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Operator: Good afternoon, and thank you for standing by, and welcome to the First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Richard Kinder: Thank you, Michelle. As usual, before we begin, I'd like to remind you that KMI's earnings release today and this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934 as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release as well as review our latest filings with the SEC for important material assumptions, expectations and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. Now I'm preparing for this investor call, I look back at the text of the introductory remarks I've made over the past several years. Most of what I've said concern the future of natural gas demand and the positive impact it has on midstream energy players like Kinder Morgan. In almost every case, the projections I may turn out to be understated. In other words, the demand for natural gas, driven primarily by growth in LNG feed gas demand and by increased utilization of natural gas for electric generation has simply grown faster than we expected. Now I think events since the last call have made the outlook for growth even more positive. Regarding LNG demand, the recent events in the Middle East will clearly have substantial impact. While the ultimate outcome is certainly not clear at this point, the damage to Qatar liquefaction facilities and continued uncertainty regarding ship traffic through the Strait of Hormuz will lead to more preference for U.S.-sourced LNG and the predictions for growth in gas-fired electric generation have also increased. In a piece that surfaced just this week, S&P Global Market Intelligence reports that utilities plan to add a staggering number of 153 gigawatts of gas fire generation capacity in the next several years primarily to serve data centers with the bulk of this coming online by 2030. Now this is twice the estimate by the same group of 1 year ago and reflects plans to build about 210 additional natural gas-fired facilities. Our Kinder Morgan forecast for overall U.S. gas demand now extends through 2031, and estimates demand in that year of 150 Bcf a day and growth of about 27% from this year. In short, the natural gas story has legs and Kinder Morgan's strong start to 2026 that Kim and the team will explain supports that view. While the old saying that rising tide lifts all boats has some applicability to this situation, there will clearly be some players who will benefit more than others from this positive story. I believe that the midstream sector as a whole will be one beneficiary, and it offers a low-risk way to invest in the growth story of natural gas, given the prevalence of long-term throughput agreements with investment-grade credits underpinning the bulk of midstream assets. The Inga Foundation in a study released in March estimates that North America needs 70 Bcf a day of new gas pipeline capacity by the 2050 time frame. And I believe Kinder Morgan will fare very well in this environment. Let me tell you why. We have a superb set of assets located in the areas where gas demand is growing dramatically. Our strategy is to concentrate on expanding and extending those assets in an aggressive but disciplined manner. This means we will continue to identify and pursue the myriad of growth opportunities we are currently seeing and once undertaken to complete the resulting projects on time and on budget. Because our cash flow is very strong, we will be able to finance these projects primarily with internally generated cash flow, and I can promise you an intense and unrelenting focus on these unparalleled opportunities. This strategy will enable us to grow our EBITDA and EPS substantially over the coming years as these projects come online, while still maintaining a strong balance sheet and growing our dividend. To me, that's a pretty good recipe for success. And with that, I'll turn it over to Kim. Kimberly Dang: Okay. Thanks, Rich. We had a remarkable first quarter. The best I can remember with adjusted EPS up 41% and EBITDA growing by 18%. Importantly, every segment delivered growth versus the first quarter of '25 and every segment outperformed our budget. Natural gas drove the most significant share of the outperformance, benefiting from winter storm burn and the extended cold in the Northeast. These results reflect the value of our critical infrastructure and the essential role it plays in serving our customers, especially in periods of high demand. During the quarter, we entered into an agreement to acquire the Monument pipeline system in Texas for approximately $500 million. These assets are a natural fit with our existing network, supported by long-term contracts and acquired at an attractive multiple. We received early termination of HSR yesterday and expect to close by the end of the month. On full year guidance, we now expect to exceed our EBITDA budget by more than 3%, excluding any contributions from the Monument acquisition. Most but not all of that outperformance is attributable to the first quarter. Given that we are still early in the year, we've taken a somewhat conservative approach to our expectations for the year. However, continued outperformance in our gas group and/or higher oil prices, which benefit our 10% unhedged oil in the CO2 segment could provide upside for the balance of the year. The growth in