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Operator: Good morning, everyone, and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded. Before we begin, please note that the company's press release comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. And consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2025, as well as the subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that the company's press release and today's call include references to non-GAAP terms, such as free cash flow, adjusted EPS, EBITDA and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer; and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Please go ahead, sir. Matthew Flannery: Thank you, operator, and good morning, everyone. Thanks for joining our call. Yesterday afternoon, we reported a strong start to 2026, including first quarter records across revenue, EBITDA and EPS. I was very pleased by the growth, margins and fleet productivity we reported, as the team continues to execute against our North Star of putting the customer first. The momentum we're carrying into our busy season, along with our customers' feedback for their business, supports our expectations that this will be another record year, as further evidenced by our updated guidance. This is all attributed to our 28,000 team members who are laser-focused every day on serving the customer and delivering against our goal to be their partner of choice. What exactly does this mean? Well, it means we have a broad unmatched offering of both gen rent and specialty products. We invest in industry-leading technology to make both the customer and our own operations more productive and efficient. And most importantly, we have a track record of providing superior service our customers can depend on. This didn't happen by accident. We've developed sustainable competitive advantages through our differentiated value proposition and operational excellence, allowing us to deliver consistent performance and shareholder value. Now having said all this, today, I'll give a quick recap of our first quarter results, followed by what's driving our optimism for the year. And then Ted will go into more details around the numbers, before we open up the call for Q&A. So let's start with the quarter's results. Our total revenue grew by 7% year-over-year to nearly $4 billion. And within this, rental revenue grew by almost 9% to $3.4 billion, both first quarter records. Fleet productivity of 2.3% contributed to OER growth of 6.5%. Adjusted EBITDA came in at $1.8 billion, resulting in a margin of 44.1%, a 60 basis point improvement year-over-year when you exclude the H&E benefit. And finally, adjusted EPS came in at $9.71, up 10% year-over-year and another first quarter record. Now let's turn to customer activity. We continue to see healthy growth across both our gen rent and specialty businesses. Within specialty, which grew 14% year-over-year, we saw growth across all lines of business and opened 17 cold starts. By vertical, our construction end markets saw strong growth led by nonresidential construction and infrastructure. And on the industrial side, power and mining and minerals were notable standouts, with power continuing to post double-digit growth. We saw a wide variety of new projects kick off in the quarter, spanning health care, infrastructure, power, industrial manufacturing and, of course, data centers. And for you soccer fans out there, we expect to be a key partner for the World Cup starting here in the second quarter. Now turning to the used market. We sold $680 million of OEC at a 51% recovery rate. We're on track to sell approximately $2.8 billion of fleet this year supported by strong demand for used equipment. In conjunction with these sales, we spent $874 million on rental CapEx. This was spread across replacement and growth CapEx, with a focus on specialty and bringing in additional gen rent equipment where we see strong demand. Subsequently, we generated free cash flow of $1.1 billion. We're set up for another strong year of cash generation, which is a critical feature of the company. As a reminder, the combination of our industry-leading profitability, capital efficiency and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle, which can be redeployed in ways that allow us to create long-term shareholder value. Finally, we allocated capital in the quarter consistent with our framework, which starts with a healthy balance sheet. After supporting both organic and inorganic growth, we returned $500 million to shareholders during the quarter through a combination of share buybacks and our dividend. Our leverage of 1.9x remains well within our targeted range, leaving plenty of dry powder to support growth and return excess capital to shareholders. Now let's turn to the rest of 2026. As evidenced by our updated guidance, the year is playing out better than we expected just a few months ago. Feedback from the field continues to be optimistic, particularly for large projects. We're carrying a strong momentum into our busy season and we feel confident we're positioned to win in the marketplace. So to sum it all up, our unwavering focus on our strategy, which includes our differentiated value proposition, positions us well to compete effectively in the marketplace. Our customers know they can depend on us. And our team is executing with strong capabilities. We see multiyear tailwinds for large projects and believe we're well positioned for these opportunities. And we'll continue to monitor and manage our cost structure and operate with capital discipline. I'm confident the combination of our resilient business model, prudent capital allocation and balance sheet strength will allow us to continue to drive profitable growth, generate strong free cash flow and deliver compelling returns to our investors. And with that, I'll hand the call over to Ted to review our financial results, and then we'll take your questions. Over to you, Ted. William Grace: Thanks, Matt, and good morning, everyone. As Matt just shared, we're off to a strong start to the year with first quarter records across total revenue, rental revenue, EBITDA and EPS. More importantly, we're pleased to be raising our full year guidance based on the momentum we're carrying into our busy season and strong customer sentiment. Before we get into the details of the outlook, let's dive into the first quarter numbers. As you saw in our press release, rent revenue increased $274 million year-over-year, or 8.7%, to a first quarter record of over $3.4 billion, supported primarily by growth from large projects and key verticals. Within this, OER increased by $163 million or 6.5%, driven by 5.7% growth in our average fleet size and fleet productivity of 2.3%, partially offset by assumed fleet inflation of 1.5%. Also within rental revenue, ancillary and re-rent grew by nearly 18%, adding a combined $111 million as ancillary growth continues to outpace OER. Pivoting to used, we sold $680 million of OEC in the quarter, generating $350 million of proceeds at an adjusted margin of 47.4% and a 51.5% recovery rate. So solid used results overall. Next, let's turn to EBITDA. Excluding the $52 million net benefit we realized with the termination of the H&E acquisition in the year-ago period, EBITDA increased $140 million to a first quarter record of almost $1.76 billion. This was primarily driven by a $160 million increase in rental gross profit, partially offset by a $12 million decline in used gross profits. Excluding the impact of H&E, SG&A increased $16 million year-over-year, but declined as a percent of revenue, while gross profit from other lines of businesses increased $8 million. Looking at profitability, our first quarter adjusted EBITDA margin was 44.1%, reflecting a 60 basis point improvement year-over-year excluding the impact of H&E. As expected, we continue to see geographically dispersed large projects driving much of our growth while customer demand for ancillary services also remains strong. Nonetheless, as you saw this quarter, with the benefit of strong cost management, we expanded our underlying margins year-over-year. And while we'll always have normal quarter-to-quarter variability in costs, it remains our goal to achieve flat margins for the full year. To give you a little more color on the cost controls, I'll note that we recorded $45 million of restructuring charges in the first quarter, which were primarily related to the consolidation of overlapping facilities and head count reductions. Additionally, we took steps across the organization to control variable costs with a significant focus on labor and outside hauling. And while it's still early in the year, we're pleased with the results of these initiatives. Shifting to CapEx, gross rental CapEx was $874 million, translating to around 19% of our full year spend at midpoint and in line with historical first quarter levels. Moving to returns and free cash flow, our return on invested capital of 11.8% remained comfortably above our weighted average cost of capital, while free cash flow for the quarter exceeded $1.05 billion. Turning to our balance sheet. Net leverage remained very comfortable at 1.9x at the end of March, with total liquidity of almost $3.4 billion. On the capital allocation front, we returned $500 million to shareholders in the quarter, including $125 million via dividends and $375 million through repurchases. Now let's shift to the guidance we shared last night, which reflects our confidence in delivering another year of strong results. Total revenue is now expected in the range of $16.9 billion to $17.4 billion, an increase of $100 million versus our initial guidance, while used sales are still expected at around $1.45 billion. At midpoint, this implies full year growth ex used of roughly 7%. In turn, we've also raised our adjusted EBITDA guidance by $50 million to a range of $7.625 billion to $7.875 billion. On the fleet side, we've increased our gross CapEx guidance by $100 million to a range of $4.4 billion to $4.8 billion, reflecting the stronger demand we see. This now implies net CapEx of $2.95 billion to $3.35 billion. And finally, we're guiding to another year of strong free cash flow in the range of $2.15 billion to $2.45 billion, with the increase in CapEx offset by higher cash flow from operations. Shifting to capital allocation, it remains our plan to repurchase $1.5 billion of shares in 2026. Combined with our dividend, this will return roughly $2 billion to our shareholders this year, equating to approximately $32 per share or a return of capital yield of about 4% based on our current share price. So with that, let me turn the call over to the operator for Q&A. Operator, please open the line. Operator: Certainly. Thank you, Mr. Grace. [Operator Instructions] We'll go first this morning to David Raso with Evercore ISI. David Raso: I want to focus on margins and the cost saving initiatives versus maybe some fuel cost concerns. As you mentioned, right, the margins were up 60 bps year-over-year, incrementals were [ 53 ]. The amount of savings in the first quarter, be it labor, some of the real estate you spoke of, I'm coming up with something like $10 million. So even without that, margins were up 40 bps, incrementals were [ 49 ]. And the reason I go through those numbers is the rest of the year, and I'm just using midpoints, I appreciate that, but the rest of the year, you're now implying margins down 20 bps year-over-year, incrementals only [ 42.5 ]. And I just want to make sure how much we should be looking at the first quarter, is a little bit of an anomaly on savings and the margin? And why would we then, if it's not an anomaly, the margins would be down the rest of the year, year-over-year? William Grace: Yes. I'll start there and then we can go from there. So thanks for the question, David. I'd say, as always, we caution people against anchoring to the midpoint. It goes without saying we're very pleased with the start to the year we've had. And certainly, the underlying improvement, excluding whatever the benefit was from restructuring, and you're probably in a reasonable ZIP code assuming around $10 million of benefit in the first quarter, there's still a lot of game to be played. We feel very good about the trajectory we're on, excellent execution in the first quarter, but we've got to sustain that through the busy season, which is to say the second and third quarter. So if you look at the results, it was really kind of all 3 big areas of costs that provided leverage: labor, delivery and R&M. So we feel like there's a broad-based kind of contribution to the improvement. But again, we've got to sustain that through the busy season. And the area that is probably going to be the most important to focus on will be delivery through the busy season. And so we feel really good about the start to the year. The team is incredibly focused, after taking care of customers, focusing on cost is job #2. So Matt, I don't know if you'd add anything? Matthew Flannery: No, I think you covered it, but I want to anchor on the midpoint and, more importantly, the efforts we put in place that we talked about to help mitigate some of the cost challenges that came with the repositioning and some of the other challenges, the team is doing a good job, and we'll continue to run that play. David Raso: And a follow-up on that, then I'll hop off, can you give us any sense of how you're thinking about fleet productivity after the 2.3% in the first quarter? Cadence full year, whatever you want to provide us would be great. Matthew Flannery: Sure, David. Yes, we feel like the supply-demand dynamics in the market are conducive to driving positive fleet productivity. As you know, our goal is always to overcome that 1.5% inflation bogey that we put out there, and I'm glad to see the team did that in Q1. And frankly, that's our expectation in our guidance when we start every year. So on track, feel good about it. And when I think about it qualitatively, we continue to get positive rate. We feel good. Rates is still a good guy. The time utilization, which we've been talking about running at a high level for a few years now and maybe even thought that would be a headwind this year, I'm pleased to say the team are continuing to achieve high levels of time utilization. And then the biggest change when we think about Q4, which got a lot of explaining and a lot of focus, was really an anomaly, and that's why we talked so much about some of the challenges and mix, and we didn't face those mix headwinds like we did in Q4. So we don't expect to have those headwinds again. But once again, we'll continue to update you guys as we go along. Operator: We'll go next now to Rob Wertheimer at Melius Research. Robert Wertheimer: I'm most curious about some of your customer commentary. And I'm curious about whether what the time line is, especially on some of those larger projects, when you go from having conversations about how they feel to preorders or planning for specific projects as some of that start to happen, is that [indiscernible]? And then I'll just ask my follow-up at the same time. Dirt movement -- dirt equipment started moving upwards a quarter or 2 ago. There's a lot of mixed signals in the industry, but some saw that as a leading indicator. I don't know if you think that's a tangible sign that we start at the bottom and working our way up and that's some of the strengthening demand you're seeing. Matthew Flannery: Yes, Rob. So as far as the planning aspects, as you could imagine, the larger the project, the more time in advance the customers need to communicate with their suppliers, and certainly, equipment suppliers, about what they're going to need. So we'll continue to do that. It's a continuous pipeline of projects, as you can imagine, a continuous pipeline of those conversations. So we have more visibility on those large projects and we feel good about not only our positioning, but the overall demand in the large project area. So we feel really good about that. As far as dirt, certainly, it makes logical sense about dirt being a leading indicator, we're seeing strength across our portfolio, quite frankly. You saw a 6% gen rent number, and that wouldn't -- couldn't happen if it was just driven by dirt. Whether that's a leading indicator for even more acceleration, we really -- I would agree that the pipeline is strong. I wouldn't really extrapolate those numbers to us because we're not seeing a separation. But maybe the dealership network is impacting that number as well, which is good. But overall, we feel good about the demand cycle and we feel good about where we are with major projects. Operator: We'll go next now to Mike Feniger with Bank of America. Michael Feniger: I was just hoping, Ted, if you could just talk about ancillary costs, repositioning costs. Just if we think about the bridge, I know this gets a lot of attention, is that pressure intensifying in 2026 versus 2025? How we mark to market with what we're seeing potentially on the fuel side? And clearly, we're seeing the cost savings come through and that should build. Does that kind of offset maybe any increases that you're seeing there if we look at kind of a bridge on the margins for '26 versus '25. William Grace: Yes. There's a lot to unpack there, Mike, but thanks for the question. So ancillary growth, the relative growth to OER kind of held constant with what we saw last year. And so obviously, a big part of what we focus on strategically is taking care of our customers, and the team is doing a great job there. I would say from the standpoint of thinking about the contribution margin from ancillary, probably very much in line with that 20% we've talked about. No appreciable change in the first quarter. And I don't think we'd be looking for any appreciable change at this point for the year. On the repositioning side, the team did a great job managing across those big 3 cost areas I talked about, and that does very much include delivery. If you look at our rental results, the rental gross margin was up 50 basis points year-on-year. And again, all 3 of those contributed. But delivery, which is the area where we see kind of the most focus on execution, improved about 10 or 15 basis points as a percent of revenue year-on-year. So a great job given the fact that we did see almost 9% rental revenue growth. When you dig into the details, the biggest portion of repositioning will be and has been in specialty, and you saw that in numbers. They were still probably about 30 basis points behind the curve, but that's a huge improvement versus what we saw last year. If you think about the drag on margins last year within specialty, it averaged about 150 or 200 basis points year-on-year per quarter. And now we're talking about a number that's probably in the order of 30 basis points. So they're doing an incredible job managing that, because there is a healthy amount of repositioning this year, we've talked about kind of the demand drivers, and we've talked about the focus on capital efficiency, fleet efficiency, and that will continue to be the case. On fuel, something we're obviously monitoring and managing very closely. The majority of our exposure, as you know, Mike, is a pass-through. So that gets managed a couple of different ways, but the delivery calculator is the most obvious one, and that's something that we update regularly to help pass through kind of the higher costs we could incur based on higher diesel prices. And then on the internally consumed diesel, we manage that through an active hedging program. So a lot of focus there. The team is doing a great job, and we feel like we're able to -- we should be able to manage through any reasonable situation there. Matt, anything you'd add? Matthew Flannery: No, I think you covered it well. Michael Feniger: Great. And Matt, just for my follow-up, I know we talked about rate, I mean there's been a discussion around competitive dynamics, particularly on the gen rent side and competition there. You mentioned the fleet productivity and rate being a good guy. Are you seeing anything on the ground on maybe intensifying competition on gen rent? Or is this the one-stop shop model that you guys have been building kind of separates you a little bit from maybe some of that competitive intensity? Just curious if you can kind of comment on that. Matthew Flannery: Yes. I mean I've been doing this for 35 years and there's always somebody that wants what you have, right? So what you need to do is differentiate yourself. And to the end of your point there, we spent a lot of time building a competitive moat around our offering and making sure that we're targeting our customers' needs, but also targeting the customers that value that. And we feel really good about where we're positioned. We think the major project pipeline plays into our opportunity to solve, give more solutions to our customers. So we feel good about our positioning and where we are. And the supply-demand dynamics, as I said earlier, to David's question, we feel good about the supply-demand dynamics in the industry, and that should continue to drive positive fleet productivity. Operator: We'll go next now to Steven Fisher of UBS. Steven Fisher: Congratulations on the quarter. Just a follow-up on the rest of the year. You mentioned, Ted, that delivery is really going to be one of the key focus areas. Can you just talk about what are the keys to making sure that that works out favorably in the way you want it to? And then in terms of just any other additional inflation for the rest of the year, to what extent do you have an expectation that will be addressed by rate? Or will that remaining $15 million or so of planned cost reductions cover that extra inflation? Matthew Flannery: Yes, Steve, I'll take the first part of the delivery because I think it's important just to understand, we're not going to eliminate the challenges of repositioning and delivery. The point is to mitigate it. So the good news is we put some new processes in place, and those have worked in Q1. And I think Ted was referring to the challenge in Q2 or Q3, is to continue to do that when the system gets even busier. And we have a lot of focus there. But there still will be repositioning costs. The other cost actions we've taken are really to also help mitigate that because we still want to drive capital efficiency. We still want to move fleet versus just buy more fleet when you land new deals. So that will continue to be a focus for us. So it will be two-pronged. It will be the execution of doing -- moving fleet more efficiently as well as making sure any other cost opportunities there to help mitigate supporting that demand are there. So we can continue to run the business to support our customers in an efficient manner. And then, Ted, you could talk to other inflationary items. William Grace: Yes, Steve. So I'd say outside of fuel, really the year has played out as expected from an inflation standpoint. The areas that we've talked the most about, obviously, you've got the labor piece, and we've been able to manage that really effectively. You can see that in our first quarter results. If you look at the numbers across the business, we got the better part of about 50 basis points of labor absorption. We talked in January about the importance of that. We're off to a good start. So very pleased there, that even in the face of ongoing inflation on the labor front, we're getting that kind of pull through. The other areas that continue to be inflationary, we've talked about real estate, we've talked about insurance being 2 of the other big ones. Those again were built into the plan that are playing out as expected. So I don't think there's anything to point to there. In terms of the $15 million of cost reductions you mentioned, I'm guessing you're talking about the incremental restructuring expense that we would have called out. So I just want to clarify that, and if that is the case -- okay, perfect. So obviously, you would have seen the $45 million of charges we took in the first quarter. For the full year, we're expecting $55 to $65 million. So at the midpoint, you'd say $60 million. So there's another $15 million to go. When you look at the first $45 million, about 2/3 of that would have been real estate related. That's the closure of overlapping facilities that we did in the first quarter. And the balance, the other 1/3, was head count related. So probably those are the 2 big buckets that we'd be looking at across the rest of the year, although it's more likely to be real estate, probably in headcount, we're in a good position, but we'll have updates there periodically. And all that was built into our expectations. So for the year, just to -- I think David had a pretty good estimate of what the first quarter benefit was, around $10 million, for the full year, we've estimated that the full year benefit would be on the order of $45 million to $50 million. So that is -- that was built into the initial expectations. We're on track, and you'll see that kind of come in, in a linear fashion across the balance of the year. Steven Fisher: That's perfect. And then just maybe a bigger-picture question about these facility closures. I'm curious about the trade-offs here. I assume these are branches closing. Clearly, you get lower cost. But I guess to what extent have you found ways to mitigate the lost revenues or other benefits from having less branch density? And if you have found ways to mitigate that, is that sort of -- is there a broader applicability to your whole footprint or even the whole industry? Or is this a situation where the trade-off, we just needed to lower costs? Matthew Flannery: Yes. There wasn't really -- the good news is there wasn't too much of a trade-off here, other than maybe some shop space because we didn't exit any markets. So no attrition that we're worried about here. 95% plus of our equipment is delivered. So that consolidation didn't have a revenue impact. And we really were specific and surgical in doing it in markets where, through acquisitions, we may have held on some extra real estate. And as we looked at it, we just didn't need it. We still have some headroom even after the consolidation for growth because we do expect to continue to grow. So we're talking about, in a business of 1,700-plus branches, or let's just keep it to North America, right, so a little less than that. we closed a couple of dozen branches. So not a big deal, but it was -- it's a good question because that was one of our points. Let's not hurt the business. But if we have excess that we don't need to utilize, let's not hold on to it. And that's the way we looked at it. Operator: We go next now to Jerry Revich of Wells Fargo Securities. . Jerry Revich: Matt, Ted, I'm wondering if you could just unpack outstanding performance in dollar utilization in the quarter. Saw that accelerated by about 1 point versus normal seasonality, and first quarter tends to be a pretty tough quarter to get rate overall. Can you just unpack the cadence of demand over the course of the quarter? And it sounds like the quarter played out better than what you thought would be when we were together at the end of January for last quarter's call. Could you just unpack what were the positive demand or pricing variances that you saw over the course of the quarter across gen rent and specialty, if you don't mind? Matthew Flannery: Yes. So we won't get into that last part of the question numerically. But even though we don't give the components of fleet productivity, let's be clear, we still focus on it relentlessly at the branch level: capital efficiency to drive high time utilization, and as well as we have a very unique offering, let's make sure we get paid for it. So we still focus on rate and time at the branch level, we just don't call it out that way. But as I said earlier, we -- this only continues to be a strong focus for us. But the demand that's out there is another part of this, with the supply-demand dynamics are good. And we're going to make sure that we utilize that opportunity. As far as the dollar utilization, it's really an output of that, ted, I don't know if there's anything you want to cover specifically on dollar utilization. William Grace: Yes. I guess you're doing the imputed version of this, Jerry, but obviously, it comes back to a lot of things Matt talked about. But we're pleased to build the fleet on rent in the quarter. You can see the rental revenue growth was strong at 8.7%, and we had strong fleet productivity. So it came together, obviously, to support what was a nice improvement in that dollar ut. And another way to express that is the fleet productivity. Matthew Flannery: Right. Jerry Revich: And then in terms of just to circle back on the discussion on fleet productivity over the course of the year, and we can look at dollar, as you said, as a proxy for that. So the comps get pretty easy as we head into the back half of '26 for the industry. And so now that based on the range of industry data, supply-demand having improved, normal pricing on a monthly basis and an upturn does suggest there's potential for fleet productivity to accelerate significantly over the course of the year. I know it's early on and things have to fall in place, but I just want to circle back to the earlier comments about north of 1.5% fleet productivity targets. It feels like our exit rate in the first quarter really points to a sharp acceleration as we head through the year, again, if normal seasonality in an up cycle plays out. Matthew Flannery: Yes. Embedded in our guidance and, frankly, our goal, every year and as we plan with the team is to make sure we overcome that inflation. And in the simplest way, we want to grow rent revenue faster than we grow fleet, right? And it's not any more complicated than that. We'll continue to manage that. But the other components of fleet productivity, then rate, there's a lot of focus on rate. We've been running time at a high level. I'm very pleased to say it's not a headwind for us. But if we get to a point like we did in '22 where it's a negative trade-off, then we'll manage that appropriately. We got to make sure we're responsive to our customers' needs. But we think we can do that. We've been doing it for years. Mix is the wildcard, and that's why we don't try to predict this. We had no expectation of having 0.5 in Q4. That was all mix related. So outside of that, we feel good about the dynamics to drive positive fleet productivity. And as we get the results, we'll explain to you guys if it comes out different than we expected, positive or negatively, with the mix dynamic. That's really the part that's very hard for us to predict. But we do feel good as embedded in our updated guidance about the opportunity to outpace inflation. Operator: We'll go next now to Ken Newman of KeyBanc Capital Markets. Kenneth Newman: So maybe going back to the inflation piece here. I know there's been some broader market worries around some of these new Section 232 methodologies, and I'm assuming you're already protected from any potential surcharges from suppliers just given that you locked in those prices at the end of last year. But when I think about the fact that you are seeing a little bit stronger growth to start the year out, can you maybe just talk a little bit about your ability to maybe accelerate fleet growth if needed? And if you can still be price/cost positive if inflation starts to ramp further from here? Matthew Flannery: Sure, Ken. Well, as you accurately mentioned, right, we do lock in our prices for the year. And embedded in that, we talk to our key suppliers, but most of our vendors, but about we want the ability to flex up, and we certainly have contractually the ability to flex down, although that certainly doesn't need -- seem to be in our immediate future. But that flexibility and our vendors' ability to respond to those flexes is a real important part of the relationship we have with our vendors. So we do think if the end market plays out that way and demand continues to outpace our expectation, like it did here in Q1, we certainly have the opportunity to flex it. Kenneth Newman: And just to clarify on this last question, I mean, are you -- again, I mean, I know it's early in terms of people trying to look through this, but are any of your suppliers coming to you and -- or pushing for surcharges at this point? Or is it just still too early? Matthew Flannery: Well, we don't talk about our negotiations with our partners, but we are very, very disciplined about sticking to our original deal. So I would -- we're not really -- we're not worried about that. Kenneth Newman: Makes sense. Okay. And then for the follow-up here, it's -- maybe just talk a little bit about the M&A pipeline. The free cash flow profile still seems pretty strong here. How active is the pipeline versus when we last talked to you a quarter ago? And I'm curious if the macro environment today makes it harder or easier to do deals. Matthew Flannery: Yes. I wouldn't say the macro -- the pipeline hasn't changed really over the last couple of years, with the exception of COVID. The deal pipelines remain pretty consistent. The real challenge for us isn't how many deals to look at, it's expectations and how many get -- of us, of what we expect to do a deal and the returns we expect on a deal and to get that willing dance partner. But there's no lack of opportunities to look at. And we continue to work the pipeline. We've got a great M&A team and business development team. And as you can imagine, we'd lean towards specialty, specifically adding in new products. But we'll do tuck-ins as well in the gen rent business if it fills a need and gives us capacity in a growing market. So stay tuned. To your point, we have plenty of dry powder and we'll continue to work the pipeline. Operator: We'll go next now to Kyle Menges of Citigroup. Kyle Menges: Great. Maybe first off, could you talk a little bit about just if you're seeing anything particularly in local markets? Any early impacts from the geopolitical uncertainty and a fading rate cut theme impacting those markets? And I think you had embedded roughly flat local market growth in your previous guidance. Any change there? Matthew Flannery: No. We think the local market continues to be stable. It's -- that's a positive thing, right? Whereas maybe earlier last year, the year before, you were seeing some markets that were still being impacted negatively. But overall, I'd say the local markets stabilized, and that was our expectation. And the project pipeline on the major projects as well as our specialty growth continue to drive some of the growth drivers that we've been not only executing on, but that we expected for this year. So we feel good about the end market. Kyle Menges: Great. That's helpful. And then certainly a theme that's had a bit of a resurgence recently is just OEM dealers pushing more into rental or expanding their rental fleets. Just how do you see that impacting competitive dynamics in the industry? And I'm also curious roughly what you think your product overlap is with the typical OEM dealer rental fleet. Matthew Flannery: Yes, really not much overlap there. It's something that we're aware of, and there's a handful of them around the country that do a good job locally and regionally. But it's not something that, in our competitive dynamics or if we were doing a competitive analysis, really doesn't fall high on our radar, unless maybe in a specific local market's competitive analysis. So nothing there really to talk about from our perspective. Operator: We'll go next now to Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Congrats on a strong quarter here. Just hoping to go back to the M&A question, but maybe a little bit backward-looking. Could you just talk a little bit about, I think, the $700 million -- roughly $700-ish million in acquisitions you've done over the last 2 quarters? Just any color on what those assets are? How much they may be contributing to sales? And just any details you can share on those? I guess, in particular, I'm trying to understand if you think about kind of gen rent and specialty organic versus inorganic split this quarter and kind of the expectation, for how much maybe was already baked into the guide versus maybe how much might be partly driving that revenue increase? Just trying to understand the bits and pieces there, and any impact to that or your business on dollar utilization would also be helpful. Matthew Flannery: Yes. Sure, Angel. So on the M&A piece, as you saw, we spent about $400 million in the first quarter, slightly less than that. Those were 4 small deals, the majority of which, 2 of them, the 2 larger ones, were done in the first week of January. So those were already embedded in our guidance. So you're talking about a small amount of impact on the rest of the year for those other 2. And then when you think about deals over the course of all of last year and this year, we're talking about like 1% of revenue growth. So not a huge number, but still, strategically, things that we decided to do. So to answer the latter part of that question, not a -- a contributor in some way, but not the reason for our beat or for our updated guidance. And Ted, anything you have to add? William Grace: The last piece on the impact on dollar ut, I think, very de minimis. I mean to Matt's point, it was a handful of small acquisitions, none of which obviously are even collectively are going to move the needle in any appreciable manner. Angel Castillo Malpica: Very helpful. And then I wanted to go back to the demand question. You talked about seeing I guess, in the mega projects area continuing to see, I guess, strength and things coming in maybe a little bit better than you had expected, as well as strengthening some of the end markets. Could you just give us a little bit more color on kind of the various key end markets, how you're seeing that play out? Any particular pockets where you saw a little bit more strength than you had anticipated than the seasonality? And whether that was projects moving faster, weather allowing it or just perhaps your execution, win rates coming in better than you had anticipated? Just trying to understand, I guess, the underlying demand side versus maybe some more idiosyncratic, again, URI execution, win rate type of things? Matthew Flannery: Well, I think the large project pipeline has been talked about pretty broadly. And everybody, certainly, data center has been a big part of that and everybody focuses on that. But as I said in my opening remarks, it's a lot broader than just data centers. And non-res construction overall, even ex data centers, is still really strong. So the growth in non-res is pretty broad. And then when I think about the other end markets that have added to growth, I talked a little bit in my opening remarks about infrastructure, and power continues to grow at double digits. So power has been a really strong end market that we've been focused on for a while now. So those are really what the drivers are. And then when you think about -- this is without petrochem really picking up yet. That's still a bit of a drag on a year-over-year basis. So we think the project pipeline and then the opportunity in petrochem to pick up will continue to give us growth for the foreseeable future. Operator: We'll go next now to Tami Zakaria of JPMorgan. Tami Zakaria: Congrats on the great results. I'm curious about the World Cup that you mentioned, should we model a sizable maybe onetime tailwind from that in the second quarter? And related to that, do you expect the event to drive demand for both specialty and gen rent or one or the other? Matthew Flannery: Tami, in the scale of our company, I wouldn't model anything extra for the World Cup. It's already been embedded in our guidance. As you can imagine, for large events like that, we knew before the year started that -- what we were going to need to support those folks with. But in the scale of our business, there's not any 1 project or event that's going to make a meaningful difference. That's a great part of having such a broad portfolio. I hope that answers your question. Tami Zakaria: It does. And a quick one, the $100 million increased gross CapEx, is that driven by general rental or specialty? Matthew Flannery: Across the portfolio. Now specialty is growing at a faster clip, so -- and we did 17 cold starts. So it's always going to have a little bit more of our outweighted growth CapEx to support those cold starts and the growth. But we're also going to spend some money on some gen rent products that are tight, specifically for some major project support. And so it will be spread across the portfolio with a little more heavyweight specialty. Operator: We'll go next to Tim Thein of Raymond James. Timothy Thein: The first question, just a follow-up on the delivery cost recovery. I'm just curious, Matt, if you could maybe speak to how the company is positioned today versus, we look back at historical periods when diesel and flatbed trucking rates really spiked, just how the company has evolved in terms of -- it's been some years we've talked about some of the tools that you guys have had built out. So maybe just is there a way to kind of handicap just in terms of how you, again, position today versus how maybe it would have been different in years past when we look at those periods of higher cost inflation? William Grace: Yes. Tim, I can start there and then Matt can definitely fill in some more blanks. But obviously, we've long focused on costs and certainly making sure that we're managing delivery effectively. So I think if you were to look at analogous periods, 2022 would probably be the first one that comes to mind in terms of a year where you saw a meaningful increase in diesel prices, and you could say what happened in that episode. So on-highway diesel prices increased over 50% in 2022 year-on-year. If you were to look at the impact that had on our fuel line, it would have been probably like a 15 basis point increase as a percent of revenue. And so you can see it's something that is -- was highly managed at that point. Delivery costs on the whole moved in a similar amount. And I think if you were to look at our margins in 22 ex used, they increased considerably. So not that you can draw parallels between every period, but certainly, I think it serves as a good example of our ability to manage through these kinds of environments pretty effectively. Matt, anything you'd add there? Matthew Flannery: No. No, I think you covered it well. Timothy Thein: Okay. Then just on the specialty segment, so the revenue is up, I think, call it, 14% year-over-year. If I look at the ending asset base, which maybe wrongfully using as a proxy for OEC, but it was up like 16%. And so I'm just -- my assumption has been that specialty tends to generate higher levels of asset efficiency, which I'm sure you would endorse. So I'm just kind of struggling with why that -- I would have thought that relationship would have been a bit different. Is there something within that that maybe you would call out? I'm just trying to think through why you wouldn't see higher level of revenue relative to the investment in that business. Hopefully, that makes sense. William Grace: Yes. Well, I'd say intuitively, your assumption is correct that you do tend to get stronger dollar in those assets. and you can see that productivity historically. Truthfully, I'll need to come back to you on that. I'm guessing it's probably a function of timing, but I can't think of anything on an underlying basis that would have turned that relationship upside down. So if it's okay, Tim, I'll come back to you on that. Operator: We'll go next now to Jamie Cook with Truist Securities. Jamie Cook: Congrats on a nice quarter. I guess first question, Ted, it was the first quarter in a while I think we've seen the gen rent margins improve year-on-year. So any way -- I mean, should we -- how should we think about the gen rent margins as we progress throughout the year? Is there any reason why the first quarter was an anomaly? And then I guess my second question, obviously, the first quarter came in better than expected. I know there was that pipeline job that had a softer start in the fourth quarter. I'm just wondering how that job is going, whether the first quarter outperformance is because that job restarted and potentially there's a catch-up in whatever we saw in the first quarter then for that reason isn't sustainable too, because it's like you raised your guidance, but you raised it by the beat or sort of less than the beat. So just trying to work through that. William Grace: Sure. So I'll start off, and Matt, please jump in. In terms of the rest of your gen rent margin, we don't provide kind of segment margins, as you know. We talked about the focus the team had starting in January on both sides of the business. But you asked about gen rent, and they really delivered, right? If you look at that gen rent gross -- rental gross margin being up 150 basis points, it was roughly equal contribution from labor, delivery and leveraging depreciation. And within that, still R&M was a positive. So the team really did a great job. And that will continue to be the focus. As I think we talked about earlier, the key will be sustaining a lot of this through the second quarter and delivery being kind of the one that will take probably the most focus. So if you look at that in the first quarter in gen rent, that was about 50 basis points of leverage. The team did a great job. We've got to sustain that through the busy part of the season as we get deeper in the year. But what I would say on the whole, as we've talked about, the goal is flat margins for the full year. excluding the H&E benefit from last year. That's on an EBITDA basis, so it's across the business. Certainly, our goal across both segments would be to perform very well. So that was the first part. On the second part, the matting project that we talked about in January that affected the fourth quarter from a timing perspective, we've been delivering assets to that project. It has not entirely kicked off yet, but we've been mobilized. With that said, as we talked about in the fourth quarter, matting was down year-on-year in the fourth quarter. It was not -- it was up in the first quarter. And so that obviously was a big factor in the swing of fleet productivity that Matt talked about, that headwind we absorbed in the fourth quarter, just as a function of the timing of that start that we thought would have been in 4Q, ended up it will be 2Q. And then as it relates to, I think, the follow-through of the quarter, hard for us to speak to anybody's external expectations. If you think about the $100 million revision to revenue and the $50 million to EBITDA, part of that was by the first quarter being a little stronger. You can see that we raised CapEx, so obviously, that's going to contribute after the first quarter. But we're off to a great start. We feel really good about where we're heading. And those are the 2 big components within that revision. Matt, anything I missed or you'd add? Matthew Flannery: No, you covered it well. William Grace: Jamie, did I miss anything in there? Jamie Cook: No, I'm good. Operator: We'll go next now to Steve Ramsey of Thompson Research Group. Steven Ramsey: On time utilization holding or being a positive, would you say that's mega project driven slowly? Or would you say that local market stabilizing kind of any breakout on time utilization drivers? Matthew Flannery: I mean it's everything, right? Because it's about having the right fleet in the right places for where demand is showing up. So it's good planning. It's good discipline, about only bringing in equipment when you need it, from the branch managers and the district managers out there. So I'd say it's across the whole portfolio. We couldn't drive this level of time utilization from just one or the other end market sector. So it's across the board, Steve. Operator: We'll go next now to Scott Schneeberger of Oppenheimer. Scott Schneeberger: A couple of questions. One on just following up on the branches and, Matt, some of the things you're saying earlier. Just to get a little more clear, was it more gen rent, more specialty? I inferred specialty from the commentary, but just a little bit more clarity. And your -- I think you've said you're going to do fewer cold starts this year than last year. And following up on Steven Fisher's question of your answer there, what is kind of the strategy? Can you do more with less or will we see in kind of out-years a reacceleration of the cold starts? Matthew Flannery: Sure, Scott. So on the first part about the branch closures, it actually wasn't more specialty. And if you think about that, it's a lot of the -- it was split pretty much across the portfolio. But as you think about the acquisitions we did, we just held on to some of those Ahern facilities maybe longer than we needed to as we were going through that integration. And I would think about things like that, and then some of the smaller deals that maybe you guys don't get a visibility to. So you want to work your way through it. We don't buy companies for cost-cutting measures. We buy them to help support growth. And sometimes we hold on to that real estate and find out in the long term we don't need it all. And so it's a couple of dozen branches and against a huge portfolio. So not to make too much about it, but it was very surgically viewed and no risk of revenue there. We wouldn't have closed one if there was risk of revenue. And then as far as on the cold starts, we did 17 in the quarter. I think we had -- in January, said we were targeting around 40. There's a continual pipeline of that. If the team gets ahead of schedule and ahead of that pipeline, we'll raise the number as we go. But I wouldn't say that there's any change in how we're viewing the opportunities. It's just a matter of the execution, of finding the real estate, finding the people, but there's a pipeline for each one of the specialty businesses about where there are opportunities to grow and where the other markets they'd like to get into. And we just work through that in a very methodical manner. Scott Schneeberger: Great. I appreciate that incremental clarification. My follow-up is just on the smaller projects, smaller customers, a lot of talk on this call about a lot of demand activity with the large. Curious what you're seeing and hearing from the smaller customers on their environment. Matthew Flannery: Yes. I think they feel good about the end markets. It's just, in general, I would say it's about where our expectations were, that, as an aggregate, the local market business has stabilized. We're not -- we don't see many markets where there's negative growth or we need to pull fleet out of because their local market is not going to be able to absorb it and they don't have a lot of projects. So we feel good about that across the board. I would continue to call that stable, which is consistent with what our expectations were for the year. Operator: And gentlemen, it appears we have no further questions this morning. Mr. Flannery, I'll turn things back to you, sir, for any closing comments. Matthew Flannery: Thank you, operator, and thanks to everyone on the call. We appreciate your time today and I'm glad you could join us. Our Q1 investor deck has the latest updates. And as always, Elizabeth is available to answer your questions. So look forward to speaking to you all in July. And until then, please stay safe. Operator, please end the call. Thanks. Operator: Thank you, Mr. Flannery. Thank you, Mr. Grace. Again, ladies and gentlemen, this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Welcome to the Ardagh Metal Packaging First Quarter 2026 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Stephen Lyons. Please go ahead, sir. Stephen Lyons: Thank you, operator, and welcome, everybody. Thank you for joining today for Ardagh Metal Packaging's First Quarter 2026 Earnings Call, which follows the earlier publication of AMP's earnings release for the first quarter. I'm joined today by Oliver Graham, AMP's Chief Executive Officer; and Stefan Schellinger, AMP's Chief Financial Officer. Before moving to your questions, we will first provide some introductory remarks around AMP's performance and outlook. AMP's earnings release and related materials for the first quarter can be found on AMP's website at ardaghmetalpackaging.com/investors. Remarks today will include certain forward-looking statements and include use of non-IFRS financial measures. Actual results could vary materially from such statements. Please review the details of AMP's forward-looking statements disclaimer and reconciliation of non-IFRS financial measures to IFRS financial measures in AMP's earnings release. I will now turn the call over to Oliver Graham. Oliver Graham: Thanks, Stephen. We're pleased to report strong first quarter results for AMP with adjusted EBITDA growth of 15% versus the prior year, significantly ahead of our guidance and demonstrating the resilience of our business. Beverage can sales declined by 1% versus the prior-year quarter, in line with our expectations as we cycled strong prior year growth of 6% and due to the impact of contract resets in North America. Our adjusted EBITDA outperformance in the quarter was driven by Europe, which benefited from strong input cost recovery, including a favorable timing impact from the revaluation of freight cost-related hedging as well as favorable volume mix effects. Performance in the Americas was broadly in line with expectations. Brazil delivered strong results driven by above-market volume growth, which was offset by the impact of a more challenging operating environment in North America where adverse weather conditions and aluminum supply chain disruptions drove higher operational costs. While the supply chain situation is improving, we do expect to see further impact into Q2. The conflict in the Middle East did not have any material impact on our Q1 performance. AMP has no manufacturing operations in the Middle East and no significant direct supply chain exposure. We continue to monitor the geopolitical environment and the associated volatility in input costs, in particular, energy, freight and certain direct materials. AMP's exposure to the recent increase in energy prices is small given our hedge positions for 2026 and beyond. However, we do anticipate some moderate input cost increases in the second half as a result of the impact of the Middle East conflict on certain direct materials. Now looking at AMP's quarter 1 results by segment. In Europe, first quarter revenue increased by 18% to $625 million or by 6% on a constant currency basis compared with the same period in 2025. This was due to favorable volume mix effects, including the impact of the IFRS 15 contract asset and the pass-through of higher input costs, including higher aluminum prices. Shipments declined by 1% for the quarter, which reflected the ramp-up of new contracts and the cycling of a strong prior year comparable of 5%. We experienced good growth in carbonated soft drinks and the energy category and across our diverse range of smaller growing categories. Through this strong underlying growth in nonalcoholic categories as well as our commercial actions and network enhancements, our portfolio saw a favorable mix shift in the period and good growth in specialty can volumes. First quarter adjusted EBITDA in Europe increased by 53% versus the prior year to $75 million, strongly ahead of expectations. On a constant currency basis, adjusted EBITDA increased by 36%, principally due to higher input cost recovery and favorable volume mix, including the impact of the IFRS 15 contract asset, partly offset by higher operational and overhead costs. Our input cost recovery in the quarter benefited from a favorable timing impact from the revaluation of freight cost-related hedging. Regarding our direct energy exposure, AMP is well covered for its energy needs in 2026 and beyond. For 2026, we're over 85% covered for our energy requirements; for 2027, over 75%, and we're more than 60% covered for 2028. In 2026, in terms of volume growth, we reaffirm our expectation of around 3% in Europe. Capacity remains tight in the region, and we are therefore optimizing our network to better serve higher-demand can sizes in faster-growing categories. In our last update, we highlighted our intention to add additional capacity within existing facilities in the attractive markets of Spain and the U.K. on a measured basis over the coming years. We continue to progress these plans, which are underpinned by our favorable market positions and our confidence in Europe's growth outlook. In the first 2 months of the year, beverage packaging scanner data across our markets continue to show share gains for the beverage can versus other packaging substrates. In the Americas, revenue in the first quarter increased by 19% to $879 million, principally reflecting the pass-through of higher input costs to customers, including the impact of the higher Midwest Premium and favorable volume mix effects. Americas adjusted EBITDA for the quarter was broadly in line with expectations with a 2% decrease versus the prior year to $104 million, primarily driven by higher operations and overhead costs and lower input cost recovery, partly offset by favorable volume mix effects. The strong performance in Brazil, driven by 14% shipments growth and increased fixed cost absorption was offset by a more challenging operating environment in North America. In North America, shipments decreased by 5% for the quarter. This reflected lower volumes after expected contract resets, the impact on operations from supply chain challenges and the cycling of a strong prior-year comparable of 8%. Supply chain challenges in the period included the impact of disruptions to metal supply and adverse weather at the beginning of the year. Underlying demand dynamics in the industry remain robust with strong industry scanner data year-to-date with the exception of the beer category to which AMP has only a low single-digit exposure. In particular, the energy category continues to record strong growth supported by broader distribution and further innovation. AMP continued to enjoy good growth in the energy category in the quarter, reflecting our broad positioning across the category. Looking into 2026, we continue to expect industry growth of a low single-digit percent. As previously indicated, we expect some softness for AMP following contract resets. We anticipate 2026 being a transition year with a small volume decline and with a more favorable second half volume versus the first half. We expect to return to growth in 2027, at least in line with the industry on the back of additional contracted filling locations and our attractive portfolio. Of note in North America was that on April 6, 2026, the court entered a jury verdict pending any post-trial motions in connection with the lawsuit filed against Boston Beer in 2022 for breach of contract in respect of minimum volume purchase requirements. And the jury awarded damages of approximately $175 million to AMP, plus pre-judgment interest if assessed. In Brazil, first quarter beverage shipments increased by 14%, which represented a strong improvement versus the fourth quarter and was also ahead of the industry due to our customer mix. Industry data indicates that following a strong start to the year in January and February, March activity was softer and resulted in an overall modest decline in volumes in the first quarter. Looking into the remainder of 2026, we continue to expect industry growth of a low to mid-single-digit percentage and for AMP's volumes to broadly track the market. I'll hand over now to Stefan to talk you through our financial position for the quarter before finishing with some concluding remarks. Stefan Schellinger: Thank you, Ollie, and good morning, good afternoon, everyone. We ended the quarter with a robust liquidity position of $488 million, in line with expectations. We note that in addition to our strong liquidity position, we have no near-term bond maturities and the currency mix of our debt broadly matches the currency mix of our earnings. During the quarter, AMP completed the refinancing of the asset-based lending facility, which was upsized to $450 million and with its maturity date extended to January 2031. Net leverage of 5.7x net debt over the last 12 months adjusted EBITDA compares with 5.5x in the prior year quarter, with the increase reflecting the impact of the refinancing of the preferred shares in December. Excluding this impact, the underlying net leverage metrics slightly declined year-over-year. In terms of 2026, we approximately expect the following for the various components of free cash flow, total CapEx of $200 million, including growth investments, cash interest of $220 million, lease principal repayments of approximately $115 million. Lease payments were higher in the first quarter versus the prior year, which reflected the buyout of an existing lease in North America. Cash tax of approximately $30 million and a small outflow in working capital. Finally, today, we have announced our unchanged quarterly ordinary dividend of $0.10 per share. And with that, I'll hand it back to Ollie. Oliver Graham: Thanks, Stefan. So just before questions, I'll just recap on AMP's performance and key messages. Firstly, adjusted EBITDA of $179 million in the first quarter exceeded our guidance range of $160 million to $170 million, driven by a strong performance in Europe. Global volumes declined by 1%, in line with our expectations, reflecting the impact of a strong prior year comparable of 6% and the impact of contract resets in North America. Thirdly, AMP has no manufacturing operations in the Middle East and no significant direct supply exposure. AMP's energy cost position is protected through a strongly hedged position in 2026 and beyond. For 2026, we reaffirm our adjusted EBITDA to be in the range of $750 million to $775 million. Adjusted EBITDA growth is expected to be driven by operational efficiencies and cost savings, volume growth and improved category mix. We view 2026 as a transition year in North America with volumes ahead of an expected return to growth, at least in line with the industry in 2027. In terms of guidance for the second quarter, adjusted EBITDA is expected to be in the range of between $210 million and $220 million versus the prior-year quarter of $212 million on a constant currency... [Technical Difficulty] Operator: Please stand by. Oliver Graham: We think we lost connection -- so we're just opening the call up to questions now. Operator: [Operator Instructions] And our first question comes from Matt Roberts from Raymond James. Matthew Roberts: In the prepared remarks, you noticed modest cost increases in the second half. Can you give any additional color on what specific categories those are in? Is it more pronounced in a certain region? Or what is not covered in pass-through or has a lag in recovery, whether that's freight, energy, coatings? Any additional detail there? Oliver Graham: Sure. Yes. That's mostly in our coatings area. So I think, as I said in the remarks, we're very well covered on the energy side. There are some pass-through provisions in coating contracts in year that will potentially come through in the second half if oil prices stay very elevated. But they obviously haven't changed our guidance range. So that gives you a sense of the scale. Matthew Roberts: Right. I appreciate that. And you did note that you did reaffirm the guide. 1Q came in a little bit better than you were expecting. sounds like volumes broadly are similar as well. Has anything changed on the volume outlook by region? Or based on the 1Q beat, would that imply the cost headwinds are around roughly $15 million. Could you ballpark that, if possible? Oliver Graham: No, sure, Matt. Look, I think it's -- we're just at Q1, there's plenty of the year to go. So I think that's one reason just to remain a little bit cautious given the state of the world. There's a little bit of input cost inflation we expect in the second half. I think we have to accept that the consumer is facing into a lot of inflation at the minute. So we can't be absolutely sure though. We didn't see a reason to change our volume guides because when we looked at the Q1 market data that we could see in our numbers, we saw a lot of strength in that data. And Europe, I think, particularly, we've got data in January and February in our key markets. There's some real double-digit growth rates in some of those markets in particularly soft drinks categories. Brazil obviously had a very strong January and February coming off a very strong November, December. So in other words, a very strong summer. We're going into the winter season. We do have the World Cup in the winter season, which should be favorable. And North America, again, the volume number is still extremely strong across soft drinks categories, particularly energy, especially going into the Easter period, strong promo activity. So although I think it's appropriate to be cautious at this stage of the year, we definitely saw no reason to really change the volume numbers on a concrete basis. So I think, yes, we're just being cautious around possible input cost inflation in H2 and recognizing that the consumer may be under some pressure during the year. Operator: [Operator Instructions] We'll take our next question from George Staphos with Bank of America. George Staphos: Congratulations on the progress so far this year. I'll ask three questions in sequence and return to queue just for time. First of all, can you talk about what the impact was on the timing effect on the hedge revaluation in Europe? How large of a factor was that? Is there any residual into the rest of the year? Secondly, Ollie, you talked -- touched on it a little bit. Can you talk about what World Cup and to some degree, America's 250 is meaning for volume relative to what a normal summer might look like? And then third point, Brazil, can you talk a little bit about how things softened there in the market? What's causing that? And any outlook that you can take into, obviously, now the weaker winter months and the implications for the rest of the year? Oliver Graham: Sure. Thanks, George. Yes, on the first one, I think sort of mid-single-digit millions of benefit in the quarter from the European freight hedging position coming from, obviously, we're careful around hedging some of the positions that are on us. There is some possibility of that -- some of that reversing depending on what happens to commodity costs in the year. So some of that is potentially a timing impact, which is why we're not overrating it in our forward guidance. So that's the sort of order of magnitude for that. I think the World Cup and maybe Brazil, those questions get a bit intertwined because I think where it has the potential to be probably most impactful is in Brazil, given that it's falling in the winter period, given the sponsorship of the Brazilian national team and the focus on the World Cup and assuming they go deep into the tournament. So that's why we would be hopeful that this slightly negative start to the year on the full quarter after a very good January and February would be moderated into Q2 and Q3. And we'd also be hopeful after the summer we had, that we've just come through that next summer would also be a good summer. So we think some of the macro elements are stabilizing. We've also got some elections. So -- and then we do see in the data that we continue to have the can take share from returnable, and we know that's a long-term trend that will continue. Obviously, the major brewer down there controls some of that dynamic and obviously, they have their own pressures that drive it sometimes quarter-to-quarter. But I think if you look at the long-term trend, certainly still well in place. So yes, I wouldn't overread too much probably in the Q1 numbers in Brazil. I think we're still hopeful as we said, sort of low to mid number for the year and for us to be in line with that. And then World Cup outside of Brazil, I mean, certainly, Europe, we saw a tick up in -- towards the end of the quarter in terms of label activity, graphics activity. So we're definitely seeing a lot of sort of promotional-type cans or individual-type cans coming into the mix into the inventory build, and that would suggest World Cup. And I think we're seeing elsewhere in the market some signs that there could be some positive effects. I mean I'm always cautious to call it too early. We need to see it sell-through. It's often very weather-related as well in terms of how exactly it plays through. But yes, all positive signs at the moment, I think, in both Europe and Brazil. George Staphos: Just one quick one, just a yes or no, and I'll turn it over. On aluminum, you mentioned you are seeing supply constraints in North America, at least that's what I took away. Despite the constraints, do you feel like you're positioned well enough to be able to meet your commitments over the rest of the year? And then I'll turn it over to the rest of the team -- the rest of the guys. Oliver Graham: Yes. No, good question. Look, I think it does seem like the situation is moderating quite quickly now. As we've gone into April, I think a lot of metal is coming into the market from overseas that obviously was on long supply chains. And so we do see that landing now and helping to improve the situation. We also have the first new mill ramping up now. We have the second new mill coming at the end of the year. So I think we're hopeful now that we're through the worst. I think the Middle East conflict didn't help. I mean that some supply out of the Middle East obviously got restricted in March. But as we see the trends now sitting towards the end of April and going into May, yes, we're hopeful that, that's all moderating. And we certainly don't see any need to change our guidance or change our forecast off the back of it. Operator: [Operator Instructions] And we'll take our next question from Anthony Pettinari with Citi. Anthony Pettinari: Just following up on volumes and the Middle East conflict. It sounds like you haven't seen any impact and obviously don't have any assets in the region. But I'm just wondering, you talked about strong scanner data in January, February. I think the conflict started at the very end of February. As you look at March, April, have you seen any change in order patterns in terms of people prebuying or maybe easing off? Or as you just -- as you talk to customers or channel partners, is there a sense that there could be an impact if this continues to go on or maybe it's better or worse in North America versus Europe? Or just any color you could give would be helpful. Oliver Graham: No, I guess, look, I don't want to mislead in the January, February comments. That's just where we actually have data because obviously, we're still just in April. So not all the March data and the full quarter data has come through. So our impression actually is that Europe strengthened in March after some very, very encouraging scanner data for January and February, particularly Germany, very strong again on the soft drinks side. So I think my prediction would be that March scanner data for Europe will be good. Everything we're seeing in our numbers was good in March and continues into April in a good way. So no, definitely not if I think about Europe. And then again, North America, we saw going into Easter really good volumes. We saw that in our business, particularly in certain categories. So certainly nothing to suggest that there's any change at this point. So it's just more that there clearly was something going on in Brazil in that January and February was stronger than March. But as you go into the winter season, you always -- can always be a little bit volatile depending on how people build inventory into the summer and what they were left with. And obviously, we're into the slower season. So I think one of the reasons we've held guidance, we've held our volume forecast despite the situation in the world, I think it demonstrates the resilience of the beverage can sector, of the way our customers are using beverage cans in their mix and particularly prioritizing the beverage can and then also the resilience of our own business. So clearly, a very positive outlook from our point of view to hold guidance in this current geopolitical environment. Anthony Pettinari: Great. Great. No, that's very helpful. And I guess maybe just one follow-up on Europe. I mean it seems like results really exceeded your expectations. Is the biggest surprise there from your perspective on the volume side in CSD or energy drinks? Or is it the cost recovery? Just if you think about sort of the bridge versus your initial expectations, like what was the biggest driver from your perspective of the outperformance? Oliver Graham: No. I think the biggest driver was clearly the input cost recovery. We mentioned the timing effect and the one-offs potentially around the freight. But also, we did see the mix benefit in the quarter that was strong. So we've got some good specialty can growth because of the categories we're in. And that also did play into the IFRS 15 contract asset because we had very strong production and good specialty volumes. So both of those also played into the contract asset and volume mix. So yes, just a really good performance by the region, I think, delivered against our expectations, ramped up our new specialty volumes. We did a change to one of our plants to improve our specialty footprint, and that ramped up extremely well. So production was a bit ahead. And then yes, very good delivery on all elements of cost. Operator: And our next question comes from Josh Spector with UBS. Anojja Shah: It's Anojja Shah sitting in for Josh. I just had a question on the Boston Beer verdict. What steps are left in order for you to get that $175 million? Like is it a definite? It's just a matter of time? Or what legal steps are left? And when might you actually receive this? And will it have any impact on your capital allocation priorities? Oliver Graham: Yes. No, we're not going to talk in much detail about it because it's still clearly legal proceedings. But clearly, there is a potential -- they have the option to appeal. That could mean that obviously, they could appeal it and that could delay realization. We don't see that changing our capital allocation priorities at this point. At the minute, we've laid out the next investments that we see that makes sense for the business. And obviously, we're also very conscious of making sure we stay within our leverage position. So at the minute, we don't see it changing any capital allocation policies. Anojja Shah: Okay. And on the aluminum availability issue, can you quantify what the drag was in Q1 and maybe what's in your guidance for Q2? And then do you expect it to fall away after that? Oliver Graham: So we think across the weather, I mean, we sort of forget now, but actually sort of January, Feb, there was some very cold weather in the South of the United States that led to a lot of disruption. So we had people struggling to get to our facilities, struggling to get to customer facilities and freight issues on the roads. So between that and the metal, we think we lost 1 to 2 points of growth in the quarter across both ends and cans. So that's the sort of order of magnitude we saw in the quarter. At the minute, we're not predicting anything particularly in the guidance for Q2. So we sort of held roughly to where we had planned to be because certainly in the last couple of weeks, things have improved quite significantly. So at the moment, we'd be hopeful we can come through Q2 without any significant drag. But maybe, Stefan, you can add anything to that. Stefan Schellinger: Yes. Maybe just in regards to the cost side of the impact, we had adverse impact on freight costs as well as manufacturing costs. So we had to move a little bit around sort of product in our manufacturing network and had some unfavorable freight lanes as a result. And also in terms of the operations, it was more -- a little more from hand to mouth, shorter runs, maybe not running the right spec all the time in terms of metal. So if you add that all up, it was probably a mid- to high single-digit impact in the quarter. Anojja Shah: Mid- to high single-digit millions on EBITDA, you mean? Stefan Schellinger: Yes, correct. Operator: And we'll go next to Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Maybe I'll just get your thoughts on the potential -- the inflation and what you're seeing on the tariff side as well. So in North America, I guess, there -- how has the Midwest Premium affected demand and can pricing, if at all? And do you see that changing with 232? Oliver Graham: Yes. We keep looking for it because obviously, between the LME and the Midwest, they're pretty significant. And this has been going on for a while. So people's hedge positions may be rolling off a little bit. But we're not seeing it. We're not seeing it in the data. We're not seeing it in our customers mix and their plans, and not seeing it on the shelf. So I think the can has got a lot of resilience at the moment, the fact that it does remain a very efficient package. The fact that consumers are clearly favoring it, I think, and that obviously drives these brand companies to rightly take note of what their consumers want. And then in certain parts of the world, the sustainability credentials also play very strongly. So the tariff situation hasn't got better. If anything, the last piece made it marginally worse, but not significantly. But as I say, I mean, right now, I think all the data is really a testament to the resilience of the industry and the substrate. And what we are also seeing now, obviously, is inflationary impact into petrochemical and energy, which are obviously negative for the competing substrates. So I think net-net, although we should always be cautious and with the inflation that the consumer is facing more generally, the can seems to be continuing to win in the mix. Arun Viswanathan: Just to clarify, is it the case that the beverage companies, your customers are absorbing some of that extra cost and not necessarily passing that on in higher beverage prices. And so they're continuing to promote? Or is it that customers are paying higher prices, but they're willing to do that... Oliver Graham: Yes. There was obviously a very significant increase in pricing over the last few years post COVID and all of the inflationary effects that happened after COVID. So I think there's room for some absorption. But equally, we don't know all the ins and outs of our customers' P&L. And again, particularly, we don't know the nature of their hedge positions and other ways they might be offsetting these costs. I don't think we're seeing a huge amount of price increase at retail. If we look at the promo information, promos are still strong. And there isn't a lot of room, I think, to increase price much further given the price increase over the last few years. So our sense of it is more that our customers are managing it. Arun Viswanathan: And just on that supply-demand side. So given the strong growth, I guess, in Europe, I'm not sure if you would need to potentially add any capacity there. Similarly, in North America, strong energy growth, I guess, could continue. So maybe you can just let us know what your plans are on capacity additions in Europe, North America and Brazil, if any? Oliver Graham: Sure. Yes. So I think we said it in the prepared remarks, and we talked about it at the Q4. So we do plan to add capacity in Europe. That's where we're the most tight in terms of our network and our utilization with Spain and the U.K. being the 2 markets we'll invest in. And those projects will come in, in the next couple of years to support the growth that we have, but also it's an extremely supportive market environment, and we see our peers investing behind that environment. We see our customers really putting growth plans behind the can supported by those investments. So yes, we'll absolutely be participating through growth investments in Europe. At the moment in North America, particularly with the contract resets that took place last year, we've got space in the network. We do need to make sure we get the mix right. We've made some very good investments to increase the flexibility of the network in North America. That means we're very well positioned for different types of growth, but we may continue to do that at the margin just to make sure our network is really tuned for particularly specialty can growth. And then Brazil, yes, we have good capacity availability. We put a lot into the Northeast where we still need to grow into that. The Southeast is a bit tighter. But again, I think with the improvements we're making in the network, we've got space in Brazil. So nothing planned there in the short term. Operator: And we'll move to Gabe Hajde with Wells Fargo. Richard Carlson: This is actually Richard Carlson on for Gabe this morning. So first question I want to ask you guys about Europe. I mean you guys have mentioned that you don't have direct exposure to the conflict in the Middle East, but certainly some of your competitors do. And so are you seeing any change in the marketplace from guys who are saying they're having a hard time getting the metal supplier or getting the energy supply that they need? Oliver Graham: No, really not. And again, I think what we understand is most of the impact is occurring just in region with facilities being stopped or particularly to the east of the region. So I think markets that are supplied with energy out of the Gulf, markets like India, that's where I think the impact is landing, not in Europe where you've got much more developed supply chains and much less direct exposure to the region. So no, we're not seeing any near-term impact in Europe. Richard Carlson: Right. And your plants are all natural gas, right? Oliver Graham: I mean we operate with a mixture of gas and electricity. So yes, that's what we operate with. Richard Carlson: Got it. And then I think you were touching on this with Anojja's question. But as we think about the new cadence for the year, presumably, there's some -- you got some good momentum going into Q2. How has your Q2 outlook changed over the past couple of months? It seems like now you, of course, got a little more front-end loaded for the year. But are you seeing now -- has your guide from what you thought it would have been 2 or 3 months ago increased? Oliver Graham: No, I don't think so. I think to the extent that there are going to be different impacts from when we first issued guidance, it's mostly sitting in the second half, so either a little bit of input cost inflation. Obviously, in our guidance is some caution. We're in Q1. We've not seen how this conflict plays out. We've not seen potentially the scale of the inflationary impacts or the disruption. So we're being cautious. But I think that to the extent that we're adjusting slightly, it's more Q3, Q4 where we're just not putting through all the gains that we've made in Q1. I think Q2 is sitting pretty much where we already had it and Stefan is nodding. So it seems I got that right. Stefan Schellinger: Yes, agree. Operator: And ladies and gentlemen, that concludes our Q&A session for today. I'll turn the conference back to Oliver Graham for any additional or closing remarks. Oliver Graham: Thanks, Lisa. Thanks, everyone, on the call. So just summarizing, in the first quarter, we reported strong adjusted EBITDA growth of 15% versus the prior year, significantly ahead of guidance and particularly driven by a strong performance in Europe. And I think a testament to the resilience of the industry and of AMP. And on the back of that, even in the face of the current geopolitical environment, we reaffirm our guidance for 2026 full year adjusted EBITDA in the range of $750 million to $775 million, supported by our robust input cost pass-through mechanisms and our energy hedging arrangements. And so with that, we'll sign off and look forward to talking to you again at our Q2 results. Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good day, everyone. Thank you for joining Packaging Corporation of America's First Quarter 2026 Earnings Results Conference Call. Your host for today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. Please also note today's event is being recorded. I would now like to turn the floor over to Mr. Kowlzan. Please proceed whey you're ready. Mark Kowlzan: Thanks, Jamie, and good morning, everyone. Thank you all for participating in Packaging Corporation of America's First Quarter 2026 Earnings Release Conference Call. Again, I'm Mark Kowlzan, Chairman and CEO of PCA. With me on the call today is Tom Hassfurther, President; and Kent Pflederer, our Chief Financial Officer. As usual, I'll begin the call with an overview of the first quarter results, and then I'll be turning the call over to Tom and Kent, who will provide further details. And then I'll be wrapping things up, and then we'll be glad to take questions after. Yesterday, we reported first quarter net income of $171 million or $1.91 per share. Excluding special items, first quarter 2026 net income was $215 million or $2.40 per share compared to the first quarter 2025 net income of $208 million or $2.31 per share. First quarter net sales were $2.4 billion in 2026 and $2.1 billion in 2025. Total company EBITDA for the first quarter, excluding special items, was $486 million in 2026 and $421 million in 2025. First quarter net income included special items expense of $0.49 per share primarily for the Wallula Mill restructuring charges as well as for costs relating to the acquisition and integration of the Greif containerboard business and also costs related to the closure of corrugated products facilities. Details of the special items for the first quarter of 2026 and 2025 were included in the schedules that accompanied the earnings press release. Excluding the special items, our earnings increased by $0.09 per share compared to the first quarter of 2025. This increase was driven primarily by higher prices and mix in the legacy packaging segment for $0.17, lower fiber costs in the legacy packaging business, $0.11, lower maintenance outage expenses of $0.09; lower labor and operating costs in the legacy packaging business for $0.08, higher prices and mix in the Paper segment, $0.02, favorable volume in the paper segment for $0.01, lower tax rate, $0.01 and lower share count, $0.01. These items were partially offset by higher freight costs of $0.13, lower production and sales volume in the legacy packaging business, $0.11, higher depreciation expense in the legacy packaging business, $0.05, higher labor and operating costs in the Paper segment for $0.03, higher corporate and other expenses, $0.03. Also, the acquired Greif operations, including interest on acquisition indebtedness, generated a loss of $0.06 during the first quarter but primarily as a result of lower volume and higher costs due to the January storm that affected the Riverville and the corrugated operations as well as higher-than-forecast freight and recycled fiber costs and unfavorable mix. We exceeded our guidance of $2.20 on the strength of our operational and commercial performance during the quarter. including favorable volume and mix in the legacy packaging business and better-than-expected operating cost performance and lower labor and benefits costs. These were partially offset by higher freight costs and lower-than-expected earnings from the Greif business. Looking at the Packaging business. EBITDA, excluding special items in the first quarter of 2026 of $482 million with sales of $2.2 billion resulted in a margin of 22% versus last year's EBITDA of $409 million and sales of $2 billion or a 20.8% margin. We ran at full capacity during the quarter and completed the outage on the Counce #1 machine during the quarter and completed the outages on the Counce #2 machine and at the Jackson mill earlier in April. The Wallula mill reconfiguration was successfully completed, which immediately helped us reduce our cost of fiber, power and labor. For the quarter, we produced 1,398,000 tons of containerboard during the quarter. The legacy mills produced 1,210,000 tons of containerboard which was 25,000 tons less than the fourth quarter of 2025 and 40,000 tons less than the first quarter of 2025. System-wide, our inventories were down 39,000 tons from the end of the fourth quarter and we meaningfully reduced the inventories carried by the acquired Greif plants. Operational performance during the quarter was exceptional with improvement in corrugated demand heading into a very busy outage schedule in the second quarter and an increasingly tight linerboard situation, we needed to run well and their mills delivered. Jackson set new production and speed records. We safely completed the Counce outages over the last month, and we're able to bring both machines up earlier than scheduled and make up for some of the weather issues earlier in the quarter. while helping us keep up with corrugated demand. In February, we saw Riverville produce at approximately 10% higher rate than what it was capable of doing when we completed the acquisition. Our Board of Directors approved the gas turbine projects for the Jackson, Alabama mill and Riverville, Virginia mills that we talked about on the last call. and we're scoping a third project for the DeRidder, Louisiana mill, which we will be submitting in the period of May at the Annual Board meeting. I'll now turn it over to Tom, who will provide further details on the containerboard sales and our containerboard business in general. Thomas Hassfurther: Thank you, Mark. Our corrugated operations turned in a very strong quarter in all areas. Domestic containerboard and corrugated products prices and mix were $0.17 per share above the first quarter of 2025 and up $0.06 per share compared to the fourth quarter of 2025 and up approximately $0.12, excluding the Greif operations. This is mix related as mix improves in the legacy PCA business 4Q to 1Q, but declines in the Greif business during the first quarter. . Export containerboard prices were flat with last year's first quarter and down $0.01 per share from the fourth quarter of 2025. Export sales volumes of containerboard was up 6,500 tons from the fourth quarter of 2025 and down 13,000 tons from the first quarter of 2025. In the legacy business, corrugated shipments per day were up 2.8% versus last year's first quarter, a new record on a per day basis. With 1 fewer day, total shipments were up 1.2%. We saw good growth across our entire book of business with legacy shipments running consistently 2% to 3% ahead of last year from the middle of January through the rest of the quarter and very strong so far in April. Even with the situation playing out in the Middle East and higher fuel prices here in the states, we're seeing a resilient economy and continued strength in our customer ordering patterns across the board. We expect the second quarter to shape up similarly to the first in terms of demand and year-over-year growth. As Mark alluded to earlier, we are tight on containerboard, and we will need continued exceptional performance that we have come to expect from our mill operations to support our customers. Including the acquisition, shipments were up 22% per day and 20% in total compared to last year's first quarter. We began to see the seasonal pickup in the volume and improvement in mix from the acquired operations as the quarter progressed. We're off to a great start in April. We expect to see good sequential improvement in both volume and mix during Q2. We intend to complete systems integration by the end of the third quarter with all operations running on PCA's decentralized systems. As we progressed on our integration efforts, we focused on inventory reduction at the Greif plants and made great progress reducing carried inventories by around 10,000 tons during the quarter. We have room for further improvement and we'll continue these efforts in the second and third quarters. We will be working to implement our price increases during the second quarter. Reported containerboard prices are up net $50 per ton from the beginning of the year. Due to the timing of how things played out, we did not get a meaningful benefit during the first quarter. We have had a lot of individual negotiations with our customers on how to implement this increase, and we are not going into any detail on that. What I can say is that, in general, we expect to start to see the benefit during May with the normal implementation period beginning in June. So we expect some benefit during Q2 with the majority coming during Q3. I'll now turn it back to Mark. Mark Kowlzan: Thanks, Tom. Looking at the Paper segment, EBITDA, excluding special items, in the first quarter was $38 million, with sales of $160 million for a 23.6% margin compared to the first quarter 2025's EBITDA of $40 million and sales of $154 million or a 26.1% margin. Sales volume was approximately 3% above the first quarter of 2025 and approximately 4% above the fourth quarter 2025. Prices and mix were up 1% from the first quarter of 2025 and flat with the fourth quarter 2025. We remain very pleased with the performance of the paper business, which continues to generate high margins, driven by strong commercial and operational performance. We are working to implement the previously announced price increases and expect to benefit in Q2. I'll now turn it over to Kent. Kent Pflederer: Thanks, Mark. Cash provided by operations was $329 million. And after $165 million of CapEx, free cash flow was $164 million. In addition to CapEx, the primary payments of cash during the quarter included dividend payments of $112 million, share repurchases of $59 million, cash tax payments of $18 million and net interest payments of $11 million. We expect higher cash payments for taxes and interest in the second quarter. We repurchased 266,000 shares during the first quarter at an average price of $228.78. We have approximately $224 million of remaining repurchase authority. Excluding special items, our effective tax rate during the first quarter was just under 23%. This is lower than our forecasted 2026 full year book effective rate of 25% due to favorability from the vesting of employee equity awards during the first quarter. We expect our second quarter to be approximately 26%. We continue to forecast $840 million to $870 million of CapEx and $700 million of DD&A for the year. I'd now like to give you an update on the annual outage schedule and the earnings impact for the year. Our outage expense was $0.14 during the first quarter. We now expect $0.36 in the second, $0.31 in the third and $0.64 in the fourth, totaling $1.44 for the year. In the Packaging segment, the Counce and Jackson outages were completed earlier this month, and outages are scheduled at Tomahawk, Filer City and Wallula later in the second quarter. In the Paper segment, the International Falls mill outage is scheduled for the third quarter. Finally, before Mark provides commentary on our second quarter forecast, I want to give you a little bit of detail on some of the sequential differences in costs from 1Q to 2Q. I just mentioned that we will incur approximately $0.22 of additional outage costs in Q2 with maintenance outages at 5 of the packaging mills. We are also expecting less sequential benefit from 1Q to 2Q and the reversal of cost increase for labor and benefits than we would normally expect. Our employee stock compensation expense will be approximately $17 million higher for 2026 then for 2025 due to a change in timing of the recognition of expenses beginning with the awards we made earlier in the year. This will be evenly split between the second, third and fourth quarters. and this higher expense will time out over the next 2 to 3 years as old awards vest. In addition, we were favorable in the first quarter on benefits costs, which we believe was timing related, and do not expect to repeat in the second quarter. As for operating costs, we normally benefit from lower fuel costs and better fiber and chemical yields as we move out of winter. This year, fiber and chemical usage benefits will be more than offset by higher input prices across the board on chemicals as well as recycled fiber and to a lesser degree, wood fiber. Our overall cost in these areas will be higher in the second quarter than in the first. Natural gas prices have remained fairly stable, and we expect to see normal seasonal energy cost improvement on fuel costs with slightly higher purchased electricity costs. And obviously, we will have higher freight costs with higher diesel fuel prices expected to continue into the second quarter. And with that, I'll turn it back over to Mark. Mark Kowlzan: Thank you, Kent. As we move from the first quarter into the second quarter, we expect demand in the Packaging segment to remain strong and corrugated volume to increase with 1 more shipping day and some seasonal improvement, particularly in the acquired Greif operations. . Prices for containerboard and corrugated products will move higher later in the quarter with the implementation of our previously announced price increases and improved corrugated mix. Packaging mill production will be slightly higher with 1 more operating day and improvements at some of the mills more than offsetting the production impact of maintenance outages across the system. Mill maintenance outage expense will be higher. We expect flat volume and higher prices in the paper segment as we continue to operate at full capacity and implement our previously announced paper price increases. Cost for freight, fiber and chemicals will be up due to higher prices and energy costs are expected to be seasonally lower. The sequential improvement in expenses for wages and benefits that we normally experience from the first quarter to the second quarter will be less than in the past years due to the higher stock compensation expenses and benefits costs in the second quarter that Ken called out earlier. Finally, our tax rate will be higher due to the tax-related benefit of share-based compensation awards that vested in the first quarter. Considering all of these items, we expect second quarter earnings of $2.33 per share, excluding special items. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constitute forward-looking statements. The statements were based on current estimates, expectations and projections of the company and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. And with that, Jamie, I'd like to open up the call for questions, please. Operator: [Operator Instructions] Our first question today comes from George Staphos from Bank of America. George Staphos: I appreciate the details. I guess the first question maybe to start, as always, can you talk a bit about bookings and billings into April? Any granularity that you're seeing that you can relay in terms of growth or declines in the quarter so far? And any sense of prebuy that you're seeing, Mark, just because the price increases have been discussed since January? Thomas Hassfurther: George, this is Tom. Now I'm going to -- I'll give you the legacy bookings numbers are up at 4.5%, bookings and billings are up 4.5%. Now that I want you to keep in mind that with the Greif assets, we are moving some business back around -- within the system and primarily more from the legacy to the Greif assets as opposed to the other way around. So we view the business environment as being very good right now. Regarding prebuy, we see no pre-buy at all right now. In fact, this has been muddy waters, as you might say, regarding the price increases and that sort of stuff going at the moment. So we see no pre-buy at this point in time. Our customers continue to operate with very lean inventories, and I think they'll continue to do so. George Staphos: Next question. Can you talk a bit about why Greif was a loss of $0.06 in the quarter? I think that was down -- that was a little bit worse than the fourth quarter figure, which I think was $0.05. And how is the business performing as the company typically relays, you're doing better on production, the mills are looking better. yet we still had some losses there? What's happening there? How is performance, when does that improve? And I had 1 last follow-on. Mark Kowlzan: George, as we called out on the January call, the January storm impacts were very significant. And quite frankly, the Riverville mill was the most impacted mill in the system. For the better part of the week, we didn't move any production out of there. And we called out at your meeting down in Fort Lauderdale we were probably around $0.05 of impact as a result of the storm. But Ken, why don't you gave a little more color to that? Kent Pflederer: Yes, that's right, George. So we had about -- we had weather impacts that hit not just Riverville, but corrugated operations were disrupted as well, and they don't come back on the sheet feeder side, as well as able to make up in the corrugated side. Greif is -- and Tom can elaborate on this a little more. Greif is a seasonal business. Mix was a little lower than we had forecast in January and February, but returned nicely in March. So all that in, that was a -- throw-in higher recycled and freight costs and we came in with the number that we reported. Now on the positive side, Greif operations in February were about as good as we've seen them. The productivity at the mills was, as Mark called out in the script, about 10% higher than we'd seen prior to acquisition. And it was so good, we actually dialed it back a little bit in March in order to bring the inventory levels in where we brought them in. So Tom, do you have any further on that? Thomas Hassfurther: I'll just add that -- just to add a little color to it. we did not expect, and we're not aware of the seasonality, especially related to the box business side of Greif in terms of the first quarter. So that first quarter is by far their weakest quarter in terms of volume, and then it accelerates after that all the way through the year. So that was a bit of a surprise to us. But the good news is it's returned in the second quarter quite nicely and exactly as they had forecast. So that's the good news. And then this also is allowing us some flexibility in the system to really move some business around to be more efficient in terms of our operations. And also don't forget that there was a lot of activity and a lot of work still going on in the mill system of Greif during that first quarter. George Staphos: Understood. Last one, and I'll turn it over, if possible. Is there a way to provide some further quantification or at least direction on the sequential changes? So we know what the outage hit will be 2Q versus 1Q. You talked about the stock comp expense being up, I think, $17 million. But what does that mean in terms of the 1Q to 2Q variance? And is there a way to, if not precisely, maybe ballpark a bit for us, freight, energy, other costs, what that inflation looks like 1Q to 2Q? Tax, I think, is like a, call it, $0.06, $0.07, $0.08 effect 1Q to 2Q. Have a good quarter. . Kent Pflederer: Okay. George, I'll tackle that one. So on the stock comp expense, we called out we'd be $17 million higher. So that means 2Q is going to look much more like first Q -- much more like 1Q than it has historically in the past where you were beneficial 1Q to 2Q. Okay? So we'll be running maybe $6 million higher in 2Q than we were in '25. On some of the others. So freight fiber chemicals, estimate maybe $0.15 higher 1Q to 2Q. Normally, we're flat to slightly beneficial in those areas, okay? So that's a little bit of a drag there. And George, I'm sorry, I think I'm missing one of the other sub parts of your question. George Staphos: Yes. tax, I think, is we can do our own calculation, but that's probably a nickel, dime . Kent Pflederer: Yes. Operator: Our next question comes from Michael Roxland from Truist Securities. Niccolo Piccini: This is Nico Piccini on for Mike. Just first off, kind of to piggyback off the cost question. What do you have at your disposal outside of price to offset those costs, recognizing that in 2Q, it seems like you might have some uncovered costs with the price impact really hitting later in the quarter? Mark Kowlzan: As far as levers to deal with cost, I mean, obviously, the only thing you can do is run incredibly well, very efficiently and just execute at the top of your game, which we generally do that. But that's what we're facing with the headwinds on some of the price escalation. Tom? Thomas Hassfurther: I think the other thing that we're doing is we are optimizing the mill system now, now that we have Massillon and Riverville running much better and much more reliably. So we're moving that mix around to the mills that are best suited to run that mix and from a freight standpoint are better off. Then we also were doing that in the box business as well. Within the Greif system, as I mentioned, we are moving quite a bit of business around to optimize that system and to optimize our freight opportunities. Outside of that, as Mark said, we have to operate incredibly well. And that's the gist of what we've got in our arsenal to offset some of these cost increases. Niccolo Piccini: Got it. Understood. I appreciate that. Just quickly on Greif, having owned, I guess, the business for 8 months now, maybe, putting quite a bit of work into the mills. Do you have any sense of upside to the original $60 million synergy target now that you've kind of progressed through integration and getting the mills on the system? . Kent Pflederer: So without upside, but I think I should give you at least an update of what we're looking at right now. Based on what we saw and what Riverville and Massillon could do in February, we're going to be at a run rate of about $15 million to $20 million of just productivity improvements from those mills. We will then start layering in over the next few quarters, freight optimization. And actually, I mean, that's ongoing right now. That's not a future thing. That's ongoing right now. But freight optimization and then integration opportunities from additional tonnage from PCA into the Greif system as well as from Greif into the PCA system. So that work is ongoing. But at least I wanted to give you an update on kind of where we were at from a run rate standpoint right now, we're well on target to be at that $30 million run rate by the end of the year. Mark and Tom, anything further to add there? Mark Kowlzan: No. work continues on a daily basis to take advantage of all these opportunities. Operator: Our next question comes from Mark Adam Weintraub from Seaport Research Partners. Mark Weintraub: Great. Maybe just first starting a little bit more on Greif, trying to square. So if we look at the last 6 months based on kind of the EPS number, I mean, it seems to me it's probably a little less than $100 million in EBITDA from the business. And I believe kind of coming in, the base was close to 240 and then we were going to get synergies on top. And I realize maybe synergies show up in the legacy business as well. So maybe this is kind of complicating the analysis. But I'm really sort of just trying to gauge the magnitude of upside from things like seasonality, et cetera, et cetera. How much additional firepower is there relative to what we've seen in Greif over the last 6 months when you think about the contribution the business can be providing on a kind of full year basis as the synergies, et cetera, are fully layered in and the mix and seasonality issues are come to bear more favorably? Kent Pflederer: Okay. Mark, it's Ken. I will start and then Tom will add some color on this, okay? Going from 1Q into 2Q, we believe now we're going to get the full performance out of this business. with the mills running consistently at higher productivity rates and entering a seasonally stronger business and start to pull some more integration through. We're forecasting sequentially improvement conservatively about $0.10, 1Q to 2Q. So we expect to be accretive in the second quarter and going forward. Most of that improvement is from mix improvement and productivity improvement and then a little bit of price increase layered on top of that. We expect them to continue to improve 3Q just as the business and the seasonality even improves more. Tom? Thomas Hassfurther: Well, I would just remind you, Mark, that when we finalized the acquisition, and we got involved in taking a good hard look at the assets, primarily the mills, we knew there were some difficulty and some hard work to do, and it turned out that we were right, okay? And so it's -- we get off to a start that says, we're going to have to shut some time down at the mills and get some work done and make a big investment, do all those other sorts of things associated with it. . And now we're coming on the other side of that, and things are significantly better, and they're performing very, very well. So this will accelerate as we go forward. And as I mentioned earlier, and I think this is really vital to our system because we need some extra capacity on the box side as well. and they're providing that, and that's going to be some significant upside. Mark Weintraub: Okay. Great. And I'm not going to try and drag you through kind of all the delta drivers. But I guess, as I think about what seems to be embedded on the upside because you told us some of the downsides going from 1Q to 2Q. It doesn't seem like there's a huge amount of upside being given for some variables, which in particular, pricing in the 2 quarter numbers. Is it fair to say that you would, at this juncture, assuming things continue along the path they are that you're going to see the real big change is going to be 2Q to 3Q. That's where the earnings are going to really -- and to the extent that you're comfortable providing any color on that, that would be helpful. I realize you don't give guidance more than 1 quarter ahead, but it does seem in this particular instance that the good stuff is really showing up in 3Q in a big way. Mark Kowlzan: Mark, you're exactly right. We'll start seeing some benefit later in the second quarter with some price movement, but the big benefit comes into the third quarter. Thomas Hassfurther: That's right. That's exactly correct. . Operator: Our next question comes from Anojja Shah from UBS. Anojja Shah: I had a question on D&A. It was actually much higher than we expected in Q1, but you maintained $700 million guidance. So how come it's not a straight line first of all for the quarter? And second, what's embedded in 2Q in that $2.33 guide? Kent Pflederer: Our depreciation reported for the first quarter includes a chunk that's attributable to basically completion of Wallula restructuring, okay? So I think that explains the large reported number increase that you're referring to. So on the excluding special items basis, we're looking at about a $0.03 increase 1Q to 2Q in DD&A. Anojja Shah: Okay. And then going back to demand in April, you talked about you're seeing very strong demand. Any particular end markets showing strength or weakness? And what I'm really trying to get to is if you're seeing any early signs yet on GLP impact? And I realize you might not see it as much as some other types of packages, but just are you hearing anything on this from your customers? Thomas Hassfurther: This is Tom. That's a very good question. I'll take the second half first. Our food and beverage customers continue to perform quite well. And of course, that's the largest segment in corrugated. And so I think there's a lot of sensitivity around that, especially GLPs. But they adapt quickly. And we're seeing a lot of products come out with protein in them and all these other sorts of things that are that didn't have such in the past and they're performing very well. So there's a lot of things going on in that segment that I think are very positive as our customers have adjusted quickly to varying demands and it's still performing very well for us. In addition, I think that I've called out building products probably for the last few years that has been down. but it's starting to show some resurgence as well, which is an important segment for us. Those are probably the biggest movers I can talk about. Operator: Our next question comes from Anthony Pettinari from Citi. Anthony Pettinari: Just following up on the timing of the price hike. I guess Pulp & Paper Week had prices down in February and then up in March and up in April again. And as you implement the price hike, is this sort of a, I don't know, like a negotiation around the net price? Or could you have some instances where prices actually go down before they go up? I know it's kind of a strange question, but I just can't remember a time where Pulp & Paper Week had 3 consecutive months where it was down before it was up and then up again. Thomas Hassfurther: Well, it's hard for me to remember too, Anthony, and I've been in this business a long time. But all I can tell you is that we're not really going to comment much on at all about what we're doing relative to our customers and our negotiations. I'll just call it muddy. How about that? And that's about all that's about all I can tell you. Anthony Pettinari: Okay. Okay. Sounds good. And then just, Kent, on the 1Q to 2Q bridge, you outlined some, I guess, sequential headwinds that we typically don't see around the share-based comp and then the tax rate lower in 1Q. Should we think about these as sort of like onetime things just for 2026? Or if we think about seasonality going forward or seasonality next year, is that share-based comp going to have a similar kind of profile? Kent Pflederer: Okay. So share-based comp is going to run at a higher level this year. It will run at a higher level next year, but step down a little bit as 1 tranche of the old awards vest, and then it will do similarly in '28. So you're going to be a little bit higher, but it's going to time out through '28 basically. On the other items, the costs, it's just going to kind of depend on the market basically. And we're expecting them at least to be elevated during the second quarter, and we'll continue to manage through it. Anthony Pettinari: Okay. That's helpful. Maybe just one last one, if I could. Like you obviously increased your exposure to recycled board with Greif. You had a large competitor that just bought a recycled mill out West. I'm just wondering, if you think about PCA's pass for the next 3 to 5 years, and you obviously are going to need more board, do you think the incremental opportunity is in recycled? I mean, it's obviously probably lower capital cost just from like what your customers are asking a view, you have historically had a great virgin kraft liner offering. But is recycled kind of the direction going forward in terms of if you were to put in an incremental ton from a capacity perspective? Mark Kowlzan: You take advantage of the opportunity that comes along, whether it's a recycled opportunity or a virgin kraft opportunity. And so really the decision we made when you look at the various options you have. But we're certainly not -- we can take advantage of recycled as we've done for decades and also we know how to run integrated operations extremely well also. Tom? Thomas Hassfurther: Yes. Anthony, I'll just add that directionally, we want to be able to optimize whatever properties fit our customers' demands. But I want to remind you that, I mean, we are still primarily virgin kraft, and we're not going to change that because one of the things that it does for us, as I've mentioned in the past, is we can optimize performance a lot better with virgin kraft than we can with recycled. . Operator: Our next question comes from Phil Ng from Jefferies. Philip Ng: A question for Kent. I appreciate the color that you gave in terms of some of the step-up in costs, whether it's freight or chemical sequentially. When we think about that for the back half, is the 2Q run rate like on a year-over-year basis, like a good way to think about the rest of the year? Or does that potentially step up just based on timing of how these contracts were potentially on freight or chemical costs and stuff of that nature? . Kent Pflederer: No. Phil, I think the best you can do right now is take 2Q and apply that to the rest of the year. That's the -- and we'll do the best we can to manage through freight optimization activities and running our operations as efficiently as possible. But in terms of how the market is on what we're buying, again, I would look at 2Q right now, that's the best you can do. Philip Ng: Okay. All right. That's helpful. Just that's a good run rate. And then I guess a question for Tom. I know you used the word muddy a few times in terms of implementing this box price increase. And that feels like it's just more timing if someone knows, but when we think about the net 50, you've been in this business for a long time, is your expectation the implementation of the box side all said and done, how does that feel? Does this feel more challenged just because the macro is tougher or kind of business as usual? Thomas Hassfurther: No, it's more business as usual. I mean there's not -- it's not -- none of these are easy, but it's -- we were obviously very disappointed with the downturn at the -- the announced downturn at the beginning. We didn't see it. But hey, it is what it is. And we're dealing with it. But our expectation is to implement this in the same time frame that we typically always implement, both our noncontract and our contract business. And Phil, I'll add one thing that I think is really important is that the consumer has been very resilient in these times. And our customer base feels very good about their business going forward. And there's a big factor coming in also that we haven't even talked about, and that is the tax refunds that are coming to the consumers, and that will show up in the economy as well. So I think that's another positive for us that's going to help us in the second half. Philip Ng: That's great color, guys. When I bring those 2 pieces together, I know there's a timing dynamic in 2Q. Should we expect price cost to be neutral or positive, how do we think about it? I know there's definitely noise in 2Q, but as we look at the back half, can you help us think through that? Thomas Hassfurther: Well, like we said, I mean the price will impact at the end of Q2, and then we'll really roll in, in Q3. That's when you'll see the big difference. Philip Ng: Okay. And just one last one for me. You guys are running hard, mills are running tight. I know you guys are bringing on capacity in time with Jackson and Counce. How is that ramping up? And then anything that we should be mindful in terms of noise to the P&L or whether to step up the start-up cost, D&A? And then Greif, you guys are working to add inventory down, which makes sense you want to be more efficient. But if you're that tight, why don't you use that inventory to kind of meet some of that demand? Mark Kowlzan: Let me talk about your first part of your question. Again, we just executed the 2 big outages at Jackson and Counce and executed them very well. A lot of that work was to gear up Jackson as an example, to hit the next productivity opportunities with the speed on the machine. And so where we want to be, that was done well. Counce, we just executed the first phase of a rebuild our #2 paper machine. That machine had been rebuilt 35 years ago. And so we executed that and finished that work 4 days ahead of schedule and started up running very well. So we continue to bring on this capability to deliver more quality product as we need it. And also just the Greif system, we fully have recognized the opportunities that we saw when we did the due diligence. We're running -- basically the last couple of months, we've been in that 97% plus performance and as far as uptime efficiency on the machines out of the Massillon and Riverville system, and we continue to work through opportunities there. So that will continue to see benefits. So Tom? Thomas Hassfurther: Yes. One of the reasons that we reduced the inventory and we're working down the inventory quickly is because we want those sheet feeders and box plants to be running the correct grades that run for the PCA system, so we can optimize the fiber in terms of performance for the customer. They're not just stuck with running whatever 1 of their 2 mills might run. So that was -- that's really important to us from a cost standpoint going forward, as I mentioned earlier, is to optimize those assets. And so therefore, that's why we're doing what we're doing. But you make a good observation. I mean it is tight and especially in linerboard. So we're cognizant of that. And that's why we -- that's as an example, also why we moved Counce outage up into the first quarter to make sure that we're going to be in good shape going forward from a linerboard point of view. Operator: Our next question comes from Hillary Cacanando from Deutsche Bank Securities. Hillary Cacanando: So you mentioned a third gas turbine project in Louisiana. Could you just provide more details on that project in terms of additional CapEx and time line? And any update on the gas turbine projects in Jackson and Riverville facilities? Mark Kowlzan: Yes. We did get the Board approval on the gas turbine projects at Riverville mill and Jackson mill at the last Board meeting, and then we're planning on seeking approval for this third same -- it's a duplicate unit that will be going in those 2 mills for the future DeRidder project. . The capital, it's in the same ballpark. I don't want to give you numbers right now until after we've we reviewed this with the Board, but same capital allocation and the same type of return metrics that we're looking at, very, very good opportunities too, which would give us Jackson, Riverville and DeRidder would be electricity independent off the grid in the same manner that Valdosta is, So we'd have 4 of our 10 mills that are electricity independent, which would be a huge benefit to us. So that's really all I want to say about that. Hillary Cacanando: Got it. Great. And then just on the high level, what needs to change to bring the cost down? I mean, do you think hypothetically, if the war is war ends tomorrow, hypothetically, like does that change anything for you in terms of cost outlook or because it takes time for supply chain to adjust like if that really wouldn't change anything? Mark Kowlzan: Well, again, I think what the conflict has done in the Middle East is raw materials such as various chemicals that depend on petroleum, we've seen chemical costs increasing. So the question is, does that ramp down over a period of time if the supply-demand balance for petroleum products comes into balance again, we'll have to wait and see. Natural gas, we've been fortunate here in the United States. We have plenty of supply. So we're not impacted by that. Transportation fuels has been the big increase on diesel up over 50% in the last few months. So that definitely, for all intents and purposes, should normalize over a period of time if the conflict winds down. And so I would expect for what we would see would be the transportation cost in terms of diesel impacts. Thank you. Jamie, are there any other questions? I don't see anybody else on the queue. Anybody want to follow up? Operator: [Operator Instructions] This question comes from Pallav Mittal from Barclays. Pallav Mittal: Just one for me. So at start of the year, you had said you expect the total industry demand to be up in 2026. So just wanted to follow up on that. I mean, 4 months almost done. Anything that you can add on that or quantify in terms of industry demand for 2026? Thomas Hassfurther: I think I understood your question regarding demand. And demand, yes, we think demand is up and I gave you the number, at least for legacy, is running at about 4.5% right now. And that's a very good number, and I think that will continue through the quarter. and we'll continue to -- and we've got some positive things going on in some of our key segments as well. So yes, we see demand improving. . Pallav Mittal: My question was more on the industry demand for the year. Any comments on that? Clearly, I think you are gaining share in terms of industry demand for 2026. Mark Kowlzan: I'm not sure we understand what you're asking. Pallav Mittal: I'm just trying to ask, anything in terms of overall industry demand for 2026, up 1%, 2% for the year. Mark Kowlzan: No, we don't get into forward discussions about demand expectations. Thomas Hassfurther: Other than our own. Mark Kowlzan: Other than this quarter and what we're looking at for this quarter. Jamie, I think that pretty well wraps it up. Anything else? Operator: We do have a follow-up from Mark Adam Weintraub from Seaport Research Partners. Mark Kowlzan: All right. We've got time. Go ahead, Mark. Mark Weintraub: So my phone cut out. So I think you might have addressed this a little bit, but did you buy back stock? I think you were saying something again, my phone cut out. I just wanted to confirm that you did buy back some stock during the quarter. And if so, what prompted that? . Kent Pflederer: No, Mark, we did. We bought back 266,000 shares roughly. Really, the prompt was we'd awarded earlier in the quarter and just to take out the dilution from the awards. Operator: And in showing no additional questions. Mr. Kowlzan, would you like to make any final closing comments? Mark Kowlzan: Yes, I'd like to thank everybody for taking the time to be with us today and look forward to speaking with you at the end of July regarding the second quarter results. Have a good day, everybody. Thank you. . Operator: And with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Good day, and welcome to the NextEra Energy, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] Please note that today's event is being recorded. At this time, I would now like to turn the conference over to Mark Edelman, Director of Investor Relations. Please go ahead, sir. Mark Eidelman: Good morning, everyone, and thank you for joining our first quarter 2026 Financial Results conference call for NextEra Energy. With me this morning are John Ketchum, Chairman, President and Chief Executive Officer of NextEra Energy; Mike Dunn, Executive Vice President and Chief Financial Officer of NextEra Energy; Armando Pimentel, Chief Executive Officer of Florida Power & Light Company; Scott Boris, President of Florida Power & Light Company; Brian Bolster, President and Chief Executive Officer of NextEra Energy Resources; and Mark Hickson, Executive Vice President of NextEra Energy. John will start with opening remarks and then Mike will provide an overview of our results. Our executive team will then be available to answer your questions. We will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of other factors discussed in today's earnings news release and the comments made during this conference call in the Risk Factors section of the company presentation or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, www.nexteraenergy.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. With that, I'll turn the call over to John. John Ketchum: Thanks, Mark, and good morning, everyone. NextEra Energy is off to a terrific start to the year, delivering strong first quarter results. Adjusted earnings per share increased by 10% year-over-year reflecting strong financial and operational performance at both FPL and Energy Resources. Over the past several months, I've been working closely with our customers, policymakers and stakeholders, 2 things could not be clear to me. First, demand for electricity in this country is not slowing down. In fact, it's accelerating. Our customers need power now and speed to power is essential. Second, building new power infrastructure must be done in a way that addresses affordability challenges and keeps bills low for existing customers. NextEra Energy is doing both. We're able to meet this increased power demand while keeping power prices low, and we're doing it by leveraging our common platform. We build all forms of energy infrastructure. We have experience across the entire energy value chain at massive scale with a balance sheet to back it up and we continuously drive operational efficiency across our portfolio to deliver value and affordability to customers. At FPL, our value proposition is clear. Leverage a diverse generation mix and a resilient grid to provide low-cost, highly reliable electricity to our customers every single day. At Energy Resources, customers choose us because -- they know we have an unmatched decades-long track record of building energy infrastructure that delivers cost-effective solutions tailored to their needs. NextEra Energy was built for this moment of extraordinary growth with a service area that spans 49 states and with more than 12 ways to grow, I couldn't be more excited about our ability to deliver for our customers, our shareholders and our country. Importantly, our forecasted growth is visible and balanced between our regulated and long-term contracted businesses. Florida is a prime example of how we reliably serve growth while keeping bills low. The Sunshine State has been one of the fastest-growing states for decade and continues its rapid expansion today. Florida is already a $1.8 trillion economy, the 15th largest in the world, and the growth isn't slowing down. Florida's GDP is forecasted to grow 4.7% annually through 2040. In fact, in the first quarter, FPL added nearly 100,000 customers compared to the prior year comparable period. For perspective, roughly 90% of utilities nationwide serve less than that day to day. FPL added these customers to our system in just the last 12 months. FPL supports this growth by building the right new power generation and the right new transmission infrastructure across the state. In fact, FPL expects to invest between $90 billion and $100 billion through 2032, primarily to support Florida's growing economy. Earlier this month, FPL filed its annual 10-year Ciplan, detailing its approach to reliably and cost-effectively meet the growing need for electricity in Florida. The plan shows roughly 4 gigawatts of new gas-fired generation, complementing over 12 gigawatts of solar and over 7 gigawatts of storage solutions over the next 10 years which would further diversify FPL's generation fleet. Yet even with significant capital investment, bills have actually gone down over time. When you adjust for inflation, the typical FPL residential customer bill is 20% lower today than it was 20 years ago. In nominal terms, FPL's bills are approximately 30% below the national average and only projected to grow on average about 2% annually through the end of the decade. On top of that, FPL delivers customers top decile reliability. That's approximately 68% better than the national average. Low bills and high reliability don't happen by accident. Instead, this performance is a direct result of smart, disciplined capital investments, coupled with the relentless focus on operating efficiently. This is a value proposition that not only best serves our existing customers, but also works really well for new large load customers like hyperscalers who value reliability, cost and speed to market, all things we can deliver. As part of FPL's approved 4-year rate settlement agreement that went into effect in January, we proactively developed a large load tariff to provide the necessary certainty for both customers and regulators, balancing consumer protections with a competitive rate. Again, both things are possible with the right structure and a smart approach. FPL's speed-to-market advantages, combined with its best-in-class service is creating significant large load interest. So far, we have about 21 gigawatts of large load interest at FPL. Of that, we are in advanced discussions on about 12 gigawatts, a portion of which we believe we could begin serving as soon as 2028. We are making good progress on this front, and we continue to expect at least one large load customer to sign up for capacity under FPL's tariff by the end of the year. Initially, we expect every gigawatt of large load under FPL's approved tariff to be equivalent to roughly $2 billion of CapEx and to earn the same return on equity as other FPL investments. Energy Resources continues to grow its regulated electric and gas transmission portfolio. It can't be stressed enough. -- linear infrastructure is absolutely vital to meeting America's electricity demand. Pipelines fuel power plants and transmission lines deliver electricity into communities. NextEra Energy Transmission is one of America's leading independent electric transmission companies. Our scale and experience position us well as we execute on new transmission opportunities across America. In fact, just this week, one of NextEra Energy transmission subsidiaries, Lone Star Transmission received ERCOT approval to build portions of 2 new transmission lines in North Central Texas to improve reliability in the region. Lonestar's investment share of approximately $300 million represents a roughly 40% increase in Lone Star's rate base. NextEra Energy Transmission has now secured more than $5 billion in new projects since 2023. In total, NextEra Energy Transmission has regulated and secured capital of $8 billion almost twice the rate base size of Gulf Power when we bought the company in 2019. We also continue to execute against our plan to grow our gas transmission business. Energy Resources now has ownership interest in more than 1,000 miles of FERC-regulated pipelines. Importantly, it's a portfolio with a number of organic expansion opportunities. All told, we expect our combined electric and gas transmission business at Energy Resources to grow to $20 billion of total regulated and investment capital by 2032, a 20% compounded annual growth rate off a 2025 base. We recently added new senior leadership to our pipeline business to focus on growth opportunities, demonstrating our commitment to expanding our gas transmission business. Turning to Energy Resources' long-term contracted business. As I said at the outset, it simply can't be overstated. Our customers need a lot of power, and they need it now. Renewables and storage continue to be the fastest way to get new electrons on the grid until additional gas-fired generation can be built. This is why we had a record quarter at Energy Resources, adding to backlog 4 gigawatts of new long-term contracted renewables and storage projects. This includes another strong quarter of battery storage origination at 1.3 gigawatts. Importantly, we have 4 growth avenues for battery storage. We build stand-alone battery storage co-locate storage at existing sites, develop storage as a grid solution and expand batteries from 4 hours to 8 hours at existing storage projects. Our stand-alone and co-located battery storage pipeline sits at over 10 gigawatts, excluding expansion opportunities. Bottom line, in a market driven by a significant need for quick capacity solutions Energy Resources remains well positioned to serve customers with battery storage. We are also off to a terrific start executing against our data center hub strategy, which is built on the power of scale. Scale shortens development pipelines reduces execution risk and keeps costs low as we build the infrastructure needed to meet data center power demand. To this end, last month, the U.S. Department of Commerce selected Energy Resources to build 9.5 gigawatts of new gas-fired generation to serve large load. The projects are in connection with Japan's $550 billion investment commitment to the United States as part of the U.S.-Japan trade deal. These are 2 separate projects, 1 located in Texas, and the other located in Pennsylvania. Both are designed to serve large load in each state. The U.S. and Japan would own the projects while Energy Resources would develop, build and operate them. We are actively developing both projects, advancing site development, procurement, permitting and commercial structuring as we work toward definitive agreements with the U.S. and Japan. The projects are drawn from our existing group of data center hubs, a group that totals over 30 hubs with a year-end goal to secure roughly 40. We now have 4 origination channels feeding into our base case goal of securing 15 gigawatts of new generation to serve large load by 2035. These 4 origination channels can also help us achieve our upside case of 30 gigawatts or more by 2035. We are working hard to meet this goal with all forms of energy, approximately 50% from gas-fired generation and the remainder from all other forms of energy. The first channel is working directly with hyperscalers to power their data centers. These are companies we have good, long-standing relationships with. A great example is our collaboration with Google to recommission our Glenora nuclear plant outside Cedar Rapids, Iowa. Our second channel is working with investor-owned utilities. A perfect example is the joint development agreement, which we signed with Excel earlier this week to jointly plan and rapidly deploy new generation, storage and transmission to capture accelerating data center demand across Excel's 8 state service territory. Our third channel comes through our strong relationships with co-ops and municipalities. Our plan to work with Basin Electric to develop a 1.5 gigawatt combined cycle plant in North Dakota is a great example. Our co-op and municipality customers value our skills our capabilities, our customer relationships with hyperscalers and our balance sheet, making us the perfect partner. Working with the federal government to build new natural gas power generation is our fourth channel. On Duane Arnold, we continue to make good progress. Earlier this month, the Nuclear Regulatory Commission approved a license transfer from the plant's minority owners Central Iowa Power Cooperative and Corn Belt Power Cooperative to NextEra Energy. This key federal approval clears the way for Energy Resources to finalize the acquisition of their 30% ownership stake, which will give us full ownership of Duane Arnold. At the same time, the process to regain interconnection rights for an Duane Arnold continues to progress as expected. The plant remains on track to reenter service no later than Q1 2029. We also continued to evaluate Advanced Nuclear closely evaluating the capabilities of various SMR OEMs. We have 6 gigawatts of SMR colocation opportunities at our nuclear sites, and we are working to develop new greenfield sites. Of course, any new nuclear build would have to include the right commercial terms and conditions with appropriate risk sharing mechanisms that limit our ultimate exposure. Given that we built more energy infrastructure over the last 20 over the last 2 decades than any other company, that means we have a lot of operating assets coming off contract. In fact, we have up to 6 gigawatts of renewables and 1.5 gigawatts of nuclear recontracting opportunities through 2032. The timing couldn't be better. The projects were generally built and contracted years ago during much less favorable market conditions. As the PPAs begin to expire over the next several years, we believe recontracting will command a higher price. In fact, in the first quarter, we contracted over 600 megawatts of existing projects, locking in contracts for an average of over 18 years, reflecting the strong electricity demand environment we're seeing today. Energy Resources customer supply business advanced its growth strategy during the first quarter, highlighted by our strategic acquisition of Symmetry Energy Solutions which is 1 of the U.S.'s leading natural gas suppliers. Symmetry operates in 34 states and provides us access to additional physical assets, enabling us to deliver a broad range of solutions for our customers. In fact, across all of our businesses, we now transport and deliver approximately 2.9 trillion cubic feet of natural gas annually or about 8 billion cubic feet per day making us one of the largest and most active gas suppliers serving wholesale, retail and industrial customers nationwide. And while we continue to grow and to deliver value and innovative solutions for customers every single day, we're also focused on making ourselves better and taking steps to redefine the future of the entire electric industry. We're doing this through our new Rewire initiative and a partnership with Google Cloud. Rewire is a company-wide initiative to reimagine how we work and how we do business paired with an enterprise-wide AI transformation that we expect to unlock top line growth and cost savings opportunities for our customers. At the same time, Rewire is serving as our AI product development platform. We believe the new AI tools and solutions that we build will not only redefine how we do business and create competitive advantage, but will also help transform how our industry generates and delivers electricity and serves customers. Partnering with Google, we are delivering these products to the utility industry to unlock savings for American homes and businesses. In the first quarter, we brought to market our first Rewire products. For example, Conduit is an AI-powered tool designed to upskill our already best-in-class renewables workforce, increasing their efficiency in the field and keeping our power plants up and running. Another product called Generation Entitlement proactively identifies abnormal equipment conditions, enabling teams to take early action and optimize power plant performance across the fleet. And a product called Grid Composer uses AI to optimize and orchestrate all aspects of the power generation process. It brings real-time recommendations into one place to enable faster more informed decisions around unit commitment, power and fuel dispatch and maintenance scheduling. Importantly, we believe these tools have the potential to drive significant savings for customers. FPL's bill today is already approximately 30% below the national average. One of the reasons that's possible is because of our relentless focus on technology and driving costs out of the business. FPL's nonfuel O&M is more than 71% lower than the industry average. In fact, we're 50% more cost efficient than the second best utility in America. We believe our Rewire products reinforce our position as the lowest cost electric utility operator in the country. But it doesn't stop there. By working closely with hyperscalers, we're structuring solutions that support growth while keeping power prices affordable for American families. As we've discussed previously, that's why Energy Resources has been focused on the bring your own generation, our BYOD model that ensures large load customers pay their fair share. Not coincidentally, that happens to be perfectly aligned with where the market and policymakers are moving. The concept is simple. We build energy infrastructure for hyperscalers and they pay for it. Everyday Americans do not. That's the way to power America's growth and keep power bills affordable but we believe there's much more to the story. Remember, many parts of the country are starting at real capacity deficits as we approach the end of the decade. BYOD Power Solutions could become critical elements of a resilient grid, if we start to think about them as dispatchable resources during times have extreme demand. It's exactly what we're working on with NVIDIA a collaboration we announced in the first quarter. Just think about being able to temporarily cycle down or shift data center activity for a few hours during extreme cold or extreme heat. That would allow local load serving entities to use that power to meet customer demand when power is scarce and at a higher cost, increasing reliability and lowering power bills for everyday Americans. This is another example of how we're trying to lead and move to where we believe the market is going to be. Bottom line at this unique moment in our industry, scale, experience, innovation matter more than ever. And our common platform provides us with what we believe is an unmatched competitive advantage -- it's more than just our operating scale. We have a robust supply chain. We have global banking relationships. We worked hard to maintain one of the largest and strongest balance sheets in the sector and we use technology and data to deliver solutions for our customers. This platform is what enables us to build all forms of energy across the energy value chain. It's also hard to replicate -- that's because we've been building it, refining it and optimizing it for decades. It's how we deliver customers a reliable and affordable solutions they need when they need it, no matter where they are in America. And as power demand rises, these unique capabilities become increasingly important, all of which is a big one for our customers, stakeholders and shareholders, we are honored to serve. I'm pleased with how we've started the year and even more excited for the rest of 2026 as we execute on our more than 12 ways to grow. With that, I'll turn the call over to Mike. Michael Dunne: Thanks, John. Let's begin with FPL's detailed results. For the first quarter of 2026, FPL's earnings per share increased $0.06 year-over-year. . Regulatory capital and growth of approximately 8.8% was a significant driver of FPL's earnings per share growth versus the prior year comparable quarter. FPL's capital expenditures were approximately $3.2 billion for the quarter, and we expect FPL's full year capital investments to be between $12 billion and $13 billion. For the 12 months ending March 2026, FPL has reported return on equity for regulatory purposes will be approximately 11.7%. During the first quarter, we utilized approximately $306 million of the rate stabilization mechanism, leaving FPL with an after-tax balance of approximately $1.2 billion. This quarter, FPL placed into service approximately 600 megawatts of new cost-effective solar, putting FPLs owned and operated solar portfolio at over 8.5 gigawatts. Key indicators show Florida economy remains healthy. Florida continues to be one of the fastest-growing states in the nation and had 3 of the 5 fastest-growing U.S. metro areas between 2024 and 2025. And as John mentioned, FPL had a strong quarter of customer growth with the average number of customers increasing by nearly 100,000 from the comparable prior year period. FPL's first quarter retail sales increased by approximately 3.4% and year-over-year. After taking weather into account, first quarter retail sales increased by roughly 0.3% on a weather-normalized basis from the comparable prior year period driven primarily by continued favorable underlying population growth. Now let's turn to Energy Resources, which reported adjusted earnings growth of approximately 14% year-over-year. Contributions from new investments increased $0.04 per share year-over-year, primarily reflecting continued growth in our power generation portfolio. Our existing clean energy portfolio increased $0.01 per share during the quarter. The comparative contribution from a customer supply business decreased by $0.04 per share primarily driven by lower production volume in our upstream operations and continued normalization of margins in our full requirements business. Contributions from NextEra Energy Transmission increased $0.05 per share year-over-year, net of financing costs, driven by the sale of a 50% equity interest in a transmission asset located in California. We had no change from other impacts as lower tax costs were largely offset by higher financing costs, which are primarily related to new borrowings to support our new investments. We remain well positioned to navigate the current interest rate environment through our over $43 billion interest rate hedging program. We have also planned for potential trade impacts and positioned ourselves to deliver and execute for our customers. That's why we proactively secured supply to support both FPL and Energy Resources development plans, including the development of our national data center hub footprint. For solar, we have secured panels through 2029. We're also well protected for battery storage with competitively priced domestic supply also secured through 2029. We've secured key wind components domestically for our new build expectations through 2027. And we have sufficient transformer capacity to support our build forecast through the end of the decade. Energy Resources had a record quarter of new renewables and storage origination with 4 gigawatts added to the backlog. With these additions, our backlog now totals approximately 33 gigawatts after taking into account 0.3 gigawatts of new projects placed into service since our last earnings call. This highlights the continued strong demand for renewables and storage. And our backlog additions reflect the diverse power demand we're seeing across our customers. Roughly 30% of our backlog additions are driven by hyperscalers while the remaining 70% comes from power utility customers, including cooperatives and municipalities. Turning now to our first quarter 2026 consolidated results. Adjusted earnings from Corporate and Other decreased by $0.02 per share year-over-year. Our 2026 adjusted earnings per share expectations range of $3.92 to $4.02 remains unchanged, and we are targeting the high end of that range. We expect to grow adjusted earnings per share at a compound annual growth rate of 8% plus through 2032 and are targeting the same from 2032 through 2035. And all off the 2025 base of $3.71 adjusted earnings per share. From 2025 to 2032, we expect that our average annual growth in operating cash flow will be at or above our adjusted earnings per share compound annual growth rate range. And we also continue to expect to grow our dividends per share at roughly 10% per year through '26 and of a 2024 base and 6% per year from year-end 2026 through 2028. As always, our expectations assume our caveats. This concludes our prepared remarks. And with that, we will open the line for questions. Operator: [Operator Instructions] And today's first question comes from Steve Fleishman with Wolf Research. Steven Fleishman: So the -- just a couple of questions on the U.S. Japan projects. First of all, I guess, have anything you could share on milestones and time line to get to a final agreement there? And just do you have the turbines for these projects? And also just like pipeline and transmission access, is that something you might be able to participate in as well helping to build pipe or transmission for these projects? John Ketchum: Yes. Steve, I'll go ahead and take this. This is John. First of all, on the milestones, we continue to be heavily engaged, as you would expect, with both the Department of Commerce and the Japanese government. . Right now, as we negotiate definitive agreements, we're looking to have those completed in the next 2- to 3-month period on both of those projects. So that's the first piece on milestones and time line. And then after those are executed, you can imagine the agreements themselves will contain a series of milestones with payments tied to those milestones as they are achieved. On the second piece, in terms of product development or project development, we are heavily engaged at both sites, both the Texas site and the Pennsylvania site in terms of advancing those sites forward in terms of turbine supply, we'll have ample supply to turbines. Not concerned about that for both of those projects. And in terms of gas pipeline access, obviously, that's one of the skills that we bring to the table. Anderson at Texas is strategically located because it's one of our partners there is Comstock, and so we have [indiscernible] gas supply available in the region, which makes that project extremely attractive. And then as we advance Pennsylvania, that will be a key part of the decision-making matrix as we look to further the development activities there and then, obviously, transmission access on both of those sites is something that we will obtain as we move those projects forward and the development pieces, that's what we do. That's what we do every day. And I think that was a big part of what I was trying to get across in my remarks. When I look at the environment today, and I think a big reason we got these awards with -- from the DoC is there's really nobody that looks like us today. There's nobody out building generation at scale. We intentionally went out and shifted our strategy last year to bring your own generation. We knew that was where the market was heading. We saw it ahead of time. I think based on where our peers are and we set up our strategy around it, our supply chain around it, our development activities around it. And a lot of what we're doing, not only with the federal hubs, but outside of it with the data center hubs is we know the market wants power solutions at scale. And to do that, you have to have a combination of capabilities and skill sets that we've been building for 2 to 3 decades at this company. They're very hard to find. They're very hard to put together if you don't have them today. And so being a builder in today's market across 49 states, with all the know-how and capability sets that we have, I think, really sets us apart from the competition. Steven Fleishman: Great. Just one other unrelated question. Good to see the 600 megawatts of recontracting being done. Do you have any data point on the price increase price change in the new contracts versus the old ones? Jeremy Tonet: Yes, Steve. The pricing on the new contracts is roughly a $20 per megawatt hour on average increase relative to the prior realized pricing. . Operator: And today's next question comes from Julian Dumolin Smith with Jefferies. Julien Dumoulin-Smith: Genuinely. I just wanted to follow up a little bit on the linear infrastructure. How do you think about expanding this business? I mean you talk about hires, et cetera. But can you talk a little bit about -- is this an acquisitive strategy potentially? Or how do you think about building or building, rebuilding, however you want to frame it? John Ketchum: Yes. So I'll take it in pieces. I'll start with transmission, then I'll talk about pipelines. But first of all, when you think about the transmission business, I mean, this is really just leveraging all the skill sets that we have on the generation side because when you think about what it takes to build generation and what it takes to build linear infrastructure. It's a lot of the same skill sets, right? You've got to have a very sophisticated land operation. You have to be able to really understand how to manage the permitting and approval process. You have to have a good ground game in terms of reaching out to local communities, working with stakeholders at the state and the federal level. And you have to find projects that make sense that will result in affordability for customers. And these are the things that we do on the generation side every day that transcend over into linear infrastructure around transmission. And then given all the know-how we already have from FPL and the success we've had building transmission in Florida, all that from an operations standpoint, extends out into what we're doing there. So terrific greenfield opportunities. It's a lot of the same strategic steps we take around generation. So I think those give us a big leg up. In terms of acquisitions, sure, I mean the -- if we found the right project that made sense, we could look at acquisition. It would depend on what stage of development it is. I mean sometimes there are good development assets that make sense that could be a good fit with our overall portfolio. Wallis lean towards greenfield for the reasons I just gave. Buying operating transmission assets, sure. I mean, if we could be opportunistic about that and then they made sense and we're in the right places. That's something that we could continue to look at as well. But where we've seen a lot of success on the transmission side is our ability to partner with incumbents. And the relationships that we've been able to build across the investor-owned utility co-op and municipality space, I think, not only lens and serves us well on generation, but on transmission as well. And we're just seeing a lot of success through those partnering arrangements. So I feel great about where the transmission of linear infrastructure opportunity set sits. And then on pipelines, that's just naturally capitalizing on all those same greenfield skill sets I already talked about around generation and transmission, they equally applied to the pipeline business. And then you think about all the different skill sets that we have just around market knowledge on where transmission can -- where gas transmission can make sense. The Symmetry acquisition being a big part of that. I mean, you're one of the largest movers of gas molecules in the United States, you also probably have more information and more knowledge as to where gas pipeline expansions are required. It really helps inform our decision-making around our data center hubs on where they're going to be most economical and really can be optimized around gas. So all the investments and other pieces that we have around customer supply and symmetry feed in equally well in the pipeline business. And it's a natural extension of our ability to enable data center hubs, right, by being able to build gas or build transmission to be able to serve hyperscalers because we've really moved away from, hey, let's go build 200 or 300 megawatts. That just doesn't get it done for hyperscaler. We're looking at building 2 to 5 gigawatts for hyperscalers. You would just be amazed at the amount of interest and the amount of demand that we are seeing in the -- for that solution we are really unique in the ability to deliver that product because you have to have all the things I talked about in my prepared remarks to be able to do it and to be able to do it right. Julien Dumoulin-Smith: Awesome. And if I can just squeeze in a quick follow-up here, maybe this where Steve was going. I mean, how would you set expectations for other non-Japanese tide projects as far as the BTM effort goes. I mean BTM is obviously linked to this time to power dynamic, creating a little bit of an accelerated time line, I suspect, but I'm curious how you'd frame that. Michael Dunne: Yes. Doug, great question, Julien. I mean -- and so -- we've talked a lot about our ability to work with co-ops and municipalities, and that really helps enable situations where we can move behind the meter in those service territories. -- maybe build something out that ultimately has what I call the extension core, right, the access to the grid over time. A lot of -- because even if you start behind the meter, you have to be able to demonstrate a path to be front of the meter within 3, 4, 5 years. But a lot of the discussions that we're having around our data center hubs are starting behind the meter, right, islanded solutions, I think more and more of the market is going to go there, particularly in areas of the country where the load interconnect process is taking 5 to 7 years to clear. People can't wait. There's too big of an opportunity cost around the data center business model and the cloud storage model to wait 5 to 7 years for load interconnect. We solve that problem with the behind-the-meter solution, but you have to know what you're doing. You have to know where to site those. You have to know how to bring a number of technologies to bear. And you have to have the foresight to the plan and incredibly lay out a situation where you can be interconnected within 3, 4, 5 years because that interconnection allows you to really optimize the value of that data center because I truly believe that we need to be as a country looking at data centers as giant batteries that sit behind the grid. And I talked about our NVIDIA collaboration being able to flex chips in terms of how they consume and use power. And given all the software we've developed around dispatchability of batteries, we're uniquely positioned to design a product. And if you combine it with our customer supply business to firm and shape products are in scarcity intervals, hot summer day, cold winter day, where a data center can be dispatched like a battery and think about what that does for affordability for customers in the region when you're providing that excess supply that really helps to take a big hit out of the bill for everyday Americans that may struggle to pay those during the scarcity times that we have seen over the last 5, 10 years in this industry. So something we're very focused on, something hyperscalers are very interested in. And I think it's unique for NextEra because we have all the expertise around technology, our partnership with Google being a part of that. Operator: Next question comes from Shar Purreza with Wells Fargo. Shahriar Pourreza: John, just on large-scale nuclear. I know the government and hyperscalers have indicated some level of interest in the AP1000. And there seems to be this consortium of regulated utilities forming that could consider new nuclear development as a group with a good portion of the cost inflation above budgeted amounts being borne by the hyperscalers, so the off-takers Turkey Point is obviously under an active review with the NRC. Are you sort of part of this consortium? Is it something you would consider with the right cost overrun protections? Or are you just really focused on recontracting like Point Beach? John Ketchum: Yes. So let me take those in pieces. So the first part, you're right. I mean, Turkey Point is kind of an unusual position because Turkey Point 6 and 7 already have the licenses, right? And so you kind of skipped to the front of line on 7 to 8 years of approvals that would otherwise be required. So we've always had Turkey Point as a what I'll call a natural gas fuel hedge if we wanted to do something there around an AP 1000. That being said, for us, I think we would probably be more inclined to a toe in the water or maybe an SMR down at Turkey Point rather than an AP 1000. And we would do it in a way where we could combine, like I always like to talk about the 4 wallets, right, which is the OEM, the developer, the hyperscaler and the federal government because we asked you have to, one, be comfortable with the technology and the technical feasibility of it will work at the end of the day. And number two, as we keep saying, it has to be structured in a way that protects our customers and protect our shareholders. And so that's what we would look to do. We would not be interested in doing that together with a consortium. We have a lot of experience here. We feel very comfortable in our ability to do this on our own. But you got to get the insurance tower, so to speak, right, in terms of who takes that ultimate cost overrun risk. And so beyond Turkey Point and if you think outside of Florida, we are working closely with OEMs and with hyperscalers. As you know, we have our national collaboration with Google, for example, around advanced nuclear we're looking together with Google where that might make the most sense. We have 6 gigawatts of SMR capacity at our existing sites. We have the ability to greenfield development as well. But again, any of those opportunities have to include those 4 wallets, and we have to get the technical and the commercial risk sharing right for those to advance. Shahriar Pourreza: Got it. So I guess your view is despite the learning curves of Vogtle, the SMRs are still more economical than an AP-1 down? John Ketchum: Yes. I mean, I just -- I look at it there's 2 types of SMRs, right? There's Gen 3, which are just what I would call a downsized AP1000, right? So you're looking at building an AP1000 just in a smaller chunk, a little bit of a smaller bet GE has got the Ontario project going on now, he'll be a lot of lessons aren't coming out of that. And the Gen 4s really are -- you're taking 2 step changes around Gen 4, Gen 4 is the technology, which is not really an extension of an AP1000 that tried proven and you're jumping into an additional fuel risk withthe highly enriched uranium, which we still haven't really perfected in this country. So our focus would be more around the Gen 3 technology. Shahriar Pourreza: Got it. And then just lastly on Point Beach, we're getting close to when a decision needs to be made on the PPA, especially for the offtaker who's going to need to plan ahead on new generation needs if the PPAs aren't renewed. I guess how are the dialogues going with WEC? Do you have an interest there from a hyperscaler? I guess when can we get an update around Point Beach? John Ketchum: Yes. Thanks, Shar. There is a lot of interest for Point Beach, as you might imagine, right? I mean a lot of interest from a number of folks. And so we are just being diligent and making sure that we make the right decision around Point Beach. I'm not going to call out who exactly we're talking to what the names are. But needless to say, just a lot of interest around that asset for obvious reasons, given where it's located and all the hyperscaler opportunities around it. And so discussions are continuing to progress there. And we like what we see, and it's an attractive and a valuable asset. Operator: The next question is from Bill Appicelli with UBS. William Appicelli: Just addressing the backlog update. I think you've seen some strong progression here from about 3 gigs in Q3 to 3.6 to now 4 gig. So would you say this reflects some acceleration of the contracting ahead of the tax credit roll off at the end of the decade? Or is this just underlying demand being exceedingly strong irrespective of the tax credits? Brian Bolster: It's Brian. I'd say at this point, we're actually -- we haven't actually stepped into the acceleration yet. This is just a reflection of some of the growth that we've seen out in the market. And so it's really the reflection of the growth as opposed to acceleration. We'll probably see that as we start to move out here in the coming quarters, but this is just kind of fundamental demand for fundamental growth that's tied to what's the best economic answer for the demand that's in front of us as opposed to people trying to move in, in advance of the tax credits. John Ketchum: Yes. And the other thing I would add to that is I may comment in the prepared remarks about where we stand in our supply chain, right, with solar panels, bought through 29 transformers through the end of the decade, batteries are 29 wind components so on and so forth. We are so well positioned to capitalize on this back-end demand that we see coming, which is again, I think, going to be a fantastic opportunity for this company. And you combine that with the safe harbor position that we already have that we were quite aggressive on a while back. I just can't imagine there's any company in America better positioned to seize upon the demand that we are going to see over the next 3 to 4 years and beyond for renewables. And for storage, particularly given how long it's taking to build gas-fired generation in this country. And like I keep saying, we're building it all. We're a big believer that gas is needed and is going to provide a big impact. But it's not quick, right, to get the market in solar and storage are. And -- and we have positioned our company around the ability to seize upon those opportunities. I think you'll see in the first showing of that here this quarter, and we look forward to many more strong quarters to come. Brian Bolster: So there's upside to 4 gig a quarter run rate, I guess, is another way to put that. Well, you said it, I didn't, but we feel really, really good about where we sit. William Appicelli: Okay. And then just shifting gears outside of the Texas and Pennsylvania projects, can you just speak a little bit to the gas generation build contracting. I know it's sort of subsumed in some of the hub strategy, but it does seem like there's some complexities in the market around getting deals announced on on our new build gas contract to your point that you just made there in those in my prior question. Is there anything you can point to in terms of gating factors? Is it just the complexity around managing fuel risk? Or is it getting the offtakers to be able to commit to that? Just curious there. Brian Bolster: Yes. No. I mean, look, I think that gas build-out continues to advance around the country. But remember, we were starting gas-fired generation development we be in the industry, right, from kind of a standing start a year or 2 ago. And so we've seen manufacturing start to ramp up. We've seen EPC labor respond as well. But I think the biggest constraint that I see in the market right now is getting gas built faster is labor, right? It's EPC contractors. We used to have 9, 10, 11 EPC contractors building gas plants back 10, 20 years ago. Some filed bankruptcy, some pivoted and other businesses. If you look at really what I would call the 4 EPC contractors that we do business with today, a lot fewer than what we've ever had and the squeeze on labor in the market today when you're building a gas plant, pipe fitters, welders, so on and so forth, the same EPC firms are building LNG terminals, they're building data centers there in other parts of the market. And so lining up the labor, getting the labor secured and in place, that's a piece of it. And then depending on where you're building permitting. We keep talking about permitting reform. We have got to get permitting reform done in this country. It is imperative that we get that done, both for linear facilities. And also just to expedite permitting at the state and the federal level. Those are the things more than anything that I think are contributed. The gas will be built, that will come online. And NextEra is one of the companies that will drive that, but it's just not as fast as other other forms of generation. So that's why we keep saying we need it all, right? We need to put it all together. And when you get every electron on this grid as fast as possible, speed to power is essential and that will allow us to unleash American Energy dominance across America. Operator: The next question comes from Nick Campanella with Barclays. Nicholas Campanella: A lot of good updates. So I just wanted to ask quickly on the 1 gigawatt you want to deliver on at FPL. Is that already kind of in the plan? And just we noticed the capital expenditures are now $12 billion to $13 billion for '26 million. And I think at the analyst event, there was $10 billion to $11 billion. So a nice increase there. And -- just wondering if that's for the 1 gigawatt you were already talking about. Is that kind of the new run rate we should expect going forward for FPL understanding that I think you just reaffirmed the total CapEx outlook today. John Ketchum: So a few things on nice Don here, do things on that. I think, firstly, we've not said how many gigawatts or gigawatt of large OE expected I think we've only said that we expect to have a large load transaction finalized this year. And so -- but we have not set at 1 gigawatt or what that number would be. Second piece is, as you do look at the CapEx increase, this is really aligned with what John said earlier about being prepared. So as we brought in and secured solar supply, a piece of that solar supply is bringing that in today at locked-in prices to remove any trade impacts and we'll be able to use that to cost effectively serve our customers in Florida in the future, but that a piece that was pulling in some of those capital expenditures. So FPL situated extremely well for low cost to our customers by taking proactive measures to reduce any trade impacts. Nicholas Campanella: Understood. Okay. And then just maybe if I can one follow-up on the Japan deal and framework. It's just our understanding that, that's a bit of a kind of capital-light opportunity, they're the owners, they're the builders. So just how would you kind of view the return of that opportunity to like the 13% to 20% plus equity IRR that you had out there at the investor conference. It's just the 9.5 gigawatts is a very large number and trying to understand how that supports or accelerates the 8% plus EPS view. John Ketchum: Right. So to your first piece, remember, this is a capital light investment essentially 0 capital for us. So from a returns perspective, it's essentially infinite. We are putting no capital down, and we would potentially receive fee streams for a long period of time. Importantly, in order for us to capture that, our incentives are 100% aligned with the U.S. government and with Japan because we will need to perform in order to receive those payments. And they're also through the duration of the assets. So they are not just development payments or construction payments but also ongoing O&M payments. As you look at what those fees can be and what that value can be to NextEra, I think we'd like to take the time to make certain that we have the contracts in place before we know what that will be. But we are looking at these investments at making this time investment and working through these because they can be value accretive to our shareholders. Operator: And at this time, this concludes our question-and-answer session as well as today's conference. Thank you for attending today's presentation. You may now disconnect your lines, and have a pleasant day.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Ms. Deanna Hart, Head of Investor Relations. You may begin. Deanna Hart: Good morning, and thank you. Welcome to First Citizens First Quarter 2026 Earnings Call. Joining me on the call today are our Chairman and Chief Executive Officer, Frank Holding; and Chief Financial Officer, Craig Nix. They will provide first quarter business and financial updates referencing our earnings call presentation, which you can find on our website. Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined on Page 3 of the presentation. We will also reference non-GAAP financial measures. Reconciliations of these measures against the most directly comparable GAAP measures can be found in Section 5 of the presentation. Finally, First Citizens is not responsible for and does not guarantee the accuracy of earnings transcripts provided by third parties. I will now turn it over to Frank. Frank Holding: Thank you, Deanna. Good morning, and welcome, everyone. Thank you for joining us. I'll start by highlighting our overall performance for the quarter before turning it over to Craig Nix to take you through our financial results and outlook for 2026 in more detail. Starting on Page 5. We were pleased with our first quarter results. This morning, we reported adjusted earnings per share of $44.86, representing an adjusted ROE and ROA of 10.39% and 0.97%, respectively. While lower rates were a headwind, we saw strong deposit growth. Credit quality remains strong and expenses came in below our expectations. Deposit growth accelerated this quarter, up by 5.7% sequentially, anchored by increased client activity in tech and health care and global fund banking. In addition, deposits grew in the General Bank segment and the direct bank. This growth was also supplemented by the strategic use of broker deposits to further bolster our liquidity position. We also achieved solid increases in off-balance sheet client funds driven by the tech and health care and global fund banking businesses. We continue to optimize our capital stack, returning another $900 million to shareholders through share repurchases. Due to our strong liquidity position, we were able to prepay another $2.5 billion to the FDIC -- on our FDIC promissory note, money note during the quarter. Turning to our announcement this morning. We are expanding our commercial solutions and optimizing our brand portfolio to better serve our clients and drive growth. In 2026, we are accelerating our strategic road map by expanding capabilities in payments, international banking and digital assets. As part of this growth, we will transition to a united brand structure in the fourth quarter, featuring innovation banking and fund banking sub-brands under the First Citizens umbrella. Now brand adjustments always generate questions, and we want to be perfectly clear that while names are changing, the client experience is not. Our relationship teams remain the cornerstone of our service, providing the same deep specializations that our clients rely on. This brand alignment simply opens the door to a larger platform of solutions and a more connected network of experts for the future. Despite a complex global backdrop, we continue to operate from a position of strength. Our capital, liquidity and risk discipline provide a solid foundation that allows us to focus on what matters most, serving our clients and customers and continuing to drive long-term shareholder value. We are confident in our strategy, disciplined in our execution and very optimistic about the path ahead. I'll conclude with that and pass it over to Craig Nix to take us through the financial results for the quarter and guidance for the remainder of the year. Craig? Craig Nix: Thank you, Frank, and good morning, everyone. I will anchor my comments to Page 8 of the presentation, Pages 9 through 27 provide details underlying our first quarter results. In the first quarter, we delivered adjusted earnings of $44.86 per share on net income of $560 million. The sequential decline of $6.41 per share largely reflects the impact of lower interest rates on our net interest margin. However, we were pleased that lower noninterest expense helped offset a portion of the net interest income decline. In line with our previous guidance, net interest income declined by $101 million, with NIM compressing 11 basis points to 3.09%. This decline was primarily driven by lower earning asset yield following the Fed's rate cut in late 2025, alongside a shorter day count this quarter. However, these headwinds were moderated through strong organic loan growth, lower funding costs and a reduction in average borrowings. Noninterest income was down $9 million from the linked quarter, but in line with our previous guidance. The majority of the decline centered in other noninterest income, which was down $15 million, largely attributable to a decrease in other investment income, a line item subject to fluctuation on a quarterly basis. Outside of the decline in other noninterest income, our core fee categories performed well. We saw solid growth in deposit fees and lending-related capital market fees though these increases were partially tempered by seasonal declines in factoring commissions. Additionally, while the Fed funds rate environment pressured client investment fees, we successfully mitigated that impact through a $3.9 billion increase in average off-balance sheet client funds. Adjusted noninterest expense was $38 million lower sequentially, outperforming our previous guidance. This reduction reflects a $16 million decline in professional fees as we successfully completed several technology and risk management projects at the end of 2025. Marketing costs also declined by $15 million as we pivoted our funding strategy this quarter to leverage lower cost broker deposits rather than higher cost deposits in the direct bank. While the direct bank remains a critical funding source, and we expect marketing expense to normalize in the future, we will remain agile, balancing deposit growth with cost efficiency to protect our margins. Finally, we saw a $16 million seasonal normalization and other expenses. These reductions were partially offset by seasonally higher benefits expense due to resets as well as continued deliberate investments in our technology platforms, which are essential to scaling our operations and enhancing our client experience. Turning to the balance sheet. Period-end loans grew $762 million or 0.5% sequentially, driven by global fund banking, which was up $1 billion on record production of over $6 billion, surpassing the record set just last quarter. With average line utilization also trending higher, we see evidence of higher client demand and a robust pipeline moving forward. In middle market banking, we added $327 million in growth and stable production was bolstered by lower prepayments. While we are pleased with this quarter's growth, we maintain a guarded outlook given the broader macro environment. General bank loans decreased $591 million, primarily reflecting a strategic decision to move $365 million in SBA loans to held for sale. Excluding this balance sheet optimization, the decline was driven by typical first quarter seasonality. On an average loan basis, loans increased $2.2 billion sequentially, led by our global fund banking business. Turning to the right-hand side of the balance sheet. Period-end deposits grew by $9.3 billion or 5.7% sequentially. This growth reflects strong organic growth in our core business segments as well as execution of our balance sheet optimization strategies. Within SVB Commercial, we saw significant momentum in global fund banking and tech and health care where deposits grew sequentially by $5.6 billion, driven by a visible pickup in VC investment and exit activity. Growth here underscores the strength of our franchise within the innovation economy. While these inflows were encouraging, we remain disciplined in our outlook as a portion of this growth stem from large short-term deposits. As we've noted before, these inflows can be lumpy and we have already observed some anticipated outflows in April. We are managing these balances with a strict focus on liquidity and funding cost optimization in mind. In the General Bank, deposits grew by $1.1 billion. This was largely driven by successful seasonal campaign within our [ CAB ] business and solid growth in our branch network, demonstrating our ability to consistently execute on core deposit gathering initiatives. To support the transition away from the purchase money note and limit impacts to net interest income, we also tactically utilized $1.8 billion in broker deposits. This was a flexible lever for us this quarter as the all-in cost was lower than leading rates in the direct bank as we continue to monitor pricing and tenor to ensure a resilient and cost-effective funding mix. On an average basis, deposits also performed well, growing by $2.7 billion or 1.7% sequentially, driven primarily by tech and health care banking and [ CAB. ] Finally, off-balance sheet momentum was equally strong. SVB commercial client funds rose $8.1 billion to nearly $78 billion, while average off-balance sheet funds grew by $3.9 billion. Turning to credit. Provision was $103 million for the quarter, up $46 million from the linked quarter. The increase was driven almost entirely by a larger reserve release last quarter rather than a negative shift in credit quality. In fact, the net charge-off ratio came in 9 basis points lower than the linked quarter at 30 basis points with net charge-offs totaling $111 million. This was favorable to our previous guidance, though I'd characterize the beat as a matter of timing on specific resolution efforts, particularly within our general office book rather than a significant change in our overall outlook. While nonaccrual loans moved slightly higher to 96 basis points, the change was isolated to a few specific credits. We do not view this as a signal of broader migration or systemic pressure across the portfolio. This is supported by our $8 million reserve release this quarter, which was underpinned by growth in high-quality segments like Global Fund Banking and changes to the macroeconomic outlook. Given the heightened market focus on private credit and NDFI exposures, we've included a new slide today to provide additional transparency. Our NDFI exposure stands at $38.8 billion, but it is critical to look at the structure, 83% of this book consists of capital call lines. These are backed by contractual LP commitments, not investment performance, and historically carry exceptionally low credit risk. The remainder of the book is diversified, well collateralized and supported by structural protections. Traditional private credit represents approximately 8% of the NDFI portfolio and includes lines provided to credit funds and warehouse lines, both of which are well secured. To summarize, our exposure to the private credit ecosystem is defined by conservative structures, significant sponsor equity and rigorous covenant protections. While we remain vigilant in a volatile macro environment, our credit culture is built for this backdrop. We are confident that our disciplined standards and resilient portfolio position us well to navigate the cycles ahead. Turning to our capital position. We continue to execute on our commitment to a disciplined capital return. As of April 21, 2026, we have made significant progress on our 2025 share repurchase plan having repurchased over 20% of total common shares outstanding for a total of $5.7 billion. This includes the successful completion of our 2024 plan, and roughly 52% of our current $4 billion authorization. Our first quarter CET1 ratio stood at 10.83%. While this represents a 32 basis point sequential decrease, it was a deliberate outcome as we balance loan growth and share repurchases against first quarter earnings. As part of our annual capital planning and informed by internal stress testing, we adjusted our CET1 target range down by 50 basis points to 10% to 10.5%. We believe this recalibrated level provides the ideal balance of ensuring we remain strong for severe stress events while maximizing our flexibility to support both client growth and shareholder returns. Regarding the pace of repurchases moving forward, we returned $900 million to shareholders this quarter. However, as we approach our new target capital range, we anticipate a slower pace for the remainder of the year. This shift reflects prudent management of the balance sheet, accounting for anticipated organic growth, the shifting economic backdrop and our commitment to a conservative capital buffer. Finally, we are encouraged by the revised Basel III proposal released in March. Our initial assessment indicates a potential 70 to 100 basis points benefit to our CET1 ratio, primarily driven by lower risk-weighted assets under the new standardized approach. While the proposal includes the phase-in of AFS and pension-related AOCI, we don't expect a material impact given our short duration investment strategy and limited AOCI risk. Overall, these regulatory developments represent a clear step forward providing us with enhanced capital flexibility to drive long-term value for our shareholders. Turning to Page 29, I'll conclude with our outlook for the remainder of 2026. The macroeconomic backdrop remains fluid, making it difficult to narrow the range of potential impacts on the broader economy and our business lines and clients. Accordingly, we have not made significant changes to our previous guidance, but do continue to monitor the environment and how it could impact our performance. Starting with the balance sheet. We expect loans to land between $149 billion and $152 billion at the end of the second quarter. In the Commercial Bank, we expect loan growth to be anchored in Global Fund Banking where we are managing a robust $12 billion pipeline. While we expect long-term expansion, we remind everyone that ending balances can ebb and flow based on the timing of client draws and we anticipate some quarter-to-quarter volatility here even as absolute levels grow. Outside of growth in Global Fund Banking, we are projecting growth in commercial finance industry verticals and middle market banking portfolios. In the General Bank, as seasonal headwinds abate, we expect growth to be supported in the branch networks business and commercial loan portfolios. For the full year, we are reiterating our loan guidance of $153 billion to $157 billion, inclusive of the $1 billion in the BMO acquisition. To optimize our balance sheet, we continue to evaluate strategic sales similar to this quarter's $365 million SBA securitization to efficiently fund the repayment of our purchased money note. Now to deposits and funding. We anticipate second quarter deposits between $171 billion and $174 billion. We expect growth in the General Bank segment and in the direct bank as we are seeing strong momentum in both where competitive pricing and marketing are helping us capture share. Growth in these channels will help mitigate expected outflows in Global Fund Banking and within tech and health care as those clients continue to utilize cash for operations or move to off-balance sheet investment products. For the full year, we reaffirm our range of $181 billion to $186 billion, including the $5.7 billion BMO infusion. This range continues to include significant growth in the direct bank as we look to continue to prepay the purchase money notes. We've made significant progress on the purchase money note with $5.5 billion in total prepayments through today, including $2.5 billion this quarter and another $500 million in April. Moving forward, we expect to pay down at least $500 million to $1 billion per month, utilizing excess liquidity, broker deposits or other funding levers as interest rates and market conditions dictate. Next, our net interest income and rate outlook covers a range of 0 to 2, 25 basis point rate cuts where the Fed funds rate may decline from a range of 3.50% to 3.75% today to a range of 3% to 3.25% by year-end. We expect second quarter headline net interest income to be in the $1.6 billion to $1.67 billion range. While we expect strong earning asset growth, we think it will be partially offset by modest increases in funding costs as deposit competition remains intense across all channels. For the full year, we are marginally tightening our range to $6.5 billion to $6.8 billion. This accounts for the persistent pressure on DDA balances in a higher for longer environment, continued deposit competition and a projected $100 million reduction in loan accretion. Moving to credit. We expect second quarter net charge-offs in the 35 to 45 basis point range. We are actively managing the commercial general office portfolio and the SCB commercial books where we expect losses to remain elevated in the medium term, while the equipment finance portfolio losses have largely stabilized, we are watching one larger deal that could result in elevated losses in the second quarter. Reflecting first quarter performance, we are lowering our full year net charge-off outlook to 30 to 40 basis points with the range reflective of the fact that a handful of large deals can cause lumpiness in the ratio. Moving to noninterest income. We expect it to be in the $520 million to $550 million range in the second quarter. Overall, we continue to see strength in many of our business lines, such as fees from wealth, rail and credit card and merchant services. For the full year, we are raising our adjusted noninterest income guidance to $2.12 billion to $2.22 billion, driven by our rail business, repricing momentum, deposit fees and service charges, growth in wealth and lending-related fees as we continue to benefit from loan growth and capital markets activity. On to expenses. We expect the second quarter to be in the $1.34 billion to $1.38 billion range, slightly up from the first quarter. We expect the growth to come primarily from higher direct bank marketing costs given our focus on client acquisition in that channel. As we continue to focus on bending the cost curve, we are reducing our full year range to $5.34 billion to $5.43 billion. The increase in full year expenses includes merit-based increases, marketing costs, tech scaling and the BMO acquisition impact, which will add less than 1% to our overall expense growth in 2026. As Frank mentioned earlier, we are excited to implement a united brand strategy to continue to align platforms and provide expanded solutions for our clients. While we are still assessing the impact of this announcement, we believe it will add an additional $20 million to $30 million to full year noninterest expense. We expect that our adjusted efficiency ratio will be in the lower 60% range in 2026 as the impact of prior year rate cuts have put downward pressure on net interest income. We believe that the investments we have made in our franchise while driving up costs in the short and medium term are foundational to delivering positive operating leverage over time. Meanwhile, exercising disciplined expense management is a top priority for us given headwinds to net interest income, and while we are not providing guidance beyond 2026, we are committed to returning to positive operating leverage as the interest rate environment normalizes, and we begin to recognize some of the efficiencies from the investments in our franchise. Longer term, our goal remains to operate an efficiency ratio in the mid-50s. And finally, for both the second quarter and full year 2026, we expect our tax rate to be in the range of 24.5% to 25.5%, which is exclusive of any discrete items. To conclude, our first quarter results are reflective of the strength and resilience of our diversified business model. Thanks to our long-term focus and continued investments in our business, we're well positioned to continue delivering value to our clients, customers and shareholders. This concludes our prepared remarks. I will now turn it over to the operator for instructions for the question-and-answer portion of the call. Operator: [Operator Instructions] Our first question comes from Chris McGratty with KBW. Christopher McGratty: Great. Craig or Frank, on the new CET1 target, I just want to make sure I got all the pieces, 10%, 10.5% is the new target. And then on top of that, there's a 70 to 100 benefit on the Basel III. How should we think about -- I hear you on the near term on the buybacks. But is there any bias within the range near term? Any changes in uses of capital near term? Craig Nix: Yes. If you go back to '25 and so far '26, our repurchases have ranged from $600 million to $900 million per quarter. And as we move closer to that range, the 10% to 10.5%, we would expect to moderate to the lower end of that range for the next 2 quarters. Christopher McGratty: Okay. And then on the NII guide, I appreciate the fluidity of the curve. But any -- last quarter, you gave some comments on troughing expectations and margin expectations. Any refresh of that, both on a core and a reported basis, Craig? Craig Nix: Sure. In terms of just the tightening of the guidance, we would still, for the full year, expect low single-digit percentage decline in the absolute dollar amount of net interest income. If we look at the trajectory, though, for 2Q '26, we would expect both headline and ex accretion, net interest income to be down low single digits percentage points. And NIM to be in the mid-3.0s, and ex accretion in the high 2.90s. As far as fourth quarter exit we expect both headline and ex accretion net interest income to be up mid-single-digit percentage points and expect headline NIM to be in the high 3.0s and ex accretion in the low 3.0s. And in terms of troughing, I think you asked about that. We would expect that headline net interest income and ex accretion net interest income to have already troughed in the first quarter, but the NIM will trough in the third quarter. Operator: Our next question comes from Casey Haire with Autonomous Research. Casey Haire: Great. I wanted to touch on the deposit growth outlook, very good start here in the first quarter, a lot of it coming from the SVB side of things. Craig, I think I heard you say that you expect direct bank to drive a lot of the growth going forward. But just wondering what the outlook is on the SVB side of things after a strong quarter. Craig Nix: Why don't you do the SVB, and Marc, you can weigh in on this as well. Unknown Executive: Yes. I'll start with the SVB. I mean we do expect continued growth through the end of the year. I think when you look at the balances, as Craig mentioned, we did have some very large inflows, client accounts that we do expect to either go back out and/or transition to off balance sheet. And so I think second quarter from a Silicon Valley perspective, we do think moderate, but we do see growth really through the end of the year. Marc Cadieux: And nothing to add. Craig Nix: What do you think, Marc? Nothing to add, Marc. Okay. Marc Cadieux: Nothing to add. Casey Haire: Okay. Great. And then on the credit quality front, on the NPL uptick, Craig, I heard it's nothing systemic. But I was just wondering if you could provide a little more color as to what drove that, those credits, what type of credits they were and resolution efforts to reduce the NPL ratio of around 1% going forward? Craig Nix: Andy, would like to take that one, please? Andrew Giangrave: Yes, sure. The increase was driven specifically by 3 main credits, 2 of which were our multifamily that have moved to nonaccrual. We really don't see a lot of loss content on those 2, reviewed them for specific reserves and are working through resolution on those. The third was an account in our innovation portfolio, been criticized for some time. It's currently up for sale, and we hope to have resolution on that credit at some point this year. In terms of efforts to bring down our NPLs. The majority of our NPLs really reside in our general office. And so as Craig noted at the beginning, charge-offs in our general office portfolio were down this quarter, and we anticipate -- and a lot of that was timing on resolution. So we would anticipate, as we work through this year, to see some of those resolutions come to fruition. And as a result, we would anticipate NPLs to come down. Operator: Our next question comes from Anthony Elian with JPMorgan. Anthony Elian: Craig or Frank, I appreciate the new slide you have on the NDFI book. Could you help us quantify your exposure to companies in the software industry for both loans and deposits? I don't think this has been disclosed since you acquired SVB a few years ago. Craig Nix: Yes. I will let Andy elaborate. But in terms of on-balance sheet, software is $8.1 billion and about $14.4 billion of exposure. But I'll let Andy talk about what that portfolio looks like. Andrew Giangrave: Sure. Thanks, Craig. So having back the innovation economy for quite a while, we obviously had some very deep experience managing tech credit portfolios through multiple economic cycles and changes in tech shifts there. We have seen improvement throughout the last several quarters on our criticized levels within the [indiscernible] portfolio. And if you think about our portfolio, couple of main buckets, if you will. The first would be emerging growth, VC-backed type companies. And they are focused on being kind of the disruptors themselves and are really AI native or investing heavily in AI. And so you can think about those really being the investor-dependent type transaction. So they're really focused on access to capital, and that's where the risk would be. The other large bucket would be the middle market software companies kind of PE controlled or the late-stage venture-backed companies. These are actively focused on AI adoption and the evolution to address any potential disruption. And that would be the second bucket. And then there's also within that $8 billion, there's probably 25-ish, 30% of which are either cash-secured or ABL transactions. So we feel good about that credit risk as well. We have done a deep dive into the portfolio to evaluate any attributes for vulnerability or strength within each of those borrowers, including looking at, are they a system of record? Do they have proprietary data? What is the level of switching costs, et cetera. So we've got a good sense for strengths or weaknesses with each of those borrowers. We're also leveraging our deep relationships with the VC firms themselves to get additional insight. And as we go through the second quarter, we will be doing additional focal reviews at a finer segmentation. That's kind of the overview, high level overview of our software exposure. I think you touched on NDFI as well. Within our private credit book, we did a deep dive there this quarter as well. The software exposure within that portfolio average is about 14% of software exposure for any given fund, so not too outsized. And as Craig said, those structures are very well collateralized and have a lot of structural protections. And then finally, as part of that deep dive, we did a stress scenario and assume some very conservative either default rates and recovery rates and found that any losses would be manageable coming out of that portfolio. Anthony Elian: Great, Andy. And then my follow-up from an earlier question. Craig, on the exit NII guide you gave earlier, you gave a range of up mid-single digits. Could you make clear what time period that was for? And what comparison period was the base? Craig Nix: The up mid-single digits was the first quarter to fourth quarter exit. Anthony Elian: Both for core and GAAP NII? Craig Nix: That's correct. Operator: Our next question comes from Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: So just a question on the competition that remains intense in deposits. Could you just maybe provide some commentary on just thoughts in your franchise or what you're seeing with terms and pricing from peers? Craig Nix: I think competition is intense, pricing betas haven't moved much given pricing pressures. So I would describe competition as intense. I will let Marc maybe talk about a little bit what he's seeing at SVB, and Elliot a little bit of what we're seeing in the branch network in the direct bank. Marc Cadieux: So I will start. It's Marc Cadieux on SVB. And as Craig mentioned, the competition is intense. We see it from all manner financial institutions, neobanks, fintechs, et cetera, competing for balances. And as I think the quarter indicates, we are holding our own, notwithstanding the competition, allowing as already mentioned that there is some volatility to the balances and all of which is reflected in our guide. I will pass it along. Elliot Howard: Yes. And I think as it relates to both the branch network and especially the direct bank, where we're really seeing the pressure is on a lot of the money market promos, CD rates do now with kind of the expectation of really net rate cuts. And so we're seeing competitors still out there with really kind of a 4% type rate. I think our hope would be that betas would have shifted down a little bit that we would assume something kind of more in the high 3s, but competition has really remained and those lead rates have really stayed elevated through the first quarter. Bernard Von Gizycki: Great. And just as a follow-up. The commentary about the broker deposits being all in lower cost versus the direct bank. Just any commentary you can provide on what the -- maybe the spread differences between the 2, just to give us a sense? Tom Eklund: Yes, sure. This is Tom. If you look at the broker deposits, I mean, during the first quarter, you were able to raise those what I would consider in the high 3s. Whereas to Elliot's point earlier, some of the competition we've seen in the direct bank and even some of the branch network, we've seen rates north of 4% there. Obviously, the brokered market is efficient. Marketing costs are sort of fixed at that 10 basis points. So you have an all-in cost below that 4% handle in that channel. So that's really what drove us to shift a little heavier into that space. And again, we'll continue to monitor market conditions as we move ahead. Operator: Our next question comes from David Chiaverini with Jefferies. David Chiaverini: So on the loan outlook, it sounds like the pipelines for Global Fund Banking are robust, but you sounded more guarded on the middle market side of the business. Can you talk about what's driving this? Is it macro uncertainty or geopolitical risk? Just any color there would be helpful. Unknown Executive: Yes. I think in the middle market and really, come to the industry vertical space, I think we still do expect growth. I think, certainly, with the geopolitical events occurring right now, a little bit of uncertainty. We did see prepayments pick up a little bit in the first quarter. But I think all is equal, we are expecting growth really kind of in the, call it, mid-single digits in industry verticals and really that middle market space. So still optimistic. But I think we do have a little bit of hesitation just with kind of the uncertainty that's out there right now. David Chiaverini: Great. And in terms of the loan pricing environment and the competitive environment there, can you provide some commentary there? It's clearly very intense on the deposit side, curious about the loan pricing side. Unknown Executive: Yes. We've -- generally, I think over the past few quarters seen spreads come in a little bit just due to the competition. What I'd say is I think we're reaching more of a stabilization on really those spreads. So I think competition is fierce right now, but I think we'd characterize it really throughout '25 and certainly in first quarter '26 as remaining intense. Operator: Our next question comes from Christopher Marinac with Brean Capital, LLC. Christopher Marinac: Is there a further goal on the FDIC purchase money note beyond what you've already done in April? Craig Nix: With further goal, we would anticipate at a minimum, based on the roll-off of the loans collateralizing our U.S. treasuries collateralizing the note to pay down an additional $500 million to $1 billion per month, so that sort of gives you an idea of the trajectory we're on. Christopher Marinac: Sure. And then back to the other conversation about broker deposits, you really are a long ways away from having any restraints on how many brokered funds you can do. Is that correct? Tom Eklund: Yes, that's correct. I mean these were really sort of the first deposits. We had another slug of broker deposits that matured. I believe it was back in October last year. So we're really coming off of a very low base here. And really, the way we look at that is we look at those deposits in conjunction with the direct bank and sort of look for, as I spoke about earlier, opportunities from a cost perspective where we can get the best execution. Christopher Marinac: Great. But in general, in the big picture, the direct bank is still going to grow. It might just be more of a timing difference in terms of where you are this year, next year, et cetera? Tom Eklund: Yes, that's right. We still expect the direct bank to continue to grow. It's just that we might moderate some of the expectations if we continue to put on broker deposits to augment that growth if that turns out to be cheaper. Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to our host, Ms. Deanna Hart for any closing remarks. Deanna Hart: Thank you, and thanks, everyone, for joining our call today. We appreciate your ongoing interest in our company. And if you have further questions or need additional information, please feel free to reach out to the Investor Relations team. We hope you have a great rest of your day. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a wonderful day.
