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Operator: Greetings. Welcome to Huntsman Corporation's first quarter 2026 earnings call. At this time, participants are in listen-only mode. A question-and-answer session will follow today's formal presentation. Please note this conference is being recorded. At this time, I will turn the conference over to Ivan Marcuse, Vice President of Investor Relations and Corporate Development. Thank you. You may now begin. Ivan Marcuse: Thanks, Rob, and good morning, everyone. Welcome to Huntsman Corporation's first quarter 2026 earnings call. Joining us on the call today are Peter R. Huntsman, Chairman, CEO and President, and Philip M. Lister, Executive Vice President and CFO. Yesterday, 04/30/2026, we released our earnings for 2026 via a press release posted to our website, huntsman.com. We also posted a set of slides and detailed commentary discussing the first quarter 2026 on our website. Peter R. Huntsman will provide some opening comments shortly, and we will then move to the question-and-answer session for the remainder of the call. During this call, let me remind you that we may make statements about our projections or expectations for the future. All such statements are forward-looking statements; while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income or loss, and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website at huntsman.com. I will now turn the call over to Peter R. Huntsman, our Chairman and President. Peter R. Huntsman: Ivan, thank you very much. Thank you all for taking the time to join us this morning. Before I begin my remarks about our company and recent events, I want to simply say that I hope there is a quick and peaceful resolution to the ongoing conflict in the Middle East. Over the past 40 years, I have had the opportunity to visit every country bordering the Persian Gulf with the exception of Iraq. I have always been treated warmly and fairly by the people I have encountered. I hope that my comments do not come across as being in any way indifferent to the suffering and fear emanating from this region as I address the economic impact of these events to our bottom line and industry. From the first hours of this conflict, our number one commercial priority has been to increase prices enough to offset rising costs. I believe we have been successful in doing this. This will require continued communications with our customers and suppliers and also the discipline to make sure that we are not a shock absorber between raw material costs and finished product pricing. Our next priority is operating our plants in a reliable manner to make sure that we have the product to meet our demand. Our operations during the first quarter and going into the second quarter have been excellent. From a sales perspective, we are seeing stronger than expected demand going well into the second quarter. I would say that this is being brought about by three factors. Number one, seasonality as we move into the second quarter and the building season resumes across North America, Europe, and Asia. Number two, customers who are buying ahead of the expected price increases that are being announced. And number three, disruptions that have been seen in certain trade flows have impacted supply. An example of this would be some of our maleic customers in Europe who have become overly dependent on Chinese-supplied maleic and have seen a disruption in supply as raw materials and shipping costs have increased from that region. These three factors are also happening at a time when most inventory levels are very low across many supply chains. These improved order patterns are being seen as we enter into the second quarter in most of our regions and across many of our products. The obvious countervailing point to all of this is how long does it continue. I can see order patterns that go through the month of June. The guidance that we have shared from each division in Q2 reflects what we have seen to date. Today that visibility is less clear as we look further into the quarter. I struggle to see how inflationary pressures, particularly in areas reliant on imported energy like much of Asia and Europe, will not see an inevitable downward pressure later in the year as consumer spending gradually shifts towards higher prices. To what degree this occurs is yet to be seen. I am heartened to see the housing starts and durable goods orders in the United States better than expected for the month of March. But I am also keeping an eye on residential permits, a step that precedes construction starts, down 11% for the month of March. There will also be some longer-term dislocation of traditional economics. If you were a producer that enjoyed discounted raw materials coming out of Venezuela, Iran, and Russia a few months ago, it is likely that you are not seeing such discounts today and I highly doubt you will see them in the foreseeable future. Many customers are looking for closer and more secure sources of supply. Supply chains are shifting and being reassessed. I believe that there will be some lasting impact for certain regions and products that may not seem too apparent today. It is simply too early to know how lasting some of these will be. In short, we are aggressively raising our prices to both cover our cost of our raw materials while also expanding margins from the trough economics we have been experiencing for the past three years. We will continue to manage our costs and deliver these objectives on budget. We will be focused on volumes and make sure that spot buying also comes with longer-term volumes and obligations. I am glad to see the trends that we are seeing in the second quarter. We still have a ways to go to get to our normalized margin levels. This will require stable and longer-term demand trends to continue. I feel that we are in a strong position today to capitalize on such changes going forward. Thank you. Operator, with that, we will now open the call for questions. Operator: We will now open the call for questions. We ask you to please limit yourself to one question and one follow-up. Thank you. Our first question is from the line of Patrick David Cunningham with Citi. Please proceed with your questions. Patrick David Cunningham: Hi, good morning. In the release, you talked about the potential for a more durable return to mid-cycle profitability. This likely depends on both supply and demand side at this point, but can you give us the latest view on what this crisis may do in terms of supply-side rationalization for MDI and polyurethanes? How do you see this playing out in terms of structural energy cost pressure, feedstock availability, or potential closures at this point? Peter R. Huntsman: I do not see a great deal of change as we look at MDI. I do see pressures continuing in Europe. If you are a European producer now having to put up with natural gas that is priced somewhere in the mid-teens versus where we are today, I noticed in the Houston Ship Channel price this morning was under $2 per MMBtu. These are real, material gaps and shifts. I cannot help but think that there is going to be continued pressure on petrochemical producers across the board and in MDI across Europe. Having said that, I also think that there are probably some structural issues that may make Chinese exports in certain products—I will not get into exactly which products those are, but I think that they are varied across the board. If you are relying on coal as a raw material in China, you are probably doing quite well. If you are integrated into a world-scale refinery and integrated system in China, you are probably doing quite well. If you are part of what they call the teapot collection of refineries integrated into export-bound chemical facilities, you may be under some cost pressures as you see some of the discounted crude products. So it is not just what we see from a competitive point of view, it is also what we see from the raw material that many of our customers, many of our competitors, and the industry in general will be facing. I think those are some of the longer-term issues that we will be dealing with, even after the Strait of Hormuz hopefully opens soon here. Patrick David Cunningham: Very helpful. And could you talk about the sustainability of the positive trends you are seeing in Advanced Materials? Particularly interested in line of sight into aerospace and power order books and what that potentially means for segment profitability in 2026? Peter R. Huntsman: Yes. I think—and I do not want to get too much into our numbers as to where we planned and where we saw a lot of upside since the beginning of the war, or else my CFO will start kicking me. But the performance we are seeing in Advanced Materials is largely what we expected a quarter ago. We may have seen a little bit of impetus there in price, but remember that business is not reliant on any one major raw material as you would see, for instance, in benzene going into MDI or some of the raw materials—caustic and chlorine prices and so forth—into some of our Performance Products material. And so as you look at our Advanced Materials segment, that continues, as we have said now the last couple of quarters. We see the recovery continue with aerospace and power, these better-than-GDP growth businesses, and that business is just going to continue to get traction. I am not sure the results this quarter and the second quarter, where we finished the first quarter, would be materially different from where we would be without the Gulf conflict. Operator: Our next questions are from the line of Kevin William McCarthy with Vertical Research Partners. Please proceed with your questions. Kevin William McCarthy: Yes, thank you and good morning. Peter, can you speak to operating rates in MDI both for Huntsman and also what you are observing at the industry level? And related to that, how are things changing post-war versus pre-war? Peter R. Huntsman: Yes. I think that as we look at the industry in general, you are probably looking at the low to mid-80s. And I think now from where we are, we would be in the high 80s. We are sold out completely in our Chinese operation. Our U.S. operation, for the most part, is sold out. Europe, as we said when we announced our first quarter earnings before the Middle East conflict, we are starting to see some green shoots there. We continue to see some opportunities in Europe. And I would say that we are operating at pretty good levels across the board. There have been a number of outages and, I would say, short-term and also planned disruptions in the industry. Not too unexpected when you have an industry that has been operating at probably 70%–80% for the last couple of years and now all of a sudden you see an increase in demand and pull-through. You typically have operating issues. I cannot speak about the competition, but I can just say in our facilities, all three of our MDI facilities, our associates there have done a fantastic job in their operations. Kevin William McCarthy: Thank you for that. And then secondly, I imagine your PO/MTBE joint venture in China has become more profitable. Maybe you can talk about what you might expect for equity earnings trajectory moving forward? Peter R. Huntsman: Yes. Certainly in the past it has been a little bit of a drag on us. I think today we are probably in the low- to mid-single-digit millions of dollars of impact on that business. So certainly doing better than it has been in the past. And I would hope that MTBE, that C factor should improve as you get more into the driving season. But there is just so much volatility right now in the whole refining chain and what is going on with PO economics. That would probably be one of the murkier businesses that we have as far as looking into the future. Remember, Kevin, the price of gasoline is managed— Philip M. Lister: —differently in China than elsewhere in the world. So MTBE margins are not what you would expect. In China, where the Chinese joint venture is making money today is on propylene oxide and the margins that we are seeing there over and above propylene. Operator: Next questions come from the line of Frank Joseph Mitsch with Fermium Research. Please proceed with your questions. Frank Joseph Mitsch: That is interesting. So PO is doing better than TBA/MTBE in China. Thanks for that enlightenment. Peter, I was wondering if you could speak to the polyurethane and MDI pricing initiatives that are underway, how that relates to underlying benzene costs, and what sort of successes you are seeing or not on that front? Peter R. Huntsman: I would say that we are certainly staying ahead of the benzene curve, never as far ahead as I would like to see it. I would like to see it multiple times better than what we are seeing. But I highly compliment our sales and marketing groups on their aggressiveness in making sure that we are covering our raw material costs and staying ahead of that. So yes, both from a volumetric basis we will see a positive influence on it and also margin expansion. Above and beyond raw materials, we should see expansion on that. Frank Joseph Mitsch: All right, terrific. So margin expansion. If I think about the price/mix for Huntsman Corporation overall, it has been negative for several quarters here. Given these initiatives that you have underway, is the expectation for the full company to show positive price/mix here in Q2 and hopefully beyond? Peter R. Huntsman: Certainly in Q2, hopefully beyond. I would reinforce that as well. As I look at some of the pricing trends that we are seeing going into the second quarter—just to give you an idea—in North America, I am talking about all products, all prices. So I am not saying any one division, but we have not seen a quarter-on-quarter growth in price trends since 2022. So the trends that we are seeing right now and the jump that we are seeing on a quarterly basis right now in North America—we have not seen that in years now. Europe is not too dissimilar. We have seen a few quarters here and there where we have seen some up pricing, but that is more to do with the strength of our Advanced Materials business in Europe, not because of the macro trends there. So yes, I like where we are going into the second quarter. My only question is how sustainable is it? But it is a lot better than where we were a quarter ago. Operator: Our next questions come from the line of Hassan Ijaz Ahmed with Alembic Global. Please proceed with your question. Hassan Ijaz Ahmed: Morning, Peter. I just wanted to revisit some of the earlier commentary around MDI supply, both as it pertains to the product as well as the feedstock. There is at least one facility in Saudi Arabia that seems to be offline, and then I would imagine there would be broader issues in terms of the availability and pricing of benzene as well as methanol. Could you comment a bit about operating rates for MDI, keeping in mind some of these outages as well as some of the feedstock availability issues the world may be encountering? And how long it may take for some of these bottlenecks—if peace was declared tomorrow—to be ironed out of the system? Peter R. Huntsman: As we look—you made reference to a Middle East producer—that is roughly about 4% of global capacity. So if you think that the industry is operating in the low to mid-80s, that would say that we are kind of pushing the mid- to upper-80s, at 90% capacity utilization globally. Now, again, that is not across the board. There will be parts that are better than that and parts that are worse than that. But globally, across the board, when you reach 90% in the MDI industry—what people have as stated capacity and the outages that take place on a yearly basis for maintenance and so forth—really an industry that starts to strain at 90-plus percent capacity. So, statistically, on paper, you can see where the industry is now moving into the upper 80s. In some regions of the world, it is going to be, again, better and worse. I have not seen or heard of any problems with the procurement of raw materials in MDI around the world. And the pricing of that raw material so far has been pretty much in line with oil. So that would tell me that there is a pretty decent supply of it that is available. But longer term, my biggest question on MDI is going to be the sustainability of the demand. Because again, previous to February 28, I would say that I do not want to say that we were going great guns. We were starting to see some green shoots in Europe, as we reported earlier. We are moving into the North American housing season. And China was stable and in pretty decent shape. So my whole question is really around sustainability of demand as you start looking at the third and fourth quarter. It is just too early to start looking at those order trends. Hassan Ijaz Ahmed: Understood. And as a follow-up, you mentioned the polyurethane market in Europe. Volumes-wise it was up 4%, which is decent. But in your prepared remarks, you talked about easier comps as well because last year you had the Rotterdam turnaround. What green shoots are you seeing volumes-wise in Europe? And over the last couple of quarters, along EBITDA lines, it seems for the PU business it was negative. Have you currently turned that around? Is it generating positive EBITDA now? Peter R. Huntsman: To your first area, I would think that CWP—composite wood products—in Europe is looking pretty good. Technical insulation—and that would be your sandwich boards and so forth that are going into data centers, warehouses, prefabricated buildings, and so forth. Your ACE business—adhesives, coatings, elastomers—is doing... Again, I do not want to paint the details of going through the roof in Europe, but we are seeing some green shoots in these areas—badly needed, by the way. And so I think that certainly is moving towards an area where we do not just want to see a positive EBITDA coming from Europe, we want to see positive cash coming out of Europe. And so yes, we are at that precipice and seeing things improve. And, Hassan, as we sit here today, we would expect Europe to be positive from an EBITDA perspective. Operator: Next questions are from the line of Michael Joseph Sison with Wells Fargo. Please proceed with your question. Michael Joseph Sison: Hey, good morning. When I take a look at your outlook for Polyurethanes for Q2, margins look like they are going to improve a little bit, but not a lot. What do you think needs to happen to get the EBITDA margins for Polyurethanes to better levels going forward? And just curious what the pricing for the segment should imply for Q2 year over year? Peter R. Huntsman: I think the two things that we need more than anything else are demand and raw material stability. We are projecting in the second quarter that we will take in well in excess of around $100 million of raw material costs. We expect to offset that and get prices higher than that. But that is a tremendous amount of raw material costs that we are absorbing in one quarter. And, of course, in order to have any sustainability in pricing and pull-through pricing, we have got to see the demand. I did note in my prepared remarks a cautionary note on inflation and what inflation factors may play in Europe. But there is also—I would say on one hand, there are those inflation factors that give me concern. On the other hand, Europe has been so lethargic for so long I cannot help but think that there is pent-up demand—whether it be in housing or remodeling and just industrial demand, defense rebuild, and so forth across the board. That is going to be, for the second half of the year, the single biggest variable in my opinion: demand. Michael Joseph Sison: Got it. Thank you. Operator: Next questions are from the line of David L. Begleiter with Deutsche Bank. Please proceed with your question. David L. Begleiter: Thank you. Good morning. Just on Performance Products, why is that business a little bit stronger in Q2 given some of the strength in maleic? Peter R. Huntsman: Dave, that is an excellent question. As we see the strength in maleic, that certainly is going to be manifest through Q2 going into Q3. A lot of our European customers on maleic are actually buying that and negotiating purchases FOB Florida, so out of our plant in Pensacola, Florida—picking it up in the U.S. rather than us shipping it over to Europe and taking the time and tying up working capital and so forth. So we will see the impact of that going forward. But I would also remind you that we had one of our facilities in Q1—and also presumably could see some impact in Q2—where we have an ethylenamine joint venture facility, which we believe is one of the lowest-cost facilities in Saudi Arabia, on the wrong side of the Strait of Hormuz. And so that is going to also be a little bit of a headwind in that business. David L. Begleiter: Very good. And do you have an update on your UK aniline plant, given some prior comments? Peter R. Huntsman: Yes. Again, that facility—when those comments were made—we were seeing $20–$22 gas in Europe and a government that was lethargic at best in concerns with it. And we were seeing import pressures that were countering that. I think since that time, imports have lessened a bit. We have seen gas plummet from $20 to $15. I still say that is an aesthetically high number for an energy-less, policy-driven government. And so I would not say that that facility—when I look at the economics of it, I continue to be concerned. The people that work there, the reliability of that facility, the ongoing maintenance and operations and so forth at that facility are absolutely A-plus. But they are having to battle some really poor energy policies. David L. Begleiter: Thank you. Operator: The next questions are from the line of Vincent Stephen Andrews with Morgan Stanley. Please proceed with your questions. Vincent Stephen Andrews: Thank you. I want to try to piece together a couple of the comments you made, Peter, as it relates to Polyurethanes. You talked about how you have been able to get pricing ahead of benzene, and we traditionally think of you having about a two-month lag of benzene flowing through. And then maybe later in the year, we may see some negative demand elasticity from the consumer at the end market working its way back up the supply chain. So do we think about Q2, your spreads being strong because you are ahead of that benzene, and then maybe benzene catches up with you in Q3? And then we have to see how much more pricing you can get—that, I guess, would be a function of demand. So are we thinking Q2 and Q3 may be flattish in terms of profitability in Polyurethanes? Do you think Q3 could actually be up a little bit, or maybe it would be down a little bit? What is your latest thinking on that? Peter R. Huntsman: Far too early to comment on Q3. Again, I believe Q3 is going to be more demand-driven than anything else. The trends that I am seeing today—we are staying ahead of the price on benzene. We also are picking up some volume that we see on a year-to-year sort of growth basis. And we are going to continue to be pushing prices through. Now again, the ability to push those prices through will be predicated on macro demand. As I get into the third quarter—and again, I do not want to be overly pessimistic about that—I merely say that right now I feel there is a bit of euphoria in the industry, and I love seeing it. I think it was long overdue. I hope it continues into the third and fourth quarter. But a lot of that is just too early to tell on demand. Vincent Stephen Andrews: Thank you. Operator: The next questions are from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your questions. Matthew Blair: Great, thanks, and good morning, Peter. Hoping you could talk a little bit more about underlying construction activity. One of your peers mentioned that it has been weakening. You talked about the divergence in March data between starts and permits. Are there any trends in Q2 on construction activity that you can share so far? Peter R. Huntsman: I would say that we are not seeing a drop-off, but we are also not seeing a lot of improvement. I would say right now it certainly is not shaping up to be a bad season for us. It is just not a lot of growth. Matthew Blair: So I would say, yes, there is some stability. But— Peter R. Huntsman: I am sorry, I probably should be saying it is going up or it is going down, but it seems to be quite stable at the present time. That is why I say there are some decent trends on housing starts that feel pretty good. I think in the second quarter going into the third quarter, we will probably see 2%–3% low single-digit growth in construction this year. But I am also concerned when you see a 10% drop in one month in housing residential permits—again, that is the step before the housing starts. I do not want to read too much into a single quarter of data because in February both of those numbers were the complete opposite—permits were up and starts were down. So I think we will probably see some very gradual growth this year. Matthew Blair: Sounds good. And then I was also intrigued by your comment that you are seeing some customers that are buying ahead of expected price increases. Is this occurring in some products more than others? And if so, which products? And then also on a regional basis, would this be something that is more prevalent in Europe relative to the Americas? Peter R. Huntsman: I would say that as we look at it, you are probably talking about two to three days on MDI. That would be the area where we would probably see the most pre-buying. I would not say that there is a big wave of capacity that is being pulled through. I think that we are managing that very carefully as well. When customers come in and increase their orders from where they were just a few weeks ago, we are discouraging that and making sure that we keep an equilibrium on orders and so forth. In other areas where people are coming in that have not bought from us for some time on a spot basis, we are seeing if we can extend contracts from what you need over the next month or two to what you need over the next year or so. Some of our Performance Products customers, and so forth, may have shifted supplies to China out from Europe and the U.S., for example. On both of these demand trends, we need to make sure—there is a difference between those that are spot buying, panic buying, and those that are just trying to buy ahead of a price increase. They all need to be managed a little bit differently. If there is pre-buying that is taking place, I would be very worried if we were seeing what would be the equivalent of a week or two or three of pre-buying taking place. I would say right now we are seeing a low number of days of inventory that is pre-buying at this point. Operator: Our next questions are from the line of Jeffrey John Zekauskas with JPMorgan. Please proceed with your question. Jeffrey John Zekauskas: Thanks very much. Can you comment on how much Chinese MDI is coming into Europe? Peter R. Huntsman: There has not been all that much, and I would not say anything out of the ordinary. It has been pretty stable. It is worse than the last couple of quarters, and so I would say, if anything, maybe it is even slightly lower than what it has averaged over the last year or so. Nothing that would have a material impact on the industry or pricing there. Jeffrey John Zekauskas: Okay, good. And then in Performance Products, can you frame the penalty from the ethylenamines joint venture being behind the Strait—either in the first quarter or the second quarter or for the year? And in your guide, you are going from $26 million in EBITDA to an estimate of $30 million to $40 million in the second quarter. Why so big a jump? Why is the range so wide for the second quarter? Peter R. Huntsman: As we look at the ethylenamine facility, again, that facility was down for a couple of weeks. It is operating today. I do not want to get too specific—it is operating, let us say, around 50%. Material is being trucked out to the Red Sea and also south. So we are finding some means of getting product out of there. What the impact of that is going to be, and how much we can offset through operations from our Freeport facilities, I would say that impact could be as high as $4.5 million–$5 million for the quarter. As we look at that spread of $30 million–$40 million, a lot of that is going to be based on how successful we are in getting product economically. Because you are moving it out by truck, you can well imagine that is going to be quite a bit more expensive than moving it out by ship. So there is some variability there. I would also say that there is quite a bit of spot material—seemingly opportunities coming in maleic. How much that materializes, what we are able to get in pricing—people inquiring, people talking about volumes and prices versus actual orders and so forth—we will know a lot more about that in the coming weeks. Philip M. Lister: And Jeff, in terms of the step-up from Q1 to Q2, just as in Polyurethanes, we are seeing pricing exceed the raw material increases. Operator: Our next question is from the line of Michael Joseph Harrison with Seaport Research Partners. Please proceed with your questions. Michael Joseph Harrison: Hi, good morning. Peter, you mentioned in the prepared remarks that we are still meaningfully below mid-cycle margins in the Polyurethanes business. I was wondering if you can provide any kind of an updated view on where you think mid-cycle margins could be—I will hold off on asking you when you think you can get there. What is the appropriate mid-cycle margin level for Polyurethanes? Peter R. Huntsman: I have always thought of it more on what it is on an EBITDA-on-average basis. I think that business, on average, to be a mid-teens sort of business. And how soon do I expect that to happen? As soon as possible. Sorry. It is long overdue. Michael Joseph Harrison: And then the second question I had is—I did not see any comment about the specialty amines capacity that you have added to serve the semiconductor industry. I am just curious how that is contributing relative to expectations and whether you expect to see some growth there given the strength in semiconductor? Peter R. Huntsman: Yes. We continue to see that coming online. It is going through qualifications. As we have stated before, that is going to go through a qualification of usually around nine to twelve months. Sometimes when there are supply disruptions and so forth on chemical products—as there are right now—sometimes that can be accelerated; sometimes it slows down, actually. I think as we look in 2026, as we are building up to a normalized run rate—hopefully by the end of the year—we will probably see $5-plus million coming from that this year. Operator: Our next questions are from the line of Joshua David Spector with UBS. Please proceed with your question. Joshua David Spector: Yes, hi, good morning. I wanted to see if I could just follow up on the benzene/MDI math in Q2 here. If we say volumes are stable into Q3, you are pricing ahead of raws in Q2. Is that a headwind in that your raws are going to catch up a bit more from inventory in Q3? Or are you exiting with enough price where you would say that earnings in Polyurethanes would be stable sequentially in that scenario? Peter R. Huntsman: I would say that we are exiting Q2 able to stay ahead of the raw materials that we see going into Q3. And we are also working towards more price increases to come in that area. Unless there is a cataclysmic change economically, we will stay ahead of our raw material costs going into Q3. Philip M. Lister: And Josh, benzene just settled at $4.71. The point is we are ahead of that, and we will stay ahead of it. Joshua David Spector: Understood. Thank you. Operator: Our next questions are from the line of Laurence Alexander with Jefferies. Please proceed with your question. Laurence Alexander: Good morning, Peter. Do you see any end markets where your customers are indicating already that they are in pre-buy mode? Peter R. Huntsman: Good question. None that are really that high. Typically, this time of year, you are going to get some pre-buy in construction. Insulation and spray foam business feels like it is in pretty good demand and people are trying maybe to buy ahead of a curve in that business. Those would probably be the two areas. But when I mentioned earlier it is something that we are working on very diligently—when I said that we are at kind of a day or two worth of inventory going in—that is what I meant. I am not going to say that we are walking away from business; we just want to make sure we are managing that very carefully with our customers. We do not want to build up inventory, nor do we want to see it built up on the customer side. Laurence Alexander: I appreciate that no one wants customers to build up inventory, but is it unusual with this kind of spike—where several companies are out publicly talking about imminent shortages in different molecules—that people who may see higher prices in the future are not trying to pull forward orders? Peter R. Huntsman: I do not think that is unusual at all. I do not think that we are at a point—I do not wish we were—but I do not think we are at a point in MDI at this time where we are seeing shortages and people saying, “I cannot get it.” I think that there are people that are concerned as they look at their suppliers with announced turnarounds that have been scheduled for multiple years that are taking place, and so forth. Some of the disruptions that you are seeing in some of the energy flows and shipping flows. But I am not seeing panic buying at this point. I am seeing higher capacity utilization. I think that there is an improvement in market conditions for the producers. But consumers can still get the product. Operator: The next questions are from the line of Arun Shankar Viswanathan with RBC Capital Markets. Please proceed with your question. Arun Shankar Viswanathan: Great, thanks for taking my question. We did hear about an outage with Wanhua a couple of days ago. Maybe I can just get your thoughts on that—if you think that could tighten up markets. And what is the potential for those utilization rates to remain consistently above 90%? Do you see any permanent supply activities that could arise in the next few months? Obviously it depends on duration of the conflict. Are your customers migrating to you in the face of other supply shocks or disruptions? Is there a share gain opportunity? Peter R. Huntsman: Good question. I am not sure necessarily what has happened with the competitor facility. When they do have multi-year closures—when I say multi-year, I mean oftentimes when you do a large-scale closure on a vast petrochemical site—you are renting equipment, you are planning on workforces, usually 18–24 months in advance. You know these things are coming and people are exchanging materials. I know that is happening. I have heard or read that a splitter may have gone down or something; I have not read that a facility—there has been a large-scale cataclysmic outage or anything like that. I think that we are probably, as an industry, operating in the high 80s right now depending on product flow in the Middle East. That is a bit volatile right now. Remember in China, you have single-site facilities of a million metric tons. When those go down—on a site that big—you will feel it globally. If they are down for an extra couple of weeks because of a problem, you will feel it acutely on a short-term basis. Our facilities are operating well, and we are in a position where we can be a strong and reliable supplier. Arun Shankar Viswanathan: Thanks for that. And the other question I had was on the PO market. There is some tightness there, and there was also a reduction of capacity by one of the suppliers and I know one of the other plants is down. Are you feeling like your own procurement for the Polyurethanes business is intact, or do you foresee any supply disruptions or rerouting of your supply chain that would be required? Peter R. Huntsman: No, we do not see any disruption in our PO right now. We have a good supplier. That plant is operating, and I feel that we are covered with that. We have also got an excellent supply source in China as well. So I feel we are okay with that. Operator, why do we not take one more question and we will let people get on their way? Operator: Sure. The next questions are from the line of John Ezekiel Roberts with Mizuho Securities. Please proceed with your question. John Ezekiel Roberts: Thank you. Not that it is large, but maybe your Saudi amines JV gives some insights into the sustainability of the disruption. If we had an agreement imminent here on the Strait of Hormuz, what is the earliest you think you might be able to resume full production and export by sea? Peter R. Huntsman: You are probably looking at 30 to 45 days would be my assumption on that. Again, there is going to be a bottleneck of shipping—both to get there to pick product up and also shipping product to get out. So I would say about that time—30 to 45 days. John Ezekiel Roberts: Great. Thank you. Peter R. Huntsman: Thank you. Operator: At this time, this will conclude today's teleconference. We thank you for your participation. Thank you very much. You may now disconnect your lines at this time and have a wonderful day.
Operator: Hello. First quarter 2026 earnings conference call. At this time, all lines are in a listen-only mode. Today’s conference call is being recorded. I would now like to turn the call over to your host, Susan Gille, investor relations manager at Alliant Energy Corporation. Susan Gille: Good morning, and thank you for joining Alliant Energy Corporation’s first quarter 2026 financial results conference call. Joining me today are Lisa M. Barton, President and Chief Executive Officer, and Robert J. Durian, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will have time to take questions from the investment community. Last night, we issued a news release announcing our first quarter 2026 results and reaffirmed 2026 full-year earnings guidance. That release, along with our earnings presentation, will be referenced during today’s call and is available on the Investors section of our website at alliantenergy.com. Before we begin, please note that today’s remarks and responses will include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described in last night’s earnings release and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. In addition, this presentation contains references to ongoing earnings per share, which is a non-GAAP financial measure. Reconciliations to GAAP results are provided in the earnings release available on our website. At this point, I will turn the call over to Lisa. Lisa M. Barton: Thank you, Sue. Good morning, everyone. I appreciate you joining us today. 2026 is off to an excellent start. First-quarter ongoing earnings delivered approximately 25% of the midpoint of our full-year guidance, despite very mild temperatures across our service territory. We remain firmly on track to achieve our 2026 earnings targets while executing on our strategic priorities. At Alliant Energy Corporation, our focus is straightforward: unlocking the potential of our customers and communities, prioritizing affordability, and delivering long-term value for investors. As I have shared previously, we remain committed to driving economic development and prosperity across the states we serve. Today, I am pleased to share our progress on our 2 to 4 gigawatts of large load opportunities. In April, we executed a new 370 megawatt electric service agreement with a hyperscale customer in Iowa, with a full load ramp expected by 2030. To support this growth, we have entered into an agreement with a high-quality counterparty to construct a simple-cycle natural gas facility. Our third-quarter update will include a refreshed Iowa resource plan reflecting any incremental load beyond the 3 gigawatts already in our plan, as well as the impact of updated MISO accreditation assumptions. We expect to finance these incremental investments with a balanced mix of equity and debt to maintain a resilient financial profile. We now have five fully executed data center agreements representing approximately 3.4 gigawatts of contracted demand, with three of these projects under active construction. Importantly, we have secured the generation resources needed to reliably serve this load, which now represents more than a 60% increase in our current peak demand. Looking ahead, we continue to make strong progress on the 2 to 4 gigawatts of future large load opportunities we first announced six months ago. Our commitment has remained consistent: creating wins for existing customers and communities, a win for new customers, and a win for our investors. We are strategically positioning our company and the states we serve for sustainable long-term growth while keeping customer costs as low as possible. Our approach ensures we remain a trusted partner to customers and communities by delivering reliable, affordable energy solutions that support their long-term ambitions. Evidence of this strategy in action was shown through last week when we joined the QTS leadership in Cedar Rapids to welcome U.S. Secretary of Energy Chris Wright and Iowa legislators to tour the site. This $10 billion development, the largest economic investment in Iowa’s history, underscores our role in enabling innovation, job creation, and long-term economic diversification in the communities we serve. This is the Alliant Energy Corporation Advantage, a disciplined, solutions-oriented approach to growth. We guide data center customers to low-cost, transmission-ready sites in our service territories. And because our more recent electric service agreements are capacity-only, the investments required to serve this load are primarily energy storage and natural gas combustion turbines. This approach creates strong alignment between capital investments and revenue growth while preserving flexibility to serve future energy needs as demand for capacity and energy continues to evolve. Economic growth drives job creation, expands the tax base, and strengthens communities. It also benefits customers by increasing load, which helps us maintain cost competitiveness for all customers. As electricity sales grow, we can spread fixed system costs over more kilowatt-hours. In Iowa, our regulatory framework enables us to keep base electric rates stable through at least the end of the decade—that is at least four more years of no retail electric base rate reviews in Iowa—while earning our authorized return through retaining tax credits and energy margins from new generation investments. A foundational principle of utility regulation is cost responsibility. At Alliant Energy Corporation, our policy is clear: customers driving large incremental demand are responsible for funding the infrastructure required to serve them. Through individual customer rates, large users fund transmission interconnections, system upgrades, and incremental investments, protecting affordability for all customers. In closing, I want to thank our employees. Their dedication and solutions-oriented execution are the foundation of our operational excellence and the driving force behind the progress we continue to make. I would also like to recognize the outstanding efforts of our field teams in restoring service following recent storm activity across our service territory. Despite the heavy storm activity, we achieved strong reliability and safety statistics through 2026, which is a testament to the quality of the work by the field organization. I will now turn the call over to Robert for details on our financial results, financing plan, and regulatory activity. Robert J. Durian: Thank you, Lisa. Good morning, everyone. Yesterday, we announced solid first-quarter 2026 GAAP and ongoing earnings of $0.87 and $0.82, respectively. As shown on slide five, our ongoing earnings year-over-year change was primarily due to higher revenue requirements and AFUDC from capital investments at our Iowa and Wisconsin utilities. These positive drivers were offset by higher operations and maintenance expenses related to new energy resources and planned maintenance at existing generating facilities, as well as higher depreciation and financing costs. Temperatures in 2026 reduced electric and gas margins by approximately $0.04 per share, compared to a reduction of $0.03 in the prior year. Excluding the impacts of temperatures, electric sales in the first quarter were essentially even year over year. First-quarter ongoing earnings exclude a $0.05 benefit from the remeasurement of deferred tax assets, reflecting updated state income tax apportionment assumptions driven by higher projected electric utility revenues from commercial and industrial customers, including data centers. We are reaffirming our 2026 earnings guidance, with slide six reflecting several of our key 2026 assumptions. Our longer-term earnings outlook remains intact, and based on our current plan, we expect our compound annual earnings growth rate across 2027 through 2029 to be 7% plus. We will continue to assess our long-term earnings growth potential as we execute our data center expansion and update our capital expenditure plans later this year. Turning to financing, as shown on slide seven, during 2026 we had parent-level and Alliant Energy Finance maturities of $1.1 billion, and we retired these maturities with available cash and new debt issuances, including a $400 million term loan. Our remaining 2026 debt financing plans include up to $800 million of long-term issuances, consisting of up to $300 million at WPL and up to $500 million at IPL. We are continuously working to capture low-cost capital for new infrastructure investments to help lower costs for our customers, and we had two positive developments at IPL in the first quarter. First, we increased the capacity of our sales-of-receivables program at IPL from $110 million to $180 million. Second, Standard & Poor’s upgraded IPL’s credit rating from BBB+ to A-. As a reminder, our four-year capital plan is funded through a balanced mix of cash from operations, including proceeds from ongoing tax credit monetization, and new financings, including debt, hybrid instruments, and common equity. As shown on slide eight, of the approximately $2.4 billion of expected common equity needs over the next four years, we have already raised approximately $1.3 billion through forward equity agreements. These forward equity agreements take care of planned equity needs through 2027. This leaves approximately $1 billion of remaining equity to be raised through 2029, excluding equity expected to be raised under our Shareowner Direct Plan. A new $1 billion at-the-market program was filed during the first quarter to enable issuance of this remaining equity. Our financing plan and proactive execution to date provide flexibility to support the efficient implementation of our strategy. Turning to our regulatory matters, our 2026 regulatory agenda remains closely aligned with our capital investment plans and individual rate applications for new large load customers, as we have no active rate reviews planned in 2026, reducing regulatory uncertainty. As shown on slide nine, we recently received two constructive regulatory decisions for new wind projects at our utilities. In Iowa, the Iowa Utilities Commission approved the settlement for advanced ratemaking principles for up to 1 gigawatt of new wind generation at a current blended ROE of 9.8%, which will be updated each year through IPL’s base-rate stabilization period in Iowa. And in Wisconsin, we received approval from the Public Service Commission of Wisconsin for the 153 megawatt Ventre North wind project. We expect these wind investments will allow our utility customers to avoid significant fuel costs and generate tax credits while supporting investment in cost-effective, responsible energy resources. Looking ahead, we currently have one active Iowa docket for a 720 megawatt natural gas combustion turbine project, which was filed earlier this week, and five active Wisconsin dockets, including the individual customer rate filing for the Meta data center at Beaver Dam and construction authority filings for LNG storage, additional wind, and increased capacity at Riverside. We expect decisions on these matters over the next 12 months. We expect to make additional filings throughout the year to support planned customer investments. In addition, we anticipate filing individual customer rate applications with the Iowa Utilities Commission related to the second QTS data center and the recent 370 megawatt data center electric supply agreement. I will now turn the call over to Lisa to provide closing remarks. Lisa M. Barton: Thank you, Robert. Alliant Energy Corporation’s consistent financial performance reflects our strategy to unlock the potential of customers and communities. This is what sets us apart and defines the Alliant Energy Corporation Advantage: being solutions-oriented, supporting growth, driving affordability for all customers, and delivering lasting value to our shareholders. Thank you for your continued trust. We look forward to connecting with many of you at upcoming investor conferences. I will now turn the call back to the operator to open the line for questions. Operator: Thank you, Ms. Barton. At this time, the company will open the call to questions from members of the investment community. If you would like to withdraw your question, simply press 1 again. Your first question comes from Shahriar Pourreza with Wells Fargo. Your line is open. Shahriar Pourreza: Hey, guys. Good morning. Lisa M. Barton: Morning, Shahriar. Shahriar Pourreza: Morning, Lisa. Just on the 370 megawatt ESA that was signed. Obviously, you are calling out it provides upside to the current plan. These opportunities are starting to accrete. You have this 2 to 4 gigawatts out there that is very mature. Sounds like we will get more disclosures. Are we thinking EPS disclosures, some sense around the opportunities? And, Lisa, do we ever get to a point where we could see a more definable EPS guidance range, given that you are already at the higher end of that 7% and visibility is improving for you? Lisa M. Barton: Great question, Shahriar. Similar to what we have said in the past, every time we have an ESA, we will be announcing that on a quarterly basis. On our third-quarter earnings call and at EEI, we will provide a full update of our resource plan, which will include providing the generation necessary to support the 370 megawatts and an update on our EPS and growth trajectory. Looking forward to that call. Shahriar Pourreza: Got it. Okay, perfect. And then, obviously, there has been a lot of noise in Wisconsin between local pushback and moratoriums on new data center developments. Can you talk a little bit about where your conversations are directed with potential hyperscalers? Are they still looking at Wisconsin, or are they more focused on Iowa? I know you called out you had a lot of rural land that is zoned industrial in Iowa, so that is attractive for a data center. Just want to get a temperature gauge on where the conversations are going between the two states. Thanks. Lisa M. Barton: Sure. Iowa has more land mass. If you think about our service territory, it is about twice the physical service territory of Wisconsin and has very strong transmission interconnections. We still have very strong transmission interconnections and opportunities in Wisconsin as well. But, as mentioned in the past, Iowa has about 75% of the communities that we touch there versus 40% in Wisconsin. We are very much looking forward to and awaiting a decision by the Wisconsin Public Utilities Commission with respect to our Beaver Dam facility. There is rhetoric out there that is still over from PJM, and we are actively addressing and countering that. As we mentioned in our remarks, we have our customer pledge, making sure that everybody knows that they are not paying for the costs of supporting data centers. Stay tuned on all of that, but conversations do continue in Wisconsin. Shahriar Pourreza: Got it. Perfect. I appreciate it, Lisa. Congrats on the execution. Thanks, guys. Lisa M. Barton: Thank you. Your next question comes from Nicholas Joseph Campanella with Barclays. Your line is open. Nicholas Joseph Campanella: Hey. Good morning. Thanks for the update. So it sounds like you are going to do a 370 megawatt simple cycle for this build for the ESA that you just signed. What is the right dollar-per-kilowatt cost that you are seeing for those types of investments right now? Lisa M. Barton: As we mentioned, we have entered into an agreement with a high-quality counterparty to build it. We will update on the size of that. The unit will be sized according to our resource plan, and, similar to what we have done in the past in Iowa, we are using a low, medium, and high load growth trajectory. We continue to have discussions with hyperscalers and will be refreshing all of that at EEI. We cannot disclose the cost due to confidentiality agreements, but you can expect those to be in line with what you are seeing in the marketplace today. Nicholas Joseph Campanella: Okay. And it seems like you are definitely having success in working with the current customer base, and you have visibility on the 2 to 4 gigawatts. You signed another 370 today. You mentioned that each time you have an ESA, you will announce those on a quarterly basis. So is this kind of the run rate that we should expect into the second quarter? And maybe talk a little about the 2 to 4 gigawatts—how many customers are in there? Could we see a 1 gigawatt deal next, or will we continue to see 200 to 500 megawatt deals? Lisa M. Barton: There is no one specific answer. These represent conversations with all different-sized entities. What I can say about the 2 to 4 is we hold ourselves to a very high standard. These are mature opportunities where we have a higher level of confidence. We make sure they have land control, that they are in active discussions with our team, and that transmission studies are either ongoing or complete. We ensure we have a firm understanding of the load ramp and the timing of transmission upgrades and generation. They can come in small, medium, and large sizes. Nicholas Joseph Campanella: One follow-up on the 370. As it ramps into 2030, could it be increased and could that customer do more? And does that represent part of the 2 to 4, or is the 370 largely locked and loaded today? Lisa M. Barton: We are not going to talk specifically about the 370. As you know, we have confidentiality agreements in place for all of this. I would just point you back to the fact that we have these mature opportunities with a higher level of confidence. The 2 to 4 is made up of new entities as well as entities that might want to further expand. Nicholas Joseph Campanella: Okay. Thanks for the update. I really appreciate it. Lisa M. Barton: You are welcome. Your next question comes from Paul Zimbardo with Jefferies. Your line is open. Paul Zimbardo: Hi. Good morning, team. Just a follow-up on my friend Nick’s question. For the 370 megawatts, is there land and zoning capability for that customer to expand if they so choose in the future, or is that a more constrained site? Lisa M. Barton: Any of that information is really theirs to share rather than ours. What I can say is we are talking about Iowa. As we have mentioned in the past, we have great access to transmission. Other than Cedar Rapids, we are not in really large population areas, so you can make your assumptions as you wish. Paul Zimbardo: Okay. And more generically, for a demand of that size, with the reserve margin and accreditation, how much resource in terms of megawatts would you need to support that? Lisa M. Barton: That is why we are thrilled to have the flexible resource planning process we have in both states, which we see as a strategic advantage to Alliant Energy Corporation. Later this year, we will file a resource plan that will take into account reserve margins, any capacity needed with respect to changes in the MISO accreditation process, and any generation needed to support additional ESAs that we may announce between now and the end of the year. It puts us in a good position to be flexible and grow at the pace of our customers. We need to make sure we have a win for new customers, a win for existing customers, and a win for investors, and that is foundational to our ability to grow at their pace. Paul Zimbardo: That makes a lot of sense. One unrelated: is there any update on the timeline for the FERC policy for self-funded network interconnection upgrades? I assume the opportunity set for you will be larger, assuming it goes in one direction, given how much new generation is in the queue. Curious on the timeline if you have one. Thank you. Lisa M. Barton: We are anxiously waiting, as are you, but no, no firm insight on that. Paul Zimbardo: Thank you very much, team. Robert J. Durian: Thank you. Lisa M. Barton: Your next question comes from William Appicelli with UBS. Your line is open. Morning, Bill. William Appicelli: Hi. Good morning. You have mentioned a couple of times the MISO accreditation assumption impact. I know they are shifting to this direct loss-of-load framework over time. Does that differ from what your baseline assumes? I would assume the net capacity value of the installed base would be somewhat less and require more generation. Can you speak to the potential implications of the accreditation assumptions? Lisa M. Barton: We take this into account in all of our modeling. We are in a dynamic time with a lot of growth. Our modeling assumptions include load assumptions, reliability needs, needs to serve other customers, environmental changes, and so forth. MISO is still working on some of that, and we will have a cleaner line of sight as we get closer to Q3. William Appicelli: And on the resource mix you see—trying to get in front of what you will update in Q3—is it a full boat of capacity fixes in terms of storage and peakers, or will it include baseload potentially as well, or is it more around shaving the peaks and having the capacity resources to satisfy MISO requirements? Lisa M. Barton: It is primarily batteries and peakers. Recall that we have focused on simple cycles that allow us to invest later in these facilities should we need the energy resources. Iowa in particular is very rich in wind resources that provide a lot of energy. Batteries and simple cycles allow us to capture speed to market. We are fortunate to be in a region with so many wind resources. That is very location specific—not everybody can do that. William Appicelli: Lastly, the CT you referenced today—what is the size of that? Is that roughly the size of the load, or would there be some reserve margin? Lisa M. Barton: Yes. We have entered into a contract for up to 1.1 gigawatts. William Appicelli: Oh, okay. So the CT you are talking about today is 1.1 gigawatts—up to. Lisa M. Barton: Mhmm. Robert J. Durian: Up to. Yep. William Appicelli: Okay. Alright. Helpful. Thank you. Lisa M. Barton: Your next question comes from Paul Fremont with Ladenburg. Your line is open. Paul Fremont: Great. Congratulations on a great quarter. In terms of the 2 to 4 gigawatts, can you give us a sense of how many potential developers are represented in that 2 to 4? Lisa M. Barton: All we can say is that they are very high-quality counterparties. The threshold when we talk about the 2 to 4 is that we have active negotiations in place, transmission studies completed or ongoing, and land control. Think of it as a combination of hyperscalers as well as developers. Paul Fremont: Great. Is all of the 2 to 4 in Iowa? Lisa M. Barton: No. It is not. Paul Fremont: Can you give us any type of a distributional breakout of Wisconsin versus Iowa? Lisa M. Barton: It is really fluid, Paul. We cannot. It is always a moving target. Paul Fremont: Great. You have given us aggregate rate base. Is it fair to think about year-end 2025 rate base as being $6 billion Wisconsin and $11 billion Iowa? Robert J. Durian: We provided that information in slides we have disclosed publicly, Paul. You should be able to see that information. Paul Fremont: Okay. You also provide an aggregate 12% growth rate in rate base, but the level of investment is heavily skewed to Iowa. Is it possible to get a sense of how fast rate base is growing in Iowa standalone and Wisconsin standalone? Robert J. Durian: We provided additional information in supplemental materials we shared publicly that has the details. We will have Susan follow up with you to point you in the right direction there. Great. And then last question for me: the 5% to 7% EPS growth—what should we use as the base for that? Robert J. Durian: 7% plus. We update it every year once we complete the year, so you can use the 2025 final number that we accomplished, and then we will keep updating that each year after we complete the year. Paul Fremont: So it is 2025 actual? Lisa M. Barton: Thanks. The next question comes from Andrew Marc Weisel with Scotiabank. Andrew Marc Weisel: Hi, good morning. Different question on the new CT. Are you able to share the in-service date? Would it be online by 2030 to match the new ESA? Lisa M. Barton: 2031. Andrew Marc Weisel: Great, thank you. While 1.1 gigawatts for a new CT seems quite large, you also reminded us that you have the 720 megawatt CT going through the approval process. Help us understand the thinking behind pursuing simple cycles as opposed to bigger baseload CCGTs with higher run times, especially given fast demand growth and the 2 to 4 gigawatts potentially coming next. Is it a question of speed or cost? And longer term for these assets, could they be converted to CCGTs if demand justifies it? Would the hyperscalers pay for those upgrades? Lisa M. Barton: Great question. We are focused on customer affordability and flexibility, and on moving at the pace of our customers. Data center customers are very interested in speed to market. Because we operate in a wind-rich area—in Iowa there is about 6 gigawatts of load today between MidAmerican and Alliant and about 15 gigawatts of wind—energy largely comes from wind, which we can take advantage of. That is why batteries and simple cycles work well for us. If the energy market changes and these data centers are interested in having that provided by us, we can add the steam turbine to convert simple cycles into combined cycles. On the 1.1 gigawatts, we have entered into a contract for up to 1.1, which allows us to be very flexible. You will see details at EEI and on our third-quarter earnings call when we reflect everything in our resource plan. Our flexible resource planning process allows us to consider many moving parts. We have a slice-of-system approach—we are not building one plant for a data center—so we are thinking about all of the needs we have from an investment standpoint. Andrew Marc Weisel: That is very helpful. So if the 2 to 4 gigawatts were to come to fruition, should we expect more CTs per capacity, more likely than CCGTs? Lisa M. Barton: Yes. CTs, batteries—we have always had an all-of-the-above approach with respect to generation. That is part of the resource planning process. We are tying it with low, medium, and high load growth opportunities, which allows us to be very flexible in our process. Andrew Marc Weisel: All of the above except CCGT. Sorry—kidding, could not help myself. Thank you very much. Appreciate the help there. Lisa M. Barton: Again, if you have a question, it is star one on your telephone keypad. Your next question comes from Steve Dembrisi with RBC Capital Markets. Your line is open. Steve Dembrisi: Hey, good morning. Thanks for taking my question. When I look at slide four and it talks about the 2 to 4 gigawatts of upside load and the 370 megawatts that you just added in, can you talk about what that does in Iowa for your ability to potentially stay out longer than the five years you have agreed to? Even in the base plan before adding the 370 megawatts, we think you were able to keep rates flat and potentially provide benefits to customers. How does that shape up as you add more load and we go into the middle of the next decade? Robert J. Durian: Great question, Steve. The planning is very dynamic right now given the volume of data center interest and the changes we have seen. Think of it as incrementally beneficial. When we contract these data center loads and the new generation needed to support them, we are focused on ensuring that we capture some level of margin such that we will be able to share back with the rest of the customers—the differential between the revenue stream from those data centers and the costs related to the generation. Think of it as incrementally better, but we are not in a position right now to give you a definitive timeframe as far as what that might do to the current stay-out. Lisa M. Barton: The one thing I would add is that the load ramp is critical to our ability to navigate that, which is why we focus on positioning ourselves to move as quickly as our customers. Steve Dembrisi: That makes sense. And on the CTs, you talked about 2031 and speed to construction. If a CCGT takes four years to build, what is a typical build time for a CT? Lisa M. Barton: It is about three to four years. Robert J. Durian: Correct. Steve Dembrisi: Thanks very much. Appreciate it. That is all I had. Operator: There are no further questions at this time. Susan Gille: With no more questions, this concludes our call. A replay will be available on our investor website. We thank you for your continued support of Alliant Energy Corporation, and feel free to contact me with any follow-up questions. This concludes today’s conference call. Thank you for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Casella Waste Systems, Inc. First Quarter 2026 Conference Call. [Operator Instructions] Please advise that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Jason Mead, Senior Vice President of Finance and Treasurer. Please go ahead. Jason Mead: Good morning, and thank you for joining us on the call. Today, we'll be discussing our first quarter 2026 results, which were released yesterday afternoon. This morning, I'm joined by Ned Coletta, President and Chief Executive Officer of Casella Waste Systems; and Brad Helgeson, our Chief Financial Officer. After a review of these results and an update on the company's activities and business environment, we'll be happy to take your questions. But first, please note that various remarks we make about the company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-K, which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views on any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as any date subsequent to today, May 1, 2026. Also during the call, we'll be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, to the extent they are available without unreasonable efforts are included in our press release filed on Form 8-K with the SEC. And with that, I'll now turn it over to Ned to begin today's discussion. Ned Coletta: Good morning, and thank you, everyone, for joining us today. We are very pleased with our performance in the first quarter and the strong start it provides for 2026. Our team executed well across the business, delivering solid financial results and margin expansion that exceeded our budget while also advancing our strategic priorities. We combine disciplined positive pricing, steady core operations and meaningful acquisition activity to position the business for a strong year. Importantly, the momentum we are seeing is broad-based. It reflects the consistency of our operating model and the continued focus of our teams on execution, safety and customer service. Revenues for the quarter were $457.3 million or up 9.6% year-over-year. Growth was driven by contributions from acquisitions and the base business with strong pricing across our collection, in disposal lines and continued strength in our Resource Solutions segment, particularly in national accounts. Pricing continues to perform well and remains a core driver of our results. Solid waste pricing was up 5.1% overall, including 5.3% in the collection line of business and 4.7% in disposal. From a volume perspective, the quarter played out largely as we expected, with slightly negative volumes mainly due to the challenging winter weather across our footprint. Despite these headwinds, total landfill tons were up year-over-year, including increases in both MSW and C&D volumes with C&D volumes actually up 13% year-over-year to landfills. These results reflect the strength of our sales pipeline, all of our internalization efforts over the last 1.5 years and our unique landfill asset positioning in the Northeast. Further, we are well positioned for the seasonal upswing in volumes that we see in the spring, and we've seen positive trends through April. On the cost side, our fuel recovery program worked effectively in the quarter with floating fees fully offsetting the increase in fuel costs across our business. This continues to be an important component of our ability to manage risk and produce stable and predictable operating results. As we've emphasized, our focus remains on disciplined execution to offering level. Our teams continue to make progress on route optimization, fleet efficiency and automation, and we're seeing those efforts translate into our results. Adjusted EBITDA increased 12.3% year-over-year, and we delivered 50 basis points of margin expansion in the quarter. Safety is our first priority in our operations every day. And we continue to invest in safety initiatives, including the expansion of our Triage programs to minimize the cost associated with workers' compensation claims and the implementation of the Lytx in-cab AI technology across our entire fleet in 2026. The Lytx system is helping our drivers with real-time coaching to reduce unsafe behaviors. This leads to lower incidents and strengthens our overall safety culture. These efforts have resulted in better safety performance with our key OSHA metric, TRIR, improving by 20% year-over-year. We have also attracted several excellent new leaders to Casella over the last several months, including Chris Rains as our new Chief Revenue Officer, joining in March. We're excited to have these accomplished executives join our team, adding key skills through our already strong leadership team. In the Mid-Atlantic, we've made significant progress on our integration efforts. We've migrated nearly all customers to our new lead-to-cash system and integrated customer payment portal and we are on track to complete the remaining migration by the end of next week. This is an important milestone as it allows us to shift our focus from systems migration to the exciting work of recognizing operational synergies through route consolidations, automation and facility consolidations. As guided, we're on track to cut $5 million of operating costs in 2026 and another $10 million over the next 2 years. From a technology and efficiency standpoint, we continue to make steady progress. On the customer side, we've been investing in key platforms to improve customer experience, including the launch of our new payment portal last month and the planned rollout of the new Casella app in the second quarter. We also continue to develop our e-commerce capabilities. These efforts are focused on improving the customer experience while also yielding cost efficiencies. At the same time, we remain focused on reducing G&A costs, and we are on track with our previously announced $15 million in targeted G&A savings over the next 3 years. As mentioned last quarter, these savings will come in three phases with the first phase yielding in the second half of 2026 as we implement credit card convenience fees. The second phase will come in 2027 as we eliminate redundant system costs and the last phase will come throughout '27 and '28 as we automate back-office functions and take out costs. Across these initiatives, we're also focusing on AI-enabled tools in investing in data infrastructure to support further capabilities. Over time, we expect these investments to generate additional leverage across our back office and yield additional efficiency gains. We continue to make great permitting progress on our expansion efforts at the Hakes and Hyland landfills in New York. With the Hakes permit expected by the third quarter of 2026 and the Hyland permit expected by the first quarter of 2027. As we previously mentioned, we're working to more than double the annual permit at Hyland from 460,000 tons a year to 1 million tons a year, while also working to add 60 years of capacity. At the Hakes, C&D landfill, we're permitting a 10-plus year expansion. Additionally, we completed the new rail transfer station at the McKean landfill in the last month, allowing us now to accept materials from both gondolas and intermodal containers, including internalized MSW volumes from Massachusetts later this year. Our McKean land flow is a great rail option for the Northeastern waste that does not have access to local disposal. As a reminder, about 30% of the waste that's generated in the Northeast needs to be exported given the lack of disposal capacity in our markets. The McKean landfill is proximate to dense populations in the Northeast and is one of only a few rail surf landfills that can service the market given the capital intensity and logistical complexity. Acquisitions remain an important component of our growth strategy, and we've had a strong start to the year. We have completed four acquisitions so far in 2026, representing approximately $150 million of annualized revenues. This includes the Star Waste acquisition which closed on April 1 and adds approximately $100 million of annualized revenues. These transactions continue to align well with our strategy of building density within our existing footprint. Star Waste is an excellent example of that approach with strong overlap in Massachusetts and clear opportunities for integration and operational improvements. Our teams are making great progress on integration with an early focus on safety, onboarding our new team members in aligning integration plans. At the same time, our acquisition pipeline remains very strong, and we have our number of tuck-in opportunities in later stages that fit well within our existing markets. Overall, we feel very good about our execution year-to-date, and we believe we have a solid outlook for the remainder of the year, including adjusted free cash flow growth of roughly 14% at the midpoint of guidance. Our business proved its resiliency in the quarter as we beat our budget, expanded margins by 65 basis points in the base business and fully recovered rapidly rising fuel costs. I want to thank our employees for their continued focus on safety, service and execution. And with that, I'll turn it over to Brad to walk through the financials in more detail. Bradford Helgeson: Thanks, Ned, and good morning, everyone. Revenues in the first quarter were $457.3 million, up $40.2 million, 9.6% year-over-year with $23.9 million from acquisitions, including rollover and $16.2 million from same-store growth or 3.9%. Solid waste revenues were up 10% year-over-year, with price up 5.1% and volume down 2.5%. Within solid waste, price in the collection line of business was up 5.3% in the quarter, led by 6.5% price at roll-off and 6% price in front load commercial. As a reminder, our reported price figure represents realized price net of rollbacks, not gross price increases and is more comparable to what several of our peers report as yield. Collection volume was down 2.1%, with softer roll-off volumes in particular during a quarter of difficult weather. Price in the full line of business was up 4.7% including 4.3% third-party price at the landfills. Rental volumes overall were up 19,000 tons or 2.3% in the quarter, with internalize volume up 13,000 tons and third-party volume up 6,000 tons. The landfill business is strong coming out of the winter months, and we anticipate improved year-over-year third-party pricing in 2026 of 4% to 5%, consistent with our guidance expectation for 5% price growth overall in the solid waste business. You'll note that we are providing additional detail in our press release starting this quarter to break out disposal pricing volume between landfills and transfer stations. These metrics transfer stations give visibility to disposal market trends generally across our footprint, but not represent significant EBITDA contribution on a line of business basis in the same way that landfills do. Resource Solutions revenues were up 8% year-over-year with recycling and other processing revenue down 2.7%, impacted by lower commodity prices and national accounts up 20.7%. Within Resource Solutions processing operations, our average recycled commodity revenue per ton was down 22% year-over-year though the market has stabilized, and we expect the negative year-over-year comparisons to moderate as we move through the year. Notwithstanding market pressures, our contract structures share this risk with our customers by adjusting tip fees in down markets, so the net impact of lower commodity prices on our revenue was only about $1 million. Note that this full picture is not reflected in our processing price statistic because further offset is generated by our floating SRA fee, which shares risk with our collection customers at the curve and has passed back to the recycling facilities intercompany. Processing volume and revenue terms was up 6%. National Accounts continues to grow nicely with volume growth of 11.2% and price of 4.4%. It's worth noting the contribution of national accounts to our overall collection business. As I mentioned, we reported a volume decline in third-party collection revenue in our solid waste business in the quarter, but this does not reflect the work that we do to service our national account sales with our own trucks, which is intercompany. Including this new business coming via national accounts, we would have added 1% to the collection volume statistic for the Solid Waste segment. We generated $3.6 million in additional revenue in the quarter from higher fees, including our floating fee programs for recycled commodity and fuel risk. As Ned mentioned, we successfully covered all of the increase in fuel costs in the quarter with minimal lag as diesel prices rose quickly. Adjusted EBITDA was $97.1 million in the quarter, up $10.7 million or 12.3% year-over-year with $4.4 million of contribution from acquisitions, including rollover and over 7% organic growth. Adjusted EBITDA margin was 21.2% in the quarter, up approximately 50 basis points year-over-year overall. Bridging the year-over-year change in adjusted EBITDA margin, new acquisitions contributing at lower initial EBITDA margins than our overall business, diluted margins by 15 basis points in the quarter. The base business, excluding new acquisitions completed in the past 12 months, expanded margins on a same-store basis by 65 basis points. Recall, the privately held businesses that we acquire typically operate at lower margins, which can create short-term margin dilution. As we integrate these businesses, capture synergies and apply our operating model, they become margin expansion opportunities over time, creating a regenerative benefit as we continue to execute on our acquisition strategy. Cost of operations were $308.9 million in the quarter, up $28.5 million year-over-year, with $17.2 million of the increase from acquisitions and $11.3 million in the base business including $1.9 million from higher fuel costs, which we covered with our fuel recovery program. General and administrative costs were $58.1 million in the quarter, up $1.6 million year-over-year. As I said last quarter, 2026 will be a pivotal year as we laid the groundwork with better systems and process for becoming more efficient in our back office and generating better scale as we continue to grow transitioning to lower G&A as a percentage of revenue beginning in 2027. Depreciation and amortization costs were up $6.5 million year-over-year with $5 million resulting from acquisition activity in the past 12 months, including the amortization of acquired intangibles. Adjusted net income was $12.8 million in the quarter or $0.20 per diluted share, up $0.6 million and $0.01 per share. GAAP net income was lower by $0.7 million in the quarter on higher acquisition expenses and additional costs associated with the organics facility closure in the quarter. Net cash provided by operating activities was $62.3 million in the quarter, up $12.1 million year-over-year or 24%, driven by EBITDA growth. DSO was 34 days at March 31. Adjusted free cash flow was $30.7 million, up 5% year-over-year.. Capital expenditures were $50 million, down $5.5 million year-over-year with $9.2 million of upfront investment in recent acquisitions. As of March 31, we had $1.16 billion of debt and $127 million of cash with our consolidated net leverage ratio for purposes of our bank comes at 2.29x. On a pro forma basis for the acquisitions closed on April 1, including Star Waste, our leverage ticked up to approximately 2.75. We still have approximately $500 million in available liquidity, which will enable us to be opportunistic in continuing to execute on our growth strategy and robust acquisition pipeline. As laid out in our press release yesterday, we updated financial guidance for 2026 to reflect acquisitions closed to date. We increased guidance for revenue to a range of $2.06 billion to $2.08 billion an increase of $90 million, adjusted EBITDA to a range of $473 million to $483 million, an increase of $18 million and adjusted free cash flow to a range of $200 million to $210 million, an increase of $5 million. As a reminder, we completed the acquisition of Mountain State Waste on January 1 and it was included in our original guidance for the full year. We completed three more acquisitions, including Star Waste on April 1, so this guidance revision reflects approximately $120 million of new annualized revenue for 9 months of the year. Guidance further assumes adjusted EBITDA margins of approximately 20% and adjusted free cash flow with a typical conversion from EBITDA reflecting the incremental impact on net interest costs as we finance the transaction entirely with cash on hand and borrowing on our revolver. We have not yet increased our guidance for the base business after the first quarter. However, we are well positioned relative to our internal plan, and we'll reevaluate guidance in future quarters. With that, operator, would you please open the line for Q&A. Operator: [Operator Instructions] And our first question comes from the line of Adam Bubes of Goldman Sachs. Adam Bubes: I think you spoke about $30 million of cost reduction over 3 years between G&A and Mid-Atlantic synergies. I think that translates to something like 50 basis points of additional annual average margin expansion. I know there's always moving pieces and unanticipated bad guys. But all else equal, should we be thinking about a period of outsized margin expansion over the next couple ofyears? Bradford Helgeson: It's Brad. Yes, I think you should. We've always talked about over time. And as you said, there are puts and takes in any given quarter or year. But, generally, we like to get 50 basis points of recurring margin expansion in the base business over time. Given the, I'll call it, pent-up synergy opportunity in the Mid-Atlantic, it's been delayed by certain factors and the opportunities we see to start to get to the G&A line as a percentage of revenue in a way that the company hasn't really been able to before. We do see an above brand margin improvement opportunity over the next 2 to 3 years, I think that's a fair assumption. Adam Bubes: Great. And then you recently remarked, I think that the closure on Ontario could work out to be EBITDA neutral. Can you just talk about the moving pieces there? Presumably the closure could result in lost external tons and maybe longer transportation distances, but I think there are some offsets. So can you just help us think through the different moving pieces? Ned Coletta: Yes, sure. And we'll work on additional information on this over the next several years. But right now, we plan to close the Ontario landfill in December 31, 2028. And as you're aware, we've been working on two important permit increases in New York for a number of years going on 5 to 6 years now. And the most important, Thailand, where we're moving the tonnage up from 460,000 tons to 1 million tons a year. Ontario does roughly 750,000 to 800,000 tons a year. Mainly MSW, but there are C&D volumes that go into the site. So we will look as Ontario's winding down, we will look to shift volumes that were historically going into Ontario to both Hakes and Hyland and more and more of them into Hyland over that time period. And what's really important to note here is Ontario is our most expensive aerospace in the company to build and operate each year. And Hakes and Hyland represents some of the least expensive to build and operate each year. So we'll have it in capital efficiency, we'll have operating efficiency, and as you can do the simple math, it doesn't track ton per ton. But as we look at it from an EBITDA standpoint, we should be pretty neutral during that period. On an operating income basis, we'll actually come out the other side with a benefit, it will improve both our operating income and net income as we close Ontario. Adam Bubes: Great. And then last one for me. Can you just provide an update on where we are along the landfill gas program? I know you're not putting up dollars, but could still be a nice royalty stream. How are you thinking about the timing of the ramp there? Ned Coletta: Yes. This has been an interesting journey. So the first thing to note, I think everyone on the line notices, but we should reinforce is that we chose many years ago to not develop and invest in RNG facilities ourselves. So we've chosen partners through selection processes to develop these sites and they've invested all of the capital to develop each of the sites and bring them online. We've had mixed results, frankly. It's taken far longer for these developers to develop projects and come online successfully. And it's frankly a bit of complexity as well. As you know, managing the landfill and managing gas at the landfill appropriately within permit compliance doesn't always align with creating the best pipeline quality of gas. So we have four projects online today. We have our project at Juniper Ridge Maine, which is an RKMBP project. We have our project at North Country in New Hampshire. It's a Viridi project. And then we have two new projects that came online in Q1, both with Waga at our Chemung and Hyland landfills. And they're all kind of in shakedown stage right now, and they're generating -- we expect this year several million dollars of EBITDA from overall the portfolio of these assets. There's a wide range of outcomes, and we'll be watching very closely over the next quarter or 2 quarters and getting additional information out to the Street. The Waga projects, in particular, appear to be operating very well in these early shakedown stages, but I think we're a little early to start calling the exact production levels of each of these. Just to give you a sense, like we're running 25,000 MMBtus a month at Chemung, Hyland, North Country right now in the shakedown phase, just to give you a sense of scale. Operator: Our next question comes from the line of Trevor Romeo of William Blair. Trevor Romeo: I wanted to ask maybe one or two on Star Waste. So it sounds like a good deal. I guess, $100 million of revenue, but how should we think about the current margin profile for that business? And then I think they had done something like 8 acquisitions in the last 4 years themselves. So what are your thoughts on where they are from an operating efficiency perspective and how they kind of integrated the deals that they had done? Bradford Helgeson: Yes. Trevor, it's Brad. So our assumption for guidance purposes and external conversation is about 20% EBITDA margin. I mean it's broadly consistent with other acquisitions that we've acquired I think like with most or all of our acquisitions, we're going to seek to get those margins up materially over time. Given in particular, where Star fits into our existing business in the Greater Boston area, growth opportunities that unlocks for us, particularly on the south side of Boston, we're actually really bullish on the opportunity to improve that business within the Casella footprint over time. Ned Coletta: And on your integration point, the entrepreneur who funded -- founded Star [indiscernible] really did things the right way, hit a great team. They invested heavily in systems and process and they were integrating these small tuck-ins as they went along. And we bought a great company who's operating extremely well, has a strong management team, as I said, is a nice platform for growth into the future. This is not a fix it one. Sometimes you buy companies that we spend quite a bit of time working on fixing things and having to overinvest to get them to a certain standard, this is backed by a great PE firm Clairvest, that is putting some excellent capital into it. As an example, they just completed a great retrofit to their construction and demo processing facility, transfer station and processing facility and had state-of-the-art technology in the facility. So we're buying something that's a very nice platform and integrates well with our business. Bradford Helgeson: Yes. And you mentioned recent acquisitions the company has made something that's somewhat unique with this acquisition is they have some potential future acquisitions in their pipeline that will flow into our efforts going forward. Trevor Romeo: That's interesting. Okay. And maybe just a quick follow-up on Star again. I think you mentioned, I think the transfer station coming on in McKean could take volumes from Massachusetts now. So just in terms of kind of the disposal and maybe internalization opportunities with this deal, anything there or just maybe anything broadly on the synergy opportunities you could point out? Ned Coletta: Yes. So in this first phase, we're looking at it as more of how do our trucks, Casella's trucks pre-acquisition route to their transfer station. can we take advantage of that from a route synergy standpoint. Initially, the materials from that transfer station will continue to go to third-party sites. They have attractive contracts with several third-party disposal sites. We'll look at that long term to see if there's an internalization opportunity. But that's not one of the first phases of synergy. If we're able to advance permits in New Hampshire over the next several years and develop additional landfill capacity in New Hampshire, it would be very strong vertical integration there. Trevor Romeo: Yes. Okay. Great. If you don't mind, maybe one more quick one. Just on the national accounts business because I think obviously very strong growth there. I think that business has a sort of a margin mix impact. So if you think about that growing, call it, double the rate of the company. Maybe you could just remind us kind of the incremental margins on that business and whether that makes the 65 basis points of kind of base business margin you're talking about, maybe we keep them better on an underlying basis? Bradford Helgeson: Yes, it's a good question. So we love that business. Obviously, as you alluded to, the growth profile, it's very little capital investment. It helps to drive business back across our solid waste segment to the extent that there are customers that are coming in to the national account sales effort that are serviced, ultimately by our own trucks. That's the kind of work that we love. Really, the solutions-based sales effort aligns really well with Casella and our strengths and our focus areas. So it's a great business. The only footnote, I guess, from a financial standpoint is low market because it's low capital and the nature of the business. So on an EBITDA margin basis, it's mid-single digits, mid to upper single-digit EBITDA margin. So if you were to pull national accounts out that would be accretive to our EBITDA margin. But obviously, there are many other factors that lead us to think this is a great business that we want to push forward. Operator: Our next question comes from the line of Tyler Brown of Raymond James. Tyler Brown: I want to come back to the 4.3% landfill price number. I think that number last quarter was 2.5%. So that's a really nice acceleration. But can you kind of talk about what drove that acceleration? Was the issue more about last quarter being a bit lower? Or was it a more concerted effort this quarter? Just any color on that metric specifically? Ned Coletta: Yes. So we're working hard to get more process and discipline around our sales efforts up and down the company and great new hire and Chris Rains. And about 1.5 years ago, our longtime lead of landfill sales stepped away, and that responsibility was kind of absorbed across a couple of other places. And we frankly didn't have enough management of pipeline, quality of revenue and what we're doing. And we rebuilt that through 2025, and we're working to further advance it now under Chris' leadership. So I think it's one part like -- we didn't get the job done as well as we could have gone it done. And two, frankly, for a little bit there. There's a one rail move that was ramping up out of New Jersey that was putting a little downward pressure on the overall Northeastern environment, that rail move is full now as a third-party company is moving waste out of New Jersey out to Ohio really don't have a lot of excess capacity in that system. So they never directly took one of our customers, but generally probably a little bit of pressure on the overall environment as well. Tyler Brown: Okay. Okay. That's helpful. And then quickly on Star. Just to be clear, they are not or at least not materially in heavily flow-controlled markets tied to the Massachusetts burner. So internalization could be an opportunity long term? I just want to understand that. Ned Coletta: Yes. There is no flow control in those markets. But as with any major metropolitan market, traffic matters in the positioning of assets matter, so as Brad said earlier, we're really strong today, Boston, Boston North to the West, stars very strong to the south from the positioning of their hauling businesses. And it really gives us the opportunity to grow in those markets. We've had the strongest organic collection growth over the last decade in the Greater Boston market. And you kind of think about this from our sustainability, our resource solutions approach, the integration with our state-of-the-art recycling facility in that market, we've sold a lot of really premier customers, and we've grown share of wallet. And we think we can kind of expand upon the success Star has had in a similar way over the next coming years. Tyler Brown: Okay. Great. And then Brad, just to help us on Q2 margins. So I know that there's a normal step-up because it kind of unthaw, if you will, up in the Northeast. Revenue kind of takes a step up sequentially. But then you've got acquisitions that are dilutive by nature, fuel is dilutive by nature. Can you just give us any color on how we should think about margins either sequentially or year-over-year, just to kind of get us in the right spot. Bradford Helgeson: Yes. So as you pointed out, sequentially, margins are much better in the second quarter and then advancing into the third quarter in our business, particularly given our geography. On a year-over-year basis, I mean you really mentioned the two main factors that we'll be dealing with this second quarter, which is fuel surcharges. I mean we'll see where fuel goes over the second quarter, but higher fuel costs that are covered by our recovery fees or, of course, margin dilutive and the acquisitions. So we'll see how the acquisitions impact things. Another point I would make on the base business, just thinking about your modeling quarter-over-quarter is the synergies in the Mid-Atlantic and also actually the G&A savings that Ned had mentioned earlier, those will be more back-end loaded. So we'll start to see, as we've completed the consolidation of the Mid-Atlantic onto our system. We're going to start to see those benefits in the second quarter of the synergy realization, but that's really a Q3 and Q4 story more so -- and then the convenience fees that Ned mentioned are entirely back-end loaded. So Q2, we'll see where we end up. There are some headwinds as you mentioned. But our focus is really on frankly, the third quarter and the fourth quarter for this year and then, of course, going into 2027. Tyler Brown: Right. But if your kind of updated guidance is flattish on the margin line with the dilution. So is it -- is it crazy to think it could be slightly down in Q2 on a year-over-year basis, up sequentially though? Bradford Helgeson: It's a really good question. That's not crazy to think that way. Ned Coletta: But to be clear, the base business will be the positive acquisitions could weigh on it slightly negative. We weren't able to get fully under the hood on [ Star Waste ] and a [ DOJ ] process on the customers to wrap all of those things until really day 1, Tyler. We're digging in now and really looking at the progression of what we can do there. So as we said, probably little more overhang on margins of 20-ish percent to start with and look to improve from there. Tyler Brown: Okay. I just want to make sure I had that. And then just last one, if I can, Ned. This is a bit of a periphery question, but I'm kind of curious about it. So I think in Massachusetts, there are a couple of larger landfills -- sorry, ash landfills that are set to close in coming years that are kind of related to some of the burners. How do you think that's going to play? And what do you think and how will they deal with that excess ash? Ned Coletta: Yes. So it needs to go somewhere and it needs to go to Subtitle D landfill. So that will take up capacity in the marketplace is something that really hasn't been discussed. I can't get into a lot of details there, but we believe there's some real value working with some of our peers across the waste-to-energy business on certain of those streams, and it's an area that we've been actively engaged, and we think there's some value creation over time. And hopefully, we'll have more to report. But it's a great point. I think the easiest part of the point is those landfills are closing or filling up. And that ash, the further you move it, the more expensive it gets, and we've got some great in-market solutions. Our McKean rail facility actually fits very, very well with some of the burn plants as well. Bradford Helgeson: And Tyler, you mentioned Massachusetts landfills, but there's -- as a reminder, there's also a lot of ash that goes into the Brookhaven landfill on Long Island, which is going to be closing ash over the next few years. Ned Coletta: Yes, that's as much as 400,000 tons a year that goes into that landfill today. And the Brookhaven landfill, that caused a little up when it was closing from a C&D standpoint, but it's still open for ash through the next 2 years and to be closed at that point in time. And there's still -- and we talk about this sometimes, it ebbs and flows. As we look out over the next 10 years, there's still a lot of disposals coming offline in the Northeast. And as you pointed out, some of these sites are just taking ash. But at any point in time, you could go through a year period of time where you have a little bit more capacity like we did in 2025 of rail, then that fills up, people look to the next phase of sites closing. So I think the long-term horizon is still the same as we've been talking about for years. There's a supply-demand imbalance in these markets and our in-market capacity is very valuable and we'll continue to have pricing power. Operator: Our next question comes from the line of Jim Schumm of TD Cowen. James Schumm: So that's actually my question is I wanted you guys to address a little bit more the supply/demand situation in the Northeast because I think a lot of investors are solely focused on rail or hearing rail is moving waste out and maybe you look at some of the landfill pricing recently, which is sub-5%, which maybe is not that impressive to some folks. And there's a concern that landfill pricing is going to be depressed longer term. So I just wanted to get your views. We've talked about you've talked about a couple of moving parts. But like what is your longer-term view on your Northeast landfill pricing. From time to time, you are going to see these rail projects move waste out. But when you guys look at the closures, what does that mean for pricing in 2027, 2028, 2029, can you get -- is it more mid-single digits? Can you get upper single digits at some point? Or like how are you guys thinking about that? Ned Coletta: Yes. Thanks for the question. So if we look at the last decade plus, pricing at the landfills has generally been mid-single digits in its range from a couple of lows for us and in 2025, the highs as much as 8% or 9% during that time period. And it really depends. I mean, you need to look at the book of business. So some of our outside years also have a relationship with