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Ahmed Moataz: Hello, everyone. This is Ahmed Moataz from EFG Hermes, and welcome to IDH's 2025 Results Conference Call. I'm pleased to be joined with Dr. Hend El Sherbini, Chief Executive Officer; Sherif El Zeiny, VP and Group CFO; and Tarek Yehia, Director of Investor Relations. As usual, the company will start with a brief presentation, and then we'll open the floor for Q&A. IDH's management, please go ahead. Tarek Yehia: Good afternoon, ladies and gentlemen, and thank you for joining us for the full year results. My name is Tarek Yehia, I'm Head of Investor Relations. Joining me today Dr. Hend El Sherbini, our CEO; and Mr. Sherif El Zeiny, our CFO. Dr. Hend will begin the call with a summary of the main highlights from the year. After that, I will discuss in more detail the main macro and geopolitical trends seen across our markets. After my presentation, Mr. Sherif will offer a deeper analysis of our financial performance. We will then open for Q&A. With that, I will hand it over to Dr. Hend for her introduction. Please, Dr. Hend. Hend El Sherbini: Thank you, Tarek, and good afternoon, everyone. I'm Dr. Hend El Sherbini, CEO of IDH. I'm pleased to report that 2025 was another very strong year for the group with robust operational and financial performance across our core markets and continued progress on our strategic priorities. The results we are presenting today reflect not only improving market conditions in key geographies, but also the tangible impact of the strategic initiatives we have been implementing over the past 2 years, particularly around network expansion, service diversification, digitalization and operational optimization. Throughout the year, we continue to strengthen our leadership in Egypt and Jordan while making very encouraging progress in Nigeria and Saudi Arabia. We are also very pleased with the sustained improvements in profitability across the income statement, which continue to validate the scalability of our model and our ability to translate growth into stronger returns. More broadly, we are encouraged by the increased resilience of our platform, which today combines scale, a richer service mix and improving efficiency across markets. Turning to our performance in more detail. During 2025, we continue to build on the strong momentum established over the prior year, delivering 37% revenue growth year-on-year supported by growth across both volume and value metrics. Test volumes increased by 11% during the year, with all operation geographies contributing to this expansion, supported by stronger patient engagement, deeper penetration in both walk-in and corporate channels and improving refer flows. At the same time, our average revenue per test rose 24%, and reflecting a richer test mix, broader uptake of radiology and specialized diagnostics [indiscernible] of the pricing actions introduced earlier in the year. These trends also helped us further strengthen our average test per patient metric, which reached 4.6 tests per encounter, demonstrating the continued depth of patient relationship and our success in expanding cross service utilization across our platform. In Egypt, momentum remained very strong throughout the year, supported by solid growth in both volume and value alongside strong brand equity and a more supportive macroeconomic backdrop. Test volumes in Egypt continue to expand steadily, while average revenue per test saw a strong uplift driven by favorable mix dynamics, including higher value radiology, radiotherapy, specialized diagnostics and corporate channels. Egypt remained the core engine of the group performance, contributing 84.6% of total revenue in 2025 and continuing to demonstrate strong scalability, resilience and operating efficiency. The continued expansion of our physical network in Egypt remained a key growth driver during the year. Over the past 12 months, we added 137 new branches in Egypt, bringing the total to 724 locations nationally at year-end. These new sites have helped deepen our presence, not only in Greater Cairo, but also in underserved and fast-growing regional cities. Allowing us to better serve both contract and walk-in patients. Our household service remains a strategic differentiator, sustaining its strong contribution of around 20% of Egypt's revenues continues to demonstrate the effectiveness of our post-pandemic strategy and reinforces our position as an early mover in home-based diagnostics in the region. Al Borg Scan continues to demonstrate strong momentum as a key component of our long-term strategy to build a more integrated diagnostics platform. During 2025, we took an important strategic step with the acquisition and integration of Cairo Ray for Radiotherapy, which broadened our capabilities in radiotherapy and strengthened our position in oncology diagnostics. This transaction enhances our ability to participate more meaningfully in higher-value specialized diagnostics and supports our ambition to build a more comprehensive offering for patients and referring physicians. We expect radiology and radiotherapy to play an increasingly prominent role in our growth mix over the coming period, supported by expanding service capability, greater patient awareness and growing demand for specialized imaging and treatment support service. Over the past 2 years, a key strategic priority for IDH has been the successful launch and upscale of our Saudi operation. I'm pleased to share that our presence in the Kingdom continued to progress very encouragingly during 2025. With strong momentum supported by growing demand, deeper market visibility and sustained improvement in both volume and value metrics. During the year, Biolab KSA generated SAR 5 million in revenue, representing a 252% year-on-year growth as test volumes and patient throughput increased sharply, and the business benefited from the expansion of the network to 3 branches. This growth continues to highlight the effectiveness of our ramp-up strategy in the market, which is designed to accelerate revenue growth and establish Biolab KSA as a recognized provider in the large but highly fragmented [ Saudi's ] diagnostics market. At the same time, we continue to advance our growth approach, which includes targeted marketing campaigns to build brand recognition, selective promotion initiatives to drive patient acquisition and ongoing efforts to strengthen physician and patient engagement. While still in the early stages of development Biolab KSA is demonstrating strong operational traction and reaffirming our belief in the long-term potential of Saudi Arabia as a key pillar in the group's regional growth strategy. As always, profitability remains a core focus for us, and we are very pleased to see sustained improvement across all levels of the income statement. We continue to benefit from strong operating leverage, tighter cost controls and better resource allocation across our subsidiaries, including Nigeria, where Echo-Lab delivered a full year of positive EBITDA, marking a key milestone in its turnaround and confirming the potential of this high-growth market. Overall, both COGS and SG&A as a share of revenue continued to decline, supported by disciplined cost management and our growing digitalization efforts. COGS to revenue fell from -- fell to 57.3%, while SG&A declined to 15% from 16.9% last year, underscoring the success of our optimization initiatives. Consequently, our EBITDA margin expanded to 34.9% from 29.7% last year, while gross profit margin rose to 42.7% compared with 38.1% in 2024. These efforts, combined with strong top line growth and improved pricing and mix have translated into meaningful margin expansion and greater earnings quality with adjusted net profit increasing 79% year-on-year. I'm also very pleased to share that the Board of Directors has declared a dividend of USD 0.0085 per share for the year ended December 2025, presenting a total distribution of USD 4.9 million. This reflects our commitment to delivering sustainable shareholder value while preserving the flexibility to fund attractive growth opportunities. In parallel, we remain prudent in our capital allocation approach, and we'll continue to reassess distribution in line with evolving market conditions and investment needs. Before handing the call back to Tarek, I would like to briefly touch on how we view the business as we move into 2026. We entered the year with a stronger platform, broader geographic footprint and improved profitability profile, which we believe positions us well to continue expanding access to high-quality diagnostics while driving sustainable growth. Our focus remains on deepening our leadership in Egypt, accelerating the ramp-up in Saudi Arabia, building on the turnaround achieved in Nigeria and continuing to improve operating efficiency across the group. At the same time, we remain mindful of evolving regional developments including the escalation of the U.S., Israel conflict with Iran in early 2026, which may introduce heightened uncertainty across the region, particularly in markets such as Jordan and Saudi Arabia. With that, I'll hand the call back over to Tarek and Sherif, who will take you through key trends across our markets and a more detailed breakdown of our financial performance of the year. Thank you very much. Tarek Yehia: Thank you, Dr. Hend. So far this year, we have continued to operate in a relatively stable condition with supportive macro trends and constructive trajectory across all our key markets. In Egypt, we saw inflation continue to ease materially compared to prior periods, helping support a more constructive operating environment for both business and consumers, improve ForEx liquidity and a stronger investment confidence continue to a more stable backdrop for Egyptian pound during much for the year, which in turn supported planning visibility and reduce pressure on imported inputs. More recently, however, management has been closely monitoring, evolving regional developments, including escalation of U.S. conflict with Iran in early 2026. Similar to Egypt, Nigeria also saw gradual improvement during 2025 with reforms and relative currency stabilization, helping support a recovery in patient activity and more predictive operating conditions. Over in Jordan and Saudi, the health care demand backdrop remained broadly supportive through 2025. Also both markets continue to be exposed to wider regional geopolitical developments. Jordan continued to benefit from a stable health care system supporting consistent demand for diagnostics, while Saudi continued to benefit from structural reforms momentum under Vision 2030. Recent geopolitical development in the region have increased uncertainty and continue to monitor the potential implication for economic activity and patient volumes. Turning quickly to our latest full year results. Egypt continued to deliver a strong broad-based growth with revenue rising 41% year-over-year supported by both volume expansion and significant increase in average revenue per test, particularly driven by radiology, radiotherapy and higher value diagnostic. Meanwhile, Jordan continued its solid performance reporting revenue growth in both Egypt and local currency terms, test volumes increased by 21% year-on-year, supported by Biolab ongoing promotional digital outreach and loyalty initiatives. In a market where volume-led growth remains critical for long-term sustainability, we are pleased to see Biolab's strategy continue to support strong demand and patient retention. In Nigeria, Echo-Lab achieved a full year of positive EBITDA, supported by successful implementation of turnaround strategy and improving operational conditions. We are increasingly confident in the long-term potential of our Nigeria subsidiary to expand its service offering and capture significant upside offered by this growing market. In Saudi, the ramp-up continued very encouraging with revenues increasing supported by stronger brand visibility, network expansion and patient growth. With the third branch now operating and the group aiming to launch 3 additional branches over the coming months, we expect a further growth in revenue and scale in the Kingdom. Finally, in Sudan, operation remains significantly constrained by the ongoing conflict with only 1 branch partially operating and no material change to the report at this stage. I will now hand the call over to Mr. Sherif, who will provide a more detailed overview of our cost, profitability and balance sheet position for the year. Sherif Mohamed El Zeiny: Good afternoon, ladies and gentlemen, and thank you for your time today. As Tarek mentioned during my presentation, I will focus on costs, margins, profitability and our working capital and liquidity position before we open the floor to your questions. In line with the priorities we set out at the start of the year profitability for fiscal year '25 improved materially supported by our group-wide efforts to enhance operational efficiency and maintain tight control over spending. A major focus area over the past 2 years has been digitalization where we have continued integration data tools and analytics into our internal platform, procurement systems and financial planning process to improve decisions making and cost discipline. These efforts, combined with stronger operating leverage and better resource allocation helped drive meaningful improvements in efficiency with both COGS and SG&A as a share of revenue declining versus last year. More specifically, our COGS to revenue ratio improved to 57.3% in '25, down from 61.9% in '24, supported by disciplined inventory management and stronger purchasing costs. The most notable improvements came within raw materials, which decreased to 19.3% of revenue from 22% last year, reflecting our scale advantages and smarter procurement practices. At the same time, total wages and salaries as a share of revenue remained well controlled, underscoring our balance between supporting our staff with operation -- appropriate salary adjustments and continuing to optimize headcount and productivity. As you can see in bottom right chart, these efficiency gains translated directly into stronger profitability with gross profit margin expanding to 42.7% from 38.1% last year and adjusted EBITDA margin rising to 34% from 29.7% in '24. On the SG&A front, spending remained well contained. With SG&A as a share of revenue declining to 15% despite continued investment in strategic growth initiatives. The main increases within SG&A were in wages and salaries as well as advertising and marketing expenses, reflecting annual salary adjustments, selective additional -- additions to support growth and continued marketing investments in Saudi Arabia alongside targeted campaigns in Egypt and Jordan. Even with these investments, the group continued to capture operating leverage highlighting the scalability of the business and the impact of tighter cost discipline across function. Moving to our bottom line. We reported net profit of EGP 1.3 billion in '25, up 29% year-on-year. As highlighted earlier, fiscal year '24 included elevated ForEx gain, which created a high comparative base and distort direct comparisons. When controlling for ForEx expects in fiscal year '24 and nonrecurring items in fiscal year '25, adjusted net profit increased 79% year-on-year to EGP 1.26 billion with an associated margin of 16.1%. As always, we maintain a disciplined approach to working capital management while supporting growth and preserving a strong liquidity. Similarly, we saw our cash conversion cycle improved further to reach 104 days in December '25 versus 155 days at the end '24. It is also important to mention that, as expected, we saw a decline in Days Inventory Outstanding, a stronger sales momentum and more efficient inventory turnover during the second and third quarter of the year following the seasonal Ramadan slowdown in March. Finally, as 31st of December '25. Our total cash reserves stood at EGP 2.1 billion compared with EGP 1.7 billion in '24, with a net cash balance of EGP 472 million versus EGP 226 million last year. This strong liquidity position supported the Board's decision to declare dividends of USD 4.9 million while preserving flexibility to fund attractive growth opportunities. Thank you for your attention. We now welcome any questions you may have. Thank you. Ahmed Moataz: [Operator Instructions] We've actually received a couple of questions in the chat. I'll take them one by one, so that you're not confused. Within the volume growth that you've seen in Egypt, would you say that it has been driven by both existing and recently opened branches or it's entirely driven by recently opened ones and the like-for-like within the mature ones are either flat or declining? Tarek Yehia: Actually, it is both the new branches that we opened during the year and all the existing ones, both were contributing to the sales. Ahmed Moataz: Understood. The second question is on your plan for Saudi in terms of branch openings. Do you have a set in place number of branches you intend to open in '26 and beyond? That's one. And the second, would you be able also to provide us on when you expect EBITDA breakeven for the operations in Saudi and maybe also revenue contribution, not just right now, but maybe a longer-term revenue contribution? Tarek Yehia: Saudi during 2025 have existing 3 branch, and we are planning for next year is 6 branch -- in 2026, another 6 branch to reach by end of 2026, 9 branches across all Saudi as much as we can. And EBITDA is turning positive by 2028. Ahmed Moataz: All right. The following question is on Sudan update, but you've already mentioned that till now, there is no update. You only have 1 branch opened. Another question is on guidance for 2026. If you can provide on that? And also, if you can also disclose the magnitude of price increases that you've already done in January of 2026. Tarek Yehia: For 2026, we are expecting an increase of 25% on sales, a 10% increase in prices and 15% from volume. We're keeping an EBITDA of range -- same range of EBITDA of around 33% to 34%. Ahmed Moataz: Understood. The last part is with the recent weakness in the Egyptian pound and also the geopolitical issues that are somewhat reflecting in higher either freight costs or importation cost, maybe also raw material costs. How do you see this impacting the business? And also how much coverage of inventory do you already have that is secured into the business that would kind of save -- act as a safe haven before you start to see that impact on your P&L? Tarek Yehia: Business till now is not affected in Egypt, and we are securing inventory in order to keep the operation up and running, and we secured the inventory until August. Ahmed Moataz: Understood. [ Jena ] has 3 questions. You've answered -- the first one, I'll just say it out loud, so that's covered by everyone. Please provide revenue, EBITDA and net income guidance for 2026. You've already answered this, but maybe if you have guidance for net income. You've mentioned revenue and EBITDA. The second is -- you've answered most of the second question. The only thing is, that hasn't been answered, what's the percentage of total test kits that are imported? And another follow-up is how many months of test kit stocks do you have? I'm not sure if when you answered and said till August, this covers the test kits or your entire raw materials? Hend El Sherbini: So we import all our kits. So nothing is produced in Egypt, almost nothing. We -- and yes, we have a coverage till August. Ahmed Moataz: All right. And for the entire business, what is the annual target for a number of branch openings going forward? Tarek Yehia: Around 200 across Egypt, Saudi and Jordan. Ahmed Moataz: This is for 2026? Or this is an annual target in general? Hend El Sherbini: This is for 2026, but it includes clinics and hospitals. So they are not -- they're just the regular branches. Ahmed Moataz: Okay. Understood. Andrea is asking -- or actually, first, congrats on the results. Can you please provide any details and guidance on the share of radiology revenue as a percentage of total as it has stayed flat at 4.7% despite the Cairo Ray acquisition. Tarek Yehia: It's still 5% of revenue. Ahmed Moataz: You mean the target in general is 5%, right? Tarek Yehia: The actual is 5%, and it will be increased over years when the business is picking up more and more. Ahmed Moataz: Okay. [ Jena ] is asking with almost $40 million of cash on your books, are you looking to do a buyback? Hend El Sherbini: We have -- we actually have an approval for a buyback. However, we haven't decided to do that. But it is an idea that we're discussing. Ahmed Moataz: Understood. Someone is asking a follow-up on a prior question, which is do you have any revenue targets for Saudi Arabia in 2026? Tarek Yehia: Yes. The target is SAR 18 million. Ahmed Moataz: Right.[ Zoher ] is asking your branch openings target in 2026 for Saudi was 6. Why has this now been pushed out? Tarek Yehia: No, it is the same 6. We have 3 existing in 2025, and we're increasing by another 6 in 2026. Total will be by end of 2026 is 9. Ahmed Moataz: All right. Another follow-up from [ Zoher ] is why decide such a low dividend payout when the CapEx in Egypt ahead is low, given the clinic and hospital model that you have? Tarek Yehia: As we are balancing between investing and distributing dividends, we declared these dividends, and we are seeking more investments in order to grow. So we will revisit if needed, but still we keep it as it is now. Ahmed Moataz: Understood. [ Anup ] is asking household service percentage of revenue has been stable at around 20%. Is this the level of saturation for the service? Or is there further potential to increase household service contribution to total revenues? Hend El Sherbini: We're continuously expanding household service, expanding the team and the service and the value creation for our patients. Right now, it's 20% of revenue. However, the revenue itself is increasing. So the -- I mean the revenue coming from household is also increasing. But I think we still have a big room for growth in household. Ahmed Moataz: Understood. [ Zoher ] is asking if you can provide CapEx forecast or budget for 2026? And if you can break that down by geography? So Egypt, Jordan and Saudi. Tarek Yehia: CapEx is around 5.9% of total sales versus last year of 4.8%. The main CapEx will be for Egypt. Some will go for the new branches. Some goes for IT warehouse, then followed by Saudi and followed by KSA. Ahmed Moataz: [Operator Instructions] So the final question we've received for the time being is how much of your Egypt expansion do you expect will come from hospitals and clinics. Tarek Yehia: It's around 9% coming from this new business, we are going in-house and clinics -- hospitals and clinics. Ahmed Moataz: All right. We haven't received any further questions. So I'll pass it back to you in the case you have any concluding remarks. Otherwise, I can conclude the call now. Hend El Sherbini: Thank you very much, everyone. Ahmed Moataz: All right. Thank you very much to IDH's management and to everyone who participated today. Have a good rest of the day, everyone. Sherif Mohamed El Zeiny: Thank you very much. Bye-bye.
Operator: Good day, and thank you for standing by. Welcome to Atos Group Q1 2026 Performance Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Philippe Salle, Group Chairman and CEO. Thank you. Please go ahead, sir. Philippe Salle: Thank you very much. Good morning, everybody. I am today with Jacques-Francois, and we're going to talk about Q1. So let's go directly on Page 6, on the business highlights. So first point is solid financial performance. I think we are quite happy, let's say, with the start of the year. We have always said that's the lowest point of the year. And then we gradually, I would say, improve the growth. Further progress in the execution of the Genesis plan. So the Genesis is doing also very well. We will finish the first Genesis plan probably by mid of this year. And we have extended the plan, I would say, with another savings to be finished probably by the end of 2026. The idea, of course, is to have the full savings of the new, I would say, the extended plan in the course for the year 2027. We have a positive business momentum, and I will come back to this. With, I would say, book-to-bill that is the highest for the last 5 years. And so now, we have a clear focus on our strategic pillars. Agentic AI, we have launched a manifesto. Sovereign, we have launched also a manifesto internally, and it's going to be externally in the coming weeks. And, of course, Cyber, where we are #1 in Europe. So if we go on the key numbers on Page 7, order entry is EUR 1.5 billion. It's 89% for Atos. It's 87% with Eviden. And of course, as you can imagine, with Eviden, the order entry was a little bit low in Q1 with the war. We definitely think that it's going to be much better after, let's say, the war, but we don't know, unfortunately, when it's going to be finished. Revenue is EUR 1.7 billion plus. It's roughly EUR 1,640 million what we call with the go-forward perimeter, the go forward, it's without Build that we have sold on the 31st of March and Latin America, and we expect to close Latin America next week. If it's not next week, beginning of May, but we will try, I would say, to finish this transaction, let's say, next week, which means that the perimeter is roughly the perimeter going forward. There are still some countries we want to close, but are very small. But in terms, let's say, of sale, I think it's finished. Net change of cash, I think very good news. It's minus EUR 47 million. So you have to understand that we have EUR 71 million of restructuring. So it means that we have produced roughly EUR 24 million of cash. And also, we have the Build cash consumption. Unfortunately, we are not able to estimate that cash consumption for now. We will do this, in fact, when we're going to close H1 -- just for information, build EBITDA was around minus EUR 25 million; CapEx, minus EUR 30 million. So EBITDA minus CapEx is minus EUR 55 million. We estimate that probably there is a positive working cap, but it's possible, of course, that Build has an impact of, let's say, around EUR 10 million, EUR 20 million, EUR 30 million, we'll see. So it means, in fact, that the production of cash is much higher than, in fact, EUR 24 million. And then the liquidity EUR 1.7 billion, it's a little bit above last year, December 2025. And remember also that we have bought already EUR 62 million of the EUR 1.5 [indiscernible]. So of course, there is less cash, but we have also less debt. So let's go on the 3-year for the Genesis. So I'm not going to highlight -- remember that there were 7 pillars in Genesis. There are a lot of things that we are doing. So the first one, is the growth. So as I say, we have redesigned completely for me the engine of growth. And it's going to, I would say, produce a lot of, I would say, of course, results in the coming months now and years. So I would say the teams are in place, most of them. We have, I would say, also put a focus with Florin, the CTO on our 3 strategic pillars, so Agentic, Sovereign and Cyber. We have now launched this morning for 2 or 3 months campaign also in France, I would say, to, let's say, push the image of Atos. And I would say the main, I would say, message is that Atos is back. And as I say on the term, the target operating model, in fact, in sales is completely in place. You will see also, for example, that the pipeline has increased almost by EUR 1 billion in 1 quarter. And that's -- I would say that gives, of course, a very good signs for the rebound that we estimate that will happen, in fact, in Q3. In terms of country review, so we sold iDEAL, it's a company that was in Nordics. It's mainly, in fact, Norway and Finland. So we closed the deal on end of Jan. South America, as I say, next week, and Build was done also end of March. In terms of operational costs, I think we are continuing, I would say, the progress. The billability rate now is above 80%, and it's, in fact, close to 85%, the target that we have. We are now, let's say, recalculating a little bit differently this billability rate because we take into account the average salary of the people that are not billed versus, I would say, the salary of people that are billed. And then there is -- and we see that there is, of course, a discrepancy and there is no, I would say, magic, but usually the people that are more costly, unfortunately, are more on the bench than the people that are billed. So I would say we will not recalculate, I would say, this rate, but we will adjust it, I would say, to the salaries. Legal entities, we continue to simplify the number of entities. We want to shave, I would say, the number of entities by hundreds still. And then we are also putting some AI internally. And right now, for example, we are testing AI on the revenues. So in fact, we are looking at all the contracts that we have, it's several thousands, and we look also at the options I would say, the paragraph in the different contracts that we have signed where we can extend the pricing or bill a little bit differently. So it can give, I would say, some rooms of improvement in terms of margin and revenues for the teams. But Genesis is going very well. The Genesis, the initial plan will be finished mid-'26. So we estimate that the EUR 650 million saving plan is almost complete. And that's why we have extended now the plan to have, I would say, a plan that will finish end of '26. So it means it's a target above EUR 700 million. In terms of workforce on Page 9, as you can see, so we started the year at 63,000. We continue, I would say, the restructuring, and we also managed the levers versus hirings to be negative. So we finished at 61,000. You take out Build to 2,500. So we are now at a little bit below 59,000. If you take South America, we are probably close to 56,000. So that's probably where we will be probably at the end of next week. And I would say we will -- I definitely think that we can -- we will land around 55,000 when Genesis will be complete. So we are almost there. We go on Page 10 on the order book. So first, the book-to-bill is very strong, 89 for -- and in North America, it's above 100. Just for the analysts, that's the -- I always say that the book-to-bill is a proxy, unfortunately, of growth. And I think we have a very good example. The book-to-bill of North America is above 100. They continue to decrease, unfortunately, in terms of top line in Q1. The book-to-bill of U.K. is below 100 and now they are growing. So as I say, unfortunately, it's not an immediate, I would say, readings when you have a book-to-bill at below 100 that it means that we're not going to grow. I don't think that it's the case. We are still looking to find a better measure. It's not an easy one, but we are working on it. I hope that we can probably share some, let's say, results in H1 or at the end of the year. The qualified pipeline, as I say, is up roughly close to EUR 1 billion. We are now at EUR 13 billion roughly of qualified pipeline, so almost 2 years of revenues, a little bit less than 2 years, of course. The renewal rate also is 94%. The good news is that we don't have big renewals now going forward. So in fact, for this year, I think we are not going to lose any other contracts. It has been done, of course, in the course of '25. The 2 big contracts in the U.S. have been renewed. One has been signed, in fact, in end of March with CNA. It's a very big contract, $480 million. And we're also discussing probably to extend the contract to more than this $500 million. We will have probably -- we're still in negotiation in the course of Q2. And the second one also is in California. We have won the contract. It will be signed in the course of April or May. It's done. We are just waiting, I would say, the signature of the client. And then for the U.S., it's done. We don't have big renewals, in fact, in other parts of the world. There is a medium-sized contract, in fact, in BN right now. We are waiting the answer probably next week. And that's all, which I think is very good news. And that's why we are very confident on the rebound of the top line in Q3. And then as you can imagine, we have a good traction in cloud, in cyber and in data AI because we are growing, in fact, in these 3 service line, let's say. You can see below some contracts that we have renewed. So for example, CNA in the U.S., it's a very big contract. There is some CM&I, there is a digital workplace and cyber, and we are also now looking for digital applications and the data AI, in fact, for the client, and it's an insurance company. So I definitely think that Agentic has a big impact in fact, in this company. We have, for example, with Gigalis in France, renewed a 4-year plan with cyber. It's what we call framework agreement. So it means that we have after that the possibility, I would say, to tender, put people or put, I would say, new projects in place. Most of the work, in fact, are not in the book-to-bill. So we are very cautious on this. And that's why it doesn't -- I think probably the book-to-bill is a minor, I would say, minor of probably what is going to happen on the revenues going forward. In the U.K., we have won a very good contract with the Ministry of Housing at GBP 63 million 7 years for digital applications. And for example, in the Germany, Austria, in Austria, we have won also a very big contract with OBB, EUR 48 million for 9 years. But I think that there is good traction. I see that there is more and more, I would say, appetite. Doors are open from the clients. I think it's much better than last year. And definitely, I think now we need to win, I would say, the contract. So I would say we are back to a normal business. If we go on Page 11, this is the 3 pillars in terms of technology. This is where we're going to invest most of our R&D and push, I would say, very hard. So Agentic, sovereign, and cybersecurity. So Agentic, as I say, we launched already the manifesto. We have already studios in place in the 4 big countries, and we have now signed different clients. And there is an ecosystem around us of start-ups that will help us, I would say, deliver the Agentic and the agents in the different scenarios of our clients. Then with the sovereignty, so there is a manifesto also that we're going to produce. It has been already shared with the top 200 within Atos in fact, last week, and we're going to share it externally in the course of next week or probably beginning of May. There is a lot of appetite, as you can imagine, right now, especially in Europe. And then cyber, of course, there are a lot of things going with this. We see also some developments with Agentic there. And of course, we have a very strong position, as you can imagine, in Europe, and we are pushing now also cyber in North America. Now if I go to the next page. So the next section is the Q1 revenue performance. So I can go through, I would say, the main numbers. So first, as you can see, when we looked at the Q1 restated, it's roughly EUR 2 billion. We take out the scope and the foreign exchange, the divestitures. So in fact, the perimeter going forward, which is without Build and without IDL and of course, without Latin America was roughly EUR 1.8 billion. We finished at EUR 1,640 million, which is roughly minus 11%. And as I say, we were, in fact, anticipating, let's say, a weak Q1. It will be much better, in fact, in Q2, and we are still looking to make the rebound in Q3. If you look, in fact, on Page 14 by region, we were probably a little bit, let's say, not surprised, but North America probably is too weak, the sentiment, in fact, the economic sentiment is a little bit, let's say, challenging in this area. The rest is okay. As you can see, U.K. now is growing at plus 5%. We estimate also that Germany will be on positive growth in Q2. So we see, I would say, region by region that I would say we are coming back to a positive territory in the coming quarters. If I go, let's say, region by region, so I start with Germany on Page 15. I think Germany is doing quite well. As you can imagine, also the EBIT now is positive in Q1. It was negative last year. And by the way, just for information, the EBIT of the group has more than tripled with our bill in Q1 versus last year. We don't publish, of course, the EBIT -- we will do this, in fact, in H1. But I would say we see the benefits of Genesis now going -- falling through, I would say, the P&L already, of course, in the beginning of '26. Then you have, I would say, some contract wins. I'm not going to go over, but I would say we are stabilizing, I would say, Germany. And as I say, we estimate that the rebound will happen in the course of this year. Now North America is probably the most difficult, let's say, region. In fact, the start of the year was probably lower than anticipated, but we are signing, in fact, a lot of new contracts and the book-to-bill is 10 -- so it's big. And definitely, now we estimate that we're going to ease, let's say, this contraction of revenues in coming quarters. You can see some below some big wins. The biggest one, of course, is CNA. And also, we have another one on CM&I at $30 million, as you can see below on the bottom, I would say, of the page. 17% is France. So France is still also challenging. Remember also that we did not have a budget in January and February. So it freezes a lot of our public and defense customer and public and defense in France is 40% of the revenues. So we know that the start of the year is probably, of course, lower than anticipated in the budget for us. But we have some very good signs for example, with SNCF, SNCF when I arrived last year, they said that they want to stop to work with Atos. And finally, we work -- we won a very big contract with them. So it means that the doors are open, as I say, in many customers. Gigalis also, it's a big contract we have won also for cyber. And you can see also other, I would say, wins and qualifications. U.K. on Page 18. So that's the rebound of the U.K. and also the profitability also is skyrocketing, as you can imagine. So we are very happy. And there is more to come. I think we have win also a big contract in Q2 that will be probably public. So I would say we are quite confident right now in the U.K. And as I said, that's the first region to come back to growth, and there will be more, of course, in the coming quarters. Last, international markets on Page 19. So we have taken out the 28, 30 that's Latin America. So in fact, without Latin America, it's around EUR 220 million, so minus EUR 12 million. It's mainly, in fact, impacted by one client in Asia, in fact, that is stopping the CM&I contract because they want to manage internally, I would say, their data. The good news is that we suffered, in fact, in '25, and we continue to suffer in '26. But at the end of the year, this ramp down is completely finished. So it means that we are quite confident that we will restart growing, in fact, in the course of '27. You can see also some wins that we have in Singapore, Spain and Slovak governments. Last, in fact, and it's not -- it was not international, sorry, is, of course, at Benelux, so Benelux or BN, what we call with Atos. This is also a slow, let's say, start of the year, but we are, I would say, quite confident also that this region is doing very well. We have win also different with Eurocontrol with -- in the automotive sector with DAF and also in the financial services, as you can see. Now Eviden as you can see on Page 21. So without Build, in fact, the revenues were EUR 71 million, and we are roughly at EUR 69 million. It's roughly flattish. In fact, we have been impacted by the war because part, for example, for Vision AI, a big chunk of our business is in Middle East. So we definitely think that it will be much better after the war concludes, but when nobody knows. But I would say we have a good traction in terms of also contracts, and we are very confident that we will accelerate both in the book-to-bill going forward and also, I would say, in the top line. So that's it for me. I give the floor now to Jacques-Francois for the liquidity position. Jacques-François de Prest: Thank you, Philippe, and hi, everyone. So on Page 23, as a reminder, the publication of the quarterly liquidity position is part of our regular reporting requirements, which have been defined and agreed with the group's financial creditors. So the certificates are available on our website. Our liquidity position remains strong at the end of March, thanks to the limited estimated cash consumption over the last quarter. In Q1, the net change in cash is estimated to be approximately minus EUR 47 million, which includes EUR 71 million spent related to the restructuring. This figure is reported without any use of the account receivable factoring or without any specific optimization on trade payables. This number is also reflecting the results before the estimated impacts. So you can -- we take them from the left to the right on the slide. So a, the change in the unsolicited payments received in advance of the invoice payment due date during the year. So that's the minus EUR 115 million. Then you have the exchange rate fluctuation, which amounts to approximately minus EUR 2 million. You have the M&A impact, which is plus EUR 257 million, and you have the debt repayment of minus EUR 62 million. So these amounts are excluded from the net change in cash, which I announced is minus EUR 47 million. And that brings us as a result, as of the end of March '26 to have the Atos Group's liquidity at EUR 1.736 billion, which is to be compared with EUR 1.705 billion at the end of December '25. And this is more than EUR 1 billion above the minimum requirement of EUR 650 million set by the credit documentation. So with that, I'll now hand over to Philippe. Philippe Salle: Okay. So just for the outlook, just I give you the numbers now with the FX at the end of March. So it's a little change just because, of course, as you can imagine, the dollar is weaker. So it gives in euro, let's say, a smaller revenues at the end of '25 with the FX of March. So we are still at EUR 7.1 billion. So compared to EUR 7.1 billion, of course, at the end of '25, EUR 312 million as the EBIT. We are now close, as I said, to 56,000 people without. And we are now in 54, sorry, countries of operation. So as I say, we continue also to close some countries will below 50 by the end of the year. Now if I go on Page 26 for the guidance of this year. So remember that at the beginning of this year, we say we will try to touch a positive, let's say, organic growth with, let's say, the start of this year and, let's say, the economic sentiment, we estimate that it's not going to be possible. So we have narrowed, I would say, the range. It's between minus 1% and minus 5%. So we still keep, I would say, the worst case at minus 5%. We think we will do probably better than that. And the best case, let's say, to minus 1%, so roughly a flattish revenue. Operating margin confirmed at 7%. As I say, we have tripled -- more than tripled the EBIT, in fact, in Q1. So we are very confident on the profitability of this group for '26, of course, and a positive net change in cash. So in fact, you've seen that we have already spent EUR 70 million with Genesis in Q1. Genesis this year is probably between EUR 150 million and EUR 200 million. So we have, in fact, spent more than, I would say, the average that we should have by quarter, and it's normal because we are accelerating the plan. And of course, the EBIT of the Q1 is always the lowest. So it means that it's a good sign, I would say, for the cash going forward. And then I would say for 2028, next year and 2028, we are still looking for an acceleration of the top line, still targeting around 10% of profitability. And of course, the deleveraging will continue. In fact, I would say with this year, the deleveraging, in fact, will be seen already in fact, in '26. And in fact, with hundreds of millions of cash next year because, in fact, the Genesis in terms of cash outs next year will be very small. We will produce a lot of cash to either do M&A or deleverage, I would say, the balance sheet. With that, I can now, with Jacques-Francois, take any questions that you have on the Q1 results. Our Q1 performance, it's not really results because we don't produce the P&L. Operator: [Operator Instructions] Our first question comes from the line of Frederic Boulan from Bank of America. Frederic Boulan: If I can ask 2. Firstly, on demand. So you flagged a strong order book momentum, a number of big contract wins. Can you discuss a little bit the nature of discussions with clients, any impact on demand from the current macro? I mean you flagged that for Eviden, but would be keen to hear any broader impact on the overall demand environment? And then specifically around pricing, it would be good to understand where you see price points in the deals you've been signing recently, how it's comparing versus, let's say, a year ago? And is this pricing driven by any kind of competitive or AI factors? Philippe Salle: Yes. So on the second point, Frederic, for example, CNA, the margin is 25%, which is roughly in line with the former margin that we have with CNA. Remember that the goal we have is to be around 25%, 26%. It's very important. And I'm very adamant on this. So I think probably, and that's why also the book-to-bill also last year and this year is probably lower than what we can achieve because we are still watching very closely the margin that we want to produce. Profitable growth, remember, is the goal for us. It's not very difficult to buy some contracts, but I would say it's far-ridden, of course, as you can imagine, since now beginning of '25. In fact, in some contracts, for example, like CNA, and it probably goes with the sentiment of the clients. Everybody, of course, is talking about AI. Nobody probably understands the impact of AI because it's very difficult right now to see what is going to happen. There are a lot, of course, disappointments, in fact, with some clients trying to put some agents because it's not that easy. And my view is that Agentic is the new revolution. It's coming, but it will take probably 2 to 5 years to be really in force, probably more in the U.S. at the beginning and after in Europe. So we see that in these contracts, for example, for its 8-year contracts, we're going to give, for example, some savings after year 3 and 4 in terms of -- let's say, in terms of Agentic. But in fact, we -- as I probably said already, since we don't know exactly the number of savings, in fact, we're going to share part of the savings that we're going to produce. But it's difficult, in fact, for clients and even for us to see the impact -- the real impact, I would say, of the savings we're going to have. So there are a lot of studies, and I'm sure that you've read some of them saying that we can divide by 2 by 3 by whatever. Unfortunately, there is one cost that nobody knows, it's the price per token. And we definitely think that this will probably say out in the future. And so it means that, in fact, there is a price for agents. There is probably, of course, less people cost in the contracts going forward. But the sum of the 2 right now is still, I would say, unknown. So I would say everybody is talking about AI. Everybody wants to us, let's say, to give some rebates or not rebates, but I would say, to apply, let's say, Agentic in our delivery and then give, of course. But I would say it's too soon even with the big contracts we are signing right now. They understand that there will be an impact, but it's too soon to say that there is a big impact. And as I say, for us, we're going to protect the margin. So we estimate that the margin of '25 probably will be more after that. And then we can probably produce more output on a given framework. Now the sentiment, I would say, of clients, it depends on the sectors. I think there are some sectors that are probably more difficult than the rest. Automotive is one, transportation, luxury goods. And other sectors, we don't see, in fact, a big impact on right now, let's say, the economy, the banking sector, insurance sector, defense, of course, and public, where we are very strong health care. So I would say it's a mix of sentiment, but you know that in economy, unfortunately, the fact that we -- there is a lot of uncertainty, it doesn't give, I would say, the sentiment to clients that they can spend more, specifically with AI. So I would say that for the moment, probably there is a postponement of some contracts or projects. They are looking exactly probably waiting, let's say, to see how the economy is going to rebound after the war. So there is more wait and see in some clients, let's say, for some projects. And that's why -- that's what we see for the moment. My view is that the projects will happen. But in fact, if you, of course, extend or postpone, let's say, by 3 to 6 months, it has an impact, in fact, in the -- for the '26 year. And then, of course, it will be good news for, let's say, end of this year and of course, in 2027. Operator: [Operator Instructions] Our next question comes from Sam Morton from Invesco. Sam Morton: Two questions, please. The first is on the bond buyback. So I think you bought back EUR 62 million of the 1.5 lien. Certainly the last time we spoke, I think you've been buying back the second lien. So I'm trying to understand what's the change in strategy there? And then secondly, any update you can provide on the refinancing, that would be really helpful. Philippe Salle: Yes. I think Jacques-Francois is going to answer your 2 questions. Jacques-François de Prest: Sam. So yes, the change of strategy is more or less in line, I think, with what we announced in the Q4 publication call, where we said that at the end of fiscal year '25, we thought the second lien was really very low actually and bought opportunistically a little bit of that. So last year, this was EUR 2.5 million of second lien. Now when we look at the NPV, the second lien has gone up. And it's true that the EUR 62 million amount we have bought back on the market, on the open market was only 1.5 lien bonds. Again, we noticed that -- how can I say, this bond was momentarily trading below due to geopolitical situation, nothing to do with the performance of the company. So since we had a little bit excess of cash, we decided to take advantage of that. We signaled that, and we implemented this program, which is not finished, by the way. It might be pursued in the coming weeks or months. That's the first question. On the second question, the refi, well, we are monitoring the market. The company is ready. So we have nothing to announce today other than we are checking how the market is evolving. We have some banks advising us. And when we think there is a good window allowing for a good operation and a good pricing, you and investors might hear from us. Operator: Our next question comes from the line of Laurent Daure from Kepler Cheuvreux. Laurent Daure: I have 2 really quick questions. The first is on revenue trends during the year. I think if I take the midpoint of your guide minus 3%. How do you see the phasing from Q1 to Q4? And what are the main drivers of improvement? Do you still have some contract ramp-up that makes the revenue trend much better, maybe starting in Q2? Or is it comps impact? Any granularity on how you see the year shaping would be helpful. And my second question is on the bond buyback. To clarify, you made EUR 62 million. are you cautiously looking at your balance sheet? Could you do much more than EUR 62 million, like EUR 200 million, EUR 300 million? Is it a question of liquidity of those bonds? So anything on the strategy on that would also help. Philippe Salle: Yes. So in fact, for the -- we estimate Q2 will be around minus 6% and then positive in Q3 and Q4, the positive, then you calculate whatever you want. The central scenario, let's say, at minus 3% for me probably is okay. And of course, if you have minus 11%, minus 6%, then plus and plus, if you divide it after that by 4, you are probably around this minus 3%. So I would say the central is around minus 3%. The worst case is at minus 5%. Then for the bond buybacks, the question for us, of course, we have probably plenty of cash, as you can imagine. And also, in fact, we're going to produce some cash this year. So if we start at minus EUR 50 million, of course, we're going to produce EUR 50 million plus now in the coming quarters. We want to buy, in fact, 1.5L bond, in fact, and that's the one we are looking at that is below EUR 100 million. So I think it's a good, let's say, buy for the group because it's cheaper than, I would say, the par, in fact, on -- for the bonds. And remember that the bond is around 9% yield. We are -- remember that we are also looking at refinancing. So that's why we have to be a little bit cautious between the refinancing. And remember also that we have some repayments of the 1.5L with the proceeds of M&A that should occur, in fact, at the end of the year. So it's an equation, I would say, with all these variables. So we will see if we continue to buy back bonds or we refinance first and then we continue to buy back also, we will see. Laurent Daure: So at the end of this year, you have to pay back with this half of your proceeds from M&A. Is it right? Philippe Salle: Exactly. The proceeds of WorldGrid, the proceeds of Latin America of [indiscernible], of course, it's small amounts for the 2 and the proceeds of Bull, it could be EUR 500 million plus. So remember that we have this EUR 500 million plus cash out that will happen at the end of the year. Jacques-François de Prest: May I complement, Laurent, this is as part of the credit documentation. We have a couple of moments in time in the near future where we are going to do the liquidity test. There is a bar at EUR 1.1 billion of liquidity. At the end of June, we are testing that on a forward-looking basis meaning that the company will -- we will do our forecast internally and the amount which are above EUR 1.1 billion at the end of December, we will use them to reimburse as a mandatory early repayment the 1.5 lien tranche. That's the first test. And the second test is we take the liquidity position, the actual liquidity position at the end of December. And again, against the EUR 1.1 billion, the amounts coming from the M&A proceeds will be used to repay early some -- the EUR 1.5 billion lien capped at the amount, which leaves us above the EUR 1.1 billion position. I hope it's clear. Laurent Daure: To be even clearer, if you do all that, what is your best estimate in terms of interest savings in '27 versus 2026 at the group level? Jacques-François de Prest: I'm afraid there are too many unknowns in the question to give you a number. Philippe Salle: If we do the refinancing, there are a lot of things that could happen again in the course of this year. So it's too soon to give you already, let's say, guidance on interest rates for '27. We can probably give this with the Q3 results. So probably in October I think we will have a better view. Operator: Our next question comes from Benoit De Broissia from Keren Finance. Benoit De Broissia: I have just one very quick question. It's -- you had one black contract in the U.K. involving Aegon. I noticed that Aegon sold its U.K. subsidiary in the weeks -- in a few weeks ago. Do you think that you could renegotiate with the purchaser, the contract you have and that is set to terminate in a few years in 2034, '33, if I'm not wrong. Philippe Salle: It's a very good question. Yes, the end of the contract is 2034. Yes, you have noticed that Aegon U.K. has been sold. So we are talking now to the buyer. It will be in May. In fact, we need to wait. And of course, the buyer has already a platform. So the good news is that do they want to keep only one platform or not and then stop the platform of Aegon, which then, of course, will stop the contract. It's too soon because, of course, we haven't talked yet, I would say, to the buyer. So we will have, of course, a better view in the coming months. But I think for us, it's a good news because I definitely think that they will not keep -- in terms of economies of scale, it doesn't make sense for them, I would say, to have 2 platforms. I think that their platform also is very efficient. So we will see how they want to play this. So there is a possibility effectively that they ask us to stop the platform that we have and then transfer the data to their new platform. So it means that the contract can end in the course, for example, of 2027. We will see. I don't know yet. It's too soon. But it's a very good question. It gives a good opportunity for us, yes. Operator: Our next questions will come from the line of Ryan Flew from PVTL Point. Ryan Flew: Just one quick one for me. So you've given quite clear guidance on sort of the cash add-backs or the adjustments to net change in cash to get to a true sort of unlevered or pre-debt repayment cash generation. Can you just help steer us on your '26 guidance? And clearly, there's a range there, but it feels from the adjustments you've discussed that actually the net change in cash will be considerably better than just positive. So just any further sort of color you could give would be really helpful. Philippe Salle: Jacques-Francois? Jacques-François de Prest: Well, Ryan, thanks for your trust and your faith. At this stage, our commitment and our guidance is to be free cash flow positive. I'm sorry, I will not deviate from that. Bear in mind that we have -- Philippe mentioned, the Genesis cash out impact is between EUR 150 million and EUR 200 million. So that's not nothing. And we have all the other lines of the cash flow statement, which are still consuming some cash. So yes, we're shooting for more, but our commitment is to be free cash flow greater than 0. Philippe Salle: But as you say, it's probably a conservative guidance, let's say. Operator: Our next question comes from Derric Marcon from Bernstein. Derric Marcon: Two questions from me. The first one on the book-to-bill. I just want to understand if it's -- the 87% is applied to the reported figures or the fully planned scope. And in this book-to-bill, talking about in absolute term, what's the proportion between renewal and new business? That would be helpful to have this figure. And my second question is on the M&A, the EUR 257 million you mentioned, can you reexplain what is included in this figure? Philippe Salle: Okay. So the 87%, it's Atos and Eviden. Atos only is 89% because as I say, Eviden has suffered from the war more than -- I would say the impact is more influenced, I would say, than Atos. And Eviden is more Europe, Middle East, in fact. So that's why probably I think the impact is higher. We definitely think that the rebound will come, but of course, we need to have more, let's say, stability. Then the book-to-bill between renewables. Derric Marcon: Is it from the go-forward perimeter or on the reported perimeter? Philippe Salle: Yes, the go forward... Derric Marcon: EUR 1.7 billion or the EUR 1.6 billion. Philippe Salle: No, no, it's only on the perimeter without Latin America and Bull. So 87%, 89%. 87% is the go forward and 89% is only Atos, okay? And it's Atos without Latin America, 87% is with Eviden without Bull. Then the renewals versus -- we don't have this number available right now. I cannot tell you. So we will come back to you on this one. And remember also, you're right that with renewals, of course, as I said, it inflates also the book-to-bill. And that's why it's a proxy for the book-to-bill. Be careful on this. It's not because the book-to-bill is below 100 that we're not going to grow on the company. I definitely think that it's possible. And in fact, we have shown this in the U.K. Then for Bull. So Bull, in fact, remember, there is a lump sum of EUR 300 million at the beginning, plus 2 earn-outs. The EUR 300 million is the EV, the EUR 250 million is the equity. So in fact, we went from EV to equity without the provisions and the pensions, okay? So it means that the EUR 250 million was the equity check that we had for Bull without the 2 earn-outs. Then the EUR 250 million, we take out the carve-out cost. We estimate around EUR 50 million. A part of it was expense, I would say, in the course of '25, the rest, of course, in Q1. We estimate around EUR 50 million. So it means that the net cash for us is close to EUR 200 million, okay? Remember also that Bull has a negative cash flow in Q1. We don't know how much. So we need to take this also into account. So the EUR 200 million will be probably less, EUR 170 million, EUR 180 million. I don't know yet exactly how much. As I said, it depends on the working capital we're going to have on Bull, but it's quite tricky for us to calculate the working capital of Bull, because, in fact, for some of activities of they were on the same company as Atos or the other, Eviden. And that's why even on the bank accounts, unfortunately, we need to look line by line on the cash, I would say, to reconstruct, let's say, working capital. And that's why we're going to give you the figures with the H1 figure, in fact. So that's roughly EUR 200 million without carve-out cost and I would say, equity check, probably less with the cash outflow of Bull in Q1. And then we still have the earn-out. The first one is maximum EUR 50 million, and we estimate we can gain around, let's say, EUR 40 million plus. We will see, I would say, they need to close their accounts. And it's, I would say, linked to the gross margin of Bull. And then the second earn-out is on the EBIT of Bull in '26. But of course, as you can imagine, the EBIT of Bull in '26 is not in my hand, unfortunately. So it's difficult to see what is going to happen on the second earn-out. So we will see what happens on the first one. It's going to be a negotiation that will start, I would say, after the closing of the accounts. Unfortunately, Bull is not very, let's say, quick on the closing accounts. So we will have probably -- numbers probably after the summer. Derric Marcon: And so to get -- Philippe, to get to the EUR 257 million mentioned in the liquidity position. So you have Bull EUR 200 million after carve-out, if I understood correctly, plus other things like Scandi or Latin America... Jacques-François de Prest: So I can say the angle Philippe took was the angle of explaining the story for Bull. Now in the carve-out costs, some of that has been spent in '25 already, a little portion in Q1 '26, and there is a bit more to come in the rest of '26. The vast majority of the EUR 257 million you can see is coming from Bull, the vast majority of that. You have then a plus EUR 10 million and the minus EUR 10 million, which comes from the disposal of some other relatively small assets and some deduction for the carve-out cost for Cartier, but you can assume that 95% of that is Bull. Derric Marcon: Okay. And Latin America and Scandi will come later in the year? Jacques-François de Prest: Scandi has been closed. Scandi has been closed already. That's what I was referring to as other proceeds. That has been completed in Q1 already. And for Latin America, the closing is scheduled in the coming weeks. So there is not a penny yet of proceeds from Latin America in our Q1 numbers. Operator: We have no further questions from the line. Allow me to hand the call back to management for closing. Philippe Salle: Okay. Can you ask one more time if there are other questions or not, and then we can close. Operator: [Operator Instructions] Philippe Salle: Okay. If there are no more questions, then thank you, everybody, for this morning. We have some, let's say, a small road show, I would say, with some investors today and tomorrow. And we, of course, remain at your disposal if you have any questions. But overall, I would say we are very confident on the rebound of the company. I'm very pleased, I would say, on the results and very confident that this year of the rebound and in terms of cash flow, I think there is no surprise for us, neither on, I would say, the profitability and cash flow and the rebound will occur in the course of H2. So next time, I will talk to you end of July. So have a good day, and see you in 3 months. Bye-bye. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: My name is Chelsea, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation's First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Ms. Rachel Vatnsdal, Vice President of Investor Relations. Ms. Vatnsdal, you may begin your conference. Rachel Vatnsdal: Good morning, everyone, and thanks for joining us on the call. With us today are Rainer Blair, our President and Chief Executive Officer; and Matt Gugino, our Executive Vice President and Chief Financial Officer. I'd like to point out that our earnings release, quarterly report on Form 10-Q, the slide presentation supplementing today's call, the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call and a note containing details of historical and anticipated future financial performance are all available on the Investors section of our website, www.danaher.com, under the heading Quarterly Earnings. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations and will remain archived until our next quarterly call. A replay of this call will be available until May 5, 2026. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. Our Form 10-Q and the supplemental materials I referenced describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these remarks and supplemental materials to company-specific financial metrics relate to the first quarter of 2026, and all references to period-to-period increases or decreases in the financial metrics are year-over-year. We may also describe certain products and devices which have applications submitted and pending for certain regulatory approvals or are available only in certain markets. During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law. With that, I'd like to turn the call over to Rainer. Rainer Blair: Thank you, Rachel, and good morning, everyone. We appreciate you joining us on the call today. We're off to a solid start to the year. Our team executed well in a dynamic environment, leveraging the Danaher Business System to accelerate innovation, drive productivity gains and deliver better-than-expected adjusted EPS growth. On the top line, continued strength in bioprocessing and better-than-expected performance in Life Sciences largely offset the impact of a lighter-than-normal Q1 respiratory season at Cepheid. Now looking across the portfolio, trends in many of our end markets were modestly better than our expectations entering the year. In large pharma and biopharma, commercial monoclonal antibody production remained robust, and we continue to see gradual improvement in R&D spending. Trends at smaller biotech and academic and government customers were stable sequentially with some pockets of improved order and funnel activity. Meanwhile, clinical and applied end markets performed well, consistent with recent quarters. Geographically, we saw an acceleration in our Life Sciences and Biotechnology businesses in China. Now the global environment has become more dynamic since the start of the year, including the ongoing conflict in the Middle East. And while we have limited direct revenue or supply chain exposure to the region, we're mindful of potential pressures from a sustained conflict. That said, we remain focused on controlling what we can control, including leveraging the Danaher Business System to proactively manage our supply chain and mitigate inflationary pressures while continuing to invest for the long term. At the same time, we're enhancing our portfolio through strategic M&A, including the pending acquisition of Masimo, where we believe there are significant opportunities to improve performance over time through DBS and our global scale. With the strength of our balance sheet and robust free cash flow generation, we're well positioned for further capital deployment going forward. So with that, let's take a closer look at our first quarter 2026 results. Sales were $6 billion in the first quarter, and core revenue was up 0.5% year-over-year with a 2.5% headwind from respiratory revenue, partially offsetting 3% core revenue growth in the rest of the business. Despite a lighter-than-typical Q1 respiratory season, underlying momentum across the portfolio improved as many end market headwinds began to moderate. Geographically, core revenue in developed markets were down slightly with a mid-single-digit decline in North America and a mid-single-digit increase in Western Europe. High-growth markets were up low single digits with solid performance across most regions, including mid-single-digit growth in China. In China, better-than-expected growth in Biotechnology and Life Sciences more than offset the expected high single-digit decline in Diagnostics, which continued to be impacted by volume-based procurement and reimbursement policy changes. Our gross profit margin for the first quarter was 60.3%, and our adjusted operating profit margin of 30.2% was up 60 basis points, reflecting the benefit of year-over-year cost savings, more than offsetting the negative impact from lower respiratory revenue year-over-year. Adjusted diluted net earnings per common share of $2.06 were up 9.5% year-over-year. We generated $1.1 billion of free cash flow in the quarter, resulting in a free cash flow to net income conversion ratio of 105%. Turning to capital deployment. In February, we announced our intention to acquire Masimo, a leading provider of mission-critical pulse oximetry and patient monitoring solutions in acute care settings. We followed Masimo for over a decade and believe the company is well positioned with its trusted brand, differentiated technology and attractive financial profile. Looking ahead, we believe there are clear opportunities to run the same playbook that has driven value creation across our portfolio for many years, leveraging DBS to drive growth and expand margins while further strengthening our value proposition with customers. We expect Masimo to be accretive to adjusted diluted net earnings per common share in the first full year post acquisition and to deliver high single-digit return on invested capital by the fifth full year of our ownership. The transaction remains subject to customary closing conditions, including regulatory approvals, and we look forward to welcoming the talented Masimo team to Danaher later this year. Now alongside M&A, we made significant progress on organic growth initiatives across Danaher, including new product introductions and strategic partnerships. These efforts are strengthening our competitive positioning while helping customers improve quality and yield, reduce costs and accelerate the delivery of life-changing therapies and diagnostics. So let me highlight a few examples. In Biotechnology, Cytiva launched Fibro dT, a next-generation mRNA purification platform that improves manufacturing speed and efficiency. By eliminating diffusion limitations associated with traditional purification methods, Fibro dT reduces processing time, increases yield and lowers material usage, enabling more cost-effective higher throughput production of mRNA-based therapies. Additionally, Cytiva will showcase its next-generation automated perfusion system, or APS, at the INTERPHEX trade show this week. APS is a cutting-edge tangential flow filtration platform designed to address key challenges of currently available process intensification systems, including product loss, filter clogging and scalability. In Life Sciences, Beckman Coulter Life Sciences announced a strategic partnership with Automata, combining its liquid handling genomic and cell analysis technologies with Automata's AI-ready automation platform. This partnership is positioned to empower scientists with AI-driven tools in an automated workflows to improve throughput, workflow reliability and data integrity and increasingly autonomous research environment. Lastly, Beckman Coulter Diagnostics continued to make progress on menu expansion for the High Resolution DxI 9000 Immunoassay Analyzer with FDA clearance of the HBc IgM assay for acute hepatitis B. With this clearance, nearly all core blood virus assays for the DxI 9000 are now cleared in both the U.S. and the European Union. This closes a historical gap in Beckman's immunoassay test menu and positions Beckman to accelerate new placements, customer wins and growth as the DxI 9000 rollout continues. So now let's take a closer look at our results across the portfolio and give you some color on what we saw in our end markets. Core revenue in our Biotechnology segment increased 7%. Core revenue in Discovery and Medical declined low single digits. Growth in medical filtration and research consumables was more than offset by declines in protein research instrumentation as academic customers continue to face funding constraints. Core revenue in bioprocessing grew high single digits in the first quarter. High single-digit growth in consumables was driven by robust demand for commercialized therapies globally with notable strength in China. Equipment declined modestly in Q1, but we were encouraged to see orders growth of more than 30%, marking the first quarter of year-over-year equipment order growth in nearly 2 years. Stepping back on bioprocessing, monoclonal antibody production remains robust and is expected to continue growing at historical or better rates, driven by new molecules, biosimilars and increased utilization of existing therapies. In fact, we saw a sustained pace of new biologic drug approvals in the first quarter of 2026, building on a robust level of approvals in 2025. At the same time, equipment investment has been relatively muted, which we believe creates a growing need for incremental capacity in the coming years. We're encouraged by improved trends in bioprocessing equipment and believe we're in the early stages of a multiyear investment cycle. We see activity in brownfield projects today with larger greenfield investments expected to follow. Given Cytiva's expansive global footprint, broad portfolio and depth of technical expertise, we're well positioned to benefit from this capacity expansion across biologic drug production. Turning to our Life Sciences segment. Core revenue increased by 0.5%. Core revenue in our Life Sciences Instruments businesses declined low single digits, primarily driven by weakness in North America academic research customers as we expected. While demand at academic research customers remain muted in the quarter, we saw early signs of momentum building in our order book. We continue to see a gradual improvement in large pharma and biopharma investment. Instrumentation demand at biotech customers remain muted but stable, but we were encouraged to see recovery in the funding environment drive improved funnel activity. Core revenue in our Life Sciences consumables businesses collectively grew low single digits. Aldevron grew in the quarter, driven by solid commercial execution and an improved biotech funding environment. And we also saw early pockets of improvement in academic customers and research consumables, contributing to growth at Abcam. We're particularly pleased by Abcam's recent performance as DBS-driven commercial execution has gained traction and cost structure initiatives have driven meaningful margin expansion since acquisition. As end markets improve, we expect continued progress on both growth and margins at Abcam. Moving to our Diagnostics segment. Core revenue declined 4%. Core revenue in our clinical diagnostics businesses grew low single digits, with mid-single-digit growth outside of China. In China, pricing headwinds in the quarter from volume-based procurement and reimbursement policies were consistent with our expectations and the anticipated impact from remaining policy changes remains consistent with our expectations from the start of the year. At the same time, volume growth in China was slightly better than our expectations, an encouraging indicator for future demand and growth as we move past the most significant year-over-year impacts from current policy headwinds. Beckman Coulter Diagnostics delivered another strong quarter with mid-single-digit growth outside of China, led by immunoassay reagents and instrumentation. In Molecular Diagnostics, Cepheid's revenue declined in the quarter as respiratory revenue was down approximately 25% year-over-year, given lower than typical seasonal respiratory infection rates. Cepheid's core nonrespiratory test menu was up mid-teens, led by our 20% growth in sexual health and hospital-acquired infection assays. Now we've seen strong early demand and several notable customer wins for Cepheid's recently cleared Xpert GI panel, a multiplex PCR test that quickly detects 11 common gastrointestinal pathogens from a single patient sample. This strong momentum supports Cepheid's broader multiplexing strategy, and we believe it provides a long runway for continued installed base growth and increased utilization. Now let's briefly frame how we're thinking about the second quarter and the full year 2026. For the full year 2026, there is no change to our expectation of core revenue growth in the 3% to 6% range. This includes an assumption that a slightly lower respiratory revenue outlook of approximately $1.6 billion to $1.7 billion will be offset by modestly better core growth in the rest of the business. Additionally, given our strong Q1 performance, we're raising our full year adjusted diluted net EPS guidance to a range of $8.35 to $8.55 versus our previous range of $8.35 to $8.50. In the second quarter, we expect core revenue to be up low single digits. Additionally, we expect the second quarter adjusted operating profit margin of approximately 26.5%. So to wrap up, we're encouraged by the first quarter momentum across our portfolio and expect growth to accelerate throughout the year as we continue on the path towards consistent, higher core revenue growth. Cost and productivity execution translated into strong Q1 earnings growth, enabling us to raise our 2026 adjusted EPS expectations. During the quarter, we also announced the pending acquisition of Masimo. And with the strength of our balance sheet and more than $5 billion of expected 2026 free cash flow, we're well positioned for further capital deployment going forward. Now we see a bright future ahead for Danaher. Across the portfolio, we're helping customers solve some of the world's most important health care challenges from