due to that sales were somewhat stronger at the end of the quarter. And there are also some unfortunate timing effects in AP accounts payable in the quarter. On our continued strategic priorities, we do see that our efforts to create a more separated and focused automotive business is starting to yield benefits, and we see that is laying a foundation for strong profitable growth, that we'll touch upon later in this presentation. And in this quarter, we also, for the first time, report our business with -- in different segments. And I will also take you through that just to remind you. And in this -- during this year, we're going to spend some time at every quarter to share some more lights on the different business units that make up our segments specialized industrial solutions to educate you and share some more insights on what we do in those areas. And first out this quarter will be lubrication. But starting with the segment. And I'm sure that you've already studied this, but just to remind everyone, so we're all on the same page. Going forward, we're going to report our Industrial business in 2 main segments: the Bearing Solutions and Specialized Industrial Solutions. And in this Specialized Industrial Solutions, we have 4 business units: automotive, magnetics, seals and lubrication. We also have a small other segment in Industrial, where we host our head office or lean corporate center, as we call it internally, and that cost was primarily distributed to the different segments. Now it's wholly clear and here, we'll also find trading between industrial and automotive as we move forward. And then, of course, as long as we have automotive as part of our company, they will be in their own segment. And here, they have their fully loaded cost and their own headquarter costs. So this will, to the extent possible, mirror what automotive will look like also after we have completed the separation. If we then move on and start to focus on the quarter and starting by organic growth by geographical region. And my comments on this page will cover all 3 segments of our business. Starting with our largest region, EMEA, where we have a negative organic growth of 1%, where we do see solid organic growth in Specialized Industrial Solutions in all 4 business units, but especially strong in aerospace and magnetics. For automotive, demand remains somewhat weak and especially when it comes to light vehicles. When it comes to Bearing Solutions, we still wait for the market to turn where we have seen a rather weak development or somewhat weaker should rather say, development in distribution and services in the quarter. While there are some specific and encouraging green shoots as well especially someone like I like to highlight, would be agriculture and high-speed machinery. Turning to Americas, where we have a solid growth of 4%, to a large extent, driven by price/mix activities in that particular market. But also here, we see some industrial verticals that really stand out. Aero being one, agriculture being another and also here, high-speed machinery to some extent, driven by the fast growth in the data center development in that particular region. It's also encouraging to note that we have strong growth in our automotive aftermarket in this particular region. China, Northeast Asia, very stable growth at 4.5% with a solid organic growth in both Bearing Solutions and Specialized Industrial Solutions. We do see a strong demand in aftermarket and rail on the industrial side to some extent driven by easy comparisons versus the same quarter last year. And for automotive, it's actually opposite, where we do report a negative organic growth in the quarter due to tough comparisons, especially for light vehicles in this particular region. India and Southeast Asia remains very strong across all 3 business segments and some industries to really highlight here of significant growth will be heavy industries, again, agriculture and also light vehicles. If we then move and take a look at our segments and starting with our largest segment, Bearing Solutions, as you can see on the chart on the top right, representing more than 50% of our net sales and more than 75% of our adjusted operating profit. Organic growth came in at 2.4% for the segment as a whole. But demand is largely similar as we saw in Q4. We do see an improved demand in Asia that is offset by very low or weak demand in EMEA where we see that, especially on the distribution side and tailored towards rail is rather low. And here, we also see an impact from the Middle East crisis that also shine through in this particular region. The adjusted operating margin is 19.3%, which is very stable despite significant headwind from FX. And the main drivers here for the strong margin is a good development when it comes to price and mix. Here, we have the benefit, as I mentioned before, from the rightsizing activities that provide a somewhat net positive impact after the synergies. We do have a positive bridge effect from the world-class manufacturing program that we concluded at the end of last year. And here, we also see some benefits from the fixed cost absorption due to higher production volume as we build safety stock ahead of planned asset transfers. Moving to Specialized Industrial Solutions, representing some 20% of sales and roughly 20% of our adjusted operating profit. Very strong organic growth, almost 9% in the quarter, strong price/mix execution across all 4 business units. And as I mentioned before, especially strong momentum in the segments of business units, Aerospace and Magnetic Solutions. The adjusted operating margin is improving to 13.3% despite tough headwind from currency. And the main drivers behind the strong margin development is for both-- but listen, I'd like to highlight two things. Firstly, it is a positive mix impact, where our air and magnetic businesses are growing faster than our lubrication and seals businesses. And then also that for all business units, as I mentioned before, we have strong progress or some growth in aftermarket in all segments. The other area I'd like to draw your attention to is that we have a better product mix, both in lubrication and seals. And for lubrication, we have seen good growth in something that we call automated lubrication systems, which is an important piece of the lubrication story, which I will come back to shortly and provide some more lights on. And then turning to automotive. In this quarter, representing some 26% of sales and 10% of our adjusted operating profit. Again, market conditions remain challenging. And you see we have a negative organic decline of some 2%, where we see negative growth in EMEA driven by light vehicles and commercial vehicles. We have flat growth in Americas, where negative growth in light vehicles is offset by a strong development in aftermarket that I mentioned briefly before. In China, Northeast Asia, we are a negative growth territory, driven by tough comparison on the light vehicle area. And for India, Southeast Asia, we have strong growth driven significantly by light vehicles and also aftermarket. The margin is robust around 5% in the quarter. And the main drivers behind this performance is again mix, where a strong aftermarket development that I mentioned a couple of times. We also see that our automotive business becoming more separated, drives efficiencies in the operational setup that is also yielding benefits. And another area is also that we have been very effective when it comes to purchasing and procurement activities to reduce cost. On the negative side, we do have some reduced fixed cost absorption by lower volumes and of course, as you can see on the chart, also a significant headwind from currency. So with that, I would like to hand over to Susanne, who will take you through the numbers in more detail. No, I will not. Sorry, my mistake. Clearly, I promise you some deep dives. So let me do those first. Let's start by providing some more clarity on our lubrication business. And as you can see on the left-hand side, our lubrication business is roughly represents some SEK 5 billion of sales. And seeing in the pie chart, the vast majority of those SEK 5 billion comes from something we call automated lubrication systems. And if we double click on that, and focus on the right-hand side on this chart, you will see that our automated lubrication system, they do cover 3 distinct value chains for OEM Solutions, Engineered Solutions and Aftermarket and services. And the value that our automated systems bring to the customers are rather significant because they provide more reliable and sustainable performance, securing the correct lubricant to the right areas in the right time and at the right amount. This drives cost reduction and clearly, a reduction of total cost of ownership and increased efficiency for our customers. And by building a strong relationship with these customers, that also yields good cross-sell opportunities for us when it comes to Bearing Solutions and sealing solutions. But we also said that we need to lift the adjusted operating margin in this particular business. And there are 3 pillars to our transformation that we have embarked on to further strengthen our lubrication business. Firstly, we want to convert more of our manual solutions to automated lubrication solutions and services. Secondly, we need to build strong streamlined products and value chains to really cater for these unique offerings for OEMs, engineered solutions and aftermarket and service. And thirdly, we still need to do some optimization with footprint to drive further cost efficiency and also drive regionalization primarily in the Asia Pacific region, as you can see on this chart. Turning to automotive. As you may recall, when we presented automotive at the Capital Markets Day, we provided the road map for the future that consisted of 2 strategic pillars and 5 strategic levers. And this is the page that we used back then. I do not intend to take it through all the 5 levers today, but I would like to provide some more color on 2 of them. The first one relating to how we win in leading segment and the third one, how we address the expandable or how we expand the addressable market. And by being a more separated, dedicated automotive business, we already now start to see that we are tied to our customers. We are faster in our response times, and we are more focused and more efficient, and that is yielding benefits. We continue to win in leading segments. And as you can see, we have increased our hit ratio when it comes to winning OE RFQs significantly compared to the situation before we announced the separation. But it was even further or even more good news is that it's not just to be increase the hit ratio significantly, but the value of those contracts that I will have also increased significantly, that builds a great platform for future growth opportunities. On the addressable market, we have been very systematic and focused in driving new distribution channels and broaden our product portfolio. And due to this work, we have signed several new distribution agreements across North America and Europe that are expected to yield some SEK 1 billion of sales over the coming 4 years. Again, another piece of building a strong platform for future growth opportunities. And now it's time to actually hand over to Susanne to take us through the numbers in more detail. Susanne Larsson: Thank you, Rickard, and good morning, good afternoon, everyone. Happy to do so. Starting off with an overview. Net sales was down 8.7% in the quarter, and this was mainly driven by the currency headwind of 9.9% negative. The gross margin ended at 29.3%, and that was down 0.5 percentage point compared to last year. In the quarter, we delivered a strong adjusted operating margin of 13.5%, which was flat year-over-year, and I will come back to that even more on the following page. The one-off items affecting comparabilities in the quarter amounted to a negative SEK 308 million, where the automotive separation costs represented a negative SEK 464 million, the optimization of the industrial footprint, a negative SEK 81 million. And then we had impairments of fixed assets and some other one-offs of minus SEK 178 million. Finally, we also recorded a capital gain from the divestment of Elgin that we reported on in the early part of quarter 1, and that amounted to [ SEK 450 million ] million. In absolute amount, the adjusted and non-adjusted operating profit, together with the net profit was lower than last year, much explained by adverse currency effects. Altogether, we ended at an earning EPS of SEK 3.6 and an adjusted EPS would have been [ SEK 4.25 ]. If we move on to the bridge analysis then. So as I said, adjusted operating margin was flat year-over-year despite strong currency headwinds, tariffs and negative synergies from our ongoing separation, and this is certainly a proof point of our strong underlying performance. From an organic growth of 2.4%, we delivered a contribution to the result of 2.1 percentage points. We had growth in both sales and manufacturing volumes together with a very solid price mix actions, particularly in the specialized industrial solutions. This explains the positive drop-through together with production volumes exceeding sales, driven by stock buildup ahead of the channel transfer related to the automotive separation. On the cost side, as we talked about in the quarter 4 earnings, we have negative synergies from the automotive separation that were included as reported in quarter 1 as automotive now operates independently with their own dedicated IT management and administrative structures. However, the strong momentum in the rightsizing program delivered higher-than-expected savings in the quarter, compensating for this effect. The rightsizing savings in the quarter amounted to SEK 300 million and we expect the run rate of the savings to be fairly linear from the SEK 1.2 billion we had in quarter 1 to the SEK 2 billion we aim for in the end of quarter 4 2027. For the full year 2026, we expect these savings to continue to be somewhat higher than the negative dissynergy effect. Further on the cost side, material costs declined in quarter 1, primarily driven by automotive and in line with what we have reported also recent quarters. We continue to largely compensate for tariff costs also in [ quarter 1 and we expect to continue to do that also in the quarter 2. So net-net, with all this said, cost ended largely flat at minus [ SEK 17 million ]. With respect to the currency, we had a significant headwind that continued in quarter 1, explained much by the weaker dollar and sale year-over-year. FX impacted the adjusted operating margin for the group of 2.1 percentage points. Finally, in the structure here, it's represented by the net divestment of Hanover that we reported in quarter 2 last year and the second aerospace divestment in Elgin that we now closed in the first quarter of this year. Moving on, cash flow. Let me report on that. We recorded a weak operating cash flow in the quarter of a negative SEK 446 million. mainly driven by some SEK 700 million of payments related to IACs and the working capital build up. Our operating profit landed at SEK 2.6 billion, which was some SEK 240 million lower than quarter 1 last year, partly explained by adverse currency effects. Depreciation, amortization and impairment was about SEK 300 million lower than last year and was SEK 960 million. It's lower than last year because last year included impairment charges that we took. Noncash items and others amounted to a negative minus SEK 1.175 million compared to SEK 735 million negative of last year. This increase is partly explained by the severance payout of earlier announced rightsizing that are more -- that are sizable this quarter. Taxes that was paid ended at SEK 580 million slightly less than last year and also slightly lower than quarter 4. Then we have a high net working capital buildup of SEK 2.3 billion compared to SEK 1.8 billion last year. This is explained by the separation-related buildup of stock, accounts receivable that increased due to strong sales in the end of the quarter, and that we had negative development of accounts payable, mainly explained by poor timing effects. Our capital expenditure in the quarter amounted to a negative SEK 772 million which offset the cash inflow of a net SEK 800 million related to the sale of Elgin and sales of a property. Moving on to the balance sheet and the return on capital [ employed. ] We had a net debt, excluding post-employment benefits that increased by some SEK 600 million in quarter 1 compared to year-end due to the negative cash flow. Still we remain on low levels. Net debt in relation to equity excluding pensions, ended at 10.7% compared to 10.2% at year-end. Net debt in relation to adjusted EBITDA remained on the same level as year-end, namely 0.8x. The adjusted return on capital employed remained stable in the quarter 1 at 14.4% compared to 14.3% level at year-end. Finally, later today, we will have our Annual General Meeting to which the Board has proposed a dividend of SEK 7.75 per share to be paid in 2 installments, 1 now in April and another 1 in October. This takes us to my last slide around outlook and guidance. So the outlook for the quarter, as you have heard us talking about, we expect the market demand in the quarter 2 to remain at similar levels as and thus expect organic growth to be relatively unchanged, given more unfavorable comparisons year-over-year. Then of course, the conflict in Middle East amplifies uncertainty to this outlook. The FX guidance for quarter 2. So due to sequentially more favorable FX rates, currency guidance for quarter 2 is estimated to minus SEK 100 million year-over-year based on the rates we had by the end of March. The guidance for the full year remains the same as we announced in quarter 4 and that means that we have a tax excluding impact from divestments on the automotive separation to be estimated around 28%. We remain with capital expenditure outlook for the full year of some SEK 5 billion and the one-off costs related to automotive separation and our footprint optimization is expected to be in the range of negative SEK 2.5 billion to SEK 3 billion this year, which is completely in line with the SEK 6.5 billion guidance we talked about at our Capital Market Day in November. The capital gain from Elgin that we reported now in the first quarter is not included in this estimate. By that, I hand over to you, Rickard. Rickard Gustafson: Thank very much, Susanne. And let me just briefly wrap this up before we hand over to the Q&A session. We do see a strong execution in the quarter, and we are pleased that our rightsizing activities are continued at a high pace and in the quarter coming in somewhat better than we anticipated at SEK 300 million as you heard us say, providing a slight positive net after taking off the incurred dissynergies as well. And for the full year, we do believe that our rightsizing will somewhat be activities will somewhat provide a positive net also for the full year. We do see a strong margin despite significant headwinds, especially from FX, driven by good price and mix actions but also a disciplined cost management and we are pleased to see that we have improved our profitability or margin in our Specialized Industrial Solutions segment in the quarter. We do report our news -- first time, we now report our new structure, which is another proof point and step that we are advancing our separation activities for our automotive business. And we stand firm, we do plan to finalize these in Q4, as we mentioned in the previous quarter, Q4 this year, as we mentioned in the previous quarter. We are creating 2 strong independent businesses, 1 fully dedicated and fully focused industrial business and 1 fully focused automotive business that will unlock the full potential for both businesses as we move forward. And we are pleased that we are continuing while doing all this change that we continue to progress on our strategic initiatives and that will strengthen our position in high-value industrial segments to build a strong platform for future profitable growth. So with that, I'd like to hand back to Sophie to help us get through the Q&A session. Sophie Arnius: Thank you, Rickard. So now it's time for opening up for questions. And I know that there are many of you that want to ask questions. So please limit it to one question per person. And if time allows, of course, you are very much welcome to so to say rejoin the Q&A queue again. And hopefully, we can also have time to answer your follow-up question. [Operator Instructions] We will start with a question from our telephone line, and it comes from Alex Jones at Bank of America. Alexander Jones: Great. If I could ask about tariffs, please. Obviously, there have been changes recently to Section 232 on steel and aluminum. Could you talk a little bit the impact on your business given the higher rates and the lack of USMCA exemptions and sort of what actions you're taking in terms of pricing, cost actions, et cetera, to mitigate that? And is that something that already impact Q2 and as part of your outlook that you can continue to largely offset those tariff impacts, or given your inventories, will that be something we see more effects from into Q3 and H2. And if it's the latter are you confident in still offsetting tariffs under this new Section 232 regime? Sophie Arnius: Rickard, do you want to share some light on this one? Rickard Gustafson: Happy to. Since this tariff situation started a year ago, we have been able through active price and mix actions being able to offset and mitigate the vast majority of the impact from these tariffs and what we know right now, we're going to continue to do so also in Q2 and as we move forward. And your specific question on 232 is actually less impacting us because previously, we had some taxes on 50% of the value of our bearings. Now it's significant. Now it's 100% of the bearing, but bearings are fall in the category of 25% tax. So basically, it's a wash for us. So it will not have -- we don't see that that's going to have a significant implication. And therefore, our price mechanisms, both in terms of price increases and surcharges should be able to continue to offset the cost for tariffs also at the levels that are now being predicted through the change in 232. Sophie Arnius: We will continue with a question from our webcast audience, and it comes from John Kim at Deutsche Bank. And the question is, if we can help him with some color on price mix and volumes in Bearing Solutions and Specialized Industrial Solutions. And if we see the Q1 margin improvement year-over-year in Specialized Industrial Solutions, as indicative of the year or more time and place. Rickard, do you want to take this one? Rickard Gustafson: Yes. I think the margin improvement that we've seen in the quarter, as I described, came from particular activities or 2 drivers, one being mix and other being a good kind of product development or product portfolio development. We don't guide by segment for the -- with the margins. I can't really say so much more than that, but we do not -- we do believe that our specialized industrial solutions business will follow the same kind of seasonality as our Bearing Business. Sophie Arnius: Yes. So that means Rickard that, as you said, Q1 is typically the strongest quarter. And we can also say that as we talked about at the Capital Markets Day we target or aim for a margin in the ballpark of where we have the bearing solutions margin midterm. So it's an important driver for us to deliver on the plus 17% adjusted operating margin target for the SKF post automotive separation midterm. So with that, let's continue with a question from our telephone line, and it comes from Rory Smith at Oxcap. Rory Smith: It's Rory from Oxcap. I actually just wanted to come back to that point on volume versus price mix in Bearing Solutions in the quarter. If you could put a number on either a percentage point of the growth or an absolute number on how much of that was volume and how much of that volume was over production on the sort of building inventories ready for the spin. And has that stopped as of Q2? Any sort of numbers around that particular point would be really helpful. Susanne Larsson: So we have somewhat of an overproduction, which is helping us on the organic development. So that really means that we have built some additional stock, which doesn't really sit in the sales yet. It sits in the production results. So when it comes to price mix, I think it is really explained by a strong a strong portfolio, both pruning and mix with a good aftermarket business in the SIS sector particularly, and also good price management particularly in Industrial Americas, partly caused by the tariff situation. Sophie Arnius: And if I may here, just add on that overproduction it's around SEK 100 million than for the group impacting earnings positively, and it's in the organic bucket, as Susanne said. And it has to do with us producing more in Bearing Solutions ahead of the planned separation here. Rickard Gustafson: It's in line with our plan to separate automotive. Sophie Arnius: Thank you, Rory. We will continue with a question from Sinha at JPMorgan. Chitrita Sinha: My question is just on the savings versus the dissynergies that you saw first in the quarter and then I guess what you're saying on for the full year. So for Q1, I think the savings delivered was maybe perhaps faster or stronger than maybe we had. So is that the positive impact in the quarter? Was that just more of the savings delivered rather than dissynergies perhaps being lower than first anticipated? And then just on the full year comment, does this mean that for each quarter, the savings will be able to compensate for the negative dissynergies? Or is it just that Q1 was more net positive? And as we go into the year, the bridge benefit into Q3, Q4 of the savings will be lower, and therefore, dissynergies will be higher? Sophie Arnius: Please share some light on this one. Rickard Gustafson: Sure. No, your comment was correct that we do see experience that we had somewhat higher savings from our rightsizing program in the quarter than we maybe anticipated walking into the quarter. The dissynergies have not changed or are in line with our expectation. And even though we don't quantify them, we do provide an indication that with SEK 300 million of savings, that indicates a slight net positive contribution after dis-synergies. And as we move forward, we do believe that the dissynergies will roughly be at the level that we've seen in Q1 throughout the rest of the year quarter-by-quarter. And when we get talking about the savings for the full year, as I mentioned, we do believe that savings will be slightly net positive over our dissynergies, but in the second half, we're also going to meet the pay where we started to yield some benefits already in Q4 from the rightsizing. Sophie Arnius: And we will continue with a question from Daniela Costa at Goldman Sachs. Daniela Costa: I also just wanted to ask a clarification on the question regarding overproduction, whether that's going to continue Q into and after or not. But my main question was regarding now that you've mentioned you have this new higher -- more contracts in automotive than you expected when you preannounced before the announcement of the spin. Does that change any way how you think about the contract manufacturing timing and the impact that can have in industrial? Sophie Arnius: Rickard, will you talk about the overproduction and the contract manufacturing here? Rickard Gustafson: Yes. We do believe that there might be some overproduction, building some additional safety stock also in Q2 as we move forward with the planned separation and the planned asset transfer. So there might be some also in Q2 that you should expect. And when it comes to the speed of the asset transfers, the solid progress in winning new contracts and also in the winning the RFQs that I mentioned and the improved value of those contracts is, of course, positive. That doesn't really change our ambition in terms of speed of moving assets. and thereby faster reducing the contract manufacturing. We're already trying to do that with the highest possible speed that is doable. And we have put up a very, very aggressive scheme for ourselves on how to move all of these assets around at the shortest time possible. Sophie Arnius: Thank you, Rickard. And it's -- we also got questions on the same topic here from William Mackie at Kepler Cheuvreux. So Will, I hope you also got your question answered here. So let's continue with another question from the telephone line. And this time, it's from Klas Bergelind at Citi. Klas Bergelind: I just want to come back on the rightsizing that came in better than expectations. So I just want to look at the full year. You say that this can be somewhat positive versus somewhat negative before, i.e. the difference between rightsizing and the synergies. What delta is that in your view? Was somewhat negative before, perhaps SEK 200 million? And when I do the sort of linear savings against the synergies now, I get to that to the sort of SEK 50 million to SEK 100 million plus. I just want to understand the delta a little bit better between the negative to the somewhat positive. I don't know if you can help me with that. Susanne Larsson: But you're right. We have a good momentum in the rightsizing, and we even came in a little bit stronger than what we anticipated in quarter 4, and that good pace continues now with having realized savings of SEK 300 million, which is then somewhat positive instead of more than kind of the opposite somewhat negative that we guided on. We believe that we will have a fairly linear development still. But I think the assumption that we're providing to have a net that is in the range of some SEK 100 million would be appropriate for the year of positive rightsizing compared to the synergy part. Klas Bergelind: Perfect. Very quick one for you, Rickard. I just want to come back to Section 232. It's now 25% of total value of the bearings versus 50% on steel and aluminum copper content before. I get a higher tariff impact for you from April 6, no drama, but still a bit higher. So, sorry, Rickard, can you explain more why this is a wash for you? I didn't fully get that. Rickard Gustafson: No, you're right. Previously, or the current scheme, we do pay roughly, if I kind of paint with a broader brush, 50% tariffs on 50% of the product value. Now we're going to pay kind of 25% on 100% of the product value. So that's why I said it's going to be a wash. Sophie Arnius: Very good. And we will continue with a question from Andreas Koski at BNP Paribas. Andreas Koski: So my understanding is that you started to see stronger sales in March compared to the previous 2 months of the first quarter. So I just wonder why are you not being more positive in your outlook for the second quarter? Why are you not expecting that higher sales level that you saw in March continue to accelerate into the second quarter? Sophie Arnius: Rickard, would like to answer this one, I see. Rickard Gustafson: Right. Normally, in the first quarter, we do see that the March is somewhat stronger than January and February. But what we said is that we saw that it was unusually stronger this quarter than what we've seen in the past. So that has an impact also on AR, as we mentioned. Now when we look into the trading activities and also what we see in April, we do see that it follow normal seasonality, and we cannot really point to a significant uptick in activities. And therefore, our best estimate is that the activity levels will be roughly the same in Q2 as it was in Q1. And therefore, the comparison will indicate that we will see a somewhat positive growth. Andreas Koski: Can I just follow up? So you are not expecting weaker demand in the, say, in the coming months and in April because of the situation in the Middle East that could potentially come on top of your outlook? Rickard Gustafson: What we see right now that the Middle East situation is included in our outlook. Just to state -- kind of put this in context, Middle East for us equates to roughly 1% of group sales. So it's not massive. And it has been having an impact, as I mentioned, especially in Bearing Solutions for EMEA during Q1, and that is probably the case also in Q2. And let's hope that this war ends soon. But given what we see right now and the best estimate we can give is what we now have actually is the outlook that we provided. Sophie Arnius: Thank you, Andreas. And we will continue with a question here from the webcast audience, and it comes from Olof Larshammar at Danske Bank. And it goes like this. I've heard that some of your competitors have recently announced list price increases in distribution to compensate for recent increases in energy and steel cost post war in Iran. Have SKF announced similar increases? Or is that to come? Susanne, please? Susanne Larsson: So generally, I think over -- ever since the Liberation Day with a sizable tariff that we have been facing, we have been successful in passing through the majority of that with price increases or surcharges. Now when we are facing the Middle East crisis, we are taking similar actions as soon as possible. And that means that we are out in the market adjusting our price list during this quarter already and anticipate to have somewhat an effect on that already in quarter 2. Sophie Arnius: Thank you. And let's go back to the telephone line. And we have a question here from Tim Lee at Barclays. Timothy Lee: So, another question has probably asked, we just want to follow up a little bit on the margin. I think there's also one aspect that you mentioned will be on the pre-buy impact in vehicle after market segments. And how was the impact in the quarter, and whether it will be similar, like, repeating this in the coming quarter? And what's the reason for that pre-buy? Sophie Arnius: Tim, let me clarify a little bit about that prebuy impact. So for group, it was marginal in terms of group margin and say it was 40 bps on automotive margin. Let's continue with a question here from our webcast audience. And also, I believe that also answer your questions that you sent in here. So otherwise, please come back to us. We have a question from William Mackie again at Kepler Cheuvreux. It's on net working capital here. Net working capital as a percentage of rolling sales surged to 34.6% from 30.4% at year-end, adding approximately SEK 1.8 billion to SEK 2 billion of incremental cash absorption relative to the prior normal range. What is the expected net working capital to sales ratio at year-end '26 on management's base case? And what point do separation -- and at what point do separation-driven safety stocks normalize? So this is really a CFO question. Susanne, please? Susanne Larsson: Yes. So we ended last year at around 32%. And as you rightly say, we have increased up to 34% of sales this quarter, partly explained by buildup of stock to cater for the planned channel transfers. We anticipate some overproduction and hence, having certain stock implications also in the next quarter. And we believe that will normalize during the end of this year. So that's what we see. This means that what we talked about as normalized at the Capital Markets Day of some 29% of sales until long term coming down to 27% will not realize this year. So this year is more of a year where we will be in line with what we had last year full year value. And we will face some negative implications until the separation really. Sophie Arnius: Thank you. And let's continue with a question from the telephone line, and it comes from John Kim at Deutsche Bank. John-B Kim: I was wondering if we could talk a little bit about the separation. I think it's still scheduled for November 20 -- this year. Can you talk about signposts when we should expect different kind of processes and documents? Sophie Arnius: Rickard, do you want to share some light? Rickard Gustafson: I will. And we do plan and we are committed to finalize this process during Q4 this year. So we reconfirm that. That means that you should expect to hear more to get information brochure and prospectus will come during this fall. So after summer, you should expect to start to see more communication in terms of information brochure then followed by a extra Annual General Meeting or an EGM. And then, of course, the automotive team will be out there with their own Capital Markets Day communication also during fall this year. Sophie Arnius: So basically, more information will follow here second half. Thank you, John. Let's continue with a question from Chit Sinha at JPMorgan. Chitrita Sinha: Can you just provide more color on the decision to consolidate the Americas facility? If I'm correct, you were adding capacity to Monterrey early last year? And then was this expected when you issued the 2026 guide? Rickard Gustafson: Well the consolidation in Americas and the closure of the Monterrey factory and moving that into 2 other factories in the Mexico region was part of the plan for our separation. It was included in the framework we gave at the Capital Markets Day for the cost of the footprint consolidation and the items affecting comparability that we need to take in midterm over the next few years to come. So that has always been the plan. When the investment decision was taken a couple of years ago to build this capability or this factory was based on a very different outlook when it comes to how the Americas electrification of the light vehicle fleet and the speed of that, that has really been a very, very significant change in those forecasts since then. And hence, this factory is actually oversized, and we will be much better off by consolidating our industrial footprint in one part of Mexico and our automotive footprint in another part of Mexico. And as I said, this was part of the guidance that we gave at the Capital Markets Day. Sophie Arnius: Thank you, Rickard. We will continue with a question from the webcast. Here is from Rory Smith at Oxcap, and it's on Middle East. So have we seen anything at all in our supply chains? And Rory is thinking specifically about lubricants, but any comment is appreciated. Rickard, I hand it to you. Rickard Gustafson: Again, just to put this in context, our total net sales in the region equates to roughly 1% of our sales. So the direct impact from that point of view is not massive for us. Clearly, the increases in fuel prices has an impact. And as you heard Susanne mentioned, we are already taking actions in order to compensate ourselves for increased fuel costs. But to your specific question, have we seen any disturbances in our supply chains? We can't really point to anything of any significance so far. And that has not been the case for us. And furthermore, I do believe that the -- maybe the biggest concern that we have regarding how long this conflict will last is what this will do to global demand. And that question, I think we all can speculate and we only will know once we see the war come to an end. Sophie Arnius: Thank you. And it's now time for the final question here, and it comes from Andreas Koski at BNP Paribas. Andreas Koski: It's a housekeeping question for Susanne, because when I look at your outlook, you're guiding for a tax level of 28%, but that's excluding effects related to divested businesses and the separation of the automotive business. So I wonder if there will be any significant tax implications because of the auto spin. And then secondly, you're also guiding for a CapEx level of SEK 5 billion, and that is excluding CapEx related to the separation of the auto business. So also there, will the separation of the auto business lead to a lot of extra CapEx in 2026 that we should take into account? Susanne Larsson: So coming -- first, taking the 28% tax guidance then. And yes, we are -- as part of the separation country by country, we are facing some legislative implications on tax. And that actually will happen also as we finalize the separation country by country. So we had that in last year's result to some extent, and we envisage that to happen also in this. And that's why we guide on the underlying 28% being the kind of guidance for 2026. Then you had the question, let's see what that was. What was that? Sophie Arnius: We're guiding on CapEx for the full year now of around SEK 5 billion, and it's total CapEx for the group, so including automotive separation. Just to clarify that. Thank you, Andreas. And I hand over -- and that concludes the Q&A session for this time, and I hand over to you, Rickard. Rickard Gustafson: Thank you, Sophie. And thanks to all of you in the audience for joining us on this call and for your insightful questions. I believe that we do deliver a strong report in Q1 this year. We are pleased with a couple of things, especially pleased with a couple of things in this quarter. The fact that we are seeing an improved margin in our Specialized Industrial Solutions is very strong and positive. The fact that we are delivering ahead of our own plans when it comes to the rightsizing activities yielding a slight positive net after the synergies. It's also something I think is strong. And also in general, that our automotive business is demonstrating that they can and will build an even stronger platform for future growth as they now become more independent and that also made them deliver a stable margin despite rather tough headwinds from FX. It's also a good sign. And we are determined to conclude our separation by Q4 this year, as I mentioned. And we are excited about the future of the industrial business, building even stronger foothold and presence in key industrial verticals where we can really add significant value and drive further profitable growth. So with that, I thank you so much for your attention, and I wish you a great week ahead.