Operator: Good morning, and welcome to Dover's First Quarter 2026 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Chris Woenker, Senior Vice President and Chief Financial Officer; and Jack Dickens, Vice President of Investor Relations. After the speaker's remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir. Jack Dickens: Thank you, Clay. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through May 14, and a replay link of the webcast will be archived for 90 days. Our comments today will include forward-looking statements based on current expectations. Actual results and events could differ from those statements due to a number of risks and uncertainties, which are discussed in our SEC filings. We assume no obligation to update are forward-looking statements. With that, I will turn the call over to Rich. . Richard Tobin: Thanks, Jack. Good morning, everyone. Let's get started on Slide 3. We're off to a good start in 2026. Revenue grew double digits in the quarter, driven by continued strength in our secular growth exposed end markets acquired company performance and constructive demand conditions across the portfolio. Bookings were a key highlight in the quarter. First quarter bookings totaled $2.5 billion, up 24% year-over-year. Book-to-bill was healthy at 1.2% in the quarter with each of the 5 segments well above 1, providing improved visibility and confidence in our forecast. Our balance sheet remains strong and continues to provide flexibility for long-term value creation. During the quarter, we continued to return capital to shareholders through opportunistic share repurchases while also investing behind high-return capacity expansions and productivity projects, our acquisition pipeline remains active as industrial M&A begins to pick up. As always, we will remain disciplined with a focus on maximizing value creation through strong financial returns and strategic fit. All in, adjusted EPS of $2.28 per share was up 11% year-over-year. While we are keeping a keen eye on the geopolitical machinations, and the possible impacts to the macro environment, we believe we are well positioned to drive value creation for our shareholders given the underlying strength of our order books, the flexibility of our business model and the operational execution of our teams and our opportunities for capital deployment. We remain committed to delivering double-digit adjusted EPS growth for the full year consistent with Dover's long-term performance trajectory. We have chosen to reaffirm full guidance for the year for the time being. But clearly, based on order rates, we are driving to the top end of the range. We will revisit guidance next quarter. Let's go to Slide 5. Engineered Products revenue increased modestly in the quarter supported by strong underlying demand and healthy bookings in aerospace and defense components and industrial winches, along with improving trends in the global vehicle aftermarket business. Clean Energy and fueling grew 11% organically led by strong shipments in new orders and clean energy components, fluid transport and retail fueling. We continue to see aggressive build-outs from national retailers in North America, which we believe is still in the early innings of a multiyear growth cycle and we are also seeing healthy improvement in Europe as well. Margin performance was driven by volume leverage and operational execution with recent pricing actions expected to further bolster margin performance over the balance of the year. Imaging & Identification delivered stable performance across core marking and coding equipment, consumables and in serialization software. Segment margins remained strong with some foreign currency translation headwinds in the quarter that should abate as the year progresses. Revenue in Pumps and Process Solutions declined modestly in the quarter as solid performance in artificial intelligence, energy infrastructure components and industrial pumps allowed us to lap a tough comp in biopharma, segment margins expanded on favorable mix and strong productivity execution. Climate and sustainability technologies was a standout during the quarter, delivering 15% organic growth. Heat exchanges performed especially well across all regions, particularly in North America on the growth in liquid cooling applications and data centers. Food retail also delivered solid top line performance supported by continued double-digit growth in CO2 refrigeration systems together with the recovery in refrigerated door cases and services as forecast. Demand remains strong and the order book supports our confidence in the full year outlook as we are already booking into the second half. Margins were up in the quarter on volume leverage and a higher mix of CO2 systems and heat exchangers. I'll pass it to Chris here. Christopher Woenker: Thanks, Rich. Good morning, everyone. Let's go to our cash flow statement on Slide 6. Our free cash flow in the quarter was $131 million or 6% of revenue. This was a $22 million increase when compared to the first quarter of last year as cash conversion on higher year-over-year earnings was partially offset by higher capital expenditures tied to growth and productivity investments. Our full year capital expenditure estimate remains at $190 million to $210 million. Consistent with prior quarters, we expect Q1 to be our lowest cash flow quarter of the year as our operating businesses make investments in inventory ahead of seasonally stronger volume quarters in Q2 and Q3. Our guidance for 2026 free cash flow remains on track at 14% to 16% of revenue. With that, let me turn it back to Rich. Richard Tobin: Thanks, Chris. I'm on Slide 7. Bookings momentum continued to build in the first quarter. Bookings are up 12% over the last 12 months, reflecting broad-based acceleration across most end markets. Importantly, Trailing 12-month book-to-bill is now above 1, providing further visibility and confidence in the growth outlook. The acceleration in bookings and demand is driving longer lead times in certain growth markets. We are seeing the most clearly in programs specific orders for aerospace and defense components and longer cycle components for steam and gas turbines and engines. And in retail refrigeration CO2 systems and in heat exchangers as customers work to secure supply of critical components for fast-growing applications such as liquid cooling applications. Turning to Slide 8. We highlight several key end markets that are material drivers of our revenue growth in 2026 and beyond. We expect to generate over $1 billion in revenue from applications tied to artificial intelligence and power generation infrastructure this year. In data centers, increasing density of thermal requirements are necessitating a shift towards liquid cooling, which directly benefits our connector and heat exchanger businesses. Our SIKORA acquisitions, which closed in June of 2025, expands our exposure to electricity infrastructure through measurement and inspection control solutions for high-voltage polymer-coated wires and cables a direct beneficiary of growing electrification trends and demand for customers for product quality assurance and improvement. SIKORA is performing well ahead of its acquisition underwriting case. We are actively working to expand its geographic offering through our global channels and relationships. Natural gas remains the most visible option for scalable, reliable energy to meet the growing demands for electricity. Our Precision Components business provides bearing seals and compressor components for gas and steam turbines, engines and midstream natural gas infrastructure. Demand for steam and gas turbine components remains robust, a reflection of OEM lead times that now extend multiple years. While we have not seen a corresponding acceleration in midstream investment necessary to transport the gas to those turbines, early customer indications suggest a pickup in shorter cycle orders for midstream compression beginning in the second half of this year into early next year. Our clean energy components business continues to build to see solid growth in valves and vacuum jacketed piping used in LNG liquefication, infrastructure, including export terminals. We are also seeing strong demand in space launch-related applications, which recently booked its single largest order ever for space launch infrastructure where growth rates remain firmly in double digits. And biopharma customers continue to invest behind new therapies and increasing production rates driving long-term growth for our single-use connector pump and flow meter solutions; and finally, in CO2 refrigeration, we maintain a clear market leadership position in the U.S. supported by fully platformed product portfolio from our retrofitted plants in Condas, Georgia that provides strong competitive moats and product performance lead times and scalability, the shift to natural refrigerants has transitioned from a regulatory mandated demand to performance and productivity driven adoption as early installs have proven that the technology delivers improved operating performance versus legacy technologies. Despite the strong growth we've experienced, North America remains in its early adoption of natural refrigerants with penetration still below 10%. Let's go to Slide 9. Our organic investments remain our highest priority for capital deployment. Here, we highlight several most meaningful high-return capital projects planned for 2026. We continue to invest where demand visibility and returns are strongest while maintaining discipline around productivity and cost optimization. We also outlined a number of ongoing fixed cost reduction and facility consolidation initiatives. In aggregate, these actions are expected to generate more than $40 million of rightsizing savings in 2026 with an incremental carryover benefits into 2027. The precise timing of these savings will depend on where able to finalize certain facility moves as we balance site consolidation with underlying demand trends in certain growth markets. Let's go to 10. In Engineered Products, we expect low single-digit organic growth for the year, driven primarily by aerospace and defense, which continues to experience significant demand strength tied to electronic warfare and signal intelligence solutions. We expect to see further stabilization of vehicle aftermarket businesses supported by recent booking trends. Clean Energy and Fueling is expected to deliver broad-based organic growth across clean energy components, fluid transport and retail fueling and retail fueling domestic demand from national customers remains strong. We believe that this is a multiyear cycle. Our greenfield facility expansion and below-ground retail fueling is expected to support this growth cycle, particularly in our fiber like composite solutions business which is seeing accelerating adoption globally, including increased specification and data center-related infrastructure applications from hyperscalers. We expect margin improvement in clean energy and fueling for the year on volume leverage, acquisition integration and productivity initiatives and positive price versus cost dynamics. Imaging and ID should deliver low single-digit growth driven by serialization software and marketing and coding hardware and consumables supported by strong order rates. Pumps and Process Solutions should benefit from growth in industrial pumps single-use biopharma components, precision measurement solutions for electrification infrastructure and critical components for steam and gas turbine engines and midstream compression. We also expect gradual improvement in our core polymer processing equipment is supported by improved quoting activity. Finally, we expect climate and sustainability technologies to deliver double-digit organic growth for 2026 driven by continued strength in CO2 reiteration systems and the anticipated recovery in refrigerated door cases and engineering services were national. Retailers are reengaging in maintenance and replacement activity following a period of tariff-related delays supporting a rebound from historically low volume levels in the previous year. We expect the robust demand across all geographies for brazed plate heat exchanges to continue over the balance of the year with particular strength in North America tied to liquid cooling of data centers and other HVAC applications. Lead times for large and extra large heat exchanges have extended materially with additional capacity coming online as the year progresses. We have a margin opportunity here from volume leverage and the fact that we are carrying redundant fixed cost in refrigeration as we complete our facility consolidation. Let's go to 11. Full year guidance is on the left. We expect 2026 seasonality to be consistent with recent years. The operating environment still has a share of macro noise, whether it's politics input costs or policy-related uncertainty. That said, the demand signals we're seeing across the portfolio remain constructive and provide a level of visibility that supports our outlook. We are staying disciplined in our operations in our response to demand conditions. We are investing behind the platforms where returns are most compelling and we have the balance sheet flexibility to opportunistically play offense with capital deployment to create long-term value for our shareholders. With that, I'll pass it to Q&A. Jack? Operator: [Operator Instructions] We'll move first to Nigel Coe with Wolfe Research. Nigel Coe: Thanks quite a -- I think you got through at an hour's worth of prepared remarks about 15 minutes of well done. I think just want to kind of clear up the kind of the obvious question. I mean obviously, the orders -- this is a record order quarter. So just anything unusual supply chain of your concern people are getting ahead of maybe potential concerns around Middle East, et cetera? And have you seen the strength continue into April? Richard Tobin: No, I don't -- we don't see any kind of prebuy. I mean, what we put in the comments about longer lead times is -- what you do see is customers ordering for later delivery periods than normal, just because demand is outstripping supply at the end of the day. So that's really what's driving up especially in brazed plate heat exchangers, CO2 systems and refrigeration cases. And you can see that in the portfolio. So overall, we don't say -- we don't see anything based on changes in tariffs or anything like that. It's just more the demand is there. And I think there's a recognition that you would need to get in line if you want deliveries because of capacity constraints. Nigel Coe: Okay. That's great. And my follow-up on the tariffs. You mentioned tariffs, which a lot of inflation coming through on some of the base metals and steel. Maybe just talk about some of the countermeasures to that? And just maybe just clarify how the different tariff landscape is impacting Dover. Richard Tobin: Yes. Well, with the diversification of the portfolio, we've been trying to run down literally tens of thousands of line items of input costs and the like, and I won't bore you with the details other than the fact that it kind of comes out relatively neutral at the end of the day. So everything that we are planning on based on the last round of tariffs. Now with these changes, we kind of go 360 degrees and come out in the same spot at the end of the day. So there will be pockets where it may be detrimental, and there will be pockets where potentially, it's a strategic advantage because of the fact that we're mostly a build in the region to ship into the region kind of company at the end of the day. So net-net, after thousands of man hours of work it's solved nothing here. Operator: We'll move next to Andrew Obin with Bank of America. . Andrew Obin: Maybe a different angle on S232. You are largely domestic manufacturer. Will the change to Section 232 tariffs provide you? Is any competitive advantage versus importers of finished goods? Richard Tobin: I hope so. Hard to tell, right? This is all new news. And like we saw the last time a year ago, it takes 4 to 6 months for these changes to work their way through because of the fact that you've got inventory changes and a variety of other things. I'm not going to talk about where we think we may have a strategic advantage, we'd just rather take advantage of it. But clearly, just like the last time we went through this, having relatively short supply chains has proven to be helpful. . Andrew Obin: And I can't resist. I will ask this question. Organic growth, 5%, bookings in the mid-20s and you're guiding 3% to 5% organic growth? The comps don't get tough until Q4. It seems a conservative guide. . Richard Tobin: I know. And if you remember, Andrew, we actually got questions about our guide when we initiated our guide. So this is -- and I think -- look, I think if you go back and read the transcript, I was pretty explicit they were driving clearly to the top end of the guide. We're 90 days into this. Well, what are we now 120 days into it or whatever. If bookings trends remain consistent through Q2, it's clear that we're going to have to revisit top line expectations. . Andrew Obin: And booking in April bookings are just for April booking seems to be fine. . Richard Tobin: Yes. Yes. So far so. Operator: Thank you. We'll move next to Joe O'Dea with Wells Fargo. . Joseph O'Dea: Rich, maybe just in terms of that comment on Nigel's question around the demand is there. trying to understand the triggers behind the demand being there because it's very broad-based when we look at the order strength. And so what what has shifted from sort of customer sentiment, what you're seeing out there around the confidence to order right now? And it sounds like that has persisted even through the geopolitical situation now. . Richard Tobin: Well, look, I mean, when we gave our guidance for the year, we basically targeted both the clean energy and climate segments as the two segments that were going to drive the growth going into 2026 and here we are in Q1. And they are driving the top line growth, and they are the ones that are -- got the best order rates in terms of bookings. So in a way we knew it was coming and there was a reason for it. I mean I don't want to rehash the whole issue of what we went through for a couple of years on underinvestment in both retail fueling and now we're seeing that during the corner and kind of the headwind that we had to overcome last year on refrigeration. So there's kind of the secular story of the CapEx cycle swinging in those particular markets. The balance of it is generally either acquisitions or the growth platforms, and that is kind of widespread across the portfolio with the exception of DII. So it's a combination of a lot of things, whether it's a secular growth driver and a lot of -- we've been investing pretty heavily in capacity expansions and new product introductions over the last couple of years and knockwood they are gaining some pretty good traction in the marketplace. . Joseph O'Dea: And then just shifting to M&A. Sound pretty constructive on the pipeline. Just I guess, confidence in getting something done this year. it doesn't look like multiples are moving any lower, and you've got a track record of discipline so how you're kind of navigating through that dynamic? . Richard Tobin: Yes. Multiples are frustratingly high for sure. But we got a variety of different balls in the air. I would just got to see if we can get them across the finish line or not. So look, the good news is there's more product available, right, because the fact that equity markets are performing well and multiples paid are pretty high. So that generally is a precursor to product becoming available. That's the good news. Can we find stuff that we like, hope so. We've got a couple of proprietary things going on. So we'll see. But better than it's been over the last couple of years, just in terms of the total environment. Operator: We'll take our next question from Mike Halloran with Baird. Michael Halloran: I'll ask both my questions in 1 shot, because my convention is a little poor. First, you saw the long-cycle orders roll through appropriately. Are you seeing any improvement sequentially as you work through the quarter into April on the short-cycle order side of the things? Did it mirror from a trajectory perspective, at least a long-cycle orders -- and then on the long-cycle orders, maybe just talk to how you think that plays out in terms of conversion to revenue, what it means for sequentials or first half, second half weighting, however you want to put it, as you work through the year? Richard Tobin: Okay. The pace of the orders remained relatively consistent from Q4 into Q1. And that's just a broader base comment. Let's not get confused between long-cycle orders and kind of longer-cycle capital goods demand. What we're seeing is a phenomenon that we're getting what would have been reasonably short cycle orders being booked to reserve capacity. . So it's -- that's why you see the order rates what they are. And if I showed you the expected delivery times, you would see that we're getting orders well into Q2, into Q3 in certain businesses that we wouldn't see that. And that's just because there's a demand supply constraint there. So over time, we would expect those orders to build, which is great. We have them, and then we kind of -- we'd see them probably normalize as we ramp up production to kind of -- to meet that demand. So the good news is we got the orders and the pace of that rate sustained itself throughout Q1 and has sustained itself through April. So -- but it's not as if in polymer processing and can-making equipment, the stuff that's got really long lead times, those are not what's driving the order rate in the backlog. Operator: We'll move next to Jeff Sprague with Vertical Research. . Jeffrey Sprague: Rich, maybe just kind of picking up on that then, the supply constraints that you're talking about are Dover internal, not kind of supply chain inputs. And I guess I sort of get that right? You've been waiting for growth. You probably kept your boot on the throat of some investment here when it wasn't growing. But maybe -- am I right on that? And maybe just a... Richard Tobin: It's -- Jeff, it's more of that -- it's not that we haven't had any constraints, right? At the end of the day, when you're booking the way we're booking and trying to ramp and it's cost us quite a few margin dollars in Q1 trying to like ramp up to do everything here. But it's more of like these data center projects. There's -- we operate in some markets with very few competitors, which is the beauty of the business model. So everybody understands that, so they're ordering advance to reserve the capacity. So it's -- and that's the same thing for a lot of the markets that we participate. And it's not a question of -- we would never ramp the capacity to meet what you see in terms of the orders as if we could get it out in Q1 anyway, right? All we're doing is -- the funnel is the funnel. We have ramped for sure. But the funnel is the funnel, and we're just working with the customers and saying, look, we're sold out in Q2, you got to start ordering for Q3. Jeffrey Sprague: That's what sound like you like you ramped down, and now we're doing a 180 and we're ramping back up. It's just... Richard Tobin: No, no, no, no, no. We've never -- look, I mean, we're good at cost management at the end of the day, but it's not like we've taken plants out or anything as part of our consolidation. Those are all efficiency. We've not real fully taken out production capacity in the markets that we wish to participate in over the long term. . Jeffrey Sprague: Got it. And then just on the climate-related stuff, then this -- the strength in orders there and on the top line, is that pretty level loaded between the CO2 and the heat exchange or heat pump-related pieces of the portfolio. Could you just elaborate on that a little bit more? Richard Tobin: Yes. I mean it's the law small numbers now, right? So you don't want to use percentages because the size of the business is different. But it is broad-based with the exception of Belvac, right? So the heat exchanger business is growing very well. We're actually back to your capacity question, adding more capacity and heat exchangers? And on the refrigeration side, CO2, we are adding capacity there, right? So we've just been selling a new production line in ones a plant that was empty is now getting close to being full now. And then on the refrigeration side, I mean, we beat that to debt last year. There was that delay that cost us 2 points of growth. That's all the orders coming through. That's where it's been quite the juggling act of taking leading customer demand almost in an inefficient way, because we're in the midst of a facility consolidation. We're actually delayed in getting that project done because we had so many orders. We had to keep the plant open and that's cost us margin dollars. We're on path to get that all done probably by midyear. So I would expect the incremental margin in that segment to be robust in H2. We're probably going to have to carry it a little bit through Q2, but then we should see a pretty material inflection in margin performance if we can get this right. Operator: We'll move next to Andy Kaplowitz with Citigroup. . Andrew Kaplowitz: Which just in DPS, you mentioned you overcame tough comps and pump some process in Q1 and you didn't own biopharma and you didn't change your forecast for the year, but -- are you seeing business gas compression picking up? And obviously, your business is guest turbines from, but what's the outlook for the overall business? I would imagine maybe slightly stronger versus last quarter, but you tell me? . Richard Tobin: Well, I mean, I think that we were pretty transparent even in Q1 last year that we had a great Q1 that we -- was going to set this up. We are very pleased actually with the performance of the segment despite that, particularly in terms of the margin performance, right? Because we not only had the tough comp, that's tough comp on the top line, but it's a tough comp in terms of a margin comparison, too. And so not only did we do a great job in MOG in terms of margin preservation despite tough top line conditions across the balance of the portfolio in biopharma and thermal connectors and industrial pumps and precision components, the margin performance has been exemplary. So I'm always trying to kind of manage expectations about margin performance. I think we actually did better than we would have expected in Q1. For the balance of the year, I think if you go back and look at the comments, yes, we've been doing really well on the turbine side for some time now, and that will continue to do well. What we're really looking for is the inflection on compression. Signs are there, but if there's any upside to the performance of that segment in the second half, it would be in compression, but we'll know when we get the orders, that that's coming. . Andrew Kaplowitz: That's helpful. And then maybe just on DII, you're still talking about low single digit organic growth and margin expansion for the year. But can you give us more color what happened in Q1, sort of any additional color on that business, I think, would be helpful. . Richard Tobin: I mean, I don't think we have a lot of angst about 30 basis points of margin compression. That's a rounding error. It's FX, Andy. I mean we -- you know it's our most global business. And because of that, it's got a ton of FX running through it. So we're not worried at all. It's not a negative at all, the performance in the quarter. It's going to do it. This business is going to do what it does every year, right? It's going to deliver single-digit top line growth, very healthy margins and a ton of cash. . Operator: We'll move next to Amit Mehrotra with UBS. . Amit Mehrotra: Rich, I wanted to ask about Engineered Products. It was nice to see that business return to growth and book-to-bill was obviously very strong. I think you guys have a pretty decent defense business inside of there that's I guess, fortunately or really unfortunately quite relevant in today's geopolitical environment. Can you just maybe talk about the growth you're seeing there. Is it really specific to that business? Or is it more broad-based? And then I guess with the book-to-bill, can we accelerate off of this and do you have enough capacity to kind of meet that opportunity? . Richard Tobin: It is driven by the defense business in the segment right now, but that's not to say that the industrial wind side is actually doing quite well. And as we talked about before, on the vehicle service side, the headwind that we saw last year in Europe is abated. So the management team is doing a good job there in terms of margin performance and the like. On the defense side, yes, I mean this goes back to this a long discussion about long lead times and everything else. We are working like mad to increase production capacity in aerospace and defense to get it done. It's just not something you can kind of throw money at, unfortunately. It in order to do it, it takes a lot of time to do it. So it's doing really well. And I would expect if we can get a little bit more production capacity online, we're probably going to be able to sell it in as we march through the balance of the year. Amit Mehrotra: Okay. And then just as a follow-up. You had mentioned earlier this net impact of tariffs and I guess, Section 232. But I wanted to just double click on something you mentioned a little bit because I think you do have some competitors in certain specific business lines that do disproportionately manufacture in Mexico. I think they've been historically quite stubborn in cutting prices, but are you seeing any competitive behavior that either gives you an umbrella or an opportunity for share in those markets? If you can just give a little bit of color on what you're seeing? I know April 6 just happened. So maybe it's too early, but anything you could offer would be helpful. . Richard Tobin: History would say that in that particular market that you're referring to is that they will not give up market share and just eat it. The success of our business is more predicated upon the significant investments that we've made in our own production processes that has enabled us to have best-in-class product lead times, meaning that we don't have to go grab market share on price. We can do it on lead times. That's the strategy. And knockwood what it seems to be working right now. . Operator: We'll take our next question from Joe Ritchie with Goldman Sachs. . Joseph Ritchie: So Rich, I'm wondering like how are you thinking about the TAM for both CO2 systems and liquid cooling? Obviously, CO2 systems still way underpenetrated relative to Europe and just got back from data center world and liquid cooling is growing like wildfire. So I'm just trying to think about like what the opportunity is for you guys. . Richard Tobin: Well, we -- I think we can give you a much more intelligent answer about CO2 systems that we're going to be able to give you about liquid cooling because I'll leave it to much larger market participants to try to figure out what that TAM is. But clearly, it's growing. On the CO2 systems side, as we put in the notes, North America is 10% penetrated. So that's basically -- the math there is the installed base has converted 10% of the footprint, which doesn't include kind of growth, but our estimates in retail refrigeration and commercial refrigeration, it's kind of 1 for one. For every greenfield, there's probably a shutdown. So -- but if we just look at the installed base, we're at 10% penetration. So that gives plenty of opportunity. The base couldn't if it wanted to convert in a short period of time. So the beauty of it is, if it's -- if we stay in front in terms of product line performance and we stay in front in terms of online capacity that we can kind of just run this run the table a little bit over a multiyear period. Well, at least that's what we're going to try to do. . Joseph Ritchie: Got it. That's helpful. And then just maybe on that point, on the capacity piece. So it seems like you're expecting incremental margins to really to inflect, I guess, maybe in the second half of the year, I guess, in DCST. I guess I don't know how do we think about that? Like how much capacity you have available? Is it like -- do you think you've got like is it a multiyear capacity? Is it -- do you have enough through the end of next year? I'm just trying to understand it, because obviously, it has implications for the margin trajectory of those businesses. . Richard Tobin: Yes. With the -- if you go to the slide in the deck where we're adding capacity is now is generally speaking for '27 demand at this point. So we're -- when any time we're adding capacity, it's not generally intra-year capacity. I mean sometimes you can do it. But generally speaking, it's kind of -- the CapEx that we spent 18 months ago is now productive capacity now. So where we're adding is based on an even forecast, 3-year forecast evolving over time. So I think that we've got it right, I guess, is the best way to put it. But back to your question about the TAM about data centers -- if we were to install the capacity of some of the estimates of the TAM, there is never going to be enough capacity in the marketplace. So we're just going to have to see from what -- our interactions with our customers, we think that we're on the front foot of kind of rolling the capacity rollout based on the demand curve. . Operator: We'll move next to Julian Mitchell with Barclays. . Julian Mitchell: Maybe, Rich, I know you've touched on this a couple of times, but I think it's sort of worth looking at just, because there's some various cross currents. So you said that the pace of bookings was sort of steady in the last several months, but you had very good bookings growth, which you said is a function not of pre-buy, but customers sort of placing orders with a longer lead time because of supply concerns later in the year. So maybe just to flesh that out a little bit I guess I'm most interested in the point around is that sort of view based on customer conversations that they're not placing the orders ahead of price increases? And also, your point on the bookings sort of pace being quite steady, you didn't see a spike around when Iran started. Just sort of help us put some of those things together . Richard Tobin: Sure. I think for the most part, as a general comment, all of our pricing was done at the beginning of the year. So it was all announced. I mean the argument would have been we drive orders in Q4 because they knew it was coming in Q1, and we've gone past that now. So there's some exceptions as the vast majority of the pricing is out there now. No, we did not see any kind of spike. Like I said, I mean it's different by business, but kind of the pacing that we saw into Q4 just rolled right through Q1. In particular, in the segments where we thought it was coming anyway, right? And so a lot of that is while that's coming, you're communicating with your customers about, okay, here's where we are in terms of product lead times. And they're beginning to stretch a little bit just because of the fact that we -- that capacity is being utilized. So I don't foresee. I don't -- it was more of a secular growth in the areas that we had kind of bet on we're going to come anyway just came. Not -- it wasn't like we were surprised at all by any individual business other than, I think, like I mentioned before, the margin performance in DPS despite that having to change a pretty tough headwind there from a mix point of view, I think it was probably the only thing that surprised us. And I think the other issue is, as I mentioned before, the demand in kind of retail refrigeration was a little bit stronger than we would have expected, and that's necessitated us to keep a plant open longer than we would have liked to. It's great. It drives the revenue, and we'll take it. But weirdly, it's a little bit dilutive in terms of margin conversion because we can't get that fixed cost out. We'll get it out, but it's probably going to take us a a quarter longer than we would have expected. And that was my comment of if you think about the Climate segment, you've got brave plate heat exchangers, which is very capital intensive. So at a certain point, incremental margin flips over on the depreciation of all the investment, and we see in that growth -- and then once we get those redundant costs out of refrigeration business, we can expect incremental margin there to inflect positively also. Julian Mitchell: Yes, that was very helpful. And that was sort of where I was going with the second point, which you had, I think, 10% revenue growth all in, in Q1. EBITDA margins company-wide were up basis points, though. You've gone through sort of in DCST maybe why the operating leverage picks up later in the year. I just wondered, across the other segments in aggregate, kind of anything you'd call out that helps the operating leverage improve later in the year? . Richard Tobin: I would think the retail fueling business will also inflect sequentially positive throughout the year on volume leverage and on product mix through the year also. We would expect this to be 1 of the lower margin quarters for us, right? Because if you think about the seasonality, if everything goes as planned, you've got volume leverage on that kind of bookings and growth, which we would expect would drive margins higher in that particular segment. I think DPPS if we can stay where we are, I think we'd be pleased. Operator: We'll move next to Patrick Baumann with JPMorgan. Patrick Baumann: Just -- just had a follow-up on the orders. So generally, looking historically, the first quarter orders convert at a similar level into second quarter sales. So I guess I'm just trying to get a sense on how to think about that $2.5 billion in orders versus the $2.2 billion in sales that consensus has for the second quarter. And it would be helpful if you could, in that vein, maybe quantify what was, I guess, unusually longer-dated orders in magnitude within that $2.5 billion number? Richard Tobin: Yes. You can do the math here and take the order rates and stuff it all into Q2 and get a pretty big revenue growth number. And I would advise you, that's why we had all these discussions around here about the machinations of describing longer-dated orders, right, to kind of prevent that at the end of the day. We'll -- seasonality, we will move up in Q2 for sure. But I don't think we get ahead of our skis here and trying to look at bookings of Q1 and say, well, wait a minute, if it's that much, let's go stuff that into Q2 because I think it's just not realistic from a capacity point of view. So -- we are booking in certain businesses into Q3 now. So that is great for us, but let's not get get overly excited about the revenue growth in Q2. We will get as much as we possibly can get out in Q2. . Patrick Baumann: Is it like $100 million, $200 million of longer-dated borrowers? Is that . Richard Tobin: Patrick, we're not going there. . Patrick Baumann: In, I would try. My follow-up on price expectations for the year now, based on what you're seeing from a commodities cost inflation perspective, do you still expect to be a kind of 1.5% to 2%? . Richard Tobin: Yes. Yes. Right now, I mean, it's a moving target. We'll see what happens with input costs and metals and everything else. But right now, even if we see it, we won't see it in the back half of next year anyway because we've got everything else in inventory. . Patrick Baumann: Okay. So that guidance is unchanged for price then? . Richard Tobin: If you want to give us price guidance, sure. . Operator: And our final question comes from Chris Snyder with Morgan Stanley . Christopher Snyder: I just kind of wanted to follow up on some of the price commentary. Rich, I thought earlier in the call, you were saying maybe there is more price coming into Q2 to combat the cost inflation. I don't know if that's just maybe the earlier action being realized in Q2. So just kind of I guess, did you guys put more price in place since the start of the year just in response to the cost inflation? . Richard Tobin: I'm sure we did anecdotally, but no. I mean, I think all the pricing that we put out started at the beginning of the quarter. . Christopher Snyder: I appreciate that. And then I guess just on Q2, I don't think anyone has asked it yet. I mean like is the expectation that Q2 is kind of still in this 10% EPS growth mid-single-digit organic growth range . Richard Tobin: Okay. I haven't done the math. I know that we're driving towards over 10% EPS growth for the full year. I guess, seasonality says that our profits are generally highest in Q2 and Q3, and I'll leave it to you to do the math. . Operator: That concludes our question-and-answer period and Dover's First Quarter 2026 Earnings Conference Call. You may now disconnect your line at this time, and have a wonderful day.
Operator: Good day, and welcome to the Snap-on Incorporated 2026 First Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on the touch-tone phone. Please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sara Verbsky, Vice President, Investor Relations. Please go ahead. Sara Verbsky: Thank you, Betsy, and good morning, everyone. We appreciate you joining us today as we review Snap-on Incorporated’s first quarter results, which are detailed in our press release issued earlier this morning. We have on the call Nick Pinchuk, Snap-on Incorporated’s Chief Executive Officer, and Aldo Pagliari, Snap-on Incorporated’s Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance; Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we will take your questions. As usual, we provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in the web viewer as well as on our website snapon.com under the Investors section. The slides will be archived on our website along with the transcript of today's call. Any statements made during this call relative to management's expectations, estimates, or beliefs, or that otherwise discuss management's or the company's outlook, plans, or projections are forward-looking statements and may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in our forward-looking statements are contained in our SEC filings. Finally, this presentation includes non-GAAP measures of financial performance which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issued today, which can be found on our website. With that said, I would now like to turn the call over to Nick Pinchuk. Nick? Nick Pinchuk: Thanks, Sara. Good morning, everybody. Wow. What a quarter. You know, there are a number of different storylines threaded through our last three months. But I believe if you step back and you look at the whole, you can see several important facts. First is that this has been a period of considerable uncertainty, but the resilience of our markets and the strength of our operations have restarted a momentum, registering strong sales. It is also quite clear that our team continued to invest in expanding and preserving our strength, in our line of new products, in our continuing brand position, and in new technologies for more powerfully wielding our proprietary databases. We believe, and many people believe, that the combination of technology and proprietary databases are among the great powers in business today. And through the blizzard, with uncertainty and tariffs, opposing currencies, rising material costs—all the elements of a storm—our gross margins have resisted the impacts and overall have remained at a strong level. So today, I will review with you the highlights of our quarter. I will give you my perspective on our results, on the markets, and our progress. And after that, as usual, Aldo will give you a more detailed review of the financials. For us, when you look at the quarter and what it means, we proceed with confidence. Confidence in our markets, in our products, in our brands, and of course, confidence in the knowledge and energy of our experienced and capable team. And as such, we are encouraged by our first quarter results. We believe they reaffirm that this confidence is well placed even in the most difficult of times. And you can see it in the numbers. Overall sales in the quarter were $1.2072 billion, up 5.8% from last year as reported, including a 3.4% organic increase, a new first quarter record, and our second-highest quarterly sales ever. OpCo operating income, or OI, for the quarter of $250.8 million was up compared to the $243.1 million recorded in 2025. And the OpCo operating margin was 20.8%, 50 basis points below last year, but still strong, despite the 40 basis points of unfavorable foreign currency and the impacts of higher investment. For Financial Services, operating earnings of $68 million in the quarter were lower by $2.3 million, or 3.3%. Our overall EPS was $4.69. This was up $0.18 from 2025, and the results show broad gain, overcoming the uncertainty and demonstrating our resilience. Now let us turn to the market. We continue to believe that the vehicle repair environment remains robust—extremely favorable—requiring a continued stream of new tools and information systems for confronting the rising complexities of the modern vehicle. It is clearly an unmistakable trend. Repair shops—dealerships and independents—they see it every day. They will tell you repairs are tougher and more complicated. And we love it. The ongoing strength of the market is confirmed by its key metrics. Car park continues to age—the average age now at 12.8 years—naturally requiring more extensive maintenance and overhauls. And that is seen clearly if you look at household spending on vehicle repairs; it is up high single digits in the quarter. But it is more than vehicles. It is also seen in the world of the shops and the techs. The hours worked are up, and the tech wages are rising. Garages are on and the need for more skilled techs continues to increase. We believe all these data points say that vehicle repair is stronger than ever, and the prospects just keep getting better. That said, the uncertainty is still high across the American grassroots. Tech confidence remains tepid—reticence toward long-term purchases—but they are bullish on shorter payback solutions that make work easier, faster, safer, and help them beat the clock and move on to the next vehicle. Now, Snap-on Incorporated speaks with its franchisees and techs all the time. And my recent conversations with individuals in our van network coast to coast say that green shoots are popping up. Even with our tool storage units—they were up this quarter. I will say that again: tool storage was up. And as I spoke to the franchisees, they expressed their excitement about where they are positioned, and they are enthusiastic about their future. As I said, they see great opportunity. Having said that, it still seems that with each day, there is more bad news for breakfast. I mean, the hits just keep on coming—risking and otherwise—uncertainty. Having said that, though, we like where we are standing: rooted in the resilient vehicle repair market, continuously connected with the tech, observing the work, launching great new products, and having the capacity to manufacture them right here in America. And in this environment, we are seeing what we think might be an early thaw. Now let us shift to the other half of the automotive segment. This is where Repair Systems & Information, or RS&I, resides, servicing shop owners and managers. The activity in the sector remains consistent, although it does at times reflect variations based on new product timing or OEM campaigns. Our shop owners and manufacturers see the trends. They know vehicle complexity is rising, and that it drives the need for more sophisticated systems, equipment, and tech assists to manage those changes. As I just said, the drumbeat can be influenced by the lumpy nature of the OEM project sector. But the owners and managers keep saying they need more techs, the garages are busy, the repair difficulty is increasing, and they need more help in keeping pace. I can tell you Snap-on Incorporated is up to that. That is why RS&I continues investing in modern equipment and diagnostics that navigate procedures on vehicles new and old with precision and with speed. Now, we do have a strong lineup in undercar and collision equipment in RS&I. But particularly powerful are our diagnostics and information systems and proprietary databases. We continue investing in that advantage, fortifying our positions by applying new technologies like large language models and natural language translators—capabilities that enable us to expand our datasets more quickly and wield the resulting systems more powerfully. The progress of our systems that search billions of data points, matching the unique vehicle profile and current systems to just the right fits—and it all happens in seconds. A great example is our newly launched StreamLab feature that streamlines the process for confronting job estimates—part of Mitchell 1. Estimates are a particularly thorny and time-consuming challenge for any shop. But our new system for Mitchell 1 makes it much easier. We are going to hear a lot about that later as we go forward. So that is vehicle repair—robust for both individual techs and for garage owners and managers. And we believe we have a decisive advantage in both arenas. We expedite repairs, we improve productivity, we keep vehicles moving, and we help techs and the shop make much more money. We believe it is a great place to be. Now let us go to the critical industries. This is where our Commercial & Industrial Group, or C&I, operates, rolling the Snap-on Incorporated brand out of the garage, into harsh environments where the penalty for failure is high, the workers demanding, and the need for precision, repeatability, and reliability are high—all conditions that warrant a Snap-on Incorporated-level product. C&I covers a wide range of applications, from the latest space missions to expanding the power grid to extracting natural resources to helping build data centers. This is where we excel with customer connection and innovation—observing the work and turning those insights into individual products or custom kits, matching the tools to the specific task. It is a business rooted in the essential, both domestically and internationally. And with that, critical industries offer an ongoing and robust opportunity. And as such, we continue to invest in those possibilities—capacity and building our understanding of the work—and it is paying off. The industrial business—our critical industries operation—showed considerable strength in the quarter, growing high single digits with particularly great and broad strides in aviation, heavy duty, and natural resources. That is our market—vehicle repair—performant not just in this interval, but driven by continuing secular trends of aging and complexity. And despite the uncertain environment, those secular trends keep it moving. The metrics say being a tech is a great place to be. And Snap-on Incorporated is keeping up, pivoting to match the current tech preferences with great products. The shop owners and managers recognize that upgrading is table stakes to cash in on the robust vehicle repair demand that they are seeing. And Snap-on Incorporated has the equipment, the data, the systems to put them right on target. And we are reaching beyond the garage, taking full advantage. The industrialist quarter says it so. The critical industries are a bellwether. The essential is expanding, bringing with it more demand for precision and customization. It is all music to our ears. And one fast overall perspective on our results: how are we? Fast overall perspective is that our results demonstrated once again the power of the Snap-on Incorporated Value Creation Processes—Safety, Quality, Customer Connection, Innovation, and Rapid Continuous Improvement—developing innovation solutions born out of insight and observations from standing right in the workplace. And those insights this quarter, combined with our dedication to RCI, enabled us to resist the turbulence of the day. You can see it in the numbers. It is an important and ongoing strength. Well, that is a macro overview. Now let us turn to the segments. In the C&I Group, sales were $381.6 million, representing an increase of $37.1 million, or 10.8%. That includes $11.9 million in favorable foreign currency and an organic gain of 7.1%—gains across all the business units, but led by the Industrial Division with custom toolkits for critical industries and the constant demand for precision torque product. As I said, Industrial had a great quarter—high single-digit growth—that was without a significant rise in the military. Gains in almost every other sector, with aviation up strong double digits. Boom shackalacka. It was a great quarter. From an earnings perspective, C&I operating income of $54.9 million was up 3.2%, and the operating margin was 14.4%, down 110 basis points. The quarter included 50 basis points of headwind from currency and the impacts from tariffs and rising material costs, which are particularly focused in C&I. Again, the quarter for the Power Tools divisions improved year over year, driven by new products and first-to-market innovation. Our Murphy, North Carolina, plant released two new 14.4-volt 3/8-inch cordless ratchets that extend what I think everybody says is our already powerful ratchet lineup. The additions focus on making tasks faster: break it loose, press the trigger, and zip the fastener off. Spinning at 550 RPM, which doubles the output of our standard unit. Our new ratchets make quick work of applications with numerous bolts—great for dealing with timing covers, oil pans, engine rebuild—and many more applications. Garages use them all the time now. We launched two new versions: first, the CTR887 long neck for reaching deep into the engine compartment, and then the compact CTR881 designed specifically for navigating tight spaces, enabling access to the workpiece without removing adjacent components, expediting the repair and saving a lot of time. Remember, the techs feel the need for speed, and our two new ratchets bring just that. We also expanded on the sensational launch last quarter of our own nano access portfolio. Again, we wielded customer connection, observing that there was trouble navigating crowded engine bays and penetrating the vast webs of sensors and wires hidden behind the dash on modern cars. So we designed the quarter-inch-drive CTNN22040 straight power driver with a narrow 90-degree head. I mean, this baby is small, and it goes everywhere, and makes the difficult easy. And it is loaded with features unique to the nano—a variable-speed trigger, easy forward and reverse selectors, and 600 fasteners on a single charge, all while operating at a lightning-for-small-power-tools 300 RPM. The techs love the fast payback solution, and it was another record-setting piece. C&I—a quarter with strong momentum in domestic markets. Sales up 10.8%, 7.1% organically, led by critical industries, extending the Snap-on Incorporated brand out of the garage, propelled with strength in cordless power tools and precision torque. Let us go on to the Tools. Tools first-quarter sales were $406 million, up organically 3.4%—higher sales in both the U.S. and international networks. The operating income of $105 million was up 13.6%, and the operating margin in the quarter was 21.6%, up 160 basis points. Notably, the gross margin in the period also rose 140 basis points, reaching 47.7%, overcoming the impact of tariffs and rising material costs, prospering in a day in which cost is a question. During the quarter, we maintained our pivot, wielding our customer connection, observing the work and using the insights to develop new products that align with the customers’ preference for short-payback items—items that also make the tedious and the complex easy. I think we have done that. That was demonstrated by two new products forged in our Milwaukee plant. First, the glow plug socket. Diesel glow plugs are essential for preheating cylinders to the optimal temperature that supports ignition, but replacing these common components is not simple. For example, on the 2006 to 2016 models of the popular GM Duramax engine, accessing these components is really cumbersome. And quite frequently, glow plugs are seized from exposure to harsh environments. It takes considerable power to break them loose, especially in tight quarters. Standard tools will not reach without removing blocking parts. And both of those conditions—the seizing and the tightness of the compartments—make a routine job complicated. So our team went to work developing the new IPSTML12, a quarter-inch-drive, 12-millimeter swivel socket. It is 52% longer than our regular, and its swivel joint goes to 30 degrees—features that combine to reach the workpiece with general ease. And the new unit is also designed with our Flank Drive geometry—that feature directs the force to the flats of the fastener and away from the corners, maximizing the torque, bringing the needed power while preventing rounding, efficiently completing the repair without damaging the components because of the power you had to apply. Another example of customer connection released in the back half of the year is a new socket configuration that matches up with our great nano access cordless products. Developing a power tool small enough to fit in your pocket was a great idea; we took it a little further. We designed an entirely new set of sockets to make the overall combination even smaller. It is called the 119NTMLE. It is a 19-piece, quarter-inch tool set, consisting of 10 metric and 7 imperial-sized sockets that are 22% shorter and 8% narrower than the standard offering. And each item is secured in a foam pallet for good storage of these products. The techs value the accessibility and love the new sets—really amplifying the success of our nano product. Now, tool storage in the quarter generated some momentum, backed by the ongoing development of fast payback storage alternatives, new items like our KRSC46—that is a roll cart unveiled last summer. Built in our Algona, Iowa, plant, it is a one-piece, fully welded body setup, which includes six drawers, each with a 120-pound load capacity—pretty high—and with an 11-inch-deep flip-top compartment ideal for storing power tools. And an important thing for a cart—because technicians want to match them up with the boxes they have already purchased—it is available in multiple paint and trim colors, and it is capable of matching any full-size box. So the unit provides ample space for techs looking to expand, but it has been designed to enable functionality without taking the leap into long-term payments. And that combination worked. And in the quarter, also hot were accessories such as lockers, side cabinets, and work centers—options that increase storage space for existing boxes, all at a lower entry point than a new roll cab. Speaking of full-size roll cabs, we did release in the quarter a commemorative box celebrating our nation’s 250th anniversary entitled “A Tribute to America.” The 84-inch EPIQ is a beauty. It is gloss black case with white drawers and red trim, and the 12-inch power drawer. And at the top left corner, it has a blue panel overlay with 50 laser-cut stars. The red, white, and blue setup conjures the view of the American flag when you step back from it. And the work center door displays symbolic images synonymous with U.S. history: the Statue of Liberty, Mount Rushmore, the iconic image of the Marines raising a flag on Iwo Jima, and the first moon landing. Each model has a serialized medallion, numbered 1 to 1776. It overcame the big-ticket reticence in the core, becoming a highly coveted box—epitomizing both the Snap-on Incorporated U.S. presence and the birth of our great nation. You know, some products are too exciting to pass up, even in the trough. That is the Tools pivoting to match the technicians’ current needs and preferences, linking manufacturing solutions right here in the U.S. that improve efficiency by making the tasks easier. Now on to RS&I. Sales in the quarter were $485.3 million, up 2%, including $9.1 million of favorable currency effects. Organic sales were up only slightly to last year, but it was still enough to be the highest-ever sales quarter for the group. The volume reflects increases in our diagnostics and repair information products to independent repair shop owners and managers, offset by lower sales to OEM dealerships. In short, the EQS product business hit a flat spot. Operating earnings for the quarter were $119.5 million, representing a decrease of $2.6 million, or 2.1%, versus 2025 levels. The operating income margin of 24.6% included 60 basis points of unfavorable currency and compared to the 25.7% recorded last year. The gross margins were 46%, up 30 basis points, despite the unfavorable currency effects and the impact of tariffs and higher material costs. So the lower OI margin reflected primarily the unfavorable currency and our investments fortifying our proprietary databases by enhancing them with large language activities—investments that we strongly believe will strengthen our advantages going forward. We know the complexity of today will only grow, and we will continue investing in software and equipment empowering shop owners and management with the resources required to confront that trend and to make more money. Case in point, air conditioning systems have evolved. Now they are not just for climate control, but they support overall vehicle performance and EV battery maintenance. As an example, our PolarTech A/C recyclers roll out of our facilities in Conway, Arkansas. During the quarter, RS&I released the new ProSeries PolarTech—one machine for both popular refrigerant types, R-134a and R-1234yf. The Pro models are also loaded with features for managing a wide variety of vehicles: a large filter allowing for extended runtime, nitrogen leak testing for faster diagnostics, a two-stage vacuum necessary for supporting systems on small Civics to large Suburbans, and a 12-inch touchscreen for easy navigation even with gloves. The units have automatic functionality—techs can tackle another job while the recycling goes on—and a bright status light or an audible signal notifies the user when intervention is required. It makes recycling particularly more efficient. The onboard database is terrific. It identifies the VIN and presets the unit with OEM vehicle specifications, preventing the time often wasted manually looking up the stats. Our new ProSeries is a great example for helping shop owners and managers navigate the complexity of new cars—hook it up, enter the VIN, the machine takes over—improving both productivity and error-proofing the process. You know, we are confident in the strength of RS&I. We keep investing to expand its position by making work easier with great products and with proprietary information. That is Snap-on Incorporated’s first quarter. Corporation’s overall sales $1.2072 billion—the highest first quarter ever. Organic sales up 3.4%. OpCo operating income up, and gross margins holding firm. The C&I Group’s organic sales up 7.1%, the critical industries recording a bountiful quarter. Tools Group organic sales up 3.4%, gross margins up 140 basis points, and operating margin up 160 basis points. RS&I organic sales up slightly—still the highest ever. Gross margins up 30 basis points. Investments across the group to fortify our advantages in product and brand and in people. And the corporate EPS, $4.69—up again over 2025. We had strong results that overcame the headwinds—C&I extending the brand out of the garage, Tools Group successfully pivoting to customer preferences, and RS&I leveraging our proprietary offering to solve the complex. It was an encouraging quarter. Now I will turn the call over to Aldo. Aldo Pagliari: Thanks, Nick. Our consolidated operating results for the first quarter are summarized on Slide 6. Net sales of $1.2072 billion in the quarter represented an increase of 5.8% from 2025 levels, reflecting a 3.4% organic sales gain and $26.9 million of favorable foreign currency translation. Sales in our Commercial & Industrial segment, or C&I Group, increased year over year, led by strong performances with critical industry customers and robust sales by our specialty torque operation. In our automotive repair markets, sales gains were achieved through our franchise van channel, while activity with repair shop owners and managers was essentially flat. From a geographic perspective, consolidated sales were up across all regions. Consolidated gross margin of 50.4% compared to 50.7% in the first quarter last year. The decline of 30 basis points primarily reflected 40 basis points of unfavorable foreign currency effects. In addition, the benefit of increased volume and savings from the company's RCI initiatives were largely offset by higher tariffs and other material costs. As you may recall, many of the incremental tariffs did not go into effect until 2025, and as such, first quarter last year did not include those additional costs. That being said, Snap-on Incorporated is relatively advantaged in the current tariff environment by principally manufacturing in the markets where it sells; however, our costs can be somewhat impacted by trade policies. Operating expenses as a percentage of net sales of 29.6% compared to 29.4% in 2025, primarily due to increased personnel costs and expanded technology investment, partially offset by the favorable effects of sales volume. Our technology investments include further strengthening of our core infrastructure, as well as broadening the use of large language models across key business functions to improve productivity. Operating earnings before Financial Services of $250.8 million in the quarter compared to $243.1 million last year. As a percentage of net sales, operating margin before Financial Services of 20.8%, including 40 basis points of unfavorable foreign currency effects, compared to 21.3% reported in 2025. Financial Services revenue of $101.1 million in the first quarter compared to $102.1 million last year, while operating earnings of $68 million compared to $70.3 million in 2025. Consolidated operating earnings of $318.8 million compared to $313.4 million last year. As a percentage of revenues, the operating earnings margin of 24.4% included 40 basis points of unfavorable foreign currency effects, compared to 25.2% in 2025. Our first-quarter effective income tax rate was 22% in 2026, and 22.2% last year. Net earnings of $247 million, or $4.69 per diluted share, compared to $240.5 million, or $4.51 per diluted share, in 2025. Now let us turn to our segment results for the quarter. Aldo Pagliari: Starting with the C&I Group on Slide 7, sales of $381.6 million rose $37.1 million compared to 2025 levels, reflecting a 7.1% organic sales gain and $11.9 million of favorable foreign currency translation. The organic increase includes gains in each of the segment's operations, including a high single-digit improvement with customers in critical industries, and a rise in the specialty torque business. The strong demand in critical industries includes higher sales in the quarter to customers in U.S. and international aviation, heavy duty, and natural resources. Shipments serving military applications, however, were essentially flat year over year, but reflected an improving trend from activity in 2025. Additionally, our European-based hand tools business also contributed to sales growth in the period. Gross margin of 40.3% compared to 42.6% in 2025. This decline is primarily due to higher tariffs and material costs, and 50 basis points of unfavorable foreign currency effects, partially offset by benefits from the increased sales volume. Operating expenses as a percentage of sales of 25.9% in the quarter improved 120 basis points from last year, primarily reflecting the higher sales volume. Operating earnings for the C&I Group of $54.9 million compared to $53.2 million in 2025, and the operating margin of 14.4%, including 50 basis points of unfavorable currency, compared to 15.5% last year. Aldo Pagliari: Turning now to Slide 8. Sales in the Snap-on Incorporated Tools Group of $480 million compared to $462.9 million last year, reflecting a 3.4% organic sales gain and $7.2 million of favorable foreign currency translation. The organic rise is due to low single-digit gains both in the U.S. and in the segment's international operations. During the quarter, while we had some success with featured tool storage products, we believe our ongoing pivot to shorter payback items continued to temper the persistent uncertainty of technician customers in the current environment. Having said that, we were pleased to see the positive uptake of tool storage products during the period. Gross margin improved 140 basis points to 47.7% in the quarter, from 46.3% last year, mostly due to increased sales and savings from the segment's RCI initiatives, partially offset by higher material and other costs. Operating expenses as a percentage of sales of 26.1% compared to 26.3% in 2025. Operating earnings for the Snap-on Incorporated Tools Group of $105 million compared to $92.4 million in 2025. The operating margin of 21.6% improved 160 basis points from last year. Aldo Pagliari: Turning to the RS&I Group shown on Slide 9. Sales of $485.3 million compared to $475.9 million a year ago, primarily reflecting $9.1 million of favorable foreign currency translation. On an organic basis, a low single-digit increase in sales of diagnostic and repair information products to independent repair shop owners was offset by decreased activity with OEM dealerships and managers. This decline primarily reflected lower sales associated with OEM programs in North America, which more than offset higher revenues with OEMs in Europe. In addition, sales of undercar equipment in the quarter were essentially the same as last year. Gross margin of 46% compared to 45.7% last year, primarily due to the favorable business mix and savings from RCI, partially offset by higher tariffs and material costs. Operating expenses as a percentage of sales of 21.4% compared to 20% in 2025. This increase is largely due to 60 basis points of unfavorable foreign currency effects, higher personnel costs, and expanded technology investment, including those in support of the segment's growing software-based businesses. Operating earnings of $119.5 million compared to $122.1 million last year. The operating margin of 24.6%, including 60 basis points of unfavorable currency effects, compared to 25.7% reported in 2025. Aldo Pagliari: Now turning to Slide 10. Revenue from Financial Services of $101.1 million decreased $1 million from last year, primarily due to lower interest income resulting from a year-over-year decrease in the size of the average portfolio in the period. Financial Services expenses of $33.1 million increased from $31.8 million in 2025. However, provisions for bad debts improved by $300 thousand from those recorded in the first quarter of last year. As a result, Financial Services operating earnings of $68 million decreased $2.3 million from last year's levels. In the first quarter, the average yield on finance receivables was 17.6% in both 2026 and 2025, while the average yield on contract receivables was 9.1% in each year. Loan originations of $264.6 million in the first quarter represented a decrease of $4.1 million, or 1%, from 2025 levels. Aldo Pagliari: Moving to Slide 11. Our quarter-end balance sheet includes approximately $2.5 billion of gross financing receivables, with $2.1 billion from our U.S. operation. For extended credit, or finance receivables, the U.S. 60-day-plus delinquency rate of 1.9% is down 10 basis points from 2025. Additionally, the rate is down 20 basis points from last quarter, reflecting the typical seasonal decrease between the fourth and first quarters. Trailing 12-month net losses for the overall extended credit portfolio of $72.9 million represented 3.75% of outstandings at quarter-end. We believe that these portfolio performance metrics remain relatively balanced, considering the current environment. Aldo Pagliari: Now turning to Slide 12. Cash provided by operating activities of $168.7 million in the quarter represented 145% of net earnings and compared to $298.5 million last year. An improvement of $70.2 million, or 23.5%, from comparable 2025 levels largely reflects decreases in working investment versus increases last year, and higher year-over-year net earnings. Net cash used by investing activities of $28.6 million mostly reflected capital expenditures of $21.2 million and $5.1 million for acquisition of a former independent Car-O-Liner collision distributor in Australia. Net cash used by financing activities of $211.1 million included cash dividends of $126.8 million and the repurchase of 267 thousand shares of common stock for $99.9 million under our existing share repurchase program. As of quarter-end, we had remaining availability to repurchase up to an additional $234.1 million of common stock under our existing authorizations. Aldo Pagliari: Turning to Slide 13. Trade and other accounts receivable of $890.7 million represented an increase of $9.3 million from 2025 year-end levels due to the higher sales volumes. Days sales outstanding were 67 days in both periods. Inventories decreased by $4.7 million from 2025 year-end, primarily due to $5.6 million of foreign currency translation. On a trailing 12-month basis, inventory turns of 2.4 were the same in both periods. Our quarter-end cash position of $1.7533 billion compared to $1.6245 billion at the end of 2025. In addition to our existing cash and expected cash flow from operations, we have more than $900 million available under our credit facility. There were no amounts borrowed or outstanding under the credit facilities during the quarter, nor was any commercial paper issued or outstanding in the period. With respect to our outstanding debt, notes payable and current maturities of long-term debt increased by $300 million, reflecting the reclassification of our March 2027 unsecured 3.25% notes to current status. That concludes my remarks on our first quarter performance. I will now review a few outlook items for the remainder of 2026. With respect to corporate costs, we currently believe that expenses will approximate $28 million each quarter. As a reminder, in 2025, earnings per share included a $0.31 nonrecurring one-time benefit from the RS&I Group legal settlement. We expect that capital expenditures for the year will approximate $100 million, and we currently anticipate that our full-year 2026 effective income tax rate will be in a range of 22% to 23%. I will now turn the call back to Nick for his closing thoughts. Nick? Nick Pinchuk: Well, thanks, Aldo. Our markets are resilient and strong. And it is a strength not dependent on the ups and downs of the economic cycle. They are rather driven by the solid secular trends of aging, rising complexity, expanding criticality. And these are, of course, turbulent times. The hits just keep on coming—continuing tech uncertainty, unfavorable currency diluting our margins, the impacts of inflation, and the fluctuation in government policies. They all serve to cloud the horizon and weigh on consumers. We see some green shoots—in our Tools Group and our overall sales gains, and in our nascent increases in tool storage. We do see encouraging signs, and we believe our future is quite positive. And as such, we continue to expand our investments in what we believe are for Snap-on Incorporated corridors of decisive advantage. You can see the numbers turn across the face of the quarter—progress along our runways for growth and for improvement. We are enhancing our franchise network, and we are extending further into critical industries—growing substantially even while military is flat. And we are wielding our Snap-on Incorporated Value Creation Processes with effect—launching great new products in customer connection and innovation. And we are effectively bringing RCI to bear on the major challenges of the day, keeping gross margins strong against the winds. And we love to say it all. C&I sales up 10.8% as reported, 7.1% organically, with the critical industries leading the way with high single-digit growth. The Tools Group, back to positivity with increases of 5% as reported, 3.4% organically. Gross margins strong at 47.7%, up 140 basis points. OI margins 21.6%, up 160 basis points. And RS&I volume up slightly in the quarter, but still enough to record the highest sales ever in the period. RS&I gross margin of 46%—up 30 basis points against 60 basis points of unfavorable currency effects. OI margins are still robust at 24.6%, but down 110 basis points from last year, reflecting currency and what we believe are powerful investments. In the overall corporation, sales up 5.8% as reported, 3.4% organically—making it the highest first quarter ever and the second highest of all our quarters. Gross margin is 50.4%—strong against the wind. OI margins, 20.8%—also strong, but down 50 basis points, with 40 basis points of unfavorable currency effects, and reflecting the decisive investments. And the EPS, $4.60—up again. This period was a demonstration of the resilience of our markets, the power of our model, and the skills of our team—making progress in the blizzard and still investing in our future. Looking forward, we proceed with confidence. And we are confident and convinced regarding a positive future. We are confident because we know the special nature of our markets—driven by powerful secular trends. We know the strength of our advantages in products—Snap-on Incorporated really does make critical work easier. And we know our advantages in brand—Snap-on Incorporated stands alone. The Snap-on Incorporated name really is the singular sign of the pride and dignity working men and women take in their professions. We are confident because we know our advantages in our people. Our team is committed, capable, battle-tested. Our team just does not aim to succeed. Snap-on Incorporated expects to succeed. As such, we believe that propelled by these advantages, Snap-on Incorporated will continue to move forward positively throughout 2026 and well beyond. Now, before I turn the call over to the operator, I will speak directly to our franchisees and associates. I know many of you are listening or will be hearing this later. Our progress in the period—strong sales and holding firm against the challenge of the day—has been a result of your efforts. Your performance in the quarter—you have my congratulations. For the energy and capability you bring to the enterprise every day—you have my admiration. And for enlisting your future, your dedication, and your confidence in our team—you have my thanks. Now I will turn the call over to the operator. Operator? Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. The first question today comes from Bret Jordan with Jefferies. Please go ahead. Bret Jordan: Hey, good morning, guys. In the prepared remarks on C&I, you talked about heavy duty specifically within the stronger categories. Do you think you are seeing a cyclical trend there—that after a long softness in the heavy-duty market, there is some improvement? Or is this a product or short-term factor? Nick Pinchuk: I would not say we saw so much softness in heavy duty, Bret. I cannot say there is not some macro trend, but we believe it is because we are understanding the work around heavy duty more every day, and this leads to more effective, complex, and customized solutions, which people are signing up for. We think when we do this, yes, we are following the markets, but we are also capturing some share in our business. Bret Jordan: And I guess also in the prepared remarks, you talked about restarted momentum, then you talked about green shoots a couple of times. Could you talk about maybe the cadence of the quarter? Obviously, the last month had some pretty significant geopolitical events going on. But for the underlying trend, are you seeing that the volumes in the garages are picking up—that that is driving this green shoot? Nick Pinchuk: I think a couple of things. It is hard for us—a month is not really significant progress. And so when we look at the quarter, we can make no conclusions about the effect of the war on where the world is going. But I will tell you this: the green shoots were associated principally with tool storage and the sales of those items. And I just had recent conversations with the franchisees. They sounded pretty optimistic to me. They were talking proudly about the Epic box with the red, white, and blue—“I was able to get two of them,” “I got one of them.” They seemed pretty positive. And I can tell you franchisees do not hold back when they talk to me. I get a lot of complaints, and these conversations were pretty positive. So I put that together with the nascent tool storage increase and our total sales and say that is a green shoot. But it is one quarter. We do not give guidance, and you never really know. But it is better than a poke in the eye with a sharp stick—what we got. Operator: The next question comes from Scott Stember with Roth. Please go ahead. Scott Stember: Good morning, and thanks for taking my questions. Nick, can you talk about how some of the other subcategories in Tools did—whether it is hand tools, power tools, diagnostics? Nick Pinchuk: Sure. Look, Tools was up. Power tools was up. Diagnostics was tepid. In fact, it was challenged this period, but had some difficult comparisons last year. So that is the way it went. Pretty much most things were up, except diagnostics was a little weak in this period. Scott Stember: And as far as sell-in to the van channel versus sell-off of the channel, any meaningful differences? Nick Pinchuk: No. I do not think one quarter is meaningful in this kind of thing, but it is in the same zip code as the growth—up 3.4%. For example, the 3.4% total was also what happened in the United States, and the sales off the van were in that same ballpark. It is never exactly the same, but over time it kind of rolls off. We felt pretty good about the sell-off the van this quarter. Scott Stember: Just last question on tariffs. I know that you guys have done a great job of being relatively insulated. But with some of the recent changes that we saw, is there going to be any change to that narrative? And to the extent that you have had some payments that you have made, are you looking to pursue some rebates with the exclusions going away? Nick Pinchuk: Tariffs these days are a blizzard. They changed the 232 rules, and they added 122—it is like numerical salad. We do not think tariffs are going to change very much actually going forward—not planning or expecting some changes. Now in terms of refund, Aldo has been rehearsing his answer for a while here. Aldo, go ahead. Aldo Pagliari: Well, actually, I have only been rehearsing since April 20. They opened a portal for people to apply for refunds. Our view is—first, I want to emphasize—tariffs are not as significant to Snap-on Incorporated as they might be to many other companies out there. But our strategy is to protect the fact that we do not want anything to expire. If you do not file for rebate through the portal, you run the risk that things go past what they call the liquidation date, and then you can never challenge it—even if one wanted to. So that is our strategy right now. We are not depending on it; we are protecting our rights so they do not expire unchallenged. Nick Pinchuk: I would just add—we are not depending on anything out of this. I am not sure what is going to happen. It is unsure what will happen with tariff refunds and when they will be paid, how it will all work. For us, we are just making sure we keep ourselves in the game and not depend on anything. Scott Stember: Got it. That is all I have. Thank you. Operator: The next question comes from Luke Junk with Baird. Please go ahead. Luke Junk: Good morning, Nick. Maybe to kick it off here—there has been a lot of chatter about the level of tax rebates this year in the U.S. Just curious if you saw any impact from that in the Tools Group or maybe the Finance company and, if so, any links to that? Nick Pinchuk: It is hard to say. On the finance company—you did point out—originations were kind of flattish, and the losses did creep up a little bit. But the 60-day delinquencies are better both sequentially and year over year—that is a pretty good thing. What the result of that is is not clear, but our guys were talking about improvement in that area before we thought tax returns were in play. When I go through the garages, unlike the standard story about people at the grassroots, most of these people do not let this money burn a hole in their pocket. They tend to say—I am putting it in a bank, or I am going to pay off some debt. So maybe that could have worked at paying off the debt; I am not so sure. None of the franchisees I talked to mentioned it. I did not prompt them, and maybe if I had, they would have said it is great for us. I do not think we are seeing it as a big factor, but that is hard to say. Luke Junk: Got it. Switching gears to C&I, could you remind us on the military exposure within critical industries specifically? I know you mentioned seeing a lot of growth there right now, but just in terms of past experience and the impact that tends to be a little lagged when military activity picks up. Nick Pinchuk: The C&I business is a pretty good business—it is well over $100 million in a quarter. The military is one of six different segments and towards the top of that list. Lately, the military has been down—last year, military was down double digits. We got a little bit back in the fourth quarter, and this year it stayed flat, so it has improved some. We expect the military to improve going forward. History says that when conflicts like this are over, refurbishment becomes important. They restock and reverse, so we usually get good business out of that. On top of which, I think the nation is saying, given the environment, we have to stock up a little bit more on military. So we expect that to expand. What I loved about the quarter was, the military did not help us and, boy, some of those other areas—like aviation—were gangbusters. And it is pretty profitable. Industrial had a terrific quarter. The industrial business seems pretty good to us. It keeps expanding, and it is mostly because we keep understanding the work better in each of those places. That is our principal value-creating mechanism—to understand the work and create products that are irresistible to customers, whether customized or not. As you understand the work better, you get a bigger product line. That is what we are doing. It seems to be working. Luke Junk: Got it. I will leave it there. Thank you. Operator: The next question comes from Christopher Glynn with Oppenheimer. Please go ahead. Christopher Glynn: Thanks. Hello, everyone. Just wanted to keep going on the C&I themes you just talked about, Nick, because the comments you just made kind of reinforce some of the stuff in your prepared remarks. The C&I growth historically has been pretty intermittent, rather than hitting a growth cycle and a consolidation cycle. So I am wondering if you are suggesting something culturally and in the bones has gotten better about the work—kind of like, you know, some companies really hit stride with new tools out of the pandemic. Nick Pinchuk: I think you are right about that. We have seen it happen a couple of times. We were turning along in critical industries, and then we expanded capacity here at Snap-on Incorporated. We added a whole building that allowed us to build more customized kits and expand on that, and it shot up. Then it hit a little bit of a pause when the military started sputtering, and then it is coming back. Behind all this is the idea that I really do believe we are gaining share because our products are getting better. It is hard to talk about any one product because most of them are kits, but in those kits, configuring them such that they meet the problem—if you have a particular jet aircraft you want to deal with in terms of maintenance or manufacturing—we will put you right on target. We have some of those. I am not saying we are immune to cycles, because it certainly has proven not to be, but what has elevated the game is capacity. Christopher Glynn: Have you instituted new organizational layers or structures or account realignments? Nick Pinchuk: Capacity. We are learning how to wield the capacity better. We have added people in the field; we have learned more about the work. Also, we have created a capacity situation where we can deliver quicker and more effectively. Those kinds of things have combined to give us some acceleration. What happens is you add something, then you learn how to do better and better with it. When you start something up, it helps you, and then you realize what you have and work on it. It is the essence of RCI. What you are seeing there is in the bones of Snap-on Incorporated Value Creation—figuring out more improvement—and secondly, having a better product. I believe that is the situation. Christopher Glynn: And then my other one, just on SOFCO originations. It sounds like storage might be turning a corner and you have a pretty good comparison backdrop for a while there. Diagnostics was off in the quarter a little bit, but not at the RS&I level. Even Tools had a couple of really nice diagnostic quarters in the middle of last year. Seems like maybe the ingredients are in place for originations to start to grow, and the commemorative unit in particular sounds really cool and is hitting some stride at a high price point. Do you feel like that is the direction? Nick Pinchuk: The originations were flat in the quarter, roughly. I use the word green shoots particularly because I am not sure what the increase in tool storage means. I do think it shows some thaw. We could not get arrested before with big boxes. Now you saw the Tribute to America, and I have the feeling that it sold well not only because it is a compelling offering, but also because maybe the hurdles were a little bit lower. We will see how that plays out. I think it is favorable—it shows tool storage is not completely dead. In fact, it was a nice strong quarter for tool storage. Operator: The next question comes from Gary Prestopino with Barrington Research. Please go ahead. Gary Prestopino: Good morning, all. Sorry if I missed this, but could you maybe just talk about how much tool storage was up year over year? Nick Pinchuk: I do not want to get nailed to a cross on exact numbers, but tool storage was up more than the average. It was one of the leading items. A quarter is not definitive, but I still feel pretty good about it. I am not here to declare victory, but I feel good about it. Gary Prestopino: So if I ask this another way—was a lot of that due to this new lower price point product that you put out there for the techs? Nick Pinchuk: Some of it was due to that. I talked about the new roll cart that came out. We made it available in all these colors. You might think that is trivial, but it is not—people want a roll cart to match their box. If they have a candy apple red box with carbon trim, they want the roll cart to look like that. If you make that available, it tends to sell more. The roll cart is pretty sturdy, so that was another contributor. Yes, the Tribute to America was a good contributor too, but it did not account for everything. Gary Prestopino: You said the franchisees are a little more optimistic than they had been. Do you attribute that to some of what you have done strategically with shorter payback products, or are they really starting to see a turn in the appetite for technician purchases of tools? Nick Pinchuk: Probably some of both. Franchisees usually talk to me about products they do not like or how easy or hard it is to sell. When I say they were positive, they were not saying it was hard to sell, and they have said that before. I did not talk to every franchisee—it was a windshield survey—but the guys I talked to seemed pretty positive. And I do think it makes it easier to sell if we have offerings that match the preference. So I guess the answer is both things are in play. Gary Prestopino: In the C&I segment, are you seeing increased demand from the data center market for specific tool kits? Nick Pinchuk: We are seeing increased demand for specific products for the data center market in terms of the construction of the data center. We are being asked to quote, and we are finding business in those areas. Gary Prestopino: What was the FX impact to EPS? Aldo Pagliari: We had $0.02 of good news when it came to operating income from translation. When you look at the unfavorable currency remarks throughout the deck, that has to do with transaction negative variances, largely associated with our factories emanating out of Sweden and the United Kingdom to some extent. Nick Pinchuk: So some good news there, Gary. The reason why we talked about the negative is, yes, it was positive on EPS but negative on the margins, because it added sales and did not add profits in proportion. It added a lot of sales and almost no profit. Gary Prestopino: Okay. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Sara Verbsky for any closing remarks. Sara Verbsky: Thank you all for joining us today. A replay of this call will be available shortly on snapon.com. As always, we appreciate your interest in Snap-on Incorporated. Good day. Unknown Speaker: Goodbye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Even Westerveld: Good morning, everyone. Welcome to the presentation of the first quarter results for DNB and also welcome to everyone following the stream. Just for information, the emergency exits are in the front and also in the back, and there are no planned drills this morning. Spring is here. The sun is shining, and we are really eager to present the results for you. CEO, Kjerstin Braathen, will kick off and then our CFO, Rasmus Figenschou, will continue with the details. And there will be time for questions afterwards. Kjerstin, the floor is yours. Kjerstin Braathen: Thank you so much, Even, and a particularly warm welcome, we can say, since it's spring, as Even said, and the sun outside is shining. That, nonetheless, does not mean that there are calm waters around us in the world because this quarter, the turbulence around geopolitics has continued certainly with the increasing conflict and the war in the Middle East. This is something that has led to high and very volatile energy prices and the level of uncertainty is, as we have seen now for several quarters and years, higher than what we have been used to. Despite the geopolitical backdrop and despite energy prices being higher, the market reactions overall, we would qualify as relatively benign. And the Norwegian economy continues to be resilient in this environment. Business activity overall across the Nordic markets, which does represent the majority of our activity, we would consider at healthy levels and the Norwegian households are robust. So despite a turbulent environment, we are relentless in our focus, which remains with our customers, focusing on giving them good customer experiences contributing with value creation and focus on the business short term and longer term. As always, I would like to start also with the customer and demonstrate how we are working towards our mission, which is really to simplify life and help our customers prosper. In terms of simplification, we have this quarter launched a new equity trading platform in our digital savings app, Spare. This was launched in March. And already in the month of March, we saw that 1 out of 4 trades in shares were actually done on the platform, and I don't think we can get better feedback from our customers than that, that this is actually contributing both to simplicity and efficiency. We continue to see that our customers are putting their trust in us with their savings and their investments, and this is demonstrated by a record net inflow in our Asset Management business this quarter of NOK 20 billion. Making it easier for the young children and adolescents to become customers is also something that we've done this quarter. Now young people below the age of 18 can become a customer with DNB in less than 2 minutes. For our Sbanken customers in chat, we have introduced an all AI -- generative AI chatbot, meaning it's not a chatbot that we have trained, it trains itself. And this has rapidly taken over 75% of the responses in chat and inquiries from our customers in Sbanken with very good customer satisfaction. Across Large Corporates and DNB Carnegie, we continue to see a confirmation of our strengthened position and the offering. First, from Prospera in the Grand Total survey for Norway, where we are qualified as the leading bank in terms of customer satisfaction. And for DNB Carnegie this quarter in equities, where individually, we are #1 in each of the 4 Nordic countries and also with the overall number 1 position. And as always, I am very proud of the efforts that our team put in every day for our customers. On to the results. The return on equity comes in at 14% this quarter, 15.5% on a rolling 12-month basis. This does represent a solid contribution from all our customer segments and also the macroeconomic development with lower rates than we saw this time last year. We do see profitable growth both in loans and deposits, a stronger development in deposits than loans this quarter. And the growth is offset by repricing effects and also a fewer number of interest days in the first quarter. And NII as a result of this is down by 5.4% compared to the previous quarter. Net commission and fees is up by 18%. Contributions materially from all various product areas, the strong point, again, I would highlight is Asset Management, where we see a strong net inflow. We see assets under management grow despite values coming down. And we also see a record flow for the past 12-month period. The portfolio in a turbulent environment, again, remains very robust and well diversified. We do not see any structural changes or any negative migration in the portfolio as such. We do book impairments of NOK 644 million in the quarter in all its -- not in all its entirety, but primarily related to customer-specific events and no systematic development in the portfolio. Capital position remains solid, 18.1% core equity Tier 1 ratio, 170 basis points headroom to the required and expected level and a strong earnings per share, we believe, with NOK 6.5 in the first quarter. The Norwegian economy is impacted by what goes on around us in the world. We are an open economy. We are an economy that trades with others. As a net exporter of oil and gas, we are partly benefiting also from higher energy prices and somewhat less impacted by inflation stemming from higher energy prices than other countries, but we emphasize that there is an increased uncertainty in the environment around us. This has led to growth estimates for the year coming somewhat down, but to what we would still qualify as healthy levels with an expected GDP growth in the Mainland economy of 1.4% this year and 0.9% next year. Unemployment is something that we follow very clearly and talk to you about every quarter, still a stable level. We would qualify it with 2.1%, and we expect it to stay low and relatively stable in the time ahead of us. We do expect yet again this year to see real wage growth for consumers. This leads to increases in disposable income, and it does support consumption as a key driver for economic growth. Given the development in inflation that has been more sticky than expected, I think, by both the Norwegian Central Bank and markets, we have seen a shift in the outlook for interest rates during this quarter, both in the messaging from the Central Bank as well as in the messaging from our own team in DNB Carnegie. The outlook for rates is now an expectation that we will see 2 rate increases this year, each by 25 basis points up to the level of 4.5% for the key policy rate, and rates are expected to come down by the similar amount in the year 2027 and stabilize around 4%. So again, in an uncertain world, the robustness of the Norwegian economy continues to be demonstrated as well as the resilience in households, and we do qualify this as a very healthy environment for us to run a sustainable business in. A few highlights on the customer segments. And I would underline that we continue to see a very solid underlying performance across all of our customer segments in a competitive environment. The growth platform we've talked about in Norway as well as outside of Norway continues to deliver, and we see strongest growth on the lending side in Large Corporates. And in this quarter, the nominal growth in Large Corporates is offset by a somewhat stronger Norwegian kroner. We see a very healthy deposit growth across Personal customers as well as Corporate customers in Norway. In Large Corporates, we are more, I would call it, opportunistic. We qualify pricing towards the cost of funding in treasury and the volumes develop accordingly. For Personal customers, we see that the activity in the housing market is somewhat more muted this quarter, but I would highlight the very strong results that we see in our brokerage business in Personal customers. I would like to highlight the pace of innovation that we experienced from the team in Personal customers as well as a strong cost control development in this area. In Corporate customers Norway, last quarter, we talked to you about some larger transactions that were closed towards the end of the quarter in commercial real estate and the plan to syndicate and distribute these. This has been done successfully, both in terms of syndicating to other banks as well as taking out parts of the volume in the bond market. This has impacted volumes along a more stable development of volumes also across the SME market and volumes are slightly down in Corporate customers Norway. We do note a strong growth in other income in Corporate customers Norway compared to the same quarter last year, and this reflects not only an increased level of activity with DNB Carnegie, but also the systematic effort over time to work broadly on cross-selling in this area. Large Corporates that delivers the strongest growth this quarter comes in at 2.3% for the quarter, 9.1% if we look at the year overall currency adjusted. We are working and making progress in terms of strengthening the team in Sweden, and we are getting positive feedback from that process and also how the cooperation is developing with the team across DNB Carnegie. And we see that half of the growth that we deliver is outside of Norway. And again, I reiterate the robustness and the strong quality of the portfolio and that we do not see other systematic risk outside of customer-specific situations. So all in all, a robust development we see for our customer segments. We continue to talk about our activity across DNB Carnegie and across wealth management as the key growth drivers in our business going forward. And we saw a very strong start to the year that has been somewhat -- has been somewhat impacted by more turbulence towards the month of March. But despite this, we continue to see that the level of revenue growth both in DNB Carnegie and our Wealth Management business. One year now after closing the Carnegie transaction, the integration is progressing well, and we continue to reap the benefits from having an improved and more competitive and broader offering towards our customers. We saw a very strong start to the year again across all product areas, I would say, in Investment Banking. With the conflict in the Middle East, we have seen and experienced that some of our clients naturally have decided to postpone some of their investment activity and activity related to stock listing and others, but we have not yet seen this leading to any cancellations of any plans. So the pipeline in the business remains strong going into the second quarter. On Asset Management, again, I would highlight the strong point being net flows, NOK 20 billion for the quarter, NOK 65 billion for the year. This last quarter, more than NOK 5 billion stems from the retail market. And this is an effort we are systematically working on to grow that part of the business as it's more sticky, more recurring. And we have seen that customers are changing their positions, but they are more comfortable remaining in their investments in the market compared to what we saw during the turbulence that stemmed from Liberation Day during 2025. So all in all, a robust quarter. And with that, I will hand over to my excellent CFO, Rasmus, who will take it from here. Rasmus Aage Figenschou: Thank you, Kjerstin. I will now take you through the Q1 results in more detail. And please keep in mind that for 2025, Carnegie's results were included in 1 month of the first quarter. We note continued high activity across all segments with FX-adjusted loan growth up 0.3%. Looking at the Retail Personal Customer segment, the growth is up by 0.2%. As mentioned by Kjerstin and as mentioned last quarter to the market, the growth in the commercial real estate was -- had a planned syndication of -- in Q1 and has been taken out with other banks as well as in the bond markets and thus leading to a volume reduction of 1.2%. Within the Large Corporate area, FX-adjusted volumes were up by 2.3%, driven by increasing volumes across industries and across geographies, mainly in low-risk customers. And we see that more than 50% of the growth comes from our international growth platform. Currency-adjusted deposits were up by 2.6%, driven by positive development both in the Personal customer segment and Corporate customers in Norway. We maintain a strong deposit-to-loan ratio within the customer segment of 73.8%. As in every -- almost every first quarter, activity is slower. This naturally impacts net interest margin, which was down by 7 basis points, ending at 174 basis points. The reduction reflects narrowed combined spreads and other NII not included in the customer segments. Combined spreads in the customer segments were down by 5 basis points, driven by repricing effects, product portfolio mix effects and margin pressure and continued strong competition. NII is down 5.4% in the quarter. We note that spreads are down by NOK 449 million, where roughly 1/3 stems from the full effects of the most recent repricing in November, roughly 1/3 comes from portfolio and product mix effects and slightly less than 1/3 comes from stronger competition. Higher average volumes during the quarter increased -- offset this with NOK 231 million and then having a negative FX effect of NOK 86 million. The reduction of 2 fewer interest days in the quarter was -- came in at NOK 248 million. Amortization effects and fees are down by NOK 176 million, reflecting lower activity, as mentioned in the quarter. No treasury effects in other NII of roughly NOK 150 million. Moving on to commission and fees. Our fee platform is strong and well diversified in total, up 18% from the corresponding quarter last year. Real estate broking was up 3%, reflecting strong performance in a slower market where fewer properties were sold compared to Q1 last year. Investment Banking Services was up by 38%. We note strong development despite of market uncertainties. Our pipeline remains strong, as mentioned by Kjerstin, noting though the transaction in recent months have been postponed. Asset Management and custodial services was up by 34% and assets under management were down 1.2% due to high volatility and negative market developments. However, and more importantly, we noted the positive net flow of NOK 20.4 billion this quarter, a record high, but also a record high when looking at the last 12 months of NOK 65 billion, well balanced between the retail and institutional investors. Money transfer and banking services were down by 17%. We note high customer activity, offset by costs related to payment services and use of credit insurance related to corporate exposures, which is part of our OAD model, driving profitability for the group as a whole. Sale of insurance products was up by 19%, supported by positive development from the non-life insurance commissions and continued strong income from defined contribution in our life insurance business. In addition to what can be seen on this slide, we also note positive momentum in other income with strong results from our life insurance company, DNB Liv, and our non-life insurance provider, Fremtind. Operating expenses are down by NOK 920 million compared to Q4, of which NOK 51 million is currency effects. The reduction reflects seasonally lower activity as well as a persistent cost culture to drive efficiency. Activity is exemplified by the decrease in expenses related to variable salaries and IT and the nonrecurring effects booked last quarter of NOK 200 million. Low return on the closed defined benefit pension scheme is related to market development contribution and that contributes to lower cost this quarter. The scheme is partly hedged and reflected in our financial instruments. Due to seasonality, the second quarter generally carries higher activity-related costs and as well -- compared to the first quarter as well as the effects from the annual salary increases adjustment from May 1. Now moving on to portfolio quality, which remains robust and well diversified with 99.4% being in Stages 1 and 2. In the Personal customers portfolio, which accounts for approximately 50% of our exposure, remains strong. We continue to note record low request for installment holidays and fewer loans with interest only compared to last quarter. Impairment provisions in the Personal customer segment is affected by a model adjustment on inputs on consumer finance and the underlying portfolio remains solid. For the Corporate customer, impairments totaled NOK 556 million. The portfolio remains robust and well diversified across industries and geographies. There is no structural change to our portfolio or general negative migration to note. The impairments in Stage 3 are related to customer-specific situations, and these are typically exposures we've been following over time. And most are -- recent are industries that have been challenging for some time, such as construction. We remain comfortable with the quality of our portfolio. Now moving over to capital. Our CET ratio -- CET1 ratio remains strong at 18.1% with 170 basis point headroom to the regulatory expectations. It was positively affected by the profit generation in the quarter as well as ordinary dividend of NOK 1.9 billion from DNB Liv. In line with previous years, the AGM on Tuesday gave the Board of Directors authority to buy back up to 3% of outstanding shares and an application has been sent to the FSA for approval. The leverage ratio remains strong at 6.5%, well above the regulatory requirements of 3% and combined with a CET1 ratio of 18.1%, our capital position remains strong and enables us to continue to deliver on our dividend policy and continue to support our customers. Summing up, we delivered a strong set of results in the first quarter, having return on equity coming in at 14%, cost/income ratio of 38.7% and an earnings per share of NOK 6.5. We also mentioned that for 2026, tax rate is expected to be 22%, but our long-term guiding remains unchanged at 23%. With that, I thank you for your attention, and we open up for questions. Even Westerveld: Thank you so much, Rasmus and Kjerstin. We have a few microphones in the room, please. Yes, Roy Tilley from Arctic. Roy Tilley: A couple of questions from me. Just on the -- touch upon the margin side, just on the competitive picture on retail, in particular. Have you -- has it changed anything recently? Or is it kind of still the same pressure? And is there anything similar on the corporate side? That's the first question. And then a question on funding. So money market rates have come up quite significantly in the last few weeks. So on the funding side, you've already got a rate hike in your funding cost, I guess, and spreads have also widened somewhat. So I was just wondering, are you able to mitigate any of that on pricing on the asset side? I guess, repricing mortgages will be difficult until we get an actual rate hike, but have you done anything on deposits? And then the third one, just on buybacks. Have you sent an application to the FSA? And if you have, when would we expect an answer? Kjerstin Braathen: Thank you, Roy. I can do the first and Rasmus, the 2 following. Competition is fierce. I would say it's gradually intensifying. We've seen that over the past year. It does reflect that there is ample capacity in the market that surpasses the credit demand overall. It is fierce in Personal customers. It's definitely fierce also in Corporate customers in Norway, including in the commercial real estate sector that we usually see when there is capital looking for employment across the market. Still, we are very pleased to see that there is a high activity and interest coming into the business as such. In particular, we are focusing on our position towards young people. We have 12,000 people buying their first home, young people buying their first home during the course of last year. We continue to see stable to growing volumes even in a competitive market. For us, it's a demonstration of the performance in our team overall, and we are able to continue to grow at sustainable levels, and that continues to be a priority for us, and it will be. But overall, the market is impacted by competition, yes. Rasmus Aage Figenschou: Very good. And on the funding side, of course, there is -- when there is volatility, I'm very happy that we have a strong set of treasury team that plans ahead. So for us, we are not affected by the day-to-day developments in that funding. And I will not go into detail of when we move in the market, but we are well funded. And we, of course, when the whole key policy -- well, when the market has moved in total, we are, of course, affected by that, and then that will feed on to our customers. But the volatility that you're referring to, we are funding our way through it, so to speak. When it comes to the FSA application, we have applied similar to -- as previous years for 1%, and we'll refer to the market when we have their answer. Kjerstin Braathen: And just as Rasmus is saying very correctly, we have -- our team has funded a bit early in terms of expecting market development to be more volatile. But do keep in mind that relative to the LIBOR and the money market rate, our position is more or less stable. And this is in view of how our assets and liability size are matched in terms of margin-related exposure to customer versus what we are funding in the third-party market. So there is a slight impact from rate movement. But really, overall, I think you should see that more or less stable. And then what matters beyond that is, of course, the level of spreads. And coming into the year, we saw the lowest risk premiums that we've seen in a long time. They have come out somewhat, but not to a very large extent. And our goal is always to fund ourselves better than our peers. That increases our competitiveness towards customers, and we continue to see that we get very, very competitive funding. Even Westerveld: Thank you. Herman Zahl from Pareto. Herman Zahl: Just following up on competition. Could you say something about what kind of peers are driving competition in Norway Corporate segment, specifically? Since it seems like both larger savings banks and your Nordic peers have stepped up a bit. Kjerstin Braathen: I think we have a clear principle that we'd rather talk about our performance and not so much specifically about others. I think what we can contribute and shed light on is that it's a broad specter of players that are active in the market. Changes that have been made to capital structures that has improved the position of standard banks as a more general example has taken an impact. We can see that, that has made that category of banks more competitive. Otherwise, there is a larger number of players who are very actively driving competition in the market. Herman Zahl: Yes. And then just on some of the core banking fees, I think you mentioned some margin changes in guaranteed on the slides and money transfer fees as well. Is there something structural we should bear in mind there? Or is it mix effect? Kjerstin Braathen: It's an element impacting over the past 4 or 5 quarters or so, where we have more actively engaged in ensuring part of the exposure that we provide for some of our clients in larger corporates. So it's an added tool in the toolbox to originate and distribute. So when we look at that on a transaction per transaction basis, the return on the transaction and the customer and then to the group is improved because we have less exposure, but the cost related to this does appear in the commission and fee part of the book and has an impact there. Even Westerveld: Thank you. Thomas Svendsen, SEB. Thomas Svendsen: First, a question to commercial real estate. Now that the hope for interest rate declines have diminished and rates are going up, one could imagine that impacts the cash flow and the liquidity for these companies. So how do you look at commercial real estate? Kjerstin Braathen: We continue to remain comfortable with commercial real estate, Thomas. But as you know, of course, rates are very important in that sector of activity, and we have followed it closely. And I would say since rates topping out the last time around, there has been a restructuring and a shift in values that now is more or less 2 years back in time where some players that needed to reposition have positioned. We are now going back to interest rate levels we were at not too long ago, at least that's the expectation in the market. We do not see this as a particularly concerning factor related to our commercial real estate exposure overall. Keep in mind that it is 10% of our book, and it's limited to that. 72% of the exposure is in low-risk customers. It is a diversified exposure across geographies, but mainly concentrated in the larger cities in Norway, and it's diversified across offices, across hotels, across the shopping malls and others. And there is no particular concern that we would like to highlight in view of rates coming somewhat back up again. Thomas Svendsen: Okay. And just a second question on your latest CMD, you said you were targeting NOK 3 billion in gross cost cutting. Now that more than 1 year has passed, how are you according to this target? And should we expect it to be sort of linear over the planning period? Rasmus Aage Figenschou: So we are progressing according to plan on that. And we are -- as our cost slide represented, we are working adamantly on the cost efficiency in the bank, and we see numerous specific targets or areas that we're working on. We're not going into detail on that, except that we are progressing according to plan. Kjerstin Braathen: But I think roughly, we can share that we feel that we are more or less on track. Our cost-income ratio this quarter is somewhat north of 38%. So it's higher than what you've seen in previous quarters. This is an expected impact from the Carnegie acquisition. We have bought a meaningful piece of business that has a higher cost income component, but an improved return for the business overall. And of course, we acknowledge that it's more difficult for you to follow gross cost-saving initiatives, but you have seen us taking several initiatives in terms of restructuring and making changements to our staff. We are working in areas such as digitization and automation, but I would also add innovation in terms of simplifying and reinventing value chains. And of course, AI is a very important tool for us in this area. Also simplifying business, increasing the magnitude of straight through processing in more complex processes. I talked about a couple of examples in simplifying life for our customers, and we like doing that. But of course, simplifying life for customers also means improved efficiency for us. So we are on plan. It's not necessarily linear. Of course, we will also see what can be done with AI. That is a moving picture. But I think it's hard to give you sort of any guidance in terms of how you will see it being linear or not. Even Westerveld: Thank you. Any questions from the online audience? Yes, if we can pass the mic to Rune? Rune Helland: We have a question from Markus Sandgren from Kepler Cheuvreux. Nordea recently highlighted that Norwegian saving banks are currently competing quite aggressively, particularly on pricing. Are you seeing and sharing this view? And how is this affecting your ability to grow volumes without sacrificing margins? More specifically, how should we think about the trade-off between defending market share and protecting net interest margin in the current environment? Kjerstin Braathen: Thank you. I think we've touched upon parts of this question already, and it is a very important question. We recognize that there is competition in the market. I don't think we would limit it to a specific category of banks. I think we see it more broadly. But we also see that our team continues to perform and that we are able to continue to do profitable and sustainable business. Our growth platform stems across all of our customer segments. This is part of the strength that we have highlighted both in Norway and outside of Norway. And across the sectors, we will continue to prioritize growth. And I think we have proven that in periods if growth is somewhat slower in Norway, we are able to leverage other parts of that growth platform to deliver profitable growth in the area of 3% to 4%, which we continue to target. Growth in the previous 12-month period has been 3.5% in terms of lending, non-currency adjusted. Currency adjusted, I believe it has been somewhat stronger. And we have seen a growth in Personal customers of 1.6%. We have seen in Corporate customers, 5.6% and then Large Corporates, 5% noncurrency adjusted for the year as a whole. And I think this demonstrates also in what has been a competitive market, our ability to deliver growth. The priority remains very firm also on profitability. Even Westerveld: Thank you. Any more questions, Rune? Rune Helland: No. Even Westerveld: I think we will close the session, if I don't see any more hands. Management will be available for members of the press, like we always are in the couch area afterwards. And I wish you all a very nice Thursday.
Operator: Greetings, and welcome to the Helen of Troy Limited Fourth Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference call over to Ann Racunis, Director of External Communications. Thank you. You may begin. Ann Racunis: Thank you, operator. Good morning, everyone. Welcome to Helen of Troy Limited’s Fourth Quarter Fiscal 2026 Earnings Conference Call. The agenda for the call this morning is as follows: I will begin with a brief discussion of forward-looking statements. Scott Azel, our CEO, will then share his thoughts and areas of focus, and Brian Grass, our CFO, will provide an overview of our financial performance in the fourth quarter and fiscal year, and outline our expectations for the full year Fiscal 2027. Following our prepared remarks, we will open up the call for Q&A. This conference call may contain certain forward-looking statements that are management’s current expectations with respect to future events or financial performance. Generally, the words “anticipates,” “believes,” “expects,” and other similar expressions are words identifying forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from anticipated results. This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information. A copy of today’s earnings release can be found on the Investor Relations section of our website by scrolling to the bottom of the homepage. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. We have also posted an investor presentation to our website which contains additional information and perspective on our results and outlook. With that, I will now turn the conference call over to Scott. Scott Azel: Thank you, Ann. Good morning, everyone. It is great to be with you as we close FY ’26 and begin to outline a look to our future. We finished Q4 with a sharp focus on execution. We are determined to be a better company on the road to being a bigger company. We will do this through ruthless focus and disciplined execution. Focus, discipline, and execution best characterize our exit out of FY 2026 and Q4. Net sales exceeded expectations and adjusted EPS was in line. Margins reflect our strategic investment as we make deliberate choices to invest in our brands and our people to position our organization for the future. This progress caps a dynamic year—one in which we took action to address both internal and external challenges by implementing organizational changes necessary to move closer to the consumer, prioritize brand health, and win in the marketplace. Internal ownership is driving our reset. We are committed to operating Helen of Troy Limited more effectively by removing complexity, editing our priorities, and amplifying our actions for impact. Operating rigor in supply chain and demand planning resulted in year-over-year inventory levels that were essentially flat, even as we absorbed significantly higher tariffs in our inventory. Tariff mitigation was paramount, utilizing supplier diversification, SKU streamlining, and pricing actions to protect our margins. Debt reduction continues to be a priority, driven by strong free cash flow and a successful post-quarter divestment of our Southaven, Mississippi distribution facility. We drove operational clarity by moving decisions closer to the consumer, empowering brand-level ownership, and enabling our teams to move with the speed of the consumer. As I have stated, our current situation was not created overnight, and our recovery will not be instantaneous. However, we are taking a measured approach to building our future. Before I discuss our Fiscal 2027 plans, I want to be clear about the market we are navigating. We have made progress, but we are in tune with the macro environment. Overall sales trends reflect a volatile market. While our Home & Outdoor business held steady, our Beauty & Wellness business felt the pressure. The flu season did not really happen. Respiratory and fever rates stayed well below average, which meant that fewer shoppers needed to restock our wellness products. Retail inventory is finally stabilizing. Most retailers are back to healthy stock levels and are working through any residual pockets of excess. We cannot control the macro challenges, but we will be intentional in our actions in service of brand and consumer. We are winning where it counts. Consumers are being selective on where they spend, but brands that deliver innovative products that make consumers’ lives better through style, utility, and personalization will continue to win in the marketplace. Our innovation is landing. We see sales trends improving as we launch new products and offer real solutions. And we are taking market share. Even in this environment, brands like Fix Braun, OXO, Osprey, and Olive & June are standing out as leaders. The challenges we navigated in Fiscal 2026 were a catalyst for change, providing the necessary clarity of where we must invest and where we must simplify. To achieve this, we are executing a multiyear roadmap, a three-phase evolution from stabilization to a portfolio of powerhouse brands. Fiscal 2027 begins with phase one. This is about restoring brand momentum, driving our growing brands faster, and rebuilding top-line momentum for our declining scale brands. We will take the abstract concept of focusing on the consumer to action, making the consumer-centered offense real in FY 2027. We will do that through the following critical actions. One, powering our portfolio—this is about editing and amplifying our brand-building efforts by using a framework to identify the highest return brand investment opportunities. Two, futures capabilities—we have to skate to where the puck will be by investing in capabilities to leverage our consumer insights to inform a trend-forward innovation roadmap. Three, strategic investment—remains a priority as we put capital behind innovation, brands, and people. Four, operationalize consumer-centered decision making by placing talent and decisions closer to the consumer and marketplace for speed and execution. Five, modernizing operations is a parallel priority—strengthening our digital foundation, building a baseline in AI, elevating our eCommerce presence, and upgrading our advanced planning systems to drive greater supply chain visibility and responsiveness. Six, platform-level improvements to our operating engine will continue as we stabilize the enterprise for long-term growth. Three pillars will fortify our plan. Our first pillar, consumer-first innovation, is centered on accelerating product development and modernizing our global reach through high-impact social and digital storytelling that resonates across our global footprint. In Home & Outdoor, we are expanding brand reach by entering product lines where our brands are resonating with consumers and have a clear right to win. At Hydro Flask, in response to strong consumer demand for a wider variety of use cases, we extended our successful Micro Hydro franchise with two additional sizes. We also recently launched new carryout soft coolers and totes redesigned for improved comfort, performance, and longevity. Hydro Flask’s legacy continues to be recognized by the industry, with the Wide Mouth awarded Gear Junkies’ overall pick for Best Insulated Water Bottle of 2026. OXO is expanding into adjacent categories in food storage and feeding in the second half of the year, bringing OXO’s award-winning performance and ease of use to high-growth areas where we see significant opportunity. OXO’s successful Rapid Brewer continues to achieve accolades, winning Best New Product Release in 2025 during its seventeenth annual Sprudgie Awards, which is considered the Oscars of coffee, among other recognition we have received. And Osprey continues to augment its technical pack offerings, providing outdoor enthusiasts with new pack solutions that excel in hiking, backpacking, and travel environments. In Beauty & Wellness, innovation remains a primary driver for brand building and consumer relevance. Our new Revlon Versa Styler launched exclusively in Walmart in the first quarter with early consumer demand exceeding expectations. Priced below $100, this is an all-in-one tool that delivers meaningful time-saving innovation by taking hair from wet to damp to dry and refreshed without the need for multiple attachments. Curlsmith expanded its portfolio with the new Curl Fit Reviving Mist, a unique alternative to a traditional dry shampoo, while Olive & June introduced new press-ons with hand-painted charms and fresh frame colors. I am proud to share that Beauty brands continue to receive top industry recognition, including multiple Glamour 2026 Best of Beauty awards for Olive & June, Revlon, and Drybar. Bakes and Pure have several new introductions planned in the coming months, as we continue to leverage these trusted brands to deepen our consumer relevance. In International, strategic global expansion is a critical priority. We are accelerating our global reach as a key investment in our operating model, laying the groundwork for durable and long-term growth. For online engagement, we are sharpening our execution. Social commerce is an increasingly important connection point for our consumer. We will advance our work across platforms like TikTok Shop and Meta Shop to meet our consumers where they are. And digital experience is receiving significantly more rigor to ensure our online presence matches the premium nature of our brands. Our second pillar, commercial operational excellence, prioritizes critical capabilities to grow with strategic retail partners. We are strengthening digital marketplace capabilities, including catalog and product page management and third-party seller mitigation. Our U.S. club business development efforts are focused on building long-term, multi-brand partnerships. We are modernizing our technology and systems by prioritizing core platform upgrades, data and analytics, automation, and AI-enabled solutions. We are investing in advanced planning capabilities to improve forecast accuracy and optimize inventory performance. And we are continuing to make targeted investments in Southeast Asia to strengthen our dual-sourcing capabilities. Our final pillar, people and culture, is reenergizing our organization and ensuring we have the right capabilities to win. Culture relaunch is establishing a brand-led model, reengaging our current teams as we transition toward a new era of ownership mindset and impactful execution. Talent infusion is a parallel priority. We are thoughtfully investing in high-potential talent internally and attracting new talent externally to provide fresh ideas and modern brand-building skills to drive our future. AI workflow evolution is augmenting our team’s ingenuity. We are investing in hands-on training to automate routine tasks, allowing our people to focus on creative storytelling and innovation that wins with the consumer. Fiscal 2027 will be a pivotal year of restoration as we align our organizational architecture and pivot back toward growth. Our outlook reflects our focus on restoring top-line performance while operating with excellence across our enterprise. Our net sales outlook reflects growth in Outdoor, as we work to stabilize Beauty & Wellness. Adjusted EPS and profitability targets are grounded in a disciplined investment framework, allocating capital to high-ROI initiatives that strengthen long-term brand health. Free cash flow generation remains a priority, supported by ongoing work to drive working capital efficiencies and continued debt reduction. Phase two is about concentrating and catalyzing during years two and three. We are prioritizing high-velocity, scale-potential brands, ensuring capital and resources behind the categories and regions where we have the biggest right to win. Active portfolio management is designed to ensure capital is deployed where it generates the highest return. To that end, portfolio optimization is an ongoing process as we prioritize capital and resources toward high-growth categories where we have the greatest right to be successful. A fortified shared services platform empowers our brand teams to spend 100% of their time on what is visible—product, storytelling, and consumer experience. Phase three is about building and scaling during years four and five. We plan to shift our full weight onto a concentrated portfolio of leadership brands that demonstrate a clear positioning and shared capabilities, expanding on sourcing, governance, and international reach to create a durable growth, sustainable value-creation model. We plan to pursue strategic portfolio expansion through high-impact acquisitions of both brands and specialized capabilities that leverage our enterprise scale. We plan to prioritize expansion into high-growth adjacencies as we utilize our platform to become a global leader in consumer-first innovation. We plan to support billion-dollar-plan category leadership goals by deeper organizational alignment, with internal engagement sessions scheduled for later this spring. More detailed long-term initiatives in our specific multiyear roadmap will be shared later this calendar year. To bring it all together, we believe Fiscal 2027 marks a turning point for Helen of Troy Limited as we enter our first-year goal of restoring our competitive edge. We want to be a better company on the road to being a bigger company. We are methodically deploying digital and data-driven capabilities that bring us closer to the consumer and accelerate our speed to market. Grounded in our “do fewer things better” mantra, I am confident our teams are aligned to deliver the high-velocity execution required to restore long-term growth, and we will win. Now I want to pass it over to Brian to walk you through our results and outlook in more detail. Brian Grass: Thank you, Scott, and good morning, everyone. Our fourth quarter results were a step in the right direction, with net sales, adjusted EPS, and cash flow at the better end of our expectations, demonstrating the focus and resilience of our associates. Their stewardship is rebuilding the necessary momentum as we transition to a growth-first mindset in Fiscal 2027. Looking more broadly at the year, our performance reflects continued progress on a number of commercial and operational initiatives. While these actions did not fully offset external pressures in Fiscal 2026, they have built the foundation for product-driven growth that we are prioritizing in the year ahead. During the year, we made tangible progress on several fronts. One, portfolio focus—we leaned into innovation-led growth with multiple new launches, as Scott mentioned, and more to come in Fiscal 2027. Two, tariff management and dual sourcing—we have strengthened our supply chain, which is helping to mitigate the impact of continued geopolitical uncertainty. For the full fiscal year, gross unmitigated tariffs had a $51 million impact on gross profit. Through a disciplined combination of SKU prioritization, cost reductions, price increases, and supplier diversification, we successfully reduced the net operating income impact to less than $30 million for the fiscal year and diversified cost of goods sold subject to China tariffs to approximately 30% by year-end. We currently have the capacity to dual-source approximately 45% of our annual product volume. We expect this figure to reach approximately 55% by Fiscal 2027, further mitigating our supply chain risk. Three, operational fundamentals and go-to-market—beyond supply footprint diversification, we focused on strengthening the fundamentals of our execution. This included improving our go-to-market effectiveness, sharpening our focus on our brands, and putting them at the center of our commercial execution and strategy. By leaning into innovation for more product-driven growth, we are ensuring our supply chain and sales teams are aligned to support our strongest, highest-margin brands. Four, pricing integrity—last quarter, we chose to temporarily stop shipments in Beauty & Wellness to support consistent pricing adoption. I am pleased to report we have resumed shipments in almost all of these instances. I am grateful for the collaborative partnerships we have with our retail customers. Turning to the financial highlights for the fourth quarter, consolidated sales decreased 3.3%, favorable to our outlook. The impact of our pricing actions and the contribution of Olive & June partially offset the year-over-year decline from tariff-related revenue disruption and lower core business volume. Home & Outdoor segment sales declined 1.5%, ahead of our expectations. OXO and Hydro Flask were ahead of plan, and Osprey contributed solid year-over-year growth. OXO benefited from good point-of-sale at value customers and replenishment at mass. Hydro Flask benefited from the success of recent product launches and also saw strength in the closeout channel as we improved our inventory composition. Osprey’s growth was primarily driven by the eCommerce channel, their continuing stream of new products and expansion into adjacencies, and the clearance of end-of-season goods through the outdoor channel. Beauty & Wellness sales decreased 4.7%, with approximately 2.8 percentage points driven by tariff-related disruption. Revlon, Olive & June, and Braun were the standouts in the quarter. Revlon outperformed our expectations, driven by continued strong point-of-sale at Walmart and Target and a solid contribution from International. Olive & June saw organic growth in its business of 18% and contributed 4.9 percentage points of growth to total segment sales, driven by effective digital grassroots marketing, new product introductions, and strong brand loyalty and consumer engagement. Olive & June has been a great addition to the Helen of Troy Limited portfolio, strengthening our profitability and outperforming valuation metrics. Braun saw solid performance in EMEA and APAC, driven by early flu incidence in those regions, order timing shifts, and strong replenishment. International sales grew 5.4%, surpassing our expectations with strong point-of-sale, expanded distribution, and new product innovation. Gross profit margin decreased 400 basis points to 44.6%, primarily due to the impact of higher tariffs, less favorable inventory obsolescence than in the prior year, higher retail trade and promotional expense, and a less favorable channel mix within Home & Outdoor. These factors were partially offset by the favorable impact of the acquisition of Olive & June and lower commodity and product costs exclusive of tariffs. SG&A ratio increased 270 basis points, primarily due to unfavorable operating leverage, higher annual incentive compensation expense year over year, EPA compliance costs, and the acquisition of Olive & June. Adjusted operating margin decreased 710 basis points to 8.3%, primarily due to the net impact of tariffs, an increase in incentive compensation year over year, unfavorable operating leverage, and the preservation of trade and brand spending to support future revenue growth. Moving on to balance sheet highlights, we continue to emphasize working capital efficiency and balance sheet productivity as an engine to fund our strategic investments, improve our operating flexibility, and position the company for long-term growth. Regarding our year-end position, inventory ended at $456 million, largely flat to the prior year despite $34 million of incremental tariff costs in inventory at the end of Fiscal 2026. We accelerated the turns of our more productive inventory while also clearing out slower-moving inventory, which resulted in a net reduction of almost $50 million in the fourth quarter alone. Debt closed at $781 million. Our net leverage ratio was 3.87x, compared to 3.77x at the end of the third quarter. The increase was primarily driven by lower trailing twelve-month EBITDA reflecting lower revenue and higher average tariff costs. This was partially offset by favorable free cash flow driven by the inventory reduction and the conversion of prior-quarter peak season receivables, enabling $112 million of debt paydown in the quarter. Free cash flow for the fiscal year was $132 million despite $72 million of incremental cash outflows specifically for tariff payments and transitory costs associated with diversifying our supplier base to regions outside of China. Subsequent to the end of the fourth quarter, we further improved productivity of our balance sheet with the sale of our distribution facility in Southaven, Mississippi. The sale generated proceeds of approximately $78 million, which we used to pay down our debt. We expect to continue to consider balance sheet productivity opportunities to further strengthen our financial flexibility and focus our resources on the core business as we pivot to growth. Turning now to our full-year Fiscal 2027 outlook, we expect net sales in the range of $1.751 billion to $1.822 billion, with Home & Outdoor net sales of $854 million to $882 million and Beauty & Wellness net sales of $897 million to $940 million. Adjusted EBITDA of $190 million to $197 million, which implies year-over-year growth of 2.1% to 6.3%. Adjusted EPS of $3.25 to $3.75, and free cash flow in the range of $85 million to $100 million. We expect our quarterly sales cadence to be uneven, driven by lapping of prior-year revenue dynamics. At the midpoint of our range, we expect first-half year-over-year sales growth to be slightly positive, with the second half of the year slightly negative. Due to the cadence of people and brand investments, and higher average tariff costs cycling out of inventory and into cost of goods sold in Fiscal 2027, we expect roughly 15% of our total annual adjusted EPS outlook in the first half of the year, with roughly breakeven adjusted EPS in the first quarter. Help with modeling our Fiscal 2027 outlook includes tariffs in place as of April 2026, assumed to remain in effect for the balance of the year, not including the benefit from any potential tariff refunds; no significant fluctuation in commodity costs, freight, or disruption in supply availability; interest expense of $47 million to $49 million, with cash flow prioritized for debt reduction and an expected net leverage ratio of approximately 3.2x or lower by the end of the year; a full-year adjusted effective tax rate of 25% to 27%; continued working capital efficiency during Fiscal 2027 with an emphasis on further inventory reduction; capital expenditures of $28 million to $32 million, with an emphasis on product innovation and supply chain diversification; and April 2026 foreign currency exchange rates assumed to remain constant for the remainder of Fiscal 2027. In terms of our expectations regarding the operating environment, we continue to expect inflationary pressures, softness in discretionary categories, conservative retailer inventory management, and an increasingly competitive and promotional landscape. Our outlook does not assume a significant or prolonged impact from the conflict in Iran or other similar macro disruption on the supply chain, as it cannot be reasonably estimated. We expect continued diversification of our global manufacturing footprint, reducing the cost of goods sold exposed to China tariffs to less than 20% by the end of Fiscal 2027 and limiting the net operating income impact to less than $10 million for the full fiscal year. Our outlook reflects a deliberate choice to preserve investments in our brands and people and includes an increase in growth investments of approximately 40 basis points, prioritizing high-return marketing and innovation initiatives. As we transition back to growth mode, we have a clear bias toward revenue improvement over aggressive cost reduction. By focusing on revenue recovery now, we expect to recapture operating leverage and build long-term sustainable momentum. Finally, while we are not yet where we want to be in terms of financial performance, the midpoint of our outlook implies a forward free cash flow yield of 20% using Tuesday’s market capitalization. We believe this is a compelling value metric that compares favorably with our peer set and the market overall. With that, I will turn it back to the operator for Q&A. Operator: Thank you. We will now open the call for questions. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Peter Grom with UBS. Peter Grom: Scott, the commentary on the different phases and the path forward was incredibly helpful. But can you frame or help us understand what success looks like on the other side of this? I am not trying to get guidance on 2028 or 2029 today, but for a business that several years ago had significantly greater earnings power versus what is outlined in guidance today, I am curious how you would frame the opportunity and whether you think the business can get back to levels we saw several years ago, particularly as it sounds like you may be setting up investment levels across a greater number of brands moving forward. Scott Azel: Peter, good morning. Thank you for your question. Let me give you a bit of backdrop on myself and the leadership team, put a pin in Q4, and then get more into your question. When we think about Q4, there were four things we were really focused on. One is to get really sharp on our ambition so that the work we set up for FY 2027 can begin to show markers of progress. Two, how we begin to start that journey in Q4 through trying to build against the top line and put things in place in our organization to set us up for the future. Three, how we invest in our people and our culture not only for Q4 but to start the journey as we get back to where we want to get to. And four, balance sheet productivity and paying down debt. I would say that we quietly feel like we made progress in all four of those areas. As we look to the future, a healthy Helen of Troy Limited is really about first being a better company before, on our road to being a bigger company, and it is built on many pillars. First, putting the consumer at the center of everything we do, underpinned by brands that are healthy with the scoreboard around growth and market share, and then investing in critical capabilities—first making sure we get our organization, team, and talent closer to the marketplace and closer to where decisions are made so they can rapidly innovate, tell relevant stories, and commercially execute. Second, invest in commercial and brand-building capabilities that are going to enable our brands to have the right to win on the shelf or on the digital marketplace. Third, invest in make, move, and hold with our supply chain so we can be agile and responsive in a dynamic marketplace. And lastly, continue to be thoughtful on our global execution, because we know our global business needs to play a bigger role than it plays today. All of that should be underpinned by investing in our culture and people who are going to help us drive it, and continuing to focus on a healthy balance sheet. For FY ’27, it is really showing markers by doing the things I just talked about—becoming a better Helen of Troy Limited on the road to a faster-growing Helen of Troy Limited. Peter Grom: That is super helpful. And then, Brian, just a question on the guidance and the level of visibility or flexibility that you have today—more in the context of a pretty volatile external backdrop—and the guidance, I think you mentioned, is more than 80% weighted to the back half of the year. Can you walk through the level of confidence you have embedded in that inflection? Have you embedded more conservative underlying assumptions to account for something that might not go your way? Specifically, there was commentary in the release around commodity costs, freight, and supply availability. You mentioned no significant fluctuation. Is that related to where things stand today, or does guidance assume no major cost impacts related to these factors? Brian Grass: To cover the last part first, we called out the fact that things have changed as a result of the Iran conflict pretty quickly. It is only a few weeks old, but resin prices, commodity prices, and fuel prices have all reacted pretty significantly, and that does impact our raw material cost. We are calling it out, but I think almost anyone would say it is a little too new and too fresh to get your arms around and embed in an outlook, so we have not attempted to do that. We are proactively working to minimize any impacts. We have forward-bought some raw material to make sure we have what we need in the short term. There could be scarcity issues that come up, and we have attempted to lock in pricing. We also attempt to lock in our inbound freight pricing and are in the process of securing favorable rates as compared to current spot pricing, which has also spiked. So we have not adjusted our outlook up or down as a result of the conflict. We have taken actions to minimize the impact, and then we will have to see how that plays out. Hopefully, from a modeling perspective, you appreciate us not trying to model something that is really difficult in an early stage to model. With respect to the cadence, it is not about conservatism; it is about the comparison to the prior year and the lumpiness of the prior year, the cadence of our people and brand investment in the current year, and how tariffs layer into all that. Mixing that together results in lower EPS in the first half of the year and higher EPS in the second half. The biggest part is the higher average tariff costs cycling out of our inventory into our cost of goods sold in the first half of this year, whereas we almost did not have any tariff impact on COGS in the first half of last year. We did have a tariff revenue impact in the first half of last year, but not a COGS impact. Now we are getting the full brunt of that COGS impact in the first half of this year. Overlay that with the investments we are making in our people and our brands, and that compresses the first half and then releases in the second half of the year, where you get the benefit. Operator: Our next question comes from the line of Bob Labick with CJS Securities. Please proceed with your question. Bob Labick: Good morning. Thanks for taking our questions. To start with revenue guidance, how much price is baked into the guidance for next year, and have retailers fully accepted that? Because we had the stop order. Where do you stand on that? How much price is in the revenue guidance, and where are you getting it? Then I have a follow-up. Brian Grass: If you bake it all together and you are looking for total revenue impact of price increases, it is about $50 million impacting our revenue through price increases. That sounds like a big number, but it does not come close to covering all of our tariff costs, as well as regulatory costs emerging related to packaging and things of that nature. So it makes a bit of a dent in terms of profit, but it does influence revenue. That impact is the year-over-year impact for Fiscal 2027 versus ’26. In ’26, we only got partial realization of that, and in some cases it was delayed. With respect to where we are, we have effectively 100% of our planned pricing increases in place, with a couple minor exceptions. It did take us a period of time in ’26 to get everything in place. Price was one of the levers that we pulled to try and offset tariffs, along with SKU evaluation and other actions, and that is the impact. Bob Labick: Great. And in the theme of invest-to-grow, you mentioned a 40 basis point increase in growth investment. What are the steps necessary internally before you increase it more? I imagine to get to where you want to be, it will be more than 40 basis points of investment spending to reignite growth. What are the next steps so you can lean harder into the growth engine? Brian Grass: You are right. We built the plan this year intentionally to lean into any overperformance with additional growth investment. We have framed up and planned a host of investments that we could not afford to make in the base plan provided today. The idea is that with any overperformance, we will continue to pursue those high-ROI investments and lean in. The hope is that by the end of the year, it is not 40 basis points—it is more—because we have better operating leverage and produce more profit as a result of growth, and then continue to feed the flywheel. We intentionally built a plan that allows us to do that. We are giving you the base plan, and when we have upside—which we are expecting and think we can drive—that overperformance will go into greater investment. Operator: Our next question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question. Susan Anderson: Hi. Good morning. Thanks for taking my question. Brian, maybe just to drill down on the segments in the quarter a little bit. Within Beauty & Wellness, can you talk about brand performance—was Beauty or Wellness the bigger driver of the decline, and how did Drybar and then Curlsmith perform? You mentioned the cold/flu season being weak—was that the biggest driver, or was it pretty equal? And then in Home & Outdoor, you talked about Osprey doing well online. How did it do in stores? Are you still seeing that category decline, and is Osprey still gaining share? Brian Grass: I might break it down a bit differently within Beauty & Wellness. Olive & June and Revlon had relative strength, and the remainder of Beauty was relatively weaker compared to them. In Wellness, overall performance was a little softer than we would like it to be, both in terms of the cough, cold, flu season and in some of the more competitive categories where Honeywell and some of the other brands play. For Home & Outdoor, we are seeing very positive trends almost across the board. We are excited about what we are beginning to see, with respect to Osprey in particular. The category is generally trending down, but Osprey is generally trending up, taking share, and performing well in that category, and we continue to expand into adjacent categories. Overall, as a company, while we are not yet where we want to be across all brands and categories with respect to POS, we are trending largely in the right direction across the majority of the brands in their respective categories, which we see as a sign of progress. Susan Anderson: Great, thanks for the color. Scott, can you talk about the new innovation that resonated with consumers in the quarter across the portfolio, and any color on newness coming out throughout this year? You also mentioned increased focus on eCom investment—will that be brand websites to drive DTC, or more tech investment and social selling? Scott Azel: We have had a number of innovations across the portfolio, but I will highlight a few. Osprey continues to expand its strength in technical packs into adjacent categories, and we saw continued strength there. Olive & June, not only in their core business, continues to bring new innovation and new reasons to bring consumers to the category. The Revlon Versa Styler is really bringing new news to the category and is off to a very promising start. Hydro Flask also has multiple innovations landing well. Over the last several months as I have traveled around the company, I have focused on pulling innovation forward—where we have the right consumer insights and business cases, we are putting more investment against it and, where it makes sense, pulling it into Q4/Q1 on a faster track. On digital capabilities, depending on the brand, we are clearly trying to drive some web traffic, but the bulk of my comments are around sensing and understanding where the consumer will be, ensuring we show up on partner sites with advantage versus competition, and driving more agility for our brands to interact with social commerce, whether it be Meta Shop, TikTok Shop, and other emerging ways of connecting with our consumers. Operator: As a reminder, if you would like to ask a question, press 1 on your telephone keypad. Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question. Olivia Tong: I wanted to get a better sense of your expectation for category growth and your bedding for next year and what it was this year. As we think about your cadence of stabilization, I realize there is a big difference in year-over-year comps, but why do you not expect growth in the second half on sales? As Peter alluded to earlier, there has been a multiyear challenge, so as you think about your optimism around innovation and several other things, why should we not expect a bit more in the second half? And can you talk about retailer discussions that support your enthusiasm around innovation and then managing the tail of brands or the tail of exits that still need to be managed down? Scott Azel: Great question. When we talk about stabilization for FY ’27, first I think about what we control within the four walls of Helen of Troy Limited. It is about editing our agenda and amplifying the things with the biggest growth potential, moving with the speed of the marketplace. We have been doing that work, and it is embedded in our plan. Underneath that, we have sharp conviction on the critical capabilities necessary for each of our brands to have the best chance to compete—everything from the right operating model to drive decision making at the speed of the consumer, to making sure organizationally we are set up for success. We are doing that work. Consumer-led innovation—leveraging consumer insights to develop an innovation roadmap that answers today’s needs and gets ahead of the marketplace—we are doing that work now. Investing in omnichannel capabilities—sensing the consumer, engaging with social commerce, and partnering with our biggest strategic retail partners in the right way against the critical opportunities we have identified. And standing up work in our supply chain that helps us make, move, and hold product so it is the right product, right place, right time, more effectively. The combination of those will drive us toward stabilization. On category assumptions and how it plays out, I will turn it to Brian. Brian Grass: We have not really changed category assumptions overall. It is hard to boil all our categories into one measure, but broadly, categories are pressured by the same pressures on the consumer—price and related factors—so I would call category a bit of a headwind as we look to next year. On why you are not seeing more revenue growth, we have assumed that current POS trends continue where they are today. We have seen improvement; we have not assumed continued improvement. We have also assumed continued consumer pressure and that price elasticity has an impact—that is a pretty big headwind. We are offsetting that several ways. We are lapping prior-year tariff-related revenue headwinds, but of the $80 to $90 million we saw in Fiscal 2026, we are recovering about half at this point. Direct imports in China market are still a work in process, and we may recover more, but we have assumed about half. Then you have the other offsets, which are the exciting parts: product innovation and commercial building blocks, international growth, and price increases. When you put all those together, it results in flattish net sales year over year. Any upside would be continued improvement in POS trends, which we have not assumed. Olivia Tong: Understood. As a follow-up, oil is off its peak but above pre-Iran conflict. You mentioned paying below market—can you talk about the change relative to the prior year in discussions with providers? Brian Grass: The comment on being below spot price was specific to freight. Spot prices are increasing, but we feel we have contracted at rates below that and feel comfortable, assuming we can stay on contracted rates and there is no significant disruption that would push us outside of that. As it relates to the conflict overall and its potential impact on our suppliers, raw material prices are going up almost instantaneously, driven by fuel. We have had discussions with our suppliers on potential impacts. At this point, I cannot give you where that will end up. Typically, these discussions evolve over time—there is not an instantaneous adjustment. The same thing played out with tariffs—we absorbed a direct tariff impact, and how we managed that with suppliers evolved over time. It is an ongoing discussion, happening live. We are aware of the potential impact, but it is early days, and we will work with our suppliers to get to a good outcome in terms of ultimate pricing. Operator: We have no further questions at this time. I would like to turn the floor back over to management for closing comments. Scott Azel: Thank you for joining us today, and we look forward to speaking to many of you in the coming weeks. Have a wonderful day. Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Angus Bean: Good morning, everyone. Welcome to DroneShield's First Quarter of '26 4C results. It's a pleasure to be speaking with you this morning. So my name is Angus Bean. I'm the CEO and Managing Director for DroneShield. And I've got with me Josh Bolot, who is our Head of Investor Relations and Strategy and we're pleased to present our results to you this morning. Firstly, many of you have seen the news. DroneShield completed a leadership transition in the last couple of weeks of both our CEO, Oleg Vornik and our chair. We announced the market that our chair, after 10 years, Peter James, would not be standing for reelection, and we have had the appointment of -- sorry, for election our incoming Chair, Hamish McLennan. The news of this leadership transition has been received very well. And I'd like to thank, obviously, the whole 500 staff of DroneShield for their support during the last 2 weeks as well as our investors, various stakeholders and our partners around the world in the support of this transition. We'd also like to invite you to attend or join online, our AGM at the end of May, and we look forward to having another update of the business at that time. I'd like to also touch on what I've been up to in the first 2 weeks as CEO of DroneShield. Many of you have seen me in the past over the last 10 years in previous roles as Chief Technology Officer and Chief Product Officer. And it's a pleasure and an honor to step into the CEO role. In my first 2 weeks, it's a bit about listening. It's been about speaking with our team, understanding what they need, what their challenges are and making sure that we're all working together. DroneShield is now a sizable global entity and making sure that the team are moving together is a core part of my role. We've also been speaking to shareholders, understanding their views on the business, learning how we can improve and really listening to where they believe the business can be taken in the future. And we thank you for all the input from all our shareholders around the world. And lastly, we've been speaking with our partners who more and more we rely on to provide great commercial and technical opportunities for us around the world. So thank you for all of our partners. Let's move into the presentation. As many of you would have seen by now, we released our numbers yesterday, and these are outstanding results. This is the second highest quarter in terms of revenue on record for the business, and it demonstrates the continued momentum that -- and leadership that DroneShield has in the counter-drone market. Already, by this early stage in 2026, we have $155 million of committed revenue, which is an outstanding result for a business that only a few years ago was doing sub-$50 million on an annualized basis. So to be here in April with $155 million revenue committed for the year is an outstanding result. Interestingly enough, we are seeing, in our opinion, a better ratio between the larger military contracts that we at DroneShield have become known for, but also an increase in repeat and recurring smaller orders which is lending itself to allow the business to be much more predictable and allow us to make better decisions in the future. We are just as comfortable executing on these large military contracts as we are with the more sustained revenue streams from both military and the emerging nonmilitary market, which by dollar value individually are less, but certainly at a much significantly higher volume. And that's really good to see. It allows us to make better decisions as a business. You'll also note an increase in our Software-as-a-Service revenue stream for the quarter. One of our objectives, and we'll speak more about this later in the presentation, is to get to the point where we have above 30% recurring revenue as part of our business strategy. And so this is a great first step in moving in that right direction. In terms of financial discipline, you will also recognize this is our fourth consecutive quarter of positive net operating cash flow. Again, an important milestone for the business as we are proving operating leverage is increasing and our ability to operate the business is improving. In terms of momentum, I'd like to give a -- I'd like to give a bit more of a history analysis of the numbers. What you can see from the years of 2021 and 2022, is the early adopters, some small trial and test evaluations of our technology. Through 2023 and '24, we had a significant increase in those revenues, and that was primarily through first-time buyers and customers rolling out our products in a minor way. In 2025, we had an outstanding year. And this really represented the first time that militaries were buying as part of defense programs of record and part of much larger military programs that takes a number of years to come to fruition. 