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The Investment Committee debate how to position your portfolio after Iran's Foreign Minister declared the Strait of Hormuz will remain open during the ceasefire.
US stocks surged on Friday, with major indexes hitting fresh records as investors cheered Iran's decision to reopen the Strait of Hormuz and growing optimism around a potential end to the Middle East conflict. The Dow Jones Industrial Average jumped 869 points, or 1.8%, while the S&P 500 gained 1.2% to cross the 7,100 level for the first time.
The reopening of the Strait of Hormuz and collapsing oil prices have removed a key inflationary risk, driving a bullish shift in equity markets. Technology, consumer discretionary, and industrials are leading as lower energy costs and easing rate expectations boost profit margins and valuations.
Ken Murphy: Good morning, everybody, and thank you for joining Imran and me as we talk through our results for the year. We will also provide an update on our strategic ambitions as we set ourselves up for longer-term delivery in an ever-changing retail landscape. I'm really pleased with our performance across the last year. Against a backdrop of increased competitive intensity, we took decisive action to further strengthen our investments in price, quality, and service. These actions resonated strongly with customers, driving further gains in customer satisfaction and continued growth in market share. Our commitment to delivering the best value for customers remains firm. In a period of continued pressure on household incomes and global uncertainty, this matters more than ever. In a year of strong momentum, customer satisfaction stepped on further, and we reached our highest market share for a decade. This translated into a strong financial performance with both profit and cash flow ahead of our guidance ranges. Alongside strong operational execution, we have been working across the business to unlock long-term growth opportunities, leveraging our unrivaled customer reach, data insights, and digital expertise, including the use of AI. As part of my strategic update a little later, I will cover some of this progress in more detail. Increasing customer satisfaction and market share are priorities for us. Following our progress over the last four years, we were pleased to see further momentum this year. Our Net Promoter Score increased ahead of the competition, including an improvement in value perception. In the U.K., our market share reached 28.5%, outperforming on both a volume and a value basis and taking our total share gain across the last three years to 120 basis points. In Ireland, we are now in our fourth year of gains, with market share increasing 32 basis points over the year to 24.2%. We started last year with a strong price position versus the market, and despite an increase in competitive intensity, we've exited the year in a similarly strong position. Across the last 12 months, our investments into price, including tripling the number of products in everyday low prices to 3,000, running alongside over 10,000 Clubcard prices and more than 600 Aldi Price Match lines. We finished the year with over 10,000 prices lower than at the start of the period. Quality is a crucial part of the value equation, and I am proud of our work over the year to deliver continuous innovation and improvement across our ranges. Finest is a key part of this story, delivering sales growth of 15% with our popular dine-in deals performing especially well. We also launched exciting new ranges like Chef's Collection, which offers restaurant-quality centerpieces designed by Tesco's in-house development chefs. It's not just about Finest. Our frozen range refresh in the second half, our biggest for many years, saw hundreds of new and improved products across tiers, from tasty new recipes and prepared meals and pizza to delicious new frozen desserts. Our colleagues are the driving force behind our performance, and I would like to extend my personal thanks for all their hard work over the past year to deliver these strong results. In recognition of the exceptional service they have given customers, we're really delighted to be announcing a GBP 65 million performance award for our hourly paid colleagues in stores, distribution centers, and customer engagement centers. This follows a further GBP 209 million investment in colleague pay for our U.K. store colleagues, bringing our total hourly pay increase to 43% over the past five years, which comes alongside a comprehensive range of colleague benefits. One of those benefits is our Save As You Earn company share scheme, and I was particularly delighted to see that over 22,000 colleagues, mainly those working in store and our distribution centers, were able to benefit from a GBP 134 million payout from the schemes maturing this year. By consistently delivering for customers, we are creating long-term sustainable value for all our stakeholders. Our Fruit & Veg for Schools program continues to make a significant impact in some of the most disadvantaged communities across the U.K. It has now expanded to 500 schools, offering children improved nutrition and education on healthy eating. A further 320 schools in Ireland also benefit from our Stronger Starts food program. Strong supplier relationships and collaboration are fundamental to our success, and we were delighted to be ranked first in the Independent Advantage survey for the 10th year running. We've also made good progress with our Planet Plan, including a 68% reduction in our Scope 1 and Scope 2 emissions, well ahead of our plan for a 60% reduction by the end of 2025. For our shareholders, we returned GBP 2.4 billion through dividends and buybacks during the year. I'll return shortly to provide you with an update on our strategic ambitions, but before that, I'll hand over to Imran. Imran Nawaz: Thank you, Ken, and good morning, everyone. I'm really pleased with the performance across the year. Following several years of good progress and against the backdrop of elevated competition, we saw consistent market share gains and improved customer satisfaction, which is reflected in our strong financial performance across the year. I'll now take you through our financial performance before taking a step back and setting out our longer-term financial priorities. This year, our statutory results cover a 53-week period. For comparability, the headline results are presented on a 52-week basis unless otherwise stated. Group sales grew by 4.3% at constant exchange rates. This included a 3.5% increase in like-for-like sales, reflecting growth across all our operating segments. Group adjusted operating profit increased by 0.6% at constant rates to GBP 3.15 billion, driven by sales growth and progress on our Save to Invest program, offsetting operating cost inflation and investments in value, quality, and service. Our headline earnings per share increased 6% year-on-year to 29p, benefiting from our ongoing share buyback program and growth in profit after tax. Our cash delivery was strong, with GBP 1.96 billion of free cash flow up 12% year-on-year and above the upper end of our guidance range. We have proposed a final dividend of 9.7p per ordinary share, resulting in a full-year dividend of 14.5p. This represents growth of 5.8% and is in line with our policy of setting our annual dividend at broadly 50% of earnings. Our balance sheet remains strong. Our net debt, including capitalized leases, was GBP 10.56 billion at the end of the period, with our net debt-to-EBITDA ratio at 2.1x. The U.K. and Ireland saw total sales growth of 5% and adjusted operating profit growth of 0.7%, with further volume and value market share gains and progress in Save to Invest more than offsetting significant investments into the customer offer and operating cost inflation. Booker sales increased by 0.6% and adjusted operating profits grew by 0.7% year-on-year. Sales growth in our Core Catering and Retail businesses, together with a strong Save to Invest contribution, more than offset operating cost inflation. In Central Europe, our sales grew by 3.7%, with the adjusted operating profit performance reflecting the net effect of the benefit of sales growth, a further contribution from Save to Invest, and lower rental income following the sale of some of our mall properties in the prior year. Now what I'll do is I'll go through each market's performance in more detail, starting with sales before moving on to profit. In the U.K., sales growth of 4.9% included like-for-like sales growth of 4.2%. Our food like-for-like sales grew at 5.2%, with a strong contribution from fresh food up 6.9%. Finest was once again a standout performer and grew 14.5% over the year, driven by strong volume growth. Our clothing like-for-like sales grew by 5.1%, driven by womenswear, with expanded ranges in activewear and our curated F&F Edit ranges both performing very well. Like-for-like sales grew across all channels, including large store like-for-like of 3.9%. We also took share across all channels, including 71 bps of market share gain in convenience and 30 bps in online. U.K. online sales grew by 11.2%, driven by volume growth, and included a circa two percentage point contribution from Tesco Whoosh, where we extended national coverage to over 70% of households. Average online orders per week for our grocery home shopping business grew by 6% as we rolled out more slots to customers and made further improvements to our website. In Ireland, like-for-like sales grew by 4.6%. Total sales were up 6.6% at constant exchange rates, including the contribution from nine stores we opened in the year. Food like-for-like sales grew by 5.1%, supported by a fresh food offer and further growth in Tesco Finest. As in the U.K., we grew across all our channels, with online delivering 17.4% growth as we reached over 94% national delivery coverage. Home and clothing like-for-like sales were down 1.8%, reflecting the impact from the transition to a commission model for toys as in the U.K. Booker like-for-like sales increased by 0.2%, despite the ongoing decline in tobacco sales. In Core Retail, like-for-like sales were up 2.2%, and we continued to expand our Symbol brands, adding a further 369 net new partners. Core Catering like-for-like sales grew at 3.8%, and customer satisfaction scores improved as we continued to deliver great value and availability for our customers. Growth was further supported by Venus, our specialist wine and spirit merchant, as well as the benefit from good weather over the summer. In Central Europe, like-for-like sales grew by 2.2%, with fresh food up 4.1%, supported by our investments in value. Finest performed strongly with over 30% sales growth. All three of our channels grew over the period, with online reaching 17.5% growth, while growth in large stores was impacted by softer home and clothing sales, reflecting lower consumer confidence in the region and poor weather during key trading periods. Customer satisfaction continued to grow through the year, and we stepped up our customer rewards as we celebrated 15 years of Clubcard in the region. Let's now turn to profit. At a group level, we delivered GBP 3.15 billion of adjusted operating profit, up 0.8% at actual exchange rates. Our strong trading performance, together with a GBP 535 million contribution from Save to Invest, more than offset the impact of our significant investments in the customer offer and elevated operating cost inflation, including from increased regulatory costs. This slide reconciles adjusted operating profit to statutory profit after tax, which is presented on a 53-week basis. Total adjusting items represent a net charge of GBP 153 million. This includes the ongoing amortization of acquired intangible assets of GBP 78 million, principally relating to the merger with Booker, and a non-cash net impairment charge of GBP 53 million. Restructuring costs mainly relate to our Save to Invest program, including costs associated with our multi-year program to optimize our distribution network in the U.K. We incurred GBP 28 million in separation costs relating to the disposal of our banking operations. We do expect the transition to complete in the current financial year. We delivered strong free cash flow of GBP 1.96 billion versus GBP 1.75 billion last year. Cash generated from operations increased by GBP 522 million, driven by profit growth as well as strong working capital inflow of GBP 385 million. The working capital inflow was mainly driven by our sales performance, strong working capital management, and higher non-trade payables. Cash CapEx was GBP 1.5 billion. Looking back over the last five years, our disciplined approach to investing in high-return areas has fueled sustainable growth and cash flow. This, in turn, has allowed us to steadily increase our capital expenditure while significantly improving return on capital employed, which remains well above our weighted average cost of capital. Over the period, we have continued to return cash to shareholders in the form of dividends and share buybacks. Since the commencement of our share buyback program in October 2021, we have bought back GBP 4.3 billion worth of shares at an average price of GBP 3.17 per share. This slide provides some additional detail on the nature of our capital investments. Our core operations are the foundation from which our opportunities are built. We continue to maintain and refresh our estate, ensuring that customers get the store and online experience they expect from Tesco. We are also investing strongly into productivity and growth initiatives. Our Save to Invest Program has allowed us to simplify, become more productive, and reduce costs across our business. This includes the ongoing optimization of our distribution network, which powers our market-leading availability. With a focus on leveraging our existing assets, our future growth opportunities are generally capital light. The capital that we do spend is focused on high-return areas such as technology, including investments into new digital platforms and AI. Looking now to the balance sheet, which remains strong. Net debt was GBP 10.6 billion versus GBP 9.5 billion last year. The increase is mainly due to the prior year including around GBP 700 million of proceeds from the sale of the group's banking operations, which we returned to shareholders during the course of this year. Lease renewals and extensions also drove GBP 168 million increase in lease liabilities, and there was GBP 144 million net outflow for property transactions, primarily the buyback of 7 stores in the U.K. Our net debt-to-EBITDA ratio is at 2.1x, and our fixed charge cover is 4.1x, in line with the prior year. During the year, alongside the scheme's trustees, we agreed to triennial funding valuation for our principal defined benefit pension scheme. On a technical provisions basis, the funding position of the scheme remains in surplus, and it was therefore agreed with the trustees that no pension contributions would be required from the group. Our progress across the last year builds on our strong delivery since we first set our multi-year performance framework in 2021. We are proud to have delivered average sales growth of 5.2% across the period, alongside group adjusted operating profit growth of 7.9% and adjusted EPS growth of 12.2%. With nearly GBP 8 billion of cumulative free cash flow across the four years, we have comfortably exceeded our expectations of cash delivery. Our capital allocation framework has been a crucial foundation for our financial performance. In a moment, Ken will cover our evolved strategic ambitions, and as we position the business for future growth, the framework will remain central to how we execute our strategy and create long-term value. Our first priority is to reinvest into the business and strengthen our customer proposition, prioritizing high-returning areas and supporting sustainable long-term growth. As we reinvest, we will remain committed to maintaining a solid investment-grade balance sheet. We continue to deliver a progressive dividend, targeting a payout ratio of roughly 50% of earnings, consistent with our recent track record. We also remain disciplined, yet alert to inorganic growth opportunities that complement our longer-term strategy. Finally, any surplus capital after these priorities will be returned to shareholders. For the year ahead, we expect around GBP 1.6 billion of capital expenditure, and we are announcing today a further GBP 750 million share buyback. We first set out our multi-year performance framework in 2021, and it continues to guide our approach. By focusing on improving customer satisfaction and growing, or at least maintaining our U.K. market share, we intend to drive top-line growth. By leveraging our assets, growing new revenue streams, and targeting productivity initiatives to offset inflation, we aim to grow absolute profits and maintain sector-leading margins. Since setting out the framework, our delivery has exceeded our initial expectations. With our confidence in future cash flow increasing, we're upgrading our medium-term free cash flow guidance to between GBP 1.5 billion and GBP 2 billion per year versus the old range of GBP 1.4 billion and GBP 1.8 billion per year. In summary, I'm pleased with our strong performance across the year. We have delivered further improvements in customer satisfaction, market share gains, and cash flow ahead of guidance. Our performance and capital frameworks continue to guide us and underpin our delivery, and we have returned GBP 2.4 billion this year to shareholders through a combination of dividends and share buybacks. For the year ahead, we are providing a wider range of guidance than we were previously planning, reflecting the increased uncertainty caused by the conflict in the Middle East. Much will depend on the duration of the conflict and the consequential impacts on U.K. households and the economy more broadly. At this stage, we expect group-adjusted operating profits of between GBP 3 billion and GBP 3.3 billion. We expect free cash flow within our upgraded medium-term guidance range of GBP 1.5 billion to GBP 2 billion. I will now hand back to Ken, who will provide an update on our strategic ambitions. Ken Murphy: With our highest market share in a decade, meaningful growth and new revenue streams, and strong free cash flow, our delivery against the multi-year performance framework we set out in 2021 has exceeded our expectations. As we look to the future, we have built strong digital capabilities, including in retail media and personalization. Our success has been shared with our broader stakeholders too, including investing more than GBP 1 billion in store colleague pay over the last five years. However, the retail landscape continues to evolve and so do we. Households have had to adjust to persistent cost of living pressures and competition remains intense, with new entrants and technologies giving customers more choice than ever. Customer expectations are increasing too. In addition to fantastic value, customers also want food that supports their health goals from a brand they can trust to do the right thing. To continue delivering for all of our stakeholders in this changing landscape, we have evolved our strategic ambitions into five mutually reinforcing goals. These ambitions position us to deliver even better value to our customers while driving sustainable long-term growth. Our five ambitions form a connected ecosystem, all designed with one clear purpose, continuing to deliver for our customers. Over the next few slides, I will take each ambition in turn and explain what they mean to us, what we have achieved so far, and offer some insight on how we are building for the future. Our first goal is winning in food. Delicious, affordable, and nutritious food matters more than ever to our customers and their families, and we know that they are looking for the best combination of price and quality across our ranges. With 3,000 everyday low prices, over 10,000 Clubcard prices, and more than 600 products on Aldi Price Match, we offer customers an unrivaled value proposition. We're proud of the improvement we have made in our price position in recent years, but this is an area where we can never be complacent. As our digital and personalization capabilities evolve, we are constantly looking for new ways to help customers to save. Of course, value for money is about quality as well as price, and we're continuing to invest in quality at every tier. Finest has been a great success story for us, but there is so much more to go for. Through developing new products, expanding ranges, and getting Finest in front of more customers, including through AI-powered ranging tools, we aim to grow Finest well beyond GBP 3 billion in sales. At the same time, we're launching new products that reflect changing customer trends and preferences, such as expanding our Gut Sense and high-protein ranges. Through our market-leading presence across stores, online grocery, and rapid delivery, combined with the reach of Booker's wholesale business, we are better placed than anyone to serve customers' food missions wherever, whenever, and however they want to be served. Whoosh is a great example of this. Launched just five years ago, Whoosh has grown to be a meaningful part of our online offer, generating over GBP 400 million of sales and now covering over 70% of U.K. households. We see more to go for in this fast-growing part of the market. This year alone, Whoosh grew by 51% in the U.K., and we have started to roll out the service in Ireland too. We've achieved this largely through using existing infrastructure and resources, demonstrating our ability to grow new revenue streams in a capital-light way. The frequency and trust we have built through food allows us to serve families a much wider range of products and services, and we want to help meet even more of their everyday needs. Some of these are well-established. For example, since its launch in 2001, F&F has been known for providing stylish and affordable clothing at outstanding value, available in our stores and now online too. Tesco Mobile is the U.K.'s largest mobile virtual network operator. With over 5 million customers, it was recently voted the U.K.'s best network for customer service for the fifth year running. Our insurance and money services business is providing cover to our customers through 2.5 million policies, and 4 million customers are accessing a range of banking products through our partnership with Barclays. We see huge potential to enhance and grow our existing products and services, and F&F is a great example of this. F&F online has made an encouraging start following its launch last year, but we know we can go further enhancing the customer offer. Later this year, we will be launching an exciting new F&F website, which includes a fashion-forward look and feel, greater style curation, and smarter search functionality. In the past, expanding into new retail categories tended to be expensive and high risk. Our approach is focused on leveraging what we already have and committing capital in a disciplined way. Marketplace is an example of this and has great potential. We are making good progress and already have seen the benefits it can bring to the wider business. Marketplace has now served over 1 million customers, and more than half of them have never shopped online with Tesco before. As part of refining the offer, we have recently migrated our platform to Mirakl to improve the seller onboarding process and enhance the customer proposition. Our 355 in-store pharmacies give us a real point of differentiation in the market. Combined with our ability to offer an even wider range of healthy, nutritious food, they give us a great opportunity to be customers' first choice for health and wellbeing. We already serve 0.5 million customers per week with everything from prescriptions to vaccinations, blood pressure checks, and expert advice on a range of common conditions. Our pharmacies also play a key role in our long-standing charity partnerships with Cancer Research, the British Heart Foundation, and Diabetes UK. By using our unique data and insights to build new partnerships and revenue opportunities, we can become the most strategic partner for our suppliers for innovation and brand building. Clubcard is the U.K.'s largest loyalty program, regularly used by more than 24 million households. Spanning our offer from food and telecoms to banking, it gives us an unrivaled understanding of our customers, enabling us and our supplier partners to serve their needs more effectively. Tesco Media is the largest closed-loop media and insight platform in the U.K. Leveraging our expansive store and digital canvas, it has seen significant growth in recent years and ran over 12,500 campaigns in the last year alone, with over 90% of advertisers increasing their spend on the platform year-on-year. The Tesco Media team are innovating at pace. For example, our recently launched AI-powered creative studio tool helps advertisers streamline the production of digital content, making the platform accessible for all brands, regardless of their size or budget. Building strategic brand partnerships is about more than retail media. The scale and breadth of Tesco means we are uniquely placed to help brands grow. Our platform can offer everything from access to distribution through our grocery and wholesale channels to self-serve tools that provide insights into customer behavior and opportunities to grow further. Our well-established accelerator program helps small and trend-led brands, offering mentoring and development experience, including supporting product formulation, marketing, and enhancing their supply chains. We are already partnering with hundreds of suppliers to drive development and innovation, and we think there is potential to bring our expertise to many more. Underpinning all of this is our dunnhumby business, a market leader in data science. dunnhumby's team of data scientists, engineers, and retail consultants further develop Tesco's intelligence layer, connecting customer and brand insight, analytics, and global retail expertise. Using dunnhumby's data science and AI to connect the dots across our retail business is helping us to make smarter decisions at pace. For example, with dunnhumby, we're using AI-enabled data science to transform ranging decisions, moving a process that took weeks into minutes. Our next goal is to be connected, personalized, and loved by customers. Alongside our stores, our colleagues are central to the customer experience. We are incredibly proud of the service our colleagues give customers day in, day out. Last year, we invested in over 1 million hours of training for our U.K. store colleagues. We want our colleagues to be our biggest advocates. We have great foundations for this, with the proportion of our colleagues recommending us as a place to work and shop significantly above industry averages. With the largest network of stores in the U.K., we continue to meet local needs better than anyone. From large stores offering our full range of services to Express and One Stop serving the local communities, we continue to invest in our estate with a particular focus on our fresh offer, helping every Tesco become the preferred store in its community. Customers should feel rewarded every time they shop with us. Clubcard has been at the heart of this for over 30 years, and we're always looking for ways to make Clubcard even more rewarding, whether it's new ways to collect points, making Clubcard points go further, or small but meaningful gestures that make a customer's day a little better. By harnessing advancements in AI, the power of Clubcard data, and our own digital capabilities and partnerships, we see enormous potential to make every interaction more seamless and relevant by anticipating needs, offering timely nudges, and making smarter recommendations. Our strategic partnerships with Adobe and WPP are an important part of this, unlocking new opportunities to provide real-time personalized content, whether direct to customers or through third parties. Another opportunity is personalized offers. We have made great strides on this already, from personalized coupons through to gamified experiences like Clubcard Challenges. We're pleased to take this a step further with the recent launch of Your Clubcard Prices to 1.5 million customers and a wider rollout coming later this year. Key to personalization is showing customers that we understand them, offering interesting and timely communications that inspire and anticipate their needs. Our new brighter and bolder style of customer communication is one of the ways we're achieving this. We're also excited about our new AI assistant with large-scale trial launched to around 280,000 of our colleagues ahead of a wider launch later in the year. The AI assistant is part of the Tesco app and will initially help customers with meal planning, offer inspiration, and help build shopping baskets. We are always looking for ways to make our business even more sustainable for the long term. We have a strong track record of making Tesco simpler, more productive, and more cost-efficient through our Save to Invest program. This has helped us to unlock GBP 2.2 billion worth of savings over the last four years, providing the fuel for our investments into the customer offer and higher pay for colleagues. We are also investing to strengthen our resilience, efficiency, and sustainability. Ready for future growth, we recently opened a new semi-automated fresh distribution center in Aylesford, and during the year, we started construction on our new distribution center at London Gateway. Our work to further optimize the business will continue with a target to unlock a further GBP 500 million of saving in the year ahead. Supply chain resilience is central to managing risk. We're proud of the strength of our supplier relationships. With long-term commitments to many of our key partners, they can have the confidence to make long-term investments in their businesses. Technology plays a key role in supply chain resilience, and we have developed new and unique risk mapping capabilities that identify and help us address potential sourcing challenges. As British agriculture's biggest customer, we're committed to deepening partnerships with farmers, including through our six Tesco Sustainable Farming Groups, covering everything from cheese to lamb. The farming industry faces a long list of challenges, and the Sustainable Farming Groups provide a forum to collectively improve innovation, quality standards, and industry collaboration. We see a much wider opportunity for technology and AI to further enhance our business. Over the last six years, we have doubled the size of our technology team, and we are equipping our colleagues with tools that simplify everyday tasks, freeing them to focus on what matters most. AI is evolving at an extraordinary speed, so putting the right frameworks and governance in place is essential, both to protect our business and to capture the full value of these innovations. We've recently consolidated nearly 250 individual work streams into a single coherent AI strategy focused on four domains, customers, colleagues, supplier partners, and operational efficiency. Our Planet Plan is another key element of our wider business sustainability ambitions. We were an early adopter of science-based emission targets, and we're making good progress, having now reduced Scope 1 and 2 emissions by 68% versus our 2015 baseline. We were also pleased to reach our target at year-end of 65% of our sales being classified as healthy, and we've got ambitions to go further. Achieving our individual ambitions can help us deliver even better value for customers. The real power comes from bringing these five goals together, creating a leading food-first retail ecosystem. By winning in food, we can build frequency and trust, which helps us meet more everyday customer needs. That, in turn, grows household spend with us, generating capital-light revenue streams and a richer, more holistic data set. As we combine that data with our store and digital footprint, we can build stronger and more strategic supplier partnerships. Partnerships that further reinforce our ability to win in food. At the center of this ecosystem is the most connected, personalized, and loved customer experience, holding everything together. Throughout it all, our purpose remains clear: delivering even better value for customers, and in doing so, generating long-term sustainable growth for all of our stakeholders. Thank you all for your time today. Imran and I would now be delighted to open the floor for your questions. Operator: [Operator Instructions] We'll now take our first question from Rob Joyce. Rob, please go ahead. Robert Joyce: I might try three, but the first one, just a backward-looking one. In terms of last year, I think this time last year, we were thinking EBIT would come in at GBP 2.85 billion and delivered sort of 10% ahead of that. Can you just tell us what went differently to expected? How did you manage to deliver so far ahead of that? Would be the first one. Second one, I guess you mentioned that the range for the year ahead is a lot wider than it would've been. I guess to help us understand the underlying business trajectory on the 26th of February, what do you think that range was going to be? The final one, Ken, a lot of focus on areas that we maybe haven't discussed as much before in the business outside of core food. Can you give us an idea as to the size of their contribution to the business today? Going forward, do we think of those as kind of funding investment in price, or are they margin accretive, EBIT growing parts of the business? Imran Nawaz: Yes. Let me just maybe take the first two. In terms of what went differently to what we expected. You're right. When we set out in April, we said we would make sure that we continue to protect the price position that we set out over the last four years and make sure that we do not cede any ground on that. We spent the money, we invested, and the differences between the guidance that we gave versus what we delivered, the investment choices we made basically had better returns. We invested in price, we invested in quality, we invested in range, we invested in hours, and those things worked. I would say to you the proof point of that was the market share gains that we delivered landed us in volume growth pretty much every single month of the year. That really combined with the saving problems that we have, delivered the profit growth that we saw. What I'm pleased to be able to say to you today is, I didn't start the year thinking we'd grow profits last year, and the fact that we grew profits and EPS of 6% is a nice outcome because it's coming from market share gains. I would say to you, that's the one thing that I really love about the delivery for the year. In terms of the range. Look, I'm not going to go maybe into what if the conflict wasn't there sort of situation, but what I would say to you is to give you some color on the range. Ultimately, we aim to grow our business every year, right? We want to deliver the best performance that we can every single year as we set out to do. You see that in Save to Invest. We want to continue to gain shares. We want to continue to run our program. There is the uncertainty driven by the conflict, as you know, and the duration and the impact of that is an unknown. What I want to make sure, what we want to make sure is if that conflict continues or if the impact's duration lasts longer, that we can continue to execute the program that we have. If we're at the bottom end, to your question, that really means that we would have the flexibility to continue to do what we want to do. At the upper end, it means it's the same program that we want every year, which is gain share, gain volumes, and continue to do well. Ken? Ken Murphy: Yes. Thanks, Rob. In terms of contribution of activities outside that core food business, I think if you kind of walk through our evolved strategy, the way we described is actually the strategy starts and ends with core food and building and maintaining exactly what Imran has just described in terms of a reputation for being the best value in the industry, being the most innovative in terms of product quality. Being the best for availability and customer service, and then being the most convenient for ease of access. That's really at the heart of it. Around that, as you've seen, we have, over the last number of years, started to build additional ways of serving customers that are not necessarily core food. They include things like pharmacy, things like our cafe business, things like our mobile phone business, our financial services business, and of course, our media income and supplier services business through dunnhumby. Every one of those have delivered a meaningful improvement in contribution over the last four to five years and have been meaningful contributors to profit alongside, of course, market share growth, which has also been a big engine of our performance over the last three to four years. At the end of the day, the plan is to be able to reinvest the earnings from those activities back into the core business to continue to grow and create this virtuous cycle. So that's, if you like, the kind of elevator pitch in terms of how we're evolving our thinking on strategy. There are, of course, a couple of areas, and Marketplace would be a good example, where we're at the investment stage of that cycle, where we're building the capability, where we're creating the proposition that won't be contributing meaningfully yet to profits and may not for a few years. Robert Joyce: Imran, I guess quickly follow up. I guess just to understand the guidance. I guess if trading continues as we see it right now, are we hitting midpoint or are we getting to the top end of that guidance? Imran Nawaz: Look, let me keep it in simple terms. So far, we haven't seen any real discernible change in consumer spending behaviors, right? You see that in our Kantar data. You see it in both the volume and the value share. I feel good about how we started the year, but it's early days, and I would say to you that we aim to grow profits every single year. Operator: We'll now take our next question from Manjari Dhar at RBC. Manjari Dhar: I just had two, if I may. My first one, Imran, I was just wondering on the upgraded free cash flow envelope. Appreciate the upgrade, but I guess it's a little bit wider the range than it used to be. I just wanted to know the rationale for the thinking around that. Perhaps connected to it, given the working capital performance last year, how should we be thinking about working capital for the current year? My second question was just on the rollout of electronic shelf edge labels. I wondered if you'd give us some color on how long that will take and how you're thinking about the saving potential that this could bring. Thank you. Imran Nawaz: Sure. Let me take the cash flow number one. I feel good about the cash flow delivery for the year, close to GBP 2 billion. That's clearly on the back of the strong profit performance, but also really strong working capital management. We ended up delivering, what is it, GBP 385 million of an inflow. Think of that as better sales performance, tight management on working capital practices. There's also a one-off EPR payment in there as well. The way we normally think about working capital and an ongoing assumption is think of it more as a normalized year being over GBP 100 million or so of inflow. That's sort of how I think of it, but it's a good performance in the year. There are no one-offs in there that I would call out beyond what I've just said. In terms of the range, look, after four years or so, we've delivered around GBP 8 billion of cumulative cash, which is nice. I'd expect us to have working capital swings every year, as I just said this year. My view is the range is the right range for the delivery of the business, and I feel comfortable with the fact that it gives me the room in terms of working capital swings one way or the other. The fact that we upgraded, I think, is a recognition of the fact that we have confidence in our ability to leverage the strategy we've laid out to translate that into continued cash flow deliveries every year. Ken Murphy: And then Manjari, in terms of the rollout of ESL, I think we have taken our time thus far to make sure that we have the best and latest possible technology. That it means that probably over the next 3-4 months, we will kind of finalize what that rollout looks like. I would expect it to have some in-year impact in terms of better efficiency in store, better price compliance, and also a number of other features that these latest ESL technologies will give us in terms of better on-shelf availability, better picking accuracy for our online shopping pickers, et cetera. Really, the full year effect of those savings will be felt in the following year. We don't obviously individually call out the size of the savings, but what I can tell you is that they're pretty meaningful. Operator: We'll now take our next question from Monique Pollard at Citi. Monique Pollard: Two, if I can as well. The first one, just on the competitive landscape. You mentioned in the statement that the competitive background remains intense. Just wondered what you're seeing from peers, conscious that one of the major peers that had been maybe a bit more disruptive last year is guiding to EBITDA and cash flow growth this year. And whether you could just talk a bit about how you think your pricing sits versus your main peers now. That would be helpful. The second question, just on the outlook for food inflation. Conscious that some commodity prices are coming down, but obviously there's concern about food inflation building from the conflict and the impact that might have on things like fertilizer pricing. Any sort of thoughts you could give on the outlook for food inflation would also be helpful. Thank you. Ken Murphy: Fantastic, Monique. Thank you very much. Well, look, in terms of the competitive landscape, we started the year last year in a really competitive place from a price index versus our key competitors. As you say, despite the best efforts of those competitors, we have finished the year in pretty much the same shape, if not slightly better. We feel really good about where we are in terms of our price position. That said, those competitors have announced their intention to keep going. Our expectation is this will be another intense year from a competitive perspective, but we feel really well set for it. My sense is it'll be a bit more of the same, but you can count on us to stay competitive and more importantly, to keep investing for the future as we stay competitive. In terms of the outlook for food inflation, as you see that the industry and things like ONS, CPI, food inflation, and non-alcoholic beverage inflation has shown a kind of a moderate decline, as you say, over the last three months. Kantar is showing just over 4%, but of course, we always are well under the kind of industry headline rate of inflation because of our promotional plan and also our investment in price. I think for now, inflation is stable, and it has been moderating slightly. Clearly, we can't predict what the future is going to look like from the impact of the conflict in the Middle East at the moment. Clearly, those pressures are going to place more weight on the industry, require us to be more competitive in terms of our savings programs and our commitment to keeping costs down for consumers. I wouldn't want us to give you a prediction of what inflation will look like. As usual, Monique, you can count on us to work very hard to mitigate that for our customers. Operator: We'll now take our next question from Xavier Le Mene at Bank of America. Xavier Le Mené: Two questions, if I may. First one is, given your emphasis on Tesco Value products, the fact that you've got quite a lot of advertising, as I can see right now, just want to understand the kind of long-term proposition you've got with Tesco Value. Is it more a kind of cyclical response that you got right now or do you see that a more structural shift going forward? That would be my first question. The second one, you mentioned retail media. So what should we expect from retail media in terms of profits, revenues, and can you potentially give us a bit of indication of what you were able to achieve so far? Ken Murphy: Great. Thanks, Xavier. On Tesco value products, I think our insight was at the start of the calendar year that customers were looking for greater certainty around those key value items that they have in their shopping basket. That as a consequence, we took our every day low pricing mechanic from 1,000 products to 3,000 products. So a significant increase in what we would describe as branded low everyday pricing that customers can rely on. We've seen quite a material volume uplift in sales of those products as a consequence. Our Aldi Price Match, which is our anchor everyday low price mechanic on our fresh food lines and our own branded lines is consistent at around that 600 products level. And that's become really relied upon by customers as a kind of a value guarantee, if you like. Of course, we have over 10,000 products on Clubcard prices every week that are giving people deals on those kind of brands that they love. That's working well for us as a combination. So the logic really was just the insight of more reliable pricing for everyday low prices, but the mechanics and how they work together are largely remaining consistent. In terms of retail media, we've had a really good year on retail media. I think our investments in that retail platform and our desire to be the best brand-building partner for our supplier base is really starting to pay dividends. Over 90% of our suppliers have increased spending with us this year, and I think it's because they really see the value of a much deeper relationship rather than just buying ad space. They recognize the combination of the insights that we provide through dunnhumby, our ability to build audiences that are a lot more tailored to them through our Sphere platform in our retail media, and the investments we're making with Adobe and Kevel and others to make that whole retail experience a lot more seamless and cost-effective is really, really working for them. We feel really good about our relationship with our suppliers and ability to be a great partner with them through our retail media platform, and we're quite optimistic about growth for the coming year. Operator: We'll now take our next question from Frederick Wild at Jefferies. Frederick Wild: First of all, could I just understand a bit more about your leverage targets? Obviously, you've left them unchanged in terms of where you're looking for your target leverage to be, and you're still well under that. Can we think about maybe the opportunity if, and when markets calm down, you would look to increase leverage back to within that target range? My second question is about where this extra capital that you're generating is going. Obviously, you've kept buyback unchanged. You flagged that there may be more property buybacks coming. Is that your preference for property buybacks over raising the share buyback? Or how should we think about maybe some of this free cash flow growth, which is coming through so strongly, coming back to shareholders? Imran Nawaz: Sure. Maybe, look on the leverage ratio, it all goes back to the credit rating and how we see the merits of a strong balance sheet. As you might imagine, especially during the last four years, but even going ahead into this year, having a strong, I'd almost call it a pristine balance sheet, at 2.1 leverage is nice. I would say is a source of power, right? Because it gives us a lot of flexibility in uncertain times. I'm quite happy at the lower end of the range. Will we inch our way back up to the 2.3? Probably, yes, over the next few years, but so far, I'm happy with where we are at the 2.1. As it comes to shareholder returns, look, it's a really important part of the equity story of Tesco, right? Since we started this program, we have returned GBP 4.3 billion worth of shares at an average share price of around GBP 3.17. We've taken out 17% of the equity doing that. You can imagine it's been a great investment for us, and I believe that share buybacks are absolutely the right way to continue to go forward, and therefore, we've announced the 750. There's an elegance when I think about the total dividend and the total buyback in terms of using the excess free cash that we have. In terms of overall capital allocation and the uses of the cash, first and foremost, it'll always go into the business and making sure that we invest for customers into our stores, into our distribution centers, into automation to make sure we have the best possible shopping experience and the best possible setup that you would want to imagine we have. Very keen to continue to invest into AI and technologies and the digital proposition that we have. Honestly, as there is excess cash and leftover after any sort of property buybacks where it makes sense, then the idea is absolutely to continue to return that. I think the combination of progressive dividends and a steady buyback that people can rely on is very attractive during these days. Operator: We'll now take our next question, that will be from Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Listen, I'll go with three. I think firstly, Imran, I think you talked about the multi-year framework and growing profits over that multi-year period. I think in another slide, you've shown 7.9% CAGR in operating profit over the past five years. Is that somehow an exceptional level of profit growth that you can't repeat over the next five years? Obviously, barring any sort of external shocks, such as the one that we probably are seeing now. Secondly, I think you've said you haven't seen any impact from sort of customer point of view from the conflict. Is there anything creeping into cost lines in any meaningful way? If you could talk about it, that would be great. Maybe just on free cash flow and capital allocation. Very small one really. Imran, I think you've referred to inorganic growth opportunities.... Imran Nawaz: Yes. Sreedhar Mahamkali: I'm keen to understand what that is. Imran Nawaz: Yes, sure. Look you point out to a very strong performance over the last four years and, as we just presented, we're pleased to see that. I'd say to you, the way I think about laying out the strategy this morning or the evolved strategy, the way you should take that is, it is renewed confidence that we can continue to deliver what we said we would do. What we said we would do from a performance framework is very clear, right? We'd say we aim to hold or gain share every year. We want to therefore grow the profits every year. We want to make sure we have the buybacks as part of that, and therefore deliver a nice EPS growth every year as well. Ultimately, as a proof point, translate that into the upgraded cash of GBP 1.5 billion-GBP 2 billion. Every year is going to be slightly different in the sense that the circumstances, as this year is a really good proof point, is going to be different and therefore we set out guidance as we have. In terms of cost lines, look, I think the thing that I'd point out to you at the moment, obviously, fuel prices, energy prices have gone up. As they relate to our own operating cost expenses, it's not going to be a headwind because our hedging strategy protects us from that. Clearly we have to wait and see because it's early days and the stresses and the duration and the implications of the conflict will obviously have an impact at some stage. Hopefully, we can minimize that as much as we can via the Save to Invest program that we've put in place. In terms of inorganic opportunities. Ken Murphy: Well, look, I think, as always, Sreedhar, we have through, as you saw, the evolved strategic kind of five-point plan laid out, a desire to drive core food performance. To meet progressively more everyday needs of customers as we build out that ecosystem, as we get more personalized through the power of the Clubcard. As and when we see opportunities to bolt on other kind of everyday needs that could enhance or improve that customer experience or give people more reasons to come and shop with us, then we will always keep an eye on that. Imran Nawaz: On property buybacks to give you a sense. When you have a strong balance sheet, the ability to buy back your strong properties, then own them in your portfolio and then avoid future inflation is no bad thing. It's a really good use of cash. Sreedhar Mahamkali: Just to follow up on what you said, Imran, I think it's something Rob touched on earlier already a little bit. The assumptions you're making, especially at the lower end, the GBP 3 billion. Is there an assumption that the conflict lasts through the year, six months of the year? Imran Nawaz: No. Look, the way I think about it's not just the duration, it's sort of the consequences, the implications. Those are so hard to judge because it's such a moving feast. I don't really want to speculate. All we were trying to do was to say, well, the conflict could have certain implications that change consumer behaviors, shopping behaviors. We haven't seen that yet. It could have an impact on the U.K. economy. We haven't really seen anything yet that has influenced shopping. Look, if it does, we want to have the flexibility to continue to execute the programs we've built in, because it is those programs that continue to allow us to win market share and grow this business. Operator: We'll now go to Clive Black at Shore Capital. Clive Black: Thank you for the presentation and also, I have to commend you on fabulous delivery. A few points if I may. First of all, Imran, I think you said that your average buyback price was 317p. I just wondered at 485p whether the buyback needs to be thought about in a slightly different way, maybe more akin to Sam Walton. Your thoughts would be much appreciated on that. Fascinating to hear, Ken, your thoughts on where the business is going, particularly around being connected. I just wondered if you could maybe drill down to what you think that actually means for shareholders. I understand all your stakeholders that you must and are supporting. What do you think it actually means for shareholders? I also just wanted to drill a little bit deeper in the importance of dunnhumby to your business, which you raised today, especially as something that's quite proprietary and exclusive. Again, what do you think that delivers for shareholders? Imran Nawaz: Look, on the buyback price, the way I think about it is any use of cash, Clive, that we have, whether it's CapEx, whether it's the buyback in this example, or properties, discipline and making sure it has a good return and is a good use of cash is the first question we ask ourselves. As we look at buybacks, of course, we have, and we look at the IRR, if you wish. We look at the intrinsic value of the business. We look at the situation, and I'm very confident that the buyback continues to be an excellent use of cash. Ken Murphy: So, Clive, in terms of the kind of evolution of our strategic thinking and what it means for shareholders, and I think it's linked a little bit to how we set our stall out in 2021, where we said, if we look after all of our stakeholders, then we will build a strong, sustainable business that will be good for shareholders over the long term. I think that's proven to be the case, and it's absolutely our ambition looking forward for the next 5 to 10 years. I think we, as I said earlier, have an ambition to maintain market share growth in our core food business. We think that's absolutely critical to the success of the company. Our strategy starts and ends with our core food business. We're going to keep investing in price, keep investing in quality, keep investing in our supply chain so we can be the best providers of fresh food in the country. But linked to that, and I think these are some lessons we've learned from the past, Clive, is that we are looking in a capital discipline, capital light way to leverage those assets. Use the infrastructure, both the physical infrastructure, but also our Clubcard proximity to customers to really start to build out other reasons why customers might shop with us, whether it be financial services, Marketplace, quick commerce, phone contracts, fuel, whatever it is, such that we can create additional revenue streams that then get reinvested back into driving core food performance, building market share. Because as we know, food is the most frequent retail purchase, and it drives that glue and that connectivity with customers, which is so essential for building trust and being able to be relevant for other shopping missions that they might have. The key, though, which Imran is very strong on, is it has to be done in a capital disciplined way and within our financial framework that we also set alongside our strategy. I think what shareholders will see and can expect is a very ambitious strategy that will maintain top-line growth, a very disciplined approach to capital expenditure that will mean we'll be sensible and look for high returns, and therefore we will maintain strong cash, very healthy balance sheet, and keep returning to shareholders, but only after we've made sure customers are happy, colleagues are happy, and we have strong supplier relationships with our suppliers. Clive Black: Just on dunnhumby, Ken, just a word? Ken Murphy: Dunnhumby, for me, it's the intelligence engine of the business. It is designed to harness the latest technology, whether that be AI or our own data science capabilities internally in dunnhumby to understand how do we optimize how we think about all of our category management decisions, how do we optimize our customer decisions in terms of personalization and getting closer to them, how do we become the best brand-building partner for our branded suppliers through our end-to-end retail media platform. All of the additional kind of components we're building onto that in terms of helping them with their innovation pipeline, their go-to market strategies, et cetera. Then helping with things like personalized ranging. We're looking to use the data science to get a lot more specific about our ranging in our individual stores to be more relevant to that local demographic. They're just some of the examples of where dunnhumby is really helping the strategy. Operator: We'll now go to William Woods from Bernstein. William Woods: The first question is on market share. You've obviously gained a lot of market share over the last few years. When you look over the next 3 to 5 years, where do you think you take share from either formats, categories, channels, regions, et cetera? The second one is, if you look back over history, one of Tesco's downfalls over the last maybe 15 years was getting distracted by other things, banks, garden centers, coffee shops, et cetera. Now I suppose we've seen a reasonable shift in your tone from focusing on food to things like retail media and clothing and Marketplace. How do you ensure the problems of the past don't reoccur? I'm not necessarily even thinking about CapEx, but more about the culture of how you're running the business in terms of people focusing on food. Ken Murphy: Great. Look, I think the first thing to say is that the market share gains we've achieved over the last number of years have been quite broad-based. They haven't come from one source. I think they've been underpinned by the fact that we've made massive investments in value, quality, and availability over the last five years. We're keeping building our infrastructure, building out capabilities like quick commerce, et cetera. That means we're more relevant for more shopping missions more often with customers. That's working really well for us, Will. I think the first thing I'd say is that, that momentum will continue. As Imran just said, we have a very strong balance sheet. We have a very strong efficiency program, and our commitment is we will keep investing in the core. The one thing I wouldn't want you to think somehow is that we're all as distracted running after shiny new things. Our core Save to Invest program of over GBP 0.5 billion a year is almost entirely invested back into the core business. We're using some of the gains from market share gains and some of our new income streams to reinvest back in those activities that I just mentioned that are strategically important. As I said just a moment ago, it starts and ends with our core food business. The whole objective of the strategy is that through our success in core food, we're able to, in quite a capital light way, in a connected way. If I give you a very classic example of, say, Marketplace or other things, historically, Tesco Direct was set up on an entirely separate platform with a separate set of systems, with a separate website. It had to generate all of its own customer acquisition and traction because, but in the case of Marketplace, it's completely integrated into the Tesco app. It is seamless for customers to access it when they're doing their regular shopping, as is, by the way, Whoosh. If you want to go and do a weekly shop, but you need it in half an hour, that capability is available for you on the same app. We're using all of our core assets and our traffic to drive people into the enhanced set of propositions that we're building. I think that's the key difference of lessons from the past. We've been quite disciplined about it, Will, I promise you, we obsess as much about the price of carrots and whether we've got availability of raspberries and blueberries on the shelf as we do with how is F&F and Marketplace doing, I can promise you that. Imran Nawaz: If I could add maybe one or two just nuggets as well from my side, Will. It's clear that when you look at the return on capital employed over the last few years, over the last four or five years of this business, we've nudged up CapEx because we've been reinvesting into the business and expanding the business. At the same time, the return on capital employed has also improved steadily year-on-year. I think that's a nice proof point that where we spend the money makes us a better business. The other angle I'd like you to think about is it's clear that when you have a market share in online of around 36%, 37%, depending on when you measure. You have a massive asset and you have to continue to look about where do customers spend their time and where do they shop. Personally, I love the fact that we're being able to leverage the strength online that is unparalleled to anyone else in the industry to provide F&F online, to provide Marketplace, to provide a Whoosh, to provide media income opportunities for our suppliers. It is all in aid of making sure that what we've got is actually maximized as well, and that's why it is capital light. Operator: We'll now take our next question from Ben Zoege at Deutsche Bank. Benjamin Yokyong-Zoega: I just had one follow-up on the profit guidance and perhaps one on cost savings. Firstly, on the profit guidance, is it fair to assume that this range is really about uncertainty around demand and the response that households may kind of shift their behavior rather than uncertainty around cost pressures? Then secondly, on cost savings, just within that GBP 500 million target, could you talk a bit about the main buckets and opportunities you see within that, please? Thanks. Imran Nawaz: Yes, sure. On the cost savings, to take that one first, look, it's an always-on program, right? When I think about it, the way I look at it's simplifying how we work. It's taking out inefficiencies, so waste management, transportation, automation in warehousing and distribution, better buying of services, leveraging our shared services more, simplifying in-store logistics, leveraging AI to optimize forecasting, to optimize promotions. I feel like it's all in, it's what we've been doing, and it's working well for us. As Ken said, we use that to reinvest back into the business and manage our own OpEx in a nice way. When it comes to the guidance, look, it's very clear that when you think about, I assume when you say cost, you mean energy costs? Our energy costs are sort of, given the hedging we've taken, we're in a good place on avoiding any ups there that are unnecessary for us. I think we're in a good place there. It really is about trying to put sort of a wider range out because of the uncertainty as to the implications on what happens to consumer behaviors, what happens to the wider economy at large. It's hard to call, and this is really just making sure that at the lower end, we've got the flexibility in case we need it to continue to do what we've been doing, which is win. Operator: We'll now take our next question from Matt Clements at Barclays. Matthew Clements: Hi. Morning, both. Two quick questions if I can. One on IMS, which was clearly a strong contributor to profit and seems to be outperforming your initial expectations. How should we think about IMS profits going forward? The second question, just kind of extending your comments around strategic ambitions to maybe touch more on Booker and Central Europe within those comments. Where do they sit and what should we be expecting into the medium term for those businesses? Imran Nawaz: Great. Should I take the IMS one? Ken Murphy: Sure. Imran Nawaz: Look, on IMS, you're right. It's done a fabulous job, and I'll be honest, better than I was thinking. When we laid out what we were thinking, we said it'd be around, what? GBP 80 million to GBP 100 million a year was the profit number we gave, and I think now the way I think about it is this year it's at GBP 167 million. That GBP 160 million, GBP 170 million number is a good number. That's sort of where my head's at on that front, which is nice given we got rid of the riskier credit book, but actually retained the business that we wanted to retain, and frankly, now make as much money as we did before. That's good. Ken Murphy: Thanks, Imran. On the strategic ambitions, I think that I would say a couple of things. First of all, starting with Central Europe. Central Europe is clearly a Tesco retail business. All of the innovation and investment that we do in Tesco UK around technology, AI, grocery home shopping capability, quick commerce capability, just simply transitions into our other businesses. Ireland, for example, will get the benefit of all of that technology, and it's been a real driver for them of market share growth in Ireland, where it is, by a country mile, the leading online shopping experience, and we've just launched Whoosh there in the last 12 months, and it's growing very strongly. It's a similar story for Central Europe. It's a business that obviously is operating in challenging countries from an economic and geopolitical perspective, but benefits from the innovation that's happening centrally. That's how I would describe how Central Europe and Ireland fit into the context of the strategy. In terms of Booker is really interesting. Booker growth on the top line may not look that spectacular, but actually its underlying growth in terms of its catering business and its independent retail business is pretty strong. Particularly against the market, it's growing quite well. That is predicated on being the leading value wholesaler in the country, being an innovator around food development, so very similar to the core strategy in Tesco, and increasingly looking to benefit from our thinking around that broader ecosystem thinking. This year, Booker are going to be investing more heavily in the digital experience, particularly for its catering customers, looking to be ever more relevant and helpful in terms of how caterers can run their businesses and deliver a great experience for customers, but also make some money. As we think about the long term, of course, Booker gives us access into hundreds of thousands of food outlets around the U.K. That means we can be relevant for every food and food-related experience in the country, which is kind of an overarching ambition, if you like, of the strategy. We see Booker quite core to the overall strategy, but clearly it needs to continue to win in its core wholesale market, which it is doing at the moment, and I believe will continue to do for the future. Imran Nawaz: Maybe one bullet to add on that as well is one of the features that both of them have in common is they have really got really strong cash generation properties. They're really, really helpful from that side as well. It's not a bad formula to have to generate the cash and reinvest. Operator: We'll now take our next question from Francois Digard at Kepler Cheuvreux. François Digard: A few points, if I may. The first on volume price balance in '25, '26 on its evolution during the year. Could you share with us how it has evolved and how you see the balance in the coming year, in the current year? Second point on the fresh product growth, it grew faster than the rest of the food. Does that benefit from the Tesco Finest fresh range or is it a different scope? What can you tell about the margin of fresh products? Finally, do you expect any impacts of fuel price increase on your working cap during the year? Thank you. Imran Nawaz: If I take the volume price balance, in terms of the way you should think about it is the Worldpanel number of inflation throughout the year has been between what? 4%-4.5%. We've been below that every single quarter, every single month, and we've been in volume growth every single month of the year as well. Now, clearly what we did benefit from in the first half you would have seen, Francois, was a very, very hot summer and it was brilliant because people were out and about enjoying themselves. I look out the window and I wish there was a bit more sun. It would be good to see. We'll have to wait and see how it plays out. As you know, inflation, given the uncertainty, it'd be wrong of me to give you a false sense of precision at this early stage and I don't really want to speculate on that. We'll see where that lands. What I would say is we'll continue to make sure that if we are safe to invest, we continue to protect our price position. Ken Murphy: In terms of fresh product growth, Francois, I would say that the balance of it is a mix. I think absolutely Finest has played a role. It's been a fantastic added value proposition for us. We've doubled the size of the brand over the last 3 to 4 years to make it now a GBP 3 billion plus brand and we've got ambitions to grow it even more in the coming years. That said, our fresh core product has performed incredibly well and this has been a combination of really close working relationship with our growers and suppliers on fresh produce and some great innovation in some of our meat, fish and poultry categories. An example would be our Finest Steakhouse range which has been a phenomenal success with customers and shown us real growth and added value growth. To your point around margins, we have seen a modest improvement in margin mix over the last 12 months in fresh driven by a combination of a lot of work on efficiency but also some great success in our added value ranges such as Finest and Steakhouse range. Imran, do you want to pick up the working capital point on fuel? Imran Nawaz: Yes, look, obviously the way I think of a working capital at the moment in terms of fuel is it's so unpredictable. Clearly when it moves up it's favorable, when it goes down it's unfavorable. When I looked at the year we just closed there was actually a bit of a negative because it had gone down. What will matter is where it is before half year and before year end, but we'll keep you posted. Clearly given the working capital cycle on fuel it can be a benefit. Operator: We'll now go to the telephone lines for our next question which is going to come from Karine Elias from Barclays. Karine Elias: A lot of them have already been answered but just going back a little bit, if I may, to the competitive environment. Obviously, despite some of your competitors embarking on price investments last year, albeit they did have some issues specific to IT for some, would you still maybe describe the environment as being rational to a certain degree or do you feel that anything has changed? Then my second question was really more on the convenience. Some again have talked about how convenience was struggling on the back of weaker tobacco sales. Yours has done much better. Maybe if you can expand a little bit on that would be helpful. Thank you. Ken Murphy: Thanks Karine. Look, I'd start by saying that the market is and always has been intensely competitive. At any given moment you have a number of competitors making moves and attempting to take share and win with customers. It's what makes this business such a fantastic business. There's never a dull moment and I think we can expect that to continue. That said, I think such are the cost pressures the industry has been facing over the last number of years between energy issues, commodity issues, regulatory and tax issues, that has forced a certain amount of rationality in the market. What I would expect the coming year to be is largely the same, is a very intense competition for the shopper basket, but a certain rationality driven by the need to combat costs and maintain a control over those cost pressures. That's how I would kind of describe the last few years. That's how I see the next 12 months as well. On convenience, I think that you're right. We have outperformed the market in convenience. I think a lot of that is down to the fact that, on the top 100 essential lines, our convenience stores are the same price as our large stores. We are a strong value proposition in convenience in relative terms. I think the second thing to say is that we have a greater fresh penetration in our convenience stores. That's worked well for us as well. The third thing to say is that, of course, we're the only major retailer that have real critical mass in our quick commerce proposition through Tesco Whoosh, which will be a GBP 400 million business this year. That has also helped a lot in terms of driving our convenience business. I think those factors will continue to help us as we go into the coming year. Thanks, Karine. Operator: Thanks. Why don't I take our last question for this morning from Rob Joyce at BNP. Robert Joyce: Hey, thanks for letting me on again. Very quick one. Just in terms of the shape of the EBIT you're expecting for the year ahead, anything you'd flag in terms of differences versus FY '26? Imran Nawaz: Look, the one thing I would flag is maybe the fact that lapping the hot summer, that's clearly going to be a thing. We'll wait and see how it all plays out because that uncertainty thing is still something we need to work through, as you can appreciate. Look, last year we were close to 5% growth top line, driven by the strong volume growth and the hot summer. Let's see how it plays out. Ken Murphy: As an Irishman, you never thought you'd hear me say this, but we're really hoping England and Scotland do well in the World Cup. Robert Joyce: We've got it on video now. Operator: Okay, Ken, so that wraps up the questions for this morning. Just back to you for your closing remarks. Ken Murphy: Listen, I would just like to thank everybody who's joined us this morning for taking the time to listen to our presentation and for all the excellent questions we had. As you can see, we are consistent in our messaging. What you saw this morning was an evolution of our strategic intent and our commitment to keep focused on our core business, delivering great value, great quality, and consistent high standards in our stores and in our online proposition, despite whatever the environment might throw at us over the coming months. Thank you again, and we look forward to seeing you all early in the summer. Take care.