the overall natural gas market of over 36 Bcf since 2016 has driven utilization on our five largest gas pipelines to over 90%. That utilization, combined with the projected growth in the market to approximately 150 Bcf a day in 2031, highlight both the need and the opportunity for expansion. Our expansion project backlog increased to $10.1 billion this quarter, up $145 million from the last quarter. We put approximately $230 million of projects in service and added $375 million in new projects, including three data center deals. The backlog multiple remains below 6x with an average in-service date of Q1 2028. With respect to our three largest projects, which make up over 50% of the project backlog, we continue to be on time and on budget. Beyond our reported backlog, we're actively advancing a number of identified opportunities. Much of this activity is being driven by power growth, and we expect a meaningful amount of these opportunities to convert into approved projects during 2026. Our performance this quarter demonstrates the strategic positioning of our 78,000 miles of pipeline and 136 terminals and the tightness of energy infrastructure. As we look ahead, we're confident in our ability to complete our $10.1 billion backlog of projects, add to that backlog and deliver tremendous value to our investors. And with that, I'll turn it over to Dax. Dax Sanders: Thanks, Kim. Starting with the natural gas business unit. Transport volumes were up 8% in the quarter versus the first quarter of 2025, primarily due to increased LNG feed gas deliveries on the Tennessee Gas Pipeline. Natural gas gathering volumes were up 15% in the quarter from the first quarter of 2025 and increased across most of our gathering and processing assets with the largest impact coming from our Haynesville system. Winter Storm firm and the extended cold weather in the Northeast contributed to higher volumes as well. Looking forward, we continue to see incremental project opportunities across our natural gas pipeline network. For example, we're in various stages of development on projects to serve more than 10 Bcf a day of natural gas demand in the power generation sector and opened 3 Bcf a day in the LNG sector. In our Products Pipeline segment, refined product volumes were down 2% in the quarter compared to the first quarter of 2025 and crude and condensate volumes were down 12% in the quarter compared to the first quarter of 2025, with more than all of the decline in crude volumes explained by the removal of the Double H pipeline in service for NGL conversion in the third quarter of 2025. Excluding Double H volumes in both periods, crude condensate volumes were up 2% in the quarter compared to the first quarter of 2025. With respect to Western Gateway, as noted in the joint release earlier in the week, KMI and Phillips 66 recently concluded a successful open season on the proposed Western Gateway Pipeline system. The next step is to finalize definitive transportation service agreements with the shippers and hopefully, acceptable joint venture agreements between KMI and P66. Assuming we can reach resolution on the noted definitive agreements, we would expect to FID the project sometime in the next few months. In our Terminals Business segment, our liquids lease capacity remains high at almost 94%, market conditions continue to remain supportive of strong rates and the utilization of our tanks available for use is approximately 99% in our key hubs on the Houston Ship Channel and at Carteret. Our Jones Act tanker fleet remains exceptionally well contracted. Assuming likely options are exercised, our fleet is 100% leased through 2026, 97% leased through 2027 and 80% leased through 2028. We have opportunistically chartered a significant percentage of the fleet at higher market rates and have an average length of firm contract commitments of 3 years and over 3 years when considering options that are likely exercised. The CO2 segment experienced 2% higher oil -- net oil production volumes compared to Q1 2025, led by a 5% increase in production at SACROC. NGL volumes were 5% higher and CO2 volumes were 1% higher. Notably, RNG volumes increased 63% due to greater uptime at our facilities and greater hydrocarbon recovery as the team running that business has made great progress in improving the overall operations of those assets. With that, I'll turn it over to David. David Michels: Thank you, Dax. So for the quarter, we're declaring a dividend of $0.2975 per share, which is $1.19 annualized and an increase of 2% over 2025. As you've heard, we had an outstanding first quarter, generating net income attributable to KMI of $976 million, an EPS of $0.44. These are 36% and 38% above the first quarter of 2025, respectively. These very impressive results reflect strong demand fundamentals across the country, combined with strategically positioned assets and skilled execution by our colleagues to capture the associated opportunities, and we saw growth across the business segments. The natural gas segment grew the most with colder normal weather, driving additional demand across already highly utilized natural gas midstream systems, but the segment also grew from factors other than the cold weather with contributions from growth projects, greater capacity sales, gathering volumes and utilization across numerous assets. In products, we benefited from improved commodity pricing as well as the