enabling faster, more accurate diagnoses to accelerating the discovery, development and manufacture of therapies. Over time, we also believe the emerging opportunity in AI will further accelerate the pharma development and commercialization flywheel, improving success rates, lowering development costs and driving increased demand. This in turn is expected to drive incremental demand for our Life Science solutions as well as in bioprocessing as commercial drug production expands. So with the combination of our differentiated portfolio, our talented team and balance sheet optionality all powered by DBS, we're positioned to drive long-term shareholder value while making significant strides in applying science and technology to advance human health. So with that, I'll turn the call back over to Rachel. Rachel Vatnsdal: Thanks, Rainer. That concludes our formal comments. We're now ready for questions. Operator: [Operator Instructions] And our first question will come from Michael Ryskin with Bank of America. Michael Ryskin: Great. Congrats on the results. Rainer, I want to ask a little bit on that progression through the year. As we look at 1Q, you guys did 0.5%. I'm backing into something like 2% core growth in the second quarter, given the various segments. I think that's what the low single-digit implies. So you've got a little bit of an acceleration in the second half of the year. Can you just talk to what's driving that across the segments? I think you're lapping, obviously, some of the respiratory headwinds in some of the Aldevron and VBP, but just confidence in the rest of the business to get that second half ramp and sort of the progression that's implied in the guide through the year? Rainer Blair: Mike, good morning. Well, there's certainly a lot going on in the world today. But as we've said, we're focusing on controlling what we can control, and there's really no change to how we view the progression throughout the year that we laid out in January. In January, we said there are 3 things really needed to happen to support the ramp throughout the year. And all 3 of those things played out as we expected or actually even a touch better in Q1, and we feel good about the balance of the year and here's why. In Diagnostics, the China diagnostic policy headwinds are playing out as we expected and actually patient volumes are higher. We also saw good momentum across the rest of Diagnostics, which showed another quarter of mid-single-digit growth without China and respiratory. And while respiratory was a touch softer, we continue to take share and our core molecular business grew mid-teens. So we expect our broader Danaher portfolio compensates for the touch of softness that we saw there in respiratory. But the quarter also demonstrated strong high single-digit EPS growth even if respiratory was a little bit softer. So those are some important proof points here around the resilience of our portfolio and the work that we're doing. Now as you think about bioprocessing, here, we see strong underlying commercial biologic drug production continue and it drives strength in consumables, and notably, we are really encouraged to see improvement in our equipment order book with over 30% year-over-year growth. Now turning to Life Sciences and the progression there, both China and Life Science consumables globally performed better than we expected. And that includes growth at Abcam and Aldevron, which is really encouraging. And we saw a broad stabilization in our life science end markets with pockets of improvement. So we're also seeing better funnel activity there as a result. So all in, look, we feel really good about how we started the year, and we believe this momentum continues. Matthew Gugino: And Mike, maybe just to give some details around the numbers and the specifics here on the progression. So the way we're thinking about it is core growth, low single digits in the first half of the year, sequential improvement from Q1 to Q2, you see this reflected in the Q2 guide. Together, the headwinds that we've talked about, China diagnostics, respiratory, some of the comps in Life Sciences, they're collectively about a 300 basis point, maybe a little bit higher impact in the first half of the year. These essentially go away by the end of the year and why we believe we'll exit Q4 in that mid-single-digit range. So for the purpose of the guide, the way we've laid it out is we're not really assuming any improvement in our end markets to exit the year at that mid-single digits, and that's why we feel comfortable about that progression through the year. Michael Ryskin: Okay. That's both those super helpful answers. And let me squeeze a follow-up on the bioprocess specifically. Like you talked about, Rainer, strength in consumables, the 30% or greater than 30% equipment order book. It doesn't sound like you're assuming any of that will come through later this year? Or could you see some benefit in the fourth quarter? Should that inform how we think about equipment growth next year? I mean just sort of how do we take those end points -- those data points of consistent high single-digit consumables and order book turning to think about [ BT ] later this year and into 2027? Rainer Blair: Well, we continue to see that strength in consumables. And so we see that progressing through the year consistently. Equipment, what we're seeing there in the order book certainly underwrites and reaffirms the year-over-year improvement that we expected. Recall last year, we were down double digits. This year, the guide assumes that we're flat on equipment. But we do like the activity levels here in equipment, and that marker of 30% year-over-year growth is an important one that is certainly supportive of the out years, and we'll have to continue to see how customer readiness plays in here. Sometimes these equipment orders come and it gets to be a little bit lumpy as customer readiness is a real important factor here as to when you actually end up recognizing the revenue. So we certainly see the guide underwritten here going forward, and we think positively about what this means certainly for the out years. Operator: Our next question will come from Vijay Kumar with Evercore ISI. Vijay Kumar: And want to pass along my congratulations to Matt Gugino and Rachel. Good to have you both on the call. Rainer, maybe my first one for you on your comment around Masi acquisition. I think initially, when people saw the deal, it was a little confusing. People thought this was a MedTech deal. But maybe just walk us through on this strategic rationale. I think you guys mentioned call point synergies between Radiometer and Masimo. My understanding is Masi, some of their tech board sales are perhaps tied to players like Philips, GE HealthCare. So how do you see the call point synergies and potential for DBS driving high single-digit ROI for the business? Rainer Blair: Thanks, Vijay. Look, we see the Masimo transaction as a very typical Danaher deal. And by way of update, the process continues to progress well there, and we're excited to get the Masimo team on board. So all things are positive in that regard. And look, we've been following Masimo for over a decade based on the learnings that we had with Radiometer, which is really our Diagnostics acute care strategy, where we believe that Masimo is a mission-critical player, differentiated technology, all the things that we like to see when we talk about our 3 dimensional acquisition framework. This is a great end market with long-term secular growth drivers. Two, this is the premier asset in pulse oximetry and other applications in acute care diagnostics. It's supportive of what we're doing at Radiometer. In fact, there's geographic synergies as well as Masimo is a little stronger than Radiometer in the U.S., and that reverses as you think about Europe. So those are all very positive. And really, these solutions sit next to each other here in these acute care settings. So to your call point synergies, they are significant, and they are direct synergies as well. And then I'll also add, from a financial profile, this is a transaction that's accretive at all levels, whether it's growth, whether it's gross margins or operating margins. And at the same time, we've been able to identify some pretty significant value reserves here to help us drive that return on invested capital to that high single-digit ROIC in year 5. Matthew Gugino: And Vijay, just to follow up, I mean Rainer talked about some of the synergies here, but what we outlined here a couple of months ago when we announced the deal was, we expect both cost and revenue synergies, $125 million of cost synergies realized by year 5, call it, $50 million of that is on the gross margin side, $50 million on the OpEx side and about $25 million of public company costs and then about $50 million of revenue synergies. Rainer outlined some of the opportunities there where we can probably help Masimo through our Danaher Diagnostics platform, get stronger in positioning around the IDNs or integrated delivery networks. And then there's probably some opportunity for Masimo to help us, including Radiometer, in the U.S. So really excited as Rainer said, to get the team on board here later this year. Vijay Kumar: That's fantastic. Matt, maybe my second one was on margins. I think typically, you guys have some seasonality Q1 to Q2 on respiratory, but I just feel like second quarter, maybe margins, the step down. It's a little bit more than what we saw in the last 2 years. Maybe just talk about sequential margins just given Q1 was such a good execution from a margin standpoint? Matthew Gugino: Yes. Sure, Vijay. I mean like you mentioned, I mean, we typically see a several hundred basis point step down in operating margins Q1 to Q2, that's driven by that typical step down -- seasonal step-down in respiratory. There's probably a little bit more FX impact here Q2 versus Q1, just given where the dollar has moved over the last couple of months. And then also, I think given the Q1 beat here, we wanted to take some of that beat, accelerate some growth investments from the second half of the year into Q2. So the way we're thinking about it is we just did -- we're expecting mid- to high single-digit earnings growth in the first half of the year, all in, and that puts us on the right path here for the rest of the year as we go forward. Operator: Our next question will come from Scott Davis with Melius Research. Scott Davis: Congrats. Can you talk about raw materials, just resins, cost? Rainer Blair: Sure. So with the spike in oil prices and the associated increases in petrochemical derivatives, we have our eyes firmly focused on what's going on there. And while we see some of that pressure out there, it hasn't been really meaningful yet as it relates to our own cost position. That said, we're incredibly vigilant there and leveraging the Danaher Business System as well as our contract positions to mitigate any pressures that are there. And I'll just say, as you would expect of us, Scott, here with the Danaher rigor, we -- every month, with every business, every operating company work through the entire P&L to understand what measures we're taking and how raw material volatility might affect the business. So we are all over that proactively, and to date, we haven't seen any meaningful pressure there. Scott Davis: And same with Middle East, Rainer? Rainer Blair: Well, the Middle East is really driving a good part of that pressure, Scott, in the sense that the volatility in oil prices are driving that. In terms of supply from the Middle East, that really doesn't affect us. So our supply chain is not directly affected by the Middle East, but of course, the indirect effects that you're alluding to here are something that we have to address head on. Operator: Our next question will come from Jack Meehan with Nephron Research. Jack Meehan: One of the big topics in the market at the moment is AI, wanted to get your thoughts on that. The first question is, as you look across the business segments, how do you think AI is influencing customer spending behavior? Your referenced bioprocessing could be a beneficiary. I was curious what you also thought about Life Sciences and Diagnostics, any signs of increased or reduced spending in the business? Rainer Blair: Sure. So let me get started here. You were a little bit in and out in terms of the volume on the question, but I think I've got it. Let me start with the conclusion here, which is we think AI is going to be a growth accelerator for the pharma and biotech industry, both in the near and in the long term. And the reason for that is we think that AI will accelerate the drug development and commercialization flywheel and result in better development pipeline yields. So as you know, the average yield in the drug development pipeline today is just above 10%. There's an enormous opportunity here to improve the yield of the pipeline and to accelerate the biopharma flywheel along with the flywheels of life science tool providers like ourselves. And so this improved yield drives both growth and profitability and reinvestment in the pharma industry. And that, of course, in turn, drives more investment into discovery, including wet lab validation, development in the clinic as well as commercial drug manufacturing. So in the short term, what we're seeing actually is incremental more demand, which we expect to accelerate in the building of biologic models. Autonomous science is the current buzzword that refers to the building of biologic models, and of course, that requires automation, which we're very well represented in. It requires more analytical instruments and it requires more reagents as well. So that's the short-term impact as this practically new market segment of autonomous science starts to play out here, and that plays out first in discovery and then continues to accelerate through the development pipeline. And of course, we're very well positioned here with our life science tools. I mentioned automation, analytical instruments that, of course, increasingly are AI-enabled reagents that support all of those models going forward. And that's a several year driver. These biologic models are in the single-digit percentage of information coverage required, very different than large language models. These biologic models require significantly more information in order to become general use type of model. So that's the short term. And as I indicated then in the long term, what we're going to see is the cycle time of pharma development being compressed and the hit rate, i.e., the yield to be increased. And that flywheel is going to be very good for patients. It's going to be very good for the pharma industry and those partners like ourselves that support that industry. Now as you think about that going through development, Jack, sorry, just to finish up, of course, these more commercialized drugs means more business for our bioprocessing business. We're the best positioned there with the broadest and deepest portfolio. I talked about the innovations that we're launching there. And then lastly, a lot of these drugs are going to be more sophisticated. They are going to require more sophisticated, more accurate diagnostics. If they're not personalized diagnostics, they will require near personalized diagnostics to come online. So again, I start with the conclusion, which is AI is a tailwind in the short and in the long term and is healthy for all market participants, and of course, we're very well positioned there. Jack Meehan: Excellent. Yes, it's clear. There's a lot of exciting things across the business. Maybe for you, Rainer, or for Matt, just extending that from a DBS perspective, are you seeing any tangible signs of productivity benefits from AI in the business? Any cost savings or revenue targets that you'd be comfortable sharing at this point? Rainer Blair: We are getting to the point, Jack, where DBS and AI are synonymous to us in terms of accelerating cycle times and driving efficiencies, and we bring those together. So we talk about AI-enabled DBS and DBS-enabled AI in one sentence, and that will continue to drive efficiencies. Let's just tee it up this way. As you think about the conversation I just had as it relates to the pharma development pipeline, think about Danaher's flywheel also being accelerated by AI-enabled DBS. That will result in more and better products that are AI-enabled, it's going to result in lower costs that we gained through efficiencies, and together, that's going to drive growth and earnings expansion going forward. Operator: Our next question will come from Tycho Peterson with Jefferies. Tycho Peterson: Rainer, I want to go back to bioprocessing. I appreciate you touched on order trends and how that may translate to revenues. But wondering if you can unpack a little bit more what you're seeing pharma versus biotech versus CDMOs? Secondly, are you seeing any replacement cycle demand? We've heard about replacement cycle heating up a little bit as we've done some checks. And then how are you sizing the China opportunity in biotech? I think it was around $1 billion, $1.3 billion if you go back a couple of years, but how are you sizing that opportunity today? Rainer Blair: Thanks, Tycho. Well, starting with China here where you ended up, China continues to be in recovery mode. We're very encouraged with what we saw in China here in the first quarter with double-digit growth in the bioprocessing business. The China biologics and -- driven by the biotech market that you referred to is accelerating. The monetization of the therapies being developed there has been resolved with both the license deals that you see with multinationals, but also the stock exchange and IPOs, once again, functioning properly. And so we expect that to continue to be a growth driver here as we get back to normality. So is the original $1.3 billion that we saw there at the peak in the cards? Well look, we're on the way to improved markets. We're happy to see that. We want to get through 2026 here to see that continued positive progression on China. As it relates to the equipment orders that we saw there, we think that continues to be very constructive to our hypothesis around 2026 and beyond. Both the funnel activity is encouraging as well as you saw that year-over-year orders growth. As I said, that underwrites how we're thinking about the year here. And let's see how the next quarters progress to see whether that has any impact here in 2026, but certainly, it will as we go beyond 2026. Tycho Peterson: Okay. And then maybe just shifting over to Life Science. Encouraging to see the turn there. I think you talked about improved funnel activity, obviously, Aldevron. I think coming out of 4Q, you hadn't assumed Aldevron will grow in the first half of the year. So that's encouraging to see. And then A&G consumables a bit better for Abcam. I guess maybe just talk a little bit about where you're feeling better as we think about the remainder of the year for the Life Science business? Rainer Blair: So in Life Sciences, and you just touched upon it in the consumables area, we expect it to be slightly down here in the year, albeit off of an improved second half of the year. I think as we go forward, we see positive growth for our Life Science consumables business here. For the full year, while that might be a little bit lumpy as we go through the next quarter or 2, we do expect that to go from slightly negative to slightly positive, and that's quite encouraging. And then we also saw China. China is continuing or, let's say, starting up and investing again also in Life Science instruments that was nice to see here in the quarter and the funnels there continue to be quite constructive. So all in all, we see some nice pockets of improvement there. Pharma was strong, continued to improve here quarter-over-quarter. Clinical was robust. The applied markets are playing out as we thought. Only academic remains a bit muted, albeit stable. So we're encouraged here by what we saw in Life Sciences in the first quarter and expect that to play out positively for the rest of the year. Operator: Our next question will come from Casey Woodring with JPMorgan. Casey Woodring: So nice to see the greater than 30% bioprocessing equipment order growth in the quarter, but I assume that number is probably coming off of a lower base year-on-year. So can you just give us any sense of what orders grew sequentially in 4Q or what book-to-bill was in the quarter? Any sense of how those came in relative to your expectations? And then, I'd also be curious to hear more about the brownfield versus greenfield investment dynamic that you talked a little bit about? You highlighted brownfield investments are flowing through and said greenfield would be expected to follow. Just curious on your expectations of when we could potentially see those greenfield orders start to flow through? Is that something you wouldn't be surprised to see in the second half? Rainer Blair: Yes. So Casey, the first quarter orders growth was the first positive year-over-year orders growth that we have seen in nearly 2 years. So by definition, then the comp is a little bit lighter. But if we look at the activity level here quarter-over-quarter, while the first quarter orders were actually down a little bit sequentially, that's absolutely expected as a result of the first quarter activity seasonality step down. So we always see that, and that's why that year-over-year comparator is so important. But at the same time, we see our funnel activity continue to be robust on the equipment side. So I wouldn't focus as much on that as a data point that we're seeing year-over-year growth now, whereas previously, it was sequential growth. So very encouraged, as I mentioned earlier about what we're seeing in the equipment orders. Some of those orders are starting to get a little bit larger. And that dovetails into the second part of your question. So we see equipment orders growth and the funnel activity driven by 2 different dimensions. The first one is that we have seen underinvestment in the industry for the last 2 years as it relates to capacity. Despite the fact that we've seen very robust growth, our consumables business demonstrates that the activity level has been robust and strong here for the last couple of years now. And that means that capacities require expansion. We have biosimilars coming on the market. We have new compounds coming on to the market and, of course, a little bit of underinvestment. So that really explains what we're seeing there, both in terms of brownfield investments as well as the one or the other additional line or even greenfield investment. The second vector is this reshoring dynamic. And here we see, again, increased dialogue, already some funnel activity, even the one or the other order here for brownfield expansions as it relates to reshoring. So we're really encouraged by what we're seeing here. On the equipment side, as I say, it underwrites our hypothesis for the year, and it further supports how we think about the equipment progression and the bioprocessing strength beyond '26. Casey Woodring: Great. That's helpful. If I can just squeeze one more in quickly. Rainer, you talked about solid growth across nonrespiratory within Diagnostics, and you held the guide for the year in Diagnostics, even with the lower respiratory number. So maybe can you just walk through what exactly is offsetting that lower respiratory number for the year? And what's getting better in that nonrespiratory piece that's enabling you to hold the guide? Rainer Blair: Well, there's a couple of things going on there, Casey. The first one being that we continue to take share at Cepheid in the core business, which is very important, and our hypothesis around Cepheid continues to play out. We're launching new assays there. The gastrointestinal -- GI panel is doing very well. Our MVP panel is doing very well. So even within Cepheid, you see strength here that is playing out. And then in our nonrespiratory business and you take out China, we continue to see mid-single-digit growth there with our innovation strategy playing out. We've launched at Beckman Coulter an entire series of new instruments and equipment there, none more important than the high resolution DxI 9000, which opens up entirely new pieces of menu to us. We've closed that blood virus menu gap. And of course, we have that fast track device certification for Alzheimer's disease testing. So we continue to see positive momentum there. And then we haven't even talked yet about the implications of Masimo joining the portfolio. So then the last point I would make, as it relates to China, VBP and the guideline discussions that we have, we're in a very strong dialogue with the China government here. And we've had visibility of what has been going on there for some time. So we feel good about our assumptions around the $75 million to $100 million headwind there in China, and that's only been validated by what we've seen in China here in the first quarter, even if the patient volumes were actually a little higher. Operator: Our next question will come from Dan Brennan with TD Cowen. Daniel Brennan: Maybe just on M&A, the balance sheet is in good shape post Masi. Just wondering how you're prioritizing M&A today if you look at your 3 business segments? Where do you see the biggest opportunities? It's a question we get a lot from investors. And kind of what does the funnel look like? Do you think you could see another sizable deal this year? Rainer Blair: We're very encouraged by what we're seeing in the funnel. As you know, multiples have come in and our 3 -- vector filter on M&A is becoming more and more relevant here. As we've talked about so often, one, our bias to capital deployment is M&A; two, we will not compromise on our discipline as it relates to being in the right end market with the secular growth drivers that we like to see, two, having a premier asset that has defensible positions or the opportunity with real value reserves. And then lastly, of course, the financial model has to work. And what we've been seeing in the current context is that the financial models are becoming more viable. So just to reiterate, one, the Masi deal for us was one that we have envisaged for a long time and the timing of that deal is defined ultimately by the processes that are run and we were ready with the balance sheet and the point of view to execute on that deal, and we're really excited about that. And that fits right into our acute care strategy. Now what is not is a broader investment thesis around the broader MedTech market on the one hand. But on the other hand, it is also not indicative of our point of view as it relates to Life Sciences, Diagnostics and Bioprocessing. We see here plenty of opportunity to deploy capital and are fully prepared to do that as the opportunities arise. Matthew Gugino: And Dan, I mean, from a balance sheet perspective, post close of Masimo, we'll go to about 2.5x net debt EBITDA. Given our strong free cash flow of $5 billion plus per year as well as EBITDA generation, I mean, this leverage will come down fairly quickly. So it gives us the ability to remain active on the M&A front even in the near term. So feel good about how we're positioned from a balance sheet side of things. Daniel Brennan: Yes, that sounds great. And maybe back to a question, I think Mike started off the call with. Your core growth is anchored at 3% this year. I think consensus is around 5% next year. So assuming the consensus is in the right ZIP code, can you just walk through the key levers to generate 5% growth next year, including what could push down or higher up in your LRP towards the high single-digit level? Matthew Gugino: Yes, Dan, I mean it's April of 2026, I think we're a little bit too early to talk about '27, but I'll just kind of go back to what we talked about with Mike here at the beginning of the call, where we're talking about low single-digit core growth in the first half of this year. There's about 300 basis points or a little bit more of impact from the headwinds that we talked about. China Diagnostics, respiratory, the comps in Life Sciences, that's why we feel comfortable about exiting Q4 in that mid-single-digit range. And really getting through those headwinds enable us without really any improvement on the end market side to get comfortable into that mid-single-digit range. Operator: And our last question will come from Doug Schenkel with Wolfe Research. Douglas Schenkel: Matt, maybe a follow-up on your comments there at the end in response to Dan's question. What gets you to the high end of guidance for the year? Is it really just what you described there moving past the headwinds and maybe those actually reversing in a more robust way than we're seeing right now? And maybe related to that, as we sit here today, should -- would you recommend that we essentially stay at the lower end of the guidance range for the year until we see some improvement, both in terms of those headwinds abating and maybe some improvement in end markets. So that's the first topic. And then another follow-up on M&A. Just to be clear there, from a readiness standpoint, could you do something in any segment as we sit here today, or given the pending Masimo deal, would it be less likely that you would do something in Diagnostics as you're in the process of integrating that business or getting ready to integrate that business? Matthew Gugino: Thanks, Doug. So look, we talked about in January, continue to anchor to that -- the low end of the 2026 core growth guide for planning purposes. In terms of what gets us to the higher end of the guide, I think you need to see a couple of things, Doug. First, you need to see some further improvement across the Life Sciences end markets. I think we're encouraged by what we saw here in Q1, but we need to see some of those policy headwinds further abate, especially in the U.S. and what we've seen there. I think China, good start to the year, but we need to see further growth acceleration as well. And then on the biotech funding side, again, starting to see some improvement, but we want to see that funding turn more quickly into orders. I think the second thing, bioprocessing, we probably need to see it a little bit better than the high single-digit growth. We need to accelerate on the consumable side as well as get that equipment growth going here, again, encouraged by the order patterns, but probably need to see it move a little bit quicker. And then the other thing here that we talked about on the respiratory side, we probably need to see a little bit above normal respiratory season to finish the year here in Q4 back to that kind of endemic $1.8 billion rate that we see going forward. So I think all in all, we're encouraged by the start to the year. We're already at 3% ex respiratory today and encouraged to see some of the underlying trends improve as we talked about. Rainer Blair: And Doug, as it relates to M&A, we have both the balance sheet capacity as well as the leadership bandwidth here to execute additional acquisitions in any of the 3 segments and feel very good about how we've positioned our talent and develop that talent in order to be able to do that. Operator: We've now reached our allotted time for questions. So I'll turn the call back over to management for any additional or closing remarks. Rachel Vatnsdal: No, perfect. That is all we have. You can reach us with questions today. Thank you so much for joining. Rainer Blair: Thanks, everyone. Operator: Thank you, ladies and gentlemen. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Vesa Sahivirta: Good morning, everyone, and welcome to Elisa's First Quarter 2026 Conference Call. We start with a presentation given by CEO, Topi Manner; and CFO, Kristian Pullola. And after that, we move on to Q&A. And I think we are ready to start, and I give word to Topi. Please go ahead. Topi Manner: Thank you, Vesa, and good day, everybody. Welcome to this Elisa Q1 earnings call. And let's get right down to business and briefly go through the Q1 highlights. During the quarter, our revenue decreased by 1.3%, and this was to a large extent driven by lower equipment sales impacted especially by higher device prices due to the shortages of memory chips worldwide. Telecom service revenue increased by 0.5%, driven by fixed service revenue. The mobile service revenue declined by 0.1% as the full impact of intense campaigning in Q4 was visible in the MSR. International software services revenue increased by 6.9%. During the quarter, however, we sold a small software business in Brazil. Adjusting for this, the comparable organic revenue growth was 7.7% in Elisa Industriq. Comparable EBITDA on group level increased by 2.2%, especially driven by our cost efficiency measures. Cash flow continued to develop strongly during the quarter and increased by 15.7%. What was notable during the quarter was that the churn decreased to 17.2% from 23% level of Q4. So this 6% decrease -- 6% unit decrease in churn is a bigger decrease than the typical seasonality would be. Post-paid voice subscriptions decreased by 2,700. And in the fixed broadband subscription base, we experienced strong growth, 14,000 on the back of the strong customer demand that we are seeing on the market. The transformation program, where we are targeting EUR 40 million of cost savings during the calendar year of '26 is progressing well according to the plan, and we will deliver the communicated savings during this year. So it was indeed a quarter of slower growth, as stated, driven by equipment sales. What impacted the revenue was a small divestment that we made, EpicTV that impacted the revenue with EUR 3 million. However, it did not have any EBITDA impact as such. The biggest increases in revenue came from the international software services and from digital services. EBITDA during the quarter landed at EUR 203 million in accordance with our own expectations. EBITDA margin increased to 37%, partially reflecting the little bit different mix of revenue resulting from the decrease in equipment sales. In telecom service revenue, as stated, we grew with 0.5%. And there, we did see the full impact of the lower price levels in Q4. The upsells from 4G to 5G, however, continues intact. I will come back to this a little later. And then certainly, in the fiber broadband, we saw growth as described a moment ago. The churn during the quarter was 17.2%, and this is broadly in line with the long-term average churn on the Finnish market. And what is notable is that the churn also decreased to a lower level than it was in Q1 2025. So then looking into the mobile KPIs in a little bit deeper fashion. It is good to note that our new sales prices in mobile subscriptions on the consumer side of the business returned to Q1 '25 levels in March. So in the upper right-hand corner in the graph, you are seeing the prices of new consumer mobile subscriptions. And what you also see there is that during the year '25, we saw gradual pressure to new sales margins culminating in the campaigning of Q4. And now we have been seeing the mentioned return to Q1 '25 levels. What is also noteworthy that going forward, there will be a bit of time lag in how the new sales prices turn into mobile service revenue as there are fixed term contracts in the customer base of our competitors. And when we acquire those customers to us, there typically is a time lag of some months before the new prices actually come into effect. The churn we already discussed in terms of sales and marketing costs. During the Q4 last year, we had EUR 5 million of more sales and marketing costs. And then those campaigning-related costs were decreased during Q1 in line with the churn development. However, the sales and marketing costs are still a tad higher than they were during Q1 '25. But all in all, these metrics are pointing to the right direction. Then briefly going through the business segment by segment. In consumer customers, the revenue continued to be weighed by the competitive situation and the mentioned equipment sales. However, the cost savings measures were effective and EBITDA improved with 1.4%. Broadly, the same story in corporate customers business. The equipment sales impacted the revenue negatively. So very much the same phenomenon related to equipment sales was seen also on the corporate side of the business. Our traditional fixed network, PSTN will be ramped down at the end of June altogether. And there we are seeing a decreasing number of customers, and that is weighing on revenue a bit. But as stated, the cost savings measures also on the corporate side of the business were successful and the EBITDA grew with 2.1%, in line with the total Elisa number. International software services, the comparable organic revenue growth was the mentioned 8%. And we took a step forward in terms of profitability during the quarter. The EBITDA grew to EUR 3 million in this business from the EUR 2 million on the same period last year. So we are seeing gradual improvement in the Elisa Industriq profitability, and we expect to continue to see that when we go forward. However, in software business, you will need to remember that there is a little bit different type of seasonality in Elisa Industriq. Q1 and Q4 are typically the strongest, whereas Q2 and Q3 are seasonally softer. In Estonia, our revenue increased by 3.4% and EBITDA increased by 2%, in line with the rest of Elisa. The churn number remained on the level of previous quarters in Estonia and is 11.7%. We are very focused on implementing our strategy. In the mobile part of the business, you saw the key metrics and the development during the Q1 as stated, there's a bit of time lag in the new sales prices turning into mobile service revenue. But during the latter half of this year, we expect to see improved momentum in mobile in line with the guidance that we have been giving. In the fiber business, we see strong customer demand, and we are investing in FTTH as well as FTTB. And also the data center connectivity, fiber connectivity for data centers is a tangible business opportunity. And during the course of this year, we would expect to see some deals coming through in this customer category. In international software services, we are continuously improving the profitability, and we do see further potential in that one by accelerating the growth, but also by integrating the multinational business and various business units better together and realizing synergies in the process. In terms of productivity, we are progressing with our transformation program. And as stated, we will be delivering the targeted cost savings during the course of this year. At the same time, we have taken note of the development of LLMs recently, and that's a clear indication that there is further productivity potential in AI, meaning that we will also continue the AI-driven transformation going forward during the coming years. So these 3 areas, 5G and fiber, international software services and productivity will be the main levers to take us toward the strategy targets that we have communicated. 5G penetration at the end of the year passed 15% -- 50% milestone. And that upsales trend continues to be intact. During the quarter, we reached 53% penetration. And we are especially seeing now big corporates on the corporate side of the business increasing their 5G subscription take-up rate. The average billing increase when we upgrade customers from 4G to 5G continues to be intact. That monthly billing increase is EUR 3. And also in terms of value-added services, we have continued to increase the penetration of security features in our mobile subs -- customer base, by means of new sales. And now the hard bundled security features have been taken up by 700,000 of our consumer customers. During the quarter, we also launched a new value-added service called Who's Calling service, which enables customers to see the caller ID even if they don't have that recorded in their phone previously. And this has been very well received by our customers. We already by now have 130,000 paying customers for this service. What is also notable related to the Estonian market is that in Ookla Speedtest Awards, we got the award for the best 5G network in Estonia, giving us competitive advantage. In the fiber business, in the mentioned way, the momentum is strong, and we continue to invest in fiber. In new -- in digital services related to home services, during the quarter, we published a fifth season of Ivalo, which is the most popular of our Elisa Entertainment original series, getting good reviews from customers. On the corporate side of the business, we continue to win new customers. Earlier this week, we announced that we have been winning the cyber and network business of Valmet, a global large Finnish company, also clearly outlining that we have the capability to serve our large corporate clients globally in these areas. In International Software Services, we continue to have a record high backlog. And the order intake, the bookings during the quarter were strong. We won a number of new customers, big, large global customers in these areas. Some of these are not public references. Some of them are. Boygues Telecom in France is one. And then also for Gridle for our energy optimization business, we won Vantage Towers as a customer in Spain, Vantage Towers being the tower company of Vodafone, the biggest tower company in Europe. What is also worthwhile to mention that in Elisa Industriq business, we saw some revenue delays from customers in Middle East due to the war in Iran. And that brings me to the outlook and guidance for this year. So the guidance remains unchanged with the range of EBITDA that we have been communicated previously, the CapEx guidance and then the guidance-related assumptions, especially related to the telecom service revenue, where we are indicating a range of 1% to 3% growth during the course of the year. So with that, I will hand over to Kristian. Thank you. Kristian Pullola: Good. Thank you, Topi, and also welcome on my behalf. In Q1, we saw solid EBITDA performance despite lower revenues. This was helped by our transformation efforts coming through as well as good cost discipline in general. As Topi said, the temporary sales costs were lower on a sequential basis, however, still slightly up year-on-year. Some of the revenue decline that we saw in Q1 related to divestments and ramp-downs of older technologies. The EBITDA impact of these was limited. The same is true for the decline in the equipment sales, which was driven by increased uncertainty as well as higher device prices on the back of especially memory component shortages. One note here, Elisa has somewhat seasonal business when it comes to Q1 versus Q2. Both are positive -- both of these 2 drivers are positive for Q1 and negative for Q2. As Topi said, in Industriq, we typically see strong licensing revenue in Q1 as a result of annual renewals. And in that sense, there's a negative seasonality going into Q2. Also in TechOps, we do see higher network-related costs in the second quarter when the overall construction activity starts in spring. And for this year, spring has arrived early in Finland, so we will see somewhat more of this impact. Also then maybe a second reminder, just on the yearly dynamics. Last year was solid when it comes to the first half and weaker when it comes to the second half, especially Q4 was weak on the back of the competitive intensity. Thus, we will have a tougher compare in Q1 and Q2 and then kind of easier compares as we work into the second half and especially for Q4. Then when it comes to CapEx, our strict disciplined continued. Our investments are focused on the areas of improving our technology leadership and which will enable us to continue to upsell both 5G and work on the -- work with the fiber momentum. In addition to this, our investment is going into us renewing our IT infrastructure so that we will be able to drive both simplification as well as productivity longer term. On the cash flow side, the first quarter was a continuation of our strong cash performance. We have now seen 5 consecutive positive quarters of positive development for net working capital. We will continue to drive improvements in cash flow as we move on. But of course, improvements in net working capital is going to be tougher and tougher to achieve when we have optimized the different items. Inventories are already at good levels. As I said last quarter, there's more work to be done on both receivables as well as on the payable side. But overall, a solid quarter from a cash flow development point of view. As a result of that, our capital structure continues to be solid. Our maturity profile is good. We did not have any material -- we did not have any material transactions during the quarter. And during the remainder of the year, we will start to focus on proactively refinancing the '27 maturities that we have. Then on capital returns, Elisa continues to have industry-leading capital returns. We saw a slight uptick as a result of having somewhat lower cash balances at the end of Q1 compared to the slightly elevated levels that we saw at the end of the year. And we do believe that with cash flow focus and continued strict discipline on CapEx, we will continue to produce industry-leading returns also going forward. With that, Vesa, back to you, and let's start Q&A. Vesa Sahivirta: Thank you, Kristian. And now we move on to Q&A part. And we have many questions on the line, so we appreciate that we'll keep them short. Thank you. Operator: [Operator Instructions] The next question comes from Andrew Lee from Goldman Sachs. Andrew Lee: I had 2 questions. Firstly, on your cost or sales and marketing costs. And then secondly, on your visibility on the mobile service revenue trends through the year. On the sales and marketing costs, you mentioned -- you highlighted they're still above where they were a year ago. Can you explain why that is, given churn is back to average levels and the pricing environment recovered? What's driving that heightened sales and marketing cost competition? And then secondly, just on the mobile service revenue trends, it sounds like the first quarter is the trough for mobile service revenue growth. But could you just help us understand how we should see that improvement come through in the second quarter and then into the second half? It sounds like it will be a more meaningful improvement into Q3 than into Q2. How that's going to be balanced between volume and ARPU? And how much visibility you have on that given the lags that you mentioned? Kristian Pullola: So maybe if I start on the sales and marketing costs. You're right, the costs were still somewhat elevated compared to a year ago, but down sequentially. And I think the logic here is that you don't pull back your sales and marketing efforts before you see evidence of the market environment being such that it justifies lower spend. And we started to see the evidence during the quarter. And because of that, we took down the temporary costs during the quarter, and thus, they were still a bit up on a year-on-year basis. Topi Manner: And then, Andrew, related to your question about MSR. So, starting with the metrics that we just went through. So the new sales prices during the quarter returned to Q1 levels in March. And the churn was notably lower than it was in Q4. And now the churn is in line with our long-term average. When you consider the mechanics of how the new sales prices turn into mobile service revenue, you will need to factor in a time delay of some months, approximately a quarter. This is because mobile operators in this market have fixed-term contracts in their portfolio. And when we win customers from our competitors, we do the deal now, but the mobile's subs actually transforms into our customer base with the agreed pricing a little bit later when the fixed-term contract with the competitor actually ends. So this is a mechanic that will need to be factored in. And then related to Q2, what is perhaps a useful reminder is that last year, in Q2, we started the rollout of the security features, the hard bundled security features to our mobile subs, supporting the MSR for that particular quarter. There is no similar initiative in the plans for this year. And thus, when you consider mobile service momentum, that momentum should be visible on the latter half of this year, increasing towards the end of the year. And all this boils down to our telecom service revenue guidance where we are guiding a range of 1% to 3% during the course of the year where mobile service revenue is the main contributor. Andrew Lee: Can I just follow up, so just on the sales and marketing costs. So it sounds like you're reducing those through Q1. As things stand today, late April, sales and marketing costs now today where they were a year ago? Or are they still not back to normalized levels? Kristian Pullola: So I think we are here to discuss the first quarter. But as I said, we are responding to the market situation with our costs. And because of that, the costs started higher during Q1 and ended up lower during Q1. Operator: The next question comes from Ajay Soni from JPMorgan. Ajay Soni: My first is on the cost savings. You mentioned EUR 40 million. Just wondering what's been delivered in Q1 and how you expect that phasing to look for the remainder of the year? And then my next question was just around the MSR into Q2. You mentioned that you're not going to have the support of security features, which got launched this time last -- well, Q2 last year. But surely, you will still have a better improving effect because you're going to have more people moving on to security versus Q2 last year because you would assume you'd have ramped up that business. So isn't that still going to be a tailwind in Q2? Kristian Pullola: So maybe if I start with the cost savings. So as Topi mentioned, we are on plan on delivering the full EUR 40 million. And as we have said earlier, the majority of the cost savings kicked in during the first quarter. Some of it is visible in our lower operating expenses and impacting positively the personnel costs because a large chunk of the savings that were implemented came from there. But of course, we also have driven activities outside of headcount reductions, which is visible. Some of it is also coming through the CapEx line item and thus coming through as depreciation -- lower depreciation at a later point. And so in that sense, there will not be much more acceleration of the impact as we move through the quarter because of the fact that the majority is already up and running as we speak. Topi Manner: And then related to your question about MSR and the security features, so if we look at MSR development in Q1 and we decompose that a bit, then clearly, the impact of intense campaigning and the lower prices in Q4 introduced a drag to mobile service revenue during Q1. And that drag was offsetted by the continued upsales from 4G to 5G and the value-added services where the security features are the most important element. And actually, when you look at the upsales isolated. And when you look at the value-added services isolated, they continue to provide the consistent growth that we have been seeing in the past. Then in terms of security features and the mechanics of security features supporting the MSR during the course of this year. What you need to remember is that when we started the rollout of security features last year, we rolled that out to that part of our customer base, roughly 600,000 customers where the customer contracts were of ongoing nature in force until further notice and the terms and conditions allowed us to change the offering and with that, change the pricing of those customers. Now that back book rollout has largely been completed. And what we are now doing is that we are offering the security features to customers in new sales. And the 100,000 pickup that you saw during the quarter is a result of new sales. Operator: The next question comes from Andreas Joelsson from DNB Carnegie. Andreas Joelsson: I was just a little bit curious and I hope you can help us understand a little bit the experience that you have from the higher churn environment that you had in Q3 and Q4. If something similar would happen again, would you react the same way as you did last year? Or have you -- some new experiences that will make you change that action that you took at the end of last year? Topi Manner: No, I think that -- I mean, our market is competitive and every situation in the market is unique. And we continue to monitor the market, and we continue -- and we focus on developing our own competitiveness, our own services in the market. And when you look at the things that we have been doing recently, as an example, we have been increasing the penetration of fixed-term contracts in our customer base as a churn prevention measure. And that measure has been bearing fruit in Q1, as you see in the churn number. Andreas Joelsson: Perfect. Maybe a follow-up on the mobile post-paid subscriber base. It is continuing to decline. Can you explain or tell us a little bit more where that decline is? And then I talk about excluding machine-to-machine, of course. Topi Manner: Yes. I mean if you look at that number, what is important to remember is the market trend in mobile broadband. So mobile broadband subscriptions are declining for us, and they seem to be declining on the whole market when customers are transitioning partially to fiber connections. And we do see a pickup in fiber connections as witnessed by our numbers. So this is something that you will need to factor in. And then when we look at the post-paid voice subscriptions and the development of net adds in that number, then as stated, the churn decreased notably during the quarter. Also, our intake of new customers decreased during the quarter. And this was because we did not respond to all of promotions that we saw on the market. Operator: The next question comes from Fredrik Lithell from Handelsbanken. Fredrik Lithell: Just a follow-up on your last comment that you described in Q1 that you did not respond to all of the promotions you saw in the market. Is that the same to say that you have seen sort of more activity in terms of campaigning in Q1 compared to earlier -- not compared to Q4, but maybe compared to Q1 '25, i.e., they don't need to be more aggressive, but more of them in the market. Is that a fair point? Topi Manner: The market continues to be competitive in Finland. But I think that here, I come back to the slide that we presented. So during the quarter, we saw the new prices -- new sales prices return to Q1 levels in March, and we saw the sales and marketing cost decrease. We saw a significant drop in churn that is clearly more than the typical seasonal drop in Q1 would be. Fredrik Lithell: Okay. That's perfect. My original question was really about the ISS, if I may. I mean you had 7% growth in the quarter, and you depicted a few details around your situation there with the pipeline that seems to be growing and some delays in Middle East. How are these sort of contracts structured? They are not perpetual licenses. Are they SaaS type of contracts with some variable components in them for revenue to grow with volume? Or how does it work in these contracts? Topi Manner: Yes. Absolutely. So as stated in Elisa Industriq business, the organic growth during the quarter was 8%, and we saw a step forward in terms of profitability the way we would like to see in this business. And if we decompose the contract structure a bit, then part of the revenue is driven by licenses. Part of the revenue is driven by recurring revenue, SaaS model and maintenance. At the end of last year, the share of recurring revenue was 50%, and there's some quarterly fluctuation in that share based on how many licenses we have been selling on a given quarter. And then part of the revenue is also driven by implementation projects with customers. And here, in that category of revenue, the revenue recognition is dependent on how the implementation projects move forward with customers. Operator: The next question comes from Derek Laliberte from ABG Sundal Collier. Derek Laliberte: So I wanted to come back on pricing. You mentioned this selective price increases in early Q1. Can you elaborate a bit on the scope and customer response of this? And during Q1 and into early Q2 now, are you still seeing improved rationality amongst the competitors? Or are there still pockets of sort of aggressive or increased aggressiveness on pricing? Topi Manner: Yes. I think that we will need to come back to the Q2 developments when we report the Q2 during the summer. In terms of the market development in Q1, what I would just like to come back to is the slide that we presented that our new sales prices returned to Q1 '25 levels in March and then the decrease in sales and marketing cost and the notably significantly lower churn. So looking at those numbers, I think that you get a good picture of the market development during Q1. Derek Laliberte: Okay. Great. And then strategically for you, I mean, has there been any change here given the current environment in terms of how you're prioritizing ARPU versus subscriber growth? Topi Manner: Yes. I mean our long-standing target on the market has been that we maintain our market share, and we will continue to do so going forward. That is part of our strategy. And what we have also communicated already in our Capital Markets Day a bit more than a year ago is that we focus on providing customer value. Upsales from 4G to 5G in mobile services is a big growth driver for us and so is value-added services, namely security features. So we continue to focus on that strategy, and we bring new value elements, new offerings to customers and to the market all the time. And then during this quarter, a good example is the Who's Calling service that already has 130,000 paying customers. Derek Laliberte: Okay. And finally, on the B2B trends, apologies if you mentioned this, but you have flagged some pressure there. So what did you see in Q1 in terms of, say, demand pricing and the contract renewals? Topi Manner: Could you please repeat the question? So was it about broadband or what... Derek Laliberte: About B2B -- no B2B corporate trends. Topi Manner: Yes. In B2B corporate, if we talk about mobile services, it continues to be a competitive marketplace. Our offering in B2B mobile services is strong with the value-added services and for example, with AI tools, where we clearly differentiate from competition. And then if you look at the other product categories of B2B business, IT services, cybersecurity and these kinds of things, we continue to enjoy some momentum in that one. We are clearly competitive on a market that is tough. The market is characterized by sluggish macroeconomic situation in the Finnish market, impacting corporate customers' willingness to invest. And that, of course, impacts the competitive landscape on B2B business. But at the same time, we are clearly competitive, and we are winning customers, both in IT and especially in cybersecurity, where our capabilities are really strong today. Operator: The next question comes from Abhilash Mohapatra from BNP Paribas. Abhilash Mohapatra: I just want to come back to the topic of cost cutting, please. Obviously, this year, you've got a big benefit from the EUR 40 million of savings. And you referred to earlier in the call, the idea of sort of using AI to drive further savings. As we look into next year, do you anticipate a sort of similar sized benefit from your cost measures? Or in other words, do you think you can continue to do a similarly sized sort of big headcount reduction? Or should we expect the cost-cutting benefits to normalize as we head into next year? Kristian Pullola: So again, we have nothing new to tell here in addition to the EUR 40 million transformation program that we announced last year. And as I said earlier, which is now kind of up and running in our P&L as savings. In the prepared remarks and in our report today, we do acknowledge that we live in a world where transformation will need to be on the agenda for now, and that's what we're going to do. Transformation related to AI means both improving your competitiveness and driving revenues through that as well as then driving productivity improvements on a structural as well as on a continuing basis. There is no new program or no new amounts to be announced here. We feel that we need to do this to be able to achieve our strategic targets that we have set for ourselves. Topi Manner: And generally speaking, related to the AI, we clearly see that our industry and Elisa in specific, will be benefiting from AI. AI will be increasing our bread and butter business, namely mobile and fixed connectivity. And we have an opportunity to use AI for digital services growth and for software growth. And then in the areas of productivity or in the productivity-related areas, we are working continuously in improving the automization of our customer service. And where we do see possibilities is in the area of AI-assisted coding -- prompting to be exact, improving the productivity of our software development. Operator: The next question comes from Siyi He from Citi. Siyi He: I have 2, please. The first one is really on your comments earlier about the interest in the market of taking on fiber products. I'm just wondering if you can share with us about your fiber investments, whether you think it could be a good opportunity to organically expand your fiber footprint or you could be looking at some infrastructure opportunities if some of the network is up for sale? And the second question I have is really on your comments earlier about the -- pushing the upgraded security features into your base. I think last year, when you talk about the rollout I had an impression that you would -- it's possible to roll out throughout the base within 18 to 24 months of the launch. But now I think you're commenting on you are actually adding on new sales. Just wondering whether that could create a particular delay of this 18 to 24 months time frame? And if so, any reason behind that? Kristian Pullola: So maybe I'll take the fiber-related question first. So as I said in the prepared remarks, we do see momentum in fiber. Customers want reliable and fast connections for their homes, for their base and fiber is now from an affordability point of view at the price point where consumers are responding well to it. We will -- on the back of this, we are investing in fiber, building additional fiber. As I said a quarter ago, we are leveraging a joint venture structure that we announced last year for the majority of that build. And at the same time, we will be pragmatic and look at, are there more cost-efficient ways of doing that by also looking at the existing assets. And if they are at sale at reasonable cost, then we'll evaluate that against building new fiber ourselves. Topi Manner: And related to your question about the rollout of the security features, yes, the rollout schedule of security features has been prolonged. And the driver of this is that during the -- due to the competitive situation last fall, as a churn prevention measure, we increased the share of our fixed-term contracts notably. And now we have a larger share of those fixed-term contracts in our customer base. And for those contracts, we cannot do the back book changes in similar fashion than we can do for those contracts that are in force until further notice. However, all of this is something that we have already factored in into our guidance. And the guidance assumptions where we are stating that the telecom service revenue is increasing during this year within the range of 1% to 3%. And that mobile service revenue is the main contributor. Operator: The next question comes from Felix Henriksson from Nordea. Felix Henriksson: I have 2. One is very simple, just to double check on MSR. Do you think that growth will further decelerate in Q2 versus Q1 before turning better in H2 given the time delay that you discussed as well as the tough comps? And then the second question is relating to the data center connectivity, which you have started to talk about. Could you expand a bit on the opportunity? What could the potential contract structures in this domain look like? And how large deals are we talking about? Topi Manner: Yes. So coming back to the mobile momentum and mobile service revenue. As mentioned earlier in this call, when we look at the new sales prices and how they translate into mobile service revenue, it's good to understand the mechanic and the time delay, when we win customers from our competitors, a meaningful portion of those customers are having fixed-term contracts with their old providers. And that means that even though we do the deal today, those customers might be moving to our customer base 2 months from now, 3 months from now. And that delay needs to be understood. And then as stated in Q2 last year, we started the rollout of the security features, which provided support for MSR for Q2 last year. Putting all of this together, we should be seeing improved mobile momentum during the latter half of this year, in line with the guidance that we have been giving on telecom service revenue. And then to your question related to data centers, I mean, this market is about to take off in Finland, and we have been seeing data center operators reserving land and quite a bit of that has taken place. We have been also seeing announcements for new data centers starting to come in during the course of this spring. So this leads us to expect that during the course of this year, we will be seeing sizable data center announcements on the market. And we do have a business opportunity in that. We are naturally advantaged in a sense that we have the most extensive backbone network, fiber network in the country, and it's shorter distance to connect to that backbone. And then therefore, we feel that it's realistic for us to get a sizable chunk of that data center connectivity market going forward. It is an emerging market. During the course of this year, we will be seeing most likely deal announcements and then the revenue starts to come in, in '27 and onwards. Operator: The next question comes from Paul Sidney from Berenberg. Paul Sidney: Just 2 questions. Just coming back to Finnish mobile, price rises on new offers in Q1. I was just wondering, was this a deliberate action from Elisa to raise prices? Or did pricing just follow the market? Just wondering your previous comments that you did not respond to some promotions over the past few months. I'm just wondering, are you trying to lead the market as a rational incumbent? Or was it the MNO's pulling back in the quarter? And then just secondly, on cash flow, comparable cash flow is a clear focus for you, but we don't have cash flow guidance. So just 2 parts to this question. Can you clarify if free cash flow is expected to grow over the next couple of years? And secondly, how important is cash flow in assessing the success of the business? Is it as important to you as revenue growth, EBITDA, ROCE, all these other sort of financial KPIs? Topi Manner: Well, to your first question, we are the market leader in this market. And we certainly would like to think that we are rational in managing our business. So then looking at Q1, what you see in the mobile metrics is that we come back to Q1 levels in terms of new sales prices in March. And you see the churn decreasing significantly more than the seasonal drop typically would be and also the sales and marketing cost decreasing. So coming back to my earlier point, I think that, that gives quite a good picture of what happened on the market and for our business during Q1. Kristian Pullola: And again, on the cash question, cash is a critical KPI for us that we both drive as well as assess our success based on. You're correct that we haven't guided specifically on cash flow as of now, something for us to consider for the future. But clearly, it is a measure that we judge our performance based on. And if anything, we'll be doing more of going forward rather than less. Operator: The next question comes from Ulrich Rathe from Bernstein. Ulrich Rathe: I have one clarification and a question. The clarification is you pointed out the mechanics of the customer sale versus the contribution. Can I just confirm that you're not including these customers that you have signed up in your customer base that you report before they actually start to contribute revenues? The second question or the real question is, if we look back at what happened there in autumn, how confident are you, if you look at the market overall, about the sustainability of the current recovery away from this slump? In other words, how stable do you think the market environment is vis-a-vis the causes of what happened last autumn? Topi Manner: Yes. On the first question, so -- no, we count customers into our net adds once they move into our customer base and the revenue recognition starts. So that's it. And then in terms of the market dynamics, I think that, first of all, we just need to come back to this in the coming quarters when we report our Q2 and when we report our Q3. If you look at the long history of the market, you have been seeing previously also these kinds of periods of intense competition like we saw during the latter half of last year. Similar phase was gone through during the years of '17 and '18. Operator: The next question comes from Ondrej Cabejšek from UBS. Ondrej Cabejšek: Two questions from me as well, please. The first one, apologies, I may have misheard on your back book, but I wanted to -- on the back book comments that you made, but I wanted to basically understand if now that the market seems to be stabilizing and the macro situation in Finland seems to be also improving. Are you again planning to kind of put in effect some kind of back book price rises the same way and the same kind of quantum on the -- that you did in 2Q '25, I believe it was around 400,000 customers that you raised prices for. Is there something similar plan for 2Q '26 because I believe that was the kind of assumption going forward? That's the first question. And second question, if I may, on the promotions that have been kind of dragging effective pricing down, are we correct to assume that most of these people or subscribers are locked in for 12 months. And so as they come out of the heavily kind of promoted pricing, I guess, around 2H '25, the assumption would be that they get back to some kind of normal pricing levels? Or what do you expect there as they come out of contract? Topi Manner: Starting from your latter question. So yes, you would be correct to assume that those customers that we took in during Q4, to a large extent, were with fixed-term contracts for 12 months. And then that will be a factor that will be impacting the market, the mobile market at the latter end of this year. And then related to your first question about back book price increases and offering changes, the like of offering changes that we did in the spring of last year with the security features, as stated -- we are introducing new individual services to the market all the time like we, during Q1 did with the Who's Calling service that now has 130,000 paying customers. But we do not have bigger offering changes like the security features in the plans for Q2. On corporate side of the business, B2B side of the business, there might be some sort of inflationary price changes that will be conducted, which is part of the sort of normal cycle in the B2B business. Ondrej Cabejšek: And apologies if I may follow up because the line was a bit choppy. So last year, you mentioned there were -- part of the 2Q price rises were the hard bundled security features, and you do not plan to do something similar this year, but straight price rises is something that is kind of in the plan? And also, yes, if you could please answer that, this is the straight price rises, I guess, is that something that the market is now allowing you to do you think? Topi Manner: No such plans. Operator: The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have also 2 questions. Still wanted to get a bit more color on the situation at ISS. I think you mentioned some delivery headwinds from the geopolitical turmoil in Q1. Are you anticipating more headwinds going into Q2? And any comments from sort of order intake during the recent months? And then secondly, you booked EUR 4 million of one-off costs in Q1, where this related to the EUR 40 million savings program? And do you still see more coming during later of this year? Topi Manner: Yes. Related to Industriq, we did see strong bookings in Q1 and then quite happy with that. And then related to the war in Iran and the Middle East situation, we saw some revenue delays in Q1, partially because for customers in the Middle East, some projects were delayed. And with that, the revenue recognition was delayed and then partially because the anticipated sales just was prolonged given the outburst of the war in Iran and the impact to places like Dubai. So those were the short-term impacts that we have seen. And then generally, the impact of war in Iran, as a business, I think that we are in a fortunate position that the direct impacts of war in Iran to our business are very, very limited. To Industriq, we will need to see what those impacts are. As stated so far, we have been only seeing limited impact to a handful of existing clients and prospective clients in the Middle East. Kristian Pullola: And I think on the transformation costs, yes, we did book some in the quarter. And yes, they relate to the measures that we have taken. And yes, based on our prepared remarks, we do see that in the current environment, there is an opportunity to do transformation on an ongoing basis. So I would expect that there would also be some such costs also in future quarters as we take the appropriate measures. However, not to the same extent as we had kind of higher costs in Q4. Operator: The next question comes from Max Findlay from R & Company Redburn. Max Findlay: Apologies if the first question has already been answered while I was struggling with the line. So last year in ISS, there were some delivery delays in Q1, which saw revenue deferred into Q2. And in your preprepared comments, you mentioned that there was some revenue delay in this year's Q1. So I guess I'm trying to triangulate these comments with other comments you've made about 2Q and 3Q being weaker quarters generally. Should we expect these quarters to be lower than the 8% achieved this quarter? And then there's been a change in ISS' leadership. Can we expect any changes to strategy to accelerate growth to achieve your 10% organic growth target? And any comments on further acquisitions and disposals? Topi Manner: Yes. So indeed, Mikko Soirola has been appointed as the CEO of Elisa Industriq business. He is a very experienced software leader, having worked in international software space for 20 years. And the better part of last decade, he has been a CEO of successful software businesses. So the job to be done for Mikko is to accelerate growth, to improve the profitability of Elisa Industriq, carry out bolt-on M&A and integrate the M&A and integrate the portfolio of businesses that we have today better to achieve synergies. So it is a new strategic phase that we are entering into in Elisa Industriq. And then related to the first part of your question, what I was referring to is that the typical seasonality in Elisa Industriq business and in many of the other software businesses for that matter, is that Q2 and then Q3 are sort of seasonally softer than the start of the year and especially Q4. So that is something that is good to keep in mind when understanding the sort of dynamics of the Elisa Industriq business on a stand-alone basis and the impact to Elisa numbers. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Vesa Sahivirta: Thank you, and thank you for participating in this conference call. Thank you, Topi. Thank you, Kristian, and we wish you a very great reporting seasons. Topi Manner: Thank you very much. Kristian Pullola: Thank you. Bye-bye.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the 3M First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded, Tuesday, April 21, 2026. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3M. Chinmay Trivedi: Thank you. Good morning, everyone, and welcome to our first quarter earnings conference call. With me today are Bill Brown, 3M's Chairman and Chief Executive Officer; and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag will make some formal comments, then we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our Investor Relations website at 3m.com. Please turn to Slide 2 and take a moment to read the forward-looking statements. During today's conference call, we will be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-K lists some of these most important risk factors that could cause actual results to differ from our predictions. Please note, throughout today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments to today's press release. With that, please turn to Slide 3, and I will hand the call off to Bill. Bill? William Brown: Thank you, Chinmay, and good morning, everyone. We delivered solid operating performance in Q1 with earnings per share of $2.14, up mid-teens versus last year. Operating margin increased 30 basis points to 23.8%, and free cash flow was over $500 million, up double digits. During the quarter, we returned $2.4 billion to shareholders, including $400 million in dividends and $2 billion of share repurchases. We had a light start to the year on the top line with organic growth of 1.2%, driven by pockets of macro pressure. But we saw encouraging order trends that support our outlook for acceleration in the balance of the year. Looking forward, we remain confident in achieving our full year 2026 guidance despite the volatile environment. Our performance reflects strong execution on productivity, cost discipline and commercial rigor. We're building a stronger foundation based on commercial, innovation and operational excellence, underpinned by a relentless focus on strengthening our performance culture. In commercial excellence, we're seeing benefits from improved sales effectiveness and lower customer attrition, and we continue to make progress on cross-selling opportunities. To date, we've closed on approximately $80 million of new business against the 3-year, $100 million target we laid out at Investor Day with a pipeline of $85 million of additional cross-sell opportunities. We've introduced AI tools to drive growth, reduce churn and automate manual work, including an agent that analyzes our sales and opportunity pipeline data to develop customized coaching plans for sales managers to help reps meet their targets. And we believe digital tools like Ask 3M, a new AI-powered digital assistant that helps customers find solutions to design challenges using 3M products, will allow us to reach a broader population of customers. Our pace of new product introductions is accelerating with better on-time performance, reduce cycle times and clear governance and accountability across R&D. We launched 84 new products in Q1, up 35% versus last year, and we're on pace to launch 350 in 2026. This will put us ahead of our Investor Day target to launch 1,000 new products through 2027. We've maintained OTIF service levels above 90%, while at the same time, reduced inventory by 3 days and delivery lead time by 25%, improving our competitiveness with customers. OEE improved over 100 basis points year-on-year as we optimize asset run length, run time and changeovers, creating a stronger foundation for sustained productivity and fixed cost leverage. And cost of poor quality decreased by approximately 100 basis points versus Q1 last year, driven by more structured root cause analysis, significantly increased Kaizen activity and tighter process controls. What matters is that these are not isolated wins. They collectively reflect greater execution discipline and constancy of purpose. And that consistency and momentum gives us confidence that we can meet or exceed the medium-term goals we outlined at our Investor Day last year, even in an uncertain macro environment. While we continue to strengthen our foundation and shift from a holding company to an operating company model, we're beginning a broad-based transformation of the company, simplifying and standardizing processes, reducing complexity, reshaping our portfolio and improving resilience and predictability. We see substantial opportunities to streamline operations and consolidate facilities. The transformation includes both deliberate footprint actions as well as targeted investments in manufacturing and process technology. For example, transitioning from solvent to solvent-free coating, which brings cost capital and environmental benefits. Earlier this month, we closed on the previously announced sale of our precision grinding and finishing business within SIBG, which reduced our footprint by 7 factories. And we closed 1 factory and announced 3 other full or partial closures, bringing our total projected manufacturing site count to below 100. At the same time, we're investing more than $250 million over the next 3 years in standard, easy-to-replicate automation across our plants and distribution centers. By automating material handling in our warehouses, replacing manual slitters with automated systems and automating our current manual visual inspection processes, we are improving safety, reducing labor costs, increasing yield and putting ourselves in a better position to support demand as volumes recover. To illustrate the opportunity, we have 7,000 material handlers and over 600 operators performing manual visual inspections across our network and about 500 manual slitters. When we automated the slitting operation at our [ Novato ] facility late last year, we achieved a 30% increase in square yards per hour productivity. Over time, this transformation will allow us to accelerate towards a structurally higher growth, higher margin potential portfolio of priority verticals. Slide 4 provides a more detailed view of growth and orders by end market. When you look across our portfolio, roughly 60% of our businesses showed relative strength in Q1, including general industrial and safety. Importantly, we also saw strong orders in these markets, which gives us visibility and reinforces that the demand environment in these verticals remains healthy. At the same time, we experienced macro and industry-driven softness in about 40% of the portfolio that we've been highlighting as watch areas. In electronics, we delivered flat year-over-year growth in Q1 versus mid-single digits last year. Our performance in semiconductor and data centers was very strong, while consumer electronics was soft due to industry-wide memory chip issues, which is impacting demand. Electronics orders were up double digits due to significant activity in semis and data centers, which will convert to revenue in Q2 and the second half. In automotive, the market was soft as expected in the first quarter. Global IHS build rates were down about 3% overall and 10% in China, which pressured volumes. And in Consumer, we continue to see soft U.S. consumer discretionary spending with a few pockets of strength in categories with recent new product introductions. POS trends in the U.S. improved over the course of the quarter and were positive in 7 of the last 8 weeks, providing some encouragement heading into Q2. Overall, orders were up slightly over 10% in Q1 and backlog grew double digits, both sequentially and year-over-year, giving us momentum into Q2. This strength reflects the combined impact of our new product introductions, continued progress in commercial excellence and orders for longer lead time products, with some additional benefit from pre-buying ahead of recent price actions. It's encouraging to see order strength continue into the first few weeks of April. Turning to Slide 5. As part of our ongoing focus on portfolio shaping, last month, we announced the acquisition of Madison Fire & Rescue, which will be combined with our Scott Safety business to create a leading global fire and safety business. The combination of Scott Safety's premium self-contained breathing apparatus with Madison Fire & Rescue's premier portfolio in rescue technology and fire suppression creates an $800 million revenue business, growing at a high single-digit growth rate. This strategic transaction broadens our safety portfolio, one of our priority verticals by expanding our market reach and building scale for future growth. It positions us to maintain above-market growth, enhance margins and drive strong free cash flow generation. I also want to highlight our growing data center and associated power utility business with current revenue of approximately $600 million, $100 million inside the data center and about $500 million bringing power to the facility. This is a priority vertical space, where we are introducing new products like EBO or Expanded Beam Optics, a high-performance optical connector engineered to improve installation speed, reliability and operational efficiency within data centers. EBO builds on our existing TwinAx copper connector for high-speed data transmission and positions us well for the copper to fiber transition underway. With hyperscaler validation, a significant order in hand and $1 billion-plus addressable market, we're investing to more than double our capacity to support growing AI demand. We see additional opportunities here as demand expands to ceramics, silicon photonics and on-chip optical connectors. We have strong IP to support this evolving market and a clear road map to develop new products that further drive growth. Overall, I'm pleased with our progress this quarter, encouraged by the pace, op tempo and executional rigor of the 3M team. We're on a multiyear journey and progress won't be linear, but we're building the capability to execute consistently, to innovate with purpose and to allocate resources toward the parts of the portfolio that deliver the most value. I'm grateful to the 3M team for their commitment, hard work and focus as we deliver progress every day. With that, I'll turn it over to Anurag to share the details of the quarter. Anurag? Anurag Maheshwari: Thank you, Bill. Turning to Slide 6, we had a good start to the year, performing ahead of expectations on orders, margins, earnings and cash. Starting with top line, we delivered organic sales growth of 1.2%. SIBG showed continued momentum and grew over 3%, slightly better than expectations. TEBG was flat, lighter than expectations due to ongoing weakness in certain end markets like consumer electronics and auto as well as late timing of order intake within the quarter. In CBG, we did not see the expected recovery in the U.S. consumer market, resulting in organic sales down 1%. Notably, we saw significant strength in orders this quarter driven by progress on commercial excellence and NPI. Overall, orders grew slightly more than 10%, with SIBG and TEBG growing mid-teens, driven by industrial, safety, data center, semiconductor and aerospace. The auto momentum accelerated through the quarter, resulting in backlog growth of 20% over last year and 35% sequentially, positioning us well for the second quarter. First quarter adjusted operating margins were 23.8%, up 30 basis points year-on-year, driven by strong volume and broad-based productivity, which more than offset approximately $145 million of tariff impact, stranded costs and investments. Operating income from the 3 business groups was up $85 million with 60 basis points of margin expansion driven by supply chain productivity, including improvements in cost of quality and procurement and logistics and continued focus on structural G&A reduction. Corporate was a 30 basis point headwind from planned wind down of Solventum transition services agreements. Our sustained operational performance of driving growth and productivity led to EPS improvement of $0.26 or 14% to $2.14. In addition, we benefited from lower share count, timing of tax benefit and FX of selling tariffs, stranded costs and investments. Adjusted free cash flow was $540 million in the quarter or up 10% from strong earnings growth and improvement in inventory, a decrease of 3 days while maintaining service levels of greater than [ 90% ]. In addition, we returned $2.4 billion to shareholders in the first quarter, including approximately $400 million in dividends, reflecting a 7% increase per share and $2 billion through opportunistic share repurchases. Turning to Slide 7, I will provide an overview of our business group performance for the first quarter. First, Safety and Industrial had another quarter of 3%-plus growth as we continue to gain traction on commercial excellence initiatives and realized benefits from new product launches. We delivered mid-single-digit growth across industrial adhesives and tapes, safety, electrical markets and abrasive systems, driven by continued share gains from new product introductions and targeted commercial initiatives to reduce customer churn, strengthen sales coverage and increase cross-selling. Collectively, this growth more than offset continued weakness in roofing granules as the housing market and consumer sentiment remains soft. Even though auto repair claims were down mid-single digits, it was encouraging to see our auto aftermarket business be flat to slightly up after a couple of years of decline from good execution of the key account strategy. Turning to Transportation and Electronics. While growth was flat, orders were up low teens, accelerating through the quarter, resulting in backlog up about 30%. Approximately half of the business delivered mid-single digits growth, including double-digit growth in semiconductor and data center, driven by continued market demand and ramp-up of EBO that Bill referenced earlier. In addition, we saw growth in aerospace and commercial branding from better sales effectiveness. This was offset by the other half of the business, which is exposed to consumer electronics and auto where the market was down. Finally, Consumer first quarter organic sales were down 1%, driven by weakness in USAC as we did not see the expected pickup in retail traffic in the early part of the quarter. We did see pockets of strength. Scotch-Brite grew approximately 10% on the back of new product launches. We also saw good traction in international markets, especially in China and Asia, but it was not enough to offset the impact of USAC, which makes up a majority of the CBG revenue. By geography, in China, we again grew mid-single digits despite soft auto and consumer electronics end market as we executed on our key account strategy and launched local NPIs in a relatively strong industrial market. USAC was up slightly with mid-single-digit growth in industrials being offset by softness in Electronics and Consumer. Asia had another quarter of good growth, with India in the high teens as we drove higher sales coverage across the country. EMEA was down about 1% due to market weakness in auto. Moving to Slide 8. Though the macro remains uncertain, given our good performance in the first quarter, we are reiterating our guidance for the year. Organic sales growth of approximately 3%, earnings per share ranging from $8.50 to $8.70 and free cash flow conversion of greater than 100%. For sales, the strong backlog combined with continued strength in orders in the first 3 weeks of April gives us confidence that all 3 business groups will accelerate growth in the second quarter and through the balance of the year. On margins, we had a solid start with the 3 business groups growing 60 basis points despite 100 basis points year-on-year tariff impact. As we lap tariff pressure in the second half, the continued momentum on productivity and volume acceleration gives us confidence in our expectation of approximately 100 basis points margin expansion for business groups this year. On nonoperational, we expect positive trends driven by a $2 billion share repurchase in the first quarter and lower net interest expense. Overall, we are maintaining our EPS guidance, which includes a contingency, and we will go through the components of the earnings bridge on the next slide. Given the strong earnings growth and good progress on working capital, particularly inventory and continued CapEx efficiency, we believe our free cash flow will be more than $4.5 billion for the year and greater than 100% conversion. Slide 9 shows the trend of key earning elements and the current guidance. We are trending $0.05 to $0.15 higher on earnings from momentum on productivity and lower share count and interest expense. We are facing higher input costs due to the recent increase in oil price, but have implemented targeted price increases to mitigate the impact at the current levels. Given that we are early in the year and we are operating in a volatile macro environment, we think it is prudent to keep a contingency until we have more clarity about the rest of the year. Overall, we are moving with determined pace, and we'll continue to calibrate as the year progresses. Regarding cadence, we expect sales growth to accelerate in Q2 and the back half of the year. Backlog conversion and continued order strength is expected to support growth momentum in both SIBG and TEBG in the second quarter. We anticipate consumer to improve as point of sale is on an upward trend, resulting in normalized inventory levels. On EPS, given the contingencies for the second half, we expect the first-half EPS to be higher than the second half. Our 2026 financial outlook puts us on pace to exceed our medium-term financial commitments that we laid out during Investor Day around growth, margin and cash. And on capital allocation, we have already returned over $7 billion of the $10 billion shareholder returns that we had committed to. Before we open the call for questions, I want to take a minute to thank the team for a strong start to the year and being proactive in this environment to mitigate risk and control the controllable and for their commitment to strengthen the foundation and drive profitable growth. With that, let's open the call for questions. Operator: [Operator Instructions] And our first question comes from the line of Jeff Sprague with Vertical Research. Jeffrey Sprague: Bill or Anurag, just trying to dig into the order commentary a little bit more, maybe you could give us a little more perspective on the pre-buy, the size of it, if you could. And I guess the prebuy would imply getting ahead of price increases and the like. So maybe a little bit of color on how much additional price is now embedded in your organic growth forecast. And just also on these backlog numbers, obviously, the delta sound great, but it's not really a backlog business. So kind of the question, is it law of small numbers on those deltas? Or is there actually significant visibility that you can anchor to as you look into Q2? William Brown: Jeff, thank you for the question. I'll start, and maybe I'll pass on to Anurag on the backlog point. As we said, we had very good orders in the first quarter, up double digits, which was very good. And you're right, we're not really a backlog-driven business, but backlog was very strong coming out of Q1 and continues to build into Q2. Over the course of the quarter, we saw good order growth in January and February, kind of up mid-single digits. But it accelerated quite a bit in the month of March. So it would be well over the double-digit number that we ascribed for the whole quarter. And it continues into April, which I think is very encouraging. Now how much is price? I mean the reality is we do a price increase every year on April 1. So it's hard to discern how much was a prebuy. We think there's some of it. We've signaled to investors -- to customers rather that we're going ahead with a price increase on top of what we went out with April 1, associated with the price of oil coming up. So that could cause a little bit of pre-buy, if you will. But again, it's hard to discern exactly how much would that be. You asked about price for the year. For the year, we had guided before at about 80 basis points. We came in a little bit below that in Q1. We still see -- outside of oil-based increases around 80 basis points. But when you add in oil and the expected price increase from oil, it could be around an extra 50 basis points is what we're thinking at the moment. So price for the year around 1.3 points. I don't know, Anurag, maybe share a little bit about the backlog. Anurag Maheshwari: Yes. Thanks there, Bill. You are right that we are largely a book-and-ship business. We have about 75% of our revenue in a quarter comes from book and ship, but we do get backlog coverage as we enter the quarter. With the numbers that we mentioned, which was about 35% up sequentially to 20% year-over-year, provides us about 400, 500 basis points of additional coverage as we enter into the quarter, which is not insignificant given the growth acceleration that we expect from Q1 and Q2. So I think it's really good to kind of see that we are starting with a very good backlog coverage for the quarter. Combined with the order momentum that Bill spoke about in the first 3 weeks of April, it gives us really confidence for acceleration of growth through the -- through second quarter. And typically, we do not talk about orders and sales because of the book and ship because they converge together. But this time, you could see the big spike. And as Bill mentioned, part of it could be the pre-buy, but a lot of it is commercial excellence, NPI and other initiatives that we are driving, which resulted in order acceleration. Jeffrey Sprague: Great. And then maybe just a quick follow-up then. Just a comment about then accelerating into the remainder of the year. By that, do you mean each quarter will be a faster growth quarter than the one that preceded it, even though the comps are getting tougher in the back half of the year? William Brown: Yes, we see Q2 being better than Q1. And we see the second half being better than the first half, is the way we're currently looking at it, Jeff. Operator: Our next question comes from the line of Scott Davis with Melius Research. Scott Davis: Just to follow up on Jeff's question. Are customer inventories low and there's a little bit of a restock occurring? Or are they balanced? How do you guys kind of see that element right now? William Brown: So we track it pretty carefully on the Safety and Industrial business group, the distribution inventory is relatively normal, I'd say maybe a tick below what we typically would see. We would typically see 65, 70 days, and it's a bit below that. On the Consumer side, it's about normalized from where we were last year, around 13 weeks of supply coming into the year was a bit higher, maybe 13.5. But right now, we're around 13. So on the Consumer side, fairly normal. On the Safety and Industrial side, I'd say normal to maybe a bit light in the channel. Scott Davis: Okay. Helpful. I think you mentioned your factory footprint is down like 10%. Is there another 10%? I mean how do you guys kind of think of where the endpoint on that journey is? William Brown: So it's -- we're going to keep talking about this with investors as we go forward. I mean, at the end of last year, with 108, we sold and closed on PG&F, the precision grinding business, which was 7 factories scattered across Europe, one in Asia, a couple in the U.S. So it was not a large business, but a big factory footprint. So that brought down by 7. We closed 1 in the first quarter. We announced a couple of others. So that will close over the course of this year into next year. So that puts us below 100. The number will be below where we happen to be today. We'll continue to look at that and size it for investors as we go. But clearly, the footprint just under 100 is bigger than we really need today. Operator: Our next question comes from the line of Julian Mitchell with Barclays. Julian Mitchell: Just wanted to start maybe if you could give any color around the second quarter dynamics in a bit more detail, understand the organic sales growth accelerates year-on-year from the 1% in Q1. Also, I think Anurag, you said first half EPS more than second half because of the contingency. So I just want to gauge sort of how much sequentially or year-on-year EPS should grow in Q2? And what's the sort of margin embedded in that guide would be? Anurag Maheshwari: Sure. Sure, Julian. Let me answer those questions. So first, just on the revenue growth. As we mentioned because of the good backlog and the auto momentum, we expect organic growth in the second quarter to be higher than 3%, with all the 3 BGs accelerating. SIBG, which was at 3.2%, obviously going higher than that. TEBG, low single digit. And CBG flat to positive. So that's the expectation of the revenue growth acceleration. Obviously, that's going to come with high flow-throughs. We're going to continue with the productivity that we did in the first quarter will continue to the second quarter. And between volume and productivity, we'll offset all the last quarter of the tariff year-over-year impact for us, a pickup in stranded costs and investments. So you will see operationally for us, it's going to be a solid margin, about 24.5%, and good EPS flow-through coming from that. On below the line, we will see a couple of pennies of headwinds relative to last year. Last year, in the second quarter, we had a divestment of an investment that we had in India, which was about $0.08 to $0.10. Then you see a little bit of tax, which was favorable in Q1 coming back in Q2. So those are two headwinds. Of course, they will be offset by the share buyback, which we did in the first quarter, which is going to help us in the second quarter, plus a little bit on the non-op pension side. So you put all of that together, we should grow more than $0.05 in the second quarter, which for the first half would put us at about $0.30-plus of EPS growth, which is more than half if you include the contingency for the full year. Now the contingency, as I mentioned, we kept it for the second half of the year, depending on how things evolve. If we continue performing the way we do, revenue grows over 3% in the second quarter, which is a good exit rate as we enter into the second half. And if it continues at that a little bit better with good volume flow-through, no tariff headwind, the margins in the second half could be much higher than the first half. Yes. Julian Mitchell: I appreciate all the color. Just one very quick follow-up. That was very thorough. Maybe on the pre-buy dynamics, credit for calling that out, but trying to understand what you're assuming for how much that sort of reverses because you've got organic sales growth accelerating in Q2. We have maybe some sort of -- I don't know if a prebuy is helping that or the unwind hurts that. Maybe flesh out that prebuy sort of dynamic over the balance of the year. William Brown: So Julian, I mean we -- it's hard to discern exactly how much is pre-buy. I mean we get orders coming in, it's quite strong. But we are seeing much better traction on new product introductions, a lot of momentum building on commercial excellence. And keep in mind, part of what was driving Q1 growth, including into early April, are some longer-lead products that will go into semis, more importantly, in data centers, delivering in Q2 in the back end of the year. So you have all these factors in there. I think when I step back and look at the full year, as we said, we'll see acceleration into Q2 and then in the back half. And all these pieces come together. And any pre-buy that's happened will wash out in Q2, but we do see acceleration in the back half on the back of really core operating fundamentals around NPI and commercial excellence. Operator: Our next question comes from the line of Joe O'Dea with Wells Fargo. Joseph O'Dea: On the $0.05 to $0.15 of contingency tied to oil macro uncertainty, can you just outline kind of roughly how you think about the split on the demand side versus the cost side of that and your planning assumptions? And then really looking for any color on the oil exposure sort of across the business, and what you're thinking about that contingency could flow through if you need to use it? Anurag Maheshwari: Okay. Let me start with the contingency, and then I'll -- and then Bill, you can add from there on. On the $0.05 to $0.15 of contingency that we kept, it's actually across the 2 buckets that you mentioned around here. As I mentioned, in the second quarter, we'll be above 3%, we expect -- which is a good exit rate as we go into the second half. So if there is a little bit of an impact on the volume piece because of macro, which we are not currently seeing right now or a little bit of the input cost that goes up, so I guess it gets spread between the two, Joe, to be honest. Our objective right now is to continue driving what we control on the NPI commercial excellence continue to outperform the macro and drive more productivity so that we don't have to use the contingency in the second half. William Brown: And Joe, on the oil price, the way we look at it is really two pieces. One is on the supply side. The other is demand. And on the supply side, we have about 45% of our cost of goods is raw materials and about 1/3 of that -- so it's about $6 billion of raw material spend. And about 1/3 of that is its basis in polychem. So it's ethylene, it's propylene, esters, acrylates, all those various things. And we are seeing some upward cost pressure on that. What we've seen so far and expect is about $125 million of cost increase there, which are offsetting into pricing. As I mentioned earlier on that we expect about a 50 basis point uplift on price coming from that oil-based exposure. How that affects the overall macro economy? What's going to happen with consumer spending, auto? I mean that's still all unfolding as we speak and depending upon what happens in the Middle East, but that's our current assumption as we speak today. Joseph O'Dea: Got it. And then just on the transportation, electronics commercial excellence program, can you talk about where you are on that trajectory? I think you started to see traction in SIBG last year, and that continues, but just the efforts that are underway. And as we think about the growth acceleration, just any quantification of how you're thinking about commercial excellence contributing to better T&E growth as you move through the year? William Brown: Yes. So it's a good question. I mean, they're doing a great job on this. They're falling right behind what we've done in SIBG, which has been very, very successful. I'm very pleased with the traction on the sales force, on pricing discipline, on cross-selling, on churn reduction and looking very hard at attrition with the predictive AI models that we have in place. And the team at TEBG is doing the same sorts of things. I think the cross-sell opportunity is not going to be as robust, but they move very aggressively on improving on the sales force and better incentives, better targeting. We're close, we're on targets. They're tracking attrition rates, which I think is very good. They have the same predictive models tailored for TEBG into that business. So they're making good progress. It's going to roll out over the balance of the year. One of the key things we're focused on is making sure we have the right mix and focus of our sales reps versus application engineers. Are they -- do we have the right mix between the two? And are they calling at the right level in the customer, for example, in automotive at the OEE versus the tiers? So it's a little bit different than what we see in SIBG, but they're working it pretty hard. And I think you're going to see in the back end of the year certainly improvements in TEBG coming from a lot of that commercial excellence work. Operator: Our next question comes from the line of Andrew Obin with Bank of America. Andrew Obin: So on the Transportation and Electronics, to just to dig in a little bit further, also double-digit orders. So it seems like we -- a lot of questions into the quarter about weakness in consumer electronics. So does that mean that we are offsetting consumer electronics into the second half? William Brown: Yes, Andrew, it's exactly what's happened and will happen. In fact, when you -- again, when you discern with TEBG, just in Q1, I mean they were flattish, but half of the business was up mid-single digits and half the business was down mid-single digits. And you can really isolate that in the 2 areas, which is auto, auto OEE and commercial vehicles, and consumer electronics. So we show in our slides that electronics as a whole is flattish. What you see there is you see very strong semiconductor, data center business offsetting a weaker consumer electronics business. As we look at the balance of the year, we see electronics start to get modestly positive. Again, I think CE, or consumer electronics, may soften a little bit. But we are seeing better trajectory and growth in the data center and the semiconductor business. Andrew Obin: And Bill, just to follow up on that. At CES, you showcased some pivot in strategy on consumer electronics. You've also talked to your analyst -- your first Analyst Day about the need to rebuild the R&D pipeline, particularly on the electronics side. Can you just talk about how these two internal initiatives impacting your growth and the growth trajectory over the next 12 months, let's say? William Brown: Yes, that's a great question. I mean, we're putting a lot of time and effort into making sure we have good new product introductions in consumer electronics, both for the premium segment as well as for the mainstream segment. Wendy has been talking about this quite a bit. We are seeing good traction here. Unfortunately, the market isn't cooperating with us. We do see a greater downturn in LCD, which is where our strength happens to be. But we do see a lot of innovation in this space. We are gaining some share modestly in the mainstream side. When you look at content per device, 3 or 4 China OEMs have increased their content per device in the first quarter and the fourth one, we saw a pretty good order for us. So I think we're making some progress here. And this comes on the back of a lot of the NPI work that's happened in TEBG, and there's more to come. Operator: Our next question comes from Andy Kaplowitz with Citi Group. Andrew Kaplowitz: So can you give us some more color into what you're seeing in Consumer? I know you talked about share gain actions in Consumer. So maybe you can elaborate on what you're doing there? And how much discounting do you have to do to get there? And should Consumer contribute to your margin performance this year? Or could Consumer margin continue to be pressured a bit over the year? William Brown: So look, I'm pleased with what's happening in Consumer. The market for us, we're 70% U.S. So it's really focused on the U.S. consumer. We sell a discretionary product. As Anurag mentioned, we had a couple of pockets of strength in the year from new product introductions. I think the team has really gotten back to basics, focusing on priority brands and started to innovate again. The reality is we went for a lot of years without a lot of new product introductions, a lot of Class 3, so they're incremental, some are Class 4, but really starting to kind of be more aggressive on new product introductions. And I think we're holding our own and in fact, starting to gain back shelf space because we have new product coming into the marketplace. Yes, it's not a segment that we see upward movement on pricing, we're trying to contain the discounting that happens half the year. Again, the market is a little bit soft. For the year, we expect to see some growth. It will be positive. It won't be a meaningful driver of the overall 3M growth in the year. But again, we're down 1.3 in Q1, down a little bit more than that in Q4. We were up sort of modestly for the first 9 months of last year at 0.3 points. So I mean, they're hanging right around flat to up a little bit. And when the consumer starts to spend more, we'll have the right products with good innovation, great commercial excellence efforts there, and we'll see that business to return to growth. Andrew Kaplowitz: Helpful. Then Bill, maybe just a little more thoughts about portfolio management. You obviously opted for a JV structure with the purchase of Madison, despite seemingly leaning into safety as one of your priorities. So maybe a little more color on why you chose the JV structure there. And then stepping back, can you give us an update on how you're thinking about overall 3M portfolio? I think you've said in the past 2% or 3% of your portfolio is actionable in terms of divestitures, 10% is commodity. Like is that still the right numbers of the company? William Brown: Yes. So look, I'm really pleased with the structure and the conclusion of this Madison, Scott and [ SCBA ] joint venture, where we're a 51% owner, it's going to be consolidated. It's a strategic bolt-on acquisition. And what you just referred to as a priority vertical, it is. It does strengthen our SCBA business. It's a great brand. We have been innovating in this space. We talked last year about some new innovations coming on to the marketplace. This also creates some scale by putting this business together for future organic and inorganic opportunities. Madison and all of its fire and rescue products, have been performing very well. They bring a terrific management team. They're growing double digits. The margins are coming up. So it's -- I think it's a great combination in a space that we like quite a bit. Bain Capital is our partner on this. They're 49%. We know them well. They are very good at post-merger integration, they bring a lot of operating rigor and good expertise on driving incremental M&A while we focus on other areas around the company. So when you put all that together, I think it's a strategic opportunity for us. It gives some optionality for do we pull it back or do we suit something else over time. But the reality is it's a terrific deal. It is going to be accretive to our growth, margins, earnings over time. So I feel pretty good about that particular deal. We closed on PG&F, the Precision Grinding business on April 1. It wasn't very big, but businesses that don't perform sometimes can be difficult to transact on. But I'm very, very pleased that, that one got over the line. We continue to look at the rest of the portfolio. Yes, we're around 10% of our business is more commodity like. We don't have a clear right to win, not a lot of technology differentiation. We said 2% to 3% was in flight, PG&F was part of that. We continue to evaluate this, and we'll talk to investors as we go on what that shaping happens to be. But the reality, the investors should see the transaction on Madison with Scott as an important strategic signal for investors around the things that we want to do to reshape our portfolio to be higher -- structurally higher growth and higher margin potential. Operator: Our next question comes from the line of Chigusa Katoku with JPMorgan. Chigusa Katoku: First, can you maybe recalibrate us on the outlook for U.S. IP and electronics you're embedding and your assumptions for the full year? I think it was U.S. IP flat and electronics up mid-single digit last quarter. William Brown: Sorry, Chigusa. You're talking about IPI, the macro? Chigusa Katoku: Yes, the U.S. IPI. William Brown: Okay. So well, thanks for the question. And I guess, congratulations on the role. Welcome to the call. So just in terms of the macro, as we came into Q1, we saw some of the similar trends we saw in '25 continue. So maybe a couple of comments relative to where we were in January. Global IPI is still around 2%. It's not moved around very much. USAC or U.S. is up a little bit better. EMEA is down a little bit. China is still mid-single digits. And interestingly, those trends are exactly what we saw in our business through Q1. So U.S. up a little bit, Europe down a little bit, China mid-single digits. So it's pretty much aligned with that. GDP is still sort of in that same 2.5% range. Auto builds are still floating around between flat to down 1. It's really early in the year. I think that tends to be more of a backward-looking indicator. But right now, it's sort of flat to down a little bit. U.S. retail is flattish. The place that we're watching a little bit is consumer electronics where the outlook is for a little bit more softness as we get into the back end of the year. But overall, the macro is trending about where we saw it in January and through last year. Chigusa Katoku: Okay. Great. And then on this contingency, I was just wondering what it would take for you to remove this. I think it's prudent that you're including in guidance, but you've been seeing good order trends, you're operationally raising guidance by about [ $0.025 ]. And without this contingency, it would have been a $0.10 raise. So kind of what would it take for this to be removed? Anurag Maheshwari: Yes. Thank you for the question, Chigusa. Listen, we'll probably give you an update in our next earnings call on that. As we go through the next couple of months, we're pretty confident with the backlog and auto momentum on the Q2 revenue. We'll see how that plays out as well as we have executed. We have a very good playbook on -- which we adopted from the tariffs last year in terms of working with the customers and pushing out the price increases over there. So that's an area we will kind of monitor on the yield over there over the next couple of months plus and see where oils are at which levels they are after a few months. And if we continue performing the way we did in Q1, both on the productivity as well as in operational excellence, and come July, we will give you an update on where we stand for the full year. Operator: Our next question comes from the line of Nigel Coe with Wolfe Research. Nigel Coe: We covered most of the topics. So I just wanted to -- a couple of quick follow-ons. Just going back to the pre-buy comments, just trying to understand, why you think there may have been a pre-buy? Is it because you're trying to rationalize the strong orders? Or is there something else that you're hearing from customers? So just maybe cover that. And then on the 50 basis points of additional price, is that in the form of a surcharge? It certainly seems like it's in the surcharge, so that rolls back if oil comes down. And would that hit in 2Q? Or is that more in the back half of the year? William Brown: So really, Nigel, thanks for the questions. Look, it's hard to avoid the fact that we're pushing pricing a little bit more aggressively. We know there's an inflationary environment. We know price oil is going to go up. We know the impact on our company. We know perhaps what we did 4, 5 years ago, maybe not moved as quickly on pricing when oil came up, which we're correcting for that. I think we're being a lot more attuned to what's going on in the macro. And we're enforcing it better. If a shipment goes out beyond a date, that shipment will have a price increase associated with it. I think the customers have seen that and heard that. And then when you put all that together, it gives us a sense that perhaps there's some advanced buying from these price increases that are going out. So again, we'll know more in the next month, 6 weeks, how much of that might be prebuy, simply because we'll watch the orders through the balance of the year into the balance of the quarter and into May. So that's kind of basically how we're thinking about the prebuy here at the moment. On pricing, we do see right now about $125 million worth of cost impact, which we've been relating to pricing, and that would translate to about 50 basis points. So that's factored into the guidance of about 3% organic for the year, but that's kind of what we're thinking at the moment on pricing. Operator: Our next question comes from the line of Chris Snyder with Morgan Stanley. Christopher Snyder: I wanted to also follow up on pricing and I guess a little bit on price cost. When do these surcharges take effect? I would imagine some point in Q2, but any color on when they take effect would be helpful. And it just seems like with the $120 million of cost inflation that you referenced, Bill, on the 50 bps of price, the plan here is to be, I guess, be neutral on price cost. And I asked because if I remember a year ago, you guys were actually EPS negative on the tariff inflation. Just want to make sure I have that neutral view right. William Brown: So Chris, I think we've learned a little bit. Yes, we're moving a lot faster than we did last year on tariffs, tariffs came on. And I think maybe we're a little tentative at front, but I think we ended up offsetting a good part of the tariffs on cost and price. We're trying to be careful on that. So yes, exactly, we will offset cost increases associated with oil through price increases, and that's the assumption that we're making here. I mean you're right. Historically, we have covered material cost inflation with pricing. So historically, with a 2% material inflation, that would translate into roughly 50 basis points of price. For the year, we are guiding to about 80 basis points, again, a little bit lighter in Q1, but inflation in Q1 came in a little bit lighter as well. So for the year, 80 basis points. With oil coming in, that's driving an incremental 50 basis points of price, so a total of about 1.3 points roughly for the year on pricing. And that's our current expectation. It's not a surcharge. The price is going out embedded into the pricing of our products. And that's kind of -- and it's depending on the product and the geography, but generally speaking, it was less of a surcharge, more being built into the underlying price. Anurag Maheshwari: Yes. And in terms of the rollout in the timeline, we've already started in April in a couple of countries in Asia. And then in the United States, it starts in May 1 and Europe as well. So it is imminent right now with all the letters going out to the customers, knowing when the surcharge is going to impact them, oil price increase is going to impact them. Yes. Christopher Snyder: Appreciate that. And then maybe if I could follow up, just any color you could provide on how firm or how much flexibility is there on these delivery dates for these orders or what's in the backlog? And then I guess asked because I remember a year ago, there was elongation on those orders, I think, tied to some of the preordering ahead of tariffs. And it seems like there could be some of that again now. So just kind of wondering, trying to gauge that as a potential risk into Q2. Anurag Maheshwari: Chris, the delivery is limited to the lead times that we have. So it's not like an order can be placed for 6 or 12 months of delivery. So it's definitely within the time frame that is we always describe. Yes. Operator: Our next question comes from the line of Amit Mehrotra with UBS. Unknown Analyst: This is [ Neil ] on for Amit. So I know we just got first quarter results, but if I could ask about the growth algorithm into 2027 because the outlook suggests some meaningful improvement in trends exiting this year. If I just look at new product introductions, for example, I mean, these are accelerating. And if we add maybe 2 points of macro growth to new product introduction, would that math imply that 3M is growing around 4.5% organically next year? Anurag Maheshwari: Yes. Thanks for the question, Amit. I'll start and Bill can add from there. William Brown: [ Neil ]. [ Neil ] on for Amit. Anurag Maheshwari: Yes, I'm sorry. [ Neil ] for Amit. Yes. So I -- we said this year that we will grow about $330 million, $300 million above macro. And as we get into the second half of the year, from the exit rates, you are right, we will be north of 3.5%, which would imply that we would be above where we are in the first half and above where the full year would be. So we do feel very good as we enter into next year with what we are doing on the NPI as well as what we are doing on commercial excellence and how that is translating. So first is, obviously, we've got to grow in the second quarter about 3%. And if we do grow above the 3.5% in the second half of the year, I think it will give us good momentum to kind of accelerate the growth into 2027. But it's a little bit too early to kind of talk about that, and we'll provide more color as we go through the course of the year. Operator: Our next question comes from the line of Deane Dray with RBC Capital Markets. Deane Dray: I was hoping we can address the point-of-sale momentum. I mean that's a surprising number, up 7 on the last 8 weeks, given the pockets of macro pressure. So just your impression here, is this consumer driven? Is it more on the commercial side at all? Just some context and the momentum into April? William Brown: Deane, so it is consumer driven because it's in the consumer business group. I think it's very encouraging for us to see POS up. That's a sell-out 7 of 8 weeks, which I think is really good. It does kind of make us feel a little bit better going into Q2. And that business, Consumer business stabilizing, perhaps growing a little bit in Q2 and the balance of the year, so those are good trends. I think it reflects the team's very aggressive efforts on driving promotions, getting shelf space, driving NPI, being really aggressive at hustling at the customer interface, good on-time performance still in at 95%, 94.5% range. So just really good work. Anurag talked a little bit about a couple of pockets that are growing a bit better, but it's pretty broad-based. We see really good trajectory here through the first quarter now going into Q2 on the clubs, which is not surprising, given where consumers happen to be today. But we feel good about the trends and good about the outlook for Q2 so far. Deane Dray: Good to hear. And I'd love to hear a bit more about the Expanded Beam Optics opportunity. There's a lot of focus on this. It's addressing the data transfer bottlenecks in AI processing. So just where do you stand competitively? How quickly can you ramp on this? Is there any question of manufacturing capacity? Because the take rate on this is one of the fastest growing right now in data centers. William Brown: Well, Deane, exactly. That's why we're so optimistic about it and why we're talking more about it. And the fact that we've had some really good robust IP protection around the technology. It is expanded beams. So it's not a point-to-point fiber connection to the data center. It's sort of like an easy click between two pieces of multi-fiber device referrals that come together. And we can put that together at 80% less time with a less strain technician; better reliability, can operate in a dusty environment, which is why it's gotten some good take rate. We've had at least a validation by at least one hyperscaler, a second one is in testing. I expect that will be positive as well. We had a fairly large order coming in, in Q1 relating to the hyperscaler that has certified it. We are in a ramp-up mode. We will double capacity towards the back end of the year. We're investing quite significantly to expand capacity, relying on other partners in the space. Hyperscalers won't go with a single source of supply. So we've got to make sure we have some dual source, either a couple of factories or us with a contract manufacturer. So all of this is working. We're working the ecosystem. The pace at which this has happened is very encouraging, and the team is pushing hard. I'm really optimistic about where it's going to go from here. This is a polymer EPO as it moves to ceramics, which is more EBO or fiber to the chip. I think it opens up a lot more opportunities with a lot of other players in the space. So look, it's encouraging, which is why we want to share today with investors. Operator: Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Nicole DeBlase: I'm just going to ask one since we're near the top of the hour, and we've gotten through a lot of the questions on my list. Just on some of the margin puts and takes, so have you guys seen any changes to your full year productivity assumption or stranded costs or growth investments? And I guess was any of that kind of front-loaded into the first quarter? How are we thinking about phasing throughout the year of those 3 items? Anurag Maheshwari: Right. Thanks for the question, Nicole. So we said that we have a contingency of $0.05 to $0.15. So let's say, at the midpoint, it's $0.10. About half of that is because of productivity, and most of that was in the first quarter. So the -- I would say the only two changes that we made from our previous guidance, about $0.05 of that was very good productivity both on the supply chain side as well as the G&A. And a lot of it we saw in the first quarter. And obviously, we try to continue with the momentum that we have. The second $0.05 at the midpoint, I would say, is because of our active capital deployment where we bought back $2 billion of shares in the first quarter of 2.5 billion, which obviously gives us accretion through the course of the year and active cash management with the cash balance that we have. Those are the big changes. William Brown: But we're not changing our productivity guidance, stranded cost guidance at [ $150 million ] tariffs. I mean that all stays the same as it was back in January. Operator: Our final question comes from the line of Laurence Alexander with Jefferies. Laurence Alexander: Just very quickly, can you just address what your customers are saying about potential supply chain bottlenecks, I guess, particularly in the kind of sulfur, helium, methanol derivative chains? And does that -- are those factored into your contingency that you kind of see ways to work around those shortages if they develop in the back half of the year? William Brown: So Laurence, it's a good question. I mean that's probably affecting some of the pre-buy activity perhaps. Look, I think we're all working through this. We're in direct contact with all of our suppliers trying to manage all of our sources of supply, making sure we've got a variety of players that we can go to. So it's on our minds. So I know it's on theirs, and it's going to affect behavior as we go through the next several months, and we watch what's happening in the Middle East and through the Strait of Hormuz. So we'll keep you updated on that, but it's certainly a factor that's on everyone's mind today for sure. So thank you. Operator: This concludes the question-and-answer portion of our conference call. I will now turn the call back over to Bill Brown for some closing comments. William Brown: So I know we're a couple of minutes late, but thank you all for joining today. And I want to thank again all of the 3Mers for their efforts, for their dedication and executing against our priorities, strengthening the foundation, as Anurag say, controlling the controllables, delivering value to our customers and shareholders. So thank you. Thank you all for joining today. Have a good day. Operator: Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.
Operator: Welcome to Getinge Q1 Report 2026 Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Mattias Perjos; and CFO, Agneta Palmer. Please go ahead. Mattias Perjos: Thanks, and welcome, everyone. Thanks for joining the call today. As mentioned in the intro here, it's me and our CFO, Agneta Palmer, with you today. And in today's conference, we'll go through performance and some of the highlights in the first quarter of 2026 before opening up for a Q&A. So let's move directly to Page #2, please. And I'd like to start by looking at the development of some of our strategic KPIs. And as you can see here, it's evident that we continue to clearly track in line with plan to increase the share of sales from recurring revenue and also accelerating the share of sales from higher-margin products like, for example, our ECLS offering, our consumables in Infection Control and our BetaBags within the Sterile Transfer product category. This is all supported, of course, by solid and effective quality processes. And if we look at the specifics here, you can see that sales from recurring revenue continue to make up 2/3 and high-margin products closing in on about 70% right now. When it comes to quality, the number of field actions in relation to sales has decreased significantly, and we see this positive trend sequentially continue also into the beginning of 2026. And these improvements, we always act with -- in line with thinking of responsible leverage and an attractive long-term return on invested capital. We can move to Page #3, please. So if we then look at some of the key takeaways from the first quarter, we managed to beat last year's record quarter and grow top line organically. Net sales grew by 0.8% organically with positive development specifically in Life Science and in Surgical Workflows. And on the order intake front, we saw an organic increase of 3.9%. When it comes to our adjusted gross and EBITA margins, they were down in the quarter, mainly due to the strong headwind from currency and from tariffs. And adjusting for the SEK 226 million in currency and tariff headwinds in the quarter, the EBITA margin was about 50 basis points higher than last year's Q1. So the conclusion from that is that the underlying performance in business -- in our business continues to be strong, and it's developing according to the plans, the long-term plans that we have laid out. We also have a strong cash flow and continue to have a solid financial position. So our financial leverage is at 1.5x and well below the 2.5x EBITDA that we have kind of as an internal threshold. We can then move over to Page #4 and some of the key events during the quarter. And if we start with our product offering and our customers, I think one situation that is, of course, evolving on a daily basis is the situation in Middle East, and we continue to monitor this closely. Our first priority is, of course, to tend to our employees in the region and continue to support our customers. And if you look at the region as such, it makes up about 2% of our sales and where Saudi Arabia is half. And so far, the impact on top line and on cost has been very limited for us. To our Life Science customers, we launched a new steam sterilizer dedicated to larger items for use for labs and for research applications. And when it comes to the sustainability and quality perspective, I'm very happy to see that we got the CE approval for Cardiohelp II in the quarter, and I'll talk more about that on the coming slide here. In addition to this, we have in our implants business received EU MDR certificate for the Intergard Synergy, which is a vascular graft with an antimicrobial coating, to minimize the risk of infections. Furthermore, in the quarter, we released our annual report for 2025, including our sustainability statement and the annual report provides a lot of good information on Getinge. So I encourage you to have a look at this if you haven't done so already. We can then move to Page #5, please. So just wanted to elaborate a moment on the positive news about the CE approval for Cardiohelp II. And just to remind everybody, this is a market segment where we are already the global market leader within ECLS therapy, thanks to our strong existing portfolio. With the launch of Cardiohelp II now, we become even more relevant for our customers. And some of the systems' key features are that it's even more lightweight and transportable, meaning that it can be used for both in-hospital and intra-hospital use. It also has an attachable gas blender as an option, which is something that is highly appreciated by our customers. And from an interface standpoint, we have an interface now that is even easier for users to operate, and it includes also several smart monitoring functionalities for better decision support for our customers. We have initiated a limited market release now in the beginning of the second quarter to a handful of customers and very happy to see how positive the reception from our customers have been for this important product. The plan now is to do a full CE market release at the beginning of the third quarter. And when it comes to the important U.S. market, the plan is still to make the submission of the Cardiohelp II system, including our HLS Advanced consumables in the second half of this year. We can then move to Page #6 and talk about the top line for a moment. So overall, we had a solid top line performance in Life Science and in Surgical Workflows. And when it comes to order intake for the group, we grew 3.9% organically. The order intake for Acute Care Therapies decreased mainly due to the temporarily high comparative figures in ventilation, where one competitor last year drastically exited the market. So we're very successful in capturing some of that market share. At the same time, we saw really good growth when it comes to ECLS consumables across the board. And this is, as you know, one of our key categories. In Life Science, the organic order intake increased in the quarter, for example, because of an anticipated improvement from low levels that we've seen in bioprocessing for quite some time. And this is something that [indiscernible] and it's good to see some of the momentum here. [ Surgical Workflows ] grew double digit in the quarter, mainly on the back of the strong development across all our product areas, which is also encouraging to see. Net sales there, we had growth of 0.8% organically for Acute Care Therapies. Organic net sales decreased mainly on the back of last year's consolidation in the ventilation market, that I just mentioned. In Life Science, they had a really strong quarter in terms of deliveries, and they grew organic net sales in all product areas. BetaBags and Sterile Transfer continues to show significant traction and momentum. In Surgical Workflows, the organic net sales increased primarily thanks to growth in Infection Control consumables within service and within our operating table category. With that, we can move over to Page #7, and I hand over to you, Agneta for a moment. Agneta Palmer: Okay. Thank you, Mattias. So overall, the headwind from tariffs and currency continued in the first quarter. Even so, we managed to hold up margins, thanks to continued pricing and productivity. Starting with adjusted gross profit for the group, adjusted gross profit amounted to SEK 3.828 billion in the quarter, heavily impacted by currency and tariffs. Adjusted gross margin was down by 0.7 percentage points in total in spite of healthy contribution from price and mix. If we then look at adjusted EBITA, cleared for currency, adjusted gross profit effect on the EBITA margin was plus 0.3 percentage points, while OpEx adjusted for currency had a negative impact on the margin by about minus 1 percentage points in the quarter. And FX impacted by minus 0.3 percentage points. So all in all, this resulted in an adjusted EBITA of SEK 824 million and a margin of 11.1%. Let's then move to Page 8, please. And here, we can clearly state that we remain in a solid financial position. Free cash flow amounted to SEK 842 million in the quarter. Compared with last year, free cash flow was impacted by improved operating profit and changes in capital. Working capital days continued to be well below 100. We are now at roughly 90 days. On operating return on invested capital, we are at 11.4% on a rolling 12-month basis, which is well above the cost of capital. At the end of Q1, net debt decreased to SEK 9.3 billion. If we adjust for pension liabilities, we are now at SEK 7 billion. This brings us to a leverage of 1.5x adjusted EBITDA, which is well below the 2.5x that we have set as an internal threshold. If we adjust for pension liabilities, leverage is at 1.1x adjusted EBITDA. Cash amounted to approximately SEK 4 billion at the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's now move to Page 9, please, and back to you, Mattias. Mattias Perjos: Okay. Great. Thank you, Agneta. Just a moment then to focus on the impact from tariffs and FX in the quarter. So this was, in total, a drag on adjusted EBITA in Q1 of more than SEK 200 million, so SEK 226 million altogether. Tariffs made up just over SEK 100 million of that. And if we exclude the impact of tariffs and currency, our adjusted EBITA margin in Q1 would have been 12.6%. And there, as you can see, showing then an underlying improvement. As tariffs were first implemented in Q2 of 2025, then we expect the year-on-year comparison to be a little bit cleaner from Q2 and onwards if tariff levels remain. And that's, of course, something we'll continue to update you on. We can then move over to Page #10, please. So I want to talk a little bit more about the long term as well. So zooming out and returning to what we said at the Capital Market update that we had in May of 2024. There, we talked about an adjusted EBITA margin of 16% to 19% by the end of 2028. And I think we're on a steady path of reaching that despite the headwind factors that we have seen, that we were not aware of when we announced this target. The main drivers which will enable this are growth, mix and productivity. From a growth perspective, from regulatory approvals and key strategic product launches such as Cardiohelp II in ECMO that we've talked about here and also launching our low-temp sterilization in the U.S., having the sales restrictions removed for Cardiosave in our Intra-Aortic Balloon Pump business. It's just to mention a few factors here. Specifically, when it comes to Cardiosave, I'm happy to say that we, at the end of last week, got the release for sales in CEE countries in line with the plan for Q2. We also expect that the investment fatigue that we've seen in the pharma industry will improve and some of the decision anxiety that we've seen in the last year will go away here as well. We will also, in addition to this, get our share of the announced U.S. investments and benefit from the recovery in bioprocessing. And of course, we will also continue our diligent and successful work with realizing price increases annually. When it comes to mix, we have been successful in our strategic intent to steer our business towards a continued rotation to high-margin products and consumables. And if possible, we prefer to have products made up of a competent hardware with captive consumables attached to it, similar to what we have in our ECLS offering with Cardiohelp and HLS and in the Sterile Transfer offering with Alpha Ports driving the consumption of BetaBag. Our strong R&D and innovation pipeline is, of course, set to support this. When it comes to productivity, here, we've already done a lot in different parts of the business, and we are still excited that there remain quite a few opportunities across the business as well. One thing to mention, I think, is the heightened extraordinary quality costs connected to the product uplift of Cardiosave and Cardiohelp that is expected now to go down in the second half of 2026 and that we will be on a lower level in 2027 and '28. Furthermore, we will, of course, continue with our production excellence effort, where we also have some very tangible measurable benefits and helping us further optimize our supply chain and remain with an overall tight cost control across the company. So this all supports our assessment that our target for 2028 is still within good reach. Then we can move over to Page 11, please. So for the remainder of 2026, we confirm the financial outlook for 2026. As we all know, there are some geopolitical uncertainties that we need to navigate. But based on the underlying demand and the dialogue that we have with our customers on a daily basis, our expectation remains for an organic net sales growth in the range of 3% to 5%, adjusted for the phaseout of the surgical perfusion product category. Surgical Perfusion is still expected to have some net sales in 2026, but declining from about SEK 250 million last year to SEK 50 million this year. We can then move to Page 13, please. So in terms of summarizing here, the key takeaways from the first quarter. We did achieve organic growth in our top line despite the record quarter last year. Tariffs and FX continue to be a significant headwind, but our underlying performance is improving. Cash flow in the quarter was really strong in the quarter, and our financial position remains solid as well. For 2026, we reiterate our guidance for organic net sales growth of 3% to 5% adjusted for the phaseout of the Surgical Perfusion. And when it comes to our priorities for 2026, you've heard them before, we are focused on addressing the remaining challenges when it comes to quality remediation in Acute Care Therapies. We focus on sustainable productivity improvements and cost consciousness when it comes to navigating the geopolitical uncertainty and also addressing the impact from tariffs. And most importantly, we continue to focus on the work hand-in-hand with our customers, adding value for them and the patients that they serve. With that said, I open up for questions. Operator: [Operator Instructions] The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: A couple of questions. First of all, with regards to the ventilator headwinds you had here in Q1, if I remember correctly, you had pretty good sales development for ventilators also in Q2 last year. So is it fair to assume that the headwind will continue into Q2? That would be my first question. Mattias Perjos: Maybe to some extent, it's not something -- it's not going to be a significant factor, I think, for Q2, but it certainly won't be a big help either. Sten Gustafsson: Okay. Excellent. My second question is regarding Cardiohelp II. And what kind of gross margin should we assume for that product compared to the existing Cardiohelp product? Is it going to be accretive? Or is it fairly similar gross margins on those 2 products? Mattias Perjos: Yes. We don't guide on and disclose gross margin levels on any of our products and Cardiohelp II is no exception. Generally, though, when we work with product development and new launches, we make sure that the products that form the next generation of any therapy or product category have a better gross margin than the generation that they replace, and Cardiohelp II should be no exception to this. Sten Gustafsson: Okay. And one final, if I may. You talk about these lower extraordinary quality costs going forward. Could you please sort of quantify those? I mean we've heard SEK 800 million in the past. And where we are today? How low those will be going forward? Mattias Perjos: Yes. Yes, I think you're right. We said that they peaked at about SEK 800 million in 2024. We saw a small decrease in 2025. We expect another small decrease this year and then a slightly bigger decrease from 2027 onwards. And the end game here is to at least halve those costs. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, I want to get some more color on the composition of the ACT decline. I mean, obviously, you talked about ventilators, but you're also talking about Cardiac Assist, et cetera. And I think last quarter, you said that the demand for Cardiac Assist was quite positive on the hardware side. So I wanted to ask if something has changed on that side. And if you could, if possible, give some more color on how much the ACT Americas part declined by the different parts? Mattias Perjos: Yes. No, thanks for the question. We don't dissect the business that much. What I can say on Cardiac Assist is that we had hoped to be able to resume deliveries in Q1 already of balloon pumps in CEE markets. And that was not the case. We only got the final approval to start this last Friday. So it will be a Q2 event. So that's been a little bit of a drag on sales. And also, it has a direct impact on order intake as well because customers don't order new pumps unless they have received what they're expecting to be delivered. Erik Cassel: Can you say anything on how much the ventilator decline did on that 8.5%? Mattias Perjos: No, we don't disclose subcategory financial parameters, unfortunately. Erik Cassel: But can you say anything if it would have been, say, positive organic growth if it wasn't for ventilators? Mattias Perjos: No, I can't answer that either, unfortunately. Erik Cassel: All right. Fair enough. I got to try. Then on the guidance side, I view it as the wording is a bit softer, perhaps the visibility is worse now and maybe you're even seeing a bit more, say, negative outlook. Can you just talk a bit about what you're seeing for the rest of '26 in terms of the, say, customer behavior and dialogues that you're referring to? Has it become slightly more negative? Or is this just a wording change that I'm dwelling too much on? Mattias Perjos: Yes. No, that was not the intent of the wording change at all. It was really just a way of recognizing that we do operate in a rather volatile environment, and we're mindful of that, but we feel confident reconfirming our guidance here even if the word, semantics, had changed a little bit. Erik Cassel: Okay. Just a last question then. Surgical Workflows, obviously quite strong in terms of order intake, especially for Americas and Digital Health. Is there some specific projects that this relates to that sort of makes it nonrecurring? Or are you seeing a more upbeat environment in the U.S. specifically for Surgical Workflows? Mattias Perjos: It's a bit of both. If you look at DHS, it's always lumpy. I mean they tend to be rather large projects, and we do have that, but there's also a little bit of an underlying better confidence, I think, generally in the market and also, I think in the way we operate in this business as well. We made some tweaks to how we organize ourselves, which hopefully also for the long term has a better, more positive impact. But there's absolutely a bit of -- you cannot call them one-offs because they're not. It's just project business that is a little bit fluctuating by nature. Erik Cassel: Okay. Can I ask one short one? Will you tell us anything on the potential impact of the change in steel content tariffs? Or is that something you're going to not disclose? Agneta Palmer: What we can say there is that it's still under analysis, how it impacts us. It's fairly recent. But the preliminary evaluation is that it's mainly if it hits us. It's components and spare parts, not complete products. And the absolute majority of our exposure is on the complete products. Erik Cassel: So the SEK 500 million for full year still holds, you think? Agneta Palmer: I don't think that we have guided on this, but that sounds like a fair assumption given the current levels, yes. Operator: The next question comes from Filip Wetterqvist from SB1 Markets. Filip Wetterqvist: I have a couple. First one, given recent pricing hikes that we have seen on raw materials such as plastic, steel, aluminum, it seems like you do not see any material effect of this in Q1, and I assume contracts are negotiated a few quarters in advance. But do you anticipate any higher input costs in the coming quarters? Or do you not expect any effect at all from this? Agneta Palmer: Yes. Thank you for that question. If we dissect it a bit into parts. When it comes to freight, which is the more direct near-term impact, we have very limited impact in Q1. But if it's prolonged, yes, there will be some impact in Q2 onwards. When it comes to plastics, et cetera, it's too early to say that we have any effects there. Filip Wetterqvist: Okay. And at the Q4 call, you indicated price increases of around 2% for 2026. Did that materialize here in Q1, meaning the 0.8% organic growth was hampered by lower volumes? Or -- and do you -- are you able to accelerate price increases further there if you see increasing costs here in the coming quarters? Agneta Palmer: Yes. We still stand by that, roughly 2%. It is a gradual rolling during the year. So it's slightly less than that in Q1, but we are progressing well towards that level. Filip Wetterqvist: Okay. But let's say, we see -- so if costs are increasing, you won't be able to translate that onwards to your customers, you still anticipate only a 2% price increase then? Agneta Palmer: This is always an ongoing discussion that we have with the -- all the commercial dynamics and the cost levels that we have. So of course, we will adapt our ways of working if we see that we get higher inflation, but it's not an automatic or sort of something that we can directly pass on. Mattias mentioned it for tariffs and it's similar then for raw material. But we do have very active pricing. Operator: The next question comes from Kristofer Liljeberg from DNB Carnegie. Kristofer Liljeberg-Svensson: I have a few short ones. I hope that's okay. First of all, is it possible to quantify at all the positive effect you expect here from the new ECMO approval in Europe or whether that potential positive effect is more a factor of when and -- yes, when you get the U.S. approval, again? And then could you just clarify a little bit about the Cardiosave status here in Europe and the U.S. filing? And then finally, on tariffs, if it's fair to assume really neutral effect here year-over-year from the second quarter? Mattias Perjos: Yes. I think we can't quantify. But of course, there is a positive effect from the launch of Cardiohelp. I mean this is an important part of our product range. So definitely a net positive, but I can't give you a magnitude of that. When it comes to the Cardiosave status, we got approval to start shipping last Friday. So the first pumps are being delivered in CEE markets this week. And the U.S. filing, there is no change here. We still expect to do that before the half year mark. Agneta Palmer: And then when it comes to tariffs, it's dependent, obviously, on the tariff level, but also on the product mix of imports. But generally speaking, yes, it sounds like a fair assumption to assume that. Operator: [Operator Instructions] The next question comes from David Adlington from JPMorgan. David Adlington: Maybe could you quantify the impact of foreign exchange hedges in Q1, how they roll off through the next 12 months or so? And then secondly, obviously, we're a quarter in now, still no margin guidance. Just wondering if you're willing to give us an idea around how you're seeing margins for the year, whether up, down or sideways? Agneta Palmer: Yes. If we start with FX, we have not changed anything specifically regarding our hedging strategy, and we will not disclose that. But just a reminder, I think we have talked about it on this call before, looking at the natural hedge, around 60% of what we sell in the U.S., we also produce in the U.S. And then the second thing maybe to mention regarding natural hedging and FX exposure is that we work very actively with our payment flows to compensate or offset as much as possible. So those are the 2 things to highlight there, but no quantification of the hedging effects as such. Mattias Perjos: And on the margin guidance, I mean, there's still [Technical Difficulty] said in the presentation, we are confident about the long-term margin guidance of 16% to 19%. David Adlington: Sorry, Mattias, you broke up again. I might have missed the first part of that. Would you mind just repeating the margins for this year? Mattias Perjos: Yes. I just said that we -- there's a lot of uncertainty in the world, as you know. So we are not going to do any margin guidance for 2026. We remain with the top line guidance only, and we remain with the long-term margin guidance of 16% to 19%. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: Yes. I just have a follow-up on ACT. So on ECLS consumables continued to grow despite being up against a rather tough comparison numbers. And I assume there was some flu-related headwinds here given the lower hospitalizations Q1 '26. So I just wonder if there were any one-offs or stocking of consumables that you saw here in the quarter or if it's rather the underlying run rate? Mattias Perjos: You broke up for a second. Can you repeat the question on the ECLS consumables, please? Ludvig Lundgren: Yes. So it seems pretty strong considering the quite tough comparison. So I just wonder if you saw any stocking or one-offs here in the quarter or if it rather reflects the underlying run rate? Mattias Perjos: Yes. No, there were no abnormal events in Q1. I think your analysis of this seems correct. It's a good underlying demand. Ludvig Lundgren: Yes. Okay. And can you just confirm that like the flu-related sales was lower this quarter versus Q1 '25? Mattias Perjos: [indiscernible] confirm that we see the same flu data as you when it comes to hospitalizations. How our customers use the product they buy, whether it's for treating flu or something else, we don't have perfect insight into it. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Mattias Perjos: Okay. Thank you very much. I think I already made the summary before the Q&A. So I just wanted to say thanks, everyone, for joining, and I wish you a good rest of the day. Thank you very much.