big large contracts that might be renewing in those periods, and there might be step-ups in those contracts. So they have a 5-year contract and the market continues to tighten over the 5 years, you might get some of those outsized pricing years around those resets. But generally, we're kind of stacking up that mid-single digits. And I think we feel really confident that if we can price at those levels, we'll have a great economic outcome and returns for shareholders. I said it to Tyler a minute ago, and I feel the same way. If you look at all the sites that we'll be closing over the next decade, there's not enough space for all of this waste in the marketplace. So then you start to look at what are the alternatives. The best alternatives are in market, right, where you can use a truck, move the waste via long-haul trough to a landfill or to a waste-to-energy plant. The more expensive solution both capital and operating costs is to move it via rail. It's far more expensive, but it's the only viable option as in-market capacity comes out. So we see that as a tailwind for us over the next number of years as well. Sites will be closing. We've got a great outlook on capacity. We have over 25 years at our sites today. We've got some important expansions in progress -- process that are working well, and we expect to land those in the next year. And we look at the backdrop, which should be positive over the next decade. James Schumm: Okay. Great. And then I just wanted to ask you another question I get from investors a lot is you have this network of landfills in the Northeast and then you make this platform acquisition into the Mid-Atlantic and then you're growing west or southeast from there. But you don't really have any landfills in this -- in this area. So you kind of McKean in Pennsylvania, but what is the -- how should people think about your collection margins, what is the sort of the ultimate goal? I mean can you earn 30% margins without a landfill in Mid-Atlantic geography? Or is it more like should we be thinking more like 25%? And I know that you guys have said it's closer to 20% right now, and let's think about 25%, I think, over the next couple of years. But longer term, is there upside to that 25% number? Ned Coletta: Yes. So one of the things that's important to note is we use market-based pricing at all of our landfill or recycling facilities or transfer stations. So we charge our self market-based rates. So if you look at our collection business, say, in the Northeast, where it's vertically integrated, the margins produced by that collection business are apples-to-apples to Mid-Atlantic because we're charging intercompany market-based rates. And we generally generate about 30% EBITDA margins on our collection line of business. In the Mid-Atlantic today, our margins are roughly 20%. This is not because we don't have landfills. This is because we have work to do. This is a business that the quality of the truck fleet was lacking. There wasn't enough density in certain parts, quality of revenue. And we've got strategies around each of these points, and we've laid out a plan for the next 3 years as we put more automated trucks in the fleet, collapse routes to add about $15 million of EBITDA to that market, which will translate to mid-20% margins. Having landfills is a great thing and having the vertical integration. But what also is important is having the right transfer assets. So you can get your trucks off the road, consolidate waste and then be able to look to multiple disposal options. And much of our focus right now in the Mid-Atlantic is either on buying or developing the right transfer assets in that marketplace that will allow us to successfully continue to grow. And we've had some great progress here. We've bought an excellent transfer station last year in the third quarter. We're working on some additional opportunities. We have a new recycling facility we just bought on April 1. We're working on developing another recycling facility ourselves. So you'll look to see that margin progression come up and we do look at over time is apples-to-apples, and we'll be able to have the trajectory, hopefully, over the number of years to get the same 30% margin level. Bradford Helgeson: Yes. And I just sort of add on to that is not air market is created equal, of course, from a disposal perspective. So having the security of disposal capacity in our markets in New England, let's say, upstate New York is incredibly strategically valuable. You contrast that with the Mid-Atlantic Eastern Pennsylvania will be a great example, there's plenty of landfill capacity down there. We like the landfill business. It would help margins. We wouldn't turn down the opportunity to own landfill there, but it's not a strategic imperative. I think the focus, as Ned said, the focus down there is really going to be building out our transfer station network so that we can most efficiently access the disposal sites that are down there. Operator: Our next question is Tami Zakaria of JPMorgan. Tami Zakaria: Congrats on the nice results. We've seen the CPI tick up lately. So can you remind us how any acceleration in the headline CPI impacts your pricing maybe on the entire parts of the portfolio? And is there a typical lag? Bradford Helgeson: Yes. So, hey, Tami, it's Brad. It does impact our pricing on some of our business. most notably, municipal contracts, that direct relationship between the contract pricing and the underlying inflation index. But as a reminder, 75% of our collection business is open market, meaning we just have service agreements directly with customers where pricing is wherever we want to set it and whatever the market will bear and whatever is appropriate given our underlying cost inflation. So I would say, directionally, it impacts us, but actually not necessarily directly because we have total flexibility to react to the circumstances. Ned Coletta: But I think higher CPI prints in a certain way to do allow maybe a bit more pricing spread. But as Brad said, 70%, 75% of our book of business, we can price it well, and we've shown that amazing flexibility over time. Last year, we talked about this. We saw our price/cost spread narrow more than we wanted to in the first half of the year. And we came out on a select group of customers with a second set of price increases in the last half of the year. And we thought that was an important thing to do to get that spread back to where we believe it should be. So we're trying to be really dynamic. But of course, the CPI print is something we're always looking at, but we're also looking at our own cost profile where we need to be. Operator: Our next question comes from the line of Shlomo Rosenbaum of Stifel. Shlomo Rosenbaum: Net, it was just echoing that it was really good to see that third-party landfill pricing stepping back up. And you talked about two factors, one of your own, just putting in more effort and ensuring appropriate pricing and getting good business. And the other one was rail. Just in terms of the impact over the last few quarters and then the turnaround, would you say that it was more a matter of turning around because the rail -- the competitor just kind of filled up already over there? And the other aspect I want to just dig a little bit into is, do you have a sense in terms of the comparison between the rail pricing and what you're getting at your own kind of transfer stations and tipping at the landfills? Just at what point would it make more sense for someone else to add a lot more capital and just go ahead and add more capacity through rail. I guess what I'm trying to just get at is to understand the risk of kind of something just kind of popping up again? Or is it something that is unlikely because the amount of capital would be very expensive. And right now, given the comparability of cost is not worth it? Ned Coletta: Yes. Great questions. So I'll start off with your first question around the pricing in the quarter and the pricing trajectory at our landfills. As I mentioned earlier, I think it was one part kind of pipeline management and quality of revenue we are seeking and managing the customer base. And one part looking at certain rail roof that was ramping up out of New Jersey over the last several years that they gave some negative pricing pressure to the overall marketplace. If you look at -- there's only a few landfills that except railways from the Northeast or just railways in general. And a few of them have some excess capacity, but they're very expensive to get to, and it takes a long time in a lot of rail exchanges. A few of them are a bit closer to the market and more reasonably cost. And if we look at both sides of that equation, one, the capacity to actually move more railcars each day out of certain transfer stations, and two, the actual capacity at these landfills against their daily permits, you're seeing both sides that have constraint today. And the last factor, and we heard about one of our competitors talked about this on their earnings call last week. Generally, I would say the major companies who have rail service landfills, including Casella, we're not looking at these as merchant sites where we're looking to get the lowest cost waste. We're looking at these as long-term defensive strategies to take care of our own customers. And we talked -- we heard this one company talk about how the vast majority of their rail move was really tied to their own tons in New York, state in New York City and looking to gain certainty there of cost and certainty of disposal. And Casella looks at through the same lens and I know others do as well, where this isn't a merchant play to seek the bottom of the market. This is very capital intensive, very costly move to material. So coming back to your point, this one competitor is ramping up capacity. They're at capacity today on the transfer side forming the trains and they're generally at capacity at the landfill side. So they're going to look to returns and pricing quality. They don't have room for a lot more tons. So I think through periods like this, what we do is we look at returns on our sites, and we're laser-focused on taking the right materials in at the right price and long-term return profiles because the scarcity is real, and you can't replicate any of these assets. Shlomo Rosenbaum: Okay. Great. Then I just wanted a little bit more tactically in the quarter, you drove that large EBITDA margin outperformance. And even though in the beginning of the year, you were talking about there being more margin expansion in the second half of the year. And really drove pretty good margin expansion this quarter. And I was wondering what went better than expected just from an operational perspective, like what surprised you? Or where were you able to really execute better than you thought you would? Bradford Helgeson: One example of where we did a little bit better than we expected and better year-over-year was on the maintenance side. So in the Mid-Atlantic, where, as Ned was talking about, where just on the cusp of completing our system integration and... Ned Coletta: Next week, Brad. Next week. Bradford Helgeson: Next week. There you go. To be in a position to execute on our synergy plan. But we've also -- as we've been working on that, we've received delivery of a large number of trucks into that market. And so the ongoing maintenance costs, equipment rental for us to keep trucks on the road to keep customer service. We no longer have a need for those. So that's just one example, not necessarily the old story, but that's been a nice tailwind for us. Shlomo Rosenbaum: Okay. If I could just squeeze one more in. Would you mind just going over the volumes in terms of year-over-year growth along the various lines that are kind of cyclical. So the special ways to see indeed, the temporary poles, just the things that people are looking at to see where things are going cyclically. Bradford Helgeson: Yes. So on the -- first off, on the collection side, the portion of our collection business that is most cyclically impacted is the roll-off business. The roll-off was down a little over 3% year-over-year. So that's something that we look at and point to for where the economy might be impacting us. In our case, I think it was probably more weather than it was economy, but that's an area we look at. On the landfills, we saw MSW stronger. We saw C&D stronger. C&D would be a potentially economically cyclical volume stream. One area where we did see relative weakness year-over-year, which impacted us on mix was special waste volumes. So again, that's another area where we don't have perfect knowledge on whether that's weather, whether that's uncertainty given the fact that we're at war and projects not moving forward, hard to know exactly, but that's another area where we may have seen it. Ned Coletta: Yes. In a particularly cold winter, though, many of those jobs, whether they be infrastructure jobs or the start major construction projects where you're digging out contaminated soils or even just industrial jobs where you're dredging out industrial lagoons and things like that, like they're just not happening at the same pace in the winter and not to blame the weather, but when it gets really cold, you're just not doing that work. Operator: Our next question comes from the line of Harold Antor of Jefferies. Harold Antor: This is Harold Antor on for Steph Moore. Just one for me. I guess just on the pricing front, I think you did 5.1% in the quarter and the guide at around 5%. So I guess, typically, 1Q is a high watermark. So I guess, will we expect I guess this implies kind of consistent pricing at these levels for the rest of the year. I guess what's kind of driving that? Do you expect second half pricing to ramp just given improvement in the Mid-Atlantic? Anything there? And I guess just on -- could you remind us how churn performed in the quarter? I think the industry has been seeing better churn metrics in the quarter. So I just wanted to get a sense for what churn around for you guys and how that -- and if you're doing -- making any investments on the tech side that's improving that? Bradford Helgeson: Yes. Hey, Harold, it's Brad. So we feel pretty good about the trend of pricing as we look forward to the end of the year. I guess a couple of points to highlight. One, and really, this is really a function of the price number that we report. We're not reporting the price increases that we go out with and then see that number erode as prices are rolled back over the course of the year. I mean that's a net number of rollbacks. So it's not one that all else being equal, should deteriorate over the course of the year. The other important point I think for us right now is the Mid-Atlantic. So given where we are with systems consolidation, we've had very limited ability to assess pricing across the customer base, assess profitability and implement our pricing programs with the intelligence and specificity that we do in the rest of our business. So we would expect that to be a consistent tailwind over the course of the second half of this year and into next year on pricing. As far as technology and Ned hinted at this in his prepared remarks, we're actually on the cusp of rolling out an app and really a different way of accessing the customer and meeting the customer where they want to do business, where they can pick up an app and sign up for service rather than picking up the phone. Ned Coletta: Yes. In our digital customer engagement, e-commerce activities are right now across about 60% of our markets will be across 100% in the third quarter. And this is actually our fastest-growing sales channel, as you can imagine, and we're rejiggering our back office, our sales alignment to support the growth as well. Operator: Our next question comes from the line of William Grippin of Barclays. William Grippin: Great. I appreciate you squeezing me in. Just one quick one here. But given the Star Waste acquisition on April 1, and that was kind of a chunkier deal, could you just elaborate a little bit on how you're thinking about maybe balancing leverage versus further tuck-in M&A over the balance of the year and just your capacity to do that following Star Waste. Bradford Helgeson: Yes. I mentioned in the prepared remarks that pro forma for Star and the other two acquisitions that we closed on April 1, we're at about 2.75 leverage. That has room to grow. We don't aspire to be highly levered. I think a key tenet of our capital allocation strategy and capital strategy generally has been to maintain moderate leverage to stay nimble and for risk management purposes. That all being said, at [ 275 ], we do have capacity to move down a bit higher. And for immediate quickly emerging opportunities, we have about $500 million of available liquidity. So we're not done. We're looking at a lot of attractive opportunities. Our pipeline is healthy, and we'll see what we can cross over the course of the year. Operator: I'm showing no further questions at this time. I will now turn it back to Ned Coletta for closing remarks. Ned Coletta: Thank you, everyone, for joining us today. We look forward to speaking with you again in early August to discuss our second quarter results. Everyone, have a wonderful day and weekend. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Encompass Health First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mark Miller, Encompass Health's Chief Investor Relations Officer. Please go ahead. Mark Miller: Thank you, operator, and good morning, everyone. Thank you for joining Encompass Health's First Quarter 2026 Earnings Call. Before we begin, if you do not already have a copy, the first quarter earnings release, supplemental information and related Form 8-K filed with the SEC are available on our website at encompasshealth.com. On Page 2 of the supplemental information, you will find the safe harbor statements, which are also set forth in greater detail on the last page of the earnings release. During the call, we will make forward-looking statements, such as guidance and growth projections, which are subject to risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties, like those relating to regulatory developments as well as volume, bad debt and cost trends that could cause actual results to differ materially from our projections, estimates and expectations are discussed in the company's SEC filings, including the earnings release and related Form 8-K, the Form 10-K for the year ended December 31, 2025, and the Form 10-Q for the quarter ended March 31, 2026, when filed. We encourage you to read them. You are cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information, at the end of the earnings release and as part of the Form 8-K filed yesterday with the SEC, all of which are available on our website. I would like to remind everyone that we would adhere to the one question and one follow-up question rule to allow everyone to submit a question. If you have additional questions, please feel free to put yourself back in the queue. With that, I'll turn the call over to President and Chief Executive Officer, Mark Tarr. Mark Tarr: Thank you, Mark, and good morning, everyone. We are pleased with our start to 2026 as first quarter revenue increased 9% and adjusted EBITDA increased 11.2%. Based primarily on our Q1 results, we are raising our guidance for 2026. Doug will review the details in his comments. We achieved these strong results while once again delivering outstanding patient outcomes. Compared to Q1 of '25, our discharge community rate improved 50 basis points to 84.5%. Our discharge acute rate improved 30 basis points to 8.6% and our discharge to SNF rate improved 20 basis points to 6.2%. Our performance on each of these quality metrics exceeds the industry average. We continue to invest in our clinical staff by providing professional growth and development programs such as our career ladder programs, providing nurses with support to attain Certified Rehabilitation RN Certifications and offering in-house continuing education opportunities. We've seen increased participation in and benefits from these development programs. We believe our success in these programs contributes to the continuing improvement in our clinical staff turnover trends. Q1 of '26 annualized RN turnover was 17.8%, down from fiscal year '25's 20.2% and annualized therapist turnover was 6.4%, down from last year's 7.8%. This represents our lowest RN turnover rate since at least 2012 and helped drive a 9.4% decline in premium labor spend compared to Q1 of 2025. We also believe that our clinical advancement programs and reduced clinical staff turnover further enhance our abilities to serve high acuity, medically complex patients and increase patient satisfaction scores. Demand for IRF services remains strong, and we are continuing to invest in capacity additions to meet the needs of patients requiring inpatient rehabilitation services. In Q1, we opened a new 49-bed hospital in Irma, South Carolina, our 11th hospital in that state. We also added 44 beds to existing hospitals. Over the balance of the year, we plan to open 7 more hospitals with a total of 340 beds and add an incremental 100 to 150 beds to existing hospitals. We continue to build and maintain an active pipeline of new hospital development projects, both wholly owned and joint ventures, while also executing on bed expansion opportunities as dictated by occupancy trends and market dynamics. Our pipeline of announced new hospital projects with opening dates beyond 2026 currently consists of 11 hospitals with 520 beds, and we anticipate additional projects, including small format hospitals will be announced over the balance of the year. We have previously discussed the innovation of our small-format hospital, which will serve to facilitate a hub and spoke strategy in large and growing markets. We are confident we will open at least one small-format hospital in 2027 with the potential to add more depending on the timing of pending real estate transactions. The small-format hospitals will operate as remote locations under the same Medicare provider number as an existing in-market hospital and will share certain administrative services with that hospital. Small-format hospitals will complement our existing de novo and bed expansion strategies. This is a particularly active year on the regulatory front, with implementation of TEAM beginning on January 1 and expansion of RCD into Texas effective March 1 and California beginning today. We will work to address these developments as we have the numerous other regulatory challenges we have successfully navigated in the past through extensive preparation and proactive refinements of our operations. This is not to say that we will be immune from short-term transitory impacts to our business. Nonetheless, the fact remains that demand for inpatient rehabilitation services remains considerably underserved and is growing as the U.S. population continues to age. We are uniquely positioned to address this important societal need. On April 2 of this year, CMS released the 2027 IRF proposed rule. The proposed rule included a net market basket update of 2.4%, which we estimate would result in a 2.4% pricing increase for our Medicare patients beginning October 1, 2026. We expect the IRF final rule to be released in late July or early August. With that, I'll turn it over to Doug. Douglas Coltharp: Thank you, Mark, and good morning, everyone. Q1 revenue increased 9% to $1.59 billion and adjusted EBITDA increased 11.2% to $348.8 million. The revenue increase was comprised of 4.3% discharge growth, inclusive of 1.6% same-store discharge growth and a 3.7% increase in net revenue per discharge. Net revenue per discharge growth benefited both from patient mix and a favorable year-over-year comparison in the annual Medicare SSI adjustment. Bad debt expense increased 20 basis points to 2.2%, primarily as a result of writing off claims from 2013 associated with the legacy audit appeal. As a reminder, since the end of Q2 2025, we have closed 3 IRF units hosted within acute care hospitals as well as our lone SNF unit hosted within one of our freestanding hospitals. Together, these 4 units were essentially breakeven in terms of adjusted EBITDA. The unit closures impacted total and same-store discharge growth in the quarter by approximately 85 basis points. The impact on future period discharge growth will diminish as we consolidate this volume into other proximate hospitals and as we anniversary the unit closure dates. We expect to add 66 beds to our existing hospitals in these markets. We previously announced the closure of our 18-bed unit hosted within our acute care hospital JV partner in Evansville, Indiana. This closure will occur in early 2027 and represents another market consolidation opportunity. We are in the process of adding 40 beds to our existing freestanding hospital in this market to support the consolidation and future growth. These incremental beds are expected to be operational in late 2026. Following the Evansville unit closure, we will have 9 remaining hospital-in-hospital locations with no further closures currently planned. The hospital and hospital format remains a viable strategy to capitalize on market opportunities. Over the next 2 years, we expect to open 3 additional hospital and hospital locations in existing markets. These 3 projects are already in our bed addition assumptions and will address needed capacity in these markets. Q1 SWB per FTE increased 3.7%, driven in part by the increased participation in our career ladder programs Mark discussed earlier. Greater participation in career ladder programs leads to more of our clinical staff obtaining higher licensing and compensation levels. Over time, we believe this drives financial and operational benefits, primarily in the form of reducing turnover and premium labor costs. Premium labor costs comprised of contract labor and sign-on and shift bonuses declined $2.7 million from Q1 '25 to $25.9 million. Contract labor FTEs as a percent of total FTEs was 1.2% in Q1, down 10 basis points from Q1 '25. Net pre-opening and ramp-up costs were $4 million. We continue to expect net pre-opening and ramp-up costs of $18 million to $22 million for the full year 2026. We continue to generate significant free cash flow. Q1 adjusted free cash flow was $194 million. Our primary use of free cash flow continues to be capacity expansions. During Q1, we repurchased approximately 708,000 shares of our common stock for a total of $71.6 million. We paid a $0.19 per share cash dividend and declared another $0.19 per share cash dividend that was paid in April. Our leverage and liquidity remain well positioned. Net leverage at quarter end was 1.9x. Based primarily on our Q1 results, we have raised our 2026 guidance as follows: we now expect net operating revenue of $6.375 billion to $6.470 billion, adjusted EBITDA of $1.35 billion to $1.38 billion and adjusted earnings per share of $5.89 to $6.11. The considerations underlying our guidance can be found on Page 11 of the supplemental slides. And with that, operator, we'll open the line for Q&A. Operator: [Operator Instructions] And we'll take our first question from Ann Hynes with Mizuho Securities. Ann Hynes: So I know your organic volume discharge growth was impacted by closures. Do you have a number of what that would have been if you exclude the closures? Douglas Coltharp: Yes. As I mentioned in my comments, the impact of the closures was approximately 85 basis points, and that would be the same for both total and same-store. And again, we would anticipate that, that impact will diminish through the course of the year because we're going to be consolidating some of that volume and in certain instances, adding beds to those markets, the existing hospital in those markets, and then we'll also be anniversarying the closure date. Mark Tarr: And then just a reminder as Doug noted earlier, there is no impact on EBITDA. That was discharges only. Ann Hynes: Okay. And then just your comments around nursing. You have the lowest nursing turnover in 2012, which is very impressive. What do you think is driving that? I'm sure there's internal factors and external factors like inflation, but any observations you can provide on why you think that's so low? Mark Tarr: And I'm going to ask Pat Tuer to weigh in on that. Patrick Tuer: So, Ann, the -- a couple of things on that. We talked about our centralized talent acquisition team before, and they have done a great job bringing talent into our organization. Net hiring for the quarter was higher, in fact, than the first 2 quarters combined last year on a same-store basis. And on the turnover front, our ladders are really starting to take hold. So we have about 35% of our nursing staff is now on clinical ladders. That's up about 300 basis points from last quarter. Turnover -- if we can get a nurse on the ladder in Q1, the turnover for that group was a little over 2%. It was 2.6% compared to 20.7% for non-laddered nurses. So really, our hospital teams are doing a great job engaging our staff to become more organizationally rooted and get into these ladder programs and as a result, earn more compensation. I would say more broadly, the dynamics around the labor environment can be unpredictable, but we have seen a lot of positive momentum from a hiring and retention standpoint. Mark Tarr: And as Pat noted, having that centralized talent acquisition here in Birmingham frees up the local hospital staff then to do nothing but really focus more on retention. So there's a lot of other programs involved, but certainly, clinical ladders are an important part of the tools they've added in the last couple of years. Operator: We'll take our next question from Matthew Gillmor with KeyBanc. Matthew Gillmor: Maybe following up on Ann's line of questioning on the same-store volumes. The [ 2.6% ] number, if you adjust out the 85 bps is still a pretty healthy number, but slightly moderated from the trends you saw in 2025. Curious if there were any other sort of puts and takes to think about and how you're sort of thinking about same-store volume performance for the balance of 2026. Douglas Coltharp: Yes. And Matt, we don't want to make it sound like a litany of excuses, but since you've asked for further insight on volume, I think we would cite 4 factors in the first quarter. The first was the unit closures, which we've already covered. The second is occupancy levels, and I'll go through that in more detail in just a moment. The third is something that you've heard from the acute care hospitals reporting, which was it -- was a relatively light, meaning low severity flu and respiratory season. And the fourth is some continuation of the MA trends that we experienced in Q4. To dive a little bit deeper on the occupancy story, our Q1 average occupancy of 78.7% was essentially flat with our record high levels in Q1 of '25, and that was up 200 basis points from Q1 of '24 and up over 500 basis points from Q1 of '23. And that's reflective of our strong growth and as Mark pointed out, the underlying demand for inpatient rehabilitation services. To meet that demand, we've obviously been adding beds via de novos and bed additions, and we've been seeking opportunities to convert semi-private rooms to private rooms, that's something we've talked about quite a bit before. At the end of the first quarter, 58% of our beds were private, and that compares to 41% being private at year-end 2020. But in spite of those efforts, occupancy has become a bit of a constraint in certain markets. In Q1, approximately 35% of our hospitals had occupancy in excess of 90% with that cohort having an average occupancy of 95%. A subset of that group is comprised of relatively recent de novos that have been growing quickly, and they crossed the 90% threshold in Q1. More than half of our hospitals within Q1 that had occupancy in excess of 90% are slated for bed additions between 2026 and 2028, and we're anticipating adding more of those hospitals to the list as well as introducing small format hospitals per Mark's discussion in certain of those markets. So we probably fell a little bit behind because the growth was faster than we anticipated, but we've got a plan to address that. Just a little bit more commentary on the flu and respiratory season. Debility for us is a proxy for the severity of the flu season and also for respiratory illness. And as you've heard from the acutes, Q1 '26 was relatively light in that regard. Debility is approximately 11% of our patient mix, and it only grew by 70 basis points in total for the quarter and actually declined 1.5% on a same-store basis. That's purely a seasonal item, and it's going to fluctuate from year-to-year. And then again, MA continued to be a bit of a struggle as we moved into the quarter. I'd probably there point to some things on a longer trend. We can talk about, obviously, the success that we're having with regard to the admit and appeal strategy that we began implementing at the end of February. That's very early on. It's only in 9 hospitals, but we're seeing some good traction there. But some of the things that you've probably been hearing nationwide on an MA basis that are worth underscoring is that nationwide MA penetration appears to have peaked at approximately 52%. And it's now actually receding slightly as a matter of fact, if you look at the year that ended in March of '26, 20 states experienced a decline in MA penetration from the prior year. And we have hospitals in 12 of those states. And if you drill down even further to our home counties, 48 of our 154 home counties or 31% had a year-over-year decline in MA penetration. So we're not necessarily saying that there's going to be a wholesale abandonment of MA, but what we would point to is there continues to be a very large population of Medicare fee-for-service patients that continues to grow that remains considerably underserved. Patrick Tuer: Just to add a little bit to that, Matt, this is Pat. Doug talked about how half of the hospitals are being -- have capacity expansion plans underway. That could beg the question, what about the other half? And those are all under evaluation as well. Some of those are landlocked. Some of those are in competitive markets where it makes more sense for us to consider a small format hospital. But we're looking at a lot of options in those markets as well. In addition, one of the things that we found is we have ramped up in many of these markets faster than anticipated. And as a result of that, we've historically talked about how we have looked at hospitals to have an occupancy between 80% and 85% for us to start the bed expansion process. Well, that worked for a long time. But what we're seeing now is that the process can take a little longer. The permitting process takes longer than it used to. The regulatory process can take longer than it used to. So we have lowered the threshold internally where we're now looking at 70% to 75% from an occupancy standpoint. And that -- what we're hoping is going to allow us to time these capacity additions a little better so that when the capacity is available when the occupancy is reaching to the point where we actually need it. The other thing that I'll mention is we typically build a 50-bed hospital, and we've been talking internally about in some markets, should we be looking at larger footprints. And that's something that we're also evaluating currently. So we have several plans to address these occupancy challenges and constraints moving forward. Douglas Coltharp: I will say with regard to occupancy, it meets the definition of a high-quality problem. Matthew Gillmor: Yes, I agree with you. That's great. Let me try one follow-up on the Medicare proposal. Within that proposal, there was an RFI to potentially make some adjustments to the payment model. From our perspective, it seemed pretty neutral. But I was curious if you all had any initial reaction or maybe it's even too soon to kind of give an educated guess, but any perspective there would be great. Patrick Tuer: Yes. This is Pat again. And I think we're aligned with your -- some of the points you made in your question. So this is a concept at this point. It's not a proposal, and it lacks many of the details necessary for us to model out what the particular impact could really look like. But it's not any sort of site-neutral concept. And in fact, it would look more to change the SNF PDPM buckets to account for the unique and more complex patient populations that are treated in IRFs. And the new process would ultimately be based on ICD-10 coding for both levels of care. So it's more just trying to make things uniform from how things are coded and classified rather than any type of site neutral push. But too soon to tell, not really a concern for us right now. Mark Tarr: Matt, we -- as we always do, we'll be responding to the proposed rule with our comments as a company as well as working closely with the trade associations to contribute to the feedback to CMS. Operator: We'll take our next question from Andrew Mok with Barclays. Andrew Mok: Just wanted to follow up on those comments around MA trends. So you previously called out aggressive utilization management from a large national Medicare Advantage payer. Is this issue broadening out to other payers? Or is more of the MA drag coming from the higher fee-for-service volumes? And if the latter, why is that the case? Douglas Coltharp: I'm not sure I fully understood the second part of your question. The first part of your question, has it extended to other payers? Now the trends from Q4 to Q1 remain pretty consistent. And again, I want to highlight that as we mentioned last quarter, we did begin implementing a strategy for MA patients in certain markets of admit an appeal. And as a reminder, whereas previously, for a very high percentage of the patients on which we received an initial denial, we would simply not admit the patients and move on and not attempt to take that any further. Towards the end of February, in 9 of our hospitals thus far on certain MA patients where we believe we have a very strong case that referral is appropriate. We are now admitting those patients even with an initial denial and taking them through the 5 various levels of appeal. We've started to see some positive results there, and we anticipate rolling that out further. It's important to note that, that is not targeted at any one particular MA plan that is based more on the specific patients and not the plans. Andrew, could you help clarify me on the second part of your question regarding fee-for-service? Andrew Mok: Yes. I think you made a comment that the slower MA membership growth -- industry membership growth is creating maybe a little bit of a volume drag. I guess why is that the case if fee-for-service penetration is a little bit higher? Douglas Coltharp: I was going the opposite. I think for many years, what we were observing is that an increasing percentage of newly minted Medicare beneficiaries were signing up for MA. And so the total MA penetration of the MA beneficiary population had been increasing. But it appears that it peaked at about 52%, and it's actually backing up now. And I was giving some specificity about how MA penetration in some of our home markets has receded, which means that a higher percentage of those patients are fee-for-service, which generally speaking, is a good thing for us. Patrick Tuer: Just to add to that, Andrew, this is Pat. Sequentially, our conversion rate with MA actually went up, but it was down versus Q1 of prior year. And just a little more color on Doug's comment around the admit and appeal strategy. It is way too early to form an educated opinion about this. But in the 9 markets that we are piloting this, we have seen some nice improvement in the approval rate of claims that we submit for authorization. So we're encouraged by what we're seeing. We have a number of cases that are pending ALJ hearing, and we'll wait until we have several of the decisions around those before we make a decision on when and if to scale this up further. Andrew Mok: Got it. Okay. And then as a percentage of revenue, it looks like SWB is the lowest levels we've ever seen, which is even more impressive given 1Q SWB tends to be the highest in the year. Beyond low turnover, is there -- are there any other factors driving the strength in SWB this quarter? And how should we think about sort of the seasonal progression from here given that starting point? Douglas Coltharp: Yes. I mean you had a couple of things depending on how you're looking at it as a percentage. First of all, we had a pretty significant increase in state-directed payment revenue because that included some out-of-period stuff. Now we believe that the net provider tax impact on EBITDA for the quarter had some seasonality to it, and we continue to believe that for the full year, it's going to be relatively flat with last year. And then also part of our pricing increase, as I mentioned in my comments, was a favorable year-over-year impact from the Medicare SSI adjustment. And so you're pulling in incremental pricing revenue without any labor required to offset that. There's always some seasonality in our labor. First quarter just because of the higher occupancy rate tends to be one of the more efficient quarters. It's also going to be impacted by the timing of de novos when that capacity comes on. And as was the case last year, we're pretty back-end loaded this year. Patrick Tuer: One other comment on that. On a same-store basis, and we don't give out same-store EPOB. But to Doug's point, the ramping de novos and the timing of de novos can really impact EPOB, and we look really good for Q1. But on a same-store basis, we are showing incremental improvement year-over-year, and that's just a product of us continually working to make sure that our hospitals are as efficient as possible without sacrificing any type of clinical or quality outcome. And with an organization of our size, you'll have some variation from hospital to hospital or region to region. And those are the markets that we work to get in line with our expectations. Douglas Coltharp: The last thing I'd point out that had an impact there, Andrew, is that the closures had a favorable impact on that because as we mentioned, we were taking out the revenue and the volume, but they were breakeven from an EBITDA perspective, which leads you to conclude that the SWB associated with that volume was a substantially higher percentage than we run on average. Operator: We'll take our next question from Pito Chickering with Deutsche Bank. Pito Chickering: Shockingly, to you guys, I want to go back to that occupancy question. You gave some good details around the facilities that are capped in occupancy, but half of those you can expand in the next few years and half of them you can't because they're landlocked. What do you think is the ceiling for same-store discharge growth over the next year or 2 until those beds are getting added just because you're capped at occupancy? Douglas Coltharp: Yes. I want to be clear, and I think Pat elaborated on this. We've identified bed expansion opportunities for half of that cohort. It's not that we can't do the other half. Some of those just moved into that category faster than we anticipated. So we're evaluating those. And even in those where we are landlocked, there's a good chance that we'll be able to solve for that equation with a small format hospital. So I would actually anticipate that for those high occupancy markets, there's only going to be a relatively small percentage that over time, we can address with incremental capacity in some way. In terms of a theoretical cap on discharge growth, again, this is another reason and the introduction of the small format hospital goes into this category, where we believe it is increasingly irrelevant to think about the breakdown between total discharge growth and same-store discharge growth because you're going to have buckets that move in and out. So with regard to total discharge growth, it's just a matter of how quickly can we add new capacity and continue to fill in and boost the occupancy rates as we do so. And we certainly believe that, that number is greater and perhaps substantially greater than that which we posted in the last 2 quarters. Mark Tarr: Pito, if you look at the track record of our real estate and our design and construction team, I'm very proud of the way they've been able to bring these projects on plan, on schedule and within budget. So we've got a lot of confidence that the team that we have in place here will help us to address the occupancy and capacity issues. Pito Chickering: Yes. These are all pretty high-quality problems to your point. I guess a follow-up here from a CapEx question then, what's the right level of CapEx in order to keep on filling this demand. Does CapEx as a percentage of revenue go up as demand is going faster than you guys think? Or is this sort of the right level of CapEx as a percent of revenue? Douglas Coltharp: I think it's going to increase as a percent of revenue relatively modestly over the next 2 to 3 years and peak at probably about 15% and then start to recede back towards the, call it, 10% to 12%, which was probably going to represent a longer-term run rate. Operator: We'll move next to Whit Mayo with Leerink Partners. Benjamin Mayo: Doug, was the Medicaid DPP, the supplemental known when you gave guidance, I believe that it was. And then just how much more incremental directed payments do you have within your plan for the rest of the year? And then are there any states that you're looking out for that may not be in the plan? Douglas Coltharp: Yes. So we're not aware of any new states coming online. Q1 was larger than we anticipated, largely due to a significant portion being out of period, and we called that out the EBITDA impact from the out-of-period was about $4.2 million. In our Q4 call, we suggested that we anticipated for this year that the EBITDA impact from net provider taxes would be roughly flat with last year, which was $21 million. And we continue to believe that the increase in Q1 was really a timing issue and that the full year will be in that range. As a reminder, the peak that we had in last year was in Q3, where we had a $10 million favorable impact from provider taxes at the EBITDA level and $6 million of that was out of period. So again, we just think that's a flow between quarters and that the EBITDA impact should be flat on a year-over-year basis. Benjamin Mayo: Okay. And then my follow-up is I just wanted to kind of take your temperature on buybacks again with leverage now drifting to probably 1.5x soon, just seems like you could add a half turn, maybe a full turn of leverage in the next year or 2, deplete a lot of the market cap, maybe move the investor focus away from EBITDA to EPS. So just wanted to hear the latest thinking about the longer-term buyback strategy. Douglas Coltharp: Yes. I'll leave it to you guys to decide whether you want to move the focus from EBITDA to EPS. We do feel like using some of the capacity in our balance sheet and buying back shares, particularly at the levels we've been trading at here more recently, represents a really attractive complement to our overall strategy. And so if we just do some math around that and you look at the guidance assumptions that we've included in our supplemental slides, the midpoint of our free cash flow estimate for the year is roughly $818 million. And what's not included in that number and by the way, the reason that the taxes went up was predominantly, as you can see from that end note, was predominantly because of the proceeds we received on the sale of the Gamma Knife and then also on the receipt of legal proceeds of legal fees in the Delaware litigation, that adds another $40 million of cash. And so that would take you to cash available for investment of roughly $858 million. The midpoint of our growth CapEx estimate is $725 million. You hold the dividend constant, that's $77 million. So at those levels, even without utilizing any capacity in the balance sheet, you've got roughly $56 million that would otherwise be available. If you look at the end of the first quarter, our funded debt was roughly $2.575 billion. And the midpoint of our EBITDA range based on the updated guidance is $1.365 billion. If you simply took the leverage up to 2x from 1.9x, that would suggest total incremental capacity of $212 million for share buyback. We did $71 million in the first quarter. So you've got at least $140 million available. And then you could do the math in a similar fashion if you decided that you want the leverage to flow between 2x and 2.5x. So I mean, that's the simple way that the math works, and we believe that share repurchases will continue to be part of our allocation of free cash flow. Patrick Tuer: Whit, this is Pat. Just going back to the state-directed payment question for a second. We do think this represents an opportunity for us in certain states to work with our acute care partners to get additional Medicaid volume. There's about 20% of our markets are in states that have a pretty attractive Medicaid reimbursement structure that on the surface, it doesn't look like it covers our cost. But when you factor in the other dynamics, it does. And that represents an opportunity for us on the volume growth side as well. Operator: We'll take our next question from Joanna Gajuk with Bank of America. Joanna Gajuk: I just want to follow up on the discussion around the proposal, thanks for sharing your initial views about this RFI that CMS included in the proposal. I know it's early details. But also in the document, CMS actually quotes MedPAC analysis and they talk about like the mix varies by the ownership and they talk about aligning payments with costs. So kind of what are your thought process there? Like what exactly CMS is trying to kind of allude here to? And would you expect something specific they have in mind as they're thinking about '28 because obviously, '27, like they cannot add anything. But like, I guess, in a year from now, sort of would you expect something in that proposal? Patrick Tuer: Joanna, this is Pat. It's hard for us to tell and to discern the -- for a long time, what has been issued by MedPAC has not historically been followed or given much attention. So the fact that something was quoted now, it's hard for us to be able to speak on that intelligently. What I can tell you is this proposed rule is relatively benign. There's some pieces of the proposed rule that could create some minor burdens from a logistics perspective. I'm not really sure what it does to help patient care. But in any case, we will provide comments by June 1, as Mark said and we will adapt and be prepared to meet any changes that are included in the final rule. Mark Tarr: Joanna, just in general, as you know, we're always quite active in D.C. and have our own resources up there and remain part of the discussion with CMS and members of Congress and others about just making sure that people understand the value proposition that comes with inpatient rehabilitation, and we are the leader within that sector. So we'll always be part of those discussions. There will be thoughts that are shared from CMS and other types of proposals. As you know, a lot of times, these things are discussed, but actually implementing them is a major challenge. So we'll be part of being those discussions and give our feedback and want to make sure that we're ahead of the curve. Douglas Coltharp: And we do believe that CMS is aware and is sympathetic to the amount of change that they're inflicting on any one particular sector at a time. And it's not lost on them that team implementation began on January 1 and that RCD is being extended this year in a significant way as well as some of the specific provisions in the proposed rule regarding the therapy evaluations and treatment, the preadmission screening and then also the timing of the interdisciplinary team meeting. So there's already a lot underway. Operator: [Operator Instructions] We'll take our next question from A.J. Rice with UBS. Albert Rice: So obviously, you've had a nice pacing of your JV opportunities. I wondered if you'd update us on how that pipeline looks? Is it still pretty plentiful? And obviously, your leading peer in competing for those JVs is in the midst of going private. Does that maybe even create more opportunities, maybe the potential partner is a little hesitant because of that or maybe they're just pulling back because they're going to focus their cash flow elsewhere. Any thoughts? Mark Tarr: Well, look, we've had this business model in place now for well over 30 years in terms of joint venturing with acute care hospital systems. As I noted in my prepared statements, we have a nice mixture of both wholly owned and joint venture projects that are in the pipeline. I like our chances if we -- when we go out with other providers as we show what we can do. And the fact that we have about 1/3 of our overall hospitals are partnerships, we have a lot of partners that can validate what a great partner we are and what a great manager we are. So A.J., I'm not concerned about what others are doing, but I am very confident in our ability to move forward. Douglas Coltharp: If you look on Slide 18 of the materials we distributed this morning, we note that we have 18 IRF development projects underway. Now only one of those is currently identified as a joint venture opportunities, and that's our Loganville, Georgia hospital, which will open as part of our partnership agreement with Piedmont. But as you've seen with us over the last several years, as we've ascended the learning curve with regard to de novo development, we've gotten increasingly comfortable going ahead and forging ahead on an individual basis in a market even as discussions with potential joint venture partners are underway. So I think there's a better-than-even prospect that some of the development projects that are listed on that page will ultimately turn out to be joint ventures. With regard to Select Medical, we don't expect any change in their appetite for incremental growth. Their strategy is somewhat different from ours in that they are 100% JV focused, and they tend to focus a lot on HIHs as well. So we would expect them to continue to be a viable competitor, but the pool is big enough for both of us. Mark Tarr: Hey, A.J, I think one of the trends that you do see within our joint venture partners is building multiple hospitals within that partnership. Piedmont is a prime example of that. We've done that with Vanderbilt. We've done the BJC and a number of other providers where we are building multiple hospitals within that same partnership. Douglas Coltharp: Yes. The last thing I would say there, and this also relates back to some of the high occupancy doors. Some of those are joint ventures. And as we have gone back to some of our joint venture partners and introduced them to the potential for a small format hospital, we're getting a very favorable reception. Albert Rice: Okay. Then my follow-up, I wanted to ask you about the small format hospitals. Is the ROI on those materially different than the regular size facilities? Is there any ability to get around certificate of need or more flexibility on certificate of need with the small format hospitals and just how you're going to think about those versus the traditional size? Douglas Coltharp: Yes. So the ROI falls squarely between bed expansion, which is our highest ROI and a de novo. So better than the de novo, not quite a bed expansion because of the infrastructure leverage. In CON states, the addition of beds is almost always subject to CON requirements. Because you're operating under the same Medicare provider number and because you're dealing with less than the number of beds associated with the de novo, that tends to be -- not always, but it tends to be a lower hurdle to get over. It is not a substitute for a de novo hospital. It is a complement to de novo hospitals and is a bit of a substitute for a bed addition at an existing hospital. Patrick Tuer: A.J., just in terms of how we're thinking about the scale of this opportunity, you could have markets that have 3 or 4 of these at maturity. You could have markets that have 1 or 2 and some markets won't have any. It gives us a lot of flexibility in how we approach markets. But we are currently evaluating dozens of markets and building out a robust pipeline, similar to we've done with our bed expansion process and our de novo process. We're doing the same thing for small format hospitals. Douglas Coltharp: And we are actually developing an enhanced market analysis tool that includes all aspects of the market, including projected growth and real estate aspects in conjunction with Palantir that's going to help us be a lot more prescriptive when we're entering in a new market about what should be the initial size and location of the de novo that's going to anchor that market and then what would be potential sites prioritized in terms of timing for augmenting that with small format hospitals. So that's going to allow us to be much more proactive with regard to our real estate strategy. And hopefully, even as occupancy ramps up quickly with new capacity coming on board, it's going to alleviate some of these concerns we have when we've fallen behind with regard to bed expansions. Operator: We'll take our next question from Brian Tanquilut with Jefferies. Brian Tanquilut: Maybe, Doug, since you mentioned Palantir. So when I look at what your hospital -- acute care hospitals are doing, rolling out a lot of AI here. Just curious, I mean, what are the initiatives that you're doing right now? And then when I think of where something like a Palantir can come into place, I look at your length of stay of 12 days right now. Is there room for AI or analytics to improve on the clinical and operational side beyond just kind of like back office stuff? Douglas Coltharp: Yes, I think there's a lot going on. Pat, do you want to speak to maybe some of the clinical and operational aspects of it? Patrick Tuer: Yes. The first thing I'll say in regards to Palantir on the length of stay front, we're not actively trying to get our length of stay down further. What we're trying to do is make sure that each patient has an appropriate care plan for their needs. That just happens to average around 12 days. And again, we're not trying to pressure our hospitals to get that down. So we're really focused on appropriate patient care for each patient. But we are on the same note, looking for opportunities to make sure that our care plans are as efficient as possible. We've talked about our partnership with Palantir on prescreen narratives, appeal letters. But we are looking at and have -- are in various stages of implementation of documentation efficiency for our physicians and providers around histories and physicals, face-to-face notes, discharge summaries, and we're evaluating other opportunities as well. And this is all in an effort to give our physicians and our clinical staff time back so that they can do direct patient care instead of documenting. And I think there's going to be operational benefits that come along with that, and we're excited to see where that goes. We're really encouraged by some of the things we're seeing and how efficient it is allowing our providers to be. Douglas Coltharp: I would further say just kind of in summary, in the queue with Palantir, we have the real estate analysis and the market analysis project I mentioned before. We've got a substantial CRM opportunity. We've got a revenue cycle management opportunity, and we've got a clinical staffing opportunity as well. Those are all in the queue. Mark Tarr: Brian, just as a follow-up on the length of stay discussion we've seen our length of stay over the years come down from 14 to 12, as Pat noted. And you get to a point where you want to be careful on pushing it down much lower because some of these quality metrics that I mentioned in my opening comments relative to the ability to have 84-plus percent of our patients go back home to the community, have very few of them go back to the hospital on acute care transfers or skilled nursing discharges. Those all kind of tie to that length of stay. So we're very careful in terms of trying to really push that down. Douglas Coltharp: Yes. And I think it's important to note that much of the reduction from 14 days to 12 days had less -- that was much more to do with removing the friction on the discharge process than any change to the care that the patient has been treating, the volume and the intensity of it while in our facility. Brian Tanquilut: That makes a lot of sense. And then maybe, Doug, last one for me. So when I think of $4 million of preopening costs in the quarter, is that kind of in line with expectations? And how should we think about the back half given the timing of bed adds? And then maybe just in the same vein, the free cash flow guidance was revised down. Just curious what we need to be thinking about as it relates to that adjustment. Douglas Coltharp: Yes, absolutely. So with regard to the preopening, we -- $4 million for the quarter, we anticipate for the full year, it's going to be $18 million to $22 million, midpoint of that $20 million going to be a little bit more heavily weighted towards Q3 and Q4, probably following a little bit of the same pattern that we had last year. Q3 will probably be the most significant on that. The free cash flow came down because of upward revisions in 2 items. One was interest expense, which moved up by about $5 million. That's simply reflective of the fact that as we're -- as our CapEx is rolling out and as we're spending a little bit more money on share repurchases, we're carrying a larger balance on the revolver, but not overly significant. The second piece is that cash taxes went up. That estimate went up solely because of the tax payments that are due against the gain on the sale of the Gamma Knife and also the taxable portion of the recovery of legal fees on the Delaware litigation. As I mentioned previously, what you don't see from an accounting perspective in that table is the $40 million benefit from the receipt of proceeds. So net-net, the actual cash available for us in spite of the increases in those 2 categories actually increased for the year. Operator: We'll take our next question from Jared Haase with William Blair. Jared Haase: I appreciate all the details thus far. Maybe I'll take a step back for a little bit of a bigger picture question on the market landscape. But obviously, a lot of what you've messaged today is demand clearly remains very strong, and you're seeing that show up in all of the occupancy dynamics. But I am curious just as we think about this long-term kind of structural thesis that you had around capturing some share away from skilled nursing facilities over time, moving that volume to IRFs, are you seeing some of these competing SNFs in your markets increasing their investments around clinical capacity programs, other services that would help them move further into higher acuity patients? Patrick Tuer: This is Pat. I think much like every level of care is probably trying to improve what they do and how they operate. I'm sure the SNFs are doing the same thing. But it's an entirely different level of care. They don't have the staffing intensity or the clinical oversight that we do, the investment that we have in our programs, technology. It's just apples and oranges. And there's a time and a place for skilled nursing facilities. But I've talked before on these calls that across the country, in markets that we're in, patients are still twice as likely to end up with a CMS-13 diagnosis to end up in a nursing home. And we have an opportunity to continue to add capacity to address that. Our average age patient is around 78 years old. The oldest baby boomer turned 80 in January. There's a few years of baby boomers that haven't even hit Medicare eligibility. So there's a lot of volume dynamics for a long period of time that we can serve. And again, I still see a lot of opportunity for us to continue to capture market share away from SNFs. Jared Haase: Okay. That's really helpful. And then this is admittedly a small nuance here, but I thought I'd just clarify. It looks like there was a slight change in your guidance assumption for the bed expansions that went from approximately 175 to now 150 to 200. And so I guess, obviously, just in light of everything you've shared with what's going on from an occupancy perspective, just is there anything we should be thinking about as to why maybe a slightly lower end is in play here from bed expansions this year? Is that mostly just a timing dynamic? Douglas Coltharp: It's exactly that. So the midpoint of 150 to 200 is obviously the 175 point estimate that we used previously. We've got 2 fourth quarter projects with both -- which have the potential just based on timing and weather conditions to flip over into the first quarter of next year. And so we just hedged a little bit with the range. Operator: [Operator Instructions] Our next question comes from Raj Kumar with Stephens. Raj Kumar: Yes. Maybe just kind of thinking about sticking to the kind of MA versus fee-for-service dynamic. You typically called out that your MA patients tend to exhibit just a higher average acuity versus your fee-for-service population. I guess given more payer intervention or just kind of more stringency around that, have you seen that kind of acuity gap to grow maybe over the past couple of years? And then I guess maybe also on the kind of the admit and appeal strategy, I would be curious on kind of what the win rate target is or what that's kind of demonstrated early into the program. Douglas Coltharp: Yes. So I'll start, and I'm sure Pat will want to chime in as well. We have seen more of a concentration within MA in our highest acuity categories. In the first quarter, stroke was almost 36% of our MA volume, that's not surprising. Those tend to be non-jump ball cases as well. And so the favorable aspect of that is because reimbursement across all payers is tied to acuity, the average reimbursement gap between Medicare Advantage and Medicare fee-for-service shrunk to 1% for the quarter. But we continue to think that there are opportunities and necessities for us to service a broader spectrum of acuity of MA patients. With regard to the appeal and admit strategy, again, we are seeing favorable results even at the first level of appeal, which is an expedited appeal right back to the plan itself. We don't have enough of a universe yet to understand how we're going to succeed at the various levels of appeal beyond the Maximus decision, which tends to be a bit of a rubber stamp, but there's reason for optimism. Patrick Tuer: Raj, this is Pat. Just a couple of points. So on MA, this remains grossly underpenetrated. And if the dynamics around that ever change, we'll have a lot of opportunity to continue to add even more capacity. The higher acuity dynamic of the MA patient, I don't necessarily view it as a positive. It's great from a revenue perspective. But what that signals to me is there's a lot of other patients that should be coming to us that just aren't giving the opportunity to do so. And that's something we'll continue to focus on. On the admitted appeal strategy, we really got that up and going kind of mid-February. March, we started to see some significant improvement in those markets. We did have -- Doug talked about Maximus. We did have our first overturn at the Maximus level. So that's encouraging. And it's probably going to take us about 6 to 8 months to really get our arms around and have a better sample size of what our success rate is at the ALJ level, what -- if we want to take cases beyond that, that could extend the time a little further. So I would say 6 to 8 months, we'll be in a better position to make a decision on scaling up or increasing the size of the pilot and probably within 12 to 18 months, we'll have a lot of clarity around this. Douglas Coltharp: Yes. And just to maybe dimensionalize this as well with regard to MA, by 2030, it's projected that 20% of the U.S. population is going to be aged 65 and older. So that means 70 million Americans by 2030 will be Medicare beneficiaries. If you assume for a moment that the MA penetration rate based on recent trends stabilizes at around 50%, that means that you've still got 35 million Medicare beneficiaries who are not MA patients, which means that they're likely to be fee-for-service. That's a total addressable market. Some portion of those are going to be CMS-13 eligible of 35 million individuals. Our total discharges on the last 12-month basis were 266,000. So there's a really big pond out there for us to fish out of. Raj Kumar: Great. And maybe as a follow-up, just kind of going back to Pat's comment on the kind of Medicaid side of the business and with the funding environment being supported there. And then I think outpatient visits for the first time in a while grew positively year-over-year. And so I kind of think about that business, even though it's a smaller part, just kind of thinking about if the 1Q is a good baseline for that business kind of going forward from a volume perspective, just given how the funding environment has been kind of supportive to -- from an economics perspective as well. Patrick Tuer: Raj, this is Pat again. I wouldn't read too much into the outpatient volume in Q1. It's really not a core business of ours, and we've continued to ramp down the number of outpatient clinics that we have. I would anticipate that we'll continue to assess the clinics that we're in. And if they're not profitable or not, there's not a good business case for them to be in operation, we'll continue to look at opportunities to further bring that count down. And then the -- what was the second part? Raj Kumar: Medicaid. Patrick Tuer: Yes, Medicaid is -- this is a newer opportunity for us. I know it's been a big tailwind for the acute providers. And it just has not been a big focus for us, and we are starting to see some of the benefits in those states. So we are, like we do anything else, developing strategies around how we can serve those patients more effectively. And I'm excited about some of the early progress that we're seeing. Douglas Coltharp: And on that point, Raj, what's really changed there is if you roll back the clock as recently as maybe 3 or 4 years ago, on an annual basis, our net provider tax impact to EBITDA was essentially 0. It would be plus or minus $1 million. And with the implementation of new programs by states over the last several years, that's increased to the point again where we're estimating $21 million this year. That's obviously not evenly distributed across all states. So when we look at some states where historically, the on its face rate that we were paid for IRF services didn't cover our variable cost, if you include the directed payment portion of that with the actual reimbursement that we get, it puts in a position where in some of those states, it is a profitable patient for us to treat. And so we'll look at handling those referrals perhaps in a slightly different manner. Operator: This does conclude our question-and-answer session. I'd like to now turn the call back over to Mark Miller for any additional or closing remarks. Mark Miller: Thank you, operator. If anyone has additional questions, please call me at (205) 970-5860. Thank you again for joining today's call. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Church & Dwight Co., Inc.'s First Quarter 2026 Earnings Conference Call. Before we begin, I have been asked to remind you that on this call, the company's management may make forward-looking statements regarding, among other things, the company's financial objectives and forecast. These statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for today's call, Richard A. Dierker, President and Chief Executive Officer of Church & Dwight Co., Inc. Please go ahead, sir. Richard A. Dierker: Alright. Thank you. Good morning, everyone. Thanks for joining the call. We had a fantastic quarter. I want to start by thanking all of our Church & Dwight Co., Inc. employees around the world for executing so well in a volatile environment. I will begin with some thoughts on the macro environment, then review our Q1 results. Then I will turn the call over to Lee B. McChesney, our CFO. And when Lee is done, we will open it up for questions. Starting with the broader environment, conditions remain dynamic. The consumer backdrop continues to be mixed. Consumer sentiment remains pressured by inflation, borrowing costs, and geopolitical uncertainty related to the Middle East, which, as you know, is also contributing to significant inflation in commodities and transportation costs. That said, the consumer remains resilient. Employment remains stable, and our largest categories grew 3% in the quarter. Our portfolio, with its balance of value and premium offerings, continues to perform well in this type of environment, supported by strong brands and innovation. Turning to the Q1 results, we delivered a strong start to the year and exceeded our outlook across key metrics. Net sales increased 0.2%, ahead of our expectation for a decline, and organic sales grew 5%, well above our 3% outlook. This growth was driven by volume. Adjusted gross margin expanded 130 basis points to 46.4%, and adjusted EPS was $0.95, up 4.4% year over year, above our $0.92 outlook. Overall, this was a high-quality beat driven by strong execution across the business. Now I am going to turn my comments to each of the three divisions. First up is the U.S. consumer business. Organic sales increased 5.4%, which was primarily volume. Across the portfolio, our brands continue to perform exceptionally well. Growth in the quarter was led by TheraBreath, ARM & HAMMER, Hero, and OxiClean, supported by strong innovation and distribution gains across all classes of trade. Global e-commerce also remained a key contributor, with online sales now representing approximately 24% of total consumer sales. Innovation and distribution gains continue to be key drivers of our performance, and the first quarter of this year is no different. We are confident that our relentless focus on innovation will continue to drive industry-leading growth, distribution gains at shelf, and market share expansion. In fact, we are just finishing tabulating all of the distribution gains looking forward, and I am proud to say Church & Dwight Co., Inc. was number one across all of CPG on total distribution points gained year over year. New product launches this year are expected to account for half of our organic growth as we innovate in key categories across our portfolio of industry-leading everyday products. The ARM & HAMMER brand had another quarter of growth with laundry hitting record shares across total laundry detergent. ARM & HAMMER laundry detergent consumption grew 4.1% in the quarter compared to category growth of 2.7%. The value segment of laundry continues to grow. ARM & HAMMER laundry grew despite a lower level of promotion in the quarter. Our newest innovation in laundry is ARM & HAMMER Baking Soda Fresh with 10 times the amount of baking soda, and it is off to a great start with a 4.9 consumer rating where most laundry items are around 4.5. Our ARM & HAMMER laundry sheets also continue to do well, growing consumption by 30%. We like the category-building potential of EVO, and we are well positioned to win in value. Next up is litter. It is fantastic results as ARM & HAMMER cat litter consumption grew a robust 6.8%, and share increased 0.4 points to reach 24.6%. While category promotional levels remain elevated, they did decline sequentially from Q4. OxiClean share declined in the quarter as we continue to be impacted by distribution loss and lapping that from a large club retailer a year ago. The good news is that the trends on OxiClean improved throughout the quarter, and sales growth surpassed our expectations. Hero and TheraBreath continue to contribute considerably to overall performance. TheraBreath achieved another quarter of record share gains, up 3.5 points to 24.1%, further solidifying our number two position in total mouthwash. Household penetration remains low relative to the category. In fact, even with these great distribution gains recently, we still have less than 20% of the shelf, so there is more room to run even in mouthwash. Early days, but the TheraBreath toothpaste launch is off to a great start. Hero consumption growth also outpaced the category, leading to share gains and remaining the share leader, two times larger than the next competitor. Hero’s growth was driven by distribution expansion and strong Q1 activations led by brand ambassador Jordan Chiles on Mighty Patch Original and Mighty Shield innovation. Mighty Shield is already achieving retailer hurdle rates. Finally, Toppik. In Q1, consumption grew low double digits, but sales were impacted by a strong Q4 holiday multipack sell-through. Recent consumption has slowed as we lapped year-ago launches. Internally, we are hard at work on integration and innovation. Turning to international, our international business delivered organic sales growth of 3.7% driven by our G&G and our subsidiaries. Growth was led by TheraBreath, Hero, and Batiste brands, partially offset by lower Middle East regional sales. Of note, in April we went live with our upgraded ERP system. Our project leader, Nicole, said it best: our customers did not notice the transition. Thank you to the entire team. I will close by saying that we are very pleased with our start to the year. Our brands remain strong. Our portfolio is well positioned. And our strategic actions continue to support long-term growth. I am proud of our Church & Dwight Co., Inc. team as we perform well in a volatile environment. As we look forward, our TSA agreement with the VMS business is winding down, and the organizational time that has been freed up is being spent on our forward-looking growth initiatives. We are laying the groundwork for ARM & HAMMER expansion, oral care growth behind TheraBreath, and international M&A. I will now turn the call over to Lee B. McChesney for the financial results. Thank you, and good day, everyone. Lee B. McChesney: Back in January at our 2026 Investor Day, we shared an industry-leading outlook for 2026. The highlights of that outlook included organic sales growth of 3% to 4% and EPS growth of 5% to 8%, in line with our Evergreen Model. As we now share results from the first quarter, we are delighted with the execution of our Church & Dwight Co., Inc. team members across the globe. The first quarter highlights once again the many strengths of our portfolio and the team’s execution capabilities. Let us jump into the details and provide you an update on our views for the year. Starting with EPS, first quarter adjusted EPS is $0.95, up 4.4% from the prior year, and $0.95 was better than our $0.92 outlook, driven by higher volume and gross margin results. Organic sales in Q1 were up 5%, above our outlook of 3%. Organic sales were broad-based across the globe with volume growth of 5.3%, partially offset by a negative price/mix of 0.3%. Our organic growth was fueled by a steady stream of market-leading innovation, and strong distribution wins with our commercial partners. The organic results also drove our reported revenue up 0.2% versus our original outlook of negative 1% back in January. I want to put our reported results in perspective. Due to our portfolio actions, our reported sales results would naturally be down 8%. However, organic growth of 5%, our Toppik acquisition, and some FX favorability fully closed the gap. The first quarter, fueled by volume growth, was certainly a strong start to the year. Our first quarter adjusted gross margin was 46.4%, a 130 basis point increase from a year ago. Our results versus last year were driven by 150 basis points from productivity programs, 110 basis points from higher-margin acquisitions combined with the impact of the strategic portfolio actions, 50 basis points from the combination of volume, price, and mix, and 10 basis points from FX. These factors offset 190 basis points of inflation and tariff costs. Let us jump to our investments in marketing. Our marketing expense as a percentage of sales was 9.5%, or 20 basis points higher than the first quarter of last year. Looking forward, we are continuing to target investments at approximately 11% of net sales, in line with our Evergreen Model. Q1 adjusted SG&A increased 110 basis points year over year. As we noted in our January Investor Day, SG&A in the first half of the year is primarily growing versus last year due to the inclusion of Toppik SG&A and amortization expense. Adjusted other expense increased by $5.2 million due to lower interest income compared to last year. In Q1, our adjusted tax rate was 20.3% compared to 21.8% in 2025, a 150 basis point year-over-year decrease, and our expected adjusted effective tax rate for the year remains at 21.5%. Now turn to cash flow. We delivered strong cash results in the quarter as cash flow from operations was $174.8 million. Our higher year-over-year cash earnings were partially offset by an increase in working capital in support of growth. Capital expenditures for the period were $31.9 million, and we continue to expect full year capital expenditures to be approximately 2% of sales. Let us now turn to our 2026 outlook. While the macro environment remains dynamic, we remain encouraged with our path forward. The strength of our brands, our strategic portfolio actions in 2025, and our growth initiatives continue to provide us confidence. As we noted in our press release, the situation in the Middle East is fluid and is creating some incremental volume and inflationary pressure on commodities and transportation. For example, currently we are estimating $25 million to $30 million of incremental inflation pressure. Our teams across the globe are responding to these developments and are taking actions across the P&L. As a result of our mitigating actions, we are reiterating our full year 2026 outlook. We remain on track to deliver full year organic growth of approximately 3% to 4%. We continue to expect reported sales growth to decline approximately 1.5% to 0.5% as a result of the strategic portfolio actions taken in 2025. We continue to expect full year gross margin expansion of approximately 100 basis points versus 2025, and this outlook reflects the breadth of actions we discussed in January and the balance of incremental headwinds and actions we have identified since the Middle East conflict began. Marketing as a percentage of sales remains at approximately 11%. SG&A as a percentage of sales will be higher than last year, reflecting the impact of the Toppik acquisition in the first half of the year and our focused growth investments. Our adjusted EPS expectation for 2026 remains at 5% to 8% growth. If we turn to the second quarter, we expect reported sales to decline approximately 1% with organic sales growth of approximately 3%. We anticipate gross margin expansion of approximately 50 basis points, reflecting transportation cost pressures ahead of the mitigation efforts that will take effect later in the year. In the quarter, we continue to expect higher marketing and SG&A, and in Q2 the investment in marketing and higher SG&A will more than offset the gross margin expansion, resulting in an adjusted EPS of $0.88 per share for the quarter. Recall, we continue to expect flattish EPS growth in the first half of 2026. To conclude, we remain confident in our 2026 outlook. We began the year with strong execution and are taking the steps to ensure continued success this year. My final prepared remark is for the Church & Dwight Co., Inc. associates: thank you for all of your efforts in the first quarter, and congratulations on the robust execution. Well done. We will now open the call for questions. Operator: Press star followed by the number one on your telephone keypad. Your first question is from the line of Christopher Michael Carey with Wells Fargo Securities. Christopher Michael Carey: Hi, good morning, everybody. Richard, you mentioned that distribution gains were number one in CPG. Not exactly sure of the timing of those gains, but nevertheless a very strong number. When you think about your Q1 delivery, how important are those gains to what we are seeing today, and really speaking to the durability of some of the volume growth that we are seeing relative to perhaps some of the tailwinds that may have been caused by some inventory reductions in the base? I just wonder if you could contextualize the quarter as you see it and what Q1 means for go-forward top-line, volume-driven results. And then I have a follow-up. Richard A. Dierker: Yeah. Sure, Chris. Q1 was phenomenal organic growth, and I think more than anything, it was great to see our categories growing around 3%, and we grew a little bit faster than that. We talked a year ago about retail inventory dynamics, and so we had a tailwind of a couple of points from that as well. That is how we get to about 5% for Q1. Now on the distribution gains, that is really just hitting now. It depends how you look at the metric. On an average basis over 13 weeks, it is about a 7% TDP lift. In more recent time, as these resets are happening, it is closer to 10% or 11%, which is about double what most of the CPG peers are getting. That is not just TheraBreath and Hero. That is across laundry and litter and personal care, so it is across the whole portfolio. We believe that is a great tailwind to our business, and it is really a payoff of all the innovation that we are doing. So it is a tailwind as we look forward and gives us confidence. Christopher Michael Carey: Great. A follow-up on Toppik. You noted that consumption slowed on year-ago activity that was strong in the base period. Can you give us an update on how you are thinking about growth of the business, the sustainability of growth, and whether you think it has runway to sustain perhaps double-digit growth into the back half of the year and into next year? Richard A. Dierker: Sure thing. When we look at consumption that shows up for you, we understand it shows consumption for the quarter is down 20%. We look at consumption that is all in, including untracked channels, and we are up about 12% to 13%. So there is a difference in what you see versus the entire picture. But it has slowed, partly because of all these holiday gift sets that go out and also because of the club channel. Overall, we believe that we still are going to have double-digit growth for Toppik for the full year. The good news is we have great ratings, we have low household penetration, and we are just starting now to advertise. A lot of our activations with either collaborations or partnerships are happening in the back half. So we feel good about Toppik. Operator: Your next question is from Anna Jeanne Lizzul with Bank of America. Anna Jeanne Lizzul: Hi. Your portfolio actions, I think from last year, helped drive the outperformance here in Q1. How are you looking at the portfolio now given the changes on the VMS business and others that you have exited? And then just to follow up on Toppik, can you comment on where it is performing best in terms of the channel? And further on M&A, where are you more focused in this more challenging consumer environment? Thanks so much. Richard A. Dierker: There are three questions. On M&A, I am not really going to comment. I would just say that the team is always hard at work. The leadership team spends an inordinate amount of time looking for great businesses and brands to buy. We have gone through our criteria again and again, and the team is hard at work in the U.S. and internationally. It is not an or; it is an and. That is some of the highest and best use of our time, and I continue to be optimistic. On Toppik channels, the channels doing better than most are ones that are not necessarily tracked. The club channel did extremely well. Amazon does well. Some of the beauty classes of trade, because of the timing of promotions and also some of the innovation, do not look as good, but some of the other channels that you do not necessarily see are doing better. On portfolio, I love our portfolio, short answer. Remember, a lot of categories out there are not growing or are going backwards. We have chosen and selected our categories over many years as we bought businesses. The fact that our categories grew 3% this quarter and we grew faster, as we typically do, bodes well. The portfolio decisions last year provide nothing but tailwinds as we look forward. Operator: Your next question comes from Rupesh Dhinoj Parikh with Oppenheimer. Rupesh Dhinoj Parikh: Just going back to organic sales growth expectations, you typically give it by segment. Updated thoughts for the year by segment, including for international? Richard A. Dierker: Go ahead, Lee. Lee B. McChesney: We are maintaining the outlook of 3% to 4%. Similar to what we talked about back in January, we still have U.S. at approximately 3%. International is approximately 7%—a little bit softer because of the Middle East situation—and then SPD is still about 5%. Again, it is a range. U.S. hits their number, others may end in the higher end, but we will see how it goes. Only one quarter so far. Rupesh Dhinoj Parikh: Great. And as you look at the consumer out there, are you seeing any changes in behavior? Historically, when you see spikes in gas prices, do any parts of the portfolio typically benefit? Richard A. Dierker: Good question. As I said in my prepared remarks, promotional levels are up in laundry for the category. We are hitting all-time share highs, and our promotional levels are down. All three competitors besides us are up. The value segment of laundry is growing. We deliver great cleaning and efficacy at a great value, and that is hitting the mark in this economy. Same concept for litter. Some competitors are promoting very heavily. We are promoting a little more, but we are gaining share again and again. For those two areas of household, which are more responsive to promotions, that is a good sign. Operator: Your next question comes from Javier Escalante Manzo with Evercore ISI. Javier Escalante Manzo: Good morning, everyone. My questions have to do with the commodity backdrop. I was expecting a more muted outlook for gross margin given oil derivatives going into detergent. Can you explain how much oil derivatives go into your COGS? You mentioned the impact is $25 million to $30 million. Is that a full-year number? Anything that can help us explain the gross margin expansion going into calendar 2026? And I have a follow-up. Richard A. Dierker: I will start, and then Lee can add comments. It is a full-year number, Javier, for that $25 million to $30 million, and it is primarily, as you would expect, oil-based derivatives like diesel, resins, and surfactants. Remember, in any given year, we enter the year about 60% hedged. These are net impacts for us. Hopefully this is transitory and not permanent, but we have good coverage for an extended period of time, especially in 2026. The team is laser focused on productivity to offset many of these things. There will be some RGM and promotional adjustments, but it is largely productivity. That has been the hallmark of the company. We have transformed this place on being able to get gross productivity year after year. In a perfect world, if the headwind does not happen, great—we would continue to spend on marketing even higher and drive the top line faster behind our innovation. Lee? Lee B. McChesney: To put it in perspective, we had about 160 basis points of inflation in the outlook back in January, and we got this $25 million to $30 million, which now brings you up to about 200 basis points. But we have additional offsets we are going after. You saw it last year when we did our work on tariffs—we worked that number down—and that is what we are doing here. We are in a good spot, and that is why we reiterate our outlook for the year. Javier Escalante Manzo: Very helpful. If this externality continues and commodities remain very high, would you expect then value players to lead in calibrating the promotional environment and then potentially price increases? Is that a good assumption? Richard A. Dierker: It is probably a better question for those competitors. As I said earlier on laundry, despite competitors promoting a bit more—still within a historical range—we are down on promotions and gaining share. The value segment is growing. That is a great position to be in when consumers are pressed at the gas tank and want to make sure their dollar goes further. One way they can do that is to buy ARM & HAMMER laundry detergent. It is about half the price of the leading detergent with great efficacy and great value. That is true not just in laundry but many of our brands. Operator: Your next question is from Olivia Tong Cheang with Raymond James. Olivia Tong Cheang: Great. Thanks, good morning. First question, relative to your expectations, a very nice beat on the top line. Where did you see the biggest positive surprises in your view? Was it more volume, more price/mix? It seems pretty broad-based. I am just curious how you are thinking about it. And then I have a follow-up. Lee B. McChesney: It is a broad-based improvement across the globe. The only pressure point we saw internationally was the Middle East. On the year, we are generally the same type of view we shared back in January in terms of how we thought growth would play out across the globe. Richard A. Dierker: Yes, the beat was volume-driven. Olivia Tong Cheang: Got it. And as more business consolidates into club and online, it feels like the move online should be good for you, whereas club typically keeps brand count tight. Given those dynamics, how do you think about your ability to grow in these channels—whether disproportionately relative to your peer set—and your ability to stand out in both club and online? Richard A. Dierker: There is no grand new strategy. We are performing really well online and in club. Remember, in 2015 we were 2% of sales online; we are at 24% now. We went from a laggard to a leader, and we moved quickly. We start with great brands—especially after the portfolio realignment—number one and number two brands consumers love. Even our new ARM & HAMMER liquid laundry with Baking Soda 10x has a 4.9 review where the average portfolio is 4.5. That story is playing out across categories and many brands. Then we make sure we have the right pack sizes for dollar, club, and online. We have proven we can move faster—one of our competitive advantages—to give the customer what they want, where they want. We plan to win across all classes of trade. Operator: Your next question is from Lauren Rae Lieberman with Barclays. Lauren Rae Lieberman: I want to talk about your perspective on the consumer’s ability to absorb pricing—not necessarily how you will mitigate cost inflation, you have been clear there—but broadly, the ability to absorb pricing should the industry end up going there? Richard A. Dierker: Great question. Our view is the consumer is pressed—and more pressed today than three, six, or twelve months ago—because gas costs show up immediately. When that happens, they retrench. The worst thing to do in an environment like this is push price. We have no plans to try to price through this $25 million to $30 million headwind. We will offset it with productivity. There is just no appetite for the consumer to bear something like this. Companies that do that will be more successful than those that do not. Operator: Your next question comes from Stephen Robert Powers with Deutsche Bank. Stephen Robert Powers: Building on that, two questions. First, is there any heuristic you could offer as to how external dynamics—volatility in the Middle East, further increases or duration in oil—translate into that $25 million to $30 million growing, and at what pace? Second, if that $25 million to $30 million grows over time and you run dry on incremental productivity, do you approach pricing across different parts of the portfolio with a different mindset—more ability to push price through premium and less on value? Richard A. Dierker: We are not going to go through the details of what every $5 or $10 in oil translates to for Church & Dwight Co., Inc. My answer to Lauren was based on the current scenario, $25 million to $30 million. We can handle that. If it becomes a lot more meaningful—$50 million, $100 million, $150 million—then you solve a different problem with different solutions. The first stop is productivity. The second is RGM on promotions, usually in household where a lot of our promotions are. The third would be pricing. You are right, many of our premium products are highly priced and consumers love them, but you have to do that behind innovation. As we launch innovations, we would look closely at price points. For today, if it is in this range—and we hope it is transitory—then we solve through productivity. If it becomes bigger, we have other tools in the toolkit. Stephen Robert Powers: If it is transitory, is the productivity you are putting in place structural, or more belt-tightening such that, if it rolls over, some gets reinvested and some backfilled? Richard A. Dierker: I would not call it belt-tightening. We accelerate projects. We have a three-year pipeline of productivity projects, just like we have a three-year pipeline of innovation. At any given time, we can fast-forward certain projects or slow down others—we can influence timing. If costs drop, perhaps we slow some of it down, or we take that money and reinvest it in marketing and build the virtuous cycle again. Operator: The next question comes from Andrea Faria Teixeira with JPMorgan. Andrea Faria Teixeira: Thank you for taking my question. I was hoping to see if you can comment on what you said about outperformance on organic sales growth and the comparison dynamic from last year. With what you guided for the second quarter and more aligned with consumption, is that 2% extra in the first quarter more of an adjustment, not a pull-forward from the second quarter? And then a follow-up: are you going to take price actions to mitigate the $20 million to $30 million impact from the Middle East war, or are you saying potentially you could take some pricing? Richard A. Dierker: On price, I was clear: the $25 million to $30 million headwind that the Middle East conflict has created, in terms of higher commodity costs and inflation, we believe we can offset with productivity. That enables us to keep our outlook where it is. Steve’s question was, what happens if that doubles or triples—can you still do it with productivity? The answer was no. At that amount, we can do it with productivity. If it goes a lot higher, we would look at RGM actions on promotions. If it goes higher from there, we would look at potential pricing. The normal sequence of events. At those higher levels, the consumer is pressed, and we do not plan on raising prices at this point. Lee B. McChesney: And to put a fine point on assumptions, we are using a reasonable average of what we have seen in the last couple of weeks. Obviously it changes daily, but $95 to $100 per barrel is a good base point. Andrea Faria Teixeira: Thank you, Lee. And on the first question about the 5% and the 2% inventory dynamic? Richard A. Dierker: Rewind twelve months. In Q1 2025, every CPG manufacturer saw a retail inventory pullback because of all the agitation around tariffs and the consumer. Everyone called out a number back then. This earnings cycle most folks are not talking about it as much; we are just trying to be transparent. We called it out a year ago and said a year later that is worth a 2% help. So we grew our business around 3%, and we had that 2% help—that is 5% organic. Categories are growing well, we continue to take share, and we are getting distribution gains. That is why we gave an outlook we think is really strong for the full year and solid for Q2. Operator: Our last question comes from Peter K. Grom with UBS. Peter K. Grom: Thank you, and good morning, everyone. I was hoping to get some perspective on category growth. You mentioned 3%, but some peers have touched on growth showing signs of improvement as you move through the quarter. Can you comment on what you have seen from a category standpoint exiting the quarter and quarter-to-date? And related, given the many things the consumer is dealing with, how do you see that evolving from here? Richard A. Dierker: Good question. For us in the quarter—talking about our major categories—we were around 3% for the quarter: about 3% in January, 3% in February, closer to 3.5% in March. That bodes well. It came down a little bit in April, but we are doing extremely well in April. It was better than we expected. When we started the year, we were expecting closer to maybe 2% to 2.5% category growth. It is only ninety days, but I am more enthusiastic than I was ninety days ago despite everything else. The categories really matter, and many of our categories—almost all—are growing at least 2.5% to 3%. That is a great thing. Operator: There are no further questions at this time. I will now turn the call back over to Richard A. Dierker for any closing remarks. Richard A. Dierker: Alright. Well, thank you very much, and we will talk to everybody in July.