Operator: Good day, and thank you for standing by. Welcome to the Lynas Quarterly Results Briefing [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lynas. Please go ahead. Jennifer Parker: Good morning, and welcome to the Lynas Rare Earths Investor Briefing for the quarter ending 31 March 2026. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. Joining Amanda on the call today are Gaudenz Sturzenegger, CFO; Pol Le Roux, COO; Daniel Havas, VP Strategy and Investor Relations; Chris Jenney, VP, Sales and Market Development; and Sarah Leonard, General Counsel and Company Secretary. To Amanda to commence the briefing. Please go ahead, Amanda. Amanda Lacaze: Thank you, Jen, and thank you, everyone, for joining us again this morning. Jen tells me that we've had people registered to ask questions about a quarter 2 midday. So on that basis, I will keep my comments to a minimum. So we have plenty of time to deal with the question. But just sort of a few general comments, I often say that we've had a very busy quarter and guess what, which has had a really busy quarter, actually maybe busier than most. We were very pleased with our progress during the March quarter. When we put in place a number of initiatives which will provide foundations for the future success of the business and improved resilience and also ran an operationally a good business in the meantime in terms of continuing to be the only non-Chinese producer at scale of both NdPr of lights and heavies. So during the quarter, I mean, I think most people have observed that the price of NdPr has progressively firmed over the year. We certainly saw the benefits of that, and we recorded one of our top 3 of our quarters in terms of revenue. And it does appear that the market settings remain positive for the fourth quarter of this financial year. And in interest sort of looked back on the very first quarterly that I ever delivered and this puts into stark contrast, the difference between maybe businesses at the start of the journey in rare earth and where they may be some years later. The first quarterly that I was -- again delivered was 445 tonnes NdPr. Well, we delivered 2,000 tonnes this quarter. $31 million in revenue versus $265 million in revenue this quarter. So it's I think, a reminder of just sort of the various steps that we have taken over that period of time to consolidate our position as a global leader outside China. Well, our production is not quite at our 10,500 tonnes per year run rate, but it is moving towards it. During the quarter, we have continued to ramp up the final part of the Mt Weld expansion. And I am delighted to say that we have that ramp-up so far is at or above a McNulty 1 ramp-up curve. And I think that's the first in rare earth. But even with that, there are still some challenges as we bought that facility online, ensuring that like in the early stages, con grade was lower than it had been in a nice mature little old plant. And so the team has been working on that, and they've lifted that up, but that did give us a few challenges downstream. And we've had a few logistics challenges, but I'm sure that many of you on this call who have listened to any sort of results call would recognize that logistics has its own set of challenges at present. Heavy rare earth production, that's really the performance during this quarter just reflects the batch processing nature of our heavies at this stage. And for those of you who've been up to the lab, you will have seen that the -- we're packaging this in 25-kilo drums and you will have seen the small furnace that we use. And so we accumulate material. We run it through on a batch process. And so therefore, there's a bit more lumpiness in our production outcomes. However, suffice to say that within sort of our sales process, with respect to the heavies, we are having a great deal of success in being able to place us carefully and leverage full benefit from those sales. Of course, our sales outcome, the total revenue was very pleasing. I've seen some comments already on the sort of the price per kilo. And of course, we aim to make that clear within the report that, that reflected primarily product mix with some higher sales of lower-value La and Ce during the time. And the comparison on the NdPr is, of course, that we sell our NdPr on contracts. And with many of those, there's about a 1-month lag until we see sort of the price flow through into our revenue due to the nature of the contract. Costs remain tightly controlled, and notwithstanding we have indicated in this that we would expect that there may be some further influences from the conflict in the Middle East. This could sort of will likely reflect those materials, which are sort of directly affected by oil and gas, but also just looking at things like, for example, the Fair Work determination last night on ensuring that transport providers are able to recover costs, increased cost from fuel as a consequence of the Middle East conflict. However, I would point to you something of which we are enormously proud and that is, as we have moved to our hybrid renewable power station at Mt Weld that our diesel use now is on -- is virtually only in the mining fleet at the Mt Weld side. And the renewable power station is actually delivering significantly more than design where we're expecting renewables to be delivering around about 70% about our power requirement and the average renewable content was 95.7%. That is 870,000 liters of diesel saved just during the March quarter. So this does put us in a much better position as we're looking at sort of the various global effects at present. It's a pretty exciting quarter in terms of putting together a number of the long-term building blocks for our company. The JARE offtake agreement, which was announced on the 10th of March is really significant. And I think everybody has read that in some detail by now, but firm offtake with a small price is really important to us, an upside sharing arrangement, which is, we believe, relatively modest, although beneficial to both parties and we are sort of seeing this is really a really solid base for the business as it moves forward. Followed that up with an MoU on merging alongside our Japanese partners on further resource development, either at Mt Weld or other resources, and this is our work with JARE and JOGMEC on resource development has proven to be very constructive for our company over time, and we look forward to pursuing that further. And in addition, we announced the U.S. letter of intent -- binding letter of intent with the U.S. government, which sees the funding, which was previously allocated to Seadrift being reallocated to the purchase of rare products from our existing and planned facilities. And then, of course, as we have indicated previously, we are focused on developing strong and constructive partnerships with respect to metal and magnet making our key announcements there during the quarter as both related to Korean firms who we see as being potentially extremely good partners technically and also in terms of efficiency and economic outcomes. So LS Cable for metal making at their Vietnam plant and continued work to move to definitive agreements with JS Link for the new Magnet facility in Malaysia. So all in all, as I said, a very busy quarter where we focused on running a good business, continuing to take full advantage of the fact that we are the only ones who can take full advantage of the positive market at present. But at the same time, ensuring that we're setting ourselves up for success including with the sort of agreements, the agreements with both Japan and the U.S. the development of new capability and also within our sales group. So within our sales team, ensuring that we're setting up a customer portfolio, which will serve us well in the future and ensure that we leverage full benefit from our bundled sales. And of course, the final and really significant point also which sort of underpins the ongoing success of the business is the new license, which was renewed in Malaysia. Our operating license was renewed for 10 years from the third of March. We have been advocating for some time for an extended license rather than the 3-year license period on which we have operated to date. That requires a change to the AELA, the Atomic Energy Licensing Act in Malaysia, which was affected late last year and was then under that -- those varied conditions is the issuance of this 10-year license. It certainly, we're very pleased with that. We remain strongly committed to Malaysia, which has proven notwithstanding few twists and turns to be a very productive environment in which Lynas has operated. So having got to there. I'm really happy to take any questions now. And I think, Jen, are you the one sorting those out? Jennifer Parker: No. Maggie is going to open up for questions now. Amanda Lacaze: Back to you, Maggie, then. Operator: [Operator Instructions] First question comes from Rahul Anand from Morgan Stanley. Rahul Anand: Amanda and team, thank you for the call. Appreciate it. Look, my one question would be around Kalgoorlie. If you can please provide a bit of an update in terms of power reliability there. Is that fully remediated now at Kal? And are there any risks into the fourth quarter as we step into that just in terms of MREC availability? Amanda Lacaze: Thanks, Rahul. So since the really very serious situation towards the end of last year, we did engage very effectively, I believe, with Western Power and a couple of issues as it turned out, we're probably affecting power availability in a way that they didn't need to. And so we have had relatively stable power within the ELPS sort of framework through this quarter. It has not had the same effect on operational availability, uptime that we had seen, particularly in the previous quarter. I'm loathed to make a forecast on power in Kalgoorlie because as we have indicated previously, in Kalgoorlie, there is both a problem that she sort of the power available and also with some elements of the distribution network when everything's going well, this is not an issue, but I wouldn't want to be forecasting that everything will remain operating perfectly. I mean, I think everyone will remember the power being taken out by the lightning strikes on the transmission line -- transmission towers. So we continue to work on sort of alternatives. We have not taken the step of putting in place a diesel power station, because as I noted in my comments, we're pretty proud to make some significant savings on diesel at Mt Weld. However, even on the stated plan with respect to the network, we would see that the lead times to really making a significant change in power availability in Kalgoorlie as such that it is prudent for us to consider alternate solutions. But right now, we are not forecasting a problem in this quarter, touch wood, but I'm loathe to make any sort of definitive assertions on that basis. Rahul Anand: Okay, I understand. So I guess, tactically, it's quite hard to make a call on availability. But given that needs to be in your plans in terms of having reliable power going forward. Is there any time frame whereby you want to decide that and then flag that to the market so that there's clear visibility in terms of when you're planning to build a power plant? Amanda Lacaze: No, I don't want to make any further comment on it at this stage. Operator: Next, we have Paul Young from Goldman Sachs. Paul Young: Amanda, good progress for the quarter as you stated in Mt Weld's ramping up and tracking well. And I saw you're on top of the improved removal at Kalgoorlie which is fantastic as well. But just a question on potential shortage of chemicals in particular, sulfuric acid. Can you talk through your security of supply and maybe some of the cost sensitivities. And I'm noting I think you use somewhere between 1 to 2 tons of acid for every tonne of concentrate cracked and leached? Amanda Lacaze: Yes. Good question, Paul, and one which has our team highly exercised at present. Which, I'm sure, is the same came with most supply chain teams across the industry. So if I start first with Australia. We source -- we do not have an issue with supply in Australia at present, and we have some options for access locally, which we think is going to ensure that we're in a good position at least through to the end of the year. So the issue becomes more of an issue in Malaysia, not in Australia. And last week, I did get a few sort of inquiries when the Chinese put out an announcement that they would not be exporting acid. Well, we don't source any of our acids from China, so that's okay. The market is tight, but we're pretty confident about our ability to get the volume. So the effect will be a price effect and I think as everybody knows, that's a day-to-day event. And so we're managing that, but we would expect that sulfuric alongside some of the other sort of transport cost increases, et cetera, will make it a little more challenging for us in terms of costs in the fourth quarter, but we are all over it at present. And once again, sort of loathed to give you a forecast because as I think everyone knows, it is changing on a daily basis, but we would expect there will be some cost impacts in the fourth quarter. Operator: Next, we have Neal Dingmann from William Blair. Neal Dingmann: My question is around the MoU you have with JARE. I'm just wondering, how should we think about the timing of the mineral exploration around this MOU? And I'm also wondering, you didn't mention in the release, if there any update on the MoU around with Noveon Magnetics? Amanda Lacaze: Neal, welcome to the call. The MoU with respect to the development and the cooperation on other resource development, I would expect that we will be in a position to provide an update on that sometime during this quarter, notwithstanding that sort of definitive agreements are not going to be a bottleneck on that. I mean we have a long trusted relationship and we find, particularly in terms of resource development, geology, metallurgy that we have higher complementary skills. So yes, we think that we will be able to give you a little more on that in the coming quarter. And I'm sorry, the line branch has got cut here, I missed what was your second part of the question? Neal Dingmann: Just any update on the Noveon Magnetics MOU if there's anything going on there? Amanda Lacaze: Look, our teams are engaged there, Noveon did a further -- I think during the quarter or maybe late last quarter, did a further capital raise themselves and have a particular they're sort of completing their own internal business planning. To my understanding, we continue to work with them and particularly on offtake agreements to ensure that we are supplying relative material for some of the sort of highest priority customers. But I'll invite Chris Jenney who's on the call to add anything if there's anything there. Chris Jenney: No, nothing to add, Amanda, Yes. So obviously, there's lots of moving parts in the U.S. market. So we're just working very closely with the team at Noveon to work out the best offtake arrangements to meet their needs and obviously, to meet our needs. So we'll just give you updates as we progress through that. Operator: Next, we have Chen Jiang from Bank of America. Chen Jiang: I hope this is not the last time we speak to you on the results analyst call. First question just on this quarter's NdPr production. If I do the run rate or annualize this quarter's NdPr, it gives me roughly 8,000 tonnes of NdPr or roughly 22 metric tonnes per day of NdPr. That is likely to be 75% of your current NdPr annual capacity of 10.5. So I'm just wondering, I think previously, you mentioned a run rate of like 25 metric tonnes a day of NdPr. I'm just wondering what's the best way to think of your production versus capacity is 75% utilization rate we should apply or it should be higher. I guess the question harder. I'm just trying to get what kind of production going forward versus your current capacity of 10.5. Amanda Lacaze: Thanks, Chen. And I think as with all of these elements, as we've always indicated, the bottleneck tends to move around. We're a bit different from many mining companies. We have capacity at Mt Weld, at Kalgoorlie and then also at the LAMPS facility and each can be at a different stage. You're right. The annualized run rate at present is about 8,000 tonnes per annum. It would be our intention that, that is, again, in the coming financial year and the dependencies for that are partly the continued ramp-up bear in mind that we're only today, 6 months into the ramp-up of a big facility at Mt Weld. And so we're -- as I indicated, we didn't have an issue with the volume of material, but the con grade dropped a bit, which absolutely has an effect on downstream production. But I think that certainly, our objective would be to be moving up beyond the 25 tonnes per day. But maybe we're still sort of another year into consistent ramp-up right across the system to deliver that 10,500 tonnes. Pol, did you want to add anything to that? Pol Le Roux: Yes. Can you hear me? Amanda Lacaze: Yes. Pol Le Roux: Okay. Good. Yes, it's a good approach to address the nameplate capacity as tonnes per day. So we are way higher than what you can see in our numbers in terms of downstream daily capacity. And then you have two factors to take into account. One is a normal operation, you always face problems from time to time. So you have what we call OE, overall equipment efficiency, which is reflective of any failure you can have on equipment. So that's an 80% to 90% normal ratio. And then you have specific, as Amanda said, specific challenges for us is to adjust align the ramp-up of Mt Weld, Kalgoorlie and all the processes here in LAMPS. So -- but we're moving forward, it's in close to having an easier to forecast volume for easier to forecast. Amanda Lacaze: So the short answer, I mean, 25 tonnes a day will be the next sort of stop on the bus route, and then we will keep on moving from there. Chen Jiang: Right. So you are still ramping up. Okay. Amanda Lacaze: We are still ramping up. Chen Jiang: Yes. Got it. Can we have another follow-up of your price realization? So by looking at the China NdPr benchmark, quarter-over-quarter, it's a significant increase, almost 40% from USD 68 kilogram average in December quarter to USD 94 per kilogram in March quarter, excluding that, of course. But Lynas NdPr selling price is only up 25% quarter-over-quarter. So I'm wondering why -- or what I'm missing, why Lynas NdPr selling price is not increasing to the same scale to the index pricing in the March quarter? I understand some of your volumes are independent, but the price flow are still higher than index pricing. Is there any lagging or what I'm missing? Amanda Lacaze: Yes, yes. So I did actually try to explain that, Chen. We have our largest customers are on contracts, which referred to the prior month's pricing. So -- and I think we've tried to explain this previously. So on the way up, it lags, but on the way back down, it also lags. So generally about sort of a month lag by virtue of the fact that we are not selling into the spot market, and that's not ever our intention. Operator: Next, we have Daniel Morgan from Barrenjoey. Daniel Morgan: Just a follow-up on price basically or revenue. Can you help us in some way with the mix? I mean, you've highlighted quite clearly you did have a lower sales mix of high-value products. Just wondering if in any way you could give us a feel for how big the NdPr inventory build in the period was? And did you sell any Dy Tb and was there any marketing motivation behind the sales mix at all? Amanda Lacaze: Okay. So no, we didn't build significant inventory the sort of final numbers on sales often depend upon how many ships sale in the last week of the month. So if they didn't go at the end of the month, they've gone in the first week of April, say, for example. So no significant inventory build. Yes, more sales of La and Ce. And given that they are high volume, low price, they can -- they have an effect on that average selling price of limited sales of the heavies. And we are using our heavies very strategically. We -- we've talked about this previously, but we seek at all times to be in the business of long-term relationships with our customers. We don't sell into the spot market. We also don't sell our heavies just because somebody wants to buy a few heavies from us but don't have a broader relationship with us. So we bundle our heavies with other material and so our heavies sales and inventory management is managed in such a way that we can serve our customers say, for example, in the magnet market with sort of a magnet ratio of NdPr to Dy, Tb, something like 30:1. So the heavies are used strategically. And I think as we've talked previously, yes, they deliver margin in their own right, but it still remains that the Lynas cake is in the NdPr and the icing is the heavies. And so we continue to work on that basis. Operator: Next question comes from Reg Spencer from Canaccord Genuity. Reg Spencer: Most of my questions have been answered already. So I'm going to go somewhere where I'm not sure how you'll answer it. But clearly, there's been some M&A in the rare earth sector overnight, Amanda. And I'm certainly not expecting you guys to provide any comment on what your M&A strategy is. But when could we expect some further detail around plans for your Malaysian clay assets or your joint venture? Amanda Lacaze: So we are working through the definitive documents on the magnet factory with JS Link and hopefully, we'll be able to provide sort of additional information on that relatively soon. I mean with all of these things, it's always the case that we actually have to -- we can only control our position. I mean, negotiation is a negotiation. However, we are comfortable that project is proceeding, that material relevant equipment is being ordered, particularly the long lead time equipment and we're feeling very, very confident about that. With respect to the ionic clay assets, I think that as we work through right back at the beginning when we were talking about the JARE MoU, we will provide a bit more information on some of that resource work we're doing over the next couple of quarters, I would expect. And yes, there's lots of happy investment bankers in the world these days, aren't there? Lots of deals to be done sort of big numbers. I just would highlight the fact that we are the only ones bringing 2,000 tonnes of NdPr and Dy and Tb and now samarium to the market every quarter. And so we will continue to focus on ensuring that we have a strong position in the rare earths market. Reg Spencer: Can I ask a cheeky very quick second question, Amanda. And again, feel free not to answer it. But do you see increasing competitive tension given, obviously, the strategic importance being played from assets, especially those with enriched heavy content. Do you see evidence of that and in all of the conversations, I assume you have? Amanda Lacaze: I think that we have a very -- we know the various projects well, and we have a clear understanding of the potential and I think I might leave it at that. Reg Spencer: That's more than I was expecting. Thanks, Amanda. Appreciate it. Operator: Next, we have Austin Yun from Macquarie. Austin Yun: Just one more question on Kalgoorlie. Great to see that you finished the ramp-up of the recent process improvement I'm just keen to understand, do you have any other process improvement plan for the Kalgoorlie facility in this calendar year? And also given the tightness in the chemicals, would you actually pace the ramp-up of Kalgoorlie, given the sulfuric acid and other things, the price is going up. I understand there's no supply challenges at the moment. Amanda Lacaze: Thanks, Austin. Look, the answer to the first part of your question is we are always improving the process at every facility, right? So we are not done with process improvements at Kalgoorlie, not by a long shot. What we are flagging there is that we've done a couple of sort of major improvements in terms of process flow, some of the actual flow sheet that we've executed and that really has allowed us to step up. We look on a weekly basis, I look at it, sort of what Pol was talking to, which is the operational availability, which is really the reliability question and then also looking at quality and are we producing the quality, which is going to be able to be processed at the land cost effectively. And as we indicated, sort of early on, we had some issues associated with that, which is perfectly reasonable and to be expected and we have addressed those issues. But we are never going to stop looking for ways to continue to improve both the process and the reliability of that process. We are still assessing what are the implications of some of the price effects from the Middle East conflict. We don't think that sulfuric acid is going to be the pain point in Kalgoorlie. But I'm sure many of you would have noted the determination from the Fair Work Commission last night, which indicated that we need to be working with our suppliers on a fortnightly basis to ensure that costs are being appropriately recovered. But at this stage, we are not seeing that this would lead us to make a decision to dial back the Kalgoorlie facility. We continue to work to actually ramp that up in terms of reliability and delivering to forecast. Operator: Next, we have Jonathon Sharp from JPMorgan. Jonathon Sharp: Yes. My one question, just as previously mentioned, an acquisition of Serra Verde overnight announced. Now there's reporting that there's some offtake of Dy and Tb floor prices $575 per kilo and just over $2,000 per kilo. This looks like it's about 2 to 3x spot. How do you view this floor pricing from Lynas' perspective maybe from what you're getting yourself? Amanda Lacaze: There is a reason why we have not specifically disclosed either our floor prices or our achieved prices in this market. We actually think that this is an important part of our -- we think these are appropriate and commercial and confidence. The numbers need a surprise nor impress. Operator: Next, we have Dim Ariyasinghe from UBS. Dim Ariyasinghe: Most of my questions have been asked, but just one on what's to come on the downstream, which I think is pretty exciting. How do you think about metallization again through everything else you're doing with JS Link and then the Vietnam announcement earlier this quarter? Like is the plan to continue metallization in Vietnam or -- and build on that? Or how? Maybe you could expand a little bit on what that could look like? Amanda Lacaze: Yes. Dim, nice to talk to you. And actually Chen, yes, this may be my last quarterly report. So hopefully, we will all talk to each other at some time before a shuffle off this Lynas coil. But Dim, yes, I think we've indicated this previously that we think that metal is a somewhat unloved part of the value chain, but a crucial part of the value chain. And so we are delighted that LS Cable, which is one of the largest cable sort of manufacturers in the world still many metal processes in the world has chosen to enter the rare market. This reflects sort of encouragement, particularly from the Korean government to improve resilience in Korea, whereas we know the key industries, automotive and electronics, both rely on rare earth and rare earth magnets. The LS Cable facility into which this plant will be integrated is in Vietnam. And so we see that as being very positive in Vietnam. It is a cost environment which is constructive for the production of metals. And there is some sort of domestically developed capability there as well. But I think that we really see LS Cable as an outstanding partner for further development of metal making and we see that Vietnam is really sort of a critical step in the supply chain, not just with LS Cable, but with our current metal maker as well. Operator: Next, we have Matt Hope from Ord Minnett. Matthew Hope: Just my question was what was the motivation for having the MoU with JARE for exploration? I noticed that in your announcement, you even talked about exploration and development of Mt Weld. And I was wondering in what way would you want the Japanese actually involved in your sort of key mining asset. Amanda Lacaze: Just so you may recall -- maybe you weren't [indiscernible]. But you may recall that actually in some of the work that we've done on the carbonate, we have had access to some really some additional and highly skilled resources from JOGMEC in terms of particularly geology and metallurgy. And they work with us to both fund some of the cost of the Mt Weld carbonatite program, but also had on-site working with our team, some really experts in these areas. We have found this to be very helpful for our business. Accessing that additional expertise, and we have an extremely productive relationship with JARE and JOGMEC and are happy to extend that into additional project work. Matthew Hope: All right. Okay. So -- okay. So it's the expertise that they offer. And if I could just sneak one extra one in. I just wanted to know samarium, this seems that you've had a big priority on developing that at the moment. Is that really about price? Or is it a strategic rare earth that would allow you to sort of get involved with the U.S. and because this isn't something that nobody else produces. So is it really about strategy? Or is it about the price of samarium? Amanda Lacaze: So samarium is an excellent case study of the dysfunction that has existed in the rare earth market, we probably kind of produced samarium earlier than we have done. We were certainly not motivated to produce samarium earlier because the price has been sitting at basically a couple of dollars a kilo. So like with lanthanum and cerium, where we sort of produce those say, selectively. I mean, at a couple of dollars a kilo, it didn't make sense financially for us to produce that material. As certain customers of some of these materials have understood all of the things that everyone wanted to talk about over the last 2 or 3 years around supply chain, reliability, et cetera. They have actually indicated that, well, yes, they will be prepared to pay a price, which is a reasonable price that gives us a reasonable return or, in fact, a good return on our efforts. And so therefore, producing samarium to spec and in the volumes that the market requires, bearing in mind that we are not talking with any of these heavies about sort of the same sort of volumes as we get for our lights. But notwithstanding that, we now are in a position where it is commercially sensible for us to produce samarium. So therefore, we are producing samarium. Operator: [Operator Instructions] Jennifer Parker: Maggie, if we run out of questions, we should come into the queue. Operator: One more question, Amanda, one more. We have a follow-up from Austin Yun. Austin Yun: Just a quick follow-up. Really good news that you provide 2 offtake agreements updated during this quarter. I'm just keen to understand, given a large portion of your production is not covering those, is there any intention or interest to further expand your offtake portfolio both from a production perspective also from your geolocation customer perspective, conscious that you have Japan and covered U.S. coverage, but there's a big chunk of the world that's not covered yet. Amanda Lacaze: Yes. Good question, Austin. I think that -- I think the best way to respond is that the sales team has a very clear plan on ensuring that over time, we sell our material. We