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Operator: Greetings, and welcome to the Terra Innovatum Global Fourth Quarter Fiscal Year 2025 Strategic Business Update Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Giordano Morichi, Founding Partner, Chief Business Development Officer and Director of Investor Relations. Please go ahead, sir. Giordano Morichi: Thank you, operator, and good morning, everyone. My name is Giordano Morichi. I'm the Founding Partner and Chief Development Officer and Director of Investor Relations of Terra Innovatum. Today, we'll provide a business update on Terra Innovatum, including recent progress across the SOLO™ micro-reactor program, regulatory engagement, commercialization activities, technology development milestones, including Mersen Graphite prototype and key supply chain advancements. For today's call, please note that you can follow along using the accompanying presentation, which is available for full download in the Investors section of Terra Innovatum's website at terrainnovatum.com. Before we begin, I want to briefly address timing around our 10-K filing. As announced, we anticipate filing in our 10-K in the near term as we finalize reporting under a new CFO leadership. Importantly, this does not impact our operations, liquidity or strategic process and progress. And today's call is focused on substantial business momentum we are seeing across the platform. Further, I want to also address something we've seen on certain data platforms. It was brought to our attention that one of the SEC filings was reported by a major market data provider, giving the appearance that one of our fundings having sold a portion of their stake in the company. This is incorrect and the data has been corrected. So to be clear, this management team has not sold any of their shares. Moving on then. Today, we're very thrilled to provide an update on Terra Innovatum, including progress across the solar micromodule reactor program, regulatory advancement, supply chain execution, commercialization activity and key technology milestones. I'm joined today on the call by Alessandro Petruzzi, Co-Founder and CEO; and Cathy Williams, our Chief Financial Officer. Please turn to Slide 2 to review cautionary statements. As you're likely aware, during the formal presentation as well as Q&A sessions, management may make some forward-looking statements about our current plans, beliefs and expectations. These statements apply to future events that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from what is stated here today. These risks, uncertainties and other factors are provided in the earnings release as well as other documents filed by the company with the Securities and Exchange Commission. These documents can be also found on our website at sec.gov. Now if you please turn to Slide 3, I'll turn the call over to Alessandro to begin. Alessandro? Alessandro Petruzzi: Thank you, and thank you to everyone for joining us today. I would like to provide a glossary of the key terms and [indiscernible] we use through the presentation including SOLO, FOAK, NOAK, LTE and various reactor types. I won't go through each of them. This is a useful reference as we discuss our [indiscernible] technology, regulatory path and commercialization plans. When we started Terra Innovatum, we're not trying to improve traditional nuclear. There was a different problem we went out to solve. Power is becoming a constraint across the industry and not just hyperscalers. It is a material and growing demand among industrial users for reliable, always on energy that they can operate and grow. [indiscernible] solutions don't fully address that need. Large-scale nuclear is complex and slow to deploy, while intermittent renewable don't provide continuous outlook. So we [indiscernible] something that does that Innovatum is creating a new category. Distributed modular micro reactor designed to deliver renewable energy directly [indiscernible]. This allow us to serve immediate demand today while maintaining a clear path to larger scale deployments over time. Turning to Slide 6. 2025 was a year of substantial progress for Terra. Across all of the core areas that matter most to our success. Operator: One moment please moment. [Technical Difficulty] Please continue, Mr. Petruzzi. Alessandro Petruzzi: Apologies for this disconnection. We start again with Slide #6. So I was saying that 2025 was a year of substantial progress for Terra across all of the core areas that matter more to our success and the advancement of our project. Regulatory execution, supply chain liveness and commercial market development. Starting with the regulatory and licensing, we moved from planning into structural execution. We advanced our engagement with the U.S. Energy achieved accepted bucketing of topical papers and white papers to review and build the foundation for the next major milestones height that include approval of plants or design criteria, construction private application submission and ultimately the operating license [indiscernible]. Just as importantly, we made significant progress on the industrial side of the business. We secured the end-to-end supply chain required for SOLO from 130 initially identified suppliers without selective 30 for contract agreement and initiated procurement activities that support both first deployment and early follow-on [indiscernible]. We also began [indiscernible] manufacturing activity to [indiscernible] and successfully produced the graphite prototype for [indiscernible] together with Mersen, which we view as an important validation of both the design and the manufacturability of key reactor components. And on the commercial side, we continue to demonstrate that market demand is really growing. We ended the year with approximately $4 billion in pre-commercial commitment, while expanding positioning our SOLO is a flexible platform that can sell a broader range of industrial infrastructure and data center application across geographies. So when we look back at 2025, we see a year where Terra materially reduced the execution risk across the business. We have demanded the regulatory path, secured the supply chain and deepened the commercial traction, all of which move us closer to deployment and commercialization. Moving to Slide 7. Here, we would like to highlight the regulatory framework and outline the main U.S. NRC we have completed so far. Our licensing process formally began in January 2025 with the submission of our regulatory engagement plan to the NRC. Since then, we have completed multiple docketed submission, including principal design criteria, our quality assurance plan, safeguards and material control and accounting methodology and [indiscernible] across the sign topical efforts, along with several white papers addressing key elements of the SOLO-60K. We maintain continuous [indiscernible] and engagement with energy staff through workers, shop and technical meetings. Even today, we are going to have a meeting with U.S. NRC. And the pay application phase is now nearing completion as we transition to PSAR in construction permit application readiness. It is important to note that all our submission and meeting with the U.S. NRC public and our progress as well as our peers can be tracked. We encourage our investors to read this report and follow along on our path to deploy. The next Slide 8 highlights the regulatory retail wins. Regulatory nuclear has historically been good as is constraint. What we are seeing now is a different approach. The development of 10 CFR Part 57 represent a structural shift in how micro reactor will be licensed in the United States. For the first time, the framework is being designed specifically around system like SOLO, factory build model and deployable at scale. In our view, this is a clear signal that the regulators expect micro-reactors to play a meaningful role in the near energy future and are actively building the framework to support high-volume deployment. So it's not adapting to this [trend]. It was designed and built for it. And moving to Slide 9. I would like now focus on the supply chain. This is a major execution milestones for Terra. We have secured the end-to-end supply chain required to manufacture and deploy SOLO. That included a critical nuclear grid component such as fuel, the pressure test control system and cost structure as well as our non-nuclear component, plant system, including the turbine heat exchange systems and support infrastructure. And importantly, these are not conceptual revision. We have built area to integrated network of qualified suppliers that can support the rigorous engineering and manufacturing standards this platform demands. This market because supply chain is where many advanced reactor program ramp into delays. Longly components and procurement and certain [indiscernible] deployment even when the technology [indiscernible]. We are working to address that risk early. By securing this input now we have improved our readiness for publication, reducing potential to equipment in bottlenecks and strengthening our ability to move as the regulatory milestones are achieved. That fits directly with our broader execution model, we have licensing, manufacturing and supply chain development are all advancing in part. So the takeaway is now simple. Today, we are not just designing solely, we move it far beyond the early stage of what this product can be. Today, we are preparing to build and position SOLO for deployment to demonstrate what this solution can do. In this industry, supply chain is where time lines break and we have addressed that risk earlier. And now we are able to build, thanks to the -- to our work plan supply chain partners as this is outlined on Slide 10. We have established a strategic alignment with leading partners across fuel components, manufacturing and deployment, including [indiscernible] Mersen, Ameresco and a Fortune 100 energy company and others. This partner provide nuclear grid systems, feul instrumentation and control and deployment capability that are critical to SOLO execution and scale-up. Moving to Slide 11. We may now turn to an exciting operational update. We are pleased to announce an important manufacturing milestones achieved recently together with Mersen. We have successfully produced a graphite reactor core engineering prototype for SOLO, which marks another step forward in our readiness for first deployment. This is significant because it reflects not just progress on a component. It shows that we are continuing to translate supply chain preparation in actual manufacturing execution, and that is exactly the kind of progress we want investors to see as we move towards the [indiscernible] deployment. As you know, graphite is a critical material within the SOLO rector call, and this component is designed towards key systems and core agents that influence thermal performance, integration and overall system [availability]. So achieving this prototype and the required tolerance is an important technical validation above the design and the manufacturability of the reactor. Just as importantly, this work helped establish the procedure, the quality control and the production standards that are required for repeatable manufacturing. In other words, this is not only about proving we can make the part one but actually helping build the industrial foundation required to scale from NOAK into serialized NOAK production. These milestones also based on our previously announced agreement with Mersen for nuclear-grade graphite and other critical materials. It reinforced that our supply chain strategy is not theoretical. It is producing tangible outcomes and supporting our target path to focus in 2027 and broader commercialization beginning in 2028. So overall, we view this is a meaningful proof point for Terra. It demonstrates progress at the intersection of engineering materials and manufacturing and we support our broader objective of moving SOLO from a completed design into [indiscernible] repeatable deployment platform. Turning to Slide 12. What's critical to understand about SOLO is that this is not a future concept. Our solution was specifically designed for the need to meet current industrial energy demand. We are actively engaging with customers today across a wide range of industry that need reliable carbon-free power in the 1 to 200-megawatt range that we think of as a retailing nuclear market. This is a massive underserved segment made up of thousands of industrial users around the globe who cannot access traditional nuclear but still require [indiscernible] dependable energy. SOLO was designed to serve that market with a standardized, sellable product where bespoke decade long infrastructure project that cost many billions of dollars just are not suitable. Most importantly is that this is the same platform scale from single unit deployment to multi-unit configuration capable of supporting larger loads like data center and industrial campuses. We are addressing immediate demand today while also positioning the platform to meet the much larger energy needs of tomorrow. And now let me introduce you to Slide 13, a fundamental evolution in our service deployed. Historically, one SOLO reactor meant roughly 1 megawatt electrical watt. What we have now unlocked is a configuration where multiple reactors in a period with a centralized power conversion, allowing us to generate 20 megawatts from just 16 costs. That shift [indiscernible] a lot. By decoupling the reactor from the turbine optimizing at the system level, we materially improve efficiency, reduced footprint and lower overall and complexity and cost. And importantly, this is not theoretical. We are developing this configuration and on-site and measure global turbine partner validating both the personal and the path to the deployment. SOLO NOAK, a model of product into a scalable application optimized power system. From an investor perspective, this is meaningful because we are providing an innovation now that directly lowers cost per megawatt, reduce physical footprint and expand the range of commercially viable deployment. In other words, it improved both unit economics and total addressable market at the same time. And the second innovation is how SOLO actually operate once it is deployed. And what you are seeing in Slide 14 is our ability to cover the full demand spectrum from [indiscernible] base loads to seasonal variation and short-duration peak spike all within a single system. What -- we do that by combining constant nuclear assets with a small amount of integrated capacitor storage, allowing us to respond dynamically without having incremental reactor capacity, that's a meaningful advantage. Traditional system requires significant overbuild or large-scale battery infrastructure to handle variability. We are achieving the same outcome with a fast, simple and more capital-efficient approach. The result is a system that can operate autonomously, adapt to real-world demand and deliver consistent power with new added complexity. For investors, that means we can deliver good quality, dispatchable power without the cost and scale of traditional storage solutions. That drives a structurally lower cost curve and position SOLO as a true replacement for both baseload and flexible generation. Turning to Slide 16. Our strategy has been consistent from day 1, build a system that is simpler, faster to deploy and scalable by design. At the center of that strategy is a fundamental different approach to conventional construction and deployment. Rather than building a nuclear project from scratch at each customer site. We are producing SOLO as a standardized factory build system. Units are assembled in one location under control condition and then delivered to the customer site for installation and connection. That matters for several reasons. First, we support much faster path to market by reducing on-site build complexity compressing deployment time line and enabling a more repeatable installation process. And second, we give out a platform that can scale globally, not one custom project at time, but an industrialized process designed for broader market penetration. This model is supported by the key building blocks we have already put in place, a progress and advancing licensing pathway, republication and construction activities that have been already initiated, a simplifying standardized design and a secure supply chain to support the execution. Today, we have reached a point where our first-of-a-kind [indiscernible] design is complete. Our supply chain is in place, and we are fully funded through our initial deployment phase. From an investor standpoint, what matters is this. We are no longer quoting a concept. We are executing a deployment strategy. Slide 17 introduced the demonstration of that strategy. I want to emphasize here how much more this is just reactive. SOLO is a building block of the energy infrastructure that can be deployed, replicated and scaled. Each unit delivers renewable baseload power and heat operate continuously and is designed to run for decades with minimum intervention. But what makes SOLO truly differentiated is not just the performance. It's how it's built and deployed. This is a factory assembly system designed for repeatability of bespoke construction. And that shift from megawatt project to product is what really allow the scalability of this business. Slide 16 highlights SOLO key differentiators. SOLO is designed to be safe by physics. There is no risk of the [indiscernible] exposure, [indiscernible] risk after [indiscernible] and no requirement for an exclusion zone, which together support deployment across a wide range of commercial and industrial sites. The reactor is a factory build using [indiscernible] component. It uses low enriched uranium fuel that is already NRC licensed and available at commercial scale and offers the stability in output, electricity, process heat and [indiscernible] across diverse end user industry. Our licensing pathway and the FOAK, NOAK design provide what we believe is an industrial-leading [indiscernible] to market with current cash expected to fully fund the FOAK. We also believe SOLO is well aligned with the NRS developing Part 57 framework for micro reactors, which is intended to better accumulate features such as factory fabrication, transportability, model of deployment, automation and remote operation, all of which support a more streamlined and potentially faster regulatory pathway over time. To explain further, FOAK to NOAK means that the reactor we deployed first is the same reactor we intend to commercialize. We are not demonstrating one design and then redesigning for scale. Combined with our licensing power pathway, that design [indiscernible] is a real key differentiator for SOLO and our platform. On Slide 19, we stepped back from the individual units and look at what makes SOLO scalable on global basis. We see 4 core pillars of differentiation here, global market penetration, nonproliferation alignment, power scalability and output versatility. SOLO's low-enriched uranium-based design is aligned with global nonproliferation standards, support deployment across both U.S. and international markets. The SOLO platform is scalable and single-unit application to multi-unit fee deployments depending on the customer needs. And last but not least, SOLO is versatile in what it can deliver, including electricity, fleet and rates across a wide range of end markets. Moving now to Slide 20. One of the most important decisions we made earlier was not to become a manufacturer. Instead, we built Terra as a [indiscernible] company focused on design, integration and deployment while levering a global network of nuclear qualified suppliers. This allows us to remain capital efficient while still scaling of thousands of units. It also significantly reduced educational risk. We are not building manufacturing capacity from scratch. We are activating capacity that already exists. From an investor perspective, this model is what enables both speed and scale with the traditional capital burden associated with nuclear. The benefit of this model includes commercial and regulatory reasons, an asset-light capital structure, scalability to thousands of units and accelerated time to market. Moving now to Slide 21. We have crossed a key threshold as a company. Our design is complete. Our supply chain is secure. Manufacturing has begun, and our regulatory process is now advancing. There is no longer a concept story we are executing towards deploying. And now I'm excited to provide an update on our roadmap to FOAK and commercialization beginning on Slide 23. This slide highlights how our license approach refers fundamentally from traditional nuclear. On the right, you can see the conventional pathway where each step is potential. You complete your initial submission, obtain first-of-a-kind approval and then effectively start over with new licensing and redesigning work to reach commercial deployment. Our approach is different. First, we are pushing a parallel licensing strategy, advancing both the construction permit and creating license simultaneously with [indiscernible]. This allow us to compress some line and avoid the delay inherent in a step-by-step process. Second and critically, our FOAK [indiscernible] design are identical. That means the unit we demonstrate is the same as the one we commercialized in meeting the design and licensing and additional engineering between phases. And third, this leads directly to accelerated commercialization. By combining a simplified design with a regulatory pathway aligned with micro-reactors particularly the low to mid of Part 57, we expect to move from demonstration to fix deployment far more efficiently than traditional nuclear projects. The result is a streamlined pathway where FOAK approval effectively becomes the bridge to commercialization rather than beginning of a new process. And moving to Slide 24. We will keep this at high level for now as we have worked through each of these components already. What is important to note today is how they have all come together. This road map show quite simplistically and evidently that we are no longer advancing isolated work stream. We are moving on to operating in a phase where everything is moving seamlessly in parallel. Our regulatory process is progressing. Our supply chain is in place and ready to scale. And on commercial side, we are moving from evaluation to real site selection and now deployment plan. And those 3 elements, licensing, manufacturing and deployment are aligned and that alignment is what enables the first of a kind. And just as importantly, it's what allows us to move beyond FOAK [indiscernible], where this becomes a repeatable, scalable model, not a one-off project. So rather than thinking about this as a time line on individual milestones, we think about it as a convergence point where years of development transition into execution. And as we move through 2026 and into 2027, that convergence is what positions us to deliver our first deployment and begin scaling from here. And on the topic of scaling, I will now hand it over to Giordano to give an update on commercialization progress. Giordano Morichi: Thank you, Ale. We currently have approximately [ 200 units ] under nonbinding MOUs, representing roughly $4 billion in potential value. While this agreement were nonbinding, they reflect the real counterparties, active site level engagement and growing demand, not early-stage exploration. Customers are increasingly seeking deployable solution to solve immediate power constraints, and that is exactly what's SOLO is designed to deliver. If you look at '27, our commercialization strategy is built around scalable deployment across U.S. and international markets, leveraging SOLO's non-proliferation online design and modular architecture. SOLO uses of low-enriched uranium fuel is aligned with the treaty on a non-proliferation of nuclear weapons and support deployment in both nuclear and nonnuclear weapon states. In the U.S., this enables deployment across government and defense sectors, including the Department of War and on and off federal land. Essentially, it supports deployment in Europe allied jurisdictions and nonnuclear countries under appropriate safeguards. If you look at '28, you will find details on the first deployment site Rock City Admiral Park. Our first-of-a-kind deployment is planned at Rock City's underground Industrial Park, where our MOU includes an option to deploy up to 50 reactors over time or 50 megawatts electric of capacity. The expected initial term is 15 years with potential for up to 45 years of operations through modular core-swap subject to NRC approval. And the 6 million square foot underground site provides an ideal environment for licensing, testing and construction. Rock City will provide a controlled environment for first deployment critical for execution and validation. On Slide 29, Uvation position us directly within the AI infrastructure build-out, where power availability is rapidly emerging as a critical growth constraint. We are planning a 1-megawatt electric SOLO-powered pilot deployment to support next-generation AI with high-performance computing data centers with the ability to scale to 100 megawatts electric to additional SOLO units. It is behind-the-meter, carbon-free solution is designed to address the growing energy bottleneck facing AI and data center expansion, while positioning Terra at the center of one of the fastest-growing and most power-intensive segments of global economy. Moving to Slide 30. Ameresco gives us access to federal and commercial deployment channels at scale. We have entered into comprehensive framework to evaluate siting, deployment, construction, integration, operation and decommissioning planning for SOLO reactors across U.S. federal and commercial sites. The agreement started deployment for up to 50 SOLO reactors focusing on federal customers, such as Department of War, Department of Energy and also enables global outreach leveraging Ameresco's network. Slide 31 illustrates how SOLO addressing key challenges across 4 core segments, data centers and digital infrastructure, infrastructure utilities, medical and health care and industrial factories. Common themes across these customers include the need to meet exponential growth in demand, reduce emissions at competitive costs, secure locally deployable power and, in some cases, support the production of life-saving radioisotopes. With that foundation, I'll turn now to Kathy for financial updates. Kathy? Katherine Williams: Thank you, Giordano, and good morning, everyone. As you know, we previously communicated an expected filing time line of April 15 following our extension period. While we've not made significant progress, we did not meet that date. To be clear, this is not a function of any underlying financial performance or operational issues, whether it reflects the complexity of our structure and the reporting requirements following the business combination. This business combination includes multi-jurisdictional considerations across Italy, the Netherlands, the United States and Cayman. We are currently working through the appropriate technical accounting treatment of certain noncash items with our auditors. We expect to file the 10-K in the near term, but I believe it is more appropriate to take the necessary time to ensure the filing correctly represents the impacts of the business combination and our progress during 2025. As is typical in these situations, we expect to receive a standard notification from NASDAQ related to the timing of our filing. This is a procedural matter, and we intend to address it in the normal course within the prescribed timeframe consistent with NASDAQ's standard process. Giordano and Alessandro have provided you information on the significant progress we are making across licensing, supply chain and commercial engagement. I would also like to share with you our cash balance in the bank as of December 31, 2025. This is shown on Slide 33. Total funds available $100 million plus. As we have communicated before, we estimate it will cost us $70 million to achieve our first of a kind. As we have secured our supply chain, we've been able to confirm that our estimates are aligned with or lower than the $70 million baseline. And of course, as mentioned, NRC is working on simplifying the regulatory process. The potential savings from these actions have not been factored into our $70 million estimate. So in conclusion, we are well positioned from a cash perspective to be fully covered up to commercialization of the SOLO reactor. Alessandro, I'll turn it over to you. Alessandro Petruzzi: Thank you, Kathy. Now to close, moving to Slide 35, we want to step back for a moment. Innovation was built around a simple idea that the future of energy would require fundamental different approach, one that is distributed, scalable and aligned with the pace of modern infrastructure. Over the past several years, we moved from that idea to a completed design, a secure supply chain and advancing regulatory pathway and an expanding commercial pipeline. As we enter 2026, the focus shift from building the foundation to executing at scale. And from an investor perspective, the transition from the development to deployment is where value is created. We believe we are positioned at the front end of that shift. And lastly, on Slide 36, we encourage investors to follow our progress through our public U.S. NRC engagements, where we hold monthly meeting with the U.S. NRC. Even yesterday and today, we are having a meeting with U.S. NRC, our second last meeting held to submit application before entering the construction permit phase. You can access this meeting directly through our profile on the U.S. NRC website or by signing up to our mailing list. Additionally, we keep our stakeholders informed via our investor website and social channels. This channel will provide update on regulatory milestones, commercialization progress and key partnership as we advance towards [indiscernible] deployment. So I say that I really wish to thank you for listening. And operator, we are now ready to open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Sameer Joshi with H.C. Wainwright. Sameer Joshi: Alessandro, thanks for having this call and for the update. You mentioned in closing remarks about your regulatory progress and how we can track it. Can you give us maybe quantitative or qualitative answer in terms of how many topical reports are still outstanding and to be submitted any other -- any white papers in the final stages, because I think the mid-June deadline or sort of deadline you can say is coming up. Just wanted to understand how that works? Alessandro Petruzzi: Yes. Topical reports and white paper are tools that are used in order to anticipate topic and -- important topics and discussion with U.S. NRC. And those are used during the pre-submittal phase just to take the right time to prepare for the construction permit phase. See that we have submitted so far about 10 topical reports, similar number of white papers. You can find again on the website of U.S. NRC. We are today doing the second last meeting. The last meeting will be early May, where we had an additional one topical report and a couple of white papers. And then in June -- June, July, end of June, we will start with the construction permit phase. The work that we have done so far through the use of topical report and white paper will allow us to refer those topical reports and white paper while producing the construction permit. And construction permit will be released in the period between June, July and September. Sameer Joshi: Understood. And then just switching topics quickly. The Mersen announcement was earlier this week. Can you explain the significance of this graphite prototype and how it progresses your development? Alessandro Petruzzi: That's very critical achievement because we have a lot of graphite in our reactor is one of the main components together with [ LEU ] fuel. And the ability of graphite was 2, 3 years ago when we started the project at one of our question concern. This was also cleaned with Mersen. There is enough graphite to sustain even our commercialization phase. But the other concern was not on the ability was on the manufacturability of the graphite adding several graphite in our reactor. Taking into consideration the design of our reactor, we need to do a lot of drillings in this graphite, a lot of holes and the number of holes, the precision of how those holes are publicated is fundamental in order to ensure the physical behavior of our reactors. So these achievements that was done just last week, but actually, we started in October, November last year. So immediately after the -- we become a public company is the fundamental because we know that what we define is achievable, is really achievable also from a manufacturing point of view. So the first piece -- the first 2 pieces actually have been built. The 2 pieces are demonstrated to be inside the expected tolerance limit of the manufacturability and of our design. So now it's question to pass from the 2 pieces. We have produced to the several times that we need for our reactors. But this will be a standardization of the work because also what it was important during the production of these first 2 pieces is to derive the procedure by which to operate the next manufacturing of those blocks of graphite. So now we have the procedure, and we know how to do that for all the blocks inside our reactor. Sameer Joshi: Alessandro, it's good to see the methodical approach of our derisking each and every step of the process. Operator: Our next question comes from the line of George Gianarikas with Canaccord Genuity. George Gianarikas: Appreciate the updates on the commercial traction. I'm wondering if you could talk about any additional traction you may be seeing with hard-to-abate sectors like mining and any competitive updates there? In other words, to the extent you're having conversations with some potential customers in those sectors, what are the alternative approaches that they may be exploring as well? Alessandro Petruzzi: I will start, George, and maybe I will ask Giordano to complement. But mining is definitely one, as we discussed already several times, one of the sector that we look more. And today, in particular, if you come back to our presentation to the slide where we talk about the concept of SOLO nodes, today, even more than yesterday, we know that we are the perfect solution for the mining sector because we can basically scale up, reducing the number of reactors using single or few units of power conversion. So that solution I try to introduce for the first time today is really very important for industry like mining, but in general, for all industry that need a large amount of power and for which we can provide a solution which is higher efficient, less costly and with less also footprint. Giordano, do you have -- can you complement in terms of what we do in terms of mining? Giordano Morichi: Yes, absolutely. I think Alessandro's point is very important, especially when we're discussing 50 SOLO units that can deliver [ 20-megawatt electrics ] with the help of the power conversion units. Some of the conversations that we've been having with across the customers have been going deeper with this type of technical conversations, and we are structuring -- restructuring commitments to proceed to the next phases, we foresee them coming up in the near term. But we're looking at this really as a broad global deployment, right, whether it's in the U.S., whether it's outside of the U.S., thanks also to the nonproliferation and our ability to our technology to deploy it worldwide. But it's definitely an interesting sector. It is definitely something we're very committed to execute on, and we're pushing this as much as the data centers. George Gianarikas: And maybe as a follow-up, here in the past, you've shared a slide talking about [ $19 million ] at a 1,000 units, excuse me, of revenue per reactor in a certain cost profile and margin profile. Now as you continue to work through your supply chain, particularly in light of the recent graphite announcements and especially with some of the shortages in helium that we're reading about, are you still committed to that revenue and margin profile? Have these agreements sort of reinforced that financial profile at [indiscernible]? Alessandro Petruzzi: This is a very nice question that I'd like to take because today, in particular, when we down select from 130 suppliers to 30 suppliers, we have clear -- more clear visibility on the cost of our first of a kind and not only first of the kind, but also for the commercialization phase. When we select those 30 suppliers, we start with a real order. So now we know how much we are going to pay for the first of a kind. But together with that, we did another exercise with all our suppliers with all of these 30 suppliers. We did the exercise to ask them how much that cost can decrease going from the first of a kind to [ NOK ]. So today, better than 1 year ago, we know that our model to build the first of a kind is such that is real. The cost is -- was inside our evaluation. And we have strong confidence that what is also in the plan that was submitted is something that we can follow because this is what basically our discussion with the supplier is confirmed. Operator: Our next question comes from the line of [ Subash Chandra ] with StoneX. Unknown Analyst: So the first question is the site characterization, has that been completed at Rock City? Alessandro Petruzzi: No. What we have done so far is collecting all the information from Rock City in terms of metrology, geography, flooding, seismic, all this data has been collected. We are actively interacting with the owner of the site. We are advancing with the preparation of our environmental plan and this will be submitted in the next few months to [ NRC ] in parallel to the construction permit phase. We identify exactly the point inside the Rock City where the reactor will be located. And we also plan to start interaction with the municipality and the public -- the public people there in the next few weeks, months. But what is the important to your point -- sorry, what is important to your point that I mentioned is that all the data that are needed in order to prepare the environmental impact analysis are available. This is the leading -- the point where that takes more time. The analysis itself is not complicated. You need to do, but it's not complicated. What really requests a lot of time in the identification of the site is the collection of the data that you need for preparing the environmental impact analysis. And this data is available because the Rock Cities and industrial cities in the industrial site. So this means that they have already available those documents, and we received those documents from the owner of the site. Unknown Analyst: Yes. Are there any local permits required? Alessandro Petruzzi: Well, yes, something is needed definitely at the level of local authorization. We are interacting and this will be part of this environmental plan. Unknown Analyst: Okay. Got it. We'll stay tuned. Follow-up is your -- so the commercial strategy is to sell the reactors. And can you sort of clarify it to sell the physical reactors to sell the IP? What are the sort of the revenue streams you're looking for in the final model? Alessandro Petruzzi: So far, our main business model is to sell the reactor. In particular today, we also try to pass the message that there is what we call nuclear retail market. This means a large amount of micro small industry, industry that needed from 1 to 10, 20 megawatts, that may be struggling today with the cost of electricity worldwide. And for each, the SOLO solution might be very beneficial in terms of cost and in terms of reliability of operation. So our business model so far is forced on selling the reactor, but definitely, we have also started to discussion with potential offtakers where we have a different business model where we provide electricity without selling the reactor. This is something that obviously depends on offtakers, depending on the particular nature of the activity of the offtakers itself. Unknown Analyst: Okay. So you're open to sort of a PPA strategy? Alessandro Petruzzi: Definitely, yes. yes. This is not a today business that we are pushing. But definitely, we are engaging in discussion where PPA is considered. Unknown Analyst: And my final one is that do we need any more regulation, so you're going to manufacture the reactor, load the reactor, then transport the reactor in that transport phase, how easy do you think that's going to be? Alessandro Petruzzi: This was exactly the discussion we had yesterday night U.S. NRC. If you go to the website, you can see that one of the topic that was yesterday in the agenda was the manufacturability on site -- in factory and transportation. We are evolving very well from the Italian standpoint, we are in contact with the Italian regulator in order to get all the information on how to transport a fresh reactor vessel -- fresh nuclear reactor vessel where fresh means the fuel has not been used. And from a U.S. point of view, we are interacting with U.S. NRC in order to demonstrate that during the transportation and the rational side, our reactors still continue to be [indiscernible]. So this is to say that there is continuous discussion with U.S. NRC, there is a framework, a legal framework that exist. We are now trying to connect the dots and on those between the Italian regulator, the U.S. regulator, the Department of Transportation, which needs also to be involved. And all those parts have been already impacted, and we are also preparing a white paper on that, but this will have all most of the additional documents that we will submit to U.S. NRC. And this is not even connected with the construction permit itself. It's going more in the direction of the operating license. So we are talking even after September 2026. Operator: Our next question comes from the line of Craig Irwin with ROTH Capital Partners. Craig Irwin: So Alessandro, I was particularly interested in the discussion around the SOLO node, the fact that you haven't got the first of a kind yet. But right now, today, you're announcing basically a 20% lower CapEx or what I would assume is essentially a lower LCOE for 20-megawatt bites. And we get a lot of questions all the time about the long-term cost out profile, the ability to engineer lower costs for nuclear for the next couple of decades. Can you maybe give us a little bit more color on the portfolio of options you have to achieve similar cost out? A lot of people like to make comparisons back to the SOLO industry, where it's been basically 10% a year for the last many, many years. Do you see it as possible for the nuclear industry for Terra to have something similar as production ramps and deployments go global? Alessandro Petruzzi: I'm thinking that we can do better. In that presentation today, we didn't anticipate any reduction in the quantity, any reduction of cost. We were just saying that our $0.07 per kilowatt hour over 5 years is the cost related with the unique SOLO reactor with its own sub-plant. This means the reactor that is coming with the same generator, they have to buy their clear content. This was -- the idea to move to the concept of SOLO node was already part of our design. We just decided to announce today because we are moving quite fast in cooperation with one of the major worldwide buying manufacturing the work. So we had already meetings where we identified the possibility to develop this concept of SOLO node. And in SOLO node, this means we meant that we can have several reactors, nuclear reactors that are coupled with only on power conversion unit. And this is important because, obviously, it's going to decrease the complexity in the number of components, reducing the cost, even though this has not yet been identified and increase the efficiency. So the numbers that we see is there is 16 reactors. This means basically a reduction of 20% in terms of number of reactors. We can get 20 megawatts electric. The other point in the comparison about SOLO staying the other in the second slide that I mentioned today, the capability to do load follow. This is quite unique for the nuclear reactor. This is possible only because we are small, and this is possible because of the granulometry we can achieve with our solution. We can have several units to get 100 basically unique using the concept of SOLO node, maybe you may need 80. If you don't use maybe you need 100 reactors. But depending on that, the cons is that this granulometry give you the possibility to do not follow through the -- a different dispatch of electricity to the customer. So we are not changing the primary side and the reactor itself. The reactor continue to operate 100% power. The fuel stay well quite inside our reactor. But what we dispatch differently is the power. Why this is important? Because in this way, and I can come to point and the comparison with the SOLO, in this regard, our capability to follow the load is connected with the need to couple with SOLO at relatively smaller batteries, batteries that are at the least, we evaluate 10x smaller than what is needed for SOLO application. So the SOLO node concept and the capability to do a variable dispatch coupled with a very small amount of batteries give us a lot of confidence that SOLO can really be positioned for compete against whatever type of source of energy. And again, we mentioned -- we say that our price is such that we have $0.07 per kilowatt hour. And definitely, whenever you put together the SOLO node and this concept of long follow there might be additional savings. Craig Irwin: Understood. That makes a lot of sense. My follow-up question is around NRC's Part 57, right? With the public comment this spring, and the expected formalized rule later on this year, do you see the Part 57 language as potentially having an impact on overall development costs or timeline for development of your system? I know that the safety requirements and engineering requirements are not necessarily going to change, but you use an already existing supply chain where many of these components and features have been qualified already. Is there a possibility that you have maybe an expedited review of different subcomponents and system features? Alessandro Petruzzi: This is a very important question. And Part 57 will be alluded on, I think, 24th of April, so in a few days. What we have already discussed part of it with U.S. NRC, obviously, we don't have access to the full document, but we may know some of the aspects. And what I can say is that it looks like Part 57 was big for SOLO. But actually, I would say that SOLO fits very well with this approach now that the U.S. NRC is taking and considering for macro reactors. I can mention to you 3 topics for which we think we can get the benefit from Part 57 for the commercialization. And this to say also that Part 57 will not affect the first of it kind. For first of it kind, we will continue to follow Part 50. So Part 57 is for the commercialization. And why is it important? Several aspects, but I would list 3. No need for operators so far with Part 50, you need at least 5 operators on site. Multiunit license is very important, in particular from macro reactors that tend to be commercial only if there are more units, obviously. And Part 50 actually you have to do the licensing every time. Part 57 this concept of multiunit licensing. And last, but maybe the most important, Part 57 represent a sort of accelerate of Part 50. In particular, in the case, you licensed the reactor under Part 50, which is identical to the one that you would like to do in Part 57, which is commercial. And this is exactly our case. We are licensing reactor, the first of a kind in Part 50, which is identical to the one that we will do commercial following Part 57. And this will provide based on our understanding with U.S. NRC, a lot of simplification in the process and so a faster time to license the commercial units. Operator: Our next question comes from the line of Ryan Pfingst with B. Riley Securities. Ryan Pfingst: I'll just ask one on the commercial side. Can you discuss potential customer order conversion? Do you think customers will wait for the FOAK to deploy before placing a firm order or could we see those actually come ahead of first deployment? Alessandro Petruzzi: I'll start and then I will leave to Giordano. We are doing our best interacts daily with all possible customers. We had a nice discussion I can mention a couple of weeks ago, for instance, with a company that was present in several European airports also the energy demand is fundamental and is going to increase in the next years. We are doing the simple money. We are doing the same for industry, which are smaller, but they need still a lot of power, if you put all together, like the segments like the [ blast ] industry. So we are doing our best in addition to obviously more -- more today important industry like the data center. We are putting all our efforts to transform close discussion in orders. Obviously, we needed to provide the potential customer, the validation of our technology. And what we think is that -- what we are doing now with the regulators. What we are doing now with the supply chain is something that is very, very important. The supply chain the fact that we build this [indiscernible] on graphite give also a sense of agility of the projects. So it's not a paper work. It's really a project. So what I'm saying is that I'm expecting that in the next few months, when additional outcome in terms of advancing the supply chain will be available, and we can announce. This will give also a lot of confidence to our potential offtakers to transform the interest in real order. Giordano Morichi: What I can add maybe in terms of basis exactly -- I mean what is said is exactly important, and we're taking the approach on commercialization very even if being a methodological way. So when we're considering the offtake agreements, the one that we have, the one that we're exploring, we're getting to the doing really right. We're looking for how do we deploy it the merger of the technologies, how they work. So we're going on hand to discuss the technicalities first and the business operation coming from technicalities. But the most important thing is as we're developing first of a kind, the supply chain is there, we just produced Mersen prototype, the world is realizing a little and steady that as we're doing the licensing and we're executing on the manufacturing, we're shifting to the commercialization, and we're planning to have this order book in the next few months because that will really ramp up the end of the kind. But the conversation has been positive and that they continues, and there's been a lot of back-end work that is not announceable yet, but it's been present, and it takes many hours over weeks to do these technicalities and establish the commercialization strategy for potentially even higher deployments of what we discussed today. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Petruzzi for any final comments. Alessandro Petruzzi: Okay. I would like really to thank you, everybody for attending this call. We would like to keep informed all our investments, all our offtakers. So we encourage again you to follow us on our social and in particular to follow the updates that are regularly occurring on the website of U.S. NRC, which I think is the most tangible demonstration of where we are going. So thank you again to stay with us and look forward to meet you soon again. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Great Southern Bancorp's First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, [ Christina Maldonado ]. Please go ahead. Unknown Attendee: Good afternoon, and thank you for joining Great Southern Bancorp's First Quarter 2026 Earnings Call. Today, we'll be discussing the company's results for the quarter ended March 31, 2026. Before we begin, I'd like to remind everyone that during the call, forward-looking statements may be made regarding the company's future events and financial performance. These statements are subject to various factors that could cause actual results to differ materially from those anticipated or projected. For a list of these factors, please refer to the forward-looking statements disclosure in the first quarter earnings release and other public filings. Joining me today are President and CEO, Joe Turner; and Chief Financial Officer, Rex Copeland. I'll now turn the call over to Joe. Joseph Turner: Okay. Thanks, Christina, and good afternoon to everyone on the call. We appreciate you joining us today. Our first quarter 2026 results reflect a solid start to the year in a continuing competitive operating environment. Both credit and earnings metrics remain strong, allowing for continued progress in our pursuit of meaningful per share tangible book value growth. This progress was underpinned by disciplined expense management, careful balance sheet structuring and a continued emphasis on relationship-based banking. In the first quarter of 2026, we reported net income of $17.5 million or $1.58 per diluted common share compared to $17.2 million or $1.47 per share in the year ago quarter. Compared to the fourth quarter of 2025, net income was up from $16.3 million or $1.45 per diluted share. Overall, results for the quarter reflected a resilient net interest margin, prudent asset liability management, thoughtful capital allocation and stable loan balances. Net interest income totaled $48.3 million for the quarter. That was down about $1 million from the first quarter of '25, primarily as a result of the absence of the income from our now terminated interest rate swap. That was, I think, about $2 million in Q1 of '25. Despite this lost income, our ability to strategically manage funding costs while maintaining attractive asset yields allowed for strong net interest income for the quarter. Additionally, we benefited from the collection of $483,000 in unbooked interest this quarter, which further supported our net interest income. Our annualized margin was 3.71% compared to 3.57% in 2025 first quarter and 3.70% in the fourth quarter of '25. And I think the -- if you pulled out the $483,000 of somewhat unusual interest income that might have knocked 3 or 4 basis points of the margin number. Total loans increased almost $100 million during the quarter. Loan growth was primarily in construction, commercial real estate lending, though that growth was partially offset by a decline in the multifamily category. While this balance sheet growth supported earnings in the quarter, period-to-period loan trends are influenced significantly by loan repayments from our borrowers. In the first quarter of '26, our loan repayments were less than our quarterly average during the -- during 2025 and definitely during the last half of 2025. As such, we remain committed to measured loan origination and disciplined underwriting. From a credit standpoint, we remain mindful of the volatility and the macroeconomic challenges affecting our borrowers. Asset quality metrics in the first quarter of '26 remain very strong for our bank with nonperforming assets to total assets of 0.18% with virtually no charge-offs. But we continue to monitor isolated examples of slower lease ups on projects, along with broader credit concerns as markets remain volatile. We did not record a provision for credit losses on outstanding loans in the first quarter of '26. Given lower unfunded balances and mix changes in the first quarter of '26, we did recognize a negative provision on unfunded commitments of $931,000. On the funding side, total deposits remained generally stable throughout the first quarter of '26. Non-broker deposits were down just $26 million from the start of the quarter and broker deposits were down about $11 million as we use FHLB borrowings to replace certain maturing balances. We saw normal movement across deposit categories. Deposit markets remain competitive across both core and broker channels and we continue to manage our funding mix with a focus on cost, duration and flexibility. Expense management remains a top priority for the bank as well. Noninterest expense for the quarter was $34.8 million, down $30,000 from the first quarter of '25. Part of this decline is related to an insurance reimbursement of $261,000 in legal fees recovered through a loan foreclosure in the quarter. Additionally, several projects that would have increased hardware and software systems costs expected in the first quarter of '26 have been pushed to later in the year. We continue to invest in systems, infrastructure and personnel to support the franchise over the long term. As we move through the balance of '26, we remain focused on maintaining strong credit quality, preserving net interest margin, managing expenses carefully and continuing to build long-term value for our stockholders through thoughtful capital deployment. With that, I'll turn the call over to Rex for a more detailed discussion of the financials. Rex Copeland: Thank you, Joe, and good afternoon, everyone. I'll now provide a little more detail on our first quarter 2026 financial performance and how it compares to both the prior year and the previously linked quarters. For the quarter ended March 31, 2026, we reported net income of $17.5 million or $1.58 per diluted common share compared to $17.2 million or $1.47 per diluted common share in the first quarter of 2025 and compared to $16.3 million or $1.45 per diluted common share in the fourth quarter of 2025. We did have a few income and expense items that impacted our results in a positive manner in the quarter. I'll mention some of those throughout this discussion. Net interest income for the quarter totaled $48.3 million compared to $49.3 million in the first quarter of 2025 and $49.2 million in the fourth quarter of 2025. Compared to the first quarter of 2025, net interest income decreased by about $1 million, as we mentioned, or approximately 2%. And as we said, that decrease was driven primarily by the reduction in quarterly interest income associated with the previously terminated interest rate swap, which ended in October of 2025. Additionally, compared to the prior year quarter, interest income declined due to lower loan balances and lower market rates which primarily impacted variable rate loans and some newer fixed rate loan originations. Those items were mostly offset by lower interest expense on deposit accounts and borrowings due to disciplined funding cost management and the ongoing repricing of deposits and other liabilities. In addition, there was no interest expense on subordinated notes in the quarter ended March 31, 2026 since those notes were redeemed in June of 2025. As Joe mentioned, we have recorded approximately $483,000 of additional interest income related to collection of unbooked interest on 3 separate relationships, 2 of these relationships have recently provided interest payments on a semiannual basis, though we do not have assurance of future payments or amounts going forward. I'll note that we did record additional interest income totaling $744,000 in the first quarter of 2025 on similar circumstances as those in this quarter. These types of cash basis interest recoveries can occur sporadically. Our effective loan pricing and disciplined focus on interest expense resulted in annualized net interest margin for the first quarter of '26 of 3.71% compared to 3.57% in the first quarter of 2025 and 3.70% in the fourth quarter of 2025. Noninterest income for the quarter was $7.0 million compared to $6.6 million in the first quarter of 2025. The increase of $439,000 was driven primarily by stronger commissions from annuity sales. We also benefited from other income in the quarter, $421,000 of which was related to a fee on a newly originated loan with an interest rate swap as part of the transaction and unrelated an exit of a tax credit limited partnership. Those types of fees and payments occur sporadically as part of our operations. Total interest expense for the quarter was $34.8 million, a decrease of approximately $30,000 compared to the first quarter of 2025. As mentioned, part of this decrease related to the reimbursement in legal fees. Further, we noted several projects that were deferred in the quarter due to scheduling limitations, so we expect additional expense will come online in future quarters, and we expect these projects to begin throughout the remainder of 2026. Our regular reimbursement related to qualifying expenses under our debit card program was also recognized in the first quarter, reducing noninterest expense by $453,000. Given our continued investment in upgrades of long-term capabilities and the expense reimbursement as noted above, we do expect noninterest expense levels will increase a bit throughout the year. Our efficiency ratio for the quarter ended March 31, 2026, was 62.85% compared to 62.27% for the same quarter in 2025. The company's ratio of noninterest expense to average assets was 2.47% for the 3 months ended March 31, 2026, compared to 2.34% for the 3 months ended March 31, 2025. Turning to the balance sheet. Total assets ended the quarter at approximately $5.69 billion compared to $5.60 billion at December 31, 2025. Total net loans, excluding mortgage loans held for sale, increased approximately $99.8 million or 2.3% from $4.36 billion at December 31, '25 to $4.46 billion at March 31, 2026. The increase in loans, as mentioned, was driven primarily by increases in construction loans and commercial real estate loans and partially offset by a decrease in multifamily loans. The overall increase in our loan portfolio balance is primarily a reflection of lighter loan repayments in the 2026 first quarter. Had loan payoffs remain consistent with levels in the second half of 2025, our loan balances would likely have ended up $100 million or more lower. Given the continued uncertainty with loan payoffs, we remain committed to measured loan originations with disciplined underwriting. On the funding side, total deposits ended the quarter at approximately $4.45 billion, a decrease of approximately $37.6 million from December 31, 2025. Noninterest and interest-bearing checking combined decreased $9 million in the quarter. Retail time deposits decreased $17 million and brokered deposits decreased $11 million. Though deposit competition remains strong our deposit balances have continued to stabilize throughout the last several quarters. As of March 31, 2026, we estimated an uninsured deposits, excluding deposit accounts of the company's consolidated subsidiaries were approximately $740 million or 16.7% of total deposits. From an asset quality perspective, the bank's credit metrics remain excellent. Nonperforming assets and potential problem loans totaled approximately $11.3 million at March 31, 2026, an increase of about $1.8 million from $9.5 million at December 31, 2025. At March 31, 2026, nonperforming assets were approximately $10.1 million or roughly 0.18% of total assets compared to $8.1 million or 0.15% of total assets at December 31, 2025. During the 3 months ended March 31, 2026 and 2025, the company did not record a provision expense on its portfolio of outstanding loans. Total net recoveries were approximately $13,000 for the 3 months ended March 31, 2026, compared to total net charge-offs of $56,000 during the same period in 2025. Additionally, for the quarter ended March 31, 2026, the company recorded a negative provision on unfunded commitments of approximately $931,000 compared to a negative provision of unfunded commitments of $348,000 for the first quarter of 2025. This negative provision on unfunded commitments resulted from the decline in unfunded commitments, primarily in unfunded construction balances. Our capital position remained a key strength in the quarter. Total stockholders' equity at March 31, 2026, was approximately $633.6 million, representing 11.1% of total assets and a book value of approximately of $58.27 per common share. This compares to total stockholders' equity of $636.1 million or 11.4% of total assets and a book value of $57.50 per common share at December 31, 2025. The slight decrease in stockholders' equity in the quarter was driven by $16.9 million in common stock repurchases, $4.7 million in cash dividends declared and a $2.9 million increase in unrealized losses on investments and interest rate swaps, partially offset by $17.5 million in net income and $4.6 million in increased capital due to stock option exercises. During the 3 months ended March 31, 2026, the company repurchased 268,664 shares of its common stock at an average price of approximately $62.55 per share and the company's Board of Directors declared a regular quarterly cash dividend of $0.43 per common share. Also during the first quarter, the company experienced stock option exercises of just over 80,000 shares at an average price of approximately $50.90 per share. As of March 31, 2026, approximately 419,000 shares remained available under the current repurchase authorization and our outstanding shares were approximately 10,874,000 shares at the end of March. Overall, our balance sheet remains well positioned for sustained success driven by strong capital levels, ample liquidity, solid credit fundamentals and a balanced earning asset and funding profile. That concludes my remarks. We are now ready to take your questions. Operator: [Operator Instructions] And our first question comes from the line of Damon DelMonte of KBW. Damon Del Monte: First question on expenses and kind of the outlook from this point going forward. I know you guys noted that there are some projects that will be underway shortly and continue throughout the year. Could you give a little bit of guidance as to maybe help us quantify what that expense rate would be going forward? Rex Copeland: Well, first, obviously, the items that we called out in the first quarter, the couple of different things that reduced our expenses, we don't anticipate those are going to repeat in Q2. And then it's just going to be a matter of how quickly some of these projects get going throughout the rest of the year. So I don't really have a great firm answer for you on that. I mean it's not going to be huge amounts of money, I don't think in any given quarter, but it's going to build on itself probably over the course of the year a little bit. Joseph Turner: Yes. I think that's right. Damon Del Monte: Can you give a little color on some of the projects? Joseph Turner: I think in total, we're primarily talking about IT projects and they involve data security. They involve some customer-facing technologies. There's some substantial upgrade in our systems that we're investing in and so I think when it's all fully baked in. And as Rex said, we're not sure exactly when that will be, but that will probably happen over the next 3 to 6 quarters, I think it's going to -- I think it could add $200,000 to $250,000 a month to our expense levels. Damon Del Monte: Got it. Okay. Okay. That's helpful. All right. And then I guess with regards to the margin, obviously, I think you quantified 3 or 4 basis point impact from the interest payments this quarter. But as we kind of think about the core margin going forward, if we do see one rate cut later in the year, could you just kind of remind us how you're positioned for the coming quarters? Rex Copeland: Yes. I mean we're pretty balanced, we think, on that. If there's a rate cut down the road of 25 basis points in the near term, it shouldn't be that impactful. It might be a bit impactful for a couple of months or something if we have some of our variable rate loans that were repriced down, most of our liability funding is pretty short. So we've got a lot of overnight advances from the home loan bank. Other items, we got interest rate swaps that would presumably come down in that case too. So we've got a lot of things on the liability side that are fairly short and would reprice pretty quickly. So we don't really anticipate that is going to -- would negatively impact us very much or for very long. So I think we're pretty well matched. If rates stay where they are, we don't anticipate there will be a lot of movement in our net interest margin. And even if they only move by 25 basis points up or down, probably isn't going to move the needle too much on that even. Damon Del Monte: Okay. Great. If I could squeeze one more in on loan growth. You highlighted that the paydowns were slower this quarter. Any visibility into expected pace of pay downs as we progress through the year? Do you have a little bit more optimism that you could kind of get a little bit more consistent with positive growth versus kind of the trends we've seen recently? Joseph Turner: It's just -- this is one of the reasons, Damon, that we don't give guidance is just very difficult to predict. The -- as Rex alluded to, our levels of prepayments, which is really what moves the needle for us. They were probably, I don't know, $180 million less than the first quarter of '26 than they averaged in the last half of '25. So that's a pretty significant number. And so you have to ask yourself, okay, is there may be a reason? Is it a less favorable refinancing market? Maybe so, but we're just not comfortable. It's -- it's too volatile to really give guidance, and that's why we choose not to. Operator: Our next question comes from the line of John Rodis of Brean Capital. John Rodis: Joe, I think you -- I just want to make sure I heard you correctly on expenses. You said IT could add roughly $200,000 to $250,000 a month. Is that right? Or was it a month or a quarter? Joseph Turner: No, that was right. That's right. John Rodis: A month? Joseph Turner: Yes. Yes. Rex Copeland: Not necessarily immediately, but over... Joseph Turner: Not necessarily. I mean, when it's all -- when all these projects are fully operational, which I think will happen over the next 3 to 6 quarters. John Rodis: Okay. Okay. Okay. So I mean, I guess, just back to expenses real quick. I mean when you back out the 2 reimbursements in the quarter, that gets you to like $35.5 million. So it sounds like you're sort of moving closer to that $36 million level, give or take, on a quarterly basis. Am I thinking about that right? Joseph Turner: I think you are, yes. John Rodis: Okay. Okay. Joe, just on the buyback, you've got, what, give or take, 400,000 shares remaining. The stock's moved up a little bit versus your average in the quarter. Are you still a buyer at the current levels? Joseph Turner: I mean I don't want to like exactly say what we would pay or whatever. But I mean, we do still think our stock at an attractive level whatever measurement you choose to sort of value it at. If it's -- if you're looking at tangible book value earn back or whatever, yes, I mean we still think it makes sense. Rex Copeland: And we look at it kind of in a total package to our total capital. We got to factor in if we have continued loan growth and things of that nature. So all those things play into making our determination from time to time whether we'll buy our stock back more aggressively or less aggressively that kind of thing. Joseph Turner: Right, yes. John Rodis: Within fee income, the commissions number, you talked about higher annuity sales, is that something that you think is going to continue? Or sort of what happened this quarter to make them higher? Rex Copeland: They've been higher now for maybe 2, 3, 4 quarters than they typically have run. I don't know if there's anything in particular that's driving it necessarily. I think we've just got some of our customers are interested in that product. And we've got some folks that are well trained in it. And so it may continue on. It's just hard to know for sure if that's going to be something that people will continue to be interested in over the long haul. But I think in the near term, at least, I don't know that it's going to be all that different. Joseph Turner: Yes. It's sort of an alternative to CDs. So it has something to do with interest rates and the -- what interest rates are on comparable CDs versus what they can get on the annuity product. John Rodis: Okay. Rex, just on the balance sheet, the securities portfolio was down a little bit. Would you expect the securities portfolio to sort of be flat to down a little bit going forward, sort of stable? Rex Copeland: Yes, I think it will go down kind of slowly. I mean we've got a lot of products in there that has monthly payments. But they're not like large amounts in total compared to the whole portfolio. So I think for the near term in the next couple of years, unless rates went down substantially, we probably aren't going to see a huge amount of runoff in that portfolio. We do have some things that 3 to 5 years out, probably have some maturities in there and some things that will start to ramp that up a little bit more. But -- but in the near term, I don't think there's going to be a lot of change in the portfolio, probably not much in the way of added to the portfolio. And as far as the payments go, I mean, you're not looking at a big percentage of the portfolio running off in the next couple of quarters here. John Rodis: Okay. And Joe, just one more question, sort of big picture. I think in the press release, you -- you talked about, I guess, moving one location here in St. Louis or to an updated location. Are there any other plans throughout the footprint for new locations or maybe to close some locations or anything like that you're contemplating right now? Joseph Turner: That's something we're always doing, John. We're always looking at customer patterns and usage levels of banking centers, and we got to make sure that every dollar we have deployed is being best utilized. And so -- and the banking centers are -- they're our best delivery channel, but they're also our most expensive delivery channel. So we have to make sure that every dollar we're spending there is wisely spent. So that's something that we're always looking at. Rex Copeland: And looking at some technology as well. So the one location in St. Louis, we were talking about the traffic pattern and everything there and the usage of the location. There's still some folks that will use it, we think. And so we're going to have ITMs there on site, and we've done that in a couple of other locations as well. So we're going to continue to be able to serve our customers with an interactive experience there. There just won't be an inside lobby present. Operator: Thank you. I'm showing no further questions at this time. I'll now turn it back to Joe Turner for closing remarks. Joseph Turner: All right. Thanks again, everybody, for joining us today, and we look forward to talking to you after this -- after our second quarter earnings come out. Thank you. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Good day, everyone, and welcome to today's Greystone Logistics Q3 Results Conference Call. [Operator Instructions] Please note, this call is being recorded, and I'll be standing by for assistance. Now I'll turn the call over to your host, Brendan Hopkins. Please go ahead. Brendan Hopkins: Thank you, and thank you, everyone, for joining us today. We have a brief safe harbor, and then we'll get going. So except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. With that said, I would like to turn the call over to Warren Kruger, CEO of Greystone Logistics. Warren Kruger: Thank you, Brendan. I appreciate it. And thanks, everyone, for joining the call today. I wanted to just kind of get down to the nuts and bolts and the reality of it, again, to reiterate from a 30,000-foot level what's transpired in the last 6 months. Our biggest customer for the last 11 years, in November, called and just said, "Today is our last day." And they had tried to sell 3 times -- we went over this last call, but I'm just kind of reiterating where we were, and they apparently have decided to not go in a growth mode, but just kind of stay stable mode. And that world of leasing pallets is a world I like and we are actively -- it's given us actually a starting point to really take advantage of that. Because we couldn't be in that world since we were supplying them, and now that we're not in that world, we're in a better place to provide those services. So let me talk about a few things, the income for the last 3 months, the balance sheet. It affected us greatly. Generally, our December, January months are very slow months regardless, and then February being a slow month, it was a slow month. But the good news is for this quarter, we've got a rhythm down, we've got a lot of new customers that -- new customers and existing customers that are continuing to work. We've also, in years past, some of those longtime shareholders will remember, we used to buy resin and grind it and bead it and sell it, and we got out of that world because we were doing so much for our customers. Well, the good news is we're doing about $150,000 a month in revenue there: grinding, granulating and pelletizing on a contract basis. And it's a beautiful thing because we have the equipment, so we don't have to go out and acquiring equipment. It's just something we do and have done for years. So it's just a great way to generate additional income for Greystone while we wait on some of the big opportunities. We have had Walmart, has been over the last 5 or 6 years. We've done $50 million or so in revenue with them. We, over the last 90 days, I think we've got 80 truckloads of orders from Walmart. We are working with them, as I've mentioned in the past, on a tracking and tracing pilot program where we put cellular devices inside the units. And we can tell them where those units are every single day. We can tell them the temperature. We can tell them if they've been dropped, if there's been an ajar to the unit. So there's a lot of data we can provide that. We've been doing that at a Walmart distribution center in the Midwest. And it is something that we're excited about, and we anticipate that we will be doing some more of that in the future. In anticipation of that, last year before iGPS left us, I did acquire quite a few, probably around -- let me -- 38,000 cellular devices. So the cellular devices are for track and trace. They have a 7-year life once they start to be utilized. And so we're prepared for someone who has an opportunity for us to be in the pooling business for up to 38,000 units at this particular moment. And for us to get those new cellular devices, it doesn't take much time and it's a beautiful thing. There's also some Bluetooth technology that's allowing tracking and tracing, leveraging Apple phones. If there's an Apple phone within the vicinity of a tagged unit, they can track and trace that unit just off existing iPhones that are in the facility. So a lot of new exciting technology going on and we are excited about that. During the last quarter, we've been working diligently on our sales side. Ron Schelhaas, who's worked with me for many, many years, Ron's out there and has done a fabulous job with Walmart and has a lot of great opportunities working. Gary Morris, who has been in the industry for over 25 years, Gary has some wonderful things. We have a big opportunity with the company for 90,000 pallets to be managed. So we -- even this week, they talked about if there are broken pallets, if they lease them, they understood. But if they bought the units, how much credit would they get if we bought them back. So we've got exciting things happening on the sales front. In terms of just the operational, where we are money-wise, we have contracted to sell a piece of property we bought, for $1.675 million, which will allow us to have some cash on hand for any shortfall we might have. I don't anticipate -- I think that cash flow wise, we're closing in on where we need to be just to get to a constant breakeven basis. Our bank has worked with us. IBC has been fabulous. They are -- we've gone to an interest-only. Going into this quarter, they were renewing -- we are renewing our line of credit. And we also had a -- we were out of covenant on a few things. So they're working on that. So we will get those all resolved in the next 30 days. We have a great relationship with them. They know what our business plan is. They see it. They understand we've been doing this for 23 years, and exogenous events do occur in business, and this is one, that we have to -- that we are dealing with. And I'm proud of our staff for doing so. As I mentioned in the last call, last quarterly call, we laid off 140 people. That really hurts me as a person because that's hard. But we had to do the right thing. We've hired some of those people back and so that's nice to be able to do that. And so we've stabilized and we feel very comfortable with that. On one of our pieces of equipment down in Palmyra, Missouri, which is a brand-new machine, we've been outsourcing 1 of those machines for the manufacturing under contract for some garbage cans for someone else, again, just generating revenue to help our cash flows. So I feel very excited about where we're going. It's almost like we're back in time. But going back in time, I didn't have 3,300-ton machines ready to go. And that's where we are right now. We are -- we have the equipment. Our standard business is kind of Steady Eddie. Our nestable business is Steady Eddie. We have tested our Yuengling keg pallet at Yuengling Brewery. They liked it, it worked very, very well. We're just waiting on our first order from them. That same standup keg pallet is something that Budweiser uses. We're working with a group to get in the Budweiser system to show them our recycled plastic standup keg pallet to replace wood. We have also continued to -- we have one other product. It's a mold. We're not making capital expenditures -- we were limiting our capital expenditures. But we did find a great opportunity on a 1-piece sanitized 48X40 pallet that 1 of our customers needed. So we'll be able to acquire that mold probably around 1/3 of the cost that it would if we built it. So I'm excited about that, and that we also have a customer that will immediately take pallets from that. So I know that there's a lot of questions out there. I've kind of gone at 30,000 feet, tried to just give you the basics of where we are. But we have the infrastructure, we have the machinery, we have the tooling and we have great opportunities in the marketplace. Now we just have to bring those to -- bring those home. And that's my job, is to bring them home. And I've done this before, so we're going to do it again. So at this time, I'd be happy to entertain calls from -- or questions from anyone. Operator: [Operator Instructions] Our first question today comes from Eric Nickerson. Eric Nickerson: Just one quick one. What did you have to give up to the bank to get them to loosen their terms to interest-only? Warren Kruger: Nothing. It's a beautiful thing, we have a great relationship with them, we had a great relationship. We've paid them a lot of money over the years and never missed a beat. And immediately when iGPS canceled, the first thing I did was pick up the phone and call our officer and just say, hey, here's where we are. I want to go to interest-only. They understood and really didn't have to do anything. They just said "Fine. We'll take it before the committee." And they took it before a committee and we went to interest-only for a year. So really didn't have to give up anything, just -- they just -- they know that we're going to make it happen. Operator: [Operator Instructions] And we have no further questions at this time, Warren. Back over to you for any additional or closing comments. Warren Kruger: Well, I do want to say, it's funny how business is. And during the last multiple years when we had $10 million, $11 million, $12 million EBITDA every year, we were buying equipment, paying down debt, buying equipment, paying down debt. Last year we felt really good about where we were. We were -- we anticipated moving up to the NASDAQ. We paid off $5 million in preferred stock. We paid -- we bought $1 million worth of shares back -- common shares back. We bought the building that I mentioned earlier for $1.675 million. We did a lot of -- we bought 2 new pieces of equipment because of -- and that took a couple of years by the time we got the machinery and got them installed in Missouri. All those things add up, and you never anticipate really horrific events. You could talk about the what-ifs. But we've done those things and that what it did for us is that it gave us a new equipment and it gave us a new opportunity. The $5 million saved us about $350,000 a year in interest that we were paying for that $5 million. So there's some really good things that came from that, but that's also, we've got a little over $9.5 million in debt. And it's not substantial. I feel comfortable about our cash position. I feel comfortable about where we are. Boy, there's people in our company who really care. And that's what you want. And I have seen what's happened with our shares. And I hold probably, I don't know, 9 million shares myself. So believe me, I want nothing more for us than to do good things for the shareholders, which it raises all -- a rising tide raises all boats. And so that's our goal and that's where we're headed. I don't have anything else at this time, unless we have some further questions. Operator: And we do have a question queued up from Adam Posner. Adam Posner: Warren, a quick question around the resin pelletizing sort of business source of revenue. Do you see this as something that could expand beyond current levels as needed? Or what's sort of the overall, like, revenue opportunity here? Warren Kruger: Well, there most certainly is more opportunity on that side. It is not a focus -- it was not a focus of ours at all until about 90 days ago, we said, let's start utilizing. We have -- we're currently working on a project, it's 13 million pounds of ABS trays that need to be ground and another 6 million to 7 million of high molecular weight that we're grinding under contract. And then we actually, after we grind it, we get paid for taking apart these bins and we get paid for grinding -- granulating them. But then we get paid for beading them, putting them in pelletized form. We do have 4 pelletizing units. I mean our operation is pretty strong on the recycling side. So we have capacity to do more beading. The grinding and granulating, we continue to do that. So we have customers like a Molson Coors who may break a pallet, we buy those things back. And we will grind and granulate those, take the fiberglass rods out and reuse the fiberglass rods and reuse the material. And we -- so to answer your question specifically, we will, if we can continue to add to that and do some contract work for beading and/or grinding, we will do so. Adam Posner: Makes sense. Warren Kruger: And I do want to mention that Adaptive Pallet Solutions, we have done some -- we're doing some wonderful things with them. This whole leasing world is really in their hands. Besides the Walmart opportunity, they are out there and have some really great opportunities. And we look forward to the future of leasing out there in the world of our company. Operator: John Brandenburg has the next question. John Brandenburg: Warren, it seems there's such a disparity between book value and where the stock is. Is there any -- I guess, a couple of questions. Number one, is there any -- are you restricted by your bank in terms of buying any shares back? Number one. Number two, I can't remember, I know you have the million -- you bought $1 million. Can you maybe be more specific about when that $1 million was bought back? And then additionally, the new -- you're all -- you're ready, you've got the equipment, you've got the business cycle. I think once we get through some of this geopolitical stuff that is obviously hampering the business cycle in this country, there's no doubt that you're well positioned. But is that -- that business that you're looking at, without giving up any proprietary information, I assume, is that business going to be more on the leasing side? So those are some of the questions that I have. Warren Kruger: I think some of our new growth is going to -- like I mentioned earlier, iGPS leaving gave us an opportunity to be in that world. And that world is a -- what we want to be in specifically. We've been dealing with Walmart for many, many years, and we believe that pallets as a service is, we believe, that that, on an ongoing basis, it's great to sell pallets, but if we can provide a service for them, and not only provide the pallets but provide them information as to where they are. And if they're damaged, they don't have to worry about them, we take them back and we recycle them and put them back in the system. So they never have to worry about it. Because I will tell you that it's something I've been doing for 25 years, and it's reality. Wood pallets in a warehouse, in a Walmart system -- I just heard from, through Ron Schelhaas, I just heard from a Walmart distribution center about how much money they spend on tires and their fork equipment, [ fork ton ] equipment, from damage due to wood and so forth out there, it's just incredible. And it's -- we've been doing this for 25 years and it continues to evolve, but I think that with Walmart going to automation in all its distribution centers, the equipment demands that you have a better product in there. And we think that that bodes well for our future. And so back to your original question about the $1 million, that was all over $1 -- all over $1 that we purchased that back. And if we could -- if we had a crystal ball back then, it wouldn't have been a -- I thought it was a great bargain back then buying at $1 getting the shares back in. So we are not -- we are restricted from the bank. We can't utilize any of our cash to buy corporately. That doesn't mean that -- you might see some other purchases in the market in the future from others within our organization. Does that -- did I kind of cover it, John, your questions? I think that's it. Any other questions? Operator: Yes, we have one more from Sean Marconi. Sean Marconi: Sorry, I logged in about 9 minutes after the call started. When I logged in, you had mentioned that you guys had laid off 140 people? Warren Kruger: That's correct. Sean Marconi: When exactly did that occur? And maybe just get us up to speed, what exactly happened where the revenues declined as much as they did year-over-year? Warren Kruger: We lost a customer we had for 11 years that provided us about $30 million a year in revenue. And it was iGPS, which is a pallet leasing company. They buy our pallets and then they rent them to people like Procter & Gamble or whomever. And in the world, in the pallet world, you've got 3 big leasing companies. You've got CHEP, which is a blue -- you'll see blue wooden pallets out in the marketplace. You've got PECO, which is a red pallet that you'll see in the marketplace, or if you go to Costco, you'll see blue and red pallets in there. And then you have iGPS, which is a plastic pallet pool -- pallet leasing pool. And they bought, well, over the years, we had as many as 1.2 million 1 year, but generally, they bought about 750,000 pallets from us a year. They're owned by a private equity firm. That private equity firm has gone to try to sell it 3 times over the last 11 years. And I don't know if there's a continuation fund that owns it now. I'm just a little unclear on that. But I think in not selling, I think they decided that they were just going to go in a nongrowth mode and just replace the pallets that are broken with their own manufacturing operation, which precluded us from bringing new pallets into their system. So their growth has curtailed. And what I had mentioned, Sean, is that we didn't go out in the marketplace and attempt to be in that leasing world. And now we are out there knocking on doors, doing the same thing for ourselves, particularly in closed-loop pools. We don't want to compete against CHEP or PECO or iGPS out in the open pallet world where you have pallets going in in California and ending up in New York. That's not our world. Ours are from a manufacturing operation to a retail store and back to the manufacturing operation, that type of a thing. So that's what happened. And it happened overnight. And it was it. Most certainly, you can see it affected our revenue, it affected our earnings. And my job as CEO is to replace revenue. I can tell you the facts on what happened, but now I've got to bring new revenue to the table. And we've got a wonderful infrastructure, as I mentioned. But now is the time to add incremental revenue and add it on top, and we've got plenty of room to do so. Operator: And we have a question from Luke Wheatley. Luke Wheatley: So a quick question for you. I appreciate all the detail that you've given today. Looking back, it just seems like maybe the plant addition and then some of the buybacks kind of happened at a bad time. You've got a lot of debt that's due in the next year and you kind of outlined this layoff plan. What are the internal cash flow projections that you and your team are discussing? Have you spoken to the bank about a possible refinance? Or how are you thinking about that? Warren Kruger: And just so you know, that, yes, everything shows as current, but that's not so. It's an interest-only. We are -- our bank has been very good about our financing. And it will be over -- the financing will be over time. It's not going to be all due within a year. It's just that before this quarter, we didn't get some of the things done we needed to have the bank do. So we have a great relationship with them. We won't have everything due within 1 year. So we're in good shape. Luke Wheatley: So that means you're in the process of refinancing or you've already refinanced... Warren Kruger: No. We are already -- I mean, we've got our working capital line, that's up for renewal. And so we've had those discussions already. That's being done. And then our debt, because we were out of covenant on a few things, it shows -- it made our auditors present all our debt as current. And again, I've had multiple discussions with the bank. This is long-term debt. And most certainly, a certain portion of it will be current, but it will not be what's on our balance sheet now. We won't have $9.5 million plus our working capital line due within 1 year. That won't occur. Luke Wheatley: Okay. So could you tell everyone on the call maybe what percentage will be due in the next year and then what percentage will be due and then when you think that will be due? Warren Kruger: Yes. I can tell you already that by year-end -- that it's interest only. So nothing will be due by -- until after calendar year-end. So nothing due in the next -- until December 31. And then we'll probably be on whatever the original am was, and I can't tell you what that was, whether it's 5 or 7 years. But that's -- probably will continue to be the case. So whatever will be am-ed in that first year, it will be due in that first year. Does that answer your question, Luke? Luke Wheatley: Yes. So essentially, you'll get a 5-year extension, is that how you're kind of thinking about it, at the end of the year? I'm just trying to wrap my head around -- it sounds like there's a disagreement with the auditors. I'm not trying to read too much into it, but... Warren Kruger: Well, I will say that the auditors are -- I mean, I'm not -- the auditors are -- we had this discussion. They said, "Hey, because you've breached the covenant, we have to put it all due." That's the auditors. We -- I can tell you personally, and I'll tell the world, that I've had discussions with our bank. It's an interest-only. We're in interest-only. They feel comfortable with that. They've seen our plan, what we're working on. We probably, we're at -- I don't know where we were last month, but our revenues were considerably up in the month of March and April, through the halfway point of the month, where I'm pretty pleased with where they are. And so what -- with our financial institution, they will -- they'll go back to our original am. And again, I wish I knew the note terms off the top of my head, I'm sorry that I don't remember if it was a -- what the amortization period was. I just don't remember. But it will go back to whatever the terms were at the time that we went to interest-only. So if it was a 5-year am or a 7-year am, that's where we'll go back to. Operator: We have no further questions, Warren. Back over to you. Warren Kruger: Okay. Well, I just want to tell everyone, thank you very much for being a shareholder. As I've said many times in the past, I've been doing this a long time. It is a work in process. And we are working every day hard for our shareholders and we have motivated employees and motivated staff and we have the best recycled plastic pallet in the world. And the world -- we'll continue to sell to this marketplace and we'll continue to get back where everyone, our shareholder base, will be happy. So thank you very much. Operator: That concludes our meeting today. You may now disconnect.