Operator: Good day, and welcome to the OFS Capital Corporation First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, please note this event is being recorded. I would now like to turn the conference over to Steve Altebrando. Please go ahead. Steve Altebrando: Good morning, everyone, and thank you for joining us. Also on the call today are Bilal Rashid, our Chairman and Chief Executive Officer, and Kyle Spina, the company’s Chief Financial Officer and Treasurer. Before we begin, please note that the statements made on this call and webcast may constitute forward-looking statements as defined under applicable securities laws. Such statements reflect various assumptions, expectations, and opinions by OFS Capital Management concerning anticipated results, are not guarantees of future performance, and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from such statements. The uncertainties and other factors are in some way beyond management’s control, including the risk factors described from time to time in our filings with the SEC. Although we believe these assumptions are reasonable, any of those assumptions could prove incorrect, and as a result, the forward-looking statements based on those assumptions also could be incorrect. You should not place undue reliance on these forward-looking statements. OFS Capital Corporation undertakes no duty to update any forward-looking statements made herein; all forward-looking statements speak only as of the date of this call. With that, I will turn the call over to Chairman and Chief Executive Officer, Bilal Rashid. Bilal Rashid: Thank you, Steve. Yesterday afternoon, we reported our first quarter results. Net investment income totaled $0.18 per share, covering our distribution of $0.17 per share despite being down $0.02 per share from the prior quarter. The decline was again primarily driven by a lower net interest margin. This reflects the higher interest costs on our unsecured notes issued last year, which replaced debt issued in a historically low-rate environment. That said, this new debt has allowed us to meaningfully extend our debt maturities. In addition, benchmark rate reductions by the Fed last year have lowered yields across our loan portfolio, further impacting our net interest margin. Our net asset value at quarter end was $8.16 per share, compared to $9.19 per share in the prior quarter. The decrease was primarily due to unrealized depreciation on our CLO equity holdings driven by spread tightening in the underlying loan collateral, as well as a decrease in loan prices due to overall market sentiment. Overall, our nonaccrual investments as a percentage of our total portfolio at fair value decreased slightly quarter over quarter by 0.7%. During the quarter, we exited one of our long-time nonaccrual loans. In addition, we placed one small loan, representing just 0.3% of the total portfolio at fair value, on nonaccrual status. Despite this borrower remaining current on its interest payments, the loan was placed on nonaccrual status due to an internal credit rating downgrade. We remain focused on improving our net investment income over the long term. As discussed on prior calls, this includes our ongoing efforts to monetize our minority equity position in Fansteel, the largest position in our portfolio, which had a fair value of approximately $80.4 million at quarter end. We continue to be encouraged by the company’s operational momentum and believe its long-term outlook remains compelling. A successful exit could increase the likelihood of improved net investment income and reduced portfolio concentration. At the same time, we remain disciplined in balancing the timing of a potential exit with the realization value of the asset in order to maximize our overall returns. Since our initial $200 thousand investment in 2014, our position in Fansteel has generated approximately $5.1 million in distributions to date, representing roughly a 23x return on our cost. Looking ahead, the macroeconomic environment remains uncertain. However, we believe we have constructed our loan portfolio to be resilient. We maintain diversification and avoid highly cyclical industries. We continue to monitor potential disruptions related to AI, and at this time have not observed material impacts on our loan portfolio. We have limited direct enterprise software exposure and no reliance on annual recurring revenue, or ARR, based lending in our loan portfolio. Instead, we are focused on originating loans based on profitability of the borrowers. We are closely watching geopolitical developments, specifically the conflicts in the Middle East, and their potential implications for inflation and interest rates. However, we have not seen direct effects on our loan portfolio today. Importantly, our disciplined underwriting approach remains unchanged. Our loan portfolio is entirely composed of first- and second-lien senior secured loans, with 98% of our loan holdings in first-lien positions based on fair value, underscoring our focus on maintaining a senior position in the capital structure. Turning to originations, middle market M&A activity has remained below expectations to start the year. However, we remain actively engaged with our existing portfolio companies and stand ready to deploy additional capital where appropriate. We have also continued to strengthen our balance sheet. Over the past several months, we have extended all near-term debt maturities, with our earliest remaining maturity in 2028. In addition, we have reduced our total debt balance by $45.6 million over the last four quarters, further deleveraging the balance sheet. During the quarter, we fully repaid the remaining balance on our unsecured notes that were scheduled to mature in February 2026. In early January, we extended the maturity of our Bank of California facility to February 2028. In February, we entered into a new credit facility with Natixis, refinancing our prior facility with BNP. We believe that this new facility, which matures in 2031, further enhances our balance sheet positioning. As we navigate an uncertain environment, we remain confident in the experience and capabilities of our adviser. With approximately $4.2 billion in assets under management across the loan and structured credit markets, deep expertise across industries, and a track record spanning more than 25 years and multiple credit cycles, we believe we are well positioned to navigate the current landscape and respond to evolving conditions. With that, I will turn the call over to Kyle Spina, our Chief Financial Officer, to give you more details and color for the quarter. Kyle Spina: Thanks, Bilal. Good morning, everyone. As Bilal mentioned, we posted net investment income of $2.5 million, or $0.18 per share, for the first quarter of 2026, covering our quarterly distribution of $0.17 per share for the second consecutive quarter despite the decline of $0.02 per share from the fourth quarter of 2025. Top line income decreased $465 thousand quarter over quarter, partially offset by a $233 thousand decrease in total expenses, resulting in the decline in net investment income. We announced that we are maintaining our quarterly distribution at $0.17 per share for the first quarter of 2026. At March 31, our quarterly distribution rate represented a 19.2% annualized yield based on the market price of our common stock. We remain focused on improving our long-term returns, portfolio diversification, and leverage position. We continue exploring avenues to monetize our equity investment in Fansteel. Our net asset value per share decreased by approximately 11%, or $1.03, this quarter to $8.16. As Bilal described, the decline in our NAV was largely related to net unrealized depreciation in our CLO holdings totaling $9.1 million, which was attributable to spread tightening in the underlying loan collateral and declines in loan prices driven by overall market sentiment. We also recognized unrealized depreciation of $2.3 million on one existing nonaccrual loan. As Bilal mentioned, during the quarter, we exited one of our long-time nonaccrual loans. We also placed one small loan on nonaccrual status, representing just 0.3% of the total portfolio at fair value. While the issuer remains current on its interest, we felt it prudent to place the loan on nonaccrual status following an internal credit rating downgrade. Overall, our loan portfolio at fair value was relatively stable quarter over quarter based on our internal credit ratings. At quarter end, our regulatory asset coverage ratio was 154%, a decrease of two percentage points from the prior quarter. As Bilal described, during the quarter, we completed the final $16 million repayment of our 4.75% unsecured notes, which were scheduled to mature in February. We also reduced our net exposure outstanding on our revolving lines of credit by $2 million, totaling $18 million of aggregate debt repayments from the prior quarter end. In February, we entered into a credit facility with Natixis, which provides for borrowings of up to $80 million. This new facility has a three-year reinvestment period and five-year maturity. In addition, the coupon interest rate on the new financing is 30 basis points tighter than our prior facility with BNP. In connection with the closing of the Natixis facility, we fully repaid our credit facility with BNP. We also executed two amendments to our credit facility with Bank of California during the quarter, extending the maturity by two years to February 2028 while also reducing our total commitment from $25 million to $15 million to better align with the current size of our balance sheet. Following the completion of these various transactions, we have extended our debt maturities and operational flexibility, with our earliest maturity now standing at February 2028. We continue to closely monitor our leverage position in consideration of the market backdrop and valuation pressures. Turning to the income statement, total investment income decreased approximately 5% to $8.9 million this quarter. This was primarily driven by a decrease in interest income attributable to lower yields on our CLO equity securities due to underlying loan spread compression. In addition, we also had lower interest income on our loan portfolio due to a decrease in portfolio size and the impact of lower base rates stemming from the Fed’s 50 basis points of rate cuts in the fourth quarter of 2025. This was partially offset by the accrual of a nonrecurring dividend of $874 thousand from our equity investment in Fansteel. Total expenses decreased by approximately 3% during the period to $6.4 million. The decrease was primarily attributable to a $379 thousand decrease in interest expense related to lower outstanding debt balances. Looking ahead, we continue to observe net interest margin compression following the final redemption of our February 2026 unsecured notes completed during the quarter, which had carried a low 4.75% coupon rate priced during the near-zero rate environment in early 2021. In addition, we anticipate further overall top line attrition due to our ongoing efforts to delever our balance sheet. We also do not expect to benefit from the heightened level of dividend income we recognized this quarter due to the nonrecurring nature of the dividend received from Fansteel. Turning to our investments, most of our loan portfolio investments continue to perform to expectations. However, we continue to closely monitor certain borrowers experiencing idiosyncratic stresses. Overall, our nonaccrual investments as a percentage of our total portfolio at fair value decreased slightly quarter over quarter by 0.7%. With respect to our loan portfolio, we remain committed to being senior in the capital structure, with 98% of our loan holdings being in first-lien positions based on fair value. Additionally, as Bilal noted, much of the observed broader market price decline in loans during the quarter was heavily concentrated in the enterprise software sector, driven by AI disruption fears. As we evaluate that risk, we note that we have limited sector exposure in our loan portfolio, with just 2.7% of our total loan portfolio at fair value whose primary business is in enterprise software sales. In addition, we have no reliance on annual recurring revenue, or ARR, based lending in our loan portfolio. From a deployment perspective, we continue to focus on add-on opportunities for growth with our existing issuers while selectively evaluating new opportunities and, as of quarter end, had $7.8 million in unfunded commitments for our portfolio companies. Based on amortized cost as of quarter end, our investment portfolio was comprised of approximately 64% senior secured loans, 25% structured finance securities, and 11% equity securities. At the end of the quarter, we had investments in 56 unique issuers totaling $308.1 million of fair value. On the interest-bearing portion of the portfolio, the weighted average performing investment income yield decreased approximately 1% to 12.5% quarter over quarter. The decrease in yield was primarily due to the decline in earned yields on our structured finance securities, attributable to the aforementioned spread compression dynamics pressuring cash flows to the equity tranche. This metric includes all interest, prepayment fee, and amortization of deferred loan fee income, but excludes syndication fee income, if applicable. With that, I will turn the call back over to Bilal for concluding remarks. Bilal Rashid: Thank you, Kyle. As we continue to navigate today’s uncertain economic environment, we remain firmly focused on preserving capital and strengthening our balance sheet. As discussed, we have extended our debt maturities, which span from 2028 to 2031, providing us with enhanced operational flexibility in the years ahead. We are also focused on defensively positioning our balance sheet by continuing to reduce our overall debt, which has already been lowered by $45.6 million over the past year. We believe our loan portfolio remains well diversified across multiple industries, and we continue to emphasize investing higher in the capital structure. We believe this positioning supports resilience across a range of market conditions. We remain focused on driving growth in net investment income over time. A key component of this effort is the monetization of select noninterest-earning equity positions, including our investment in Fansteel, as we look to redeploy capital into income-generating assets. Our team’s long-standing experience and investment discipline has driven consistent results. Since 2011, the BDC has invested more than $2.1 billion, with an annualized net realized loss of just 0.28%, while continuing to deliver attractive risk-adjusted returns on our portfolio. Finally, we continue to benefit from the scale and capabilities of our adviser. With a $4.2 billion corporate credit platform and affiliation with a $32 billion asset management group, our adviser provides deep credit experience and long-standing banking and capital markets relationships. Our corporate credit platform has gone through multiple credit cycles over the last 25-plus years. Importantly, our adviser and affiliates remain strongly aligned with shareholders as they maintain an approximately 23% ownership in the BDC. With that, operator, please open up the call for questions. Operator: We will now open the call for questions. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the Credit Agricole First Quarter 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Clotilde L'Angevin, Deputy General Manager of Credit Agricole. Please go ahead, madam. Clotilde L'Angevin: Thank you. Thank you very much. Hello, everybody. I'm conscious that this is a very busy day for you, so I'm going to try to be short. And so starting on Page 4 to tell you that we have solid results this quarter for Credit Agricole S.A., EUR 1.7 billion despite the turbulent environment. All of the Q1 2025 figures here are presented in pro forma. So for the Q1 2026, we don't change anything. But to compare it with the past, we consider that in the past, Banco BPM had been equity accounted at 20.1%. Now net income, therefore, increased by 1.8 percentage points -- percent sorry, pro forma, thanks to an increase in revenues to EUR 7 billion, supported by sustained activity, ongoing digitalization and strong client capture. We also have strong operational efficiency. The cost-to-income ratio improved by 0.6 percentage points quarter-on-quarter in CASA. And we have well-controlled risks with cautious provisioning on this quarter in the context of the conflicts in the Middle East. And all of this leads to a strong profitability, and we're posting a high ROTE at 13.7%. CET1 ratio is at 11.4%, well above the 11% target, which is impacted notably by M&A operations. We increased our position this quarter in Banco BPM capital, now reaching 22.9% since we decided to seize the opportunity of a dip in the share price in March to continue to build up our stake, but no change in our strategy. The group continues to develop. We announced this quarter the acquisition of a small Ukrainian bank, Lviv, in the west of the country that will allow Credit Agricole Ukraine to strengthen its positions with SMEs and with corporates in the agri sector. And we launched a couple of weeks ago, the European digital platform, Credit Agricole Savings in Germany, only 5 months after it was announced in our medium-term plan, ACT 2028. On the next slide, you see the key figures. We have a good performance of the group Credit Agricole, with a strong increase in net income, 5.5%, driven by revenues, 2.8%, which reached this quarter the record level of EUR 10 billion. In particular, this is thanks to the strong performance of regional banks revenues, 7.8%, which benefited from a spectacular upturn in net interest income by 34%. There is a cautious provisioning in all of the business lines in the context of geopolitical uncertainty, which leads to an increase in cost of risk on outstandings over 4 rolling quarters this quarter, but it remains under control. And of course, we maintain a strong position in terms of solvency and liquidity. So I talked to you about the impact of Banco BPM. We also have unfavorable market effects on insurance OCIs and on market RWAs for the CET1 of CASA. And we also have a front-loading of the consumption of CACIB's RWAs in order to accompany their customers. We can come to that a little bit later on when we talk about solvency. Now moving to Slide 7, activity. Activity was sustained across all of the business lines this quarter. This supported, in fact, the revenues. So what we can note this quarter is a strong customer capture, 600,000 new customers this quarter, 450,000 in France in retail banking. And what's important is that it also benefited from increased digital acquisition in France and in Italy. So we had client capture that was boosted by digital acquisition, in particular, for LCL with the launch of L by LCL Pro, which explains the increase in customer capture for the professionals, 20% of capture on professionals was digital. Digital acquisition also explains 40% of client capture for Credit Agricole Italia. And we're launching several 100% self-care digital solutions in France in home loans, in savings with the launch of full self-care securities accounts and share savings plans and with a new life insurance contract, Oriance . And in the regional banks, we're going to launch a full digital onboarding in a couple of days. Now if I move business by business to activity, in retail banking in France, credit production was strong, even though this performance was mainly driven by regional banks production in a very competitive market. Corporate and professionals loan growth was 7%. And in Italy, we had a very dynamic loan production for the corporates x 2 quarter-on-quarter in the context of a competitive market. And production is very dynamic in Poland, in particular, for individuals and in Egypt. The loans outstanding in the on-balance sheet assets continued to grow in France and in Italy, also the off-balance sheet assets. And so therefore, Asset Gathering division posted a very dynamic quarter. Thanks to insurance, where we have an increase in premium income on all of the activities, savings and retirement, personal insurance, P&C. We had a record net inflows of EUR 5.7 billion, of which EUR 1.5 billion, thanks to the Oriance solution, and we reached EUR 18 million contracts in P&C this quarter. We have a weather-related effect impact, but activity is still very strong. For Amundi, we have very strong net inflows and growing AUMs. The medium- to long-term inflows are strong, in particular, thanks to ETFs and index-based solutions and activity is dynamic in the third-party distributions and retirement solutions. And finally, in wealth management, the AUMs are increasing, and you can note the fact that we finalized the acquisition of the wealth management customers of BNP in Monaco this quarter. For personal finance and mobility, production increased year-on-year despite the unfavorable conditions in the car markets that weighed on our mobility activity and in particular, on remarketing, we had an increase in the stock of used cars this quarter, but production increased year-on-year for personal finance and mobility. And finally, in Large Customers division, the CIB posted its second best quarter after the record level that it had reached in the first quarter of last year. And so excluding FX impact, CIB is stable at this level, thanks to an excellent performance of investment banking and despite the wait-and-see attitude of our corporate customers and financing activities and the fact that FICC was impacted by a lower activity on primary markets. And finally, for CACEIS we had a high level of settlement and delivery volumes. It was boosted by market volatility. And of course, we continue to transform our business after the integration of the European activities of RBC. Now this feeds into revenues on the next slide that increased by 0.9% this quarter. If we read it on a like-for-like basis, i.e., if we exclude the Amundi U.S. deconsolidation for EUR 90 million in the first quarter of last year, and the impact of the first consolidation of ICG shares this quarter for EUR 68 million this quarter, revenues increased by 3.2%, sorry, Q1, Q1. Like-for-like, all of the business lines contributed positively to the growth in revenues, except for the Large Customers division, which is impacted by a EUR 69 million FX effect. Asset Gathering revenues decreased due to the scope effect. But excluding these two scope effects, we have an increase of EUR 59 million. It's mainly thanks to higher management fees and performance fees at Amundi, which more than offset a slight decline in insurance revenues impacted by the weather-related events that I talked to you about, storms and floods in P&C and impacted by a deterioration of market conditions in savings and retirement that was mostly absorbed by the CSM, but we have a residual revenue impact. For Large Customers, I was telling you that we have a very high quarter, second best after the record level that it reached in Q1 2025. For SFS, we have a positive price effect, which was offset this quarter by a change in the residual values of the cars in Drivalia. Drivalia, as you know, is a subsidiary of Credit Agricole Auto Bank. So this is why it has an impact on revenues. For retail banking, we had a very strong upturn in net interest income for LCL, plus 13% and a stability of net interest income in Italy. And we can see right now what we talked about in the medium-term plan for France, an increase in the net interest income, thanks to a reduction in the cost of resources, a normalization of the customer deposit mix and the rate effect and also the gradual repricing of loans and fees increased in all geographies. And finally, on the Corporate Centre, we had favorable volatility effects. Now moving to expenses. We have -- again, on a like-for-like basis, we have positive jaws, 1.7 percentage points. So we do have a few positive factors, in particular, the favorable FX impact on CIB costs and decreased provisions for variable compensation. But more importantly, operational efficiency is improving. We have this quarter, the full effect of the synergies for the CACEIS RBC operation, and therefore, we can confirm EUR 100 million additional income in 2026 linked to this operation. The group integration with [ Indosuez ] is progressing also. We now have 40% of synergies that are realized. And Amundi and Credit Agricole Italia are expecting cost savings in the subsequent quarters. We talked about that at the end of last year. And these positive jaws that we observe, we can observe them despite the fact that we continue to invest in our investments. We continue to invest in the transformation of LCL, as you can see here in retail banking. And we invest also in SFS for our Credit Agricole savings and development platform in Germany, for which the total costs are expected to be below EUR 50 million in 2026. Now moving to cost of risk. Cost of risk, in fact, decreased this quarter compared to the Q4 2025, but increased by 32% compared to Q1 2025, mainly due to our prudent provisioning in the context of geopolitical and economic uncertainty. Because as you can see, most of the increase is due to Stage 1 and Stage 2 provisioning, about EUR 100 million, including scenario updates. We adjusted the weighting of the different scenarios. This is for about EUR 38 million. And we added overlays, geographic and sectorial overlays related to the conflict in the Middle East, around EUR 28 million. So we have about EUR 60 million provisioning due to the Middle East conflict. We have other provisions that include legal risk that represent EUR 39 million, and those include an adjustment of EUR 17 million for the U.K. car loan litigation after the FCA released the conclusions of their consultation that they had launched at the end of last year. And so as you can see, despite these elements, the Stage 3 incurred cost of risk is very close to the Q1 2025 levels after a significant increase in Q4 2025. And if we look at what happens by business line, half of Stage 3 and total cost of risk is explained by SFS with CAPFM being the main contributor, but the increase in cost of risk for CAPFM is mainly driven by these S1, S2 additions. The Stage 3 provisions are relatively stable and they're even decreasing, in fact, due to successful sales of NPL portfolios. The increase in CIB is essentially due to Stage 1 and Stage 2 provisions linked to the Middle Eastern conflict and the cost of risk remains broadly low with investment-grade customers mainly and a diversified and a balanced geopolitical risk. For French Retail Banking, the cost of risk is under control after a strong increase in the Q4. The default flow remains steady, both for LCL and the regional banks, and it's mainly driven by professionals and SMEs. So what we're doing is we're continuing to monitor quite closely the same sectors that we talked about last year, retail, distribution, automobile, transportation for LCL and for the regional banks, real estate professionals, construction and farmers. And in Italy, cost of risk is decreasing and credit quality indicators are improving. So to conclude on this, there's no surge in loan loss provisions. We have an annualized cost of risk on outstandings that decreased Q1, Q4 and our credit quality indicators remain at a very good level. We have the NPLs that are stable. We have coverage ratio for CASA and loan loss reserves that are increasing, which will allow us to absorb surges in Stage 3 cost of risk going forward. As you know, our provisioning is always prudent, and that's also why, as I said, we remain cautious, and we continue to monitor closely these sectors that I was talking about. Skipping Slide 11 to move on to the Slide 12 on income. In fact, we have a solid income in a volatile environment. I just wanted to make two comments, the fact that we have equity accounted entities that are increasing. We have a decrease for SFS for leases related to losses on remarketing activity in the current automobile context, and we have an unfavorable base effect in China, but we have an up for Asset Gathering related to the ICG first consolidation impact. This is a one-off of EUR 85 million. And we also have a Victory Capital scope effect, which is the [ running ] contribution this quarter, thanks to synergies. So we now have ICG at 5.2%, and we plan to increase it to 9.9% over the rest of the year. And so next quarters, we're going to have a regular contribution in our equity account on ICG, but for this time, it's a one-off. And also, you have to recall that we're benefiting this quarter from the fact that we do not bear minority interest on CACEIS any longer compared to EUR 35 million per quarter in the Q1 2025. But most importantly, gross operating income is increasing on a like-for-like basis by 5.5%. We have 1.8% net income growth to EUR 1,676 million. So a very strong performance this quarter, thanks to strong activity and good operational efficiency. Solvency. Now we have a very high level of capital this quarter, and the CET1 ratio is at 11.4%, which is still well above our target at 11%, thanks to retained results. But we did have a decrease from 11.8% to 11.4% due to a certain number of elements. First, we have organic growth, 23 basis points. In particular, with an impact of CIB, which accounts for 14 basis points. Why? Because we have a couple of elements. We can come back to that afterwards, but we have, in particular, a market impact on the RWAs. And we also have a front-loading of the annual RWA budget in the first quarter for CACIB in the context of strong activity in March to support the customers of CACIB. That's the first dimension. Second, we have an M&A impact, 17 basis points, out of which we have 14 basis points linked to the increase in our stake in Banco BPM to 22.9% that I was talking about. In fact, this gives me the opportunity to mention the fact that in our past acquisitions, we completed the analysis that we did at the end of last year that showed that we had met our ROI criteria. In addition to these figures, we computed the average return on capital. You have that in the annex, and it's around 18%. So a quite profitable M&A past acquisitions. So organic growth, M&A. Finally, we have a methodological impact with CRR3 adjustments, and we have market effects on the insurance OCIs due to the rate spread and equity fluctuations by 4 basis points. So all in all, we remain at a very strong level of CET1 ratio for CASA, 11.4%, which allows us to provision EUR 0.26 per share in terms of dividend. The RWAs are increasing also due to a foreign effect -- foreign exchange impact for CACIB. This foreign exchange impact has no effect on the CET1 because, as you know, we immunize our CET1 ratio against adverse foreign exchange fluctuations on the dollar by neutralizing the impact on the numerator, but you do have that in the increase in the RWAs. Moving to the slide on the CET1 ratio of Group Credit Agricole. We have very strong capital at this level. As you know, our objective is not to accumulate capital at the level of CASA. So the relevant figure for the group is that of group Credit Agricole. We're very comfortably above our SREP requirement, which, as you know, has increased by [ 50 basis points ] this quarter due to the increase in the systemic buffer, but we're still very comfortable with 670 basis points above the requirement. And we have more or less the same impact that we had for CASA that I talked about. We have a little bit more limited impact of Banco BPM due to the exemption threshold that I was talking to you about last time. RWAs are increasing a little bit due to technical adjustments on the Basel IV impact on the corporate RWAs of the regional banks. And the leverage ratio is very comfortable as well as the TLAC and the MREL ratio. On liquidity on the next slide, very comfortable liquidity position, very high level of liquidity reserves, EUR 475 billion. The LCR and NSFR ratios are excellent. And just to tell you that almost 2/3 of our funding plan had already been completed during the first quarter. So we're very comfortable also in terms of funding plan. And as you can see here, we have stable customer deposits and very diversified and granular deposits. On the next slide, on transitions, we presented new targets in our ACT 2028 plan. Our objective, as you know, is to be a leader in customer capture and technology and, of course, a leader in transition, and we reaffirmed our net zero commitments. And so we have new targets, which are the following: one, to reach a green-brown ratio of 90:10. So we're well on track to reach this. Our second target is to reach EUR 240 billion in financing of environmental and social transition. The split today is 65% environment and 35% social. Again, we're well on track. And finally, CACIB should reach EUR 1 billion in annual revenues from sustainable finance. And just note that on the 24th of April, Amundi announced that they would be the asset manager of the GGBI fund. So that's something which we're proud of as well. And so coming to the last slide that I'm going to comment on, Slide 17, to conclude by saying that net income increased this quarter pro forma for CASA in the group, thanks to strong activity in all of the businesses in asset management, in insurance, thanks also to strong improvement in net interest income in France. We conquered customers. We accelerated digitalization. We rolled out -- started to roll out our medium-term plan with the launch of this European digital platform, CA Savings in Germany. We announced the acquisition this quarter of a small Ukrainian bank. We increased our position in Banco BPM capital that now reaches 22.9%. And so revenues increased to EUR 7 billion, thanks to this activity, digitalization and strong client capture. Operational efficiency is strong with favorable jaws and an improvement in cost-to-income ratio. Our risks are well controlled. We have cautious provisioning in the context of the conflict in the Middle East. And all of this leads to strong profitability. We're posting a high ROTE ratio at 13.7%. So these are very strong and solid results in an uncertain environment. I'm going to stop here. Thank you very much for your attention, and we can now open the floor to questions. Operator: [Operator Instructions] The first question is from Giulia Miotto, Morgan Stanley. Giulia Miotto: I have two. So first of all, on BAMI, you have increased the stake to 22.9%, but you have room to increase more to 29%. So how should we think about this one? Shall we assume that whenever there is a dip, you are interested to increase this? And also, in the past, you have stated that your preferred outcome would be a merger. Is that still how you're thinking about that? So that's the first question. The second one is instead on the launch in Germany, you said it's a couple of weeks old. Can you perhaps share some stats on how that is going, how you launched, what type of clients you are attracting, that would be super interesting. And then -- sorry, I actually have a final one, a number -- question on SFS. Revenues were down quarter-on-quarter. Costs were up. Any comment on the evolution of this business? Clotilde L'Angevin: All right. Thank you, Giulia, for your questions. So first, on Banco BPM. So first of all, maybe to explain a little bit, we had an authorization by the ECB to cross the 20% threshold and therefore, exercise significant influence without taking control. So we seized the opportunity of a dip in the stock price of Banco BPM to go beyond our 20.1% stake. And we did this for market reasons, we're not changing our long-term strategy. And our long-term strategy is really to be able to contribute to the value creation of Banco BPM. And so that's why we submitted our own list of candidates for the directors of Banco BPM as well as our own list of candidates for the statutory auditor role in order to offer a positive contribution to governance, holding more than 20% of capital. So our objective was to promote the creation of long-term value by presenting candidates with very solid and relevant expertise, and we had 4 directors that were selected at the end of the AGM, which corresponds, in fact, to our stake of 22.9%. So we're not ruling ever going out beyond, but you have to bear in mind that the authorization that we requested from the ECB was to cross the 20.1% threshold and therefore, exercise significant influence without taking control. On your question regarding the different scenarios, as always, there's a lot of scenarios that are possible. Most of them don't depend on us. They're positive for us because we have a strong position. We want to position ourselves as a long-term partner of Banco BPM. And I just want to remind you of the fact that our strategy has not changed in Italy. We have this partnership with Banco BPM, but we really want to develop our universal banking model in the long term, in particular, with Credit Agricole Italia for which we want to develop digitalization synergies with the other businesses. And we also want to develop these businesses, which are all present in Italy. So no change in this strategy, but our strong position allows us to be comfortable and a long-term partner of Banco BPM. That's on your first question. On your second question, yes, indeed, it's a couple of weeks old, but we're confident as to the success of this savings platform in Germany. So just to recall, in the medium-term plan, we said that we wanted to target 2 million customers. We're now at 1 million customers. We have EUR 15 billion in on-balance sheet savings, which we want to double in Germany. So the savings platform is going to help us do that. In fact, it's relatively simple because we already have the legal entity, Creditplus, what we're doing is we're building with a very low cost, in fact, it's less than EUR 10 million, this savings platform that will be turned into an app at the end of the year in order to provide also day-to-day banking. And what we consider to be our competitive edge is the fact that compared to a lot of competitors who have a limited number of on-balance sheet solutions. We have 7 offers in terms of on-balance sheet savings. So this is going to be interesting for the targets that we have, which are mass affluent and affluent customers. And then down the line, what we want to do is we want to expand by plugging onto that the off-balance sheet solutions, i.e., Amundi, Credit [ Agricole ] to really expand on the offer. But even with these 7 products that we have, we consider that we already have a competitive edge. So that was on Germany. Now on SFS. Maybe -- if we look on SFS, maybe a little bit more widely because we have a certain number of drivers for SFS. We have consumer finance per se for which we have strong positive price effects. And then we have a revenue impact of the second dimension, which is mobility. Now how is this working in terms of mobility? Now remember, in the Q4, we had talked about the reviewal of remarketing values of the vehicles for Leasys. Leasys is equity accounted, but we also have leasing activity in Credit Agricole Bank, which represents revenues for us. And so what happened in the Q1 was that in the first quarter, we have, as you know, an automobile market that is still slowing down, and this had impacted some of our partners, particularly in electronic -- electric cars. And so what we did for Credit Agricole Bank was to adjust the residual value of our vehicles portfolio, in particular, in the U.K. and in Italy. But production is increasing for Credit Agricole Bank, both compared to Q1 2025 and compared to Q4 2025. So we have a production that is increasing, but we have a negative impact of this revision of residual values at Drivalia. And we also have an impact at Leasys, which is due most here now to a decrease in car resale performance due to the increase in the stock of used vehicles. So we have -- to kind of sum it up, we have an automobile market that is depressed and in particular, with a certain number of players with which we have strong commercial activity ties who have had observed an increase in the stock of used cars. This has an impact on the residual value and the marketing value of our vehicles. But down the line, we're developing the drivers of profitability for mobility generally. Value-driven pricing, diversification of distribution channels, the improvement of remarketing processes with IT tools, efficiency. So of course, the evolution of the market is going to be key. And of course, there is a sensitivity. There is sensitivity of the residual values that every quarter have to be adjusted. But we have these drivers going forward, which allow us to be confident on the -- in particular, the restoration of profitability for leases. Operator: The next question is from Jacques-Henri Gaulard, Kepler Cheuvreux. Jacques-Henri Gaulard: If I may come back on SFS for a minute, I think the issue I have with it is the fact that it's sort of supposed to actually improve, and it seems the improvement really takes a lot of time. So it's more about getting a sense about where you think this business is going to turn around both at revenue level, but also on the equity accounted side. And when can you say, okay, we've definitely turned the page of that, and we're going to be able to actually look forward to, I don't know, second half of this year [ or 2027. ] That's the first question. The second is on capital. I mean, really, it happens that you had the consolidation of BPM. It's more the fact that everything being equal, do you think that we can proxy the CET1 towards the end of the year as being more or less now the retained earnings x 3, whatever that is. And are you expecting any sort of turbulence that could actually derail from that? Clotilde L'Angevin: All right. Thank you, Jacques-Henri. So in terms of inflection, we have to be very cautious because we do depend on the automobile market. And we do have, as I was saying, a strong sensitivity of the remarketing value of our automobiles to the stock of the vehicles -- of the used car vehicles. And this stock of the used car vehicles also depends on the capacity -- the production capacity of a lot of our partners. So for example, we're confident, for example, that Tesla is going to pick up. GAC, which is our partner in China. Also, there are more difficulties for Stellantis, but this is something that really depends on the market. Now profitability will pick up over the year, but it's true that we will have an effect of, in particular, the revision of remarketing value of the used cars in the Q4. We will going to carry a little bit of that effect from the next quarters because it does have an impact on the price that we're going to resell our cars at. So there will be an impact that will continue in 2026, but we are in a reversal, of course, compared to the Q4 of 2025. Now in terms of CET1, maybe to just take the opportunity of your question to really come back a little bit to the different elements that can explain the evolution that we have here in terms of the capital for CASA. So you're talking about what we can see by the end of the year. The guidance that I can give you for the end of the year is more that for the medium-term plan. For the medium-term plan, we're still -- we talked to you about the fact that we would have strategic flexibility of 150 basis points by the end of 2028 that could be used for M&A or for an exceptional dividend if we do not use that type of M&A. This quarter, we have used about 16 basis points -- 16, 17 basis points for M&A. And so excluding that, we're still very comfortable with our strategic flexibility at the end of the plan. And we're very comfortable also with the CET1 ratio that should remain comfortable by the end of 2026. Now why is that? Is that -- we're going to have indeed retained earnings. And what's also interesting is that a part of the impact of the RWAs of CACIB this quarter is, in particular, due to market activities, about EUR 3.1 billion in terms of market activities, as you can see on the CET1 slide. And we can say that roughly 2/3 of that are potentially reversible if the markets normalize. We have a volatility effect on the SAR of the trading portfolio. We have a trading book counterparty risk. These two effects are effects that could be reversible. So that's maybe -- if we break down the RWAs of CACIB, I guess we can say we have three dimensions. One is an FX effect, EUR 1 billion linked to the appreciation of the dollar between the Q4 and the Q1. Two is this effect linked to the market activities of which 2/3 are potentially reversible. And the rest is a front-loading of organic growth. We often have a front-loading of organic growth for the CIB in the first half of the year. And so we expect that we're going to have the impact on income, on revenue of that also by the end of the year. But again, all in all, we're comfortable with our CET1 ratio end of the year and 2028 and more importantly, with the strategic flexibility we were talking about in the medium-term plan. Operator: The next question is from Delphine Lee, JPMorgan. Delphine Lee: So first one is just double checking the guidance on net interest income that for LCL remains high single digit because obviously, that would imply a slowdown compared to Q1. And also what do you factor in for [ Livret A ] in your guidance? And also secondly, on Cariparma, I think you previously guided to -- for the year to have a bit of pressure on NII. Is that still the case? And is it something we should expect for the coming quarters? And then my last question is just to come back on Banco BPM. Just wanted to have a little bit of your thoughts around sort of the M&A scenarios. I know you mentioned they're not in your control. It looks like discussions have moved from Cariparma to now Monte dei Paschi. So just trying to understand a little bit sort of what you think could be possible for the group in terms of defending partnerships? Clotilde L'Angevin: All right. Thank you, Delphine, for your questions. So maybe first on net interest income for LCL, there is no change in our high single-digit guidance for 2026. Even though it's true that the rate scenario -- in fact, you still have these three effects that I was talking to you about before. On the asset side, you have a repricing. And the marginal increase in the rate scenario is favorable in this respect. Long-term rate increase is favorable for this repricing. It depends on the competitive capacity of LCL to reprice, but the rates are increasing in LCL and the regional banks. First point. Then you have on the liability side, you have the short-term rate where you can have a slight increase that can decrease the positive impact because you know that for the liabilities, the positive effect is when the cost of resources decreases. But we're well hedged against any increase in short-term rates because this time around, we don't have a real shock to the net interest to the rates. And so we should not have any significant shift in the liabilities mix. And also our macro hedging is quite strong, in particular for inflation. So things are relatively positive. We have no change in this high digit single -- high single-digit guidance for 2026, even though we have to always be careful as to the repricing capacity in a competitive market. Now for [ Livret A, for Livret A, ] we usually have a tendency to hedge the [ Livret A. ] So we do -- we could consider that we have, for example, a EUR 90 billion impact for the regional banks -- EUR 90 billion pre-centralization of [ Livret A ] for the regional banks. You have about EUR 18 billion for LCL pre-centralization. So you could consider an impact of the decrease in [ Livret A ] on that, which you can calculate, which is going to be a couple of hundred million, but this would be before hedging, and we have a tendency to hedge. So the impact on [ Livret A ] for us is relatively neutral. For your question on Credit Agricole Italia. Now we have a very competitive housing market in Italy. We have, in particular, renegotiations, which have an impact. And in fact, they did have an impact this quarter on the loans outstanding for the home loans, which was -- which decreased in Credit Agricole Italia this quarter. I talked about a very strong increase in corporate loan production. But in housing, we have a market which is very competitive. But despite this, we were quite happy to have the stabilization of net interest income. We're still prudent in terms of our guidance. So no change in our guidance in this respect, i.e., maybe just below 0 or around 0 this year before picking up afterwards in the coming years. M&A for Banco BPM. All right. So well, in fact, for M&A for Banco BPM, even though there's lots of -- there's been lots of noise, rumors, et cetera, regarding Banco BPM. For us, things have not really changed except the fact that since we are now -- we now have 4 seats at the Board, we will participate in the analysis of any scenarios that could present themselves to Banco BPM. And so we would participate in any decision regarding these different scenarios. That's all I can tell you for now. We're now -- we now have seats on the Board, and so we're going to be a player. We are at the table. We are a player in these different scenarios. But to tell you the truth, as I was saying before, a lot of these scenarios do not depend on us, but I think most of them are positive. Because as I was saying, we are a long-term player in Italy. We have many ways that we can develop in Italy, for example, organically through CAI, organically through our businesses. So all of this is positive. Operator: Next question is from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: Firstly, on asset quality, your Middle East exposure at EUR 21 billion seems higher than peers. Can you elaborate on the nature and the risks in case of a prolonged conflict in the Middle East? And more broadly on asset quality, what risks do you see if oil prices remain well above $100 a barrel for a prolonged period? Then a couple of clarifications. Firstly, on the capital consumption for Banco BPM, when you increased the stake in 2025, the CET1 consumption was proportionately smaller commensurate to the stake increase versus the minus 14 basis points impact you have now. So if you can clarify on that? And lastly, again, a follow-up on Specialized Financial Services. Can you quantify the used car sales contribution maybe in '25 and first quarter, just to see where -- how much is the delta? And on equity accounted entities, previously, you said double-digit contribution from Leasys for 2026. Do you stick to this view? Clotilde L'Angevin: All right. Okay. Thank you. Now if I look at your question on loan loss reserves, if I move to Page 47 (sic) [ Page 46 ] in the annex, you have this level of loan loss reserves, which is at EUR 22.6 billion for Group Credit Agricole and EUR 9.7 billion for Credit Agricole S.A. And as you can see here, you have -- and you could do that if you have even longer period, you can see that prudent provisioning for us is in our DNA. In fact, we are provisioning, but we have always been doing so in the face of uncertainties, geopolitical uncertainties. And so this is also why we have this very high level of loan loss reserves, even though as you know, the impaired loans ratio, as you can see on Page 47 (sic) [ Page 46 ], is stable. And this is also why we have this very high coverage ratio of 82.6% at the level of the group. We have with our Stage 1 and 2 outstanding loan loss reserves, EUR 9.3 billion. We have about 3 years of cost of risk. And for CASA, with EUR 3.4 billion, we have about 1.5 years of cost of risk. But this is, in fact, a structural policy that we have, which is always to provision in a very prudent manner, the risks, and this is what we did this quarter. But of course, this is something that can, therefore, absorb any surge in Stage 3 cost of risk going forward. In terms of capital consumption, so I don't want to go back to the very technical discussion that we had in the Q4 regarding the first consolidation of Banco BPM. But just to tell you a little bit how things are working when you have these 14 basis points for the CET1 is that, in fact, when we increased our share from 20% -- 20.1% to 22.9% in fact, we're increasing it based upon an equity accounted value, which we have integrated around EUR 10. So we have a goodwill now based upon that. Any additional purchase of shares of Banco BPM has to be done with a goodwill. So you have a goodwill impact that is directly deducted, right? And because last year, when we did the first consolidation, we didn't have any goodwill because we consolidated at cost. And so we had badwill, right? So now you have a goodwill impact first, around EUR 120 million. And you also have an RWA impact, which is different from CASA between CASA and group Credit Agricole because for CASA, as you know, we have saturated the exemption threshold for the more than 10% participation, but we have not done that [indiscernible]. So that's why the impact for CASA is 14 basis points, whereas the impact for the group is 5 basis points. And then your last question on the used cars. In fact, we have a couple of dozen impacts of the residual value of cars for Drivalia that compensate for a favorable price effect for SFS on revenues. So you have just about, let's say, around EUR 30 million impact on -- positive impact on price effect and around EUR 30 million impact this quarter for Drivalia of the residual value of used cars. And for leasing, we have, of course, a remarketing issue. And what I can tell you about that is that we're having a situation where we're just about breakeven for Leasys, and we still confirm the guidance that I gave you at the -- in the Q4 call, which was a single-digit contribution for 2026. Operator: The next question is from Stefan Stalmann, Autonomous Research. Stefan-Michael Stalmann: I have two questions, please. So the first one is on your organic risk-weighted asset growth that you highlighted. It seems that you have actually seen a very major expansion of your exposure to non-bank financial institutions, so NBFI, which obviously receives quite a lot of market scrutiny these days. Can you maybe add a little bit of color on why you have grown this portfolio so rapidly in the first quarter? And the second point goes back to your ROIC disclosure. That's very helpful. It looks like you spent EUR 12.5 billion on your acquisitions over this time horizon, but your regulatory capital requirements were about EUR 4 billion lower. Can you maybe explain what exactly drove that discount and which transactions, in particular, required so much less regulatory capital than what you spent on these deals? Clotilde L'Angevin: All right. So first, the question on our exposure. As you can see on Page 50 in the annex, we have our exposure to other nonbinding financial -- non-banking sorry, financial activities that have not changed significantly. This figure is something that takes into account a lot of elements that are not only, for example, hedge funds, but you have securitization vehicles, you have monetary funds, you have hedge funds, you have broker-dealers, investments, you have all of the insurance banks outside of the EU. So this figure, for example, when you have securitization by CACIB for its customers, it's our NBFI and it's a figure that, in fact, adds up a lot of bits and pieces and that's difficult to interpret. What I want to tell you regarding the fact that the issue that has worried maybe a lot of observers recently is regarding our debt fund exposure. And so on private debt, our exposure as of end of March is EUR 2.9 billion, very low, 0.2% of our commercial lending. And as you can see on Page 49, we gave you a certain number of elements regarding the LBO exposure, which is very low, commercial real estate, which is again low with a lot of investment grade. And of course, our Middle East exposure, which is, in fact, mainly on the sovereign and state-owned exposures. Now thank you, Stefan, for highlighting, in fact, the work we did, the team's work to calculate, in fact, the return on capital of these operations. These operations, the EUR 12.5 billion that I was talking about, in fact, we looked at the operations that it is possible to calculate an ROIC on. So you have on big operations, you're going to have a lot of Amundi operations. You have Pioneer, for example, you have Lyxor, you have Sabadell Asset Management. We have also [ Indosuez ] operations with the group. We have CACEIS for example, for Santander. So we have a lot of different operations. Of course, the buyback of the Santander Securities Service share in CACEIS. So all of these operations have different figures in terms of regulated capital. And what I wanted to stress about was the fact that to calculate this return on invested capital, what we take into account is we take the net income group share. And on the denominator, we take the effect of the minority interest, the goodwill, badwill, and we suppose that we have 11% of RWAs. So all in all, the calculations are different for each of these types of operations that I talked about, but they have very different maturities. The ROI is different according to the timing. The ROIC is different according to the timing. And this is a picture of these operations as of 2025. But really what we wanted to insist upon was the fact that we have the very strict financial criteria that we talked about in the medium-term plan, ROI accretive. This is a figure that shows you that we have this accretive nature of our activity, but also the integration capacity and the alignment with our strategy. So this is what we wanted to insist upon on, and insisting upon the fact that the 18% figure is quite strong. Stefan-Michael Stalmann: Could I just follow up on this, please? I mean the common denominator here on the slide seems to be that from a regulatory capital perspective, you need a lot less capital than what you actually spent on the acquisitions. And I'm just curious about why this gap is there. Is there anything that you -- any color that you could add there? Clotilde L'Angevin: I think what it really depends on the nature of the operation and the nature of the businesses that made these acquisitions, Amundi, CACEIS and [ Indosuez ]. And so when we look at the denominator for CET1, the way we look at it is that we take off the impact of goodwill, badwills, minority interest, and we consider that we have 11% of RWAs, which is, in fact, a way that we transpose the targets that we have for CET1 to the different businesses. So it's de facto an internal allocation of RWAs between our businesses. So this is the way we look at the profitability of these operations business by business, comparing them to the target we have, which is 11% of CET1. Operator: The next question is from Benoit Valleaux, ODDO BHF. Benoit Valleaux: Two short questions on my side on insurance. The first one in P&C. You have an increase of your combined ratio of 2.5 percentage points versus last year. You mentioned a very high level of nat cat losses in Q1. I'd just like to know if you can quantify in absolute terms this level of nat cat Q1 this year versus -- and the change versus Q1 last year, just to see how revenues in P&C would have evolved without this nat cat event. And the second question on the life side. So very strong activity in Q1. Nevertheless, the CSM decreased by 1.9 percentage points due to negative market impact. I'd just like to know what would have been the increase without this market impact into the CSM. Clotilde L'Angevin: All right. Thank you, Benoit, for your questions. They are very -- always very interesting on insurance. So regarding the weather-related claims, in fact, the gross impact is just above EUR 200 million this quarter. It's a gross impact linked to storms on the Atlantic front, to floods. And so this impact is quite close to -- if you do a rule of thumb to what we could expect with the market share of P&C Pacifica, which is about 12% market share for this type of insurance. And so this is the gross impact. And thanks to a certain number of absorption mechanisms, thanks to reversals of provisions, what we can say is that the impact in terms of variation Q1-Q1 of this weather-related claims is below EUR 50 million. That's the first point. The second point is that indeed, we always look now for insurance at the CSM. And what's important for us is always to say, and this is what we say this quarter, that we have a new business contribution that is higher than the CSM allocation. But you're right to point out the fact that we had a decrease in March compared to December due to these market effects. We have market effect on revenues in [ Credit Agricole Assurances ] due to the equity I mentioned, but we also have and that's the most -- the majority of it, the market effect in insurance feed into the CSM. Now if we did not have this market impact, we -- I can say we would have about plus 8% impact, [ plus 8% ] growth of the CSM between December and March, which is quite logical if you look at the very strong and record net inflows this quarter of insurance, which was, as you can see, EUR 5.7 billion this quarter. So this is reflected in the growth, excluding market effects of the CSM, which remains at a very high level, [ EUR 27 billion. ] Operator: The next question is from Tarik El Mejjad, Bank of America. Tarik El Mejjad: Just a very quick two questions, please. First one is on the capital treatment of future growth or provisioning, if that goes both ways? And how often you will adjust basically that provisioning? Is it every quarter? Or is it your own judgment? And secondly, on... Clotilde L'Angevin: Sorry, Tarik. Can you repeat the question, sorry, the capital provision on what, sorry? Tarik El Mejjad: On growth, the growth you have on your capital trajectory in the quarter that you took upfront. Clotilde L'Angevin: Okay. The front-loading of RWAs in CACIB, that's what you're talking about, right? Tarik El Mejjad: Correct. And sorry, been a long day. And then the -- on CASA -- sorry, on the -- yes, CASA, I mean, Credit Agricole's EUR 800 million investments in CASA. I mean, I know you say as Credit Agricole, but I mean, the liquidity now is getting even lower. And what do you think the rationale and the end game there? Clotilde L'Angevin: All right. Thank you, Tarik, for your questions. It's been a long day, I know, for all of you guys. So thank you for listening to all of these elements that are oftentimes technical, but which reflect the diversity of our group. So this front-loading, the front-loading that we have of CACIB is, in fact, relatively -- of the RWAs of CACIB, sorry, is in fact, not that special because we do have a tendency to front-load the RWAs in order to front-load the effect that we're going to have in revenues. This time, we front-loaded the organic growth to take an advantage of the active markets in March. So this dimension is not per se reversible. It's the front loading. What's reversible is the 2/3 that I was talking about of the impact on RWAs of the market activities, the volatility impact and the counterparty issuer spreads for the trading book counterparty risk. So here, this -- so if you take that off, if you take off the FX effect, the rest of the growth of CACIB, you're going to have between EUR 1 billion and EUR 2 billion, that's the front-loaded organic growth. You have a little bit which is related, by the way, to rating downgrades in line with increased provisions, but the rating downgrades, when is that going to stop, it's difficult to say. But I would not say that the front-loading is reversible. I would say that the front-loading, we hope to see the impact on results in the coming quarters of this front-loading. Now the SAS, as you know, we are -- SAS Rue La Boetie, which is our today, 63.5% shareholder. So we are, as you know, the daughter, they are the mother. So I cannot comment on what they're saying. But what I can tell you is that they are a very sophisticated investor that knows us very well. And so this program, as you know, they said that they would remain below 65%. They reiterated that, that they had said before. This program is a way for our regional bank, the mother, to really take stock of the fact that we have strong profitability and it is a good idea to invest in Credit Agricole S.A. for the future. They have -- they trust very much our medium-term plan, which is based on customer capture, which is based on transformation, which will provide strong profitability, EUR 8.8 billion in net income at the end of the medium-term plan. And this is very much aligned with their objectives, which is to develop customer capture, to develop performance profitability, to develop capital liquidity at the level of the group. So all of this is very consistent. There is no change in any form of endgame from what -- as much as I know of. For us, it's really the fact that they're investing in a very profitable stake, which is CASA. Operator: The next question is from Alberto Artoni, Intesa Sanpaolo. Alberto Artoni: I have just two quick ones. The first is on capital. And I just noticed that there are 11 basis points of capital consumption this quarter, which relates to methodologies and model changes. And I was wondering if this 11 basis points can -- is on top or can be referred to the slide that you presented when the ACT '28 plan was introduced in which you allowed for 40 basis point regulatory and methodology increases during the plan. So is this part of this 40, so it means that there are 29 left? Or is still 40 to go and this is on top? Clotilde L'Angevin: All right. Thank you for your question. In fact, when we look at the medium-term plan, we look excluding CRR3 impact. And this 11 basis points impact is, in fact, an end of the year impact of CRR3. So it is excluded from the 40 basis points of methodology because what we do in the medium-term plan is that we consider everything to be besides CRR3 impact because in the medium-term plan, if you recall, we had talked about the CRR3 impact, which was 50 basis points. And then we added on this 40 basis points, which was regulatory and methodological impact, including FRTB, which is beyond CRR3. So what I think we can say is that this is kind of the end today of CRR3 impact mostly, mostly. Alberto Artoni: Okay. Very clear. And my second question, just a quick clarification on the Banco BPM stake. Is there -- do the regional banks have a direct stake in Banco BPM? So at the group level, what is the stake? Is it higher than 22.9% or is it 22.9%? Clotilde L'Angevin: No, it's 22.9%. 22.9%, CASA stake. Alberto Artoni: Okay. Okay. So the group does not -- the regional banks do not hold any stake in Banco BPM. Clotilde L'Angevin: Yes. Indirectly, of course -- no. Our stake is 22.9% and it's CASA. Operator: The next question is from Chris Hallam, Goldman Sachs. Chris Hallam: Just two. The first is a bit of a follow-up to Jacques-Henri's question earlier on capital. Could you just maybe just remind us what you can already see coming on capital through the remaining 9 months of the year? Because if I look over the last 5 years or so, you typically haven't really seen an increase in the CET1 ratio through the second, third, fourth quarter for a variety of reasons, including M&A. But consensus as of today now has a 60 basis point increase from here to year-end. So any steer you could give on that would be super helpful. And then again, it's a bit of a follow-up to an earlier question. So not regarding the 14 basis points on BPM, but just how much capital is the whole BPM stake currently consuming? Or put another way, if you sold it today at the latest price, how much capital would be released? Clotilde L'Angevin: All right. So it's difficult to tell you, Chris, for the capital. I prefer to give you guidance regarding the medium-term plan. For the medium-term plan, we're comfortable with our 11% target and our 150 basis point flexibility to which we take off the 16 basis points that we have today. That's all I can tell you, but I can tell you that we're not worried about capital going forward also because we always know that we can develop also the optimization, the securitizations that we can do in particular with SRTs because, as you know, our SRTs are lower than that of what our peers are doing today. Now for Banco BPM, for Banco BPM, we have a EUR 3 billion stake that we equity accounted at the end of last year. Now we have an increase in that, which we bought at the share price, of course. So you have to add to that the share price impact, but in any case, this capital impact of the equity accounted value plus the impact of the increase in the share price, which represents about EUR 120 million in terms of goodwill. This is something that will generate in terms of equity accounted value. It will generate based upon, of course, the income of Banco BPM, something around EUR 100 million every quarter in terms of P&L impact. Operator: The next question is a follow-up from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: Apologies for following up. Just two quick ones. Firstly, on Leasys equity contribution, I think you said double-digit contribution during the fourth quarter earnings. Today, I heard you say single-digit contribution, if you can clarify? Secondly, on interim dividend, can you confirm if the policy is to pay 50% of the first half net profit in October? Clotilde L'Angevin: All right. Thank you. Yes, for Leasys, what I'm telling you when I'm talking about double-digit contribution is talking about the year contribution for the year 2026. So here, we were just about breakeven in the first quarter. So you can see that that's going to pick up because what I'm confirming is a double-digit contribution to yearly net income. And so yes, for the interim, what we're going to do is we're going to apply a 50% payout ratio on the 15th of October based upon the first half year net income. And so we're really adopting market practice in this respect. Operator: [Operator Instructions] Miss L'Angevin, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Clotilde L'Angevin: All right. Thank you. Thank you very much, everybody. I'm really feeling for you in this very long day. I just wanted to tell you that we have our next meeting for you guys, which is the workshop that we're organizing for LCL, which is on the 26th of May, sorry. Thank you, Cecile. On the 26th of May, so we're going to be very happy to see you at that time. That's our next meeting. And of course, we have the General Assembly just before that on the 20th of May in Saint-Brieuc in Brittany, where we hope there's going to be a lot of sun. So looking forward to see you guys there and have a very relaxing weekend after this long week of earnings calls. Bye-bye, everyone. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's First Quarter 2026 Investor Call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. [Operator Instructions] Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. [Operator Instructions] Page 2 of the slides details the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectation or in the conditions on which any such statement is based. I would now like to turn the call over to Mr. Mike Fries. Michael Fries: All right. Thanks, operator. Hello, everyone. I appreciate you joining the call today. As usual, Charlie and I will handle the prepared remarks and the presentation, and then I have my core leadership team on the call with me and on standby for Q&A as needed. We've got a lot of ground to cover, so I'm just going to jump right in on the first slide, which provides some key takeaways from the quarter. To begin with, we delivered strong operational performance, and we'll go through it all in a moment. But one big headline here, this was our fourth straight quarter of steady broadband improvement across each of our big 3 markets with fixed and mobile ARPUs remaining largely stable. Now Charlie will walk through how this translates into our financial results, but the punchline is, we will be confirming all of our 2026 guidance today. There are lots of reasons for this commercial momentum, including our multi-brand strategies, our network investments, AI implementations around personalization and churn and call centers. And we'll talk about all that a bit today. But really, what we'll do in our second quarter call is do a deeper dive on our AI initiatives. So stay tuned for that. Equally important for this audience is the fact that we are making real progress on the value unlock initiatives announced this past February. The acquisition of Vodafone's 50% stake in our Dutch JV is on track to close this summer, and we see no obstacles to getting that deal done on time. And that, of course, is just one of the main building blocks underlying our strategy to spin off our Benelux assets in the second half of next year. And I'll walk you through each of those building blocks in just a moment as well as the value we could and should create for you all by spinning off the Ziggo Group. Now quickly on Netomnia, that transaction in the U.K. is now officially in the regulatory process. And while the noise from 1 or 2 competitors has escalated recently, we're pretty confident this deal will be approved. It's a very positive development for the U.K. fiber market, which is in desperate need of rationalization, as you all know. And it's a great outcome for VMO2 for all the reasons we reviewed on the last call. And finally, you won't be surprised to hear that we are highly focused on capital allocation at the corporate level. Over the last 2 years, we brought our net corporate costs down by 75%. We talked about that on the last call. And we've articulated what we believe is a clear investment strategy around telecom and growth, and we strengthened our balance sheet. After funding the $1.2 billion needed to close the Vodafone transaction and executing on around $700 million of asset sales from our growth portfolio, we should end the year with around $1.5 billion of corporate cash. And as noted here on the slide, through April, we've generated around $300 million in proceeds. So we're sort of on our way. And then finally, just one quick remark on the broader telecom environment in Europe. As you would know, the sector has performed well in the last 12 months or so. That's driven in part by improved operational performance, reduced CapEx and a general rotation out of software and into industrials. You're all familiar with those trends. I would add to the list what appears to be an improving regulatory climate in Europe when it comes to telecom broadly and more specifically when it comes to consolidation. Now we await the formal release of the EU merger guidelines, for example, but these changes are expected to redefine the rules, and that's going to be a big positive together with an increasing commitment to sovereignty to our sector and the broader telecom industry. So I'm sure you're aware of that, but important to note. Now moving on to the next slide, let me start by saying that there will come a point in time when I don't need to put this chart in the deck. But for now, I think it's helpful to summarize our operating structure, specifically our 3 core pillars of value creation, Liberty Telecom, Liberty Growth and in the center Liberty Global itself and to highlight the strategies we're executing to create and deliver that value. Liberty Growth on the far right houses our portfolio of media, infra and tech investments totaling $3.4 billion today. And here, we're focused on rotating capital, investing in high-growth sectors with scale and tailwinds. We'll try to spotlight a few of those in each quarter. And today, we'll lay out the thesis for the experienced economy. In the center sits Liberty Global itself with $1.9 billion of cash and a team with decades of experience operating and investing in these businesses. And as we reported last quarter, we've restructured our operating model and reduced net corporate costs by 75% since 2024 to around $50 million this year. And these 2 asset pools alone, by the way, our cash and the market value of our growth investments, exceed the current price of our stock by around 30%, which means, of course, that everything in our core Liberty Telecom business on the left, nearly $22 billion of revenue, $8 billion of EBITDA and 4 incredible converged telecom champions are receiving no value at all on our stock. In fact, negative value, if you give us credit for our substantial reduction in corporate costs. Now as we said over and over and over, our primary goal here in Telecom to drive commercial momentum and importantly, to unlock value for shareholders. And that was the impetus behind our Sunrise spin-off, which you all know about and which we believe has worked extremely well for investors. And that's why in the last call, we described the formation of the Ziggo Group, a combination of our Benelux assets in Holland and Belgium and our intention to spin off our interest tax-free to shareholders in the second half of 2027. So where are we on that specific initiative? I referenced earlier the building blocks that form the foundation of our expected value unlock for the Ziggo Group. And you can see the most significant ones outlined on the left-hand side of the next slide. Let me just say that each of these steps, each of these blocks, if you will, are centered around strategic catalysts, free cash flow growth and deleveraging. And they each represent a foundational element of the value creation plan here. This is the primary blueprint we've been executing, of course, with dozens of overlays and work streams, but it should give you greater confidence and awareness of our plans here. Let's start with Belgium. The first step was, of course, separating Telenet from its fixed network, which is now a 2/3, 1/3 JV called Wyre. This restructuring accomplishes or has accomplished 4 key things. First, it isolates a significant fiber CapEx and debt capital needed to upgrade the HFC network in Flanders into an off-balance sheet vehicle. Second, it precipitated a comprehensive network cooperation agreement between Wyre and Telenet on one hand and Proximus and its fiber asset, Fiberklaar on the other hand, which I'm pleased to say was just signed yesterday and will result in a single network ours or theirs in about 75% of Flanders. That's a great, great outcome. Third, it creates a cleaner, more consumer and B2B focused Telenet, ServCo, with a significant free cash flow turnaround story supported by declining mobile CapEx and mostly AI-driven OpEx reductions. And then fourth, it facilitates a reduction in Telenet's leverage from both the rebalancing of debt between Wyre and Telenet and the sale of a portion of our stake in Wyre at a premium, by the way, which will be used to repay debt at Telenet. So really critical steps to getting where we want to be. Moving to the Netherlands. For me, the first strategic catalyst here was bringing in a new management team, one that could set the tone for a return to growth and for winning results in the Dutch market, and Stephen and his team have delivered exactly that. And the second strategic catalyst was, of course, reaching an agreement with Vodafone to buy their 50% stake in our Dutch JV. This deal, as I just said, is scheduled to close in less than 3 months. Now -- not only is that deal accretive from a financial point of view, but it strategically unlocks about EUR 1 billion in synergies we referenced and it provides the structural elements necessary to complete a tax-free spin-off next year. Each of these steps accelerates our commitment to reducing leverage at VodafoneZiggo, which we'll accomplish through asset sales, a return to EBITDA and free cash flow growth and synergies. Now on the top right of this slide, you can see a side-by-side of Sunrise and the combined Ziggo Group. If you look at 2025, the Ziggo Group is bigger. It's about 2 to 2.5x larger in revenue and EBITDA and a bit more profitable. But importantly, you'll see that in 2028, we're estimating free cash flow of around EUR 500 million and leverage of 4.5x, which presents a comparable financial profile to Sunrise when we spun it off in Q4 '24. The chart on the bottom right provides an illustrative bridge to the EUR 500 million of free cash flow, which is estimated to be EUR 120 million this year. And the biggest components of that, as you can see, are the nonrecurring nature of some costs this year in Holland, combined synergies, Telenet's mobile CapEx reduction and organic EBITDA growth. We think the Ziggo Group represents a compelling equity story and it's anchored around 4 selling points. Number one, this is a strong regional business with 2 of Europe's most rational telecom markets that are best-in-class brands. Number two, we have clear network strategies here with declining CapEx as 5G investments subside and fiber costs are moved off balance sheet in Belgium and a cost-efficient DOCSIS 4 rollout in Holland. So declining CapEx and great visibility to the network strategies. Number three, rising free cash flow and declining leverage, and that's supported by organic growth, synergies and EUR 1.2 billion to EUR 1.4 billion of local asset sales I've already described, towers, property, et cetera. And then number four, our commitment to pay dividends from free cash flow as we've done with Sunrise. So we have lots of work to do, but this plan and this path forward is clear for us, and we look forward to updating you each quarter on our progress. Now what does it all add up to? I'm sure many of you are wondering what sort of value creation do we think is achievable here. The chart on the next slide is actually simpler than it looks, but it moves left to right, and it demonstrates how we have and how we intend to create value through this unlocked strategy. Let's start on the far left. The day we announced our intention to spin off Sunrise in February 2024, our stock closed at $18. Of course, 9 months later, we completed the spin-off and using Sunrise's current stock price, we feel we delivered a tax-free dividend that's valued today at $13 per Liberty share. So together with our $12 stock, you get to $25 or about a 40% value appreciation in the last 14 months or so. So far, so good. About 2 months ago, we announced the second step in our value unlock strategy with our intention to consolidate Benelux and spin off the Ziggo Group in the second half of next year. So what might that be worth? And these numbers are illustrative. Lawyers, maybe, say that, of course. But if we -- if you move to the right and the third column, I think you'll see the answer. We believe a publicly listed Ziggo Group, if it were to trade at, let's say, the same implicit valuation of Sunrise today and essentially an 11.5% free cash flow yield could be worth up to $14 per Liberty share based upon the 2028 free cash flow estimate of EUR 500 million that we just discussed. And without debating the point, we believe this could be conservative. As you would know, many of our peers, KPN, Swisscom, Orange, Zegona, they trade at free cash flow yields of 5% to 7%, albeit with different leverage profiles. So let's stick with the 11.5% free cash flow yield. The primary question then is where will Liberty itself trade post spin. Remember, we believe that the entire Liberty Telecom Group has negative value on our stock today. We're around $4 per share despite our announced intentions regarding Ziggo, with our cash and growth assets worth $16 and our stock at $12, that's the only conclusion we can reach. Now to arrive at $14 post the Ziggo Group spin, we simply added our pro forma cash balance after the Vodafone deal and asset sales, together with the value of our remaining growth assets, including our residual stake in Wyre, and we get to $14. By the way, these numbers assume that the market continues to assign no equity value, that's 0 equity value to our remaining telecom businesses in the U.K. and Ireland. Of course, we think there is substantial equity value in these businesses, but we don't need to agree on that to get to these numbers. So to recap, if you follow the light blue boxes, from February '24, the day we announced our plan to spin off Sunrise to today, we created $7 on what was an $18 stock. So that's 40%, and we believe for those who had held on to the Liberty stock and the Sunrise stock, that number gets to 41% with the Ziggo Group spin. If you do the same thing with the dark blue boxes for those who bought their shares after the Sunrise spin-off, we think we can take $12 today to as much as $28 by the second half of next year when we spin the Ziggo Group. Now while there are no sure things in life and plenty to do between now and then, trust me, the building blocks we think are in place, and we feel good about the plans and these estimates here. Now one of the reasons for that good feeling is the progress Stephen and his team have made over the last 5 quarters. This next slide summarizes some of those initiatives and some of the progress beginning early last year when we repositioned broadband pricing, we changed the operating model and rejuvenated our campaigns, even expanded our footprint through the deal with Delta Fiber. As a result of that, we saw steady improvements right away in broadband, where we've been losing over 30,000 subscribers every quarter. Those changes continued into '26 when we rejuvenated the Ziggo brand with a new campaign, The Everything Network, that was supported by our UEFA rights, by the way, which we just extended. We also launched broadband into our no-frills flanker brand, bringing a simple and value-driven connectivity product to that critical segment. And you can see at the bottom right, the broadband net adds have been moving in the right direction for 4 straight quarters. In fact, our first quarter result was the best in 3 years, driven by all the initiatives I just referenced, pricing adjustments, new campaigns, product expansion and network improvements. And by the way, we have the largest reach of 2-gig broadband services in the country. And we just launched field trials with DOCSIS 4 in anticipation of launching 4 and 8 gig products later this year. So operationally, VodafoneZiggo is in great shape and improving, exactly what you want to see as we plan for a public listing next year. Now the next 2 slides summarize Q1 operating performance across our 4 markets. I'm going to do this quickly since the CEOs are on the call and they can provide color if needed. I think the main headline here is that we continue to see good broadband trends pretty much across the board and stable fixed and mobile ARPUs. Starting with VodafoneZiggo, like I just talked about, our broadband performance improved for the fourth consecutive quarter and postpaid mobile net adds also improved sequentially. We continue to invest in our fixed and mobile markets in Holland with both the Vodafone and Ziggo networks receiving outstanding awards in the Umlaut test. With ARPUs of nearly EUR 57 in fixed and EUR 18 in mobile staying steady, this has been a good outcome. Turning to Belgium. Telenet delivered its highest quarterly broadband result in 10 years, driven by successful cross-sell campaigns and strong performance with our BASE, our flanker brand there. Postpaid mobile results remain subdued in Belgium as the market is pretty competitive. And here, too, our base brand is outperforming, while both mobile ARPU at EUR 16 and fixed ARPU at EUR 63 remained largely stable ahead of upcoming price adjustments in Q2. Now turning to the U.K. on the next slide. Despite a market that remains highly competitive, Virgin Media O2 delivered a third straight quarter of broadband improvement with just 6,000 losses compared to 43,000 losses a year ago. And this was supported by strong commercial and retention initiatives and, of course, lower churn. Importantly, and despite pressure on the overall market pricing, here, our fixed ARPU remained relatively stable at GBP 46.50, supported by more and more personalized and AI-driven pricing. And with the Netomnia deal working its way through the regulatory process, we continue our fiber-to-the-home expansion with 8.7 million fiber homes available today. In U.K. mobile, we launched O2 Satellite. You might have seen that making us the first operator in the U.K. to switch on direct-to-device satellite connectivity. In addition, our mobile network transformation is progressing with new RAN upgrade agreements and the transfer of the second tranche of spectrum from Vodafone 3, that's hugely important to us. O2 now has the largest 5G stand-alone footprint in the U.K. Net postpaid losses of 60,000 were materially better than last quarter as churn from the Q4 price adjustment, we've talked about that, subsided, and ARPU of around GBP 17 was broadly stable. In Ireland, lastly, we continue to execute strategically with growth in wholesale and off-net traffic more than compensating for retail pressure on-net. Fixed retail ARPU of EUR 61 remained stable despite no price rise in '25. And importantly, our fiber rollout, this is critical, remains on track to be substantially complete in 2026, with nearly 20% of the retail base now taking a fiber product, and that will also drive free cash flow in 2027 and beyond. Now just one slide on our Liberty Growth portfolio, currently valued at $3.4 billion and centered around 4 key verticals you know: infrastructure and energy, technology and AI, services and, of course, media and sports. Our strategy here has been consistent for some time. We are exiting positions that are no longer strategic and using that capital to both invest in new opportunities as they arise and as needed, provide capital for transactions that will unlock value in our telecom assets. That second point is really important. Historically, we've divested investment positions totaling something like $1.6 billion since 2019, and we've targeted another $700 million in sale proceeds this year, of which, as I said, $300 million is already accounted for. Now a few comments on sports and live events. Of course, we're already invested heavily here through Formula E, but we also believe there are significant structural tailwinds that warrant us evaluating additional opportunities, and we're doing that. And these points are probably well known to all of you, I'm sure, but there's clearly a generational shift from physical goods to experiences, that's live events, sports, travel and entertainment. Many of these markets are fragmented and most are protected from AI disruption. So it's an interesting space. It's also a clear momentum in the sector, right? Just look at sports, global revenue in sports growing well in excess of GDP over the last 10 years and by almost everybody's estimation, poised to increase and accelerate from here. What's our right to play, you might be asking? Well, we know how to consolidate fragmented industries, both in telecom, but also we've been doing that for decades and recently with All3Media before exiting at a premium. We've got strong relationships across these sectors. Really, the deal flow is the easy part. And when you factor in our expertise in things like treasury, operations and technology, it's a pretty strong combination. And we have a good track record in sports, specifically with Formula E, the fastest-growing motorsport globally and one of only 8 global sports leagues, which is a great segue to my last slide. I always get excited when I talk about Formula E, sometimes too excited. But I think this moment is perhaps our biggest yet. Like over the last 10 years, and you've been following this, we have constantly innovated, investing significant energy and time in the car, the technology and the racing. Well, the wait is over. Last week at the [indiscernible] circuit in France, Formula E unleashed the next-generation race car, GEN4, we call it, and the motorsports world is still reverberating. First of all, you have to see it in person. Yes, it is a beast, but it's a beautiful, beautiful race car. The step-up in power and performance is incredible. 600 kilowatts of power represents a 71% increase in base output over the current GEN3 Evo car. The acceleration is insane, 0 to 100 kilometers in 1.8 seconds. That's meaningfully faster than an F1 car and top speed in excess of 335 kilometers an hour, nearly 210 miles per hour. We estimate -- because it's an estimate at this point, that lap times will decrease by 10 seconds on average from the current generation car. That's a lifetime in racing. It's also the first single-seater race car with active all-wheel drive all the time, which will provide incredible acceleration in torque out of the turns. And of course, it meets all of our expectations from a sustainability point of view. It's made from at least 20% recyclable materials. It's 98.5% recyclable itself and allows us to continue claiming that our race-related carbon footprint for the entire championship would fit into F1 team, by the way. Speaking of F1, yes, we might have taken a few shots at them since the GEN4 launch. It might be deserved also, you're obviously aware of the issues they're dealing with currently and that they're going through with the hybrid engine. And it just reinforces our view that going halfway on anything does not make history. And we love the position that we're in technologically, competitively from an entertainment and motorsports point of view. But hey, just don't take my word for it. In the next slide, you can see -- go ahead and scan social media, the motor sports press. There is widespread consensus. I know I'm quoting this GEN4 car is a "monster." It's "ushering" in the most extreme era of electric cars, and it's expected to change perceptions of Formula E forever. Even Max gives it a thumbs up, as you can see on the bottom right. So anyway, super excited about GEN4 car in front of the E. And with that, Charlie, I'll turn it over to you. Charles Bracken: Thanks, Mike. My first slide sets out the Q1 financial results for our Benelux companies. Now as you can see on this slide, we're now presenting Wyre's financial performance for the first time separate to Telenet to give investors clarity on their respective financials before we complete the full separation of the 2 companies and their capital structures later this year. VodafoneZiggo reported a revenue decline of 1.8% in Q1, driven by a lower customer base and ongoing repricing impact. Now this was partially offset by the price indexation and higher revenue from Ziggo Sports and adjusted EBITDA declined 6.4%, driven by higher marketing costs and some incremental investments in network resilience and service reliability, in line with our guidance in March. At Telenet, revenue was broadly stable in Q1, reflecting our strategic decision not to renew Belgium football rights, which was partly offset by a strong broadband performance, which was driven by effective cross-selling into the video customer base. Adjusted EBITDA grew 8.9%, driven by lower content costs following the exit from the football broadcasting rights. And at Wyre, revenue declined by 1%, impacted by the implementation of a new pricing model, which was partially offset by strength in wholesale growth. Adjusted EBITDA declined by 4.6%, and this was driven by an investment in build capability as we start to accelerate Wyre's fiber build-out capability. Turning to the U.K. and Ireland. Virgin Media O2 delivered a total service revenue decline of 3% on a guidance basis. Now this was impacted by competitive pressure in the consumer fixed market and lower B2B revenue as the newly rebranded O2 business rationalizes its product portfolio to support its long-term growth in the mobile segment. This was partially offset by wholesale revenue growth, which was supported by growth in MVNO revenue and adjusted EBITDA declined by 3.4% as a result of the lower total service revenues and a noncash provision for legal matters recorded in the quarter. This was partially offset by cost reduction initiatives. At Virgin Media Ireland, revenues declined by 1.4% in Q1, impacted by intense competition in the consumer fixed and mobile markets as well as a decline in advertising revenues at VMTV. This was partially offset by a strong wholesale performance. Meanwhile, adjusted EBITDA declined by 7.1%, driven by these top line pressures and was also impacted by a one-off benefit in Q1 last year. Turning to the next slide. We remain committed to our disciplined capital allocation model as we rotate capital into higher growth investments and strategic transactions. Starting on the top left, Telenet reported EUR 10 million of free cash flow during the quarter and is expected to deliver at least EUR 20 million of free cash flow for the full year. Additionally, Liberty Corporate delivered adjusted EBITDA of negative $2 million, putting us firmly on track to achieve our full year 2026 guidance of negative $50 million. Turning to the bottom left. CapEx has meaningfully stepped down at Telenet in Q1 on a guidance basis, driven by the 5G upgrade nearing completion at the end of 2025 and lower spend on digital platforms. Capital intensity remains elevated at the other OpCos, reflecting investments in our fixed networks and also 5G upgrades. Moving to the Liberty Growth walk in the top right. The fair market value of our growth portfolio remained broadly stable versus 2025 year-end at $3.4 billion. This was driven by modest investments in AtlasEdge, egg Power, NextFibre and EdgeConneX, offset by the partial disposals of our ITV and some of our EdgeConneX stake as well as a positive fair market value adjustment at EdgeConneX, along with the recent decision to move Liberty Blume out of our Corporate & Services segment and into the growth portfolio. Turning to our cash walk on the bottom right. We ended the quarter with a consolidated cash balance of $1.9 billion. Q1 distributable free cash flow was impacted by high CapEx levels related to the fiber-to-the-home rollouts at Wyre and Virgin Media Ireland. In addition to working capital movements at Telenet, that's worth noting, we continue to anticipate that Wyre will draw on its stand-alone facility following BCA approval, and will fully repay the short-term funding provided by Liberty Global consolidated cash by Telenet. As a reminder, we are aiming to end 2026 with around $1.5 billion of corporate cash despite the expected outflows associated with the incremental Vodafone stake and also, to a lesser extent, the Netomnia acquisition. And finally, turning to our full year guidance targets for 2026. We are reconfirming all guidance metrics of VMO2, VodafoneZiggo and Telenet as well as our guidance for corporate costs. And that concludes our prepared remarks for Q1, and I'd like to hand over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Carl Murdock-Smith with Citigroup. Carl Murdock-Smith: That's great. Two questions, please. Firstly, I wanted to ask on Virgin Media O2 about the wholesale service revenue growth. In the release, you say that, that included GBP 15 million of fixed pre-enablement and installation income. Am I right in saying that, that increase was due to a change in accounting treatment, meaning that it's now recognized as revenue, whereas previously it wasn't? I recognize that it's low margin, but that has provided almost a 1% boost to service revenue overall in Q1. So my question is, did you know about that change in treatment when you issued the guidance in February? Or does it provide potential upside to the revenue guide of 3% to 5% decline, particularly as you come in at the very high end of that range in Q1? And then secondly, I just wondered if you could expand slightly on the O2 satellite news and your kind of level of excitement around that? How much customer interest are you anticipating? And more broadly, just what is your view on the role of satellite in telecoms as a complement or competitor going forward? Michael Fries: [indiscernible] go over to Lutz first, but let me just say that as we look at the satellite space generally, we think, of course, satellite broadband, Starlink broadband has a role to play on the planet. There will be plenty of people who will utilize that broadband service and need that broadband service. We believe the direct device mobile opportunity is far more limited by technology, by market access, but we do like the idea of having a satellite service attached to our mobile network. We think it adds just another level of service and commitment to customers. And of course, the U.K. is the first market to where we have done that. So Lutz, I'll turn it over to you for satellite and then someone -- Charlie, I guess, will answer the wholesale question. Lutz? Lutz Schuler: Yes. Carl, so we are very satisfied with the launch of O2 Satellite, not disclosing numbers. But the fact that we have, at the moment, not the iPhone available, we will have it available in a week from now, and we have already quite high demand is leading us to the assumption that this is really a reliable service, an interesting and attractive service for customers. And also in combination with our improved mobile network, our 5G stand-alone coverage, we are really creating the right perception for customers, which means we have the most reliable mobile network from everybody in terms of coverage and data speed. And so therefore, we are very happy with that. Michael Fries: Charlie, do you want to address the wholesale? Charles Bracken: Just on the wholesale revenue, I mean, I think it was basically in budget, and that is a very difficult business to forecast by its very nature because it's -- but I think it was a pretty strong quarter. Lutz, do you have anything to add on that? Lutz Schuler: I mean I can give some color, right? I mean this -- I think, Carl, you're right. It was not -- we didn't account it the same way before. The reason for that was not to beef up our service revenue. And as you see, right, we are coming currently more at the upper end of the guidance. The reason for that is, that will be a growing and a continuous service revenue stream because we will more and more connect customers either from other networks or from other ISPs. So therefore, when you look at that way, I think that change makes sense. But as you said yourself, right, we are coming in at the upper end of our guidance. And you could drag that number a little bit. It is [indiscernible] of it if you want to accrue for it, but it won't change anything in the guidance. And I mean, we wouldn't change it. It's only one quarter, but so far, we are happy with what we have. Operator: Our next question comes from the line of Polo Tang with UBS. Polo Tang: I have 2. The first one is just on U.K. competitive dynamics for Lutz. So could you maybe talk through how the recent price rises in April have landed because the percentage increase is quite large, and I think it's double digit for most subscribers. So I'm just wondering if there's been any change in terms of churn. Separately, your postpaid mobile losses are continuing. So how optimistic are you that this can stabilize through the year? Second question is just a broader question on use of cash going forward. So you've talked a lot in this -- in the prepared remarks about ventures and the focus on sports and media. I think press reports suggested you were considering buying a European NBA franchise. So are you pivoting the group more towards media and sports? Or is the plan still to break up the group and return cash to shareholders? So any color on that would be great. Michael Fries: Sure. I'll start with that, Polo. They're not mutually exclusive. That's point one. Point two is our primary commitment, and I think it should be clear, but I'll repeat it here, is to create value for shareholders. And we believe, as I've said a few different times, the biggest opportunity to do that is to highlight and find ways to illuminate value in our telecom business. So that is our priority. That is number one. And as I mentioned a moment ago in my remarks, when we look at the use of capital, that factors in squarely to that -- to the strategy. So as I said, we will use capital and rotate capital into growth opportunities should they be presented to us, but also into the telecom business if it helps to unlock value for shareholders. And then I think I went on to say that second one is an important point. So that's the first part of the answer. I'd say, secondly, we are opportunistically looking at and being presented with sources of opportunities. Sorry, somebody has got this -- somebody is ringing. Anyway, with opportunities in the sports space and in the media space generally. And there's a reason why the portfolio was $3.4 billion large because we have been very active as an investor. And maybe it's been quiet, and we don't spend as much time on our earnings calls doing it, but it's arguably the biggest component of our stock price today are the investments that we've assembled strategically and purposely over the last, let's say, 5 to 7 years. And we're divesting ourselves of a huge chunk of those investments and rightly so because we need cash to do the things we've been talking about today. And then we will opportunistically look at new investments if they make sense. But don't get me wrong, we are committed to the unlock strategy, and that is priority #1. Lutz, do you want to talk about competitive nature of U.K.? Lutz Schuler: Yes. Polo, so in mobile, you see in our numbers that we have been shrinking in service revenue around 3% but this is before the price rise. And right, a reason for the net losses in Q1 was the higher price rise we decided for. Now we are seeing this landing very well. We have the first month of the second quarter behind us, Polo. And our explanation for that is that those who didn't want to pay it less and -- before that has materialized. Now we don't see any spike in churn. And obviously, we also have to wait for May, but the findings here are so far so good. On the fixed side, the competitive situation is also unchanged, I would say. So all are very aggressive, as we all know, and also other competitors have to follow. But here, remember, I said at the last call, we have to optimize our prevention machine as we used to do it with the retention machine, which we have done now. So therefore, we are quite proud about the fact that we have almost stabilized -- managed to stabilize our fixed customer base in Q1, and we expect something like that in the future. And yes, it comes at the cost of some ARPU which is 1.6%. But in the scheme of things, that is a balanced approach. And let me finish with -- remind you when we've given the guidance, right, 70%, 80% of the service revenue decline is attributed to our expectation on the fixed consumer service revenue market. And that means that we are planning for a recovery in mobile service revenue, Polo, and we are going to see this as we speak from the price rise in Q2. Operator: Our next question comes from the line of Robert Grindle with Deutsche Bank. Robert Grindle: I see the progress on the long-form agreement with Proximus, but approval for the collaboration is still outstanding. What happens if you're delayed for another 6 to 9 months? Do you progress the build of planned? Or is the project pushed back? And I think Charlie said the Wyre revenues were impacted by a new pricing model. Could the Wyre Telenet ServCo financials change from here? Should there be a change in the wholesale rates associated with any approval? Or will this financial base you've given us now be effectively unchanged? Michael Fries: Thanks, Robert. We've got John Porter on the line, who's worked tirelessly on this Proximus transaction [indiscernible] outstanding result for Telenet and for us. Do you want to speak to the regulatory process from here, John? Unknown Executive: Sure. Well, we've been in lockstep with the Competition Authority and the BIPT over the last 2 years. They are right up to date on every aspect of the transaction between ourselves and Proximus. We have very positive inclination from them and believe that they will expedite the final review of the transaction. There is then a necessary 30-day review at the European Commission. That is not an approval process. It's just a chance for them to reflect on the transaction and see if it has broader implications. So we are cautiously optimistic that we will complete this transaction over the next, say, 6 to 8 weeks. And it's a virtual impossibility that it would go longer than that because I think we'd all down tools. But I think that we are -- the main critical path has been achieved between ourselves and Proximus and everybody is ready to get going. Charles Bracken: And let me just step in on the -- I'll just say, we're separating the 2 companies. There is a little bit of tweaking. For example, there is a bit of movement on the wholesale rate to Telenet, and there's also some management fees that are being reevaluated. So I think we'll get a more stable view on the numbers in Q2, but I would say it's pretty good news for the ServCo. I'd also say on the financing side, just a real shout out to our treasury team, the $4.35 billion of underwritten financing that's clearly in place and we could draw has -- now been fully syndicated, which is a great success, very successfully syndicated, and with the completion of the BCA approval, we'll be drawing that down and indeed paying some of the money that we decided it was more efficient to bridge from our balance sheet rather than draw revolvers to do so. So I think it's all around good news for the eventual Ziggo Group spin because I think the Telenet part of the equation is very much on track for the free cash flow target we set them in 2028. Operator: Our next question comes from the line of Joshua Mills with BNP Paribas. Joshua Mills: Two from my side. One was just going back to Slide 6, where you lay out the strategic plan for the new Ziggo Group. My question is around the leverage. So there's a lot of moving parts there. Can you just remind us what the pro forma leverage position of this business would be today if you put it together? And how much you're expecting to bring in the Wyre stake sale and then the other asset sales to make up the EUR 1.2 billion to EUR 1.4 billion. I just want to understand the assumptions underpinning that, what you're at today and then how you get down to the 4.5x. That would be the first question. And then the second question is just around the Dutch business. We've seen continued improvement in the broadband performance. Can you give a bit more color as to what's driving that on the customer side on perception? Is it people happier with price? Is it, that they have noticed a change in the network quality? Any detail you have would be great. And as a final add-on, your competitors have highlighted potential benefits from the data breach at Odido. I think in the Q1 and probably going into Q2, Q3 net add trends there. How much of an impact have you seen from that on your own business in Q1 and Q2? Michael Fries: Thanks, Joshua. Look, Stephen will prepare answers to the Dutch questions. On the asset sales, the EUR 1.2 billion to EUR 1.4 billion, those consist primarily of towers and technical facilities, et cetera. And we're not really providing a breakdown of those numbers today because we're in active sale process. So we're not going to provide expectations or estimates of what we think that is. But we think that's the range of total combined asset sales, which would be used to pay down debt. Charlie, do you want to address the pro forma leverage? It really depends on what point in time you look for that number and what's happened with the Wyre stake. Do you want to address that, Charlie? Charles Bracken: Yes. I mean it's actually a very complicated question because clearly, the Belgian assets that are going to go into the Ziggo Group do not include because there will be a full separation of the Wyre assets. With the $4.35 billion of underwritten and now syndicated debt, we will therefore be paying down debt at Telenet or Telenet ServCo, but Telenet will be what we'll call it going forward. And it remains because of the investment profile, Ziggo -- but Ziggo is relatively highly elevated. So there's a lot of moving parts in answering that question. I would just reconfirm what Mike said is we're very confident in a path to get down to the -- around 4.5x by 2028. It does depend on some asset sales, but we feel pretty good about those being delivered. And with those asset sales and indeed continuing organic EBITDA growth, particularly in Holland, I think we should be there or thereabouts on target. I'm very happy to take it offline to get some of the detail because there's a lot of moving parts about why... Michael Fries: And it's in the low to mid -- yes, the combined group is going to be in the low to mid-5s. Telenet itself will be in the mid-4s. VodafoneZiggo will be higher, and then we'll start layering in the various deleveraging steps, additional steps as well. So there's a clear path, but perhaps in next call, Joshua, we'll give you a little bit more detail. But that is the general trend. Joshua Mills: That's great. And this isn't assuming any injection of cash from the -- sorry, there's no assumption of... Charles Bracken: [indiscernible] no cash from corporate, but I think it is important to note that we are putting our money where our mouth is. There's no distributions to Liberty Global in terms of equity distributions. We're reinvesting the free cash flow of Holland back in the business this year and indeed in Belgium. So that is a commitment to our bondholders and also to the fact that we are very confident in this growth profile. Do you want to answer the question? Stephen van Rooyen: Yes. And in terms of the operational performance of the broadband business -- yes, can you hear me? Yes. So in terms of the operational performance of the broadband business over the last 12 months, if you follow the story, we've done a number of very clear interventions. The first is -- we got our pricing right for the broadband products that we're selling. We were mispriced in the marketplace. We fixed that a year ago. When we talk about the back book repricing, we're pleased with the progress we've made on that. You haven't seen that in the ARPU. So we've managed that, I think, pretty well. Second thing we've done is we've gotten top of churn. We've been much more proactive in how we manage our customer base, which I think has had an effect on bringing churn down. We're now down 3 points year-on-year. We've invested more in marketing, by repositioning the business. The business was underspending on marketing and was out of sync with how, in my view, connectivity should be sold. We've invested, as you saw, in upgrading the speeds of the network. So you've seen us launch with the only 2 -- we're the only national 2-gigabit service. So we've taken speed as a headwind off the table for us. And then more generally, I think we've done a pretty good job of just tightening how we take the business to market. And you've seen that flow through sequentially each quarter as each of these initiatives have landed. And we have a series of initiatives coming through the rest of 2026, which we anticipate to continue to help us with the momentum behind the story. Unknown Executive: The Odido question, Stephen? Stephen van Rooyen: I'm sorry, I missed the Odido question. Can you repeat that? Michael Fries: The question was, are you seeing any benefit from their cyber attack? Stephen van Rooyen: Yes. It happened late in the quarter. It happened around week 10. So we saw some impact from that, but it's -- we didn't see a lot of it in the quarter. Because of the size of the mobile base -- we felt a bit more of it in the mobile base. But nothing that I think is material in the Q1 results because it only represented a handful of weeks. Joshua Mills: Great. And -- I mean I was more talking about the Q2 results. Obviously, it happened later in the first quarter, but are you seeing any impact so far in Q2? Stephen van Rooyen: No, we're happy with our progress on Q2 so far, but it's quite early. I have to come back to you when we do the Q2 results in a couple of months. Operator: Our next question comes from the line of James Ratzer with New Street Research. James Ratzer: I had 2 really both around Belgium. So in Telenet, you obviously had a very good quarter in terms of broadband net adds. And I'd love you can just give a bit more color behind what's driving that? Is that now growth out of footprint in Wallonia? Is that coming on your kind of BASE brand within Flanders? Or is it something else? I'd be interested to kind of get just a bit more color on the drivers there of broadband subs growth. And then secondly, just going back to the point that was raised earlier about Wyre revenue growth, which was down year-on-year in Q1. Is that a kind of one-off for this quarter, Charlie, you were mentioning around pricing and it goes back to growth in the following quarters. I'd just love to understand a bit more about the kind of dynamics there between kind of P and Q because I've been thinking that with kind of pricing there, we should see Wyre as a top line growth company. Michael Fries: John, do you want to take the Belgium question? Unknown Executive: Yes, I can take it. So on the first -- on the broadband, the BAU has been strong, particularly in the BASE brand, and their growth is about 50-50 between the Telenet footprint and growth in the South. So we are steadily growing and that growth in the South is increasing incrementally. There is a, what will be a year-long enhancement of that growth as we migrate out of DVB-C and into full IP for our video distribution. So we are the last operator in the market to have DVB-C where you don't require Internet to get television, but we are shutting that down over the next year. So we're expecting to see continued strong growth. But as you can see, the last -- the quarter ending '25 and the quarter -- the first quarter of the year, very strong, and those are the main drivers. On the Wyre revenue, there, we implemented a wholesale deal, a new wholesale deal on the HFC, which is making -- essentially structuring the higher speed tiers to be more accessible. The wholesale price is going down a little bit, and that's what you're seeing flowing through. That is -- will be part of the overarching deal done with Proximus, and we'll be able to give you more detail on that down the road. But the drop will not continue to drop, but it is the new HFC wholesale pricing. James Ratzer: So from those new prices, do prices then rise with inflation from this slightly lower level looking into 2027, '28? Unknown Executive: There is an inflationary component to both the fiber wholesale and the HFC wholesale. Operator: Our next question comes from the line of Matthew Harrigan with StoneX. Matthew Harrigan: This is very much a contextual question rather than kind of blocking and tackling valuation anomalies. But you made a quick reference to more benign regulatory environment in your markets. But what's even more interesting on a macro basis is the emphasis on your industrial base and defense. And clearly, telecom is a vital pivot in defense. Is there any possibilities for your telecom business or I guess, particularly your venture portfolio in that end, I'm sure Charlie [indiscernible] to be manufacturing drones, but it still feels like something that could be an interesting tailwind, particularly since you're involved in so many areas of verticals? Michael Fries: Matthew, listen, the whole sovereignty debate, it's no longer a debate. It's a verifiable conviction. It's net positive for us in the telecom space. Now we won't all benefit equally, but every telecom player will benefit from the European Union and the countries within the European Union's focus with their own cybersecurity, their own data protection, their own data centers, their own AI infrastructure. So inevitably, whether it's AtlasEdge or our investments in EdgeConneX on the infrastructure side in our Liberty Growth portfolio, whether it's our OpCos themselves and their ability to provide services and B2B services and connectivity to governments and others, I think it's a net positive for telcos in Europe, which is why I mentioned it along with the loosening regulatory framework, which I think will also be a net positive. We may or may not be part of any of that consolidation, but we know that consolidation itself brings benefits to customers as well as operators and investors. So I think it's a real positive step. In terms of defense itself, we're not -- unlike perhaps some of our peers who are more closely aligned with the government, we are not involved in any specific defense type investment opportunities or infrastructure. But if we were approached, we would certainly consider it if it was consistent with our overall strategy. I don't see us veering off, if you will, into that. But -- does that answer your question, Matt? Matthew Harrigan: Absolutely. Operator: Out next question comes from the line of Ulrich Rathe with Bernstein Societe Generale Group. Ulrich Rathe: Two questions. First one is, Mike, you talked about the improving regulatory climate with regards to consolidation. Other management teams in the sector have flagged mixed signals they perceived to come out of Europe. So could you talk through what specifically you have in mind there, what insights or uses you have to share [indiscernible] more positive assessment? And the second question is on the EUR 1 billion synergies that you talked about in Ziggo. Can you talk about the sort of rough makeup of that in terms of operation and other source of synergies? Michael Fries: On the synergies point, I don't know if we've been specific, so I'm going to pause. But typically, you wouldn't be surprised to learn that it's consisting of 3 or 4 key line items. There's a financial synergy. That's more, I would say, a free cash flow type synergy from -- that we haven't -- well, from taxes essentially, there's operating costs that we think are achievable and we can create more efficiencies around. There's procurement and CapEx type synergies. So it's not going to be -- and when we get closer to legal day 1, we'll clearly provide more detail to you. Right now, we're still in the midst of closing the deal. But there's lots of things we can be doing and will be doing in those 2 operations and within and among them to create those synergies. And if I had to put my team on the spot right now, they'd say that's probably a low number. On the regulatory side, we did just get the EU merger guidelines released, and they are quite positive, at least in comparison to the kind of posture and position that the European Union would take previously when it came to in-market consolidation, right? I mean they're looking at a much more, I guess, moderate and pragmatic approach, and they're seeing that benefits could certainly accrue for mergers versus just always seeing the negative in those mergers. There's always been a structural bias against scale. And now they're seeing -- actually scale could increase investment, could increase innovation. And it's actually spelled out in the document that was released recently. So that to us is when it's in writing, if it's just a speech, I don't give that much credit. But when they put it in writing as they have with these new EU merger guidelines, that is a -- that is a positive step. Now it needs to be put to the test, and there will be plenty of deals that will put it to the test soon, I imagine. But never before have they written down in black and white, the sort of statements that we're reading today in terms of -- which are consistent with the arguments we've been making that consolidation in market is the first step to repair in European telecom space. Operator: Our last question comes from the line of David Wright with Bank of America. David Wright: Yes, last question. So a couple, please, guys. Just on the -- I guess it's for Ziggo, but DOCSIS 4.0, I think you may have said, Mike, that there are some trials ongoing. If we could just get some estimates of maybe the sort of trajectory of commercial launch for 4.0 in Holland. When do you expect the first sort of significant retail launch, et cetera? And is it something that you think you could even price a little as you move into the real sort of mega tiers of speed? And then the second question, maybe a little more conceptual. We're observing a lot of discussion around the kind of InfraCo, ServCo split, and you guys have obviously sort of embraced that. And there's obviously a clear sort of capital allocation justification and the ability to separate the 2 businesses that are quite structurally different. But I just wondered, does having a separate InfraCo make a more agile ServCo in terms of just day-to-day operations? Is the business just more able to respond and sort of change shape in the sort of digital age? It's a little more conceptual. Mike, if you have anything to add on that, I'd appreciate it. Michael Fries: Sure, sure. Stephen jump in here if I get it wrong, but I believe our 4- and 8-gig trials are the latter part of the year, maybe even late Q3, Q4. But what we did was get the field trials underway to demonstrate that it works. It works well, that the technology we're using is really state-of-the-art even in relation to the U.S. operators. But as we get closer to going public in the latter part of this year, then we'll have more information, but it's happening. And we think it's going to be a big positive for the market and for our business for sure. On the ServCo side. Look, I mean, Belgium is the test. What does it do when you end up taking the fixed network, you still own the mobile network, but taking the fixed network and putting it into a separate entity, I think, and John will agree, I'm sure it forces you to be more efficient, more agile and your margins change, all of a sudden, there's a wholesale fee in your P&L that you have to account for. In principle, Telenet will continue to be a very competitive brand and a very competitive B2C company and B2B company. It's -- with respect to its network, its fixed network, it will be renting instead of owning that network. But the relationship that's developed with Wyre is highly integrated, highly -- with mutual benefits, both directions. And so on balance, I think -- and this is the only place we've done it, it really is Belgium. I think on balance, and John can chime in, I think it does create a bit more energy in that ServCo, a bit more focus on margins and competition with a little less to worry about and a slightly better CapEx profile. And that CapEx profile frees up free cash. Telenet will generate significant free cash here shortly as it has, and we'll have to figure out how to reinvest that free cash, whether it's deleveraging or in actually new products and services. But anything more to add to that, John? Unknown Executive: Yes, a bit. I mean the CapEx we are spending, we are now concentrating on customer experience. I mean we pivoted our strategy, obviously, away from network and product differentiation because we have to, into customer experience. And the timing is right because, of course, with a lot of AI initiatives around the company and a new greenfield CRM platform, the focus is well and truly on straight-through digital journeys for our customers, which delivers better experience and a better bottom line. So it's been -- I think I -- certainly, your hypothesis is valid. Michael Fries: Listen, we appreciate everybody joining us on the call. It's been a good -- thanks, David. It's been a good start to the year. I hope you agree, and we're really encouraged by the progress that we're making. And trust me, we are laser-focused on value creation and value unlock, starting, of course, in the Benelux, where we're not only performing well, but the strategic road map. And as I point out, the building blocks are all in place. So we'll keep you abreast and updated on those things, and we'll speak to you soon. Thanks, everybody. Have a great weekend. Operator: Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to Advantage Energy Limited Q1 2026 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, May 1, 2026. And I would like to turn the conference over to Brian Bagnell, Vice President. Please go ahead, sir. Brian Bagnell: Thank you, Sylvie, and welcome, everybody, to today's conference call to discuss Advantage's first quarter 2026 results. Before we begin, I'd like to remind listeners that our remarks today will include forward-looking information and references to specified financial measures. Advisories on these items are contained in our news release, MD&A and annual information form, which are available on our website and on SEDAR. I'll also note that we posted an updated corporate presentation on our website. I'm here today with Mike Belenkie, President and CEO of Advantage; Craig Blackwood, our CFO; and the other members of our executive team. We'll start today by speaking to some of our financial and operational highlights. Once Mike has finished speaking, we'll pass it back to the operator for questions. And as usual, I'd like to ask that if you have any detailed modeling questions that you follow up with us individually after the call. And with that, I'll turn the call over to Mike Belenkie. Michael Belenkie: Thank you, Brian, and thanks, everyone, for joining us today. It's my pleasure to discuss our results for the first quarter of 2026, and the year is off to a great start. Advantage generated adjusted funds flow of $121 million or $0.73 per share. It was a highly active quarter with capital spending of $136 million, which is almost 50% of our full year capital budget just in the 1 quarter. We offset a portion of our spending by selling an unutilized infrastructure asset for $12 million plus assets in kind with an additional $7 million. And this helped us keep debt levels relatively flat at $556 million. Production averaged 81,375 BOEs per day in the quarter, which was a 2% increase from the fourth quarter of 2025. And liquids continue to play an increasingly important role in our business, generating 44% of total sales revenue during the quarter at an average realized price of $84 per barrel. So even in a quarter with weak gas prices and an intensive spending profile, the business continues to generate strong cash flows. We drilled 12 gross wells in Glacier and Valhalla and 13 gross wells were recently brought on production. Our oil-weighted Charlie Lake asset continues to exceed expectations with 5 wells brought on production in the first quarter. We're forecasting the asset will deliver over $120 million of free cash flow this year, reinforcing the benefits of diversification. Meanwhile, our recent wells in Valhalla Montney delivered strong initial rates and well condensate ratios exceeded 185 barrels per million cubic feet, which is in line with the greater Wembley play, though this is early data, and we will be keeping an eye on the decline profiles. Most significantly during the quarter, construction of our new 75 million cubic feet per day progress gas plant reached mechanical completion and commissioning is now underway. The progress gas plant is perfectly located at the intersection of 3 of our liquids-rich plays, the Valhalla Montney, the Progress Montney and the Charlie Lake. Not only will this plant drive the next phase of growth for Advantage and help reduce operating costs, but it's also a realization of a regional development strategy we've been pursuing for the last 15 years. The last pieces of the puzzle have now fallen into place with Glacier, Valhalla, Progress and the overlapping Charlie Lake assets all the way up to Gordondale, now forming one massive contiguous resource block with a network of owned and operated strategic infrastructure. This is a significant milestone for us, and I'd like to take a moment to thank our team for their hard work, finishing this important project on time and on budget. With spending on Progress behind us, we're entering a period of highly efficient capital development with escalating free cash flow. We don't plan to spend any capital on capacity expansions for at least 2 years, with almost all spending aimed at high rate of return wells into existing infrastructure. We have less than $100 million of capital planned in the second half of 2026. This has brought us to an important inflection point in our capital efficiency and free cash flow profile. Beginning in the third quarter of 2026, we expect production to average approximately 90,000 BOEs per day, and it should stay there through to the end of 2027, and beyond and that will deliver production growth in 2027 of about 7% over 2026. Now looking forward, our corporate strategy remains the same to maximize cash flow per share without compromising our balance sheet. This means a laser-like focus on picking the highest rate of return wells with every penny of discretionary capital. Naturally, our liquids plays have superior returns right now with AECO hovering around $1 per GJ and WTI at $100. This is a historical disconnect. At these prices, we expect our forecasted oil and NGL volumes to average approximately CAD 100 per barrel and account for 58% of sales between the second and fourth quarters of 2026. We're reallocating approximately $25 million of capital this year from Glacier gas targets, which at strip would be expected to have payouts of about 1.5 years. to Wembley oil targets, which are expected to have payouts of about 8 months. Our Charlie Lake wells currently have payouts of about 6 months. Although the BOE volumes for oil wells are typically lower than gassy wells. And when I say that, I'm speaking about the IP30s and so on. The impact of our -- the impact of these shifting to oil wells in our 2026 program will be minor on our total production forecast. So there is no need to adjust our 2026 production guidance. Depending on how long oil prices remain strong, we may shift additional capital to liquids drilling later this year. Debt reduction remains a top priority. We expect to achieve our net debt target range of about $400 million to $500 million during the second half of 2026 with cash flows supported by our hedging program and market diversification even if natural gas pricing remains weak. Given our proximity to that target, Advantage is opportunistically allocating a portion of free cash flow to share buybacks through the second quarter and into the summer. That approach is consistent with our long-standing capital allocation framework, especially given our current trading dynamics with Canadian gas producers trading at a significant discount to the greater market and Advantage at a discount within that group. We have hedged approximately 41% of our forecasted natural gas production in 2026 as well as 29% of our production in '27 and 18% in 2028. As a result of our hedging and downstream market diversification, our AECO exposure has now fallen to approximately 18% for the remainder of 2026. We have also hedged approximately 42% of our crude and NGL production this year and 26% in 2027. These steps have been important to reduce the volatility of our cash flows by reducing exposure to localized pricing weakness. As we look a little further into the future, we expect to continue our 5% to 10% annual production growth for the foreseeable future, although this growth is always carefully tuned to suit the commodity price outlook. We have owned and operated gas capacity that exceeds 500 million cubic feet per day plus the midstream service, and this is adequate for us to grow our production to 100,000 BOEs per day without any major infrastructure expansions. Depending on commodity pricing, we could be approaching this 100,000 BOE per day milestone as early as year-end 2028. And as one more thing, we also have an additional 100 million cubic feet per day of capacity ready to be reactivated at Conroy in British Columbia when market conditions are supportive for us to enter the province. I also want to briefly touch on Entropy. Construction of the Glacier CCS Phase 2 project is almost complete and commissioning is expected to begin in the coming months. This project is intended to substantially decarbonize the Glacier facility and drive a positive step change in operating income, which comes from contracted power sales and contractually guaranteed carbon pricing. All funding for the project is being provided by Brookfield and Canada Growth Fund. Overall, our message today is straightforward. The first quarter reflected a business that continues to perform well through the commodity price cycle while approaching a major step change in capital efficiency. We are bringing the Progress gas plant into service, improving our commodity exposure through hedging and market diversification and moving towards a period of strong free cash flow, driving debt reduction and ramping share buybacks. So with that, I'd like to thank our employees, our Board and our shareholders for their continued support. I'll pass it back to Brian for questions. Brian Bagnell: Thank you, Mike. Sylvie, we'll pass it over to you to see if there are any questions from the phone lines. Operator: [Operator Instructions] And currently, sir, it appears we have no questions registered from the phone line. Brian Bagnell: Okay. Thank you, Sylvie, and thank you, everybody, for joining the call today. If you have any questions, please feel free to follow up with us after the call. Thank you very much. Operator: Thank you, sir. Ladies and gentlemen, this does 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. Have yourselves a good weekend.