continue to sell it on a contract basis. We don't engage in the spot market. but we ensure that we have a customer portfolio that ensures that we are capturing the highest value, highest margin customers. The government contracts are beneficial in terms of setting -- and the focus on customers and concluding customer-based agreements, remains the #1 priority for our business. It is way more important than any other mechanism that we might have, because we're just like every other business, you don't exist without customers. The agreement with government, right? I really about sending a message with respect to market dynamics, I think everyone has that there is -- this market has been dysfunctional for some time. And I think that the government agreement helped to address that. And in a manner, we have advocated that these, if we have consistent amplification across those various agreements, that no government should ever actually have to write a check because the price naturally will move to that level. And we have seen some evidence of that. So the sales team's focus absolutely is on customers. We have excellent long-term agreements with a number of both magnet makers and magnet buyers, and we will remain focused on doing that with the government agreements essentially helping to address market dynamics. Operator: We have one more question. Last question, follow-up from Chen Jiang from Bank of America. Chen Jiang: I'll take my last chance, Amanda. So Amanda, as the CEO for Lynas over the last decade, and now we have 2.5 months left until the end of the current financial year. You are going to your next chapter of your life. I'm just wondering in your view, what can the CEO quality can lead Lynas to the next level of success, which is Lynas 2030 growth story, amid the backdrop of increasing geopolitical risk, supply chain development trying to decouple from China will remain dependent on China and Lynas rounding fully integrated rare mine oxide operations in Australia and Malaysia and your view what the Board is looking for and in your view? Amanda Lacaze: Okay. So I can tell you my view, I can't speak on behalf of the Board now. And I would encourage you to speak to the Chairman to get that. I mean -- and my view is only sort of a view because much as I would love and for those of you who have known me for 12 years, would know that I actually love being the final decision, in this case. I will not be the final decision maker. I wish that I was though. I wish I could say to you, this is the sort of person that we would like to see, and this is who it is. But ultimately, it will not be my decision. However, my experience of operating in Lynas is that we are -- the profile of the person to run an organization like Lynas with it stakeholder complexity process and processing complexity is maybe a little different from many of our other Australian enterprises. Certainly needs -- we operate with more risk in our environment than many Australian businesses who sort of run their operations and sell their materials inside Australia, we operate with sort of real global risk. And of course, I've been quite vocal previously about the fact that I would be delighted to see another woman appointed to this role. I think that we have made great strides in the mining industry in terms of bringing more women into the industry, but we are yet to get to the sort of many mining companies have targets of 30% or 40% women within their workforces, but we are yet to see that within the CEO ranks. And I would be very sad if my departure was the departure of present, the only woman other than Mrs. Reinhart as the owner, who is running a mining minerals company in Australia. So those are some of the things that I think are important. But we are a complex business and we are subject to sort of external factors that don't necessarily affect all Australian businesses, and I think that needs to be taken into account as the Board sort of proceeds with the appointment of my successor. And I watch it kindly because I've spent 12 years of my life on this, and I hate it to fall in a screaming heap. But on the other hand, I also recognized that I can't actually control what happens after I leave. So it's been great. I have loved every day in my job, and I still do, but it is time for the transition. And I trust that our Chairman will ensure that an excellent appointment is made. Operator: Thank you, Amanda. We have no more questions. Amanda Lacaze: Okay. Well, thank you very much, and I do look forward to you. It's not quite the end of the road yet. As Chen said it's another 2.5 months. I expect that I will have a chance during that time to touch base with most of you on this call, and I look forward to doing so. So thank you very much and talk to you all soon. Bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the First Quarter 2026 Halliburton Company Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question, simply press star 11 on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the conference over to David Coleman, Senior Director of Investor Relations. Please begin. David Coleman: Hello, and thank you for joining the Halliburton Company First Quarter 2026 Conference Call. We will make the recording of today’s webcast available for seven days on Halliburton’s website after this call. Joining me today are Jeffrey Miller, chairman, president, and CEO; Unknown Speaker, executive vice president and COO; and Eric Carre, executive vice president and CFO. Some of today’s comments may include forward-looking statements that reflect Halliburton Company’s views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton Company’s Form 10-K for the year ended 12/31/2025, current reports on Form 8-K, and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, except as required by law. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our first quarter earnings release and in the Quarterly Results and Presentations section of our website. I will now turn the call over to Jeffrey Miller. Jeffrey Miller: Thank you, David, and good morning, everyone. Before I get into my thoughts on the current market and Halliburton Company’s outlook, let me begin with a few highlights from the first quarter. We delivered total company revenue of $5.4 billion and operating margin of 13%. International revenue was $3.3 billion, an increase of 3% year-over-year. North America revenue was $2.1 billion, a decrease of 4% year-over-year. During the first quarter, we generated $273 million of cash flow from operations, $123 million of free cash flow, and repurchased $100 million of our common stock. Now let us turn to our market outlook. I believe the situation in the Middle East will have meaningful and long-lasting implications for the global energy sector. Here is what I expect. First, energy security is no longer simply a talking point. It demands action by every nation to ensure a reliable supply of oil and gas. I expect we will see increased investment in localized oil and gas developments and urgency to diversify sources of oil and gas for those countries without their own resources. Second, recovery of oil and gas production and inventories will not be a quick or simple process. Cumulative production deficits are in the several hundreds of millions of barrels and trending towards a billion. This represents several years of meaningful incremental demand to replace strategic reserves on top of what I believe will be continued structural demand growth. Big picture, this means the world is fundamentally tighter in oil and gas than it was sixty days ago. In my view, that supports a durably stronger commodity environment and a far more constructive backdrop for upstream investment and oilfield services activity. I believe Halliburton Company will thrive in this market. We are active in all the major markets that matter, with the right service lines, strategy, and technology. In addition, we are the services leader in North America which, in my thirty years of experience, has always been the first market to respond to price signals. With that, I will turn the call over to our COO. Unknown Speaker: Thanks, Jeff. Before I get into our operational results, I want to recognize our employees around the world, but especially in the Middle East. They are executing under challenging circumstances, staying focused on our customers, and are keeping each other safe. Their fortitude and resilience represent the best of Halliburton Company. I want to personally thank them. Now let us turn to our international business, where our first quarter revenue was $3.3 billion. I will start with the Middle East, where we have remained closely engaged with our clients through disruptions. Activity has been most impacted in the region’s offshore markets in Qatar, UAE, and Saudi Arabia, and the land markets in Iraq and Kuwait. Halliburton Company continues to support our customers in these areas with the service capability they require to navigate current conditions and resume activity as markets recover. In the broader region, the closure of the Strait has resulted in our use of alternative supply chain routes, which has increased logistics cost. We have also seen price increases in purchased materials and supplies related to the conflict. In my view, these are manageable disruptions as we work closely with our customers to mitigate these additional costs within the terms of our contracts and agreements. Outside the Middle East, we saw better-than-expected results for the quarter, and we expect year-over-year revenue growth in the mid- to high-single digits for the full year, led by Latin America. I recently returned from the region, and I came away even more confident in our outlook. Activity is strong, customer engagement is high, and our growth engines are performing in several important markets. In unconventionals, YPF recently awarded Halliburton Company a multibillion-dollar award for integrated completion services in Argentina. This award expands our position in Argentina and represents an important milestone for Halliburton Company. Under this contract, we will deploy a full completions portfolio including Zeus electric fracturing services for the first time outside of North America. The award also includes Octiv AutoFrac, which brings electrification, automation, and digital workflows to unconventional fracturing in Argentina. In drilling, we continue to build momentum with our automated offerings. We recently closed our acquisition of Sekal, a global leader in rig automation. With this acquisition, our portfolio now combines Halliburton LOGIX drilling automation with Sekal’s Drilltronics platform and services. This means Halliburton Company has the technology in-house to fully close the loop for automated geosteering. This includes the bottom hole assembly, the hydraulics, and now the rig itself. We have worked with Sekal for several years and recently delivered this technology offshore Guyana. Our closed-loop automation technologies delivered better-than-expected drilling times and, most importantly, better reservoir contact. I am confident in the power of these technologies working together to maximize asset value for our customers. As our drilling technology continues to advance, so does my confidence in our offshore business. Our drilling capabilities and collaborative model were key drivers of a recent win in Suriname with PETRONAS. They selected Halliburton Company and Valaris for a strategic collaboration agreement to support the development of its offshore assets. The agreement brings the teams together early in the development cycle and reflects exactly the kind of close alignment that creates value for customers and for Halliburton Company. More broadly, I am increasingly confident in our offshore outlook. Across markets, customers are choosing Halliburton Company for offshore projects because of our technology, our execution, and our ability to collaborate earlier and more effectively throughout the well life cycle. We see that in Guyana, we see it in Suriname, and we see it increasingly in other offshore markets around the world. To conclude on international, I am confident in our business outlook based upon the strength of our growth engines, the value of our collaborative model, and the differentiation of our technology. While the Middle East remains the key near-term variable, we see real momentum across the rest of our international portfolio, and I believe Halliburton Company will continue to win and deliver profitable growth. Turning now to North America, where Halliburton Company delivered first quarter revenue of $2.1 billion. Early in the quarter, winter weather delayed services activity in the Permian and Northeast, but those impacts were more than offset by stronger-than-anticipated activity for the remainder of the quarter. In a recovery in North America, there are several signposts I expect to see. Today, we are already seeing a couple of important ones. First, the frac calendar white space in the first half of the year is now gone. As we entered this year, there was a risk that completion work might slip to the right and that gaps in the calendar could widen. That is no longer a concern. Second, we have seen an uptick in inbound calls for spot work. While these calls are not for committed crews, they do suggest incremental demand is building in spot markets with smaller operators. This is the leading edge of capacity tightening. While we are in the early innings, in my view, the setup for North America is constructive. Premium equipment is already tightening, the commodity price is supportive, and we see signs of incremental demand. As we look to the rest of the cycle, our strategy to maximize value in North America will not change. Here is how we will approach this market. First, we are going to focus on returns, not market share, which means our priority is to improve the returns of our existing fleets before we add capacity. Clearly, restoring price to acceptable levels is a key component of this. Second, we will deploy differentiated technology at scale that solves for customers’ greatest opportunities, improving recovery with Zeus IQ and drilling efficiency with iCruise. In summary, I am excited about North America. We see a recovery in progress. As activity grows, we believe customers will place high value on technology, efficiency, and execution, which plays to Halliburton Company’s strengths. With that, I will turn the call over to Eric to provide more details on our financial results. Eric Carre: Thank you, and good morning. Our Q1 reported net income per diluted share was $0.55. Total company revenue for Q1 2026 was $5.4 billion, flat when compared to Q1 2025. Operating income was $679 million and operating margin was 13%. Our Q1 cash flow from operations was $273 million and free cash flow was $123 million. During Q1, we repurchased $100 million of our common stock. Now turning to the segment results. In Q1, both of our divisions were impacted by the conflict in the Middle East, which resulted in an impact of approximately $0.02 to $0.03 per share. Beginning with our Completion and Production division, revenue in Q1 was $3.0 billion, a decrease of 3% when compared to Q1 2025. Operating income was $439 million, a decrease of 17% when compared to Q1 2025, and operating margin was 15%. These results were primarily driven by lower stimulation activity in North America, and lower completion tool sales and decreased pressure pumping services in the Middle East. Partially offsetting these decreases were higher completion tool sales in the Western Hemisphere and improved pressure pumping services in Africa. In our Drilling and Evaluation division, revenue in Q1 was $2.4 billion, an increase of 4% when compared to Q1 2025. Operating income was $351 million, flat when compared to Q1 2025, and operating margin was 15%. These results were primarily driven by higher project management activity in Latin America and increased drilling-related services in Europe and in the Western Hemisphere. Partially offsetting these increases were lower activity across multiple product service lines in the Middle East, lower wireline activity in the Eastern Hemisphere, and decreased fluid services in the Gulf of America. Now let us move on to geographic results. Our Q1 international revenue increased 3% when compared to Q1 2025. Europe/Africa revenue in Q1 was $858 million, an increase of 11% year-over-year. This increase was primarily driven by increased drilling-related services and higher completion tool sales in Norway, and improved pressure pumping services in Angola. Middle East/Asia revenue in Q1 was $1.3 billion, a decrease of 13% year-over-year. This decrease was primarily driven by conflict-related disruptions that resulted in lower activity across multiple product lines. Latin America revenue in Q1 was $1.1 billion, a 22% increase year-over-year. This increase was primarily driven by higher activity across multiple product service lines in Ecuador, the Caribbean, and Brazil, and improved stimulation activity in Mexico and Argentina. North America Q1 revenue was $2.1 billion, a 4% decrease year-over-year. This decline was primarily driven by lower stimulation activity and decreased artificial lift activity in U.S. land, and lower stimulation activity and decreased fluid services in the Gulf of America. Moving on to other items. In Q1, our corporate and other expense was $69 million. We expect our Q2 corporate expenses to increase about $5 million. In Q1, we spent $42 million on SAP S/4 migration, which is included in our results. For Q2, we expect SAP expenses to be about $45 million. Net interest expense for the quarter was $82 million, lower than expected due to favorable interest income. For Q2, we expect net interest expense to increase about $5 million. Other net expense in Q1 was $28 million. We expect Q2 expense to be about $35 million. Our effective tax rate for Q1 was 18.5%. Based on our anticipated geographic earnings mix, we expect our Q2 and full-year effective tax rate to be approximately 20%. Capital expenditures for Q1 were $192 million. For the full year 2026, we expect capital expenditures to be about $1.1 billion. Now let me provide you with comments on our expectations for Q2 2026. In the Middle East, the timing and path of a recovery to pre-conflict activity levels is unclear. In addition to lost revenue, we also expect higher costs related to supply chain logistics and fuel. We estimate the impact in the second quarter will be approximately $0.07 to $0.09 per share, which is embedded in our divisional guidance. In our Completion and Production division, we anticipate sequential revenue to increase 4% to 6% and margins to improve 50 to 100 basis points. In our Drilling and Evaluation division, we expect seasonal software sales to roll off in the second quarter. As a result, we expect sequential revenue to be flat to down 2% and margins to decline 75 to 125 basis points. I will now turn the call back to Jeffrey Miller. Jeffrey Miller: Thanks, Eric. Here is what you should remember from today’s call. The macro environment has changed in the last sixty days. I believe Halliburton Company will thrive in the market that we see. In North America, we already see the early signs of recovery. Outside of the Middle East, we expect our international business to grow. Our growth engines delivered significant milestones during the quarter, and our collaborative value proposition is winning in the offshore market. We will now open the call for questions. Operator: Ladies and gentlemen, if you have a question or comment at this time, please press 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press 11 again. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of David Anderson from Barclays. Your line is now open. David Anderson: Thank you very much. Good morning, Jeff. Jeffrey Miller: Morning. David Anderson: Obviously, the Iran conflict is not resolved, so it is really hard to guide for the next several quarters. I think everybody is just trying to figure out what the other side of this looks like. I realize it is early, but with global supply now a priority, how does this shape your views over the next few years? And how has that really changed over the last sixty days? Jeffrey Miller: Look, I think the most important change is that the supply overhang is no longer a concern. That is swept away, and structural demand remains intact. That combination moves the rebalancing up closer. When I look out, equally important is the view that energy security is no longer a talking point. That is going to drive activity, and I think that change is not temporal, but a solid few years. That is what has changed in the last sixty days in my view. David Anderson: And then you touched on North America. North America is always the first one to see a reaction. It sounds like you are saying early innings here. Could you talk about some of this white space shrinking? Are you starting to see E&P customers showing signs of picking up activity? How much is everybody waiting on the back part of the curve to lift up? Just a little bit more color on what you are seeing on the ground and in U.S. onshore? Unknown Speaker: Yes. Thanks, Dave. The short answer is yes. We have seen a couple of really good signposts. As I said, white space for Q2 is all but gone. We have seen a lot of pull-forwards. We have seen inbounds. We are also seeing H2 firming up as well. I think the next flip of the coin would be rig adds and some longer-term discussions on frac activity. As far as investments of the smaller and the bigger operators, the bigger operators tend to invest throughout the cycle. The smaller and medium-sized ones usually move a little quicker. They are looking at the front end of the curve and the back end of the curve. We like this market. We believe being the only fully integrated service company in North America is a fantastic position for us, along with our e-fleets, Zeus IQ, and the demand for iCruise in this market. So, short answer is yes. Early innings, but we like where we are. David Anderson: Thank you very much. Thank you. Operator: Our next question or comment comes from the line of Arun Jayaram from JPMorgan. Your line is open, sir. Arun Jayaram: Good morning, team. Maybe I could start with you. I was wondering if you could walk us around your core international and offshore markets outside of the Middle East and perhaps elaborate on the strength in LATAM and Europe/Africa. I believe you mentioned that outside of the Middle East, you expect international revenues to grow mid- to high-single digits. How does that compare to your thought process before the conflict? Unknown Speaker: Thanks, Arun. A lot to be excited about and a lot of bright spots, with Latin America leading the way. We are really excited about the work we are doing in the Caribbean, in particular Guyana and Suriname, working in a very collaborative way. Argentina is really exciting. We just announced a multiyear, multibillion-dollar, first-ever deployment of frac spreads in Argentina with YPF. That is going to be a really great business for us moving forward. The deepwater work as well in Brazil. If you move east outside of the Middle East, the Norway market is one where we have had a large, strong position. We are working very collaboratively with a number of customers. We are starting to see rig adds coming towards the back half of this year and early next year. Regarding West Africa, we are seeing some light at the end of the tunnel—real sizable programs both in Namibia and Nigeria. We have a sizable footprint in both of those countries, with contracts we like. I would add Asia Pac as a really resilient market for us throughout the cycle. It stayed busy. We expect that to continue. We expect full-year mid- to high-single-digit growth outside of the Middle East. There are certainly a lot of unknowns in the Middle East, but we still feel pretty good about where we are with that guide. Arun Jayaram: And my follow-up is in North America. We have a bit of an unusual dynamic where we have relatively modest natural gas prices, including in markets like West Texas, which are significantly below diesel prices. One of the things about Halliburton Company’s frac fleet is you have a lot of exposure to natural-gas-burning equipment—e-fleets that use natural gas as an input. Could you talk about opportunities to arbitrage this delta to the benefit of shareholders in terms of pricing power? Unknown Speaker: That just reinforces the value in our e-fleet. Yes, clearly an opportunity. We work that all the time in terms of pricing and where that is going. I would describe that as an opportunity. It is certainly a benefit for operators that are consuming natural gas. To add to that, the Zeus platform is proving itself a unique solution, particularly with respect to Zeus IQ and the ability to move on recovery. While the ability to be more economic with gas consumption due to arbitrage is valuable, the real power in the Zeus IQ and the Zeus platform has been what it is able to do subsurface. Arun Jayaram: Great. Thanks a lot. Operator: Our next question or comment comes from the line of Saurabh Pant from Bank of America. Your line is now open. Saurabh Pant: Hi. Good morning, Jeff, Eric, and welcome to the call. Unknown Speaker: Thank you. Saurabh Pant: Jeff, you gave us a lot of good color in your prepared remarks. Last quarter, we were talking about how the supply side of the equation—mostly a frac comment—is tighter than people think, and it would take just a little bit of demand coming back for pricing power to come back. How are you thinking about that right now? And how do we move through the remainder of 2026 based on what we know right now on the demand side and the pricing power side of things? Unknown Speaker: We are seeing some really good signposts. That is driving constructive conversations with our operators. There are a handful of fleets that can go to work. The way we think about it is, first, we have to address the pricing of our existing fleets. Those conversations are happening. The next step is longer-term programs and more rigs being added—that creates another level of constructive conversations for us. First things first is focus on the fleets we have now. It does not take much attrition for things to get tight. Early innings, but we are starting to see signs of that. Jeffrey Miller: To follow that up, what is even clearer than it was is the availability of equipment in the market, and that is what those early signposts are calling out. Equipment is tighter. We are getting calls. We are within a handful of premium fleets—dual fuel–type fleets—of being absolutely sold out as an industry. Saurabh Pant: That is helpful color. My second question is on the international side of things. If we just focus on the international side, which markets or operators do you think would be the first to change their behavior? Which regions should we expect to benefit first? And how would Halliburton Company seek to benefit from that? Unknown Speaker: I just finished a tour around international locations. Conversations with customers and energy ministers are focused on the dependency of being down to a Strait—it is on their mind. Anyone who is a net importer of oil is thinking about bringing forward programs and reevaluating their capital budgets. Our growth engines are well positioned to apply to improved drilling programs in some of these locations. Asia Pac and West Africa are markets that we see potentially picking up with what is going on in the Strait. You are right—the collaborative model we work under has been big for us. In a lot of the areas I mentioned earlier, we work very collaboratively and are invited in earlier, and that has supported us in winning work in a number of those markets. Saurabh Pant: Thank you. Operator: Our next question or comment comes from the line of James West from Melius Research. Your line is now open. James West: Thanks. Good morning, Jeff, and Eric. Jeff, three months ago we talked about 2026 as the year of rebalancing. It is a much different environment now, as you have noted. You have talked about the NAM recovery and announced a number of major contract awards internationally. Are customer conversations showing a sense of urgency, or is it still a little bit too early? Unknown Speaker: While it is still early innings, it was encouraging to see the white space in Q2 get taken out in a very short period of time. It was not just a short-term blip to take advantage of the current curve. We are seeing H2 firming up as well. I would not use the word urgency—I would say constructive conversations about getting back to work and capturing value they see not only now, but for the future. James West: That is very helpful. On exploration, it seems a lot of the supermajors have added a few incremental dollars to their exploration budgets. Is exploration going through a bit of a reverse cycle after a ten-year lull? Unknown Speaker: We are seeing a little bit of exploration, but a lot of the muscle is around development—producing more barrels. That is what we are seeing in Namibia and West Africa, and largely in Suriname. We participated in a fair amount of exploration in the Caribbean, but more importantly, we are getting into the heavy lifting of development there and elsewhere. In Brazil, we have been quite successful as well. So while there is some exploration, what we see ahead of us is a lot more development in a lot of places. James West: Got it. Operator: Our next question or comment comes from the line of Neil Mehta from Goldman Sachs. Your line is now open. Neil Mehta: Yes. Morning. Great quarter here, Jeff. First, on capital returns. The buyback at $100 million was a little lighter than the run rate we have seen at $250 million a quarter. Was that just a timing thing, and how are you thinking about share return over the course of the year? Eric Carre: Neil, overall there has been no change in our focus on shareholder returns or our overall approach around buybacks. We started the year lower than our run rate in 2025. We mentioned on the Q4 call that this was our intent considering the macro situation we were facing at the time and concerns around the speed of activity increase in the Middle East. You can expect Q2 to be higher than Q1, and H2 to be higher than H1 in terms of overall buyback. Our long-term objective remains per-share value creation. Neil Mehta: Very clear. Follow-up on the technology side. You have had success with VoltaGrid and your investment there. You are looking to deploy that over time, including internationally. Any perspective on the power side of the business and VoltaGrid in particular, and driving value from that side? Jeffrey Miller: We really like our position in VoltaGrid, and we like what the company is doing. Separate from that, but along with it, is the international pursuit we have underway and the venture we have with VoltaGrid. I am very excited about that and it is very much on track. I do not constrain that to the Middle East. We have lots of inbounds and back-and-forth with potential customers in Australia, Japan, Canada—all around the world. We have 400 megawatts in the queue ready to get placed, and have a lot of line of sight around how that might happen. Very excited about that. Neil Mehta: Thanks, Jeff. Operator: Our next question or comment comes from the line of Stephen Gengaro from Stifel. Your line is now open. Stephen Gengaro: Thanks. Good morning, everybody. Two for me. First, going back to the U.S. frac business and pricing potential. Are your customers willing to take diesel if you have any diesel available? How much are they thinking about the price arbitrage, which should lead to higher prices for gas-burning fleets? How are customers thinking about that right now? Jeffrey Miller: Our customers are always looking for the most effective solution. I do not know that fuel choice is what would motivate tightness in the market. That is more of a decision between equipment, and less of a decision about adding equipment. The more important point is the value of the commodity and the demand for the commodity. That is more of the driver than arbitrage in terms of pick up a fleet or not. Arbitrage makes it more economic and should create more willingness to pay more, but I do not know that it is what is driving tightness. Two separate ideas in my view. Stephen Gengaro: Thank you. The other question: for years we have heard about E&P capital discipline and being unwilling to add a lot of rigs and frac fleets back. Are you seeing any shift in that? How should we think about this over the next several quarters, especially in what is probably a tighter oil market for the next couple of years? Jeffrey Miller: We are in the early innings. Big public companies typically come later in the cycle. Early movers are smaller companies, and that early move is what takes capacity out of the market and creates tightness. Timing of big operators is less clear today. However, commodity prices are structurally higher than they were, there is going to be more demand growth, and fewer barrels in the market. That creates an opportunity for operators of all sizes to make more money. The tightness we are seeing created by smaller operators should not be overlooked. A lot of inbounds are from smaller operators taking capacity out of the market, and that is good for Halliburton Company. Operator: Our next question or comment comes from the line of Scott Gruber from Citigroup. Your line is now open. Scott Gruber: Good morning. I want to come back to the shale developments abroad, which were picking up even before the Middle East conflict. Now that those could accelerate, do you see international shale opportunities outside of Argentina utilizing more Zeus fleets given the efficiency advantage, or do most of those plays—because they are less mature—lack the supply chains required for Zeus and end up pulling more legacy diesel fleets from the U.S.? How do you see equipment demand evolving internationally? Unknown Speaker: Zeus is a unique solution. It is time to go to work in Argentina because there is scale, runway, and a focus on improving recovery. That combination makes it so valuable there. Others are at different places in maturity. They are not at a place where they can take advantage of Zeus. I will describe it in technology terms because that is where it creates the most value and commands a premium—its ability to measure where the sand is going, move the sand around, and create a closed-loop fracturing environment. That is very different than simply the arbitrage on gas to oil. Markets in the earlier stages do not demand that level of capacity. We have taken the same approach to Zeus internationally that we did in the U.S.—we deploy Zeus to contracts that have the duration to return the cost of capital and the capital during the term of the first contract. We do not see those conditions in a lot of other markets today. That does not mean we will not get there; we feel certain we will, but that may not be today. Scott Gruber: The YPF contract sounds meaningful to your business in-country. Can you dimension that at all for us—how much bigger it will grow your business in the country, the timing of that growth, and given the integrated nature and efficiency gains you will deliver, how you think about the margin profile of the contract relative to your 15%? Unknown Speaker: It is a huge win for Halliburton Company. We had a good footprint before the award; we have an even better footprint now. This is already being rolled out. We have fleets coming in now, then toward the end of the year and into next year. We will send equipment to the best places as far as returns and pricing. We are moving that equipment out of North America where we believe we have good pricing and a sustainable program. It also demonstrates the importance of our technology and improved recovery. YPF sees that. It is long-term work and we are really pleased with that win. Operator: Our next question or comment comes from the line of Marc Bianchi from TD Cowen. Your line is now open. Marc Bianchi: Hello. Can you hear me? Unknown Speaker: Yes. Loud and clear. Marc Bianchi: If the Strait were to open tomorrow and it were a green light to get back to normal operations in the Middle East, how quickly could that happen? Maybe walk us through some of the industrial challenges and opportunities that exist there. Unknown Speaker: It is unclear how quickly that comes back. We are ready. Halliburton Company’s operational footprint is intact. Most of our business is working today. Our biggest hit areas were in Iraq and Qatar. We are in constant contact with our customers and will support them when they are ready and able to go back to work. The first things you will see are likely wells turning back on, and that will be a well-by-well situation of how they produce and flow. The longer they get shut in, the more complex that gets. That likely comes first, and it puts Halliburton Company in a fantastic position. We are the market leaders for intervention work in the Middle East with our HWO and coiled tubing work. Then you would start seeing customers offshore drilling more in the deeper reservoir sections. Work offshore right now is mostly on top holes. Unclear timing, but we are ready. Jeffrey Miller: At a high level, turning back on is not immediate by any means. There is a gap in the supply chain in terms of oil to market. It is not an overnight matter. Equally important to the timing is the change in perception with respect to energy security. That is a bigger, overriding impact on supply, demand, and price. Marc Bianchi: One for Eric on CapEx. You reiterated the $1.1 billion, which would imply an uptick in spending for the balance of the year. Is there a shot that we end up doing better than the $1.1 billion, or is that just timing? And does your proportional spend for the 400 megawatts with VoltaGrid happen within that guidance? Eric Carre: The target for CapEx in 2026 is $1.1 billion. It is a bit higher than the $1.0 billion we had initially guided to. That is not related to the market situation; it is due to delayed delivery of capital equipment. We intend to stay within our range of 5% to 6% of revenue for CapEx spend. We guided 2026 on the low side of that range. Depending on how things shape up and our opportunities, we might move slightly within that range, particularly with the macro picture we see today. CapEx is overweight toward the growth engines we keep discussing. Regarding the 400 megawatts, it does not happen in 2026, so we kept it separate. Operator: Our next question or comment comes from the line of Keith MacKey from RBC Capital Markets. Your line is now open. Keith MacKey: Morning. Can you expand a little more on your offshore comments? You mentioned a few markets where you are seeing incremental demand, but how is the market shaping up versus what you might have thought three months ago? Jeffrey Miller: We really like our position in offshore. I view the offshore business from our perspective of what we are winning and the kind of work we have in the queue. We won a lot of work last year, and that is very strong for us. We continue to be quite successful in the offshore market. That is led by our value proposition—to collaborate in engineered solutions to maximize asset value for our customers—which meets an unmet market need in how we work and perform with our customers. Equally important is the progress we have made with technology, particularly closed-loop automated geosteering. It is a significant step forward in terms of reservoir contact. We feel good about the offshore business, really like our position, and we see solid growth in 2026, 2027, and 2028 in the offshore market from what we are going to be doing. Keith MacKey: And on the Middle East, what will it actually require to restart production when it is safe and feasible to do so? Walk us through what will be required, whether workovers or other items, and how that translates into service line potential for Halliburton Company. Jeffrey Miller: We are focused on drilling and the upstream. There is clearly storage and facility work that has to happen before us. As far as bringing wells back on that might be shut in, as described earlier, that will span the spectrum of how quickly they come on. It would be irresponsible to project timing—it would be a guess. The longer things are shut in, typically the more complex they are to bring back on. There is a lot of capacity with Halliburton Company in the Middle East to participate in bringing those wells back on, whatever might be required. Operator: This concludes the Q&A portion of our call. I would now like to turn the conference back over to Jeffrey Miller for any closing comments. Jeffrey Miller: Thank you. Before we wrap up today’s call, let me close with this. I believe the oil and gas markets are structurally tighter, and I am convinced that Halliburton Company has the right service lines, strategy, and technologies across the key oil and gas basins around the world. I believe this is a market where Halliburton Company will thrive. I look forward to speaking with you again next quarter. Thank you. Operator: Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, stand by.