2025 really recognize that for us and as you can see in 2026, the results so far are very positive as both militaries are continuing to buy as part of much larger planned procurement activities. And this is where DroneShield really sees a lot of our business coming through in the future. We've spoken to some of the company highlights and the financials but it's important to understand what the future and also the company's position. Our sales pipeline remains strong at $2.2 billion. This is the same update we provided just over 2 weeks ago in March -- sorry, at the end of March. We have 312 deals in the pipeline, 15 of which have a value over $30 million. So the pipeline remains strong. We do have a number of deals that are outside of these 312 , but these are yet to be fully qualified. And so these are unweighted and not -- and at various stages of development in terms of the sales maturation cycle, but $2.2 billion pipeline remains a strong pipeline for the next couple of years. Operationally, we're in a great place. We have over 500 staff now in 7 different countries with a large portion of our capital being invested into research and development, which is becoming the norm in the defense and military industry where companies are being asked to self-fund programs and then the output of those programs is being procured at scale by militaries around the world. Our cash balance remains strong, again above $200 million cash balance, which really gives us the ability to be flexible and jump on opportunities when we see them. Globally, we are increasingly seeing a very turbulent and perhaps a chaotic environment where the world is moving to a multipolar order, and that is causing large tensions around the world. Our 2 primary markets remain the United States and Europe. The U.S., for example, we are seeing the confluence of 2 really significant trends. One is the regulatory environment and the second is the unlocking of significant revenue -- significant -- of significant budgets for defense and non-defense spending. In terms of the regulatory environment, we recently saw the Safer Skies Act, which unlocks 17,500 state and local law enforcement to actually start going through the process to procure counter-drone equipment, which was previously unavailable to them. The programs of records such as JIATF401 now are really taking -- starting to take place. We have the Department of Homeland Security also allocating significant budgets to Counter-UAS. A headline for us for this update is the recent receipt of a FIFA World Cup associated order, which is critically important, as DroneShield has done a number of headlines, both executive protection and sporting events around the world in the past. But the FIFA World Cup is an important one because it demonstrates, again, this idea that local law enforcement, who is the end customer are also starting to adopt counter-drone technologies, specifically those that DroneShield offer. This is a very positive sign. Europe and the U.K. remain a core part of DroneShield's strategy. Many of you are aware, we moved our Chief Commercial Officer, Louis Gamarra, and his family to Europe. And so our center of sales gravity is now in Amsterdam where we've recently opened our new headquarters. We've also opened up production in Europe as well, and we'll continue to expand that. And that allows us to be compliant with the Readiness 2030 or ReArm Europe Plan where we need to be at 65% European industry content to be part of that program. So we are now compliant and we have already started receiving orders through that umbrella. Outside of those 2 major markets, we still see strong growth in Asia, Latin America and the Middle East. And these are -- we are continuing to grow our sales and commercial operations in these areas. Australia remains our home, and we are really proud as an Australian business. We are part of the flagship LAND 156 program on both Line of Effort 2 and Line of Effort 3, and we anticipate to see additional orders from Australia in the months and years to come. In terms of our competitive differentiators, we have both technical and commercial differentiators. Our technical team, which I'm incredibly proud of, we have over 350 world-class engineers, developers and designers. We are able to take this technology from the ground up from the chip all the way through to the end product manufacturing. So we have full in-house capabilities to provide these world-leading technologies and we are in full control of that manufacturing cycle. Additionally, over the last 10 years, DroneShield has developed significant amounts of data on various types of drones, whether that be radio frequency recordings through to radar data, through to acoustic recordings. And so DroneShield holds one of the largest counter-UAS appropriate datasets in the world, which is a core tool and a core differentiator for us. This is something that is incredibly hard to replicate in a short space of time. Commercially, we are a truly global company now. You've seen that we've bolstered our -- both our U.S. and our European presence as well as our presence here in Australia. And fundamentally, our 70 distributors around -- 70 partners around the world remain a core part of the business and that the DroneShield's hub-and-spoke model continues to prove to be effective. In terms of the vision for 2030, this is something that Josh and I will be speaking more and more about over the next few months. It's exciting. We're seeing continued growth of our military market. In addition, we are seeing that now the green shoots of this commercial or nonmilitary market, which we have anticipated for almost a decade. DroneShield is incredibly well positioned as our technologies can be utilized in both military and nonmilitary markets, particularly with the regulatory change we discussed. DroneShield will remain a flexible organization in terms of how we approach the market. And so we have a multichannel market approach where we can either be the prime, the subprime, the partner or go through a regional distributor, or go direct to end users. So DroneShield, we take a multichannel approach there, and it really depends on the environment and the requirements of that location. In terms of the revenue target, we have a -- our big goal is to hit $1 billion annualized revenue with 30% of that is recurring revenue in the next few years. This is a substantial uplift on numbers that were already a 4x increase on previous years. But to fuel that, we are seeing strong diversification across our end users, geographies and our products, both hardware and software. And so we feel that the DroneShield business is in a very strong position in terms of its diversification across all those metrics. We also -- you'll also see, and you'll hear from us again in the next few months around DroneShield beginning to monetize our whole of lifecycle solutions. Today, we do some of the harder parts, which is new sales and new product development. DroneShield will be getting into additional services, both software and recurring services to continue to -- continue to strive towards that $1 billion annualized revenue and that 30% recurring revenue number. Our global presence, as I mentioned, remains strong with headquarters now in Australia, the United States and Europe, but you'll also see us continue to expand on our regional hubs in Asia, Middle East and Latin America. And finally, regional manufacturing in core markets will be a core part of the strategy over the next few years. I think this slide does a lot of work in terms of explaining how we see the counter-UAS ecosystem. DroneShield is very well positioned, providing layers 1 and 2 of the counter-UAS industry. In most cases, for most customers, the first technology they will look to employ is a radio frequency detection, and if they're able to, defeat solution. This, as many of you know, is DroneShield's bread and butter and has been a core technology that we continue to build on today. This is the most cost-effective and most reliable way to down the most amount of drones or deal with the most amount of drones that we see in the market today. So radio frequency continues to be a core technology being deployed by Tier 1 militaries and security operators around the world. Once the customer buys enough and they're starting to scale up their usage of those RF protection devices, often the next thing they need is a way to orchestrate them together. And that's where our DroneSentry-C2 comes in. DroneSentry-C2 allows an operator to have multiple devices deployed on a Google map style interface and they can then operate those devices fully remotely. We also released DroneSentry-C2 Enterprise at the end of -- excuse me, of last year that allows customers to also manage multiple sites themselves, so another layer above that DroneSentry-C2. From there, often, our customers ask us for additional layers of protection, and that's where we rely on our partner network of radar, optical and various other technologies where DroneShield provides layer 3, 4 and 5 solutions as part of that C2 solution. This is a constantly evolving technology field, where new technologies or various adaptations of existing technologies is constantly changing. And DroneShield can remain relevant in all of these areas by partnering, and through our extremely good test and evaluation team we can find the best sensors and effective technologies around world, integrate them into our C2 and offer them to our end users. You would have seen recently this included the recent signing of an MOU with Origin Robotics, an interceptor drone company out of Latvia. Over the last 10 years, DroneShield has developed a comprehensive suite of solutions across the 3 core operational scenarios that we see in counter-drone and these are dismounted, on the move and fixed site. DroneShield now offers solutions for all of these categories. And in addition, late last year -- sorry, in 2025, we offered our first SentryCiv product, a product that is specifically designed for the nonmilitary market. This is something that you'll continue to see from us in the future as we refine our approach to the emerging nonmilitary market. We've talked a little bit about the Software-as-a-Service, and we'd like to unpack exactly how that works. So we have 3 layers of software at DroneShield at the device layer, the site layer and at the enterprise layer. DroneShield now, again, over the last few years developed all their solutions from the ground up ourselves. And we can now successfully apply a Software-as-a-Service subscription to each of these layers, meaning that customers that are utilizing all 3 layers have a multi-software SaaS applied to their solution. And if you think of this as close to antivirus analogy, this is something that our customers are really fond of in terms of they need ways to keep their software updated to the latest software as similar again to antivirus. The longer you go without updating the software, the more likely that the drone technology may have changed and you may miss some significant change. So DroneShield has a strong pull to its Software-as-a-Service revenue streams through the need to keep those software up-to-date on each level of those devices. I'd like to acknowledge our senior leadership team. Again, over the last few years, we've strengthened our leadership team and we now feel very well positioned to continue to refine that and continue to build out the organization to achieve our significant revenue targets in the future. Lastly, as we mentioned at the top of this presentation, we have announced changes to our Board and our Chairman of 10 years, Peter James has decided to retire from the Board and he will not seek reelection at our next AGM. And Hamish McLennan has been -- will be appointed as the Chairman following our AGM in May. All right, and for last point on the Board. As we have previously announced, we will be -- we are reviewing and we have an ongoing process to seek additional Board members to continue to grow the experience and also the skill sets that our Board can offer the business to support that growth. Thank you for listening to the presentation this morning. I think one of the most important part of these presentations is to dive into some Q&A. And I'll hand over to Josh to start that process, and we'll also start taking some questions from the Q&A posted in the Zoom link. So Josh? Joshua Bolot: Thanks, Angus. And thank you for those investors and interested parties who have submitted questions in advance. That's been very useful. I will also combine those with some that we've received online and please continue to submit those. One question which has come through has been regarding the global conflict and escalation of global conflict and the widespread commitments in higher defense spending in the counter-drone space and how that's feeding into our revenue pipeline -- potential revenue pipeline. So maybe you want to talk a little bit about that and also the commercial fields that we're now moving towards. Angus Bean: Thanks, Josh. That's right. Well, firstly, the global situation, as we mentioned, does seem to continue to deteriorate and that puts DroneShield in a very important position as drone technology is one of the core disruptors and is essentially revolutionizing the military and security environment. DroneShield we find ourselves as an Australian business in a strong position to create these solutions and provide them to our end users, our Western allies around the world. Even in the last week, we've seen significant budget allocations from Australia, from the Philippines and from the United States specifically calling out counter-UAS as a core part of their expanded defense budgets. Our view is that this is driving the exceptional results that we've announced this morning with $155 million of committed revenue for 2026 at this very early stage. And so we'll continue to execute well, keeping our heads down and focus on both our product development strategies as well as our commercial strategies to take full advantage of these additional budgets being allocated at a rapid clip. Joshua Bolot: Thanks. The next question relates to revenue and profit guidance assessments. I'll address that one. DroneShield does not provide revenue or profit -- or earnings guidance. We share information about our progress, which includes, obviously, periodic financial reporting, the presentations to investor groups, including these and those which we lodge with the ASX and material contracts and that threshold for material contracts is over $20 million now and as well as other trading updates. And we feel this is the right approach given the nature of the industry we operate in. And as the company moves towards a more predictable style of revenue, for example, the recurring revenue, the SaaS lines over the next few years, that will help provide a greater granularity around that. In regards to the material contracts of $20 million, and this may cover off a few other questions. There was a question about the frequency with which we announced those. I think what's important right now is that 3 weeks ago -- just under 3 weeks ago, we announced the revenue pipeline. So the committed revenue for the year was at $140 million. Today, it's sitting at $155 million and we have not announced any material contracts over that period. So that provides an indication of a number of smaller sub-$20 million orders that are constantly being received from existing end users as well as new end users. And that's a very important sign of just the general maturity of the business as it's growing. So that kind of addresses that one. The other part, which we want to talk about is that the revenue and the trading update that was provided at the -- in the early days of April was prepared just as April was beginning. And there was a slight variation between the Q1 revenue change in -- on the 8th of April and what we've ultimately reported yesterday. That they should be taken in context that a comprehensive month end takes longer than a few days. An order delivery, which was made in the closing days of March was only notified to DroneShield during that month end process. And we recognize revenue when customers confirm the receipt of the day that they receive it. The suggestion that this might lead to bringing forward revenues is incorrect, and it still remains our second highest revenue quarter and the highest cash receipts quarter. Angus, the next one, which I might put to you is we're on government panels both in Australia and other jurisdictions. What's the commentary around the Australian panels? Angus Bean: That's right. So Australia's flagship defense counter-UAS program is called LAND 156, it's run by the Australian Army. And we are on 2 of the 3, and we hope to be on the third when the time is right, but we are in 2 of the 3 of those lines of effort. We've already received orders under the second line of effort, and we are on the panel, as you mentioned, Josh, for Line of Effort 3 and things are starting to move quickly where we're involved in a lot of good discussions with the Australian Department of Defense around LAND 156. Joshua Bolot: Great. The other discussion has been -- it's come through a few times. I'll address it because it will take a few questions off the register. The question is regarding dividends and the intention to pay off the dividend reinvestment scheme. DroneShield is a high-growth focused company and it has not paid dividends today. There is no current intention to do so as it is maintaining cash balances for reinvestment in product, potential acquisitions and other such opportunities. The Board does assess the situation from time to time, and will advise the market when there are updates to the dividend policy. A broader question here, Angus, is regarding the movement of technology towards other drone and robotic technologies seen in the market. There's been a question received online regarding non-aerial counter-drone defeat and maybe that expands the conversation towards our product development pipeline as well. Angus Bean: Thanks, Josh. So DroneShield, absolutely. We've updated our approach. And if you look at a lot of our documentation, we now refer to instead of just counter-UAS, which is counter uncrewed aerial vehicle. We often say UXS. And the X means multi-domain, okay? And so over the next few years, we are going to see an increase in ground UGVs, the surface of the water, USVs, and even underwater autonomous vehicles emerging. DroneShield and DroneShield's Technologies, we believe, are very applicable as these new types of threats emerge, and we have some of the core building blocks, whether it be the radio frequency, the radar and obviously, our C2 is the core orchestration layer to counter these emerging multi-domain assets. And so DroneShield, yes, we are opening our aperture as the technologies change and as we see essentially the super cycle and the trend go towards replacing human inventory and humans on the battlespace with a more robotic and autonomous vehicle selection. So DroneShield, we are one of a handful of companies around the world that has the proven expertise to execute the technology stack that will be utilized against these types of technologies in the future as well as the vision to counter these types of technologies in the future. Joshua Bolot: Thanks. The next question we've received is in relation to the staff costs and administration and corporate costs and that we've received this offline as well as online. So first I'll address that. The comment in -- this refers to a comment in 1.2F of the 4C, where there were some additional wordings regarding the salaries of the engineering team. This is an inadvertent error from a version control in the preparation of the 4C only. It has never appeared in prior 4C's and it does not impact the underlying numbers or methodology. The engineering team has always been in the staff costs of Line 1.2E and as they are in this 4C. So the commentary there is an inadvertent comment. On the matter of staff costs more generally, during the fourth quarter of 2025, there were some exceptional one-off items in the staff cost number. This led to it being higher in that quarter compared to those of the current Q1 2026. Without these one-off costs, Q4 staff costs, which were higher and would have set somewhere between those of this current quarter and those in Q3. So that addresses those matters. The next question regarding -- we've received online is regarding the transition changes. And I think it's fair to say we've addressed those quite thoroughly in the communications in early April. But importantly, there has been a considered plan with Angus joining and with Oleg's decision to step back. He still remains an adviser to the company and has -- and provides regular support where required, including in discussions with staff, with end users and with partners around the world. So we obviously understand that, that news would have been a surprise to some, particularly after so many years and developing the company from it's really embryonic stage. But after nearly over a decade after nearly 12 years, a decision for someone to step back and have personal reasons why they'd like to do that, I think, should be respected. The next question, which I'll bring to from the floor, let me just bring that up for a second. Perhaps you just want to talk a bit about the head count and where you see the main areas of our head count moving. Angus Bean: Sure. So as we've mentioned, we have about 500 staff across the world at the moment. We've -- over the last couple of years, many of you know, we've substantially increased our head count and we will continue to do so in a controlled way throughout '26 and '27, and you'll see a lot of that head count growth will be in our critical regional hubs of our new headquarters for Europe in Amsterdam and our headquarters for the U.S. outside of Washington, D.C. And so control growth will continue into the future in terms of the head count. And obviously, that is in response to the dramatically increasing demand that we're seeing for our products. Our demand on our commercial and sales teams, but also as we are rolling out larger and larger amounts of our multisite multi-center solutions, our field service engineering, training staff to provide those full programs into those end customers around the world. Joshua Bolot: There's been a question regarding the sales pipeline. I know we've addressed that. And a little bit about the frequency with which that's going to be reported. At the moment, it has been reported at the end of March and was there a decision to update it again now? Angus Bean: Thanks, Josh. So look, we felt that it wasn't appropriate to update the pipeline again so quickly after updating it only just 2 weeks ago. So the pipeline we've published for this update is the one that is relevant for this allocation of reporting and so we felt that was the appropriate way, and we'll continue to update the pipeline and obviously, our progress towards that pipeline throughout the year. Joshua Bolot: Great. A question regarding local and international competitors and how we differentiate ourselves in the global marketplace. Angus Bean: Thanks, Josh. DroneShield has a number of critical differentiators, both technical and commercial, as we mentioned. We are one of the most experienced, if not the most experienced counter-UAS company globally. And so although the DroneShield is a core part of this massive groundswell towards counter-UAS, there are competitors around the world. But very little have the scale of operations, the experience to roll out their solutions now at the quality level but also at the scale that many of our end users now demand. So DroneShield, we're in a very strong position. Additionally, being an Australian business and as we mentioned, around defense we are only regulated in most cases by our Australian Defense Export Controls office, which is a really good thing because we have no U.S. defense export controls on our -- most of our core product line items. We are bound by EAR out of the U.S. government for some of the radar technology that we integrate and we import from the U.S. but our core product lines are only controlled by the Australian Defense Export office, which we have a great relationship with. Joshua Bolot: Thanks. There's been a few questions online and also in advance regarding governance and remuneration. So I'll take those ones on. In terms of remuneration, the question is about the remuneration structure and incentives that align with shareholder value. I think there's been a clear move in making sure that their alignment and structures that work with both the shareholder expectations of value creation and growth and retention of staff. This includes the setting of performance metrics, which involve strong revenue growth targets of $300 million, $400 million and $500 million in 12-month periods over the next 3 years, also includes staggered vesting periods, 50% on achievements of that target and 50% after 12 months of continued service as well as minimum shareholding policies for key management personnel. The Remuneration Committee of the Board receives advice benchmarking and feedback from consultants as well as shareholder advisory groups. There will be further discussion of this in the Notice of Meeting for the Annual General Meeting, and we encourage everyone to read through that as well as attend and ask at the AGM. In terms of the remuneration and incentive structure of Angus, of the newly appointed CEO and Managing Director, these were shared in the leadership transition announcement. In relation to that, more generally, there have been questions regarding the governance steps, which have been initiated as a result of entering the S&P ASX 200. As indicated, we did -- we did initiate a search for additional non-exec director. And in that process, Hamish McLennan was identified. In speaking and identifying Hamish and his engagement with the company, we found a global leader who had worked across many industries, both in Australia and international markets, bringing a range of skills, both of a business nature and of the governance nature, which are highly useful in our business. So we look forward to welcoming him on the Board. The search for additional directors has not ended, and we will continue to do so and update the market along the way. We believe that the Board will evolve as the company matures, and that's consistent with any other company of this nature. The next question, which I'll address to you, Angus, is regarding the interplay of third-party products, the interoperability and how the -- how those conversations are sold to end users in the context and trends of our product versus the interoperable third-party products. Angus Bean: Sure. That's a great question. So DroneShield has those really core technology building blocks of radio frequency RF detection and defeat. We have our C2 and our sensor fusion layer. And as we mentioned, in layers 3, 4 and 5, which we offer to end users. That is a conversation mostly that happens with the end user. We have deep relationships now as we are on some really important programs around the world with what are they seeing in terms of the needs of the operators in the field. What are they seeing in terms of the need to secure low-altitude airspace, to secure air bases. And so we understand we have a very strong funnel of information in terms of the future needs and requirements of those operators. And so we take that into account and then we essentially do global searches around the world for best-of-breed types of sensor and effector technologies. And as we've announced of 3 almost consecutive partnerships over the last few months, Origin Robotics, OpenWorks and Robin Radar. We believe these are 3 absolutely exceptional organizations providing a great product and also opens up new markets and new regions for us. So you'll continue to see us do that. DroneShield, we are very focused on our C2 and our core technologies. But we acknowledge that we will need additional layers to be able to be that full turnkey counter-UAS provider but that doesn't mean that DroneShield needs to develop all of these technologies in-house ourselves, and specialization is really important. And so you'll see us continue to partner with the best of the best around the world. Joshua Bolot: There is a question regarding -- and we received this question outside of reporting periods as well regarding the large contract, which is a -- large possible contract, which is sitting in the pipeline. And I think we've previously talked about a number of $750 million, the status on that at the moment. Angus Bean: That's -- yes, that's right. That's a significant goal for us, and it's a contract that, as we've previously discussed, is a follow-on contract from some of the larger contracts that DroneShield received in previous financial years. So we are essentially the incumbent in terms of the technology provider for that contract. And so we feel in a strong position. And I myself have, recently in the last couple of months, met with the end user and decision-makers around that contract. We will continue to update the market on any -- with any confirmed information around that contract, but we won't be advising anything further at this stage outside of the contract remains in the pipeline, and we have great relationships with end user. Joshua Bolot: Thank you. There are a few questions regarding manufacturing. And I think those have largely been dealt with, but just to reiterate, at the moment, the majority -- the vast majority of our product is manufactured in Australia, and that's very important because that allows us to service the markets that we do and with relative ease. We have recently announced the manufacturing capability in Europe, and that is a very important facilitator for us to work towards the ReArm Defense Readiness Program in Europe, and we're very pleased to have that in effect now. The U.S. will come -- had a similar arrangement in place later in the year, and we'll update the market regarding that through a press release. I think more generally, a discussion regarding our approach to manufacturing might be worthwhile sharing. Angus Bean: Sure. So DroneShield, we generally take a light CapEx approach to manufacturing, where we are not involved in the fabrication of most of the parts, and we outsource that to a great supply chain of partners, as Josh mentioned, most of which are here in Australia. And so we don't need to be -- we can be very light on CapEx in terms of manufacturing. We don't require to essentially buy and maintain large mechanical equipment to do that. We utilize our supply chain for that. But what we do are the really important high IP and high-value add components of that manufacturing process. And so that often is the electronics subassembly process, the quality assurance and checking process and the final field testing of the solution prior to it being deployed into the field. So that's where -- that's how we do our manufacturing process. And as you've seen recently in Europe, we've successfully now transplanted our manufacturing setup to a completely external manufacturer -- contract manufacturing arrangement in Europe and that, again, shows that the way we design and develop our solutions. This model is very possible. While there is a lot of IP and know-how in terms of the manufacturing of these goods, the core really difficult part of what we do is actually the software and the encryption of that software that gets loaded onto the devices and so we successfully transplanted that production into Europe, which we're really happy with now. And as Josh mentioned, we are also looking at production options for the United States. But again, the core technology and the core software platform will be distributed from our team here in Australia. Joshua Bolot: One of the questions which has come through is regarding our views around profitability versus growth. I think the company has worked exceptionally hard to reach the pivot point that it has in the last 12 to 18 months, where particularly over the last 4 quarters, it is operational net cash flow positive. And in 2025, announced underlying EBITDA of close to $37 million, which is a 17% margin. I think what we've indicated to the market regarding our operating cost base provides an indication that we are looking at profitable growth within the business as we bring additional product lines and solutions online matched with the growth in the recurring revenue stream. In essence, we do look at -- when we are at opportunities we look at the payback period of new product investment. We do look at that from a number of angles both in terms of the return on investment that it will generate from delivering it into the market. The other thing that we've thought about is when we are looking at acquisitions, is the speed with which we may be able to do a similar thing or the same thing versus acquiring that. So to date, the company has not made any acquisitions, and it constantly is put different ideas and different opportunities. We balance that off with our internal investment and the payback period for those. I think that's quite a useful thing to think about because we do have a useful level of cash available for growth, be it organic or acquisition based. There's been a few questions, particularly around the commercial market. So one question is regarding the progress on SentryCiv to date and the types of customer scenarios that has been used and the growth that we expect there. I think we both know have some really good interesting case studies around that. And also how that will play out over time with things like Safer Skies and the split between commercial and military. So that's a broad question, but I think they go together. Angus Bean: Thanks, Josh. That's right. So the commercial market, as we mentioned, we believe, is now after almost a decade of talking about and monitoring the situation is coming online. Let's say, the nonmilitary market. And DroneShield, as I mentioned, we are in a strong position with already our first product. It's really specifically designed for that nonmilitary market, our SentryCiv product. The SentryCiv product is a high SaaS, almost entirely SaaS-based product, again, feeding another strategy that we developed to feed into that 30% recurring revenue base over the next few years. And it is -- we've made now a number of sales around the world of the SentryCiv product. But these sales, obviously, we don't publish as they are below the $20 million revenue number. But I'm really encouraged and excited to see the quality of the customers who are procuring this. We are talking about really major law enforcement and major, let's say, commercial operators around the world. And so our relationships are deepening with those commercial operators and those law enforcement markets that were previously unavailable to us, either through regulatory or through their lack of finances to actually go out and procure counter-drone equipment. So we are monitoring the commercial space very closely. We are starting to move the business more in that direction, bringing on our product teams specifically designed for that growing segment. But similarly to the way we have successfully penetrated the military market over the last decade, we will -- we don't want to go too early -- too hard too early. We want to mature that approach with the market and make sure every step along the way we take to capture that market is the correct one. And so we will -- you'll continue to see sort of a steady stream of movement in that direction as we continuing our core short-term revenue driver of the military market is self-sustained as well. So yes, we're really excited about the potential emergence of this commercial sector and the green shoots we saw in the first quarter of this year. Joshua Bolot: Thank you. There's a lot of -- a few questions regarding how we interact with the primes of the industry, both as customers, competitors and partnership arrangements with them. I think that's a broader question, particularly some of the companies that people have talked about in the U.S. and Europe. Angus Bean: Sure. So I think one of the most common misconceptions about DroneShield, and we get the question a lot, which is are you concerned about these really significant defense primes who have traditionally been very dominant players in the defense space for many years? And do you see them as a threat to the business? Our honest answer is in almost all cases, these defense primes are our customers much more than they are our competitors. And so whether it be in the U.S. or even now across Europe, we are actively selling to defense primes who are taking our technologies and our products and integrating them into their existing defense programs or into their larger defense rollouts as they capture them. So often, the defense primes are a partner of DroneShield. And as I mentioned previously, DroneShield, we remain very flexible with our approach to market where we can go direct, we can be the prime, subprime, contractor or even engage the market through an authorized distributor in country. So we're really flexible with that, and it will really depend on the region and on how we approach each of those markets. Joshua Bolot: There's a couple of short ones, which I'll just quickly rattle off. Do we deal with the Ukraine? I think we previously identified that we have less than 5% of our revenues currently based on sales to the Ukraine market. To market, obviously, that we've been very supportive of in the earlier stages of the conflict there. And the -- it is still a presence in our revenue, but it is not more than 5% at the moment. A question regarding our security and processes to ensure that we, I guess, commercially and militarily cautious in our approach, both in terms of making sure that our intellectual property is protected and our employees are appropriately vetted. So I don't know if you want to talk about that. Angus Bean: Yes, sure. No, that's a great question. So DroneShield, we are a DISP-certified organization, DISP, defense industry security program. And that is the major defense and security program that's rolled out here in Australia. And we are then -- we essentially govern the business via the rules of DISP. And that sets out very clearly what we need to do from an employee vetting perspective through to a cybersecurity and physical security controls perspective as well as provides a lot of insight in terms of the governance, policies and procedures that we need to have as part of an organization. So it's great actually to work with the DISP team as they provide for you the frameworks that you need to implement and then our significant security team then essentially rolls that out across the business. We are continuing to uplift that DISP certification, but also our general security posture across the organization and globally as DroneShield becomes a supplier of main stage, as we mentioned, larger programs of record. Our security needs to mature and continue to mature to make sure we meet the market where it is and make sure we protect the business. Joshua Bolot: Interesting question, actually. And it's inventory related. I think I'll start off with the answer and then we'll work towards the forward-looking part of the answer. So it's regarding inventory obsolescence. And what's happened in the past, I mean, we announced a one-off inventory impairment, the significant item of $8.5 million in the FY '25 results. That product is still in our warehouses and available for sale, it is still an effective product, and there are still sales of those, albeit at a slower rate. I think more generally, though, the question which comes through, which is how we deal with inventory obsolescence with the release of new hardware as we move into that expanded product set. Angus Bean: That's a great question, Josh. So yes, certainly, that is something that we are considering deeply. And one of the things we're going to talk about, particularly in the second half of this year as we bring on our next-generation platforms which I am dying to speak about, but we will hold off for now, is obsolescence. The good news here is the products that initially we'll bring on to the market do not directly replace any product lines that we see today. And so the product lines that you see on the website currently, we will continue to provide to end users for the next few years to come. And so this is not an immediate impact and much of the next-generation platforms will be slight variation in terms of product positioning or a completely different technology itself. And so we will -- there won't be any necessary disruption in terms of obsolescence but it's certainly something we need to manage. And as we grow our product lines, we are trying to be very strategic about the use of our core components. And for example, using the same chipset, if we can across multiple product lines, allowing us to then order at much higher volumes of an individual item, therefore, getting a better price per item. But then that product -- that chipset that is being used -- utilized in multiple different DroneShield product lines. So we've already started to roll this out in a lot of the core technology platforms that you'll see from us over the next 2 years. Essentially, we'll use a lot of the same family of chips and same core componentry. So again, reducing the chance of either component obsolescence or product obsolescence. Joshua Bolot: There are actually a number of questions, which are very interesting in relation to different trends and different things which people see in social media and whether they're kamikaze drones, whether they're fiber optic, whether they're real, whether they're AI. Maybe you just want to talk about how we assess each one of those developments and where it leads into our product road map. Angus Bean: Thanks, Josh. It's a broad question, but I will do my best. Look, essentially, counter-drone, this is, as we've discussed, one of the most -- drone technology itself is one of the most disruptive elements to the defense and security apparatus around the world as we speak, and DroneShield is one of a handful of companies that are incredibly well positioned with the experience, but also the operations and funds to execute on that emerging trend. There is a lot of noise. There is a lot of diverging technologies being developed. And there's no question, we need to make really good decisions around the technologies we invest in the future, whether that be technologies we choose to develop ourselves. The potential use of an M&A activity to acquire technology new to the business, or as you've seen from us recently, just choose to partner and create really good agreements that are beneficial to DroneShield with Tier 1 technology providers around the world. So we're going to take a balanced approach to that, and we'll assess each of those technologies based on its own merit as to which one of those 3 avenues we want to go down to attain that technology for our end users. The great hedge, I guess, we have from a technology perspective is our DroneSentry-C2 platform that essentially allows us to roll with the technology and integrate various different types of technologies, sensor or effector and provide that as a fully consolidated solution, full turnkey for our operators or if technologies evolve and our customers more increasingly so already have our technology in country in operation, we can augment their existing solutions with this new technology over time. So -- and it is one of the reasons I believe that when Oleg decided to step down as CEO and the Board ran their process that they did end up selecting the Chief -- previous Chief Technology Officer to essentially run the business as I believe that my personal -- personally one of the best positioned people in the organization to make some of those hard calls. Joshua Bolot: I think we'll use this as the last closing question, and it might tie nicely to some closing remarks as well. In relation, I think we've answered the vast majority of questions. And there are some questions, which, unfortunately, we're just not able to answer in a public forum or generally because of operational security reasons or for other reasons, it's just not appropriate for us to provide commentary on those matters. But I think the one which might encourage towards a broader answer and a closing statement is regarding the things that you see happening in the next 2 to 5 years in the business, which will help to get us towards that 2030 vision. Angus Bean: Sure. Thanks, Josh. So look, in terms of what do we need to do? The position that the DroneShield company finds itself in is very strong. And that is, again, to highlighted and demonstrated by this first quarter of '26 update. And so both financially, operationally and technically, we are in a good position. Many of you have mentioned in the comments, these are lofty ambitions, the $1 billion annualized revenue and 30% of that being recurring revenue. These are significant uplifts on where we are today. But we do believe these are achievable. And certainly, we are redesigning and reshaping the organization, gearing up to really go after these ambitious goals. And I certainly wouldn't have stepped into the role and wouldn't have the excitement that I do have if I didn't feel these were achievable. In terms of what we need to do, it's a continuation of our current existing R&D strategy. We currently hold a 2-year product and technology road map that we believe will set the business up really well for the growth that's required to hit those numbers from a product and technology perspective. You will see us, as I mentioned, continue to grow our regional hubs in both the U.S. and Europe. Both of these footprints now are generating good revenue for the business. You've seen a number of those larger deals, most recently out of Europe, but I think there were some comments before about not announcing any U.S. contracts, and I'd like to highlight what Josh was mentioning is that we have received a number of U.S. contracts, but many of them, if not all of them, have fallen under the $20 million, but the volume of those contracts has increased. And that's perfectly fine for us as a business as well. And if anything, it allows us more predictability and more certainty in the organization. So outside of growing the regional hubs, we'll continue to grow our partner base both commercially and technical in the future. And this is something that DroneShield as an Australian business, one that is highly trusted and respected in the sector, we are in a great position to utilize that goodwill and utilize the trust that we do have to partner with some of these great organizations and either enter new markets or augment existing solutions around the world. Joshua Bolot: Thank you. Thank you very much, Angus. I think we're just on 10:00. So we appreciate the time that many hundreds of people -- hundreds of people have used to listen to this update. And as Angus mentioned, we have our Annual General Meeting with the Notice of Meeting coming out in the -- by the end of the month. The Annual General Meeting is on the 29th of May, and we encourage everybody to either attend in person or online. Thank you. Angus Bean: Thank you, everyone.
Operator: Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated First Quarter 2026 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. We ask all question-and-answer participants to please limit themselves to one question. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sam Ullrich, Vice President, Investor Relations. Sam Ullrich: Thank you. Good morning, and welcome to our first quarter 2026 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2026 first quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company's website titled News, located at churchilldownsincorporated.com, as well as in the website's investor section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent reports on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release. The press release and Form 10-Q are available on our website at churchilldownsincorporated.com. And now I will turn the call over to our Chief Executive Officer, Mr. William C. Carstanjen. William C. Carstanjen: Thanks, Sam. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Marcia Ann Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. I will begin with a high-level overview of our first quarter performance and key strategic developments. Marcia will then walk through our financial results and capital management strategy in more detail. Then we will open the call for your questions. Let me start with a few key highlights from the quarter. First, we delivered a strong start to the year with record first quarter net revenues of $663 million and record adjusted EBITDA of $257 million. These results reflect strong execution across our portfolio and continued momentum with our growth strategy. Second, we successfully opened our Marshall Yards historical racing machine venue in Calvert City, Kentucky, on time and on budget. This marks our eighth HRM facility in the Commonwealth. Early performance has been encouraging, and the property is already contributing to job creation, increased purse funding for Kentucky's horse racing industry, and long-term shareholder value. Third, we continue to see strong progress in Virginia. We remain committed to supporting the renaissance of thoroughbred racing. We will host 48 race dates in 2026 and expect to generate significant purse funding from our HRM operations across the state that will be distributed during our race meet at Colonial Downs. We also ran a successful Virginia Derby in March, and we are excited that the winner, IncrediBolt, will have the opportunity to compete in this year's Kentucky Derby. We were very pleased with several positive developments in Virginia during the closing stages of the 2026 legislative session. The governor vetoed legislation related to skill games and a proposed new casino in Fairfax County. iGaming also did not receive approval. These outcomes support a more attractive operating environment, and we remain committed to continued investment and job creation in Virginia. Another example of our strategy around smart, transformative investments in the thoroughbred industry is reflected in our announcement earlier this week. We signed a definitive agreement to acquire the intellectual property rights to the Preakness Stakes and the Black-Eyed Susan Stakes from a subsidiary of The Stronach Group. This includes all trademarks and associated rights with respect to the Preakness Stakes, which is the second leg of the Triple Crown, and the Black-Eyed Susan Stakes, which is the second leg of the three related races for the fillies. We expect the second most wagered-on race in the country. The Kentucky Derby is, of course, first by a very wide margin, followed by the two other Triple Crown races, the Preakness and the Belmont Stakes, and then our own Kentucky Oaks race. Let me now turn to the Kentucky Derby and our vision for long-term growth. We continue to invest in enhancing the Derby experience, and for this year's event, we are unveiling several exciting upgrades. We have completed renovations of The Mansion, one of the most exclusive hospitality areas, offering exceptional views of the track and finish line. Our Finish Line Suites have also been significantly upgraded, creating a more integrated, high-energy hospitality experience with improved flow and premium amenities. These are our most exclusive suites, and we are very excited to show our customers a reimagined and unique setting. Following this year's Derby Week, we will accelerate the work on the Victory Run project. As I discussed on our call in February, we will finish this project in time for the 2028 Kentucky Derby. This new structure will offer spectacular premium suites on the first level. The guests in these suites will be able to walk to the rail to watch the races. Victory Run will also incorporate covered box seating and multiple high-end dining experiences on the second through fourth levels of the building. These projects are designed to deliver strong long-term returns while offering exceptional guest experiences. Looking ahead, we remain focused on expanding Derby Week into an even broader week-long national and international event. Last year, we welcomed more than 370 thousand guests across Derby Week, roughly the equivalent of five Super Bowls in one week. We see significant opportunities to continue growing with respect to attendance, wagering, viewership, sponsorship, and EBITDA. As part of that strategy, we are expanding Derby Week with the addition of racing on Sunday, April 26. And for the first time, the Kentucky Oaks will be broadcast in primetime on NBC and Peacock, giving us a powerful platform to expand the reach of this prestigious race and the broader Derby experience. At the same time, the continued growth of Derby Week is attracting innovative global partnerships. These partners are increasingly focused on premium, experience-driven engagement, and Derby Week offers a unique platform to deliver that at scale. Our partners recognize that activations at live sporting events have become more coveted given the significant growth in the experience economy. When coupled with premium hospitality offerings during Derby Week, our partners can provide once-in-a-lifetime experiences for their customers during one of the most marquee live sporting and entertainment weeks in the world. Over 152 years, the Kentucky Derby has become an iconic event in sports and entertainment. We are going to build on that legacy by continuing to expand its reach and relevance for future generations. Turning to our HRM portfolio, our venues in Kentucky and Virginia are performing well and play an important role in supporting the horse racing industry in their respective states. They generate purse funding, support the local agricultural industries, create jobs, and drive meaningful economic impact in the communities where we operate. We will continue to invest in HRM venues and product offerings. We introduced roulette electronic table games, or ETGs, based on historical horse races at six of our Kentucky HRM properties during the first quarter. Early indications are very encouraging, and the new ETGs are accretive to our GGR in Kentucky. We will be rolling out additional machines throughout 2026 and beyond. We are increasing our marketing of this new offering, and awareness is building at each of our properties. We are also working on developing additional HRM-based ETGs, including craps and then blackjack, to attract an even broader customer base. Looking ahead, our Rockingham Grand Casino project in Salem, New Hampshire, remains on track for a mid-2027 opening. This development represents another compelling opportunity to expand into an attractive market with a high-quality entertainment offering. In summary, this was a strong start to 2026. We delivered record results, executed on key strategic initiatives, and continue to invest in high-return growth opportunities across our portfolio. Churchill Downs Incorporated remains exceptionally well positioned with a strong core portfolio of businesses and a clear path for long-term growth. We are confident in our ability to deliver consistent and meaningful value for our shareholders. And before I turn it over to Marcia, a quick reminder: Derby Week begins this Saturday, April 25, with Opening Day and culminates on Saturday, May 2, the 152nd running of the Kentucky Derby. We have an exciting week of racing and events planned, and we look forward to hosting many of you in person. We are anticipating an exceptional Derby and Derby Week, significantly outpacing not only last year but also Derby 150 in 2024. If you have not secured your tickets yet, we encourage you to do so. We expect to be fully sold out. With that, I will turn this over to Marcia. Marcia? Marcia Ann Dall: Thanks, Bill, and good morning, everyone. I will begin with highlights of our financial results and then provide an update on capital management. First, regarding our financial results, as Bill noted, we delivered record first quarter revenue and adjusted EBITDA, with both our Live and Historical Racing segment and our Wagering Services and Solutions segment achieving record performance for the quarter. We are pleased with the continued momentum in our Live and Historical Racing segment. Adjusted EBITDA increased by more than $11 million, or 11%, compared to the prior-year quarter. Our Kentucky HRMs delivered outstanding results, with adjusted EBITDA increasing more than $9 million, or 17%, compared to the prior-year quarter, driven by strong growth across both Western and Northern Kentucky. Our Kentucky growth also reflects the opening of Marshall Yards in February. In Virginia, adjusted EBITDA increased by $3 million, or 6%, compared to the prior-year quarter. This growth was supported by continued momentum at The Rose, which delivered sequential increases in the GGR per machine per day for each month of the first quarter. Our team is making great progress in marketing the property to attract new guests and increase spend per visit. We are encouraged by the continued top-line growth and increase in the margins of The Rose. We believe the property remains in the early stages with a long runway for growth. At Colonial Downs Racetrack, we successfully held the Virginia Derby in March with sold-out attendance and a 19% increase in handle over last year, making it the third-highest wagering day in Colonial Downs’ history. Performance at our other Virginia properties was impacted by weather and increased competition. We are actively optimizing our marketing and operating strategies, and we remain confident in the long-term performance of these properties. Turning to our Wagering Services and Solutions segment, adjusted EBITDA increased 8%, driven by retail sports betting, contributions from our online sports betting market access agreements, and continued expansion of our XASSA platform. TwinSpires also delivered modest growth in adjusted EBITDA primarily due to lower legal expenses. Last, regarding our Gaming segment, our wholly owned regional gaming properties performed in line with our expectations, given the cessation of HRM operations in Louisiana in May and $2 million of weather-related disruption in January. Overall, first quarter same-store margins at our wholly owned casinos were relatively consistent with the first quarter of last year. Customer trends have improved versus the prior year and remain consistent with the prior quarter. We see continued strength among higher-value rated players and some softness outside of Kentucky and in lower-value unrated segments. We are actively refining our marketing strategies to capture opportunities across both segments. Turning to capital management, we generated $276 million, or $3.94 per share, of free cash flow in the first quarter, reflecting the strength and consistency of our operating model. Our strong free cash flow generation continues to support both reinvestment in high-return growth projects and meaningful capital returns to shareholders. Project capital expenditures were $40 million in the quarter, and we continue to expect full-year 2026 project capital spend of $180 million to $220 million. Maintenance capital expenditures were $19 million in the quarter, and we continue to expect full-year 2026 maintenance capital spend of $90 million to $110 million. We ended the quarter with bank covenant net leverage of 3.9 times, reflecting continued strong operating cash flow generation from our recent investments. With that, I will turn the call back over to Bill so that he can open the line for questions. William C. Carstanjen: Thank you, Marcia. Okay, everyone. I think we are ready to take your questions now. Operator: We will now open the call for questions. To ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. One moment, please. The first question comes from the line of Barry Jonas with Truist. Barry Jonathan Jonas: Hey, guys. Good morning. I may have missed this as the audio was a little off before, but can you detail a little more about the fee structure for the Preakness IP and also if you have any wider thoughts on the longer-term strategy there? William C. Carstanjen: Good morning, Barry. Thanks for the question, and sorry if there were any difficulties with the audio. Certainly happy to cover anything that slipped through the cracks. The fee structure in Maryland is a two-part structure. First, a base fee of $3 million that grows at 2.5% every year, starting in 2028. It does not apply for the 2027 Preakness, and we have not closed on the purchase of the intellectual property yet at this point either. But starting next year, it is a $3 million base fee, and from that point on, it grows at 2.5%. The second portion of the fee is 2% of handle for Black-Eyed Susan Day plus Preakness Day. You add those two amounts together, and you get the total. Last year, the Preakness and Black-Eyed Susan Day in combination did about $140 million of handle to give a rough perspective on where it is at this point. For us, it is a thrill to be a part of that. It is, in our view, an iconic asset. Having been in the game for a long time, I am familiar with the history of the Preakness and I know what it has been in the past and what it can be in the future. We are happy to participate and work with the state as they see fit to help build it back to its former glory. Operator: Thank you. Our next question comes from the line of Dan Politzer with JPMorgan. Daniel Brian Politzer: Hey, good morning, everyone. Thanks for the question. Just another one on Preakness. As we think about your capital allocation parameters, in the past you have talked about investing in the ecosystem, looking for things with local monopolies, and the ability to improve operations of an asset over time. How does this investment in Preakness fit into that, and how do you think about this potentially evolving over the medium to long term? William C. Carstanjen: Thanks for the question, Dan. First, some of those attributes come in connection with iconic, unique, and special assets that can have different attributes than everything else over time. We think the Preakness is one of those assets. We think it has tremendous potential and a tremendous history. As it unfolds, we certainly are available to the state and happy to work with the state to help them figure out how best to transition that property into something great like it has been in the past. For us, it is entirely consistent with how we look at things like the Derby. In my opinion, the Derby is always what is most special and most unique about our company, and it is an asset that cannot be duplicated. It is a very special, unique piece of Americana. We think Pimlico and the Preakness have elements of that themselves, and it is about developing and encouraging those things to happen over time. Operator: Thank you. Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Daniel Edward Guglielmo: Hi, everyone. Thank you for taking my question. In the past, you have talked about growing the international customer base for the Kentucky Derby and U.S. horse racing in general. Outside of the dollars generated, how do you measure success there, and what are your goals over the medium term, so the next five or so years? William C. Carstanjen: Dan, thanks for that question. That touches on a theme that is personally really important and significant to me. I think we have this unique American event, and there is an irony to that because over the long 152-year history of the Derby, the international piece has not necessarily been the focus of our efforts. Despite that, we still have this global brand. Focusing on building that is critical going forward. It starts with attendance. It starts with encouraging more folks in overseas markets, starting with those that have an attachment or an interest in horse racing, to come experience the event. From that, it builds into sponsors and partnerships, and those are the more important elements. Certainly, some wagering can be possible; Japan is an example of that. But first and foremost, it is about driving high-end customer participation and encouraging sponsorships. Attendance and viewership can be a part of it. I do not have at my fingertips the information this year for all the markets that the Derby will be telecast. It is a very impressive and growing picture. Everything we see from an international perspective is positive, growing, and encouraging. You will see us focus more on that over the coming years because there is a big population out there in the rest of the world that is particularly interested in thoroughbred racing, as well as in the United States. Our job is to attract those people and bring them here in the higher echelons of our ticket offering. Operator: Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Chad C. Beynon: Hi, good morning. Thanks for taking my question. Bill, one for you on the legislative win in Virginia. Obviously, you cannot predict future legislation, but anything you can highlight in terms of why this was vetoed, if the governor or other constituents are realizing the impact on the state? We are getting a lot of questions if this will become a recurring thing. Anything else you can help on there would be helpful. Thank you. William C. Carstanjen: Sure, Chad. Thanks for the question. Generally, state legislative processes are busy, messy processes. There is lots of activity and a divergence of views. It is part of democracy. The fact that legislation is introduced and discussed does not mean there is consensus in the state on what will happen that year or in the future. It is just part of the legislative process. Every year is different, and every legislature learns from past experiences, and that factors into what they want to do as a state going forward. Turning to Virginia, what happened there is part of a healthy democratic process. There were lots of discussions and divergence of views, and the state came to a conclusion on how they wanted to manage and think about gaming for the time being. I am encouraged by some of the dialogue and discussion that their progression on gaming issues is a positive one from our perspective. I am encouraged going forward that there is a forum for discussion and convergence of views, and that our views are respected, heard, and part of that process, and will be reflected in whatever outcomes in the future we might see. Generally, Virginia shows a lot of elements of a very stable environment for us. We believe in that jurisdiction and its potential, and we are really glad to be a part of that dynamic and environment. Operator: Thank you. Our next question comes from the line of David Katz with Jefferies. David Brian Katz: Hi. Good morning, everyone. I wanted to spend a second on Virginia if I may. Way back when we made this acquisition, there was clearly a lot of opportunity in what has evolved. Since then, there are more competing licenses and some traditional licenses, and forgetting about any discussion about iGaming, will it or will it not one day, Bill, I remember you telling me that every strategy should evolve as you go to be a good one. Has this turned out competitively the way you expected, and have you evolved your Virginia strategy for what appears to be increasing competition in that market? William C. Carstanjen: Great question, David. Already, you can see Virginia has been a really strong and encouraging investment for us. In terms of new competition, you face that discussion in all jurisdictions; it is part of the gaming dynamic in the country, and we have progressed through that pretty well. For us, there will be opportunities too as discussions around Virginia evolve over time. Always be flexible. I agree with what you said: always evolve your strategy. We have done that in Virginia. We do not control the noise and discussion that happen during any legislative session, but we participate vigorously in those discussions, and we constantly evaluate what is best for our company—where to focus, where to pivot, where to change. Through all this noise, Virginia has been a really strong investment. As we look forward, we see that continuing, and we will evolve that strategy and roll with the times as we see real pivots that need to be made. So far, so good. It has been a positive experience for us, and now it is about focusing on next year and how we want to evolve our business in that state. Operator: Thank you. Your next question comes from the line of Jordan Bender with Citizens. Jordan Maxwell Bender: Hi, everyone. Good morning. Thanks for the question. Kentucky continues to show some pretty nice growth. How do you think about the incremental 4 thousand machines you can put in the state, and more specifically, do you see any properties that are ripe for expansion? William C. Carstanjen: Thanks, Jordan. Kentucky has been a very positive experience for us. It has been a great investment for us in the short and long term. All these properties are still showing real signs of growing into their own skin. They have not reached maturity; they are still growing. HRMs as a product continue to get better. We continue to have more options and more variety of product. ETGs are something we feel positively about, and we look forward to expanding our offering of roulette and other products on our floors. Marshall Yards, which we opened in February, has gotten off to a really encouraging start. Without exception in the state of Kentucky, we do not view any of these properties as being at maturity yet. We will keep innovating the HRM product and growing into our marketplaces in each of these jurisdictions. More to come there. Operator: Thank you. Your next question comes from the line of Brandt Montour with Barclays. Brandt Antoine Montour: Good morning, everybody. Thanks for taking my question. I wanted to ask about the Derby. You sounded pretty upbeat about momentum there. To put a finer point on it, how would you compare the impact of geopolitical events to this spring’s ticket selling season to last spring’s geopolitical events? And, Marcia, is there any update to the $15 million to $20 million incremental EBITDA year over year that you called out last quarter? Thank you. William C. Carstanjen: I will start first, and Marcia, if you want to comment on the last part of the question, please feel free to jump in. Last year, the geopolitical events—which were really the introduction of Paris for the first time—impacted us. It impacted the sales process when it started. I am pleased to say that this year, we have not seen that. We are not experiencing geopolitical corrections to our sales process. It has been a smooth, predictable, and really encouraging sales cycle for us. Marcia Ann Dall: From a growth perspective, we are very confident in our $15 million to $20 million of Derby growth over last year’s number. As Bill said earlier on the call, that will be a very significant increase even over Derby 150. Operator: Thank you. Your next question comes from the line of Jeffrey Stantial with Stifel. Jeffrey Austin Stantial: Hey, good morning, everyone. Thanks for taking our question. Just one from us on the HRM business. We appreciate some of the commentary earlier on the rollout of electronic table games in Kentucky. I was hoping you might add a little more color in terms of what initial yields look like for these machines, how this is flowing through database growth and your ability to compete across the border with Class III casinos. Are you seeing some play shift over from slots to these tables? Any initial trends, keeping in mind it is still early, would be great. Thanks. William C. Carstanjen: Sure, Jeff. Happy to do that. Even introducing just one single ETG product—roulette—even with just a single product and lots of runway to add others, we have seen the addition of new customers. There have been changes to our database and a nice pickup in new customers. These are definitely accretive to the GGR on each of our floors. We really just started marketing this new product in April. We wanted time to make sure we worked out the kinks and understood how the products worked on our floor. We are really just in the first month of marketing it. I have only good news to report on what we are seeing. I wish we could push a fast-forward button and have more product, both in terms of the number of machines on the floor and the variety. Every metric we look at in terms of evaluating floor performance is a positive one with respect to introducing this product. Operator: Thank you. Our next question comes from the line of Trey Bowers with Wells Fargo. Trey Bowers: Hey, guys. Thanks for the question. Getting back to some of the more political questions we had earlier, as you said, this whole process can be messy and somewhat unpredictable. Is there a scenario by which, if you see digital expansion in states in which you operate that was not expected or you did not want, you could reverse course and lean into that? I would expect there will be more of this going forward. If ultimately iGaming does happen in Virginia, how might you benefit? Thanks a lot. William C. Carstanjen: Part of participating in the legislative process is always thinking through your fallback positions with respect to things that will help your business. Sometimes that can be going into different businesses. Sometimes that can be more product or other benefits to the business you have in the state. Part of managing through a legislative process is understanding your list of priorities and your series of fallback positions, and your willingness and flexibility to pursue new options based on what those options are. I do not want to comment on any particular line of business other than to say iGaming is a terrible public policy choice for states. It is not one that any state has figured out reliably to protect the consumers in that state. With that general caveat, we approach every state with a series of strategies based on what we see happening in that state. I think our track record reflects that we handle all kinds of issues fairly well, achieving positive improvements for our business environment in addition to battling things that can be threats to it. We make the best out of the circumstances we are faced with, and that is part of the skill set you need when you are in the businesses we are in. Operator: Thank you. Your next question comes from the line of Joe Stauff with Susquehanna. Joseph Robert Stauff: Thank you. Good morning, Bill, Marcia. On ETGs, I know the rollout is an iterative process. If we zoom out and think about the typical, say, 80/20 gaming positions, table versus slots, is that fair to assume you will likely get there at some point? Is that maybe a goal within 18 months, or does it take longer? Could you give us broader parameters on the rollout versus the near term? William C. Carstanjen: Thanks for the question, Joe. We are going to take it one step at a time. We will evaluate every change we make to our floor, whether it is adding more of a particular type of ETG like roulette or introducing new and different categories of ETGs. We will respond to the data and the information generated by our experiments with introducing new product. We do not set a target 80/20 or anything like that. We make smart decisions based on what the data tells us and what our customers tell us on the floor. We try as a management team to be a data-driven organization. We do not want to make up assumptions or stick to assumptions that do not turn out to be reflected in reality. We want to respond to what we see on the ground. That is true based on the experience of what we see on our floors, and that is true for the political environment. We will respond and plan around what the facts are. Operator: Thank you. Our next question comes from the line of Shaun Kelley with Bank of America. Shaun Clisby Kelley: Good morning, everyone. Marcia, wondering if you could comment a little bit on the proposal out there for Maryland historical horse racing machines. I think this may have existed in past iterations as well, but what is your broader take or support? Do you think there is any momentum behind it, and what might the process look like? Thanks. William C. Carstanjen: Sean, thanks for the question. I think you are referring to a bill that came through the legislative process last year. It passed but is not law. There has been a movement, particularly among the off-track betting parlors, or OTBs, in Maryland to get HRMs. I do not want to comment on that right now. We are getting our sea legs in the state. We are talking to the government and the executive branch. We are evaluating how we can be supportive and helpful to the state in achieving their goals of creating a world-class, best-in-class event that drives tourism and investment to the state in the Preakness. We are focused on that right now and becoming a more integrated part of that state-driven team. HRMs are a component of the discussion in the state, but I will not comment on it for now as we get our sea legs and become participants in all things racing in the state of Maryland. Operator: Thank you. Our next question comes from the line of Ben Chaiken with Mizuho. Benjamin Nicolas Chaiken: Hey, thanks for taking my question. Just one on Preakness. At risk of being repetitive, I think historically the property has had its own unique culture and following, which you referred to, Bill. Talk about your ambitions here, both qualitatively and quantitatively, if you can. Are you there to assist Maryland if they ask you to, or is this something that you can start to transform and redevelop near term? I am trying to get a better sense of the explicit goal for this property. Thanks. William C. Carstanjen: Thanks, Ben. Maryland is in control of the destiny of the Preakness. They have the land. They have authorized legislatively $400 million of bond proceeds to invest in the property. There is another $125 million of other government funds that are available to invest in Pimlico and Laurel Park, the training center they just approved buying earlier this week. They have a war chest of about $525 million of funds allocated to invest in racing, and they are in control of that investment. We, upon closing, will be the owners of the intellectual property and have already started a very strong dialogue with the state on how we may be able to help them achieve those goals. We have 300 people that work here in Louisville at the track or in our corporate offices supporting our racetrack—doing construction and design, ticketing, sponsorships, and wagering. We have a team of experts here that do this on an absolute world-class level, and certainly those resources and efforts are available to the state if they seek our help and would like our help in any way. Those discussions are just beginning, and it is important to let them play out at the state’s timing and direction. We really love the market. When we compare it to our own market here in Louisville and in the Midwest, we love that corridor from D.C. and Baltimore up through Philadelphia. There are lots of great customers and potential sponsors and business partners there. We think it is a market with a lot of opportunity, and we have a lot of ideas. But this is something that the state will have to ask for our help on, and we have begun that dialogue. We are excited for that to develop. Operator: I will now turn the call back over to CEO, William C. Carstanjen, for any closing remarks. William C. Carstanjen: Thank you, everybody. Really great series of questions today. It was fun to hear your questions and how you are thinking about our company, and we did our best to answer those. Thank you for your support. This is an exciting time for us. We are now going to focus on getting this thing called the Kentucky Derby underway. We hope to see many of you there, and we are going to work our rear end off to deliver a great Kentucky Derby. Thanks very much, and we will see you next time. Operator: Ladies and gentlemen, thank you for participating. This does conclude today’s program, and you may now disconnect.
Operator: Welcome to the Enea Q1 Presentation 2026 during [Operator Instructions]. Now I will hand the conference over to the CEO, Teemu Salmi; and CFO, Ulf Stigberg. Please go ahead. Teemu Salmi: Thank you, and good morning to everyone, and welcome to this Investor Call for Quarter 1, 2026 Enea. This is Teemu Salmi speaking, CEO of Enea. I'm very happy to be with you here today. During the next 20 minutes, we'll take you through the results and some comments about quarter 1. And at the end, as usual, we leave some time for questions and answers. Let's dive straight into it. First of all, we are very happy and pleased to report that we have solid 12% net sales growth in the quarter when counting in constant currencies from -- in fixed currencies from quarter 1 last year. That equals 5% growth in reported numbers. So a good solid start of the year. And with that, we're also reporting a very strong improvement in our profitability, adding up at an adjusted EBITDA level of SEK 75 million or 34% which is the highest in many years when it comes to the first quarter. And also, EPS jumps up quite significantly since quarter 1 last year, ending up at SEK 0.98. On top of that, we also have a very good momentum for our strategy execution at the moment, and I will come back to that in just 1 second. As said, the growth here in the beginning of the year was quite a lot fueled by our business development mainly in our firewall business that had a great successful start of the year, where we signed many deals, many significant deals predominantly in Europe and North America. So that has been fueling our development in the quarter. And we also have a strong momentum in our growth portfolio. And you'll see now, I'll come back to that a little bit later on in the presentation that starting quarter 1 this year, we will also start reporting our sales a bit differently than last year. I have been getting a lot of questions and feedback about the transparency of our product portfolio and how it is developing. So actually starting this year, we will report our sales development in 5 product groups instead of the 2 areas we were reporting last year, Networks and Security. Now we will have 5 product groups where we will report our sales against. And I will come back to the structure in just a bit, so hang with us. But basically, these 5 product areas, we have one growth part of it, and we have one as we call classic part of it, but we've had a very good momentum in our growth portfolio and with our products that are part of that portfolio. Enea more relevant than ever. I mean we see that the need of secure solution and increased security in general is pushing our business in the right direction. We -- the government sector for us is showing good progress, and we have a very healthy pipeline that keeps on growing. So there's a lot of opportunities for us to close in that. So we are staying strong and growing in the telco sector and also in the CPaaS sector, now complementing that with the government sector, giving us another leg to stand on when it comes to our future business development. So that is good to see. And also during the first quarter, we have participated in Mobile World Congress in Barcelona, which is one of the biggest telco or telecom communication fairs in the world. Even though we had the breakout of the war in Iran, which meant that no Middle Eastern customers were able to travel to Barcelona. We still had a very good result out of that, and we are pleased with our participation there. Saying that, the war in the Middle East has also, of course, had an impact on our business slightly. I mean, some deals we were anticipating to close in quarter has now been postponed into the future due to our customers having other priorities in quarter 1. So not losing any business, but we see a slight shift of business into the future. Momentum is picking up again in Middle East, and we're looking forward to catch up on that in the quarters to come. We also made during the quarter press release about one customer of ours, Liberty in Costa Rica where we have deployed our messaging firewall in that in combination with the threat intelligence service that we are providing, we are combating cybercrime. And the results for our customer in Costa Rica were really outstanding. And in just 3 weeks, we were able to together with them to decrease 99% of the spam and the scam that was going through their network. And on top of that, our customer could block over 30,000 scam domains that were used for scam bursts. So not only do we have the good and right products, but they also have a short time to value with our customers once we are deploying them. On top of that, also in the quarter, we have -- not only do we have good traction on the market with our customers, but we're also winning awards when it comes to our products and offerings. We have won 5 awards -- global awards in the quarter. 3 in the firewall space, 1 for traffic management solution and 1 also for our embedded security Qosmos product in the quarter. And then when it comes to the strategy execution, it is moving on according to plan. I'm super happy to announce that we, in the quarter, also have now recruited our new Chief Commercial Officer, Mathias Johansson. He has started 1 month ago and he's now going to take charge of accelerating 1 of our 3 pillars in our strategy, which is the market acceleration. And speaking of the market acceleration, we have also hired new sales capabilities in the security domain to push our security and government business in the right direction. And we are continuing to execute on our market acceleration activities as part of the strategy by also together with Business Sweden, being part of one joint event in Taiwan later on in the quarter because that is also one of our focus markets in Asia Pacific. And we are continuing to execute on the other activities just as we have commented since we launched the strategy in November. So good start of the year. We are more relevant than ever, and our strategy execution is going as planned and also started to show some good payoffs and pay back already now. All in all, if we look at the numbers for the quarter, our net sales ended up in reported numbers, SEK 222 million, which is 12% growth in fixed currency, 4% in reported currency. Our EBITDA margin, 34% or SEK 75 million in absolute numbers. Our net debt has increased slightly, and you can also see that our operating cash flow is slightly going down. We see the operating cash flow decrease here in the quarter. The short-term part of that, where we anticipate that the capital that we are tying up now in quarter 1, a lot of that capital we -- well a big part of that capital will actually transfer into cash flow already in Q2. so there's very short-term spikes in the working capital. There is, however, the investments we made in Middle East and Africa is tying up a bit of capital that we expect to be starting decreasing over the year of 2026. Earnings per share ended up at SEK 0.98 per share. And our R&D investments, they continue to be on stable levels as we have presented in previous quarters as well, around 24%, 25%. Yes. I've already covered most of the things on the slide here. I think the thing that I want to stress is that we had a tough year in our firewall business last year, and our business can be a bit spiky over quarters because we sell the business models we have. We sell quite a lot of perpetual licenses, which means that 1 quarter can have a lot of sales other quarters can have a little bit of less sales. But we have a very strong start of the year for our firewalls where we actually have signed 3 major deals in the quarter with one of the largest network operators in the world and also with some -- 1 of the big CPaaS players globally as well, which we are happy for because it's just showing the relevance and importance of our portfolio. And before I now hand over to Ulf for more details about the financials of the quarter. I want to come back to what I said earlier about how we will now report our sales going away from the Networks and Security split that we have had in our sales in the previous year. This year, we will report our sales in these 5 product groups, as we call it. If we start to the right, there is an old traditional known segment or group -- product group, Operating Systems, which we have said for many years, is a structural decline. We will continue to report Operating Systems, Sales and Development separately. And then the former Network and Security portfolio, we have divided in 4 product groups: Network Performance and Intelligence, Signaling and Messaging Security, Embedded Network Insights and Security and Network Access Control. So if we start in the top left corner with the network performance and intelligence, basically, we have our traffic management and our real-time database Stratum there as the products, main products in that product category. In the Signaling and Messaging Security, we have our firewalls. That's our firewall business that we reported separately in one product group. We have our Embedded Network and of course, sorry, with the Signaling and Messaging Security, we also, of course, have our threat intelligence service that we are selling included and reported as part of sales in that product group. In the Embedded Networks and Insights and Security, we have our Qosmos product, basically our Embedded Security business that we are selling. And then Network Access Control is the more classical CSP-related products that we're selling, like the AAA and the ENUM DNS et cetera, in that product category. And as you can see, there's a color coding behind all these product groups as well. There are the ones, Network Performance Intelligence, Signaling messaging, Embedded Network Insights, they are part of the growth portfolio. And we have the Classic portfolio, which is then containing Operating Systems and Network Access Control. And the reason we are doing this is the products in these product groups have a bit of a different dynamic where, obviously, the growth portfolio is the portfolio that's going to fuel the growth of Enea for the future, where the Classic portfolio have the dynamics of being focusing on profitability and generating bigger profits than the growth portfolio in the short term. And in quarter 1, I can say that the net sales split between growth portfolio and Classic portfolio was 80-20. So 80% of our top line is coming from the growth portfolio and 20% of our top line is coming from the Classic portfolio. And this is the way you can expect to see Enea reporting our sales moving ahead. With that, I would like to hand over to Ulf Stigberg for more details about the financials in quarter 1. Ulf, please? Ulf Stigberg: Thank you, Teemu. So a little bit more in detail. We see a 12% growth in net sales in fixed currency and what we're very proud of this quarter is that we can see also a change in growth over the rolling 12 months measurement going from last year 12 months plus 1% and adjusted for currency, plus 4%. We report a 34% adjusted EBITDA margin amounted to SEK 75 million for the quarter compared to SEK 52.6 million previous year. This takes us to a level of 34% compared to 25% previous year. Reported EBITDA margin is 23% for the quarter. We have a development of cost that's almost in line with the previous year. The operating expenses spend is about SEK 175.9 million compared to SEK 189.7 million, and the variation can mostly be explained by SEK 13.4 million lower cost in relation to currency adjustments. Going over to the EBIT. We report an EBIT of 9%, corresponding to SEK 2.2 million compared to 1% previous year and SEK 1.6 million. This also drills down to earnings per share by to SEK 0.98 compared to minus SEK 0.94 in previous year, and this is a great, I mean, development from last year. So going into the reporting structure, we now have presented a net sales split by product group. And also, we have the split by revenue category in the bars, you can see 3 different tones of colors. This corresponds to service, support and maintenance and software license. And over the quarters, you can see that the net sales in each of the group varies and the variation depends mostly to software license revenues in the quarter. And we have different development and sales efforts, of course, in different portfolios here that creates a little bit of different performance in the different groups. You can see that we have a high share of software license revenue in our growth portfolio to the left. And we have also a high share of service revenues in the Signaling and Messaging Security product group and the second group from the left. And the two classic product groups to the right, as Teemu mentioned here, represent 20% shows some variations over the quarters. And with the development of stable and a little bit of a decline in the operating system product group. Going into the details for the quarter, we can see we had a good development within the Signaling and Messaging Security group. Growing by 48% and by 56%, if we adjust for the currency. So a very good growth within that group, of course. The growth within the Network Performance and Intelligence product group was 6% and 25%, if adjusted for currency the Embedded Network Insights and Security grew by 5% adjusted for currency and reported figures even on compared to the previous year. The same measurement that over 12 months makes a little bit more sense maybe if you look at the Growth. The Growth portfolio growing by 4% or 12% in FX-adjusted measurements. And the Classic portfolio actually had a decline in reported figures by 7% and adjusted for currency by minus 5%. One area that we have been working with during the last 12 months is our exposure to financial variations and this shows that we have less exposure in financial net for this quarter. The total financial net for quarter 1 2026 was SEK 2.6 million compared to SEK 21.7 million previous year. And finally, we see the cash flow analysis here with the improved profit on the first line going from SEK 1.6 million to SEK 20 million, we have improved the financial net from minus SEK 21 million to minus SEK 2.6 million. We have the items of noncash and taxes increasing in this quarter mainly related to a provision that was made in the quarter by SEK 25.7 million. And also, we see the change in working capital related to mainly deals that we have closed in the quarter 1. And the main part of this increase in the quarter will translate to cash within quarter 2 this year. We have some investments on the SEK 29 million, and we have the result of financing by SEK 4.1 million. This takes us to a net cash flow of total SEK 10.6 million negative. We can see the debt -- net debt have increased over 12 months. And the main explanation of this change is that we have more exposure to the business in Middle East and Africa region, which have a little bit longer project lead times compared to previous. And finally, we have a healthy levels of equity ratio and net debt to EBITDA. And for the buyback program, we have bought 243,000 shares in the quarter for a total consideration of SEK 15.6 million and all activities are related to the AGM mandate that AGM gave the Board a year ago in May. And the Board have now almost used the SEK 50 million frame that we decided to utilize in that mandate. All right. Over to you, Teemu. Teemu Salmi: Very good, Ulf. Thank you so much. We will start wrapping up this and leave some minutes for questions and answers at the end. Coming back to key takeaways from the quarter, once again, a great start of the year with a solid growth of 12% in constant currencies. Great improvement in our profitability and EPS, and we have good momentum for our strategy execution. So we feel that we have a good start of the year, and we're also well positioned for the execution of the rest of the year. And that gives us a short-term outlook that we say that, I mean, our market remains stable to moderately positive. That is exactly what we have said before. And we see that it is in that vicinity still. We are super relevant still for the market and the government sector is growing well. And I hope and I think looking at how the development now has been in quarter 2 that this quarter 1 will be the last quarter with these heavy headwinds we have had predominantly from the U.S. dollar in 2025. Quarter 2 should give us a bit of leeway when it comes to the pressure of the FX headwind that we have been experiencing throughout, I would say, the full 2025. That given for the 2026 guidance, we leave it unchanged we believe we will have a single-digit organic growth. We will end up north of 30% in adjusted EBITDA margin, and our investments will accelerate the growth. And then also the reason why we're saying that we will also increase our cost a bit in the year is that we are investing in our strategy. And that's also why we're saying that our EBITDA margin will be above 30%. We report 34% right now, which is good, and we have a good buffer now to 30%. And we will continue to invest in the quarter -- or sorry, in the year for the strategy execution, which will have a slight impact on our cost as well. Long-term ambition stays as we communicated as part of our strategy launch last year. We have the ambition that over the next 3 years, '26, '27, '28 that we will grow in average 10% each year in that period. And that our profitability will end at the end of 2028 above 35% measured in EBITDA. So we leave this also unchanged. So both long-term and short-term guidance remains as before. With that, I think we are done with our presentation, and we go over to questions and answers. Operator: [Operator Instructions]. Teemu Salmi: Right, just waiting if there is a verbal question coming through. I don't think so. Well, please feel free. As the operator said, Meanwhile, we will jump over also to the written questions here. Starting with the first one around a white paper on the utility of our software in drone application. And the question, are you recognizing revenue today from this end market, how many such projects are you involved in. Good question. We are not recognizing any revenue from these applications yet. We have many ongoing projects, engagement discussions. And actually, we are submitting today or tomorrow an RFP with content of drone applications as well. So it's still a very early market. It's a developing market. We are on the ball. We have relevant solutions for it. And let's see now this first RFP that we're submitting might give us, if all goes well, also the first revenues with that application. Next question, Rasmus, Redeye. How should we think about the quarterly variations between the business segments? How should we think of growth in the longer term between growth in Classic? And is there anything that sticks out in the business segments including the CPaaS deal that drives the solid organic growth in the quarter. Ulf, do you want to take these? Ulf Stigberg: Right. I think the quarterly variations between the business groups or the product groups are expected and this is a result of more transparency now basically, you can say that the 4 groups have in previous years also compensated a little bit if a group is lower, doesn't close a large deal in one quarter one other group will. So it's some kind of even out the exposure. But what we see in the longer term, of course, we expect the growth product groups, the 3 groups growing more than the classic. And of course, our long-term strategy targets 10% over 3 years. So that will be north of 10% if we're going to meet that target, of course. If anything sticks out I'm not sure about that. Do you want to comment on that. Teemu Salmi: No. No, I think it's been a solid development in the quarter. Of course, in the firewall business, we had an exceptionally good quarter. and we communicated the CPaaS deal, but there are many other deals that builds up the quarter, not only for the firewall business, but for the other segments as well. And as you could see, Ulf showed that if we look at the growth segment, it has had a very good development year-over-year. And I think it's incremental development of the business that we are doing and also of course, the relevance of our products and our footprint that is growing on the market. So I would say that there's nothing else. It's just organic growth, I would say that we are working with and developing, Rasmus, we can talk more later, of course, as well regarding this. Next question regarding AI. Can you elaborate on what solutions you're developing or selling that specifically protects against AI hacker attacks. Well, let's -- yes, we have several. I mean, let's start with messaging, for instance. I mean in our messaging portfolio, we have been awarded this quarter as well for our AI-based restricted image detection solution. So basically messaging -- I mean our customers, they handle millions of messages every hour, right? And you cannot parse messages manually. But you need to have a mechanism that scans the message before you approve and read them through and it becomes an SMS or MMS or whatnot in your phone when you receive it, right? Obviously, AI solutions there. We've had those in place. We have different -- many different AI solutions in place already. But one of the latest now released this is AI-based restricted image detection, where it's easy to, in a message to go through text and find a bad language or you can find words that would make our customers block that message from being sent, but pictures have been harder, of course, to evaluate. Now we have a solution where with the help of AI, for instance, also can look at pictures and determine is this picture according to what is according to the policy that can be sent through or is it something that has a criminal intent or other malicious intent, so to say. So that's one of our latest solutions. And we actually got several awards for that solution in the quarter 1 this year. And we have many AI capabilities already live in many of our product offerings. Next, congratulations on nice progress. Thank you, Matthias, lots of EU grants for critical infrastructure are you relevant of any of these. Ulf, do you want to comment on that? Ulf Stigberg: I mean this is an area that we are working into gradually. And definitely, we will look into the EU grants, and we will be able to take benefit of such grants if available, but we cannot share any specific at this stage. Teemu Salmi: Thank you, Ulf. And I think now, at least what I see the final question here from David. Q1 '26 effective tax rate was 5.6%. What tax rate should we expect for the longer term of Enea. Ulf Stigberg: Good question. And tax area, we are a business group in many different legal entities and is a challenge for us, but we are working on this. I don't have a figure to share as of now, but it varies a little bit between the quarters. So we have to come back to that. Teemu Salmi: All right. It's actually on the hour I don't see any more questions in the question space. Thank you for listening, and I and Ulf, we wish you a great day ahead. Thank you, and bye-bye.