Operator: Welcome to IRadimed Corporation's First Quarter of 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded today, May 1, 2026, and contains time-sensitive accurate information that is valid only for today. Earlier, IRadimed released its financial results for the first quarter of 2026. A copy of this press release announcing the company's earnings is available under the heading News on their website at iradimed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on Form 8-K and can be found at sec.gov. This call is being broadcast live on the company's website at iradimed.com, and a replay will be available there for the next 90 days. Some of the information in today's session will constitute forward-looking statements with the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements focus on the future performance, results, plans, and events and may include the company's expected future results. IRadimed reminds you that future results may differ materially from these forward-looking statements due to several risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, please see the Risk Factors section of the company's most recent reports filed with the Securities and Exchange Commission, which may be obtained free from the SEC's website at sec.gov. I want to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi? Roger Susi: Thank you, operator, and good morning. Welcome to IRadimed's Q1 2026 earnings Call. Sorry for the late start, we have a microphone problem. We once again have a very positive performance to announce with the first quarter 2026 revenue of $22 million, a 13% increase over the first quarter of 2025. These results reflect solid execution across our product lines with strong revenue contribution from our MRI-compatible IV infusion pump and our MRI patient monitoring, noting that revenue substantially derived from the [indiscernible] 3860 pump system. There also continues to be growing revenue support for our Ferro-magnetic Detection System. Our continued revenue growth, combined with disciplined expense management, including a modified commission structure, drove operating income of $7.2 million, a 33% improvement over the first quarter of 2025, with net income of $5.8 million, or $0.45 per diluted share, a 22% increase over the prior year. Next, I'd like to provide a brief recap of our expectations for the new 3870 MRI IV pump. Recalling that in positioning this new product and its pricing, we had anticipated that the 3870 pump deal typically its ASP would increase by some 10% to 14% over the historical 3860 pump ASP. However, though just beginning, initial quoting and actual orders are showing a lift closer to 20% of 3870 ASP. Additionally, we are seeing that a majority of this new business is for Quad, 4 pump systems rather than simply replacing the older 3860 dual-channel system. Thus, we are seeing both a higher per-pump ASP and a larger group of customers purchasing twice as many pump channels, doubling the number of pump channels at a particular customer site. Though obviously, our sales efforts are in the very early stages, these 2 factors present the most exciting prospect for bookings and revenue as the year progresses. Opportunities for the 3870 Pump system, as previously described, are both increased penetration of greenfield, which are predominantly those facilities that continue to deal with IV fluid delivery in the MRI setting via various old-school workarounds as well as the quite substantial replacement of IRadimed's aged installed base of 3860 pump systems, the most immediate and significant increase coming from the large replacement opportunity. This replacement opportunity will be our key growth driver for the next several years; as that growth, as mentioned, has now begun to be the driving factor in this second quarter. To provide some clarity to the revenue expectations in Q2 and beyond, it will not be a step-change, but rather a controlled ramp, which is initially controlled -- composed of declining revenue derived from the older 3860 pump system, domestic orders, which have trailed off as expected, offset positively by increasing revenue from the new 3870 system as we ramp up its production. Jim, our CFO, will provide our Q2 guidance for further quantifying how Q2 is expected to develop. To reiterate the source of the 3870 opportunity as given in our previous call, for the U.S. market, there are approximately 6,400 5-plus year old or older 3860, 3861 pump channels up for replacement. We have been selling approximately 1,100 such 3860 channels annually. With the new 3870, we are targeting adding another 1,000 channels per year to replacement sales from the existing 6,400 3860 units that are over 5 years old. As advertised, this starts in Q2 and continues through the rest of 2026 and beyond. It is also important to understand that replacing only 1,000 channels per year leaves many more to be replaced in the years to come. For our domestic business only, selling north of 2,000 3870 pump channels annually with the higher ASP currently being experienced, we expect to approach a $50 million annual revenue run rate for pumps. Adding disposables, maintenance, international sales, the MRI monitoring business, Ferro-magnetic System, one can understand our confidence in achieving $100 million-plus revenue run rate as 2026 progresses. Timing has been discussed previously as well. But to recap that, we did not launch our sales effort for 3870 until late January. As advised, we targeted shipping 130 to 135 3870s in Q2. Both the launch and the manufacture of those initial 130, 135 3870s are progressing as planned. As we issued in this morning's Press Release, the interest in the new 3870 has been very gratifying. The number of orders and the dollar size are well ahead of our expectations this early in the product-launch, giving us great encouragement. Still, however, Q2 Revenue will not fully reflect this high level of exciting order activity, as shipping even 135 new 3870 systems, combined with the declining revenue of older 3860s, keeps Q2 Revenue somewhat in check. Again, it will be the back half of 2026 that will shine as we continue to book more pumps at higher ASP and fixing production of this 3870 system. I'll turn the call over to Jack Glenn, our CFO, to review the quarter's financial results and provide deeper color on growth through the balance of the year. Jack? John Glenn: Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a GAAP basis and a non-GAAP basis. You can find a description of our non-GAAP measures in this morning's earnings release and a reconciliation to GAAP on the last page. For the 3 months ended March 31, 2026, revenue was $22 million, up 13% from $19.5 million in the first quarter of 2025. IV infusion pump systems contributed $7.7 million, up 28% year-over-year, reflecting the fulfillment of 3860 pump backlog from the beginning of the year. Patient vital signs monitoring systems contributed $7.1 million, up 9% year-over-year. Disposable revenue was $4.9 million, consistent with the prior-year period, while Ferro-magnetic Detection System contributed $600,000. Domestic sales accounted for 82% of total revenue, consistent with the first quarter of 2025. Gross Profit for the quarter was $16.8 million with a Gross Margin of 77%, up from 76% in the first quarter of 2025. Total Operating Expenses for the quarter were $9.6 million, roughly in line with the first quarter of 2025. General and Administrative expenses were $4.6 million, Sales and Marketing were $4.1 million and Research and Development were $1.1 million. The increase in R&D was largely due to the end of capitalized internally-developed software for the 3870 compared with Q1 of 2025, as well as new product development for the next-generation monitor. Income from Operations for the quarter was $7.2 million. Net income was $5.8 million or $0.45 per diluted share on a GAAP basis, a 22% increase over the prior year period. Non-GAAP net income was $6.4 million, or $0.49 per diluted share, up 17%. The effective tax rate for the quarter was approximately 25%. The increase in the effective tax rate for the quarter was largely due to the timing of deductions tied to the windfall deduction for equity grants, which is a discrete item taken at the time of vesting of the equity grant, most of which will occur in the fourth quarter of this year. Therefore, we anticipate that the rate will trend down and, by the end of the year, be more in line with previous years. We ended the quarter with cash and cash equivalents of $56.4 million. Cash flow from operations was $8.3 million for the quarter, compared to $4.3 million in the first quarter of 2025, an increase of 93%, reflecting higher net income and favorable working capital movements. Non-GAAP free cash flow was $7.8 million for the quarter after capital expenditures of approximately $500,000. Also today, the company's Board of Directors declared a regular quarterly cash dividend of $0.20 per share of outstanding common stock payable on May 29, 2026, to stockholders of record as of the close of business on May 15, 2026. And lastly, for our financial guidance, for the second quarter of 2026, we expect Revenue of $20 million to $21 million, GAAP diluted earnings per share of $0.40 to $0.44, and non-GAAP diluted earnings per share of $0.44 to $0.48. For the full year 2026, we reaffirm our guidance with a Revenue of $91 million to $96 million, GAAP diluted earnings per share of $1.90 to $2.05, and non-GAAP diluted earnings per share of $2.06 to $2.21. The company expects stock-based compensation expense, net of tax, to be approximately $2.4 million for the full year and $600,000 for the second quarter of 2026. With that, I will turn the call over to questions. Operator? Operator: [Operator Instructions] Our first question comes from Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Congrats on all the solid progress. I was hoping to start with a follow-up on, Roger, your comments related to Quad system ordering. How do you -- maybe break that down a little bit why you think folks are going from a single dual-channel to ordering 4 individual channels? And then my assumption is you can't assume everybody goes to ordering 4 channels, but is there something specific to call out with some of these early customers that would be more likely to order 4 systems? Or is it fair to assume that a lot of your customers reordering could fall into this camp of ordering 4 systems at once? Roger Susi: Yes. Good question, Frank. welcome. Yes, that's a good question. So it's a bit of a surprise that so -- more than half of these orders we've taken so far have been for this Quad systems. So that's a bit surprising. We were hoping for maybe 10%, 15% customers, we could step up to this doubling the number of channels they operate. So why? -- your question I get is why is that happening? So I have to say that I got to give the sales force a little credit for this by and large. They are close to the customers, and they felt that with the new system, the way it works and the way the impression convene customers, it's smaller than the old pump. And the way they actually Stak together on a poll, they really work together as 4 very easily. And so we're showing it that way. And we show -- we walk in and we're showing the Quad Stak. And when customers see it, though they, of course, hadn't been thinking in terms of that before because they only had a 2-channel version before. It does seem that it's fairly quick that, as I said, more than half these existing customers fairly quickly see that, oh, wow, we've had some cases come up over the years that we've been using the older IRadimed pump where, yes, we need the third and fourth channel handy. And this stimulates this conversation to make customers think of those situations where they could see that they needed that many channels. And they put the budget through. And another very positive sign has been these orders get -- we only started selling this thing in late January, as I pointed out. So orders that we're getting in at this point have been rather quick, quicker than the typical cycle time for getting orders so far. So it's all very positive. But I think that's generally the reason if you picked it up that customers do have experience where extra channels were required in the past, and they're going ahead and taking advantage of buying Quad Stak. Frank Takkinen: That's great. And then maybe just one follow-up on that. Is there a financial element to it as well? Are they getting a better per pump deal if they're buying 4 at a time? Roger Susi: No, that pump ASP is, as I said, it was higher. And the list price of the previous pump was $20,000. So let's recapture that, right? So the list price of the previous pump is $20,000. You can buy the second channel for about another $10,000. As we've told many times, our typical ASP pump deal is just under $40,000 by the time you get the pump and the sidecar, the pole, and the remote and all that. That's where it was landing. So the Quad systems we've been selling, again, Quad Stak of the 3870s, again, the IV pole, the remote control, each coming in at more than $100,000, so it's very exciting. Frank Takkinen: Wow, that's great. Maybe a bigger-picture question, the concept that you laid out from going from around 1,000, I think you said 1,100 pumps a year to adding another incremental 1,000 on top of that. What are the drivers to that? I assume this concept we just talked about, the Quad pump ordering is a significant driver, too, but is there an assumption of greenfield capture in that number as well? Or is it really just a replacement? Roger Susi: No. When I was speaking about that earlier in the call, I'm just talking taking 1,000 out of the installed-base where the old pumps are. Greenfield will be extra. And frankly, maybe I'll make it more clear. But frankly, the excitement level and the customers -- existing customers calling us wanting to see the new pump is kind of a frenzy right now. I don't see that we're going to have time to start calling on the greenfield for a while. So that doesn't have any upside from greenfield factored in at this point. Frank Takkinen: And then just last one for me, and I appreciate all the time on manufacturing. How are you feeling from that standpoint? I think in our previous conversations, you felt really good about that. But as you're taking orders now and scaling that, how is all that going? Roger Susi: Well, sales team wants us to ramp it up a lot faster, but we're trying to take it a bit cautiously and ramp it up here, that's what we're talking about 130, 135 pumps for this quarter. The sales team would like us to ship over 200, but we just can't do it. We're going to stay at that level. We're going to get them right. And then third quarter, we'll plan to double that up again over -- in the next quarter, maybe a little bit more in third quarter and so on in the fourth quarter, where we should be by fourth quarter, we're pretty heavy stride on the number of these new pumps we're kicking out here. And of course, having this new facility, we have the space and it's a matter of ramping up the know-how and stabilizing the supply chain. And so that's why we're being a little conservative on the ramp. Operator: [Operator Instructions] I'm showing no further questions at this time. I'd like to turn the call back over to Roger Susi for closing remarks. Roger Susi: Well, thank you all once again for joining us on today's call. I'd like to add as we close the call today, that the market is very excited about the new 3870 pump system, and we are being invited into customer facilities to show the device at a very high rate and Sales Team is rather inundated. Further, we have had bookings with greater-than-expected ASP, as well as the majority of those orders thus far are for double the number of pump channels. It's clear to us that the 3870 is having a great acceptance, generates great excitement, and motivates very positive and rather quick customer response. We're quite pleased. And with that, we look forward to demonstrating IRadimed success as we further execute the launch of this exciting 3870 MRI IV pump system and capitalize on the huge replacement opportunity throughout 2026 and beyond. Thank you. Operator: Thank you. This concludes the call. You may now disconnect.
Operator: Good morning, and welcome to the Novacyt Full Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Lyn Rees. Good morning to you. Lyn Rees: Good morning, Alex, and thank you. And good morning to all of our investors as well. I understand there's potentially up to 150 people joining us online this morning. So as ever, we thank you for your time and your commitment this morning. I'm joined today by Steve Gibson, our CFO. So between myself and Steve, we'll be going through the results presentation. And this represents, pretty much, our second year anniversary as the CEO and CFO of this organization. So really looking forward to updating on what I think has been some really solid progress over the last 12 months for this business. I'm just going to start with a quick introduction slide of what we do. I mean, what we do, sorry. Obviously, a lot of people will realize that we're an international molecular diagnostics company with a portfolio of clinical assays. That's the Yourgene Health side of the diagram. We have a series of research tools and instrumentation that are done on a research use-only basis. That's the Primer Design side of this diagram. And then in the middle there, you'll see a brand-new part of our business, the distributor part of our business as a result of the acquisition of Southern Cross Diagnostics. And we'll be talking a little bit about that as we go through this deck, okay? So the business is fundamentally still, as per the last presentation, located in Manchester. That's our headquarters in Manchester. We obviously added Sydney, Australia to our list of international territories now. And we currently sit about 230 people within our organization. So in terms of the first sort of main slide I really want to talk through, this is a sort of operational and post-period highlights. I'm going to start on the bottom right-hand corner. About a couple of months ago, we launched our strategic plan. We had a lot of feedback that the market didn't really understand where we were going coming out of COVID. Obviously, the merger of a clinical business and a research use-only business. So we launched our strategic plan. Steve and I sat down and shared the investment thesis, which is fundamentally putting some more money into R&D so we can get new product launches and more content for our customer, keeping an eye on the cost of the business, streamlining the group from an operational and a cost perspective and delivering market expectations. They were the 3 sort of key areas that we said we wanted to commit to as a leadership team. And I think then if you look at the remaining boxes on this page, let's start with that strategic investment in R&D. Well, what did we launch last year? We launched a brand-new LightBench Discover. And as Steve will talk through in the figures a bit later on, that drove a 20% plus growth in the instrumentation side of our business. We received IVDR accreditation for our Yourgene QST*R-based assay. And probably worth just taking a bit of time to talk about IVDR. I'm kind of trying to be raising its profile over the last couple of sessions that we've done with our shareholder base. IVDR is critical to be able to sell products long term into this marketplace. It's a very high regulatory barrier. It takes a lot of investment, a lot of time, a lot of expertise. We're very, very well positioned on this IVDR journey. We've been ahead of that curve for some time. We've got a fantastic regs and quality team, and we continue to have our products approved. And whilst it doesn't make huge news when those approvals are given, when the market changes, you have to have IVDR approval in order to be able to sell products. I genuinely believe that this regulatory advantage that we have will mean that there are less people in the market selling products because the non-regulated products will simply not be able to be purchased, and we're in this really strong position. So I think the fact that we're launching new products or have launched new products, the fact that we are getting continued IVDR accreditation for those products creates a really strong foundation for this business. And in addition to the products that we launched last year, obviously, we're very much looking forward to the launch of our new DPYD assay, which is currently scheduled to be launched live into the market at some point in May. So ticking the box for the first strategic investment that we delivered the product portfolio. We put an extra couple of million into R&D, and that's starting to reap rewards with the product category growth that Steve is going to talk through a little bit later on. Looking at the core business, our NIPT business, this is the clinical part of our business. Our clinical products, in total, equate to about 70% of the sales of the group. So we were delighted to win the St. George University Hospital tender for the NHS, which basically does all of the south of the country's NIPT tests. We picked up that contract for another couple of years. We've won the tender in Iceland for NIPT, and I've just been over there installing new systems and processes and training of teams for the Icelandic market to deliver NIPT solutions to the marketplace. And midway through last year, the Thailand government, the Thai government reimbursed NIPT, so it made it available for every mom and dad-to-be in the Thai region. And we've been busy installing our services and processes into 4 key labs in region, working with a new distributor, and we feel we captured about 40% of the market share in that part of the world. So as reimbursement continues to happen for our NIPT products and services, you can see that we are winning back existing contracts that we had, and we're winning new business, which has delivered another double-digit year of growth for our NIPT franchise within our organization. So new products are being launched, existing products are being sold more. And then the final growth pillar was looking at inorganic growth. And you'll have seen, obviously, that we've acquired Southern Cross Diagnostics, which was immediately earnings accretive. Steve is going to talk through a rather complicated preferential subscription rights issue that we had to do in order to complete the transaction. But hopefully, the summary here is over the last 2 years, myself and Steve, alongside our executive leadership team, our Board and the 230 people that work in our organization have made real strides into giving the business a strong foundation of existing product, approved product to be sold continuously in the market with no gaps, new product coming through, and we've accelerated that plan by doing a bit of M&A work on top as well. So we're really pleased, and we're really encouraged with the foundation that we've built for this business in the last couple of years. I know we sent out a video recently on Southern Cross, but for those that weren't able to catch that, just a bit of an understanding on who Southern Cross are and why we acquired them. They're a relatively small organization, just 11 people with 1 founder director, but those 11 people generate north of GBP 6 million worth of revenue, a revenue line that has been growing and tripled since 2023. The business was established in '28, and gross profit is continually increasing. And the founder, Nick, who I've known for, gosh, a long time in this industry, probably over 15 years or more. Nick decided to invest some of the money that we paid for the business and is now a shareholder in Yourgene -- sorry, Novacyt, and has committed to the business long term. And we're looking forward to working with Nick to leverage and sweat his database of opportunities, customers, products and businesses in the region so we can continue to see growth in what is already a fast-growing part of our business. The clinical market in Australia is growing. It's valued at about $1.4 billion at the moment. And it's expected to grow and pretty much more or less double in size because the Australian government is reimbursing a lot of diagnostic tests, understanding the importance of getting a quick diagnosis always leads to better or more efficacious treatment. And the Australian government is one of the most forward thinking from that perspective. So we see a lot of growth in this market. We were seeing growth via our distributor, SCD, for sales of our cystic fibrosis. DPYD has just been reimbursed in the Australian diagnostic market, so we have a new product launch coming up. So it made sense to get a little bit closer to that customer base where we can have conversations with the key opinion leaders. And the people are shaping the way that diagnostics is done in that region, as well as being able to get -- capture a larger share of the margin associated with those sales, which naturally accelerates the pathway to EBITDA profitability for the Novacyt groups. So when we looked at this acquisition, it was a fast-growing market. We had great people that we've known for a long time. The business was winning more and more business through delivery and reputation. It aligned with our plans for geographic expansion and the increase in international sales. It gave us access to key accounts, not just from a commercial perspective, but also the key opinion leaders that sit within those accounts. And it was an inorganic step change in terms of increasing our revenue and profitability. In addition to that, Nick and his team take a wide range of products from diagnostics, infectious disease, serology into Australia and New Zealand. And Nick is visiting and spending a bit of time in the U.K. over the next couple of weeks so that we can meet with some of the owners of these third-party products and hopefully discuss opportunities for wider distribution and give us a chance to grow our sales and grow the number of products that we take to market. So when we look at all of those things, the acquisition made perfect sense, and I'm delighted that we were able to complete it. But it was a process that was -- that came with a bit of challenges. So I'm going to hand over to Steve now, who will explain just how we did the acquisition and what it's meant to our business. Over to you, Steve. Steve Gibson: Brilliant. Thanks, Lyn. Good morning, everyone. Hope you're well. So if I just talk you through the consideration structure. So we acquired Southern Cross for around $8.5 million, that was an upfront cash payment. And then on top of that, there's the ability for them to earn an earn-out of around AUD 16.5 million over a 4-year period, and that's dependent on hitting certain EBITDA targets. And to put it into context, for the full deferred consideration to be paid, they will have to deliver an EBITDA of over AUD 30 million cumulatively over those 4 years. So we think it's a win-win situation. Now straight after the acquisition of Southern Cross, we launched this preferential subscription rights process. And we did that because it was the only option we had following the AGM last year in terms of raising capital. So we launched this process. We issued just under 2 million new shares. And I would just like to take this opportunity to thank shareholders who participated in that process because we were oversubscribed. So thank you for that. At the end of it, over 50% of the newly issued shares were given to the prior owner of Southern Cross, and we'll use that cash to strengthen our balance sheet going forward. So we're going to turn to look at how we've done in 2025. So I have a number of slides to run through. So I think we were really pleased as a business that the 2025 results exceeded all market expectations. So revenue totaled GBP 20 million. However, when you strip out the impact of the Taiwanese divestment, that meant that revenue grew year-on-year by about GBP 800,000 or 4%. In addition to that, we've seen half year-on-year growth since the end of 2024, so a pleasing set of revenue figures. From a gross profit perspective, that ticked up to GBP 12.6 million when you strip out the impact that the DHSC settlement had on the 2024 numbers. And from a gross margin perspective, it remains strong, and we delivered a 63% gross margin. And that was helped by sales of our PCR range of products. And in particular, our Primer Design business continued to deliver a gross margin of over 80%. Our costs continue to track downwards, and we reduced our OpEx from a pro forma of GBP 27.5 million when we combine Yourgene and Novacyt down to around GBP 20.4 million this year. And that's against the backdrop of continued investment in R&D, and I'll talk about that more in detail later. So all of that accumulated in the EBITDA loss reducing by around 14%, down to a GBP 7.8 million loss. Now if we move on to look at revenue from a segment perspective, then the product mix year-on-year remains fairly consistent. So our Clinical business delivered around 70% of our total revenue or just under GBP 14 million. And as Lyn mentioned earlier, NIPT technologies is up around 10%, and that delivered around GBP 5 million of new revenue. And that was predominantly driven by winning a new customer in Asia Pac. The RUO business, that delivered around 1/5 of our total revenue at GBP 4 million, and that remains our cash cow of the business. And Instrumentation grew by around 25% to GBP 2.5 million, and that was driven by the successful launch of our new product, the LightBench Discover instrument. Now if we have a look at revenue also from a geographic perspective, we remain well balanced and have a diversified income stream. And we're not reliant on any one region, which is really important in the current geopolitical situation that we're in. So our largest region continues to be Europe, and that delivered around 50% of our total revenue or just over GBP 10 million. Now if we look at it in a little bit more detail, the U.K. and Ireland region, which is where we've got the most boots on the ground, delivered around GBP 4.2 million of revenue. Asia Pac is growing like a weed. It's grown at double digits and delivered around 30% of our total revenue or just under GBP 6 million. And again, we continue to see strong demand for our reproductive health range of products in that region. What we are seeing in some of the countries out there that they are price sensitive, so it will put pressure on our gross margin percentage going forward. Now if we look at the income statement and we move down to operating costs, what you'll see is that they decreased. OpEx has, down to GBP 20.4 million from GBP 41 million in the prior year. Now last year's costs were inflated by around GBP 20 million because of the bad debt provision that we booked. So if we strip that out and we're comparing apples with apples, it means that our underlying OpEx costs have decreased by about GBP 700,000 or 4%. Now that's against the backdrop of increase in our R&D expenditure on a net basis by around GBP 1.3 million, and that took our overall R&D P&L cost to just over GBP 4 million. But we were able to offset that expenditure due to the successful site consolidation program of work that we've done that's reduced our footprint and has also reduced the cost base of our business. So from an EBITDA perspective, as I mentioned earlier, we made a loss of GBP 7.8 million. But on top of that, we incurred exceptional costs that totaled just under GBP 16 million. Now the majority of this was not cash impacting. So around GBP 14.5 million of it related to impairment charge covering the goodwill and intangible assets associated with the Yourgene Health acquisition. So the actual cash impacted items and the exceptional charges totaled just under GBP 1.5 million, and that included site closure costs and M&A-related fees. So this meant overall, the group reported a loss after tax attributable to the owners of GBP 22.9 million, which is significantly down on the prior year's loss of GBP 42 million. So we've made good progress. If we move on to the balance sheet, there's a couple of areas that have decreased and have moved year-on-year. So the first one is noncurrent assets, you will see at the top has decreased by around GBP 19 million. Now the bulk of that is what I mentioned earlier. So GBP 14.4 million of it relates to the impairment charge. And then the remainder is the usual amortization and depreciation charges that we see. And the other big move is cash. You'll see that cash has decreased by around GBP 11 million, and we'll go on to look at that on the next slide in a little bit more detail. So we closed 2025 with GBP 19 million in the bank, so an GBP 11 million outflow. Now the main cash outflows were driven by core operations consuming around GBP 8 million of cash during the period. Now on top of that cash outflow, there were some onetime items. Clearly, there were costs around the site consolidation program of work, and they totaled around GBP 1.3 million. And then we had some M&A-related costs that cost a couple of hundred thousand. So if we strip out those onetime entries, it meant our cash burn per month in 2025 was around GBP 825,000. Now I just want to touch on the closing cash position at the end of March 2026. So we announced in the RNS today that we had GBP 11 million in the bank at the end of last month. So that means it was a Q1 cash outflow of around GBP 8 million. Now GBP 5 million of that related to the acquisition of Southern Cross and covered the initial consideration, plus the working capital adjustment, plus fees, plus fees associated with the preferential subscription rights, offset with cash that came in from the successful PSR process. On top of that, there was around GBP 0.5 million of non-repeating items as well. So that's a quick run through of the financials, and I'll hand back to Lyn now. Lyn Rees: Thank you, Steve. So just looking to summarize this and put some of this together. So where are we today? I think we're making strong, strategic progress. We just talked through the acquisition of Southern Cross, which gives us immediate earnings and revenue and strengthens market reach and access to third-party products. It's only been a couple of weeks now since we acquired this business. I think it was done on March 2. And I just spent the last 2 weeks in Australia with the team, making sure that they feel comfortable, they feel confident as part of the new group. They hit their first target. The first month of sales was the March month of sales. So I was delighted to see them hit that over the line. They've got an exciting pipeline of potential new products to take into region. We've got a team that feels very comfortable being part of a wider group, a team that we've known for some time. So I think that acquisition accelerates our pathway to profitability and has allowed us to use our balance sheet to support our growth. And it was great to see some of the shareholders supporting that process through the PSR, and I really thank everyone for contributing to that. So I think we've delivered what will be a very successful acquisition for this business, and that's going to bring growth to our organization. From an organic perspective, our key products have hit those key milestones. I took a bit of time out to talk about the importance of IVDR and the importance of reimbursement. I was asked the question a couple of weeks ago, do we think the products will be provided to the market? Are they clinician-backed products? Well, they kind of are because the governments in the various territories where we sell these products have decided to reimburse this testing. So they must see a clear value in it. And we often work with key opinion leaders. So to launch these products, to see the growth that we -- continued growth in NIPT of double digit, to see the 20% growth that we saw in the range of technology shows to me that we made the right decision to invest a bit more in R&D as we look to drive the content within our organization. That portfolio expansion will continue. We are on the precipice of launching our DPYD assay. This is an assay that unfortunately, patients who are Stage 3 or 4 in cancer and are having a capecitabine or a 5-FU chemotherapy treatment. This is a test that every one of those patients will have before that treatment because if they don't, you can lose up to 1 patient in every 100 that are tested for this. Now our original DPYD product we launched 4 or 5 years ago have been taken a little bit by the market. More targets were added into the competitors, so we lost a bit of market share. We're just about to launch a brand-new product that has a full suite of targets in there. It's been developed alongside some pretty hefty key opinion leaders in the market globally, and we're looking forward to driving that out. And whilst that's really good news, I think we're launching the RUO version in May, and the regulated IVDR version will probably be out June, July. And we have hit a snag with the SMA product that we were also working on. Now that was an OEM product that we were bringing in from a third party. And that went through the regulatory journey. There were a couple of questions that we were unable to answer. So we've gone back to investigative mode on that and deciding whether we continue to look for a third-party product or we just develop it ourselves. One will be quicker, one will be more profitable. So we're just having that discussion at the moment. But we continue to invest in our portfolio. I expect us to have more range of technology available either at the end of this year or very early 2027. As I said, we've got the DPYD product coming out in the next couple of weeks. And we will continue to look for opportunities to partner with our customers, with our partners and bring out more content into this space. In terms of the business itself and its cash position, I still think we have a well-funded and a strong balance sheet. We are now delivering sustained growth. I think we've had 4 consecutive half year periods of growth over the last 2 years. For the first time, we put market expectations out there. We overachieved them, albeit slightly, but still a tick in a box to overachieve those expectations. And I think that gives us a real solid foundation of growth for this business. Steve and I have pretty much spent the last 2 years working hard with our leadership team and our Board and in general, all the people in our organization to create a real solid base, to create an identity for the business, to create a strategy for the business. During that period, we were quite quiet. And in the last couple of months, we're opening up our communication, and you will be seeing more of us over the coming months. We're going to attend some retail investor shows, and we are committed to give you more updates, especially as we launch our new technology and we bed in this new acquisition. But I think that reduced cost base for the group, in Steve's presentation, all the arrows are going in the right way. That will be a continued focus for us. That's probably one of the challenges is deciding when to stop investing in the new products and to claw back the cost. But I think we're probably at a point where we can look to do that as an organization, continue to manage cash as if it's our own because we understand the importance of it in the market and just create a strong foundation for the business. So it's a delight and an honor to be here in front of you today to say, look, we hit our numbers. We met expectations. We launched product when we said we'd launch product. We won the new business that we said we would, okay. The growth is at 4%. We're targeting double-digit growth for 2026 and beyond. And after the first quarter's performance, we certainly hit that number after Q1. So we really appreciate your time. We really appreciate your patience as investors and shareholders in our business. For those non-shareholders that are on this call today, hopefully, you've seen enough to convince you that we're worth your time and energy and investment. And for those existing shareholders, as I say, thank you very much for your continued support. We're doing all we can to make this business successful long term, and we believe the work that we've done over the last 2 years really builds that foundation. We've got products that we can sell all over the world because they are very highly regulated. We've got new products coming out which will continue to excite and delight our customers. We're investing and growing our commercial footprint organically and inorganically. And we look forward to updating you on the progress throughout this year as we go through the journey. So thank you, everyone, for your time today. Operator: Thanks, Lyn and Steve, for your presentation. [Operator Instructions] I would like to remind you that a recording of this presentation, along with a copy of the slides, can be accessed via our investor dashboard. And Lyn, Steve, if I may now hand back to you to take us through the Q&A session, and I'll pick up from you both at the end. Thank you. Lyn Rees: Yes. Thank you very much, Alex. Okay. We received a number of pre-submitted questions. So if you could bear with me as I read these through and between myself and Steve, we'll answer them. I'm not going to try and read out the French version. So for any French shareholders on the call, I do apologize. I think we're having some translation added when this video goes out into the market. Steve, can you comment on the auditor's opinion and indicate whether there are any emphasis of matter or material uncertainties, going concerns in the audit report? Steve Gibson: Yes, certainly. So there were no material uncertainties that were flagged, and we wouldn't expect that in terms of the going concern because we have adequate funds for the next 12 months, which it looks forward to the end of April 2027. And then in terms of the emphasis of matter, in the group accounts, there is no emphasis of matter. But in the French social accounts, so the local Novacyt accounts under French GAAP, they have flagged an emphasis of matter. But that's just to bring to the readers' attention that we've adopted the new French chartered account. So it's more of a disclosure saying we changed the look and feel of accounts, but nothing to worry about. Lyn Rees: Thank you, Steve. And staying on a financial note, what is the cash position and the cash runway after the capital increase? How are the raised funds being used, and what portion remains available for operations and growth? Looking to understand the impact of the capital increase on liquidity and the capacity to execute strategic plans is crucial for assessing the shareholders' financial risk. Steve Gibson: Okay. Thank you for that. So I think I covered some of that in the presentation deck. But at the end of March, we have GBP 11 million in the bank. I think Lyn alluded to it or mentioned it earlier that, again, as a business, we think we have enough cash to reach EBITDA profitability as long as we hit our forward forecast. In terms of the PSR process, why do we do it. So we did it to allow existing shareholders to participate in the capital raise post the acquisition of Southern Cross and also to bring in new shareholders. So cash has been well managed. As Lyn said, we're treating it as our own. In terms of liquidity, we have a high retail shareholder base, so as you would expect for that sort of share offering. Lyn Rees: Thank you, Steve. The next question was asking around the -- can you give any detail on the operational and commercial integration of Southern Cross Diagnostics, synergies realized to date, contribution to revenue and the expected time line to achieve integration objectives? Yes. Well, as I said earlier, I've literally just got back off a plane from Oz. I can tell you, I mean, this is a business that doesn't make any product. So from an operational perspective, it's a pretty easy integration process. And they've already been supplying our products into the market for the last 4 or 5 years. So there's a strong relationship there. We have a 90-day integration plan that's managed through our project management office, or PMO. As it stands at the moment, we are 75% through all of the tasks. So we've completed 75% of the integration tasks within about 60% of the duration of the project. So we're well on plan for the integration. It certainly helped when you know the principles and you work with the organizations for so long. So naturally, we're leveraging that strong relationship that existed. I think commercially, whilst I was over there, we launched the LightBench into the Australian market. Southern Cross hadn't previously taken that product to market. So we attended a big genomics conference, and we walked away with over 50 leads for LightBench because it's the first time we showcased that there. We've got some conversations going around in NIPT, and we're really focused for the launch of DPYD into the Australian market. So I think commercially, the integration is going really, really well. How do we assess that? Well, they've got a budget, and they hit their first monthly budget, and they're on track for what we can see for the budgeted year. So, so far, so good with those guys. The project will -- initial project will take 90 days. So I think it comes to an end at the end of May. And as I said, I'm very comfortable and confident on where we are with that integration right now. In terms of potential synergy, we do have a lovely base now in Sydney. So there's opportunity to look at running more of our processes, holding maybe more stock there, and we will update the market with any further synergy plays. But this was more about buying a business that would accelerate growth. We've been in cost-cutting mode and consolidation mode for the last 2 years. We're really looking forward to jumping into growth mode. And yes, this acquisition was more about growth. But obviously, if there are any synergies to be taken, we will be talking about that. Okay. What are the main drivers of revenue and margin fluctuations in the 2025 fiscal year? And which ones are recurring versus one-off? What guidance do you provide for 2026? And thank you, [ Mark A. ]. You've also put in a similar question about guidance for 2026 EBITDA and revenue. Steve, do you want to? Steve Gibson: Yes, I can take that. That's fine. So I think in terms of -- if you look at the margin year-on-year, we're very consistent at 63%. So maybe I'll break that down into a little bit more detail. So our Clinical business that has around 70% of revenue, that runs at a blended gross margin of around 60%, and that covers our NIPT and our PCR chemistry businesses. Then we have the RUO business, and that's about 20% of our revenue. And that runs at around an 80% plus gross margin, and that's all our PCR technology. And then we have the Instrumentation business. That's about 10% of our revenue, and that runs at about 50% gross margin. So that's how we get the blended group overall margin of about 63%. As I said, it's consistent year-on-year, but there is some differences depending on the product that we're selling. I think one of the questions was, there any material one-offs in 2025? Nothing material. So there wasn't a big GBP 2 million or GBP 3 million onetime revenue item in the 2025 numbers. And addressing the guidance query. As a business, we don't specifically give forward-looking guidance. What we do have is via one of our brokers, so Singer Capital Markets, they launched an initiation note back in October last year. They just issued an updated note this morning on our results, and that gives some updated forward-looking guidance from that perspective for the next couple of years. So please, I would ask you to go and have a look at that if they want to have a look at what our forward numbers might look like. Lyn Rees: Yes. And just to clarify that for anyone who doesn't have access, and we know that's one of the challenges in this market space at the moment. I'm looking at Singer's note now, and the expected revenue for 2026 is GBP 26.4 million. So hopefully, that's given you some clarity there. Steve, another one for you. What are your capital deployment priorities for the next 24 months, R&D, acquisitions, debt repayment, dilution, dividends or share buybacks? And what criteria will trigger new market transactions? Steve Gibson: Okay. Lots in that question. So I think the key is that we're going to continue to invest in opportunities that will drive growth. I think that's our fundamental ambition. There's no plans to pay any dividends until we're profitable. So we need at the moment, all of our cash to get us to EBITDA profitable. Then once we're profitable, we can look at distributable profits and potentially paying dividends. In terms of the question on debt, we have no debt. So there are no repayments of debt at the moment. And I think our general principle is we're always looking at opportunities to accelerate the breakeven position of the business, whether it's organically through increased R&D expenditure like we've seen for the last 12, 18 months or inorganically through the recent acquisition of Southern Cross. This is where we're going to prioritize deploying our cash going forward, the breakeven position of the business and driving growth in the top line. Lyn Rees: Thank you, Steve. We've had a further question from our French holders, French shareholders. Novacyt is positioned as a player in global health, and tests which have attained the IVDR label theoretically give it an advantage in technical, regulatory and legal aspects compared to its competitors. Has the idea occurred to you that due to the global situation, the company could also become a major player for the U.K., Europe and Australia in terms of food security or defense contracts to protect populations across the environment and agri food production? Thank you for the question. I guess, in the first part, yes, I completely agree, our IVDR position and the fact that our products are already approved is an advantage over the competitors. It's an advantage we're not seeing commercially yet at the moment because you can still buy what are called RUO products, research use-only products that don't need the IVDR badge of approval. But that's changing, and it's changing quickly. So we'd expect within the next 24 months to see a reduction in the number of competitors and an opportunity for us to take advantage of the strong regulatory position that we have. In relation to food security and military or defense contracts, you need 2 different levels of regulatory approval for that. So to do any defense contract work, you need something called List X security status. We don't have that. It's a very expensive accreditation to gain. I've gained it before in a previous organization, and we have no plans to go into that side of the market. And similarly, for food, whilst we do provide a lot of products into the vet, the food, the sort of animal testing area, you need AOAC approval specifically for food, and that's something that we don't have. So we continue to sell our products in research-only capacity, and that gives us enough of a market to go out with our primary design range of products and services. But we have no plans to increase the scope of that to get into military or some of the bigger food opportunities because the time line and the costs are -- we just couldn't afford that, we don't have the time to do it. Next question. Steve, what are you expecting the payout to be on the current LTIP? Steve Gibson: Okay. So for people who don't know what an LTIP is, so the long-term incentive plan. So just to remind people of the scheme. So it looks at the average share price in January 2024 and compares it with the average share price in December 2026. So at the moment, no idea what the share price will be in December 2026, so we can't quantify what our liability is. The other point, just to remind people, is that it is not a cash settled LTIP, it is an equity settled LTIP from a business perspective as well. Lyn Rees: Thank you, Steve. Next question. Are you able to provide some detail on what product launches Novacyt expect to deliver in 2026, and with which divisions? Yes. So that's easy for me to answer. Our first product launch is weeks away. It's the launch of a new DPYD assay. This is a pharmacogenomic assay that's used to treat patients that are about to start the chemotherapy journey, the 5-FU or capecitabine. This product is a very inclusive product. So it has loads of additional markers. As we saw the product originally roll out, it started off, I think in Wales was its first ever introduction before we knew it globally, and we needed to add in more markers to manage the global population. And now, we were all of a sudden, testing, as opposed to more of the U.K. population. That work has been done. We're looking forward to launching the RUO version of that product in May. And we should get regulatory approval, I think, early July. So we're going to be launching that product hard at the European Society of Human Genomics show, and we'll be doing lots of soft launches and talking to customers about that over the last couple of months. In addition to that, I think we have the usual couple of new products in from the Primer Design team. We're looking at a new version of the LightBench that can measure RNA as well as DNA, and that looks scheduled to come out towards the end of the year. And I think this year, we're really focused on bringing some partnerships. We've got a lot of development capability within the Novacyt Group, a lot of skill sets, both in next-gen sequencing and PCR. As the race to provide content to the market becomes more acute, I think there's opportunity to do contract development work there and partner up with some of the players in the global market to create content and work together. So there's 2 products that we hope to launch this year. There's some other announcements that as soon as we're in a position to share with you, we will be doing so. The next question is on SCD. I think we covered the integration and where the tangible operational and financial benefits are. I've got another question here. How has the conflict in Middle East affected the group? I think Middle East accounts for -- Africa, about 6% or 7% of our sales. So we haven't seen too much disturbance there. I think there's still a lot of testing going on in these regions. And thankfully so because these are important products regardless of the geopolitical situation. In terms of what effect has it had on us as a business, it slowed down some of our supply chains. We've had to reroute certain supply lines to avoid flying over certain areas or being shipped through certain areas. So we've seen a slight delay to our lead times. But other than that, I would say the conflict hasn't really affected the business so much, but we continue to keep a careful eye on that and watch what's happening in the global markets. But so far, the impact has been minimal for the organization. Just looking at the questions that have come in. RC, you're asking me a couple of questions here. You're asking me about when can we expect to become EBITDA cash positive. Share price has been hitting lows, what are the management doing to boost that? Because market seems not to be happy with Novacyt management. And then are there any big deals that Novacyt is expected to win in the coming months? Well, I can't talk about deals that we'd expect to win, I can only talk about deals that we have won. So we will update you as we have done this trip with the news of the St. George's contract, the update for the tender in Iceland and for the new opportunities that we won in the Thai marketplace. We are, of course, on a pipeline. We have projects and opportunities around this all the time. So we will update you when we win those. We can't update you beforehand. With regards to the share price, what is the management doing? Well, we kind of listened to all the feedback, and we listened hard to that feedback, and it was around more presence, being more visible. Unfortunately, a lot of the information that talks about the analyst reports and what have you, the retail investment community doesn't always get access to that. So I think this year, we're going to be doing more kind of catch-up videos with Steve and myself. We're going to be attending some investor shows. So I think we're attending the Mello show coming up in the next couple of months. I'm trying to get more visibility in front of retail investors whilst we wait for the institutional investors to wake up. I think we've done everything that we said. We've beaten all the market expectations for our business this year. We launched new products. We've got a sustainable business. We've got growth, and we've got cash in the bank. So other than waiting for the market to respond, the market did seem to be getting a bit better before the war in the Middle East started. So I think we're going to have to work our way through that. But I can assure you, A, we're doing everything we can to increase the valuation of this company. We think this company is a very different organization from the one that we took on 2 years, much more clarity, much more control over costs, much more control over whether the business is growing and investing in the right areas for that growth. We've trimmed the business down, made it more lean, and we filled in some management gaps. So to see the business, I think, in a much stronger position 2 years after Steve and myself took up our roles, but to see the capitulation in the share price during that period is very frustrating for us as well as you, and we absolutely share that feeling. We bought some shares in the open market this year. I will continue to invest in the business as it continues to invest in itself. So other than waiting for the macro market conditions to improve and just keep delivering on our promises, I think that's what we can kind of do right now. Steve, a couple of questions on cash burn that are coming through. One in French, I can't understand. So have we got any comments? I think you covered that. Steve Gibson: In terms of cash burn, I think we covered that in terms of the Q1 outflow of around GBP 8 million. And just breaking it down in terms of the Southern Cross acquisition was GBP 5 million all in because there was this additional working capital adjustment. And then there's all the fees associated with that and the PSR process, so they need to be factored into the cash consumption. I think the essence is, do we expect the cash burn to reduce this year? Absolutely. So obviously, we're acquiring Southern Cross. And that will help our EBITDA [ and get us to ] EBITDA profitable, so that will reduce our cash burn. We have the unwinding of the working capital from a Southern Cross perspective. Plus as we grow the business, we expect our EBITDA to improve, and therefore, that will generate more cash and reduce our cash outflow. So those are the key drivers why we think our cash outflow will reduce going forward. Lyn Rees: Thank you, Steve. And unfortunately, that's all we've got time for today. So I really appreciate for everyone that submitted questions in advance. Thank you for those guys that have submitted them during this call. We really appreciate the opportunity to respond to your specific questions. And I apologize if we can't answer everyone, but we've got a limited set of time for this. So I just wanted to say thank you to everyone. I want to leave you with the thought that I'm more excited about this business than I've ever been. The last 2 years have been hard, doing consolidation, shutting sites, making those decisions, understanding where the best place to invest in terms of new technology is. And I think the decisions that we've taken alongside our Board have been the right decisions. I think we're investing in the right areas as a business. I think we've consolidated the business to the best commercial and operational footprint that we can. It was a real delight to be able to use some of our cash to accelerate that plan through the acquisition of Southern Cross Diagnostics. I think that will be a very good acquisition as Elucigene has proved to be, as Coastal Genomics has proved to be, and hopefully, as Yourgene has proved to be for the Novacyt Group. So I think if we can bed that in and make that a real successful acquisition, there's more potential to come in there. There's very much a buyer's market. But even the organic plan of this organization, it's starting to really work. Our products are getting more traction, the things we're invested in are growing at double-digit growth. And this is the year as a business, having done the consolidation, that we're really focusing and targeting double-digit revenue growth and reaching that profitability as soon as we can. So we really appreciate your continued support. We look forward to updating you in coming months at the various investor shows that I said we will be attending and the update videos that we will provide for you. And thank you for your continued support, everyone, and enjoy the rest of your day. Thank you. Bye-bye. Operator: Fantastic. Lyn, Steve, thank you very much indeed for updating investors today. Could I please ask investors not to close the session, as you'll now be automatically directed to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.