Jean Poitou: Hello. Good afternoon or good morning. Thanks for joining. Welcome to our first quarter results announcement session for 2026 at Ipsos. I'm Jean Laurent Poitou, the CEO of Ipsos, and I'm here with Olivier Champourlier, our Chief Financial Officer. What I'm going to be covering today are our results for the first quarter of 2026, an update on our strategy execution. Horizons is the name. You heard about it if you attended our January Capital Markets Day, and we talked about it a bit as we announced our full year results of 2025. I'll provide an update of where we are on the execution path. And then we will take a look at how we are considering the rest of 2026 with an outlook. But let me start with our first quarter 2026 results and our revenue, which stands at EUR 555 million. If we compare this with the same number a year ago, it's 2.4% less, which, in fact, if we didn't have a significant 5.4% negative currency impact would be a total growth of 3%. That total growth is broken down into 4.3% of impact of the acquisitions we made, particularly the BVA Family, minus the negative impact of having disposed of our Russian business or 80% of it as it happens. So it's not consolidated anymore. And then the organic growth is minus 1.4%, and the combination of all this is what drives the minus 2.4% total growth, but this is in the context of encouraging commercial momentum in Q1. I have had the opportunity to look at the order book for Q1 in many different dimensions, and I'll cover them in a second. Overall, our organic growth of our order book is 1% against the same quarter last year with an acceleration towards the latter part of the quarter in March, which means that the revenues for many of those orders, which happened late in the quarter will generate revenue further into 2026. Now as I look at the order book expansion, first by sector. One notable encouraging signal is the fact that our Public Affairs business, which we have had lackluster performance with in the years past and which dragged on our growth in '25 in particular, is back, rising demand, rising order intake. And I'll talk about it some more because it's so important. Solid traction with our consumer and packaged goods clients. They represent about 1/4 of our business. So it is very important for us that our computer -- our consumer and packaged goods clients, which are also the clients among which the AI solutions that we increasingly deploy in the market are resonating with most. If I look at this now by geography, our 4 largest market, North America, France, U.K. and China are driving our growth. And in particular, we have a very robust performance in China, which, as you may remember, has had some quarters of stability or a bit less. Now looking at it from the standpoint of our largest clients, the top 30 clients of Ipsos, the ones where we have dedicated client account leadership and campaigns. Those 30 drive our growth very significantly from a sales standpoint in Q1. So good performance across several dimensions of our business from a sales standpoint. Late in the quarter, this will translate gradually into revenue as also our strategy implementation accelerates and drives expanding order book through the quarter. So that's what I wanted to cover, generally speaking. Let me focus a little bit on Public Affairs because as you heard, we made among our strategic choices, one of them was to continue as a multi-specialist, in particular, continue to believe strongly in the power of having Public Affairs being the global player present in 66 markets serving public decision-makers, doing political polling and helping with policy assessment. That global footprint is one of our very, very differentiating assets as is the fact that we have our own proprietary panels, which serve us extremely well in the public sector. We also have the ability in many of our large markets and countries to do face-to-face interviews to knock on doors and ask real respondents about what their views are or what their voting intents are. And then finally, we have the ability to leverage some of the methodologies and some of the services that primarily have been borne out of our private sector business into Public Affairs, such as, for example, when we know how to interview and assess the engagement of employees in the private sector, we apply that in the public sector as well. So Public Affairs is back. We have won prominent government contracts across multiple geographies, which had struggled in quarters past, particularly in the U.S., but also in France and the U.K. So I have confidence that Public Affairs will be one of the drivers of our growth in 2026. Let me now hand it over to Olivier, who will comment on the numbers on a more detailed basis. Olivier Champourlier: Thank you, Jean-Laurent. Good afternoon, good morning, everyone. Let me go into the details of our Q1 revenue. As said by Jean-Laurent, the revenue was EUR 555 million in Q1, down 1.4% on an organic basis. There was a negative impact of currency of 540 basis points due to the appreciation of the euro against several currencies, in particular, the U.S. dollar, the pound sterling and APAC currencies. Acquisition net of disposals contributed positively to the growth in Q1 by 430 basis points, reflecting the impact of the 2025 acquisition, mostly the BVA Family that was acquired in June 2025, net of the disposal of our Russian operation in Q1 2026. As a reminder, Russia was accounting for around 2% of our total revenue. Factoring in those items, the total revenue was down 2.4% and excluding foreign exchange currency effect, it was up 3%. Moving on to the revenue by region. EMEA, our largest region, representing 52% of group revenue, delivered total growth of 5.3% on a reported basis, including 0.1% organic growth. The positive performance was mainly driven by the acquisition of the BVA Family because this business was mostly in France, U.K. and Italy, offset by the disposal of the Russian activities in Q1. In contrast, the Middle East, which represents around 3% of the total revenue of the group was impacted by the geopolitical situation in the region and posted an organic decline of its revenue of 4.4% in the first quarter 2026. In the Americas, which represents 1/3 of the total revenue in Q1, revenue declined by 4.1% on an organic basis. This is mainly driven by the U.S. However, commercial momentum has improved with a strong increase in the order intake at the end of the quarter in March, particularly. Several contract wins in Public Affairs sustained a recovery in the segment. As a result, the order book in the Americas was slightly positive at the end of March. In Asia Pacific now, the revenue was up 0.2% on an organic basis but declined by 6.3% on a reported basis due to the negative impact of many currencies in the region against the euro. The first quarter was encouraging with China returning to strong growth. We have indeed a strong momentum in China with large international local clients, especially in technology and automotive. China is one of the markets where we have seen a rapid adoption of our AI-driven offers. Let me now turn to the performance by Audience segment. Our Consumer segment revenue, which accounts for half of the revenue in the quarter posted a positive growth organically of 0.5%. We continue to see sustained demand from CPG clients for deeper understanding of consumer behavior in a volatile and rapidly changing environment. Our services in market positioning, innovation testing and brand health tracking are benefiting from this demand. This is also an area where our AI solutions and platform such as Ipsos Synthesio and Ipsos.Digital play a growing role in helping clients reacting faster and making better informed decision. The Clients and Employees Audience revenue was down 3.3%. This decline is mostly explained by timing effect in our Audience Measurement activities which will translate into positive growth over the coming quarters, thanks to a positive order book at the end of March. The Citizens segment now. The revenue, which include Public Affairs and Corporate Reputation, declined by 2.3% on an organic basis. As mentioned by Jean-Laurent previously, the first quarter marks an important turning point as we have seen the return of public sector orders in markets that had impacted our growth in the last few years, like the U.S. and France, where we see a rebound. During the quarter, we booked several significant multiyear contracts, which reinforce our confidence in the rebound of this activity later during the year. Finally, the Doctors and Patients Audience revenue was down 4.4% on an organic basis. This activity had a strong start of the year in 2025, where Q1 was plus 5.4%. So this, therefore, creates a tough comparison basis. In addition, we have experienced a slowdown at the start of this year in qualitative studies from the pharma industry clients, but we see an improvement trend based on our order book. Beyond those 4 Audiences, I would like also to underline the performance of our Do-It-Yourself platform, Ipsos.Digital, which recorded a double-digit growth in the first quarter of 2026. At the end of the first quarter, I would like to underline that our order book is growing by 1% and is in line with the historical pattern. More specifically, the order book at the end of March 2026 represents 55.6% of expected full year 2026 revenue at the end of the first quarter. Overall, this is consistent to the average of the last 4 years, where the total of the order book at the end of the first quarter was 55.5% of the full year revenue. Overall, this analysis supports our outlook for the remainder of the year. Turning now on profitability and cash generation. It's important to notice that our gross margin and our cash generation at the end of the first quarter are in line with our expectations. I will now hand over to Jean-Laurent, who will tell you more about how we have been able to execute our Horizons strategic plan. Jean Poitou: Thanks, Olivier. And before I provide some color on the outlook for the remainder of the year, let me say something about what's going to drive our growth for the remainder of the year and namely the switching to execution mode on the Horizons strategy, which we talked about back in January and which we highlighted the main components of during our Capital Markets Day. Those 6 items here are the 6 key strategic choices we made and the ones that we are starting to see bear fruits in our positive growth of the order intake in Q1, starting with the fact that we have confirmed our intent strategically to leverage our multi-specialist business offerings. I talked about what this means with the return and rebound of Public Affairs, but it is also very important to note that we are equipping our teams with a first set of 6 and more to come as those are successful, Globally Managed Services, powered by our Ipsos.Digital platform, systematically and consistently applied to services for each of them wherever the client we serve is based. Those GMSs led by Shaun Dix are already structured with representatives in the key markets where we have decided to grow them with specific accountabilities, budgets, the platforms are there. We are leveraging some of the past investments and adding more through the course of 2026. And then Ipsos.Digital, the platform, which is showing continued momentum in the market, led by Andrei Postoaca. The teams there have also been demultiplied by having specific leaders in our key markets to drive further growth of our digital platform, reinforced by the fact that it is the foundation on which many of our service line-specific, activity-specific AI solutions are based. Our global company with a local footprint, strategic choice starts to show us the first fruits of growth, particularly in the market you saw in China, where you saw Lifeng, our CEO there, in the Capital Markets Day, explain how he had already started to launch some of the initiatives, and that's what we are seeing translate into significant growth in that particular market. But also in the U.S., which is the other big market where we decided that we would have in addition to the core Horizons initiatives, some markets, particularly tech industry and technification specific initiatives in the U.S. Mary Ann Packo, our CEO; and Lindsay Franke, who you saw on the Capital Markets Day present that strategy are driving it aggressively, and I'm pretty confident that this will materialize in the quarters ahead into accelerated growth. Speed is an initiative where it will take time because it's the most profound from an operating and tooling standpoint, from a training and capability and skills evolution standpoint. So this will take a bit longer to materialize at scale. We have started on this. AI as a catalyst for market leadership is now being led from a technology standpoint by Nathan Brumby, our recently appointed Chief Technology and Platforms Officer. Nathan joined us close -- just over 2 months ago and is in full swing. And we have a road map, and I'll show you some examples of Ipsos AI solutions in a minute for Q2, Q3 and Q4 launches of AI-powered products. Also access to real people as a critically relevant competitive advantage is one of our key choices. I'm happy to report that we are seeing increasing level of in-sourcing. What we mean by this is using our own panels, our own respondents rather than outsourcing to third-party providers of such. And this is a key component of our operational transformation, which is led by Alexandre Boissy, our newly appointed Deputy CEO, joining us from Air France, where he had very important responsibilities. And we are happy to say that our operations transformation agenda is also starting to show signs of increased ownership of our own panels. And then if I think about our evolution to higher value-added services and in particular, our ability to expand our footprint at the clients we serve, our commercial excellence, I mentioned the fact that we are starting to see very superior growth at our top clients. And this is being led by Eleni Nicholas, who's driving an initiative across those large clients. So with Olivier now being formerly our Chief Financial Officer, he was named an interim, and we are happy to confirm it, and I'm very happy, Olivier, that we will be able to continue and work together in that capacity. And more importantly than those leaders, the whole of 20,000 or close there to people at Ipsos and many of our leaders across the globe are being mobilized to make the strategy execution happen at scale and at pace. So let me give you examples of some of the AI technologies and global services -- new services that we are launching or that we have already in store and that we are accelerating through the GMS model. First of all, an example of what we call behavioral measurement, looking at how people behave when they either buy or consume or use the products of our clients. Two examples of very large consumer and packaged goods players, one in the beverage industry, the other one in the home care industry, products for detergents and washing machines and the like. We are using AI technologies to help observe with clips and videos that people themselves provide us rather than checking diaries on paper saying how much coffee did I drink today or how many washing machines and how much powder did I use for each of them. So we're using videos to not just translate what was written into what's visible on the video, but also understand better the gestures, the expressions, the satisfaction, many subtle consumer signals that wouldn't be otherwise available to our clients. A second example is in social media. We are using AI technologies to examine at scale what videos are successful and why detecting patterns on social media. For example, in China, that would be RedNote, which is a very prominent video channel on social. And then we are using the insights generated by this video analysis of those clips to identify which influences, which patterns are the most likely to drive interest and ultimately, the brand awareness or decisions to buy. This is helping our clients decide faster where to target, which influencers to pick and what formats to use at scale. A third example is in China, which is, of course, one of the innovation hubs of the world, where we have now a very large consumer and packaged goods clients who's relying on Ipsos' synthetic consumer digital twins to replicate the personality traits and the behavioral logic of the clients of that CPG company. Now we are doing this because it helps answer sometimes simple, sometimes slightly more complex questions faster than a full-fledged survey, bearing in mind that we do that with a lot of care to the reliability and continuous update by recalibrating with real respondence and continuously validating the results of those digital twins. So those are 3 examples I wanted to give of how we're embedding technology and AI to create more value at our clients. Let me now turn to the numbers for 2026. First of all, it's very obvious that everything I'm about to project is based on factoring in what we know and acknowledging what we don't know about what's happening in the Middle East. What we know? In the Middle East itself, which as Olivier highlighted, is about 3% of our total revenue, we are seeing obviously an erosion of our revenues to the tune of several millions, and that's no surprise. But we believe that the outlook will turn as -- governments, in particular, and large spenders will return to growth as and if the crisis and the war slows down and ends, which we all hope for. We don't see significant consequences outside of the Middle East region, very few, if any, client cancellations, delays in decisions or postponements of contracts. So there's marginal examples here and there, but essentially limited observed consequences outside of the Middle East, which therefore means that barring escalation or prolonged conflict in the Middle East, we don't see at this stage, at this stage, significant impact on our group's full year outlook. Now the situation, as we all know, remains highly volatile, and therefore, both the monitoring, but also the contingency planning in case things deteriorate or escalate or continue in the long run are being prepared. We've done that in 2008. We've done that in 2020. So we know how to adjust and react in case we need to do so. On a more positive note, let me reiterate why we believe that the positive order book momentum of the first quarter is a good signal of accelerating order intake and therefore, gradual expansion of our revenues throughout the remainder of 2026. First of all, we launched the strategy. We're in full execution mode. But obviously, we're going to bear fruits increasingly as quarters after quarter things happen, particularly with Globally Managed Services, Ipsos.Digital, the impact of our commercial actions and so on and so forth. It's also reassuring to see that we're about at the same percentage of our full year outlook from an order book already in our books at this point of the year as we have historically over the last few years. But also, I have spent time with our leaders in the various markets. We are looking at it both from a pipeline analysis standpoint and from an outlook based on their knowledge on the front line closest to our clients. And this also reinforces the predictions that we have already highlighted for the year of a 2% to 3% estimated organic growth and an operating profit, which would be equivalent to 2025, which it was at 12.3%. And I have to highlight something here. Russia was a profitable business compared with the average of Ipsos, and it's now no longer in our numbers. BVA is a company that we acquired, and we're extremely happy with this acquisition, but it was in 2025, and it will continue for a good part of 2026 to be a drag on our profitability with the fact that it was 6 months only in '25, and it's going to be the full year in '26. So in fact, reaching an equivalent profitability in '26 to the one we observed in '25 is actually increasing the core profitability outside of those perimeter effects. So with that, I would like to thank you for your attention so far. I'm about to open to questions and answers, obviously, invite you to our May 20 General Meeting of Shareholders and also to our first half results announcement, which will take place on July 23. Thank you very much, and let's open it up to questions and answers. Operator: [Operator Instructions] The first question today comes from Davide Amorim with Berenberg. Davide Amorim: Two questions from me, please. Could you please give us a bit more detail on the organic growth decline in Q1? What exactly happened compared to your initial expectation at the start of the year? And what makes you confident that you can still achieve the full year guidance growth despite the more challenging environment? Secondly, Middle East is, I mean, approximately 3% of your group revenue and declined by almost 4.5% in Q1, even though the conflict only started in March. How should we think about the trend for the rest of the year? And how could be the impact on your profitability if the conflict continues? Jean Poitou: Thank you. I'll start on the Q1 1.4% negative organic growth first. Of course, the 2.4% is heavily impacted by currency effects to the tune of minus 5.4%. But the minus 1.4% in organic growth is, I guess, what your question is focused on. So on that point, it is in line with our expectations that we would have a negative Q1. That is not a surprise based on what we had calendarized for the year when we looked at the full year. We knew that horizons would kick in gradually throughout the year. So that was part of our expectations for the year. In terms of what makes us confident, I highlighted the fact that having an order book that is growing, having a percentage of the full year outlook at this point of the year, which is similar to what it has been relative to the previous full year's actuals, the fact that we see when we look at it country by country, service line by service line, we see confirmation that we will be in the bracket we have given guidance around are some of the parameters that I wanted to reinforce as positive signals towards meeting our initial growth expectations. I don't know, Olivier, if you want to provide additional color on this? Olivier Champourlier: Well, I would like to say that the order intake at the end of Q1 actually is slightly better than what we thought when we have built up our budget in 2026, so which makes us confident or slightly confident that we are in line with the way we calendarize the phasing of the order intake this year. So as you have seen actually, there is a lag between the revenue and the order intake. But this is really important to look at the way we recognize revenue over the full year because in our company, actually, depending on whether you recognize a short-term contract or long-term contract, it can create some phasing effects when you look at the quarterly revenue. So one of the KPIs that we are looking at is more the order intake and how it's going to translate into the full year revenue more than focusing on the single quarter itself. Lastly, on Middle East. So as we have disclosed, so the MENA region represents 3% of the revenue. For the moment, there have been a couple of million of impact. It's pretty small actually. We have reacted pretty quickly to mitigate the impact on the profitability of the region. There are a couple of actions that we can take place, hiring freeze and so on. There are a couple of measures. But it's pretty limited to MENA for the moment. We have spent a couple of days with all the management discussing the impact. And for the moment, we don't see any impact or any cancellation anywhere else. This being said, the macroeconomic environment is pretty volatile. It's true that if the conflict is continuing, we know that the consequence will be that the barrier will be high. There will be some further inflation and it may have an impact and it will have an impact on the global economy. But we are watching that very carefully. And we are used to this kind of macroeconomic condition like in 2008, 2020, and we are able to adapt our cost basis to mitigate any shortfall in the revenue that will come if the conflict will continue. Jean Poitou: But we are not -- to the latter part of your question on the what if it lasts for months and not weeks and what if it escalates and drives, for example, the global economy into recession in some of the major geographies we serve. We are not providing a guidance that assumes any of that at this point. If it was to happen, of course, we will adjust the cost base to mitigate the impact on profitability, but that's not something we're guiding to at this juncture. Other questions? Operator: The next question comes from Conor O'Shea with Kepler Cheuvreux. Conor O'Shea: Three questions from me. Firstly, on the Healthcare business, it was down in Q1. I think in the press release, you mentioned tough comps, but I think the comps were similar for the first 3 quarters of last year. So would you expect that activity to remain under pressure for at least another couple of quarters? That's the first question. Second question, in the clients and employees activity, in the press release, you mentioned some effects of timing, phasing lags that should unravel and improve in the subsequent quarters. Can you go a little bit more detail about that? I think it's in Audience Measurement. And then third question, just more generally, given the expected time horizon of some of the new initiatives to take hold and make a contribution to growth and so on. Would you expect the second quarter to potentially to be also negative in terms of organic growth at say, a constant macro outlook? Or would you be expecting to see at this stage an improvement already in Q2? Olivier Champourlier: Yes. I will answer the first question regarding the Healthcare business, which is actually the way we disclose it is not exactly the Healthcare business, but it's more the business with the pharma companies. So what happened this year, so that's true that we disclosed a negative growth, but we have seen the order intake improving gradually. There have been some clients in the pharma sector that are under restructuring and are taking longer to take a decision. We have also some program that have been confirmed last year at the beginning of the year for the full year, but the client, they confirm it more on a quarterly basis, so which drag -- drop in the revenue in H1. But overall, the order intake is improving month after month. So it should turn into more positive territory in the coming months. It's a similar pattern when it comes to Clients and Employees because we mentioned that the Audience Measurement activities, the revenue is declining in Q1. But when you look at the order intake, it's positive at the end of March because the way contracts have been confirmed by clients is different from last year, and this will translate into positive growth in the coming months. And last question is more about the phasing of the revenue. So as you can see, the first Q1 is minus 1.4%. And obviously, to finish the year in line with the guidance, which was between 2% to 3%, you will see an acceleration of the growth moving gradually in positive territory to finish in line with the guidance. Jean Poitou: And I think that's the key point. It's gradual recovery. What will exactly happen in Q2, we're not guiding by quarter. But yes, it is an acceleration throughout the year. And it is based on the speed at which we execute our Horizons strategy. It is based on the fact that we have mobilized the leadership of this company around the key initiatives I've referred to when reiterating what the main strategic pillars were and how we stand relative to each of them. The Globally Managed Services, the Ipsos.Digital, the commercial acceleration, the technology and AI investments will gradually add more solutions to our bag of tricks, and this will gradually allow us to expand our revenue and strengthen our growth. Conor O'Shea: Okay. Very clear. But I mean just to drill on the numbers. I mean, if the second quarter is better than the first quarter, but it's, as you say, a gradual process, but the first half is, let's say, flattish overall on organic, then the second half needs to be around 4% or so. The order book has improved, but we're talking about plus 1%, not talking about plus 4%. So is the pickup, let's say, month-over-month so significant that, that kind of second half trajectory is looking doable at this stage? Jean Poitou: The short answer is it is looking doable. As I said, we spend a lot of time also with the teams in every one of our markets and services looking at this, looking at obviously, the pipeline at a more granular level. Historically, as you will have witnessed, there are quarterly changes, which is why we're not -- it's not a perfectly constant 1 month after the next progression. There's always swings because some of the orders can be quite sizable and then they generate revenue later. Some of the orders we took in Q1 were actually in March. So they will generate revenue starting already now. So that's why we're not looking at it at a month-by-month or certainly announcing it at a month-by-month basis. But yes, the short answer is it is doable. Operator: The next question comes from Hai Huynh with UBS. Hai Huynh: It's Hai from UBS. Just again a little bit on the order book and revenue conversion. Can you help me a little bit on how the stronger March order intake translate into revenue? Is it going to be kind of Q2? Or is it more weighted towards half 2 in terms of the timing? And within that also, in April, have you seen an improvement sequentially in April so far versus March as well? That's the first question. And then the second one is, I know it's only the quarterly top line update, but you're still guiding for flat margins despite some dilutive effects from BVA Family. And you're investing a lot this year into in-sourcing, for example. So what are the offsets that makes you confident that you're actually going to be flat margins this year? Jean Poitou: Okay. On your second question first, maybe. We are taking, obviously, a number of measures. We are looking at our cost structure. We are looking at our pricing and everything. So yes, we are offsetting the impact of both losing the Russia accretive business and absorbing some of the remaining dilutive impact over 12 months against 6 of BVA through very disciplined execution on our cost base. But on the conversion and on the ability to say something about April, April, we're still very early to have any numbers worth disclosing here, but on the conversion pattern. Olivier Champourlier: Yes. And I would say about the order book, it was positive in March, and it will generate and translate into revenue from April to the remainder of the year. It's difficult to say at this stage of the year, if it will be more in Q2 or in the second half of the year, but it's going to be in the coming months for sure. This is true that you should have in mind that we have a growth trajectory that is going to accelerate. As far as all the investment that we are making in this Horizons plan, will deliver some fruit. We mentioned the GMS, the local country-specific plan. There are some regions that are more advanced than some other. In China, the plan started already at the end of last year, and we have seen that it's delivering already some fruit with a very good Q1 and good sales momentum in China, which is really encouraging us to continue in that direction in some other markets outside China. Operator: The last question today comes from Anna Patrice with Berenberg. Anna Patrice: A couple of questions from my side. First of all, when you talk about the organic growth in the order book of 1%, what kind of organic growth is it? So until when this organic growth? Does it mean that it implies that you already have in your pocket 1% organic growth for the full year 2026? Or where does it stop? That's the first question. Second question, you mentioned several times in China that there was a significant improvement. Can you maybe elaborate what was the organic growth in China last year, for example? And what is it already in Q1? And what was the comparison basis maybe? And then the last question is on the America performance, minus 4%. If you can elaborate which sectors are declining and which sectors are growing? Jean Poitou: Can you reiterate the first question, please? Anna Patrice: Yes. First question is on order book, 1% organic growth at the end of March. This 1% organic growth, what is it exactly? Is it 1% organic growth that you have in your books for the full year 2026? Or what exactly does it mean? Jean Poitou: So just to clarify, when we talk about the order book and the order book growth, it is the part of the orders we took that is delivering revenue in 2026, right? So there's 1% more in our order book for the year, right? Then some of them are shorter term than others, which can last all the way until December. Olivier Champourlier: Yes. So that means that at the end of March, the order book is plus 1% compared to the end of March last year. And the order book in the Ipsos definition is the sales that have been converted that will generate revenue on the full year. And as we mentioned it, at this stage of the year, we have in our order book 55.6% of the annual revenue. And it's in line with what we have seen in average over the last 4 years. Now answering your last question about what was the growth in Greater China in Q1 2029. So it was around minus 3%. So we have seen definitely a turning point in our activity in Russia, which started in China, which started already at the end of last year, but has accelerated and now it's quite strong in Q1 2026. Operator: This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks. Jean Poitou: Okay. Thank you very much. So in closing, our commercial momentum is strong in spite of a minus 1.4% organic growth Q1. And to use the words of one of the questions, the signals we see on the commercial front, not just that 1% increase, but also the pipeline, the comparison with prior years says that the growth we have suggested for the year is absolutely doable. So I want to thank you for your attention today, and we will be talking again in May. Thank you. Olivier Champourlier: Thank you very much.
Spencer Wong: Good afternoon, and welcome to the Netflix, Inc. Q1 2026 earnings interview. I am Spencer Wong, VP of finance and capital markets. Joining me today are co-CEOs, Theodore Sarandos and Gregory Peters, and CFO, Spencer Neumann. As a reminder, we will be making forward-looking statements, and actual results may vary. We will now take questions submitted by the analyst community, and we will begin on the topic of our results and outlook. The first question comes from Robert Fishman of MoffettNathanson. This question is: Can you speak to your full-year margin guidance and how it compares to prior guidance? With the Warner Brothers deal costs and beyond content spending, where else are you accelerating investment in 2026? Gregory Peters: Perhaps I can kick this one off and step back with a high-level framing. Of course, it is early in the year. There is still plenty of time to go and plenty of work left to do. But we have seen really good progress so far in this first quarter that builds on the solid momentum and results from 2025. Given that, we are maintaining our guidance and strong outlook for organic growth that we established for 2026: revenue growth of 12% to 14% and operating margin at 31.5%. That includes roughly doubling the advertising business to about $3 billion. We ended last year with more than 325 million paid members, and as that number continues to grow, we are entertaining an audience that is approaching a billion people, which is an exciting milestone to strive for and to achieve. Even given that number, we still have plenty of room to grow into our addressable market. From an addressable household perspective that have good data and a smart TV, we are still under 45% penetrated. We think that number is roughly 800 million, and it grows every year. We have captured about 7% of addressable revenue in countries and categories that we currently directly participate in. We now estimate that is $670 billion as of 2026, and that number grows year over year as well. We estimate that we account for only 5% of TV view share globally. By pretty much any measure, we have tons of room for growth still ahead of us. Theodore Sarandos: I would add, looking ahead, we are focused on three big priorities. Number one, deliver even more entertainment value for our members, and we do that by continuing to strengthen our core offering—series and films, originals and licensed. We are also pushing into new categories that are really exciting, like our further expansion into podcasts—we announced a few exciting new ones today—adding more regional live sports events, like the incredible event we just did in Japan with the World Baseball Classic, and growing our games offering, including the brand-new kids gaming app. Number two, we are leveraging technology to improve the service—from how it is delivered to how to find great things to watch, and now even how content is created and produced. Number three, we are improving monetization through a combination of broad distribution—mostly organic, supplemented with some great partners— increasingly sophisticated pricing and pricing plans, and a great and growing ad business as Greg just said. These features help position us to deliver multiyear growth beyond the 12% to 14% that we expect to deliver this year. At Netflix, Inc. we embrace change, thrive on competition, and stay focused on constant and consistent improvements—the things that make us faster and better than the competition in whatever form it takes. We feel great about the business and the organic growth opportunity ahead. We are as energized as ever to achieve our mission to entertain the world. Spence, maybe you could talk a second about the WB deal cost and the guide. Spencer Wong: Yeah. Sure. Thanks, Ted. So with respect to the Warner Brothers deal. Spencer Neumann: And those costs and how it impacts the guide: you may recall back in January, our initial forecast or guidance for the year was carrying $275 million of cost for M&A-related activity. That was not just Warner Brothers, actually. One item we were carrying was the Interpositive acquisition. It was not announced yet, but it was in our guidance, and that carries through our OpEx, which impacts operating margin. For Warner Brothers specifically, even though we walked away from the deal, some of our initially planned costs for the deal will not fully materialize, but some that we were planning to carry into 2027 were pulled forward into 2026. When you put all that together, we are still in the ballpark of the total we were projecting for M&A-related expenses in the year. There is no material impact on our operating margin outlook. As a result, there is no reflection of some increase or acceleration in other expenses in the year. Spencer Wong: Thanks, Spence. Thanks, Ted. Thanks, Greg. Following up on that question, we have one from Sean Diffely of Morgan Stanley. His question is: What have been your biggest learnings from the Warner Brothers experience, and does it in any way change your appetite for M&A or capital structure going forward? Theodore Sarandos: At the risk of being a broken record, we said from the beginning that the WB deal was a nice-to-have, not a need-to-have. We are very confident in the core business. Going into it, our biggest risk was losing focus on our core business while working on the transaction. As you can see from our Q1 results, we did not lose focus. We are very encouraged by the team’s ability to stay focused on our core business while exploring this opportunity. Historically, we have been builders, not buyers, so there were questions about our ability to do a deal of this size. We learned that our teams were more than up to the task. We learned a lot about deal execution and early integration. We are proud of the teams that did the work. We are proud to have won the bid. We were confident in our ability to get to the finish line with regulators for the approvals we needed. Mostly, we really built our M&A muscle. The most important benefit of this entire exercise was that we tested our investment discipline. When the cost of this deal grew beyond the net value to our business and to our shareholders, we were willing to put emotion and ego aside and walk away. Doing it at this level sets up our teams to understand that is the expectation of them day to day. We met a bunch of great people in WBD during this process, so if there is any emotion in all of this, it was the disappointment of not getting to work with those folks. We do come through this with no change in our capital allocation philosophy. We invest in the business, both organically and opportunistically with M&A, like you just saw with Interpositive. We do that while maintaining strong liquidity and returning excess cash to shareholders through share repurchase. M&A remains a tool to help us achieve our goals, and as you can see with the WB deal, we will remain very disciplined in how we approach it. Spencer Wong: Thank you, Ted. I will move us along now to the next topic, which is engagement. The question comes from Vikram Kesavabhotla of Baird: Last quarter, you shared that your primary quality metric for engagement achieved an all-time high in 2025. How is this metric performing so far in 2026? What are some examples of the data points that inform your measurement of quality? Gregory Peters: I will take this one. First, volume of engagement is still relevant. We track it and seek to grow it. In Q1, view hours were up at a similar rate of growth to what we saw in 2025, despite having the Winter Olympics—17 days of robust streaming competition—land in Q1 as well. But while view hours are important, they are just one of several metrics we look at, and we are increasingly making that a more sophisticated view. Member quality is an important part of that sophistication, with several associated signals, and in Q1 that primary member quality metric hit another all-time high. I am not going to detail how we compose our metrics; they take time and effort to build and prove out, and I am sure competitors would like that cheat sheet. We build confidence in our metrics, and specifically this member quality metric, by evaluating their predictive and explanatory power to primary metrics like retention. That is why we are clear that improving that number improves the business. As we invest in new forms of content, we also have to learn how the new programming provides different kinds of value. Live is a great example. It often drives significant viewing value for members, albeit with fewer view hours than a scripted series, and it has different acquisition characteristics. We continually build models for how that programming matters to our members and supports the business, and then we can bid appropriately. Spencer Wong: Thanks, Greg. Our next question on engagement comes from Rich Greenfield of LightShed Partners. Nielsen adjusted their methodology—the end result was lower streaming viewership and higher broadcast and cable viewership, albeit the trendlines were similar. Nielsen has delayed implementing these changes into its monthly Gauge report until 2026. The base of Netflix, Inc. viewership will be lower but also have more room to take share. How do you think about the coming impact, especially on your advertising revenue? Gregory Peters: Nielsen’s methodology change in the Gauge reporting is a change in how they calculate the national TV universe. It is not a change in how people actually watch TV. It changes Nielsen’s numbers, not actual viewing behaviors. Specifically, the new approach reduces the weight of streaming-only households and increases the weight of linear households, which makes streaming look smaller and broadcast/cable look larger on a relative basis as they measure and report. We, of course, have actual data on how much members stream, and we include that in our engagement report. That methodology is straightforward, and other streamers have started to measure views in the same way. As to advertising, Nielsen Gauge is not the currency for the video marketplace. Given that there is no change in consumer behavior or amount of viewing related to this shift, none of this changes our effectiveness or our aspirations in ads. We continue to expect to deliver $3 billion in advertising revenue this year; we have not adjusted that target. On your point about growth potential, independent of this shift, we still see tremendous opportunity to win more moments of truth—especially the most valuable moments. With our current position of being less than 5% of global TV time, we have a ton of room to grow. Spencer Wong: Thanks, Greg. We have several questions about our content and content strategy. First, from John Hulik of UBS: Any details you can share about the World Baseball Classic viewership? Are there other similar sports and live event opportunities that can appeal to a global audience and drive engagement? Theodore Sarandos: Thanks for asking about the World Baseball Classic, because it was a hit. It was the most-watched program we have ever had in Japan and the biggest global baseball streaming event of all time, with 31.4 million viewers. Events like this are important because, as Greg said, they drive outsized business impact and are proof that all engagement is not created equal. The WBC drove the largest single sign-up day ever in Japan. Japan led our Q1 member growth around the world and had its highest quarter of paid net adds in our history. It was also the first big regional live event for us outside of the United States, and we got to flex a new muscle—streaming multiple games concurrently—so a big expansion of our capabilities. We were excited, the fans were thrilled, and the leagues were excited. Much more to come. Gregory Peters: It was also a great example of how we were firing on all cylinders cross-functionally. Our marketing and partnership teams worked to bring this to Japanese consumers in a friendly way. It was impressive to see everyone organize around that. Theodore Sarandos: And a great shot in the arm for our ad sales group in Japan. One other thing on it—not to dismiss WBC. Spencer Neumann: Think about it more broadly because, as great as it was—and it was great—you may notice that APAC was our strongest FX-neutral revenue growth market for the quarter. It was not just because of this. We had strong performance across APAC: a great quarter in India, a really strong quarter in Korea, and Southeast Asia showed strength. Across the board in APAC, we executed—it was not just one title or one country. Theodore Sarandos: I would add it was exciting to see people pick up recent original series so that viewing went up—you saw some of those shows pop back into the top 10. The success of One Piece on the heels of the WBC created a great halo. Spencer Wong: I will take the next question from Robert Fishman of MoffettNathanson: With the NFL in the market for new packages, do you judge ROI on live event content spending the same way as scripted content, or does adding NFL games give you the ability to drive higher CPMs and ad growth that one-off scripted shows would not deliver? Theodore Sarandos: That is a great question. First, our sports strategy is unchanged. We are most interested in big breakthrough events, less so in regular season packages. Everything we pursue has to make economic sense in the ways you just talked through, and we consider all the benefits from both viewing and the ads business. Sports is an important piece of our live strategy, which also includes other big live events—Skyscraper Live, the Star Search reboot with live voting, the BTS comeback concert. We have had a number of sports successes, including our Opening Night MLB game with the Yankees and the Giants, our Christmas Day NFL games, some big fights, and the WBC in Japan. The NFL is a great property and delivers value as part of our total offering. We are in discussions and think there is an opportunity to expand the relationship—within the same strategy focused on creating big events. We have learned a lot about what works and how to value the NFL and live generally over the last couple of years, and this will inform how we have those discussions and help us be even more disciplined. We announced Tuesday a multiyear deal with CONCACAF for rights in Mexico, in addition to women’s World Cup rights in the United States and Canada, and our first big global M&A event with Ronda Rousey and Carano. We are ramping up our sports events globally and local-for-local, both in volume and profile, because we bring and receive a lot of value—and, most importantly, our members receive a lot of value. Spencer Wong: Thanks, Ted. Our next question comes from Peter Supino of Wolfe Research: Help us better understand your business model in podcasting—think he means your business strategy in podcasts. Theodore Sarandos: We talked about it in the letter, but even in very early days we are seeing data indicating incremental engagement on the platform. How do we know it is incremental? Two things jump out. One is daytime consumption: podcast consumption indexes to daytime hours on Netflix, Inc., which allows us to capture a time when we historically have less engagement. The other is that it indexes much more to mobile. Podcasting is more mobile, and professional TV and film historically make up a small percentage of mobile viewing, so it is great to meet our members where they are—even when they are enjoying other forms of entertainment. We have been building out a great lineup of podcasts, both licensed and owned—shows like The Bill Simmons Podcast, The Breakfast Club, Therapist from Jake Shang (which I have been waiting to say all day), Pardon My Take—all doing great. We have our own podcasts as well, like The White House with Michael Irvin and The Pete Davidson Show. Our companion podcasts have been great for superfans, like the Bridgerton Official Podcast. And today we announced new podcasts from Brian Williams, Evan Ross Katz, Steven Su, Ellison Barber, David Quang—the list keeps growing, and it is very promising. Spencer Wong: Great. We will now shift to advertising. This question comes from Dan Salmon of New Street Research: Can you share more on the growth of your total advertiser base? What proportion of advertisers are being serviced directly by the Netflix, Inc. sales team, and what proportion are buying on Netflix, Inc. through third-party DSP partners? Are you still largely focused on the top 500 brands, or is a mid-market strategy beginning to emerge? Gregory Peters: We will do our best to handle them all. The biggest benefit we got from moving to our own ad tech stack is making it easier for advertisers to buy on our service. Additionally, we have added more DSPs—more ways to buy—and we are seeing significant growth in programmatic, which is on its way to becoming more than 50% of our non-live ads business. Due to those moves, as well as improving go-to-market capabilities, more sales force, and building out our ads products, our advertiser base grew over 70% year over year in 2025 to more than 4 thousand advertisers. That expansion is a key indicator of the health of the business. Today, we are still concentrating on the largest buyers, which are serviced primarily by the Netflix, Inc. sales teams—either directly or with our sales team driving buying behavior through DSPs. Over time, we expect continued growth in the number of advertisers. We are pushing in that direction, and we think the percentage who buy programmatically will increase, and therefore programmatic share of ad revenue will go up. As we scale programmatic and broaden our advertiser base, we can follow the time-tested model of expanding iteratively into larger and larger pools of advertisers. Spencer Wong: Thanks, Greg. Next, a question around plans and pricing from Vikram Kesavabhotla of Baird: What informed your decision to raise subscription prices in the United States recently? What are your early observations regarding the impact on customer acquisition and churn in the region? Gregory Peters: This change was part of our plan for some time. We continually monitor signals from our members—quality-weighted engagement, plan selection, plan moves, and retention, which is industry-leading. We see improvements in value delivered to our members well in advance of making a price adjustment, and those signals informed this and all price changes. Our initial full-year guidance factors in the pricing adjustments we expect to make throughout the year. It is very rare that we have an unexpected pricing change. As for the most recent changes, the early signals are in line with expectations and similar to historical performance with price changes in the United States. The rollout is still ongoing, but indications are consistent with what we have seen before. Our pricing philosophy is consistent: we look to provide more and more value, invest revenue successfully, and occasionally, when we have added more value, ask members to contribute more so we can invest in delivering even more entertainment value. We think we are delivering one of the best entertainment values that has ever existed. As a comparison, in the United States right now, Netflix, Inc. subscribers are paying the least per hour of viewing compared to other SVOD offerings—in some cases, you would have to pay two times per hour to get a competitive service. Our ads plan at $8.99 in the United States is a great, highly accessible entry point and an incredible value. Spencer Neumann: To add to that value and how we see it in the metrics, look at retention and churn. We saw stronger retention across the board this quarter; every region was better year over year. That is encouraging in terms of the value we provide and aligns with the primary engagement value metric Greg mentioned, where we had a record in Q4 of last year and a record again in Q1 of this year, which is playing out in the numbers. Spencer Wong: Thanks, Spence. A couple of questions on gaming, the first from Eric Sheridan of Goldman Sachs: You are in your fifth year of the gaming strategy. What have been the key learnings? How do platform games change user consumption habits? What are the most interesting areas to invest behind gaming in the coming years? Gregory Peters: I think “platform games” here just means games on our platform. At the highest level, we see a significant market opportunity—$150 billion in consumer spend ex-China, ex-Russia, not including ad revenue. That number is getting bigger. A significant part of that market faces issues like new player acquisition or low-friction discovery and play—areas we are well positioned to improve. We have been building foundations: the ability to develop games, bring games onto our service, connect those games with players, and give players high-quality experiences. As with film and series—and as hypothesized—we have learned that gameplay can have a positive impact on member retention, as well as driving acquisition, although the observed acquisition effect has been small to date, which is consistent with our maturity and consumer expectations of us as a gaming platform. A key user dynamic we have repeatedly observed is that delivering a fan of a film or series an interactive experience in that same universe not only extends the audience’s engagement, but also creates synergy that reinforces both mediums—interactive and noninteractive both do better. That further drives engagement and delivers more value. We are investing in games that reflect our other beloved IP or events and give fans interactive experiences that extend those universes; in games on TV, a new canvas for players and developers; and in kids, providing a dedicated experience. While we have been building this for a couple of years, we are still scratching the surface of what we can ultimately do. We have been building infrastructure and core capabilities, and now we are increasingly able to deliver more of the kinds of experiences that move us toward our vision. There is tons more work to do, but it is fun to get to this stage. You will see increasingly interesting releases from us in the year to come. We will continue to ramp our investment—still small relative to overall content spend—based on demonstrated performance and growing returns. Spencer Wong: Great. And, Greg, a follow-up on games from Brian Pitts of BMO Capital: The recent announcement of Netflix, Inc. Playground is seemingly one of your biggest moves into video games to date. Would you help us understand how you will measure success with Playground and the incremental value you expect for your broader subscriber base? Maybe start by explaining what Netflix, Inc. Playground is. Gregory Peters: Playground is essentially a separate app for games for kids. Kids represent one of our four key focus areas for games—kids, narrative, party/puzzle, and mainstream games. Our goal is to become a destination where kids’ favorite worlds come to life through games and interactive experiences. This extends a long history in which we have treated kids as a special audience that deserves special care. We provide kids with a dedicated experience and parents with tools—ratings, parental controls, PIN controls, etc. Playground extends that philosophy into games. It includes a growing collection of kids’ games in one app so they can navigate between them; fully curated, age-appropriate titles based on beloved shows and movies—think Peppa Pig, Dr. Seuss, Bad Dinosaurs—no ads, no in-app purchases. It also fits kids’ natural viewing habits, as a significant portion already happens on mobile and tablet, and it is all added value included in your membership. We are seeing encouraging signals: as we add more kids’ games, we have seen strong growth in engagement through both new titles and improved discovery on existing titles. Ultimately, we see an important long-term opportunity to deliver more entertainment to kids in ways parents feel good about, not just across games but across TV and film as well. Spencer Wong: Thanks, Greg. Next question from Eric Sheridan of Goldman Sachs: Entering 2026, how would you characterize the current competitive landscape for content? Are you seeing any differences in competitive intensity by geography, language, or format? Theodore Sarandos: Competition is not new for Netflix, Inc. Consumers have always had incredible choices in entertainment, and we have continued to grow by offering enormous value. Great projects are immensely competitive, and those are the projects we want. We have been pleased that Bela and the content team have been able to land some of the most competitive projects recently—Strangers with Gwyneth Paltrow attached to star, based on the New York Times bestselling book; Rabbit Rabbit with Adam Driver, directed by Philip Barantini, who directed Adolescents for us—both incredibly competitive projects we were able to land. It is not just about paying the most. Relationships matter, particularly when there are many competitive choices. Providing a great experience for creators, delivering a big audience, and generating buzz are what we do. We are seeing a lot of repeat business, the ultimate sign we are doing our job well. Today, Beef Season 2 starts. The show’s creator, Sunny Lee, did the first season, which was the most honored limited series of the year when it came out two years ago—45 individual awards—and it was a hit worldwide. We just did an overall deal with Sunny; he will be creating for Netflix, Inc. for years. The cast—Oscar Isaac, recently in Frankenstein and Golden Globe–nominated; he has another film this year and another project we just greenlit; Carey Mulligan, who has done multiple projects for Netflix, Inc., including her Oscar-nominated performance in Maestro; she is in Narnia coming up later this year, she was in Mudbound and The Dig; Charles Melton, a Golden Globe nominee for May; Cailee Spaeny, who was just in Wake Up Deadman—the whole cast is Netflix, Inc. family. Running Point comes out next week, another new hit series with Mindy Kaling; we love the relationship. It is not just in the United States. Álex Pina, who created La Casa de Papel, has done multiple projects since, including one he is working on now. If repeat business is a sign of success, I am excited about what we are doing. We also think about competition in terms of those we are competing for projects and members with—and those we are customers of. Running Point is produced by Warner Brothers for us. We license shows like Watson and Mayor of Kingstown from Paramount. We have a Pay-1 deal with Sony; we have one with NBCUniversal that includes DreamWorks Animation and Illumination. Our investment in those films, co-productions, and licensing feeds the entire movie ecosystem around the world. While it is a little unusual to be both customer and competitor, it is not unusual in entertainment, and we manage those relationships well. Spencer Wong: Thanks, Ted. Eric Sheridan from Goldman also has another question, this time on AI: How does the company’s approach to the role AI can play in the creative process continue to evolve? With the announced acquisition of Interpositive, can you discuss the decision around that deal measured against your broader strategy? Theodore Sarandos: In general, we expect GenAI to help make content better—better tools and processes. Netflix, Inc. will remain at the forefront in exploring and innovating AI in the creative process. Given our technology DNA, unique data assets, and tremendous scale, we see great opportunities to leverage new technical capabilities across every aspect of the business. AI will deliver benefits for our members, creators, and employees. On the content side specifically, it takes a great artist to make great art—AI will not change that—but AI will give those artists better tools to bring visions to life in ways we are just scratching the surface on. Today, talent leverages these tools for set references, previsualization, VFX sequence prep, and shot planning—all of which also improve on-set safety, which is not talked about enough. With our acquisition of Interpositive, we think it accelerates our GenAI capability because it is proprietary technology created specifically for filmmakers and filmmaking, different from other GenAI video applications. While our ownership of Interpositive is very new, we have generated interest with creators who have spent time with the tools, and we are seeing momentum build around adoption. Gregory Peters: To pick it up there, the factors that inform where we should be developing technology—where we have a differential or unique capability to invest in generative AI that delivers returns to the business—include data (its uniqueness and scale) and where there are products or business processes at scale to attach this technology and get leverage. Content production, which Ted went through, is a big one. Member experience is another. We have been in personalization and recommendation for two decades, but we still see tremendous room to make it better by leveraging newer technologies. Recommendation systems based on new model architectures not only improve current personalization but also let us iterate and improve more quickly—adding support for different content types much more efficiently. As noted in the letter, in the last quarter these new capabilities drove increased engagement with the service—that is super exciting to see. The better we execute here, the more our product experience acts as a force multiplier to the large content investments we make. The last area I will mention is advertising. We are growing scale there and see an opportunity to leverage AI within our Netflix, Inc. Ad Suite—making it easier to design new creative formats, custom ads, improve contextual relevance, and roll them out more quickly and effectively, allowing partners to leverage them more easily. Spencer Wong: Great. We have time for one last question, from Rich Greenfield of LightShed Partners. He asks about Reed’s decision to not stand for reelection at our upcoming annual meeting: You have talked publicly that Reed Hastings preferred to build versus buy. Was Netflix, Inc.’s decision to pursue Warner Brothers a key factor in his timing of leaving the Netflix, Inc. board this year? Theodore Sarandos: Sorry for anyone looking for palace intrigue—no. Reed was a big champion for that deal. He championed it with the board. The board unanimously supported the deal. We had perfect alignment between management and the board on the Warner Brothers deal. That had nothing to do with it. Spencer Wong: And, Ted, do you want to close us out with some words on the decision? Theodore Sarandos: Absolutely. Reed Hastings, our founder and our board chair, let us know he has decided not to run for reelection to our board at the next shareholder meeting. It is unusual for a founder to step away from the board of the company after succession, but Reed is no ordinary founder. The first time I met Reed in 1999, he said he was building a company that would be around long after him, and that requires succession. When Reed took the first steps in this more than a decade ago, he said he would hang around for about another ten years. It has only been six, but this is Reed’s style—make decisions and move fast. We have a long history of going from brainstorm to scale at breakneck speed. Reed will remain the chairman and a member of our board through his current term. The board and the Nominating and Governance Committee will take the next steps in reshaping the board in the months to come. On a personal note, I have been fortunate to have great bosses who inspired me, coached me, and gave me opportunities. Reed did these things at unimaginable levels. Reed is an economist and an engineer in his head, but a teacher in his heart. He not only shared the spotlight—a rarity in Hollywood—he pushed me into the spotlight, celebrated wins, coached through misses, and made me the executive I am today. I am forever grateful. He built a company of risk takers and a culture where character matters and nobody rests in the pursuit of excellence. I have loved working with and for Reed through amazing twists and turns, and he has modeled what it is to be a leader and a friend. I was reminded of a quote from Max De Pree: “The first responsibility of a leader is to define reality. The last is to say thank you. In between, the leader must become a servant and a debtor. That sums up the progress of an artful leader.” Reed Hastings is the ultimate artful leader, and he leaves me and Greg enormous shoes to fill. In the spirit of an artful leader’s work in progress, I say to Reed, thank you. Gregory Peters: Ted, I will join you. From the very beginning, Reed established the standard for what leadership and culture look like at Netflix, Inc. His vision, willingness to take risks, to embrace and motivate change, to be transparent even when it is hard, and his total commitment to our values and to always putting our members and the company first have shaped every part of what Netflix, Inc. is today. The innovations Reed championed did not just build Netflix, Inc.; they helped move a whole industry forward. They expanded what is possible for storytellers and audiences around the world. We bring stories from around the world to audiences in ways that were not imaginable before. We got to this point because Reed has a way of pushing you to think bigger, to be more honest with others and yourself, and to own your decisions—always in a way that made you feel supported and trusted. He would debate his perspective with tremendous passion to get us to the best, most informed answer, then support you in your decision with equal passion even when he personally disagreed—and celebrate you with even greater passion if you ended up being right. That style has shaped who I and many others across Netflix, Inc. are today. A lesson I learned from Reed—perhaps the most meaningful and apropos to this moment—is the realization that while many of us spend tremendous effort building something we believe in, how we hand that work off to someone else is of equal importance. We should put equal effort, thoughtfulness, and planning into that transition as we did into all that came before. When my time to transition comes, I aspire to be as selfless, disciplined, and graceful as Reed has been. Reed, thank you for the trust you placed in us and the example you set. We will carry those principles every day. Spencer Wong: Thank you, Reed. I echo that as well. Spencer Neumann: Same here. You could not have said it better. I get chills thinking about it. One thing standing out for me right now, which is real time, is that big singular red “N” of the Netflix, Inc. logo, because it seems so appropriate—Reed, you are literally an “N” of one, forever in the DNA of this place. Thanks for everything. Spencer Wong: Great. With that, we will conclude the call. Thank you, everybody, for joining us, and we will see you next quarter.
Operator: Good afternoon, and welcome to the Lakeland Industries, Inc. Fiscal Fourth Quarter and Full Year 2026 Financial Results Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. During today's call, we may make statements relating to our goals and objectives for future operations, including our goals for revenue and cash flow from operations for fiscal year 2027, financial and business trends, business prospects, and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties, as more fully described in our SEC filings. Our actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. On this call, we will also discuss financial measures derived from our financial statements that are not determined in accordance with US GAAP, including adjusted EBITDA, adjusted EBITDA excluding FX, adjusted EBITDA margin, adjusted EBITDA excluding FX margin, organic revenue, organic gross margin, and adjusted operating expenses. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release and/or the supplemental slides filed with our earnings release. A press release detailing these results was issued this afternoon and is available in the Investor Relations section of our company's website at ir.lakeland.com. At this time, I would like to introduce your host for this call, Lakeland Industries, Inc.’s President, Chief Executive Officer, and Executive Chairman Jim Jenkins; Chief Financial Officer, Calvin Sweeney; Chief Commercial Officer, Global Industrials, Cameron Stokes; Chief Revenue Officer, Barry Phillips; and Executive Vice President of EMEA Fire Sales, Kevin Ray. Mr. Jenkins, the floor is yours. Jim Jenkins: Thank you for joining us today to discuss the results of our fiscal 2026 fourth quarter and full year ended 01/31/2026. Fiscal 2026 was a year of meaningful top-line growth and important strategic progress for Lakeland Industries, Inc. Calvin will walk through the financials in detail shortly, so I will provide you with a brief overview here. For the full year, net sales increased $25.4 million, or 15.2%, to $192.6 million, driven by continued strength in fire services. In the fourth quarter, net sales were $45.8 million, down $0.8 million, or 1.7% from the prior period. U.S. sales increased 35.1% for the full year to $81.6 million and increased 7.1% in the fourth quarter to $19.6 million. Europe also grew meaningfully for the full year, increasing $12.1 million, or 28.7%, while fourth quarter year sales were down $2.4 million due primarily to timing on LHD and Jolly orders. On profitability, adjusted EBITDA, excluding FX, was $7.2 million for the full year, and $1.3 million in the fourth quarter. Gross margin was 32.9% for the full year and 32.2% in the fourth quarter. Those results were below our expectations, and I want to be direct about why. We grew revenue at a strong rate, but we did not convert that growth into the earnings we expected. We view this as an execution issue, not a demand issue. The underlying demand environment across our core markets remains intact. We operated in a volatile cost environment during fiscal 2026; freight inflation, raw material pressure, tariffs, and certification timing delays exposed weaknesses in our planning and pricing response that we are actively addressing. Against that backdrop, I want to note something important. The fourth quarter generated approximately $2 million of operating cash. Delivering that level of cash generation on lower revenue than the third quarter reflects improved discipline across the organization, stronger cost control, and better day-to-day execution. We are seeing early signs the actions we have been taking are beginning to work. Subsequent to the fiscal year-end, we completed the divestiture of our HPFR and HiViz product lines to National Safety Apparel, generating approximately $14 million of cash proceeds. This transaction simplifies the business and allows management to concentrate fully on our core fire services and industrial protective product lines, where we see the greatest long-term opportunity. On the product side, we achieved a significant milestone with numerous NFPA 1970 2025 certifications across our brand portfolio. Products including Lakeland structural turnout and proximity gear, Meridian gloves and fire particulate-blocking hoods, Jolly boots, and Pacific helmets are now fully certified, enabling customers to order from a complete head-to-toe NFPA-certified range of products across Lakeland Industries, Inc.’s brands. This certification was a meaningful commercial unlock, and we look forward to showcasing our portfolio at FDIC 2026 next week. We strengthened the organization with several important appointments. Calvin Sweeney was named Chief Financial Officer in February 2026, having served as interim CFO since December 2025, and Kevin Ray was just recently named Executive Vice President of EMEA Fire Sales. You will be hearing more from both of them shortly. We also welcomed Lee Rudow to our Board of Directors in early April. Lee previously served as CEO of NASDAQ-listed Transcat, and his invaluable business and strategic M&A integration experience in the industrial markets with a strong track of execution across both organic growth and acquisition-driven strategies will be a valuable addition to our governance. During the year, we completed the acquisitions of Arizona PPE and California PPE, expanding our U.S. fire services distribution and rental capabilities with ISP locations in Arizona, California, and soon Denver. California PPE also opened a new state-of-the-art facility in Fresno, providing compliant decontamination, inspection, and repair services to California fire departments. These recurring revenue service businesses strengthen our fire platform and build long-term customer relationships. We also completed the $6.1 million sale and partial leaseback of our Decatur, Alabama warehouse property, generating an approximately $4.3 million pretax gain and reducing our fixed cost exposure. And Lakeland Industries, Inc. was added to the Russell 3000 and Russell 2000 in the season June, reflecting our growing market profile. Alongside these actions, we are working to further strengthen liquidity and flexibility through our pending ABL facility, which we expect to close soon, although there can be no assurance that the ABL facility will close on that timeline or at all. The Bank of America covenant waiver has been secured, and we anticipate to be in covenant throughout fiscal 2027. Taken together, these steps reflect a company that is not standing still but one that is actively reshaping its operating model to support improved performance. From a macro standpoint, fiscal 2026 was affected by tariff uncertainty, freight inflation, raw material cost pressure, and certification timing delays across both fire and industrial. Those factors pressured production efficiency, revenue timing, and gross margin. We also saw softer performance in select areas in the fourth quarter; we do not view the issues in front of us as demand destruction. We view them as timing, execution, and cost challenges that are addressable, and that is an important distinction. As we move into fiscal 2027, we are encouraged by the progress already underway and continue to make structural improvements that we believe will strengthen the business over the long term. We are tightening forecasting, strengthening accountability, and putting more structure around sales and production planning. As an example, inventory ended January at $82.5 million and is down meaningfully from October as we continue to better align supply with demand. We are entering fiscal 2027 with a simpler portfolio, improved internal discipline, and a pipeline that continues to build. We are now tracking modestly ahead of budget entering fiscal 2027, and our forecast is clear: convert demand into more consistent, repeatable financial performance, improve forecasting, better align sales and operations, increase utilization, and drive stronger margins and cash flow. Based on the foundation we have built, we are comfortable providing goalposts for fiscal 2027 of single to high single-digit revenue growth and a clear line of sight to positive cash flow from operations. Taken together, these steps reflect a company that is not standing still but one that is actively reshaping its operating model to support improved performance. With that, I would like to pass the call to our Chief Commercial Officer, Cameron Stokes, to provide an update on our industrial and chemical critical environment businesses. Cameron Stokes: Thank you, Jim. Turning to industrial and chemical critical environment. For the fourth quarter, chemical revenue increased $0.3 million to $5 million, demonstrating continued strength in that product line. Disposables revenue decreased $0.9 million and wovens revenue decreased $1 million in Q4, reflecting the headwinds Jim referenced, particularly softer performance in the North American industrial markets late in the quarter. For the full year, these three product lines combined represented approximately 49% of total revenue, with disposables at 27%, chemical at 11%, and wovens at 11%. On the strategic side, the divestiture of our high performance FR and high viz product lines meaningfully simplifies the industrial portfolio. These lines required significant management attention and resources that we are now redirecting towards higher-margin, faster-growing opportunities within chemical critical environment and core industrial protective apparel. The decision to divest was the right one, and it sharpens our focus on the product lines where we have a competitive differentiation and credible path to improving profitability. Within the business, we are seeing differentiated performance across our product lines so far in fiscal 2027. Chemical critical environment is outperforming, driven by continued demand from industrial and pharmaceutical end users, while wovens are tracking to plan with good visibility into the pipeline. Disposables faced the most pressure during the year, driven by tariff-related cost increases and softness in select North American markets, and we have defined specific recovery initiatives underway at the account level to address that gap. From a competitive standpoint, we are not seeing broad-based shifts across the market. The movement we are seeing remains limited and localized, and competitors have generally not responded with meaningful price action to date. At the same time, fuel and logistics instability has become a more relevant variable across the market than tariff uncertainty. That backdrop reinforces our focus on tighter channel discipline, better market segmentation, and more targeted execution by product line and end market. Our strategy for growing these lines is straightforward: continue to develop products and expand the range of certified high-performance offerings, disciplined strategic pricing to protect and improve margins as cost pressures ease, reach a broader set of end users and reduce distributor concentration, while optimizing operations to drive better utilization at our manufacturing facilities. I would like to note that the industrial segment tends to see its highest seasonal activity in the spring, when scheduled maintenance shutdowns at nuclear, coal, oil and gas, and chemical facilities drive meaningful order activity. We are entering that period now, and our teams are positioned to execute on the incoming demand. Looking ahead into fiscal 2027, our industrial priorities are clear. We are tightening demand forecasting and improving the alignment between sales commitments and production planning. We are also actively pursuing pricing actions where cost increases warrant them. We are working to improve manufacturing utilization at our Mexico and Vietnam facilities as we consolidate our footprint and transition production from India into those sites. The tariff environment remains a factor, but we are working through mitigation strategies and believe we can manage the impact without structural disruption to our cost base. Overall, the industrial and chemical business is stable, and we are focusing on converting that stability into consistent, improving profitability throughout fiscal 2027. I will now hand the call over to Chief Revenue Officer, Barry Phillips, to provide an update on our fire services business. Barry Phillips: Thank you, Cameron. Turning to fire services. Revenue for Q4 was $21.7 million, an increase of $0.5 million or approximately 2% compared to the prior year. For the full year, fire service revenue grew $30.6 million, or 48.6%, to $93.6 million. This is a significant milestone. Our fire segment now represents approximately 49% of our total revenue, a significant transformation from where we stood just two years ago when it represented approximately 21%. The full-year growth was supported by contributions from Viridian, LHD, Jolly, and Pacific Helmets, as well as Arizona PPE and California PPE. These acquisitions have expanded our geographic reach, broadened our product offering, and positioned us as the head-to-toe provider in global fire protection, a platform we believe is unique in the market. Fire demand is increasing as certification cycles are completed and tender timelines are tracking on schedule across multiple regions. These have been timing delays rather than structural demand issues. Opportunities remain in the pipeline and have simply shifted later than expected. Our tender pipeline is active globally, and we continue to see strong engagement from the fire departments and procurement agencies across the regions we serve. We also saw meaningful international wins during the year, including significant emergency follow-on orders from the National Fire Department of Colombia, an order from the Fire and Rescue Department of Malaysia, and a fire equipment tender award from ANAC, Argentina’s National Civil Aviation Administration. A particularly important milestone was receiving numerous NFPA 1970, 2025 edition certifications across our portfolio, enabling customers to order a complete head-to-toe certified range across our brands for the first time. These certifications are a commercial unlock that we have been working toward, and we look forward to showcasing the full core portfolio at FDIC 2026. On decontamination and services, our ISP business is growing faster than initially projected, and the greenfielding and ISP M&A pipeline remain robust. California PPE’s new Fresno location opened in January 2026, and our Denver location is expected to open in 2026. This recurring revenue model builds long-term customer relationships, generates predictable cash flow, and positions us well as fire departments increasingly invest in gear maintenance and NFPA 1950 compliance. Fire service margins remain structurally sound; as volume normalizes and tenders convert, margins are expected to recover without requiring broad pricing actions. LHD Germany is stabilizing, and we expect a formal relaunch of the brand at Interschutz 2026 in June, with leadership in Kevin Ray driving momentum across our EMEA brands. Looking ahead into fiscal 2027, we have the strongest backlog in Lakeland Fire’s history. We expect continued success with our head-to-toe offering and anticipated tender wins in Europe and the U.S. Our new NFPA product portfolio rollouts are well underway, and we look forward to showcasing our entire lineup at FDIC next week. I will now pass the call to Executive Vice President of EMEA Fire Sales, Kevin Ray, for an EMEA update. Thank you. Kevin Ray: Before I begin, I would like to provide you with a bit of my background. I have over twenty years of leadership experience in personal protective equipment and fire safety across the U.K. and EMEA. I joined Lakeland upon the acquisition of Eagle Technical Products, where I served as the Managing Director since 2013, and then Vice President of EMEA Fire and Global M&A Integration from 2022 until just recently, having been named Executive Vice President, EMEA Fire Sales, helping to shape Lakeland’s fire strategy across the region and integrate key acquisitions into a unified operating platform. Turning to EMEA, Europe revenue for the fourth quarter was $12.1 million, down $2.4 million versus the prior-year period. This was driven primarily by the timing of LHD and Jolly orders, as well as delayed government tenders and macroeconomic conditions across several markets. For the full year, Europe revenue grew $12.1 million, or 28.7%, to $54.2 million, a strong result that reflects the full-year contribution of LHD and Jolly. The Q4 softness that we have discussed is a timing story; it is not a structural one. The tender pipeline is intact, and underlying demand dynamics across the region remain supportive. On LHD Germany specifically, conditions in that market have been challenging, and we have been direct about that. We are actively restructuring the business to reduce the overhead and to rightsize the cost base for the current conditions. Stabilization is underway, and we are planning a formal relaunch of the LHD brand at Interschutz 2026. This is the largest fire industry event in the world and is only held every five years, so this really is a significant commercial moment for us. Interschutz will serve as our EMEA platform launch for the combined Lakeland Fire and Safety brand. We intend to demonstrate our integrated head-to-toe offering to the European market at this event and show what our portfolio now looks like as an integrated head-to-toe offering. We view it as a pivotal opportunity for LHD Germany in particular, and for our European fire brands broadly. Our LHD Hong Kong and LHD Australia businesses secured new contracts during the year that solidify those operations and build a stronger foundation for future growth in the Asia Pacific region. Late-stage tenders across the region are up, and the quality of the pipeline has improved meaningfully. Integration across the acquired EMEA businesses is beginning to unlock access and scale that we could not if operating these brands independently. We are now seeing what we estimate to be over $5 million of incremental business opportunities flow directly through intercompany collaboration within the group. These are cross referrals, shared supply chain economics, and joint initiatives, and that represents a growing, previously untapped source of revenue. This dynamic is extending beyond EMEA and beginning to manifest in Asia, Latin America, and North America as well, which speaks to the stability of the integrated platform. Our objectives from here are clear: to improve the conversion across our late-stage pipeline, to convert intercompany opportunities into tangible recurring revenue, and to continue building a more balanced and predictable tender pipeline across the region. I will now hand over the call to Calvin to review the financials. Thank you, Kevin, and hello, everyone. I will provide a brief overview of our fiscal 2026 fourth quarter financials before diving into the details. Calvin Sweeney: Net sales were $45.8 million for Q4 fiscal 2026, a decrease of $0.8 million, or 1.7%, compared to $46.6 million for the prior-year quarter. Adjusted gross profit for Q4 was $15.4 million, a decrease of $4.4 million, or 22%, compared to $19.8 million for the prior-year quarter. Adjusted gross margin was 33.5% in Q4, compared to 42.4% in the fourth quarter fiscal 2025. Adjusted operating expenses, excluding FX, were $14 million, up from $13.7 million in the prior year. Net loss was $166.2 million, or $0.61 per diluted share, compared to a net loss of $18.4 million, or $2.42 per diluted share in fiscal 2025. Adjusted EBITDA, excluding FX, was approximately $1.3 million for the fourth quarter, compared to $6.1 million for the prior-year quarter. Adjusted EBITDA, excluding FX margin, was 2.9%. Turning to the full fiscal year, net sales were $192.6 million for fiscal 2026, an increase of $25.4 million, or 15.2%, compared to $167.2 million for fiscal 2025. Adjusted gross profit was $66.4 million for fiscal 2026, a decrease of $4.7 million, or 6.6%, compared to $71.1 million for fiscal 2025. Adjusted gross margin was 34.4% for the full year, compared to 42.5% in fiscal 2025. Adjusted operating expenses, excluding FX, increased 10.2% to $59.2 million for fiscal 2026 from $53.7 million for fiscal 2025. Adjusted EBITDA, excluding FX, was approximately $7.2 million for fiscal 2026, compared to $17.4 million for fiscal 2025, with an adjusted EBITDA excluding FX margin of 3.7%. Net loss was $25.3 million, or $2.63 per diluted share, compared to $1.8181 billion, or $2.43 per diluted share for fiscal 2025. Looking at the fourth quarter in more detail, geographically, U.S. revenue increased $1.3 million, or 7.1%, to $19.6 million for Q4. Europe revenue decreased $2.4 million to $12.1 million, reflecting timing of orders from LHD and Jolly. Asia revenue increased $0.7 million, or 19.4%, to $4.3 million. Latin America revenue was $3.8 million, down modestly versus the prior-year period. Adjusted EBITDA excluding FX for Q4 fiscal 2026 was approximately $1.3 million compared to $6.1 million for the prior-year quarter. The decrease was primarily driven by the decline in gross margin related to the factors I just mentioned. Adjusted operating expenses, excluding FX, were $14 million in Q4 and declined sequentially across the prior three quarters, demonstrating that our expense discipline has held at the business scale. The key driver of the year-over-year adjusted EBITDA decline was gross profit compression, not expense growth. As gross margin recovers through utilization improvement, pricing discipline, mix management, and supply chain optimization, EBITDA will follow with meaningful operating leverage. Adjusted gross margin decreased to 33.5% in fiscal 2026 Q4 from 42.4% in fiscal 2025 Q4, a decrease of approximately 890 basis points. The primary drivers were product mix shift as fire services grew as a proportion of revenues at lower initial margins, manufacturing underutilization in Mexico and Vietnam, raw material cost pressure, elevated inbound freight and duties, and execution gaps in production planning. Partially offsetting these headwinds, Q4 showed sequential improvement in freight and duties versus Q3 and a more favorable sales mix within the quarter. Adjusted EBITDA excluding FX decreased from approximately $6.1 million in the fourth quarter fiscal 2025 to approximately $1.3 million in the fourth quarter fiscal 2026, a decrease of $4.8 million or 78%. Gross profit compression was the dominant driver. Operating expense changes were minimal year over year, confirming that expense discipline has held. The path to EBITDA recovery runs primarily through gross margin improvement, which we are addressing through utilization improvement, pricing discipline, mix management, and supply chain optimization. For the full year, adjusted gross margin was 34.4% compared to 42.5% for fiscal 2025, a decrease of approximately 810 basis points. The full-year bridge reflects three primary themes. First, mix: our fire acquisitions entered the portfolio at a lower gross margin profile than our legacy industrial lines, and as fire grew to approximately 49% of revenues, blended margin came under structural pressure. Second, cost headwinds: raw materials, tariffs, and elevated freight costs impacted the full year. Third, underutilization: manufacturing capacity in Mexico and Vietnam was sized for higher volumes; the fixed-cost deleverage in a period of below-target output was significant. We are addressing all three through manufacturing footprint consolidation, supply chain restructuring, and targeted pricing actions. Reviewing our revenue mix over the past three fiscal years is clear on both the geographic and product basis. On the geographic side, Europe grew from approximately 13% of revenues in fiscal 2024 to approximately 25% in fiscal 2025 and approximately 28% in fiscal 2026, a direct result of our LHD and Jolly acquisitions expanding our European fire platform. The U.S. has remained at approximately 42% in fiscal 2026, reflecting the growth of Viridian, Arizona PPE, and California PPE offsetting softness in industrial. This geographic diversification provides broader exposure to the global fire protection market. On the product side, fire went from approximately 21% of revenues in fiscal 2024 to approximately 38% in fiscal 2025 to approximately 49% in fiscal 2026. To us, this is the clearest illustration of our strategic pivot to the higher-margin, higher-growth global fire protection sector. Disposables moderated from approximately 40% to 27% as fire grew. The divestiture of HPFR and HiViz further simplifies this picture heading into fiscal 2027. As our acquired businesses integrate and fire gross margins recover toward their structural potential, our growing fire concentration should become a meaningful margin tailwind. Now turning to the balance sheet. Lakeland Industries, Inc. ended the fiscal year with cash and cash equivalents of $12.5 million and working capital of approximately $96.5 million. This compares to $17.5 million in cash and working capital of approximately $101.6 million as of 01/31/2025. Cash decreased $5 million versus the prior year reflecting $15.8 million of operating cash usage and $1.2 million of net investing outflows, offset by $12.5 million provided by financing activities. As of 01/31/2026, we had total borrowings of $32.3 million, with $28.5 million outstanding under the revolving credit facility, with an additional $11.5 million available under the revolver. Net investing activities included $6.2 million for the Arizona PPE and California PPE acquisitions, offset by $5.7 million proceeds from the Decatur warehouse sale, of which we used 100% of those net proceeds to repay our revolving credit facility. Importantly, Q4 generated approximately $1.8 million of operating cash, demonstrating that our focus on cost discipline and working capital management is beginning to yield results. We are in advanced stages of negotiating an ABL facility, which we expect to close soon, although there can be no assurances that the ABL facility will close on that timeline or at all. A Bank of America covenant waiver has been secured, and we anticipate to be in covenant throughout fiscal 2027. We expect the ABL facility to further strengthen our financial flexibility and support growth initiatives in fiscal 2027. Subsequent to year-end, the divestiture of the HPFR and HiViz product lines generated approximately $14 million in additional cash proceeds that are not reflected in year-end cash balances, further reinforcing our liquidity position. At the end of Q4, inventory was $80.5 million, down approximately $5.4 million from $87.9 million at the end of Q3 fiscal 2026 and essentially flat on a year-over-year basis despite revenue growing approximately 15%. That year-over-year stability reflects meaningful progress on our supply-demand alignment initiatives. The quarter-over-quarter decline in inventory is broad-based: organic finished goods were $36.3 million, down from $38.8 million in Q3; organic raw materials were $30.9 million, down from $33 million in Q3. Reductions were also achieved across Meridian, LHD, and Jolly as integration and planning processes improved. Our immediate priorities have been in the U.S. industrial, Jolly, and LHD’s regions where we saw the greatest opportunity to align balances with demand and improve working capital efficiency. Inventory optimization is one of the key levers in our path to improved free cash flow generation. As inventory levels normalize further, carrying costs decrease and working capital is released. This helps our business become more efficient operationally, and we see opportunities to continue this strategy to drive inventory lower in fiscal 2027 in a disciplined, demand-driven manner. With that, I would like to turn the call back over to Jim before we begin to take your questions. Thank you. Jim Jenkins: Fiscal 2026 was a year of significant transformation. We grew revenue 15.2% to $192.6 million driven by 48.6% growth in fire services, built a head-to-toe global fire protection platform through multiple strategic acquisitions, and made meaningful progress simplifying and strengthening the business, even as we navigated a challenging cost and operating environment. We are entering fiscal 2027 with key financial metrics showing sequential improvement over Q4 2026. The fourth quarter demonstrated that our operational discipline is improving. We generated positive operating cash flow, held expenses essentially flat, and delivered adjusted EBITDA despite lower revenue versus Q3. These are early but tangible signs of the operational improvement we have been working toward. As we enter fiscal 2027, our priorities are clear: we will continue executing margin recovery actions across logistics, operations, and pricing, including manufacturing footprint consolidation; continue efforts at cost containment across logistics and operations, including in the face of the Iran conflict and its potential impact on freight and supply chain costs; tighten forecasting accountability and implement a stronger structure around sales and production planning; revise the ERP rollout plan with our new implementation partner targeting 2027; actively drive greenfielding in the M&A pipeline within our ISP space—we opened our Fresno facility in January and Denver is expected to open in summer 2026, as Barry had mentioned; capitalize on the fire tender pipeline, including expected tender wins in Europe, and showcase our full NFPA-certified portfolio at FDIC 2026; and leverage our balance sheet to execute on our acquisition strategy focused on fire turnout gear decontamination, rental, and services. Today, as we are now almost through fiscal first quarter 2027, I am very optimistic about our business trajectory, given the recent customer wins around the globe, enhanced product development and differentiation with our new Firefox Elite L100 structural firefighting boot, and a recently achieved full head-to-toe range of NFPA 1970 2025 certified product offerings across our brand portfolio. Customer interest and demand are strong. Operationally, we are correctly positioned. The core team is in place, and we are ready to capitalize on an amazing opportunity that is on the horizon for Lakeland Industries, Inc. Based on these factors, we believe fiscal 2027 will see high single-digit revenue growth and a clear line of sight to positive cash flow from operations. We are grateful to our customers, distribution partners, and team members worldwide for their continued trust and commitment, and especially to those first responders around the world who risk their lives every single day to protect all of us. We will now open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment, please, while we poll for questions. Our first question comes from the line of Gerry Sweeney with ROTH Capital Partners LLC. Please proceed with your question. Gerry Sweeney: Hey, Jim and team. Thanks for taking my call. Jim Jenkins: Hey, Gerry. Gerry Sweeney: Wanted to start with the fire side. I think in some of the prepared comments, the comment was largest pipeline in history. And I want to see—you know, some of this was definitely pushed out from 2025 due to government shutdown, NFPA standards, etcetera. So I think we sort of anticipated a building pipeline, but the question is, how do we unlock this, and maybe some more detail on the size of the pipeline and how does it flow through for this year? Jim Jenkins: I think I am going to have Barry, who has been working closely on that, respond to that, and then I will chime in. Barry Phillips: The comment was the largest open orders for Lakeland Fire in the company’s history, so our open book of orders coming through, scheduled for production and having a C-sale and invoice, that is the largest. The pipeline is the clearest view that we have been able to develop as we have been working through integrating our CRM software and program Salesforce globally, and our sales operations team structuring it for a full view across the business. We now actually have over $130 million in open pipeline that is visible to us, over $22 million of that in higher probabilities over half, and we have that view that we are working diligently with our teams to keep active. What we are seeing now is the opening of the spigot, so to speak, with the certifications coming through. Departments have been waiting for that certification approval, and then they start to look and bring things through. FDIC is the key component next week, where most of the NFPA push is through North and South America. Then we will be rolling things out with the rest of the world at the big show in June. On the FDIC show next week, generally, it is not an order-writing show, but it is a very visible show. It is Fire Department Instructors Conference, the longest-standing fire show in North America, and one of the globe’s largest ones other than Interschutz, which is once every five years and more global. Departments will come and, in a sense, kick the tires. Some of them have already started to have input for a field trial or user trial; those sorts of things take place. Sometimes you will get orders for commodity items, whether it is helmets or boots. If it is a larger department conversion, it is going to generally have some sort of a tender relationship or RFQ that will come into play or a wear trial. Gerry Sweeney: Got it. That is helpful. And then, switching gears slightly to the cleaning, the PPE opportunity. Obviously expanded in Arizona, sounds like it is going well. You are going into Denver. How big is that business in terms of revenue today, and how quickly can you grow that? Or do you have a target that you want to grow to in the next couple of years? Jim Jenkins: The goal is to get, in the services space, up to $30 million by fiscal 2028. We are ramping up rapidly, and I would be very disappointed if it was not much sooner than that at this point. When we acquired Cal PPE and Arizona PPE—Calvin, correct me if I am wrong—maybe $4.8 million, $4.7 million in annualized revenue. They have significantly ramped that up. They are winning customers; they are doing it the right way. The reason we are opening in Denver is we are not going to just open it and hope they come. We have active customers who have said, we need you to do this for us, and we need you to do it quickly. So when we open Denver, we would expect several fire brigades to be providing services for the moment we open that up. Fresno, we have seen similar. What happened with Fresno is that we had so much activity at our Riverside facility, it was busting at its seams. Having Fresno in Central California allowed us to shift some of those opportunities to Fresno while we were continuing to grow our opportunities in Southern California. While Fresno was working on some of that offload of capacity, they are also finding additional opportunities within Central California, adding to the Fresno mix. Arizona PPE—we are having a dialogue as a team now about expanding that footprint or increasing its warehouse capacity because they are bursting at the seams right now. As opposed to last year, Gerry, where we were pulling stuff in from quarters on the fire front, now we are trying to figure out how to make sure we can service it properly. Barry talks about the outstanding order flow that we have. That is driving us to do things. We have our North American manufacturing leader camped out right now at Meridian. Because Viridian was so slow last year, we had some personnel issues where we had to move on some sewing folks. We have since added capacity to that plant and individuals to that plant so that we can fulfill order flow for the first and second quarter. We have got visibility into order flow now into the second quarter and parts of the third quarter. We went from three and a half weeks’ worth of work at a place like Meridian to eight and a half or nine, and that has created challenges because we have to make sure the customer gets that delivery in a timely way. That is how we differentiate. In some of these ways, some of this happened very quickly, and we do not anticipate that momentum moving in the other direction. That is why we feel so optimistic, because for the first time, we have a production problem, not a sales problem. Gerry Sweeney: On your guidance, you said high single digits. On the chemical/woven side, the commentary is that it is stable. Is that high single-digit guidance a function of the visibility you are seeing on the fire side today? Jim Jenkins: Yes. It is a combination of that and what we also are seeing on the industrial side. The industrial segment—just as an example, in the United States—I get something called Cleveland Research from our partners at LineDrive. It is a survey of industrial channel partners, large and regional, and their view of where the market is going to be. Cameron’s philosophy has always been about trying to steal market share, which is really important in a business as mature as industrial. Historically the Cleveland Research report was saying half a percent growth in the North American industrial market, maybe 0.8% to 1%. Now it is 5%. When you are racing and being the most nimble in a market, and you have the team in your sales field and regional leaders we did not have historically, that foments a lot of optimism on the industrial space as well. Coupled with what we see in fire both in the U.S. and globally—Kevin Ray’s got his team in play in a lot of different opportunities. We would expect to hear soon on several opportunities in Europe where I think we have such close visibility to it, I would be really docked if we did not win. I look at places like the U.K. and Great Britain; I think we are in really good shape there. Gerry Sweeney: One more quick question. Margins—can you do a quick margin bridge? So it is around 30%; you were at 41% a year ago. You have volume, logistics/input costs, and pricing. Can you bucket those three out quickly as to how much of the downturn in margins each one played? Calvin Sweeney: Gerry, the bulk of that is mix; it is sales mix, followed by freight, duties, and materials cost that get you the rest of the way, but the majority of it was mix. Gerry Sweeney: So if you say mix, would that mean if fire volumes improve, we should see an improvement? Or are the margins in the gear low and you have to up the price? Calvin Sweeney: In fire services, the higher margin is the turnout gear, and then you have lower margin on boots. Jim Jenkins: We are currently in certification right now. We are working on getting certification from UL to be able to manufacture a Viridian product in Mexico. I have talked about this for quite a while. UL has been backed up doing certifications for fire. That backup, I think, has subsided, so I would expect to hear from them sometime in the summer. Then I can start manufacturing Viridian products in Mexico, and that is—Latin America for Viridian is their fastest growing. I am also looking for a certification for Lakeland product at Meridian so that, where needed, I can win departments that require made in U.S. I am now manufacturing LHD in China, and I am currently manufacturing Eagle in China, where we do not have issues with proximity to some regions in Europe where Kevin will still use third-party contractors. Yes, we would expect those margins to improve. As we garner critical mass in the services business—while those services businesses do not necessarily have great gross margin—their EBITDA margins are significant. That is why we have an urgent need to continue to drive growth in those businesses. Gerry Sweeney: Got it. I will jump back in. I apologize—quite a few questions, but thank you. Operator: Thank you. Our next question comes from the line of Michael Shlisky with D.A. Davidson. Please proceed with your question. Michael Shlisky: Yes. Hi. Good afternoon. Thanks for taking my questions. It was a little hard to tell how you feel, quarter to quarter, about the organic growth rate throughout the year. Do you think it might start off the year on a slower-than-high single-digit rate and end up at a higher rate, or could it be somewhat smoother organically throughout the four quarters? Calvin Sweeney: I think historically we start off a little slow in the first quarter of the year, and you will see improvement as we move throughout the year, especially now since we are picking up the certifications and see the demand increase. That happened mid-first quarter, so it is going to take a little bit of time for orders to come through. Michael Shlisky: Got it. On the ISP growth, interesting to see that you are opening in Denver. Any sense as to start to finish—when did you first hear you should be opening in Denver, and what was the time frame from that point to when you actually opened or are about to be opening? And are there any opportunities in other cities or states beyond Denver later on this year? Jim Jenkins: Barry, you are at the heart of the Denver effort right now. Why do you not answer that one? Barry Phillips: The Denver opportunity came to light just a few months ago. Our team and the leaders—our ISP’s Mike Glaze—is very well connected and known across the country. He used to be with Cal Fire; he ran their PPE program for many years before retiring and opening up California PPE. So, well connected. We know who to do and what and where. We were aware of an opportunity because a major competitor pulled out of the region. We know some of the technology providers because we have partnerships with them for the cleaning gear that drives our high efficacy ratings, and we found departments in that area that were looking for us and actually spoke to Mike in particular about coming in and taking care of their products for them. So we acted quickly. We have hired the leader for that site—she comes with a strong background and experience in the industry—and we are in process of getting things up and running. Our Fresno site, for example, as a footprint—we use that as a template to build out our sort of cookie-cutter, franchise-type thought on how to quickly ramp up. We did that in about a month and a half. The longest lead item is, first, securing the site; then after that, it is getting UL certification. The other parts—we know what to do, where to set it up, how to set the flow and process, and what resources we need to fulfill it. And, Mike, to the other part of your question— Jim Jenkins: We have several other opportunities that we are looking at from a greenfield perspective. We are doing some market research. Mike is checking out some opportunities in the Southeast; he has a few meetings next week—he is leaving FDIC for a meeting in the Southeast to look at opportunity there. Obviously, we want to be in the Midwest. I would envision over the course of the next year another three to five add-ons, in a perfect world, for greenfield—so we have another three to five between greenfield and acquired companies. As I said, these acquisitions are much lower cost, much higher rate of return from a pure synergy perspective because they kind of drive themselves and they can scale quite nicely, and Mike knows how to scale them and identify the people within a region to help drive that growth. He has already got a business plan on that front. I would envision three to five additional ones beyond Denver in North America. Kevin Ray has reached out—he wants one in Germany. It would make sense for us to do that. I think three to five in North America is probably the next twelve months of what I would be focusing on, though. Michael Shlisky: Great. And one last quick one for me. Kevin, welcome—glad you are head of EMEA Fire. What is the structure of the sales organization globally? Is someone going to be head of Americas soon that you are going to be hiring? I want to get a sense of the leadership structure. Jim Jenkins: We have a North American sales leader already. He reports into Barry. Everyone—other than Kevin—reports up through Barry. Barry is ultimately responsible for our global strategy. He and Kevin work together on the European side. I brought Kevin on board formally because, frankly, de facto, he had been a member of the management team for at least the last year, helping integrate the Jolly and LHD brands. Michael Shlisky: Just clarifying. Thank you so much. I will pass it along. Operator: Thank you. Our next question comes from the line of Analyst with Lake Street Capital Markets. Please proceed with your question. Analyst: Hi, guys. You have got Alex Donix on the line for Mark Smith today. Thanks for taking my questions. One for me—gross margins have been under pressure all year. Walking into fiscal year 2027, what are the biggest drivers of margin improvement there? What does the sequencing look like—what gets better first versus what takes longer to come through? Calvin Sweeney: It is really going to be the sales mix that drives that, and what we see is with increased demand on the fire side, especially in the higher-value products, we will see that starting maybe in late Q1 but most likely Q2 is where you really start to see the improvement. And you add that to some of the synergies we are driving with manufacturing— Jim Jenkins: —in place for products like Eagle and LHD in China, as opposed to utilizing third-party manufacturers, and the move of Meridian’s fire manufacturing for Latin America into Mexico. We think that, along with selling more turnout gear on the fire front, really adds to the margin. Analyst: That is helpful. And then last one for me. The high performance and high viz sale brought in about $14 million. It sounds like the balance sheet is the priority for those proceeds, but is any of that set aside for bolt-on deals, or any additional color on M&A would be great? Calvin Sweeney: Balance sheet. Jim Jenkins: The M&A opportunities—we are looking at an ABL because we would like a little more availability to do some of these smaller acquisitions. Whether we go that route or others, we will find a way to do it. As I said, they are not expensive deals. Analyst: Perfect. Thanks for taking my questions. Operator: Thank you. Our next question comes from the line of Analyst with Maxim Group. Please proceed with your question. Analyst: Hey. Thanks for taking my questions. I think you mentioned $5 million intercompany sales activity. I am wondering how you expect that to evolve now that you have the head-to-toe certifications, and what do you expect from it in the next fiscal year? Jim Jenkins: We expect it to grow significantly. We have an NFPA boot now for Jolly that we just got certified, so we will be rolling that out. Boots, gloves, helmets, and hoods—those are in-stock products that we need to have. The reception on the helmets right now is significant and has exceeded our expectations in the U.S. markets. That will continue to grow. The boots were very well received in the wear trials, so we will see pickup from that. Kevin has only recently started to drive the sales teams within the Eagle—well, not so much Eagle, he has been doing it with Eagle—but more with LHD and with Jolly, the cross-selling of the brands within other markets. Jolly has been very well received in the Latin American market, and now that we have an NFPA boot—where Latin America likes to have the choice of an NFPA offering—we would envision the ability to sell into that market as well. Do I have a dollar amount on that? I do not. But it is going to be, in my perspective, very easy to drive some of the growth in brands within a market like the U.S. that, until these certifications were standardized and finalized, we were not able to sell. Kevin Ray: Across the globe, the brand recognition—Lakeland Fire and Safety in the last twelve to eighteen months—is becoming a much higher-profile brand. It is getting credibility across the categories that we are supplying, so we are seeing more inquiries of a higher quality because of that. Barry Phillips: And to add to that, these brands that were regional manufacturers that worked through distribution globally with limited sales resources now have the full Lakeland sales team around the globe representing them. They are getting in front of end users and key channel partners that they did not have the opportunity to reach in the past, and that is where it is growing. Analyst: Great. Thank you. Operator: And we have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Jenkins for his closing remarks. Jim Jenkins: Thank you, operator. Thank you all for joining us for today’s call, and thank you to our customers and distributor partners worldwide for trusting us with your lives and safety. Lakeland Industries, Inc. continues to be well positioned for long-term growth, and we look forward to sharing our continued progress on the next call. We will also be attending FDIC 2026 in Indianapolis from April [inaudible], so please stop by and say hello if you are there. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group. We will be more than happy to assist. Operator: This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Hello everyone, and welcome to the Citizens Financial Group First Quarter 2026 Earnings Conference Call. My name is Ivy and I will be your operator today. [Operator Instructions] As a reminder, this event is being recorded. Now I will turn the call over to Kristin Silberberg, Head of Investor Relations. Kristin, you may begin. Kristin Silberberg: Thanks, Ivy. Good morning, everyone, and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, Aunoy Banerjee, will provide an overview of our first quarter results. Brendan Coughlin, President; and Ted Swimmer, Head of Commercial Banking, are also here to provide additional color. We will be referencing our first quarter presentation located on our Investor Relations website. After the presentation, we will be happy to take questions. Our comments today will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. We also reference non-GAAP financial measures, so it's important to review our GAAP results in the presentation and the reconciliations in the appendix. And with that, I will hand it over to Bruce. Bruce Van Saun: Okay. Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. We're pleased to start the year off strong, notwithstanding geopolitical tensions and uncertainty in the macro environment. We delivered good financial performance in a seasonally soft quarter with year-over-year EPS growth of 47%, positive operating leverage of 7% and NIM expansion of 24 basis points. Our balance sheet position continues to be robust with CET1 at 10.5% and our allowance for loan losses at 1.52%. Credit trends continue to be favorable across our portfolios, and we continue our loan mix shift towards deeper relationships with lower credit risk. Execution on our strategic initiatives continues to track well. The Private Bank and Wealth business showed further growth in customers, balance sheet and profitability, now accounting for roughly 10% of our pretax income while delivering an ROE in excess of 25%. During the quarter, we opened 3 more PBOs, bringing the total to 9. Reimagine the bank is off to a solid start, and we reaffirm our $450 million P&L target by the end of 2028. We estimate about $100 million in 2026 exit run rate benefits at this point. Our positioning with private capital continues to be excellent. We anticipate a strong year for private equity sponsor activity, which should provide a balance sheet and fee opportunities for us. We've reviewed all of our lending to private credit vehicles at a granular level and we feel good about our credit exposure. The New York City Metro initiative also continues to show further progress. We are growing across retail, small business and middle market. We are in the process of analyzing Citizens' existing branch footprint for net new investment and optimization with New York City likely to see growth in branches in coming years. We should have more details to share with you on this midyear. We're also focused on an initiative we call One Citizens, which is systematically finding ways to work across the enterprise to deliver valuable solutions to our customers. Now that we have stood up the private bank and continued the build-out of our corporate bank, we have the capacity to provide both personal and corporate services to successful business owners investors and entrepreneurs. We will report more on this as the year progresses, but we're already gaining real traction. As we look ahead to the second quarter and the full year, we remain cautiously optimistic that we'll be able to navigate through external challenges and still deliver the strong results we projected coming into this year. So far, markets have behaved rationally despite the war with equity markets holding in and credit spreads only slightly wider. We intend to stay on our investment plan for the year unless the macro takes a meaningful turn for the worst. We're pleased with the regulatory changes we see coming from Washington, D.C., and we look forward to the upcoming CCAR stress test results, which we're hopeful will give a more accurate result for citizens than what we've seen in the past. So to sum up, a good start, well positioned with a great strategy and a great team and optimistic for a strong 2026. With that, I'll turn it over to Aunoy for the financial details. Aunoy? Aunoy Banerjee: Thanks, Bruce. Good morning, everyone. As Bruce mentioned, Citizens has started the year well. Referencing Slides 3 and 4, we delivered EPS of $1.13 for the first quarter with ROTCE of 12.2%. Results were paced by strong NII, reflecting both continued net interest margin expansion and solid loan growth. We also deferred our best-ever first quarter fee result, led by strong performance in our commercial bank. With solid revenue performance and expense discipline drove more than 700 basis points of positive operating leverage year-over-year notwithstanding continued investment in the private bank and our other strategic priorities, along with ramping up our [indiscernible] bank program. The Private Bank continued to grow its profitability, contributing $0.11 to EPS, up from $0.10 in the prior quarter as the business delivered another very strong quarter of deposit growth. Now let me walk through the first quarter results in more detail, starting with net interest income on Slide 5. Net interest income was up 1.6% linked quarter, driven by the benefit of an expanded net interest margin and higher interest-earning assets, including strong loan growth which more than offset the day count impact of about $22 million. As you see from the NIM back at the bottom of the slide, our margin improved 7 basis points to 3.14%, driven primarily by the benefits of the reduced drag from terminated swaps and noncore runoff with a 5 basis point of combined impact. The fixed rate asset repricing benefit of 1 basis point. And lastly, the net impact of 1 basis point related to improved funding cost and mix, largely offset by lower acetyls. We continue to do a good job optimizing deposits in a competitive environment. Our interest-bearing deposit costs were down 16 basis points and total deposit costs were down 12 basis points. The cumulative interest-bearing deposit beta improved to 50% as we benefited from the repricing after the last rate cut. Even with the Fed now expected to hold steady in '26, we are still projecting a high 40s beta for the cycle. Moving to Slide 6. Noninterest income is up 11% year-over-year but down 2% linked quarter. As I mentioned, this was our strongest first quarter fee result ever, notwithstanding heightened geopolitical tensions and an increase in market volatility. Capital markets performance demonstrated the strength and diversity of the franchise with fees up 34% year-over-year and down 4% compared with the strong fourth quarter. M&A delivered a good result in the quarter with our pipeline is strong and continues to build. Bond underwriting was up nicely from the prior quarter. Our equity underwriting performance was stable linked quarter and up significantly year-over-year. Loan syndications were lower given the market volatility. We continue to maintain strong market share ranking fourth in the middle market sponsors book runner deals by volume. This is for both the first quarter and over the last 12 months. Our deal pipelines across M&A, debt and equity capital markets continue to build notwithstanding the unsettled environment. Our Global Markets business was up $10 million linked quarter with increased client hedging activity in interest rate products and energy-related commodities. Our wealth business continues to build with progress in the private bank and strength in our retail network. Wealth fees are up 2% linked quarter and 23% year-over-year. These results reflect higher advisory fees with continued positive momentum in fee-based AUM growth year-over-year. The fourth quarter results reflect positive net inflows partially offset by market impacts on AUM. Mortgage was down 19% linked quarter given a lower MSR valuation, partially offset by slightly higher production and servicing fees. On Slide 7, Expenses were managed tightly, up 2.6% linked quarter, largely reflecting the usual seasonality in salaries and benefits as well as about $6 million of implementation costs to ramp up the reimagined the bank program. On Slide 8, average and period-end loans were up 1% linked quarter. We saw solid loan growth across each of the businesses. Commercial loans, excluding the private bank, were up 1% on a spot basis. This was driven by net new money originations at higher commercial line utilization. This was partially offset by CRE paydowns. We continue to reduce commercial banking CRE balances, which were down about 4% this quarter and 16% year-over-year. The Private Bank delivered good loan growth again this quarter with period-end lows up about $600 million, driven by growth in multifamily and residential mortgage. Growth in retail loans ex noncore on a spot basis was about $300 million, led by real estate secured categories. This was offset by noncore auto portfolio run-up of roughly $500 million for the quarter. Next, on Slides 9 and 10, we continue to do a good job on deposits. with average deposits up 1% or $1.5 billion quarter-on-quarter, primarily driven by the growth in the Private Bank, which reached $16.6 billion at the end of the quarter. This was partially offset by seasonal impacts in commercial. Year-over-year, average balances are up $8.6 billion or 5%, reflecting combined growth in the private bank and commercial of $11.2 billion, partially offset by roughly $2 billion of reduction in higher-cost treasury brokered deposits. On a spot basis, noninterest-bearing balances are up $1.3 billion or 3% quarter-on-quarter and up $4.1 billion or 11% year-over-year, improving the overall mix to 23% of the book. Our total noninterest-bearing and low-cost deposit mix was steady at 43%, and our consumer deposits are 64% of our total deposits. This compares to a peer average of about 56%. Moving to Slide 11. Credit continues to trend favorably with net charge-offs coming in at 39 basis points, down from 43 basis points in the prior quarter. Nonaccrual loans are down modestly linked quarter, reflecting a decrease in commercial, largely driven by C&I, which was partially offset by an increase in market. Turning to Slide 12. The allowance was essentially stable this quarter with ACL coverage ratios of 1.52%. This reflects the continued improvement in our portfolio mix with noncore runoff, the reduction in CRE and strong originations of lower loss content C&I, residential real estate secured and private loans. The economic forecast supporting the allowance contemplates a mild recession with a slight deterioration compared with the last quarter, reflecting the potential impact of higher energy prices. As we look broadly across the portfolio, the credit outlook remains positive though we continue to carefully monitor the macroeconomic environment. Moving to Slide 13. We maintained excellent balance sheet strength, ending the quarter with CET1 at 10.5%. We returned about $500 million to shareholders in the first quarter with $198 million in common dividends and $300 million of share repurchases. Moving to Slide 14. The private bank continues to make excellent progress. The Private Bank delivered strong deposit growth again, ending the quarter at $16.6 billion. Importantly, the overall deposit mix and cost continues to be very attractive. We also delivered solid loan growth in the quarter, adding about $600 million of loan at a healthy spread of 4% over deposit costs to end the quarter at $7.7 billion of loans. We ended the quarter with $10.1 billion of total client assets with modest net inflows partially offset by market impacts. We have more runway here as we plan to continue adding top quality teams in key geographies. We opened offices in Malmo Park and Laurel Village in the first quarter, and we expect to open at least 2 more offices this year in Weston Beach, Florida and Greenwich, Connecticut. Moving to Slide 15. Our reimagined the bank program is off to a great start. The objective is to position Citizens for long-term success by embracing a host of new innovative technologies across the bank and simplifying our business model. which will reshape our customer experience and drive a meaningful improvement in productivity and efficiency. The program is well underway with work commencing on several key work streams. For example, on the technology front, we are leveraging AI to assist in writing code and expect to have material productivity improvements in software development, cutting down cycle times. We are also using AI to improve our interactions with customers, which we expect will materially cut call volumes and improve the overall customer experience. We expect to exist 2026 with an annualized run rate of about $100 million of pretax benefit. Now moving to Slide 16. We provide our outlook for the second quarter. We expect net interest income to be up in the range of 3% to 4%, driven by continued expansion in net interest margin and earning asset growth. Noninterest income is expected to be up 3% to 5%, led by capital markets with some risk if market volatility moves higher. Other fee categories such as FX and derivatives, wealth and card should also provide lift for the quarter. We are projecting expenses to be stable to up 1% and incorporating a step-up in implementation costs associated with reimagine the Bank and continued investment in other key business initiatives. We expect expense saves from reimagine the bank to benefit second half expenses. The charge-off level is expected to be stable to down slightly. And we should end the second quarter with CET1 in the range of 10.5% to 10.6%, including share repurchases of about $225 million. In addition, our full year outlook remains broadly in line with the guide we provided in January, which contemplated a pickup in business activity over the course of the year. Looking out further, we see a clear path to achieving our 16% to 18% ROTCE target by the end of pending our net interest margin is an important driver, and we continue to project NIM to be in the range of [ 322% to 328% ] in 4Q '26. And in the range of [ 330% to 350% ] in 4Q '27. Slide 17 provides incremental details on our net interest margin progression to the end of '27. This combined with the impact of successful execution of our strategic initiatives and normalizing credit should drive ROI to our target range. To wrap up, we're off to a good start to with results highlighted by strong growth, net interest income and good fee results in a seasonally soft quarter. Our balance sheet is strong and continue to drive forward our strategic initiatives with strong momentum in growing the private bank and in our reimagine the bank program. With that, I will hand it back over to Bruce. Bruce Van Saun: Okay. Thank you, Aunoy. Operator, let's open it up for Q&A. Operator: [Operator Instructions] Our first question comes from Scott Siefers from Piper Sandler. Robert Siefers: Maybe I was hoping you could maybe start by speaking to kind of the capital markets dynamics. Obviously, I see the numbers in the first quarter, but curious how you thought the first quarter actually performed given that you had sort of the interplay between one, the environment played out a lot differently than we all figured it might. But two, I know you all had some deals that were pushed from the fourth quarter into the first quarter. So maybe just sort of results versus expectations then if you could speak to the forward look, things like pipelines, confidence and pull-through, et cetera. Bruce Van Saun: Yes. Scott, let me -- it's Bruce. I'll take it first and then hand over to Ted to provide more color. But I would say all things considered. We're pleased with the performance of the capital markets franchise in an environment that had increased volatility and lots of uncertainty, particularly in March once the war kicked in. But we have good diversification across our different services in capital markets. So we have M&A, we have bond underwriting, equity underwriting and syndicated loans. I think that diversity helped us print a good quarter. There was some leakage, I would say, from March that's geared up to go in April, which now that we have more optimistic tone to the market. We're actually starting to see that come through. So we may be in a situation where our pipelines are very well. We're very optimistic given kind of the strength of the franchise the likelihood that people want to transact. But if there's this external volatility ebbs and flows, you could see people pull to the sidelines, wait for the opportune time, for example, to go to market. And hopefully that cleans up. We're certainly not taking our numbers down for the year. In fact, we feel quite good about that given the level of activity that we see and the pipeline strength that we have. So Ted, over to you. Theodore Swimmer: Building on what Bruce just said, we've seen -- we took a couple of transactions in March that we would have launched into the market and pushed them into April, just given the volatility in the overall markets. But during that whole period of time, we continue to sign up new transactions. And I think what's really exciting about the transactions that we're signing up based on the investments we made in Corporate Finance and industry specialization we now are doing more complex transactions and getting signed up on more complex transactions than we ever had before and feel very good about what that pipe -- what those transactions are and how the pipeline is building. And to more to what Bruce just said, the deals that got postponed in March, especially this week, we've seen them back into the market. We are launching several transactions and part of several transactions that were postponed in March that are getting very good [indiscernible] now in April. So we continue to feel very optimistic about the pipeline, especially on the M&A side. And during this whole period of turmoil, we really actually saw a pickup in new mandates, especially on the M&A side of the business. Bruce Van Saun: Yes. And I'd just close by saying it was a record first quarter for us in capital markets fees, that shouldn't go unnoted. Robert Siefers: Okay. Perfect. That's very helpful. And then I was hoping you all would maybe speak to the private credit portfolio as well. I know there's a lot of good detail in the appendix. Just curious sort of not only for an update on credit quality dynamics, but also given your build-out of the team over many years, I know it's been a focus area and just sort of your appetite to continue to grow the portfolio given sort of certain current sort of industry circumstances? Bruce Van Saun: Yes, I'll start again and flip to Ted. But I would say we've been very disciplined in terms of the kind of counterparties that we select usually they're often a private equity sponsor that's migrated to a broader kind of business model that picks up private credit, and they're moving to be more of an alternative asset manager. And so we've helped them grow and get into this business and provide leverage to many of those names. So client selection is always key and then making sure we have the right structures in place so that we're structurally protected from any issues that could arise in the portfolios. And so we've gone through and looked at kind of our exposure and kind of the broad portfolio, looking at all the underlying factors who has liquidity gates for retail investors who's got software exposure at the end of the day, feel very, very confident that we're structurally well protected from a credit loss standpoint. And I think even though this is in the headlines and there's concerns about private credit, the asset class, if you want to call it that, is here to stay, and they provide a certain amount of leverage and deal structures that exceeds what banks have historically been willing to play, and there's certainly a lot of institutional demand folks or private credit managers are continuing to raise new money. So I think we'll just grow selectively with the market. as we have in the past, but we don't see this turning around and being something that starts to shrink. It's just going to grow. And I think every player in the market will be more selective, and we'll continue to be selective, but we would expect this to be an area that we stay committed to. Ted? Theodore Swimmer: Just adding on to what Bruce said in a number of conversations we've had with private credit since this -- the noise has really started. We really haven't seen a decrease in appetite. In fact, in a lot of the conversations and the deals we're getting ready to launch. We're getting inbound calls from the private credit side of the business. So technology and software is certainly something that they're not all that interested in investing in right now. But for the most part, the majority of their portfolio, they're still very hungry and there's a lot of demand out there. Operator: We'll go to the line of Manan Gosalia from Morgan Stanley. Manan Gosalia: Maybe to start on NII. I know you broadly reiterated the guide for the year, including the NII guide and the exit NIM. But you have noted that Citizens SKU is slightly asset sensitive. In a scenario where rates stay higher for longer, we don't get any rate cuts until the end of the year. Where do you think the NII and NIM is trending? And what's the most likely outcome here? Bruce Van Saun: Yes. So we feel really good about our ability to deliver the kind of NII and the NIM that we gave in the beginning of the year guide. So -- but as you say, the environment is going to have an impact to some degree and a bit of a pause by the Fed. So a little higher rate scenario that we came into the year given asset sensitivity is modestly positive for us. And then a little slightly steeper yield curve, we had assumed 425 to 450 is the 10-year, and we're kind of in that zone. But -- to the extent there's -- that moves up and there's a little more steepening, that's also potentially positive to the outlook. But I wouldn't say it's a game changer. These are kind of marginal benefits that give us even more conviction that we can deliver to the numbers or slightly ahead of the numbers. With that, Aunoy, I'll turn it over to you if you want to add any color? Aunoy Banerjee: Yes. I think Manan, to Bruce's point, we are very confident on getting to the NIM and the NII outlook that we gave I think on the NIM side of it, as you saw from our walk in 1Q, a lot of the benefit is coming from the terminated swaps and the noncore runoffs, which is which is not rate dependent, and that's another 12 basis points for the rest of the year. The front bank -- bank book book dynamic as Bruce strategies would be helpful in this environment. So we remain confident on getting there. And as you saw, we have some good loan, but we have good correction and pipeline on that. So we feel confident of getting there. Manan Gosalia: Perfect. And then maybe to pivot over to capital given the new proposals that we got a few weeks ago, if you could give us your initial thoughts on what the magnitude of the benefit is for risk-weighted assets given your specific business mix? And maybe if you have any thoughts on whether citizens would adopt the ERPA. Bruce Van Saun: Okay. Sure. So it's still early days, and we're going through a comment period. But based on what we see now, this could deliver kind of a 10%-ish reduction in risk-weighted assets, which would translate to in excess of 100 basis points, call it, 110 basis points or so of CET1 improvement. -- the AOCI phase-in, if it happened right today, it would basically mitigate that. But as it phases in over time, some of that drag will dissipate. And so we would expect to be kind of at least 30 basis points to the good net-net, even with AOCI, maybe as much as 50. So we'll just have to see how the rate curve plays out from here. But anyway, it's a good problem to have, and it's probably early days to say kind of what we'll plan to do with that. There'll be a lot of considerations what is stakeholders' expectations, the market, the rating agencies, the regulators, et cetera. But anyway, it's a good issue for us to think about. The other thing is on this ERBA. There's a modest improvement even over the revised standard approach but there's a lot of work that goes into that. So you'd have to step back and decide do you want to do it? One of the things that sticks out as a difference between the 2 approaches is kind of the lesser risk weights under [indiscernible] for investment-grade credit. And we'll have to see if that gets imported into the revised standard approach, so there's no difference or whether there is a difference that might pull you towards wanting to move over and do ERPA approach. So Aunoy, anything to add? Aunoy Banerjee: Yes. I think as Bruce said, Manan, we are going through all the advocacy on some of these things that Bruce mentioned. We are also looking at all the work that needs to be done on ERBA, which says versus standardized for what's there and now with a lot of new technology, things could be really different in some ways. So there's a lot to do here still. But we are -- as Bruce said, we are -- it's in the right direction, and we feel good about it. Operator: We'll go to the line of Ryan Nash from Goldman Sachs. Ryan Nash: So Bruce, you've had 4 straight quarters of sequential loan growth. If I look at the drivers of growth, clearly, private capital call, private credit have all been contributors. So maybe you could just talk about your confidence in loan growth here and what you see as the key drivers. And then second, I know you referenced higher utilization. What's driving that? I know you're expecting to see more of this. Bruce Van Saun: Yes, I'd say that the really impressive thing, Ryan, is that we're getting the growth in each of the 3 main business areas. So private bank being kind of that start-up phase is growing their book nicely and consistently. And I think that leans a little bit more on the consumer side and multifamily side, that should continue. We had actually low line utilization with their client base, which should bounce back. And so we see private bank contributing. I think in commercial as well, we have the growth in NBFI, but also starting to see a little deal activity pick up across the corporate book, and we have our expansion [indiscernible] don't forget. So we brought banking teams into Florida and California and beefed up our New York Metro team. So that's contributing a bit. And then in the consumer bank, we've been kind of a rock star and HELOCs and also consistent growth in mortgage. So it's nice to see it's pretty broad-based. And then some of the drags of the things that we've had in the past, such as kind of the rundown of noncore, some of the commercial BSO thin relationship exits and things like that, the CRE kind of getting back to par where we want to be on commercial CRE after the investors acquisition all that is starting to abate a little bit, which allows the inherent growth to shine through. I think I'll ask maybe go to Brendan first for some color on Consumer and Private Bank. And then Ted, I'll ask you for some color on commercial. Brendan Coughlin: Yes. Thanks, Bruce. Thanks, Ryan. Adding on Bruce, just give you a little more color and data on the retail side of the business. We're up about 4% year-on-year on core loans, heavily driven by HELOC and mortgage Bruce mentioned, you just got the league tables in from 2025. We're the #1 originator in the United States at home equity lending with an incredibly strong risk profile, low LTVs, strong FICO scores, all depository relationship customers. So we're very proud about that, and we expect that to continue. Mortgage originations in this rate environment has obviously been challenged, but prepay speeds slowed too. So we're seeing net positive growth in mortgage and the balance sheet rotating into higher relationship-based lending fueled by the private bank and the retail bank. With our launch of a new credit card products, we're seeing a 50%-plus growth in new credit card originations. It takes a little bit of time for that to translate into the balance sheet as pain activity gets through, but we should see some modest script in credit card as we hit the back half of the year, too. So broadly in retail, we expect the the growth rate that we're seeing to project forward with a lot of confidence and the mixing of the balance is to get strong with higher return and deeper relationships. The private banking side, we've generally been in the range of about $1 billion in net growth each quarter. We were a little bit lighter than that this quarter with some lower utilization rates on the private equity side. But we that to be temporal. And the underlying originations activity is quite strong. We're very confident we'll end the year in the range that we gave of $11 billion to $13 billion, which projects back to about that $1 billion in that growth per quarter returning in the private bank. So both retail and private banking, I would just broadly describe as continued steady momentum with what you've seen over the last few quarters. Ted? Theodore Swimmer: Yes. Thanks, Brendan and Bruce. On the middle market side, we have seen a pickup in utilization over the last 3 months. I think customers are getting -- our customers are getting more comfortable in the economy and overall spending money on CapEx, which has led to a slight increase there on the mid-corporate -- adding on that, what we built out in Florida, New York and California, we're starting to see some real success there with increased loan demand and some increased customer count, which has resulted in higher growth there. On the mid-corporate side, we've reorganized the division a little bit to be more industry focused, less geographic focus. That has resulted in a nice pickup of new opportunities for us on the mid-corporate side of the business, and that was really [indiscernible] in the first quarter for us with significant growth there. NDFI continues to grow somewhere in the range of 5% a year. There's still good opportunities both on the capital call line, the securitization business and on the lending to the direct funds, and we expect that to continue to go around 5%. And then finally, we have really not seen much pickup in the private equity side of the business. The sponsor business has still been, I would say, flattish year-over-year. So most of our growth has been the traditional mid-corporate and middle market space. Ryan Nash: Got it. And maybe just as my follow-up, Bruce. In the slides, you highlighted some of the things that you're doing with reimagine the bank, including corporate and the LLMs and a handful of things. I guess, given the pace of change we're seeing in the markets in areas like AI, are there opportunities to accelerate any of these initiatives or adjust the timing given, again, just the rapid pace of change that we're seeing? Bruce Van Saun: Yes. I'll start and put it to Brendan who's sponsoring and leading that program. But I think that's a really good call out, Ryan, is that the adoption curve, the innovation curve that we're seeing in AI is really -- it's almost mind boggling. It's very significant. And so I think what we did when we set up the program was we took a very systematic approach to say like here's how we do things today, how would we like to do them in the future, embracing the technology as we have it today, recognizing though that over a 2- to 3-year time frame, there's going to be a lot more innovation and a lot of chance to embrace even better tools. And so maybe that creates a higher level of benefit, maybe that creates an acceleration and maybe it just creates new work streams that we haven't even thought or possible. So it's really a living, breathing program it's dynamic. It will incorporate. We'll have our telescope out looking at all the new things that are coming down the pike and figuring out how we can incorporate those in. But I'd say one thing to leave you with, though, is that we've been -- we've demonstrated over the years an ability to take innovation and take new approaches to how we're running the bank and put them into a program and deliver real financial benefits. So we won't create a lot of science fair projects and kind of use some of this new technology in ways that actually don't deliver real benefits. That's kind of our mindset as we go through this. So Brendan? Brendan Coughlin: Yes. Thanks, Ryan. Your question is principally AI, but one point on the non-AI front, you saw from us in the quarter. the remain the bank initiative was principally self-funded by quick wins that were non-AI based. And so we've already got over $30 million in projected vendor saves for the year in the box with an expectation that, that number goes up. We've closed corporate facilities, smaller facilities that's driving savings. So that has offset the investment already. So you're seeing real tangible impact in the program already this early in the year. On the AI front, to say two things. One is, you're right to point out the risk of speed of execution also is the speed of obsolescence as we put these in place, the idea that the best answer could be different in a quarter is very much front of our mind. So we're architecting all the things that we're building to be even more nimble than you might expect from a tech standpoint in the past. So as new models come up, we can easily plug and play and make sure we're taking advantage of the latest and greatest. So that's very much front of our mind. We very much have real AI use cases in market today. in the call center, as an example, we've told you we expect to get 50% of the calls out by the end of the period. It's already in pilot. In fact, we expect inside of this calendar year, by the end of the year, we should have 25% of our calls answered by non-humans with the expectation that will ramp in 27% to 50%. That really should hit in the summer and into the early fall. So this is very real. This isn't a back-loaded program all coming in 2028. And the tech space, as an example, we've deployed [indiscernible] to our engineers. We're already seeing a very material productivity improvement and leverage we're getting on our capital investment and deployment ranging from 30% improvement in productivity that in some tests we've done, it's been a 5 to 10x improvement in productivity. So now we're working on scaling it and engineering it for real scale. So we are moving very, very fast. We're keeping up with the pace and it's live and in production and our confidence is building. Operator: [indiscernible] UBS. Unknown Analyst: Just a few follow-up questions for me, please. So given everything that you've said about a record first quarter in cap markets and very full pipelines, picking up new mandates while some of these deals were pushed into closing in the second quarter or launching in the second quarter, it sounds like we should still subscribe to the 6% to 8% fee outlook growth for '26? Bruce Van Saun: Yes. We're not coming off any of those ranges the full year guide at this point, Erika. L. Erika Penala: Perfect. And then my follow-up question is, thank you for the expansive answer on NIM and NII relative to the current forward curve. I guess this is a 2-part question. First is, I think, Aunoy, you talked about the noninterest-bearing growth in a seasonally tough quarter for that, maybe where that noninterest-bearing growth is coming from? And to that end, if we do have a scenario where we have no rate cuts can Citizens, keep deposit costs stable in light of more robust growth from you guys on both the consumer and corporate. Aunoy Banerjee: Erika, it's Aunoy here. We were quite pleased with our deposit performance this quarter. And as we saw actually good noninterest-bearing deposit growth Obviously, we have a couple of strategic initiatives. One is being the private bank where you saw the good DDA growth that the DDA percentage in the private bank is 30%. So we continue to see that coming. And as you saw the balanced growth we are seeing the DDAs grow along with it. So that's the, that's 1 thing that's really driving the DDA growth. But even as Brendan mentioned, even on the consumer side, there is a lot of growth that we are seeing in the low-cost NTT as we really build the relationships with our clients. So we are seeing a lot of good traction there. And to your second question about where we go deposits from here. Obviously, deposit volume is going to depend on the overall economy, how the GDP goes, how the loan formation goes in the economy. But with some of the strategic initiatives, we believe that we can maintain in the competitive range about where deposits are going to go from here. And as you saw, our deposit betas our 50% this quarter and we have -- we expect it to be in the high 40s, which is in line with the competition. With that, maybe, Brendan, I'll pass it on to you to see if you have any comments. Brendan Coughlin: I'll add a little color on each consumer and private, but out of the $118 billion or so of deposits that sit in the consumer bank, 52% of them are what we call low cost, which is either DDA or checking with interest. And in the retail bank checking with interest is sort of a sub-10 basis point type of cost. So for all intents and purposes, it's very similar to DDA. The COVID period of all those operating balances reducing is firmly behind us, and we're now seeing net growth. So we're up 130 basis points year-over-year and our low-cost deposit categories. That's versus a peer average of about 50 basis points. So we are very firmly in the top quartile in terms of low-cost growth. for the consumer bank, and we project that to continue with confidence in the outlook, which will really help control interest-bearing. Total cost of deposits when you include the interest-bearing side. And then no pointed this up. But in the private bank, we ended the quarter with very strong spot numbers. It's actually 40% DDA over 50% when you add in the checking with interest in the private bank itself as well. So we're expecting that to be in that sort of range in the same range that we've seen in the past. So we're getting this really strong growth in the private bank without breaking the quality metrics and this far in, that's a real positive to see. And broadly, we expect that to continue looking forward. Operator: We'll go to the line of John Pancari from Evercore ISI. John Pancari: Just on the private bank side, just what -- see if you can give us just a bit more color in terms of what are you seeing in terms of the mix of loan growth? How much momentum are you seeing on the mortgage side versus the commercial capital call type of loan generation. And then if you could maybe give us breakout of like where new money yields are that you're bringing on loans in the private bank, maybe on the mortgage side as well as on the other type of lending capital calls included. Brendan Coughlin: Yes. On the loan side, it has -- the longer-term trend line, it's been pretty evenly mixed between mortgage, multifamily, commercial real estate and private equity capital call lines the utilization rates this quarter on the PE lines were down a little bit, so it sort of artificially suppressed the linked quarter growth was more driven by mortgage and multifamily CRE, which is pretty evenly split between those categories. both of those asset classes where we use the balance sheet comes with deep, deep relationship-based banking. And so the net returns on the customers are actually quite high. When you look at our overall loan yields versus our deposit costs, we remain in the range of north of 400, 425 basis points of net spread between our loan yields and our deposit costs, and that has been consistent since we launched. And so the growth that we're seeing is actually deep relationship based, but even just asset asset yields minus deposit costs, it's net accretive to our NIM position. So the return profile of the business overall remains in the mid-20s because of that with high profitability on the balance sheet, and we see nothing that will take us off that trajectory. John Pancari: Got it. And then on the capital front, Bruce, maybe if you could kind of I think you talked about your capital allocation priorities from organic versus buyback and then maybe on the M&A interest side.[indiscernible] I know you've been historically uninterested in whole bank M&A. Just curious if that's changed for any reason at this point. Bruce Van Saun: Yes. Thanks. I would say the capital and priorities are really unchanged. They've been stable. So we always look to make sure that we have a good dividend on the stock and that we can raise our dividend as earnings grow, which be an objective for this year. The second place objective is to make sure we have capital supporting our clients and supporting the growth of the bank. So organic growth is kind of next up. And then the residual, you can look to do potentially some selective acquisitions. For example, in the first quarter, we bought very small but high-quality M&A boutique to, as Ted indicated, we go deeper into these industry verticals. Do we have everything we need to really serve those clients well. And in some instances, rather than hire people. It's faster just to go out and buy an M&A boutique that doesn't use a lot of capital, but we'll certainly look for things like that or maybe some things in the payment space that can accelerate our growth a little bit, but these are generally going to be small. And then whatever we have as the residual, really goes to buying back our stock. And I still think the stock is very attractive here, as you would expect me to say. But in any case, we're -- we bought a lot of stock in, in the first quarter, $300 million. And we gave in our guide that we're looking to buy $225 million here in the second quarter. So we'll have -- if we keep growing our overall results and our earnings will have lots of flexibility to both grow the bank organically plus buyback stock. Operator: We'll go [indiscernible] from [indiscernible] Unknown Analyst: Back on capital, you mentioned the stress tests coming up and the potential to get some relief there. your buffer is 4.5%, it seems like you could see some pretty significant relief this time around. And if you do, does that at all come into play with how you think about the 10.5% level for CET1, especially in the context of seeing some of the larger banks moving their CET1 ratios lower recently? Bruce Van Saun: Yes. So what I would say on that is that we've managed the capital kind of where we think it's appropriate given the environment and stakeholder expectations. And so we've been at the high side of our range of 10% to 10.5% or slightly over the 10.5% for the last several quarters. the SCB has not really been a binding constraint. And I've said in the past, it's to me, more of a scarlet letter I can't believe that we're getting that high of an SCB, which is completely outsized relative to peers. I do think that the Fed is now kind of taking a hard look at why are there some of these inaccuracies that take place. And so we'll see the models aren't really going into this round, but there's other things that I think the progression coming out of where we were in '23 to the strong balance sheet and jump-off point we have today, higher revenue levels. And then the scenario was particularly severe in the last cycle that is better this cycle. So we would expect to see the notional equivalent SCB even though it won't go into effect, we would expect to see that hopefully quite a bit lower and more in line with peers even before we see some of the model changes like the model changes of not picking up this benefit of swaps was really a big miss. But even without fixing things like that, I think we'll see improvement. So I would say we'll wait and see like how the environment shapes up. Right now, we're in a war with a lot of uncertainty and profitability is still increasing. So I think carrying a little extra capital through the course of 2026 makes sense. But certainly, there'll be opportunities to reassess that if we get a positive outcome to the war and the market conditions improve, and we continue to deliver a higher level of earnings it might be possible to start to ratchet that down, but probably that would be a '27 event and not something that you'd see us do in '26. Unknown Analyst: Okay. And then just switching to the Private Bank. You had some great deposit growth this quarter, and you mentioned some of the spread details on that incremental business, which sounded great [indiscernible] 400 to 425 spread. I was just curious what what the rough cost of those deposits were in terms of the growth coming in this quarter? And if you could just give an update on the talent pipeline in that business, that would be great. Brendan Coughlin: Yes. The deposit cost, looking at now to carts 220-ish basis points. the total deposit cost when you blend in the interest-bearing plus [indiscernible] that. Bruce Van Saun: Yes. So it's going to be somewhere is going to be lower than our commercial deposit funding costs but higher than pure retail is one way to think about that. Brendan Coughlin: And remember, the interest-bearing side is mostly still front book. So you've got a heavy piece of DDA and then the interest-bearing side is front book. So the poly is somewhat barbelled. Over time, we can smooth that out as the business builds. Bruce Van Saun: Yes. And the other thing that I would say is we opened 3 PBO offices this quarter, and we have 2 more geared up on this quarter and 1 later in the year. that will bring us up. I think we're at 9%. That brings us to 11 by the end of the year. So that's an important part of the deposit gathering strategy to have an ability to go out to successful people and walk [indiscernible] we call them 2-legged customers in addition to some of the corporate relationships that we have and we get billboard value from having those new locations opened. I would say over the next 3, 4 years, we could see that PBO count get up to 25% to 30%, if you recall, I think First Republic had maybe 80%. I don't think we're going to go near there. But I think we can get into the key markets and kind of have 25 to 30, which will also kind of keep that deposit machine cranking along. In terms of talent, the main needs we've taken the business from about 150 people at launch up to close to 600 today, including all the support dedicated support people. I think the plan for this year is to kind of continue to build out Florida is one of the things on the PB side, but then continue with the wealth lift-outs. And so we have a pretty good pipeline on private wealth lift-outs. None of them hit in the first quarter. We hopefully will catch up here where we want to be in the second quarter, but that's also a real focal point to make sure that we have the wealth professionals co-located with our private bankers so we can deliver kind of total solutions to the customer. Brendan Coughlin: The only thing I would add is our talent pipeline is really robust and attracting talent to this platform. It's not been a problem we -- over the course of the last few years. held ourselves back candidly a little bit for 2 reasons. One is our commitment to the market to deliver the profitability and the results we committed and then just making sure the platform is ready. We've had a lot of investment we had to make to connect all of our products and deliver the service. Our NPS has gone up from 70 to 76. And growth is obviously really, really strong [indiscernible] we're feeling good about the foundation of the platform. So we're starting to think about how we play some more offense on bringing talent in selectively. We want to maintain a really high bar that's really important to us the banking side, we're searching for a talent and a talent only. And so that's what we're bringing in. Bruce Van Saun: I would have said it [indiscernible] Brendan Coughlin: I'll give you the rounding. Aunoy Banerjee: On the deposit side, I would just add that we are also bringing good quality deposits, the lendability of these deposits are good. So just so that we can use it in the broader franchise Operator: [indiscernible] Bank of America. Unknown Analyst: Just 2 quick follow-ups. Maybe, Bruce, in your prepared in your remarks, you talked about looking at New York brand strategy, I guess you plan to open more branches in New York. Just talk to us, is that more private bank related? Or do you see an opportunity to just open more branches in New York and just the size of kind of what you're thinking there? Bruce Van Saun: Yes, sure. I'll start and flip it to Brendan. But I think I referenced this on a prior call is that we see a real opportunity to kind of double down on our footprint. Some of our peer banks are okay, taking the view that our footprint is pretty saturated and we need to go outside footprint to different regions of the country to get more growth. That's not our strategy that we're arriving at its where we're already well known, we can make some investment in the branch system to really optimize locations, optimize the mix between in-store and stand-alone branches and try to pick up the growth rate of deposits just in our footprint. And then we don't -- we avoid all that top of funnel spend advertising in a different region where nobody knows who we are. People already know who we are. So we think that makes sense. My hope is that when we get to the end and we kind of unveil this program that we'll be spending some incremental dollars on the branch network but we'll pick up that growth rate in deposits maybe by 200, 300 basis points over what the normal GDP growth rate was -- and if you look at that over a 10-year period, that's another $20 billion to $30 billion of deposits and deposits, obviously the lifeblood of a strong bank. So this is really important to us. Stay tuned for more details probably at the middle of the year. but New York is clearly an area where proof of concept, we got in on the back of combining 2 franchises that, frankly, were from a retail standpoint in need of some TLC. We put our best people down there and brought our version of banking into a highly competitive market, and we're having great success. It is our fastest-growing region in terms of households and deposits. But we're still not at the full scale with where we would need to be to really penetrate that opportunity. So as part of that broader effort, you would expect us to open more retail branches in Manhattan in surrounding environments, and we're pretty excited by that opportunity. we probably will open another 1 or 2 PB locations in Manhattan, for example. But the focus here really is to optimize what we're going to do on the retail side. Brendan, anything to add. Brendan Coughlin: I guess a sign of an incredibly aligned leadership team you took almost every word out of my mouth. The only thing I would add is just give you a [indiscernible] in New York and then on the rest of the markets. But in a world post-COVID, it's -- there are a lot of questions on the future of retail branches and the importance of them, but it's still very much truth, if you want outsized operating leverage in retail banking, you need 4% plus share of branch density and despite all of our incredible successes in New York, we're still at sort of, call it, 2.25%, 2.5% branch density. So we do think we can build on our momentum by densifying a little bit. And we'll do that thoughtfully over time. As Bruce mentioned, we'll give you more details as we get towards the middle part of the year. We also have some self-funding dynamics that still exist in the rest of the franchise. We still have lot of in-store branches that we'll be able to reposition a bit to traditional branches in the non-New York parts of the footprint that will free up some expense and capital to densify in New York. So we'll bring everybody through the plan here in short order. But really, as Bruce pointed out, the goal really is to drive sustainable market share gains and outsized deposit growth in retail to fund the rest of the franchise. Ebrahim Poonawala: That's good color. And just a quick follow-up, Bruce, for you on the capital plans, like [indiscernible] should benefit Citizens once that gets mark-to-market. When we look at the benefit from the capital proposals, it's something we've begun to think about do you think the tangible common equity ratio then becomes something that you're more mindful for in a world where the RWA density is coming down? Bruce Van Saun: Yes. That's a really thoughtful question. So I do think while that's not a regulatory ratio, it is something that bank investors have focused on over time. And so as I said, we're going to have to triage when this good news comes in, you have the triage as to what our market expectations, what are regulatory expectations, what are rating agencies' expectations. But yes, I think that could happen. I think that TCE ratio could be something that analysts and investors move up in prominence. Operator: We'll go to Gerard Cassidy from RBC Capital Markets. Gerard Cassidy: You guys have done a good job of expanding the commercial banking business. You talked about it on the call already. Can you share with us when you go into a new market like Florida or California, now clearly, you're building your national brand, but it's I don't think it's yet at Bank of America level in terms of recognition. So how do you balance when you go into these markets that could provide growth on the commercial side, how do you balance the risk with growth? And then second, are you leading your balance sheet? Or are you building out treasury products first and then lending to those customers? How do you guys approach that? Bruce Van Saun: Let me start and I'll flip right to Ted. But I would say we have tried to lever an expanded presence in these new markets where we brought a private banking operation or private wealth operations and then kind of magnify that by also bringing in kind of the corporate banking teams. And what we aspire to is to bring very experienced, high-quality bankers onto the platform who kind of have a growth ambition and who are good team players. And so one of the reasons that we're successful overall in the corporate bank is we worked very collaboratively with a coverage banker who has product partners that they work together to come up with good ideas. We call it thought leadership. But at every touch point with the client, we're showing up. We understand your business. We want to get to know you. We have some ideas about how you can be more successful. And that really resonates with customers. So I think there's always room for market participants who do that well. So it's really a combination of the visibility of already being in the market. And now we have like 400 people in California over 400 people. And that kind of works together to raise our visibility and our presence and then staying committed to really high-quality people and staying committed to that 1 citizens collaborative model where we can deliver solutions to the customer. Ted? Theodore Swimmer: Yes. Bruce, the one Citizens model that we've implemented throughout our bank has really gone to differentiate ourselves as we expand into these new regions. So to your question, [indiscernible] we don't necessarily lead with treasury, don't necessarily lead with credit, but we try to lead with his ideas to our customers and where we differentiate ourselves is as we pick what customers we're going to attract we really look at where do we differentiate ourselves versus our competitors. So is it an industry that we have a specialization sponsor, a private equity group that we know better. We are trying to -- and then how do we bring all the parts of the bank together to give the customer an experience that they wouldn't necessarily get from somebody else. And when you have the private bank and all the great people and all the relationships that they have and the ability to interact with people that we normally, if we were just showing up with a balance sheet, we wouldn't have the ability to address those customers, bringing the private banking and combining all those together has really been what we try to achieve as we've been building out in these markets. Bruce Van Saun: And I would say that, look, kind of companies in the regions we're targeting or the industries we're targeting are very receptive to have a new player with a really strong approach that they're not exactly -- some of the bigger players aren't covering themselves in glory when it comes to how they cover middle market and mid-corporate companies. And so it feels like we're pushing on an open door to some extent when we go into these markets. Gerard Cassidy: Very helpful. I appreciate it. And then pivoting over to AI, Brendan touched on it a moment ago, Bruce, and maybe it's for Brendan as well. When do you think we get to the point where you folks and your peers probably as well, are able to go out and tell investors, we just spent x millions of dollars on AI, and this is bottom line impact. Earnings per share improved 2% or the ROTCE number went up 50 basis points because of the x millions of dollars we just spent on AI. Do you think we can never get to something like that down the road? Or is that just too optimistic? Bruce Van Saun: Yes. I think it's going to be hard. It's going to be a very dynamic process, and there's a lot of cross currents that go through the P&L. I think we'll try to do that with reimagine the bank. We're not kind of detailing any notable items for what the cost is of restructuring and investment and consultants and all of that. But I think will certainly delineate it so that you understand what we're expanding. And so just within that program when we get to the $450 million run rate, that's going to be a very good return on what it took to stand that up. So that might be one way that you can kind of get a sniff of how much are they spending and what benefits are resulting. But I do think it's a dynamic process and a lot of things, there'll be a lot of cross currents in the economy and other things. And so you might not have the cleanliness of connection that you're talking about that you're aspiring to. Operator: [indiscernible] the line of [indiscernible] from Autonomous Research. Unknown Analyst: Just one here on expenses. So the first quarter and then the second quarter guide kind of get us to that 4.5-ish, 5% year-over-year cost growth I know a lot of the reimagined the bank benefit comes in the second half as long -- as well as some of the spending. So can you just help us just understand the cadence of expense growth as we kind of see that benefit. And as you balance performance related and investments against that as we move through the second half? And should we just be kind of thinking about that 4.5% overall guide that you gave us in January. Bruce Van Saun: Yes. Ken, so we're not coming off the 4.5%, and there is a seasonal pattern of expense recognition that the first quarter has the FICA and associated payroll items that go with the bonus, paying the bonus. And then the second quarter tends to be where we would bring in people. And after they get bonus. And so any net adds that we want to have, it's a big period for the net adds. So overlay some reimagine the bank onetime costs in the first half of the year, you're going to kind of peak, I would say, in the upward pressures and your merit happens in the second quarter early -- second quarter. So you're kind of peaking in the first half of the year and then it wouldn't be as much net investment spending on ads in the second half of the year and then some of the benefits coming in from reimagine the bank will flow through in the second half of the year. So you could actually see expenses start to dip a bit in the second half. So we'll obviously give you that guidance as we get to the second quarter, we'll tell you what we think in the third quarter. But just to preview it we're still holding to the 4.5% for the year, and it's kind of -- the build is more front-loaded and then kind of levels off or even declines a little Yes. And Ken, I would just add, we are pleased with the expense discipline that we had in the first quarter. Really the growth quarter-on-quarter was all of our -- the seasonality that Bruce mentioned. And as Brendan mentioned, we have good line of sight to some of the savings that are coming. So we mentioned the vendor sales as well as some of the property closures. And so we feel very good about some of the some of the downtick that we will see and the benefit that's come there. And we have very disciplined returns objective on the private bank, et cetera. And I would just add, like if you should remember the 500 basis points of positive operating leverage for the year and we delivered 700 basis points this quarter. So that still remains very much true for this. Operator: [indiscernible] go to Chris McGratty from KBW. Christopher McGratty: Bruce, you expressed confidence getting into the the 16% to 18% range for the ROTCE by the end of next year. I guess, number one, what could make it perhaps a little sooner get into the range and maybe the factors that might push it out a little bit? Bruce Van Saun: Yes. I think it's hard to pull it forward a whole lot. We have some of the time-based benefits of those legacy swaps running off, which is a driver of kind of moving higher in NII and overall kind of revenue. But if we got into kind of piece dividend from the resolution of the Apron war. And then there's a lot of activity in the capital markets. I think we're as well positioned as anyone certainly amongst our peers, maybe better positioned to really capture that upside if that happens. So I think that's one driver that can maybe hope to get us there a little faster. And I'd say, in the private bank, they're on a steady as she goes by design kind of trajectory. If we did start to see more revenues, maybe we could force feed a little more investment there. And we talked a little bit about the potential for pull forward of RTB benefits if some of the new technologies kick in. So there is a case to make that potentially in a perfect scenario, you can pull it in a little bit, but I'm not promising that. And I'm really just focused on making sure we hit that by kind of the end of '27. And then I guess the converse is true, too. If the kind of environment stays volatile and the war doesn't get resolved quickly and energy prices go up and the economy slows down a bit, there's possibilities that, that could extend a little bit. But A lot of this is actually baked in. So to get kind of from 12 to 15 is really these time-based benefits and some of the trajectory we see on the NIM and then kind of getting all the way there is execution of kind of some of the rest of the initiatives, the normalization of credit cost back to the mid-30s. We had a 39 basis point this quarter. I think we're firmly on that trajectory, again, absent something happening in the economy. And then we'll just continue to buy back our stock fairly aggressively as well. Operator: [indiscernible] question will go to David Chiaverini from Jefferies. David Chiaverini: So I wanted to ask about loan pricing, commercial loan growth has been increasing nicely across the industry. So I was curious about how loan spreads are holding up in a competitive environment. Aunoy Banerjee: Yes. Let me start, David, and then I'll pass it on to Ted. As you saw that we had a diversified loan growth and even in the commercial bank, we had in the mid-corporate space, we were little bit on the subscription lines as well. And we expect -- as you think about the spreads, like it definitely came down as the rates came down. But but we are well within the pack. And the one thing I would talk about loan growth is -- and Ted mentioned this, this is not only just a credit relationships. It's a more holistic relationship. So we look at the returns of this loan on a holistic basis to think about what else are we getting, whether it's the deposit relationship or the business, other business activities, fees, et cetera, that we are getting. So there's a very disciplined process in Ted's business that we go through to ensure that we are just not looking at the spreads. Theodore Swimmer: Just to build on what Aunoy Banerjee said. Overall, in the markets in the beginning of the first quarter, we saw more on the institutional side. And on the bond side, we saw some tightening of spreads that obviously widen back out with what's going on in March. As we get specific to Citizens, we are now -- we look at the relationship holistically. So we try to figure out when we make a loan, what are the ancillary business, and this was all part of our BSO that we really completed through the end of last year. We now feel like we have a very good discipline in place that we do not stretch on loans where we do not get an overall suitable return for our customers. As such, we really haven't seen much of a decline in spreads in the last couple of -- in the last quarter. David Chiaverini: And then shifting over to private credit and NDFI. To what extent are you contemplating leaning in as other banks pull back? Or are you comfortable with your existing exposure? Bruce Van Saun: Yes. I would say -- it's Bruce, and I'll let Ted add color. But we've grown that, as I mentioned earlier, that book by very -- in a very disciplined manner, call it, 5% a year, being very selective about who we want to bank and the type of vehicles that we bank and making sure we have the right structure. So I don't really see us veering off of that. That served us well to where we're positioned today. And I think that's the strategy that we'll have going forward, even if some people step back and there's opportunities to do more we'll see. But our baseline assumption is that we kind of keep to that mid-single-digit growth rate. Ted? Theodore Swimmer: Yes. We're going to continue to support our customers. We look at these relationships, not just on the DFI side, but on the private equity side, on the subscription side and then what their portfolio companies are doing. So -- and if some of our customers are the winners and the survivors, we think that they're not survivors, but the winners and make acquisitions, maybe grow with them, sure. ut we're not going to specifically grow NDF. We're going to just continue to go with where our customers go. Bruce Van Saun: Okay. All right. I think that gets to the end of the question queue. So I really appreciate your interest in citizens. Thanks for dialing in today. Have a great day. Operator: That concludes today's conference. Thank you for your participation, and you may now disconnect.
Operator: Welcome to Marsh's Earnings Conference Call. Today's call is being recorded. First quarter 2026 financial results and supplemental information were issued earlier this morning. They are available on the company's website at corporate.marsh.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. [Operator Instructions] I'll now turn this over to John Doyle, President and CEO of Marsh. John Doyle: Thanks, Andrew. Good morning, and thank you for joining us today to discuss our first quarter results. I'm John Doyle, President and CEO of Marsh. On the call with me is Mark McGivney, our COO and CFO; and the CEOs of our businesses, Nick Studer of Marsh Risk; Dean Klisura of Guy Carpenter; Pat Tomlinson of Mercer; and Ted Moynihan of Marsh Management Consultant. Also with us this morning is Jay Gelb, Head of Investor Relations. Let me start by highlighting recent changes to our Executive Committee. Mark was named Chief Operating Officer of Marsh in addition to serving as our CFO. In this expanded role, Mark will take on more responsibility for evolving our strategy and working across our business to drive execution of top priorities, support collaboration and accelerate pace. We also announced Nick as the CEO of Marsh Risk. Nick is a proven growth leader as demonstrated by his record as CEO of Oliver Wyman. His experience advising corporate and public sector leaders on the topics of risk and strategy positions Nick well to deliver on our growth ambitions. Nick succeeded Martin South, who is now our Chief Client Officer. Martin will focus on elevating the client experience across the company and help us better leverage AI to support clients. And Ted succeeded Nick as CEO of Marsh Management Consulting. Ted has more than 3 decades of leadership experience at Oliver Wyman, and he is a respected adviser to business and government leaders. I look forward to him driving continued growth at Marsh Management Consulting. Congratulations to Mark, Nick, Martin and Ted. These leadership changes are all about growth, enhancing the client experience and helping us capture the benefits of Thrive. Turning to results. Our performance in the first quarter reflects solid execution despite challenging market conditions. Overall, we grew revenue 8% in the quarter. Underlying revenue increased 4% despite lower fiduciary interest income and continued downward pricing pressure in insurance and reinsurance. We are seeing strong sales across our business, and we are pleased with the sequential improvement in the growth at Marsh Risk. Adjusted operating income grew 8% from a year ago, and adjusted EPS also grew 8%. Turning to the ongoing conflict in the Middle East. Our primary concern has been the safety and well-being of our colleagues and clients and helping them navigate the challenges in the region. The impact on our business and the broader insurance industry has been limited. The economic issues related to the conflict in the gulf are not about insurance. While certain lines like marine coverage may experience price spikes for war risks, ultimately, the gating issue is the escalation. A sustained conflict in the region will create more uncertainty and risk for the world's economy. Broadly Marsh is advising clients on how to build greater resilience in their business planning, we're helping them address supply chain issues, review their cyber exposure and we are advising on investment decisions. And of course, we are working with clients to manage insurable risks, particularly in marine, aviation and energy. We've also engaged with governments as they work to minimize economic disruption and maintain global trade, particularly in energy, fertilizer and other commodities. Challenging events like this underscore the purpose of our work. It's also why we believe Marsh provides a unique value to clients who need strategy, talent, investment and risk advice in complex times. I'd like to take a moment to discuss our AI strategy and why we believe Marsh will be an AI winner. Our strategy leverages our scale and capacity to invest in AI to drive even greater value from our proprietary data assets and our role as our clients' trusted adviser. We are focused on 3 main pillars. The first is growth. We are building AI-enabled applications and services that are generating new revenue streams as well as enhancing world-class capabilities and data-driven insights in insurance, health, human capital and investments. Examples of these products include ADA, Centrus, UCLI and GC Quotebox, and many more of these applications are in development. We also see significant AI growth opportunity in consulting. Oliver Wyman's AI Quotient team created to help clients deploy their own AI strategies is its fastest-growing practice. We're advising clients in multiple sectors, such as banking, energy, government and manufacturing around AI and workforce transformation. We've already advised on more than $50 billion of capital investment in AI deployment. And Mercer is working with clients to assess and inventory skills and redesign jobs as AI is integrated into ways of working. Our second pillar is productivity, which focuses on deploying AI capabilities to boost the performance of our colleagues. This is showing up in hundreds of different ways across a wide variety of roles. A good example of our work is to embed AI our client management tools and to develop AI agents to help colleagues source and prequalify leads to support sales productivity. The final pillar is efficiency. Across our business, we are starting to see the impact of AI automation. A critical reason for creating our business and client services unit, or BCS, is to exploit the efficiency potential of AI. By consolidating our back-office operations and technology into scalable centers, BCS is accelerating the pace of AI-driven automation and process reengineering. For instance, our document ingestion capability is now handling thousands of documents weekly already improving efficiency in these processes by 20% and enhancing the quality of the data and its usability to further support clients with valuable insights. We are beginning to reduce the cost and time associated with upgrading code to modernize applications. For example, we recently used AI to turn a legacy tool into a newly designed broker workbench in days saving months of team effort. We have deployed agentic AI in our IT help desk, significantly reducing inquiries, improving colleague experience and creating downstream efficiencies in our support centers. And in our policy renewal center, AI has enabled us to transform a traditionally manual e-mail heavy process into a streamlined digital solution in weeks, a project that otherwise would have taken many months. AI-enabled savings will fuel additional growth investments, including in producer talent and new capabilities while building our confidence in continued margin improvement. It's important to remember that Marsh is not selling commoditized products or simply procuring insurance at the lowest possible price. That's not who we are or what we do. AI will help us serve our clients who have bespoke and complex needs even better. It will not replace the trusted advice, expertise and capabilities with which we deliver value to clients. In our risk business, we help clients identify and understand their exposures, implement loss prevention strategies and provide data and insights to make real-time decisions. And after developing the strategy, we help them finance their risk through self-insurance, traditional insurance, capital markets or captive management solutions to achieve their goals. Similarly, in consulting, we provide high-impact services to help organizations confront their biggest strategy and talent challenges. And we service trusted advisers to executive leadership in their company's transformative moments. Our client relationships, data and insights and the expertise of our professionals worldwide built over 155 years of market leadership is why we see AI as a powerful accelerator and enabler in delivering value to our clients, colleagues and shareholders. Now turning to market conditions. We continue to see a competitive insurance and reinsurance environment. According to the Marsh Global Insurance Market Index, primary commercial insurance rates decreased 5% in Q1, driven largely by property. This follows a 4% decline in the fourth quarter of 2025. As a reminder, our index skews to large accounts. Rates in the U.S. were down 1%. Europe, Asia and Canada declined mid-single digits. U.K. and Latin America were down high single digits, and the Pacific region had double-digit decreases. Global property rates decreased 9% year-over-year, which was the same pace as last quarter. Global Financial and Professional liability rates were down 5%, while cyber also decreased 5%. Global Casualty rates increased 3% with U.S. excess casualty up 18%, reflecting ongoing pressure in the liability permit, and workers' compensation decreased 1%. In reinsurance, there is substantial capacity to support client demand as reinsurers pursue growth. Throughout the first quarter, market conditions were generally consistent with what we saw at January 1. The strong reinsurer profitability, high ROEs and increased capital levels have resulted in ample supply of property cat capacity and meaningful rate reductions. It was also another active quarter for cap bond issuance. U.S. property cat reinsurance rates remain competitive for the April 1 renewal period. Rates for non-loss impacted accounts were down 15% to 20%, a slight acceleration from the January 1 renewal season. In U.S. Casualty Reinsurance, we continue to see a range of outcomes depending on loss experience with primary cares demonstrating limit, rate and underwriting discipline. In Japan, April 1 property cat rates overall were down 15% to 20% on a risk-adjusted basis. Early signs for June 1 Florida cat renewals point to similar market conditions characterized by rate reductions and excess supply as seen in January and April. There are early indications that Florida's legal reforms will contribute to further risk-adjusted decreases. Our clients are benefiting from the current market conditions. And as always, we continue to advise them on designing the best risk programs aligned to their goals. Now let me turn to our first quarter financial performance and outlook, which Mark will cover in more detail. Consolidated revenue increased 8% to $7.6 billion, growing 4% on an underlying basis, with 3% growth in RIS and 5% in Consulting. Marsh Risk was up 4%. Guy Carpenter grew 2% and Mercer increased 5% and Marsh Management Consulting grew 6%. Adjusted operating income grew 8% and adjusted EPS was $3.29, up 8% year-over-year. We also repurchased $750 million of our stock. Looking ahead, we are well positioned for another solid year despite headwinds from lower interest rates and decreasing insurance and reinsurance pricing. We continue to expect underlying revenue growth in 2026 to be similar to last year. We also anticipate continued margin expansion and solid adjusted EPS growth. Our outlook is based on current conditions and the economic and geopolitical environment could change materially from our assumptions. In summary, we're off to a solid start in 2026. Despite challenging market conditions, we remain focused on executing our strategy and continuing our track record of strong results. The Thrive program will drive growth through investments in talent and AI, strengthen our brand and generate greater efficiency. We're excited for AI's potential and committed to being an AI winner through growth, productivity and efficiency gains. Marsh is a resilient business that provides critically important advice and solution particularly in complex times such as these. We have proven our ability to deliver across cycles, and I am confident in Marsh's future. With that, I'll turn the discussion to Mark for a more detailed review of our results. Mark McGivney: Thank you, John. Good morning. Our first quarter results represented a solid start to the year, reflecting strong execution despite a challenging environment. Consolidated revenue increased 8% to $7.6 billion with underlying growth of 4%, which came despite a headwind from fiduciary interest income and declining P&C rates. Operating income was $1.8 billion and adjusted operating income was $2.4 billion, up 8%. Our adjusted operating margin was unchanged at 31.8%. GAP EPS was $2.36 and adjusted EPS was $3.29, up 8% over last year. Looking at Risk & Insurance Services. First quarter revenue was $5.1 billion, up 6% from a year ago or 3% on an underlying basis. Operating income in RIS was $1.3 billion. Adjusted operating income was $1.9 billion, up 7% over last year, and the adjusted operating margin was 38.3%, up 10 basis points from a year ago. At Marsh Risk, revenue in the quarter was $3.7 billion, up 8% from a year ago or 4% on an underlying basis. Growth increased sequentially despite the more challenging market conditions, reflecting solid performances in the U.S., including MMA and across international. In U.S. and Canada, underlying growth was 3%. In international, underlying growth was 5%, with EMEA up 6%; Asia Pacific up 5% and Latin America up 2%. Guy Carpenter's revenue in the quarter were $1.2 billion, up 3% or 2% on an underlying basis, a good result considering the current pricing environment. Growth was impacted by softer reinsurance market conditions and a tough comp to 5% underlying growth in the first quarter of last year. However, Guy Carpenter executed well and drove strong new business despite the tough market conditions. In the Consulting segment, first quarter revenue was $2.6 billion, up 11% or 5% on an underlying basis. Consulting operating income was $525 million and adjusted operating income was $552 million, up 13%. Our adjusted operating margin in Consulting was 21.6%, up 40 basis points from a year ago. Mercer's revenue was $1.7 billion in the quarter, up 11% or 5% on an underlying basis. Health grew 6%, reflecting continued growth across our regions, especially in international. Wealth was up 5%, led by our investments business. Our assets under management were $727 billion at the end of the first quarter, up 5% sequentially and up 19% compared to the first quarter of last year. Year-over-year growth was driven primarily by new wins, the impact of capital markets and acquisitions. Career was down 2%, reflecting continued softness in project-related work in the U.S. partially offset by sustained demand in International. Marsh Management Consulting generated revenue of $897 million in the first quarter, up 10% and or 6% on an underlying basis, reflecting solid demand across most regions and sectors. Fiduciary interest income was $85 million in the quarter, down $18 million compared with the first quarter of last year, reflecting lower interest rates. Looking ahead to the second quarter, we expect fiduciary interest income will be approximately $80 million. Foreign exchange was an $0.11 benefit in the first quarter. Based on current exchange rates, we expect that FX will have an immaterial impact on earnings in the second quarter and the rest of the year. Corporate expense in the first quarter was $74 million on an adjusted basis compared to $81 million in the fourth quarter. Looking ahead to the second quarter, we anticipate corporate expense of approximately $90 million, which includes some one-off timing items. We're making good progress on executing our Thrive program. We remain on track to generate $400 million of total savings, a portion of which will be reinvested for growth and incur approximately $500 million of charges to generate the savings. Total noteworthy items in the first quarter were $521 million, including $37 million of costs associated with Thrive. Noteworthy items this quarter also include a $425 million charge relating to litigation stemming from the collapse of greenfield capital in 2021. As we have previously disclosed, Marsh served as greenfields insurance broker starting in 2014. The charge in the quarter represents the best estimate of our liability in this case, and was influenced by a recent court sponsored mediation among the parties involved. Our 10-Q filed earlier today includes further information on this matter and the charge. As you can appreciate, this litigation is ongoing, so we aren't able to comment further at this time. Interest expense in the first quarter was $240 million. Based on our current forecast, we expect interest expense in the second quarter to be approximately $245 million. Our adjusted effective tax rate in the first quarter was 25.1%. This compares with 23.1% in the first quarter last year, which benefited from discrete items, most notably a meaningful benefit related to share-based compensation. When we give forward guidance around our tax rate, we do not project discrete items. Based on the current environment, we expect an adjusted effective tax rate of between 24.5% and 25.5% in 2026. Turning to capital management and our balance sheet. We ended the quarter with total debt of $20.6 billion. Our next scheduled debt maturity is in the third quarter with $550 million of euro-denominated senior notes mature. Our cash position at the end of the first quarter was $1.6 billion. Uses of cash in the quarter totaled $1.3 billion, included $440 million for dividends, $89 million for acquisitions and $750 million for share repurchases. We continue to expect to deploy approximately $5 billion of capital in 2026 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. Turning to our outlook for 2026. Despite the challenging environment, we remain well positioned for another solid year. We continue to expect underlying revenue growth will be similar to the levels we generated in 2025 along with another year of margin expansion and solid adjusted EPS growth. For modeling purposes, we expect to generate more margin expansion in the second half of this year than in the first half. With that, I'm happy to turn it back to John. John Doyle: Thank you, Mark. Andrew, we are ready to begin the Q&A session. Operator: Certainly. [Operator Instructions] Our first question comes from the line of Greg Peters with Raymond James. Charles Peters: I wanted for my first question, to focus on our margin results. John, I know we're quite proud of the 18 years of consecutive margin expansion and presumably, you're going to hit your 19th year in 2026. But because of these results, it's caught the attention of many about where the ability to generate future margin expansion will come from? And maybe it's embedded in your AI comments. But with your margin results being so high, curious about the risks of AI disintermediation across the various businesses that you have? John Doyle: Sure, Greg. Let me hit the margin part of that and then maybe I can talk to AI disremediation risk. So sure, AI, and I gave you a bunch of examples right in my prepared remarks around efficiency gains and some that we're already seeing today. Let me remind everybody, of course, we've guided to year '19 of margin expansion this year, and we fully expect to do that. Thrive, of course, is broadly an important lever for us. BCS I think in the broader kind of AI discussion in the economy and amongst businesses and governments, AI often is being used as a term for broad-based automation, but I distinguish the 2. So we're -- we still have real possibilities around and are actively building out our capability centers and using kind of more traditional digitizing strategies to drive efficiency gains. So there's a lot in front of us there. And so we're excited about the path that we're on. As I said in my prepared remarks, we expect to be an AI winner, we moved early on AI, and we're excited about how it's already making us better and how it's going to make us better in the future. And our scale and data and insights enable us to move more quickly. I would say to you, we've competed with early-stage tech-enabled startups for a long time. We've competed with direct insurers for a long time and competed successfully with them. When I think about the attributes that we have is that we're in the early days of what's possible around AI, our trusted client relationships matter. Our data matters, our modeling, it matters, our ability to advise on risk, not just by insurance, really matters. Our ability to connect to a complex ecosystem of risk financing really matters. We don't just buy insurance for our clients. We do so much more than that. So when I think about all the attributes that we have and what our ability is to be an AI winner, I can't think of a better place to be -- to start and to begin the early days of what's possible around AI than here. Do you have a follow-up Greg? Charles Peters: Yes, I do. And I'm going to pivot to capital management. the public brokers, the stock prices, everyone's reset lower, I'm not sure on the M&A side that the prices or valuations of acquisitions have reset lower yet. So I'm just curious on how you're thinking about the allocation or difference between growth through M&A versus repurchase of your own stock considering the reset and value of the stock price? John Doyle: Yes, it's a great question. What I would say is our strategy remains the same, right? We want a balanced approach to capital management. We favor investing in our business, whether it's organically or inorganically. Our goal remains to increase our dividend each year. And buybacks ultimately will depend on M&A. And as I mentioned in my prepared remarks, we did $750 million of buybacks in the first quarter. And we expect to deploy -- Mark mentioned we expect to deploy about $5 billion worth of capital this year. We're active in the market. Our pipeline is strong. So I feel terrific about that. And just as a reminder for everyone, 18 months ago, we closed on the biggest deal in our history, right? So not so long ago. And last year, we deployed about $850 million to M&A. And we did a meaningful deal at MMA in the fourth quarter in Hawaii, as most of you would remember. We did a couple of small deals, 3 small deals in the first quarter. We also actually closed on the sale of an admin business in the Pacific. I'd point that out to you. And we announced the acquisition of AltamarCAM. It's a private market asset manager with about $20 billion of AUM. That's kind of regulatory approval. So we expect that to close sometime later in the year. So we're likely to continue with our string of pearls approach. We do have the capacity to do larger deals, who knows what the marks are PE-backed assets. I will say, over the course of the last couple of quarters and some conversations we've had, there's been growing gaps between bidding -- bid and ask. We'll see how that materializes over the rest of this year. We've seen financial sponsors be a bit more aggressive than strategics. And Greg, we're going to, as always, be disciplined about how we deploy our capital. Andrew, next question, please. Operator: Our next question comes from the line of Mike Zaremski with BMO. Michael Zaremski: Great. Just 1 question on maybe around the AI conversation, specifically on the value-add services that you offer your clients. Curious a couple of your peers have talked about the Claims Advocacy Group, and they've offered some stats around the how the Claims Advocacy Group has made sure your clients get their claims paid in a timely manner. Just curious if you see that as one of the bigger value adds and if yes, if there's any stats or anything you'd like to share? John Doyle: Yes. Sure, Mike. And maybe what I'll do is I'll ask all of our business leaders just to share some thoughts on how we're investing in AI and how it impacts the value that we deliver. But we have the largest claim group -- Claims Advocacy Group in the industry by some measures. So maybe I'll start with Nick. Maybe you could share some thoughts, Nick? Nicholas Studer: Yes. Mike, thank you for the question. Maybe let me start on the claims advocacy question. As John said, we have a very large team plus additional specialists to handle highly complex claims. And the important thing to state, first of all, is that policy drafting and placement that creates contract certainty is the first stepping point here, so that you don't have rejected claims, which then require advocacy. But when you do our advocacy is strong and if you take an example like Claims IQ, which is our AI-enabled toolkit, we've got several thousand colleagues now drawing an AI-enabled analysis of almost $200 billion of loss information, which helps them support much better advice decision-making and advocacy. But if I take a few more examples tapping into John's prepared remarks, this is a bespoke fragmented, highly complex ecosystem from client service and a advice all the way through to placement. And A lot of the focus is on AI, but this is an ecosystem, which is digitizing steadily, and that digitization is critical to deploy the AI. There's lots more work to do just on digitization. And we still see human relationships and human judgment continuing to be central. But the AI investments are, I think, massively enabling of growth and of productivity and of efficiency. So value-added services, as you said, we're investing heavily in our digital client experience. We have a suite of tools, which you may have seen for many years in Blue[i] and Centrus, which we've talked about before, we're evolving these into what we call the Marsh risk companion, which will help clients understand and analyze their risks and their options across a wider range of their activities. But what's really crucial about the suite of tools is they're now all feeding off a new analytics engine. It's built from the ground up to leverage AI at scale. One of the things here is you're able to leapfrog with AI. And we call it the Marsh Risk cortex, but it really pulls together everything we need from our massive data sets and our most advanced models. And the crucial thing, I think, is not what features have we got, but it's the speed and the flexibility with which we can launch new applications because our clients' needs are evolving rapidly, and new needs are emerging. The first application is powered by the risk cortex, including our renewal companion, our captives companion, they're going to be launched in a couple of weeks at RINs. And then you should expect to see more flowing from that data set and analytical tower. And then maybe just to give a couple of more examples, we've talked before about our general proprietary AI suite just within Marsh Risk and up to more than 2 million prompts a month. So that helps productivity across the organization. But I know you're looking for sort of specific examples, too. So if I take something like we've rolled out tools to aid coverage gap analysis and quote comparison across our risk management and the Marsh agency businesses. And in the areas where we pilot that, we see the amount of work that, that takes off our client teams drive a 50% increase in sales velocity in the pilot. And we think some of that gain is scalable across the whole organization. So really lots going on, lots of activity to support our client-facing colleagues and our operations colleagues in work. John Doyle: Thank you, Nick. You're starting to sound like an insurance broker. Dean? Any thoughts from Guy Carpenter? Dean Klisura: Thanks, John. And Mike, you heard John in his prepared remarks, mentioned GC Quotebox, which is an AI-driven document ingestion tool. This is really a game changer for Guy Carpenter in our business. We get huge quantities of unstructured data from our clients, and this tool helps us ingest all of that data and makes it more efficient to match risk and capital through this tool, which will certainly improve turnaround times, make our teams, our brokers more efficient and deliver better turnaround times and more efficiency for our clients. John Doyle: Perfect, dean? Pat, how are you using AI Mercer? Patrick Tomlinson: Let me go 1 of those examples and maybe give you 1 where we're using it directly with clients. So Mercer Fiber is one of the tools where we're leveraging the broader AI stack that we have at Marsh to kind of further enable our existing digital tools. So health consultants leverage fiber when they're working directly with the client. It enables them to have these real-time iterative discussions on all aspects of their benefit programs, an incredibly powerful scenario planning and modeling during strategy sessions. What we do is we use fiber throughout the year as well to help with budget tracking, with updates with benchmarking, other plan management activities. And what it does is it allows us to visually display these insights and the data from across our health and benefits practice and then it combines it with the client's actual population and their actual claims data. And that allows us to understand and show clients directly the geographic differences in health care cost and quality based on their actual data, and we could do that live. And it allows us to really work to identify the most effective health care options for a specific population, right? And this is differentiating us in the market, really by showcasing the capabilities we've got the insights in a single integrated platform to be very client specific because it's very targeted to them and very client-centric. John Doyle: Thank you, Pat. Ted, welcome to the call. You want to share some thoughts on why we're excited about AI at Oliver Wyman. Ted Moynihan: SP26858316 Thank you, John. Thank you. And you mentioned already that our AI platform Quotient is our fastest-growing capability right now. And AI is developing into a very large opportunity for us as a consulting business that works on strategy and transformation. Let me mention a few examples. -- all of our work around performance transformation, where we're helping our clients improve how their businesses work and there's a ton of reengineering of processes and systems around AI. In industries, I would mention like banking, like health care, like advanced manufacturing, we're seeing the volume of work there really start to grow quickly. Growth and strategy work where we're helping our clients rethink kind of customer service and distribution channels. We've -- we've helped a number of clients already build new apps and chat GPT, a very new change to the way commerce is working, and we think going to be very transformational in industries like media, retail, communications, that's really a big deal. And you mentioned, I think, in your introductory remarks, but with governments, with investors, we've been helping to mobilize capital, where governments and investors are investing in AI skills and capabilities and new AI start-ups and new cost. And look, it's also changing the way we deliver our work and it's allowing us to -- AI is helping us deliver more value to clients. And just to give you one example in our private capital business, where Quotient diligence is changing the way we help our clients invest in businesses. And we're using very sophisticated tools to do market analysis, competitive analysis, growth opportunity analysis, and that allows our clients to make better investments and sometimes if they want to quicker investments in the private capital world. John Doyle: Thank you, Ted. Sorry, Mike, for that long answer, I just want to make sure everyone realizes why we're so excited and why we think we're best positioned to deliver greater value than we ever have to our clients and to our shareholders. So do you have a follow-up, Mike? Michael Zaremski: Yes, really quick. That was helpful follow-up. Just on the the pace of Marsh's hiring in terms of the producer level, do you expect that trajectory to change materially in 2016 and has higher or lower? John Doyle: Yes. No. Thanks, Mike. We had a good quarter, attracting production talent to the team in key markets, our brand in the market for town and in the areas where we compete and deliver for our clients is very, very strong. We start with the best talent and the most talent in the markets that we compete with. Would also maybe not your question, but our colleague retention is strong, our colleague engagement is outstanding. And so it's all anchored by a colleague value proposition, which is a really important way in which we try to convince people to stay and to give big parts of their career to our company. So thank you, Mike. Next question, Andrew? Operator: Our next question comes from the line of Brian Meredith with UBS. Brian Meredith: A couple of them here for you, John. First one, I'm just curious, given the level of rate decreases that we're seeing out there. What are you seeing with respect to client demand at Marsh, given this uncertain kind of macro environment, are you using savings to purchase more coverage? Are they kind of holding back right now to see how the year kind of unfolds? John Doyle: Yes. I don't know it's very -- thanks, Brian, for the question. I'm not sure it's a very helpful answer, but sometimes, I guess would probably be the -- some of it. The market obviously got modestly more competitive in the first quarter. I talked a bit about the strong returns on the reinsurance side, but obviously, insurers and reinsurers have posted strong underwriting results. They're all looking for more growth, right, as a result. And so maybe another point I'd make here, Brian, is not directly on your question is, although rates are down, the cost of risk is clearly increasing. And I would think at a magnitude probably 2x GDP with liability inflation, medical cost inflation, cyber risk, certainly accelerating with AI, the frequency of extreme weather and how much more of the economy and society is exposed to those events. So it's maybe a more important driver of demand for us over the medium term. But maybe I'll ask Nick and Dean to just talk about a couple of market observations and what clients are doing in terms of purchasing. Nick? Nicholas Studer: Yes. I mean, as John said, the answer is sometimes. But in general, I think, yes. We've also seen continued trend and a rising trend in new business growth. And if I look at, say, the U.S. and Canada, highlights there include double-digit new business growth, continued strong growth at Marsh Agency, and double-digit growth in the specialties business. So transaction risk and construction, both growing strongly. And all of that with the -- across globally new business trending up for 4 quarters. But we're cautiously optimistic as we go through the rest of the year. John Doyle: Dean? Dean Klisura: Yes. Thanks, John. And Brian, maybe I'll just touch on kind of new business opportunities overall. And despite the property market and everything that John and Mark talked about which was a clear growth headwind for Guy Carpenter in the quarter. We're seeing record new business across our platform. We grew double-digit new business growth in every region in business globally in the quarter. I was really pleased with that. As Mark and John noted, we continue to see a really strong cat bond market and ILS market overall. We issued 7 cat bonds in the quarter, a record for Guy Carpenter. We've seen some $2 billion of new third-party capital flow into the market, just chasing casualty side cars, whole account quota shares and other similar vehicles. We've gotten several new mandates around those, very, very promising. I've talked in prior calls about our capital and advisory business, our investment banking boutique. We've never received more M&A mandates -- M&A advisory mandates, forming new side cars, as I mentioned, raising capital for MGA's Lloyd's platforms, our structured credit business, our MGA business. And in the last call, we talked about data centers, right? And just a couple of headlines there. I mean there's 50 deals that have been in the marketplace looking for more than $7.5 billion of capital to put these together. And all of my clients, Guy Carpenter's clients want to write more data centers, but they all need additional reinsurance protections. And I think the newest element of it, Brian, is clients now are talking about issuing cat bonds and leveraging third-party capital to write more data center business. And so I would say, overall for Guy Carpenter, there's more diverse new business opportunities that we've seen in several years. John Doyle: Thanks, Dean. SP1 Brian, do you have a follow-up? Brian Meredith: Yes, absolutely. So John, it's clear that AI is going to have productivity benefits,, it's going to benefit client experience and growth, et cetera. But 1 of the debates I'm having with investors is how much of the productivity gains is Marsh going to be able to keep and see a benefit from a margin perspective versus protects being competed away or giving back to clients. Maybe give us your perspective on that. John Doyle: Yes. It's a great question, Brian. And I talked about where we see efficiency opportunities -- Productivity opportunities, new sources of revenue generation. So -- we don't think anybody is better positioned to capitalize on these developments in technology than we are. And so I'm quite excited about that. Our fees have been for a long time, stable as a percentage of premium, and they're quite small compared to the cost of risk that we help our clients manage. And so we feel good again about how we're positioned and what that would mean. I think some of us on this call have talked about in the past and I mentioned in my prepared remarks, if you think we're a discounted insurance broker, yes, I might be a little bit worried, but we're not. That's not what we do. And so we feel good about what this technology will meet to our business. Thanks, Brian. Andrew, next question. Operator: Our next question comes from the line of Rob Cox with Goldman Sachs. Robert Cox: First question I had for you was just going back to the capital deployment and M&A side. I'm just curious how, if at all, AI is changing the M&A strategy. Are you staying away from certain businesses pivoting towards others and have your technology requirements or anything else changed? John Doyle: No. We -- it's a good question, Rob. We've had some opportunities and have looked at some businesses that have pitched kind of AI as part of their value. And I think there was a very significant gap between how some of those businesses for trade their tech value relative to how we saw their tech value. And so -- but I do -- and I recognize you can't plan around hope. So I say this with that in mind. But I'm hopeful that actually the scale benefits that we bring to investing in AI and the data sets and client relationships and all the advisory work will create opportunities for us to consolidate smaller brokers over time who are going to struggle to compete and to invest in these technologies. And even where they're able to make space for investment, they just don't have the data assets and the other capabilities that we have. And so I'm optimistic over time that will be a driver of M&A for us. Do you have a follow-up, Rob? Robert Cox: Yes, that's very helpful. Just had a follow-up on the MMA business. I understand you guys don't break that out. But just curious if you would characterize that business as a tailwind to organic growth for the RIS business and if it is, like, do you think it could continue to be a tailwind despite more pricing pressure for a commission-based model here? John Doyle: Yes. For -- the answer is yes, right? So MMA has been a tailwind to our growth for most years and most quarters, not all, but for most, as we've talked about in the past, we still have relatively modest penetration into the middle market. And so while Dave and the team have made a tremendous amount of progress, and we couldn't be more excited about the business we've built. In many respects, I feel like we're just getting started. We absolutely have the possibility for much greater growth. What I would say about pricing for for a number of, I think, rational reasons, pricing in the middle market has been -- has been more stable through cycles. That continues to be the case right now. It's one of the areas where we're delivering some of the productivity tools to help make our producers even better. And so we're really excited about the opportunity in the middle market. And by the way, not just in the United States, where we've learned a great deal in the last 15 years in building out that business and from some very talented executives we brought on, and it's helped making us better and capitalize on middle-market opportunities in other economies around the world. Thank you, Rob. Andrew, next question. Operator: Our next question comes from the line of Meyer Shields with KBW. Meyer Shields: Great. First question for John. I completely get the increasing benefits that you're going to be able to -- or increasing value that you're going to be able to bring to clients and carriers through AI. Are commissions still the right way to be compensated for that? Or do you expect compensation to become more transparently tied to the individual services? John Doyle: Look, Meyer, we have a broad risk of -- or broad range, excuse me, of the way we get compensated today. We have fees, we have commissions. We have success fees, right? I'm sure there are other things I'm not even thinking about. We're very transparent with our clients about how we get paid. And so -- so anyway, I mean, we'll see how those conversations evolve over time. I wouldn't -- I would suggest to you, I see no -- zero trend kind of around that. And so -- but again, we're happy to get paid in any form. We think we created outstanding value for our clients, and we think we get deserve to get paid well for that, assuming we deliver and execute on behalf of them. And as I mentioned before, our commissions and fees are a relatively small part of the overall cost of risk. And as a percentage of premium, they've been quite consistent over a long period of time. Do you have a follow-up, Meyer? Meyer Shields: Yes, just a quick modeling question. Is there any way of teasing out roughly how much of the wealth revenues come directly from assets under management? John Doyle: We haven't disclosed that historically, but it's obviously a range of, as we call it, AUDM or delegated management AUM and advisory fees. We're excited about how we're positioned in the investment advice business globally. We have -- we advise on close to $17 trillion assets around the world. And as a leading adviser in pension and retirement markets for a long time all over the world, we're very, very well positioned. I would also note, we're the largest OCIO, Outsourced Chief Investment Office in the market, and we continue to see a lot of possibilities for growth there. And I mentioned AltamarCAM and, maybe, Pat, you can talk about AltamarCAM and some of the investments we're making in our businesses make us even stronger. Patrick Tomlinson: Yes. Thanks. And listen, quickly on the wealth side in our business. Obviously, Mark had talked about the growth, we're pleased with the growth. It was led by our Investments business, in particular, our OCIO offering. So I understand the spirit of the question. We also will highlight our really seeing solid growth in our investment consulting business, right, which is not based on the AUM, based upon volatility in the market and clients seeing significant demand and need. And we have been to the point you're asking, diversifying our overall business and our AUM away from DB Vence, right? So it has been moving -- but we've been building out actively our deep defined contribution solutions around the world, and we've really been advancing our capabilities around nonpension clients, and that's been a major focus for us. insurers, endowments and foundations, family office and wealth management. And I think that goes into the spirit of the M&A and the AltamarCAM announcement that John kind of teed up from where we agreed to acquire AltamarCAM. They're specialists in private markets from an asset management solution perspective. They've got about EUR 20 billion AUM, we think it's going to significantly increase and expand our capabilities in the private markets platform. It's going to add a certain expertise in secondaries and co-investments, in bespoke accounts in evergreen vehicles, and that's going to allow us to offer much more comprehensive multi-asset private market solutions to clients. right? So we definitely feel that this is an area that we've been investing in heavily, you've seen from our announcements over the deals we've done as a firm over the last several years. And we've also been consciously making organic investments and trying to build out our capabilities broadly around being a main investment player. John Doyle: Thanks, Pat. Thanks, Meyer. Andrew, next question please? Operator: Our next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question is on Guy Carpenter. So you guys were at 2% for the quarter, and I think you did point out, right, the elevated comp at 5% last Q1. I believe you were at 5% right throughout last year. So does the 2% feel like where this business should trend, I guess, at least in the near term, given it sounds like your pricing views or, if anything, right pointing to things getting a little bit worse post the [ 11 ] renewals. John Doyle: Yes. Elyse, as we've talked about, it's a very soft property cat reinsurance market. And so we're confronting that. We're particularly exposed to that in the first quarter. In the second quarter a bit as well with Japan and Florida, as we talked about. What I would say to you, Elyse, is that I'm quite pleased with our execution in spite of the kind of current market headwinds. And again, these market headwinds are good for our clients, right? So we're delivering for our clients in the moment. But client retention was strong, and we had an excellent new business quarter. And so I feel terrific about how the team is executing, what's a challenging market. It's not likely to be Guy Carpenter's best growth year this year, right? And so we've been planning for that and guiding to that. Do you have a follow-up, Elyse? Elyse Greenspan: Yes. My second question is just on capital, right? You guys were more active in the Q1 relative to prior first quarters. Obviously, we've seen a pullback in the stock price and just the group in general. As you guys think about balancing right M&A potential as well as where your stock is, could this be a year, I guess, where you continue to front-load I guess, more buybacks, even a little bit more independent of what's going on, on the M&A side? John Doyle: Sure. Maybe I'll ask Mark to jump in here, Elyse. Mark McGivney: Elyse, as John said earlier, there's no change in strategy. Our strategy of balanced capital deployment with a bias to reinvest and grow the business through high-quality acquisitions remains. But as we've consistently said, two, where our goal is not to build cash on the balance sheet. We're generating a lot of capital these days. And so where we see M&A light, we'll ramp up share repurchase. We did that in the fourth quarter. We bought back $1 billion and we started the year with $750 million. But the pipeline remains active. Our commitment to grow through M&A remains. It was relatively light M&A spending in the first quarter. But as John mentioned, this AltamarCAM transaction, which is a nice chunky deal that will close sometime later in the year. So -- so we did start the year with a heavy amount of share repurchase. But ultimately, what we end up deploying to share repurchase will depend on how the M&A pipeline develops through the year. John Doyle: Thanks, Mark, and thank you, Elyse. Andrew, maybe time for one more here. Operator: Certainly. Our next question comes from the line of David Motemaden with Evercore ISI. David Motemaden: Just had another follow-up question on AI? And maybe just a refresher, John, could you just remind us how much you guys are spending on AI just broadly within the tech budget. And I guess, who are you partnering with? What LLM providers are you partnering with? What tools are you using? That would be helpful. John Doyle: Yes, David. It wouldn't be a refresher because we've not shared that data in the past. We have a healthy tech CapEx budget. We take a hard look at that. It's, I think, another example where our scale matters, we're able to spend more and invest more. So we feel good about the investments we're making. I think, again, AI, I think the broad-based community needs to be careful about what AI even means. So -- but we're investing heavily and improving our tech stack in our utility of and in other parts of our efforts to digitize workflows and digitize how we engage with our clients. And so again, we feel good about how we're positioned there. We work with lots of different providers. So we're -- and I think one of the things about AI is it's of a lot of different things. There are many different possibilities for us to to extract value from these new technologies. So it's not about pick a hyperscaler and plugging them into our data set and it all of a sudden solving every inefficiency or productivity opportunity that exists in the world. And so we're working with a number of different major tech players and trying to pick and choose where we see the greatest value depending upon what it is we're trying to accomplish. Do you have a follow-up, David? David Motemaden: Yes. Maybe just a quick one in the interest of time. In Marsh, I'm just sort of wondering what's your exposure to in terms of revenues from personal lines, brokerage or micro commercial, where like you guys are only placing a single policy or as low dollar value and could be considered less complex? John Doyle: Yes. I'm not ready to concede by the way, that placing somebody's personal insurance isn't complex. If you're -- you have a client that's personally exposed and working with them to help manage risk and advise on their most precious assets. We certainly don't approach the client experience kind of in that way. where people are trying to buy commoditized products, those things exist already. I mean there's direct digital distribution. It's been that way. I would imagine for the direct markets, AI is going to create opportunities for them to improve their client experience with their customers. That's not who we serve. In personal lines, it's almost entirely a high net worth personalized client. It's an exciting area of growth for us. It's not a material part of our business, but we continue to grow. So if you're a restaurant on -- in small town U.S.A. there is a lot of complexity. And I'm not quite sure, by the way, we have very little of this business, almost none of this business. But I'm not ready to concede that it is something that some entrepreneur wants to prompt an app for hours and hours and hope that they get it right. So anyway, -- as I said, we're very excited. We don't think anybody is better positioned to take advantage of the developments on the technology front. We have to execute, but that's been the case for 150 years. And so we're excited about the path we're on and looking forward to accelerating our growth. Andrew, we have run over . Can you wrap us up here. I want to thank everybody for joining us today and thank our colleagues for their dedication to Marsh and our clients for their continued support and confidence in what we do for them. Operator: Ladies and gentlemen, this does conclude today's conference. You may now disconnect.