Operator: Good day, ladies and gentlemen, and welcome to the GE Aerospace First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Liz, and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Blaire Shoor from the GE Aerospace Investor Relations team. Please proceed. Blaire Shoor: Thanks, Liz. Welcome to GE Aerospace’s first quarter 2026 earnings call. I am joined by Chairman and CEO, H. Lawrence Culp and CFO, Rahul Ghai. Many of the statements we are making are forward-looking and based on our best view of the world and our business as we see them today. As described in our SEC filings and website, those elements may change as the world changes. Additionally, Larry and Rahul will speak to total company and corporate financial results and guidance today on a non-GAAP basis. Now over to Larry. H. Lawrence Culp: Thanks, Blaire. Good morning, everyone. I want to start by addressing the conflict in the Middle East and the dynamic geopolitical environment our industry is navigating. We are hopeful for a peaceful resolution, and we are also embracing today’s reality. With safety our top priority, we are focused every day on supporting our teams in the region and our customers globally. At GE Aerospace, we remain committed to our purpose. We invent the future of flight, lift people up, and bring them home safely. Right now, nearly 1 million people are in flight with our technology under wing, a responsibility our 57,000 employees take seriously. Turning to our first quarter results, 2026 is off to a strong start. Orders were up 87%, with CES nearly doubling and DPT up 67%, including record defense orders for this decade. Revenue increased 29% driven by CES services and double-digit growth in DPT. Operating profit grew 18% with both segments up double digits. And EPS increased 25% to $1.86, with free cash flow up 14%. Flight Deck enabled us to improve output again, with commercial services revenue up 39% and total engine deliveries up 43%. All the while, we are continuously investing to improve time on wing and lower cost of ownership for our customers across our current fleet and for next-generation technologies. I want to express a big thank you to both the GE Aerospace team and our supplier partners for their unwavering commitment to deliver for our customers. Turning to slide four and what we are currently seeing in today’s operating environment: In the first quarter, global departures were up low single digits, including a high single-digit decline in the Middle East, which represents roughly 5% of our departures. For the balance of the year, we have assessed multiple scenarios to develop a range of outcomes, with our current assumption that the conflict and its effects continue through the summer. As a result, we are reducing our full-year departures outlook from mid-single-digit growth to flat to low single-digit growth. This includes a low double-digit decline in the Middle East for the year with modest reductions to other regions. Based on our experience during the global financial crisis, the impact on services will likely lag changes in air traffic demand by several quarters, to be followed by a period of above-average growth. We are well positioned to navigate cycles, with our backlog providing resilience through changes in air traffic. And we have a young and diverse fleet with leading programs in both narrowbody and widebody. For our largest program, the CFM56, about two thirds of the fleet has yet to undergo a second shop visit, and utilization remains stable, supporting continued demand. Additionally, our defense business is supporting U.S. and allied warfighters—our engines powering the Black Hawk, the Apache, the B-1, the B-2, the F-15EX, the F-16, and the Eurofighter. We are seeing increased utilization since March, creating future aftermarket demand. Diving deeper into services orders and backlog: Our commercial services business is supported by a robust backlog of over $170 billion, up nearly $30 million since 2024, providing visibility into multiyear demand and supporting our continued growth. Over the last twelve months, commercial services orders increased over 30%, including 49% growth in the first quarter. Within services, demand remains strong for spare parts, which represent roughly 40% of services revenue. Since March, spare parts orders are up over 30% year over year, and sequentially flat to the first two months of the first quarter. Even with over 25% revenue growth over the last five quarters, demand continues to exceed supply. As a result, spare parts delinquency—shipments that have been delayed due to material availability constraints—is up roughly 70% since 2024. Given the sustained demand environment and our existing delinquency, we are entering the second quarter with more than 95% of spare parts revenue already in backlog. Turning to internal shop visits, which represent roughly 60% of our services revenue, approximately two thirds of the engines due for our projected shop visits for all of 2026 are currently off wing, either in our shops or waiting to be inducted. Additionally, we have high visibility into the engines which will come off wing over the next couple of quarters based on utilization trends and required removal thresholds in concert with the airlines. Our pipeline of planned engine removals in the second and third quarters combined with engines that are currently off wing exceeds our shop visit guide, providing ample demand to fulfill our outlook and de-risking our 2026 guide. Overall, we expect a limited impact on services revenue and profit in 2026, holding our full-year guidance across the board. Given the macro uncertainty though, with our strong start to the year, we are trending toward the high end of that range. Shifting to slide six: Flight Deck is fundamentally changing the way we operate, and in times like these, it matters even more. Collaborative problem solving with suppliers, airframers, airlines, and lessors is key to this effort. For example, we recently hosted a key supplier at our Terre Haute, Indiana site. Leveraging Flight Deck, we worked together to improve flow and reduce waste on their lead production line, and they have since increased output by over 40%. Actions like these contributed to priority supplier material input increasing double digits both sequentially and year over year again in the first quarter, resulting in the increased outputs I mentioned, including engines up 43%. Across our MRO network, we are using Flight Deck to increase output, reduce turnaround times, and lower the cost of shop visits. Take our McAllen, Texas site, where we reduced LEAP high pressure turbine repair time by over 50% by redesigning the cell for better flow. And we know AI will be an accelerator for Flight Deck. At our Lafayette, Indiana facility, we expanded the deployment of an AI-based material assistant to predict shop visit work scopes for LEAP engines nine months in advance, building on the turnaround time reductions we have recognized in both our Selangor and Malaysia sites. Collectively, our efforts improved shop visit turnaround times for both narrowbody and widebody platforms year over year. With our growing installed base, we are focused on expanding capacity to fulfill customer demand. Within the LEAP external network, Delta TechOps is now the first North American airline MRO provider licensed for both the LEAP-1A and LEAP-1B. And we just announced Iberia as our seventh Premier MRO, supporting growth in Europe. More broadly, maintaining U.S. aerospace leadership requires sustained investment to meet customer demand. We recently announced plans to invest $1 billion in our U.S. manufacturing sites and supply base for the second consecutive year to help accelerate engine deliveries, ramp part production that extends time on wing, and strengthen our defense industrial base. Additionally, $100 million will be invested in our external supplier base to provide equipment and tooling to increase capacity. These actions and investments are driving meaningful progress to services and equipment output, and while there is more to do, we are off to a strong start and positioned to ramp even further. Shifting to slide seven: Our growing backlog reflects our commitment to deliver customer value, investing to improve time on wing and cost of ownership. Nearly $200 million of our $1 billion investment in U.S. manufacturing supports expanding capacity for LEAP durability upgrades. We are making progress upgrading the fleet, with the durability kit now on over 30% of the LEAP-1A installed base. Growing our repair capability is critical to improve turnaround times and lower cost of ownership, as a repaired part can cost 50% less than a new part. At our Singapore repair facility, we are investing $300 million to support new technologies and repair processes. Our customer-driven approach is driving backlog growth, with more than 650 commercial engine—or over $1 billion—in wins in the first quarter alone. This included extending our fifty-plus-year partnership with American, as they celebrate their one hundredth anniversary this month. American recently committed to more than 300 LEAP-1A engines with options for 200 more to power future A321neo and A321XLR deliveries. United, also celebrating one hundred years this month, selected 300 GE9X engines for its 787 fleet, making it the largest GE9X operator globally. Additionally, Delta committed to 60 GE9X engines with options for 60 more for its new 787 fleet, marking its first GE9X selection. In services, we signed an agreement with Ryanair covering approximately 2,000 CFM56 and LEAP engines, providing material support and MRO services to scale their in-house capabilities, consistent with our open MRO strategy. And in defense, in support of the CH-53K and the critical missions it performs for the U.S. Marine Corps, we were awarded a $1.4 billion contract for additional T408 turboshaft engines. With continued momentum, we are looking forward to what should be an exciting Farnborough Air Show in July. Our experience with our current fleet is also informing next-generation technology. RISE is central to that strategy and will enable improved efficiency without sacrificing durability. This quarter, together with the Civil Aviation Authority of Singapore and Airbus, we established the world’s first airport test bed for open-fan technology as part of the RISE program. This testing will validate how next-gen engine architectures operate in real-world airline environments and marks another step forward toward ground and flight tests later this decade. In Defense and Systems, we also continue to execute with speed against high-priority military needs in support of U.S. and allied warfighters. This quarter, deliveries were up 24%, and we continue to receive awards across our family of small engines, a key growth area as programs progress. This included an award from the U.S. Air Force to complete an initial design concept of the GEK 1,500 in partnership with Kratos, with potential applications across unmanned aerial systems, collaborative combat aircraft or CCAs, and missiles. This work is being informed by the maturity of the GEK 800, which completed successful altitude testing last fall. The team designed, built, and tested the first GEK 800 in less than twelve months, testing the fifth iteration of the engine last summer. We are making progress with high-end CCAs through our partnership with Shield AI for the X-PAT Vehicle program, pairing our propulsion development, testing, and certification expertise with their autonomous aircraft capabilities to accelerate delivery of mission-ready capabilities. We also recently completed a preliminary design review on a hybrid-electric turbogenerator engine system for Beta Technologies’ MB250 VTOL autonomous aircraft. This confirms the engine concept and demonstrates the power of combining our technical expertise to accelerate key programs. Stepping back, we are driving measurable progress on what matters most to our customers: ramping output and improving durability while reducing the cost of ownership, which supports their growth and ours. Rahul, over to you. Rahul Ghai: Alright. Thank you, and good morning, everyone. We started the year with over 20% top-line and earnings growth. Orders were up 87%, with CES up 93% and DPT up 67%. Revenue increased 29%, with CES up 34% while DPT was up 19%. Operating profit was $2.5 billion, up approximately $380 million, driven by services volume and price. Margins, as expected, decreased 200 basis points to 21.8% from the impact of installed engine growth, investments, and inflation. EPS was $1.86, up 25% from increased operating profit, a lower tax rate, and a reduced share count. Free cash flow was $1.7 billion, up 14%, largely driven by higher earnings. Working capital and AD&A combined was nearly a $500 million source with strong utilization billings, partially offset by the expected timing of compensation payments. Going deeper on our 25% EPS growth this quarter: Growth in operating profit drove $0.29, or nearly 80% of the improvement in EPS, with increased profit in CES and DPT. This was partially offset by higher corporate cost and eliminations, which were up around $120 million—roughly half from an increase in eliminations and half from an increase in environmental, health, and safety expenses off a low base. A lower tax rate and reduction in share count drove an additional $0.10 of EPS growth. The tax rate decreased three points to 14.7% from earnings mix and benefit from recent tax legislation. Share count was down 24 million from our previously announced capital allocation actions. Turning to CES: In the first quarter, orders grew 93%, with services up 49% and equipment more than tripling to nearly $8 billion. Revenue increased 34%. Services grew 39% with internal shop visit revenue up 35% from higher volume, including LEAP internal shop visit growth of over 50%, and increased work scopes. Spare parts sales were also up over 25% from improved material availability and growth of external LEAP shop visits. Equipment revenue grew 20%, with engine deliveries up 50% including LEAP up 63%. Widebody deliveries were also up over 25% driven by GE9X, which was up even more. Profit was $2.4 billion, up nearly $450 million from higher services volume, price, and the absence of charges related to estimated profitability on long-term service agreements taken in 2025. As expected, margins were down 230 basis points to 26.4% driven by installed engine growth, including 9X shipments, and investments. Both installed engine and spare engine volume increased year over year, but growth in installs outpaced spare engine growth. Overall, CES continues to deliver meaningful growth largely driven by services as OE ramps. In DPT, orders increased 67%, including T408 engines for the U.S. Marine Corps CH-53K. Defense book-to-bill was above 2 for the second consecutive quarter. Revenue grew 19%. Defense and Systems revenue was up 14% as June grew 24% driven by an increase in F110 and rotorcraft engines. Propulsion and Additive Technologies grew 29% with growth across the portfolio led by Avio Aero. Profit grew 17% from increased volume and price. Margins were down 20 basis points to 11.8% driven by mix, investments, and inflation. DPT delivered a solid first quarter with continued demand strength and improved output. Moving to guidance on slide 12: Our first quarter exceeded expectations, given stronger spare parts sales growth and shop visits increase. We have a robust backlog supporting our growth for several years, and we are taking actions to navigate the current environment. Due to the dynamic macroeconomic backdrop, we are maintaining our guidance across the board, and as Larry mentioned, given our strong start to the year, we are trending towards the high end of the range of low double-digit revenue growth; profit of $9.85 billion to $10.25 billion; EPS of $7.10 to $7.40; and free cash flow of $8 billion to $8.4 billion for total company. We are also maintaining segment guidance for both CES and DPT, with a similar trend towards the higher end. Our guidance is based on full-year departures growth of flat to low single digits and is underpinned by the following assumptions: fuel prices remain elevated above current levels through the third quarter and decrease to current levels by year-end; a near-term impact from fuel availability in certain geographical regions; a global reduction in GDP growth impacting air travel demand. This guidance does not contemplate a global recession unfolding. Near term, orders continue to be strong, and we expect the strength in the first quarter to continue into the second quarter, with 95% of spare parts in backlog and all shop visits for the quarter already off wing. As a result, we are expecting second-quarter services growth of high teens, above our full-year guide, and supporting total company year-over-year and sequential profit growth in the quarter. For the full year, we are now expecting services revenue up roughly $4 billion year over year, from approximately $3.5 billion expected previously, supporting our increase of profit and cash to the high end of the range. However, as we get into the second half, we are taking a more measured view given the evolving environment and have included the potential impact from deceleration in spare parts growth, lighter work scopes, delayed spare engine shipments, and reduced billings within our guidance. While the external environment remains uncertain, we are taking proactive actions, including managing discretionary spending and conducting reviews to assess risks and opportunities to support our customers. Overall, balancing the various factors, we are confident in our ability to deliver the high end of our guidance given our strong first quarter, outlook for the second quarter, and a substantial backlog. With that, Larry, back to you. H. Lawrence Culp: Rahul, thanks. Our momentum is further supported by our sustained competitive advantages. With the industry’s largest fleet—80,000 engines and growing—and more than 2.3 billion flight hours, we operate at scale with unmatched proximity to our customers across decades-long life cycles, which makes us the partner of choice. Our field experience combined with nearly $3 billion in annual R&D enables continuous improvement in time on wing and cost of ownership, directly aligned with what our customers value most. Across narrowbody, widebody, regional, and defense platforms, we offer leading performance under wing, supported by deep technology expertise and a growing services network. Our world-class engineering teams develop next-gen technology to improve durability, efficiency, and turnaround times, along with advanced defense capabilities. Through Flight Deck, we are turning strategy into results, with a focus on safety, quality, delivery, and cost—always in that order, every day. With Flight Deck, our over $210 billion backlog, and the actions underway, we are well positioned to manage near-term uncertainty and deliver value. With that, let us go to the questions. Blaire Shoor: We will now open the call for questions. Before we open the line, I would ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, can you please open the line? Operator: Ladies and gentlemen, if you wish to ask a question, please press 11. Our first question comes from David Strauss with Wells Fargo. David Strauss: Thanks. Good morning. Thanks for taking my question. Thanks for all the detail on how you are thinking about the aftermarket. But I just wanted to clarify. So, Larry, it sounds like you ultimately do expect an impact on services growth from your lower departures growth forecast, but maybe it sounds like you are thinking more so in 2027, or carrying into 2027, than 2026 given your strong Q1 and the backlog that you have on the services side? And I guess in terms of how you are thinking this might play out, are you thinking at this point that there could be a pickup in CFM56 or GE90 retirements? Or are you just expecting lower utilization to come through at this point? Thanks. H. Lawrence Culp: Good morning, David. David, I think what you see in the lean toward the high end of the guide is the expectation that we are going to have a strong second quarter given the visibility that we have both with spare parts and shop visits—we touched on that earlier—and I think that is very meaningful. I think what we are acknowledging is it is very hard for any of us to call the duration of what is happening in the Middle East at this point. By holding the guide, I think what we have suggested is that the backlog that we have, the visibility that we do have for the second half, should allow us to be within that guide that we offered up ninety days ago. We are acknowledging that if there is sustained softness in departures, there is an effect typically in commercial services, but with a lag. Let us hope we are not staring at something akin to the GFC—we mentioned that in our prepared remarks—but there will be a lag effect. At this point, I think given what we know, we feel strongly about our ability to deliver the high end of the guide here in 2026. Rahul Ghai: Yeah, David, just to add to that, when we think about 2027, like you said, we feel good about 2026. Having leading positions in both narrowbody and widebody—75% share of the narrowbody cycle, 55% share of the widebody cycles—is helpful in times like this when air traffic growth is uneven, as it dampens the volatility that we see in the market. Also, the fleet is young. You touched on the CFM56 and GE90. A third of the CFM56s have not seen their first shop visits, two thirds have not seen a second shop visit, and there are similar trends for GE90—70% of the GE90s have not seen the second shop visit. It is early days, but as we sit here in April, both the number of parked aircraft and the retirements are really low. In fact, the retirements in the first quarter for CFM56 were lower than what we experienced in the fourth quarter. So we have not seen any increase in either of those two trends. As Larry mentioned in his prepared remarks, as we have seen in prior cycles, the air traffic has a strong recovery after every downturn. So if you see any impact here in the second half of the year, it is going to be a push-out of demand versus a disruption. It is hard to call 2027 just yet. It all depends on how the situation evolves over the next few months. It is early to call, but overall, we feel good about the trajectory that the business is on through this cycle. Operator: Our next question comes from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe just a follow-up on David’s comments. Larry and Rahul, services up 39% in Q1—great quarter both on shop visits and spare parts—and Q2 expected to be up high teens, implying only mid- to high-single digits in the second half. So maybe delve a little bit more into the visibility you have through the summer. And, Rahul, you mentioned push-out of demand, not demand destruction. How do we think about where you are seeing most potential risk post-Q4, whether it is narrowbodies or widebodies? And how do we think about retirement rates staying low today and potential assumptions for 2026 and 2027? Rahul Ghai: Yeah. So, Sheila, I think we touched on a couple of things here. As you said, we see good visibility into the second quarter. We have said—Larry and I both said—95% of the spare parts for the second quarter are in backlog, and all the engines that we need to work on for the second quarter are in the shop. Larry also provided a full-year shop visit view that we are about a third oversubscribed right now from what is already off wing and what will come off wing in the second and the third quarter. So that gives us confidence around 2026. Now as we go to 2027 and where the risks may come, you touched on retirement rates. Keep in mind that the retirement rates that we have assumed for 2026 with CFM56 are in the 2% range, and what we saw in the first quarter is sub-1%. As we get into 2027, we have already assumed in our prior outlook that retirements increase to 3% to 4%. So we have factored in a certain increase in retirements. We have not seen that. We are not seeing anything concerning just yet. Our order trends are holding. But it is more about what is unknown, and that is a little bit of caution, prudence—whatever words you want to use—for the second half of the year. Time will play out and give us more visibility into 2027. Overall, the business is strong, the franchise is strong, and I think we should be able to navigate anything that evolves over the next few months. Operator: Our next question comes from Kenneth George Herbert with RBC Capital Markets. Kenneth George Herbert: Yeah. Hi. Good morning, Larry and Rahul. Really strong spare parts orders in the first quarter. I am just curious—especially your comment on March strengthening from the first two months—do you get a sense that there was any prebuying by your customers on the aftermarket ahead of potential disruptions or concerns down the road? I am just curious as to what was underlying the real strength in orders in the quarter and if there could have been any pull-forward in the order demand. Thank you. H. Lawrence Culp: Ken, I do not think we have seen any evidence of a pull-forward here. To Rahul’s comments just a moment ago, when you think about the breadth of the portfolio—narrowbody, widebody, on a global basis—we just have not seen that sort of behavior. We also noted in the prepared remarks that, as proud as we are of the operational progress that we have made, we still saw delinquency increase, which means we are past due on the spare parts orders that we do have. I think customers are busy. There is still perhaps some pent-up demand from the pandemic that is working its way through the system. But to your specific question, we have not seen that behavior. Operator: Our next question comes from Christine Liwet with Morgan Stanley. Christine Liwet: Hey, good morning, everyone. Larry, Rahul, you talked a lot about demand, and I just want to dive a little bit deeper here. You talked about 2Q and 3Q engine removal pipeline above your shop visit guide. So, holding the macro environment you called out, is this higher removal pipeline contemplated in your upper-reach 2026 outlook, or could we see revisions higher in the year if oil resolves in 3Q? H. Lawrence Culp: Christine, good morning. I think if it were not for current events, we would be talking about an increase in the guide this morning, not color and body language toward the high end of the existing range. In many respects, given the backlog that we have highlighted a couple of times already, both in terms of spare parts and shop visits, absent a change in customer behavior and continued progress on our part relative to internal operational execution, that potential does exist. But, again, given current events, we thought it most prudent to stay with the range that we issued ninety days ago and provide a little bit more color, particularly with respect to the quarter and the first half. I will not repeat what we have already said. In terms of our ability to control the controllable, we feel very good about that. The progress that we have made with the supply base has been considerable already this year and builds on the progress over the last couple of years. You see that not only in the input numbers we have cited, but in turn the output numbers as well, both in terms of units and dollars. That should continue. Rahul Ghai: And, Christine, to get to a higher shop visit number—that is not factored into our guidance. What we will need to see is better material flow through than what we have currently factored in, to burn some of that delinquency that exists on both spare parts and the shop visit side. Back to your point, that is when we would take our services guidance above where we have it, around $4 billion of growth this year. Operator: Our next question comes from Scott Deuschle with Deutsche Bank. Scott Deuschle: Hi, good morning. Rahul, I was wondering if you might share with us an update on LEAP aftermarket profitability, and particularly how LEAP aftermarket margins are trending in 2026 relative to 2025. And then I would love to get your latest thinking on the path to margin expansion on the program beyond 2026 and over the long term. Thank you. Rahul Ghai: Yeah, Scott, on LEAP, the services business is trending really nicely. We are expecting a further improvement this year on margins. Trends have been good for the first half of the year, and it is coming from a few things: increased volume that we are driving in our shops; the repairs that we are developing in our aftermarket business—this year, we expect the number of repairs that we develop on LEAP to double over what we developed last year, which helps reduce the cost of the shop visit; and the external channel is coming up nicely as well. We are now at about 15% of our shop visits for LEAP performed by third parties. That number was close to 10% just eighteen to twenty months back. So that part of the business is developing nicely. If you put all that together and think longer term to your second part, we do expect the LEAP service margins to approach overall CES service margins by the time we get into the 2028 time frame. Really pleased with the progress—for a business that was just kind of breakeven a few years ago, we have made a lot of progress in the last eighteen months. Operator: Our next question comes from Robert Stallard with Vertical Research. Robert Stallard: Thanks so much. Good morning. Just want to follow up on slide five and that spare parts delinquency chart you have in there. Is that continued march higher in delinquencies just due to continued demand exceeding supply—the supply chain strain? And how long do you think it will take to get that back down to a more reasonable number? H. Lawrence Culp: It is—despite the progress we have talked about a few times now this morning, not only with inputs but outputs—just a function of demand outstripping supply. We highlight delinquency simply to make sure investors understand that dynamic is in play. Operationally, it is a number we are not proud of, because we are failing to meet customer expectations in that regard. I think it is going to take us a while yet to get to zero delinquency. That clearly is the goal. On-time delivery is one of our critical operational KPIs as part of Flight Deck. We are not going to be able to circle that, but given the continued momentum we see with our suppliers and our own operations, that is something that we should deliver on in time, regardless of the demand environment. Operator: Our next question comes from Douglas Stuart Harned with Bernstein. Douglas Stuart Harned: Good morning. Thank you. I wanted to continue on a look at the current environment because when you look forward and see some of the challenges out there—if we see jet fuel above $200 in Asia and in Europe—there are quite a few airlines that could be under some real financial pressure. When you look at the steps you need to take over the next year or so, how do you compare the concerns around, say, an airline that is in difficult financial straits and cannot do an overhaul versus simply reductions in flying hours that could take some dollars out of LTSAs? How do you think about these different hazards over the next year? H. Lawrence Culp: Well, Doug, the scenarios that we talked about earlier have us contemplating a range of possibilities, given that none of us know how things are going to play out here, particularly with respect to duration in the Middle East. I do not think we have tried to tether ourselves to one scenario or another. We have considerable backlog—we have talked about that a number of times this morning. We are mindful of the risks that we may have in the customer base. Rahul and the team have increased the work we do in that regard. But first and foremost, we are trying to support our customers as best we can to weather these storms as we have in past situations—be it the pandemic, be it the GFC, and even situations that were of lesser impact. We are also putting our spending under greater scrutiny—continuing to invest in the future of flight, of course, and continuing to invest in improved durability and lowering the cost of ownership. But given the situation, we