Laurie Goodroe: Good morning, and welcome to Bankinter's First Quarter 2026 Results Presentation. Financial statements were posted with market authorities earlier this morning, and all materials can be found on our corporate website. Please refer to the disclaimer in the presentation and note that this call is being recorded. Today, we welcome our Chief Executive Officer, Gloria Ortiz; and our Chief Financial Officer, Jacobo Diaz. Gloria, over to you. Gloria Portero: Thank you, Laurie. Let me start with the key highlights for the quarter, which confirm the strength of our business model, disciplined volume growth, continued margin improvement, a diversified and resilient income base and best-in-class efficiency and risk metrics. In volatile markets and in an environment of geopolitical uncertainty, that combination is not a nice to have. It is what protects earnings power through the cycle. This quarter, we delivered it once again with growth that is both profitable and controlled, supported by high-quality balance sheet. First, customer volumes increased by 6.5% with customer lending up 5%, retail funds up 1% and assets under management growing by 17%. This is balanced growth. We are growing where we see attractive risk-adjusted returns, and we are doing so without compromising the quality of the franchise. Second, on margins, we continue to demonstrate strong pricing discipline with customer margins at 2.68% and NIM at 1.76%. In other words, we are not buying growth. We are growing selectively with strict pricing discipline. Third, our income sources are increasingly more diversified and resilient. Net interest income grew by 5.5% and net fees by 8%, driving gross operating income growth of 6.5%. Finally, operational excellence and balance sheet strength remain key defining features of Bankinter. We continue to improve our management ratios with the cost-to-income ratio declining towards 35%, NPL ratio below 2% and strong capital levels. All of this translates into profitability and value creation. Net profit reached EUR 291 million, up 7.6% with RoTE at 20%. Let's now go into some detail behind these figures. Customer volumes grew across the franchise, increasing by EUR 14 billion year-on-year. Growth was led by lending and assets under management with deposits stable and improving in mix. Geographically, Spain remains the core growth engine, while Portugal and Ireland continue to add faster momentum off a smaller base. On Page 7, you can see the quality of our core revenue growth. 1/3 of core revenue growth comes from fees, which now represent 26% of core revenues, a clear signal of higher-value client base and a more diversified business model. This is not cyclical growth. It reflects structurally more diversified core revenues and margin management that sustains net interest income even in shifting rate environments. Page 8, key management ratios reinforce the quality of execution behind our results. Improving efficiency, strong asset quality and strengthening capital all confirm that growth is disciplined, risk is tightly controlled and profitability is sustainable through the cycle. Let me now turn to milestones for the first half of the year -- first part of the year. Portugal is a clear success story for Bankinter. Since launching in 2016, we have delivered high-quality growth, doubling our client base, tripling business volumes and transforming efficiency from over 120% to the low 30s. Profitability has scaled strongly on the back of a disciplined and diversified model built on a fully integrated operating platform with strong internal capabilities, reinforced by joint ventures and strategic alliances with partners such as Mapfre, Sonae and Generale. None of this would have been possible without the team. So today, Bankinter Portugal has 884 employees, around 70% of whom have been with us since 2016, complemented by more than 150 new recruits from a younger generation who will help fuel the next phase of growth. Together, they underpin a genuinely scalable and sustainable model supported by digital transformation, applied AI and a clear focus on value creation. On Page 10, earlier this month, we announced 2 complementary and clearly strategic corporate transactions to scale our business in alternative investments. First, we merged our alternative investment fund manager with premium partners to strengthen leadership in direct alternative investments, expand sector expertise and reinforce capabilities. As a second step, we will take a significant economic stake in Access Capital Partners, accelerating our Pan-European expansion through scale, specialization and greater product breadth across investment strategies and geographies. Together, these 2 transactions directly enhance our value proposition while broadening access to alternative products where we already distribute today to more than 15,000 private banking and retail clients across Iberia. Overall, the strategic decision strengthen a high-value capital-light recurring fee franchise, deepening long-term client relationships. And having just reviewed 10 years of growth, delivery and profitable success in Portugal, I have the strong convictions that Bankinter investment is on the same path, building scalable long-term growth and delivering strong value creation for our shareholders. And before handing over to Jacobo, let me briefly frame my view of the current environment. While geopolitical uncertainty has increased in recent weeks, our assessment remains that this will not, in the near term, translate into a contraction in consumption in our core markets. What we are seeing is greater prudence rather than a deterioration in underlying demand supported by solid private sector fundamentals. In this context, our geographic diversification across Spain, Portugal and Ireland continues to provide stability and quality to our earnings profile. And these markets are expected also to be less impacted and to perform better than the European average. So this is all from my part, and it is now over to you, Jacobo. Thank you. Jacobo Díaz: Thank you very much, Gloria, and good morning, everyone. Let me briefly summarize the income statement. Net profit reached EUR 291 million, up 4% quarter-on-quarter and 8% year-on-year, driven by resilient net interest income, solid fees, disciplined cost control and lower provisions. I'll now walk through the key drivers behind each of these lines in more detail on the following pages. Net interest income continues to progress well. NII reached EUR 571 million in the quarter, up 5.5% year-on-year and around 2% quarter-on-quarter on an adjusted day count basis. This is driven by volume growth and improving customer margins and special due to the improvement in deposit cost, which declined by 6 basis points during the quarter, supported by better deposit pricing and mix. On Page 14, let me take a minute to talk about our deposit strategy. Our approach to deposit growth remains disciplined and margin focused. We are actively managing the mix toward higher quality, more stable retail funds while maintaining tight pricing discipline. This focus has meant prioritizing the management of the cost of our deposit base rather than maximizing volumes. During the quarter, we continued to optimize pricing, including actions on digital accounts and a review of deposit spreads for treasury and fixed term deposits. Retail funds declined by EUR 3 million due to a -- EUR 3 billion due to a seasonally softer first quarter as well as active margin management actions. We continue to optimize our funding mix with a lower share of price-sensitive term deposits and a greater share of current accounts supported by our digital strategy. This translates into lower deposit beta, lower funding costs and improved margin resilience through the cycle. Consequently, average retail deposit cost for the quarter continued to decline, reaching 81 basis points. At the same time, digital accounts continue to perform very strongly, increasing by almost EUR 2 billion during the quarter to over EUR 13 billion. This clearly demonstrates that our campaigns remain effective and customer engagement is strong even after the price reductions implemented on digital accounts during this quarter. This is fully consistent with the year-on-year trend shown on the slide, a structurally healthier and more stable retail funding mix with growth in current accounts and a continued reduction in term deposits. On Page 15, turning to fees. This grew 8% year-on-year to EUR 203 million, driven by wealth management activity as well as a strong growth in insurance activity. Q4 '25 included some one-off items, so sequential comparability is not fully like-for-like. Our underlying mix is increasingly value-added and recurring, strengthening revenue resilience. On Page 16, on other operating income and expenses, this also shows solid growth. Equity method, trading and dividend income increased by a combined 18% year-on-year, reflecting the continued diversification of revenues from business such as Bankinter investment, our insurance joint ventures as well as with our partnership with Sonae in Portugal through Universo. Overall, this further reinforces the quality, diversification and resilience of our earnings base. On expenses, Bankinter is well known for its best-in-class efficiency levels, and we want to underline that the improvement we are delivering today is structural, recurring and still has room to improve. Business growth continues to be absorbed without creating structural pressure on the cost base. At the same time, efficiency is not being achieved by underinvesting. We continue to invest in people and technology with applied AI and simplification initiatives already delivering tangible productivity gains. This allow us to grow, invest and keep improving profitability at the same time. And that leads directly to the next slide, which shows how we are maximizing the potential of AI. Our approach is very pragmatic and built on a dual framework. On the one hand, we have toned down CEO-driven priorities, applying AI across software development, commercial process and day-to-day operations. On the other hand, we are pursuing a bottom-up approach, equipping our employees with an increasingly accessible AI tool set embedded in their daily workflows. Together, this supports higher productivity per employee in front and back offices and a lower cost to serve as volumes grow. In short, AI is not a future promise. It is already reinforcing cost efficiency and strengthening the scalability of our operating model and will continue to be a key driver of efficiency improvements in the coming years. Next page on credit costs remains low and well controlled at 32 basis points in the quarter. Other provisions also performing well, down to 7 basis points. Profit before and after tax grew by 8% year-on-year with net profit at EUR 291 million, confirming the resilience of our profitability and our ability to create value through the cycle. Asset quality remains strong and clearly differentiated. NPLs are low, coverage is prudent, and we continue to outperform the sector across all geographies with risk metrics stable, well controlled and with no signs of deterioration. On Page 22, CET1 ratio closed at 12.96%, above our target range and well above minimum requirements. Strong earnings generation comfortably offsets risk-weighted assets growth, giving us flexibility to support organic growth and allocate capital to strategic opportunities like the alternative investment transaction that Gloria referred to in the introduction. Next page. Customer volumes grew by 6%, supporting a 6% increase in gross operating income with well-diversified contribution across geographies. Loan growth remains disciplined and continues to outperform the market, especially in Portugal, Ireland and business banking in Spain. Regarding Spain, Spain continues to see strong revenue growth with pretax profits rising by 10%. While retail volumes softened this quarter due to seasonal effects and tighter mortgage pricing, corporate lending and off-balance sheet wealth management have remained resilient despite market volatility. Regarding Portugal, Portugal marks, as it was mentioned, its 10th anniversary. Growth remains robust. Year-on-year movements in cost of risk largely reflect the one-off gain from an NPL sale last year in the first quarter. Excluding this effect, underlying performance remains solid and well controlled. Ireland also continues to deliver strong growth momentum with volumes up 20%, improving profitability and exceptional asset quality. The NPL ratio remains just at 0.3%. On Page 26, corporate and SME banking continues to grow well above the sector. Lending in Spain is up 8% versus 3% for the market with very strong momentum in international business, where growth reached 17%. In Page 29, in retail banking, our approach remains disciplined and margin focus on both the asset and liability sides of the balance sheet. New account activity continues to be robust with salary and digital account balances growing by close to 50% over the past year, reflecting solid customer acquisition and engagement. New mortgage origination in Spain was lower during the quarter, reflecting pricing discipline in a tight margin environment with compressed risk-adjusted returns. This is consistent with our focus of allocating capital where returns are more attractive, such as in Portugal, where mortgage growth reached 8% and in Ireland, where it grew by 37%. Overall, retail banking continues to prioritize profitability and balance sheet quality over volume at any price. Next page, despite Wealth Management, despite heightened market volatility driven by recent geopolitical tensions, our Wealth Management business continues to prove resilient. Customer wealth increased by EUR 18 billion, up 13% year-on-year, supported by net inflows and a growing high-quality client base. Even in volatile markets, our clients remain invested and continue to allocate savings, reflecting the strength of our franchise and the quality of our customer base with flows that remain resilient through the cycle even in periods of elevated uncertainty. Next page, you can see the same trend with double-digit growth in both AUMs and AUCs, reinforcing the resilient and recurring nature of this business. Finally, let me take a moment to review our ambitions for the year. This first quarter of '26, we have delivered a solid quarter and results fully aligned with our previous guidance, following a disciplined execution with excellent quality of results supported by recurring sources of revenues. The recovery of client margin level to close to 270 bps in Q1 and the improvement of efficiency levels towards our ambitions are the supportive levels of another successful year. Despite the ongoing uncertainty in the market environment, our expectations and guidance for '26 remain broadly unchanged and current levels of profitability are expected to be sustained in coming quarters. We will consider changes to our guidance in the next results presentation with more visibility of our impact on macro scenario of current geopolitical events. We continue to anticipate stable volume growth in line with our initial assumptions while maintaining our disciplined and balanced approach to liquidity and risk. On the lending side, we expect volumes to grow at mid-single-digit rates, supported by a still positive macro environment for all geographies where we operate by a selective origination and a strong focus on risk-adjusted returns. Deposit volumes will be actively managed to preserve comfortable liquidity ratios and balance sheet resilience. Deposit to loan above 100% or loan-to-deposit below 100% are levels that have been committed in the past and will continue to be in the future. Across the group, we expect growth trends to remain broadly consistent with '25 levels and year-on-year for the first quarter, with Portugal and Ireland continued to deliver a strong performance and Spain maintaining solid momentum, particularly in corporate banking. With respect to NII, the continued volatility in interest rates means that visibility over the coming quarters remains still limited. However, current levels of forward curves anticipate potential rate increases that are supportive for NII in coming quarters. We continue to manage customer margin towards the 270 basis points or above. In this context, rather than providing new guidance on NII levels, we remain focused on the levers that we can actively control, which are pricing discipline of the assets and liability, customer margin management and prudent balance sheet optimization. As a result, NII should continue to be driven primarily by volume evolution rather than by changes in pricing or margin assumptions. We expect quarter-on-quarter NII growth during the quarters in 2026. Beyond NII, we remain confident in our ability to deliver high single-digit growth in fee income, supported by our diversified business model and strong customer engagement. Recent corporate transaction on the alternative investment front is a good example of our strategic focus on recurring growth on the wealth management business. At the same time, we remain fully committed to delivering positive operating jaws in 2026 with a cost-to-income ratio expected to decline below 35% for the year, supported by simplification of our business organization and the combination of talent and technological investments. In terms of asset quality, our outlook remains stable. We do not see any signs of deterioration in credit quality, and we expect the cost of risk to remain around current levels. In this quarter, we keep improving our capital position, maintaining strong levels of capital buffers and MREL ratios. And finally, we expect return on tangible equity to remain above 20%, reflecting the underlying strength of our business model and supporting continued attractive value creation for shareholders. Now Gloria, back to you, please. Gloria Portero: Thank you, Jacobo. Well, this final slide captures the essence of this quarter, resilient performance and sustainable value creation. Even in volatile geopolitical and uncertain macro environments, our returns remain high and sustainable, supported by best-in-class efficiency, strong asset quality and solid capital ratios. RoTE stands at 20%. Shareholder value continues to build with dividends up 25% year-on-year. This consistency is not cyclical. It reflects a deliberate way of running the bank, prudent risk management, capital allocation based on risk-adjusted returns and continued investment in efficiency and organic growth. Together, these elements explain why our model delivers consistently and support our confidence in continuing to create sustainable value in 2026 and the years ahead. Well, thank you, and it is back to you, Laurie, so that we can kick off the Q&A. Laurie Goodroe: Thank you both, Jacobo and Gloria. We'll now initiate our live Q&A session. [Operator Instructions] Laurie Goodroe: Our first caller we have is Maks Mishyn from JB Capital. Maksym Mishyn: Two questions from me. The first one is on deposit growth. There was a notable slowdown in the quarter despite several digital campaigns that you've launched. I was wondering what was the reason and how you see the remainder of the year. And the second question is on your expectations for customer spreads for the remainder of the year. If you could just walk us through loan yields and deposit costs for the next quarters, that would be super useful. Gloria Portero: Hello, Maks. I will answer you the first question, and then Jacobo will answer the second one regarding customer spreads. Well, listen, we have very -- the first thing is that we have very comfortable liquidity ratios, as you might have seen in the presentation. I think, in the annex, we have an LCR over 200%. And well, we have a loan-to-deposit ratio below 90%. We have given priority this quarter to actually accelerate the change in mix in our retail funds. You have seen there is quite marked decline in deposits. So we have been reducing the duration of our deposits. And also giving greater weight to more atomized and less sensible deposits. So we feel very comfortable with the liquidity ratios we have. We will continue to work on the cost and sensibility of our deposits in future months. So we will obviously maintain, as Jacobo has said during his presentation, we will maintain our commitment to have a loan-to-deposit ratio below 100% and solid LCR ratios. Jacobo Díaz: Good morning, Maks. Taking your question on the evolution of the customer spread. I guess, first of all, the commitment to reach an average this 270 bps or above client margin spread for the year. And the trends in the lending yields are, I would say, positive in the sense that with the current levels of rates and the expected level of rates, definitely, there is a tailwind in positive repricing. First of all, in our -- in the corporate banking activity that tends to reprice faster. And then, of course, in the mortgage activity in the mortgage book that reprices with a little bit slower, but in a positive way. So in the sense of the lending yield, we should see a slight recovery or a slight growth over the following quarters. In the sense of the customer -- of the -- sorry, of the deposit cost, deposit cost, we've ended the quarter with 80, 81 basis points. We think this is a quite reasonable level where we can be. There might be a little bit room still for reduction, but this volatility in rates might be a little bit challenging for at least the second half of the year. We need to wait and see the evolution of rates. But again, our target is to ensure levels of 270 bps of customer spread. We know that the lending yields are going to be supportive, and then we will manage proactively pricing in the deposit cost to ensure that we achieve this level or even above following or monitoring the current level of rates and the expected rates. Laurie Goodroe: Our next question comes from Francisco Riquel from Alantra. Francisco Riquel Correa: My first question is a follow-up on customer funds. I see that salary and online deposits are up EUR 9 billion year-on-year. Total deposits are up just EUR 1 billion. So that means probably strong outflows in corporate deposits. If you can please comment on the pricing actions, both in retail and in corporates. And also, if you can also comment on net new money flows into wealth management because I don't see that outflows out of term deposits are retained within the bank. And my second question is if you can please elaborate more on the strategy and the return on investment that we should expect from your recent corporate transactions in alternative investments. Gloria Portero: I will answer you the first question because probably it wasn't clear enough. Well, regarding net new money flows, there has been a very strong commercial activity, over EUR 1 billion transformation in -- from deposits to our loans. But obviously, you don't see that movement because the market has detracted more or less the same amount. So this is why there is no movement from December to March. But as I've mentioned, the -- I don't have the exact figure here, but it's between EUR 1 billion and EUR 1.5 billion of net new money in funds in off-balance sheet funds. So -- and with respect, you're right, I mentioned that we are -- what we are doing -- you're right, there has been a drop or outflows in corporate funds because we are prioritizing smaller amount with less sensible to interest rates. So basically, we are growing in payroll accounts. We are growing in SMEs in transactional accounts and also in medium-sized companies in transactional accounts. So we are giving, as I've mentioned, priority to these type of accounts that are transactional and therefore, less sensible to interest rates. But there has been an important outflow as well to off-balance sheet funds of around EUR 1 billion, EUR 1.5 billion. I think -- I hope I've answered. Jacobo Díaz: [ Paco ], taking your second question, I'm not sure if it's -- I took the right way. But basically, I mean, definitely, this business of alternative investment fund is a business that generates a quite high and sustained return on equity. This is a quite attractive business from our perspective. We -- as we had mentioned in the presentation, we want to be the leader of alternative investment in Iberia. Definitely, this will provide sustained high level of fees in the long term. We think there is a huge opportunity in Iberia to progress in the development of these type of products. We provide access to investment of real assets to Spanish and Portuguese people in terms of retail clients. Of course, this is not a product for everybody, but we think there is a huge evolution and a huge potential in this business. Taking these strategic transactions, we are bringing all the know-how from our partners into the company, into the bank, and that provides us the full potential of building and developing new type of investment funds in the short, in the medium and the long term. And I think this is a huge opportunity to bring on board capabilities that the bank doesn't have today and to ensure that we can build and distribute this type of products. We are, as you know, investing in renewables, in infrastructures, in spaces, in everything. And these 2 partners are one of the leaders in Europe in these type of assets, and that's why we are achieving transactions with them. I hope I have answered. If not, I will talk later. Laurie Goodroe: Our next question comes from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: A couple of questions from me, please. Gloria, I think you said at the beginning that you're not expecting an impact on consumption, but you're seeing some prudence. Can you maybe talk us through what you saw -- what we've seen during March and maybe early April. I don't know if it's sort of deposits movements, appetite for loans or fees, maybe what you were referring to around that prudent statement? And then the second question related is when I'm thinking about the potential updates or changes to guidance that you referred to Jacobo in Q2. Are we thinking about sort of fees impact? Or can you give us a sense of in an IFRS 9 world, what the sensitivity could be to provisions if, I don't know, 50 basis points change in GP or something along those lines that gives us a sense of direction. Gloria Portero: Alvaro, when I'm saying prudence, actually, what I refer is that probably the consumption will continue to grow, but not at the same pace it has done. So it will not contribute in the same way to overall economic growth. We are not seeing really any signal in the reduction of the appetite for loans or for lending and not really any changes from last quarter. But when I say prudence is what I see in the streets and what the statistics start to say. So I don't think there is any alarm sign or anything at all. And my prediction is that consumption will grow, but not at the same pace as last year, and therefore, the contribution in GDP growth will be a bit lower than it has been. But GDP growth will still be robust and I think enough, of course, to deliver our targets. Jacobo Díaz: Good morning, Alvaro. Yes, just to clarify, I mean, we think that in 3 months, so many things have happened in terms of volatility in the market that it's probably not very prudent to change our guidance so soon. But my words were oriented to the rate environment and the volatility of rates that we are currently under expectations of potential interest rate rates in the coming months. And that is my comment about. We are not expecting for the time being any changes in fees. I think I've been very clear in terms of efficiency and in terms of cost of risk. And obviously, my comment is related to the NII guidance and the possibility to have more tailwind in coming quarters if rates continue to be high or stay high for longer. Laurie Goodroe: Our next question comes from Marta Sanchez Romero from JPMorgan. Marta Sánchez Romero: So my question is on capital. You're building capital at a faster pace than expected. I understand there will be seasonality in Q2 and Q4. But could you give us a sense of the capital generation you expect after funding growth and a 50% ordinary dividend? And related to this, can you remind us about your capital allocation priorities? You will be spending roughly 20, 25 basis points on the olds acquisition in Q4, but still that leaves you space to do more things, considering that you want to stay at around 2.4%, 2.5% core equity Tier 1. So can you remind us on your priorities, any bolt-ons that you could consider, what areas, businesses, et cetera? And when, if any, time would you consider to repay surplus capital to shareholders? Gloria Portero: Marta, yes, actually, there has been a very strong capital buildup this quarter because, as you know, traditionally, the first quarter has some seasonality in credit. Actually, we have done a much better quarter than we thought we would do taking into account the seasonality in the past. So we have done better in credit. So regarding our -- and you are right, sorry, that we will have to allocate 25 basis points next quarter to this -- well, next quarter or when it is -- when we have the regulatory go ahead, which will be, I think, in the next quarters rather probably next or the other, the following. Where are we allocating capital? We are allocating capital in the geographies where we see there are profitable opportunities like, for instance, in Ireland. As you can see, we continue to grow at double digit at 20%, 23%, 27% in mortgages. And we will continue to grow at that pace. In Portugal, we think we have opportunities to continue to grow also at double digit. And we think we will do better in corporates and enterprises than this quarter. So this means a little bit more capital allocation following quarters. And in Spain, given the situation in mortgages, where we see that the prices continue to be below -- well, below cost, cost of risk and not only cost of credit risk, but also including everything that has to do with maturity mismatches and interest rate risk. We are actually investing heavily in enterprises and corporate banking, where you have seen we are growing at a very -- I mean, at a higher digit than usually. Said that -- so we think that we will be -- we will have a comfortable management buffer. For the moment, we are not changing our dividend policy, which you know it is cash 50% of net profit. But don't forget that we have the main shareholders sitting at the Board of Directors. So if there is excess capital, obviously, we will give it back to our shareholders as we've done in the past. I mean, remember that Linea Directa deal was actually an extraordinary dividend. So well, this is more or less, I think I've answered. So I don't know if you want to add up anything, Jacobo? No. Okay. Jacobo Díaz: I think you've been clear. Laurie Goodroe: Our next question comes from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. So my first question would be on the customer margin versus NIM. We've all been very focused on the customer margin, and we saw a significant improvement this quarter, but the NIM was very flat quarter-on-quarter. So could you just kind of discuss what the delta is and why the NIM didn't improve this quarter and how we should think about the NIM improvement going forward? And related to that, could you also discuss your rate sensitivity and how we should think about kind of higher rate impact on your net interest income, but also on the customer margin and NIM? And then my second question would be on kind of cybersecurity. We have seen headlines about some of these AIs that can kind of penetrate banks very quickly. What are you doing to ensure that your cybersecurity is top notch? Jacobo Díaz: Thank you, Sofie. I'm going to start with your last question in terms of cybersecurity. I know this is a hot topic with latest news about Claude and Mythos. Basically, here, what has fundamentally changed I mean, Mythos does not represent a fundamentally new category of risk, but there an acceleration of existing cyber threats through AI automation. So what really changes is the speed, not the nature of the attack. So the point here is in order to react, it's just basically with the same tools, trying to be much more agile and much more quick in the execution of the responses. So basically, the bank, ourselves or other banks, what they need to do is to move faster in the responses. So from manual responses to automated responses, behavior-based defense to integrate AI into security operations, of course, maintain human side. But basically, this is the type of reaction. And I think also the type of reaction is not just a bank on bank individual type of reaction. I think this topic needs to be faced in a much more global approach in approach of an industry, of a country of an entire Europe because all these threats, all these threats is not just a threat to the banks. It's just to the whole economy. So basically, this AI threat just changed the tempo of the cyber risk, not these fundamentals. And the right response is just basically make sure that there is a coordinated automated defense from all the industries and countries and basically reinforce resilience. So the tool may be a new tool for the attackers, but it's also a new tool for the defenders. So I'm sure that everybody will accelerate this -- the use of this new technology to accelerate the execution of the defense. Okay. So related to the sensitivity. Sensitivity, we are around 3% for an increase of 100 basis points. I think that was your question. And in terms of NIM, it's just basically an activity on -- it's trading activity that has increased the volumes of non-client activity has increased volumes in the asset side and in the liability side, and that has increased a little bit volumes and therefore, maintain the NIM at current levels. But the most important thing for us is that the customer margin has been recovery, that the weight of the client activity in our balance sheet tends to be one of the highest, if not the highest. And for us, that is really, really important. So we -- as I mentioned before, we continue to expect quarter-on-quarter growth in NII for the coming quarters until the end of the year. Thank you. Laurie Goodroe: Our next question comes from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: I just have 2 questions. One is on Ireland. If you could please give us a bit of an update on your views in the country? And what should be the opportunities that you could see now after the corporate transaction and corporate movement announced by Bawag last week? And also if you could update us on the deposit strategy and the capacity to gather deposits there, when we should see a pickup on deposit growth coming from Ireland. And the second topic, it's on the ALCO. I have seen that you have increased slightly the ALCO in the quarter. If you could just remind us a bit what will be the expected contribution for the year. And also, what would be the capacity to increase that from here onwards? Gloria Portero: Ignacio, I will take your first question. In Ireland, we continue to see a lot of opportunity going forward. Basically, actually, there was very -- as I've always said, the competition, it's not as a competitive market as it is in Spain, let's say it this way. Actually, the margins, for instance, in mortgages are much higher. We are allocating more capital into this business. The recent transaction of Bawag acquiring PTSB actually is another great opportunity in the sense that PTSB needs a very heavy restructuring. And as we have seen in the past here in Spain and many other -- also in Portugal, when a bank is restructuring, clients are not served properly and therefore, the customer attrition is higher. So we will take advantage of that situation in the next months. With regard to deposits, we have been testing deposits since I think it was late 2025. And with existing clients by invitation because we wanted to test because we have a completely new platform overall and obviously, a new product. And we also wanted to test all the marketing processes as well. We launched it to open market in February, I think, but also with very little or almost no, I would say, marketing expense. We have around EUR 50 million in deposits at present. And what we want to test is the system at maturity of the of these deposits before we enter in the market in a mass mode. So this will be in the next -- because most of these deposits have been signed 3 or 6 months, max. So this will be in the coming quarter. We have also -- now we are testing a simple current account, which have already constructed. And we will probably by the summer or maybe probably after the summer because the summer is not the right month to launch these things, we will launch it to the market. When we have current accounts, it is when we will launch a more aggressive deposit-taking value proposition. So for the moment, you will just expect these little amounts to grow by a great percentage, by a low amount because what we're doing is testing our systems and also our marketing processes. Jacobo Díaz: Good morning, Ignacio. Regarding the ALCO portfolio, the ALCO portfolio, as you know, has a volume which is limited to 2.5x our equity. So since our equity keeps growing quarter after quarter, there is an opportunity to grow a little bit the ALCO portfolio. So just -- we don't expect to go far away or above that limit. So whatever increases in the ALCO portfolio, they should be expected to be some sort of limited. The current yield is around 2.5%. Expectation is that we can continue to have this level or even a little bit higher during the coming quarters, but no basic changes in the structure of the type of assets that is in the ALCO portfolio. Laurie Goodroe: Our next question comes from the Cecilia Romero from Barclays. Cecilia Romero Reyes: My first one is on asset quality and credit risk. I mean, SME lending has been an important growth engine for Bankinter. And now as macro uncertainty has increased, how do you see credit risk evolving within the SME book? And are there any particular sectors where you are becoming more cautious? And my second question is on cost. I mean you have highlighted a medium-term ambition to move cost-to-income ratio towards 30% over the next 3 to 4 years, which I don't think is reflected in consensus. Is this still realistic given higher inflation environment? And what -- could you explain us what are the key levers that will get you there? Gloria Portero: Cecilia, thank you for your question. For the moment, we are not seeing any warning signs in asset quality in any of the business segments actually. Nevertheless, the situation is such that, obviously, there could be some economic contraction -- I mean, some economic impact of all these geopolitical events that are happening. And therefore, we are being very cautious, and we've already told you, I think, in past webcast with consumer credit and particularly what we call open market, which is not within our franchise of clients banking there. So there, we are being very, very cautious. We are actually reducing exposure. With respect to SMEs, you're right, it is also one of the weakest parts of the economy. And what we are doing is actually also being very cautious. In SMEs, below EUR 2 million of turnover. And we are focusing our growth in companies above EUR 30 million of turnover and also increasing a little bit our exposure to the public sector because actually, most of -- a lot of the investment in the economy is done by the public sector at present. So just to wrap up, we don't see signs of asset quality deterioration, but we think it is wise to be prudent with consumer credit in open markets and also in smaller SMEs. Jacobo Díaz: Regarding your second question about the cost-to-income ratio and the ambition, we definitely -- this is our ambition. And of course, we do expect that the combination of talent and technology allow us to provide year after year the enough space between the growth of income and the growth of cost to achieve this target. So we keep maintaining our positive jaws during the following years. As you've seen in the P&L that in this quarter, there is more than 3 points of difference between the growth of income and the growth of the cost. So this is something that we believe we can sustain. Of course, investment in technology, but also the organizational simplicity is a key driver of this achievement. Organizational simplicity from a legal perspective, of course, but also the limited number of branches that we have and the enhancing of the digital business also is a great opportunity to achieve this. You mentioned inflation. So we do expect some inflation, as you know, but some temporary inflation. We do not expect inflation to stay at current levels for a long period of time. So we can basically deal with it. And yes, I mean, it's our ambition, and we think it's absolutely achievable. Laurie Goodroe: Moving to our next question from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: A couple of questions from my side. One of them would be a follow-up on the interest rate sensitivity that you mentioned, so 3% for 100 basis points rise. I was just wondering, this is in a 12- or 24-month period? And maybe if you could give us just some highlights on the assumptions behind those -- that sensitivity. Finally, particularly on deposit costs and all of that. And then the second question on the cost side as well. So this 3% increase that we saw in total cost in the first Q., should we take it as a reference for the full year? Do you think costs might accelerate throughout the year? Just a bit of a view on how you see that evolving? Gloria Portero: With respect to costs, we are targeting lower increases year-on-year in 2020 -- this year. So you should expect a reduction of the pace of growth in costs. And I think you can make a point on your -- the rate sensitivity he's asking. Jacobo Díaz: And regarding the rate sensitivity, yes, good question, just to clarify my comment. So the rate sensitivity is around, as I mentioned, 3% for 100 basis points increase in 12 months. So if we were to measure this in 24 months, it will be close to 7%. Laurie Goodroe: Our next question comes from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly, on the deposits. Could you please remind me of the -- regarding your digital account deposits, which were the volumes and the average cost as of March? And also on this point, could you update on the competitive dynamics in the digital deposit market in Spain. So for example, who -- where are you seeing greater push on this side? And then my second question would be on rate sensitivity. If you could kindly provide a bit more details on the floating rate loans because I think you have a greater portion of floating rate loans. And within corporate and SME, I think given the fact that it's more focused on short-term working capital loans, I think it reprices faster than peers. So if you could kindly provide more details. Gloria Portero: Borja, thank you for your question. And I will be answering the one regarding deposits. Well, the digital organization where you have all online deposits, whether they are the ones coming from EVO or the ones that we acquired with the digital organization the last year already has EUR 11.7 billion in deposits. The average cost of all of this EUR 11.7 billion is 1.39% and it's going down. Competitive dynamics. Well, this quarter, we didn't launch a major campaign with high marketing costs. Obviously, we have always ongoing campaigns. So what we see are the higher competitors this quarter have been in the traditional banks, ING and probably, I would say, Sabadell also had a campaign this quarter. Also Openbank from Santander. And then you have the digital banks or the neobanks. But the major -- I would say, our major competition at present, the ones that take or to whom we take deposits are traditional banks. Jacobo Díaz: Regarding the rate sensitivity, you mentioned the floating rates levels in credit in -- or sorry, in SMEs or corporate. Let me just clarify. I mean, of course, working capital facilities tend to be short-term funding or lending that, I mean, in 90 days might change the rates. So that has a faster repricing. But in lending, for example, in SMEs, there is a strong level of real estate guarantees, which tends to be mortgages. So I would say that the corporate banking book has a faster repricing than the SME book. I guess that this is your question. Of course, we have the floating rate mortgages, as you know, and everything related to credits that tends to reprice faster. But for example, in the SME activity, we have at least almost 3/4 of the lending book tends to be guaranteed with real estate positions. And that means these are mortgages, and that means that it takes longer the repricing of the SME book. Laurie Goodroe: Our next question comes from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: The first one would be a bit of a follow-up on the alternative investment transaction. And sorry to go back to the topic, but it would actually be quite useful to understand a bit more of the kind of line-by-line financial impacts of the transaction that you expect in coming years, both on the revenue and the cost side. And then the second one would be a bit of a follow-up as well on some comments that I believe Gloria made last quarter. I think, Gloria, you mentioned you were working with some of your insurance partners to improve or review some of your agreements at that time and see how you could impact -- how could you change your current agreements. So I just wanted to know if there had been any updates on that side of the business on insurance income. Gloria Portero: Yes. I mean, actually, I -- we have signed, I would say, an agreement with Generale in Portugal for non-life insurance, and this will be fueling growth in insurance in Portugal in the next months. So yes, yes, we have made progress there. And we are working in Ireland. That is also one of our strategic lines. For the moment, we are not commercializing insurance, but also to be commercializing insurance to our clients in the future. And in Spain, well, I think that we are doing quite well, growing, most of the growth that you have seen in the presentation, this 8% growth in insurance actually has to do most of it with the Spanish market. Jacobo Díaz: Coming back to your question of alternative investment. We are pretty active on this type of business. So once all -- we get all the authorizations for the transactions that they might be finalized by the end of the year, what we do expect is to start generating around EUR 1 billion of new volumes every year in the future. As I mentioned before, this is a quite good business in terms of the level of fees and the stable level of volumes that we can manage. So this is a great opportunity for us to build up a very good business. In fact, we just launched a new product in Spain called FIL, F-I-L, which is an alternative investment fund to reach retail type of clients that can be switched or moved from fund to fund. So it is a great opportunity. We have similar levels of ambitions with this new product that we've launched. Again, this is a clear message of the focus that we want to put in this type of business in wealth management in general, but in this type of business, we think Bankinter has a great opportunity and plenty of new income to come with a great return on equity. Laurie Goodroe: Thank you. Let's move to our last calls, and we have 3. First is from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: First one is if you can give us the stock of the treasury deposits at the end of Q1, the one which is embedded within your side deposits that are remunerated. And if we should be expecting additional reductions in coming quarters on this deposit book? And then the second one is a follow-up to Cecilia's question on costs. I mean, how do we need to think about kind of logical evolution of headcount levels alongside the implementation of AI in the bank? Are you expecting a gradual reduction of staff personnel levels? Or do you think actually you're going to have to be replacing people leaving with new hires? Gloria Portero: Ignacio, with respect to treasury accounts, we have around EUR 11 billion. And this quarter, it has gone down by EUR 1 billion. We don't expect major reductions in this line around maybe 10% or something like that because we have already done quite of the work that needs to be done in that portfolio. So -- and with the other thing with respect to headcount. Listen, we are increasing headcount in Ireland, and we are increasing headcount in Portugal. In Portugal, for 2 reasons. We were keeping the same commercial workforce that we had in 2016. So obviously, there is a moment if we want to continue to grow and maintain the quality levels, we need to enforce, we need to reinforce the team, the commercial team. The second in Ireland, it's obvious. We are expanding our activities to be a full-fledged bank. So obviously, we need to increase also the headcount there. We are talking around 30 per country, where we are seeing that the headcount is stagnating is in Spain. We don't foresee reductions of headcount, but we don't see either increases as the business grows. So we think that much of the efficiency will come from -- in the Spanish operations. Laurie Goodroe: Our next question comes from Hugo Cruz from CBW -- KBW, sorry. Hugo Moniz Marques Da Cruz: I was wondering if you could just give a bit more color on your loan growth dynamics by product over the rest of the year. You're growing 5% year-on-year, but with the macro potential, we could see a slowdown even if you keep at mid-single digits. So if you could give a bit more color. Gloria Portero: We keep our commitment to grow this mid-single digit around this 5-ish percent. And we think we still have opportunities to grow in profitable business lines, like I've mentioned, mortgages in Portugal, mortgages in Ireland, but also enterprises in Portugal and a lot in Spain in greater -- for companies over EUR 30 million turnover and also a bit more in the public sector. Laurie Goodroe: And our last question comes from Britta Schmidt from Autonomous Research. Britta Schmidt: Just quickly coming back to the deposits. Could you give us the split of the deposits into corporate and retail where they are now and where they would be, for example, by year-end. And you mentioned that you're changing the mix to more atomized deposits. How do you think that would impact your deposit beta? It peaked at something more than 50%. If we were to see rate rises, do you think the deposit beta would be substantially lower, slightly lower. And even with these changes that we're seeing, do you still prefer to manage your NII sensitivity at around the 3% level for 12 months? Or could we see that improving? Jacobo Díaz: Now regarding the beta, as you know, it depends how you make your calculations. Today, we are around 80 bps with the current level of 2% in ECB rates that gives you a ratio of around 40%. So we do estimate this 40% to keep going down in coming quarters. So whatever increase in rates that might happen, we estimate that no more than 10% of that increase in rate could be -- could potentially impact the cost of deposits. So beta is going to continue to go down over the next quarters. Gloria Portero: With respect to the mix, I don't really have what the mix is between big corporates and because what we call retail includes also SMEs. So I don't have the exact figure. I think, yes... Jacobo Díaz: We'll come... Gloria Portero: We will come back to you later with. But yes, I mean, you can expect a reduction in bigger corporates and you can expect an increase in what we call retail or transactional accounts, which include, obviously, SMEs and also retail. Laurie Goodroe: Thank you. Thank you, everyone. Thank you, Gloria and Jacobo. And that now concludes our session. And on behalf of the entire Bankinter team, we thank you again for your interest and participation in the webcast. Everyone, please have a great day. Jacobo Díaz: Thank you very much. Bye. Gloria Portero: Bye.
Operator: Good morning, ladies and gentlemen, and welcome to the Q1 2026 Live Oak Bancshares, Inc. Earnings Conference Call. At this time, note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require immediate assistance, please press 0 for the operator. Also note that this call is being recorded on Thursday, 04/23/2026. I would now like to turn the conference over to General Counsel Gregory Seward. Please go ahead, sir. Gregory Seward: Thank you, and good morning, everyone. Welcome to Live Oak Bancshares, Inc.'s first quarter 2026 earnings conference call. We are webcasting live over the Internet, and this call is being recorded. To access the call over the Internet and review the presentation materials that we will reference on the call, please visit our website at investor.liveo.bank and go to the Events and Presentations tab for supporting materials. Our earnings release is also available on our website. Before we get started, I would like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call and our SEC filings. We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of today's call. Information about any non-GAAP financial measures referenced, including reconciliations of those measures to GAAP measures, can also be found in our SEC filings and in the presentation materials. I will now turn the call over to our Chairman and CEO, Chip Mahan. Chip Mahan: Good morning, everyone. Team Live Oak is excited to tell you about our performance for the first quarter. Things are a little bit different today. Our President, BJ Losch, is a bit under the weather and, predictably, he is dialing in remotely. He will start us off with a few overarching comments, and we will hand it over to Walter Phifer, our CFO, for some numbers, and all of us, including Michael Cairns, our Chief Credit Officer, will be available for questions at the end. BJ, over to you. BJ Losch: Great. Thanks, Chip. Good morning, everybody. Thanks for joining us. Let us get started on slide four. Our plan to create more sustainable earnings momentum is really working, as you can see in our earnings trends, with reported EPS of $0.60 for the quarter and even stronger performance from the core operations. Our lending businesses continue to put up strong numbers, our credit trends are stable to improving, and we are continuing to ramp up small-dollar SBA lending. Checking is having a meaningful impact on our results with far more to come. And as you would expect from Live Oak Bancshares, Inc., we are continuing to find ways to innovate and stay at the forefront of technological changes. Turning to slide five, you see the earnings momentum continues. And as proud as I am of our loan production results, what matters most is how you translate that into profitable operating leverage and strong credit quality. As you can see on slide five, those results are outstanding, with adjusted PPNR up 30% over this time last year and adjusted EPS almost doubled from this time last year. On slide six, you can see our credit trends over ten years relative to all other SBA lenders, and while default rates have moved higher over the last two years, Live Oak Bancshares, Inc.'s performance has been modestly improving despite a difficult backdrop for small businesses. The steady improvement in our provision, reserve coverage, and past dues reflects this. Over the last several quarters, we have been sharing with you progress on two key initiatives: checking and Live Oak Express, our small-dollar 7(a) program. Both of these efforts launched in early 2024, and in just 24 months, our teams have made significant gains in winning customer checking relationships and serving more small business borrowers. That sounds great, and it is. But why is it so important to us? Two big reasons. Number one, if we are going to be America's small business bank, we have got to offer all the primary products they need. And number two, they are both highly accretive to our earnings profile and will provide a long-term tailwind to our earnings. We started with virtually no noninterest-bearing accounts two years ago. We now have over $400 million and growing. That means we do not have to raise $400 million of market-rate savings, CDs, or brokered deposits to fund our growth. If you do the math on that cost of funds impact, it is meaningful. And we are only at 4% of noninterest-bearing to total deposits. Our goal is over 10%. On a current $14 billion deposit base, that is a huge opportunity to be the primary bank for our customers and significantly improve our funding profile. With Live Oak Express, we are serving more small businesses that need capital to grow, and these smaller loans are highly desirable on the secondary market, with premiums in the 9% to 13% range. As you can see on slide eight, we have sold $140 million of these so far. Our goal at cruise altitude is to produce at least $750 million of loan production in these small-dollar loans annually. Again, if you do the math on that kind of volume with those kinds of premiums, the earnings impact is substantial. I am very pleased with our results and momentum, and as always, a big thank you to all Live Oakers. I could not be prouder of how our people are taking care of customers, making our operations better, and profitably growing our company. With that, Walt, how about running through some of the financial highlights? Walter Phifer: Thanks, Vijay. Morning, everyone. Outlined on page 11, our first quarter continued to highlight the strength of our core earnings profile. Diluted EPS was $0.60 in Q1, approximately a 3x increase compared to the prior year, and adjusted EPS was $0.70, up 8% from Q4 and 94% from Q1 last year. Driving this EPS accretion was an outstanding 18% year-over-year growth in revenue, while expenses only grew 6%. As a result, our Q1 reported PPNR of $60 million was 43% higher than 2025, while adjusted PPNR was $66 million, up 30% year over year. On the balance sheet front, our loan book grew 2% quarter over quarter and was up 14% compared to March 2025. Customer deposits grew 3% linked quarter and 13% year over year, and as Vijay mentioned, we continue to be proud of the growth in our noninterest-bearing checking balances, increasing 9% linked quarter and 47% year over year. Lastly, credit trends were stable with provision expense improving slightly to $20 million, better than market expectations. The key takeaways for the quarter are that core earnings were sharper, year-over-year revenue growth was fantastic and mostly driven by recurring net interest income, expenses were well controlled, credit trends remain stable, and our key growth initiatives—checking and small-dollar SBA lending—continue to move in the right direction. Now let us get into the details on the following pages. Page 12 highlights another strong quarter of diversified loan originations with broad-based contribution across our lending teams. We originated approximately $1.4 billion of loans across 35 industries in Q1, which speaks to both the breadth of our platform and the consistency of the demand in the market. Our pipeline is currently at an all-time high, which continues to support our confidence in the forward growth outlook. While page 12 focused on loan production, page 13 illustrates the strong, durable growth on both sides of the balance sheet. Loans ended the quarter at approximately $12.6 billion, up 2% linked quarter and 14% year over year. Our portfolio mix remained very consistent, with 64% of our loan book in our small business lending segment and 36% of our loan book in our commercial lending segment. As a reminder, 30% of our loan book is government guaranteed, a key differentiator of our balance sheet versus the industry. Customer deposits ended at approximately $9.9 billion, up 3% linked quarter, roughly in line with our loan growth. The reported loan growth rate was a little more muted than the underlying production would suggest and was primarily a timing function of elevated payoff activity during the quarter related to some larger loans across three verticals and was largely anticipated. We view this level of paydowns as an outlier and not as something that should persist at the same rate going forward. Our net interest income and margin trends are detailed on page 14. In Q1, net interest income was approximately $119 million and our net interest margin was 3.27%. While we mentioned in our Q4 2025 earnings call that we expected our net interest income in March to step down following the 50 basis points of prime loans repricing on January 1, both our net interest income and margin outperformed expectations. More importantly, from a year-over-year perspective, net interest income is up 19%, while net interest margin is up seven basis points, illustrating strong recurring revenue growth and improved pricing discipline. As detailed on the roll-forward on the bottom right of the page, the linked-quarter move was really a function of several offsetting items. One item to note here is the negative $2.5 million impact from day count in Q1, which is just a product of seasonality. Normalizing the number of days between 2025 and 2026, the extent of compression would have been muted. Ultimately, I think our net interest income profile remains very healthy and year-over-year growth is strong. If the forward curve holds true, a flat interest rate environment should be a good backdrop for our net interest income and NIM profile in 2026. Moving over to guaranteed loan sale trends on page 15, from an absolute performance standpoint, this was a good quarter. Gain on sale was up 25% linked quarter and in line with 2025, as we guided in Q&A during our last earnings call. SBA premiums remain steady, and Live Oak Express continued to be a meaningful contributor. Our gain on sale has remained between 10% to 13% of our total revenue over the last 12 quarters, generally with a slight stair-step upward trajectory throughout the year. We expect 2026 to be no different. Bottom line, gain on sale was up linked quarter, in line with Q1 of last year as we guided, we expect a slight stair-step up each quarter as the year progresses, and we continue to see strong contribution from Live Oak Express. Expense and efficiency trends are detailed on page 16. Total noninterest expense was approximately $85 million in Q1, down from $89 million in Q4, while our Q1 efficiency ratio was 59%, which is about seven points better than Q1 of last year. Our focus on operating leverage continues to be the primary driver of our efficiency improvement year over year. Since Q1 of last year, revenue growth has outpaced expense growth by about 3x. That is exactly the trend line that we want to see. We are continuing to invest in growth, technology, and innovation opportunities across the business, but we are doing so in a way that is driving better scale, better efficiency, and a stronger earnings profile over time. Turning to credit on page 17, the key message on this page is that we view our credit trends as stable and our reserve position remains healthy. As you see highlighted at the top of the page, our unguaranteed allowance for credit losses to unguaranteed loans and leases held for investment ratio is 2.14%. Provision also moved down to approximately $20 million compared to approximately $22 million in Q4 and $29 million in 2025. From an underlying credit trends perspective, the over-30-day past due ratio improved to four basis points, which is an excellent result and below our typical assumed range of 10 to 30 basis points. The nonaccrual ratio was 102 basis points, up modestly quarter over quarter, with 27% of the nonaccruals being derived from verticals that we have since exited over time. Lastly, the net charge-off ratio was 63 basis points for the quarter. While the underlying credit trends are important leading indicators, they do not quite illustrate the true risk as things like collateral and already established reserve coverage on the underlying loans are not reflected within these ratios. However, all of these metrics and underlying factors are considered collectively within our ACL coverage, and the fact that our coverage ratio along with our provision expense trends have been relatively stable to improving over the last five quarters supports our portfolio stability sentiment. We are, of course, monitoring macro developments closely, but sitting here today, we feel good about the health of our portfolio, the low level of delinquencies, and the reserve position we have built. Capital levels remain healthy and robust as shown on page 18, with quarter-over-quarter risk-based capital ratios improving approximately 10 basis points while our Tier 1 leverage ratio remains stable. As highlighted on the left side of this page, we also continue to think the maintenance ratio is a very helpful way to frame the strength of our differentiated balance sheet, as approximately 40% of our assets are in cash, government-guaranteed investments, or government-guaranteed loans. In Q1, our Tier 1 capital plus allowance for credit losses and fair value marks—our maintenance ratio—totaled 16.7% of unguaranteed loans and leases. That is strong capital coverage against the true risk on our balance sheet. Just to recap the quarter, we view Q1 as another step forward in building sustainable earnings momentum. The core performance of the quarter was strong, our key growth drivers continue to build, credit and capital remained stable to improving, and we remain very focused on executing against the opportunities in front of us. Thank you to the Live Oak team for another strong quarter. With that, I will turn it back over to BJ. BJ Losch: Great. Thanks, Walt. Let us go to the questions. Operator: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star 1 now if you have any questions. Thank you. First will be Eric Spector at Cantor Fitzgerald. Please go ahead, Eric. Eric Spector: Hey, good morning, guys. This is Eric dialing in for Dave. Thank you for taking the questions. Maybe just starting off on the NIM. With the Fed on hold, could you walk us through the key drivers of what would allow NIM to stabilize near term and then improve later in the year? And then just talk us through the dynamics of specifically how much is coming from growth, wider loan spreads, or funding mix improvement. Walter Phifer: Great question. Hey, Eric, this is Walt. A flat Fed environment helps stabilize our NIM and net interest income and ultimately benefits our profile, as it allows loan growth to become the primary driver, not Fed action. To put that in context for 2026, keeping consistent with commentary from our last call, assuming those flat rates, we would expect margin to stabilize here in the near term and then allow the loan growth levels to influence the level of expansion as the year progresses. If you think through the different factors, with a flat rate environment, loan yields can stabilize because you are not getting that downward repricing pressure that we saw in Q1 and at the end of last year. The deposit market is competitive. That is an area that we spend quite a bit of time monitoring and making sure that our flows make sense and are supporting our growth, but we feel really good about our positioning in that space as well. From a growth perspective, the vast majority of any expansion in NIM going forward will be highly growth-driven. If you have followed our story, growth for us is pretty impactful from a margin standpoint, and we expect that to continue. You can look at prior years’ flat interest rate environments to get a sense of what the impact would be. Eric Spector: Great, that is helpful. And then maybe switching gears to loans. I know you mentioned pipeline levels are at all-time highs, and it remains strong and diversified. Can you help us think through how much of the pipeline strength is translating into near-term production, and do we see enough visibility to support low to mid-teens growth in a stable rate environment? And then maybe help us think through the cadence of growth throughout the year. Walter Phifer: I will start. Again, Eric, this is Walt. Our pipeline today is about $4.5 billion. With that equation from a production standpoint, they have to move through and then they have their expected closing timelines. I would expect our production to be very in line with, or better than, Q2 of last year here in the near term. Some things will push to the right, some things will come in a quarter earlier than we anticipated. In the last earnings call, we talked about low to mid double-digit loan growth year over year. I still think that holds true, given what we are seeing in the pipeline and how those deals are coming through, so I would not move off of that. Eric Spector: Okay, that is great. And then maybe on deposits, you highlighted the continued momentum in business checking and the longer-term goal of getting the NIB over 10% of deposits. Can you talk us through the progress you expect over the next few quarters and where you are driving success? Walter Phifer: Yeah, I will start—oh, go ahead, Vijay, you start. BJ Losch: I will take that one. I am excited about this. We are building a lot of customer relationships. When I got to Live Oak Bancshares, Inc. about four and a half years ago, only 3% of our customers had both a loan and a deposit account. Today, that is 23%. Over the last two years, we have been anchoring that with checking accounts, and now when we open a loan account, one out of every three of those has a checking account. I am incredibly excited about what we can do to build customer relationships that are stickier over time. Over the last couple of years, we have been getting our lenders more comfortable with the notion of selling deposits, because we had not done that for the first 15 years of our existence. Our lenders are doing an excellent job, and our treasury management team and our deposits team are doing a fantastic job taking those leads and moving those into actual active accounts. Over the next three years, I would expect us to be in the 10%+ range simply by doing more of what we are doing today—selling checking accounts with the new loans that we are opening. We are looking at different partnerships with affinity groups. We are introducing merchant services, which is obviously very important to many small businesses and commercial customers. That is in launch now, and it is going to accelerate our ability to build our checking deposits. A 10% target is not really heroic. If you look at the industry, it is at 20% to 25%. For us to get to 10% or more is very achievable, and it is going to have a meaningful impact on the stickiness of our relationships and our funding profile. Eric Spector: Great, that is helpful color. I will step back. Thanks for taking the questions, and congrats on a good quarter. BJ Losch: Thanks. Operator: Next question will be from Janet Lee at TD Cowen. Please go ahead, Janet. Janet, can you please unmute your line? Getting no response, we will move to Timothy Switzer at KBW. Please go ahead, Tim. Timothy Switzer: Hey, good morning. Thanks for taking my question. The first one I have is the trajectory of SBA loan sale volume over the rest of the year. Was there any holdback at all this quarter? It is still up year over year, but did you intentionally retain some loans again this quarter? Held-for-sale loans went up, and I am just trying to get an idea of what the pace of loan selling could look like over the rest of 2026. Walter Phifer: Great question. Hey, Tim, this is Walt. We did not intentionally hold back. What we did see was quite a bit of production come through in the last week and a half to two weeks of the quarter. Typically, anything that comes through at that point in time, you cannot sell and settle within the current quarter, so it gives you a nice head start as we go into the next quarter. I think that is what you are seeing in the held-for-sale loan volume. As far as the trajectory, I mentioned it in my prepared remarks. We have shown this over the years where Q1 is our lowest, and then we have a slight stair-step in Q2 and Q3 and Q4, and then we normalize again in Q1 and start that stair-step again. If you look back at prior years, that will give you a sense of what that stair-step could look like. Timothy Switzer: Okay, interesting. Any color you can provide on what drove the 1% increase in the gain-on-sale premium? Walter Phifer: This is Walt again. It is really a function of mix. We did see a little bit higher Live Oak Express origination in Q1, as you saw in the deck. As BJ mentioned, Live Oak Express gets 9% to 13% premiums—that helps. USDA loans, the guaranteed portion, we were able to sell quite a few more of those again in Q1. They have been getting a nice premium as investors buying those loans start to think of potential downward rate protection, so there is a little bit more demand for that paper right now as well. Broadly, that 106% to 107% range from a premium standpoint, as we have averaged over the last five quarters, I will maintain that going forward. Timothy Switzer: Got it. And then the last one for me—how has Live Oak Express been trending versus your expectations? You talked about the $750 million annual target. Previously, you mentioned $1 billion as kind of an aspirational goal. Has that changed, or is it more just the timeline to achieve these? BJ Losch: I think we are just being conservative, Tim. I do expect to go past the $750 million production. Timothy Switzer: Got it. So you are seeing the demand that you were expecting so far. BJ Losch: Yes, for sure. If you look at the slide, the SBA changed the SOP back in 2025, which essentially went back to what the rules had been before. They had loosened the rules for smaller-dollar loans, then tightened them back up, which caused a little bit of a backup in our ability to generate those loans efficiently. As you can see, we are on the rise again. I feel highly confident in our ability to generate that kind of volume. We are now in pilot with an AI-native loan origination platform, which is huge. Once that is fully rolled out, it is going to make it simpler, easier, faster, and more efficient for our people to serve our customers and for our customers to get the capital that they need. With the changes in the SOP and competitors dropping out of the market, particularly on the lower end because of credit quality issues, we are finding more opportunities to do more business in the $500 thousand and below. I think that number is going to reaccelerate sooner rather than later. Timothy Switzer: Great. That is good to hear. Thanks for all the color. Operator: Ladies and gentlemen, a reminder to please press star 1 if you have any questions. Thank you. Next, we will hear from David Feaster at Raymond James. Please go ahead, David. David Feaster: Hey, good morning, everybody. I wanted to go back to the credit side for just a second. You talked about how over a quarter of the nonaccruals are in verticals that you have exited. What verticals are those? How much remaining balance do you have in those verticals? And what led you to exit those? Is it risk that is structurally too high in those segments, we did not have the right team—just curious if you could touch on that. Michael Cairns: Good morning. Michael Cairns here. Happy to talk about that. One of the advantages of being in different specific verticals and having industry expertise is that we have insights to headwinds—we see things coming early. That is a big part of what my job and our credit team is focused on: working with the servicing team, working with the lenders out in those industries, and assessing what is going on. That is an ongoing process for us. Over the years, we have made the decision to exit several verticals, adjusted verticals, and added new verticals—that is an ongoing process. The vertical, or segment of a vertical, that we are really highlighting in the increased small uptick in nonaccrual percentage for the quarter is the whiskey distillery segment, which is a niche component of our former wine and craft beverage lending group. It is a really small segment of our balance sheet, but it is disproportionately impacting the nonaccrual percentage this quarter, and that was the big mover. That is not a vertical that we decided to exit this quarter; we exited some time ago when we saw the issues there—the primary driver being a consumer preference change and demand for whiskey and an oversupply in that product coming out of COVID. We saw that coming and made the adjustment. This quarter, we had to move some of those loans to nonaccrual as we are working through our workout strategy. Our special assets team has been all over this for some time, as has our servicing team. Again, it is a small component of what we do and something we are working through. On nonaccruals as a whole, those loans are individually assessed by our special assets team and our credit team on an ongoing basis. Once you are classified as nonaccrual, we are pegging a potential loss there, and that is built into our reserve coverage. You can look at components like nonaccruals and past dues, but when you look at the larger picture and you want to know how management and credit feel about the portfolio going forward, the ACL coverage is a pretty good indication of how we feel, and we feel good. Our portfolio is very stable at this point. David Feaster: That is helpful. You talked about an AI origination platform. I know you have a lot of investments ongoing, through Canopy and other things you are developing. You are always early to leverage new technologies, and importantly, you have the culture and expertise to do so. Where else are you seeing opportunities to utilize AI? We have talked about embedded finance. What are some of the exciting things on the horizon in both of those areas? BJ Losch: Hey, David. It is BJ. Our biggest platform is lending, and a year and a half ago, we started on this journey to get on an AI-native platform because we saw the future coming. I feel like we are going to be quite a bit ahead of others by moving quickly. Having our most important platform in an AI-native world is going to be really good. The way we are approaching AI may be different—it is how we are doing it. We wanted to start with a bottoms-up way of introducing AI to our people. We made AI capabilities and tools available to all 1 thousand of our employees right away and asked them—Chip charged them in our town hall—to start iterating, start playing with AI, start doing it in your individual work and in your teams to make it better. Today, we have over 300 AI agents that have been built by our people, not necessarily by our technology team, but by our people themselves, because they are curious. Starting with a bottoms-up approach to make it accessible and not just some scary thing has been a big deal. Ultimately, we are going to be an AI-native bank. We are going to put everything we can on an AI platform in our operations. Over time, everybody is going to do that. Our end goal is not just to be AI-native. Our end goal is to make it better for the customer and create a customer experience using AI—partnered with our people—that nobody else can match, and to have an engine in our back office that is streamlined in the most effective and efficient way possible with AI. There is a lot going on—use cases like everybody else—but we are going department by department to create the most unique customer experience we possibly can while building an AI-native franchise. David Feaster: Maybe last one for me, another high-level one. You have a lot going on. This is all going to support growth, operating leverage, and profitability. How do you think about a longer-term profitability target for the bank, assuming we get a larger NIB contribution and more checking account growth, Live Oak Express does $750 million plus in production, growth remains low to mid-teens, rates stabilize, and AI starts to really materialize? How do you think about the profitability profile of Live Oak as this all starts to hit stride? BJ Losch: Fifteen and fifteen. That is what we talk about all the time, David. A 15% return on equity with 15% earnings per share growth. I think we are on the precipice of being able to do that. Our credit quality is getting better. Our key initiatives are accelerating. Our lending engine continues to be one of the strongest in the industry. Our expenses are well controlled. I feel like we are about to hit our stride, and the plans we put in place over two years ago to make that happen are starting to happen. Hitting a 15% return is one thing. Having 15% earnings growth in one year is one thing. Being able to do it over a sustained period is something pretty unique, and that is exactly what we are trying to build. We are constantly looking for things that will augment our core lending engine and add on to it so that over time, we always have something next to drive the next generation of our growth. I firmly believe we have it right now with checking and Live Oak Express carrying us over the next several years. We are still working on embedded banking, which we are very excited about, and we have endless possibilities with AI. Live Oak Bancshares, Inc. is better positioned than we have been in years to generate top-tier returns. David Feaster: That is pretty exciting. Thanks, everybody. Operator: Next question will be from Janet Lee at TD Cowen. Janet Lee: Morning. Could you talk to us a little bit more about where you think we are in the small business credit cycle? It looks like you are pointing to some improving and stable small business default trends. The non-guaranteed NPAs ticked up a little bit—maybe a lot of that is driven by the verticals that you exited. Where do you think we are in the process? Is it getting better, or because of the macro uncertainty we are in, are you seeing a little bit more pressure, if at all? Michael Cairns: Michael again here to take that question. I will go back to the slide that BJ walked us through where you can see the industry trends. The industry is still grappling with some headwinds, whereas we have been flat for some time. I credit that to being proactive in addressing and recognizing the environment we were in. The driver of that credit cycle was really about rapidly rising interest rates on our customer base. We underwrote loans in record low interest rates and then experienced really high interest rates. For Live Oak Bancshares, Inc., that component of this cycle is largely behind us. Eighty-five percent or more of our portfolio was underwritten at interest rates that are higher or at least on par with where we are today. We have gotten past that interest rate risk that was a big component of the cycle. On economic uncertainty, every morning there is a different headline. We are having conversations with our customers on the front end and in our portfolio about fuel costs and how that can impact their business. If this is prolonged, it will impact the small business community across operating expenses. We do not have verticals that are focused in industries heavily dependent on fuel costs as a big component of their operating expenses, so it will be an indirect impact. We underwrite to higher debt service coverage covenants and build in that cushion because we know inflationary events will happen—that is a big part of what our underwriting and credit team do. I am watching it closely, we are talking about it a lot, but I feel pretty good about where we sit now. Chip Mahan: Michael, you will remember, if you look at slide six, that in the previous administration the SBA loosened the rules. There were a lot of lenders that took advantage of that and the gain-on-sale dollars. We stuck, as always, to our guiding principles of soundness, profitability, and growth. That is part of the reason for that slide being there. Janet Lee: Got it. Thanks for all the color. For the first quarter, expenses came in much better than where the street was, despite some typical seasonal headwinds. You are also investing into your franchise, and you talked about the AI initiatives. Can you speak to any updated thoughts on your expenses, how the expense trajectory should look for the rest of 2026, or whether there is an efficiency ratio target? How should we think about that aspect? Walter Phifer: Hi, Janet. This is Walt. I think you hit the nail on the head. In Q1 expenses, we had some things internally that we were working through at the end of last year that helped bring that down here in Q1. If they average over the last five quarters, it has been just above $85 million. That is kind of in line with what you see here in Q1 as well. That is a good run rate moving forward for us, with maybe slight upticks here and there as we think about potential areas where we can invest. There is always a balance. We are an innovative, high-growth company, so we want to make sure that we are supporting growth across our key initiatives, especially Live Oak Express and business checking. The way we evaluate potential investment in that space is, what can we do to accelerate that, because, as Vijay mentioned, there is quite a bit of earnings accretion that those two initiatives specifically can drive. As we invest in that space, there are always opportunities to get more efficient in other spaces, and that is where AI comes into play. Largely through 2026, I think that balances out. Expenses kind of stay where they are now, plus or minus, on a quarterly basis through the rest of the year. Coupled with revenue growth, we will see our efficiency ratio trade down to the low to mid-50s. That is exactly the trend we have been positioning ourselves to achieve, and hopefully we continue that past 2026 and into 2027 and beyond. Janet Lee: Got it. Thank you. Operator: At this time, we have no other questions registered. I would like to turn the call over to Chairman and CEO, Chip Mahan. Chip Mahan: That is a wrap, guys. We enjoyed it. See you next quarter. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time we ask that you please disconnect your lines. Enjoy the rest of your day.