Operator: Greetings, and welcome to the Prologis Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Justin Meng, Senior Vice President, Head of Investor Relations. Thank you. You may begin. Justin Meng: Thank you, operator, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. Joining us today are Dan Letter, CEO; Tim Arndt, CFO; and Chris Caton, Managing Director. I'd like to note that this call will contain forward-looking statements within the meaning of federal securities laws and including statements regarding our outlook, expectations and future performance. These statements are based on the current assumptions and are subject to risks and uncertainties and that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of these risks. We undertake no obligation to update any forward-looking statements. Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP. And in accordance with Reg G, we have provided a reconciliation to the most directly comparable GAAP measures in our first quarter earnings press release and supplemental. Both are available on our website at www.prologis.com. And with that, I will hand the call over to Dan. Dan Letter: Thank you, Justin. Good morning, and thank you for joining us. We entered 2026 with solid momentum, and we saw that continue in our first quarter results. While the geopolitical backdrop has become more uncertain in recent weeks, our business continues to perform at a very high level, supported by resilient demand, disciplined execution and the strength and scale of our global platform. Last quarter, we outlined our top 3 priorities for the business. Let me highlight how our strategy is translating into results across operations, value creation and capital formation. First, we delivered another quarter of record leasing with 64 million square feet of signings supported by both strong retention and healthy new leasing activity. Occupancy exceeded our expectations, and we are raising our full year outlook. Second, we are putting our land bank to work across logistics and data centers with $2.1 billion of starts in the quarter, of which $1.3 billion was data center build-to-suits. The depth of customer interest for our data center offerings is significant, and we believe our ability to bring together land, power and development expertise is a key differentiator for our business and positions us to capture a growing share of this opportunity. And third, we are expanding our strategic capital platform. We announced a $1.6 billion joint venture with GIC and subsequent to quarter end, a $1.2 billion joint venture with La Caisse. These partnerships reflect strong investor demand for our platform and our ability to deploy capital into high-quality opportunities worldwide. Taken together, these initiatives reinforce a simple point. We are building a broader, more resilient platform, one that is positioned to compound growth over time. Before I pass the call to Tim, let me briefly address the geopolitical backdrop. The conflict in the Middle East has introduced yet another source of economic uncertainty, most directly through higher energy prices and renewed pressure on inflation and interest rates. Rather than speculate, I'll focus on what we are seeing in our data, what we're hearing from our customers and how we are operating the business. Our lease signings, proposal volume and build-to-suit pipeline point to continued strength in underlying demand. In fact, March was a very active month for new leasing. By comparison, when our business faced abrupt tariff-related uncertainty in April of 2025, the pause in leasing activity was relatively immediate before flowing out in the following weeks and months. At the same time, our customer insights are grounded in direct ongoing engagement with hundreds of real-time interactions each quarter. Seven weeks into this conflict, most are actively monitoring the situation and they are telling us 2026 business plans are unchanged. The risk today is that uncertainty slows customer decision-making. We have not seen meaningful evidence of that to date. That said, we're operating with a heightened level of awareness guided by the same discipline that has defined our business for decades. This is a time-tested platform and the structural drivers of growth across logistics, digital infrastructure and energy remain firmly in place. And with that, I'll hand the call to Tim to walk you through our results and outlook. Timothy Arndt: Thank you, Dan. Turning straight to our results. We delivered a solid quarter, executing well against our strategic priorities in a dynamic environment. First quarter core FFO was $1.50 per share, including net promote expense and $1.52 per share, excluding this expense, each ahead of our expectations. We ended the quarter with occupancy of 95.3%, reflecting the seasonal drop we telegraphed and typically experience each first quarter. Retention remained very strong at nearly 76%. Net effective rent change was more muted this quarter at 32%, driven primarily by market mix. Our expectation for full year rent change to approach 40% on a net effective basis remains unchanged. Our lease mark-to-market ended the quarter at 17% on a net effective basis. The rate of decline has slowed meaningfully, due in part by an uptick in market rents this quarter, the first increase in 2.5 years. Our lease mark-to-market represents approximately $750 million of embedded NOI at spot rents, which, of course, do not reflect the replacement cost rent upside, which should materialize over time as occupancies improve. Same-store NOI growth was 6.1% on a net effective basis and 8.8% on cash. In addition to the year-over-year occupancy increase and the growing contribution of rent change, the period also benefited from unusually low bad debt. In terms of capital deployment, we had a fantastic quarter. We started $2.1 billion of new development, including $850 million in logistics and $1.3 billion in 2 data center projects. Within logistics, approximately 75% of the starts were speculative, reflecting improving fundamentals and our confidence in the need for new supply across many of our markets. Our data center starts totaled 350 megawatts between 1 ground-up development at an existing campus and 1 conversion out of our portfolio. Both projects are pre-leased on a long-term basis to leading technology companies with strong investment-grade credit. Customer interest in our powered sites is exceptional with 1.3 gigawatts under LOI and all of our power pipeline in some level of discussion. We ended the quarter with 5.6 gigawatts of energy either secured or in advanced stages which reflects the stabilization of another 150-megawatt facility during the quarter. Simply assuming a power cell format at $3 million per megawatt, our current pipeline could provide well over $15 billion of investment and multiples of that in a turnkey format, creating significant potential for value creation. Continue to scale our solar and storage business, meaning customer demand and completing 42 projects during the quarter, bringing us to a total of 1.3 gigawatts of installed capacity. In terms of capital recycling, we sold or contributed approximately $1.2 billion of assets during the quarter. This included initial activity within the U.S. Agility Fund announced last quarter as well as seed assets for our new venture with GIC. Before turning to our markets, I'd like to take a moment to highlight that we marked the 10-year anniversary of Prologis Ventures, our corporate venture capital arm. We've now invested $300 million across more than 50 companies providing visibility to emerging technologies and solutions in the supply chain to stay ahead of disruption, drive innovation and discover new opportunities. Overall, we progressed further through the stages of inflection with demand strengthening vacancy topping out and an increase in the number of markets providing positive rent growth. Our U.S. markets absorbed 45 million square feet, a solid result on a seasonally adjusted basis, slightly ahead of our forecast and consistent with our own leasing experience in the quarter. The U.S. vacancy rate was flat sequentially at 7.5%, aided by lower completion levels as the construction pipeline remains favorable at just 1.7% of stock compared to a 10-year average of 2.6%. We still expect a relative balance between supply and demand, which would allow vacancy to drift lower over the year. Globally, market rents grew 30 basis points during the quarter. And barring an economic slowdown, we expect growth to continue, although it may be uneven quarter-to-quarter as conditions firm. In the U.S., the strongest growth remains in many of our Central and Southeast markets, while Latin America, Western Europe, the U.K. and Japan stand out internationally. Southern California is performing in line with our expectations, which is to say it is improving but will lag other markets. We're seeing stronger leasing activity and a more constructive tone from customers and vacancy has increased modestly and rents have declined slightly, again, both consistent with our outlook as the market continues to progress through its earlier stages of inflection. Moving to our customers. Our recent leasing has been supported by a broader mix of transactions across both size category and geography. Even after delivering record leasing in the quarter, our pipeline has not only replenished but in fact, reached new highs reflecting strong underlying and ongoing demand. With large space format now essentially sold out in our portfolio, we're seeing activity broaden into other unit sizes alongside strength in our build-to-suit demand where our pipeline continues to be healthy. From a segment perspective, demand remains strong in essential goods and e-commerce, with increasing momentum among data center suppliers. Decision-making is marginally slower, the leasing activity remains robust, and we have not seen any meaningful evidence of pullback. In capital markets, transaction volumes have increased with an encouraging amount of product currently in the market across core, core plus and value-add strategies and spanning both single asset and portfolio transactions. What stands out is the pricing premium for quality. Assets with strong locations, functionality and credit are attracting the deepest buyer pools with cap rates on market rents around 5% and unlevered IRRs in the mid-7s. Turning to strategic capital. We closed commitments for 3 additional vehicles, including a new venture with GIC, which will develop and hold U.S. build-to-suit opportunities and an expansion of our relationship with La Caisse through a pan-European venture focused on both development and acquisition strategies. We also launched a new acquisition vehicle in Japan. Between these ventures as well as the Agility Fund and CREIT closings announced last quarter, we've raised over $2.6 billion of third-party equity, aligning capital with growing investment opportunities in a more accretive format. And finally, on our balance sheet, we raised $5.5 billion in new financing during the quarter at a weighted average rate of approximately 3.75%. This includes the $3 billion recast of one of our 3 credit facilities at a spread of just 63 basis points, the lowest of any REIT. Turning to guidance, which I'll review at our share. We are increasing our forecast for average occupancy to a range of 95% to [indiscernible]. This increase, together with our first quarter outperformance drives our expectations for net effective same-store growth to 4.75% to 5.5% and cash growth to 6.25% to 7%. And Strategic capital revenue is now expected to range between $660 million and $680 million, and G&A is expected to range between $510 million and $525 million. As for deployment, we are increasing development starts to $4.5 billion to $5.5 billion, this on an own and managed basis with approximately 40% allocated to data center build-to-suits. Acquisitions will continue to range between $1 billion and $1.5 billion, and our combined contribution and disposition activity will range between $3.5 billion and $4.5 billion, all at our share. Putting it together, our strong start has us increasing our outlook on earnings. Net earnings will range between $3.80 and $4.05 per share. Core FFO, including net promote expense will range between $6.07 and $6.23 per share, while core FFO, excluding net promote expense will range between $6.12 and $6.28 per share an 80 basis point increase from our prior midpoint. In closing, the strength of our business is evident against the backdrop of ongoing volatility. We are anchored by a portfolio of irreplaceable assets generating durable and growing cash flows, a disciplined approach to capital deployment, a scaled asset management platform and a fortress balance sheet. At the same time, we continue to expand in our adjacent businesses in energy and data centers, providing additional avenues for growth. We're excited by the strong start we've had, are proud of our team's execution and are well positioned to deliver excellent results over the balance of the year. With that, I'll turn the call back to the operator for your questions. Operator: [Operator Instructions] And your first question comes from Ronald Kamden with Morgan Stanley. Ronald Kamdem: Great. Congrats on the record leasing in the quarter. And I think I heard you mention that the pipeline is also back at record. I guess my question is just on the leasing spread. That looks like slightly [indiscernible] in the quarter. Just any comments there and how you guys are thinking about occupancy versus pricing going forward for the rest of the year? Timothy Arndt: Ron, yes, the quarter, I mentioned there was some mix going on in the numbers you see about 40% of the role by happen stands happen to be in our West region in the U.S. where we have some softer conditions and lower lease mark-to-market, as you're aware. So that impacted both rent change and things like free rent that you'll see in the SEP. In terms of balancing around occupancy and rent change, it's really not only market by market, it's really deal by deal. I would say out there, we have a pretty wide mix of market conditions, as you know, some exceedingly tight and some still soft, and that can happen at the submarket or even the unit level. So I'd say, in aggregate, we are in a mode of pushing rents in a number of markets and situations. But still preserving for some occupancy. Operator: Your next question comes from Michael Griffin with Evercore ISI. Michael Griffin: Just wanted to ask on the data center development leasing front. It obviously seems like some good news announced in the quarter. But mean is there a worry we've heard things in the news around data center development opportunities around the country, getting shelved the local municipalities pushing back. Is that a risk for this pipeline? Or do you feel for these projects you've got underway even with the secured power that you're able to go forward and lease these and ultimately create that value that you've been talking about? Dan Letter: Michael, this is Dan. So our pipeline in the build-to-suit for data centers is very strong. You saw these 2 starts that we announced this quarter. We've been guiding for the year for the first time on what we expect to see. We've got 1.3 gigawatts of deals under LOI, and we're making further progress converting the pipeline I feel really good about what we have going. And I think that accounts for the next 3 years' worth of business and everything we're hearing from our customers is they need the space. Operator: The next question comes from Craig Mailman with Citi. Nicholas Joseph: It's Nick Joseph here with Craig. I appreciate the added disclosure on the data centers what we assume development margins on the new starts this quarter? I think in the past, you've talked about 25% to 50% margin. So how do these starts compared to that range? Dan Letter: So when you look at our start volume for the quarter, then obviously the blend of both our logistics that includes build-to-suits. It includes spec, where we've more spec going on this quarter than we've had the last several quarters. And then on the data center front, I would keep it within the range that you've heard us talk about the last few years, it's 25% to 50% better or higher than what you see in our typical logistics margins. Operator: Your next question comes from Blaine Heck with Wells Fargo. Blaine Heck: It seems as though average occupancy outperformed expectations during the quarter. I know you guys raised the guidance slightly, but given that the occupancy guidance doesn't lead much upside from Q1, is there anything kind of timing related that happened such that where we could see some more downside in Q2 than was initially expected? Or is there just maybe some conservatism in that guidance since we're still early in the year. And as Dan mentioned, visibility is somewhat more challenged. Timothy Arndt: Blaine, we outperformed average occupancy by around 20 basis points in the quarter. You see a lift in our full year using the midpoint of our guidance of around [indiscernible] points. So in excess of that, that reflects 2 things. There is one, some pulling forward of occupancy, mainly that's going to manifest in the form of surprise renewals, that kind of thing. And then also reflects the strength of the pipeline. As I mentioned, we had a lot of activity both in signings. That's half of it, but then the overall size of proposals standing today is large enough that gives us the confidence for the rest of the piece of that race. Operator: Next, we have Andrew Berger with Bank of America. Unknown Analyst: It sounds like 1Q net absorption was a bit ahead of your expectation. Can you just share your latest views on the fundamental outlook for 2026? Christopher Caton: Sure, it's Chris. So our view is unchanged. We're moving through the inflection phase, as Dan and Tim described in the script. There's very little change to our view. That's net absorption on pace to approach 200 million square feet and completions, 190 million square feet this year. So that will see rents and occupancies, market rents and occupancy is improving over the year. So like you proposed there, like you described, Q1 was modestly better. And -- but we're going to hold our core assumptions. This is a macro landscape that's going to evolve over the course of the year. It will be shaped by the magnitude and duration of the conflict in the Middle East. And so our outlook is balancing that risk against what we see which is resilient customer demand, as Dan described in his prepared remarks, we also leveraged the economic consensus. And they have been marking to market their view, taking it down sometimes 40 basis points in the back half of the year. But look, stepping back, the baseline view is intact, and there is ongoing momentum in the marketplace. Operator: Next, we have Nicholas Yulico with Scotiabank. Nicholas Yulico: I just want to turn back to some of the market commentary on -- which was helpful. Wanted to see if we could get a little bit more details on some of the U.S. laggard markets. I know you already talked about Southern California, but perhaps New York, New Jersey, other markets that maybe aren't outperforming what kind of needs to change to get better rent growth there. And then in terms of the Europe exposure, if you could just also talk about non-U.K. countries and sort of latest feeling you're hearing from customers since there is a lot of questions about how energy prices in Europe could affect the economy over there. Christopher Caton: It's Chris. I'll jump in. So first off, in the U.S., there are 3 or 4 things to reflect on. Number one, there is a growing range of healthy geographies in the U.S. Places like Texas generally, South Houston and Dallas are either strong or healthy, Atlanta and increasingly some of the Midwest markets, something about Columbia, something about Indianapolis. So there's that strength that Tim described in his prepared remarks. Yes, specifically after soft markets, the 2 softest markets are probably L.A. County and Seattle in the United States. Those are areas where vacancy rates are very elevated relative to history. The pace of incoming demand is muted. And so the recovery is yet to play out there. In terms of some core markets, you asked after New York, New Jersey, I'd also throw in San Francisco Bay Area. These are areas where we're upgrading our views. In general now, we're entering a phase where we're upgrading our assessment of markets and New York, New Jersey is a great example of it. Is it time for rent growth there? No, not quite yet. This is a year where we're going through a transition phase like we've talked about, but it's just worth knowing that we have a bias to upgrading areas. Vacancy rates have peaked are beginning to come down toning customer demand is positive. Turning to Europe. So first off, the Western European geographies of like Germany and the Netherlands are leading that marketplace. And we have the dialogue that was described in the prepared remarks, we have it globally, and that includes your Euro and the tone there is positive. Business plans are intact and customers are moving forward with their real estate requirements. Dan Letter: Maybe one thing I would add on here is just focusing on the unit size or building size, anything over, call it, large format, 500,000 square feet or above, we're nearly sold out. We're 98% leased across the globe at that size. So you'll start seeing rent growth there, certainly. Operator: Next, we have Vikram Malhotra with Mizuho. Vikram Malhotra: Congrats on the strong quarter. Just 2 clarifications. So I think last quarter, you had said as we enter the back half of the year, we'd like to see some markets where annualized rent growth could maybe eclipse your rent bumps I'm just wondering if you can give us a bit more color, like what -- which markets are you seeing real rent growth on an annualized basis? And then if you can just clarify on the same-store NOI outlook, the cash outlook, given the number you had in it does suggest a decel. So what's sort of driving that? Or I guess, what drove the big pop in 1Q versus the guide? Christopher Caton: Vikram, I'll start with market rent growth, and Tim will take some of the same-store questions. I like the way you worded the question there trying to get really specific numbers out of me. I don't recall that we would have put it that way. But let me just tell you the healthiest geographies including in Atlanta, Dallas, Houston, Columbus, also outside the U.S. places in Latin America like Sao Paulo and the Mexico City, these are the leading geographies for rent growth. Timothy Arndt: And Vikram, on the cash piece, yes, our guidance reflects our expectations clearly, the first quarter is benefiting from some occupancy comps a bit more favorable in the first quarter about the cadence of 2025. We built occupancy over the course of that year. So those comps get to be a lesser effect and then rent change, of course, is powerful rolling through the portfolio. But on a year-over-year basis, as spreads get a little bit more relaxed, that contributes lesser to quarter-over-quarter -- well, sorry, year-over-year for the same quarters in terms of same-store. Operator: Next, we have Tom Catherwood with BTIG. William Catherwood: Excellent. Maybe going back to the data centers for a second. Even when power is secured, it seems like there's a supply chain crunch on the equipment side, which is creating bottlenecks, especially with turnkey developments. Are you able to get ahead of that by preordering material and equipment similar to what you did during the pandemic? And if so, is it giving you an advantage when it comes to your build-to-suit negotiations? Dan Letter: Thanks, Tom. The short answer is yes, absolutely. Procurement, our fortress of a balance sheet and ability to get out in front of these long lead items is absolutely a differentiator for us. And what I'd say is just overall, this machine we've built and that we focused on so much over the last 3 years around building these capabilities across this company, whether it be procurement, data center expertise we've built in a big way over the last few years. It's leading to this pipeline that you see and the confidence that we have in putting these numbers out there and I'll actually correct something I said earlier on today and an earlier question around margins. Margins are actually 25% to 50%, not 25% to 50% better than logistics. And these are very profitable deals. Keeping in mind, our pipeline is built on the foundation of logistics basis, buildings and land. Operator: Next, we have Caitlin Burrows with Goldman Sachs. Caitlin Burrows: You might have touched on this a bit in the prepared remarks in terms of 3 points of focus. But Tim, you mentioned the new GIC and La Caisse JVs the acquisition vehicle in Japan, the Agility Fund. It just seems like a lot. So I'm wondering if there's some new increased focus on the strategic capital business, are those coincidental timing? Or is there some bigger push kind of on the fund side? And is there any core differences between these new funds and the existing ones? Timothy Arndt: Kate. Look, we're really proud and excited of the number of vehicles. We've launch now in the last 2 quarters, 5 new vehicles, spanning geographies and formats, but also risk appetite. One thing that you see between the U.S. Agility funds launched last quarter, as well as the venture announced here is spanning into some development activities. And it's very purposeful. We're getting ahead of what we see as growing deployment volumes on one part in logistics, you see us ramping up our guidance there as markets are improving. This is a machine that ought to be able to do $5 billion to $6 billion pretty easily, I would say, with our land bank and the size of our platform. But that's being matched up with this incredible data center opportunity that Dan is speaking to. And we are looking at the capital needs there and finding the right ways to get to all of those opportunities. actually in a smarter, more capital-efficient format that can yield fees and promotes. So you're seeing that branching now to exhibited in the announcement of these vehicles. Operator: Next, we have Michael Goldsmith with UBS. Michael Goldsmith: Lease proposal pipelines picked up quite a bit in the first quarter here. So can you provide a little bit more context around it? What's driving it? What sectors is coming from, what sizes and how should that translate to actual leasing in the current quarters. Christopher Caton: It's Chris. So what's underpinning that is customers have been deferring growth requirements sitting through -- sitting on their net needs and they're increasingly responding to the growth in their businesses, the opportunity to invest in their supply chains and as far as slices, it's diverse. So there are a couple of different ways we can look at it, whether it's by size. And so there's growth, say, for example, both above and below 100,000 square foot unit sizes. There's growth, for example, in terms of organizational types. So say international scale customers versus our local scale customers. Those are both growing as well as both renewal and new requirements. So there is diversity there. Operator: Next, we have Vince Tibone with Green Street. Vince Tibone: I wanted to follow up on your comment that data center suppliers are increasingly taking down logistics warehouse I just wanted to get your perspective on how material this demand driver could be in the coming years and also how sustainable? Like is it all tied to construction and this could be shorter-term leases? Or is this about servicing existing data centers as well. So I just -- yes, I'm trying to get a sense of like how -- is this a new structural demand driver for the space, what percentage of new leases maybe it's represented in last quarter or 2, if you're able to share. I just wanted to kind of pick your brain on that kind of seemingly new side of warehouse demand. Christopher Caton: Yes, Vince, you're right. It is a new structural driver of logistics real estate demand. It has gone from, say, less than 5% of new leasing a year ago to now 10% of new leasing, and it's an even greater share of the forward-looking pipeline. So there's absolutely upside over the near term as a consequence of this driver. In terms of the breadth and duration, I suppose, number one, we see them signing deals with really healthy term. There is a shift in their own supply chains going from -- I think you could think about it as unbundling manufacturing and distribution to having distribution, a more regionalized and close than production of the data centers. And so there's really solid momentum here, and you're right to describe it as a new structural driver for logistics real estate. Operator: Next we have Michael Carroll with RBC Capital Markets. Michael Carroll: With regard to the data center opportunity, how do these tenants discussions progress when deciding between pursuing a power base or a turnkey build-out I'm assuming these are different tenants that would want the power base builds. Is that fair? And how much of the opportunity that you kind of quoted in your prepared remarks could potentially be turnkey. Dan Letter: Every discussion, every deal is different, let's put it that way. And different users have different mindsets at different periods of time. So -- what you see from us, we were heavily focused on the powered shell side of this as you start these discussions. And then we've -- you've seen us deliver some powered shell plus really, we're trying to just work through the customer what they need from us and about how we capitalize this business longer term, maybe you see some more turnkey from us over time, but really, it's just a matter of who your -- what customer you're talking to and what's on their mind at the time. And... Timothy Arndt: Yes. And yield, what is their respective cost of capital is the other thing I see us coming up against because the migration up to turnkey can be expensive. Operator: Next up, we have Nick Thillman with Baird. Nicholas Thillman: Tim, I wanted to circle back on some of the commentary you had on the acquisition side and cap rates. Obviously, varying degrees of demand from a fundamental standpoint and the leasing side. understand your comments on just core portfolio transactions and quality buys, but it seems historically relative to historical trends, just cap rates by market or historically tight. I'm wondering if you guys could provide a little bit more commentary on markets where maybe you're seeing cap rates expand a little bit more? Or maybe you're seeing a little bit more compression on the transaction side. Dan Letter: Nick, I would say cap rates certainly expanded over the last few years. They've been holding pretty steady for the last 5, 6 quarters or so. We obviously dive deep into this volumes. Volumes themselves are actually, I would say, normalized. And so -- and those cap rates at a market it's going to be a range between 5% and 5.5% depending on the location quality. You're seeing more of a divergence of Class B and C than obviously that collapsed during the last cycle. And when you look at -- when we look at it, what we are an IRR-based investor, we're not focused necessarily -- of course, we're focused on it, but we're looking at the total return of these assets, quality, total return location. And so cap rates can be a bit confusing at times. Operator: Next, we have Mike Mueller with JPMorgan. Michael Mueller: For GIC and La Caisse. Can you give some color on how you determine what developments will be done in those ventures versus on your balance sheet? Timothy Arndt: Mike, we go through an allocation policy that is long-standing at the company. Now as you can imagine, our 40 years as an asset manager. We've had overlapping vehicles with mandates that need to be managed, so we have an allocation policy in that regard that deals will cycle through. It could find any of those vehicles, including the balance sheet has been the ultimate developer of some of these assets, and it's dependent on a variety of conditions that are run with good governance I think that makes your lives difficult if you were left only that which is a way of saying you're going to be increasingly reliant on the PLD share of these development volumes. So that will cut through all that noise for you because ultimately, that's the thing that's going to matter economically for the company. Operator: Next, we have Brendan Lynch with Barclays. Brendan Lynch: It looks like turnover costs per square foot are coming down, I think now about 7.3% of lease value, but free rent has ticked up a bit. So how should we think about the evolution of concessions going forward? Timothy Arndt: Well, I'll start. Concessions are still a bit elevated right now. We've seen free rent, as you highlight, stepped up. I said earlier, so I'll say it again, some of that influenced by the greater amount of roll out of the west where those conditions are softer and concessions are a bit more elevated. We do expect concessions to normalize as occupancies build, which that's on the free rent metric would be more in the order of something like 3% of lease value versus a little bit of a bulge that you see at the moment. Operator: Next, we have John Kim with BMO Capital Markets. John Kim: On data centers, I wanted to see if there was an update on the timing of your data center vehicle. And also if you can just clarify the 5.6 gigawatt of capacity, is that on growth or leasable power? Dan Letter: Sure. So let me start with the capitalization fees, maybe hand it to Kim -- or Tim, for some color. But bottom line is we've had very constructive conversations with global investors over the last 2.5 quarters or so. And interest remains very strong. We feel like we're in a very good position with multiple options. And we're just taking the time to evaluate what makes the most sense for us right now. Our current model of building on the balance sheet and then selling these stabilized assets has worked really well the last couple of years, and we see it working quite well going forward. I'd like to actually step back at this point and realize what we've done over the last few years, and I already mentioned it at the front end of the call, but the pipeline we've built, the capabilities we've built and the progress we've made since we embarked on this officially call it Investor Day 2023 has been tremendous. So feel great about what we're putting in front of these investors and where we're going to take it from here. But Tim may have some additional color on the capitalization piece. Timothy Arndt: Look, I think you covered it well. Happy to take other questions. I think the second part of your question dealt with clarification on the megawatts that is utility load that we're reporting out, and there's going to be -- probably 2/3 of that will be critical, so you can apply math based on those numbers. Operator: Next, we have Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I just wanted to go back to the discussion on market rent growth, and I appreciate some of the color and good to see the first increase in, I think, 2.5 years, as you said. Do you expect market rent growth to persist just given where conditions are at this point in the cycle? And then I know you touched on SoCal, but can you share a little bit more detail on that market and a bit of a real-time read on what you're seeing and how conditions are currently and how the market is performing relative to expectations so far this year? Christopher Caton: It's Chris. I'll start and Dan may add remarks as well. So first off, on market rent growth, one, underline the word stability. We did have a bit of growth in the first quarter is pretty incremental. And that is really a market-by-market exercise, with most markets enjoying stable to slightly rising. But with there being pockets of real strength like we discussed earlier on the call, as well as some pockets of softness like we also discussed. So I think what you should think about is our call is unchanged, but we're passing through an inflection. Rent growth is still a little bit uneven, and it's just a bit too early for broad-based and sustained growth. I'll offer a few details on Southern California. That is a market that is moving through the bottoming process. We're seeing the demand pick up. Vacancy is near a trough, but it's just a bit too early for rents to increase on a broad base. but there are pockets that are firming. Dan Letter: Yes. Let me just pile on a little bit here in Southern California. I feel like I've said this quite a bit over the last 1.5 years or so in various meetings. But I think it's really important to emphasize just how big of a market Southern California is and what are Os in these markets. We're focused on being close to the end consumer. There are 24 million consumers in Southern California. It's a $2 trillion economy down there and it's just getting more and more difficult to build down there. So the supply backdrop is really shaping up for that market quite well. And so we're -- we feel good about the projection we've made about Southern California kind of tailing the overall market by 2 to 3 quarters. That was the last question. So thank you all for joining the call. Just a big thank you to our colleagues around the world for another exceptional quarter. We look forward to seeing you all at upcoming conferences and speaking again at the next quarterly call. Thank you. Operator: Thank you. And with that, we conclude today's conference call. All parties may disconnect. Thank you.
Operator: Good morning, and welcome to the 2026 First Quarter Earnings Conference Call hosted by The Bank of New York Mellon Corporation. At this time, participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without The Bank of New York Mellon Corporation's consent. I will now turn the call over to Marius Merz, The Bank of New York Mellon Corporation Head of Investor Relations. Please go ahead. Marius Merz: Thank you, operator. Good morning, everyone, and welcome to our first quarter earnings call. I am here with Robin Vince, our CEO, and Dermot McDonogh, our CFO. As always, we will reference the quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. I will note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the earnings press release, financial supplement, and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, 04/16/2026, and will not be updated. With that, I will turn it over to Robin. Robin Vince: Thanks, Marius. Good morning, everyone, and thank you for joining us. I will begin with a few broader comments before Dermot takes you through our financial results. Referring to page two of the quarterly update presentation, The Bank of New York Mellon Corporation has started the year with a strong performance in the first quarter. Earnings per share of $2.24 grew 42% year over year, both on a reported basis and excluding notable items. Record revenue of $5.4 billion was up 13% year over year, reflecting broad-based growth across our Securities Services and Markets and Wealth Services businesses. We delivered over 800 basis points of positive operating leverage while making meaningful investments in new products, capabilities, AI, and critically, our people and culture. Taken together, this combination of strong top line growth and significant operating leverage resulted in pre-tax margin expansion to 37% and improved profitability with a return on tangible common equity of 29%. The Bank of New York Mellon Corporation’s position at the heart of global financial markets, with platforms across custody, security settlement, collateral, payments, trading, wealth, investments, and more, supports durable financial performance for our company, enabling us to power our clients' growth as they navigate an increasingly complex landscape. While the path of global markets is difficult to predict with certainty, what is clear is that the underlying trends—higher levels of activity, greater complexity, new technologies, and a resulting need for scale, efficiency, and connectivity—are more relevant than ever for our clients. As I mentioned in my shareholder letter earlier this year, the portfolio of The Bank of New York Mellon Corporation’s businesses is unique, but it is how we are embracing new ways of working, our adoption and integration of new technologies, and our strong culture that allows us to create truly differentiated solutions. Clients are increasingly recognizing the value of holistic solutions that support the full life cycle of their activity, whether it is managing liquidity, optimizing, supporting higher trading volumes, or getting ready for the future of financial market infrastructure. Our work to operate together as one The Bank of New York Mellon Corporation, through both our platforms operating model and our commercial model, better enables us to bring the full breadth of our capabilities together in service of our clients. A good example of this from the first quarter is our work with Allianz Global Investors, one of the world's leading active asset managers. AGI has selected The Bank of New York Mellon Corporation to support optimizing their investment operating model, leveraging the breadth of our global capabilities. This integrated model will help AGI deliver exceptional experience front to back while placing AI and modern data infrastructure at the heart of their operations to enhance productivity, enable faster work, clearer insights, and better outcomes for their teams and clients alike. Another example, PayPal has selected The Bank of New York Mellon Corporation to provide institutional-grade digital asset custody, supporting their digital payments wallets, financial services for millions of users globally. And just last week, the US Treasury Department announced that they have selected The Bank of New York Mellon Corporation as financial agent for Trump accounts, the US government's investment savings initiative for children aimed at building a strong financial foundation for our next generation. The Bank of New York Mellon Corporation will manage the national infrastructure for the program and collaborate with Robinhood, which will provide brokerage and initial trustee services. These examples illustrate our strategic evolution toward deeper integration between our products delivered with the technology and scale of The Bank of New York Mellon Corporation’s differentiated platforms. Over the next phase of The Bank of New York Mellon Corporation’s transformation, one of the most significant enablers of being more for our clients and running our company better is AI, and so we felt that this was an opportune time to spotlight how we are going about AI at The Bank of New York Mellon Corporation. Turning to slide three of the presentation, as a reminder, our work to set the foundation for reimagining our company has included intentional and consistent investments in AI over the past several years. We took a very deliberate approach to AI through the lens of integration, adoption, and importantly, our people and culture. We embraced the platforms approach to embedding AI across the company, creating our AI Hub in 2023, so we could develop the enterprise capabilities, strong governance framework, and training to empower every employee to embrace AI. More than two years ago, in collaboration with NVIDIA, The Bank of New York Mellon Corporation became the first global bank to deploy a DGX SuperPOD, and in the same year, we launched Eliza, The Bank of New York Mellon Corporation’s AI platform. Outlined on page four, our vision for AI at The Bank of New York Mellon Corporation is that it is for everyone, everywhere, and everything. As is the case with many things, the key to making it work is culture. We took a people-first approach. Over the last year, we focused on broad adoption. We made Eliza available to 100% of our employees, and supported advanced learning and development through a series of training programs. This approach to enterprise-wide enablement has already allowed us to develop more than 200 AI solutions and to introduce digital employees, multi-agentic solutions that operate alongside human colleagues. In 2026, we are doubling down on depth, moving from AI point solutions to using AI to enhance end-to-end processes, reducing manual touch points, improving cycle times, strengthening control outcomes, and building more connected intelligence by linking data, workflows, and expertise to enhance the service and value proposition for our clients. On page five, we show just some of the initial outputs—tangible results of AI enablement and impact across improved business and operating performance—driving greater efficiency and product innovation. None of these metrics individually show a complete picture of AI at The Bank of New York Mellon Corporation, but taken together, they show something important: that we are systematically embedding AI in our workflows across the entire company. Already, AI is helping us increase the pace at which we innovate our technology, accelerate onboarding, improve client service, and streamline processes. In combination with our broader efforts to run our company better, AI is starting to contribute to the improved financial performance trajectory at the bottom of the page. Building on our deliberate strategy and the solid foundation we have laid over the past several years, we are confident that AI will enable us to evolve our business model and enhance how we deliver for clients. Our commitment, not just to deep AI enablement but the full reimagination of our company, combined with the role that we play in global financial market infrastructure, the breadth of our businesses, and our trusted and deep client relationships together, represents a powerful competitive advantage. Taking a step back and reflecting on the operating environment, while AI was an ever-present theme in markets over the past few months, the first quarter also presented a dynamic market backdrop. Significant volatility was driven by shifting expectations for the paths of growth, inflation, and interest rates amid geopolitical conflicts and evolving policy outlooks. Within this constantly changing environment, our diversified business model, combined with our strong balance sheet, allows The Bank of New York Mellon Corporation to serve as a pillar of strength for our clients and for global markets. Before I hand it over to Dermot, I want to take a moment to recognize our employees around the world for rising to the challenge to execute on our long-term plan to unlock The Bank of New York Mellon Corporation’s full potential for our clients and shareholders. We have had a strong start to the year, supported by increasing client engagement and continued progress on our strategic priorities. I would like to thank our clients for their trust, our employees for their commitment and hard work, and our shareholders for their continued support. With that, over to you, Dermot. Dermot McDonogh: Thank you, Robin, and good morning, everyone. I will pick up on page six of the presentation with our consolidated financial results for the first quarter. Total revenue of $5.4 billion was up 13% year over year. Fee revenue was up 11%. This included 10% growth in investment services fees, reflecting higher client activity, net new business, and higher market values. Investment management and performance fees were up 6%, primarily driven by higher market values and a favorable impact of a weaker US dollar, partially offset by the impact of the mix of AUM flows. While not on the page, I will note that firmwide AUCA of $59.4 trillion increased by 12% year over year. This reflects net client inflows, higher market values, and the favorable impact of the weaker dollar. Assets under management of $2.1 trillion were up 6%, primarily driven by higher market values and the weaker dollar, partially offset by cumulative net outflows. Foreign exchange revenue was up 49% year over year on the back of higher volumes resulting from elevated market activity and supported by new products and capabilities. Investment and other revenue was $271 million in the quarter, including approximately $135 million of investment-related gains and $50 million of net securities losses. Net interest income increased by 18% year over year, primarily driven by continued reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Expenses of $3.4 billion were up 5% year over year, both on a reported basis and excluding notable items. This was primarily driven by our commitment to higher investments in our businesses, higher revenue-related expenses, the unfavorable impact of the weaker dollar, and employee merit increases, partially offset by continued efficiency savings. Provision for credit losses was a benefit of $7 million in the quarter, primarily driven by improvements in commercial real estate exposure, partially offset by changes in macroeconomic and other factors. On the back of significant positive operating leverage of 833 basis points, pre-tax margin expanded to 37%, and return on tangible common equity was 29%. Taken together, we reported earnings per share of $2.24, up 42% year over year. On to capital and liquidity on page seven. Our Tier 1 leverage ratio for the quarter was 6%, flat sequentially. Tier 1 capital increased by $532 million, primarily driven by preferred stock issuance and earnings retention, partially offset by a net decrease in accumulated other comprehensive income. Average assets increased by 2% on the back of deposit growth. Our CET1 ratio at the end of the quarter was 11%, down 89 basis points sequentially. Our CET1 capital remained approximately flat; this decrease was primarily driven by higher risk-weighted assets reflecting a single-day increase in overnight loan balances on the last day of the quarter along with higher client activity in agency securities lending and foreign exchange. Over the course of the first quarter, we returned $1.4 billion of capital to our shareholders, representing a total payout ratio of 87%, and our Board of Directors authorized a new $10 billion share repurchase program. Our consolidated liquidity coverage ratio and net stable funding ratio were 111% and 131%, respectively. Turning to net interest income and balance sheet trends on page eight. Net interest income of $1.4 billion was up 18% year over year and up 2% quarter over quarter. Like the year-over-year increase described earlier, the sequential increase was primarily driven by the continued reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Average deposit balances increased by 3% sequentially, reflecting 2% growth in interest-bearing and 6% growth in non-interest-bearing deposits, and average interest-earning assets were up 2% quarter over quarter. Cash and reverse repo balances were flat. Loans increased by 6% and investment securities portfolio balances increased by 2%. Turning to our business segments starting on page nine. Securities Services reported total revenue of $2.7 billion, up 17% year over year. Total investment services fees were up 10%. In Asset Servicing, investment services fees grew by 11%, reflecting higher market values and broad-based client activity. ETF AUCA were up 33% year over year, on the back of higher market values, client inflows, and net new business. And our Alternatives [inaudible] 20%. I want to highlight that, consistent with our strategy to deliver the breadth of The Bank of New York Mellon Corporation to our clients, over 50% of the clients that awarded Asset Servicing new business in the first quarter also awarded new business to at least one of our other lines of business. In Issuer Services, investment services fees were up 4%, reflecting growth in both Corporate Trust and Depositary Receipts. I will note that for the first time in our history, Corporate Trust reached $15 trillion of total debt serviced, and we are particularly pleased with our continued market share gains in CLO servicing. Once again, the breadth of our capabilities is a powerful differentiator. Our clients clearly recognize the superior value proposition of a single provider for Corporate Trust, Asset Servicing, collateral, liquidity solutions, and more. In Securities Services overall, foreign exchange revenue was up 44% year over year, reflecting higher client volumes. Net interest income for the segment was up 20% year over year. Segment expenses of $1.6 billion were up 5% year over year, primarily driven by higher investments and revenue-related expenses, the unfavorable impact of the weaker dollar, and employee merit increases, partially offset by efficiency savings. Securities Services reported pre-tax income of $1.0 billion, a 46% increase year over year, and a pre-tax margin of 39%. Investment-related gains added three percentage points to pre-tax margin in the quarter. Next, Markets and Wealth Services on page 10. Markets and Wealth Services reported total revenue of $1.9 billion, up 11% year over year. Total investment services fees were up 10%. During the quarter, we formed our Wealth Solutions business by realigning Archer’s managed accounts solutions from Asset Servicing to Pershing. This integration further strengthens our capabilities to serve wealth advisors by adding Archer’s market-leading distribution and managed accounts expertise to deliver fully integrated end-to-end solutions across the entire wealth ecosystem. In Wealth Solutions, investment services fees were up 6%, reflecting higher market values and client activity. Net new assets were $22 billion in the quarter, representing an annualized growth rate of 3%, and AUCA of $3.3 trillion were up 14% year over year. In Clearance and Collateral Management, investment services fees increased by 19%, reflecting broad-based growth in collateral balances and clearance volumes. Average collateral balances of $7.8 trillion increased by 18% year over year, reflecting higher market activity and growth on the back of a robust environment for financing with US Treasury securities, strong money market fund balances, and increasing client demand for non-cash collateral. Ahead of the central clearing mandate for US Treasuries, we are engaging with central counterparties and our clients. We are delivering innovative solutions from across The Bank of New York Mellon Corporation that help them find new ways to access the market, clear transactions, and manage collateral and margin. In the quarter, we also saw strong growth in clearing volumes reflecting net new business wins, particularly in international clearance and from expanding wallet share with existing clients doing more with The Bank of New York Mellon Corporation. In our Payments and Trade business, investment services fees were up 5%, primarily reflecting net new business. Payments and Trade delivered another solid quarter with continued sales momentum, including numerous multi-line-of-business wins, particularly with FX and Global Liquidity Solutions. Net interest income for the segment overall was up 15% year over year. Segment expenses of $937 million were up 6% year over year, primarily driven by higher investments, employee merit increases, higher revenue-related expenses, and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Taken together, our Markets and Wealth Services segment reported pre-tax income of $961 million, up 18% year over year, and a pre-tax margin of 51%. Turning to Investment and Wealth Management on page 11. Investment and Wealth Management reported total revenue of $825 million, up 6% year over year. Investment management and performance fees were up 6%, primarily driven by higher market values and the favorable impact of the weaker dollar, partially offset by the impact of the mix of AUM flows. Segment expenses of $726 million were up 2% year over year, primarily driven by the weaker dollar, employee merit increases, and higher investments, partially offset by efficiency savings. Investment and Wealth Management reported pre-tax income of $90 million, up 43% year over year, and a pre-tax margin of 11% versus 8% in the prior-year quarter. As I mentioned earlier, assets under management of $2.1 trillion increased by 6% year over year. In the first quarter, long-term active flows were flat, reflecting net inflows into fixed income and LDI strategies, and net outflows from equity strategies. We saw $10 billion of net outflows from cash and $7 billion of net outflows from index strategies. Wealth Management client assets of $339 billion increased by 4% year over year, reflecting higher market values. Page 12 shows the results of the Other segment. I will close with an update on our financial outlook for the year. In light of our strong performance in the first quarter, we are raising our outlook for total revenue, excluding notable items, for full year 2026 and now expect approximately 6% year-over-year growth. That includes our expectation for full year 2026 net interest income to be up approximately 10% year over year. We expect full year 2026 expense growth, excluding notable items, to be at the top of the 3% to 4% year-over-year growth rate range that we provided in January. We continue to expect a quarterly tax rate of approximately 23% for the remaining quarters this year. I want to leave you with three important points. First, we delivered a strong financial performance in the first quarter and continue to serve as a pillar of strength for our clients amid a dynamic market environment. Second, the combination of our unique portfolio of businesses, our role in global financial market infrastructure, our deep and trusted client relationships, our diversified business model, and the strength of our balance sheet represents an exceptional client value proposition and a powerful competitive advantage. Finally, what truly differentiates The Bank of New York Mellon Corporation today is our ability to mobilize all of the above for the benefit of our clients and shareholders. With that, operator, can you please open the line for Q&A? Operator: As a reminder, we ask that you please limit yourself to one question and one related follow-up. We will take our first question from Brennan Hawken with BMO Capital Markets. Brennan Hawken: Good morning. Thanks for taking my questions. I wanted to start with deposits. The deposit trends were stronger than expected. I was hoping maybe you could speak to quarter-to-date trends and around betas. Specifically for the euro and pound deposit betas, given we have hikes now in the forward curve. How should we be thinking about the betas for those currencies? Thanks. Dermot McDonogh: Okay. Thanks for the question, Brennan. Let me start with overall balances and trends. As you will recall from our call on January 13, we finished last year with strong momentum on deposits and, with the macro uncertainty and just how events of the quarter played out, we saw clients holding higher levels of liquidity. As a consequence, you see the overall balance being a little bit elevated, and then you saw the mix between interest-bearing and non-interest-bearing. We attracted more non-interest-bearing than anticipated. Overall, on the US dollar side, it really was the balance and the mix that drove the NII outperformance in the quarter. Within particular businesses, it really was in Issuer Services and Asset Servicing specifically and Corporate Trust that were the two businesses that saw the notable benefit. As it relates to the non-dollar side of things, euro and sterling is really a smaller part of our overall portfolio. It only accounts for roughly 25% of the overall book, so it is not a meaningful contributor to NII. For euros and sterling, the betas roughly peaked at 80% on the way up, and for dollars and non-dollars, we expect betas to perform in a symmetrical fashion going up as well as going down. That is how we see it. Brennan Hawken: Great. Thank you for that. And then on, I guess, the artist formerly known as Pershing, we had really robust year-over-year both DARTs and AUC growth, but the revenue growth was not quite as robust as those two metrics. So could you maybe help unpack the primary drivers of the revenue growth and help us understand how we should model that going forward? Dermot McDonogh: Wealth Solutions, as we now are going to call it going forward, will be as good as the artist formerly known as Pershing. You saw net new asset growth in the quarter of roughly 3%, and I would just like to reaffirm our belief and commitment that we can grow the business’ net new assets at mid-single-digit growth over the coming years. Also, for the first time in a few quarters, it is pleasing that we have not had to talk about a deconversion, so it was a relatively clean quarter with lots of volume. With macro uncertainty, we did see a lot more volume as clients were rehedging and rebalancing their portfolios, so it was more of a volume-driven quarter. To highlight the point about Archer, we really feel that Archer, in Wealth Solutions, will be able to drive more capabilities and more product innovation for our clients. We feel really good about the outlook and what Archer can do in the Wealth Solutions space. Brennan Hawken: Great. Thanks for that color. Operator: We will move to our next question from Alex Blostein with Goldman Sachs. Alex Blostein: Hi, good morning, everybody. Thank you. Obviously very strong performance in the quarter underscoring the benefits of various verticals within The Bank of New York Mellon Corporation, and part of that, I guess, is sort of transitory. I was hoping we could unpack that both on the fee side and NII—perhaps how much of the benefit the elevated market volatility contributed this quarter to think about the right baseline? And then for NII, the non-interest-bearing performance was obviously quite strong, and it feels like in your guide you are largely kind of mean reverting that. It does not sound like you are assuming much of that is going to stick around, but I was hoping you can unpack what is baked into the NII guide and the drivers. Thanks. Dermot McDonogh: Okay. For your first question—that was a lot of questions, Alex—here is what I would say. Robin spoke about it well on Squawk Box this morning. We are setting the firm up for a diversified revenue stream and durable performance. What was very pleasing from a CFO lens this quarter was the diversity of the revenue stream, the mix between fees from balances and fees from volumes. There was a lot of uncertainty in the market over the course of the first quarter, and our clients were doing a lot of rebalancing, so we were there to help and support that. Volatility can be a good enabler for The Bank of New York Mellon Corporation in terms of the business model because it generates volumes. You saw that across all of our platforms, and then you saw the mix was roughly 50/50 between balances and volumes, which was pleasing to see. The balance between equities and fixed income was also pretty balanced. Overall, it was very pleasing to see in terms of the backdrop. To be honest, we hope that continues, and we have scaled platforms that we have invested in over the last couple of years. With the record sales quarter, you are beginning to see the proof points of clients coming to the platforms wanting to do more with us across multiple lines of business. It really is clients doing more against a macro backdrop that was uncertain that generated the volumes. Overall, very pleasing quarter. As I said in my prepared remarks, there are a few one-offs; we particularly highlighted that in Securities Services, which is a 3% contributor to the margin of 39%. But if you back that out, it is a 36% margin—still a pretty exceptional quarter for that segment. Alex Blostein: Got you. And then just a follow-up on non-interest-bearing and what you are assuming is sort of temporary deposits given the volatility that could reverse itself over the next quarter or so, and how does that inform your 10% NII guide? Dermot McDonogh: We expect deposit balances to revert to more seasonal patterns from here. We expect Q2 to be moderately down from Q1. Q3 is usually our weakest quarter, with Q4 being our strongest quarter. Over the balance of the year, we expect balances to be modestly higher relative to 2025. We have run a bunch of scenarios—different rate environments, different levels—take the feedback from the businesses, and that gives us confidence around the 10% guide. Alex Blostein: Perfect. All right, thank you. I will leave it at that. Marius Merz: Thanks, Alex. Operator: We will take our next question from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Good morning. Maybe, Dermot, following up on your response to the previous question, I want to make sure we get this right. Very clear on deposit and NII outlook. On fees, the guidance implies like 2% to 3% growth for the rest of the year. Is that right? What are the puts and takes—do we need a materially better or worse macro for the 2% to 3% to be much higher or lower? What are the market assumptions you are making in the guidance for the rest of the year on the fee revenue side? Dermot McDonogh: It is a tricky question you ask, Ebrahim. If you go back to January 13, when we gave the guidance for full year, we went with 5% on top line growth. When I was pressed on that, we said a little bit higher on NII, a little bit lower on fees. We are one quarter into it. Under the hood, we said this on the call in January—we continue to believe that we are grinding organic growth higher than where it was. It was 3% in 2025. You will remember way back to 2022 it was flat, and 2023 it was 1%. We are very focused on it and, as Robin said in his remarks, record sales quarter this year in the first quarter and two record sales quarters last year. That is going to drive into the organic growth. We feel pretty good about the outlook for the year, but we are only one quarter in, three quarters to go, a lot of uncertainty, so we are not really changing our outlook on the fee at the moment. Ebrahim Poonawala: Got it. And then a bigger picture question for Robin. You talked about the use of AI and other efficiency improvements at the bank. I would argue there are few banks deploying AI more efficiently than The Bank of New York Mellon Corporation. Is there a risk that you are underinvesting? When we look at the pre-tax margin, could you be doing more in terms of investing in the business using some of these revenue tailwinds? There are a lot more productivity boosts the firm should see due to AI. Why not invest more to further improve the growth algorithm for the firm? Robin Vince: Sure, Ebrahim. Let me split it in two. First, investments versus operating leverage: it is very important to do both. We are investing in growth, and we are driving positive operating leverage and margin expansion. We have said we are going to do that consistently. We are setting ourselves up for peer-leading levels of operating leverage while also investing in the long term. Sometimes people ask whether we are investing enough. The flip side is whether we have full control of expenses if the environment changes. We are very careful about both—leaning in when there is space to do so, but not setting ourselves up with such expense momentum that it becomes problematic if we want to calibrate later. We feel like we are doing that well. On AI, we have been investing for three years in a meaningful way. We have a lot of investment heft with our $4 billion technology spend. Five years ago, that spend was heavily geared toward infrastructure as we rewired our underlying infrastructure to build more modern technology and applications on top. Now we have the gift of AI exactly when we are leaning into those capabilities. We wanted to give you a sense of breadth. We are not going to sit here and talk about all the leading-edge AI things we are doing, but we do want to show the breadth so you can sense it is everywhere. We have 218 AI solutions in production right now across the company—up four times year over year. We have digital employees working side by side with our teams, and we have a lot in pilot. We feel very good about our AI investments. If we felt we needed to do more, we could and we would. Ebrahim Poonawala: Got it. Thank you both. Operator: We will take our next question from Mike Mayo with Wells Fargo Securities. Mike Mayo: Hi. I guess AI is the topic of the day. You brought it up front in the deck—AI for everyone, everywhere, and everything. You talked about doing this for three years and you have 200 solutions. You said you are starting to see the financial benefits. It all sounds deliberate, thoughtful, and clear, but the big question is: what will the financial benefits be? What are the financial benefits now, and in five years what are your financial expectations as the end result of all these efforts? Robin Vince: Sure, Mike. It is a critical topic. We see AI as a catalyst for real transformational change. We have said from the beginning that the technology would move incredibly rapidly and scale in an exponential way. We are seeing that now. Adoption and integration risk being the limiting factors. As a user of AI, it is incredibly important that we embed it and have our people pulling it in, as opposed to pushing it away. Foundational investment in culture and technology allows it to be the superpower that it is and a capacity multiplier for our people. We would like a 47,000-person company to deliver like one many times larger. Our $4 billion technology spend gives us the scale to deploy AI properly, which is incredibly important. If you are a smaller spender, you risk lock-in to someone else’s ecosystem and become subject to token price wars and other unpleasant consequences. To your question, we think the financial outcomes show up in different ways. First, productivity for our people—47,000 people doing more and delivering more for clients—will show up over time in revenue per employee and pre-tax per employee. The progress so far has been driven by the platforms operating model, rewiring, and the commercial model; the next leg of growth is the maturing of those programs, powered by AI wrapped around everything. Second, capabilities and features of our software and platforms as we deliver for clients—we are already seeing that with client wins. Our AGI win in Europe—an inside look at what we are doing on AI made them excited about joining us; they saw AI was not just for our productivity but for theirs, viewing us as an extension of their operating model. Third, there are things we can do in an AI-enabled world that did not make sense before—things at the edge of profit, things clients asked for that did not warrant resources. With AI creating an abundance of capacity, we can start doing things that previously sat below the line. So we see a triple play: capacity creation, revenue enablement, and expanding the firm’s perimeter. Collectively, those excite us for the future. It is early days, and that is fine. Mike Mayo: Understood, and it is clear you are in the debate—are banks, or The Bank of New York Mellon Corporation, an AI beneficiary or victim—obviously you are saying beneficiary. But the other side is the bad actors with these AI superpowers. Bank CEOs have been summoned to DC due to new tools out there and the big risk of cyber. I have a tough time dimensioning the new cyber risk given the new AI tools. How should investors think about this type of risk? How do you think about that? Robin Vince: It is an important question. Cyber defense is something that, as one of the world’s leading financial institutions and a GSIB in the US, we are clearly very focused on. Defending our clients and our role in the financial system has been important for decades. As the technology evolves, so do the defenses. This is a team sport—doing it with AI providers and other technology partners is incredibly important. We have Mithos in-house—we are running it—so it joins the team of defense for us, as does the early access preview capability that OpenAI announced a couple of days ago—again joining the team. AI is a superpower, and it can be used for good or for evil. We are pulling the superpower into our environment to use for good in order to defend ourselves. We view this as an entirely predictable evolution of technology on an exponential curve—there will be step functions. We have accustomed ourselves to this acceleration and work constantly to stay ahead of the curve. It goes back to culture, humility, and being very focused on our role in the system. All of us have to be vigilant. As an investor, think about this across all industries, not just financial services. Bad actors can use AI in bad ways across industries. One of the privileges in financial services is that we have been alert to this topic for a long time. Operator: We will take our next question from Analyst with Morgan Stanley. Analyst: Hey, good morning. Very clear message on AI. It sounds like with the investment spend already in the run rate and a lot more of the benefit to come, there is actually a lot more benefit here on the expense side. You are already at a 37% margin even before the full benefit of the platforms operating model. Is the rationale for keeping the medium-term targets at 38% plus/minus that there may be some of these economics you have to share with your customers, and that will get you more market share in the future? Dermot McDonogh: I will take a stab at that first. It goes back to one of the previous questions about investing in capacity. We just updated our medium-term targets in January. We are one quarter into that. The medium-term targets were based on a three- to five-year horizon, and we feel good about where we are on the decade-long journey. We are continuing to invest, and we are continuing to harvest efficiencies. We think the margin targets and the ROTCE targets that we gave in January were stretch for the firm, notwithstanding the Q1 we have experienced. It is too early to say. If we see opportunities, like Robin said on AI, we may invest more. We are at the high end of our guide for expenses this year. We believe we have earned credibility with the market on being financially disciplined and good stewards of the expense base. It is something that we actively review continuously. If we see more opportunity to invest, we will, and at the right time we will update you on how it is turning out for the medium term. Robin Vince: Let us talk for a second about where the value accrues, because this is quite important. Over the long term, we see great value creation with AI, and it is going to accrue to clients, to employees, and to shareholders as well. We think AI over time becomes table stakes and ubiquitous, and to some extent, you are right—some of it will get priced out through the value chain. But companies that have an edge on using and deploying the technology will have an advantage, and there is a benefit to being a bit ahead in terms of product development and cost of doing business. We see this early-adopter benefit and believe we are one. Strategy matters here—three things. First, culture is an enabler in AI. We have made a lot of investment, and having a team at The Bank of New York Mellon Corporation who see the power of AI and want to use it is a meaningful advantage. Second, our platforms operating model and commercial model laid the groundwork for being a better adopter of AI, because we brought like things together and did the rewiring, data organization, and other work that is incredibly useful when deploying AI. Third, scale. Do you have the ability to manage yourself such that you are not just providing a ton of revenue to the AI companies and losing control of it? Escalation of token usage and costs—same story we have seen before with cloud. If you allow yourself to get locked in and do not have breadth of access, you take a real risk on the pricing power point you raised. For us, the “how” of AI is a strategic advantage. We made a bet on AI three years ago; so far, that has been the right strategy, and we are leaning in. We think this accrues well to our company over time. Analyst: Very clear. Appreciate all the detail. Maybe just on the capital side, given the new rules a few weeks ago, it would seem to me that The Bank of New York Mellon Corporation would benefit on the GSIB surcharge side. It is not entirely clear to me what the benefit would be on the RWA side. Can you comment on that and whether this changes how you are thinking about the capital targets? Dermot McDonogh: Thanks for the question. The recent rule is broadly favorable for The Bank of New York Mellon Corporation. Before, when we talked about it on previous calls, we gave a preliminary estimate of up 5% to 7% based on the original proposals, and now we expect flat to a modest reduction. It reinforces what we say about our balance sheet—the strength of a clean, liquid balance sheet and the low-risk nature of the balance sheet. We feel good about where we are and about the current proposals. Robin Vince: Great. Thank you. Operator: We will take our next question from Ken Usdin with Autonomous Research. Ken Usdin: Thanks. Good morning. Two environment-related questions. Given the real big sharp period-end balances, the capital ratios went down. Obviously, you have plenty of room. Assuming that being temporary, you would not have any change to your outlook for your expected total capital return for this year? Dermot McDonogh: That is correct. It was really spot balance sheet on the last day of the quarter, and that returned to normal levels on April 1. As you will see from my remarks, the Tier 1 leverage ratio—which is what we are bound by—remained steady at 6%. Ken Usdin: Okay. Also, given that it was a very volatile quarter with a lot of benefits from the environmental shift, how does organic growth feel, especially given a little bit more uncertainty out there? You spoke last quarter about trying to be better than the 3% last year. Any changes in terms of business wins and decision-making out there from your client set? Dermot McDonogh: I would reemphasize the point Robin made in earlier answers and in his prepared remarks. We saw three really nice client wins in Q1 across different types of clients, which demonstrated the strength and breadth of the franchise. I highlighted in my prepared remarks that 50% of client wins in Asset Servicing in Q1 also included awards to other lines of business. Clients doing more with us across multiple platforms is becoming more of a thing. With the record sales quarter, we feel good. We are not guiding on organic growth. It was 3% last year; it was zero four years ago, and we have been working the order book higher. We expect it to grind higher over the balance of this year. We are excited about the opportunity. Ken Usdin: Okay. Got it. Thank you, Dermot. Operator: Our next question comes from Glenn Schorr with Evercore ISI. Glenn Schorr: Thank you. When we all look at the banks, there is a lot of focus on the NDFI lending into a bunch of the funds out in private credit land. As the biggest servicer of a lot of these products, how much of lending into the funds is an integral part of the servicing relationship? Do you have any dimensionalizing of size and composition of book and how much it has grown for you? Dermot McDonogh: Our exposure from a balance sheet perspective is de minimis and well managed. We feel very good about our risk in that dimension. I would point you over to our Corporate Trust. As I said in my prepared remarks, we went through, for the first time, $15 trillion of total debt serviced, and that is where we service a lot of those clients. We feel very good about that business, the momentum, and the investments we have made. While it has been noteworthy with other banks in the news cycle over the last several weeks in the private credit space, it has not been materially showing up in our business, and there are no bumps there that I would highlight. Glenn Schorr: One other one that catches my attention is periodically you will see a certain fund or even stock get tokenized. There are a lot of investments and, I do not know, experiments being done, and I think you are investing in part of it too. Maybe update us on where we are and why—what are we doing? Money market funds I get a little bit. Why does the world need everything tokenized? What would that mean for your businesses if we do go down that path? Robin Vince: Thanks. I do not think the world needs everything tokenized. But there is no question that global financial market infrastructure is transforming and moving toward more of an always-on operating model. That is not just about blockchain technology immediately replacing traditional systems; it is about the two working in concert, and in some cases unlocking new possibilities that have not been possible before without the always-on model. We are in the business of moving, storing, and managing money, creating interoperability—all of that is what we do today. We are advising clients to use the right tool for the job. If they want to do real-time payment systems in the United States, we have real-time payments in the US. Same in Europe—they are even more advanced, which is why stablecoin usage in traditional financial markets has not taken up as much in Europe. In some emerging markets with high inflation, a 24/7 dollar-based stablecoin has advantages to sidestep inflationary friction. It is very much about the use case. Our strategy is to be a bridge and be in both places. We are doing business with traditional clients who want help with careful selection of what to do in digital assets—launch new funds, launch a new share class for digital-asset-focused investors, or Bitcoin custody for ETF providers—we announced one recently with Morgan Stanley. We are helping clients bridge to the new. New, digital-asset-native clients also need traditional capabilities—cash management, investment management, custody. A stablecoin provider would need all of those. We have invested across the ecosystem and stood up a bigger team with our head of product and innovation and digital assets to deliver against these use cases. You are right—an S&P 500 on-chain may not add as much value as bringing an asset deeper into the financial system or making an asset a lot more efficient today. S&P 500 equities are pretty efficient; money market funds work well. In loans and commodities, there are opportunities to improve and bring assets deeper into the financial system. Glenn Schorr: Sounds like evolution, not revolution. Thanks. Operator: Our next question comes from David Smith with Truist Securities. David Smith: Hi. You highlighted some big wins with clients working with you in multiple lines of business. Anything you can share on the progress in the percentage of clients with multiple products or lines-of-business relationships at The Bank of New York Mellon Corporation today versus a year or two ago, or the average number of products per client, or any metrics along those lines? Robin Vince: A couple of things, David. We set out in our commercial model to do several things. There are new products to be created; we have a lot of micro-innovation across the company that excites us because those are new opportunities. We have surprised ourselves with the number of new logos we are able to attract to the platform—about 10% of our sales were new logos in recent times, which is exciting. Dermot highlighted that half of our Asset Servicing wins were not just Asset Servicing—they also came to at least one other line of business. The blocking and tackling of delivering more of who we already are to existing clients is a big opportunity. Some stats: We had a record sales quarter in Q1 last year and another in Q2; it was a record sales year last year; we had another record sales quarter this quarter. We have had three consecutive years of year-over-year growth in core fee sales. We have had more than 60% growth in the number of clients buying from three or more businesses over the past two years. We have had a 20% annual increase in sales productivity per salesperson. All of these show traction in our commercial model. Remember, we are only 18 months into that journey; we launched it in 2024. We are excited about that. That is one reason why at the beginning of the year we aimed to grow our organic growth rate from the 3% last year, and we are very focused on growing from that. I want to add one other thing. There is an underlying theme that regular organic growth is somehow completely disconnected from the market. We push back on that for our company because we deliberately aligned our platforms over the past three years to participate in more environments and be a compounder of value largely irrespective of the environment. Of course, there are always some environments that are not great for us, but it is deliberate. We want to tap into megatrends: scaling with trusted providers, sophistication in wealth markets, private markets demand (you can see AUCA growth there), capital markets transformations, participating in digital assets, and connecting traditional ecosystems with new digital ones. Inputs to diversification: equity market values up; fixed income market values up; cash balances; issuance activity; M&A activity; private credit; public credit; volatility; transaction volumes; equity; fixed income; collateral. We have created diversified, global, strategic, recurring, durable attachment to different markets so that we can participate across them—wrapped with AI. For us, that strategy is an “as well as” relative to traditional organic growth. David Smith: Would you say that dampens the upside for The Bank of New York Mellon Corporation in a really strong market environment, or is there a way you can have your cake and eat it too? Robin Vince: We think it gives us better exposure to more markets. Take NII as a proxy—Dermot talks about cutting off the tails in NII. Out of a thousand scenarios, can we create one that is not great for NII? Sure—massively inverted curve or zero interest rates across the curve are not ideal. Those scenarios do not feel super likely right now. The same will be true in other environments. Yes, we give up some growth if equity markets are up 50% and you want to be all-in on that scenario—I would tell you to buy somebody else’s stock over ours because we represent a more diversified long-term compounding durable play. Operator: Our next question comes from Steven Chubak with Wolfe Research. Steven Chubak: Good afternoon, and thanks for taking my questions. A bigger picture question getting more attention that could impact the Wealth Solutions business, pertaining to AI and its growing adoption in the wealth space. There has been talk about the importance of greater control over infrastructure, tech stack, data, and the ability to offer more customized tools. Some believe this may compel more scale firms to transition to self-clearing models over time. Recognizing you service the largest RIAs and IBD platforms, what are you hearing about this potential structural shift that could take place over years, and how do you ensure you can keep those customers within your ecosystem? Robin Vince: It is an important question. Coincidentally, I was speaking with one of our largest clients yesterday about this. They reaffirmed how excited they were to be on our platform for the reasons you listed. They want to grow and have finite investment dollars. They want to spend on roll-ups, organic growth, and advisors—the core of their business. They do not want to spend on cyber defense and platform, nor try to compete at our scale—more than $3 trillion—in investing in core capabilities we provide. If you are a $3, $4, or $5 trillion RIA, you have your own scale. But if you are $50, $100, or $200 billion, you do not. Take AI as an example. If you go it alone, you have to pick a provider, live in their ecosystem, subject to their pricing power and models. You cannot have the cross-platform AI scale that gives you more control over deployment. There is a theme of scaling with trusted providers that applies to Pershing as it does to our other businesses. As we combined Wealth Solutions and aligned pieces for Pershing, clients continue to tell us they like scaling with us. Steven Chubak: Those are great insights, Robin. If I could squeeze in one more—double-click into Glenn’s earlier question on tokenization and implications for the ADR business if tokenized securities become more widespread? Robin Vince: People have been predicting the decline of the Depositary Receipts business for twenty years, but it is a very defiant—and for us growing—business which has performed well. Here it is really about connectivity and services: connections with exchanges and settlement rails. An AI agent cannot just turn up and offer that connectivity because providers do not want to provide that type of access. It is one thing to ask, “What was the price of the ten-year yesterday?” It is entirely different to give an agent full autonomy over how you connect to infrastructure and control assets. We think there is trust benefit we derive that is relevant in places like this. We will use AI ourselves to make the process more efficient across the lifecycle of many of our products. We are not competing with AI; we are competing with other people who use AI better than us. Operator: Our final question comes from the line of Gerard Cassidy with RBC. Gerard Cassidy: Hi, Robin. Hi, Dermot. Dermot McDonogh: Hi, Gerard. Gerard Cassidy: Two questions. First, in the Securities Services area, specifically Issuer Services—there was a sequential decline from the fourth quarter in revenues, though up year over year about 4%. What were the factors that caused that? Second, is there an opportunity for the Depositary Receipts business to pick up if international equity issuers come into the US capital markets later this year? Dermot McDonogh: On the quarter-over-quarter, Gerard, Depositary Receipts is a seasonal business. It speaks to seasonality rather than any noticeable trend. Corporate Trust, as I said in my prepared remarks, continues to grow—we are growing the revenues and margin. We are investing in the business, and we have grown the margin quite substantially over the last three years. It is the business where the platforms operating model is most mature—we are beginning to see the most benefits. It is three years in the model. We like what we see in terms of leadership, technology investment, and how we are showing up for clients. It is not an accident that we went through $15 trillion in Q1 in terms of total debt serviced. Overall, great momentum in that part of the world, and we expect it to continue. Gerard Cassidy: Thank you. And then, Robin, coming back to the AI commentary—can you frame out when AI becomes ubiquitous to your business as well as others? If you turn back the clock and look at the introduction of the internet or digital banking after the iPhone, how long does this take to ramp up AI so that five or ten years from now we say it is just normal operating business and something that everybody is doing? Robin Vince: I think the answer is that it has to be a lot less than those time frames for it to become ubiquitous in a company. If you do not make it ubiquitous inside those time frames, I do not know how you are going to keep up and compete. It is such a powerful technology and accelerating so quickly—we are talking about 10x capabilities in many cases. If you are behind the 10x curve by any meaningful period, you will be in trouble, which is one reason we are so focused on it. You have to make it ubiquitous, which goes back to culture, integration, and deep embedding—our principles at this point. We aim to make it well inside those time frames. Gerard Cassidy: Thank you. I appreciate that. Operator: That does conclude our question-and-answer session for today. I would now like to hand the call back over to Robin for any additional or closing remarks. Robin Vince: Thank you, and thanks everyone for your time today. We appreciate your interest in The Bank of New York Mellon Corporation. Please reach out to Marius and the IR team if you have any follow-up questions. Be well. Operator: Thank you. This does conclude today’s conference and webcast. A replay of this conference call and webcast will be available on The Bank of New York Mellon Corporation Investor Relations website at 3 PM Eastern Time today. Have a great day.