Operator: Good morning, ladies and gentlemen, and welcome to the Goodfood Q2 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, April 21, at 8:00 a.m. Eastern Time. Furthermore, I would like to remind you that today's presentation may contain forward-looking statements about Goodfood's current and future plans, expectations and intentions, results, level of activity, performance, goals or achievements or other future events or developments. As such, please take a moment to read the disclaimer on forward-looking statements on Slide 2 of the presentation. I would like to turn the meeting over to your host for today's call, Selim Bassoul, Goodfood Chief Executive Officer. Mr. Bassoul, you may proceed. Selim Bassoul: S [Foreign Language] Good morning, everyone. Welcome to our Goodfood earnings call in which we will present our results for the second quarter of fiscal 2026. You can find our press release and other filings on our website and SEDAR+ and all figures on this call are in Canadian unless otherwise noted. With me today are Najib Maalouf, our newly appointed President and Chief Operating Officer; Vanessa Hadida, our Vice President of Finance; and Ross Aouameur, our outgoing Chief Financial Officer. Before we begin, I wanted to highlight two things. First, Najib and I joined Goodfood with a clear mandate: stabilize the business, protect cash and rebuild discipline. That work is underway, and albeit today's results will show the impact of a license suspension, we have made significant strides in advancing our mandate. Also, for fiscal 2026, both Najib and I have made the deliberate decision to forgo our base salaries. This is a voluntary choice. Our employment agreements remain unchanged, but we believe that in this phase of the company's transformation, accountability needs to start at the top. This is not a signal that we expect others to do the same. Our priority is to build a stronger, more resilient company, one that creates long-term opportunities for our teams, delivers for our customers and earn the trust of our shareholders. The second thing I wanted to highlight is that today is the last earnings call our Chief Financial Officer. I want to recognize Ross for his strong leadership and disciplined financial stewardship over the years. He has been instrumental in the transition, and we wish him continued success in his upcoming next chapter. I will now turn it over to Najib to begin our review of the quarter with Slide 3. Najib Maalouf: Thank you, Selim. First, I wish to say that it is a privilege to be serving alongside you one more time. Slide #3 captures the reality of the quarter. We are executing a necessary reset while absorbing short-term disruption. During Q2, operational factors, including a temporary regulatory-related disruption impacted order volumes and created cost inefficiencies, particularly in logistics. These pressures were real that they were also temporary. More importantly, they accelerated our execution. We responded quickly with disciplined cost actions, namely reducing marketing intensity, optimizing head count and tightening our focus on profitable demand. As a result, we continue to see strength in average order value and customer quality. At the same time, the reset is well underway. We are simplifying the operating model, removing complexity, aligning the cost structure to current volumes and focusing the business on core profitability. In parallel, we are sharpening the product offering, improvements in ingredient quality, meaningful increase in portion sizes and faster recipe cook time to 20 minutes or less are designed to delight customers and in turn, better retention and increase wallet share from our most engaged customers. So while Q2 reflects pressure, it also reflects progress. The actions we're taking are deliberate, structural and focus on improving the earnings profile of the business. I'll now turn it to Vanessa to walk through the financials. Vanessa Hadida: Thank you, Najib. As shown on Slide 4, net sales and active customers declined year-over-year reaching $22.5 million and $59,000, respectively. These figures reflect three primary factors: the temporary license disruption during the quarter, lower order frequency, and our intentional pullback in marketing and incentives. The reduction in marketing and coupon intensity is a conscious trade-off. We are prioritizing revenue quality over volume and that is reflected in the continued increase in net sales per active customers year-over-year, reaching $382 higher basket sizes and lower discounting are driving the improved unit economics. This is an important point. While the top line is lower, the underlying revenue base is becoming more efficient and more profitable on a per customer basis. I will now turn to Slide 5 to discuss margins and profitability. Profitability in the quarter was impacted by a combination of higher shipping and labor costs and lower fixed cost absorption due to the reduced volume as a result of a temporary license suspension. As such, gross profit was $7 million for a gross margin of 30.6%. These pressures resulted in margin compression and negative adjusted EBITDA for the quarter to the tune of negative $1 million. That said, we view a significant portion of these results as transitional in nature rather than a structural change. Indeed, when the license suspension occurred, we shipped Ontario orders from our Calgary facility, which is significantly more costly than shipping from our Montreal facility, which we have now resumed. Of course, the current operating environment with heightened fuel cost and food inflation remains a meaningful headwind. We also have already taken action to address these cost drivers, both through operational simplification, tighter cost control and pricing, which we expect to support margin stabilization going forward. Moving now to Slide 6. Cash flow in the quarter reflects the impact of profitability as well as working capital timing with certain payments shifting into Q2. Importantly, capital expenditures remain tightly controlled, and we continue to operate with a disciplined approach to cash management. Our focus is clear: improving cash generation through better margins controlled investments and continued working capital discipline. I will now turn to Slide 7. The key takeaway from this slide is that Q2 reflects a combination of lower scale and temporary cost pressures. At the same time, the results reinforce why our current priorities, cost discipline, margin protection and cash generation are the right ones. We are actively addressing the drivers of performance and the actions underway are designed to improve both profitability and liquidity over time. With that, I will now pass it back to Najib to walk through our outlook. Najib Maalouf: Thank you, Vanessa. Let's now turn to Slide 8. Our path forward is focused and disciplined. First, on the operating model. We're simplifying the business and aligning the cost structure to current demand levels. We're not relying on a market recovery to improve performance. We are designing the model to perform under today's conditions. Second, on the product. We are repositioning the offering around value, quality and convenience. We have introduced a simpler menu that is designed to fit our customers' busy lives. We also increased portion sizes and have sourced better ingredients to ensure the consistent quality of our subscribers' experience. This is already contributing to a stronger basket size and is expected to support retention and lifetime value. Third, on capital and the balance sheet, our priority is consistent cash generation and liquidity preservation. Every dollar of capital is being allocated with discipline with a clear objective of maintaining flexibility. And fourth, on growth, we will remain selective. We see opportunities in adjacent categories such as heat and eat, but we will pursue them in a measured way with a strict focus on returns and cash flow. The common thread across all of these priorities is discipline. We're simplifying the business, improving execution and positioning Goodfood to generate more consistent and sustainable financial performance. I will now turn it back to Selim for closing remarks. Selim Bassoul: Thanks, Najib. This quarter was not about optics. It was about action. We addressed operational issues, reduced complexity and reinforce discipline across the organization. We are running the business with a clear set of priorities: protect margins generate cash and maintain balance sheet flexibility. We have $44 million of convertible debt on the balance sheet with large interest payments that is hindering our transformation and ability to invest in the business. We are focused on strengthening the business while evaluating a range of financial alternatives to address our debt situation and enhance long-term value. We are not depending on external improvements to deliver results. We are focused on what we control, which are execution cost structure and product relevance. This is how we will rebuild performance and create long-term shareholder value. With that, I will now turn it over to the operator for Q&A. Operator: [Operator Instructions] There are no questions at this time. I will now turn the call over to management for closing remarks. Selim Bassoul: Thank you for joining us on this call. We look forward to speaking with you again at our next call. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Welcome to Getinge Q1 Report 2026 Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Mattias Perjos; and CFO, Agneta Palmer. Please go ahead. Mattias Perjos: Thanks, and welcome, everyone. Thanks for joining the call today. As mentioned in the intro here, it's me and our CFO, Agneta Palmer, with you today. And in today's conference, we'll go through performance and some of the highlights in the first quarter of 2026 before opening up for a Q&A. So let's move directly to Page #2, please. And I'd like to start by looking at the development of some of our strategic KPIs. And as you can see here, it's evident that we continue to clearly track in line with plan to increase the share of sales from recurring revenue and also accelerating the share of sales from higher-margin products like, for example, our ECLS offering, our consumables in Infection Control and our BetaBags within the Sterile Transfer product category. This is all supported, of course, by solid and effective quality processes. And if we look at the specifics here, you can see that sales from recurring revenue continue to make up 2/3 and high-margin products closing in on about 70% right now. When it comes to quality, the number of field actions in relation to sales has decreased significantly, and we see this positive trend sequentially continue also into the beginning of 2026. And these improvements, we always act with -- in line with thinking of responsible leverage and an attractive long-term return on invested capital. We can move to Page #3, please. So if we then look at some of the key takeaways from the first quarter, we managed to beat last year's record quarter and grow top line organically. Net sales grew by 0.8% organically with positive development specifically in Life Science and in Surgical Workflows. And on the order intake front, we saw an organic increase of 3.9%. When it comes to our adjusted gross and EBITA margins, they were down in the quarter, mainly due to the strong headwind from currency and from tariffs. And adjusting for the SEK 226 million in currency and tariff headwinds in the quarter, the EBITA margin was about 50 basis points higher than last year's Q1. So the conclusion from that is that the underlying performance in business -- in our business continues to be strong, and it's developing according to the plans, the long-term plans that we have laid out. We also have a strong cash flow and continue to have a solid financial position. So our financial leverage is at 1.5x and well below the 2.5x EBITDA that we have kind of as an internal threshold. We can then move over to Page #4 and some of the key events during the quarter. And if we start with our product offering and our customers, I think one situation that is, of course, evolving on a daily basis is the situation in Middle East, and we continue to monitor this closely. Our first priority is, of course, to tend to our employees in the region and continue to support our customers. And if you look at the region as such, it makes up about 2% of our sales and where Saudi Arabia is half. And so far, the impact on top line and on cost has been very limited for us. To our Life Science customers, we launched a new steam sterilizer dedicated to larger items for use for labs and for research applications. And when it comes to the sustainability and quality perspective, I'm very happy to see that we got the CE approval for Cardiohelp II in the quarter, and I'll talk more about that on the coming slide here. In addition to this, we have in our implants business received EU MDR certificate for the Intergard Synergy, which is a vascular graft with an antimicrobial coating, to minimize the risk of infections. Furthermore, in the quarter, we released our annual report for 2025, including our sustainability statement and the annual report provides a lot of good information on Getinge. So I encourage you to have a look at this if you haven't done so already. We can then move to Page #5, please. So just wanted to elaborate a moment on the positive news about the CE approval for Cardiohelp II. And just to remind everybody, this is a market segment where we are already the global market leader within ECLS therapy, thanks to our strong existing portfolio. With the launch of Cardiohelp II now, we become even more relevant for our customers. And some of the systems' key features are that it's even more lightweight and transportable, meaning that it can be used for both in-hospital and intra-hospital use. It also has an attachable gas blender as an option, which is something that is highly appreciated by our customers. And from an interface standpoint, we have an interface now that is even easier for users to operate, and it includes also several smart monitoring functionalities for better decision support for our customers. We have initiated a limited market release now in the beginning of the second quarter to a handful of customers and very happy to see how positive the reception from our customers have been for this important product. The plan now is to do a full CE market release at the beginning of the third quarter. And when it comes to the important U.S. market, the plan is still to make the submission of the Cardiohelp II system, including our HLS Advanced consumables in the second half of this year. We can then move to Page #6 and talk about the top line for a moment. So overall, we had a solid top line performance in Life Science and in Surgical Workflows. And when it comes to order intake for the group, we grew 3.9% organically. The order intake for Acute Care Therapies decreased mainly due to the temporarily high comparative figures in ventilation, where one competitor last year drastically exited the market. So we're very successful in capturing some of that market share. At the same time, we saw really good growth when it comes to ECLS consumables across the board. And this is, as you know, one of our key categories. In Life Science, the organic order intake increased in the quarter, for example, because of an anticipated improvement from low levels that we've seen in bioprocessing for quite some time. And this is something that [indiscernible] and it's good to see some of the momentum here. [ Surgical Workflows ] grew double digit in the quarter, mainly on the back of the strong development across all our product areas, which is also encouraging to see. Net sales there, we had growth of 0.8% organically for Acute Care Therapies. Organic net sales decreased mainly on the back of last year's consolidation in the ventilation market, that I just mentioned. In Life Science, they had a really strong quarter in terms of deliveries, and they grew organic net sales in all product areas. BetaBags and Sterile Transfer continues to show significant traction and momentum. In Surgical Workflows, the organic net sales increased primarily thanks to growth in Infection Control consumables within service and within our operating table category. With that, we can move over to Page #7, and I hand over to you, Agneta for a moment. Agneta Palmer: Okay. Thank you, Mattias. So overall, the headwind from tariffs and currency continued in the first quarter. Even so, we managed to hold up margins, thanks to continued pricing and productivity. Starting with adjusted gross profit for the group, adjusted gross profit amounted to SEK 3.828 billion in the quarter, heavily impacted by currency and tariffs. Adjusted gross margin was down by 0.7 percentage points in total in spite of healthy contribution from price and mix. If we then look at adjusted EBITA, cleared for currency, adjusted gross profit effect on the EBITA margin was plus 0.3 percentage points, while OpEx adjusted for currency had a negative impact on the margin by about minus 1 percentage points in the quarter. And FX impacted by minus 0.3 percentage points. So all in all, this resulted in an adjusted EBITA of SEK 824 million and a margin of 11.1%. Let's then move to Page 8, please. And here, we can clearly state that we remain in a solid financial position. Free cash flow amounted to SEK 842 million in the quarter. Compared with last year, free cash flow was impacted by improved operating profit and changes in capital. Working capital days continued to be well below 100. We are now at roughly 90 days. On operating return on invested capital, we are at 11.4% on a rolling 12-month basis, which is well above the cost of capital. At the end of Q1, net debt decreased to SEK 9.3 billion. If we adjust for pension liabilities, we are now at SEK 7 billion. This brings us to a leverage of 1.5x adjusted EBITDA, which is well below the 2.5x that we have set as an internal threshold. If we adjust for pension liabilities, leverage is at 1.1x adjusted EBITDA. Cash amounted to approximately SEK 4 billion at the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's now move to Page 9, please, and back to you, Mattias. Mattias Perjos: Okay. Great. Thank you, Agneta. Just a moment then to focus on the impact from tariffs and FX in the quarter. So this was, in total, a drag on adjusted EBITA in Q1 of more than SEK 200 million, so SEK 226 million altogether. Tariffs made up just over SEK 100 million of that. And if we exclude the impact of tariffs and currency, our adjusted EBITA margin in Q1 would have been 12.6%. And there, as you can see, showing then an underlying improvement. As tariffs were first implemented in Q2 of 2025, then we expect the year-on-year comparison to be a little bit cleaner from Q2 and onwards if tariff levels remain. And that's, of course, something we'll continue to update you on. We can then move over to Page #10, please. So I want to talk a little bit more about the long term as well. So zooming out and returning to what we said at the Capital Market update that we had in May of 2024. There, we talked about an adjusted EBITA margin of 16% to 19% by the end of 2028. And I think we're on a steady path of reaching that despite the headwind factors that we have seen, that we were not aware of when we announced this target. The main drivers which will enable this are growth, mix and productivity. From a growth perspective, from regulatory approvals and key strategic product launches such as Cardiohelp II in ECMO that we've talked about here and also launching our low-temp sterilization in the U.S., having the sales restrictions removed for Cardiosave in our Intra-Aortic Balloon Pump business. It's just to mention a few factors here. Specifically, when it comes to Cardiosave, I'm happy to say that we, at the end of last week, got the release for sales in CEE countries in line with the plan for Q2. We also expect that the investment fatigue that we've seen in the pharma industry will improve and some of the decision anxiety that we've seen in the last year will go away here as well. We will also, in addition to this, get our share of the announced U.S. investments and benefit from the recovery in bioprocessing. And of course, we will also continue our diligent and successful work with realizing price increases annually. When it comes to mix, we have been successful in our strategic intent to steer our business towards a continued rotation to high-margin products and consumables. And if possible, we prefer to have products made up of a competent hardware with captive consumables attached to it, similar to what we have in our ECLS offering with Cardiohelp and HLS and in the Sterile Transfer offering with Alpha Ports driving the consumption of BetaBag. Our strong R&D and innovation pipeline is, of course, set to support this. When it comes to productivity, here, we've already done a lot in different parts of the business, and we are still excited that there remain quite a few opportunities across the business as well. One thing to mention, I think, is the heightened extraordinary quality costs connected to the product uplift of Cardiosave and Cardiohelp that is expected now to go down in the second half of 2026 and that we will be on a lower level in 2027 and '28. Furthermore, we will, of course, continue with our production excellence effort, where we also have some very tangible measurable benefits and helping us further optimize our supply chain and remain with an overall tight cost control across the company. So this all supports our assessment that our target for 2028 is still within good reach. Then we can move over to Page 11, please. So for the remainder of 2026, we confirm the financial outlook for 2026. As we all know, there are some geopolitical uncertainties that we need to navigate. But based on the underlying demand and the dialogue that we have with our customers on a daily basis, our expectation remains for an organic net sales growth in the range of 3% to 5%, adjusted for the phaseout of the surgical perfusion product category. Surgical Perfusion is still expected to have some net sales in 2026, but declining from about SEK 250 million last year to SEK 50 million this year. We can then move to Page 13, please. So in terms of summarizing here, the key takeaways from the first quarter. We did achieve organic growth in our top line despite the record quarter last year. Tariffs and FX continue to be a significant headwind, but our underlying performance is improving. Cash flow in the quarter was really strong in the quarter, and our financial position remains solid as well. For 2026, we reiterate our guidance for organic net sales growth of 3% to 5% adjusted for the phaseout of the Surgical Perfusion. And when it comes to our priorities for 2026, you've heard them before, we are focused on addressing the remaining challenges when it comes to quality remediation in Acute Care Therapies. We focus on sustainable productivity improvements and cost consciousness when it comes to navigating the geopolitical uncertainty and also addressing the impact from tariffs. And most importantly, we continue to focus on the work hand-in-hand with our customers, adding value for them and the patients that they serve. With that said, I open up for questions. Operator: [Operator Instructions] The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: A couple of questions. First of all, with regards to the ventilator headwinds you had here in Q1, if I remember correctly, you had pretty good sales development for ventilators also in Q2 last year. So is it fair to assume that the headwind will continue into Q2? That would be my first question. Mattias Perjos: Maybe to some extent, it's not something -- it's not going to be a significant factor, I think, for Q2, but it certainly won't be a big help either. Sten Gustafsson: Okay. Excellent. My second question is regarding Cardiohelp II. And what kind of gross margin should we assume for that product compared to the existing Cardiohelp product? Is it going to be accretive? Or is it fairly similar gross margins on those 2 products? Mattias Perjos: Yes. We don't guide on and disclose gross margin levels on any of our products and Cardiohelp II is no exception. Generally, though, when we work with product development and new launches, we make sure that the products that form the next generation of any therapy or product category have a better gross margin than the generation that they replace, and Cardiohelp II should be no exception to this. Sten Gustafsson: Okay. And one final, if I may. You talk about these lower extraordinary quality costs going forward. Could you please sort of quantify those? I mean we've heard SEK 800 million in the past. And where we are today? How low those will be going forward? Mattias Perjos: Yes. Yes, I think you're right. We said that they peaked at about SEK 800 million in 2024. We saw a small decrease in 2025. We expect another small decrease this year and then a slightly bigger decrease from 2027 onwards. And the end game here is to at least halve those costs. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, I want to get some more color on the composition of the ACT decline. I mean, obviously, you talked about ventilators, but you're also talking about Cardiac Assist, et cetera. And I think last quarter, you said that the demand for Cardiac Assist was quite positive on the hardware side. So I wanted to ask if something has changed on that side. And if you could, if possible, give some more color on how much the ACT Americas part declined by the different parts? Mattias Perjos: Yes. No, thanks for the question. We don't dissect the business that much. What I can say on Cardiac Assist is that we had hoped to be able to resume deliveries in Q1 already of balloon pumps in CEE markets. And that was not the case. We only got the final approval to start this last Friday. So it will be a Q2 event. So that's been a little bit of a drag on sales. And also, it has a direct impact on order intake as well because customers don't order new pumps unless they have received what they're expecting to be delivered. Erik Cassel: Can you say anything on how much the ventilator decline did on that 8.5%? Mattias Perjos: No, we don't disclose subcategory financial parameters, unfortunately. Erik Cassel: But can you say anything if it would have been, say, positive organic growth if it wasn't for ventilators? Mattias Perjos: No, I can't answer that either, unfortunately. Erik Cassel: All right. Fair enough. I got to try. Then on the guidance side, I view it as the wording is a bit softer, perhaps the visibility is worse now and maybe you're even seeing a bit more, say, negative outlook. Can you just talk a bit about what you're seeing for the rest of '26 in terms of the, say, customer behavior and dialogues that you're referring to? Has it become slightly more negative? Or is this just a wording change that I'm dwelling too much on? Mattias Perjos: Yes. No, that was not the intent of the wording change at all. It was really just a way of recognizing that we do operate in a rather volatile environment, and we're mindful of that, but we feel confident reconfirming our guidance here even if the word, semantics, had changed a little bit. Erik Cassel: Okay. Just a last question then. Surgical Workflows, obviously quite strong in terms of order intake, especially for Americas and Digital Health. Is there some specific projects that this relates to that sort of makes it nonrecurring? Or are you seeing a more upbeat environment in the U.S. specifically for Surgical Workflows? Mattias Perjos: It's a bit of both. If you look at DHS, it's always lumpy. I mean they tend to be rather large projects, and we do have that, but there's also a little bit of an underlying better confidence, I think, generally in the market and also, I think in the way we operate in this business as well. We made some tweaks to how we organize ourselves, which hopefully also for the long term has a better, more positive impact. But there's absolutely a bit of -- you cannot call them one-offs because they're not. It's just project business that is a little bit fluctuating by nature. Erik Cassel: Okay. Can I ask one short one? Will you tell us anything on the potential impact of the change in steel content tariffs? Or is that something you're going to not disclose? Agneta Palmer: What we can say there is that it's still under analysis, how it impacts us. It's fairly recent. But the preliminary evaluation is that it's mainly if it hits us. It's components and spare parts, not complete products. And the absolute majority of our exposure is on the complete products. Erik Cassel: So the SEK 500 million for full year still holds, you think? Agneta Palmer: I don't think that we have guided on this, but that sounds like a fair assumption given the current levels, yes. Operator: The next question comes from Filip Wetterqvist from SB1 Markets. Filip Wetterqvist: I have a couple. First one, given recent pricing hikes that we have seen on raw materials such as plastic, steel, aluminum, it seems like you do not see any material effect of this in Q1, and I assume contracts are negotiated a few quarters in advance. But do you anticipate any higher input costs in the coming quarters? Or do you not expect any effect at all from this? Agneta Palmer: Yes. Thank you for that question. If we dissect it a bit into parts. When it comes to freight, which is the more direct near-term impact, we have very limited impact in Q1. But if it's prolonged, yes, there will be some impact in Q2 onwards. When it comes to plastics, et cetera, it's too early to say that we have any effects there. Filip Wetterqvist: Okay. And at the Q4 call, you indicated price increases of around 2% for 2026. Did that materialize here in Q1, meaning the 0.8% organic growth was hampered by lower volumes? Or -- and do you -- are you able to accelerate price increases further there if you see increasing costs here in the coming quarters? Agneta Palmer: Yes. We still stand by that, roughly 2%. It is a gradual rolling during the year. So it's slightly less than that in Q1, but we are progressing well towards that level. Filip Wetterqvist: Okay. But let's say, we see -- so if costs are increasing, you won't be able to translate that onwards to your customers, you still anticipate only a 2% price increase then? Agneta Palmer: This is always an ongoing discussion that we have with the -- all the commercial dynamics and the cost levels that we have. So of course, we will adapt our ways of working if we see that we get higher inflation, but it's not an automatic or sort of something that we can directly pass on. Mattias mentioned it for tariffs and it's similar then for raw material. But we do have very active pricing. Operator: The next question comes from Kristofer Liljeberg from DNB Carnegie. Kristofer Liljeberg-Svensson: I have a few short ones. I hope that's okay. First of all, is it possible to quantify at all the positive effect you expect here from the new ECMO approval in Europe or whether that potential positive effect is more a factor of when and -- yes, when you get the U.S. approval, again? And then could you just clarify a little bit about the Cardiosave status here in Europe and the U.S. filing? And then finally, on tariffs, if it's fair to assume really neutral effect here year-over-year from the second quarter? Mattias Perjos: Yes. I think we can't quantify. But of course, there is a positive effect from the launch of Cardiohelp. I mean this is an important part of our product range. So definitely a net positive, but I can't give you a magnitude of that. When it comes to the Cardiosave status, we got approval to start shipping last Friday. So the first pumps are being delivered in CEE markets this week. And the U.S. filing, there is no change here. We still expect to do that before the half year mark. Agneta Palmer: And then when it comes to tariffs, it's dependent, obviously, on the tariff level, but also on the product mix of imports. But generally speaking, yes, it sounds like a fair assumption to assume that. Operator: [Operator Instructions] The next question comes from David Adlington from JPMorgan. David Adlington: Maybe could you quantify the impact of foreign exchange hedges in Q1, how they roll off through the next 12 months or so? And then secondly, obviously, we're a quarter in now, still no margin guidance. Just wondering if you're willing to give us an idea around how you're seeing margins for the year, whether up, down or sideways? Agneta Palmer: Yes. If we start with FX, we have not changed anything specifically regarding our hedging strategy, and we will not disclose that. But just a reminder, I think we have talked about it on this call before, looking at the natural hedge, around 60% of what we sell in the U.S., we also produce in the U.S. And then the second thing maybe to mention regarding natural hedging and FX exposure is that we work very actively with our payment flows to compensate or offset as much as possible. So those are the 2 things to highlight there, but no quantification of the hedging effects as such. Mattias Perjos: And on the margin guidance, I mean, there's still [Technical Difficulty] said in the presentation, we are confident about the long-term margin guidance of 16% to 19%. David Adlington: Sorry, Mattias, you broke up again. I might have missed the first part of that. Would you mind just repeating the margins for this year? Mattias Perjos: Yes. I just said that we -- there's a lot of uncertainty in the world, as you know. So we are not going to do any margin guidance for 2026. We remain with the top line guidance only, and we remain with the long-term margin guidance of 16% to 19%. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: Yes. I just have a follow-up on ACT. So on ECLS consumables continued to grow despite being up against a rather tough comparison numbers. And I assume there was some flu-related headwinds here given the lower hospitalizations Q1 '26. So I just wonder if there were any one-offs or stocking of consumables that you saw here in the quarter or if it's rather the underlying run rate? Mattias Perjos: You broke up for a second. Can you repeat the question on the ECLS consumables, please? Ludvig Lundgren: Yes. So it seems pretty strong considering the quite tough comparison. So I just wonder if you saw any stocking or one-offs here in the quarter or if it rather reflects the underlying run rate? Mattias Perjos: Yes. No, there were no abnormal events in Q1. I think your analysis of this seems correct. It's a good underlying demand. Ludvig Lundgren: Yes. Okay. And can you just confirm that like the flu-related sales was lower this quarter versus Q1 '25? Mattias Perjos: [indiscernible] confirm that we see the same flu data as you when it comes to hospitalizations. How our customers use the product they buy, whether it's for treating flu or something else, we don't have perfect insight into it. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Mattias Perjos: Okay. Thank you very much. I think I already made the summary before the Q&A. So I just wanted to say thanks, everyone, for joining, and I wish you a good rest of the day. Thank you very much.
Operator: Good day, and welcome to the Northern Trust Corporation First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jennifer Childe, Director of Investor Relations. Please go ahead. Jennifer Childe: Thank you, operator, and good morning, everyone. Welcome to Northern Trust Corporation's First Quarter 2026 Earnings Conference Call. Joining me on our call this morning is Michael O’Grady, our Chairman and CEO; Dave Fox, our Chief Financial Officer; John Landers, our Controller; and Steve Carroll and Trace Stegeman from our Investor Relations team. Our first quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This April 21 call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through May 21. Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Please refer to our safe harbor statement regarding forward-looking statements in the back of the accompanying presentation, which will apply to our commentary on this call. [Operator Instructions] Thank you again for joining us today. Let me turn the call over to Mike O’Grady. Michael O'grady: Thank you, Jennifer. Let me join in welcoming you to our first quarter 2026 earnings call. We're off to a strong start in 2026, reflecting our ability to capitalize on a constructive market and rate environment while continuing to advance our One Northern Trust strategic priorities. Against this backdrop, first quarter trust fees increased 11%, net interest income grew 15% and total revenue rose 14%, all on a year-over-year basis. While continuing to invest in key growth initiatives, we generated more than 700 basis points of positive operating leverage, driving our pretax margin up nearly 500 basis points to 32% and fueling EPS growth of 43%. Return on average common equity reached 17.4%, which is at the higher end of our new medium-term target range, and we returned $510 million to shareholders, representing a total payout ratio of 100%. This included $359 million in share repurchases in the first quarter, contributing to a 5% reduction in share count as compared to the previous year. These results confirm that our One Northern Trust strategy is driving steady improvement in organic growth, consistent efficiency gains and resiliency in a volatile environment. AI is increasingly embedded in how we operate, enabling our teams to deliver more value with greater consistency and speed. Moving forward, we are accelerating this deployment in ways that will further advance our strategy and financial objectives. We're applying AI not only to drive incremental efficiency, but also to scale knowledge and expertise while maintaining the resilience, governance and client confidence that define our franchise. Our AI strategy is anchored in 3 outcomes: hyper-personalization, AI-generated alpha and infinite scalability. Together, these outcomes focus investment where it matters the most, enhancing the client experience, improving decision quality and increasing operating leverage. Hyper-personalization allows us to move toward highly contextual tailored engagement. A tangible example is our One Wealth Assistant, which integrates the Northern Trust Institute insights directly into workflows. With future enhancements, this will equip our wealth management advisers with real-time client-specific context. Connecting market insights, portfolio considerations and client objectives to support more informed, high-touch conversations with speed at scale. AI-generated alpha focuses on strengthening investment outcomes through faster synthesis of information and generating deeper insight. Within asset management, AI-assisted research and product construction tools are enabling teams to process significantly larger structured and unstructured data sets, identify patterns more quickly and test scenarios more efficiently. This enhances both investment decision-making and operational execution, supporting stronger client outcomes without adding complexity. Infinite scalability is a key driver of operating leverage. By digitizing work through agents, we further disconnect the relationship between growth and staffing, allowing for consistent execution across value chains and supporting stronger controls, all of which enable us to scale while maintaining rigorous risk management. With that backdrop, let me now turn to business performance for the quarter, beginning with Wealth Management. Momentum from last year carried into the first quarter as improved organic growth underpinned by both strong advisory and product fees drove low double-digit trust fee growth. The regions delivered another quarter of solid results with trust fee growth accelerating to 11%, supported by especially robust performance in the Central region. We made good progress implementing various client acquisition initiatives across talent, centers of influence and digital channels. Talent is our most important growth driver. We're advancing plans to increase revenue-generating roles by high single-digit percentages by year-end. This includes significant increases in critical producer roles. Centers of influence, which include attorneys, accountants and other professionals, are a vital referral source, driving nearly 25% of our new business activity. In the first quarter, we introduced a more robust and structured outreach framework to engage key centers of influence, including hiring a senior leader to accelerate this initiative, targeting a 10% increase in opportunities in 2026. Digital channels also continue to be an increasingly important source of new business. To boost the transition from interest to conversion, we're enhancing data integration, lead qualification and personalization at scale. Notably, the opportunities originating from digital channels in the first quarter grew by nearly 50% year-over-year. Within our Global Family Office business, strength in international markets and investment management fees drove healthy performance. We also continued to scale family office solutions with early traction and client wins across several new markets. Expanding our investment offerings, particularly within alternatives, remains an important focus area. We had 7 funds in the market during the first quarter, up from 5 in the previous quarter. Looking ahead, we will continue to build out our alternatives platform with a number of new alternative investment funds and strategies planned for launch later this year with the goal of increasing alts fundraising by 25%. These offerings spanning areas such as venture capital, co-investments and secondary funds will broaden access and flexibility for clients seeking diversified sources of return while maintaining our disciplined approach to portfolio construction and manager selection. Collectively, these initiatives are strengthening our ability to generate repeatable, scalable growth while enhancing both the client and employee experience. Turning to Asset Servicing. The business delivered another quarter of solid organic growth and strength in profitability, driven by disciplined execution of our strategic priorities. Trust fee growth of 10%, coupled with significant NII and capital markets activity fueled over 700 basis points of year-over-year pretax margin expansion. Our differentiated service model, deep institutional expertise and strength in supporting complex client needs continues to resonate, particularly with global asset owners. During the quarter, we secured 9 new mandates across foundations, endowments and health care institutions, including 4 not-for-profit health care systems. As a result, we now serve 3/4 of the top 50 health care systems in the United States. Within alternatives, we remain a market leader with assets under administration approaching $1 trillion across hedge funds, private capital and semi-liquid vehicles. Demand for scalable institutional-grade services remains strong, supported by more than a dozen wins during the quarter. These included Igneo's planned second quarter launch of a new private equity fund focusing on energy infrastructure in Europe, further expanding our global relationship across Europe, Australia and the U.S. We also announced an expansion of our CLO middle office services, delivering a unified operational and compliance framework that supports the full life cycle of CLOs as interest in this offering continues to grow. Strong momentum in capital markets continued in the first quarter as elevated volatility and heightened client activity drove 34% growth, including another quarter of robust FX and core brokerage fees. We're also seeing continued interest in our digital asset strategy, particularly in custody, reporting and servicing of tokenized assets as tokenization moves towards scale. During the quarter, we onboarded 5 new clients, providing custody and other services for tokenized real-world assets, U.S. stablecoins, European money market funds and carbon credits. Turning to Asset Management. NTAM made good progress in the first quarter with strength across liquidity, alternatives and equities, positioning the business well to meet its 2026 targets. Within liquidity, we extended our streak to 13 consecutive quarters of positive flows with associated AUM increasing to $350 billion. Importantly, we continue to diversify our funding sources across global liquidity vehicles and third-party platforms while gaining overall market share. We also launched the tokenized share class for our NIF treasury instruments portfolio during the quarter, marking Northern Trust's entry into the digital asset marketplace. By applying tokenization to institutional-grade liquidity strategies, we're offering clients a modern digital-first way to access money market investments while maintaining our high standards for risk management and service. Within equities, ETF momentum remains strong with a fourth consecutive quarter of positive flows. This was supported by the successful launch of the Northern Trust U.S. equity ETF, our latest active ETF designed to deliver tax-efficient outcomes for investors. We also launched our first Saudi Arabia equity index strategy with $1 billion in client capital, reflecting our expanded presence and strategic partnerships in the Middle East. NTAM continued to broaden its alternatives capabilities through active fundraising, which included 3 new sizable custom solutions and advisory mandates spanning secondaries, private credit and private equity. Earlier in the quarter, we announced an important milestone in our third-party distribution strategy. Our institutional quality direct indexing capabilities became available on Envestnet's platform, the largest independent TAMP, which supports approximately 1/3 of all financial advisers in the U.S. This will enable advisers to access our diverse lineup of equity strategies, empowering them to personalize portfolios at scale while managing tax outcomes. Finally, reflecting the strength of our active investment platform and the expertise of our investment professionals, NTAM was recognized by Barron's as a top fund family in 2025, ranking fourth overall and fifth in general equity out of 46 fund families. To wrap up, as we enter the second quarter, our priorities are clear, and we remain focused on disciplined execution. With that, I'll turn it over to Dave to walk through our first quarter financial results. David Fox: Thanks, Mike. Let me join Jennifer and Mike in welcoming you to our first quarter 2026 earnings call. Let's discuss the financial results of the quarter, starting on Page 4. This morning, we reported first quarter net income of $526 million, earnings per share of $2.71 and our return on average common equity was 17.4%. We're off to a strong start to the year. We delivered our seventh consecutive quarter of positive organic growth, positive operating leverage and year-over-year improvement in our expense to trust fee ratio, all excluding notables. We also returned 100% of our earnings to shareholders. Relative to the prior year, currency movements favorably impacted our revenue growth by approximately 120 basis points and unfavorably impacted our expense growth by approximately 130 basis points. Relative to the prior period, currency movements were immaterial to both revenue and expense growth. Trust, investment and other servicing fees totaled $1.3 billion, an 11% increase compared to last year, driven by favorable markets, currency and new business generation. Other noninterest income was up 33% year-over-year, reflecting very strong FX trading and securities commission and trading income, which benefited from elevated macro volatility and uncertainty. Net interest income on an FTE basis was up 1% sequentially to $662 million, a new quarterly record and up 15% from a year ago. Our assets under custody and administration were down 1% sequentially, but up 10% compared to the prior year. Our assets under management were also down 1% sequentially and up 11% year-over-year. Overall, our credit quality remains very strong with all key credit metrics in line with historical standards. We recorded a $3 million reserve release in the first quarter, driven by improvements to the C&I portfolio, which was partially offset by a small number of nonperforming loans. Our effective tax rate was 25%, down 150 basis points from the previous quarter due to higher benefits associated with share-based compensation. We still expect the effective tax rate in 2026 to be approximately 26% to 26.5%. There were no notables in either the first quarter of 2026 or the first quarter of 2025. Turning to our Wealth Management business on Page 5. Wealth Management started the year well with strength in trust fees across both GFO and the regions, spanning both advisory and product channels. Assets under management for our wealth management clients were $498 billion at quarter end, down 2% sequentially but up 11% year-over-year. Trust, investment and other servicing fees for wealth management clients were $601 million, up 11% year-over-year with particularly robust organic growth within GFO. Average deposits within Wealth Management were flat sequentially, while average loans were up 1%. Wealth Management's pretax profit rose 9% over the prior year period, while the pretax margin remained flat at 37.1% as we continue to reinvest in the business to support future growth. Moving to our Asset Servicing results on Page 6. Our Asset Servicing business also had a good start to the year, boosted by healthy new business generation, coupled with robust capital markets activity. Assets under custody and administration for Asset Servicing clients were $17.3 trillion at quarter end, reflecting a 9% year-over-year increase. Asset servicing fees totaled $741 million, up 10% over the prior year. Custody and fund administration fees were $498 million, also up 10% year-over-year, largely reflecting the impact from strong equity markets, favorable currency movements and net new business. Assets under management for Asset Servicing clients were $1.3 trillion, up 11% over the prior year. Investment management fees within Asset Servicing were $169 million, up 11% year-over-year due to favorable markets and new business activities. Asset Servicing average deposits were unusually strong, increasing 11% sequentially, while average loan volume decreased 2% from fourth quarter levels, albeit off a small base. Asset Servicing pretax profit grew 59% over the prior year period, and the pretax margin expanded 740 basis points year-over-year to 28.3% benefiting from elevated deposit levels, higher volatility-driven capital markets activities and the pivot in our new business approach. Moving to Page 7 on our balance sheet and net interest income trends. Our average earning assets were up 7% on a linked-quarter basis as higher deposit levels drove an increase in money market assets and in our securities portfolio. The fixed percentage of the securities portfolio remained flat at 52% in the first quarter, including the impact of swaps. The duration of the securities portfolio dipped slightly to 1.44 at the end of the quarter, and the duration of our total balance sheet continued to be under 1 year. Deposit levels were higher than expected throughout the quarter as a result of both elevated volatility and general uncertainty in the marketplace. Average deposits were $129 billion, up 8% compared to fourth quarter levels and 11% year-over-year. In the deposit base, interest-bearing deposits increased by 8% sequentially and noninterest-bearing deposits increased by 5%, remaining at 15% of the overall mix. Net interest income on an FTE basis was up 1% to $662 million sequentially and up 15% compared to the prior year. Sequentially, NII was favorably impacted by higher deposit levels, including growth in noninterest-bearing deposits, along with the impact from fixed asset repricing and deposit pricing actions we've taken, which was partially offset by the full quarter's impact from the fourth quarter rate cuts. Our net interest margin on an FTE basis decreased sequentially to 1.75%, primarily reflecting several large short-term institutional deposits and the absence of the higher FTE adjustment recorded in the fourth quarter. Turning to our expenses on Page 8. Expenses increased 6% year-over-year. We delivered 410 basis points of trust fee operating leverage and 740 basis points of total operating leverage and our expense-to-trust fee ratio, while seasonally higher at 112.4% was down 440 basis points year-over-year. This translated to a pretax margin of 32%, up nearly 500 basis points year-over-year. Turning to Page 9. Our capital levels and regulatory ratios remained strong in the quarter, and we continue to operate at levels well above our required regulatory minimums. Our common equity Tier 1 ratio under the standardized approach decreased by 60 basis points on a linked-quarter basis to 12%, driven by an increase in RWA related to elevated capital markets activities. Our Tier 1 leverage ratio was 7.3%, down 50 basis points from the prior quarter, driven by our larger balance sheet. At quarter end, our unrealized after-tax loss on available-for-sale securities was $446 million. We returned $510 million to common shareholders in the quarter through cash dividends of $151 million and stock repurchases of $359 million, reflecting a 100% payout ratio. Turning to our guidance. For the full year, we now expect NII to grow by mid- to high single digits over the prior year, which is an increase from our previous guide of up low to mid-single digits. We still expect to generate more than 100 basis points of positive operating leverage, and we expect to return at least 100% of our earnings to shareholders. Before we open it up for questions, I'd like to take a moment to thank Jennifer Childe, our Head of Investor Relations, and congratulate her on her upcoming retirement. Steve Carroll, currently the CFO of Northern Trust Asset Management, will be stepping into the role and will work closely with Jennifer over the coming weeks to ensure continuity. Jennifer has been a trusted partner to me and the leadership team, and we're very grateful for her many contributions over the years. And with that, operator, please open the line for questions. Operator: [Operator Instructions] We'll now take your first question coming from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess maybe just 2 questions. One, just at the very top of the house, when we look at the pretax margin, the ROE performance this quarter, including in asset servicing, but for the entire business, given just -- there's a component of the macro being very strong for Northern, but there's also a self-help component that was kicked off about a couple of years ago. As we think about the sustainability of the ROE or the pretax margin, just maybe frame for us where you think there might be a little bit of cyclical tailwinds that's leading to over-earning on these relative to structural actions that have been taken over the last couple of years that may improve the resiliency relative to what we reported for 1Q? Michael O'grady: Sure, Ebrahim, it's Mike. I'll take that. So our goal is to be a consistently high-performing company. And as you pointed out, that's something we put out there a few years ago, along with our One Northern Trust strategy. So we're very focused on executing on the 3 pillars of that strategy. We'll do that in different environments. And this past quarter was a very constructive environment. And so there's no question that we got a lift in our financial performance as a result of that. Equity levels are still relatively high. The level of volatility is attractive for our capital markets business, and there's a fair amount of liquidity, broadly speaking, in the market, which helps us with deposits, with money market funds as well. So very constructive on that front. That said, we also, to your point, think about it from a self-help perspective and try to just execute as well as possible, whether it's a really strong environment or not so strong. As far as the targets at the last earnings call, we put out medium-term targets. Some of those, as I mentioned, we've kind of largely hit or close to. That said, it was in this strong environment. So we're going to keep driving towards those medium-term targets. Ebrahim Poonawala: Got it. And I guess maybe just switching to the Global Family Office. It's been a strong business over the last few years. Maybe talk to us around the win rate and the competitive landscape there and just the evolution of that client once they are on board, how do you think about just the growth runway and the opportunity to improve the ROI on the client once they're on board at Northern. Michael O'grady: Sure. So the Global Family Office business is absolutely one of our strongest businesses. It's an area where truly we can deliver the entire firm. It's the best of all 3 of the businesses and working together for these largest families and their family offices. And as you pointed out, it's grown at a high rate. And once again, here in the first quarter, the organic growth rate for GFO was above the average for the businesses. And there's a number of dynamics that are allowing us to continue to grow at that high rate. One is certainly just the competitive position that we have and our offering on that front. But second is that it's still largely a U.S. domiciled or focused business. Right now, international is less than 15% of the client base and the revenues, and yet it's growing at a faster growth rate. And we do believe that this is something that is not only, I'll say, attractive offering globally, but also is something that is scalable globally. And then to the latter part of your question, you're absolutely right that often the relationship with the family office can start with a more limited breadth of offering. So it may focus primarily on custody and reporting to start, but then that's the opportunity to do much more with the family office when it comes to other opportunities, particularly along the lines of investment management. And you saw some of that in the first quarter as well. So we think it's a great business and continues to have a lot of upside. Operator: Your next question will come from the line of Manan Gosalia with Morgan Stanley. Manan Gosalia: I wanted to start on the operating leverage side. I mean, 740 basis points of operating leverage this quarter, really strong. I think you reiterated the guide of generating over 100 basis points of operating leverage this year. Can you help us just think through how we should think about, I guess, expense growth this year? Are there any investments that were maybe got pushed out? Any timing differences or anything else we should be considering here? David Fox: Our expense growth methodology hasn't really changed. If you think a little bit about the expense growth in this particular quarter, most of it was driven by incentives, and there was some noise from currency as well. So actually, when you make more money, you obviously are going to have a rising expense line. We still have in process the idea behind productivity funding investment and then solving for an expense growth as a result of that. And so we haven't changed. And what I would say is the productivity targets for the first quarter hit their target. The investments that we wanted to make, we were able to make and the expense growth we managed to was pretty much spot on where we thought it would be. And so that discipline and flexibility is built into our planning, which is why at the beginning of the year, I talked more about operating leverage than I did about attaching myself to a finite expense growth number. We wanted to have the flexibility to react when markets were conducive, but also have the discipline to be able to flex down in environments that are less. So when I think about expenses, I think about a dynamic expense line that basically is something we look at on a very continuous basis. And so -- it's very much driven today by the productivity and the investment side of the equation. Manan Gosalia: Got it. And then maybe to pivot over to capital. Any thoughts on the new Basel endgame proposal and maybe how it impacts your capital deployment strategy going forward? David Fox: Yes. I think it's too soon to think about how it might impact the capital return part of it. I will say that on measure, our preliminary view of it is it is a net -- could be a net positive for us as it relates to, obviously, the commercial loan side and the operational risk is something that we probably have less of than some other peer banks. And so net-net, we think that it's going to be a positive for RWA. But it's still early days. We're in the comment period. And so I would say it's taking a cautious look to it. I don't think it's going to have a massive impact. But if it does, it will certainly be net positive at this point. Manan Gosalia: Congrats, Jennifer. Operator: Your next question will come from the line of Mike Mayo with Wells Fargo Securities. Michael Mayo: Look, wealth is growing double digits. As you said, firm-wide revenues up 14%, the higher end of return targets. So it seems like it was working this quarter. But what got my attention is, I think, new news that you look to grow wealth producers by 7% to 9%. I think that's this year. And so -- and correct me if you disagree, but I think this is the most competitive market we've seen in the wealth business like almost ever. So the question is, I'm not saying it's a wrong strategy. The question is, why now do you look to increase the wealth producers? And what's your pitch? Because I think every -- literally every large bank, large brokerage firm is looking to expand wealth at this time. What's your pitch when you try to get the new producers? Michael O'grady: Thanks, Mike. So you're right. We are focused on hiring and investing in talent in the wealth management business. And you're absolutely right, it's a very competitive marketplace for the best talent, which is what we're looking for. And we are trying to focus on roles that are revenue generating for us and within that producer roles. And part of it is, as we look back over the last several years, although that group has grown, it has grown at a lower rate than the growth of the business itself. And so there's an acknowledgment that we need more talent to increase the growth rate, the organic growth rate within wealth. As far as being able to have an attractive value proposition for wealth management professionals and advisers, we think we have a very different value proposition. We have an excellent brand. We are positioned within the upper tiers of the market, which, I'll say, the highest levels of expertise want to be able to not only serve that client base, but look to bring on new clients on that front. We've been investing in the platform to do that. We've talked a lot about family office solutions, which we believe really is a differentiated offering. It's, in our view, better and more attractive than stand-alone virtual family offices because it brings the full set of resources and banking capabilities that we have. And yet it's also an opportunity to leverage the history and the fiduciary capabilities that we have and trust capabilities. So we think for an adviser or a professional that's looking to be able to apply their trade, if you will, and succeed, we offer the best platform for them to be able to do that. So that's a big part of it. It is a different model here at Northern. And that -- as you know, that's part of why we think it's more attractive. Michael Mayo: And as part of this increased investing for growth, whether it's wealth or firm-wide because you rattled through a lot of growth initiatives. Is that -- and maybe I got this wrong, but you're still guiding for 100 basis points of operating leverage this year, but you had over 700 basis points of operating leverage in the first quarter. Is the reason for no change in that guide just conservatism or also because you think you might be ramping up some spending as you bring on these new producers? Michael O'grady: Yes. So as I mentioned before, obviously, it's a very constructive backdrop and macro environment for us. So there's definitely some acknowledgment that the strong revenue growth here was driven and supported by that backdrop. We don't know what's going to happen as we go through the year. And there are also some tough comps in the sense of last year, we had strong second, third, fourth quarters. So acknowledging that, that's ahead of us as well. And as Dave mentioned, we've really tried to align our, I'll say, resource deployment strategy based on productivity and looking to ensure that we're driving productivity to fund that investment. And so we haven't pulled off of that. Yes, we expect to continue to invest in these areas that we talked about, but the plan is to try to generate more productivity to do it and not necessarily change the expense growth profile that we've been on. David Fox: Yes. And I'd just like to add to that, the direction of travel on expenses is down for the remainder of the year. Operator: Next question will come from the line of Brennan Hawken with BMO Capital Markets. Brennan Hawken: So Dave, you flagged strength as far as the deposit growth goes. And it looks like a lot of -- from the presentation, a lot of the deposit growth was driven by the servicing business. You also flagged some large institutional deposits weighing on NIM. So was that part of that deposit strength, some large institutional deposits? And how should we be thinking about the profile of deposits as we move forward and what your expectations are for that through the course of the year? David Fox: Yes. Yes, we had some largely unexpected extremely large deposits. I mean you've heard me speak in the past about why we keep our capital ratios where we keep them. And we want our balance sheet to be open at all times for our largest clients. And so occasionally, some of our clients will do some strategic repositioning -- and we want to be in a position to capture those deposits when they do that. They're not core operational deposits. They weren't there for a long period of time, but we want to be able to accommodate them. So in this particular quarter, it really drove up the average deposit level significantly. And that isn't going to obviously translate into a Q2, although I do think the increase was roughly $9 billion, and I think we're going to keep $4 billion to $5 billion of that. So in terms of average deposits. But at the end of the day, that's really what you saw there was client-driven specific very large deposits from just a handful of just really important big clients. Brennan Hawken: Got it. Okay. That makes a lot of sense. And you also spoke to robust organic growth in the GFO business, but we didn't see a lot of deposit trends. We certainly saw the revenue look good. Is the organic growth in that business less tied to deposits the way we normally think about that, and therefore, that's the divergence? And also maybe could you give a little color around your new efforts around the GSO and how that's going? And when you guys talk about GFO, do you categorize those 2 together? Michael O'grady: Sure. So just on the liquidity part of the question there, Brennan. So these family offices have significant liquidity, which they are, I'll say, utilizing and moving around quite a bit. And so it can move from on the balance sheet as deposits to into our money market funds or short-term treasuries. So it's, I'll say, a pretty active management of liquidity that we do, I'll say, on their part and for them. And so from quarter-to-quarter, for example, those deposit numbers can move up and down. And to your point, it's less of an indicator, I would say, of the organic growth and more of an indicator of just their activity. To the second part of your question, we have the benefit of having this strong family office business, which we've been in for quite a while and have built up the capabilities. And to your point, what we've looked to do with family office solutions is leverage those capabilities, but in such a way that we can create the virtual family office experience for a family that doesn't want to have to set up their own office. So it's not run as one business together, but I would say 2 businesses that are very closely related and highly coordinated in what they're doing because they're leveraging some of the technological capabilities, some of the expertise that cuts across that. And it's just a different service model where we're acting as essentially the head of that family office for them as opposed to that person and team being employees of the client's family office. Brennan Hawken: Jennifer, congrats on your retirement. Operator: Your next question will come from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: So Mike, top of the house question. So the tone in your prepared remarks and to some of the Q&A feels like leans on organic growth acceleration a little bit more than we heard from you guys in the past, and you talked about some of the investments you're making to sort of support that. Can we talk through maybe the areas where you see the most opportunity to accelerate growth? And ultimately, what you think Northern's organic fee growth, so, ex markets, should look like over the next couple of years if you achieve these goals, both across the institutional business and the wealth? Michael O'grady: Sure. So I would start, Alex, by saying that we see the organic growth opportunity across all 3 businesses. The nature of it is going to be different. We talked somewhat on the call here about wealth management. A lot of the investment, but also then the opportunity on the wealth management front is to add talent to that to increase the growth rate. So I think we've talked through that part of it. But it also cuts across other aspects that drive growth. In thinking about marketing, I talked about digital marketing that we're doing, a focus on centers of influence. There are other areas where we're trying to essentially bring in more opportunities at the top of the funnel in order to increase that growth rate. And many of them require investment to be able to do that. And I would also say on that front, that's an area where we believe that AI is going to create opportunities for us to continue to transform the client experience and the adviser experience, particularly as you work down the wealth tiers. So we're excited about that, but that also does require investment to be able to drive that. Within the Asset Servicing business, as we've talked about there, the real goal is around scalable growth. And I would say staying focused on our current footprint, our current offerings, the segments that we're in, that's where we expect to get this continued growth at a very profitable level and expect to continue to drive the margins up in that business. And then within asset management, really, you've seen a lot of growth that's come from the core products for us, certainly liquidity. But where we're really investing there is on the ETF front as well as tax-advantaged equity and also quant. And that requires investment in the sense of building out our distribution capabilities for third party. But we believe that's an avenue, which right now represents a relatively small part of our asset management business that could grow at a much higher growth rate. So that's the -- I'll say, the combination across the businesses. And we've talked about an organic growth rate that we've targeted around 3%. And certainly, from what I talked through there, that's going to drive the 3%, but we hope above that as well. Alexander Blostein: Got it. And then a quick follow-up just around capital management. With the Visa shares become available to you guys this year. Can you maybe just talk through the amount of proceeds you expect the use of these proceeds and timing when it comes to potentially bigger buybacks? David Fox: Yes. So we'll roughly get half of our position, let's say, $470 million pretax, so $350 million posttax depending on the share price. And we've only just begun to sort of think about what we're going to do with it. I don't think we're going to use the same, obviously, playbook we had a few years ago. We've got other options at this point, but we're going to weigh it against all our other priorities and take a look at what to do at that point in time, but haven't landed yet on that. Operator: Your next question comes from the line of Ken Usdin with Autonomous Research. Kenneth Usdin: I want to ask a question just about the balance sheet. You mentioned that the benefits that came through the size of the balance sheet and the deposits, maybe some of that doesn't stay, maybe some of it does. But just given the higher for longer environment, how do you think just about duration of the securities portfolio and any other changes to that? Or is it really more of a wait and see because you're not 100% sure if this elevated size of the balance sheet lingers? David Fox: Yes. So when you think about the upside to our balance sheet and to our NII during the course of the year, there's a bunch of different things we think of and trying to figure out what we're going to guide. And so the first one would be the investment securities maturity replacement. Obviously, we still have back book repricing, and we can take advantage of that through the full year in '26. We did take some deposit pricing actions as well towards the end of last year, let's say, third and fourth quarter, and we haven't lapped those yet. So those are built-in increases that we see coming in the year. We've been leaning a bit more into some incremental investment strategies around higher-yielding opportunities. We've been looking at our wholesale funding mix a little bit more, leaning a bit more into FICC repo as well. And so when you put all those together, and then obviously, the deposit growth. So we still are -- we're thinking about having some deposit growth in line with the businesses. And we also no longer have the potential headwind in our mind anyway of rate cut in the U.S. and taken that off the table and may even have some rate increases in Europe. And so you put all that together, and that's sort of how we come up with it. It doesn't -- we're not going to reach for yield. We're not going to materially change our profile in terms of duration to try to get there. We don't need to, to be honest with you, to get there. We feel we can do it without that. So -- and there's a lot of uncertainty out there. So I think our positioning right now is pretty stable. Kenneth Usdin: And just a bigger picture follow-up. We've got potential new Fed chair coming on, talks about potentially shrinking the size of the Fed balance sheet. That Fed balance sheet has already been down $2.5 trillion and trust bank deposits keep growing. But can you just remind us of the rule of thumb to think about if the Fed balance sheet continues to shrink over time, how insulated is your balance sheet from that in terms of deposits? Michael O'grady: So Ken, I would say that is something that we are obviously observant of and what's happening. And frankly, I'll say a little surprised that liquidity levels have remained so high on our balance sheet and in our funds given that the Fed has reduced its balance sheet as much as it has. To the extent that we're in, I'll say, some level of stabilization there, I think that's good because that means our deposit levels and money market fund levels will grow with our organic growth. So yes, there is definitely some exposure to the extent the Fed were to really shrink its balance sheet more. I think that pulls liquidity out of the marketplace. And our model as well as others, it tends to expand and contract with that somewhat. So yes, some exposure on the downside, I think less on the upside. Operator: Your next question will come from the line of Steven Chubak with Wolfe Research. Hang Leung: It's actually Sharon Leung filling in for Steven today. Just wanted to ask on the margins in the business segments. The margin in Asset Servicing has expanded nicely, but in Wealth, the margin was flat year-on-year despite like some strong revenue growth. So just wanted to understand like what are the components that are going to drive the, I guess, the path towards your medium-term target of 33% in the margin? Michael O'grady: So the goal of the Asset Servicing business, as I mentioned, is scalable growth. And as much as we did have a strong pretax margin here in the quarter, this is something that we're trying to consistently move up. And so the expectation is that we will continue to try to see a higher margin in the Asset Servicing business. We've talked about a particularly strong macro backdrop here. So capital markets, very strong, NII, very strong in Asset Servicing. So that definitely contributed to the higher pretax margin for this quarter. But we want to make that even more sustainable, if you will, and a more resilient high level of margin. So there's more opportunity on that front. On Wealth Management, where we have had a very attractive pretax margin, that's an area you've heard a lot where we've talked about growth and making investments for growth. So we feel like we're in, I'll say, a good range for that margin, but we are emphasizing growth as opposed to trying to see that margin go up. And to the extent we did have some pressure on the Wealth Management margin as we make some of these investments in the near term, the expectation is that we'll more than make up for those with improvement in asset servicing. Operator: Your next question comes from the line of David Smith with Truist Securities. David Smith: On organic growth, you cited 7 consecutive quarters of positive growth for the business as a whole, and then there's a 3% target that you put out there, but you think there's opportunity to do better over time. Can you help us get a sense of where organic growth is today and where you were a year ago? We know GFO is above average, but is Asset Servicing and the regional part of Wealth fairly positive today, 1% or so, 2% or so? Sure it can bump around some quarter-to-quarter, but maybe over the past year, what kind of organic growth have each of those businesses earned and then where were those, say, like the year prior? Michael O'grady: Sure. So to just start with this quarter, each of the 3 businesses had positive organic growth. And that would also be true within the major segments of the business. But to your point, if we look at each of them individually and a little bit, I'll say, over time, within Wealth Management, the organic growth has been closer to a consistent, I'll say, 1% with GFO being above that and the regions being a little bit below that. And that's where we're looking certainly for GFO to continue to grow at a high rate, but it's more with the regions incrementally increasing that growth rate as we go forward this year and into next year to move it up in total above the 3%. So made progress this quarter. But again, it's all about consistency. In the Asset Servicing business, just given the nature of some of the larger mandates, that organic growth rate can, I'll say, swing or vary more from quarter-to-quarter or even in a year. So we did -- if you went back a few years, we did have some periods where we had some business that rolled off that did bring that down to kind of flat to negative organic growth. As I mentioned, it's positive right now, again, in about the same range as the Wealth Management business, but we see the opportunity likewise to continue to see that growth rate increase, but with the focus on profitability and scalability for it. In Asset Management, overall, a lot of the organic growth more recently has been primarily driven by liquidity, but we're seeing greater diversification in the growth with that business as well. So in the past quarter here, likewise, some of the areas that I mentioned around ETFs and for some time period, tax-advantaged equity have had nice organic growth across that front. So once again, in about the same range there and same expectation to see that increase. David Smith: Got it. And do you expect over time, all the major businesses to be doing 3% organic? Or medium term, would you expect to get there for the company as a whole, but some to be above and some to be below? Michael O'grady: Yes. So the target is for all of them to be above the 3%. But just given the way that it varies, I'll say, from quarter-to-quarter or even year-to-year, they may not all be, but that's the benefit of having the 3 businesses. Operator: Your final question will be coming from the line of Gerard Cassidy with RBC. Gerard Cassidy: Mike, I think you called out in your prepared remarks that you saw outsized growth in the Wealth Management area in your central region. Can you highlight what drove that? Michael O'grady: Sure. You're right, Gerard, we did. And I would say, often, given that the company has been in the central region and headquartered in Chicago for a very long time, we have a very strong business here. And often, people think that it's a mature business that is not going to grow at the same rate or even a higher rate. But the fact of the matter is the team and the leadership of this region, particularly under John Fumagalli and his team, have consistently leveraged that strength to be able to grow at a higher rate. And one of the areas, I would say, more recently is around the family office solutions that I talked about. That's the area where we started with that solution set and with that offering. It's already gained momentum in this region, and now we're in the process of rolling that out to the other regions in the same way. So that's part of the driver of the strong quarter. Gerard Cassidy: Very good. Obviously, the dominance of questions are all about the Wealth Management and the Custody business. So I want to pivot because it's always good to ask you folks about credit quality since it's always so superb. You guys obviously don't take a lot of risk in lending. Your portfolio is not that big relative to your asset size. Can you share with us what are you guys seeing in the credit quality trends? They're very strong, we understand that. Have things changed meaningfully from the financial crisis and pandemic that customers are more resilient today? Any color there? Michael O'grady: Sure, Dave. David Fox: Yes. I mean -- so just keep in mind, when I look at Northern's portfolio that we have a very -- we're very tilted toward investment grade on the corporate side. And then -- and our clients in Wealth, we're usually doing secured facilities. And so at the end of the day, for those to be in the stress scenario, it would take quite a bit of downside to do that. So that's why you see our credit quality so high. And we're not obviously also exposed to the same extent in the private equity and/or private credit space either where there's some pressure right now. We don't lend on the valuation or performance of the underlying fund investments. And so we do subscription facilities where the underlying obligor, which most of whom are institutional borrowers are really quite strong. And so from our perspective, we're not in the high-yield market. We're not in the leveraged loan market, if you will. So we're not seeing the same kind of pressures that other firms might be experiencing in that regard. Operator: And it appears there are no additional questions at this time. I will now turn the call back to Jennifer Childe for closing remarks. Jennifer Childe: Thanks for joining us, and we look forward to speaking with you again in the future. Michael O'grady: Once again, Jennifer, thank you very much. David Fox: Thanks, Jennifer. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the PrairieSky Royalty Limited First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Phillips, President and CEO. Please go ahead. Andrew Phillips: Thank you, Daniel. Good morning, and thank you for dialing into the PSK Q1 2026 Conference Call. On the call from PSK are Pam Kazeil, Dan Bertram, Mike Murphy and myself, Andrew Phillips. Before we begin, there is certain forward-looking information and statements in our commentary today, so I'd ask listeners and investors to review the forward-looking statements qualifier in our press release and MD&A, which can be found on our website. Funds from operations totaled $94.9 million, an 11% increase from Q1 2025, resulting from higher production and stronger bonus consideration. Total production grew 4% from Q1 of 2025 with oil production showing 2% growth year-over-year. Condensate and pentane production reported as part of the NGL stream remains at record highs for PrairieSky at approximately 35% of the NGL stream. Elevated bonus consideration was a result of 48 new leasing arrangements with 37 distinct oil and gas companies. Given the lower rig count year-over-year, we are pleased with the 201 spuds on PrairieSky lands versus the 200 in prior years -- prior year. With the increased pricing for oil and a continued weak Canadian dollar, we are observing early indications of higher planned activity levels post breakup. Based on strip pricing, we're anticipating a material reduction in debt levels by the end of 2026. A number of our recent leasing arrangements are for exploration rather than pure development, which is a positive trend. Rising capital cycles can help unlock the vast optionality inherent in an 18.6 million acre land base. In addition to this, more operators in the Clearwater are exploring for oil up and downhole where they already have an existing producing horizon. We expect this will unlock numerous new developments over the next 10 years. With the current development inventory on land, we can replace the approximate 9.5 million barrels of royalty production on our lands for 61 years. New discoveries have the potential to unlock more inventory. I will now turn the call to Mike to further discuss activity on our lands. Michael Murphy: Thanks, Andrew. The first quarter saw a record number of Duvernay wells spud at 26, including 20 in the West Shale Basin. First West Shale completions from this program are currently underway with new wells expected to be on production starting in mid-May and driving light oil growth through the back half of the year. Similar to 2025, we expect the Duvernay to be our fastest-growing play in 2026 based on budgeted activity levels. Multilateral activity continues to grow on PrairieSky lands with 66 spuds in Q1 '26 relative to 41 in the first quarter of last year. In the Clearwater, expanding waterflood development continues to promote a highly sustainable production base and positively impacting corporate decline rates. With depth and quality of inventory in the play, we anticipate outsized Clearwater growth to continue for years to come. In the Mannville Stack, oil production was estimated at greater than 1,000 barrels a day in Q1, given the strong winter drilling activity. Finally, our thermal volumes are positioned for near-term growth with a new 8-well pair pad at Lindbergh currently steaming with oil volumes expected to ramp to a peak rate of approximately 260 barrels a day at the PrairieSky. I'll now turn it over to Pam to discuss the financials. Pamela Kazeil: Thank you, Mike. Good morning, everyone. PrairieSky's first quarter production increased by 4% compared to Q1 2025, reflecting 2% growth in oil royalty volumes and 6% growth in NGL production. Oil growth was led by the Clearwater play, where production rose approximately 20% year-over-year and the Duvernay, where oil royalty volumes increased by approximately 75% from Q1 2025. NGL growth was driven primarily by activity in the Duvernay and Montney plays. Higher production combined with strong benchmark pricing resulted in royalty revenue of $118.5 million for the quarter. Other revenues totaled $15.3 million, supported by another strong quarter of leasing activity. Lease bonus consideration reached $12.3 million, more than double the level recorded in Q1 last year, with the majority of activity concentrated in the Duvernay play and the Mannville heavy oil play. We continue to view leasing activity as a leading indicator of future development and anticipate that operators will be active across these plays throughout 2026 and beyond. Funds from operations were $94.9 million or $0.41 per share, representing a strong start to the year. PrairieSky declared dividends of $61.6 million during the quarter, corresponding to a payout ratio of 65%. Excess cash flow was allocated to acquisitions totaling $4.2 million, share repurchases under our NCIB of $8.3 million, which canceled 269,000 shares and a debt reduction of $6 million. We ended the quarter with net debt of $257.7 million. PrairieSky also declared its second quarter dividend of $0.265 per common share for shareholders of record on June 30, 2026. With that, I'll turn it back to the moderator to begin the Q&A. Operator: [Operator Instructions] Our first question comes from Jamie Kubik with CIBC. James Kubik: Just a quick question on oil volumes for the quarter. Obviously, good volumes out of the key plays for PrairieSky. But can you talk about some of the plays that perhaps didn't perform as well in the quarter that led to the slight volume decline quarter-over-quarter? Andrew Phillips: Yes, you bet, Jamie. The big one when you look from Q1 of last year to Q1 of this year was the 200-barrel net decline net to us from the Lindbergh thermal project, and that's more of a transitory item. So if you added that back, you'd kind of be in line with all of our quarters for the last 16 quarters. And in addition, you had a little slower Q4 just on the more conventional assets and saw modest declines there, but we're still expecting the kind of mid-single-digit number on average throughout the year on the oil side. James Kubik: And then last one for me. Can you just talk a little bit more on the bonus consideration that you saw in the quarter? Is that repeatable? And should we think about activity on that side of things with respect to what was leased? Andrew Phillips: Yes. The bonus consideration is definitely a bright spot. I don't think there was one larger bonus there with respect to a smaller Duvernay lease. Just given the pricing that's come up so substantially in that area, we were able to command a higher price for that. But I think overall, the entire portfolio of assets saw pretty strong leasing right from Southeast Saskatchewan, where there's really short cycle times, and we're expecting a bit of an uptick in activity all the way through to Western Alberta. So it's definitely a positive sign to see more activity from producers and people increasing their inventory there. But to answer your question on the repeatability, probably that would be a higher one. I think that was the highest one we've had in 15 quarters or something like that. So that was great. We're very pleased with that. And activity on the leasing side does remain robust, but that was a higher-than-anticipated number for the following quarters for the balance of the year. Operator: [Operator Instructions] Our next question comes from Aaron Bilkoski with TD Cowen. Aaron Bilkoski: So I have another question about your lease issuance bonuses, but more on the structure of them. If I remember some point in the past, you started offering some flexibility to your counterparties. You offered lower upfront bonuses in exchange for multiyear reoccurring cash payments. I think the idea was to leave more cash with the producers to spend so you could generate royalty revenue from that faster. I guess my question is, are you still using this type of structure on the lease issuance bonuses? Andrew Phillips: Yes. It's a good question, Aaron. And I think for the right play, like typically for the longer-term leases, we'll enter into agreements like that. We've done that with some of the small-scale site deleasing in Saskatchewan, whereby they get up to a 7- to 9-year lease depending on where it is. And they have to have a minimum amount of activity and then pay a recurring bonus after 3 years and then another 3 years. We've also done some agreements like that in the Duvernay. So we are expecting a meaningful Duvernay payment in the back half of the year. But again, for most conventional leasing, a lot of the leases that we entered into -- in the previous quarter were shorter-term leases, people with near-term drilling activity plans and just onetime bonus payments. But the great thing about the very short-term ones is if they don't get to it in the 1-year time, we'll typically be able to re-lease those lands right away to either that operator or a competing operator in the area. Aaron Bilkoski: Andrew, on the shorter-term leases, are there capital or activity commitments associated with that? Or you just put a short-term lease on it and if they don't drill, you get it back? Andrew Phillips: Exactly the latter. And I think there's a bit of a balance. Like if you're going to hold our lands for a longer period of time, we'd like to see some activity committed and/or back-end bonus payments if you want to retain the lands. But with these shorter-term leases, it's effectively a drilling commitment. If you have a 1-year lease, you've almost -- by the time you survey the well, get the well license, get it drilled, get it on production, you almost need that year just to do that. So typically, we view a 1-year lease and in some areas, a 2-year lease as a drilling commitment to a certain extent, but we do not ask for drilling commitments on those shorter-term leases. Operator: I'm showing no further questions at this time. I would now like to turn it back to Andrew Phillips for closing remarks. Andrew Phillips: Thank you to all our shareholders very much for your support, and I hope everyone has a great rest of your week. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Atos Group Q1 2026 Performance Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Philippe Salle, Group Chairman and CEO. Thank you. Please go ahead, sir. Philippe Salle: Thank you very much. Good morning, everybody. I am today with Jacques-Francois, and we're going to talk about Q1. So let's go directly on Page 6, on the business highlights. So first point is solid financial performance. I think we are quite happy, let's say, with the start of the year. We have always said that's the lowest point of the year. And then we gradually, I would say, improve the growth. Further progress in the execution of the Genesis plan. So the Genesis is doing also very well. We will finish the first Genesis plan probably by mid of this year. And we have extended the plan, I would say, with another savings to be finished probably by the end of 2026. The idea, of course, is to have the full savings of the new, I would say, the extended plan in the course for the year 2027. We have a positive business momentum, and I will come back to this. With, I would say, book-to-bill that is the highest for the last 5 years. And so now, we have a clear focus on our strategic pillars. Agentic AI, we have launched a manifesto. Sovereign, we have launched also a manifesto internally, and it's going to be externally in the coming weeks. And, of course, Cyber, where we are #1 in Europe. So if we go on the key numbers on Page 7, order entry is EUR 1.5 billion. It's 89% for Atos. It's 87% with Eviden. And of course, as you can imagine, with Eviden, the order entry was a little bit low in Q1 with the war. We definitely think that it's going to be much better after, let's say, the war, but we don't know, unfortunately, when it's going to be finished. Revenue is EUR 1.7 billion plus. It's roughly EUR 1,640 million what we call with the go-forward perimeter, the go forward, it's without Build that we have sold on the 31st of March and Latin America, and we expect to close Latin America next week. If it's not next week, beginning of May, but we will try, I would say, to finish this transaction, let's say, next week, which means that the perimeter is roughly the perimeter going forward. There are still some countries we want to close, but are very small. But in terms, let's say, of sale, I think it's finished. Net change of cash, I think very good news. It's minus EUR 47 million. So you have to understand that we have EUR 71 million of restructuring. So it means that we have produced roughly EUR 24 million of cash. And also, we have the Build cash consumption. Unfortunately, we are not able to estimate that cash consumption for now. We will do this, in fact, when we're going to close H1 -- just for information, build EBITDA was around minus EUR 25 million; CapEx, minus EUR 30 million. So EBITDA minus CapEx is minus EUR 55 million. We estimate that probably there is a positive working cap, but it's possible, of course, that Build has an impact of, let's say, around EUR 10 million, EUR 20 million, EUR 30 million, we'll see. So it means, in fact, that the production of cash is much higher than, in fact, EUR 24 million. And then the liquidity EUR 1.7 billion, it's a little bit above last year, December 2025. And remember also that we have bought already EUR 62 million of the EUR 1.5 [indiscernible]. So of course, there is less cash, but we have also less debt. So let's go on the 3-year for the Genesis. So I'm not going to highlight -- remember that there were 7 pillars in Genesis. There are a lot of things that we are doing. So the first one, is the growth. So as I say, we have redesigned completely for me the engine of growth. And it's going to, I would say, produce a lot of, I would say, of course, results in the coming months now and years. So I would say the teams are in place, most of them. We have, I would say, also put a focus with Florin, the CTO on our 3 strategic pillars, so Agentic, Sovereign and Cyber. We have now launched this morning for 2 or 3 months campaign also in France, I would say, to, let's say, push the image of Atos. And I would say the main, I would say, message is that Atos is back. And as I say on the term, the target operating model, in fact, in sales is completely in place. You will see also, for example, that the pipeline has increased almost by EUR 1 billion in 1 quarter. And that's -- I would say that gives, of course, a very good signs for the rebound that we estimate that will happen, in fact, in Q3. In terms of country review, so we sold iDEAL, it's a company that was in Nordics. It's mainly, in fact, Norway and Finland. So we closed the deal on end of Jan. South America, as I say, next week, and Build was done also end of March. In terms of operational costs, I think we are continuing, I would say, the progress. The billability rate now is above 80%, and it's, in fact, close to 85%, the target that we have. We are now, let's say, recalculating a little bit differently this billability rate because we take into account the average salary of the people that are not billed versus, I would say, the salary of people that are billed. And then there is -- and we see that there is, of course, a discrepancy and there is no, I would say, magic, but usually the people that are more costly, unfortunately, are more on the bench than the people that are billed. So I would say we will not recalculate, I would say, this rate, but we will adjust it, I would say, to the salaries. Legal entities, we continue to simplify the number of entities. We want to shave, I would say, the number of entities by hundreds still. And then we are also putting some AI internally. And right now, for example, we are testing AI on the revenues. So in fact, we are looking at all the contracts that we have, it's several thousands, and we look also at the options I would say, the paragraph in the different contracts that we have signed where we can extend the pricing or bill a little bit differently. So it can give, I would say, some rooms of improvement in terms of margin and revenues for the teams. But Genesis is going very well. The Genesis, the initial plan will be finished mid-'26. So we estimate that the EUR 650 million saving plan is almost complete. And that's why we have extended now the plan to have, I would say, a plan that will finish end of '26. So it means it's a target above EUR 700 million. In terms of workforce on Page 9, as you can see, so we started the year at 63,000. We continue, I would say, the restructuring, and we also managed the levers versus hirings to be negative. So we finished at 61,000. You take out Build to 2,500. So we are now at a little bit below 59,000. If you take South America, we are probably close to 56,000. So that's probably where we will be probably at the end of next week. And I would say we will -- I definitely think that we can -- we will land around 55,000 when Genesis will be complete. So we are almost there. We go on Page 10 on the order book. So first, the book-to-bill is very strong, 89 for -- and in North America, it's above 100. Just for the analysts, that's the -- I always say that the book-to-bill is a proxy, unfortunately, of growth. And I think we have a very good example. The book-to-bill of North America is above 100. They continue to decrease, unfortunately, in terms of top line in Q1. The book-to-bill of U.K. is below 100 and now they are growing. So as I say, unfortunately, it's not an immediate, I would say, readings when you have a book-to-bill at below 100 that it means that we're not going to grow. I don't think that it's the case. We are still looking to find a better measure. It's not an easy one, but we are working on it. I hope that we can probably share some, let's say, results in H1 or at the end of the year. The qualified pipeline, as I say, is up roughly close to EUR 1 billion. We are now at EUR 13 billion roughly of qualified pipeline, so almost 2 years of revenues, a little bit less than 2 years, of course. The renewal rate also is 94%. The good news is that we don't have big renewals now going forward. So in fact, for this year, I think we are not going to lose any other contracts. It has been done, of course, in the course of '25. The 2 big contracts in the U.S. have been renewed. One has been signed, in fact, in end of March with CNA. It's a very big contract, $480 million. And we're also discussing probably to extend the contract to more than this $500 million. We will have probably -- we're still in negotiation in the course of Q2. And the second one also is in California. We have won the contract. It will be signed in the course of April or May. It's done. We are just waiting, I would say, the signature of the client. And then for the U.S., it's done. We don't have big renewals, in fact, in other parts of the world. There is a medium-sized contract, in fact, in BN right now. We are waiting the answer probably next week. And that's all, which I think is very good news. And that's why we are very confident on the rebound of the top line in Q3. And then as you can imagine, we have a good traction in cloud, in cyber and in data AI because we are growing, in fact, in these 3 service line, let's say. You can see below some contracts that we have renewed. So for example, CNA in the U.S., it's a very big contract. There is some CM&I, there is a digital workplace and cyber, and we are also now looking for digital applications and the data AI, in fact, for the client, and it's an insurance company. So I definitely think that Agentic has a big impact in fact, in this company. We have, for example, with Gigalis in France, renewed a 4-year plan with cyber. It's what we call framework agreement. So it means that we have after that the possibility, I would say, to tender, put people or put, I would say, new projects in place. Most of the work, in fact, are not in the book-to-bill. So we are very cautious on this. And that's why it doesn't -- I think probably the book-to-bill is a minor, I would say, minor of probably what is going to happen on the revenues going forward. In the U.K., we have won a very good contract with the Ministry of Housing at GBP 63 million 7 years for digital applications. And for example, in the Germany, Austria, in Austria, we have won also a very big contract with OBB, EUR 48 million for 9 years. But I think that there is good traction. I see that there is more and more, I would say, appetite. Doors are open from the clients. I think it's much better than last year. And definitely, I think now we need to win, I would say, the contract. So I would say we are back to a normal business. If we go on Page 11, this is the 3 pillars in terms of technology. This is where we're going to invest most of our R&D and push, I would say, very hard. So Agentic, sovereign, and cybersecurity. So Agentic, as I say, we launched already the manifesto. We have already studios in place in the 4 big countries, and we have now signed different clients. And there is an ecosystem around us of start-ups that will help us, I would say, deliver the Agentic and the agents in the different scenarios of our clients. Then with the sovereignty, so there is a manifesto also that we're going to produce. It has been already shared with the top 200 within Atos in fact, last week, and we're going to share it externally in the course of next week or probably beginning of May. There is a lot of appetite, as you can imagine, right now, especially in Europe. And then cyber, of course, there are a lot of things going with this. We see also some developments with Agentic there. And of course, we have a very strong position, as you can imagine, in Europe, and we are pushing now also cyber in North America. Now if I go to the next page. So the next section is the Q1 revenue performance. So I can go through, I would say, the main numbers. So first, as you can see, when we looked at the Q1 restated, it's roughly EUR 2 billion. We take out the scope and the foreign exchange, the divestitures. So in fact, the perimeter going forward, which is without Build and without IDL and of course, without Latin America was roughly EUR 1.8 billion. We finished at EUR 1,640 million, which is roughly minus 11%. And as I say, we were, in fact, anticipating, let's say, a weak Q1. It will be much better, in fact, in Q2, and we are still looking to make the rebound in Q3. If you look, in fact, on Page 14 by region, we were probably a little bit, let's say, not surprised, but North America probably is too weak, the sentiment, in fact, the economic sentiment is a little bit, let's say, challenging in this area. The rest is okay. As you can see, U.K. now is growing at plus 5%. We estimate also that Germany will be on positive growth in Q2. So we see, I would say, region by region that I would say we are coming back to a positive territory in the coming quarters. If I go, let's say, region by region, so I start with Germany on Page 15. I think Germany is doing quite well. As you can imagine, also the EBIT now is positive in Q1. It was negative last year. And by the way, just for information, the EBIT of the group has more than tripled with our bill in Q1 versus last year. We don't publish, of course, the EBIT -- we will do this, in fact, in H1. But I would say we see the benefits of Genesis now going -- falling through, I would say, the P&L already, of course, in the beginning of '26. Then you have, I would say, some contract wins. I'm not going to go over, but I would say we are stabilizing, I would say, Germany. And as I say, we estimate that the rebound will happen in the course of this year. Now North America is probably the most difficult, let's say, region. In fact, the start of the year was probably lower than anticipated, but we are signing, in fact, a lot of new contracts and the book-to-bill is 10 -- so it's big. And definitely, now we estimate that we're going to ease, let's say, this contraction of revenues in coming quarters. You can see some below some big wins. The biggest one, of course, is CNA. And also, we have another one on CM&I at $30 million, as you can see below on the bottom, I would say, of the page. 17% is France. So France is still also challenging. Remember also that we did not have a budget in January and February. So it freezes a lot of our public and defense customer and public and defense in France is 40% of the revenues. So we know that the start of the year is probably, of course, lower than anticipated in the budget for us. But we have some very good signs for example, with SNCF, SNCF when I arrived last year, they said that they want to stop to work with Atos. And finally, we work -- we won a very big contract with them. So it means that the doors are open, as I say, in many customers. Gigalis also, it's a big contract we have won also for cyber. And you can see also other, I would say, wins and qualifications. U.K. on Page 18. So that's the rebound of the U.K. and also the profitability also is skyrocketing, as you can imagine. So we are very happy. And there is more to come. I think we have win also a big contract in Q2 that will be probably public. So I would say we are quite confident right now in the U.K. And as I said, that's the first region to come back to growth, and there will be more, of course, in the coming quarters. Last, international markets on Page 19. So we have taken out the 28, 30 that's Latin America. So in fact, without Latin America, it's around EUR 220 million, so minus EUR 12 million. It's mainly, in fact, impacted by one client in Asia, in fact, that is stopping the CM&I contract because they want to manage internally, I would say, their data. The good news is that we suffered, in fact, in '25, and we continue to suffer in '26. But at the end of the year, this ramp down is completely finished. So it means that we are quite confident that we will restart growing, in fact, in the course of '27. You can see also some wins that we have in Singapore, Spain and Slovak governments. Last, in fact, and it's not -- it was not international, sorry, is, of course, at Benelux, so Benelux or BN, what we call with Atos. This is also a slow, let's say, start of the year, but we are, I would say, quite confident also that this region is doing very well. We have win also different with Eurocontrol with -- in the automotive sector with DAF and also in the financial services, as you can see. Now Eviden as you can see on Page 21. So without Build, in fact, the revenues were EUR 71 million, and we are roughly at EUR 69 million. It's roughly flattish. In fact, we have been impacted by the war because part, for example, for Vision AI, a big chunk of our business is in Middle East. So we definitely think that it will be much better after the war concludes, but when nobody knows. But I would say we have a good traction in terms of also contracts, and we are very confident that we will accelerate both in the book-to-bill going forward and also, I would say, in the top line. So that's it for me. I give the floor now to Jacques-Francois for the liquidity position. Jacques-François de Prest: Thank you, Philippe, and hi, everyone. So on Page 23, as a reminder, the publication of the quarterly liquidity position is part of our regular reporting requirements, which have been defined and agreed with the group's financial creditors. So the certificates are available on our website. Our liquidity position remains strong at the end of March, thanks to the limited estimated cash consumption over the last quarter. In Q1, the net change in cash is estimated to be approximately minus EUR 47 million, which includes EUR 71 million spent related to the restructuring. This figure is reported without any use of the account receivable factoring or without any specific optimization on trade payables. This number is also reflecting the results before the estimated impacts. So you can -- we take them from the left to the right on the slide. So a, the change in the unsolicited payments received in advance of the invoice payment due date during the year. So that's the minus EUR 115 million. Then you have the exchange rate fluctuation, which amounts to approximately minus EUR 2 million. You have the M&A impact, which is plus EUR 257 million, and you have the debt repayment of minus EUR 62 million. So these amounts are excluded from the net change in cash, which I announced is minus EUR 47 million. And that brings us as a result, as of the end of March '26 to have the Atos Group's liquidity at EUR 1.736 billion, which is to be compared with EUR 1.705 billion at the end of December '25. And this is more than EUR 1 billion above the minimum requirement of EUR 650 million set by the credit documentation. So with that, I'll now hand over to Philippe. Philippe Salle: Okay. So just for the outlook, just I give you the numbers now with the FX at the end of March. So it's a little change just because, of course, as you can imagine, the dollar is weaker. So it gives in euro, let's say, a smaller revenues at the end of '25 with the FX of March. So we are still at EUR 7.1 billion. So compared to EUR 7.1 billion, of course, at the end of '25, EUR 312 million as the EBIT. We are now close, as I said, to 56,000 people without. And we are now in 54, sorry, countries of operation. So as I say, we continue also to close some countries will below 50 by the end of the year. Now if I go on Page 26 for the guidance of this year. So remember that at the beginning of this year, we say we will try to touch a positive, let's say, organic growth with, let's say, the start of this year and, let's say, the economic sentiment, we estimate that it's not going to be possible. So we have narrowed, I would say, the range. It's between minus 1% and minus 5%. So we still keep, I would say, the worst case at minus 5%. We think we will do probably better than that. And the best case, let's say, to minus 1%, so roughly a flattish revenue. Operating margin confirmed at 7%. As I say, we have tripled -- more than tripled the EBIT, in fact, in Q1. So we are very confident on the profitability of this group for '26, of course, and a positive net change in cash. So in fact, you've seen that we have already spent EUR 70 million with Genesis in Q1. Genesis this year is probably between EUR 150 million and EUR 200 million. So we have, in fact, spent more than, I would say, the average that we should have by quarter, and it's normal because we are accelerating the plan. And of course, the EBIT of the Q1 is always the lowest. So it means that it's a good sign, I would say, for the cash going forward. And then I would say for 2028, next year and 2028, we are still looking for an acceleration of the top line, still targeting around 10% of profitability. And of course, the deleveraging will continue. In fact, I would say with this year, the deleveraging, in fact, will be seen already in fact, in '26. And in fact, with hundreds of millions of cash next year because, in fact, the Genesis in terms of cash outs next year will be very small. We will produce a lot of cash to either do M&A or deleverage, I would say, the balance sheet. With that, I can now, with Jacques-Francois, take any questions that you have on the Q1 results. Our Q1 performance, it's not really results because we don't produce the P&L. Operator: [Operator Instructions] Our first question comes from the line of Frederic Boulan from Bank of America. Frederic Boulan: If I can ask 2. Firstly, on demand. So you flagged a strong order book momentum, a number of big contract wins. Can you discuss a little bit the nature of discussions with clients, any impact on demand from the current macro? I mean you flagged that for Eviden, but would be keen to hear any broader impact on the overall demand environment? And then specifically around pricing, it would be good to understand where you see price points in the deals you've been signing recently, how it's comparing versus, let's say, a year ago? And is this pricing driven by any kind of competitive or AI factors? Philippe Salle: Yes. So on the second point, Frederic, for example, CNA, the margin is 25%, which is roughly in line with the former margin that we have with CNA. Remember that the goal we have is to be around 25%, 26%. It's very important. And I'm very adamant on this. So I think probably, and that's why also the book-to-bill also last year and this year is probably lower than what we can achieve because we are still watching very closely the margin that we want to produce. Profitable growth, remember, is the goal for us. It's not very difficult to buy some contracts, but I would say it's far-ridden, of course, as you can imagine, since now beginning of '25. In fact, in some contracts, for example, like CNA, and it probably goes with the sentiment of the clients. Everybody, of course, is talking about AI. Nobody probably understands the impact of AI because it's very difficult right now to see what is going to happen. There are a lot, of course, disappointments, in fact, with some clients trying to put some agents because it's not that easy. And my view is that Agentic is the new revolution. It's coming, but it will take probably 2 to 5 years to be really in force, probably more in the U.S. at the beginning and after in Europe. So we see that in these contracts, for example, for its 8-year contracts, we're going to give, for example, some savings after year 3 and 4 in terms of -- let's say, in terms of Agentic. But in fact, we -- as I probably said already, since we don't know exactly the number of savings, in fact, we're going to share part of the savings that we're going to produce. But it's difficult, in fact, for clients and even for us to see the impact -- the real impact, I would say, of the savings we're going to have. So there are a lot of studies, and I'm sure that you've read some of them saying that we can divide by 2 by 3 by whatever. Unfortunately, there is one cost that nobody knows, it's the price per token. And we definitely think that this will probably say out in the future. And so it means that, in fact, there is a price for agents. There is probably, of course, less people cost in the contracts going forward. But the sum of the 2 right now is still, I would say, unknown. So I would say everybody is talking about AI. Everybody wants to us, let's say, to give some rebates or not rebates, but I would say, to apply, let's say, Agentic in our delivery and then give, of course. But I would say it's too soon even with the big contracts we are signing right now. They understand that there will be an impact, but it's too soon to say that there is a big impact. And as I say, for us, we're going to protect the margin. So we estimate that the margin of '25 probably will be more after that. And then we can probably produce more output on a given framework. Now the sentiment, I would say, of clients, it depends on the sectors. I think there are some sectors that are probably more difficult than the rest. Automotive is one, transportation, luxury goods. And other sectors, we don't see, in fact, a big impact on right now, let's say, the economy, the banking sector, insurance sector, defense, of course, and public, where we are very strong health care. So I would say it's a mix of sentiment, but you know that in economy, unfortunately, the fact that we -- there is a lot of uncertainty, it doesn't give, I would say, the sentiment to clients that they can spend more, specifically with AI. So I would say that for the moment, probably there is a postponement of some contracts or projects. They are looking exactly probably waiting, let's say, to see how the economy is going to rebound after the war. So there is more wait and see in some clients, let's say, for some projects. And that's why -- that's what we see for the moment. My view is that the projects will happen. But in fact, if you, of course, extend or postpone, let's say, by 3 to 6 months, it has an impact, in fact, in the -- for the '26 year. And then, of course, it will be good news for, let's say, end of this year and of course, in 2027. Operator: [Operator Instructions] Our next question comes from Sam Morton from Invesco. Sam Morton: Two questions, please. The first is on the bond buyback. So I think you bought back EUR 62 million of the 1.5 lien. Certainly the last time we spoke, I think you've been buying back the second lien. So I'm trying to understand what's the change in strategy there? And then secondly, any update you can provide on the refinancing, that would be really helpful. Philippe Salle: Yes. I think Jacques-Francois is going to answer your 2 questions. Jacques-François de Prest: Sam. So yes, the change of strategy is more or less in line, I think, with what we announced in the Q4 publication call, where we said that at the end of fiscal year '25, we thought the second lien was really very low actually and bought opportunistically a little bit of that. So last year, this was EUR 2.5 million of second lien. Now when we look at the NPV, the second lien has gone up. And it's true that the EUR 62 million amount we have bought back on the market, on the open market was only 1.5 lien bonds. Again, we noticed that -- how can I say, this bond was momentarily trading below due to geopolitical situation, nothing to do with the performance of the company. So since we had a little bit excess of cash, we decided to take advantage of that. We signaled that, and we implemented this program, which is not finished, by the way. It might be pursued in the coming weeks or months. That's the first question. On the second question, the refi, well, we are monitoring the market. The company is ready. So we have nothing to announce today other than we are checking how the market is evolving. We have some banks advising us. And when we think there is a good window allowing for a good operation and a good pricing, you and investors might hear from us. Operator: Our next question comes from the line of Laurent Daure from Kepler Cheuvreux. Laurent Daure: I have 2 really quick questions. The first is on revenue trends during the year. I think if I take the midpoint of your guide minus 3%. How do you see the phasing from Q1 to Q4? And what are the main drivers of improvement? Do you still have some contract ramp-up that makes the revenue trend much better, maybe starting in Q2? Or is it comps impact? Any granularity on how you see the year shaping would be helpful. And my second question is on the bond buyback. To clarify, you made EUR 62 million. are you cautiously looking at your balance sheet? Could you do much more than EUR 62 million, like EUR 200 million, EUR 300 million? Is it a question of liquidity of those bonds? So anything on the strategy on that would also help. Philippe Salle: Yes. So in fact, for the -- we estimate Q2 will be around minus 6% and then positive in Q3 and Q4, the positive, then you calculate whatever you want. The central scenario, let's say, at minus 3% for me probably is okay. And of course, if you have minus 11%, minus 6%, then plus and plus, if you divide it after that by 4, you are probably around this minus 3%. So I would say the central is around minus 3%. The worst case is at minus 5%. Then for the bond buybacks, the question for us, of course, we have probably plenty of cash, as you can imagine. And also, in fact, we're going to produce some cash this year. So if we start at minus EUR 50 million, of course, we're going to produce EUR 50 million plus now in the coming quarters. We want to buy, in fact, 1.5L bond, in fact, and that's the one we are looking at that is below EUR 100 million. So I think it's a good, let's say, buy for the group because it's cheaper than, I would say, the par, in fact, on -- for the bonds. And remember that the bond is around 9% yield. We are -- remember that we are also looking at refinancing. So that's why we have to be a little bit cautious between the refinancing. And remember also that we have some repayments of the 1.5L with the proceeds of M&A that should occur, in fact, at the end of the year. So it's an equation, I would say, with all these variables. So we will see if we continue to buy back bonds or we refinance first and then we continue to buy back also, we will see. Laurent Daure: So at the end of this year, you have to pay back with this half of your proceeds from M&A. Is it right? Philippe Salle: Exactly. The proceeds of WorldGrid, the proceeds of Latin America of [indiscernible], of course, it's small amounts for the 2 and the proceeds of Bull, it could be EUR 500 million plus. So remember that we have this EUR 500 million plus cash out that will happen at the end of the year. Jacques-François de Prest: May I complement, Laurent, this is as part of the credit documentation. We have a couple of moments in time in the near future where we are going to do the liquidity test. There is a bar at EUR 1.1 billion of liquidity. At the end of June, we are testing that on a forward-looking basis meaning that the company will -- we will do our forecast internally and the amount which are above EUR 1.1 billion at the end of December, we will use them to reimburse as a mandatory early repayment the 1.5 lien tranche. That's the first test. And the second test is we take the liquidity position, the actual liquidity position at the end of December. And again, against the EUR 1.1 billion, the amounts coming from the M&A proceeds will be used to repay early some -- the EUR 1.5 billion lien capped at the amount, which leaves us above the EUR 1.1 billion position. I hope it's clear. Laurent Daure: To be even clearer, if you do all that, what is your best estimate in terms of interest savings in '27 versus 2026 at the group level? Jacques-François de Prest: I'm afraid there are too many unknowns in the question to give you a number. Philippe Salle: If we do the refinancing, there are a lot of things that could happen again in the course of this year. So it's too soon to give you already, let's say, guidance on interest rates for '27. We can probably give this with the Q3 results. So probably in October I think we will have a better view. Operator: Our next question comes from Benoit De Broissia from Keren Finance. Benoit De Broissia: I have just one very quick question. It's -- you had one black contract in the U.K. involving Aegon. I noticed that Aegon sold its U.K. subsidiary in the weeks -- in a few weeks ago. Do you think that you could renegotiate with the purchaser, the contract you have and that is set to terminate in a few years in 2034, '33, if I'm not wrong. Philippe Salle: It's a very good question. Yes, the end of the contract is 2034. Yes, you have noticed that Aegon U.K. has been sold. So we are talking now to the buyer. It will be in May. In fact, we need to wait. And of course, the buyer has already a platform. So the good news is that do they want to keep only one platform or not and then stop the platform of Aegon, which then, of course, will stop the contract. It's too soon because, of course, we haven't talked yet, I would say, to the buyer. So we will have, of course, a better view in the coming months. But I think for us, it's a good news because I definitely think that they will not keep -- in terms of economies of scale, it doesn't make sense for them, I would say, to have 2 platforms. I think that their platform also is very efficient. So we will see how they want to play this. So there is a possibility effectively that they ask us to stop the platform that we have and then transfer the data to their new platform. So it means that the contract can end in the course, for example, of 2027. We will see. I don't know yet. It's too soon. But it's a very good question. It gives a good opportunity for us, yes. Operator: Our next questions will come from the line of Ryan Flew from PVTL Point. Ryan Flew: Just one quick one for me. So you've given quite clear guidance on sort of the cash add-backs or the adjustments to net change in cash to get to a true sort of unlevered or pre-debt repayment cash generation. Can you just help steer us on your '26 guidance? And clearly, there's a range there, but it feels from the adjustments you've discussed that actually the net change in cash will be considerably better than just positive. So just any further sort of color you could give would be really helpful. Philippe Salle: Jacques-Francois? Jacques-François de Prest: Well, Ryan, thanks for your trust and your faith. At this stage, our commitment and our guidance is to be free cash flow positive. I'm sorry, I will not deviate from that. Bear in mind that we have -- Philippe mentioned, the Genesis cash out impact is between EUR 150 million and EUR 200 million. So that's not nothing. And we have all the other lines of the cash flow statement, which are still consuming some cash. So yes, we're shooting for more, but our commitment is to be free cash flow greater than 0. Philippe Salle: But as you say, it's probably a conservative guidance, let's say. Operator: Our next question comes from Derric Marcon from Bernstein. Derric Marcon: Two questions from me. The first one on the book-to-bill. I just want to understand if it's -- the 87% is applied to the reported figures or the fully planned scope. And in this book-to-bill, talking about in absolute term, what's the proportion between renewal and new business? That would be helpful to have this figure. And my second question is on the M&A, the EUR 257 million you mentioned, can you reexplain what is included in this figure? Philippe Salle: Okay. So the 87%, it's Atos and Eviden. Atos only is 89% because as I say, Eviden has suffered from the war more than -- I would say the impact is more influenced, I would say, than Atos. And Eviden is more Europe, Middle East, in fact. So that's why probably I think the impact is higher. We definitely think that the rebound will come, but of course, we need to have more, let's say, stability. Then the book-to-bill between renewables. Derric Marcon: Is it from the go-forward perimeter or on the reported perimeter? Philippe Salle: Yes, the go forward... Derric Marcon: EUR 1.7 billion or the EUR 1.6 billion. Philippe Salle: No, no, it's only on the perimeter without Latin America and Bull. So 87%, 89%. 87% is the go forward and 89% is only Atos, okay? And it's Atos without Latin America, 87% is with Eviden without Bull. Then the renewals versus -- we don't have this number available right now. I cannot tell you. So we will come back to you on this one. And remember also, you're right that with renewals, of course, as I said, it inflates also the book-to-bill. And that's why it's a proxy for the book-to-bill. Be careful on this. It's not because the book-to-bill is below 100 that we're not going to grow on the company. I definitely think that it's possible. And in fact, we have shown this in the U.K. Then for Bull. So Bull, in fact, remember, there is a lump sum of EUR 300 million at the beginning, plus 2 earn-outs. The EUR 300 million is the EV, the EUR 250 million is the equity. So in fact, we went from EV to equity without the provisions and the pensions, okay? So it means that the EUR 250 million was the equity check that we had for Bull without the 2 earn-outs. Then the EUR 250 million, we take out the carve-out cost. We estimate around EUR 50 million. A part of it was expense, I would say, in the course of '25, the rest, of course, in Q1. We estimate around EUR 50 million. So it means that the net cash for us is close to EUR 200 million, okay? Remember also that Bull has a negative cash flow in Q1. We don't know how much. So we need to take this also into account. So the EUR 200 million will be probably less, EUR 170 million, EUR 180 million. I don't know yet exactly how much. As I said, it depends on the working capital we're going to have on Bull, but it's quite tricky for us to calculate the working capital of Bull, because, in fact, for some of activities of they were on the same company as Atos or the other, Eviden. And that's why even on the bank accounts, unfortunately, we need to look line by line on the cash, I would say, to reconstruct, let's say, working capital. And that's why we're going to give you the figures with the H1 figure, in fact. So that's roughly EUR 200 million without carve-out cost and I would say, equity check, probably less with the cash outflow of Bull in Q1. And then we still have the earn-out. The first one is maximum EUR 50 million, and we estimate we can gain around, let's say, EUR 40 million plus. We will see, I would say, they need to close their accounts. And it's, I would say, linked to the gross margin of Bull. And then the second earn-out is on the EBIT of Bull in '26. But of course, as you can imagine, the EBIT of Bull in '26 is not in my hand, unfortunately. So it's difficult to see what is going to happen on the second earn-out. So we will see what happens on the first one. It's going to be a negotiation that will start, I would say, after the closing of the accounts. Unfortunately, Bull is not very, let's say, quick on the closing accounts. So we will have probably -- numbers probably after the summer. Derric Marcon: And so to get -- Philippe, to get to the EUR 257 million mentioned in the liquidity position. So you have Bull EUR 200 million after carve-out, if I understood correctly, plus other things like Scandi or Latin America... Jacques-François de Prest: So I can say the angle Philippe took was the angle of explaining the story for Bull. Now in the carve-out costs, some of that has been spent in '25 already, a little portion in Q1 '26, and there is a bit more to come in the rest of '26. The vast majority of the EUR 257 million you can see is coming from Bull, the vast majority of that. You have then a plus EUR 10 million and the minus EUR 10 million, which comes from the disposal of some other relatively small assets and some deduction for the carve-out cost for Cartier, but you can assume that 95% of that is Bull. Derric Marcon: Okay. And Latin America and Scandi will come later in the year? Jacques-François de Prest: Scandi has been closed. Scandi has been closed already. That's what I was referring to as other proceeds. That has been completed in Q1 already. And for Latin America, the closing is scheduled in the coming weeks. So there is not a penny yet of proceeds from Latin America in our Q1 numbers. Operator: We have no further questions from the line. Allow me to hand the call back to management for closing. Philippe Salle: Okay. Can you ask one more time if there are other questions or not, and then we can close. Operator: [Operator Instructions] Philippe Salle: Okay. If there are no more questions, then thank you, everybody, for this morning. We have some, let's say, a small road show, I would say, with some investors today and tomorrow. And we, of course, remain at your disposal if you have any questions. But overall, I would say we are very confident on the rebound of the company. I'm very pleased, I would say, on the results and very confident that this year of the rebound and in terms of cash flow, I think there is no surprise for us, neither on, I would say, the profitability and cash flow and the rebound will occur in the course of H2. So next time, I will talk to you end of July. So have a good day, and see you in 3 months. Bye-bye. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Ahmed Moataz: Hello, everyone. This is Ahmed Moataz from EFG Hermes, and welcome to IDH's 2025 Results Conference Call. I'm pleased to be joined with Dr. Hend El Sherbini, Chief Executive Officer; Sherif El Zeiny, VP and Group CFO; and Tarek Yehia, Director of Investor Relations. As usual, the company will start with a brief presentation, and then we'll open the floor for Q&A. IDH's management, please go ahead. Tarek Yehia: Good afternoon, ladies and gentlemen, and thank you for joining us for the full year results. My name is Tarek Yehia, I'm Head of Investor Relations. Joining me today Dr. Hend El Sherbini, our CEO; and Mr. Sherif El Zeiny, our CFO. Dr. Hend will begin the call with a summary of the main highlights from the year. After that, I will discuss in more detail the main macro and geopolitical trends seen across our markets. After my presentation, Mr. Sherif will offer a deeper analysis of our financial performance. We will then open for Q&A. With that, I will hand it over to Dr. Hend for her introduction. Please, Dr. Hend. Hend El Sherbini: Thank you, Tarek, and good afternoon, everyone. I'm Dr. Hend El Sherbini, CEO of IDH. I'm pleased to report that 2025 was another very strong year for the group with robust operational and financial performance across our core markets and continued progress on our strategic priorities. The results we are presenting today reflect not only improving market conditions in key geographies, but also the tangible impact of the strategic initiatives we have been implementing over the past 2 years, particularly around network expansion, service diversification, digitalization and operational optimization. Throughout the year, we continue to strengthen our leadership in Egypt and Jordan while making very encouraging progress in Nigeria and Saudi Arabia. We are also very pleased with the sustained improvements in profitability across the income statement, which continue to validate the scalability of our model and our ability to translate growth into stronger returns. More broadly, we are encouraged by the increased resilience of our platform, which today combines scale, a richer service mix and improving efficiency across markets. Turning to our performance in more detail. During 2025, we continue to build on the strong momentum established over the prior year, delivering 37% revenue growth year-on-year supported by growth across both volume and value metrics. Test volumes increased by 11% during the year, with all operation geographies contributing to this expansion, supported by stronger patient engagement, deeper penetration in both walk-in and corporate channels and improving refer flows. At the same time, our average revenue per test rose 24%, and reflecting a richer test mix, broader uptake of radiology and specialized diagnostics [indiscernible] of the pricing actions introduced earlier in the year. These trends also helped us further strengthen our average test per patient metric, which reached 4.6 tests per encounter, demonstrating the continued depth of patient relationship and our success in expanding cross service utilization across our platform. In Egypt, momentum remained very strong throughout the year, supported by solid growth in both volume and value alongside strong brand equity and a more supportive macroeconomic backdrop. Test volumes in Egypt continue to expand steadily, while average revenue per test saw a strong uplift driven by favorable mix dynamics, including higher value radiology, radiotherapy, specialized diagnostics and corporate channels. Egypt remained the core engine of the group performance, contributing 84.6% of total revenue in 2025 and continuing to demonstrate strong scalability, resilience and operating efficiency. The continued expansion of our physical network in Egypt remained a key growth driver during the year. Over the past 12 months, we added 137 new branches in Egypt, bringing the total to 724 locations nationally at year-end. These new sites have helped deepen our presence, not only in Greater Cairo, but also in underserved and fast-growing regional cities. Allowing us to better serve both contract and walk-in patients. Our household service remains a strategic differentiator, sustaining its strong contribution of around 20% of Egypt's revenues continues to demonstrate the effectiveness of our post-pandemic strategy and reinforces our position as an early mover in home-based diagnostics in the region. Al Borg Scan continues to demonstrate strong momentum as a key component of our long-term strategy to build a more integrated diagnostics platform. During 2025, we took an important strategic step with the acquisition and integration of Cairo Ray for Radiotherapy, which broadened our capabilities in radiotherapy and strengthened our position in oncology diagnostics. This transaction enhances our ability to participate more meaningfully in higher-value specialized diagnostics and supports our ambition to build a more comprehensive offering for patients and referring physicians. We expect radiology and radiotherapy to play an increasingly prominent role in our growth mix over the coming period, supported by expanding service capability, greater patient awareness and growing demand for specialized imaging and treatment support service. Over the past 2 years, a key strategic priority for IDH has been the successful launch and upscale of our Saudi operation. I'm pleased to share that our presence in the Kingdom continued to progress very encouragingly during 2025. With strong momentum supported by growing demand, deeper market visibility and sustained improvement in both volume and value metrics. During the year, Biolab KSA generated SAR 5 million in revenue, representing a 252% year-on-year growth as test volumes and patient throughput increased sharply, and the business benefited from the expansion of the network to 3 branches. This growth continues to highlight the effectiveness of our ramp-up strategy in the market, which is designed to accelerate revenue growth and establish Biolab KSA as a recognized provider in the large but highly fragmented [ Saudi's ] diagnostics market. At the same time, we continue to advance our growth approach, which includes targeted marketing campaigns to build brand recognition, selective promotion initiatives to drive patient acquisition and ongoing efforts to strengthen physician and patient engagement. While still in the early stages of development Biolab KSA is demonstrating strong operational traction and reaffirming our belief in the long-term potential of Saudi Arabia as a key pillar in the group's regional growth strategy. As always, profitability remains a core focus for us, and we are very pleased to see sustained improvement across all levels of the income statement. We continue to benefit from strong operating leverage, tighter cost controls and better resource allocation across our subsidiaries, including Nigeria, where Echo-Lab delivered a full year of positive EBITDA, marking a key milestone in its turnaround and confirming the potential of this high-growth market. Overall, both COGS and SG&A as a share of revenue continued to decline, supported by disciplined cost management and our growing digitalization efforts. COGS to revenue fell from -- fell to 57.3%, while SG&A declined to 15% from 16.9% last year, underscoring the success of our optimization initiatives. Consequently, our EBITDA margin expanded to 34.9% from 29.7% last year, while gross profit margin rose to 42.7% compared with 38.1% in 2024. These efforts, combined with strong top line growth and improved pricing and mix have translated into meaningful margin expansion and greater earnings quality with adjusted net profit increasing 79% year-on-year. I'm also very pleased to share that the Board of Directors has declared a dividend of USD 0.0085 per share for the year ended December 2025, presenting a total distribution of USD 4.9 million. This reflects our commitment to delivering sustainable shareholder value while preserving the flexibility to fund attractive growth opportunities. In parallel, we remain prudent in our capital allocation approach, and we'll continue to reassess distribution in line with evolving market conditions and investment needs. Before handing the call back to Tarek, I would like to briefly touch on how we view the business as we move into 2026. We entered the year with a stronger platform, broader geographic footprint and improved profitability profile, which we believe positions us well to continue expanding access to high-quality diagnostics while driving sustainable growth. Our focus remains on deepening our leadership in Egypt, accelerating the ramp-up in Saudi Arabia, building on the turnaround achieved in Nigeria and continuing to improve operating efficiency across the group. At the same time, we remain mindful of evolving regional developments including the escalation of the U.S., Israel conflict with Iran in early 2026, which may introduce heightened uncertainty across the region, particularly in markets such as Jordan and Saudi Arabia. With that, I'll hand the call back over to Tarek and Sherif, who will take you through key trends across our markets and a more detailed breakdown of our financial performance of the year. Thank you very much. Tarek Yehia: Thank you, Dr. Hend. So far this year, we have continued to operate in a relatively stable condition with supportive macro trends and constructive trajectory across all our key markets. In Egypt, we saw inflation continue to ease materially compared to prior periods, helping support a more constructive operating environment for both business and consumers, improve ForEx liquidity and a stronger investment confidence continue to a more stable backdrop for Egyptian pound during much for the year, which in turn supported planning visibility and reduce pressure on imported inputs. More recently, however, management has been closely monitoring, evolving regional developments, including escalation of U.S. conflict with Iran in early 2026. Similar to Egypt, Nigeria also saw gradual improvement during 2025 with reforms and relative currency stabilization, helping support a recovery in patient activity and more predictive operating conditions. Over in Jordan and Saudi, the health care demand backdrop remained broadly supportive through 2025. Also both markets continue to be exposed to wider regional geopolitical developments. Jordan continued to benefit from a stable health care system supporting consistent demand for diagnostics, while Saudi continued to benefit from structural reforms momentum under Vision 2030. Recent geopolitical development in the region have increased uncertainty and continue to monitor the potential implication for economic activity and patient volumes. Turning quickly to our latest full year results. Egypt continued to deliver a strong broad-based growth with revenue rising 41% year-over-year supported by both volume expansion and significant increase in average revenue per test, particularly driven by radiology, radiotherapy and higher value diagnostic. Meanwhile, Jordan continued its solid performance reporting revenue growth in both Egypt and local currency terms, test volumes increased by 21% year-on-year, supported by Biolab ongoing promotional digital outreach and loyalty initiatives. In a market where volume-led growth remains critical for long-term sustainability, we are pleased to see Biolab's strategy continue to support strong demand and patient retention. In Nigeria, Echo-Lab achieved a full year of positive EBITDA, supported by successful implementation of turnaround strategy and improving operational conditions. We are increasingly confident in the long-term potential of our Nigeria subsidiary to expand its service offering and capture significant upside offered by this growing market. In Saudi, the ramp-up continued very encouraging with revenues increasing supported by stronger brand visibility, network expansion and patient growth. With the third branch now operating and the group aiming to launch 3 additional branches over the coming months, we expect a further growth in revenue and scale in the Kingdom. Finally, in Sudan, operation remains significantly constrained by the ongoing conflict with only 1 branch partially operating and no material change to the report at this stage. I will now hand the call over to Mr. Sherif, who will provide a more detailed overview of our cost, profitability and balance sheet position for the year. Sherif Mohamed El Zeiny: Good afternoon, ladies and gentlemen, and thank you for your time today. As Tarek mentioned during my presentation, I will focus on costs, margins, profitability and our working capital and liquidity position before we open the floor to your questions. In line with the priorities we set out at the start of the year profitability for fiscal year '25 improved materially supported by our group-wide efforts to enhance operational efficiency and maintain tight control over spending. A major focus area over the past 2 years has been digitalization where we have continued integration data tools and analytics into our internal platform, procurement systems and financial planning process to improve decisions making and cost discipline. These efforts, combined with stronger operating leverage and better resource allocation helped drive meaningful improvements in efficiency with both COGS and SG&A as a share of revenue declining versus last year. More specifically, our COGS to revenue ratio improved to 57.3% in '25, down from 61.9% in '24, supported by disciplined inventory management and stronger purchasing costs. The most notable improvements came within raw materials, which decreased to 19.3% of revenue from 22% last year, reflecting our scale advantages and smarter procurement practices. At the same time, total wages and salaries as a share of revenue remained well controlled, underscoring our balance between supporting our staff with operation -- appropriate salary adjustments and continuing to optimize headcount and productivity. As you can see in bottom right chart, these efficiency gains translated directly into stronger profitability with gross profit margin expanding to 42.7% from 38.1% last year and adjusted EBITDA margin rising to 34% from 29.7% in '24. On the SG&A front, spending remained well contained. With SG&A as a share of revenue declining to 15% despite continued investment in strategic growth initiatives. The main increases within SG&A were in wages and salaries as well as advertising and marketing expenses, reflecting annual salary adjustments, selective additional -- additions to support growth and continued marketing investments in Saudi Arabia alongside targeted campaigns in Egypt and Jordan. Even with these investments, the group continued to capture operating leverage highlighting the scalability of the business and the impact of tighter cost discipline across function. Moving to our bottom line. We reported net profit of EGP 1.3 billion in '25, up 29% year-on-year. As highlighted earlier, fiscal year '24 included elevated ForEx gain, which created a high comparative base and distort direct comparisons. When controlling for ForEx expects in fiscal year '24 and nonrecurring items in fiscal year '25, adjusted net profit increased 79% year-on-year to EGP 1.26 billion with an associated margin of 16.1%. As always, we maintain a disciplined approach to working capital management while supporting growth and preserving a strong liquidity. Similarly, we saw our cash conversion cycle improved further to reach 104 days in December '25 versus 155 days at the end '24. It is also important to mention that, as expected, we saw a decline in Days Inventory Outstanding, a stronger sales momentum and more efficient inventory turnover during the second and third quarter of the year following the seasonal Ramadan slowdown in March. Finally, as 31st of December '25. Our total cash reserves stood at EGP 2.1 billion compared with EGP 1.7 billion in '24, with a net cash balance of EGP 472 million versus EGP 226 million last year. This strong liquidity position supported the Board's decision to declare dividends of USD 4.9 million while preserving flexibility to fund attractive growth opportunities. Thank you for your attention. We now welcome any questions you may have. Thank you. Ahmed Moataz: [Operator Instructions] We've actually received a couple of questions in the chat. I'll take them one by one, so that you're not confused. Within the volume growth that you've seen in Egypt, would you say that it has been driven by both existing and recently opened branches or it's entirely driven by recently opened ones and the like-for-like within the mature ones are either flat or declining? Tarek Yehia: Actually, it is both the new branches that we opened during the year and all the existing ones, both were contributing to the sales. Ahmed Moataz: Understood. The second question is on your plan for Saudi in terms of branch openings. Do you have a set in place number of branches you intend to open in '26 and beyond? That's one. And the second, would you be able also to provide us on when you expect EBITDA breakeven for the operations in Saudi and maybe also revenue contribution, not just right now, but maybe a longer-term revenue contribution? Tarek Yehia: Saudi during 2025 have existing 3 branch, and we are planning for next year is 6 branch -- in 2026, another 6 branch to reach by end of 2026, 9 branches across all Saudi as much as we can. And EBITDA is turning positive by 2028. Ahmed Moataz: All right. The following question is on Sudan update, but you've already mentioned that till now, there is no update. You only have 1 branch opened. Another question is on guidance for 2026. If you can provide on that? And also, if you can also disclose the magnitude of price increases that you've already done in January of 2026. Tarek Yehia: For 2026, we are expecting an increase of 25% on sales, a 10% increase in prices and 15% from volume. We're keeping an EBITDA of range -- same range of EBITDA of around 33% to 34%. Ahmed Moataz: Understood. The last part is with the recent weakness in the Egyptian pound and also the geopolitical issues that are somewhat reflecting in higher either freight costs or importation cost, maybe also raw material costs. How do you see this impacting the business? And also how much coverage of inventory do you already have that is secured into the business that would kind of save -- act as a safe haven before you start to see that impact on your P&L? Tarek Yehia: Business till now is not affected in Egypt, and we are securing inventory in order to keep the operation up and running, and we secured the inventory until August. Ahmed Moataz: Understood. [ Jena ] has 3 questions. You've answered -- the first one, I'll just say it out loud, so that's covered by everyone. Please provide revenue, EBITDA and net income guidance for 2026. You've already answered this, but maybe if you have guidance for net income. You've mentioned revenue and EBITDA. The second is -- you've answered most of the second question. The only thing is, that hasn't been answered, what's the percentage of total test kits that are imported? And another follow-up is how many months of test kit stocks do you have? I'm not sure if when you answered and said till August, this covers the test kits or your entire raw materials? Hend El Sherbini: So we import all our kits. So nothing is produced in Egypt, almost nothing. We -- and yes, we have a coverage till August. Ahmed Moataz: All right. And for the entire business, what is the annual target for a number of branch openings going forward? Tarek Yehia: Around 200 across Egypt, Saudi and Jordan. Ahmed Moataz: This is for 2026? Or this is an annual target in general? Hend El Sherbini: This is for 2026, but it includes clinics and hospitals. So they are not -- they're just the regular branches. Ahmed Moataz: Okay. Understood. Andrea is asking -- or actually, first, congrats on the results. Can you please provide any details and guidance on the share of radiology revenue as a percentage of total as it has stayed flat at 4.7% despite the Cairo Ray acquisition. Tarek Yehia: It's still 5% of revenue. Ahmed Moataz: You mean the target in general is 5%, right? Tarek Yehia: The actual is 5%, and it will be increased over years when the business is picking up more and more. Ahmed Moataz: Okay. [ Jena ] is asking with almost $40 million of cash on your books, are you looking to do a buyback? Hend El Sherbini: We have -- we actually have an approval for a buyback. However, we haven't decided to do that. But it is an idea that we're discussing. Ahmed Moataz: Understood. Someone is asking a follow-up on a prior question, which is do you have any revenue targets for Saudi Arabia in 2026? Tarek Yehia: Yes. The target is SAR 18 million. Ahmed Moataz: Right.[ Zoher ] is asking your branch openings target in 2026 for Saudi was 6. Why has this now been pushed out? Tarek Yehia: No, it is the same 6. We have 3 existing in 2025, and we're increasing by another 6 in 2026. Total will be by end of 2026 is 9. Ahmed Moataz: All right. Another follow-up from [ Zoher ] is why decide such a low dividend payout when the CapEx in Egypt ahead is low, given the clinic and hospital model that you have? Tarek Yehia: As we are balancing between investing and distributing dividends, we declared these dividends, and we are seeking more investments in order to grow. So we will revisit if needed, but still we keep it as it is now. Ahmed Moataz: Understood. [ Anup ] is asking household service percentage of revenue has been stable at around 20%. Is this the level of saturation for the service? Or is there further potential to increase household service contribution to total revenues? Hend El Sherbini: We're continuously expanding household service, expanding the team and the service and the value creation for our patients. Right now, it's 20% of revenue. However, the revenue itself is increasing. So the -- I mean the revenue coming from household is also increasing. But I think we still have a big room for growth in household. Ahmed Moataz: Understood. [ Zoher ] is asking if you can provide CapEx forecast or budget for 2026? And if you can break that down by geography? So Egypt, Jordan and Saudi. Tarek Yehia: CapEx is around 5.9% of total sales versus last year of 4.8%. The main CapEx will be for Egypt. Some will go for the new branches. Some goes for IT warehouse, then followed by Saudi and followed by KSA. Ahmed Moataz: [Operator Instructions] So the final question we've received for the time being is how much of your Egypt expansion do you expect will come from hospitals and clinics. Tarek Yehia: It's around 9% coming from this new business, we are going in-house and clinics -- hospitals and clinics. Ahmed Moataz: All right. We haven't received any further questions. So I'll pass it back to you in the case you have any concluding remarks. Otherwise, I can conclude the call now. Hend El Sherbini: Thank you very much, everyone. Ahmed Moataz: All right. Thank you very much to IDH's management and to everyone who participated today. Have a good rest of the day, everyone. Sherif Mohamed El Zeiny: Thank you very much. Bye-bye.