recovery of retroactive rate increases we booked following a favorable court decision. And in the Terminal segment, we had increased volumes and rates in our liquids business as well as the benefit of storage contract buyouts, and we also saw increased volumes in our bulk business. For the full year 2026, while it's still early in the year, we expect to be more than 3% favorable to our budgeted adjusted EBITDA. That's over $250 million of additional EBITDA contribution. We clearly outperformed in the first quarter, and we expect additional outperformance for the rest of the year, driven by continued strong demand for our natural gas midstream services and the contributions from our Monument acquisition will be additive as well. Moving on to the balance sheet. As we continue to grow our cash flow and remain committed to a disciplined approach to capital allocation, our balance sheet continues to strengthen. Our net debt to adjusted EBITDA ratio ended the quarter rounding down to 3.6x, which is down from the -- down from 3.8x from the beginning of the year. Leverage of 3.6x is the lowest for a Kinder Morgan entity since well before our 2014 consolidation transaction. That being said, we expect leverage to increase slightly by year-end 2026. We expect increased capital spend during the rest of the year, and we will only get a partial year EBITDA contribution from the Monument acquisition. Our budget had us finishing 2026 at 3.8x, and now we expect to end the year 2026 at 3.7x due to our expected EBITDA outperformance, and that keeps us comfortably below our midpoint of our leverage target range. During the quarter, net debt increased $82 million, and here's a high-level walk-through of that. We generated $1.49 billion of cash flow from operations. We spent $650 million on dividends, $800 million on total capital, capital expenditures, and we had about $120 million of other uses of cash, which gets close to the $82 million increase in net debt. The rating agencies have now fully recognized our strengthened financial profile with Moody's upgrading us to Baa1, which means we are now the equivalent of BBB+ at each of the 3 rating agencies. Additionally, the treasury issued guidance in March that will allow us to more fully take advantage of bonus depreciation across all of our assets, and that creates nice near-term cash flow benefits, which will generate additional investment capacity. With that, I'll turn it back to Kim. Kimberly Dang: Michelle, if you'll come on, and we will take questions. Operator: [Operator Instructions] Our first caller is Julien Dumoulin-Smith with Jefferies. Unknown Analyst: Luke on for Julien. Nicely done on the quarter. Just wondering if you could help frame the expected Western Gateway scoping in more detail around like maybe initial capacity diameter, maybe even total project costs and how capital contributions are likely to be allocated between the partners just given the contribution of those assets you have? Kimberly Dang: I'll say a couple of things, and then Mike Garthwaite, if you want to add anything. I mean, I think as Dax noted in his comments, we've still got to negotiate the JV terms, and that will obviously impact what our capital contributions are going to be. We expect that we will be making, one, an asset contribution, and two, we will be making cash contributions. But exactly how that's going to lay out and the total cost of this project and some of those details I think we'll just leave that for once we get the project FID to get through these discussions, assuming that we get through these discussions with our partner. Michael Garthwaite: Yes. And then I would say on the capacity side, I don't want to go into full detail as we work through and towards executing the final transportation service agreements. But you'll see the maps that we've consistently had out there, our line from El Paso to Phoenix is a 20-inch line that we focused on, and that gets the commitments that we've seen served plus some growth that comes along with that. Unknown Analyst: Awesome. And separately, you guys touched on this in your remarks, but maybe just looking to the Northeast and potential for maybe any expansion out there. There's this growing recognition that we may need to see more gas degressed into New England. Just curious for your thoughts on whether Tennessee could be a potential solution for that. And if you would need at the state and regional level to take another look at growth opportunities in that part of the state. Kimberly Dang: The need is clearly there. But I mean, I think we've said this a number of times, we would have to have certainty, certainty on state permits, and we would have to get the commercial support we need to underwrite a project. And last time, the commercial support was a problem. because the IPPs don't really have a way to get reimbursed when they take on long-term capacity agreements. So you either need the utilities or there's not a lot of commercial support out there. So I think we have to have the commercial support and the permit. Somebody is going to have to roll out the red carpet. And then I think we would love to take advantage of the opportunity. But we've gone down that road once. We wrote off a fair amount of capital. And I think that's not something that we are interested in doing again. Operator: Our next caller is Theresa Chen with Barclays. Theresa Chen: Can you talk more about