Operator: Good day, and thank you for standing by. Welcome to Endeavour Mining's First Quarter 2026 Results Webcast. [Operator Instructions] Today's conference call is being recorded, and a transcript of the call will be available on Endeavour's website tomorrow. I'd now like to hand the call over to Endeavour's Vice President of Investor Relations, Jack Garman. Please go ahead, sir. Jack Garman: Hello, everyone, and welcome to Endeavour's Q1 2026 Results Webcast. Before we start, please note our usual disclaimer. On the call today, I'm joined by Ian Cockerill, Chief Executive Officer; Guy Young, Chief Financial Officer; Djaria Traore, Executive Vice President of Operations and ESG; and Sonia Scarselli, Executive Vice President of Growth and Exploration. Today's call will follow our usual format. Ian will first go through the highlights of the quarter. Guy will present the financials, and Djaria will walk you through our operating results by mine, before handing back to Ian for his closing remarks. We'll then open the line up for questions. I'll now hand over to Ian. Ian Cockerill: Thanks, Jack, and welcome to everyone joining us on the call today. Now Q1 2026 was a record quarter for Endeavour with a strong operational performance and elevated gold price, underpinning a very strong financial results. Production of 282,000 ounces was in line with our plan, and we expect to see progressive improvements as we move through the year as stripping activity opens up progressively higher grade ore through to Q4 later on this year, while all-in sustaining costs on a royalty adjusted basis also came in towards the lower end of our guidance in the quarter. This performance translated into a record free cash flow of $613 million, and that's equivalent to $2,176 per ounce produced. That's a 29% increase over the prior quarter. Through the year, we'll continue to focus on our margins and maximizing free cash flow from every ounce that we produce. This free cash generation transformed our balance sheet. We moved from net debt of $158 million in the previous quarter to now a net cash position of $405 million at the end of this quarter, a $563 million swing in just 3-months. Given the strong balance sheet position and our outlook, we're going to look to increase our shareholder returns through supplemental dividends within our H1 2026 dividend announcement and through continued opportunistic share buybacks. At prevailing gold prices, we expect supplemental returns to at least double -- to be at least double our $1 billion minimum commitment over the next 3-years. On organic growth, as we announced last week, the Assafou DFS confirms a high-quality, long-life asset that has very strong project economics. Early works are underway, and we're targeting a final investment decision before the end of this year. On the exploration front, we're accelerating resource definition of our Vindaloo Deeps target, and we expect to deliver maiden resource in the first half of this year. Simultaneously, our new ventures exploration program continues to expand our exploration footprint into the most prospective Tier 1 gold provinces with the latest strategic investment into Guyana. I'll now take you through each of these areas in a bit more detail. On Slide 7, you see production was 282,000 ounces, down from Q4 due to planned lower grades mined and processed, but in line with the mine sequence. All-in sustaining costs were higher in the quarter, largely due to higher gold price-driven royalty costs with some small impacts from the stripping activity and the higher power costs at Mana. But despite higher costs, our all-in sustaining margin of $2,976 an ounce was $751 per ounce higher than in Q4 as margins continue to consistently expand alongside the higher gold prices. On Slide 8 and the full year guidance, you can see group production and all-in sustaining costs remain on track to achieve guidance. The Q1 production of 282,000 ounces represents approximately 26% of the low end of our guidance range, and we're expecting higher production in the second half of the year, peaking in Q4 as per our planned mining sequence. On costs, while first quarter all-in sustaining costs of $1,834 an ounce sits slightly above the guidance range, this reflects higher royalty costs as a direct result of the rising gold price. On a gold price adjusted basis back to our budgeted level, underlying all-in sustaining costs of $642 an ounce were in the lower half of the guidance range. And let's say that's based on our $3,000 gold price. On capital, we expect both sustaining and nonsustaining capital to be weighted towards the first 3-quarters of the year, aligned with our stripping program. While growth capital of $500 million to $100 million is now expected to support early works at Assafou, mostly in the second half of the year. So overall, we're confident in our full year outlook and expect to see improvements throughout the year. Free cash flow reached a record $613 million in Q1, up 29% from Q4 and equivalent to $2,176 per ounce of gold produced. But we remain focused on maximizing free cash flow for every ounce that we produce, and as operational performance improves throughout the year, we expect to at least partially offset some of the impact of higher taxes in Q2 and Q3. The strong free cash flow has enabled us to rapidly de-leverage the balance sheet in Q1, reducing net debt by $563 million and moving to a net cash position of $405 million at quarter end. And this provides the financial flexibility to deliver our world-class organic growth project Assafou, whilst we pay out sector-leading returns to shareholders. As you know, our leverage target through the cycle is less than 0.5x net debt to adjusted EBITDA. That remains the case, but we do not intend to maintain a very large net cash position either. So we'll stick to our capital allocation model and look to increase shareholder returns while prioritizing Assafou's development as well as our exploration program. On Slide 11, our shareholder returns program is quite clear. Between '26 and '28, we're committed to return at least $1 billion to shareholders and we will maintain this commitment down to a gold price of $3,000 an ounce. And at prevailing gold prices, we could return more than double that minimum commitment to shareholders. Given the strong gold prices so far this year, we're on track to return a significant supplemental dividend when we announce our H1 '26 dividend in our Q2 results. So far this year, we've already completed $54 million of share buybacks, and we'll continue opportunistically and make up a significant component of our supplemental returns. On to our sector-leading organic growth on Slide 12. Now last week, we published the results of our definitive feasibility study, strengthening our confidence in the Assafou project and its potential to transform our portfolio, driving production growth, lowering costs and delivering long-term value. We discovered Assafou for $13 million in 2022. And based on the DFS at a $4,000 per ounce gold price, the project now has an after-tax value of over $5 billion with an internal rate of return of 55%. Now that's value creation and reflects the highly prospective region and the ability to accelerate projects quickly from discovery to production. The Assafou project will be relatively similar to other mines that we've built, albeit bigger. The DFS outlines a 5 million tonne per annum gravity and CIL processing plant optimized to support a smoother production ramp-up and to add additional redundancy to give optionality to expand the plant in the future as we develop and further expand the resource, the exploration resource in the immediate vicinity of the mine. Early works are already underway. Procurement of long lead items have started, detailed engineering and design is progressing and key tenders are already out. We have also launched land compensation negotiations as part of the resettlement action plan, which we need to finalize ahead of starting the resettlement, which is on the critical path. We're targeting a final investment decision before the end of this year and then a construction period of 24 to 30 months. Once construction starts, the resettlement, mining pre-stripping and ore commissioning are on the critical path to production. The resettlement is required for mining to start, so developing the resettlement action plan is a key part of our early works program. Assafou has the potential to be one of our largest, lowest cost assets with the longest mine life, capable of producing 320,000 ounces of gold per year at an all-in sustaining cost of $1,026 per ounce over the first 8 years of its planned 16-year mine life. The DFS also reflects our increased confidence in the mine plan, underpinned by nearly 100,000 meters of additional close spaced drilling. This has increased reserves and resources and introduced maiden proven reserves and measured resources, providing a much higher level of certainty over what we will mine and when, de-risking the ramp-up and early production profile. And importantly, we see significant exploration upside in the immediate vicinity of the mine that will support continued growth in reserves and resources and further enhance the mine plan over time with the potential to sustain production higher levels over this period for much longer. Looking at the exploration at Assafou on Slide 14. Most of our drilling has been focused on the Assafou deposit itself, and we've just started to step out beyond Assafou. We've already identified 20 highly prospective targets on this property that we are prioritizing with a guided $10 million spend for this year. We'll focus on advancing the Pala Trend 3 deposit following the 2025 maiden resource, defining Pala Trend 2 maiden resource and exploration drilling at the Pala Trend Southwest and Koumenagaré. At Assafou, we've discovered a new and highly fertile mineralized Greenstone belt and through our own land package and our strategic partnership with Koulou Gold, we expect to unlock significantly more value across this belt. Now Assafou is key to our organic growth outlook and along increased production at Sabodala-Massawa, we're targeting 27% growth in production to 1.5 million ounces by 2030 with a solid position in the first quartile. On Slide 16, following the launch of our new exploration strategy late last year, we've increased our exploration guidance to $100 million for this year, and we will prioritize adding near-mine resources across the portfolio, expanding resources at the Assafou deposit and nearby targets, whilst advancing new ventures to replenish the longer-term organic project pipeline. And as you can see on Slide 17, we are pleased that we signed a strategic investment of $20 million with Altair for a 9.9% stake. The Guyana Shield is one of the 4 Tier 1 gold provinces that we are targeting through our Greenfield and New Ventures program. And given the Guyana Shield is a continuity of the West African permian, we have a good understanding of the geology as well as the structural context. Now Altair has one of the largest consolidated land packages in Guyana, covering highly prospective ground to the south of recent significant discoveries at Oko West and Oko-Ghanie along the same shear zone. So we're excited about the prospectivity and the proceeds from our investment will be deployed to accelerate these exploration programs. Before I hand over to Guy, I just wanted to touch shortly on ESG. As a long-term partner in West Africa, we will always strive to deliver sustainable value to all of our stakeholders. In 2025 alone, we contributed $2.8 billion to host economies. And over the last 6 years, we've contributed $12.9 billion. This consistent delivery of value alongside continued improvements in governance, stakeholder engagement and ESG management systems is increasingly being recognized. And as a member now of the Extractive Industries Transparency Initiative, we met all transparency expectations in 2025, performing strongly relative to our peer group. In addition, our ISS rating has been upgraded, placing us in the top 10% of our sector, in line with the other strong ESG ratings we continue to maintain. And with that introduction, let me hand you over to Guy, who can take you through the Q1 financials. Guy, over to you. Guy Young: Thanks, Ian, and hello to everyone. As Ian said, Q1 was a very strong quarter financially, driven by the higher gold price and consistency in our operational performance. The realized gold price increased by $937 an ounce to $4,810 an ounce, supporting our record financial performance. Whilst quarter-on-quarter production was down slightly and costs were up partially as a result, adjusted EBITDA increased by 29% and adjusted net earnings increased by 64%. On the cash flow side, operating cash flows were up 21% and free cash flow was up 29%. On Slide 21, you can see that adjusted EBITDA reached a record $880 million, up 29% quarter-over-quarter, and our adjusted EBITDA margin also increased significantly by some 12% to 65%. The higher EBITDA reflects the combination of higher gold prices and lower operating expenses due to the lower production, while the improved margin demonstrates our ability to leverage the benefits of increased gold prices in our earnings. Moving on to Slide 22. Operating cash flow was up 21% to $737 million compared to Q4 2025 due to higher gold prices and lower operating expenses despite increased cash taxes and an increased working capital outflow related to trade and payables, inventory and receivables. Looking now at the operating cash flow improvement in some more detail on Slide 23. The increase in the realized gold price added $169 million to operating cash flow. Gold sold decreased by 24,000 ounces to 278,000 ounces in Q1, which impacted operating cash flow by $99 million. Operating and other expenses were $156 million lower than Q4 due to a number of factors. Firstly, lower nominal mining and processing costs on the back of the lower production, the completion of the hedging program last year, where we recorded a loss in Q4, and these were partially offset by higher royalties. Income taxes paid increased by $23 million to $46 million, reflecting the timing of corporate income tax payments as expected and provisional withholding tax payments at Sabodala-Massawa. On that point, please note for the full year, we've increased our cash tax guidance from $600 million to $700 million to the revised total of $660 million to $770 million, reflecting higher withholding tax payments related to an increase in cash repatriation on the back of higher gold prices. Cash income tax guidance is unchanged for the year. Finally, working capital was a $91 million outflow, a $75 million increase on last quarter's. Key drivers of the increase were a reduction in payables, which we expect in Q1, along with increased VAT and stockpiles. Turning to VAT first. VAT balances increased in Q1 -- sorry, whilst VAT balances increased in Q1, we've seen some positive developments in April with a resumption in direct VAT reimbursements in Burkina Faso, a reduction in processing times in Senegal and higher levels of reimbursements in Cote d'Ivoire, which, if maintained, will positively impact our Q2 working capital. The stockpile increase is due to some deferral in stripping at Hounde and the concomitant stockpile drawdown along with higher mining volumes at Ity. Both these trends are expected to normalize through the rest of the year. Although less material, we have built up supplies of some critical consumables like fuel and explosives to help mitigate any potential impacts from the closure of the Strait of Hormuz. Turning to Slide 24. Free cash flow reached a record $613 million in Q1, up 29% from Q4 despite the lower production and higher ASIC taxes and working capital outflow. Free cash flow has increased each quarter since Q2 2025 as we are benefiting from higher gold prices and successfully converting the majority of additional margin into free cash. The outlook remains very strong at current gold prices, particularly in H2 of this year. I would remind you, however, that for Q2, we expect free cash flow to be lower as a result of seasonal tax payments. This is normal regional tax seasonality with higher corporate income and withholding tax payments, representing approximately 65% of our full year payments to be paid in the quarter. On Slide 25, our cash flow significantly improved our net debt position as shown here. We started the quarter with net debt of $158 million and ended with $405 million of net cash. As detailed on the previous 2 slides, operating activities generated $737 million of cash flow in the quarter. Investing outflows were $125 million, including $75 million of sustaining capital, $45 million of nonsustaining capital and $6 million of growth capital. Financing activities included a net $75 million drawdown on the revolving credit facility alongside $27 million of share buybacks, $8 million of lease payments and $4 million of financing fees, all of which leaves us in a net cash position of $405 million at the end of the quarter. As Ian mentioned earlier, we do not intend to build a large net cash position, and we'll continue to follow our capital allocation model of increased shareholder returns after prioritizing assets for development and exploration requirements. Finally, moving on to net earnings. Earnings from mining operations increased to $776 million, reflecting the higher gold price, partly offset by royalties and sustaining capital. Other expenses decreased with the higher Cote d'Ivoire royalties in the prior quarter now being reported as part of our cost of sales. Deferred tax was a $97 million expense compared to a $53 million recovery in the prior quarter. The change reflects the accrual of additional withholding taxes ahead of expected increased cash upstreaming as a result of the higher gold prices, as I referenced earlier. Adjusted net earnings were $442 million for the quarter or $1.53 per share, up 65% from Q4. Thank you, and I'll now hand over to Djaria to walk you through the operating performance. Djaria Traore: Thank you, Guy, and hello, everyone. Before discussing our operating results, I want to talk about safety, which remains our top priority. We were deeply saddened that one of our contractor colleagues suffered a fatal injury at Mana on 6th of March, as we have previously reported. Following the incident, we've launched a comprehensive investigation, and we've identified several areas of improvement, particularly around contractor on-boarding, supervision and ongoing training. These actions are now being implemented across all our operations. Despite this incident, our total recordable injury frequency rate of 0.72 on a trailing 12-month basis has improved during the quarter and remains one of the lowest in the sector, and we continue all our efforts to eliminate fatal risks. Before turning to the mine-by-mine review, I wanted to touch on our first quarter performance compared to guidance on Slide 29. As Ian mentioned, we are on track to meet full year guidance with performance weighted towards H2 as production and costs are expected to improve at Hounde, Mana and Ity in the second half of the year, and this is in line with the mine plans. For quarter 1, group production was lower compared to last quarter of 2025 due to lower grades at Sabodala-Massawa, Mana and Ity, but again, in line with the mining sequence. The all-in sustaining costs were higher this quarter due to gold sales, higher royalty costs and increased stripping activity. Overall, we are pleased with our progress to date. Starting with Hounde on Slide 30. Production increased as we mine and process higher grades from the Kari West and Vindaloo Main pits. All-in sustaining costs have increased, but largely due to higher royalty costs at higher realized gold prices and to higher sustaining capital from increased waste stripping at Kari West and heavy mining equipment improvement. We will continue stripping at the Vindaloo Main pit pushback, which will support access to better grade to improve production for the year, with costs only expected to realize the benefit later in the year once the majority of the stripping has been completed. On Slide 31, at Ity, production decreased as we mine lower grades from the Bakatouo and Walter pits, while we also processed lower tonnes due to scheduled mill maintenance in quarter 1. All-in sustaining costs at Ity has improved due to lower sustaining capital and the benefit of byproduct silver sales, despite the higher gold prices and lower gold sales. Similar to Hounde, Ity's performance is expected to be weighted towards H2 as blended grades are expected to increase through the year. On Slide 32, you can see that production at Mana was lower quarter-over-quarter due to lower grades and the weighing down on mining activity in the Siou underground deposit, where the reserves are nearly depleted. Similarly, all-in sustaining costs were higher due to the lower levels of production and sales as well as higher royalty costs related to gold prices and the continued use of higher cost self-generated power. On costs, we expect that the grid power availability will improve during quarter 2 as the grid in Burkina Faso adds new capacity. We also continue to improve the resilience of our grid connection at Mana through the automation of the underground ventilation system and the installation of a new transformer and capacitor bank, which is expected to improve productivity and operating costs. In H2, the mining feed from the Wona underground deposit is expected to supplemented with ore from the open pit of Bana Camp, supporting slightly higher grade, throughput and production. Moving to Sabodala-Massawa on Slide 33. Production decreased due to lower grades mined and processed compared to the quarter 4 2025, but in line with the mine sequence. All-in sustaining costs increased due to lower gold sales, higher royalty costs related to the increased gold price and higher sustaining capital. As 2026 progresses, we expect to see steady performance from the CIL plant as improved grades are offset by slightly lower throughput. While on the BIOX side, we expect continuous improvement in throughput and recovery as the ongoing optimization work continues. At the end of quarter 1, we published a technical report for Sabodala-Massawa. And it's also important to remember that this is a conservative reserve only outlook that we intend to optimize and smooth-out through additional explorations and sequencing. The study outlined significant production growth into the high 300,000 ounces by year 2029 with an average production over the next 5 years of 335,000 ounces per annum. The significant increase in production is expected to be driven by the ramp-up of underground mining at the Kerekounda and Golouma deposits. As the mining ramps up, it is projected to deliver higher grade to the CIL plant, coupled with high grades through the BIOX plant from the Massawa North Zone deposit. We will expect to smooth this production profile through sequencing of Massawa North Zone and conversion of additional reserves, which would allow us to achieve and maintain production in the mid-300,000 ounces range for longer. Lastly, turning to Lafigue on Slide 35. Production increased as we mine higher grades from the main pit. We also benefited from improved recovery, which have increased following the completion of processing plant optimization project. All-in sustaining costs have also increased due to significant increase in sustaining capital related to the planned waste stripping this year and higher royalty costs due to the higher realized gold prices and the increased royalty rates. As stripping continues, we expect grades to decrease through the next quarter before again improving as we move into the next pushback in the second half of 2026. Overall, as you can see, the performance has been consistent and predictable during quarter 1. And as a result, we're well positioned for the rest of the year. Thank you for your time, and I will hand over to Ian. Ian Cockerill: Thank you, Djaria. As you've heard, we're off to a strong start operationally, and we've delivered another record quarter financially. But our key priorities from here are quite clear. Firstly, deliver on production and cost guidance; secondly, maximize free cash flow for every ounce that we produce to ensure an optimized balance sheet so that we can deliver sector-leading organic growth and sector-leading shareholder returns whilst remaining a trusted partner to our host countries. We certainly look forward to updating you on our progress throughout the year. And with that, I'd say thank you, and now I'll hand back to the operator, who will be in a position to open up for Q&A. Thanks very much. Operator: [Operator Instructions] We will now take our first question from the line of Alain Gabriel of Morgan Stanley. Alain Gabriel: The first question is for you, Ian. The cash balance is building very rapidly on today's gold prices, and you can easily finance Assafou, meet all your capital returns commitments and still have significant cash pile that is left. Although that's a good problem to have, it also brings some scrutiny on capital allocation. So how are you thinking about M&A at this point in the cycle? And do you think you have the capacity to take on a sizable project like Assafou and pursue M&A at the same time? That's my first question. Ian Cockerill: Thanks, Alain. Yes, look, it's a bit of a Hollywood problem, having the cash and the already well-defined organic growth pipeline. Irrespective of how much cash we have on our balance sheet, we are, as you know, we're really focused on growing this business in an organic fashion. We have lots of opportunities to do that. That's our principal focus. Our other focus is obviously on the exploration side. And I think the investment in Altair gives you another clear indication that's where we would -- we're happy to sort of put our money. We are patient capital investors. We seek the right opportunities to go in to create really outsized value returns to shareholders. It would be nice to do it every quarter, but we're taking a longer-term perspective on that. With respect to M&A, we constantly look. And if the right opportunity came along, obviously, we would look at it. To date, we've looked at several opportunities, but there's nothing has eventually turned out to be positive. But we're not averse to M&A, but our principal focus obviously is on organic growth. Alain Gabriel: That's very clear. And the second question is probably for Guy on the costs of -- or the energy cost impact on the business. Maybe if you can talk to us a little bit more about the diesel exposure across the group. How do you see the conflict impacting your cost base? Are you seeing any supply stress emerge on the supply chain? Because you seem to have managed this very well in Q1. So how are you thinking going forward of these dynamics? Guy Young: Alain, so let's just talk a little bit about the difference in our minds anyway between the security of supply and then the pricing risk. So to the first part, security of supply, as a general comment across all of our sites, we do not rely particularly heavily on fuel or any other related consumables that transit through the Strait of Hormuz. So we've got refineries that we rely on broadly regional, but in particular, in Cote d'Ivoire and Senegal and the crude input into those refineries is predominantly coming from Nigeria. We do have some other refined products that are coming from Northern Western Europe. But as a result of all of that and in discussion with our suppliers and the test of their business continuity planning, we don't perceive security of supply to be the key issue. It is what you've referred to more a question of pricing. When we look across the portfolio, and again, just bearing in mind that fuel is anywhere between 10% and 15% of operating costs, so it's significant, but not that material. When we run numbers bearing in mind local pricing, then we come up with a $10 per ounce AISC impact roughly for every $10 on the price of a barrel of oil. That is what we've seen so far. And when we look forward into the remainder of the year, that's what we're anticipating. So if I look purely at price variance at the moment, we can expect to see roughly a $25 increase in our Q2 costs relating purely to the price of fuel. The one other thing I would just quickly touch on, and Djaria mentioned it in her presentation, but the volume of our consumption of fuel does depend to some extent on grid availability. So where we see declines in grid availability, we will see higher volumes for self-generated power, and that in and of itself will drive a cost increase. So subject to the grid availability, roughly $10 per ounce for every $10 per barrel. Operator: We will now take our next question from the line of Ovais Habib of Scotiabank. Ovais Habib: Congrats on Q1 beat and really a great start to the year. Ian, a couple of questions from me. The first one was answered in regards to the supplies as well as the cost impact on the Middle East side. So that was good. Just moving on to Assafou. Ian, you released a robust DFS on Assafou, permits have been received. What's keeping you back on pressing the green light to start construction on the project? Ian Cockerill: Yes. Thanks, Ovais. Look, as you know, as far as Assafou is concerned, we already have the environmental permit. We have the exploitation permit. We're currently in negotiation with government around the mining convention. Obviously, it's important that we get that done. Part of that process involves the creation of a local entity, and that's a normal administrative process. I have to say the government of Cote d'Ivoire have been incredibly supportive on this project. They recognize the importance to the country as well as to us. And in fairness are really sort of trying their best to make sure that all necessary permits, approvals, whatever are sort of timeously being expedited. In terms of what is it that is still outstanding, obviously, one of the key issues, as we mentioned in the presentation, was finalization on the resettlement. We have two villages that sit on top of the ore body. We're in negotiations with those communities and seeking their assent and approval for -- to get moving. That is necessary before we can actually start mining activities because both those villages would potentially be within the normal sort of blast perimeter for the start of it. The other -- one of the other issues to be addressed is, there is a national road that runs through the footprint of the pit that needs to be diverted. We are very close to concluding the optimal diversion of that road. There's been some towing and throwing on that, but we're close to getting that concluded. Those, I think, are the two key outstanding issues. And obviously, I think it's always important as far as negotiations are concerned, the government knows that we're keen to progress. They're keen for this project to progress, but it's important that we keep our options open. But to give you some idea of our confidence that the project is going, we've already committed up to -- it's about $80 million worth of pre-expenditure principally aimed at long lead items such that this is another way that we can help derisk the project by making sure that long lead items can be manufactured, transported and delivered well on time, and they don't delay any of the build program. So we're running several things in parallel. I'm still reasonably comfortable that by the end of this year, we will formally announce the project. But I think you can see just by what we're actually doing already, we do believe that this is -- it's not a question of if this project goes, it's merely a question of when. It's as simple as that. Ovais Habib: Got it. And just maybe moving on to the exploration side, and maybe this is a question to Sonia if she's online. Obviously, you guys have a large exploration program for 2026. I just want to hear in terms of which target or area Sonia is most excited about? And when should we start receiving some exploration results? Ian Cockerill: Yes. Look, I'll pass on to -- Sonia is with us. I'll pass on, but I can tell you she's excited about all the areas. Sonia Scarselli: Thank you, Ovais, for the question. It depends how much time you have for me talking about the exciting pipeline. Look, if I just start to talk about a couple of areas, definitely, we have a great results at Vindaloo Deeps and Hounde, and we are planning to actually report the results of the maiden resource in the H1. So more to come on that with also a clear understanding of the upside potential. But then if we move into the other areas, we have exciting results in Sabodala-Massawa. We have completed a full portfolio review and identified over 20 new opportunities in the pipeline with the first one coming with a very clear resource -- major resource by the end of the year at Kawsara. So that's very exciting. And in parallel, we also have identified more underground potential in the area, both in Sabodala and Sofia, more to come towards the end of the year with concrete results. Then if we switch gear to Cote d'Ivoire, there's plenty there to look at. It's more around which one we prioritize first, but Ity continues to surprise us in a positive way. We had a very great result at the back end of last year, both into the greenfield and brownfield opportunities, and we are now infill drilling on the brownfield close to the CIL plant. And then Assafou, a lot of the work that we did in Assafou in the past couple of years was really to get the confidence on the Assafou resource. We have that. It's moving on with the DFS. And there is now quite a large potential of under-explored brownfield opportunities that we are progressing in parallel to get a better feeling. Those are less mature in terms of exploration activities. We will be able to give a little bit more better understanding both towards the end of this year as well as next year. But overall, it's a very exciting pipeline within our existing areas... Ovais Habib: Sorry, go ahead. Sonia Scarselli: No i was just going to... [Technical Difficulty] Operator: [Operator Instructions] We have the speakers back. Please continue. Ian Cockerill: Sorry, could the last speaker, please reask the question. I think we just completed Ovais' question and we're moving on to the next. Operator: You have any follow-up question, Ovais? Ovais Habib: No I am good. Thank you so much for answering my questions. Ian Cockerill: Apologies for cutting you short there Ovais, but we had an electronic glitch here. Operator: We will now take our next question from the line of Richard Hatch of Berenberg. Richard Hatch: Congrats on a very good quarter. You're delivering as you promised you said you would, and you're generating that free cash flow, which is really good to see. Look, just two questions. Firstly, just given the volatility that we're seeing in Mali, can you just talk a little bit around if that's creating any kind of instability in the broader region, if you're seeing anything in that regard to your operations? And then secondly, just on Vindaloo Deeps, you did sort of talk briefly about it there, but I just wonder if you might just be able to expand a bit more about what you're hoping to show the market on that when you update on the resource and how we should think about that into the short, medium and longer term? Ian Cockerill: Richard, thanks. Look, I think as everybody knows, Mali does not fall into any of our jurisdictions where we have operating assets. We have an old legacy asset, the Kalana mine that we're in the process of selling. That sale process continues. And certainly, our understanding is that the type of activity, that the civil unrest that's taking place does not appear to have migrated right down towards Kalana. It's a relatively, in Mali terms, much more benign region. So we're not -- we have no immediate impact on our operations due to Mali. In terms of the potential for spread across from Mali to elsewhere, at the moment, no. I mean the obvious place where there might have been some spread was into Burkina Faso. The situation in Burkina appears relatively calm. We're not seeing any deterioration in the local situation. The security forces are sort of on top of things in that country. We're working hand in glove with them. And again, we're not experiencing any current issues, and we're not anticipating any issues into the immediate future. As far as Vindaloo Deeps is concerned, as Sonia said, we will be -- in a short period of time, we'll be coming out with an update on the size of the resource and timing of when that would start coming into the plan. There's still one or two minor things to finalize. But as soon as that is ready for publication, we will come to the market. What I would say is I don't think the market is going to be disappointed. I think they're going to be very pleased with what's coming out of Vindaloo Deeps. Operator: We will now take our next question from the line of Amos Fletcher of Barclays. Amos Fletcher: I had a couple of questions. First one was just on working capital. Obviously, there's quite a lot going on within the working capital line this quarter in particular. But it was, I guess, quite a surprise how big the build was. I was just wondering, Guy, whether you can give us a bit of a steer on how you expect it to play out over the next few quarters? Guy Young: Sure, Amos. Thank you. Yes, working capital outflow was relatively significant. So I touched on it in the presentation, but maybe just walk through that again with a focus on stockpiles, which is the -- it's roughly 2/3 of that outflow. The stockpile increase is obviously in relation to mining tonnage. And the difference between our original expectation and our actual Q1 was an element of deferral of some of the waste stripping, particularly at Hounde, revolving around both production profile and fleet availability. So this is something that we expect to see pick up again in Q2 and marginally at the start of Q3. As we pick up in stripping activities, we should be seeing naturally something of a drawdown on stockpiles and further stockpile drawdown is anticipated at Sabodala-Massawa going into the second half. So with regards -- sorry, and Lafigue continued increase in stripping activity as well. So with the majority of our sites looking to do some stockpile drawdown, the types of build that you saw in the first quarter should not be repeating over the remainder of the year. And then without going into any detail as it wasn't part of the question, but I think there are positive trend indicators on both the VAT and the consumer build as well. So hopefully, the level of working capital build does not repeat through Q2, 3 and 4. Amos Fletcher: So potential for further build but smaller levels over the next couple of quarters, you'd say? Guy Young: So we could see build depending on sites. So as an example, we'd love to see some more stock at Mana, making sure that we've got plant utilization. Lafigue, Houndé and Sabodala should see some stockpile drawdown. Amos Fletcher: And then the second question, I just wanted to ask for, I guess, a broader update on the Senegal mining code revision process. Has there been any developments to report over the last few months on that? Ian Cockerill: Yes. Amos, no new developments to report on that as yet. Operator: We will now take our next question from the line of Carey MacRury of Canaccord Genuity. Carey MacRury: Congrats on the great start. Maybe just another question for Guy. You've got over $1 billion in cash now, but still have some money drawn on the credit facility. Just wondering, I assume you're going to pay that down later this year. And is there any plan to pay down the Cote d'Ivoire debt early or just leave that as is per the schedule? Guy Young: Okay. To the first question, the RCF drawdown, I think you know us pretty well. So you'll remember, we've got a cash cycle effectively that means predominant offshoring capacity comes via OpCo dividends. We will pay our withholding tax in Q2, effectively allowing us to commence with the repatriation in Q3. Speed of that repatriation dependent on mine site cash levels, that money comes offshore, utilize that to pay down the RCF. So current forecasts, we should have the RCF paid down in Q3 as soon as we get our OpCo dividends up. Carey MacRury: And on the Cote d'Ivoire debt? Guy Young: Thank you. I was really struggling to try and remember the second part of your question. I appreciate it. The Cote d'Ivoire debt, no, I think we'll keep that in place, Carey. So where we see -- as you can probably imagine, there is both cash and liquidity plus tax advantages for us to be holding local debt. So no, we wouldn't look to pay that off early. We would have alternative uses for that cash. So I expect the Cote d'Ivoire facility to remain in place and amortized as already disclosed. Operator: We will now take our next question from the line of Anita Soni of CIBC. Anita Soni: Most of them have been asked and answered, but I just wanted to ask about -- have you had any recent conversations with the S&P/TSX about index inclusion? I understand from the tech process that the S&P has reached out to stakeholders to look at including companies that are not incorporated in Canada in the TSX. And I know you were removed a couple of years ago. So I'm just wondering if you had any recent discussions with them? Ian Cockerill: Anita, Jack has informed me that the -- there is obviously talk of inclusion in the index of companies on TSX that are not Canadian domiciled. So that would obviously be a tailwind for us. But we haven't had any detailed conversations. So our understanding is it's early doors, but nothing tangible from our perspective in terms of contact no. Operator: We will now take our next question from the line of Mohamed Sidibe of NBC. Mohamed Sidibe: All of my questions have been answered. Just wanted to maybe ask a question on the timing of CapEx for Assafou as it relates to the pre-expenditures of $50 million to $100 million that you guided to for the year. Ian Cockerill: Mohamed, very simply, what we have done is we've identified the long lead items, basically buying in to the queue for mill shelves, big HPGR kit and what have you. So we flagged the level of expenditure around about plus/minus $80 million. I think you could say that, that expenditure would be spread over the year. It's not all going to come in one lump sum. We are in the process of discussing with various suppliers, getting the final quotes from them. And once that's done, obviously, there will be an element of timing of that spend. So you should assume it will be spread out over the balance of the year. Mohamed Sidibe: And congrats on a great quarter. Ian Cockerill: Thank you. Operator: We will now take our next question from the line of Felicity Robson of Bank of America. Felicity Robson: You've provided an update on Sabodala's production profile. Could you provide some color on where you see further scope to supplement this maybe with resource conversion or exploration in the near term? Djaria Traore: Thank you, Felicity. I think we, as you mentioned, are very happy to have published NI3-101, whereby we are stipulating that there will be an increase in production Sabodala-Massawa is purely currently on the mineral reserves. We've seen already an increase when you look at the production profile 2026 versus 2025. What we're also seeing is that from 2029, we'll see a significant increase all the way to in the mid-360 at least for the next 5 years. However, I think to answer your question, definitely, there's an additional upside at Sabodala-Massawa through resource conversion and additional exploration. For this year, we actually have a budget of almost $15 million to increase those resources at Sabodala-Massawa. Maybe Sonia will have additional information. Sonia Scarselli: Yes. Just to add to what Djaria was saying there. The increase of production in the late '20s driven mainly from the underground development and coming to the pipeline that bring in a very high-grade ore for us in Golouma and Kerekounda, which is very exciting. And then beyond what Djaria already talked about in terms of exploration upside, we have identified several opportunities, both in the exploitation permit and exploration permit that will start to add to the profile in the next couple of years starting with Makana which is brownfield nearby the CIL plant of non-refractory oxide and then moving into Kawsara as well as we are looking at some of the further underground potential. So we definitely have identified opportunities to maintain that pipeline and that profile beyond the end of the 2026. Operator: We will now take our final question for today from the line of Frederic Bolton of BMO Capital Markets. Frederic Bolton: I just want to follow up on Ovais' and Mohamed's questions on Assafou. So there is a $396 million in nonsustaining capital, which I think is on top of the growth CapEx that you have in your financial model. Can you please give me some color on what's within the nonsustaining CapEx? And then within your growth CapEx -- allocated for owners costs. That seems to be quite high when I comp that against other projects of similar size. Can you sort of dive into what might be driving the $250 million? Guy Young: Fred, it was breaking up a little, but I think I've got more or less what you were after. So the key element of the nonsustaining is effectively stripping. So I would just remind everyone, Assafou is relatively deep. So we have a very substantial pre-mining and stripping requirement at Assafou before we get into the ore body. So it is a fundamental driver of the nonsustaining CapEx. At that point, Frederic, on the owners cost we do have some elements within the owners cost that when we compare it to our previous projects would be regarded as slightly higher. I think what we've attempted to do is ensure that we have incorporated and encapsulated all specific costs associated with Assafou. So wherever we have people working on Assafou, bringing teams in, one of which, for example, we are going to be doing, which is a more fundamental cost management team that is being brought in as well as lessons learned from previous projects where we felt that we needed to be able to ramp up slightly earlier in terms of operational readiness. Those are the key factors driving the owner team costs. Frederic Bolton: Does that also include the management for the resettlement and the preparation for the highway diversion? Guy Young: We have the costs associated with the road diversion and power diversion in the infrastructure line, but you're absolutely right, there is a fairly significant effort going into the resettlement that Ian touched on earlier, and that would be included in the owners cost, yes. Operator: And that's the end of the question-and-answer session. Ian Cockerill: And thank you, everybody... Operator: Please continue, sir. Ian Cockerill: Okay. Thank you, operator, and thank you, everyone, for your time. I hope you've heard how pleased we are with the first quarter and how it's set up for continued success throughout the rest of the year. We look forward to meeting up with you again in the midyear when we give our Q2 and H1 results. Thank you all for listening today. Much appreciated. Thank you, and goodbye. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Endeavour Mining's First Quarter 2026 Results Webcast. [Operator Instructions] Today's conference call is being recorded, and a transcript of the call will be available on Endeavour's website tomorrow. I'd now like to hand the call over to Endeavour's Vice President of Investor Relations, Jack Garman. Please go ahead, sir. Jack Garman: Hello, everyone, and welcome to Endeavour's Q1 2026 Results Webcast. Before we start, please note our usual disclaimer. On the call today, I'm joined by Ian Cockerill, Chief Executive Officer; Guy Young, Chief Financial Officer; Djaria Traore, Executive Vice President of Operations and ESG; and Sonia Scarselli, Executive Vice President of Growth and Exploration. Today's call will follow our usual format. Ian will first go through the highlights of the quarter. Guy will present the financials, and Djaria will walk you through our operating results by mine, before handing back to Ian for his closing remarks. We'll then open the line up for questions. I'll now hand over to Ian. Ian Cockerill: Thanks, Jack, and welcome to everyone joining us on the call today. Now Q1 2026 was a record quarter for Endeavour with a strong operational performance and elevated gold price, underpinning a very strong financial results. Production of 282,000 ounces was in line with our plan, and we expect to see progressive improvements as we move through the year as stripping activity opens up progressively higher grade ore through to Q4 later on this year, while all-in sustaining costs on a royalty adjusted basis also came in towards the lower end of our guidance in the quarter. This performance translated into a record free cash flow of $613 million, and that's equivalent to $2,176 per ounce produced. That's a 29% increase over the prior quarter. Through the year, we'll continue to focus on our margins and maximizing free cash flow from every ounce that we produce. This free cash generation transformed our balance sheet. We moved from net debt of $158 million in the previous quarter to now a net cash position of $405 million at the end of this quarter, a $563 million swing in just 3-months. Given the strong balance sheet position and our outlook, we're going to look to increase our shareholder returns through supplemental dividends within our H1 2026 dividend announcement and through continued opportunistic share buybacks. At prevailing gold prices, we expect supplemental returns to at least double -- to be at least double our $1 billion minimum commitment over the next 3-years. On organic growth, as we announced last week, the Assafou DFS confirms a high-quality, long-life asset that has very strong project economics. Early works are underway, and we're targeting a final investment decision before the end of this year. On the exploration front, we're accelerating resource definition of our Vindaloo Deeps target, and we expect to deliver maiden resource in the first half of this year. Simultaneously, our new ventures exploration program continues to expand our exploration footprint into the most prospective Tier 1 gold provinces with the latest strategic investment into Guyana. I'll now take you through each of these areas in a bit more detail. On Slide 7, you see production was 282,000 ounces, down from Q4 due to planned lower grades mined and processed, but in line with the mine sequence. All-in sustaining costs were higher in the quarter, largely due to higher gold price-driven royalty costs with some small impacts from the stripping activity and the higher power costs at Mana. But despite higher costs, our all-in sustaining margin of $2,976 an ounce was $751 per ounce higher than in Q4 as margins continue to consistently expand alongside the higher gold prices. On Slide 8 and the full year guidance, you can see group production and all-in sustaining costs remain on track to achieve guidance. The Q1 production of 282,000 ounces represents approximately 26% of the low end of our guidance range, and we're expecting higher production in the second half of the year, peaking in Q4 as per our planned mining sequence. On costs, while first quarter all-in sustaining costs of $1,834 an ounce sits slightly above the guidance range, this reflects higher royalty costs as a direct result of the rising gold price. On a gold price adjusted basis back to our budgeted level, underlying all-in sustaining costs of $642 an ounce were in the lower half of the guidance range. And let's say that's based on our $3,000 gold price. On capital, we expect both sustaining and nonsustaining capital to be weighted towards the first 3-quarters of the year, aligned with our stripping program. While growth capital of $500 million to $100 million is now expected to support early works at Assafou, mostly in the second half of the year. So overall, we're confident in our full year outlook and expect to see improvements throughout the year. Free cash flow reached a record $613 million in Q1, up 29% from Q4 and equivalent to $2,176 per ounce of gold produced. But we remain focused on maximizing free cash flow for every ounce that we produce, and as operational performance improves throughout the year, we expect to at least partially offset some of the impact of higher taxes in Q2 and Q3. The strong free cash flow has enabled us to rapidly de-leverage the balance sheet in Q1, reducing net debt by $563 million and moving to a net cash position of $405 million at quarter end. And this provides the financial flexibility to deliver our world-class organic growth project Assafou, whilst we pay out sector-leading returns to shareholders. As you know, our leverage target through the cycle is less than 0.5x net debt to adjusted EBITDA. That remains the case, but we do not intend to maintain a very large net cash position either. So we'll stick to our capital allocation model and look to increase shareholder returns while prioritizing Assafou's development as well as our exploration program. On Slide 11, our shareholder returns program is quite clear. Between '26 and '28, we're committed to return at least $1 billion to shareholders and we will maintain this commitment down to a gold price of $3,000 an ounce. And at prevailing gold prices, we could return more than double that minimum commitment to shareholders. Given the strong gold prices so far this year, we're on track to return a significant supplemental dividend when we announce our H1 '26 dividend in our Q2 results. So far this year, we've already completed $54 million of share buybacks, and we'll continue opportunistically and make up a significant component of our supplemental returns. On to our sector-leading organic growth on Slide 12. Now last week, we published the results of our definitive feasibility study, strengthening our confidence in the Assafou project and its potential to transform our portfolio, driving production growth, lowering costs and delivering long-term value. We discovered Assafou for $13 million in 2022. And based on the DFS at a $4,000 per ounce gold price, the project now has an after-tax value of over $5 billion with an internal rate of return of 55%. Now that's value creation and reflects the highly prospective region and the ability to accelerate projects quickly from discovery to production. The Assafou project will be relatively similar to other mines that we've built, albeit bigger. The DFS outlines a 5 million tonne per annum gravity and CIL processing plant optimized to support a smoother production ramp-up and to add additional redundancy to give optionality to expand the plant in the future as we develop and further expand the resource, the exploration resource in the immediate vicinity of the mine. Early works are already underway. Procurement of long lead items have started, detailed engineering and design is progressing and key tenders are already out. We have also launched land compensation negotiations as part of the resettlement action plan, which we need to finalize ahead of starting the resettlement, which is on the critical path. We're targeting a final investment decision before the end of this year and then a construction period of 24 to 30 months. Once construction starts, the resettlement, mining pre-stripping and ore commissioning are on the critical path to production. The resettlement is required for mining to start, so developing the resettlement action plan is a key part of our early works program. Assafou has the potential to be one of our largest, lowest cost assets with the longest mine life, capable of producing 320,000 ounces of gold per year at an all-in sustaining cost of $1,026 per ounce over the first 8 years of its planned 16-year mine life. The DFS also reflects our increased confidence in the mine plan, underpinned by nearly 100,000 meters of additional close spaced drilling. This has increased reserves and resources and introduced maiden proven reserves and measured resources, providing a much higher level of certainty over what we will mine and when, de-risking the ramp-up and early production profile. And importantly, we see significant exploration upside in the immediate vicinity of the mine that will support continued growth in reserves and resources and further enhance the mine plan over time with the potential to sustain production higher levels over this period for much longer. Looking at the exploration at Assafou on Slide 14. Most of our drilling has been focused on the Assafou deposit itself, and we've just started to step out beyond Assafou. We've already identified 20 highly prospective targets on this property that we are prioritizing with a guided $10 million spend for this year. We'll focus on advancing the Pala Trend 3 deposit following the 2025 maiden resource, defining Pala Trend 2 maiden resource and exploration drilling at the Pala Trend Southwest and Koumenagaré. At Assafou, we've discovered a new and highly fertile mineralized Greenstone belt and through our own land package and our strategic partnership with Koulou Gold, we expect to unlock significantly more value across this belt. Now Assafou is key to our organic growth outlook and along increased production at Sabodala-Massawa, we're targeting 27% growth in production to 1.5 million ounces by 2030 with a solid position in the first quartile. On Slide 16, following the launch of our new exploration strategy late last year, we've increased our exploration guidance to $100 million for this year, and we will prioritize adding near-mine resources across the portfolio, expanding resources at the Assafou deposit and nearby targets, whilst advancing new ventures to replenish the longer-term organic project pipeline. And as you can see on Slide 17, we are pleased that we signed a strategic investment of $20 million with Altair for a 9.9% stake. The Guyana Shield is one of the 4 Tier 1 gold provinces that we are targeting through our Greenfield and New Ventures program. And given the Guyana Shield is a continuity of the West African permian, we have a good understanding of the geology as well as the structural context. Now Altair has one of the largest consolidated land packages in Guyana, covering highly prospective ground to the south of recent significant discoveries at Oko West and Oko-Ghanie along the same shear zone. So we're excited about the prospectivity and the proceeds from our investment will be deployed to accelerate these exploration programs. Before I hand over to Guy, I just wanted to touch shortly on ESG. As a long-term partner in West Africa, we will always strive to deliver sustainable value to all of our stakeholders. In 2025 alone, we contributed $2.8 billion to host economies. And over the last 6 years, we've contributed $12.9 billion. This consistent delivery of value alongside continued improvements in governance, stakeholder engagement and ESG management systems is increasingly being recognized. And as a member now of the Extractive Industries Transparency Initiative, we met all transparency expectations in 2025, performing strongly relative to our peer group. In addition, our ISS rating has been upgraded, placing us in the top 10% of our sector, in line with the other strong ESG ratings we continue to maintain. And with that introduction, let me hand you over to Guy, who can take you through the Q1 financials. Guy, over to you. Guy Young: Thanks, Ian, and hello to everyone. As Ian said, Q1 was a very strong quarter financially, driven by the higher gold price and consistency in our operational performance. The realized gold price increased by $937 an ounce to $4,810 an ounce, supporting our record financial performance. Whilst quarter-on-quarter production was down slightly and costs were up partially as a result, adjusted EBITDA increased by 29% and adjusted net earnings increased by 64%. On the cash flow side, operating cash flows were up 21% and free cash flow was up 29%. On Slide 21, you can see that adjusted EBITDA reached a record $880 million, up 29% quarter-over-quarter, and our adjusted EBITDA margin also increased significantly by some 12% to 65%. The higher EBITDA reflects the combination of higher gold prices and lower operating expenses due to the lower production, while the improved margin demonstrates our ability to leverage the benefits of increased gold prices in our earnings. Moving on to Slide 22. Operating cash flow was up 21% to $737 million compared to Q4 2025 due to higher gold prices and lower operating expenses despite increased cash taxes and an increased working capital outflow related to trade and payables, inventory and receivables. Looking now at the operating cash flow improvement in some more detail on Slide 23. The increase in the realized gold price added $169 million to operating cash flow. Gold sold decreased by 24,000 ounces to 278,000 ounces in Q1, which impacted operating cash flow by $99 million. Operating and other expenses were $156 million lower than Q4 due to a number of factors. Firstly, lower nominal mining and processing costs on the back of the lower production, the completion of the hedging program last year, where we recorded a loss in Q4, and these were partially offset by higher royalties. Income taxes paid increased by $23 million to $46 million, reflecting the timing of corporate income tax payments as expected and provisional withholding tax payments at Sabodala-Massawa. On that point, please note for the full year, we've increased our cash tax guidance from $600 million to $700 million to the revised total of $660 million to $770 million, reflecting higher withholding tax payments related to an increase in cash repatriation on the back of higher gold prices. Cash income tax guidance is unchanged for the year. Finally, working capital was a $91 million outflow, a $75 million increase on last quarter's. Key drivers of the increase were a reduction in payables, which we expect in Q1, along with increased VAT and stockpiles. Turning to VAT first. VAT balances increased in Q1 -- sorry, whilst VAT balances increased in Q1, we've seen some positive developments in April with a resumption in direct VAT reimbursements in Burkina Faso, a reduction in processing times in Senegal and higher levels of reimbursements in Cote d'Ivoire, which, if maintained, will positively impact our Q2 working capital. The stockpile increase is due to some deferral in stripping at Hounde and the concomitant stockpile drawdown along with higher mining volumes at Ity. Both these trends are expected to normalize through the rest of the year. Although less material, we have built up supplies of some critical consumables like fuel and explosives to help mitigate any potential impacts from the closure of the Strait of Hormuz. Turning to Slide 24. Free cash flow reached a record $613 million in Q1, up 29% from Q4 despite the lower production and higher ASIC taxes and working capital outflow. Free cash flow has increased each quarter since Q2 2025 as we are benefiting from higher gold prices and successfully converting the majority of additional margin into free cash. The outlook remains very strong at current gold prices, particularly in H2 of this year. I would remind you, however, that for Q2, we expect free cash flow to be lower as a result of seasonal tax payments. This is normal regional tax seasonality with higher corporate income and withholding tax payments, representing approximately 65% of our full year payments to be paid in the quarter. On Slide 25, our cash flow significantly improved our net debt position as shown here. We started the quarter with net debt of $158 million and ended with $405 million of net cash. As detailed on the previous 2 slides, operating activities generated $737 million of cash flow in the quarter. Investing outflows were $125 million, including $75 million of sustaining capital, $45 million of nonsustaining capital and $6 million of growth capital. Financing activities included a net $75 million drawdown on the revolving credit facility alongside $27 million of share buybacks, $8 million of lease payments and $4 million of financing fees, all of which leaves us in a net cash position of $405 million at the end of the quarter. As Ian mentioned earlier, we do not intend to build a large net cash position, and we'll continue to follow our capital allocation model of increased shareholder returns after prioritizing assets for development and exploration requirements. Finally, moving on to net earnings. Earnings from mining operations increased to $776 million, reflecting the higher gold price, partly offset by royalties and sustaining capital. Other expenses decreased with the higher Cote d'Ivoire royalties in the prior quarter now being reported as part of our cost of sales. Deferred tax was a $97 million expense compared to a $53 million recovery in the prior quarter. The change reflects the accrual of additional withholding taxes ahead of expected increased cash upstreaming as a result of the higher gold prices, as I referenced earlier. Adjusted net earnings were $442 million for the quarter or $1.53 per share, up 65% from Q4. Thank you, and I'll now hand over to Djaria to walk you through the operating performance. Djaria Traore: Thank you, Guy, and hello, everyone. Before discussing our operating results, I want to talk about safety, which remains our top priority. We were deeply saddened that one of our contractor colleagues suffered a fatal injury at Mana on 6th of March, as we have previously reported. Following the incident, we've launched a comprehensive investigation, and we've identified several areas of improvement, particularly around contractor on-boarding, supervision and ongoing training. These actions are now being implemented across all our operations. Despite this incident, our total recordable injury frequency rate of 0.72 on a trailing 12-month basis has improved during the quarter and remains one of the lowest in the sector, and we continue all our efforts to eliminate fatal risks. Before turning to the mine-by-mine review, I wanted to touch on our first quarter performance compared to guidance on Slide 29. As Ian mentioned, we are on track to meet full year guidance with performance weighted towards H2 as production and costs are expected to improve at Hounde, Mana and Ity in the second half of the year, and this is in line with the mine plans. For quarter 1, group production was lower compared to last quarter of 2025 due to lower grades at Sabodala-Massawa, Mana and Ity, but again, in line with the mining sequence. The all-in sustaining costs were higher this quarter due to gold sales, higher royalty costs and increased stripping activity. Overall, we are pleased with our progress to date. Starting with Hounde on Slide 30. Production increased as we mine and process higher grades from the Kari West and Vindaloo Main pits. All-in sustaining costs have increased, but largely due to higher royalty costs at higher realized gold prices and to higher sustaining capital from increased waste stripping at Kari West and heavy mining equipment improvement. We will continue stripping at the Vindaloo Main pit pushback, which will support access to better grade to improve production for the year, with costs only expected to realize the benefit later in the year once the majority of the stripping has been completed. On Slide 31, at Ity, production decreased as we mine lower grades from the Bakatouo and Walter pits, while we also processed lower tonnes due to scheduled mill maintenance in quarter 1. All-in sustaining costs at Ity has improved due to lower sustaining capital and the benefit of byproduct silver sales, despite the higher gold prices and lower gold sales. Similar to Hounde, Ity's performance is expected to be weighted towards H2 as blended grades are expected to increase through the year. On Slide 32, you can see that production at Mana was lower quarter-over-quarter due to lower grades and the weighing down on mining activity in the Siou underground deposit, where the reserves are nearly depleted. Similarly, all-in sustaining costs were higher due to the lower levels of production and sales as well as higher royalty costs related to gold prices and the continued use of higher cost self-generated power. On costs, we expect that the grid power availability will improve during quarter 2 as the grid in Burkina Faso adds new capacity. We also continue to improve the resilience of our grid connection at Mana through the automation of the underground ventilation system and the installation of a new transformer and capacitor bank, which is expected to improve productivity and operating costs. In H2, the mining feed from the Wona underground deposit is expected to supplemented with ore from the open pit of Bana Camp, supporting slightly higher grade, throughput and production. Moving to Sabodala-Massawa on Slide 33. Production decreased due to lower grades mined and processed compared to the quarter 4 2025, but in line with the mine sequence. All-in sustaining costs increased due to lower gold sales, higher royalty costs related to the increased gold price and higher sustaining capital. As 2026 progresses, we expect to see steady performance from the CIL plant as improved grades are offset by slightly lower throughput. While on the BIOX side, we expect continuous improvement in throughput and recovery as the ongoing optimization work continues. At the end of quarter 1, we published a technical report for Sabodala-Massawa. And it's also important to remember that this is a conservative reserve only outlook that we intend to optimize and smooth-out through additional explorations and sequencing. The study outlined significant production growth into the high 300,000 ounces by year 2029 with an average production over the next 5 years of 335,000 ounces per annum. The significant increase in production is expected to be driven by the ramp-up of underground mining at the Kerekounda and Golouma deposits. As the mining ramps up, it is projected to deliver higher grade to the CIL plant, coupled with high grades through the BIOX plant from the Massawa North Zone deposit. We will expect to smooth this production profile through sequencing of Massawa North Zone and conversion of additional reserves, which would allow us to achieve and maintain production in the mid-300,000 ounces range for longer. Lastly, turning to Lafigue on Slide 35. Production increased as we mine higher grades from the main pit. We also benefited from improved recovery, which have increased following the completion of processing plant optimization project. All-in sustaining costs have also increased due to significant increase in sustaining capital related to the planned waste stripping this year and higher royalty costs due to the higher realized gold prices and the increased royalty rates. As stripping continues, we expect grades to decrease through the next quarter before again improving as we move into the next pushback in the second half of 2026. Overall, as you can see, the performance has been consistent and predictable during quarter 1. And as a result, we're well positioned for the rest of the year. Thank you for your time, and I will hand over to Ian. Ian Cockerill: Thank you, Djaria. As you've heard, we're off to a strong start operationally, and we've delivered another record quarter financially. But our key priorities from here are quite clear. Firstly, deliver on production and cost guidance; secondly, maximize free cash flow for every ounce that we produce to ensure an optimized balance sheet so that we can deliver sector-leading organic growth and sector-leading shareholder returns whilst remaining a trusted partner to our host countries. We certainly look forward to updating you on our progress throughout the year. And with that, I'd say thank you, and now I'll hand back to the operator, who will be in a position to open up for Q&A. Thanks very much. Operator: [Operator Instructions] We will now take our first question from the line of Alain Gabriel of Morgan Stanley. Alain Gabriel: The first question is for you, Ian. The cash balance is building very rapidly on today's gold prices, and you can easily finance Assafou, meet all your capital returns commitments and still have significant cash pile that is left. Although that's a good problem to have, it also brings some scrutiny on capital allocation. So how are you thinking about M&A at this point in the cycle? And do you think you have the capacity to take on a sizable project like Assafou and pursue M&A at the same time? That's my first question. Ian Cockerill: Thanks, Alain. Yes, look, it's a bit of a Hollywood problem, having the cash and the already well-defined organic growth pipeline. Irrespective of how much cash we have on our balance sheet, we are, as you know, we're really focused on growing this business in an organic fashion. We have lots of opportunities to do that. That's our principal focus. Our other focus is obviously on the exploration side. And I think the investment in Altair gives you another clear indication that's where we would -- we're happy to sort of put our money. We are patient capital investors. We seek the right opportunities to go in to create really outsized value returns to shareholders. It would be nice to do it every quarter, but we're taking a longer-term perspective on that. With respect to M&A, we constantly look. And if the right opportunity came along, obviously, we would look at it. To date, we've looked at several opportunities, but there's nothing has eventually turned out to be positive. But we're not averse to M&A, but our principal focus obviously is on organic growth. Alain Gabriel: That's very clear. And the second question is probably for Guy on the costs of -- or the energy cost impact on the business. Maybe if you can talk to us a little bit more about the diesel exposure across the group. How do you see the conflict impacting your cost base? Are you seeing any supply stress emerge on the supply chain? Because you seem to have managed this very well in Q1. So how are you thinking going forward of these dynamics? Guy Young: Alain, so let's just talk a little bit about the difference in our minds anyway between the security of supply and then the pricing risk. So to the first part, security of supply, as a general comment across all of our sites, we do not rely particularly heavily on fuel or any other related consumables that transit through the Strait of Hormuz. So we've got refineries that we rely on broadly regional, but in particular, in Cote d'Ivoire and Senegal and the crude input into those refineries is predominantly coming from Nigeria. We do have some other refined products that are coming from Northern Western Europe. But as a result of all of that and in discussion with our suppliers and the test of their business continuity planning, we don't perceive security of supply to be the key issue. It is what you've referred to more a question of pricing. When we look across the portfolio, and again, just bearing in mind that fuel is anywhere between 10% and 15% of operating costs, so it's significant, but not that material. When we run numbers bearing in mind local pricing, then we come up with a $10 per ounce AISC impact roughly for every $10 on the price of a barrel of oil. That is what we've seen so far. And when we look forward into the remainder of the year, that's what we're anticipating. So if I look purely at price variance at the moment, we can expect to see roughly a $25 increase in our Q2 costs relating purely to the price of fuel. The one other thing I would just quickly touch on, and Djaria mentioned it in her presentation, but the volume of our consumption of fuel does depend to some extent on grid availability. So where we see declines in grid availability, we will see higher volumes for self-generated power, and that in and of itself will drive a cost increase. So subject to the grid availability, roughly $10 per ounce for every $10 per barrel. Operator: We will now take our next question from the line of Ovais Habib of Scotiabank. Ovais Habib: Congrats on Q1 beat and really a great start to the year. Ian, a couple of questions from me. The first one was answered in regards to the supplies as well as the cost impact on the Middle East side. So that was good. Just moving on to Assafou. Ian, you released a robust DFS on Assafou, permits have been received. What's keeping you back on pressing the green light to start construction on the project? Ian Cockerill: Yes. Thanks, Ovais. Look, as you know, as far as Assafou is concerned, we already have the environmental permit. We have the exploitation permit. We're currently in negotiation with government around the mining convention. Obviously, it's important that we get that done. Part of that process involves the creation of a local entity, and that's a normal administrative process. I have to say the government of Cote d'Ivoire have been incredibly supportive on this project. They recognize the importance to the country as well as to us. And in fairness are really sort of trying their best to make sure that all necessary permits, approvals, whatever are sort of timeously being expedited. In terms of what is it that is still outstanding, obviously, one of the key issues, as we mentioned in the presentation, was finalization on the resettlement. We have two villages that sit on top of the ore body. We're in negotiations with those communities and seeking their assent and approval for -- to get moving. That is necessary before we can actually start mining activities because both those villages would potentially be within the normal sort of blast perimeter for the start of it. The other -- one of the other issues to be addressed is, there is a national road that runs through the footprint of the pit that needs to be diverted. We are very close to concluding the optimal diversion of that road. There's been some towing and throwing on that, but we're close to getting that concluded. Those, I think, are the two key outstanding issues. And obviously, I think it's always important as far as negotiations are concerned, the government knows that we're keen to progress. They're keen for this project to progress, but it's important that we keep our options open. But to give you some idea of our confidence that the project is going, we've already committed up to -- it's about $80 million worth of pre-expenditure principally aimed at long lead items such that this is another way that we can help derisk the project by making sure that long lead items can be manufactured, transported and delivered well on time, and they don't delay any of the build program. So we're running several things in parallel. I'm still reasonably comfortable that by the end of this year, we will formally announce the project. But I think you can see just by what we're actually doing already, we do believe that this is -- it's not a question of if this project goes, it's merely a question of when. It's as simple as that. Ovais Habib: Got it. And just maybe moving on to the exploration side, and maybe this is a question to Sonia if she's online. Obviously, you guys have a large exploration program for 2026. I just want to hear in terms of which target or area Sonia is most excited about? And when should we start receiving some exploration results? Ian Cockerill: Yes. Look, I'll pass on to -- Sonia is with us. I'll pass on, but I can tell you she's excited about all the areas. Sonia Scarselli: Thank you, Ovais, for the question. It depends how much time you have for me talking about the exciting pipeline. Look, if I just start to talk about a couple of areas, definitely, we have a great results at Vindaloo Deeps and Hounde, and we are planning to actually report the results of the maiden resource in the H1. So more to come on that with also a clear understanding of the upside potential. But then if we move into the other areas, we have exciting results in Sabodala-Massawa. We have completed a full portfolio review and identified over 20 new opportunities in the pipeline with the first one coming with a very clear resource -- major resource by the end of the year at Kawsara. So that's very exciting. And in parallel, we also have identified more underground potential in the area, both in Sabodala and Sofia, more to come towards the end of the year with concrete results. Then if we switch gear to Cote d'Ivoire, there's plenty there to look at. It's more around which one we prioritize first, but Ity continues to surprise us in a positive way. We had a very great result at the back end of last year, both into the greenfield and brownfield opportunities, and we are now infill drilling on the brownfield close to the CIL plant. And then Assafou, a lot of the work that we did in Assafou in the past couple of years was really to get the confidence on the Assafou resource. We have that. It's moving on with the DFS. And there is now quite a large potential of under-explored brownfield opportunities that we are progressing in parallel to get a better feeling. Those are less mature in terms of exploration activities. We will be able to give a little bit more better understanding both towards the end of this year as well as next year. But overall, it's a very exciting pipeline within our existing areas... Ovais Habib: Sorry, go ahead. Sonia Scarselli: No i was just going to... [Technical Difficulty] Operator: [Operator Instructions] We have the speakers back. Please continue. Ian Cockerill: Sorry, could the last speaker, please reask the question. I think we just completed Ovais' question and we're moving on to the next. Operator: You have any follow-up question, Ovais? Ovais Habib: No I am good. Thank you so much for answering my questions. Ian Cockerill: Apologies for cutting you short there Ovais, but we had an electronic glitch here. Operator: We will now take our next question from the line of Richard Hatch of Berenberg. Richard Hatch: Congrats on a very good quarter. You're delivering as you promised you said you would, and you're generating that free cash flow, which is really good to see. Look, just two questions. Firstly, just given the volatility that we're seeing in Mali, can you just talk a little bit around if that's creating any kind of instability in the broader region, if you're seeing anything in that regard to your operations? And then secondly, just on Vindaloo Deeps, you did sort of talk briefly about it there, but I just wonder if you might just be able to expand a bit more about what you're hoping to show the market on that when you update on the resource and how we should think about that into the short, medium and longer term? Ian Cockerill: Richard, thanks. Look, I think as everybody knows, Mali does not fall into any of our jurisdictions where we have operating assets. We have an old legacy asset, the Kalana mine that we're in the process of selling. That sale process continues. And certainly, our understanding is that the type of activity, that the civil unrest that's taking place does not appear to have migrated right down towards Kalana. It's a relatively, in Mali terms, much more benign region. So we're not -- we have no immediate impact on our operations due to Mali. In terms of the potential for spread across from Mali to elsewhere, at the moment, no. I mean the obvious place where there might have been some spread was into Burkina Faso. The situation in Burkina appears relatively calm. We're not seeing any deterioration in the local situation. The security forces are sort of on top of things in that country. We're working hand in glove with them. And again, we're not experiencing any current issues, and we're not anticipating any issues into the immediate future. As far as Vindaloo Deeps is concerned, as Sonia said, we will be -- in a short period of time, we'll be coming out with an update on the size of the resource and timing of when that would start coming into the plan. There's still one or two minor things to finalize. But as soon as that is ready for publication, we will come to the market. What I would say is I don't think the market is going to be disappointed. I think they're going to be very pleased with what's coming out of Vindaloo Deeps. Operator: We will now take our next question from the line of Amos Fletcher of Barclays. Amos Fletcher: I had a couple of questions. First one was just on working capital. Obviously, there's quite a lot going on within the working capital line this quarter in particular. But it was, I guess, quite a surprise how big the build was. I was just wondering, Guy, whether you can give us a bit of a steer on how you expect it to play out over the next few quarters? Guy Young: Sure, Amos. Thank you. Yes, working capital outflow was relatively significant. So I touched on it in the presentation, but maybe just walk through that again with a focus on stockpiles, which is the -- it's roughly 2/3 of that outflow. The stockpile increase is obviously in relation to mining tonnage. And the difference between our original expectation and our actual Q1 was an element of deferral of some of the waste stripping, particularly at Hounde, revolving around both production profile and fleet availability. So this is something that we expect to see pick up again in Q2 and marginally at the start of Q3. As we pick up in stripping activities, we should be seeing naturally something of a drawdown on stockpiles and further stockpile drawdown is anticipated at Sabodala-Massawa going into the second half. So with regards -- sorry, and Lafigue continued increase in stripping activity as well. So with the majority of our sites looking to do some stockpile drawdown, the types of build that you saw in the first quarter should not be repeating over the remainder of the year. And then without going into any detail as it wasn't part of the question, but I think there are positive trend indicators on both the VAT and the consumer build as well. So hopefully, the level of working capital build does not repeat through Q2, 3 and 4. Amos Fletcher: So potential for further build but smaller levels over the next couple of quarters, you'd say? Guy Young: So we could see build depending on sites. So as an example, we'd love to see some more stock at Mana, making sure that we've got plant utilization. Lafigue, Houndé and Sabodala should see some stockpile drawdown. Amos Fletcher: And then the second question, I just wanted to ask for, I guess, a broader update on the Senegal mining code revision process. Has there been any developments to report over the last few months on that? Ian Cockerill: Yes. Amos, no new developments to report on that as yet. Operator: We will now take our next question from the line of Carey MacRury of Canaccord Genuity. Carey MacRury: Congrats on the great start. Maybe just another question for Guy. You've got over $1 billion in cash now, but still have some money drawn on the credit facility. Just wondering, I assume you're going to pay that down later this year. And is there any plan to pay down the Cote d'Ivoire debt early or just leave that as is per the schedule? Guy Young: Okay. To the first question, the RCF drawdown, I think you know us pretty well. So you'll remember, we've got a cash cycle effectively that means predominant offshoring capacity comes via OpCo dividends. We will pay our withholding tax in Q2, effectively allowing us to commence with the repatriation in Q3. Speed of that repatriation dependent on mine site cash levels, that money comes offshore, utilize that to pay down the RCF. So current forecasts, we should have the RCF paid down in Q3 as soon as we get our OpCo dividends up. Carey MacRury: And on the Cote d'Ivoire debt? Guy Young: Thank you. I was really struggling to try and remember the second part of your question. I appreciate it. The Cote d'Ivoire debt, no, I think we'll keep that in place, Carey. So where we see -- as you can probably imagine, there is both cash and liquidity plus tax advantages for us to be holding local debt. So no, we wouldn't look to pay that off early. We would have alternative uses for that cash. So I expect the Cote d'Ivoire facility to remain in place and amortized as already disclosed. Operator: We will now take our next question from the line of Anita Soni of CIBC. Anita Soni: Most of them have been asked and answered, but I just wanted to ask about -- have you had any recent conversations with the S&P/TSX about index inclusion? I understand from the tech process that the S&P has reached out to stakeholders to look at including companies that are not incorporated in Canada in the TSX. And I know you were removed a couple of years ago. So I'm just wondering if you had any recent discussions with them? Ian Cockerill: Anita, Jack has informed me that the -- there is obviously talk of inclusion in the index of companies on TSX that are not Canadian domiciled. So that would obviously be a tailwind for us. But we haven't had any detailed conversations. So our understanding is it's early doors, but nothing tangible from our perspective in terms of contact no. Operator: We will now take our next question from the line of Mohamed Sidibe of NBC. Mohamed Sidibe: All of my questions have been answered. Just wanted to maybe ask a question on the timing of CapEx for Assafou as it relates to the pre-expenditures of $50 million to $100 million that you guided to for the year. Ian Cockerill: Mohamed, very simply, what we have done is we've identified the long lead items, basically buying in to the queue for mill shelves, big HPGR kit and what have you. So we flagged the level of expenditure around about plus/minus $80 million. I think you could say that, that expenditure would be spread over the year. It's not all going to come in one lump sum. We are in the process of discussing with various suppliers, getting the final quotes from them. And once that's done, obviously, there will be an element of timing of that spend. So you should assume it will be spread out over the balance of the year. Mohamed Sidibe: And congrats on a great quarter. Ian Cockerill: Thank you. Operator: We will now take our next question from the line of Felicity Robson of Bank of America. Felicity Robson: You've provided an update on Sabodala's production profile. Could you provide some color on where you see further scope to supplement this maybe with resource conversion or exploration in the near term? Djaria Traore: Thank you, Felicity. I think we, as you mentioned, are very happy to have published NI3-101, whereby we are stipulating that there will be an increase in production Sabodala-Massawa is purely currently on the mineral reserves. We've seen already an increase when you look at the production profile 2026 versus 2025. What we're also seeing is that from 2029, we'll see a significant increase all the way to in the mid-360 at least for the next 5 years. However, I think to answer your question, definitely, there's an additional upside at Sabodala-Massawa through resource conversion and additional exploration. For this year, we actually have a budget of almost $15 million to increase those resources at Sabodala-Massawa. Maybe Sonia will have additional information. Sonia Scarselli: Yes. Just to add to what Djaria was saying there. The increase of production in the late '20s driven mainly from the underground development and coming to the pipeline that bring in a very high-grade ore for us in Golouma and Kerekounda, which is very exciting. And then beyond what Djaria already talked about in terms of exploration upside, we have identified several opportunities, both in the exploitation permit and exploration permit that will start to add to the profile in the next couple of years starting with Makana which is brownfield nearby the CIL plant of non-refractory oxide and then moving into Kawsara as well as we are looking at some of the further underground potential. So we definitely have identified opportunities to maintain that pipeline and that profile beyond the end of the 2026. Operator: We will now take our final question for today from the line of Frederic Bolton of BMO Capital Markets. Frederic Bolton: I just want to follow up on Ovais' and Mohamed's questions on Assafou. So there is a $396 million in nonsustaining capital, which I think is on top of the growth CapEx that you have in your financial model. Can you please give me some color on what's within the nonsustaining CapEx? And then within your growth CapEx -- allocated for owners costs. That seems to be quite high when I comp that against other projects of similar size. Can you sort of dive into what might be driving the $250 million? Guy Young: Fred, it was breaking up a little, but I think I've got more or less what you were after. So the key element of the nonsustaining is effectively stripping. So I would just remind everyone, Assafou is relatively deep. So we have a very substantial pre-mining and stripping requirement at Assafou before we get into the ore body. So it is a fundamental driver of the nonsustaining CapEx. At that point, Frederic, on the owners cost we do have some elements within the owners cost that when we compare it to our previous projects would be regarded as slightly higher. I think what we've attempted to do is ensure that we have incorporated and encapsulated all specific costs associated with Assafou. So wherever we have people working on Assafou, bringing teams in, one of which, for example, we are going to be doing, which is a more fundamental cost management team that is being brought in as well as lessons learned from previous projects where we felt that we needed to be able to ramp up slightly earlier in terms of operational readiness. Those are the key factors driving the owner team costs. Frederic Bolton: Does that also include the management for the resettlement and the preparation for the highway diversion? Guy Young: We have the costs associated with the road diversion and power diversion in the infrastructure line, but you're absolutely right, there is a fairly significant effort going into the resettlement that Ian touched on earlier, and that would be included in the owners cost, yes. Operator: And that's the end of the question-and-answer session. Ian Cockerill: And thank you, everybody... Operator: Please continue, sir. Ian Cockerill: Okay. Thank you, operator, and thank you, everyone, for your time. I hope you've heard how pleased we are with the first quarter and how it's set up for continued success throughout the rest of the year. We look forward to meeting up with you again in the midyear when we give our Q2 and H1 results. Thank you all for listening today. Much appreciated. Thank you, and goodbye. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Good afternoon, everyone. My name is Bo and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's First Quarter 2026 Conference Call. The slides accompanying today's call are available at Investor.cpkcr.com. [Operator Instructions] I would now like to introduce Mr. Chris de Bruyn, Vice President, Capital Markets. Please go ahead, sir. Chris de Bruyn: Thank you, Bo. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel. Keith Creel: Okay. Thanks, Chris, and thanks, everyone, for joining us on the call today. As always, I want to start by thanking our 20,000 strong family of railroaders across these 3 great countries that deliver the results we're honored to share with everyone today. So for the quarter, the team delivered revenues of $3.7 billion, volume growth 2% on an RTM basis. Operating ratio was 63% and earnings of $1.04. Overall, strong execution across the board operationally, commercially and financially, and they did this in a very dynamic environment. Certainly, the first quarter's results, we saw some impacts from volatile fuel and FX markets. That said, that tide has turned, and I'm very pleased with the underlying performance and our strong start in the second quarter. When I step back 3 years in our journey at CPKC, what gives me continued confidence is not just the quarter itself, but the trajectory that we're on as a network and as a company. On the operating side, the network again performed exceptionally well in the first quarter, building on our strong momentum from 2025, delivering first quarter operating results, record levels, reflecting continuous improvement we've seen since the merger. Productivity, velocity and asset utilization all continued to move higher, which tells me two things. First, the railroad is structurally better. And second, our people are executing with discipline each and every day. The gains are translating into better service capacity, improved efficiency, and that's exactly how we intend to continue to railroad. On the labor front and the safety side as well, I'm going to spend a couple of moments talking about our people. As we recently announced, reaching long-term tentative agreements with both SMART-TD and the BLET on the legacy KCS is a significant milestone for this company. These agreements improve quantity of life or our railroaders while providing the operating stability we need to continue driving performance and service reliability in this key growth corridor. Looking at safety, our focus remains unwavering. We made progress on the personal injury side. And while train accident frequency increased from an all-time low last year, our fundamentals remain extremely strong. On the commercial side, the franchise performed very well. We delivered solid volume growth across the network led by the record grain and continued momentum from our unique North American footprint. The exceptional grain volumes were supported by record harvest and our ability to efficiently connect Canada, the United States and Mexico. Automotive, International, Intermodal and our MMX service also contributed. FX mix and more macro factors pressured yields in the quarter of course, Regardless pricing discipline remains strong. And as we move through the year, the yields have improved as comparisons normalized and market conditions that became more supportive. On shareholder returns from a finance perspective with our balance sheet in a position of strength and the business generating strong cash flow, we announced a new share buyback program to repurchase up to 45 million shares. Yesterday, we announced a 17.5% increase to our quarterly dividend. We're certainly pleased to be in a position to continue returning cash to shareholders, particularly amidst a volatile market. So in closing, looking ahead, we feel very good about where we are. The network is running extremely well. Our unique growth drivers continue to remain firmly intact, comparisons improve through the year and most importantly, we have a team that knows how to execute and a franchise that continues to differentiate itself. We're going to remain focused on disciplined execution, strong service and delivering long-term value for our customers and our shareholders. Mark, over to you. Mark Redd: Yes. Thank you, Keith, and good afternoon. I want to start by thanking our operating employees who delivered first quarter operational results across the -- our record first quarter across the North American network. The quarterly results demonstrate a tremendous job providing strong service, delivering efficiency, managing costs through the winter. As we reflect on the 3 years as a combined company, our team has done a tremendous job of safely executing on our vision delivering resilient and industry-leading service for our customers. Now turning to the quarter. I'm very pleased with our network performance, which reflects a clear pattern of continuous improvement since the merger. Now as I step back since the first quarter of 2024, I can see our train weight and length has increased by 9% and 7%, respectively. Our locomotive productivity has improved by 8% and while the fuel efficiency has improved by 2%. Our velocity across the system improved to 4%. These results highlight our progress as ongoing productivity and velocity gains continue to drive improved cycle times, better asset utilization and dependable customer service for '24, '25 and as we look into '26 for the first quarter. And while these results are encouraging, we still see opportunity ahead, we are executing several focused velocity initiatives across the key North-South network to drive further improvement in the velocity in our fluidity and capacity. Now turning to labor, and I'm very pleased to share that CPKC reached a tentative long-term agreement with SMART-TD and BLET unions. This is an 8-year agreement covering approximately 1,700 train service employees across 11 U.S. states. Once ratified, our hourly agreements will be largely optimized across our U.S. network. This represents a key labor milestone and positions us for a drive -- for additional operating improvements. Importantly, these agreements bring meaningful improvements in pay, but also quality of life for our railroaders by delivering the stability and flexibility we need for operating efficiently and reliable over the next decade. Now turning to safety. Our focus remains on sustaining strong fundamentals and disciplined execution across the network. As I look at our FRA personal injuries, we landed at a 0.91 and our train accident frequency was 0.93. We continue to make progress in our personal injury performance. And while train accident frequency increased year-over-year, it follows an all-time record low in Q1 of 2025. We remain committed to our Home Safe program and to continue driving continuous improvement across our network. Now turning to resource and capital, we remain well aligned with our growth outlook and expect continued strong productivity improvements in 2026. From a capital perspective, we have received 36 of the 100 Tier 4 locomotives in addition to the 100 million that we delivered in 2025. These locomotives are delivering meaningful improvement in efficiency and reliability, particularly across the Canadian network. We are continuing to drive and deliver on our merger-related capital improvements, these upgrades continue -- or combined with focus and velocity initiatives improving speed and our velocity on the critical North South network. I'm also pleased to share that we have completed capital improvements on our portion of the SMX East-West corridor with CSX connecting shippers to Mexico, Texas and the U.S. where now speeds up to 49 miles an hour on this network. In closing, the network is operating from a position of strength with record performance supported by sustained improvements in efficiency, velocity and service, our investments in capacity, power and safety paired with the labor stability, and we are well balanced and resource network or reinforcing our ability to deliver reliable services volume growth. As we look through 2026, we remain focused on disciplined execution, delivering long-term value for our customers and our shareholders. With that, I'll pass it over to John. John Brooks: All right. Thank you, Mark, and good afternoon, everyone. I'm pleased with our first quarter performance and the way this network and team continues to deliver and execute for our customers. Despite a very high bar, this franchise again produced a record Q1 RTM growth, now 6 of the past 7 years, with the only exception being the strike year in 2022. This quarter, we again delivered solid volume growth across the franchise, supported by strong grain shipments, continued pricing discipline and contributions from synergies and self-help initiatives. While mix and macro factors impacted cents per RTM in the quarter, our underlying performance remains strong, and I'm encouraged by the momentum to start the second quarter. Now looking at our Q1 results. This quarter, freight revenue was down 3% on a 2% RTM growth. Cents per RTM was down 4%. We continue to deliver strong pricing with renewals exceeding the top end of our long-term 3% to 4% outlook. Yields in the quarter were impacted by FX, the removal of the federal carbon tax in Canada and negative mix. Now in April, cnets per RTM has inflected positive supported by our pricing, lapping the carbon tax removal, macro tailwind from higher fuel prices and moderating mix headwinds. Now taking a closer look at our first quarter revenue performance, I'll speak to in FX-adjusted results. Starting with our bulk business. Q1 was a record quarter for grain across revenue, RTMs and carloads with revenue up 14% and 12% volume growth. Canadian grain volumes were up 13%, supported by record harvest that's up 20% year-over-year. Our U.S. grain volumes rose 12%, driven by a record corn crop and higher volumes to Mexico and the Pacific Northwest. This performance highlights the strength and diversity of our franchise as customers leveraged our unique North American network to access new destination outlets, driving a 50% increase in trains from Canada and the U.S. into Mexico. Now looking ahead, we expect grain to continue to deliver outsized growth deep into the current crop year. In potash, revenues were down 2% on 2% volume growth driven by continued strong demand for export shipments. With solid demand fundamentals and Canpotex fully committed through the first half of the year, we continue to expect potash to be a solid contributor to our base business in 2026. To round out bulk, coal revenue was down 11% on a 10% reduction in volumes. This reduction was driven by a number of unexpected production-related issues at customer mines that impacted shipments through the quarter. As a result, coal alone reduced Q1 RTMs by over 1%. While we expect volumes to stabilize in the second half of the year, we expect coal to continue to be a headwind in Q2 and on the full year. Moving on to our merchandise business. Energy, chemicals and plastics revenue and volume declined 5% in the quarter. This decline was driven by lower refined fuel volumes to Mexico reduced Pemex heavy fuel oil shipments and the impact of a plastics plant closure late last year. Looking ahead, we are seeing our ECP volumes continue to stabilize, supported by increases in crude market share wins and self-help initiatives. Our forest products revenue declined 14% on a 10% decline in volumes. Volumes were impacted by tariffs on Canadian lumber exports to the U.S. along with the broader macro softness in housing in the pulp and paper markets. Now similar to ECP, we are seeing this business also stabilize with a focus on offsetting headwinds through truck conversion, synergies and market share gains. Encouragingly, we delivered record volumes of building projects into the Texas market during the month of March and orders have continued to improve as we move through April. Metals, minerals & consumer products revenues were down 1% on 3% volume growth. Growth in this space was supported by strong industrial development pipeline and synergies, including new long-haul business in sand, stone and other aggregates supporting construction activity across our network. This strength was partially offset by ongoing impact of tariffs on our cross-border steel business. Overall, we remain very encouraged by industrial developed momentum on our network and expect to continue mitigating tariff headwinds through targeted sales campaigns across our network. Moving on to the automotive sector. Revenue was down 6% on 2% volume growth. Our auto franchise delivered another quarter of volume growth from new business wins, including land bridge shipments from Mexico to Canada with a 13% increase in our average length of haul in this business unit. We delivered this performance despite challenging compares from pull forward shipments ahead of tariffs last year. While uncertainty remains in this area around production levels and automotive sales, we expect another year of outperformance and growth in automotive driven by our wins in 2025 and new opportunities that will come online later this year. Now closing with our intermodal business, revenue was down 1% on 3% volume growth. I'm pleased to announce that we extended new long-term contracts with Hapag-Lloyd and Loblaw Companies cementing the foundation of our intermodal franchise and unlocking new growth initiatives with both across Canada, the U.S. and Mexico for years to come. In International Intermodal volumes were up 8% and on business into the Port of Vancouver, including continued growth with our partners at Gemini. Now looking ahead, comparisons will be more challenging in the second quarter before new product offerings come online at the port of St. John and also at Lazaro and they pick up in the second half of the year. In domestic intermodal, volumes were down 1% in the quarter, our MMX train was up 12% year-over-year in Q1, marking the ninth consecutive quarter of double-digit growth on this train. This growth was offset by a slower ramp-up of our Mexico volumes in January, combined with demarketing low-margin business in domestic intermodal on our Canadian franchise. I'm also encouraged by early traction on our SMX service and partnership with the CSX. Following infrastructure investments made across this route over the past year, I'm excited to announce that we will formally launch a faster SMX product next week. The SMX will offer customers truck-like reliability linking some of North America's largest production and consumption markets between Mexico, Texas, Georgia and Florida. Looking ahead, we are encouraged by the timing of this launch as we are seeing early signs of incremental truck to rail conversions driven by higher fuel prices, tighter regulatory enforcement and reduced trucking capacity. Now to close, our results reflect strong execution, record grain volumes and continued unique contributions from synergies and self-help. With good momentum to start the second quarter, more favorable comparisons ahead in improving yields, this network is primed to deliver another solid year of growth. And with that, I'll pass it over to Nadeem. Nadeem Velani: All right. Thanks, John, and good afternoon. This quarter's results reflect strong execution and cost control across the network, which drove solid financial performance. While the quarter was impacted by fuel and FX headwinds. I'm very pleased with the underlying performance of the business. The resilience of our network and our growth opportunities remain intact. Our core performance continues to be strong, reflecting the strength of our franchise durability of our operating model and consistent execution by our team. Now turning to our first quarter on Slide 12. CPKC's reported operating ratio was 66%. Our core adjusted OR was 63%, up 50 basis points from last year. Diluted earnings per share was $0.94 and core adjusted diluted EPS was $1.04, down 2% versus last year. The year-over-year decline included approximately $0.04 of impact from foreign exchange and $0.03 of impact from changes in fuel price. We also saw an additional $0.01 impact from FX losses on cash and net working capital below the line. Taking a closer look at our expenses on Slide 13, I will speak to the year-over-year variances on an FX-adjusted basis. Comp and benefits expense was up 2% versus prior year. During the quarter, wage inflation and higher stock-based compensation were partially offset by continued productivity gains from improved train weights and workforce optimization. We expect to generate continued strong labor productivity in 2026, with headcount up modestly on mid-single-digit volume growth. Fuel expense was $458 million, down 4% year-over-year. The decline was driven primarily by the elimination of the Canadian federal carbon tax on April 1, 2025. Along with improved efficiency and benefit from our contract discount, partially offset by the impact of changes in diesel benchmark prices. Our 2% improvement in fuel efficiency drove $8 million in year-over-year savings from improved train weights and locomotive productivity. Materials expense was $127 million, up 3% year-over-year. The increase was primarily driven by volume-related expense and inflation, partially offset by efficiency gains from contract optimization and lower locomotive material costs. Equipment rents were $95 million, flat versus last year, driven by efficiency gains, offset by volume-related expenses. Depreciation and amortization expense was up 4% driven by a larger asset base. Purchased services and other expense was down 3% versus prior year. The improvement was driven by productivity and in-sourcing initiatives, partially offset by cost inflation. Now moving below the line on Slide 14. Other expense was $20 million, a $13 million increase year-over-year, driven primarily by FX losses on cash and net working capital. Net interest expense was $228 million or $223 million, excluding purchase accounting. The increase was driven primarily by interest on new debt partially offset by lower credit facility and commercial paper balances as well as debt repayments. Income tax expense was $275 million or $305 million adjusted for purchase accounting and significant items. We continue to expect the full year core adjusted effective tax rate of approximately 24.75%. Now turning to Slide 15 and cash flow. Net cash used in investing activities was down 6%, primarily driven by 7% lower capital spend. We remain well on track to deliver full year CapEx $2.65 billion, a 15% reduction year-over-year. We also maintained a balanced and opportunistic approach to shareholder returns, deploying $680 million through share repurchases in the quarter. Along with dividends, shareholder return spend increased 69% in Q1. I'm also pleased to share that yesterday we announced a 17.5% increase to our dividend, reinforcing our commitment to balance shareholder returns. In closing, with the network continuing to run well, toughest quarter from a compares perspective behind us and a strong start to the second quarter, we are well positioned to deliver another year of strong results. The business is executing at a high level, generating strong cash flow and providing meaningful capacity to return cash to shareholders. I fully expect us to return to double-digit EPS growth here in Q2 and the second half, and we'll deliver on our full year double-digit EPS guidance. With that, let me turn it back to Keith. Keith Creel: Thank you, gentlemen. Let me go back to the operator, and we'll open it up for questions. Operator: [Operator Instructions] We'll go first this afternoon to Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: Yes. Thank you. to I think the year was always expected to kind of start slow from a volume growth perspective versus the mid-single-digit guide for the year. Maybe if you can, John, share with us what you are hearing from customers, what does the pipeline look like in the segment that you expect to kind of lift you to that mid-single-digit range as we go into the balance of the year? And if there's any framework to think about what Q2 volume potentially you're kind of looking for? . John Brooks: Yes. All right, Fadi. So yes, it was certainly an interesting Q1. It just genuinely started off slow, and then we had some pent-up demand and actually February turned out to be quite strong in March sort of as we expected, as I mentioned, we definitely weren't counting on the drag related to the coal side of the business. Now looking ahead, I'll tell you, just about everything outside of our coal business has inflected positive. I'm quite pleased despite the tariff headwinds that remain out there and some of the challenges, particularly in our ECP space that we faced in Mexico with refined fuels. Despite that, they've clawed their-self even back to sort of flat year-over-year on strong demand and growing demand in crude and also our plastics business. So look, I fully expect our bulk business, that being Canadian grain, U.S. grain and potash to continue to provide really strong numbers as we move through Q2 and into the back half of the year, Fadi. I'm definitely not counting on our coal business, and that's going to have to be a headwind that we're going to have to sort of erase or make up for. As I look at our merchandise ECP forest products business, as challenged as those areas have been. As I monitor our car orders, we after week in those three segments. We've seen a pretty steady increase. When I said we sent record volumes into Texas of building products in March. To be honest with you, a lot of that was Canadian stuff coming cross border. So that's a really positive sign and a sign that we haven't seen for quite some time. And I'll tell you, I think a lot of it's driven by there is product moving in some of these traditional lanes. It's been moving truck. And I think what we're starting to see is some of this stuff slip back over to rail, not only in a little bit of an intermodal tailwind in that front, but also a carload tailwind we're seeing in some of these areas. So I do believe that's positive. We're going to watch it. I'm not spiking the football at all. But certainly, there's some upside there. And then as I go down the list, we're going to continue to outperform in the automotive sector. The team has just done a really good job to put pucks in the net and there's some stuff that's coming on yet. There's a little bit of pent-up demand that wasn't moved in the first half of the year that we're going to see. And then finally, on the intermodal side, I couldn't be more excited about our SMX product. That thing is going to pay dividends this year. We're going to see growth in the back half of the year on that partnership with the CSX. I think we proved it with the MMX you develop a product that can compete head-to-head with trucks, and they will come. And the fact that we're launching this in a really, I think, improving environment is only going to help I think our sellers to go out and try to fill that train up. So I hope that helps. Fadi Chamoun: Yes, sure. Maybe one follow-up on this Loblaw, Hapag-Lloyd contract you talked. Is this a renewal? Or is there a scope change in that relationship? John Brooks: Well, maybe a little bit of both. They are contract renewals that we -- prior contracts that we had in place that we've extended for long term with both. I think the neat thing about them and really because of the breadth of this new network, we've been able to intertwine a whole lot of new opportunities within those -- both of those contracts. It's frankly staggering the amount of trucks that a company like Loblaw utilized coming up from Mexico or the United States and how we can create and develop new solutions, not only dry van, but reefer solutions with them. And also, as we've talked about a lot with Hapag-Lloyd, I'm excited about the opportunity to how we are continuing to grow our St. John. We're excited about what the future might hold with them if, in fact, that progresses and goes forward as we look to next year. And Hapag continues to win not only in the Mexico, intra-Mexico market, Fadi, but also we continue to slowly build volumes going northbound and all that coming out of Lazaro. So they are traditional contracts that we're extending forward but they also have quite a bit of sort of new tentacles related to what this network brings to the table. Operator: We go next now to Chris Wetherbee with Wells Fargo. Christian Wetherbee: I maybe wanted to pick up on what sort of the Nadeem ended with in terms of the guide for the rest of the year, a slower start for earnings growth sounds like 2Q, you're expecting to reaccelerate into the double-digit growth range for earnings. I guess we heard from John about some of the top line opportunities. Maybe just sort of help fill out sort of the walk from where we were in 1Q to the ability to get back to that double-digit year-over-year EPS growth in 2Q and beyond? Nadeem Velani: Sure Chris. So a couple of things. Number one, we're Q1 was very much according to plan. Like when we look at -- John mentioned the revenue cadence. Operationally, Mark and team had the railroad running very well. And pleased with some of the productivity initiatives. So -- but that being said, we had our toughest comp from a currency point of view. So Canadian dollar was quite weak a year ago in January, and that it's created quite a headwind year-over-year. You saw it in the cents per RTM and that's probably a bit of a surprise as far as the overall cents per RTM, combine that with fuel and the carbon tax surcharge that went away. So effectively, those had headwinds dissipate. And in fact, fuel turns into a bit of a tailwind. We saw the headwind in March with spot fuel increase our costs right away, but we don't get the fuel surcharge until delayed. And so we saw that results here in April. And so as we look at Q2, I feel very confident both with record volumes that we're moving today, April is going to be a record month for us across the board in CPKC history and combined the two companies. So the top line perform extremely well. The railroad continues to run well, the FX headwinds, we even had some unique things as far as below the line that impacted us just with the volatility on currency, that goes away. And so some of that noise disappears and the underlying business continues to perform and gives us strong confidence in that strong double digits here in Q2 and a very good back half in what we see as far as both from a volume point of view and what we can deliver with this lower cost base. So we're pretty bullish, Chris. Operator: We'll go next now to Kevin Chiang at CIBC. Kevin Chiang: You talked about some of the headwinds related to the coal franchise. I think some of that might be related to maybe some of the adjustments, Glencore is making to the Elk Valley Resources, play that they acquired from Teck. Just wondering, do you see this as primarily a 2026 issue and they ramp up in '27? Or is this an adjustment that could take a little bit longer and bleed into next year potentially? . John Brooks: Yes, Kevin. So honestly, I think the feedback so far is we're going to probably continue to struggle somewhat through Q2. I do believe there's some optimism around some things that they want to deploy the second half of the year that could bring some upside to those volumes. Now at the end of the day, I think the lost opportunity these first 4 months in the next couple of months will be hard to make up in terms of sort of full year compares. But we remain optimistic that the second half of the year, and I think they remain optimistic that the second half of the year will be better. I know they continue to work through some of the permitting in issues that have been out there for quite some time now. I don't really have any additional feedback at this time. And what that looks like timing-wise with the federal government. Operator: We go now to Tom Wadewitz at UBS. . Thomas Wadewitz: Keith, I wanted to ask you about -- I know you get this last couple of calls, but I just saw that kind of news today as the Rail Coalition against -- or the Coalition against the rail merger. And shipper groups, Teamsters, rail coalition, CPKC, BNSF. So what is your thought on that? It seems like something different than what we've seen in the past. I guess the -- what you think the group may do and just how we should maybe try to understand that as part of the process with UP-NS. Keith Creel: Well, I think at a high level, Tom, the group is more of a collective voice, a unified board very similar voice. We've not been very bashful about this. We have very strong views against the merger and the risk that the merger entails and represents for our industry. Many others do as well. The momentum continues to build, we encourage, continue to encourage all the stakeholders to make sure that they share their views because at the end of the day, this is in a 3-, 4-year decision. This is a forever decision. So to -- in my mind, push forward with the merger that creates such and such scale unparalleled for this industry in a forever way, that not only creates that entity, but most likely triggers an eventual duopoly is essentially putting the nation's rail network at risk. And I just don't believe, and I believe there's probably a lot of people that feel the same way that I do that UP and NS are entitled to do that. They're not playing with house money. This is the nation's economy that depends upon a robust and fluid and efficient rail network. We've had tremendous consolidation I believe, and I believe others believe we're consolidated enough. And at the end of the day, the facts will bear if we're correct. The market concentration as much as some have been dismissive in their comments about it. It's much more than just having 39% GTMs and comparing yourself to a heavily GTM railroad that moves a lot of grain, and moves a lot of coal when you compare that's essentially west of the Mississippi railroad -- Mississippi River, we're talking about 43 states. We're talking about Trans Nashville, the entire continent. So at the end of the day, that's a lot at risk and at state. The facts will bear it out. I don't think it's as simple as the applicants are presenting. And I believe Jim and Mark are going to present their best story. I'm looking forward to reading their improved story. The last one, obviously, was grossly insufficient. In my view, and I don't think I'm the only one again that shares that view. So again, I think that consolidation and that coalition that you see is just a unified voice of a common concern. Enough is enough. We've had enough consolidation and for what? Who benefits? Versus who's at risk. And in the end, those rules that the STB will govern by and I believe this body will be very independent in assessing all these facts. At the end of the day, all the facts stack up and a measurement is going to be made and to meet public interest and to demonstrate enhanced competition. And then all the benefits are going to exceed the harms. And I just think it's impossible with the set of facts that are going to be presenting given the scale and the market power and the operational risk that it represents. So again, more to come. Let's get the application tomorrow. We're all eagerly looking forward to receiving it and reviewing it. I'll be in Missouri when I receive it. That's a show-me state, I'm looking for something to show me to feel differently. And at this point, I don't. Operator: We'll go next now to Jonathan Chappell of Evercore ISI. Jonathan Chappell: John, as far as this ramp in RTMs, are there other opportunities in energy that have kind of presented themselves recently, given what's going on in the Middle East, whether that's crude by rail, frac sand, NGLs any line of sight on kind of real volume moves there as these hostilities kind of prolong themselves much longer than anyone anticipated? . John Brooks: Yes. Thanks, Jonathan. Geopolitical events sort of I instantly begin to look to the sort of 3Fs, food, fuel, fertilizer, they're usually benefits of when you see these types of things globally. And I do believe we're seeing shoots kind of across all those areas. I'll tell you, though, I wouldn't say anything significant has really emerged specifically in those areas. We are definitely seeing an uptick in our plastics business. We have, I would say, very spot-related type of crude opportunities that we've seen come on, maybe some unique fertilizer opportunities here and there. Nothing I would consider honestly, super needle moving. The needle movers that are emerging are really tied to fuel price and tied to trucker regulation and release capacity and those things. That's really where we're starting to see the needle move. And as I mentioned, everyone kind of instantly looks at intermodal as the big beneficiary there. And certainly, we're going to see some of that, and we're deep into those discussions on the intermodal front. But as much as I'm starting to see it across our consumer base, our merchandise customers in that. And so that becomes pretty exciting because that's a really good business. And the challenge will be the team, how do we make it sticky? How do we not allow that truck to convert or that shipper to convert that to rail, how do we then make them stick with rail. I think there's a great opportunity for that right now. So yes, that's what we're seeing. Operator: We'll go next now to Walter Spracklin with RBC Capital Markets. Walter Spracklin: I'm comparing the U.S. rails here and how they did in the quarter relative to the Canadian rail coming a little light. I'm just wondering if there's any divergence you're seeing, I don't know John, you're the best one to answer this. But economic divergence, is it tariff related? Is it the truck regs that are helping U.S. and not Canada? And just related to that divergence? I know the Feds in Canada have been talking a lot about larger projects. But speaking to our engineering construction companies, they're not building it in their pipeline yet. So curious if you're hearing any rumblings about any project development that would -- if there is that divergence, kind of contract that divergence a little bit here as we go into 2027 and close out the year? . John Brooks: No, I don't think so, Walter. Our industrial development pipeline, and I think that's kind of what you're somewhat referring to is pretty robust, like it is -- you look at our -- again, MMX, that business unit is in -- that is largely our steel franchise which was heavily dependent on cross-border steel that is still effectively shut off. But I don't have the numbers exactly in front of me. I think RTMs are up 5% plus. We haven't seen that for quite some time. And I think we are benefiting from some of these industrial development opportunities, construction data centers, that partners like Martin Marietta in sand movements, rock movements that are all supportive of this that I think you also heard from our peers in the U.S. There's no doubt our competitor in Canada and us, we're still facing pressures relative to some of these tariffs in steel and forest products in that. But I'm also pretty encouraged about what our U.S. franchise is producing. So I'm going to say no. I don't think there's a big divergence there. . Nadeem Velani: Walter, it was simply in both cases, if you look at the yield, you look at the cents per RTM, I think there was an underestimation of the impact of currency on cents per RTM. We had some added headwinds from FX below the line, which, again, go away and then the carbon tax goes away. So I think that's what drove the a bit of a softness on the top line was really the cents per RTM. And again, that's a temporal issue that goes away. There's nothing structural. I think structurally, if you look at how the Canadians are performing from a volume point of view, from an RTM point of view. I think we're both kind of top of the pack. So no change whatsoever. John Brooks: Yes. And even to add to that, Walter, like our automotive franchise, and I said it saw a 13% jump in the average length of haul. And I think overall, in the quarter, we were up 3% on our length of haul. The truth be told that we just had a lot of areas, short-haul steel business to the border that is not moving. We saw kind of a slow start to our automotive franchise coming out of Canada into the U.S., again, fairly short haul, high cents per RTM. We saw a really good growth, 21% growth of our -- what we call our land bridge business. That's business linking Canada and Mexico. So it just kind of had a perfect storm of business mix, and then you throw on top of it, record grain movements, which is on average a little lower cents per RTM against the total book and those pressures, those mix pressures that Nadeem described I think came through much heavier than even we expected. Operator: We'll go next now to Ravi Shanker at Morgan Stanley. Ravi Shanker: Keith, would love your views on the upcoming USMCA negotiation, obviously, a big catalyst for you guys and your peer. What do you think are the potential puts and takes and kind of the boundary of outcomes there, do you think? And again how might you react to that in both directions? Keith Creel: Well, I mean, at the end of the day, the bottom line is, I think we have 3 nations that depend upon each other to trade. I think we're in a unique position to enable that trade, Ravi. Short term, I would say, buckle up. President Trump has been consistent in his expectations. His objective through these negotiations, a renewal disagreement as it might be renewed. There'll be some bilateral negotiations between Canada and the U.S., there'll be bilateral perhaps first between Mexico and the United States and some trilateral. But again, at the end of the day, it all leads to increased trade between the nations and even a rebalanced trade balance favoring the United States, still involves this network. So we're in a good place. We had growth after the last round. We'll have growth after this round. This network is in a very unique position to participate in some are all a part of that. Ravi Shanker: Got it. As a quick follow-up, kind of is there any variability to your guide based on the outcomes there? Or do you think it's kind of pretty straightforward? Nadeem Velani: No, it's not dependent on that. . Operator: We'll go next now to Brian Ossenbeck at JPMorgan. Brian Ossenbeck: Wanted to clarify, Nadeem, if -- you talked about stock-based comp, I might have missed it but I wanted to see what that headwind was during the quarter and how we should think about that for 2Q? And then for John, we're hearing a lot more about truckload conversion for obvious reasons. But I don't really recall hearing that too much in the past before the merger. So maybe you can help unpack what's different this time? Is it more of the investments like that SMX and some of the other cross-border stuff you've been doing? Or is there actually more from like for legacy CPKC, is also able and willing -- the shippers are willing to kind of convert more over to your network as well. So just some thoughts on what we're seeing here now versus prior history would be helpful. Nadeem Velani: Brian, stock-based comp was about $15 million headwind in the quarter, so a little over $0.01. John Brooks: And Brian, I would say, actually, when we put our transcon intermodal product in place at CP in the day, we've actually had a lot of success as legacy CP in growing that truck conversion business across Canada. We didn't talk about it a lot but a lot of vendor conversions with customers such as Canadian Tire or even Loblaw, who we talked about earlier. So that's actually been a pretty good story and our growth in our reefer business, even across Canada also was a pretty good truck conversion story. Specific to CPKC and most recently, it's all about the MMX and the great product that Mark and his team have put in place and we've been able to execute and grow. I'll tell you, we -- again, we started with 0 on that train and we're probably running north and south about 70% capacity. Now we've done a heck of job to grow that and we've just grown it frankly on the speed and efficiency of that service. And honestly, I believe if this year continues to shape up and these fuel prices continue to stay where there are, we're going to pile on quite a bit more freight onto that thing. And there might actually be some discussions about what another train payer could look like. I'm not bullish on it. And I think we've been very transparent about the SMX. We introduced it during our original Investor Day. I think collectively, we saw a vision to create a best-in-class product, a competitive product into the Southeast. And frankly, you just look at -- I think it's -- close to 40% of Mexico trade is with Texas, Georgia and Florida. It's just right in the wheelhouse of this product. So it's exciting that we got a partner in CSX, who's highly motivated. We got a strong sales force in Mexico, in the southern part of our U.S. that is pounding the pavement and selling the benefits of this product. So again, I think a lot what you're going to see under that product is all going to be truck-to-rail conversion. Mark Redd: And John, I would just add just the competition between the railroads now with the new service and from our train trip, I mean, Keith took with the leadership with CSX, we've been able to get that railroad up to 49 miles an hour. So we've got a premium package on that end of the railroad that was shine come here, I guess, in a week. John Brooks: Yes. Look, I expect to run -- we're going to run under 40 hours between Dallas and Atlanta. This thing is going to fly. Kevin Chiang: It's 3 Days, Atlanta to Monterrey. John Brooks: And will be 3 days or better, Mexico to Atlanta. And with our secure border, with our bridge capacity and that, it's going to be a really good product. Operator: We'll go next now to Brandon Oglenski at Barclays. Brandon Oglenski: And John or Mark, maybe this is a good follow-up. I mean I think part of the success you had with MMX and maybe you can tell me I'm wrong but it's controlling the journey from end to end, right? So how are you going to ensure that operational integrity when it's not just your network, it's running on but you're also partnering with CSX on this, right? So maybe can you elaborate on that? . John Brooks: I can start, Mark. I'll just tell you this. The CSX team is all in. They've invested in that franchise just like we have to get those rail speeds up. There's not been a blink, not been a waiver, whether it's Mike Cory and Mark working on what the ultimate product looks like or myself and Maryclare and her team working on how we go to market and what customers optimally fit onto that train. So you're right, it is unique. But I also think here is going to be a great example of where you put two Class 1s together, your partner, you get like-minded and you go attack some very specific markets with the best-in-class product. Mark Redd: And frankly, we put a lot of capital on both sides. We put some sidings in. We've increased the capacity and we get fixated on Atlanta, it's beyond Atlanta for CSX. How can we continue to grow and build product beyond Atlanta on their side and help them get down to Mexico and Wylie as well. There's plenty of business to do in Wylie. Keith Creel: Let me -- Brandon, let me put the exclamation point on that. Expectations are set from the top. This whole initiative is something that I've personally been involved in since day 1 in partnership with the CSX. Steve is committed to this. I'm committed to this. So top to bottom, bottom to top. These 2 organizations are mobilized and equipped to create a unique market solution that makes that border seamless that can be replicated in the marketplace. That's what our entrepreneurial spirit looks like. That's what creating your own self-help looks like. That's what strategic partnership looks like. That's the difference. And it's undeniably unique, network and commitment. Operator: We'll go next now to Konark Gupta with Scotia Capital. Konark Gupta: And just going back to the yield comment earlier on in the call. inflecting up in Q2. Is it referred to as up from last year's Q2 or it's up sequentially from Q1? So just trying to unpack that there? And also, any sense of fuel impact as we move into the next 3 quarters? I think you are going to be covering some of the costs through the fuel surcharges. So any sense on EPS or OR impact? Keith Creel: Well, it's up relative to last year quarter-to-date, about $0.05 since per RTM. Nadeem Velani: Can you repeat the second question? Konark Gupta: Yes. So on the fuel side, I think it was a $0.03 headwind in Q1. As you cover the fuel cost with surcharges, what do you expect the EPS impact to be in Q2 and the second half? Nadeem Velani: Yes. So we'll see a small impact in Q2. The fuel price will be basically a bit higher than we saw in the full quarter in Q1, of course, we'll have the full 3 months of elevated prices but we should be able to offset that with our fuel surcharge. So net-net, we'll have a small positive. If you think about the delay in the fuel surcharge that went from March into April and Q2. That make sense? Konark Gupta: Yes. Nadeem Velani: Basically a delay of earnings from Q1 to Q2, think about it that way. Konark Gupta: Yes, I was just making sure like the EPS impact is not going to be as noisy in the future quarters. Nadeem Velani: No, especially with currency and as you asked about cents for RTM and so forth. So effectively, a lot of the -- I mean, there's obviously going to be volatility with kind of the world we live in. But I'd say that the worst is behind us and we'll start seeing, in fact, a positive certainly from the fuel surcharge. So that's what gives us confidence in our Q2 being much stronger as we lap some of this noise with the carbon taxes, et cetera. Operator: We'll go next now to Ken Hoexter with Bank of America. Ken Hoexter: So Nadeem, just appreciate the double-digit EPS outlook and it's accelerating. Maybe just parsing some mix contributions, I guess, the last 5 years, you've averaged about a 250 basis point improvement in the operating ratio from first quarter to second quarter. Can you give any thoughts on that level given the impact of fuel that you just talked about with Konark and kind of the volume growth that John is targeting? And then same thing, thoughts for the full year. Can you beat last year's sub-60 target on an adjusted basis? And I don't know maybe your thoughts on cost headwinds should you focus on -- I think you brought up incentive comp before or synergy targets post the merger, maybe just wrap that all up on the cost side. Nadeem Velani: Yes. Thanks, Ken. So I'd say that the same level sequentially year-over-year, the historical sequential improvement is pretty much in line. So we do see despite the fuel surcharge headwind on the OR because there's a push of revenues effectively from, as I just mentioned, from March into April, you'll see a bit of a benefit. So I feel comfortable with that historical sequential improvement of that 200, 250 basis points is doable. And for the year, I have confidence that we can improve the OR year-over-year despite, again, the headwind from -- potentially from fuel surcharge. I think a lot of our cost takeout, cost initiatives and productivity initiatives that we have in place puts us in a position to still be able to improve the OR. I think we were 59.9% last year. I think we could improve on that for 2026. Keith Creel: I think another point to not overlook is, we were about to lap Day N last year. It's something we all like to forget, obviously, something we learned a lot from. But certainly, a lot of unnecessary cost and pain and velocity in assets that started the 1st of May, went through effectively the worst of it even through August. So certainly, we'll capture -- recapture that with very fluid network. Cost is going to go down, revenue is going to go up. Those will all be very beneficial and supportive to the comments that Nadeem has made. Operator: We'll next now to Scott Group with Wolfe Research. Scott Group: Keith, I'm wondering, do you think there's a potential path to a settlement where maybe you're -- I don't know, supportive, maybe not that but maybe less opposed to a merger? And then I just had a random like thought question on fuel. Like the truckers all do weekly lags, FedEx, UPS used to do monthly lags. Now they do weekly lags on their fuel surcharge. Like ultimately, it doesn't really matter, you're eventually get made hold. But like why do you think the rail still have these monthly and for some of the rails, 2-month lags on fuel? Why does that make sense though. Keith Creel: I'll be simple in my answer, Scott. I think there's 0 chance of a negotiated agreement. No. No full stop, no merger needed. I'm not interested in negotiating. Scott Group: Got it. John Brooks: I think it's a great idea. I would remind you, we've already got a -- we definitely have the fastest reacting fuel surcharge, I believe, in the industry. I do believe there also is tariff notification laws or rules with the STB that probably somewhat governed both here in Canada and also in the U.S. on how we could announce those changes and still meet those regulations. I'm all about brainstorm an idea how we can figure it out though. Operator: We'll go next now to Stephanie Moore with Jefferies. Stephanie Benjamin Moore: Great. Simple one for me here. Maybe just wanted to get a sense on how we can think about maybe some of the capital return increases, particularly the buyback boost. Is there anything you're signaling here that you want to highlight? Nadeem Velani: No, I'd say that we're generating a good -- significant amount of free cash. I think long-term CP has always been a -- one to not sit on cash. And we've been very successful as far as buying back stock at value-creating levels. As we sit here today, we see that continue. And so certainly, share buybacks are going to always be a part of our shareholder return philosophy. We also added to our dividend payout and increased our dividend by 17.5%. And that's just reflective of being balanced. So when we speak to our shareholders and the evolution of our shareholders, there's those that also like dividends. We are at the lowest payout ratio in the industry. So we have room to grow there. But we just see ourselves as the growth opportunity is larger. There'll be time to do the dividend at a more meaningful level but we needed to start ratcheting that up a little bit but we still see buybacks as a meaningful value creation opportunity. Operator: We'll go next now to Ari Rosa with Citigroup. Ariel Rosa: So I actually wanted to stay on the buyback comment. Keith or Nadeem, I believe you guys made the decision to pull forward the timing of the buyback last year because you felt the shares were undervalued. Here we're looking at the stock is up about 15% year-to-date. It's not necessarily a comment on, over time we continue to think stock compounds nicely. Obviously, that's -- there's a compelling case for that. But has there been a shift, I guess, in the appetite for the buyback relative to the dividend? It's a fairly sizable dividend increase. Just trying to understand how you're thinking about that. And then obviously, as the share price moves higher, does it make it harder to hit that target to repurchase 5% of shares? Or are you pretty committed to that level of buyback? Nadeem Velani: So last year, we had a 3.5% program or 4% program, which we completed. And we're quite aggressive. The stock price in Canadian dollars was closer to about CAD 106 and CAD 107. And we saw an opportunity value creation that was coming off the heels of strengthening our balance sheet and having good discussions with the rating agencies. And so we had similar discussions when we completed our buyback in November of last year. And that's why we came to the conclusion and came to announcing our new buyback in January. We made it a little larger and part of that is just showing the resiliency of our balance sheet and our ability to continue to service our debt and the diversity of our franchise and the growth story, et cetera. I think we took advantage of a opportunity in the market to go to take on some additional debt prior to some of the geopolitical noise that raised rates. And so I think we were -- very advantageous timing. And so we see an opportunity to continue to buy back the shares. We're not going to hold off. Are we going to be strategic and buy back at value-creating prices? Yes. So there's times when we will pause. And given all the volatility in the marketplace, there is opportunity sometimes to be strategic. You're never going to completely -- you can't get too cute on some of those things, especially when you have a $45 million or 45 million share authorization. But I fully expect we will complete it. We'll complete it by the end of the year. And like we've seen today, some near-term pullback with some volatility in the market, we could take advantage of that and we will. Operator: And ladies and gentlemen, we have reached our allotted time for Q&A today. I would like to turn the conference back to you, Mr. Creel for any closing comments. Keith Creel: Okay. Just a few comments. Listen, we started the second quarter with a lot of momentum. We're in a very good position to operate -- to execute operationally, commercially and financially, that's exactly what we're focused on and intend to do in the second quarter to continue this very unique value-creating story at CPKC. We look forward to sharing those results soon. Be safe. Operator: Thank you gentlemen. Again, ladies and gentlemen, this brings us to the conclusion of CPKC's first quarter earnings call. Again, thanks so much for joining us, everyone. We wish you all a great evening. Goodbye.