are making sure that as a senior leadership team, we are spending in a more cautious fashion today given what we know and given what we do not. Operator: Our next question comes from Scott Stephen Mikus with Melius Research. Scott Stephen Mikus: Good morning, Larry and Rahul. Figured there would be a lot of questions about the conflict in the Middle East, so I wanted to check in on the GE9X. Boeing flagged a fatigue issue with the engine, so just curious if you could provide an update on that. Is there any change to the expectations you had for losses on the program this year? H. Lawrence Culp: No change on schedule, no change on losses. I would just start, Scott, by reiterating that we are thrilled to be the sole-source partner on the 777X. We have over a thousand engines on order, and customers want the engines, they want the airplanes. What we shared with folks is that we saw back in January a durability issue with the mid-seal. Remind everybody, this is on an engine that was certified back in September 2020. The crack that we uncovered during a shop visit—which is part of a flight test engine—is something we have seen before. We think we are at root cause. We are finalizing the modification as we speak, and we have been fully transparent with Boeing and the FAA every step of the way. So, I think as Boeing has said, we believe we are on track with the certification plan that has been communicated to customers. No change to the schedule. Of note, the 777X flight test program continues—it is ongoing. With respect to deliveries, we had deliveries in the first quarter. Currently, we are continuing to build up in assembly to the point of the mid-seal, modifying the tooling, and ramping some suppliers for the modified part. We will end up having deliveries that will be more second-half weighted, but at this juncture, there is no reason to believe the full year will be any different than what we have communicated. Operator: Our next question comes from Myles Alexander Walton with Wolfe Research. Myles Alexander Walton: Thanks. Good morning. I was hoping to switch gears a little bit on aeroderivatives—I know off-topic question—but you had a disclosure that had a restatement and moved derivatives equipment from your CES segment to your DPT segment. You had 94 deliveries of aeroderivatives last year to your customers, but the pricing on those looks fairly benign relative to the potential for where pricing could be, given the backdrop for power. So can you talk about what the strategy is for aeroderivatives and what the upside opportunity could be there for repricing and volume? Thanks. Rahul Ghai: Yeah. So, Myles, on aeroderivatives, as you know, we provide the engine and then our partners in the JV take the product to market. They do the system integration and add some controls—there is work done by both parties. What you saw in our disclosure is basically the fact that we are burning the pre-spin backlog. That was backlog that we had sold when we were part of one company that had different agreements. Post-spin, the pricing to the JV has been revised substantially, and we are working our way through the old backlog. We should transition to the orders that we have won post-spin over the next, I would say, eighteen to twenty-four months. You will see a gradual increase in pricing over the next few months to quarters. Overall, it is a great business. We are sold out through the early 2030s, so that is one leg of the stool. And then, obviously, everything that you are seeing with now CFM56 getting added potentially to the power generation capacity—that gives another level of growth toward the CFM56 platform, be it through spare parts sales to third parties who are developing that product, or some other form of collaboration. We are exploring all those things. Overall, the aeroderivative business is in a really good spot in the market, both with the existing product that we have and potential new entrants to that market. H. Lawrence Culp: And, Myles, we moved it over from CES into DPT really to give the commercial team the opportunity to focus exclusively on the airliners, the airlines, the airframers. At the same time, there are some similarities to part of our defense engines and services business, especially in and around marine applications. So there is a better operational home for this business in the other segment. That is the sole reason for the move earlier this year. Operator: Our next question comes from John Godden with Citi. John Godden: Hey, guys. Thanks for taking my question. If I could just come back to CES margins specifically. There is a concern out there that if this fuel shock continues, retirements spike and, in particular, your CES margins would be at risk. You have been very thoughtful about your guidance and embedded a pretty conservative outlook for global aviation, and it does not seem like you think that risk is particularly likely. I would love to get your reaction to the concern on margin risk and what positive offsets to this mix effect might exist if global aviation continues to deteriorate. Rahul Ghai: I think there are two parts to the question. For the current year, as you think about the margins, we baked in kind of flattish margins for the year. If you think about the growth for the year—the $4 billion of growth that we are now expecting—keep in mind, the first quarter grew by about $2 billion, and we are expecting high-teens growth in the second quarter. That gets us closer to two thirds to three fourths of the growth being in the first half of the year. We feel good about the growth rates that we have for the year, and that should support the flat margin expectations that we have for the business. What is happening in the year, as we have discussed previously, is that we are getting good support from our services growth—that is dropping through at a healthy clip. In the first quarter, service margins were actually up year over year. That was a positive trend. We are not baking that in for the full year—full year, we are expecting service margins to be flat—but it is a good start to the year. That positive drop-through from services is getting offset by the OE growth that we saw. For the full year, we expect deliveries to be up 15%. While both spare engines and installed engines are going to be up for the year, the growth is primarily going to be driven by installed engines, and then we have 9X shipments. Put all that together, and we expect flattish margins for the year for CES. As you go outside the year, we spoke about the LEAP margin trajectory earlier to Scott’s question. We expect LEAP margins to approach overall CES levels of service profitability in the next couple of years. 9X losses should also peak by the time we get to 2028, given that we are driving a 50% production cost reduction in 9X. So LEAP margins improving and 9X headwinds peaking in 2028—beyond that is when we expect both accelerated profit and margin expansion in the business. Operator: Our next question comes from Gavin Eric Parsons with UBS. Gavin Eric Parsons: Good morning. Thanks, guys. This is Joel Santos filling in for Gavin Parsons. Thanks for taking my question. Moving to defense—strong results in 1Q, solid margins, stronger order environment. As we look through the rest of 2026, how should we think about the sustainability of growth and margins in the segment? Rahul Ghai: For DPT, you saw our revenue growth in the first quarter. We are expecting high-teens revenue growth for the full year. Overall, if you look at the results for the first quarter, they keep us on pace for what we have guided for the full year, both on year-over-year profit growth and the absolute dollar of profit that we delivered in the first quarter. Margins were a little bit light in the first quarter largely because equipment grew more than the aftermarket, but that mix should improve as we go through the year. Overall, we are on track as we think about the year. We are going to drive strong output, productivity is going to get better, and the mix should also improve. Given the growth rates that we had in the first quarter, we feel good about the year, and as we said in our prepared remarks, we do expect DPT to be at the higher end of the guidance we previously committed, given the growth rates we are seeing and the expected drop-through. Operator: Our next question comes from Seth Michael Seifman with JPMorgan. Seth Michael Seifman: Hey, thanks very much and good morning. In the outlook where you talk about Brent prices remaining fairly elevated through Q3, in addition to Brent prices we have seen a significant increase in the spread for jet fuel. Are there special things we should be thinking about there, and reasons why from a jet fuel perspective this could carry on longer and/or be more disruptive than simply what is happening with oil prices? H. Lawrence Culp: Seth, I do not think we are trying to be too granular in the underlying assumptions. The economic realities you have pointed out are there, and I hope what we are taking is a conservative set of assumptions on board here between now and, let us say, Labor Day. Time will tell. By and large, we know that between inflation and potential scarcity in other parts of the world, we could see some near-term airline behavior shift. By near term, I mean late summer and early fall—call it the second half. We are also assuming that by the end of the summer, we are on our way back to more normal conditions. Given what we have seen before, we may have a lag in the aftermarket on the commercial side of the business from what is happening currently, but then we tend to have a spring back, which is why we have alluded to some of our historic reference points. Demand tends to get pushed out as opposed to going missing indefinitely. Blaire Shoor: Liz, we have time for one more question. Operator: This question comes from Gautam J. Khanna with TD Securities. Gautam J. Khanna: Hey. Thank you. I had actually two questions, but the first one just on supply chain—you mentioned delinquencies and the like. If you could just characterize how material improved sequentially and where, and maybe just an update you have given in the past on how many suppliers and where the pinch points are strongest. And then secondly, I was wondering on the company’s aftermarket exposure to low-cost carriers or business models in the airline industry that might be more affected by a high oil environment. Maybe if you could elaborate on that. H. Lawrence Culp: I will take the supply chain question and let Rahul speak to certain customer segment risk. From an input perspective, we mentioned earlier that we have seen double-digit increases again sequentially and year over year from some of the critical suppliers. We have said all along we are going to be the problem solvers, not the finger pointers, and I am really pleased with the way we have had suppliers across the board engage with us. It has been a journey at every point, but we are simply getting better. We are more transparent, we are more trustworthy with each other, and in turn we have allowed our best people to go to gemba—to go to where the constraints and bottlenecks exist—and solve them. There is no way we take engine output up 43% without that sort of support from the supply base. Likewise, commercial services up 39%—there is no way we are able to get that volume out the door to serve our airline customers without really good progress using Flight Deck with the supply base. That is not to suggest that we are all clear between now and 2030—there is still a lot of work we are going to have to do, more every year. But what a wonderful challenge to have. Kudos to our team and to the supply base for engaging and supporting us with our ultimate customers in mind, particularly here in the first part of 2026. Rahul Ghai: And, Gautam, to your second question—if I step back and look at the environment we have seen since the start of the conflict, there is nothing giving us pause. Customers are eager to get back in the air. Yes, they are experiencing temporary disruptions given everything that is going on—directly in the Middle East, and a little bit from lack of fuel availability and higher fuel prices—but everybody is eager to get back and support the flying public. We spoke to the trends we are expecting in the second quarter, and as we think about the full year—had it not been for the environment that we are in, and I am repeating something Larry said earlier—we would have raised our guidance. The first quarter was about $300 million better than what we had expected at the beginning of the year, and we are carrying that strength into the second quarter. The momentum is clearly carrying through, and we spoke to both sequential and year-over-year profit growth in the second quarter with high-teens services growth expected. The second half is just about what we do not know. Hopefully, as Larry said earlier, we are being conservative and cautious—prudent, whatever words you want to use. Time will tell, but we feel good about the year as we sit here today. We are not seeing any disruptive behavior on the part of the customer. We are not seeing risks that we did not have just a couple of months back. We are monitoring the situation very closely, as you would expect us to, and we will provide updates throughout the quarter as we learn more. Blaire Shoor: Larry, any final comments? H. Lawrence Culp: Just in closing, Flight Deck will help us deliver what our customers value most—higher outputs, improved durability, and lower cost of ownership—even as we navigate the current environment. We are confident in our trajectory and our ability to deliver value for customers and shareholders. We appreciate your time today and your interest in GE Aerospace. Operator: Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.
Ulrika Hallengren: Welcome to the presentation of Wihlborgs' first 3 months report 2026. Growth, cash flow and core business is our mission. And even if the world gives us some challenges, our region continues to deliver not only [Audio Gap] quarter in 11 years, but I see no new trend in this, just a reminder that a quarter is a short period. Net debt to EBITDA at 10.5x, good access to financing continues, and we have acquired our first premises in Carlsberg Byen in Copenhagen. And with some figures on that, the rental income was SEK 1.150 billion, a new record, the operating surplus SEK 800 million and in terms of property management SEK 520 million. The result for the period increased to SEK 548 million, corresponding to SEK 1.78 per share and EPRA NRV has increased by 10% to SEK 101.14 per share adjusted for paid dividend. A comparison of the rental income Q1 '25 and Q1 '26, indexation, plus SEK 13 million; acquisition, plus SEK 46 million; currency effect, minus SEK 12 million; additional charges, plus SEK 23 million, and completed projects, new leases and renegotiation plus SEK 35 million. And the net letting was negative with minus SEK 35 million, the first negative quarter after 43 quarters in a row with positive numbers. New leases of SEK 49 million and terminations of SEK 84 million. Even if every single termination is a loss, the volume of termination as such is close to last year and no drama in that, but the amount of new leases in Q1 are too low to meet that. The year started quite slowly, picked up a bit. But then when the war in the Middle East was a fact, all discussions were pushed forward. Over 50% of the termination was in Denmark, and we know that the market there is quite strong, so I expect that we will see a pickup. We also had SEK 8 million in Sweden from bankruptcies that affected the result with minus SEK 1 million, but terminations had a yearly rental value of SEK 8 million. Now, in April, things have changed, and I think the list of possibilities and the ongoing discussions actually are quite good. That doesn't mean that things will be easy ahead, and I cannot promise positive net lettings in the coming 4 to 3 quarters, but at least we have a number of good discussions ongoing. Here are some of the tenants that we have signed during Q1, the defense industry, which, for example, the new and expanded lease with MilDef is a growing sector. And we also see some examples of interesting and growing tech companies like Intermail and the tech hub Hedge in Helsingborg also continues to attract innovative AI companies. Here, we have the net letting in a historical perspective, lettings in green, terminations in light blue and dark blue stacks are the net letting. We don't win every lease opportunity, which is annoying, but the hit rate over time is good, and let's see how we can develop this further on. And the list of our 10 largest tenants in alphabetic order, strong customers, and they contribute with 90% (sic) [ 9% ] 90% of rental income, 7 out of 10 are governmental tenants and the public sector contributes with 22% of rental income. The rental value as of 1st of April '26 is SEK 5.157 (sic) [ 5.127 ] billion per year, first time over SEK 5 billion, plus 11.6% and rental income, SEK 4.523 billion, plus 10.3%. Strong figures, and this is an effect of acquisitions, indexation, investments and, of course, tenants willing to pay for the right quality. Looking at the like-for-like figures, the properties we owned a year ago, excluding projects compared with updated figures, we can see that rental value is up 2.2% and rental income is up 1.1%. Like-for-like does not include the large acquisition we did 1st of April '25. As said last report, it's good with the growth also in the like-for-like stock, but to get the growth we aim for, acquisition and investments will continue to be important, especially in times of higher vacancy. Changes in the market value of our properties, we started the year with SEK 64.414 billion in accordance with the external valuation of 100% of our portfolio. We have made acquisitions, which add on SEK 534 million; investments SEK 562 million; divestment, minus SEK 4 million; changes in valuation, plus SEK 19 million and together with currency translations of SEK 117 million, that summarized to a value of SEK 65.642 billion. Valuation parameters haven't changed since last -- since year-end, and that includes assumed indexation of 1%. So very small changes of valuations that growth comes mainly from investments and the transaction we made in Copenhagen. Here's a long-term trend for portfolio growth from SEK 7 billion to SEK 65.6 billion in 21 years and growth every year without taking in any new equity from our shareholders. These figures, the running yield show how we actually perform in relation to the valuation, so this is not the valuation yield. For the whole portfolio, the occupancy rate is 90%, excluding project and land, and with an operating surplus of SEK 3.356 billion that gives a running yield of 5.5%. Fully let, the portfolio would give around a running yield of 6.3%. Good earnings capacity in relation to the value of the portfolio and good cash flow generation is the foundation also ahead. The occupancy has improved in some areas and lost a bit in others. What we know is that of the total vacancy, approximately 14% are already signed, but not entered yet and for additional 6% of the vacancy, we have ongoing discussions with possible tenants. So a lot of positive work in that, but we will also add on vacancy from terminations. Additional new build projects will move from the project line to the running portfolio line and possible transaction may also affect vacancy, so no exact guiding ahead. But I expect occupancy numbers for the portfolio to be relative flat next quarter, but with somewhat increased income from the base rent figure. Parking and additional charges may vary. In the office portfolio, the market value is SEK 51.451 billion with an occupancy rate of 90%, 90% in Malmo, continue with small improvements in Helsingborg to 91%, 89% in Lund and 91% in Copenhagen. The operating surplus from offices summarized to SEK 2.781 billion and a running yield of 5.4%, 6.2% fully let. The logistics production portfolio have a value of SEK 9.315 billion, 92% occupancy in Malmo, 83% in Helsingborg, 95% in Lund and 97% in Copenhagen. In all, 88% occupancy with a running yield of 6.2%, 7.3% fully let. The development of our total portfolio running yield, 5.5% brings stability, not least since the portfolio overall has a high quality and good location. As noticed before, a good increase of the running yield since 2021. Some sustainability highlights. We have improved from 0% to 35% certified area in our Copenhagen portfolio within 1 year, and there is more to come. We have also new sustainability targets from 1st of January and we will report on a wider spectrum with focus on energy efficiency, carbon dioxide emissions and climate adaptation as well as important social and governance measurement. More on that topic in the report, but I'll show you some figures here. It was a cold start of the year but to be able to compare how we improve our energy use, we also present figures normal year corrected, and of course, also in kilowatt hours per square meters. Here you can see the improvements quarter-by-quarter and year-by-year. We present the carbon dioxide emissions from Scope 1 and 2 in the same way. Here, we have higher emissions in Q1 according to more gas used in Denmark during this period of energy uncertainty in the world. We also compare energy production from solar cells and not at least, we have a new goal till 2020 (sic) [ 2030 ] to replace refrigerants in our cooling systems to more environmental neutral gases, and this work continues. A catalog of our value and properties in our 4 cities end Q1 '26, 38% of the value is in Malmo, 23% in Helsingborg, 17% in Lund and 22% in Copenhagen. Commuting across the Oresund Strait continues to increase and the entire region benefits from the fact that Sweden and Denmark complement each other's economic cycles. The increased focus on defense and resilience also contributes to investments in the region, not only correlated to industries such as Saab and MilDef, but also due to the fact that 90% of the important food to Sweden passes through our region. That means that Sweden depends on the infrastructure in the region and harbors, highways, railways and of course, the Oresund Bridge must be in good condition and well protected. The region as such benefits from that also in a long-term perspective. During the first quarter, we have acquired 10,300 square meters office and retail in Caroline Hus in Carlsberg Byen, property value of DKK 370 million and location that attractive both for living and working. A high density close to the city center, interesting mix of older refurbished building and new build, and as we see it, potential for growth rent in the area. And time for financials. Over to you, Arvid. Arvid Liepe: Thank you very much, Ulrika, and good morning, everyone. If we look at the income statement for the quarter, Ulrika has touched upon the figures already, but I would like to highlight that the rental income of SEK 1.150 billion is actually a record for the fourth quarter in a row when it comes to rental income in an individual quarter, up 10% versus the same quarter 2025. And as we write in the report, we had a positive one-off effect of SEK 15 million coming from a terminated lease in the Danish portfolio, which was settled with a so-called termination fee. But nevertheless, we had a good growth of 10% of the rental income. The operating surplus amounted to SEK 800 million, up 9%, and that is despite, as you can imagine, having higher costs for snow removal and for heating during Q1. For those of you living in Sweden, you know that the winter was colder and longer than most winters, not least so here in Southern Sweden. Income from property management amounted to SEK 520 million, which is up 12% versus the same quarter previous year. Value changes in the property portfolio were basically flat, plus SEK 19 million, so no big changes at all. And the underlying assumptions, as Ulrika mentioned, was also basically the same as at year-end. We had positive value changes in our interest rate derivatives portfolio, plus SEK 191 million and in total, a profit for the period of SEK 548 million. On the next slide, looking at the balance sheet, investment properties versus 12 months previously went up by SEK 6.5 billion and stood at SEK 65.6 billion in total. Is the presentation of the slides working or not? Ulrika Hallengren: Not sure. Let's see again. Arvid Liepe: Let's see, if we can get a signal from somebody if the slides are visible. Looks okay over there. Equity end of March stood at SEK 24.9 billion, up SEK 1.4 billion versus 12 months previously. And then we've, of course, during that period, paid almost SEK 1 billion in dividends. The borrowings stood at SEK 34.2 billion, up SEK 5 billion versus 12 months previously. And as you remember, we have made acquisitions of approximately SEK 3 billion during that period. And also, we've had a high investment level in our project portfolio. Moving to the next slide, looking at our key numbers, the equity assets ratio now stands at 36.8%, the LTV has gone up slightly to 52.1% and the interest cover ratio continues to be at a strong level at 2.9x. Looking at per share numbers, the EPRA NRV stands at SEK 101.14 per share, which adjusted for paid dividend is up 10% versus 12 months previously. Looking at the next slide, the long-term development of EPRA NRV is visible in this graph and the average annual growth still stands at 15% adjusted for dividends, so a strong long-term growth trend in EPRA NRV. On the next slide, you see the long-term trend for the other financial ratios that we continuously monitor. On the left-hand side, you see the interest cover ratio. And as you remember, it was on extremely high levels during the 0 interest rate period 2019, 2020, 2021. But the 2.9x level where we are currently is well above the long-term goal of or the goal that we have of a minimum of 2.0x. On the right-hand side, you can see the equity assets ratio, well above our threshold of 30%, stands at 36.8% currently. And the loan-to-value is well below our limit of 60% at 52.1%. On the next slide, you can see our net debt in relation to EBITDA. Also there, we have a long-term stable development; this ratio now stands at 10.5x. And we think it's a very relevant number since it reflects the cash flow that we actually generate in our core business. On the next slide, you can see our sources of funding as of end March. Half of our funding comes from bilateral bank agreements with Nordic banks, 16% from the bond market, 34% from the Danish real mortgage system. The bond market is, of course, more sensitive to the geopolitical development than the bank market is. But I would still claim that the bond market works in a quite okay way also over the past month or so. The beginning of the year, the bond market was actually quite strong, and we issued some new bonds in January, beginning February on attractive levels, I would claim. Our ongoing discussions with our banking relationships tells us that the banks are continuously willing to lend money. So a positive sentiment from that front. And the Danish real mortgage system, I would claim has a stable positive development as always. On the next slide, you can see the structure of our loan portfolio with lots of details. The average interest rate that we're paying currently is 3.21%, 3.24% if you include the cost of committed credit agreements. This means that our marginal cost of debt is actually pretty close to the average cost of debt that we're paying currently. On the next slide, you can see the development of the fixed interest period, which now stands at 2.6 years and the average loan maturity, which stands at 4.8 years. No drama in the development of these numbers, and we continue to work according to our financial risk management policy. On the next slide, you can see the development since 2019 of available funds, currently SEK 2.6 billion, which gives us day-to-day flexibility to manage our operations in a good way. And with that, I hand the word back to you, Ulrika. Ulrika Hallengren: Thank you. I'll give you an update on our investments and progress and a quick overview of our largest project. During Q1, we have invested SEK 562 million, and it remains SEK 1.738 billion to invest in approved projects. We continue to expect yield on cost at 6% or a bit over 6% for new build offices and 7% or a bit above for industrial and a good mix of refurbishment and new build in the portfolio. Let's start with projects soon to be completed. In Malmo and Hyllie, we continue with Blackhornet 1, Vista, an SEK 884 million investment. The mobility hub was completed end '24 and now the first tenants are in place. One new lease signed in Q1, but we work hard for the next ones, yield on cost 6.2% and approximately 40% pre-let. From 1st of January, the total area of the building are included in Malmo offices best classified as project. And during Q2, we will count the project as completed even if adaptations for tenants will continue, of course. In Lund, Posthornet Phase 2, a new modern office right beside the Central Station will also be completed in Q2, but moving in continues rest of '26, 10,100 square meters, SEK 448 million, yield on cost 6.5%, a very successful project. In the southern part of Lund, we continue the development of Tomaten; this project is for BPC, will also be completed in Q2 '26, and we invest SEK 79 million, 3,600 square meters and yield on cost 7%. And next to that at Surkalen 1, Note have started to move in and Lund University will move in, in Q4. Well-used land area and long leases in total, 14,500 square meters, investment SEK 260 million and yield on cost 9.2%. The large project at Amphitrite 1 in Malmo for Malmo University is running well in accordance with plan, a bit above 20,000 square meters for Malmo University at a 10-year lease, investment SEK 1.130 billion and completion is planned to late Q4 '27. Discussion is ongoing regarding a positive -- a possible prolonging of the lease to 20 years, both positive and possible. At Kranen 7 in Malmo, we will invest approximately SEK 136 million in a preschool for the municipality, 2,900 square meters zoning plan approved and completion is expected to Q3 '27. Public Procurement Act for the contractor is still ongoing. And at Skrovet 6 in Malmo, we refurbished 11,000 square meters, 50% is pre-let to Cloetta and Media Evolution with completion starting Q3 '26, investment SEK 149 million for a total technical shift in the building and a quick change from a quite closed building for Saab and now open up to being the new entrance to the Dockan area. Good interest from tenants and several ongoing discussions. A new project in Helsingborg at Muskoten 20, where we invest for our tenant MilDef, a combination of refurbishment of an existing vacant building of 2,400 square meters. We have new build 3,400 square meters and adding on the existing lease of 4,400 square meters. So in total, 10,200 square meters and SEK 97 million investment, including value of the land. Yield on cost, 7.2% and completion in Q3 '27. And the new project started at Sunnana 12:26. It will be a mix of tenants and a flexible building for smaller industrial logistics. It's a good product where we have very low vacancy in Malmo, pre-let 30% to one tenant, investment SEK 87 million, and completion is planned to Q4 '27. That was some of the ongoing project and just to touch on future possibilities, just as a reminder that we always look for new opportunities and are ready to start when we think the timing is right. Here are some office possibilities in Malmo in the area of Nyhamnen and Dockan, where we continue to work with the zoning plans, high interest for the future, of course and even if the figures on gross floor area are estimates, the volume are interesting as a part of the other development in the area. And 4 other possibilities in Malmo, industrial at Spannbucklan, research and offices at Medeon site, housing at Kranen 5 and offices at Naboland 3. In Lund, we continue to develop the land at Brysselkalen in the southern part of Lund. At the Ideon site, we have 3 project possibilities for offices and laboratories, 2 of them on these pictures, Ideontorget and Delta 2. And at Vasterbro, the work with the zoning plan continues. In Helsingborg and Landskrona, we also have a mix of different possibilities and the main part is in the Logistics and Industrial segment. And just a summary of Q1 again. Rental income up 10%; operating surplus plus 9%; income from property management plus 12%; negative net letting minus SEK 35 million; net debt to EBITDA at 10.5x. We see good access to financing, and we continue to grow this quarter an acquisition in Carlsberg Byen. And it goes without saying we continue with our focus on cash earnings and our future growth. And with that, we are open for questions. Operator: [Operator Instructions] The next question comes from Tobias Kaj from Nordea. Tobias Kaj: First question regarding the EU income in Q1 in Denmark. How large was the annual rental income in that contract? And did that already impact the occupancy rate in Q1? Or will we see the effect first in Q2? Arvid Liepe: Let me think if I have that number off the top of my head. It relates to Slotsmilen [indiscernible], where ATP have left the building. So it is vacant currently. I don't have the annual rental income off the top of my head, but giving a bit more flavor of what -- the way it works in the Danish market is that when a tenant terminates a lease, they're obliged to restore the premises to the shape the premises were when they moved in, which basically means that when a tenant leaves, you end up in a negotiating position to see how much should they actually pay to restore the premises to the original shape. And it's that type of payment that these SEK 15 million relates to in this quarter. Tobias Kaj: Okay. I understand. Also regarding the general occupancy rate, I think you previously have said that you expect some improvement during this year, and you write in the report that 14% of the vacancy is already pre-leased. Does that indicate that we should expect roughly a 1 percentage point increase in occupancy rates during the remainder of the year? Or will it take longer time to see that positive effect? Ulrika Hallengren: You should not expect that it's too early to say that because we also have terminations, of course. So what I see now is that we will be quite flat until Q2. And then it depends on what will happen with project completions and terminations ahead. But I definitely see as we have also given some notice before that the rental income continues to increase. Tobias Kaj: Yes. Regarding your interest expenses, how much do you capitalize related to project? And should we expect a significant increase in coming quarters as you expect lots of projects, both in the first quarter and in the second quarter? Arvid Liepe: SEK 9 million were capitalized in interest in the first quarter this year. And given that the project volume was very high during 2025, and it will still be reasonably high in 2026, but probably not as high, I wouldn't expect that number to go up. Tobias Kaj: Okay. And one final question. I think you have a swap contract of SEK 1.25 billion with very low interest rates that matures during this year. Is that like one contract in one single quarter? Or will it be a gradual effect in [indiscernible]? Arvid Liepe: No, it's spread out over Q2, Q3, Q4. It's not one contract. Operator: The next question comes from Lars Norrby from SEB. Lars Norrby: I'm looking at that net letting chart, Page 7. Looking at the termination volumes, which is, as I think you pointed out, is quite similar to the past few quarters. It's more an issue of, I guess, the amount of leases signed during the quarters that haven't been high enough to get a positive figure. But just on the termination figures, can you mention, are there any individual contracts of size that you can mention? And if so far, in that case, where geographically? Ulrika Hallengren: We have two leases with PostNord, one in Sweden of SEK 2.5 million and one in Denmark of -- I think it was SEK 7 million or something. Arvid Liepe: SEK 6 million, SEK 7 million. Ulrika Hallengren: In Denmark? No, SEK 4 million in Denmark. So in total, SEK 6 million, SEK 7 million. And we have Ahlsell here in Malmo with minus SEK 7 million. And then just a few on minus SEK 2 million. So nothing really large or something like that. But what we see is that the large portion of these smaller leases that always is a great motor in the business during Q1, the cautiousness was very -- everybody was very worried about what will happen, and we really saw that in the discussion. So we missed that volume in the new leases. Arvid Liepe: On the termination side, Ulrika also mentioned it during the presentation, but we had tenant bankruptcies, a few different, not one big one. But those bankruptcies have an annual rental value affecting the net lettings of between SEK 7 million and SEK 8 million in the quarter. That does not mean that we have credit losses of that amount. But in the net letting figure, it affects the numbers negatively. Lars Norrby: One more question. You mentioned here earlier on the call, I think, something along the line that after what happened in the Middle East, lease discussions ongoing were prolonged or delayed. Have you had cases where they've been -- the discussions have actually been terminated without having a signed contract related to what's happened geopolitically? Ulrika Hallengren: No, not what I can -- no. And as I mentioned, the list of ongoing discussion have increased significantly since February, March. So April and ahead looks quite decent, I would say. Operator: The next question comes from Fredrik Stensved from ABG Sundal Collier. Fredrik Stensved: I have three questions, if I may. First one is a follow-up to one of the earlier questions about the nonrecurring item in Denmark. Is -- the way I understand the answer, Arvid was that they moved out in Q1, but is this a large material lease in terms of annual rent? And if so, did they contribute fully throughout Q1 and then moved out in late March? I'm just trying to... Ulrika Hallengren: They moved out earlier, I think, in Q4 or something. So this was just a negotiation about the termination fee that were decided during Q1. Fredrik Stensved: Okay. Very good. Very clear. Perfect. Second answer, also, I think, pretty straightforward. Arvid, you talked about the bond market and the banking relationships and they were still sort of eager to lend, et cetera. Have you seen any moves in terms of margins with bank discussions during these, call it, 2 months of geopolitical uncertainty and the general uncertainty in the market? Arvid Liepe: We haven't had any refinancings or new financings. So we don't have any, so to speak, hard evidence of the prices. But my take is that the bank margins during March, April have basically been stable. I have not gotten the impression that they have moved much over the past couple of months. Fredrik Stensved: Very good. Then last question on the project completions that you talked a little bit during the presentation, Ulrika, Blackhornet and Posthornet now completed in Q2. But the way I understand it, at least Blackhornet, probably some move-ins already in Q1 and then some Q2 and then maybe Q3. How should we think about sort of the contribution in Q1, Q2? Will the tenants start paying in Q2 or later? And did they contribute anything to Q1 at all? Ulrika Hallengren: Yes, we had contribution during Q1, and we will see contribution during the autumn as well. But in a slower pace, no large significant moment where things suddenly will contribute in a more smooth, I would say. Fredrik Stensved: Okay. Is it similar for Posthornet? Or is that more binary? Ulrika Hallengren: Posthornet has the largest contribution during Q2 and -- but also during the autumn continued. Fredrik Stensved: Okay. So a little bit in Q2 and then fully or 70%, at least given the occupancy rate from Q3 and onwards? Ulrika Hallengren: Yes. We have something assigned for moving in, in Q4 as well in Posthornet, but most of it is now in Q2. Operator: The next question comes from James Cattell from Green Street. James Cattell: I had a question on the EPRA CapEx table on Page 25 of the report. I noticed that tenant incentives have increased quite significantly by almost SEK 100 million versus the first quarter last year. And also on the annualized basis was higher than full year '25. Is this going to be the run rate going forward for the whole of '26? Or is this just due to some one-off items? Arvid Liepe: To be open and frank with you, James, predicting the split of CapEx into these different categories is not extremely easy. So the tenant adaptations or the tenant or what EPRA calls tenant incentives will continue to be an important part of our CapEx because into that category falls a number of measures when we adapt premises to new tenants, and that will continue to be an important part of our ongoing business. But predicting the magnitude of these different parts of our CapEx is still tricky. Operator: [Operator Instructions] Ulrika Hallengren: Are there any written questions? Arvid Liepe: I have seen nothing arriving digitally. Okay. Operator: There are no more phone questions at this time. So I hand the conference back to the speakers for any closing comments. Ulrika Hallengren: Okay. Thank you for this. And of course, if you have further questions, you know just reach out to us, and we'll answer. So thank you for today. Arvid Liepe: Yes. Thank you, everyone, for listening in.