the rationale behind the Monument pipeline acquisition? What kind of synergies or growth opportunities does it provide for your broader system that you would not have otherwise been able to achieve with your existing assets in the area alone? And when thinking about the valuation, can you define more precisely what medium term means in terms of achieving that less than 8.0x multiple? And does it require incremental CapEx? And if 8.0 is indeed medium term, what would be the current or LTM multiple just to provide context as a marker for Texas intrastate gas assets in general? Kimberly Dang: And that's quite specific. Okay. So let me just say a couple of things about that. $500 million, as we mentioned, we've got long-term contracts that are underpinning this weighted average contract life on this is about 9 years. It's over 90% utilities and industrials with good credit ratings. It integrates well into our existing assets. It does allow us to access some storage on our system that we previously couldn't access. There is some ongoing expansion activity that will require some incremental capital after we close, and that expansion opportunity will come in over time. I think it comes in and it starts later this year. And so I think that's what will help bring what is high single-digit multiple down is coming from that, primarily from that expansion. There are some synergies with this associated with our storage and I'll let people talk about some of that. David Michels: So just taking a step back, a couple of things. One, the system really integrates well on a last mile basis, it goes through Houston all the way down into the corp's corridor. So we see the demand profile there is very strong. It does bring an element of incremental no nitrogen supply in addition to what we are already working on, which over time, we'll see the value of that low nitrogen. And then as Kim alluded to, we -- these assets touch our storage -- our existing storage in ways that we can unlock certain value that an independent by itself cannot. So those are the 3 primary drivers. And once again, it just -- it makes good map is like what I'd like to say, and it fits real well. Theresa Chen: In terms of the early termination of the terminal service agreement at Pasadena in exchange for a series of some payments. Did you recognize a lump sum in the first quarter? And if so, how much? And what is the expected lost EBITDA? Kimberly Dang: So let me say a couple of things on that. Yes, the lump sum gets recognized in the first quarter. And I think this is just a great job by our terminals team so we have the termination, they have gone out and they have backfilled all these tanks. And all these tanks are backfilled on a long-term basis. Some people are taking them currently and then their rate steps up over time as we improve connectivity. And then one of the other customers is taking it in a year or so, 18 months. But in the interim, we are able to lease that capacity on a short-term basis. So we've been able to backfill all of this, the rates will step up over time and largely offset the lost earnings and with respect to that contract that was bought out, I think there is a little over a year remaining on that contract. Michael Garthwaite: Through first quarter of '28. Operator: Our next caller is Brandon Bingham with Scotiabank. Brandon Bingham: Just wanted to maybe talk a little more thematically about some of the dynamics you're seeing in the refined products market, thinking specifically around California and Western Gateway. How is demand evolving in light of the products pricing being seen on the screen and just the tightness in global markets? And just could that possibly create any expansion opportunity for the project? Kimberly Dang: I wouldn't say that it drives expansion for the project because I don't think the overall demand necessarily is changing California significantly. What this -- what I think the global situation does here is it highlights the fact that California has to import some of its supply and that makes it subject to the variability in growth markets. And so what this does is instead of bringing in a fair amount of product over the water, they'll now be bringing in supply from Texas and from the Eastern United States. The other thing it does is it serves the Phoenix market, which is also right now reliant on the California refining capacity. And as you know, that refining capacity has decreased as a number of refineries have shut. So I think it's a great solution, I think, for California and for Arizona to be able to access domestic supply as opposed to having to be reliant on the international market. Brandon Bingham: Okay. Great. That's helpful. And then maybe just turning to -- you mentioned continued expectations for outperformance over the balance of the year. Is any of that tied to the dynamics created by the Iranian conflict? And how do those change, if at all, when this conflict comes to, I'll say, a firmer end or hopeful end? Kimberly Dang: Yes. I'd say the Middle East conflict has limited impact on us. Obviously, in our CO2 segment on the unhedged barrels, which is about 10% of our barrels, we're getting a higher crude price. On products, where you might anticipate it impacting us is just higher product prices impacting demand, but we have not seen that to date. In our Terminal segment, I think our docs have been really busy. Our export docs