Leszek Iwaszko: Good morning. Thank you for standing by, and let me welcome you to Orange Polska conference call in which we will summarize our results in the first quarter of 2026. My name is Leszek Iwaszko, and I'm in charge of Investor Relations. The format of the call will be a presentation by the management team followed by a Q&A session. Speakers for today will be our CEO, Liudmila Climoc; and CFO, Jacek Kunicki. Let me now pass the floor to Liudmila to begin the presentation. Liudmila Climoc: Thank you, Leszek. Good morning, and welcome to our conference summarizing first quarter of 2026. I will start with Slide 4. I'm very happy to report that we have started the year very well, both commercially and financially. Our commercial performance was solid as we achieved healthy growth of customer bases and ARPO across all subscription services. I'm particularly pleased that in the third quarter, Orange was a leader in mobile number portability. This is a big advantage [ to ] our competitors. Moreover, in line with our balanced volume value approach, we uplifted prices for all our services in first quarter, which will fuel our growth for future. It was also another good quarter for our wholesale operations. We generated a very solid 6% revenue growth despite the multiyear national roaming contract, which is now over as from beginning of 2026. And we also see a very good pipeline for Q2. It confirms that wholesale is our strategic growth engine complementing our retail operations and improving our risk profile. Our financial results were outstanding as we closed the quarter with close to 10% EBITDA -- EBITDAaL growth and significant improvement in cash generation. And I propose to zoom on highlights of our commercial activity on the next slide. So our commercial performance, commenting on it for first quarter, reflected very strong customer demand and our focus on value as well as intensive market competition, especially in fiber. In convergence, both customer volumes and ARPO grew at a good pace, with 4% growth of customer base, which is in line with a run rate that we projected in Lead the Future strategy. This ARPO increasing by more than 4%, benefiting from our value approach and pricing, with good demand for content and popularity of higher-speed packages -- fiber packages. Fiber customer base increased 10% year-on-year. It is a very good dynamic considering intensive and diverse competitive landscape. Fixed broadband ARPO is up with 3.7% year-on-year, which reflects a solid growth, which is normalized after an exceptional performance in 2025. Mobile had another strong quarter, with net customer additions of above 70,000. As I already mentioned, for the first time in a few years, we were the winner of number portability by a big advantage. The win was driven by our main Orange brand on the consumer market in postpaid and prepaid. But also Nju, our B brand Nju and Flex were strongly contributing. We achieved this, thanks to a combination of both local marketing actions with our superior connectivity and comprehensive service. Mobile ARPO continues to reflect 5% growth of the main brand and the change in the mix of customer base towards lower ARPO in B brands. These are very solid results achieved despite challenging competitive environment. Successful commercial activity is our main priority, is an anchor of our Lead the Future strategy and value creation. And we are -- we have quite a busy commercial agenda for second quarter. So you need to stay tuned. Thank you. As for now, and I hand over the floor to Jacek. Jacek Kunicki: Thank you, Liudmila. Good morning, everyone. Let's start the financial review on Slide 7 with the highlights of our performance. Our financial results in the first quarter were excellent across the board. Revenues increased almost 3%, driven by solid core telco and wholesale dynamics. The EBITDA grew by 9.5% year-over-year. Its outstanding dynamics reflect a strong underlying growth as well as a onetime gain from VAT relief for prior year's bad debt. The net income reached almost PLN 300 million in Q1, growing by over 50% year-on-year. It was driven up by strong EBITDA and by high gain on real estate disposal. Next, PLN 300 million eCapEx figure for Q1 reflects a slow start of investments due to harsh weather conditions in winter as well as the already mentioned proceeds from high property disposals. Finally, the organic cash flow improved by PLN 175 million year-on-year due to the strong EBITDA growth combined with lower CapEx. Q1 naturally reflects a seasonally high working capital requirement. So it is the year-on-year comparison that really matters. And this quarter, it is very strong. Let's now review our Q1 results in more detail, starting with the top line. Q1 revenues grew 3% year-over-year, fueled by progress in all key business lines. Revenues from core telecom services increased by nearly 5% year-on-year, and this is in line with our expectations. I will break this item down into 2 elements so that we have a proper understanding of the trend. Firstly, all postpaid services, so convergence, fixed broadband and mobile postpaid, their combined revenues grew nearly 6% year-on-year, so exactly as much as in the prior period. We're keeping a very solid trend. This was fueled by a consistent growth of their customer bases and their respective ARPOs. Secondly, prepaid, where we record just over PLN 200 million of quarterly revenues. The dynamics have naturally slowed down versus the elevated trends that we recorded in 2025. And just to bring this into the perspective, prepaid revenue dynamics were usually flat to negative as customers progressively migrate to postpaid. However, in 2025, we lifted prepaid revenue to a double-digit percentage year-over-year growth, with price hikes for almost the entire customer base that were done in Q1 of 2025. This is highly value accretive as most of these additional revenues are now recurrent. However, we are now measuring the year-on-year progress versus a much higher comparable base, and prepaid is back to its flattish growth status, however, on the increased level. Then revenues from wholesale posted a solid 6% year-over-year growth despite the end of the national roaming contract. Here, we benefited from the fiber backhaul deal signed in H2 of 2025, although its contribution was much lower than in Q4 of last year. We benefited from infrastructure rental services as well as from a consistent 40% year-on-year growth in the number of fiber accesses that we sell through our wholesale customers. Finally, revenues from IT&IS have increased by 7% due to higher value of integration and networking projects realized by the B2B. To sum up on the revenues, we are satisfied with the pace of revenue growth in Q1. Secondly, we see good prospects for Q2 in the key lines of business, with strong trends in the B2C and solid project pipelines, both in the B2B and wholesale areas. Let's now take a look at profitability on Slide 9. Our Q1 EBITDA increased by an outstanding 9.5% year-on-year. It is driven by a 6% underlying growth, reflecting strong business trends. Our direct margin grew by 4.5% year-over-year, benefiting from a strong growth of core telecom services, wholesale and IT&IS. We're pleased with a very solid dynamics in the B2C and with the improving trends of margin in B2B, where margin recovery is amongst our top priorities for 2026. We've also built up an encouraging pipeline of projects for the second quarter, both in the B2B area and in wholesale. These are strong assets in face of an unstable macro and supply environment, so we are optimistic ahead of Q2. Our indirect costs were flat year-over-year, preserving our high operating leverage. We benefited from efficiency gains in network operations, in the employment optimization and lower cost of property maintenance. Our transformation program is accelerating, and so we should enjoy its further benefits in the future. Apart of the strong underlying performance, the EBITDA has also benefited from a PLN 28 million onetime gain related to the VAT relief on prior year's bad debts. Let me briefly explain this last item as well as its consequences. So we sell overdue receivables through factoring. So far, we were paying the nominal amount of VAT on these despite selling them below face price value. We have obtained a favorable court ruling, and we can now pay VAT in proportion to what we recovered through factoring. As a result, we have recovered the overpaid VAT for 2019 and 2020. There is an additional PLN 45 million more to be recovered over the course of the next 2 to 3 years. As a consequence, we've also modified our VAT settlements for current bad debts and adjusted our balance sheet accordingly. Finally, from Q1 onwards, we're also recognizing slightly lower bad debt costs in the current P&L. As a takeaway, we are pleased with the Q1 EBITDA. What is particularly encouraging are strong underlying trends and the commercial pipeline that we have developed for Q2. We are now clearly aiming at the upper end of the 2026 EBITDA guidance. Thank you, and I hand the floor back to Liudmila. Liudmila Climoc: Thank you, Jacek. Let me summarize and present you our focus for next month. So as you see, we've started the year very well. We are happy with our commercial and financial performance in first quarter. It provides us with strong momentum towards the achievement of our annual ambitions and further growth of shareholder value. We remain committed to disciplined execution of Lead the Future strategy. In the coming months, we focus on busy commercial agenda to prepare further value creation actions in B2C, for consumer line of business, and we have valuable projects to be delivered in enterprise, in B2B and in wholesale. In B2B, we are implementing a new operating model that is grouping all our IT&IS competencies under one roof in order to unlock more potential. On cost transformation as well, we are progressing well. Every quarter is fueled by new initiatives, and we are also shifting our focus to identify new projects that will give it another boost in 2027. So with good prospects ahead, we have high confidence to deliver full year guidance in the second year of our 4-year strategy, even if a market environment is demanding and volatile. So that's all from us. And now we are ready to take your questions. Leszek Iwaszko: Thank you. So we are switching to Q&A session. [Operator Instructions] We have a first question coming -- voice question coming from Dawid Gorzynski from PKO. Dawid Gorzynski: Congratulations on this excellent results. I have 3 questions actually. So maybe just read all of them. Firstly, I'm curious how much you are advanced right now? Maybe in like percentage terms in your cost transformation process, how much is still left for next quarters? Second question on other operating income. It was at a bit elevated level compared to previous quarters. And I wonder if that included maybe higher margin from FiberCo contract or maybe higher copper sales? And last question on CapEx. If you may quantify what was the impact of poor weather? Like to what extent the CapEx was lower because of that reason in the first quarter? Jacek Kunicki: Thank you for those. Dawid, on CapEx, I would assume that the weather impact is roughly about, let's say, PLN 70 million. That would be my best guess as to the impact on the postponement of certain projects due to weather because it's mostly connected -- well, it mostly affected January and February. So around PLN 70 million. On the other operating income net, what you will see is you will see other operating income at PLN 111 million in Q1 2026, which actually is very close to what we have recorded for Q1 of 2025, where it was PLN 106 million. It is indeed higher than the Q4 2025, where we had PLN 95 million of other operating income net. When I analyze the reasons for this, we have broadly the same impact between the 3 different quarters of the relationship with the FiberCo, so no real change here. Then there is an impact of a greater sale of copper in Q1 because this is the quarter where we usually sell more of copper. So no impact year-over-year. It is the same figure. However, this could be something around PLN 30 million impact if you compare Q1 to Q4. And then this is offset by about, I would say, up to PLN 20 million negative impact of the difference in ForEx and derivatives valuation, which were positive in Q4 2025 and slightly negative in Q1 2026. So it's most -- if you compare Q-on-Q, it's mostly the sale of copper, offset by a different timing of -- different impact of derivatives. And then for the cost transformation, it's difficult to be quantified in percentage terms, because I would need to -- I mean the impact of the transfer, at least in some categories, it is happening rather similarly in each of the years. What we are doing is we are attempting to be at least PLN 100 million greater impact of transfer for 2026, I would say, net-net, versus 2025. And here, this is, I would say, well advanced. But the impact of transformation needs to be viewed, I think, as the -- in the context of all other items that are basically affecting the cost base. So what we are aiming ultimately is to try and keep indirect costs flattish or flat year-over-year. This is the -- I would say, strategic ambition, and the transformation plan is definitely helping towards this goal. And so you will -- I think the best way to judge our progress with this regard is to look at the level of indirect costs year-over-year, quarter after quarter, and each time that we can be relatively flat or flattish a part of the different one-offs that we have, then this means we are rather achieving the objectives. I think that would be my way of trying to quantify because any other way, it just involves the gross value of initiatives while you have also some other factors, some cost indexation, you have, obviously, the pay rises that are happening. You have the holiday pay provision, which is different between the different quarters. You have the share-based payments, which are depending on the share price. And so ultimately, what we're trying to do, let's keep cost base -- indirect cost base flattish a part of the -- those major one-offs. Leszek Iwaszko: The next question is coming from Pawel Puchalski from, I guess, it's still Santander. Pawel Puchalski: Hello. Can you hear me? Jacek Kunicki: Yes. Yes, go ahead. Pawel Puchalski: Okay. Hello, everyone. I've got a couple of questions. Let's start with VAT relief. Specifically, you mentioned its tax relief for year 2019, '20. My question would be, shall we expect the same scale of VAT relief awaiting for us -- for you to be presented as positive one-offs for years 2021, '25? And could you potentially deliver those in year 2026 or maybe it's scheduled for a later period? And later onwards, I would like to know where are you aiming at growth of your core telco by year-end? Now we see that plus 4.8% year-on-year. My question, what is your best guess for Orange Polska core telco growth year-on-year in quarter 4? I would like to know the dynamics. And well, just a different -- very different question. Well, if there was any major telco for sale in Poland, would you be interested? And would you acquire one just like it is the case in France presently? Jacek Kunicki: Thank you very much for your questions, Pawel. Always a pleasure. So starting with the VAT relief. I think there are few consequences of this. So a part of the one-off that we have clearly mentioned, we have, first of all, around PLN 45 million of bad debt relief for prior years still to be recovered, okay? We expect this to be recovered over the course of the next 2 to 3 years. And it is -- some of it may actually still happen this year. We never know. It really depends on the stance of the tax authorities towards the specific cohorts because each year is a cohort, so towards specific years and the declarations that we have filed. And also on the court proceedings, which are still ongoing regarding part of these amounts. So while we are rather confident that we should be able to recover this PLN 45 million, it is not virtually certain today, so I would not be able to recognize it as an asset today. And it could take up to 3 years, I think, for most of these amounts to be recovered, knowing that our legislative system is less than predictable. But this is the amount and the timing. I think on top of that, we will have a small impact, something like PLN 2 million to PLN 3 million per quarter where our bad debts, our ongoing recurring bad debts should be lower than recognized historically. And then -- so I think that is regarding VAT, unless something is still not clear. In which case, please do probe. For the core telco services, I would say the following: the 4.8% would be my assumption of our current run rate. So if you ask me today what would be my best guess for Q2, not Q4, but for Q2, it would be roughly 4.8%. However, as Liudmila mentioned, we have a few items on our commercial agenda, on the details of which, obviously, I will not elaborate on. And it just shows you that we continuously work to initiate new actions that would exert upward pressure on this trend. Now of course, the success of this depends on the execution, depends on customer response and depends on the competition. Hence, I am not as precise as to say if this is what exactly this will be by year-end. But Q2, I would expect 4.8% because prepaid is more or less at its new norm. And then regarding telco for sale, I would assume -- no, we will not comment on M&As right now, and it's not something that you will have us commenting on a hypothetical situation. Leszek Iwaszko: Thanks. Next question is coming from the line of Ali Naqvi from HSBC. Ali Naqvi: It seems like the ICT or B2B sales had a bit of an inflection point in the quarter. Can you give us an outlook for the remainder of the year? And just in terms of the legacy business, the decline in there, is that first quarter of proxy as well for the balance of the year? And similarly, could you just explain what's going on with equipment sales, please? That would be great. Jacek Kunicki: So it's ICT, it's equipment and legacy. I guess, legacy, it's more or less in a stable trend of a decline. It's honestly nothing major for us that I would see today in terms of a change of trend in any way. Regarding equipment, because this was your second question. So here, what we have is we actually have less equipment revenues in the B2B line of business. And it's mostly got to do with the choice of both the customers but also availability of handsets. We had less high-end handsets being sold in Q1 in comparison to the Q1 of the previous year. And so the volumes were, I would say, not out of the ordinary. The pricing, at least on the B2C side was exactly the same as -- well, it was close to the average unit price of the previous year. It was mostly the mix of handsets for the B2B sector. And then regarding the IT&IS, I think what is -- I mean this is highly volatile revenue stream, obviously, because it is project based. Today, it is obviously, on the one hand, benefiting from a continued underlying strong demand in Poland for the digitalization and also from our own actions. It is, I would say, even less easy to be predicted as we know that the environment around both pricing and availability of the memory chips is very volatile. So in some cases, we're actually figuring out how to address the demand knowing that the supply side is extremely volatile. So it is less easy to be predicted, I would say, on the quarter-per-quarter basis. What we do expect in terms of IT&IS is 5% to 7% compound annual growth rate of those revenues between now and 2028. And I think we will need to -- and we strive to keep within this range of revenue growth, keeping an eye on the profitability as well. So making sure that this is not entirely achieved through very low margin activity, such as license resale, but that we have a solid mix of networking, integration, IT projects, but IT development projects, some cyber attack and cloud-based solutions to drive the margin as well as the revenue growth. So I think we need to keep an eye on this 5% to 7% CAGR. Ali Naqvi: Maybe just expanding on that then. Is there any risk that -- is the situation with memory chips and the inflation on the supply side, does that sort of derail your longer-term guidance in any way? Or is there any way that you can manage that? Jacek Kunicki: I think, honestly, the -- our colleagues on the ICT side have proven again and again extremely resilient and being able to adapt. And as this is project based and it will concern the whole industry, I'm very confident that even if we have a slowdown in this part of the activity, we will be able to exploit some other demand area and continue with the growth of both top line and the bottom line over the long-term horizon. And anyway, I think even with the memory chip crisis, while this may be an extremely volatile situation this year, it's -- and -- I mean it's hard to imagine this kind of volatility persisting for the 3 or 4 years. We might have the chips being less available or available at higher prices. But it's a different situation versus the -- what we have today, where the prices of the chips are highly fluctuating between one day and another. And I would say pricing might be elevated, in which case, it will affect the entire market. But still, it will not, I don't think it will affect the demand. But the price stability, if you think 3 years down the line, it is something that will not stay as volatile as we see it today. Liudmila Climoc: Normally, it should correct during next quarters. Leszek Iwaszko: We have no more voice questions. We have 2 questions from us -- that came to us as a text. And first from [indiscernible] pension fund. A question that we've already answered, but I will read it. In France, we are observing consolidation process on telecom market when Orange is taking part. Do you see such a possibility on Polish market? So I guess we do not comment on that. One, and there is a type of questions on -- from Piotr Raciborski from Wood & Company. The first one is referring to what we said is you're asking the guided 4% to 8% underlying growth rate in Q2 2026, do you mean sales or EBITDA? That's the first question. And the second question is on ICT. Does Orange see stronger demand on ICT from public segment in face of national recovery and resilience plan fund inflow in 2026. Liudmila Climoc: So maybe we'll start with a second question on linked with IT&IS opportunities and funds coming from different EU projects, EU funds. Obviously, we are -- there is an ongoing pipe of projects in which we are taking an active part. So we are quite optimistic, but at the same time, we are moderate linked with what has been just said with current memory chip crisis. So yes, projects are coming, prospects are there. We are participating actively, and we have very strong legitimacy to winning these projects as we are very strong in our IT&IS capabilities, cloud, cybersecurity, integration services. But main questions for short-term, very short-term, is how the tenders will go, whether we will be able -- or market will be able to respond in the required terms knowing that sometimes pricing for equipment is valid for days or for 1 week or 2 weeks, while public acquisition process usually has taken much more time as we're going through mandatory stages. So in short-term, this can be the main -- is current main disturbance to the process, which we expect it will be somehow settled during next coming months because the market will learn how to respond to this price volatility, what offers validities will be coming. So yes, now volatility is high, which is impacting also like projects, but normally, it should be settling down. Jacek Kunicki: And on the 4% to 8%, I think you have misheard. It was 4.8% that we were speaking about in terms of the expected growth rate for core telco revenues in Q2, not EBITDA. Obviously, we expect EBITDA growth in Q2. Obviously, for the full year, the guidance is 3% to 5% growth. I think we can clearly say we've had a great start. We're aiming at the high end of this guidance. And I think it's fair to say, we will monitor how successful will be in Q2. So what level of growth of EBITDA we get in Q2. And we will monitor the prospects that we will have for H2. So when we meet the next time in July, I do believe we will be in a much better situation to make any judgment on how we see H2 and the full year. I think that is -- but the question was 4.8% core telco revenue growth year-on-year expected in Q2. Leszek Iwaszko: Thank you. We have no more questions. Thanks for the call. And if you -- I repeat it every time, but if you would like to meet us, talk to us, just give us a note. Otherwise, see you in July. Thank you. Have a good day. Bye. Jacek Kunicki: Thank you very much. Liudmila Climoc: Thank you.
Operator: Welcome to the Enea Q1 Presentation 2026 during [Operator Instructions]. Now I will hand the conference over to the CEO, Teemu Salmi; and CFO, Ulf Stigberg. Please go ahead. Teemu Salmi: Thank you, and good morning to everyone, and welcome to this Investor Call for Quarter 1, 2026 Enea. This is Teemu Salmi speaking, CEO of Enea. I'm very happy to be with you here today. During the next 20 minutes, we'll take you through the results and some comments about quarter 1. And at the end, as usual, we leave some time for questions and answers. Let's dive straight into it. First of all, we are very happy and pleased to report that we have solid 12% net sales growth in the quarter when counting in constant currencies from -- in fixed currencies from quarter 1 last year. That equals 5% growth in reported numbers. So a good solid start of the year. And with that, we're also reporting a very strong improvement in our profitability, adding up at an adjusted EBITDA level of SEK 75 million or 34% which is the highest in many years when it comes to the first quarter. And also, EPS jumps up quite significantly since quarter 1 last year, ending up at SEK 0.98. On top of that, we also have a very good momentum for our strategy execution at the moment, and I will come back to that in just 1 second. As said, the growth here in the beginning of the year was quite a lot fueled by our business development mainly in our firewall business that had a great successful start of the year, where we signed many deals, many significant deals predominantly in Europe and North America. So that has been fueling our development in the quarter. And we also have a strong momentum in our growth portfolio. And you'll see now, I'll come back to that a little bit later on in the presentation that starting quarter 1 this year, we will also start reporting our sales a bit differently than last year. I have been getting a lot of questions and feedback about the transparency of our product portfolio and how it is developing. So actually starting this year, we will report our sales development in 5 product groups instead of the 2 areas we were reporting last year, Networks and Security. Now we will have 5 product groups where we will report our sales against. And I will come back to the structure in just a bit, so hang with us. But basically, these 5 product areas, we have one growth part of it, and we have one as we call classic part of it, but we've had a very good momentum in our growth portfolio and with our products that are part of that portfolio. Enea more relevant than ever. I mean we see that the need of secure solution and increased security in general is pushing our business in the right direction. We -- the government sector for us is showing good progress, and we have a very healthy pipeline that keeps on growing. So there's a lot of opportunities for us to close in that. So we are staying strong and growing in the telco sector and also in the CPaaS sector, now complementing that with the government sector, giving us another leg to stand on when it comes to our future business development. So that is good to see. And also during the first quarter, we have participated in Mobile World Congress in Barcelona, which is one of the biggest telco or telecom communication fairs in the world. Even though we had the breakout of the war in Iran, which meant that no Middle Eastern customers were able to travel to Barcelona. We still had a very good result out of that, and we are pleased with our participation there. Saying that, the war in the Middle East has also, of course, had an impact on our business slightly. I mean, some deals we were anticipating to close in quarter has now been postponed into the future due to our customers having other priorities in quarter 1. So not losing any business, but we see a slight shift of business into the future. Momentum is picking up again in Middle East, and we're looking forward to catch up on that in the quarters to come. We also made during the quarter press release about one customer of ours, Liberty in Costa Rica where we have deployed our messaging firewall in that in combination with the threat intelligence service that we are providing, we are combating cybercrime. And the results for our customer in Costa Rica were really outstanding. And in just 3 weeks, we were able to together with them to decrease 99% of the spam and the scam that was going through their network. And on top of that, our customer could block over 30,000 scam domains that were used for scam bursts. So not only do we have the good and right products, but they also have a short time to value with our customers once we are deploying them. On top of that, also in the quarter, we have -- not only do we have good traction on the market with our customers, but we're also winning awards when it comes to our products and offerings. We have won 5 awards -- global awards in the quarter. 3 in the firewall space, 1 for traffic management solution and 1 also for our embedded security Qosmos product in the quarter. And then when it comes to the strategy execution, it is moving on according to plan. I'm super happy to announce that we, in the quarter, also have now recruited our new Chief Commercial Officer, Mathias Johansson. He has started 1 month ago and he's now going to take charge of accelerating 1 of our 3 pillars in our strategy, which is the market acceleration. And speaking of the market acceleration, we have also hired new sales capabilities in the security domain to push our security and government business in the right direction. And we are continuing to execute on our market acceleration activities as part of the strategy by also together with Business Sweden, being part of one joint event in Taiwan later on in the quarter because that is also one of our focus markets in Asia Pacific. And we are continuing to execute on the other activities just as we have commented since we launched the strategy in November. So good start of the year. We are more relevant than ever, and our strategy execution is going as planned and also started to show some good payoffs and pay back already now. All in all, if we look at the numbers for the quarter, our net sales ended up in reported numbers, SEK 222 million, which is 12% growth in fixed currency, 4% in reported currency. Our EBITDA margin, 34% or SEK 75 million in absolute numbers. Our net debt has increased slightly, and you can also see that our operating cash flow is slightly going down. We see the operating cash flow decrease here in the quarter. The short-term part of that, where we anticipate that the capital that we are tying up now in quarter 1, a lot of that capital we -- well a big part of that capital will actually transfer into cash flow already in Q2. so there's very short-term spikes in the working capital. There is, however, the investments we made in Middle East and Africa is tying up a bit of capital that we expect to be starting decreasing over the year of 2026. Earnings per share ended up at SEK 0.98 per share. And our R&D investments, they continue to be on stable levels as we have presented in previous quarters as well, around 24%, 25%. Yes. I've already covered most of the things on the slide here. I think the thing that I want to stress is that we had a tough year in our firewall business last year, and our business can be a bit spiky over quarters because we sell the business models we have. We sell quite a lot of perpetual licenses, which means that 1 quarter can have a lot of sales other quarters can have a little bit of less sales. But we have a very strong start of the year for our firewalls where we actually have signed 3 major deals in the quarter with one of the largest network operators in the world and also with some -- 1 of the big CPaaS players globally as well, which we are happy for because it's just showing the relevance and importance of our portfolio. And before I now hand over to Ulf for more details about the financials of the quarter. I want to come back to what I said earlier about how we will now report our sales going away from the Networks and Security split that we have had in our sales in the previous year. This year, we will report our sales in these 5 product groups, as we call it. If we start to the right, there is an old traditional known segment or group -- product group, Operating Systems, which we have said for many years, is a structural decline. We will continue to report Operating Systems, Sales and Development separately. And then the former Network and Security portfolio, we have divided in 4 product groups: Network Performance and Intelligence, Signaling and Messaging Security, Embedded Network Insights and Security and Network Access Control. So if we start in the top left corner with the network performance and intelligence, basically, we have our traffic management and our real-time database Stratum there as the products, main products in that product category. In the Signaling and Messaging Security, we have our firewalls. That's our firewall business that we reported separately in one product group. We have our Embedded Network and of course, sorry, with the Signaling and Messaging Security, we also, of course, have our threat intelligence service that we are selling included and reported as part of sales in that product group. In the Embedded Networks and Insights and Security, we have our Qosmos product, basically our Embedded Security business that we are selling. And then Network Access Control is the more classical CSP-related products that we're selling, like the AAA and the ENUM DNS et cetera, in that product category. And as you can see, there's a color coding behind all these product groups as well. There are the ones, Network Performance Intelligence, Signaling messaging, Embedded Network Insights, they are part of the growth portfolio. And we have the Classic portfolio, which is then containing Operating Systems and Network Access Control. And the reason we are doing this is the products in these product groups have a bit of a different dynamic where, obviously, the growth portfolio is the portfolio that's going to fuel the growth of Enea for the future, where the Classic portfolio have the dynamics of being focusing on profitability and generating bigger profits than the growth portfolio in the short term. And in quarter 1, I can say that the net sales split between growth portfolio and Classic portfolio was 80-20. So 80% of our top line is coming from the growth portfolio and 20% of our top line is coming from the Classic portfolio. And this is the way you can expect to see Enea reporting our sales moving ahead. With that, I would like to hand over to Ulf Stigberg for more details about the financials in quarter 1. Ulf, please? Ulf Stigberg: Thank you, Teemu. So a little bit more in detail. We see a 12% growth in net sales in fixed currency and what we're very proud of this quarter is that we can see also a change in growth over the rolling 12 months measurement going from last year 12 months plus 1% and adjusted for currency, plus 4%. We report a 34% adjusted EBITDA margin amounted to SEK 75 million for the quarter compared to SEK 52.6 million previous year. This takes us to a level of 34% compared to 25% previous year. Reported EBITDA margin is 23% for the quarter. We have a development of cost that's almost in line with the previous year. The operating expenses spend is about SEK 175.9 million compared to SEK 189.7 million, and the variation can mostly be explained by SEK 13.4 million lower cost in relation to currency adjustments. Going over to the EBIT. We report an EBIT of 9%, corresponding to SEK 2.2 million compared to 1% previous year and SEK 1.6 million. This also drills down to earnings per share by to SEK 0.98 compared to minus SEK 0.94 in previous year, and this is a great, I mean, development from last year. So going into the reporting structure, we now have presented a net sales split by product group. And also, we have the split by revenue category in the bars, you can see 3 different tones of colors. This corresponds to service, support and maintenance and software license. And over the quarters, you can see that the net sales in each of the group varies and the variation depends mostly to software license revenues in the quarter. And we have different development and sales efforts, of course, in different portfolios here that creates a little bit of different performance in the different groups. You can see that we have a high share of software license revenue in our growth portfolio to the left. And we have also a high share of service revenues in the Signaling and Messaging Security product group and the second group from the left. And the two classic product groups to the right, as Teemu mentioned here, represent 20% shows some variations over the quarters. And with the development of stable and a little bit of a decline in the operating system product group. Going into the details for the quarter, we can see we had a good development within the Signaling and Messaging Security group. Growing by 48% and by 56%, if we adjust for the currency. So a very good growth within that group, of course. The growth within the Network Performance and Intelligence product group was 6% and 25%, if adjusted for currency the Embedded Network Insights and Security grew by 5% adjusted for currency and reported figures even on compared to the previous year. The same measurement that over 12 months makes a little bit more sense maybe if you look at the Growth. The Growth portfolio growing by 4% or 12% in FX-adjusted measurements. And the Classic portfolio actually had a decline in reported figures by 7% and adjusted for currency by minus 5%. One area that we have been working with during the last 12 months is our exposure to financial variations and this shows that we have less exposure in financial net for this quarter. The total financial net for quarter 1 2026 was SEK 2.6 million compared to SEK 21.7 million previous year. And finally, we see the cash flow analysis here with the improved profit on the first line going from SEK 1.6 million to SEK 20 million, we have improved the financial net from minus SEK 21 million to minus SEK 2.6 million. We have the items of noncash and taxes increasing in this quarter mainly related to a provision that was made in the quarter by SEK 25.7 million. And also, we see the change in working capital related to mainly deals that we have closed in the quarter 1. And the main part of this increase in the quarter will translate to cash within quarter 2 this year. We have some investments on the SEK 29 million, and we have the result of financing by SEK 4.1 million. This takes us to a net cash flow of total SEK 10.6 million negative. We can see the debt -- net debt have increased over 12 months. And the main explanation of this change is that we have more exposure to the business in Middle East and Africa region, which have a little bit longer project lead times compared to previous. And finally, we have a healthy levels of equity ratio and net debt to EBITDA. And for the buyback program, we have bought 243,000 shares in the quarter for a total consideration of SEK 15.6 million and all activities are related to the AGM mandate that AGM gave the Board a year ago in May. And the Board have now almost used the SEK 50 million frame that we decided to utilize in that mandate. All right. Over to you, Teemu. Teemu Salmi: Very good, Ulf. Thank you so much. We will start wrapping up this and leave some minutes for questions and answers at the end. Coming back to key takeaways from the quarter, once again, a great start of the year with a solid growth of 12% in constant currencies. Great improvement in our profitability and EPS, and we have good momentum for our strategy execution. So we feel that we have a good start of the year, and we're also well positioned for the execution of the rest of the year. And that gives us a short-term outlook that we say that, I mean, our market remains stable to moderately positive. That is exactly what we have said before. And we see that it is in that vicinity still. We are super relevant still for the market and the government sector is growing well. And I hope and I think looking at how the development now has been in quarter 2 that this quarter 1 will be the last quarter with these heavy headwinds we have had predominantly from the U.S. dollar in 2025. Quarter 2 should give us a bit of leeway when it comes to the pressure of the FX headwind that we have been experiencing throughout, I would say, the full 2025. That given for the 2026 guidance, we leave it unchanged we believe we will have a single-digit organic growth. We will end up north of 30% in adjusted EBITDA margin, and our investments will accelerate the growth. And then also the reason why we're saying that we will also increase our cost a bit in the year is that we are investing in our strategy. And that's also why we're saying that our EBITDA margin will be above 30%. We report 34% right now, which is good, and we have a good buffer now to 30%. And we will continue to invest in the quarter -- or sorry, in the year for the strategy execution, which will have a slight impact on our cost as well. Long-term ambition stays as we communicated as part of our strategy launch last year. We have the ambition that over the next 3 years, '26, '27, '28 that we will grow in average 10% each year in that period. And that our profitability will end at the end of 2028 above 35% measured in EBITDA. So we leave this also unchanged. So both long-term and short-term guidance remains as before. With that, I think we are done with our presentation, and we go over to questions and answers. Operator: [Operator Instructions]. Teemu Salmi: Right, just waiting if there is a verbal question coming through. I don't think so. Well, please feel free. As the operator said, Meanwhile, we will jump over also to the written questions here. Starting with the first one around a white paper on the utility of our software in drone application. And the question, are you recognizing revenue today from this end market, how many such projects are you involved in. Good question. We are not recognizing any revenue from these applications yet. We have many ongoing projects, engagement discussions. And actually, we are submitting today or tomorrow an RFP with content of drone applications as well. So it's still a very early market. It's a developing market. We are on the ball. We have relevant solutions for it. And let's see now this first RFP that we're submitting might give us, if all goes well, also the first revenues with that application. Next question, Rasmus, Redeye. How should we think about the quarterly variations between the business segments? How should we think of growth in the longer term between growth in Classic? And is there anything that sticks out in the business segments including the CPaaS deal that drives the solid organic growth in the quarter. Ulf, do you want to take these? Ulf Stigberg: Right. I think the quarterly variations between the business groups or the product groups are expected and this is a result of more transparency now basically, you can say that the 4 groups have in previous years also compensated a little bit if a group is lower, doesn't close a large deal in one quarter one other group will. So it's some kind of even out the exposure. But what we see in the longer term, of course, we expect the growth product groups, the 3 groups growing more than the classic. And of course, our long-term strategy targets 10% over 3 years. So that will be north of 10% if we're going to meet that target, of course. If anything sticks out I'm not sure about that. Do you want to comment on that. Teemu Salmi: No. No, I think it's been a solid development in the quarter. Of course, in the firewall business, we had an exceptionally good quarter. and we communicated the CPaaS deal, but there are many other deals that builds up the quarter, not only for the firewall business, but for the other segments as well. And as you could see, Ulf showed that if we look at the growth segment, it has had a very good development year-over-year. And I think it's incremental development of the business that we are doing and also of course, the relevance of our products and our footprint that is growing on the market. So I would say that there's nothing else. It's just organic growth, I would say that we are working with and developing, Rasmus, we can talk more later, of course, as well regarding this. Next question regarding AI. Can you elaborate on what solutions you're developing or selling that specifically protects against AI hacker attacks. Well, let's -- yes, we have several. I mean, let's start with messaging, for instance. I mean in our messaging portfolio, we have been awarded this quarter as well for our AI-based restricted image detection solution. So basically messaging -- I mean our customers, they handle millions of messages every hour, right? And you cannot parse messages manually. But you need to have a mechanism that scans the message before you approve and read them through and it becomes an SMS or MMS or whatnot in your phone when you receive it, right? Obviously, AI solutions there. We've had those in place. We have different -- many different AI solutions in place already. But one of the latest now released this is AI-based restricted image detection, where it's easy to, in a message to go through text and find a bad language or you can find words that would make our customers block that message from being sent, but pictures have been harder, of course, to evaluate. Now we have a solution where with the help of AI, for instance, also can look at pictures and determine is this picture according to what is according to the policy that can be sent through or is it something that has a criminal intent or other malicious intent, so to say. So that's one of our latest solutions. And we actually got several awards for that solution in the quarter 1 this year. And we have many AI capabilities already live in many of our product offerings. Next, congratulations on nice progress. Thank you, Matthias, lots of EU grants for critical infrastructure are you relevant of any of these. Ulf, do you want to comment on that? Ulf Stigberg: I mean this is an area that we are working into gradually. And definitely, we will look into the EU grants, and we will be able to take benefit of such grants if available, but we cannot share any specific at this stage. Teemu Salmi: Thank you, Ulf. And I think now, at least what I see the final question here from David. Q1 '26 effective tax rate was 5.6%. What tax rate should we expect for the longer term of Enea. Ulf Stigberg: Good question. And tax area, we are a business group in many different legal entities and is a challenge for us, but we are working on this. I don't have a figure to share as of now, but it varies a little bit between the quarters. So we have to come back to that. Teemu Salmi: All right. It's actually on the hour I don't see any more questions in the question space. Thank you for listening, and I and Ulf, we wish you a great day ahead. Thank you, and bye-bye.
Operator: [Interpreted] Good morning and good evening. Thank you all for joining the conference call for the LG Display earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on LG Display's First Quarter of Fiscal Year 2026 earnings results. Dong Joo Kim: [Interpreted] Good afternoon. This is Kim Joo Dong, Vice President, in charge of Finance and Risk Management Division at LG Display. Thank you for joining our first quarter 2026 earnings conference call. Joining us today are CFO, Kim Sung-Hyun; Vice President, [ Cho Seung Hyun ] in charge of Business Control and Management; Vice President, [ Kyong Jeong Deuk ], in charge of Large Display Planning and Management; [ Hong-jae Shin ] and Ahn Yu-Shin, in charge of Medium Display Planning and Management; Vice President, [ Paek Seung-yong ], in charge of Small Display Planning and Management, Vice President, [ Sang Keuk Kwon ] in charge of Auto Marketing and [ Kim Kyu-dong ], Leader of the Business Intelligence team. Today's conference call will be conducted in both Korean and English. For detailed performance-related materials, please refer to our disclosure or the Investor Relations section in the company website. Please refer to the disclaimer before we begin the presentation. Please be informed that the financial figures presented in today's earnings release are consolidated figures prepared in accordance with International Financial Reporting Standards. These figures have not yet been audited by an external auditor and are provided for the convenience of our investors. I will now report on the company's business performance in Q1 2026. Revenue in Q1 was KRW 5.534 trillion, down 9% year-over-year and 23% quarter-on-quarter on the back of stable OLED product shipment and favorable exchange rate and despite such external factors as the seasonality and the base effect coming from the discontinuation of the LCD TV business in Q1 last year. Operating profit was KRW 146.7 billion, rising Y-o-Y, driven by strengthened business structure and sustained OLED performance. Operating profit margin was 3%, and EBITDA margin was 21%. Net income recorded a loss of KRW 575.7 billion due to the impact of FX translation loss on foreign currency debt as the high exchange rate persisted. Next is area shipment and ASP trends. Area shipment in Q1 was 3.2 million square meters, down 21% Q-o-Q. On top of the seasonality, there was continued push by the company to streamline low-margin models, primarily in the midsized product line. As for ASP per square meter, it fell 4% Q-o-Q due to the seasonal decline in small panel products with relatively high price per square meter. But at $1,244 it was up 55% Y-o-Y, thanks to the rising share of OLED as a result from the company's business structure upgrade efforts. Next, I will discuss the revenue breakdown by product category. TV was 16% and IT 37%. Mobile and Others segment accounted for 37%, down 3 percentage points Q-o-Q as the market entered into seasonality. Auto, which is relatively less season sensitive, took up 10%, up 3 percentage points Q-o-Q. The OLED product group accounted for 60% of total revenue, up 5 percentage points Y-o-Y. We believe that through our persistent internal push to enhance our business structure and shift to an OLED-centric company, we have established a structure that can generate meaningful performance despite unfavorable externality. Next is financial position and key metrics. Cash and cash equivalents in Q1 was KRW 1.525 trillion, largely unchanged Q-o-Q. Of the main financial ratios, current ratio was 74%, almost flat Q-o-Q with debt-to-equity ratio at 251% and the net debt-to-equity ratio at 157%. While there have been temporary fluctuations quarter-on-quarter due to adjustment in our borrowing portfolio and the impact of exchange rates, we plan to further strengthen our financial soundness in the long term. Next is guidance for Q2. Total area is expected to grow by low 10% level Q-o-Q, driven by shipment increase, mainly in large-sized panels. As for the price per square meter, it is expected to fall by low to mid-10% due to lower shipments resulting from mobile products seasonality, which typically command higher price per square meter. I will now turn the call over to our CFO, Senior Vice President, Kim Sung-Hyun. Sung-Hyun Kim: [Interpreted] Good morning and afternoon. This is the CFO, Kim Sung-Hyun. Thank you for joining us at this conference call. Despite the seasonality in Q1, we were able to remain profitable for 3 months in a row, thanks to our years-long internal efforts such as initiatives to transition to a business structure based on OLED and high-end strategic customers as well as the innovation of cost and improvement of operational efficiency. Furthermore, we have significantly enhanced business stability and competitiveness by increasing the share of OLED out of total revenue to 60%, a 5 percentage point increase Y-o-Y. The clearly improved business fundamentals will serve as the solid foothold for a sustainable profit-generating structure that the company aspires for and will be the driving force behind our continued improvement in business performance. We will keep working to ensure stable OLED-centered product shipments and the expansion of business performance. But looking at the external environment, uncertainties today are higher than ever before. The scope and scale of these uncertainties continue to grow, including not only rising semiconductor prices, but also declining global demand, rising energy costs and supply chain disruptions, making it difficult to estimate their full impact at this point. Accordingly, we believe that close monitoring of the external volatility and uncertainties, along with the ability to respond swiftly are essential capabilities that the company must possess and that the situation requires more cautious approach. Meanwhile, even as external uncertainties persist, it is highly positive that our competitiveness in high-spec products, which is our strength, is increasing and that technological barriers are rising along with it. Even as we seek optimal response to external uncertainties, we will strive to secure financial soundness and achieve sustainable results that meet the expectations of the market and our customers based on a company-wide effort to strengthen our technological differentiation. Next, allow me to briefly outline our plans and strategies by business segment. In the small-sized mobile business, we will flexibly respond to our customers' diverse technical needs based on our technological leadership and reliable supply capabilities. We will also efficiently utilize our existing production infrastructure to ensure seamless preparation for the future. In the midsized business, we plan to continue improving profitability by focusing on high value-added products, actively responding to customer demand with our differentiated competitiveness in tandem OLED and high-end LCD technology. We also intend to keep improving our product portfolio with a focus on profitability to further enhance production efficiency. In large panel business, we plan to strengthen our premium product lineup based on our white OLED technology while also expanding our range of price competitive products. And in monitor business, where the shift to OLED is accelerating rapidly, we intend to grow our OLED business and focus on acquiring customers by expanding our gaming product lineup, which incorporates our proprietary technology. And in auto, where competition is increasingly fierce, we will keep solidifying our market position based on our differentiated product and technology portfolio. Finally, a few words on our investment. We maintain the principle of allocating CapEx primarily towards essential current investment and future-proof technology investment. The investment disclosed last afternoon in new OLED technology infrastructure was also decided in this context. We plan to strengthen our technological competitiveness and growth foundation by continuing to upgrade our OLED technology as a way to respond to future market trends and customers' demand. At the same time, our work to optimize investment efficiency will continue unchanged. CapEx in 2026 is expected at around KRW 2 trillion. We will continue to build up a decision-making framework that enables a prudent yet flexible response by finding the right balance between preparing for future growth and ensuring financial soundness. This concludes our presentation of business highlights for Q1 2026. We will now take your questions. Operator, please commence the Q&A session. Operator: [Operator Instructions] [Interpreted] The first question will be provided by Gang Ho Park from Daishin Securities. Gang Ho Park: [Interpreted] Thank you for taking my question, which is on the disclosure of new investment that was made yesterday. So the disclosure was for about KRW 1.1 trillion in OLED. And so my question is, can the company provide more details about this disclosure? And recent media reports have mentioned that another company is exclusively supplying into foldable products. Is the disclosed investment for new -- is it for new form factors to counter this? And if that is the case, then what is LGD's business strategy regarding foldable smartphones and its market entry? Sung-Hyun Kim: [Interpreted] This is the CFO. Allow me to respond to your first question. Now as everyone would know, in the industry, we see that the technological development is really accelerating at a remarkable pace. And the importance of technology is also translating into the competitiveness of companies. So all the companies are now struggling and really competing against each other to secure the competitiveness. Now as has been reiterated several times, the company is focused on the OLED business. Accordingly, the more ready we are with new OLED technologies and the more technologically competitive we are, then there will be more business opportunities coming our way, and we will be able to maintain our competitiveness across the industry. And yes, the company has disclosed -- made disclosure about new facility investment within this context. And as for the specifics, I would love to share more of them, but then given the fact that our new technology directly translates into new technologies for our customers, please understand that I am not in the position to discuss them further. Unknown Executive: [Interpreted] This is [ Paek Seung-yong ] in charge of Small Display Planning and Management and allow me to respond to the question about the foldables. Our position and perspective on foldable devices remain unchanged. Foldables offer consumers differentiated value through a new form factor, and there are growing market expectations that they will be the new growth driver. But until we gain visibility into market size, pace of growth and our own opportunities, our strategy will be to grow performance by maximizing production and sales of existing products. If clear opportunities are identified in the smartphone sector, we will prepare a supply system after carefully reviewing such factors as market acceptance of differentiated products and growth rate, and we will then try to build on our mass production experience in midsized foldable devices to expand new business opportunities in the smartphone sector. Operator: [Interpreted] The following question will be presented by Jimmy Yoon from UBS Securities. Jimmy Yoon: [Interpreted] My question is regarding the overall panel business. Today, we see that the memory shortage is driving up memory prices and oil price is also surging following the Middle East conflict. Such mounting uncertainties may trigger more concerns regarding potential production disruptions in the tech value chain, shifts in demand, rising cost and price pressure from customers. What is the expected impact on demand? And what will be the company's response? Unknown Executive: [Interpreted] This is [ Cho Seung Hyun ] in charge of business control and management. Now it is true that the market today is facing growing uncertainties stemming from the memory shortage and the impact of the geopolitical conflict. But I believe that we have to look at the first half and the second half of the year separately. Now in the first half, we are seeing some pull in demand due to concerns over memory supply. And with the scheduled major sporting events coming around, there is expected to be some positive impact. Now going into the second half of the year, considering factors such as component price hikes, set price changes and macro uncertainties coming from the Middle Eastern situation, we will have to be more cautious in our approach to market changes. While external uncertainties are increasing across the market, the impact varies slightly by company depending on their customer and product structure. The impact of rising chip prices is more pronounced in the mid- to low-end product segments, meaning that the impact on global customers with relatively strong SCM competitiveness is likely to be quite limited. It might even be an opportunity for them. So against the risk of growing volatility, we will closely monitor changes in demand and trends in component supply and demand. We will collaborate with customers and focus more on cost innovation drawing from our global customer portfolio and established high-end product lineup and successfully navigate these challenging market conditions. Operator: [Interpreted] The following question will be presented by Jung Hoon Chang from Samsung Securities. Jung Hoon Chang: [Interpreted] My question is similar with some of the previous questions. There has been some uncertainties in the business, as the CFO has mentioned, with the pronounced effect of the U.S. and Iran conflict, especially on the rise on the commodity prices. So, so far, there was some discussion about the midsized and small-sized businesses. But then for the large panel business as well, then what will be the company's operational strategy as well as the growth strategy for the future? If you could provide us with an update, what's helpful. Unknown Executive: [Interpreted] This is [ Kyong Jeong Deuk ] in charge of large display planning and management. For our large panel business, amid industry volatility this year such as rising prices of commodity as well as the components like semiconductors, we plan to establish a stable revenue structure and strengthen our fundamentals by enhancing our high-end OLED TV lineup with leading global set makers and also by expanding our mid- to low-end OLED TV lineup. And for the OLED monitor segment, the high-end gaming monitor market is very rapidly shifting from LCD to OLED. And we -- and the share out of our total shipment is likely to grow very significantly from low teen percent last year to around 20% this year. So our product and customer strategy will be about maximizing our business performance and opportunities through an optimized production share between TVs and monitors and to keep solidifying our market leadership. Operator: [Interpreted] The following question will be presented by Won Suk Chung from iM Securities. Won Suk Chung: [Interpreted] Now I also have 2 brief questions. Now we have been discussing uncertainties a number of times so far. But now yes, as the uncertainties continue, I believe that perhaps cutting losses from the IT business has made a significant contribution to the company improving profitability Y-o-Y and also for the year. Then as the uncertainties continue, then when does the company believe that you will be able to turn around to profitability? And also looking at the OLED new investment disclosure yesterday, it seems as if the company is also increasing OLED investment into new technologies. Now given the fact that the other companies are also looking into the investment for the 8-gen IT OLED and so forth. So what is the company's plan for investment down the road? Yu-Shin Ahn: [Interpreted] This is Ahn Yu-Shin, in charge of Medium Display Planning and Management. Now the ongoing uncertainties in the external environment, including the U.S.-Iran conflict makes it difficult to expect a recovery in the IT sector this year. To prepare for increased demand volatility in the second half due to rising commodity prices and prices of components like semiconductors, we are securing supply flexibility and closely monitoring the situation. Although sales and shipment volumes decreased Y-o-Y in the first quarter, profitability improved thanks to internal initiatives like strengthening our product mix. For the year, we will focus on high-end differentiated products based on long-established customer trust, technological competency and responsiveness and further upgrade our high-end focused customer structure and maximize opportunities with a select and focused approach tailored to customer demand, which will keep up our trend of improving profitability. And regarding IT OLED, as the transition from LCD to OLED accelerates, starting with tablets and extending to monitors, we are aware of the growing interest in the market as well. IT products have a diverse customer base and product specifications and having sufficient demand to keep the fab running is crucial. To do that, we need to meet consumer needs for technological capabilities and price competitiveness as well. As the period of uncertainty and high volatility in demand continues, we intend to proceed cautiously until there is clearer demand visibility for OLED in the downstream. Until we have enough visibility to make investment decisions, we plan to utilize our existing infrastructure as efficiently as possible. We are actively exploring various strategies to prepare for future opportunities, and we will be ready to respond in a timely manner when the market begins to fully take off. We will take one last question. Operator: [Interpreted] The last question will be presented by HyeonWoo Park from Shinhan Investment & Securities. HyeonWoo Park: [Interpreted] The company is reportedly implementing voluntary retirement this year again following last year. So what is the expected scale of this adjustment? And when will this be reflected? Will there be more of this type of workforce adjustment and onetime cost in the future? Unknown Executive: [Interpreted] Yes. So as have been reported in the media, there is going to be another round of workforce adjustment this year. And this is part of the company's effort and transition to an OLED-centric company. So along with this, we have been upgrading our business structure and improving our product portfolio and strengthening our cost structure and also undertaking cost innovation. Now we are aware of the sense of fatigue that the shareholders might be feeling as the similar event continues to repeat itself. And for the short term, yes, this will be something that will incur cost to the company, and this is the kind of decision that requires very cautious approach as well. But we also see this as a necessary process for the company to remain sustainable, and we have made this decision from a long-term perspective. And as this is an internal company process, the specific terms cannot be disclosed for which I ask for understanding. But then there have been some fairly detailed reporting by the media as well. But again, the program is still ongoing. It's not been concluded yet. So as for the specific overall cost or the scale, it is too early to tell. Now yes, it is true that having the repeated implementation of the voluntary retirement by no means is desirable for the company either. But if it does have to happen, then it better happen within a short period of time so that the sense of stability will be restored among our members. And that is why we have -- we are offering a much strengthened package this time around. And this is part of the company's plan to make sure that this does not have to happen again in the near future. Now the second quarter for the company historically has been a period of poor financial performance. Now of course, we have undertaken some business restructuring, business realignment and also cost innovation efforts. And as a result of the series of efforts, we were planning and expecting profitability in the second quarter of this year. And that is how the business was managed as well for at least 1 month. So we were expecting to see profit in the second quarter. And despite that, of course, we continue to try to become a better company, a more sustainable company for the longer term. So on that note, I would also like to ask for a more positive view from the shareholders and investors as well. Operator: [Interpreted] This concludes LG Display's Q1 2026 Earnings Conference Call. We thank everyone for joining us today. Should you have any additional questions, please contact the IR team. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Sandra Åberg: Good morning, and welcome to Essity's presentation of the Q1 2026 results. Here to take us through the highlights of the quarter, we have our CEO, Ulrika Kolsrud, and our CFO, Fredrik Rystedt. After their presentation, you have the opportunity to engage directly with us. [Operator Instructions] Now enough of me, let's get started. Ulrika, please take us through the quarter. Ulrika Kolsrud: Thank you, Sandra. And also from my side, welcome to this webcast. We started the year with organic sales growth coming from volume growth, and we continued to win the relative game, strengthening market shares in our branded business in retail. We furthermore strengthened our profit margins and delivered a strong cash flow. Then besides these solid results, we had 3 major events in the quarter, the decision to launch a new share buyback program of SEK 3 billion well in line with our ambition to have share buybacks as a reoccurring part of our capital allocation. We also completed our Feminine Care acquisition in North America, now more than doubling our Personal Care sales in the U.S. And we have the organizational change, meaning that we now report in our 4 new business units, Health & Medical, Personal Care, Consumer Tissue and Professional Hygiene. And let's start with Health & Medical, where we continued on our track record of consecutive growth in Medical Solutions. We were especially pleased in the quarter with the continued good growth in Wound Care across geographies. Q1 was, however, a weaker sales quarter for Incontinence Care in Health Care. Given the financial pressure that we see in health care systems and also the lower input costs that we have had, we held on to prices very well. So margins and profit delivery was as high as ever. However, the sales performance was different from market to market. And one region that performed very well in the quarter was North America. And we also supported the business going forward to grow even further in North America by upgrading the TENA ProSkin Briefs assortment. We now equip this with our latest and greatest technology when it comes to -- or technologies, I would say, when it comes to leakage security, dryness, fit and comfort. And we know that these products are highly preferred among professional caregivers. We also performed very well in incontinence care in North America in our retail channel. And actually, the good growth momentum and continued good growth momentum of incontinence care in retail was one of the key highlights in our Personal Care results. Two other key highlights were that we strengthened our share of market in 60% of our branded business and also the good growth in Feminine Care. I want to stay for a while on Feminine Care because we had some exciting developments in this category in the quarter. For one thing, as I mentioned, we completed the acquisition of the OB, Playtex, Carefree and Stayfree in North America. Now we start the integration, and it's now that the real work is starting. So our first priority is to secure business continuity to guarantee that we have uninterrupted customer execution, supply and operations during this transition period. Our second priority is to engage with in top-to-top customer meetings to now present the combined portfolio that we have and that we can offer from Essity. And then in parallel with this, we continue to work on supply chain, on branding and on innovation. So to capture synergies in supply chain to combine the 2 innovation portfolios to accelerate proven platforms and to apply our proven Essity brand-building capabilities and assets in a globally scaled and locally relevant way. The other event, I would say, or exciting development in the quarter in Feminine Care was in our leakproof apparel. So as you can see here behind me on the slide, leakproof apparel was contributing positively to the growth in Feminine Care. And this is one fast-growing segment within Feminine Care, and we have taken action to make sure that we capture the growth in this segment. So we have, for example, reduced our production and product costs in order to enable a competitive pricing in a more challenging consumer environment. We have also improved our efficiency in consumer acquisition in the D2C channel and broadened our distribution. Then with the new organization that we have put in place, we are consolidating our efforts to make sure that we drive learnings and synergies for our full portfolio in this area. Now innovation is as important for leakproof apparel as it is for all our other categories and segments. And in the quarter, we upgraded with a specific range for teens. And this is a super important target group for this segment and for feminine care in general because this is where we generate trial and get capture consumers at the point of market entry. These products are then specifically or tailored to the teen body. Also, they come with a day and a night variant, and they come with a Smart Protect concept. And some of you might remember that I talked about Smart Protect technology last quarter and that we equipped our [indiscernible] disposable feminine pads with this technology. Now we are reapplying this concept onto also leakproof apparel, which I think is a good example of how we can reapply strong concepts, of course, with the technical solutions that is fit for purpose that now secures that we have instant absorption and a good spreading of the liquid in the product. Continuing on innovation, we also launched an upgraded Libero offer in the quarter. More precisely, we made our soft Libero touch product even softer. And we know that this is highly appreciated by parents who really want soft products for the soft and delicate skin of their babies. So we have high reasons to believe that this will continue to support the very good momentum that we already have in this business because Libero had again a very strong quarter. We strengthened market shares and we increased volumes. When it comes to our retailer brand business in Baby, however, it was weaker. So overall, for Baby, we had a slight decline of organic sales. The other category where we're declining organic sales in the quarter was in Consumer Tissue. And that is the result of lower volumes and lower sales prices in Europe specifically. Latin America was doing good. Also, the good news is that we continue to perform very well in our branded business in Consumer Tissue, gaining market shares and growing volumes. And we will continue to support that profitable growth in our branded business on Consumer Tissue and by also continuing with our innovation agenda. In the quarter, we launched Zewa Wisch&Weg Smart. And what that is, is that we are reapplying our coreless technology on to household towels as well. So now we will have less waste in the kitchen moving forward. This is, first and foremost, of course, to bring convenience to our consumers, but it's also an innovation that is supporting our sustainability agenda. And that brings me to another initiative on our sustainability agenda in the quarter. Because in the quarter, we inaugurated a new biomass boiler in Kunheim factory in France. This is the second one. We have one in Le Theil since before. And I think this is a very good example of how we translate our net zero ambition into tangible industrial execution at the site level. And with this boiler, we are then covering for 70% of the steam needs at the plant. We are more than half our natural gas dependency in that plant and reducing carbon footprint by 40% or more than 40% in the paper machine. And this is also highly appreciated by our customers, which we could see also because we had a customer joining us in the inauguration. And in these times, I think it's worthwhile to mention that this is not only about sustainability by reducing our dependency on natural gas, of course, we also become more long-term cost resilient. Last but certainly not least, let's turn to Professional Hygiene. I have talked the past quarters about our strong development in strategic segments that we grow very nicely in strategic segments, which is important for us. And we continue with this positive development also in this quarter. A good example of that is that we grew Tork PeakServe more than 10%. We also grew Tork Skincare 5%. This quarter, we reported volume growth for the total Professional Hygiene as well. And that shows that the activities that we have put in place in order to fuel volume growth are starting to pay off. That's not the least true in North America, where we have gained some contracts in the fast food channel, but also work more expansive in the other channels beyond HoReCa. Then we were helped a bit by a stabilized market also in HoReCa in North America. And now to talk about the financial performance of Professional Hygiene and our other 3 business units, I hand over to Fredrik. Over to you. Fredrik Rystedt: Thank you, Ulrika. I will do my best to do exactly that. And I will start with our sales. And as you can see on the slide, we declined our sales with 5.1%. And this is, of course, just due to currency translation on the back of a stronger Swedish krona. In constant currency or using the same currency rate, we increased our sales with about SEK 0.5 billion or 1.5%. And as you can see on the slide or this bridge, 1.1% of that comes from the acquisition of the Feminine Care business in North America and the other 0.4% is related to organic sales growth. Now just to comment a little bit, it's really a bit premature perhaps to comment on the Feminine Care business from a financial standpoint. It's included as of February 2. So we've had very short experience from owning it. But so far, if you look at the full quarter, so to speak, also the period that we didn't own it, sales was roughly about comparable in comparison to last year. So, so far, as expected, pretty much. Now if I turn to volume, then you can see that we grew here with 1.1%. And we were particularly happy actually to see Professional Hygiene growing with close to 2% or 1.9%. And this is of quite a number of quarters with negative volume development for Professional Hygiene. This has been on the back of deliberate restructuring, but it's also been challenging markets. And as Ulrika mentioned, we see a bit of improvement in actually Southern Europe and North America on the market side, but we also see some good results of the initiatives. So again, a good development. And Personal Care, with 3.5% volume growth coming from a very strong or I should say, yet another very strong growth quarter for incontinence, good for feminine. And in fact, if you remember perhaps the previous few quarters that we've had relating to baby, where you see 4% to 5% of volume decline for baby, we have a much, much better situation this quarter with about 1% volume decline for that specific category. Now this is much better than before, and it's on the back of good performance in the northern part or our branded part in the Nordics, whilst the rest of the business pretty much performed in line with market. So a better situation for baby in general. When it comes to -- then to Consumer Tissue. Finally, we had a slight volume decline, so minus roughly about 0.5%. And this is, of course, just on mainly coming from the non-branded business, whilst as Ulrika mentioned earlier, the branded business actually performed super well, both from a market share perspective, but also positive volume growth. Turning to price/mix. This is all -- or I should say, mainly coming from Consumer Tissue, where we have deliberately lowered prices on the back of lower COGS. We also have -- and we reported on that before, we have selectively lowered some prices for certain SKUs in Professional Hygiene to get more growth in that area. But if you look at the combined price/mix for Professional Hygiene, it is actually slightly positive because we have a continued strong growth in our strategic products. So mix is actually bigger than the price decline. I'll go there from sales, I'll go to our margin development. And it's clear we have increased our margin with roughly 40 basis points. And all of our business areas with the exception of Consumer Tissue strengthened the margin or at least about the same margin. So a good development pretty much across the group. You can see here that there is a negative contribution margin-wise from the Feminine acquisition. And we -- if you look at that negative contribution for the group, it's roughly about 10 basis points and bigger for Personal Care. So if you look at the Personal Care margin, it has an impact of minus 70 basis points. Now we have -- if you look at the Feminine business in North America that we acquired, it has a positive operating margin, but it's very low as expected and the low margin has to do with, of course, transition costs plus service agreements that we have. And over the next 12 months, we are gradually going to take over both administration, sales and all of the other things and gradually, of course, also improve profit. So very much with the Feminine acquisition as expected. Now turning to gross profit. You can see that this is the source basically of our increase or our improved margin with 60 basis points. I already talked about volume price/mix. So of course, that contributes positively, but a lot of the improvement comes from overall lower COGS, and this is mainly related to currency actually, FX or positive currency impact, but we also have good savings. So typically, savings in COGS is quite low during the first quarter. And this quarter, we have SEK 130 million roughly in savings. So we're quite pleased with that number. So overall, 60 basis points in improved margin. We have talked a lot about investing more into growth. And of course, part of that exercise is more investments into A&P. And as you can see, we continue to invest more both from an absolute perspective, but actually also as a percentage of sales. And we compensated that partly with lower SG&A. So very much in line with our plans. Now you may think that this is possibly a consequence of our cost savings program. That's not the case. As we have reported earlier, pretty much all of those savings will appear late in the year, so more towards the third and fourth quarter and full run rate, as we have talked about at the end of the year. So savings is not really compensating so much at this point. This is other types of efficiency gains like low travel, like similar types of actions. So all in all, this was the increase of the 40 basis points. Now let me just take as a final remark on -- when it comes to margin, let me just give you a bit of an outlook for Q2. It's always -- we are in an uncertain environment. And of course, on the back of the geopolitical situation, we do expect COGS to be higher if we look at the Q2 of '26 versus Q2 of '25, so higher COGS. We also expect higher SG&A, and this is partly -- or this is all of it, I should say, due to salary -- just common salary inflation and a bit of higher IT cost. We will have a little bit of savings in compensating for that from the cost saving program. But as I said, it will be small also in Q2. Good. So turning then to the cash flow. So seasonally quite strong, SEK 4.4 billion. And if we look at our net cash flow or I should say, cash flow after finance net and taxes, SEK 3 billion. So it was a good start to the year from a cash flow perspective. And with a reasonable, I should say, working capital performance. We just -- we still think we've got more mileage to put it that way, in our working capital performance, but we were reasonably okay, I think, in the first quarter. And as partly as a consequence of that, we continue to strengthen our balance sheet even further. Now you might have expected our balance sheet to -- or net debt, I should say, perhaps to increase a little bit since we did actually acquire the Edgewell Feminine business in the quarter. And so that was, of course, a negative drain in terms of debt with approximately about SEK 3 billion, and that was fully compensated by the cash flow. But we also had a couple of other things like share buybacks of SEK 600 million and some currency impact. But we also had one thing that was quite special for the quarter, which was a reduction of our debt in our pension liabilities of a bit over SEK 3 billion. So that contributed quite a lot to that lower net debt. And all in all, as you can see, the net debt is now SEK 24.5 billion with a net debt-to-EBITDA ratio of 0.96 or 1.0 as it says on this slide. Finally, and Ulrika has already mentioned it, so let me just give the technical details around the share buyback program, SEK 3 billion, and it will start May 11, 2026, and it will go on up until the most 2027, the AGM. And you have said it, the ambition is to continue share buybacks as a recurring part of our capital allocation. And with those words, I'll leave over to you. Ulrika Kolsrud: Thank you, Fredrik. And to summarize the quarter then, we delivered volume growth. We strengthened our market shares. We strengthened our profit margins. We completed our M&A. We also strengthened our balance sheet and launched or decided on a new share buyback program. Then moving forward, we will continue our efforts to accelerate profitable growth. And important focus for us is to continue to grow market shares, supported by innovation. And when we talk innovation, it's both about raising the bar and improving differentiation in our premium assortments as well as to secure that we are competitive across the different price tiers, and we are steering our innovation agenda accordingly. Then, of course, we continue to execute our SG&A cost saving program in order to be able to reinvest in growth initiatives. And we also continue to save -- to drive savings in COGS. Now of course, looking at the situation now that we have that Fredrik talked about that we expect to have some higher costs in the coming quarters, starting with fuel and energy, we have to rebalance our pricing. As you heard from Fredrik, we are -- we have had now selective price adjustments. We are adapting to a lower input cost, but also then to fuel growth. And needless to say, that has to be rebalanced as we move forward. So we will, as we always do, compensate cost increases with price increases over time. Then the other priority that we have that we have talked about here is also then to integrate our acquisition. And we have the ambition to do that as fast as possible, so full speed ahead or you could also say off to the moon. And actually, in the quarter, we were on the back side of the moon with parts of our portfolio, namely the jobs, the compression therapy. We have a long-standing contract as an official supplier of compression therapy garments with NASA. And the fact that Astronauts are relying on JOBST, I think, is really -- it really underscores Essity's expertise in compression garments and that we have a good performance also under very challenging conditions. So as the fantastic Artemis II crew ventured around the moon and really push boundaries for what's possible, we at Essity are very proud to be a small but meaningful part of journeys like this, helping people to perform at their very best on earth and beyond. Sandra Åberg: Thank you, Ulrika. Thank you, Fredrik. Interesting. Great products off to the moon. Now we are ready to take your questions. [Operator Instructions]. And we have a good lineup of questions already. Are you ready to start to open up for questions? Ulrika Kolsrud: We are. Sandra Åberg: Perfect. Our first question comes from Aron Adamski from Goldman Sachs. Aron Adamski: I was keen to hear your thoughts on margins. I think consensus currently projects about 13.8% EBITDA margin for 2026, which would be broadly similar to what you have done in Q1. But as you said during the presentation, COGS was still a tailwind in this quarter. So given the acceleration we've seen in pulp, I think some petrochemicals have also moved higher and also the FX backdrop, do you feel comfortable with that market expectation? And then the second question, very brief on finance costs, which were lower than expected. How should we think about the level of these expenses for the remainder of the year? Sandra Åberg: I look at Fredrik. Fredrik Rystedt: Yes. I mean, Aron, thanks for the questions. First of all, if you look at the margin outlook, we -- as you very well know, we just don't give that. We can only refer to, of course, our long-term financial target when it comes to margins of more than 15%. So over the longer term, of course, our margin aspirations is quite clearly spelled out. When it look -- when you look at the short term, of course, it's always more tricky to talk about and we just don't give that forecast. Generally, we strive, of course, to continue to improve. The geopolitical situation, as Ulrika very clearly explained, is a bit tricky. And of course, exactly how that will play out is difficult to say. So we can't really give much more. I don't know if you want to add something. And then when it comes to finance net, they were a little bit lower. You should actually expect lower cost as we go forward on the back of net debt, but we also see actually a bit higher interest rates. So if anything, more stable and slightly higher if you go forward. Sandra Åberg: I hope that's perfect. Aron Adamski: That's very clear. Can I just ask a very quick follow-up related to the delay, is there any sort of time lag effect that we should consider between your COGS stepping up in Q2 versus Q1? And then are you able to surcharge that immediately on to customers? Or is there a little bit of a lag effect like we've seen in the past? Ulrika Kolsrud: If I start, I mean, there are different cost elements that have a different lag effect. So if you take the oil-based raw materials, that has a lag effect of 4 to 5 months before it is shown up in our P&L and you have everything in between there. And we have already in -- for example, in Latin America, we have already raised prices. And in some parts in Europe, we have also announced price increases. And in some parts, we are working on finding the best way now to make sure that we continue to fuel volume growth while we compensate for cost increases to come. So we are doing all of these different elements. Sandra Åberg: Let's move to the next caller, Niklas Ekman, DNB Carnegie. Niklas Ekman: Can I ask about volumes, very strong in this quarter after, as you said, there's been a couple of quarters with flat or declining volumes. Was there any impact of phasing in this quarter, either relating to the weak Q4 or if there's been any pre-buying ahead of Q2 that's impacted that number? Ulrika Kolsrud: Not that we are aware of, no pre-buying. Niklas Ekman: Okay. Very good. And just following up, when I look at the input costs, I have pulp prices for your grades up more than 20% in the last 6 months. Oil is up almost 50% in the last couple of weeks, energy costs up almost 20%. Do you recognize these figures? And how worried are we? I assume that this will not be so much an impact for Q2, but far more so for H2. And I'm just wondering, given the kind of weak consumer environment we've seen in the last few quarters, how able or how receptive the market is to price hikes? If you could elaborate a little bit on this. Ulrika Kolsrud: Maybe you start with the first part and I answer the second. Fredrik Rystedt: Yes. I'll be happy to try. I mean we -- it's exactly as you say. If you look at the numbers you were quoting there, they're observable market numbers. So from that perspective, you're right. And of course, we also know that these things tend to change every day. So I can't really have a view on what the numbers will be eventually. We talked about the lag impact. So exactly to your point, there is not going to be everything in the books of the second quarter, it will be more in the third and the fourth quarter. So that's the point. When it comes to the ability to price, let me just say -- repeat maybe, and then I'll leave it to you, Ulrika, that we always compensate, and you know that, Niklas, we always compensate in the longer run because the price elasticity from a consumer standpoint of what we do is quite low. So of course, our products are needed. But again, of course, there is a time lag, but I guess. Ulrika Kolsrud: No, that is exactly it. And I think we have proven in previous situations that we have pricing power. And that is, of course, important when we move into this type of situation. And again, I talk a lot about innovations, but there is a reason for that. And it's not only about driving growth. It's also about securing our pricing power moving forward. So to have strong assortments gives us a good foundation for being price agile. So otherwise, it's exactly as Fredrik said. Niklas Ekman: And just a quick follow-up there because I note that in the last 2.5, 3 years, your margins have been a lot more stable compared to what they were, say 4, 5 years ago when there was significant margin volatility. Is this at least to some extent, a reflection of you pushing forward cost increases more quickly than you have in the past? Or are there other dynamics behind the more stable margin? Ulrika Kolsrud: Well, maybe starting with mentioning 3 of them. One is that we have become more agile in our pricing. So we have a higher operational flexibility, and therefore, we have worked really with making sure that we can compensate with price as quickly as possible. And we have done that both in, for example, Consumer Tissue as well as in Health & Medical, where we have a more regulated environment with longer contracts. So we've increased our agility across the different business units when it comes to pricing. Then secondly, we have reduced our volatility by reducing our exposure to changes in pulp cost and energy by, for example, divesting Vinda that we did now a few years ago or a year ago. So that is 2 things. And then thirdly, I would come back to this with superiority and how important innovation is. As we talked about last quarter, we had record high levels of superiority, and we are continuously strengthening our assortment and that helps then the pricing power as well. Sandra Åberg: Let's move to [ Johannes Grunselius ] at [ SVB ] Markets. Unknown Analyst: It's Johannes here. Yes, I have a question on your attempts to hike prices. You said you've been successful in Latin America. You're now announcing in Europe. Can you elaborate a bit on what type of price hike we are talking about the magnitude and which products? Is it like across the board? So to give some color on that would be very helpful. Ulrika Kolsrud: The color that I can give on that is that it looks very different depending both on assortment, business unit as well as geography that we're talking about. But overall, we -- as you probably know, we are fastest in compensating with prices in our Consumer Tissue business. So that is also where we have materialized or have announced price increases. at this point in time. Whereas, as I mentioned, in the more regulated area, it takes a bit longer time. So there is other mechanisms, so to speak. Unknown Analyst: Yes. So the magnitude in the product categories where you hike prices the most, can you just give an indication what magnitude we're talking about? Fredrik Rystedt: We don't do that, Johannes, for commercial reasons as you -- I'm sure you appreciate. But as we have discussed many times, we will adjust as much as it takes to restore profitability, and we've always done that. So this is not just something we say. I think we have actually showed that in various forums that over time, we have always compensated. So we are able to do that with the pricing power. This is, of course, not just us. This is the sectors we're in, if you like. But of course, particularly for us, this has been a reality. So we will do it this time as well. So -- and of course, giving you an exact number is incredibly difficult given not least that things do change. We just don't know exactly what kind of impacts we will face in the next few quarters. So it's very much about kind of doing as much as it is relevant, so to speak. Sandra Åberg: Next up is Oskar Lindstrom, Danske Bank. Oskar Lindström: Very good to hear about the price increases already being announced and in some cases, already pushed through. I wanted to ask you about volume growth in this quarter and the outlook for next quarter. We saw that it was, to a large extent, driven by the Personal Care business area. Is there any reason why we should expect this not to continue going into Q2? Was there some one-off effect or that you had a special push in this quarter that's not going to be repeated in Q2 or in coming quarters? Ulrika Kolsrud: The short answer is no. I mean this was the result of our continuous efforts and operations. Oskar Lindström: Excellent. I'm going to stick to one question. That's fine. Ulrika Kolsrud: Thank you for giving you such a short answer on that one question. Sandra Åberg: Then we will move to Charles Eden from UBS. Charles Eden: So just a couple of things for me on the raw materials, please. Firstly, can you just remind us the sensitivity, for example, when we look at, say, propylene for watching superabsorbents or polypropylene for nonwoven. Clearly, there's a sensitivity that means that what you're paying is not the same magnitude of moves we're seeing in those 2 derivatives. Could you just remind us those, please? And then just secondly, in terms of hedging, just remind us in terms of policy on energy and the raw material hedging that you've got in place for both Q2 and then, I guess, for the rest of '26. Fredrik Rystedt: Yes. Ulrika Kolsrud: I look at you. Fredrik Rystedt: Right. Yes, I'm not sure how to answer your question. Let me just say that about -- if you look at our operating expenses, Charles, it's about SEK 120 billion, just to kind of use a number. And of that, if you look at the plastic products, which I believe that was what you were asking, it's about a bit over 10%. So you get approximately the sensitivity there. Now I mean, oil-based products or plastics is, of course, sensitive to oil, but not fully because you got processing costs. So if you actually try and make some sort of estimate as to what happens to the oil or plastic products, the cost of that, depending on what happens to oil, a rule of thumb is that roughly about 2.5% or a bit less actually than a bit over 2%, you can say, of the oil price actually flows through to the plastic products. So this gives you a rule of thumb. But of course, it's not an exact science because if you have a sharp spike, as an example, in some of these raw materials like oil, then, of course, the impact will be very, very little. If you have a prolonged period, then gradually cost of plastic products will also go up. So it's a bit difficult to give you an exact answer to your question, Charles, more than that. Sandra Åberg: And on energy? Fredrik Rystedt: In energy and maybe also raw material, I think you asked. And if you look at the hedging, if you look at the rest of the year, it's about 60% we're hedged and the rest is open to spot price movement. We typically don't hedge really raw material other than energy. So we're openly exposed to pulp and to plastic materials or other types of input costs. And of course, there is a, you can say, implicit hedge through the lag impact that we talked earlier, but there are no physical hedging of any kind of any raw material. So energy is that's where we hedge. Charles Eden: That's helpful. And I appreciate it's maybe a question for your procurement team more than you. But I guess given the volatility, and we don't know quite how long or the severity of the fluctuations in oil in respect to derivatives. But is it fair that I guess it's in no one's interest for prices to shoot up 40, down 40, up 40. Is there a sort of degree of smoothing of this price with your suppliers? Or really, is it sort of you take what you see in terms of the price? I'm just trying to understand the dynamics of how this works in real world rather than perhaps behind the spreadsheet. Ulrika Kolsrud: Maybe, Fredrik, you can talk to that later. But one thing is that we have, of course, different tools when it comes to our pricing as well. I mean there's everything from surcharges to lowering our promotional efforts to having list price changes and other tools as well. So it's also about using our toolbox when it comes to pricing in a smart way in order to exactly, as you say, to not raise prices permanently when that might not be the -- what is the right thing to do in order to balance volume and margin in a good way. So there, we have a lot of tools in our toolbox. Fredrik Rystedt: Yes. I don't have anything to add. I think your question was also relating to if we make arrangements with our suppliers as to smoothing of the price. And I think that's generally not the case. But to be fair, I actually don't really know exactly that. I can't give you an exact answer there. I can check that for you, Charles. Sandra Åberg: Now we have a question from Diana Gomes from Bloomberg. Diana Gomes: Just I believe, a follow-up from Charles' question. I'm not sure if I understood correctly in terms of the arrangements with suppliers on your comments. For the pulp and other raw materials that you are not hedging, for instance, I'm assuming there are some type of fixed contracts that you would have with your suppliers. Could you give us some more color in terms of the time lines of those, for instance? And related to that, there are reports of some potential concerns or constraints on supply of materials such as plastic packaging. Are you seeing any pressure on that side already? Ulrika Kolsrud: When it comes to contracts, as Fredrik said, I mean, we do not really talk about the details of our contracts, both I would say we don't necessarily have all the details of it, but also it's for commercial reasons. Then when it comes to supply, we have so far not seen -- we've not had any disruptions, and we have not had any indications of disruptions either or shortages either at this point in time. But of course, it's something that we follow very closely. Diana Gomes: And if I could squeeze just one follow-up on the cost savings. You pointed to the fact that it was higher in the first quarter than typically is. Should we see that as a more structural change in terms of the phasing of the cost savings through the year? And it seems that there could be some sequential impact from that when we come into the second quarter with less of a buffer from the cost savings. So just to understand a little bit more on the margin impact as we go through the year. Fredrik Rystedt: Yes. Thanks, Diana. No, you shouldn't interpret it in that way. We have given an outlook for the year as -- and we're talking about just to be super clear now on the productivity or COGS savings. So not the SG&A savings, but COGS savings. My comments were relating to that. And I mentioned that we had in the first quarter savings of SEK 130 million. Typically, we have a bit of lower cost savings in the first quarter. And of course -- so we felt good with that number. This is not a change to our outlook for the year, which is in the range of SEK 500 million to SEK 1 billion for the full year. So again, a good start and our outlook for the year or our estimates or aspirations for the year of SEK 500 million to SEK 2 billion remains. Sandra Åberg: Now we have a new question from Aron Adamski. Aron Adamski: I was just wondering, you mentioned the leverage was lower than we all expected. And so in the context of your balance sheet being quite healthy, I was wondering how do you assess the current M&A landscape out there in your priority categories? And are there any interesting assets that you're currently in the process of looking at? And should we expect any both on acquisitions and also over the next 12 months or so? Ulrika Kolsrud: But we always have a very active M&A agenda. So we continuously look for opportunities and assess opportunities, and that we continue to do. And our priorities when it comes to acquisitions is in the areas that we've talked about before, Incontinence Care, Wound Care, Feminine Care and strategic segments in Professional Hygiene. And I think the acquisition that we now completed in the quarter is a very good example of being an acquisition in Feminine Care also in an attractive geography in North America. So that work continues. And as you say, we have a strong balance sheet. So we have the opportunity to, of course, act on M&As when they are value creating. Sandra Åberg: We will move to Mikheil Omanadze from BNP Paribas. Mikheil Omanadze: One question from me, please. I wanted to ask about volumes. I know you don't guide as such, but if I were to think directionally, are there any factors in the comp that you would call out for Q2 and the remainder of the year? And also, would you say it is fair to start factoring in some negative elasticities as you start taking pricing actions? Ulrika Kolsrud: No specific factors. And of course, our ambition is to compensate with the cost increases with price increases while fueling volume growth. So that is our clear ambition. That's what we work for. Sandra Åberg: Perfect. Are you happy with that answer? Or do you have a follow-up question to that? Mikheil Omanadze: No follow-up questions. Sandra Åberg: Okay, perfect. [Operator Instructions]. I think that we have actually answered all the questions now. Let's give you a few seconds to ask questions if you like. But I think we're done with questions. Thanks a lot for your questions. Then before we end, I would like to hand back over to you, Ulrika, for closing remarks. Ulrika Kolsrud: Yes. Well, thank you all for joining this webcast and for a lot of questions here. And again, we start the year with volume growth, with strengthened profit margins and not the least with winning the relative game with strengthening our market shares, which is very important. And our work, as you saw here in short-term priorities, it's about continuing to accelerate profitable growth through our different initiatives that we have. Now we talked more about the near-term priorities in this call. I hope that you want to hear about our mid- and long-term priorities and initiatives as well. And to do so, please join us in our Capital Market Day on the 7th of May in Gothenburg. Looking forward to seeing you there.