Operator: Good morning, and welcome to NatWest Group's Q1 2026 Results Management Presentation. Today's presentation will be hosted by CEO, Paul Thwaite; and CFO, Katie Murray. After the presentation, we will take questions. Paul Thwaite: Good morning, and thank you for joining us today. As usual, I'm here with Katie. I'll start with a brief introduction before Katie takes you through the numbers, and we'll then open it up for questions. We started the year with strong momentum across our 3 businesses and made good progress against each of our 3 strategic priorities. First, we continue to pursue disciplined growth. In Retail Banking, we increased our share of the mortgage market as we expand our offering and announced new partnerships such as becoming the exclusive mortgage provider for Rightmove. In Private Banking & Wealth Management, our acquisition of Evelyn Partners makes a strong addition to the group. The transaction is progressing well, and we expect it to complete in the second quarter, subject to the usual regulatory approval. In Commercial & Institutional, we are the leading bank for U.K. start-ups, and we grew our share this quarter as we onboarded 24,000 new start-ups, a 25% uplift on the same period last year, supported by easier agentic onboarding. Second, we are leveraging our investments in simplification and have delivered over GBP 100 million of additional cost savings in the first quarter. We employ over 12,000 software engineers, and we are complementing that talent with artificial intelligence. So over 40% of our code is now written by AI, and we are scaling agentic software development. Typically, our development process for new customer propositions requires 12 engineers and takes 6 weeks. But in some scenarios, with a team of 3 engineers and 7 agents, we can deliver in just 6 hours, making us more productive and delivering faster for our customers. Third, we continue to manage our balance sheet actively, helping to free up capacity for further growth and allocate capital dynamically in this fast-changing environment. So let's turn now to the financial headlines. Customer lending grew 6.6% year-on-year to GBP 400 billion, whilst customer deposits grew 2.6% to GBP 445 billion. Lending growth of GBP 7.3 billion in the first quarter was well balanced across our businesses, including GBP 3.3 billion in mortgages and GBP 3.8 billion in Commercial & Institutional. We also provided over GBP 10 billion of climate and transition finance, taking the total to GBP 29 billion since last July, making good progress towards our GBP 200 billion 2030 target. Deposits increased by GBP 3.1 billion in the first quarter with growth in Corporate & Institutional, partly offset by an expected decrease in Retail and Private Banking as customers use their savings to make annual tax payments. Assets under management and administration grew 16.9% year-on-year to GBP 57 billion. 23,000 people invested with us for the first time during the quarter, with net inflows to assets under management of GBP 900 million. Taken together, client assets and liabilities have increased to just over GBP 900 billion, up 5.2% year-on-year, in line with our 2028 annual growth rate target of more than 4%. Income grew 6.9% to GBP 4.2 billion, and costs were up 4.8% to GBP 2 billion as we increased our operating leverage and reduced our cost/income ratio by 2.1 percentage points to 46.5%. Our return on tangible equity was 18.2%, driving strong capital generation of 65 basis points in the first quarter. Earnings per share grew 15.5% year-on-year to 17.9p. Tangible net asset value per share was up 15.1% to GBP 4, and we continue to maintain a strong balance sheet with a CET1 ratio of 14.3%. Since we announced our full year results in February, conflict in the Middle East has clearly increased geopolitical uncertainty. While sentiment is now more considered, we have yet to see any material impact on our customers. Both households and corporates remain resilient with historically high levels of savings and low levels of debt and arrears. In light of this uncertainty, we have revised our economic scenarios and now expect higher inflation with interest rates remaining at 3.75% for the rest of the year, resulting in slower economic growth and a modest increase in unemployment. This means we have taken an additional provision in the first quarter of GBP 140 million, which reflects our macroeconomic assumptions, not our credit performance, which remains strong. With rates staying higher for longer, we now expect full year income to be at the top end of the GBP 17.2 billion to GBP 17.6 billion range we set out in February. So we remain confident about the outlook and our 2026 guidance. That confidence is underpinned by the knowledge that we have built a resilient business, which is well positioned for a broad range of macro environments. We have a clear strategic focus on growth that delivers good returns with a prime lending portfolio that's well diversified and largely secured. We have invested and simplified so that we are now the most efficient large U.K. bank with a cost-to-income ratio that continues to improve, and we are actively managing our balance sheet. For example, we have taken the opportunity of a sharp move upwards in the yield curve to accelerate the increase in our structural hedge, supporting income growth in the years ahead. We have also increased our capital efficiency significantly in recent years, driving high levels of capital generation. All these factors have contributed to our strong performance in the Bank of England stress tests, giving us confidence in our outlook and guidance not just this year, but over the medium term. With that, I'll hand over to Katie to take you through the numbers in more detail. Katie Murray: Thank you, Paul. My comments for the first quarter use the fourth quarter as a comparator. Income, excluding notable items, reduced 1.1% to GBP 4.2 billion, and total operating costs were 9.2% lower at GBP 2 billion, delivering 11.6% growth in operating profit before impairment to GBP 2.3 billion. The impairment charge was GBP 283 million, equivalent to 26 basis points of loans, including the charge for our updated economic scenarios that Paul mentioned. This resulted in operating profit of GBP 2 billion, with profit attributable to ordinary shareholders of GBP 1.4 billion, and return on tangible equity was 18.2%. Turning now to income. Income, excluding notable items, was GBP 4.2 billion. Excluding the impact of 2 fewer days in the quarter, income across the 3 businesses continued to grow, supported by both volumes and margin. Net interest margin was 247 basis points, up 2 basis points due to deposit margin expansion and a small benefit from funding and other, with lending margin declining by 2 basis points, mainly driven by mortgages. As you heard from Paul, our 2026 guidance now assumes that the Bank of England base rate remains at 3.75% this year rather than coming down to 3.25%. Together with our revised economic scenarios, this means we now expect income, excluding notable items, to be at the top end of our GBP 17.2 billion to GBP 17.6 billion range, excluding the impact of Evelyn Partners. Turning now to customer assets and liabilities, or CAL. You will recall we introduced our 2028 growth target for CAL in February. I am pleased we are entering another year with strong growth, continuing our track record. Our CAL increased by GBP 8.4 billion or 0.9% in the quarter to GBP 900 billion. This includes lending growth of GBP 7.3 billion, deposit growth of GBP 3.1 billion and a reduction in assets under management and administration of GBP 1.8 billion as strong AUM inflows were offset by market movements. I'll touch on each of these elements in turn. We are reporting another quarter of strong broad-based loan growth across the group with gross loans to customers up by GBP 7.3 billion. Retail Banking and Private Banking & Wealth Management balances grew GBP 3.5 billion or 1.5%. This comprises GBP 3.3 billion in mortgage lending and GBP 200 million in unsecured lending. Mortgage stock share increased marginally to 12.6%, and we have a robust pipeline following record applications in March. Commercial & Institutional lending increased by GBP 3.8 billion or 2.4%. This includes growth in corporate and institutions, driven by good demand across a broad range of sectors, including project finance, renewables and utilities and funds lending, together with increased lending in commercial mid-market, notably in commercial real estate and the housing sector. You will also see we have provided a detailed breakdown of our financial institution exposures, including private credit in the appendix of our presentation. Turning now to deposits. Customer deposits increased by GBP 3.1 billion despite the expected higher seasonal tax outflows. Commercial & Institutional deposits increased by GBP 5.1 billion. This was partly offset by a slight decline in Retail Banking and Private Banking & Wealth Management deposits as a result of higher customer tax payments of GBP 10.3 billion. Retail Banking outflows were partly offset by growth in current account and ISA balances. Overall, our deposit mix remained broadly stable. Turning now to assets under management. Assets under management and administration closed the quarter at GBP 56.7 billion. We are pleased with positive AUM net inflows of GBP 0.9 billion, which equates to 8.2% of opening AUM, demonstrating continued client confidence and strong momentum. There was a reduction in assets under administration of GBP 1.4 billion, driven by gilt redemptions to support client tax payments. Overall, balances were impacted by negative market movements of GBP 1.7 billion. However, these were reversed during April. Turning now to costs. Other operating expenses were GBP 2 billion, an increase of 4.8% year-on-year and a decrease of 8.3% compared with the fourth quarter. Our cost/income ratio in the quarter was 46.5%. We are pleased with the progress we've made on our transformation, and we made decisions to accelerate investment spend and incur higher restructuring costs in the first quarter, which drove the overall cost growth year-on-year. The reduction from the fourth quarter is mainly due to ongoing cost savings as well as lower bank levies. We remain confident in the delivery of our full year 2026 cost guidance of around GBP 8.2 billion, though our cost profile will be uneven throughout the year. Turning now to our updated macroeconomic assumptions. Following a period of global macro uncertainty, we have revised our economic assumptions. In our revised base case, we assumed inflation now means CPI will peak at 3.5% in 2026 rather than fall to 2% by the end of the year. This means interest rates stay higher for longer, and we assume the bank rate remains at 3.75% throughout the year. We expect lower GDP growth of 0.4% and a modest increase in unemployment to a peak of 5.7%, above our previous assumptions of 5.4%. This remains at levels we are comfortable with in terms of lending risk appetite and credit quality. We will continue to review our assumptions as the situation progresses. Our balance sheet remains well provisioned with an expected credit loss of GBP 3.7 billion and ECL coverage ratio of 84 basis points. Our latest scenarios also show that even if we were to give 100% weight to our new moderate downside scenario, this would increase Stage 1 and 2 ECL by GBP 99 million or 2 basis points. Turning now to the impairment charge. The impairment charge for the quarter was GBP 283 million, equivalent to 26 basis points of loans. This includes a charge of GBP 140 million as a result of changes in economic scenarios and total post-model adjustment releases of GBP 34 million as elements were effectively consumed by changes in our economic scenarios. Excluding these, our underlying impairment charge was 16 basis points. There were no new signs of stress across our 3 businesses, and the current credit performance of our book remains strong. We continue to expect a loan impairment rate below 25 basis points for 2026. So our guidance is unchanged. Turning now to capital. We ended the quarter with a common equity Tier 1 ratio of 14.3%, up 30 basis points since the end of the year. Capital generation before distributions was strong at 65 basis points. This includes 69 basis points from earnings. Other regulatory capital movements added 16 basis points. Growth in risk-weighted assets consumed 21 basis points of capital, and our usual accrual for ordinary dividend payments reduced capital by a further 37 basis points. Risk-weighted assets increased by GBP 2.7 billion. GBP 4.3 billion of business movements broadly reflects our lending growth and increased market risk. This was partly offset by a reduction of GBP 2.2 billion as a result of actively managing our RWAs to create capacity for further growth. Other movements included FX and immaterial CRD IV model updates. We remain confident in our ability to continue generating strong capital from earnings and to manage risk-weighted assets and expect around 200 basis points of capital generation before distributions this year, whilst operating at a CET1 ratio of around 13%. Turning now to guidance. We now expect income, excluding notable items, to be at the top end of our range of GBP 17.2 billion to GBP 17.6 billion, excluding the impact of the Evelyn Partners acquisition. All our other guidance and targets remain unchanged. And with that, I'll hand back to the operator for Q&A. Thank you. Operator: [Operator Instructions] We'll take our first question from Andrew Coombs of Citi. Andrew Coombs: If I could just have one on loan and deposit growth and then I guess the second on average interest-earning assets. On the loan and deposit growth, again, it's a strong performance Q-on-Q, again, led by C&I. If I speak to any investor, particularly those outside the U.K., they always struggle to link the economic performance in the U.K. with the strong loan growth and loan demand that you're seeing. So perhaps you can just touch upon what drove the loan and deposit growth, particularly in C&I, where is that demand coming from? How sustainable do you think it is throughout the remainder of the year and into next year? And then the second question, I mentioned that loans are up Q-on-Q, deposits up Q-on-Q, but your average interest-earning assets are down 0.2% Q-on-Q. And it seems to be due to a reduction in the liquid asset buffer. So perhaps you could just touch upon that as well and what's driving the disconnect between the average interest-earning assets and the movement in the loan balances. Paul Thwaite: Thanks, Andy. Okay. Katie, why don't I take lending and deposits and then you come back on AIEA. Katie Murray: Okay. Paul Thwaite: Good stuff. So Andy, as you say, good, strong growth on both sides of the balance sheet, pleased on lending and deposits, especially as you know the context of quarter 1 deposits is always higher outflows because of tax payments. Why don't I give an overview, and then I'll drop down into C&I because I'm conscious you wanted some specific color there. So lending overall, I'd say it's pretty broad-based. You can see growth in mortgages. You can see growth in C&I. You can see growth in unsecured within Retail as well. And within C&I, you can see it through different business lines. I'd also add that the pipeline remains pretty strong as well in both businesses. So we're encouraged by that. So not only is the activity good, the pipeline -- I was going through it yesterday and -- Wednesday actually, the pipeline of activity looks strong looking ahead into quarter 2 and quarter 3. And as you know, we've consistently grown above market, growth on the lending side. I'll come back to some of the reasons why I think that's true. On deposits, 2 sides to this. As I said, we've got the tax outflows in Retail and Private Banking. They were up 28% year-on-year. So it's a big number, GBP 10 billion of deposits. And that was offset by growth in C&I, which was from a combination of things. Some of that was operational deposits, some of that was interest-bearing deposits. I think there, when you think about the size of our corporate and commercial franchise, the reality is we benefit as deposits flow onto corporate balance sheets. If you look into Retail, actually, personal current accounts were up, which is good. That's obviously healthy from a number of factors. And we are starting to see the impact of our -- what we call our Boxed proposition where we're providing savings products to companies like AA, Saga at Sainsbury's, et cetera. So that's also supporting Retail deposits. So that hopefully gives you a kind of big picture view. On C&I specifically, demand has been strong. I think we're very well positioned on what I'd call some of the structural drivers. So project finance, infrastructure, transition finance, utilities, funds lending, energy transition, et cetera. And I think what you can see is the growth in those parts of the market is bigger than, let's call it, the U.K. systems growth. So I think that helps to explain why our C&I franchise captures the opportunities there, but also outperforms the market. As I said, the pipelines are strong. So to your point on sustainability, I think those trends are -- they're structural trends, not kind of short-term opportunistic trends. So I think the lending growth and the lending pipelines will continue to support sustainable growth. So net-net, good balance sheet performance. C&I, yes, but also on the Retail side of the business as well. So hopefully, that gives you a bit of color. Katie? Katie Murray: Sure. Thanks very much, Andy. So you're absolutely right. When you look at AIEAs, they were sort of stable in the quarter. They were down kind of 0.2%. A couple of things within there. So reduction reflects the optimization of our surplus liquidity. We repaid around GBP 4 billion of TFSME at the end of Q4, and we deployed surplus liquidity to meet our customer loan demand, which we've just been talking about, in a quarter of seasonally lower deposit growth. If you look at the kind of the Q1 loan growth of GBP 7.3 billion versus the GBP 3.1 billion of deposit growth, there's a natural kind of mismatch within there. What I would say is we're 3% higher than AIEAs a year ago, and we do expect them to grow from here going forward as our customer lending increases. Operator: Our next question comes from Alvaro Serrano of Morgan Stanley. Alvaro de Tejada: Hopefully, you can hear me okay. Paul Thwaite: We can hear you clearly. Alvaro de Tejada: I actually had 2 questions related to spreads. And the first one is on mortgages. At least I had the expectation of a step down in spread on mortgages in Q1, given the roll-off of the COVID ones. But actually, the spread has held up reasonably well versus my expectations, at least. I think they contributed [ 324 ]. Can you -- maybe this one is for Katie, but can you maybe talk to if there's still sort of headwinds ahead and talk to the mortgage front book spreads? And then similarly on commercial, the spreads there, compared to base rates, have been increasing steadily the last 8 quarters or so as you grow the book. What kind of business are you underwriting there? And what do you think it can -- should it continue to improve? Or how do you see the outlook on pricing on corporates as well, commercial? Paul Thwaite: Okay. Great, Alvaro. Katie, do you want to start with mortgage? Katie Murray: Yes, absolutely. Thanks very much. Alvaro, so if we look at Q1, we continue to write mortgages at front book spreads that were below the back book as we did through last year, which we talked about a lot, very much in line with our strategy of delivering steady growth at attractive returns. So I'd say our year-to-date margins are in line with expectations. We did see a bit of volatility in March. We repriced every 2 days, so that's 11 kind of changes in 22 days, which I think is a great testament to the flexibility we've built into the system. And we can even see that ability to handle that increased mortgage demand as a result of that investment in the platform and digitization, which has meant we've been able to execute new business at margins which are ahead of the back book in April, which is great to see. You're absolutely right to mention the COVID mortgages. We are seeing a little bit of the book margins being impacted by that churn of the 5-year COVID era mortgages, and they're rolling off at spreads that are higher than we're currently writing. I would expect that to have worked its way through during the rest of this year. So we expect a little bit of pressure from this on the book margin over the coming quarters. But I guess as I go to where we are today, where we're writing the mortgages at front book spreads, which are below the back book, what we're seeing is it's starting to bring that back book margin down. We're kind of writing now, you've heard me talk a lot about this kind of below 70 basis points over the last number of quarters. That's kind of continued. And as I look at that number, I think that we will see the book margin to reprice to around 60 basis points over the course of this year. Interestingly, April margins have been above the back book, and we're pleased we were able to capture that. So I talked to you, remember at the year-end, Alvaro, around 1 to 2 basis points impact on our NIM walk per quarter throughout this year. You absolutely saw that already in our walk. This quarter, you should expect to see that. What I'd also really encourage you is don't forget to see that you have the deposit margin expansion that's going to more than offset that negative. Hopefully, Alvaro, that gives you what you need. Paul, are you going to do the commercial spread or shall I... Paul Thwaite: Yes, happy to. Katie Murray: Okay. Perfect. Paul Thwaite: Thanks, Katie, and thanks, Alvaro. On commercial spreads, a couple of general points first. I would say, Alvaro, actually, commercial lending margins, I would see them as fairly stable on a product-by-product basis. So that's how I'd think about it. There's obviously always a mix effect depending on where you write the business. But there's been no material deltas, changes over the recent past nor would we expect it going forward. So that's, I guess, one positioning piece. Secondly, in our commercial book, a significant proportion of customers are paying variable rates. So you will see that -- you will see kind of rates reprice in line with short-term rates and how that changes. So hopefully, those 2 points just contextualize what you'll be looking at in terms of the commercial lending book. If you drop down into the individual businesses or asset classes within the commercial and institutional bank, there's different dynamics. Obviously, at the very small end, margins are much higher, but the total value of lending there is small relative to the overall commercial book. So whilst we're growing that business, and it's higher-margin business, from a weighted average perspective, the impacts are relatively limited. In the commercial mid-market, that's a competitive space across the field. But depending upon the asset class, the margins can vary quite a lot. So if it's social housing, lower margins, but very high risk-adjusted returns; commercial real estate, thinner margins, more of a commoditized product. And then at the large corporate side, obviously, you've got the kind of revolver aspect to that, but also where you've got kind of project financing and infrastructure finance, a bit of the same dynamics as my example on social housing. At a spread level, margins are relatively tight. But given the capital treatment, the risk-adjusted returns are very attractive. So they're all very good areas to deploy capital at good returns. So nothing major to call out, I'd say, on commercial spreads, but that hopefully gives you a bit of the contours of how that business works. Thanks, Alvaro. Operator: Our next question today comes from Benjamin Toms of RBC. Benjamin Toms: The first one is on your income guidance, which you've upgraded to the top end of your previously provided range. Just wanted to kind of get some color, your thoughts on whether you'd characterize this guidance as being conservative. I'm just noting that consensus is kind of still quite a way above that guidance and whether you're comfortable with that gap? And then secondly, there's been some pretty fairly intense competition in the ISA -- cash ISA deposit market, and NatWest Group competing but one of your large peers is not. Can you just talk a little bit about how you weigh up collecting deposit volumes versus margins at a group level at the moment? Paul Thwaite: Great. Thanks, Ben. I'll take the guidance and income, Katie, and then you can talk a little bit around Retail savings and ISAs. Okay. So yes, as you said, Ben, we've strengthened the income guidance. We're guiding to the top end of the range, of the GBP 17.2 billion to GBP 17.6 billion. We're doing that for a couple of reasons. One, you can see the momentum in quarter 1. So the underlying performance has been good, which is great. And then you've got the kind of net effect of the change in economics. Obviously, we've changed our rate assumptions. You've seen that from 2 cuts. Assumed 2 cuts now to 0. But we've also assumed -- you have to follow the logic through. You would assume if you have -- if you don't have rate reductions, it would be reasonable to expect some small softening in demand. So we've assumed that. But net-net, we see that as positive to income. So that's kind of how we're positioning at the top end. We haven't changed the guidance for RoTE. We're maintaining the greater than 17% there, but we're increasingly confident on that. As I said in February, and I'll say again, it's always a greater -- that's always been a greater than guidance, and we always aim to beat our target. So we haven't changed that, but we're increasingly confident because obviously, the conditions for that are supportive. I should point out, I think, it's obvious, but that all excludes Evelyn. But net-net, Ben, I would say it's a good start. We're confident around '26, hence, the nudge up in guidance. We haven't changed '28. But obviously, you can see from the trends that it's -- the conditions are supportive towards the medium term as well. Katie Murray: Thanks very much. Ben, so I guess if I look at our ISAs and the kind of recent activity, I think the first thing I would really say is we see really strong relationship value in our fixed term deposits. We have high retention rates, greater than 80%, and some of those are retained in the higher-margin instant-access products as well as us also having an opportunity in the future to engage with these customers on investment products, and we've seen good growth there as well this quarter with a lot of new investors coming in, but we also expect that ambition to kind of grow and that's supported by the acquisition of Evelyn Partners, obviously, in this last quarter. During Q1, with the volatility that we saw in the swap markets, we actively managed our hedging across both our assets and liabilities, which enabled us to really price effectively on the fixed rate deposits. Overall, you can see our deposit mix has been stable, both at the group level and in Retail. When I look at fixed rate ISA specifically, the balances are small in the context of the group, low single-digit percentages of deposits. And in terms of overall deposit dynamics and margins, really very happy with the progress, particularly around things like current account growth, and we expect to see ongoing group deposit margin expansion in the coming quarters. So overall, a real comment on balance across the portfolio. Thanks. Paul Thwaite: I'd add one small thing on that, actually, Ben, because I've got the pricing tables in front of me. It's quite interesting when you look through. And as Katie said, we've been very thoughtful about how we manage the volatility in swap rates and how we play that back into pricing to maintain margins. And you can see you've got 3 or 4 of the larger banks ahead of us on pricing. But as Katie alluded to, the volumes have been encouraging. So I think we've been very thoughtful in how we're playing in that market. Operator: Our next question comes from Guy Stebbings of BNP Paribas. Guy Stebbings: I think, I just have one sort of broad question on the income guidance for this year and the assumptions sort of underpinning it. It's clear in terms of what you're doing on policy rate. But in terms of the long end of the curve, when you're thinking about the hedge reinvestment, could you confirm what the assumption is there? Then in terms of volumes, I'm just trying to work out whether you're assuming slightly more sort of conservative macroeconomic assumptions as per the ECL models, but that would be going against sort of the positive comments you're saying in terms of what you're actually seeing on lending volumes, et cetera. So can you clarify what sort of expectations are on volumes? And then on mortgage spreads, just in light of the comment you made there, I'm just trying to understand whether anything has changed. So you've talked about the stock of the back book trending down towards 60. I presume that's kind of entirely consistent with what you were expecting a few months back. And actually, your comment on April being above the back book is slightly encouraging. So could you just confirm if those mortgage spread trends are sort of in line, better or worse than what you were thinking a month or 2 ago? Paul Thwaite: Great. Thanks, Guy. Very clear. Katie, you got any preference on order? We've got hedge, volume... Katie Murray: I'll start off with spreads and hedge, and then why don't you jump back in on volume, yes? Paul Thwaite: Yes. Katie Murray: Perfect. Thanks so much. If I look at the hedge, first of all, a few things just to kind of share with you on that. So first of all, when we talked about the hedge at the year-end, we said that we would increase our structural hedge this year above GBP 200 billion as -- and then you've seen it, as deposit balances have grown and equity base will increase given the business growth. What we did earlier in Q1 was as we saw those yield curves move really sharply higher in the quarter, we did take a decision to accelerate the increase of our product hedge. So we added about GBP 5 billion additional in Q1. So that means that we've locked in income for the outer years and, of course, modestly reduced our rate sensitivity as a result of that. When I look at the kind of first 3 months of the year overall, we're reinvesting our product hedge at about 3.8%. That's against guidance I've given you at the year-end of 3.5%. I would now expect that reinvestment rate on average for the whole year and given what we've seen also in April to be around 3.9% on the product hedge and 4.7% on the equity hedge, which is up from 4.5% as we go through there. So as I look at those kind of current assumptions of rates, the growth that we've seen, I do continue to expect total hedge income will grow annually through to 2030 as you see the improved levels that we spoke about in February. If I then look to your mortgage spreads, you've got it completely right. Mortgage margin is very much in line with our expectations. They are currently a little bit better. I would encourage you not to bank that forever, but we're very happy with how the team are managing the book at the moment. We can see the reduction in book margins absolutely being driven by refinancing. If you think a little bit of our mix, 30% of the book will reprice this year and the roll-off is a little over 90 basis points on a blended basis. So that really drives the stock margin lower over the course of the year, completely in line with our expectations and very much in line with the income guidance that we've given you throughout this year and upgrading this morning. Paul Thwaite: On volumes, Guy, so this -- as you say, this kind of tried to thread the needle a little bit between, I guess, the logic of the kind of mechanistic logic of the economic assumptions versus activity year-to-date and pipelines. And I think that's what we're trying to balance. If you take the logic of the economic assumptions through, i.e., higher for longer, slight tick up in unemployment and slower growth, then the logic of that would be, you would see some softening in, for example, the mortgage market vis-a-vis our original predictions and likewise, some softening in business lending. So that's what the economic assumptions drive. Then when you look at the activity, as you rightly point out, what we've said is quarter 1 has been very strong on the kind of lending side. The pipelines in the respective businesses look strong. So the activity is there. I guess what we're trying to do is strike the right balance between optimism on that side, but also, I guess, the reality of how the economics play out over the course of the next 9 months might impact demand. And we factored that into how we've guided toward the changed guidance to the top end of the range. So hopefully, that just unpacks a little bit how we're thinking about it. Operator: Our next question comes from Jonathan Pierce of Jefferies. Jonathan Richard Pierce: Good. I've got 2 questions, please. The first, the other C&I noninterest income, it's been running at about GBP 230 million to GBP 240 million a quarter for the last 6 quarters, dropped down to GBP 170 million in the first quarter. It does feel like there was a bit of a one-off in there. I don't know if you can quantify how big that was and whether you've seen anything else coming through since the end of March? Secondly, more broadly on this impairment sensitivity, just trying to get a feel as to how much confidence you have of -- I've asked you this before, Katie, actually, in the IFRS 9 ECL models. I mean you're telling us today that the weighted average assumption for GDP growth is about 0.3%, 0.4% a year next couple of years. The downside is minus 0.4% this year and minus 1.6% next year. It's also got unemployment going up to 6.2% next year, I think. But you're telling us your ECL in that scenario would only increase by about GBP 99 million. Now I get that that's a general provision measure. But by definition, the ECL on those Stage 1 and 2 is reflective of losses you expect in the future on the performing book. So are you genuinely confident? And if so, why more qualitatively in this idea that even if we saw a recession, even if we saw unemployment moving into the 6s, your impairment charge ex any initial ECL build would not move up very significantly at all? Paul Thwaite: Good. Thanks, Jonathan. I'll take the first one. Katie, you can take the second one. Katie Murray: Sure. Paul Thwaite: So Jonathan, your characterization is right. So actually pretty stable income line in the last 6 quarters, dropped off -- the C&I noninterest income dropped off in quarter 1 '26. If you look at that compared to '25, it's, I think, GBP 20 million versus GBP 64 million. Not exclusively, but almost exclusively, it's explained by sterling rates, as you say, so kind of one-off. You've seen that across lots of desks and lots of banks. So we have a relatively small rates business. It's obviously -- it's indexed to sterling, given what we are as NatWest. So that really explains the delta that you're seeing there. And you'll see yes, GBP 64 million in quarter 1 '25 and GBP 20 million in quarter 1 '26. That's a big part of the difference versus the previous quarters. A couple of things I'd say, it's obviously very small in the context of the overall revenue line. And also given the more subdued volatility, we'd expect improvements as we go through quarter 2 onwards, not just in that line, but overall on C&I noninterest income. So I think you're seeing it and reading it pretty accurately there. Okay, Katie? Katie Murray: Sure. On impairments, thanks, Jonathan. But as I look at it, I mean, these are models that we test extensively. They go through both our own verification and independent verification, and they're also kind of reviewed very closely by kind of external parties. So I am comfortable in them. And I think that the thing that I do like with IFRS 9 is this concept, which is in and around the kind of PMA. So that kind of enables me where there are moments of discomfort. And you can see that we sometimes have them when you can see in different classifications, it's wider than just the kind of the sort of economic uncertainty. So when you see other numbers in there, you can go actually, that's a bit of the model they're kind of working on. So completely comfortable on the models is what I would say first. And you're right, if I look to the ECL on kind of Stage 1 and 2, if I went 100% kind of to the downside, it suggests an extra GBP 99 million. But I would remind you that Stage 1 and Stage 2, so there would be some Stage 3 losses. They are impossible for us to quantify as to what they would be. So we don't seek to attempt that. So I would probably suggest to you that the actual charge could be a bit higher if that was the case. Obviously, that's not our base case just now. In terms of what we're looking at. We -- at this stage, we are happy with the base case. We're happy with the guidance that we've done. We've obviously added a bit on the mezz, 110 net, a little bit out of PMA. That's just kind of mechanics of the calculation, which has taken us to the 26 basis point charge this quarter. But if I take out that mezz, we've overlaid, it's kind of 16 basis points. So what we can see is a good, well-diversified, well-performing book to date. We've given you a good estimate if we were to move. But at the moment, obviously, we're comfortable and happy to have that little bit of extra buffer as we enter a little bit of greater uncertainty than we've seen recently. So comfortable at this stage, Jonathan. Thank you. Operator: Our next question comes from Benjamin Caven-Roberts of Goldman Sachs. Benjamin Caven-Roberts: Just 2 for me, please. First, a follow-up on the cost of risk. I see you mentioned about 60% of mortgage balances now with customer rates above 4%. How are you thinking about the refinancing profile for that remaining portion and the extent to which those customers are moving on to rates a fair bit higher than what they had expected when entering those mortgages? I know you do stress rate assumptions as well when issuing the mortgage originally, but clearly, a lot of volatility in swaps and rate expectations right now. So just keen to hear your thoughts on that. And then secondly, thanks a lot for the extra disclosure on the financial institutions. If we look at that business and private credit altogether, how are you thinking about the growth of that book? Is it something you expect to grow more quickly or more slowly relative to the recent past? And have you changed your strategy at all in terms of the underwriting there? Paul Thwaite: Great. Thank you, Ben. Katie, you go for first question. Katie Murray: Yes. In terms of cost of risk, Ben, so you're absolutely right. There's -- and you've obviously -- you've got far in the pack this morning. So Slide 32 kind of lays it out really nicely. So I guess a couple of things I would talk about as we look at our prime mortgage book. So obviously, the level of security gives us a lot of comfort. Our sort of greater than 3-month arrears are below the sector average and quite significantly so. So it's well underwritten. And I guess the guide on the financing of the remaining 40% that aren't on customer rates over 4%, we do kind of use what's happened in the last couple of years to kind of help guide us on that. So what you've seen in that time, obviously, there has been wage growth across the different areas. People who are coming up are very aware that they're coming up. They are -- what we see has been really interesting over the last couple of months is our kind of a greater increase on the use of the 2-year versus the 1 year. If you look at our -- sorry, versus the 5-year, forgive me, if we look at our kind of 5-year fixed as a percentage of our fixed book, it's about 66% 5-year. But actually, if I look just at what's even been happening in the last little while, that's kind of flipped almost completely to that we're writing about 77% 2-year at the moment. So customers, they understand what they're doing. They are understanding what they need to do in terms of managing their exposure. We do see them looking to lock in refinancing early so that they can get the benefit of the rate, and they've certainly been preparing for this. And as we talk to them as they go through those transitions. Obviously, it's a big change when you go from your COVID rate to the new rate, but it's something people have definitely been looking for, and we've seen them managing it really, really quite well, I would say. And Paul, on the... Paul Thwaite: Yes, yes. So Ben, so yes, so I'm glad you liked and have seen the new disclosure. We hope that's helpful to everybody. In terms of the kind of outlook for the -- obviously, it's a very broad business when you look at the breakdown there. But in terms of the areas that you referenced, we have been growing the business, I guess, over a number of years, but it's been in a very disciplined way. If you look at limits there, they haven't really moved since this time last year, so quarter 2 '25. Likewise, we haven't materially changed our risk appetite. We're always very focused on being senior lender, good protection from first loss, making sure that the risk-adjusted returns are supported. So our strategy really has been not around growing limits, but prioritizing risk-adjusted returns versus volume-driven growth. As you know, we haven't been involved in any of the recent public names. Looking forward, what I would expect actually is to see some of the spreads to widen, so i.e., the same business, the same risk, but actually better risk-adjusted returns. That would be my assumption because as you know, a lot of that business is relatively short term in nature, so you get to reprice. So that's how we're seeing. Hopefully, that gives you a sense of it in terms of limits, but also, I guess, business strategy, which is returns led rather than volume-led. Operator: Our next question comes from Chris Cant of Autonomous. Christopher Cant: Two, please. On corporate banking, commercial banking, in the context of what we've got going on in the Middle East, are there any areas of your book that you'd be more nervous on, please? And I'm not thinking specifically just about oil price as an input here. I guess there is the potential for product shortages or oil-related product shortages regardless of price if this persists. So are there any sectors that you're nervous on when you're speaking to your corporate customers, what are they worried about? And on the comment around refi of the mortgage book, my understanding there is that customers essentially have sort of a bit of a free option to lock in, but then change products if rates shift after they've preemptively locked in. Are there any risks to you and to kind of NII later in the year given swap volatility. Just conscious, I guess, the value of that option being given to customers is arguably higher right now. So any comments on how you manage that, how we should think about that would be appreciated. Paul Thwaite: Thanks, Chris. I'll take the first. Katie, you take the second. On the -- I guess, the kind of core mid-market commercial bank, Chris, obviously, we're staying very close to all the various sectors and also the different regions there. It's very consciously a very diversified book. We gave you quite a lot of breakdowns on the relative sectors and segments. In terms of -- to your specifics around sectors or subsectors that might see greater impacts. Probably similar to some of the previous kind of challenges, I would say, sectors like agriculture, aspects of hospitality and leisure. So where you see some of the -- not just what you call pure energy input prices, but you have fuel, fertilizer, food, et cetera, where you see exposure there would be areas that we are -- we will pay more attention to. And as we've done in the past, we work closely with those sectors if support packages are needed. We're not at that stage yet, and we're seeing no deterioration. I think generally, what I'd say, if you think back through what we're seeing in the Middle East, what we saw through the tariff period, a similar time last year through Ukraine and even through the pandemic, customers are -- I'd say business customers are a lot more adaptable and resilient than maybe they were prior to the pandemic. Their ability to change their cost base and/or pass on costs, the kind of the way in which they've engineered their business models over time have given them more flexibility. So what we see is a faster response, but also greater adaptability, which ironically, I think is down to the fact that a lot of these businesses and sectors have had to face a lot over the course of the last 4 or 5 years. So that's how we see it. But there are probably 2 sectors that are kind of on our minds. Katie? Katie Murray: Sure. Thanks very much. And then your great question, Chris, we've kind of watched this happen historically, we've seen other peaks. But look, it's something that we manage incredibly tightly on this. We've got very sophisticated modeling that we have in play. We based on it looking very much at the kind of individual kind of customer behavior, looking at what happened in other periods of interest rate volatility, who would move, who would kind of stick. You heard me mention earlier today as well that what we've done and the investment that we've done within our mortgage system has allowed us to kind of be able to react really, really quickly. I mentioned that we repriced 11x over the course of 22 days during March. I mean that is a significant change from where we were a number of years ago. So very comfortable with the dynamic overall. What I would kind of add is that we do see that most people who do refinance with us do ultimately kind of stick with us as well. So there's that good kind of customer engagement, which is just -- is really, really critical. We're also kind of largely locked in already for our forthcoming roll-offs. But I would say all of these things are embedded in the guidance that I've talked about today about the book actively kind of repricing to 60 bps over the course of the year. And so while we manage it actively, but I don't see it will be something that would change what I've said to you this morning already on that number. Operator: Our next question comes from Sheel Shah of JPMorgan. Sheel Shah: First question on corporate deposits, please, because this is a line item that has remained under GBP 200 billion or so for the last 2 years, and we're finally seeing a lot of growth come through the business. And not only the growth, but also the rates that you're paying on these corporate deposits, looking at your other disclosure looks to be declining as well. So I'd be interested to get some insight as to what's happening there? And then secondly, on the cost base, I know the first quarter had some increased investment in restructuring costs, but you also mentioned on the call earlier that the cost profile will be uneven through the year. So just wondering how you're thinking about that across the remainder of the quarters? Paul Thwaite: Thanks, Sheel. I'll take deposits. Katie, cost, yes? So I'm pleased you've noticed the trajectory there, Sheel. Deposits in the commercial bank is a big area of strategic focus for the team and has been, I would say, increasingly over the course of the last 18 months. So part of the performance momentum there is around focus. Given also the growth we've seen in lending, there's been a natural need to increase deposits in the commercial bank. So focus has played a part. But we've also broadened the product range. We've also digitized parts of the product range as well. So we've got business focus. We've got enhanced proposition for different segments within the commercial and corporate bank. And as you'd expect us to have, we also have a much broader focus on transaction banking, which obviously brings high-value operational deposits. And to your point, depending on the nature of those deposits, high liquidity value, but also in relative terms versus interest-bearing deposits, good cost of funding. So it's a strategic focus supported by a number of operational and tactical activities that support our client base but also help the LDR. Katie? Katie Murray: Costs, sure, absolutely. So you're absolutely right. Q1 is a little bit higher than normal, reflecting some of our decisions to front-load investments and restructuring costs alongside staff and inflation-related increases from 2025. But you'd expect me to say this, it's our history. It's what we deliver every single year. We are really confident in hitting our cost guidance of around GBP 8.2 billion. That excludes the impact of Evelyn. I'm just going to take the opportunity just to talk a little bit about Evelyn costs. We'll share more about that as well when we kind of -- once we've kind of finished the acquisition and things like that, which is going well. But there are a few things that you need to be thinking about that will impact some of those Evelyn costs as they come through. Obviously, first, we've got day 1 transaction costs. That was included in our guidance of the 130 basis points of capital. We've obviously got the operating costs that will come through from the point of consolidation in terms of Evelyn's own costs. We're then familiar, we talked a lot about the cost to achieve in terms of the GBP 150 million total cost to achieve to drive the GBP 100 million of cost synergies. And finally, we are going to have ongoing amortization of the intangibles that will be created upon completion. That doesn't impact our capital generation going forward as we've incurred that as part of the capital impact of the 130 basis points. Obviously, I'll give you more detail when we get to the point of completion. But when you think of lumpiness, think of -- they're absolutely rock solid on their 8.2. That's where they'll land because they always do. But there will be a little bit as Evelyn comes in. So think about that in your models of those 4 different kind of categories. Hopefully, that's helpful to you, Sheel, as well. Operator: Our next question comes from Aman Rakkar of Barclays. Aman Rakkar: Hopefully you can hear me okay, sorry. Paul Thwaite: We can. Yes. Aman Rakkar: I had 2 questions then. So could I just trouble you on the deposit margin, please? I think that 2 bps deposit margin Q-on-Q contribution, I think it's the softest uplift Q-on-Q. And obviously, you've got multiple moving parts in that, notably a massive structural hedge tailwind, but presumably offset by compression on kind of actual deposit spreads in the quarter. So I was interested in your sense of the deposit margin contribution on a sequential basis in coming quarters, please? And to what extent do you think this kind of intense deposit competition dynamic, particularly for term deposits, I mean, lots of people writing term deposits at negative spread kind of feeds into that would be really helpful. And then the second question was a broader question just around actually the income dynamic beyond this year because it feels like there's a building confidence around the income profile beyond this year, principally because of the interest rate environment. It's not really materially moving the needle on this year's guide as much as it perhaps will do on the forward look, not least because of the structural hedge. But I'm thinking about the cadence for net interest income through the course of this year is presumably going to be quite robust, right, in terms of what it means for next year. So is that the right characterization? And kind of what do you as a management team do with that, the kind of building confidence on the income outlook in the medium term versus what is quite an uncertain near-term dynamic in the Middle East? Katie Murray: Perfect. So deposit margin, 2 basis points in this quarter. I think you need to just think a little bit about the overall movement in balances in the quarter. So you've got tax outflows, GBP 10.3 billion. They are predominantly in January. Some do dribble into February, but they are predominantly there. We're confident around the deposit margin expansion will be greater in the coming months as we move forward from here. If we then look at kind of income beyond 2026, we expect annual income growth through 2026 to 2028. We're confident in that growth trajectory. Obviously, disciplined growth across lending, deposits and AUMAs continue in line with our CAL target of greater than 4%. That will obviously be boosted by the Evelyn Partners acquisition when it comes online. The higher for longer interest rate environment, we've got -- now got the terminal bank rate of 3.75% alongside the actions that we took in -- already taken in Q1 to move higher in the yield curve, meaning that we are increasingly confident on the income tailwind from the structural hedge, supporting income all the way through to 2030. You've got other variables like customer behavior, competitor behavior around pricing and macroeconomics. We'll see how these develop. But again, you can see what we've got in terms of our economics in there. And given that kind of interest rate sensitivity that we have, we do see that as a net positive for income beyond 2026. So overall, confident and building on our confidence that we had when we spoke to you in February as well. Thanks very much, Aman. Paul Thwaite: Yes. And as to your final point, Aman, how do management characterize that? I think as Katie finished there, net-net, it feels like we're in a stronger position on income and returns, both '26, but also looking out to '28. Operator: Our next question comes from Amit Goel of Mediobanca. Amit Goel: Hopefully, you can hear me okay. Paul Thwaite: Yes, we've got you crystal clear. Amit Goel: So one, just kind of following up. I suppose just on Slide 30, just on that deposit margin and contribution, just trying to reconcile on each of the divisions, it seems like the cost is coming down, but on the group, it's flattish. So I just wanted to check what's driving that? And then secondly, just on Evelyn, just curious how the business -- I mean, if you've got any color in terms of how the business has been developing since the acquisition announcement and I guess, during the first quarter and beyond in terms of AUA. So just anything on that would be helpful. Paul Thwaite: You go first. Katie Murray: The first one, absolutely. So if you look at the businesses, what that is, is that's representing the customer rate on deposits or loans, whereas if I look at the group number, it's the overall cost, including hedging. So it's not perfectly like-for-like as you look across those 2 lines. Paul, Evelyn? Paul Thwaite: Yes. So Amit, obviously, I can't comment on a business that we don't yet own. So that wouldn't be appropriate. What I would say is in terms of the planning to closure is going very well. We're moving at pace. We hope to announce that in the coming months. The work on -- the appropriate work on integration is progressing really well. You can see from our AUMA performance as in NatWest, the AUM performance, the strength, net new money above 8%, again, despite the market movements, top quartile investment performance. The -- going back to the AUM, kind of 10% up on year-on-year, which is great. So there's a limit. There's obvious limits to what I can say. But in the work that we're doing so far, we're very encouraged. I've spoken at length around the scale and the capabilities that Evelyn will bring. I think if you look at the success we're starting to have around retail investments and premier investment in the NatWest space, the acquisition of Evelyn is only going to accelerate that. So to me, the demand signals and the performance signals are good. Once we've closed, as Katie alluded to earlier in relation to the cost question, once we've closed, we'll obviously share a lot more detail in terms of the overall numbers and the plans, and we are eager to do that as soon as we can. Thanks, Amit. Operator: Our final questions come from Ed Firth of KBW. Edward Hugo Firth: I just have 2. The first one is just on detail. I think at the time of Evelyn, we were talking about GBP 300 million of revenue and GBP 300 million of costs in the first year. Is that still the right number we should be getting? So that was just my first question. Paul Thwaite: Yes, nothing has changed since the original disclosures, Ed. That's the best way to think about it. Edward Hugo Firth: Perfect. Okay. And then the second question was related to Jonathan's question really about risk because I've just struck that in your sort of worst-case scenario, you're talking about a low few hundred millions of credit losses, I guess, something like that. I know it's more than GBP 99 million, but it's not huge. And that's on a GBP 30 billion tangible equity invest, and you're making pre-provision profits of GBP 10 billion a year. And so I'm just wondering, how do you think about appetite to risk? I mean, do you really feel confident that you're taking enough risk? Because it feels to me that potentially there's quite a gap there for you to be doing quite a lot more and growing revenue quite a lot faster than you are. And I guess related to that, can I just ask about Slide 33 again? I mean it's a great slide, and thank you very much indeed for giving it to us. And I wish all the other banks would as well. But it does strike me that particularly your funds lending looks quite a lot bigger than I would ever have imagined. And is that -- I mean, I don't know the market that well, but I guess you do. You're a market leader in that space. Is that -- would you imagine that you are sort of bigger than most people? Or would you think that you're just a player and that's pretty standing? Because unfortunately, other people don't give us that type of a disclosure. Paul Thwaite: Great. Okay. Thanks, Ed. Good to hear from you. Quite a few different questions there. So we've got the kind of the extreme downside kind of credit piece. Katie, why don't you have a shot at that. I'll cover funds. And then there's a bit, I guess, linked to the -- just on lending risk appetite as well. Katie Murray: Yes, I'll crack on impairment, and you can jump in after that. So Ed, what I'd probably do is guide you a little bit. If you go after the call, on Page 27 of our IMS today, we gave you, I think, helpfully as a nonstandard Q1 disclosure, the -- what the -- our new change in our scenarios would be. And you can see that on the downside scenario for Stage 1 and Stage 2, it's GBP 99 million additional. But if you went to the extreme downside, that's a GBP 1.7 billion hit. So really very different in terms of numbers. And you can also see that, that's obviously greater than the hit we would have had at the year-end in that space. So I would just -- I'd probably just rebalance your numbers a little bit on that. That's obviously just Stage 1 and Stage 2. We would -- I would kind of point out that, that extreme downside is really quite far away from our base case. But obviously, it's blended into the number. I think we gave about 14% probability kind of weighting. So quite far out there, but it is something to kind of consider as you look at the numbers. And Paul, shall I come to you for the other? Paul Thwaite: Yes, yes, fine. Thank you, Katie. So on funds lending, I'm glad you liked the disclosure, right, I would say. On funds lending, that's a really long-standing business for us in excess of 20 years. A large part of that business is in our RBSI, which is our Channel Islands business, been in our disclosures for all that period of time. Probably worth diving in into a little bit of the detail. I wouldn't say we were a leader in that business. I'd say we're a strong player where we choose to participate. It's worth bearing in mind of that funds lending business, 80% of it is, I guess, what you know as subscription lines or capital call facilities. So that's where you kind of got exposure to LPs, and we take security charge over the LPs. Typically, that's pretty short dated as well, just to give you a bit more context, 1 to 3 years. So when you look at that line, the best part of GBP 17 billion is sublines. The other part is NAV, which is a smaller part, kind of GBP 3 billion, GBP 4 billion. And that's where you're seeing it, in effect, in a senior creditor when you're lending on to a particular asset. Average LTVs, again, just to help you there, around 30%, and you've got an institutional investor base. So very long-standing business. It's been predominantly led out of our Channel Islands business, no historical losses. So a good business, but there'll be -- as you look across European U.S. banks, you'll see different levels of exposure. I'd say we're strong, but certainly not a leader. Katie Murray: And in terms of risk, do we feel we've got the balance very much we're taking to get to his last question? Paul Thwaite: Yes. I think I hear both -- I guess, Ed, I hear both sides of the story. From some investors, I hear they really value the low-risk business model, well-diversified credit base, high risk-adjusted returns that you see. And then you hear the other side is, could you take more risk. I think the way we've approached our different asset portfolios, both in retail and commercial, has stood us in good stead. It allows us to perform well with a low cost of risk. We generate a high cost -- a high amount of capital. Our RoTEs are obviously sector-leading. So it feels like that -- we've got the balance right. We do at times, increase our risk appetite. You go back over the course of the last couple of years, you can see some of the moves we've made in retail. We've broadened our addressable markets in mortgages and credit cards. But I kind of feel that a U.K.-centric low-risk business model, high capital generation serves us well. So it feels like we're in the right space. Hopefully, that gives you a bit of insight into how management think about it, Ed. Thanks. Operator: Thank you for all your questions today. I will now hand over to Paul for closing comments. Paul Thwaite: Yes. Thanks, Oliver. So I just want to close with, I think, a couple of key points, which I think are particularly important given the context we're in and I think demonstrate why we think we're very well positioned as a bank. The first one is our deposit franchise and the gearing that gives us to rates. Obviously, that's driven by our corporate franchise. It supports our revenue growth, especially in a higher for longer environment. The second thing I would point to is the growth track record that we've built and continue to build and the targets that we've put out there. We think we've got a good track record and further opportunities across our 3 businesses. You can see also the progress we're making around cost management and our cost/income ratio and continuing benefits of operating leverage. And then to link it to Ed's question, if you look at the loan book and you look at the Bank of England stress tests, we are the most resilient bank under stress. I think that's as a consequence of our diversified business mix. So the lowest stress drawdown of any U.K. bank. So you add all that up together, superior returns, high capital generation, which can drive stronger distributions. So from my perspective, we feel very well placed as we look into the circumstances that face us. Thanks for your time. I hope you have a good weekend. Cheers. Katie Murray: Thank you. Operator: That concludes today's presentation. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Novacyt Full Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Lyn Rees. Good morning to you. Lyn Rees: Good morning, Alex, and thank you. And good morning to all of our investors as well. I understand there's potentially up to 150 people joining us online this morning. So as ever, we thank you for your time and your commitment this morning. I'm joined today by Steve Gibson, our CFO. So between myself and Steve, we'll be going through the results presentation. And this represents, pretty much, our second year anniversary as the CEO and CFO of this organization. So really looking forward to updating on what I think has been some really solid progress over the last 12 months for this business. I'm just going to start with a quick introduction slide of what we do. I mean, what we do, sorry. Obviously, a lot of people will realize that we're an international molecular diagnostics company with a portfolio of clinical assays. That's the Yourgene Health side of the diagram. We have a series of research tools and instrumentation that are done on a research use-only basis. That's the Primer Design side of this diagram. And then in the middle there, you'll see a brand-new part of our business, the distributor part of our business as a result of the acquisition of Southern Cross Diagnostics. And we'll be talking a little bit about that as we go through this deck, okay? So the business is fundamentally still, as per the last presentation, located in Manchester. That's our headquarters in Manchester. We obviously added Sydney, Australia to our list of international territories now. And we currently sit about 230 people within our organization. So in terms of the first sort of main slide I really want to talk through, this is a sort of operational and post-period highlights. I'm going to start on the bottom right-hand corner. About a couple of months ago, we launched our strategic plan. We had a lot of feedback that the market didn't really understand where we were going coming out of COVID. Obviously, the merger of a clinical business and a research use-only business. So we launched our strategic plan. Steve and I sat down and shared the investment thesis, which is fundamentally putting some more money into R&D so we can get new product launches and more content for our customer, keeping an eye on the cost of the business, streamlining the group from an operational and a cost perspective and delivering market expectations. They were the 3 sort of key areas that we said we wanted to commit to as a leadership team. And I think then if you look at the remaining boxes on this page, let's start with that strategic investment in R&D. Well, what did we launch last year? We launched a brand-new LightBench Discover. And as Steve will talk through in the figures a bit later on, that drove a 20% plus growth in the instrumentation side of our business. We received IVDR accreditation for our Yourgene QST*R-based assay. And probably worth just taking a bit of time to talk about IVDR. I'm kind of trying to be raising its profile over the last couple of sessions that we've done with our shareholder base. IVDR is critical to be able to sell products long term into this marketplace. It's a very high regulatory barrier. It takes a lot of investment, a lot of time, a lot of expertise. We're very, very well positioned on this IVDR journey. We've been ahead of that curve for some time. We've got a fantastic regs and quality team, and we continue to have our products approved. And whilst it doesn't make huge news when those approvals are given, when the market changes, you have to have IVDR approval in order to be able to sell products. I genuinely believe that this regulatory advantage that we have will mean that there are less people in the market selling products because the non-regulated products will simply not be able to be purchased, and we're in this really strong position. So I think the fact that we're launching new products or have launched new products, the fact that we are getting continued IVDR accreditation for those products creates a really strong foundation for this business. And in addition to the products that we launched last year, obviously, we're very much looking forward to the launch of our new DPYD assay, which is currently scheduled to be launched live into the market at some point in May. So ticking the box for the first strategic investment that we delivered the product portfolio. We put an extra couple of million into R&D, and that's starting to reap rewards with the product category growth that Steve is going to talk through a little bit later on. Looking at the core business, our NIPT business, this is the clinical part of our business. Our clinical products, in total, equate to about 70% of the sales of the group. So we were delighted to win the St. George University Hospital tender for the NHS, which basically does all of the south of the country's NIPT tests. We picked up that contract for another couple of years. We've won the tender in Iceland for NIPT, and I've just been over there installing new systems and processes and training of teams for the Icelandic market to deliver NIPT solutions to the marketplace. And midway through last year, the Thailand government, the Thai government reimbursed NIPT, so it made it available for every mom and dad-to-be in the Thai region. And we've been busy installing our services and processes into 4 key labs in region, working with a new distributor, and we feel we captured about 40% of the market share in that part of the world. So as reimbursement continues to happen for our NIPT products and services, you can see that we are winning back existing contracts that we had, and we're winning new business, which has delivered another double-digit year of growth for our NIPT franchise within our organization. So new products are being launched, existing products are being sold more. And then the final growth pillar was looking at inorganic growth. And you'll have seen, obviously, that we've acquired Southern Cross Diagnostics, which was immediately earnings accretive. Steve is going to talk through a rather complicated preferential subscription rights issue that we had to do in order to complete the transaction. But hopefully, the summary here is over the last 2 years, myself and Steve, alongside our executive leadership team, our Board and the 230 people that work in our organization have made real strides into giving the business a strong foundation of existing product, approved product to be sold continuously in the market with no gaps, new product coming through, and we've accelerated that plan by doing a bit of M&A work on top as well. So we're really pleased, and we're really encouraged with the foundation that we've built for this business in the last couple of years. I know we sent out a video recently on Southern Cross, but for those that weren't able to catch that, just a bit of an understanding on who Southern Cross are and why we acquired them. They're a relatively small organization, just 11 people with 1 founder director, but those 11 people generate north of GBP 6 million worth of revenue, a revenue line that has been growing and tripled since 2023. The business was established in '28, and gross profit is continually increasing. And the founder, Nick, who I've known for, gosh, a long time in this industry, probably over 15 years or more. Nick decided to invest some of the money that we paid for the business and is now a shareholder in Yourgene -- sorry, Novacyt, and has committed to the business long term. And we're looking forward to working with Nick to leverage and sweat his database of opportunities, customers, products and businesses in the region so we can continue to see growth in what is already a fast-growing part of our business. The clinical market in Australia is growing. It's valued at about $1.4 billion at the moment. And it's expected to grow and pretty much more or less double in size because the Australian government is reimbursing a lot of diagnostic tests, understanding the importance of getting a quick diagnosis always leads to better or more efficacious treatment. And the Australian government is one of the most forward thinking from that perspective. So we see a lot of growth in this market. We were seeing growth via our distributor, SCD, for sales of our cystic fibrosis. DPYD has just been reimbursed in the Australian diagnostic market, so we have a new product launch coming up. So it made sense to get a little bit closer to that customer base where we can have conversations with the key opinion leaders. And the people are shaping the way that diagnostics is done in that region, as well as being able to get -- capture a larger share of the margin associated with those sales, which naturally accelerates the pathway to EBITDA profitability for the Novacyt groups. So when we looked at this acquisition, it was a fast-growing market. We had great people that we've known for a long time. The business was winning more and more business through delivery and reputation. It aligned with our plans for geographic expansion and the increase in international sales. It gave us access to key accounts, not just from a commercial perspective, but also the key opinion leaders that sit within those accounts. And it was an inorganic step change in terms of increasing our revenue and profitability. In addition to that, Nick and his team take a wide range of products from diagnostics, infectious disease, serology into Australia and New Zealand. And Nick is visiting and spending a bit of time in the U.K. over the next couple of weeks so that we can meet with some of the owners of these third-party products and hopefully discuss opportunities for wider distribution and give us a chance to grow our sales and grow the number of products that we take to market. So when we look at all of those things, the acquisition made perfect sense, and I'm delighted that we were able to complete it. But it was a process that was -- that came with a bit of challenges. So I'm going to hand over to Steve now, who will explain just how we did the acquisition and what it's meant to our business. Over to you, Steve. Steve Gibson: Brilliant. Thanks, Lyn. Good morning, everyone. Hope you're well. So if I just talk you through the consideration structure. So we acquired Southern Cross for around $8.5 million, that was an upfront cash payment. And then on top of that, there's the ability for them to earn an earn-out of around AUD 16.5 million over a 4-year period, and that's dependent on hitting certain EBITDA targets. And to put it into context, for the full deferred consideration to be paid, they will have to deliver an EBITDA of over AUD 30 million cumulatively over those 4 years. So we think it's a win-win situation. Now straight after the acquisition of Southern Cross, we launched this preferential subscription rights process. And we did that because it was the only option we had following the AGM last year in terms of raising capital. So we launched this process. We issued just under 2 million new shares. And I would just like to take this opportunity to thank shareholders who participated in that process because we were oversubscribed. So thank you for that. At the end of it, over 50% of the newly issued shares were given to the prior owner of Southern Cross, and we'll use that cash to strengthen our balance sheet going forward. So we're going to turn to look at how we've done in 2025. So I have a number of slides to run through. So I think we were really pleased as a business that the 2025 results exceeded all market expectations. So revenue totaled GBP 20 million. However, when you strip out the impact of the Taiwanese divestment, that meant that revenue grew year-on-year by about GBP 800,000 or 4%. In addition to that, we've seen half year-on-year growth since the end of 2024, so a pleasing set of revenue figures. From a gross profit perspective, that ticked up to GBP 12.6 million when you strip out the impact that the DHSC settlement had on the 2024 numbers. And from a gross margin perspective, it remains strong, and we delivered a 63% gross margin. And that was helped by sales of our PCR range of products. And in particular, our Primer Design business continued to deliver a gross margin of over 80%. Our costs continue to track downwards, and we reduced our OpEx from a pro forma of GBP 27.5 million when we combine Yourgene and Novacyt down to around GBP 20.4 million this year. And that's against the backdrop of continued investment in R&D, and I'll talk about that more in detail later. So all of that accumulated in the EBITDA loss reducing by around 14%, down to a GBP 7.8 million loss. Now if we move on to look at revenue from a segment perspective, then the product mix year-on-year remains fairly consistent. So our Clinical business delivered around 70% of our total revenue or just under GBP 14 million. And as Lyn mentioned earlier, NIPT technologies is up around 10%, and that delivered around GBP 5 million of new revenue. And that was predominantly driven by winning a new customer in Asia Pac. The RUO business, that delivered around 1/5 of our total revenue at GBP 4 million, and that remains our cash cow of the business. And Instrumentation grew by around 25% to GBP 2.5 million, and that was driven by the successful launch of our new product, the LightBench Discover instrument. Now if we have a look at revenue also from a geographic perspective, we remain well balanced and have a diversified income stream. And we're not reliant on any one region, which is really important in the current geopolitical situation that we're in. So our largest region continues to be Europe, and that delivered around 50% of our total revenue or just over GBP 10 million. Now if we look at it in a little bit more detail, the U.K. and Ireland region, which is where we've got the most boots on the ground, delivered around GBP 4.2 million of revenue. Asia Pac is growing like a weed. It's grown at double digits and delivered around 30% of our total revenue or just under GBP 6 million. And again, we continue to see strong demand for our reproductive health range of products in that region. What we are seeing in some of the countries out there that they are price sensitive, so it will put pressure on our gross margin percentage going forward. Now if we look at the income statement and we move down to operating costs, what you'll see is that they decreased. OpEx has, down to GBP 20.4 million from GBP 41 million in the prior year. Now last year's costs were inflated by around GBP 20 million because of the bad debt provision that we booked. So if we strip that out and we're comparing apples with apples, it means that our underlying OpEx costs have decreased by about GBP 700,000 or 4%. Now that's against the backdrop of increase in our R&D expenditure on a net basis by around GBP 1.3 million, and that took our overall R&D P&L cost to just over GBP 4 million. But we were able to offset that expenditure due to the successful site consolidation program of work that we've done that's reduced our footprint and has also reduced the cost base of our business. So from an EBITDA perspective, as I mentioned earlier, we made a loss of GBP 7.8 million. But on top of that, we incurred exceptional costs that totaled just under GBP 16 million. Now the majority of this was not cash impacting. So around GBP 14.5 million of it related to impairment charge covering the goodwill and intangible assets associated with the Yourgene Health acquisition. So the actual cash impacted items and the exceptional charges totaled just under GBP 1.5 million, and that included site closure costs and M&A-related fees. So this meant overall, the group reported a loss after tax attributable to the owners of GBP 22.9 million, which is significantly down on the prior year's loss of GBP 42 million. So we've made good progress. If we move on to the balance sheet, there's a couple of areas that have decreased and have moved year-on-year. So the first one is noncurrent assets, you will see at the top has decreased by around GBP 19 million. Now the bulk of that is what I mentioned earlier. So GBP 14.4 million of it relates to the impairment charge. And then the remainder is the usual amortization and depreciation charges that we see. And the other big move is cash. You'll see that cash has decreased by around GBP 11 million, and we'll go on to look at that on the next slide in a little bit more detail. So we closed 2025 with GBP 19 million in the bank, so an GBP 11 million outflow. Now the main cash outflows were driven by core operations consuming around GBP 8 million of cash during the period. Now on top of that cash outflow, there were some onetime items. Clearly, there were costs around the site consolidation program of work, and they totaled around GBP 1.3 million. And then we had some M&A-related costs that cost a couple of hundred thousand. So if we strip out those onetime entries, it meant our cash burn per month in 2025 was around GBP 825,000. Now I just want to touch on the closing cash position at the end of March 2026. So we announced in the RNS today that we had GBP 11 million in the bank at the end of last month. So that means it was a Q1 cash outflow of around GBP 8 million. Now GBP 5 million of that related to the acquisition of Southern Cross and covered the initial consideration, plus the working capital adjustment, plus fees, plus fees associated with the preferential subscription rights, offset with cash that came in from the successful PSR process. On top of that, there was around GBP 0.5 million of non-repeating items as well. So that's a quick run through of the financials, and I'll hand back to Lyn now. Lyn Rees: Thank you, Steve. So just looking to summarize this and put some of this together. So where are we today? I think we're making strong, strategic progress. We just talked through the acquisition of Southern Cross, which gives us immediate earnings and revenue and strengthens market reach and access to third-party products. It's only been a couple of weeks now since we acquired this business. I think it was done on March 2. And I just spent the last 2 weeks in Australia with the team, making sure that they feel comfortable, they feel confident as part of the new group. They hit their first target. The first month of sales was the March month of sales. So I was delighted to see them hit that over the line. They've got an exciting pipeline of potential new products to take into region. We've got a team that feels very comfortable being part of a wider group, a team that we've known for some time. So I think that acquisition accelerates our pathway to profitability and has allowed us to use our balance sheet to support our growth. And it was great to see some of the shareholders supporting that process through the PSR, and I really thank everyone for contributing to that. So I think we've delivered what will be a very successful acquisition for this business, and that's going to bring growth to our organization. From an organic perspective, our key products have hit those key milestones. I took a bit of time out to talk about the importance of IVDR and the importance of reimbursement. I was asked the question a couple of weeks ago, do we think the products will be provided to the market? Are they clinician-backed products? Well, they kind of are because the governments in the various territories where we sell these products have decided to reimburse this testing. So they must see a clear value in it. And we often work with key opinion leaders. So to launch these products, to see the growth that we -- continued growth in NIPT of double digit, to see the 20% growth that we saw in the range of technology shows to me that we made the right decision to invest a bit more in R&D as we look to drive the content within our organization. That portfolio expansion will continue. We are on the precipice of launching our DPYD assay. This is an assay that unfortunately, patients who are Stage 3 or 4 in cancer and are having a capecitabine or a 5-FU chemotherapy treatment. This is a test that every one of those patients will have before that treatment because if they don't, you can lose up to 1 patient in every 100 that are tested for this. Now our original DPYD product we launched 4 or 5 years ago have been taken a little bit by the market. More targets were added into the competitors, so we lost a bit of market share. We're just about to launch a brand-new product that has a full suite of targets in there. It's been developed alongside some pretty hefty key opinion leaders in the market globally, and we're looking forward to driving that out. And whilst that's really good news, I think we're launching the RUO version in May, and the regulated IVDR version will probably be out June, July. And we have hit a snag with the SMA product that we were also working on. Now that was an OEM product that we were bringing in from a third party. And that went through the regulatory journey. There were a couple of questions that we were unable to answer. So we've gone back to investigative mode on that and deciding whether we continue to look for a third-party product or we just develop it ourselves. One will be quicker, one will be more profitable. So we're just having that discussion at the moment. But we continue to invest in our portfolio. I expect us to have more range of technology available either at the end of this year or very early 2027. As I said, we've got the DPYD product coming out in the next couple of weeks. And we will continue to look for opportunities to partner with our customers, with our partners and bring out more content into this space. In terms of the business itself and its cash position, I still think we have a well-funded and a strong balance sheet. We are now delivering sustained growth. I think we've had 4 consecutive half year periods of growth over the last 2 years. For the first time, we put market expectations out there. We overachieved them, albeit slightly, but still a tick in a box to overachieve those expectations. And I think that gives us a real solid foundation of growth for this business. Steve and I have pretty much spent the last 2 years working hard with our leadership team and our Board and in general, all the people in our organization to create a real solid base, to create an identity for the business, to create a strategy for the business. During that period, we were quite quiet. And in the last couple of months, we're opening up our communication, and you will be seeing more of us over the coming months. We're going to attend some retail investor shows, and we are committed to give you more updates, especially as we launch our new technology and we bed in this new acquisition. But I think that reduced cost base for the group, in Steve's presentation, all the arrows are going in the right way. That will be a continued focus for us. That's probably one of the challenges is deciding when to stop investing in the new products and to claw back the cost. But I think we're probably at a point where we can look to do that as an organization, continue to manage cash as if it's our own because we understand the importance of it in the market and just create a strong foundation for the business. So it's a delight and an honor to be here in front of you today to say, look, we hit our numbers. We met expectations. We launched product when we said we'd launch product. We won the new business that we said we would, okay. The growth is at 4%. We're targeting double-digit growth for 2026 and beyond. And after the first quarter's performance, we certainly hit that number after Q1. So we really appreciate your time. We really appreciate your patience as investors and shareholders in our business. For those non-shareholders that are on this call today, hopefully, you've seen enough to convince you that we're worth your time and energy and investment. And for those existing shareholders, as I say, thank you very much for your continued support. We're doing all we can to make this business successful long term, and we believe the work that we've done over the last 2 years really builds that foundation. We've got products that we can sell all over the world because they are very highly regulated. We've got new products coming out which will continue to excite and delight our customers. We're investing and growing our commercial footprint organically and inorganically. And we look forward to updating you on the progress throughout this year as we go through the journey. So thank you, everyone, for your time today. Operator: Thanks, Lyn and Steve, for your presentation. [Operator Instructions] I would like to remind you that a recording of this presentation, along with a copy of the slides, can be accessed via our investor dashboard. And Lyn, Steve, if I may now hand back to you to take us through the Q&A session, and I'll pick up from you both at the end. Thank you. Lyn Rees: Yes. Thank you very much, Alex. Okay. We received a number of pre-submitted questions. So if you could bear with me as I read these through and between myself and Steve, we'll answer them. I'm not going to try and read out the French version. So for any French shareholders on the call, I do apologize. I think we're having some translation added when this video goes out into the market. Steve, can you comment on the auditor's opinion and indicate whether there are any emphasis of matter or material uncertainties, going concerns in the audit report? Steve Gibson: Yes, certainly. So there were no material uncertainties that were flagged, and we wouldn't expect that in terms of the going concern because we have adequate funds for the next 12 months, which it looks forward to the end of April 2027. And then in terms of the emphasis of matter, in the group accounts, there is no emphasis of matter. But in the French social accounts, so the local Novacyt accounts under French GAAP, they have flagged an emphasis of matter. But that's just to bring to the readers' attention that we've adopted the new French chartered account. So it's more of a disclosure saying we changed the look and feel of accounts, but nothing to worry about. Lyn Rees: Thank you, Steve. And staying on a financial note, what is the cash position and the cash runway after the capital increase? How are the raised funds being used, and what portion remains available for operations and growth? Looking to understand the impact of the capital increase on liquidity and the capacity to execute strategic plans is crucial for assessing the shareholders' financial risk. Steve Gibson: Okay. Thank you for that. So I think I covered some of that in the presentation deck. But at the end of March, we have GBP 11 million in the bank. I think Lyn alluded to it or mentioned it earlier that, again, as a business, we think we have enough cash to reach EBITDA profitability as long as we hit our forward forecast. In terms of the PSR process, why do we do it. So we did it to allow existing shareholders to participate in the capital raise post the acquisition of Southern Cross and also to bring in new shareholders. So cash has been well managed. As Lyn said, we're treating it as our own. In terms of liquidity, we have a high retail shareholder base, so as you would expect for that sort of share offering. Lyn Rees: Thank you, Steve. The next question was asking around the -- can you give any detail on the operational and commercial integration of Southern Cross Diagnostics, synergies realized to date, contribution to revenue and the expected time line to achieve integration objectives? Yes. Well, as I said earlier, I've literally just got back off a plane from Oz. I can tell you, I mean, this is a business that doesn't make any product. So from an operational perspective, it's a pretty easy integration process. And they've already been supplying our products into the market for the last 4 or 5 years. So there's a strong relationship there. We have a 90-day integration plan that's managed through our project management office, or PMO. As it stands at the moment, we are 75% through all of the tasks. So we've completed 75% of the integration tasks within about 60% of the duration of the project. So we're well on plan for the integration. It certainly helped when you know the principles and you work with the organizations for so long. So naturally, we're leveraging that strong relationship that existed. I think commercially, whilst I was over there, we launched the LightBench into the Australian market. Southern Cross hadn't previously taken that product to market. So we attended a big genomics conference, and we walked away with over 50 leads for LightBench because it's the first time we showcased that there. We've got some conversations going around in NIPT, and we're really focused for the launch of DPYD into the Australian market. So I think commercially, the integration is going really, really well. How do we assess that? Well, they've got a budget, and they hit their first monthly budget, and they're on track for what we can see for the budgeted year. So, so far, so good with those guys. The project will -- initial project will take 90 days. So I think it comes to an end at the end of May. And as I said, I'm very comfortable and confident on where we are with that integration right now. In terms of potential synergy, we do have a lovely base now in Sydney. So there's opportunity to look at running more of our processes, holding maybe more stock there, and we will update the market with any further synergy plays. But this was more about buying a business that would accelerate growth. We've been in cost-cutting mode and consolidation mode for the last 2 years. We're really looking forward to jumping into growth mode. And yes, this acquisition was more about growth. But obviously, if there are any synergies to be taken, we will be talking about that. Okay. What are the main drivers of revenue and margin fluctuations in the 2025 fiscal year? And which ones are recurring versus one-off? What guidance do you provide for 2026? And thank you, [ Mark A. ]. You've also put in a similar question about guidance for 2026 EBITDA and revenue. Steve, do you want to? Steve Gibson: Yes, I can take that. That's fine. So I think in terms of -- if you look at the margin year-on-year, we're very consistent at 63%. So maybe I'll break that down into a little bit more detail. So our Clinical business that has around 70% of revenue, that runs at a blended gross margin of around 60%, and that covers our NIPT and our PCR chemistry businesses. Then we have the RUO business, and that's about 20% of our revenue. And that runs at around an 80% plus gross margin, and that's all our PCR technology. And then we have the Instrumentation business. That's about 10% of our revenue, and that runs at about 50% gross margin. So that's how we get the blended group overall margin of about 63%. As I said, it's consistent year-on-year, but there is some differences depending on the product that we're selling. I think one of the questions was, there any material one-offs in 2025? Nothing material. So there wasn't a big GBP 2 million or GBP 3 million onetime revenue item in the 2025 numbers. And addressing the guidance query. As a business, we don't specifically give forward-looking guidance. What we do have is via one of our brokers, so Singer Capital Markets, they launched an initiation note back in October last year. They just issued an updated note this morning on our results, and that gives some updated forward-looking guidance from that perspective for the next couple of years. So please, I would ask you to go and have a look at that if they want to have a look at what our forward numbers might look like. Lyn Rees: Yes. And just to clarify that for anyone who doesn't have access, and we know that's one of the challenges in this market space at the moment. I'm looking at Singer's note now, and the expected revenue for 2026 is GBP 26.4 million. So hopefully, that's given you some clarity there. Steve, another one for you. What are your capital deployment priorities for the next 24 months, R&D, acquisitions, debt repayment, dilution, dividends or share buybacks? And what criteria will trigger new market transactions? Steve Gibson: Okay. Lots in that question. So I think the key is that we're going to continue to invest in opportunities that will drive growth. I think that's our fundamental ambition. There's no plans to pay any dividends until we're profitable. So we need at the moment, all of our cash to get us to EBITDA profitable. Then once we're profitable, we can look at distributable profits and potentially paying dividends. In terms of the question on debt, we have no debt. So there are no repayments of debt at the moment. And I think our general principle is we're always looking at opportunities to accelerate the breakeven position of the business, whether it's organically through increased R&D expenditure like we've seen for the last 12, 18 months or inorganically through the recent acquisition of Southern Cross. This is where we're going to prioritize deploying our cash going forward, the breakeven position of the business and driving growth in the top line. Lyn Rees: Thank you, Steve. We've had a further question from our French holders, French shareholders. Novacyt is positioned as a player in global health, and tests which have attained the IVDR label theoretically give it an advantage in technical, regulatory and legal aspects compared to its competitors. Has the idea occurred to you that due to the global situation, the company could also become a major player for the U.K., Europe and Australia in terms of food security or defense contracts to protect populations across the environment and agri food production? Thank you for the question. I guess, in the first part, yes, I completely agree, our IVDR position and the fact that our products are already approved is an advantage over the competitors. It's an advantage we're not seeing commercially yet at the moment because you can still buy what are called RUO products, research use-only products that don't need the IVDR badge of approval. But that's changing, and it's changing quickly. So we'd expect within the next 24 months to see a reduction in the number of competitors and an opportunity for us to take advantage of the strong regulatory position that we have. In relation to food security and military or defense contracts, you need 2 different levels of regulatory approval for that. So to do any defense contract work, you need something called List X security status. We don't have that. It's a very expensive accreditation to gain. I've gained it before in a previous organization, and we have no plans to go into that side of the market. And similarly, for food, whilst we do provide a lot of products into the vet, the food, the sort of animal testing area, you need AOAC approval specifically for food, and that's something that we don't have. So we continue to sell our products in research-only capacity, and that gives us enough of a market to go out with our primary design range of products and services. But we have no plans to increase the scope of that to get into military or some of the bigger food opportunities because the time line and the costs are -- we just couldn't afford that, we don't have the time to do it. Next question. Steve, what are you expecting the payout to be on the current LTIP? Steve Gibson: Okay. So for people who don't know what an LTIP is, so the long-term incentive plan. So just to remind people of the scheme. So it looks at the average share price in January 2024 and compares it with the average share price in December 2026. So at the moment, no idea what the share price will be in December 2026, so we can't quantify what our liability is. The other point, just to remind people, is that it is not a cash settled LTIP, it is an equity settled LTIP from a business perspective as well. Lyn Rees: Thank you, Steve. Next question. Are you able to provide some detail on what product launches Novacyt expect to deliver in 2026, and with which divisions? Yes. So that's easy for me to answer. Our first product launch is weeks away. It's the launch of a new DPYD assay. This is a pharmacogenomic assay that's used to treat patients that are about to start the chemotherapy journey, the 5-FU or capecitabine. This product is a very inclusive product. So it has loads of additional markers. As we saw the product originally roll out, it started off, I think in Wales was its first ever introduction before we knew it globally, and we needed to add in more markers to manage the global population. And now, we were all of a sudden, testing, as opposed to more of the U.K. population. That work has been done. We're looking forward to launching the RUO version of that product in May. And we should get regulatory approval, I think, early July. So we're going to be launching that product hard at the European Society of Human Genomics show, and we'll be doing lots of soft launches and talking to customers about that over the last couple of months. In addition to that, I think we have the usual couple of new products in from the Primer Design team. We're looking at a new version of the LightBench that can measure RNA as well as DNA, and that looks scheduled to come out towards the end of the year. And I think this year, we're really focused on bringing some partnerships. We've got a lot of development capability within the Novacyt Group, a lot of skill sets, both in next-gen sequencing and PCR. As the race to provide content to the market becomes more acute, I think there's opportunity to do contract development work there and partner up with some of the players in the global market to create content and work together. So there's 2 products that we hope to launch this year. There's some other announcements that as soon as we're in a position to share with you, we will be doing so. The next question is on SCD. I think we covered the integration and where the tangible operational and financial benefits are. I've got another question here. How has the conflict in Middle East affected the group? I think Middle East accounts for -- Africa, about 6% or 7% of our sales. So we haven't seen too much disturbance there. I think there's still a lot of testing going on in these regions. And thankfully so because these are important products regardless of the geopolitical situation. In terms of what effect has it had on us as a business, it slowed down some of our supply chains. We've had to reroute certain supply lines to avoid flying over certain areas or being shipped through certain areas. So we've seen a slight delay to our lead times. But other than that, I would say the conflict hasn't really affected the business so much, but we continue to keep a careful eye on that and watch what's happening in the global markets. But so far, the impact has been minimal for the organization. Just looking at the questions that have come in. RC, you're asking me a couple of questions here. You're asking me about when can we expect to become EBITDA cash positive. Share price has been hitting lows, what are the management doing to boost that? Because market seems not to be happy with Novacyt management. And then are there any big deals that Novacyt is expected to win in the coming months? Well, I can't talk about deals that we'd expect to win, I can only talk about deals that we have won. So we will update you as we have done this trip with the news of the St. George's contract, the update for the tender in Iceland and for the new opportunities that we won in the Thai marketplace. We are, of course, on a pipeline. We have projects and opportunities around this all the time. So we will update you when we win those. We can't update you beforehand. With regards to the share price, what is the management doing? Well, we kind of listened to all the feedback, and we listened hard to that feedback, and it was around more presence, being more visible. Unfortunately, a lot of the information that talks about the analyst reports and what have you, the retail investment community doesn't always get access to that. So I think this year, we're going to be doing more kind of catch-up videos with Steve and myself. We're going to be attending some investor shows. So I think we're attending the Mello show coming up in the next couple of months. I'm trying to get more visibility in front of retail investors whilst we wait for the institutional investors to wake up. I think we've done everything that we said. We've beaten all the market expectations for our business this year. We launched new products. We've got a sustainable business. We've got growth, and we've got cash in the bank. So other than waiting for the market to respond, the market did seem to be getting a bit better before the war in the Middle East started. So I think we're going to have to work our way through that. But I can assure you, A, we're doing everything we can to increase the valuation of this company. We think this company is a very different organization from the one that we took on 2 years, much more clarity, much more control over costs, much more control over whether the business is growing and investing in the right areas for that growth. We've trimmed the business down, made it more lean, and we filled in some management gaps. So to see the business, I think, in a much stronger position 2 years after Steve and myself took up our roles, but to see the capitulation in the share price during that period is very frustrating for us as well as you, and we absolutely share that feeling. We bought some shares in the open market this year. I will continue to invest in the business as it continues to invest in itself. So other than waiting for the macro market conditions to improve and just keep delivering on our promises, I think that's what we can kind of do right now. Steve, a couple of questions on cash burn that are coming through. One in French, I can't understand. So have we got any comments? I think you covered that. Steve Gibson: In terms of cash burn, I think we covered that in terms of the Q1 outflow of around GBP 8 million. And just breaking it down in terms of the Southern Cross acquisition was GBP 5 million all in because there was this additional working capital adjustment. And then there's all the fees associated with that and the PSR process, so they need to be factored into the cash consumption. I think the essence is, do we expect the cash burn to reduce this year? Absolutely. So obviously, we're acquiring Southern Cross. And that will help our EBITDA [ and get us to ] EBITDA profitable, so that will reduce our cash burn. We have the unwinding of the working capital from a Southern Cross perspective. Plus as we grow the business, we expect our EBITDA to improve, and therefore, that will generate more cash and reduce our cash outflow. So those are the key drivers why we think our cash outflow will reduce going forward. Lyn Rees: Thank you, Steve. And unfortunately, that's all we've got time for today. So I really appreciate for everyone that submitted questions in advance. Thank you for those guys that have submitted them during this call. We really appreciate the opportunity to respond to your specific questions. And I apologize if we can't answer everyone, but we've got a limited set of time for this. So I just wanted to say thank you to everyone. I want to leave you with the thought that I'm more excited about this business than I've ever been. The last 2 years have been hard, doing consolidation, shutting sites, making those decisions, understanding where the best place to invest in terms of new technology is. And I think the decisions that we've taken alongside our Board have been the right decisions. I think we're investing in the right areas as a business. I think we've consolidated the business to the best commercial and operational footprint that we can. It was a real delight to be able to use some of our cash to accelerate that plan through the acquisition of Southern Cross Diagnostics. I think that will be a very good acquisition as Elucigene has proved to be, as Coastal Genomics has proved to be, and hopefully, as Yourgene has proved to be for the Novacyt Group. So I think if we can bed that in and make that a real successful acquisition, there's more potential to come in there. There's very much a buyer's market. But even the organic plan of this organization, it's starting to really work. Our products are getting more traction, the things we're invested in are growing at double-digit growth. And this is the year as a business, having done the consolidation, that we're really focusing and targeting double-digit revenue growth and reaching that profitability as soon as we can. So we really appreciate your continued support. We look forward to updating you in coming months at the various investor shows that I said we will be attending and the update videos that we will provide for you. And thank you for your continued support, everyone, and enjoy the rest of your day. Thank you. Bye-bye. Operator: Fantastic. Lyn, Steve, thank you very much indeed for updating investors today. Could I please ask investors not to close the session, as you'll now be automatically directed to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.