Daniel Morris: Hello, everyone, and welcome to the presentation of Ericsson's First Quarter 2026 Results. Joining us by video today is Borje Ekholm, our President and CEO and in the studio, I'm joined by Lars Sandstrom, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q&A. [Operator Instructions] Details can be found in today's earnings release and on the Investor Relations website as well. Please be advised that today's call is being recorded, and today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report. I'll now hand the call over to Borje and Lars for their introductory comments. Borje Ekholm: Thanks, Daniel, and good morning, everyone, and thanks for joining us today. Q1 was a solid start of the year and with the results that reflects our continued execution against our operational and strategic priorities. We saw a very large currency headwind during the quarter, probably one of the toughest quarters from a comp ratio as the Swedish krona strengthened towards almost all currencies compared to last year. So this, of course, materially impacted every line of our financial statements with reporting sales falling 10%. At the same time, we performed well operationally realizing strong organic growth of 6%, with all segments contributing. Our results are a testament to our leading portfolio and the investments we've been making in furthering our technology leadership. Over the last few years, we've actively managed to reduce dependence on geographic mix. Of course, we realize that North America often receive a disproportionate interest from, I guess, the community -- analyst community, but also around the world. And that's, of course, natural because it is a front-runner market. And this quarter, we saw sales reduced by mid-single digits in North America. But we could still deliver a gross margin of 48.1% for the group and 50.4% for segment networks, indicating that the work we've done to balance out the geographic mix is coming through in the results and giving us less sensitivity to geographic mix. Cloud Software and Services continue to execute well. We reached a gross margin of 43.2%. That's up more than 300 basis points year-over-year. Revenue seasonality was in line with the guidance we had for the quarter and we saw some deals being pushed into Q2. And we expect to see that, therefore, stronger seasonality than normal next quarter. EBITA came in at SEK 5.6 billion with a margin of 11.3%, and the strengthening of the Swedish krona affected EBITA by SEK 2.2 billion. And you've also seen we have the revaluation of the long-term stock-based programs. And all of those are, of course, included in the results. Cash flow during the first quarter is seasonably lower typically. Despite this, cash flow came in at a healthy SEK 5.9 billion with a net cash position of SEK 68.1 billion. And as you've seen just a couple of weeks ago, the AGM approved the Board's proposal on increased dividend and our first share buyback program. We will start to execute on the share buyback program next week with a target to buy back SEK 15 billion. In the next phase of AI, we see that high-performance mobile connectivity will become increasingly important. Even so, our planning assumptions for the RAN market remains flat over the longer term. With disciplined execution, we create room to make selective investments in growth to broaden the mobile platform to new use cases and new sectors. We believe the growth will come in areas outside of our traditional CSP markets. And then we're talking about areas like enterprise and mission critical networks. In our Enterprise segment, which includes our wireless WWAN business, private networks, network APIs or as we now call it, actually network-powered solutions and mobile money, organic growth was stronger, which is encouraging. There are new markets that we see as key opportunities going forward. Of course, new markets take time to develop but we're now seeing these efforts start to scale. I would also comment on the loss in Enterprise of SEK 1.4 billion. It's clearly unacceptable, but it also includes a number of onetime costs and have an improvement plan in place that we're executing on and we will expect to see that coming through shrinking losses during the rest of the year, comes from growth, operational discipline and of course, at the onetime cost base. We're also driving several other growth initiatives. And there, we see good progress in mission-critical networks which tend to be a bit lumpy and vary by quarter. We're experiencing strong interest in several verticals, particularly within Defense Solutions. In modern defense applications, high performance, and then I'm talking about large capacity connectivity is required. And this will make 5G stand-alone a cost-effective alternative. And we've seen a trial with the Italian Navy -- or actually deployment with the Italian Navy this quarter. Another very exciting area is 5G-based sensing where one of many use cases is about detecting unconnected drones. And a few weeks ago, we showcased our solution, which is seeing significant customer interest, of course, given a difficult current market environment geopolitically. We see that our technology here has a great market potential, and we're now starting to invest to capture these opportunities. I would say this is just one example that you don't have to wait for 6G to get part of new exciting use cases with the technology we have. So we're seeing good momentum on our strategy execution, and we've strengthened Ericsson operationally. And I would say this is showing now in our Q1 results. With that, let me give the word over to you, Lars, to go through the numbers in some more detail. Lars Sandstrom: All right. Thank you, Borje. I will begin with some additional comments on the group before moving over to the segments. So net sales in Q1 totaled SEK 49.3 billion with organic sales growing 6% year-on-year. The growth was broad-based and sales grew in all segments and 3 market areas delivered double-digit organic growth, driven by continued 5G rollouts and increased uptake of 5G core. Americas declined 2%, with strong growth in Latin America, more than offset by a mid-single-digit decline in North America following a strong quarter last year. Reported sales decreased by 10%, impacted by a negative currency effect of SEK 7.8 billion then. So organic growth again grew 6%. IPR revenues were SEK 3.1 billion, and this run rate coming out of the quarter is approximately then SEK 13 billion. Adjusted gross income was SEK 23.7 billion with a negative currency impact of SEK 3.8 billion. Adjusted gross margin was 48.1%, in line with last year, excluding iconectiv. On the cost side, operating expenses, excluding restructuring charges, dropped to SEK 18.4 billion, around SEK 2 billion lower year-over-year, driven mainly by currency as well as the divestment of iconectiv. Underlying inflationary pressures were more than offset by cost reduction driven by headcount as well as efficiency measures. And as Borje mentioned, adjusted EBITA, which excludes restructuring, but includes the other one-offs was SEK 5.6 billion. This is down by SEK 1.4 billion, including a negative impact of SEK 2.2 billion, the divestment of iconectiv and SEK 0.5 billion of additional share-based compensation costs coming from the increased share price here during the quarter. The EBITA margin was 11.3%. Cash flow before M&A was SEK 5.9 billion, driven by earnings and reduced net operating assets. So let's move to the segments. In Networks, sales decreased by 8% year-on-year to SEK 32.9 billion with a negative currency impact of SEK 5.2 billion. Organic sales increased by 7%. Organic revenues grew in 3 of our 4 market areas. 2 strategic markets, India and Japan grew strongly. North America declined, impacted by customer spend reallocation in Q1 this year following recent market consolidation. Customer investments were also elevated last year due to tariff uncertainty impacting the comparison. Networks' adjusted gross margin decreased slightly to 50.4%, mainly reflecting actions to enhance resilience in the supply chain. Adjusted EBITA was SEK 6.4 billion, impacted by a negative currency impact of SEK 2 billion and benefiting from lower operating expenses, which were also supported by continued efficiency improvements. Adjusted EBITA margin was 13.3%. Looking at the right-hand graph, the rolling 4 quarter gross margin stabilized around 50% and adjusted EBITA margin at around 20%. Moving to the segment Cloud Software and Services. Sales here decreased 9% to SEK 11.8 billion, including a negative currency impact of SEK 1.6 billion. So organically, sales grew by 4%, with growth primarily in core. Adjusted gross margin came in at 43.2%, an improvement from 39.9% last year, supported by improved delivery efficiency and a favorable product mix. Adjusted EBITA increased to SEK 0.6 billion with a margin of 5.3% despite a negative currency impact of SEK 0.3 billion. Lower gross income was offset by lower operating expenses here. And looking at the right-hand graph, the rolling 4 quarters adjusted gross margin was around 44% and adjusted EBITA margin around 12%. And these are both new high levels. So reported sales on the Enterprise side decreased 30%, impacted by the sale of iconectiv and currency. On an organic basis, Enterprise grew by 4%, and this marks the second quarter of organic growth. Adjusted gross margin declined to 49.0%, reflecting the impact of the divestment of iconectiv and change in business mix in Global Communications platform. Adjusted EBITA landed at minus SEK 1.4 billion, reflecting the divestment of iconectiv and nonrecurring cost of SEK 0.3 billion in the current quarter. Turning then to free cash flow, which was SEK 5.9 billion before M&A in the quarter. We delivered a cash to net sales of 13% for the rolling 4 quarters, above our 9% to 12% target. And cash flow generation was strong, supported by earnings and a stronger-than-normal seasonal reduction in operating net assets. Net cash increased sequentially by SEK 6.9 billion to SEK 68.1 billion here in the quarter. The buyback program of up to SEK 15 billion was approved by the AGM and share repurchases will start now soon. Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation, and Borje will come back to this. The Q2 outlook assumes no tariff changes and the exchange rates specified in the report. For Networks, we expect sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. And for Cloud Software and Services, we expect sales growth to be above the 3-year average quarter-on-quarter seasonality. We expect Networks' adjusted gross margin to be in the range of 49% to 51% and restructuring charges for 2026 are expected to be at an elevated level with a fairly large part already seen in Q1. So with that, I hand back to you, Borje. Borje Ekholm: Thanks a lot, Lars. So our Q1 results demonstrate the strong execution on our strategic priorities and the actions we've taken over the last several years to strengthen the company operationally. This includes how we made Ericsson less reliant on any specific geographical mix, enabling us to sustain healthy margins in varying market conditions as you have seen in today's report. Our actions also include how we diversified our supply chain to mitigate as much of the geopolitical disturbances as possible. This continues to be a clear competitive advantage, enabling us to meet customer commitments amid the current backdrop. Of course, the global semiconductor situation remains challenging as the AI boom is increasing input costs. We continue to take actions, and Lars mentioned this as well, to mitigate this impact by working closely with both our customers and suppliers, of course, including our pricing. While we believe we're in a good position, we are not immune to these disturbances. So they will have consequences on price and availability. As of course, AI may be the key driver for our industry longer term, we see AI as a net positive for us. The next phase of AI will see AI being industrialized, shifting focus from current focus on data centers, large language models rather to applications, devices, use cases. This will require advanced mobile connectivity with capabilities such as ultra-low latency and high uplink. This puts us in the middle of the next phase of the AI era. With our strategy, we are well positioned to capitalize on this opportunity. We're doing this by providing the industry's best networks for AI and by expanding the mobile platform to new use cases and sectors. This includes exposing network capabilities through network-powered solutions, allowing developers to use the network capabilities to create new use cases. It also includes opening up new addressable markets such as enterprise solutions based on cellular technology and mission-critical networks. And this will allow us to capture a greater share of the value from connectivity and drive mid-single-digit growth for Ericsson while achieving our long-term margin targets of 15% to 18%. So with that, I think it's time for some Q&A. Daniel Morris: Thanks Borje. [Operator Instructions] Thanks, operator. Time for the first question. The first question this morning is going to come from Simon Granath at ABG. Simon Granath: I have a question on Lars on the memory and cost inflation. And the Q1 margin performance for Networks was, in my view, strong. But given the rising memory prices and as inventory runs down through the year, how confident are you that memory prices won't be a significant headwind for the rest of the year? And all else equal and on this topic, should we see Q1 marking the highest level for the year? Lars Sandstrom: All right. Thanks, Simon. When it comes to outlook, we give, as you know, outlook for the first -- for the next quarter here. So -- but when it comes to memory cost and other semiconductor costs, there is, as we say here, a headwind coming. And -- but we should also remember that it is a smaller part of our total cost base, of course. But there is a headwind coming, and we are working hard to mitigate together with our suppliers, but also together with our customers to share the burden here. And then it comes to what can we do when it comes to product substitution, et cetera. And it is a bit too early, I think, already now to say how the impact will be. But you will -- if there is -- and when there is things happening, you will see that more coming into the second half of the year. Daniel Morris: The next question will come from the line of Andrew Gardiner at Citi. Andrew Gardiner: So just on the North American revenue trends that you saw in the quarter, you've highlighted the pressure there, Borje, sort of mid-single digit down year-on-year. I'm just wondering what your view for 2026 as a whole is for that region. The comps, as you suggested, were particularly tough in the first quarter given the tariff impact last year and some buy forward. Does that -- does the decline that you've seen in the first quarter, should that lessen as we come through 2026? Or are there other factors we should be aware of? Borje Ekholm: You see a lot of forecasts in the market on the North American market. And I would say the development you've seen during the first quarter is probably similar to what we should expect for the year. I think that's fair to say given our customers' guidance. At the same time, we have a little bit different mix compared to the market where, as Lars noted, we were maybe hit a bit harder than the general market, the first quarter because of the consolidation we've seen among the operators in the U.S. that was closed. So if you net-net, I don't see a changing market condition, but I see a bit better mix for us vis-a-vis the market. And as you noted, we had a tough comp in Q1. But don't assume the U.S. all of a sudden is going to change direction. That's why I want to come back to what I think is more important today is we're less exposed to North America from a geographic mix perspective and the investments and commitment we have been talking about to diversify our mix. So if we are a bit weaker in North America, but stronger in another market for a quarter, we can actually compensate that and keep a very healthy gross margin. And that, I think, lends for a better predictability of the total company and actually for a healthier way of operating the company. So -- well, I think North America always will be important. From a mix point of view, it will be less important going forward. We work with the customers as front-runner customers, but it's always going to swing a bit up and down in a quarter. So we're -- on the one hand, yes, I would always prefer them to grow, but the reality is it will swing. So the question is more how we can provide a healthy gross margin, a much more stable gross margin. And I think Q1 is a good indication of the work we've done. Andrew Gardiner: I mean I suppose related to that, I mean you mentioned the other strategic markets. I mean India and Japan have been the 2 you've highlighted away from North America. You did see good growth there. I mean is that something that is not just a 1Q impact, but we should expect steady growth from those 2 key markets through the year? Borje Ekholm: I would -- there, we have actually strengthened our market position. So we should see healthy growth as we continue to deliver on those opportunities. So I'm actually very comfortable about that. Daniel Morris: The next question is going to come from the line of Erik Lindholm-Rojestal from SEB. Erik Lindholm-Rojestal: Just one question here. I wanted to ask on OpEx and the impact of cost savings. I mean it looks like underlying OpEx is down around SEK 0.5 billion, as you mentioned, despite the one-off impact that you flagged here. So what sort of inflationary pressures do you see in OpEx for the rest of the year? And when should we start to see the impact from the cost savings that you've launched in Sweden here at the start of the year, for example? Lars Sandstrom: Yes. When it comes to OpEx, I think in the quarter here, it's down organically. I think it's currency and iconectiv that is impacting and then there is somewhat also underlying cost reduction coming through here. And we are continuously working with that. The inflation we talk about since a big portion of the cost base in OpEx is related to people. Of course, there is an underlying continuous salary increase that is coming that we need to work with. And our working assumption is that we live in the flat RAN market and that we need to accommodate too by continuously working and finding efficiencies and reductions where it is possible. And then we do that continuously. So that is what we are working with here every quarter continuously. And you saw there was quite a bit of restructuring here coming in the first quarter now, primarily to the Sweden area, but also the rest of Europe. We have activities in North America, in Asia, et cetera. So that is a continuous work that we are doing, and we will continue that also in the coming quarters. Erik Lindholm-Rojestal: All right. But I guess it's fair to say that these measures will more so show in the second half then? Lars Sandstrom: The ones that we announced today or in this quarter, of course, they come more in the second half of the year and into next year. And then we have the previous ones that is coming, you can see now. So that is a continuous work that we do. Borje Ekholm: I would just add there, by experience, it takes a bit longer than you hope to see it in the numbers. So theoretically, it should come in Q3, of course, or Q2, Q3, but it will be a bit of a delay there. That's why you see the cost kind of not exactly following the number of employees because it's simply associated with costs around when we take costs out. So -- but you will see it after the second half and into next year. Daniel Morris: The next question is going to come from the line of Andreas Joelsson, DNB. Andreas Joelsson: A follow-up on the COGS question that we had. Of course, there's a headwind coming from the component prices, but you have been able to increase the gross margin in Networks for some time and now it has stabilized. What other areas within costs have you sort of from experience the last few years, learned that there is maybe that you can use to compensate for component price increases. So it's not just negotiations with vendors and customers that could keep the gross margin resilient, as you say, if you understand that blurry question. Borje Ekholm: Thanks for the question, Andreas. I can try to give you a notion. Of course, the most important one is to work on the prices. It's undoubtedly the case, and that we continue to do. The other levers we have, which actually have proven to be very sizable is product substitution, i.e., we can -- through technology development, we deliver a product that performs the same, but at a lower price or a lower cost point, I should say. So that actually is maybe the most important one that we've been able to do for quite some time. And I feel quite comfortable we'll get that with the next-generation ASICs coming within not-too-distant future. Then we have also been able to take a lot of costs out on service delivery. And there, I think there are more costs to be taken out. So I think we have -- it's not -- it doesn't come easy. It doesn't come in that sense for free. But I do think there is a number of areas we can kind of leverage to protect a healthy gross margin longer term. And that's why I feel we have kind of reached a different level of performance and control on the cost side. And you know component prices have varied already now. So we've been able to handle that in many different ways. And our ambition is clear. That's what we intend to do going forward as well. And we have a number of degrees of freedom in what we actually do to manage the margins. Daniel Morris: The next question is going to come from the line of Richard Kramer at Arete. Richard Kramer: Borje, you mentioned the early stages of physical AI, which would involve greater mobile connectivity. But can you point to anything within your portfolio which could provide a material uplift to group sales growth, especially addressing the sort of data center AI spending boom given that enterprise remains fairly small in the mix? Borje Ekholm: Yes. Richard, it's a good question. We're not going to see any sales directly from data center expansions right now. Our, call it, exposure to AI is more going to come from the applications when you start to see inference play a very different role. So we may not be the frontrunner on the AI wave, but we are rather the longer term, I would say it's one of our key drivers of traffic in the networks and the connectivity will does look different. That's why I believe the exposure we have is going to come more from that traffic development from AI moving into implementations, but it's also going to come from AI in enterprises. And here, we start to see some front-runner industrial companies, still small, but actually picking up demand in 2 areas: enterprise connectivity, i.e., wireless solutions or as a matter of fact, in interest for network APIs and embedding that into enterprise use cases. So I would like -- I don't want to promote that we have any exposure to data center. So that wave is going to go. We're more a little bit behind that, I guess, in the -- I don't know what to call it, but kind of benefiting from the overall migration of applications towards AI. Daniel Morris: Next question is going to come from the line of Felix Henriksson, Nordea. Felix Henriksson: Good to see the Cloud Software and Services EBITA margin expanding to around 12% on a 12-month rolling basis. I wanted to ask, is there any reason why the margin expansion in this segment should not continue given that growth seems to be led by very margin accretive 5G core demand? Lars Sandstrom: It's a good question. I think what we have said is that the first aim here is to reach a stable double-digit margin and then we work from there. And I think we need to remember that the cloud software is also connected to the flat RAN market. So there is -- but still, there is an underlying growth that we are able to capture with in the core area, which is good, I think. And we have managed to show that we are having a good market position there. So we continue to work on that. So we don't promise. We guide quarter-by-quarter, as you know, but we feel we have reached a stable level now in a good way in the company. Daniel Morris: The next question will come from the line of Ulrich Rathe at Bernstein. Ulrich Rathe: This is more a question for Lars, please. You talked about how you have immunized margin to the foreign exchange moves by matching cost and revenue better. Can you sort of talk about that a little bit more? And I'm wondering, in particular, 2 areas here. One is to what extent are you still benefiting from hedging that could roll off and produce an incremental headwind if the FX rates stay at where they are? And also, with the current level of FX matching in cost and revenue, what would be the effect of a strengthening -- sorry, of a weakening Swedish krona? Would that actually correspond to a material margin driver for you or not? Lars Sandstrom: I think we need to separate between gross margin and EBITA margin here. On the gross margin, we are fairly balanced in the currency baskets, whereas in the OpEx side, we are much more exposed with the Swedish SEK ratio there. So it's higher as we get more of an impact from that end. So I think from -- so that's what's impacting, so to say, the FX mix that we have. So I think that -- and if there is a significant change, you would see that more impacting EBITA rather than gross margins in that sense. And then when it comes to hedging, we have some hedging, but rather low levels and they are coming out. So it should not be a big impact going forward. Daniel Morris: Next question will come from the line of Sandeep Deshpande at JPMorgan. Sandeep Deshpande: Could I ask -- I mean, you've seen this weakness in North America. In terms of your exposure to 5G and 5G core outside North America, do you see there is a potential for significant upgrades? I mean that is the market hasn't shifted as much to 5G or 5G core over the last few years as it has in North America and thus, the growth outside North America could compensate if North American growth over the next few -- couple of years is not going to be as strong. And the question I'm asking here is that historically, outside North America, they have not been as keen to quickly upgrade to next-generation technologies like 5G or 4G even before that. So I mean, how do you see that progress, I mean, at this point? Daniel Morris: Borje, maybe we ask you to take that one. Borje Ekholm: Yes. That's a very good question. North America have been a front-runner market. It's still not fully migrated to 5G SA even there. The only market which is fully 5G SA actually is China. So we see that that's where the market will go. We see a number of operators today increasingly focused on migrating to -- from 5G non-standalone into 5G SA and then 5G advanced. It's still largely a work in progress. So if you try to give some sort of statistics, maybe 1/4 of the operators have some sort of 5G SA and 5G SA of scale is fewer than that. So I would say that's actually one of the major opportunities for our industry. And it's 2 things. Of course, it's an upgrade cycle for us. But I think more importantly, it will allow the operators to start offering differentiated services. So you can have network slicing, dynamic network slicing, for example, can happen when you have 5G stand-alone. So the way we think about this is it's actually one of our more positive opportunities from a medium-term perspective as companies or operators upgrade. And the way to think about this is in order to prepare your network for 6G that eventually will come, you need to actually migrate through 5G standalone into 5G advanced and then have built the architecture that's prepared for 6G. So I see while not everyone have transitioned today, they will need to go that way. And so it will provide an interesting opportunity for us as operators upgrade. So that's why we've invested in positioning us well on 5G core, and we are now starting to see growth coming through on 5G core. So it's actually, I think, a net-net positive for us as we move forward. Daniel Morris: Next question is coming from the line of Daniel Djurberg at Handelsbanken. Daniel Djurberg: A question. I was quite impressed by the network gross margin given the geographical mix with large deployment in India and also growth in LatAm. It could indicate that it was capacity heavy. And if that is correct, should we expect more coverage and hardware deployment in second half in India, for example, and Japan, i.e. supportive on gross margins and then also we have the cost inflation that you mentioned. Daniel Morris: Maybe, Borje, we can start with your thoughts on those 2 markets more broadly and Lars on the margin. Borje Ekholm: Yes. I know we were often talking about coverage and capacity before. I would say what we have tried to do is actually to reduce the dependence on that as well. So when you look at this, there is always an element of higher-margin software sales versus hardware, but it's less important going forward. So the comment here is probably to say that there is a tad more capacity, but it's not meaningfully impacting the profile here. Lars Sandstrom: Yes. No, I think you covers it well. So I think the outlook you see in -- for the Q2 here for Networks is 49% to 51%, and that is what we see now based on the product portfolio and product deliveries and market mix we foresee now. So I think signals rather stability as well. Daniel Morris: The next question is coming from the line of Sebastien Sztabowicz at Kepler Cheuvreux. Sébastien Sztabowicz: On the defense market opportunity, you've been talking about a $10 billion opportunity in that market. Now you are talking about some trials happening currently in Italy. When do you expect those opportunity to materialize and generate first significant revenue? Is it an opportunity over 3, 5 or beyond 5 years? Just to understand a little bit the phasing and the ramp of this technology. Daniel Morris: Sure. Borje, your thoughts on the overall opportunity. Borje Ekholm: I actually think the opportunity is more near term. It's very hard to judge. But I think it's a very good question. And your perspective may be as good as ours. What we see though is a very near-term, very strong need in the market for modern, call it, modern warfare involves a lot of AI and actually heavy need of communication and connectivity, therefore. So we see that this is much more of a near-term opportunity. I wouldn't say 5 years plus. It's more kind of a mid, call it, use 3 years, for lack of a better word, before this opportunity. But if you start to think about -- take a critical site, it could be a sports arena or a nuclear power station or an energy generation station or something like that. The threat from drones are pretty much today. So when you start to think about when is the technology needed from a risk perspective and protection perspective, it's actually a near-term risk. So as I know it or as I see it, I think we need to tackle that need when the market is there. So had I wished we would have started a few years earlier, yes. But I think we're in pretty good shape to start to see these opportunities materialize over the next even maybe 9, 12, 18 months opportunity, and then they start to scale at 2, 3 years. So I'm quite excited about these opportunities because the communication network and the scale we have makes our solutions rather competitive. So I'm actually -- I'm thinking this is -- our ambition is that this is a nearer-term opportunity than 5-plus years. But then putting an exact number on it, I can't, to be honest. But I'm -- but the reception we get from customers is very positive. Daniel Morris: The next question is coming from the line of Sami Sarkamies at Danske. Sami Sarkamies: I still wanted to go back to the rising input costs that were discussed earlier in the call. I have a 2-part question. Firstly, can you elaborate on your current operator agreements allow you to raise prices if needed? Do they, for example, cater for above normal cost inflation? And then secondly, when you look at your operator customers, are you seeing rising energy costs to have an impact on their behavior and potentially investment plans for the year? Daniel Morris: Lars, we start with you on the first and Borje... Lars Sandstrom: We start on the customer side. There are -- it depends on the renewal cycle of contracts that we have with customers, and that can vary a bit in different markets and different customers. So there are -- but there are still an opportunity, I think, to take this discussion because we are -- these are a bit exceptional times. So there is -- we need to take this in a good commercial discussion with our customers. And when it comes on the energy impact on operators, I think that is an important part, the TCO where our products with the right investments they do, they can drive down their TCO. So I think in that sense, it helps our competitive advantage in the market. But we have not seen any big impacts yet. But of course, if there is a prolonged situation with high energy costs, that could have an impact, but we have not seen that. And I think you should also remember the revenue base of our customers is very stable. So they have quite -- we have seen this historically. And normally, our industry or our customers are quite resilient over time. I don't know if you want to add more on that, Borje. Borje Ekholm: You've captured it. What we see and we see an increasing focus on energy efficiency in discussions with customers. So I think this will be a topic -- and as Lars said, it kind of goes both ways, right? It's an opportunity because they need to actually upgrade some of the old equipment, and they actually need to move towards modern. And at the same time, they get a bit tougher on their own cost position. So it kind of sits in that cost a bit [indiscernible] as we say in Swedish, I don't know what that translates to. But that's kind of the situation, right? The interesting thing is that when we now are around, we start to see customers talking about how you actually phase out old technology. And we're even starting to see customers in some markets talk about how do we phase out 4G and actually migrate to 5G and in a way, then have only 5G and 6G. Of course, 3G being phased out in most regions, except Europe possibly. That will also support energy efficiency. So we're actually -- this energy squeeze leads to a bit of a -- when you asked about change in behavior, yes, it is a change in behavior, but much more focused on how do I get on the latest technology curve that helps me with lower process cost. And that will include phasing out 2G, 3G and soon 4G in some markets. Daniel Morris: Moving on to the next question, please, which is coming from the line of Oliver Wong at Bank of America. Oliver Wong: I wanted to focus on perhaps the cost from things like logistics and transportation since given ongoing global geopolitical events, it seems like there could be some impact on that. And also perhaps on the instability of the supply chain, could that be a risk to you? So yes, it would be great to kind of discuss about the logistics and transportation costs. How is that relative to perhaps the impact from rising memory in terms of potential headwinds going into the year? Lars Sandstrom: And I think when it comes to logistics and transportation, we have seen some impact now. But in the total scheme of our cost base, it's limited. So we should remember that. I think it's important. And especially now in Q1, we had some additional costs with the Middle East conflict there where we had to do some rerouting, changing transportation lines, et cetera, utilizing then our flexible production system and supply chain. So I think, yes, it has given some, but we have been able to make sure that we deliver to our customers, which is, at the end of the day, most important for us. So I think -- and that ties a little bit into your supply chain question there. We have a rather well-distributed supply chain today to manage disturbances. We have proven that, I think, during the pandemic. We have proven that now during last year on the tariff side, et cetera. So we continuously work with this and try to mitigate when the things are happening. And of course, as we have said on the tariff side, we cannot guarantee that we are immune, of course, but we are, I think, managing it pretty well. Borje Ekholm: The fair comment is also that we have a distribution hub in the Middle East. So we've been impacted for sure already and been able to mitigate that fully by leveraging the flexible supply chain. So I think this -- we'll have to focus on managing it, monitoring and managing it as well as we can. Daniel Morris: We have time for one final question this morning. We can move to the next. So a follow-up question from Daniel Djurberg at Handelsbanken. Daniel Djurberg: I know I should ask your customer this and I will, but still Latin America saw good growth in Networks, and this is a geography with really tough competition. To me, your radio access network portfolio is more competitive to [ Pearson ] for many years, you showcased at Mobile World Congress. Can you give -- or obviously, can you give any examples of this, if it's correct? And how we should think about markets like Latin America, Sub-Sahara, Eastern Europe, where you have tough Chinese competition? Borje Ekholm: It's a good question. And the reason why I'm hesitating is more that we get into specific customer situations. And I don't want to talk about that for the simple reason that if I would be our customers, I wouldn't like us to talk about it because it may be my competitive positioning in the market that I'm revealing. That's why I think it's inappropriate for us to talk about customers. But what I can say is that we've -- we think our -- the competitor we have to always beat is one of the Chinese. They're, of course, very strong. I have no doubt about that. But we can see that we can actually go head on with our product portfolio, thanks to the strong performance, the strong infield performance we see on quality benchmarking when we compete with them, where we come out well. You can see that in all the -- whether it's Umlaut test or OpenSignal or whatever, we come out well in that comparison. We perform also very well on energy once you're in the field. And it's because the way we have focused on developing the products, it's actually dedicated not to lab trials, but more to infield performance. So operators that looks at that total perspective there we can compete, right? And we've seen that in Latin America. We see it some -- in Africa, it's maybe the hardest market to compete. And you've seen us fight there. But at the end of the day, we remain competitive, and it depends on operator preferences as well. We certainly, in Southeast Asia, win market share when we compete also with the Chinese competitors. Daniel Morris: Thank you. So that comes to the end of the Q&A session. Thank you for joining us. Thanks, Borje and Lars as well. Borje Ekholm: Thank you.
Operator: Ladies and gentlemen, welcome to the Q1 2026 Badger Meter, Inc. Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. As a reminder, today's conference is being recorded. It is now my pleasure to turn the conference over to Barbara Noverini of Investor Relations. Please go ahead, Ms. Noverini. Barbara Noverini: Thank you, operator, and thank you for joining the Badger Meter, Inc. First Quarter 2026 Earnings Conference Call. I am here today with Kenneth Bockhorst, our chairman, president, and chief executive officer; Robert Wrocklage, our executive vice president of North America municipal utility; and Daniel Weltzien, our chief financial officer. This morning, we made the earnings release, acquisition announcement, and related slide presentation available on our website at investors.badgermeter.com. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, most important of which are outlined in our news release and SEC filings. On today's call, we may refer to certain non-GAAP financial metrics. Our earnings presentation provides a reconciliation between the most directly comparable GAAP measure and any non-GAAP financial measures discussed. With that, I will turn the call over to Kenneth. Kenneth Bockhorst: Thanks, Barbara, and good morning. Before getting into the specifics of the quarter, I would like to start by setting the stage for a more detailed discussion on our Q1 results and how we are thinking about our metering business more broadly. We operate in a market supported by strong long-term macro drivers, recurring replacement cycles, and increasing adoption of advanced technologies ranging from our ultrasonic meters to industry-leading cellular AMI, beyond-the-meter solutions, and recurring software and analytics. These durable factors, combined with solid execution, have driven consistent value creation over time. At the same time, it has always been true that our business can be uneven quarter to quarter and year to year. Over the 2023 to 2025 time period, robust revenue growth driven by multiyear cellular AMI share gains and overlapping project activity reduced the visibility of this inherent unevenness. In mid-2025, we began to signal that the revenue contribution from certain historical AMI projects would decline as deployments concluded ahead of awarded but not yet started AMI projects. As a result of this project pacing and backlog normalization dynamic, we previously communicated that our 2026 revenues would be weighted toward the back half of the year. On page three of our earnings slide deck, you can see the impact from project pacing in our first quarter 2026 revenue. In addition, short-cycle order rates, for which visibility is always more limited, were weaker than we anticipated, resulting in approximately $15 million to $20 million of lower revenue versus our internal expectations. As a result of those combined headwinds, first quarter sales were down 9% year over year to $202 million. While our expectations for a solid second half have not changed, the softer start to the year prompts us to anticipate full-year 2026 organic revenue to be on balance with 2025. Normally, I would turn the call over to Daniel at this point to walk through the financial results in detail. However, in light of the below-expectation sales results, I am going to turn it over to Robert to walk through greater detail on this multilayered customer dynamic. In short, Robert will explain our view that this first quarter outcome is timing-related and does not reflect a structural change in either market demand, our broader competitive position, or the long-term market drivers of our business. Robert will walk through a subset of anonymized details related to several awarded but not yet started AMI projects that are expected to begin deployment in 2026. This is not the level of project detail we would normally provide each quarter, but these awarded projects, along with others in the funnel, help to inform our outlook for the rest of 2026 and support our expected momentum into 2027. With that, I will turn it over to Robert. Robert Wrocklage: Thanks, and good morning, everyone. Please turn to slide four. To put the first quarter results into context, it is helpful to briefly revisit the 2023 to 2025 time period. During this multiyear time frame, we consistently described backlog as elevated in 2023 and 2024, with normalization progressing through 2025. That backdrop supported strong but moderating revenue growth. As shown on the slide, four sizable AMI projects that began deployment in 2023 were meaningful contributors during the same time period, collectively representing nearly 800 thousand connections. These were not the only AMI projects ongoing or completed during this multiyear time frame; rather, this selected cohort of projects represents the most significant project revenue contributors for illustrative purposes. Two of these projects, JEA and OUC, were supply-only projects, with our involvement limited to the shipment of our meters, endpoints, and recurring BEACON SaaS revenue rather than full deployment execution. PCU and Galveston were turnkey projects for which the scope of work included Badger Meter, Inc. products and SaaS, plus installation labor and ancillary equipment such as meter boxes and lids. As previously noted, both project size and scope matter. Turnkey projects generate significantly greater revenue than equivalently sized supply-only projects. That relationship is illustrated in the stacked bar chart and is one of several drivers of revenue unevenness. These projects ramped in 2023 off a prior year consolidated revenue base of $566 million. They peaked in 2024 and declined through 2025 as the projects approached completion. Over the same period, our generalized order backlog moved from elevated to more normalized levels. Together, the size and scope of projects combined with backlog normalization supported strong results over this three-year period while muting the impact of underlying short-cycle order variability, which was always present, just not visible in our results against this positive backdrop. Within these four AMI projects, you can see the revenue contribution is uneven, with meaningful variability quarter to quarter based upon project and customer specifics that are not related to underlying demand, competitive dynamics, or long-term market drivers. We entered 2026 with these projects largely completed and a normalized backlog. Against this 2026 backdrop, short-cycle order rates, where we have the least amount of visibility, were weaker than expected and thus the below-expectation revenue outcome. Now to the facts that have and will continue to inform our forward revenue outlook. Slide five highlights our forward look at awarded AMI projects that are expected to begin deployment in 2026. Importantly, this is not a top-projects list but rather a snapshot that illustrates several important characteristics of our business, competitive positioning, and technology leadership. Many of these awards have been known to us for some time—in some cases, years—with typical lags between initial award indication and deployment driven by a number of factors. These timing differences are common in our industry and contribute to revenue unevenness, and they also represent just one layer of the multistage opportunity funnel that informs our view of future growth. This list also reflects a wide range of funding sources including capital budgets, rate cases, grants, WIFIA loans, and other financing, underscoring broad funding availability and sources. Also illustrated here is additional information on competitive conversions, diverse deployment types, and technology adoption across both municipal and investor-owned utilities. Most importantly, this project set represents between 2.6 million and 3.6 million connections over multiple years, meaningfully larger than the prior project cohort of 800 thousand connections that supported growth from 2023 to 2025. Turning to the PRASA project, we received the first significant purchase order for the project in the first quarter, and we expect the utility’s installation partners to begin deployment activity around midyear. PRASA, together with the successful completion of the projects previously discussed on the call and others not announced, underscores our continued AMI success with customers of any size and complexity. In summary, while the first quarter results stand out relative to recent history, we view 2026 as a short pause, not a break in our trajectory. As we move into the next phase of growth, we expect continued expansion of our AMI installed base, and this in turn will emphasize ORION cellular AMI as the market standard for AMI, which creates opportunities for further meter share gain, recurring software revenue, and broader adoption of our beyond-the-meter solutions. With that, I will turn the call back over to Kenneth. Kenneth Bockhorst: Thanks, Robert. In addition to the project awards described by Robert, we continue to see constructive market and customer activity across our extended opportunity funnel, including pending RFPs and early utility engagement with consultants, which remains healthy as utilities continue to prioritize modernization, efficiency, and visibility across their water networks. These long-term secular drivers remain intact. Despite the soft start to the year, I am encouraged by the consistency we have delivered in gross margin performance, overall SEA discipline, and cash flow, which speaks to the strength of our team’s execution around the world and the resilience of our business model. From a near-term cost perspective, we have implemented measured cost reduction actions, including a 10% salary reduction for our executives for the next six months, to maintain spending discipline and protect margin integrity as we navigate revenue pacing throughout the year. I will come back at the end to talk about our outlook and the exciting announcement we made this morning around the acquisition of UDLive, but before I do that, I will turn the call over to Daniel to talk more about the numbers. Daniel Weltzien: Thanks, Kenneth. The contrast between 2026 and 2025 is clear. So let us get into those details. Turning to slide six, total sales were $202 million, representing a 9% decline year over year. Utility water sales declined 10% year over year, reflecting the project pacing and weaker short-cycle order rates referenced by both Kenneth and Robert. Lower metering product revenue was partially offset by increased BEACON SaaS, SmartCover, water quality, and network monitoring product revenues. Collectively, beyond-the-meter product line growth was a bright spot in the quarter that should not be lost in the broader revenue headline. Sales for the flow instrumentation product line were down 4% year over year. Turning to profitability, gross margin was 41.7%, down 120 basis points against a record gross margin in 2025, primarily reflecting product and project mix. Gross margins remained robust and near the top end of our normalized range, which reinforces the durability of our pricing discipline and structural mix benefits, despite lower year-over-year volumes. Selling, engineering, and administrative expenses were $49.2 million, increasing $3.1 million year over year, driven primarily by $1.2 million in transaction costs associated with the UDLive acquisition, higher personnel costs, and an additional month of SmartCover SEA costs, offset by reduced incentive compensation expense based upon the first quarter results. SEA as a percentage of sales increased by 360 basis points year over year, primarily due to the deleveraging effect of lower volumes in the quarter, which we expect will be temporary. As a result, operating earnings were approximately $35.2 million and operating margin was 17.4%, compared to a record 22.2% in the prior-year period. As awarded projects begin in the second half, we expect operating leverage to improve while maintaining our typical level of cost discipline. The effective income tax rate was 24.8% compared to 24.4% last year. Diluted earnings per share were $0.93 compared to $1.30 in the prior-year period. Primary working capital as a percentage of sales decreased from 20.9% at year-end to 20% as of 03/31/2026. We generated strong free cash flow in the quarter of about $30 million, in line with 2025. As is normal, our first quarter reflected typical seasonality within incentive compensation and retirement plan contributions paid out for the previous year. In 2026, we repurchased 256 thousand shares for a total of $38 million and have $115 million left on our share repurchase authorization. With that, I will turn it back over to Kenneth. Kenneth Bockhorst: Thanks, Daniel. Before I give the outlook, I want to highlight the acquisition we announced this morning. Please turn to slide seven. We signed a definitive agreement to acquire UDLive for $100 million, funded with cash on hand plus contingent consideration. UDLive, a UK-based provider of hardware-enabled software solutions for sewer line monitoring, complements SmartCover by extending our sewer monitoring capabilities across a broader range of use cases, network conditions, and geographies. Much like SmartCover in the US, UDLive has built a leading position in the UK, pairing low-power, easy-to-install sensors with proprietary analytics software that delivers continuous, real-time insight into sewer network conditions. The value and differentiation of UDLive’s sewer line monitoring technology is evidenced by a 90% tender success rate since its inception and routinely high technology assessment scores from utilities and consultants. Please turn to slide eight. The combination of SmartCover and UDLive within our BlueEdge suite of solutions positions Badger Meter, Inc. as a global leader in sewer line monitoring, offering customers options across hardware-enabled software platforms and communications configurations, consistent with our choice-matters approach. For those familiar with our history, there is a clear parallel to our acquisitions of ATI and s::can, which together created a comprehensive water quality platform and extended our geographic reach. The strategic rationale for UDLive and SmartCover is similar within the sewer line monitoring market. In the trailing twelve-month period ended February 2026, UDLive generated approximately $22 million in revenue and delivered positive operating profit. The transaction will be accretive to EPS in year one, and we anticipate closing in April. We believe our global channels can further accelerate UDLive’s growth and enhance operating leverage over time. Now looking ahead, we continue to expect 2026 activity to be back-half-weighted as awarded AMI projects advance into deployment. As you are aware, we typically do not provide formal guidance; however, we recognize that investors are navigating this project pacing dynamic for the first time in several years. With that in mind, we are offering additional transparency to our current view, informed by today’s inputs of revenue pacing for the remainder of the year. As awarded projects enter deployment and short-cycle orders recover from first quarter levels, we expect sequential improvement in absolute quarterly revenue dollars as the year progresses, resulting in full-year 2026 revenue, excluding the UDLive acquisition, to be in line with 2025. More specifically, we expect second quarter 2026 organic revenue dollars to sequentially improve from the trough of Q1 but to be down year over year against the highest quarterly revenue figure in the company’s history. In the near term, our focus remains on discipline to manage near-term variability while building momentum throughout the year. Importantly, our financial model is built to support our capital allocation priorities across uneven operating conditions, enabling continued investment in the business, returning cash to shareholders, and value-enhancing M&A while maintaining a strong balance sheet. We will now open the call for questions. Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Nathan Jones with Stifel. You may proceed with your question. Good morning, everyone. Robert Wrocklage: Morning, Nathan. Morning, everyone. Kenneth Bockhorst: Hey. Good morning. Nathan Jones: I guess I will start with the short-cycle orders first. You talked about maybe $15 million to $20 million less than expected on that, which is, you know, half or more of the miss versus consensus during the quarter. I have been around with Badger Meter, Inc. long enough to remember the volatility in some of those. Is there any color you can give us on what underlying reasons for that were? I mean, there was some pretty bad weather in the Northeast during the quarter. Is it weather-related or something else? Any color you can give us on that? Kenneth Bockhorst: Yes. I think the key to remind the group—some people newer to the story—that the unevenness that you have recognized because you have followed us for a long time is not new, as we talked about, and there is really not one underlying thing. We are selling to 50 thousand utilities across the country through various different replacement cycles. The variability has always been there, and we have talked about this a few times. Sometimes the variability is there in an equal amount to the high side. But when it is to the high side, it does not really affect people’s view very much because that is all goodness. In this particular case, I would not limit it to one thing. It just happened at this particular time and with unfortunate timing given what Robert had just talked about on where we are in the midst of this air pocket, but not really one thing. It is relatively normal. Robert Wrocklage: I would just add that we are certainly not chalking it up to geographic weather by any means. While it is generalized, if we look at our customer segmentation of where the weakness came from, it is indicative more of timing aspects than anything related to our positioning in the market or share or other things. So this is absolutely timing-based. Nathan Jones: I guess I will ask one on PRASA. You talked about having got the first PO for that, which is great, and expecting the first installations to start midyear. Are you more confident today that the project will ramp up on time and ramp up in the second half? I guess investors have been concerned that the Puerto Rican government has not been exactly the most reliable in terms of getting things done, not for Badger Meter, Inc. specifically, but overall over the last few years. So just your level of confidence that it really does ramp up in the back half of the year. Kenneth Bockhorst: Yes. Robert will probably have something to add here as well since he is managing that very closely. The fact that we brought it up last month shows that we already had quite a bit of confidence in it. The fact that we have a PO and that we know installation partners are lined up—our confidence is higher today than it was before. Robert put his hand up, so he agrees. Nathan Jones: Okay. Fair enough. I will pass it on. Thank you very much. Kenneth Bockhorst: Alright. Thank you. Operator: Your next question comes from the line of Jeffrey Reeve with RBC Capital Markets. Your line is open. Please go ahead. Jeffrey Reeve: Hey. Good morning. I appreciate all the color thus far. For your updated guidance, what is the risk that some of the late second-half starts push into 2027, and is this outlook appropriately conservative now? Kenneth Bockhorst: I would call this additional transparency rather than guidance because, given the variability, it is hard to guide from quarter to quarter or year to year. As the year progresses and we get closer to each of these projects getting into deployment mode, we see more activity. Some of these that you can see on the list are turnkey, and we are actively engaged with them on the upfront planning. For those that are supply-only, in some cases, we have POs; in some cases, they are still planning. As we get closer and closer, our confidence level is better today than it was ninety days ago. Jeffrey Reeve: Appreciate that. Then can you remind us what specifically is in that short-cycle mix? Maybe what percent of sales? Is that muni budget-driven? Macro-driven? What drives that? Kenneth Bockhorst: A lot of people—even though we talk about short-term variability and why we do not necessarily size or talk much about backlog—is because the majority of the business is short cycle. Distribution is very short cycle. Individual utilities that we sell directly to that are just doing the ordinary buying and are not in an in-flight AMI project are often ordering, and those tend to be short cycle. Utilities order when they want them. Everybody in the industry is at normal lead times. We have basically reverted back to normalized lead times and backlog from before the supply chain constraints and COVID. Even when backlog was elevated, it moved from short visibility to slightly more visibility; it was not like we had a huge backlog that we were chunking through. Jeffrey Reeve: Got it. Appreciate that. I will pass it on. Operator: Your next call comes from the line of Analyst with Baird. Your line is open. Please go ahead. Andrew Krill: Hi. Good morning. Thanks for taking my questions. I wanted to build on your commentary about short-cycle order weakness being timing-related. Does the flat organic outlook contemplate any recovery opportunity relative to that $15 million to $20 million, or does it assume that short-cycle weakness persists here? Kenneth Bockhorst: By definition, because it is short cycle, we do not have a tremendous amount of hard order visibility. It is not like we have seen a few weeks of excess purchase orders coming through that would change our view. Our view is informed by talking to our distributors and hearing what they are seeing in the field because they are out talking directly to customers. It is also informed by the direct sales relationships that we have with our direct sales force. We are not getting from the market in any way that people are constraining budgets for the normal replacement demand that comes with metering. It just happens to be an air pocket at the same time that there is a project air pocket. Robert Wrocklage: The thing I will reinforce here is the variability that we are talking about specific to Q1 that is now more visible has always existed, inclusive of the 2023 to 2025 time frame. It was less visible in the revenue outcomes because of the backlog condition combined with the projects in flight. I just want to make it clear that this variability is and has always existed. It is just happening to be more visible in 2026. Andrew Krill: Okay. Then on the flat organic outlook for the year, can we dial in 2Q versus the second half a little bit more? Kenneth, you mentioned 2Q would be down year over year. Should we assume a similar decline to 1Q? Kenneth Bockhorst: Given the short-cycle nature of the largest portion of the business, I am not going to size it. I wanted to give enough detail to make sure everyone understands that we do not just snap back to growth on a year-over-year quarterly basis, especially against an all-time record quarter. We are just trying to be realistic. I am not looking to size it to a number in between, but we absolutely expect sequential growth that is likely below last year. Andrew Krill: Alright. Thank you very much. Operator: Your next question comes from the line of Andrew Krill with Deutsche Bank. Your line is open. Please go ahead. Andrew Krill: Hi. Thanks. Good morning, everyone. I want to ask about gross margin. They held up well in the first quarter considering. Is there anything you would call out there? Then could you give us some help on how they should trend the rest of the year? Do you think still near the higher end of your 39% to 42% target range, or could there be some sequential pressure as these projects ramp? Daniel Weltzien: The important thing to point out is a couple of things. One, the 39% to 42% range we still have confidence in, and that is where we anticipate operating for the rest of the year. In terms of the Q1 result, as we pointed out in the prepared remarks, some of the areas where we saw strength in the first quarter were around the meter technologies—of course, our BEACON SaaS revenue continuing to chug along with the recurring nature that it has—and all of those being above line-average margin, which helped us get to this blended rate in the first quarter. As we progress throughout the year, again, our expectation is to continue to operate within that range. We have talked previously about turnkey projects potentially having different margin profiles than sales through distribution, for example. So mix factors may exist. But, again, just reiterating that the range we talked about historically is still reasonable. Kenneth Bockhorst: To add to that, from an operating point of view, your question was what we see as these projects ramp. Our value-based pricing principles all remain intact, so we are extracting the price that we deserve for providing this value at a price that customers see the value to invest in. Whether it is a little lower on the front side on gross margin, it feels really good on the SEA leverage side and vice versa. So operating profit in any of these cases is something we are comfortable with. Andrew Krill: Thanks. That is helpful. Switching to Section 232 tariffs—it has been a big debate the past couple of weeks with some of the changes to how those are implemented. Can you give any color on how that impacts Badger Meter, Inc., in particular the Nogales facility? If most of what you are bringing into the US used to be excluded under USMCA, is that now a headwind you have to deal with, and how are you going about doing that? Daniel Weltzien: The team in Nogales and here in the US that is managing this for us continues to do a great job in managing the supply chain to optimize costs of our products, and that includes the tariff situation. The short answer is if we look at our tariff exposure over the last 12 months, it has not really changed even in light of recent news as we sit here on 04/17/2026. Always subject to change, but as we sit here today, I do not think about tariffs differently than I have over the last couple of quarters. Operator: Your next question comes from the line of Bobby Zulper with Raymond James. Your line is open. Please go ahead. Bobby Zulper: Thanks for taking the question. I had come to the conclusion that your overall volumes of meters might be in the neighborhood of 20% elevated versus pre-COVID. What are your thoughts on that statement? Kenneth Bockhorst: I do not have a lot of thoughts on that specific statement, and I do not mean that to be a snarky response. Our revenue is driven by many factors. When you look at what Robert just talked about on projects—turnkey versus supply-only—and the other dynamics that roll through, plus the new products we have added beyond the meter, I do not know how you would draw that conclusion. We have gained meter share over the past few years; I will agree to that. But in terms of specific sizing, I do not think I will get into that. Bobby Zulper: Fair enough. Appreciate it. One clarifying question on the Section 232 tariffs. Do they get applied to the full value of either the meter or the cellular device when they go in and out of Mexico? Daniel Weltzien: We do not talk about tariffs on individual product line-item levels. Any exposures that we do have are on the component side of our business as we are procuring materials, generally. Bobby Zulper: Okay. So I am assuming because you are getting your brass bodies in Milwaukee, those are not getting tariffs themselves. It would just be the electrical equipment that is going into the meter and the cellular devices. Daniel Weltzien: I will remind you the majority of the copper that we use is recycled brass, which is primarily in the US because you are not going to ship that around the world typically. So yes, that is not where we have exposures. It is on things like electronics and other components that may be sourced elsewhere in the world. But again, as we are shipping products in and out of Mexico, USMCA provides us protection from a tariff perspective. Bobby Zulper: Alright. Thanks very much. I appreciate it. Operator: Your next question comes from the line of Analyst with Jefferies Financial Group. Your line is open. Please go ahead. James Coe: Good morning. Thanks for taking questions here. I wanted to ask about the awarded projects that you put on the slide. It seems like seven out of nine awarded projects involved full or partial competitive meter conversions. That is pretty impressive. What do you think is driving that success given the strong incumbent bias in the industry? Have you experienced any meaningful losses of your incumbent positions to competitors? Kenneth Bockhorst: Thanks for the question. One of the dynamics we have explained over the past several years is that our portfolio—the resiliency of cellular AMI and the leadership position we have taken in software—has enabled us to convert market share. Looking at some of the projects we highlighted today, two of them are generation-one fixed network combo utilities that used to be someone else’s meter and someone else’s radio. During generation two, the water utilities decided that they no longer wanted to be on a fixed network, they went out to RFP, and we won that. After winning the AMI RFP—because it was not a full-product RFP—we then also converted the meters afterward. We have another project where we were the meter incumbent but someone else’s AMR radio was on it, and because of our relationship and our cellular technology leadership, we were able to convert from a competitive AMR drive-by to our ORION cellular with BEACON SaaS. We have others where we converted both meters and radios. For the most part, we have been a 121-year leader in the industry for meters; now we are also the leader in the industry for AMI, and we are pulling in both ways. James Coe: Got it. Very helpful. A clarification on the short-cycle orders: there is no particular reason that caused the slowdown—it is more inherent variability. If this inherent variability continues in a negative way throughout the year, does that pose downside risk to the outlook, or does the outlook assume improvement? I want to understand the dynamic better for the remainder of the year. Kenneth Bockhorst: The first thing to remember in the metering industry is that nothing gets canceled. Things only move right because eventually you have to replace your meter if you want to improve nonrevenue water or conservation. Frankly, about 80% of the market has a radio attached to it, and once the radio goes dark, you cannot read the meter at all without manual reads. The dynamics of the business are that it only moves right. We have this timing issue here. We do expect some recovery; we do not expect it to stay on the weaker side of uneven. It is still where we have the least amount of visibility, but we do expect some upside compared to the current quarter. Robert Wrocklage: Just to be clear, what we are saying for the whole year is flattish. Do not hear flattish as flat—hear flattish. There is some variability in that, not a wide degree of variability. We are giving you the direction, but know that there is some variability accounted for in that descriptor. Operator: Your next question comes from the line of Michael Fairbanks with JPMorgan. Your line is open. Please go ahead. Michael Fairbanks: Hey. Thanks for taking our questions. As we look at this new project-level disclosure, how should we think about the 800 thousand connections over the last three years relative to overall volumes? Then the same question as we look ahead to the 2.6 million to 3.6 million—overall expectations? Kenneth Bockhorst: Projects have variability between turnkey revenue being much higher than supply-only and other pieces, so we are not going to size the revenue of what they were, but you can see they were impactful. As you compare that, simple math says 2.6 million is more than three times 800 thousand. Do not take a ruler and draw up 300%, but we do expect the next three to five years of these projects to be more than the last three years of those projects. Daniel Weltzien: The other point is we provided this additional level of detail this quarter given the result, and we felt it was important for analysts and investors to understand what is informing our forward look and the high single-digit outlook that we have continued to talk about consistently across the business. Having had this visibility over the last number of years as we saw these projects moving throughout that multiyear funnel is what has informed our view. Michael Fairbanks: Great. Thanks. I will leave it there. Operator: Your next question comes from the line of Analyst with Barclays. Your line is open. Please go ahead. Analyst: Good morning. I appreciate the time here. Congrats on the UDLive acquisition. I wanted to focus on your thoughts and strategy in the connected sewer line market. Do you have a view on how penetrated that market is today? Could you elaborate on the driving forces underpinning adoption of those products? How do utilities think about the value proposition or typical paybacks? Kenneth Bockhorst: What we really liked about SmartCover, which we acquired slightly more than a year ago, is that it is the leader in the US market, which is a fantastic smart water market. Adoption is very early, but the problems are very real. By early, it is less than half a percent of the manhole covers in the US that have monitoring on them. The payback is quite simple. If you have experienced any of the rainfalls in the Midwest this week, combined sewer overflows are a significant and real problem that nobody wants. Inflow and infiltration is a real problem. Cleaning optimization offers the ability to save a lot of money, with almost an immediate payback by having monitoring in place. The dynamics are extremely real, and every utility understands the value of implementing this technology. In the UK, adoption is also very early. These two markets, in particular, are exactly where we want to be because they are already the largest—albeit early—and fastest growing at the same time. Within both markets, and in particular the UK, regulation is really driving this. Utilities are being mandated to do it. Inside the UK AMP8 spending cycle, there is a massive amount of investment allocated—and actually demanded—to be spent in this area. Acquiring the two premier brands in the two largest, fastest-growing, regulated markets with a clear understanding of why they are needed feels really good to us. Analyst: Thanks for that. One more on the project disclosure: once a project actually starts to ship, how predictable is the timing around deploying the rest of those units? Does it follow a fairly typical deployment timeline? Kenneth Bockhorst: I would refer you back to slide four. Even within the four projects, there is variability throughout those three years. Often it comes down to available labor, or a utility may find another priority for a few weeks. While over a three- or four-year period it can be fairly predictable, over a three-month period it is really not. Daniel Weltzien: That is an important reason why, for PRASA, for example, we point out it is prone to hurricanes. As a hurricane might come by, that might impact a quarter or two of shipments. So you cannot just draw a straight line on that project in particular, but it applies across the board. Analyst: Understood. Appreciate the color. That is all for me. Operator: Your next question comes from the line of Scott Graham with Seaport. Your line is open. Please go ahead. Scott Graham: Hey, good morning. Thanks for taking the question, and thanks for all the additional detail. I have one and then a follow-up. For incremental margin for the year, we can see what the decremental was for the first quarter and I would assume something similar in the second quarter. Does the second half, with implied top-line growth, get us back to that 25% to 30% level that we have seen from you for incremental margin, or does PRASA hurt that? Daniel Weltzien: On PRASA, because it is the largest project we have ever done in a competitively bid, very attractive opportunity, the gross margins on that are not at the line-average level as other projects we have been awarded. However, the SEA leverage on a project like that is still very interesting and gets us back to operating leverage that is in line with the rest of the business. Generally, as we think about the business and getting back to this flattish top-line result, we do not have a different view in terms of gross margins, and we are managing our SEA such that it should be flattish to where we were a year ago as well, which results in incrementals that look the way they do this year. That is more information than we have given historically—we do not give guidance—but I wanted to connect some of those dots we have tried to paint throughout the script. Scott Graham: When you say SEA flat, you mean in dollars? Daniel Weltzien: If you look over the last number of quarters, our SEA dollars have been relatively flat, and that expectation is not different moving forward. Keep in mind, we are closing the UDLive acquisition in April, so there is more SEA work to be done there. If you are asking on an organic basis, my answer was more to that. Scott Graham: Got it. Thank you. My quick follow-up: you have talked a lot about high single digits as the way to look at you long term. With 2026 rolling out the way it does and you indicating that you are going to exit the year with a lot more momentum—Q4 this year versus Q4 last year—can we get back to that high single next year or perhaps higher? Kenneth Bockhorst: I will talk to sentiment and what we think we know, stopping short of giving you a number. As we progress through the year and these projects head into deployment—while they may be uneven, they will be en route—we will certainly feel better coming into 2027 than we did coming into 2026. Our views on the long-term health of the market remain unchanged. I am not going to give you a number for 2027, but I do expect us to be back into a momentum period coming out of this. Scott Graham: Appreciate that. Thank you. Operator: Just as a reminder, if you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Barbara for closing remarks. Correction. Apologies. We have one more question from Bobby Zulper with Raymond James. Your line is open. Please go ahead. Bobby Zulper: Thanks for letting me jump back in. I just had a question on price and maybe related price/cost. In tracking some of the larger competitively bid projects, specifically Glendale, it seems like some of that pricing is below maybe what it was in 2022 and 2023. Does that look consistent throughout your business? Can I extrapolate that trend to the rest of the business? Kenneth Bockhorst: First of all, Bobby, we are not going to comment on price project to project because there are so many different variables. Out of respect for our customers, we will not talk about price from project to project either. Bobby Zulper: Alright. Thank you. I appreciate it. Kenneth Bockhorst: You are welcome. Operator: There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Barbara for closing remarks. Barbara Noverini: Thank you, operator. As a reminder, Badger Meter, Inc.’s inaugural Investor Day will take place on 05/21/2026 in New York City. Virtual participants may access the event through a live webcast accessible on the Badger Meter, Inc. Investor Relations website. During the event, we will provide greater color and tangible examples of the evolution of our BlueEdge portfolio along with a discussion of the key drivers enabling growth of our comprehensive suite of smart water management solutions. In addition, Badger Meter, Inc.’s second quarter 2026 earnings release is tentatively scheduled for 07/22/2026. Thank you for your interest in Badger Meter, Inc., and have a great day. Operator: This concludes today's call. Thank you for attending, and you may now disconnect.
Operator: Welcome to the Alstom conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Martin Sion: Good evening, everyone. Thank you for joining us tonight at short notice. I'm Martin Sion, Group CEO of Alstom. Joining me is Bernard Delpit, Executive Vice President and Chief Financial Officer. We'll start with a few opening remarks on tonight's announcement, and then we'll open the line for Q&A. First, let me be very clear from the start. This is not the way I was expecting to start my mandate. The financial result on cash generation are not at the level you should expect from a market leader, especially with a EUR 100 billion backlog in a growing industry. After the last 12 months, we delivered strong organic sales growth of 7%, but this did not lead to margin improvement. And in a year of record commercial activity with EUR 28 billion of order intake, free cash flow generation should have been much stronger. Multiple factors are at play here. The production ramp-up of new rolling stock platforms has not been as steep as what we expected in the fourth quarter. On other projects that met challenges early in their life cycle, we've not been able to turn them around as planned. And fair to say that the current situation in the Middle East has been an additional constraint. Taken together, this factor will have knock-on effects on near-term financial performance. Over the last 2 weeks since my arrival, I've been visiting factories in Italy, France and Germany. I've got -- I went into the detail of financial reviews and processes. I met people that are highly committed and highly competent. I met teams on the shop floor. I met engineers, project leaders and obviously, the regional management. But one conclusion is very clear. Our ability to stick to planning is not strong enough. In a project business, sticking to planning is essential. And today, development, industrialization and manufacturing across multiple sites are not always aligned, creating complexity. In some cases, productions move ahead while homologation is still pending. That's why my priority is to drive deep operational changes and improve execution quality. In short, this means tighter day-to-day execution, stronger planning discipline and better coordination across engineering, supply chain and production. We will also start a broader reflections about adopting a more focused product and commercial strategy. Of course, in parallel, we will continue to further improve results in Services and Signaling, where I see more opportunities and we'll continue the work done in recent years to improve the quality and risk profile of the order intake across all product lines. As I'm new in the role, I will also be reviewing the portfolio and industrial footprint. This includes reviewing the industrial transformation plan already in place and assessing where adjustment or acceleration is required. Restoring performance in rolling stock is a major opportunity for the group. It is achievable with discipline. This is a necessary step to execute the backlog and prepare the group for sustainable cash generation and profitable growth. We will keep you informed on our progress, and we will outline our action plan later this fiscal year. And I now hand over to Bernard. Bernard-Pierre Delpit: Thank you, Martin. I will now comment on the preliminary unaudited figures for the fiscal year '25, '26 as well as the preliminary outlook for the next fiscal year. Starting with orders. Alstom recorded EUR 27.6 billion of orders in the fiscal year, representing a book-to-bill of 1.4. The second half saw a higher proportion of services contracts compared to the first half. Overall, order intake was well balanced by product line over the full year with both rolling stock and services at a book-to-bill of 1.4. Turning to operations with a particular focus on car production. The group produced 4,284 cars during the fiscal year, down 2% year-on-year. In the fourth quarter, car production came in below our January expectations as some rolling stock projects are ramping up more slowly than anticipated and homologations have shifted. Moving to sales. Alstom recorded EUR 19.2 billion of sales in the fiscal year, up 4% compared to last year. After adjusting for negative currency and scope effects, organic sales grew by 7%. All production lines contributed to organic growth with the exception of systems, which faced a tough comparison base. Turning to profitability. Adjusted EBIT margin for fiscal year '25-'26 lands at around 6%. At constant currency and scope, adjusted EBIT margin is broadly stable compared to the prior fiscal year. On the one hand, execution of contracts signed over the recent years and tight control over SG&A supported margins. On the other hand, this was more than offset by a slower-than-expected execution on some large rolling stock projects and therefore, with associated costs, all those most visibly in the fourth quarter, but also stronger-than-expected execution headwinds on a limited number of late-stage projects in rolling stock as well as higher R&D expenses, it has a negative impact on adjusted EBIT. Altogether, adjusted EBIT margin is coming lower than last year and to the guidance. Moving to free cash flow. Free cash flow for fiscal year '25-'26 amounted to around EUR 330 million. Despite execution challenge, adverse currency effects and effects of geopolitics on payments related to Middle East contracts, we've achieved free cash flow in the guided range. Contract working capital increase was offset by down payments, reflecting strong commercial momentum and by favorable trade working capital. This is not particularly satisfying having met cash guidance 2 years in a row that we are not reconfirming the cash plan for the next fiscal year. Financial net debt is coming as expected, around EUR 400 million at the end of fiscal year '25-'26. Liquidity is solid with a gross cash position of EUR 2.3 billion at the end of March '26, revolving credit facilities of respectively, EUR 2.5 billion and EUR 1.75 billion and a EUR 2.5 billion commercial paper program. Turning now to the preliminary '26-'27 outlook. Commercial activity should remain strong, and we guide for a book-to-bill ratio above 1. Organic sales growth should be around 5%. We expect the adjusted EBIT margin to return to around 6.5% in fiscal year '26-'27. With R&D expenses expected to increase as a percentage of sales, the improvement will be driven by a rebound in gross margin back to levels seen in fiscal year '23-'24. Gross margin in the backlog now stands at 18%. We expect positive free cash flow for year '26-'27. On the one hand, we expect commercial activity will be robust, driving solid down payments. On the other hand, lower margin than previously anticipated. CapEx to support the growth of services being put forward as well as trade working capital changes will weigh on the cash compared to what we previously planned. This concludes our introduction remarks. Now Martin and I will open the floor to your questions. Operator: [Operator Instructions] The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: I guess the first question is for Mr. Sion. I'm wondering if you had time to go through some of the projects yourself. I mean, if the project review, I guess, is not finalized, but I guess I'm trying to judge whether there will be a second round of adjustments potentially later in the year. So that's question number one. Question number two is around the free cash flow guidance, which apparently you expect to remain positive in the upcoming year, although with a negative free cash flow that is expected to be around EUR 1.5 billion in H1. So I don't really get how you hope to turn it into a positive free cash flow for the year given the pretty slow start. And then lastly, at the end, I mean, do you expect the group's net debt to decrease or increase by the end of the next fiscal year? Martin Sion: Bernard, maybe I take the first one and you take the two other. What did I do in the last two weeks? I shared my time between [Technical Difficulty] regional reviews and product line reviews. We were concentrating on the budget process, which was being achieved. So regions by regions, we had the concatenation of all programs and with an overview of all the challenges and also all the achievements of each program. So I did not do a specific program review for each of the programs, but it was regions by regions and product line by product line. The other half of my time, I was in the different sites in France, Germany, and Italy [ and other ] sites to confront what was assumptions -- operational assumptions, which will be behind the financial figure. If we look at today’'s situation, I acknowledge the situation that this is what I know today. It’s true that we have already identified areas where we can put in place immediate improvement in terms of operational excellence and our priority is to secure execution of the projects to deliver what is mentioned in this guidance. Bernard? Bernard-Pierre Delpit: Yeah. As you said, Gael, we expect a strong seasonality in the next year, both in H1 negative around EUR 1.5 billion, you spotted it well. In H2 with a very positive free cash flow expected. By the way, when you look at the track record of those last years, H2 has been stronger and stronger year-over-year. So yes, I confirm strong H2 expected, bringing the cash flow for the year in positive territories and regarding the debt, I expect it’s going to be stable or a slight increase. Operator: The next question comes from James Moore from Rothschild & Co Redburn. James Moore: I don't know if you can hear me because I couldn't hear your answer to the last question. There seem to be some distortion on the line, but I'll try anyway. I just -- it's a philosophical question really. And if we think about the last 20 years, free cash conversion has been about 50%, 60%. It's been a long-standing topic. And if we take the free cash, including your new guidance for the 7 years since the merger, you're talking about declaring EUR 1.2 billion of free cash, but probably closer to EUR 2.5 billion of free cash burn if we adjust for hybrid and lease payments and minorities. I have to confess to believing with a number of the managerial changes in the last couple of years that you would be able to change the free cash management of the company to deliver an improved outcome, which we now appear not to be able to achieve. I guess the question would be when you look at the last couple of years, Bernard, and you compare it to, say, your main competitor making a high single-digit free cash margin, what is it you think you've come to understand about the challenges of delivering an improved free cash flow? Bernard-Pierre Delpit: James, to make it very simple, execution makes a difference. And that's where we have -- we are facing some challenges here. So there is no magic trick here. We need to improve execution. So again, I said that I was not really happy with having met the guidance in the last years and semesters and not doing it again next year. I will not answer over the longer cash conversion because what was Alstom 20 years ago is totally different from what Alstom is today. And our plan is to have Alstom very different in the next years from what Alstom has been since the merger in 2021. So we are in this phase, true. And we'll discuss the bridge on free cash flow on the 13th of May when we will have some detailed analysis on what makes the gap to the EUR 1.5 billion that we planned 2.5 years ago. And so we'll make it clear that project execution -- simply project execution makes the difference. Martin Sion: And if I may complete, I mean, the project execution is really concentrated on rolling stock and among rolling stock in the part of the projects, which are -- significant part of the problems are in a part of the projects where we are developing new products, and there are a lot of new products which are being introduced in service. And the end of development, homologation and ramping up production, is a challenge in some sites. The good news is that when we are in serial production, the products are produced efficiently with a good quality and customer satisfaction. So I don't want to give the feeling that it's all the projects on all phases. There are some topics where we should concentrate the effort. James Moore: And Martin, maybe if I could follow up and very nice to meet you, but I noticed a huge improvement in the operational performance in your previous business, Arianespace. And I wondered if you could talk about some of the levers that you use to improve that performance and what you think is relevant for your current role? And from your early exploration of the company, what you identify as topics that could be changed in the way that you perhaps previously changed them in that position? Martin Sion: Yes, I was [ in just 3 ] previous years, CEO of ArianeGroup, which is also a project company with 2 big projects and the one you're mentioning is Ariane 6. And it's clear that one of the levers that we use on Ariane 6 was to really focus all the management in order to secure first as the first flight date and then the production ramp-up. There are levers which are, I would say, usual levers of improvement, which exist in all industrial company. And in a project company, we need to have a strong focus on planning adherence, which is clearly a key even more than in other companies. At the same time, one of the specificity of Alstom compared to Ariane Group is that we've got hundreds of projects. We have an industrial footprint which is very different. We are multi-local. And so it will not be a copy-paste from things we have done before. But I believe that with the people I met in the factories, on the site, we do have the resources in order to improve operational excellence. It will not be something which will be from day 1 to day 2, but there are things that we can start very rapidly. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I got 3 questions as well. My first one is a follow-up to previous question when you answered that the problems are in some rolling stock projects. So I mean, we have heard before that Alstom in a given year is working on hundreds of projects in a year. Can you quantify, are we talking about issues in just a handful of projects? Or is it more widespread across the organization, which means that it might take significantly longer to fix? So that's number one to quantify how many projects out of the total projects that you're working on are really this problem child. The second one is on balance sheet. So when you -- when we look at your cash flow guidance and you're guiding EUR 1.5 billion outflow in first half, when you speak to rating agencies, is your balance sheet strength enough to cope with this first half cash outflow? Or do you think that some action might be required to strengthen the balance sheet? And then the third and final one is on contract assets. When I look at your revenue for last fiscal year as well as guidance, I don't see any haircut on your revenues, which to me doesn't indicate that you are -- you have taken any haircut on contract asset or you are planning to take any haircut on contract asset. And can you confirm if that is really the case? Martin Sion: So what I can say is that there are several projects which are in difficulty, but it's obvious that there are some big projects. And when we are late, then you've got domino effect with significant consequences. But an addition of small projects which are late can have also consequences on the -- for the company. So what we really consider is that we have to improve execution throughout our rolling stock activity, and it's not a topic of solving 1 or 2 or 3 projects. It's more something that we have to address in general and concentrating on the critical phase, which is the ramp-up, which is the headwind that we had this year. By the way, you also know that we have also some projects which are at late stage of execution with low margin, but I think that has been already discussed in the past. Bernard-Pierre Delpit: Yes. Akash, I will take the next one. Yes, I believe the balance sheet is strong and robust enough to deal with the seasonality of H1. Credit metrics are estimated in line with previous fiscal year with solid cash position. The business plan confirms consistency with Baa3 rating expectations. And we are, of course, totally committed on investment-grade rating and further credit metrics improvement. We have an open dialogue with credit agency, but I would not -- and I cannot speak on behalf. But we have an open and transparent dialogue with the agency. And on your last question, contract assets, no indeed, no haircut on contract assets. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I have 2 as well. But I just wanted to actually understand in the last 3 months, since you had reiterated the 7% guidance before, exactly sort of like all of these -- was it just all of these projects coincided on that? Was it a bit of Middle East pause? Or is it pretty -- a very big chunk and with like 100% drop-through lost? How come you -- that everything just came now or you just found it out now and you had to do adjustments maybe to what was going on before just -- because it was fairly shortly that you've actually had reiterated the 7% margin guidance. Bernard-Pierre Delpit: I will take this one, Daniela. It's true that the operational situation was not the same at the end of December, at the end of Q3. And you remember that we said since the very beginning of the year that the ramp-up was back-end loaded and Q4 was key for volumes and for homologation, for project milestones. So it's true that what happened in Q4 has changed our view on the way to address project reviews that are happening, by the way, in February, March and beginning of April. So that's absolutely true. The situation has changed in the last quarter. But in a way, it was expected that the Q4 was kind of a critical time for the full year. Daniela Costa: Got it. And then just thinking about sort of like the margin guidance for next year and what you factored in, is it sort of the whole versus what you had before, just continuing to roll these problems for longer? Or how much have you factored in already from things like the new way the Section 232 is calculated in the U.S. where it seems like final products now get 25% and the USMCA is overwritten and just general inflation? And then how different are you in being able to deal with this general inflation versus what you were able to do like 2, 3 years ago when we had a similar situation? Bernard-Pierre Delpit: Frankly, Daniela, I don't see the inflation topic as totally crucial for the way we assess our margins going forward. I don't know if it's the time now to give you a proper bridge in terms of moving parts from gross margin in '25-'26 to '26-'27. But for sure, we see a strong improvement from last fiscal year to the next one. And on top of that, you have also to consider volumes. You need also to take into consideration some -- maybe some cautiousness in the way we assess next year challenges because as Martin said, we are in the ramp-up phase. We have not been able to be totally successful, the least we can say in Q4 this year. So the ramp-up continues, and it will be on our agenda -- top of the agenda for H1 this year. And that's why, by the way, we have this kind of seasonality. So inflation, I do not see that as a major topic because as [ you ] said before, we are -- we think, well protected. We look at -- very carefully at everything that happens on logistics and commodities. But I do not think that's the main point that we wanted to raise by updating the margin in '25-'26 and '26-'27. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: I have 2 groups of questions. I'll start with first on free cash flow. The guidance is up to EUR 1.5 billion cash outflow in the first half. But at the same time, you -- I understand plan to make some positive EBIT in the first half. So can I ask why this gap between cash flow and earnings just keeps widening. The other one, why swings between first half and second half cash flows are just getting bigger and bigger every year? And maybe finally, on cash flow, which component of trade working capital will be driving a big cash outflow in the first half? Is it contract assets or contract liabilities? Bernard-Pierre Delpit: I will try to answer to your question. So it's true that we have a strong seasonality. EBIT has also kind of seasonality. But let me take a step back. When I try to explain what is missing in the cash with the previous plan, it comes from FX, it comes from CapEx, but it comes also from EBITDA. So from that point of view, I think we have very good consistency with what we were saying on EBIT and margin and what we are seeing in terms of free cash flow. Now to your last question, what we see for the working capital, it has to do first with the seasonality in terms of contract liabilities. I mean we think that the phasing of down payments will be more pronounced with less in H1 and more again in H2. And we also have trade working capital in H1 that would be adverse with some payables increase in H1. So I don't know if you can -- it answers all your questions, but please that, that are the moving parts in the equation of free cash flow next year. Vladimir Sergievskiy: Can I also ask then on the balance sheet? It looks like you could have net debt in excess of EUR 2 billion in September and intra-period potentially even higher. Do you think in principle, this is the right balance sheet for a project business, which carries sizable multibillion prepayments? And also, just to clarify, did you manage to speak to Moody's already on those numbers or this conversation is yet to happen? Bernard-Pierre Delpit: Okay. So I say again what I said. We have an open dialogue with Moody's, but I will not share more on that with you. We speak, of course, with Moody's on regular occasions, so they are aware. And second, on the balance sheet, I keep saying the same for the last 2 years. We need to have a strong balance sheet. I think we need to be net cash considering the size of the backlog and the kind of activity that we have. It's not that different from other integrators with some seasonality in what they do. So I have not changed my mind. We need a strong balance sheet to operate in this business. But looking at it with another angle, our liquidity is ample today, and I do not see that at all as an issue. Operator: The next question comes from Jonathan Mounsey from BNP Paribas. Jonathan Mounsey: Just really thinking back to -- obviously, we had a -- we had to clear the [ decks ] exercise in, I think, 2024 and '25 rights issue, hybrid bond, as I remember it. And on the hybrid bonds, my remembering is that the plan was probably to redeem it at the first opportunity, which I think is like 5 years, isn't it 2029? And from memory, if you don't do that, it's almost 3% margin on top of the going rate. Do you think -- I mean, obviously, we're not going to generate at least EUR 1.5 billion to the end of '27. I don't know what comes after, but the starting point on the margin is only 6.5% now. It should have been somewhere in the 7s, high 7s by the end of '27. It's not going to be so now. So all points to less cash generation. What's going to happen to that hybrid now? I understand you've got liquidity for now, but your liquidity would be greatly reduced if you had to redeem that bond? Or is there a potential here that we're just going to turn it into equity? Bernard-Pierre Delpit: Jonathan, I mean, as you said, [ it's an uncalled 5 that we have -- an uncalled 5.25% ], by the way, that we have issued in May 2024. So that's not a question for the short term. And we have not discussed and we will not discuss free cash flow beyond March '27. So it's not a question for today. And the way we will deal with hybrid is something that we discuss at a later stage. But I take your point, but I don't think it's on the agenda for the coming, I would say, months and quarters. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Bernard-Pierre Delpit: Thank you very much. Just want to reiterate that we were dealing with preliminary figures and preliminary outlook. So we will talk to you next on the 13th of May with our fiscal year results and usual financial communication. Thank you very much. Good evening. Operator: The conference is now over. You may now disconnect.