Operator: Good day, everyone. Our conference call will be starting soon, within approximately two minutes. Thank you for standing by. Thank you everybody for joining us, and welcome to SL Green Realty Corp.'s first quarter 2026 Earnings Results Conference Call. This conference call is being recorded. At this time, the company would like to remind listeners that during the call, management may make forward-looking statements. You should not rely on forward-looking statements as predictions of future events, as actual results and events may differ from any forward-looking statements that management may make today. All forward-looking statements made by management on this call are based on their assumptions and belief as of today. Additional information regarding the risks, uncertainties, and other factors that could cause such differences to appear are set forth in the Risk Factors and MD&A sections of the company's latest Form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission. Also, during today's conference call, the company may discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at slgreen.com by selecting the press release regarding the company's first quarter 2026 earnings and in our supplemental information included in our current report on Form 8-K relating to our first quarter 2026 earnings. Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call please limit yourself to two questions per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc. Marc Holliday: Thank you for joining us today at the conclusion of what was an excellent quarter here at SL Green Realty Corp. We achieved nearly all of our objectives and then some. I know there is some misunderstanding in the analyst community about the cadence of our quarterly earnings, but internally, we were right on our numbers for Q1 and advanced many of our objectives for the year. The headline news starts with our leasing, where we had the single biggest first quarter in the 28-year history of this company. We signed 51 leases totaling 930,000 square feet with a mark-to-market that was 16% higher than the previously fully escalated rents on the same spaces. The takeaway is pretty clear and consistent with what we have been saying for some time now: there is a massive imbalance in the prime office market. At its core, we lease premium space to sophisticated users, and right now demand far outstrips remaining supply after so many years of lease-up both in our portfolio and the city at large, especially in East Midtown. The vacancy rate for trophy buildings dropped again to 3.4% at the end of the first quarter, which is essentially saying there is no space at all in that segment of the market. As a result, we are seeing continued escalation of rent levels for these buildings and significant improvement in net effective rents, which greatly benefits our portfolio, which, as you know, is mostly centered in this area, and I do not expect this situation to abate anytime soon. On the one hand, the business climate in New York remains really good. Look at some year-end 2025 stats that came out in the first quarter. City tax revenues reached $80 billion in 2025, 16% higher than pre-pandemic, and that is a record level. Real estate tax collections grew by almost 3% year-over-year. Personal income taxes were up nearly 12% year-over-year, which shows you the enormity of the bonuses and compensation being paid out in the primary business sectors of New York City. There were $65 billion of record Wall Street securities industry profits in 2025. The prior record was $61 billion back in 2009. There are 160 unicorn startups in New York City—private startups valued over $1 billion—and that is the second largest startup ecosystem behind Silicon Valley. $31 billion was raised in venture capital last year, up 25% from the prior year. And New York City ranked number one as the talent hub for 2025 graduates, where one in nine college graduates came to New York City. On top of a fundamentally strong local economy, we hope and expect to see macroeconomic improvement in the coming months that will simply add to the momentum in the leasing market. After leasing more than 1 million square feet of space in our portfolio year-to-date, we still have a pipeline of approximately 900,000 square feet of space, most of which we expect to consummate. The demand continues to be there. On the other side of the equation, there is really no end in sight to the supply crunch. There are zero new space deliveries anticipated for the next three years, with recently completed projects like the Rolex building, 525 Fifth Ave, now in the rearview, and new projects like 343 Madison and 625 Madison not expected to complete until sometime around 2029 or 2030. It is simply physically impossible for any other new construction to be delivered between now and 2029 in Midtown Manhattan. This presents us with one of the most favorable dynamics we have seen in quite some time. Therefore, we are proceeding at a very rapid pace on our very own project at 346 Madison, our next great office tower. We just closed on the site in the fall, and already we are issuing a 100% schematic design on May 1, just six months from the acquisition, and proceeding immediately into design development. We expect to be filing the project into ULURP, the city's land use approval process, by the end of this year. That is a much faster pace than we achieved with One Vanderbilt. I am also very happy with the way the design programming of the building is progressing. We have already been out talking to select potential tenants and top brokers, presenting the project and getting extremely good feedback confirming we are heading in the right direction with this new development. I expect on the next call to be able to give you some financial details after we price the project with our construction manager and obtain some major trade feedback in the coming months. Our other big development project at 7 Times Square/53rd Ave is also making great progress. As we said last quarter, we now have an agreement with our final remaining tenant for full vacant possession, which enabled us to start fully mobilizing and commencing execution of contracts for work. We are now in the early stages of procurement, and so far we are tracking on or below budget by successfully navigating tariffs and inflation. Work is far advanced on interior demolition, and in the coming months we hope to finalize our arrangements for debt and equity capital. We also made progress on our disposition goals this quarter, entering into contract to sell the residential and retail components of our 7 Dey project and closing on the sale of 690 Madison Avenue with our JV partner. More to come in the ensuing months as we progress our way through the $2.5 billion disposition plan. We also took advantage of compelling opportunities in the credit market via our debt fund, which is really performing well thus far. We put out $226 million since our last call, including a transaction closing today, bringing total committed to about $567 million out of a total $1.3 billion fund. All of this positive activity is propelled by a very strong city economy, and we do not expect a summer lull this year as sometimes occurs in years past. In fact, we are expecting a big summer with FIFA World Cup events and the nation's 250th birthday celebrations bringing big crowds and lots of economic activity to the city in June and July. We are forecasting a big boost and shot in the arm, which bodes well for SUMMIT, in particular, for our restaurant venues, and for the city generally. We feel good about the city and state budget situation as well. The rating agencies did send a message to the new administration about wanting to see some efficiencies in the budget being negotiated now, and the budget that will be in place at the city level by June, and I have every confidence the budget gap will be solved through revenue enhancements, expense control, and support from the state. As has been reported, one piece of that sounds like it will be a new pied-à-terre tax the governor announced yesterday with the support of the mayor and the city council speaker. Once you get past the notion that we need to find some revenue enhancements as part of this budget process, give credit to the governor for taking a pragmatic and surgical approach to ensure that all New York City residents are paying a fair share. This is a concept that has the support of many New Yorkers because it narrows the focus and impact to the highest earning non-New York City residents who otherwise pay no New York City income tax and benefit from New York City's exceptionally low residential real estate taxes. Last but definitely not least, since we last met, we announced the promotion of Harrison Sitomer to President and CIO. When Andrew Mathias left the President's seat after twenty-five years of service, we did not rush to find his permanent successor. Instead, we took a measured approach to filling this important position. I wanted someone who truly represents our culture, ethos, and excellence, which is what distinguishes and defines who we are, and Harry is all of those things. As our company turns 30 years of age in 2027, this promotion is a big step towards identifying, growing, and supporting the next generation of leaders here, and I hope to have more announcements in the years to come about the continued ascension of our rising stars. To wrap things up, I think this was a great quarter and we have made significant early progress on our goals. But when we get together in three months, my instinct is that we will have a lot more to talk about next time on the leasing front, the transaction front, and the company performance front. Thank you. We will now open the call for questions. Operator: To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Steve Sakwa with Evercore ISI. Your line is open. Steve Sakwa: Great, thanks. Maybe Steve or Marc, could you just comment on the pipeline activity that you quoted, Marc? I think you said it was 900,000 feet. How much of that is kind of new or expansion tenants? How much of that is just maybe pull-forward renewals? And maybe just talk a little bit about tenant expectations on expansions and space and how they are thinking about space usage? Marc Holliday: Well, look, I have the pipeline in front of me. It is predominantly consistent with last quarter, mostly a large number of medium-sized tenants, which is really good and what you would expect because we do not have a lot of big blocks of space left now that One Madison is fully leased. You have to remember, the nature of our pipeline does not necessarily tie into the nature of the pipeline generally for tenants in the market. What it relates to is what is available in our portfolio, and what is available in our portfolio right now—where I think two-thirds of our buildings are projected to be at 98% or better by the end of this year—we are really just doing new leasing in some of the projects that still have more than that kind of vacancy: 420 Lexington, 1185 Avenue of the Americas. Those are the two most prevalent buildings I see in this pipeline, along with a little bit at 1350 Sixth Avenue, a little bit at 100 Park, and then everything else is a deal here or there—45 Lex, 500 Park, etc. I would not extrapolate that that is the market because there are a lot of big tenants in the market, and Steve can talk about that. There are tenants in that 150,000 to 250,000 to 500,000 square foot range and 1 million square foot users, but you have to have the inventory, which is why we are leasing up the portfolio so rapidly, and why we launched so quickly on Madison, where we will have 850,000 square feet of brand-new state-of-the-art space to deliver right across the street from One Vanderbilt. Anything you want to add to that, Steve? Steven M. Durels: Of the pipeline, of the 900,000 square feet, 30% of that pipeline is leases out, so we are on a path to wrap those up in short order. As we have seen throughout the year, financial services, professional services, and tech tenants are predominantly driving the market. And I think Marc makes a strong point, which is our pipeline is not dominated by only the best-of-the-best buildings; versus a year or two ago, we are seeing real velocity in the mid price point buildings where we are seeing exceptional rent growth as well. Graybar, by way of example—and I have been involved with that building for longer than I want to admit—is at the high-water mark in the building's history as far as rents that are being achieved. Lastly, on the concession side, we have clearly seen rents rise, but TIs have flattened and, in some cases, particularly where we have a lot of leverage, they are coming down modestly, but free rent is clearly starting to come down. In particular, on our renewals, we are having a great deal of success in controlling our concessions. Steve Sakwa: Great, thanks. That is good color. Maybe, Marc, just on the transaction front, I am curious what feedback or data points you are getting from some of the overseas investors. To what extent any of the Middle Eastern investors are either distracted or have other uses of capital that may not want to come to the U.S. at this point? Any thoughts you could share about overseas investors looking at the U.S. market and New York in particular? Marc Holliday: Our counterparties, for the most part—whether it be partners, co-lenders, groups that are giving us special servicing assignments, groups we have some management for—the predominant countries of origin tend to be Asia, Europe, Canada, and domestic. We do not have a lot of partnerships or counterparties in the Middle East, so I cannot really give you any direct feedback there, only anecdotal feedback, which is as you would expect: sovereigns from Saudi Arabia, Qatar, and the UAE are definitely, I think, pulling in their horns at the moment while they assess that which they are committed for versus how they look at deployment of new capital. But that is really just there. We are not seeing that in the other markets. If anything, we are still seeing what we talked about three months ago, where I think Harry gave you good color on the feedback we were getting, particularly on the heels of the last trip we did to Asia—in Japan, Korea, and elsewhere. There is still, to this day, strong appetite in both credit and equity, but equity for well-located assets of the highest quality, and generally relationships we have, factoring in our sponsorship. We feel very good about executing the joint ventures and financings that we have scheduled for this year with counterparties from those parts of the region, and we have not seen any material shift in those folks. Albeit, if you are dependent on Middle East capital, I am sure it is a different story. Harry? Harrison Sitomer: The only thing I would add is that in moments of macroeconomic uncertainty, proven hard assets in proven locations continue to demonstrate resiliency. We saw that with the One Madison Avenue financing that we got done. I think we met with some of you down at Citi as we were pricing that deal in the early days of the Middle East conflict. That deal ended up having 44 investors across all of the classes. Certain classes in that deal were seven times oversubscribed. One piece that our business specifically is going to benefit from is that over the past few years we have not been heavily reliant on private credit, so we have not seen big valuations boosted up by big private credit loans. As a result, we are far more resilient to what is going on right now than most, if not all, other industries. Steve Sakwa: Great. Thanks for the color. Operator: Thank you. Our next question comes from John P. Kim with BMO Capital Markets. Your line is open. John P. Kim: Thanks. You are at 94.4% leased occupancy. Your target for the year is 94.8%, and you have a 900,000 square foot pipeline. Is there upside to that target for the year? And same question on leasing spreads, given you had 16% for the quarter and your target figure is around 10%? Matthew J. DiLiberto: We increased, in our press release last night, our year-end same-store occupancy target from 94.8% to 95%. So we have gotten the upside there. On mark-to-market, we had a healthy objective. It was clearly a very healthy number in the first quarter. We still have nine months to go, but we are well on track for our objective. We typically do not revisit leasing objectives after just three months—we want to get at least six months in before we do that—but obviously the momentum we have coming out of the first quarter puts us on a great track to meet or even exceed the objectives we laid out back in December. John P. Kim: And then on your economic occupancy, it went up sequentially to 85.9%, which is positive, but it is still below your guidance or target for the year, which is around 89%. Can you talk about how the cadence of economic occupancy goes for the remainder of the year and the impact that will have on same-store NOI? Matthew J. DiLiberto: The flippant answer—but it is the truth—is it is obviously going up sequentially over the next three quarters to get to that 89% objective that we set out for the end of the year, and we are on the path for that, which then sets us up for our 10% same-store cash NOI growth objective for 2027. All in all, the first quarter on every metric we look at was on or ahead of our expectations. The leasing metrics speak for themselves—a record quarter not just on volume, but on starting rents. The trajectory from earnings to spend was as good or better than what we expected. So great cadence into the back three quarters of the year. Operator: Thank you. Our next question comes from Alexander David Goldfarb with Piper Sandler. Your line is open. Alexander David Goldfarb: Harrison, first, congrats. A question following up on your comments to Steve on private credit. As you talk to lenders and capital providers, do you feel comfortable that private credit is not going to infect real estate? Private credit has its own issues in, say, software, but this is not like the second coming of the GFC. Do you feel, in talking to people, that there is some concern it could broaden? Harrison Sitomer: The simple answer is we are just not seeing it. If anything, the inverse: some private credit investors have felt their pain through the software cycle right now, and they are looking for hard assets. One of the first places they will look is, as I said earlier, proven locations and proven assets. Right now, I see no sign of any direct impact to our industry or our capital markets environment. We are the beneficiary of having not seen that run-up and big private credit demand into our space, so now there is not a lag hangover effect of those groups pulling out of certain markets. We did not feel one ripple effect of any private credit lender in the market when we priced One Madison in what was probably the toughest week you could imagine—between a conflict in the Middle East and all the redemptions you saw in the news. We had 44 distinct investors and certain classes seven times oversubscribed. Alexander David Goldfarb: And the second question is for Steve. You mentioned the strength of the more value proposition. Do you see an opportunity for you to acquire B buildings, especially around your core Park Avenue/Grand Central, to create more density in your target submarkets? Marc Holliday: Alex, it depends on how you define B assets. We are buying assets to convert or to develop. We are not buying B assets to hold and operate if B is defined as real commodity space, even though there is probably, on a relative basis, a lot of upside in those assets. You are not wrong—there will be a tail effect here and you will see B asset rents go up—but we are trying very hard and intentionally to deal not just in a sector where we think rents are going up, but where we think net effective rents can be maximized. For that, you are really looking mostly for the highest nominal head rents—whether they be $100, $150, $200 a foot or more for new development. Even at $90–$100, if you are dealing with assets where rent points might be in the $50s–$70s, even though you may experience pretty good nominal rent growth, you still have concessions for those leases that are relatively the same—free rent and TI per foot construction costs—as for the much higher nominal rents. We think there is a lot more margin in dealing in the $90-and-up, $100-and-up rents, and that drives us—for hold assets or redevelopment candidates—into that sector. Unless we feel we can ultimately execute a program and drive rents into those upper categories, you will not see us participate, even though rents and prices are moving in the B assets. It is not a bad play; it is just not our focus. Operator: Thank you. Our next question comes from Nicholas Yulico with Scotiabank. Your line is open. Nicholas Yulico: Thanks. First question, going back to the idea that there is really not much new supply coming to market in the city for four years or so. Can you talk more about how that plays out relative to your portfolio and submarkets? It sounds like it should be a benefit. In some cases, new supply is being looked at by tenants with lease expirations four years out, so there is no real benefit today to buildings from that. Can you unpack that dynamic a bit more? Steven M. Durels: Two takeaways. One, tenants are getting smart to the market and seeing rents rising, and that is driving those paying attention to do early renewals. In some cases, we are in front of tenants with expirations three to four years out in time, which is great. It is a smart landlord play to do early renewals and take downtime or vacancy risk off the table. Two, there is a spillover effect where tenants need to go farther afield or one avenue over from where they wanted to be, and that is giving lift to some other buildings. Within our portfolio, the best example is 1185 Sixth. We are seeing some pretty heavy rents by comparison to historical rents in that building, with a tremendous amount of leasing velocity. It had a lot of tenants vacate over the last several years, and we are on a path to that building being fully stabilized this year with rents in the mid-$80s to mid-$90s per square foot. Nicholas Yulico: Thanks, Steve. Second question for Matt on quarterly FFO. I know you do not plan to give guidance and there are moving parts in a quarter that create volatility, but if we think about the first quarter number and then getting back to the full-year guidance range, can you talk at a high level about some components that will accelerate FFO throughout the year? Matthew J. DiLiberto: Our quarterly results can be choppy and people tend to read too much into a quarterly result. The reality of our first quarter numbers is that we were not even a penny off from our internal expectations—property NOI was better than we expected, offset by SUMMIT, which had a tough weather quarter and underperformed our expectations. Net-net, we landed right on top of what we expected. As we look out over the balance of the year, we are headed right to the midpoint of our guidance range as well. FFO results quarter to quarter might be choppy, driven less by NOI and more by fee income. Our third-party fee businesses are growing, and a lot of those fees come in big chunks rather than ratably—success fees out of special servicing, fees from transactions. We did not close big transactions in the quarter, to say nothing of DPOs that we still have in our projections for the balance of the year. We feel comfortable about where we are in the guidance range, with a bias to the higher end. Marc Holliday: I would add to that on SUMMIT. SUMMIT is an enormous success. Every year we are pushing ahead the envelope on the earnings capacity of SUMMIT. For 2026 over 2025, we had another big increase baked into our expected performance. It was off a bit in Q1, but it was far and away the leading attraction in the first quarter among all the attractions in the city. Where other decks might have been down a percent or more, SUMMIT held its own. I am completely confident, based on what I have seen in April alone as the weather has improved and heading into what is going to be an extraordinarily good summer for the reasons I mentioned, that we will end up the year at SUMMIT ahead of our ambitious targets. We are extending our hours more than budgeted in response to excess demand we are seeing for May and June, because we are pre-selling those tickets. In terms of future ramp in FFO for the company, SUMMIT will be a contributor. Operator: Thank you. Our next question comes from Anthony Paolone with JPMorgan. Your line is open. Anthony Paolone: Thanks, and good afternoon. First, on your 95% targeted leased rate for year-end versus where your economic occupancy is—the gap is pretty wide and assumed to be narrowing. Can you give us a sense of where a normal spread between those two should be over time for the portfolio? Matthew J. DiLiberto: We only started reporting economic occupancy last quarter, so we do not have perfect history. Clearly it is at the wides right now. It will narrow substantially over the course of the year to probably half as wide as it was at the end of last year by the end of 2026. On a stabilized, normalized basis, it is always going to lag leased. If you are in a fully leased portfolio—95% plus—with limited roll, which is the period we are headed into, I could see that being roughly 200 basis points of difference on a recurring basis as space rolls and you re-tenant space. That seems like a comfortable place to be—maybe tighter—but 200 feels about right. Anthony Paolone: Thanks. Second, on capital markets: can you characterize liquidity broadly in the market right now—are a lot of buyers back, a lot of product for sale, cap rates for the best versus more commodity product? Just a broad sense of liquidity and capital markets at the moment. Marc Holliday: I will break it into equity and debt. On equity, we always have our head down focused on our business plan. The plan is on track and we feel good about executing it this year. As a data point, we have 11 transactions in the business plan for this year. On the last earnings call I said we had four dispositions we were working on. When I went to Citi, I said we had five. Now, where we sit today, that number is six. Two of those six were the already announced deals at 690 Madison and 7 Dey, and the other four transactions are progressing very well. I would expect all four of those to close or be in contract in the second quarter. Those were the six identified for the first half of the year, and they are on plan, on target, and expected to get done in the first half. With respect to the credit markets, the market is very strong right now, especially because of the CMBS market and the SASB market that we just experienced at One Madison. Harrison Sitomer: Two data points there: One Madison was the largest office deal done in the U.S. since January 2025, and the bottom of that deal—priced in a very complicated and difficult week—was the tightest new-issuance office spreads at the bottom since when we did One Vanderbilt in 2021. We continue to see new capital coming into the credit markets. We are not feeling any of the lag effects of private credit pullback, and liquidity continues to get stronger in the credit markets as we are seeing. Operator: Thank you. Our next question comes from Seth Berge with Citi. Your line is open. Seth Berge: Thanks for taking my question. First, going back to some of the SUMMIT commentary and the demand you are seeing there—are you seeing, with the strong demand, opportunity for premium experience upsells? How is the pricing side coming along? Marc Holliday: Q1 is not a good representation of what the next eight and a half months will look like. Tourism in the city was off a bit, which may translate into a slightly different mix of domestic versus foreign visitation. Domestic accounts for about 30%, which is quite high. It is a very popular local attraction as much as a tourist attraction—we worked hard to transcend both markets from an observatory, cultural, and nightlife perspective. Looking at the advanced sales we are booking now, tourism is picking up, and we expect to recoup whatever slight diminution there was in Q1 over the next nine months. We expect a typical profile to last year, with the summer months seeing a lot of international travel. There is expected to be over 1 million people coming in for FIFA World Cup games at MetLife Stadium and 8–10 million people coming in for the Semiquincentennial around Independence Day. We are strategically situated to sell out those months. On upsells, the only one is the Ascent elevator rides. When the weather is very cold and winds are high, we do not run that as often; those ticket sales were down a bit in Q1 but have completely bounced back and more. SUMMIT is hitting on all fours, and we are opening SUMMIT next summer in Paris. It is going to be an extraordinary day for SUMMIT and for the company when we have our first global location accepting visitors, with an additional announcement pending in the coming months. Seth Berge: Thanks. As a follow-up to Harrison's capital markets comments, specifically with equity markets and dispositions, can you talk about the profiles of who the buyers are for office and residential? Is there a core bid for office, or is it value-add/opportunistic? And any impact on willingness to buy/sell office from thinking about long-term AI impact on employment? Harrison Sitomer: The composition of investor groups has not changed from what Marc outlined earlier. We spent a lot of time early in the year on our first show in Asia and are in the process of closing out a handful of transactions I mentioned earlier. Those buyers are looking at a range—our disposition plan includes everything from ground-up office buildings to core office to value-add office, and that market continues to be there for all of those product types. On residential, you can look at our latest comp: the sale we did at 7 Dey to a buyer that is a core residential buyer continuing to accumulate more product through a public listing they have. On AI, the investors we speak to are looking at the same stats we listed at the beginning of the call. It was the best first quarter for New York City office leasing since 2014. Some of that leasing is driven by AI tenants, some of which we have announced, and investors are optimistic about what they are seeing. Operator: Thank you. Our next question comes from Ronald Kamdem with Morgan Stanley. Your line is open. Ronald Kamdem: Two quick ones. First, on the postmortem on the dividend cut. Can you talk more about what went into cutting it to that level—taxes or cash flow—and why not cut more, given high interest costs and limited flow-through? Why not cut the dividend even more to offset that? Matthew J. DiLiberto: We spent a lot of time discussing the dividend. Ultimately, taxable income is what, above all else, drives the dividend, and our business plan for this year was consistent with the dividend level we established. We can maneuver within taxable income to some extent, but if we are going to execute on the business plan—and we are on a path to do that—then you have to pay the dividend at a certain level, and that dividend is where we established it at $2.47. At the same time, it allows us to retain almost $50 million of incremental capital that we can put to other accretive uses—DPOs, maybe buybacks. Capital spend will go down such that, in the back half of 2027 into 2028, there is a big shift in cash flow to the positive. We will reevaluate the dividend every year based on taxable income. Ronald Kamdem: Thanks. Second, I know FAD is not cash flow and it was a bit down in the quarter. As you think about the ramp on NOI as you get commenced occupancy, any sense of the magnitude of dollars that are going to flow to FAD? Matthew J. DiLiberto: As I said last quarter, the spend in 2026, like in 2025, is the funding of a lot of leasing—9 million square feet of leasing we did over a three-year period. That assuages in 2027 into 2028 and will drive same-store cash NOI growth north of 10% next year and enhance earnings and FAD. We will talk magnitudes as time progresses. Marc Holliday: I only see one way to look at it: we are leasing the hell out of this portfolio. With that comes leasing capital that we will muscle through in 2025, 2026, and 2027, but we are going to try and get this portfolio to 96–98% leased. That would be unprecedented for 31 million square feet. Getting beyond what I would call the frictional vacancy point of 97%—we are vastly outcompeting and getting more than our fair share. We will pay for that tenancy because there was a lot of out-migration for unnatural reasons in 2020–2024. By this time next year, to the levels I think we are going to get, we will already be working on 2027, 2028, 2029. We want to get this portfolio to full occupancy. There will be a cost to that, but when you attain it and then you are living in a world mostly of renewals, there will be an enormous rightsizing of the capital, like we experienced in the past and will experience in the future. That is our business plan. We are not just on track; we are ahead of track. Our average rents are going up significantly faster than expenses, which are up about 2% a year. Steve is starting to rein in capital, first on renewals and then on new tenants. This is what shareholders want us to be doing: redeveloping our buildings, having a premium Class A portfolio, leasing it to its fullest, and investing in a portfolio with unparalleled residual value in 2027–2028. From my vantage point of 36 years in the business, I have never seen a market as good as this one. Operator: Thank you. Our next question comes from Blaine Matthew Heck with Wells Fargo. Your line is open. Blaine Matthew Heck: Great, thanks. Following up on dispositions: Harrison, you mentioned you would have closed or be under contract on six of the 11 targeted sales by midyear. In rough terms, would those proceeds put you at about half, or a little more than half, of the targeted $2.5 billion of sales this year, or are those six skewed smaller or larger than the remaining five? Marc Holliday: Approximately half. Blaine Matthew Heck: Great. And, Marc, we are several months into the new mayor’s time in office. Beyond the budget, can you talk about anything that has been a positive or negative surprise relative to your initial expectations, and whether you see any risks or opportunities for your business arising from policy changes? Marc Holliday: It is still very early—it is too early to assess any mayoralty in the first hundred days. This is measured over years, not months. I look to the opinions of stakeholders: condo buyers—Q1 was a record for $10 million-and-up condo sales, up about 47%; Wall Street profits; expansion by tenants. I am seeing tenants who are, on a scale of five or six to one, expanding rather than contracting. Tech is back. The key issue is affordability. Different mayors will tackle it in different ways, but we agree it is best for the city to make the city more affordable. The current administration’s focus seems to be on getting more production in housing to help stabilize or even bring down rents. You see cutting through red tape on “City of Yes,” SEQRA/land use revisions, support for conversions under 467-m, and a program to try and reduce insurance premiums for affordable/rent-controlled housing. Having that focus is productive as long as there is appreciation that tax collections make all this work, and our industry drives tax collections. Our industry is firing on all cylinders. If left unimpeded, and if we can exceed tax receipts this year on top of record receipts last year, there will be money to take care of administration priorities—mass transportation, affordability, cost of goods. Objectives align, and I see a city poised for a very good year. Operator: Thank you. Our next question comes from Peter Dylan Abramowitz with Deutsche Bank. Your line is open. Peter Dylan Abramowitz: Hi, thank you for taking the question. Matt, you mentioned being biased towards the high end of your guidance range. You talked about fee income impacting the ramp throughout the year. In terms of potentially getting to the high end, can you talk about the specific items that could get you there? Is it NOI? Other items? And any commentary on underlying guidance assumptions and whether those have changed? Matthew J. DiLiberto: In Q1, NOI was running ahead of our projections, and that flowed through to earnings and same-store cash NOI. The 2.6% positive same-store cash NOI was 300 basis points higher than what we expected for the first quarter, so NOI will be a contributor. Marc discussed SUMMIT and the momentum we are seeing already in April and expect over the balance of the year to make up any small shortfall in Q1. Fee income—our third-party fee business is growing. If we can exceed our initial projections, that is very high-margin, high-multiple business. We have a DPO in our guidance; if we can source more, that is upside. Momentum from Q1 biases us to the midpoint or higher. Peter Dylan Abramowitz: Thanks. And maybe a question for Marc on the new administration. You mentioned the pied-à-terre tax that was reported yesterday. I believe the estimate for incremental revenue is around $500 million, which still leaves a budget shortfall. From the first hundred days or so, there have been talks of taxes on higher-earning households and higher property taxes that have not gotten a lot of support. With a gap to fill, what else is possible from a legislative perspective to fill that, and how could that impact your business? Marc Holliday: The City Council and the new City Council Speaker, Julie Menin, came out thoughtfully with their own budget. The mayor has a budget; the council has a budget. Their emphasis will be on cost-cutting. Last year’s budget was about $115 billion; this year is projected at $127 billion. You are not going to get all $12 billion of increase—that is the initial stab. There will be efficiencies and reductions achievable. If you assume the state is going to solve $500 million to $1 billion of it, you are talking about a 3–4% gap to be closed, with revenue projections likely reassessed higher based on the first quarter’s tax receipts, plus the new pied-à-terre tax, plus council proposals on modifying PTET, and a modification of UBT/UBIT. They are going to close that gap. By June there will be a balanced budget through incremental tax, some revenue reforecast, and some expense reductions. The city has gotten there every year since the 1970s. We will get there again. Operator: Thank you. Our next question comes from Vikram Malhotra with Mizuho. Your line is open. Vikram Malhotra: Good afternoon. Thanks for taking the question. Marc and Matt, pushing a bit more—you have done a lot of good work getting up occupancy, TIs are coming in, you have less to lease, and you are dealing with 2027 expirations. Can you give guardrails on how this ultimately translates to a measure of cash flow—FAD or cash flow from operations? You said 10% same-store next year, but it would be nice to get some broad guardrails rather than wait nine to twelve months. And can you clarify TI spends in 2026 and 2027—do we wait until 2028 before growth picks up? Marc Holliday: When you say guardrails, I am not exactly sure what you mean beyond what we have given. We gave it in December, and our projections have not changed. There is plenty in the supplemental and our other disclosures to get a handle on the amount of capital necessary for leasing—it is arithmetic. You see every quarter how much we spend on TIs, commissions, and free rent based on quantum of leasing. As we approach 96–98% occupancy, there are going to be spend years for the balance of this year and next, but we have said—and I thought we were clear—that by 2028 we expect our FAD to be in line with our dividend that we recently recalibrated to, and then hopefully more. We will get there with that kind of guidance in 2027, but not today. Vikram Malhotra: Just to clarify: by 2028, you think FAD will be similar to the dividend? Marc Holliday: If you look at my commentary on the dividend and what Matt said in the release when we came out with the new dividend level after our last board meeting, we said the new dividend level was set where we expected to be able to cover that dividend and more by 2028. I am reiterating that. That is our belief and how we got to that very specific number—it is based on our models and calculations. We try to be very conservative on NAV and growth projections, but we are headed to a great spot both in earnings and cash flow. Vikram Malhotra: Thanks. Going back to SUMMIT, makes sense the World Cup should drive a nice uptick. Any update on other projects and regions—when could we see the next SUMMIT driving NOI? Marc Holliday: We expect to open Paris in summer of 2027. I will come out in December with monetary guidance on that. In 2027, it will only be open half a year, but I expect a seismic, popular, well-attended opening. What we have designed is like SUMMIT 2.0 with lots of new features. It is thrilling to work with Kenzo and Rob Schiffer on these projects now coming to life, with more beyond. The next locations would not be 2027—they will be announced this year with future openings thereafter. Paris is first next year. Operator: Thank you. We have a question from Brendan Lynch with Barclays. Your line is open. Brendan Lynch: Great, thank you for fitting me in. Matt, you got a nice reduction in your spread to SOFR with the new revolving line of credit, and you have been bringing down your cost of debt for the past year. Macro-dependent, but do you see other opportunities within your control to reduce your weighted average cost of debt further? Matthew J. DiLiberto: Great execution on the credit facility—appreciate the work of our team and the participating banks. The financing backdrop was strong and the institutional support was extraordinary. We have about $3 billion left of our $7 billion financing plan for the balance of this year, and then not a lot thereafter. We talked in December about increasing some floating-rate exposure because we expect the curve—maybe not at the pace we would like—but eventually to come down. We will let some of our fixed-rate derivatives burn off and take advantage of a lower SOFR curve overall. Harrison can speak to the financings in our pipeline and what we are seeing in the market. Harrison Sitomer: We have three financings left in the business plan for this year, the largest of which is 245 Park Avenue. We just started that process yesterday, so we will see it play out through the second and third quarters. More to come next call. On pricing, we have no influence over base rates, so we will monitor SOFR and Treasuries. On spreads, we are optimistic about tightening, especially in CMBS. Especially at the bottom of the deals, we are seeing spreads tightening even from where we saw One Vanderbilt price. Each deal will depend on asset quality and execution, but we definitely expect a strong execution at 245 Park. Brendan Lynch: Great, thanks. The press release alluded to turning more active on share repurchases. Matt mentioned that earlier as well. What conditions would incentivize you to be more active on executing the existing authorization? Marc Holliday: I have been clear in the past: I think the stock is terribly mispriced. You do not have to look hard to appreciate the magnitude of the discounted valuation relative to a fairly liquid and active market where it is not hard to get price and value discovery on assets we own, especially well-leased assets where the debt and equity cost of capital is well known. I look at buybacks as a significant opportunity that we will take a very hard look at with incremental liquidity to the business plan. Our plan includes investment in new development projects and reduction in indebtedness—both secured and unsecured. With incremental liquidity above and beyond that plan, share repurchases get the first and hardest look. Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to Marc Holliday for closing remarks. Marc Holliday: Thank you, everyone. We ran longer than usual, so thank you for all the questions. We look forward to speaking in three months’ time. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the hVIVO Annual Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll, and please do give that your attention. I'm sure the company will be most grateful. I'd now like to hand over to CEO and CFO, Mo, Stephen, good afternoon. Yamin Khan: Good afternoon. Thank you for the intro. So I'm Yamin Mo Khan. I'm the CEO of hVIVO. I've been with the company for just over 4 years, and I have with me our CFO, Stephen. Stephen Pinkerton: I'm Steve Pinkerton. I've been with the company for almost 9 years. I've been the CFO for the last 4 years. Yamin Khan: I would like to welcome you all to our full year 2025 results. The company has had a challenging 2025, at least financially. But operationally, I think we've done some great work, and we'll go through both our operational achievements as well as our key financial parameters. So we'll move straight on to the financial -- the normal disclaimer and then really to go through the company's overview of what we are planning to do from a strategy point of view and what we have achieved because it's key to have a strategy, of course, it is, but it's also key to see how we are progressing in executing that strategy. So as you all know, we are the world leader in human challenge trials, and we will remain so, and we are continuing working hard to expand our human challenge trial capabilities. But one of our key focus area is to continue to diversify and add new capability. And that's been part of our action for the whole of 2025 and 2026. And we'll really talk about how we are diversifying into new areas. So new stages of clinical development from preclinical all the way to end of Phase III, whereas historically, we've run the Phase II human challenge trial and also expanding our therapeutic expertise, not just doing infectious disease trials, but doing respiratory and cardiometabolic too. And on top of that, of course, through our acquisitions, we already have achieved a geographic expansion into Germany and pan-European presence. And I think the key thing is that in 2025, we have already achieved a number of the key criteria that we were looking at. So the expansion into Phase I is done. We are now retiring the brand names for Venn Life Sciences, CRS as well as Cryostore and rebranded ourselves under the single one hVIVO brand, which you may have seen launched yesterday on LinkedIn and other social media channels. Going forward, we want to provide our customers with an integrated end-to-end drug development platform under the hVIVO brand and operating ourselves under 4 different service lines, which I will describe later on. I will be focusing on the diversification of services, but please note that this is not at the cost of human challenge trials. We want to continue to build our human challenge trial capability and remain ahead of everyone else. But the key focus for us is to remain more diversified and offer a greater portfolio of services across the board. We have built a new challenge model. So we've launched contemporary human challenge models in influenza as well as the world's only commercial hMPV challenge model. We've also recognized some cross-selling opportunities whereas historically, we may have not approached customers in Phase I. Now we can offer them the Phase I, Phase II combination as well as Phase I and human challenge trial combination. Post period, we've had some really excellent highlights with the new trials contract we announced yesterday as a really good signal that human challenge trials are returning and back to normal. This is an influenza prophylactic antiviral challenge trial that will take place this year, and we expect to recognize the majority of revenue in 2026. We also are in the process of finalizing our agreement for our world's first Phase III human challenge trial in whooping cough with ILiAD Biotechnologies. With that, I'll hand over to Stephen to go through the key financials. Stephen Pinkerton: Good evening, everyone. 2025 has just -- has been a challenging year for this business. We delivered GBP 46.8 million. That's in line with our downgrade that we gave in May 2025. It happened quite quickly. We faced a number of cancellations right in the April, May time. Normally, the number of cancellations that we have is around about 2 on an average. And this -- and we had quite a bit more than 2 in the current year. And that is the main reason for the lower revenue performance. However, I think the business has adjusted well. We made a profit of GBP 1.4 million despite these headwinds from the U.S. and that's after the net acquisition losses of GBP 1.4 million. So the underlying performance of this business was profitable in the circumstances. Cost management was at the foreground, but the efficiencies that we achieved in 2025 to establish in 2025 pull through in 2025. One of the clearest examples is recruitment. We were able to leverage our database rather than go out for lead generation and spend money on advertising and things like that. But clearly, one of the clear reasons for the profitability was also these cancellation fees carried no variable spend attached to them and flowed through to the bottom line. And this gives you a sense of whilst HCT got impacted significantly by the headwinds in the U.S. with infectious diseases and vaccinations not being in favor, our contract model softened the blow somewhat in this -- on our HCT studies -- on our HCT revenues. Moving on to cash. Cash of GBP 14.3 million was a little bit better than the expectations, although this is much lower than we started the year at GBP 44.2 million. Just under 50% of that is due to the acquisitions supporting the working capital and also obviously, the consideration for acquiring -- making those acquisitions. Just over 50% of that is due to the core business and the limited number of HCT trials that we have signed in 2025 or before the end of the year. The Board has made the decision not to pay a dividend for 2025. That's really -- the value of the dividend is GBP 1.4 million, and we felt it's much better spent investing and growing in the long-term future of this business. The order book of GBP 30 million is -- compares to GBP 43.5 million has been restated. So previously, we would have included the full value of a contract at the time when the contract is signed. However -- when an SUA is signed, a study start-up agreement is signed. However, because we faced a number of cancellations and we have changed the methodology. At the time we set up a start-up agreement, we get start-up fees and we get a booking fee. And because that booking fee was seen as a commitment, we would use the CTA full value. However, we're now only including the contracted values in the order book. And we are also now only announcing contracts when the CTA value -- when the CTA has been signed with clients. So there is a bit of delay because, first of all, you've had headwinds affecting the HCT market. And we're now only announcing studies once the CTA is signed. And the time between SUA and CTA can be anything between 5 months to 12 months in Signature in terms of when they sign between the 2. But there's another slide further on, and Mo will take you through more on the order book going forward. Just touch on revenue. This is a waterfall from 2024 to 2025, the key sort of drivers and changes in the revenue makeup mix over 2025. Remember, in 2024, we did receive facility fees that clients paid us to effectively what we built up in Canary Wharf for a large study that was delivered in 2024, and that was roughly about GBP 4 million. HCT, we've just talked about, it did decline significantly. It's due to a number of cancellations. I also wanted just to highlight that some of that decline has got to do with -- in HCT, we also include manufacturing revenue, which is around about 10%. 10% of the HCT sales that we make is where we have manufactured challenge agents for clients. And so I don't want people to remember that this is an important part of our portfolio is being able to develop challenge agents. Clinical Trials were slightly up year-on-year. We did have a high volume in 2024, where we -- and we've managed to be able to repeat it in 2025. So I think that's quite a good performance. Labs is slightly up. It is off a low base, but we see a pretty good order book going forward on that. Consultancy was down, and that's mainly because a big pharma took some work in-house. But with the support of CRS, we're beginning to see some cross-selling from the CRS clients into our consultancy -- early clinical consultancy services, so that's improving. Looking at the acquisitions, Cryostore at 0.8 million, that was their revenue for the year. That's perfectly in line with our expectations and the due diligence work that we did on Cryostore. They are delivering as expected. It's a high margin. It is a business that has sort of 90% to 95% retention rate. So it's a great little business and it's doing very well. Clinical Trials, our German acquisition, GBP 12.3 million is a little lower than we expected at our due diligence stage. It was really down to the RFPs in 2024 not converting as expected as per previous sort of conversion rates, impacted definitely by the whole sector. The whole sector had a little bit of a hesitation and a hiccup across the CRO sector. So certainly that impacted. However, we have seen an uptick in the conversion rates in 2025, offsetting some of that shortfall in 2024 -- of the 2024 RFPs. And then just to touch on cash, a little bit of cash utilization here. I've just tried to split how we've utilized our cash. We have utilized some GBP 29 million. This is the core. We used GBP 15.4 million and inorganic work, it was GBP 14.5 million. Cash generated from operations of GBP 10.4 million is obviously due to the HCT where we've had unwinding of the deferred revenue and the new sales on HCT is still to come back and looking at the pipeline, that's looking positive. But obviously, it's impacted us for 2025. The purchase of PPE, the GBP 1.4 million is largely lab equipment. We did purchase the first digital PCR equipment in Europe, Hamilton. It's a great piece of kit. It's quite expensive, but it supports us with our field study work that we're doing on Cidara and new field work that we're going to do. It's much faster and it's much more efficient as well. Financing activities of GBP 4.6 million includes a dividend of GBP 1.4 million. And obviously, we're not paying that in 2025. It's in 2026. So there's no dividend going on. The other thing that we benefited in 2024 was we had a rent-free period in Canary Wharf. So our lease payments have jumped up by about GBP 2 million to GBP 3 million in 2025. So that's the makeup of the GBP 4.6 million. Then just the acquisitions, GBP 10.5 million spent on consideration costs and the GBP 4 million is really the sort of the working capital and funding the loss for the year. But overall, I think the business has reacted quite well to the headwinds that we have faced and try to reflect there is some resilience in the business in terms of the way we contract to soften the blow, and we're well set to go forward. And with that, I'll hand you over to Mo. Yamin Khan: Thank you, Stephen, for going through the numbers. I want to really focus on why do I feel bullish going forward. We've just been through a challenging 2025, and we had a profit warning in 2025. The share price has been depressed. But I still believe that as a company, we've had a transformational year. So we've gone through 2 acquisitions, Cryostore in London and 2 clinical research units in Germany from CRS. And we realigned our company under the single one hVIVO brand. The reason why that is important is we want to offer a one-stop shop for our customers to go from preclinical is at the consulting stage all the way to end of Phase II or end of proof of concept, basically to show a signal whether a drug works or not as well as offering Phase III site services. So under the 4 different arms we have right now that we are fully operational and currently in working practice, the consulting arm focuses on CMC, PK, regulatory type of consulting with majority of really falls under the former Venn team. But they work very closely with the clinical trial service arm in the sense that when we are running a Phase I trial, as part of that, we may be helping our customers to design protocols, write clinical development plans, obtain regulatory advice. So the clinical trial service unit works very closely with the consulting arm. Under the Clinical Trials unit, we also include the Phase II nonhuman challenge trials we run, both in Germany, but also in the United Kingdom, in London, in particular. The third arm is the human challenge trial arm. But this is a legacy arm where we manufacture new challenge models, we validate them and then we run the human challenge trial work on that. And the final piece to the [indiscernible] is, of course, is the laboratory piece, which historically has catered human challenge trials, but now is a stand-alone business on its own. So it will continue to provide services to the human challenge trial -- clinical trial business. But on top of that, we also expect to service third-party clients, trials run by third-party CROs. Cidara being a key example where we provided full center virology assistance in the laboratory aspect to 50 sites in Phase II to 150 sites in the Phase III. What this enables us to do is to handhold the client from the beginning to the proof of concept. It also means that we're able to access new clients independent of the stage they're at with regards to the clinical development program. Historically, we were a Phase II human challenge trial business. Now we can attract clients whether they're in preclinical Phase I, Phase II or Phase III. So this automatically increases the portfolio of our customers. Having said all of that, I want to reiterate human challenge trials remain a key component of our offerings. We are no longer relying on them as a sole provider of future revenue. In 2024, over 85% of our revenue was generated from human challenge trials. In this year, we are forecasting less than 50% of our revenue to come from human challenge trials. Of course, this is partly due to the downturn in the human challenge trial awards and the cancellations we've had in 2025. But it does show the progress we have made in the non-challenge trial business, the fact that we can now expect over 50% of our revenue to come from non-challenge trial business. The scale and breadth of the company has also radically changed. We now have over 200 beds in a variety of different locations where we can treat patients for all sorts of clinical trials. We've created centers of excellence for different type of therapeutic areas. So in infectious diseases and also respiratory in London, cardiometabolic in Mannheim, renal and hepatic special population studies in KIEL. Now this gives us, again, access to new customers that we have not had access before. CRS historically have mostly worked with German customers. Now we are targeting our sales activities to pan-European and also U.S. customers to run their trials in Germany with the -- for the Phase I part. We've seen volatility within the FDA and more and more customers looking to do early-stage clinical development outside of the U.S., whether that's in Australia or in Europe. And we want to play a key role in attracting those customers to you, especially in Germany when it comes to Phase I trials. On the human challenge trial business, as I said before, we want to continue to build on this and be the world leader. We do majority of the commercial human challenge trials that are conducted in the world. We've added a new human metapneumovirus model, hMPV challenge model. It is the only active challenge model commercially available in hMPV. We've renewed our influenza viruses in a number of different strains and Traws Pharma is taking advantage of a new contemporary viral model that we have in place that we launched last year. And we will continue to build on our human challenge trial business, and that's key. We're also potentially expanding into respiratory human challenge trials, challenging asthmatic or COPD patients to cause mild exacerbation and testing new antivirals or asthma and COPD products. So human challenge trials will remain a crucial part of the business. We have 3 other key growth initiatives that I want to walk you through. And the reason why they're important is I expect them to contribute significantly going forward as part of our non-human challenge trial business. The first one is the cardiometabolic. I'm sure you are all aware of the recent boom in anti-obesity drugs. And we want to be part of a clinical development team that tests new anti-obesity drugs. But cardiometabolic is more than just anti-obesity drugs. It also includes drugs targeted against diabetes, for example, hypertension, high cholesterol levels in patients. We have a world-renowned endocrinologist, key opinion leader in doctor -- Professor, sorry, Thomas Forst, who heads up our -- who is our Chief Medical Officer at CRS or now the clinical trial service arm, who is responsible for leading this franchise. He acts as a director on several advisory boards for Big Pharma. And we believe through our initiatives in attracting new customers outside of Germany, supplementing the patient recruitment with the U.K.-based FluCamp now fully implemented in Germany, we can run more trials in Germany. The key for us is that we offer Phase I and Phase II combo trial delivery platforms, Phase I in healthy volunteers and expanding into Phase II patient-based studies. Now in our group of service providers, there are not many vendors out there that can provide both healthy volunteer Phase I trials and Phase II patient studies. And there's a gap in the market, which we want to make the most of. Our second key driver is respiratory. So historically, on the human challenge side, almost all of our challenge trials have been run in infectious diseases that target the respiratory system. So we inherently have a really strong respiratory franchise with some really good experts and our facility is equipped already to monitor different respiratory parameters when it comes to running Phase II and Phase III trials. And that's something we are now making the most of in the sense that we are targeting clients, respiratory clients to conduct non-challenge trials. We run a number of non-challenge asthma trials. We have a huge database of patients both in asthma and COPD. And we're now seeing traction from our clients who are interested in running field studies with us on both asthma and COPD indications. And this is something, again, we want to build on and then build new indications on the back of delivering these types of patients. The third and final piece of the puzzle is a laboratory. We want to build the laboratories. As I mentioned earlier, historically, laboratory has catered for our human challenge trials. We now have a strong stand-alone business. We've added new capabilities to this. We have added a droplet digital PCR machine that can automate and speed up the analysis of samples for PCR purposes. We've also added a next-generation sequence capability, which is NGS capability. It means that we can sequence pathogens or other molecules much faster than we have previously done. In fact, we formally outsourced this piece of work because it was part of the human challenge trial business. And now by bringing it in-house, we can increase our revenues and improve our margins. And our goal is to continuously monitor the requirements in the market for different types of laboratory requirements and to target customers for repeat business in this area. And the end-to-end platform isn't just a fancy word that I say to try and promote hVIVO to you. It's something that we have seen in action. Cidara is a really good case study. Cidara is a U.S.-based biotech company that came to us 3 years ago almost when we ran the human challenge trial. On the back of positive results from our human challenge trial, we were a site -- a clinical site in the Phase II field study, where we contributed around 1 in 6 patients in the total recruitment base. On top of that, we acted at the central virology laboratory for the Phase II trial. That was a positive outcome for that trial. On the back of that trial, Cidara was sold to Merck for $9 billion. We are currently, again, working with Cidara, now Merck on a Phase III study, also acting as a clinical site and a central virology laboratory for over 150 sites or hospitals around the world who send their samples to our laboratory where we analyze the primary endpoints. This is something we want to do more of, and we have now diversified to include both the consulting and the Phase I. So now, for example, we can speak to a customer at the preclinical stage, help them formulate their product through our CMC and our PK consulting services, take them to the regulatory bodies through regulatory consultants, do and conduct the Phase I trial first in human clinical trial and then the Phase II trial in patients. And along this journey, by doing it under one contract, one roof, it means you improve the efficiencies, you enhance the quality and you reduce the cost. All these are very attractive sentiments to a biotech who is looking to get to and the proof of concept with -- as fast as possible and potentially as cheap as possible. The reason why I feel this is important is because I believe that going forward, we will see an increase in number of trials done by biotech to get to Phase II. That's because the Big Pharma are cash rich right now. But they also have a challenge of a very big patent cliff, around $300 billion worth of new branded drugs will expire their patents in the next 5 years. This means that after that, the revenue that these companies will get from the branded product will reduce significantly because there will be copycat generics on the market at a much cheaper price. To fulfill their pipeline, Big Pharma will spend money to buy new assets. And because they're cash rich, they can afford to pay a higher price and get a drug that is at a later stage of development, so lower risk of development. If that was to happen, the biotech companies need to run Phase I and Phase II trials. And that's where we come in. We can work with these biotech companies and give them an enhanced package to get to end of Phase II. And the therapeutic is we're working on what we call primary care indications. So these are indications where you would typically go to your GP for rather than a hospital. So we focus on infectious diseases, in respiratory, in cardiometabolic. We can add other franchises, for example, women's health or dermatology and so on. And the key for us here is to have an integrated end-to-end delivery system that requires minimum effort and resources from a biotech. So their team can remain small and nimble and we could be the workforce underneath them to get to the stage where they're ready to market themselves to Big Pharma, just like we helped Cidara to do. The diversification, again, isn't all talk, okay? I mentioned the fact that 50% of the revenue will come from non-challenge trials. And you can look at the order book. The order book is also diversified. Stephen explained our new algorithm when we announced the order book and new contracts. And the key to that is that it should be more resilient, more reliable because it's closer to the execution of the work rather than at the start-up agreement. It also means that our order book in this instance, as you can see, will be lower than previously stated because we are announcing this contract at a more mature stage. This order book for 2025, of course, does not include the Traws Pharma contract because that was signed in post period. But I would want you to focus on the other areas and the growth we are seeing across the board in the different service lines. And that's key for us. So we want to build the human challenge order book. Of course, we do, but we also want to continue to build and grow and accelerate the order book in the non-human challenge trial areas. When it comes to new proposals, we've also seen a really good uptick. So 2025 numbers were significantly better across the board compared to 2024. And this year already, in the first quarter of 2026, we've seen a 50% increase in new proposals submitted year-on-year. And the variety of clients we're getting is also much greater than ever before. And I want to reiterate this. We're now attracting clients in new therapeutic areas. We're also attracting clients at different stages of clinical development. And that's key for us to build a future to diversify and derisk. If something like what happened last year was ever happened again, we are much better placed to manage that. And the final slide, just to sum up where we're at. So I totally understand people's frustrations, investors' frustration with regards to the financial outcomes and the share price depression in 2025. But I hope I have relayed some of the key work we have done. We've been very busy in getting the acquisitions on board, realigning the company to diversify and integrated end-to-end delivery system. And that's something we want to continue to go forward with. The CRS and the Cryostore integration are fully complete. We have all the line management realigned. We have launched new group-wide systems that work across all our colleagues across the group. You've seen from the pipeline is strong. The short to medium-term outlook is very good. We have signed Traws Pharma as a major human challenge trial. We hope to finalize the ILiAD contract soon. So the pipeline is very strong. And in the meantime, by the way, we are continuously signing Phase 1 contracts. These are generally between GBP 600,000 to GBP 1 million in value. So they're not announceable. But I'm pleased to say we are continuously working with new clients as well as some repeat clients in the preferred providerships that we are building the order book on that side as well. And with having said all that, we are confident that we will achieve high single-digit revenue growth in 2026. Thank you for your attention. Operator: [Operator Instructions] Investors before we go into the Q&A session, a recording of this presentation will be available via the Investor Meet Company platform shortly after today's call. Mo, Stephen, you received a number of questions from investors both ahead of the event and during today's event. So thank you, firstly, to everyone for your engagement. If I may just hand back to you, Mo, maybe you could kindly navigate us through the Q&A, and I'll pick up from you at the end. Yamin Khan: Great. Thank you. Okay. I'll get straight on to it. What is the outlook of firming orders with ILiAD now that funding has been secured by the firm? So the funding has been secured by the firm. You're absolutely right. And part of the funding has been allocated to run a human challenge trial with us, of course. The contractual negotiations are almost fully complete, and we are near finalization of this contract. So look out for the, hopefully, the [indiscernible] soon with regards to the announcement of the fully signed contract with ILiAD, which will be the world's first Phase III pivotal whooping cough trial. And just to kind of comment on this further, this will create a significant press when it comes to human challenge trials because the FDA, the MHRA and the EMA, the European agency, have agreed to use a human challenge trial data as a part of the submission package to get to marketing authorization. This has not been done before proactively. So this sets a precedent, hopefully, for future clients and sponsors to ask the same from regulators to use a human challenge trial as a way to get to license here. So something we are very proud of. We are, of course, very delighted that ILiAD has preselected us as their preferred partner, but this is bigger than just hVIVO. This would impact the whole human challenge trial franchise once that data is produced. What is the value of Traws Pharma deal to hVIVO plc? As you know, we have not publish the value of the contract. I think what I know this is price sensitive and competitive sensitive. And I'm sure our clients would not like to share -- us share confidential information with you guys. But it's a good, strong contract with up to 150 people being enrolled into the study. And as I mentioned, this will start almost immediately. In fact, the proprietary work has already started, and we look to complete majority of the trial in 2026. In light of the new Traws Pharma, HCT, will we have better capacity for ILiAD? Yes. The way we have planned out all this work, of course, there is capacity to conduct both trials in 2026. But the ILiAD contract, by the way, is multiyear. So it will go from '26 but the majority of the revenue, in fact, now will be recognized in 2027. And I think it goes to show the resilience of the company now where if you ask me 12 months ago, ILiAD would have formed a large proportion of 2026 revenues. But for a variety of reasons, that study has been delayed, but we are still sticking to our guidance. So even though ILiAD will form a much smaller portion of the 2026 revenue, we still are very confident of our guidance we have put out there. But in 2027, we expect ILiAD to perform even more with regards to revenue recognition. Isn't the CRO market extremely crowded? In that case, why are you expanding your CRO offering instead of doubling down on human challenge? It's a very good question. So human challenge trial, I think we have doubled down, if you will. We are the world leader. We have over 12 different challenge models. Nobody comes near us. We have around 350,000 people on a database that we can use to recruit healthy volunteers. Again, nobody comes near that. We've done 50 trials to date, over 5,000 healthy volunteers in operated. So we are the world leader in this. There's no doubt about that. But we have to be careful as we've seen in 2025. If you rely on one single modality, you do risk your future growth. And for that reason, we do want to grow further. But your key point that the CRO market is crowded, it's correct. But it's crowded in certain stages of development. There are not many multisite CROs out there that can do healthy volunteer Phase I studies and then expand into multisite patient study. We own our own clinical sites. Most CROs will go to third-party sites and rely on their recruitment capability. 80% of the trials that are delayed, are delayed due to poor patient recruitment. And that is a problem we will solve by internalizing patient recruitment. So our own team, our patient recruitment team will recruit patients into the London facilities as well as the German facilities. So although the CRO market is crowded, I believe we have a niche that will grow because of the pharma requirements of a more [indiscernible] product from biotechs, and that's what we want to service. The choice to reduce your overdependent on human challenge trial studies and smooth out the revenue cycle. So we're not reducing our human challenge trial capability. But we are diluting it by increasing the non-challenge franchises, absolutely. And the reason behind that, of course, as you mentioned, is to reduce volatility and lumpiness and cycle, if you will. I think this one is for you, Stephen. Is hVIVO plc evaluating further cost-cutting measures given the business outlook? Stephen Pinkerton: So we have a very good operational team where we plan out all our known studies. So we plan based on our contracted work and then we always look to scale accordingly. So yes, we plan our costs based on known factors, on our known studies. And yes, so we are always looking at our cost base, but there's no significant change that we're expecting in the short term. Yamin Khan: Thank you. The next question is a long question. I'll just get to the end. Will the company ever start winning new HCT trials again? And if so, when? Well, we won one yesterday, which was announced. So that's something. And as I mentioned earlier, we are looking to finalize the agreement with ILiAD on what will be our largest ever human challenge trial. Will you -- Stephen, this is one for you. Will you be paying dividends as I'm sure shareholders will be quite disgruntled about the past few years? Stephen Pinkerton: Okay. So as I mentioned earlier in the presentation, the Board has decided not to pay a dividend this year. We'd rather spend the money on investing for the future growth of this business. And if you think about it, at the beginning of the year, we had GBP 44.2 million and it seemed churlish not to pay a dividend. But we -- now we have GBP 14 million, which is more than enough for our sustainable growth, but we think it's better to spend that money, all of that money going forward and investing and growing this business for. Yamin Khan: Why did you decide to have your largest facility in Canary Wharf instead of a cheaper location elsewhere in London? What tilted the decision in favor of Canary Wharf? It was an economical decision. So we did look at a number of options in and around London, and this was the optimum with regards to location to get access to healthy volunteers and patients, but also economically, it was a very favorable terms for us. Remember, Canary Wharf were and still are attracting more life science companies to this campus. And as part of that, they really wanted us to be involved and spearhead that campaign. Apart from ILiAD, are there any other HCT deals that are close to signing over the next 3 months or so? So I can't comment on next 3 months or so, but absolutely, there are multiple deals we are currently working on, which are currently at the proposal stage. You saw the increase in proposals that we have seen in 2025, which have increased by 50% in the first quarter of 2026. So the pipeline of work remains very strong, and we do hope to close a few of these in the coming months and in the future periods. If hVIVO plc evaluating further acquisitions, we always will keep an open eye on further acquisition for the right fit. I think that will be key rather than the size and the timing. If the deal is good and it gives us access to new therapeutic areas, new geographies, then we will seriously have a look at those options. This is one for you, Stephen. How would you say your fixed cost and variable cost split? Just a rough split would be useful. Stephen Pinkerton: So this is actually not a straightforward answer because we have quite a number of different contracts in place with our clients and different revenue types. So I mean, if you think about our consultancy business, it's got capacity, it's not fully utilized. So what is my variable spend in that case? There isn't any. I can take on more work. If I look at HCT trials, the sort of the variable spend on the HCT trial is maybe 15%. If I look at the Clinical Trials business, the variable spend will be roughly 25% to 30%. So it's very much dependent on your revenue mix. Yamin Khan: Thank you. I can see we are running out of time. I think we've got 1 minute left, so I'll quickly go through a couple of, I guess, different questions. So does the Lab only service samples taken in London? Or can you process samples from anywhere in the U.K. So we process samples that are taken anywhere in the world, to be honest. So we have a whole biologistic arm that works with courier partners and ships samples at the right temperature control environments to our Canary Wharf facility here on this floor, in fact, where we have all the equipment ready to process samples. So we do manage a large number of samples in any given week, especially for ongoing trials such as the Cidara trial. Is the strategic move towards diversifying our revenue sources also margin accretive in the medium to long run compared to previous revenue mix. Stephen, do you want to get that? Stephen Pinkerton: I missed that one. Yamin Khan: Is the strategic move towards diversifying our revenue sources also margin accretive in the medium, long run compared to the previous revenue mix? Stephen Pinkerton: No, HCT was definitely a much more profitable piece of the business, especially when you're running multiple HCT trials at the same time. So we're able to leverage our fixed cost base a lot more efficiently over HCT. Clinical Trials is a lot more outpatient. So obviously, you have a lot more sort of transactional type of work to get through. So Clinical Trials is a lot more competitive environment as well. So your margins are a little bit tighter. Labs is probably a bit better, your margins are a bit better there because it's a contact with the client and Consultancy has also got a different margin. So the new revenue streams don't necessarily improve the margin. But when you start dealing with scale, then you start getting an improvement in margin. So with HCT coming back and with the scale that we're envisaging and driving towards on the other new revenue streams, which should get closer to where we were previously. Yamin Khan: Thank you. On that note, I will close our presentation. I think we've gone 2 minutes over. Thank you, everyone. Operator: That's okay. Thank you, Mo, Stephen. And of course, we'll make any other questions available post today's call. Mo, Stephen, I know investor feedback, as usual, is very important to you both. I'll shortly redirect those on the call to give you their thoughts and expectations. But perhaps final words over to you, Mo, and then I'll send investors to give you feedback. Yamin Khan: Yes. So I want to thank everyone for your loyalty in hVIVO. I hope we have described at least some of the key points that we have achieved in 2025 and continue to do so in 2026. I appreciate financially, it was a challenging year, but you've seen the actions we have completed, and I think our strategy is sound. We are going for a market gap that currently exists. We're offering services that are unique. And I think our future is now derisked, and we are a much more resilient and less volatile company. Operator: That's great. Mo, Stephen, thank you once again for your time. If I could please ask investors not to close this session as we'll now automatically redirect you so you can provide your feedback directly to the company. On behalf of the management team of hVIVO plc, I would like to thank you for attending today's presentation, and enjoy the rest of your day.
Sophie Lang: Good morning, everyone, and welcome to Barry Callebaut's Half Year Results Presentation for 2025/ 2026. I'm Sophie Lang, Head of Investor Relations. And today's session will be hosted by our CEO, Hein Schumacher; and our CFO, Peter Vanneste. Our presentation today will start with Hein's initial reflections and observations then Peter will go into the half year results and the outlook. And finally, Hein will conclude with a preview of the Focus for Growth plan. Following the presentation, we'll have a Q&A session for analysts and investors. [Operator Instructions]. Before we start, take note of the disclaimer on Slide 2, and I'd also like to inform you that today's session is being recorded. And with that, I hand you over to our CEO, Hein Schumacher. Hein M. Schumacher: Thank you, Sophie, and good morning, everyone. It's my pleasure to be speaking with you as part of my first results presentation here at Barry Callebaut and I'm now approaching my first 100 days, and I wanted to start by sharing my initial observations and reflections before I hand it over to Peter to cover the results. So far, I've been in a listen and learn mode and spending a lot of time across the business to gather a broad range of perspectives from our people. And I've had the opportunity to visit a number of our factories and offices around the world and gain insights into our operations and the culture of the company. What has stood out most to me is the passion, the expertise and the resilience that defines this organization. I've also met with several of our key customers, which has sharpened my understanding of what truly matters for them and how we can support them on their growth journey. Back in February, we formed the Growth Accelerator coalition, which is a diverse group of around 30 deeply experienced colleagues, talents from around regions, functions and nationalities. And this working group from within is designed to advise, challenge and co-shape our path back to volume growth. And through a series of focus sessions, this group has developed a unified view of where we stand today, identified key bottlenecks that hold us back and is helping define a set of high-impact priority initiatives. And collecting these insights from across our organization is enabling me to shape a clear and decisive action plan that will sharpen our strategic direction and set our key priorities. Now I will come back to that later in more detail. But first, let me share some initial observations. Over the past years, the company has been navigating a very turbulent period marked by transformation, significant industry volatility as well as supply disruptions. The Barry Callebaut Next Level program was launched with all the right intentions. However, the sheer number of initiatives proved too ambitious for the organization to absorb at once and particularly against the backdrop of unprecedented industry disruption. And frankly, without sufficient course correction in priorities, this created a perfect storm. Now that said, several important steps were taken on the Next Level because the program did deliver savings of around CHF 150 million, and these enabled much-needed capability investments in core fundamentals such as digital, quality and supply processes. But at the same time, these savings were more than offset by the impact of volume declines, higher operating costs, particularly from the cocoa market and supply disruption as well as from a more competitive environment. And the combined effect was an organization that it become overstretched and quite internally focused. And with too many quality incidents, the business also began to lose market share. And as a result, we find ourselves in a position today with clear improvement areas that need to be addressed. I'm calling out 3 areas: First, our manufacturing network. We do have capacity constraints in key growth areas with site upgrades that are still work in progress. A lot has happened, but it's still work in progress. It has contributed to quality incidents with longer recovery times due to limited business continuity plans and we have made progress on the Next Level without a doubt, especially in strengthening quality foundations, but more work is to be done. And our service levels are currently below industry benchmarks. We need to improve. Second, our digital transformation. A good direction, but initiatives were decoupled from core business priorities and the scope was very broad. We moved very quickly before co-processes were sufficiently stabilized and before our data and operating systems had reached the required level of maturity. And third, our operating model and the organization. Historically, Barry Callebaut was highly decentralized and the intention of Next Level was to introduce a greater degree of centralization and standardization and that was the right direction. But in some areas, for example, in customer service, we went too far and probably too quick. In others, we ended up with a hybrid central regional model, and that has created an ambiguity in accountabilities. It added complexity to the organization and it limited regional empowerment, where essentially, the customer is where the market is, and where we need to drive local decisions. Because I believe that food is fundamentally a local business. And our region should define the what, whilst global functions should support the how with scale, expertise and obviously, consistency. And that makes the value of the corporation essentially bigger. Now importantly, while there is work to be done, as I said, we are building from a position of strength because Barry Callebaut has strong and solid foundations, and I'm confident that we can return to growth and reinvigorate ourselves as a reliable industry leader. Because we have a truly unique market position with leading relationships, strong customer relationships and a strong portfolio with benefits from our integrated end-to-end cocoa and chocolate model, very important for our group. And in turn, this gives us deep expertise across R&D, innovation, cocoa and sustainability and these are capabilities that are highly valued and appreciated by our customers around the world. And my conversations with CEOs of our largest customers have reinforced this view. And they see Barry Callebaut as an important partner and they want to grow with us. They expect us to step up and play a key role in unlocking and supporting their growth agendas. And let's not forget that we operate in a fantastic category with strong underlying fundamentals. And as a market leader, we are well positioned to capture significant long-term growth opportunities. And underpinning all of this is our people, as I said in the very beginning, people with deep commitment and passion for what we do. And that's critical to ensure that we can fully deliver on the fundamental opportunities ahead. Now bringing all of this together, clearly, we have strong foundations from our unique market position to the depth of our expertise, and that positions us to win in this industry. And at the same time, to fully deliver on the opportunity ahead, we must refocus behind a reduced set of priorities to stabilize key fundamentals as well as to step up execution. And in turn, if we do that well, it will unlock sustained profitable growth and it will reinvigorate Barry Callebaut as a reliable, innovative global leader. And that is the objective of our Focus for Growth action plan. And I will share a preview of the plan later. But before I go there, let me hand it over to Peter to walk you through the first half year results. Peter, here you go. Peter Vanneste: Thank you, Hein. Good morning, everyone. Let me walk you through the half year performance first, and I'll start with a short summary. Cocoa bean prices have decreased strongly in H1 and especially in the last few months, and this is surely positive for the recovery of the chocolate demand. On volumes, we saw a sequential quarterly improvement to minus 3.6% in the second quarter, supported by double-digit growth in Asia and continued momentum in Latin America. Recurring EBIT decreased by 4.2% and strong cocoa profitability was more than offset by the impact of lower volume, supply disruption and a highly competitive overcapacity environment. In Gourmet, margins were pressured with the context of the very rapid drop of bean prices, and I will come back to that a bit later in the presentation. Despite the decrease in EBIT, however, we grew recurring profit before tax and net profit, thanks to lower finance costs and income tax. And very importantly, despite the peak harvest and heavy cocoa buying season, we generated strong free cash flow and further deleveraged to 3.9x [ net ] debt over EBITDA. Let me get into some details now. Starting with the cocoa market. The cocoa bean prices have decreased very, very rapidly, falling by 53% in just 8 weeks in Jan and February and closing at GBP 2,057 at the end of February. And that's driven by good main crop arrivals in West Africa over the past few months, and favorable recent weather conditions that are supporting output for the mid crop. At the same level, the market is still seeing some demand softness. So global stocks have replenished to healthier levels. Overall, this means we expect a surplus this year for the second year in a row. Importantly, the structure of the cocoa futures markets has also improved significantly. We now have a carry structure meaning that the cost of buying spot cocoa today is cheaper than buying cocoa in the future. This means it is less costly for the industry to carry physical stocks and it's indicative for a more stable outlook. In the short term, given that this is demand-driven surplus, we expect bean prices to remain in the GBP 2,000 to GBP 3,000 range. That said, we continue to monitor the markets very closely as the demand recovers and thus we assess potential supplier risk linked to El Nino and potentially speculative volatility as we have seen in the past. Over the medium term, depending on supply and demand dynamics, we believe prices could move back into the GBP 3,000 to GBP 5,000 range. Lower cocoa bean prices are certainly positive for the future recovery of both the cocoa and the chocolate markets. We're seeing indications of this through our forward bookings. As you know, we contract several months in advance for our customers and in recent months, we've seen a greater willingness to book further ahead again. At the end of February, our futures booking portfolio was much, much higher than at the same time last year when cocoa bean prices were spiking. At the same time, our customers have priced through to their end consumer. As a result, consumer pricing and the rate of end consumer volume declines have started to stabilize. In the most recent quarter, Nielsen global chocolate/confectionery volumes decreased by 6.3% with plus 13.7% pricing. And importantly, we're now seeing our customers gradually shift their focus back to its category investments to stimulate growth. And I'll just quote a few examples. In North America, Ferrero launched their Go All In promotion from April 1 backed by a $100 million investment. It marks their first portfolio-wide campaign and largest marketing commitment in the company's history. Another example is Hershey is boosting media investments by double digit this year with the new quarter 1 media campaigns on Reese's and Hershey, the first launches of this nature. We're also seeing increased interest in innovation from our customers. In half year 1, we saw a significant increase in number of projects in Western Europe for ChoViva, our non-cocoa chocolate offering as well as a growing traction on Vitalcoa, our high flavanol solution, especially in AMEA. Beyond these benefits, the magnitude and the pace of the decline in the cocoa bean prices, as mentioned, just now more than 50% down in the last 8 weeks, helps, of course, the demand and the cash front but has also created some challenges on the short term as well and mainly on profitability. And there's 5 key impacts I just would like to highlight. First, in the past few months, we've seen very favorable margin environment for cocoa. In half year 1, this helped to offset some headwinds we saw in chocolate. Looking ahead, we expect this cocoa margin tailwind to normalize in the second half as market conditions have become less favorable. Second, as we just saw from the Nielsen data, demand has been down for some time. And given the high prices that have been put into the market in the past, this has resulted in some industry overcapacity, which is intensifying competition with more aggressive pricing and commercial actions. In this competitive environment, we've seen a temporary margin effect in Gourmet. The Gourmet business typically works with a 3 to 6 month price list where forecasted sales are covered and then a price list is determined. Given the unique speed now we've seen of the cocoa bean price decreases in half year 1, the result was a long position in a declining market, creating a high price list with not all players following the same approach. And this impacted our volume and profitability through the need for some short-term commercial investments. Also, next to that, there's a more technical effect related to the shift between EBIT and profit before tax due to lowering financing costs. The opposite, if you want, of what we've seen last year. This is a reversal of the finance cost pass-through, again, as we saw last year, and we now have lower finance costs as the bean prices come down. And it also means then a lower pass-through at the EBIT level. But it is -- importantly, it is neutral at the profit before tax level. Finally, there's also a BC-specific headwind in supply disruption. We had operational incidents in North America in the St. Hya factory, resulting in some volume losses and higher operating costs. Before we move to the half year 1 figures specifically, I'd like to spend also a moment to highlight potential implications from the Middle East situation. As many, many industries, the primary impact for us is on the supply chain side. It includes shipping disruptions, increased transit times resulting from port closures or limited container availability and of course, as we all know, there's a sharp increase in energy prices. In some markets, fuel rationing has been introduced combined with higher freight and insurance costs and all of that is adding complexity and costs across our supply chain. Next to the supply side, we've also seen some regional demand effects. Within AMEA, the Middle East and North Africa cluster represents about 10% of the volume there. This cluster has a specific high gourmet exposure and is experiencing therefore, disruption to imported premium products. Clearly, HoReCa food service segments are negatively impacted by the tourism levels in those areas as well as the closure of the schools, offices, rules on working from home and so on. Beyond directly in the Middle East and North Africa, we also see an indirect impact in India, where we have an important business where LNG imports are disrupted and constraining the energy availability for food manufacturers, commercial kitchens has been impacting their operations and, therefore, also ours. Overall, this obviously remains a highly dynamic and uncertain situation that we are monitoring, obviously, as per the latest developments every day. Now let me get into the numbers in a bit more detail, starting with volume. Overall, the group saw a sequential volume improvement in the second quarter to minus 3.6%, meaning we landed the first half with a decrease of 6.9%. Looking to the left of the chart by segment, Food Manufacturers continue to be impacted by negative market dynamics with our customers adapting behaviors in the context of high prices and lower demand. And there was the supply disruption in North America that impacted this segment for us. Gourmet, while more resilient, our competitiveness was temporarily pressured by the high price list in a sharply declining bean price environment, as I just explained. Also -- and also here, there was some impact of the St. Hya closure we saw in the first quarter. Global Cocoa declined as a result, mainly of a negative market demand, especially in AMEA and secondly, also due to our choice to prioritize higher profitability segments, which did have its impact on volumes in certain areas. This business, the cocoa business saw early signs of market improvement in the second quarter with a sequential volume improvement of minus 5.2%, so significantly better than in the first quarter. Now moving to the right-hand side of the chart, to global chocolate. Globally, we've seen chocolate volumes decline by 5.1%, which is ahead of the 6.5% decline of the market as reported by Nielsen. In Western Europe, we saw a 4.2% volume decline as demand continues to be impacted by market softness. Central and Eastern Europe declined for us by 3.6%. And way better than the market as our local accounts saw solid growth, especially in Turkey. North America decreased by 12.6% impacted by a strongly declining market as well, but as well as the network supply disruption we've seen from the temporary closure in St. Hya in the first quarter. Importantly, though, North America saw recent months improvements as the business is rebuilding inventories and meeting increasing customer orders. Latin America grew by 1.5%, well ahead of the market, driven by a strong momentum in Gourmet that we've seen multiple quarters in a row now. Finally, volumes in AMEA grew by a strong 8.5% and reached double-digit growth in the second quarter, driven by strong market share gains in China, momentum with key customers in India and additional business that we secured in Australia. Moving to EBIT now. Recurring EBIT decreased in local currencies by 4.2% to CHF 316 million (sic) [ CHF 310.9 million ]. The EBIT bridge on the page shows the respective moving parts. Cocoa, first of all, the green block on the chart saw strong profitability in half year 1, given a more favorable market environment -- margin environment, sorry, and market volatility where we're able to capture the volatility and increases of the prices and the decrease of the prices that we have seen. In half year 1, this has helped to offset some of the other headwinds that we're facing in chocolate. The impact of the half year 1 volume decrease was meaningful. This is clear when we look at our EBIT per tonne as well, which increased by 3%, whereas our EBIT in absolute declined by 4%. So the impact of volume was meaningful in the first half, and this is something that we'll see turning around in the second half. Next, there was an impact of the intense competitive environment and particularly within Gourmet. As I explained earlier, our high Gourmet price list and long position in the context of this very rapid decline of bean prices required temporary commercial investments. In addition, supply disruption resulted in higher operating costs to maintain service and deliver products to our customers. Finally, we also saw the shift between EBIT and profit before tax that I explained as a result of a lower financing cost year-on-year and therefore, a lower pass-through on the EBIT level. And this effect will get bigger in the second half of the year. While our recurring EBIT decreased, it's important to note, we were able to grow the absolute profit before tax and our net profit. And to be more precise. As you can see on the left-hand side of this chart, our recurring EBIT in local currencies was CHF 14 million lower than last year. This is the minus 4%. In the middle, our profit before tax increased by CHF 2 million or plus 1.3% as a result of a CHF 16 million decrease in financing costs in local currencies driven by our actions to reduce debt and, of course, in the lower bean price environment. To the right, our net profit increased even further by CHF 42 million or by 66%, given significantly lower income tax expense compared to what we saw last year. Recurring income tax expense decreased to CHF 29.6 million versus the CHF 69.4 million we saw in half year 1 last year. This corresponds to an effective tax rate of 21.4%, which mainly resulted from a more favorable mix of profit before taxes and much lower nontax effective losses in some of the countries. Free cash. Free cash flow delivered strongly in the half year at CHF 802 million across the 6 months despite the peak buying season that we're having always this time of year. Now when we look, as always, at the moving parts behind this cash generation, we saw -- and that's the dark black bar, we saw CHF 1.5 billion positive impact from the cocoa bean price this half year. Bean prices decreased significantly in half year 1, especially in the second quarter, as I mentioned. And this has benefited us during the peak buying period, particularly in non-West African origins, which do not have the same forward contracting model as Ivory Coast and Ghana have. There was a, next to that, a CHF 472 million negative impact on operational free cash flow, as you can see in the green bar. This has all got to do with the peak buying season. Half year 1 is always operationally like that with a negative cash out for the bean buying given the timing of the cocoa harvest. This was offset, however, partly by continued operational benefits from actions on the cash cycle reduction that we explained largely already in the previous communications. We continue to do so with our efforts to diversify our origin mix, reduce forward contracting and so on. As a result, actually, our inventory was now this time of year in February, 10% lower than February last year. So that also helped to generate the cash. up to this level. And finally, there was a CHF 183 million CapEx investments, as you can see in the yellow bar in the chart. Leverage. Leverage came down to -- strongly to 3.9x, and that's significantly below the 6.5x we saw in February last year and also well below the 4.5x we saw last August despite, again, the seasonality we always have in half year 1, with an important net debt reduction of CHF 2.5 billion, enabled by the strong cash flow that I've been talking about before. So leverage landed at 3.9x. But in fact, if you would exclude cocoa bean inventories from the net debt, and I'm talking only cocoa bean inventories, so not even correcting for cocoa products or chocolate stocks, our adjusted leverage RMI would be 2.7x. This progress mostly came from a lower inventory value given significantly lower bean prices, which is about 1.3x leverage in this decrease. But also through the actions to reduce our inventory volume, as I talked about, which made up about 0.6x in this reduction of leverage. In terms of gross debt reduction, we repaid EUR 263 million term loan in September '25, so a few months ago and EUR 191 million in February on the Schuldschein. We've also reduced significantly our commercial paper and bilateral facilities over this time. Obviously, all of this has been an important contributor to the lower net year-on-year finance costs that we've seen in the first half already. And we will certainly continue to focus strongly on the deleverage in half year 2. It remains a key priority. We want to end much lower than where we are even today. So with the further actions that we're defining on the cash cycle will bear further fruit going forward. This could be and this will be partly offset to some degree because of the safety stocks that we will be watching and potentially reinforcing a bit in a few key segments. Again, back to the support we need to have on the service levels following some disruptions that we have seen over the last months. So before I conclude the half year 1 section and staying on the financing. Earlier this week, we signed a EUR 2 billion sustainability-linked borrowing base facility. The borrowing base is linked to our underlying inventory asset base and represents an important step in the diversification of our funding sources. The facility strengthens our funding flexibility, particularly in periods of prolonged higher or lower bean price environments. It increases our agility and the agility of our capital structure and our ability to actively manage financing costs more in sync with cocoa price moves. Just to share a few additional details. The facility comprises of a EUR 1.6 billion of committed financing, complemented by an uncommitted tranche of EUR 400 million which is providing additional liquidity flexibility. So moving now to the outlook of the fiscal year. We've updated our guidance, reflecting our focus on volume and deleverage while taking short-term action to protect our market share and drive growth. We have, first, raised our expectations on volume. We now expect a decrease for the group between minus 1% to minus 3%. And this implies a return to positive growth overall in the second half. We've also raised our guidance on leverage. We now expect net debt over EBITDA below 3x using a working mean price assumption of GBP 3,000, so with the continued tight focus on this and further progress despite our updated profit assumptions. At the same time, we have lowered our outlook on EBIT. We now expect a mid-teens decrease on a recurring basis in local currencies. And this reflects short-term actions to protect market share and prioritize growth in the context of the rapidly declined cocoa bean prices. Important to note that a significant reduction in financing costs in half year 2 is an important factor in the reduced EBIT guidance. We expect to recover more than half of the absolute decrease in EBIT at the profit before tax level. Clearly, this outlook is subject to potential impact from the ongoing disruption in the Middle East that I commented on a little bit earlier. Now before I hand back to Hein, I want to take a moment to explain the half year 2 moving parts on EBIT. Our return to positive volume growth will be a clear tailwind for half year 2, of course. However, this will be offset by a number of factors. One is short-term actions in global chocolate. We are prioritizing restoring Gourmet share following this unique and temporary long position impact that I talked about. We're also taking some temporary customer-centric interventions to restore service levels, and Hein will talk about it a bit more later, but action is needed to stabilize supply after a number of incidents that we've seen. Customer centricity is our #1 focus going forward, and we're taking action to reclassify lines, increase spend on staffing, maintenance and quality. Second, as already discussed, cocoa profitability is expected to now normalize in half year 2 following an exceptional half year 1. Third, we are taking further actions to reduce finance costs. This means significantly lower year-on-year pass-through in finance cost at the EBIT level, while neutral on profit before tax. And finally, we have the uncertain and volatile situation in Middle East, which is bringing additional cost and supply chain disruption depending on how it will evolve further. Finally, the uncertain and volatile situation in the Middle East brings additional costs and supply chain disruption. And I will now hand over to Hein to share more on our Focus for Growth. Hein M. Schumacher: Thank you, Peter. Now let's talk about Focus for Growth. And this has been shaped, as I said before, by the insights and learnings from our growth accelerator coalition that I mentioned earlier. And at this stage, me being in the company now for 2 months plus, the plan is directional as we continue to refine and deepen our assessment of the actions as well as the opportunities ahead of us. And I'm looking forward to sharing the full detailed update with all of you in early June. And in the meantime, I wanted to be transparent and therefore, share the direction that we are heading in. Now before we go into details, let me start with why focus is so critical for Barry Callebaut. Because what really struck me when I started engaging with the team on our business portfolio is actually how concentrated we are. As you can see here on the chart, a few examples. So if we look at our top 7, top 7 markets represent 56% of our total volume. And of course, if you would extend that to 10 markets, the concentration increases even further. Similarly, with customers, our top 7 global customers are approximately 1/3 of our volume. In our Gourmet branded business, our top 7 brands or top 7 propositions generate 85% of our volume. And on the sourcing side, 90% of our cocoa is sourced from our 7 origin countries. And finally, although we operate around 30 specialty categories around the world, the top 7 represent approximately 90% of the growth opportunities that we see today. So as we focus on stabilizing the fundamentals, which we talked about and focusing our resources behind reduced priorities, getting these top 7 really right already moves the needle meaningfully. And this is why focus sits at the heart of our growth agenda for the future. Now turning to our Focus for Growth action plan. We do see that compelling need to increase focus across 3 areas. First one is commercially. So concentrating on a defined set of distinct growth opportunities and prioritizing key markets and segments where we see the greatest potential. Second, operationally by restoring fundamentals. I talked about that, and particularly in the areas that matter most for our customers in terms of reliability, quality and service. Customer centricity is absolutely vital. Third is organizationally by prioritizing a reduced number of the most impactful initiatives and restoring that customer-centric winning culture and by driving focus, restoring fundamentals and putting the customer firmly at the center of what we do, our objective is to reinvigorate the company and return to sustained profitable growth, and market share gains and, therefore, unlock strong financial performance going forward. Now let me share some details on each. I'm starting with commercial focus. And we are defining a clear and distinct set of growth opportunities where we will intentionally concentrate our resources and our attention. And this starts with markets. And as we discussed earlier, our top markets truly move the needle, not only in terms of volume but also in profitability. Let me start with the U.S., our largest market, representing approximately 17% of our revenue and ensuring the right level of focus and execution in such markets is critical to deliver growth. But also other markets stand out with clear growth potential, for example, Brazil, where we have a meaningful presence, Indonesia, India, Peter talked about that, and China, where we're experiencing strong growth right now. And it is therefore clear that our resources need to over proportionately support these priority markets, a distinct set. And importantly, this focus must be actionable, value-added defining a set of focus markets within AMEA rather than spreading our attention across that vast region thinly. The same logic applies with Gourmet & Specialties, where we need to concentrate on the right segments and opportunities, and I will come back to that in some detail in the next chart. In cocoa, in itself, we see clear opportunities to unlock growth by increasing our focus on high value-added powders, whilst ensuring that we have the right growth capacity, of course, in place. So across all of these areas, a key enabler will be strong innovation platforms. Not many, but a few strong platforms that will allow us to lead in the market and that we can leverage across the portfolio to drive growth, greater level of differentiation versus our competitors and of course, to support our customers around the world. Now let me talk about Gourmet, such an important segment for our profitable growth, and we are reintroducing here a clear brand hierarchy and customer propositions. Callebaut, Masters of