Operator: Good day, and welcome to the RTX First Quarter 2026 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations. This call is being webcast live on the Internet, and there is a presentation available for download from RTX website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net nonrecurring and/or significant items, often referred to by management as other significant items. The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] With that, I will turn the call over to Mr. Calio. Christopher Calio: Thank you, and good morning, everyone. Before I get into our results, I want to acknowledge the ongoing situation in the Middle East and express our hope for a sustained resolution. Let me now shift to the quarter. We delivered very strong performance to start the year, driven by continued execution enabled by our core operating system and a consistent focus on productivity across RTX. Starting with the top line, adjusted sales were $22.1 billion, up 10% organically, with growth across all 3 channels. Adjusted EPS of $1.78 was up 21% year-over-year, driven by 14% growth in segment operating profit. And free cash flow of $1.3 billion was a solid start to the year and up $500 million from Q1 last year. On the orders front, demand for our commercial and defense products and services remains robust. Our book-to-bill in the quarter was 1.14, and our backlog is a record $271 billion, up 25% year-over-year with strong commercial and defense awards in the quarter. On commercial, our backlog is up 30% year-over-year with strength across both OE and aftermarket. This includes some notable GTF wins, including Vietjet Air, which selected the GTF engine to power an additional 44 aircraft. And recently, Finnair announced their intention to purchase up to 46 GTF-powered Embraer [ E2 ] aircraft. On the defense side of the business, we saw significant awards across all 3 segments, highlighting the strength of our product offerings. At Pratt, the military business was awarded over $3 billion for F135 Lot 19 production. Collins booked close to $3 billion of awards, including $1.7 billion for mission systems capabilities and $400 million for avionics equipment supporting multiple platforms. And Raytheon booked $6.6 billion of awards in the quarter, including over $600 million to supply the Netherlands with Patriot equipment and over $400 million from the U.S. Army for our lower-tier air and missile defense sensors. In addition, we're working closely with the Department of War to accelerate munitions production and are pleased with the progress to date. As we previously announced, Raytheon signed 5 landmark framework agreements with the Department for critical munitions, including Tomahawk, AMRAAM and the Standard Missile family. These agreements are a significant step forward in the department's transformation initiative and they are vitally important for national security. Once finalized, these agreements would provide firm demand signals for RTX and our suppliers to invest in ramp production well above existing rates over the next decade. This increased production will primarily occur at sites in Tucson, Arizona; Huntsville, Alabama; and Andover, Massachusetts, where we've already invested nearly $900 million in CapEx over the last 3 years to expand capacity at these locations. We will continue to make significant additional investments going forward to advance production capabilities and add new manufacturing lines to support these agreements. And as we said, the agreements incorporate a collaborative funding approach to preserve upfront free cash flow and they represent good long-term business for us. So a very strong start to the year. I know everyone is looking to understand how we're thinking about the end markets as we look ahead. So let me provide an update on the operating environment as we see it today. I'll start with commercial aerospace. Like all of you, we're closely monitoring global events. While the environment is dynamic right now, the underlying demand for our OE products and aftermarket services remains durable. Commercial OE in the first quarter was in line with our expectations. We expect continued production ramps across multiple platforms throughout the remainder of the year. In Q1, we saw solid RPK growth despite the disruption in the Middle East. And aircraft retirement rates also remain below historical levels, with V2500 retirements in line with our expectations. Of course, regardless of any near-term volatility, this is a long-cycle business. We assume RPK growth will continue and the demand for new aircraft to remain strong. So based on what we see today, we're not making any changes to our commercial outlook for the year. We'll, of course, be actively monitoring the situation. On the defense side, the current landscape clearly underscores the need for munitions depth, integrated air and missile defense technology, and more advanced capabilities to counter evolving threats, such as our Coyote counter-UAS system. As seen in the President's budget request, we expect these priority areas to see significant funding increases in the 2027 U.S. defense budget and other supplemental funding packages. Our products across RTX are well positioned to support these needs with our battle-tested systems and munitions serving as the backbone of many U.S. and allied defense architectures, including franchise programs like Patriot, GEM-T, NASAMS, AMRAAM, Tomahawk and the F135. So given our first quarter results and the strength we're seeing in our defense business, we're raising our full year outlook for adjusted sales and EPS and maintaining our free cash flow outlook. Neil will take you through the details in a few minutes. Operationally, our focus will remain on executing our backlog, driving increased output and innovating to bring new capabilities to market. Let me highlight on Slide 4 some of the progress we're making across RTX on these fronts, starting with our focus on operational execution. On the GTF program, the fleet management plan, including our financial and technical outlook, remains on track. PW1100 AOGs were down around 15% compared to the end of last year. We expect this downward trend to continue. As we've said before, the key enabler of this reduction is MRO output, which was 23% year-over-year on the PW1100 on top of the 35% growth we saw in Q1 of last year. Consistent with our prior comments, we will continue to optimize the allocation of material between OE and aftermarket to ensure the health of the overall fleet and balance all of our customers' needs. On the OE front, GTF shipments were in line with our expectations for Q1, and we continue to expect mid to high single-digit delivery growth for the year. During the quarter, GTF-powered aircraft surpassed 2,700 deliveries, with Pratt powering about 45% of the A320 deliveries to date, ahead of our roughly 40% sold program share. Also of note, the GTF program achieved 10 years in service in the quarter. The engine now has over 50 million flight hours with a backlog of about 8,000 engines, and we recently received aircraft certification of the GTF Advantage, keeping us on track for entry into service later this year. The Advantage incorporates a decade of learning that will deliver a step change in performance and time on wing for our customers. We also continue to leverage our core operating system, digital solutions and investments in automation to drive productivity and deliver on our commitments. For example, we saw further progress on munitions output at Raytheon in Q1 with total deliveries up over 40% year-over-year, building on the increased production we drove in 2025. With respect to our automation efforts, Pratt's MRO facility in Singapore has developed industry-leading robotics that assemble high-pressure compressor rotors, delivering 100% first-pass yield and reducing assembly time by 50%. And the team is implementing further automation of assembly and engine core stacking for the low-pressure compressor. This type of investment has supported an 80% increase in output at the facility over the last 2 years, and we're actively deploying these capabilities across our MRO sites. We also remain on track to connect 60% of our annual manufacturing hours to our proprietary data and analytics platform by the end of this year. We're harnessing this data from our connected products and factories to improve the speed of decision-making and operations. We've integrated our commercial installed base into this platform to enhance predictive fleet maintenance. For example, the wheels and brakes team at Collins is using real-time data to better understand service life and improve inventory management, resulting in cost reduction across its large portfolio of long-term pay-by-the-landing service agreements. Moving now to innovation and future growth. We're making focused investments to meet the growing end market demand. Specific to capacity, we made progress on expansion efforts across all 3 segments in the quarter. Pratt announced a $200 million investment to expand capabilities at our Columbus, Georgia facility that supports both commercial and military engine programs, including the GTF and F135. This investment will increase output of critical parts including rotating compressor and turbine discs to support growing OE and MRO demand. Raytheon completed $115 million expansion of our Redstone Missile integration facility in Huntsville. This investment will increase the facility's munitions capacity by over 50% and support multiple systems, including the standard missile family and associated framework agreements. And Collins launched a capacity expansion effort that will support the recently awarded FAA contract for radar systems and other air traffic modernization opportunities. We also achieved significant milestones within our cross-company technology road maps in the quarter. Raytheon successfully demonstrated a non-kinetic variant of the Coyote effector during a U.S. Army test event. This is a lower-cost counter unmanned aircraft system that can be recalled after completing its mission and redeployed for additional engagements. This innovation addresses a growing need for our customers and builds upon the battle-tested kinetic variant of Coyote in use today to defeat drone threats. In AI and autonomy, Collins completed a successful flight test of its mission autonomy software for the U.S. Air Force's Collaborative Combat Aircraft Program. This demonstration highlights the strength of Collins' open architecture autonomous software to deliver enhanced capability across various platforms. And in propulsion, our cross-company team consisting of Pratt, Collins, the RTX Research Center and RTX Ventures is making significant progress in Hybrid Electric Solutions. In the quarter, the team successfully operated the propulsion system and battery pack for a Turboprop demonstrator at full power. This technology is expected to drive a 30% improvement in fuel efficiency for regional aircraft and combines a thermal engine from Pratt, a 1-megawatt electric motor from Collins and a 200-kilowatt battery system supported by RTX Ventures. So overall, I'm pleased with the progress we're making on the innovation front. With that, let me turn it over to Neil to walk you through the first quarter results and the outlook in some more detail. Neil? Neil Mitchill: All right. Thanks, Chris. I'm on Slide 5. As Chris already mentioned, we had strong financial performance to start the year. In the first quarter, adjusted sales of $22.1 billion were up 9% on an adjusted basis and up 10% organically. This top line organic growth was driven by strength across all 3 channels, with commercial OE up 6%, commercial aftermarket up 14% and defense up 9%. Adjusted segment operating profit of $2.9 billion was up 14% year-over-year, driven by drop-through on higher volume, favorable defense mix and improved productivity. Specifically on productivity in the quarter, we saw continued progress across the company on cost reduction and efficiency improvement, growing organic sales and segment profit double digits with only a 1% increase in headcount. We also drove 70 basis points of consolidated segment margin expansion in the quarter with contributions from all 3 segments, more than offsetting the year-over-year headwind from tariffs. Adjusted earnings per share of $1.78 was up 21% from prior year, driven by strong segment operating profit growth and lower interest expense. Adjusted earnings per share also benefited by about $0.08 year-over-year from a lower effective tax rate, which was principally driven by higher stock-based compensation deductions. On a GAAP basis, earnings per share from continuing operations was $1.51 and included $0.27 of acquisition accounting adjustments. And free cash flow of $1.3 billion was a solid start to the year and included approximately $170 million of powder metal related compensation. Lastly, we paid down $500 million of debt in the quarter and are tracking to our full year deleveraging expectations as we further strengthen our balance sheet. Okay. Let's turn to Slide 6 and I'll provide a few details on our updated outlook for the full year. As Chris mentioned, based on our strong first quarter performance and expectations around continued defense strength, we are updating our full year outlook. On the top line, we're raising our full year adjusted sales outlook by $500 million to a new range of $92.5 billion to $93.5 billion, up from our prior range of $92 billion to $93 billion, driven by the performance we saw at Raytheon in the first quarter as well as slightly lower sales eliminations for the year. We continue to expect this to translate to between 5% and 6% organic sales growth for the full year at the RTX level. Breaking this down further, we continue to expect commercial OE sales to grow mid-single digits and commercial aftermarket sales to grow high single digits for the full year. And given the increase at Raytheon, we now expect defense sales to grow mid to high single digits for the full year, up from our prior expectation of mid-single digits. On the bottom line, we are increasing our adjusted earnings per share outlook $0.10 on both the low and high end of the range. This increase is driven by approximately $0.05 of drop-through on the higher sales at Raytheon, with the rest coming from a couple of below-the-line items, including lower interest expense. We now see adjusted EPS of between $6.70 and $6.90 for the full year, up from our prior range of $6.60 to $6.80. On free cash flow, we remain on track to our outlook of between $8.25 billion and $8.75 billion for the full year. Okay. With that, let me hand it over to Nathan to take you through the segment results for the quarter. Nathan? Nathan Ware: Thanks, Neil. Starting with Collins on Slide 7. Sales were $7.6 billion in the quarter, up 5% on an adjusted basis and 10% organically, driven by strength across all channels. Adjusting for divestitures, by channel, commercial OE sales were up 15% driven by higher volume on narrow-body and wide-body platforms. Commercial aftermarket sales were up 7% driven by a 15% increase in provisioning and an 8% increase in parts and repair, partially offset by a 3% decline in mods and upgrades. Recall, mods and upgrades were up 18% in Q1 2025. Defense sales were up 9% versus the prior year driven by higher volume across multiple programs. Adjusted operating profit of $1.3 billion was up $71 million versus the prior year, driven by drop-through on higher commercial and defense volume and lower R&D expense. This was partially offset by unfavorable commercial OE mix, the impact of divestitures completed in 2025 and higher tariffs across the business. In the quarter, Collins expanded margins by 10 basis points year-over-year despite a 130 basis point headwind from tariffs. Turning to Collins' full year outlook. We continue to expect sales to grow mid-single digits on an adjusted basis and high single digits organically, with operating profit growth between $425 million and $525 million versus 2025. Shifting to Pratt & Whitney on Slide 8. Sales of $8.2 billion were up 11% on an adjusted basis and 10% organically, driven by strength in commercial aftermarket and military. Commercial OE sales were in line with expectations and down 1%, driven by lower engine deliveries. As Chris said, we continue to expect mid to high single-digit large commercial engine delivery growth for the full year. Commercial aftermarket sales were up 19%, driven by higher volume, including heavier content in both large commercial engines and Pratt Canada. In military engines, sales were up 7%, driven by higher F135 production volume. Adjusted operating profit of $711 million was up $121 million versus the prior year, driven by drop-through on higher commercial aftermarket and military volume, partially offset by higher operational costs, including tariffs and higher SG&A expense. In the quarter, Pratt expanded margins by 70 basis points year-over-year despite a 50 basis point headwind from tariffs. Turning to Pratt's full year outlook. We continue to expect sales to grow mid-single digits on an adjusted and organic basis, with operating profit growth between $225 million and $325 million versus 2025. Turning to Raytheon on Slide 9. Sales of $6.9 billion in the quarter were up 10% on an adjusted basis and 9% organically, driven by higher volume on land and air defense systems, including Patriot and GEM-T, and higher volume on naval munitions programs. Adjusted operating profit of $845 million was up $167 million versus the prior year, driven by favorable program mix and higher volume in land and air defense systems, higher volume in naval programs and improved net productivity. In the quarter, Raytheon expanded margins by 150 basis points year-over-year driven by favorable mix and increased productivity. Bookings in the quarter were $6.6 billion, resulting in a book-to-bill of 0.96 and a backlog of $74 billion. And on a rolling 12-month basis, Raytheon's book-to-bill is 1.48. In addition to the awards Chris mentioned earlier, other key awards in the quarter included over $900 million for Standard Missile and Tomahawk. Turning to Raytheon's full year outlook. We expect sales to grow high single digits on an adjusted and organic basis, up from our prior range of mid to high single digits due to the strength Neil mentioned earlier. We now expect operating profit growth between $275 million and $375 million versus 2025, up from our prior expectation of between $200 million and $300 million, driven by the drop-through on higher sales and favorable program mix. With that, let me hand it back over to Chris for some closing remarks. Christopher Calio: Okay. Thanks, Nathan. As we set up front, our execution and operational performance drove strong top and bottom line results in Q1, and I want to thank the entire RTX team for their continued dedication and commitment to our mission. The underlying demand for our commercial and defense products is durable, and we remain focused on executing on our commitments, investing in capacity and innovating for future growth to drive long-term shareholder value. With that, let's open it up for questions. Operator: [Operator Instructions] The first question comes from the line of Robert Stallard of Vertical Research. Robert Stallard: Chris, you highlighted the very strong demand you continue to see for Missile Systems in the Raytheon portfolio. I was wondering, how concerned are you about the ability of your supply chain to keep up with the demand pace you're setting? And also in relation to that, the risk with regard to rare earth? Christopher Calio: Thanks for the question, Rob. I'll start by just saying we're really pleased with how we started the year in terms of production. As we said upfront, [ munitions ] was up over 40% year-over-year. So a very good start to the year. Now the continued ramp of production is going to require growth in supply chain output and performance, as you've noted here. Now Raytheon has had 12 consecutive quarters of material growth, which is great, and material receipts were up 13% year-over-year here in Q1. And we're going to obviously going to keep a very close eye on a number of the things that we talk about on a consistent basis: Rocket Motors given the concentrated supply base; microelectronics, given the non-A&D demand that's out there. But if you just think longer term and the potential impact of the framework agreements, it's going to require a step change, to your point, in the supply chain. Now the framework agreements do provide some potential long-term firm demand. And that's going to provide the visibility the supply chain needs to invest in people, tooling, test equipment and capacity, which is great. But I think longer term, the defense industrial base is going to need additional suppliers to improve the overall resiliency, and the firm demand is likely going to incentivize quality suppliers from other industries to enter the supply base, which is great, and I think we need it. And the Department of War has been partnering with a lot of those folks to provide strategic capital to give them the balance sheet strength they need to make these investments. But we're going to need all of that in order to not only meet the production ramp-up that we have in front of us now, but also the potential ramp-up that comes with the framework agreements. On critical minerals, I would just say that we've been working on this for a while having seen this coming. And so we're covered in what I would call the near and medium term. And we're still seeking to lock up longer-term partnerships and contracts on a handful of those. And the department has actually been a really strong partner in that effort as well. Operator: Our next question comes from the line of Peter Arment of Baird. Peter Arment: Chris, if we could just stick on your framework comments. Just wanted to kind of double-click on sort of how you're thinking about -- I know pricing is always sensitive, but how we're thinking about the impact when you're thinking about CapEx that you've had to put in place, and then how should we think about potentially margins long term? Is there an opportunity here where the mix changes dramatically where you have more in production versus development mix? Just how you're thinking about Raytheon just given investments that you need to do [ shoring up ] supply chain, et cetera, and then pricing around some of these agreements? Christopher Calio: Yes. Thanks, Peter. Look, given the demand coming out of the Ukraine conflict, we've been investing for a while and increasing capacity. We mentioned a number of those in our upfront comments. Think Huntsville, think Andover, think McKinney, Texas. All those investments that you need to not only expand your footprint, but tooling, test equipment and labor. So we've been on that path to meet the demand. On the framework agreements, and again, I don't want to get to too far into the details on this, Peter, only because we're still in the process of negotiations and discussions with the department on that. But again, as I said before, when they are ultimately finalized, it will give the kind of long-term visibility that the supply chain will need to invest, which is critically important. I think the episodic nature previously of the ordering patterns made it very difficult for the supply chain to make those kinds of long-term investments and things like the framework agreements are here to sort of address that. But here's what I will say, if you just think about the overall economics of the framework agreements, they give us an opportunity to bundle materials, they give us an opportunity to leverage economy of scale, and they give us an opportunity to really drive production efficiencies, especially given some of these are mature programs, things that are right in our wheelhouse. So we ultimately think that these are going to be very good business for us, but we're still going through the process to convert those into final agreements. Operator: Our next question comes from the line of Myles Walton of Wolfe Research. Myles Walton: Maybe a question again on Raytheon, maybe a little bit bigger into the -- digging into the details on the sensors and effectors. On the effector side, as a surrogate, LHX laid out this almost 20% CAGR through 2030 for the missiles business. Would that be reflective of the kind of growth you're expecting within that portfolio? And we don't hear as much on the sensor side, but you mentioned the Andover expansion. So I'm curious on the sensor side, what kind of growth you're looking for as it relates to your business at Raytheon? Neil Mitchill: Myles, I'll start on that one for you. Let me start by giving you a little bit of perspective on the Raytheon portfolio. If we were to look at '25, '26, if you will, as a proxy for how large is the effector business within Raytheon. Think about that as accounting for a little bit over 40% of the sales of Raytheon. So to just give you some context. And sensors obviously makes up a little less than that, but a large portion of the Raytheon business as well. And I would tell you that the growth we saw in the first quarter was significantly driven by the munitions and effectors, also the sensors, Patriot in particular. And we're seeing double-digit growth rates on those businesses in the quarter, and I expect that to continue as we go forward. Keep in mind, everything that Chris just spent a couple of questions talking about is not even in our backlog yet. So we're just talking about delivering today's backlog to both our U.S. and our international customers. On the sensor side, we see a lot of runway ahead of us there as well. We're continuing to build and deliver Patriot systems, NASAMS systems, the Coyote system. And obviously, we're ramping up our production on LTAMDS as we look forward. So that helps give a little bit of context on the size of the business and where we see it going. Again, as we finalize those agreements, we'll be sharing more details on the specifics as they come to finality. Chris? Christopher Calio: No. The only thing I was going to add there, Myles, is I think the underlying premise of your question is a good one, which is I think the sensors potential has been something that has perhaps been under-discussed given, obviously, the framework agreements and all the replenishment that you're going to need on the effector side. And Neil rattled off a whole bunch of pieces of that portfolio, which I think are going to be really critical priorities. But again, just think Golden Dome, think integrated air and missile defense, the sensor portfolio is going to continue to grow in importance. And I think we're going to see the output there have to grow over the long term as well. Operator: Our next question comes from the line of Kristine Liwag of Morgan Stanley. Kristine Liwag: When we look at what's happening in Iran, so there's a clear increasing need to solve for some of the cost mismatch issues for the lower-cost drones. I guess the demand signal for your existing products is very clear and the replenish of the arsenal makes sense. But can you talk about how you're thinking about the solutions you provide in these higher-volume but cheap drones, especially when we think about the future of warfare and how that could be integrated into the Golden Dome? Christopher Calio: Yes. Thanks, Kristine. Appreciate the question. I think just to provide some high-level context here, I think we're going to continue to need the right mix of capabilities. And you're absolutely right, the Department of War has put priorities around munitions depth and replenishment, integrated air missile defense, Golden Dome, all the things that are in the Raytheon wheelhouse and very mature products and products that are in production today. Your point about counter-UAS is a good one. We talked upfront about our Coyote system, and the Coyote system has been in great demand. It's performed exceptionally well in the field. And we've just actually started to introduce a non-kinetic version of the Coyote. So it can go up. It can perform its mission. It can address drone swarms. It can then come back and redeployed, recharged and, again, go out and prosecute another mission. So that goes to the low-cost, reusable nature of that particular platform. And we're seeing really, really strong demand both domestically and internationally. In fact, we just had an FMS case approved for Coyote for the UAE, just to show the level of international demand there. I think more broadly, you're right, there are a number of lower cost sort of platforms that are out there. I'm not sure that's where we're going to compete on a platform level. But I do think there are going to be opportunities for us to be a platform-agnostic supplier of systems on some of these solutions, whether that be mission systems, whether that be autonomy, whether that be propulsion. So that's kind of how we see this landscape playing out. Clear demand for the high-end capabilities that are in our backlog today and that are part of the framework agreement, clear strengths in our counter-UAS capabilities, again, Coyote, and then opportunities for us to play on some of those other platforms as a supplier. Operator: Our next question comes from the line of Mariana Perez Mora of BofA. Mariana Perez Mora: I wanted to follow up about the tariff impact. How are we seeing the impact so far after these new metal tariffs that were recently announced, and also the Supreme Court ruling on IEEPA? Neil Mitchill: Sure. I'll start with that one. Thanks for the question on the tariffs. Really no change today to our outlook for tariffs for the P&L for the full year. We talked about, back in January, seeing about a $75 million year-over-year tailwind as we continue to implement mitigations there. Obviously, the IEEPA tariffs court ruling have been overturned. They've been replaced with Section 122 and some other tariffs that's called Section 232. And so right now, we're sort of saying on balance, the tariff impact is about the same. That said, since the tariffs for IEEPA were put in place, we paid about $500 million associated with that kind of tariff. Obviously, the government is in the process of starting the refund process. And as we gain more clarity into that, we too will submit requests for our refunds there. We have not recorded income associated with reversing any of the expenses that we took. We have not included that in our guidance for this year either. So more to come there, but no change to our outlook today based on any of those changes. And if it improves, you'll see it in the bottom line. But right now, we're continuing to monitor it like everyone. Operator: Our next question comes from the line of Scott Deuschle of Deutsche Bank. Scott Deuschle: Chris, can you walk us through how you're thinking about the pricing strategy for [ Hot Section Plus ], which I believe is off warranty? And then do you require any additional regulatory approvals to begin providing Hot Section Plus on upcoming shop visits? Christopher Calio: Yes. Scott, thanks for the question. Well, first and foremost, we're really pleased here to have the aircraft certification on the GTF advantage, which, as you know, is where the Hot Section Plus comes from. So that paves the way for Advantage [ entry into ] service later this year. And those GTF Advantage engines are already moving through our production lines, and so I know our customers are looking forward to the increased time on wing and fuel efficiency. And to your point, the Hot Section Plus is the -- effectively the vintage retrofit package. Those 30 to 35 parts are going to provide almost 95% of the durability benefits of the Advantage, and they're going to get introduced into MRO a little bit later this year. So they will be introduced in MRO before likely the actual engine goes into service later this year. In