have been very busy. And so record volumes across that. And so we do get a small amount of ancillary revenue resulting from those movements. But our tanks are sold on long term, what we can monthly warehousing charges, which are takeway contracts. And then on natural gas, not much in the short term. Obviously, we're moving a lot to LNG export facilities, but those are under long-term take-or-pay agreements. But as Rich said in his opening comments, longer term, it should drive incremental demand for U.S. LNG. Operator: Thank you. Our next caller is Manav Gupta with UBS. Manav Gupta: I wanted to ask you a little bit about the GCS expansion and at the same time, the Trident pipe. And what I'm trying to understand is there's a lot of gas moving towards East Texas, including your GCS expansion. And then egress from there to Port Arthur and Henry Hub might take a little more time, including your pipe Trident. And I'm trying to understand if that might lead to some dislocation in pricing as we understand between Houston Ship Channel, Katy or Agua Duscher, how are you thinking about these localized gas markets as more gas from the Permian starts to pour in over there and the egress might take a little more time. David Michels: Okay, Manav. That was a -- I think, a two-part question. So first, both projects are on track. They're moving forward. I think in terms of basis dislocation, et cetera, I generally try and stay away from commenting on forward-looking pricing. But I can tell you, just at a fundamental level, there are always going to be dislocations, right, as you look forward, when you have demand coming on separately, then the supply getting across, and it goes in both directions. So what I would say there is -- is that a possibility? Yes. I guess the reality is there's also a lot of demand from the power side that we're seeing coming up in Texas. We're talking about the power growth within Texas. So speed to market is very important there, and maybe there's a home for that supply. I'll leave you with that, and then you can kind of draw your own conclusions from that commentary. Kimberly Dang: And then the other thing I'd say just about our assets is we benefit a little bit on the margin from pricing dislocations in the short term. I mean, obviously, in the long term, those drive expansion projects. But most of our capacity on our pipes is sold under long-term take-or-pay contracts. Manav Gupta: So perfect. That power comment is very helpful. My quick follow-up here is KMI is somewhat unique. You have nat gas storage opportunities, which some of your competitors don't have. Can you talk a little bit about -- I think in December, FERC approved a 10 Bcf expansion at NGPL's existing storage. And then I think at Bear Creek storage also, you had an open season. So can you talk a little bit about the nat gas storage opportunities in your portfolio? David Michels: Yes. Look, a very good question. And as we see this demand coming on and the scale of this demand, one of the big differentiators, and Rich alluded to, there's midstream opportunities, but there's some differentiator. Storage is going to be a key differentiator for us. We have those expansions on site that we're working on, especially the Bear Creek, not yet commercialized, but it's something we're working on. And we're looking at that across -- looking at storage across our footprint, not only to be able to leverage these short-term dislocations, but long term, as you think about operational balancing needs that these large demand centers are going to have, the ability to put in gas into storage and also pull out storage on a pretty quick basis is going to be critical for their operations. And that's somewhere where we think we differentiate ourselves quite nicely, having over 700 Bcf of storage in play and looking at much more to try and expand from an operating footprint standpoint. Operator: Our next caller is Michael Blum with Wells Fargo. Michael Blum: I was going to ask all my questions at once, if that's okay. So first question really is on capital allocation, and it really encompasses both Momentum, this deal and Western Gateway. And the crux of it is you have significant gas pipeline investment opportunities at 6x investment multiples or better. So I think you addressed the strategic synergies at Momentum. But on Western Gateway, is it fair to assume that the return on this project will need to compete with your gas pipeline investments? And then the second question is on Western Gateway specifically, can you clarify that if you lose any EBITDA from taking an existing pipe out of service for this project, it will be captured in the overall project economics. Kimberly Dang: Okay. Sure. So I think your first question is, do we look at Western Gateway the same as we look at natural gas projects. And I would say no change in our capital allocation strategy. We continue to target risk-adjusted returns in the same range that we always have. And so yes, this competes with natural gas. And so no change there in our approach. You asked about if we -- let me just say this, we're going to invest additional capital and we're going to get incremental EBITDA, and it will be at a nice return in order to do this project. David Michels: Mike, just to clarify one thing. We're buying the monument pipeline, not momentum. Operator: Our next caller is Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: I had a similar question to Manav's about the Trident staggered start dates. As you mentioned, there's some concern that gas pipelines out of the Permian are going to come on well before gas pipelines to take them further east like Trident. So I guess my question is that if there's pull for more than the 30% of that gas on Trident in 2027, can you deliver that? Or is it really like that's the pace that you're bringing on Trident, if that makes sense? David Michels: Yes. I mean Trident is going to come on first phase, first quarter of '27. That's the schedule. And so there's no advanced gas that can get across until we get that pipe up and running. Jean Ann Salisbury: Sorry, I meant like over the course of 2027, if there's more demand than just the 30% that you referenced in the news release. demand for 100% of it, for example, is that something that you could deliver or it's more of a downstream constraint? Kimberly Dang: Today, there is some incremental capacity versus what we would move in '27. Jean Ann Salisbury: Okay. That makes sense. And then I guess my other question was about the NGPL 550 MMcfe expansion in the Panhandle. That seems like quite a lot of gas. And I was wondering if that's basically all demand pull for utility demand in that area or if it's partially people supply pushing out of the Permian and getting on to other pipelines after NGPL? David Michels: You're referring to the Amarillo expansion. Yes. Yes. So that is market pull driven by power. Operator: Our next call is Keith Stanley with Wolfe Research. Keith Stanley: I wanted to follow up on Western Gateway and just, I guess, how you're thinking about the project. So first, just confirm you'd be contributing the whole SFPP pipeline to the JV. I think that's $350 million of EBITDA or so. And then on the returns, just how you're thinking about it, do you look at it as just a return on the cash contribution you would make to the JV? Or do you also factor in that you're effectively upgrading the value of the asset with new long-term contracts and a more competitive supply source? Kimberly Dang: Okay. So it's not the whole SFPP system. It is what we call the East line, which goes from Amarillo to Phoenix and it's the West -- and the West line, which now moves product from California to Phoenix -- I mean, sorry, El Paso, I said Amarillo, El Paso to Phoenix on the East Line. And so those are the lines that are getting contributed to the JV. There are additional SFPP assets in California that will not be contributed. And then with respect to your second question, say that again about the EBITDA? Keith Stanley: Just the returns, like do you think of it just as cash-on-cash return on your contributions to the JV or you factor in the upgrading of the project? Kimberly Dang: Well, I mean the way we think about it is what cash are we contributing and what cash are we getting back versus anything we might be giving up. And so we look at it on an incremental return on our capital. And it's based on an IRR. So it's not just what is the year 1 cash on cash, and we look at a full project IRR. Keith Stanley: Got it. Second question on the strong quarter. Any color you can give on the impact that Permian gas spreads are having on the business? Is it single-digit millions, tens of millions, hundred million? And then any impact on winter storm fern specifically that you would call out? Kimberly Dang: I mean, I'll say a couple of things. The Waha-Houston Ship Channel, it does have some modest benefit for us. But our preference and practice for that matter, has been to sell transportation capacity to our customers on a long-term basis. And so what I'd say generally about winter storms is what happens is you just have a peak in demand and therefore, the services that we provide for our customers increase in value. And whether that's storage services or that's transportation services, when you've got increases in bands, you've got high volatility and you have a system that's running at the high utilizations that we talked about, that just creates opportunity for us. And so I think that's what you're seeing in the first quarter results. Operator: Our next caller is Olivia Foster with Goldman Sachs. Unknown Analyst: I wanted to start on the gas transmission opportunity set going forward. When we think about the various projects under commercial discussion and the shadow backlog, I understand a bulk of the opportunities are related to growing power demand. Is there any way to frame up other details about the general size or scopes of these projects and potentially as well the geographies from which you're seeing the most demand? We saw several projects move forward today, but what are... Kimberly Dang: I can describe it generically. I don't think it's really going to answer your question for me to describe this generically. And -- the reason that we don't give more detail around that is because most of these are competitive situations. And so we want to make sure that as we communicate before we -- before these projects are tied down that we don't say something that causes us competitive harm. But in general, I mean, what's in the project opportunity set beyond the backlog, there's a lot of power and there's also a little bit of LNG. There's some industrial, and it goes across the entire Southern United States. So there's opportunities going from Arizona all the way to Florida. Richard Kinder: I would