Operator: Welcome to the Alstom conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Martin Sion: Good evening, everyone. Thank you for joining us tonight at short notice. I'm Martin Sion, Group CEO of Alstom. Joining me is Bernard Delpit, Executive Vice President and Chief Financial Officer. We'll start with a few opening remarks on tonight's announcement, and then we'll open the line for Q&A. First, let me be very clear from the start. This is not the way I was expecting to start my mandate. The financial result on cash generation are not at the level you should expect from a market leader, especially with a EUR 100 billion backlog in a growing industry. After the last 12 months, we delivered strong organic sales growth of 7%, but this did not lead to margin improvement. And in a year of record commercial activity with EUR 28 billion of order intake, free cash flow generation should have been much stronger. Multiple factors are at play here. The production ramp-up of new rolling stock platforms has not been as steep as what we expected in the fourth quarter. On other projects that met challenges early in their life cycle, we've not been able to turn them around as planned. And fair to say that the current situation in the Middle East has been an additional constraint. Taken together, this factor will have knock-on effects on near-term financial performance. Over the last 2 weeks since my arrival, I've been visiting factories in Italy, France and Germany. I've got -- I went into the detail of financial reviews and processes. I met people that are highly committed and highly competent. I met teams on the shop floor. I met engineers, project leaders and obviously, the regional management. But one conclusion is very clear. Our ability to stick to planning is not strong enough. In a project business, sticking to planning is essential. And today, development, industrialization and manufacturing across multiple sites are not always aligned, creating complexity. In some cases, productions move ahead while homologation is still pending. That's why my priority is to drive deep operational changes and improve execution quality. In short, this means tighter day-to-day execution, stronger planning discipline and better coordination across engineering, supply chain and production. We will also start a broader reflections about adopting a more focused product and commercial strategy. Of course, in parallel, we will continue to further improve results in Services and Signaling, where I see more opportunities and we'll continue the work done in recent years to improve the quality and risk profile of the order intake across all product lines. As I'm new in the role, I will also be reviewing the portfolio and industrial footprint. This includes reviewing the industrial transformation plan already in place and assessing where adjustment or acceleration is required. Restoring performance in rolling stock is a major opportunity for the group. It is achievable with discipline. This is a necessary step to execute the backlog and prepare the group for sustainable cash generation and profitable growth. We will keep you informed on our progress, and we will outline our action plan later this fiscal year. And I now hand over to Bernard. Bernard-Pierre Delpit: Thank you, Martin. I will now comment on the preliminary unaudited figures for the fiscal year '25, '26 as well as the preliminary outlook for the next fiscal year. Starting with orders. Alstom recorded EUR 27.6 billion of orders in the fiscal year, representing a book-to-bill of 1.4. The second half saw a higher proportion of services contracts compared to the first half. Overall, order intake was well balanced by product line over the full year with both rolling stock and services at a book-to-bill of 1.4. Turning to operations with a particular focus on car production. The group produced 4,284 cars during the fiscal year, down 2% year-on-year. In the fourth quarter, car production came in below our January expectations as some rolling stock projects are ramping up more slowly than anticipated and homologations have shifted. Moving to sales. Alstom recorded EUR 19.2 billion of sales in the fiscal year, up 4% compared to last year. After adjusting for negative currency and scope effects, organic sales grew by 7%. All production lines contributed to organic growth with the exception of systems, which faced a tough comparison base. Turning to profitability. Adjusted EBIT margin for fiscal year '25-'26 lands at around 6%. At constant currency and scope, adjusted EBIT margin is broadly stable compared to the prior fiscal year. On the one hand, execution of contracts signed over the recent years and tight control over SG&A supported margins. On the other hand, this was more than offset by a slower-than-expected execution on some large rolling stock projects and therefore, with associated costs, all those most visibly in the fourth quarter, but also stronger-than-expected execution headwinds on a limited number of late-stage projects in rolling stock as well as higher R&D expenses, it has a negative impact on adjusted EBIT. Altogether, adjusted EBIT margin is coming lower than last year and to the guidance. Moving to free cash flow. Free cash flow for fiscal year '25-'26 amounted to around EUR 330 million. Despite execution challenge, adverse currency effects and effects of geopolitics on payments related to Middle East contracts, we've achieved free cash flow in the guided range. Contract working capital increase was offset by down payments, reflecting strong commercial momentum and by favorable trade working capital. This is not particularly satisfying having met cash guidance 2 years in a row that we are not reconfirming the cash plan for the next fiscal year. Financial net debt is coming as expected, around EUR 400 million at the end of fiscal year '25-'26. Liquidity is solid with a gross cash position of EUR 2.3 billion at the end of March '26, revolving credit facilities of respectively, EUR 2.5 billion and EUR 1.75 billion and a EUR 2.5 billion commercial paper program. Turning now to the preliminary '26-'27 outlook. Commercial activity should remain strong, and we guide for a book-to-bill ratio above 1. Organic sales growth should be around 5%. We expect the adjusted EBIT margin to return to around 6.5% in fiscal year '26-'27. With R&D expenses expected to increase as a percentage of sales, the improvement will be driven by a rebound in gross margin back to levels seen in fiscal year '23-'24. Gross margin in the backlog now stands at 18%. We expect positive free cash flow for year '26-'27. On the one hand, we expect commercial activity will be robust, driving solid down payments. On the other hand, lower margin than previously anticipated. CapEx to support the growth of services being put forward as well as trade working capital changes will weigh on the cash compared to what we previously planned. This concludes our introduction remarks. Now Martin and I will open the floor to your questions. Operator: [Operator Instructions] The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: I guess the first question is for Mr. Sion. I'm wondering if you had time to go through some of the projects yourself. I mean, if the project review, I guess, is not finalized, but I guess I'm trying to judge whether there will be a second round of adjustments potentially later in the year. So that's question number one. Question number two is around the free cash flow guidance, which apparently you expect to remain positive in the upcoming year, although with a negative free cash flow that is expected to be around EUR 1.5 billion in H1. So I don't really get how you hope to turn it into a positive free cash flow for the year given the pretty slow start. And then lastly, at the end, I mean, do you expect the group's net debt to decrease or increase by the end of the next fiscal year? Martin Sion: Bernard, maybe I take the first one and you take the two other. What did I do in the last two weeks? I shared my time between [Technical Difficulty] regional reviews and product line reviews. We were concentrating on the budget process, which was being achieved. So regions by regions, we had the concatenation of all programs and with an overview of all the challenges and also all the achievements of each program. So I did not do a specific program review for each of the programs, but it was regions by regions and product line by product line. The other half of my time, I was in the different sites in France, Germany, and Italy [ and other ] sites to confront what was assumptions -- operational assumptions, which will be behind the financial figure. If we look at today’'s situation, I acknowledge the situation that this is what I know today. It’s true that we have already identified areas where we can put in place immediate improvement in terms of operational excellence and our priority is to secure execution of the projects to deliver what is mentioned in this guidance. Bernard? Bernard-Pierre Delpit: Yeah. As you said, Gael, we expect a strong seasonality in the next year, both in H1 negative around EUR 1.5 billion, you spotted it well. In H2 with a very positive free cash flow expected. By the way, when you look at the track record of those last years, H2 has been stronger and stronger year-over-year. So yes, I confirm strong H2 expected, bringing the cash flow for the year in positive territories and regarding the debt, I expect it’s going to be stable or a slight increase. Operator: The next question comes from James Moore from Rothschild & Co Redburn. James Moore: I don't know if you can hear me because I couldn't hear your answer to the last question. There seem to be some distortion on the line, but I'll try anyway. I just -- it's a philosophical question really. And if we think about the last 20 years, free cash conversion has been about 50%, 60%. It's been a long-standing topic. And if we take the free cash, including your new guidance for the 7 years since the merger, you're talking about declaring EUR 1.2 billion of free cash, but probably closer to EUR 2.5 billion of free cash burn if we adjust for hybrid and lease payments and minorities. I have to confess to believing with a number of the managerial changes in the last couple of years that you would be able to change the free cash management of the company to deliver an improved outcome, which we now appear not to be able to achieve. I guess the question would be when you look at the last couple of years, Bernard, and you compare it to, say, your main competitor making a high single-digit free cash margin, what is it you think you've come to understand about the challenges of delivering an improved free cash flow? Bernard-Pierre Delpit: James, to make it very simple, execution makes a difference. And that's where we have -- we are facing some challenges here. So there is no magic trick here. We need to improve execution. So again, I said that I was not really happy with having met the guidance in the last years and semesters and not doing it again next year. I will not answer over the longer cash conversion because what was Alstom 20 years ago is totally different from what Alstom is today. And our plan is to have Alstom very different in the next years from what Alstom has been since the merger in 2021. So we are in this phase, true. And we'll discuss the bridge on free cash flow on the 13th of May when we will have some detailed analysis on what makes the gap to the EUR 1.5 billion that we planned 2.5 years ago. And so we'll make it clear that project execution -- simply project execution makes the difference. Martin Sion: And if I may complete, I mean, the project execution is really concentrated on rolling stock and among rolling stock in the part of the projects, which are -- significant part of the problems are in a part of the projects where we are developing new products, and there are a lot of new products which are being introduced in service. And the end of development, homologation and ramping up production, is a challenge in some sites. The good news is that when we are in serial production, the products are produced efficiently with a good quality and customer satisfaction. So I don't want to give the feeling that it's all the projects on all phases. There are some topics where we should concentrate the effort. James Moore: And Martin, maybe if I could follow up and very nice to meet you, but I noticed a huge improvement in the operational performance in your previous business, Arianespace. And I wondered if you could talk about some of the levers that you use to improve that performance and what you think is relevant for your current role? And from your early exploration of the company, what you identify as topics that could be changed in the way that you perhaps previously changed them in that position? Martin Sion: Yes, I was [ in just 3 ] previous years, CEO of ArianeGroup, which is also a project company with 2 big projects and the one you're mentioning is Ariane 6. And it's clear that one of the levers that we use on Ariane 6 was to really focus all the management in order to secure first as the first flight date and then the production ramp-up. There are levers which are, I would say, usual levers of improvement, which exist in all industrial company. And in a project company, we need to have a strong focus on planning adherence, which is clearly a key even more than in other companies. At the same time, one of the specificity of Alstom compared to Ariane Group is that we've got hundreds of projects. We have an industrial footprint which is very different. We are multi-local. And so it will not be a copy-paste from things we have done before. But I believe that with the people I met in the factories, on the site, we do have the resources in order to improve operational excellence. It will not be something which will be from day 1 to day 2, but there are things that we can start very rapidly. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I got 3 questions as well. My first one is a follow-up to previous question when you answered that the problems are in some rolling stock projects. So I mean, we have heard before that Alstom in a given year is working on hundreds of projects in a year. Can you quantify, are we talking about issues in just a handful of projects? Or is it more widespread across the organization, which means that it might take significantly longer to fix? So that's number one to quantify how many projects out of the total projects that you're working on are really this problem child. The second one is on balance sheet. So when you -- when we look at your cash flow guidance and you're guiding EUR 1.5 billion outflow in first half, when you speak to rating agencies, is your balance sheet strength enough to cope with this first half cash outflow? Or do you think that some action might be required to strengthen the balance sheet? And then the third and final one is on contract assets. When I look at your revenue for last fiscal year as well as guidance, I don't see any haircut on your revenues, which to me doesn't indicate that you are -- you have taken any haircut on contract asset or you are planning to take any haircut on contract asset. And can you confirm if that is really the case? Martin Sion: So what I can say is that there are several projects which are in difficulty, but it's obvious that there are some big projects. And when we are late, then you've got domino effect with significant consequences. But an addition of small projects which are late can have also consequences on the -- for the company. So what we really consider is that we have to improve execution throughout our rolling stock activity, and it's not a topic of solving 1 or 2 or 3 projects. It's more something that we have to address in general and concentrating on the critical phase, which is the ramp-up, which is the headwind that we had this year. By the way, you also know that we have also some projects which are at late stage of execution with low margin, but I think that has been already discussed in the past. Bernard-Pierre Delpit: Yes. Akash, I will take the next one. Yes, I believe the balance sheet is strong and robust enough to deal with the seasonality of H1. Credit metrics are estimated in line with previous fiscal year with solid cash position. The business plan confirms consistency with Baa3 rating expectations. And we are, of course, totally committed on investment-grade rating and further credit metrics improvement. We have an open dialogue with credit agency, but I would not -- and I cannot speak on behalf. But we have an open and transparent dialogue with the agency. And on your last question, contract assets, no indeed, no haircut on contract assets. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I have 2 as well. But I just wanted to actually understand in the last 3 months, since you had reiterated the 7% guidance before, exactly sort of like all of these -- was it just all of these projects coincided on that? Was it a bit of Middle East pause? Or is it pretty -- a very big chunk and with like 100% drop-through lost? How come you -- that everything just came now or you just found it out now and you had to do adjustments maybe to what was going on before just -- because it was fairly shortly that you've actually had reiterated the 7% margin guidance. Bernard-Pierre Delpit: I will take this one, Daniela. It's true that the operational situation was not the same at the end of December, at the end of Q3. And you remember that we said since the very beginning of the year that the ramp-up was back-end loaded and Q4 was key for volumes and for homologation, for project milestones. So it's true that what happened in Q4 has changed our view on the way to address project reviews that are happening, by the way, in February, March and beginning of April. So that's absolutely true. The situation has changed in the last quarter. But in a way, it was expected that the Q4 was kind of a critical time for the full year. Daniela Costa: Got it. And then just thinking about sort of like the margin guidance for next year and what you factored in, is it sort of the whole versus what you had before, just continuing to roll these problems for longer? Or how much have you factored in already from things like the new way the Section 232 is calculated in the U.S. where it seems like final products now get 25% and the USMCA is overwritten and just general inflation? And then how different are you in being able to deal with this general inflation versus what you were able to do like 2, 3 years ago when we had a similar situation? Bernard-Pierre Delpit: Frankly, Daniela, I don't see the inflation topic as totally crucial for the way we assess our margins going forward. I don't know if it's the time now to give you a proper bridge in terms of moving parts from gross margin in '25-'26 to '26-'27. But for sure, we see a strong improvement from last fiscal year to the next one. And on top of that, you have also to consider volumes. You need also to take into consideration some -- maybe some cautiousness in the way we assess next year challenges because as Martin said, we are in the ramp-up phase. We have not been able to be totally successful, the least we can say in Q4 this year. So the ramp-up continues, and it will be on our agenda -- top of the agenda for H1 this year. And that's why, by the way, we have this kind of seasonality. So inflation, I do not see that as a major topic because as [ you ] said before, we are -- we think, well protected. We look at -- very carefully at everything that happens on logistics and commodities. But I do not think that's the main point that we wanted to raise by updating the margin in '25-'26 and '26-'27. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: I have 2 groups of questions. I'll start with first on free cash flow. The guidance is up to EUR 1.5 billion cash outflow in the first half. But at the same time, you -- I understand plan to make some positive EBIT in the first half. So can I ask why this gap between cash flow and earnings just keeps widening. The other one, why swings between first half and second half cash flows are just getting bigger and bigger every year? And maybe finally, on cash flow, which component of trade working capital will be driving a big cash outflow in the first half? Is it contract assets or contract liabilities? Bernard-Pierre Delpit: I will try to answer to your question. So it's true that we have a strong seasonality. EBIT has also kind of seasonality. But let me take a step back. When I try to explain what is missing in the cash with the previous plan, it comes from FX, it comes from CapEx, but it comes also from EBITDA. So from that point of view, I think we have very good consistency with what we were saying on EBIT and margin and what we are seeing in terms of free cash flow. Now to your last question, what we see for the working capital, it has to do first with the seasonality in terms of contract liabilities. I mean we think that the phasing of down payments will be more pronounced with less in H1 and more again in H2. And we also have trade working capital in H1 that would be adverse with some payables increase in H1. So I don't know if you can -- it answers all your questions, but please that, that are the moving parts in the equation of free cash flow next year. Vladimir Sergievskiy: Can I also ask then on the balance sheet? It looks like you could have net debt in excess of EUR 2 billion in September and intra-period potentially even higher. Do you think in principle, this is the right balance sheet for a project business, which carries sizable multibillion prepayments? And also, just to clarify, did you manage to speak to Moody's already on those numbers or this conversation is yet to happen? Bernard-Pierre Delpit: Okay. So I say again what I said. We have an open dialogue with Moody's, but I will not share more on that with you. We speak, of course, with Moody's on regular occasions, so they are aware. And second, on the balance sheet, I keep saying the same for the last 2 years. We need to have a strong balance sheet. I think we need to be net cash considering the size of the backlog and the kind of activity that we have. It's not that different from other integrators with some seasonality in what they do. So I have not changed my mind. We need a strong balance sheet to operate in this business. But looking at it with another angle, our liquidity is ample today, and I do not see that at all as an issue. Operator: The next question comes from Jonathan Mounsey from BNP Paribas. Jonathan Mounsey: Just really thinking back to -- obviously, we had a -- we had to clear the [ decks ] exercise in, I think, 2024 and '25 rights issue, hybrid bond, as I remember it. And on the hybrid bonds, my remembering is that the plan was probably to redeem it at the first opportunity, which I think is like 5 years, isn't it 2029? And from memory, if you don't do that, it's almost 3% margin on top of the going rate. Do you think -- I mean, obviously, we're not going to generate at least EUR 1.5 billion to the end of '27. I don't know what comes after, but the starting point on the margin is only 6.5% now. It should have been somewhere in the 7s, high 7s by the end of '27. It's not going to be so now. So all points to less cash generation. What's going to happen to that hybrid now? I understand you've got liquidity for now, but your liquidity would be greatly reduced if you had to redeem that bond? Or is there a potential here that we're just going to turn it into equity? Bernard-Pierre Delpit: Jonathan, I mean, as you said, [ it's an uncalled 5 that we have -- an uncalled 5.25% ], by the way, that we have issued in May 2024. So that's not a question for the short term. And we have not discussed and we will not discuss free cash flow beyond March '27. So it's not a question for today. And the way we will deal with hybrid is something that we discuss at a later stage. But I take your point, but I don't think it's on the agenda for the coming, I would say, months and quarters. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Bernard-Pierre Delpit: Thank you very much. Just want to reiterate that we were dealing with preliminary figures and preliminary outlook. So we will talk to you next on the 13th of May with our fiscal year results and usual financial communication. Thank you very much. Good evening. Operator: The conference is now over. You may now disconnect.
Operator: Good morning and welcome to the Regions Financial Corporation's quarterly earnings call. My name is Chris, and I'll be your operator for today's call. [Operator Instructions] I will now turn the call over to Dana Nolan to begin. Dana Nolan: Thank you, Chris. Welcome to Regions First Quarter 2026 Earnings Call. John and Anil will provide high-level commentary regarding our results. Earnings documents, which include our forward-looking statement disclaimer and non-GAAP reconciliations are available in the Investor Relations section of our website. These disclosures cover our presentation materials, today's prepared remarks and Q&A. I will now turn the call over to John. John Turner: Thank you, Dana, and good morning, everyone. We appreciate you joining our call today. Before we turn to the quarter, I want to take a moment and personally thank Dana for her service and leadership. After nearly 40-year credit regions, she's made the decision to retire. Dana has been a steady and trusted voice for our company and an important link between our leadership team and the investment community. Her deep understanding of our business, fair with her clear and straightforward communication style help strengthen our credibility with investors and are widespread respect across the industry. We're incredibly grateful for Dana's leadership and the standard she's set, and we wish her nothing but the very best going forward. Turning to our financial results. This morning, we reported strong first quarter earnings of $539 million or $0.62 per share. This represents an 11% and 15% increase, respectively, versus adjusted prior year results. Adjusted pretax pre-provision income was $805 million, up 4% year-over-year, and we generated a return on tangible common equity of 18%. The momentum we saw at the end of last year and carried into the first quarter. We grew loans and deposits on both an average and ending basis and our credit metrics continue to improve as we resolve our portfolios of interest. Conversations with customers suggest that despite recent volatility, sentiment remains generally optimistic. Businesses are continuing to manage their balance sheets and income statements prudently with strong liquidity and solid capital positions. On the consumer side, fundamentals remain relatively sound. Aggregate balance and spending trends for Regions customers are stable to mostly positive. The labor markets are not showing signs of material weakness. We are seeing some pressure among lower-income customers but larger income tax refunds compared to last year have helped to offset a portion of that impact. Importantly, our consumer loan portfolio continues to be primarily prime to super prime. We continue to make good progress on our core transformation, including investments in artificial intelligence. We are on track to deploy our commercial lending system and small business digital origination platform this summer and system testing on the core deposit system is also underway. We expect to launch a pilot in the third quarter and begin conversion in 2027. At the same time, we remain focused on near-term drivers of growth. Our strategic growth hiring initiative is on track, and we continue to make targeted investments in products and services across all 3 of our lines of business. There's a lot of internal energy and excitement around our technology enablement initiatives, and we're motivated to continue building on that momentum. I'll just conclude by saying that we're pleased with our first quarter results and are excited about the opportunities that lie ahead. With that, I'll hand it over to Anil to walk through the quarter in more detail. Anil? Anil Chadha: Thank you, John. Let's start with the balance sheet. Ending loans grew 2% while average loans increased approximately 1%. Growth was driven by broad-based C&I lending, including power and utilities, manufacturing, health care and asset-based lending. Roughly half of this quarter's growth came from higher line utilization with the balance driven by new loans, approximately 80% of which were to existing clients. Almost 2/3 of the growth was investment-grade credits with the majority of the remaining growth near investment grade for very high quality. While the macroeconomic outlook remains volatile, we experienced strong loan growth in the latter half of the quarter. As John noted earlier, client sentiment remains broadly positive. Loan pipelines and commitments remain strong, and overall lending activity remains at a good pace. An area that has not been a meaningful growth driver over the past year is NDFI-related lending. These lines reflect long-standing client relationships with predominantly investment-grade credits with nearly half of balances associated with our long-standing REIT business. Private credit exposure remains limited, less than 2% of total loans largely investment-grade, well enhanced and existing client paydowns exceeded draws during the quarter. With respect to our full year growth expectations, we continue to expect full year average loans to be up low single digits versus 2025. Turning to deposits. Average balances increased modestly, while ending balances increased approximately 1%, reflecting normal seasonal patterns associated with tax refunds and payments. Balances grew while total deposit costs continued to decline, supported by our strong deposit franchise and focus on customer acquisition and retention. Through deliberate product management, we continue to see a shift from CDs into money market accounts across both our consumer and wealth businesses with growth in the combined balances. Our noninterest-bearing deposit mix remained in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base. As a result, we continue to expect 2026 average deposits to be up low single digits versus the prior year. Let's shift to net interest income. As expected, net interest income was lower linked quarter, driven primarily by 2 fewer days in the quarter and the absence of nonrecurring items that benefited the fourth quarter. The net interest margin of 3.67% continues to evidence region's profitability advantage. That said, margin came in below expectations for the quarter, reflecting tighter asset spreads as a result of market conditions paydowns of higher-yielding loans and remixing into higher quality credits. The core balance sheet performed well during the quarter and provides a solid foundation for net interest income growth over the remainder of the year. Our neutral interest rate positioning once again performed as designed in the quarter with minimal impact to net interest income from the Fed's fourth quarter interest rate cuts. During the first quarter, interest-bearing deposit cost declined 13 basis points. The following cycle interest-bearing deposit beta stands at 35%, and we remain confident in the mid-30s beta with the potential to outperform over time. Net interest income also continued to benefit from fixed rate asset turnover with elevated long-term rates supporting pricing on term loans and securities. At current rate levels, we would expect balance sheet repricing to support margin expansion over multiple years. Finally, recent loan growth acceleration positions us well for future interest income growth. Subsequent to quarter end, higher interest rates created an opportunity to sell approximately $900 million of shorter duration of securities that no longer support our balance sheet management objectives at a $40 million loss, repositioning those into longer-duration product types. The transaction is also well aligned with our overall capital deployment priorities, carrying a short approximately 2-year payback period and enhancing overall securities yields. In the second quarter, we expect a strong rebound with approximately 2% net interest income growth, followed by additional expansion in subsequent quarters. Fixed rate asset turnover, seasonal average deposit inflows accelerating loan growth and continued discipline and funding costs will drive net interest income growth and a stable Fed funds environment. For full year 2026, we reiterate our net interest income expectation of between 2.5% and 4% growth and for the net interest margin to exit the year at low [ 3.70s ]. Now let's turn to fee revenue performance for the quarter. Adjusted noninterest revenue declined 2% on a linked-quarter basis as seasonally lower card and ATMs and a decline in other noninterest income were partially offset by higher capital markets revenue. Capital markets income increased 5% during the quarter, driven by improvements in commercial swap, loan syndication and securities underwriting activity partially offset by lower real estate capital markets and M&A fees. Despite ongoing headwinds associated with market volatility and elevated interest rates, we continue to expect Capital Markets quarterly revenue to increase within our $90 million to $105 million range, trending near the lower end of the range in the second quarter and moving higher thereafter. Wealth Management remains a good story for us, supported primarily by continued sales momentum with revenue up 9% year-over-year, and we expect this business to continue to be a steady contributor to fee revenue growth. Card and ATM fees declined 5% from the prior quarter reflecting typical seasonal patterns. We expect this line item to draw normal patterns peaking next quarter and moderating throughout the second half of the year. Other noninterest income declined 29%, driven primarily by commercial lease sales activity with $6 million of gains recognized in the fourth quarter and $7 million of losses recognized in the current quarter. Service charges remained stable during the quarter as record treasury management fees offset seasonally lower consumer revenue. Overall, treasury management grew 6% on a linked-quarter basis, including strong growth in core payments revenue. We continue to invest in talent and innovation within the treasury management space with a focus on embedded payments and digital client experiences. We expect this business to remain a source of growth within overall service charges. For full year 2026, we continue to expect adjusted noninterest income to grow between 3% and 5% versus 2025. Let's move on to noninterest expense. While we continue to make meaningful investments across the franchise to support long-term growth, we remain focused on maintaining a disciplined approach to expense management. Adjusted noninterest expense declined 4% linked quarter reflecting broad-based improvement across most expense categories. Salaries and benefits remained relatively stable as lower incentives and declines in market value adjustments for employee benefits liabilities offset the seasonal increases associated with payroll taxes, 401(k) match and merit. For full year 2026, we expect adjusted noninterest expense to be up between 1.5% and 3.5%, and we expect to deliver full year adjusted positive operating leverage. Annualized net charge-offs as a percentage of average loans decreased 5 basis points to 54 basis points, reflecting continued progress on resolutions within previously identified portfolios of interest, which we reserved for in prior periods. Business services criticized and total nonperforming loans remained relatively stable during the quarter as risk rating upgrades continue to outpace downgrades. The resulting NPL ratio declined 2 basis points to 71 basis points, and the business services criticized ratio declined 16 basis points to 5.15%. Allowance increases tied to loan growth and greater macroeconomic uncertainty were more than offset by meaningful progress in resolving loans within previously identified portfolios of interest sustained risk-rating upgrades, exceeding downgrades and continued improvement in the business services criticized and total nonperforming loan ratios. As a result, the allowance for credit losses declined $39 million. Strengthening asset quality across portfolios, combined with high-quality loan growth drove an 8 basis point reduction in the allowance ratio to 1.68%, while coverage of nonperforming loans remained solid at 238%. We expect full year 2026 net charge-offs to be between 40 and 50 basis points. Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.7% while executing $401 million in share repurchases and paying $227 million in common dividends. We are encouraged by the proposed changes to the regulatory capital framework, which will revise the definition of capital to include AOCI and implement broad updates to risk-weighted assets calculations under the standardized approach. Including AOCI reduces our reported CET1 ratio to an estimated 9.4%. However, based on our preliminary assessment, the proposed changes are also expected to result in an estimated 10% reduction in risk-weighted assets, contributing to an approximate 100 basis point increase in capital. Taken together, the proposed changes are expected to result in a fully implemented Basel III common equity Tier 1 ratio of approximately 10.4% on a pro forma basis. Importantly, our capital priorities remain unchanged. Once finalized, we expect to continue managing our fully implemented Basel III co-equity Tier 1 ratio around the midpoint of our established 9.25% to 9.75% operating range. Finally, liquidity remains stable and robust with ample capacity to support future growth. As John indicated, we are pleased with our quarterly performance, particularly given the evolving market dynamics and believe we remain well positioned to continue delivering consistent, sustainable, long-term performance for our shareholders. This covers our prepared remarks. We will now move to the Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from the line of Ryan Nash with Goldman Sachs. Ryan Nash: It was good to see that you reiterated the guidance across the board despite a slightly softer start. So I wanted to focus on revenues, whether it's NII or fees, given 1Q along with some of the 2Q commentary, maybe just give us a sense of how you're tracking relative to your ranges and what is your confidence in terms of reaching the middle or the upper part of the NII range? And what do we need to see that happen? I have a follow-up. Anil Chadha: So first of all, we're very confident in hitting the ranges. Let me start with net interest income. So I think importantly, exiting the quarter with the strong loan growth that we saw $2.3 billion point-to-point is really a great tailwind for us heading into the second quarter, our deposit performance. The growth that we saw during the quarter was also really strong. our ability to continue to bring down deposit costs. We exit the quarter on interest-bearing deposit costs of 1.69%. That's another good tailwind for us. And as we've talked about before, we still have fixed asset turnover that will benefit us over the course the remainder of the year. So all of those things coming together is really what gives us the confidence in terms of what we expect to see for NII, both in the second quarter and going forward through the year. And I'd say loan trends are still look good. So we're confident in what we're seeing will continue to persist. With respect to noninterest revenue, a couple of things there. So first, cyclically, the first quarter is typically low for some of the consumer fee items, consumer service charges, card and ATM fees tend to be lower in the first quarter. We expect that to rebound in the second quarter. So that will be a nice tailwind. We've talked about capital markets and gave our guide for the second quarter and for the rest of the year. And then treasury management wealth just continue to be good growth stories for us. We continue to expect to see growth there. It's great to see another record quarter on treasury management. Wealth Management, up 9% year-over-year. So -- so all these things are really pulling in the right direction. And so what we're seeing right now really gives us confidence that we'll operate within the range that we've given. Ryan Nash: And then I have a follow-up and a comment. First for my follow-up. You noted that you still expect to manage to the midpoint of your range on capital, but I think you noted that it creates meaningful flexibility. So just given the coming changes, maybe just talk about the potential to manage the low end or even below given that these changes are coming and maybe expand on the flexibility comment? What else do we see for leveraging the capital? That's my question. And then my comment Dana, I just want to say thank you for all the help over the years and enjoyed taking care of your grandchild and doing some traveling. Dana Nolan: Thank you, Ryan. Anil Chadha: Yes. Great question, Ryan. So we don't want to get too far ahead of the proposed rule. So as we indicated, based on the proposal when you include AOCI and then the expected benefit in risk-weighted assets, we expect to be around 10.4%. The timing of each component, the phase-in schedule things of that nature will matter a lot. And so we're not going to get -- we're not going to get ahead of that. We're going to continue to manage capital the way you've seen us. Our capital distribution priorities are unchanged. We'll monitor these proposals and once finalized, it will be our plan to continue to manage capital within that range. That is unchanged. But we don't want to get too far ahead of this. We're fortunate we generate enough capital to do everything we want today to grow the business. And so we don't have to distribute capital ahead of this. We'll take our time. But when we get final rules, our distribution priorities are unchanged, and we still believe our targets are where we should be. Operator: Our next question comes from the line of Scott Siefers with Piper Sandler. Robert Siefers: Maybe, Anil, I was hoping you could sort of address a little -- in a little more detail the moving parts in the margin outlook for the remainder of the year. I think you touched on combination of the tighter asset spreads and loan remixing as factors in the first quarter. Maybe just going forward, how much will those need to find relief? Or is there simply enough balance sheet repricing opportunity going forward that you can absorb continued pressure from those dynamics that hit the first quarter but still see both the margin and NII? Anil Chadha: Sure. So first of all, managing deposit cost is still the primary mechanism that we have to continue to meet our margin objectives for the year. As already alluded to where we exited the quarter from an interest-bearing deposit cost. So the opportunity there is still going to be a meaningful driver in terms of where we go over the balance of the year talked about the fixed asset repricing opportunities that we have, about $9 billion looking forward. So that will be helpful. We did see, as we alluded to, some investment-grade credit draws late in the quarter, we like that credit. It's lower credit risk, great returns. We also saw a good kind of middle market growth throughout the first part of the quarter. So we expect to see that over the course of the year, and that's going to benefit the margin as well as we look forward. So deposit growth that's going to continue to grow. I already mentioned, we had good growth this quarter. We're going to see seasonal uptick in the second quarter. So all those factors coming together really going to be positive in terms of where our margin goes from here over the course of the year. Robert Siefers: Terrific. Okay. And then, John, your commentary on customer sentiment sounded pretty good. And I think, Anil, you mentioned that about half the first quarter loan growth came from higher line utilization. Maybe where are utilization rates versus, say, 90 days ago, where would you hope to see those advanced to as the year unfolds? John Turner: Yes. So utilization rates are up about 200 basis points, I guess, across both the corporate banking markets or customer base and our middle market customers. And we'd expect to see a little more activity as the year goes along, it is based upon the constructive feedback we're getting from customers. I will say that we observe liquidity -- customer liquidity is up, at least in -- at Regions by about 7% year-over-year. So customers are still creating additional liquidity. At the same time, we are seeing borrowing activity, which is positive. Robert Siefers: And then just final, Dana, same thing, thanks for all the help. Best wishes. Dana Nolan: Thank you. Operator: Our next question comes from the line of John Pancari with Evercore. John Pancari: On the deposit backdrop. I know you had indicated some pretty good deposit dynamics. So I wonder if you can elaborate on the competitive backdrop that you're seeing in the Southeast. You've had a number of banks flag seemingly intensifying competitive pressures on the deposit front from not only some incumbents, but some newer entrants to the market. So what are you seeing in terms of deposit pricing dynamics, has that been impacting your expectation at all underlying the margin? Anil Chadha: Sure, John. Yes. So we've been in a highly competitive deposit backdrop, I'd say, for north of a year. The one thing I'd say that's been consistent is we are seeing banks and we are as well, offering promotional offers in certain key markets where everyone is looking to grow customers. What I'll also say is banks are also being prudent in terms of how they think about the back book of their deposit base to manage that in the context of their overall deposit cost. And so the strategies are very similar to what we've seen over the past year. We've adopted an approach that we think appropriate, where we can continue to grow new customers, especially in these high-growth markets. but also take advantage of our back book to price that in a way that's able to manage our deposit cost where we think it should be over time. We're seeing the same thing within our customer base -- sorry, amongst our peers. And so we think that dynamic will continue to hold as loans continue to grow, I'm optimistic in terms of what we're seeing in the capital markets, the debt capital markets where banks are accessing liquidity there. And so from what I see now, the way banks are managing their deposit base and other funding sources, I think, will continue as we all have opportunities to grow loans from here. John Pancari: Great. All right. And then on the margin, I know you cited the pressure from tighter asset spreads. If you can give us a little more color there on where spreads stand, what loan types are you seeing that compression? Is that competitive pressures? And you also mentioned the paydown of some higher-yielding loans. So if you can just give us a little more color on that? And is there any incremental actions you expect on the portfolio reshaping? Anil Chadha: Yes, really on the tighter spreads, it's primarily in larger C&I where we saw line utilization late in the quarter. That's a primary area. We also saw just earlier in the quarter broadly across the balance sheet in terms of tighter mortgage spreads for some of the actions the government is taking as well as retail [indiscernible] that we saw earlier in the first quarter. But primarily where we're seeing the tighter spreads is in IG within the C&I space. John Pancari: Got it. Okay. And then the portfolio reshaping efforts, anything incremental that you expect on that front? Anil Chadha: I think all that's proceeding just as planned. And as we alluded to last quarter, a lot of that is behind us. And so we're -- we'll continue going down that path as we have. John Pancari: Best of luck Dana on retirement. . Dana Nolan: Thank you, John. Operator: Our next question comes from the line of Manan Gosalia with Morgan Stanley. Manan Gosalia: You spoke about line draws. I mean it sounds like it's a good fundamental demand coming through. Just wanted to see if you've seen any defensive line draws any reason that utilization rates may flatten or even decline from here? Anil Chadha: Yes. The line draws that we saw were predominantly late in the quarter when there is volatility in the capital markets. So that's really where we saw most of that come in. I wouldn't call it defensive in nature. I would just say given where the [ counter ] markets were, as we saw uncertainty in the market, customers drew on bank lines. So I'd expect that to abate through time as capital markets reopen, but nothing defensive in terms of what we're seeing. . Manan Gosalia: Got it. And then maybe on the capital markets side, I guess your expecting that trend to the lower end given volatility in rates. Most of your comments in the environment have been fairly constructive. So I guess what market conditions would move you back towards $100 million-plus range on capital markets revenues? John Turner: Well, the primary business that's impacted is our real estate capital markets business, and it's been soft now for 4 or 5 quarters based on just the rate environment. So as rates -- longer-term rates come down, we would see, we believe, a benefit in the real estate capital markets business, which would be important. And that would more than offset any impacts on other parts of the business. . Manan Gosalia: And Dana, all the very best. Dana Nolan: Thank you, Manan. Operator: Our next question comes from the line of Gerard Cassidy with RBC. Gerard Cassidy: And Anil, in talking about the loan loss reserve, I think you pointed out that the increases were tied to loan growth, but also the macro uncertainty out there. If the conflict in the Middle East takes decided to turn for the better. The straits opened up today as you probably saw the headlines. What would that do for the second or third quarter allowance does that start to reduce the loans as that macro risk drops meaningfully and kind of surprises all of us that it's maybe going to be resolved sooner than expected? Anil Chadha: Yes. And if you look on the waterfall that we included in the appendix, we attributed about $17 million of growth quarter-over-quarter to macro uncertainty. That's primarily what we're seeing in the Middle East. So to the extent that gets resolved and the other kind of second order effects resolve in a positive to neutral way, we could see a modest release in the allowance of that. I wouldn't say it's overly material, but we did feel appropriate to put up a little bit in terms of macroeconomic uncertainty, but that's the part of the allowance that I'd point you to. Gerard Cassidy: Very good. And then to follow up on the commercial loan conversation, that you guys have presented, you're not really big NDFI lenders as a regional bank, you're down at the bottom of kind of the group, which lowers the risk, of course. But what -- I guess, why haven't you maybe pursue it as aggressively as some of your peers in terms of the different categories of NDFI lending. What do you guys see there that makes you maybe a little more cautious? John Turner: Well, I think we just generally are more cautious, Gerard. And as we think about our lending activities, they're principally based on relationships that are established within our footprint. We have some businesses where we have specialized capabilities, and we actually do lend out of footprint. This would be an area where we're getting our feet wet, learning a little more about it. Today, we have relationships with about 20 -- just in excess of '25 funds, and those funds are fairly broadly distributed in terms of the businesses, the sectors that they're lending into total exposure, I think just above $3 billion to those funds within private credit, about $1.8 billion. So we're just in exposure, I mean, in outstandings. I think we're just trying to learn to understand can we build relationships, can we gain deposits? Can we participate in capital markets activity? Because that's fundamental to how we want to operate our business. We can't do that, then it's just not an appropriate allocation to capital for us. Gerard Cassidy: And Dana, hopefully, you have tons of fun in retirement. Dana Nolan: Thank you, Gerard. Operator: Our next question comes from the line of Ken Usdin with Autonomous Research. Kenneth Usdin: It was good to hear about -- sorry, let me start it again. First quarter credit quality was exactly as expected, taking care of that already expected stuff and then your outlook for the year looks good and there was good stability in the NPAs and some of the other metrics. So just are you kind of through that piece of taking care of some of that legacy stuff? And just your general line of sight on some of those other portfolios that you've mentioned in the past. John Turner: Yes. I would say, Ken, we previously identified office, multifamily, transportation and communications as portfolios where we have some credits we're working through, working out. We have generally seen most of that activity has been completed, but we still have a few credits of some size that we're working on. And so while we are indicating that we expect charge-offs over the course of the year to be between 40 and 50 basis points of the timing of which we get back within that range is still not entirely clear, but we think credit quality is continuing to improve, as indicated, reflected in our metrics. Nonperforming loans down to 71 basis points, criticized loans continuing to decline charge-offs should follow as their trailing indicator of improving credit quality. Anil Chadha: And I'll just add, as all that happens, our 1.68% allowance ratio should approximate down to the 1.62% that we disclose or kind of day 1 that assumes we resolve the credits that John mentioned, and that assumes that the macroeconomic uncertainty gets resolved in a positive way. The timing of which that happens, we'll see. That's where we think we'll end up based on the composition of our loan portfolio. Kenneth Usdin: Understood. Okay. And then just second thing on -- Anil, you're starting right off of the back following David, on the hedging and securities portfolio repositioning activity. Is that at all any adjustment to that higher for longer? Or is that -- is this more just kind of a normal course of moving some stuff further out to later time periods? I'm just wondering if it's just like normal course or if any adjustments you're making because the environment? Anil Chadha: No, it's just normal course as security shorten. They don't accomplish our balance sheet management objectives as they once did. And so we'll extend duration on the new securities that we purchase. So just an extension of what you've seen us do before. Operator: Our next question comes from the line of Matt O'Connor with Deutsche Bank. Matthew O'Connor: I just wanted to follow up on the fees. I guess some of these categories, if you look year-over-year, the growth was a little bit less than I would have thought like the consumer service charges flat operate up a little bit, hard flat? And maybe just talk about kind of some of those dynamics, and I know you gave some guidance for card in 2Q, but just kind of thinking about those categories maybe more medium term. Anil Chadha: Yes. So I'd say in terms of medium-term guidance, they are cyclically lower in the first quarter. They tend to peak in the second quarter and then kind of hold flat from there. From a year-over-year comparison standpoint, we do have some kind of one-off items, if you just look quarter-over-quarter, in particular, in terms of how we treated certain expenses associated with some of those programs. So there are some onetime changes if you just look year-over-year, would mute the growth. But in terms of past from here, we expect to peak next quarter at hold at that level throughout the rest of the year. Matthew O'Connor: And that will be for the card and ATM fees, right, to the... Anil Chadha: And the consumer service charges portion. Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess first question, just around looking to your sort of messaging on the drawdowns towards the end of the quarter due to market, does that create a risk of payoffs? And I'm just wondering if some of the macro subsides markets are less volatile, do you see customers paying off and that credit then moves off balance sheet? And secondly, as we think about just capital markets, obviously, it's a more real estate bias. In your case, without getting any rate cuts for the year, do you think just CRE lending, real estate capital markets can still have a good year? John Turner: So maybe I'll answer the second question first. Yes, we continue to lean into that opportunity. We have actually a fairly significant portion of our portfolio is maturing towards the back end of the year. There will be some opportunities within that portfolio to help customers with permanent placement of those obligations. Additionally, we see other opportunities with customers who have debt and other places that will need to refinance. So I think the real estate capital markets business can still have a good year even if we don't get a lot of improvement in rate, but if we do, it gets materially better, we think. With respect to line utilization, about half of the increase in line utilization was attributable to our larger corporate customers. The other half to our market customers, who are continuing to invest in their businesses and grow. And while there is some risk that we'll see some paydowns amongst those larger corporate customers, we expect the middle market customers, again, to continue to borrow as they invest in their businesses. Pipelines are up for the year fairly significantly. And so we also expect new originations to overcome any paydowns that we might experience in the corporate space. So all in all, we feel still really good about our ability to deliver the loan growth that we've guided to. Ebrahim Poonawala: Got it. And then just maybe, Anil, for you or both of you and we think about the declining RWA density on the back of the capital proposals, how sensitive are you to managing to a certain level of tangible common equity ratio. Just any thoughts there? Anil Chadha: Yes. I wouldn't say that we're managing to a tangible common equity ratio. I'd say what we're thinking about really is, one, across all the changes that are being proposed, hey, we think they're positive. We'll continue to manage to a total CET1 ratio within that 9.25% to 9.75% range. We think it's appropriate. We'll manage through that through time as we get finalization of the rules, with respect to the proposed RWA changes themselves. We have to think about not just the regulatory implications, but other constituents as well and how they think about RWA and the capital that's needed on our balance sheet. Again, we think all of this is positive to what we can do to capital through time. But our caution will be one tied to finalization of the rules and two, just to make sure that we understand where each of the other constituents land as well when it comes to these proposed changes. Ebrahim Poonawala: Got it. And Dana, all the best, and I'm sure we'll stay in touch. Take care. Dana Nolan: Appreciate it. Thank you. Operator: Our next question comes from the line of Dave Rochester with Cantor Fitzgerald. David Rochester: Just want to go back to the credit discussion. I'm trying to figure out how you're thinking about the trajectory of the problem loan buckets from here. Just given all the work that you've already done, are you expecting to see more meaningful moves lower in NPAs and criticized assets as we get to the back half of the year? And then if you could just update us on your progress in the transportation book, that would be great. John Turner: Yes. We should see -- continue to see some improvement in credit quality and NPAs could come down a little further. I would say if you look back over time, NPAs have averaged closer to 1%, I think. And so I wouldn't expect them to come down too much further than 71 basis points. Maybe we get into the 60s, but I don't see a lot of movement beyond that. But I would tell you that we think credit is pretty well normalized in our book given the composition of our portfolio today, and we feel good about our ability to deliver on the 40 to 50 basis points of charge-offs as we indicated. With respect to transportation, we're still working through a couple of credits there. But generally speaking, I think we have identified and resolved most of the exposure. We provided some slides in the deck. I can't recall which slide it is exactly on transportation, 24, give you a little insight into our exposure there. And think of what you'd see is, one, we've had a fairly significant reduction in the size of the outstandings or commitments representing about 1.2% of total loans. NPLs have come down to about $51 million. And again, just look at our reserve against that portfolio, we think it's appropriately reserved for any losses that we might experience. David Rochester: So you're in the latter innings on that one [indiscernible]? John Turner: Yes, we are. David Rochester: Great. And then just back on the securities repositioning you did, just given today's rates, is there any more you could do there? Anything that's left on the table that you could potentially source at some point in the future? Anil Chadha: Yes, I'd say it's small. There's not much right now. What we'll continue to look at as securities as they get closer to maturity, that creates an opportunity, but we'll need to see where rates are to see if it makes sense to do. As you've seen from us in the past, we're very mindful of thinking about it through returns, payback period, really strong payback period on this trade we did 2 years. So we're disciplined when it comes to using capital in this way. David Rochester: Anil, welcome. And Dana, it's been great working with you. Good luck and enjoy. Anil Chadha: Thanks. Operator: Our next question comes from the line of Erika Najarian with UBS. L. Erika Penala: Anil, just a two-parter for you on CET1 first. Given your risk profile, what was the consideration? Or what are your considerations in terms of RSA, which you showed us versus ERBA? And you mentioned other constituents. A few of your peers have talked about the ratings agencies and perhaps because of the benefit to RWA, particularly for the regional banks that there might be a tendency for the rating agencies to look at unrisk-weighted assets. or sort of unrisk weighted capital measures. And so just wanted your comments on those 2 topics. Anil Chadha: Sure. So you really hit the second point. That is the other constituency that we need to be mindful of. And as you alluded to, some use direct regulatory risk-weighted assets and their approach. So we will need to see how they think about this. And we'll clearly work with them to share our thoughts on that, but you really hit the second piece there. On the first piece, just to walk you through our preliminary view of the 2 approaches. And so we communicated our 100 basis point expected impact under the standardized approach. We've looked at the ERBA approach. In particular, as you know, the 2 primary benefits that we would get through that approach are the incremental benefit of risk weights on investment-grade credits that we've talked about today. So that's meaningful. And then also other retail exposures where you could get an incremental lift in terms of risk-weighted assets. The counter to that for us is the operational loss add-on. And so our current oculation of that for us actually overwhelms the benefits from the other two. It's something we have to continually assess. We're fortunate that as proposed, you kind of have an evergreen option to opt in, which is beneficial. But for us right now, the operational loss component overwhelms the benefits, in particular, from investment-grade credits and retail exposures as currently proposed. L. Erika Penala: Got it. And just -- and Tom will follow up with you a little bit on capital during our catch-up call. But the second question I want to pose is, maybe just directly asking you mentioned that deposit costs are a big factor in terms of your net interest income outlook. And again, you must be very flat or that a lot of your peers, both money center and regional are coming into the markets that you've long dominated if the Fed doesn't cut, what is sort of the trajectory for deposit costs at regions? In other words, are you -- will you be able to keep deposit costs flat if the Fed isn't cutting this year? Anil Chadha: Yes. We will. And we think -- I talked about the 1.69% exit rate. We think that will continue into the second quarter, and it will decline modestly. Total deposit costs will decline modestly from there. Again, we think the competitive pressures banks are kind of performing as we'd expect in terms of how they're managing deposit costs, and we expect that to continue into the future. Operator: Our next question comes from the line of Chris McGratty with KBW. Christopher McGratty: Intra-quarter, you talked about living in the 16 -- the high end of the 16% to 18% return on tangible common equity range for the next 3 years. You were slightly above that next -- last year. I think the Street's got you a little bit over 18%. Is the outlook that those comments were made now that we have some clarity on regulatory how much does the numerator versus denominator play in maintaining that level of profitability? Anil Chadha: Yes. So looking forward, there's a couple of things to think about. One is with let's talk about the proposed capital changes first. If those go in as proposed and if the other constituents don't meaningfully impact how we think about capital, that in and of itself is a tailwind to returns to the extent we reduce the buyback shares from that. so that would prop up returns overall. But look, our -- the reason we frame up our guide of 16% to 18% is really because, as we've said before, we need to be top quartile when it comes to overall returns. We don't need to be #1. We need to make sure we make all the right investments into our business. And we believe that we can continue to do that. We do it this quarter in terms of the growth that we saw. But when we do that, we're going to continue to grow income and so returns will be increased from that as well. But the point of us making that statement is we want to reiterate that we are well positioned to grow we do not feel like we have to be #1 in our peer group. We're committed to invest capital as long as we get a good return out of it. But that's really why we positioned it the way we have. We'll continue to monitor the peer landscape Back to my earlier point, everyone is going to benefit to some degree from these capital proposals. Others are taking actions where they think they may be able to raise returns. And so we'll continue to reassess what the right levels are for us through time, but our goal is to remain top quartile amongst our peer set. Christopher McGratty: That's great color. And my follow-up would be just more capital beyond buybacks. You've been clear about inorganic not being a focus today. I guess, maybe remind us where you are with some of the projects internally. As you fast forward to the back half of the year, is that something where you may have to consider to be more flexible with inorganic growth if the right opportunity came about? John Turner: We'll deliver the loan system conversion. The end of May, we've got a fairly significant improvement in our digital offering to particularly small businesses that delivered over the course of the summer and then begin piloting our deposit conversion in the third quarter. And that project continues to progress on track. We feel really good about it. And so that will position us, we believe, to do a number of things, focusing on how do we continue to improve our business improve the customer and banker experience once we get that work done. So those are important areas of focus for us. In terms of what it means for inorganic growth, we're going to stay focused on executing our plan. We believe our plan will allow us to deliver top quartile results for our shareholders, consistent with the same good execution that we've experienced over the last 5, 6, 7 years, and we'll -- that will be our focus going forward. Operator: Final question comes from the line of David Chiaverini with Jefferies. David Chiaverini: Follow-up on deposit costs. There's been some discussion about how cash optimization by customers in an AI world, could pressure deposits at banks that have a lower cost of deposits relative to peers. Can you talk about your view on this and how Regions plans to protect its market share? Anil Chadha: Sure. No, it's a great question. And what could happen from AI is kind of proliferating several parts of the economy. When we think about the impact on deposits, we kind of start with the nature of our customer base. So our customer base average deposit is about $5,200. And when we think about the ability for customers to move money around what our customers are really using their account for is for ease of payments. And so we have to stay focused on making sure we're providing them the most efficient way to make payments across their daily lives, a much lower percentage of our customer base is really yield seeking. And so that, in my opinion, will be the first place where you will see the use of AI allow people to move funds around. I'd also say it's pretty easy to move funds around today. I mean it doesn't take too much effort to move cash in and out of accounts to get a higher yield. I'm sure AI can do it marginally quicker, but I'll just say, I think today, it's pretty efficient as well. So I think it's something that could play out. I think it will play out more severely for those customers that have larger balances seeking yield. We see them do it today. But as of right now for our customers, we need to make sure we're giving them all the payment capabilities they need to be done efficiently. And we'll continue to monitor this space, but that's kind of how we're thinking about it right now. David Chiaverini: Very helpful. And then shifting over to the hiring pipeline, how does that look given the M&A that's occurring in your footprint? John Turner: It's good. It's good. We have hiring plans in our commercial banking business, in our wealth banking business, in our branches. And we're moving along having accomplished more than 2/3 of the hiring that we hope to do as part of our plans, part of our 3-year plan. And so we feel really good about the quality of the bankers that we're hiring and the opportunities that we have associated with that. It takes a little while for those bankers to begin to generate new business once they get settled in. So we'd expect to see the impact of some of that hiring in the latter part of this year and into 2027, which is again another tailwind for growth, we believe. Anil Chadha: Yes. I'd just say even for our existing banker population, our platform is really delivering them the opportunity to grow their business. We're seeing a really nice decline year-over-year in attrition, even amongst our existing bankers. And so for us, we view that as a great lot of confidence that they have the platform they want to be able to deliver to their customers. David Chiaverini: All the best, Dana. Dana Nolan: Thank you. John Turner: Okay. Thank you very much. Well, I appreciate everybody's participation. And once again, congratulations to Dana. We appreciate her leadership, commitment, connectivity with all of you in the investment community. We will miss her, but we're confident Tom is going to do a great job. So thank you, and have a great weekend. Operator: This concludes today's teleconference. You may disconnect your lines at this time.
Operator: Good day, and welcome to the FNB First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Lisa Hajdu, Manager of Investor Relations. Please go ahead. Lisa Hajdu: Good morning, and welcome to our earnings call. This conference call of FNB Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. A Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Friday, April 24, and the webcast link will be posted to the -- About Us, Investor Relations section of our corporate website. I will now turn the call over to Vince Delie. Chairman, President and CEO. Vincent J. Delie: Thank you, and welcome to our first quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer. FNB produced a solid quarter with net income of $137 million. EPS increased 19% over the first quarter of 2025 to $0.38 a Pre-provision net revenue increased 17% from the year ago quarter as we generated positive operating leverage of 4.9%. Our capital ratios remained strong and continue to move favorably, all while producing a strong return on average tangible common equity of 13.2%. Tangible book value per share of $12.06 represents an 11% increase from the year ago quarter. Since 2009, we expands the tenure of our leadership team's management of the bank and holding company. We have focused on a disciplined and strategic approach to developing and executing our long-term growth plan. Our actions have resulted in the company's robust capital accumulation sustainable, superior financial performance, investments and a resilient risk management framework and a strong balance sheet. Over time, we have grown our capital to record levels and effectively manage the dividend payout ratio from nearly 80% down to 31%, in line with our peers. During that time period, we also grew the balance sheet 477% and with an organic compounded annual growth rate of 8%. We invested in our enterprise risk management framework, built out our advisory and capital markets businesses to diversify our revenue streams and established FMB as an industry innovator with an award-winning digital and data analytics capability, including the eStore. These significant investments occurred over time while maintaining an industry-leading efficiency ratio in the low to mid-50% range. I can't emphasize enough the hard work and superior execution by our team. to get to where we are today. These efforts have produced sustained levels of increased profitability, significant returns and strong capital generation. This strategy was fully aligned with shareholders' interests. We recently announced an 8% increase to our quarterly cash dividend to $0.13 per share, starting with the dividend to be paid in June. Our Board of Directors also unanimously approved our management's recommendation for an additional $250 million for the repurchase of our common stock on top of the $50 million remaining in our existing share repurchase program. Inclusive of the March dividend, and $35 million repurchased in the first quarter of 2026. FNB has returned a total of $2.4 billion in capital to shareholders through both dividends and repurchases since 2009, demonstrating our long-term commitment to optimize value for our shareholders while also growing and reinvesting in the company for continued future success. FNB's financial performance is achieved through consistent execution and sustained growth in our engaged customer base. We were thrilled to recently announce our partnership as the official and exclusive retail bank and financial provider to the Pennsylvania State University. Beginning in July, Penn State's 90,000 students faculty and staff will have exclusive access to FNB's on-campus banking services, including our proprietary eStore. FNB was also selective as the primary treasury management provider to all Penn State campuses. Our continued success of winning despite significant competition, demonstrates our capabilities and leadership in the industry. As a core business, University Banking highlights another differentiated product offering. In addition to significant investments in AI and digital, FNB's innovative solutions also extend to our ATM network. This month, our first ATM that offers foreign currency disbursement for Canadian dollars and Mexican pesos opened at the new Pittsburgh International Airport. Once again, an industry leader, our ability to offer foreign currency disbursement through an ATM is very rare across the banking industry and builds upon our momentum to improve the ease of banking for current and new customers. We congratulate the airport authority and its leadership on the completion of the new terminal, which includes FNB's state-of-the-art visually stunning banking center. We are proud to play a role in this transformational Pittsburgh asset with our ATMs and sponsorship. The first quarter reflected a promising start to 2026, with our ability to continue to attract top-tier talent, deploy innovative solutions and deepen customer relationships, period-end loan growth of 3.9% annualized linked quarter was driven by 4 middle market C&I. It is important to note that our growth has not benefited from NDF or lending into private credit, a category that we continue to avoid. With that, I would like to now turn the call over to Gary to discuss all of our credit results for the quarter. Gary? Gary L. Guerrieri: Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at solid levels. Delinquency along with NPLs and OREO increased slightly, each up 3 bps compared to the prior quarter, totaling 74 and 34 basis points, respectively. Net charge-offs continued to show strong performance totaling 18 basis points, down 1 bp compared to the prior quarter. Criticized loans increased slightly, consistent with the seasonality we have seen in the first quarter over the last several years. Total funded provision expense for the quarter stood at $19.4 million, supporting the C&I loan growth and charge-offs. Our ending funded reserve now stands at $443 million, an increase of $3.5 million, ending at 1.26%, unchanged from the prior quarter. When including acquired unamortized loan discounts, our reserve stands at 1.32%, and our NPL coverage position remained strong at 393%, inclusive of the discounts. While we have not experienced any impact related to tariffs, we are maintaining the related qualitative overlays from a year ago due to the ongoing conflict and uncertainty in the Middle East. Our comprehensive risk management oversight, including concentrations of credit line utilization, proactive CRE management, stress testing and the 360-degree risk view of our client relationships allows us to maintain a strong risk profile throughout economic cycles and during periods of economic uncertainty. We are monitoring the situation in the Middle East closely, as we have done in the past during the pandemic, the Ukrainian conflict supply chain disruptions, inflationary periods and tariff increases. Throughout all of these periods of disruption, our loan portfolio and customer base have proved resilient and did not experience any material adverse impacts. Our consumer portfolio remains very strong with average origination FICO scores of 782 with delinquency and charge-offs ending the quarter at multiyear lows of 67 and 5 basis points, respectively. We continue to originate loans within our commercial and consumer portfolios under our long-standing and consistent credit underwriting philosophy. In the quarter, we had solid C&I activity leading to increased loan growth with a slight uptick in line utilization. Additionally, we are seeing increased levels of high-quality CRE opportunities. However, our exposure declined in the quarter, ending at 194% of Tier 1 capital plus allowance. In closing, despite the continued volatility in the markets, we look forward to building on the momentum we had in the first quarter with our pipelines at near record levels across the majority of our portfolios. With the quality and diversification of our portfolio, we are well positioned to achieve our growth objectives in the year ahead. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks. Vincent J. Calabrese: Thanks, Gary, and good morning. Today, I will review the first quarter's financial results and walk through our second quarter and full year guidance. First quarter net income totaled $137 million or $0.38 per share, with total revenues up a strong 9.4% from the year ago period and coupled with prudent management of operating expenses, PPNR increased nearly 17%. Turning to the balance sheet. Loan activity began to accelerate late in the quarter with spot total loans and leases ending the quarter at $35.1 billion, a 3.9% annualized linked quarter increase driven by growth of $198 million in consumer loans and $136 million in commercial loans and leases. Spot C&I loan balances were up over 4% linked quarter on annualized were $314 million, driven by growth in the Carolinas, Cleveland and the Mid-Atlantic. CRE balances continue to be impacted by expected payoffs and were down $110 million linked quarter. Residential mortgages, indirect and HELOCs all contributed to the consumer loan growth. Spot total deposits ended the quarter at $38.9 billion, a linked quarter increase of $142 million with the first quarter impacted by normal seasonal outflow for corporate deposits. Noninterest-bearing deposits increased $89 million or 3.6% linked quarter annualized and remained stable at 26% of total deposits. The loan-to-deposit ratio held steady at 90%. First quarter's net interest margin was 3.25% and down 3 basis points sequentially as the timing of the Fed rate cut in December 2025 impacted NIM for the quarter. Additionally, normal seasonal outflows and deposits were funded temporarily with higher cost short-term borrowings. Interest-bearing deposit costs declined 13 basis points linked quarter, driven by lower rates paid on money market CD balances and total borrowing cost decreased 12 basis points. Our cumulative total spot deposit beta since the fed interest rate cuts began in September of 2024, was 27% at quarter end. The total yield on earning assets declined 11 basis points to 5.14 on an 11 basis point decline in loan yields and a slight 2 basis point decline in investment securities yields. Reinvestment rates on investment securities remained well above the overall portfolio yield. Looking ahead to next quarter, the margin for the month of March was at $3.30 on Net interest income increased nearly 11% from the year ago period as the NIM expanded significantly, increasing 22 basis points with earning asset growth of 3.5% year-over-year. Turning to noninterest income and expense. Noninterest income totaled $91 million, up 3.7% in the first quarter of 2025. And Capital markets income increased 27.8% to $6.8 million on solid contributions from debt capital markets, swap fees and international banking. Wealth management revenues increased 2.8% year-over-year to $21.8 million, with contributions across the geographic footprint. Noninterest expense totaled $257.9 million, a 4.5% increase from the year ago quarter. Salaries and employee benefits increased less than $1 million or 0.4% as lower performance-based compensation and health care costs offset strategic hiring and normal merit increases. Occupancy and equipment increased $5.1 million or 11%, primarily due to technology-related investments and higher occupancy costs, which included unusually high seasonal snow removal costs. Other noninterest expense increased $6.8 million or 30% due to a combination of higher fraud losses litigation-related expenses and the impact of our mortgage down payment assistance program. The first quarter efficiency ratio remained solid at 56.1% down meaningfully from 58.5% a year ago, and we continue to manage our expense base in a disciplined manner. FNB continues to actively manage our capital position to support balance sheet growth and optimize shareholder returns while appropriately managing risk. Given the new share repurchase authorization, Vince mentioned earlier, we now have remaining capacity of $300 million after repurchasing a total of $35 million in the first quarter of this year. The 8% quarterly common dividend increase marks our first quarterly dividend increase since 2007 and reflects our strong financial performance and capital levels as evidenced by the TCE ratio of nearly 9% and the CET1 ratio of 11.4%. Let's now look at guidance for the second quarter and full year of 2026. All guidance is based on current expectations, are remaining cognizant of the highly uncertain macroeconomic and geopolitical environments. We are maintaining our full year balance sheet guidance for spot balances, projecting period-end loans and deposits to grow mid-single digits on a full year basis as balances continue to build on the growth acceleration we experienced late in the first quarter. Our projected full year income statement guide is largely unchanged with last quarter. Full year net interest income is still expected to be between $1.495 billion and $1.535 billion. We are assuming no Fed interest rate cuts for 2026 versus our previous expectation for 225 basis point cuts, while maintaining our previous net interest income range due to our expectation of continued deposit pricing pressures in an environment with no Fed cuts and accelerating loan growth in the industry. Second quarter net interest income is projected between $370 million and $380 million. The noninterest income full year guide remains $370 million to $390 million with second quarter levels expected between $90 million and $95 million. The full year guidance range for noninterest expense remains unchanged between $1 billion and $1.02 billion, but we now expect to be at the higher end of that range due to increased investments in franchise growth and new strategic initiatives. Second quarter noninterest expense is expected to be between $250 million and $255 million. We continue to expect strong positive operating leverage for the full year of 2026. Full year provision guidance is maintained at $85 million to $105 million, given the stability in our credit performance to start the year and will be dependent on net loan growth and charge-off activity. Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur. With that, I will turn the call back to Vince. Vincent J. Delie: Thank you. Our team is cultivated in an environment that succeeds through passion, collaboration, hard work and respect. We pair the advantages of our scale with the discipline of agility to win business that is heavily sought after by both large and small competitors. As a regional bank, FNB's differentiated investments in technology and product offerings have enabled us to win against competitors of all sizes to gain market share, drive shareholder value and meet the needs of our commercial and consumer customers. I would also like to thank our Independent Lead Director, Bill Campbell, who announced his upcoming retirement from our Board in May. I want to extend my great appreciation for his distinguished service independence, dedication, leadership and mentorship to many, including myself. He instilled in all of us a desire to put the shareholders first, and his insight on the Board will be missed. Best wishes to Director Campbell in his future endeavors. His presence will be missed, but his legacy at FNB will live on. In closing, we are proud of our differentiated culture, which continues to be one of the most recognized in the industry for leadership, innovation, employee engagement and client experiences. This quarter, FNB received numerous awards including America's best customer service and financial services by USA TODAY, America's best financial services by time, America's greatest workplaces for entry-level employees by Newsweek a top workplace U.S.A. by Energage and a Greenwich Excellence Awards winner for client service, a recognition we have earned annually since 2011. These awards and recognition occur because of the dedication and commitment of our employees. On behalf of the Board and executive team, I would like to thank them for their extraordinary accomplishments. With that, I will turn the call over to the operator for questions. Operator: [Operator Instructions]. Our first question comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Maybe starting on the C&I loan growth, really strong in the first quarter. You made a comment in the release that it accelerated towards the end of the quarter. Maybe you can expand a little bit on what that looked like. And I think Gary made a comment about Vince about near-record pipeline. Just curious what those look like in C&I and kind of the path forward given the strong quarter. Gary L. Guerrieri: Yes, Dan, we saw a lot of activity. It started building fairly early in the quarter and finished up really strong. The pipelines have increased significantly and are pretty close to near record levels. It's really across the whole company. On top of that, we've seen a lot of high-quality opportunities from very strong investment grade type of larger corporate borrowers. We saw some M&A activity, so it's really been across the board and very diverse. We did have one maturing loan that paid out, which even impacted the growth even further, right at the end of the quarter or that number would have even been stronger. So we really like the position of the pipeline right now and the activity that we're starting to see we expect it to build throughout the year. Daniel Tamayo: Great. And maybe one for Vince. Just curious if you can expand on the strategic initiatives comment in the release about, which drove the increase in the expense guide to the higher end of the range? Vincent J. Calabrese: There's a variety. As you know, we've consistently been investing in our Fit-to-brick strategy. And as part of kind of the normal capital investment that we're doing. I mean there's a variety of things. We've announced that we were going to be launching 30 de novos over the next 5 years. So that's part of it. We're fully launching that with DC Metro as far as the ATMs throughout that network. We continue to invest in the eStore and have some new initiatives looking to create a 360 view of our customers. We began that initiative to be able to pull in internal data as well as external data so that our customer-facing employees have all the data right at their fingertips on what customers have here and somewhere else and then leverage AI to kind of say, well, what's the next product that would make sense for them. So it's really continuing those key tech investments that we've been making. Vincent J. Delie: And I would say that we've redesigned how we're approaching development within the company. We moved from a traditional IT development environment where IT coordinates all of the -- with business analysts and interactions with the front line, they coordinate all of the development assets that we have, which includes a large number of consultants. We've kind of changed the model. We're pushing those programmers to the 3 areas that we feel are the most impactful for us from a revenue and efficiency perspective. So that's part of of the expense build. We're looking at some AI in incidence that we've invested in. So there's personnel expense related to bringing those development contractors on that's reflected in the guide. Most of it ends up being capitalized for software applications that we develop and then put it online. Vince mentioned the 360 view of the customer that's essentially both an inward and outward tool, tool for clients to review their relationship within FNB. There is an AI overlay that permits for those clients to see the products and services that they're using and how they can best improve their circumstances, either from a cash flow perspective or from managing risk. It's a really cool product. It's proprietary. I don't see it anywhere. We're slated to put it out by the end of the year. It should be in production at the end of the year and then into the first quarter of next year. But it will also help internally because what it does is it actually evaluates what's going on. It looks at numerous data fields based on what the customer is doing within our organization. And when we open it up to outside, it will be opened up to bring in external aggregation as well. That will help us guide the customer to better products and services and a better solution within FNB's product offering. So if they have a high rate mortgage somewhere else and we offer a better product, this tool will actually tell them and they will actually explain that they could save X amount of dollars by refinancing. And then to tie it all together, because we built out this platform that enables us to apply for multiple products simultaneously, which is also being improved with AI. We will be able to move those clients into an environment where they're seeing their 360 view, they're actually getting recommendations on things that they should be doing to improve their banking relationship, and then they'll be able to purchase the products because tab, and it will actually -- they can just put them in the cart and then proceed to check out. We have automated data flooding and authentication and all that stuff built into the common app. So -- that's the game plan. And that's why there's a little extra we're saying there's going to be a little extra spend in the forecast. Vincent J. Calabrese: Yes, part of that, we've also baked in investing in treasury management, some of our offerings to make it easier for customers, wealth management, there's initiatives that are part of that as well. And then on top of that, just normal process improvement, I mean, leveraging AI and machine learning -- someone that we've had in place for many years, leveraging those tools to extract costs as we move forward, which will help improve the run rate. Vincent J. Delie: Yes, some of this is transitory, though. This is not embedded in the run rate of the company. And there's quite a bit of contract expense or contractor expense built into that guide, the change that we're pro Yes. Operator: The next question comes from Casey Haire with Autonomous. Casey Haire: Yes. Great. So I wanted to touch on the NIM outlook, the 330 NIM in March, so you get some pretty good momentum entering the second quarter here. I'm guessing that was on the funding side of things, given the seasonal outflows in DDA, but just a little color on where that's trending. Maybe the spot deposit cost rate at the end of the quarter and some thoughts on how the 2Q NIM trends. Vincent J. Calabrese: I guess just looking at net interest income overall, the $6 million decrease from the fourth quarter, right in the middle, the number we landed out at $359 was right in the middle of our range we provided in January, which was $3.55 to $3.65. The timing of the last Fed cut clearly makes a difference on loan yields for us. As you know, I'm talking about that in the past that 45% or so of our loan portfolio reprices based on SOFR changes. So originally, we had that in January and that coming forward to December kind of affects the net interest income for the first quarter. The other element is we have our normal trough in deposits that happens every year in the first quarter, and we fund that temporarily with short-term borrowings that's about 2 basis points of margin, $2.5 million in net interest income in the first quarter, and then that kind of goes away as we move forward. But we have been operating with a dual mandate of trying to grow deposits to fund the loan growth that Gary talked about and Vince talked about that we saw to accelerate in March and the expected loan growth as we go forward. So we're trying to balance growing deposits to help fund that loan growth as well as managing the deposit cost down. So there's clearly a balancing act there. And then, Casey, as you mentioned, the 330 exit margin for the month of March is key. And as we look forward, I mean, our guidance implies that going up gradually a few basis points or so a quarter between the first quarter and the end of the year. And without the Fed cut expected for the rest of the year, at this point, there are several levers we have to support net interest income growth. I mean average earning asset growth, obviously, is the key. In our investment portfolio, we're reinvesting 75 to 125 basis points above the roll-off rate. For CDs, we're still picking up 20 to 25 basis points. Next quarter alone, that's $3.3 billion worth of CDs maturing. And then in our fixed rate loan portfolio, we're picking up about 35 basis points on $2.5 billion over the next 12 months. So there's a lot of levers there that will kind of work off with that 3/3 launch point. the spot deposit cost of 199. Casey Haire: 177 total Yes. IBD versus the 240? Vincent J. Calabrese: That's total deposits? Casey Haire: Right. Vincent J. Calabrese: Total IBD 236, Casey, is interest-bearing. $177 million includes noninterest. Casey Haire: Okay. Great. Just 1 more on the capital front. So very strong buyback this quarter. The CET1 ratio kind of held flat. I'm just wondering, is that -- is that kind of what you guys want to -- you going to manage it here? Just keep it at this level within balancing between loan growth and buyback? And then any thoughts on the Basel III proposal? Vincent J. Calabrese: Yes. I would say, I mean, with the CET1 ratio at 11.4%, the payout ratio now in the low 30s, combined with our guidance, implying continued strong internal capital generation, -- as we talked about last quarter, we're in the best position to deploy capital, which is why we made the announcement that we made earlier in the week. Beyond supporting the expected balance sheet growth, we continue to see buybacks attractive at current valuation levels, for sure. I think the earn back is maybe 3 years at this point with where the stock is trading. We bought back $50 million for the full year of last year, and I talked about buying at least that or more. First quarter, we did $35 million -- so I think we'll continue to be opportunistic on the buyback program. We were down to $50 million. So it was the right time to increase the authorization. So kind of have $300 million worth of powder there. And with the earnings generation level, we would expect capital ratios to still build. I mean I would just say, off the cuff, not looking to reduce 11.4%, but being active on the buyback, the dividend another component of that, which isn't a lot in dollars from a capital standpoint, but I think it's important. If you go back to -- last time we had raised dividend was 2007. And in 2009, for those that were following us when everybody went to a nickel or $0.01, we went from $0.24 to 12%. So our Board made a decision only to go at that point. So we had a super high payout ratio, but investors are getting paid a very nice dividend yield over that entire period. So that was important. And we reached a point with the way capital is building that we were comfortable not only having the buyback but increasing the dividend. -- at this point in time. And the goal would be, over time, to be able to move that up as we grow and as earnings continue to grow. So I think that's another important point. On Basel III -- II, Casey, I'm sorry, that was the last part of your question. I mean we're studying it. I mean it has a meaningful impact if it gets in place the way it is. I mean we've looked at different ways of analyzing it. And it's definitely meaningful. So I guess we'll see how that plays out in the end. We've studied what's in the proposal. And that's not baked into our plans here as far as capital deployment, right? That would be a new factor if it gets approved way it's proposed. Operator: And the next question comes from Russell Gunther with Stephens. Russell Elliott Gunther: I wanted to follow up on the deposit pricing pressure commentary you guys made would be helpful to get a sense for how you would expect deposit cost to trend from here -- the spot rates you gave us were pretty darn close to the full quarter average. And I think in the past, you've talked about a mid-30s terminal deposit beta versus the 27 we've got right now. So it would be helpful to just understand whether we should expect some upward pressure on total deposit cost, but that's what's embedded in that kind of March 30 guide moving higher. Vincent J. Calabrese: Yes. No, I would say -- I mean, there's still opportunity for that cost of deposits to come down. I mentioned the CDs picking up 20 to 25 basis points on $3.3 billion. So that obviously affects that. Our success bringing in noninterest-bearing deposits which has been a strategy forever, obviously, is key to the overall cost of deposits there and the cost of funds. So I think there's still room for us to bring it down strategically, Russell, is the way I would say it, because without the cover of the fed cuts, you have to be very strategic. And I think our team has done a very nice job analyzing the different components and maybe customers that don't have as much with us, you're a little more aggressive on how you adjust the rates and it's just a constant day-to-day process for us to look at where there are opportunities. But there's still opportunities for the total deposit cost to come down. And like I said, the focus on noninterest-bearing is key. The -- going after some larger kind of accounts to bring in larger deposit balances has been something we've focused on over the past year and have had some good success bringing in some larger deposit. Vincent J. Delie: We basically -- we brought some very attractive, large, complex treasury management relationships over. They're in the pipeline. They're moving over to us. And they're coming from all over. I mean, some of the larger banks bank them today. So that's going to have an impact. It will have an impact on our free balances because they use balances to pay for services. So there's quite a bit in that pipeline. That's what Vince is referring to. But if you look at it globally, take a step back, that's one of the only ways we can really control. We're not a price setter. We have to react to the marketplace. So the way we drive our cost down despite increasing the noninterest-bearing component in the mix. And that's a strategy that we have talked about for a long time, will continue to do. So I think there's some optimism here from a cost funding cost perspective because of those opportunities that we have and some success that we're seeing, particularly in the consumer bank as well. With new clients coming over and increasing share of wallet with the consumer. Some of the things we've done, we've invested in a number of tools to create client primacy and it's really starting to pay off. And the investment in our AI to analyze lots of data to make pricing decisions is also paying off so. Russell Elliott Gunther: So -- that was a large corporate following efforts right. It's helping on the loan side as well as the deposit side. Vincent J. Delie: So we're -- we've got some -- there are some good things coming. But if you look at it overall, what Vince was saying in his comments, if the industry is going to be trying to loan up particularly in C&I. There's going to be the pricing pressure from a funding perspective kind of. That's the expectation. So that's the uncertain part about it is how aggressive do others get from a pricing perspective. We're sitting in one of the best positions we've been in from a loan-to-deposit standpoint, at this point in the year, too. So there's a -- there's definitely -- we're definitely sitting in a much more favorable place to give us some flexibility on pricing. Russell Elliott Gunther: That's really helpful, guys. I appreciate all of that color. And then let me just follow up on the capital front. If you guys could just remind us of how you think about a CET1 floor and how active you would expect to be with the buyback against your kind of mid-single-digit loan growth expectation. Vincent J. Calabrese: I mean we've been using 11% as a floor for CET1. We're at 11.4%, and we're not looking to really drive that down. We'd like to have a powder there. if the loan growth and when the loan growth really accelerates and comes on board, we want to have that capital to support the loan growth. So -- but I mean, if I had to state the floor, I would say 11% would be a floor for that level for the CET1 ratio. Previously, we had said 10% and we grew about 10%. Now we're at 4% or so. Vincent J. Delie: I'd be okay with 10, [indiscernible]. Russell Elliott Gunther: That's true, [indiscernible] 10%. Operator: And the next question comes from David Smith with Truist Securities. David Smith: So now that you've taken those cuts out of the outlook seems like it's a little bit of a tougher backdrop for loan growth, although you kept the guidance the same in that mid-single-digit range. Can you talk about any puts and takes there? Has your expectations for where that low loan growth is coming from evolved over the last 3 months? Vincent J. Delie: Yes. As we've said, our short term -- if you look at the short-term C&I pipeline, commercial pipelines, they're up 10% in the same period. So this is typically a seasonally slower period. So we're starting to see more activity. If you look at our leasing and finance project finance area. They've had -- they continue to have really strong pipelines and had great production last year. There's -- because of the tax law changes, that's going to continue. If you look at the commercial bank or the consumer bank, we -- our pipelines are up significantly in the consumer bank. So I think nearly all correct. So there are some bright spots out there. On the flip side of that, CRE still continues to trite because we've already gotten into all this, but we pulled back a little bit, and we're just letting those large bonds go to the permanent market. right, Gary. Gary L. Guerrieri: Yes. And even with that, we are starting to see some extremely strong new CRE credit opportunities. So there is -- there are some shoots there that are starting to show and we've liked what we've seen so far. Vincent J. Delie: Yes. So as I mentioned on the last call, our capital growth, the reduction in that exposure, we're below 200%. I expect that probably in the different. So it gives us the ability to go out and pick good high-quality projects to do in the CRA space. that's not even reflected in our our pipeline yet because that all tons should be coming in the second half of the year. But there are some bright spots. So that's why we're not changing our guide. -- and that's why we still believe pretty strongly in our ability to produce net interest income that we -- that's reflected in our guidance. David Smith: Okay. And then the fee guidance implies a little bit of a ramp-up in the second half from $90 million in the first quarter and $90 million to $95 million this coming quarter. Can you just unpack your expectations there, like where you see that growth coming from? Vincent J. Delie: Sure. The investment banking segment should produce some pretty significant fee events. So the public finance and the investment banking group that we brought on -- there are some deals that are slated to happen in the second half of the year that will contribute to that that are already in the works. I think that's one contributor. We also think that when there's less interest rate volatility here, if things settle down a little bit, there should be a pickup in derivative activity. We're still pretty optimistic about our ability to grow market share in the mortgage business, so there's gain on sale. Opportunities up and down the Eastern seaboard because those markets are continuing to grow. We've got wealth growing. We have some great momentum in our wealth shop. So we're building out a group to handle family office, opportunities. So we're going to be moving up market in that space, and there's some promising opportunities there. So I think fee income mortgage treasury management as I've mentioned earlier, we have some fairly significant treasury management clients. Penn States, one of them. There are others that we have won that are even larger that will come over. So fee income in the treasury management space should continue to expand. And then there's interchange. We've seen a pickup lately in interchange activity. We've not even really spent a lot of time activating our debit portfolio, and it's a fairly sizable fee income stream for us. So there's going to be a focus on that. particularly with the use of AI and some tools that we have to try to drive more activity on our -- in our debit card platform and with our small credit card portfolio, but it's small relative to the debit side. Those are the drivers. Vincent J. Calabrese: And this is our fourth consecutive quarter with fee income at $90 million or above. So I think that's a key point for us. And I think there's good momentum in the businesses that Vince talked about in debt capital markets and public finance. So there's a lot of excitement about what the rest of the year holds for us on the fee side. Vincent J. Delie: Yes. And we've been doing really well from an international perspective as well. We just won another word, I'm not like to mention what it is, but those people have done well. the person that runs it, Gener is a long-time associate of mine and respective -- and he's done a terrific job, and that continues to grow, too. So we're seeing more and more opportunities with international banking with hedging and spot transactions for our clients, particularly as we're moving upmarket. So I'd say given that we have a really low relative share to some of these large players in the capital market space and the revenue lines associated with some of these businesses is relatively small, and it's already reflected in the run rate. There's upside. Vincent J. Calabrese: Less public finance is another door business. Vincent J. Delie: So that -- yes, as I mentioned earlier, with investment banking, that's another one. We think hundreds, maybe thousands of municipalities across our footprint. We have a specialization and handling their principal treasury management fees. And I think that, that will open the door, building out that team opens the door to some significant opportunities in the public finance space for us. And that's a highly competitive business, but we have the relationships already. We've been farming it out or turning it over to others, and we now can capitalize on it. So very granular I mentioned all these areas. So there's a lot of granularity. So it doesn't take much of a number of those areas increase even low single digits. It starts to really drive the total revenue number. Operator: And the next question comes from Kelly Motta with KBW. Kelly Motta: We've talked a lot about your capital as well as the organic loan pipeline and the opportunities in C&I, I'd like to circle back to M&A and get another updated thoughts here on your appetite for deals and a reminder of what you look for given it does seem like your organic outlook is quite strong. Vincent J. Delie: Yes. I've said it a number of times, we're going to be opportunistic. There's not a lot out there that we see that is high value even if they were available. Like there are things that we could look at that would make a lot of sense, but a bank has to be for sale to do a transaction. We're not actively in the market. I'm just referring to deals that have been done, things that I'm hearing in the marketplace. But I think our early drive to do M&A was to gain the scale to get over some of the regulatory hurdles and to be able to do some of the things that we're doing today. And I think given the size of the organization, we're in the sweet spot, even though some don't believe it, we're able to compete very effectively with everybody, and we have a very deep product set. And I think what you get from us is a $50 billion balance sheet and maybe a $1 trillion banks product offering, at least for our clients, right, because we're not banking Fortune 100 companies as their primary bank. So the middle market and large middle market clients that we bank, we can do everything that a lot of the other banks that are much, much larger than us to, but we do it in a way that is more boutique-ish there's more attention paid to getting stuff done. There's less bureaucracy. We're a little more creative because we don't have the same level of infrastructure or systemic methods of doing things. So it lets us be a little more entrepreneurial. And I think the customers enjoy that, and we're seeing great opportunities because of that. And I think that -- and I've said this, I just did a podcast it's not out yet with the ABA, but the smaller banks have an incredible opportunity right now to build product that's unique. Because of AI, because of the changes that are occurring from a tech perspective with cloud-based computing, the speed of computing, the ability to develop software with I think you're going to see some pretty interesting things come about, and I think it's changing the equation on scale, particularly relative to technology. So that's -- and if you look at our cost of funds and you look at our returns and our return profile and our efficiency ratio, we're right there with the larger banks. So efficiency within the consumer bank was actually better when we did the analysis. So we're able to do that because we're very smart about how we deploy our resources, we're able to do it because we don't have the bureaucracy, we're able to do it because we're not arrogant. There's a bunch of things that we've seen out there that certainly play in our favor. So I'm sorry for the long answer, but we've talked a lot about this internally. Kelly Motta: I really appreciate all the color. That's very helpful. Maybe to turn back on the margin. I appreciate the commentary about C&I growth being really strong and pipeline to record levels. Hoping, I apologize if I missed it, but if you could provide additional color as to how loan pricing and spreads are holding up. I know you gave some color about the continued repricing opportunities here, but just hoping to get more on pricing. Vincent J. Delie: Yes, you would expect in this environment for credit spreads to broaden because of the geopolitical environment that we're in, we're not seeing that necessarily in the middle market. I think there's still some pretty significant tailwinds from an economic perspective that keep people optimistic and I think the tax law changes were very favorable for capital investment. So you're not seeing what you typically would see when we have the geopolitical environment that we have. So I would say what that means is that you're not going to see a broadening of credit spreads because of issues with repayment or problems. I don't know, Gary, you could speak to that. But there is competitive pressure, obviously, but there's always competitive pressure. I've been doing this for a long, long time. I've been in corporate bank and my whole career. And one of my pet peeves is when I sit there with the commercial bankers and they tell me that it's so competitive. I can remember back 30 years ago when I was competing for deals in the upper middle market and transactions were priced at 50 basis points over LIBOR on a sub investment-grade credit opportunity. That's that pricing doesn't exist today so the margins are better today. So it goes through ebbs and flows and changes and credit spreads impact how pricing is impacted. So we'll see what happens with the economy. We've always benefited because we were more conservative. So when credit spreads were broadening, what that means is that we're going to get paid more for lower risk transactions, because we have the capital and the appetite to deploy capital. And Gary has talked about that many times. Others will get out over their skis from a lending perspective and then have to pull back during those periods. And there during frothy periods, credit spreads are thinner. So I would say if you want to shorten, sorry for all these long answers, Kelly. But the reality is it's a complicated business. And in certain segments, like if you move deep down into small business lending, I think spreads have come in because there's increased competition for C&I opportunities. When you move up into the larger end of the spectrum. I think spreads are pretty consistent with how they've been underwritten, particularly on syndicated deals. It may have come in a little bit. I don't know, Gary, if you... Gary L. Guerrieri: Inch you hit it pretty well. Spreads are where you expect them to be today on a transaction-by-transaction basis, you can get squeezed a little bit, but we're very comfortable with the with the spreads that we're seeing in the marketplace today and based on where the economy is, is it going to probably get a little more competitive as we move forward. It wouldn't surprise me, Kelly. So we'll keep an eye on that. Continue to manage it accordingly. Kelly Motta: Great. I really do appreciate all the color. Operator: And the next question comes from Manuel Navas with Piper Sandler. Manuel Navas: Just a quick follow-up on Kelly's question. What are kind of new loans coming in at what yield? Vincent J. Delie: It depends on the category. Vincent J. Calabrese: New loans originated during the first quarter came out at $557 million -- if you look at it compared to the fourth quarter on average, I mean, it's 589 in the fourth quarter, you had 2 Fed cuts affecting fourth quarter levels. So on a spot basis, so the overall portfolio yield is at $561 -- it was only down a basis point in total, which includes all of the different categories of loans, no Fed costs during the quarter. So total moving a basis point the lines have kind of have approached each other now where we have been -- if you go back a few quarters to new loans, we're coming on 25, 30 basis points higher than the portfolio yield. It's kind of more in line based on the mix of what we originated during the first quarter. Manuel Navas: Okay. I appreciate that. The deposit pipeline, you're speaking to some commercial clients that are going to come on over time with treasury management solutions, -- is that pipeline also -- how does that compare to your current deposit costs? Vincent J. Delie: Yes, it's a -- that's a hard -- it's a good question. It's a hard 1 to answer on the fly. -- because you're going to have different levels of demand deposits based upon floor balances that are set because they use an earnings credit to pay for services. It depends on the client and the level of services -- so I don't know if I have a good answer for you, but it's a great question. In the pipeline, some of it you really don't know because I mean -- well, I think most of the stuff we're doing, we're the operating bank, right? So you will see higher cost deposits coming on board as well. But that's the excess balances that are being swept. So if you look at that, typically, they're swept into our standard price, it doesn't change our stated pricing. So we don't exception price that. The focus is on setting the floor balance and whether the client is going to pay with fees or use demand deposits. So -- and the level of -- but the cost is for us. Vincent J. Calabrese: So I would just add one thing 2-minute well, but the commercial deposit pipeline is up meaningfully. I mean we were a little under $1 billion at the end of the year, and we're around $1.2 billion now. So we convert and we continue to add new names into that. Manuel Navas: That's great. I appreciate that. Just my last one is can you talk about how quickly some of your investments in account primacy or AI, when they should kind of pay off and how kind of should we track your progress beyond deposit growth, solid returns. You planned to some market share gains. Any other metrics you'd like to point us to kind of see how this is paying off? Vincent J. Delie: Well, we have mentioned in the past, applications. Our application volume is up considerably. Using the platform that we've developed that utilizes AI and our common app. So I think 38% increase in deposit applications through that network. It's kind of hard to give a global number because you've got disintermediation going on with traditional origination methods. But we track how many come through that channel and it's up significantly. It continues to grow significantly. I think loans were up. I don't remember what the number is 10%. Yes, 5% actually loan application volumes up 5% quarter-over-quarter and 31% is the increase in deposit applications. So you're seeing increases in those categories that should accelerate over time. The best way to look at this, I think, for any bank would be to look at their overall performance because it's so dispersed throughout the organization. And we're trying to balance obviously, we have limited resources, as I've said earlier. So we don't want our expenses to grow and then not get a benefit right? So we're not a tech company, we can't burn cash and then tell you we're not going to make any money. So we're a bank. So we basically have to gain the efficiency, pick the project, deploy it, gain the efficiency and it's reflected in the numbers. But I will say, we have a number of things that we've already pulled off. We have upgraded our ability to monitor deposit base and affect deposit betas with analysis that we've done. And we had a system before opportunity. We have a new opportunity Q2, which is much more sophisticated and speedy because we're using AI to assist with it, not just machine learning tools and insights. So I think that's 1 example. We've got a project underway to automate our pulse center. Based on some research that we've done. So we -- there's some pretty spectacular AI software that's available that really can have a significant impact on the customer experience and our cost servicing a customer via the call center. So we're engaged and looking at that, we are in the throes of building out our 360 View, which has an AI overlay I mentioned it earlier, that we're in, I'd say, mid phase there, and we're moving very quickly. We're building out a proprietary mortgage application that's going to be embedded into the common app. That's coming, which will help us in the long run with cross-sell opportunity because we'll be able to -- as we originate a mortgage loan use those data fields instantly for the customer to purchase other products like in insurance, home insurance, depository products. And then we've already announced, we have embedded in our mobile app, the ability to move your direct deposit instantly and repetitive ACH transactions. We're working on bill pay. We're going to get there. We're integrating that into the origination platform, and we have pushed that common app origination platform into the field. So the entire branch network is originating on the same digital platform that consumers use online. So there's a lot. We've done a lot. There's a lot that's already done that's reflected in the expense run rate. And then there are some things that we're finalizing that should come online very shortly here and be additive probably in '27 either from an efficiency perspective or generating additional revenue for us. I don't if that's helpful. But I don't have a precise number to give you. I can only tell you... Vincent J. Calabrese: Were going to be building out external dashboards where we've been building internal and I think we mentioned before, having more dashboard type data that we'll be sharing as we proceed with these initiatives. Operator: And the next question comes from Brian Martin with Green Capital. Brian Martin: Maybe one follow-up for Gary. Just maybe it's Vince. Just on the loan growth, just on the CRE side, in terms of the sales into the secondary market and just kind of managing that. How are you thinking about that? It sounds like there's opportunities, but you're still seeing payoffs just in terms of contribution to growth this year. It sounds like C&I is obviously was strong this quarter. The pipelines are good there. But just on the CRE side, given your capacity and how you're thinking about that in the secondary market. Gary L. Guerrieri: Yes, Brian, we still have projects that we've been involved with for the last couple of years that are coming on a quarterly basis regularly that are moving into the secondary market. So we'll continue to see that as we work our way through the year ahead there. That being said, we were pleasantly surprised by the ramp-up in new CRE opportunities. And pretty much across the board, those opportunities have been really solid. So we're going to aggressively pursue those solar transactions in that space. I will tell you that, that is, as we talked about competition earlier, it's very competitive because many banks are getting back in the CRE business. So we're seeing that there's a lot of activity there, and we expect that to build throughout the year. So in terms of those payouts and moves into the secondary market, they will continue. That will be a headwind in that category, but we're going to be very choosy of the assets that we're putting on, and we will see we will see activity from a new booking standpoint there build throughout the year. Vincent J. Delie: By the way, the C&I growth that we have, does not include MDFR. So I've been saying this for a long time. I think people finally started looking at it. But when you look at the H8 data, it included basically warehouse lending for consumer borrowings that get reflected in the commercial line because you can't segment it out or there's another category that you can't really figure out what's sitting in that bucket when you look at the public disclosures. But we don't have that. So we're not -- we're growing with traditional C&I. So we haven't had any help in any way, right, from and [indiscernible]. And I think that's an important distinction. So as the economy starts to accelerate, you'll see us perform even better as we continue to build out some of these tools that I mentioned, we'll see better penetration in the small business segment. We should get there. The consumer business that we talked about, we're starting to see pretty explosive opportunities in certain segments and consumers? Right? Gary L. Guerrieri: Yes. The consumer book has been really strong. The performance of it continues to be exceptional that record low credit metric levels at this point, high-quality paper, and the teams are doing a really good job generating opportunities and those pipelines are very high. Vincent J. Calabrese: Just as a reference point, too, if you look at our changes since the end of the year, our NDF balances, which were very low, and we're in probably the lowest decile there. Ours came down 5%, 7%. The other -- all banks were up 7%. So it's driving a lot of the loan growth at some of our competitors. Brian Martin: Perfect. That's a great segue. Just one last one on the CRE Gary. I'm assuming that, that CRE concentration level around 200 pie stands or it's not moving a whole lot based on origination -- potential originations with payoffs. So that's not like it's going to ramp up. Gary L. Guerrieri: We're at 194% at the end of the quarter, Brian, to Tier 1 plus the allowance. I would tell you that I would expect that to be lower as we move into the second and third quarters before we start to see some stabilization. Brian Martin: Got you. Okay. And then just to Vince's comment or both Vince's comments on NBFI, can you just remind us that your -- how low that exposure is today, just so we have that clarity in terms of that exposure relative to other banks? Gary L. Guerrieri: Yes. In terms of our bucket, the largest bucket that we have in there is the other category, which is a mix of wealth management, advisory, family office and insurance companies for nonlending purposes. The credit facilities that we have in place, their support working capital acquisitions and lift-out strategies for our clients. Remaining is a handful of customers, which is a little over $100 million clients that we do C&I business with that have formed some REITs and our PTCs, which we got from an acquisition a number of years ago, and we pared it back to the strongest of the strong. There are 5 of them. They're 4 of them are investment-grade companies. The balance is $40 million -- so it's really small. Right? Yes. $40 million. Vincent J. Delie: And again, we've not focused -- that is not a focus of this company. That's the byproduct of acquisitions and clients accommodating certain clients. But we don't have a practice of going out and originating in that space. Vincent J. Calabrese: And it's only 1% of the total loan book, too. So it's tiny. Minimal. Brian Martin: Yes. Okay. Good to highlight that. And just maybe the last 1 Yes. Maybe just the last one for me was your comments on the cost of deposits. It sounds like -- it sounds as though they are kind of flat to down maybe over the balance of the year, just with that balance of the C&I potential growth of the -- and I guess that's assuming that there's no rapid growth in loans and no change in rates. But that funding cost trending down. It seems like the outlook we should be looking at. Is that right? And b, just can you talk about the pipeline of commercial deposits. Is that -- do you see that the baseline of 26% today trending a bit higher given your outlook for that pipeline? Vincent J. Delie: It's too hard to say given the inflows and outflows in that bucket, what can happen potentially with disintermediation. I think that's a hard thing to say. -- right -- and we've been pretty steady at that level. It's risen and then the yield curve changes and then elaborates away and then comes back. So it's kind of hard to say, but we tend to target that levels, right? So it's reflected in our guide, and that's what you have. If we can do better, it's going to come from the things that I mentioned earlier. Vincent J. Calabrese: Yes. Just from a higher for longer environment, Brian, I mean there's still some room for the deposits to come down, but it's going to be a function of the overall loan growth and the competitiveness like Vince mentioned earlier on the deposit pricing side. So I think there's room for to come down a little bit from here, but the rest of -- the back half of the year is going to be a function of what's happening with the overall loan growth. Operator: This concludes our question and answer session. I would like to turn the conference back over to Vince Delie for any closing remarks. Vincent J. Delie: Thank you. Thank you for the questions. And I want to thank our shareholders for sticking with us for so long. I think I've been in the seat for a long time. I've been here 20 years. So it's pretty amazing how time goes by. But it's great to be able to be here and to really deliver a dividend increase. I know a lot of shareholders -- individual shareholders and one that -- we're finally at a point here where we've accumulated capital. We have capital flexibility. So it gives us the opportunity to defend the company from a risk perspective to invest in some of the great things we're investing in that drive returns, right? We're very return-oriented. And now because of the capital position we're in. We can continue to repatriate capital at even higher levels. And just so everyone doesn't forget we have returned $2.4 billion in capital since I became CEO here since CFO. So we are focused on taking care of our shareholders. And we did that all while we acquired banks and grew 8% to 9% on an organic basis over a sustained period. So anyway, thank you, and it's a great honor. And I also want to say one more thing. I want to thank Bill Campbell again because he was a tremendous director and a phenomenal advocate to shareholders. He's done a lot of creative things over time. Early in his Board career, he was focused pretty heavily on governance, and that built the framework for what we have today. So he's kind of ahead of this time he's a great person and a great mentor, and we're going to miss him. So thank you for everything you've done, Bill. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Fifth Third Bancorp Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to [ Matt Curoe ], Director of Investor Relations. Please go ahead. Matt Curoe: Good morning, everyone. Welcome to Fifth Third's First Quarter 2026 Earnings Call. This morning, our Chairman, CEO and President, Tim Spence; and CFO, Bryan Preston will provide an overview of our first quarter results and outlook. Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of April 17, 2026, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim. Timothy Spence: Good morning, everyone, and thanks for joining us today. At Fifth Third, we believe great bank distinguish themselves based on how they perform in uncertain environments, not in benign ones. We prioritize stability, profitability and growth in that order. We deliver them by finding ways to get 1% better every day while investing meaningfully in the future. Today, we reported earnings per share of $0.15 or $0.83 excluding certain items outlined on Page 2 of the release. Results reflect the February 1 closing of the Chimeric acquisition. Revenue was $2.9 billion, up 33% year-over-year and adjusted net income was $734 million, up 38%. Credit performance was in line with expectations with net charge-offs at 37 basis points. Both NPAs and criticized assets improved modestly. In the quarter, we closed the largest M&A transaction in Fifth Third's history. We delivered an adjusted return on assets of 1.12% and an adjusted return on tangible common equity of 13.7%. Our tangible common equity ratio rose to 7.3% and tangible book value per share increased 1%. We are the only bank among our peers who have reported to date to increase both of these key metrics during the quarter. Fifth Third's legacy strategies are continuing to produce broad-based growth while we execute the [ Comerica ] integration on plan and on schedule. In commercial, legacy Fifth Third C&I loan balances grew 6% year-over-year. Production remained healthy with the strongest activity in manufacturing and construction supported by reshoring and infrastructure investments. [indiscernible] acquisition more than doubled, led by our Southeast markets, and 35% of new clients were fee led with no extension of credit. Importantly, our commercial loan growth continues to come from relationship-based lending and knock from nonrelationship sources. In commercial payments, Newline continue to scale with revenue up 30% and deposits up $2.7 billion year-over-year. During the quarter, [indiscernible] launched a new payment product built on Newline, joining other marquee clients like Stripe and Circle and we advanced preparations for the second quarter launch of the new Direct Express platform. In Consumer, the legacy Fifth Third franchise delivered 3% household growth and 4% DDA balance growth. Southeast households grew 8%, led by Georgia and the Carolinas, and we opened 10 additional branches in the region during the quarter. Consumer and small business loans grew 7%, led by auto, home equity and our Provide fintech platform. Now turning to Comerica. Thanks to timely regulatory approvals, we closed earlier and originally expected on February 1 and have continued to make progress at an accelerated pace. Our top priority is our people, and we're working hard to become 1 team. Since Legal Day 1, leaders have been on the ground in Comerica's major markets nearly every week, and we visited every branch in the Comerica network. We've also hosted product showcases to highlight the breadth of our combined capabilities. Organizational design and leadership decisions are complete, and I'm very excited about caliber of our combined team. On technology, we remain on track to convert all systems over Labor Day weekend with our first full [indiscernible] conversion later this month. As a result, we remain confident that we will deliver $360 million of net cost savings this year and reached an $850 million annual run rate by the fourth quarter. We're also already building a strong pipeline of revenue synergies. In commercial, we're seeing early wins by bringing capital markets, payments and specialty lending to existing relationships. In the first 60 days, our capital markets team completed fuels and metals commodity hedges and executed an accelerated share repurchase for Comerica clients. We also booked our first Comerica to Fifth Third loan win in asset-based lending while Fifth Third referrals helped to build the largest ever pipeline in Comerica's National Dealer Services business. Commercial Payments has presented our managed services solutions to over 100 Comerica clients with 65 of them interested in moving forward. In Consumer, we launched our first Comerica branded deposit campaign in Texas in February. Response rates and average opening balances were broadly consistent with the results that we generate in our legacy Fifth Third markets, and nearly half of new savings customers also opened to checking account. We've hired more than half of the mortgage loan officers and auto dealer representatives that we plan to add this year in Comerica's footprint and pipelines in each of those businesses [indiscernible] build. We'll open our first Fifth Third branded branches in Dallas and Fresno this month, and we now have letters of intent in place or in progress for 81 of our targeted 150 de novo branches in Texas. As I wrote in our annual letter to shareholders, the global economy is a complex adaptive system and such systems react to change in unexpected ways. We're closely evaluating the direct impact of the [indiscernible] on the energy and other commodities as well as the implications for prices, interest rates and customer activity. In an environment where we may not see the macro tailwinds that many expected at the start of the year, the Comerica merger expands Fifth Third's organic opportunity set, and we do not need a perfect backdrop to deliver on our commitments. Before I turn it over to Bryan, I want to take a moment to say thank you to our colleagues. Earlier this month, we surpassed $300 million in total assets for the first time an important milestone that reflects the work we do together to serve customers, support communities and show up for one another. I know many of you are putting an extra effort to support the integration, whether it adds helping customers, learning new products, meeting new teammates or navigating change. Your commitment to getting 1% better every day and your dedication to our clients and to each other is what gives me confidence in what we're building and the opportunities ahead. With that, Bryan will provide more detail on the quarter and the outlook. Bryan Preston: Thanks, Tim, and good morning. Our first quarter results reflect the strength of what we have built and the discipline with which we are executing. Results exceeded our March expectations, driven by stronger NII, disciplined expense management and integration execution on plan. Adjusted ROA was 1.12% and adjusted ROTCE excluding AOCI was 13.7%. The Comerica acquisition closed without tangible book value dilution and and TBV per share grew 1% sequentially and 15% year-over-year. The earnings power of the combined company is intact, and the integration is on track. Given the magnitude of the acquisition, standard year-over-year and sequential comparisons obscure more than they revealed this quarter. What matters is how we exit, a larger, more granular loan portfolio, a lower cost deposit base and larger diversified fee income businesses. Each of those is a deliberate outcome and each positions us to generate stronger and more durable returns as the integration delivers. Now diving further into the income statement, starting with NII and the balance sheet. Net interest income was $1.94 billion for the quarter, above our March expectations. Net interest margin expanded 17 basis points to 330 basis points, driven by the impacts of the Chimeric acquisition. That includes 7 basis points from securities portfolio marks and repositioning basis points from cash flow hedge termination and 2 basis points from purchase accounting accretion on the loan portfolio. A full quarter of these impacts will benefit NIM by a few additional basis points in the second quarter. End-of-period loans were $178 billion, up 2% sequentially from pro forma combined year-end balances. Average total loans were $158 billion, reflecting the February 1 close. The growth was broad-based, strong middle market production, a rebound in line utilization and continued momentum in home equity, auto and our Provide fintech platform. In commercial, line utilization ended the quarter at 40.7%, up approximately 120 basis points from the pro forma combined year-end level and notably held steady throughout the volatility in March. Clients are cautious, but active. On a legacy Fifth Third basis, commercial loans grew 6% year-over-year. Combined with the Comerica addition, shared national credits now represent only 26% of total loans, a deliberate and ongoing reduction in concentration risk. On the consumer side, first quarter auto originations were the highest in 2 years with average indirect secured balances up 10% year-over-year. Home equity balances grew substantially, supported by both the acquisition and strong underlying production. We achieved the #1 HELOC origination market share in our legacy Fifth Third branch footprint. With an average portfolio of FICO of 773 and average loan-to-value of 64%, the production strength is real, and the credit discipline behind it is equally real. Turning to deposits. Average core deposits were $207 million, and the end-of-period core deposits were $231 billion. Noninterest-bearing balances comprised 28% of core deposits at quarter end, up from 25% at the same point last year. That improvement reflects the combined benefit of Comerica's commercial DDA franchise and our continued organic consumer DDA growth. The household growth can strip is showing up directly in our funding costs. On a legacy third basis, consumer household growth of 3% over last year, supported 4% consumer DDA growth. Total deposit costs, including the benefit of noninterest-bearing balances were 158 basis points in the first quarter, a funding cost profile that compares favorably across the peer group. Interest-bearing deposit costs were 215 basis points, down 27 basis points year-over-year, reflecting both that organic deposit mix improvement and the benefit of the Comerica balance sheet. Despite the larger balance sheet, our approach to balance sheet management is unchanged. We prioritize granular insured deposit funding over large wholesale holds. We maintain strong liquidity buffers, and we proactively manage the overall cost of funds. That discipline showed up again this quarter. Average wholesale funding declined 3% year-over-year, even with Comerica balances included. That favorable mix shift lowered the cost of interest-bearing liabilities by 36 basis points. We also maintained full Category 1 LCR compliance at 109% and a loan-to-core deposit ratio of 76%. Now turning to fees. Adjusted noninterest income, excluding securities losses and the other items listed on Page 4 of our release was $921 million, slightly above the midpoint of our March expectations. The most significant milestone here is that both wealth and commercial payments are now generating fee income at the run rate necessary to deliver $1 billion each in annualized noninterest income. That outcome reflects years of consistent, disciplined investment in both businesses and the recurring nature of the revenue. Looking further at wealth, fees were $233 million and total AUM ended the quarter at $119 billion. Legacy Fifth Third AUM trends remained strong, up $10 billion or 15% over last year. Fifth Third Securities delivered strong retail brokerage results, with revenue up 15% year-over-year. These are businesses that we have been consistently investing in and the returns are compounding. Commercial payment fees totaled $218 million for the quarter. Direct Express contributed $14 million in fees for the quarter and approximately $3.7 billion in average deposits for the month of March. New line continues to drive strong fee growth of 30% year-over-year and related deposits reached $5.5 billion, up $2.7 billion from last year. Capital markets fees were $134 million, up 11% sequentially. Increased hedging activities and commodities and FX and strong bond underwriting fees combined with 2 months of [indiscernible] activity were the primary drivers of this growth. Turning to expenses. Page 5 of our release details certain items that had a larger impact on the noninterest expense this quarter, primarily $635 million in merger-related expenses. Adjusted noninterest expense was $1.77 billion, consistent with our guidance. The adjusted efficiency ratio was 61.9%, which reflects the addition of Comerica and normal first quarter seasonality associated with the timing of compensation awards and payroll taxes. On the synergy front, we remain confident in our ability to achieve the $850 million of annualized run rate cost savings in the fourth quarter of this year. Integration activities are progressing as planned against our established milestones and savings are being realized. The expense benefit will build steadily over the first 3 quarters of this year with a more significant increase in the fourth quarter. Once the system conversion and branch consolidations are completed in early September. Shifting to credit. The net charge-off ratio was 37 basis points for the quarter, in line with our expectations and the lowest level in 2 years. The NPA ratio was 57 basis points compared to 65 basis points last quarter. Commercial net charge-offs were 26 basis points, also a 2-year low with stable trends across industries and geographies. Consumer net charge-offs were 58 basis points, down 5 basis points from last year. The consumer portfolio remains healthy with nonaccrual and over 90 delinquency rates relatively stable across all loan categories. We have been deliberate about where we choose to grow. Our exposure to nondepository financial institutions represents only 7% of our total loan portfolio, well below the industry average. Our 3 largest categories are subscription lines supporting capital call facilities, corporate credit facilities to traditional institutions such as payment processors, insurance companies and brokerage firms, and secured lending to residential mortgage-related entities. These are long-standing portfolios. We have deep underwriting expertise in each of them, strong collateral visibility and structural protections where needed, including borrowing base requirements and advance rates that provide significant loss absorption before we would recognize $1 of loss. On private credit, we have chosen not to participate meaningfully in lending to private credit vehicles and business development companies, which combined represent less than 1% of total loans. That was a deliberate decision, not a missed opportunity. The structural complexity embedded in these exposures introduces risks that are harder to assess through a cycle. We would rather grow in categories where we have more transparency to the collateral and have direct relationships with the underlying borrowers. On software and data center lending, we have maintained that same disciplined posture. We believe in the long-term demand for AI infrastructure, but we have also seen how quickly these build cycles can overshoot. We have remained selective and our exposure is intentionally limited. Software-related exposures is less than 1% of total loans, with the portfolio performing in line with expectations with no material migration in the quarter. ACL as a percentage of portfolio loans and leases decreased to 1.79%, primarily reflecting the [indiscernible] acquisition. The ACL as a percentage of nonperforming assets increased to 316%. Provision expense included $83 million for merger-related day 1 ACL build. Our baseline and downside cases assume unemployment reaching 4.5% and 8.5%, respectively, in 2027. We made no changes to our macroeconomic scenario weightings during the quarter. though a qualitative adjustment was applied to reflect the direct impacts of the elevated energy and commodity costs as well as the broader implications for economic growth, inflation and unemployment in the current geopolitical environment. Moving to capital. CET1 ended at 10% and reflecting the impact of the Comerica transaction and strong RWA growth. Under the proposed capital rule, our estimated fully phased-in pro forma CET1 ratio is 9.6%. The RWA benefit to capital ratios associated with the new rule is nearly a 100 basis point improvement, primarily due to credit risk RWA reduction. The proposed rule recognizes the granular, well-secured and relationship-based nature of our loan portfolio. The same portfolio characteristics we have been deliberately building toward over the past several years. The [indiscernible] should expand the ability of the banking industry to support the economy through increased lending capacity. Additionally, our tangible common equity ratio, including the impact of AOCI and the Comerica acquisition increased to 7.3%. Over the last 12 months, the impact of unrealized losses included in the regulatory capital under the proposed rule has decreased by 16%, a 25 basis point improvement to the pro forma capital ratios despite an 11 basis point increase in the 10-year treasury rate. That is the direct result of our strategy to concentrate our AFS portfolio and securities that return principle on a known schedule, which represents approximately 55% of the fixed rate holdings within our AFS portfolio. We expect continued improvement in the unrealized losses as the securities [indiscernible]. Moving to our current outlook. Our outlook reflects the forward curve at the end of March, which assumes no rate cuts or hikes in 2026. Given the updated rate outlook and our more asset-sensitive balance sheet, we are updating our full year NII outlook to a range between $8.7 billion and $8.8 billion. We will continue to take actions to move the balance sheet to a more neutral rate risk position over time. which could include investment portfolio and/or other hedging actions. Our outlook for full year average total loans remains in the mid $170 billion range. Full year noninterest income is expected to be between $4.0 billion and $4.2 billion, reflecting continued revenue growth in commercial payments, capital markets and wealth and asset management. Full year noninterest expense is expected to be $7.2 billion to $7.3 billion, including the impact of $210 million of CDI amortization and $360 million of net expense synergies in 2026. This outlook excludes acquisition-related charges. In total, our guide implies full year adjusted PPNR, including CDI amortization, up approximately 40% over 2025. We remain on track to exit 2026 at or near the profitability and efficiency levels consistent with our 2027 targets. For credit, we expect full year net charge-offs between 30 and 40 basis points. Turning to capital. With the release of the proposed capital rule, we are updating our CET1 operating target to a range of 10% to 10.5%. We expect to resume regular quarterly share repurchases in the second half of 2026 with the amount and timing dependent on the balance sheet growth and the timing of the remaining merger-related charges. Our capital return priorities are unchanged, pay a strong dividend, support organic growth and then share repurchases. For the second quarter, we expect average loans of $178 million to $179 million, driven by growth in C&I, home equity and auto, is projected to be $2.2 billion to $2.25 billion with NIM expanding another 3 to 5 basis points. Noninterest income is expected to be $1 billion to $1.06 billion, and noninterest expense is expected to be $1.87 billion to $1.89 billion. Finally, net charge-offs are expected to be 30 to 35 basis points. The first quarter established the foundation. NII above expectations, tangible book value per share growth intact credit at a 2-year low integration on track and early revenue synergies beginning to show. Those results matter, not just for what they are, but for what they signal. The core business is performing. The integration is delivering. And as we move through the year, the financial profile of Fifth Third will continue to improve in ways that are visible, measurable and consistent with everything we have committed to when we announced this combination. We have the balance sheet, the business mix and the team to get there. With that, let me turn it over to Matt to open up the call for Q&A. Matt Curoe: Thanks, Bryan. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to 1 question and 1 follow-up and then return to the queue if you have additional questions. Operator, please open the call for Q&A. Operator: [Operator Instructions] We'll go to our first question from Mike Mayo at Wells Fargo. Michael Mayo: As you highlighted, this is the biggest acquisition in your firm's history. And it sounds like it's on track from your prior guidance with the Labor Day integration, $850 million run rate savings by the end of fourth quarter. I think we kind of knew that already, but what's incremental in the last 3 months or since your last presentation that you think is maybe going better than expected? Is that any of that higher NII guide due to the expansion in Texas and the promotions? And also, where are you seeing some of the snags? There's always issues with these things, what do you need to make sure you work out and doesn't kind of let down the progress? Timothy Spence: Yes. Mike, it's Tim. I'll take an initial crack at that one, and then I'll let Bryan clean it up. So yes, I mean, we think we did a pretty good job of summarizing the past. As you know, when it comes to these large transactions, the absence of any surprises is a positive, right? So getting 1 quarter closer to a point where we're operating on a single common platform is an important milestone unto itself. In terms of just the core integration, I think things have gone really well. There really haven't been big surprises. We have all the -- we completed the Walk-the-Wall planning exercise that we run all the customer day when deliverables have been locked. I think there are 46 new to Fifth Third applications, which, as we mentioned, from a technology perspective previously primarily support the Tech and Life Sciences business and the Dealer Services business. plus a couple of things in payments. I think the data strategy and the data conversion, that work is completed. All the risk-based process reviews we needed to get done which are essentially the click down from the work that got done in diligence have been completed, and we know where the product gaps are that need to get filled. The org charts are done, as I mentioned in my remarks, and we've selected the key leaders. I'm pleased it's very early days. So this is not by any stretch of the imagination declaration of success. But that sort of employee attrition is actually running a little bit below the historical levels. So we're not seeing any sort of elevation in attrition. I think the positive surprise is actually what is happening in Texas and then even more broadly across the Southeast, is it related to promotional activity. We got a lot of questions after we announced the deal about whether the playbook that's worked so well for Fifth Third and the Southeast would work in Texas and in the Southwest more broadly. So that initial mailing that I referenced in my prepared remarks was a test, right? It was the test and learn process so that we could reground our targeting and expected balance models on empirical data in Texas. We mailed 700,000 households. Response rates were good. The fact that more than half of customers open checking even in an environment where there are still -- all the legacy tech limitations that Comerica had are still in place. I think is very good. But maybe the more exciting thing is that having regrounded the models, we dropped the subsequent mailing on the 10 to 11 of this month to 6 million people and the very early results there are super positive. Like with the sort of reground of the analytic models, like we're getting 3x the response rate that we see at this stage in a campaign packets. And we actually expect that campaign alone to generate $1 billion in deposits across Texas, Arizona and California, which would be great. Now that is all incorporated in the guide to be clear. That's not above and beyond the guide. But it just speaks to a, the fact that the tactics that we are using in the Southeast are going to work in the Southwest and B, the fact that Comerica had not run any sort of external consumer marketing in 13 years. means it's a relatively unsaturated market for us. And therefore, if anything, I think my optimism about our ability to gain share there has improved. Then in terms of what what's not working. We got a little bit of an internal civil war here between people who like their Chile with beans, no beans or on spaghetti. So that we're going to have to solve before we can truly say we're one company. Michael Mayo: All right. That's kind of like my weakness as I work too hard. But okay, I'll [indiscernible] so just I guess is just interesting, like you guys said had very old last century, all these mailings and stuff, but 6 million mailings it sounds like you're getting $1 billion of deposits that will pay off. But how does -- this is all America accounts right now, right? And so after Labor Day, they're all going to become the third accounts. And so seems like that transition has some risk too, going from America to actually branded Fifth Third. How do you manage that transition? Timothy Spence: Yes. I mean the tech conversion, as you know, right, is the single largest point of risk in a transaction because I think we've got a very good employee value proposition here. we've got, on a combined basis, more capability than either company had to serve clients and those things are good for people that the Code Red event that could occur would be if you made a mistake on the tech conversion and either people couldn't access their accounts or you had service issues or processing issues or otherwise. So we're definitely always mindful of that. Assuming that we execute the conversion well, the way that we did with MD as an example, then I actually think the tech conversion is a positive. There'll be a bake-in period where people will need to learn to navigate new interfaces, whether that's the consumer mobile app or the commercial portals and otherwise. But the capabilities that are [indiscernible] in Fifth Third digital channels are much broader than exist inside Comerica's current channels. The point I made about the managed services, like those are software solutions that we offer in commercial payments. The fact that we've shown those things to 100 Comerica clients, we have 2/3 of them as qualified leads in the sales pipeline sort of speaks to the tech quality. What the conversion will allow us to unlock though, is all the digital marketing channels. Like the reason we're not doing digital marketing to support the Southwest markets today is because Comerica can't open consumer deposit accounts digitally. And therefore, there's no sense in using them. once we're under the Fifth Third brand and on the Fifth Third tax stack, the 50% of our direct marketing that gets done via digital today, all of a sudden then becomes viable in the Southwest and all the household growth tactics that we use in addition to the deposit growth tactics and the Southeast become viable as well. Operator: We'll move to our next question from Scott Siefers of Piper Sandler. Robert Siefers: Maybe Bryan hoping to start with you something you can speak to some of the underlying drivers in the core margin. I think I know you suggested the reported level should expand another few basis points in the second quarter due to the full quarter's impact of Comerica. But maybe you could sort of speak to dynamics such as overall rate positioning, which I think you touched on, but maybe competitive dynamics on the loan and pricing side, just those kinds of things that you're seeing? Bryan Preston: Yes. Absolutely, Scott. Thanks for the question. As I mentioned in my prepared remarks, we are asset sensitive today. That is certainly a factor that we are focused on as we think about trying to move to a more neutral position over time. We feel very good about how we're positioned, and that's obviously one of the things that's gone well for us with. The current volatility in interest rates, it's given us some opportunity to do some things in the investment portfolio and put a few positions on in the quarter at pretty attractive levels. So we do feel good about that. From a driver perspective, we do expect some additional improvement from fixed rate asset repricing over the remainder of the year. From a magnitude perspective, it's a little bit less impactful than it has been because 1/3 of our balance sheet was effectively repriced on the with the Chimeric acquisition. So we are still seeing some good trends there. on the legacy Fifth Third portfolio. But obviously, that's just a smaller percentage of the balance sheet now. That's probably 1 basis point, 1.5 basis points kind of pick up each quarter through the end of the year and feeling good about trajectory that gets us approaching to exiting the year closer to 340 from a NIM perspective. So a lot of things going well from a net trajectory perspective. The environment, obviously, it's competitive, we're in an industry that is always competitive, both on the lending side and on the deposit side. I would tell you that it is competitive but not irrational right now. Loan spreads have come in a little bit, but aren't crushing at this point. And we are just seeing normal deposit competition with the Midwest continues to be the most competitive deposit market that we're seeing from a consumer perspective, more competitive than the Southeast, and we're still trying to get a better sense of what Southwest looks like, but it does not look like it's going to be an outlier relative to other markets. Robert Siefers: Okay. Perfect. And then maybe a higher level question here. You all talked about the fourth quarter of this year, representing sort of the time when we really see the full run rate accretion, returns, efficiency. Basically, all the benefits from the Comerica transaction. Basically, all your numbers are going to be at or near best-in-class. As we start to look to a post sort of post Comerica time like into next year when those benefits have really become realized how will you sort of think about balancing additional improvement in profitability, returns, efficiency? Or will those at that point represent sort of steadier states as you do things like invest to just ensure that the levels you reach remain durable over time? Timothy Spence: Yes, that's a good one. And we've been getting a variant to that Scott, over the last, call it, 90 days about, hey, are the synergies durable? Or do they need to be reinvested? I have been telling people if you have to spend it in some other way, that's not an expense synergy. It's a capital application play. So we absolutely believe we can sustain the level of profitability that we expect to achieve in the fourth quarter and continue to improve it. I grew up in the cradle of distance runners and Nike posters as [indiscernible] on my wall going up. So the view here is like there's no finish line, right? We just have -- we've so much in front of us, right? So you want to generate a strong return on equity under any circumstances. But then you want to make the decision at the margin. So if we're at 19%, and we've got a 53% efficiency ratio, the decision on the margin should always be do we utilize continued strength in operating performance to drive higher profitability and boost the TBV the TBV multiple -- or do we focus on growing tangible book value per share or doing a little bit of both of those. I just think we're going to have the ability to continue to do both. Like when I got here 11 years ago, under [indiscernible] 1/4 of the U.S. population lives in our footprint. Today, more than half of the U.S. population does as Bryan mentioned in his remarks, 17 of the 20 fastest growing large metro areas in the U.S. are now in the footprint, and we have a credible as the top 5 market share in all of them. I think we have the freshest branch network. If you just look at it by age of any of the [indiscernible] 3 or 4 banks and maybe any of the LFI banks. We've got this payments business now that's benefiting when nonbanks actually take share from banks, which is great. And we have this huge influx of bankers from Comerica who have the shackles off of them, right, in terms of not being capital or liquidity constrained. And I'm proud of the track record we have for tech innovation. So we will continue always to invest in the core business with the expectation that at 19 -- like 19% ROTCE is great. And if we run out of ideas, then we'll focus on getting 19 to be 20 or 21 or 22. And otherwise, it will be about growing book value per share. Operator: Next, we'll go to Gerard Cassidy at RBC Capital Markets. Gerard Cassidy: Tim, did you have a [indiscernible] poster too with Steve's poster? Timothy Spence: I had Steve and Dick [indiscernible] At my height my lack of foot speed, you had to go with the field athletes as well. So [indiscernible] Gerard Cassidy: Got it. Good for you. When I look at your utilization trends that you gave us, and you touched on it in your prepared remarks, in the appendix, I think it was -- it jumped up nicely from 34.9% in the fourth quarter to 40.7%, and then you give it ex Comerica. Can you give us some color in 2 areas: one, legacy Fifth Third, what you're seeing there? And then also legacy Comerica what are they seeing? Bryan Preston: Yes. From a utilization perspective, Gerard, I would tell you, it's fairly consistent what we're seeing across the Fifth Third Platform and the Comerica platform. which is middle market customers, we're starting to see use a little bit more activity there. We also saw a nice rebound from a corporate bank perspective. I do think part of it was some of the activity that we were seeing from a capital markets perspective because we did see less pay down this quarter from a capital markets payoff perspective. But it was really a -- and we think it was the rebound that we were expecting associated with some of the tax bill benefits coming through, where we just saw some more active spending happening as customers were working through the environment. And then obviously, later in the quarter, obviously, some impacts associated with the situation in the Middle East. Timothy Spence: Yes. Maybe the one thing I'd add there, that is at least based on the cursory read I did other banks that have reported thus far as one thing we didn't see that a lot of other people size. We didn't get a lot of the loan growth from private equity or price capital. So if you look at the growth in loans, less than 10% of it, in our case, came from private equity or private capital. And my quick read through it may be as high as 80% of a lot of other places. One of the things that's comforting about the Comerica portfolio is, they're a lot like Fifth Third in the sense that we bank [indiscernible] businesses, right, primarily privately real economy businesses. People make things or move them or warehouse them or sell them or core services like health care. And otherwise, between the 2 of us, we were both on the low end of the as a percentage of total commercial loans tables. And it just hasn't been a growth focus for us. I think the other thing I might flag there since I know it's come up as we have less than $100 million of funded exposure to data centers, what we definitely have been on the more skeptical end of the spectrum on that front. We talk internally about the fact that we wouldn't underwrite an energy loan without a petroleum engineer looking at the projections. And I don't think there are a lot of us employing AI researchers the cost that they are to help underwrite data center facilities. It's just there's such a long history of overbuilding tech infrastructure anytime there's a platform shift. And the obligors are a little less clear than we personally would prefer. So that is where the growth wasn't coming from in our case. Gerard Cassidy: Very good. And then just one follow-up on the credit quality, which brand you pointed out, the guide for [indiscernible] is very good in the numbers in the quarter are good. One question in the commercial side of the portfolio. And I know this number moves around because of the nature of it. But the 30 to 89 delinquency numbers, even though low. When you look at the commercial and industrial going to 38 basis points of the CRE going up, any -- is it -- anything there that we should just keep an eye on? Or is it just because of the combination of the 2 companies and people maybe didn't know where to send payments. I know that sounds kind of strange, but any color there? Timothy Spence: Yes. It's not quite as basic as they didn't know where to send payments, but the majority of the increase there, Gerard, was 2 credits, and the payments got made on April 1. So if we could have reported all of this as of April 2, you wouldn't have seen the jump that materialize there. Operator: Our next question comes from Ebrahim Poonawala at Bank of America. Ebrahim Poonawala: I had a question first just on deposits. As we go through all these updates does feel like funding is a much bigger constraint for banks as we move forward than capital. Just talk to us around this Southeast strategy what seems like an intense environment. How we -- how are you converting clients acquired through promotions into core checking accounts. Is that happening? Just kind of remind us on where that stands? And maybe tied to the -- one of the previous questions, Tim, when you think about opening these branches in Texas 3 to 5 years from now, just a degree of confidence that branches will still be as relevant 5 years from now as a client acquisition tool as there today? Bryan Preston: Yes, good question. So Yes. I think your point is an important one, your ability to convert relationships into essentially new clients, right, whether you attract them through rate or cash bonus or because of the new branch opening or otherwise, in the primary long-tenured relationships. That's effectively the seed corn for everything that we do because we have an acquirer once and then maximize wallet share strategy. That's the reason we keep disclosing the household growth rates in the Southeast, like those are primary households. If accounts going active, they get washed out of that number. And so you could trust that the 3% overall and in this case, the in household growth in the Southeast, the sort of 7%, 8% range we've been running at as a real number. It's active accounts in 1 period divided by active accounts in the same period the year before, minus 1, right? Timothy Spence: So the population growth in the Southeast is 1.5% to 2% per year in any given market. Our growth rates have been 7% to 8%. So we're generating 3 to 4x the growth on a net basis that the market is experiencing on a net basis. which I think should be the sort of best proof point you can rely on that we're making the conversion. Savings promotions don't count in that number. anything we do with loan products, home equity, et cetera, that doesn't count in the number that's primary checking customers. In the Southwest and in Texas, that we have 81 or 82 of these properties locked up. We're going to have branches opening next year, not in 3 to 5 years, just to be clear. And I think the measure of their importance, like I actually like to think about branches, if you don't think about them as stand-alone mechanisms to generate new account growth, the other way to think about them is attributes, which boost response rates to direct marketing, whether that's digital or male. And there is a nonlinear decay function in response rates and expected value. The further you get away from a Fifth Third branch by drive time in our models today. It's 1 of the more powerful variables in dictating who gets a digital offer, like the IP range or the ZIP code in the case of a mailer actually drive whether or not you see Fifth Third promotions. And as long as that decay function exists, the branches are playing a role in driving our ability to grow the franchise. And I just don't expect human behavior to change that quickly. it certainly hasn't ever in the past. Ebrahim Poonawala: Got it. And just one quick follow-up. You mentioned this a few times in terms of do you mean anything between NBFI growth versus non-NBFI. One, like do you see -- like why do you not -- like do you see the embedded risks in that lending that you don't like? Just give us a sense of like when you evaluate why is it attractive for so many of your peers and not so much when you assess that for Fifth Third. Timothy Spence: Yes. I mean I'm not making a call on private credit and viability. I don't personally believe it's going to go away as a category. I think our view generally has been that the private credit industry is going to be much smaller in the future than people were worrying about like their 2 strategies for growth were retail money, which was always a bad idea and which has been demonstrated again to be a bad idea and by promising returns of 8% to 9%. And which we just viewed as being unrealistic, right? Banks run at like 8 to 10x leverage to get a 15% return. And we have loan revenue, deposit revenue, fee revenue in the mix. the idea that private credit could deliver 8% to 9% with, call it, 2x to 3x leverage with loan-only revenue, just always felt like it was unrealistic. So is there a place in the investment spectrum or on the efficient frontier for something that offers a return between corporate bonds and equities, like absolutely. It just doesn't feel like it's going to be anywhere near the size. Now we're not a very big player in this market. Comerica and Fifth Third together had somewhere around $1 billion of private credit or BDC activity. So I can't speak to the leverage points a lot of others are. The reason we avoided is because we couldn't figure out what total leverage was in these structures between the portfolio companies the back leverage and the NAV lending and the lending to the companies that were doing the NAV lending and the capital call and all the rest. And we don't like things that we don't understand. I think for me, at least, though, the bigger reason to avoid it is it's -- that is not an industry that like lending to is not a place where banks are going to build competitive barriers, which means the return profile is just eventually will gravitate to cost of capital. And we want to generate returns in excess of cost of capital. So when you let your line of business, get too addicted to getting growth from something that's going to be a cost of capital hurdle. It distracts them from focusing on the things that could generate excess returns like primary relationship lending, like managing wallet share, like establishing lead-left positions -- and so that is where we want to get the growth from. It's stuff that can generate a 19-plus percent return over time, not something that's going to generate 11%, 12%, 13%, 14% return over time. Operator: We'll move next to Manan Gosalia at Morgan Stanley. Manan Gosalia: I think in the prepared remarks, you mentioned that the proposed rules recognize granular, say, for well-collateralized loans. So I think you were pointing to opting into ERB. So first, I just wanted to clarify that. And then my main question, Tim, when you think about EBA given that it would allow banks to hold less capital against higher quality loans. Do you think it creates some sort of disincentive or negative credit selection for banks that don't opt in? Bryan Preston: It's Bryan. At this point, we're still evaluating whether or not we will opt in to era. It's not necessarily the driver of creating the big benefit for us. [indiscernible] is probably an incremental 10 or so basis points relative to the numbers that I quoted. And then obviously, there's some complexities associated with data and models and systems in place necessary to do some of the calculations. So that's something that we're still evaluating. There is always some regulatory arbitrage out there, whether it's within the existing capital rules and use of securitization style structures from just general lines or how private credit participates in in the regulatory landscape as well. So there is always that aspect of competition and ultimately, how you think about capital allocation across I don't think it will have ultimately [indiscernible] would have a really big impact ultimately on competitiveness across the industry and between the banks that opt in and those that don't. Timothy Spence: Yes. And I guess the only thing I'd just add there is it sort of depends on how you underwrite like not every bank, just at least 15 years ago when I was a consultant -- not every bank underwrote to the same binding constraints. Not every bank thought the same way about how they calculate returns. The binding constraint here. Obviously, we think about Red Cap and the return on Red Cap in terms of the performance of the company as a whole. But when we look at individual credits, we look at into the amount of economic capital that those credits should attract given the way that we risk rate the credits both in terms of default probability and loss given default. So if all you were looking at was the same capital charge for every loan you underwrite like in a non-urban environment. I think you run into that risk. But certainly the way that we approach it. The decision to opt in or out is going to get made at the macro level. and the individual underwriting decisions and the return calculations get done at an individual company level. Manan Gosalia: Got it. That's really helpful. And then now that we have the proposals for capital I think the focus has been turning to the liquidity rules. I guess the question for you is, what would you like to see there on the liquidity side? And is there something that you want to see that would cause you to manage your liquidity differently from what you're doing? Bryan Preston: Yes. I think the most valuable thing for the industry is some credit and the liquidity rules associated with your secured lending capacity at at places where you know the liquidity is going to be there. Think about your FHLB borrowing capacity against your securities, discount window or repo facilities like those will be areas where getting some credit associated with that off-balance sheet liquidity would be very valuable for the industry. That is probably one of the more significant. We would also like a little bit more rationality on deposit outflow assumptions. That is an area where there has been significant pressure on the industry across the old horizontal liquidity exams that were occurring. And I just think we've ended up in a spot where the assumptions that are embedded in most liquidity stress tests today are just absurdly high relative to some of the core banking relationships, in particular, the operational deposits that are attached to treasury management services. Operator: We'll go next to Chris McGratty at KBW. Christopher McGratty: Tim, I want to come back to the comment about the Midwest being more competitive in the Southeast. It seems somewhat contrary to where all the capital is being allocated from a lot of the banks. Can you unpack that a bit? Timothy Spence: Yes. I mean Chris, this has been true. It's like one of the interesting factors that just been true for a very long time. I think you had 2 dynamics in the Midwest that are a little bit unique relative to the rest of the country. One, historically, you've had a lot more regional banks headquartered in the Midwest, right, and less in the way of trillionaire market share and less consolidated markets tend to be more competitive. That's just -- that's not a blinding insight on my part. That's just economics 101. The second factor is credit unions play a much more prominent role in a lot of the Midwestern markets than they do other places elsewhere in the country. And credit unions tend to be optimizing for very different factors like do not help do a profit mandate and therefore, they tend to be optimizing around just absolute levels of liquidity needed or otherwise. And so the sort of combination of more fragmented markets and an actor that's optimizing around a different set of goals just produces higher levels of deposit competition. That, I think, for us has been 1 of the interesting things as we moved into the Southeast as we have this double benefit of both having a small existing share and, therefore, a low cannibalization cost of any new marketing campaign that we run, right, which is a little bit like Judo you're using your opponent's weight against them. And the fact that at the margin, the marginal dollar in the Southeast is still a little bit cheaper to raise than the marginal dollar in the Midwest. It means we can be more aggressive and still have a very nice impact on the franchise overall. Christopher McGratty: Great. Yes, definitely, with the Chicago being one of the more competitive markets and fragmented. Timothy Spence: I don't know that there's another state with 3 regional banks headquartered in it either the way that Ohio has [indiscernible] Fifth Third and [indiscernible]. Christopher McGratty: Sure. And then, Bryan, just on the full synergies, the cost saves mapping out, can you I guess, help with exit run rate on efficiencies. It feels like low 50s in this year and you kind of go into next year from a pretty good position. But just could you find in that for me? Bryan Preston: Yes. I mean we're -- the expectation is -- that we talked about as being in that 53% range in 2027. Our fourth quarter efficiency ratio is always our lowest efficiency ratio for the year. So I would expect us to be a good point, 2 points below that 53% in the fourth quarter. Operator: We'll go next to Peter Winter at D.A. Davidson. Peter Winter: I was just wondering -- when you first announced the Comerica acquisition, you were targeting a 27% EPS of 4.89. But now that you spent more time with the company, you're getting some early wins on the revenue synergy side, do you see upside to that number because it did not include any revenue synergies? Bryan Preston: Yes. I mean, obviously, that's something that's part of the deal that we would not contemplate any revenue synergies. So anything that we are seeing would be upside. So we do feel good about kind of the progress there. I think we will be striving to outperform what is there? Obviously, 2027 is a long time away and the environment, the rate environment and a lot of other things can change. But we certainly are more positive today about the opportunity in front of us, even though we were incredibly positive at the time of the acquisition. So a lot of things are going well, and we feel good about the trajectory of the company. Peter Winter: Okay. And then if I could just follow up, just -- if I think about Fifth Third, one of the strengths has been managing the balance sheet in different interest rate environments. But Bryan, where are you in the process of repositioning Comerica's balance sheet? You mentioned it's you're asset sensitive now, but how quickly do you want to get back to neutral? Or would you slow walk it just given the higher for longer rate environment? Bryan Preston: The higher for longer rate environment and our outlook and like we are very cautious around what could happen out the curve. So we are trying to make sure that we're balancing capital risk as well with a downrate risk. And all the things that's happened even over the last month or so when you think about what it's going to do to inflation and what is honestly still a fairly reasonably strong economic activity that we're seeing. We just see that there is more bias right now for the higher for longer outlook. So with that, we're probably moving a little bit slower. But as that outlook changes, we would have an ability to accelerate. There's probably in the neighborhood of $30 billion to $40 billion of kind of notional exposure that we could move out the curve as our rate environment out changes. That gives us a lot of flexibility as we navigate this environment. And we think even if you were to start to see some more significant cuts again that what you're likely to see is some amount of steepening that gives you some opportunity for us to deploy and maintain and even grow NII even in a falling rate environment. Operator: And next, we'll go to Erika Najarian at UBS. L. Erika Penala: Just one question because I know we're pushing the limits of length of time. But Bryan, given that there's no cuts in the curve, could Fifth Third maintain deposit costs even if there are no cuts Tim, your ears must be burning because even your money center peers are talking about your competitiveness in their markets. So just wondering what the deposit cost outlook is in an environment where the Fed is not cutting. Bryan Preston: Yes. We absolutely think we can maintain deposit costs even in an environment where the Fed is not cutting. The real wildcard there is ultimately what the balance sheet needs from a growth perspective. If we see a more aggressive loan growth environment, that is an environment that would put a little bit more pressure on deposit costs, but in a fairly rational kind of normalized growth environment, we think we could -- we think we have a lot of optionality to be able to maintain deposit costs where they are. Operator: And next, we'll move to John Pancari at Evercore. Unknown Analyst: This is [indiscernible] on for John. Just one on the fee side. Solid results in the quarter, healthy guide despite the volatility in headlines if this subsided at all, you see this driving much upside from the billion quarterly run rate. I think our wealth and capital markets like you mentioned, I think about how much conservative might be baked in the guidance now again versus potential upside? Bryan Preston: Yes. I mean there's always a little bit of conservatism we put in place relative to capital markets. which we've been talking about hoping for a kind of more stable productive environment now in the hedging environment for a couple of years. So we do think there's opportunity for that as a more stabilized environment to come out. Obviously, that will be helpful from an M&A perspective as well. The rest of the few businesses have been doing fairly well without or even with the uncertainty that we've been facing. So we feel like the tailwinds there and the investments we've been making from a sales force and a production perspective, positions those businesses to continue to grow as well as the investments from a payments perspective and just the categories that we're attached to. So certainly, we think that there is opportunity from a fee perspective to continue to see good outcomes. Operator: We'll take our next question from Ken Usdin at Autonomous Research. Kenneth Usdin: Just one question, just given that it's a partial close quarter. I just wanted to understand the moving parts a little bit. Can you help us understand the dollars of purchase accounting accretion that we're in what you're expecting for 2Q and just how that cascades in terms of the schedule? Bryan Preston: Yes. If you look at the -- we tried to lay that out in our slide deck and our NIM walk. So if you see, there was about $12 million of purchase accounting accretion associated with the loan portfolio in the first quarter. And I think the easiest way to think about that is it's really just 2 months of activity. And it will burn down relatively gradually over the next few years. Most of that is associated with combination of commercial portfolio. So that has a little bit shorter tail on it than if it were residential mortgage exposures. That is kind of the main piece from a purchase accounting accretion perspective. the securities, kind of what was embedded from a securities perspective is basically bringing those securities to current market rates. So the assumption there should there should just be based off of how you think about where market yields are going through the securities. Unknown Analyst: Okay. So basically, that if that's one line that you mentioned in your prepared remarks that [indiscernible] becomes a little bit more in the second quarter. So it's really just that 12% kind of run rating. Is that the only -- I just want to like understand the magnitude of how much of help that is going forward? Bryan Preston: Yes. Well, basically the 12 becoming probably closer to mid-teens when you think about adding a note [indiscernible] for next quarter. Unknown Analyst: Okay. And then just a real quick one. You mentioned also in your prepared remarks that you might get back into the buyback in the second half. Your CET1 with AOCI still on the lower end of peers. Any way to think about like what that looks like when you get to that point? Bryan Preston: Yes. I think in the normalized -- I think in a normalized environment, we would be talking about kind of $200 million to $300 million of buybacks is what our quarter was what our historical run rate has been. Obviously, it's going to be very dependent upon how much we need to support organic growth because being able to lean into lending is an area that is obviously a priority for us always because we'd rather deploy the capital. And earn a higher return, as Tim was talking about, our ability to attract customers and generate high-teens returns is we think, is the best outcome for shareholders. For this year, it's probably going to be a little -- it's going to be less than that as we get into the second half, but we still think there's going to be some opportunity to restart buybacks. Operator: Next, we'll move to David Chiaverini at Jefferies. David Chiaverini: Question on dividend finance. It looks like the deceleration you anticipated is starting to come through in the related uptick in NCOs there is beginning to occur as well. How high should we expect this NCO rate to trend so that we're not surprised given the slowdown is fully anticipated. Bryan Preston: Yes. I think -- it's a good question, and it's one that we think the range we're in right now is probably a reasonable range to expect for a period of time. Obviously, this is an industry that is facing a significant amount of disruption as a result of the tax bill and basically creating a war the leasing product is economically advantaged relative to the lending product. That was not an environment that when we did the original acquisition that we were expecting. We're having a -- we're working through it, and it's obviously not a growth asset for us anymore. But I think the range we're in right now from a charge-off ratio perspective is probably where [indiscernible]. David Chiaverini: Very helpful. And then shifting over to HELOC. The HELOC growth is off to a very strong start in the first quarter, and more than offsetting that headwind on dividend finance. What's driving the strong growth in HELOC? Is it Fifth Third's pricing? Or is it grassroots loan demand from customers? And what is the outlook for this business? Bryan Preston: Yes. The first quarter benefit some from the [indiscernible] acquisition as well. This -- of their consumer lending categories, HELOC was one of the categories that had some loan balance. So that is a driver of probably about half of the first quarter growth. But beyond that, what we're seeing is actually just good grassroots activities. We've made a lot of improvements to that business. and the customer experience in that business over the last couple of years. So it's put us in a spot where we have a really nice engine that's running right now. We're seeing good activity from a branch perspective. The improvements that we've made from a technology and underwriting experience perspective has made it a product that is easier for the bankers to sell. It has just been something that we're seeing a lot of good activity on, and we've also been able to actually lean in to a little bit of marketing in the space as well. And customer acquisition tactics. And honestly, when you just take a step back and think about the dynamics of the amount of home equity that is out there in the market right now and the lack of housing turnover that's occurring. It's just -- it's an area that we think you're going to continue to see significant growth in for some time. I mean we're 2 years -- 2-plus years in now seeing consistent growth equity perspective. Timothy Spence: Yes. The 1 thing I'd just add there is, I think, as Bryan said in his remarks, #1 in market share in our footprint in home equity originations and in the bottom half in terms of pricing. And there's very good pricing data available through aggregators. So we are not competing on lice. It's great originations volume effectively at better spreads than others. Operator: And we'll take our final question today from Christopher Marinac at Brean Capital Research. Christopher Marinac: I want to ask you and Bryan about the NBFI reserve allocation. Would that number necessarily not go up much this year because you're avoiding some of the higher-risk, lower-return pieces of [indiscernible] Bryan Preston: Yes. We're not seeing anything in our [indiscernible] portfolio that would cause us to have any need to build significant reserves related to what we're doing very well secured, very well performing, just not an area where we're seeing in [indiscernible]. Timothy Spence: Yes, absolutely. Before we wrap it, I just quickly want to say congratulations to Keith Horwitz on his retirement and on his 30 years in the community. -- my sense is that he's going to prove out the adage that old [indiscernible] never die. They just stop updating their outlook. So we appreciate Keith for all the years of coverage here and wish him the best in the next phase. Operator: And that concludes our question-and-answer session. I will turn the conference back over to Matt for closing remarks. Matt Curoe: Thank you, Audra, and thanks, everyone, for your interest in Fifth Third. Please contact the Investor Relations department if you have any follow-up questions. Audra, you may now disconnect the call. Operator: Thank you. And this concludes today's conference call. We thank you for your participation. You may now disconnect.