Operator: Good morning, ladies and gentlemen, and welcome to the Standex International Fiscal Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, May 1, 2026. And now I would like to turn the conference over to Christopher Howe, Director of Investor Relations. Please go ahead. Huang Howe: Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the company's website at www.standex.com. Please refer to Standex's safe harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent annual report on Form 10-K as well as other SEC filings and public announcements for a detailed list of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non-GAAP measures of EBIT, which is earnings before interest and taxes; adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, EBITDA margin and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted operating income, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow and pro forma net debt to EBITDA. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses and onetime items. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance. On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar; and Chief Financial Officer and Treasurer, Ademir Sarcevic. David Dunbar: Thank you, Chris. Good morning, and welcome to our fiscal third quarter 2026 conference call. This quarter provides another strong proof point that our strategy, shifting to our faster-growing end markets and increasing new product development is working. We delivered top line sales growth of 8%, including organic growth of 6.5%. Our sales in the fast-growing end markets are now about 30% of our total, and new products are expected to add 300 basis points of growth to our 2026 sales results. It is also exciting to see how the mix of our businesses has evolved. Today, Electronics and our Engineering Technologies business generate about 70% of sales and nearly 80% of total segment profits, both built around custom-engineered solutions for attractive secular markets. That mix shift is what we set out to achieve. Our Engineering Technologies segment has effectively repositioned itself as a vital partner for space, defense and aviation customers. So we are renaming the segment Standex Aerospace & Defense. Looking ahead, demand remains healthy. Company-wide book-to-bill was 1.05 and Electronics delivered 1.14, setting us up well as we move into the fourth quarter. I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal third quarter 2026 results. Now let's look at the results beginning on Slide 3. In the third quarter, sales increased 8.1% year-on-year to $224.6 million, including 6.5% organic growth. Electronics grew 6.8% organically. New product sales grew approximately 40% to approximately $18.7 million. Sales in the fast-growth markets were approximately $69 million, more than 30% of total sales. We are pleased with the momentum in the business reflected in an overall book-to-bill ratio of 1.05 and within Electronics of 1.14. Adjusted operating margin of 19.7%, was up 30 basis points year-on-year. On March 6, we completed the divestiture of Federal Industries at an enterprise value of approximately $70 million. This is in line with our Portfolio Simplification strategy, allowing us to focus our management and capital resources more on fast growth markets and new product launches. We used the proceeds to pay down about $62 million of debt, reducing net leverage to 1.9x. Beginning this quarter, we will report under four operating segments: Electronics, Aerospace & Defense, Scientific and Engraving & Hydraulics. The Hydraulics business has been combined with the Engraving business under the Engraving & Hydraulics segment. This divestiture continues a decade of deliberate portfolio shaping toward higher growth, higher-margin businesses. In 2014, we operated 16 businesses. Today, we're down to 5. And following the Amran/Narayan acquisition, Electronics represents more than half of Standex, helping drive the performance you see today. Our original fiscal year 2026 sales outlook included a full year contribution from Federal Industries. Even after the Federal divestiture, we still expect fiscal 2026 revenue to increase by about $100 million versus 2025, supported by momentum in new products and fast growth markets, especially in Electronics and Aerospace & Defense. I'm pleased with the momentum that we are building and launching new products. We expect to launch more than 15 new products this fiscal year on top of 16 new products last fiscal year. We expect new product sales pro forma for the Federal divestiture to grow by $24 million to $64 million, adding nearly 300 basis points of organic growth in the year. Our sales into the fast-growing markets such as Space, Defense and Grid, are expected to increase to approximately $270 million, constituting about 30% of our total sales. On a sequential basis, we expect slightly higher revenue driven by higher contributions from fast growth end markets and new product sales and slightly to moderately higher adjusted operating margin due to higher volume and pricing and productivity initiatives, partially offset by growth investments. On a year-on-year basis, in fiscal fourth quarter 2026, we expect slightly to moderately higher revenue, driven by mid- to high single-digit organic growth from growing backlog in fast-growth markets and increased new product sales, partially offset by the revenue impact from the Federal divestiture. We expect slightly lower adjusted operating margin as organic growth and realization of productivity actions are more than offset by growth investments in capacity expansions, higher medical costs and increased variable compensation expenses. I will now turn the call over to Ademir to discuss our financial performance in greater detail. Ademir Sarcevic: Thank you, David, and good morning, everyone. Let's turn to Slide 4, third quarter 2026 summary. On a consolidated basis, total revenue increased approximately 8.1% year-on-year to $224.6 million. This reflected organic growth of 6.5%, 0.2% benefit from acquisitions and 1.4% benefit from foreign currency. Third quarter 2026 adjusted operating margin increased 30 basis points year-on-year to 19.7%. Adjusted earnings per share increased 13.5% year-on-year to $2.21. Net cash provided by operating activities was $9 million in the third quarter of fiscal 2026 compared to $9.6 million a year ago. Capital expenditures were $2.7 million compared to $6.1 million a year ago. As a result, we generated fiscal third quarter free cash flow of $6.3 million compared to $3.5 million a year ago. Now please turn to Slide 5, and I will begin to discuss our segment performance and outlook, beginning with Electronics and Aerospace & Defense. Electronics revenue increased 7.6% year-on-year to a record $119.7 million, driven by organic growth of 6.8% and 0.8% benefit from foreign currency. Organic growth was driven by sales into fast-growth markets and increased new product sales. Adjusted operating margin of 29.3% in fiscal third quarter 2026 decreased 50 basis points year-on-year due to growth investments, partially offset by higher volume, pricing initiatives and product mix. Our book-to-bill in fiscal third quarter was 1.14 with orders of approximately $136 million. This marks the seventh consecutive quarter with book-to-bill near or above 1. This consistent streak of book-to-bill around 1, targeted capacity expansion within grid an acceleration in new product sales adds durability to our growth. In addition, our monthly order for over $50 million in both March and April, further indicating robust demand and a run rate to a strong fiscal 2027 performance as these orders convert into sales. Sequentially, in fiscal fourth quarter 2026, we expect slightly to moderately higher revenue, reflecting higher sales into fast growth end markets and increased new product sales. We expect slightly higher adjusted operating margin, primarily due to higher revenue, partially offset by continued growth investments. On a year-on-year basis, we expect high single-digit organic growth. Aerospace & Defense revenue increased 33.7% to $36.6 million, driven by organic growth of 20.8%, 12.2% benefit from recent McStarlite acquisition and 0.7% benefit from foreign currency. Organic growth was driven by increased project activity in the commercialization of space end market. Adjusted operating margin of 18% decreased 60 basis points year-on-year, primarily due to project mix. Sequentially, we expect slightly to moderately higher revenue due to growth in new product sales and more favorable project timing. We expect slightly to moderately higher adjusted operating margin due to higher volume and realization of productivity initiatives. On a year-on-year basis, we expect double-digit organic growth. Now please turn to Slide 6 for a discussion of the Scientific and Engraving & Hydraulics segment. Scientific revenue decreased 1.7% to $18 million primarily due to organic decline from lower demand from academic and research institutions affected by NIH cuts. Adjusted operating margin of 21.9% decreased 70 basis points year-on-year due to lower sales. Sequentially, we expect slightly higher revenue and similar adjusted operating margin due to product mix. Engraving & Hydraulics revenue increased 2.2% to $44.8 million, driven by 4% benefit from foreign currency, partially offset by organic decline of 1.8%. The organic decline was driven by general market weakness for hydraulic cylinders. Adjusted operating margin of 14.3% in fiscal third quarter 2026 increased 210 basis points year-on-year due to higher sales and realization of previously executed restructuring actions. In our next fiscal quarter, on a sequential basis, we expect slightly lower revenue and similar to slightly higher adjusted operating margin from realization of restructuring actions and productivity initiatives. Next, please turn to Slide 7 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $191 million. At the end of the third quarter, Standex had net debt of $369.1 million compared to net debt of $470.4 million at the end of fiscal third quarter 2025. Our net leverage ratio currently stands at 1.9x. We paid down our debt by approximately $62 million during the fiscal third quarter 2026. In fiscal fourth quarter 2026, we expect interest expense between $6.8 million and $7 million. Standex's long-term debt at the end of fiscal third quarter 2026 was $472.8 million. Cash and cash equivalents totaled $103.7 million. We declared our 247th quarterly consecutive cash dividend of $0.34 per share and approximately 6.3% increase year-on-year. In fiscal 2026, we expect capital expenditures between $27 million and $30 million. I will now turn the call over to David for concluding remarks. David Dunbar: Thank you, Ademir. Please turn to Slide 8. To summarize, I'm very pleased to see the continued organic growth in the third quarter with a book-to-bill ratio of 1.05, when adjusted for the Federal divestiture. Organic growth was driven by our Electronics and Aerospace & Defense segments, which grew 6.8% and 20.8%, respectively. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence and deepen our customer relationships. Our acquisition strategy will continue to focus on businesses with accretive margins, exposure to fast-growth markets and delivery of customer solutions. With the divestiture of Federal Industries, we have realigned our company around four operating segments. We expect fiscal 2026 sales to increase approximately $100 million over fiscal 2025, with margin expansion. While we remain on course, we will provide an update to our long-term targets on the next earnings call, considering the changing portfolio composition with the Federal Industries' divestiture. We will now open the line for questions. Operator: [Operator Instructions] First, we will hear from Chris Moore with CJS Securities. Christopher Moore: Maybe we could start on the defense opportunity. You talked about providing missile nose cones solutions, include nose cones for interceptors, tactile missiles as well as development hypersonics. Maybe can you just give us a sense for the scale of that opportunity? What kind of orders look like? Is there -- are there long lead times? Just any thoughts there would be really helpful. David Dunbar: Yes. So there, we're talking about within the Engineering Technologies. We have -- we serve defense in the magnetics business in Electronics and in Engineering Technologies. The Engineering Technologies business provides nose cones out of their Wisconsin facility. And about 15% of the Engineering Technologies -- or Aerospace & Defense segment is defense. Most of that is missiles. There is an opportunity to significantly increase that in the coming years. We have had discussions with customers and actually with the Under Secretary of the Department of Defense asking if we are able to ramp and they give us different scenarios. These upper scenarios really kind of depend on the government procurement process, passing orders from multiyear commitments to us. We have received some orders, we expect a nice increase in those sales in 2027, potentially greater if they can unlock the procurement process. Christopher Moore: Got it. I appreciate that. Maybe just switch gears to Amran/Narayan. Just in terms of the Croatian facility, trying to understand where you are in terms of construction? And then just in terms of creating the infrastructure for full market penetration there, what's a reasonable time frame? And are the competitive dynamics much different in Europe than you see in the U.S? David Dunbar: Yes. There's a lot in that question. We had no presence in Croatia with that business before. There was no footprint in Europe. We now have the Croatia site. It is operating. We made our first products a few weeks ago. We have customers visiting this month and next to qualify the site. We have external auditors to achieve various certifications, including ISO certifications that we expect in June. So shipments are beginning at a kind of a slow rate, begin to ramp much more quickly after those June audits are complete. So we're still confident that our longer-term expectation of at least $60 million in 3 to 5 years is reasonable based on the commitments we have from our current European customers. We are also now building a sales -- a commercial organization in Europe so we can understand your third question, which is what about the competitive dynamics there? There is certainly more opportunity than we see. It's a larger market than North America. It's a much larger market than India. And we have -- so we believe once we're on the ground with our sales team with the site there, we will be able to answer that third question for you and figure out what we need to do to take that $60 million expectation higher. Christopher Moore: Just a quick follow up. Probably, we're a couple of years before you're really accelerating in Europe? David Dunbar: We ship into Europe from India now. So some of those shipments will begin to come from Europe. We'll continue to ship from India. So in our FY '27, we think upper single-digit million shipment number is kind of a reasonable expectation. There is upside to that. How it ramps beyond that, I guess we'll have to report in the coming year or so. But there certainly is upside because the market is there, and we have the footprint and are building capacity to grow beyond that. Operator: next question will be from Matt Koranda at ROTH Capital Partners. Matt Koranda: I guess I just want to start with the Electronics segment and the order flow looks like it's up north of 75% year-on-year. Wanted to hear a little bit about the drivers of the strength and order flow between grid and the core magnetics and Sensing Solutions business. David Dunbar: Yes. So the growth, I may have to add, Matt, about the 75%, I don't see the 75% math. We had great book-to-bill, 1.14 on growing sales. We're seeing strong order flow in our core switches business, which for us is a good indication that the general industry, certainly in Asia, is picking up. That in the quarter, we were -- the sales were up over 20%, which is relays are strong. Our sales in the Grid were up about 20% with a book-to-bill of about 1.1 or something. So we see very strong order flow there. And it's kind of a tale of two cities in the industrial world, space, defense, grid, aviation, those businesses are all growing double digits. General industry in North America and Europe is still fairly slow. And as I said before, general industry in Asia looks like it has really picked up. Ademir Sarcevic: Yes. And if I can just add to that, Matt. As we said in our prepared remarks, we had 2 consecutive months of orders over $50 million for Electronics, which has never happened before. Some of that is clearly the strength we have seen and continue to see in the grid space and some of these fast-growth end markets. But also, as to David's point, indication that the general industrial markets are stabilizing, and we are kind of turning the corner. Now it takes us a little time to convert those orders into sales, but it makes us pretty bullish about what we're going to see in FY '27 in terms of top line performance, again, assuming there is no significant macroeconomic or geopolitical challenges. Matt Koranda: Okay, that's helpful, guys. And then I guess for my second question, I wanted to ask a portfolio question. It seems like now that you're under 2 turns of leverage, you got plenty of capacity to deploy incremental dollars to M&A. Just wanted to hear the latest on the funnel and how you guys are thinking about add-ons to kind of the core segments as you sort of add more capacity at this point in time? David Dunbar: Yes. Matt, we like the position we're in now. We are delighted with the integration of the Amran/Narayan of the grid business, and how that continues to perform. And with a leverage under 2 now, but we're building sizable powder. And if you look at the makeup of our business, now 70% of our sales come from Engineered Components in Engineering Technologies and Electronics. And those are the businesses that serve these fast-growing markets with customized products. So that is -- that's the universe where we will explore opportunities. And in our funnel, we always have a number of kind of family-owned businesses that are similar to -- or privately owned businesses, similar to acquisitions we made over the decades at Standex. With the Grid acquisition, that has also opened up opportunities for us to look at related products, to solve bigger problems, to become an even more important partner to our customers. So in the Switchgear, in addition to the instrument transformer, there are other products that support the metering and the electrical quality measures of the Switchgear itself. On the Electronics side, there are a lot of opportunities around components and modules. I think we've mentioned in the past, every time a customer works with us, we have to say for Reed switch-based sensor, a switch or a relay, they are also working with other suppliers and other components for that same product that are customized to some extent, whether it's capacitors or filters or something like this. So that really opens the aperture for us to explore wider opportunities. So for that, we're -- we were in discussion with a number of third parties to help us identify targets. So we have an existing funnel. We're working at expanding the funnel with these new opportunities as we fully explore opportunities to expand these engineered components businesses. Operator: Next question will be from Ross Sparenblek with William Blair. Ross Sparenblek: Maybe just a level side on the top line guide. Are we picking out the first 3 quarters of Federal, kind of $25 million? Or are we leaving that in there just taking in the fourth quarter? Ademir Sarcevic: The Federal is out in the fourth quarter guidance. Ross Sparenblek: So just the fourth, okay. And then you guys said grid was up 20% year-over-year. So that implies what, like a $160 million run rate? Pretty healthy. Ademir Sarcevic: Yes. David Dunbar: Yes, yes. Ross Sparenblek: And so then you guys said a book-to-bill of 1.1. So that means core organic growth, book-to-bill is probably 1.15, up nearly 20%. We're definitely seeing some momentum? Ademir Sarcevic: You've got your math right. Ross Sparenblek: That's what I get paid for. And any updates on India and the progress you've seen with rolling out lean there and driving that capacity? David Dunbar: Well, I tell you, we had -- just a few weeks ago, if Vineet's here with us today. He was in India a few weeks ago with a very large team for a global grid capacity expansion Kaizen. So we have an extensive plan to look at global demand, a roll-up from customers around the world by product family. We have a site in Texas, a site in India, site in Croatia now. We're producing in Mexico and our Mexico site and are looking at our global capacity expansion. So our assumptions -- We do have assumptions that within India simply with Lean, there was another, call it, 15-plus percent capacity expansion from Lean which fuels us in addition to Mexico and Croatia through this year. As you know, we have the Texas site coming on next year. Your question was about India. So we have a good handle on the initial -- there's unexploited Lean opportunities there, 15-plus percent capacity. Ross Sparenblek: Okay. And maybe if I could squeeze one more. Can you just remind us really quick on the growth investments within Electronics, just the size of the cadence? A couple of million dollars in quarter? Ademir Sarcevic: Yes. So if you kind of break it down by part, Ross, most of our growth investments are coming in the grid business. Obviously, there's some investments we put into Croatia. That's probably -- it's about, call it, 30, 40 basis points, if you think about it from kind of a margin standpoint of impact right now because, obviously, we're not shipping products yet out of Croatia. And then as David mentioned, and as you know, we're expanding capacity in Houston and Mexico. So you have to hire some people and get some of the rolling before we can -- before we declare those sites operational. So there's probably another, I would probably tell you 50, 60 basis points of those investments as well, kind of the -- from a run rate basis standpoint. Ross Sparenblek: Okay. So there's Section 232 issues. There was some one-off stipulation regarding Grid. I didn't fully dig into details. It just seems like given the growth in Amran, those margins should have been maybe a little bit higher as stated in Electronics? Ademir Sarcevic: Yes. Look, we think we're going to continue to expand margins in Electronics, especially as you kind of think about where we are growing, is our fast-growth end markets where we are more profitable. So we do expect we're going to clip that 30% in adjusted operating margin in the near future. Operator: Next question will be from Michael Shlisky at D.A. Davidson. Michael Shlisky: Speaking of operating margins, just looking at the results, pretty clear that Engraving & Hydraulics are now kind of the lowest of the four. I guess those are kind of two different businesses. Can you comment on your plans for those businesses? You're always trying to hone it a little bit better and a little bit higher year after year. Is there a potential that those are next to go, I'd say, after Federal? David Dunbar: Well, in there -- as you know, they're strong businesses in their sectors. They're not burning platforms in that sense. It's kind of a question of timing to find the best opportunities for these businesses. Within Engraving, we have some pretty interesting growth initiatives going on. We talked about making these specialized parts, functional textures, those are ramping up. So the businesses themselves are fundamentally sound. We have some profit improvement projects in both of them. And if you look at our history, where we've invested in acquisitions, we love the Engineered Components businesses. You will likely see more of that. And we have some very good businesses that Hydraulics & Engraving, they could be fit somewhere else. And well, we continue to monitor the situation and we'll make a decision at the time. Michael Shlisky: Okay.In Aerospace, given the organic growth you're seeing now and you've got quite a few opportunities ahead of you. Do you see a need to expand capacity there on a greenfield basis? Ademir Sarcevic: In the Aerospace & Defense segment, is that your question, Mike? Michael Shlisky: Yes. Ademir Sarcevic: Yes. Not from a greenfield standpoint, at least not in the near term. We have a bit of a capacity in our sites. But obviously, as the business continues to grow at some point, we might have to look at additional space. But no immediate plans as of right now. We feel we service what's coming our way in the near term. David Dunbar: Yes, I guess the one caveat to that is we mentioned the missile programs. If these missile orders do appear for some of these higher scenarios, then we will expand the footprint. Ademir Sarcevic: That's correct. Michael Shlisky: Okay. Got it. David Dunbar: But we would only do that with the long term -- I'm sorry, but we would only do that with a long-term commitment from the customer, and we'd certainly communicate that in a future quarter. Michael Shlisky: Right. I imagine you have an ROIC hurdle to beat there, and it wouldn't be any different than you would for Amran or anything else. David Dunbar: Right. Right, exactly. Michael Shlisky: Great. And then it sounds like you're not looking to give us too much guidance on fiscal 2027, but can you just comment on the new product menu for 2027. Do you have as many rolling out next year that you had this year? Do you have much in the pipeline? Can you expect a halfway decent year from that part of the growth plan? David Dunbar: Yes. If you just step back and think our general growth model, we think we've got these fast growth markets that continue to grow upper teens, 20% a year, that's 6 points of growth from that. Our new products, we still expect that to add 300 basis points of growth. And then whatever happens with general industries may be a tailwind to that. So just as a high level, I would be thinking -- in that zone for 2027, if the guide is beneath here. So in terms of numbers of products in 2027 got in line with... Ademir Sarcevic: Yes, Definitely, Mike. I think we think the momentum will continue. Actually, it might even increase because as we are adding -- our funnel is increasing internally of new product ideas. Operator: [Operator Instructions] Next, we will hear from Gary Prestopino with Barrington Research. Gary Prestopino: In your new segment breakdown, the other category, is that legacy Federal before the divestiture? What exactly is in there? Ademir Sarcevic: That's Legacy. That's all it is. Gary Prestopino: Okay. That's all it is. Okay. So with the sale of Federal, was the corporate expense associated with Federal, does that come out of the equation? I noticed like your corporate expense was about $8.6 million this quarter, a step down from last quarter, which was abnormally high. But as we're modeling, what kind of number should we be looking at for that corporate expense number? Ademir Sarcevic: Yes, Gary, it's Ademir. I mean we don't really allocate a lot of corporate costs. So there's no corporate costs that would go away with Federal. I mean what's really driving the reduction in the corporate cost for this quarter is we -- we got slightly lower medical costs versus some of the prior quarters. There was some adjustment to the bonus payouts. And that's basically it. But we do assume that going forward, kind of $9 million to $10 million run rate is probably the right number. Gary Prestopino: Okay. And then just in terms of your tax rate because I noticed it was down, I think, this quarter and obviously, a lot of moving parts with the numbers with the sale of Federal. But for Q4, is it looking like it will be about 24%? Ademir Sarcevic: Yes, 24% to 25% is kind of what I would tell you is a good estimate. Gary Prestopino: Okay. And then just last question in terms of what's your growth in Electronics. I mean, can you -- is it all across the board and grid, replacement of grid, data centers? Or where are you starting to see abnormal growth? . David Dunbar: Did you say abnormal growth? Gary Prestopino: Right. Yes. Growth's in excess of what you were thinking in terms of the expectation. David Dunbar: Yes. So the growth driver is certainly a grid, defense. There is a defense component in Electronics. And I mentioned it earlier, our sales of Bare Switches, our Reed Switches, which was up 20% year-on-year. So that -- those go everywhere. So a sign of a general industry strength primarily in Asia. And our relay sales are strong. They're driven by kind of test and measurement equipment, similar drivers to the grid, serving data centers and the equipment that go into data centers. I know we look at it, we have three businesses in there, as you know. We've got what we used to call Magnetics, our Edge business, which is really a North American business. That was down in the quarter year-on-year, largely due to some execution issues. Their book-to-bill was very strong. The Detect, the SST business, which is where the switches and sensors are was upper single digits. That includes the switch business I talked about before. And then grid, of course, which we talked about. So kind of triangulates into your growth question from a couple of different angles. Operator: At this time, Mr. Dunbar, we have no other questions registered. Please proceed, sir. David Dunbar: All right. Thank you. I appreciate everybody connecting today on this call. We always enjoy reporting on our progress at Standex. Thank you also to our employees and shareholders for your continued support and contributions. I look forward to speaking with you again in our fiscal fourth quarter call. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. First Quarter 2026 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would like to remind everyone that this conference call is being recorded on 05/01/2026, 11:00 AM Eastern Time. I would now like to turn the conference over to Candace Brule, Senior Vice President, Capital Markets and Corporate Affairs. Please go ahead. Candace Brule: Thank you, operator. Good morning, and welcome to Hudbay Minerals Inc.'s First Quarter 2026 Results Conference Call. Hudbay's financial results were issued this morning and are available on our site at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor Events section of our website, and we encourage you to refer to it during this call. Our presenter today is Peter Gerald Kukielski, Hudbay's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Eugene Lei, our Chief Financial Officer, and Andre Lauzon, our Chief Operating Officer. Please note that comments made on today's call may contain forward-looking information and this information, by nature, is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR+ and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. I will now pass the call over to Peter Gerald Kukielski. Peter Gerald Kukielski: Thank you, Candace. Good morning, everyone, and thank you for joining us on today's call. We have had a great start to the year, achieving several key operational, financial, and growth milestones. Hudbay Minerals Inc. delivered another quarter of record revenue, record adjusted EBITDA, and record adjusted earnings in the first quarter. This was driven by steady operating performance, our focus on cost control, and the continued benefit from margin expansion with our unique mix of copper and gold exposure. Our leading operating cost performance resulted in record low consolidated cash costs in the first quarter, which contributed to continued strong free cash flow generation. With the strong performance in the quarter, all our operations are on track to achieve 2026 production and cost guidance. Building on our commitment to prudent balance sheet management, we ended the quarter with over $1 billion in cash and cash equivalents, benefiting from $420 million received from Mitsubishi for their initial cash contribution on closing of the Copper World joint venture transaction in January. Our enhanced financial flexibility has positioned us well to continue advancing the development of Copper World, reinvest in high-return opportunities at each of our operations, and de-risk the Cactus project upon completion of the acquisition of Arizona Sonoran to deliver attractive growth and maximize long-term risk-adjusted returns at each of our operations for stakeholders. Slide three provides an overview of our first quarter operational and financial performance. The first quarter demonstrated strong operating performance with higher mill throughput across the three operations compared to the previous quarter, delivering consolidated copper production of 28 thousand tonnes and consolidated gold production of 62 thousand ounces. We achieved record quarterly revenues of $757 million and record adjusted EBITDA of $422 million in the first quarter. Cash generated from operating activities was $211 million, remaining relatively consistent with the fourth quarter as a result of favorable changes in non-cash working capital. First quarter adjusted net earnings were a record of $159 million, or $0.40 per share, reflecting higher realized metal prices and strong cost control across the operations resulting in higher gross profit margins. During the first quarter, we continued to demonstrate industry-leading cost performance, delivering record low consolidated cash costs of negative $1.80 per pound of copper and sustaining cash costs of $0. This incredible cost performance was partially driven by higher gold byproduct credits, reflecting the benefits of Hudbay Minerals Inc.'s unique commodity diversification. Turning to Slide four, Hudbay Minerals Inc. has delivered several quarters of significant free cash flow generation as a result of steady operating performance, expanding margins from strong copper and gold exposure, and our cost control efforts. With our enhanced balance sheet and diversified free cash flow generation, we are well positioned to fund our attractive growth pipeline. Our cost control efforts are focused on navigating emerging external cost pressures such as higher fuel prices and short-term labor challenges. We have not experienced any disruption to fuel availability and have been able to mitigate the cost pressures through initiatives to further improve throughput and enhance operating efficiencies. We are well insulated from external cost pressures due to our diversified platform with significant byproduct credits from gold production and the polymetallic nature of our ore deposits. While most of our revenues continue to be derived from copper, revenue from gold represents a meaningful portion of total revenues, with 39% of gross revenues from gold in the first quarter. After accounting for our sustaining capital investments but before growth investments, we generated $102 million in free cash flow during the quarter, bringing our trailing twelve-month free cash flow generation to $400 million. As mentioned earlier, we ended the first quarter with over $1 billion in cash and cash equivalents, and as of March 31, our total liquidity was $1.4 billion. Our net debt at the end of the quarter was nearly zero, bringing our net debt to EBITDA ratio to its lowest point in more than a decade. Consistent with our prudent balance sheet management and focus on cost of capital, following the quarter, we repaid our outstanding 2026 senior unsecured notes on maturity on April 1. We used a combination of cash on hand and a $272 million draw on our low-cost revolving credit facilities. After giving effect to this repayment, Hudbay Minerals Inc.'s total liquidity decreased by $473 million to $957 million. This continues to provide us with significant financial flexibility as we advance Copper World towards a sanctioning decision later this year. Turning to Slide five, the Peru operations continued to demonstrate steady operating performance with production and costs in line with expectations. The operations produced 21 thousand tonnes of copper, 9 thousand ounces of gold, 530 thousand ounces of silver, and 380 tonnes of molybdenum during the first quarter. Production of copper and gold was lower than the fourth quarter due to the depletion of the higher-grade Pampacancha ore in late 2025. Mill throughput levels averaged approximately 90.7 thousand tonnes per day in 2026, achieving a new quarterly record. The team's efforts to increase mill throughput align with the Peru Ministry of Energy and Mines regulatory change allowing mining companies to operate up to 10% above permitted levels. On March 6, Hudbay Minerals Inc. received a permit approval to increase annual mill throughput capacity to 31.1 million tons (29.9 million tonnes), setting a new base for the 10% permit allowance. We continue to advance the installation of pebble crushers later this year to further increase mill throughput rates in 2026, and we are on track to achieve 2026 production guidance for all metals in Peru. First quarter cash costs in Peru were $0.70 per pound of copper, a 23% increase compared to the fourth quarter due to lower byproduct credits, offset by lower profit sharing, lower power costs, and lower treatment and refining charges. Cash costs in the quarter outperformed the low end of the annual guidance range as a result of strong operating cost performance and temporarily higher gold byproduct sales from Pampacancha despite emerging external cost pressures. We are well positioned to achieve the full-year cost guidance range in Peru. During the quarter, Constancia was recognized as the safest open pit operation in Peru during the National Mining Safety Contest for our performance in 2025. This reflects our company's unwavering commitment to safety and validates Constancia's compliance with the highest operational safety and regulatory standards. Moving to our Manitoba operations, on Slide six. The first quarter demonstrated strong operational agility in mitigating lower equipment and labor availability at the Lalor mine while continuing to prioritize gold ore feed for the New Britannia mill. This strategy successfully maintained strong gold production in the first quarter, supported by higher mill recoveries compared to 2025. Our Manitoba operations produced 48 thousand ounces of gold, 2.5 thousand tonnes of copper, 5 thousand tonnes of zinc, and 213 thousand ounces of silver in the quarter. Production of gold was higher than in the fourth quarter due to higher gold recoveries and higher mill throughput, while all other metals were lower primarily due to lower grades. Production in 2026 is expected to be higher than in 2025 due to grade sequencing and higher ore output from Lalor. With solid operating results in the first quarter, we are on track to achieve 2026 production guidance for all metals in Manitoba. The Lalor mine hoisted an average of 3.9 thousand tonnes of ore per day in the first quarter, strategically prioritizing gold zones to secure optimal feed for the New Britannia mill. Total ore mined was lower than the prior quarter because of lower effective utilization of equipment due to reduced workforce availability. This was offset by successfully onboarding nearly 80 new employees as recruitment and upskilling of employees are underway to increase proficiency of frontline employees. The New Britannia mill averaged approximately 2 thousand tonnes per day in the first quarter and benefited from continuous improvement initiatives to unlock future throughput capacity. Gold recoveries of 90% at the New Britannia mill reflect ongoing optimization efforts. Similarly, the Stall mill achieved improved gold recoveries of 73% in the first quarter, reflecting process optimization and enhanced gold recovery initiatives. The 1901 deposit delivered 11 thousand tonnes of development ore in the first quarter. The team continues to advance haulage and exploration drift to further delineate the ore body and support ongoing infrastructure projects. Looking ahead, we plan to prioritize exploration definition drilling, ore body access, and establish critical infrastructure at 1901 in preparation for full production in 2027. Manitoba gold cash costs in the first quarter were $4.08 per ounce, outperforming the low end of the guidance range. We are well positioned to achieve our 2026 cash cost guidance range. In British Columbia, we continue to focus on advancing our multiyear optimization plans, achieving significant milestones in both mining productivity and project permitting in the first quarter, and remain on track to deliver the benefits of the stripping program and unlock higher-grade ore later this year. As shown on Slide seven, Copper Mountain produced 4.1 thousand tonnes of copper, 5.2 thousand ounces of gold, and 43 thousand ounces of silver in the first quarter, in line with our guidance and planned mine sequencing. Production was supported by a higher mill throughput, offset by lower grades compared to the fourth quarter. We remain on track to achieve our 2026 production guidance expectations for all metals in British Columbia, with higher production expected in the second half of the year as mill improvements take effect. Mining activities reached a record total material movement of over 25 million tonnes in the first quarter driven by an optimized mining sequence in the Main Pit and increased contributions from the North Pit. This ramp up was supported by the successful commissioning of a new production loader in January. To further bolster the equipment fleet and add to this momentum, a new shovel has been recently commissioned. Drilling throughput benefited from the completion of the second SAG mill and the mill optimization initiatives implemented in late 2025, resulting in increased mill throughput in 2026. The second SAG mill achieved increased throughput in the quarter and averaged 10 thousand tonnes per day in March. The primary SAG mill continues to operate under a reduced load and is being rigorously monitored prior to the head replacement scheduled for late June and into July. The mill remains on track to achieve its permitted capacity of 50 thousand tonnes per day in 2026. British Columbia cash costs were lower than the prior quarter, delivering cash costs of $2.41 per pound of copper as a result of higher gold byproduct credits and resolving the unplanned maintenance downtime issues experienced in the prior quarter. First quarter cash costs were within the guidance range and despite emerging external cost pressures, we remain on track to achieve 2026 cash cost guidance in British Columbia. During the quarter, the New Ingerbelle project reached a major milestone in February with the receipt of the Mines Act and the Environmental Management Act amended permits from provincial regulators. The New Ingerbelle project supports continued copper production, increased gold production, and further mine life extensions. The project is designed to access higher-grade mineralization while improving operational efficiency with a stripping ratio approximately three times lower than current mining areas. With these permit approvals, we are advancing critical infrastructure required for the expansion. This includes the construction of an access road, a bridge across the Similkameen River, and the development of an east haul road link to New Ingerbelle with existing operations. A large drill program was initiated during the first quarter at New Ingerbelle to improve resource definition and expansion. We are pleased to receive the news this week that the B.C. government has added the New Ingerbelle project to the province's list of priority resource projects. This list highlights the acceleration of major projects that strengthen economic growth, support resource development, and create jobs and long-term value. Turning to Slide eight, we announced our annual mineral reserve and resource update along with an improved three-year production outlook during the quarter. We extended Snow Lake's mine life by four years to 2041, maintained Constancia's mine life to 2040, and extended Copper Mountain's mine life by two years to 2045. Consolidated copper production is expected to average 147 thousand tonnes per year over the next three years, representing a 24% increase from 2025. This growth is driven by higher expected copper production in British Columbia from the mill throughput ramp up in 2026, higher grades in British Columbia in 2027 from the completion of the accelerated stripping program, and higher expected mill throughput in Peru starting in 2026. Consolidated gold production is expected to average 243 thousand ounces per year over the next three years, reflecting continued strong production in Manitoba and the expected contribution from New Ingerbelle in British Columbia starting in 2028. We have already made significant progress in advancing many of our corporate and strategic objectives so far this year, and we anticipate many more key catalysts to come from our portfolio of long-life assets in Tier 1 jurisdictions, as shown on Slide nine. Our prudent balance sheet management, strong financial flexibility, significant free cash flow generation from strong exposure to higher copper and gold prices, and continued margin expansion has positioned us to be able to advance generational growth investments across the portfolio. In Peru, we will deliver higher mill throughput in the second half of the year as we complete the installation of two pebble crushers, which will grow copper production in 2027 and 2028. We also continue to progress exploration plans in Peru, including at the Maria Reyna and Caballito properties, to provide long-term growth potential at Constancia. In Manitoba, we continue to advance optimization initiatives and exploration efforts to demonstrate an enhanced production profile and expanded mine life. Exploration activities are underway at the 1901 deposit as we advance towards production in 2027, and an expanded exploration program at Talbot is focused on upgrading mineral resources to reserves and expanding the deposit footprint at depth. In British Columbia, we expect to continue to see operational improvements in the second half of the year as we complete our optimization initiatives and advance this operation towards its free cash flow inflection point later this year. Following the receipt of the New Ingerbelle permits earlier this year, we have commenced construction of critical infrastructure for the development of the deposit to access the higher-grade mineralization and drive further cash flow growth starting in 2028. We have also launched the largest exploration program at New Ingerbelle to further increase mine life extension potential. On Slide 10, during the first quarter, we made significant steps towards enhancing our United States copper growth pipeline. At Copper World, as I mentioned earlier, we announced the closing of the Mitsubishi joint venture transaction establishing a long-term strategic relationship with a premier partner. The initial $420 million in cash proceeds will be used to directly fund the remaining pre-sanctioning costs and the initial project development costs following a sanctioning decision later this year. Feasibility activities at Copper World are well underway, with the DFS progressing above 85% completion at March and remaining on track for completion in mid-2026. In March, we announced the acquisition of Arizona Sonoran, establishing a major copper hub in Southern Arizona with the addition of the Cactus project to our existing Arizona business. This transaction further strengthens our position as a premier Americas-focused copper company, enhances our U.S. growth pipeline, and creates significant operational efficiencies and regional synergies with the staged development of Copper World and Cactus. The transaction has received strong shareholder support and is expected to close in 2026. We have also commenced pre-feasibility study activities at our Mason copper project in Nevada. We expect the study to be completed in 2027. While Mason is not expected to come into production until after Copper World and Cactus, its larger production base will position it as the third-largest copper mine in the U.S. As we continue to advance all of these attractive growth initiatives across the portfolio, we remain committed to prudently allocating capital to the highest risk-adjusted return opportunities to deliver significant value for stakeholders. Concluding on Slide 11, our focus on demonstrating continued operational excellence while prudently advancing our many organic growth opportunities will deliver significant copper production growth. Over the next three years, we expect to increase production by 24% through attractive brownfield investments while continuing to advance our attractive U.S. pipeline to meaningfully expand annual copper production levels. By the end of the decade, we expect to increase our annual copper production by more than 70% to approximately 250 thousand tonnes with Copper World. And with the staged development of Cactus and Mason to follow, we have a pathway to 500 thousand tonnes of copper by the middle of the next decade. The most compelling part of this industry-leading copper growth profile is that our growth assets are low risk, low capital intensity projects located in some of the best mining jurisdictions in the world, and we have the team, the balance sheet, and strong financial plan to deliver this pipeline. This is largely driven by a diversified operating platform with significant exposure to complementary gold and our expanding margins. I have no doubt that our continued focus on delivery and execution will continue to drive significant value for all our stakeholders. And with that, we are pleased to take your questions. Thank you. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Our first question is from Ralph Profiti with Stifel Financial. Please go ahead. Ralph Profiti: Thanks, operator, and good morning. Thanks for taking my question. Peter and Eugene, there has been a lot of work being done at Copper World on long-lead items ahead of the definitive feasibility study. Do you have a goal for how much of the revised budget, by the time sanctioning does come, will be locked in, contracted, and committed? I am trying to get a sense of how much work can be done ahead of time to manage inflationary pressures. Peter Gerald Kukielski: Thanks, Ralph. Great question. We certainly will lock in a significant amount of the equipment. For example, we already have pricing on fleet. We have the opportunity to lock in fleet pricing right now. We have pricing from vendors for primary equipment that we are going to procure, and we are ensuring that we have space in the production facilities right now. I would say between the issue of the DFS and FID, we will lock in pricing on all of that equipment. Andre, any comments you might have in addition? Andre Lauzon: Yes, I agree on long-lead and there are also some critical path items that we have been moving along. We started construction of our waterline, taken some initial blasts, and we are pioneering our haul roads as we speak. Those are already in our budget for the year. Like Peter said, the big ones are already in place. Ball mills, SAG mills, all those costing items are coming forth. Eugene Lei: Ralph, if I could just add one more point. You will recall that when we announced the joint venture transaction last August, we increased the 2025 budget for long-lead items. We did not just react to this today. We have been thinking about this for well over a year. We have been placing orders and getting ourselves ready for the FID decision well over a year in advance. Ralph Profiti: Great. That is very helpful. And maybe as a follow-up, a point of clarification, Peter, on the LSIB judicial review. This is a process that is actually tied to the regulatory government process itself and sits outside of Hudbay Minerals Inc.? Are you needing to have a legal strategy around this to preserve the 2028 timeline for New Ingerbelle? Peter Gerald Kukielski: Yes, great question, Ralph. In March, the LSIB submitted an application for review of the regulatory decision to grant the permit amendment. We remain very confident in the integrity and the robustness of that regulatory process that led to the issuance of the permit amendment, and we believe that the court will uphold the decision. At the same time, we remain committed to working with the LSIB in a respectful and constructive manner to try to resolve their concerns through the mechanisms that were agreed to by the parties in the participation agreement. Their issue is not with us, it is with the government, and we have a constructive relationship with them and will continue to ensure that we continue to drive that relationship. Ralph Profiti: Great. Thank you for that clarity and for your answers. Operator: The next question is from George Eadie with UBS. Please go ahead. George Eadie: Yes, hi, thanks for the call today. Following up on that question from Ralph, on the Copper World CapEx, Peter and Eugene, how much can you lock up in the next twelve months or so in terms of dollars? Are we talking 20% to 30% of the CapEx spend you can fix in that period? Is that a reasonable estimate? And we have seen a zinc project nearby this week materially lift CapEx, and while part of that is scope change, how can we get meaningful conviction that in twelve months you can avoid that risk? Eugene Lei: Lots of careful planning. We have had a lot of time to think about this project over the years, and the feasibility study for a similar project was completed a decade ago. We also have a certain amount of equipment already in storage and obviously not subject to cost inflation. In terms of the actual percentage in dollars, we are still working on the final estimate in the DFS. We do not know that number yet. We have been very clear that we expect there to be some cost inflation and escalation related to the final CapEx number from the pre-feasibility number that was released three years ago. As you know, there has been inflation, but that three-years-ago number was post the biggest wave of inflation post-COVID. So we are not expecting a blowout in terms of capital. We are approximately 85% done with the feasibility study. We will release that likely in the third quarter, midyear as expected, with an FID to follow. We do not have any further clarity or any guidance on the actual CapEx number at this moment. Peter Gerald Kukielski: I would add, George, that we are following an integrated project delivery system, which incorporates a number of the contractors and engineers in the overall project management structure. So the development of the estimates that we have will, in no small measure, include their estimates of their own contributions. The constructors and engineers we are using have actually participated in several of the projects that have been developed in the U.S. recently, and they will have deep insight into the evolution of costs over the last couple of years in any case. That will be reflected in the definitive feasibility study. Andre Lauzon: To the original question around percentages, it is tough, like Eugene said, but we do have insights in terms of the fleet. If you recall from the pre-feasibility study, the fleet is 10% to 15% of the overall cost, and the numbers that we are receiving are in line with our estimates. That is a good sign to start. You will recall this project is one of the lowest capital intensity projects in the copper space. It is not subject to some of the larger cost flows we have seen in the sector. It is not at altitude and is about 26 miles from Tucson, so some of the inherent infrastructure challenges that have plagued other builds do not apply to this project as much. We are confident there will be a very robust economic case for this project, as evidenced by Mitsubishi joining at the PFS level a few months ago. George Eadie: Okay, yes, that is helpful, thanks. Pivoting slightly, at Cactus, when will we get an updated PFS with Hudbay Minerals Inc.'s overlay post-transaction closing? Could that be by year-end, or is it still going to be some time next year? And what is the latest on the permit amendments too, please? Andre Lauzon: Sure. I will take that. The vote is still to come in a couple of weeks. We are quite excited about the project and the teams. We are very pleased with the quality of the teams currently working for Cactus and excited for them to be part of ours. The next step, once the vote goes through, is to sit with the teams and regroup. There are lots of synergies with Copper World and our view of the acquisition. Getting their understanding as well will go into next year. It is not a year-end thing. Realistically, it is into 2027 for sure. In terms of permitting, the teams are progressing permitting at site and having discussions locally with the county. The permitting and the revisiting of that is on track and moving forward, and we are supportive. The synergies include looking at fleet; we just completed negotiating a large fleet for Copper World. Once we go through closing, there will be opportunities for Cactus when we look at it altogether. But end of the year would be rushed; it is definitely into next year. George Eadie: Okay. Thanks, guys. All the best. Operator: The next question is from Fahad Tariq with Jefferies. Please go ahead. Fahad Tariq: Maybe just any color on input cost pressures or supply constraints that you are seeing? I do not think I saw anything in the presentation or in the press release. If you could comment on that, that would be helpful. Thanks. Eugene Lei: I can take that. I assume, Fahad, you are referring to current fuel and oil prices and the like. From Hudbay Minerals Inc.'s standpoint, we are fairly well insulated from these emerging cost pressures. As you saw, we held costs very well in the first quarter and, while prices for oil were not yet elevated, our operations are minimally affected. In Peru, about a $10 increase in the price of oil per barrel is about a $0.04 cash cost increase per pound of copper. In B.C., given the heavy stripping that we are doing, that is a little higher, about $0.10 per pound produced. If you think about oil today and, for example, current prices were to hold, oil is about 50% higher than our original budgeted amount for the year, and that would result in about a $45 million hit to cash flow if oil prices were to persist at this level for the whole year. We have a natural hedge of gold in our portfolio that more than insulates that cost. Gold is about 20% higher than what we budgeted for the year, and if these gold prices were to hold for the rest of the year, the impact of that would be close to $200 million. So, in terms of the net effect, what we have with the gold that we produce in the portfolio is a natural hedge against larger cost inputs like oil. We feel very well positioned. Peter Gerald Kukielski: And, Fahad, I would also add that one of our primary cash flowing assets, which is Manitoba, is largely insulated from the effects of oil prices since we use very little oil in Manitoba at all. Most of our underground equipment is electrically driven or battery driven in any case. Fahad Tariq: Okay, great. That is really clear. And then switching gears to the growth profile, can you remind us in terms of the sequencing between Cactus and potentially Copper World Phase 2, how you are thinking about that assuming those permits happen at some point and you are in a beneficial situation of being able to select between the two? Peter Gerald Kukielski: For sure. It makes absolute sense to progress Cactus in sequence with Copper World because there are a lot of synergies between the two projects. As Andre mentioned, we would continue with updating the pre-feasibility study of Cactus, move from that into definitive feasibility, and get all the permits in place so that once Copper World Phase 1 is in production, we would be able to phase the construction of Cactus and bring that online subsequent to Copper World. For Phase 2, we would not want to apply for permits until Phase 1 is in operation because we do not want to get things mixed up. It will take several years to get the permits for Phase 2, so it makes absolute sense to progress Cactus, and then Phase 2 would come in after Cactus. Andre Lauzon: And Cactus is a little different than Copper World. At Copper World, a lot of CapEx is around building a facility and infrastructure. At Cactus, it is more of a stripping exercise leading into building an SX-EW plant. It is very low risk in terms of execution of moving material. It is about purchasing the fleet and executing the plant. So, as Peter said, there is a timing element and it almost naturally fits. Operator: The next question is from Dalton Baretto with Canaccord Genuity. Please go ahead. Dalton Baretto: Thanks. Good morning, guys. Staying on the sequencing theme between Copper World Phase 1 and Cactus, given what has been going on with sulfur and sulfuric acid pricing, demand for U.S.-made cathode, and the timing of the sequencing, has anything changed in your thinking as it relates to the feasibility study around the Albion facility? Peter Gerald Kukielski: Great question. Nothing has really changed. The DFS is a continuation of the PFS, pretty well the same. Andre Lauzon: What we could do is, during the update of the PFS for Cactus, take a look at the sequencing or the timing for the development of the Albion facility. That will be something that we look at as part of the Cactus PFS rather than the work that we are doing on Copper World right now. To build on that, the other project in Manitoba where we are looking at getting the gold out of the Flin Flon tails is progressing quite well with the studies. There is still more to go, but one of the byproducts there is also sulfur—molten sulfur and sulfur products. There is lots of optionality in our portfolio to produce sulfur that would benefit the Cactus project, where ultimately what you are trying to get is acid for the heap leach. Whether it is advancing Albion, as you suggest, or producing a lot more gold in Manitoba and doing the other, we will evaluate all those at the right time. Dalton Baretto: Understood. And then once the feasibility study drops midyear, outside of the financing package, what are some of the other gating items to get you to FID? Peter Gerald Kukielski: Obviously, getting our partner on board. The partner is already on board in many respects, but they have their own internal approval process that we need to respect. There will be some time between the completion of the definitive feasibility study and the final investment decision in respect of what our partner needs. Andre Lauzon: They are actively working with us. We are meeting with them. They absolutely do not want to be a barrier. We are all aligned on rock in the box and hitting that first production. They have been really great to work with, and we do not see any barrier to spending the money. Eugene Lei: The $420 million that they deposited in January at close is being used to advance the feasibility study and will be the first capital spent when we FID this project. Andre Lauzon: We do not see the FID being a barrier to rock in the box and first production. All the allowances we have made and the critical path items we are focusing on are keeping us on track. Dalton Baretto: Great. Thanks. And finally, Peter, can you comment on some of the political developments in Peru right now and whether that is translating into any form of social unrest? Peter Gerald Kukielski: The social landscape has been complicated since the unrest we saw last year. With the federal elections underway right now, there may continue to be periods of heightened social unrest. The general election was held on April 12, and from the initial voting, there is not yet a clear result of who the second candidate is. The first candidate, as everybody knows, is Keiko Fujimori. By mid-month, it probably becomes clear who the second candidate is. Frankly, federal elections do not really impact Hudbay Minerals Inc., as we have seen many different presidents since we started operations ten years ago. What has been constant in those years has been the stable fiscal regime, which we do not expect to change. We have seen left-wing presidents, right-wing presidents, and everyone in between. Peru is a leading copper production nation globally, and the new president will recognize the importance of mining to the country. It will be business as usual for us. We have no concerns with respect to the upcoming election. I do not think it will result in heightened unrest. There may be bouts of it, but we are well positioned to deal with it. Operator: The next question is from Stefan Ioannou with Cormark Securities. Please go ahead. Stefan Ioannou: Hi, can you hear me okay? Maybe following on the Peru theme. In the slide, you mention preparing for Maria Reyna and Caballito exploration. I assume that involves more local social considerations. Is there any update on when we might be able to put a drill rig in the ground there? Peter Gerald Kukielski: There are no changes to the remaining steps in the permitting process, which includes the government’s Previa process with the local community. With the election underway, that process is delayed. There are community elections later in the year. We think once those elections have been held, we will move forward towards getting the permits. Permits are delayed, but we think we are coming to the end of that period of delay as we move past the general election and the community elections, and then we probably see some movement towards the end of the year. Stefan Ioannou: Okay, great. Thanks very much. Operator: The next question is from Matthew Murphy with BMO. Please go ahead. Matthew Murphy: Hi. I wanted to ask about the labor balance at Lalor. You mentioned it a few times. Some challenges in Q1—maybe you can elaborate on what you are seeing and how you are addressing it? Andre Lauzon: Sure. There have been some challenges. They are not new; we have gone through this before. We saw a bit of a peak toward the end of Q1, and we are working through it now. We are bringing more people into the organization, and that takes a little time to train—more of a medium-term fix. In the very short term, the team is looking at the 1901 ore body, which we have been developing ourselves, and we have a lot of skilled employees there. The team is working on contracts with a mining contractor for that isolated area as a nice fit, and then we will redeploy our resources into the shortfalls within the mine. There are several initiatives underway, but those are the main ones. We have this in hand. It is something we have done before. It is just a blip, and we are working through it. Peter Gerald Kukielski: And, Matt, we were straightforward in the results release that we remain on track to achieve the annual production guidance ranges in Manitoba regardless of any labor issues and ups and downs that we might see. The team has it well in hand. Andre Lauzon: We will still be within production and cost guidance, even with those extra costs. Matthew Murphy: Got it. Okay. Thank you. Operator: The next question is from Lawson Winder with Bank of America Securities. Please go ahead. Lawson Winder: Thank you, operator, and good morning, Eugene and Andre. Thank you for today’s update. Could I ask about capital return? In light of the recently revamped capital return framework and the stronger balance sheet, and considering the growth capital needs and the buyback renewal approval, can we consider the probability that Hudbay Minerals Inc. might be more active in the buyback in 2026 as a higher probability than in 2025 when the buyback was not acted upon at all? Eugene Lei: Hi, Lawson. I can take that question. We look at this holistically, and the capital allocation framework was meant to provide us, beyond that 3P plan, the way to advance the company. With the framework, we are able to do three things: fund the development of Copper World, reduce debt with a goal of less than 1x net debt to EBITDA through the life cycle of the build, and fund generational investments in brownfield projects at each of our operating sites. Given the progress we have made on the balance sheet, we are able to consider shareholder returns well ahead of our goal to be a meaningful dividend payer with the development of Copper World. We started thinking about that earlier this year with the capital allocation framework, and the first step was increasing our dividend. It was a nominal increase, but it was the first dividend increase we have had in our history. We would like to ramp into that if we have the opportunity and if these prices were to hold, while making generational investments and providing shareholder returns. The NCIB was put in place as good housekeeping, as a tool to smooth market volatility. It is something we want to be able to access at the right time. We are not committing to any set dollar amount of share buybacks at this time. We do not think that is the right way to set our capital allocation priorities, particularly during the year of sanctioning at Copper World. If we have the opportunity to have excess capital at the end of the year, we can relook at the dividend and see if we can enhance that as part of the whole capital allocation framework. Peter Gerald Kukielski: I would also add that we want to have all options available to us, but right now the most important thing for us is delivery. I am confident that the culture of consistent operational and financial delivery that we are building will ensure we are the gold standard in the copper space, as we referred to in our release. Lawson Winder: Thank you. One other follow-up on capital return: I am not entirely clear on the potential spending at Mason. You are advancing plans to initiate a pre-feasibility study. Can you remind us what you think you are going to spend in 2026 on Mason? Could that change? Is there a range, or is it fixed? Eugene Lei: We are starting that process, and approximately $20 million is allocated to advancing Mason this year. That will be expensed, as it is not yet in reserve. That is essentially a fixed budget number. There is not much we can increase that by in terms of moving ahead. We are starting the pre-feas and that will take the better part of a year or two. Andre Lauzon: It is mostly studies—studies, some drilling, some geotech, hydrology. Lawson Winder: Okay. Fantastic. Thank you all very much. Operator: The next question is from Analyst with Haywood. Please go ahead. Analyst: Thanks. Peter or Andre, following on the discussion with respect to sequencing in Arizona, do you feel comfortable giving a date in terms of production start for Copper World, for Cactus, and for Phase 2, just to give us a broad sense of what this is going to look like over the long term? Peter Gerald Kukielski: Sure. Copper World targeted dates will be released with the DFS, but it is pretty well mid-2029 for rock in the box. Cactus would be sometime after that. As Andre said, Cactus is more an earthmoving effort than anything else. We have to move rock, do some stripping, develop the heap leach piles, and then build an SX-EW plant. There could be concurrent activity on mining between one and the other, but it remains to be seen during the PFS update what that will look like and the actual sequencing. Andre Lauzon: We are not slowing down Cactus studies. We will move those forward as fast as we can. Depending on where we are with Copper World, metal prices, and all that, we could start stripping—things that are very straightforward—while we are doing detailed engineering. We want to keep that optionality open. Analyst: Understood. On overlap, if you start in mid-2029 at Copper World, would you consider a start-up at Cactus within 18 to 24 months of that start-up, or do you need longer lead time? Andre Lauzon: That is possible and reasonable. Pre-feasibility is roughly a year and feasibility is another year. Layer on concurrent permitting updates. One thing we do know is you have to strip rock, and at the right time that costs money. How Copper World is going, where metal prices are, and permits in hand will drive timing. We are not slowing anything with Cactus. We want everything ready as fast as possible. It is optionality for us. In the next five years, we could potentially triple copper production and Cactus is a key part of it. Peter Gerald Kukielski: In terms of Phase 2, we will apply for permits pretty quickly once Phase 1 is up and running. The question is the duration of permitting. It will certainly take longer to permit Phase 2 than to bring Cactus into production. Phase 2 is not a massive effort, and there are nice surprises in Phase 1 that will come out. Analyst: And finally on New Ingerbelle, what are the implications of bringing New Ingerbelle on in 2028 from a production perspective? Peter Gerald Kukielski: For gold, it is basically more gold and mine life. It is roughly double the gold grade of what we are currently producing. Andre Lauzon: There is some stripping that goes along with it, but it is a great cash flow generator for us, particularly at these metal prices, and with about a third of the stripping ratio of current areas. Eugene Lei: The average gold production with New Ingerbelle essentially doubles from about 20 thousand ounces of gold per annum to about 40 thousand ounces per annum. It would be a very nice complement to the consistent copper production, and the mine life of New Ingerbelle on a reserve basis today is ten years. We started drilling at New Ingerbelle and expect to convert a lot of the inferred, so we are likely to see something much closer to double that mine life as we continue to drill and convert that resource. Analyst: Alright. Okay. Thanks. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Candace Brule for any closing remarks. Candace Brule: Thank you, operator, and thank you, everyone, for participating today. If you have any further questions, please feel free to reach out to our Investor Relations team. Thank you and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the Credit Agricole First Quarter 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Clotilde L'Angevin, Deputy General Manager of Credit Agricole. Please go ahead, madam. Clotilde L'Angevin: Thank you. Thank you very much. Hello, everybody. I'm conscious that this is a very busy day for you, so I'm going to try to be short. And so starting on Page 4 to tell you that we have solid results this quarter for Credit Agricole S.A., EUR 1.7 billion despite the turbulent environment. All of the Q1 2025 figures here are presented in pro forma. So for the Q1 2026, we don't change anything. But to compare it with the past, we consider that in the past, Banco BPM had been equity accounted at 20.1%. Now net income, therefore, increased by 1.8 percentage points -- percent sorry, pro forma, thanks to an increase in revenues to EUR 7 billion, supported by sustained activity, ongoing digitalization and strong client capture. We also have strong operational efficiency. The cost-to-income ratio improved by 0.6 percentage points quarter-on-quarter in CASA. And we have well-controlled risks with cautious provisioning on this quarter in the context of the conflicts in the Middle East. And all of this leads to a strong profitability, and we're posting a high ROTE at 13.7%. CET1 ratio is at 11.4%, well above the 11% target, which is impacted notably by M&A operations. We increased our position this quarter in Banco BPM capital, now reaching 22.9% since we decided to seize the opportunity of a dip in the share price in March to continue to build up our stake, but no change in our strategy. The group continues to develop. We announced this quarter the acquisition of a small Ukrainian bank, Lviv, in the west of the country that will allow Credit Agricole Ukraine to strengthen its positions with SMEs and with corporates in the agri sector. And we launched a couple of weeks ago, the European digital platform, Credit Agricole Savings in Germany, only 5 months after it was announced in our medium-term plan, ACT 2028. On the next slide, you see the key figures. We have a good performance of the group Credit Agricole, with a strong increase in net income, 5.5%, driven by revenues, 2.8%, which reached this quarter the record level of EUR 10 billion. In particular, this is thanks to the strong performance of regional banks revenues, 7.8%, which benefited from a spectacular upturn in net interest income by 34%. There is a cautious provisioning in all of the business lines in the context of geopolitical uncertainty, which leads to an increase in cost of risk on outstandings over 4 rolling quarters this quarter, but it remains under control. And of course, we maintain a strong position in terms of solvency and liquidity. So I talked to you about the impact of Banco BPM. We also have unfavorable market effects on insurance OCIs and on market RWAs for the CET1 of CASA. And we also have a front-loading of the consumption of CACIB's RWAs in order to accompany their customers. We can come to that a little bit later on when we talk about solvency. Now moving to Slide 7, activity. Activity was sustained across all of the business lines this quarter. This supported, in fact, the revenues. So what we can note this quarter is a strong customer capture, 600,000 new customers this quarter, 450,000 in France in retail banking. And what's important is that it also benefited from increased digital acquisition in France and in Italy. So we had client capture that was boosted by digital acquisition, in particular, for LCL with the launch of L by LCL Pro, which explains the increase in customer capture for the professionals, 20% of capture on professionals was digital. Digital acquisition also explains 40% of client capture for Credit Agricole Italia. And we're launching several 100% self-care digital solutions in France in home loans, in savings with the launch of full self-care securities accounts and share savings plans and with a new life insurance contract, Oriance . And in the regional banks, we're going to launch a full digital onboarding in a couple of days. Now if I move business by business to activity, in retail banking in France, credit production was strong, even though this performance was mainly driven by regional banks production in a very competitive market. Corporate and professionals loan growth was 7%. And in Italy, we had a very dynamic loan production for the corporates x 2 quarter-on-quarter in the context of a competitive market. And production is very dynamic in Poland, in particular, for individuals and in Egypt. The loans outstanding in the on-balance sheet assets continued to grow in France and in Italy, also the off-balance sheet assets. And so therefore, Asset Gathering division posted a very dynamic quarter. Thanks to insurance, where we have an increase in premium income on all of the activities, savings and retirement, personal insurance, P&C. We had a record net inflows of EUR 5.7 billion, of which EUR 1.5 billion, thanks to the Oriance solution, and we reached EUR 18 million contracts in P&C this quarter. We have a weather-related effect impact, but activity is still very strong. For Amundi, we have very strong net inflows and growing AUMs. The medium- to long-term inflows are strong, in particular, thanks to ETFs and index-based solutions and activity is dynamic in the third-party distributions and retirement solutions. And finally, in wealth management, the AUMs are increasing, and you can note the fact that we finalized the acquisition of the wealth management customers of BNP in Monaco this quarter. For personal finance and mobility, production increased year-on-year despite the unfavorable conditions in the car markets that weighed on our mobility activity and in particular, on remarketing, we had an increase in the stock of used cars this quarter, but production increased year-on-year for personal finance and mobility. And finally, in Large Customers division, the CIB posted its second best quarter after the record level that it had reached in the first quarter of last year. And so excluding FX impact, CIB is stable at this level, thanks to an excellent performance of investment banking and despite the wait-and-see attitude of our corporate customers and financing activities and the fact that FICC was impacted by a lower activity on primary markets. And finally, for CACEIS we had a high level of settlement and delivery volumes. It was boosted by market volatility. And of course, we continue to transform our business after the integration of the European activities of RBC. Now this feeds into revenues on the next slide that increased by 0.9% this quarter. If we read it on a like-for-like basis, i.e., if we exclude the Amundi U.S. deconsolidation for EUR 90 million in the first quarter of last year, and the impact of the first consolidation of ICG shares this quarter for EUR 68 million this quarter, revenues increased by 3.2%, sorry, Q1, Q1. Like-for-like, all of the business lines contributed positively to the growth in revenues, except for the Large Customers division, which is impacted by a EUR 69 million FX effect. Asset Gathering revenues decreased due to the scope effect. But excluding these two scope effects, we have an increase of EUR 59 million. It's mainly thanks to higher management fees and performance fees at Amundi, which more than offset a slight decline in insurance revenues impacted by the weather-related events that I talked to you about, storms and floods in P&C and impacted by a deterioration of market conditions in savings and retirement that was mostly absorbed by the CSM, but we have a residual revenue impact. For Large Customers, I was telling you that we have a very high quarter, second best after the record level that it reached in Q1 2025. For SFS, we have a positive price effect, which was offset this quarter by a change in the residual values of the cars in Drivalia. Drivalia, as you know, is a subsidiary of Credit Agricole Auto Bank. So this is why it has an impact on revenues. For retail banking, we had a very strong upturn in net interest income for LCL, plus 13% and a stability of net interest income in Italy. And we can see right now what we talked about in the medium-term plan for France, an increase in the net interest income, thanks to a reduction in the cost of resources, a normalization of the customer deposit mix and the rate effect and also the gradual repricing of loans and fees increased in all geographies. And finally, on the Corporate Centre, we had favorable volatility effects. Now moving to expenses. We have -- again, on a like-for-like basis, we have positive jaws, 1.7 percentage points. So we do have a few positive factors, in particular, the favorable FX impact on CIB costs and decreased provisions for variable compensation. But more importantly, operational efficiency is improving. We have this quarter, the full effect of the synergies for the CACEIS RBC operation, and therefore, we can confirm EUR 100 million additional income in 2026 linked to this operation. The group integration with [ Indosuez ] is progressing also. We now have 40% of synergies that are realized. And Amundi and Credit Agricole Italia are expecting cost savings in the subsequent quarters. We talked about that at the end of last year. And these positive jaws that we observe, we can observe them despite the fact that we continue to invest in our investments. We continue to invest in the transformation of LCL, as you can see here in retail banking. And we invest also in SFS for our Credit Agricole savings and development platform in Germany, for which the total costs are expected to be below EUR 50 million in 2026. Now moving to cost of risk. Cost of risk, in fact, decreased this quarter compared to the Q4 2025, but increased by 32% compared to Q1 2025, mainly due to our prudent provisioning in the context of geopolitical and economic uncertainty. Because as you can see, most of the increase is due to Stage 1 and Stage 2 provisioning, about EUR 100 million, including scenario updates. We adjusted the weighting of the different scenarios. This is for about EUR 38 million. And we added overlays, geographic and sectorial overlays related to the conflict in the Middle East, around EUR 28 million. So we have about EUR 60 million provisioning due to the Middle East conflict. We have other provisions that include legal risk that represent EUR 39 million, and those include an adjustment of EUR 17 million for the U.K. car loan litigation after the FCA released the conclusions of their consultation that they had launched at the end of last year. And so as you can see, despite these elements, the Stage 3 incurred cost of risk is very close to the Q1 2025 levels after a significant increase in Q4 2025. And if we look at what happens by business line, half of Stage 3 and total cost of risk is explained by SFS with CAPFM being the main contributor, but the increase in cost of risk for CAPFM is mainly driven by these S1, S2 additions. The Stage 3 provisions are relatively stable and they're even decreasing, in fact, due to successful sales of NPL portfolios. The increase in CIB is essentially due to Stage 1 and Stage 2 provisions linked to the Middle Eastern conflict and the cost of risk remains broadly low with investment-grade customers mainly and a diversified and a balanced geopolitical risk. For French Retail Banking, the cost of risk is under control after a strong increase in the Q4. The default flow remains steady, both for LCL and the regional banks, and it's mainly driven by professionals and SMEs. So what we're doing is we're continuing to monitor quite closely the same sectors that we talked about last year, retail, distribution, automobile, transportation for LCL and for the regional banks, real estate professionals, construction and farmers. And in Italy, cost of risk is decreasing and credit quality indicators are improving. So to conclude on this, there's no surge in loan loss provisions. We have an annualized cost of risk on outstandings that decreased Q1, Q4 and our credit quality indicators remain at a very good level. We have the NPLs that are stable. We have coverage ratio for CASA and loan loss reserves that are increasing, which will allow us to absorb surges in Stage 3 cost of risk going forward. As you know, our provisioning is always prudent, and that's also why, as I said, we remain cautious, and we continue to monitor closely these sectors that I was talking about. Skipping Slide 11 to move on to the Slide 12 on income. In fact, we have a solid income in a volatile environment. I just wanted to make two comments, the fact that we have equity accounted entities that are increasing. We have a decrease for SFS for leases related to losses on remarketing activity in the current automobile context, and we have an unfavorable base effect in China, but we have an up for Asset Gathering related to the ICG first consolidation impact. This is a one-off of EUR 85 million. And we also have a Victory Capital scope effect, which is the [ running ] contribution this quarter, thanks to synergies. So we now have ICG at 5.2%, and we plan to increase it to 9.9% over the rest of the year. And so next quarters, we're going to have a regular contribution in our equity account on ICG, but for this time, it's a one-off. And also, you have to recall that we're benefiting this quarter from the fact that we do not bear minority interest on CACEIS any longer compared to EUR 35 million per quarter in the Q1 2025. But most importantly, gross operating income is increasing on a like-for-like basis by 5.5%. We have 1.8% net income growth to EUR 1,676 million. So a very strong performance this quarter, thanks to strong activity and good operational efficiency. Solvency. Now we have a very high level of capital this quarter, and the CET1 ratio is at 11.4%, which is still well above our target at 11%, thanks to retained results. But we did have a decrease from 11.8% to 11.4% due to a certain number of elements. First, we have organic growth, 23 basis points. In particular, with an impact of CIB, which accounts for 14 basis points. Why? Because we have a couple of elements. We can come back to that afterwards, but we have, in particular, a market impact on the RWAs. And we also have a front-loading of the annual RWA budget in the first quarter for CACIB in the context of strong activity in March to support the customers of CACIB. That's the first dimension. Second, we have an M&A impact, 17 basis points, out of which we have 14 basis points linked to the increase in our stake in Banco BPM to 22.9% that I was talking about. In fact, this gives me the opportunity to mention the fact that in our past acquisitions, we completed the analysis that we did at the end of last year that showed that we had met our ROI criteria. In addition to these figures, we computed the average return on capital. You have that in the annex, and it's around 18%. So a quite profitable M&A past acquisitions. So organic growth, M&A. Finally, we have a methodological impact with CRR3 adjustments, and we have market effects on the insurance OCIs due to the rate spread and equity fluctuations by 4 basis points. So all in all, we remain at a very strong level of CET1 ratio for CASA, 11.4%, which allows us to provision EUR 0.26 per share in terms of dividend. The RWAs are increasing also due to a foreign effect -- foreign exchange impact for CACIB. This foreign exchange impact has no effect on the CET1 because, as you know, we immunize our CET1 ratio against adverse foreign exchange fluctuations on the dollar by neutralizing the impact on the numerator, but you do have that in the increase in the RWAs. Moving to the slide on the CET1 ratio of Group Credit Agricole. We have very strong capital at this level. As you know, our objective is not to accumulate capital at the level of CASA. So the relevant figure for the group is that of group Credit Agricole. We're very comfortably above our SREP requirement, which, as you know, has increased by [ 50 basis