Operator: Good morning, and welcome to the UnitedHealth Group First Quarter 2026 Earnings Conference Call. A question-and-answer session will follow UnitedHealth Group's prepared remarks. As a reminder, this call is being recorded. Here are some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on the financial and earnings reports section of the company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated April 21, 2026, which may be accessed from the Investor Relations page of the company's website. I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley. Stephen Hemsley: Thank you, Lisa. Good morning, and thank you for joining us today. The first quarter unfolded largely as expected, reflecting actions taken in the past several months to drive consistent performance across each business. The quarter saw continued progress in advancing our organization's performance, culture and better business practices. All of our major business segments exceeded plan for the quarter. At UnitedHealthcare, pricing is improving relative to elevated health care cost trends and affordability initiatives are generating positive momentum. At Optum Health, operational improvements continue to take hold as we more deeply embed disciplined, integrated value-based care practices market by market. Optum Insight is seeing increased market interest with its AI-first enterprise approach. Tim Noel and Patrick Conway will discuss these efforts in more detail in a minute. We're encouraged by the way the year has started. We remain grounded in the need for consistent execution in managed care fundamentals and on a strategy to help build an integrated value-based health system that together makes things better and simpler for care providers, patients and customers. We are investing in AI-enabled modernization, while early, these capabilities are already improving experiences for consumers and care providers, increasing productivity and reducing administrative burden. The application of technology has long been foundational to how this enterprise operates and how we can help others across the health system improve their operations through Optum Insight. We remain on track to invest nearly $1.5 billion in AI-related initiatives in 2026. I hope our conversation today gives you a sense of the momentum building at our company and the steps we've taken to strengthen the enterprise and position it for long-term success. We have refocused the organization squarely on U.S. health care exiting non-U.S. businesses. We have refreshed nearly half of our top 100 leadership roles. Our accelerated technology and AI investments are showing meaningful potential, and we're actively evolving business practices in areas such as data and processing interoperability and speed, pharmacy practices, prior authorization, product and reporting transparency and management practices more broadly. At the corporate level, we strengthened governance by creating a Public Responsibility Committee of the Board, naming a new Lead Independent Director, new committee chair, adding a new independent director and accelerating our Board recruiting process. And we've redoubled community engagement and support with renewed focus and resources through the United Health Foundation and an expanding commitment to improving rural health care, expanding the health care workforce, strengthening maternal and children's health, addressing the challenges of behavioral health and more. We strive to be an organization people proud to work for and with these efforts and others will remain central to those goals. With that, I'll turn it over to Tim and Patrick to provide insights on our quarter and goals for the remainder of the year. Tim? Timothy Noel: Thanks, Steve. As Steve said, the actions initiated last year are driving early momentum in UnitedHealthcare, both in our business results and in the experiences members and care providers have when they engage with us. Medicare & Retirement results reflect disciplined pricing strengthened by affordability initiatives in an elevated but stable medical trend environment. Community & State results continue to reflect the pressures in state-based rate environments, but were within the overall expected range. Commercial and ACA results were consistent with pricing and trend assumptions, albeit still early in the year. Our 2026 approach prioritizes margin recovery and product stability with a deliberate trade-off on membership growth, particularly in Medicare and commercial markets. Care utilization trends in the quarter remained consistent with our expectations for 2026. The quarter's medical cost performance overall was driven primarily by net reserve development, better mix and enrollment dynamics in government programs. As we monitor underlying utilization trends, they remain consistent with the high levels we saw in the prior year. At this distance, we anticipate trends to remain at the anticipated levels for 2026. In Medicaid, we remain focused on improvements in high acuity care management and operating cost management. First quarter performance reflected a combination of favorable reserve development and early in-year medical cost experience. We continue to expect membership attrition and negative margins in 2026 in light of continuing high trend and insufficient funding with modest margin improvements beginning in 2027. Many state rate processes are still open for the remainder of 2026 and into 2027. Appropriately aligning state rates to elevated medical cost trends in these programs is essential to sustainably serving people who rely on them. We continue to advocate for this with state partners, alongside our own disciplined cost management and operational efficiencies. We are intensifying our work with states to address areas of potential fraud, waste and abuse. For our commercial business, membership levels, renewals and trends were generally in line with the expectations we shared with you. The pricing actions we have previously discussed are materializing as intended, preserving margin while contributing to some moderation in growth. Self-funded offerings continue to perform well. We are approaching the 2027 selling season with a focus on appropriate pricing for the elevated cost environment and meeting employer needs for more modern tools to support consumer engagement and affordability. As anticipated, the individual ACA business continues to contract. We still expect total membership to decline by approximately 1/3 in 2026. Our approach in the ACA market continues to be directed towards the bronze and gold tiered products, where member mix and utilization rates are largely aligned with plan. As a reminder, we pledge to refund any 2026 profits from these plans and our first quarter results reflect this pledge. In Medicare, medical trends remain elevated, but in line with our pricing assumptions. This reflects continued service intensity and higher provider billing patterns consistent with what we saw exiting last year. This is an issue that we are squarely addressing. Turning to enrollment. Results from the annual enrollment period were largely as expected, and OEP retention has remained stable. At this point in the year, we expect membership to contract consistent with previous guidance, but centering more around a drop of 1.3 million. On the final Medicare Advantage rate notice for the 2027 plan year, we appreciate that the Trump administration better aligned funding with increasing health care costs. It's an important step to preserving stability for the millions of seniors who rely on MA and toward ensuring this vital program's long-term sustainability. Turning now to our efforts to improve the patient and clinician experience when they engage with us, starting with prior authorization. Prior authorization remains a critically important tool for eliminating fraud, waste and abuse and for helping ensure patient safety and quality care. We also recognize it is a source of frustration, and we are working to reduce that. Nearly 95% of prior authorization requests are now submitted electronically. About 50% of those are processed in real time, and more than 90% are approved on average in 1 business day. We are working to enable more prior authorization submissions to be made directly within care provider workflows. In addition to the steps we are taking to further reduce the overall number of medical prior authorizations by 30% or more by the end of this year. Member adoption of UHC AI-powered digital tools continues to grow. Almost half of all members are now registered for and using UHC digital access. We saw 73 million digital visits in Q1, up 42% over the last 2 years, reflecting sustained and growing engagement with our digital platform. Digital self-service is now the primary way members interact with us, with over 80% of consumer contacts through digital formats and an NPS in the top quartile of the industry. For care providers, digital channels continue to grow, with transaction volumes up 75% year-over-year and about 75% of in-network providers using our portal or API tools. This improves real-time access to eligibility, benefits and claims status while reducing manual outreach, enabling clinicians to spend more time on caring for patients. We are intensifying our efforts to help independent rural health care providers. We will accelerate payments in all lines of business by 50% for rural hospitals and exempt rural health care providers for most medical prior authorization requirements. And we are building network partnerships between rural providers and leading regional health systems. Together, these initiatives will help lower costs and simplify processes for care providers and greatly enhance access to quality care for people in rural communities. All these efforts and others like them are part of our commitment to pursue and invest in new and innovative ways to fulfill our mission to help people live healthier lives and help make the health system work better for everyone. With that, I'll turn it over to Patrick. Patrick Conway: Thanks, Tim. Across Optum, positive first quarter results reflect strengthened operations, continued investment in growth and changes that make engaging with us easier for patients and provider and clinician partners. I'll start with Optum Health. Adjusted earnings of $1.3 billion reflect pricing and operational improvements that began in the back half of 2025 as well as actions taken to improve contracts and reshape our value-based care portfolio to better align with the original purpose and risk profile for that strategy. As we have shared over the past 3 quarters, our efforts are focused on management and process improvements that steadily improve margins at Optum Health for 2026 and accelerate into 2027. A key part of the progress is Optum Health's returned to a disciplined, integrated value-based care model with increasing prices from health systems, rising patient acuity and higher consumer expectations, integrated value-based care is the most effective way to improve outcomes and manage total cost of care over time. We are privileged to serve over 20 million patients in our Optum Health care models across the country, including over 4 million in fully value-based arrangements. Both patients and care providers do better when incentives are aligned towards care outcomes and not the quantity of services provided. For example, new research published in the American Journal of Managed Care showed that among nearly 2 million dual-eligible patients, those in value-based care arrangements had 24% fewer acute inpatient hospital admissions and 29% fewer emergency room visits than patients in traditional Medicare. We are improving patient experience and outcomes through efforts to stabilize staffing, increase productivity, improve scheduling and standardized workflows in both our value-based and fee-for-service models. It is this kind of operational focus that improves clinical outcomes by better focus and deployment of clinical resources to the right care, time and setting. And that gives us a clear path to long-term sustainable margin levels of 6% to 8%. One example, our West region, where in response to rising patient acuity, we deployed more data-driven clinically-led navigation in areas such as hospital admission and discharge, skilled nursing facility transitions and emergency department encounters. Since the last quarter, clinical reviews have increased by more than 50% and with earlier patient intervention and more consistent care coordination. We're already seeing inpatient and skilled nursing admissions trending sharply below historical levels, including an approximately 35% reduction in skilled nursing admissions in the first month compared to last year. These efforts are expanding to additional markets and reflect how using real-time data, strong clinical leadership and coordinated care to improve outcomes can drive more predictable performance. Within our fee-for-service businesses, we've brought more managed structure and accountability, starting with clear scheduling guidelines, stronger regional leadership and better data and analytics to match supply and demand. These new standards are now in place across nearly 70% of our settings and are on track to reach nearly 80% by the end of the second quarter. They have already driven a 12% year-over-year increase in patient-facing hours which is better for both clinicians and patients. We are rapidly scaling self-service digital scheduling, including AI-enabled tools that guide patients to the right appointment in the right setting at the right time for them. That's improving access, reducing friction and expanding capacity without adding incremental clinical burden. Moving to Optum Rx. We started the year by onboarding more than 800 new clients while reducing contact call center volume 25% through enhanced digital and AI-enabled self-service with member satisfaction over 95%. Our unique PreCheck Prior Authorization capability reduces prescription approval time from over 8 hours to under 30 seconds and provides a 68% reduction in denial due to missing information and an 88% reduction in appeals, easing interaction for clients, members and providers. First quarter utilization and drug cost trends were as expected, with scripts down slightly year-over-year reflecting some membership mix and attrition. As manufacturers continue to implement significant drug price increases and with more complex specialty drugs, representing over 50% of drug spend, the role of pharmacy care is more important than ever in helping patients access affordable drugs. At Optum Insight, new AI-first products continue to gain traction. Optum Real is helping payers and care providers deal more efficiently with administrative functions, such as claim adjudication and coverage validation and can reduce manual contact costs by 76%. Other AI initiatives help automate provider, payer and internal workflows, improving accuracy, reducing administrative burden and strengthening our role as a technology partner for the health system. Within Optum Insight, Optum Financial Services continues to perform well and has agreed to acquire Alegeus Technologies, a leading health financial services business. This is an important step in providing more flexible consumer-centered solutions for the people we serve. This transaction is expected to be accretive in 2027. Our AI-enhanced performance gives just a flavor of what Optum can do to help physicians and clinical care teams, payers and patients. Wayne, I'll turn it over to you. Wayne DeVeydt: All right. Thank you, Patrick, and good morning. Our first quarter results reflect improving fundamentals and a strengthening of operations across our businesses. As Steve mentioned, all our operating segments exceeded our plan for the quarter with particular strength in Medicare and Optum Health. For the first quarter, we reported adjusted earnings per share of $7.23, well ahead of our expectations and backed by strong quality metrics, including cash flows and reserves. We continue to balance near-term performance with disciplined investment in longer-term strategic priorities. Total revenues in the quarter were $111.7 billion, reflecting 2% growth year-over-year, driven by disciplined pricing actions and member mix. We now serve 49.1 million total members domestically, compared to 49.8 million at the end of 2025. Turning to medical costs. Our reported medical care ratio of 83.9% compares to 84.8% in the first quarter of 2025 and is a result of pricing discipline, strong medical cost management and favorable reserve development. The first quarter benefited modestly from seasonal dynamics, including lower-than-expected respiratory activity. Consistent with our guidance, we expect some of these dynamics to moderate as we move further into the second quarter, particularly given the impact of IRA-related changes to Part D seasonality, which meaningfully shifted the earnings profile beginning in 2025. Importantly, underlying utilization trends remain broadly consistent with our expectations, and we are seeing early signs of improved alignment between pricing and medical cost trends. The operating cost ratio was 13.8% in the quarter, reflecting the timing of targeted investments across operations, technology and care delivery as well as incremental investments in areas such as AI, customer experience, cybersecurity and community engagement. We also recorded approximately $900 million in incentive compensation for the quarter as compared to $35 million in the first quarter of 2025, reflecting our performance. We continue to expect operating cost ratio trends to normalize over the course of the year as these investments scale and begin to deliver productivity benefits. Our operating results were supported by solid operating cash flows of $8.9 billion in the quarter or 1.4x net income. Our capital priorities remain consistent: invest in growth, strengthen our balance sheet and return value to shareholders. With our cash flow performance this quarter, we were able to bring the debt-to-capital ratio down to 42.9%, on track to our year-end goal of 40%. We initiated share repurchases earlier than anticipated and expect to deploy at least $2 billion by the end of the second quarter. Based on our current share price and the deep intrinsic value discount at which our shares are currently trading, returning value through share repurchases will remain a priority. And we anticipate further capital allocated into strategic acquisitions that support long-term growth. We will be measured in pursuing such assets while prudently managing our balance sheet. One other item of note for the quarter. As previously discussed, as part of the restructuring actions taken in the fourth quarter of 2025, we will continue to remove from our 2026 adjusted results, the residual impacts of those actions. The net negative impact of these items was about $50 million for the quarter and was excluded from adjusted earnings per share. This impact includes, among other things, a $525 million gain on the sale of our U.K. business, which was successfully closed in the first quarter. We used $400 million of these net proceeds to provide additional funding to the United Health Foundation. Our intention is to improve the focus and discipline of our core operations while using proceeds from nonrecurring gains to further advance our mission by helping build healthier communities and a robust health care workforce. In addition, at Optum Health, we had the positive impact of the lost contract, offset by the final true-up of losses related to assets, which were held for sale as of December and divested during the first quarter. While it is still early in the year, we've updated our full year outlook to greater than $18.25 per share. This refresh view balances the performance we saw in the first quarter with a prudent level of patience to see how the remaining months evolve. Our earnings cadence for the year remains consistent with prior expectations. We continue to expect approximately 2/3 of earnings in the first half of the year and the remaining 1/3 in the second half. That said, the earnings profile varies meaningfully across the portfolio. UnitedHealthcare earnings are over 75% weighted to the first half of the year. Similarly, for Optum Health, we expect earnings to moderate throughout the year from Q1 levels with a significant majority of full year reported earnings occurring in the first half. In contrast, Optum Insight and Optum Rx are more naturally weighted to the back half with each generating approximately 60% of earnings in the second half. This pattern also similarly influences the progression of our medical cost ratio with first half levels more than 250 basis points below the midpoint of our full year guidance and second half levels more than 200 basis points above. Overall, this has been a strong start to the year as we continue to improve our business performance and advance our mission. Steve, back to you. Stephen Hemsley: Thanks, Wayne. Before we turn to your questions, let me kind of summarize where I think our company stands today. This was a solid quarter across all segments, positioning us for similarly solid progress going forward. The historic disciplines and innovations of UnitedHealthcare are rounding back into place. Optum Health is clearly focusing on the right basic elements and gaining traction. Optum Insight has untapped potential in an AI-centric world. They're starting to sell business and building broader service relationships around that reality, but to evolve more modern scale solutions and for users to be ready to embrace them, will take more time in my mind later into 2026 and into 2027. Our enterprise-wide AI ambitions are meaningful and the agenda is in motion. We're getting after business units and functions alike and importantly, critical processes that are core to several of our businesses. This is not just a matter of being more productive at what we already do, but a reimagining of how we organize, operate and work going forward. Few, if any, large organizations have ever done things like this at this scale, so we match our desire for speed with prudence and humility. We remain focused on advancing business and management processes and continue making progress in areas such as governance, transparency, stakeholder experience and more. Underpinning these steps is the undertaking to deeply reenergize our mission and culture across this company, an effort in which our leaders and people are engaged avidly. This management team believes we are a long way from performing to our full potential, and we're committed to getting to that potential quarter after quarter and reporting to you on our progress. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from A.J. Rice with UBS. Albert Rice: Just to maybe drill down on the comments around what you're seeing in trend. I know the last 2 years, I think the general consensus is the Medicare Advantage cost trend was running about 7% to 8%. I know that coming into this year, you guys described what you have been thinking about pricing for it being closer to 10%. You're saying it's been consistent so far with what you've seen historically in your expectations. I'm wondering, can we focus in on is it running close to 10%? Or is it more in the 7% to 8%? And if it's accelerated, where has it accelerated or if it's moderated, where is it moderating? Stephen Hemsley: Tim, do you want to take that? Timothy Noel: Yes. A.J., thank you for the question. So as we referenced broadly speaking, across UnitedHealthcare, trend is progressing in line with our expectation. And again, our focus for 2026 was to focus on margin recovery and product stability across all of these businesses. And we continue to see the utilization patterns continue at the high elevated levels that we experienced inside of 2025. And you're correct. We were talking about a 7% to 8% trend in Medicare Advantage with a pricing assumption of around 10% into 2026. We're seeing some modest favorability in the government programs which would then include Medicare Advantage, commercial very consistent with those expectations. It's really early right now. We'll have a more fulsome view when we talk in Q2 and can get down into some of the specific service categories. But right now, the takeaway is modest favorability in government programs, but progressing at those elevated high levels. We're not seeing any inflection point, and we're really comfortable with the pricing posture that we had coming into 2026 based on how things are playing out in the early innings. Operator: Our next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. Maybe just following up on that trend question. I think you specifically mentioned this in context to the Medicare Advantage, but you talked about acuity and provider billing and how you're trying to address that. So can you maybe size how much of the trend component is this acuity dynamic? And then what exactly you can do to address it? And how it may happen? And then just clarify, was that really just an MA comment? Or was that a common trend across all products? Timothy Noel: Kevin, I think I can -- this is Tim. I think I can really address that across all products. When you think about trend drivers, our assumption is that the activity that we would see for 2026 will be pretty consistent with what we saw in '25. And as I just stated that's really playing out. What we've done is a couple of things. We talked in the Medicare Advantage space of our product positioning, leaning more towards HMO-based products as a means to be able to better manage outlier activity. But broadly speaking, themes that you can think about in terms of how we're managing it is we have better tools to early identify some of the outlier patterns that we're seeing and were some of the trend drivers inside of 2025 and engage early with clinical programs with payment integrity programs, then also, in certain cases, take network actions, which we have done to be able to address those things. And we are making good progress in that area, and we'll continue to focus on affordability across all of the product lines inside of 2026 and probably be able to offer more information around that in the Q2 call as well. Operator: We'll move next to Andrew Mok with Barclays. Andrew Mok: Could you help us unpack what's driving the outperformance in Optum Health this quarter? Specifically, how much is contract or benefit-driven versus utilization driven? And can you clarify what's driving the strong moderation in Optum Health profit such that the majority of earnings are recognized in the first half? Stephen Hemsley: Sure, Krista. Krista Nelson: Yes. Thanks, Andrew, for the question. We're really encouraged by what we're seeing in the first quarter, which is really a direct reflection of intentional actions that we've taken over the past few months to improve core performance. I'll just call out two drivers of the performance improvement. First, we're seeing medical from prior periods restate favorably relative to our expectations. But this is actually largely concentrated in markets where we've really focused on clinical and medical management efforts. Patrick highlighted one of the examples in the West, where we saw an opportunity to help support members in key moments of transition. And as we've increased and invested in leadership and process improvement and clinical reviews, we've actually seen a pretty sharp decline and improvement in unnecessary inpatient admissions as well as SNF admissions. And again, just really pleased with what we're seeing. We expect this performance to continue and also are scaling some of those efforts across all of our markets. The second driver I would point to is just we've seen continued improvement in operating performance, which includes cost management, which was a really big focus for us last year, but also just kind of fundamentals around operating execution. So the example we gave in our opening remarks just around scheduling. That was a key focus for us to make sure we're creating access points for all of our patients. And year-over-year, after that focus, we've seen an improvement, 12% increase in patient-facing hours. That is happening actually across all of our regions where, again, we've just really focused on core operating improvement. So I would say while it's early, those two things are really giving us confidence that we're focused in the right places and that we would expect some of this improved performance to continue rest of the year. I think to your last question, just around pacing, with the move of Optum Financial into Optum Insight, Optum Health is -- really resembles our risk business in terms of seasonality. So that's really why the majority -- the significant majority really of the earnings will occur in the first half versus the second half. Stephen Hemsley: Krista, thank you. So mostly utilization and the result of management. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: I wanted to stay on Optum Health for a minute, and I appreciate all the details there. I wanted to make sure the -- first of all, the $1.3 billion of adjusted earnings, is that the right comparable to the guidance of $1.575 billion at the midpoint on an adjusted basis? And then Krista, you mentioned that some of the benefit was from PYD. I'd like to understand what the internal expectation was because that $1.3 billion is significantly higher than I think anybody expected. I just want to understand what you were expecting internally and maybe how much of the difference versus internal was PYD versus run rate? And then lastly, maybe you could share something similar on kind of how the businesses are running at Optum Insight, Rx versus internal expectations because those looked a little lighter than consensus was expecting. Stephen Hemsley: Okay. I think that's three, Justin, if I'm counting. So maybe, Wayne, you might take the first. Krista, the second, and then we'll maybe come back to the third. Wayne DeVeydt: Yes, Justin, let me unpack this. I think I can address this fairly easily. As you think about Optum Health, yes, you should be comparing the $1.3 billion of adjusted earnings to the guide of $1.575 billion that we provided originally for our true run rate. We believe that is a clean view of looking at the business, and removes noncash accounting implications of the loss contract as well as the final disposition of assets in the quarter. The one thing I would say around Optum Insight and Rx, very similar to Optum Health. It's very important to recognize in the prepared remarks that these are fully burdened by incentive compensation this year in Q1, and they were not fully burdened in Q1 of last year comparing $900 million to roughly $35 million. So that really creates an unusual anomaly for our sell-side investor analysts out there that are trying to model this, and that was why we tried to call that out. I would say that all 4 segments did actually exceed our internal plan expectations. Krista, do you want to maybe address the prior year? Krista Nelson: Yes. Yes. So to your question, just on some of the prior period development, while some of this was favorable to our expectations, I just also want to reiterate, it's really based on specific actions that we took in the fourth quarter. So the performance is coming in a little bit better, but I'm not surprised by just how it's coming in, given some of the intentional work that we've done. I also mentioned that we are seeing some improvement in our operating costs, which is also contributing. But also, it's early in the year, and we're taking a really prudent approach to make sure that we see another quarter of medical mature. And then frankly, we also continue to focus on some of the basic blocking and tackling. There still remains a significant amount of opportunity for Optum Health to achieve its full potential. And so again, we're just focused on core performance and improving that consistently across our markets. Operator: And we'll move now to Stephen Baxter with Wells Fargo. Stephen Baxter: A couple of questions about Medicare Advantage. I guess with visibility to the final rate, I would love to hear if you could discuss your confidence level in further margin recovery for 2027. And then just as add-on to that specific question, as we about the moving parts. Have you indicated that you'd participate in the BALANCE program for GLP-1s? And if you are indicating that you'd participate, do you anticipate the industry thresholds for participation will be met? Stephen Hemsley: Bobby, do you want to take that? Bobby Hunter: Yes. Thanks, Stephen, for the question. So on the final notice, maybe just to start, I do want to express my appreciation for the active and ongoing engagement that we've had with CMS. The changes made by CMS in the final notice were both important and impactful for the program and more importantly, for the Medicare beneficiaries. However, also, I need to acknowledge the reality that while the expected medical trend for 2027 is still meaningfully above these funding levels. So consistent with our strategy in 2026, we're going to remain focused on financial sustainability, product durability and then the path to margin recovery that we're on within that 2% to 4% long-term range that we've discussed. For 2026, maybe just to hit that one as a jumping off point, we're only a couple of months into the year, but feel good about achieving the 50 basis point year-over-year margin advance that we had previewed last quarter. And then for 2027, our aspiration is to be in the upper half of the 2% to 4% long-term range and doing that while continuing to deliver the quality, the value and delivering on the full expectations that I know that our members have of us. As it relates to your question about the BALANCE program, so we've been a good active dialogue with both CMS and CMMI on that front. We'd like to find a path to yes, there on coverage over time, but there are some notable challenges and outstanding questions with the currently planned structure. So we're still working through that process internally, and we look forward to continuing the dialogue with CMS. We have provided some specific recommendations that we believe would serve all stakeholders really well. As you know, we'll be participating in the Bridge demo here starting in July, and I think we'll learn a lot about the best way to advance this priority through that experience. Thanks for the question. Operator: Our next question comes from Lisa Gill with JPMorgan. Lisa Gill: Just want to understand a couple of things. The first would be the Optum Insight and Optum Rx really being back half weighted. It seems like that's a little bit higher than it's been historically. So is there anything to think about there? And then secondly, since we last spoke last quarter, the PBM legislation has passed. And I just want to understand, are there any incremental investments that you need to make? I know you've been a lot more transparent than others. But is there anything to think about? And if you do come to a settlement with the FTC, do we need to think about redomiciling the GPO to the U.S.? And is there any cost there? Stephen Hemsley: Yes, we'll handle those separately. Wayne, do you want to talk about the slope? Wayne DeVeydt: Yes. The one thing I would say on the slope is for Optum Insight, I would view this as what we're doing is a couple of things. One is slowly decommissioning old products that were not AI-based and reinvesting in those products through the AI investments. So you're getting the slow rundown of those products in Q1 and then the investments to transfer those over into more AI based. And I think you'll see the benefits of that coming into the back half. Relative to Optum Rx, we are onboarding almost 800 new clients this year, of which the vast majority of those will be going into next year in terms of the actual run rate. So you're getting the full impact of those onboarding starting early in the year. But I think as the year progresses and we begin to migrate and bring folks over, you'll start to see that subside. And I would also just remind you that we've assumed a little bit of lower script volume, obviously, due to the membership that we had. But as the year progresses, I think you'll see some of our G&A initiatives and AI investments coming through, and that will actually improve the outlook in the back half. Stephen Hemsley: Thanks, Wayne. And Patrick and Jon, do you want to address PBM? Jon Mahrt: Sure. Happy to. Thanks again for the question, Lisa. So if I look at PBM, first, let me hit the -- I'll hit the punch line, which is we've accounted for these impacts in our guidance both for the remainder of 2026 as well as our out-year guidance. As it relates to the GPO, just to hit that one head on, our GPO is domiciled in the U.S. So no impact as we think about GPO. Broadly, I want to hit a couple of things. First, look at what's happening in Tennessee, and I would just say that we're really concerned about that legislation as we sit here today, primarily for what it means for access. What's playing out in Tennessee is targeted at the retail pharmacy space, but the impact here goes well beyond the intented scope of retail. Specifically for us, it will harm access for nearly 150,000 Tennesseans with complex conditions, think cancer, think HIV, think serious mental illness that rely on specialty and behavioral health pharmacies designed to uniquely serve those populations. So very concerned, and we'll continue to advocate for those that we serve in Tennessee and elsewhere. Beyond that, with other emerging legislation, I want to say that our work over the last 2 years has put us in the leadership position in the industry, and you referenced that with the transparency comments. It goes even beyond transparency. There's 4 drivers here, Lisa, maybe just to touch on. First is the independent pharmacy stability. As you know, again, we don't play in the retail space. We rely on a vibrant pharmacy network for more than 80% of the claims that flow through our PBM. And so we're well ahead of the curve with 100% of our independent pharmacies reimbursed at a cost-based reimbursement mechanism. We're leaning into health system pharmacies through our CPS business as well and expanding the reach for those pharmacies. The second driver is consumer affordability. On that front, Price Edge now serves 14 million members. And between Price Edge, Specialty Savings IQ and our Critical Drug Affordability, we'll deliver more than $1.5 billion this year in affordability to the patients that we serve through this business. The third driver is the patient provider experience. Patrick mentioned PreCheck by prior auth on this one. We're moving that from scale with the Cleveland Clinic to serve more than 20 health systems this year and continuing the work in the streamlining of prior authorizations for 180 drugs. And I'll round out least on payer transparency. This is what's driving our growth. Wayne mentioned a record growth year. We're experiencing another strong selling season, and that's largely driven by a compelling 15-part transparency guarantee for those that we serve. So we feel good about our leadership position have accounted for all this in our guidance. Thanks again for the question. Stephen Hemsley: Patrick, do you want to comment? Patrick Conway: Just on overall Optum because it's come in a couple of ways. Look, all 3 segments, as we said, exceeded expectations. If you look at Optum Health, core management of medical trend and operational execution. Optum Rx has a lot of momentum in the marketplace, winning new clients, and renewals, but also ahead in the policy agenda and leading. And then Optum Insight, as Wayne and others mentioned, Sandeep and team leading AI-first product and services that we're making those investments now. And those investments are starting to pay dividends. And as Steve said in the opening, we'll pay dividends in the long term. Stephen Hemsley: Yes. And ahead on PBM business practices because we've been at this for a couple of years. So great question, thank you. Operator: And we'll go to Dave Windley with Jefferies. David Windley: I wanted to come back to Optum Health or -- yes, the Optum Health on the PDR and the lives associated with that, I believe, are in a couple of tranches of that add up to 1 million lives that you're kind of in various stages of negotiation and scaling on. And I wondered if you could give us an update on the status of those? And are you at a point where you're having conversations with new provider groups or new populations of members that you could add into your value-based care base? Or are we still rightsizing down to the logical profitable base of lives that you can manage in VBC? Stephen Hemsley: Okay. If I understand that, basically, there's two pieces to that, the PDR and then kind of how we're engaging in the market. So Wayne will touch on the PDR and Krista will pick up the market. Wayne DeVeydt: Yes. Thanks, Dave. Let me just quickly on the PDR. We laid out, what we estimated the PDR to be for the full year. It was north of $600 million, and that was a reflection of contracts that we fully anticipate either renegotiating to appropriate rates or we will de-delegate or exit. You'll see the numbers actually slightly lower in Q1. That is a reflection of some of the assets that we disposed of in the quarter that had a PDR associated with them. But the team is still in active negotiations. I'll let Krista comment on that. Krista Nelson: Yes. Dave, thanks for the question. So we -- I mean, we are really in active negotiations and continue to partner with all of our payer partners just across our portfolio and really pleased with the progress underway. We started significantly earlier. We've put a lot more data and infrastructure and support and leadership behind this. And frankly, at this distance, there's still a number of levers we can work through with all of our payers, whether that's product and benefit design for 2027, network opportunities, looking at the markets and the footprint that we're in as well as recalibrating appropriate rates. And I think just like Wayne mentioned, I'll reiterate our confidence in making sure that we get these items settled and get into a better position for 2027. Stephen Hemsley: I think that kind of reflects a little bit of the cultural change in terms of the way we're engaging and how we are working with relationships kind of across the board in a constructive way. So great response, Krista. Operator: And we'll move to Ann Hynes with Mizuho Securities. Ann Hynes: I just want to focus on AI. I know it sounds like you're doing a lot of investment. Can you share some maybe targets you have on how you think AI will -- from the cost side, maybe like SG&A, do you have a target internally, how you think it could save? And then just also on the revenue side with Optum Insight, do you think your investment in AI could like structurally shift the growth rate of that segment? Stephen Hemsley: Yes. I think it's true on both fronts. So Sandeep, do you want to start? Sandeep Dadlani: Sure. Thanks, Ann, for the question. As we said earlier, we are spending about $1.5 billion in AI across UnitedHealth Group. Think about it this way, 1/3 of this is explicitly invested into software products and platform, accelerating Optum Insight's transition of business models into an AI-first software and services firm. The remaining 2/3 is spent across signature end-to-end processes and functions across UnitedHealth Group. Let me give you some examples. Areas like consumer member experience, you must have noticed we just launched Avery, a generative AI chatbot answering member questions for UnitedHealthcare, which will be expanded to over 20 million members by the year-end. Another example is in administrative simplification, Tim spoke about prior auths and the automation in UHC as well as Optum Health and Optum Rx. A third area is clinical workflows. For example, Ambient rollout for physicians and nurses in Optum Health and then summarization capabilities for nurses and clinical reviews. And then functions like HR, finance, marketing, fundamentally reimagining these processes and areas. In the end, all internal investments in AI use cases is routed through Optum Insight and has the potential to be commercialized outside of UHG, and we expect to return conservatively of 2:1 on these programs over the next few years, many of them paying back within the next 12 to 18 months. Optum Insight AI-first products are already seeing great external traction. Example, this quarter, we launched Digital prior auth in keeping with the enterprise priority on prior auths. We already have a couple of payer clients and provider clients using them, another 50 clients in the pipeline. And the early results are that prior auths submitted through our software have shown a 96% approval rates on first submissions. Optum Real, an AI-first platform launched a couple of quarters ago, now has 0.5 billion transactions year till date and expects to close the year at over 2.5 billion transactions. And Optum AI, our new AI consulting arm has already signed its first few contracts, helping companies like LabCorp through their operational AI initiatives. So that should give you a good sense of AI inside and outside the company. Thank you. Stephen Hemsley: Thanks, Sandeep. So I think really good potential. I think we're going to be very measured as we go about this in terms of expectation because I think it's new for everybody. But definitely, we are leaning into this. We think it can be quite impactful to our enterprise and to this whole industry. So good question. Thank you. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: Great. I wanted to just follow up on the AI and automation front. And what should we, though, expect in terms of these savings accelerating in 2027, '28? I guess, should we anticipate that the cost and contributions or how do we weigh the cost and then contributions of some of the efficiency gains there? And how could this accelerate or even drive upside to the long-term target margins across the different segments? And then just one quick follow-up on capital deployment. Just in terms of buybacks, you announced a $2 billion today. I guess I just wanted to be clear what was embedded in guidance from a share repurchase standpoint. Stephen Hemsley: I'll let Wayne handle the second one. The first one is a very good question. This is kind of uncharted territory when you think about the scope that this could have. So we aren't giving any guidance with respect to the compounding effect, if you will, of these kinds of changes across the business. But I will comment and reinforce something Sandeep said, and that is we're really deploying it kind of across the enterprise, looking at our large core processes with an idea of modernizing those and then ultimately taking those to the outside marketplace. And then the large overall functions typical of an organization of this size and scope. And I think the potential is great. But I think it would be very premature to offer you kind of guidance in terms of what the impact of those could be. But I wouldn't be making these investments if we didn't think that these were not only strategically important to maintaining the competitiveness of our organization, but also having long-term positive impact, mostly for the consumer and the experience that others will have with us. And then secondarily, with very natural productivity lift that it should produce. Wayne, do you want to take the other one? Wayne DeVeydt: Yes. Relative to capital deployment, our original guidance was approximately $2.5 billion back half loaded. So think of later Q3, Q4. At this stage with the intrinsic value discount we see, we thought it was important for shareholders that we would get at that sooner and the confidence we have in our results. So no changes in the guidance but view it as we are moving quicker at this stage. Stephen Hemsley: And ultimately headed back to kind of where we were. So this is kind of restoring where we were in terms of this program that had been in place for almost 20 years. Operator: Our next question comes from George Hill from Deutsche Bank. George Hill: Wayne, a quick accounting question is, could you quantify the PYD or the impact of the PYD in the quarter? And is there a way to break that out between the UHC impact and the OH impact? Wayne DeVeydt: I think ultimately, you'll see when we file the Q, PYD on a net basis is around a little bit north of $500 million for the organization. While that benefits the quarter, it's important to recognize that we believe we've established somewhat of a similar level of conservatism or prudent view, I would say, at March 31. Until we can see more of this development in April and May from Q1. I think at this stage, it would just be prudent to have a bit of patience right now. But that's roughly the net number that came through from the prior year. Stephen Hemsley: I do think that -- everybody needs to understand that this is the first quarter. Second quarter is usually quite informative in terms of the rest of the year. And so we're, I think, appropriately positioning ourselves based upon what we see so far. We'll take about two more questions, please, and then we'll be available to answer questions through the balance of the day. Operator: Our next question comes from Michael Ha with Baird. Hua Ha: Just a quick clarification. First, how much of the $400 million contribution to the United Health Foundation is Optum Insight? And then my real question, just wanted -- yes, sorry. And then my real question I just wanted to ask about the proposed MA risk model recalibration. So I understand it's now delayed. But when it is eventually implemented, possibly in 2028, a significant number of chronic condition code reimbursement is being cut, and the magnitude of those cuts is what appears concerning to us, the top 10 HCC code being chronic condition making up the majority of RAF prevalence all across the industry and presumably higher for value-based care providers. So with the reimbursement of some of those codes being cut down to 20%. This concerns us for Optum Health. So again, I know it's delayed, but when it is eventually implemented, how do you expect the impact to Optum Health versus industry average? Do you still believe impact should be roughly in line with the industry average? And how do you justify that when your value-based care business is purpose-built to care for polychronic members and therefore, disproportionately exposed to these material cuts to chronic conditions? Stephen Hemsley: Well, I'm not sure that's a question or a statement, but we'll respond to that. Let's take the first part. Wayne DeVeydt: Yes. Relative to the $400 million contribution to the foundation, we are trying to match those contributions relative to where the gains reside. So when we sold and closed our European operations. The gains were all within Optum Insight, north of $500 million and the entire foundation then came out of Optum Insight. And that is included in the reconciliation to our adjusted segments that we provided in the press release. Stephen Hemsley: And that's going to be a pattern we follow to the extent we get gains and things like that, we are invested in the notion that the foundation can be used as a means to really advance the health care system kind of be part of the responsibility we bear for that. We did that in the past and had kind of strayed from that in the last few years and just we're returning to that theme with real commitment. And Bobby, do you want to talk about, start with the... Bobby Hunter: Yes. Thanks, Michael. I'll start with kind of our view on modernization of the program, and I'll kick it to Krista to then talk a little bit about the Optum Health dynamic. So maybe just kind of big picture, we're again, very appreciative of the active and ongoing engagement with CMS in the zones around modernization opportunity. I'm not going to speculate on what changes could happen to the program in future years. That said, we do believe there are opportunities to improve the program. We support modernization. We for example, advocated for chart linking, which was just finalized in the final rule and final notice. We are committed to making the system simpler, more efficient, more transparent, and Krista will get into it, but we see value-based care as a critical and foundational tool to ensuring that success long term. In terms of risk adjustment, specifically, we actually wrote to our modernization agenda in response to both the advance notice and proposed technical rule. So big picture, we remain supportive of a policy that advances and improves the program. But I think as you saw in this last rate cycle, it's important that we all acknowledge that this work is complicated and should be done thoughtfully with appropriate testing and staging and with program stability at the forefront. And in that regard, we stand ready to partner in any and all respects. So maybe then, Krista, if you want to add on the value-based care Optum Health piece. Krista Nelson: Yes. I would just start by echoing what Bobby said just, again, appreciative of the improvement that CMS made. More importantly, their commitment to the Medicare Advantage program and really foundational their commitment to value-based care. The direction of their comments just continue to reinforce what our patients experience and what our payers experience, which is our value-based care model delivers better outcomes, improved health status, better experience and a lower total cost of care for the patients that we serve. And that alignment of incentives is really central to CMS' goal, which they have stated is for all of Medicare, not even just for Medicare Advantage. And so again, just reiterating our commitment to value-based care has really never been stronger. Our focus is really on just improving our execution and our core operating performance in our model, working closely with our payer partners to thoughtfully expand this to more patients and more providers over time. And at this distance, it's really too early to suggest what the impact could be for 2028. But I would also just say inside of some of the proposed changes, there were puts and takes for complex populations. And that's really where our model has a significant benefit for patients as well as our payer partners. And again, we just remain focused on core fundamentals, improving outcomes for our patients and making sure that we can continue to scale value-based care for more patients over time. Stephen Hemsley: And that should carry the day at the end of the day. So we have time for one more question, and then we'll be done. Operator: Our last question comes from Sarah James with Cantor Fitzgerald. Sarah James: I want to try to unpack MLR outperformance under the lens of cost categories. Can you speak to trends across physician, hospital and drugs, how those are performing in the different books versus expectations? And then bridging that to your earlier comments on traction you're seeing from engaging members in clinical programs and network actions, can you clarify what cost categories you're seeing that move the needle on? Stephen Hemsley: Sure. Tim, do you want to comment on it? Timothy Noel: Yes. Thanks, Sarah, for the questions. So again, a little early to get into that level of specificity on utilization patterns. But I think generally, this modest outperformance that we've cited in government programs under the umbrella of UHC, which is largely aligned with our expectations. There's no category I would spike out as being out of line compared to what our expectations were and the modest favorability that we've talked about around government programs is really kind of across the board based on the visibility that we have at this distance in Q1. Stephen Hemsley: Patrick? Patrick Conway: Just on the Optum side of house, Optum Rx is purpose-built to help payers and employers manage drug costs, and we'll save billions and billions of dollars again this year, focus on affordable access to drugs as Jon described, and has been leading in the marketplace. On Optum Health, as Krista described, these are programs that decrease admissions for patients, keep them out of the hospital, get people into their homes where they want to be and care for them across the care continuum, and it's really purpose-built for some of the most complex patients that need this care the most. And our payer partners, whether that's UnitedHealthcare or others, as Bobby said, and we hear this from external payers as well, want that care for their members because it's better quality, better experience and more affordable care. Stephen Hemsley: Thanks, Patrick. So thank you all for the time today. As we kind of build on the momentum as we get started in this year, we realize there's a great deal more work to do. And I think you'll see sustainable progress to position this enterprise to serve all of its stakeholders in a progressively better way quarter after quarter. That's kind of our agenda. And we're going to return to that, and we'll see you next quarter. Thank you. Operator: This does conclude today's conference. Thank you for your participation.
Operator: Greetings. Welcome to Valmont Industries First Quarter 2026 earnings conference call. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, Renee Campbell, Senior Vice President, Capital Markets and Risk. Ms. Campbell, you may begin. Renee Campbell: Good morning, everyone, and thank you for joining us. With me today are Avner Applbaum, President and Chief Executive Officer; John Schwietz, Executive Vice President and Chief Financial Officer; and Eric Johnson, Chief Accounting Officer. Earlier this morning, we issued a press release announcing our first quarter 2026 results. Both the release and the presentation for today's webcast are available on the Investors page of our website at valmont.com. A replay of the webcast will be available later this morning. To stay updated with Valmont's latest news releases and information, please sign up for e-mail alerts on our Investor site. We'll begin today's call with prepared remarks and then open it up for questions. Please note that this call is subject to our disclosure on forward-looking statements, which is outlined on Slide 2 of the presentation and will be read in full after Q&A. With that, I'd now like to turn the call over to Avner. Avner Applbaum: Thank you, Renee. Good morning, everyone, and thank you for joining us. Turning to Slide 4. I'll start with a few key messages for the quarter. First, we delivered a strong start to the year with sales growth, record first quarter earnings per share and progress against our strategic priorities. This reflects our discipline and focused execution across the business. We remain committed to serving customers, managing what we can control and advancing our value drivers. Our performance reflects the execution of our strategy. We're prioritizing high-value offerings, strengthening our core businesses and improving operational performance. Our strategy is anchored in markets with durable demand drivers, most notably utility while continuing to improve the quality and resiliency of our earnings. Second, infrastructure is performing well, supported by a growing demand for energy. This includes the need to expand the electrical grid to support data centers and the need to replace aging assets. Our capacity expansion plans are on track, and these actions are driving improvements in throughput and overall operational performance as reflected in the 27% sales growth in North America Utility. Third, in agriculture, we were able to grow in North America year-over-year due to favorable pricing. I also want to recognize our teams in Middle East who continue to navigate a very challenging environment. The safety and well-being of our employees remain our top priority. We are focused on supporting them as they manage through the ongoing situation. We appreciate their commitment to one another and to our customers during this time. Turning to Slide 5 for a review of our current market dynamics, starting with North America Utility. Our customers are implementing multiyear increases in capital spending, driving strong demand in utility infrastructure. U.S. Utilities are planning roughly $1.4 trillion of investment through 2030, up meaningfully from prior expectations driven by load growth, grid modernization and increasingly data center demand. This environment supports our growth outlook and the capacity expansions we have underway. Industry supply remains constrained with extended lead times and favorable pricing and margins. North America Coatings is also capturing growth from infrastructure activity and increasing exposure to data center construction. Our galvanizing services play a critical role in protecting and extending the life of steel structures. In North America Lighting and Transportation, market conditions remain mixed. In Lighting, demand continues to be impacted by softer housing activity and commercial development. In Transportation, the market is supported by stable infrastructure spending. From an operational standpoint, we have made progress, but we are not yet where we want to be in terms of consistency. Our priority is improving performance to deliver reliably for our customers. Turning to International Infrastructure. Market conditions across Europe and Asia Pacific remained soft, but stable. We are advancing commercial discipline and improving operational performance. Turning to Slide 6. Agriculture markets are navigating a dynamic environment as we begin the year. In North America, grower sentiment remains cautious, reflecting tighter farm economics supported by USDA data. Seasonal order patterns have been more muted with no meaningful acceleration in the spring selling season. Taken together, current indicators, including input costs and overall farmer profitability, suggests the market will remain under pressure in the near term. International markets are seeing variability in demand, ongoing challenges in the Middle East, including logistic constraints and reduced operating capacity are impacting activity and the pace of execution. At the onset of the conflict, our Dubai facility operated at a minimal level, prioritizing employee safety in alignment with local government guidance. The plant has currently paused operations until conditions stabilize. We have mitigated some of this impact through our global manufacturing footprint, leveraging other facilities to support demand in the region. Long-term demand is supported by investment in food security and water infrastructure. In Brazil, tight credit availability and delays in government-backed financing continue to weigh on near-term demand. Over the longer-term, Brazil remains an attractive growth market, supported by favorable agronomics, multiple crop cycles and compelling returns on irrigation equipment. We continue to advance our priorities in technology and aftermarket positioning agriculture to perform through the cycle. Turning to Slide 7. I'd now like to welcome and introduce John Schwietz as Valmont's Chief Financial Officer. John has been with Valmont for more than 16 years with leadership roles across both our Infrastructure and Agriculture segments. He brings deep knowledge of the business and a strong track record of financial discipline and execution. John leads with integrity and accountability, brings a passion for serving our customers and is deeply committed to continuous improvement and delivering results. This is a seamless transition as our strategy, value drivers and capital allocation priorities remain unchanged. We're confident in John's leadership as we continue to build on our momentum. I'll now turn the call over to John to review our first quarter financial results and updated 2026 outlook. John Schwietz: Thank you, Avner. Good morning, everyone, and thank you for joining us today. I'd like to start by thanking Avner and the Board for their confidence in me as I step into the CFO role. I appreciate the opportunity to build upon the strong foundation already in place. I look forward to working closely with our teams across Valmont to reinforce financial discipline, support our strategy, and deliver long-term value for our customers, employees and shareholders. Turning to Slide 9. Net sales of $1.03 billion increased 6.2% year-over-year driven by sales growth and infrastructure, particularly North America Utility. Operating income increased to $155.6 million and operating margins improved 190 basis points to 15.1%, reflecting stronger performance in both segments. Our tax rate remained steady at approximately 26%. Diluted earnings per share was $5.51, a 27.5% increase from prior year. Moving to our segment results on Slide 10. I want to start by highlighting a change to our infrastructure product line revenue reporting beginning this quarter. We have realigned to better reflect the markets that we serve and how we manage them. We are now reporting our North America Infrastructure businesses separately and have consolidated international infrastructure and global solar into 1 product line. A quarterly recast for 2025, reflecting these updates is included in the appendix of today's presentation. Now moving to Infrastructure results. Sales of $806 million grew 14.1% year-over-year. North America Utility sales increased 27.4% driven by pricing and higher volumes. Sales in North America Lighting and Transportation declined 4.4% due to the production challenges as noted by Avner. North America Coatings sales increased 13.3% supported by healthy infrastructure and data center demand. North America Telecommunications sales decreased 3.9% as volume softened due to a shift in carrier spending allocation. International Infrastructure sales increased 6.9% due to favorable foreign exchange impacts. Operating income was $143 million or 17.8% of net sales an increase of 110 basis points as a result of our pricing actions and fixed cost leverage. Turning to Slide 11. First quarter Agriculture sales decreased 15.1% year-over-year to $227 million, driven by lower international sales. North America Agriculture increased 1.5% year-over-year. Importantly, operating margin improved to 14.8% in the quarter, returning to double-digit levels. This reflects the benefits of our continued focus on pricing, cost management, and risk mitigation. Following up on last quarter, we reached a settlement on the material Brazil legal matter we previously discussed, and it was resolved within our existing accrual. Moving to Slide 12. For Cash, liquidity and capital allocation. We had another quarter of healthy operating cash flows, generating $103.5 million. We ended the quarter with $160.2 million of cash and our net debt leverage is approximately 1x. During the quarter, we invested $35 million in CapEx, primarily for utility capacity expansion. As previously discussed, we finalized the acquisition of Rational Minds and the purchase of the remaining minority shares of ConcealFab for a combined $20 million. We returned $71 million to shareholders, including $13 million through dividends and $58 million through share repurchases. In February, we also increased our quarterly dividend by 13% to $0.77 per share or $3.08 on an annualized basis. Turning to our 2026 outlook on Slide 13. We are increasing our full year EPS guidance. Net sales are projected to be between $4.2 billion to $4.4 billion. We are increasing infrastructure sales to be between $3.3 billion to $3.45 billion. This is offset by a decline in Agriculture with sales to be between $0.9 billion to $0.95 billion. In Infrastructure, the increase is driven by North America Utility. We expect pricing and volumes to remain elevated throughout the year. In Agriculture, given recent changes in market conditions and project economics, primarily related to the Middle East conflict, we have become more selective in our pipeline aligning with our disciplined approach and focus on long-term value. Diluted earnings per share are projected to be in the range of $21.50 to $23.50. At midpoint, this represents a 4.8% growth in revenue and a 17.9% growth in adjusted EPS. Higher pricing and volumes in North America Utility are driving the increase in our EPS target. Also included in our EPS guidance is the impact of the tariff changes that went into effect on April 6. These primarily affect a portion of our North America Utility production sourced from Mexico. Importantly, we are mitigating much of this exposure by using primary U.S melt and poured steel which limits the incremental Section 232 tariff to 10%. Looking ahead, we remain focused on what we can control and prioritizing opportunities that support sustainable, higher-quality earnings. With that, I'll turn the call back to Avner to review our value drivers. Avner Applbaum: Thank you, John. Moving to Slide 14. We continue to advance our 3 core value drivers, catching the infrastructure wave, positioning agriculture for growth and executing disciplined resource allocation. These priorities are guiding how we invest in capacity, strengthen our product and technology offerings and align our cost structure supporting improved performance and more consistent profitable growth over time. We continue to drive above-market growth in Infrastructure through targeted investments in capacity and operational efficiency, and we're seeing the benefits reflected in our sales volume. In Agriculture, we are growing our presence in emerging markets and investing in aftermarket and technology to improve the mix of higher-margin business. Finally, our disciplined resource allocation initiatives are on track. Overall, we are confident in our 2026 performance and achieving our long-term value driver targets. We look forward to sharing more details at our upcoming Investor Day on June 16. Before we close, I want to thank the entire Valmont team for their efforts navigating a dynamic first quarter. With that, I will now turn the call over to Renee. Renee Campbell: Thank you, Avner. At this time, the operator will open up the call for questions. Operator: [Operator Instructions] Our first question is from Nathan Jones with Stifel. Nathan Jones: Good morning, everyone. I guess I'll start with a question on the 232 tariffs. We've been getting a lot of questions from investors, as I'm sure you guys have as well. I think the anticipation was probably that these new tariffs were going to be more impactful to Valmont than you guys are talking about them being. Can you maybe just provide a little bit more color on -- I know John said using poured and melted U.S. steel helps protect from that. But can you just -- any more color you can give us around that? And then how you plan to mitigate that with customers? Avner Applbaum: John, do you want to take that one? John Schwietz: Yes. Thank you. So Nathan, first, of course, we welcome the clarity that we got on April 6 with the updated regulations. So our understanding of these rules are incorporated in our guidance. As you mentioned, really, the upside of this guidance is that we need to maximize U.S. poured and melted steel. So that's what we've been doing for the last few quarters is maximizing that, and that's what we'll continue to do. Of course, tariffs are changing, they adjust and as they adjust, we adjust our pricing and also our supply chains. This takes a little bit of time to take hold. But overall, we feel comfortable with it. And as we've mentioned on prior calls, the objective for us is to be tariff-cost-profit neutral. And so -- and that's what's incorporated in our guidance. Nathan Jones: That's helpful. I guess my second question is around the U.S. Utility business. Through the last 12 to 18 months, I think the company has been talking about effectively being out of capacity and having to increase CapEx to add capacity which it's been doing. But I think the story was kind of that $1 of CapEx was going to increase capacity by $1 and the business is clearly outperforming the level of CapEx that's going into it. Can you talk a little bit about where the additional productivity is coming from or how we should think about $1 of CapEx now translating into maybe more than $1 of capacity? Avner Applbaum: Sure. So we are -- let me start up, we're very pleased with our quarterly results. I mean, we've grown Utility by more than 27%. And to your point, a lot of the growth is driven by the strength in the environment with -- coupled with our investment in capacity. Capital is clearly one of the areas that we're investing to increase our capacity, and we're going to invest between $170 million to $200 million this year, with the majority of that going into Utility. So capital is one lever, but let me just address it a little broader, right? It's a whole system of capacity increases. So we have our capital. We have our operational capacity, and we have our commercial capacity. So just to give a little bit more flavor to that, while we're adding capital, every day, our employees go into the shop and look for opportunities to increase our throughput. And we are getting a lot of innovation, continuous improvement to drive the increased output. So as an example, in one of our plants, we're looking at bottlenecks, and we noticed that in some cases, if we add some labor, we will increase our output. And we did a quick, very successful hiring event, and we were able to increase the capacity at that site. We had another site where we saw that the flow was not perfect. We did a couple of Kaizen events. We got the flow significantly improved, just to name another example. So we have over -- we have 24 facilities in the U.S. Each one of them, we are taking many actions to drive the increased output. And we should see this trend continued into Q2. We're expecting to see a very strong similar type growth or even better in the second quarter. And in fact, we should expect to see a very strong year in Utility as well. So just to sum it up, we're taking many initiatives, capital being one of them. We are seeing that with capital, we're driving more than one for one. So that is another area of an improvement. And we look forward to keep on capitalizing on the strength of this market. Operator: Our next question is from Chris Moore with CJS Securities. Christopher Moore: Recognizing you don't necessarily provide backlog on a quarterly basis. Can you give any big picture thoughts in terms of kind of what it looks like today versus kind of year-over-year or sequentially? Avner Applbaum: Yes, sure. So we are seeing -- sequentially, our backlog is relatively flat, but it has been up year-over-year. And I think it's important to note, the backlog reflects the strength of our business, but it is only a data point, reflecting the strength in that market. So just to give a little bit more color, we do take an approach to managing our lead times. We're currently improved our lead times. We have best lead times in the industry right now between 42 to 44 weeks on our bid market. We have a lot of projects in the pipeline that don't show up in the backlog with a lot of our alliance customers. It actually -- it's an advantage to us not to have them in the backlog. So you don't have to take too much risk as it relates to the pricing of steel, et cetera. But overall, I think the most important point is we are seeing unprecedented demand in this market. We are -- I mentioned that the IOUs are planning to spend $1.4 trillion through 2030, which is significantly higher than we've seen just recently. So that's -- which was about $1.1 trillion. So call that about 27% increase in their projections. So going into the year, we were thinking we're going to grow 8% to 10% on our Utility. Well, right now, this year, it's going to be much stronger than that. We're probably going to see growth between mid-teens to high teens in the Utility space. So overall, all indications are this market is robust, we have not seen it like this for decades, and we're very pleased on where we are positioned with our backlog, our lead time and our alliance with our customers. Christopher Moore: Very helpful. And maybe just one on Ag. So maybe can you talk a little bit about rising fertilizer prices, potential impact on pivot demand, not necessarily for '26. It sounds like there could be kind of a lag in demand, but what might be felt in '27? And just how much visibility do you have on that front? Avner Applbaum: So there's not great visibility into 2027. But the way we look at it, fertilizer is an input cost -- significant input cost, and it will have impact on farmers, will put more pressure on their profitability, and they have been under pressure. So at this point, we continue to expect to have a challenging environment in 2026. And we're focused on areas where we could drive farmer profitability. We're supporting our farmers with our aftermarket, our technology, enabling our dealers to ensure they can improve their profitability. And as we know, these markets have strong long-term fundamentals. And as the market will improve, we'll be ready to capitalize. Operator: Our next question is from Tomo Sano with JPMorgan. Tomohiko Sano: John, congrats on your new role. John Schwietz: Thank you. Tomohiko Sano: And for North America Utility, could you comment on any changes in pricing or the competitive landscape on pricing power infrastructures? What gives you confidence in your ability to sustain or enhance pricing, especially as competitive dynamics evolve, please? Avner Applbaum: Thank you for the question. The market environment continues to be extremely strong right now. We always focus on value pricing. We are the leader in the market with the highest market share. And we provide the utilities with mission-critical products and solutions supported by our strength in our engineering, our reliability, quality, on-time delivery. And in this environment, there's very strong value in our offering, especially in a constrained environment. And the entire industry has been very disciplined around pricing. So while there will continue to be growth in this area and our competitors will continue to invest, we remain very disciplined, taking pricing leadership and as evident by our Q1 performance, which had significant pricing in our performance pretty much demonstrates that there's no concern regarding pricing in this environment. Tomohiko Sano: And follow-up on Ag margins, have you hold up well despite lower sales. If the sales headwinds persist what structure -- structural mix factors do you see as most critical for sustaining or even expanding margins in this segment, please? Avner Applbaum: Yes. Thank you, Tomo. So as you mentioned, Ag margins did well this quarter. We're pleased with the result at 14.8%. So that was driven, as you know, by favorable pricing and also an improved product mix and regional mix. As we look through the rest of the year, as you mentioned, there are some headwinds. And so if we look at our margins for the rest of the year in Ag, we have the seasonality impact of moving more towards international, less in North America, that will put some pressure on our margins for the rest of the year. Also, the impact of the fixed cost deleverage in our Dubai facility will also add pressure to our margins. So I'd say that we'll -- certainly, this year, we will be in the mid-teens to low teens for margins in Ag this year. Operator: Our next question is from Brian Drab with William Blair. Brian Drab: Like Nathan, most of the questions lately have been around the Section 232. So I just wanted to ask one -- maybe the same question just in a little bit different way. But -- you have in the 10-K, I think that there's about $220 million worth of product in the Utility business coming in from Mexico. And I haven't found that 10% figure anywhere. So I'm just curious, is that part of the new structure? Is it stated that it's 10% if you're using melted and poured U.S. steel for finished product coming in from Mexico? Or is that just kind of how your assessment after looking through everything? And if so, given it's 10%, is this -- and you put that on the $220 million or so, so it's an incremental roughly $20 million in costs that you have to absorb? Avner Applbaum: Thank you for the question. So yes, 10% is part of the new regulation, and you're thinking about this the right way. So that's approximately the number from Mexico from our output for Mexico and exports to the United States, that varies year-by-year. As I mentioned earlier about the transition of our supply chain. So -- the goal here is to maximize the U.S. melt and pour steel, and that will reduce our tariff exposure and cost over time. That's what the teams are doing. And that will take some time. But we're making rapid progress in making sure that we adjust that to maximize our U.S. melt and pour steel. That will bring us closer to the incremental 10%. Brian Drab: Okay. But you can't size the incremental cost for us at all. You don't want to quantify that today. I don't want to press you too much on it, but that's what we're looking for? John Schwietz: Yes. So I'd say your general range, how you're thinking about it is approximately right. Avner Applbaum: And I'll just add, right, we're seeing strong growth, right? So that $220 million is going to easily be $250 million. So as we grow and capitalize on the market, well, we'll pay more tariffs. But of course, we make very strong margins out of our plant in Mexico. So no concerns on our end. Brian Drab: Right. Well, and it all just seems like my conclusion at the moment is it is kind of negligible given the size of that business and given the pricing power and given the pricing dynamics across the industry and what you're doing operationally. So -- but thanks for the clarification. On the Utility business, also you mentioned that the price and volume drove the growth. You mentioned in the press release, you listed price first in the description of that strength. Can you just talk about the breakdown of price versus volume driving the business? And then also is the price being supported more just by steel kind of skyrocketing. Or is it -- and secondarily by the market demand? John Schwietz: Okay. So thanks for the question. So if we look at Q1, the 27% increase was driven primarily by price, as you know. It's important to note, though, that volume was an important contributor as well for Q1, that was in the double digits. As we look through the rest of the year, Avner noted mid-teens to upper teens and growth rate expectations for Utility, we expect that, Brian, to be a balance between price and volume for 2026. As it is to your question about the price environment, Avner gave some good comments on what we're seeing in the price environment. To Avner's comments, we are pricing to market. We're constantly testing the top of that market. But yes, some of that is passed through contract pricing with regards to material escalations and then also logistics escalation. So yes, that's a component of it. But as Avner mentioned, we have confidence in the overall pricing environment for Utility. Operator: We have reached the end of our question-and-answer session. I will now turn the call over to Renee Campbell for closing remarks. Renee Campbell: Thanks, everyone, for joining us today. A replay of this call will be available for playback on our website and by phone for the next 7 days. We look forward to speaking with you again next quarter. Operator: These slides and the accompanying oral discussion contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on assumptions made by management considering its experience in the industries where Valmont operates, perceptions of historical trends, current conditions, expected future developments and other relevant factors. It is important to note that these statements are not guarantees of future performance or results. They involve risks, uncertainties, some of which are beyond Valmont's control and assumptions. While management believes these forward-looking statements are based on reasonable assumptions, numerous factors could cause actual results to differ materially from those anticipated. These factors include, among other things, risks described in Valmont's reports to the Securities and Exchange Commission, SEC, the company's actual cash flows and net income, future economic and market circumstances, industry conditions, company performance and financial results, operational efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environments, geopolitical risks and actions and policy changes by domestic and foreign governments, including tariffs. The company cautions that any forward-looking statements in this release are made as of its publication date and does not undertake to update these statements, except as required by law. The company's guidance includes certain non-GAAP financial measures, adjusted diluted earnings per share and adjusted effective tax rate presented on a forward-looking basis. These measures are typically calculated by excluding the impact of items such as foreign exchange, acquisitions, divestitures, realignment or restructuring expenses, goodwill or intangible asset impairment, changes in tax law, change in redemption value of redeemable noncontrolling interests and other nonrecurring items. Reconciliations to the most directly comparable GAAP financial measures are not provided, as the company cannot do so without unreasonable effort due to the inherent uncertainty and difficulty in predicting the timing and financial impact of such items. For the same reasons, the company cannot assess the likely significance of unavailable information, which could be material to future results.