Daniel Morris: Hello, everyone, and welcome to the presentation of Ericsson's First Quarter 2026 Results. Joining us by video today is Borje Ekholm, our President and CEO and in the studio, I'm joined by Lars Sandstrom, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q&A. [Operator Instructions] Details can be found in today's earnings release and on the Investor Relations website as well. Please be advised that today's call is being recorded, and today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report. I'll now hand the call over to Borje and Lars for their introductory comments. Borje Ekholm: Thanks, Daniel, and good morning, everyone, and thanks for joining us today. Q1 was a solid start of the year and with the results that reflects our continued execution against our operational and strategic priorities. We saw a very large currency headwind during the quarter, probably one of the toughest quarters from a comp ratio as the Swedish krona strengthened towards almost all currencies compared to last year. So this, of course, materially impacted every line of our financial statements with reporting sales falling 10%. At the same time, we performed well operationally realizing strong organic growth of 6%, with all segments contributing. Our results are a testament to our leading portfolio and the investments we've been making in furthering our technology leadership. Over the last few years, we've actively managed to reduce dependence on geographic mix. Of course, we realize that North America often receive a disproportionate interest from, I guess, the community -- analyst community, but also around the world. And that's, of course, natural because it is a front-runner market. And this quarter, we saw sales reduced by mid-single digits in North America. But we could still deliver a gross margin of 48.1% for the group and 50.4% for segment networks, indicating that the work we've done to balance out the geographic mix is coming through in the results and giving us less sensitivity to geographic mix. Cloud Software and Services continue to execute well. We reached a gross margin of 43.2%. That's up more than 300 basis points year-over-year. Revenue seasonality was in line with the guidance we had for the quarter and we saw some deals being pushed into Q2. And we expect to see that, therefore, stronger seasonality than normal next quarter. EBITA came in at SEK 5.6 billion with a margin of 11.3%, and the strengthening of the Swedish krona affected EBITA by SEK 2.2 billion. And you've also seen we have the revaluation of the long-term stock-based programs. And all of those are, of course, included in the results. Cash flow during the first quarter is seasonably lower typically. Despite this, cash flow came in at a healthy SEK 5.9 billion with a net cash position of SEK 68.1 billion. And as you've seen just a couple of weeks ago, the AGM approved the Board's proposal on increased dividend and our first share buyback program. We will start to execute on the share buyback program next week with a target to buy back SEK 15 billion. In the next phase of AI, we see that high-performance mobile connectivity will become increasingly important. Even so, our planning assumptions for the RAN market remains flat over the longer term. With disciplined execution, we create room to make selective investments in growth to broaden the mobile platform to new use cases and new sectors. We believe the growth will come in areas outside of our traditional CSP markets. And then we're talking about areas like enterprise and mission critical networks. In our Enterprise segment, which includes our wireless WWAN business, private networks, network APIs or as we now call it, actually network-powered solutions and mobile money, organic growth was stronger, which is encouraging. There are new markets that we see as key opportunities going forward. Of course, new markets take time to develop but we're now seeing these efforts start to scale. I would also comment on the loss in Enterprise of SEK 1.4 billion. It's clearly unacceptable, but it also includes a number of onetime costs and have an improvement plan in place that we're executing on and we will expect to see that coming through shrinking losses during the rest of the year, comes from growth, operational discipline and of course, at the onetime cost base. We're also driving several other growth initiatives. And there, we see good progress in mission-critical networks which tend to be a bit lumpy and vary by quarter. We're experiencing strong interest in several verticals, particularly within Defense Solutions. In modern defense applications, high performance, and then I'm talking about large capacity connectivity is required. And this will make 5G stand-alone a cost-effective alternative. And we've seen a trial with the Italian Navy -- or actually deployment with the Italian Navy this quarter. Another very exciting area is 5G-based sensing where one of many use cases is about detecting unconnected drones. And a few weeks ago, we showcased our solution, which is seeing significant customer interest, of course, given a difficult current market environment geopolitically. We see that our technology here has a great market potential, and we're now starting to invest to capture these opportunities. I would say this is just one example that you don't have to wait for 6G to get part of new exciting use cases with the technology we have. So we're seeing good momentum on our strategy execution, and we've strengthened Ericsson operationally. And I would say this is showing now in our Q1 results. With that, let me give the word over to you, Lars, to go through the numbers in some more detail. Lars Sandstrom: All right. Thank you, Borje. I will begin with some additional comments on the group before moving over to the segments. So net sales in Q1 totaled SEK 49.3 billion with organic sales growing 6% year-on-year. The growth was broad-based and sales grew in all segments and 3 market areas delivered double-digit organic growth, driven by continued 5G rollouts and increased uptake of 5G core. Americas declined 2%, with strong growth in Latin America, more than offset by a mid-single-digit decline in North America following a strong quarter last year. Reported sales decreased by 10%, impacted by a negative currency effect of SEK 7.8 billion then. So organic growth again grew 6%. IPR revenues were SEK 3.1 billion, and this run rate coming out of the quarter is approximately then SEK 13 billion. Adjusted gross income was SEK 23.7 billion with a negative currency impact of SEK 3.8 billion. Adjusted gross margin was 48.1%, in line with last year, excluding iconectiv. On the cost side, operating expenses, excluding restructuring charges, dropped to SEK 18.4 billion, around SEK 2 billion lower year-over-year, driven mainly by currency as well as the divestment of iconectiv. Underlying inflationary pressures were more than offset by cost reduction driven by headcount as well as efficiency measures. And as Borje mentioned, adjusted EBITA, which excludes restructuring, but includes the other one-offs was SEK 5.6 billion. This is down by SEK 1.4 billion, including a negative impact of SEK 2.2 billion, the divestment of iconectiv and SEK 0.5 billion of additional share-based compensation costs coming from the increased share price here during the quarter. The EBITA margin was 11.3%. Cash flow before M&A was SEK 5.9 billion, driven by earnings and reduced net operating assets. So let's move to the segments. In Networks, sales decreased by 8% year-on-year to SEK 32.9 billion with a negative currency impact of SEK 5.2 billion. Organic sales increased by 7%. Organic revenues grew in 3 of our 4 market areas. 2 strategic markets, India and Japan grew strongly. North America declined, impacted by customer spend reallocation in Q1 this year following recent market consolidation. Customer investments were also elevated last year due to tariff uncertainty impacting the comparison. Networks' adjusted gross margin decreased slightly to 50.4%, mainly reflecting actions to enhance resilience in the supply chain. Adjusted EBITA was SEK 6.4 billion, impacted by a negative currency impact of SEK 2 billion and benefiting from lower operating expenses, which were also supported by continued efficiency improvements. Adjusted EBITA margin was 13.3%. Looking at the right-hand graph, the rolling 4 quarter gross margin stabilized around 50% and adjusted EBITA margin at around 20%. Moving to the segment Cloud Software and Services. Sales here decreased 9% to SEK 11.8 billion, including a negative currency impact of SEK 1.6 billion. So organically, sales grew by 4%, with growth primarily in core. Adjusted gross margin came in at 43.2%, an improvement from 39.9% last year, supported by improved delivery efficiency and a favorable product mix. Adjusted EBITA increased to SEK 0.6 billion with a margin of 5.3% despite a negative currency impact of SEK 0.3 billion. Lower gross income was offset by lower operating expenses here. And looking at the right-hand graph, the rolling 4 quarters adjusted gross margin was around 44% and adjusted EBITA margin around 12%. And these are both new high levels. So reported sales on the Enterprise side decreased 30%, impacted by the sale of iconectiv and currency. On an organic basis, Enterprise grew by 4%, and this marks the second quarter of organic growth. Adjusted gross margin declined to 49.0%, reflecting the impact of the divestment of iconectiv and change in business mix in Global Communications platform. Adjusted EBITA landed at minus SEK 1.4 billion, reflecting the divestment of iconectiv and nonrecurring cost of SEK 0.3 billion in the current quarter. Turning then to free cash flow, which was SEK 5.9 billion before M&A in the quarter. We delivered a cash to net sales of 13% for the rolling 4 quarters, above our 9% to 12% target. And cash flow generation was strong, supported by earnings and a stronger-than-normal seasonal reduction in operating net assets. Net cash increased sequentially by SEK 6.9 billion to SEK 68.1 billion here in the quarter. The buyback program of up to SEK 15 billion was approved by the AGM and share repurchases will start now soon. Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation, and Borje will come back to this. The Q2 outlook assumes no tariff changes and the exchange rates specified in the report. For Networks, we expect sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. And for Cloud Software and Services, we expect sales growth to be above the 3-year average quarter-on-quarter seasonality. We expect Networks' adjusted gross margin to be in the range of 49% to 51% and restructuring charges for 2026 are expected to be at an elevated level with a fairly large part already seen in Q1. So with that, I hand back to you, Borje. Borje Ekholm: Thanks a lot, Lars. So our Q1 results demonstrate the strong execution on our strategic priorities and the actions we've taken over the last several years to strengthen the company operationally. This includes how we made Ericsson less reliant on any specific geographical mix, enabling us to sustain healthy margins in varying market conditions as you have seen in today's report. Our actions also include how we diversified our supply chain to mitigate as much of the geopolitical disturbances as possible. This continues to be a clear competitive advantage, enabling us to meet customer commitments amid the current backdrop. Of course, the global semiconductor situation remains challenging as the AI boom is increasing input costs. We continue to take actions, and Lars mentioned this as well, to mitigate this impact by working closely with both our customers and suppliers, of course, including our pricing. While we believe we're in a good position, we are not immune to these disturbances. So they will have consequences on price and availability. As of course, AI may be the key driver for our industry longer term, we see AI as a net positive for us. The next phase of AI will see AI being industrialized, shifting focus from current focus on data centers, large language models rather to applications, devices, use cases. This will require advanced mobile connectivity with capabilities such as ultra-low latency and high uplink. This puts us in the middle of the next phase of the AI era. With our strategy, we are well positioned to capitalize on this opportunity. We're doing this by providing the industry's best networks for AI and by expanding the mobile platform to new use cases and sectors. This includes exposing network capabilities through network-powered solutions, allowing developers to use the network capabilities to create new use cases. It also includes opening up new addressable markets such as enterprise solutions based on cellular technology and mission-critical networks. And this will allow us to capture a greater share of the value from connectivity and drive mid-single-digit growth for Ericsson while achieving our long-term margin targets of 15% to 18%. So with that, I think it's time for some Q&A. Daniel Morris: Thanks Borje. [Operator Instructions] Thanks, operator. Time for the first question. The first question this morning is going to come from Simon Granath at ABG. Simon Granath: I have a question on Lars on the memory and cost inflation. And the Q1 margin performance for Networks was, in my view, strong. But given the rising memory prices and as inventory runs down through the year, how confident are you that memory prices won't be a significant headwind for the rest of the year? And all else equal and on this topic, should we see Q1 marking the highest level for the year? Lars Sandstrom: All right. Thanks, Simon. When it comes to outlook, we give, as you know, outlook for the first -- for the next quarter here. So -- but when it comes to memory cost and other semiconductor costs, there is, as we say here, a headwind coming. And -- but we should also remember that it is a smaller part of our total cost base, of course. But there is a headwind coming, and we are working hard to mitigate together with our suppliers, but also together with our customers to share the burden here. And then it comes to what can we do when it comes to product substitution, et cetera. And it is a bit too early, I think, already now to say how the impact will be. But you will -- if there is -- and when there is things happening, you will see that more coming into the second half of the year. Daniel Morris: The next question will come from the line of Andrew Gardiner at Citi. Andrew Gardiner: So just on the North American revenue trends that you saw in the quarter, you've highlighted the pressure there, Borje, sort of mid-single digit down year-on-year. I'm just wondering what your view for 2026 as a whole is for that region. The comps, as you suggested, were particularly tough in the first quarter given the tariff impact last year and some buy forward. Does that -- does the decline that you've seen in the first quarter, should that lessen as we come through 2026? Or are there other factors we should be aware of? Borje Ekholm: You see a lot of forecasts in the market on the North American market. And I would say the development you've seen during the first quarter is probably similar to what we should expect for the year. I think that's fair to say given our customers' guidance. At the same time, we have a little bit different mix compared to the market where, as Lars noted, we were maybe hit a bit harder than the general market, the first quarter because of the consolidation we've seen among the operators in the U.S. that was closed. So if you net-net, I don't see a changing market condition, but I see a bit better mix for us vis-a-vis the market. And as you noted, we had a tough comp in Q1. But don't assume the U.S. all of a sudden is going to change direction. That's why I want to come back to what I think is more important today is we're less exposed to North America from a geographic mix perspective and the investments and commitment we have been talking about to diversify our mix. So if we are a bit weaker in North America, but stronger in another market for a quarter, we can actually compensate that and keep a very healthy gross margin. And that, I think, lends for a better predictability of the total company and actually for a healthier way of operating the company. So -- well, I think North America always will be important. From a mix point of view, it will be less important going forward. We work with the customers as front-runner customers, but it's always going to swing a bit up and down in a quarter. So we're -- on the one hand, yes, I would always prefer them to grow, but the reality is it will swing. So the question is more how we can provide a healthy gross margin, a much more stable gross margin. And I think Q1 is a good indication of the work we've done. Andrew Gardiner: I mean I suppose related to that, I mean you mentioned the other strategic markets. I mean India and Japan have been the 2 you've highlighted away from North America. You did see good growth there. I mean is that something that is not just a 1Q impact, but we should expect steady growth from those 2 key markets through the year? Borje Ekholm: I would -- there, we have actually strengthened our market position. So we should see healthy growth as we continue to deliver on those opportunities. So I'm actually very comfortable about that. Daniel Morris: The next question is going to come from the line of Erik Lindholm-Rojestal from SEB. Erik Lindholm-Rojestal: Just one question here. I wanted to ask on OpEx and the impact of cost savings. I mean it looks like underlying OpEx is down around SEK 0.5 billion, as you mentioned, despite the one-off impact that you flagged here. So what sort of inflationary pressures do you see in OpEx for the rest of the year? And when should we start to see the impact from the cost savings that you've launched in Sweden here at the start of the year, for example? Lars Sandstrom: Yes. When it comes to OpEx, I think in the quarter here, it's down organically. I think it's currency and iconectiv that is impacting and then there is somewhat also underlying cost reduction coming through here. And we are continuously working with that. The inflation we talk about since a big portion of the cost base in OpEx is related to people. Of course, there is an underlying continuous salary increase that is coming that we need to work with. And our working assumption is that we live in the flat RAN market and that we need to accommodate too by continuously working and finding efficiencies and reductions where it is possible. And then we do that continuously. So that is what we are working with here every quarter continuously. And you saw there was quite a bit of restructuring here coming in the first quarter now, primarily to the Sweden area, but also the rest of Europe. We have activities in North America, in Asia, et cetera. So that is a continuous work that we are doing, and we will continue that also in the coming quarters. Erik Lindholm-Rojestal: All right. But I guess it's fair to say that these measures will more so show in the second half then? Lars Sandstrom: The ones that we announced today or in this quarter, of course, they come more in the second half of the year and into next year. And then we have the previous ones that is coming, you can see now. So that is a continuous work that we do. Borje Ekholm: I would just add there, by experience, it takes a bit longer than you hope to see it in the numbers. So theoretically, it should come in Q3, of course, or Q2, Q3, but it will be a bit of a delay there. That's why you see the cost kind of not exactly following the number of employees because it's simply associated with costs around when we take costs out. So -- but you will see it after the second half and into next year. Daniel Morris: The next question is going to come from the line of Andreas Joelsson, DNB. Andreas Joelsson: A follow-up on the COGS question that we had. Of course, there's a headwind coming from the component prices, but you have been able to increase the gross margin in Networks for some time and now it has stabilized. What other areas within costs have you sort of from experience the last few years, learned that there is maybe that you can use to compensate for component price increases. So it's not just negotiations with vendors and customers that could keep the gross margin resilient, as you say, if you understand that blurry question. Borje Ekholm: Thanks for the question, Andreas. I can try to give you a notion. Of course, the most important one is to work on the prices. It's undoubtedly the case, and that we continue to do. The other levers we have, which actually have proven to be very sizable is product substitution, i.e., we can -- through technology development, we deliver a product that performs the same, but at a lower price or a lower cost point, I should say. So that actually is maybe the most important one that we've been able to do for quite some time. And I feel quite comfortable we'll get that with the next-generation ASICs coming within not-too-distant future. Then we have also been able to take a lot of costs out on service delivery. And there, I think there are more costs to be taken out. So I think we have -- it's not -- it doesn't come easy. It doesn't come in that sense for free. But I do think there is a number of areas we can kind of leverage to protect a healthy gross margin longer term. And that's why I feel we have kind of reached a different level of performance and control on the cost side. And you know component prices have varied already now. So we've been able to handle that in many different ways. And our ambition is clear. That's what we intend to do going forward as well. And we have a number of degrees of freedom in what we actually do to manage the margins. Daniel Morris: The next question is going to come from the line of Richard Kramer at Arete. Richard Kramer: Borje, you mentioned the early stages of physical AI, which would involve greater mobile connectivity. But can you point to anything within your portfolio which could provide a material uplift to group sales growth, especially addressing the sort of data center AI spending boom given that enterprise remains fairly small in the mix? Borje Ekholm: Yes. Richard, it's a good question. We're not going to see any sales directly from data center expansions right now. Our, call it, exposure to AI is more going to come from the applications when you start to see inference play a very different role. So we may not be the frontrunner on the AI wave, but we are rather the longer term, I would say it's one of our key drivers of traffic in the networks and the connectivity will does look different. That's why I believe the exposure we have is going to come more from that traffic development from AI moving into implementations, but it's also going to come from AI in enterprises. And here, we start to see some front-runner industrial companies, still small, but actually picking up demand in 2 areas: enterprise connectivity, i.e., wireless solutions or as a matter of fact, in interest for network APIs and embedding that into enterprise use cases. So I would like -- I don't want to promote that we have any exposure to data center. So that wave is going to go. We're more a little bit behind that, I guess, in the -- I don't know what to call it, but kind of benefiting from the overall migration of applications towards AI. Daniel Morris: Next question is going to come from the line of Felix Henriksson, Nordea. Felix Henriksson: Good to see the Cloud Software and Services EBITA margin expanding to around 12% on a 12-month rolling basis. I wanted to ask, is there any reason why the margin expansion in this segment should not continue given that growth seems to be led by very margin accretive 5G core demand? Lars Sandstrom: It's a good question. I think what we have said is that the first aim here is to reach a stable double-digit margin and then we work from there. And I think we need to remember that the cloud software is also connected to the flat RAN market. So there is -- but still, there is an underlying growth that we are able to capture with in the core area, which is good, I think. And we have managed to show that we are having a good market position there. So we continue to work on that. So we don't promise. We guide quarter-by-quarter, as you know, but we feel we have reached a stable level now in a good way in the company. Daniel Morris: The next question will come from the line of Ulrich Rathe at Bernstein. Ulrich Rathe: This is more a question for Lars, please. You talked about how you have immunized margin to the foreign exchange moves by matching cost and revenue better. Can you sort of talk about that a little bit more? And I'm wondering, in particular, 2 areas here. One is to what extent are you still benefiting from hedging that could roll off and produce an incremental headwind if the FX rates stay at where they are? And also, with the current level of FX matching in cost and revenue, what would be the effect of a strengthening -- sorry, of a weakening Swedish krona? Would that actually correspond to a material margin driver for you or not? Lars Sandstrom: I think we need to separate between gross margin and EBITA margin here. On the gross margin, we are fairly balanced in the currency baskets, whereas in the OpEx side, we are much more exposed with the Swedish SEK ratio there. So it's higher as we get more of an impact from that end. So I think from -- so that's what's impacting, so to say, the FX mix that we have. So I think that -- and if there is a significant change, you would see that more impacting EBITA rather than gross margins in that sense. And then when it comes to hedging, we have some hedging, but rather low levels and they are coming out. So it should not be a big impact going forward. Daniel Morris: Next question will come from the line of Sandeep Deshpande at JPMorgan. Sandeep Deshpande: Could I ask -- I mean, you've seen this weakness in North America. In terms of your exposure to 5G and 5G core outside North America, do you see there is a potential for significant upgrades? I mean that is the market hasn't shifted as much to 5G or 5G core over the last few years as it has in North America and thus, the growth outside North America could compensate if North American growth over the next few -- couple of years is not going to be as strong. And the question I'm asking here is that historically, outside North America, they have not been as keen to quickly upgrade to next-generation technologies like 5G or 4G even before that. So I mean, how do you see that progress, I mean, at this point? Daniel Morris: Borje, maybe we ask you to take that one. Borje Ekholm: Yes. That's a very good question. North America have been a front-runner market. It's still not fully migrated to 5G SA even there. The only market which is fully 5G SA actually is China. So we see that that's where the market will go. We see a number of operators today increasingly focused on migrating to -- from 5G non-standalone into 5G SA and then 5G advanced. It's still largely a work in progress. So if you try to give some sort of statistics, maybe 1/4 of the operators have some sort of 5G SA and 5G SA of scale is fewer than that. So I would say that's actually one of the major opportunities for our industry. And it's 2 things. Of course, it's an upgrade cycle for us. But I think more importantly, it will allow the operators to start offering differentiated services. So you can have network slicing, dynamic network slicing, for example, can happen when you have 5G stand-alone. So the way we think about this is it's actually one of our more positive opportunities from a medium-term perspective as companies or operators upgrade. And the way to think about this is in order to prepare your network for 6G that eventually will come, you need to actually migrate through 5G standalone into 5G advanced and then have built the architecture that's prepared for 6G. So I see while not everyone have transitioned today, they will need to go that way. And so it will provide an interesting opportunity for us as operators upgrade. So that's why we've invested in positioning us well on 5G core, and we are now starting to see growth coming through on 5G core. So it's actually, I think, a net-net positive for us as we move forward. Daniel Morris: Next question is coming from the line of Daniel Djurberg at Handelsbanken. Daniel Djurberg: A question. I was quite impressed by the network gross margin given the geographical mix with large deployment in India and also growth in LatAm. It could indicate that it was capacity heavy. And if that is correct, should we expect more coverage and hardware deployment in second half in India, for example, and Japan, i.e. supportive on gross margins and then also we have the cost inflation that you mentioned. Daniel Morris: Maybe, Borje, we can start with your thoughts on those 2 markets more broadly and Lars on the margin. Borje Ekholm: Yes. I know we were often talking about coverage and capacity before. I would say what we have tried to do is actually to reduce the dependence on that as well. So when you look at this, there is always an element of higher-margin software sales versus hardware, but it's less important going forward. So the comment here is probably to say that there is a tad more capacity, but it's not meaningfully impacting the profile here. Lars Sandstrom: Yes. No, I think you covers it well. So I think the outlook you see in -- for the Q2 here for Networks is 49% to 51%, and that is what we see now based on the product portfolio and product deliveries and market mix we foresee now. So I think signals rather stability as well. Daniel Morris: The next question is coming from the line of Sebastien Sztabowicz at Kepler Cheuvreux. Sébastien Sztabowicz: On the defense market opportunity, you've been talking about a $10 billion opportunity in that market. Now you are talking about some trials happening currently in Italy. When do you expect those opportunity to materialize and generate first significant revenue? Is it an opportunity over 3, 5 or beyond 5 years? Just to understand a little bit the phasing and the ramp of this technology. Daniel Morris: Sure. Borje, your thoughts on the overall opportunity. Borje Ekholm: I actually think the opportunity is more near term. It's very hard to judge. But I think it's a very good question. And your perspective may be as good as ours. What we see though is a very near-term, very strong need in the market for modern, call it, modern warfare involves a lot of AI and actually heavy need of communication and connectivity, therefore. So we see that this is much more of a near-term opportunity. I wouldn't say 5 years plus. It's more kind of a mid, call it, use 3 years, for lack of a better word, before this opportunity. But if you start to think about -- take a critical site, it could be a sports arena or a nuclear power station or an energy generation station or something like that. The threat from drones are pretty much today. So when you start to think about when is the technology needed from a risk perspective and protection perspective, it's actually a near-term risk. So as I know it or as I see it, I think we need to tackle that need when the market is there. So had I wished we would have started a few years earlier, yes. But I think we're in pretty good shape to start to see these opportunities materialize over the next even maybe 9, 12, 18 months opportunity, and then they start to scale at 2, 3 years. So I'm quite excited about these opportunities because the communication network and the scale we have makes our solutions rather competitive. So I'm actually -- I'm thinking this is -- our ambition is that this is a nearer-term opportunity than 5-plus years. But then putting an exact number on it, I can't, to be honest. But I'm -- but the reception we get from customers is very positive. Daniel Morris: The next question is coming from the line of Sami Sarkamies at Danske. Sami Sarkamies: I still wanted to go back to the rising input costs that were discussed earlier in the call. I have a 2-part question. Firstly, can you elaborate on your current operator agreements allow you to raise prices if needed? Do they, for example, cater for above normal cost inflation? And then secondly, when you look at your operator customers, are you seeing rising energy costs to have an impact on their behavior and potentially investment plans for the year? Daniel Morris: Lars, we start with you on the first and Borje... Lars Sandstrom: We start on the customer side. There are -- it depends on the renewal cycle of contracts that we have with customers, and that can vary a bit in different markets and different customers. So there are -- but there are still an opportunity, I think, to take this discussion because we are -- these are a bit exceptional times. So there is -- we need to take this in a good commercial discussion with our customers. And when it comes on the energy impact on operators, I think that is an important part, the TCO where our products with the right investments they do, they can drive down their TCO. So I think in that sense, it helps our competitive advantage in the market. But we have not seen any big impacts yet. But of course, if there is a prolonged situation with high energy costs, that could have an impact, but we have not seen that. And I think you should also remember the revenue base of our customers is very stable. So they have quite -- we have seen this historically. And normally, our industry or our customers are quite resilient over time. I don't know if you want to add more on that, Borje. Borje Ekholm: You've captured it. What we see and we see an increasing focus on energy efficiency in discussions with customers. So I think this will be a topic -- and as Lars said, it kind of goes both ways, right? It's an opportunity because they need to actually upgrade some of the old equipment, and they actually need to move towards modern. And at the same time, they get a bit tougher on their own cost position. So it kind of sits in that cost a bit [indiscernible] as we say in Swedish, I don't know what that translates to. But that's kind of the situation, right? The interesting thing is that when we now are around, we start to see customers talking about how you actually phase out old technology. And we're even starting to see customers in some markets talk about how do we phase out 4G and actually migrate to 5G and in a way, then have only 5G and 6G. Of course, 3G being phased out in most regions, except Europe possibly. That will also support energy efficiency. So we're actually -- this energy squeeze leads to a bit of a -- when you asked about change in behavior, yes, it is a change in behavior, but much more focused on how do I get on the latest technology curve that helps me with lower process cost. And that will include phasing out 2G, 3G and soon 4G in some markets. Daniel Morris: Moving on to the next question, please, which is coming from the line of Oliver Wong at Bank of America. Oliver Wong: I wanted to focus on perhaps the cost from things like logistics and transportation since given ongoing global geopolitical events, it seems like there could be some impact on that. And also perhaps on the instability of the supply chain, could that be a risk to you? So yes, it would be great to kind of discuss about the logistics and transportation costs. How is that relative to perhaps the impact from rising memory in terms of potential headwinds going into the year? Lars Sandstrom: And I think when it comes to logistics and transportation, we have seen some impact now. But in the total scheme of our cost base, it's limited. So we should remember that. I think it's important. And especially now in Q1, we had some additional costs with the Middle East conflict there where we had to do some rerouting, changing transportation lines, et cetera, utilizing then our flexible production system and supply chain. So I think, yes, it has given some, but we have been able to make sure that we deliver to our customers, which is, at the end of the day, most important for us. So I think -- and that ties a little bit into your supply chain question there. We have a rather well-distributed supply chain today to manage disturbances. We have proven that, I think, during the pandemic. We have proven that now during last year on the tariff side, et cetera. So we continuously work with this and try to mitigate when the things are happening. And of course, as we have said on the tariff side, we cannot guarantee that we are immune, of course, but we are, I think, managing it pretty well. Borje Ekholm: The fair comment is also that we have a distribution hub in the Middle East. So we've been impacted for sure already and been able to mitigate that fully by leveraging the flexible supply chain. So I think this -- we'll have to focus on managing it, monitoring and managing it as well as we can. Daniel Morris: We have time for one final question this morning. We can move to the next. So a follow-up question from Daniel Djurberg at Handelsbanken. Daniel Djurberg: I know I should ask your customer this and I will, but still Latin America saw good growth in Networks, and this is a geography with really tough competition. To me, your radio access network portfolio is more competitive to [ Pearson ] for many years, you showcased at Mobile World Congress. Can you give -- or obviously, can you give any examples of this, if it's correct? And how we should think about markets like Latin America, Sub-Sahara, Eastern Europe, where you have tough Chinese competition? Borje Ekholm: It's a good question. And the reason why I'm hesitating is more that we get into specific customer situations. And I don't want to talk about that for the simple reason that if I would be our customers, I wouldn't like us to talk about it because it may be my competitive positioning in the market that I'm revealing. That's why I think it's inappropriate for us to talk about customers. But what I can say is that we've -- we think our -- the competitor we have to always beat is one of the Chinese. They're, of course, very strong. I have no doubt about that. But we can see that we can actually go head on with our product portfolio, thanks to the strong performance, the strong infield performance we see on quality benchmarking when we compete with them, where we come out well. You can see that in all the -- whether it's Umlaut test or OpenSignal or whatever, we come out well in that comparison. We perform also very well on energy once you're in the field. And it's because the way we have focused on developing the products, it's actually dedicated not to lab trials, but more to infield performance. So operators that looks at that total perspective there we can compete, right? And we've seen that in Latin America. We see it some -- in Africa, it's maybe the hardest market to compete. And you've seen us fight there. But at the end of the day, we remain competitive, and it depends on operator preferences as well. We certainly, in Southeast Asia, win market share when we compete also with the Chinese competitors. Daniel Morris: Thank you. So that comes to the end of the Q&A session. Thank you for joining us. Thanks, Borje and Lars as well. Borje Ekholm: Thank you.
Operator: Welcome to the Nederman Holding Q1 2026 Report Presentation, [Operator Instructions] Now I will hand the conference over to speakers CEO, Sven Kristensson; and CFO, Matthew Cusick. Please go ahead. Sven Kristensson: Good morning, ladies and gentlemen, and welcome to this presentation of Q1 for Nederman. Our headline has been resilient in a volatile market because it's been an eventual quarter again. And what we can see is that we are still strengthening our position in the world although it remains very turbulent. The first quarter, we continued to advance a position in a very volatile market. There is high activity across all divisions that all having good pipelines, less good order intake. Because we had lower orders received, although the activity picked up at the latter part of Q1 and continuing here in in April, we'll see what that means. We are strengthening our presence in a structurally growing industry. And by that, we mean that we are entering new fields like Food, Pharma and Life Science related, et cetera, and resulting in a lower sales and EBIT or profit margin. Matthew Cusick: If I move on to some of the key financials then, if we go on to -- on orders received, as Sven mentioned, for the quarter as a whole, orders received were weaker than a very strong Q1 last year. It must be mentioned 3 of 4 divisions in Q1 last year -- I'll leave it at 2 or 4 divisions in Q1 last year had their record quarters for order intake. I don't want to get into a debate on currency rates. But like Sven mentioned, order activity clearly picked up, particularly during the second half of March, negative currency impact. That's something that you analysts listening will have heard and we'll be hearing from lots of companies. It's around 9% quarter-on-quarter for us in Q1 this year. Orders ultimately were SEK 1.267 billion versus just over SEK 1.5 billion in Q1 last year. That's 6.7% down currency-neutral, 9.2% organic. The charts that we see on this slide for orders received, you can see that basically half of the drop in order intake is currency related. On the next slide, sales lower than Q1 2025, I put a comment in there, in line with Q3 2025's order intake, which gives a little indication on the sort of lead times. It's not the same lead times across all 4 divisions. But SEK 1.257 billion was approximately in line with Q3. Again, currency impact, minus 9% also on sales. Currency-neutral order sales were down 2%, so less of a drop than on the order intake and it's purely looking comparative-wise, organically minus 5.5%. Profitability, these lower sales volumes and are apparent -- we did have very strong gross profit margin. Something that's quite pleasing is the increased productivity in our factories. We had rather good utilization in the factories in the E&FT division during Q1, which Sven can come back to. Unfortunately, currencies also affect profitability. Approximately 12% SEK 12 million of the drop in EBITDA is pure currency effects largely due to the U.S. dollar, which was down quarter-on-quarter, nearly 15% compared to Q1 last year. Ultimately, what that meant was that the EBITDA for Q1 was SEK 117 million versus SEK 143 million last year. The EBITDA margin, 9.3% versus 10.1%. Earnings per share, SEK 1.31 versus SEK 1.69 in Q1 last year. Cash flow from operations, very slightly negative. It was a typical quarter 1, I would say, in the Nederman world. Typically, what we see in quarter 1 is that we've received some orders just before the year-end, and we've received down payments on those orders, and we start executing on those. So the working capital development is usually less favorable in the first quarter. We are still lacking some larger orders, which -- for which we received down payments, once those start coming in, that will boost the cash flow from operations rather well. On the net debt front, very little movement, we could say since the year-end. Division by divisions, Sven, we start with E&FT. Sven Kristensson: Yes. Extraction and Filtration Technology here, during the quarter, we had a bit low orders received and that was mainly due to very few larger orders in Americas, where we could see a new hesitation to sign. However, the base business, as we call it, the traditional small project, the ones that do not have to go to the boardroom, actually grew in the division. And there was a significant order intake growth for service as well. Since we have, over the last few years, put much effort in growing in especially European and the North American organization to have a strong service, which also prolong the relation with our customers. Profit margins increased versus Q1 and that is due to operational efficiency. We have been talking about the investments we've been doing, not only in Helsingborg, we have a new factory setup for RoboVent brand in Detroit area. We are continuously upgrading now, and we'll come back to that in Charlotte factory as well. And we had a decent capacity utilization in the factories, although there is plenty of room to grow that. But increased operational efficiency, maintain our margins. And if we go to European market, we had an increase in order to receive. And again, it was strong base business, midsize, small, midsized solution orders. And then there were 3 major orders and that was to commercialize manufacturing Defense actually Naval area and wood products. So that's what we see. If we look at the Americas, as you have noted, the orders received were significantly behind Q1, which in all fairness was a record year, a record quarter, but we've seen the hesitancy in U.S. market to put the pen to the paper. One major order was, however, secured and that was winter manufacturing. Base business grew. And again, several small midsized orders. And again, service where we have focused over the last few years, as mentioned before, also in the U.S. market grew. So currency neutral sales growth with strong service business. In Asia, lower orders received and sales-base business also weaker, and it's a challenging market environment. Some cost cautiousness has been taking in some of the Asian part of it. Key activities. We continue to launch new products. As you probably have seen last year, we spent almost 3% on R&D, and we see how that pays off. GoMax, I will not go into the details, but it was again we were again awarded a technological award and the reason of the -- how they formulate it was smart technology with an efficiency and sustainable design. Continued investment in operations in North America, we have started the further in-sourcing project in Charlotte for this division and that will further lead to efficiencies in our supply chain and in a further step also more or even less, even if it's very little that comes from outside U.S., 80%, 85% is local content in this division in U.S. We have launched new versions of the partner web shops. So we continue also our digital journey when it comes to being up-to-date. Matthew Cusick: When it comes to financials for E&FT division, orders received SEK 578 million in the quarter is 8.6% down currency-neutral albeit from, like Sven mentioned, a record quarter at that time. Q2 actually exceeded that, but this was a record at the time. Sales, SEK 592 million and an EBIT -- adjusted EBIT very nearly in line with the same period last year despite lower sales. So this is a little bit what we're talking about in terms of resilience. We've managed to keep the margin up. We actually increased the margin in this division to 12.2% from 11.6% in Q1 2025. Moving on then to Process Technology, Sven. Sven Kristensson: Yes, Process Technology. Here, we have significant larger orders and projects. And it's glad to say that we actually had order intake growth in the quarter. There were a few -- for several major orders secured. And again, a very strong aftermarket development with strong growth. And again, we see the result of a few years of focused activities. So again, we got a order backlog that increased. And if you remember our acquisition of Euro-Equip, they are giving a positive contribution, both orders, sales and profitability. So we are very pleased with that addition. The 3 parts, we start with Textile and Fiber. Here, we see the continuous overcapacity, but also a slight pick up. So maybe the Textile segment has bottomed out, but I will not promise that, but we'll see. But it's been couple of years with very low demand. Again, we have the energy saving as for textile plants orders have reached record levels. We passed 1,000 units here during the quarter. And again, we show the capability of technical leadership and new development and helping our customers to save energy in a world where energy prices are soaring. Foundry and Smelters. We actually also here had organic growth in order intake. There was a very large order for copper recycling in U.S. We have, over the few years specialized in our technology to be and are the technology, commercial leading partner when it comes to recycling of metals and materials. And again, positive impact from Euro-Equip, continued strong activity within the recycling. However, that is signed that they are a bit slow to take the decisions, but for a mid- to long-term recycling of metal will continue. The need of copper, the need of aluminum, we cannot have it on landfill, which is the case in U.S. and in Asia. In Europe, we are quite good, especially on aluminum, where we have 80% to 90% recycled material. Customized Solutions, stable development, new order in U.S. pharmaceutical industry. We are sort of moving in, as mentioned, to a little bit new territory. We have been doing it before, but we are more focused now on finding pockets of growth in this environment. We secured 2 projects in India, and that is geographical expansion. We are using our strong footprint in India for the Textile and Fiber. And from that bridge head, we are now increasing our capabilities and also taking in other areas from the division. Service business continued to grow. So again, key activities, sales of energy-efficient carbon bladed fans for textile plants exceeded 1,000 units, good milestone. We continue to invest in test center upgrades and ongoing improvement to existing product lines. Again, we show with our innovation capabilities where you can save energy and make your choice. So again, we are far ahead of competition when it comes to technology and integration of digital solutions. Matthew Cusick: Financials for Process Technology. Order intake was SEK 346 million in the year, which was even at prevailing rates growth, currency-neutral nearly 14% up. Euro-Equip, part of this currency neutral growth, but even organically, like Sven mentioned, we've gone up there 2.9%. Sales very slightly down to -- or slightly down to SEK 321 million, but adjusted EBITDA is increasing SEK 29 million is 9.1%. You see there that the boost from the growing Service business, for example, which has stronger margins. So 9.1% on rather modest sales figures is what we see from Process Technology in Q1. Duct and Filter Technology then, Sven. Sven Kristensson: Yes. Duct and Filter. Here, we've seen, and it's very much based on the U.S. side, where the majority of the sales come from. Development in the quarter, we had a bit of a decrease versus the record Q1. So the year started very slowly, but it picked up later in the quarter. And again, of course, based on this, there is very limited backlog, the sales decrease versus Q1 2025. But we do deliver solid profitability with very good factory efficiency. As you remember, we have now invested in the 2 parts of -- and fulfill 2 parts of the manufacturing in Thomasville. We have automated. We have invested in in new technology in both standard sizes and also now inaugurated the XT, which is larger dimensions. And we see how that, despite the fact that the volumes, are a little bit slow can maintain good gross margins. Again, of course, massive negative currency effect since most of the business is in U.S. dollars. Nordfab, which is deducting we saw increased activity in March, and that was actually giving us organic growth for the quarter as a whole. Project wind battery manufacturing made significant contribution to the order intake. And that was very much so that EV battery factory are now converted into battery factories for storage, et cetera. So we say maybe some of that business is rebouncing and coming back. EMEA orders resales increased slightly compared to last year's Q1. Menardi, which is filter banks had a very slow order intake, but saw a slight recovery in March. EMEA performed well, but it's a much smaller portion of that subdivision. Launch of BIM Toolbar, US and Europe, launch of HygiDuct Australia, Thailand. Solar panel installation Thomasville is providing significant reduced environmental impact and also cost impact. The sun is shining in North Carolina, a significantly more than here in Helsingborg. Continued investment in tools and equipment to enhance product quality and streamlined manufacturing. And as you've seen, we are seeing positive effect of the automation and the significant investments we have made in manufacturing and logistics. It's not only the manufacturing, it's also the setup with Nordfab now, which is giving us capability of balance and have more efficient manufacturing. We have started the project where we have subs, where we have possibility to have shorter lead times. So we have started opening in Texas, Dallas warehouse. We are only shipping the emergence in part directly, the rest we take from a warehouse. And again, we have been able to have 100% delivery accuracy despite the hike in orders in late March, very positive for the market, and we are getting new distributors who want to work with us. Matthew Cusick: Financials for Duct and Filter Technology. External order intake was SEK 180 million in the quarter, down from the record Q1 last year, SEK 224 million that's 7.4% currency neutral. Obviously, as Sven mentioned, the currency impact on this division is very high sales. SEK 194 million, down from SEK 241 million. Adjusted EBIT of SEK 37 million is 18.9%. And we think, again, this is showing resilience. Last year, Q1 was 22.1%, which is the highest quarter for this division in all of history. But 18.9% still rather pleasing on somewhat more modest volume levels. If we then move on to final division, Sven, Monitoring and Control Technology. Sven Kristensson: Yes. Monitoring and Control. Here for the quarter, we had real decrease in orders. Revenue was also decreasing, but there were very big variations between the different business units. And of course, the low sales volume, the profitability was reduced. If we look at NEO Monitors, the total order intake was slightly reduced there, and that was due to Asia. That hold a little bit in the quarter. We have seen growth in the U.S. and we have over years have seen significant growth for NEO Monitors in the U.S. market where we were a very small player a few years ago. But by the investment in Houston, our sales office and service organization, which is now consisting of up to, if I remember correctly, 12 persons have given us direct access to the petrochemical industry in in the area. And we also see that it leads to major orders, and we are deepening our cooperation with the large one since we now are located with a strong service team in the neighborhood. The European orders and sales grew organically and they had a stable demand. We have significantly increased the production efficiency, all of the real manufacturing going on in Oslo, and we have restructured from a small almost, call it, startup manufacturing site and electronic assembly site that is much more efficient much more quality and that work is continuing. Gasmet, the order intake reduced and it was partly on a nonrepeat major order, but it's also punishing the the large dependence on public sectors like customs, police, universities that is a base business and that has impacted, especially in U.S. and Asia, where there has been reduced spending in these sectors. But we have also received new orders from new customers in Singapore and South Africa. Auburn, based in outside Boston in Beverly, saw organic order intake growth. We could definitely see that the order intake picked up in March. What that means going forward, we don't know. We had slightly -- sales slightly behind this very strong Q1 last year, but the orders are coming back. We have reviewed and updated the product portfolio, and that continues, and we are hereby getting the permits, the , et cetera, and strengthening our platform for expansion in India, China, but we're also having other activities to go outside the U.S. market that is dominant for Auburn's product. We have added a product like PM Laser to upgrade, and that has given a new boosting interest on the U.S. market, where we have a very strong position, but we want to also grow that in Asia and in Europe. Our activities in Asia were halted, but we are restarting them. They were halted due to the difficulty to sell from U.S. to China with 100% custom tariffs which was the case in a period. But we are now restarting those activities. Again, key activities, launch of PM Laser, new technology from new application particle monitoring. We have established sales offices in Korea and Singapore. We have continuous improvement to existing product. We are also increasing the integration between Insight and Olicem, also here an increased awareness with customers, and we are linking these products together. Ongoing new product certifications and that's partly what's needed to bring in larger volumes of our Auburn products to Europe. We also doing preparation for capacity and efficiency investment in Gasmet facility in Finland. And that is linked to and is similar to what we've been doing in Auburn and in NEO. Matthew Cusick: Financials for Monitoring Control Technology. Orders received SEK 163 million in the quarter, down from the record SEK 249 million in Q1 last year. Remember in Q1 last year, we had 2 orders in this division that alone combined almost reached SEK 50 million, but nevertheless, 28.5% down currency neutral. Sales, SEK 168 million versus SEK 198 million. That's down 8.2%. And we see the impact of the margin -- on the margin of the volume drop on this division. Adjusted EBIT to SEK 20 million is 12.1% versus 18% last year. If we move on then, Sven, to the outlook. Sven Kristensson: Yes. Demand remains subdued in many sectors, but the growing Service segment and a very strong vehicle offering means that we are performing very well in the current uncertain market. Following a very weak start, activity picked up towards the end of the first quarter, which, if continues, will bode well for performance in the quarters ahead of the year. The pipelines are strong, but the order intake is low. At the same time, there is considerable uncertainty in the market, very difficult to forecast broader recovery in demand. However, when that gains momentum, we are extremely well placed to improve our profitability. With a strong balance sheet, we continue to invest in operational efficiency and in continuously improving our offering. That means that we will be able to continue to strengthen our position, regardless of the market situation. But in a world where awareness of damage that poor air quality does to people is growing. Nederman, with its leading offering in industrial air filtration has an important role to play and a good opportunity to continue to grow. Matthew Cusick: Briefly on the financial calendar. Then we've got our Annual General Meeting next Tuesday, at 4:00 p.m. The interim report for Q2 is released on the 16th of July and the Q3 is released on the 21st of October. The year-end report will be released on the 12th of February next year. And with that, I think we can open up for any questions that people listening may have for us. Operator: [Operator Instructions] The next question comes from August Flyning from Handelsbanken. August Flyning: Two questions from my side, please. To start off with, you mentioned that activity picked up towards the end of Q1. Could you give us some more color on what drove that improvement in the final weeks of March and whether it was broad-based or more concentrated in terms of both divisions and regions. Sven Kristensson: I can say across the divisions, it was rather widespread. Process Technology is more volatile, as you know, August. So, their large orders come in when the Board decision happens, the large projects come in. But we did see in Monitoring and Control Technology, in E&FT and in Duct and Filter, we definitely saw a pickup in it. So it was rather the broad range. Regional-wise, not so much -- there's no reason it picks out one way or the other in that. APAC is still slower, and we think that is likely to do with what's going on -- it can have something to do what's going on in the Middle East right now. August Flyning: That's very clear. And on tariffs then, I know you guided to approximately SEK 5 million in quarterly tariff costs going forward. Could you perhaps elaborate a little bit more on kind of products or shipments that primarily relates to now given the fact we have an updated here Section 232 on steel-based products. Matthew Cusick: Yes, that may benefit us. We are also -- and we're not doing this in order to -- so that, first of all, that will likely benefit us somewhat assuming we don't change anything in our production flows. On the other hand, we're also investing in the production in the U.S. in Charlotte, which will mean that slightly less then transatlantic, but this is still rather a small impact for us, is not -- we're not changing anything strategically down to based on the tariff. And we will not do in the foreseeable future either. Operator: The next question comes from Anna Widstrom from DNB Carnegie. Anna Widstrom: So firstly, I just wanted to ask because I know that the number of employees is down. So could you maybe elaborate a bit on basis relating to cost savings or any effect from something else? Matthew Cusick: Number of employees is largely related to production sites. It's not -- there are -- we have made some cost savings in APAC, but that's relatively small relative to the number of -- relative to the number of reduction. There are -- we do have some temporary employees that fluctuate over time. And at the moment, obviously, with less volume, we are able to adjust the production capacity accordingly. But it's not something a major restructuring that you're seeing there or a major focused reduction. Sven Kristensson: And we also have the fact that with the automization in the different factories, you have here and there, you have 2 less needed because you have it automated with AGVs, as you have 2 less are and so on. So that's an ongoing process. It's not we have not seen the need for a larger restructuring. Anna Widstrom: Okay. Perfect. My second question is on how -- if you maybe could give some details on how we should view the Duct and Filter Technology margin, just given that we probably have a lot of FX effect. So maybe some sort of guidance on how that specific margin would look if we didn't have the U.S. dollar. Matthew Cusick: Yes, the margin in itself in percentage terms isn't massively effective for that division because the vast majority of the -- so there's not an awful lot that's going transatlantically. The Swedish krona is -- when we translate is the main issue with that division. We are margin-wise on that division, like I mentioned, we're rather pleased with the 18.9% they do. And that does show that, for example, the where we've introduced these AGVs into the factories and a little more automation. We have seen a reduction in the direct labor percentages for that division, which is making -- even on modest volumes, we quite -- we got we've got rather good margins. So some volume increase or to give even more leverage in that division. Anna Widstrom: Okay. Perfect. Then also a specific question for Gasmet. Just thinking now when public spending seems to go down quite a lot, are there any specific customer segments that you sort of try to increase your sales efforts towards? Sven Kristensson: Yes. They have a handful but it's mainly to start more having broader geographical base for the existing that is something ongoing. They have a growing cooperation with Olicem and hereby also increase the after-market capabilities in that area. So it's Energy and it's APAC that we need to further grow. But it's also a problem. We don't know what will happen in the U.S. spending because that is a significant part of it that has been universities, other school, It's been customs authorities, police, and so. And their spending has gone down dramatically over the last 6 months, I would say. But I think we will -- I can't give you a promise that it will be a boom within the couple of weeks, but we are working very strongly to find, as we have been doing in other areas. If you look at the EFT for instance, when we acquired -- when we acquired RoboVent, 85% of our sales were auto-related. And the downturn in that market would have given us a significant downturn of our sales. But by using the knowledge in using these applications in food-related, other areas we have now been able to maintain the volumes there. Although both you and I would have liked it to be icing on the cake that we grew it and still had a significant auto part. But now we see that maybe the auto industry is starting to reinvest again. We see that there's a lot of service orders coming in, and that's the first time that they are reopening their lines. Anna Widstrom: Okay. Perfect. Just 2 more from my side. So firstly, looking on the product mix that you have in the order intake. Is there something that we should be aware of in terms of like margin impact for the quarters ahead? Matthew Cusick: Not really, you could say, if I take Process Technology, they're still doing very well on service, so that we expect there rather good margins will continue to be solid. E&FT, a little bit growing in the Service business as well. So that also helps. Monitoring and Control Technology, one of the issues we have there and why we were a bit lower is, some of this public spending is on these portals units, which do have extremely good margins. So that is less solid. But I would say, Process Technology in E&FT have got healthier margin backlogs than they had 12 months ago, albeit lower in our [indiscernible] Anna Widstrom: Okay. Perfect. And my final -- sorry, go ahead. Sven Kristensson: But if you could also Duct and Filter has also very -- since we, as mentioned, we had very low portion of personnel cost. It's extremely low, and that is several percentage units down since we made the investment over the last 2 years. So that means that an increase in volume or recovery in volumes will have also in that division, very strong impact. Matthew Cusick: Even a modest increase across the group in volumes will -- should increase the margin quite significantly, we think. Anna Widstrom: Perfect. Just a final one, if you could tell us a bit on if you've noted any impact yet from the Middle Eastern conflict in either costs but also perhaps activity from the oil and gas customer. I mean you mentioned one order, but that doesn't sort of related to this. Sven Kristensson: The impact is very hard because the biggest impact is the hesitation and what we've seen, the hesitation to sign larger contracts. And it's the same as when we had what they call Liberation Day. It's not a tariff, it's such -- it's more the unsecurity among our customers, and that means that they are some sort of holding back on doing the large investment. And part of the problems in -- or the overcapacity in Textile and Fibers related to the uncertainty also how can you ship things over the ocean. And what is happening, and where should you invest. Should you invest in Carolinas Guatemala or should you continue to do in India and so on. So more the uncertainty that has an impact. Then there is, of course, potentially an issue as we had during COVID period on shipment capacity and so on. If we get vessels stuck around in Hormuz Strait or in Suez or wherever. So, I wouldn't say... Matthew Cusick: I'll try and pull out one positive out of the Iran conflict. Might be, but we have -- and like you said, we haven't seen this at all yet, and you may be hinting at this. If this drives investments in oil and gas. Sven Kristensson: Petrochemicals... Matthew Cusick: Petrochemicals or anything around the new investments if countries decide themselves, they need to invest themselves more, that could mean a macro boost for those sort of industries, which would be good for example for NEO Monitors, Gasmet, in particular. We've not seen it yet. But that would be -- if I'm going to put one positive out of it, there are -- like at the moment, this hesitation is the key issue for us though. As you say, a it's been hesitation. Anna Widstrom: Okay. So you've yet to see sort of actual cost increases for you that you need to sort of offset to what customers... Sven Kristensson: There has been -- there is some, of course, that will come on plastics and so on and polymer, steel has gone up a little bit due to the energy cost and so on, and they are seeing some increase. But that is so straightforward, so that you can handle and you can make a sort of -- this is -- if you can go on a plane, you will see on your ticket, we have added a surplus for energy costs and so on. And that's not a big issue to handle. It's more the uncertainty and the lack of volumes that is problematic. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Sven Kristensson: Thank you for taking time listening to us and we will have the Annual AGM meeting on Tuesday, and we will have a short comments from that as well next week. And after that, we will be back for the second quarter in July. Thank you for taking the time.