Taste, that will continue to be our group commercial identity. And then we have a clear brand tiering after that to serve the different customer needs with a greater impact. And as you can see here on the top of the pyramid, we anchor the portfolio around our super premium global brands, led by the Callebaut Signature Collection and Cacao Barry. Now Callebaut brings over a century of Belgian craftsmanship and unrivaled bean to bar expertise and Cacao Barry brings 2 centuries of Cocoa Origins mastery and French pastry heritage, important brands on top of the pyramid at a higher price level, strong quality focus. Now beneath that, our core Gourmet portfolio is firmly positioned in that premium segment with the Callebaut core section. And here, the focus is on delivering consistent quality, reliability and strong performance for professional customers in their day-to-day operations. Complementing these, we continue to develop strong regional propositions. Typically, one per region, such as Sicao, Chocovic or Van Houten in Asia, for example, ensuring that local relevance. And across all these tiers, our brands are supported by end-to-end services from the chocolate academies that we have around the world to innovation and technical expertise. These help our customers to succeed. And the objective is simple and clear, a more focused Gourmet portfolio with clearly differentiated propositions and price tiers that enable to serve our customers better, and it will allow us to allocate resources more effectively and drive the profitable growth in this important segment. Now let's turn to specialties. Our plan here is to be a bit more selective, focused on a defined number of margin-accretive specialty categories that we believe we can integrate in the company, and the core of the company and by doing that, scale them first regionally and then globally. And while the final list is currently being defined, we already see clear and compelling opportunities in a number of areas, such as filled and baked inclusions, which you find in products like ice cream, where we have a very strong presence in that segment. But also both chocolate decorations, including toppings for bakery applications and fillings and coatings, for example, solutions with reduced sugar functionality. And once this prioritization is finalized, the intent is to bring these selected specialties much closer to the core on the regional responsibility including, therefore, a tighter system integration. At this moment, they're not that fully integrated in our operating system. And that means we will invest behind them to ensure there is sufficient growth capacity, clear ownership, P&L ownership within the region and stronger category management. And we believe that this more focused approach will allow us to scale what really works. It will simplify the specialty portfolio, and it will concentrate resources where we see the strongest combination of growth, margin expansion and, of course, customer relevance. Now moving to operational focus, where the clear goal is to restore some of the fundamentals. And Peter talked about the disruptions. Our #1 priority is to restore service levels and on-time in full performance that we are now measuring consistently every day, every week, every month. I'm absolutely determined to get us there and to improve on that particular KPI. And as I mentioned earlier, a combination of transformation complexity, industry disruption that we've had and many operational incidents, this has taken our focus a bit away from the basics. And as a result, service levels have been below industry standards. Now that's something that I'm keen to turn around for the company. We have to get this right. Now beyond service, we also need to ensure that our network, our factory network is fit for purpose, both for the portfolio that we operate today, but also where our customers will go tomorrow. And at the factory level, we see currently mismatches between line utilization, so specific line utilization and the overall capacity available in our network. So in the short term, that means we will make targeted and tactical adjustments to unlock available capacity. On the midterm and the long term, we will invest selectively behind those growth capacities that I talked about -- we talked about the focus areas, for example, ensuring that we deploy there for our capital towards the right opportunities. And finally, restoring the fundamentals also means strengthening the core processes and enablers of the organization, very much the intention of Next Level, and we will build on that. We do need better data visibility, more effective end-to-end decision-making on a number of processes. And therefore, the priority for us is to focus on the core process as the company first, get them really right, such as the overall demand and supply planning processes, customer service processes and, of course, the quality and the usability of our data. We made strong progress, but now we need to finish it behind those few big priorities. Going into more detail, there are a few areas where we need to focus operationally. So North America, as I said already, this region contains our largest market in the U.S., and we need to get it right. And as Peter has described, we've seen broad supply disruption across the network, and that resulted in longer lead times for our customers and capacity constraints in several high-demand product categories. Network investments under Next Level were there, but some of them were postponed given the macro backdrop. Now there's an immediate need to stabilize the network and rapidly improve service levels, focusing over the coming months on increasing staffing and adapting shift patterns at relevant sites as well as targeted initiatives to stabilize critical facilities, particularly across maintenance, quality, infrastructure and planning processes. In parallel, we are reclassifying and redeploying existing product lines across the network to better utilize the available overall capacity. We are developing a midterm plan to future-proof the network in order to sustainably support future growth. On emerging markets, here, our focus will be on a select number of key growth markets, large markets, though, but where we have a meaningful presence already and where we intend to invest to support evolving customer needs. Think of countries like Indonesia and Brazil. On this, we will update you in much more detail in June. Service and OTIF, on time in full, we are taking targeted actions not only in North America but also in Europe to immediately improve reliability and to step up our safety stocks in selected categories. Peter talked about that. This will stabilize our key business processes and in turn, it will improve customer service in the months to come. And then finally, core processes. I talked about digital efforts before. We need to focus our digital efforts and investments behind those core processes, such as planning as well as customer service, driving better data visibility and transparency, and this will, therefore, strengthen these processes and, therefore, increase service levels for our customers. Now turning finally to organizational focus. Our objective is to reestablish that winning culture with customers at the heart of everything that we do, while refocusing the organization, as I said, on a set of impactful initiatives that truly matter. And a key priority here is to increase the empowerment and accountability of our commercial regions because these regions are the closest to our customers and our markets, and they should clearly drive what needs to be done to win locally. And of course, supported by global functions. They provide the how. They provide the scale, the expertise and the consistency behind those core processes that I talked about. By doing that, we need to be, therefore, more disciplined on prioritization because the organization, as I said, has been overloaded by a significant number of initiatives during a time of also intense industry disruption. And that, in itself, dilutes the focus and the execution capacity. So by intentionally reducing the number of priorities on the table, we will free up time, energy and resources. And this will allow us to focus on what truly matters. That's what we're going to do in the next couple of months. Before closing, let me briefly highlight some of the initial steps that we have already taken as we start to put the Focus for Growth strategy into action. We've reduced the executive leadership team. I had a team of 20, we've reduced it to 12 members. This creates a smaller, more agile and more importantly, a more commercially focused leadership team in the company, which will enhance the speed of decision-making that we need. We also removed the global transformation office related to Next Level, and we significantly reduced our consultancy spend for the months to come. And this reflects a shift away from a separate transformation office towards a more integrated business ownership and execution. And as such, we have fully integrated the remaining Next Level initiatives into our global functions as well as into our regions. And that has stopped a stand-alone program tracking savings, for example, and therefore, we're now much more focused on the bottom line delivery and therefore, the net impact of these changes. We've also strengthened our global customer account alignment, and the global 7 accounts that I've talked about before are now reporting directly to me. And this is designed to reinforce regional execution actually, but also to accelerate the deployment of global innovation where it matters most for our customers. Now these are early but important steps. Obviously, there's more to come, but the momentum in the company has started. So that concludes my preview of Focus for Growth and we're not reinventing our strategy, as you've seen. What is different is the level of focus, the level of energy and depth supported by clear choices and strong resource prioritization. So to summarize, our priorities are clear: drive focus and discipline and put the customer back at the center of everything that we do. And I'm confident that our unparalleled industry leadership that we have and our truly unique business model will provide that strong foundation to sharpen that customer focus and return to profitable growth. I'm looking forward to coming back to you in early June with a more detailed plan and to share our financial ambitions in parallel. And in the meantime, this concludes today's results presentation, and we are delighted to now take your questions. And with that, I will hand over to the operator to open the Q&A. Operator: [Operator Instructions] Our first question comes from Alex Sloane from Barclays. Alexander Sloane: I'll have 2, please. I guess, overall, you previously guided to double-digit PBT growth in fiscal '26 based on today's guidance. Is it fair to assume you're now expecting PBT in constant FX to decline at sort of mid-single-digit rate for this year? And I guess if that's the case, within that potential 15%-plus downgrade, how much do you see as '26 specific or transitional versus perhaps more structural and put another way, how much of that do you think investors should reasonably expect to sort of bounce back in fiscal '27 would be the first one. And I guess the second one, somewhat related, but in terms of the commercial investments that you've talked about to restore competitiveness in Gourmet, can I just say, does this purely relate to price gaps or -- in Gourmet? Are you also potentially suffering from some of the service level issues highlighted at the beginning of the presentation? Hein M. Schumacher: Thank you, Alex. For the first question on the -- on PBT and this year's guidance, I'll let Peter answer. I'll come back to some of the points on structural as well as take your second question on Gourmet. So Peter, first on PBT. Peter Vanneste: Yes. So Alex, thanks for the question. We will have a significant reduction of finance costs over the year, up to CHF 60 million, so CHF 50 million to CHF 60 million versus last year, which means that a very significant part of the gap that we see on EBIT will be offset towards the PBT level. So profit before tax will be down for the fiscal year, but to a lesser extent than EBIT because of that recovery on the finance cost. Hein M. Schumacher: And Alex, I think a few remarks on the structural nature of the guidance for this year. Look, there are a few things that I would call pretty temporary. These are, for example, the gourmet positions that you talked about. The other one is supply disruptions that we have seen as well as the volume declines that we've seen in the first half. I expect those to -- over time, of course, to come back. Some of that will go faster than others. But more structurally, and Peter talked about that, our finance cost with a lower bean price, overall, the finance cost are not as high as in the EBIT definition, but they will come back and they will be neutralized on a PBT and on a net profit level. So some aspects are structural and some are temporary, but I wouldn't call it overall a rebasing of the company. I think your second question on Gourmet. Yes. So we had long positions out there and -- in Gourmet, which is partially a price listed business. We are seeking to retain market share. Obviously, we're going to drive volume. I think that's super important for us. We have, of course, fixed cost, but also we want to retain our customers after having had some years of disruption. So we're very keen to put the customer right -- front and center for everything that we do. So that's something that we're investing in. But if you look at Gourmet, yes, there have been disruptions also for Gourmet. Some of that in the North American part, but some of that in Europe, obviously, from somewhat longer time ago, but we're still sort of rebuilding capacity, and we're still rebuilding customer service. So this is something that we're now going to do on an accelerated pace. All the key factories are under hypercare. We've added some resources to make sure that we can deliver. We're also pushing some tactical investments through the sites because the customers have evolved their portfolio needs. We were a bit behind. We're stepping that -- we're really stepping that up and going fast after that. And therefore, I'm quite confident that in the second half of the year, overall, as a company, we are going to return to growth, and that will then sequentially improve the volume picture by quarter including Gourmet, which of course, is an important profit segment for us. Next question, please. Operator: Our next question comes from Jörn Iffert from UBS. Joern Iffert: The first one would be, please, on the reinvestment needs to restore customer service levels. For how long do you think it will last that this is more pronounced? And do you think despite these reinvestments, there could be operating leverage benefits for EBIT in fiscal year '27? So just to get a feeling for the time line here? And the second question, please, a technical one. Into the core segment, I assume it is, in particular, the spread, not the combined ratio, which was beneficial in the first half, I mean, what do you expect as a more normalized profitability on the current cocoa bean versus butter and powder spread going forward from here? Hein M. Schumacher: Thanks, Jörn. I'll take the first question. Peter, you can take -- if you would take the second one, that will be good. On the -- yes, on the investments, look, as I said, there's a few different types of investment here. And so the first one as I said, it's around evolved customer needs of what they need in their portfolio. And I think whilst we have an overall capacity that is sort of sufficient given, of course, the volume reductions that we have and the existing capacity that we had, on a line basis, the capacity wasn't always keeping pace with the changes of what customers really wanted. And therefore, we're doing a number of tactical investments predominantly in North America to keep pace and to satisfy the evolving customer needs. Some of that is in compound production. Some of that is in inclusion, for example, we need to step it up there. And so that's part number one. And that's partially CapEx. But of course, with all -- with quite a number of changes that we're doing and these are happening literally to date, that was in North America in the last couple of days and witnessing firsthand of what we're doing to step up that customer service and change portfolio. So that's number one. And that, of course, comes with some extra cost. The second one, given the disruptions that we had, we absolutely want to make sure that food quality and food safety is paramount. So yes, we are investing a bit extra also in manual operations to secure that. We've had incidents over the last couple of years. We simply cannot repeat that. The reputation of the company is essentially what safeguards the value of the company. So I'm very, very keen to focus on that as well. And then thirdly, as I talked about, investments when it comes to the long positions that we -- and we already mentioned that a few times, the long positions that we've had on cocoa and the impact on price listed business. So we're making here the right trade-offs, but we want to stick with our customers and we prioritize volume and we prioritize market share now and that's the third area of investment that we're making. Yes, I mean those are the main ones. But clearly, again, customer centricity and stepping up our efforts to evolve our capacity to that -- to the exact needs of the customer, that for me is really a priority now. And that's pretty short term. But I think in the midterm, that means that we will -- we need to continue to evolve our network, our supply chain through changing needs. And I think we can do that. And obviously, more to come on that in June. Peter? Peter Vanneste: Thanks for your question on cocoa. We've seen a strong EBIT growth on cocoa in the half year 1 year-on-year in local currencies. And very much linked to the fact that we're able to profit in cocoa and benefit from a more favorable margin environment and also the market volatility considering the speed of the market movements we've seen some time ago already with higher butter, higher powder prices, and we were able to capture that. We expect this to normalize in half year 2 going forward because the butter ratios have continued to drop in line with the terminal market evolution. Butter is now below powder and trading at a discount actually to CBE, which means that some of those benefits that we've seen linked to that volatility and the whole market that we captured in half year 1 and to some extent, a bit as well in half year 2 last year is at least, for the short term, not coming back. And then, of course, we'll see how the market evolves further to be more specific about that. Operator: Our next question comes from Ed Hockin from JPMorgan. Edward Hockin: Thank you, Hein, for your preview on your Focus for Growth strategy that I look forward to learning more in June. But on the Focus for Growth strategy, what I wanted to clarify a little bit following on from the last question, is on some of these initiatives you've outlined on capacity investments on focus and scaling of innovations, whether these are a refocus of existing resource or whether these are incremental investments? And within that, how we're thinking about the cash flow? Should we be, therefore, presuming that CapEx is higher for longer? And of your higher safety stocks in H2 that you mentioned, should we also expect that this is something longer lasting. So will you be holding inventory levels as a norm going forward? Or is this specifically an H2 comment? And then my second question, please, is on your volumes outlook for H2 and the return to volume growth. The industry, as you noted, is currently tracking minus 6.5% volumes. So to return to volume growth in the second half of the year, can you try and help me to bridge that? Is it that the industry volumes, you should expect some improvement in the second half of the year? And how significant contribution should the actions you're taking in gourmet have? Is it some reversal of shrink inflations or some reversal of the temporary in-sourcing that you've seen in previous years. Just if you could help me bridge that gap between the current industry volumes and improved picture for your volumes in the second half? Hein M. Schumacher: Thank you, Ed. And let me take first go at it, and Peter, please add where you see fit. So I mean, first of all, this is not about incremental resources. I talked very much in focus for growth around galvanizing and rallying our people, and that is people's component, but also indeed capital expenditure as well as cost behind less initiatives. We're choosing essentially 6 to 8 initiatives in the company right now to focus our resources on. We've been looking at many, many process improvements as a company over the last couple of years, ranging from HR processes to supply chain processes to essentially covering absolutely everything. What I'm really keen now is to focus our resources behind those processes that touch the customer first, and that is planning, so demand planning, supply planning, and making sure that we link up with our customer seamlessly and that we optimize our planning processes. So that means also digital efforts behind that. So that's the number one. Number two, customer service. Over the last year, customer service has been pretty much standardized and, in some cases, has been moved from a decentralized model to a more centralized global shared services model for customer service. That was a decision taken. It didn't always go well. So we absolutely have to nail it now and be there for the customer and make sure that, that customer service process runs extraordinarily well. So this is not about incrementalism. No, it's about everything that we were doing under the Next Level program, it's to choose those things that are meaningful and impactful and putting our people behind those. So that's very much the mantra. Not an extra. We're not going to expand on that. When it comes to capital expenditure, also for this year, we're not increasing the guidance. We have redirected some of the capital expenditure spend through the tactical investments that I talked about. And on the medium term, whether that's going to lead to a higher level, I'm going to come back to in June. However, we are very, very committed to deleveraging the company, as Peter has talked about. So that will remain an important priority. We will live within our means, but at the same time, I want to make sure that we spend the CapEx behind tangible, thought through, thorough growth initiatives, in a select number of markets, in our most meaningful segments. Gourmet, I talked to a few specialty categories, for example, and then, of course, in customer processes related to our Food Manufacturing segment. So more focused, clear and not incremental. So that, I think, hopefully answers your first question. When it comes to the volume picture in the second half, a few comments. Obviously, with lower bean prices, what we're seeing is that customers ordering for longer, that's clear, and that's helping the volume picture for us. We also see that customers, and we said that in the presentation, customers themselves are going for growth. And we've seen a number of initiatives from Hershey's, for example. We've seen initiatives from Nestle. And I think that's really important. We are seeing an enhanced growth picture in some of our key markets. In ice cream, for example, in North America, we're seeing overall an increased demand picture. And again, I think the lower bean prices helped. At the same time, and I think this is very important for us, when I talk about our efforts to restore growth, we believe that, in the very recent months, we are growing a bit ahead of the market with a reinvigorated focus on growth. And if we keep the pace, we make those necessary investments, we restore our processes and our credibility and stability, I'm actually very convinced that we will continue to do that in the very near future. So that's going to help us. So with less disruptions, we should see some growth. There's one important caveat, and that's, of course, the situation in the Middle East. At this moment, I mean, that's the latest one this morning. We believe that in the next week or so, business activity in the Middle East will resume somewhat, but obviously, it's very, very volatile. So that's something that we need to manage. So that's more on a high-level basis. I don't know, Peter, if you want to make some further comment on what we have been doing? Peter Vanneste: I'm risking to repeat a lot of what you said. So no. Hein M. Schumacher: Okay. Operator: Our next question comes from Jon Cox from Kepler Cheuvreux. Jon Cox: I have 2 questions really. One, just on what's happened in the last couple of years and what you're doing now to sort of maybe unwind some of that, maybe it went too far. I think under the first program, you laid off about 20% of your workforce and did a couple of factory closures and that sort of stuff. Just wondering, should we assume that maybe you're going to unwind the staff by about 10%, so maybe going back a little bit, or halfway from what you've done? As an add on that, do you think there's anything more needs to be done in terms of the factory network? Or is it more, as you mentioned, it's all about quality issues and maybe some lines are not working as well as you want to? So that's the first question. The second question, more on the top line outlook. I'm quite surprised that we're not really seeing volumes recover given the fact that cocoa prices have declined. I know there's a lag and so on and so on. But in terms of -- I'd imagine the whole industry is short chocolate in various places. Are you worried that maybe structurally, the chocolate market has changed in the last few years, maybe with GLP-1s and we see various data points suggesting that maybe chocolate demand volume growth won't come back to that on average 1% or 2% we've seen historically, maybe it's going to be closer to flat going forward. Any thoughts on that sort of long-term chocolate market outlook? Hein M. Schumacher: Thanks, Jon. I mean, first of all, on the Next Level program, as I said, in the plan on the Focus for Growth plan, look, I think that the Next Level program, again, the intentions to standardize more in the company, to reduce our cost by progressing our network into fewer, bigger sites into doing more with digital, intentionally definitely the right program. But what I'm saying is, therefore, we will build on that. And I have no intention to unwind necessarily what was going on. But I feel that efforts in the company were quite diluted. We have lost a lot of people. We have had quite some incidents and disruptions, and we have let customers down and customer service. So hey, I'm just very keen now to restore that confidence, go back behind a number of core priorities. So that means that we're not going to unwind, but we're going to phase and pace it. We'll go deeper, we're going to finish a number of initiatives, and we're going to do it well, but always with the customer in mind. So yes, we will continue to evolve our network, and that may end up in less factories. But before you close a factory, you need to make absolutely sure that the volumes that you provide to a customer from that factory are then, of course, transferred to another place, and you can help the customer to succeed. So I'm very keen to progress, but again, in a thoughtful manner. There's no point in adding necessarily resources. As I said, we are making some selective investments now in the supply chain, particularly in North America as well as in quality assurance. But overall, I do not foresee that we're sort of adding cost on a structural basis. That is definitely not the intention. And I don't want to talk about unwinding. I want to talk about focus, and I want to talk about fewer, bigger and better. with a strong focus on operations discipline and customer centricity. I think when you talk about volumes, actually, we are pointing towards a volume recovery in the second half. So of course, progressively, quarter 2 was a little bit better than quarter 1, in terms of volume, still negative. But going forward, as you sort of follow the algorithm, we're guiding to minus 1% to minus 3%. And that means mathematically that we're going to have to see a positive territory in half 2. Now where does that come from? And I talked about that lower bean prices? Yes, from our end, a better competitive position, strong focus and of course, with the caveat that I already talked about in the Middle East. But overall, we are actually seeing good signs of restored volumes. So in that sense, certainly on the midterm, we're looking more positively. On GLP-1, I think yes, I mean, several of our customers have also talked about that. And I just wanted to highlight that quality chocolate, the more premium style chocolate, we believe that's actually benefiting in some cases. We're seeing that also in interest for our Gourmet products. So I think, yes, look, there will be some impact, but at this point, it will not be significant for the company. Peter Vanneste: And maybe just to add, there's some reassurance, of course, from the past on the market rebounding. I mean the market pricing has been significant, of course, this time, but also a few years ago on the back of COVID, there was a 20% pricing up in the market, and you could see the chocolate category bounce up well after that. And maybe last, as you said yourself, I mean, there is this lag, right? We had ourselves for the first time now a quarter in Q2 where our pricing was negative year-on-year. So we had our peak pricing, plus 70% a year ago. We had still plus 25% pricing from us to our customers in quarter 1. Quarter 2 was the first quarter where it started to come down. So there is this lag that the market needs to cycle through before it starts hitting the consumer. Hein M. Schumacher: I think, Peter, there's also -- and I think that on your question or the question before, I want to come back on one point, which are inventory levels. We've obviously seen inventories coming down, and that's partially bean price, but also operationally, our inventories are showing a healthy development. What I do believe towards year-end, again, tactically and particularly on what I call the runners in our portfolio, Gourmet products that are pretty standard, we are increasing the inventory levels somewhat to make sure that we have a very positive start into the new year. I believe by the end of last year, the inventory levels were very, very low, and it hampered us a bit in satisfying customer needs. And again, with the positive signs that we are seeing in the market, we believe there is room, again, tactically and in a few areas to increase the safety stocks a bit to safeguard service. Again, a major priority for us going forward. Operator: Our next question comes from David Roux from Morgan Stanley. David Roux: I just want to come back to Alex's question on the guidance. Can you perhaps quantify how much of the cut in the PBT guidance was attributed to the investments in Gourmet, Middle East conflict and then other factors? And then my second question is on Global Chocolate. On the Food Manufacturer client cohort specifically, do you see any need or any risk here that you need to invest in pricing here? I appreciate there's a mechanical cost-plus model with this cohort of customer. But I mean, how robust are these agreements? And then just my follow-up question on Global Chocolate is, where do you see manufacturer inventory levels at the moment? Hein M. Schumacher: Peter, you take the first. I'll come back on the Food Manufacturing. Peter Vanneste: Yes. So David, the first question on the moving parts on EBIT and then PBT overall versus the guidance that we now put into the market. Overall, as we said, still for the full year, there's a positive on cocoa considering the high and the strong benefit that we took on volatility and the increases of the market in the past, normalizing half year 2, as I mentioned. Now if we look at then where the delta comes from in terms of the negative impact, you could basically argue that about 70% or 2/3 is triggered by this very rapidly declining bean price, which had an impact on, first of all, our financing costs, that pass-through had reversed basically on the EBIT line. Secondly, the impact that we've seen on Gourmet, where our long position and high price list forced us to do some commercial investments to secure the volumes that we have. So 2/3 is really coming from that rapid decline of the bean price. The remaining part, basically, there's 2 components. One is volume that over the year will still be slightly negative. And secondly, some of the increased costs that we are taking to manage through the supply disruption, making sure that we can deliver our customers despite some of those disruptions that we've seen. So this is basically the different blocks that you should be considering within our guidance. Hein M. Schumacher: When it comes to the Food Manufacturing segment, you're right. I mean, most of our contracts, they follow the price of cocoa. So I'm not overly -- from everything that I'm seeing margin-wise and so forth, I don't see major volatility in that. I feel pretty confident about the segment going into the second half. And we will move with customers and of course, based on the contracts that we have. So when I talked about the major impact from the long position, that is more related to price-listed businesses. When it comes to global stock levels, as I said, I think there are some -- we see customers buying a bit longer. I can't comment on exact stock levels. I'm not long enough here to give a really educated answer on that. But it's a fact that at this point, with the current bean prices, there is room for some increases globally. That's all I can say at the moment, unless, Peter, you would have further comments? Operator: Our next question comes from Tom Sykes from Deutsche Bank. Tom Sykes: Firstly, just on the capacity expansion that you're putting into North America and your comments to the earlier question around longer-term demand. I mean, if you're investing into compounds, which is the majority, I believe, of your Food Manufacturing business, are you not just signaling that there is a permanent reduction in cocoa demand even if it's not chocolate demand and that's coming from compound growth rather than cocoa content, if you like? And then just on Gourmet, where would your gross profit per unit be standing versus 12 months ago? And are you saying that you're going to be cutting that even more? Because if you do have this shift towards more compounds and we're in a sort of excess capacity, I suppose, are we not just going to see a rebasing of Gourmet pricing? And indeed, is it still going down? Hein M. Schumacher: Thanks, Tom. I mean, first of all, in investing in North America, as I said, I think the network overall probably didn't keep sort of the pace with evolving customer needs. So I think it's more that we were a bit behind. And we are very, very keen to fill in some of the blanks. We have very good relationships with many customers. Obviously, in North America, we are the market leader. But I want to make sure that for particular needs, and indeed, there could be compound production, that they don't go to alternative suppliers. So what we're doing is we fill in tactical needs, and I believe that, that will strengthen our position with customers significantly. At this point, with the bean price where it is now, we don't see compound necessarily growing faster than chocolate. We're seeing some movements that chocolate is actually back, and we're seeing some customers going back to chocolate. And again, with the current bean price, I believe that is overall probably even beneficial for them. We're sort of at that inflection point. So no, I don't think that compound will continue to always gain. I think what is more important for companies like us is that we're agile and that we can fill in the blanks of the portfolio that customers need. And they will have a need for compound for particular parts of what -- in their portfolio, and they have a need for chocolate. And of course, there is the volatility of the bean price. So I think what is important for us, given our role in the industry, is that we are agile, that we have the ability to supply what is needed. And that is exactly what we're going to do in North America with a number of shorter-term investments. So that's, I would say, for the next 4 to 5 months or so. I want to come back in June, as I said, with a more midterm picture for North America as well as coping with growth in a select number of large emerging markets, and I'm talking mainly Brazil, Indonesia, for example. India, we have ample capacity that can continue to grow. I mean we've done that double digit, and I feel that going to happen, that's going to go -- that will happen going forward. But I want to choose a few of the bigger markets where we have an emerging presence where I think we can succeed, but where we have some bottlenecks that we need to resolve. So I hope that answers the first question on investments. On Gourmet profit, I wasn't exactly sure on the precise question. But I would say there's no rebasing on profitability as such. As I said, there were long positions out there, and then you need to determine what you do, what is your priority. And we feel that retaining customers is driving growth, whilst at some point these positions will unwind and we will be returning to normalized profitability on Gourmet. That's at least what I'm seeing going forward. But in the meantime, we want to make sure that we keep the customer connection that we can compete in our geographies. And that's what we're doing. Peter Vanneste: And maybe just one addition because I think I might have understood in your message that for compound production, we need an entirely new setup of factories, which is not the case, right? We can produce from our existing factories. There's a few interventions you need to do in terms of tanks. But overall, I mean, we can convert our lines. So it's not that if any move happens to compound, that is an entirely new network that we need. Operator: Our next question comes from Antoine Prevot from Bank of America. Antoine Prevot: I have 2 questions, please. First, on coatings. So within Global Chocolate, I mean, could you quantify the volume growth of coating versus true chocolates and especially considering that now CBE is more expensive than cocoa butter, are you seeing maybe some pressure there overall, especially as a pretty big buffer on volume for the past couple of years? And second, on Gourmet, so could you quantify a bit how much of your chocolate profit comes from the Gourmet side? I mean, it's about 20% of your volume, but I would suspect it's much higher on the profit. And considering the reinvestments and like the price change you're doing into like H2, how quickly do you expect a situation to improve there on volume? Hein M. Schumacher: Thank you, Antoine. So I think Peter takes the second question on the composition of the profit, if I got it right. I think on your first question, overall on compounds, by the way, we call it cacao coatings, we saw flat growth in the first half, but with a double-digit growth for particular super compound products. Don't forget that I'm talking about investments in compounds. And yes, we need to follow the customer, but we are the leader actually globally in cacao coatings. And we have quite a few R&D projects with many of our customers on the way to continue to compete in that well. So if I sort of take a step back, as a company, what we are offering, we're offering the chocolate solution, we're offering the cacao coatings, but also non-cocoa solutions. And in that sense, we are partnering with Planet A Foods. We're working on what we call ChoViva, which is a non-cocoa product, which also has its own cost structure, and we will continue to invest in those type of alternatives. So we're very keen to provide the whole portfolio. Now again, flat growth in the first half with particular double-digit growth in a subsegment what we call super compound products. Peter Vanneste: Yes. And on Gourmet, Antoine, yes, it's about 20% of our volumes and it's over-proportional in terms of our profit split. We're not really disclosing a lot of details on it. But as you mentioned, it's a lot more accretive than the FM business. Volume-wise, 20%, despite the challenges, it's still performing relatively better than the FM business as we speak. And also in H2, I mean, we will invest, as we said, some of that long position, but it doesn't mean that we'll be cutting even more. We expect actually positive evolution in our business in chocolate, both on the FM and the Gourmet side going forward in the second half. Yes, I think that's where we are on the Gourmet side and everything else I think we said before, as it is linked to the very steep decline of the bean price, we do expect this to be a temporary phenomenon. Operator: Our next question comes from Samantha Darbyshire from Goldman Sachs. Samantha Darbyshire: My first question is just around the end markets. It would be really helpful to get some context from you around how you're expecting them to progress from here. You've got pretty good visibility on the order book, it seems. How much of this is kind of because your customers are innovating, having to bring out new products to kind of support that volume growth? And how much of it is that you think that consumers are adjusting to the price levels of chocolate products right now? And kind of along those lines, are you starting to see any appetite from your customers to reduce prices or increase promotions, increase pack sizes to get the volume coming back in the market? And if there's any regional context as well, that would be super helpful. And then just switching to, just thinking about your service levels, can you perhaps contextualize where they are versus history? I know that it's been quite volatile. There's been a lot of disruption. But if we think about where Barry Callebaut used to be, say, 5 years ago, how significantly below that are we? I know that the company is below industry levels. But any kind of indication of the delta would be really helpful. Hein M. Schumacher: Thanks, Sam, for the questions. So first, I would like to talk a bit about the market and our customers and what consumers are doing. Let me just make a few points here. And some of it will be repetitive, I hope you don't mind. But obviously, there are lower bean prices and we're seeing a flattening as well of the futures curve. So there are some early signs, as I said, of market stabilization for our customers. So customers are therefore also willing to book further in advance. As I call it, these are longer positions, and there is some room for higher inventories overall. I think we're seeing that customers are pricing through to some extent. Obviously, that's a customer decision. I don't want to go too deep on that. But I'm very encouraged by what I'm seeing with some of our large customers in particularly North America. Ferrero, and we said it in the presentation, they launched their go all-in promotion lasting from April to July, and that's backed up by significant investments. They've made a very public statement about that $100 million investment. Hershey also making significant media investments in this year with a very big launch around Reese's and Hershey. It's the first launch for them since a number of years that is sort of at this magnitude. So we're seeing restored confidence. Obviously, the margin profile will help given the lower bean prices. So these are, I think, very positive signs for recovery going forward. We're also seeing, therefore, some increased innovation interest from our CPG customers. And as I said, that we do across the whole portfolio. We're seeing -- particularly in Western Europe, we're seeing interest in the non-cocoa solutions for ChoViva, the brand that I talked about before, but also the high flavanol opportunity, the high flavanol innovation in AMEA, and this is gaining really good traction in Japan as well as in China. So if I sort of summarize lower bean prices, so therefore, customers going a bit long. Secondly, a very specific big initiative from some of our large customers that will help the market. And third, we're seeing if we are focusing our efforts behind scalable innovation platforms, we believe that particularly on a regional basis, we're seeing increased interest. So I would say, these are very positive signs. And therefore, we believe that the second half, we can return to a growth picture. On customer service levels, yes, I look back to a number of years ago. And particularly in the last 1.5 years or so, we have been below our historical averages. I don't want to call out one customer service level, because you need to drill down a little bit. And customer service can, for example, become low if your portfolio is not exactly the customer needs. So can you deliver against an unconstrained demand? That's a question. And in many cases, we haven't been able to do so, and that's why we're making these investments. The second one is, due to disruptions, do you need to cancel contracts or cancel deliveries that the customer has asked for. So in some of our key segments, we've seen customer service levels even somewhat below 80%. They are now improving fast. And again, that's where we're laser-focused on to get them to the highest possible level now. And I think that's something that we do progressively well. So without calling particularly percentages too much, I would say we weren't at the level that we were a number of years ago due to disruptions, due to many process changes, due to the whole transformation impact. We're now going back to fewer initiatives, restoring customer service on those areas where we really need it and preparing for a midterm picture. And obviously, I'd like to come back to you in June on what that looks like. I think that concludes the overall -- if I'm not wrong, this was the last question? Operator: Correct. We currently have no further questions. Hein M. Schumacher: Thank you, everyone, for spending time with us this morning. We are looking forward to come back to you in June with a full update on the Focus for Growth program and to have more interactions with you in the next couple of days as well as after the June conference. Thanks a lot, and speak soon. Peter Vanneste: Thank you.
Operator: Good day, ladies and gentlemen. Welcome to TomTom's First Quarter 2026 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to your host for today's conference, Claudia Janssen, Investor Relations. You may begin. Claudia Janssen: Yes. Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the Q1 2026 operational highlights and financial results with Harold Goddijn and Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financials. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. With that, Harold, let me, for the last time, hand it over to you. Harold Goddijn: Yes. Thank you. Thank you very much, Claudia, and good afternoon, everyone. Thank you for joining us. I will start with a brief update on our strategic and operational progress, and then I'll hand over to Taco for the financials. The first quarter of 2026 execution was solid. Profitability continued to improve. Our core Location Technology business, Automotive and Enterprise, both made good progress, while revenue trends reflect the transition we expected this year. In Automotive, we see carmakers accelerating their software strategies and taking more control of the in-vehicle stack. And at the same time, the industry continues to move towards higher levels of automation. Our Lane Model Maps are becoming an important differentiator. We're building on that, working closely with OEMs to support advanced driver assistance and autonomous driving. In Enterprise, we extended both our customer base and our use cases. We strengthened our position in traffic and traffic analytics through new partnerships, including AECOM, Kapsch TrafficCom and LOCUS. These partnerships extend our real-time traffic data into infrastructure planning, traffic management, location intelligence. They also underline the value customers place on quality and depth of our data and on TomTom as a trusted partner. Overall, we are confident in our progress. The steps we are taking, advancing our maps platform and building strategic partnerships position us well for 2026 and beyond. Before I hand over, a few words on the leadership transition we announced in March. Following a structured succession process, Mike Schoofs has been appointed CEO in today's general meeting. Mike has been with TomTom for over 20 years and built our global commercial organization. He knows the company, he knows our customers, and he knows the market inside out. I'm confident he will lead the next phase of our strategy with clarity and momentum. As a co-founder, it's very satisfying to see TomTom move in this next chapter with strong leadership in place. And with that, I'll hand over to Taco for the financials. Taco Titulaer: Thank you, Harold. Let me discuss the financials and after that, we can take your questions. In the first quarter of 2026, group revenue was EUR 129 million, an 8% decrease from last year's EUR 140 million. The decline was in line with the expectations and guidance we provided with our Q4 results. Let me briefly break down our top line performance. Automotive IFRS revenue came in at EUR 76 million for the quarter. That's a 5% decrease compared with the same quarter last year. Automotive operational revenue was EUR 70 million, which is 16% lower year-on-year. The decrease in revenue related from the gradual discontinuation of certain customer programs, along with the effect of a stronger euro relative to the U.S. dollar. Enterprise revenue was EUR 38 million, down 8% year-on-year. Adjusted for currency fluctuations, Enterprise revenue showed a slight increase year-on-year. Taken together, our Location Technology segment generated EUR 114 million in revenue, which is 6% lower than Q1 last year. On a constant currency basis, Location Technology revenue increased marginally. The Consumer segment, as expected, declined versus prior year. Consumer revenue was EUR 15 million, down 21% year-on-year. Q1 2025 was EUR 19 million, reflecting the development of the portable navigation device market. Consumer now represents a smaller part of our total revenue. Gross margin improved to 90% this quarter, up from 88% in Q1 last year. The 2 percentage point increase was driven by a higher proportion of high-margin Location Technology revenue in our revenue mix. Operating expenses were EUR 103 million, a reduction of EUR 15 million compared with the same quarter last year. The decrease is mainly the result of the organizational realignment we carried out last year, which lowered our cost base, combined with the higher capitalization of our investment in Lane Model Maps. As a result of higher gross margin and lower cost, our operating result was EUR 14 million for the quarter, a sharp improvement from EUR 6 million in Q1 last year. Our operating margin was 11%, up from 4% in the same quarter last year. Finally, free cash flow for the quarter improved to a positive inflow of EUR 1 million when excluding restructuring payments compared to a EUR 3 million outflow in Q1 2025. We continued our share buyback program during the quarter. By the end of Q1, we have completed EUR 11 million of the EUR 15 million announced in December last year. We ended Q1 [indiscernible] of EUR 248 million with no debt on the balance sheet. This cash position provides us sufficient stability and flexibility. Our first quarter performance confirms that we are on track for 2026. The revenue decline we saw in Q1, as mentioned before, was anticipated, and we managed to improve our profitability despite the lower revenue. Looking ahead, we are reiterating our full year 2026 outlook. We expect group revenue of EUR 495 million to EUR 555 million in 2026, with Location Technology revenue of EUR 435 million to EUR 485 million and an operating margin around 3% for the full year. As we indicated previously, some transitional headwinds, like the phaseout of certain customer programs, will weigh on this year's top line, but this impact is temporary. Therefore, we're continuing to invest in our Lane Model Maps, which are critical for a higher level of automated driving. As a result, free cash flow for 2026 is expected to be negative. As new automotive programs ramp up and newer products gain traction, we expect higher revenues combined with our ongoing cost discipline to drive a further step-up in operating margin in the long term. And with that, we are ready to take your questions. Operator, please start the Q&A. Operator: [Operator Instructions] We will take our first question. And the question comes from the line of Marc Hesselink from ING. Marc Hesselink: Yes. Thanks, Harold, for all the conversations over the years. I would take the opportunity to also look a little bit beyond for the long term on the question. I think when I started to cover TomTom, like more than a decade ago, one of the big promises was always autonomous driving, driving the long term. I think if you're looking at the market today because of all the developments in AI, both on the side of producing the map, but also on using it and now maybe autonomous driving being much nearer than it has ever been. How do you see that next phase? Is that do you really see that we are now at the start of that next phase and we are going to see major differences for how the map is going to be used and the opportunities in the map and how important it is for autonomous driving? Just giving a little bit your long-term view on how this developed over the years and what's coming in the next few years. Harold Goddijn: Yes, Marc, thank you. Yes. So you're right, the self-driving technology has been a big promise for a very long time. And it has always until recently, I would say, failed to live up to the expectations. What we now witness is a new approach to self-driving technology, more based on AI and self-learning, which is much more promising. And at least in the laboratory, we can see sophisticated levels of self-driving technology being deployed in real cars. So I think from a technology perspective, we are closer to solving the problem than ever before. What remains are the economics and also the regulatory framework, which will follow the technology. But I think from a technology perspective, we are motoring now literally. And we see that also in the demand for our products. Carmakers are now asking for higher levels of accuracy, more dynamic data, lane level information to enable self-driving technology and to provide a powerful additional data set next to the Edge processing that's placed in the car based on sensor information. We have seen that coming back also in the orders and the -- so first of all, the interest in our products and the way we produce our products. But we've also seen it coming back in the order book. We had a big win last year with Volkswagen, as you know, which was a significant contract. And that is a product and a contract clearly aimed at higher levels of automation. To what level exactly, remains to be seen. But what we do see is higher degree of automation than we have seen before. And also that technology will enter into the mainstream sooner or later. And we've seen comparable questions and demands from other OEMs. Some of those demands have translated into contracts, but there's also a healthy pipeline in '26, '27 to go further than that. Last thing, I think, is another trend that we're witnessing, is that carmakers want to have -- seem to prefer a unified map offering that is both suitable for navigation and display and map rendering and at the same time, can power the robot of the self-driving system. And the reason for that is that the self-driving system is also looking for a way to communicate with the driver what's happening. And when you do that on the same data set, it's technically an easier problem to solve. So we see a preference developing for united -- unified map that does both the traditional navigation and route planning, traffic information as well as being the sensor for the robot, for the self-driving part of the vehicle. Marc Hesselink: Okay. That is clear. Maybe as a follow-up, I think also there, the debate has been the same for a long period of time, which is, is a map layer needed for this autonomous driving, yes or no? And I think there is still a debate, at least reading through all kinds of articles on that one. I guess there's still the redundancy element of the map. Anything which you can add in the most recent conversations with your clients why a map would be required for functioning autonomous driving in the right way? Harold Goddijn: Yes. So it's a bit of a marketing story as well, I think, from vendors who are offering self-driving technology that is "mapless." We don't know of those systems that are mapless. They don't -- they do not exist other than in the laboratory and are not battle-hardened. The -- I think one of -- the way to think about it is that it makes self-driving technology easier when you do have a map and more reliable and redundant. And the big challenge for software developers is not to fix the first 95% of accuracy. That is kind of a solved problem. The real problem is to solve for the last 5%. That is the hardest bit. And solving that last 5% is a whole lot easier if you have a reliable map underpinning your system than doing it without a map. And we see that also translated in our own interactions with customers, both OEMs, but also providers of self-driving systems that we are closely aligned with and talking to, to see how we can collectively come up with a system that is robust, reliable, but also, I have to say, affordable. One of the reasons that the old HD Map never took off is cost. And cost was a problem because we were driving those roads ourselves with mapping vans. And that's, A, expensive; and B, does not provide for regular updates and a too long cycle time. With the new technology, the new approach, we have solved for both those problems, cost as well as cycle time and freshness. So I think the market opportunity is wide open. And I think that battle will play over the next 2, 3 years, I think, for presence in that self-driving ecosystem. Marc Hesselink: Great. And then final question from my side is, leveraging that one also in the enterprise segment, because I can imagine that the point you just mentioned, cost, freshness, cycle time, eventually also very important beyond automotive. I think at the Capital Markets Day, this point was quite promising, then it leveled off a bit. But maybe now with the progress we've made over the last 2 years, is it time that this one also can see some reignited growth? Harold Goddijn: I think the product challenges on the enterprise side are slightly different. There is some overlap, but the challenges are not the same. The Lane Model Maps is -- the development of that is predominantly driven by the requirements of carmakers and systems providers of automated driving systems. But I do expect overlap in the Enterprise world. And I think given its sufficient time, it will be harder to start distinguishing between what we call SD Map or -- and a lane-level map. So those worlds will come together. There will be some overlap, but growth in the Enterprise sector will come from mostly initially from other initiatives that we are deploying. And I think we're getting on track also a little bit better on the Enterprise side, in filling that pipeline better than we have been able to do in 2025. So I think the initial signs on the Enter sides are encouraging. Marc Hesselink: Okay. Great. Thanks for all the conversations over the years. Harold Goddijn: Thank you. Thank you for covering us. It was a pleasure. Operator: [Operator Instructions] We will take our next question. And the question comes from the line of Andrew Hayman from Independent Minds. Andrew Hayman: Yes, Harold, just maybe one clarification. You just mentioned that the old HD Maps never took off because of cost. Does that mean you've changed the pricing on the lane-level maps? Harold Goddijn: No, we have not necessarily changed the pricing. But the -- I think everybody understood that scaling that Edge-level HD Map, as we did it 10 years ago, was just too expensive and prohibitive. We have seen traction on the HD Map, and we still have customers driving with that HD Map. But everybody understands that if you want to improve the freshness and more importantly, if you want to improve the coverage, and when I say coverage, it's basically beyond motorways, there you end up in an unprofitable business case very, very quickly. So it's not the unit price so much that I'm talking about, but it's more the capabilities of the product. Carmakers as well as systems providers are looking for coverage and accuracy on all roads, not just motorways. And motorways is only, what is it, 5% of the total road network, is motorways. The rest is all secondary and tertiary and local roads. And so if you want to do an accurate product on all roads, including freshness, then the old technology could never deliver that. Andrew Hayman: Okay. And then maybe if I look at the forecast for 2026, it's quite a large range for revenue overall. It's a span of EUR 60 million. And then for the Location Technology component, it's a span of EUR 50 million. What's the thought process behind that range? Is it just that there's so much uncertainty at the moment about car production levels? Taco Titulaer: Yes. It's a bit of that, of course. Currency plays a role as well. So for all the 3 revenue-generating units, there is a bell curve of expectations. We do think that the middle of both revenue ranges is the best guidance that we can give. Andrew Hayman: Okay. Okay. And then on the change in management, I mean, there's clearly considerable continuity because Mike has been with TomTom for a long time and Harold, you're moving up to the Supervisory Board. But any new CEO is going to want to make adjustments or emphasize different areas or components. Do you -- what changes do you see happening under Mike going forward? Harold Goddijn: Well, that's for Mike to talk through, and I'm sure he will do that in -- when it's his turn in 3 months from now and start to give you some of his ideas. What I want to say is this, I think we have [indiscernible]. We've gone through a major product transition over the last years that has led to a competitive product. Based on the product, there is market share to be gained. And I think we're well positioned. That needs to land, and there's all sort of things that can go wrong, obviously. But net-net, I think that is a -- that gives focus and clarity of what we need to do at least in the next 12 to 24 months. And I think that's good. But of course, the world is changing rapidly. It's not only what we see geopolitically in terms of tariffs and in terms of energy and whatnot, but it's also the impact of AI potentially going forward that will have a significant effect on how we do things, how customers are consuming upward. I think the -- our anchor product, the map, is safe, and we will use AI to optimize processes and make it cheaper to maintain it. But that anchor product is good. And AI will have -- and the way we deploy AI going forward will -- and how the world evolves around AI, will affect the company like any other company in the world. So those are the -- I think, for the moment, the 2 big axes where we need to follow progress going forward. Andrew Hayman: And then maybe on a smaller note. On enterprise, it's -- if you adjust for currency, it's growing, but it's not having the easiest time. And if we look back to you joining with OSM, the idea was that you get more detailed maps and that may open up more market opportunities or expand the potential market for your maps, maybe social, travel and food delivery. How is that going? I mean, are you making some progress, but the clients are quite small in those areas that you're getting through? And how do you see that progressing? Harold Goddijn: Well, yes, I think it's a good question, Andrew. I think -- and then 2025 was slightly disappointing in terms of order intake and traction around -- always in the Enterprise market. But I think we have turned the corner, and we see some early green shoots. I think that central promise of having a better map that's easier to maintain is valid also for the Enterprise world. And we are now pitching for contracts and opportunities that we could not win based on the old technology. So the addressable market is -- and I mean, there's tons of examples of that. So it's slightly disappointing that it's taken longer. But I think the central idea of having a better map, more detail, more freshness, more efficient to maintain is still valid. And I hope that we will see that also being translated into Enterprise growth in 2026 and beyond. Operator: We will take our next question. The next question comes from the line of Wim Gille from ABN AMRO-ODDO. Wim Gille: This is Wim from ABN ODDO. Apologies for the noise, but I'm in the train. So I hope you can hear me. First, on the rollout of the lane-level maps, you started off just in Germany. So can you give us a bit of clarity on where you are in the rollout in terms of number of countries? But also, are you still just on the motorways? Or are you basically doing all the other roads as well throughout Germany as well as the other countries that you're rolling out? The second question would be on capitalized R&D. That seems to suggest you're accelerating the investments that you're doing in the rollout. So can you give us a bit more clarity on that decision? Is that based on the demand? Or are you basically just needing to invest more to get to the same results that you were looking for? And what is the reception of clients since you introduced this concept earlier last year? Harold Goddijn: Yes, Wim. Yes, you're coming through loud and clear. So no worries on that side. Yes. So the Lane Model product, our goal is to build it completely automated. So expanding coverage is just a matter of compute and electricity, but no other practical limitations on coverage and speed of production. That's where we want to end up. That's not where we are. There is a certain level of fallout following those automated processes. And that means that manual labor and operator interaction, in some cases, is required to filter out inconsistencies to checks and so on and so forth. So -- and we are in a position now where we are producing, but we are also making investments to reduce that fallout in order to prevent manual labor and improve the speed of the process and the associated coverage. The idea is that by the end of the year, we have a fully lane-level map, both for North America and for Europe. We're producing it now for parts of Germany, whilst improving the processes, improving the factory in the pipelines, if you like. And the aim is to reduce the amount of manual labor we need to produce those maps close to zero. It will probably never get to zero, but it needs to get close to zero because that gives us speed, flexibility and efficiency but also quality. Wim Gille: And what are clients saying about the products? Harold Goddijn: So people are excited that it's possible. We are producing a product that could not be produced before. They're excited that it has been developed with a view to serve security and safety critical applications. So it's an industry strength product. That's also how the quality systems are designed to make sure that we meet those standards. So yes, both carmakers and systems providers are excited that there is a product that can play an important role, and they're looking at progress with interest. We will start doing test driving with integrated systems now or in the next couple of months or something like that where we get for the first time, real-time feedback on how the system, not the map, but the system with the map is behaving in practice and in real-life situations. So those are important milestones. Taco Titulaer: Yes. If I can add to that. Then you also had a question about CapEx. So in the cash flow statement, you see that line investment in intangible assets, that's indeed higher than what it was last year same quarter. I expect that to normalize between "below EUR 10 million" going forward. So it is more -- yes, I wouldn't call a one-off, but it's not a clear trend that it now will go up every quarter. Wim Gille: Very good. And if you are now participating in RFQs, specifically related to HD, I can suspect that most of the RFQs that you're participating in are now HD driven and no longer [indiscernible]. But how is your product [indiscernible] up against the competition? So are you still producing HD Maps in the old way? And what does it do to your competitive pricing advantage? And which parties do you actually engage in these RFQs? I can only assume that here -- is there -- and in some cases, Google. But do you also see newcomers joining in these RFQs? Harold Goddijn: Sorry, Wim, I tried to understand your question. It was not entirely clear, to be honest, the first part in particular. Yes. So in terms of market position, I think we are currently leading in specs in ambition. Of course, we need to deliver all that goodness as well. And our internal target is by the end of this year to have significant coverage on both continents. And I think that will be a leading and it is a leading product both in terms of what it does and how it is produced, which is not a minor point actually. In this case, it really matters how you produce it because it tells you something about economics, quality, repeatability and so on and so forth. And there is significant interest, I think, from industry players, in what's going on. And so we feel good about that. I think Google obviously is an important competitor, but Google has a tendency to leverage consumer-grade products for the automotive world. And this is not typically an area where they're focusing on. Wim Gille: And are you encountering any new competition in RFQ processes? Harold Goddijn: No, no, we do not. It depends how you define competition, but I think there's no one else that I know of that has an integrated approach to both navigation, self-driving, ADAS, all on one product stack. Wim Gille: And with respect to enterprise, I do have a question on kind of the conversion and basically the acceleration that you are seeing at the moment. Can you give us a bit of feeling on kind of what types of, let's say, projects you are now converting or are close to converting? Are these still the smaller projects? Are we also now looking at the bigger clients and the ones that can really move the needle? Harold Goddijn: Yes. Yes, I think I wouldn't say acceleration. I think what I've said, I've used the word green shoots, some -- both contracts but also a pipeline that is building. A couple of areas where we see good traction, insurtech, defense. There are significant opportunities opening up, intelligence, public usage of our data, both traffic planning, intelligence. Those are the sectors where we see the order book and the pipeline really filling up. And some of those opportunities are significant as well, multiple millions per annum. Wim Gille: Thank you. And that leaves me with, yes, basically one last comment. So I would like to thank you for, I think, close to 80 earnings calls that we did together. No doubts. Harold Goddijn: this sounds like an awful lot, Wim. Wim Gille: It is. Harold Goddijn: This sounds like an awful lot. But thank you very much. It's been a privilege and a pleasure. Wim Gille: likewise. Thank you. Operator: [Operator Instructions] Claudia Janssen: As there seem to be no additional questions, I want to thank you all for joining us today. And Heidi, you may now close the call. Operator: Thank you. This concludes today's presentation. Thank you for your participance. You may now disconnect.
Sophie Lang: Good morning, everyone, and welcome to Barry Callebaut's Half Year Results Presentation for 2025/ 2026. I'm Sophie Lang, Head of Investor Relations. And today's session will be hosted by our CEO, Hein Schumacher; and our CFO, Peter Vanneste. Our presentation today will start with Hein's initial reflections and observations then Peter will go into the half year results and the outlook. And finally, Hein will conclude with a preview of the Focus for Growth plan. Following the presentation, we'll have a Q&A session for analysts and investors. [Operator Instructions]. Before we start, take note of the disclaimer on Slide 2, and I'd also like to inform you that today's session is being recorded. And with that, I hand you over to our CEO, Hein Schumacher. Hein M. Schumacher: Thank you, Sophie, and good morning, everyone. It's my pleasure to be speaking with you as part of my first results presentation here at Barry Callebaut and I'm now approaching my first 100 days, and I wanted to start by sharing my initial observations and reflections before I hand it over to Peter to cover the results. So far, I've been in a listen and learn mode and spending a lot of time across the business to gather a broad range of perspectives from our people. And I've had the opportunity to visit a number of our factories and offices around the world and gain insights into our operations and the culture of the company. What has stood out most to me is the passion, the expertise and the resilience that defines this organization. I've also met with several of our key customers, which has sharpened my understanding of what truly matters for them and how we can support them on their growth journey. Back in February, we formed the Growth Accelerator coalition, which is a diverse group of around 30 deeply experienced colleagues, talents from around regions, functions and nationalities. And this working group from within is designed to advise, challenge and co-shape our path back to volume growth. And through a series of focus sessions, this group has developed a unified view of where we stand today, identified key bottlenecks that hold us back and is helping define a set of high-impact priority initiatives. And collecting these insights from across our organization is enabling me to shape a clear and decisive action plan that will sharpen our strategic direction and set our key priorities. Now I will come back to that later in more detail. But first, let me share some initial observations. Over the past years, the company has been navigating a very turbulent period marked by transformation, significant industry volatility as well as supply disruptions. The Barry Callebaut Next Level program was launched with all the right intentions. However, the sheer number of initiatives proved too ambitious for the organization to absorb at once and particularly against the backdrop of unprecedented industry disruption. And frankly, without sufficient course correction in priorities, this created a perfect storm. Now that said, several important steps were taken on the Next Level because the program did deliver savings of around CHF 150 million, and these enabled much-needed capability investments in core fundamentals such as digital, quality and supply processes. But at the same time, these savings were more than offset by the impact of volume declines, higher operating costs, particularly from the cocoa market and supply disruption as well as from a more competitive environment. And the combined effect was an organization that it become overstretched and quite internally focused. And with too many quality incidents, the business also began to lose market share. And as a result, we find ourselves in a position today with clear improvement areas that need to be addressed. I'm calling out 3 areas: First, our manufacturing network. We do have capacity constraints in key growth areas with site upgrades that are still work in progress. A lot has happened, but it's still work in progress. It has contributed to quality incidents with longer recovery times due to limited business continuity plans and we have made progress on the Next Level without a doubt, especially in strengthening quality foundations, but more work is to be done. And our service levels are currently below industry benchmarks. We need to improve. Second, our digital transformation. A good direction, but initiatives were decoupled from core business priorities and the scope was very broad. We moved very quickly before co-processes were sufficiently stabilized and before our data and operating systems had reached the required level of maturity. And third, our operating model and the organization. Historically, Barry Callebaut was highly decentralized and the intention of Next Level was to introduce a greater degree of centralization and standardization and that was the right direction. But in some areas, for example, in customer service, we went too far and probably too quick. In others, we ended up with a hybrid central regional model, and that has created an ambiguity in accountabilities. It added complexity to the organization and it limited regional empowerment, where essentially, the customer is where the market is, and where we need to drive local decisions. Because I believe that food is fundamentally a local business. And our region should define the what, whilst global functions should support the how with scale, expertise and obviously, consistency. And that makes the value of the corporation essentially bigger. Now importantly, while there is work to be done, as I said, we are building from a position of strength because Barry Callebaut has strong and solid foundations, and I'm confident that we can return to growth and reinvigorate ourselves as a reliable industry leader. Because we have a truly unique market position with leading relationships, strong customer relationships and a strong portfolio with benefits from our integrated end-to-end cocoa and chocolate model, very important for our group. And in turn, this gives us deep expertise across R&D, innovation, cocoa and sustainability and these are capabilities that are highly valued and appreciated by our customers around the world. And my conversations with CEOs of our largest customers have reinforced this view. And they see Barry Callebaut as an important partner and they want to grow with us. They expect us to step up and play a key role in unlocking and supporting their growth agendas. And let's not forget that we operate in a fantastic category with strong underlying fundamentals. And as a market leader, we are well positioned to capture significant long-term growth opportunities. And underpinning all of this is our people, as I said in the very beginning, people with deep commitment and passion for what we do. And that's critical to ensure that we can fully deliver on the fundamental opportunities ahead. Now bringing all of this together, clearly, we have strong foundations from our unique market position to the depth of our expertise, and that positions us to win in this industry. And at the same time, to fully deliver on the opportunity ahead, we must refocus behind a reduced set of priorities to stabilize key fundamentals as well as to step up execution. And in turn, if we do that well, it will unlock sustained profitable growth and it will reinvigorate Barry Callebaut as a reliable, innovative global leader. And that is the objective of our Focus for Growth action plan. And I will share a preview of the plan later. But before I go there, let me hand it over to Peter to walk you through the first half year results. Peter, here you go. Peter Vanneste: Thank you, Hein. Good morning, everyone. Let me walk you through the half year performance first, and I'll start with a short summary. Cocoa bean prices have decreased strongly in H1 and especially in the last few months, and this is surely positive for the recovery of the chocolate demand. On volumes, we saw a sequential quarterly improvement to minus 3.6% in the second quarter, supported by double-digit growth in Asia and continued momentum in Latin America. Recurring EBIT decreased by 4.2% and strong cocoa profitability was more than offset by the impact of lower volume, supply disruption and a highly competitive overcapacity environment. In Gourmet, margins were pressured with the context of the very rapid drop of bean prices, and I will come back to that a bit later in the presentation. Despite the decrease in EBIT, however, we grew recurring profit before tax and net profit, thanks to lower finance costs and income tax. And very importantly, despite the peak harvest and heavy cocoa buying season, we generated strong free cash flow and further deleveraged to 3.9x [ net ] debt over EBITDA. Let me get into some details now. Starting with the cocoa market. The cocoa bean prices have decreased very, very rapidly, falling by 53% in just 8 weeks in Jan and February and closing at GBP 2,057 at the end of February. And that's driven by good main crop arrivals in West Africa over the past few months, and favorable recent weather conditions that are supporting output for the mid crop. At the same level, the market is still seeing some demand softness. So global stocks have replenished to healthier levels. Overall, this means we expect a surplus this year for the second year in a row. Importantly, the structure of the cocoa futures markets has also improved significantly. We now have a carry structure meaning that the cost of buying spot cocoa today is cheaper than buying cocoa in the future. This means it is less costly for the industry to carry physical stocks and it's indicative for a more stable outlook. In the short term, given that this is demand-driven surplus, we expect bean prices to remain in the GBP 2,000 to GBP 3,000 range. That said, we continue to monitor the markets very closely as the demand recovers and thus we assess potential supplier risk linked to El Nino and potentially speculative volatility as we have seen in the past. Over the medium term, depending on supply and demand dynamics, we believe prices could move back into the GBP 3,000 to GBP 5,000 range. Lower cocoa bean prices are certainly positive for the future recovery of both the cocoa and the chocolate markets. We're seeing indications of this through our forward bookings. As you know, we contract several months in advance for our customers and in recent months, we've seen a greater willingness to book further ahead again. At the end of February, our futures booking portfolio was much, much higher than at the same time last year when cocoa bean prices were spiking. At the same time, our customers have priced through to their end consumer. As a result, consumer pricing and the rate of end consumer volume declines have started to stabilize. In the most recent quarter, Nielsen global chocolate/confectionery volumes decreased by 6.3% with plus 13.7% pricing. And importantly, we're now seeing our customers gradually shift their focus back to its category investments to stimulate growth. And I'll just quote a few examples. In North America, Ferrero launched their Go All In promotion from April 1 backed by a $100 million investment. It marks their first portfolio-wide campaign and largest marketing commitment in the company's history. Another example is Hershey is boosting media investments by double digit this year with the new quarter 1 media campaigns on Reese's and Hershey, the first launches of this nature. We're also seeing increased interest in innovation from our customers. In half year 1, we saw a significant increase in number of projects in Western Europe for ChoViva, our non-cocoa chocolate offering as well as a growing traction on Vitalcoa, our high flavanol solution, especially in AMEA. Beyond these benefits, the magnitude and the pace of the decline in the cocoa bean prices, as mentioned, just now more than 50% down in the last 8 weeks, helps, of course, the demand and the cash front but has also created some challenges on the short term as well and mainly on profitability. And there's 5 key impacts I just would like to highlight. First, in the past few months, we've seen very favorable margin environment for cocoa. In half year 1, this helped to offset some headwinds we saw in chocolate. Looking ahead, we expect this cocoa margin tailwind to normalize in the second half as market conditions have become less favorable. Second, as we just saw from the Nielsen data, demand has been down for some time. And given the high prices that have been put into the market in the past, this has resulted in some industry overcapacity, which is intensifying competition with more aggressive pricing and commercial actions. In this competitive environment, we've seen a temporary margin effect in Gourmet. The Gourmet business typically works with a 3 to 6 month price list where forecasted sales are covered and then a price list is determined. Given the unique speed now we've seen of the cocoa bean price decreases in half year 1, the result was a long position in a declining market, creating a high price list with not all players following the same approach. And this impacted our volume and profitability through the need for some short-term commercial investments. Also, next to that, there's a more technical effect related to the shift between EBIT and profit before tax due to lowering financing costs. The opposite, if you want, of what we've seen last year. This is a reversal of the finance cost pass-through, again, as we saw last year, and we now have lower finance costs as the bean prices come down. And it also means then a lower pass-through at the EBIT level. But it is -- importantly, it is neutral at the profit before tax level. Finally, there's also a BC-specific headwind in supply disruption. We had operational incidents in North America in the St. Hya factory, resulting in some volume losses and higher operating costs. Before we move to the half year 1 figures specifically, I'd like to spend also a moment to highlight potential implications from the Middle East situation. As many, many industries, the primary impact for us is on the supply chain side. It includes shipping disruptions, increased transit times resulting from port closures or limited container availability and of course, as we all know, there's a sharp increase in energy prices. In some markets, fuel rationing has been introduced combined with higher freight and insurance costs and all of that is adding complexity and costs across our supply chain. Next to the supply side, we've also seen some regional demand effects. Within AMEA, the Middle East and North Africa cluster represents about 10% of the volume there. This cluster has a specific high gourmet exposure and is experiencing therefore, disruption to imported premium products. Clearly, HoReCa food service segments are negatively impacted by the tourism levels in those areas as well as the closure of the schools, offices, rules on working from home and so on. Beyond directly in the Middle East and North Africa, we also see an indirect impact in India, where we have an important business where LNG imports are disrupted and constraining the energy availability for food manufacturers, commercial kitchens has been impacting their operations and, therefore, also ours. Overall, this obviously remains a highly dynamic and uncertain situation that we are monitoring, obviously, as per the latest developments every day. Now let me get into the numbers in a bit more detail, starting with volume. Overall, the group saw a sequential volume improvement in the second quarter to minus 3.6%, meaning we landed the first half with a decrease of 6.9%. Looking to the left of the chart by segment, Food Manufacturers continue to be impacted by negative market dynamics with our customers adapting behaviors in the context of high prices and lower demand. And there was the supply disruption in North America that impacted this segment for us. Gourmet, while more resilient, our competitiveness was temporarily pressured by the high price list in a sharply declining bean price environment, as I just explained. Also -- and also here, there was some impact of the St. Hya closure we saw in the first quarter. Global Cocoa declined as a result, mainly of a negative market demand, especially in AMEA and secondly, also due to our choice to prioritize higher profitability segments, which did have its impact on volumes in certain areas. This business, the cocoa business saw early signs of market improvement in the second quarter with a sequential volume improvement of minus 5.2%, so significantly better than in the first quarter. Now moving to the right-hand side of the chart, to global chocolate. Globally, we've seen chocolate volumes decline by 5.1%, which is ahead of the 6.5% decline of the market as reported by Nielsen. In Western Europe, we saw a 4.2% volume decline as demand continues to be impacted by market softness. Central and Eastern Europe declined for us by 3.6%. And way better than the market as our local accounts saw solid growth, especially in Turkey. North America decreased by 12.6% impacted by a strongly declining market as well, but as well as the network supply disruption we've seen from the temporary closure in St. Hya in the first quarter. Importantly, though, North America saw recent months improvements as the business is rebuilding inventories and meeting increasing customer orders. Latin America grew by 1.5%, well ahead of the market, driven by a strong momentum in Gourmet that we've seen multiple quarters in a row now. Finally, volumes in AMEA grew by a strong 8.5% and reached double-digit growth in the second quarter, driven by strong market share gains in China, momentum with key customers in India and additional business that we secured in Australia. Moving to EBIT now. Recurring EBIT decreased in local currencies by 4.2% to CHF 316 million (sic) [ CHF 310.9 million ]. The EBIT bridge on the page shows the respective moving parts. Cocoa, first of all, the green block on the chart saw strong profitability in half year 1, given a more favorable market environment -- margin environment, sorry, and market volatility where we're able to capture the volatility and increases of the prices and the decrease of the prices that we have seen. In half year 1, this has helped to offset some of the other headwinds that we're facing in chocolate. The impact of the half year 1 volume decrease was meaningful. This is clear when we look at our EBIT per tonne as well, which increased by 3%, whereas our EBIT in absolute declined by 4%. So the impact of volume was meaningful in the first half, and this is something that we'll see turning around in the second half. Next, there was an impact of the intense competitive environment and particularly within Gourmet. As I explained earlier, our high Gourmet price list and long position in the context of this very rapid decline of bean prices required temporary commercial investments. In addition, supply disruption resulted in higher operating costs to maintain service and deliver products to our customers. Finally, we also saw the shift between EBIT and profit before tax that I explained as a result of a lower financing cost year-on-year and therefore, a lower pass-through on the EBIT level. And this effect will get bigger in the second half of the year. While our recurring EBIT decreased, it's important to note, we were able to grow the absolute profit before tax and our net profit. And to be more precise. As you can see on the left-hand side of this chart, our recurring EBIT in local currencies was CHF 14 million lower than last year. This is the minus 4%. In the middle, our profit before tax increased by CHF 2 million or plus 1.3% as a result of a CHF 16 million decrease in financing costs in local currencies driven by our actions to reduce debt and, of course, in the lower bean price environment. To the right, our net profit increased even further by CHF 42 million or by 66%, given significantly lower income tax expense compared to what we saw last year. Recurring income tax expense decreased to CHF 29.6 million versus the CHF 69.4 million we saw in half year 1 last year. This corresponds to an effective tax rate of 21.4%, which mainly resulted from a more favorable mix of profit before taxes and much lower nontax effective losses in some of the countries. Free cash. Free cash flow delivered strongly in the half year at CHF 802 million across the 6 months despite the peak buying season that we're having always this time of year. Now when we look, as always, at the moving parts behind this cash generation, we saw -- and that's the dark black bar, we saw CHF 1.5 billion positive impact from the cocoa bean price this half year. Bean prices decreased significantly in half year 1, especially in the second quarter, as I mentioned. And this has benefited us during the peak buying period, particularly in non-West African origins, which do not have the same forward contracting model as Ivory Coast and Ghana have. There was a, next to that, a CHF 472 million negative impact on operational free cash flow, as you can see in the green bar. This has all got to do with the peak buying season. Half year 1 is always operationally like that with a negative cash out for the bean buying given the timing of the cocoa harvest. This was offset, however, partly by continued operational benefits from actions on the cash cycle reduction that we explained largely already in the previous communications. We continue to do so with our efforts to diversify our origin mix, reduce forward contracting and so on. As a result, actually, our inventory was now this time of year in February, 10% lower than February last year. So that also helped to generate the cash. up to this level. And finally, there was a CHF 183 million CapEx investments, as you can see in the yellow bar in the chart. Leverage. Leverage came down to -- strongly to 3.9x, and that's significantly below the 6.5x we saw in February last year and also well below the 4.5x we saw last August despite, again, the seasonality we always have in half year 1, with an important net debt reduction of CHF 2.5 billion, enabled by the strong cash flow that I've been talking about before. So leverage landed at 3.9x. But in fact, if you would exclude cocoa bean inventories from the net debt, and I'm talking only cocoa bean inventories, so not even correcting for cocoa products or chocolate stocks, our adjusted leverage RMI would be 2.7x. This progress mostly came from a lower inventory value given significantly lower bean prices, which is about 1.3x leverage in this decrease. But also through the actions to reduce our inventory volume, as I talked about, which made up about 0.6x in this reduction of leverage. In terms of gross debt reduction, we repaid EUR 263 million term loan in September '25, so a few months ago and EUR 191 million in February on the Schuldschein. We've also reduced significantly our commercial paper and bilateral facilities over this time. Obviously, all of this has been an important contributor to the lower net year-on-year finance costs that we've seen in the first half already. And we will certainly continue to focus strongly on the deleverage in half year 2. It remains a key priority. We want to end much lower than where we are even today. So with the further actions that we're defining on the cash cycle will bear further fruit going forward. This could be and this will be partly offset to some degree because of the safety stocks that we will be watching and potentially reinforcing a bit in a few key segments. Again, back to the support we need to have on the service levels following some disruptions that we have seen over the last months. So before I conclude the half year 1 section and staying on the financing. Earlier this week, we signed a EUR 2 billion sustainability-linked borrowing base facility. The borrowing base is linked to our underlying inventory asset base and represents an important step in the diversification of our funding sources. The facility strengthens our funding flexibility, particularly in periods of prolonged higher or lower bean price environments. It increases our agility and the agility of our capital structure and our ability to actively manage financing costs more in sync with cocoa price moves. Just to share a few additional details. The facility comprises of a EUR 1.6 billion of committed financing, complemented by an uncommitted tranche of EUR 400 million which is providing additional liquidity flexibility. So moving now to the outlook of the fiscal year. We've updated our guidance, reflecting our focus on volume and deleverage while taking short-term action to protect our market share and drive growth. We have, first, raised our expectations on volume. We now expect a decrease for the group between minus 1% to minus 3%. And this implies a return to positive growth overall in the second half. We've also raised our guidance on leverage. We now expect net debt over EBITDA below 3x using a working mean price assumption of GBP 3,000, so with the continued tight focus on this and further progress despite our updated profit assumptions. At the same time, we have lowered our outlook on EBIT. We now expect a mid-teens decrease on a recurring basis in local currencies. And this reflects short-term actions to protect market share and prioritize growth in the context of the rapidly declined cocoa bean prices. Important to note that a significant reduction in financing costs in half year 2 is an important factor in the reduced EBIT guidance. We expect to recover more than half of the absolute decrease in EBIT at the profit before tax level. Clearly, this outlook is subject to potential impact from the ongoing disruption in the Middle East that I commented on a little bit earlier. Now before I hand back to Hein, I want to take a moment to explain the half year 2 moving parts on EBIT. Our return to positive volume growth will be a clear tailwind for half year 2, of course. However, this will be offset by a number of factors. One is short-term actions in global chocolate. We are prioritizing restoring Gourmet share following this unique and temporary long position impact that I talked about. We're also taking some temporary customer-centric interventions to restore service levels, and Hein will talk about it a bit more later, but action is needed to stabilize supply after a number of incidents that we've seen. Customer centricity is our #1 focus going forward, and we're taking action to reclassify lines, increase spend on staffing, maintenance and quality. Second, as already discussed, cocoa profitability is expected to now normalize in half year 2 following an exceptional half year 1. Third, we are taking further actions to reduce finance costs. This means significantly lower year-on-year pass-through in finance cost at the EBIT level, while neutral on profit before tax. And finally, we have the uncertain and volatile situation in Middle East, which is bringing additional cost and supply chain disruption depending on how it will evolve further. Finally, the uncertain and volatile situation in the Middle East brings additional costs and supply chain disruption. And I will now hand over to Hein to share more on our Focus for Growth. Hein M. Schumacher: Thank you, Peter. Now let's talk about Focus for Growth. And this has been shaped, as I said before, by the insights and learnings from our growth accelerator coalition that I mentioned earlier. And at this stage, me being in the company now for 2 months plus, the plan is directional as we continue to refine and deepen our assessment of the actions as well as the opportunities ahead of us. And I'm looking forward to sharing the full detailed update with all of you in early June. And in the meantime, I wanted to be transparent and therefore, share the direction that we are heading in. Now before we go into details, let me start with why focus is so critical for Barry Callebaut. Because what really struck me when I started engaging with the team on our business portfolio is actually how concentrated we are. As you can see here on the chart, a few examples. So if we look at our top 7, top 7 markets represent 56% of our total volume. And of course, if you would extend that to 10 markets, the concentration increases even further. Similarly, with customers, our top 7 global customers are approximately 1/3 of our volume. In our Gourmet branded business, our top 7 brands or top 7 propositions generate 85% of our volume. And on the sourcing side, 90% of our cocoa is sourced from our 7 origin countries. And finally, although we operate around 30 specialty categories around the world, the top 7 represent approximately 90% of the growth opportunities that we see today. So as we focus on stabilizing the fundamentals, which we talked about and focusing our resources behind reduced priorities, getting these top 7 really right already moves the needle meaningfully. And this is why focus sits at the heart of our growth agenda for the future. Now turning to our Focus for Growth action plan. We do see that compelling need to increase focus across 3 areas. First one is commercially. So concentrating on a defined set of distinct growth opportunities and prioritizing key markets and segments where we see the greatest potential. Second, operationally by restoring fundamentals. I talked about that, and particularly in the areas that matter most for our customers in terms of reliability, quality and service. Customer centricity is absolutely vital. Third is organizationally by prioritizing a reduced number of the most impactful initiatives and restoring that customer-centric winning culture and by driving focus, restoring fundamentals and putting the customer firmly at the center of what we do, our objective is to reinvigorate the company and return to sustained profitable growth, and market share gains and, therefore, unlock strong financial performance going forward. Now let me share some details on each. I'm starting with commercial focus. And we are defining a clear and distinct set of growth opportunities where we will intentionally concentrate our resources and our attention. And this starts with markets. And as we discussed earlier, our top markets truly move the needle, not only in terms of volume but also in profitability. Let me start with the U.S., our largest market, representing approximately 17% of our revenue and ensuring the right level of focus and execution in such markets is critical to deliver growth. But also other markets stand out with clear growth potential, for example, Brazil, where we have a meaningful presence, Indonesia, India, Peter talked about that, and China, where we're experiencing strong growth right now. And it is therefore clear that our resources need to over proportionately support these priority markets, a distinct set. And importantly, this focus must be actionable, value-added defining a set of focus markets within AMEA rather than spreading our attention across that vast region thinly. The same logic applies with Gourmet & Specialties, where we need to concentrate on the right segments and opportunities, and I will come back to that in some detail in the next chart. In cocoa, in itself, we see clear opportunities to unlock growth by increasing our focus on high value-added powders, whilst ensuring that we have the right growth capacity, of course, in place. So across all of these areas, a key enabler will be strong innovation platforms. Not many, but a few strong platforms that will allow us to lead in the market and that we can leverage across the portfolio to drive growth, greater level of differentiation versus our competitors and of course, to support our customers around the world. Now let me talk about Gourmet, such an important segment for our profitable growth, and we are reintroducing here a clear brand hierarchy and customer propositions. Callebaut, Masters of Taste, that will continue to be our group commercial identity. And then we have a clear brand tiering after that to serve the different customer needs with a greater impact. And as you can see here on the top of the pyramid, we anchor the portfolio around our super premium global brands, led by the Callebaut Signature Collection and Cacao Barry. Now Callebaut brings over a century of Belgian craftsmanship and unrivaled bean to bar expertise and Cacao Barry brings 2 centuries of Cocoa Origins mastery and French pastry heritage, important brands on top of the pyramid at a higher price level, strong quality focus. Now beneath that, our core Gourmet portfolio is firmly positioned in that premium segment with the Callebaut core section. And here, the focus is on delivering consistent quality, reliability and strong performance for professional customers in their day-to-day operations. Complementing these, we continue to develop strong regional propositions. Typically, one per region, such as Sicao, Chocovic or Van Houten in Asia, for example, ensuring that local relevance. And across all these tiers, our brands are supported by end-to-end services from the chocolate academies that we have around the world to innovation and technical expertise. These help our customers to succeed. And the objective is simple and clear, a more focused Gourmet portfolio with clearly differentiated propositions and price tiers that enable to serve our customers better, and it will allow us to allocate resources more effectively and drive the profitable growth in this important segment. Now let's turn to specialties. Our plan here is to be a bit more selective, focused on a defined number of margin-accretive specialty categories that we believe we can integrate in the company, and the core of the company and by doing that, scale them first regionally and then globally. And while the final list is currently being defined, we already see clear and compelling opportunities in a number of areas, such as filled and baked inclusions, which you find in products like ice cream, where we have a very strong presence in that segment. But also both chocolate decorations, including toppings for bakery applications and fillings and coatings, for example, solutions with reduced sugar functionality. And once this prioritization is finalized, the intent is to bring these selected specialties much closer to the core on the regional responsibility including, therefore, a tighter system integration. At this moment, they're not that fully integrated in our operating system. And that means we will invest behind them to ensure there is sufficient growth capacity, clear ownership, P&L ownership within the region and stronger category management. And we believe that this more focused approach will allow us to scale what really works. It will simplify the specialty portfolio, and it will concentrate resources where we see the strongest combination of growth, margin expansion and, of course, customer relevance. Now moving to operational focus, where the clear goal is to restore some of the fundamentals. And Peter talked about the disruptions. Our #1 priority is to restore service levels and on-time in full performance that we are now measuring consistently every day, every week, every month. I'm absolutely determined to get us there and to improve on that particular KPI. And as I mentioned earlier, a combination of transformation complexity, industry disruption that we've had and many operational incidents, this has taken our focus a bit away from the basics. And as a result, service levels have been below industry standards. Now that's something that I'm keen to turn around for the company. We have to get this right. Now beyond service, we also need to ensure that our network, our factory network is fit for purpose, both for the portfolio that we operate today, but also where our customers will go tomorrow. And at the factory level, we see currently mismatches between line utilization, so specific line utilization and the overall capacity available in our network. So in the short term, that means we will make targeted and tactical adjustments to unlock available capacity. On the midterm and the long term, we will invest selectively behind those growth capacities that I talked about -- we talked about the focus areas, for example, ensuring that we deploy there for our capital towards the right opportunities. And finally, restoring the fundamentals also means strengthening the core processes and enablers of the organization, very much the intention of Next Level, and we will build on that. We do need better data visibility, more effective end-to-end decision-making on a number of processes. And therefore, the priority for us is to focus on the core process as the company first, get them really right, such as the overall demand and supply planning processes, customer service processes and, of course, the quality and the usability of our data. We made strong progress, but now we need to finish it behind those few big priorities. Going into more detail, there are a few areas where we need to focus operationally. So North America, as I said already, this region contains our largest market in the U.S., and we need to get it right. And as Peter has described, we've seen broad supply disruption across the network, and that resulted in longer lead times for our customers and capacity constraints in several high-demand product categories. Network investments under Next Level were there, but some of them were postponed given the macro backdrop. Now there's an immediate need to stabilize the network and rapidly improve service levels, focusing over the coming months on increasing staffing and adapting shift patterns at relevant sites as well as targeted initiatives to stabilize critical facilities, particularly across maintenance, quality, infrastructure and planning processes. In parallel, we are reclassifying and redeploying existing product lines across the network to better utilize the available overall capacity. We are developing a midterm plan to future-proof the network in order to sustainably support future growth. On emerging markets, here, our focus will be on a select number of key growth markets, large markets, though, but where we have a meaningful presence already and where we intend to invest to support evolving customer needs. Think of countries like Indonesia and Brazil. On this, we will update you in much more detail in June. Service and OTIF, on time in full, we are taking targeted actions not only in North America but also in Europe to immediately improve reliability and to step up our safety stocks in selected categories. Peter talked about that. This will stabilize our key business processes and in turn, it will improve customer service in the months to come. And then finally, core processes. I talked about digital efforts before. We need to focus our digital efforts and investments behind those core processes, such as planning as well as customer service, driving better data visibility and transparency, and this will, therefore, strengthen these processes and, therefore, increase service levels for our customers. Now turning finally to organizational focus. Our objective is to reestablish that winning culture with customers at the heart of everything that we do, while refocusing the organization, as I said, on a set of impactful initiatives that truly matter. And a key priority here is to increase the empowerment and accountability of our commercial regions because these regions are the closest to our customers and our markets, and they should clearly drive what needs to be done to win locally. And of course, supported by global functions. They provide the how. They provide the scale, the expertise and the consistency behind those core processes that I talked about. By doing that, we need to be, therefore, more disciplined on prioritization because the organization, as I said, has been overloaded by a significant number of initiatives during a time of also intense industry disruption. And that, in itself, dilutes the focus and the execution capacity. So by intentionally reducing the number of priorities on the table, we will free up time, energy and resources. And this will allow us to focus on what truly matters. That's what we're going to do in the next couple of months. Before closing, let me briefly highlight some of the initial steps that we have already taken as we start to put the Focus for Growth strategy into action. We've reduced the executive leadership team. I had a team of 20, we've reduced it to 12 members. This creates a smaller, more agile and more importantly, a more commercially focused leadership team in the company, which will enhance the speed of decision-making that we need. We also removed the global transformation office related to Next Level, and we significantly reduced our consultancy spend for the months to come. And this reflects a shift away from a separate transformation office towards a more integrated business ownership and execution. And as such, we have fully integrated the remaining Next Level initiatives into our global functions as well as into our regions. And that has stopped a stand-alone program tracking savings, for example, and therefore, we're now much more focused on the bottom line delivery and therefore, the net impact of these changes. We've also strengthened our global customer account alignment, and the global 7 accounts that I've talked about before are now reporting directly to me. And this is designed to reinforce regional execution actually, but also to accelerate the deployment of global innovation where it matters most for our customers. Now these are early but important steps. Obviously, there's more to come, but the momentum in the company has started. So that concludes my preview of Focus for Growth and we're not reinventing our strategy, as you've seen. What is different is the level of focus, the level of energy and depth supported by clear choices and strong resource prioritization. So to summarize, our priorities are clear: drive focus and discipline and put the customer back at the center of everything that we do. And I'm confident that our unparalleled industry leadership that we have and our truly unique business model will provide that strong foundation to sharpen that customer focus and return to profitable growth. I'm looking