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.
Jane Morgan: Good morning and thank you for joining us for the Amaero Ltd Q3 FY '26 Investor Webinar. I'm Jane Morgan, Investor and Media Relations Manager. And today, I am joined by Chairman and CEO, Hank Holland, who'll be running through the Q3 results and the presentation, which was lodged with the ASX this morning. [Operator Instructions] Hank, I'll hand over to you. Hank Holland: Thank you, Jane. Good morning and thank you for everyone else for joining us. I'm Hank Holland, Chairman and CEO of Amaero. We're pleased to report Q3 FY 2026 results that came in line with our expectations and to share an update on the continued momentum we're seeing across our business heading into a very strong fourth quarter. I'll take you through our financial performance, the state of our revenue pipeline and several strategic initiatives that we've advanced this quarter, including our re-domiciliation to the United States and progress towards a potential less IPO. We'll then open the line for questions. Let me start with reaffirming our FY '26 revenue guidance of $18 million to $20 million. And as of today, over $18 million of that guidance is fully contracted. In Q3, we recognized $2.6 million in revenue, a 301% increase year-over-year. That figure breaks down is $1.8 million from powder sales and $0.7 million for our PM-HIP business. It came in right on top of the $2.5 million in contracted revenues we disclosed back in January. Looking ahead to Q4, we have $8.4 million in contracted revenue, up from $7.2 million of contracted revenue disclosed in January. We expect a significant inflection point in the fourth quarter with contracted revenue in the quarter contributing approximately 45% of total FY '26 realized and contracted revenue. On the cost side, trailing 12-month G&A expense grew 18% year-over-year, even as trailing 12-month revenue expanded by more than 300%. I'll come back to that contrast in a moment. It's an important part of the financial discipline and the operating leverage story. We ended the quarter with $38.3 million cash balance, which included $4.9 million restricted cash. During Q3, we submitted a draw request in the amount of $5.8 million to EXIM Bank for incurred capital expenses, and we expect to receive the disbursement in April. Pro forma cash balance adjusted for the receipt of EXIM disbursement equals $44.1 million, including restricted cash. On strategic milestones, Tim Johnson has been nominated to join our Board, our re-domiciliation of the U.S. is on track to be completed by the end of June, our PCAOB audit with BDO USA is advancing in parallel, and we continue to work towards a potential U.S. listing and late calendar 2026 or early 2027. I'll cover each of these in more detail shortly. 12-month -- trailing 12-month revenue reached $11.8 million in Q3, an increase of 347% year-over-year. Both business segments are contributing to growth. Powder revenue driven by exclusive supplier agreements and contracted shipments contribute approximately 80% of total revenue. And PM-HIP manufacturing contributed approximately 20% of total revenue. PM-HIP manufacturing contracts have longer sales cycles and require customer qualification, but those processes are well underway. And we expect PM-HIP growth to outpace our overall growth rate and increase its share of revenue mix as we move into FY '28. We currently have atomization contracts for 14 refractory alloys that include niobium, moly, tantalum, tungsten and rhenium, and we have 14 active PM-HIP contracts. The FY '26 revenue bridge is straightforward. We recognized $10.3 million year-to-date across the first 3 quarters. We have $8.4 million contracted for FY -- for quarter 4. That gives us line of sight, the $18 million to $20 million guidance range with over $18 million contracted. Next slide, please. On the investment side, tangible assets, gross PP&E plus inventory have grown for approximately $41 million in Q3 FY '25 to $72 million today. That capital is going directly into production capacity and inventory. It supports the revenue ramp, enables us to fulfill contracted demand and mitigates tariff supply chain risk. Every dollar we've deployed is aimed at scaling the business and create a differentiated and defensible market position. As other companies are beginning a multiyear capital investment plan, we are concluding a 3-year $72 million investment plan. And we're positioned to take immediate advantage with production scale of the favorable thematic tailwinds for defense industrial base for critical mineral supply chain and for sovereign manufacturing. Our core principle has been to invest early to attract an experienced team that spans technical, operational and financial leadership, then grow the team and GA expenses in a disciplined manner. As the Chairman and CEO and as a large shareholder, this is yet another example of alignment of interest with management and shareholders. The data supports the case. Trailing 12-month revenue is up 347% year-over-year while trailing 12-month G&A expenses were up 18% year-over-year. That divergence, revenue grew at nearly 20x the rate of G&A, its operating leverage, it's our ethos and it's a discipline that we will maintain. Let me walk through the cash bridge for Q3. We started the quarter with a cash position of $52.6 million, including restricted cash. From there, net cash used in operations was $7.1 million. Inventory purchase is $0.6 million. CapEx Was $5.4 million. FX exchange impact of $1.2 million brought us to our March 31 closing balance of $38.3 million, which included $4.9 million of restricted cash. During Q3, we submitted a [ draft ] request in the amount of $5.8 million to EXIM Bank for incurred capital expenses, and we expect to receive the disbursement in April. Pro forma cash balance adjusted for the receipt of the EXIM reimbursement equals $44.1 million, including restricted cash. We are on schedule and on budget to complete the 3-year $72 million capital investment plan this quarter. Let me spend a moment on a re-domiciliation because we believe it's strategically important step not just a structural formality. In February, we announced our attention to re-domicile from Australia to the United States, establishing a new Delaware parent entity. Our ASX listing will be maintained, the 3DA ticker will be unchanged and shareholders will retain equivalent economic ownership through CDIs. Our operations, strategy and management remain entirely unchanged. What change is our corporate home. On the commercial side, re-domiciliation positions us to satisfy Department of War's foreign ownership, control and influence or FOCI requirements. That's a prerequisite for eligibility on classified defense contracts which represents a meaningful expansion of our addressable market. On time line, our scheme booklet is expected to be distributed to shareholders in early May. Re-domiciliation is expected to be completed by the end of July, subject to shareholder and regulatory approvals, with a PCAOB audit completed in parallel. Beyond the operating rationale, re-domiciliation supports three important objectives: First, U.S. market positioning. We gained greater visibility with U.S. customers and stakeholders. It helps address foreign ownership, control and influence issues and improves our comparability with the U.S.-listed defense and advanced manufacturing peers. Second, strategic flexibility. It simplifies our structure for potential M&A or partnerships and positions us for a potential U.S. IPO in late calendar '26 or early '27. And third, capital access. A U.S. domicile and potential IPO give Amaero access to a larger, deeper investor base and the potential for improved valuation and liquidity, along with enhanced access to lower cost debt and equity capital. Tim Johnson's Board nomination in March was in preparation of a potential U.S. listing. Taken together, this is about ensuring that as we grow our corporate structure and market access reflects and supports the end market customer while supporting the enterprise valuation and liquidity. On the financing, we are pleased to announce that EXIM Bank has increased its loan commitment to Amaero from USD 22.8 million to USD 26.1 million, a USD 3.3 million increase. This is non-dilutive capital that directly supports incremental CapEx deployment. The amendment reflects EXIM Bank's continued endorsement of our platform and further aligns us with our Make More in America Initiative. Government-backed non-dilutive financing of this kind is accretive to the capital stack and it provides an important signal of support from the U.S. government. On the commercial front. Two announcements deserve specific attention. First, we're also pleased to announce that we've entered into a 3-year distribution agreement with United Performance Metals or UPM, an affiliate of O'Neal Industries, which generated approximately USD 3.4 billion sales in calendar year '25. Amaero has been appointed as UPM's exclusive supplier titanium powder. We've already received initial purchase order of 4,000 kgs, which is included in FY '26 contracted revenue. And UPM is committed, obligated to maintain a minimum inventory of 4,000 kgs with ongoing replenishment orders, create a recurring volume dynamic that scales with their end market demand. This is a significant distribution channel addition and is generating revenue from day 1. Second, next page, please. After the end of the period, we announced a 1-year Master Purchasing Agreement for FY '27 titanium powder shipments with minimum contracted revenue of $7.8 million. To put that in context, it's roughly equivalent to our total FY '26 titanium powder revenue in a single contract. Shipments are structured as equal quarterly deliveries from July '26 through June '27 with fixed pricing on committed volumes and upside from additional orders. The customer expects FY '27 orders to exceed the minimum commitment. Combined with a planned 100% increase in titanium powder production capacity FY '27 over FY '26, this agreement gives us strong early visibility into next year's revenue ramp. Stepping back to the broader commercial picture. We've taken a very deliberate approach to aligning with select strategic partners via long-term agreements. In each case, the partner strategically positioned in a market vertical. In the case of ADDMAN, Dr. Gao and the organization have pioneering experience in printing C103 and other refractory alloys. In the case of Velo3D, they have differentiated position as the only made in U.S.A. OEM with large-format printing capability for defense and space applications. In the case of Titomic, they're the leading force in the U.S. defense industrial base for cold spray manufacturing of qualified components. In the case of Knust-Godwin, they're a trusted partner for processing PM-HIP manufacturing components and they have a large expansion underway for 3D printing machines dedicated to titanium. And in the case of UPM, a leading distributor, aerospace, defense and medical industries with a large sales organization. Separately, we have numerous programs, plural, and numerous defense primes, plural, that are advancing first articles and qualification for production contracts. As is our practice, we will announce the commercial opportunities once we are awarded the production contract. Specifically, looking at Q4, we expect titanium revenue to increase 62% compared to Q3. I'm pleased to share that this will reflect full capacity utilization for the current quarter. We have orders for 14 refractory alloy powders in the backlog, and we have 14 active PM-HIP contracts, only one of which has been announced. That's a strong commercial foundation entering the largest quarter in our company's history. To bring it together, Q3 delivered on plan, Q4 is fully contracted and represents a step change in quarterly revenue; FY '26 guidance is reaffirmed at $18 million to $20 million, 100% contracted. Our balance sheet is solid with pro forma cash position of $44 million post-EXIM reimbursement. We're advancing our U.S. re-domiciliation on schedule. We expect to enter FY '27 with strong revenue visibility with long-term agreements and contracted shipments. We are executing. We are scaling. We are focused on where we need to be in a year and in 3 years to address critical needs for our partners in the U.S. government Department of War in the commercial sector. Amaero is uniquely positioned as a leading advanced material business and a leading advanced manufacturing business. We acted boldly to commission the largest scale and lowest unit cost U.S. production of refractory and titanium alloy powders and to position Amaero as the leading PM-HIP manufacturer of complex near-net shape parts. Thank you for your time this morning, and I'm happy to take your questions. Jane Morgan: Wonderful. Thank you for that. [Operator Instructions] There's been quite a few that have already come through, so let me jump into them. So Hank, Q2 revenue came in at $2.6 million, which, of course, is a 301% lift on the prior corresponding period. Can you walk shareholders through how the team has converted the commercial pipeline into contracted revenue? Hank Holland: Yes. Part of we announced earlier in the year was we had contracting revenue that was delayed given the FY '25 continuing resolution and the government shutdown. We have seen since the government reopened late last year an acceleration of contracting. Part of that is reflected in the contracts we have in the current quarter, the fourth quarter of this year. So we have not only, I think, done a good job at converting these current contracts in the Q4. But as we look into next year. As I mentioned on the titanium side, the contract that we announced of $7.8 million, that's equivalent to roughly a FY '26 titanium revenue, right? I think as we go into FY '27, that will be about 1/2 of plan for FY '27 that one contract. In that same announcement I said that before the end of this fiscal year, we expect to announce a refractory development contract. That, too, I think, will be about 1/2 of our planned refractory revenue in FY '27. And likewise, on the PM-HIP side, I think by the time we get to the end of June, I think roughly 1/2 of our planned PM-HIP revenue will already be contracted. So I think we'll go into FY '27 with significant portion of our plan contracted and probably already have contracted roughly equivalent to FY '26 revenue. Jane Morgan: Wonderful. That answers one of the questions there. The second one, what impact, if any, are you experienced from the increase in energy costs? Obviously, from the Iran conflict. And how are you managing to keep overall costs growth down? Hank Holland: So one of the things I am grateful for is when we came to Tennessee, amongst other incentives, we signed a 10-year subsidized electricity agreement at $0.058 a kilowatt hour. The national average before this energy shock was $0.19, right? And mind you, most of the electricity in the U.S. is gas-fired, right? Most of our electricity demand, most of our electricity generation. So those electricity rates will be climbing. So we were immune. We have no impact whatsoever from the fuel increase that we're seeing in the broader energy increases that we're seeing in the U.S. And we're over -- we're not impacted in any way by the shipping curtailment in the Hormuz Strait and in general, in the Middle East. What little imports we have from outside come from China, which, again, that shipping has not been impacted. And likewise, we have -- you've seen a lot of inflation in certain base metals, as everyone is aware. In the case of titanium, which is a primary thing that we import from China -- as you might recall, we've got a long-term U.S. supplier agreement with Perryman, and we have a long-term agreement with an aerospace [ mill ] in China. In fact, our titanium prices in China have come down about $2 a kg from about $16.75 a kg at the start of this year to about $14.50 a kg now. So we've actually been able to negotiate lower prices on titanium bar. Jane Morgan: Thank you. Bear with me. There's a lot coming through. So trailing 12-month revenue was up 347% year-on-year while G&A expenses grew only 18%. You touched on this in the preso, but can you talk to how the team is maintaining that operating leverage as the business scales? Hank Holland: Yes. Primarily, if you think about early on, going back a year ago, 18 months ago, we decided to be on our front foot and to aggressively invest the and stand up, I believe, the most experienced team in our industry in the U.S. I think we've got a very, very strong team, particularly when it comes to gas atomized titanium. On our team includes the inventor of gas atomized Fred Yolton. Eric Bono, who's worked with him for 3 decades. So a lot of costs early on to stand up our team. Since then, we've been -- we continue to add to our team, but we've been very, very disciplined to add on the G&A side. Most of our incremental hires today are in the factory, right, actually in production, not in G&A, if you will. And then likewise, other expenses. Obviously, we've got certain fixed expenses we've had to absorb as far as the facility and so forth. We'll see our gross margin improve as our revenues scale. But on the G&A side, it's primarily a discipline in hiring is where we've been able to maintain that growth. Jane Morgan: Wonderful. This one has come through quite a few times. So U.S. federal budget now resolved and the Department of War sovereign manufacturing agenda is gaining momentum. How is Amaero position to benefit from this policy environment, particularly with the U.S. Navy Letter of Support and PM-HIP qualifications underway? Hank Holland: Yes. So let me -- it's a great question. And let me give a direct and maybe some might consider an indirect benefit. On the direct side, and the same would be true with the Iran conflict right now, obviously, we live in a world that is increasingly unstable from a geopolitical standpoint. The President has recently submitted a $1.5 trillion, $1.5 trillion defense budget. That's a $1.15 trillion baseline and a $350 billion reconciliation bill on top of that. So a $1.5 trillion defense budget. So that obviously helps us significantly. One thing that I would point you to in the most recent announcement I made in my quote -- there's a quote that -- this won't be verbatim, but roughly said, we will continue to collaborate closely with our partners in the U.S. government and the U.S. Navy to innovate, to integrate and to scale. Notice that it's the first time I said to integrate. So one of the challenges that we have in the U.S. right now is you've got these parts that travel all over the country for disparate processing. And what we've got to do a better job of in U.S. is to co-locate and to integrate adjacency capabilities. This creates a great expansion opportunity for us. and one that would be very well supported by the U.S. government. So stay tuned for more there, and that is a direct benefit and the shift in policy that we're seeing. On top of that, I would argue, other than AI, and of course, in the U.S., we've got a bit of a software hiccup from a valuation standpoint in general, there is not a more sought-after investment theme than where a Amaero sits at the nexus of, three things: defense industrial base, critical mineral supply chain, sovereign manufacturing, right? And thus, as we are in conversations right now about a potential IPO in the U.S., incredibly strong support of the investor base here. Another data point on that, if you look at the defense ETF in the U.S., it's at a 52-week high. If you look at Amaero and most of our peers in the Australian market, the ASX, we're all trading about 35% to 40% discount for a 52-week high, right? So there's a real valuation arbitrage between the U.S. market and the ASX as well. And particularly with small cap investors because there aren't that many investable companies, a lot of interest in companies such as Amaero in this theme. By the way, I would point out to you, it's been announced, one of our suppliers for tungsten and moly, a company called Elmet, E-L-M-E-T, they have filed to go public. They've given a range that's supposed to price on Wednesday of this week. I would suggest watch Elmet and see how they do when they go public. Velo3D went public August of last year at $3. Today, I think they're trading around $12. So watch other companies that are considered in a similar ecosystem as where Amaero sits. Jane Morgan: Thank you, Hank. Next one here. So is there still interest in C103 powder? And what percentage of sales do you expect it to be going forward? And again, further, what's the outlook for the C103 pricing? Hank Holland: Yes. So in general, what we felt all along is that as we scaled that -- albeit we'll have 3 atomizers for titanium, we'll only have 1 atomizer for refractory. But because refractory prices are so much higher -- and by the way, the refractory atomizer will never have probably more than about 50% or 60% capacity utilization. So we're going to keep that where we're going to be very agile and be responsive to orders, where titanium will get up to running essentially 100% capacity utilization. This current quarter, on the atomizer dedicated titanium, we are adding 100% capacity utilization. We're full. We cannot accept other orders this quarter, okay, to give you an example. That being said, going forward, we expect the refractory revenues will roughly equal titanium revenue. okay? Only 1 atomizer to 3 atomizers, but refractory revenues will roughly equal titanium revenue. If you ask me 2 years ago, I would have thought more of that would be C103 than now. Hasn't changed our revenue outlook. It's just changed the mix of those revenues. So I announced that we expect before the end of June to announce a development refractory contract. So stay tuned. Coming. We feel confident about that. But notice the name of that contract, development refractory. What does that entail? Hafnium prices, which, keep in mind, C103 is about 10% hafnium or up about 75% in the last 9 months. So as hafnium has gotten increasingly expensive and thus C103 has gotten increasingly expensive, the Department of Defense is increasingly as to what other development refractory alloys can we atomize that have similar high temperature application, right? And so this is something working closely with the government on again. Stay tuned. So yes, there is demand for C103. Keep in mind, C103 was first used in 1969 in the Apollo lunar landing vehicle. So we've got 6 decades of decade. These other alloys we don't have, right, years of decade. So there will be certain very mission-critical applications that C103 will be called for. And that price is actually relatively stable. It's climbing albeit not as much as happening. If anything, the margin has come down a little bit given that. So yes, there will be C103 demand. I think prices climb, but not by a lot from where they are now. But I think the refractory opportunity in general is about the same as a percent of revenue, but the mix of that is going to shift to other development refractory alloys from C103, I would expect. Jane Morgan: Wonderful. Next one. This webinar attendee just asked for your long-term vision for Amaero. So is it to build the company for potential acquisition? Or is it to maintain ownership and establish Amaero was a national asset to the Navy defense force? Hank Holland: So my background is essentially as an investor in private equity. So I think of businesses as platforms, and part of what -- I always had the vision of Amaero, now I think we're on that cusp, and it's another really, really important reason for now at the time for the IPO in the U.S. and the re-domiciliation of the U.S. is we've established a foundational capability, a leader in refractory and titanium spherical powder, a leader in PM-HIP manufacturing, and we're now at the stage that we'll begin to scale revenue. The opportunity for us now where we've got -- I've been in Washington, D.C. 10 of the last 14 weeks, right, to put some context on this. And the reason for that is there is so much interest in the U.S. government to essentially create these regional manufacturing hubs. And so the real opportunity I see for us in my vision is how do you take our foundational capability and a very disciplined, thoughtful way, expand that. Expand that into adjacencies where we become an integrator, advanced material manufacturing company that is essential not only to defense but also to the commercial sector. In a perfect world, I'd like to be 50% government source revenue and 50% commercial source revenue. So what we call a traditional dual-use company. But that would be my vision. As far as selling, I always want to build this business where we would be an attractive acquisition target to someone else. And part of the way you get a higher multiple is you want to be involved in very strategic businesses. I -- addressing critical vulnerabilities in the supply chain will get us a higher multiple. I think that we are 1.5 years away, 2 years away from being deemed highly strategic in the U.S. manufacturing and supply chain ecosystem. Do we sell? Do we merge? Do we just continue to operate at that point because we're a highly profitable company as we get down the road? You want to have all those options. But I certainly have a corporate strategy that is going to make us an attractive target to someone else. Sorry. You're muted, Jane. Jane Morgan: Sorry. This one again has come through quite a few times. Just commenting on the expected time lines for the argon recycling plant. And given the positive effect on the margins, can the installation be potentially brought forward? Hank Holland: So we ordered the argon recycling in December of last year. We announced at that time we expected to complete the installation by the end of this year, so December of this year. We are on track for that. It probably then takes 3 months to optimize all the operations. So we'll begin to see savings in the first quarter of the calendar year '27. Probably really get the most significant amount of those savings beginning in the second quarter and then you'd continue to optimize for some period. But you're exactly right, we're already the lowest cost producer, and this will significantly improve our unit cost profile. And I think that we'll begin to realize that early in '27. I don't think it's possible to pull it forward more. We really shortened the -- initially, it was estimated 18 to 20 months. We brought that into 12 to 13 months. I think we can achieve that. Unlikely we can pull forward more than that. At the same time, as you might recall, we ordered the fourth atomizer. Third one dedicated titanium. As we speak right now, if you were here in our factory, ALD's technicians are on site. They're installing the third atomizer, which we said would commission in June. We have a pretty good experience or a track record of doing that ahead of time. If you were here, what you would see is Atomizer #2 is covered in a curtain. The reason it's covering a curtain is we don't want the ALD technicians to see the changes, the modifications that we made to the earlier atomizer. And so Atomizer 1, Atomizer 2 are off limits to ALD. We will accept that. We'll then make the modifications that we make. That will be -- we are at capacity, as I said, currently. We'll get more capacity as we roll into next quarter with the next atomizer. Jane Morgan: Thank you, Hank. This one's come through a few times as well. So given the global supply concentration in both niobium and titanium, can you walk us through your sourcing strategy, specifically whether you rely on multiple suppliers? And how resilient your supply chain is to geopolitical risks such as tariff sanctions or trade disruptions? Hank Holland: So a great question. Let me take those separately beginning with titanium. So titanium, we don't have an element issue. So titanium comes from mineral sands, ilmenite and rutile which, for example, probably close to half of the global supply is in Australia, right? So you've got a lot of the ore -- you've got a lot of the precursor elements. The challenge is titanium sponge, which is then used -- the way you make titanium bar is about 20% titanium sponge, master alloy and then scrap. That's how you make titanium bar that we then buy and atomize. China has got about 65% or 70% of the titanium sponge capacity in the world, okay? In the developed world, in the allied world, about 20% plus is in Japan. By the way, that's the highest quality sponge in the world is in Japan, and the Kingdom of Saudi Arabia has stood up in recent years actually in a joint venture with the Japanese company, some Ti sponge capability as well. We have a long-term supply agreement with Perryman, a private titanium producer in the U.S. There's 4 producers in U.S. TIMET, ATI, Howmet and Perryman. We've got a long-term supply agreement with Perryman. They, in turn, have a long-term supply agreement for a Japanese titanium sponge. So we've got a very secure relationship for U.S. titanium. China, we've got a long-term supply agreement with a very, very well-respected aerospace mill. This company actually came to us to a defense -- I'm sorry, a medical company that we're working closely with. And the real issue there is price. So even after a 50% tariff, which is what we pay today on Chinese titanium bar, unfortunately, our U.S.-sourced titanium bar is 100% more expensive even after a 50% tariff. So secure titanium supply chain, it's real the price issue is a determinant. On the other side, niobium is the least of our worries. So niobium, yes, it's highly concentrated largely coming out of Brazil. But keep in mind, unlike users, that is bar, sheet metal, tubing that use large, large, large amounts of product, we're using a very small amount. I mean niobium this year, we might use 10 tonnes. It's a tiny number in the ground scheme of metals, if you will. And so we've got no issue getting niobium. Not a worry at all. Hafnium, zirconium, harder, right? Hafnium and zirconium put together as far as they exist together as elements. And again, a large amount of that is coming in China. We do have some of those deposits in North America as well. And then really, where you're seeing the price appreciation right now is tungsten, for example. We've got an atomization project we're doing right now with tungsten and tantalum. Tungsten prices since we put in our order for bar, which is the start of this year, tungsten prices are probably up 150%, maybe 200% since January, right? And this is really China going out very aggressively buying tungsten supply all over the world and essentially trying to push the U.S. out Tungsten is really important in the U.S. right now for certain munition applications, also for thermal protection systems, given the high temperature. So it's less of an issue of can we get it. And again, niobium is not a concern. It's more of an issue or some of these were seen price increases given the pressures from China. Jane Morgan: Thank you for that. Again, lots of questions coming through. Has the U.S. government shown any interest in taking equity stakes in companies like 3DA as they have with companies in strategic minerals such as MP materials? Hank Holland: Again, great question. I want to be somewhat careful with what I say here. The White House and this administration, the Trump administration, really beginning in the fall of last year pivoted and made a strategic decision to really focus, given the prior question about China and critical minerals, right, in sourcing materials, rare earths in particular, think about the battery supply chain, right, in particular, to really focus on creating more resilience and independence and duplicity in supply chain of critical minerals. And so they went out and what they've done is they have made a number of strategic investments in companies, primarily in the critical minerals area and very narrow in critical minerals. For example, rare earths, okay? And then what they've done is in certain other applications that are adjacent. So think semiconductors, they made a 10% investment in Intel, right, as an example. Historically, a company like Amaero would go get government funding, government grants from something called Defense Production Act Title III or IBAS, Industrial Base Analysis and Sustainment. And I'm of the opinion that those programs are largely on pause. I don't think that capital is available the same way that it was. And thus, we've taken the proactive initiative to begin conversations with U.S. counterparts for other possible capital opportunities with the U.S. government. And I really can't say more about that at this time. I'm not necessarily interested in a scenario where the government would take equity interest in Amaero. I think there will be other scenarios that we could approach that would not require that. Jane Morgan: Wonderful. Okay. Next one, this webinar user is just asking about the fifth atomizer, if that's still the plan and will it fit in the existing floor space. Hank Holland: So the current plan that we've committed to is 4 atomizers, all of which have been ordered, right? We've commissioned the first two. We'll commission a third one by June and a fourth one that is on order now. That will be 3 dedicated titanium and one for refractory. That's all that we have the current plan for. So we do not currently have a plan for EIGA #5. We do in the titanium room, have room for an EIGA 5 and an EIGA 6. But the only way that I would envision that we would order 5 and 6 is with a binding offtake agreement with a strong credit counterparty. And that's what we're saving that for. We're working on some very large commercial opportunities right now. We've held that back, and that would be a way for us to structure a preferential commercial agreement, partner with someone, not unlike Tesla did with Panasonic on their mega battery installations. So that's along the lines that we're thinking. We do not, though, currently have plans to order EIGA #5. And again, I would only see that in conjunction with the binding offtake agreement. Jane Morgan: Thank you, Hank. Sorry, we are getting through them. This one is just on TJ Johnson's appointment. I encourage webinar attendees to go back and read his experience because it is very impressive. This question asks, what drew him to the Board to him specifically? And what does his appointment signal about Amaero's next chapter? Hank Holland: So let me provide insight on a question that wasn't asked that is related. As an ASX-listed company, we're all ASX-listed companies are required to have a minimum of 2 Australian residents as Board members. I mentioned earlier in this call about FOCI or foreign ownership, control and influence. So if you want to get a classified defense contract, you've got to go through an evaluation process where the Department of War evaluates foreign ownership, control and influence. And part of what they look at and candidly, they scrutinize is non-U.S. persons on your Board. So one of the things that we will evaluate with the U.S. listing is do we recompose our Board of only U.S. persons given the increasing work that we're doing with defense, all right? So a determination has not been made. No announcement has been made, but it's something the Board will evaluate in consideration with these FOCI issues, if you will. So now to the question about Tim. TJ and I have known each other for years. He was on the Board of a prior portfolio company called LogicSource, a company that I bought from Bain Capital Ventures, was most recently the CFO of Victoria's Secret, very large public company, is currently on the Board of, I believe, it's 3 New York Stock Exchange-listed company. And we brought him on the Board, not only as someone with very, very strong experience as a director but in anticipation of chairing our Audit Committee, which is increasingly important as a U.S.-listed company. And he's very, very well suited for that. So I know him, we've got very good chemistry and he's very qualified. And so as we continue to round out the Board, part of what we'll look at now is what is that matrix of roles that we need, right? I could imagine, for example, we don't have anyone on our Board today that's a -- that comes out of the U.S. military, that spent time, whether it's in program management, logistics, whatever it might be. And my nature is I don't want someone involved titularly. I don't want someone involved for their name. I only want someone involved if they're going to be substantively involved. H.R. McMaster, I don't talk a lot about Lieutenant General H.R. McMaster. H.R. McMaster and I talk on a very regular basis. He is a very close friend. He's a close, trusted adviser, right? He's engaged actively with Amaero. And so we'll look at that for the Board. And I think that will be -- part of what we look at is do we -- invariably, we'll add people to the Board, but do we more broadly reconstitute the Board to account from some of these U.S. issues relating to classified programs? Jane Morgan: Thank you, Hank. Next one. So do we expect any opportunities to flow for meeting the FOCI requirements? Hank Holland: Yes. And what I said in the U.S. earnings comments that I made, and I was very -- I underscored it, we are advancing multiple programs, plural, with multiple defense primes, plural, to qualify classified programs. And so the first step is to move forward to qualify those programs. After that, there's a process that you have to go through to get your facility as a secure facility, right, essentially a classified facility. And all of this would be part of that review that I described. So yes, if you think about what we're doing on the last page of the presentation, I -- we have not announced the counterparties, and I'm not in a position to now, but I did have a logo on there for the U.S. Navy and the U.S. Air Force. So think submarines, think missiles, right? And those would be areas that you would expect that increasingly, we would be involved over time. Jane Morgan: Wonderful, Hank. Well, that looks like that's all the questions that have come through. Perhaps if you want to just give some final comments on what investors can look forward to from a news flow perspective over the next sort of 6 to 12 months? Hank Holland: So first of all, I very much appreciate everyone, shareholders and other investors looking at Amaero. It's an exciting time. This is a year we always said would be an inflection point for Amaero. It would be the yield that we began to scale revenue. I think that is the case. We are glad to reaffirm $18 million to $20 million guidance of this quarter. We equally feel good about going into FY '27. I think we'll be well positioned with good visibility going into FY '27. So stay tuned. Exciting time for Amaero, and we very, very much appreciate all the investor support. Thank you. Jane Morgan: Absolutely. Thank you all for joining us. And if we have missed any of your questions, please feel free to reach out via the contact details on the bottom of ASX releases. We look forward to hosting you next time. Hank Holland: Thank you.
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: Welcome to the Quest Diagnostics First Quarter 2026 Conference Call. At the request of the company, this call is being recorded. The entire contents of this call, including the presentation and question-and-answer session that will follow are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without written consent of Quest Diagnostics is strictly prohibited. Now I'd like to turn the conference over to Dan Haemmerle, Interim Vice President of Investor Relations for Quest Diagnostics. Please go ahead. Dan Haemmerle: Thank you, and good morning. I'm joined by Jim Davis, our Chairman, Chief Executive Officer and President; and Sam Samad, our Chief Financial Officer. During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties that may affect Quest Diagnostics' future results include, but are not limited to, those described in our most recent annual report on Form 10-K and subsequently quarterly filed reports on Form 10-Q and current reports on Form 8-K. For this call, references to reported EPS refer to reported diluted EPS and references to adjusted EPS refer to adjusted diluted EPS. Growth rates associated with our long-term outlook projections, including consolidated revenue growth, revenue growth from acquisitions, organic revenue growth and adjusted earnings growth are compound annual growth rates. Now here's Jim Davis. James Davis: Thanks, Dan, and good morning, everyone. Our strong first quarter performance reflects a focused business, delivering innovative solutions that meet our customers' evolving needs for lab insights. During the first quarter, we grew revenues over 9%, almost entirely from organic revenue growth on broad-based demand for our clinical innovations, expansion into new clinical areas and collaborations with elite health care and consumer health organizations. In addition, we grew adjusted diluted earnings per share by approximately 13%, supported by productivity gains from our deployment of automation and AI across our operations both in and outside our labs. Given our strong first quarter momentum and continued strategic focus, we are raising our revenue and EPS guidance for the year. Now I'll provide more detail on how we executed our strategy across key customer channels and operations during the quarter. Quest operates at the center of health care, delivering solutions that make testing simpler and smarter for our core clinical customers, physicians and hospitals as well as customers in higher-growth areas of consumer health, life sciences and data analytics. In the physician channel, we delivered high single-digit revenue growth in the first quarter on strong demand for our clinical innovations, geographic expansion from greater health plan access and increased volume from our growing business in enterprise accounts. We are also pleased with our growth during the quarter in end-stage renal disease, a new clinical area for us, focused on lab testing for dialysis patients. In addition to volume from serving thousands of dialysis clinics operated by Fresenius Medical Care nationwide, we also added independent dialysis clinics and other providers as clients of our lab and water purity testing. In the hospital channel, we grew revenues at a double-digit rate with the majority of this growth coming from our collaborative lab solutions for Corewell Health, a leading health system in Michigan. Our Co-Lab solutions combine our scale, clinical depth and operational excellence to improve quality and cost efficiencies. Our implementation with Corewell Health is proceeding smoothly. We are also advancing our joint venture with Corewell Health with plans to open a state-of-the-art lab in Southeast Michigan next year. Hospitals value our flexible solutions that enable them to free up capital while benefiting from our expertise and innovation. Our pipeline of potential Co-Lab collaborations as well as potential outreach and independent acquisitions remain strong. In the consumer channel, we deliver solutions that empower people to own their health. Similar to recent quarters, we generated significant revenue growth during the quarter, both from questhealth.com and from our portfolio of top consumer health collaborations. Growth from questhealth.com featured robust double-digit customer repeat rates and notable demand for new solutions such as our Elite health profile and autoimmune and hormone tests. Quest is a trusted health care brand with broad reach, which enables us to drive efficient customer acquisition for questhealth.com. In addition, we are the preferred lab engine for top consumer health brands and a key part of our growth this quarter was due to consumers accessing our lab insights within the apps and wearables of our collaborators. Our customer channels are also growing as we continue to deliver advanced diagnostics in 5 key clinical areas: advanced cardiometabolic and endocrine, autoimmune, brain health, oncology and women's and reproductive health. We delivered double-digit revenue growth across several of these areas in the first quarter. I'll comment briefly on a couple of examples. In the areas of brain health, Alzheimer's disease is a progressive dementia that affects over 7 million people in the U.S. and is expected to affect nearly 13 million Americans by 2050. For several quarters, we've spoken about delivering double-digit revenue growth from our AD-Detect blood test for Alzheimer's disease, a trend that continued in the first quarter. To understand this growth, consider that until recently, clinicians typically diagnosed Alzheimer's using PET/CT scans, which are costly and inaccessible for many. While these scans are highly accurate at identifying mid- and late-stage disease, they are less sensitive at detecting Alzheimer's in early stages before major impairment has occurred. Years ago, we recognized the power of blood testing to reveal disease earlier and more affordably so more patients could benefit from the emerging therapies with potential to slow progression sooner. Today, Quest provides a range of tests under the AD-Detect brand, featuring sensitive mass spec tests for amyloid beta and ApoE, a genetic risk marker to complement p-tau217 and p-tau181. We also developed a proprietary algorithm that combines multiple biomarker results to establish Alzheimer's pathology with sensitivity and specificity of 90% or greater. At the same time, we are seeing that physicians are becoming more confident using blood test to aid diagnosis and guide pharmaceutical treatment decisions often in lieu of imaging. As blood tests are increasingly used both in primary and specialty care, we expect to remain a leading source of diagnostic innovation and insights for managing this disease. In other areas, we drove double-digit revenue growth across much of our cardiometabolic and endocrine portfolio, including for tests for Lp(a) and ApoB as well as for kidney, liver and reproductive hormones. New guidelines from the American Heart Association recommend Lp(a) and ApoB testing for the first time, underscoring the clinical value of these important biomarkers. We are also encouraged that the guidelines now recommend screening for high cholesterol at young ages as new research has found dangerous cardiovascular events are increasingly occurring in young adults. In oncology, we recently announced a research collaboration with City of Hope, a cancer and research treatment organization to study the use of our Haystack MRD test to aid recurrence monitoring and treatment decisions in clinical trial participants with solid tumor cancers across 14 U.S. sites. In addition to driving top line growth through innovation and collaborations, our focus on operational excellence aims to improve productivity as well as quality and the patient experiences. Through our Invigorate program, we expect to continue to deliver 3% in annual cost savings and productivity improvements. We have spoken in the past about our growing use of AI and automation in our labs. And while that continues to be a major focus in the first quarter, we stepped up our deployment of these technologies in several other areas. As one example, we boosted productivity by 40% in the first quarter among customer service agents that used AI to triage and route customer emails to speed responses. We are also deploying AI to make testing simpler and smarter for everyone, including our patients. Our new Quest AI Companion transforms complex biomarker data and reference ranges on test reports into clear plain language. By empowering patients with lab insights, our AI tool, which is powered by Google Gemini, can help shift the doctor-patient relationship to be focused on shared decision-making instead of data gathering, potentially improving care outcomes. Patients have engaged Quest AI Companion approximately 350,000 times since we rolled it out to users of our MyQuest app in the first quarter. Lastly, we are scaling the planning and design work for Project Nova, our multiyear initiative to transform our order-to-cash processes and systems and are on track to implement our first wave of solutions in the fall of 2027. And now Sam will provide more details on our performance and 2026 guidance. Sam? Sam Samad: Thanks, Jim. As Jim mentioned, our solid first quarter results reflect the disciplined execution of our strategy. Consolidated revenues were $2.9 billion, up 9.2% versus the prior year, and consolidated organic revenues grew by 9% in the quarter. Revenues for Diagnostic Information Services were up 9.4% compared to the prior year, reflecting strong organic growth in our physician, hospital and consumer channels. Our total volume measured by the number of requisitions increased 10.9% versus the first quarter of 2025, with organic volume up by 10.8%. Fresenius Medical Care and Corewell Health contributed approximately 7% to organic volume growth in the quarter. Our organic volume growth in the quarter was 3.8%, excluding the favorable impact from these 2 relationships. As expected, Fresenius Medical Care and Corewell Health's business mix impacted total revenue per requisition, which was down 1.3% compared to the prior year. As a reminder, the business mix from these 2 collaborations includes a greater proportion of routine tests than most of our clinical testing. Excluding this business mix impact, total revenue per requisition increased by approximately 2.5%. Unit price reimbursement was relatively flat, consistent with our expectations. Reported operating income in the first quarter was $399 million or 13.8% of revenues compared to $346 million or 13% of revenues last year. On an adjusted basis, operating income was $447 million or 15.4% of revenues compared to $406 million or 15.3% of revenues last year. This increase in operating income was primarily due to organic revenue growth and increased productivity, partially offset by the impact of wage increases and to a lesser extent, weather. Reported EPS was $2.24 in the quarter compared to $1.94 a year ago. Adjusted EPS was $2.50 versus $2.21 a year ago. Adjusted EPS grew in the first quarter versus the prior year, largely due to organic revenue growth, increased productivity and lower interest expense, partially offset by the impact of wage increases and weather. Cash from operations was $278 million in the first quarter versus $314 million in the prior year. Cash from operations was lower than a year ago due to the timing of operating receipts and disbursements and higher bonus payments in the current period versus a year ago, partially offset by an increase in operating income. Turning now to our updated full year 2026 guidance. Given the solid performance in the first quarter, we are raising our full year revenue and EPS estimates. We now expect revenues to be between $11.78 billion and $11.9 billion, a growth rate of 6.8% to 7.8%. Reported EPS to be in a range of $9.58 to $9.78 and adjusted EPS in a range of $10.63 to $10.83. Cash from operations to be approximately $1.75 billion, capital expenditures to be approximately $550 million, share count and interest expense to be consistent with 2025, and our 2026 guidance reflects the following considerations. Our revenue guide does not include any contribution from prospective M&A. Operating margin is expected to expand versus the prior year. With that, I will now turn it back to Jim. James Davis: Thanks, Sam. We are very pleased with our start to the year. More than ever, people are turning to our lab insights to illuminate their path to better health. In summary, our first quarter results reflect a strong focused business delivering innovative diagnostic solutions to meet our customers' evolving needs for lab insights. We grew the top line on broad-based demand for our clinical innovations, expansion into new clinical areas and collaborations with elite health care and consumer health organizations. We also grew the bottom line with productivity benefits from automation and AI. Given our first quarter momentum, we are raising our guidance for the full year. I'd like to thank each of my nearly 57,000 Quest colleagues for living our purpose every day, working together to create a healthier world, one life at a time. Your passion and commitment are the engine that empowers Quest to deliver diagnostic insights that improve health and transform lives. Now we'd be happy to take your questions. Operator? Operator: [Operator Instructions] our first question comes from Michael Cherny with Leerink Partners. Michael Cherny: Congrats on a nice quarter. If it's possible to unpack the organic volume dynamics a bit, clearly, that was a standout, especially against a broader macro backdrop. How should we think about the impact of mix, the impact of commercial activities on your part? And if you can, can you just reaffirm the same expected contribution from Corewell and Fresenius relative to what was embedded in your guidance to start the year? Sam Samad: Yes. Sure, Michael. This is Sam. So let me just start with some of the facts about Q1 that we talked about in the prepared remarks. Organic volume growth was 10.8% in the quarter. Total volume growth was 10.9%. So the contribution to volume from Fresenius and Corewell was about 7%. And so if you exclude those from organic volume growth, the organic volume growth, excluding those 2, was 3.8%. The revenue per requisition in total was down 1.3%. If you exclude the impact of Corewell and Fresenius, it was actually up 2.5%. So a solid revenue per requisition. If you look at the impacts within that revenue per requisition, excluding Corewell and Fresenius impact, if you look at what's driving that 2.5%, which is a really strong revenue per req, I would say test per requisition was really the key driver. We continue to see a step-up in terms of the number of tests per requisition. This is being driven by a lot of the things that we have shared over the course of last year and this year, more advanced diagnostics testing, more early detection options and screening options, our consumer business contributing to it as well. So we continue to expect that, that test per req continues to be solid and has benefited Q1 rev per req significantly. Now I think your other question was how should we think about the balance of the year. As we think about Q2 to Q4, we're looking at continued growth in terms of organic utilization. A continued impact, I would say, on revenues from Fresenius, we said it was about a $250 million impact for the year in terms of revenue growth impact from Corewell. So that's, I think, what you should be thinking about in terms of the impact of Corewell. And Fresenius would be an additional roughly, let's call it, between $80 million and $100 million on top of that. So between those 2, it's about a 3.3% increase to our revenue that's embedded in the guide. And we expect an impact on volume, I would say, somewhat consistent with what you saw in Q1, but still expect very strong utilization as we go forward and expect strong revenue per requisition, excluding the impact of those 2 businesses. And Jim had a couple of comments there. James Davis: Yes, Mike, the mix impact has really benefited our business from an organic revenue standpoint. And specifically, our commitment to consumer health and wellness and these partnerships in the wellness industry have really helped us nicely. There's really 2 things there. It's both the absolute test per req, which has a big impact, mixes us up from a test per req standpoint. And then the advanced types of tests that are being ordered on these panels from advanced cardiovascular test to autoimmune testing to hormone testing. And then the last thing, and this comes mostly from our physician channel, both neurologists and primary care physicians. As I mentioned in the script, our Alzheimer's book of testing more than doubled year-over-year. So we're really, really seeing nice lift from our Alzheimer's set of tests. All of those things together, Mike, is what's really driving this nice organic test mix. Operator: Our next question comes from Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: I guess on just a couple of things on a short-term basis. Can you talk about sort of any embedded like weather and sort of flu expectations for the short term in the quarter? And then if we think about going forward for the rest of the year, can you talk about sort of any other expectations in terms of puts or takes on timing for the quarter, particularly in regards to margins on that second part of the question. James Davis: Yes. Liz, on the weather, I'll take that first, and Sam can comment on the second part. If we look at it on a year-over-year basis, it was like a $9 million revenue impact, $7 million operating income. So -- but that's on a year-over-year basis. So now we know in January, it was a rough month. We had some weather in February. But honestly, what we did see in March is that the people who canceled appointments during those bad weather events, about 70% of them made appointments and came back to Quest. So the follow-on from canceled appointments was really good. And that only comes from us e-mailing out to patients, texting patients and really trying to encourage patients to come back from missed visits. Sam Samad: Yes, and with regards to the weather, as Jim said, so we had some impact in the quarter, some negative impact year-over-year, but a good recovery in the last month of the quarter. Now I think the second part of your question, Elizabeth, was on the go forward, what should we expect? If you think about at least from a year-over-year compare, we are expecting in the second half of the year this year that we're going to have some negative weather, which we usually have. Usually in the summer, we'll have the hurricane season and some negative weather. So that's embedded in our guide expectation. And if you compare it to last year, last year was actually a very mild weather season in the summer from -- I think we virtually had no to -- very little to no hurricanes in the summer of last year. So there is some embedded expectation of some more negative weather in the next, let's call it, in the summer versus what we saw. And in terms of the cadence over the next 3 quarters, I think you should expect that similar cadence to last year to some extent with maybe more of a contribution in the first half than what you saw last year than in the second half. So I would call it just over 49% of our revenue and EPS in the first half, just over 50% in the second half. So that's kind of a cadence to think about also to give you more precision on how to think about revenue and EPS. Operator: Our next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Maybe similar, Sam, on some of the moving pieces on the cost. Can you just talk about the Project Nova piece, how the investments are progressing there? Wondering if potentially higher expenses tied to some of the macro conflicts caused you to move those investments around at all. I think it was $0.25 dilution. Is that still the right way to think about it? And again, where those investments are kind of heading and when we see the fruit of those would be helpful. Sam Samad: Yes. Thanks, Patrick. So let me break down some of the impacts that you mentioned. Yes, Nova expectations are still $0.25 for the year, as we shared last quarter. In terms of the cadence of those expenses, slightly changed from my comments on the Q4 call. I think we're expecting now more of those expenses to happen in the second half of the year than in the first half of the year. We had some expenses in Q1. That's going to ramp in Q2. And I'd say we're going to see probably more than 60% of those expenses be in the second half of the year. So that's one portion in terms of just thinking about the cadence of the year. I think it goes back to also the question that Elizabeth asked. And then if you think about the macro, I mean, listen, we're impacted by, obviously, fuel costs. We have a fleet of transportation vehicles. We have a fleet of planes. We have some fuel expenses that were going to be impacted by the higher fuel costs. That, I will size it for you as somewhere in the $7 million to $10 million range, and it's embedded in our guidance. Our expectation is that fuel costs will continue to be elevated somewhere at the $4 per gallon and above. And that embedded in guidance is somewhere in the $7 million to $10 million of fuel cost that, again, will impact the next 3 quarters. So we've sized it. We've included it. It's not that significant, but it's still somewhere between $0.05 to $0.07 of EPS. Operator: Our next question comes from Ann Hynes with Mizuho Securities. Ann Hynes: Just on the organic volume front, was there anything that came in better or worse than your expectations? And maybe just on the ACA, I know the subsidies ran out in December. Did you see any meaningful impact versus what's embedded in your guidance in Q1? James Davis: We didn't, Ann, on the ACA subsidies. I think it's too early to tell. As we've said in the past as well, we can't tell 100% with every requisition, is it an ACA req or not. Not all the commercial plans code the reqs that way. But we think about 60% of our reqs, we know discrete are ACA. And so based on that, we're not seeing any impact to date. On the organic growth, it was strong across the board. I mean our hospital reference business had up 3%. It was very strong. Our Co-Lab business, obviously, with Corewell was up significantly double-digit growth. Our physician business organically was high single digits as we indicated on the call. So it's broad-based. And then obviously, the contribution from all the consumer health in both our direct channel plus our partnerships were strong, strong double-digit growth in that area. So it was pretty broad-based and across all segments that we serve. Sam Samad: And just one clarification, Ann, on the ACA to add to Jim's comments, we have built in, in our guide still the expectation that we do see a 30 basis point impact to revenues as a result of ACA disenrollments or higher subsidies. The enrollments have been good in Q1. We just need to validate that actually the enrollments lead to utilization and some people don't drop off. So we kept the assumption in our guide of 30 basis point impact. But to Jim's comment, we haven't seen really that negative impact in Q1. Operator: Our next question comes from Jack Meehan with Nephron. Jack Meehan: I wanted to ask you about PAMA. So the survey kicks off in 10 days or so. How is your prep work in terms of participating in that? And then just your latest thoughts on how you think the Medicare rates for 2027 will shake out that whole process? James Davis: Yes. Jack, so we're ready. Obviously, we submitted last time. We're going to submit this time. That's the law. And we're going to abide by the law and submit the data after May 1 of this year. I think the period is open until -- basically until the end of July. As you know, Medicare actually this year provided some guidance as to what labs need to submit. So anybody that makes more than $25,000 a year from a revenue standpoint from Medicare requisitions is supposed to submit -- that would really say there's over 2,600 hospital labs that are going to need to submit. Now whether that happens or not, we can't tell. We'll have to wait and see. CMS also came out again and said, if you don't submit, there's potential fines of upwards of $10,000 per day to those that don't submit data. Now they didn't collect those fines last time. So again, it remains to be seen. At the same time, we're going to drive the RESULTS Act as fast and furious as we can. There's a few things that still have to be completed in order for the bill to get through this year. Number one, there has to be a tech assessment done. CMS does that. That is underway. And then second is the CBO scoring. We think that process is underway as well. There's over 80 cosponsors for the bill. There was a hearing already this year in the health subcommittee of Energy and Commerce. It was a good hearing, very positive. So we're hopeful. But we're also mindful of the fact that there's summer vacations coming up and then obviously, elections. And so there's a lot to get done before the end of this year, especially with those 2 things coming up. Now in terms of rates for 2027, I think it's too early to speculate. If RESULTS Act gets done, it would keep rates as is for 2027. If the RESULTS Act does not get done, and we rely on this data collection process. If everybody submits, Jack, we're hopeful that the data will come out and show that our rates should actually go up. If you think about it this way, the last time there was a data submission, there were probably 2 companies that submitted over 80% of the data. And so the 2 companies probably -- and we're one of them and our nearest competitor is the second one, we probably have at best 17% to 20% share of the Medicare market, right? We were disproportionately lower in that portion of our business than in other segments because it's any willing provider. So when only 2 providers submit -- basically 2 providers submit 80% of the data and you have less than 20% of the market, it's obviously going to lead to a very skewed data set. So we're hopeful that the other 80% submit. We know that, that other 80% is paid 2 to 3x Medicare rates by most health plans. And you put all that together, Jack, and it should indicate a price increase. Operator: Our next question comes from Luke Sergott with Barclays. Anna Kruszenski: This is Anna Kruszenski on for Luke. We were hoping to hear more about the consumer business and how that momentum has been building with your recent partnerships. And we saw that Function Health acquired a mobile lab testing company during the quarter. So just any color on how you're thinking about that potentially impacting volumes to Quest? James Davis: Yes. So our consumer business, again, we think of it in 2 segments: our own questhealth.com, our direct-to-consumer business, that grew very nicely in the quarter, somewhere -- let's just call it somewhere between -- in the high 20s. And then all of our partnerships. We have value-added resellers that we provide lab testing to. These include 2 of the wearable companies that we've talked about in the past. And I would just say that the growth in that combined non-Quest Direct is even stronger than our own direct channel in the quarter. Yes, Function Health did acquire Getlabs. We think that's a real positive for Function Health. There's many parts of the country where even though we have 2,000 patient service centers to conduct blood draws and urine collections, there's parts of the country where we simply don't have some of the coverage, and that includes areas in the upper Midwest, the Great Plains. We also know that there's a segment of customers that would prefer a home draw. And so Function having this capability now, Getlabs will acquire the specimens, bring them to our Quest PSC or have them transported to directly and we'll continue to do that lab testing. So we think it's a positive. Sam Samad: And the one addition I'd make to Jim's comments is the growth that we're seeing from some of the collaborations that we have, the wellness companies that we're partnering with is broad-based. We're seeing a lot of growth from different players and a broad ecosystem that we're very encouraged about. Operator: Our next question comes from Eric Coldwell with Baird. Eric Coldwell: A couple of weeks ago, we had this odd day in the market where labs were getting hidden on a Friday afternoon, I think it was. And apparently, there were rumblings or rumors going around about some impact from the CMS' CRUSH RFI. I don't think that's a big deal, but I'd love you to put that in perspective and maybe talk through what you see happening in the government in terms of various fraud, waste and abuse initiatives and then your exposure to any tests that are in question and what potential impacts, positive or negative may come out of this in the future? James Davis: Yes. Thanks, Eric. And we're glad you don't think it has an impact because we don't think it does either. But just for those who may not have heard of CRUSH, it stands for Comprehensive Regulations to Uncover Suspicious Health Care. And first of all, I want to say we applaud the government's efforts to crack down on any fraud waste or abuse. So certainly applaud those efforts. The second thing I'd say is if you look at the test, first of all, it came out of an OIG report, right? There was an OIG report that looked at 2024 Medicare lab spending, and the report noted that lab spending was up 5%. And as you know, Medicare enrollees are probably flat to down. So why would it be going up 5% if pricing stayed flat across the industry. And what the report noted is that there were 10 tests that drove the majority of the increase, okay? Now 7 of those 10 tests were PLA codes, meaning they're very proprietary tests to individual laboratories, okay? We had nothing in those categories, okay? The other 3 categories were genetic or molecular-based tests. And when we look at our billing or our revenue from those tests, it was de minimis, okay? So it really, really wasn't a factor at all. So we don't put Quest in the bucket of driving that 5% increase in Medicare spend. Now the last thing I'd say about the report, and we all ought to be concerned about this. If you looked at that report, it did show that routine and wellness tests that are critical to preventative health and wellness, critical to making the country healthy again, those test categories were actually down. And what I'm talking about is basic CBC panels, CMP panels, those panels and information that really illuminate chronic care conditions, progress towards those conditions or people that aren't making progress. And those are absolutely the kinds of tests that we want to see growing across the Medicare population in order to make sure that people's chronic conditions aren't worsening and become a bigger cost and health burden to the country. So in summary, Eric, we don't think it's an issue, and thank you for asking the question. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: On consumer, I have a follow-up. I understand there's a broad range of types of partnerships that you're engaged in and the economics may vary. But can you speak to the overall margin profile outside of the Quest Direct business? And how should we think about the pipeline of future partnerships. Do you have -- are you talking with several different types of platforms from a wellness or wearable standpoint. And then a follow-up, just a broader question. You gave some interesting stats on AI and automation. And just how do we think about your targets or your goals on that front from an efficiency gain standpoint and what you can leverage from an AI use case? Sam Samad: So this is Sam. I'll take the first question around the margin profile, and then I'll hand it over to Jim, who'll talk about the pipeline and AI. I'll keep it simple. I mean the margin on these deals, both in terms of the deals and collaborations that we have, whether they're wearables collaborations, whether they're wellness companies, but also the margin profile on the questhealth.com business is on par, if not slightly better than our overall enterprise average. These are tests that are out of pocket at least on questhealth.com. And then it's a client bill business with the wellness companies that we engage with. It's all cash pay. So there's no denials. There's no patient concessions. So it's clean business in terms of just at least the complexity or the lack thereof. And it provides a really good margin profile for us. James Davis: Yes. So Erin, yes, we continue to pursue other partnerships. It's part of our goal. As we've said before, we're trying to empower people to own their own health. We want people to be the CEO of their own health care. And there's -- if we find other partnerships out there that meet our brand criteria that are in line with the mission of our company, then we'll certainly support it. And there's others out there that we continue to talk to. So we're encouraged by the growth in both our direct channel as well as the growth that we're getting through these partnerships. In terms of AI and automation, certainly, we continue, I would say, 60%, 70% of our efforts are in the 4 walls of our laboratory because that's where still opportunity exists. Anytime we see somebody looking through a microscope, we ask the question, is what you're looking at? Can we digitize that image? If you can digitize an image, you can apply algorithms to that image. And if you can apply algorithms to that image, it can assist whoever is reading that image and make a higher quality diagnosis as well as improve the productivity. So there are still plenty of areas in our laboratory where we have laboratory technicians or MDs looking at data or looking at slides or looking at pathology, and we know there's ways to automate that. We've made tremendous progress in cytology. We've made great progress in microbiology, hematology, and there's still other areas for us to go. Outside of the laboratory, as I mentioned in the script, we've deployed some tools in our call centers. Our call centers are a big part of our operations. So anything we can do to improve the productivity of the call centers as well as e-mails and text messages that come into the company, we're certainly going to drive that. The last thing I mentioned is we did put that Quest AI assistant out on our MyQuest application. This empowers people to now ask questions about the lab results that we've just provided to you. And we were pleasantly surprised by the use of that AI tool for people trying to decipher what all of these 40, 50, 60 analytes could possibly mean. We think it's a great way to educate patients so that patients can have more proactive discussions with their clinicians, and we think it's a win-win for the industry. Operator: Our next question comes from Kevin Caliendo with UBS. Kevin Caliendo: Sam, if I'm taking your comments correctly, it sounds like the north of 49% comment for one -- for the first half of the year is pretty consistent with what you said before. But then you also commented that you're pushing maybe more of the Project Nova expenses to the second half. There's some higher fuel costs that are going to be impacting the second half of the year. So within your guidance, what's the offset that makes the second half a little bit better? And then just one quick follow-up to Eric's question on CRUSH. Part of the proposal talked about prior authorizations and looking at that. And can you discuss that aspect of it, which isn't necessarily just on the molecular test, but I don't know if they're talking more broadly about how prior authorizations might be handled and if there's anything we should think about with regards to that part of the proposal? Sam Samad: Yes. Thanks, Kevin. So let me start with the second half, first half comment. I would say some of the fuel costs that I mentioned, I mean they basically start now, right? So it's not like just the second half that you have to phase those across. And again, I don't want to make too much of them because it's $7 million to $10 million of additional fuel costs. It's not that significant, but I was just giving it for completeness and to give a full view as to EPS. But they do start now, and they impact Q2 and they impact the second half. Nova steps up in the second quarter. But obviously, the first half, because it's -- because Q1 was lower in terms of Nova spend, the second half is going to be over 60% of the Nova expenses, but it does step up in the second quarter. In terms of why we see the contribution being over 50% in the second half, I mean, I think it's really primarily the margin profile across, again, those 2 partnerships, those 2 important partnerships that we have, Corewell and Fresenius, that margin profile improves in the second half, notably for Fresenius as that business ramps. I've said before that, that business a year in starts to approach the average enterprise margin. It's just the ramp up. There's some ramp-up costs that initially impact us. So I think you start to see some improvement in the margin profile of those businesses and then just the normal seasonality of the business with the strength of utilization. So that's really what I'd point to. James Davis: Yes. And then, Kevin, in terms of your questions on CRUSH, again, I'll remind you that there were 10 tests that contributed to the vast majority of the growth in the spend. 7 of those 10 tests, we have no participation in and 3 of those 10 tests, it's de minimis. So it really Quest was not a driver of those increased costs. In terms of pre-authorization, CMS did put out a request for information, a response. They asked people to comment on the CRUSH initiative. Our trade association did that. I can tell you that pre-authorization is not something we would ask for. But rather, I think what's appropriate is CMS ought to require some type of certificate of accreditation for the labs that are performing these higher complexity tests. That's a way to ensure that those labs that are producing these tests and some of these tests are absolutely necessary in health care today that you know they're being done by certified labs with good quality and a commitment to science, technology and excellence. Operator: Our next question comes from Andrew Brackmann with William Blair. Andrew Brackmann: Jim, I want to ask on the advanced diagnostics strength and all the color that you gave on that business. Can you maybe just sort of talk about any specific investments that are going to those areas in 2026 or in 2027? Just sort of anything to call out with respect to maybe specific clinical trials in some of those areas or sales team increases. I really just sort of want to get a sense of the opportunities that might exist there to maybe further accelerate that growth. James Davis: Yes. Thanks, Andrew. Yes, again, some of these advanced diagnostics tests were certainly a strong contributor to the mix that we saw in the quarter in the organic rev per req increase of 2.5% that Sam cited. But the biggest area again is brain health. As I indicated, the business more than doubled from Q1 of last year to Q1 of this year. We are committed to the space. There are other biomarkers that we are investing in and doing research on in addition to the AB 42/40, in addition to the ApoE, NFL. And then commercially, we procure the p-tau181 and 217 assays. But there's other biomarkers we're working on. We're in constant discussions with the therapy makers who are collaborating with us on looking at different biomarkers that help identify the disease at the earliest possible point. We continue to invest in advanced cardiometabolic testing in various biomarkers, one specifically in the HDL arena that goes beyond just the basic HDL test. And then obviously, I'd be remiss if I didn't talk about Haystack, we continue to invest in the space. We've made progress quarter-over-quarter. As we discussed in the script, we have a great partnership now with City of Hope, which is a leading cancer treatment detection and treatment center on the West Coast. And there's all types of clinical partnerships that we have there. We've discussed a few in the past, Rutgers and MGH. So we continue to invest in that area and continue to make progress. Sam Samad: Yes. And Andrew, maybe to add to Jim's comments, a healthy portion of our $550 million capital investment goes towards our esoteric labs to drive capacity upgrades given the growth that we're seeing in that business, in that advanced diagnostics business. So I don't want to -- I'd be remiss if I didn't mention that as well because in addition to the investments that Jim talked about, which are more on the business side that we do have a significant portion of capital investments going towards those tests as well. Operator: Our next question comes from Tycho Peterson with Jefferies. Noah Kava: This is Noah on for Tycho. I wanted to ask a few on oncology. I believe the partnership with Guardant for Shield went live 1 month ago. If you could speak to early adoption there. And then just on Haystack, what should we be expecting in terms of the phasing of EPS contribution throughout the year and kind of getting to breakeven? James Davis: Yes. Thanks, Noah. Yes, we announced a partnership to distribute -- do blood collections for the Guardant colon cancer CRC test. And so it started in the quarter. We are listing the test on our test menu so that Quest physicians can order that test and patients, regardless if it came from a Quest physician or another physician, patients can bring that requisition to a Quest PSC and we'll draw the blood and send this specimen on to Guardant's lab. I would say it's early. We just got going in the middle part of the quarter. So I can't make a comment yet on the volumes, but it's certainly starting to take hold. On the Haystack margin profile, Sam, I'll ask you to comment on that. Sam Samad: Yes. Thanks, Noah. So Haystack, listen, we're making some really good progress on the test with regards to the order experience, the commercial, both ramp in terms of resources and the uptake in terms of tests ordered. I think oncologists are starting to recognize just the impressive profile of the test with its low limits of detection. Making good progress on the reimbursement front. We have submitted to MolDX, the technical assessment to get Medicare Advantage reimbursement. We have PLA codes now that are basically priced a $3,900 baseline and an $800 monitoring reimbursed price. So we're making really good progress. It's early days to talk about EPS ramp in terms of the dilution or the improvement over the course of the year. We'll provide updates as we go. Again, it's a test, and we have many tests in our portfolio, both in terms of AD, advanced diagnostics and routine tests. So I don't want to be overly focused on just one test. But we -- obviously, it's an important business for us, and we're making good progress on it. Operator: Our next question comes from Lisa Gill with JPMorgan. Lisa Gill: I just was wondering the current M&A environment. I appreciate that there's nothing in your guidance for '26. But are you seeing anything different? Are you seeing any incremental opportunities in the market? I heard your comments earlier around hospitals and their need to submit their rates. Is that changing any of their views around the potential for reimbursement cuts for Medicare going forward? So just anything on an update on the M&A side would be helpful. James Davis: Yes. Thanks, Lisa. The M&A funnel is good. We have a mix of various health system outreach types of deals that are there. And there's not a ton, as you know, of remaining independent labs across the country, but there's still some out there, and we still take a look and sometimes they proactively come to us. I don't think that the Medicare reimbursement changes are affecting a hospital's view of their outreach business. You got to remember, in general, Medicare is our best payer here at Quest Diagnostics. And in general, it's the worst payer for a health system. So if the worst payer goes down a little bit in pricing, I don't think that affects your viewpoint on outreach. What I do think affects their viewpoint on outreach is the commercial view of the lab market in the lab industry. And I think you got a lot of really smart health plans that are starting to wake up and say, "Hey, why am I paying these health system labs 200% to 300% of what we pay 2 of the leading independents across the country." And furthermore, that 200% to 300% price premium that they get, it affects patients. It affects co-pays. It affects co-deductibles. It affects employers who are paying for this health care. And so there's nothing easier to get a quick hit, a quick win from an employer standpoint, from a patient standpoint is to normalize these rates. And we strongly advocate that health plans ought to pay all labs the same amount of money for outreach work. It doesn't do anyone any good to penalize patients and penalize employers who are paying for the majority of the health care cost in this country to reimburse some labs 200% to 300% of what the 2 leading independents are getting paid. Operator: And our last question comes from David Westenberg with Piper Sandler. David Westenberg: So I wanted to talk about the convergence of multiple factors, AI, wearables, consumer-initiated testing. Just given the fact that these AI wearables, et cetera, and consummation tested gamify longitudinal testing, it seems like there would be an increase in longitudinal testing. So am I thinking about this the right way? And how should we think about test per patient right now and where it could go in the next 5 to 10 years? Are you monitoring test per patient right now? And is it trending indeed the right way? And maybe one of the things that I might want to look at is something like are the Function Health people, for example, also doing their annual labs? And is that increasing? I mean where is the momentum going with this? James Davis: Yes. So that's a great question, David. Look, we continue to think that this convergence of consumer health, wellness, wearables and AI are going to have a profound impact on how people think about their health care going forward. I don't think the physical of today where you go see a doctor, they do a physical in the office, they order labs generally after they've done the physical and then the information flows back to the physician, back to the patient and maybe somebody calls the patient and says, here's a few things that are out of range and here's what you should do about it. I honestly think that the future, the physical of the future is going to be really before you ever see the doctor, you're going to download your wearable information. You're going to get your lab work done ahead of time. And all that information is going to be fed into an AI engine and it's going to provide you the patient with a report. It's going to provide the physician with a report. And then when you actually go and see the physician, the physical exam itself is informed by all of that information. And then it becomes more of a discussion between you and the physician on the things that you really need to work on from a biometric standpoint, sleep, diet, heart rate variability, blood pressure, stress, the things that you really need to work on to improve your biomarkers. This linkage between biomarkers and biometrics is so incredibly important. Just this past March, I believe it was March 13, there was a really interesting article written in Nature, some work that Google Health did. It was a study between us, Google Health and Fitbit that really highlighted the linkage between biometrics and biomarkers and the use of artificial intelligence to actually calculate some of these biomarkers in between lab tests. So what we're actually seeing is, I think, this trend that you check your biomarkers, combine it with your wearable data, combine it with artificial intelligence, it's just making people more and more conscious of their -- of what's going on inside their body. And then I think as you indicated, we're likely to see an increased trend of consumers continuing to test certain biomarkers to check to make sure that the things that they're working on, the things they're trying to optimize are actually improving. Okay. Operator, I think that wraps up today's call. I want to thank everyone for joining our call today. We certainly appreciate your continued support. Have a great day, everyone, and good health to all of you. Operator: Thank you for participating in the Quest Diagnostics First Quarter 2026 Conference Call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at (866) 388-5361 for domestic callers or (203) 369-0416 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on April 21, 2026, until midnight Eastern Time, May 5, 2026. Goodbye.