Operator: Good morning, and welcome to the Simmons First National Corporation First Quarter 2026 Earnings Conference Call and webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ed Bilek, Director of Investor Relations. Please go ahead. Edward Bilek: Good morning, and welcome to Simmons First National Corporation's First Quarter 2026 Earnings Call. Joining me today are several members of our executive management team, including President and CEO, Jay Brogdon; and CFO, Daniel Hobbs. Today's call will be in a Q&A format. Before we begin, I would like to remind you that our first quarter earnings materials including the earnings release and presentation deck are available on our website at simmonsbank.com under the Investor Relations tab. During today's call, we will make forward-looking statements about our future plans, goals, expectations, estimates, projections and outlook including, among others, our outlook regarding future economic conditions, interest rates, lending and deposit activity, credit quality, liquidity and net interest margin. These statements involve risks and uncertainties, and you should therefore not place undue reliance on any forward-looking statements as actual results could differ materially from those expressed in or implied by the forward-looking statements due to a variety of factors. Additional information concerning some of these factors is contained in our earnings release and investor presentation furnished with our Form 8-K yesterday as well as our Form 10-K for the year ended December 31, 2025, including the risk factors contained in that filing. These forward-looking statements speak only as of the date they are made, and Simmons assumes no obligation to update or revise any forward-looking statements or other information. Finally, in this presentation, we will discuss certain non-GAAP financial metrics we believe provide useful information to investors. Additional disclosures regarding non-GAAP metrics including the reconciliations of these non-GAAP metrics to GAAP are contained in our earnings release and investor presentation, which are furnished as exhibits to the Form 8-K we filed yesterday with the SEC and are also available on the Investor Relations page of our website, simmonsbank.com. Operator, we're ready to begin the Q&A session. Operator: [Operator Instructions] The first question comes from David Feaster with Raymond James. David Feaster: I wanted to start on the growth front. It was a terrific quarter for growth. 10% annualized, it was diverse, pipelines remain solid. I think one of the concerns that the markets had over the past few years, we've really questioned your ability to grow like this. And you're clearly showing what you can do. I guess my question is, is what's changed to get here? Is this a function of demand? Is payoffs and paydowns improving? Or is this just more of an internal shift like a cultural shift and an increased emphasis on quality growth and just -- how do you think -- how sustainable do you think this kind of 7% to 10% pace of annualized growth that we've seen over the past couple of quarters is? Jay Brogdon: Yes. David, I'll jump in on that. Thanks for the comments and the question there. So I think overall, probably the best way to answer the sustainability of the loan growth is really say we've been focused on quality growth for really a few years now. We started focusing on organic growth, really a handful of years ago, and it's taken time to inflect and create some of those internal capabilities, bring maturity. A big part of that has been focused on both soundness and profitability as you've heard us say over and over again. And so there's been changes in behaviors, changes in incentive plans, changes in how we target clients that we want to grow. And I think what you've seen in the last couple of quarters is one part, some of that inflecting some of the maturity in those programs coming to bear. I do think you also have to acknowledge that a part of it is just the timing, the market set up the last -- part of last year and early into this year has been very, very good for us. We've seen really, really robust demand. Our biggest concern as we think about the growth outlook, really isn't the things that we control, it's the noncontrollables. We would acknowledge uncertainty in the macro. We have acknowledged, I think, several times in recent calls, pricing competition. All of those things still give us some caution to the overall optimism that we have about our business and our ability to grow the business. But we were really, really pleased with what we saw in the quarter or this quarter. I don't want to promise 10% annualized loan growth every quarter. This just happened to be a really good quarter for that. But I do think it clearly demonstrates the capabilities that we've been working on and our ability to bring those to bear in the marketplace. David Feaster: That's great. And then one of the comments in the press release that stood out to me is just your -- the comments on the talent environment being favorable and supporting that organic growth trajectory. So a couple of questions on the talent side. First, I know you've made a couple of leadership hires on the commercial and consumer side. So was hoping you could touch on what they're working on and where they see the most opportunity near term to kind of accelerate organic growth? And then secondarily, just -- on the banker side, the pipeline that you've got there, your appetite for new hires. And then just any comments on the -- I know you hired a recent wealth management team. How have some of the new hires that you've made been going so far? Jay Brogdon: Yes. So again, I'll jump in on this. Our two new leadership hires over consumer and commercial have been here, I guess, 8 or 9 weeks at this point. So really, really pleased with what they're already bringing to bear in the organization. On the consumer side, I think just the rhythms of everyday life in our retail network are -- are changing or evolving in very, very good ways. And the approach to driving business, deepening relationships, we've got some very strong and loyal customers that have been with us for a long time, but in many -- in many of those situations with those customers, they're still relatively thin relationships to the bank. And so really, focused on deepening and capitalizing on the loyalty and strong relationships we have in those regards, as well as driving marketing and better penetrating the communities that we serve throughout the retail network. So a real focus on sales performance and again, kind of deepening through that network. On the commercial side, it's really a lot of the things that I was describing in the first question that you asked around that real organic growth emphasis, it's total banking relationship focus. I think it would be fair to say that a lot of our focus in some of our recent history has been more kind of a lending growth focus in a commercial loan growth focus. We've been really, really investing heavily in commercial treasury management, really our full commercial payment suite of products and the talent in the organization that can really go after those types of relationships and drive more diversified commercial business. And so we've got a lot of really good things going in that regard under both of those leaders. And I would just say that the talent pipeline, the opportunities that we are seeing from senior leadership all the way down to very productive bankers who have strong reputations in our markets, we're seeing some really, really good opportunities to continue to grow and invest in that way. So that will continue to be a great focus. You asked about the wealth team that we -- we also brought on throughout the first quarter. And just as a reminder, we brought on about half of that team in kind of mid or late January. The other half joined in March. So they haven't been here for all that long when you think about first quarter results. But what I could tell you is that, that group has already brought over about in terms of assets under management that are either transferring or verbally committed over $350 million in AUM. And so we could not be more pleased with what we're seeing in terms of early success. And actually, the part of that team, what we're seeing that has me most excited is the referrals. When I think about what that team is doing in terms of referring their client relationships into the commercial bank, into private banking, et cetera, really, really excited. And that's just one small example, David. We can look all across the footprint and see some great examples of those kinds of behaviors. And again, dovetail that all the way back to your first question, those are the things that are helping me, helping all of us get more and more optimistic about our ability to drive organic growth in a very meaningful and profitable way to the business. David Feaster: That's great. And then maybe just staying a bit more high level still and kind of following up on some of your commentary. I mean, in the release, you talked about designing a more efficient and scalable infrastructure. And I know we spent a lot of time talking about the better bank initiative and some of the things that you're focusing on there, from improving processes and procedures. I mean you've obviously made a lot of progress on the expense front. That's demonstrated in your results. I was just hoping you could maybe [indiscernible] on some of the things that you're working on to improve the efficiency and scalability of what you've got to support the organic growth that you got -- just some of the things that you're more excited about and key initiatives that you're focused on as a part of that better bank initiative? Jay Brogdon: Yes. I think, at least for now, David, I'll probably sound like a broken record here or Daniel would too. But really, the -- our mantra in the bank is fund every investment that we want to make in the business. And we have been able to do that over the last few years. We were able to do that here in the first quarter. We made some very big investments in terms of talent and other things in the bank in the first quarter and still we're able to demonstrate strong expense discipline. So that's going to continue to be the mantra here. When I think about -- I think I said this a couple of calls ago perhaps after we did the balance sheet repositioning last year. When you think about how our focus is evolving, we really dealt with the structure of our balance sheet last year. And we're really focused this year on continuing to sort of optimize the structure of our business. So how we deliver effectively for our clients? How we drive both customer and associate experience in a more positive way? And then importantly, what that's doing is that's helping us identify efficiencies, whether that's redundancies in the back office or on the front side of the bank and removing those redundancies, speeding up how we deliver the business and our sum total of all of that is what we keep seeing as we make progress is that we are able to drive significant operating leverage because it's just driving scalability and repeatability, and speed that's really driving scale in the business. And so those are the things we're focused on. Hopefully, as we get deeper into the year this year, maybe there'll be more force to talk about specifically in those regards. But for now, I would just say it's kind of more of the same that we've been doing over the last few years. Operator: The next question comes from Woody Lay with KBW. Wood Lay: I wanted to start on the NIM outlook, another quarter of the NIM tracking higher. Just curious, it sounds like you're remaining optimistic on the growth front. It does feel like anecdotally, we've been hearing of some deposit competition being pretty fierce. So with the higher growth outlook, how are you expecting the NIM to project from here? Charles Hobbs: Yes. Woody, this is Daniel. Appreciate that question. I'll start with just the linked quarter, NIM. If you call back to the previous quarter, I said we had a little bit of room in the first quarter to grow NIM about a basis point or 2. We came in 3 basis points linked quarter growth. And when you look at that, it's really a continuation of the things that we've been doing, which is a focus on driving our funding and deposit costs lower through remixing of the balance sheet, you'll notice that we reduced time deposits, kind of grew our core deposit base there. That's a key focus for us going forward. We're also always trying to manage deposit costs relative to growth. So that's a fine balance. We're always trying to strike. And then on the loan yield side, loan yields were down 7 basis points, and we -- that's partially hedged because of the low fixed rate loans that we've been talking about. And if you just take a step back and look at what our margin has done over the last years, and you just -- you look at those 2 pieces and you look at loan yields, loan yields are only down 4 basis points year-over-year. And again, that is primarily driven by our low fixed rate loans repricing, and that's what 3 rate cuts that have happened in the back half of the year. And then on the deposit cost side, we're down 48 basis points. And so then if you think about the cumulative beta on both of those, when rates started to come down in '24, loan betas are only down a little bit less than 15% and the cumulative interest-bearing deposit beta is down 63 basis points. So done a really nice job there. As we look forward into the fourth part of the year, our guide was NII of 9% to 11% growth. And I said NIM would probably be in the [ mid-3.80s ] by the end of the year. And recall that the guy had 2 rate cuts, 1 in May and 1 in August. As you look at the forward today, there's 0 rate cuts. So that should be marginally helpful to us. As you know, we flip from liability sensitive to asset sensitive. So what I would tell you is, as we move forward through the end of the year, we're probably going to be looking at the high end of that range of that 9% to 11% range. And there's some puts and takes in there that could cause it to be better or a little bit worse. We're always focused on the macro, looking at inflation to see how that affects deposit growth. Because if you think about the biggest driver of what that NIM could be is the deposit side. What we're doing on the core deposit growth side relative to having to fund -- funded at wholesale. And back -- connecting this back to the loan growth side, we've said this before is I think the biggest governor of our loan growth is going to be how we're able to grow deposits. we are willing to fund some of that loan growth at the margin, but there's a point -- a sensitivity point there where we're willing to pull back a little bit on loan growth to the extent that we can grow deposits. And then on the deposit growth, which is probably your next question. As I think about that, we pretty much stable in the quarter. We're seeing some positive things happening within our consumer base. I like to look at kind of NIB and ID for both consumer and commercial. That's the core engine of the bank. Consumer makes up about 47%. Commercial is the other piece of that. And consumers really starting to show some stability and growth. If you go back over the past 4 quarters and look at year-over-year averages, we're growing NIB and IV consumer deposits in that 2% to 3% range. And so it feels like we've kind of gotten to a good spot there. On the commercial side, we're doing a really good job on the interest-bearing growth side. We've got some work remaining to do on the commercial NIB side. And so David's question earlier about what are you guys focused on, deposits is a big piece of what they're focused on. All the things that Jay talked about really speaks to what are we doing to improve our strategies around growing deposits. And we've got a lot of things in the works. Some of those are starting to pay off, and we're starting to see that. And then some of just it takes a little time to get through our bank and through our network to start to drive some of that. Wood Lay: That's really helpful color. You answered a couple of my follow-up questions. So I appreciate all the color there. I mean, just on the -- looking at the deposit base, between some of the moving pieces and the time deposits and the public funds increasing, how much room is there to remix going forward? Do you have a bucket of deposits that you think can be remixed over the remaining year? Is it really dependent on multiple functions of deposit growth, loan growth and all of the above? Charles Hobbs: Yes. I'll start with -- we've seen CDs remixing over some time since rates started coming down. So there's still a little bit less in CDs both on the remixing part and the pricing part there. It's really going to be a function of our and IV growth. What are we able to do in terms of growing our new customers, deepening existing relationships and driving primacy with our existing customers and then how can we reduce the amount of churn on the back end. So those are the 3 buckets that we are focused on, things that we're driving strategies around and those strategies involve products, platforms. We just rolled out brand-new consumer deposit products on March 31. I'm starting to see some early positive signs there. So it's product pricing, service platforms, all those things that we're doing, which Brian and Jonathan and coming in the bank are helping us do that. So it's going to be how well do we deliver on that core customer growth will depend on the amount of remixing that we can do. Jay Brogdon: Yes, I'd just jump in on that one, too, Woody and say that you've heard us talk before and even make the comment that we don't have to grow loans or grow the balance sheet to grow NII. And we are all about growing the balance sheet and growing profitable customer relationships. But we -- this dynamic is what really allows us, in my mind, to maintain our discipline around how we think about structure, how we think about pricing, how we think about relationship profitability. So I just kind of put it all together. NIM keeps grounding higher because of all of these things. This -- we have a structural tailwind from a back book repricing point of view. We've got this tremendous deposit remix opportunity. And we've got a range of success that we're seeing across our customer base there, but we get significant focus in our bank in terms of continuing to drive success across that range. And then we look at a forward curve environment that's better than our original outlook was this year. And I put all of that together, and we can see NIM expand. We can see NII grow while being very, very sort of disciplined in how we approach the business. So you saw us grow loans very attractively in our minds relative to our standards in the first quarter. At the same time, as I mentioned earlier, I can tell you that in the first quarter, we saw a pickup in competition. For example, a pickup in competition from bigger banks coming into some of the CRE products where we hadn't seen them as much in recent months. And so we're going to ebb and flow with some of those macro and competitive dynamics. But we're just going to really, really stick to our discipline. And we think on the long, that's what helps us drive very sustainable and strong risk-adjusted returns. Wood Lay: Yes, definitely. Well, it's good to hear of all the strong trends. That's all for me. Operator: The next question comes from Matt Olney with Stephens Inc. Matt Olney: We talked in January about expectations of positive operating leverage throughout the year. I think you guys threw out there 5% plus growth for the full year. And then looking at these results in the first quarter, it feels like you're pacing well above those expectations. So would love to just to appreciate your views or the updated views of the operating leverage in '26 and perhaps how this compares to your previous views back in January? Jay Brogdon: I'll jump in on that first and see how uncomfortable I can make Daniel and then he can come in and add anything he wants to do, Matt. Daniel, if you heard him in his comments a while ago on the NIM and NII, mentioned that we were at a 9% to 11% range in our 2026 outlook. Given everything that he and I just talked about over the last few minutes, it's hard for us to not be very confident at the top end of that range. And you heard some commentary on fees and private wealth. You've seen what we've been able to do, not only in the first quarter, but for the last few years on the expense side. So I'm pretty optimistic as I think about the momentum in terms of PPNR and earnings growth overall. And what that pencils out to exactly in terms of operating leverage, I don't have an updated guide for you, but we -- I think we put on that slide back in January, 5% plus. And same way we're confident in the top end of the range on NII. I'm confident in the plus side of that 5% outlook. So Dan, I don't know if you want to add anything to that. Charles Hobbs: I fully agree with you and you made a comment earlier about the sustainability, our earnings profile. I'd add another word to that, which is resiliency. Go back to the balance sheet restructure, and we really changed the earnings profile of the company. We split from liability sensitive to look slightly asset sensitive. We put on some hedges, and we've gone through 3 rate cuts since then, and we've grown our margin each quarter since then. So Jay also mentioned NIM kind of grinding higher slightly from here forward. So I feel like from everything that we see here all the strategy that we've got in place, the aspiration for us to get to top quartile performance. I feel pretty good about the plus on the [indiscernible]. Matt Olney: Okay. That's helpful. And then switching gears. I think we talked previously about expectations for charge-offs for the full year around that 25 basis points. And now we've got -- I think it was about a $30 million nonaccrual that came on this quarter. Any more color you can provide on that specific loan? And then kind of what's the comfort level of the charge-off guidance based on what you know today? Jay Brogdon: Yes, Matt, I think you hit it, and we tried to say it as clearly as we could in our disclosures. We don't -- fortunately, we don't see a lot of lost content in the loans that we're evaluating there. We -- we actually saw a mixed bag in terms of credit migration for the quarter, both criticized and classified loans improved linked quarter. You saw a little bit of migration in the NPL. You saw some past due migration, but really, we significantly alleviated that in the first few days in April. And so in every instance, when I think about credit right now and the loans that are showing migration, these are already known situations. There's nothing sort of new or surprising to us. The migration we see is very isolated or episodic. So no broad-based deterioration in the portfolio that we're seeing. And again, most importantly, there's just -- we're just not seeing a lot of risk of loss. So in the largest NPL that migrated in the quarter. Again, this is a loan that we have very, very low LTV in. There's actually -- the biggest reason for the migration has been just because of a legal proceeding that had to take place. That's behind us now. We should be able to move expeditiously toward resolution in that situation. And there's a very, very good outcome for the bank in terms of risk of loss associated with that loan. So those are the types of things that we're seeing. Overall, I would just tell you from what we see today, everything we know today, we're as proactive as we can be inspecting the portfolio. But we feel confident in our net charge-off outlook that we gave at the beginning of the year based on what we know. Charles Hobbs: Yes. And Matt, I just want to clarify one comment you made. The $30 million is not just one loan. It's multiple loans spread across a number of properties, and it's one relationship. And so just clarifying that for you. Jay Brogdon: Yes. That's a good point. Matt Olney: Got it. Okay. That's helpful, guys. Operator: The next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: I wanted to hop back to kind of the loan growth trends. And just kind of curious if you could give any color around any quarter changes around repayments? And if that allowed growth to kind of peak even higher this quarter? And then maybe if you could give us some visibility into kind of the pace of demand throughout the quarter and if you saw any changes in terms of customer demand building or any pushback given macro events and the like? Jay Brogdon: Yes, Stephen, I would say that we had some early loan growth in the quarter, which certainly benefited us. The demand for that loan growth would have really started last year, right, in the latter part of last year. So we -- I would say that demand optimism in our client base still feels really good. The pipeline is healthy. I think there's -- you can acknowledge with things like fuel prices, just a little incremental macro uncertainty to say the least that there's maybe some caution out there. But it's caution that still rooted in a decent amount of demand and a pretty strong overall sentiment, at least thus far is kind of how we're seeing it. But early in the quarter was very, very strong for us. The one thing that I sort of alluded to earlier, I'll maybe make more specific to your exact question is, on the commercial real estate side, we saw plenty of demand. We just didn't have the same kind of pull-through that I'm used to seeing in our pipeline because of our discipline and from a pricing point of view. And that -- as I said earlier, that competition really was coming from bigger banks, getting a little more aggressive coming into the CRE space. We don't think that's a permanent reality, but those are the types of things that we're seeing that are kind of destructive to -- or could be headwinds to growth overall for us. But in terms of just macro or sentiment, it still feels pretty good to me. Stephen Scouten: Got it. That's helpful. And then, I guess, one question on the cost of deposits. I mean you guys put the slide -- on Slide 11, I think, with the CD maturities. Just kind of curious where new customer CDs are coming on relative to the [ 346 ] that looks like is repricing in 2Q? Charles Hobbs: Yes, Stephen. So over the last 90 days or in the first quarter, the CDs that matured was in the [ 356 ] range and what went on was in the [ 313 ]range. So as you think about the [ 346 ] in that bucket, there's a component of that, that is a public fund deposit that will kind of reprice at the market. But the biggest majority of that is going to likely reprice down kind of in that 313 probably range, maybe plus or minus a couple there. And then as you look into -- there's probably 1 to 2 more quarters worth of CD repricing benefit there. And then as you get out past that, it kind of neutralizes a bit. Jay Brogdon: Yes, I think deposit repricing tailwinds are waning probably for the industry given the distance we put between the most recent rate cut and now the biggest driver for us as we move forward, still some incremental benefit from a cost side for sure, but it's really going to be on the mix side, on the remixing side. Stephen, I also want to double back, I failed to answer a portion of your question earlier, which was around the paydown environment. We are still seeing a pretty elevated pay down environment. So the growth that we saw in the fourth quarter and here again in the first quarter, in my mind, was really predicated on the demand that we're seeing and our ability to originate and kind of produce through a still elevated pay down environment. And I don't -- I still don't really see anything on the horizon that would suggest to me that paydowns are going to decelerate necessarily. I think that's just a kind of a structural part of strong permanent markets, et cetera, and we're going to experience that as part of the dynamic here. Stephen Scouten: Got it. And maybe last thing for me, if I could. Is the share repurchase, curious any updates on how you're thinking about that, how you think about excess capital, kind of what capital metric you really pegged to as you think about that incremental capital build and deployment from here? Jay Brogdon: Yes. So probably at risk, again, it sounded a bit like a broken record here. But our #1 priority on capital will continue to be just sort of investing -- investing in the growth of the business. So anything we can do to drive sustainable organic growth is going to be priority 1. Priority 2 for us will be paying the dividend, which we've now paid consecutively for 117 years. So we're going to keep that track record alive. But I would tell you, yes, I mean, evaluating share buybacks would kind of be the next thing. On the buybacks, Stephen, we continue to exercise patients. I think what I'd say, just sort of given the potential for really organic opportunities and investments in the business and the pace of those investments give us reason to just be a little bit measured right now in how we think about buybacks as well as just again, that uncertain macro. And we think patients around capital. We like capital, and we like buffers to capital. And so that's there. At the same time, what I would tell you, and we've described it at length here in the call at this point. But when we pencil out forward earnings estimates, we're probably a little more optimistic than the Street is right now. And so it's hard not to consider buybacks given that dynamic. I mean we can buy back stock at a pretty low PE multiple right now on forward earnings. And so I'd say that all of that will continue to be in the mix and a strong part of our evaluation. And we're going to -- our commitment, I guess, would just be that we're going to make the right decisions on how we deploy capital to create long-term shareholder value in a very sustainable way. Stephen Scouten: Really helpful. Appreciate all the color [indiscernible] on the continued successes here. Operator: The next question comes from Brian Wilczynski with Morgan Stanley. Brian Wilczynski: Maybe just staying on the capital topic. I wanted to get your thoughts on the new capital proposals that we got from the bank regulators a few weeks ago. I understand it's still early and there's a comment period, but do you have any initial view on what the capital benefit for Simmons could be? And any areas of the proposal that are the most relevant for you? Unknown Executive: Yes, Brian, it is early. We have taken a look at it. We're continuing to evaluate that. I think as you think about when that might come in, we're thinking it's probably first part of '27 when that might become real. Our initial expectations are that it will be beneficial for us. The LTV component of that is very helpful. And I don't want to give you a number just yet, but we think it's a decent improvement to capital. And back to Jay's comments about how do we think about deploying that capital, we'll take that into consideration when it does become part of the calculus and it will just continue to add buffers to capital and ways for us to deploy that capital over time. So I don't want to give a number just yet, but we feel pretty good about our opportunities to improve capital there. Jay Brogdon: And one thing I would add to that is I think we continue -- there's nothing, at least to date that's changed our view that our definition of optimal or most efficient capital is in and around kind of 10.5% CET1. That's how we think about a strong baseline of capital for the bank. Brian Wilczynski: I appreciate that. And then maybe just going back to credit for a moment. The increase in nonperforming loans Q-on-Q, I think you highlighted a single construction loan within that, that drove a piece of the increase. Can you just give a little bit more color on that exposure, the nature of the relationship, maybe how big it is? And if you have a specific reserve on that particular one would be great. Jay Brogdon: That loan is -- it's a construction of some relatively large 1 to 4 family properties. This was actually a loan that -- a relationship that was acquired in our most recent acquisition, which dates back a few years ago. It's a unique relationship for us in that regard. It's not exactly a business that we would originate. At the same time, as I mentioned earlier, those properties. So the total of the relationship represents several different properties. I can't remember the exact dollar amount. Daniel, I don't know if you have that, but it's probably -- is this thing is probably 2/3 of the increase in NPLs, something along those lines for the quarter. And we feel really, really good about the equity that's in the projects, that's in each home, the sponsors that are behind it, the very low LTVs. We have very, very fresh appraisals and even at significantly discounted appraisals, we have very minimal risk loss. So this is the one, Brian, that I mentioned earlier. We had to get through some legal aspects around it that really prevented us from -- this loan perhaps should have never even migrated were it not needing to navigate court system. And that time line got us to where we are, doesn't change our view on risk of loss in any way, shape [indiscernible]. Edward Bilek: Yes, that increase for that one relationship is a little over $18 million as it relates to NPL bucket. Jay Brogdon: Yes, yes. There you go. Brian Wilczynski: Got it. Really appreciate the detail. Operator: The next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: My questions have been largely answered. So just a couple of kind of bookkeeping items, I guess. I wonder if you could -- I didn't see [indiscernible], I apologies if I missed it, but can you give us what the March 31 deposit spot rate was? Unknown Executive: You talked about the overall deposit costs for the entire -- for the month of March? Gary Tenner: Well, as of March [indiscernible], if not then for the month of March, sure. Edward Bilek: Yes. I mean for the month of March, it was $195 million. I don't have it at the end of the day [indiscernible]. Gary Tenner: Okay. Got it. And then in terms of that SBIC valuation adjustment, can you give us what that dollar amount was? Unknown Executive: Yes. So the net of all of it was -- when you think about all valuations was negative $1.8 million when you look at just the 1 item, a little over $2 million. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jay Brogdon, President and CEO, for any closing remarks. Jay Brogdon: Yes. I'll just be brief. I want to thank everyone for your time and for your interest in Simmons. We appreciate everyone devoting your attention to us. If you've got questions, as always, please reach out. Thanks, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Autoliv, Inc. First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to first speaker Anders Trapp, VP, Investor Relations. Please go ahead. Anders Trapp: Thank you, Razia. Welcome, everyone, to our first Quarter 2026 Earnings Call. On this call, we have our President and Chief Executive Officer, Mikael Bratt; our Chief Financial Officer, Monika Grama; and I am Anders Trapp VP, Investor Relations. During today's earnings call, we will highlight several key areas. Our strong performance in a challenging market environment, our full year guidance and the potential impact of ongoing and new geopolitical challenges, an update on the latest market development, and finally, an overview of our continued strong shareholder returns. Following the presentation, we will be available to answer your questions. As usual, the slides are available on autoliv.com. Turning to the next slide. We have the safe harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will reference non-U.S. GAAP measures. The reconciliations of historical U.S. GAAP to non-use GAAP measures are disclosed in our quarterly earnings release available on autoliv.com and in the 10-Q that will be filed with the SEC and at the end of this presentation. Lastly, I should mention that this call is intended to conclude at 3:00 p.m. Central European Time. So please follow a limit of two questions per person. I now hand over to our CEO, Mikael Bratt. Mikael Bratt: Thank you, Anders. Looking on the next slide. The first quarter exceeded our expectations, driven by strong sales in March Operational performance was also ahead of plan, supported by solid productivity improvements, partly reflecting reduced call-off volatility. Our positive trend in Asia continued with strong growth in India, South Korea and China. In China, we continued to grow faster than light vehicle production especially with the Chinese OEMs, outperforming by more than 40 percentage points. In India, we grew sales by 38% organically reflecting mainly the trend of increased safety content in vehicles in India, but also the continued high level of light vehicle production growth. Underlying profitability improved with gross profit increasing by 10%, although adjusted operating income was slightly lower due to temporary lower RD&E reimbursements and a onetime income in Q1 last year. In the quarter, we paid a dividend of $0.87 per share, representing a total payout of USD 65 million. Buybacks were paused as the company was in a restricted period following multiple filings and the announcement of a new CFO. Our USD 2.5 billion share repurchase authorization through 2029 remains unchanged. And with the ambition annual share repurchase between USD 300 million and USD 500 million. Hostilities in the Persian Gulf had a limited impact this quarter and we are continuously monitoring any potential wide-reaching impact on the industry. Based on what we know today, we reiterate our full year 2026 guidance of flat organic sales with continued significant outperformance of light vehicle production in both China and India. We continue to expect an adjusted operating margin of around 10.5% to 11%. This is based on the assumption that light vehicle production will decline by around 1% and that the gross headwind from raw materials is around USD 90 million. I am also pleased that we introduced our first air bag for motorcycles as well as our first complete wearable airbag solution promoted by motorcycle riders, building on our long-term strategy of growing outside our traditional core business. Looking now on the next slide. First quarter sales increased by approximately 7% year-over-year, driven by strong outperformance relative to light vehicle production, along with favorable currency effects and tariff-related compensations. The adjusted operating income for Q1 decreased by 4% to USD 245 million compared to a strong first quarter last year. The adjusted operating margin was 8.9%, 1 percentage points lower than in the same quarter last year. Operating cash flow was a negative USD 76 million, a decrease of USD 153 million compared to last year. The lower cash flow was mainly driven by a temporary negative working capital impact from stronger sales towards the end of the quarter as well as other temporary effects that are expected to reverse later in the year and the normalization of payables from year-end. Looking now on the next slide. We continue to deliver broad-based improvements with particularly strong progress in direct costs. Our positive direct labor productivity trend continues. This is supported by the implementation of our strategic initiatives, including optimization and digitalization. Gross profit increased by USD 48 million, and the gross margin improved by almost 60 basis points year-over-year. RD&E net cost rose year-over-year, primarily on negative currency translation effects and lower engineering income due to timing of specific customer development projects. SG&A costs increased by USD 16 million, mainly due to negative currency translation effects, higher costs for personnel and nonrecurring costs of USD 4 million. Looking now on the market development in the first quarter on the next slide. According to S&P Global data from April, global light vehicle production declined by 3.4% in the first quarter, slightly better than earlier expectations. The modestly stronger-than-expected outcome was mainly supported by Europe in March and rest of Asia. The decline in global light vehicle production was primarily driven by China. India contributed positively to global light vehicle production performance benefiting from substantially lower taxes on new vehicle purchases. As an effect of the declining light vehicle production in China in the quarter, the global regional light vehicle production mix was approximately 1.5 percentage points favorable. During the quarter, volatility improved despite higher-than-expected call-offs in March. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales were almost USD 2.8 billion, the highest for a first quarter yet. This was around USD 175 million higher than last year, mainly driven by USD 154 million positive currency translation effect and USD 14 million from higher tariff-related compensation. Excluding currencies, our organic sales grew USD 21 million or by 80 basis points, including tariff cost compensation. Based on the latest light vehicle production data from S&P Global, we outperformed the market by over 4 percentage points globally. Our outperformance was significant in China and rest of Asia. In rest of Asia, we outperformed the market by 7 percentage points driven by continued strong sales growth in India, where we outperformed by close to 30 percentage points. South Korea and the Asian subregion also contributed to the outperformance partly offset by Japan. In China, we outperformed overall with 15 percentage points, mainly driven by sales to Chinese OEMs that outperformed light vehicle production with over 40 percentage points. Despite light vehicle production decline in China, China increased its share of our sales to 18% versus 17% a year ago. Asia, excluding China, accounted for 20%, Americas for 31% and Europe for 30%. On the next slide, we will look more on our growing business in India. Autoliv is rapidly expanding its business in India, securing its market leadership. India now represents almost 6% of Autoliv's global sales. which is almost triple what it was just 3 years ago, fueled by a regulatory focus and rising consumer demand for safety content in vehicles has increased by around 20% annually for the past 2 years. In India, Autoliv operates five manufacturing plants, a technical center and a global support engineering center with more than 6,000 associates in total. To further strengthen our footprint, Autoliv recently opened a new inflator plant to meet growing demand for airbags from both India and other Asian markets. Autoliv's largest customer in India, including [ Maruti ] Suzuki, Hyundai, [ Mahindra ] and [ Ander ], reflecting the company's strong position among leading vehicle manufacturers in the country. Looking now on the next slide. The first quarter of 2026 saw a relatively high number of new launches, primarily in China with both Chinese and other OEMs. These new China launches reflect strong momentum for Autoliv in this important market. Higher content per vehicle is driven by front center airbags on many of these new vehicles. In terms of Autoliv's sales potential, the Nissan [ Versa ] is the most significant in the quarter. Here, you also see the Yamaha Tricity 300 commuter scooter. For rest of 2026, we expect a high number of new product launches, mainly driven by Chinese OEMs, offsetting fewer launches in America and Europe. Let's continue with the next slide. Before I'm moving on, I'd like to introduce our new CFO, Monika Grama. Monika joined Autoliv in 2009 and has been instrumental in strengthening the EMEA division, during a particularly challenging period for the automotive industry. I am very pleased to welcome her to the executive management team and looking forward to our continued contributions in her new role. I will now hand it over to Monika. Monika Grama: Thank you, Michael. I will talk about the financials more in detail on the next slide. Turning to the next slide. This slide highlights our key figures for the first quarter of 2026 compared to the first quarter of 2025. Our net sales were almost $ 2.8 billion, representing a 7% increase. Gross profit increased by USD 40 million, USD 48 million and gross margin increased by almost 60 basis points compared to the prior year. The drivers behind the gross profit improvement were mainly positive FX translation effects, improved operational efficiency with lower cost for labor as well as positive effects from higher sales. This was partly offset by increased tariff costs. The adjusted operating income decreased from USD 255 million to EUR 245 million, and the adjusted operating margin decreased from 9.9% to 8.9%. The reported operating income of USD 237 million was $8 million lower mainly due to capacity alignment activities. The adjusted earnings per share diluted decreased by $0.10. The main drivers were $0.09 from lower operating income, $0.04 from financial and nonoperating items. $0.04 from taxes, partly offset by $0.07 from lower number of outstanding shares diluted. Our adjusted return on capital employed was a solid 23% and our adjusted return on equity was 24%. We paid a dividend of $0.87 per share in the quarter. Looking now on the adjusted operating income bridge on the next slide. In the first quarter of 2026, our adjusted operating income decreased by USD 10 million. Operations contributed $28 million positively, primarily driven by higher organic sales and the successful execution of operational improvement initiatives supported by better call of stability. Excluding the $13 million from FX translation effects, cost for RD&E net and SG&A increased by $ 28 million driven by lower RD&E reimbursement of $9 million due to timing and the nonrecurring cost of $ 4 million. During the quarter, we recovered approximately 70% of our U.S. tariff costs. This recovery rate was lower than last year due to delays from the implementation of the new U.S. administration's import adjustment offset program. We expect, though, most of the outstanding tariffs to be recovered later in the year. The combination of unrecovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of around 40 basis points on our operating margin in the quarter. Looking now at cash flow on the next slide. Operating cash flow for the first quarter was negative $76 million, a decrease of USD 153 million year-over-year. This change was primarily due to a negative working effect of USD 349 million compared with a negative impact of $179 million in the prior year. The working capital effect was largely driven by higher end-of-quarter sales, which is the good reason, other temporary effects that are expected to reverse later in the year and the normalization of payables from the year-end 2025. Capital expenditures net for the quarter decreased by $9 million. Capital expenditures net in relation to sales was 3% and versus 3.6% a year earlier. The lower level of capital expenditure net is mainly related to lower footprint optimization, less capacity expansion and timing effects. The operating cash flow for the quarter was negative $159 million compared to negative $16 million in the same period in the year -- in the prior year due to lower operating cash flow, partly offset by lower CapEx net. The cash conversion for the last 12 months defined as free operating cash flow in relation to net income was 83%, exceeding our target of at least 80%. Now looking on our cash flow and shareholder returns on the next slide. Our cash flow generation has proven resilient across economic cycles. As shown on this slide, we have consistently delivered positive operating and free operating cash flow through major disruptions such as the financial crisis, the COVID-19 pandemic and period of structural change. Cash generation has strengthened in recent years, reaching record levels. This resilience reflects disciplined working capital management, a flexible cost base and limited capital intensity of our operations, supporting higher asset return durable long-term growth and shareholder value creation. Over time, we have delivered strong shareholder returns. What is not reflected in the graph is the spin-off of [ Vianeer ] in 2018 to shareholders which valued [ Vianeer ] at approximately $3 billion at the time. Our capital allocation strategy aimed at annual share repurchase of $300 million to $500 million through 2029 and supported by an attractive and growing quarterly dividend. Since initiating the previous stock repurchase program in 2022, we have reduced the number of outstanding shares by almost 15%. And when executing the program, we consider several factors, including our balance sheet, cash flow outlook, credit rating and general business conditions as well as the debt leverage ratio. We always try to balance what is best for our shareholders in both the short and the long term. Now looking at the results of our efficient capital utilization on the next slide. Over the years, Autoliv has demonstrated its ability to consistently deliver strong return on capital employed, also in periods of challenging market environment, reflecting a disciplined capital management. The high and stable return on capital employed is further supported by scale advantages and the limited exposure to capital-intensive investments such as powertrain. Returns have improved since the COVID period driven by margin expansion and tight control of working capital and CapEx. Now looking on our debt leverage ratio development on the next slide. Autoliv's balance leverage strategy reflects our prudent financial management, enabling resilience, innovation and sustained stakeholder value over time. Our leverage ratio increased from 1.1% to 1.3% during the quarter. Our net debt increased by around $200 million in the quarter, while the 12-month trailing adjusted EBITDA was virtually unchanged. On to the next slide. I will now hand it back to Mikael. Mikael Bratt: Thank you, Monika. I will talk about the outlook for 2026 more in detail on the next few slides. Turning to the next slide. Overall, S&P Global expects global light vehicle production in 2026 to decline by 2% versus 2025. A 1.5 percentage point downward revision from January. The downgrade is largely attributable to production cuts in the Middle East as well as in other regions impacted by the hostilities. European light vehicle production is expected to decline by almost 2%, driven by affordability challenges and rising imports from China. In North America, S&P forecasts light vehicle production to decline by 2% in 2026 and despite relatively healthy dealer inventory levels. In China, light vehicle production is expected to decline by 3% due to weaker domestic demand. despite continued export strengths. Japan and South Korea, light vehicle production are expected to decline by 2% and 3%, respectively, reflecting softer domestic demand and a more challenging export environment. India, light vehicle production is expected to increase by 6% and driven by a reduction in purchase taxes on new vehicles, which disproportionately benefits smaller and lower-priced models. However, heightened geopolitical uncertainty from the hostilities around the Persian Gulf adds risk to energy markets, consumer confidence and overall industry volumes. Now looking on raw materials, development on the next slide. We are closely monitoring the potential industry-wide impact of geopolitical developments in and around the Persian Gulf on supply chains raw material prices and overall demand for new vehicles. The situation may lead to more challenging raw material environment and we are evaluating multiple scenarios based on our current assessment. We primarily purchase components rather than raw materials which inherently reduces our direct exposure to commodity price volatility. That said, geopolitical developments in the Persian Gulf can still affect certain input categories most notably textiles and plastics, but also indirectly aluminum, helium and steel. For materials, such as nylon resin and plastics Pricing generally follows oil prices over time. Historically, we see a lag of approximately 3 to 6 months between movements in spot oil prices and the impact on the purchase prices. For the full year 2026, our [ current ] assessment is for around USD 90 million gross impact from higher raw material pricing compared the previous assessment of around $ 30 million a quarter ago. From a mitigation standpoint, we continue to execute on productivity and cost reduction initiatives to offset these costs. Additionally, customer compensation mechanisms are in place and are expected to offset a meaningful portion of the cost impact, although there is typically a timing delay between cost increases and recovery. Now looking on the updated full year guidance on the next slide. This slide shows our full year guidance, which excludes effects from capacity alignment and antitrust-related matters. It is based on no material changes to tariffs or trade restrictions that are in effect as of April 10, 2026. As well as no significant changes in the macroeconomic environment or changes in customer call-off volatility or significant supply chain disruption. We expect to outperform light vehicle production by around 1 percentage points as our organic sales is expected to be flat while global light vehicle production is expected to decline by 1%. The net currency translation effects on sales is expected to be around 3% positive. The guidance for adjusted operating margin is around 10.5% to 11%. Operating cash flow is expected to be around USD 1.2 billion. We expect CapEx to be below 5% of sales. Our positive cash flow and strong balance sheet supports our continued commitment to a high level of shareholder returns, and we expect a tax rate of around 28%. Looking on the next slide. This concludes our formal comments for today's earnings call, and we would like to open the line for questions from analysts and investors. I now hand it back to [ Razia ]. Operator: [Operator Instructions] And the questions come from the line of Tom Narayan from RBC. Gautam Narayan: Tom Narayan in RBC, and welcome Monika. The first question I have is on the China strength. And I know you called out higher penetration of domestic OEMs. I would think you also benefited from the relative outperformance of nondomestic, which I think come at higher margins than domestic for you guys. . Yes. Just curious if that's true. And then if that -- if your overall China penetration increase year-over-year, boosted your margins and how sustainable that is as the year progresses? And then I have a follow-up. Mikael Bratt: As you know, we don't disclose a breakdown of our earnings profile for customers or regions or countries or anything like that? And I mean we have a total portfolio of large number of programs, and that's the combined result of that, that we are presenting here. But -- it's not a secret that we have focused on our Chinese OEMs as they are growing in their share of the total market. Our focus here is to have a market share of around 45% of the global light vehicle production, and that's what we are happy to report that we continue to build on that strategy here and it served us well in the quarter here. And of course, we are working hard to improve our earnings profile across the board here in general. Gautam Narayan: Okay. And for my follow-up, I just -- it sounds like the tariff policy is as of April 10 in your guidance I know April 6, there was the rule change on the metals side. As it relates to that Section 232 rule change, I was just wondering is the current USMCA exemption that you enjoy, is that still the case? And then this only applies, I think, on the metal side where, I guess, the OEMs have that MSRP offset. Is that your understanding that it doesn't meaningfully impact I think in... Mikael Bratt: In general, when it comes to the tariffs, I think there's a lot of moving pieces there. But I think for us, as automotive here, it's to a large degree unchanged. I mean for us, it's mainly the USMCA structure that is relevant and that we have no changes at this point. So that is what we are looking at, the rule changes that you saw lately here it's a minor part of our total exposure and not meaningful in this context. But of course, we follow that as well here. But for us, it's all about the USMCA, I would say. That's the key thing here. No changes in that. Operator: The questions come from the line of Colin Langan from Wells Fargo. Colin Langan: Great. One, just trying to clarify maybe I misunderstood. So S&P is down 2%, but your guide is down 1%. Any -- is based on down production on, is that just a mix issue? Or is that just why not in line with S&P. And then just a lot of people are worried about if you read even the S&P comments, if the straight doesn't open, there's more downside. Can you just remind us on the decrementals of production actually continues to trend downward. Mikael Bratt: Yes. I think as you saw when we gave our full year guidance in connection with the Q4 earnings release, we had minus 1% and S&P had minus 0.5%. So at that point, we were -- it is more cautious. I think what we have seen now and the change that came yesterday is within the, let's say, the margin of are here in this very, I would say, volatile environment here. And of course, we are fully aware of what's going on in the straight around the Pershing as we mentioned in the presentation here. But at this point, we have no indications, no signals, nothing that indicates something else than what we have in our outlook here. And I think it can definitely also change to the better here. I think there's a lot of different scenarios you can play up here and I think we feel comfortable with our outlook here. Colin Langan: And if it gets worse, what are the decrementals that we should... Mikael Bratt: Yes, of course, I mean, as I said, we follow this and are ready to take any measurements that is necessary. So I mean, if we will see a dramatic change to this outlook. We are, of course, ready to make necessary adjustments. And I think we have proven that in the past that we have a high degree of flexibility in our system and a strong team to execute on those changes. So I think it's all about staying close to the development, as we always do here. Colin Langan: Okay. And then just a follow-up on -- can you give any color on the drivers of the increase in raw material costs? And also any risk of shortfalls, particularly I heard some concerns around nylon that some of the [ Butedine ] plants are currently on short supply, and that's an input into nylon. Is that -- is there any concern that we actually can't get supply of some of the raw materials like nylon and are there alternatives to swapping if there are shortages? Mikael Bratt: No, I think -- I mean, to your first question there, what's the main drivers here. It's really the oil price. That is the main driver for us at this point in time as it goes into many different types of products. And that's what we're following. That is what's causing the, I would say, higher estimate that we have here now $90 million instead of the $30 million we had in the beginning of the year. But with that said, we are definitely here focusing on making sure that, that becomes lower than what we have said here to manage the situation here. So we'll see and we have offset activities, which I explained before. When it comes to the availability, we don't really see at this point any main concerns around that. I think we, of course, have our supply chain team on [ Hayalo ] here and are working actively to secure supply. So I would say, so far, so good. But of course, we realize here that if you will have real shortages of oil, et cetera, here. We have, of course, different activities around that. So I feel that we have that under control. Just back to your question there on the sensitivity here, if we have a drop in demand outside our own expectations here at this point in time. I just wanted to remind you here about our normal decrementals we normally reference to, which is between 20% and 30% leverage if we have a drop in dramatic drop in sales in going forward. So I just wanted to mention that related to that question. Operator: And the questions come from the line of Mattias Holmberg from DNB Carnegie. Mattias Holmberg: I'm interested in the outperformance, given that you have a 4% here in Q1 and still guide for just 1% for the full year. Am I off by thinking that you are aiming is perhaps not the right word, but you see no outperformance for the balance of the year? Or what are the moving parts? And what would sort of result in this lost momentum? Is it a pull forward from the strength you saw in March that is going to reverse? Or I'm just trying to understand the dynamics here, please? Mikael Bratt: No, I think, I mean, it's -- of course, when we give the full year guidance here, you take into consideration also the mix development throughout the year. And I mean, some quarters, it's a little bit in your favor and some it's in the reverse. And what we indicated here in the first quarter, we had a positive mix effect of roughly 1.5 percentage point here. And yes, we still believe that with the development for the year here that we have for different regions, just to the best of our knowledge that we should end up where we have indicated here. Mattias Holmberg: And a quick follow-up on the raw materials. With the $90 million gross headwind, is it roughly evenly phased do you think over the next 3 quarters? Or is there any quarter in particular that will be more severely impacted? And also, have you made any assumptions on what the net impact will be after mitigations sort of embedded in your margin guidance? Mikael Bratt: No, I think it's -- I mean, the net effect is included in our guidance here. So what we're saying here is that the gross exposure we have here should be mitigated either by price increases and internal, let's say, self-help through other activities here, but majority is price increases here. And it fits within the guidance there. And when it comes to the sequential development here, I don't know, Monika, if there is anything you would like to add there. But still, we're not guiding per quarter, as you know. Mattias Holmberg: Maybe then just a clarification. Do you assume full recovery of those 90 gross... Mikael Bratt: As I said, we will have a majority through the price mechanisms that we have and the rest should be offset by internal activities to a large extent as possible. So once again, the net effect is included in our full year guidance. So I have no more granular numbers to give you around that than that. Operator: The questions come from the line of Hampus Engellau from Handelsbanken. Hampus Engellau: Two questions from me. First one is on customer call-offs. If I heard you right, you said that customer call-offs were more stable during the quarter. I'm just thinking, is this some one-off here? Or should we expect this trend to continue moving into second quarter? I'll take the question one by one. Mikael Bratt: Okay. Thank you, Anders. No, I think, I mean, as we said here, the call-off stability was around 95%, which is what it was during last year at the good times. We had some deterioration towards the end of Q4, where we saw some customers pulling the brakes on to reduce inventory at the year-end. And then it normalized again in the beginning of the quarter here. And of course, with the increased sales in March here, that also helps to stabilize the situation when you have a little bit of a, let's say, upward trend there. And we still believe that it should continue to improve under normal circumstances. I think it all depends now on what happens with the supply chains, if we have a positive scenario, meaning that we come to some kind of resolutions here around the Middle East situation and the value chains are connected to that or not because it's the disturbances in the value chain here that creates a lot of the volatility, I would say, at this point in time. But long term, it's definitely expectations that it should continue to improve. And with the 2 weeks into the first quarter, I would say it's still holds, and we have a stable situation here. And yes, we will, of course, follow it closely. But so far, so good. Hampus Engellau: Fair enough. And maybe if I'm looking -- when you came out of Q4, one of the main takes was that there were much lower new product model launches on -- especially on the used side, I guess, partly also in Europe. But -- and it seems like China has had more new model launches than you maybe expected. And given the short lead times we have between a new model and launching a new model in China, can you maybe add some flavor on that one? Or are you surprised about that? And we also hear Volkswagen is clearly stepping up on the BEV side, talking about one new model each second week for the remainder of this year, for next year. So if you could maybe share some light on that. Monika Grama: Yes. No, I think -- I mean, I wouldn't say that we have any surprises when it comes to new launches because, I mean, they are something that you need to be, of course, well prepared and tuned and everything else ready for. So I think we have a very good visibility of that in general. Then we know during last year that we had not connected to China, but connected to the global situation here, a lot of reshuffling in terms of launches of new platforms, especially around EVs in the U.S. and Europe here that changed. But that doesn't really impact the short term, I would say, here and not in China. So I think no -- long story short, no real surprises around that. Hampus Engellau: I was maybe referring to the timing in the launch that maybe it was put earlier. I'm sure you know what you're... Mikael Bratt: No really. No. Operator: We are now going to proceed with our next question. And the questions come from the line of Emmanuel Rosner from Wolfe Research. Emmanuel Rosner: My first question is around the outperformance versus the industry, which was solid in the first quarter. But I wanted to follow up a little bit about what you're assuming for the rest of the year because it would be basically some sort of deceleration versus this Q1 performance. And you flagged the mix was 1.5 point positive in Q1. What are you expecting for mix on the full year over the rest of the year? And what would be the drivers of sort of like limited or minimal growth of the market compared to what we've seen in Q1? Mikael Bratt: No, as I said before here, I mean, the mix in each quarter has of course a meaningful impact on it. And this first quarter, we had 1.5 percentage points coming from positive mix. When we look at the full year here and basically, we have guided then for a 1% outperformance considering a flat organic and negative 1% light vehicle production. It's based on a neutral mix compared to 2025. So we have no tailwind or headwind coming from mix in that assumption. And that's, of course, the best estimate we have now. Then you don't know the mix for 100% until you have gone through here. But we still believe that, that's the most likely scenario with what we see here in the light vehicle production per regions, et cetera, looking ahead. Emmanuel Rosner: Okay. And then with a lot of moving pieces around raw mats and tariffs, et cetera, I was hoping you could just refresh for us the main drivers of margin expansion for this year. So if we're thinking about 2025 as a starting point and then your reiterated margin guidance for 2026, what are some of the big buckets of margin improvement now basically mark-to-market with the similar sort of like limited organic growth? Unknown Executive: So I will start with the negative that you could already observe in our messages. We have a negative impact from raw materials and from inflationary impact on SG&A and RD&E. That we more than plan to offset with operations and raw material mitigations. Now we are tapping in again in structural cost savings and our known resilience in challenging times. We are going to tap in as well into customer compensations to partly offset or to meaningfully offset the raw material headwinds that we mentioned. And in addition to that, we benefit of positive FX impact across the board that was already visible to some extent in our Q1 results. Emmanuel Rosner: Okay. So -- but you're obviously planning for a decent amount of margin expansion. So you mentioned headwinds that would be largely offset and then a bit of FX. Like what are some of the main positives? Mikael Bratt: The main positive is really around the structural cost savings. that is coming through. And it is in the operational productivity efforts here where we talk about automization, digitalization, et cetera, to drive efficiency through the value chain. So that -- it continues to be very much the same drivers, you could say, for our margin expansion as we go ahead. And as Monika mentioned here, we have short term here expectations on some headwinds around raw materials, which we are planning to offset also through price compensation and additional cost reductions there and then also some positives on the FX. Operator: And the questions come from the line of José Asumendi from JPMorgan. Jose Asumendi: A couple of questions, please. Mikael, can you comment on Chinese OEMs, both in China and in Europe and how you're going to be benefiting in the coming quarters from the product launches? And can you help us a bit more on which customers should we be keeping an eye on in terms of the acceleration in China Q2 to Q4 or on a 1-year view? And also when it comes to Europe, can you share a bit more how you can benefit also from the -- what we see, right, Chinese OEMs taking double-digit market share in the European market. How is that also going to benefit the utilization of your plants? Question 2, please, for Monika. If you can comment a bit on working capital and working capital assumptions for the remaining of the year. Mikael Bratt: Very good. Thank you. Maybe I'll start on the sales side and then Monika takes the working capital there. So as you know, we work broadly with the Chinese OEMs. And I would say we are on all the different platforms, OEMs that you see exporting out of China in different shape and forms. There is 2 exceptions, which have their own captive solution and that's SIC and BYD, but BYD is still very important customer for us, which we are working with. So when you look at the development of Chinese OEMs, I would say we are present in a broad base there. And I think the outperformance numbers in the quarter here speaks for itself, where we had 40 percentage points outperformance with the Chinese OEMs. So I think that's really, really strong and a good number there. And when we see them coming to Europe, they are normally, I would say, very highly high level of CPV in those vehicles. And yes, it mirrors the position we have in China there, I would say. We have seen not so much local production yet of the Chinese OEMs. But what I can say, and I think we said also in the connection with the Q4 that we won the first tender that was issued in Europe by Chinese OEM. So I would say that we are very happy about that and proud that we were able to meet the OEMs expectations here in Europe. So I think we are in a good position there to utilize our European footprint here as well for our Chinese customers. Jose Asumendi: If I just move into working capital, just a quick one. The last time you met [ Fabien and Sing ], we discussed the new R&D center in M. Is that R&D center -- are you getting incremental order backlog from that new R&D center? Or is that yet to come in your business? Mikael Bratt: No, I think it helps us to strengthen our presence in China and our closeness to our customers. I mean, over the years, for a long period, our strategy has been to have RD&E centers near our customers and work closely with them early on in the different projects. And this is a step in order to continue to strengthen our presence in China with our customers here by offering a better footprint for our customers here through a second tech center. So I think it's a part of the overall strategy and focus we have. Monika Grama: And continuing then with the working capital, we mentioned that the cash flow in Q1 was negatively impacted by $349 million increase in operating working capital, mainly due to temporary impact. the increase in the receivables, other one-timers that have as well temporary effects and then the payables that are more normalized compared to the year-end. Our full year cash flow expectations are unchanged with the operating cash flow expected at around $1.2 billion and CapEx below 5%. That implies our expectations that we are normalizing the working capital assumptions, and we are continuing to execute on our working capital improvement program. There are still some actions outstanding that will deliver results through the year. Operator: And the questions come from the line of Jairam Nathan from Daiwa Capital Markets. Jairam Nathan: So just going back to your long-term revenue CAGR of 4% to 6%, the 1% to 2% that was coming from new markets. I know you talked about it being not in the short term. But with the motorcycle introduction -- product introduction, if you could just talk about what does that do to -- does that change the expectation here? Mikael Bratt: So just going back to your long-term revenue CAGR of 4% to 6%, the 1% to 2% that was coming from new markets. I know you talked about it being not in the short term. But with the motorcycle introduction -- product introduction, if you could just talk about what does that do to -- does that change the expectation here? No, it doesn't really change the expectation. I would say this is a part of the expectation, so to speak, that we have stated here that the 4% to 6% and the I'd say, 1 to 2 LVP, 1 to 2 content and the 1 to 2 coming from Mobility Safety Solutions should come through towards the end of this period here, which we mean 2030 before it becomes meaningful. And of course, there is a gradual buildup, and we have also talked about that before that MSS is contributing gradually here, but it's when you get further out there. And this is the first step in the bag on bike product offering and then also the wearables. So this is more, I would say, a data point that what we have talked about to build the last 1% to 2% of the 4% to 6% really is on its way. That's the way you should read it, and it doesn't really change the expectations beyond that. Jairam Nathan: And my follow-up is for Monika. Just as you kind of take a fresh look at shareholder returns, your initial thoughts on share buyback of $300 million to $500 million given net debt-to-EBITDA target being below the 1.5x. Mikael Bratt: I think maybe on the buyback, as we stated here, I mean, we are committed to our program. We are also indicating here that it should be between $300 million to $500 million year-by-year. And that's like a guidance. Then, of course, we take into consideration the balance sheet. We take into consideration, okay, are we heading into more positive territory when it comes to overall business cycle or not, et cetera. So I mean, we have plenty of room in our program that was launched last year here. And yes, we are on our way here. So we take all those pieces into consideration. We remain committed. Operator: We are now going to take one last question. And our last questions come from the line of Björn Enarson from Danske Bank. Björn Enarson: Try to be quick. But you base your guidance on unchanged regional mix. I guess, it sounds fair. I would most likely have done it myself. But I mean, your regional mix last year, I mean, Q1, Q2, you talked about a significant negative regional mix and in Q3, Q4, I believe it was 100 to 200 basis points negative as well. Is that a fair assumption on the comps kind of that we are talking about when you say that your mix is going to be unchanged for the year? Mikael Bratt: Yes. Yes. No, I think, I mean, as you rightly said here, I mean, we had some headwind last year. We are not expecting that to be reversed this year here. And of course, it's much connected to overall business sentiment that are around the world here. So we are not considering any changes to that. So that's a right assumption. Björn Enarson: And then secondly, on -- I mean, you talked a lot about the guidance and versus S&P [ NVP ]. But most of the revisions were linked to Middle East and connected countries. What is your exposure to that region, I mean, if you compare it to other regions? Mikael Bratt: would say it's very limited. I mean, first of all, the region altogether is a minor part of the -- if you look at the light vehicle production, obviously. And I would say the indirect also is, let's say, manageable at this point here. So not that big. Operator: So this concludes the question-and-answer session. I will now hand back to Mr. Mikael Bratt for closing remarks. Mikael Bratt: Thank you, Razia. Before we conclude today's call, I would like to reiterate my confidence in our strong market position and our growth momentum in Asia, particularly in China and India, which position us well for continued success. At the same time, we remain mindful of the heightened macroeconomic and geopolitical uncertainties. Despite these uncertainties, our proven ability to strengthen profitability even in a low growth environment provides a solid foundation for delivering attractive shareholder returns and a clear path towards achieving our 12% adjusted operating margin target. Our second quarter call is scheduled for Friday, July 17, 2026. Thank you for your attention. Until next time, stay safe. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.
Operator: Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr. Brad Milsaps. Bradley Milsaps: Thank you, Betsy, and good morning, everyone. Welcome to Truist's First Quarter 2026 Earnings Call. With us today are our Chairman and CEO, Bill Rogers; our CFO, Mike Maguire; and our Chief Risk Officer, Brad Bender, as well as other members of Truist's senior management team. During this morning's call, they will discuss Truist's first quarter 2026 results, share their perspectives on current business conditions and provide an updated outlook for 2026. The accompanying presentation as well as our earnings release and supplemental financial information are available on the Truist Investor Relations website, ir.truist.com. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slides 2 and 3 of the presentation regarding these statements and measures as well as the appendix for appropriate reconciliations to GAAP. With that, I will turn it over to Bill. William Rogers: Thanks, Brad, and good morning, everyone, and thanks for joining our call today. Before we discuss our first quarter 2026 results, let's begin, as we always do, with purpose on Slide 4. At Truist, our purpose is to inspire and build better lives and communities. And one way we bring that to life is through the work we do every day for our clients. One example of this is our project finance business, which is a client-focused platform that provides financial advice and capital to help develop essential infrastructure that drives long-term economic growth, job creation and stronger and better communities throughout our footprint in the United States. Our relationships with these clients have led to broad-based franchise engagement, which includes deposits, payments and lead roles and capital market transactions. From a financial perspective, there are aspects of this business that generate returns somewhat differently than our other businesses. A meaningful portion of this benefit is realized through reductions to our tax provision rather than reported revenue. Mike is going to walk you through the impact of that later in the call, but this dynamic contributed to our lower tax provision in the first quarter and is a factor in our expected lower tax rate for 2026 compared to 2025. This, though, is a great example of how serving our clients and communities is true to our purpose and also drives strong financial outcomes for our shareholders. Now turning to our results on Slide 5. Before I get into the details of our first quarter, I want to spend a moment on the quality of what we're delivering across the company and how we're executing against our strategic priorities. What I'm most excited about this quarter is the underlying momentum we're seeing. New client pipelines are growing. Activity levels remain healthy, and we're continuing to add talent and execute in the areas that matter most to our strategy of driving improvement in our profitability. During the quarter, we once again added new clients, deepened existing relationships and grew profitably in the business and products where we've chosen to focus with loan growth coming from priority segments, fee growth driven by core client activity and stronger referrals and connectivity across the company. I can clearly say that we're focused, we're aligned, and we're executing well, which is evident in our first quarter results. As you can see on Slide 5, we delivered net income available to common shareholders of $1.4 billion or $1.09 per diluted share for the first quarter, which represents a 25% increase over the first quarter of last year earnings of $0.87 a share. Our performance was driven by continued execution against strategic priorities, including growth in both consumer and wholesale loans, along with strong noninterest income growth led by investment banking and wealth management businesses. Together, those factors along with our expense and credit discipline contributed to 250 basis points of year-over-year positive operating leverage in the quarter. As a result of this execution in managing our capital through share repurchases, return on tangible common equity improved by 150 basis points to 13.8% compared to the first quarter of 2025, representing meaningful progress towards our full year 2027 ROTCE target of 15%. While we remain firmly on track to achieve this target, as I've said before, it's not a ceiling for our company. The progress we're seeing today across our company gives us confidence in our ability to drive profitability higher over time. With continued execution against our strategic priorities, continued capital return and the benefit of expected changes to the capital framework, we're establishing a long-term ROTCE target of 16% to 18%. Before I hand the call over to Mike to discuss quarterly results, I want to spend some time discussing the positive momentum we're seeing within our business segments and with our digital strategy on Slides 6 and 7. First, let me start with Consumer and Small Business Banking. CSBB delivered another solid quarter that was consistent with our expectations and strategy to drive profitability improvement across the enterprise. Average consumer and small business deposits and loans were up 1% and 4%, respectively, versus the first quarter of last year of 2025. Average loans declined modestly for the fourth quarter which is consistent with normal seasonality and our goal of emphasizing growth in categories offering the most attractive risk-adjusted returns. As you can see on the slide, Premier Banking was again a source of strength with both deposit and lending production up significantly, driven by deeper client engagement, adviser productivity and continued momentum in financial planning activity. Digital continues to be a key growth engine for CSBB. Digital share of new-to-bank clients increased to 45% with Gen Z and millennials representing more than half of the growth. Active digital users grew year-over-year and digital transaction volumes remained strong, reflecting sustained client engagement with our platforms. Building on that digital progress, we're increasingly focused on how AI can further enhance productivity, decision-making and client engagement across the company. We see AI as a real operating lever, one that improves the client experience while also creating productivity and operating leverage across our businesses, without compromising control, safety and reliability. Our focus is on using AI to strengthen relationships, giving clients faster, more personalized service and enabling our teammates to spend more time advising and problem solving not navigating processes. We're already deploying AI across Consumer and Small Business Banking and practical client-facing ways. Truist Insights delivers personalized financial guidance at scale. Truist Assist handles most routine service requests digitally and around the clock, improving consistency in reducing call volumes. AI-enabled call summarization is live for care center agents, lowering after-call work and enhancing insight capture. Overall, our disciplined focus on capital allocation, pricing, productivity and digital execution is translating into strong underlying performance and positions consumer and small business banking well as we progress through the year. Now turning to Wholesale on Page Slide 7. In Wholesale, we delivered a strong start to 2026 with continued momentum across loans, deposits and fees, while maintaining a disciplined focus on relationship returns and capital efficiency. Average wholesale loans and deposits increased 9% and 2%, respectively, versus the first quarter of 2025, reflecting diversified growth across our industry banking, middle market, and CRE teams as we continue to prioritize high-quality relationship-driven loan growth. Middle market deposits, in particular, an area where we've invested heavily grew 11% year-over-year, driven by 7% growth in our legacy markets and 30% growth in expansion markets such as Texas, Ohio and Pennsylvania. Wholesale fee performance was also stand out this quarter with strong results in Wealth Management and Investment Banking and Trading. Investment Banking and Trading delivered its highest quarterly revenue since 2021, driven by strength across a broad set of product areas. Importantly, we're also seeing even stronger connectivity among our commercial, corporate and investment banking platforms. This is driving higher quality fee growth with an increase in the number of lead roles and meaningful contributions from existing commercial and wealth clients. We're also leveraging AI across Wholesale to enhance productivity underwriting and client engagement using predictive analytics to improve adviser effectiveness, accelerate underwriting speed and precision, and scale lead generation and conversion among payments and wealth. These capabilities are helping us serve clients more efficiently while improving returns and speed to market. Overall, we see clear evidence that our strategy is working. We are pairing high-quality balance sheet growth with improving fee mix, stronger client engagement and enhanced operating efficiency, which gives us confidence Wholesale -- in Wholesale's outlook for the remainder of this year. Now let me turn it over to Mike to discuss our financial results in a little more detail. Michael Maguire: Thanks, Bill, and good morning, everybody. We reported first quarter 2026 GAAP net income available to common shareholders of $1.4 billion or $1.09 per diluted share. Earnings per share increased 25% versus the first quarter of 2025 and were up 9% versus the fourth quarter of 2025. Revenue decreased 1.9% linked quarter due to lower net interest income primarily related to day count. Revenue increased 5.1% versus the first quarter of 2025 due to higher net interest income driven by strong loan growth and higher noninterest income primarily due to growth in Investment Banking and Trading and Wealth Management income. GAAP noninterest expense decreased 5.9% versus the fourth quarter of 2025, primarily due to other expense. Noninterest expense increased 2.6% versus the first quarter of 2025, which helped drive the 250 basis points of year-over-year positive operating leverage. Our effective tax rate in the first quarter was 12.4% versus 17.9% in the first quarter of 2025. Approximately half of the year-over-year decline was due to increased client transaction activity in our project finance business that Bill mentioned earlier in the call. Next, I'll cover loans and leases on Slide 9. Average loans held for investment increased $2.3 billion or 0.7% on a linked quarter basis to $327 billion, driven by 1.8% growth in commercial loans, partially offset by a 0.9% decline in consumer loans. End-of-period loans increased modestly linked quarter as 1% growth in commercial loans was offset by a 1.1% decline in consumer loan balances. Both average and end-of-period loan trends are consistent with the expectations for loan growth and mix that we outlined in January. As a reminder, our expectations for 2026 were that average loan growth would be driven primarily by commercial and other consumer categories with relatively slower growth in residential mortgage and indirect auto. This outlook reflected our focus on profitability and being selective in where we deploy capital. Within consumer, average other consumer loans, which include our specialty lending businesses like Sheffield, Service Finance and LightStream, were relatively stable on a linked quarter basis, consistent with normal seasonal patterns. We continue to expect these portfolios to grow at a mid- to high single-digit pace in 2026, given their attractive risk-adjusted returns. Based on our current pipeline and economic outlook, we continue to expect average loan growth of approximately 3% to 4% in 2026. Moving now to deposits on Slide 10. Driving client deposit growth is a key priority across many of our top businesses and growth initiatives, and I'm encouraged that we saw growth in client deposits in what is typically a seasonally weak quarter for client deposit growth. Average deposits increased 0.7% linked quarter, driven by growth in interest checking, partially offset by declines in all other deposit categories. Average interest-bearing deposit costs declined 14 basis points linked quarter to 2.09% and average total deposit costs declined 9 basis points to 1.55%. As shown in the chart on the bottom right of the slide, our cumulative interest-bearing deposit beta increased from 45% to 46% and our total deposit beta increased from 30% to 31% on a linked-quarter basis. Moving now to net interest income and net interest margin on Slide 11. Taxable equivalent net interest income decreased 2.8% linked quarter or $105 million, primarily due to 2 fewer days in the quarter compared with the fourth quarter and seasonal changes in our deposit mix. Our net interest margin decreased by 5 basis points linked quarter to 3.02%, driven primarily by that same seasonal change in deposit mix. For full year 2026, we now expect net interest income to increase 2% to 3% compared with our prior expectation of 3% to 4% growth. The change in our outlook is primarily driven by our expectation that the federal funds rate will remain unchanged throughout 2026 compared with our previous expectation for two 25 basis point reductions, one in April and one in July. Our net interest income outlook still assumes 3% to 4% average loan growth and the continued benefit from fixed asset -- fixed rate asset repricing. Although we expect the net interest margin to remain relatively stable in the second quarter, we do anticipate the full year 2026 average net interest margin will exceed the '25 average of 3.03%. As you can see on the right-hand side of the slide, we also updated our fixed rate asset repricing outlook and our swap disclosure. Turning now to noninterest income on Slide 12. Noninterest income increased $7 million or 0.5% versus the fourth quarter of 2025, reflecting strong growth in Investment Banking and Trading income and lending-related fees, largely offset by a decline in other income due to lower investment income. Investment Banking and Trading income increased $37 million or 11% linked quarter to $372 million, reflecting stronger trading income and capital markets activity, partially offset by lower M&A fees. Noninterest income increased 11.6% versus the first quarter of 2025 due primarily to the 36% growth in Investment Banking and Trading and 7.6% growth in Wealth Management income. Next, I'll cover noninterest expense on Slide 13. On a linked quarter basis, noninterest expense declined 5.9%, driven by lower other expense and lower personnel expense. Other expense in the fourth quarter of 2025 included an accrual related to a legal matter, while the decline in personnel expense was driven primarily by lower incentive compensation. These benefits were partially offset by higher regulatory costs as the fourth quarter of 2025 benefited from an FDIC special assessment credit. On a year-over-year basis, expense growth remains well controlled. Noninterest expense increased 2.6% versus the first quarter of 2025, reflecting higher personnel expense, partially offset by lower professional fees and outside processing costs. Moving now to asset quality on Slide 14. Our asset quality metrics remain strong on both a linked and like-quarter basis. Net charge-offs increased 4 basis points linked quarter to 61 basis points and were up 1 basis point versus the first quarter of 2025. Nonperforming loans held for investment increased 2 basis points linked quarter to 50 basis points of total loans, driven by higher consumer and nonperforming loans, partially offset by improvement in C&I and CRE. The increase in consumer nonperforming loans was primarily due to a change in the nonaccrual criteria for certain indirect auto loans, which we disclosed in our 10-K rather than any deterioration in underlying credit trends. While this enhancement will result in higher reported nonperforming indirect auto loans over time, there's no impact to the cash flows or loss expectations over the lifetime earnings of these loans. Before I move on to discuss our capital position on Slide 16, I do want to spend a few moments on our nondepository financial institution or NDFI exposure and how we think about the risk profile of that portfolio. To support that discussion, we've included expanded detail our NDFI loan portfolio on Slide 15. As of March 31, loans classified as NDFI represented 12% of total loans. This is a well-diversified portfolio across 35 different asset classes, and it's structured with protections that have held up well historically in stressed environments. Our largest NDFI exposure is the diversified equity REITs. This is a client-driven business that we've been active in for more than 20 years, and it's an area where we have deep experience. These loans are secured by income-producing real estate, underwritten with conservative leverage and supported by strong covenant packages which helps mitigate downside risk. With respect to private credit, our exposure is primarily through lending relationships with business development companies or BDCs and middle-market loan funds. In total, these exposures represent about 1% of our loan portfolio. From a risk standpoint, these facilities are underwritten with advanced rate limits, borrowing base mechanics and meaningful equity positions beneath us, all of which are designed to provide significant loss protection in more stress scenarios. Moving now to capital on Slide 16. Our 10.8% CET ratio was stable with the fourth quarter. During the first quarter, we repurchased $1.1 billion of common stock compared with $750 million in the fourth quarter. We are targeting repurchases of $1.2 billion in the second quarter and approximately $5 billion in 2026, compared with our previous expectation for $4 billion of repurchases for full year 2026. Overall, our capital allocation priorities remain unchanged. These priorities include supporting the organic growth needs of our clients, paying our common stock dividend and returning excess capital to shareholders through share repurchases. M&A is not a priority for Truist as we remain focused on improving our own profitability and returning capital to our shareholders. Finally, we are well positioned for the recently issued Basel III proposal. Under the newly proposed capital rules, we estimate that risk-weighted assets could decline by 9% under the revised standardized approach and by 11% under ERBA. We believe the proposed changes align well with our lending strategies and support continued elevated capital return to our shareholders. And now I'll review our guidance for 2026 and the second quarter on Slide 17. As I previously mentioned, given the shift in market expectations for interest rates this year, we now expect 2026 net interest income growth of 2% to 3% compared with our prior expectation of 3% to 4%. On the other hand, we now expect stronger noninterest income growth this year, reflecting continued momentum across all of our fee-based businesses. We now expect high single-digit growth in noninterest income compared with our prior expectation of mid- to high single-digit growth. In addition, we now expect full year GAAP noninterest expense to increase approximately 1.75% in 2026 versus our previous expectation of 1.25% to 2.25% growth. Taken together, although we are modestly refining our revenue outlook to the low end of the prior 4% to 5% range, our overall earnings expectations for 2026 remain unchanged. In terms of asset quality, there is no change in our expectations for net charge-offs to be about 55 basis points in 2026. As I mentioned earlier in the call, due to increased client-driven transaction activity in our project finance business, we now expect our effective tax rate to approximate 14.5% or 16.5% on a taxable equivalent basis in 2026 versus our previous expectation of 16.5% and 18.5%, respectively. Finally, as it relates to buybacks, we're now targeting $5 billion of share repurchases in '26 versus our previous expectation of $4 billion. In other words, despite the pressure we see in net interest income, our stronger noninterest income, increased share repurchases and a lower tax rate from client-driven activity result in an overall earnings expectation for 2026 that remains unchanged. As a result, we remain confident in the EPS trajectory we expected in January and in our ability to achieve our 14% ROTCE target in '26 and our 15% ROTCE target in 2027. Now looking into the second quarter of '26, we expect revenue to remain relatively stable relative to the first quarter revenue of $5.2 billion. We expect net interest income to increase approximately 1% in the second quarter primarily driven by an additional day and increased client deposit balances. We expect noninterest income to decline approximately 1% linked quarter due to lower Investment Banking and Trading income, partially offset by higher other income and card on treasury management fees. Noninterest expense of $3 billion in the first quarter is expected to increase by 3% to 4% linked quarter due to higher personnel expense. Consistent with our full year outlook, we're targeting approximately $1.2 billion of share repurchases in the second quarter of 2026. Now I'll hand it back to Bill for some final remarks. William Rogers: Thanks, Mike. With close, I want to reinforce the confidence I have in Truist's direction and earnings trajectory we're building. As shown on Slide 18, we continue to have clear line of sight to a 14% return on tangible common equity in 2026 and 15% in 2027 driven by improving profitability, continued execution across the franchise and strong capital return. As I mentioned earlier, our 15% ROTCE target in 2027 remains a firm and achievable target. However, we view it as an important milestone, not the endpoint. With continued execution and discipline, we have the ability and clear line of sight to drive returns to 16% to 18% over the next 3 to 5 years as earnings power continues to strengthen and capital is deployed. Achieving these returns will be driven by the same core factors we've discussed today and on previous calls. These factors include sustained growth in our key businesses, positive operating leverage, disciplined expense and risk management, and elevated capital return to shareholders. Overall, we're encouraged by the progress we're making, and we remain focused on executing with discipline, delivering for our clients and creating long-term value for