forward to coming back to you in early June with a more detailed plan and to share our financial ambitions in parallel. And in the meantime, this concludes today's results presentation, and we are delighted to now take your questions. And with that, I will hand over to the operator to open the Q&A. Operator: [Operator Instructions] Our first question comes from Alex Sloane from Barclays. Alexander Sloane: I'll have 2, please. I guess, overall, you previously guided to double-digit PBT growth in fiscal '26 based on today's guidance. Is it fair to assume you're now expecting PBT in constant FX to decline at sort of mid-single-digit rate for this year? And I guess if that's the case, within that potential 15%-plus downgrade, how much do you see as '26 specific or transitional versus perhaps more structural and put another way, how much of that do you think investors should reasonably expect to sort of bounce back in fiscal '27 would be the first one. And I guess the second one, somewhat related, but in terms of the commercial investments that you've talked about to restore competitiveness in Gourmet, can I just say, does this purely relate to price gaps or -- in Gourmet? Are you also potentially suffering from some of the service level issues highlighted at the beginning of the presentation? Hein M. Schumacher: Thank you, Alex. For the first question on the -- on PBT and this year's guidance, I'll let Peter answer. I'll come back to some of the points on structural as well as take your second question on Gourmet. So Peter, first on PBT. Peter Vanneste: Yes. So Alex, thanks for the question. We will have a significant reduction of finance costs over the year, up to CHF 60 million, so CHF 50 million to CHF 60 million versus last year, which means that a very significant part of the gap that we see on EBIT will be offset towards the PBT level. So profit before tax will be down for the fiscal year, but to a lesser extent than EBIT because of that recovery on the finance cost. Hein M. Schumacher: And Alex, I think a few remarks on the structural nature of the guidance for this year. Look, there are a few things that I would call pretty temporary. These are, for example, the gourmet positions that you talked about. The other one is supply disruptions that we have seen as well as the volume declines that we've seen in the first half. I expect those to -- over time, of course, to come back. Some of that will go faster than others. But more structurally, and Peter talked about that, our finance cost with a lower bean price, overall, the finance cost are not as high as in the EBIT definition, but they will come back and they will be neutralized on a PBT and on a net profit level. So some aspects are structural and some are temporary, but I wouldn't call it overall a rebasing of the company. I think your second question on Gourmet. Yes. So we had long positions out there and -- in Gourmet, which is partially a price listed business. We are seeking to retain market share. Obviously, we're going to drive volume. I think that's super important for us. We have, of course, fixed cost, but also we want to retain our customers after having had some years of disruption. So we're very keen to put the customer right -- front and center for everything that we do. So that's something that we're investing in. But if you look at Gourmet, yes, there have been disruptions also for Gourmet. Some of that in the North American part, but some of that in Europe, obviously, from somewhat longer time ago, but we're still sort of rebuilding capacity, and we're still rebuilding customer service. So this is something that we're now going to do on an accelerated pace. All the key factories are under hypercare. We've added some resources to make sure that we can deliver. We're also pushing some tactical investments through the sites because the customers have evolved their portfolio needs. We were a bit behind. We're stepping that -- we're really stepping that up and going fast after that. And therefore, I'm quite confident that in the second half of the year, overall, as a company, we are going to return to growth, and that will then sequentially improve the volume picture by quarter including Gourmet, which of course, is an important profit segment for us. Next question, please. Operator: Our next question comes from Jörn Iffert from UBS. Joern Iffert: The first one would be, please, on the reinvestment needs to restore customer service levels. For how long do you think it will last that this is more pronounced? And do you think despite these reinvestments, there could be operating leverage benefits for EBIT in fiscal year '27? So just to get a feeling for the time line here? And the second question, please, a technical one. Into the core segment, I assume it is, in particular, the spread, not the combined ratio, which was beneficial in the first half, I mean, what do you expect as a more normalized profitability on the current cocoa bean versus butter and powder spread going forward from here? Hein M. Schumacher: Thanks, Jörn. I'll take the first question. Peter, you can take -- if you would take the second one, that will be good. On the -- yes, on the investments, look, as I said, there's a few different types of investment here. And so the first one as I said, it's around evolved customer needs of what they need in their portfolio. And I think whilst we have an overall capacity that is sort of sufficient given, of course, the volume reductions that we have and the existing capacity that we had, on a line basis, the capacity wasn't always keeping pace with the changes of what customers really wanted. And therefore, we're doing a number of tactical investments predominantly in North America to keep pace and to satisfy the evolving customer needs. Some of that is in compound production. Some of that is in inclusion, for example, we need to step it up there. And so that's part number one. And that's partially CapEx. But of course, with all -- with quite a number of changes that we're doing and these are happening literally to date, that was in North America in the last couple of days and witnessing firsthand of what we're doing to step up that customer service and change portfolio. So that's number one. And that, of course, comes with some extra cost. The second one, given the disruptions that we had, we absolutely want to make sure that food quality and food safety is paramount. So yes, we are investing a bit extra also in manual operations to secure that. We've had incidents over the last couple of years. We simply cannot repeat that. The reputation of the company is essentially what safeguards the value of the company. So I'm very, very keen to focus on that as well. And then thirdly, as I talked about, investments when it comes to the long positions that we -- and we already mentioned that a few times, the long positions that we've had on cocoa and the impact on price listed business. So we're making here the right trade-offs, but we want to stick with our customers and we prioritize volume and we prioritize market share now and that's the third area of investment that we're making. Yes, I mean those are the main ones. But clearly, again, customer centricity and stepping up our efforts to evolve our capacity to that -- to the exact needs of the customer, that for me is really a priority now. And that's pretty short term. But I think in the midterm, that means that we will -- we need to continue to evolve our network, our supply chain through changing needs. And I think we can do that. And obviously, more to come on that in June. Peter? Peter Vanneste: Thanks for your question on cocoa. We've seen a strong EBIT growth on cocoa in the half year 1 year-on-year in local currencies. And very much linked to the fact that we're able to profit in cocoa and benefit from a more favorable margin environment and also the market volatility considering the speed of the market movements we've seen some time ago already with higher butter, higher powder prices, and we were able to capture that. We expect this to normalize in half year 2 going forward because the butter ratios have continued to drop in line with the terminal market evolution. Butter is now below powder and trading at a discount actually to CBE, which means that some of those benefits that we've seen linked to that volatility and the whole market that we captured in half year 1 and to some extent, a bit as well in half year 2 last year is at least, for the short term, not coming back. And then, of course, we'll see how the market evolves further to be more specific about that. Operator: Our next question comes from Ed Hockin from JPMorgan. Edward Hockin: Thank you, Hein, for your preview on your Focus for Growth strategy that I look forward to learning more in June. But on the Focus for Growth strategy, what I wanted to clarify a little bit following on from the last question, is on some of these initiatives you've outlined on capacity investments on focus and scaling of innovations, whether these are a refocus of existing resource or whether these are incremental investments? And within that, how we're thinking about the cash flow? Should we be, therefore, presuming that CapEx is higher for longer? And of your higher safety stocks in H2 that you mentioned, should we also expect that this is something longer lasting. So will you be holding inventory levels as a norm going forward? Or is this specifically an H2 comment? And then my second question, please, is on your volumes outlook for H2 and the return to volume growth. The industry, as you noted, is currently tracking minus 6.5% volumes. So to return to volume growth in the second half of the year, can you try and help me to bridge that? Is it that the industry volumes, you should expect some improvement in the second half of the year? And how significant contribution should the actions you're taking in gourmet have? Is it some reversal of shrink inflations or some reversal of the temporary in-sourcing that you've seen in previous years. Just if you could help me bridge that gap between the current industry volumes and improved picture for your volumes in the second half? Hein M. Schumacher: Thank you, Ed. And let me take first go at it, and Peter, please add where you see fit. So I mean, first of all, this is not about incremental resources. I talked very much in focus for growth around galvanizing and rallying our people, and that is people's component, but also indeed capital expenditure as well as cost behind less initiatives. We're choosing essentially 6 to 8 initiatives in the company right now to focus our resources on. We've been looking at many, many process improvements as a company over the last couple of years, ranging from HR processes to supply chain processes to essentially covering absolutely everything. What I'm really keen now is to focus our resources behind those processes that touch the customer first, and that is planning, so demand planning, supply planning, and making sure that we link up with our customer seamlessly and that we optimize our planning processes. So that means also digital efforts behind that. So that's the number one. Number two, customer service. Over the last year, customer service has been pretty much standardized and, in some cases, has been moved from a decentralized model to a more centralized global shared services model for customer service. That was a decision taken. It didn't always go well. So we absolutely have to nail it now and be there for the customer and make sure that, that customer service process runs extraordinarily well. So this is not about incrementalism. No, it's about everything that we were doing under the Next Level program, it's to choose those things that are meaningful and impactful and putting our people behind those. So that's very much the mantra. Not an extra. We're not going to expand on that. When it comes to capital expenditure, also for this year, we're not increasing the guidance. We have redirected some of the capital expenditure spend through the tactical investments that I talked about. And on the medium term, whether that's going to lead to a higher level, I'm going to come back to in June. However, we are very, very committed to deleveraging the company, as Peter has talked about. So that will remain an important priority. We will live within our means, but at the same time, I want to make sure that we spend the CapEx behind tangible, thought through, thorough growth initiatives, in a select number of markets, in our most meaningful segments. Gourmet, I talked to a few specialty categories, for example, and then, of course, in customer processes related to our Food Manufacturing segment. So more focused, clear and not incremental. So that, I think, hopefully answers your first question. When it comes to the volume picture in the second half, a few comments. Obviously, with lower bean prices, what we're seeing is that customers ordering for longer, that's clear, and that's helping the volume picture for us. We also see that customers, and we said that in the presentation, customers themselves are going for growth. And we've seen a number of initiatives from Hershey's, for example. We've seen initiatives from Nestle. And I think that's really important. We are seeing an enhanced growth picture in some of our key markets. In ice cream, for example, in North America, we're seeing overall an increased demand picture. And again, I think the lower bean prices helped. At the same time, and I think this is very important for us, when I talk about our efforts to restore growth, we believe that, in the very recent months, we are growing a bit ahead of the market with a reinvigorated focus on growth. And if we keep the pace, we make those necessary investments, we restore our processes and our credibility and stability, I'm actually very convinced that we will continue to do that in the very near future. So that's going to help us. So with less disruptions, we should see some growth. There's one important caveat, and that's, of course, the situation in the Middle East. At this moment, I mean, that's the latest one this morning. We believe that in the next week or so, business activity in the Middle East will resume somewhat, but obviously, it's very, very volatile. So that's something that we need to manage. So that's more on a high-level basis. I don't know, Peter, if you want to make some further comment on what we have been doing? Peter Vanneste: I'm risking to repeat a lot of what you said. So no. Hein M. Schumacher: Okay. Operator: Our next question comes from Jon Cox from Kepler Cheuvreux. Jon Cox: I have 2 questions really. One, just on what's happened in the last couple of years and what you're doing now to sort of maybe unwind some of that, maybe it went too far. I think under the first program, you laid off about 20% of your workforce and did a couple of factory closures and that sort of stuff. Just wondering, should we assume that maybe you're going to unwind the staff by about 10%, so maybe going back a little bit, or halfway from what you've done? As an add on that, do you think there's anything more needs to be done in terms of the factory network? Or is it more, as you mentioned, it's all about quality issues and maybe some lines are not working as well as you want to? So that's the first question. The second question, more on the top line outlook. I'm quite surprised that we're not really seeing volumes recover given the fact that cocoa prices have declined. I know there's a lag and so on and so on. But in terms of -- I'd imagine the whole industry is short chocolate in various places. Are you worried that maybe structurally, the chocolate market has changed in the last few years, maybe with GLP-1s and we see various data points suggesting that maybe chocolate demand volume growth won't come back to that on average 1% or 2% we've seen historically, maybe it's going to be closer to flat going forward. Any thoughts on that sort of long-term chocolate market outlook? Hein M. Schumacher: Thanks, Jon. I mean, first of all, on the Next Level program, as I said, in the plan on the Focus for Growth plan, look, I think that the Next Level program, again, the intentions to standardize more in the company, to reduce our cost by progressing our network into fewer, bigger sites into doing more with digital, intentionally definitely the right program. But what I'm saying is, therefore, we will build on that. And I have no intention to unwind necessarily what was going on. But I feel that efforts in the company were quite diluted. We have lost a lot of people. We have had quite some incidents and disruptions, and we have let customers down and customer service. So hey, I'm just very keen now to restore that confidence, go back behind a number of core priorities. So that means that we're not going to unwind, but we're going to phase and pace it. We'll go deeper, we're going to finish a number of initiatives, and we're going to do it well, but always with the customer in mind. So yes, we will continue to evolve our network, and that may end up in less factories. But before you close a factory, you need to make absolutely sure that the volumes that you provide to a customer from that factory are then, of course, transferred to another place, and you can help the customer to succeed. So I'm very keen to progress, but again, in a thoughtful manner. There's no point in adding necessarily resources. As I said, we are making some selective investments now in the supply chain, particularly in North America as well as in quality assurance. But overall, I do not foresee that we're sort of adding cost on a structural basis. That is definitely not the intention. And I don't want to talk about unwinding. I want to talk about focus, and I want to talk about fewer, bigger and better. with a strong focus on operations discipline and customer centricity. I think when you talk about volumes, actually, we are pointing towards a volume recovery in the second half. So of course, progressively, quarter 2 was a little bit better than quarter 1, in terms of volume, still negative. But going forward, as you sort of follow the algorithm, we're guiding to minus 1% to minus 3%. And that means mathematically that we're going to have to see a positive territory in half 2. Now where does that come from? And I talked about that lower bean prices? Yes, from our end, a better competitive position, strong focus and of course, with the caveat that I already talked about in the Middle East. But overall, we are actually seeing good signs of restored volumes. So in that sense, certainly on the midterm, we're looking more positively. On GLP-1, I think yes, I mean, several of our customers have also talked about that. And I just wanted to highlight that quality chocolate, the more premium style chocolate, we believe that's actually benefiting in some cases. We're seeing that also in interest for our Gourmet products. So I think, yes, look, there will be some impact, but at this point, it will not be significant for the company. Peter Vanneste: And maybe just to add, there's some reassurance, of course, from the past on the market rebounding. I mean the market pricing has been significant, of course, this time, but also a few years ago on the back of COVID, there was a 20% pricing up in the market, and you could see the chocolate category bounce up well after that. And maybe last, as you said yourself, I mean, there is this lag, right? We had ourselves for the first time now a quarter in Q2 where our pricing was negative year-on-year. So we had our peak pricing, plus 70% a year ago. We had still plus 25% pricing from us to our customers in quarter 1. Quarter 2 was the first quarter where it started to come down. So there is this lag that the market needs to cycle through before it starts hitting the consumer. Hein M. Schumacher: I think, Peter, there's also -- and I think that on your question or the question before, I want to come back on one point, which are inventory levels. We've obviously seen inventories coming down, and that's partially bean price, but also operationally, our inventories are showing a healthy development. What I do believe towards year-end, again, tactically and particularly on what I call the runners in our portfolio, Gourmet products that are pretty standard, we are increasing the inventory levels somewhat to make sure that we have a very positive start into the new year. I believe by the end of last year, the inventory levels were very, very low, and it hampered us a bit in satisfying customer needs. And again, with the positive signs that we are seeing in the market, we believe there is room, again, tactically and in a few areas to increase the safety stocks a bit to safeguard service. Again, a major priority for us going forward. Operator: Our next question comes from David Roux from Morgan Stanley. David Roux: I just want to come back to Alex's question on the guidance. Can you perhaps quantify how much of the cut in the PBT guidance was attributed to the investments in Gourmet, Middle East conflict and then other factors? And then my second question is on Global Chocolate. On the Food Manufacturer client cohort specifically, do you see any need or any risk here that you need to invest in pricing here? I appreciate there's a mechanical cost-plus model with this cohort of customer. But I mean, how robust are these agreements? And then just my follow-up question on Global Chocolate is, where do you see manufacturer inventory levels at the moment? Hein M. Schumacher: Peter, you take the first. I'll come back on the Food Manufacturing. Peter Vanneste: Yes. So David, the first question on the moving parts on EBIT and then PBT overall versus the guidance that we now put into the market. Overall, as we said, still for the full year, there's a positive on cocoa considering the high and the strong benefit that we took on volatility and the increases of the market in the past, normalizing half year 2, as I mentioned. Now if we look at then where the delta comes from in terms of the negative impact, you could basically argue that about 70% or 2/3 is triggered by this very rapidly declining bean price, which had an impact on, first of all, our financing costs, that pass-through had reversed basically on the EBIT line. Secondly, the impact that we've seen on Gourmet, where our long position and high price list forced us to do some commercial investments to secure the volumes that we have. So 2/3 is really coming from that rapid decline of the bean price. The remaining part, basically, there's 2 components. One is volume that over the year will still be slightly negative. And secondly, some of the increased costs that we are taking to manage through the supply disruption, making sure that we can deliver our customers despite some of those disruptions that we've seen. So this is basically the different blocks that you should be considering within our guidance. Hein M. Schumacher: When it comes to the Food Manufacturing segment, you're right. I mean, most of our contracts, they follow the price of cocoa. So I'm not overly -- from everything that I'm seeing margin-wise and so forth, I don't see major volatility in that. I feel pretty confident about the segment going into the second half. And we will move with customers and of course, based on the contracts that we have. So when I talked about the major impact from the long position, that is more related to price-listed businesses. When it comes to global stock levels, as I said, I think there are some -- we see customers buying a bit longer. I can't comment on exact stock levels. I'm not long enough here to give a really educated answer on that. But it's a fact that at this point, with the current bean prices, there is room for some increases globally. That's all I can say at the moment, unless, Peter, you would have further comments? Operator: Our next question comes from Tom Sykes from Deutsche Bank. Tom Sykes: Firstly, just on the capacity expansion that you're putting into North America and your comments to the earlier question around longer-term demand. I mean, if you're investing into compounds, which is the majority, I believe, of your Food Manufacturing business, are you not just signaling that there is a permanent reduction in cocoa demand even if it's not chocolate demand and that's coming from compound growth rather than cocoa content, if you like? And then just on Gourmet, where would your gross profit per unit be standing versus 12 months ago? And are you saying that you're going to be cutting that even more? Because if you do have this shift towards more compounds and we're in a sort of excess capacity, I suppose, are we not just going to see a rebasing of Gourmet pricing? And indeed, is it still going down? Hein M. Schumacher: Thanks, Tom. I mean, first of all, in investing in North America, as I said, I think the network overall probably didn't keep sort of the pace with evolving customer needs. So I think it's more that we were a bit behind. And we are very, very keen to fill in some of the blanks. We have very good relationships with many customers. Obviously, in North America, we are the market leader. But I want to make sure that for particular needs, and indeed, there could be compound production, that they don't go to alternative suppliers. So what we're doing is we fill in tactical needs, and I believe that, that will strengthen our position with customers significantly. At this point, with the bean price where it is now, we don't see compound necessarily growing faster than chocolate. We're seeing some movements that chocolate is actually back, and we're seeing some customers going back to chocolate. And again, with the current bean price, I believe that is overall probably even beneficial for them. We're sort of at that inflection point. So no, I don't think that compound will continue to always gain. I think what is more important for companies like us is that we're agile and that we can fill in the blanks of the portfolio that customers need. And they will have a need for compound for particular parts of what -- in their portfolio, and they have a need for chocolate. And of course, there is the volatility of the bean price. So I think what is important for us, given our role in the industry, is that we are agile, that we have the ability to supply what is needed. And that is exactly what we're going to do in North America with a number of shorter-term investments. So that's, I would say, for the next 4 to 5 months or so. I want to come back in June, as I said, with a more midterm picture for North America as well as coping with growth in a select number of large emerging markets, and I'm talking mainly Brazil, Indonesia, for example. India, we have ample capacity that can continue to grow. I mean we've done that double digit, and I feel that going to happen, that's going to go -- that will happen going forward. But I want to choose a few of the bigger markets where we have an emerging presence where I think we can succeed, but where we have some bottlenecks that we need to resolve. So I hope that answers the first question on investments. On Gourmet profit, I wasn't exactly sure on the precise question. But I would say there's no rebasing on profitability as such. As I said, there were long positions out there, and then you need to determine what you do, what is your priority. And we feel that retaining customers is driving growth, whilst at some point these positions will unwind and we will be returning to normalized profitability on Gourmet. That's at least what I'm seeing going forward. But in the meantime, we want to make sure that we keep the customer connection that we can compete in our geographies. And that's what we're doing. Peter Vanneste: And maybe just one addition because I think I might have understood in your message that for compound production, we need an entirely new setup of factories, which is not the case, right? We can produce from our existing factories. There's a few interventions you need to do in terms of tanks. But overall, I mean, we can convert our lines. So it's not that if any move happens to compound, that is an entirely new network that we need. Operator: Our next question comes from Antoine Prevot from Bank of America. Antoine Prevot: I have 2 questions, please. First, on coatings. So within Global Chocolate, I mean, could you quantify the volume growth of coating versus true chocolates and especially considering that now CBE is more expensive than cocoa butter, are you seeing maybe some pressure there overall, especially as a pretty big buffer on volume for the past couple of years? And second, on Gourmet, so could you quantify a bit how much of your chocolate profit comes from the Gourmet side? I mean, it's about 20% of your volume, but I would suspect it's much higher on the profit. And considering the reinvestments and like the price change you're doing into like H2, how quickly do you expect a situation to improve there on volume? Hein M. Schumacher: Thank you, Antoine. So I think Peter takes the second question on the composition of the profit, if I got it right. I think on your first question, overall on compounds, by the way, we call it cacao coatings, we saw flat growth in the first half, but with a double-digit growth for particular super compound products. Don't forget that I'm talking about investments in compounds. And yes, we need to follow the customer, but we are the leader actually globally in cacao coatings. And we have quite a few R&D projects with many of our customers on the way to continue to compete in that well. So if I sort of take a step back, as a company, what we are offering, we're offering the chocolate solution, we're offering the cacao coatings, but also non-cocoa solutions. And in that sense, we are partnering with Planet A Foods. We're working on what we call ChoViva, which is a non-cocoa product, which also has its own cost structure, and we will continue to invest in those type of alternatives. So we're very keen to provide the whole portfolio. Now again, flat growth in the first half with particular double-digit growth in a subsegment what we call super compound products. Peter Vanneste: Yes. And on Gourmet, Antoine, yes, it's about 20% of our volumes and it's over-proportional in terms of our profit split. We're not really disclosing a lot of details on it. But as you mentioned, it's a lot more accretive than the FM business. Volume-wise, 20%, despite the challenges, it's still performing relatively better than the FM business as we speak. And also in H2, I mean, we will invest, as we said, some of that long position, but it doesn't mean that we'll be cutting even more. We expect actually positive evolution in our business in chocolate, both on the FM and the Gourmet side going forward in the second half. Yes, I think that's where we are on the Gourmet side and everything else I think we said before, as it is linked to the very steep decline of the bean price, we do expect this to be a temporary phenomenon. Operator: Our next question comes from Samantha Darbyshire from Goldman Sachs. Samantha Darbyshire: My first question is just around the end markets. It would be really helpful to get some context from you around how you're expecting them to progress from here. You've got pretty good visibility on the order book, it seems. How much of this is kind of because your customers are innovating, having to bring out new products to kind of support that volume growth? And how much of it is that you think that consumers are adjusting to the price levels of chocolate products right now? And kind of along those lines, are you starting to see any appetite from your customers to reduce prices or increase promotions, increase pack sizes to get the volume coming back in the market? And if there's any regional context as well, that would be super helpful. And then just switching to, just thinking about your service levels, can you perhaps contextualize where they are versus history? I know that it's been quite volatile. There's been a lot of disruption. But if we think about where Barry Callebaut used to be, say, 5 years ago, how significantly below that are we? I know that the company is below industry levels. But any kind of indication of the delta would be really helpful. Hein M. Schumacher: Thanks, Sam, for the questions. So first, I would like to talk a bit about the market and our customers and what consumers are doing. Let me just make a few points here. And some of it will be repetitive, I hope you don't mind. But obviously, there are lower bean prices and we're seeing a flattening as well of the futures curve. So there are some early signs, as I said, of market stabilization for our customers. So customers are therefore also willing to book further in advance. As I call it, these are longer positions, and there is some room for higher inventories overall. I think we're seeing that customers are pricing through to some extent. Obviously, that's a customer decision. I don't want to go too deep on that. But I'm very encouraged by what I'm seeing with some of our large customers in particularly North America. Ferrero, and we said it in the presentation, they launched their go all-in promotion lasting from April to July, and that's backed up by significant investments. They've made a very public statement about that $100 million investment. Hershey also making significant media investments in this year with a very big launch around Reese's and Hershey. It's the first launch for them since a number of years that is sort of at this magnitude. So we're seeing restored confidence. Obviously, the margin profile will help given the lower bean prices. So these are, I think, very positive signs for recovery going forward. We're also seeing, therefore, some increased innovation interest from our CPG customers. And as I said, that we do across the whole portfolio. We're seeing -- particularly in Western Europe, we're seeing interest in the non-cocoa solutions for ChoViva, the brand that I talked about before, but also the high flavanol opportunity, the high flavanol innovation in AMEA, and this is gaining really good traction in Japan as well as in China. So if I sort of summarize lower bean prices, so therefore, customers going a bit long. Secondly, a very specific big initiative from some of our large customers that will help the market. And third, we're seeing if we are focusing our efforts behind scalable innovation platforms, we believe that particularly on a regional basis, we're seeing increased interest. So I would say, these are very positive signs. And therefore, we believe that the second half, we can return to a growth picture. On customer service levels, yes, I look back to a number of years ago. And particularly in the last 1.5 years or so, we have been below our historical averages. I don't want to call out one customer service level, because you need to drill down a little bit. And customer service can, for example, become low if your portfolio is not exactly the customer needs. So can you deliver against an unconstrained demand? That's a question. And in many cases, we haven't been able to do so, and that's why we're making these investments. The second one is, due to disruptions, do you need to cancel contracts or cancel deliveries that the customer has asked for. So in some of our key segments, we've seen customer service levels even somewhat below 80%. They are now improving fast. And again, that's where we're laser-focused on to get them to the highest possible level now. And I think that's something that we do progressively well. So without calling particularly percentages too much, I would say we weren't at the level that we were a number of years ago due to disruptions, due to many process changes, due to the whole transformation impact. We're now going back to fewer initiatives, restoring customer service on those areas where we really need it and preparing for a midterm picture. And obviously, I'd like to come back to you in June on what that looks like. I think that concludes the overall -- if I'm not wrong, this was the last question? Operator: Correct. We currently have no further questions. Hein M. Schumacher: Thank you, everyone, for spending time with us this morning. We are looking forward to come back to you in June with a full update on the Focus for Growth program and to have more interactions with you in the next couple of days as well as after the June conference. Thanks a lot, and speak soon. Peter Vanneste: Thank you.
Operator: Good day, ladies and gentlemen. Welcome to TomTom's First Quarter 2026 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to your host for today's conference, Claudia Janssen, Investor Relations. You may begin. Claudia Janssen: Yes. Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the Q1 2026 operational highlights and financial results with Harold Goddijn and Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financials. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. With that, Harold, let me, for the last time, hand it over to you. Harold Goddijn: Yes. Thank you. Thank you very much, Claudia, and good afternoon, everyone. Thank you for joining us. I will start with a brief update on our strategic and operational progress, and then I'll hand over to Taco for the financials. The first quarter of 2026 execution was solid. Profitability continued to improve. Our core Location Technology business, Automotive and Enterprise, both made good progress, while revenue trends reflect the transition we expected this year. In Automotive, we see carmakers accelerating their software strategies and taking more control of the in-vehicle stack. And at the same time, the industry continues to move towards higher levels of automation. Our Lane Model Maps are becoming an important differentiator. We're building on that, working closely with OEMs to support advanced driver assistance and autonomous driving. In Enterprise, we extended both our customer base and our use cases. We strengthened our position in traffic and traffic analytics through new partnerships, including AECOM, Kapsch TrafficCom and LOCUS. These partnerships extend our real-time traffic data into infrastructure planning, traffic management, location intelligence. They also underline the value customers place on quality and depth of our data and on TomTom as a trusted partner. Overall, we are confident in our progress. The steps we are taking, advancing our maps platform and building strategic partnerships position us well for 2026 and beyond. Before I hand over, a few words on the leadership transition we announced in March. Following a structured succession process, Mike Schoofs has been appointed CEO in today's general meeting. Mike has been with TomTom for over 20 years and built our global commercial organization. He knows the company, he knows our customers, and he knows the market inside out. I'm confident he will lead the next phase of our strategy with clarity and momentum. As a co-founder, it's very satisfying to see TomTom move in this next chapter with strong leadership in place. And with that, I'll hand over to Taco for the financials. Taco Titulaer: Thank you, Harold. Let me discuss the financials and after that, we can take your questions. In the first quarter of 2026, group revenue was EUR 129 million, an 8% decrease from last year's EUR 140 million. The decline was in line with the expectations and guidance we provided with our Q4 results. Let me briefly break down our top line performance. Automotive IFRS revenue came in at EUR 76 million for the quarter. That's a 5% decrease compared with the same quarter last year. Automotive operational revenue was EUR 70 million, which is 16% lower year-on-year. The decrease in revenue related from the gradual discontinuation of certain customer programs, along with the effect of a stronger euro relative to the U.S. dollar. Enterprise revenue was EUR 38 million, down 8% year-on-year. Adjusted for currency fluctuations, Enterprise revenue showed a slight increase year-on-year. Taken together, our Location Technology segment generated EUR 114 million in revenue, which is 6% lower than Q1 last year. On a constant currency basis, Location Technology revenue increased marginally. The Consumer segment, as expected, declined versus prior year. Consumer revenue was EUR 15 million, down 21% year-on-year. Q1 2025 was EUR 19 million, reflecting the development of the portable navigation device market. Consumer now represents a smaller part of our total revenue. Gross margin improved to 90% this quarter, up from 88% in Q1 last year. The 2 percentage point increase was driven by a higher proportion of high-margin Location Technology revenue in our revenue mix. Operating expenses were EUR 103 million, a reduction of EUR 15 million compared with the same quarter last year. The decrease is mainly the result of the organizational realignment we carried out last year, which lowered our cost base, combined with the higher capitalization of our investment in Lane Model Maps. As a result of higher gross margin and lower cost, our operating result was EUR 14 million for the quarter, a sharp improvement from EUR 6 million in Q1 last year. Our operating margin was 11%, up from 4% in the same quarter last year. Finally, free cash flow for the quarter improved to a positive inflow of EUR 1 million when excluding restructuring payments compared to a EUR 3 million outflow in Q1 2025. We continued our share buyback program during the quarter. By the end of Q1, we have completed EUR 11 million of the EUR 15 million announced in December last year. We ended Q1 [indiscernible] of EUR 248 million with no debt on the balance sheet. This cash position provides us sufficient stability and flexibility. Our first quarter performance confirms that we are on track for 2026. The revenue decline we saw in Q1, as mentioned before, was anticipated, and we managed to improve our profitability despite the lower revenue. Looking ahead, we are reiterating our full year 2026 outlook. We expect group revenue of EUR 495 million to EUR 555 million in 2026, with Location Technology revenue of EUR 435 million to EUR 485 million and an operating margin around 3% for the full year. As we indicated previously, some transitional headwinds, like the phaseout of certain customer programs, will weigh on this year's top line, but this impact is temporary. Therefore, we're continuing to invest in our Lane Model Maps, which are critical for a higher level of automated driving. As a result, free cash flow for 2026 is expected to be negative. As new automotive programs ramp up and newer products gain traction, we expect higher revenues combined with our ongoing cost discipline to drive a further step-up in operating margin in the long term. And with that, we are ready to take your questions. Operator, please start the Q&A. Operator: [Operator Instructions] We will take our first question. And the question comes from the line of Marc Hesselink from ING. Marc Hesselink: Yes. Thanks, Harold, for all the conversations over the years. I would take the opportunity to also look a little bit beyond for the long term on the question. I think when I started to cover TomTom, like more than a decade ago, one of the big promises was always autonomous driving, driving the long term. I think if you're looking at the market today because of all the developments in AI, both on the side of producing the map, but also on using it and now maybe autonomous driving being much nearer than it has ever been. How do you see that next phase? Is that do you really see that we are now at the start of that next phase and we are going to see major differences for how the map is going to be used and the opportunities in the map and how important it is for autonomous driving? Just giving a little bit your long-term view on how this developed over the years and what's coming in the next few years. Harold Goddijn: Yes, Marc, thank you. Yes. So you're right, the self-driving technology has been a big promise for a very long time. And it has always until recently, I would say, failed to live up to the expectations. What we now witness is a new approach to self-driving technology, more based on AI and self-learning, which is much more promising. And at least in the laboratory, we can see sophisticated levels of self-driving technology being deployed in real cars. So I think from a technology perspective, we are closer to solving the problem than ever before. What remains are the economics and also the regulatory framework, which will follow the technology. But I think from a technology perspective, we are motoring now literally. And we see that also in the demand for our products. Carmakers are now asking for higher levels of accuracy, more dynamic data, lane level information to enable self-driving technology and to provide a powerful additional data set next to the Edge processing that's placed in the car based on sensor information. We have seen that coming back also in the orders and the -- so first of all, the interest in our products and the way we produce our products. But we've also seen it coming back in the order book. We had a big win last year with Volkswagen, as you know, which was a significant contract. And that is a product and a contract clearly aimed at higher levels of automation. To what level exactly, remains to be seen. But what we do see is higher degree of automation than we have seen before. And also that technology will enter into the mainstream sooner or later. And we've seen comparable questions and demands from other OEMs. Some of those demands have translated into contracts, but there's also a healthy pipeline in '26, '27 to go further than that. Last thing, I think, is another trend that we're witnessing, is that carmakers want to have -- seem to prefer a unified map offering that is both suitable for navigation and display and map rendering and at the same time, can power the robot of the self-driving system. And the reason for that is that the self-driving system is also looking for a way to communicate with the driver what's happening. And when you do that on the same data set, it's technically an easier problem to solve. So we see a preference developing for united -- unified map that does both the traditional navigation and route planning, traffic information as well as being the sensor for the robot, for the self-driving part of the vehicle. Marc Hesselink: Okay. That is clear. Maybe as a follow-up, I think also there, the debate has been the same for a long period of time, which is, is a map layer needed for this autonomous driving, yes or no? And I think there is still a debate, at least reading through all kinds of articles on that one. I guess there's still the redundancy element of the map. Anything which you can add in the most recent conversations with your clients why a map would be required for functioning autonomous driving in the right way? Harold Goddijn: Yes. So it's a bit of a marketing story as well, I think, from vendors who are offering self-driving technology that is "mapless." We don't know of those systems that are mapless. They don't -- they do not exist other than in the laboratory and are not battle-hardened. The -- I think one of -- the way to think about it is that it makes self-driving technology easier when you do have a map and more reliable and redundant. And the big challenge for software developers is not to fix the first 95% of accuracy. That is kind of a solved problem. The real problem is to solve for the last 5%. That is the hardest bit. And solving that last 5% is a whole lot easier if you have a reliable map underpinning your system than doing it without a map. And we see that also translated in our own interactions with customers, both OEMs, but also providers of self-driving systems that we are closely aligned with and talking to, to see how we can collectively come up with a system that is robust, reliable, but also, I have to say, affordable. One of the reasons that the old HD Map never took off is cost. And cost was a problem because we were driving those roads ourselves with mapping vans. And that's, A, expensive; and B, does not provide for regular updates and a too long cycle time. With the new technology, the new approach, we have solved for both those problems, cost as well as cycle time and freshness. So I think the market opportunity is wide open. And I think that battle will play over the next 2, 3 years, I think, for presence in that self-driving ecosystem. Marc Hesselink: Great. And then final question from my side is, leveraging that one also in the enterprise segment, because I can imagine that the point you just mentioned, cost, freshness, cycle time, eventually also very important beyond automotive. I think at the Capital Markets Day, this point was quite promising, then it leveled off a bit. But maybe now with the progress we've made over the last 2 years, is it time that this one also can see some reignited growth? Harold Goddijn: I think the product challenges on the enterprise side are slightly different. There is some overlap, but the challenges are not the same. The Lane Model Maps is -- the development of that is predominantly driven by the requirements of carmakers and systems providers of automated driving systems. But I do expect overlap in the Enterprise world. And I think given its sufficient time, it will be harder to start distinguishing between what we call SD Map or -- and a lane-level map. So those worlds will come together. There will be some overlap, but growth in the Enterprise sector will come from mostly initially from other initiatives that we are deploying. And I think we're getting on track also a little bit better on the Enterprise side, in filling that pipeline better than we have been able to do in 2025. So I think the initial signs on the Enter sides are encouraging. Marc Hesselink: Okay. Great. Thanks for all the conversations over the years. Harold Goddijn: Thank you. Thank you for covering us. It was a pleasure. Operator: [Operator Instructions] We will take our next question. And the question comes from the line of Andrew Hayman from Independent Minds. Andrew Hayman: Yes, Harold, just maybe one clarification. You just mentioned that the old HD Maps never took off because of cost. Does that mean you've changed the pricing on the lane-level maps? Harold Goddijn: No, we have not necessarily changed the pricing. But the -- I think everybody understood that scaling that Edge-level HD Map, as we did it 10 years ago, was just too expensive and prohibitive. We have seen traction on the HD Map, and we still have customers driving with that HD Map. But everybody understands that if you want to improve the freshness and more importantly, if you want to improve the coverage, and when I say coverage, it's basically beyond motorways, there you end up in an unprofitable business case very, very quickly. So it's not the unit price so much that I'm talking about, but it's more the capabilities of the product. Carmakers as well as systems providers are looking for coverage and accuracy on all roads, not just motorways. And motorways is only, what is it, 5% of the total road network, is motorways. The rest is all secondary and tertiary and local roads. And so if you want to do an accurate product on all roads, including freshness, then the old technology could never deliver that. Andrew Hayman: Okay. And then maybe if I look at the forecast for 2026, it's quite a large range for revenue overall. It's a span of EUR 60 million. And then for the Location Technology component, it's a span of EUR 50 million. What's the thought process behind that range? Is it just that there's so much uncertainty at the moment about car production levels? Taco Titulaer: Yes. It's a bit of that, of course. Currency plays a role as well. So for all the 3 revenue-generating units, there is a bell curve of expectations. We do think that the middle of both revenue ranges is the best guidance that we can give. Andrew Hayman: Okay. Okay. And then on the change in management, I mean, there's clearly considerable continuity because Mike has been with TomTom for a long time and Harold, you're moving up to the Supervisory Board. But any new CEO is going to want to make adjustments or emphasize different areas or components. Do you -- what changes do you see happening under Mike going forward? Harold Goddijn: Well, that's for Mike to talk through, and I'm sure he will do that in -- when it's his turn in 3 months from now and start to give you some of his ideas. What I want to say is this, I think we have [indiscernible]. We've gone through a major product transition over the last years that has led to a competitive product. Based on the product, there is market share to be gained. And I think we're well positioned. That needs to land, and there's all sort of things that can go wrong, obviously. But net-net, I think that is a -- that gives focus and clarity of what we need to do at least in the next 12 to 24 months. And I think that's good. But of course, the world is changing rapidly. It's not only what we see geopolitically in terms of tariffs and in terms of energy and whatnot, but it's also the impact of AI potentially going forward that will have a significant effect on how we do things, how customers are consuming upward. I think the -- our anchor product, the map, is safe, and we will use AI to optimize processes and make it cheaper to maintain it. But that anchor product is good. And AI will have -- and the way we deploy AI going forward will -- and how the world evolves around AI, will affect the company like any other company in the world. So those are the -- I think, for the moment, the 2 big axes where we need to follow progress going forward. Andrew Hayman: And then maybe on a smaller note. On enterprise, it's -- if you adjust for currency, it's growing, but it's not having the easiest time. And if we look back to you joining with OSM, the idea was that you get more detailed maps and that may open up more market opportunities or expand the potential market for your maps, maybe social, travel and food delivery. How is that going? I mean, are you making some progress, but the clients are quite small in those areas that you're getting through? And how do you see that progressing? Harold Goddijn: Well, yes, I think it's a good question, Andrew. I think -- and then 2025 was slightly disappointing in terms of order intake and traction around -- always in the Enterprise market. But I think we have turned the corner, and we see some early green shoots. I think that central promise of having a better map that's easier to maintain is valid also for the Enterprise world. And we are now pitching for contracts and opportunities that we could not win based on the old technology. So the addressable market is -- and I mean, there's tons of examples of that. So it's slightly disappointing that it's taken longer. But I think the central idea of having a better map, more detail, more freshness, more efficient to maintain is still valid. And I hope that we will see that also being translated into Enterprise growth in 2026 and beyond. Operator: We will take our next question. The next question comes from the line of Wim Gille from ABN AMRO-ODDO. Wim Gille: This is Wim from ABN ODDO. Apologies for the noise, but I'm in the train. So I hope you can hear me. First, on the rollout of the lane-level maps, you started off just in Germany. So can you give us a bit of clarity on where you are in the rollout in terms of number of countries? But also, are you still just on the motorways? Or are you basically doing all the other roads as well throughout Germany as well as the other countries that you're rolling out? The second question would be on capitalized R&D. That seems to suggest you're accelerating the investments that you're doing in the rollout. So can you give us a bit more clarity on that decision? Is that based on the demand? Or are you basically just needing to invest more to get to the same results that you were looking for? And what is the reception of clients since you introduced this concept earlier last year? Harold Goddijn: Yes, Wim. Yes, you're coming through loud and clear. So no worries on that side. Yes. So the Lane Model product, our goal is to build it completely automated. So expanding coverage is just a matter of compute and electricity, but no other practical limitations on coverage and speed of production. That's where we want to end up. That's not where we are. There is a certain level of fallout following those automated processes. And that means that manual labor and operator interaction, in some cases, is required to filter out inconsistencies to checks and so on and so forth. So -- and we are in a position now where we are producing, but we are also making investments to reduce that fallout in order to prevent manual labor and improve the speed of the process and the associated coverage. The idea is that by the end of the year, we have a fully lane-level map, both for North America and for Europe. We're producing it now for parts of Germany, whilst improving the processes, improving the factory in the pipelines, if you like. And the aim is to reduce the amount of manual labor we need to produce those maps close to zero. It will probably never get to zero, but it needs to get close to zero because that gives us speed, flexibility and efficiency but also quality. Wim Gille: And what are clients saying about the products? Harold Goddijn: So people are excited that it's possible. We are producing a product that could not be produced before. They're excited that it has been developed with a view to serve security and safety critical applications. So it's an industry strength product. That's also how the quality systems are designed to make sure that we meet those standards. So yes, both carmakers and systems providers are excited that there is a product that can play an important role, and they're looking at progress with interest. We will start doing test driving with integrated systems now or in the next couple of months or something like that where we get for the first time, real-time feedback on how the system, not the map, but the system with the map is behaving in practice and in real-life situations. So those are important milestones. Taco Titulaer: Yes. If I can add to that. Then you also had a question about CapEx. So in the cash flow statement, you see that line investment in intangible assets, that's indeed higher than what it was last year same quarter. I expect that to normalize between "below EUR 10 million" going forward. So it is more -- yes, I wouldn't call a one-off, but it's not a clear trend that it now will go up every quarter. Wim Gille: Very good. And if you are now participating in RFQs, specifically related to HD, I can suspect that most of the RFQs that you're participating in are now HD driven and no longer [indiscernible]. But how is your product [indiscernible] up against the competition? So are you still producing HD Maps in the old way? And what does it do to your competitive pricing advantage? And which parties do you actually engage in these RFQs? I can only assume that here -- is there -- and in some cases, Google. But do you also see newcomers joining in these RFQs? Harold Goddijn: Sorry, Wim, I tried to understand your question. It was not entirely clear, to be honest, the first part in particular. Yes. So in terms of market position, I think we are currently leading in specs in ambition. Of course, we need to deliver all that goodness as well. And our internal target is by the end of this year to have significant coverage on both continents. And I think that will be a leading and it is a leading product both in terms of what it does and how it is produced, which is not a minor point actually. In this case, it really matters how you produce it because it tells you something about economics, quality, repeatability and so on and so forth. And there is significant interest, I think, from industry players, in what's going on. And so we feel good about that. I think Google obviously is an important competitor, but Google has a tendency to leverage consumer-grade products for the automotive world. And this is not typically an area where they're focusing on. Wim Gille: And are you encountering any new competition in RFQ processes? Harold Goddijn: No, no, we do not. It depends how you define competition, but I think there's no one else that I know of that has an integrated approach to both navigation, self-driving, ADAS, all on one product stack. Wim Gille: And with respect to enterprise, I do have a question on kind of the conversion and basically the acceleration that you are seeing at the moment. Can you give us a bit of feeling on kind of what types of, let's say, projects you are now converting or are close to converting? Are these still the smaller projects? Are we also now looking at the bigger clients and the ones that can really move the needle? Harold Goddijn: Yes. Yes, I think I wouldn't say acceleration. I think what I've said, I've used the word green shoots, some -- both contracts but also a pipeline that is building. A couple of areas where we see good traction, insurtech, defense. There are significant opportunities opening up, intelligence, public usage of our data, both traffic planning, intelligence. Those are the sectors where we see the order book and the pipeline really filling up. And some of those opportunities are significant as well, multiple millions per annum. Wim Gille: Thank you. And that leaves me with, yes, basically one last comment. So I would like to thank you for, I think, close to 80 earnings calls that we did together. No doubts. Harold Goddijn: this sounds like an awful lot, Wim. Wim Gille: It is. Harold Goddijn: This sounds like an awful lot. But thank you very much. It's been a privilege and a pleasure. Wim Gille: likewise. Thank you. Operator: [Operator Instructions] Claudia Janssen: As there seem to be no additional questions, I want to thank you all for joining us today. And Heidi, you may now close the call. Operator: Thank you. This concludes today's presentation. Thank you for your participance. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Kinnevik First Quarter Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rubin Ritter, Interim CEO. Please go ahead. Rubin Ritter: Welcome, everyone, also from my side. Thank you for joining. My name is Rubin. I'm Interim CEO at Kinnevik since about 4 weeks. This is my first earnings call. And so far, I'm enjoying the work with the team. It has been very busy weeks. So there is a lot to talk about. And I would suggest we get started right away. I will be presenting today together with our CFO, Samuel, who you all will know quite well. Just to briefly go through the agenda, I will start with some reflections on our priorities and actions over the last weeks, and then Samuel will talk about the investee operational development, our NAV capital allocation, and then we'll have time for Q&A. So maybe to start out with a very simple question, which is why are we here? What's the purpose of Kinnevik? And in my mind, there is kind of a simple answer to that question, which is that our purpose is to be good stewards of our shareholders' capital and then generating attractive returns while taking appropriate levels of risk. There are probably also other more ambitious answers to that question, but I like this as a starting point for what we want to talk about today. And then, of course, I also want to mention that Kinnevik obviously has a long history of living up to that promise and doing exactly this. But what do we need to be good stewards of our shareholders' capital also in the future? I think we need a culture that is focused on joint achievement and on performance. We obviously need that within our own team at Kinnevik, but we also need that as an expectation towards our portfolio companies. In this context, I think it's important to strive for values like true ownership. So I want everybody on the team to act like an owner. Accountability, I want everybody to feel accountable for the outcomes that we generate. Focus on simplicity, which to me means to focus on the few things that really drive value and to not do anything else than that, and to do those few things in the most simplest way possible. And then also clarity and candor, which to me comes back to honest and truth seeking debate in the team. So this is really the type of values that I want to strengthen within Kinnevik during my time as interim CEO. So in the spirit of clarity and candor, let's start by confronting some hard facts. In the first quarter of 2026, our portfolio is down 22%. That is a substantial number. It's driven by primarily 3 effects: The first one being a derating of our listed peers due to macro and AI. Secondly, continued challenges that we see in the Climate Tech portfolio. And then thirdly, of course, also our own evolving views on our portfolio. Now of course, we can debate if we all agree with the market's assessment that has been quite harsh, for example, on SaaS companies recently, and personally, I probably disagree with some of that, and I would find that many of the founders that we work with will actually find good ways to leverage AI to their advantage. But I think the bottom line is that we need to accept that the market price for many of our portfolio companies just has changed, and we are reflecting that really to the full extent in our NAV. Now as a first consequence of the ongoing portfolio review, which is not concluded, but has started, we have taken the first decision, which is to discontinue the sector of Climate Tech. I personally actually believe that Climate Tech has a great purpose. And so I don't really kind of like this decision personally. But then again, if we just look at the hard facts and take an honest view, I think it's clear that we have not been able to live up to our expectations. And by the way, just to mention, I think we're not alone with that. It is a sector that has been challenged in many ways and has been difficult for many investors. So on that basis, we have taken the decision to not make new investments in the sector and also not to report it separately going forward. However, of course, we will continue to be good and supportive shareholders to the assets that we do own. We have also done some work to simplify our reporting. I hope you have noticed, we have reduced the length of our reporting from about 40 to about 20 pages. We have tried to make it more plain and we'll continue to work on this going forward. We have also decided to discontinue the idea of core companies. I understand that this concept has been helpful in many of the discussions around the portfolio in terms of focusing on some of the maybe larger holdings. But I also think it has introduced a kind of strategic rationale to the portfolio discussion by saying some companies are core and others are not. So I believe that this distinction might not be helpful to a company like Kinnevik, so we will not report on that dimension going forward. Just to be clear, of course, all 5 of these companies are very important to us, but they are important because of their scale, because of their quality, because of their potential, because of their founders and not because they are core or strategic in nature. Now we have also worked intensely in the team to review our organization and our ways of working. And we have and the leadership team decided on some organizational changes that are far reaching. In my assessment, I saw many things that I liked. I see high engagement with the team. I see a sense of deep loyalty to Kinnevik. I see a desire to collaborate and to do well and to improve and to learn and to grow. But I also think that when I look at the organization as it is today, I don't feel it's necessarily fit for purpose and fit for what we want to do in the future. And I think that relates to its size, but also in many ways to its complexity. And I would like really to make a shift from a mindset that feels a bit focused on different departments and different views more towards a feeling of being one team where just people have different roles and different accountabilities, but ultimately, are one and the same team. So the goal is to be smaller and more focused in our organization to enable more direct communication, stronger collaboration, alignment and then also faster decision-making. I hope that by doing these changes, every team member will have clearer accountability and also the ability to create more impact for the team and for our shareholders. We have also worked intensely on a cost review. And this, I think, ties really back directly to the concept of stewardship. Because when we look at how we invest, we invest really from our own balance sheet, which means literally every krona that we spent unnecessarily is a krona that we cannot invest and cannot make compound for our shareholders. I think in this context, we also have to consider that we do not have cash generating assets in the portfolio currently. So a first review of our cost base signals a significant savings potential that we want to realize by the end of this year. And we aim for a target level of management cash cost of around SEK 200 million per year, starting by 2027. I'll actually come back to that point on the next page with a bit more detail. Now also in the spirit of making every krona account, I think we also need a very disciplined follow-on approach. Many companies in our portfolio are investing to grow fast, and so they should. And I think this is also exciting because the value of many of these companies lies in the future. So we should be investing. And I also believe that our role as investors is to support these companies on the journey. And sometimes also, that means to be investors in follow-up rounds, which I see as a great opportunity to be presented with those opportunities to allocate more capital. At the same time, I think to be good stewards of our capital, of course, we need to be disciplined in these decisions. We need to look at a variety of factors, at the long-term potential of the company but also at the execution track record, the financial performance, the competitive moats and how they are building and evolving, the question of whether or not we can build a substantial stake in the business and have the influence that we would want to have, and also at our own return expectation, which needs to be balanced with the risk that we are taking. So I look at ourselves as a supportive shareholder. But I think it's also important to say that we have the ability and maybe sometimes also the obligation to say no if we think that the investment is just not right for us. So in that context, our goal is to invest not more than SEK 1.5 billion in follow-up rounds in the existing portfolio. And we should not think of this as a budget, but more think of this as a cap. So some of the things that I outlined here will help us to preserve cash. And I think that is important also for my role as interim CEO because my objective is to provide optionality for a permanent CEO. By reducing management cash cost and by being disciplined on follow-on investments, I think we're doing exactly that. And my expectation is that this would leave Kinnevik with around SEK 5 billion in discretionary investment capacity. Of course, this number is not including any capital from potential exits in the coming years. In the context of preserving cash to create investment capacity, the Board is not pursuing share buybacks at this time. Also, the Board is proposing that the AGM provide authorization to the Board to be able to decide on buybacks in the future. So to briefly summarize, and I realize that this has been a lot, but I guess also a lot has been going on. So there's a lot to talk about. But just to recap, I think our purpose is to be good stewards of shareholders' capital, generating attractive returns with an appropriate level of risk. And we have a long-standing history of doing just that. But we are also on a journey where many things will change, and we are working on a number of levers, focusing on those things that we can influence to make sure that we also live up to that purpose in the future. So there's a lot of work to do, and I'm very confident that we'll make good progress in the coming weeks and that these steps will make the company stronger. Now there are just 2 areas where I would like to provide a bit more background. The first one is the cost reduction and the cost review. So just to briefly walk you through our logic. We have started with the 2025 reported management cost, which was SEK 341 million. We have then deducted all noncash items, which are primarily depreciation, amortization and LTIP and then have arrived at the management cash cost for 2025 of SEK 313 million, which is kind of our baseline. And I really wanted to talk about cash cost because cash is king. So that's what we should be talking about. We have then made our considerations around the target of how we think the team should be set up for the coming years and the review of nonpersonnel costs. And on that basis, we have defined SEK 200 million as our new target annual management cash cost. Now you should think of this number as kind of a steady-state cost number. So it might deviate in some cases, such as inflation, FX changes, changes in cash-based incentives that depend on the outcome of those years and the related performance but also significant deal-related or other one-off costs. So to get to this target rate, we are targeting a reduction of about 35%, which I think is substantial. And we are aiming to take the restructuring costs that might be associated with this primarily this year. Of course, now the task will be to make those changes without taking away anything that is material to our performance and value creation. And I think there is a good path of doing that. We'll be working to implement these changes in this year and then aim to reach the new target cost level for the full year in 2027. The second area I wanted to dive a bit deeper into is the idea of cash preservation. So you should think of this chart not as an exact plan, but more as a way to think about it and an indication. So per the end of this quarter, of the Q1, so the last quarter, we have SEK 7.5 billion on the balance sheet. And I think the goal is to spend as little of this as possible. And if we would look at what we have to spend going forward. It's, first of all, the cost for our own team, which I just talked about. If we take a reserve for that for the coming 5 years, 5 x 200, gets us to SEK 1 billion. And then I've talked about the follow-on where we want to stay below SEK 1.5 billion for the current portfolio, which brings us then to SEK 5 billion in cash that will be available to the next CEO, and my goal is to maximize that number. So with that, I hand over to Samuel to take us through the following sections. Samuel Sjöström: Thanks, Rubin, and good morning, everyone. So I'll cover investee performance. I'll work my way into NAV, and then I'll end on capital allocation. Then we'll open up for Q&A, after which, Rubin will give some closing remarks. On performance, based on preliminary numbers, our larger companies have started the first months of 2026 broadly on plan. In Q1, our health investees grew revenues by 28% on average compared to last year and improved EBITDA margins by 3 percentage points. And our software investees grew by 32%, while improving margins by 7 percentage points. In the quarter, we also saw Enveda continue to deliver on important milestones. Their discovery platforms, lead drug candidate, completed very successful Phase Ib studies demonstrating both efficacy results well above the current standard of care and clear signals that the drug is well tolerated and safe. These are promising results, which the company will now try to confirm in Phase II studies. So operationally, our larger companies outside of Climate Tech have had a solid start to the year. But as reflected in the significant public market volatility, there are material and continued uncertainties out there, both in the short term and in the long term. And for us, I'd say that sits mainly in 3 areas. Firstly, rising oil prices clearly may impact air travel, and that would hold back growth at Perk and Mews. Now we're yet to see that come through in actual reported performance, and our forecast do not incorporate this potential impact, but I should say that Perk shared some observations of the recent travel trends that they're seeing a few weeks ago, and we've put a link to that on this slide. Secondly, there is continued uncertainty around U.S. policies for federal funding of Medicaid and Medicare. Now that's something we, probably you and Cityblock clearly have grown accustomed to in the last quarters, and it's something that we're trying to factor into our projections. Thirdly, the key topic across our focus sectors is AI disruption and how this is feeding into the long-term growth expectations, terminal values and thereby, ultimately, share price performance of public software companies. We published an article on our website that combines our perspectives with some insights from across the portfolio. And while these clearly do nothing to alleviate the compression in public market multiples, we feel they do provide important nuances when one reflects on our conviction in the longer-term outlook for our companies. But moving to Page 7, the way public markets digested AI disruption was the primary driver of valuations this quarter. We saw broad and significant multiple contraction across our public peer sets, particularly in software and software like health care technology services. It is evident that capital is rotating into other sectors with public software being the weakest performer year-to-date with index declines of around 20% to 25%. As a result of this uncertainty and rebalancing, the sector is now trading at its lowest multiples in roughly 15 years. This drawdown was fairly indiscriminate across types of companies, but we do see a few patterns. Two in particular stand out and they also resonate with our own hypothesis. And that's, firstly, that fast-growing companies continue to command significant valuation premiums in public markets. And secondly, looking at share prices over a longer time period than just Q1, more vertical software companies that provide specialized services have outperformed less critical horizontal application companies. And these stronger performing companies are often not only the systems of record, but also form core workflow systems. And this, many argue, should enable AI and vertical software to become more of a feature than a threat. Again, please make sure to read the article that I mentioned that we posted on our website. And please also note that we're providing some subcategories of peer groups in our standard spreadsheet published on our website this quarter. And as trading patterns in public market evolve, the subcategorization may grow in importance going forward. Having said all of that, again, in Q1, the market drawdown was still fairly indiscriminate. So what we're doing on this page is that we're showing the quarter's changes in multiples in our larger investees, and we compare them to the trading of their respective public peer groups. The black lines chart the multiple movement from the bottom to the top decile company in each peer group, and the red label dots represent our larger companies. As you can see, we have generally stayed within the trading ranges that we've seen in public markets when we reassess the multiples we value our businesses at. And we've also considered the recency of larger transactions in companies like Mews and Oviva that warrant a somewhat milder but still substantial multiple contraction. In other cases, like Cedar and Pleo, we've been a bit harsher considering the lower growth profile of these companies relative to other industries. Our valuation model suggests that this is fairly proportionate to what we're seeing in public markets, where slower growing public software companies have traded down some 10 percentage points more than their faster-growing equivalents. And lastly, at Cityblock, we've focused more on the trading of the more tech-enabled peers rather than the traditional care providers to try and reflect this underlying market narrative. Moving to Page 8 to put this multiple headwind in absolute terms, it brought an SEK 8.3 billion negative impact on private valuations this quarter. And that obviously makes it the driver of our private portfolio decreasing in value by 29% in the quarter. Adding net cash and public assets, NAV was down 22% in the quarter and in Q1 at SEK 27.9 billion or SEK 101 per share. Going by sector. Health & Bio was down 20% and software, the sector most vulnerable to public market multiple contraction, was down 38%. Our Climate Tech companies, meanwhile, were down a meaningful 56% in aggregate, and this was a decline driven more by individual company circumstances. The main driver was the announcement of the funding round at Stegra in which we have elected not to invest. And with the clarity gained here, we've taken a revised view of the fair value of our investment and have decided to write it down to EUR 10 million. If the company hits the business plan that underpins this funding round, we expect to be able to recoup our full investment over the coming 5 to 6 years. And we've discounted this expectation at a conservative rate of return to reach the fair value that we report today. As Rubin mentioned, we've narrowed our sector focus. That entails us not making any new investments in Climate Tech, and it also means changes to how we categorize our NAV. And as we make this change in today's report, we have made sure to provide a full breakdown of the fair values of each company in Climate Tech and the valuation reassessments that we're making this quarter. And on our website, you will also find the spreadsheet providing a historical pro forma NAV overview based on this new amended categorization. In our NAV statement in today's report, we now also show the value of our investments based on the last transaction that we've noted in each company. In the current market volatility, fair value ranges widened and our valuation process places a very short expiry date on transaction-based valuations. But we hope you find this additional detail helpful, nonetheless. More specifically, over the last 12 months, we've seen transactions in 46% of our private portfolio by value at a 9% weighted average premium to our preceding NAV assessment. So the transaction pace in our portfolio has come down a bit over the last quarters. And moving to Page 9, you also see that reflected in our capital allocation in Q1. Because in the quarter, our only investment was effectively the completion of our EUR 20 million participation in Mews' funding round that we announced earlier this year in connection with our Q4 report. Net investments amounted to SEK 116 million after the sale of a real estate property as part of the rightsizing of our cost structure that Rubin went through. And after HQ costs and treasury income, our net cash balance was largely unchanged in the quarter ending at SEK 7.5 billion. So our financial strength and flexibility remains strong, and is reinforced by the cost savings and the SEK 1.5 billion follow-on expectation for the existing portfolio that Rubin went through. And looking ahead, we're continuing to execute on the capital allocation priorities that we laid out earlier this year, driving towards a more concentrated and more mature portfolio. And with that, we'd like to open up for Q&A before Rubin gives his closing remarks. Operator: [Operator Instructions] Now we're going to take our first question. And it comes from the line of Linus Sigurdson from DNB Carnegie. Linus Sigurdson: So starting if you could help us break down these SEK 1.5 billion you're talking about. Is this primarily through continued participation in primaries in the larger companies? Is it tilted more towards the emerging companies? I guess, especially, as you mentioned, it excludes some of the opportunities for follow-ons? Rubin Ritter: Yes, sure, happy to give some more color on that. So I think the SEK 1.5 billion is derived by going through the portfolio and looking at where do we see follow-on demand coming up in the coming years, and then just taking the sum of that. Of course, those things are difficult to foresee. So it might be more tilted towards younger companies. It might be tilted to companies that already have larger scale. But overall, the idea is that this is the amount that we expect we -- the limit to what we might need to bring the portfolio to profitability in follow-on rounds. I think separate from that, I just think it's important to underline that to me, if there is one company in the portfolio that reaches scale and profitable growth and starts to go into the phase where you would talk of them as a compounder that continues to execute, but on the basis of a much more mature profile or as being listed. And then if Kinnevik were to decide to double down on that asset and take a larger ownership stake, to me, that would be a different logic. And that would fall into the SEK 5 billion discretionary investment that we might choose to make going forward. So this is, I think, a bit how our thinking of the SEK 1.5 billion differs from the SEK 5 billion that the firm has available long term. Linus Sigurdson: Okay. That's clear. And then if you could talk a bit about how you've set up processes to make potential exits? I mean should we think about this as a portfolio wide effort? Are you targeting certain types of companies? And if this is what you mean when you say the portfolio review is not concluded. Rubin Ritter: No. I'm sorry. By saying that the portfolio review is not concluded, I'm just sort of indicating that in the 4 weeks that I have been here, I have not been able to dive deep into every one of those assets, right? So we have started with that, and you see that already some decisions have come out of that process. But I think for practical purpose, we are still in the middle of it. I mean, Kinnevik has more than 30 portfolio companies. And I think it takes time to go through that, and it will take us more time going forward. In terms of exits, so I think for Kinnevik in the midterm, it would be wise to move towards a more concentrated portfolio. At the same time, I think it's very difficult to time these things. And I also think it's not in the best interest of our shareholders to rush into exits. So there I think we just have to be balanced in how we approach it. Linus Sigurdson: Okay. I appreciate that. And then my final question, I mean, I can understand this waiting to pursue buybacks ahead of a permanent CEO being in place and your comments around optionality and the SEK 5 billion. But what types of actions do you envision a permanent CEO could take? Rubin Ritter: I'm not sure I fully understand the question, but I think a new CEO could take all sorts of actions, primarily also defining what will be new focus areas for investments going forward and how do we want to complement the existing portfolio that we do have that, as we know, consists primarily of younger companies, fast-growing companies, how do we want to complement that with investments potentially in other sectors or with a different maturity profile. Those will be decisions to be taken by a new CEO, also in line with the new strategy going forward. Operator: The question comes line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: I appreciate the clarity. I wanted to follow up on the potential exits here going forward. I mean, how do you view the possibilities for that? And how high on the agenda is it right now as it could sort of change your outlook for what you provided for the balance sheet going forward? I mean looking at some of this, especially the prior core assets, it seems quite clear that they are quite attractive in sort of the private market space. So how do you think around that? Rubin Ritter: Yes, as indicated, I think directionally, over the next years, I would like to see a more concentrated portfolio. So I think that is something that we definitely will look at and consider. But then at the same time, we live in a very volatile world. I think it's very difficult to give more color or like a specific forecast on how exactly that will play out. So I think we just will be investing a lot of time to go through the portfolio to review the different options that we have. And I can promise to you, we'll be very active in thinking about where to take the portfolio and what actions would be in the best interest of our shareholders. I just find it very hard to make specific forecasts on that topic. So I would not want to promise something that is then hard to influence because it also depends on many other factors. And I think it would be wise for us -- like if I think of this as my portfolio, I think I would try to really carefully strike that balance to become more concentrated going forward, but then also to try to find the right time and the right moment and the right price if I wanted to make any exits. Derek Laliberte: Great. That's very understandable. And on the write-downs here, I mean, apart from the peer declines outside of Climate Tech, what do you mean about what has changed in your underlying view of the assets outside there because we see Perk being down 43% and Pleo down by 40%, which does some pretty extremely in the light of how peers have moved and also the latest transaction values in the market. Samuel Sjöström: Derek, it's Samuel. I'll try to answer that one. So naturally, our views and our companies are evolving continuously. But as we stated in today's report and in the prepared remarks, there hasn't been any meaningful changes to the outlooks for our larger companies in this quarter. So what we're trying to do here and what our process is trying to sort of apply onto our private portfolio is this very substantial drawdown in public markets. And there, we believe, and the models tell us that it should be affecting our investees in varying degrees. So as you rightfully state, Oviva and Mews have recently raised funding rounds. That typically leads to slightly milder but still meaningful write-downs because as I mentioned, the expiry date on transaction valuations in this type of volatile market is very, very short. And then we have companies that are growing slower, such as Cedar and Pleo. And the data tells us that those should be impacted slightly harder than a company growing a bit faster all else equal. And you mentioned Perk. Clearly, there, we have a comparable in Navan. That company is trading at around the same levels it was doing at the turn of the year. So our process makes us feel obliged to move closer to where Navan is trading, even though our view on Perk's long-term value creation potential has not changed one bit. So I'd say the write-downs you're seeing and the variations in write-downs you're seeing in this quarter is less driven by a change in view on our individual companies or their performance. It's about how to apply this very significant derating in public markets across a set of investees that share some characteristics and have some differences in between them. Derek Laliberte: Appreciate the clarity. And then looking at the 10 largest assets you list here, can you say something about which of these you are the most sort of comfortable with in light of the potential of AI disruption here? And where do you see the biggest risks in the portfolio? Samuel Sjöström: So naturally, as you can imagine, we and our companies are spending a lot of time assessing how our company's best can adapt to a changing environment, not something that clearly we're used to. I don't want to reduce the write-up that we've put up on our website to a 30-second answer. But to give you some examples, like we see very strong moats and aspects like Mews' ownership of quite complex workflows at hotels. We see moats and Enveda's ownership of proprietary data, and we see defensibility at Oviva in terms of the trust from customers and regulators that they've built up over several years of real-world operations. But I'd refer you to that write-up on our website. And I think in terms of how the risk of AI disruption is reflected in our valuations this quarter is mainly through this relatively indiscriminate derating that we're seeing in public peers. And we're not sort of trying to be smart when applying that in terms of thinking about the longer-term view on AI that we have in the piece on our website, but the valuation process is much more quantitatively driven. Derek Laliberte: Got it. Okay. And then just on this organizational simplification you're carrying out. I mean, looking forward, what will be sort of Kinnevik's action as an investor going forward as you see it? Rubin Ritter: Well, I think Kinnevik's focus really over the last years has been to invest into fast-growing challenger type companies that take on big problems and try to solve them differently through technology. And I think that is really the type of business that we have been focused on in the past. And of course, we'll also continue to work in that field and continue to evolve our view and continue to try to find great opportunities. But then I think in terms of how to build capabilities there, it's also, to a large extent, driven by what future strategies and future focus a permanent CEO looks at. And I think that can only be answered once that person is on board. When we think or when I think about the target org, we try to provide that flexibility in the way that we structure the work in our investment team, to do it in a way that we can continue to cover those sectors that we are focused on right now in a really good way. And in my mind, that's not always a function of the number of people. It's also a function of many other things. And then how to have the flexibility to add new ideas and investment themes that will define the future of Kinnevik once it is clear what those are. Derek Laliberte: Perfect. And finally, I mean, given that you're striving for more efficient operations, does having sort of 2 offices and teams align with that vision? Rubin Ritter: So in my mind, I think that going forward, Stockholm should be culturally, and also from where the team comes together, much more the center of gravity. We'll continue to have colleagues that live in different places across Europe and London will be one of them and will provide good opportunities for them to work there and meet companies. But I don't think we should think of that as a second half, not only in terms of the cost that presents, but also and maybe more importantly, in terms of what that presents in terms of having different cultures. I mean, Kinnevik is before the change and after the change, ultimately a small team. And I think there is a big benefit to have 1 physical place where the cultural center of gravity is. And I think, for Kinnevik, that should be in Stockholm. Operator: The question comes from the line of Bjorn Olsson SEB. Bjorn Olsson: Two questions on the organizational changes. First, could you give any more flavor in terms of where you expect to find the cost efficiencies? Is it from the investment teams, back office or just sort of across? And second, I mean, culture is something that's in the walls. So when you now strive to increase the performance culture in your company, do you have any sort of tangible actions planned in terms of either changed incentive schemes or any sort of change of key staff or similar? Rubin Ritter: Thank you for the question. So I think in terms of where we see savings potential, I think it's really -- we look at it across the board, and across all those different topics that you have mentioned. It comes down to a leaner target organization, but also then on nonemployee-related costs, there are opportunities that we see, such as office cost, IT cost and many others. So it gets very granular very quickly. But I think we just really also owe it to everybody that we do that tedious work. And essentially, we're looking at every single contract, and we are reviewing if we need it. And what is the value it creates, and is there a simpler and more efficient and better and also a cheaper way to do it. So that's clearly a focus. I think in terms of performance culture and achievement culture, you are 100% right that this is not something that can be impacted just within a few weeks. I think that is -- obviously, those processes take more time. And I think a lot of that will also be then hopefully brought forward by a new CEO. But to me, it is really a lot about leading by example, how do you take decision? What quality of argument do you accept? What do you not accept? So I think it's in the -- in many of the details of our daily collaboration that I think culture comes through. And just to be clear, that's also not just about me changing that, that's also about kind of the team bringing out the good things that we see and encouraging the team also to lead itself and each other in that regard. So I think that is something I'm quite passionate about and where I think we can make a lot of progress. You mentioned incentives. I mean incentives, of course, also play an important role. But to be fully frank, I haven't looked at that in the first 4 weeks, but I agree it's an important theme, and it will be important for the long-term success of the company that we get incentives right. That is, by the way, saying that they are not right, but they need to be right, and I haven't reviewed them yet. Bjorn Olsson: Good point. So then just a minor follow-up. So in terms of redundancy costs, when you're sort of rightsizing, that should probably be lower than if the FTE reduction is a smaller part of the SEK 100 million in cost savings? Rubin Ritter: I think personnel is a part, just like many other pieces, and there will be also redundancy costs related to personnel but also related maybe to other contracts that we might want to get out of. And the idea would be to incur the majority of that still this year. Operator: Now we're going to take our next question. And the question comes from the line of Oskar Lindstrom, Danske Bank. My apologies, there are no questions from Oskar. Now we'll proceed for the next question. And the question comes line of Johan Sjoberg from Nordea. Johan Sjoberg: I had a couple of questions actually. Starting off, Rubin, I mean, looking at your -- I understand you're 4 weeks into your temporary job and you have a lot on your plate right now. But on the other hand, I mean, you have tons of experience, you have aboard with a similar amount of experience. You have Samuel also, who is well on track, how things have been progressing with the 30 portfolio companies. So my question for you is how long time do you think it would take you to sort of get your head around all the companies, which was to sort of focus upon who will be sort of your concentrated portfolio over the coming -- in the foreseeable future? Rubin Ritter: Yes, sure. I mean I personally would think of it as a kind of ongoing process and ongoing discussions and considerations that we have in the team. And I think we also have many ideas in that regard already. And as you mentioned also, we're not doing everything from scratch. There is existing views and existing knowledge, obviously, in the team, right? So sometimes it's also just about following up on that and servicing those pieces. So I think we're incredibly focused on it. But I don't think it would be wise to now put ourselves in the corner by sharing specifically what our thoughts are on individual companies. I think that's not advisable. But as in any good investment company, I think those discussions should be ongoing as ordinary course of business also to just always be up-to-date on your portfolio on the different type of companies, and what our position on them should be going forward? Johan Sjoberg: I understand. So you have to sort of push a little bit here on the 30 portfolio companies. So when you talk about a more concentrated portfolio, what sort of range are we talking about here? Are we talking about below 20 or are we sort of -- once again, I understand it's early, and you don't want to sort of promise anything, but just for us to get some sort of feeling here. Rubin Ritter: Yes, right. I mean, to be frank, I think a lot of that also comes down to strategic decisions by a new CEO, but then I also don't want to shy away from an answer. In my view, it's not necessarily about a magic number. So I don't think there is kind of the perfect portfolio that is 10 or 15 or 25. But it's really about, in each of the companies to have a position that allows us to be a meaningful owner and to only have such a number of positions that you can cover with a kind of small, lean, but very experienced and high seniority team, that you have only positions where you can have a meaningful value add to those companies where you truly can be a great owner of that business and provide the right level of leadership to those companies. So those would be some of the considerations I would be focused on. And I don't have the number for you. I don't think of it in those terms, but I do think that the current number is too large. I think that is also given -- I mean we all know there is a large bucket of what we call other companies that has to do with previous strategies. And I think a lot of these things just have maybe a bit accumulated over time. And there we need to think through how to take that into a good direction going forward. Johan Sjoberg: Perfect. And we also talked a lot about the new CEO. Could you just give an update on how that process is ongoing here? It's been since November that the first decision was out. And you had a lot of time. I understand a lot of -- it's been a full headwind in Q1 in terms of how the market is viewing this sort of company, but also what is done right now. Rubin Ritter: Sure. I mean that search process is led by the Board and then more specifically, a subcommittee of the Board. And I'm sure they will give an update as soon as they have an update. But there's not really a whole lot more I can say on the issue. I'm on the subject. I'm right now incredibly focused on the inner workings of Kinnevik and all the work that we outlined in the presentation. Johan Sjoberg: Okay. Final question, Samuel, maybe you can help with this one. I mean just looking at the NAV or the write-down of NAV in the quarter, I think it's great that you have taken down the NAV because obviously, the market has not believed in sort of the underlying figures here. And sure, we've seen multiple contractions during the first quarter. But then on top of that, also you had some -- you also changed your view of growth for some of the few companies. And I guess, first of all, this is not a number, which I guess, Rubin, you feel much more comfortable with also, although just 4 weeks into the job. But just to get a feeling for, I mean, Samuel, maybe just looking at sort of the multiple impact on the write-down, how much would that be? And sort of what is the impact from your sort of changed view on the NAV also? Samuel Sjöström: Thanks, Johan. So I mean the easiest way to answer your question is to refer back to the page where we show that multiple contraction had a negative impact on NAV in excess of SEK 8 billion. And again, in terms of how we've applied the multiple compression we're seeing in public markets onto our portfolio, that is sort of flowing through our process, which is unchanged and is sort of intrinsically rigged, to be conservative, to be objective and to be as numbers driven as possible. And clearly, valuation levels in our portfolio has come down over the last quarters and last years. And I think that's 2 reasons mainly. Our portfolio has matured and that public comps have derated significantly. So in this quarter, specifically, we're taking that significant hit from the public peers. We've learned a lot over the last couple of years, and those learnings are clearly sort of ingested into our quantitative models. And then as always, there are individual considerations, but then again, those individual considerations are mainly of a technical and quantitative character in our different regression analysis and so on. So again, in terms of outlooks on our companies, looking at the larger investees as a group, those are largely unchanged. And in Q1, the larger companies have delivered on expectations. But yes, there is a lot to decipher in the public market moves in Q1. Johan Sjoberg: I'm just referring to sort of looking at the software down 38%. I mean just looking at sort of the presentation which you gave ahead of -- these are clearly below. And once again, I don't have a problem with it at all, but it seems like you have written it down more than sort of what the multiple seems to report, multiple contractions, that's sort of my -- maybe I'm wrong here. Rubin Ritter: To summarize, I think we are confident with the variations that we have put out in Q1. I think that's the bottom line of it. Operator: Now we're going to take our next question. And the question comes line of Oskar Lindstrom from Danske Bank. Oskar Lindström: I hope you can hear me this time. I have 2 sets of questions. The first one is on this ongoing portfolio review. And could you see adding back a cash flow-generating asset as opposed to more of the growth-oriented assets that you have today as part of the portfolio, again, to sort of have that balance between cash flow-generating assets and growth assets? That's my first question. Rubin Ritter: I think it's a very relevant question. And I think it also falls into that category of future strategy where, again, I just want to be careful with my own view, given that I'm also only here temporarily. But I think there is -- my personal view is, there is merit to what you are saying. And I think there needs to be the effort to make the portfolio more balanced. And my understanding is also, I don't oversee kind of the full 90-year history of Kinnevik, but my understanding is that also even though the company has a history of backing challengers and taking technology investments at early stages and kind of betting on the future in a way, in my understanding, that was at many times also balanced with more mature, more cash-generating assets in the portfolio, maybe also some of them being listed. And to me, that seems like an advisable idea because right now, of course, and that also became apparent when we went through the valuation exercise, one challenge that we clearly have, and I think it's also something that the team here internally really tries to live up to very hard, is that we have a portfolio of private fast-growing assets that are just really not easy to value. I think we can all agree on that. And then every quarter, of course, we have the expectation of public shareholders that want clarity and transparency, also for very understandable reasons. And every quarter, again, we have to kind of bridge that gap, and that's not an easy task to do, and that's also not easy on the team here internally. And I have also experienced that now firsthand when going through the valuations. So I think also in that regard, it might be a path to just make our lives a bit easier and also to generate a more balanced outcome for shareholders. So I think there's merits to that idea. But then again, I think it's also subject to the general strategic discussion going forward. Oskar Lindström: My second question is on the roughly SEK 1.5 billion of follow-up investments that you've talked about. How soon could that SEK 1.5 billion needs to be spent and you estimated? Is it like front loaded or sort of evenly over the years or how soon? Rubin Ritter: I really understand the question. And I think I would also love to know, I think that's the honest answer. I mean we have some view and some visibility on what demand might be coming in the coming months, but then it's also really difficult to forecast. And just maybe also to reiterate, I think it's really important to think of this not as a budget that we intend to spend, but it's more kind of an estimate or like a cap that we want to limit ourselves to because I also think in my perception in the market, there has been the perception that maybe the majority of the cash that we have might need to be deployed into the current portfolio. And I think our message is just that we really don't think that, that is the case necessarily. So that is the context why we have talked about this number, the SEK 1.5 billion. But then really, it will be a bottom-up exercise. I think every follow-on opportunity has to be assessed in its own right. I tried to speak to what are some of the characteristics and some of the analysis and some of the considerations we will make when we evaluate whether or not to participate in those rounds. And I think that is really what will be happening. So it's very much bottom-up. I wouldn't want to forecast it too detailed on a time line. And I think of the SEK 1.5 billion as an estimate and the maximum number. Oskar Lindström: Just a follow-up there. The SEK 1.5 billion, is that within the next 5 years? Just to clarify that once more. Rubin Ritter: Yes, I mean that's probably like a reasonable assumption. We talk about the existing portfolio, right? So like theoretically, it's a number into kind of eternity because we have the existing portfolio. It continues to drive towards profitability. And at some point, more and more of these companies just will not need further follow-on investments, right? So then they fall into a different category where we can, of course, always think about if we want to accrue to a larger stake because we think it's a company really want to be holding long term with a larger allocation, but that's been a different consideration, right? So as the portfolio grows towards profitability, that number will be deployed, and it's difficult to put a number on it, but probably 5 years is a valid assumption. Operator: [Operator Instructions] And now we're going to take our next question. And the question comes from the line of Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: I just have two from my end as well. Rubin, thank you for your thoughts. And I was just curious, there must be some sort of conversations that come your way that says, look, with valuations crashing the way they've had, aren't there any opportunities in the market also to sort of deploy capital in some very interesting assets that are now probably attractively valued, maybe in sectors that are topical like AI? How do you sort of deal with those kind of topics that come your way, given Kinnevik at the end of the day is an investment holding company? Some color there would be great. And second, I guess, we're halfway into April, have you all seen the valuations of the peers that you're using as comps stabilize so far in Q2? Or has it also been volatile with the geopolitical sort of news that's out there? Some color there on what's going on with the comp base would be great quarter-to-date. Rubin Ritter: Great. Thank you. Maybe I can comment on the first question, and then Samuel can take the second question. So I think you have a great observation that obviously volatility always also creates opportunities. And it is exactly in that context that I also see Kinnevik's SEK 5 billion of cash available to investments as a great asset to be able to potentially act on opportunities. And I also expect the Board will continue to be volatile going forward. So I think in that context, that balance sheet just becomes a very strong asset in the way that I look at it. In terms of AI, I mean, Kinnevik already today has exposure also not only to software companies that are taking this new technology onboard very decisively, but also to some AI native companies. And here, maybe I can also point you to the piece that Samuel already has referred to on our website on building business -- our thoughts on building businesses in the age of AI. Samuel Sjöström: Yes, Nizla on what we're seeing in peers, April to date, I'd say that volatility remains very high. If you look at cloud ETFs, they were up 5% yesterday and a week ago, they were 10% lower than they are today. So it seems to continue to sort of bounce around, both in terms of share prices, but I'd say sort of the volatility and the underlying drivers seems high as well with new AI product releases every week and clearly, what's going on in the Middle East and the posturing from the U.S. administration. So volatility is persisting in April. In terms of absolute levels, they are roughly around where we ended Q1. But again, very volatile still out there. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to Rubin Ritter for any closing remarks. Rubin Ritter: Great. Thank you all for your participation, for your time, for your questions and the good discussion. Maybe just to reiterate, as we have also pointed out in the Q&A, Q1 has been a tough quarter in many ways to our shareholders, to the team, to the company overall. A lot of things have been happening. And I also think that during Q2, we will just be very busy as the world continues to be volatile, and as we start to take some of the steps that we have been discussing. We have been talking about the cultural shift that we want to work on, how we want to work on preserving cash, for optionality for the future and how we want to move towards a gradual portfolio concentration by balancing that with the time that it might need. And I think many of those changes will also take time and hard work. But at the same time, when I try to see through this, I also see many positive things. I'm just really convinced that the changes that we have talked about will make the company stronger. And I really think that the cash position that the company has will create options going forward. And as we just discussed, I think that's particularly valuable in a world that is as volatile as ours. I do think we have great companies with great potential in the portfolio. And even though we have talked about the NAV impact on this quarter, I think we just should not forget that these companies are there and that they continue to execute. And I see a quite good path and a good chance that their value will also become much more tangible going forward. So I think this provides the basis for the company being significantly stronger in the future than it may seem today, and that is what we as a team are really focused on. So thank you again for your time, and have a good day.