Operator: Greetings and welcome to NETSTREIT Corp. First Quarter 2026 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matt Miller. Thank you. You may begin. Good morning, and thank you for joining us for NETSTREIT Corp.’s First Quarter 2026 Earnings Conference Call. Matt Miller: On today's call, management's remarks and responses to your questions may contain statements considered forward-looking under federal securities law. These statements address matters subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information on these factors, we encourage you to review our latest Form 10-K and other SEC filings. All forward-looking statements are made as of today's date and NETSTREIT Corp. assumes no obligation to update them in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions, reconciliations to the most comparable GAAP measures, and an explanation of their usefulness to investors. These materials can be found in the Investor Relations section of the company's website at netstreet.com. Today's call is hosted by NETSTREIT Corp. CEO, Mark Manheimer, and CFO, Daniel Donlan. They will make some prepared remarks followed by a Q&A session. With that, I will turn the call over to Mark. Mark Manheimer: Thank you, Matt, and good morning, everyone. Thank you for joining us today to discuss NETSTREIT Corp.’s first quarter 2026 results. I want to begin by thanking our entire team for their outstanding execution, and we carried strong momentum from our record 2025 into the new year, and the organization has hit the ground running. In the first quarter, we saw continued acceleration on the investment front. We closed on $239 million of gross investment activity, driven by well-priced opportunities in our core necessity and service-based sectors including grocery, convenience store, quick service restaurants, auto service, and other essential retail. These investments were completed at an attractive blended cash yield of 7.5% and a weighted average lease term of 14.1 years. Complementing this, we executed targeted dispositions that further enhanced portfolio quality, reduced tenant concentrations, and recycled capital into higher quality, longer duration opportunities. This robust start to the year reflects the depth of our sourcing platform and our team's ability to move quickly across a number of smaller transactions while still adhering to our stringent underwriting criteria. While there have been a few new participants enter the net lease business in recent years—something that has happened in each and every cycle—the market remains extremely fragmented and rife with attractive opportunities. Turning to the portfolio, we ended the quarter with 804 properties, leased to 138 tenants across 28 industries and 46 states. Our weighted average remaining lease term increased to 10.2 years while the percentage of investment grade and investment grade profile tenants remained flat at 58.3% of ABR. Unit-level rent coverage across the portfolio remains healthy, and ticked up slightly to 3.9x. Occupancy remained at 99.9%, but subsequent to quarter end, our occupancy has returned to 100%. In early April, we backfilled our lone vacancy, a former Big Lots location, with a rated TJ Maxx at a more than 20% increase in rent. While vacancies have been extraordinarily rare in our portfolio, this execution highlights the expertise of our real estate underwriting and asset management teams. On the balance sheet, we continue to maintain a conservative and flexible capital structure. Following the capital raising completed in the quarter, our leverage was an industry-leading 3.2x. With substantial liquidity under our revolving credit facility, and the benefit of previously raised forward equity, we are well positioned to fund accelerated growth without compromising our leverage targets. Given the capital raise during the quarter as well as the strong momentum in our investment pipeline and attractive opportunities we are seeing, we are increasing our full-year 2026 net investment activity to a range of $550 million to $650 million. We are increasing the bottom end of our AFFO per share guidance range to $1.36 to $1.39. In summary, the first quarter represented an excellent start to 2026, highlighted by strong momentum on the acquisitions front and opportunistic capital raising, which largely takes care of our 2026 equity needs. Our differentiated strategy—focused on high quality real estate, rigorous underwriting, proactive portfolio management, and a low leverage balance sheet—continues to position NETSTREIT Corp. for sustainable long-term growth and value creation. With that, I will turn the call over to Dan to review the first quarter financial results in greater detail. We will then be happy to take your questions. Daniel Donlan: Thank you, Mark. Looking at our first quarter earnings, we reported net income of $5.7 million or $0.06 per diluted share. Core FFO for the quarter was $32 million or $0.32 per diluted share, and AFFO was $33.2 million or $0.34 per diluted share, which was a 6.3% increase over last year. Turning to the expense front, our total recurring G&A in the quarter increased 9.7% year-over-year to $5.8 million, which is mostly the result of increased staffing and further investment in our team. That said, with our total recurring G&A representing 10% of total revenues this quarter, versus 11% in the prior-year quarter, our G&A continues to rationalize relative to our revenue base. Turning to the capital markets, we completed a 12.6 million share forward equity offering in early February, which raised $230.3 million of net proceeds. This was supplemented by our ATM activity of 4 million shares or $73.8 million of net proceeds. In total, we sold 16.6 million forward shares or $304.1 million of net proceeds in the quarter, which puts us in an excellent position to fund our forecasted net investment activity this year. Turning to the balance sheet, our adjusted net debt, which includes the impact of all forward equity, was $629 million. Our weighted average debt maturity is 3.8 years, and our weighted average interest rate was 4.27%. Including the extension options, which can be exercised at our discretion, we have no material debt maturing until February 2028. In addition, our total liquidity was $1.1 billion at quarter end, consisting of approximately $11 million of cash on hand, $412 million available on our revolving credit facility, $606 million of unsettled forward equity, and $100 million of undrawn term loan capacity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 3.2x at quarter end, which remains comfortably below our target leverage range of 4.5x to 5.5x. Moving on to 2026 guidance, we are increasing the low end of our AFFO per share guidance to a new range of $1.36 to $1.39 and increasing our net investment activity guidance to $550 million to $650 million. We continue to expect cash G&A to range between $16 million and $17 million. In addition, the company's AFFO per share guidance range now includes $0.03 to $0.06 of estimated dilution due to the impact of the company's outstanding forward equity, calculated in accordance with the treasury stock method. Lastly, on April 16, 2026, the board declared a quarterly cash dividend of $0.22 per share. The dividend will be payable on June 15, 2026 to shareholders of record as of June 1, 2026. With that, operator, we will now open the line for questions. Operator: Thank you. At this time, we will be conducting a question and answer session. Our first question comes from Haendel St. Juste with Mizuho. Please proceed with your question. Haendel St. Juste: Hey, good morning and congrats on a strong quarter here. It seems like things are clicking on all cylinders here. I was curious about the level of activity in the first quarter. It was close to a record quarter for you. If you think about what that implies for the rest of the year, it seems there is a pretty meaningful slowdown in activity. So maybe some color on what you saw in the first quarter that drove such robust activity and what you are seeing in the pipeline, and maybe expectations near term, given what the new guide implies for activity going forward. Thanks. Mark Manheimer: Thanks, Haendel. It was a very strong quarter, similar to the fourth quarter that we just had. We are seeing very attractively priced opportunities that fit our investment criteria, which I think is a credit to the acquisitions team and the underwriting team. We are getting all that through the system pretty quickly. We are seeing a very similar environment right now. Pricing, we expect to remain relatively the same, give or take 10 basis points. We just want to be conservative with what is going to happen in the back half of the year. We certainly feel very comfortable that we can sustain this level of acquisitions, but we want to make sure that we are out ahead of our capital needs. Haendel St. Juste: That is helpful. Anything more on the competitive side that you can share? There has been lots of geopolitical and macro volatility. Are you seeing some of the private equity players step back a bit here? Your ability to win your fair share of deals seems to not face any headwinds. How are you thinking about the competitive set and whether the landscape near term will be more of the same or perhaps change in the level of volume or competition given what we are seeing in the macro? Thanks. Mark Manheimer: I think it is a credit to the net lease space that there are more people looking to get in. There are a few that have been pretty active. We are not really running into them very often on a one-off basis. Competition has been in the space for a long period of time. If you go back to post financial crisis, you had Cole and ARC and the non-traded deploying a ton of capital—even more than what we are seeing from the private equity world—and there were still plenty of opportunities for the publicly traded REITs that had a reasonable cost of capital to go out and compete. I would not expect that to change. They may look to acquire more than what they have done in the past, but I do not think that is going to have a huge impact on pricing and our opportunity set. Haendel St. Juste: That is great. Thank you, and congrats again. Operator: Our next question is from John Kilichowski with Wells Fargo. Your line is now live. John Kilichowski: Good morning. Thank you. My first question is on the treasury stock method dilution in the quarter. Could you tell us what your expectations are—what is included at the midpoint in terms of expectation of price versus the low end and the high end? Daniel Donlan: I do not want to go too much into detail. We are expecting $0.03 to $0.06. At the midpoint, call it 4.5. I think we have been fairly conservative on the high end, probably assuming even more than kind of 4.5. Our expectation is that we will drift somewhere into the low $20s and stay there. To the degree that does not happen, that would probably be upside relative to what we provided. We kind of stair-step up the price per share from where we ended the quarter each and every quarter this year. There is a healthy amount of conservatism baked into the high end, just from a dilution standpoint. John Kilichowski: Thanks, Dan. And then maybe a follow-up: what is your strategy to manage those forwards? You have some older dated outstanding forward. Does your strategy for managing those change based on the stock price? And how does this impact your growth profile heading into 2027 as you get rid of these and maybe have a faster churn of your forwards into new investments? Daniel Donlan: The dates really do not matter to us. What matters is what are the lowest price forwards that we have. There is a 12-month expiration to these. We have not had an issue extending those. It is really just taking the lowest price forwards and settling those first because those are the most dilutive. As far as our plan for this year, we would like to get done with everything that is still outstanding that we sold in 2024 and 2025. You should expect that to occur ratably over the course of the year. Mark Manheimer: And you hit on something important there too, John. Looking to 2027, we are taking some of that dilution now that just makes it more accretive when we actually do take down the shares and really allows us to have better growth in 2027 and future years. John Kilichowski: Very helpful. Thank you. Our next question comes from Greg McGinniss with Scotiabank. Your line is now live. Greg McGinniss: Hey, good morning. With the G&A guidance maintained, plenty of liquidity, and a good acquisition market, is there any push or need in your mind to increase the size of the acquisitions team given the success they have had and the potential for more going forward? Mark Manheimer: That is a good question. Right now, the acquisitions team is really humming and bringing in a ton of attractive opportunities. The filter has been pricing and where we are getting the best risk-adjusted returns. I do not necessarily think adding more team members automatically translates into a lot more volume, but we are always making sure that we have a deep enough bench. The team gets along great, fits very well with our culture, and is bringing in plenty of opportunities for us to hit our growth goals and beyond. Greg McGinniss: And then on the disposition side, a healthy 6.6% cash yield on those. Anything specific there that you can talk about or the types of tenants or assets that you either sold in Q1 or that you are looking to sell later this year? Mark Manheimer: The difference between this year and last year is you are going to see fewer dispositions. We are always open to selling any asset in the portfolio if someone is willing to pay us an aggressive cap rate, but it is going to center less on tenant concentrations—although you will see a couple here and there with some pharmacies and maybe a couple of dollar stores—and more on where we are seeing potential deterioration, whether corporate credit or unit-level performance. We like to get well out ahead of that. We have been successful doing that, getting ahead of some risks well before they start reaching headlines and become more difficult to sell, which is why our credit loss stats are what they are. Michael Goldsmith: Good morning. Thanks for taking my questions. Investment volume was robust in the first quarter. You took up the acquisition guidance materially and you have the prefunding. What are the factors that would limit your acquisitions going forward? The fourth quarter was strong, first quarter was equally strong. Should we expect you to continue to step on the gas, or what would hold you back? Mark Manheimer: We have visibility 60 to 90 days out. Beyond that, it is hard to predict—not only what the opportunity set looks like, but also the acquisition environment and pricing. With the war going on and a lot of geopolitical [inaudible], we did not want to get too far over our skis. It is something we are likely to revisit. If the market remains the same and our cost of capital remains the same, there is no reason why we cannot keep this clip going forward for several quarters. Michael Goldsmith: As a follow-up, you were able to continue to acquire quite a bit but at a similar cap rate. You mentioned you were happy with the opportunities and the risk/reward. Can you talk about the pricing environment and what would need to happen for it to change and turn less favorable? Mark Manheimer: The number one thing that could make it less favorable also has an offset where our debt would get cheaper. If interest rates come down, you may see cap rates come down along with it. I do not foresee a slowdown in the opportunity set. Go back to 2021, when the five-year was under 1% until the end of the year. That allowed a lot of small family offices to enter the space and put five-year debt on acquisitions. That is coming due at higher interest rates. We are starting to see some of those groups that maybe do not want to refinance looking to sell smaller portfolios. I think that continues through the rest of the year because that really cheap debt through 2021 with five years gets you through 2026 and into 2027. Hard to predict a slowdown in the opportunity set. Interest rates can drive some cap rates down, but we do not really see that happening too much in the short term. Michael Goldsmith: Thank you very much. Good luck in the second quarter. Matt Miller: Thanks, Michael. Operator: Our next question comes from Jay Kornreich with Cantor Fitzgerald. Your line is now live. Jay Kornreich: Hi, thanks. Good morning. I wanted to ask about tenant credit and the watch list. Recognizing it has only been a couple of months since last quarter’s earnings, have there been any changes to the watch list or how you are thinking about bad debt baked into guidance? Mark Manheimer: We do not see much of a change. If you look at the histograms that we provide in the investor presentation on slide 13, you have seen some improvement across the board with unit-level performance as well as corporate performance improving a little bit. We have a few assets under 1x coverage—believe there are three assets that fit that category—and three or four that are CCC+ on an implied rating basis. Those are ones we are paying attention to, but in each situation we feel like we will have a pretty good outcome. I do not see much impacting AFFO for the next several years. Jay Kornreich: Thanks for that. And then on the dilution from the treasury stock method accounting, should we expect that number to come down throughout the year as you settle forward equity, or as you employ future capital markets activity is that $0.04 to $0.05 range more of a sticky number to expect going forward? Daniel Donlan: It is difficult to answer because I do not know where the stock price is going to go. You should expect us to model the stock price rising throughout the year. Even though you are settling more shares and therefore there would be less dilution from those shares, the dilution stays about even because the stock price is going higher throughout the year. That is how you should think about it. It is certainly going to be higher than what it was in the first quarter. Our average stock price in the quarter was $19.26. As we sit here today, it has been in the $19s and $20s. The midpoint assumes you are staying around the $20 to $21 level, and that probably equates to anywhere from 4 to 5 million shares every quarter until you get out to next year. Jay Kornreich: Okay. That is helpful. Thank you. Operator: Our next question comes from Smedes Rose with Citi. Your line is now live. Smedes Rose: Hi, thanks. I wanted to ask more about what you are seeing in the opportunity set. It looked like you leaned into convenience stores a little more in the quarter. You have talked in the past about QSRs and maybe some more fitness. Where do those line up on your interest level right now and any pricing changes around those categories? Mark Manheimer: We did buy more convenience stores in the quarter. That is probably not going to be the case as much in the second quarter. What we will be buying will be a little more diversified than what we typically have bought. In the first quarter, just under half of what we bought were sale-leasebacks, and a lot of that were convenience store operators—more regional operators buying smaller operators. That is our favorite type of sale-leaseback because you typically see fixed charge coverage go up after those acquisitions. Those were attractive opportunities. Right now, we are seeing a more diversified pool of assets that we have under contract and are looking forward to adding to the portfolio. The convenience store space is certainly one that we like. The fitness business is another one that we like as long as we are dealing with more sophisticated operators that provide unit-level coverage and we get comfortable they have enough members at those locations to generate strong rent coverage. We sourced a decent amount of those in the fourth and first quarters, maybe a little less so in the second quarter. Quick service restaurants is always an area that we like; sometimes the pricing can get pretty aggressive there, so it can be tricky, but we did buy a handful of Starbucks in the quarter that were really strong on Placer and are doing very well. Each quarter is a little different, but I would expect the second quarter to be a bit more diversified. Smedes Rose: We noticed that Family Dollar was upgraded to an investment grade profile from sub-investment grade. What drove that? Mark Manheimer: It was really that they were willing to allow us to put that out there. They are a private company now, and we are subject to NDAs. We cannot share everyone’s financial statements and condition. We got them to agree to allow us to disclose that. They have always been investment grade profile ever since they spun out, but now we are able to share that with the public. Operator: Our next question comes from Wes Golladay with Baird. Your line is now live. Wes Golladay: Good morning, everyone. I have a few housekeeping questions. For the TJ Maxx lease that you signed, has that tenant commenced paying rent as of this moment? Mark Manheimer: They have not. They have some work they need to do within the store. It is a relocation store for them, and we have about a year before they actually start paying rent. Wes Golladay: Okay. And we noticed a few loans were extended, but just for a very short period. Can you give us an idea of what is going on and the visibility on them being repaid? Mark Manheimer: You are probably specifically talking about Speedway. That is an ongoing negotiation where that will get extended much further. We may end up acquiring some of the assets—TBD a little bit—but it should have a very positive outcome for us. Wes Golladay: Thank you very much. Operator: Our next question comes from Eric Borden with BMO Capital Markets. Your line is now live. Eric Borden: Hey, thanks. Good morning. You continue to lean into IG profile and non-IG investments. They tend to have better escalators than true IG. Do you have an internal growth target for these assets? How should we think about longer-term internal growth for the overall portfolio? Mark Manheimer: You are right. We try to negotiate better escalators any time we can, and you have a little more leverage when you are doing a sale-leaseback and writing the lease. A lot of the sub-investment grade or IGP opportunities we are doing are in those categories. We try to get 2% annual; that is what we shoot for. On a blended basis, for future acquisitions we are probably going to be more in the 1% to 1.25% range, and that will continue to bring up our average escalators in the portfolio. Eric Borden: Great. Could you quantify what is assumed in guidance for bad debt? Daniel Donlan: At the midpoint, we are looking around 50 basis points. Eric Borden: Alright. Great. Thank you. Operator: Our next question comes from Michael Gorman with BTIG. Your line is now live. Michael Gorman: Thanks. Good morning. If we could go back to the forward equity for a minute. You have been pretty strong and opportunistic there. With more than $600 million outstanding, that, back of the envelope, is about 18 months’ worth of acquisition volume at a conservative leverage level. What is the target runway you want to keep? Is it that 18-month target, or how should we think about that? Daniel Donlan: Our leverage range is 4.5x to 5.5x—that is where we feel comfortable running the balance sheet. We could complete the $650 million at the high end of our guidance and still be at 4.5x. We will be opportunistic with the ATM where it makes sense. To the degree we continue to see opportunities at the same clip we saw in the first quarter, you should expect us to access that market when appropriate. Your assessment of the runway is fair, but we want to stay on our front foot and make sure we are never in a position where we have to raise. Michael Gorman: That is helpful. And then, Mark, thinking about the loan book again. With some of the volatility in the private credit space, are you seeing more opportunities on the loan side to expand that? If so, how are you thinking about that in the investment pipeline? Mark Manheimer: The answer is no. We are looking at providing developers with capital and some acquisition capital here and there for some people like we did on Speedway. We are not lending directly to tenants; we will likely avoid that. I do not expect private credit volatility to impact what we are doing. The opportunity set on the loan side is probably not as good as it was a couple of years ago, so I would expect us to do fewer loans on a go-forward basis. Michael Gorman: That is very helpful. Lastly, on C-stores—important exposure and a space you like, but evolving. 7-Eleven announced about 650 closures last week. Can you remind us how you think about underwriting the space, both existing and new—KPIs, formats, how you think about the sector? Mark Manheimer: The 7-Eleven news reflects that they are a very old company with a lot of older, smaller stores they are doing away with. We do not own any of those. We are constantly looking at a few factors: gallonage—whether it is going up or down—and inside sales. Those are two separate revenue drivers. We want to be sure they are getting enough volume and margins are staying the same. We are seeing consistent performance across our C-store operators, with gallonage up a little. Three years ago, we had 21 7-Elevens; now we have 13, because we are constantly evaluating which ones are doing well. The ones that are not will not stay in our portfolio until the end of the lease. Our weighted average lease term on our 7-Elevens is about 9.5 years, none below 8.5 years, so we have time to deal with that. Our locations are generating positive cash flow and are not related to the recent 7-Eleven news. There is a move toward larger formats across the board, but fundamentals have not changed: strong inside sales, strong gallonage, and the ability to push price without margin squeeze. If you can do that, you will be successful for a long time in the convenience store space. Michael Gorman: Great. Thank you for the time. Operator: Our next question is from Linda Tsai with Jefferies. Your line is now live. Linda Tsai: Given more volatility year-to-date in the 10-year, looking across your key tenant categories—C-stores, grocers, home improvement, dollar stores—have you seen cap rates shift more so in any of these categories? Mark Manheimer: They have been pretty consistent. We really have not seen much change. We have been at 7.5% for ongoing cap rate with a very similar mix of tenants. The tenant mix will probably change a little and be more diversified in the second quarter, but I would expect very similar pricing. We have not really seen much movement across the board. Linda Tsai: Thanks. A big picture question: your AFFO per share CAGR has been high single-digit since 2021. How do you think about the CAGR over the next several years? Daniel Donlan: We would like to maintain that level. This year at the high end, it is 5.3% year-over-year growth, and I think consensus assumes even higher growth next year. To the degree that we can maintain spreads where they are today, in the roughly 190 basis points range, I certainly think we can be north of where we are this year. It remains to be seen where the stock price and debt go. One thing I feel confident in is our team's ability to underwrite assets and get them into the portfolio expeditiously. If the cost of capital is there, the runway to compound earnings is there for sure. Operator: Our next question comes from Analyst with Bank of America. Your line is now live. Analyst: Thank you. Good morning, and congrats on the strong start to the year. There are lots of questions on C-stores, but could you remind us how you are thinking about the grocery category now that it is above 15%, and could we see further growth there? Mark Manheimer: We have seen a lot of great opportunities in grocery with strong performing stores, great credit, and good lease terms. We expect that to continue. There is not as much in the second quarter, so it is a little difficult to predict. I do not think we would let anything get to 20%. Fifteen percent is nudging up against where we are comfortable. We do not want to let things get too far above that. If there is a great opportunity, we do not want to be precluded from moving forward, but I would expect the 15% to 16% range to be pretty consistent for grocery. The same can be said for convenience stores. Analyst: Thank you. And an update on development projects: it is currently a small part of the business with four underway. Can you remind us of yields there? Would you be willing to increase exposure to development if that is what some retailers prefer? Mark Manheimer: If retailers prefer that route and that is the best way to get the best risk-adjusted returns, we would be more aggressive. Right now, we feel like we are picking up about 25 basis points, and it happens to be tenants we really want in the portfolio. You are not getting paid enough for the risk, in our minds, to get really aggressive on developments right now. If you were picking up 50, 75, 100 basis points, it would be more interesting. Pricing just is not there. People are willing to pay up in single-tenant net lease retail for the most part. The development projects are pretty short, so they do not demand much of a premium. We are able to get similar opportunities outside development and put them on the balance sheet right away, which is what we are looking to do. We have had quarters where almost half of what we did was development; now it is about 10%. If that needs to change, our acquisitions team can move quickly to add those, but we do not see that happening anytime soon. Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. Your line is now live. Upal Rana: Thank you. Mark, appreciate the color you have already provided on investment pace for the rest of the year. Given we are almost through April and you probably have a good sense on May as well, what is your sense on the pace of investments for 2Q? Mark Manheimer: Second quarter looks strong. I do not think you are going to see too much difference in the second quarter. We will see what closes. We are looking at some opportunities we have under our control that may close in June or in July. We are getting closer to being done with sourcing for the quarter. We like the pipeline, the quality, and the pricing. At least for the second quarter, expect a pretty similar quarter to the first. Upal Rana: Great. That was helpful. And just overall on dispositions for the quarter—and you have talked about this previously—is this a pace that we should be expecting for the remainder of the year as well? Mark Manheimer: I think so. Every now and then, an opportunity comes where someone wants to pay something aggressive or take some risk off your hands. If that were to happen, we would certainly move quickly. In general, you may see a quarter here or there that is a little heavier or lighter, but you can expect a pretty similar pace. Operator: Our next question comes from Daniel Guglielmo from Capital One Securities. Your line is now live. Daniel Guglielmo: Hi, everyone. Thank you for taking my questions. Following up on the escalator question from earlier, as the portfolio mix starts to move from larger tenants to adding some smaller growthier tenants, are there differences in how you manage a smaller tenant that may be less visible to the public versus a large tenant that is a public filer and very visible? Mark Manheimer: I do not think there is much difference in how we manage it. We do not want to let any concentrations get very high with some of the public tenants, because you submit yourself to some headline risk that is not real risk as it relates to our portfolio. We are doing the same things across the board: tracking corporate financial performance, foot traffic, and unit-level performance. We want to be proactive, not reactive, on asset management when we start to see potential issues. If we continue to do that over time, you will continue to see very low credit loss stats. Daniel Guglielmo: Appreciate that. With private credit seemingly less available this year than last, are you seeing more smaller operators search for capital funding elsewhere, like via sale-leaseback? Or is it too early to see that flow through to your transaction market? Mark Manheimer: We have not seen that. I would be surprised if we see a ton of it. The private credit guys were not only focused on retail; they were lending to software companies and a lot of different industries that are less real estate heavy. I do not think it will have a huge impact one way or the other, and we have not seen any impact to date. Operator: We have reached the end of the question and answer session. I would now like to turn the call back over to Mark Manheimer for closing comments. Mark Manheimer: Thank you all for joining us this morning. Good luck the rest of the earnings season, and we look forward to seeing you at upcoming conferences. We appreciate the time. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to Washington Trust Bancorp Incorporated Conference Call. My name is Elliot, and I'll be your operator today. [Operator Instructions] As a reminder, today's call is being recorded. And now I'll turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Please go ahead. Sharon Walsh: Thank you, Elliot. Good morning, and welcome to Washington Trust Bancorp, Inc.'s Conference Call for the First Quarter of 2026. Joining us this morning are members of Washington Trust's executive team, Ned Handy, Chairman and Chief Executive Officer; Mary Noons, President and Chief Operating Officer; Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer; and Bill Wray, Senior Executive Vice President and Chief Risk Officer. Please note that today's presentation may contain forward-looking statements, and our actual results could differ materially from what is discussed on today's call. Our complete safe harbor statement is contained in our earnings release, which was issued yesterday as well as other documents that are filed with the SEC. All of these materials and other public filings are available on our Investor Relations website at ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol wash I'm now pleased to introduce today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Ned? Edward Handy: Thank you, Sharon. Good morning, and thank you for joining our first quarter conference call. We appreciate your time and your continued interest in Washington Trust. I'll begin with a brief overview of our first quarter results, and then Ron will provide more detail on our financial performance for the quarter. Following our remarks, Mary and Bill will join us for the question-and-answer session. Building on the momentum generated throughout 2025, quarterly performance was driven by continued net interest margin expansion reflecting the underlying strength of our core banking business and continued benefits from our December 2024 balance sheet repositioning transactions. The Q1 results do, however, include a higher provision related to reserve builds on 2 free credits moved to nonaccrual in March, and we'll provide details on those in the Q&A session. Our capital ratios remain strong, providing the flexibility to support continued execution across the business. In the first quarter, we completed a digital banking conversion for personal accounts that provides enhanced security and technology and a better customer experience, reinforcing our focus on service and relationships. We will continue the conversion of our business accounts in the ensuing quarters. With recent industry shifts locally, these investments position us well to attract new customers by pairing modern capabilities with the personalized service that defines Washington Trust. We're also leveraging our strength as a community bank that prioritizes local decision-making to attract experienced bankers to our commercial team. We recently added new talent across C&I, CRE and business banking, all of whom bring deep experience and strong client relationships in the region. The institutional banking team we added in January is showing strong momentum that positions us for loan and deposit growth as the year progresses. In addition, our planned branch opening later this year in Pataka, Rhode Island will further expand our presence in the northern part of the state. Overall, we're encouraged by the progress we are making to position the company for long-term success. With that, I'll turn the call over to Ron to provide additional detail on our financial results. Ron? Ronald Ohsberg: Okay. Thank you, Ned, and good morning, everyone. Net income in the first quarter was $12.6 million or $0.66 per share compared to $16 million or $0.83 per share last quarter. PPNR was down 6% from Q4 and up by 23% year-over-year on an adjusted basis. Net interest income was $40.5 million, down by 1% from Q4 and up by 11% year-over-year. The margin was 2.63%, up by 7 basis points from Q4 and up by 34 basis points year-over-year. Q1 included $116,000 of loan prepayment fee income, which benefited NIM by 1 basis point compared to $516,000 or 3 basis points last quarter. Noninterest income was down $1.2 million or 6% compared to Q4 and up by 11% year-over-year on an adjusted basis. Loan-related derivative income, which is transactional in nature, was down by $854,000 compared to Q4. Wealth Management revenues were down by $205,000 or 2%. Average AUA for Q1 decreased by 1% and increased by 10% year-over-year. Mortgage banking revenues were $3 million, seasonally down 6% and were up by 32% year-over-year. Our mortgage pipeline at March 31 was $114 million, up by $33 million or 41% from the end of December. Noninterest expense totaled $37.8 million in Q1, down by 1%, and Other noninterest expenses were down by $1.2 million in Q1, largely due to a $1 million contribution made to our charitable foundation in Q4. In the first quarter, salary and employee benefits expense was up by $693,000 or 3%, reflecting merit increases and higher payroll taxes associated with the start of a new calendar year. Our Q1 effective tax rate was 21.6%, and we expect the full year 2026 effective tax rate to be approximately 21.5%. Balance sheet total loans were down 2% from December 31. Total commercial loans decreased by $95 million, reflecting mainly payoffs in the CRE portfolio. The commercial pipeline in total is approximately $156 million. Residential loans decreased by $21 million as we continue to amortize that portfolio. End market deposits were down 2% from the end of Q4 and and up by 3% year-over-year and wholesale funding was down by $50 million or 8% from the end of December. Our loan-to-deposit ratio decreased slightly to 96.9% at the end of March. Turning to asset and credit quality. At March 31, nonaccruing loans were 81 basis points on total loans and increased by $27.5 million from the prior quarter, largely due to 2 commercial real estate office loans. Past due loans were 33 basis points on total loans. In the first quarter, we recognized a $4 million provision for credit losses, largely reflecting an increase in specific reserves on the 2 Cree office loans. The allowance totaled $41.1 million or 82 basis points. And at this time, I will turn the call back to Ned. Edward Handy: Thanks, Ron. And now we'll take questions. Operator: [Operator Instructions] First question comes from Justin Crowley with Piper Sandler. Justin Crowley: Good morning, everybody. I was wondering if you could start off just giving a little more detail on the 2 office loans. Just anything on geography? And then maybe some more specifics on what occurred to drive the downgrades in specific reserves -- so just things like occupancy levels or perhaps just how close they even were its maturity, I'm not sure that may be necessitated a new appraisals? Edward Handy: Yes. Bill, do you want to take that? William Wray: Sure. They're both loans that have been current up until this point. In both cases, in March, there were sort of triggering events that led to us deciding to make the decision for quarter end to put them on nonaccrual. Both of them have strong, sophisticated sponsors, and we're engaged with both of them right now on. One was a maturity, the other doesn't mature until next year. We're engaged with both of them on the right next steps. So I don't want to get into too much detail on what that means. But we -- like with most of our assets that have been in criticized either special mention or classified most of them emerge unscaled. And in this case, though, we took the step to put reserves in place that we thought were appropriate reflect any potential loss down the road. So again, we think they're both solid properties with solid sponsors, and we expect that we'll continue to drive resolution, and we're hoping that within the next few quarters, these will either exit or they will emerge back into performing status. Justin Crowley: Okay. Got it. And then Were there any general reserves allocated to office? Or was it all specific with regard to these 2 loans? I guess trying to get a sense of how you think about the risk and the rest of the office book at this point and the cycle for this asset class and the thinking there has changed at all? William Wray: Well, I think our office exposure peaked at $300 million a couple of years ago. It's now down to $230 million. And we think we've done that with a fairly small amount of charge-offs along the way relatively. So we expect to continue to reduce our office exposure over time. Within the CECL methodology we make sure that we use qualitative factors especially to address issues in office. And so we have taken some of those steps. And we believe going forward that there's always going to be a handful of properties that are sort of on the bubble that needs some attention and focus. But -- as you can see, these -- all of our other office properties are performing. There's -- there aren't delinquencies there that we're concerned about. So we just expect that assets will move into lower ratings and then we'll emerge from those. And we certainly spend a lot of time thinking about maturity wall analysis and refinance risk. And so we're constantly juggling those handful of properties that look like they might raise some issues down the road and try to stay ahead of them. So I guess the best way of saying we're cautious on office, and we'll continue to be cautious on office, but we also think the scale of the problems within -- are well within our capabilities to handle from an earnings standpoint and a reserving standpoint. Justin Crowley: Okay. And then I guess, somewhat larger-sized loans here. It sounds like they were self-originated. Was that the case or were either participation? Just want to confirm that. William Wray: I'm not sure which ones you're referring to, but there's only there's 5 loans. Justin Crowley: The 2 office loans that's migrated and... William Wray: Participations, we're we're the lead on the Class A. The Class A office space one, we're 2/3 participants in the lead, and then we are the minority participant on the lab space. Justin Crowley: Did you call it maybe 5% growth previously. I know a lot has changed since then with some of the geopolitical now. Just curious for an update there? Edward Handy: Yes, I'll take that one. Thanks for the question. We're -- yes, so the quarter saw pretty significant pay downs, payoffs and mostly in the Cree space and not the kind of commensurate new origination that we're -- that we're used to. But the path ahead looks very good. We're sticking with our mid-single-digit growth for the year projection. And it's important that we talk about where that's going to come from -- at this point, we're feeling like CRE is probably going to be low single-digit growth for the year. They've got some making up to do based on the first quarter payoffs and then we're thinking kind of flat to 1% growth in CRE, which is somewhat intentional. Most of the growth is going to come from our core C&I business and our institutional banking business. We're expecting sort of high single-digit growth out of our core C&I business, which you'll recall is -- has a current outstanding in the kind of $560 million level. So you can do the math there. And then most of the C&I growth is going to come out of our relatively new institutional banking group. We expect $50-plus million in fundings in this quarter and the pipeline is growing. And I think importantly, alongside that is the strategic growth in deposits that will come from that portion of our C&I business. There expecting to kind of fund at -- self-fund at a 30% to 40% level, which is much higher than certainly CRE and much higher than our core C&I business. So that's an added benefit. They joined the group in late January. So it's to be expected, it will take a little while for them to get up and running, but the pipeline is growing as we expected, and we're very encouraged by that. So back to the start sticking with the mid-single-digit growth, if not a little higher. And again, very encouraged by the types of credit, the quality of credit that we're seeing in the pipeline build. So -- more to come on that at the end of next quarter. Justin Crowley: Okay. Great. And then just 1 last 1 on the margin. I think I might have missed this in the prepared remarks. I know there was some elevated prepayment fees last quarter. Was there any of that in the $263 million for the first quarter? Ronald Ohsberg: Yes, like 1 basis point. Justin Crowley: Okay. And then I guess just thoughts on the margins in there. I think you'll get that left from the swap termination, but could you just remind us the benefit there? And then just also how you're thinking about organic expansion through the year? Ronald Ohsberg: Yes. So the swap termination will add 9 basis points in the second quarter and another 4 basis points in the third quarter. Justin Crowley: Okay. And then I guess just go ahead. Go ahead. Ronald Ohsberg: Go ahead, Justin. Justin Crowley: I was just going to ask outside of that, just the almond benefit on the swap, just how you're thinking about this margin lift from here as we get through the year? Ronald Ohsberg: Yes. There's modest expansion by quarter. First quarter was probably a little higher help by the prepayment helped actually helped a little bit by the shorter day count in the quarter actually added about 2 basis points to the NIM. But when we look ahead to the fourth quarter, we're thinking $275 million to $280 million in the quarter. Operator: We now turn to Damon DelMonte with KBW. Damon Del Monte: Ron, could you just repeat the last comment you made on the margin, the $275 million to $280 million. Was that for the second quarter? Or is that for where you expect it to be at year-end? I missed that, sorry. Ronald Ohsberg: Sorry, Damon, yes, just to be clear, fourth quarter. Damon Del Monte: Fourth quarter. Ronald Ohsberg: So we're looking at $265 million to $270 million in the second quarter. Damon Del Monte: Got it. Okay. Yes. That is with what you were describing from the benefit. Okay, great. And then I guess, -- maybe a little bit on expenses and kind of how you're thinking about the outlook from there? You've made some hires. I'm assuming that's all kind of baked into the numbers. your -- I think the expenses were around, what, $37.8 million. So just kind of modest growth off of this? Or do you think you could actually keep it kind of flat? Ronald Ohsberg: Yes. We're actually seeing about a $1 million increase in Q2 and some of that is -- really, there's 3 areas we're looking at advertising, mortgage commissions and then we've got some project implementation expenses that will be coming through in the quarter. Damon Del Monte: Got it. Okay. Ronald Ohsberg: And then -- further to that item. Further to that, we're adding a branch, which will probably open in the towards the end of the third, beginning of the fourth quarter. Those expenses will start to hit in Q3. And so we're probably looking at about $500,000 in 2026 -- related to the branches. Damon Del Monte: Got it. Okay. Great. And then -- on Wealth Management, AUM were down a little bit this quarter. Is that just fluctuation of the market? Or was there some outflow of clients? Ronald Ohsberg: Yes. It was mostly market -- and by mostly, that means not all. So yes, we did have some net outflows. Damon Del Monte: Got it. Ronald Ohsberg: You can see markets have rebounded so far in April. So no one knows what the future holds, but it could at least a lot of the declines that we saw in the quarter have reversed so far in the second quarter. Damon Del Monte: Got it. Okay. And then just lastly, given the outlook for the loan growth going forward, how do we think about provision and kind of the reserve level? I mean, obviously, you built the reserve this quarter for those loans that went to nonaccrual status. But if we assume that there's no other credit deterioration, do you kind of have the provision such that it keeps the reserve flat given the loan growth? Ronald Ohsberg: Yes. We're kind of thinking somewhere in the range of $1 million to $2 million per quarter. And that covers loan growth and maybe that gives us a little bit depending on what we book and when we book it, it could give us a little bit of a reserve build going forward. Operator: We now turn to Laurie Hunsicker with Seaport Research. Laura Havener Hunsicker: Ron Maryville. Just to stay with where Damon was loan loss provision. So the $4 million loan loss provision I know you said, obviously, that was heavy with the office. What exactly was the dollar amount there associated with office of the $4 million build? Ronald Ohsberg: Laurie, it was essentially all of -- yes, all of it. Laura Havener Hunsicker: Got it. Okay. Perfect. And then I just wanted to dive a little bit deeper here in office. So just I have a series of questions here. So thanks for the on this. So you've got 59% maturing in the next 2 years, $136 million. Is any of that currently in special mention cost side, nonaccrual? And if so, -- when is that actually maturing? William Wray: Well, of the 5 deals that are in the office space in special mention or classified 1 of them matured and that was 1 of the deals that we moved to nonaccrual. There's another one, the Class B special mention that's actually maturing in the third quarter of this year. And 1 reason we moved into special mention was just kind of as a marker as we work with the sponsor who's a well-known and committed sponsor on a refinance approach. And then the other deal that went to nonaccrual doesn't mature until the third quarter of next year. So we -- as we disclosed, we look at all of our maturing office loans very carefully. And when we know enough to with an emphasis on caution, we will take steps to make it special mention the deals that we talked about here, both were put on special mention, 1 at the -- in the fourth quarter of '24, the other in the third quarter of last year. So -- and you'll also see that we've had some positive migration out of special mention and classified, the large lab loan, for example, as special mention now and as free rent burns off, we believe if contractual rates pay us agree that, that will be coming out of special mention before too long. So we think our migration track record is pretty solid, and we feel the same about the deals that are in there now. And again, there's 5 that make up that disclosure. Laura Havener Hunsicker: Yes. Great. Okay. So just for my clarification purposes, you had 2 moved into nonaccrual. With -- was it the $22 million that matured that triggered that? Or was it the -- okay. So that 1 matured. William Wray: No, the $22 million was not the one that matured. -- matured was the $6.5 million. Laura Havener Hunsicker: Okay. So that mature. Okay. Got it. Okay. So the other 1 -- so the $22 million that matures in the third quarter of $27 million, you said? William Wray: Yes. Laura Havener Hunsicker: Okay. And then what is the occupancy running on that one, that Class A? William Wray: Well, it's it's solid. I mean, it's north of 50%. And there's actually been a fair amount of leasing momentum. The move made here was more triggered by a notification of a potential lease termination for next year, but that tenant is renegotiating. So this generates a pretty material NOI. And we feel it's a solid property with a solid sponsor in a solid market. But like most sponsors, they're looking ahead and thinking about what their capital requirements are going to be. And so we're having discussions at this point on that topic. Laura Havener Hunsicker: Okay. Okay. And then just the cross fee that you mentioned, just that $3.8 million that's on special mention that was new to special mention. What is the occupancy on that? And how are you thinking about a resolution there? William Wray: It's in the high 60s. It's got some solid tenants. It's a well-known sponsor to us. By the way, all of these are in our core markets in the Tri-State area. And so our expectation is that we'll work something out with the sponsor and keep it on special mention as long as we need to, to make sure, it's payment season and then potentially do an upgrade. So again, special mention here is sort of more just a prudential judgment to put a marker on something and watch it through its refinance process. Laura Havener Hunsicker: Okay. And then obviously, with the... William Wray: It's the fully performing loan at this point, and we expect it to continue that way. But we are being cautious as we face the maturity issue in the third quarter. Laura Havener Hunsicker: Got you. Okay. And then the lab space. So I had thought there were the $33 million, $34 million, I thought that was all related. And then it looks like just 1 you moved over. Are those 2 completely separate loans? William Wray: Two completely separate loans. Laura Havener Hunsicker: Got you. Okay. So the $6.6 million that was triggered by the miscerity. What -- and determine coverage here is 0. So occupancy here is 0. Am I thinking about that the right way? Or what? William Wray: Yes. Yes. Occupancy, that building is still in its initial lease-up phase. So it doesn't -- it's 0. The other building is effectively fully leased and it's just a matter of -- as you know, that's a very competitive market. The -- as free rent burns off in its payment season, we expect that to come back to fully performing and pass rated. We're just watching as tenants come out of free rent and make their payments. So there's very strong positive momentum on that one. On the other one, again, we're in a situation where it matured and we're talking to the sponsors about what's going to happen next. Laura Havener Hunsicker: Got you. Okay. And so the 1 that's fully leased, the $27.5 million. In other words, positive momentum happens this year, happens next year. And I guess when is that -- go ahead. William Wray: I'm sorry, you cut out a little bit. But if you're asking when that comes back out, again, we think it's probably within the next few quarters. We want to make sure the tenants are making their payments as agreed and that we're going to let it season a little bit and judge that. But we are feeling very solid about the leasing status and the performance status to date. Laura Havener Hunsicker: Yes. Okay. And then 1 last question on this lab loan. When does this $27.5 million mature? William Wray: That is 2029. Laura Havener Hunsicker: Okay. 2029. Okay. Great. Okay. And then Yes, I think that answers all my questions on that. Really appreciate the details that you guys put on Page 11. And actually -- oh, I'm so sorry, 1 more question. So you had $2.2 million of Class C that was in special mention last quarter, and now it's gone, which is great. How was that resolved? Was that sold? Or what happened there? William Wray: No. It ended up being fully leased -- and it was performing all along. They were paying as agreed. But now that it's fully leased and we've gone through that process, we've moved it back into past rated. Laura Havener Hunsicker: Perfect. Perfect. Okay. Great. Okay. So just 2 more questions. Now for you, Bill, I guess, this goes back to you, Ron. Do you have the spot margin for March? Ronald Ohsberg: Yes, $259 million. Laura Havener Hunsicker: $259, great. Okay. And then Ned, for you. This is my last question. buybacks -- your capital levels are very, very strong, and your credit, obviously, ex office is very, very strong. You're 1 of the fee banks in New England not repurchasing shares. Can you just help us think a little bit about your approach to buybacks and how you're thinking about it here? Ronald Ohsberg: Yes. Yes. Laurie, I'll take it. I mean we consider that all the time, -- and I think we've talked about it on previous calls. So I can make some arguments in favor of and also, again, doing the buybacks. Our dividend is still relatively high. The payout ratio is still relatively high. And so at this point, we maintain a buyback program, but we really are not at this point intending to be buying back shares at this point in time. Edward Handy: Thanks, Laurie. Operator: We have no further questions. I'll hand back to Ned Handy for any final comments. Edward Handy: Well, thank you all for joining. As we move through 2026, we remain focused on what has defined us for 26 years, paring personalized service and local decision making with a comprehensive suite of financial products and services. We very much look forward to quarters ahead and sharing the news about those quarters with you as we progress. So thank you for your time today. We certainly appreciate your interest and support, and we look forward to speaking with you again soon. Have a great day, everybody. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.