our shareholders. I want to thank our teammates for their commitment, focus and their purposeful work and thank our shareholders for your continued trust and support. Brad, let me turn that back over to you. Brad Bender: Thank you, Bill. Betsy, at this time, will you please explain how our listeners can participate in the Q&A session. As you do that, I'd like to ask the participants to please limit yourself to one primary question and one short follow-up in order to accommodate as many of you as possible today. Operator: [Operator Instructions] The first question today comes from Scott Siefers with Piper Sandler. Robert Siefers: Mike, when you think about the rationalized NII outlook for the year, could you please provide just a little context regarding just more specifically, how the lack of likely Fed fund rate cuts impact things? Just hoping to understand, is that just what it means likely for deposit cost leverage? Or are there other factors involved? And maybe you could talk a little about the competitive environment, particularly on the deposit side, please. Michael Maguire: Yes, sure. Scott, no, I think you said it. I mean, we had cuts in April and July. With both coming out of our outlook, we've, I think, been pretty consistent about the fact that we're positioned liability sensitive on the short end. And so saw a little bit of pressure there that came through. And frankly, the second part of your question is probably the other contributing factor, which is it is competitive. I think with rates where they are, we're seeing a little bit more rotation on product. We're seeing a little bit more yield seeking and rate awareness in the market across the businesses. So probably not unexpected, given the expected path on rates but that's where the pressure is really coming from that drove our outlook a little lower. I think the good news, Scott, just to say it and we mentioned this in our prepared remarks, we are seeing great momentum on the fee side. And so I think when combined allowed us to hang on to the low end of the revenue guide and that coupled with the tax outlook and the buyback tweaked a little higher, we're seeing the bottom line, still in line with our January expectations. Robert Siefers: Yes. Perfect. And then on that last point, it's great to see the pace of repurchase step up in the first quarter as well as the higher expectation for the year. Maybe if you could talk a little more about that decision? How much would you say is sort of confidence in your own outlook versus just sort of panning in the risk-weighted asset release that we get from the offense new proposals, for instance? Michael Maguire: Yes. I wouldn't attribute the increase from $4 billion to $5 billion to the Basel III proposal. I think that will have an impact in terms of, we mentioned the durability of being able to stay at an elevated buyback into '28 and maybe beyond. We'll need to see where the rule finalizes. This was more of a follow-through on how we've been thinking about capital management in '26 and '27. We're targeting that 10% CET1 level in '27 as the various moving parts that you would expect to contribute to capital planning that just retrended the buyback a little bit higher this year. So hopefully, that answers your question. Operator: The next question comes from Ken Usdin with Autonomous Research. Kenneth Usdin: A follow-up to the longer-term 16% to 18% ROE. Just wondering, you just talked about the kind of capital part and what that might look like. How do you think the ROA trajects as you think about that new 16% to 18% and how much extra that might be on top of the -- once you get to 15%? Michael Maguire: Ken, it's Michael. I'll start there. Look, I think as you think about the 16% to 18% over just that extended horizon, right, I think we've got a lot of confidence based on a lot of the areas that Bill mentioned in his remarks in terms of the areas where we expect to improve profitability, right, client deposits. We expect our margin to improve. Our fee businesses are all generating accelerating growth. Those same factors are going to contribute to that next horizon the 3- to 5-year outlook of 16% to 18%. I see our ROA profile moving closer to, call it, [ 1 20 ] in that sort of 2017 outlook, and I think it creeps a little higher from there. William Rogers: Yes, Ken, I would just add, I think the 16% to 18% is a mixture. Mike talked about just accelerating our growth in fees, expanded NIM, margin, client deposit growth, optimizing the balance sheet, benefits, prudent capital allocation, more durability in our return on capital. Think about things like that, for us, the HTM pulled a par and then just efficiencies in our business. So not only is it an ROA story, but it's also an efficiency story. I mean I think that we're seeing some of the benefits of things like AI, but in fairness, just the process improvements that we're making that we can redeploy for growth and also harvest for profitability. Kenneth Usdin: Got it. And second, just a question on Investment Banking, a really solid result this quarter. I know Mike, you talked about the second quarter a little bit. But just can you talk about the different sides of the business? What was the drivers IB versus Trading? And then just how you're seeing the environment and customer confidence in terms of transaction willingness? Michael Maguire: We had broad-based strength this quarter, especially on a like-quarter basis, you saw outsized performance and trading. But I'd say we're seeing really good activities across the core banking business as well as trading. If you think about our outlook for the year, I think at one point, we were thinking about kind of mid-teens growth. I think it could be higher than that, high teens, maybe even 20% across that full line. A lot of that is trading year-over-year, but we expect double-digit growth in what I think of as like the traditional investment banking business. And it's broad-based. It's really across all the products. William Rogers: And I mentioned in my comments, I think one of the things I'm probably most excited about is just this connectivity to our core franchise. I mean I think that's a set of our secret sauce in the investment banking business. The fees from our commercial and wealth businesses were up actually substantially, and the pipelines are up substantially as part of that. So it feels and the confidence that we talked about, it just feels more durable and feels more sustainable because it's tied in tightly to that to the franchise. Operator: The next question comes from Erika Najarian with UBS. L. Erika Penala: Bill, this one is for you. I guess I'm wondering why unveil today a new long-term ROTCE target. I fully realize that you have the Basel III reform coming. But you also -- Mike also mentioned that wasn't a factor in the repurchase. So I guess, is there something in the ROA profile that you saw accelerating or improving that gave you the confidence to unveil a new ROTCE target today? William Rogers: Yes. I mean, I think, Erika, you and others have asked us a lot is 15% sort of the endpoint or is it a point on the journey. And I think one, we feel confident where we're going. You can see this quarter's results, and we feel confident in the momentum that we're building. Quite frankly, the Basel III is a component. So we wanted to answer that question as well, sort of how does that fit into this piece. And as Mike highlighted, it's pretty beneficial to our balance sheet. It's beneficial to the -- how we do business. And so our ability to redeploy capital as it relates to that part of it. So I think it's a variety of things. We felt it was important to start putting a stake in the ground for you, your constituency, for our shareholders. and for our teammates. We just feel really good about the momentum we're building. Michael Maguire: Let me just to add to that, Erika. I mean, in fairness, we didn't really have a long-term target out there. The 14% and 15% ROTCE targets really are short term and I think Bill said it, I think it was appropriate for us to establish a long-term target. I think having clarity on the evolving capital framework contributed to that. But really, I think it's the confidence in the business that we're -- and the momentum that we're seeing in the businesses. So really, all 3 of those factors contributed to our decision to provide a new target. L. Erika Penala: And my second question, we have to ask because obviously, Truist was in the news a few weeks ago. There was a Bloomberg article essentially speculating that you could potentially be attractive to another partner. And I know you just put a stake in the ground. So clearly, you have a view of your future that's right. At the same time, your market cap to core deposits is quite low relative to your peers. And looking at your Board, you have some heavyweight financial institution veterans on your Board. Bill, I guess, like this is sort of a free-flowing question. What are your thoughts on that -- monetizing your business that way? William Rogers: Yes. I mean, Erika, we've all been at this a long time and to ask me to speculate on some rumor and some article which by the way, has been repeated, I think, pretty solidly by the person identified in that. So let's just like put that aside. Now, how do we feel about our business? I think we feel great about our business. And we feel great about the trajectory that we're establishing. We've sort of -- we've set forth a plan that achieves mid-teens EPS growth over an extended period of time under a really good risk posture. I think that provides an advantaged return to our shareholders, and that's always going to be the goal is let's make sure we have a plan that gives an advantage return to our shareholders. And that's -- that's the 100% focus of our Board, myself and our team. Operator: The next question comes from Manan Gosalia with Morgan Stanley. Manan Gosalia: Bill, a question for you on the ROTCE target. I know you laid it out as a 3- to 5-year target. But as we think about that 15% number for next year, do you need to see the benefit from the lower capital requirements come through before you get to the lower end of that longer-term ROTCE target? Or can we continue to see some improvement post that 15% as we get into 2028 and beyond? William Rogers: Yes. I mean, if the question is the 15% was established without any regard to Basel. So if that's the question, that's how we establish that goal. And then the 16% to 18% starts to take a first sort of nibble at that in terms of how we might deploy capital and confidence in how we would use capital to continue to grow our business. But as Mike highlighted, it's really about our just accelerated confidence in our business, our ability to improve margins, accelerate growth in fees and continue to stay on the trajectory that we've already established. So the 15% was established under sort of, I would say, non-Basel and then 16% to 18% has some incorporation, but more in terms of how we would utilize the capital against our strategies. Does that make sense to your question? Manan Gosalia: Yes, it sounds like it's coming from both the numerator and the denominator as we go out beyond 2027. Michael Maguire: Absolutely. And I would just add, the Basel impact while it's a contributing factor is not the majority of the benefit that I think we'll see over that period. It's going to be more capital-efficient revenue. It's going to be a more efficient balance sheet efficiency, productivity. So it's really -- we're focused on the numerator and the denominator and glad to have both, but have good line of sight to operating in that area. Manan Gosalia: Got it. And just as my follow-up, as we think about net interest margins, Mike, you noted yield-seeking behavior and more competition on the loan side. I guess, how are you thinking about that 3 teens level on NIM going forward? Michael Maguire: Yes. I think -- so we still feel good about getting to a 3 teens net interest margin. I think without the cuts this year, we won't get there by the end of the fourth quarter, which is what we said we'd be able to do in January. And again, I attribute that to the rate path. I think current curve has a cut in '27. That, coupled with some of the other benefits like the cumulative fixed asset -- fixed rate asset repricing and other factors, I think, do get us there in '27. And who knows? We don't know what the rate path actually will be, so we can hold off some hope. But 3 teens this year is not likely to happen. We will see, by the way, it just to clean it up. we will see our net interest margin continue to expand throughout the second half of the year. So we get a little bit of benefit in the second quarter from some seasonality on the CSBB side, on some deposits which show up in the third quarter, and then we have good seasonal patterns in the fourth quarter as well around public funds plus the other factors I mentioned. So you will see us after kind of a stable Q2, expand, and we do expect for the full year to have a net interest margin better than we had in 2025. We just won't get to that 3 teens exit rate as we see it right now. Operator: The next question comes from Mike Mayo with Wells Fargo. Michael Mayo: You mentioned an increase in yield-seeking behavior among customers for deposits. And I guess, everybody loves your markets, obviously. And they're moving there, they vacation there and all the banks are opening branches and hiring bankers. So I ask this question every quarter. It just seems like it's continues to pick up. I don't you say none of this is new, you're used to that, but just seems to be reach to the next level. I think you have like the Truist One checking sign-up bonus. So I guess my question is, what's the temperature on the degree of competition? How much are you using kind of marketing expenses, such as paying customers to move their accounts and what impact is it happening? William Rogers: Yes. Mike, it is competitive as we've noted. And we're seeing that, that show up from people who've moved into our markets, and they're coming to our markets for the right reason. Our markets grew net migration by almost 300,000. And last year, and Charlotte, as an example, grows by 150 people a day. So we see and feel that in migration into our markets and the competitive nature of that. On the deposit side, we also grew net-new. So that's an important barometer that we look at. So first quarter, again, grew net new, that's a critical barometer for us. It's sort of like in the are we winning category. Yes, we use marketing tools like everybody else does. Yes, we use incentives for clients to join us. But you also saw the really good production in the places that we're emphasizing. So think about our premier banking, production was up 20%. Premier is a bit of a place where we've just started leaning in the last couple of quarters. So we're starting to see the real benefit of very focused, very targeted deposit production. And then we're seeing deposit production outside of our core franchise. So if you look at sort of our overall deposit production. We talked about this earlier. As you know, it's up pretty significantly outside of our franchise, our core franchise. So not only are we competing, we're also on the offensive side in lots of places. So -- but as Mike noted, if rates higher for longer is a tough operating environment for deposits. And what we look at is are we creating net new or we're growing our business with new clients, and we see that both in the wholesale and the consumer side. So while the profitability of those clients is less today, the fact that we're adding them as a good harbinger for profitability in the future. Michael Mayo: Okay. So planting seeds for the future. And just a follow-up to your answer to the other question, I wasn't sure on the exact answer of that. What is Truist -- under what conditions would Truist consider, say, another merger of equals? Under what conditions would Truist consider selling to another bank? Under what condition would Truist consider buying another bank? And this topic does come up, not just in the press but with investors, as you know. And as you said, 16% to 18% ROTCE with a lower risk profile over 3 to 5 years, it seems like you have a game plan. Having said that, the question does come up. And also, Bill, you sound like you have a lot of energy as we hear you right now, but how -- what's your plan to stay on? How long -- is there a mandatory retirement? I forget the succession and that whole kind of big question. William Rogers: So Mike, we're just going to go after all of them. Okay. All right. Well, let's go down it. So on the succession side, I've got a great job leading a great purpose-led company. We've got a great team, incredible teammates, strong leadership team, businesses hitting on more cylinders every day towards our performance and return objectives and just be confident that our Board has a strong succession process, and they can apply against this incredible framework. So just like put that 1 in that category. We've been really clear on the M&A front, Mike. I mean I don't know how to be more clear that, that's just not a priority for us. So I mean, I'll just say it one more time. And to your part of your question is part of the answer is we've got a great plan. We've got a really strong plan. I think this quarter is one more evidence of the fact that we're executing against that plan. We have an opportunity to deliver return to shareholders that I think are advantaged and they are advantaged given where we're coming from, given the growth that we see. And look, that's going to be the goal is how do we maximize this franchise? How do we create advantage shareholder value? And that's the focus every day. Again, from me, my team, the Board, and our incredible teammates. Michael Mayo: All right. That's great. If I can squeeze 1 more. Your core investment banking business growing double digits even without trading. That seems to be much faster than peers your size. I'm not sure why you're growing so much faster than others there. William Rogers: Well, a couple of things, Mike. I mean I think, one, we've been at this for a long time. So this is a multi-decade build of our business. And as I mentioned in the earlier answer is this tie into our franchise. So this isn't a separate business that's just solely market dependent. We really have incredible bankers on the field right now that really understand how to utilize the skills, the advice, the industry specialization, the products for all of our commercial, corporate and middle-market clients. So I think the confidence that we have not only in the future, but a bit of the -- you noted the excess performance is really tied to this durability of our franchise. And this is a culture that we've built over decades. This is why teammates want to come, be part of this investment banking business and be part of our core corporate and middle market business. They want to come here and be part of it because they can see that opportunity, and it's manifesting itself in the results. Michael Maguire: I mean the consistent pattern, Mike, for IB is that we're playing more meaningful roles in even larger transactions. So you've got some leverage there, too, just as we continue to bring great talent to the platform and again, our earning, again, more important roles. So hopefully, that will continue. Operator: [Operator Instructions] The next question comes from Matt O'Connor with Deutsche Bank. Matthew O'Connor: Was just hoping to dig into the loan growth a little bit. I guess, first, why don't we see a little bit more on the commercial side this quarter? And why not more optimistic on the year? And is there some kind of loans that are being fed through kind of the banking network instead as we just think about kind of the business holistically? William Rogers: Yes, sure, Matt. So let me take a shot at that. So if you look at the commercial -- commercial corporate banking business, it's up a little over 8% year-over-year and a little under -- just under 2%. So we've got good momentum in the places that we're emphasizing. And what I really like about it is this is -- our team is really focused on the return side. So 22% more new relationship, 60% of payments and business associated with it. It's a higher quality. So as we enter into the risk profile, it's a higher quality. The revenue per client is higher. So I see this investment in the future. And then we're seeing really good activity in other markets, Texas, Pennsylvania, Western PA, Ohio, so I think our model is actually resonating really well. I think our teams are focused on the right things on higher returning, more fulsome relationships where we can play a lead in more meaningful role. So maybe our at -- bats are a little smaller, but our batting average is really high. We're winning where we want to win. And then on the consumer side, there was some intentionality on that side, so some of the places that have lower returns, I think indirect auto spreads have tightened pretty significantly there. That's an area that we throttled back a little bit. But our core consumer businesses, I think Sheffield, Lightstream, Service Finance, that's up 7.5-plus percent of like, average balances are up. And remember, that has a seasonality to it. So the production in those businesses, remember, if you think about power equipment and HVAC and all that, production will go up 30% to 50% here in the next couple of quarters. So I think we're -- I think we're actually positioned in the right place to be focused on higher returning businesses that achieved really good return for us. So -- and pipelines are strong. And again, pipelines in the businesses and the places where we think are most important to win and achieve the best return long term for our shareholders. Operator: The next question comes from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Just wanted to follow up, Bill, I guess, with all the questions and just from a stock standpoint, like I think you said like you've got a great plan, strong momentum just as you talked about the businesses. Correct me if I'm missing something. When we look at the revenue growth outlook for the full year, 4%, expenses, whatever up 2%, is that the algo? Or do you think this bank should be doing much better than 4% in nominal GDP world of 3% to 5%? Just how do you put sort of the medium-term growth outlook for the company? And is 4% the right way? Because I think part of it is, you've got the scale, you've got all these businesses, shouldn't you be doing better in an environment which seems generally constructive? William Rogers: Yes. Ebrahim, I think what you're seeing is that building over time, right? So we're hitting on more cylinders. So that growth in revenue continues to increase. As it relates to this specific outlook, I mean, we took a posture that we've looked at the forward curve and took a view that that's going to have an impact on NII and wanted to reflect that. But if you look at the momentum in terms of new clients, the activity, the fee businesses, the things that are going on, I think we'll continue to sustainably build that business and sustainably build it with a more positive and continued operating leverage. And you see it in this quarter, and you see it in our confidence in establishing that in a longer-term goal. And that was the purpose of doing that. We'll continue to improve, continue to hit on more cylinders. And I think every day, it better reflects the opportunity that's our franchise. Operator: The next question comes from John Pancari with Evercore. John Pancari: Just on the -- back to the deposit side of the equation, could you maybe just update us on your growth expectation there? And then the areas of what businesses that you're really focusing on? I know deposit generation on the core side has been an intensified focus for the bank this year. And if you could talk to us about that progress you're making in remixing the deposit base? And then just lastly, what is your updated rate sensitivity to moves along the curve? Michael Maguire: I'll get the first and the third and maybe let Bill provide a little commentary on some of the deposit production stuff. I think we -- our outlook for deposits year-over-year average is low single digits, John. We feel fine about that, very focused on mix as well. Obviously, based on some of my comments about DDA and rotation, defending clients, it's -- obviously, it's a competitive environment out there. You asked about IRR sensitivities. Relatively unchanged relative to the new baseline, right? We've got no cuts in now. We've -- so we see a touch of risk in the up 50s and the down 50s. We're sitting at this strange place where you've got the clients along the option on both sides, right? So whether it's rotation or prepayment, but we're relatively neutral, maybe a better way to put it. William Rogers: Yes. And then in terms of the focus area, John, so I mentioned before, the premier production, which is really strong, net new, which is good. And then overall, like in our middle market business and across wholesale, we've had a really significant increase in their activity in deposits. 60% of our new business has a mandated component to it. So while some of those are more interest-bearing at this point, I think it's indicative of the quality of the relationship and ability to improve the profitability on that going forward. And so I feel good about the momentum that we've established in the wholesale side and the consumer side. I think today, getting new clients is actually really important. And I think our engine is firing on a lot of cylinders and the profitability of that, certainly from the deposit side will improve over time. Operator: The next question comes from Gerard Cassidy with RBC. Gerard Cassidy: Thank you for the added disclosures on the NDFI and everyone is obviously giving us better disclosures, which is great. So the question is there's really no concerns, I don't think today about credit losses. And the way the loans are structured as you described, and your disclosure suggests that even in the downturn, losses might be limited. But I guess -- and you guys have done credit well through the cycle. So from your perspective, can you share with us in a downturn, what are the real risks in this portfolio for you folks, again, in a normal recession, normal credit cycle where we know everybody is going to have higher credit issues? Michael Maguire: Yes. Thanks, Gerard. I appreciate the question. So I think first for us, we start with really strong relationships. We have solid bankers covering these asset managers and the clients. And then as you noted, the structural protections that exist, particularly in the BDC or the private credit section that middle market, our advance rates are sort of in that 60% to 70% range. And so we have significant protection in there. So we've also modeled this in a stressed environment, and this overall actually performs better than our aggregate C&I portfolio. And so we're confident in where we sit today with how we've underwritten these credits and how we manage and monitor them. As you know, they have regular collateral inspections, strong borrowing base. So we're confident in where we sit today with it. I think how it manifests in a downturn, you would watch what happens to the underlying companies and their performance within those structures. Operator: The next question comes from Saul Martinez with HSBC. Saul Martinez: I want to follow up on the investment banking outlook. Good quarter, high-teen growth expectations, which does -- which is off of maybe some easy comps in the first half of last year. But I wanted to ask just about your confidence in sustaining double-digit growth beyond 2026. What drives that? Which products? Is it ECM, advisory? And how are you thinking about the growth there? And just as a clarification, when you say double digits, are you talking about core investment banking or Investment Banking and Trading -- the trading line as it's presented in the consolidated income statement? Michael Maguire: I'll take the easy one first. When I said double digits, I was talking about nontrading for the year. And as we think about the sustainability of double-digit growth, this business for us has been a high single digit, low double-digit grower. Obviously, transaction activity and marketing a lot, but it has been consistently performing in that range. So -- and I think for the foreseeable future, we're going to continue to invest in the business, continue to hire great talent. We feel like we've got the products that we need to win and to serve our clients all along the spectrum and the industries that we're focused in, but we're constantly finding new and other ways to serve those clients as well. So for us, it's a growth business, and I think an expectation for high single digit, low double-digit growth is appropriate. William Rogers: Yes. And you've mentioned it. I mean, this is a broad-based, which is really good. I mean in the sense that we've got a strong equity capital markets business and FRM business, and we talked about project finance earlier in the call, our debt capital markets has been a strong contributor for a long time. I think M&A will be a bigger part of the growth going forward. We've invested a lot in that area. And again, back to this tie-in to the franchise. The other part is we've got our corporate and middle market banking teams, about 23% of them are new to the platform. And so they came to this platform to leverage these capabilities and products. So what we're seeing is their productivity is really high, and that gives us more confidence in the future of where we're going. We've added good teams in the Investment Banking side, the specialty areas that we've chosen to specialize in, our strong pipelines are strong. Now quarter-to-quarter, there will be volatility. So we just -- we all know that. I mean there'll be volatility quarter-to-quarter. But our overall confidence in the business is predicated again on a multi-decade organic strategy. Remember, I mean, we built this business organically sort of one step at a time, adding teammates and creating product and capability along the spectrum to build this momentum going forward. Operator: The next question comes from Chris McGratty with KBW. Christopher McGratty: Mike or Bill, I'm interested in the operating leverage narrative over the 3 to 5 years that you lay out for your new targets. I'm interested in, does that get easier? Or does that get perhaps more challenging? And what role does AI and investing in the company play in that? Any kind of color would be great. Michael Maguire: Chris, look, I do think that we're going to be able to continue to drive positive operating leverage over that horizon. There are -- I think it was maybe as Ebrahim's question a moment ago about revenue growth. There are natural accelerants, whether it be the under-earning in our NIM. Bill mentioned the bond portfolio, we've got sort of natural fixed asset -- fixed rate asset repricing it's happening. We've got more focus and rigor around capital allocation and portfolio construction. So I think we feel good about the top line. And then to your point around tools like accelerants like AI, I think, will play a role in that. I think too soon to necessarily quantify that over a 3- to 5-year period. But certainly, we have an expectation in establishing that target that we're going to be able to continue to drive efficiency and productivity through the business. William Rogers: Yes, I think as you noted, Chris, I mean, I think AI is going to play a really big role and give us a lot more flexibility and flexibility in terms of reinvesting in the business, as I mentioned earlier, a harvesting for profitability. So we've -- we're pretty -- we're far down the process. We consolidated our tech and ops units for a specific reason. So people can look at process or end to end, we're seeing significant improvements and opportunity. And as Mike noted, I mean, we're just starting. I mean, I think this is a significant opportunity for industry as a whole. And I think we've got a great team on this. And looking at the ways that we can expand our client business, improve efficiency, make this a great teammate experience and benefit shareholders along this path. Operator: The last question today comes from David Chiaverini with Jefferies. David Chiaverini: So it sounds as if the pricing pressure is more on the deposit side versus the loan side, can you talk about the loan pricing environment and how spreads are holding up? Michael Maguire: Yes, I'd say credit spreads have actually remained relatively tight despite all that's happening in the world. And so that's been a little bit of a head scratcher. As you look at our yields, you've got a lot going on, right? You've got some remixing. We're expanding our corporate and commercial banking business. So you might see a touch of mix in yield. You might see obviously, spreads across the board, still relatively tight as well. So that will be a welcome development if we see some expansion of margin on the credit side. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brad Milsaps for any closing remarks. Bradley Milsaps: Okay. Thank you, Betsy. That completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you for your interest in Truist, and we hope you have a great day. Betsy. You may now disconnect the line. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Ally Financial Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Be advised that today's conference is being recorded. I would now like to hand the conference over to Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead. Sean Leary: Thank you, Liz. Good morning, and welcome to Ally Financial Inc.'s First Quarter 2026 Earnings Call. This morning, our CEO, Michael Rhodes, and our CFO, Russ Hutchinson, will review Ally Financial Inc.'s results before taking questions. The presentation we will reference can be found on the Investor Relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on Page two. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Page three. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. And with that, I will turn the call over to Michael. Michael Rhodes: Thank you, Sean, and good morning, everyone. I appreciate you joining us today for our first quarter earnings call. In the last update, I noted my optimism for the path ahead. One quarter into 2026, our results confirm we are on the right path and support my confidence in our outlook, even as the macro environment remains dynamic. That confidence is grounded in the position of strength we carried into the year, driven by the actions to focus our business, streamline our operations, and increase our capital levels. The Focus Forward strategy we rolled out last year is simple and powerful. “Focus” means we are doubling down on the businesses and segments where we have clear competitive advantages. These are areas where we have long-standing relationships, differentiated capabilities, relevant scale, and a right to win. “Forward” reflects our ambition to create something extraordinary and sustainable from a position of strength. Together, these principles have allowed us to streamline and sharpen our focus, building a business that is increasingly impactful and enduring. The results since our refresh last year provide unmistakable evidence it is working. Record application flow has enabled strong origination volume with accretive risk-adjusted returns. Record written premium volume shows we continue to leverage our insurance offering to deepen dealer relationships and help them win across their entire ecosystem. We delivered strong growth across the corporate finance portfolio while delivering an ROE of over 25% and maintaining an unwavering focus on credit risk. And we reinforced our position as the nation's leading all-digital direct bank; we continue to grow customers and increase engagement, providing stable, cost-efficient funding. The progress is real; we remain committed to delivering even more. With that, let me cover some of the highlights from our first quarter. Adjusted EPS of $1.11 was up 90% year over year. Core ROTCE of 11.1% was up 440 basis points versus 2025, reflecting the structurally high returns we are capable of generating. Margin of 3.52% was impacted by the lease headwinds we discussed last quarter, but we remain confident in our ability to deliver a sustainable upper-3% margin, the final lever of our mid-teens thesis. Adjusted net revenue of $2.2 billion was up 6% year over year and 12% when adjusting for the sale of credit card. Finally, CET1 of 10.1% was up roughly 60 basis points year over year. We are encouraged by the thoughtful Basel III proposal released a few weeks ago and the clarity it provides. We appreciate the agencies' efforts to modernize the capital rules and achieve a more streamlined framework that better aligns capital requirements with the risks inherent in our business. Specific to Ally Financial Inc., I view the proposal as being constructive and supporting our existing capital allocation priorities. We remain confident in our ability to identify accretive opportunities for organic growth in our business, build CET1, and return capital to shareholders. The strategy is amplified by our brand and our culture. Our brand is an asset, one known for authenticity and impact. Earlier this week, we announced that we met our 50/50 media pledge to spend equally in men's and women's sports. That is a year ahead of schedule and clear proof of the impact we can make. Women's sports have been experiencing remarkable growth in recent years, and we are incredibly proud to partner with and support those shaping the evolution. The business outcomes of these investments have been encouraging, with our brand health at an all-time high and customer retention continuing to lead the industry. Our culture is based on an unwavering commitment to “Do It Right” and establishes an ethos for everything we do. In the first quarter, we were honored to be named to Fortune's 100 Best Companies to Work For—the highest ranking we have received, and the fourth consecutive year being recognized. Additionally, Newsweek included Ally Financial Inc. on their list of the Most Trusted Companies. These recognitions reflect the kind of culture and customer centricity our team builds every day. What mattered even more was hearing directly from our teammates. Over 90% said that Ally Financial Inc. is a great place to work and saw meaningful gains in trust in leadership and confidence in where we are headed. That tells me our strategy is resonating. We are aligned, focused, and executing in a way that employees can resonate with. That alignment is energizing. The momentum is real, and I am excited for what lies ahead. With that, let us turn to Page five and discuss the core franchises. Operational momentum within each of our core franchises remains strong, builds on the progress we delivered in 2025, and positions us for further improvement in financial performance. Our dealer-centric, through-the-cycle approach remains a key differentiator, driving results across Dealer Financial Services and reinforcing the strength of our relationships. 4.4 million applications reflect another record quarter. The scale and breadth of our product offerings and mutually beneficial dealer relationships remain key strategic advantages that drive strong application flow and enable us to be selective in what we originate. The strength at the top of the funnel translates into solid origination performance, with consumer originations of $11.5 billion, up 13% year over year despite a decline in industry light vehicle sales and healthy competition. Importantly, with a focus on risk-adjusted returns, we are mindful of the economic environment and maintain a dynamic approach to underwriting. The benefit of the strong application flow extends beyond originations, as we saw record volume and revenue from our pass-through programs this quarter. Insurance is a critical lever, contributing to the success of our dealer partners and our ability to win. That strength is translating to results, with written premium of $389 million marking a first-quarter record for Ally Financial Inc. Growth continues to be fueled by leveraging synergies with the auto finance team as we highlight our all-in value proposition to support dealers across all aspects of their business. In Corporate Finance, we delivered a 26% ROE while growing the portfolio to $13.7 billion, up roughly 6% quarter over quarter. While we continue to see accretive growth opportunities, credit remains central to how we operate. As we have cited previously, we serve as the lead agent for virtually all transactions, giving us the ability to own the diligence process and underwrite and structure transactions appropriately. Turning to Ally Bank, our customer-first approach sets us apart; we continue to benefit from the shift to digital channels. We ended the quarter with $146 billion in retail deposit balances, reinforcing our position as the largest all-digital direct bank in the U.S. Our focus remains on providing best-in-class products and services to drive customer growth and retention. We saw an improvement in customer acquisition in the first quarter, and over the past year we delivered 6% customer growth. We see meaningful opportunity to continue deepening relationships across 3.5 million customers as we look to provide value extending beyond rate paid. The strength and stability of the portfolio remains critical to our success. Retail deposits continue to represent nearly 90% of total funding and 92% are FDIC insured. The franchise provides a stable, low-cost funding source and enables our business to focus on prudent growth. Let me finish where I opened up, and that is with optimism. Our path ahead is clear and compelling. Our core franchises are delivering, and returns are moving higher. I am encouraged by the progress and momentum, and while mindful of the dynamic operating environment, I am optimistic for what remains ahead. And with that, I will turn it over to Russ to walk through the financials in more detail. Thank you. Russ Hutchinson: I will begin by walking through first quarter performance on Slide six. Net financing revenue, excluding OID, of $1.6 billion was up 8% year over year and up 15% when excluding credit card in the prior year. We continue to benefit from strong performance across our core franchises, ongoing optimization of the balance sheet toward higher-yielding assets, and our disciplined approach to deposit pricing. Adjusted other revenue of $572 million in the first quarter was flat year over year despite an approximately $25 million headwind due to the sale of credit card. This momentum reflects the strength of our diversified revenue streams, which include Insurance, SmartAuction, and our pass-through programs. Adjusted provision expense of $474 million was down $23 million year over year, largely driven by continued improvement in retail auto NCOs and the exit from credit card. Retail auto NCOs declined 15 basis points year over year to 1.97%. Adjusted noninterest expense of $1.2 billion was down $85 million year over year, demonstrating our continued commitment to cost discipline, as well as reflecting the sale of credit card and historically elevated weather losses in March last year. Let us move to Slide seven to discuss margin in detail. Net interest margin, excluding OID, was 3.52%, as repricing of floating-rate exposures and lower lease yields were offset by lower deposit costs. Retail auto portfolio yield, excluding the impact from hedges, was flat sequentially, consistent with the expectations noted in January. Lease yield included a $10 million loss on lease terminations, given the headwinds on select plug-in hybrids we noted in January. We assess depreciation rates quarterly, and we accelerated depreciation on certain leases maturing in the near term, primarily due to these impacted models. As a reminder, we expect our lease termination mix will start to shift next year. Approximately half of the leases we originated over the past two years have OEM residual value guarantees, while the other half reflect a more diversified mix of OEMs. This will continue to reduce lease gain and loss volatility over time. On the liability side, cost of funds decreased 9 basis points quarter over quarter, largely driven by a 9 basis point decrease in deposit costs. Retail deposit balances increased $2.6 billion, and we added 74,000 net new customers, clear proof our brand and products resonate in the market. We remain disciplined on pricing through a key growth period, but given the strength of the portfolio, we were able to reduce liquid savings rates by 10 basis points in February, bringing our cumulative beta to 57%. While not reflected in first-quarter results, we just reduced liquid savings another 10 basis points, bringing our cumulative beta to 63%. Additionally, CD maturities remain a tailwind, with approximately $18 billion in maturities in 2026 carrying a weighted average yield of nearly 4%. Looking ahead, we anticipate a decline in second-quarter retail deposit balances given seasonal tax payments. Our focus remains on customer growth trends and optimizing overall cost of funds. Average earning assets were up 2% year over year. Importantly, growth continues to be concentrated in our highest-returning assets, Retail Auto and Corporate Finance. Those portfolios in aggregate were up 6% year over year. Momentum across the balance sheet supports my conviction in our path to a sustainable upper-3% margin over time across a variety of rate environments. Turning to Page eight. CET1 of 10.1% was up approximately 60 basis points versus the prior year. Like Michael, I am appreciative of our regulators' thoughtful approach to the revised proposals. Under the revised standardized approach, we would produce a CET1 just above 9% when fully phasing in AOCI. That is nearly 100 basis points higher than where we would have landed under the 2023 proposal. In addition to the standardized approach, we continue to evaluate the expanded risk-based framework. As Michael noted, the proposals indicate a favorable outcome for Ally Financial Inc., and our capital allocation priorities remain the same. We look forward to continuing to drive accretive growth in our core franchises, build capital, support our dividend, and repurchase shares. Earlier this week, we announced a quarterly dividend of $0.30 for 2026, which remains consistent with the prior quarter, and we repurchased shares worth $147 million. Our open-ended buyback authorization continues to provide flexibility, enabling us to remain dynamic in any given quarter, as buybacks complement the rest of our capital allocation framework. At the end of the quarter, adjusted tangible book value per share reached an all-time high of $41, up nearly 14% over the past year and reflecting our ability to concurrently increase book value and returns. On Slide nine, we will review asset quality trends. Consolidated net charge-offs of 121 basis points were down 13 basis points versus the prior quarter and down 29 basis points year over year. Strength across our commercial portfolios continues to complement favorable trends in Retail Auto. Retail auto net charge-offs of 197 basis points were down 17 basis points quarter over quarter and down 15 basis points compared to a year ago. The first quarter marked the fifth consecutive quarter of year-over-year improvement in NCOs, as we benefited from particularly strong used vehicle prices and record-low flow-to-loss rates. On the top right of the page, 30-plus all-in delinquencies of 4.6% were down 17 basis points from the prior year, marking the fourth consecutive quarter of year-over-year improvement on an all-in basis. Industry data has shown that tax refunds increased roughly 11% year over year versus some earlier expectations for increases above 20%. Notwithstanding the increase in tax refunds and a dynamic macro, delinquency followed what we would consider to be a typical seasonal pattern during the quarter. We have continued to see a resilient consumer, but given the evolving backdrop, we feel it is appropriate to remain measured. Turning to the bottom of the page on reserves, consolidated coverage decreased 1 basis point this quarter to 2.53% given mix dynamics, while the retail auto coverage rate was flat at 3.75%. Retail auto coverage levels continue to balance favorable credit results within our portfolio against macroeconomic uncertainty. Across our commercial portfolios, credit performance remains strong with stable fundamentals. We continue to see accretive growth opportunities, but risk-adjusted returns remain our focus. We will remain disciplined on both underwriting and pricing, as growth is assessed through a credit-first lens. Moving to Slide 10 to review Auto segment highlights. Pretax income of $336 million was lower year over year due mainly to CECL reserve build. On the bottom left, we have highlighted the trajectory of retail auto portfolio yields. Excluding the impact from hedges, yields were flat quarter over quarter and up 16 basis points year over year. First-quarter originated yield of 9.6% was relatively flat quarter over quarter despite ongoing competition, coming in slightly favorable versus our original expectations. S-tier concentration declined to 41% in the period. We will remain dynamic as we optimize risk-adjusted returns across the credit spectrum. On the bottom right of the page, $11.5 billion of consumer originations were enabled by an all-time record in consumer applications. Our strategic focus is on the top of the funnel and our all-in dealer-centric model. Originations were up 13% year over year despite a continuation of strong competition and a decline in new and used industry sales. We remain disciplined in our approach to underwriting as we assess the potential impact of higher oil prices and lower consumer sentiment. Our ability to actively calibrate our buy box with the evolving market will support accretive, risk-adjusted returns over time. Turning to Insurance on Slide 11. Core pretax income was $87 million, up $70 million year over year. Total written premiums of $389 million were up $4 million year over year. Insurance losses of $121 million were down $40 million, primarily due to lower weather losses given historic weather events in the prior year. Insurance continues to drive capital-efficient, diversified revenue and remains a key component of our long-term growth strategy. We continue to leverage synergies with Auto Finance to drive momentum within the business and deepen our all-in value proposition as we help our dealer partners succeed in all aspects of their business. Turning to Corporate Finance on Slide 12. The business delivered another strong quarter with core pretax income of $94 million and a 26% ROE. We have continued to prudently grow the portfolio, which stands at nearly $14 billion today. Credit discipline is embedded in everything we do. It guides our growth and is reflected in the credit characteristics of the portfolio. Our strategy is built on long-standing relationships and deep underwriting familiarity, which we believe are advantages in managing risk. Additionally, our differentiated funding profile enables us to structure transactions conservatively while generating accretive returns. Given headlines related to the private credit industry more broadly, we have added some metrics highlighting the strength of our portfolio. We have never recorded a loss since we entered the business in 2019, and no loan has ever been classified as criticized or placed on nonaccrual. Our approach remains highly disciplined, anchored in conservative underwriting with loan-level detail, conservative advance rates, tight concentration limits and eligibility requirements, along with the ability to revalue underlying collateral and reduce borrowing limits. The portfolio is well diversified, spanning nearly 1,200 obligors with an average advance rate of 60%, reinforcing our strong collateral position. Our exposure is intentionally concentrated with groups of high-quality, scaled asset managers with proven through-the-cycle performance. Our track record and ongoing prioritization of credit risk management give us confidence in our ability to drive accretive growth going forward. I will briefly discuss our outlook on Slide 13. Guidance remains consistent with what we shared three months ago. We are pleased with our execution during the quarter as we continue to capitalize on the momentum across our core franchises. While we are closely monitoring the impacts of macroeconomic uncertainty, we remain confident in our ability to deliver against our full-year guidance. As noted on the page, our baseline assumptions reflect the March 31 forward curve, which does not include a fed funds cut until June 2027. Movement in benchmark rates may impact the timing and pace of future NIM expansion, but we remain confident in delivering a sustainable upper-3% margin over time across a range of rate environments. As Michael noted, we are encouraged by operational performance and improving financial results. Our Focus Forward strategy is working. Our team remains intensely focused on advancing our progress through disciplined execution. I remain confident in our ability to deliver compelling, long-term value for our shareholders. And with that, I will turn it over to Sean for Q&A. Sean Leary: Thank you, Russ. As we head into Q&A, we do ask that you limit yourself to one question and one follow-up. Liz, please begin the Q&A. Operator: To ask a question at this time, please press 11 on your touchtone phone. Our first question comes from Ryan Nash with Goldman Sachs. Ryan Nash: Hey, good morning, guys. Michael, maybe to kick it off, there is clearly a lot out there that the consumer is facing, whether it is volatile oil prices or other pieces of inflation. Interest rates are not as low as people had hoped. So when you think about all the things that are out there, can you maybe give us an update on what you are seeing on the consumer and what that means for your overall credit expectations going forward? Thank you. And when you look at it altogether, on the whole, it has yet to materially impact your business? Michael Rhodes: When you kind of look at it altogether, on the whole, it has yet to materially impact our business, and let me unpack that a bit more as I think about both today and looking ahead. Today, we see continued behavior as resilient, and I have mentioned this before in a couple of conversations—there is a bit of a disconnect between consumer sentiment data and what we are seeing in our portfolio. I will also offer that today we continue to see opportunities to generate loans with attractive risk-adjusted returns. We like the business that we are booking. At the same time, I think you heard in the comments we are choosing to be deliberately measured. If you look at the data from the quarter, auto applications are up 16% year over year, but origination volumes are at a slightly more moderate pace. We are prioritizing discipline over volume, and we are being measured, I think appropriately so. Looking ahead, our ability to predict exactly how conditions unfold is probably no better than anyone else’s, so we stay really focused on what we control. First, we remain anchored in our long-term strategy. I think the pivots that we took a year or so ago have really set us up well for this environment. Second, we run Ally Financial Inc. with a strong data discipline. We have lots of internal data—new origination data on the auto side, portfolio data and vintage trends, loss severity, roll rates, skip rates—and we look at external macro data, savings rates and income rates, even credit card delinquency and credit card minimum pay data. When you put it all together on a go-forward basis, we are being measured in this environment, but from the quarter we feel good about what we are delivering. There are headwinds and tailwinds, but we feel good about what we are seeing in our portfolio. Overall, I am aware the environment is unusual, but I am really pleased with our fundamentals and our recent performance. Ryan Nash: Got it. Maybe as my follow-up, Russ, you reiterated the NIM of 3.60% to 3.70% despite the shift in rates and you are assuming no cuts now. Can you talk about how the cadence of the margin has changed, where you see the exit run rate now, and whether you can continue to manage deposit costs lower similar to the cut that you made yesterday in this sort of stable rate environment? Thank you. Russ Hutchinson: Great, thanks, Ryan. There is a lot there; let me break that down. We have talked before about medium-term trends in our business—in terms of the portfolio mix, in terms of our deposit pricing beta. All those things remain very much intact and give us confidence around our medium-term trajectory in terms of net interest margin. The pace and magnitude of Fed funds changes can impact us in a given quarter, but those trends remain intact. As you pointed out, we have seen a shift in Fed funds expectations. Our outlook is now based on an assumption that Fed funds will be flat through the rest of this year, and we have maintained our guide at 3.60% to 3.70%. That is a reflection of the business performing as expected, with recent cuts to our OSA rates. We are operating at a 63% beta; that is very much in the range we have talked about and targeted. For the next couple of quarters, the second quarter will have the benefit of the recent cut we put through yesterday as well as the full-quarter impact of the cut we made back in February. CD maturities will continue throughout the year. In the background, there is ongoing portfolio mix migration as we run off lower-yielding mortgage securities and mortgage loans and continue to grow our higher-yielding Retail Auto and Corporate Finance books, leveraging momentum in both. Our overall outlook on NIM is unchanged. For the year, we expect 3.60% to 3.70%. As you do the math, that implies we exit the year at or above the high end of that range, and that continues to be our expectation. Movements in rates can affect us in a given quarter, but the business has ways of offsetting that. Operator: Our next question comes from Robert Wildhack with Autonomous Research. Robert Wildhack: Good morning, guys. I will start on capital. The buyback came in better than we were modeling, and Michael, you and Russ called out some of the benefits to Ally Financial Inc. from the new proposal. If you add those things up, what kind of scope is there to maintain or even accelerate the current pace of buyback in the wake of the new rules? And then on the competitive environment, can you unpack what you are seeing on the retail auto side—there have been some newer or potential re-entrants there—and similarly on deposits? You highlighted the 63% cumulative beta so far. Have there been any changes to what you are seeing competitively on the deposit side too? Russ Hutchinson: Thanks, Rob. Maybe I will start and Michael can jump in. First, I would reiterate the comments we made on the call. We are appreciative of these very thoughtful proposals. They are proposals, they will go through a comment period, and there may be some changes in the final rules. With that as context, our expectation is that they are constructive and favorable for Ally Financial Inc., as we pointed out. Our capital priorities remain unchanged. The first quarter provides a good template for how we prioritize growth in the businesses we are focused on—strong growth in Retail Auto and Corporate Finance—and ensuring we have capital to support that growth. We are also prioritizing continuing to build our capital and putting a buffer on top of the effective 9%-plus CET1 ratio that we would print if fully phased in under the RSA. And then, obviously, supporting our dividend and continuing to buy back stock. We think of this as a story of “and,” not “or.” We can do all of these things at the same time: support the growth of our core businesses, build our capital, support our dividend, and buy back shares. Michael Rhodes: On the competitive environment, starting on auto, there really have not been recent changes. We have had four straight quarters of elevated competition versus what we saw coming out of the pandemic, and we have continued to demonstrate momentum. Our dealers respond to the fact that we are a through-the-cycle partner. We support their businesses in a number of different ways and have long-standing, meaningful relationships. That has translated into record application volumes this quarter, which gives us an opportunity set to originate at volumes, credit, and yields we like. On deposits, we are very pleased with what we are seeing. We recognize there is competition for deposit balances, but we believe we are in relatively rarefied air as a digital bank with a national brand. There are not many who tick that box. We disclosed this quarter that our customer growth year over year was 6%, and in this environment we are actually seeing customer growth rates accelerating, not decelerating. Pricing aside, we like the margin we are getting in that business and the new volume flows. New flows are lower-balance customers, and we like that dynamic. The customer is clearly responding to a national brand, a top-notch digital experience, and competitive rates. Operator: Our next question comes from Sanjay Sakhrani with KBW. Sanjay Sakhrani: Thank you. Good morning. On credit, credit quality is doing pretty well. As we think about reserve coverage, how should we see the progression as charge-offs come down and delinquency follows? And, Michael, you mentioned you are being measured. Given the success you are having with credit, might you lean in a bit more on growth as we move forward if the geopolitical stuff subsides? Also, on application volume growth, very strong, and originated yield remains quite strong. What is driving the success here in the application volume—is it dealer penetration, or diversification across brands—and how does that translate into the defensibility of that yield, which is critical to the NIM progression? Russ Hutchinson: As you pointed out, we are pleased with what we are seeing in the book. In the first quarter, flow-to-loss rates were solid. We got support from used vehicle prices. That translated into another quarter where NCOs and DQs are down on a year-over-year basis. Michael pointed out earlier the macro is dynamic, and we would consider ourselves to have a measured posture. On reserves, we held retail auto reserves flat at 3.75%. That takes into account what we are seeing in the book and the dynamic macro. We have a thorough process each quarter to set reserves. As we think about our return ambitions and mid-teens ROTCE, we do not predicate that on reserve releases; we look at the business on a steady-state basis. Michael Rhodes: You often hear us talk about being dynamic. In this environment, with what we see today, “measured” is the appropriate word. We are very data dependent, and as data ebbs and flows, we will make adjustments in the best interest of driving accretive business. On applications and yield, the strength in our application flows traces back to our strategic pivot a year ago—selling the credit card business, stopping mortgage originations, and focusing on our core businesses. We have been very intentional. Our dealer-facing teammates are building relationships every day. Our dealers appreciate we are all-in on them and that we are there to help them win. That is translating into more volume—the fruits of disciplined execution against Focus Forward. Yield will ebb and flow with mix and seasonality. We like the yield we saw in the first quarter. Russ Hutchinson: It outperformed our expectations a bit. From first to second quarter, seasonality can drive S-tier concentration a little higher and put some pressure on yield. I would not get hung up on any single quarter’s yield. Strong application volume gives us flexibility to manage pull-through on volume, credit, and originated yield. Operator: Our next question comes from Brian Foran with Truist. Brian Foran: Hi. On capital, you noted you are still evaluating IRBA. Is there any thought that IRBA might be better than the ~9.1% under RSA—worth opting in? And on Corporate Finance, growth looks great with 26% ROE and zero losses, but there is investor nervousness in the space. Qualitatively, what is driving the growth—team hires, competitors pulling back? And from an underwriting standpoint, are you tightening anywhere—raising pricing, lowering advance rates, marking collateral? Russ Hutchinson: As we said, both proposals are constructive, though they are still proposals and could change. On the face of it, IRBA has the advantage of lower risk weights for certain categories, including retail auto loans, which are a big part of our balance sheet. There are also additional RWA categories, like operational risk, that offset some of that. As a Category IV bank, we would be in RSA by default and could opt in to IRBA with a one-year transition. We are evaluating both and will choose what best aligns capital with the risk in our book for the long term. On Corporate Finance, our team has been in place for decades and is credit-first. We do not chase growth. The book can ebb and flow due to lumpiness of paydowns and originations, and you have seen quarters where we shrank. We are pleased with the first quarter, but there have been no compromises on credit. There is a dynamic with the CLO market taking out some facilities; we are not compromising based on credit for growth. Michael Rhodes: Many of our commercial clients have also been in business for decades. When our clients do very well, they grow, and we grow with them. Much of the growth you are seeing is us growing with long-standing, trusted relationships. That is the best way to grow. Operator: Our next question comes from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Thanks. On retail auto credit performance and outlook, you cited vintage roll-forward, used car values, and consumer performance. How do you expect that to evolve—should performance be increasingly better as we go through 2026? And on the Insurance business, profitability was strong, growth lower. Beyond weather, any trends we should be aware of, and anything that would accelerate growth in premiums written or revenues? Russ Hutchinson: We have left our retail auto NCO guide for 2026 unchanged at 1.8% to 2.0%. Back in January, we described that as a down-the-middle guide. If the portfolio continues to perform as it has—flow-to-loss, used car prices, delinquency evolution—we expect to be in the middle of that range. Over a longer period, we originate to a 1.6% to 1.8% annualized NCO rate, and over years we would expect migration toward that area. For Insurance, earnings reflected lower weather losses and strong realized gains in the investment portfolio; last year’s first quarter had one-in-200-year weather events, so the comp was easier. Longer term, we are underwriting marginally lower-risk business—less concentration in higher-weather-risk states and more high-deductible policies—reducing volatility, albeit with lower premium for the same nominal vehicle values. Operator: Our next question comes from Jeff Adelson with Morgan Stanley. Jeff Adelson: Good morning. On operating leverage, you have executed well on expense management—some benefit from card rolling off and no one-in-200-year weather event. How are you trending versus your expectations on expense, and where can you go from here? Any other opportunities to hone efficiency? And on tax refunds, they are trending up year to date. Do you expect any areas where that flows through—perhaps a pull-forward dynamic in applications, people using refunds for car purchases, or getting ahead of higher oil prices? Russ Hutchinson: Thanks, Jeff. While year-over-year comps benefited from card in the base period and last year’s weather, our expense discipline is very much in play and you have seen it over several quarters. We provide a guide for the year on noninterest expenses and are sticking to up about 1% for 2026. Beyond 2026, we see long-term expense growth in the low to mid-single digits. We constantly reprioritize investment spend to maximize impact. On tax refunds, refunds were up about 11%, not the 20% some anticipated, but up meaningfully and likely helpful. There is a mix of macro factors—oil prices, consumer sentiment, personal savings. Putting it together, seasonality in the quarter was typical of what we would expect. Operator: Our next question comes from John Pancari with Evercore. John Pancari: Morning. On retail auto, you noted the $10 million loss on lease terminations tied to residuals. Can you give an updated outlook—how will that trend, and is it factored into the guide? Separately, you acknowledged a 5% decline in new light vehicle sales. What is your assumption there, and does that temper your 2% to 4% earning asset growth outlook? Russ Hutchinson: On leases, the $10 million loss on lease terminations was a little favorable to what we expected when we spoke in January. The pressure we are seeing on a handful of PHEV models was consistent with expectations, and we saw some favorability in used car prices in the broader termination portfolio, providing an offset. We accelerated depreciation on certain near-term vintages related to those impacted PHEV models; our outlook for the year takes remaining pressure into account. On light vehicle sales, while industry sales were down, we still had two strong quarters in applications translating into strong originations. We feel good about momentum on retail auto loans and remain comfortable with earning asset growth guidance. John Pancari: Thanks. On returns, you cited confidence in NIM despite rate fluctuations and favorable Basel implications. How does this impact your mid-teens ROTCE expectation—any changes and what is a reasonable timing? Russ Hutchinson: No updates on timing. We continue to resist calling a specific quarter. Medium-term trends persist, and we have a high degree of confidence in meeting our mid-teens target. Operator: Our next question comes from Mark DeVries with Deutsche Bank. Mark DeVries: Thanks. On capital, Russ, I noticed you did not refer to “low and slow.” Was that a deliberate omission reflecting greater optimism about the pace of capital return, or am I reading too much into it? Russ Hutchinson: You are probably reading too much into it. We are going to be dynamic. Our capital priorities are unchanged. We will be dynamic as we see origination opportunities in our core businesses where we generate accretive returns, and we will continue to build capital, support our dividend, and buy back shares. Michael Rhodes: Reflecting on the past few years, the fact that we are having a conversation about the pace of share repurchases is a testament to having the right strategy and disciplined execution. We feel really good about our strategic positioning and how we are teed up for the future, not just what we delivered this quarter. Sean Leary: Thank you, Michael. Right at the top of the hour, we will go ahead and wrap it for today. If you have any additional questions, as always, please feel free to reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Ken Murphy: Good morning, everybody, and thank you for joining Imran and me as we talk through our results for the year. We will also provide an update on our strategic ambitions as we set ourselves up for longer-term delivery in an ever-changing retail landscape. I'm really pleased with our performance across the last year. Against a backdrop of increased competitive intensity, we took decisive action to further strengthen our investments in price, quality, and service. These actions resonated strongly with customers, driving further gains in customer satisfaction and continued growth in market share. Our commitment to delivering the best value for customers remains firm. In a period of continued pressure on household incomes and global uncertainty, this matters more than ever. In a year of strong momentum, customer satisfaction stepped on further, and we reached our highest market share for a decade. This translated into a strong financial performance with both profit and cash flow ahead of our guidance ranges. Alongside strong operational execution, we have been working across the business to unlock long-term growth opportunities, leveraging our unrivaled customer reach, data insights, and digital expertise, including the use of AI. As part of my strategic update a little later, I will cover some of this progress in more detail. Increasing customer satisfaction and market share are priorities for us. Following our progress over the last four years, we were pleased to see further momentum this year. Our Net Promoter Score increased ahead of the competition, including an improvement in value perception. In the U.K., our market share reached 28.5%, outperforming on both a volume and a value basis and taking our total share gain across the last three years to 120 basis points. In Ireland, we are now in our fourth year of gains, with market share increasing 32 basis points over the year to 24.2%. We started last year with a strong price position versus the market, and despite an increase in competitive intensity, we've exited the year in a similarly strong position. Across the last 12 months, our investments into price, including tripling the number of products in everyday low prices to 3,000, running alongside over 10,000 Clubcard prices and more than 600 Aldi Price Match lines. We finished the year with over 10,000 prices lower than at the start of the period. Quality is a crucial part of the value equation, and I am proud of our work over the year to deliver continuous innovation and improvement across our ranges. Finest is a key part of this story, delivering sales growth of 15% with our popular dine-in deals performing especially well. We also launched exciting new ranges like Chef's Collection, which offers restaurant-quality centerpieces designed by Tesco's in-house development chefs. It's not just about Finest. Our frozen range refresh in the second half, our biggest for many years, saw hundreds of new and improved products across tiers, from tasty new recipes and prepared meals and pizza to delicious new frozen desserts. Our colleagues are the driving force behind our performance, and I would like to extend my personal thanks for all their hard work over the past year to deliver these strong results. In recognition of the exceptional service they have given customers, we're really delighted to be announcing a GBP 65 million performance award for our hourly paid colleagues in stores, distribution centers, and customer engagement centers. This follows a further GBP 209 million investment in colleague pay for our U.K. store colleagues, bringing our total hourly pay increase to 43% over the past five years, which comes alongside a comprehensive range of colleague benefits. One of those benefits is our Save As You Earn company share scheme, and I was particularly delighted to see that over 22,000 colleagues, mainly those working in store and our distribution centers, were able to benefit from a GBP 134 million payout from the schemes maturing this year. By consistently delivering for customers, we are creating long-term sustainable value for all our stakeholders. Our Fruit & Veg for Schools program continues to make a significant impact in some of the most disadvantaged communities across the U.K. It has now expanded to 500 schools, offering children improved nutrition and education on healthy eating. A further 320 schools in Ireland also benefit from our Stronger Starts food program. Strong supplier relationships and collaboration are fundamental to our success, and we were delighted to be ranked first in the Independent Advantage survey for the 10th year running. We've also made good progress with our Planet Plan, including a 68% reduction in our Scope 1 and Scope 2 emissions, well ahead of our plan for a 60% reduction by the end of 2025. For our shareholders, we returned GBP 2.4 billion through dividends and buybacks during the year. I'll return shortly to provide you with an update on our strategic ambitions, but before that, I'll hand over to Imran. Imran Nawaz: Thank you, Ken, and good morning, everyone. I'm really pleased with the performance across the year. Following several years of good progress and against the backdrop of elevated competition, we saw consistent market share gains and improved customer satisfaction, which is reflected in our strong financial performance across the year. I'll now take you through our financial performance before taking a step back and setting out our longer-term financial priorities. This year, our statutory results cover a 53-week period. For comparability, the headline results are presented on a 52-week basis unless otherwise stated. Group sales grew by 4.3% at constant exchange rates. This included a 3.5% increase in like-for-like sales, reflecting growth across all our operating segments. Group adjusted operating profit increased by 0.6% at constant rates to GBP 3.15 billion, driven by sales growth and progress on our Save to Invest program, offsetting operating cost inflation and investments in value, quality, and service. Our headline earnings per share increased 6% year-on-year to 29p, benefiting from our ongoing share buyback program and growth in profit after tax. Our cash delivery was strong, with GBP 1.96 billion of free cash flow up 12% year-on-year and above the upper end of our guidance range. We have proposed a final dividend of 9.7p per ordinary share, resulting in a full-year dividend of 14.5p. This represents growth of 5.8% and is in line with our policy of setting our annual dividend at broadly 50% of earnings. Our balance sheet remains strong. Our net debt, including capitalized leases, was GBP 10.56 billion at the end of the period, with our net debt-to-EBITDA ratio at 2.1x. The U.K. and Ireland saw total sales growth of 5% and adjusted operating profit growth of 0.7%, with further volume and value market share gains and progress in Save to Invest more than offsetting significant investments into the customer offer and operating cost inflation. Booker sales increased by 0.6% and adjusted operating profits grew by 0.7% year-on-year. Sales growth in our Core Catering and Retail businesses, together with a strong Save to Invest contribution, more than offset operating cost inflation. In Central Europe, our sales grew by 3.7%, with the adjusted operating profit performance reflecting the net effect of the benefit of sales growth, a further contribution from Save to Invest, and lower rental income following the sale of some of our mall properties in the prior year. Now what I'll do is I'll go through each market's performance in more detail, starting with sales before moving on to profit. In the U.K., sales growth of 4.9% included like-for-like sales growth of 4.2%. Our food like-for-like sales grew at 5.2%, with a strong contribution from fresh food up 6.9%. Finest was once again a standout performer and grew 14.5% over the year, driven by strong volume growth. Our clothing like-for-like sales grew by 5.1%, driven by womenswear, with expanded ranges in activewear and our curated F&F Edit ranges both performing very well. Like-for-like sales grew across all channels, including large store like-for-like of 3.9%. We also took share across all channels, including 71 bps of market share gain in convenience and 30 bps in online. U.K. online sales grew by 11.2%, driven by volume growth, and included a circa two percentage point contribution from Tesco Whoosh, where we extended national coverage to over 70% of households. Average online orders per week for our grocery home shopping business grew by 6% as we rolled out more slots to customers and made further improvements to our website. In Ireland, like-for-like sales grew by 4.6%. Total sales were up 6.6% at constant exchange rates, including the contribution from nine stores we opened in the year. Food like-for-like sales grew by 5.1%, supported by a fresh food offer and further growth in Tesco Finest. As in the U.K., we grew across all our channels, with online delivering 17.4% growth as we reached over 94% national delivery coverage. Home and clothing like-for-like sales were down 1.8%, reflecting the impact from the transition to a commission model for toys as in the U.K. Booker like-for-like sales increased by 0.2%, despite the ongoing decline in tobacco sales. In Core Retail, like-for-like sales were up 2.2%, and we continued to expand our Symbol brands, adding a further 369 net new partners. Core Catering like-for-like sales grew at 3.8%, and customer satisfaction scores improved as we continued to deliver great value and availability for our customers. Growth was further supported by Venus, our specialist wine and spirit merchant, as well as the benefit from good weather over the summer. In Central Europe, like-for-like sales grew by 2.2%, with fresh food up 4.1%, supported by our investments in value. Finest performed strongly with over 30% sales growth. All three of our channels grew over the period, with online reaching 17.5% growth, while growth in large stores was impacted by softer home and clothing sales, reflecting lower consumer confidence in the region and poor weather during key trading periods. Customer satisfaction continued to grow through the year, and we stepped up our customer rewards as we celebrated 15 years of Clubcard in the region. Let's now turn to profit. At a group level, we delivered GBP 3.15 billion of adjusted operating profit, up 0.8% at actual exchange rates. Our strong trading performance, together with a GBP 535 million contribution from Save to Invest, more than offset the impact of our significant investments in the customer offer and elevated operating cost inflation, including from increased regulatory costs. This slide reconciles adjusted operating profit to statutory profit after tax, which is presented on a 53-week basis. Total adjusting items represent a net charge of GBP 153 million. This includes the ongoing amortization of acquired intangible assets of GBP 78 million, principally relating to the merger with Booker, and a non-cash net impairment charge of GBP 53 million. Restructuring costs mainly relate to our Save to Invest program, including costs associated with our multi-year program to optimize our distribution network in the U.K. We incurred GBP 28 million in separation costs relating to the disposal of our banking operations. We do expect the transition to complete in the current financial year. We delivered strong free cash flow of GBP 1.96 billion versus GBP 1.75 billion last year. Cash generated from operations increased by GBP 522 million, driven by profit growth as well as strong working capital inflow of GBP 385 million. The working capital inflow was mainly driven by our sales performance, strong working capital management, and higher non-trade payables. Cash CapEx was GBP 1.5 billion. Looking back over the last five years, our disciplined approach to investing in high-return areas has fueled sustainable growth and cash flow. This, in turn, has allowed us to steadily increase our capital expenditure while significantly improving return on capital employed, which remains well above our weighted average cost of capital. Over the period, we have continued to return cash to shareholders in the form of dividends and share buybacks. Since the commencement of our share buyback program in October 2021, we have bought back GBP 4.3 billion worth of shares at an average price of GBP 3.17 per share. This slide provides some additional detail on the nature of our capital investments. Our core operations are the foundation from which our opportunities are built. We continue to maintain and refresh our estate, ensuring that customers get the store and online experience they expect from Tesco. We are also investing strongly into productivity and growth initiatives. Our Save to Invest Program has allowed us to simplify, become more productive, and reduce costs across our business. This includes the ongoing optimization of our distribution network, which powers our market-leading availability. With a focus on leveraging our existing assets, our future growth opportunities are generally capital light. The capital that we do spend is focused on high-return areas such as technology, including investments into new digital platforms and AI. Looking now to the balance sheet, which remains strong. Net debt was GBP 10.6 billion versus GBP 9.5 billion last year. The increase is mainly due to the prior year including around GBP 700 million of proceeds from the sale of the group's banking operations, which we returned to shareholders during the course of this year. Lease renewals and extensions also drove GBP 168 million increase in lease liabilities, and there was GBP 144 million net outflow for property transactions, primarily the buyback of 7 stores in the U.K. Our net debt-to-EBITDA ratio is at 2.1x, and our fixed charge cover is 4.1x, in line with the prior year. During the year, alongside the scheme's trustees, we agreed to triennial funding valuation for our principal defined benefit pension scheme. On a technical provisions basis, the funding position of the scheme remains in surplus, and it was therefore agreed with the trustees that no pension contributions would be required from the group. Our progress across the last year builds on our strong delivery since we first set our multi-year performance framework in 2021. We are proud to have delivered average sales growth of 5.2% across the period, alongside group adjusted operating profit growth of 7.9% and adjusted EPS growth of 12.2%. With nearly GBP 8 billion of cumulative free cash flow across the four years, we have comfortably exceeded our expectations of cash delivery. Our capital allocation framework has been a crucial foundation for our financial performance. In a moment, Ken will cover our evolved strategic ambitions, and as we position the business for future growth, the framework will remain central to how we execute our strategy and create long-term value. Our first priority is to reinvest into the business and strengthen our customer proposition, prioritizing high-returning areas and supporting sustainable long-term growth. As we reinvest, we will remain committed to maintaining a solid investment-grade balance sheet. We continue to deliver a progressive dividend, targeting a payout ratio of roughly 50% of earnings, consistent with our recent track record. We also remain disciplined, yet alert to inorganic growth opportunities that complement our longer-term strategy. Finally, any surplus capital after these priorities will be returned to shareholders. For the year ahead, we expect around GBP 1.6 billion of capital expenditure, and we are announcing today a further GBP 750 million share buyback. We first set out our multi-year performance framework in 2021, and it continues to guide our approach. By focusing on improving customer satisfaction and growing, or at least maintaining our U.K. market share, we intend to drive top-line growth. By leveraging our assets, growing new revenue streams, and targeting productivity initiatives to offset inflation, we aim to grow absolute profits and maintain sector-leading margins. Since setting out the framework, our delivery has exceeded our initial expectations. With our confidence in future cash flow increasing, we're upgrading our medium-term free cash flow guidance to between GBP 1.5 billion and GBP 2 billion per year versus the old range of GBP 1.4 billion and GBP 1.8 billion per year. In summary, I'm pleased with our strong performance across the year. We have delivered further improvements in customer satisfaction, market share gains, and cash flow ahead of guidance. Our performance and capital frameworks continue to guide us and underpin our delivery, and we have returned GBP 2.4 billion this year to shareholders through a combination of dividends and share buybacks. For the year ahead, we are providing a wider range of guidance than we were previously planning, reflecting the increased uncertainty caused by the conflict in the Middle East. Much will depend on the duration of the conflict and the consequential impacts on U.K. households and the economy more broadly. At this stage, we expect group-adjusted operating profits of between GBP 3 billion and GBP 3.3 billion. We expect free cash flow within our upgraded medium-term guidance range of GBP 1.5 billion to GBP 2 billion. I will now hand back to Ken, who will provide an update on our strategic ambitions. Ken Murphy: With our highest market share in a decade, meaningful growth and new revenue streams, and strong free cash flow, our delivery against the multi-year performance framework we set out in 2021 has exceeded our expectations. As we look to the future, we have built strong digital capabilities, including in retail media and personalization. Our success has been shared with our broader stakeholders too, including investing more than GBP 1 billion in store colleague pay over the last five years. However, the retail landscape continues to evolve and so do we. Households have had to adjust to persistent cost of living pressures and competition remains intense, with new entrants and technologies giving customers more choice than ever. Customer expectations are increasing too. In addition to fantastic value, customers also want food that supports their health goals from a brand they can trust to do the right thing. To continue delivering for all of our stakeholders in this changing landscape, we have evolved our strategic ambitions into five mutually reinforcing goals. These ambitions position us to deliver even better value to our customers while driving sustainable long-term growth. Our five ambitions form a connected ecosystem, all designed with one clear purpose, continuing to deliver for our customers. Over the next few slides, I will take each ambition in turn and explain what they mean to us, what we have achieved so far, and offer some insight on how we are building for the future. Our first goal is winning in food. Delicious, affordable, and nutritious food matters more than ever to our customers and their families, and we know that they are looking for the best combination of price and quality across our ranges. With 3,000 everyday low prices, over 10,000 Clubcard prices, and more than 600 products on Aldi Price Match, we offer customers an unrivaled value proposition. We're proud of the improvement we have made in our price position in recent years, but this is an area where we can never be complacent. As our digital and personalization capabilities evolve, we are constantly looking for new ways to help customers to save. Of course, value for money is about quality as well as price, and we're continuing to invest in quality at every tier. Finest has been a great success story for us, but there is so much more to go for. Through developing new products, expanding ranges, and getting Finest in front of more customers, including through AI-powered ranging tools, we aim to grow Finest well beyond GBP 3 billion in sales. At the same time, we're launching new products that reflect changing customer trends and preferences, such as expanding our Gut Sense and high-protein ranges. Through our market-leading presence across stores, online grocery, and rapid delivery, combined with the reach of Booker's wholesale business, we are better placed than anyone to serve customers' food missions wherever, whenever, and however they want to be served. Whoosh is a great example of this. Launched just five years ago, Whoosh has grown to be a meaningful part of our online offer, generating over GBP 400 million of sales and now covering over 70% of U.K. households. We see more to go for in this fast-growing part of the market. This year alone, Whoosh grew by 51% in the U.K., and we have started to roll out the service in Ireland too. We've achieved this largely through using existing infrastructure and resources, demonstrating our ability to grow new revenue streams in a capital-light way. The frequency and trust we have built through food allows us to serve families a much wider range of products and services, and we want to help meet even more of their everyday needs. Some of these are well-established. For example, since its launch in 2001, F&F has been known for providing stylish and affordable clothing at outstanding value, available in our stores and now online too. Tesco Mobile is the U.K.'s largest mobile virtual network operator. With over 5 million customers, it was recently voted the U.K.'s best network for customer service for the fifth year running. Our insurance and money services business is providing cover to our customers through 2.5 million policies, and 4 million customers are accessing a range of banking products through our partnership with Barclays. We see huge potential to enhance and grow our existing products and services, and F&F is a great example of this. F&F online has made an encouraging start following its launch last year, but we know we can go further enhancing the customer offer. Later this year, we will be launching an exciting new F&F website, which includes a fashion-forward look and feel, greater style curation, and smarter search functionality. In the past, expanding into new retail categories tended to be expensive and high risk. Our approach is focused on leveraging what we already have and committing capital in a disciplined way. Marketplace is an example of this and has great potential. We are making good progress and already have seen the benefits it can bring to the wider business. Marketplace has now served over 1 million customers, and more than half of them have never shopped online with Tesco before. As part of refining the offer, we have recently migrated our platform to Mirakl to improve the seller onboarding process and enhance the customer proposition. Our 355 in-store pharmacies give us a real point of differentiation in the market. Combined with our ability to offer an even wider range of healthy, nutritious food, they give us a great opportunity to be customers' first choice for health and wellbeing. We already serve 0.5 million customers per week with everything from prescriptions to vaccinations, blood pressure checks, and expert advice on a range of common conditions. Our pharmacies also play a key role in our long-standing charity partnerships with Cancer Research, the British Heart Foundation, and Diabetes UK. By using our unique data and insights to build new partnerships and revenue opportunities, we can become the most strategic partner for our suppliers for innovation and brand building. Clubcard is the U.K.'s largest loyalty program, regularly used by more than 24 million households. Spanning our offer from food and telecoms to banking, it gives us an unrivaled understanding of our customers, enabling us and our supplier partners to serve their needs more effectively. Tesco Media is the largest closed-loop media and insight platform in the U.K. Leveraging our expansive store and digital canvas, it has seen significant growth in recent years and ran over 12,500 campaigns in the last year alone, with over 90% of advertisers increasing their spend on the platform year-on-year. The Tesco Media team are innovating at pace. For example, our recently launched AI-powered creative studio tool helps advertisers streamline the production of digital content, making the platform accessible for all brands, regardless of their size or budget. Building strategic brand partnerships is about more than retail media. The scale and breadth of Tesco means we are uniquely placed to help brands grow. Our platform can offer everything from access to distribution through our grocery and wholesale channels to self-serve tools that provide insights into customer behavior and opportunities to grow further. Our well-established accelerator program helps small and trend-led brands, offering mentoring and development experience, including supporting product formulation, marketing, and enhancing their supply chains. We are already partnering with hundreds of suppliers to drive development and innovation, and we think there is potential to bring our expertise to many more. Underpinning all of this is our dunnhumby business, a market leader in data science. dunnhumby's team of data scientists, engineers, and retail consultants further develop Tesco's intelligence layer, connecting customer and brand insight, analytics, and global retail expertise. Using dunnhumby's data science and AI to connect the dots across our retail business is helping us to make smarter decisions at pace. For example, with dunnhumby, we're using AI-enabled data science to transform ranging decisions, moving a process that took weeks into minutes. Our next goal is to be connected, personalized, and loved by customers. Alongside our stores, our colleagues are central to the customer experience. We are incredibly proud of the service our colleagues give customers day in, day out. Last year, we invested in over 1 million hours of training for our U.K. store colleagues. We want our colleagues to be our biggest advocates. We have great foundations for this, with the proportion of our colleagues recommending us as a place to work and shop significantly above industry averages. With the largest network of stores in the U.K., we continue to meet local needs better than anyone. From large stores offering our full range of services to Express and One Stop serving the local communities, we continue to invest in our estate with a particular focus on our fresh offer, helping every Tesco become the preferred store in its community. Customers should feel rewarded every time they shop with us. Clubcard has been at the heart of this for over 30 years, and we're always looking for ways to make Clubcard even more rewarding, whether it's new ways to collect points, making Clubcard points go further, or small but meaningful gestures that make a customer's day a little better. By harnessing advancements in AI, the power of Clubcard data, and our own digital capabilities and partnerships, we see enormous potential to make every interaction more seamless and relevant by anticipating needs, offering timely nudges, and making smarter recommendations. Our strategic partnerships with Adobe and WPP are an important part of this, unlocking new opportunities to provide real-time personalized content, whether direct to customers or through third parties. Another opportunity is personalized offers. We have made great strides on this already, from personalized coupons through to gamified experiences like Clubcard Challenges. We're pleased to take this a step further with the recent launch of Your Clubcard Prices to 1.5 million customers and a wider rollout coming later this year. Key to personalization is showing customers that we understand them, offering interesting and timely communications that inspire and anticipate their needs. Our new brighter and bolder style of customer communication is one of the ways we're achieving this. We're also excited about our new AI assistant with large-scale trial launched to around 280,000 of our colleagues ahead of a wider launch later in the year. The AI assistant is part of the Tesco app and will initially help customers with meal planning, offer inspiration, and help build shopping baskets. We are always looking for ways to make our business even more sustainable for the long term. We have a strong track record of making Tesco simpler, more productive, and more cost-efficient through our Save to Invest program. This has helped us to unlock GBP 2.2 billion worth of savings over the last four years, providing the fuel for our investments into the customer offer and higher pay for colleagues. We are also investing to strengthen our resilience, efficiency, and sustainability. Ready for future growth, we recently opened a new semi-automated fresh distribution center in Aylesford, and during the year, we started construction on our new distribution center at London Gateway. Our work to further optimize the business will continue with a target to unlock a further GBP 500 