terms of the pricing strategy, I mean, look, we've invested significantly in the Advantage, in all of the design and the testing and the like, and we plan to get value for that investment. Are there certain contracts that we have where it might make sense to incorporate versus others depending on where they're operating and what the environment looks like? Yes. And we're continuing to look at where it might be the most beneficial. But our intent is to get value for the investment that we've made and the value that it's going to continue to bring customers in terms of the time on wing and the fuel efficiency, which is again becoming a more important part of the overall equation. Scott Deuschle: Really helpful. Then Neil, can you explain how the transition to GTF Advantage will influence negative engine margin on the program? I assume there's some better pricing there, but it's not clear how that nets against presumably higher costs. If you could clarify that balance, that would be really helpful. Neil Mitchill: Sure. Thanks, Scott. I appreciate the question here. As we look forward, I think the GTF Advantage will have a little bit more cost associated with the engine as it brings greater capability and durability. But that said, you named it, there'll be some more pricing there as well. So on balance, I don't see a lot of headwind on a per engine basis as we begin to ramp up on the GTF Advantage engine over the next several years. So as we talked about for this year, we do think there's going to be a couple of hundred million dollars of headwind on OE margins throughout the course of the year. I'll tell you, for the first quarter, it was pretty much flat, not a major driver of the year-over-year performance at Pratt. They're doing a really nice job managing the cost of the engine. We're going to continue to see negative margins on deliveries of new engines, but obviously, the aftermarket is continuing to ramp there. Considerably, you heard Chris talk about the 22% GTF MRO output increase in the first quarter, that's driving aftermarket. The mix of those shop visits is getting heavier as well. And the margins on the aftermarket are low double digits. So we're starting to see the sequential improvement in the profile of the aftermarket at Pratt as well. So on balance, it's good business. It's great to see the certification occur here in the first quarter, and we're looking forward to making a very disciplined cutover over the next 1.5 years or so. Operator: Our next question comes from the line John Godyn of Citi. John Godyn: I was hoping to revisit Raytheon and the defense trends. Clearly, a lot of opportunities there, and the guidance was raised. That said, it was a very strong start to the year. So it feels like perhaps guidance is even a bit conservative. Maybe you could just revisit the outlook a bit and the shape of the year and how you see it playing out. Neil Mitchill: Thanks, John. I'll take that one. Yes, really pleased with the start of the year for Raytheon, seeing 9% growth on the top line. Chris talked about the material receipts, 12 consecutive quarters, 13% growth there. So we've been working, the team has been working very hard to make sure that we are prepared to deliver the backlog we have and then get ready for the future as well. With that strength, we dropped it through to our guide. We took up the top line at RTX by $500 million on the low and the high end of the range. I'd say about $350 million of that is all attributable to the Raytheon performance largely in the first quarter and what we can see as we enter here into the second quarter. The rest of the sales increase, we see some lower eliminations at the RTX level. So together, that's about $500 million. And we're seeing good drop-through. As you can see, the margins for Raytheon were 12.2% in the first quarter. We had $32 million of year-over-year productivity improvement at Raytheon. So a really nice start to the year. We're putting that into our guidance as well, and so that's a big driver of the $75 million increase in the range on both end of the high and low end of the range for Raytheon. So again, it's 1 quarter. We think that the business is performing quite well. We're seeing really good mix in the business. And as we continue to see that supply chain keep pace with our delivery plans, then we'll revisit that again here in July. But really pleased with the start and looking forward to continuing to see the ramp. Operator: Our next question comes from the line of Seth Seifman of JPMorgan. Seth Seifman: I wanted to ask about the impact of lower expected air travel growth on the aftermarket businesses at both Collins and Pratt, particularly maybe the short-cycle stuff at Collins, but if you could address it overall. We heard elsewhere this morning about the potential for a lag effect. And so thinking about is it some impact coming later this year and into '27, but it's a pretty significant hit to air travel growth this year. So maybe you could address that. Christopher Calio: Yes. Thanks, Seth. Well, the first thing I'll say is that we're really pleased with the way we started the year in our aftermarket business with 14% growth and the demand that we saw. And you're right, we're watching all the things that you're watching and the environment and the implications around higher fuel prices, jet fuel shortages, the moves that airlines are making on capacity adjustments. If you just think about our business, I think you've got to look at it by business unit and by channel to really understand sort of some of the implications. Now some of the initial moves that the airlines are making where they're retiring much older sort of platforms, again, a lot of our aftermarket isn't reliant on those. We don't see a lot of maintenance opportunities on some of those platforms. So those near-term moves don't see a lot of impact. If you look at Pratt, the 2 largest portions of our aftermarket are the V2500 and the GTF. As we've said before, the V2500 is still a very, very young fleet. 50% of it hasn't had a first or second shop visit. Shop visits were very strong here in the first quarter, and again, look to continue to be strong throughout the year. And on the GTF, well, number one, it's the most fuel efficient, which right now, of course, is, I think, what people are focused on. But beyond that, you obviously know that we've got the fleet health issues that we're contending with. We've got to continue to move engines out of the parking lot into our MRO shops, and we've seen good output there, as Neil talked about. So the demand for GTF MRO is going to continue to be pretty robust. At Collins, again, you've got sort of the 3 channels: the parts and repair, the provisioning, and the mods and upgrades. And I think where you'll start to see any potential issue would perhaps be in provisioning and mods and upgrades. Provisioning if airlines decide that they want to sort of live with lower stocking levels; and mods and upgrades if the airlines decide they want to maybe defer some of those things. Now we just haven't seen any of the impact on the demand yet, but that's kind of how we're thinking about it, and that's kind of how we're tracking it. Neil Mitchill: Thanks, Chris. I don't have much to add there, but I'll add a couple of data points, maybe just to help people do some sensitivities as we think longer term about this. On the Pratt business, about half of their segment is aftermarket. And as Chris said, the predominance of that is coming from the GTF, the V2500, and I would throw in there Pratt Canada. So if you put those 3 together, you're over 85% of the aftermarket sales. And Pratt Canada is a very diverse business, lots of customers, 70,000 units in service, so -- and great strength really across a number of their different business channels. So just to provide a little context there. On Collins, aftermarket there is about 40% of the total segment. And provisioning makes up -- I'm sorry, the parts and repair makes up about 2/3 of the aftermarket. So just a little bit of context to help people think about it. Again, very diverse business operating on a lot of what we would call the right platforms, a lot of newer platforms. And keep in mind, out-of-warranty flight hours continue to grow. When you think about all of the deliveries over the last 5 years, with the growth that we've seen year-over-year, we have more and more hours coming out of warranty every single year. And so those are the aircraft that will continue to fly even in a slightly depressed environment. So as we sit here and look at '26, there's no changes to our by-channel outlooks at this point for commercial OE or aftermarket. We're watching it, but I think we're feeling like, as we look at our portfolio, pretty good line of sight to the demand. Operator: Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: I wanted to ask about [ aerospace ] profitability, both Collins and Pratt. So first, on Collins, margins were quite healthy despite the tariff impact and OE growth mix. How would we think about 2026 guidance which suggests the rest of the year margins are flat to down slightly versus Q1, which would sort of buck the seasonal trend? So I guess how do we think about Collins puts and takes on margins? And then on Pratt, Neil, you provided a sensitivity layup for us right here. So when we think about the V2500, the PW2000 and the 4000, and if you could give us a breakout of what percentage that consists of and the retirement rates that you're assuming? Neil Mitchill: Let me start with the Collins margins. I think you said it, Sheila, it was a really strong start to the year despite our last quarter of having to deal with the year-over-year headwind from tariffs. Collins has done a nice job. They're focused on cost. We're taking on more and more OE. And some of that mix is a headwind, frankly. So with all of that, we continue to see margin expansion. You're right, as you look at the rest of the year, the margins remain relatively steady. I think as we continue to see OE mix trend towards more wide-bodies on the growth side, we'll have a little bit of a headwind there. It's a little bit early, as you know, to be adjusting the full year. We just talked about some of the uncertainty in the market. I think we're going to hold off for another quarter to see what second quarter looks like. But we're feeling like the Collins business is certainly on the right trajectory. If we get into the Pratt business, what I would say is the PW2000 is really not a major driver of the aftermarket. Obviously, we have a bit of a bigger portfolio on the 4000s, but we've been planning for that, I'll call it, structured decline for a number of years. And so that's not changing in our outlook here. On the V2500 specifically, we also are well connected with our customers. It's a young fleet. As Chris said, 50% of the fleet hasn't seen a second shop visit. 15% hasn't even seen its first shop visit. So we expect those airplanes to fly. They're also very durable and perform well. So despite the higher fuel prices, I think that they're great aircraft powered by the V2500. So as we look out, we're planning, call it, 1% to 2% kind of retirements for [ the V ]. The shop visits for the first quarter were on the run rate we expect for the full year, which is about 800. So continuing to see the strength there. Have a lot of visibility into the shop visit pipeline. Keep in mind, we're operating in a material-constrained environment, and so there's significant demand for spare parts and overhauls there. So that's what I would say as it relates to Pratt. Operator: Our next question comes from the line of Gautam Khanna of TD Cowen. Gautam Khanna: I was wondering if you could give us some help on how to think about AOGs on the GTF, because it's very hard from the outside to track those which were powdered metal impacted and not. So just kind of thinking about at year-end, is there some natural number we should be expecting AOGs that you can point to that would be consistent with your assumptions on MRO output and the charge provision you took a couple of years back? Just so we know that we're tracking to the -- to what you've already guided to. Christopher Calio: I'll start. And maybe just to address kind of your final point there, like the financial and technical outlook for the powdered metal situation remains on track. And as I said upfront, Gautam, we were really pleased that AOGs came down 15% in Q1 from the end of last year. That was on the back of some very solid MRO performance in Q1. The 1100 output was up 23% year-over-year, as I said. And that was with heavier shop visits up 9 points year-over-year. And so that was enabled by heavy shop visit turnaround time improving by about 20%. So very, very good performance in the shop helping enable the reduction in those AOGs. A couple other of good indicators as well as we think forward, 1100 inductions were up 7% sequentially from Q4 to Q1. And so we're improving that WIP in our shops to support the future growth in MRO output. And we also saw continued progress in material growth across some of the key value streams that are going to be important to MRO output. Structural castings were up 10% year-over-year, isothermal forgings were up 18% year-over-year. So again, those are all the elements that go into continuing to drive MRO output for the year, which in turn is going to continue to drive that downward trend that we talked about here that we saw in the first quarter. I won't give sort of a point estimate as to where we're supposed to be, but I will just say, as you just look at sort of the public data around AOGs, there are some in there that have absolutely nothing to do with engines. There are a number of other factors. Maybe they're going through a mod and upgrade. Maybe they're being returned from [ use ] and they need some modifications. And so not all of those are engine related. I'll also tell you that we continue to have removals for other reasons other than powdered metal. But those are the things that were in existence previously. And we've continued to provide upgrades to improve the durability and reliability. And so we also believe those will continue to have a positive effect as we look forward. So again, pleased with the Q1 performance. Our customers obviously want their assets back. It was a real positive shift this quarter in terms of the reduction. And given all the elements that I just talked about within MRO and those indicators, we continue to believe that that downward trajectory is going to continue. Operator: Our next question comes from the line of Scott Mikus of Melius Research. Scott Mikus: Chris and Neil, very good results. SpaceX is going public at a very lofty valuation and its IPO will probably create generational wealth for a lot of its employees. We've also seen Shield AI raise capital to $12 billion valuation. Anduril is looking to raise capital at a $60 billion valuation. Just how are you thinking about that in the context of retaining your best employees and engineers, so they don't join a defense tech company where they get significant upside from the equity valuation? Christopher Calio: Yes. Thanks, Scott. I thought where you were going there is that we were undervalued. I was hoping the point you were making there. Yes, good, good. All kidding aside, again, this is something we think about a lot in terms of the defense ramp-up. With unemployment at 4.3%, how do we make sure that we can attract and retain the labor that we need, in some cases, it's classified labor, which can be even more difficult because you got to get it cleared and the like at many of our facilities. So our labor strategy is something that we are laser-focused on. Now you mentioned our engineering population. If you look at RTX-wide, we've got roughly 180,000 people, about 1/3 of those are engineers. And they are clearly the lifeblood of the company, when you think about innovation being the bedrock of everything that we do. And so I think there's a couple of things that come into play there. Number one, we've got to continue to be competitive just from a compensation perspective, and that's something we're always looking at. And then number two, I will tell you that you walk the floors within RTX, you will see an uncommon dedication to the mission. And I think people get really excited about the work that we do and the mission that we play to connect and protect the world, in particular, on the national security side, given how critical our products are to national security and to allies. So it's not easy, to your point, Scott, there are people that will go, take a leap to go somewhere where they see that there might be some runway with an early-stage company. But by and large, we've been pretty successful at retaining our top folks. And again, I think that comes down to the core mission that we serve. Operator: Our next question comes from the line of Ken Herbert of RBC CM. Kenneth Herbert: I just wanted to follow up on the March commercial engine deliveries. With the first quarter in line with plan, and obviously, still the mid to high single for the full year growth, how do we think about the cadence into the second quarter and second half of the year? And I guess within that, as a result of just the supply chain incremental risk from higher input costs and everything else, are you seeing any incremental risk on your, I guess, Pratt supply chain from suppliers around the world just as a result of the war in Iran? Neil Mitchill: Thanks, Ken. Let me start with the supply chain piece. Right now, and as you know, we've been talking about this for a long time, Pratt has been laser-focused on ramping up critical supply chain elements: Structural castings, turbine airfoils and many other parts that go into the engine. And I think we've done a nice job there. So continue to see growth in those key elements, materials that are going to the engine. And so we're not seeing anything new crop up. Obviously, with the kind of growth rates we're talking about, because you've got to keep in mind, we're not only feeding the OEM growth rates, we're feeding the aftermarket as well, it's pretty substantial. But nothing new to report there. As it relates to the delivery profile, as planned, we were allocating materials between MRO and original equipment in the first quarter. You saw that in the sales number and in the delivery numbers for the quarter. And as you look at the implied performance for Pratt through the rest of the year, we still expect OE to be low single-digit sales. And as you said, up mid- to high single-digit unit delivery. So we'll continue to grow the number of new engines we delivered this year, and that will kind of happen pretty ratably as we think about the rest of the year. Now keep in mind, we had the strike last year in the second quarter. And so this year, second quarter will have an easier compare. But as we think about it, the negative engine margin will ramp up over the next several quarters as we kind of balance the mix of material between MRO and OE and drive the OE -- the AOG is down, and then continue to deliver to our end customer, Airbus. Operator: Our last question comes from the line of David Strauss of Wells Fargo. David Strauss: Following up there on Ken's question. Maybe could you specifically address the state of negotiations with Airbus and what they're desiring to get in terms of engines from you? And then secondly, if you can maybe just talk about the interior side of the business at Collins, where that is now in terms of being able to handle the -- what looks like a coming widebody ramp? Christopher Calio: Yes. Thanks, David. On your first question, as Neil said, we're going to continue to see OE deliveries step up throughout the year. And when we get to the end and execute on that plan, it's going to be a record number of GTF engines that we've delivered and that delivery share is going to remain above the program share. So continue to be pleased about that. In terms of the discussions with Airbus, those are always ongoing. And we're always talking with them about what's going on industrially, what's going on from a supply chain perspective and balancing, of course, the needs of the GTF fleet health and our mutual customers. And so those conversations will continue to go on. I will tell you that our focus is on making sure that we are investing for the growth we see both on the OE and the MRO side. On the MRO side, you heard us talk about some of those investments that we've made in Singapore that we're going to then translate into other parts of our network. We're going to be adding a forging press in our Columbus, Georgia facility. We're going to be adding a new tower for powder production at our HMI facility in New York. You heard Neil talk about the turbine airfoil ramp-up at Asheville. These are all investments that we're making because we continue to see the demand both on the OE and MRO side. And again, the relationship with Airbus is an important one for us. It's one that we, of course, greatly value. And it's one that has spanned decades. And it will continue to span decades. And we will continue to work through our issues, as we always do, in a constructive and transparent manner. And I have no doubt that we'll ultimately get there to where we need to be on volumes going forward. Neil Mitchill: And maybe just a comment on interiors. Had a good quarter. Sales were up double digits, so call it, low teens, if you will, in the first quarter. We're continuing to work through a couple of certification requirements on a handful of bespoke programs. But business has a good trajectory. We're expecting solid growth for the full year, and pretty good line of sight to mods and upgrades for the remainder of the year. So feeling good about that today. Thank you for the question. Operator: Thank you. With that, I will now turn the call back over to Nathan Ware. Nathan Ware: All right. Thanks, Latif. That concludes today's call. As always, the Investor Relations team will be available for follow-up questions. So thank you all for joining us, and have a good day. Operator: This now concludes today's conference. You may now disconnect.
Operator: Good morning, and welcome to the Second Quarter 2026 Earnings Conference Call for D.R. Horton, America's Builder. [Operator Instructions] Please note, this conference is being recorded. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R. Horton. Jessica Hansen: Thank you, Paul, and good morning. Welcome to our call to discuss our financial results for the second quarter of fiscal 2026. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. This morning's earnings release and our supplemental data presentation can be found on our website at investor.drhorton.com, and we plan to file our 10-Q later this week. After this call, we will also post our updated investor presentation to our Investor Relations site on the Presentations section under News & Events, for your reference. Now I will turn the call over to Paul Romanowski, our President and CEO. Paul Romanowski: Thank you, Jessica, and good morning. I am pleased to also be joined on this call by Mike Murray, our Chief Operating Officer; and Bill Wheat, our Chief Financial Officer. The D.R. Horton team delivered solid second quarter results with consolidated pretax income of $867 million on $7.6 billion of revenues and a pretax profit margin of 11.5%. New home demand remains impacted by affordability constraints and cautious consumer sentiment. However, our tenured teams continue to respond to current market conditions with discipline. During the quarter, we delivered a consolidated pretax profit margin above the high end of our guidance range, generated revenues within our expected range and increased net sales orders by 11% compared to the prior year quarter. At the same time, we reduced our unsold completed homes by 35% from a year ago, reflecting our focus on balancing sales pace, pricing and incentives to drive incremental sales while maximizing returns. We continue to focus on capital efficiency to generate strong operating cash flows and deliver compelling returns to our shareholders. Over the past 12 months, we generated $3.7 billion of cash from operations and returned $4 billion to shareholders through repurchases and dividends. For the trailing 12 months ended March 31, our homebuilding pretax return on inventory was 17.6%, while our consolidated returns on equity and assets were 13.2% and 8.9%. Our return on assets ranked in the top 20% of all S&P 500 companies for the past 3-, 5- and 10-year periods, demonstrating that our disciplined, returns-focused operating model delivers sustainable results and positions us well for continued value creation. Our sales incentives increased during the second quarter, and we expect incentives to remain elevated for the rest of the year with a level dependent on demand, mortgage interest rates and other market conditions. We work every day to leverage our industry-leading platform, unmatched scale, efficient operations and experienced teams to bring homeownership opportunities at affordable price points to more Americans. 65% of our mortgage company's closings this quarter were to first-time homebuyers. We will continue to tailor our product offerings, sales incentives and inventory levels based on demand in each of our markets to maximize returns. Mike? Michael Murray: Earnings for the second quarter of fiscal 2026 were $2.24 per diluted share compared to $2.58 per share in the prior year quarter. Net income for the quarter was $648 million on consolidated revenues of $7.6 billion. Home sales revenues in the second quarter totaled $7 billion on 19,486 homes closed compared to $7.2 billion on 19,276 homes closed in the prior year quarter. Our average closing price was $361,600, down 1% sequentially and down 3% year-over-year. Our average sales price on homes closed is below the average price of new homes in the United States by approximately $160,000 or about 30%, reflecting our focus on affordability. In addition, the median sales price of our homes is approximately $70,000 lower than the median price of an existing home. Bill? Bill Wheat: Net sales orders increased 11% year-over-year in the second quarter to 24,992 homes, while total order value increased 10% to $9.2 billion, in line with our business plan and expectations. Our cancellation rate for the quarter was 16%, consistent with the prior year period and down from 18% sequentially. The average number of active selling communities increased 4% sequentially and 11% year-over-year. The average price of net sales orders was $366,300, up 1% sequentially and down 2% compared to the prior year quarter. Jessica? Jessica Hansen: Our gross profit margin on home sales revenue in the second quarter was 20.1%, which included a 40 basis point benefit from a favorable litigation outcome and lower-than-normal warranty costs. Assuming normalized warranty and litigation costs, our home sales gross margin would have been 19.7% in the second quarter, slightly higher than our guidance range. On a per square foot basis, sequentially, home sales revenues and stick and brick costs were both down 2% while lot costs were essentially flat. Year-over-year, home sales revenue and stick and brick costs were both down 4% per square foot, while lot costs were up 4%. We currently expect our home sales gross margin to be 19.7% or slightly higher in the third quarter as we expect to realize additional construction cost savings on homes closed. Incentive levels and gross margin for the remainder of the year will continue to be dependent on demand, mortgage rates and broader market conditions. Bill? Bill Wheat: Our homebuilding SG&A expenses in the second quarter increased 2% compared to last year, and SG&A as a percentage of revenues was 9.2%, up from 8.9% in the prior year quarter. The year-over-year increase in our SG&A expense ratio was primarily driven by lower home closings revenue, reflecting the decline in our average sales price. We continue to manage our platform with discipline and remain focused on gaining market share efficiently while driving operating leverage over time. Paul? Paul Romanowski: We started 27,500 homes in the second quarter and we ended the quarter with 38,200 homes in inventory, of which, 22,900 were unsold and 5,500 were completed and unsold. Our completed unsold homes are down 25% from December and 35% from a year ago, with both unsold homes as a percentage of total inventory and completed unsold inventory at their lowest levels since fiscal 2023. For homes closed in the second quarter, our median cycle time from home start to home close improved by almost a month year-over-year. Our improved cycle times enable us to hold less inventory and turn homes more efficiently. We expect starts in the third quarter to be lower than the second quarter, and we will continue to manage our inventory levels and start pace based on market conditions. Mike? Michael Murray: Our homebuilding lot position at March 31 consisted of approximately 575,000 lots, of which, 23% were owned and 77% were controlled through purchase contracts. We are actively managing our investments in lots, land and development based on current market conditions. We remain focused on our relationships with land developers across the country to allow us to build more homes on lots developed by others. This approach enhances our capital efficiency, returns and operational flexibility. In the second quarter, 67% of the homes we closed were on lots developed by either Forestar or third parties, up from 64% in the prior year quarter. During the second quarter, our homebuilding investments in lots, land and development totaled $2.1 billion, including $1.5 billion for finished lots, $500 million for land development and $120 million for land acquisition. Paul? Paul Romanowski: In the second quarter, our rental operations generated $12 million of pretax income on $212 million of revenues from the sale of 566 single-family rental homes and 216 multifamily rental units. At March 31, our rental property inventory totaled $3 billion, including $2.7 billion of multifamily rental properties and $347 million of single-family rental properties. We remain focused on improving the capital efficiency and returns of our rental operations, and we currently expect our rental inventory to remain around $3 billion. Turning to our financial services operations. Pretax income for the second quarter was $52 million on $193 million of revenues, resulting in a pretax profit margin of 26.8%. Mike? Michael Murray: Forestar, our majority-owned residential lot development company, reported second quarter revenues of $374 million on 2,938 lots sold, with pretax income of $44 million. At March 31, Forestar's owned and controlled lock position totaled 94,000 lots. 65% of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton. During the second quarter, we purchased $280 million of finished lots from Forestar. Forestar's strong, separately capitalized balance sheet, national operating platform and lot supply position them well to provide essential finished lots to the homebuilding industry and to aggregate significant market share over the next several years. Bill? Bill Wheat: Our capital allocation strategy remains disciplined and balanced, supporting an operating platform that delivers attractive returns and substantial operating cash flows. We maintain a strong balance sheet with low leverage and healthy liquidity, providing significant financial flexibility to adapt to changing market conditions and opportunities. During the first 6 months of the year, homebuilding cash provided by operations totaled $619 million and consolidated cash provided by operations was $442 million. During the second quarter, we repurchased 6 million shares of common stock for $904 million, reducing our outstanding share count by 8% compared to a year ago. We also paid cash dividends of $0.45 per share, totaling $130 million, and our Board has declared a quarterly dividend at the same level to be paid in May. At quarter end, our stockholders' equity was $23.6 billion, down 3% from a year ago, while book value per share increased 5% from a year ago to $82.91. At March 31, we had $6 billion of consolidated liquidity, including $1.9 billion of cash and $4.1 billion of available capacity on our credit facilities. Total debt at quarter end was $6.6 billion, with $600 million of homebuilding senior notes maturing over the next 12 months. Our consolidated leverage at March 31 was 21.7%, and we continue to target leverage of around 20% over the long term. Jessica? Jessica Hansen: Looking ahead to the third quarter, we currently expect consolidated revenues to be in the range of $8.8 billion to $9.3 billion, with homes closed by our homebuilding operations to be in the range of 23,500 to 24,000 homes. We expect our home sales gross margin for the third quarter to be in the range of 19.7% to 20.2%, and our consolidated pretax margin to be between 12.2% and 12.7%. For the full year of fiscal 2026, we now expect consolidated revenues of approximately $33.5 billion to $34.5 billion and homes closed by our homebuilding operations of 86,000 to 87,500 homes. We continue to forecast an income tax rate for fiscal 2026 of approximately 24.5%, operating cash flow of at least $3 billion, common stock repurchases of approximately $2.5 billion and dividend payments of around $500 million. Paul? Paul Romanowski: In closing, our results and positioning reflect the strength of our experienced teams, industry-leading market share, broad geographic footprint, and focus on delivering quality homes at affordable price points. These are key components of our operating platform that support our ability to aggregate market share, generate substantial operating cash flows and consistently return capital to our shareholders. We recognize the current volatility and uncertainty in the broader economy, and we will continue to adjust to market conditions with discipline as we focus on enhancing the long-term value of D.R. Horton. Finally, I want to thank the entire D.R. Horton family, our employees, land developers, trade partners, vendors and real estate agents for your continued hard work and commitment. We look forward to continuing to improve our operations and expand homeownership opportunities for more individuals and families throughout fiscal 2026. This concludes our prepared remarks. We will now host questions. Operator: [Operator Instructions] And the first question today is coming from Alan Ratner from Zelman. Alan Ratner: Really nice job in a tricky environment. So congratulations. First question, I would love to drill in a little bit more on the gross margin outlook. It sounds like adjusting for the various warranty and litigation charges, it sounds like you're expecting pretty stable margins sequentially, which is very encouraging given what's going on. I know you mentioned you have some tailwinds there from lower construction costs. I was just curious if you can kind of give a little more detail on what you're seeing on that front lately, especially with the higher oil prices of late. We're starting to pick up some chatter about fuel surcharges from suppliers and trades. And I'm curious, if you're experiencing that in general, what your outlook there is maybe beyond the third quarter if oil remains near current levels? Bill Wheat: Sure. As we've discussed in prior quarters, we focused to do out our operations on sitting down with our trades and working our costs down as we held our starts back in Q4 and Q1. I feel good about what has been accomplished there. It's an ongoing effort, will continue to be ongoing. But we can now see in our construction cycle and our construction -- our homes under construction, lower costs coming through. And so we've started to see the front end of that in the current quarter that we're reporting, and we can see a bit more of that coming through next quarter. And so we expect to see some incremental benefits in Q3 and Q4. With respect to recent inflation, potential inflation from oil prices, that's something we'll be monitoring closely. Right now, we have nothing tangible to report in terms of anticipating inflation from that. But if we were to see an extended period where oil prices stayed elevated for an extended period, then there could be some pressure. If it remains a relatively temporary period, we wouldn't expect too much impact. Alan Ratner: Great. I appreciate that. Second question on the rental segment. I know it's not necessarily an area of growth for you guys, but obviously, a lot of noise with the outstanding extended bill related to BFR. I see you did sell 500-plus homes in single-family rental this quarter. Just curious if you could talk about the demand you're seeing kind of -- for going