points ] this quarter due to the increase in the systemic buffer, but we're still very comfortable with 670 basis points above the requirement. And we have more or less the same impact that we had for CASA that I talked about. We have a little bit more limited impact of Banco BPM due to the exemption threshold that I was talking to you about last time. RWAs are increasing a little bit due to technical adjustments on the Basel IV impact on the corporate RWAs of the regional banks. And the leverage ratio is very comfortable as well as the TLAC and the MREL ratio. On liquidity on the next slide, very comfortable liquidity position, very high level of liquidity reserves, EUR 475 billion. The LCR and NSFR ratios are excellent. And just to tell you that almost 2/3 of our funding plan had already been completed during the first quarter. So we're very comfortable also in terms of funding plan. And as you can see here, we have stable customer deposits and very diversified and granular deposits. On the next slide, on transitions, we presented new targets in our ACT 2028 plan. Our objective, as you know, is to be a leader in customer capture and technology and, of course, a leader in transition, and we reaffirmed our net zero commitments. And so we have new targets, which are the following: one, to reach a green-brown ratio of 90:10. So we're well on track to reach this. Our second target is to reach EUR 240 billion in financing of environmental and social transition. The split today is 65% environment and 35% social. Again, we're well on track. And finally, CACIB should reach EUR 1 billion in annual revenues from sustainable finance. And just note that on the 24th of April, Amundi announced that they would be the asset manager of the GGBI fund. So that's something which we're proud of as well. And so coming to the last slide that I'm going to comment on, Slide 17, to conclude by saying that net income increased this quarter pro forma for CASA in the group, thanks to strong activity in all of the businesses in asset management, in insurance, thanks also to strong improvement in net interest income in France. We conquered customers. We accelerated digitalization. We rolled out -- started to roll out our medium-term plan with the launch of this European digital platform, CA Savings in Germany. We announced the acquisition this quarter of a small Ukrainian bank. We increased our position in Banco BPM capital that now reaches 22.9%. And so revenues increased to EUR 7 billion, thanks to this activity, digitalization and strong client capture. Operational efficiency is strong with favorable jaws and an improvement in cost-to-income ratio. Our risks are well controlled. We have cautious provisioning in the context of the conflict in the Middle East. And all of this leads to strong profitability. We're posting a high ROTE ratio at 13.7%. So these are very strong and solid results in an uncertain environment. I'm going to stop here. Thank you very much for your attention, and we can now open the floor to questions. Operator: [Operator Instructions] The first question is from Giulia Miotto, Morgan Stanley. Giulia Miotto: I have two. So first of all, on BAMI, you have increased the stake to 22.9%, but you have room to increase more to 29%. So how should we think about this one? Shall we assume that whenever there is a dip, you are interested to increase this? And also, in the past, you have stated that your preferred outcome would be a merger. Is that still how you're thinking about that? So that's the first question. The second one is instead on the launch in Germany, you said it's a couple of weeks old. Can you perhaps share some stats on how that is going, how you launched, what type of clients you are attracting, that would be super interesting. And then -- sorry, I actually have a final one, a number -- question on SFS. Revenues were down quarter-on-quarter. Costs were up. Any comment on the evolution of this business? Clotilde L'Angevin: All right. Thank you, Giulia, for your questions. So first, on Banco BPM. So first of all, maybe to explain a little bit, we had an authorization by the ECB to cross the 20% threshold and therefore, exercise significant influence without taking control. So we seized the opportunity of a dip in the stock price of Banco BPM to go beyond our 20.1% stake. And we did this for market reasons, we're not changing our long-term strategy. And our long-term strategy is really to be able to contribute to the value creation of Banco BPM. And so that's why we submitted our own list of candidates for the directors of Banco BPM as well as our own list of candidates for the statutory auditor role in order to offer a positive contribution to governance, holding more than 20% of capital. So our objective was to promote the creation of long-term value by presenting candidates with very solid and relevant expertise, and we had 4 directors that were selected at the end of the AGM, which corresponds, in fact, to our stake of 22.9%. So we're not ruling ever going out beyond, but you have to bear in mind that the authorization that we requested from the ECB was to cross the 20.1% threshold and therefore, exercise significant influence without taking control. On your question regarding the different scenarios, as always, there's a lot of scenarios that are possible. Most of them don't depend on us. They're positive for us because we have a strong position. We want to position ourselves as a long-term partner of Banco BPM. And I just want to remind you of the fact that our strategy has not changed in Italy. We have this partnership with Banco BPM, but we really want to develop our universal banking model in the long term, in particular, with Credit Agricole Italia for which we want to develop digitalization synergies with the other businesses. And we also want to develop these businesses, which are all present in Italy. So no change in this strategy, but our strong position allows us to be comfortable and a long-term partner of Banco BPM. That's on your first question. On your second question, yes, indeed, it's a couple of weeks old, but we're confident as to the success of this savings platform in Germany. So just to recall, in the medium-term plan, we said that we wanted to target 2 million customers. We're now at 1 million customers. We have EUR 15 billion in on-balance sheet savings, which we want to double in Germany. So the savings platform is going to help us do that. In fact, it's relatively simple because we already have the legal entity, Creditplus, what we're doing is we're building with a very low cost, in fact, it's less than EUR 10 million, this savings platform that will be turned into an app at the end of the year in order to provide also day-to-day banking. And what we consider to be our competitive edge is the fact that compared to a lot of competitors who have a limited number of on-balance sheet solutions. We have 7 offers in terms of on-balance sheet savings. So this is going to be interesting for the targets that we have, which are mass affluent and affluent customers. And then down the line, what we want to do is we want to expand by plugging onto that the off-balance sheet solutions, i.e., Amundi, Credit [ Agricole ] to really expand on the offer. But even with these 7 products that we have, we consider that we already have a competitive edge. So that was on Germany. Now on SFS. Maybe -- if we look on SFS, maybe a little bit more widely because we have a certain number of drivers for SFS. We have consumer finance per se for which we have strong positive price effects. And then we have a revenue impact of the second dimension, which is mobility. Now how is this working in terms of mobility? Now remember, in the Q4, we had talked about the reviewal of remarketing values of the vehicles for Leasys. Leasys is equity accounted, but we also have leasing activity in Credit Agricole Bank, which represents revenues for us. And so what happened in the Q1 was that in the first quarter, we have, as you know, an automobile market that is still slowing down, and this had impacted some of our partners, particularly in electronic -- electric cars. And so what we did for Credit Agricole Bank was to adjust the residual value of our vehicles portfolio, in particular, in the U.K. and in Italy. But production is increasing for Credit Agricole Bank, both compared to Q1 2025 and compared to Q4 2025. So we have a production that is increasing, but we have a negative impact of this revision of residual values at Drivalia. And we also have an impact at Leasys, which is due most here now to a decrease in car resale performance due to the increase in the stock of used vehicles. So we have -- to kind of sum it up, we have an automobile market that is depressed and in particular, with a certain number of players with which we have strong commercial activity ties who have had observed an increase in the stock of used cars. This has an impact on the residual value and the marketing value of our vehicles. But down the line, we're developing the drivers of profitability for mobility generally. Value-driven pricing, diversification of distribution channels, the improvement of remarketing processes with IT tools, efficiency. So of course, the evolution of the market is going to be key. And of course, there is a sensitivity. There is sensitivity of the residual values that every quarter have to be adjusted. But we have these drivers going forward, which allow us to be confident on the -- in particular, the restoration of profitability for leases. Operator: The next question is from Jacques-Henri Gaulard, Kepler Cheuvreux. Jacques-Henri Gaulard: If I may come back on SFS for a minute, I think the issue I have with it is the fact that it's sort of supposed to actually improve, and it seems the improvement really takes a lot of time. So it's more about getting a sense about where you think this business is going to turn around both at revenue level, but also on the equity accounted side. And when can you say, okay, we've definitely turned the page of that, and we're going to be able to actually look forward to, I don't know, second half of this year [ or 2027. ] That's the first question. The second is on capital. I mean, really, it happens that you had the consolidation of BPM. It's more the fact that everything being equal, do you think that we can proxy the CET1 towards the end of the year as being more or less now the retained earnings x 3, whatever that is. And are you expecting any sort of turbulence that could actually derail from that? Clotilde L'Angevin: All right. Thank you, Jacques-Henri. So in terms of inflection, we have to be very cautious because we do depend on the automobile market. And we do have, as I was saying, a strong sensitivity of the remarketing value of our automobiles to the stock of the vehicles -- of the used car vehicles. And this stock of the used car vehicles also depends on the capacity -- the production capacity of a lot of our partners. So for example, we're confident, for example, that Tesla is going to pick up. GAC, which is our partner in China. Also, there are more difficulties for Stellantis, but this is something that really depends on the market. Now profitability will pick up over the year, but it's true that we will have an effect of, in particular, the revision of remarketing value of the used cars in the Q4. We will going to carry a little bit of that effect from the next quarters because it does have an impact on the price that we're going to resell our cars at. So there will be an impact that will continue in 2026, but we are in a reversal, of course, compared to the Q4 of 2025. Now in terms of CET1, maybe to just take the opportunity of your question to really come back a little bit to the different elements that can explain the evolution that we have here in terms of the capital for CASA. So you're talking about what we can see by the end of the year. The guidance that I can give you for the end of the year is more that for the medium-term plan. For the medium-term plan, we're still -- we talked to you about the fact that we would have strategic flexibility of 150 basis points by the end of 2028 that could be used for M&A or for an exceptional dividend if we do not use that type of M&A. This quarter, we have used about 16 basis points -- 16, 17 basis points for M&A. And so excluding that, we're still very comfortable with our strategic flexibility at the end of the plan. And we're very comfortable also with the CET1 ratio that should remain comfortable by the end of 2026. Now why is that? Is that -- we're going to have indeed retained earnings. And what's also interesting is that a part of the impact of the RWAs of CACIB this quarter is, in particular, due to market activities, about EUR 3.1 billion in terms of market activities, as you can see on the CET1 slide. And we can say that roughly 2/3 of that are potentially reversible if the markets normalize. We have a volatility effect on the SAR of the trading portfolio. We have a trading book counterparty risk. These two effects are effects that could be reversible. So that's maybe -- if we break down the RWAs of CACIB, I guess we can say we have three dimensions. One is an FX effect, EUR 1 billion linked to the appreciation of the dollar between the Q4 and the Q1. Two is this effect linked to the market activities of which 2/3 are potentially reversible. And the rest is a front-loading of organic growth. We often have a front-loading of organic growth for the CIB in the first half of the year. And so we expect that we're going to have the impact on income, on revenue of that also by the end of the year. But again, all in all, we're comfortable with our CET1 ratio end of the year and 2028 and more importantly, with the strategic flexibility we were talking about in the medium-term plan. Operator: The next question is from Delphine Lee, JPMorgan. Delphine Lee: So first one is just double checking the guidance on net interest income that for LCL remains high single digit because obviously, that would imply a slowdown compared to Q1. And also what do you factor in for [ Livret A ] in your guidance? And also secondly, on Cariparma, I think you previously guided to -- for the year to have a bit of pressure on NII. Is that still the case? And is it something we should expect for the coming quarters? And then my last question is just to come back on Banco BPM. Just wanted to have a little bit of your thoughts around sort of the M&A scenarios. I know you mentioned they're not in your control. It looks like discussions have moved from Cariparma to now Monte dei Paschi. So just trying to understand a little bit sort of what you think could be possible for the group in terms of defending partnerships? Clotilde L'Angevin: All right. Thank you, Delphine, for your questions. So maybe first on net interest income for LCL, there is no change in our high single-digit guidance for 2026. Even though it's true that the rate scenario -- in fact, you still have these three effects that I was talking to you about before. On the asset side, you have a repricing. And the marginal increase in the rate scenario is favorable in this respect. Long-term rate increase is favorable for this repricing. It depends on the competitive capacity of LCL to reprice, but the rates are increasing in LCL and the regional banks. First point. Then you have on the liability side, you have the short-term rate where you can have a slight increase that can decrease the positive impact because you know that for the liabilities, the positive effect is when the cost of resources decreases. But we're well hedged against any increase in short-term rates because this time around, we don't have a real shock to the net interest to the rates. And so we should not have any significant shift in the liabilities mix. And also our macro hedging is quite strong, in particular for inflation. So things are relatively positive. We have no change in this high digit single -- high single-digit guidance for 2026, even though we have to always be careful as to the repricing capacity in a competitive market. Now for [ Livret A, for Livret A, ] we usually have a tendency to hedge the [ Livret A. ] So we do -- we could consider that we have, for example, a EUR 90 billion impact for the regional banks -- EUR 90 billion pre-centralization of [ Livret A ] for the regional banks. You have about EUR 18 billion for LCL pre-centralization. So you could consider an impact of the decrease in [ Livret A ] on that, which you can calculate, which is going to be a couple of hundred million, but this would be before hedging, and we have a tendency to hedge. So the impact on [ Livret A ] for us is relatively neutral. For your question on Credit Agricole Italia. Now we have a very competitive housing market in Italy. We have, in particular, renegotiations, which have an impact. And in fact, they did have an impact this quarter on the loans outstanding for the home loans, which was -- which decreased in Credit Agricole Italia this quarter. I talked about a very strong increase in corporate loan production. But in housing, we have a market which is very competitive. But despite this, we were quite happy to have the stabilization of net interest income. We're still prudent in terms of our guidance. So no change in our guidance in this respect, i.e., maybe just below 0 or around 0 this year before picking up afterwards in the coming years. M&A for Banco BPM. All right. So well, in fact, for M&A for Banco BPM, even though there's lots of -- there's been lots of noise, rumors, et cetera, regarding Banco BPM. For us, things have not really changed except the fact that since we are now -- we now have 4 seats at the Board, we will participate in the analysis of any scenarios that could present themselves to Banco BPM. And so we would participate in any decision regarding these different scenarios. That's all I can tell you for now. We're now -- we now have seats on the Board, and so we're going to be a player. We are at the table. We are a player in these different scenarios. But to tell you the truth, as I was saying before, a lot of these scenarios do not depend on us, but I think most of them are positive. Because as I was saying, we are a long-term player in Italy. We have many ways that we can develop in Italy, for example, organically through CAI, organically through our businesses. So all of this is positive. Operator: Next question is from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: Firstly, on asset quality, your Middle East exposure at EUR 21 billion seems higher than peers. Can you elaborate on the nature and the risks in case of a prolonged conflict in the Middle East? And more broadly on asset quality, what risks do you see if oil prices remain well above $100 a barrel for a prolonged period? Then a couple of clarifications. Firstly, on the capital consumption for Banco BPM, when you increased the stake in 2025, the CET1 consumption was proportionately smaller commensurate to the stake increase versus the minus 14 basis points impact you have now. So if you can clarify on that? And lastly, again, a follow-up on Specialized Financial Services. Can you quantify the used car sales contribution maybe in '25 and first quarter, just to see where -- how much is the delta? And on equity accounted entities, previously, you said double-digit contribution from Leasys for 2026. Do you stick to this view? Clotilde L'Angevin: All right. Okay. Thank you. Now if I look at your question on loan loss reserves, if I move to Page 47 (sic) [ Page 46 ] in the annex, you have this level of loan loss reserves, which is at EUR 22.6 billion for Group Credit Agricole and EUR 9.7 billion for Credit Agricole S.A. And as you can see here, you have -- and you could do that if you have even longer period, you can see that prudent provisioning for us is in our DNA. In fact, we are provisioning, but we have always been doing so in the face of uncertainties, geopolitical uncertainties. And so this is also why we have this very high level of loan loss reserves, even though as you know, the impaired loans ratio, as you can see on Page 47 (sic) [ Page 46 ], is stable. And this is also why we have this very high coverage ratio of 82.6% at the level of the group. We have with our Stage 1 and 2 outstanding loan loss reserves, EUR 9.3 billion. We have about 3 years of cost of risk. And for CASA, with EUR 3.4 billion, we have about 1.5 years of cost of risk. But this is, in fact, a structural policy that we have, which is always to provision in a very prudent manner, the risks, and this is what we did this quarter. But of course, this is something that can, therefore, absorb any surge in Stage 3 cost of risk going forward. In terms of capital consumption, so I don't want to go back to the very technical discussion that we had in the Q4 regarding the first consolidation of Banco BPM. But just to tell you a little bit how things are working when you have these 14 basis points for the CET1 is that, in fact, when we increased our share from 20% -- 20.1% to 22.9% in fact, we're increasing it based upon an equity accounted value, which we have integrated around EUR 10. So we have a goodwill now based upon that. Any additional purchase of shares of Banco BPM has to be done with a goodwill. So you have a goodwill impact that is directly deducted, right? And because last year, when we did the first consolidation, we didn't have any goodwill because we consolidated at cost. And so we had badwill, right? So now you have a goodwill impact first, around EUR 120 million. And you also have an RWA impact, which is different from CASA between CASA and group Credit Agricole because for CASA, as you know, we have saturated the exemption threshold for the more than 10% participation, but we have not done that [indiscernible]. So that's why the impact for CASA is 14 basis points, whereas the impact for the group is 5 basis points. And then your last question on the used cars. In fact, we have a couple of dozen impacts of the residual value of cars for Drivalia that compensate for a favorable price effect for SFS on revenues. So you have just about, let's say, around EUR 30 million impact on -- positive impact on price effect and around EUR 30 million impact this quarter for Drivalia of the residual value of used cars. And for leasing, we have, of course, a remarketing issue. And what I can tell you about that is that we're having a situation where we're just about breakeven for Leasys, and we still confirm the guidance that I gave you at the -- in the Q4 call, which was a single-digit contribution for 2026. Operator: The next question is from Stefan Stalmann, Autonomous Research. Stefan-Michael Stalmann: I have two questions, please. So the first one is on your organic risk-weighted asset growth that you highlighted. It seems that you have actually seen a very major expansion of your exposure to non-bank financial institutions, so NBFI, which obviously receives quite a lot of market scrutiny these days. Can you maybe add a little bit of color on why you have grown this portfolio so rapidly in the first quarter? And the second point goes back to your ROIC disclosure. That's very helpful. It looks like you spent EUR 12.5 billion on your acquisitions over this time horizon, but your regulatory capital requirements were about EUR 4 billion lower. Can you maybe explain what exactly drove that discount and which transactions, in particular, required so much less regulatory capital than what you spent on these deals? Clotilde L'Angevin: All right. So first, the question on our exposure. As you can see on Page 50 in the annex, we have our exposure to other nonbinding financial -- non-banking sorry, financial activities that have not changed significantly. This figure is something that takes into account a lot of elements that are not only, for example, hedge funds, but you have securitization vehicles, you have monetary funds, you have hedge funds, you have broker-dealers, investments, you have all of the insurance banks outside of the EU. So this figure, for example, when you have securitization by CACIB for its customers, it's our NBFI and it's a figure that, in fact, adds up a lot of bits and pieces and that's difficult to interpret. What I want to tell you regarding the fact that the issue that has worried maybe a lot of observers recently is regarding our debt fund exposure. And so on private debt, our exposure as of end of March is EUR 2.9 billion, very low, 0.2% of our commercial lending. And as you can see on Page 49, we gave you a certain number of elements regarding the LBO exposure, which is very low, commercial real estate, which is again low with a lot of investment grade. And of course, our Middle East exposure, which is, in fact, mainly on the sovereign and state-owned exposures. Now thank you, Stefan, for highlighting, in fact, the work we did, the team's work to calculate, in fact, the return on capital of these operations. These operations, the EUR 12.5 billion that I was talking about, in fact, we looked at the operations that it is possible to calculate an ROIC on. So you have on big operations, you're going to have a lot of Amundi operations. You have Pioneer, for example, you have Lyxor, you have Sabadell Asset Management. We have also [ Indosuez ] operations with the group. We have CACEIS for example, for Santander. So we have a lot of different operations. Of course, the buyback of the Santander Securities Service share in CACEIS. So all of these operations have different figures in terms of regulated capital. And what I wanted to stress about was the fact that to calculate this return on invested capital, what we take into account is we take the net income group share. And on the denominator, we take the effect of the minority interest, the goodwill, badwill, and we suppose that we have 11% of RWAs. So all in all, the calculations are different for each of these types of operations that I talked about, but they have very different maturities. The ROI is different according to the timing. The ROIC is different according to the timing. And this is a picture of these operations as of 2025. But really what we wanted to insist upon was the fact that we have the very strict financial criteria that we talked about in the medium-term plan, ROI accretive. This is a figure that shows you that we have this accretive nature of our activity, but also the integration capacity and the alignment with our strategy. So this is what we wanted to insist upon on, and insisting upon the fact that the 18% figure is quite strong. Stefan-Michael Stalmann: Could I just follow up on this, please? I mean the common denominator here on the slide seems to be that from a regulatory capital perspective, you need a lot less capital than what you actually spent on the acquisitions. And I'm just curious about why this gap is there. Is there anything that you -- any color that you could add there? Clotilde L'Angevin: I think what it really depends on the nature of the operation and the nature of the businesses that made these acquisitions, Amundi, CACEIS and [ Indosuez ]. And so when we look at the denominator for CET1, the way we look at it is that we take off the impact of goodwill, badwills, minority interest, and we consider that we have 11% of RWAs, which is, in fact, a way that we transpose the targets that we have for CET1 to the different businesses. So it's de facto an internal allocation of RWAs between our businesses. So this is the way we look at the profitability of these operations business by business, comparing them to the target we have, which is 11% of CET1. Operator: The next question is from Benoit Valleaux, ODDO BHF. Benoit Valleaux: Two short questions on my side on insurance. The first one in P&C. You have an increase of your combined ratio of 2.5 percentage points versus last year. You mentioned a very high level of nat cat losses in Q1. I'd just like to know if you can quantify in absolute terms this level of nat cat Q1 this year versus -- and the change versus Q1 last year, just to see how revenues in P&C would have evolved without this nat cat event. And the second question on the life side. So very strong activity in Q1. Nevertheless, the CSM decreased by 1.9 percentage points due to negative market impact. I'd just like to know what would have been the increase without this market impact into the CSM. Clotilde L'Angevin: All right. Thank you, Benoit, for your questions. They are very -- always very interesting on insurance. So regarding the weather-related claims, in fact, the gross impact is just above EUR 200 million this quarter. It's a gross impact linked to storms on the Atlantic front, to floods. And so this impact is quite close to -- if you do a rule of thumb to what we could expect with the market share of P&C Pacifica, which is about 12% market share for this type of insurance. And so this is the gross impact. And thanks to a certain number of absorption mechanisms, thanks to reversals of provisions, what we can say is that the impact in terms of variation Q1-Q1 of this weather-related claims is below EUR 50 million. That's the first point. The second point is that indeed, we always look now for insurance at the CSM. And what's important for us is always to say, and this is what we say this quarter, that we have a new business contribution that is higher than the CSM allocation. But you're right to point out the fact that we had a decrease in March compared to December due to these market effects. We have market effect on revenues in [ Credit Agricole Assurances ] due to the equity I mentioned, but we also have and that's the most -- the majority of it, the market effect in insurance feed into the CSM. Now if we did not have this market impact, we -- I can say we would have about plus 8% impact, [ plus 8% ] growth of the CSM between December and March, which is quite logical if you look at the very strong and record net inflows this quarter of insurance, which was, as you can see, EUR 5.7 billion this quarter. So this is reflected in the growth, excluding market effects of the CSM, which remains at a very high level, [ EUR 27 billion. ] Operator: The next question is from Tarik El Mejjad, Bank of America. Tarik El Mejjad: Just a very quick two questions, please. First one is on the capital treatment of future growth or provisioning, if that goes both ways? And how often you will adjust basically that provisioning? Is it every quarter? Or is it your own judgment? And secondly, on... Clotilde L'Angevin: Sorry, Tarik. Can you repeat the question, sorry, the capital provision on what, sorry? Tarik El Mejjad: On growth, the growth you have on your capital trajectory in the quarter that you took upfront. Clotilde L'Angevin: Okay. The front-loading of RWAs in CACIB, that's what you're talking about, right? Tarik El Mejjad: Correct. And sorry, been a long day. And then the -- on CASA -- sorry, on the -- yes, CASA, I mean, Credit Agricole's EUR 800 million investments in CASA. I mean, I know you say as Credit Agricole, but I mean, the liquidity now is getting even lower. And what do you think the rationale and the end game there? Clotilde L'Angevin: All right. Thank you, Tarik, for your questions. It's been a long day, I know, for all of you guys. So thank you for listening to all of these elements that are oftentimes technical, but which reflect the diversity of our group. So this front-loading, the front-loading that we have of CACIB is, in fact, relatively -- of the RWAs of CACIB, sorry, is in fact, not that special because we do have a tendency to front-load the RWAs in order to front-load the effect that we're going to have in revenues. This time, we front-loaded the organic growth to take an advantage of the active markets in March. So this dimension is not per se reversible. It's the front loading. What's reversible is the 2/3 that I was talking about of the impact on RWAs of the market activities, the volatility impact and the counterparty issuer spreads for the trading book counterparty risk. So here, this -- so if you take that off, if you take off the FX effect, the rest of the growth of CACIB, you're going to have between EUR 1 billion and EUR 2 billion, that's the front-loaded organic growth. You have a little bit which is related, by the way, to rating downgrades in line with increased provisions, but the rating downgrades, when is that going to stop, it's difficult to say. But I would not say that the front-loading is reversible. I would say that the front-loading, we hope to see the impact on results in the coming quarters of this front-loading. Now the SAS, as you know, we are -- SAS Rue La Boetie, which is our today, 63.5% shareholder. So we are, as you know, the daughter, they are the mother. So I cannot comment on what they're saying. But what I can tell you is that they are a very sophisticated investor that knows us very well. And so this program, as you know, they said that they would remain below 65%. They reiterated that, that they had said before. This program is a way for our regional bank, the mother, to really take stock of the fact that we have strong profitability and it is a good idea to invest in Credit Agricole S.A. for the future. They have -- they trust very much our medium-term plan, which is based on customer capture, which is based on transformation, which will provide strong profitability, EUR 8.8 billion in net income at the end of the medium-term plan. And this is very much aligned with their objectives, which is to develop customer capture, to develop performance profitability, to develop capital liquidity at the level of the group. So all of this is very consistent. There is no change in any form of endgame from what -- as much as I know of. For us, it's really the fact that they're investing in a very profitable stake, which is CASA. Operator: The next question is from Alberto Artoni, Intesa Sanpaolo. Alberto Artoni: I have just two quick ones. The first is on capital. And I just noticed that there are 11 basis points of capital consumption this quarter, which relates to methodologies and model changes. And I was wondering if this 11 basis points can -- is on top or can be referred to the slide that you presented when the ACT '28 plan was introduced in which you allowed for 40 basis point regulatory and methodology increases during the plan. So is this part of this 40, so it means that there are 29 left? Or is still 40 to go and this is on top? Clotilde L'Angevin: All right. Thank you for your question. In fact, when we look at the medium-term plan, we look excluding CRR3 impact. And this 11 basis points impact is, in fact, an end of the year impact of CRR3. So it is excluded from the 40 basis points of methodology because what we do in the medium-term plan is that we consider everything to be besides CRR3 impact because in the medium-term plan, if you recall, we had talked about the CRR3 impact, which was 50 basis points. And then we added on this 40 basis points, which was regulatory and methodological impact, including FRTB, which is beyond CRR3. So what I think we can say is that this is kind of the end today of CRR3 impact mostly, mostly. Alberto Artoni: Okay. Very clear. And my second question, just a quick clarification on the Banco BPM stake. Is there -- do the regional banks have a direct stake in Banco BPM? So at the group level, what is the stake? Is it higher than 22.9% or is it 22.9%? Clotilde L'Angevin: No, it's 22.9%. 22.9%, CASA stake. Alberto Artoni: Okay. Okay. So the group does not -- the regional banks do not hold any stake in Banco BPM. Clotilde L'Angevin: Yes. Indirectly, of course -- no. Our stake is 22.9% and it's CASA. Operator: The next question is from Chris Hallam, Goldman Sachs. Chris Hallam: Just two. The first is a bit of a follow-up to Jacques-Henri's question earlier on capital. Could you just maybe just remind us what you can already see coming on capital through the remaining 9 months of the year? Because if I look over the last 5 years or so, you typically haven't really seen an increase in the CET1 ratio through the second, third, fourth quarter for a variety of reasons, including M&A. But consensus as of today now has a 60 basis point increase from here to year-end. So any steer you could give on that would be super helpful. And then again, it's a bit of a follow-up to an earlier question. So not regarding the 14 basis points on BPM, but just how much capital is the whole BPM stake currently consuming? Or put another way, if you sold it today at the latest price, how much capital would be released? Clotilde L'Angevin: All right. So it's difficult to tell you, Chris, for the capital. I prefer to give you guidance regarding the medium-term plan. For the medium-term plan, we're comfortable with our 11% target and our 150 basis point flexibility to which we take off the 16 basis points that we have today. That's all I can tell you, but I can tell you that we're not worried about capital going forward also because we always know that we can develop also the optimization, the securitizations that we can do in particular with SRTs because, as you know, our SRTs are lower than that of what our peers are doing today. Now for Banco BPM, for Banco BPM, we have a EUR 3 billion stake that we equity accounted at the end of last year. Now we have an increase in that, which we bought at the share price, of course. So you have to add to that the share price impact, but in any case, this capital impact of the equity accounted value plus the impact of the increase in the share price, which represents about EUR 120 million in terms of goodwill. This is something that will generate in terms of equity accounted value. It will generate based upon, of course, the income of Banco BPM, something around EUR 100 million every quarter in terms of P&L impact. Operator: The next question is a follow-up from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: Apologies for following up. Just two quick ones. Firstly, on Leasys equity contribution, I think you said double-digit contribution during the fourth quarter earnings. Today, I heard you say single-digit contribution, if you can clarify? Secondly, on interim dividend, can you confirm if the policy is to pay 50% of the first half net profit in October? Clotilde L'Angevin: All right. Thank you. Yes, for Leasys, what I'm telling you when I'm talking about double-digit contribution is talking about the year contribution for the year 2026. So here, we were just about breakeven in the first quarter. So you can see that that's going to pick up because what I'm confirming is a double-digit contribution to yearly net income. And so yes, for the interim, what we're going to do is we're going to apply a 50% payout ratio on the 15th of October based upon the first half year net income. And so we're really adopting market practice in this respect. Operator: [Operator Instructions] Miss L'Angevin, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Clotilde L'Angevin: All right. Thank you. Thank you very much, everybody. I'm really feeling for you in this very long day. I just wanted to tell you that we have our next meeting for you guys, which is the workshop that we're organizing for LCL, which is on the 26th of May, sorry. Thank you, Cecile. On the 26th of May, so we're going to be very happy to see you at that time. That's our next meeting. And of course, we have the General Assembly just before that on the 20th of May in Saint-Brieuc in Brittany, where we hope there's going to be a lot of sun. So looking forward to see you guys there and have a very relaxing weekend after this long week of earnings calls. Bye-bye, everyone. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q1 2026 Earnings Call of Puma SE. [Operator Instructions] I would now like to turn the conference over to Manuel Bosing, Director, Investor Relations. Please go ahead. Manuel Bosing: Thank you very much, Maura. Hello, everyone, and welcome to the PUMA conference call for the first quarter. Joining me today are our CEO, Arthur Hoeld; and our CFO, Markus Neubrand. Before we start, please take note of the cautionary statement regarding forward-looking information. Arthur and Markus will guide you through today's presentation covering our business recap, financial update and way forward. After the presentation, we will open the floor for your questions. [Operator Instructions] With that, over to you, Arthur. Arthur Hoeld: Manuel, thank you very much, and welcome and good afternoon from my side as well. Before we start to get into the business topics and the updates about Q1, I, of course, want to take a moment to also reference another announcement which we made this morning. Markus Neubrand, our CFO, has decided with the Supervisory Board to step down from his office as of today, end of the month, and will remain in the company until end of September. I would like to use the opportunity and say a sincere thank you to Markus for the support I got personally from him during my on-boarding phase at PUMA, and also for guiding not just the financial team, but the organization through what was not the easiest of times for our company. He was instrumental in terms of developing the reset program with us and also getting the company now into a transition mode for the years to come. So Markus, thank you very much. We'll handle the call together, almost as always, like this, the last couple of quarters, and I wish you all the best for your personal future as well. At the same time, we have announced the arrival of a new CEO, which is Mark Langer. Mark will start with us early next month, i.e., on Monday next week. And I'm very much looking forward to welcome an industry veteran, someone that is very familiar to most of you in his new role as of early May. With that being said, we'll now start to get into the results. And I would [ briefly ] like to touch upon the top line results. Markus will, of course, in detail, explain what you have also already seen in the announcement this morning. So first of all, Q1 was a result that is in line with our expectations, and we would like to call this a very solid start into the year of 2026, a transition year as we called out. We've made significant progress this year already in our operating model, which is necessary to build the foundation for our future growth here at PUMA. Despite the macroeconomic and geopolitical uncertainties, we do remain confident on our track to achieve our plans for this year and beyond. When we look at the first quarter, sales are a minus 1% versus last year currency adjusted. The decline in demand is partially offset by continued clearance of our inventory progressing ahead of our plan. Wholesale declined due to a lower demand, primarily in EMEA, with DTC continued to show support by strong outlet performance, i.e., the clearance business there, and a modest growth in e-commerce despite us continuing to have reduced promotion levels versus previous year. The footwear division declined to continued challenges we see in the style area, but we're also very encouraged by solid development with our NITRO franchises in running and in HYROX, i.e., training. Our profitability has improved versus last year, and our EBIT stands at shy of EUR 52 million right now. Improved gross margin and a lower OpEx is certainly something which is worthwhile noting, and Markus will go into more details later on. Let me start also by focusing what is pivotal and what is most important for a sports brand like PUMA, and that's the success of our athletes and our teams in the first quarter. We have talked about an all PUMA final at the Africa Cup of Nations in January. We've also seen an all PUMA final at European Men's Handball Championships between Denmark and Germany. Great start to the year, which was then continued when you look at track and field with another world record, the 15th set by Men's Handball in pole vaulting, where is now at a staggering 6 meters and 31. At the World Athletic Indoor Championship, 21 PUMA athletes grabbed medals, and that was by far the best performing brand that we've seen in championship, including our Swiss Simon Ehammer setting a new world record in heptathlon. Amanal Petros set a new German record in the half-marathon in Berlin, again underlining the great achievements and the great potential that the NITRO technology has for us as a brand. Ferrari has seen three consecutive podium finishes in the first three races of the new Formula 1 season, and Joanna Wietrzyk has set a new world record in the HYROX women's racing in Warsaw only recently. Finally, a quick look at football, which is, of course, pivotal this year. Man City took the Carabao Cup against Arsenal a few weeks ago. And as you've also noticed, they have advanced to the FA Cup final and are at the moment, leaders of the table in the premiership. So all in all, a great start to the year, a great sporting start for PUMA as a brand. But at the same time, we can also record that our recent product launches have really achieved, and in some instance, even overachieved our best hopes. We have 11 teams qualified for the FIFA World Cup in North America in a couple of weeks' time. We've launched those kits with the so-called Rolling Nations event in New York just a few weeks ago, and had more than 10,000 visitors live for that event. From an HYROX perspective, we're very, very pleased that we've been the first one to market that has launched a specifically developed product around the event in Las Vegas, and product has been sold out, but will of course, get restocked in the very near future. We've seen continued great results with our NITRO technology here with the launch of the Deviate NITRO Elite 4 at the London Marathon, but also being displayed in Boston recently. Mathias Gidsel has launched its very own first handball shoe, and also here a sellout result, which was unprecedented for us in that area. There was a lot of great news from a sports perspective, but also from a style perspective. When you look at our street culture, we're very intrigued by the continued success we have with low profile. In this case, with the launch of H-Street, a campaign was featuring the PUMA ambassador and K-pop artist, Rosé. And at the same time, we're looking ahead into the future, where we are revitalizing Suede, a key iconic footwear piece for PUMA in the future with different activations, including our House of Suede at the Paris Fashion Week. So, there's a lot of things which have happened, which give us confidence that we are on the right track. But everything, of course, is framed within the three-year program that we have outlined to all of you at the middle of last year. Our transformation started with a reset in 2025 and is now in execution mode in 2026, a year of transition. And at this point in time, I would just like to briefly recap again our objectives for 2026 that do remain unchanged. It is, on the one hand, a continuation of a three-year transformation journey that our company and our brand will undergo. We will definitely accelerate PUMA's brand momentum and that brand momentum will fuel future commercial success. It is very key that we continue to remind ourselves that commercial success will follow brand success, and that's exactly the order in which we're working towards. That also means we're going to shift towards a higher quality revenue with improved focus on profitability, including better placements in our retail environment and with our customer collaborations. We will continue to work on our financial discipline and will deliver reliable results in the quarters and in the future. All will be underpinned by us building a high-performing team around the world, and some key efforts, not just from a structural perspective, have already been taken in 2025. When you look at the continued execution of our right-sizing efforts, there are a few which are worth mentioning. We have a continued focus to elevate our distribution quality, particularly in key markets like North America. As previously shared, our mass merchant business in the U.S. will see a steep double-digit decline until end of this year, and the work has started already. In a moment, I'll also elaborate on the take-back of overstock at wholesale partners, we've made some significant progress. In our very own channels, we have significantly reduced level of discounts and will further decline, will, however, always remain on industry standards. Our industry does see significant promotional activities, and PUMA will, of course, at key moments, key commercial moments, be on par with our competition to also make sure we liquidate our inventories. We see continued efforts to improve our cash management. We've made an immediate reduction of our purchase orders, and these are fully implemented already for before winter '26 season. We have a dedicated work stream in place to analyze our account receivables, and we have put tangible actions in place to optimize those. We are equally continually focused on our cost base, for short-term tactical cost reallocations, which will be part of the ongoing transition, but equally, and I'll show you a detail of that one, with the full elevation of our range size and the complexity in our organization. And finally, a continued assessment of our operational efficiencies in line with the ongoing efforts to improve PUMA's operating model. To name here is our reorganization of our home market, Europe, which is in full swing and has been communicated to all affected teams in the first quarter already. Looking at specific examples, here is our progress on the continued right-sizing efforts. We talked about the overstock reduction at wholesale partners, and I can report that we have in North America, achieved a mid-double-digit decline of inventory levels at selected wholesalers. I will call it a very solid progress in the first quarter of 2026 to also liquidate our excess inventory. The target for us remains that we normalize to healthy levels and they were rebuilding as sustainable business with our strategic partners based on the better segmentation, consumer activation and also life cycle management. Last year, we have announced that we're going to rightsize also our range size and the complexity that comes with it. Historically, PUMA has had a fairly complex and specifically for the size of our organization, partly inefficient range. We have immediately reviewed starting in July and August last year, and we've taken decisive actions which already impact and affect spring/summer '27 as a collection. Significant progress has been made by the teams to increase the efficiency of the range and to also normalize our SKU content to a healthy level for the size of our PUMA business. It's worth mentioning here that our storytelling product and distribution approach, which we have concerted and aligned together, have really led to a better point of view as a brand and ultimately will allow us to have a more succinct brand identity, both in terms of the customer presentation but also in terms of how we energize our consumers around the brand again. And then finally, we have an ongoing reduction of our corporate positions by 20% from the end of '26 versus the beginning of 2025, so in the span over 24 months. As a reminder, 500 positions have been successfully reduced in the first half in '25 as part of the Next Level Cost Efficiency program. Middle of last year, we then identified another 900 positions to be reduced until the end of this year. And here is the status of where we are with the execution of that program. 50%, i.e., 450 positions were already identified, communicated and executed, i.e., the affected employees have already left the organization latest by the end of Q1. Out of the remaining 50%, that's another 450 positions, 80% were already identified and communicated with the departure of the affected employees ongoing. So it's only 20% remaining, and they are entirely identified with communication in different stages, depending on the local requirements and processes that we, of course, adhere to. And then last but not least, it's also worthwhile mentioning that we continue the leadership changes in our senior lineup. We have briefly mentioned the switch from Markus to Mark, from a CEO, positioning. But underneath also we continue to have adjustments in our leadership organization. Four new additions have been communicated recently. Emily Mueller-Lennox will return to PUMA and will start her duties as Vice President of the Business Unit Kids under Maria's leadership. Also in Maria's team, we have recently announced and appointed a new Vice President of Creative Direction. Creative direction for us is pivotal for the turnaround of the PUMA brand to strengthen our brand identity and really to discuss a next level from a creation to product execution perspective. James has vast industry experience between innovation and product excellence, and it's really exciting to see him on board now. Two further leaders have been announced, starting with Maria's organization, Laurent Fricker will start in June to take up the position of VP, BU Style. And in that capacity, he will be overseeing our Select and our Prime business. That's a business which we last year separated from our core business to make sure we're going to have really a different and a prosperous business in that pivotal area, also from a commercial perspective. Last but not least, moving to commerce. Bertrand Blanc will take up the position of Vice President Wholesale in Matthias' team starting next Monday already, and his key missions to ensure that we are rebuilding a healthy and sustainable business with key strategic partners across our markets. Finally, we are also in the final stages of closing our hiring for the new VP of e-commerce, who would then complete the lineup in Matthias' Center of Excellence across all channels. That's it for me from now, and I would like now to hand over to Markus. Thank you. Markus Neubrand: Thank you, Arthur, and hello to everyone, also from my side. Following Arthur's business recap, I will now walk you through the key financial metrics for PUMA's first quarter, highlighting the impact of the right-sizing efforts Arthur outlined on our financials. We began our transition year 2026 with a solid first quarter. On sales, we saw a decrease of 1% currency adjusted, which is a notable improvement from the previous two quarters. Sales development was influenced by both reset activities and clearance. On one hand, we continue to see a negative impact on sales from our reset measures, which included reduction of undesirable business and lower promotions in our full price stores and e-commerce. On the other hand, we saw positive effect from clearance of elevated inventories. The clearance was executed through selected wholesale partners and our own factory outlets. Overall, without the negative impact from reset initiatives and the positive effect from clearance, we recorded an underlying decline in sales in the low to mid-single digits. We expect that both clearance and reset impact will continue but further decrease throughout the year. Now, let's look at the sales breakdown by channel. Wholesale decreased by 2.8%, mainly due to a lower demand from wholesale partners in EMEA. Direct-to-consumer sales grew by 3.8%, driven primarily by a 5.7% rise in owned and operated retail store sales, which mainly resulted from inventory clearance in our outlets. E-commerce also saw a 0.6% uptick, supported by new APAC marketplaces and reduced promotional activity. Overall, the D2C share increased to 28.3% from 27.5% last year. Looking at our regional performance in the first quarter. EMEA sales declined by around 10% currency adjusted. This was broadly driven by weaker underlying demand in the region, and due to our reduction of undesirable wholesale business. In addition, sales in the Middle East, which attributes less than 2% of our sales, were impacted by the ongoing regional conflict. The Americas delivered currency-adjusted growth of around 6% with double-digit growth in Latin America, supported by improving underlying demand and 2% growth in North America. Inventory clearance supported sales development in both regions, especially in the U.S. market, where it offset the lower mass merchant business. Sales in Asia Pacific increased by around 8% currency adjusted, driven primarily by strong D2C performance across both owned and operated stores and e-commerce. On the product side, we continue to see strong demand for low profile and especially the Speedcat family. Greater China grew 9% on the back of a strong Chinese New Year performance, and the rest of Asia Pacific increased by around 7%, reflecting strong D2C momentum in Southeast Asia. Turning to performance by product division in the first quarter. Footwear sales declined 2.3% -- within footwear, running and training continued to show strong momentum, supported by NITRO styles and the rapid expansion of HYROX-related products, which partially offset declines in other categories. Apparel sales increased 0.9%, driven primarily by training and golf categories. Football also delivered a solid performance, supported by strong demand for federation kits ahead of the FIFA World Cup. Accessory sales up 0.3%, mainly supported by the golf category. Let me now walk you through our operating performance in the first quarter. As mentioned earlier, sales are down 1% currency adjusted with a reported decline of 6.3% due to FX headwinds, especially in U.S. dollar, Turkish lira and Argentine peso. Gross profit margin improved by 60 basis points to 47.7%, which I will elaborate a bit more in just a minute. Royalty and commission income increased by 13%, mainly reflecting a stronger Formula 1 business, supported by an additional raise compared to the prior year. Operating expenses, excluding one-time effects, decreased by 5.5% to EUR 848 million. I will come to more details in a later slide as well. Driven by higher gross profit margin and lower operating expenses, adjusted EBIT increased to around EUR 64 million, up 5% year-on-year. One-time effects were down year-over-year and amounted to EUR 12.6 million, mainly related to personal expenses connected to the cost efficiency program. EBIT, therefore, came in at around EUR 52 million, up almost 20% year-on-year. Financial results at around minus negative EUR 60 million improved significantly. This was mainly due to favorable currency movements, particularly U.S. dollar and Mexican peso, which more than offset the slight increase of interest expenses on bank debt. Income taxes increased to around EUR 10 million, driven by higher earnings before tax. Consequently, profit from continued operations came in at EUR 26.5 million, a significant improvement compared to Q1 2025. Let me now explain the development of our gross profit margin in the first quarter. Overall, gross profit margin increased 60 basis points to 47.7%. The most significant driver you see here is promotions and inventory reserves. While promotions had a negative impact on gross profit margin, the reversal of inventory reserves recorded in the second half of 2025 contributed to a significant positive impact. In addition, we recorded lower freight costs compared to the higher base in Q1 2025. A more favorable channel mix, reflecting a higher share of direct-to-consumer also supported the margin development. These positive effects were partly offset by product mix and regional mix as well as currency effects, which weighed on the margin compared to last year. Now, moving over to our operating expenses, which fell 5.5% to EUR 848 million, excluding one-time effects. The reduction was driven by savings from the cost efficiency program and lower marketing expenses. Marketing decreased compared to high levels in Q1 2025. This was based on phasing effects and not a structural reduction, as we continue to invest in brand and growth opportunities. Together with favorable currency movements, these factors offset the higher cost and channel mix due to the mentioned increase of the D2C share and increase in other OpEx costs. Let me now walk you through the development of our EBIT margin in the first quarter. EBIT margin improved from 2.2% in Q1 2025 to 2.8% in Q1 2026. The main positive driver was the increase in gross profit margin by 60 basis points, as mentioned before. Royalty and commission income also contributed 20 basis points, driven by a stronger Formula 1 business. Although OpEx fell in absolute terms, OpEx ratio increased by 40 basis points since costs did not decrease as sharply as sales. One-time effects, on the other hand, contributed a 20 basis point increase to the EBIT margin as these effects declined compared to the previous year. Let us now take a closer look at working capital. Inventories declined by around 9% to EUR 1.9 billion, mainly driven by lower purchasing volumes in line with the expected lower sales base for the year and inventory clearance. Trade receivables decreased by around 20% to EUR 1.2 billion, mainly due to lower sales levels. Trade payables were down around 26% to around EUR 1 billion, also reflecting reduced purchasing volumes in the quarter. Overall, working capital decreased by almost 10% year-over-year to EUR 1.8 billion, reflecting continued progress on inventory cleanup and disciplined purchasing and evidencing overall improved working capital management. Looking specifically at inventory development, inventory levels continued to decline in the first quarter and are slightly ahead of plan, supported by lower purchasing volumes and ongoing clearance activities. As communicated previously, we expect inventories to normalize by the end of 2026, assuming disciplined purchasing and continued execution of our clearance plans. Turning to free cash flow. Free cash flow was reported at minus EUR 201 million for the end of Q1, consistent with the typical seasonal pattern in our business, free cash flow remained negative in the first quarter. However, it demonstrates a notable improvement over the previous year. This year-over-year improvement was mainly driven by more efficient working capital management, including inventory clearance and lower and more prudent purchasing volume, as we discussed earlier, higher earnings before taxes, lower capital expenditures, while we continued our investment focusing on D2C channel to enhance our long-term competitiveness. As said during our full year 2025 presentation in February, we expect free cash flow to be positive in 2026. Finally, let me comment on net debt development. Net debt increased seasonally to EUR 1.3 billion, up year-over-year from around EUR 1 billion at the end of Q1 2025. This increase mainly reflected higher bank liabilities supporting the operating business and financing working capital. Cash position stood at EUR 326 million, up around 15% year-over-year. In addition, we had unutilized credit lines of around EUR 800 million, resulting in total financial headroom of around EUR 1.1 billion. This means that we maintained sufficient financial headroom to support the transformation journey and strategic investments. Given the currently elevated level of net debt, deleveraging is a clear priority, and we target to reduce net debt over the coming years. Before I hand back to Arthur, as he mentioned earlier, this will be my last earnings call as CFO of -- at PUMA's. It has been a privilege working with the team through the transformation journey, and PUMA is well on track. With that, I will now hand back to Arthur for the way forward. Arthur Hoeld: Of course. Thank you very much again. Let me now turn toward our outlook for the full year 2025. We will be building on the momentum from a very solid start to the new year, and we are going to reiterate our full year outlook. It is important to highlight that our outlook does not reflect potential implications from the ongoing conflict in the Middle East or the U.S. Supreme Court decisions on U.S. tariffs. In the Middle East, our priority has been the well-being of our staff, ensuring their safety remains of paramount focus for us. From a business perspective, direct exposure to the region is relatively limited, with sales accounting for less than 2% of the total group revenues. On the risk side, we do see two layers, however. At this point, the impact on sales and supply chain is manageable, and we're prepared for different scenarios. The greater uncertainty, however, lies in broader consumer sentiment in response to the evolving economic and geopolitical environment globally. On tariffs, following the Supreme Court ruling over U.S. tariffs have come down. That said, visibility on refunds is still limited, and the situation may shift quickly again. For our top line, for full year '26, we expect a currency-adjusted sales decline in the low to mid-single-digit percentage range. We are expecting that our second half in 2026 will be stronger than our first half. And additionally, sales growth in the second quarter of '26 is anticipated to be clearly below the first quarter. With regards to our sales channels, we do anticipate a decrease in wholesales, while our direct-to-consumer business is expected to maintain growth. We anticipate a substantial improvement in gross profit margin, while OpEx are not expected to materially lower in absolute terms as we do continue to invest in strengthening our DTC channels, as Markus has already referred to. Our EBIT is forecast to range between minus EUR 50 million to minus EUR 150 million. This includes one-off effects, which are projected to be significantly lower compared to last year '25. CapEx is expected to come in at around EUR 200 million and will focus mainly on our digital infrastructure and the investments in our DTC channels. Looking forward, again, of course, I would like to bring it back to sports -- and the sports company that we are. Well anticipated is the FIFA World Cup with 11 PUMA teams competing. It's the best representation this brand has since 2006, where at the time, the PUMA team was listing the trophy. From HYROX perspective, there are several high-profile events coming up, most notably the largest event to date in New York, with more than 50,000 participants and the World Cup in Stockholm, where the HYROX World Championship will take place again with significant amount of PUMA product being competing in the events. And last but not least, Formula 1 will return to Miami after a break with many, many other exciting races coming up where we definitely see the potential of PUMA as a brand that is well established in the Formula 1, in the motorsport scene, which seems to have a growing dynamic with consumers worldwide. I would also like to reiterate and repeat again that for our brand, our North Star remains to become a top three sports brand in the future again. We are committed to return to above-industry growth and equally committed to return to healthy profits in '27 and beyond. At this point in time, we'd like to thank all shareholders, partners and first and foremost, all employees in joining us on the journey. To wrap it up, there are three major messages for the first quarter in '26. Our financial results came in as expected, both from a sales and from a profitability perspective, as we've outlined. We are well on our transformation journey. We are progressing as planned with a solid start into a transition year 2026. And for the full year, our outlook is confirmed and we remain committed to achieving our plans as outlined. With that, I would like to hand it back to Manuel. Thank you. Manuel Bosing: Thank you, Arthur. Thank you, Markus. We are now ready to start the Q&A session. Operator, please open the lines for questions. Operator: [Operator Instructions] First question comes from the line of Will Wood from Bernstein. William Woods: The first question, I'm trying to understand the phasing of your sales throughout the year. You maintain the kind of guidance of low to mid-single-digit decline, but obviously, Q1 was much better at negative 1%, and you said that you expect improvement throughout the year. Can you give any commentary on how Q2 is going? And how much of the Q1 performance was driven by the boost of clearing inventory versus the underlying growth in the business? And then the second question is on, obviously, as we move into H2 and 2027, I appreciate it's still early days, but it's -- I think the focus will shift from resetting the brand and the transition year to rebuilding the brand heat into 2027. How are you feeling about the product pipeline into 2027 at the moment? Are you happy with the spring/summer range, et cetera? And any commentary there? Markus Neubrand: Thank you both for your questions. I will start answering the first one and then hand over to Arthur. Regarding the cadence of the revenue growth by quarter throughout 2026. as Arthur outlined, I think on the way forward, we expect the second half of 2026 to be stronger than the first half of 2026. Therefore, it's fair to assume that the top line development in the second quarter will be more muted compared to Q1. We expect Q2 to expect it to come in clearly below the Q1 results in terms of sales growth. Talking about, and I think then also part of your question that you want to understand regarding Q1 development. The inventory clearance, as outlined also in our prepared remarks in Q1, had a positive impact on our sales growth and the positive impact on the inventory clearance was more pronounced than the negative impact from the reset activities relating to the cleanup of the division undesirable business and reduced promotional level. Arthur Hoeld: And to your second question, Will, in terms of rebuilding brand heat and our perspective on the range on spring/summer '27, I do believe we are making progress there. We're making progress in terms of building on our strength, which is definitely the NITRO platform, across running and training. Specifically, we will launch new products in both areas, and we have received pretty positive feedback in the same vein as for our new football boot collection. Where we do see progress as well, but where of course the work is still ahead of us, is in the style and the lifestyle area, where we see continued success, and we believe continued success from a low-profile perspective also into '27, but our efforts are clearly now around making the Suede a more iconic proposition in '26 -- '27 with brand activities starting in '26 again, and then also further dimensioning our offer with lifestyle running as one of the key future pillars. These efforts have started to be built into spring/summer '27, but they will be by no means complete yet from a product nor from a marketing activation perspective. Thank you. Operator: The next question comes from the line of Thierry Cota from Bank of America. Thierry Cota: Two questions from me. First, on the OpEx, they were down 5.5% in Q1. I was wondering whether you could give us the drop at constant currency, and if you think that around 5% drop is a good estimate for the whole year? And secondly, on the balance sheet, I think you've said that you wanted to have a clean inventory at the end of the year. I was wondering what that means in terms of percentage of sales, is it around 23%, which I think was the level in '24, a good level. Do you think you can reach that? And the working capital, likewise, do you think could drop back by the end of the year to the mid-teens, please? Markus Neubrand: Thank you, Thierry, for your two questions. Let me start with the second part first regarding the inventory development. As mentioned during my prepared remarks, we firmly committed to normalize our inventories by the end of this year. If you look at the inventory as a percentage of sales, it's expected to further come down over the following quarters to more normalized levels below 25% of sales until the end of the year. The decline will be driven by inventory clearance and adjusted purchasing volume as we outlined, I think that earlier, -- in my prepared remarks. The first question when talking about the OpEx development, as mentioned also in my prepared remarks, FX was a positive, I think contributor and then also to the overall OpEx decrease. But also on a currency adjusted on a constant currency basis, our OpEx decreased also in Q1. I think please understand, I think we're not disclosing, I think, that level of detail for the full year and what that means in terms of OpEx development here. I need to go back to the statement also Arthur made a our outlook, where we -- I think that also for the OpEx overall will not be materially lower. And I think then also compared to 2025, as we continue also to invest into our D2C business and into our brand. Operator: The next question comes from Monique Pollard from Citi. Monique Pollard: What I first wanted to understand is, you talked in the release about the strong demand for low profile and Speedcat in China, and you referred to in the questions above, the benefits you are seeing from low profile and how that can be a driver for success into 2027. Just wondered if you could highlight for us any other markets where you're seeing meaningful demand for low profile. I guess, you know, the tie-up with Rose, that you're seeing good benefits in some other pockets of Asia and whether there are any other markets. And then the second question was on the Americas' growth. So, you know, strong growth up 6.1% and Latin America in particular, very strong in the period, up 10.5% -- just wondered if there's anything that's driving that growth that you can call out outside of, obviously, the clearance activity that you've talked to. Arthur Hoeld: So let me start with the low-profile answer to your question. We do see significant traction of the business continuously in pretty much all Asian markets, that is Korea, that is Japan, but specifically Southeast Asia, where we have restocking activity at this point in time going on. However, also on the other side of the globe, in North America, we do see customers, primarily customers which are more style focused and have a stronger women's basis. Who do significant results to the tune that PUMA at this point in time, with some retailers is the #2 brand from a sellout perspective. So we definitely recognize a continued continuation of the trend of low profile where only very few brands are playing, but it also it is worthwhile noting that our reset activities last year are definitely paying off now. So by right-sizing the market, right-sizing the volumes that are out there, we are extending and prolonging the life cycle of these silhouettes, which are very much the benefit of our product range and our product offer. When you then talk about the Americas, I think it's two different answers I would like to give you. In Latin America, both from a brand but also a distribution perspective, we have been well-positioned over the years. The job the team has done there, the cleanliness of the market, the distribution, and the power of presenting our brand, our product propositions, has historically already been very good, and we're now, of course, continuing to harvest the fruits. In North America, I think it's worthwhile mentioning that some of the reset activities, of course, have led to a significant impact from a wholesale perspective. But as I said, there are pockets of growth also with partners over there. And then our DTC business is, of course, also benefiting from inventories that we're liquidating for our factory outlets and a decent business in our own e-commerce channel despite promotional reductions. Thank you. Operator: The next question comes from the line of Piral Dadhania from RBC. Piral Dadhania: My first one just relates to NITRO as a product platform. I think you talked, Arthur, around some of your plans on the lifestyle side for the remainder of '26 and '27, in response to previous questions. Could you just help us understand what the plan is in relation to commercialization of NITRO, both in running and also using it in other footwear styles and subcategories? And then my second question is one which you may or may not be able to answer, and it just relates to any update in terms of the Anta acquisition of minority stake in PUMA. Have you got any visibility on the timing of when that deal may close? Arthur Hoeld: Thank you, Piral. Let me start with the second question because the answer is rather short. There are no news versus what we announced earlier in the year. We are awaiting the closure of the transaction, and that timing remains to be seen. So no further news to share on that topic. From a NITRO perspective, the NITRO platform will be relevant across most performance categories in Puma. That means we are not only having products available in the running segment, well known, but also our latest HYROX proposition is fully based on a NITRO platform. The specific indoor handball shoe that we've launched in collaboration with Mathias Gidsel, the world's best player in this field, was also based on a NITRO technology, a Nitro platform. So, NITRO is more than, quote-unquote, "Just a running platform." It will really be the major footwear technology that we are promoting across all different performance segments when it comes to '26 and 2027. Thank you. Operator: Next question comes from the line of Adam Cochrane from Deutsche Bank. Adam Cochrane: Two questions, if I may. The first one is, in terms of the lead time on your new product purchases when you're talking about your new ranges for spring/summer '27, given the input cost inflation that we're hearing about because of oil prices, when do you actually have to start ordering these product the suppliers? And are you hearing anything on potential cost inflation on those future ranges? And the second question is, can you just give us an idea of how far you are through in terms of the clearance activities, just as a way that we can try and benchmark, is it 25% of the way through, 50% at the end of the first quarter? And on that regard, there's quite a big gross margin gain from the inventory provision reversal. Is that something that might happen again in future quarters? Or is that just something that is, as you sell the product? Or do you just revalue the inventory as at the end of the first quarter? Markus Neubrand: Adam, thank you for your questions. Let me first answer the second part, I think, regarding the clearance progress of the inventories. As we mentioned, I think we are slightly ahead of plan, made good progress in Q1 with the reduction of our inventories and with the clearance, I think which also resulted in the decrease of the inventories, I think since we peaked, if you look at the chart in the middle of 2025. With the targeted clearance also through selective wholesale partners and our factory outlets, we, of course, also then recognize -- also then -- need to revalue our inventories, which leads also to inventory reserves. On the other side, as we also outlined the gross profit margins, you've seen also that our promotions, I think that also in wholesale have been more pronounced, I think which you can see. I think that, of course, as the mechanism, I think as we're working through the target reduction. This process will continue throughout 2026. I think as we are firmly committed to normalize the inventories until the end of the year. When we provided also the guidance for the full year, we outlined that we expect the gross profit margin to improve. And one of the key drivers, I think that also the substantial improvement of the gross profit margin in 2026 will be driven by lower promotions, but also, of course, with the targeted reduction of that excess inventory, which will also the reverse of inventory reserves, I think will contribute to that gross profit margin development. Then coming to your first question related to the Middle East crisis and the oil price driven, I think, then increase of the input costs. If we look at, first, let me start for autumn/winter '26, all of the orders, I think until end of autumn 2026 have been placed. And I think we see no cost inflation on our product costs. For spring/summer '27, I think that's where we know and I think as in the early stages. So that's where we start to present I think and to take orders now within the next months from our accounts. And now as we speak, we are in discussions with our vendors. And we see selective, I think then also increases in the product cost, but not material in spring/summer '27. And Autumn/Winter '27, of course, is still too early to see, nothing that, of course, how the situation overall evolves. Operator: The next question comes from the line of Andreas Riemann from ODDO BHF. Andreas Riemann: First one to Arthur on SKU reduction. So by how much did you reduce SKUs? And would you say that you are going forward plan to sell a global product to all markets? Or is part of your offer still a local product that reflects local preferences? That would be the first question. The second one for Markus. The financial result improved actually materially and you speak about currency benefits. So have you changed your hedging strategy? And is that sustainable? Or was Q1 rather a one-off? This is the second question. Arthur Hoeld: Thank you very much, Andreas. So to start with the first question in terms of range size reduction, we have reduced our range size by a significant mid-double digit. So the process between spring/summer '25 and now spring/summer '28, the collection that we're at the moment developing has been significant, and we are committed to also then executing that. What this means, of course, there will be a more significant global footprint from PUMA, i.e., also more mandatory part of the collection that we would like to see in each and every market. That's also part of our life cycle management across both style, but also the performance areas. What that does not mean, however, is that we're reducing or even abolishing our policy to offer locally relevant products. We continue to have regional creation centers in Asia and North America and India to make sure we're going to cater for the needs of the local consumer to complement and to complete the range offer. So it will be a mix and a blend between a stronger global offer, a stronger global life cycle management and the additions, the well-needed additions in order to cater for demand from a local perspective. Thank you. Markus Neubrand: Thank you, Andreas, for your question on the financial results. Yes, a significant improvement, as outlined year-over-year in the Q1 of 2026. Let me first start with the -- also what I mentioned in prepared remarks. Our interest expenses on bank debt has been slightly increasing, of course, given the elevated levels and higher levels of bank financing compared year-over-year. The biggest factor, and I think that I also outlined in the prepared remarks, is driven by positive favorable currency movements. And here, particularly the U.S. dollar and Mexican peso had a positive impact, I think also on -- I think then also our financial results. I think that means from a translation, but also valuation of derivatives, I think that impact our financial results. So given the nature also of FX, of those developments, I think where it would be rather prudent not to, and I think then continue to project, I think, such favorable currency movements for the quarters to come. Operator: The next question comes from the line of Warwick Okines from BNP Paribas. Alexander Richard Okines: Just a couple of trying to understand the shape of the year, please. So firstly, just back on the Q2 sales comments you made. Is the main reason for the lower or the bigger sales decline in Q2 compared with Q1? Is the main factor here, less promotional support? Or are there other factors? 'Cause presumably the drag from the reset is moderating? And then the second question is just if you could comment a little bit more about the EBIT shape for the year. It's helpful for you to have commented about inventory reversals continuing for the rest of the year. But maybe just to comment on how you see the phasing of your EBIT losses through the next three quarters. Markus Neubrand: Thank you very much for your questions. Q2, and I think as I mentioned earlier, is expected from a sales growth perspective to come in clearly below Q1. And the key reason is the impact of the reset and here specifically the reduction of the undesirable business, I think which is more pronounced in the second quarter compared to what we expect, I think, then also what we've seen in Q1. The clearance, I think, as I mentioned earlier, of the excess inventories, of course, continues throughout the year. Coming to the second part of your question, of course, now from a sales perspective, also what does it mean also from an EBIT development for the remainder of 2026. It is fair to say that we started 2026 clearly on a positive note from an EBIT perspective. There's still a lot of moving parts for the remaining of the year, including, of course, the top line development, as I just outlined, but as well also the level of one-time costs as we will make sure to set the right foundation in 2026 to return to growth in 2027. If we then also look at the geopolitical and macroeconomic uncertainties that we -- especially with the Iran conflict that we see and the tariffs, the Iran conflict, the negative impact is expected on sales and margin and even more importantly, on consumer sentiment, tariffs as of now, there will be a positive impact on margin, but to which extent is still unclear and can, as we know, change on a daily basis. Therefore, we confirm our reported EBIT guidance for full year 2026 to be within the range -- guided range of minus EUR 50 million to minus EUR 150 million. Operator: [Operator Instructions] The next question comes from the line of Jurgen Kolb from Kepler Cheuvreux. Jurgen Kolb: Thanks very much for everything and probably also welcome back, Mark. I guess you're listening in, so welcome back to the market. On the two questions, first of all, on the run shoe business, I think you mentioned that the running shoes, the NITRO foam is selling strong and is quite successful. Maybe you could talk a little bit about your progress on getting the shoes into the specialty store chain, and in which markets are you actually seeing the strong sell-through or a marked improvement? Secondly, on current trends, I guess you indicated the Middle East conflict, obviously, the main or the difficult to forecast effect is from the consumer behavior. Have you noticed any underlying trend changes from the consumer? I know it's probably difficult for you because there is so much going on in your stores and with the wholesaler in terms of clearing inventories and what have you. But in terms of any observations that you have could be quite interesting to note if there's anything currently going on. Arthur Hoeld: Jurgen, thank you very much for the question. So when you talk about the running shoe specialists, what we have embarked upon last year is that specifically in Europe and in North America, we have drastically ramped up our specialist sales force. That means specialists PUMA people who visit running accounts, who will be then promoting the PUMA brand, but also our NITRO technology. Only in Paris this weekend, we had 110 specialty accounts from all over the globe, spending two days with us, getting excited about our collections, but also giving us feedback in terms of where they see our efforts. That's primarily where we see growth happening, but equal spilling over into the mainstream accounts that would be in Europe, and Intersport, and others basically. So that's what we project in '26 and in '27, then the major part of the growth to be coming from. We don't have any specific region where NITRO is either overexposed or underperforming. We do see this as a global development for us actually. And when you talk about underlying consumer sentiment, it is difficult to, of course, project where the market is going and consumer sentiment is on the one hand, driven by significant inventory and promotional activities again. We, of course, also do see that there is energy in the market there is energy in the market, both in Europe and U.S. in terms of consumers continuously seeking the sporting goods industry and seeking out sneakers. From our very own perspective, we are very much focusing on the major areas that we've discussed earlier to improve both our brand trajectory, but also our product offer simply based on the effect that despite any economic headwinds or despite industry dynamics, we see significant headroom for PUMA to grow versus competition from our current perspective. Thank you very much. Jurgen Kolb: And just one very, very quick update on an add-on question. Your contracts with the container shipping companies and the freight contracts there, when does it end? And are you already in negotiations for the next contract? Markus Neubrand: Jurgen, good question, and I'll take that one. The contract, I think that we have, I think, with our carriers on the inbound side, runs until the end of June of this year. And yes, as we currently speak, I think that's where we're already in advanced negotiations with our partners on the inbound transportation side. Jurgen Kolb: I assume costs are not going up. Markus Neubrand: I think looking at what is currently, and I think if you look at the market, with the oil prices and you know and I think how the mechanisms are in those contracts, there are surcharges. And I think that also what we've seen, I think, since the start of the Middle East crisis, also that there have been bunker and fuel surcharges being raised. So that's actually where we see, of course, also then an impact also from the Middle East crisis, I think then also to come through. But as Arthur mentioned, overall, I think that also we have plans in place. I think looking at our supply chain, I think then also and evaluating different scenarios how to mitigate these impacts. Operator: There are no further questions at this time. I hand back to Manuel Bing for closing comments. Manuel Bosing: Thank you very much, Maura, and thanks to everyone for your questions. We appreciate your interest in PUMA. We'll stay in touch, and we look forward to speaking with you again soon. This concludes our call for Q1 2026. Thank you, everyone, and goodbye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.