million of saving in the year ahead. Supply chain resilience is central to managing risk. We're proud of the strength of our supplier relationships. With long-term commitments to many of our key partners, they can have the confidence to make long-term investments in their businesses. Technology plays a key role in supply chain resilience, and we have developed new and unique risk mapping capabilities that identify and help us address potential sourcing challenges. As British agriculture's biggest customer, we're committed to deepening partnerships with farmers, including through our six Tesco Sustainable Farming Groups, covering everything from cheese to lamb. The farming industry faces a long list of challenges, and the Sustainable Farming Groups provide a forum to collectively improve innovation, quality standards, and industry collaboration. We see a much wider opportunity for technology and AI to further enhance our business. Over the last six years, we have doubled the size of our technology team, and we are equipping our colleagues with tools that simplify everyday tasks, freeing them to focus on what matters most. AI is evolving at an extraordinary speed, so putting the right frameworks and governance in place is essential, both to protect our business and to capture the full value of these innovations. We've recently consolidated nearly 250 individual work streams into a single coherent AI strategy focused on four domains, customers, colleagues, supplier partners, and operational efficiency. Our Planet Plan is another key element of our wider business sustainability ambitions. We were an early adopter of science-based emission targets, and we're making good progress, having now reduced Scope 1 and 2 emissions by 68% versus our 2015 baseline. We were also pleased to reach our target at year-end of 65% of our sales being classified as healthy, and we've got ambitions to go further. Achieving our individual ambitions can help us deliver even better value for customers. The real power comes from bringing these five goals together, creating a leading food-first retail ecosystem. By winning in food, we can build frequency and trust, which helps us meet more everyday customer needs. That, in turn, grows household spend with us, generating capital-light revenue streams and a richer, more holistic data set. As we combine that data with our store and digital footprint, we can build stronger and more strategic supplier partnerships. Partnerships that further reinforce our ability to win in food. At the center of this ecosystem is the most connected, personalized, and loved customer experience, holding everything together. Throughout it all, our purpose remains clear: delivering even better value for customers, and in doing so, generating long-term sustainable growth for all of our stakeholders. Thank you all for your time today. Imran and I would now be delighted to open the floor for your questions. Operator: [Operator Instructions] We'll now take our first question from Rob Joyce. Rob, please go ahead. Robert Joyce: I might try three, but the first one, just a backward-looking one. In terms of last year, I think this time last year, we were thinking EBIT would come in at GBP 2.85 billion and delivered sort of 10% ahead of that. Can you just tell us what went differently to expected? How did you manage to deliver so far ahead of that? Would be the first one. Second one, I guess you mentioned that the range for the year ahead is a lot wider than it would've been. I guess to help us understand the underlying business trajectory on the 26th of February, what do you think that range was going to be? The final one, Ken, a lot of focus on areas that we maybe haven't discussed as much before in the business outside of core food. Can you give us an idea as to the size of their contribution to the business today? Going forward, do we think of those as kind of funding investment in price, or are they margin accretive, EBIT growing parts of the business? Imran Nawaz: Yes. Let me just maybe take the first two. In terms of what went differently to what we expected. You're right. When we set out in April, we said we would make sure that we continue to protect the price position that we set out over the last four years and make sure that we do not cede any ground on that. We spent the money, we invested, and the differences between the guidance that we gave versus what we delivered, the investment choices we made basically had better returns. We invested in price, we invested in quality, we invested in range, we invested in hours, and those things worked. I would say to you the proof point of that was the market share gains that we delivered landed us in volume growth pretty much every single month of the year. That really combined with the saving problems that we have, delivered the profit growth that we saw. What I'm pleased to be able to say to you today is, I didn't start the year thinking we'd grow profits last year, and the fact that we grew profits and EPS of 6% is a nice outcome because it's coming from market share gains. I would say to you, that's the one thing that I really love about the delivery for the year. In terms of the range. Look, I'm not going to go maybe into what if the conflict wasn't there sort of situation, but what I would say to you is to give you some color on the range. Ultimately, we aim to grow our business every year, right? We want to deliver the best performance that we can every single year as we set out to do. You see that in Save to Invest. We want to continue to gain shares. We want to continue to run our program. There is the uncertainty driven by the conflict, as you know, and the duration and the impact of that is an unknown. What I want to make sure, what we want to make sure is if that conflict continues or if the impact's duration lasts longer, that we can continue to execute the program that we have. If we're at the bottom end, to your question, that really means that we would have the flexibility to continue to do what we want to do. At the upper end, it means it's the same program that we want every year, which is gain share, gain volumes, and continue to do well. Ken? Ken Murphy: Yes. Thanks, Rob. In terms of contribution of activities outside that core food business, I think if you kind of walk through our evolved strategy, the way we described is actually the strategy starts and ends with core food and building and maintaining exactly what Imran has just described in terms of a reputation for being the best value in the industry, being the most innovative in terms of product quality. Being the best for availability and customer service, and then being the most convenient for ease of access. That's really at the heart of it. Around that, as you've seen, we have, over the last number of years, started to build additional ways of serving customers that are not necessarily core food. They include things like pharmacy, things like our cafe business, things like our mobile phone business, our financial services business, and of course, our media income and supplier services business through dunnhumby. Every one of those have delivered a meaningful improvement in contribution over the last four to five years and have been meaningful contributors to profit alongside, of course, market share growth, which has also been a big engine of our performance over the last three to four years. At the end of the day, the plan is to be able to reinvest the earnings from those activities back into the core business to continue to grow and create this virtuous cycle. So that's, if you like, the kind of elevator pitch in terms of how we're evolving our thinking on strategy. There are, of course, a couple of areas, and Marketplace would be a good example, where we're at the investment stage of that cycle, where we're building the capability, where we're creating the proposition that won't be contributing meaningfully yet to profits and may not for a few years. Robert Joyce: Imran, I guess quickly follow up. I guess just to understand the guidance. I guess if trading continues as we see it right now, are we hitting midpoint or are we getting to the top end of that guidance? Imran Nawaz: Look, let me keep it in simple terms. So far, we haven't seen any real discernible change in consumer spending behaviors, right? You see that in our Kantar data. You see it in both the volume and the value share. I feel good about how we started the year, but it's early days, and I would say to you that we aim to grow profits every single year. Operator: We'll now take our next question from Manjari Dhar at RBC. Manjari Dhar: I just had two, if I may. My first one, Imran, I was just wondering on the upgraded free cash flow envelope. Appreciate the upgrade, but I guess it's a little bit wider the range than it used to be. I just wanted to know the rationale for the thinking around that. Perhaps connected to it, given the working capital performance last year, how should we be thinking about working capital for the current year? My second question was just on the rollout of electronic shelf edge labels. I wondered if you'd give us some color on how long that will take and how you're thinking about the saving potential that this could bring. Thank you. Imran Nawaz: Sure. Let me take the cash flow number one. I feel good about the cash flow delivery for the year, close to GBP 2 billion. That's clearly on the back of the strong profit performance, but also really strong working capital management. We ended up delivering, what is it, GBP 385 million of an inflow. Think of that as better sales performance, tight management on working capital practices. There's also a one-off EPR payment in there as well. The way we normally think about working capital and an ongoing assumption is think of it more as a normalized year being over GBP 100 million or so of inflow. That's sort of how I think of it, but it's a good performance in the year. There are no one-offs in there that I would call out beyond what I've just said. In terms of the range, look, after four years or so, we've delivered around GBP 8 billion of cumulative cash, which is nice. I'd expect us to have working capital swings every year, as I just said this year. My view is the range is the right range for the delivery of the business, and I feel comfortable with the fact that it gives me the room in terms of working capital swings one way or the other. The fact that we upgraded, I think, is a recognition of the fact that we have confidence in our ability to leverage the strategy we've laid out to translate that into continued cash flow deliveries every year. Ken Murphy: And then Manjari, in terms of the rollout of ESL, I think we have taken our time thus far to make sure that we have the best and latest possible technology. That it means that probably over the next 3-4 months, we will kind of finalize what that rollout looks like. I would expect it to have some in-year impact in terms of better efficiency in store, better price compliance, and also a number of other features that these latest ESL technologies will give us in terms of better on-shelf availability, better picking accuracy for our online shopping pickers, et cetera. Really, the full year effect of those savings will be felt in the following year. We don't obviously individually call out the size of the savings, but what I can tell you is that they're pretty meaningful. Operator: We'll now take our next question from Monique Pollard at Citi. Monique Pollard: Two, if I can as well. The first one, just on the competitive landscape. You mentioned in the statement that the competitive background remains intense. Just wondered what you're seeing from peers, conscious that one of the major peers that had been maybe a bit more disruptive last year is guiding to EBITDA and cash flow growth this year. And whether you could just talk a bit about how you think your pricing sits versus your main peers now. That would be helpful. The second question, just on the outlook for food inflation. Conscious that some commodity prices are coming down, but obviously there's concern about food inflation building from the conflict and the impact that might have on things like fertilizer pricing. Any sort of thoughts you could give on the outlook for food inflation would also be helpful. Thank you. Ken Murphy: Fantastic, Monique. Thank you very much. Well, look, in terms of the competitive landscape, we started the year last year in a really competitive place from a price index versus our key competitors. As you say, despite the best efforts of those competitors, we have finished the year in pretty much the same shape, if not slightly better. We feel really good about where we are in terms of our price position. That said, those competitors have announced their intention to keep going. Our expectation is this will be another intense year from a competitive perspective, but we feel really well set for it. My sense is it'll be a bit more of the same, but you can count on us to stay competitive and more importantly, to keep investing for the future as we stay competitive. In terms of the outlook for food inflation, as you see that the industry and things like ONS, CPI, food inflation, and non-alcoholic beverage inflation has shown a kind of a moderate decline, as you say, over the last three months. Kantar is showing just over 4%, but of course, we always are well under the kind of industry headline rate of inflation because of our promotional plan and also our investment in price. I think for now, inflation is stable, and it has been moderating slightly. Clearly, we can't predict what the future is going to look like from the impact of the conflict in the Middle East at the moment. Clearly, those pressures are going to place more weight on the industry, require us to be more competitive in terms of our savings programs and our commitment to keeping costs down for consumers. I wouldn't want us to give you a prediction of what inflation will look like. As usual, Monique, you can count on us to work very hard to mitigate that for our customers. Operator: We'll now take our next question from Xavier Le Mene at Bank of America. Xavier Le Mené: Two questions, if I may. First one is, given your emphasis on Tesco Value products, the fact that you've got quite a lot of advertising, as I can see right now, just want to understand the kind of long-term proposition you've got with Tesco Value. Is it more a kind of cyclical response that you got right now or do you see that a more structural shift going forward? That would be my first question. The second one, you mentioned retail media. So what should we expect from retail media in terms of profits, revenues, and can you potentially give us a bit of indication of what you were able to achieve so far? Ken Murphy: Great. Thanks, Xavier. On Tesco value products, I think our insight was at the start of the calendar year that customers were looking for greater certainty around those key value items that they have in their shopping basket. That as a consequence, we took our every day low pricing mechanic from 1,000 products to 3,000 products. So a significant increase in what we would describe as branded low everyday pricing that customers can rely on. We've seen quite a material volume uplift in sales of those products as a consequence. Our Aldi Price Match, which is our anchor everyday low price mechanic on our fresh food lines and our own branded lines is consistent at around that 600 products level. And that's become really relied upon by customers as a kind of a value guarantee, if you like. Of course, we have over 10,000 products on Clubcard prices every week that are giving people deals on those kind of brands that they love. That's working well for us as a combination. So the logic really was just the insight of more reliable pricing for everyday low prices, but the mechanics and how they work together are largely remaining consistent. In terms of retail media, we've had a really good year on retail media. I think our investments in that retail platform and our desire to be the best brand-building partner for our supplier base is really starting to pay dividends. Over 90% of our suppliers have increased spending with us this year, and I think it's because they really see the value of a much deeper relationship rather than just buying ad space. They recognize the combination of the insights that we provide through dunnhumby, our ability to build audiences that are a lot more tailored to them through our Sphere platform in our retail media, and the investments we're making with Adobe and Kevel and others to make that whole retail experience a lot more seamless and cost-effective is really, really working for them. We feel really good about our relationship with our suppliers and ability to be a great partner with them through our retail media platform, and we're quite optimistic about growth for the coming year. Operator: We'll now take our next question from Frederick Wild at Jefferies. Frederick Wild: First of all, could I just understand a bit more about your leverage targets? Obviously, you've left them unchanged in terms of where you're looking for your target leverage to be, and you're still well under that. Can we think about maybe the opportunity if, and when markets calm down, you would look to increase leverage back to within that target range? My second question is about where this extra capital that you're generating is going. Obviously, you've kept buyback unchanged. You flagged that there may be more property buybacks coming. Is that your preference for property buybacks over raising the share buyback? Or how should we think about maybe some of this free cash flow growth, which is coming through so strongly, coming back to shareholders? Imran Nawaz: Sure. Maybe, look on the leverage ratio, it all goes back to the credit rating and how we see the merits of a strong balance sheet. As you might imagine, especially during the last four years, but even going ahead into this year, having a strong, I'd almost call it a pristine balance sheet, at 2.1 leverage is nice. I would say is a source of power, right? Because it gives us a lot of flexibility in uncertain times. I'm quite happy at the lower end of the range. Will we inch our way back up to the 2.3? Probably, yes, over the next few years, but so far, I'm happy with where we are at the 2.1. As it comes to shareholder returns, look, it's a really important part of the equity story of Tesco, right? Since we started this program, we have returned GBP 4.3 billion worth of shares at an average share price of around GBP 3.17. We've taken out 17% of the equity doing that. You can imagine it's been a great investment for us, and I believe that share buybacks are absolutely the right way to continue to go forward, and therefore, we've announced the 750. There's an elegance when I think about the total dividend and the total buyback in terms of using the excess free cash that we have. In terms of overall capital allocation and the uses of the cash, first and foremost, it'll always go into the business and making sure that we invest for customers into our stores, into our distribution centers, into automation to make sure we have the best possible shopping experience and the best possible setup that you would want to imagine we have. Very keen to continue to invest into AI and technologies and the digital proposition that we have. Honestly, as there is excess cash and leftover after any sort of property buybacks where it makes sense, then the idea is absolutely to continue to return that. I think the combination of progressive dividends and a steady buyback that people can rely on is very attractive during these days. Operator: We'll now take our next question, that will be from Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Listen, I'll go with three. I think firstly, Imran, I think you talked about the multi-year framework and growing profits over that multi-year period. I think in another slide, you've shown 7.9% CAGR in operating profit over the past five years. Is that somehow an exceptional level of profit growth that you can't repeat over the next five years? Obviously, barring any sort of external shocks, such as the one that we probably are seeing now. Secondly, I think you've said you haven't seen any impact from sort of customer point of view from the conflict. Is there anything creeping into cost lines in any meaningful way? If you could talk about it, that would be great. Maybe just on free cash flow and capital allocation. Very small one really. Imran, I think you've referred to inorganic growth opportunities.... Imran Nawaz: Yes. Sreedhar Mahamkali: I'm keen to understand what that is. Imran Nawaz: Yes, sure. Look you point out to a very strong performance over the last four years and, as we just presented, we're pleased to see that. I'd say to you, the way I think about laying out the strategy this morning or the evolved strategy, the way you should take that is, it is renewed confidence that we can continue to deliver what we said we would do. What we said we would do from a performance framework is very clear, right? We'd say we aim to hold or gain share every year. We want to therefore grow the profits every year. We want to make sure we have the buybacks as part of that, and therefore deliver a nice EPS growth every year as well. Ultimately, as a proof point, translate that into the upgraded cash of GBP 1.5 billion-GBP 2 billion. Every year is going to be slightly different in the sense that the circumstances, as this year is a really good proof point, is going to be different and therefore we set out guidance as we have. In terms of cost lines, look, I think the thing that I'd point out to you at the moment, obviously, fuel prices, energy prices have gone up. As they relate to our own operating cost expenses, it's not going to be a headwind because our hedging strategy protects us from that. Clearly we have to wait and see because it's early days and the stresses and the duration and the implications of the conflict will obviously have an impact at some stage. Hopefully, we can minimize that as much as we can via the Save to Invest program that we've put in place. In terms of inorganic opportunities. Ken Murphy: Well, look, I think, as always, Sreedhar, we have through, as you saw, the evolved strategic kind of five-point plan laid out, a desire to drive core food performance. To meet progressively more everyday needs of customers as we build out that ecosystem, as we get more personalized through the power of the Clubcard. As and when we see opportunities to bolt on other kind of everyday needs that could enhance or improve that customer experience or give people more reasons to come and shop with us, then we will always keep an eye on that. Imran Nawaz: On property buybacks to give you a sense. When you have a strong balance sheet, the ability to buy back your strong properties, then own them in your portfolio and then avoid future inflation is no bad thing. It's a really good use of cash. Sreedhar Mahamkali: Just to follow up on what you said, Imran, I think it's something Rob touched on earlier already a little bit. The assumptions you're making, especially at the lower end, the GBP 3 billion. Is there an assumption that the conflict lasts through the year, six months of the year? Imran Nawaz: No. Look, the way I think about it's not just the duration, it's sort of the consequences, the implications. Those are so hard to judge because it's such a moving feast. I don't really want to speculate. All we were trying to do was to say, well, the conflict could have certain implications that change consumer behaviors, shopping behaviors. We haven't seen that yet. It could have an impact on the U.K. economy. We haven't really seen anything yet that has influenced shopping. Look, if it does, we want to have the flexibility to continue to execute the programs we've built in, because it is those programs that continue to allow us to win market share and grow this business. Operator: We'll now go to Clive Black at Shore Capital. Clive Black: Thank you for the presentation and also, I have to commend you on fabulous delivery. A few points if I may. First of all, Imran, I think you said that your average buyback price was 317p. I just wondered at 485p whether the buyback needs to be thought about in a slightly different way, maybe more akin to Sam Walton. Your thoughts would be much appreciated on that. Fascinating to hear, Ken, your thoughts on where the business is going, particularly around being connected. I just wondered if you could maybe drill down to what you think that actually means for shareholders. I understand all your stakeholders that you must and are supporting. What do you think it actually means for shareholders? I also just wanted to drill a little bit deeper in the importance of dunnhumby to your business, which you raised today, especially as something that's quite proprietary and exclusive. Again, what do you think that delivers for shareholders? Imran Nawaz: Look, on the buyback price, the way I think about it is any use of cash, Clive, that we have, whether it's CapEx, whether it's the buyback in this example, or properties, discipline and making sure it has a good return and is a good use of cash is the first question we ask ourselves. As we look at buybacks, of course, we have, and we look at the IRR, if you wish. We look at the intrinsic value of the business. We look at the situation, and I'm very confident that the buyback continues to be an excellent use of cash. Ken Murphy: So, Clive, in terms of the kind of evolution of our strategic thinking and what it means for shareholders, and I think it's linked a little bit to how we set our stall out in 2021, where we said, if we look after all of our stakeholders, then we will build a strong, sustainable business that will be good for shareholders over the long term. I think that's proven to be the case, and it's absolutely our ambition looking forward for the next 5 to 10 years. I think we, as I said earlier, have an ambition to maintain market share growth in our core food business. We think that's absolutely critical to the success of the company. Our strategy starts and ends with our core food business. We're going to keep investing in price, keep investing in quality, keep investing in our supply chain so we can be the best providers of fresh food in the country. But linked to that, and I think these are some lessons we've learned from the past, Clive, is that we are looking in a capital discipline, capital light way to leverage those assets. Use the infrastructure, both the physical infrastructure, but also our Clubcard proximity to customers to really start to build out other reasons why customers might shop with us, whether it be financial services, Marketplace, quick commerce, phone contracts, fuel, whatever it is, such that we can create additional revenue streams that then get reinvested back into driving core food performance, building market share. Because as we know, food is the most frequent retail purchase, and it drives that glue and that connectivity with customers, which is so essential for building trust and being able to be relevant for other shopping missions that they might have. The key, though, which Imran is very strong on, is it has to be done in a capital disciplined way and within our financial framework that we also set alongside our strategy. I think what shareholders will see and can expect is a very ambitious strategy that will maintain top-line growth, a very disciplined approach to capital expenditure that will mean we'll be sensible and look for high returns, and therefore we will maintain strong cash, very healthy balance sheet, and keep returning to shareholders, but only after we've made sure customers are happy, colleagues are happy, and we have strong supplier relationships with our suppliers. Clive Black: Just on dunnhumby, Ken, just a word? Ken Murphy: Dunnhumby, for me, it's the intelligence engine of the business. It is designed to harness the latest technology, whether that be AI or our own data science capabilities internally in dunnhumby to understand how do we optimize how we think about all of our category management decisions, how do we optimize our customer decisions in terms of personalization and getting closer to them, how do we become the best brand-building partner for our branded suppliers through our end-to-end retail media platform. All of the additional kind of components we're building onto that in terms of helping them with their innovation pipeline, their go-to market strategies, et cetera. Then helping with things like personalized ranging. We're looking to use the data science to get a lot more specific about our ranging in our individual stores to be more relevant to that local demographic. They're just some of the examples of where dunnhumby is really helping the strategy. Operator: We'll now go to William Woods from Bernstein. William Woods: The first question is on market share. You've obviously gained a lot of market share over the last few years. When you look over the next 3 to 5 years, where do you think you take share from either formats, categories, channels, regions, et cetera? The second one is, if you look back over history, one of Tesco's downfalls over the last maybe 15 years was getting distracted by other things, banks, garden centers, coffee shops, et cetera. Now I suppose we've seen a reasonable shift in your tone from focusing on food to things like retail media and clothing and Marketplace. How do you ensure the problems of the past don't reoccur? I'm not necessarily even thinking about CapEx, but more about the culture of how you're running the business in terms of people focusing on food. Ken Murphy: Great. Look, I think the first thing to say is that the market share gains we've achieved over the last number of years have been quite broad-based. They haven't come from one source. I think they've been underpinned by the fact that we've made massive investments in value, quality, and availability over the last five years. We're keeping building our infrastructure, building out capabilities like quick commerce, et cetera. That means we're more relevant for more shopping missions more often with customers. That's working really well for us, Will. I think the first thing I'd say is that, that momentum will continue. As Imran just said, we have a very strong balance sheet. We have a very strong efficiency program, and our commitment is we will keep investing in the core. The one thing I wouldn't want you to think somehow is that we're all as distracted running after shiny new things. Our core Save to Invest program of over GBP 0.5 billion a year is almost entirely invested back into the core business. We're using some of the gains from market share gains and some of our new income streams to reinvest back in those activities that I just mentioned that are strategically important. As I said just a moment ago, it starts and ends with our core food business. The whole objective of the strategy is that through our success in core food, we're able to, in quite a capital light way, in a connected way. If I give you a very classic example of, say, Marketplace or other things, historically, Tesco Direct was set up on an entirely separate platform with a separate set of systems, with a separate website. It had to generate all of its own customer acquisition and traction because, but in the case of Marketplace, it's completely integrated into the Tesco app. It is seamless for customers to access it when they're doing their regular shopping, as is, by the way, Whoosh. If you want to go and do a weekly shop, but you need it in half an hour, that capability is available for you on the same app. We're using all of our core assets and our traffic to drive people into the enhanced set of propositions that we're building. I think that's the key difference of lessons from the past. We've been quite disciplined about it, Will, I promise you, we obsess as much about the price of carrots and whether we've got availability of raspberries and blueberries on the shelf as we do with how is F&F and Marketplace doing, I can promise you that. Imran Nawaz: If I could add maybe one or two just nuggets as well from my side, Will. It's clear that when you look at the return on capital employed over the last few years, over the last four or five years of this business, we've nudged up CapEx because we've been reinvesting into the business and expanding the business. At the same time, the return on capital employed has also improved steadily year-on-year. I think that's a nice proof point that where we spend the money makes us a better business. The other angle I'd like you to think about is it's clear that when you have a market share in online of around 36%, 37%, depending on when you measure. You have a massive asset and you have to continue to look about where do customers spend their time and where do they shop. Personally, I love the fact that we're being able to leverage the strength online that is unparalleled to anyone else in the industry to provide F&F online, to provide Marketplace, to provide a Whoosh, to provide media income opportunities for our suppliers. It is all in aid of making sure that what we've got is actually maximized as well, and that's why it is capital light. Operator: We'll now take our next question from Ben Zoege at Deutsche Bank. Benjamin Yokyong-Zoega: I just had one follow-up on the profit guidance and perhaps one on cost savings. Firstly, on the profit guidance, is it fair to assume that this range is really about uncertainty around demand and the response that households may kind of shift their behavior rather than uncertainty around cost pressures? Then secondly, on cost savings, just within that GBP 500 million target, could you talk a bit about the main buckets and opportunities you see within that, please? Thanks. Imran Nawaz: Yes, sure. On the cost savings, to take that one first, look, it's an always-on program, right? When I think about it, the way I look at it's simplifying how we work. It's taking out inefficiencies, so waste management, transportation, automation in warehousing and distribution, better buying of services, leveraging our shared services more, simplifying in-store logistics, leveraging AI to optimize forecasting, to optimize promotions. I feel like it's all in, it's what we've been doing, and it's working well for us. As Ken said, we use that to reinvest back into the business and manage our own OpEx in a nice way. When it comes to the guidance, look, it's very clear that when you think about, I assume when you say cost, you mean energy costs? Our energy costs are sort of, given the hedging we've taken, we're in a good place on avoiding any ups there that are unnecessary for us. I think we're in a good place there. It really is about trying to put sort of a wider range out because of the uncertainty as to the implications on what happens to consumer behaviors, what happens to the wider economy at large. It's hard to call, and this is really just making sure that at the lower end, we've got the flexibility in case we need it to continue to do what we've been doing, which is win. Operator: We'll now take our next question from Matt Clements at Barclays. Matthew Clements: Hi. Morning, both. Two quick questions if I can. One on IMS, which was clearly a strong contributor to profit and seems to be outperforming your initial expectations. How should we think about IMS profits going forward? The second question, just kind of extending your comments around strategic ambitions to maybe touch more on Booker and Central Europe within those comments. Where do they sit and what should we be expecting into the medium term for those businesses? Imran Nawaz: Great. Should I take the IMS one? Ken Murphy: Sure. Imran Nawaz: Look, on IMS, you're right. It's done a fabulous job, and I'll be honest, better than I was thinking. When we laid out what we were thinking, we said it'd be around, what? GBP 80 million to GBP 100 million a year was the profit number we gave, and I think now the way I think about it is this year it's at GBP 167 million. That GBP 160 million, GBP 170 million number is a good number. That's sort of where my head's at on that front, which is nice given we got rid of the riskier credit book, but actually retained the business that we wanted to retain, and frankly, now make as much money as we did before. That's good. Ken Murphy: Thanks, Imran. On the strategic ambitions, I think that I would say a couple of things. First of all, starting with Central Europe. Central Europe is clearly a Tesco retail business. All of the innovation and investment that we do in Tesco UK around technology, AI, grocery home shopping capability, quick commerce capability, just simply transitions into our other businesses. Ireland, for example, will get the benefit of all of that technology, and it's been a real driver for them of market share growth in Ireland, where it is, by a country mile, the leading online shopping experience, and we've just launched Whoosh there in the last 12 months, and it's growing very strongly. It's a similar story for Central Europe. It's a business that obviously is operating in challenging countries from an economic and geopolitical perspective, but benefits from the innovation that's happening centrally. That's how I would describe how Central Europe and Ireland fit into the context of the strategy. In terms of Booker is really interesting. Booker growth on the top line may not look that spectacular, but actually its underlying growth in terms of its catering business and its independent retail business is pretty strong. Particularly against the market, it's growing quite well. That is predicated on being the leading value wholesaler in the country, being an innovator around food development, so very similar to the core strategy in Tesco, and increasingly looking to benefit from our thinking around that broader ecosystem thinking. This year, Booker are going to be investing more heavily in the digital experience, particularly for its catering customers, looking to be ever more relevant and helpful in terms of how caterers can run their businesses and deliver a great experience for customers, but also make some money. As we think about the long term, of course, Booker gives us access into hundreds of thousands of food outlets around the U.K. That means we can be relevant for every food and food-related experience in the country, which is kind of an overarching ambition, if you like, of the strategy. We see Booker quite core to the overall strategy, but clearly it needs to continue to win in its core wholesale market, which it is doing at the moment, and I believe will continue to do for the future. Imran Nawaz: Maybe one bullet to add on that as well is one of the features that both of them have in common is they have really got really strong cash generation properties. They're really, really helpful from that side as well. It's not a bad formula to have to generate the cash and reinvest. Operator: We'll now take our next question from Francois Digard at Kepler Cheuvreux. François Digard: A few points, if I may. The first on volume price balance in '25, '26 on its evolution during the year. Could you share with us how it has evolved and how you see the balance in the coming year, in the current year? Second point on the fresh product growth, it grew faster than the rest of the food. Does that benefit from the Tesco Finest fresh range or is it a different scope? What can you tell about the margin of fresh products? Finally, do you expect any impacts of fuel price increase on your working cap during the year? Thank you. Imran Nawaz: If I take the volume price balance, in terms of the way you should think about it is the Worldpanel number of inflation throughout the year has been between what? 4%-4.5%. We've been below that every single quarter, every single month, and we've been in volume growth every single month of the year as well. Now, clearly what we did benefit from in the first half you would have seen, Francois, was a very, very hot summer and it was brilliant because people were out and about enjoying themselves. I look out the window and I wish there was a bit more sun. It would be good to see. We'll have to wait and see how it plays out. As you know, inflation, given the uncertainty, it'd be wrong of me to give you a false sense of precision at this early stage and I don't really want to speculate on that. We'll see where that lands. What I would say is we'll continue to make sure that if we are safe to invest, we continue to protect our price position. Ken Murphy: In terms of fresh product growth, Francois, I would say that the balance of it is a mix. I think absolutely Finest has played a role. It's been a fantastic added value proposition for us. We've doubled the size of the brand over the last 3 to 4 years to make it now a GBP 3 billion plus brand and we've got ambitions to grow it even more in the coming years. That said, our fresh core product has performed incredibly well and this has been a combination of really close working relationship with our growers and suppliers on fresh produce and some great innovation in some of our meat, fish and poultry categories. An example would be our Finest Steakhouse range which has been a phenomenal success with customers and shown us real growth and added value growth. To your point around margins, we have seen a modest improvement in margin mix over the last 12 months in fresh driven by a combination of a lot of work on efficiency but also some great success in our added value ranges such as Finest and Steakhouse range. Imran, do you want to pick up the working capital point on fuel? Imran Nawaz: Yes, look, obviously the way I think of a working capital at the moment in terms of fuel is it's so unpredictable. Clearly when it moves up it's favorable, when it goes down it's unfavorable. When I looked at the year we just closed there was actually a bit of a negative because it had gone down. What will matter is where it is before half year and before year end, but we'll keep you posted. Clearly given the working capital cycle on fuel it can be a benefit. Operator: We'll now go to the telephone lines for our next question which is going to come from Karine Elias from Barclays. Karine Elias: A lot of them have already been answered but just going back a little bit, if I may, to the competitive environment. Obviously, despite some of your competitors embarking on price investments last year, albeit they did have some issues specific to IT for some, would you still maybe describe the environment as being rational to a certain degree or do you feel that anything has changed? Then my second question was really more on the convenience. Some again have talked about how convenience was struggling on the back of weaker tobacco sales. Yours has done much better. Maybe if you can expand a little bit on that would be helpful. Thank you. Ken Murphy: Thanks Karine. Look, I'd start by saying that the market is and always has been intensely competitive. At any given moment you have a number of competitors making moves and attempting to take share and win with customers. It's what makes this business such a fantastic business. There's never a dull moment and I think we can expect that to continue. That said, I think such are the cost pressures the industry has been facing over the last number of years between energy issues, commodity issues, regulatory and tax issues, that has forced a certain amount of rationality in the market. What I would expect the coming year to be is largely the same, is a very intense competition for the shopper basket, but a certain rationality driven by the need to combat costs and maintain a control over those cost pressures. That's how I would kind of describe the last few years. That's how I see the next 12 months as well. On convenience, I think that you're right. We have outperformed the market in convenience. I think a lot of that is down to the fact that, on the top 100 essential lines, our convenience stores are the same price as our large stores. We are a strong value proposition in convenience in relative terms. I think the second thing to say is that we have a greater fresh penetration in our convenience stores. That's worked well for us as well. The third thing to say is that, of course, we're the only major retailer that have real critical mass in our quick commerce proposition through Tesco Whoosh, which will be a GBP 400 million business this year. That has also helped a lot in terms of driving our convenience business. I think those factors will continue to help us as we go into the coming year. Thanks, Karine. Operator: Thanks. Why don't I take our last question for this morning from Rob Joyce at BNP. Robert Joyce: Hey, thanks for letting me on again. Very quick one. Just in terms of the shape of the EBIT you're expecting for the year ahead, anything you'd flag in terms of differences versus FY '26? Imran Nawaz: Look, the one thing I would flag is maybe the fact that lapping the hot summer, that's clearly going to be a thing. We'll wait and see how it all plays out because that uncertainty thing is still something we need to work through, as you can appreciate. Look, last year we were close to 5% growth top line, driven by the strong volume growth and the hot summer. Let's see how it plays out. Ken Murphy: As an Irishman, you never thought you'd hear me say this, but we're really hoping England and Scotland do well in the World Cup. Robert Joyce: We've got it on video now. Operator: Okay, Ken, so that wraps up the questions for this morning. Just back to you for your closing remarks. Ken Murphy: Listen, I would just like to thank everybody who's joined us this morning for taking the time to listen to our presentation and for all the excellent questions we had. As you can see, we are consistent in our messaging. What you saw this morning was an evolution of our strategic intent and our commitment to keep focused on our core business, delivering great value, great quality, and consistent high standards in our stores and in our online proposition, despite whatever the environment might throw at us over the coming months. Thank you again, and we look forward to seeing you all early in the summer. Take care.
Operator: Good day, and thank you for standing by. Welcome to the Polestar Fourth Quarter and Full Year 2025 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, Anna Gavrilova. Please go ahead. Anna Gavrilova: Thank you, operator. Hello, everyone. I'm Anna Gavrilova, Head of Investor Relations at Polestar. Thank you for joining this call covering Polestar's results for the fourth quarter and full year 2025. I'm joined by Michael Lohscheller, Polestar's CEO; and Jean-Francois Mady, Polestar's CFO, who will comment on the performance, and then we will open the floor to analysts' questions. Before we start, I would like to remind participants that many of our comments today will be considered forward-looking statements under the U.S. federal securities laws and are subject to numerous risks and uncertainties that may cause Polestar's actual results to differ materially from what has been communicated. These forward-looking statements include, but are not limited to, statements regarding the future financial performance of the company, production and delivery volumes, financial and operating results near-term outlook and medium-term targets, fundraising and funding requirements, macroeconomic and industry trends, company initiatives and other future events. Forward-looking statements made today are effective only as of today, and Polestar undertakes no option to update any of its forward-looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the risk factors contained in our SEC filings. In addition, management may make references to non-GAAP financial measures during the call. A discussion of why we use non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measure can be found in the appendix of the press release and in the Form 6-K published today. Now I will hand over to Michael. Michael Lohscheller: Hello, everyone, and thank you for joining us today as we present our full year 2025 results and provide an update on recent developments across the business. As you are all aware, world around us continues to throw up challenges, but we are making good progress, and we are focusing on delivering against our strategy. I want to update you on the most recent developments within technology, our financing situation and future model lineup expansion. But before that, a few words on the year that just passed. 2025 was a record year for Polestar in terms of retail sales. We delivered over 60,100 cars during the year, in line with our guidance of 30% to 35% growth and a new record for our young brands, an achievement to be proud of given the competition and market conditions. 2025 was also a year in which we took significant steps to adapt our commercial strategy and footprint. An important foundation for our future growth and journey towards profitability. We accelerated the expansion of our network of retailers by 50% from 140 to 210 retail sales points and have worked hard to improve our operational efficiency, whilst also preparing for the company's largest ever model offensive which we presented in February. During the fourth quarter, we made several announcements that reinforce our position as a technology leader in the EV segment. The upgraded model year '26 Polestar 3, which is being tested by the world's leading automotive media in the U.K. this week has received several upgrades, including an 800-volt architecture, this means our flagship SUV offers customers charging speeds of up to 350-kilowatt up to 500 kilowatts of power and 6% better efficiency. It also has an upgraded NVIDIA processor, taking its computing power from 30 to 254 trillion operations per second. The same upgrade is also being offered to all existing Polestar 3 customers. We are the first OEM to integrate Google's Live Lane Guidance in our cars. It's already being rolled out to Polestar 4 for customers across the U.S. and Sweden with more to come. Further evidence of our strong relationship with Google came in November when we demoed Google's AI-based Gemini assistant in Polestar 5. This service brings a whole new level of interaction and experience to our cars and it will be rolled out via over the air updates to existing Polestar customers. We have made solid progress on securing additional financing in the last month. Starting in December 2025 through a series of the 3 equity financing rounds, we have raised $1 billion of new external equity with the support of Geely Sweden Holdings. These placements strengthen our balance sheet and widen our shareholder base. Concurrently, we have announced agreements with Volvo Cars and Geely Sweden Holdings for the conversion of approximately $640 million of shareholder loans to equity. These conversions once completed, will reinforce our liquidity profile and maintain Volvo Cars ownership in Polestar at approximately 19.9%. Both the equity finding rounds and the debt-to-equity conversions are a clear sign of the continued support that we enjoy from our major shareholders. In February, we presented the details of our largest ever model lineup expansion with four new cars planned in the next 3 years. Polestar 5, our 4-door GT, which was presented during the end of last year is expected to start deliveries in the summer. This car sets a whole new standard in EV Performance segment, combining design, performance and luxury in a way that has never been done before. Later this year, we will bring a new variant of Polestar 4 to the market. Our global best seller, which represented 65% of our deliveries in the first quarter of this year will bring even more versatility to an already incredible car. This will help us to address a wider segment and offer more customers an alternative based on their lifestyle and needs. First deliveries are expected to start in fourth quarter, with production for all markets taking place in Busan, South Korea. Our next model will be the next-generation Polestar 2, the car that built Polestar's brand with over 190,000 Polestar 2 on the road, this car already has a huge following end customer base, which we have an opportunity to capitalize on. completely redesigned with the latest in drivetrain, battery and UX technology, Polestar 2 will play an important role in our future success. Our compact premium SUV Polestar 7, provides an attractive entry point to the brand, offering a level of performance and design that this segment lacks today. The pace at which we are developing and bringing those models to market is a testament to the value of our asset-light model. Our ability to work in close collaboration with partners and the sign of our underlying ambitions for more profitable growth, targeting wider, more profitable segments. Before handing over to Jean-Francois for the financial details, I'd like to just spend a moment reflecting on the first quarter of this year 2026. Our sales team has worked incredibly hard to carry over our record performance in '25 into the start of this year. Our retail sales in the first quarter totaled some 13,100 cars a record number for a first quarter, translating into a year-on-year growth of 7%. Europe remains our largest region, and we saw particularly strong sales increase in some of our most important markets, including the U.K., which grew by 20%, Sweden, which grew by 17% and Germany, which grew by 35%. Outside of Europe, we performed well across several markets, most notably in Australia and South Korea, two established markets that delivered strong growth. In the U.S., changes to government policies have had a negative impact on EV demand in general. But the launch of Polestar 4 across North America is off to a good start with strong media reviews and good customer feedback. Growing at near double digits in the current market, given our relatively young age compared to the competition shows what's possible when you have an engaged and growing network of retailers, an established service network in great cars. Interest from existing and potential regional partners remains high, and we expect to grow our network to reach approximately 250 sales points by the end of this year, a growth of 20% compared to the end of 2025. Market conditions are becoming more challenging amid ongoing geopolitical developments. But as I've said before, we are fully focused on proactively handling the issues and challenges that are within our control and building the stronger poster. I'll hand now over to Jean-Francois and look forward to taking your questions in a few minutes. Thank you. Jean-Francois Mady: Thank you, Michael. Good morning, good afternoon, everyone. 2025 was a year of record retail sale for Polestar, as Michael highlighted. And consequently, we achieved substantial revenue growth and a near breakeven adjusted gross profit. We also made meaningful progress on cost discipline and organizational efficiency. And we improved our capital structure profile and liquidity position. This performance was delivered despite a challenging market, exerting pressure on pricing and a geopolitical environment that led to higher tariffs and duties in 2025. Looking at the financial results for the full year 2025 and as preannounced, retail sale exceeded 60,000 cars. This represented an increase of 34% year-on-year in line with our growth target of 30% to 35%. The growth was driven by the continued transition to an active selling model and consequently, an accelerated retail sales network expansion, leveraging our attractive model lineup. Polestar 4 groups, best-selling model and it made up just over half of the volume. By geography, we saw particularly strong performances in Europe, led by the U.K., Germany, Belgium, and the Nordic region and in Asia Pacific with South Korea. Europe, including the Nordics, delivers 78% of our total volume. Throughout last year, our U.S. business was challenged by higher tariffs, regulation and policy changes. For example, changes in regulation meant that value of compliance credits used by company to offset lower efficiency fleet decrease. Furthermore, at the end of the third quarter, the tax credit for EV purchase expired. This market represented 7% of our retail sale, down from 14% in 2024. We operate in 28 countries worldwide, including 17 in our key regions of Europe. In cooperation with our partners, we opened 71 new sales points and sign up 54 new retailers in 2025. Most of this expansion was in Europe. Volume growth and our offer of three models translated into significant revenue growth of 50% year-on-year to surpass $3 billion. The increase in revenue of over $1 billion was driven by higher volume effect of $559 million, higher revenue per vehicle as a result of favorable mix development of $271 million. Carbon credit revenue were higher by $181 million, under the new EU pool agreement. However, these positive factors were partially offset by pressure on pricing. Of the total sale of carbon credit of $211 million, $192 million is booked in revenue and $19 million is booked in other operating income. We have achieved the target of a 3-digit million dollar amount in 2025 as we guided in January 2025 and expect a similar level in 2026. Gross margin was a negative 35% in 2025 due to impairment expenses of USD 1.1 billion for Polestar 2, Polestar 3 and internal development projects, which include Polestar 5. The key factors driving the impairment on changes in regulation and policies and tariff leading to higher production costs, mounting pressure on pricing and slower demand in the upper EV premium segment and competitive dynamics Overall, adjusted gross margin, which excludes the impairment expenses and other unusual items, improved to a near breakeven level of negative 0.7% from a negative 12.5% a year ago. Positive developments contributing to the improvement of the adjusted gross margin were: first, a growing share of Polestar 4 and the improvement of geographical sales mix. Secondly, increase in carbon credit revenue of $181 million. Finally, continuous product cost reduction is being delivered through commercial negotiation and decompensing initiative, driving lower cost of material, contents and batteries. Cost of sales, excluding impairment expenses increased in line with higher volume and related production. There was further impact of higher duties and tariffs. Selling, general and administrative expenses improved by $34 million compared to 2024. Headcount reduction of almost 25%, optimized marketing and administrative spending and overall cost discipline resulted in cost saving worth USD 100 million, a 12% decrease year-on-year. However, this saving with SG&A expenses were partially offset by higher sales agent remuneration, which increased by $65 million, in line with higher sales volume. Research and development expenses were $78 million, up from USD 38 million in the prior year, driven by additional spending on new programs with a lower capitalization rate. In 2025, net loss results primarily reflect the impairment expenses. Adjusted EBITDA loss of $783 million narrowed by 27% or close to $300 million of improvement as we reached the near breakeven adjusted gross profit and optimize SG&A. If we look at the result of the fourth quarter, retail sales exceeded 15,600 cars in the quarter, an increase of 27% compared with the fourth quarter of 2024. Revenue was USD 887 million, up 54% year-on-year, supported mainly by higher volume, a favorable model and channel mix evolution, carbon credit sale of USD 88 million, lower adjustment of residual value guarantee related to the North American markets and positive foreign exchange impact, partly offset by pressure on pricing. Gross margin improved in the quarter year-on-year by 109 percentage points, but remained still negative at 38%, largely due to significantly lower impairment expenses of $340 million booked in the fourth quarter of 2025 compared to $622 million booked in the fourth quarter of 2024. Adjusted gross margin improved to a positive 2% versus negative margin of 39% in the comparable period, supported by a favorable product and geographical sales mix with proportion of Polestar 4 in the sales mix at 66%, of which 84% of Polestar 4 cars was sold in Europe. Higher carbon credit sale of $88 million versus $11 million in the comparable period and lower residual value guarantee adjustments related to the North America market. The positive effects were partially offset by pressure on pricing and higher duties and tariffs. The net loss for the quarter was USD 799 million, an improvement of 32% compared to the prior year period, mainly due to factors explained earlier and lower impairment expenses in the quarter. Adjusted EBITDA improved substantially to negative $223 million compared with negative $470 million in the fourth quarter of 2024. This improvement was driven by adjusted gross profit turning from negative $224 million in the fourth quarter of '24 to positive $17 million in the fourth quarter of 2025. On the funding of our operation and liquidity with strong support of Geely Holding, Polestar secured in total USD 1.2 billion of new equity investment from existing investors and external financial institution from June 2025 to March 2026. In June 2025, we raised $200 million of new equity from PSD Investment and existing investors and an entity that is controlled by Mr. Li Shufu, Founder and Chairman of Geely Holding Group. Since December '25, we have raised a further $1 billion from a number of institutions over 3 rounds. The share price at which these investments were raised was $19.34. Through this transaction, we broadened our shareholder base and improve our free float to over 40%. Moreover, our partners, Geely Sweden and Volvo car agreed to convert into Polestar equity, approximately $639 million of the respective outstanding shareholder loan owned by Polestar under relevant agreement, of which Volvo car converted the first tranche into Polestar equity and the maturity of the remaining balance of the shareholder loan was extended to December 2031. Geely Sweden is expected to convert about $300 million into Polestar equity later this quarter. After this event, Volvo car is expected to convert a further $65 million to maintain its shareholding in Polestar at 19.9%. This transaction, raising equity from existing and external sources and debt-to-equity conversion by our partners a major step towards enhancing our capital structure and liquidity position and helping Polestar to strengthen its balance sheet. We are grateful for the continued support shown by Geely Holding and their confidence in Polestar vision. In terms of loan facilities in 2025, we secured about $1.6 billion worth of new 12 months term facilities and renew about $3 billion of existing 12-month term facilities. These facilities allow for efficient funding of Polestar operating and investing activities. Our cash position at the end of December 2025 was approximately USD 1.2 billion. We continuously engage in a constructive dialogue with our club loan lenders. Polestar exited the year in compliance with all its covenants and the club loan members agreed to amend covenants for 2026. In terms of guidance for 2026, we reiterate low double-digit growth rate for retail sales volume with progress through the year and in line with seasonality. The sales mix will continue to evolve to include a greater share of Polestar 4 group. Our best-selling model and later in 2026, the new Polestar 4 variant, Polestar 4 SUV. To conclude, our priority remain: first, driving growth through the active selling model and our expanding sales network and leveraging our attractive model lineup. Second, improving processes, streamlining the organization and finding further operational synergies; third, extracting efficiencies and sustaining cost cutting and financial discipline. And last but not least, focusing on cash conversion cycle management and exploring sources of future funding. Now I will hand over back to the operator. Operator: [Operator Instructions] We will now take the first question from the line of Andres Sheppard from Cantor Fitzgerald. Anand Balaji: This is Anand on for Andres. Just to kick us off, maybe I was wondering how much of a headwind do you expect from tariffs and geopolitics given the significant manufacturing in China? And do you expect the plant in the U.S. and South Carolina to offset this a little bit? Can you give us some color there? Michael Lohscheller: Yes. Thanks, Andres. So obviously, it's a time of uncertainty. That's fair to say, right? But I think the manufacturing footprint we set up is quite good because, obviously, as you know, we produce also in North America, also now in South Korea and in China, but there is uncertainty. And obviously, we'll make sure we try to balance this as best as we can. And that's also why then in the midterm, we want to localize more here in Europe, as we outlined, right? The Polestar 7 as a compact SUV car coming then into a European facility. But I think we do the right things. We have flexibility and that's also why we consolidated the Polestar 3 in Charleston, right, to have one manufacturing footprint for the Polestar 3, but it's fair to say it's a time of uncertainty. Anand Balaji: Got you. I appreciate the color. And separately, with autonomy really becoming a significant theme in EVs. I was wondering if you could talk to us about how you view the space and maybe remind us of what your autonomy plans are with Polestar? Michael Lohscheller: Yes. I mean that's an important topic for us because obviously, we stand for innovation. We have documented several times, right? We brought innovations early to our cars. For example, the Google build in was one element. But autonomous driving is an important topic. It will not come overnight in steps. And that's why, for example, the partnership with Mobileye but also the access to the Geely ecosystem is important. So obviously, we will go to Level 2, Level 2+ and then go step by step. But it's obvious a topic for the future because it makes life easier for consumers we see that, but it comes gradually. So not overnight and also not from Level 2 to Level 4, but it's something we are very focused on. And the good thing is that we have access to the technology through various partners, right? And it's a very dynamic field. And obviously, we also want to take a leading position there. Operator: We will now take the next question from the line of Dan Levy from Barclays. Trevor Young: It's Josh on for Dan Levy. So I have one and then a follow-up. First question for you after the head count initiative last year. Can you just walk us through the latest cost initiatives and maybe the cadence of those? Jean-Francois Mady: Okay. So thanks, Dan, for the question. So indeed, we have achieved quite significant fixed cost reduction when it comes to head count in 2025. So we have decreased headcount by 25% which is a significant achievement. On top of that, we have optimized our marketing and communication spending. But I will say that we will continue as well to look at for more synergies moving forward. But when it comes to cost reduction, also, I just would like to stop a bit on the product cost reduction where we have achieved also some relevant results in '25 compared to '24%, especially on the Polestar 4 where we have reduced the product cost reduction by low double-digit level year-over-year, which is a great achievement, not only in material but also in battery. And of course, we don't want to stop here. We'll continue focusing on those product cost reductions through commercial negotiation, but also decontenting of our product while not compromising on the premium positioning. So I would say we are continuing marching. For us, it's very much important to improve, I would say, our cost, not only the product cost, but also our fixed costs. So we are well oriented entering 2026, but more to come on those two topics. Trevor Young: Great. And then just in terms of the latest outlook for monthly cash burn. Could you walk us through the puts and takes there and what we should keep in mind for this year and then going forward? Jean-Francois Mady: Yes. So in 2025, the level of cash burn is on average around USD 120 million per year. So I will say it's very similar to 2024. So one could say that we're not improving, but structurally, the cash burn is improving in a sense that we are improving our operating results. We have cut the losses when it comes to adjusted EBITDA by USD 300 million year-over-year, when you look at also the working capital, we have decreased significantly the level of inventory by around 7,000 new vehicle year-over-year. However, this positive impact has been compensated by higher activity when it comes to receivable due to the increase of volume, but also higher cash out when it comes to our payables due to 2024 payable entering 2025. Also, it is fair to recognize that when you look at the level of indebtedness, we have a heavy weight in terms of financial interest. And also looking at the cash out related to our investing activities, we still had in 2025, a tail of cash out related to legacy program. But entering 2026, so we are going to continue improving the operating results with all the actions that we have put in place with the improvement of the volume, sales mix but also offer action on the cost, as we just discussed, but also fair also to comment that due to the restructuring of our capital structure with the recent debt-to-equity conversion, the weight of financial interest in our operating cash flow will reduce. Same as well for the CapEx cash out during the last Strategy Day on the 18th of February we reiterate the fact that we wanted to move on the unique platform strategy, and we wanted to rely also on Geely Group technologies. And of course, that's going to help us, I will say, to reduce CapEx cash out moving forward. So we are confident that the cash burn in 2026 should improve versus 2025. Operator: There are no further questions at this time. I would now like to turn the conference back to Michael Lohscheller, Polestar CEO, to conclude the call. Michael Lohscheller: Yes. Thanks, everybody, for joining, and we'll be in touch as we will review the Q1 results in 3 weeks' time together. So I wish you a wonderful day and talk to you soon. Bye-bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Nederman Holding Q1 2026 Report Presentation, [Operator Instructions] Now I will hand the conference over to speakers CEO, Sven Kristensson; and CFO, Matthew Cusick. Please go ahead. Sven Kristensson: Good morning, ladies and gentlemen, and welcome to this presentation of Q1 for Nederman. Our headline has been resilient in a volatile market because it's been an eventual quarter again. And what we can see is that we are still strengthening our position in the world although it remains very turbulent. The first quarter, we continued to advance a position in a very volatile market. There is high activity across all divisions that all having good pipelines, less good order intake. Because we had lower orders received, although the activity picked up at the latter part of Q1 and continuing here in in April, we'll see what that means. We are strengthening our presence in a structurally growing industry. And by that, we mean that we are entering new fields like Food, Pharma and Life Science related, et cetera, and resulting in a lower sales and EBIT or profit margin. Matthew Cusick: If I move on to some of the key financials then, if we go on to -- on orders received, as Sven mentioned, for the quarter as a whole, orders received were weaker than a very strong Q1 last year. It must be mentioned 3 of 4 divisions in Q1 last year -- I'll leave it at 2 or 4 divisions in Q1 last year had their record quarters for order intake. I don't want to get into a debate on currency rates. But like Sven mentioned, order activity clearly picked up, particularly during the second half of March, negative currency impact. That's something that you analysts listening will have heard and we'll be hearing from lots of companies. It's around 9% quarter-on-quarter for us in Q1 this year. Orders ultimately were SEK 1.267 billion versus just over SEK 1.5 billion in Q1 last year. That's 6.7% down currency-neutral, 9.2% organic. The charts that we see on this slide for orders received, you can see that basically half of the drop in order intake is currency related. On the next slide, sales lower than Q1 2025, I put a comment in there, in line with Q3 2025's order intake, which gives a little indication on the sort of lead times. It's not the same lead times across all 4 divisions. But SEK 1.257 billion was approximately in line with Q3. Again, currency impact, minus 9% also on sales. Currency-neutral order sales were down 2%, so less of a drop than on the order intake and it's purely looking comparative-wise, organically minus 5.5%. Profitability, these lower sales volumes and are apparent -- we did have very strong gross profit margin. Something that's quite pleasing is the increased productivity in our factories. We had rather good utilization in the factories in the E&FT division during Q1, which Sven can come back to. Unfortunately, currencies also affect profitability. Approximately 12% SEK 12 million of the drop in EBITDA is pure currency effects largely due to the U.S. dollar, which was down quarter-on-quarter, nearly 15% compared to Q1 last year. Ultimately, what that meant was that the EBITDA for Q1 was SEK 117 million versus SEK 143 million last year. The EBITDA margin, 9.3% versus 10.1%. Earnings per share, SEK 1.31 versus SEK 1.69 in Q1 last year. Cash flow from operations, very slightly negative. It was a typical quarter 1, I would say, in the Nederman world. Typically, what we see in quarter 1 is that we've received some orders just before the year-end, and we've received down payments on those orders, and we start executing on those. So the working capital development is usually less favorable in the first quarter. We are still lacking some larger orders, which -- for which we received down payments, once those start coming in, that will boost the cash flow from operations rather well. On the net debt front, very little movement, we could say since the year-end. Division by divisions, Sven, we start with E&FT. Sven Kristensson: Yes. Extraction and Filtration Technology here, during the quarter, we had a bit low orders received and that was mainly due to very few larger orders in Americas, where we could see a new hesitation to sign. However, the base business, as we call it, the traditional small project, the ones that do not have to go to the boardroom, actually grew in the division. And there was a significant order intake growth for service as well. Since we have, over the last few years, put much effort in growing in especially European and the North American organization to have a strong service, which also prolong the relation with our customers. Profit margins increased versus Q1 and that is due to operational efficiency. We have been talking about the investments we've been doing, not only in Helsingborg, we have a new factory setup for RoboVent brand in Detroit area. We are continuously upgrading now, and we'll come back to that in Charlotte factory as well. And we had a decent capacity utilization in the factories, although there is plenty of room to grow that. But increased operational efficiency, maintain our margins. And if we go to European market, we had an increase in order to receive. And again, it was strong base business, midsize, small, midsized solution orders. And then there were 3 major orders and that was to commercialize manufacturing Defense actually Naval area and wood products. So that's what we see. If we look at the Americas, as you have noted, the orders received were significantly behind Q1, which in all fairness was a record year, a record quarter, but we've seen the hesitancy in U.S. market to put the pen to the paper. One major order was, however, secured and that was winter manufacturing. Base business grew. And again, several small midsized orders. And again, service where we have focused over the last few years, as mentioned before, also in the U.S. market grew. So currency neutral sales growth with strong service business. In Asia, lower orders received and sales-base business also weaker, and it's a challenging market environment. Some cost cautiousness has been taking in some of the Asian part of it. Key activities. We continue to launch new products. As you probably have seen last year, we spent almost 3% on R&D, and we see how that pays off. GoMax, I will not go into the details, but it was again we were again awarded a technological award and the reason of the -- how they formulate it was smart technology with an efficiency and sustainable design. Continued investment in operations in North America, we have started the further in-sourcing project in Charlotte for this division and that will further lead to efficiencies in our supply chain and in a further step also more or even less, even if it's very little that comes from outside U.S., 80%, 85% is local content in this division in U.S. We have launched new versions of the partner web shops. So we continue also our digital journey when it comes to being up-to-date. Matthew Cusick: When it comes to financials for E&FT division, orders received SEK 578 million in the quarter is 8.6% down currency-neutral albeit from, like Sven mentioned, a record quarter at that time. Q2 actually exceeded that, but this was a record at the time. Sales, SEK 592 million and an EBIT -- adjusted EBIT very nearly in line with the same period last year despite lower sales. So this is a little bit what we're talking about in terms of resilience. We've managed to keep the margin up. We actually increased the margin in this division to 12.2% from 11.6% in Q1 2025. Moving on then to Process Technology, Sven. Sven Kristensson: Yes, Process Technology. Here, we have significant larger orders and projects. And it's glad to say that we actually had order intake growth in the quarter. There were a few -- for several major orders secured. And again, a very strong aftermarket development with strong growth. And again, we see the result of a few years of focused activities. So again, we got a order backlog that increased. And if you remember our acquisition of Euro-Equip, they are giving a positive contribution, both orders, sales and profitability. So we are very pleased with that addition. The 3 parts, we start with Textile and Fiber. Here, we see the continuous overcapacity, but also a slight pick up. So maybe the Textile segment has bottomed out, but I will not promise that, but we'll see. But it's been couple of years with very low demand. Again, we have the energy saving as for textile plants orders have reached record levels. We passed 1,000 units here during the quarter. And again, we show the capability of technical leadership and new development and helping our customers to save energy in a world where energy prices are soaring. Foundry and Smelters. We actually also here had organic growth in order intake. There was a very large order for copper recycling in U.S. We have, over the few years specialized in our technology to be and are the technology, commercial leading partner when it comes to recycling of metals and materials. And again, positive impact from Euro-Equip, continued strong activity within the recycling. However, that is signed that they are a bit slow to take the decisions, but for a mid- to long-term recycling of metal will continue. The need of copper, the need of aluminum, we cannot have it on landfill, which is the case in U.S. and in Asia. In Europe, we are quite good, especially on aluminum, where we have 80% to 90% recycled material. Customized Solutions, stable development, new order in U.S. pharmaceutical industry. We are sort of moving in, as mentioned, to a little bit new territory. We have been doing it before, but we are more focused now on finding pockets of growth in this environment. We secured 2 projects in India, and that is geographical expansion. We are using our strong footprint in India for the Textile and Fiber. And from that bridge head, we are now increasing our capabilities and also taking in other areas from the division. Service business continued to grow. So again, key activities, sales of energy-efficient carbon bladed fans for textile plants exceeded 1,000 units, good milestone. We continue to invest in test center upgrades and ongoing improvement to existing product lines. Again, we show with our innovation capabilities where you can save energy and make your choice. So again, we are far ahead of competition when it comes to technology and integration of digital solutions. Matthew Cusick: Financials for Process Technology. Order intake was SEK 346 million in the year, which was even at prevailing rates growth, currency-neutral nearly 14% up. Euro-Equip, part of this currency neutral growth, but even organically, like Sven mentioned, we've gone up there 2.9%. Sales very slightly down to -- or slightly down to SEK 321 million, but adjusted EBITDA is increasing SEK 29 million is 9.1%. You see there that the boost from the growing Service business, for example, which has stronger margins. So 9.1% on rather modest sales figures is what we see from Process Technology in Q1. Duct and Filter Technology then, Sven. Sven Kristensson: Yes. Duct and Filter. Here, we've seen, and it's very much based on the U.S. side, where the majority of the sales come from. Development in the quarter, we had a bit of a decrease versus the record Q1. So the year started very slowly, but it picked up later in the quarter. And again, of course, based on this, there is very limited backlog, the sales decrease versus Q1 2025. But we do deliver solid profitability with very good factory efficiency. As you remember, we have now invested in the 2 parts of -- and fulfill 2 parts of the manufacturing in Thomasville. We have automated. We have invested in in new technology in both standard sizes and also now inaugurated the XT, which is larger dimensions. And we see how that, despite the fact that the volumes, are a little bit slow can maintain good gross margins. Again, of course, massive negative currency effect since most of the business is in U.S. dollars. Nordfab, which is deducting we saw increased activity in March, and that was actually giving us organic growth for the quarter as a whole. Project wind battery manufacturing made significant contribution to the order intake. And that was very much so that EV battery factory are now converted into battery factories for storage, et cetera. So we say maybe some of that business is rebouncing and coming back. EMEA orders resales increased slightly compared to last year's Q1. Menardi, which is filter banks had a very slow order intake, but saw a slight recovery in March. EMEA performed well, but it's a much smaller portion of that subdivision. Launch of BIM Toolbar, US and Europe, launch of HygiDuct Australia, Thailand. Solar panel installation Thomasville is providing significant reduced environmental impact and also cost impact. The sun is shining in North Carolina, a significantly more than here in Helsingborg. Continued investment in tools and equipment to enhance product quality and streamlined manufacturing. And as you've seen, we are seeing positive effect of the automation and the significant investments we have made in manufacturing and logistics. It's not only the manufacturing, it's also the setup with Nordfab now, which is giving us capability of balance and have more efficient manufacturing. We have started the project where we have subs, where we have possibility to have shorter lead times. So we have started opening in Texas, Dallas warehouse. We are only shipping the emergence in part directly, the rest we take from a warehouse. And again, we have been able to have 100% delivery accuracy despite the hike in orders in late March, very positive for the market, and we are getting new distributors who want to work with us. Matthew Cusick: Financials for Duct and Filter Technology. External order intake was SEK 180 million in the quarter, down from the record Q1 last year, SEK 224 million that's 7.4% currency neutral. Obviously, as Sven mentioned, the currency impact on this division is very high sales. SEK 194 million, down from SEK 241 million. Adjusted EBIT of SEK 37 million is 18.9%. And we think, again, this is showing resilience. Last year, Q1 was 22.1%, which is the highest quarter for this division in all of history. But 18.9% still rather pleasing on somewhat more modest volume levels. If we then move on to final division, Sven, Monitoring and Control Technology. Sven Kristensson: Yes. Monitoring and Control. Here for the quarter, we had real decrease in orders. Revenue was also decreasing, but there were very big variations between the different business units. And of course, the low sales volume, the profitability was reduced. If we look at NEO Monitors, the total order intake was slightly reduced there, and that was due to Asia. That hold a little bit in the quarter. We have seen growth in the U.S. and we have over years have seen significant growth for NEO Monitors in the U.S. market where we were a very small player a few years ago. But by the investment in Houston, our sales office and service organization, which is now consisting of up to, if I remember correctly, 12 persons have given us direct access to the petrochemical industry in in the area. And we also see that it leads to major orders, and we are deepening our cooperation with the large one since we now are located with a strong service team in the neighborhood. The European orders and sales grew organically and they had a stable demand. We have significantly increased the production efficiency, all of the real manufacturing going on in Oslo, and we have restructured from a small almost, call it, startup manufacturing site and electronic assembly site that is much more efficient much more quality and that work is continuing. Gasmet, the order intake reduced and it was partly on a nonrepeat major order, but it's also punishing the the large dependence on public sectors like customs, police, universities that is a base business and that has impacted, especially in U.S. and Asia, where there has been reduced spending in these sectors. But we have also received new orders from new customers in Singapore and South Africa. Auburn, based in outside Boston in Beverly, saw organic order intake growth. We could definitely see that the order intake picked up in March. What that means going forward, we don't know. We had slightly -- sales slightly behind this very strong Q1 last year, but the orders are coming back. We have reviewed and updated the product portfolio, and that continues, and we are hereby getting the permits, the , et cetera, and strengthening our platform for expansion in India, China, but we're also having other activities to go outside the U.S. market that is dominant for Auburn's product. We have added a product like PM Laser to upgrade, and that has given a new boosting interest on the U.S. market, where we have a very strong position, but we want to also grow that in Asia and in Europe. Our activities in Asia were halted, but we are restarting them. They were halted due to the difficulty to sell from U.S. to China with 100% custom tariffs which was the case in a period. But we are now restarting those activities. Again, key activities, launch of PM Laser, new technology from new application particle monitoring. We have established sales offices in Korea and Singapore. We have continuous improvement to existing product. We are also increasing the integration between Insight and Olicem, also here an increased awareness with customers, and we are linking these products together. Ongoing new product certifications and that's partly what's needed to bring in larger volumes of our Auburn products to Europe. We also doing preparation for capacity and efficiency investment in Gasmet facility in Finland. And that is linked to and is similar to what we've been doing in Auburn and in NEO. Matthew Cusick: Financials for Monitoring Control Technology. Orders received SEK 163 million in the quarter, down from the record SEK 249 million in Q1 last year. Remember in Q1 last year, we had 2 orders in this division that alone combined almost reached SEK 50 million, but nevertheless, 28.5% down currency neutral. Sales, SEK 168 million versus SEK 198 million. That's down 8.2%. And we see the impact of the margin -- on the margin of the volume drop on this division. Adjusted EBIT to SEK 20 million is 12.1% versus 18% last year. If we move on then, Sven, to the outlook. Sven Kristensson: Yes. Demand remains subdued in many sectors, but the growing Service segment and a very strong vehicle offering means that we are performing very well in the current uncertain market. Following a very weak start, activity picked up towards the end of the first quarter, which, if continues, will bode well for performance in the quarters ahead of the year. The pipelines are strong, but the order intake is low. At the same time, there is considerable uncertainty in the market, very difficult to forecast broader recovery in demand. However, when that gains momentum, we are extremely well placed to improve our profitability. With a strong balance sheet, we continue to invest in operational efficiency and in continuously improving our offering. That means that we will be able to continue to strengthen our position, regardless of the market situation. But in a world where awareness of damage that poor air quality does to people is growing. Nederman, with its leading offering in industrial air filtration has an important role to play and a good opportunity to continue to grow. Matthew Cusick: Briefly on the financial calendar. Then we've got our Annual General Meeting next Tuesday, at 4:00 p.m. The interim report for Q2 is released on the 16th of July and the Q3 is released on the 21st of October. The year-end report will be released on the 12th of February next year. And with that, I think we can open up for any questions that people listening may have for us. Operator: [Operator Instructions] The next question comes from August Flyning from Handelsbanken. August Flyning: Two questions from my side, please. To start off with, you mentioned that activity picked up towards the end of Q1. Could you give us some more color on what drove that improvement in the final weeks of March and whether it was broad-based or more concentrated in terms of both divisions and regions. Sven Kristensson: I can say across the divisions, it was rather widespread. Process Technology is more volatile, as you know, August. So, their large orders come in when the Board decision happens, the large projects come in. But we did see in Monitoring and Control Technology, in E&FT and in Duct and Filter, we definitely saw a pickup in it. So it was rather the broad range. Regional-wise, not so much -- there's no reason it picks out one way or the other in that. APAC is still slower, and we think that is likely to do with what's going on -- it can have something to do what's going on in the Middle East right now. August Flyning: That's very clear. And on tariffs then, I know you guided to approximately SEK 5 million in quarterly tariff costs going forward. Could you perhaps elaborate a little bit more on kind of products or shipments that primarily relates to now given the fact we have an updated here Section 232 on steel-based products. Matthew Cusick: Yes, that may benefit us. We are also -- and we're not doing this in order to -- so that, first of all, that will likely benefit us somewhat assuming we don't change anything in our production flows. On the other hand, we're also investing in the production in the U.S. in Charlotte, which will mean that slightly less then transatlantic, but this is still rather a small impact for us, is not -- we're not changing anything strategically down to based on the tariff. And we will not do in the foreseeable future either. Operator: The next question comes from Anna Widstrom from DNB Carnegie. Anna Widstrom: So firstly, I just wanted to ask because I know that the number of employees is down. So could you maybe elaborate a bit on basis relating to cost savings or any effect from something else? Matthew Cusick: Number of employees is largely related to production sites. It's not -- there are -- we have made some cost savings in APAC, but that's relatively small relative to the number of -- relative to the number of reduction. There are -- we do have some temporary employees that fluctuate over time. And at the moment, obviously, with less volume, we are able to adjust the production capacity accordingly. But it's not something a major restructuring that you're seeing there or a major focused reduction. Sven Kristensson: And we also have the fact that with the automization in the different factories, you have here and there, you have 2 less needed because you have it automated with AGVs, as you have 2 less are and so on. So that's an ongoing process. It's not we have not seen the need for a larger restructuring. Anna Widstrom: Okay. Perfect. My second question is on how -- if you maybe could give some details on how we should view the Duct and Filter Technology margin, just given that we probably have a lot of FX effect. So maybe some sort of guidance on how that specific margin would look if we didn't have the U.S. dollar. Matthew Cusick: Yes, the margin in itself in percentage terms isn't massively effective for that division because the vast majority of the -- so there's not an awful lot that's going transatlantically. The Swedish krona is -- when we translate is the main issue with that division. We are margin-wise on that division, like I mentioned, we're rather pleased with the 18.9% they do. And that does show that, for example, the where we've introduced these AGVs into the factories and a little more automation. We have seen a reduction in the direct labor percentages for that division, which is making -- even on modest volumes, we quite -- we got we've got rather good margins. So some volume increase or to give even more leverage in that division. Anna Widstrom: Okay. Perfect. Then also a specific question for Gasmet. Just thinking now when public spending seems to go down quite a lot, are there any specific customer segments that you sort of try to increase your sales efforts towards? Sven Kristensson: Yes. They have a handful but it's mainly to start more having broader geographical base for the existing that is something ongoing. They have a growing cooperation with Olicem and hereby also increase the after-market capabilities in that area. So it's Energy and it's APAC that we need to further grow. But it's also a problem. We don't know what will happen in the U.S. spending because that is a significant part of it that has been universities, other school, It's been customs authorities, police, and so. And their spending has gone down dramatically over the last 6 months, I would say. But I think we will -- I can't give you a promise that it will be a boom within the couple of weeks, but we are working very strongly to find, as we have been doing in other areas. If you look at the EFT for instance, when we acquired -- when we acquired RoboVent, 85% of our sales were auto-related. And the downturn in that market would have given us a significant downturn of our sales. But by using the knowledge in using these applications in food-related, other areas we have now been able to maintain the volumes there. Although both you and I would have liked it to be icing on the cake that we grew it and still had a significant auto part. But now we see that maybe the auto industry is starting to reinvest again. We see that there's a lot of service orders coming in, and that's the first time that they are reopening their lines. Anna Widstrom: Okay. Perfect. Just 2 more from my side. So firstly, looking on the product mix that you have in the order intake. Is there something that we should be aware of in terms of like margin impact for the quarters ahead? Matthew Cusick: Not really, you could say, if I take Process Technology, they're still doing very well on service, so that we expect there rather good margins will continue to be solid. E&FT, a little bit growing in the Service business as well. So that also helps. Monitoring and Control Technology, one of the issues we have there and why we were a bit lower is, some of this public spending is on these portals units, which do have extremely good margins. So that is less solid. But I would say, Process Technology in E&FT have got healthier margin backlogs than they had 12 months ago, albeit lower in our [indiscernible] Anna Widstrom: Okay. Perfect. And my final -- sorry, go ahead. Sven Kristensson: But if you could also Duct and Filter has also very -- since we, as mentioned, we had very low portion of personnel cost. It's extremely low, and that is several percentage units down since we made the investment over the last 2 years. So that means that an increase in volume or recovery in volumes will have also in that division, very strong impact. Matthew Cusick: Even a modest increase across the group in volumes will -- should increase the margin quite significantly, we think. Anna Widstrom: Perfect. Just a final one, if you could tell us a bit on if you've noted any impact yet from the Middle Eastern conflict in either costs but also perhaps activity from the oil and gas customer. I mean you mentioned one order, but that doesn't sort of related to this. Sven Kristensson: The impact is very hard because the biggest impact is the hesitation and what we've seen, the hesitation to sign larger contracts. And it's the same as when we had what they call Liberation Day. It's not a tariff, it's such -- it's more the unsecurity among our customers, and that means that they are some sort of holding back on doing the large investment. And part of the problems in -- or the overcapacity in Textile and Fibers related to the uncertainty also how can you ship things over the ocean. And what is happening, and where should you invest. Should you invest in Carolinas Guatemala or should you continue to do in India and so on. So more the uncertainty that has an impact. Then there is, of course, potentially an issue as we had during COVID period on shipment capacity and so on. If we get vessels stuck around in Hormuz Strait or in Suez or wherever. So, I wouldn't say... Matthew Cusick: I'll try and pull out one positive out of the Iran conflict. Might be, but we have -- and like you said, we haven't seen this at all yet, and you may be hinting at this. If this drives investments in oil and gas. Sven Kristensson: Petrochemicals... Matthew Cusick: Petrochemicals or anything around the new investments if countries decide themselves, they need to invest themselves more, that could mean a macro boost for those sort of industries, which would be good for example for NEO Monitors, Gasmet, in particular. We've not seen it yet. But that would be -- if I'm going to put one positive out of it, there are -- like at the moment, this hesitation is the key issue for us though. As you say, a it's been hesitation. Anna Widstrom: Okay. So you've yet to see sort of actual cost increases for you that you need to sort of offset to what customers... Sven Kristensson: There has been -- there is some, of course, that will come on plastics and so on and polymer, steel has gone up a little bit due to the energy cost and so on, and they are seeing some increase. But that is so straightforward, so that you can handle and you can make a sort of -- this is -- if you can go on a plane, you will see on your ticket, we have added a surplus for energy costs and so on. And that's not a big issue to handle. It's more the uncertainty and the lack of volumes that is problematic. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Sven Kristensson: Thank you for taking time listening to us and we will have the Annual AGM meeting on Tuesday, and we will have a short comments from that as well next week. And after that, we will be back for the second quarter in July. Thank you for taking the time.