forward on BFR and whether you think this is going to kind of cause a bit of a pullback in activity in your rental segment beyond '26 if it does come to fruition? Paul Romanowski: We still see interest out there, but there is uncertainty around the legislation, and I think a little bit of a pause in terms of people waiting to see how that plays out specifically as it relates to the 7-year potential sale requirements. Generally speaking, we have underwritten our build for rent communities as for sale. So if need be, as we go forward, we can move those if needed. We also have focused the majority of our forward business on forward sales. In other words, we aren't starting those unless we have a contract and firm commitments. And so I feel good about our positioning there, not overly relying at all on having that business continue to be able to hit certainly our guide, and feel good about our positioning in the space. Operator: The next question will be from John Lovallo from UBS. John Lovallo: The first one is, how would you sort of characterize demand in March relative to normal seasonality? And the reason I ask is we've had certain checks that indicate normal seasonality sort of occurred each week through the first week of March and then sort of leveled off as the war started. Other checks have indicated they saw normal seasonality all the way through March, notwithstanding the war. And then I'm curious also what you're seeing year-to-date in April from a seasonality standpoint? Michael Murray: I would say the demand was good. We saw sales in line with normal seasonality, kind of as we expected and hoped throughout the month, and we're pleased with our sales results through mid-April at this point. But it's only the middle of the month at this point. Jessica Hansen: And our cancellation rate was stable throughout the entire quarter. Michael Murray: Yes. No change in that. John Lovallo: Yes. No, that was encouraging. Okay. And then on the order ASP of $366,000, it seemed to stabilize a bit here in the second quarter. It was actually up, I think, quarter-over-quarter for the first time since maybe the second quarter of '24. I mean was there any notable mix impact to call out there? And do you think we sort of found the floor on order ASP or close to it at this point? Paul Romanowski: I don't know that there was a notable mix for that impact. Our incentives do remain elevated as we had called out. And we're not going to call a floor relative to the market, and demand will depend on what we see through the remainder of the spring and into the summer selling season. Operator: The next question will be from Stephen Kim from Evercore ISI. Stephen Kim: Yes, strong results here in a tough market. I wanted to ask you about the incentive environment. You called for incentives remaining elevated through the remainder of the year. And I'm curious if you've seen any changes in trends worth calling out in terms of perhaps maybe an increase in the use of arms or temp buydowns. If you could just give us a sense for what you're seeing in terms of recent trends or recent activity in terms of how your incentives are tracking? Jessica Hansen: Sure. On the ARM front, we ran about 10% of our closings, at least through a mortgage company this quarter, more an ARM product. That's down from 13% sequentially, but it is up from essentially 0 a year ago. We are incentivizing. We've got products out there that are ARM incentives. So we are not surprised by that tick up. It's been somewhat strategic. I don't know that we expect it to grow materially from here. It could bounce around in that 10% to 15% range would be my guess today. And then in terms of just the buy down overall, we did have 90% of the buyers that utilized our mortgage company get some version of a permanent and/or a temporary buydown this quarter, which is up on our overall closings. That's roughly 73% of our closings had some form of a buydown. Stephen Kim: And could you give us a sense for overall, what incentives may, in aggregate, represent as a percentage of the, maybe the MSRP, the initial home price? And whether this has been -- it's been -- whatever it is, I'm sure it's obviously elevated, as you indicated. It sounds like there's no expectation to sort of bring that down, at least as far as you can see this year. And I'm wondering how would you respond to folks who are worried that this is becoming a new normal, that the buyer has become conditioned to expect very elevated level of incentives. And do you still have the same confidence that you had, let's say, 3 years ago when we started getting into this mess that you're going to be able to bring those incentives all the way back down to the level they historically were. Paul Romanowski: Steve, the incentives as a percent of revs is roughly 10%. And as it speaks to that level of incentives relative to market, rates have remained relatively stable. They've been somewhat range-bound, and we've stayed pretty consistent in the rates that we're offering. Therefore, that cost of those rates has stayed relatively stable in terms of the total incentive package. That being the most significant incentive that we are giving. I think we're going to need to see rates moderate some before we see that break up, and/or an increase in consumer confidence and more buyers in the market that allow for a reduction in incentive and over time, eventually, some increase in base house pricing. But we incentivize and look at that on a community by community level. We do have communities that we see a reduced incentive level. We haven't seen that come in aggregate when you look at our overall revenues. And as we focus on selling earlier in the process, we see the opportunity to hold back on some of those incentives as well. Operator: The next question will be from Ryan Gilbert from BTIG. Ryan Gilbert: Just first question on selling -- what you just said on selling homes. Earlier in the process, it does look like based on the backlog data, you've been able to sell more homes before they've been completed. Is that just a function of the drop in standing inventory? Or are you able to offer more incentives on homes under construction than you have been able to previously or have consumer preferences shifted away from completed spec? Jessica Hansen: With our cycle times where they are today, we're able to sell earlier and still put them into the BFC if that's the incentive that we're needing to get them across the finish line, whereas before construction cycle times were elongated and we weren't able to do that. But usually, when we sell a home earlier, we actually see a gross margin lift versus selling a home later. Ryan Gilbert: Okay. Got it. And then second question on starts, pretty big year-over-year pickup. Did you increase starts throughout the quarter? Do you need to make any adjustments as a result of the Iran conflict? It sounds like potentially not based on the third quarter guidance. But yes, any color on the starts gains throughout the quarter? And then if you think 3Q will also be down on a year-over-year basis in addition to sequentially? Michael Murray: On the starts for the quarter, we maintained our plan for the quarter, throughout the quarter, and we felt really good with the sales demand we saw. So the starts plan was in line and continued. I think we'd be -- expect to be seeing starts down sequentially in Q3, but likely roughly flat with what we had last year, somewhere in that range. Obviously, dependent upon the sales environment at a community level. Operator: The next question will be from Sam Reid from Wells Fargo. Richard Reid: Just wanted to talk through the cycle time benefit you got in the quarter relative to last year. I know this came up a little bit on the prior question. But how much of the 1-month improvement was explicitly from lower construction cycle times versus shorter complete to close? And then can you talk to any sequential benefits you might have gotten from that lower complete to close in Q2 versus Q1? Jessica Hansen: Our complete to close was down about a week sequentially, which is good. We still have room that we can improve that further. But a week quarter-over-quarter is a good start. Richard Reid: No, that's awesome. Helpful to hear. And then I know your red tag sale, I believe that's ongoing right now. Can you just remind us whether there are any timing differences between the sales this year versus last year? And maybe any tweaks to incentives we should be mindful of on the red tag sale? I mean I know you run it fairly regularly, but always trying to get a sense for any changes at the margins. Michael Murray: We've been consistently doing a red tag sale normally around the start of our fiscal quarters, and the incentive levels vary by community, by submarket. No, I won't say there's anything different in timing this year or anything really different in the incentive levels we're looking at in the aggregate. We have a little less completed inventory today in today's -- the current red tag sale than we did in the prior red tag sale. Operator: And the next question is coming from Matthew Bouley from Barclays. Matthew Bouley: So I wanted to first get a sense of what led the margins to be above your guidance and presumably with that continuing to how you're thinking about Q3 here. So was it kind of a reflection of the 6% mortgage rate environment we had from earlier this year? I mean it sounded like lot costs at 4%, probably a little bit lower than what we've seen recently, maybe more success on stick and brick than you had thought. Just sort of how do you bucket all that out? Paul Romanowski: I think it's a combination of all those things. We've seen some reduction in stick and brick come through that Bill spoke to less reduction of the increase of lot price. So those somewhat offsetting. And then we saw a fairly strong quarter from a demand perspective. And just under 25,000 homes sold in the quarter allowed us to hold incentives, maybe a little more than we had anticipated, and that's the result of our margin being at the high end or above our guidance. Matthew Bouley: Got it. Okay. No, that's perfect. And then secondly, I wanted to dig in back to that ARM's question. So I guess, number one, was there any more sort of temporary buydowns on top of the ARMs? Or is that 10% you mentioned kind of the whole thing. But then more specifically, I guess, going from 0 to 10% or if it's more with the temporary buydowns, like is there a rule of thumb? Or how would that impact your homebuilding gross margins relative to your financial services margins as well? Michael Murray: I don't think the -- it had a really significant material impact on the company. I think the ARM product has been pretty slow on the uptake this time versus prior cycles and people definitely prefer a 30-year fixed rate mortgage. And it is up 10% from 0 last year, but it's down 3% from Q1. So it's not having a significant impact truly on margins at the homebuilder with the financial services team at this point. Operator: The next question will be from Anthony Pettinari from Citi. Anthony Pettinari: On stick and brick, you talked about trends in building products costs. I'm just wondering if you could talk a little bit more about the labor piece, what that is year-over-year? And is there kind of an opportunity to keep driving that down on a year-over-year basis? And sort of what you're doing there? Paul Romanowski: We are seeing consistent labor and plenty of labor in the market. Hence, our reduced cycle times, and we continue to see those. The construction cycle times have slowed in terms of reduction just because we're below our historical average pace of home construction. So with more labor means more competition. And so we've seen certainly a portion of those total stick and brick savings come through labor as well as some mix of materials. That specific amount or percentage or split, we don't have, but expect to see, with what we're seeing in the market, that we continue to see some stick and brick savings show up, especially into our third and our fourth quarter in our homes that we closed. Anthony Pettinari: Okay. That's helpful. And I'm wondering if you could give any more kind of regional color on market strength and particularly what you're seeing in Texas and Florida, the spring season? Michael Murray: I think we're seeing good demand in Texas consistent as well in Florida. The markets feel pretty good to us. Generally, across the country, I would say that most of our markets are performing well in line with expectations, perhaps a little bit of softness in a few of our markets of kind of traditionally heavy exposure to the software industry, that buyer sentiment may be off a bit. Other than that, just kind of a good start to spring, pretty encouraged. Operator: The next question will be from Trevor Allinson from Wolfe Research. Apologies, it looks like we just last Trevor. We'll come back to him if he comes back in. The next question will be from Michael Rehaut from JPMorgan. Michael Rehaut: I wanted to circle back to comments you made earlier about demand trends in March and April, and you kind of indicated that, I believe, March, in line with seasonality, and you're pleased so far with April. I was kind of curious if you could kind of go a little bit more into detail on that? Obviously, the consumer sentiment data has come out a little shaky since the start of Iran war, a lot of volatility, a lot of headlines. And just kind of curious what you're seeing more on a bottoms-up basis from your home buyers and week-to-week, if perhaps month as a whole might have been kind of consistent with seasonality, but if you saw any more volatility on a week-to-week basis? Jessica Hansen: We don't generally comment on intra-quarter in terms of monthly trends, but to reiterate what Mike said, demand was good throughout the quarter and in line with our expectations and normal seasonality. Normal seasonality would be that February into March and into April are really getting into the heart of the spring selling season. And we didn't see any meaningful impact or disruption to the business that we would tie to any global or gas-related price increases. And I've said earlier, but also our can rate was stable throughout the quarter, which is another positive. Michael Rehaut: Okay. I appreciate it. I guess, secondly, you highlighted gross margins being stable going to the third quarter, if you exclude the 40 bp benefit, also expecting to benefit from lower costs into the third quarter. Perhaps if I heard it right, more than the second quarter as some of those benefits compound, let's say, or you feel the full impact. With flat gross margin sequentially, you have better continued gains on the lower cost. Are there anything that's offsetting that, that otherwise, you wouldn't see a potentially slight sequential improvement? And I'm thinking, in particular, if perhaps there's still kind of some movement around incentives or higher land costs or any factors that might offset the otherwise benefit from lower construction costs? Bill Wheat: We do continue to expect our lot cost to incrementally be a bit higher. It was relatively flat this quarter sequentially, but year-over-year, still up 4%. So that is a continuing headwind that -- our base case for this year was that we would see enough improvement in our stick and brick labor costs to offset that. And that's what we've seen thus far. That's kind of what we see as we look into Q3 right now. Obviously, incentive levels will depend on demand and mortgage rates and all the other factors that will impact our selling process. But -- so that remains to be seen what will happen on the incentive front. Operator: And the next question will be from Trevor Allinson from Wolfe Research. Trevor Allinson: You mentioned earlier that your completed specs are down about 35% year-over-year. So made some real progress on working down inventory. In past quarters, you've talked about industry inventory levels kind of still being extended here. Have you seen the industry overall also start to make some progress on working down inventory? And then was that a factor either industry-wide or for you guys, specifically in your 2Q gross margin coming in better than you anticipated? Paul Romanowski: I think we have seen inventory levels reduce across the competitive environment and I think similar to what we have done, a little more control on starts and that being dependent on the sales pace and demand. And we have absolutely watched that closely week-to-week and managing our starts in line with our housing demand that we see and our expectations as we move from quarter-to-quarter. So we feel good -- very good about our inventory position and good about the starch level that we had as it related to our sales throughout the quarter. Trevor Allinson: Okay. Very helpful. And then second question on your lot count, it's down about 10% year-over-year. You've got land prices, which remain sticky demand, still challenged. Is it your expectation that lot count kind of still continues to move lower sequentially here as maybe fewer deals just meet your underwriting standards in the current environment? Or were you able to find enough deals here where you expect that lot count to kind of flatten out from where it's at now? Michael Murray: I think we feel really good about the current lot position we have, and we're probably as good as we've ever been in the company's history of positioned with our land pipeline, such that we're able to kind of pass on deals that don't make sense in today's current incentive environment and being disciplined in our approach to the underwriting. Jessica Hansen: I think our development partners continue to work with us as well to adjust lot takedown schedules. And so that's probably a big driver of the sequential decline in our owned lot count as we still have an immense need for finished lots and appreciate those relationships and the ability to flow our takes in the projects where we need to. Operator: The next question will be from Rafe Jadrosich from Bank of America. Rafe Jadrosich: Just following up on the last comment. Can you talk about your exposure to land banking, maybe as a percentage of the option mix and then your ability to actually slow down the pace of the lot takedowns? Michael Murray: We have a mid-single-digit exposure to land lot bankers within our lot portfolio. So it's not a significant part of our land strategy at this point. Most of our lot position is held by third-party developers that are putting lots on the ground for us or Forestar. And we've been able to work with those folks in terms of adjusting, as Jessica said, take down schedules, timing of development phases to meet the market in line that makes sense for the market. We believe our strategy of working with third-party developers provides us a lot of operational flexibility, in addition to capital efficiency and utilizing the benefit of some very knowledgeable and seasoned experts in the development world. Rafe Jadrosich: Great. That's really helpful. And then I know it can be difficult to predict at times, but just can you help us at all with how we should think about the community count growth in the second half of the year? And if there's any sort of cadence that we should be considering? Jessica Hansen: We don't -- I always start with this. So we don't guide to community cap for a reason. It's a really hard one because it is so dependent on what's happening with our sales-based community by community. But it had stayed on a year-over-year basis, up a double-digit -- low double-digit percentage. We were up 11% year-over-year and 4% sequentially. We do continue to expect that to moderate at some point. I think the biggest positive this quarter, irrespective of community count, is that our sales were up 11%, in line with our community count increase. So we didn't see any decline on a year-over-year basis in terms of absorption. So another really positive sign about the second quarter and the demand environment. Bill Wheat: We expect it will moderate for that mid-single digit. Exactly what that timing will be, whether it's in the next few quarters or it's next year, sometime, that's the part that's a little more difficult to predict. Operator: The next question will be from Buck Horne from Raymond James. Buck Horne: Apologies if I missed this earlier, but I was just wondering if you could clarify for me, the changes to the top end of the revenue guidance for the year, given the -- I mean, the pretty resilient strength in net orders and the faster cycle times you're seeing, I just wanted to be clear on what the messaging was on kind of taking down the top end of revenue guidance for the year? Jessica Hansen: We lowered our closings guide by 500. And then we also saw a lighter ASP than we would have originally anticipated, and we're not really assuming our ASP to increase in the back half of the year. And so it's a combination of slightly lower closings at the high end and slightly lower average sales price. Buck Horne: And those lower closings would be driven by what factor? Jessica Hansen: We were light on our closing guide in both Q1 and Q2. We didn't achieve what we said we were going to do. We're still very well positioned to deliver in the heart of our original guide. We just felt like it was prudent to bring down the top end, since the first half of the year, we didn't deliver exactly what we were expecting. Buck Horne: Got it. Got it. Appreciate it. And just secondly, I was just curious if you're making any thoughts or changes around your land pipeline just due to what's changing around gas prices and just as consumers are having to drive longer distances for new home communities and the elevated cost of commuting, does that -- if we see an elevated energy price outlook longer term, do you start to reevaluate some of the locations where your communities are at in the pipeline? Paul Romanowski: We would have to see a very extended period of elevated gas prices to want to be responsive to that. The time that it takes to bring these communities online and our positioning of those communities are where we'd like to see them. So we feel good and comfortable about our community and our future community counts and locations. That said, we adjust as the market moves. And if we see an adjustment in market based on distances, then we'll adjust in kind, but nothing that we feel we need to be proactive about at this point in time. Operator: The next question will be from Susan Maklari from Goldman Sachs. Susan Maklari: My first question is on the SG&A. Can you just talk a bit more on how we should think about the path from here and your ability to get some leverage in the second half as those closings continue to come through? Bill Wheat: So we do expect to see some leverage in Q3 and Q4 as our guide for closings is a step up. So we'll see a higher revenue volume in Q3, Q4. Obviously, we want to be as efficient as we can there. The decline in our ASP over the last few quarters and then specifically this quarter, obviously, is a little bit of a drag on the SG&A ratio as well. But we -- as we look forward, we do expect to see SG&A as a percentage of revenue coming down from where we've been in the last few quarters. Susan Maklari: Okay. All right. That's helpful. And then how should we think about your ability or your willingness to continue on the shareholder return? Any thoughts there on potential upside or changes to the guide? And how you're thinking about balancing investments in growth relative to the dividend and the buyback in this environment? Bill Wheat: Our approach will remain consistent there. We're focused on generating strong cash flows from operations. And then you're basically utilizing 90% to 100% of that cash flow for distributions to shareholders. We've been consistent with our dividend and inching that up each year, and then the remainder goes to share repurchases. We're still guiding to approximately $2.5 billion of share repurchases this year. We're ahead of pace through Q2, when we saw the pullback in the stock in the latter part of the March quarter. Obviously, we continue to purchase and leaned into it a bit. So we've really essentially accelerated a bit of our repurchases into Q2, but still right on track towards our $2.5 billion guide for the year. Operator: The next question will be from Jade Rahmani from ABWK. Jade Rahmani: Could you talk about what's driving these warranty and litigation benefits, which you've experienced for more than this quarter and if you expect further benefits going forward? Bill Wheat: Yes, Jade. The last 3 quarters, we've had various kind of one-off events that occurred. This quarter, we had a favorable outcome from a specific litigation case that had been previously reserved, and the results was better than what we had anticipated when we booked the reserve. And so that was a positive benefit this quarter. As well as we did see our warranty costs step down a bit, and we're seeing the benefits of that. We set our reserves based on really where our costs have been. So there was some benefit from that. So this quarter, we would attribute 40 basis points of benefit from those items that we do truly believe are one-off. And so really, our forward anticipation is that the net impact of litigation and warranty would continue to be around 40 to 50 basis points negative impact on margin each quarter. This quarter, that impact was 0. We would expect normally it would be a negative impact of 40 bps. Jessica Hansen: And as a reminder, our supplemental presentation out on our Investor Relations site does give that line item detail on the home sales gross margin slide. And so you can see quarter-to-quarter what that is. And if you go further back than the last 3 quarters, you will see we're right in the heart of that 40 to 50 basis point typical impact. Jade Rahmani: And in terms of the share buybacks, is there a multiple at which above book value, you don't think it makes sense and where you would look to rather lean on the dividend as a way to efficiently return capital? Bill Wheat: We look at all aspects of our distribution strategy, and valuation of where the stock is, is a component of that. However, we're committed to continuing to distribute the substantial majority of our cash flow to our shareholders. We've typically kept the dividend at a more consistent level because any payment of dividends, you prefer that to continue to increase over the long term, and we are very reluctant to reduce dividend levels. And so the share repurchase would be the element that would be more likely to either toggle up or toggle down over time. Operator: The next question will be from Mike Dahl from RBC Capital Markets. Michael Dahl: Nice results. I just wanted to ask a clarifying question on the incentives. I believe in the opening remarks, you made a comment about incentives continued to increase in the quarter. But then a lot of your subsequent commentary, it sounded like it was actually a little more stable. So I just wanted to kind of confirm, was that a comment that was sequential or year-on-year? And then I understand that on a forward basis, the market conditions will dictate where you go with that. But in terms of what's embedded in the 3Q guide, is that for stable sequential incentives or different level, good or bad? Michael Murray: I think you heard that properly as stable incentive levels from Q2 to Q3. In Q2, about 61% of our homes closed were sold within the quarter, so they're very reflective, the results were reflective of the market conditions we experienced, and that's what we're kind of projecting forward from an incentive level. Michael Dahl: Okay. So the 10%, in the 10% you experienced in 2Q, was that also stable relative to -- so 1Q... Jessica Hansen: It ticked up slightly, but it was essentially rounded to the same number. Michael Dahl: Got it. Yes, yes. Okay. That makes sense. I wanted to also follow up on the material cost dynamic. I appreciate that you guys have some forward visibility given the way you negotiate with your trades and labor. If we've now seen a slew of price increase announcements across a large basket of construction materials and building products and understanding that it may take time for those to go through, it may fluctuate based on ultimately what's happening on the ground today. But from a timing standpoint, if we start seeing price increases go into the market, this later this spring, when does that flow through to? Is that a fiscal '27 closings dynamic for you at this point in the year? Are you pretty locked for '26 starts and closings? Paul Romanowski: If we started to see those price increases truly come through, then yes, that would be more of an impact on fiscal '27. Certainly, we'd see some, but I think probably offset in balance, and we really haven't seen that to date. So we'll just see how that goes based on what occurs in the world. Jessica Hansen: Increases get announced a lot. That doesn't mean we actually take them. Operator: The next question will be from Ken Zener from Seaport Research. Kenneth Zener: Given your normal order seasonality, do you feel -- did your teams tell you that you guys gained share? Or is that kind of just the demand environment? Michael Murray: Hard for us to gauge what we're doing on share versus the overall environment. It felt pretty good. Anecdotally, I'd say maybe it's a little bit of share, but I don't know. We'll find out when everybody else reports. Jessica Hansen: Over the next 1.5 weeks, I think you'll have a pretty good idea. Unknown Executive: Yes. I mean our cash flow each other [indiscernible]. Kenneth Zener: Right. No, it's very impressive. And then your lower land cost, I think you said it was up 4% year-over-year. Could you give us some context to that? I think it was more in the mid- to high single digits. And then can you talk to the benefit you believe you're realizing from when you slowed down starts to renegotiate? Just trying to understand how those 2 factors are -- might play out going forward. Paul Romanowski: When you talk about the benefit of slowing starts, are you talking on the land side or on the labor side? Labor? Yes, I think that... Kenneth Zener: It could be both. I mean really just to illuminate us, if you would. Paul Romanowski: Yes. I think that what we have seen and expect to see as we go into the third and fourth quarter, that the stick and brick savings between both materials and labor will offset any increase that we see on the land side. We have -- as we've gone through community by community, just like we do on the sales and our incentive level, this is a regular discussion with our development partners and/or landowners relative to the terms of any particular deal. And we've seen some savings on land deals, not widespread, but some land and lot reductions based on the reality of the environment and the pace at which we're buying lots and/or starting up. Jessica Hansen: And Ken, so the first part of your question, we did see moderation in terms of that increase on a year-over-year basis. We were up 6% last quarter, 4% this quarter. Too early for us to say it's going to continue to decline or stay right in that 4% range. But we have expected, as we continue to move through our earlier -- or our more recently purchased land that, that will moderate in terms of the year-over-year increase. Operator: The next question will be from Jay McCanless from Citizens. Jay McCanless: Jessica, I wanted to go back to a comment you made about a gross margin tailwind on homes that you guys sell earlier in the construction process. Is that some extra upgrades going in? Or is that just some cost attribution flowing through? Paul Romanowski: Some of that comes from choice selling earlier in the process compared to a completed home or one that we may be more motivated to move off balance sheet and get a buyer in there. So when we sell early in the process and there's a little more choice, whether that's lot selection or some of the things that go in the homes, I think those all attribute to a slight advantage on gross margin at the time of sale. Michael Murray: Yes. Just to clarify that we would expect a slightly higher margin on homes sold earlier in the construction process than those that are sold when they're complete, just to make sure we got the headwind tailwind on margin and cost of sales. Jessica Hansen: And we typically always talk to the point that once the home is completed and unsold for a period of time, we do start to see the margin degrade, which is why we have such a focus on not letting our completed specs age and how pleased we are with our completed spec reduction today. Jay McCanless: Okay. That's great. The second question I had, I guess, along those lines, if you are able to sell a little bit earlier, I guess, how much were you able to raise prices in certain markets this quarter? Or is it still kind of tricky to pull that off? Paul Romanowski: It's certainly tricky to measure with any consistency because that is a community-by-community balance. In some cases, it's a reduction of incentives compared to a price increase, and trying to nail that down and put a number to it is just not something that we have. Operator: The next question will come from Jonathan Bettenhausen from Truist Securities. Jonathan Bettenhausen: I know it's a smaller mix of sales, but another good quarter for the North. It's a fairly large region from a geographic perspective. So are there any metros specifically to call out that you're seeing outsized growth? Or is it more just kind of broad across the region there? Michael Murray: Pretty consistent across the regions. It's also reflective of investments we've made in that geography over the past several years that are now coming in and bearing fruit. So we're really pleased with the teams, how they're performing across the North region, and the contribution they're making to the overall sales results as Texas and Florida are not quite the powerhouses they once were. Jonathan Bettenhausen: Yes. Okay. And just to follow up on that. Can you talk about the kind of investment thesis in the North? Michael Murray: The investment thesis? It was markets we had not heavily penetrated. We saw opportunity to take national market share by expanding our presence in those markets, and we did it through a combination of greenfield organic growth as well as a few acquisitions. Operator: The next question will be from Alex Rygiel from Texas Capital. Alexander Rygiel: Cancellation rates have remained fairly stable, but have the reasons for the cancellations changed at all? Jessica Hansen: No. We continue to see that the vast majority of our cancellations are due to the buyer ultimately not being able to qualify for the mortgage once they get into the full documentation process. Operator: And the next question will be from Alex Barron from Housing Research Center. Alex Barrón: I was recently in San Antonio and saw you guys had several communities priced in the high 100s, low 200s. And I was wondering if that's just something you're only doing in that market? Or it's a new push you guys are doing across more markets to build more lower-priced affordable communities? Paul Romanowski: Alex, we have focused on finding a more affordable product and doing it where we can in the markets that especially allow the smaller lot prices and allow for those smaller square footages. Not something we can do across all municipalities in the country. We still face a lot of minimum lot size requirements that put the cost a lot out of range to achieve that and/or minimum square footages. But where we can achieve, we have seen good success with that. And certainly in Texas, allowing to get some of the lowest prices we can provide around the country where you're seeing in San Antonio, and we're seeing those across the Texas markets and feel good about the positioning. Alex Barrón: Okay. And are you finding above average sales pace for that price point? Paul Romanowski: We are. It certainly opens up homeownership to places where there is no other option in a lot of the markets and certainly not for a new home with a warranty and stability of neighborhood and community that we're delivering. So it's absolutely opening up home ownership across the markets, and we see a higher pace because of that. Operator: And that does conclude today's Q&A session. I will now hand the call back to Paul Romanowski for closing remarks. Paul Romanowski: Thank you, Paul. We appreciate everyone's time on the call today, and look forward to speaking with you again to share our third quarter results on Tuesday, July 21. And congratulations to the entire D.R. Horton team on a solid second quarter. We appreciate everything that you do. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.