Operator: Thank you for standing by, and welcome to the First Merchants Corporation First Quarter 2026 Earnings Conference Call. Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to the future performance and financial condition of First Merchants Corporation that involve risks and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains financial and other quantitative information to be discussed today as well as a reconciliation of GAAP to non-GAAP measures. As a reminder, today's call is being recorded. I will now turn the conference over to Mark Hardwick. Mark, you may begin. Mark Hardwick: Thanks for the introduction and for covering the forward-looking statement on Page two. We released our earnings yesterday after markets closed and today's presentation materials are available via the link on Page three of the earnings release. Turning to Slide three, you will see today's presenters and members of our executive management team. Joining me on the call are Michael Stewart, our president; John Martin, our chief credit officer; and Michele Kawiecki, our chief financial officer. Slide four highlights our footprint and financial scale. We now operate 127 banking centers reflecting the addition of Southern Indiana following the First Savings acquisition. Total assets stand at $21.1 billion with $15.3 billion in loans and $16.5 billion in deposits. Adjusted performance metrics remain strong, including an adjusted ROA of 1.25% and an adjusted return on tangible common equity exceeding 14%, reflecting the underlying strength of our earnings engine. Turning to Slide five, first quarter reported net income was $27.7 million, or $0.45 per diluted share. Reported results included two notable non-core items. First, the legal close of the First Savings acquisition on February 1 resulted in $17 million of one-time acquisition-related expenses. Second, during the quarter, we strategically repositioned $357 million of mortgage loans from held for investment to held for sale and we expect to complete the sale of these loans by the end of the second quarter. These loans carry a weighted average coupon of 3.46%. The liquidity provided by their sale will be used to immediately pay down higher-cost deposits and, over time, will be deployed into commercial loans at a 6%+ yield. This repositioning resulted in a $29.8 million mark-to-market charge in the quarter, with a tangible book value earn-back of approximately four years. Excluding these items, adjusted earnings per share totaled $1.03, up from $0.94 a year ago, representing 9.6% growth, driven primarily by net interest margin expansion and solid fee income growth. Our tangible common equity ratio remains strong at 9% even after completing the acquisition and continuing disciplined share repurchases, including $24.9 million in the first quarter. Now Michael Stewart will discuss our line of business momentum. Michael Stewart: Thank you, Mark, and good morning to all. Our business strategy is summarized on Slide six. Building our Midwestern strength by growing organically remains our primary objective as a company. Our four primary business units work together in delivering financial solutions for businesses and consumers focused primarily on the maps you see on Slide seven. As Mark stated earlier, the first quarter was busy with the closing of First Savings Bank and the preparation for the May integration date. The legal close increased our overall loan portfolio size, with organic growth relatively flat during the first quarter. After the strong fourth quarter loan growth, declines in our sponsor and investment real estate portfolio outpaced our C&I growth within our region banking markets. The portfolio declines were normal-course payoffs that simply stacked in the quarter: sponsors selling their portfolio companies that we had financed, or real estate projects that achieved secondary market takeouts. I expect growth in both these portfolios to resume in the second quarter. Our regional banking teams, inclusive of the new team in Southern Indiana, continue to deliver solid loan growth. It is very pleasing to see our Midwest economy continuing to expand, our clients' businesses continuing to grow, and our bankers continuing to win new relationships. New loan production during the first quarter for our real estate and our asset-based teams was at record levels and demonstrates the value of our diversified loan origination teams. While this quarter's organic growth was flat, I remain confident in our expected mid-single-digit loan growth through the course of 2026. Let us turn to Slide eight, deposits. During the first quarter, our core relationship-focused deposit franchise continued to show growth through the commercial, consumer, and our Southern Indiana market. The bullet points below the table detail that the total deposit decline came from public funds, consumer CDs, and repayment of First Savings brokered deposits. Each of these deposit categories is a higher-cost source of funds as compared to the primary and operating accounts, which generated increases during the first quarter. Michele will be reviewing net interest margin improvement during the quarter, which was a direct result of disciplined deposit and loan pricing. Our continued deployment of new and enhanced products during the quarter on our digital platforms, wrapped with smart and effective marketing, continued to deliver quality growth within our markets. Our people are a strength in meeting the financial needs within our communities. During the quarter, we added new teammates within our sponsor, investment real estate, community banking, and private wealth teams to build on our brand and momentum. Before turning the call over to Michele, one last comment regarding First Savings Bank. Our integration efforts are on track. The engagement of their team continues to be strong. On-site training and preparation for the May integration are advancing as scheduled. Our model of community banking in Southern Indiana has its strength. Turnover of frontline personnel has been minimal, and, as the prior page has demonstrated via the growth in loans and core deposits, their clients continue to be patient during the transition. The specialty verticals have continued to show consistent production in new business during the quarter. This production will continue to contribute to the fee income of First Merchants Corporation, as a bulk of the originations are sold. I do want to highlight the SBA business model as a direct enhancement to the rest of First Merchants Corporation's franchise. Having the ability to offer SBA product solutions to our clients is a natural extension of being a community- and commercially-focused organization. The new SBA team will be the fulfillment team for all of our existing consumer, small business, and community bank teams. There are early successes that I expect to build post-integration. I am going to turn the call over now to Michele to review in more detail the composition of our balance sheet and the drivers on the income statement. Mark Hardwick: Michele? Michele Kawiecki: Thanks, Mike, and good morning, everyone. Slide nine covers our first quarter performance, including two months of operating results from First Savings following the February 1 closing of the acquisition. There was meaningful growth in total revenues in Q1. Net interest income grew $12.2 million and noninterest income grew $2.5 million linked quarter. This resulted in a $6.3 million increase in overall pre-tax pre-provision earnings to $78.7 million. Tangible book value per share declined 2.8% linked quarter but increased 7.3% over the same period in the prior year. The linked-quarter decrease was due to the impact of the acquisition and share buybacks. However, dilution from the First Savings acquisition at close was less than what we had estimated at announcement. Actual tangible book value dilution was only 2.4% versus 4.8% that we shared at announcement, and the tangible book value earn-back is now estimated to be 2.4 years. The difference was primarily driven by a lower interest rate mark, which totaled $53.1 million at closing. Slide 10 shows details of our investment portfolio. The bond portfolio declined from $3.4 billion to $3.3 billion due to changes in valuation and principal payments. First Savings had a $252 million bond portfolio that we sold at closing, creating liquidity for future loan growth. Expected cash flows from scheduled principal and interest payments and bond maturities through the remainder of 2026 total $276.7 million, with a roll-off yield of approximately 3.24%. We plan to continue to use future cash flows generated from the bond portfolio to fund higher-yielding loan growth. Slide 11 covers our loan portfolio. The loan portfolio yield declined by 23 basis points from the prior quarter to 6.09%, which was impacted by the lower day count in the first quarter and repricing of assets due to the Fed rate cuts in late 2025. During the quarter, new and renewed loans were originated at an average yield of 6.18%. The allowance for credit losses is shown on Slide 12. This quarter, we had net charge-offs of $10.3 million and recorded a $4.9 million provision. The transfer of $357 million of loans to held for sale reduced the loan balances requiring reserve coverage and contributed to a lower provision than the prior quarter. At closing, we also recorded a $22.3 million increase to the allowance related to the credit discount on the First Savings loan portfolio. As a result, the allowance for credit losses totaled $212.5 million at the end of the quarter, representing a coverage ratio of 1.39%. Slide 13 shows details of our deposit portfolio. The rate paid on deposits declined meaningfully by 23 basis points to 2.09% this quarter. Our team strategically reduced deposit rates following the Fed's rate cuts late last year, resulting in a $4.6 million reduction in deposit interest expense in the first quarter even as deposits grew by $1.2 billion with the addition of First Savings. As noted on our slide, our noninterest-bearing deposits increased to 23% this quarter, up from 16% last quarter. This was driven by the redesign of our consumer checking account products. This change more accurately reflects the strength and quality of our deposit franchise. On Slide 14, net interest income on a fully tax-equivalent basis of $157.7 million increased $12.4 million linked quarter and was up $21.3 million from the same period in the prior year. Net interest income was positively impacted by a $1.2 million recovery from the successful resolution of a nonaccrual loan. As a reminder, we had a $3.3 million recovery last quarter. Our quarterly net interest margin of 3.35% increased 6 basis points from the prior quarter despite the lower day count in the quarter, which reduced margin by 5 basis points. Our strong core margin reflected our continued pricing discipline. Next, Slide 15 shows the details of noninterest income, which totaled $5.8 million on a reported basis and $35.6 million on a normalized basis. Customer-related fees were strong with quarter-over-quarter growth in wealth management fees and gains on sales of loans. Moving to Slide 16, noninterest expense for the quarter totaled $125.1 million and included $17 million in acquisition-related costs. The acquisition costs were primarily incurred in the salaries and benefits and the professional and other outside services categories. First quarter expenses also included $1.1 million of annual benefit plan expense as well as a one-time charge of $900 thousand for the write-down of a building. The cost synergies we expect to gain from the First Savings acquisition are on track, and legacy First Merchants Corporation expenses are in line with the guidance I provided last quarter. Slide 17 shows our capital ratios. The tangible common equity ratio declined to 9% due to the acquisition and share repurchases. Since the beginning of the year, we have repurchased more than 700 thousand shares, $27.6 million year-to-date. We remain well capitalized with the common equity tier 1 ratio at 11.22% and are well positioned to support continued balance sheet growth. That concludes my remarks, and I will now turn it over to our Chief Credit Officer, John Martin, to discuss asset quality. John Martin: Thanks, Michele, and good morning. My remarks begin on Slide 18. This quarter, we streamlined the credit slides and moved the detailed loan portfolio trend page to the appendix for reference. In today's remarks, I will focus on portfolio insights, asset quality, and the asset quality roll-forward, highlighting both the diversity and overall credit quality of the portfolio. On Slide 18, total loans ended the quarter at approximately $15.3 billion, with overall credit performance remaining solid. C&I line utilization increased modestly to 51%, which we view as healthy borrower activity rather than stress. Our shared national credit portfolio totals about $1 billion across 90 well-diversified borrowers with no outsized single-name exposure. In sponsor finance, outstandings are approximately $832 million supported by strong credit metrics, conservative leverage, and healthy coverage ratios. We remain disciplined on structure and intentionally underwrite with room for downside. Within CRE, retail is our largest exposure at $859 million and is largely credit-tenant and triple-net leased, performing as expected. Construction lending totals about $900 million across commercial and residential projects, with continued emphasis on borrower equity and prudent underwriting. From a concentration standpoint, we remain well within regulatory levels with CRE construction at 40% of capital and total CRE around 181%, providing the flexibility to selectively grow while maintaining a strong risk profile. Overall, we are pleased with portfolio performance and remain focused on balanced growth and disciplined credit risk management. On Slide 19, let me briefly touch on asset quality. Our overall asset quality remains stable, and our metrics are performing within expectations. As of quarter end, nonaccruals remained manageable with the largest relationships tied to income-producing real estate, including a $9.9 million multifamily construction credit and two office-related exposures totaling roughly $12 million. These credits are well known, closely monitored, and reflect areas of CRE we have been proactively managing. Importantly, we are not seeing broad-based deterioration across the portfolio. Credit issues remain idiosyncratic rather than systemic, with no meaningful migration beyond a small number of relationships. Charge-off activity and criticized asset trends remain in line with expectations, and reserve coverage continues to appropriately reflect the portfolio's risk profile. Overall, we are comfortable with asset quality trends and remain focused on early identification, active management, and disciplined resolution where necessary. On Slide 20, turning to nonperforming asset migration, during the quarter we added a $12 million nonaccrual office, which was largely offset by a payoff of a $12.9 million multifamily construction credit. So overall, NPA levels remain well controlled, with movement driven by a small number of individual credits rather than systemic deterioration. Resolution activity continues to progress as expected, and we remain focused on early engagement and disciplined management where stress arises. Taken together, asset quality and NPA trends reinforce our view that credit risk is contained and easily manageable. I will turn it back to Mark to discuss our capital position and outlook. Mark Hardwick: Thanks, John. Good report. Turning now to Slide 21, our long-term track record of shareholder value creation remains a key strength. Tangible book value per share has grown at a 7.5% compound annual growth rate over the last ten years. Given the earnings enhancements created by the First Savings acquisition and the modest balance sheet repositioning, I am particularly pleased with the limited tangible book value dilution from year-end 2025 through 03/31/2026, which Michele highlighted in her comments as well. It is just really pleasing to be at this point with what was a pretty modest tangible book value reduction and such strength in the earning stream. It is a good place for us to be. Slide 22 highlights our 11.7% total asset CAGR over the past decade, reflecting a consistent strategy of organic growth complemented by disciplined, value-accretive acquisitions that expand our demographic and geographic footprint. The First Savings acquisition is well aligned with this strategy and meaningfully strengthens our presence in a high-growth Indiana market. We look forward to building our Midwestern strength throughout the rest of 2026 by focusing on our people, our clients, our products, and technology, and I hope it is clear that organic growth is our top priority for the year. We are going to get through the integration on May 15, and we have great momentum with the First Savings team as Michael Stewart highlighted. Thank you for your continued support and investment in First Merchants Corporation, and we are happy to take questions at this time. Operator: We will now open the call for questions. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Daniel Tamayo of Raymond James. Your line is now open. Daniel Tamayo: Thank you. Good morning, everyone. Maybe first just starting on the loan growth side. Seasonally down in the first quarter, you had the loan sale in there. Mike, you sounded pretty bullish on loan growth prospects going forward. Maybe just give us a little bit more color if you can on what is driving that, thoughts on paydowns, the timing of the slowing going forward, and if you are still comfortable with, I think we talked about, 6% to 8% growth for the year last quarter, that number still holds. Thanks. Michael Stewart: Dan, so let us start with the end. Yes, I do feel confident with that mid-single-digit growth rate and reaffirm it. What demonstrates my confidence level is we really take a look at our commercial pipelines. They are as strong as they have been historically. What I have tried to talk about is in the first quarter, we just had some stacked normal-course payoffs that were above what we would look at in a normal run rate of reduction, but the payoffs were a little bit higher. Remember, we also had a really strong fourth quarter, and some of those anticipated fourth quarter payoffs did not happen until the first quarter. It was the investment real estate portfolio that was paying along with the sponsor book, and both of those production levels were really strong during the quarter. We will see the growth come back into those businesses. The community bank model, which is the core C&I that sits in our franchise, demonstrates a really good growth rate there, which is really fundamental for us. Another point of view I can share is that I know where we stand as of yesterday. That growth is coming through in a really strong manner. If you look at how we think about normal-course or known amortization, and what we think about known-course payoffs, it was just a little bit higher, but nothing unexpected out of the blue. The production level that we had, which is on pace for about $2 billion, we have got it in the first quarter; we were just stacked with some payoffs and feel really good about where pipelines are, where those two business units are already driving record production and bringing it onto our balance sheet, and then where I have seen our current April footing through, too. Mark Hardwick: I would love to just add. You made this in your actual comments earlier, but the paydowns really came exactly the way we would hope they would come, maybe not the timing. It was investment real estate moving into the secondary market, which is what we always expect and anticipate, which is great for credit quality, and then the sponsor book, exactly as you would anticipate, that over time those sponsors liquidate those companies, sell them to maybe another sponsor, etc. It was anticipated; it was just a little more first-quarter heavy than what we had expected. Some of it we thought might have happened in the fourth quarter slid over to this, and some that we might have had queued up in the second quarter happened early because the secondary markets are good with real estate. Daniel Tamayo: Great. Very helpful. Thanks, guys. And maybe for Michele on the margin, just curious where you see that moving going forward. You will have the loan sale happening in the second quarter. I am curious how you are thinking about the impact from that. I do not know if you gave more specific timing or are able to yet other than in the second quarter, but just curious how that impacts the margin overall and thoughts for the rest of the year? Michele Kawiecki: I will address the loan sale first. As Mark said in his comments, the loans that we are selling have a weighted average coupon of 3.46%. Immediately once we get that liquidity, we will pay down some of our higher-cost deposits, and I would say those are probably averaging about 3.80%. Over time, we will invest that liquidity in loans. Of course, that will happen over the course of the next 18 to 24 months, and so we will get some margin pickup over time, but it will not be immediate. It will be a little more neutral right out of the gate. For margin over the next few quarters, just because the day count in Q1 always depresses our margin by 5 basis points, once we get into Q2, Q3, Q4, we will see margin pick up a few basis points, if anything, just because of the day count and also because I think some of the repricing from rate cuts last year, we have already seen some of that. I think rates that we pay on deposits will be relatively steady, and so I would expect there to be a few basis points of pickup on margin through the year. Daniel Tamayo: Okay. So that is inclusive of the 5 basis points reversal from the first quarter? So just to call it a handful of basis points up from the first quarter level of margin? Michele Kawiecki: Yes, that is correct. Daniel Tamayo: Okay. Well, I appreciate that color. I will step back. Thank you. Mark Hardwick: Thanks, Danny. Operator: One moment for our next question. Our next question comes from the line of Russell Gunther of Stephens. Your line is now open. Russell Gunther: Good morning. I wanted to see if you could touch a bit more on the deposit migration and noninterest-bearing this quarter, perhaps how you are thinking about the sustainability of the remix, whether you assume any runoff from the consumer product redesign, and then as a follow-up, Michele, you touched on this a bit, but just overall cost of deposits going forward. Assuming a Fed on pause, do you think you have the ability to flex that lower from here, or is there kind of a slight upward bias to overall deposit cost going forward? Michele Kawiecki: I will start with the deposit checking account redesign. We have migrated those customers to our newly designed checking accounts, and we have been tracking whether there is any runoff, and it has been very stable. I think pretty well received. We are not anticipating any runoff. I would expect our noninterest-bearing to maintain that 22% to 23% level that we are seeing today. On the deposit rates, deposit markets are pretty competitive, and so I do not anticipate that we will be lowering deposit rates meaningfully through the year. I would expect it to be overall more steady. Michael Stewart: I will add a little bit more on that. We worked at the end of last year to redesign our consumer core checking account. Now we do not have any small interest-bearing checking; it all went to noninterest-bearing. That is where the big shift from the prior quarter is. Our core primary account activity, both in units and in dollars, continues to grow. The new product set that we call Prosper and Prosper Plus is being well received in the marketplace with new features and functionalities with some of our new platforms. It aligns with how we want to represent noninterest-bearing deposits. We are in year two of very strategically remixing the deposit base to be as core as possible with less dependence on CDs and public funds. It just takes time, but we are really pleased with the progress we are making. Russell Gunther: Maybe switching gears from a capital perspective, healthy levels of CET1 with the deal closed. Do you have a sense of the potential impact from the Basel III proposal on RWAs and CET1? And then from an overall capital return perspective, would you expect to remain active in the buyback here? Michele Kawiecki: We have evaluated the capital proposals, and I would say right now our estimate is that it will benefit us probably somewhere between 50 to 80 basis points. It is really driven mostly from some of the risk-weighted asset relief, particularly on the mortgage product. That is our estimate at this time, and we will keep an eye on where it gets finalized. From a capital management perspective, given where our valuation is, we will continue to be active in the buyback space in the coming quarters. Russell Gunther: Great. Very helpful. Thank you for taking my questions. Michael Stewart: Thank you. Operator: One moment for our next question. Our next question comes from the line of Brendan Nosal of Hovde Group. Your line is now open. Brendan Nosal: Hey, good morning, everybody. Hope you are doing well. Maybe just sticking with capital for a moment. As we all know, pro forma readings came in stronger than expected even with the repositioning of the mortgage portfolio. Totally get that you want to remain active in the buyback and loan growth is going to pick up here, but just kind of curious if you see any other need for additional sheet optimization over the course of the year? Mark Hardwick: If you mean additional loan or bond sales, we are not anticipating anything else. We think this is kind of perfect for 2026. It gives us liquidity so that we can continue a mid- to high-single-digit loan growth number that we talk about. It allows us to stay really diligent with deposit pricing and just remix the loan book at this point—we are cognizant of the loan-to-deposit ratio as well—from lower-yielding loans in our portfolio with a little longer duration to higher-yielding loans with shorter duration. At least in the coming months, I am not anticipating anything further. We evaluate all the time what our options are, but we are really pleased with the earn-back and especially the modeling of this, the way Michele talked about it. We assumed our mid- to high-single-digit loan growth would continue in a normal course the way we budgeted for a couple of years, and instead, if we redeploy this money out of mortgages into commercial over a 24-month window, what kind of pickup do we have, and that is how the four-year earn-back was calculated. I am pretty confident that we will be able to accelerate some of that. This year, we will be using that liquidity for current loan growth. You can model it a lot of different ways. We think the four-year earn-back is the most conservative, but just want to be sure everyone understands how we are thinking about it. Brendan Nosal: That is helpful color, Mark. Thank you. Maybe pivoting to a question on First Savings. Now with the deal closed and on the books, can you give us your latest thinking on how you view their three specialty businesses now that you have had time to see them in action? I heard your commentary on SBA, but I am more curious about first-lien HELOC and the triple-net lease product. Mark Hardwick: It might be a good point to just reiterate how well the integration process is going. The connectivity of our teams is the best it has ever been in an acquisition. I will let Mike jump into that answer because Mike has never been closer, on the ground, to every single action that we are taking, especially in those verticals. I am really pleased with where we stand today and excited about getting through the integration and then moving forward. Every day that we own the company, the more excited I am about the verticals. Michael Stewart: Let us start with the triple-net lease. Since the end of the year through the close through now, their production has remained very stable, which is a good thing in my opinion. They were originating triple-net lease on somewhat of a national basis, and they would sell that portfolio or put it on the balance sheet. It is an extension of investor real estate. It is an extension of what we understood but we really did not focus on. It feels natural for us to be able to continue to support how Tony and his team are continuing to generate triple-net lease business in an originate model. We give the option to put it on the balance sheet if we so choose or sell. The first-lien HELOC business is a unique business for us. They built a really nice model that also has continued to have similar production levels through this period of time. That has been for them a complete originate-and-sell. We have got secondary buyers on that and the secondary services. It is a fee generation business. There is some of that on our balance sheet today. It was on their balance sheet, so we have just modeled that we will keep our balance sheet flat for the first-lien HELOC, and as they continue to generate new business, it turns into fee income—much like our current mortgage business, our originate-and-sell model. And then like I referenced with SBA, they built a really nice infrastructure and ability to not only originate but underwrite and service and collect, which is just not a model that we had built. They were doing around $100 million of SBA transactions last year. First quarter production is actually higher than they were, again during this noise period of time with First Merchants Corporation. First Merchants Corporation’s SBA production last year was less than $10 million. Our infrastructure of small business banking and community banking looks to them as a new product set to continue to fulfill community banking and SBA products in our own backyard, which they really were not overlapping with us. It is just a natural extension of bringing them more volume and letting them be the fulfillment team. We are watching it through integration day, and then my team here is regularly working on what I call day two. We are going to continue to figure out where we want to go with growing the businesses or continue to incorporate into our core models. Mark Hardwick: Part of the reason we are so bullish about loan growth for the remainder of the year, the verticals are a really nice add. We have stayed in the credit profile and size that First Savings operated the business, but we do see opportunity mostly in the size of credits to start to make some adjustments, especially when you think about the triple-net lease business. It is a lever that we could use. So far, we have said, wait, let us just maintain the growth profile and the size of each credit exactly the way it is, and I would just say it leans on the small side. We are excited about how it can continue to help facilitate our growth in the future. Brendan Nosal: Thank you for taking my questions. Appreciate it. Operator: One moment for our next question. Our next question comes from the line of Damon Del Monte of KBW. Your line is now open. Damon Del Monte: Hey, good morning, everyone. Hope you are all doing well today. First question regarding the margin. Michele, hoping you could give a little color on the expectation for the fair value accretion marks that we could expect going forward? Michele Kawiecki: For the first two months of us having the First Savings acquisition, we recorded probably $1.5 million of fair value accretion. That is on a two-month basis. I would consider the run rate on a go-forward basis to be fairly similar on a full-quarter basis a little over $2 million. Damon Del Monte: Great. And then could you give us a little guidance on the outlook for the combined expense base here in the second quarter as you get a full impact from FSFG? Michele Kawiecki: I would reiterate the guide that I gave last quarter on legacy First Merchants Corporation. On the legacy base, I had given guidance that we expected a 3% to 5% increase year over year, and then you add in First Savings, but in the back half of the year recognize the cost synergies that we are on track to achieve. When you put all those pieces together, the quarterly expense total, on a quarterly run rate, will probably be somewhere between $111 million to $114 million. Damon Del Monte: And you think that level is once the savings hit, so kind of like an exit rate in the fourth quarter? Michele Kawiecki: Yes. Damon Del Monte: Lastly, when you think about market disruption, broadly speaking, and opportunity to maybe pick up commercial lending teams, are there any plans to add certain areas of the footprint, or do you feel that the efforts you have put forth in recent years are sufficient and you have a good team at the table right now? Michael Stewart: Yes, we look very opportunistically and very strategically right now in overlap markets where being able to add quality talent in our markets would just augment our brand and growth, so we are very active in that space—especially the Michigan market, in particular. I referenced that we have had continued strategic hires along the way. That is part of our business model of 2026. We added new bankers through asset-based lending, through investment real estate, through sponsor, but more importantly our core community bank, with several more joining soon in treasury management. This continues to build the infrastructure. That is not including what we have recently done in the private wealth group, which had really nice fee growth as we continue to win. Damon Del Monte: Great. Appreciate that, Mike. That is all that I had. Thanks a lot, everyone. Operator: One moment for our next question. Our next question comes from the line of Nathan Race of Piper Sandler. Your line is now open. Nathan Race: Hi, everyone. Good morning. Thanks for taking the questions. Michele, was wondering if you could frame up fee income expectations for the second quarter, and just if you are still thinking kind of mid- to high-single-digit growth for the full year. And what you are contemplating perhaps coming from First Savings—whether some of the verticals that you discussed earlier, whether it is single-tenant lease or first-lien HELOC—could be a driver for gain-on-sale revenue going forward, given that I imagine those relationships do not really come with deposits. Michele Kawiecki: When you look at our Q1 normalized level of total noninterest income, it was $35.6 million. Where I think about that going in the coming quarters, I would expect to get a full quarter of First Savings with the expectations that we have on gains on sales of loans coming from those verticals as well as our mortgage business. I would expect Q2 to see a lift of about 3% to 4% versus Q1, with a similar trajectory in the back half of the year. Nathan Race: Got it. And I jumped on late, so apologize. John, if you could touch on the drivers for the charge-offs in the quarter. Were there any First Savings loans that came through in some of those charge-offs? Just generally, how you are thinking about some resolutions of some of the NPA inflows from First Savings and the legacy resolutions as well going forward? John Martin: The charge-offs for first quarter were really legacy First Merchants Corporation. There were two main names I mentioned in my comments that came out of the portfolio—more idiosyncratic, normal-course charge-offs out of the regional bank and not sponsor finance. It was not really driven at all by charge-offs coming out of First Savings. The asset quality there thus far—and it is early—has been fine. We run processes every quarter and assess what is in that NPA bucket and just keep our eye on the level, actively working with borrowers to work out credits as well as any other strategic loan sale if we choose to go that direction. For the most part, it is just normal-course charge-offs that happened in the first quarter. It was higher because we had a couple of names that we have been working for some time that finally came to a head and we moved on. Nathan Race: And assuming charge-offs normalize to the levels that we saw during last year, do you see a need to provide for that high-single-digit loan growth guidance that you reiterated and just kind of grow into your unallocated excess reserves? Michele Kawiecki: Typically, we start with the goal of providing for our loan growth, and then it really just has to get adjusted based on the economic model. Right now, we are in a really good place when we look at the different economic scenarios that we run and within that range. Nathan Race: Got it. I appreciate all the color. Operator: One moment for our next question. Our next question comes from the line of Brian Martin of Bryn Mawr Capital. Your line is now open. Brian Martin: Thanks. Just one thought, Michele—you talked about the roll-off rate on securities. Just on loans, can you remind us now with FSFG what is repricing over the balance of the year and what type of pickup you get on what is coming due? Michele Kawiecki: One of the things that generally you are interested in, Brian, is on the fixed-rate loans. Our fixed-rate loan maturities are about $100 million that mature at a rate of about 4.5% each quarter, so there is definitely a tailwind there. As you know, two-thirds of our portfolio reprices pretty much immediately with any rate changes, and the rate changes that we had in the back half of the year—I feel like a lot of that asset repricing is already reflected in our overall portfolio yield. Brian Martin: Gotcha. Mike, you talked about the people you hired. It sounds like you hired five or six people recently. Just want to get a sense if they are already included in the loan pickup, or anything that is coming from them is not yet in the run rate? Michael Stewart: They are not in the run rate yet, but they were smart first-quarter additions. First quarter is typically a time when bonuses get paid and people that were actively looking to move take that determination, and we were in tune with that. Michele Kawiecki: I would add on top of that, Brian, in the guidance that I gave—if you recall my remarks when I gave the year-over-year increase on legacy First Merchants Corporation expense base of 3% to 5%—the reason why it is leaning a little bit higher than we normally operate is because we did anticipate hiring and adding to our commercial team and our private wealth team, which is what Mike is talking about. So that is built into the guidance that I provided. Mark Hardwick: I started to mention earlier, I think we added 15 FTEs in that space last year, and we have 10 in the plan this year. We are really pleased with the opportunity—the individuals that are available to us, that are interested in First Merchants Corporation—and their performance when they are on the team. But when Mike talks about the new 10 or so that we are hiring, we are not anticipating immediate performance. Brian Martin: And those you hired—were all those hired in the first quarter, or some of those hired last year? Michael Stewart: The 15 were throughout the year last year, a little more back-end. We have 10 planned this year that I referenced—six in commercial and two in private wealth—and a couple of them also replace. That was not this quarter. We are off and running like we wanted to so that production should start to see itself by the back half of this year. Brian Martin: Gotcha. Michele, just on the margin for a minute, given the day count change, is it a jumping off point maybe a little bit lower than where it ended, but you still maybe see a 3 to 5 basis point pickup just given the day count—something off of the current level—as we go into Q2? Michele Kawiecki: That is right. I do expect to see that kind of pickup. I know we have talked about a lot of the pieces on our earnings. Overall, I feel like consensus is in the right place. It reflects what we expect to deliver this year, and I wanted to reiterate that point. Brian Martin: Gotcha. Last two for me. Just the tax rate, and then there was some commentary recently about your commitment to the SBA by the government. Any thoughts if that changes your outlook on the SBA business? Mark Hardwick: Not on the SBA, not yet. Our chair, Jean Witowicz, is in the SBA business and has her own company that is what they do. We have had a really good understanding of SBA for a long time. We have now acquired a significant business in that space through First Savings. We feel like we have a good handle on it and we are excited about the future. Michele Kawiecki: And Brian, to respond to your tax rate question, a 13% effective tax rate is what we would expect on a normal quarterly basis. Brian Martin: And I think you said, Michele, the accretion is around $3 million? What is the quarterly accretion you are thinking about with a full quarter in there—is that kind of the range of $3 million to $4 million? Michele Kawiecki: It will not quite be that high. It was $1.5 million over the first two months that we had First Savings, and so I expect it to be a little over $2 million per quarter from their piece. The remaining pieces, aside from First Savings, have typically run about $1 million or so, sometimes a little less depending on what we see. Brian Martin: Perfect. Thank you for taking the questions, and congrats on the quarter and the transaction. Operator: I am showing no further questions at this time. I will now turn it back to Mark Hardwick for closing comments. Mark Hardwick: Thank you. My closing comments are to stay as high level as possible. We remain incredibly optimistic about the remainder of the year. Some of it there is no way that you can see; it is just what we see and what we feel. The speed of play keeps improving. I feel like the culture of our company is so strong. We have incredible teamwork and a sense of urgency that I have not maybe felt in the past. Throughout all the lines of business, people are getting after it and producing results. That includes our ability to handle something like First Savings—continuing to run the business and build great relationships and ensure an effective integration is an area where I am incredibly confident. The drivers of our performance continue to be really good. Our balance sheet growth—we remain optimistic even though the quarter was flat—feels great for the remainder of the year. Margin management is in probably the best place it has been in a while. It has been challenging since 2023, since Silicon Valley, and I feel like we are in as good a spot as we have been in a while. Fee income has been growing double-digits for an extended period of time, and the growth rates year over year were all in the double-digit range across the categories we disclose. Our expense control has been something we have been great at for years. We have adequate capital. It is allowing us to be active in the share repurchase space. If we are going to trade at these levels, then we are going to be active in buying back our own shares. I think it sets us up for a really strong 2026 and feeds into 2027. I appreciate your investment in the company and am happy to continue to have one-on-one discussions with any interested investors or current investors for that matter. Thanks for your time. We appreciate it, and we will talk to you next quarter. Operator: This concludes today's conference. Thank you for your participation, and have a great day. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Hexagon Q1 Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead, sir. Anders Svensson: Thank you, operator. Good morning, everyone, and welcome to Hexagon's First Quarter 2026 Conference Call. First, I will direct you to the standout cautionary statement, and then we turn into the next slide. Before I begin, a reminder that the upcoming potential spin-off of Octave, we are now presenting Octave as discontinued operations. We have provided this first bridge here for you to understand the performance of continuing Hexagon, Octave and taking them both together, meaning the former Hexagon Group. Looking at the headline numbers for the first quarter. Hexagon continuing operations delivered a revenue of EUR 964 million, with an organic growth of 8%. EBIT was EUR 251 million, giving us an operating margin of 26%. Octave generated EUR 327 million in revenues, organic growth was 1% and EBIT1 of EUR 83 million, delivering an operating margin of 25%. At the former group level, including Octave, revenues were EUR 1.29 billion, with organic growth of 6% and an operating margin of 26%. During the quarter, we also completed the sale of our Design & Engineering business on the 23rd of February, and the business was deconsolidated as of that date. Today, unless I mention otherwise, I will discuss Hexagon, the continuing operations, excluding Octave and with D&E deconsolidated as of the 23rd of February. Mattias will cover the Octave business separately after Norbert. So turning to the agenda for today on the next slide. So I will start with taking you through Hexagon's performance in the first quarter, and then dive into our business area performance. Norbert Hanke, our interim CFO, will then take you through the Hexagon financial performance. He will then hand over to Mattias Stenberg, CEO of Octave, who will then cover the Octave performance in the quarter. We will then, of course, have time for your questions at the end of the presentation. So next slide. Starting with the first quarter performance then for Hexagon on the highlights of the quarter slide. The first quarter of '26 was a strong start of the year and also a busy one for us at Hexagon. We delivered 8% organic growth with a gross margin of 63% and operating margin of 26% and cash conversion at 77%. Alongside this strong financial performance, we continue to take decisive portfolio actions to sharpen Hexagon's focus on the core precision measurement and positioning opportunities. We completed the Design & Engineering business sale to Cadence for approximately EUR 2.7 billion in cash and stock. And here in April in the second quarter, we announced the agreement to acquire Waygate Technologies from Baker Hughes for approximately $1.45 billion. And this is then expanding Manufacturing Intelligence into the very attractive area of nondestructive testing. And I will cover this more in detail on the next slide. Mattias and Octave team held Investor Day in New York on March 26 with the spin-off expected to become effective on May 22. We also continue to build the new Hexagon executive team. Renée Rädler has been announced as the Chief People Officer on the 1st of April, and Enrique Patrickson, who will join us as Chief Financial Officer on the 24th of April, meaning tomorrow. And I wish Enrique welcome to Hexagon, and both of them welcome to the executive team. And I'm happy to have you on board. Finally, a humanoid robot, AEON, is making excellent progress in the past quarter. AEON successfully completed a pilot at BMW and will be deployed in production at the Leipzig facility. It is a significant milestone in demonstrating the real-world industrial capabilities of AEON. In parallel to this, our pilot at Schaeffler has resulted in an agreement to deploy up to 1,000 AEONs in the next 7 years. This is a big step that we communicated here in April as well. Then we expect commercialization of AEON by the end of 2026. So a very active quarter of delivery. Let me now give you the overview of the Waygate acquisition. So next slide. Acquiring Waygate is a natural next step for us at Hexagon as a market leader in the nondestructive testing, they fit very well into our portfolio focus on precision measurement and positioning technologies. They're completing the measurement chain from surface to the interior of components. The computed tomography hardware combined with our volume graphic software creates a unique value position for customers. And the business also brings exposure to maintenance, repair and operation markets with recurring utilization-driven demand, which boosts our exposure to the growing aerospace markets. Waygate has a portfolio of assets with different growth and margin profiles. This brings a meaningful opportunity for us to create value. RBI is already growing very well at good and healthy margins of about 30% EBIT. Radiography is a strong business where we can leverage our manufacturing and sales footprint to really drive synergies across the business and leverage shareholder value. The ultrasonic testing and imaging solutions are also very good assets. But here, we will assess the position of those assets. They are either challenged by not being market leaders or they have a -- not a perfect strategic fit for us. So we will look at these assets from different perspectives, and we will try to then either through acquisitions make them into market leaders or we will have also the possibility to go through strategic reviews or do turnarounds of these assets. Now turning to our organic growth performance in more detail for the quarter on the next slide. So we delivered a strong organic growth of 8% in the first quarter and that's a significant acceleration from the prior year. This was primarily driven by Autonomous Solutions, which grew 13%; Manufacturing Intelligence, which grew 9%. Both businesses benefited from growth in aerospace and defense. Geosystems grew 2%, while completing the channel destocking program that I talked to you about in the fourth quarter report. Excluding this impact, the underlying growth would have been 4% for Geosystems, which gives us the confidence in that the momentum is again building within Geosystems. Recurring revenues grew 6% driven by continued momentum in construction software subscriptions and also GNSS correction services. You can see the rolling 12-month figures in the chart on the right. For the full transparency, excluding the impact of our Design & Engineering business, software & services account for 44% of sales for the remaining Hexagon corresponding to recurring revenues of around 28%. The new product adoption is also progressing very well, especially if you look at our laser tracker, ATS800, and also our new robotics total station, TS20, and this is, of course, supporting the growth trajectory across our businesses. Turning now to the development by region and industry in the quarter. So on the next slide. Here, you have a snapshot of the development, and I'll start with the geography. The Americas was the strongest region delivering a 15% organic growth with a positive performance across all of our business areas. North America was especially strong, while South America was weaker. EMEA recorded 4% organic growth with broad-based contributions across the portfolio. China reported a decline of 4%. Performance in Manufacturing Intelligence was very solid, but the wider China business was impacted by the weaker Geosystems business and also by the completion of the destocking actions taken within Geosystems in China. Without the destocking initiative of roughly EUR 8 million in the quarter, there was actually also single-digit growth in China as a whole. The rest of Asia delivered 7% organic growth, a solid performance, reflected the good momentum in several of our key markets in this region, and especially a strong India. By industry, if we look at it like that, construction remains our largest vertical, and we recorded a strong growth in Americas with also good growth in Western Europe. General manufacturing, the second largest vertical showed broad-based strength across all the regions. Aerospace and defense continued to perform strongly, while Mining was more mixed with uncertainty impacting the demand in South America. We also had some pull-in of deliveries from the first quarter into the fourth quarter last year, and that had some negative impact for the first quarter. Automotive remained under pressure, particularly in the EMEA, but we also saw signs of weakness in China. Electronics was very strong in the quarter, and this is primarily then in China and rest of Asia. That's where a strong majority of our exposure is, and it was very strong growth. Agriculture, while only being 2% of our sales, still remains weak globally. I now turn into profitability on the next slide, and I'll start with the gross margin. And I want to say first that the Design & Engineering that normally operates with strong margins had a challenged start to the year. So while it was very strong in the first quarter of 2025, which is the reference period, it performed quite badly during the 6, 7 weeks that it was within our business before it was sold on the 23rd of February. There's a lot of reasons for that. But if we exclude the impact of Design & Engineering in both periods, both in the first quarter of '26 and the first quarter of '25, the gross margin was 62%, and in the comparison period, 62.6%. So it's 60 bps down year-on-year. Gross margin was, however, stronger in this quarter than in the last 2 quarters, quarter 4 and quarter 3 of 2025. And you will also be able to see this in the appendix slide attached to this presentation. The ramp-up of new product sales continue to support cost volumes, but this was offset by a full quarter of tariff impact. And in the comparison period, there was very little tariff impact. And we also had input cost inflation and also on freight, and this is driven then by the Middle East conflict primarily. If you look at the currency for the quarter, that also created a significant headwind. Going forward, we will mitigate these pressures through pricing and also freight surcharges, et cetera, and actions are already taken at the end of the quarter. But the full impact of this given our delivery times should be seen in the third quarter. Turning now to operating earnings. During the first quarter, we delivered an operating margin of 26.1% versus 25.9% in 2025. Importantly, excluding also here the full impact of Design & Engineering business in both periods, the operating margin grew 80 basis points versus the previous year. And this, I would say, is a meaningful improvement, driven by the organic growth performance and benefiting from our restructuring program that we communicated in the second quarter report. With some of the contributions also a gain from a sale of a building within the quarter of about EUR 8 million. Offsetting our good performance was, like as mentioned, a weak Design & Engineering performance and tariffs and cost inflation. We also saw the strong currency headwind on EBIT, and that corresponded to a negative 60 basis point performance. Year-on-year reduction in capitalization to amortization gap, which we have talked about before, had an impact of 70 basis points negative. A key driver for the margin improvement was the cost reduction program. We benefited here about EUR 10 million during the quarter, and the program remains on track for a total savings within Hexagon at EUR 74 million at the end of the year. We also had generally good cost control despite the growth, and that also, of course, supported the performance. Now turning to the business area performance. I'll start with Manufacturing Intelligence. MI delivered a revenue of EUR 433 million and an organic growth of 9%. We also had a very strong order intake in the quarter, which is positive for the coming 2 or 3 quarters. If I start with the geography, the Americas was the strongest region, but we also saw growth in EMEA and Asia. By industry, Aerospace & defense continue to perform very strong and the automotive business remained under pressure, particularly in the European markets, but as I mentioned, also in China. Operating margins came in at 23.7%, down from 24.6% in the first quarter of last year. And this reflects the impact of currency headwinds and tariffs and the weak D&E performance in this year, which more than offset the positive operating leverage from higher volumes. Again, if we eliminate D&E as we have divested these parts from both periods, the operating margin improved from 23.1% to 23.6%, so 50 bps up. Looking ahead, we had an agreement to acquire Waygate Technologies, and this is a transformative step for Manufacturing Intelligence, and it expands, as I mentioned, into the adjacent nondestructive testing market and positions us to offer customers a truly end-to-end precision measurement solution from the surface to the interior and through the life cycle of products. And as I mentioned earlier, we did divest D&E on the 23rd of February. If I move then into Geosystems slide. Revenue was EUR 349 million with an organic growth of 2%. And even if -- great to see a return to growth here, I should note again that if we disregard the China destocking program, which now has ended, the actual underlying growth of Geosystems was around 4%, which is a more accurate read of the demand environment within the business. By geography, America was the strongest. EMEA was broadly flat. And we saw solid performance in the Western Europe, offsetting the weakness we saw in Middle East. In Asia, China reflected a destocking that I mentioned, but India performed very well. By end markets, construction software & services delivered double-digit growth, very good to see, and we are seeing also the contribution of the TS20 total station. Operating margins were 26.9% compared to 27.4% in the prior year. The decline primarily reflects currency headwinds, which were partially offset by strong cost discipline and favorable product mix. Turning now to our superstar of the quarter, Autonomous Solutions on the next slide. Revenue was EUR 176 million and organic growth of 13%. By industry, aerospace and defense continues to be a major growth driver with very strong demand. Mining was more mixed in the quarter. Customers remain cautious with capital expenditure, which also softened the demand for equipment investment, but our mining and safety business remained resilient during the quarter. Agriculture, as I mentioned, is subdued globally. We are not worried about the mining business in the midterm. There is a lot of activity. But as I said, a bit of hesitation with high oil prices for capital investments. By geography, both America and EMEA delivered strong double-digit growth, and APAC declined. Within the product portfolio, demand for anti-jamming solutions and GNSS correction services was particularly strong in the quarter, benefiting from the growing need for a secure and reliable positioning in defense, but also in critical infrastructure applications like aerospace. Operating margins expanded to 34.1%, up from 31.6% in the prior year, 250 basis points improvement is strong, and that's driven primarily by the strong operating leverage on the higher volumes and also a favorable product mix. Of course, also here, partially offset by currency headwinds and tariffs. That concludes my overview of the business area performance, and I will now hand over to Norbert, who will take you through the Hexagon continuing operations financials. Go ahead, Norbert. Norbert Hanke: Thanks, Anders. I will take you now through the Q1 performance. Unless stated otherwise, the slides and my comments will relate to continuing operations, so it will exclude Octave. Turning to the next slide, please. Let us begin with the Q1 2026 income statement, taking the sales bridge first. Revenues were EUR 964 million with a reported growth essentially flat year-over-year. Currency had a negative impact of 6%, and there was a 1% negative structural effect from the sale of D&E, resulting in organic growth of 8%. Gross earnings were EUR 606 million with a gross margin of 62.9% compared with 64.4% in Q1 last year. The 150 basis point decline reflects currency headwinds, tariff impacts and cost inflation that Anders discussed earlier. As he also mentioned, excluding the full impact of D&E, the decline would reduce to 60 basis points. EBIT1 was EUR 251 million with an operating margin of 26.1%, up 20 basis points year-on-year or up 80 basis points, excluding D&E. This improvement was supported by the cost restructuring program and organic growth in the quarter, partially offset by a reduction in the R&D gap of 70 basis points and currency. Earnings before taxes grew 4% to EUR 224 million supported by the operating improvements. Earnings per share were at EUR 0.067, up 3%. Next slide, please. Now moving to the bridge. As discussed, net sales were essentially flat on a reported basis with organic growth of 8%, offset by currency headwinds and the structural impact from D&E. On operating earnings, EBIT1 increased to EUR 251 million from EUR 249 million last year. The improvement was driven by the cost restructuring program and the net gain of the sale of the facility, supporting organic performance in the quarter. Currency represented a meaningful headwind with a 35% drop through, primarily reflecting the weaker dollar. On the margin bridge, we expanded 20 basis points to 26.1%, both organic and structural effects were accretive, while currency diluted margins by around 60 basis points. Next slide, please. Turning now to the restructuring program. We are targeting EUR 74 million of annualized savings with the full run rate expected by the end of 2026. In Q1, we delivered EUR 10 million of incremental savings, bringing the annualized run rate to EUR 51 million. We are therefore well on track and progressing towards our targets. As shown on the chart, we expect continued ramp-up through 2026, reaching the full EUR 74 million run rate by year-end. This program continues to be a meaningful contributor, and we remain confident in the delivery. Next slide, please. Turning to cash flow, where we continue to demonstrate strong operational discipline. Adjusted EBITDA was EUR 351 million, up 3% year-on-year, reflecting organic growth and benefits from the restructuring program, partly offset by currency headwinds. Capital expenditure amounted to EUR 76 million, down 38% versus the prior year, partly driven by proceeds from the sale of a building following our footprint rationalization. This resulted in cash flow post investment of EUR 250 million, up 16% year-on-year. Working capital was an outflow of EUR 56 million, reflecting the normal seasonal pattern in Q1 as we see activity ramping up through the quarters. As a result, operating cash flow before tax and interest was EUR 194 million. This translate into a cash conversion of 77%, a significant improvement from 60% in Q1 last year. After taxes of EUR 46 million and net interest of EUR 24 million, cash flow before nonrecurring items was EUR 124 million, up 84% year-on-year. Next slide, please. This slide shows working capital to sales on the new Hexagon base, providing a view of the underlying trend. On this base, Q1 performance is in line with normal seasonal patterns. Net working capital was an outflow of EUR 56 million compared to EUR 68 million in the prior year. The rolling 12 months working capital to sales ratio improved to 11.9%, trending down versus last year. So to conclude, we delivered organic growth of 8% with stable margin despite significant currency headwinds and gross margin pressure on tariffs and input cost inflation. Cash conversion improved to 77% and the restructuring program continues to deliver with EUR 10 million of savings in the quarter and an annualized run rate of EUR 51 million. Looking ahead, currency is expected to remain a headwind, and we remain focused on execution. I will now hand over to Mattias. Next slide, please. Mattias Stenberg: Thank you very much, Norbert. Let's take a look at the first quarter results for Octave. What you're seeing in the numbers this quarter, it's not just a transition to recurring revenue. It truly reflects the early impact of connecting workflows across the asset life cycle, which is where the real value in this business sits. Recurring revenue grew 6% organically compared to the prior year, with SaaS revenue continuing to grow at strong double-digit rates. Reported organic total revenue grew 2%, whereas reported revenue is down year-over-year, driven by currency impact and the disposal of the federal services business that we did last year. If you look at monthly project-driven subscription license revenue, that was roughly flat with the prior year period, while perpetual licenses and professional services revenue declined, reflecting the deliberate shift we are doing towards subscription-based models. The EBIT for the first quarter reflects the lower perpetual license contribution together with lower levels of R&D capitalization and higher related amortization. Excluding these factors, underlying profitability was in line with the prior year period as disciplined cost savings offset incremental public company costs. Cash conversion was a healthy 118% in the quarter. Next slide, please. If we look at our workflow environment in Q1, the trends were consistent with our expectations. In Design, perpetual license sales declined, while monthly subscription licenses continued their sequential improvement. Build delivered strong double-digit growth driven by SaaS adoption in construction and project controls. Operate also saw strong revenue growth across quality management, APM and EAM. And in the Protect area, recurring revenue continued to grow offset by lower perpetual licenses and services revenue. Our advantage, however, is not in a single product. It is in how these workflows connect. Intelligence created in design, build, operate and protect becomes more valuable when it is shared across the life cycle. Next slide, please. To the left here, you can see the monthly subscription licenses. We saw a step down as earlier discussed in the activity level in early 2025. However, since then, we've seen sequential improvement, and that positive trend continued in Q1, and we do expect year-over-year comparisons to get easier as we move through 2026. In the middle chart, you can see that excluding this short-term volatility from project-driven licenses, the underlying trend is, in fact, strong. Recurring revenue continues to grow at a high single-digit rate, reflecting healthy underlying momentum across the portfolio. And on the right, you can see that our quarterly perpetual licenses continue to decline in line with expectations as we shift towards recurring revenue models. We do expect this shift from perpetual to continue to pressure total revenue growth for the remainder of this year. Next slide. If we turn towards some of the information we shared at Octave's first Investor Day in March, and if you haven't watched it yet, you can access the videos and presentations at the Investors page at octave.com. One of the key takeaways that we discussed there was that we expect to accelerate organic recurring revenue growth to 10-plus percent over the medium term. Approximately 2/3 of that ARR growth is expected to come from our existing customer base. What underpins this is that expansion within our installed base is driven by the multi-workflow adoption where we see a clear step-up in ARR as customers move beyond a single workflow. We expect the remaining 1/3 of growth to come from new customers as we invest in growth areas and expand the partner channel to broaden our coverage across geographies as well as customer segments. Next slide, please. Turning to customer highlights in the quarter. We had a number of important wins, both for new logos as well as expansion. And I think these wins really reinforce several of the strategic themes we outlined at our Investor Day in March. If we start with new logos, we added Visa CashApp Racing Bulls for enterprise asset management to handle their logistics and operations in their F1 business through a multiyear SaaS contract. We signed both BNSF Railroad and Spokane 911 on multiyear SaaS deals for our OnCall Dispatch platform. We also landed a leading U.S.-based LLM developer on a design subscription for their facilities infrastructure. And these wins demonstrate 2 things that we emphasized at our Investor Day: the diversity of our addressable market across mission-critical industries and our ability to land new customers on recurring SaaS-based contracts as we accelerate the shift towards recurring revenue. On the expansion side, I want to highlight 2 deals that could not have happened a year ago, frankly, from an organizational perspective as these businesses then sat in separate Hexagon divisions. The first, a global motion and control leader and existing design customer expanded into operate through a 4-year strategic agreement, adding both our EAM and ETQ solutions across their global manufacturing operations. The other one was Kimberly-Clark, who signed a deal that consolidates over 700 of their systems onto our platform in a 5-year SaaS conversion spanning design and operate. And I think this is a great illustration of our -- how our opportunity for ARR per customer expansion where customers adopting 3 or more workflows consistently reach 7-figure ARR levels. And while the 86% of our customer base is still on a single workflow, and that is the expansion runway embedded in this business. We also expanded with a leading European chemical producer displacing a competitor for critical communications across their production plants. This customer now runs on Octave across all 4 workflow environments, design, build, operate and protect, validating both our platform strategy as well as the value customers see in consolidating onto our solutions. And lastly, we cross-sold our build solutions into a long-standing design customer with a major copper mine operator, extending our relationship to include project controls. So to me, what these examples really show is that once we land in one workflow, expansion into adjacent workflows is not theoretical. It is happening, and it materially increases our ARR. So in summary, the Q1 customer activity validates our strategy. We're winning new logos on SaaS, expanding within our base across the workflows and displacing competitors where our integrated life cycle approach gives us a clear right to win. And this is what differentiates us. We are not competing as a point solution. We are competing as a life cycle partner for mission-critical assets where failure is not an option. Next slide, please. So if we turn to our Investor Day outlook, in the nearer term, 2026 is a transition year as we become an independent public company. We're targeting 3% to 4% total revenue growth on the back of 6% to 8% ARR growth with adjusted operating margins stepping down modestly as we absorbed roughly 100 basis points of public company costs and up to 100 basis points from revenue model shift, net of savings. We do expect revenue growth to be second half weighted, reflecting both the recovery in monthly subscriptions and the typical back half seasonality of enterprise software bookings. For the second quarter on a U.S. GAAP basis, we expect organic recurring revenue growth of 6%, so similar to Q1. And we expect organic total revenue growth to be flattish year-over-year due to the declines in perpetual licenses that we have discussed. On a reported basis, which will reflect, again, then the disposal of the federal services business, we expect second quarter total reported revenue to be down approximately 4% over the prior year. Next slide, please. Our medium-term ambitions remain as we laid out in March. ARR growth of 10-plus percent and total organic revenue growth of 6% to 8%. Over time, of course, these growth rates will converge as recurring revenue becomes a larger and larger part of total revenue. We also expect free cash flow margins to expand from today's level of roughly 20% to 23% to 24% of the medium term. Next slide. So I'd like to close by reiterating why we believe Octave is a compelling investment. We operate in a large and growing market. It's $28 billion today, reaching $40 billion by 2029. We have a deeply embedded sticky installed customer base with 97% gross retention and significant room to expand. Our recurring revenue base of $1.1 billion continues to grow as a share of the mix. AI amplifies the value of 3 decades of domain data and context that is very hard for anyone to replicate. We are leaders in our product categories as recognized by basically all the major industry analyst firms. We operate in mission-critical environments where failure is not an option. And as customers connect workflows across the life cycle, value compounds and expansion becomes more predictable. That is the foundation for sustainable growth and profitability as we scale as an independent company. So final slide, please. So as a reminder, on the key dates for the separation. The Hexagon AGM vote is tomorrow, April 24. And assuming approval, the record date and effective date for the distribution is May 22, with Octave SDRs expected to begin trading on Nasdaq Stockholm on May 26, and the Class B shares on Nasdaq New York on May 28. So with that, thank you very much. And I'll hand back to you, Anders. Anders Svensson: Thank you, Mattias. Let me jump forward directly into the Q1 summary slide. So Hexagon delivered a strong financial performance. Our cost restructuring program is clearly on track and delivering. On the portfolio side, we completed the sale of our Design & Engineering business to Cadence, and we also announced here in April an acquisition of Waygate Technologies. As we have heard, the Octave spin is remaining on track. And all these actions are then sharpening Hexagon's future focus on the core positioning measurement technologies, positioning technology and autonomy opportunities. Our full executive team is now in place, as I mentioned, with Enrique and Renée. And looking ahead, we have a solid foundation entering into the second quarter. We had a strong order intake within Manufacturing Intelligence. And with the closure of the Geosystems destocking program, we provided a clean base for growth of Geosystems going forward. We remain, of course, attentive to the macroeconomic situation, particular to the tariffs, currency dynamics and also what's happening in the Middle East situation. We are, however, very confident on the momentum of our different businesses going forward. And as we have just heard from Mattias, Octave generated another very strong quarter of SaaS growth, contributing to recurring revenue growth in the mid-single digits. Before I move forward, I want to take this opportunity to thank you, Norbert Hanke, who has been an excellent interim CFO, covering from the gap in August 2025 when David Mills was stepping down. And now handing over to Enrique Patrickson. Norbert will remain as an Executive Vice President at Hexagon, leading our ventures operations and also strategic projects. And I'm very much looking forward to continue working with you, Norbert, in that capacity. Before we move to the Q&A, I would like to draw your attention to an upcoming event on the next slide. We will be hosting our Capital Markets Day in April, at April 30. That's next week, Thursday, in London. And this will include strategy updates from each of our business areas. And also importantly, we will present the new updated financial targets for Hexagon, reflecting the new portfolio composition that I have spoken about today. So of course, I encourage all of you to join us in London or follow the event via the webcast. And details and registration are available on our Investor Relations website. So with that, we are now happy to open up for questions. And in the room, we have Mattias Stenberg, Norbert Hanke, Ben Maslen, and myself. So please go ahead, operator. Operator: [Operator Instructions] We will now go to your first question, and your first question today comes from the line of Alice Jennings from Barclays. Alice Jennings: I've got a couple. So the first one is just on, I guess, the outlook for Q2. So you've expressed some confidence, but then also recognized a bit of uncertainty. So could you perhaps outline where in the business, like which divisions you have the most visibility or also the most uncertainty? So thinking about divisions, but then also the industries. And then I just have a question on the Waygate acquisition. So I understand that we're expecting to see some revenue synergies from cross-selling. But how long after the deal is closed? Can we expect to start seeing some of these synergies? And how meaningful could these be? Anders Svensson: All right. Thanks, Alice. So I can start a bit and Norbert, you can maybe contribute as well. So if we look at the different businesses and the outlook for Q2, of course, we don't give forecasts on the future. But we have a very strong order intake in our Manufacturing Intelligence business, and that will, of course, benefit us in the coming quarters. And as I mentioned within the Geosystems area, we have completed the destocking initiative. So we don't have -- we don't start every quarter with a negative sort of EUR 8 million to EUR 10 million that is already sort of cleaned, and we have now a clear base to move forward from. And as I said, the underlying growth has now turned positive within Geosystems, and we expect that to continue also going forward. In the Autonomous Solutions, we have a very strong demand in different sectors like aerospace and defense, et cetera. And we don't see any signs of that changing. And we don't see any signs of the weak business of agriculture improving dramatically either. So many of the businesses are expected to remain in a similar level. Mining, perhaps not growing very much in the second quarter because that's related to what I said in the presentation. But more in the midterm, we don't see any risk for our mining business as the activities is still very strong. If you look at electronics, for example, we expect that to continue to be a strong business for us also going forward. Automotive will be challenged in Europe. I think also we have seen now some negative growth for us in automotive in China, and that might remain. But given also the high oil prices, you might come back to more electric cars and that will also benefit our automotive sales in China. So we have to wait and see what happens within that business. General manufacturing is a strong business across all the different businesses, basically, and we expect that to continue on similar levels. So I think that's a summary of what we can say about the outlook. If I then should comment on the Waygate acquisition. So of course, there is a process here that we need to go through until we have actually closed this acquisition. And then there is an integration of the acquisition. And we will start seeing benefits, I think, quite quickly of the synergies because we have similar exposure to customers. We will also complement our offering, and we will go to market with the same people across the different geographies. So I think you will see synergies coming quite quickly after the integration of the business into Manufacturing Intelligence. Operator: Your next question comes from the line of Daniel Djurberg from Handelsbanken. Daniel Djurberg: Congrats to a nice growth profile here. I was wondering, Anders, if you could -- you mentioned some pulls from Q1 into Q4, still strong organic growth, 8%. And my question is, did you experience any prebuys for some reason? And how much of the organic growth was a result of this, if so? And also, if so, would it impact you negatively later on? Anders Svensson: Thanks, Daniel. The pull-in from Q1 to Q4, which I referenced was primarily within deliveries in mining. And I wouldn't say that, that has a significant impact for -- with the performance in the first half year here in 2026. Of course, the first part of the quarter was a bit weaker within mining, of course, due to that. But not any permanent effects in any way. Pre-buys, we actually don't see across the different businesses to any extent that we can recognize that this is a typical prebuys. So we don't see that as a future negative impact for us either. Daniel Djurberg: Super. May I ask you another question on Waygate, obviously, early days, but you mentioned that you will do a strategic review of imaging solution and ultrasonic testing. So my question is, can you already start to plan for this right now? Or do you need to await the full consolidation and then see and plan later on? Or more or less, can you do theoretically a divestment or something at the same time as you do the transaction later in 2026? A little bit hypothetical question, perhaps. Anders Svensson: Yes, I would agree with you, Daniel. I think we are here, first, making sure that we do the acquisition before we do anything else and close the acquisition. Then I didn't say that we will divest these businesses. I will say that we will evaluate them to see if we can make them into a market-leading position, #1 or #2 within those businesses as well. That could be with complementary acquisitions. We will also evaluate if we can do a turnaround of the business to improve the performance and create shareholder value. And then we don't exclude to do strategic reviews of businesses, which we don't exclude for any of our businesses, actually. We are always evaluating our portfolio. Operator: Your next question for today comes from the line of Johan Eliason from SB1 Markets. Johan Eliason: Just two questions from my side, just starting on the cash conversion, obviously, a good improvement, 77% in this quarter and then 60%, I guess, on some sort of comparable basis a year ago. But is -- I think your target has historically been 80% to 90% cash conversion. But considering Octave bringing all the SaaS and subscription prepayments with it. I guess, one should assume that this 80%, 90% target will be more difficult to achieve going forward? Or how do you see it? Norbert Hanke: Yes, Johan, I will take it here. For the time being, yes. I would agree, 77% was a good performance, as we said as well from our point of view. But say, we will have the CMD next Thursday, and I think you will hear quite a bit from Enrique as well going forward, what will be the target and how to achieve this. And I think I would then say, wait until Thursday. Hopefully, you are there. Johan Eliason: Yes, I am. Okay. Just trying. Then another question. On the robotics, you mentioned the Schaeffler, 1,000 robots coming 7 years or so. Are those on commercial terms? So can you sort of indicate what sort of price tags you are targeting for your type of robotics? I remember when you showed us them in September, I think it was -- there was a wide range of assumptions on what price tags robots could fetch from the consumer side to the professional industrial use? So do you have any indications here? And are you sort of satisfied with the returns for your clients, obviously, but with the returns for you as well in the deals you seem to have struck right now? Anders Svensson: Yes. Johan, I think we are not going out with any numbers, as you can see from the release. So we are very happy with this deal. I think the key thing for us here, it proves that this solution with AEON is commercially viable and implementable in an industrial application. And we could also see that with the BMW announcements. We are happy with the outcome for our customer here, and we are also happy with the situation for ourselves in the deal. But we don't comment on anything else regarding the deal. Operator: We will now take our final question for today, and the final question comes from the line of Mikael Laséen from DNB Carnegie. Mikael Laséen: I have a question for Mattias about Octave, and specifically, how we should think about the capitalized software development costs going from 8% to 4% over the medium term? And my question is about the total R&D expenditures. How should you think about stats in '26 and going forward? Mattias Stenberg: Yes. No, thanks, Mikael. I think I'll pass to you, Ben, for the detail. But I mean it is correct that we are stepping down capitalization. But I'll let you take it, Ben. Benjamin Maslen: Yes. Mikael, so as we said at the Analyst Day, there's no plans at the moment to change the gross level of R&D expenditure, which has been about 18% to 19% of revenues the last few years. I think there are areas where as we implement AI, we could get savings, but the priority at the moment is to reinvest in the product and drive growth. That was the message from a few weeks ago. Obviously, we're moving the product development more and more towards SaaS, where you have continuous development cycles, and it doesn't really make sense under the accounting standards to capitalize. So this will be gradual at first, and we'll go from 8% of capitalized software development costs in 2025. It will come down this year. And then we think by in the medium term, it will come down to about 4%, as we said a few weeks ago. Mikael Laséen: Okay. So the cash effect from the R&D activities will essentially then develop in line with sales? Benjamin Maslen: Yes. I think that's probably the best guide at this point, yes. Mikael Laséen: Okay. Can I also follow up with a quick question on the stock-based compensation. That probably is expected to go from 1% to 4%. Will you have a step up now when you have been separated and listed? Or will that be a gradual process? How does it work? Benjamin Maslen: Yes. It will be a gradual process as the new program gets approved and kicks in, and it layers and stacks up kind of year-over-year. So I would say it's fairly linear between the 1% and the 4%. Operator: There are no further questions. I will now hand the call back to Anders for closing remarks. Anders Svensson: Thank you very much, and thank you, everyone, for participating and engaging with questions. Looking forward to seeing you all then on next Thursday in London. And we wish you all a great day from here. Bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.