Operator: Good morning, ladies and gentlemen, and welcome to the ADF Group results for the fiscal year ended January 31, 2026. [Operator Instructions] Also note that this call is being recorded on Thursday, April 16, 2026. And I would like to turn the conference over to Jean-François Boursier, Chief Financial Officer. Please go ahead. Jean-François Boursier: Thank you. Good morning. Welcome to ADF's conference call covering the 12-month period ended January 31, 2026. I am with Pierre Paschini, President and Chief Operating Officer of ADF, who will be available to answer your questions at the end of the call. I will first update you on our full year results, which were disclosed earlier this morning by press release and then proceed with a quick update about our operations, including our recent new contracts announcement and the recent U.S. tariffs change. This said, let me remind you that some of the issues discussed today may include forward-looking statements. These are documented in ADF Group's management report for the 2026 fiscal year, which will be filed with SEDAR in the coming days. On this very call a year ago and in spite of exceptional results, we were confirming the significant uncertainties that the then recently announced U.S. tariffs were bringing to our markets and operations. A year later and considering all the tariffs-related turmoil, we can confirm that we, without a doubt, close our fiscal 2026 with exceptional results and in a much better position to face these uncertainties in light of Groupe LAR's acquisition. Revenues for the fiscal year ended January 31, 2026, reached $258.7 million compared to $339.6 million last year. As a percentage of revenues, the gross margin went from 31.6% in fiscal 2025 to 23.1% during the fiscal year ended January 31, 2026. As just mentioned, fiscal 2025 was an exceptionally good year with a favorable project mix. The fiscal 2026 results have been impacted by the U.S. tariffs, both directly with higher raw material costs and indirectly with delays in project signing and fabrication start. As such, and as already mentioned in previous calls, ADF implemented a work sharing program at its Terrebonne, Quebec facility earlier this year, which reduced fabrication hours, but also enabled ADF to reduce the cost impact, although not entirely, considering that the Canadian employment program compensated some of these reduced hours. The Groupe LAR acquisition added $20 million in revenue since its acquisition was finalized on September 18, 2025, and added $2 million to our consolidated gross margin for the same period. Adjusted EBITDA totaled $43.5 million or 16.8% of revenues compared with $91.3 million or 26.9% of revenues a year ago. The year-over-year decrease comes from the previously explained gross margin variances and by the selling and administrative expenses, which at $23.2 million were $1.1 million higher than a year ago, all of the increase being explained by the inclusion of Groupe LAR in our consolidated SG&A. We closed our January 31, 2026 fiscal year with a mostly nonmonetary foreign exchange gain of $2.1 million compared to a $5.6 million loss a year ago. Most of this variance coming from the end of year mark-to-market valuation of our FX contracts on hand at both year-end. Year-to-date, ADF posted net income of $26.3 million or $0.93 basic and diluted per share compared with a net income of $56.8 million a year ago or $1.84 basic and diluted per share. Cash flows from operating activities generated $49.4 million, while we invested $11.1 million in CapEx, mostly for equipment maintenance at both our plants in Terrebonne , Quebec and in Great Falls, Montana. We plan to invest close to $35 million for our 2027 fiscal year, the majority of this amount being for our Groupe LAR plant expansion and modernization. In parallel, we are presently negotiating financing packages for these investments. We will be able to provide further updates on our next call. As of January 31, 2026, working capital stood at $104.8 million, just $4.4 million lower than last year. Also on January 31, 2026, cash and cash equivalents stood at $62.7 million, which is actually $2.7 million higher than a year ago, even considering the conclusion of our NCIB and the acquisition of Groupe LAR. Yesterday, the Board of Directors approved the payment of a semi-annual dividend of $0.02 per share, which will be paid on May 15, 2026, to shareholders of record as of April 27, 2026. We closed the year with an order backlog of $561.1 million as at January 31, 2026, excluding the new contracts totaling $157.3 million announced last week. The ending backlog included $138.2 million of contracts from Groupe LAR, which also excludes last week's announcement. Quickly looking at the fourth quarter results, ADF recorded revenues of $78.8 million, up $1.4 million from the fourth quarter of 2025 fiscal year. Fourth quarter revenues this year did include $13.8 million coming from the -- from Groupe LAR. The gross margin as a percentage of revenues stood at 21.5% for the fourth quarter ended January 31, 2026, compared with 31% for the corresponding quarter of fiscal 2025. The margin decrease between these 2 quarters is primarily explained by the mix of products and fabrication, including lower margins coming from the LAR projects. We recorded a net income of $6.4 million during the last quarter of fiscal 2026 compared with net income of $9.1 million for the corresponding period of fiscal 2025, with minimal impact coming from LAR, which basically broke even for the quarter. Because the corporation carries out contracts that vary in complexity and in duration, upward and downward fluctuation may occur from quarter-to-quarter. In light of this, revenue and order backlog growth must be analyzed over several quarters, not just from one period to the next. As mentioned at the beginning of the call, the situation was bleak a year ago, and we're definitely very satisfied with how everything turned out, including our overall financial results, our ending balance sheet and cash situation and with the conclusion of the LAR acquisition. As we have seen as recently as 2 weeks ago, with the latest tariffs announcement, we are still in a -- we are still in for more surprises and sadly uncertainties. Talking about these last tariff modifications, we can now confirm that for the time being, our U.S. projects fabricated in Terrebonne will now be impacted by a 10% tariff, which is applied on the value of the commercial invoice, including profit. And this in spite that the steel used to fabricate these projects comes from U.S. mills. Although not ideal, we can say that our recent backlog shift from U.S. to Canadian projects, aided by our July 2025 long-term contract and Groupe LAR acquisition reduced what could have been a much higher cost increase for ADF. Additionally, we are working with our U.S. clients to alleviate some of these additional costs. This said, -- what this latest announcement definitely brings is additional uncertainties to our market as it confirms the unpredictability of the overall trade situation. Nevertheless, as we announced last week, we are still focusing on the elements that we do control, and as such, we have been able to further increase our backlog. The largest of the series of new contracts in terms of values and duration is for the fabrication and delivery of various heavy steel structures for a project in the hydroelectric sector in Quebec. This project is a 4-year master contract for Groupe LAR. Since the acquisition, we've been able to grow LAR backlog, and we are still active as the hydroelectric market delivers its expected growth. We are on the verge of breaking ground in Metabetchouan for our Groupe LAR plant expansion and modernization, which is a key step in our continued growth. In light of all of this, we do anticipate revenue growth for our fiscal year ending January 31, 2027, despite the ongoing challenge of finalizing contracts with our U.S. customers that would normally be carried out at our plant located in Terrebonne, Quebec. However, given that the capital investment that I just mentioned will not have a significant operational impact in the fiscal year ending January 31, 2027, we expect margins to somewhat stagnate in the first quarters of fiscal year 2027, especially when adding the recently announced tariff change. This trend will be reversed as the integration of Groupe LAR continues and we complete the projects inherited at the time of Groupe LAR's acquisition. The acquisition of Groupe LAR, the new Canadian U.S. allocation of our order backlog and the optimal utilization of our fabrication facility in Great Falls, Montana allow us to still look forward to fiscal year 2027 with optimism, allowing us to continue our orderly growth despite tariff uncertainties. Thank you all for your interest and confidence in ADF. Pierre and I will now be happy to answer your questions. Operator: [Operator Instructions] First question will be from Nick Cortellucci at Atrium. Nicholas Cortellucci: First thing I was wondering about was the new 4-year contract. What does the timing look like on that for getting started? Jean-François Boursier: Yes. Most of the volume -- that contract will not have much impact in our FY '27. Most of the fabrication will start next year. So it's going to be 4 years, but with limited impact or close to no impact on our revenues this year for FY '27. Nicholas Cortellucci: Okay. And are you guys seeing anything in kind of these growth markets you're going after, maybe being nuclear or data centers, anything like that? Pierre Paschini: Yes. We're looking at a couple of those projects. But like I say, I mean, right now, we're bidding on some stuff, data centers, stuff like that. But with the tariffs right now and that new 10%, well, we need to be a bit more competitive. So it's going to cost us 5% on our margin. So -- but there's a lot of work out there. So I think it's feasible that we should be able to get some work by the end of the year. Nicholas Cortellucci: Okay. Regarding the CapEx plan and operational efficiencies for LAR, how do you see that playing out kind of sequential improvements throughout the year here? Jean-François Boursier: Well, the construction will occur this year. It's really -- so the expansion itself will not really happen this year. So we shouldn't see too much efficiency gain margin-wise in FY '27 because the plant will be up and running only late in the first quarter of next fiscal year. But as I mentioned earlier, we're -- besides the expansion and the new equipment, we are working with LAR on optimizing our -- the synergies between the 2 entities, and we're still in that process. So that, as I mentioned, should start to transpire on our actual margin, probably more so in the second half of the year. And lastly, as I also mentioned, we did -- with the acquisition, there was a backlog that was in place that had a certain margin profile in it. Obviously, you can understand that last year, while LAR was trying to cope with their situation and as we were negotiating, they were still trying to get business and maybe not have the same leverage in negotiating contract that they normally do. So some of the contracts that were signed in the past months might not be as that might not have carried the usual margin. So they are still positive. They're still good. As you saw from the number I'm giving, it's definitely not the same level of margin. So it did have a downward impact on our overall consolidated margin. But this said, it's added volume. The good news is that we are growing. As we had mentioned, we're seeing huge potential from LAR on the hydroelectric side. We've been pretty successful in signing new contracts, actually probably even better than we had anticipated. We're still seeing lots of opportunities going forward. But obviously, for all of that to work out, we do need to have a successful expansion. So we're obviously spending a lot of time on not only finalizing the bid and making sure that the construction starts on time and the project and the entire project is on time so that we meet our deadline. So once that all pans out, FY '28 and the following years are really -- will really start showing the full positive impact of that acquisition, along with what we hope will be a return to normal to our more ADF regular structural work as we see what will come out of the U.S. Nicholas Cortellucci: Right. Okay. So that kind of $2 million gross margin from LAR, that's kind of a backward-looking number and the new contracts from what I get at or that you guys are signing are more up to that ADF standard or getting closer to it? Jean-François Boursier: Well, pushing that way. Obviously, there are things we need to do to further improve, including the actual operations. So obviously, with the new equipment, they'll definitely be able to be more efficient with the work. So that helps. This is something that ADF has been really good at doing over the years is maintain our equipment as efficient as possible and always invest to be as optimal as we could be from an efficiency standpoint. So there are things we can do now. There are definitely things that will further -- there's definitely going to be a huge step with the new equipment and the expansion, but working and definitely negotiating with not only higher margins, but also with more favorable payment terms and overall conditions. So we're really putting -- I think we've been talking for a number of years about how careful we are on contract signing and our risk management. So we're putting all our processes in place so that we bid projects both for LAR and ADF or actually for LAR the same way and with the same due diligence that we did for our ADF bid. So that should all translate into better terms and better margins. Nicholas Cortellucci: Yes, that makes sense. And then just last one here from the tariff commentary you had there. I think kind of the summary is that you guys qualify for the 10% tariff because the steel is purchased from U.S. steel mills, but because it's being applied to the total value, it's a net negative. Jean Paschini: So it's been applied to the fabrication and the material, even though it's from the state. So we're penalized, I mean, $300 a ton basically, which amounts to maybe 5% on the margin depends on the kind of margin, depends on the work. There's a lot of work in the States right now. I mean most of the plants are busy. So we'll be able to charge a bit more and compensate for that 5%. That's what I think. So right now, the bigger guys out there, 5 or 6 of the biggest companies are busy for the next 2 years, which is a good sign for us because they have more work coming up. So we'll see. I mean I think there's an opportunity because cash flow-wise and financial-wise, we're very sound. It's just a question of hitting the right job with the right margin. Jean-François Boursier: Just to further explain on the tariffs, Nick, the -- with the previous -- there were tariffs, but more specifically on the steel and aluminum, if we were buying our steel from U.S. mills, we were basically -- there were basically no tariffs. We had the exemption. Now in spite of buying all the steel, there is that additional 10%, and that 10% applies not just on the material, but on the commercial invoice, including profit. So I think it just highlights the fact that it is still -- nobody knows, and there were no advanced notice -- from all we understood, things were sort of moving along and then all of a sudden, you've got coming out of nowhere that 10% announcement that nobody saw coming. So as I mentioned on the call, we're not thrilled with it. But obviously, the moves we made over the past year are definitely paying off because the same 10% announcement with our old setup, 85% volume and the majority of the Terrebonne fabrication going to U.S., that announcement could have had the potential of being a really significant negative impact on us. Luckily well, luckily, considering the mix, the portion of volume fabricated in Terrebonne going to the U.S. is much lower. And as I mentioned also, we will be working really hard with our clients. I think we think we've got a couple of opportunities maybe to pass some of those costs along to the clients. And for the upcoming contracts, as Pierre just explained, well, we'll have that discussion. And obviously, everybody is in the same boat. This is not something that's just specific to ADF. All the Canadian steel manufacturers have the same tariffs. And actually, all Canadian fabricators doing businesses with the U.S. have the same that have steel and aluminum and their components have the same impact. So as we've always did, we'll negotiate, make sure that it makes sense. It's just that it won't help from the -- it won't reduce the time the negotiation of signing new contracts will take. And it's too bad because we're starting slowly but surely. I think everybody was starting to get used to the setup -- but as I mentioned, the announcement that happened just reconfirm to everybody that we're still in an unknown and uncertain situation. Nicholas Cortellucci: Okay. Understood. Well, I think you guys have definitely made some major improvements, as you said, from where we were at a year ago. So definitely better positioning going into this. And hopefully, it all ends up in your favor. Operator: [Operator Instructions] Next will be Aniss Gamassi at Bastion Asset Management. Aniss Gamassi: Maybe just to wrap up the gross margin commentary. So as I look at the next fiscal year, you've done 23% this year. Do you expect sort of the full year for next year to be similar with the first half being lower and the second half maybe higher? Or do you expect for the full year overall gross margins to be lower than fiscal -- the current fiscal year? Jean-François Boursier: Well, we don't provide guidelines, margin guidelines. But suffice to say that we're not -- we're definitely not expecting huge improvement. So I'd really be satisfied to maintain the same type of margins for the full year with maybe margin being a bit more sluggish in the first half of the year and improving in the second. But it all -- I think, will depend on what happens next, how successful we are in signing new contracts and avoiding these new tariffs. But based on what we're seeing now, based on the backlog, based on the -- I'd be satisfied to maintain or slightly improve year-to-date on a full year basis, what we've been able to do this year, but really in 2 steps. Aniss Gamassi: Understood. Maybe second question, broader picture question here. We're witnessing sort of a significant acceleration in Canadian infrastructure activity. I'm interested in your perspective on sort of how ADF's current capacity and footprint aligns with the demand shift. Are you seeing this momentum translate into your bidding pipeline within your traditional projects and maybe beyond that in Canada specifically? Pierre Paschini: Basically, we're following our customers. I mean, these guys like the [indiscernible] and all the big guys, [indiscernible], I mean they've been chasing us and looking at some work. Right now, we're looking at major work in the Montreal Airport, some work in Ontario also, some work out West. We're looking basically with the oil right now, which is going up, there's going to be some major investments. So we've got our feet in the right place right now. So -- and we know these customers. So I think that probably right now, we got 57% of our work is here in Canada, maybe it's going to be more than 50%. We've got work in the states. But our plant in Montana right now is busy, but we still can add more work in there. So I think infrastructure-wise, we can do bridge work, we can do any type of work with our facility here in Terrebonne. So like I said, the work is there, the bids are coming in, and we'll be looking at getting more work on the Canadian side. Jean-François Boursier: And capacity-wise, we don't have -- and capacity-wise, there's no issue. We've got -- we still have sufficient capacity. So we've got room to add in Terrebonne. And obviously, with Groupe LAR expansion that we'll be doing this year, we will provide them with the additional capacity. So it's not definitely not a problem to grow -- further grow the backlog with the facilities as they are today. Operator: At this time, Mr. Boursier, it appears we have no other questions registered. Please proceed. Jean-François Boursier: Thank you. Before we conclude today's conference call, I would like to remind you that ADF will hold its shareholders' meeting on June 9 at 11:00 a.m., and our AGM will be held this year at our corporate office here in Terrebonne, Quebec. Financial results for the first quarter ending April 30, 2026, will also be disclosed during our shareholders' meeting. Additional meeting information will be made available in the coming weeks. Thank you again for your interest towards ADF. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
Operator: Ladies and gentlemen, good day, and welcome to Wipro Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded and the duration for today's call will be for 45 minutes. I now hand the conference over to Mr. Abhishek Jain, Vice President, Corporate Treasurer and Head of Investor Relations. Thank you, and over to you. Abhishek Jain: Yes, [ Sashi ]. Thank you. Warm welcome to our Q4 FY '26 earnings call. We'll begin the call with business highlights and overview by Srinivas Pallia, our Chief Executive Officer and Managing Director, followed by updates on financial overview by our CFO, Aparna Iyer; we also have our CHRO, Saurabh Govil; and our Chief Strategist and Technology Officer, Hari Shetty on this call. Afterwards, the operator will open the bridge for Q&A with our management team. Before Srini starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reforms at 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainty and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. With that, I would like to turn over the call to Srini. Srini, Over to you. Srinivas Pallia: Thanks, Abhishek. Hello, everyone. Thank you for joining us today. Geopolitical and policy disruptions have become the new normal. Despite these headwinds, IT spending has shown resilience. Cloud, data and AI continue to attract investments as they provide infrastructure for future growth. Client priorities are shifting with spending decisions increasingly tied to outcomes. And at Wipro, we continue to make decisive investments to navigate the AI-first world. With that context, let me now turn to our performance in quarter 4 and for the full year FY 2025 '26. All growth numbers I shared will be in constant currency. Our IT Services revenue for quarter 4 was $2.65 billion, reflecting a sequential growth of 0.2% and degrowth of 2% on a year-on-year basis. Our operating margin came at 17.3%, a contraction of 30 basis points sequentially. The order booking for quarter 4 was at $3.5 billion, which is a growth of 3.2% sequentially and a degrowth of 13.9% on a year-on-year basis. We had 14 large deals totaling $1.4 billion this quarter. For the full year, IT Services revenue were $10.5 billion, reflecting a year-on-year degrowth of 1.6%. Our operating margin was at 17.2%, an expansion of almost 15 basis points as compared to FY '25. Now to our strategic market unit performance in quarter 4. Americas 1 delivered sequential and year-on-year growth, driven by strong performance in consumer, technology and communications. The health care center was impacted by seasonality and policy changes. Americas 2 decline sequentially and on a year-on-year basis. The BFSI sector was impacted by delayed ramp-ups on some large deals that were closed earlier this year and by certain client-specific issues. Europe grew sequentially and has remained flat on a year-on-year basis. We see good traction in the U.K., specifically in the BFSI sector. We also see strong deal momentum in Germany. APMEA grew sequentially and on a year-on-year basis. Growth driven by Southeast Asia. We are seeing traction in the BFSI, technology and communication sectors. We are encouraged by the momentum we are seeing in the APMEA region both in performing and bets we continue to make there. A strong example is the strategic deal we announced recently with the [indiscernible] expected to exceed $1 billion in contract value with a committed spend of $800 million. This is 1 of our largest engagements to date in APMEA. In this quarter, we also closed several strategic engagements. Let me highlight 2 examples with global technology leaders to drive AI at scale and how Wipro is partnering with them. In my first example, a leading global technology company has engaged Wipro to help run and improve its frontier AI models. Wipro will manage the end-to-end operation of these AI models from training, governance and evaluation to domain-specific validation. In fact, this engagement will be done to a specialized global delivery platform. We will make these models more accurate, reliable and safe while ensuring they can be deployed and managed at scale. In my second example, we have been selected by a leading global semiconductor company to provide engineering services that accelerate product development and manufacturing across its complex hardware platforms at locations distributed globally. We will support the entire engineering life cycle from product development to performance testing analysis. Before final shipment is made by our clients to their end clients. This will help our clients achieve faster resolution management, higher yield and improved governance with AI-driven analytics and automation. As intelligence becomes industrialized and widely accessible, we are making a deliberate strategic pivot to stay ahead. As you might be aware, we have launched a dedicated AI-native business and platforms unit to expand beyond a services-only model to a services-as-a-software approach. This unit will operate with dedicated leadership, focus investments and a distinct operating model to accelerate enterprise-grade agentic AI solutions. [indiscernible] will also incubate new AI businesses through an invest build partner approach in addition to collaborating with Wipro Ventures and our partner ecosystems. Together with core services, this creates a dual engine model, driving transformation at scale while building AI-native platforms that differentiate services enable repeatable deployments and unlock nonlinear growth. With that, let me move on to our guidance for the next quarter. In Q1, we are guiding for a sequential growth of minus 2% to 0% in constant currency terms. Thank you. I'll now hand it over to Aparna, our CFO. Aparna Iyer: Good evening, everyone. Let me share a quick update, and then we can open it up for Q&A. Our IT services revenue for Q4 grew 0.2% sequentially in constant currency terms, and 0.6% in reported currency. Our revenues declined 0.2% on a year-on-year basis in constant currency terms. For the full year FY '26, IT Services revenues declined by 1.6% in constant currency. Our operating margin for the quarter was at 17.3%, a contraction of 0.3% over Q3 '26, and a 0.2% contraction on a year-on-year basis. With this, our full year operating margin stands at 17.2% and expansion of 15 basis points year-on-year. We maintained the margins within a narrow band even after absorbing 2 incremental months of DTS HARMAN. And we also rolled out salary increases effective first March. As we move into Q1, we will have the headwinds of 2 months of salary increase and a few large deals that we've won and the volatility could be there in our quarterly performance. Having said that, our endeavor would be to maintain these margins in a narrow band in the medium term. Net income for the quarter was at INR 35 billion. Adjusted for the impact of labor code changes, our net income increased 3.7% sequentially. For the full year, our net income increased 2.2% year-on-year. This was after absorbing the impact of restructuring charges in both Q1 and Q3 of last year. EPS for the quarter was at INR 3.3 and INR 12.6 for the full year. Moving on to our strategic market unit and sector performance. All the growth numbers that I will be sharing will be in constant currency. Americas 1 grew 0.3% sequentially and grew 2.9% on a year-on-year basis. Americas 2 declined 2.6% sequentially and 6.7% on a year-on-year basis. Europe grew 2% sequentially and was flat on a year-on-year basis. APMEA grew 3.1% sequentially and 0.8% on a year-on-year basis. Moving on to sector performance. BFSI declined 1.3% sequentially and 0.5% year-on-year, Health declined 4.4% sequentially and was flat year-on-year. Consumer grew 1.7% sequentially and declined 2.9% year-on-year. Technology and Communication grew 5.3% sequentially and 10.4% year-on-year. EMR grew 1.1% sequentially and declined 5.9% year-on-year. Let me share some other key financial metrics. Our operating cash flow continues to be higher than the net income and stood at 112.6% of net income for FY '26. Our gross cash including investments was at [ 5.9 billion ]. Accounting yield on average investment held in India was at 7.3%. Our ETR was at 23.5%. In terms of guidance to reiterate the Srini said, we expect our revenue from IT Services business segment to be in the range of $2.597 billion to $2.651 billion. This translates to a sequential guidance of minus in constant currency terms. Lastly, I'd like to share that in our recently concluded Board meeting, the Board of Directors have announced and approved a buyback of INR 15,000 crores at a price of [ INR 250 ] per share. This is the largest buyback that Wipro has announced, and we expect to buy back 5.7% of the paid-up capital. The buyback is expected to complete in Q1 '27 subject to shareholder approval. Our endeavor has always been to return a substantial portion of the cash generated in our -- through our operations back to our shareholders in FY '26 alone, we distributed dividends of $1.3 billion, taking our total payout ratio for 3-year block ending FY '26 to about 88%, which is significantly higher than the minimum threshold of 70% that we have as per our capital allocation policy. With that, I will hand it over for Q&A. Operator: [Operator Instructions] We'll take our first question from the line of [ Pratik Maheshwari ] from HSBC Securities..Sorry, his line is disconnected. We'll go on to the next question from the line of Sandeep Shah from Equirus Securities. Sandeep Shah: Sir, the first question is, there has been a good large deal wins, which has happened on the one end as well as fourth quarter of last year. And we kept on telling about delay in these large deals, which was expected to come in Q3, then we said Q4, then we said it will come 1Q, but the guidance does not show that. despite the nature of the deal being cost takeout when it comes to consolidation. Why is this delays happening? Srinivas Pallia: Thanks, Sandeep. This is Srini here. Thanks for your question. Let me just talk about the quarter 4 performance in the context of the 4 SMUs we had. Three out of the 4 SMUs, Americas, well, Europe and APMEA have grown sequentially. Having said that, specifically Americas 2, we saw significant softness. And this is specific to the BFSI sector there. This has been a combination of both client-specific issue and delayed ramp-up that you're talking about. The reason for the delay is a very client specific, but we see that opportunity coming up sooner than later, and that will give us the growth in that particular account and that particular sector. Sandeep Shah: Okay. And do you believe second quarter onwards, there could be ramp-up can actually pull up the growth? Or you believe plan-specific issue because of the geopolitical issuance macro may continue? Srinivas Pallia: So as far as this particular client is concerned, it will end in quarter 1, Sandeep, and there is no further impact for us materially. That's number one. Number two, as far as geopolitics is concerned and we have not seen any clients at this point in time, demonstrating any specific behavior. And also, if you reflect on the pipeline that we have across the market, including countries and across the sectors, a very strong pipeline. Of course, it's a very competitive landscape, and the competition is very intense. And the way we have gone ahead with the Olam deal, which is a very transformational deal, long-term deal also taking their entire IT into Wipro welcoming them into the Wipro family. The second one that we announced yesterday, which was part of the vendor consolidation, the kind of deals that are coming off are very different but very strategic, and we are staying focused on execution for us, which will help us quarters ahead. Sandeep Shah: Okay. And just last two, there has been a notable decline in our top line. What is the reason for the same? And second, can you give us the inorganic growth contribution you were factored in the first quarter growth guidance? Aparna Iyer: So these 2 deals that we've announced in this month, Sandeep, are a part of our guidance. At the midpoint, we've assumed both these deals to start yielding revenues for 1.5 months, halfway through the quarter. To your point on the top count growth, it's a sequential decline. But from a year-on-year standpoint, it continues to have grown. And we are very confident that it will continue to come back as we go through the quarters. Sandeep Shah: Okay. Okay. Is it possible to quantify inorganic growth in the guidance? Aparna Iyer: They are not inorganic. They are actually strategic deal wins. If you look at it, Olam is a strategic deal win with -- it's a relationship that is -- has committed revenue. So -- and even the other 1 that we announced was part of the vendor consolidation strategy, for 1 of our top clients, and we continue to participate in these kind of deals. And both will be a part of our numbers and our guided range. Operator: Next question is from the line of Ravi Menon from Axis Capital. Ravi Menon: Beyond the top customers where we've seen a sharp decline, we also been top 25 customers also declined slightly. The top customer decline although we said it's temporary. It's a very sharp decline. Can you talk a bit about what led to this? And why -- what gives you confidence that this will be temporary. Aparna Iyer: Ravi, if you look at it, our top client has been producing a healthy growth for us for a fairly long size right? This kind of one-off quarter volatility is not something that we are unduly concerned about. The relationship remains very strong, and you should continue to see it bounce back. Ravi Menon: And the unbilled revenue has grown this quarter more than $80 million. And then we also see some long-term unbilled revenue. Could you talk a bit about what's led to the [indiscernible] how should we see that trend? Aparna Iyer: No. So I don't think -- see, the unbilled revenue that has gone up is more a quarterly aberration. It should correct itself from a quarter on. I mean, from a year-on-year standpoint, actually, our DSO has remained flattish. Like I said, our operating cash flow has remained 112% of net income we are not seeing any large exposures or pile up of unbilled in our balance sheet. From a unbilled standpoint as well, I think it's fairly content and we have some consistent improvement. Yes, some of the larger deals as they pick up, we are open to -- they will come with some amount of balance sheet leverage, but nothing that's unduly different than what we do as business as usual, Ravi. Operator: Next question is from the line of Dipesh Mehta from Emkay Global. Dipesh Mehta: A couple of questions. First on the -- part. You said BFSI weakness was because of 2 factors. One is client specific and second is delay in ramp-up. And 1 of the question answer you indicated about some of this is likely to be ending by quarter 1, which part you are indicating by Q1? Aparna Iyer: We have said that the client-specific issue that we have seen in 1 of our clients in Americas 2 has had an impact on both Q4 and Q1 and there won't be a continuing impact of that going forward. Dipesh Mehta: And what about the delay in ramp-up part? Aparna Iyer: Yes. So if I have to characterize, we've had several large deal bookings, right? Now the 1 that we announced on [ Phoenix ], it is fully ramped up 2 plants. There's no delay, right? If you look at the other 3 mega deals that we spoke of, 1 of them is on plan, and we are continuing to ramp up. We are seeing challenging 1 of those -- as we spoke about, where we are seeing a delayed ramp-up, which is, in particular, impacting the growth rate of that particular sector in that particular market unit. Outside of that, BFSI growth rate of pretty good in Europe and APMEA. As that client comes back and we start to ramp up, you will see those growth rates improve it. That is our job. Dipesh Mehta: And can you give some sense about that the what factor is leading to delay in ramp up whether -- so if you can provide some details around it, qualitatively, what is leading to some of those delays? Second question which I have is, if I look, let's say, the couple of projects in which we close or in the process of closing, we included in the guidance, if, let's say, any delay in some of those closures, do you see risk to that guidance kind of thing? Aparna Iyer: We guide in a range. There is -- like I said, we guided a range and there is a midpoint, and we have some cushion, both on the downside and on the upside. And for now, we are comfortable within that guidance. On the first point, Srini. Srinivas Pallia: Yes. Dipesh, Srini here. On the first point, this is a very client-specific issue, where they have changed a little bit of the strategy around some of the things as part of the business because of which they have delayed it. But having said that, we have the clear visibility going forward. It's about the matter of timing, when and how much, and that should help us going forward, Dipesh. Dipesh Mehta: Understood. And last question from my side. I just want to get some sense about how Capco is playing out. Srinivas Pallia: So Dipesh, as you know, Capco is a tip of the spear for the consulting piece on the -- side. They are definitely doing well. And if you look at sequentially, Capco is performing very well and also on the year-on-year, both have been very positive. And in fact, Capco had 1 of the highest revenues in the last several quarters. So Capco is making a big difference in terms of the whole AI advisory and consulting. And the way they are being proactively shaping the clients thought process in terms of the whole geopolitics and in terms of the trade and tariff and the technology transition has been really good. Operator: Next question is from the line of Vibhor Singhal from Nuvama Equities. Vibhor Singhal: Congrats Srini and Aparna for the buyback announcement finally. I know the market participants have been waiting for this 1 for quite a while. Two questions from my side... Operator: Sorry, Vibhor, you're sounding different. Vibhor Singhal: I'm sorry, sorry, just give me a second. [indiscernible]. Operator: Can you -- are you on your handset mode. Vibhor Singhal: Switch to the handset now? Operator: Yes, it is clear. Now please go ahead. Vibhor Singhal: Okay. Sorry for that. Yes. So a couple of questions from my side. Srini, on the energy and the -- verticals. This has been a vertical in which we've been very strong for quite a while. Just wanted to pick as to what are the conversations that you're having with the clients at this point of time because of the -- that is going around, will the crude prices and the volatility in it impact our business in this vertical, either positive or negative? Any conversations that have already started on that regard? Or is it too early to call out any impact of that on the segment? Srinivas Pallia: So Vibhor, from our perspective, if you look at the quarter 4, we have seen a sequential growth. And both manufacturing, particularly auto industrial, as seen impact otherwise on the reason for tariffs. Now coming specifically in the context of geopolitics, wherever, I think there is -- some of the clients are waiting and watching. But having said that, not dramatically changed their strategy. For example, what they're trying to do, especially in the manufacturing sector, if you will, they're looking at how do you secure the supply chain, make it more visible and more dynamic going forward. And that's some of the opportunities that we are looking at in the context of AI that can actually help. So that's the trend that we are seeing. Auto industry. Obviously, they're also looking at how the markets are going, and it varies from country to country in terms of how the business is going. And the third is in terms of overall manufacturing, we have not seen any clear change, but they have been constantly under pressure because of tariff flood disruptions that they're going through. And they're also looking at what kind of consumer demand they can have. And also they are keeping a close watch on the input cost because that will also impact their final product cost. So they are trying to sharpen their budgeting, I would say, tightening at this point in time. Vibhor Singhal: Got it. Got it. Good. My second question, Srini, was basically on -- again, sorry to have on the Q1 guidance, once again, as Aparna mentioned, we are taking around half -- 1.5 months of contribution from the new deal that would approximately come to around 0.7%, 0.8% of revenue. Then another -- 0.8% from the 1-month integral of HARMAN integration. That leads [indiscernible]. Operator: I'm sorry, Vibhor, you're sounding muffled again. Can you repeat the last part please? [Technical Difficulty] Okay. Now it's fine. Vibhor Singhal: Yes. I'm so sorry for the poor connectivity. Yes. So as -- I think the 2 deals will contribute 1.5 months of revenue, that's around 0.7%, 0.8% of revenue. HARMAN acquisition, 1 incremental month in Q1, again, that's another maybe 0.7%, 0.8%. So around 1.5% growth is coming from these 3 factors. So these aside, I think the remaining business seems to be quite a sharp line in Q1. You mentioned 1 of the client-specific issues, which you will continue to face in Q1. But are there any other significant client ramp-downs or any other delays that we are seeing because of which this Q1 growth -- organic growth or if I can call the growth beyond these 3 seems to be so weak? Aparna Iyer: You know DTS HARMAN is fully in our Q4 numbers... Vibhor Singhal: But in Q4, that was only 2 months. So on Q2, this will add another month in Q1? Aparna Iyer: No. No. Q4 was all 3 months. Yes. So that is not -- that is the only inorganic piece and our growth for Q1 is -- yes, there are these 2 deals that we've spoken about, which will be there, and it will add to our revenues in Q1. And we've assumed that they will start yielding revenues mid-quarter. Vibhor Singhal: Mid-quarter. Got it, got it. Aparna Iyer: Yes. [indiscernible] organic growth, are these strategies taken. Yes. Vibhor Singhal: Very much point taken. Just my last question on the margins. I think very strong performance on the margins in this quarter despite wage hike and HARMAN integration as well. Do we believe these margins are sustainable in the coming quarters as well, given that we'll have a couple of these deals -- out deals also that we will be factoring in? Do you believe you will be able to maintain their margins at around the current levels as we have always maintained. As we've always stated that this is our target range? Aparna Iyer: Yes, there are 3 areas where we are going to be investing in. We've already rolled out the wage hike effective first March. So we will have 2 months incremental impact, which will have to be absorbed, right, in Q1. Two, we are winning among these large deals, and they are 1 in a competitive environment. They will come with their share of lower margins, especially as we start these deals, right? Second, there is certainly around capabilities. We've acquired the DTS HARMAN connected services fees, which will -- which is also putting pressure on margins. And as I look ahead, we will continue to actually accelerate investments, especially around Wipro Intelligence, the platform unit that we have announced. And it will need a lot of investment that we will work through and share with you transparently as we go through the process as we form our strategy around it, that will also be an area of focus for investment. Given all this, we will have to drive operational improvement that is a continuous process, as you know. And like I said, maybe we see some quarter-on-quarter volatility, but our endeavor is going to be that in medium term, we continue to drive that productivity and cost takeout and deliver on the promise of actually AI helping us to deliver our fix-price programs better. And we continue to optimize all other over. Now as we do that, hopefully, we are able to keep our margins in the medium term in [indiscernible]. Operator: We'll take our next question from the line of [ Prateek Maheshwari ] from HSBC Securities. Unknown Analyst: So Srini, I've got a couple of questions. So I'm sorry for harping again on Americas 2. Just wanted to understand that, there are the client specific issue that you guys have faced in the fourth quarter and you facing the first quarter spend. However, if I look at Americas 2 over a 1-year period or a 3-year period, it seems that there's been a [indiscernible] there been multiple clients specific issues that have happened. So just wondering to understand your thoughts on this if it is a mere coincidence or how -- what are your thoughts on this? And just second question from [indiscernible] around the AI partnerships. So we are seeing our larger peers have -- along the parties with probably [indiscernible] like once said[indiscernible] but we haven't heard a lot from you -- so just wanted to understand how you guys are planning around this. And if you were the planning for [ GTM ] these models as well. Srinivas Pallia: Thanks, Pratik. You're right, AI is a central strategy for Wipro. 2 quarters back, we had launched Wipro Intelligence, which is a combination of industry and cross industry and functional platforms and solutions. And this quarter, the last quarter, we announced the formation of year native business and platform unit. The reason why we are doing it is in the last 2 quarters based on our experience, both in terms of industry platforms and the delivery platforms, which is WINGS for run and operate and Vega our [ DLC ] life cycle, which is more on the change in transform side. We have seen a very good traction. The clients feel very comfortable with the way we have put the guardrails making sure we align the technology to what they are actually using, making sure it is secure, reliable and responsible as well. Also, in terms of the productivity benefits that we can offer to them, both in the existing engagement and also the new engagements we plan to do. And we will continue to invest in this. And I think Aparna called out as well that Wipro Intelligence and the new AI-native business and platform unit is going to pivot us into our services as a software industry. So while we continue to deliver the services to our clients, this should help us to actually create a software-as-a-service through our platform model. We already saw some success with our platforms. be it in Health Care, be it in Banking, Insurance, Telecom. So we want to see that because the clients are actually feeling very comfortable with the fact that the whole platform is native, which is AI powered and it's able to well integrate into their domain with the kind of agent and agentic operations we're trying to bring in. So that investment will continue, [ Prateek ]. Unknown Analyst: First question, if you could share also -- so the question was that there's been multiple client issues over the years. Just wanted to understand what your thoughts on that. Srinivas Pallia: Yes. I think this quarter, last quarter, it was something that we called out as well, very specifically for the 2 reasons like you mentioned in your question itself. But 1 is the specific client ramp-up that has not happened upon I talked in detail about that. But we feel -- and I also answered that question, we feel fairly confident that clients come back because there was some directional change, and they wanted to pause before they had the clarity around that. The second 1 was something that the account-specific issue that happened, which impacted for us in quarter 1 and in addition to quarter 4. Having said that, if you look at our top accounts, they continue to stay focused on our top accounts with a very clear account management strategy. And in fact, many of our clients are asking us to come back and help them in terms of AI advisory and consulting in terms of how to navigate in the AI world. So what's important for our account team is to be very proactive and leverage to Wipro and platforms and solutions and kind of help the client through this disruption process. Unknown Analyst: Srini, If you could allow me to squeeze 1 more question. I just wanted to ask, you said that you have a positive view on BFSI in APMEA and also in Europe. So just wanted to ask outside of the client-specific issue that you may face in the first quarter, do you have a positive view on the USPs as side well. Srinivas Pallia: So I think from an overall -- I think the best way for me to reflect, [ Prateek ], in your question is the kind of pipeline that we have. And -- talk about having a very secular pipeline across industries and across markets. And your question specifically to BFSI, if you were to look at Americas and Europe and APMEA. And also the Capco question that came up. We continue to see very good traction. We continue to see a very good pipeline. And some of this, what the kind of work that Capco does is very consulting-led and advisory-led. And we also want to see how those implementations for the clients can happen. And for me, clearly, from a BFSI perspective, right, very clearly, the client wants to invest in AI around data platforms and agentic workflows and security. And while they are continuing to optimize but the spend in this specific area around AI, data and cloud continues. Operator: We'll take our next question from the line of Abhishek Shindadkar from Incred Research. Abhishek Shindadkar: Can you hear me? Operator: Yes. Abhishek Shindadkar: The first question is regarding the contribution for HARMAN. So when we gave the guidance last time, in the third quarter, the 0.8% was the contribution. And incrementally, 2 months was assumed when we gave the fourth quarter guidance. Can you just quantify what would have been the contribution for this quarter? Or if you can just quantify the organic growth for us? That's the first question. And I'll just ask the second 1 later. Aparna Iyer: So your question is around how much did the HARMAN acquisition contribute in Q4? Is that your question? Abhishek Shindadkar: Yes. Aparna Iyer: So we actually made a stock exchange filing around the revenues of the organization. You can assume the quarterly run rate around that much. Abhishek Shindadkar: Understood. That's helpful. The second thing is on the top client and maybe it has been asked, but not just the top, but if I look at the top 5. And if I look at the client metric and the attrition across some of the larger accounts, do you for this kind of stopping or halting in the next quarter? Or we may continue to see some challenges in the accounts, larger accounts even in the next quarter? Aparna Iyer: I think our overall growth rate also tend to reflect in our top client metric growth rates as well, right? That said, if you -- like if you had to look at the year-on-year performance of our top client and it's been largely flattish year-on-year constant currency actually has grown on a year-on-year constant currency by 0.2%. And top 10 have grown a positive 1.5% on year-on-year constant balance. And therefore, are we unduly worried about the top relationships that we have, no, we're not worried about it. That said, our constant endeavor is to continue to win with our largest client in the market. and some of the wins that we have announced even this bag are towards that. So you will continue to see us growing and expanding this because this is the way in which our growth will come from. It's our #1 strategic priority. We will work with large clients, and that is the endeavor. Operator: Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Abhishek Jain for closing comments. Over to you, sir. Abhishek Jain: Thank you all joining the call. In case we could not take any questions due to time constraints, please feel free to reach out to the Investor Relations. Have a nice day. Thank you. Operator: On behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Kinnevik First Quarter Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rubin Ritter, Interim CEO. Please go ahead. Rubin Ritter: Welcome, everyone, also from my side. Thank you for joining. My name is Rubin. I'm Interim CEO at Kinnevik since about 4 weeks. This is my first earnings call. And so far, I'm enjoying the work with the team. It has been very busy weeks. So there is a lot to talk about. And I would suggest we get started right away. I will be presenting today together with our CFO, Samuel, who you all will know quite well. Just to briefly go through the agenda, I will start with some reflections on our priorities and actions over the last weeks, and then Samuel will talk about the investee operational development, our NAV capital allocation, and then we'll have time for Q&A. So maybe to start out with a very simple question, which is why are we here? What's the purpose of Kinnevik? And in my mind, there is kind of a simple answer to that question, which is that our purpose is to be good stewards of our shareholders' capital and then generating attractive returns while taking appropriate levels of risk. There are probably also other more ambitious answers to that question, but I like this as a starting point for what we want to talk about today. And then, of course, I also want to mention that Kinnevik obviously has a long history of living up to that promise and doing exactly this. But what do we need to be good stewards of our shareholders' capital also in the future? I think we need a culture that is focused on joint achievement and on performance. We obviously need that within our own team at Kinnevik, but we also need that as an expectation towards our portfolio companies. In this context, I think it's important to strive for values like true ownership. So I want everybody on the team to act like an owner. Accountability, I want everybody to feel accountable for the outcomes that we generate. Focus on simplicity, which to me means to focus on the few things that really drive value and to not do anything else than that, and to do those few things in the most simplest way possible. And then also clarity and candor, which to me comes back to honest and truth seeking debate in the team. So this is really the type of values that I want to strengthen within Kinnevik during my time as interim CEO. So in the spirit of clarity and candor, let's start by confronting some hard facts. In the first quarter of 2026, our portfolio is down 22%. That is a substantial number. It's driven by primarily 3 effects: The first one being a derating of our listed peers due to macro and AI. Secondly, continued challenges that we see in the Climate Tech portfolio. And then thirdly, of course, also our own evolving views on our portfolio. Now of course, we can debate if we all agree with the market's assessment that has been quite harsh, for example, on SaaS companies recently, and personally, I probably disagree with some of that, and I would find that many of the founders that we work with will actually find good ways to leverage AI to their advantage. But I think the bottom line is that we need to accept that the market price for many of our portfolio companies just has changed, and we are reflecting that really to the full extent in our NAV. Now as a first consequence of the ongoing portfolio review, which is not concluded, but has started, we have taken the first decision, which is to discontinue the sector of Climate Tech. I personally actually believe that Climate Tech has a great purpose. And so I don't really kind of like this decision personally. But then again, if we just look at the hard facts and take an honest view, I think it's clear that we have not been able to live up to our expectations. And by the way, just to mention, I think we're not alone with that. It is a sector that has been challenged in many ways and has been difficult for many investors. So on that basis, we have taken the decision to not make new investments in the sector and also not to report it separately going forward. However, of course, we will continue to be good and supportive shareholders to the assets that we do own. We have also done some work to simplify our reporting. I hope you have noticed, we have reduced the length of our reporting from about 40 to about 20 pages. We have tried to make it more plain and we'll continue to work on this going forward. We have also decided to discontinue the idea of core companies. I understand that this concept has been helpful in many of the discussions around the portfolio in terms of focusing on some of the maybe larger holdings. But I also think it has introduced a kind of strategic rationale to the portfolio discussion by saying some companies are core and others are not. So I believe that this distinction might not be helpful to a company like Kinnevik, so we will not report on that dimension going forward. Just to be clear, of course, all 5 of these companies are very important to us, but they are important because of their scale, because of their quality, because of their potential, because of their founders and not because they are core or strategic in nature. Now we have also worked intensely in the team to review our organization and our ways of working. And we have and the leadership team decided on some organizational changes that are far reaching. In my assessment, I saw many things that I liked. I see high engagement with the team. I see a sense of deep loyalty to Kinnevik. I see a desire to collaborate and to do well and to improve and to learn and to grow. But I also think that when I look at the organization as it is today, I don't feel it's necessarily fit for purpose and fit for what we want to do in the future. And I think that relates to its size, but also in many ways to its complexity. And I would like really to make a shift from a mindset that feels a bit focused on different departments and different views more towards a feeling of being one team where just people have different roles and different accountabilities, but ultimately, are one and the same team. So the goal is to be smaller and more focused in our organization to enable more direct communication, stronger collaboration, alignment and then also faster decision-making. I hope that by doing these changes, every team member will have clearer accountability and also the ability to create more impact for the team and for our shareholders. We have also worked intensely on a cost review. And this, I think, ties really back directly to the concept of stewardship. Because when we look at how we invest, we invest really from our own balance sheet, which means literally every krona that we spent unnecessarily is a krona that we cannot invest and cannot make compound for our shareholders. I think in this context, we also have to consider that we do not have cash generating assets in the portfolio currently. So a first review of our cost base signals a significant savings potential that we want to realize by the end of this year. And we aim for a target level of management cash cost of around SEK 200 million per year, starting by 2027. I'll actually come back to that point on the next page with a bit more detail. Now also in the spirit of making every krona account, I think we also need a very disciplined follow-on approach. Many companies in our portfolio are investing to grow fast, and so they should. And I think this is also exciting because the value of many of these companies lies in the future. So we should be investing. And I also believe that our role as investors is to support these companies on the journey. And sometimes also, that means to be investors in follow-up rounds, which I see as a great opportunity to be presented with those opportunities to allocate more capital. At the same time, I think to be good stewards of our capital, of course, we need to be disciplined in these decisions. We need to look at a variety of factors, at the long-term potential of the company but also at the execution track record, the financial performance, the competitive moats and how they are building and evolving, the question of whether or not we can build a substantial stake in the business and have the influence that we would want to have, and also at our own return expectation, which needs to be balanced with the risk that we are taking. So I look at ourselves as a supportive shareholder. But I think it's also important to say that we have the ability and maybe sometimes also the obligation to say no if we think that the investment is just not right for us. So in that context, our goal is to invest not more than SEK 1.5 billion in follow-up rounds in the existing portfolio. And we should not think of this as a budget, but more think of this as a cap. So some of the things that I outlined here will help us to preserve cash. And I think that is important also for my role as interim CEO because my objective is to provide optionality for a permanent CEO. By reducing management cash cost and by being disciplined on follow-on investments, I think we're doing exactly that. And my expectation is that this would leave Kinnevik with around SEK 5 billion in discretionary investment capacity. Of course, this number is not including any capital from potential exits in the coming years. In the context of preserving cash to create investment capacity, the Board is not pursuing share buybacks at this time. Also, the Board is proposing that the AGM provide authorization to the Board to be able to decide on buybacks in the future. So to briefly summarize, and I realize that this has been a lot, but I guess also a lot has been going on. So there's a lot to talk about. But just to recap, I think our purpose is to be good stewards of shareholders' capital, generating attractive returns with an appropriate level of risk. And we have a long-standing history of doing just that. But we are also on a journey where many things will change, and we are working on a number of levers, focusing on those things that we can influence to make sure that we also live up to that purpose in the future. So there's a lot of work to do, and I'm very confident that we'll make good progress in the coming weeks and that these steps will make the company stronger. Now there are just 2 areas where I would like to provide a bit more background. The first one is the cost reduction and the cost review. So just to briefly walk you through our logic. We have started with the 2025 reported management cost, which was SEK 341 million. We have then deducted all noncash items, which are primarily depreciation, amortization and LTIP and then have arrived at the management cash cost for 2025 of SEK 313 million, which is kind of our baseline. And I really wanted to talk about cash cost because cash is king. So that's what we should be talking about. We have then made our considerations around the target of how we think the team should be set up for the coming years and the review of nonpersonnel costs. And on that basis, we have defined SEK 200 million as our new target annual management cash cost. Now you should think of this number as kind of a steady-state cost number. So it might deviate in some cases, such as inflation, FX changes, changes in cash-based incentives that depend on the outcome of those years and the related performance but also significant deal-related or other one-off costs. So to get to this target rate, we are targeting a reduction of about 35%, which I think is substantial. And we are aiming to take the restructuring costs that might be associated with this primarily this year. Of course, now the task will be to make those changes without taking away anything that is material to our performance and value creation. And I think there is a good path of doing that. We'll be working to implement these changes in this year and then aim to reach the new target cost level for the full year in 2027. The second area I wanted to dive a bit deeper into is the idea of cash preservation. So you should think of this chart not as an exact plan, but more as a way to think about it and an indication. So per the end of this quarter, of the Q1, so the last quarter, we have SEK 7.5 billion on the balance sheet. And I think the goal is to spend as little of this as possible. And if we would look at what we have to spend going forward. It's, first of all, the cost for our own team, which I just talked about. If we take a reserve for that for the coming 5 years, 5 x 200, gets us to SEK 1 billion. And then I've talked about the follow-on where we want to stay below SEK 1.5 billion for the current portfolio, which brings us then to SEK 5 billion in cash that will be available to the next CEO, and my goal is to maximize that number. So with that, I hand over to Samuel to take us through the following sections. Samuel Sjöström: Thanks, Rubin, and good morning, everyone. So I'll cover investee performance. I'll work my way into NAV, and then I'll end on capital allocation. Then we'll open up for Q&A, after which, Rubin will give some closing remarks. On performance, based on preliminary numbers, our larger companies have started the first months of 2026 broadly on plan. In Q1, our health investees grew revenues by 28% on average compared to last year and improved EBITDA margins by 3 percentage points. And our software investees grew by 32%, while improving margins by 7 percentage points. In the quarter, we also saw Enveda continue to deliver on important milestones. Their discovery platforms, lead drug candidate, completed very successful Phase Ib studies demonstrating both efficacy results well above the current standard of care and clear signals that the drug is well tolerated and safe. These are promising results, which the company will now try to confirm in Phase II studies. So operationally, our larger companies outside of Climate Tech have had a solid start to the year. But as reflected in the significant public market volatility, there are material and continued uncertainties out there, both in the short term and in the long term. And for us, I'd say that sits mainly in 3 areas. Firstly, rising oil prices clearly may impact air travel, and that would hold back growth at Perk and Mews. Now we're yet to see that come through in actual reported performance, and our forecast do not incorporate this potential impact, but I should say that Perk shared some observations of the recent travel trends that they're seeing a few weeks ago, and we've put a link to that on this slide. Secondly, there is continued uncertainty around U.S. policies for federal funding of Medicaid and Medicare. Now that's something we, probably you and Cityblock clearly have grown accustomed to in the last quarters, and it's something that we're trying to factor into our projections. Thirdly, the key topic across our focus sectors is AI disruption and how this is feeding into the long-term growth expectations, terminal values and thereby, ultimately, share price performance of public software companies. We published an article on our website that combines our perspectives with some insights from across the portfolio. And while these clearly do nothing to alleviate the compression in public market multiples, we feel they do provide important nuances when one reflects on our conviction in the longer-term outlook for our companies. But moving to Page 7, the way public markets digested AI disruption was the primary driver of valuations this quarter. We saw broad and significant multiple contraction across our public peer sets, particularly in software and software like health care technology services. It is evident that capital is rotating into other sectors with public software being the weakest performer year-to-date with index declines of around 20% to 25%. As a result of this uncertainty and rebalancing, the sector is now trading at its lowest multiples in roughly 15 years. This drawdown was fairly indiscriminate across types of companies, but we do see a few patterns. Two in particular stand out and they also resonate with our own hypothesis. And that's, firstly, that fast-growing companies continue to command significant valuation premiums in public markets. And secondly, looking at share prices over a longer time period than just Q1, more vertical software companies that provide specialized services have outperformed less critical horizontal application companies. And these stronger performing companies are often not only the systems of record, but also form core workflow systems. And this, many argue, should enable AI and vertical software to become more of a feature than a threat. Again, please make sure to read the article that I mentioned that we posted on our website. And please also note that we're providing some subcategories of peer groups in our standard spreadsheet published on our website this quarter. And as trading patterns in public market evolve, the subcategorization may grow in importance going forward. Having said all of that, again, in Q1, the market drawdown was still fairly indiscriminate. So what we're doing on this page is that we're showing the quarter's changes in multiples in our larger investees, and we compare them to the trading of their respective public peer groups. The black lines chart the multiple movement from the bottom to the top decile company in each peer group, and the red label dots represent our larger companies. As you can see, we have generally stayed within the trading ranges that we've seen in public markets when we reassess the multiples we value our businesses at. And we've also considered the recency of larger transactions in companies like Mews and Oviva that warrant a somewhat milder but still substantial multiple contraction. In other cases, like Cedar and Pleo, we've been a bit harsher considering the lower growth profile of these companies relative to other industries. Our valuation model suggests that this is fairly proportionate to what we're seeing in public markets, where slower growing public software companies have traded down some 10 percentage points more than their faster-growing equivalents. And lastly, at Cityblock, we've focused more on the trading of the more tech-enabled peers rather than the traditional care providers to try and reflect this underlying market narrative. Moving to Page 8 to put this multiple headwind in absolute terms, it brought an SEK 8.3 billion negative impact on private valuations this quarter. And that obviously makes it the driver of our private portfolio decreasing in value by 29% in the quarter. Adding net cash and public assets, NAV was down 22% in the quarter and in Q1 at SEK 27.9 billion or SEK 101 per share. Going by sector. Health & Bio was down 20% and software, the sector most vulnerable to public market multiple contraction, was down 38%. Our Climate Tech companies, meanwhile, were down a meaningful 56% in aggregate, and this was a decline driven more by individual company circumstances. The main driver was the announcement of the funding round at Stegra in which we have elected not to invest. And with the clarity gained here, we've taken a revised view of the fair value of our investment and have decided to write it down to EUR 10 million. If the company hits the business plan that underpins this funding round, we expect to be able to recoup our full investment over the coming 5 to 6 years. And we've discounted this expectation at a conservative rate of return to reach the fair value that we report today. As Rubin mentioned, we've narrowed our sector focus. That entails us not making any new investments in Climate Tech, and it also means changes to how we categorize our NAV. And as we make this change in today's report, we have made sure to provide a full breakdown of the fair values of each company in Climate Tech and the valuation reassessments that we're making this quarter. And on our website, you will also find the spreadsheet providing a historical pro forma NAV overview based on this new amended categorization. In our NAV statement in today's report, we now also show the value of our investments based on the last transaction that we've noted in each company. In the current market volatility, fair value ranges widened and our valuation process places a very short expiry date on transaction-based valuations. But we hope you find this additional detail helpful, nonetheless. More specifically, over the last 12 months, we've seen transactions in 46% of our private portfolio by value at a 9% weighted average premium to our preceding NAV assessment. So the transaction pace in our portfolio has come down a bit over the last quarters. And moving to Page 9, you also see that reflected in our capital allocation in Q1. Because in the quarter, our only investment was effectively the completion of our EUR 20 million participation in Mews' funding round that we announced earlier this year in connection with our Q4 report. Net investments amounted to SEK 116 million after the sale of a real estate property as part of the rightsizing of our cost structure that Rubin went through. And after HQ costs and treasury income, our net cash balance was largely unchanged in the quarter ending at SEK 7.5 billion. So our financial strength and flexibility remains strong, and is reinforced by the cost savings and the SEK 1.5 billion follow-on expectation for the existing portfolio that Rubin went through. And looking ahead, we're continuing to execute on the capital allocation priorities that we laid out earlier this year, driving towards a more concentrated and more mature portfolio. And with that, we'd like to open up for Q&A before Rubin gives his closing remarks. Operator: [Operator Instructions] Now we're going to take our first question. And it comes from the line of Linus Sigurdson from DNB Carnegie. Linus Sigurdson: So starting if you could help us break down these SEK 1.5 billion you're talking about. Is this primarily through continued participation in primaries in the larger companies? Is it tilted more towards the emerging companies? I guess, especially, as you mentioned, it excludes some of the opportunities for follow-ons? Rubin Ritter: Yes, sure, happy to give some more color on that. So I think the SEK 1.5 billion is derived by going through the portfolio and looking at where do we see follow-on demand coming up in the coming years, and then just taking the sum of that. Of course, those things are difficult to foresee. So it might be more tilted towards younger companies. It might be tilted to companies that already have larger scale. But overall, the idea is that this is the amount that we expect we -- the limit to what we might need to bring the portfolio to profitability in follow-on rounds. I think separate from that, I just think it's important to underline that to me, if there is one company in the portfolio that reaches scale and profitable growth and starts to go into the phase where you would talk of them as a compounder that continues to execute, but on the basis of a much more mature profile or as being listed. And then if Kinnevik were to decide to double down on that asset and take a larger ownership stake, to me, that would be a different logic. And that would fall into the SEK 5 billion discretionary investment that we might choose to make going forward. So this is, I think, a bit how our thinking of the SEK 1.5 billion differs from the SEK 5 billion that the firm has available long term. Linus Sigurdson: Okay. That's clear. And then if you could talk a bit about how you've set up processes to make potential exits? I mean should we think about this as a portfolio wide effort? Are you targeting certain types of companies? And if this is what you mean when you say the portfolio review is not concluded. Rubin Ritter: No. I'm sorry. By saying that the portfolio review is not concluded, I'm just sort of indicating that in the 4 weeks that I have been here, I have not been able to dive deep into every one of those assets, right? So we have started with that, and you see that already some decisions have come out of that process. But I think for practical purpose, we are still in the middle of it. I mean, Kinnevik has more than 30 portfolio companies. And I think it takes time to go through that, and it will take us more time going forward. In terms of exits, so I think for Kinnevik in the midterm, it would be wise to move towards a more concentrated portfolio. At the same time, I think it's very difficult to time these things. And I also think it's not in the best interest of our shareholders to rush into exits. So there I think we just have to be balanced in how we approach it. Linus Sigurdson: Okay. I appreciate that. And then my final question, I mean, I can understand this waiting to pursue buybacks ahead of a permanent CEO being in place and your comments around optionality and the SEK 5 billion. But what types of actions do you envision a permanent CEO could take? Rubin Ritter: I'm not sure I fully understand the question, but I think a new CEO could take all sorts of actions, primarily also defining what will be new focus areas for investments going forward and how do we want to complement the existing portfolio that we do have that, as we know, consists primarily of younger companies, fast-growing companies, how do we want to complement that with investments potentially in other sectors or with a different maturity profile. Those will be decisions to be taken by a new CEO, also in line with the new strategy going forward. Operator: The question comes line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: I appreciate the clarity. I wanted to follow up on the potential exits here going forward. I mean, how do you view the possibilities for that? And how high on the agenda is it right now as it could sort of change your outlook for what you provided for the balance sheet going forward? I mean looking at some of this, especially the prior core assets, it seems quite clear that they are quite attractive in sort of the private market space. So how do you think around that? Rubin Ritter: Yes, as indicated, I think directionally, over the next years, I would like to see a more concentrated portfolio. So I think that is something that we definitely will look at and consider. But then at the same time, we live in a very volatile world. I think it's very difficult to give more color or like a specific forecast on how exactly that will play out. So I think we just will be investing a lot of time to go through the portfolio to review the different options that we have. And I can promise to you, we'll be very active in thinking about where to take the portfolio and what actions would be in the best interest of our shareholders. I just find it very hard to make specific forecasts on that topic. So I would not want to promise something that is then hard to influence because it also depends on many other factors. And I think it would be wise for us -- like if I think of this as my portfolio, I think I would try to really carefully strike that balance to become more concentrated going forward, but then also to try to find the right time and the right moment and the right price if I wanted to make any exits. Derek Laliberte: Great. That's very understandable. And on the write-downs here, I mean, apart from the peer declines outside of Climate Tech, what do you mean about what has changed in your underlying view of the assets outside there because we see Perk being down 43% and Pleo down by 40%, which does some pretty extremely in the light of how peers have moved and also the latest transaction values in the market. Samuel Sjöström: Derek, it's Samuel. I'll try to answer that one. So naturally, our views and our companies are evolving continuously. But as we stated in today's report and in the prepared remarks, there hasn't been any meaningful changes to the outlooks for our larger companies in this quarter. So what we're trying to do here and what our process is trying to sort of apply onto our private portfolio is this very substantial drawdown in public markets. And there, we believe, and the models tell us that it should be affecting our investees in varying degrees. So as you rightfully state, Oviva and Mews have recently raised funding rounds. That typically leads to slightly milder but still meaningful write-downs because as I mentioned, the expiry date on transaction valuations in this type of volatile market is very, very short. And then we have companies that are growing slower, such as Cedar and Pleo. And the data tells us that those should be impacted slightly harder than a company growing a bit faster all else equal. And you mentioned Perk. Clearly, there, we have a comparable in Navan. That company is trading at around the same levels it was doing at the turn of the year. So our process makes us feel obliged to move closer to where Navan is trading, even though our view on Perk's long-term value creation potential has not changed one bit. So I'd say the write-downs you're seeing and the variations in write-downs you're seeing in this quarter is less driven by a change in view on our individual companies or their performance. It's about how to apply this very significant derating in public markets across a set of investees that share some characteristics and have some differences in between them. Derek Laliberte: Appreciate the clarity. And then looking at the 10 largest assets you list here, can you say something about which of these you are the most sort of comfortable with in light of the potential of AI disruption here? And where do you see the biggest risks in the portfolio? Samuel Sjöström: So naturally, as you can imagine, we and our companies are spending a lot of time assessing how our company's best can adapt to a changing environment, not something that clearly we're used to. I don't want to reduce the write-up that we've put up on our website to a 30-second answer. But to give you some examples, like we see very strong moats and aspects like Mews' ownership of quite complex workflows at hotels. We see moats and Enveda's ownership of proprietary data, and we see defensibility at Oviva in terms of the trust from customers and regulators that they've built up over several years of real-world operations. But I'd refer you to that write-up on our website. And I think in terms of how the risk of AI disruption is reflected in our valuations this quarter is mainly through this relatively indiscriminate derating that we're seeing in public peers. And we're not sort of trying to be smart when applying that in terms of thinking about the longer-term view on AI that we have in the piece on our website, but the valuation process is much more quantitatively driven. Derek Laliberte: Got it. Okay. And then just on this organizational simplification you're carrying out. I mean, looking forward, what will be sort of Kinnevik's action as an investor going forward as you see it? Rubin Ritter: Well, I think Kinnevik's focus really over the last years has been to invest into fast-growing challenger type companies that take on big problems and try to solve them differently through technology. And I think that is really the type of business that we have been focused on in the past. And of course, we'll also continue to work in that field and continue to evolve our view and continue to try to find great opportunities. But then I think in terms of how to build capabilities there, it's also, to a large extent, driven by what future strategies and future focus a permanent CEO looks at. And I think that can only be answered once that person is on board. When we think or when I think about the target org, we try to provide that flexibility in the way that we structure the work in our investment team, to do it in a way that we can continue to cover those sectors that we are focused on right now in a really good way. And in my mind, that's not always a function of the number of people. It's also a function of many other things. And then how to have the flexibility to add new ideas and investment themes that will define the future of Kinnevik once it is clear what those are. Derek Laliberte: Perfect. And finally, I mean, given that you're striving for more efficient operations, does having sort of 2 offices and teams align with that vision? Rubin Ritter: So in my mind, I think that going forward, Stockholm should be culturally, and also from where the team comes together, much more the center of gravity. We'll continue to have colleagues that live in different places across Europe and London will be one of them and will provide good opportunities for them to work there and meet companies. But I don't think we should think of that as a second half, not only in terms of the cost that presents, but also and maybe more importantly, in terms of what that presents in terms of having different cultures. I mean, Kinnevik is before the change and after the change, ultimately a small team. And I think there is a big benefit to have 1 physical place where the cultural center of gravity is. And I think, for Kinnevik, that should be in Stockholm. Operator: The question comes from the line of Bjorn Olsson SEB. Bjorn Olsson: Two questions on the organizational changes. First, could you give any more flavor in terms of where you expect to find the cost efficiencies? Is it from the investment teams, back office or just sort of across? And second, I mean, culture is something that's in the walls. So when you now strive to increase the performance culture in your company, do you have any sort of tangible actions planned in terms of either changed incentive schemes or any sort of change of key staff or similar? Rubin Ritter: Thank you for the question. So I think in terms of where we see savings potential, I think it's really -- we look at it across the board, and across all those different topics that you have mentioned. It comes down to a leaner target organization, but also then on nonemployee-related costs, there are opportunities that we see, such as office cost, IT cost and many others. So it gets very granular very quickly. But I think we just really also owe it to everybody that we do that tedious work. And essentially, we're looking at every single contract, and we are reviewing if we need it. And what is the value it creates, and is there a simpler and more efficient and better and also a cheaper way to do it. So that's clearly a focus. I think in terms of performance culture and achievement culture, you are 100% right that this is not something that can be impacted just within a few weeks. I think that is -- obviously, those processes take more time. And I think a lot of that will also be then hopefully brought forward by a new CEO. But to me, it is really a lot about leading by example, how do you take decision? What quality of argument do you accept? What do you not accept? So I think it's in the -- in many of the details of our daily collaboration that I think culture comes through. And just to be clear, that's also not just about me changing that, that's also about kind of the team bringing out the good things that we see and encouraging the team also to lead itself and each other in that regard. So I think that is something I'm quite passionate about and where I think we can make a lot of progress. You mentioned incentives. I mean incentives, of course, also play an important role. But to be fully frank, I haven't looked at that in the first 4 weeks, but I agree it's an important theme, and it will be important for the long-term success of the company that we get incentives right. That is, by the way, saying that they are not right, but they need to be right, and I haven't reviewed them yet. Bjorn Olsson: Good point. So then just a minor follow-up. So in terms of redundancy costs, when you're sort of rightsizing, that should probably be lower than if the FTE reduction is a smaller part of the SEK 100 million in cost savings? Rubin Ritter: I think personnel is a part, just like many other pieces, and there will be also redundancy costs related to personnel but also related maybe to other contracts that we might want to get out of. And the idea would be to incur the majority of that still this year. Operator: Now we're going to take our next question. And the question comes from the line of Oskar Lindstrom, Danske Bank. My apologies, there are no questions from Oskar. Now we'll proceed for the next question. And the question comes line of Johan Sjoberg from Nordea. Johan Sjoberg: I had a couple of questions actually. Starting off, Rubin, I mean, looking at your -- I understand you're 4 weeks into your temporary job and you have a lot on your plate right now. But on the other hand, I mean, you have tons of experience, you have aboard with a similar amount of experience. You have Samuel also, who is well on track, how things have been progressing with the 30 portfolio companies. So my question for you is how long time do you think it would take you to sort of get your head around all the companies, which was to sort of focus upon who will be sort of your concentrated portfolio over the coming -- in the foreseeable future? Rubin Ritter: Yes, sure. I mean I personally would think of it as a kind of ongoing process and ongoing discussions and considerations that we have in the team. And I think we also have many ideas in that regard already. And as you mentioned also, we're not doing everything from scratch. There is existing views and existing knowledge, obviously, in the team, right? So sometimes it's also just about following up on that and servicing those pieces. So I think we're incredibly focused on it. But I don't think it would be wise to now put ourselves in the corner by sharing specifically what our thoughts are on individual companies. I think that's not advisable. But as in any good investment company, I think those discussions should be ongoing as ordinary course of business also to just always be up-to-date on your portfolio on the different type of companies, and what our position on them should be going forward? Johan Sjoberg: I understand. So you have to sort of push a little bit here on the 30 portfolio companies. So when you talk about a more concentrated portfolio, what sort of range are we talking about here? Are we talking about below 20 or are we sort of -- once again, I understand it's early, and you don't want to sort of promise anything, but just for us to get some sort of feeling here. Rubin Ritter: Yes, right. I mean, to be frank, I think a lot of that also comes down to strategic decisions by a new CEO, but then I also don't want to shy away from an answer. In my view, it's not necessarily about a magic number. So I don't think there is kind of the perfect portfolio that is 10 or 15 or 25. But it's really about, in each of the companies to have a position that allows us to be a meaningful owner and to only have such a number of positions that you can cover with a kind of small, lean, but very experienced and high seniority team, that you have only positions where you can have a meaningful value add to those companies where you truly can be a great owner of that business and provide the right level of leadership to those companies. So those would be some of the considerations I would be focused on. And I don't have the number for you. I don't think of it in those terms, but I do think that the current number is too large. I think that is also given -- I mean we all know there is a large bucket of what we call other companies that has to do with previous strategies. And I think a lot of these things just have maybe a bit accumulated over time. And there we need to think through how to take that into a good direction going forward. Johan Sjoberg: Perfect. And we also talked a lot about the new CEO. Could you just give an update on how that process is ongoing here? It's been since November that the first decision was out. And you had a lot of time. I understand a lot of -- it's been a full headwind in Q1 in terms of how the market is viewing this sort of company, but also what is done right now. Rubin Ritter: Sure. I mean that search process is led by the Board and then more specifically, a subcommittee of the Board. And I'm sure they will give an update as soon as they have an update. But there's not really a whole lot more I can say on the issue. I'm on the subject. I'm right now incredibly focused on the inner workings of Kinnevik and all the work that we outlined in the presentation. Johan Sjoberg: Okay. Final question, Samuel, maybe you can help with this one. I mean just looking at the NAV or the write-down of NAV in the quarter, I think it's great that you have taken down the NAV because obviously, the market has not believed in sort of the underlying figures here. And sure, we've seen multiple contractions during the first quarter. But then on top of that, also you had some -- you also changed your view of growth for some of the few companies. And I guess, first of all, this is not a number, which I guess, Rubin, you feel much more comfortable with also, although just 4 weeks into the job. But just to get a feeling for, I mean, Samuel, maybe just looking at sort of the multiple impact on the write-down, how much would that be? And sort of what is the impact from your sort of changed view on the NAV also? Samuel Sjöström: Thanks, Johan. So I mean the easiest way to answer your question is to refer back to the page where we show that multiple contraction had a negative impact on NAV in excess of SEK 8 billion. And again, in terms of how we've applied the multiple compression we're seeing in public markets onto our portfolio, that is sort of flowing through our process, which is unchanged and is sort of intrinsically rigged, to be conservative, to be objective and to be as numbers driven as possible. And clearly, valuation levels in our portfolio has come down over the last quarters and last years. And I think that's 2 reasons mainly. Our portfolio has matured and that public comps have derated significantly. So in this quarter, specifically, we're taking that significant hit from the public peers. We've learned a lot over the last couple of years, and those learnings are clearly sort of ingested into our quantitative models. And then as always, there are individual considerations, but then again, those individual considerations are mainly of a technical and quantitative character in our different regression analysis and so on. So again, in terms of outlooks on our companies, looking at the larger investees as a group, those are largely unchanged. And in Q1, the larger companies have delivered on expectations. But yes, there is a lot to decipher in the public market moves in Q1. Johan Sjoberg: I'm just referring to sort of looking at the software down 38%. I mean just looking at sort of the presentation which you gave ahead of -- these are clearly below. And once again, I don't have a problem with it at all, but it seems like you have written it down more than sort of what the multiple seems to report, multiple contractions, that's sort of my -- maybe I'm wrong here. Rubin Ritter: To summarize, I think we are confident with the variations that we have put out in Q1. I think that's the bottom line of it. Operator: Now we're going to take our next question. And the question comes line of Oskar Lindstrom from Danske Bank. Oskar Lindström: I hope you can hear me this time. I have 2 sets of questions. The first one is on this ongoing portfolio review. And could you see adding back a cash flow-generating asset as opposed to more of the growth-oriented assets that you have today as part of the portfolio, again, to sort of have that balance between cash flow-generating assets and growth assets? That's my first question. Rubin Ritter: I think it's a very relevant question. And I think it also falls into that category of future strategy where, again, I just want to be careful with my own view, given that I'm also only here temporarily. But I think there is -- my personal view is, there is merit to what you are saying. And I think there needs to be the effort to make the portfolio more balanced. And my understanding is also, I don't oversee kind of the full 90-year history of Kinnevik, but my understanding is that also even though the company has a history of backing challengers and taking technology investments at early stages and kind of betting on the future in a way, in my understanding, that was at many times also balanced with more mature, more cash-generating assets in the portfolio, maybe also some of them being listed. And to me, that seems like an advisable idea because right now, of course, and that also became apparent when we went through the valuation exercise, one challenge that we clearly have, and I think it's also something that the team here internally really tries to live up to very hard, is that we have a portfolio of private fast-growing assets that are just really not easy to value. I think we can all agree on that. And then every quarter, of course, we have the expectation of public shareholders that want clarity and transparency, also for very understandable reasons. And every quarter, again, we have to kind of bridge that gap, and that's not an easy task to do, and that's also not easy on the team here internally. And I have also experienced that now firsthand when going through the valuations. So I think also in that regard, it might be a path to just make our lives a bit easier and also to generate a more balanced outcome for shareholders. So I think there's merits to that idea. But then again, I think it's also subject to the general strategic discussion going forward. Oskar Lindström: My second question is on the roughly SEK 1.5 billion of follow-up investments that you've talked about. How soon could that SEK 1.5 billion needs to be spent and you estimated? Is it like front loaded or sort of evenly over the years or how soon? Rubin Ritter: I really understand the question. And I think I would also love to know, I think that's the honest answer. I mean we have some view and some visibility on what demand might be coming in the coming months, but then it's also really difficult to forecast. And just maybe also to reiterate, I think it's really important to think of this not as a budget that we intend to spend, but it's more kind of an estimate or like a cap that we want to limit ourselves to because I also think in my perception in the market, there has been the perception that maybe the majority of the cash that we have might need to be deployed into the current portfolio. And I think our message is just that we really don't think that, that is the case necessarily. So that is the context why we have talked about this number, the SEK 1.5 billion. But then really, it will be a bottom-up exercise. I think every follow-on opportunity has to be assessed in its own right. I tried to speak to what are some of the characteristics and some of the analysis and some of the considerations we will make when we evaluate whether or not to participate in those rounds. And I think that is really what will be happening. So it's very much bottom-up. I wouldn't want to forecast it too detailed on a time line. And I think of the SEK 1.5 billion as an estimate and the maximum number. Oskar Lindström: Just a follow-up there. The SEK 1.5 billion, is that within the next 5 years? Just to clarify that once more. Rubin Ritter: Yes, I mean that's probably like a reasonable assumption. We talk about the existing portfolio, right? So like theoretically, it's a number into kind of eternity because we have the existing portfolio. It continues to drive towards profitability. And at some point, more and more of these companies just will not need further follow-on investments, right? So then they fall into a different category where we can, of course, always think about if we want to accrue to a larger stake because we think it's a company really want to be holding long term with a larger allocation, but that's been a different consideration, right? So as the portfolio grows towards profitability, that number will be deployed, and it's difficult to put a number on it, but probably 5 years is a valid assumption. Operator: [Operator Instructions] And now we're going to take our next question. And the question comes from the line of Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: I just have two from my end as well. Rubin, thank you for your thoughts. And I was just curious, there must be some sort of conversations that come your way that says, look, with valuations crashing the way they've had, aren't there any opportunities in the market also to sort of deploy capital in some very interesting assets that are now probably attractively valued, maybe in sectors that are topical like AI? How do you sort of deal with those kind of topics that come your way, given Kinnevik at the end of the day is an investment holding company? Some color there would be great. And second, I guess, we're halfway into April, have you all seen the valuations of the peers that you're using as comps stabilize so far in Q2? Or has it also been volatile with the geopolitical sort of news that's out there? Some color there on what's going on with the comp base would be great quarter-to-date. Rubin Ritter: Great. Thank you. Maybe I can comment on the first question, and then Samuel can take the second question. So I think you have a great observation that obviously volatility always also creates opportunities. And it is exactly in that context that I also see Kinnevik's SEK 5 billion of cash available to investments as a great asset to be able to potentially act on opportunities. And I also expect the Board will continue to be volatile going forward. So I think in that context, that balance sheet just becomes a very strong asset in the way that I look at it. In terms of AI, I mean, Kinnevik already today has exposure also not only to software companies that are taking this new technology onboard very decisively, but also to some AI native companies. And here, maybe I can also point you to the piece that Samuel already has referred to on our website on building business -- our thoughts on building businesses in the age of AI. Samuel Sjöström: Yes, Nizla on what we're seeing in peers, April to date, I'd say that volatility remains very high. If you look at cloud ETFs, they were up 5% yesterday and a week ago, they were 10% lower than they are today. So it seems to continue to sort of bounce around, both in terms of share prices, but I'd say sort of the volatility and the underlying drivers seems high as well with new AI product releases every week and clearly, what's going on in the Middle East and the posturing from the U.S. administration. So volatility is persisting in April. In terms of absolute levels, they are roughly around where we ended Q1. But again, very volatile still out there. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to Rubin Ritter for any closing remarks. Rubin Ritter: Great. Thank you all for your participation, for your time, for your questions and the good discussion. Maybe just to reiterate, as we have also pointed out in the Q&A, Q1 has been a tough quarter in many ways to our shareholders, to the team, to the company overall. A lot of things have been happening. And I also think that during Q2, we will just be very busy as the world continues to be volatile, and as we start to take some of the steps that we have been discussing. We have been talking about the cultural shift that we want to work on, how we want to work on preserving cash, for optionality for the future and how we want to move towards a gradual portfolio concentration by balancing that with the time that it might need. And I think many of those changes will also take time and hard work. But at the same time, when I try to see through this, I also see many positive things. I'm just really convinced that the changes that we have talked about will make the company stronger. And I really think that the cash position that the company has will create options going forward. And as we just discussed, I think that's particularly valuable in a world that is as volatile as ours. I do think we have great companies with great potential in the portfolio. And even though we have talked about the NAV impact on this quarter, I think we just should not forget that these companies are there and that they continue to execute. And I see a quite good path and a good chance that their value will also become much more tangible going forward. So I think this provides the basis for the company being significantly stronger in the future than it may seem today, and that is what we as a team are really focused on. So thank you again for your time, and have a good day.