add, it's critical to understand, as I'm sure you do, that our pipeline network relates very well geographically to where the big demand drivers are in this country. So I think we are enormously advantaged by the share size and location of our pipelines. Unknown Analyst: That's very helpful color. I appreciate the details. Maybe for my second question, I'd like to ask about the macro for a moment. Are you seeing any signs of volume changes on your system in response to higher commodity prices, either from a G&P or potentially refined product perspective? Kimberly Dang: Refined products in the quarter are down a little bit, but we don't think it is a function of higher prices. As I said earlier, we don't think that the higher prices are yet having a noticeable impact on the consumer, but that's something we'll continue to watch. And then with respect to G&P volumes, most of our stuff is gas on the G&P side. Those volumes were up nicely in the quarter. They were up 15% in the quarter. And our KinderHawk volumes in the Haynesville were up 34%. So nice there. Our crude gathering position is primarily in the Bakken, and it's doing okay. Continental dropped rigs earlier this year, but prices are better. And so hopefully, at some point, some of our producers may increase rigs, but we have not seen that to date. Operator: Our next caller is Jeremy Tonet with JPMorgan. Jeremy Tonet: Just wanted to come back, I guess, to the tracking more than 3% above budget. And just wanted to refine that and see how much of that is kind of like onetime in nature versus recurring? Like if we're thinking about for '27 go forward, should we think about how much of that 3% would kind of come back next year on a regular basis versus maybe being onetime in nature? Kimberly Dang: Well, I think with respect to the buyout on terminals, obviously, that's somewhat onetime in nature. And then with respect to the balance of it, I think that's just going to be a function of, to some extent, commodity prices because on the margin, we do get some benefit from commodity prices. and whether you have winters in the future. So to the extent that you're getting some good winter weather, system is going to remain tight for a while, we will -- our asset -- the value that our assets provide our customers will continue to be strong in those situations. Jeremy Tonet: Got it. So it's fair to think of that bucket kind of the contract onetime weather, how it shook out and commodity prices are kind of the main drivers there? Kimberly Dang: Yes. I mean, I think volumes in CO2, production volumes are up. That's nice. And RNG did better. I think we already went through that. So products-based business is very stable and doing well. So I think the base business is performing very well. And then you have this increased demand and increased volatility and increased commodity prices that around the margin are just driving tremendous outperformance. Jeremy Tonet: Got it. And actually, I just wanted to take a step back. We have not heard much conversation on carbon capture in some time now. And just wanted to see in the marketplace, do you see any demand for that? Or is that kind of completely gone away at this point? Kimberly Dang: I would say it's mostly gone away at this point. We're looking at a few things, but I'd say it's mostly gone away at this point. But I'd say we have the expertise here. And if the opportunity ever presents itself again, and we can do it on an economic basis, then it's something that we'll look at. Operator: Our next caller is Elvira Scotto with RBC Capital Markets. Elvira Scotto: Given where commodity prices are now, can you maybe review your oil hedging strategy and just how you're planning to hedge out over the next year or so? Kimberly Dang: Yes. I mean we're 90% hedged for the balance of this year. And I think our $1 move in prices is a little less than $4 million. I think it's like $3.5 million. And then next year, we're like 70%, 75% hedged for 76% hedged for 2027. So -- and I think that's roughly at $65-ish $60 a barrel. And so our hedging strategy is -- remains the same in terms of, I'd say, the near term, we try to hedge a large majority, I'd say, 80-plus percent of the current year. And we usually, by the time we get into the year, 90% hedged. And then with respect to year 2, we hedge that -- more of that as we move closer to it. And so I think at this point in time, being 70% -- 76% hedged on 2027 is consistent with how we've done it historically. Years 3 and out, we typically are waiting to lay on some more hedges because some of your cost structure is driven by commodity price. And so we want to make sure that we match those 2 things up. So very stable cash flow in the near term, not huge amounts of commodity -- not large amounts of commodity exposure, some exposure on the margin, I think, is where we want to be. Richard Kinder: And of course, to the extent that we outperform our plan, those percentages are based on planned volumes. And to the extent, as we said earlier, we are driving -- having a very nice year as far as volumes, and we'll sell those into the open market, obviously. Operator: Our next call is Jason Gabelman with TD Cowen. Jason Gabelman: I wanted to first go back to Western Gateway. And I guess 2 clarifying questions there. One, is it in your project backlog? I know it hasn't been to this point, but I want to confirm, it's still not in there. And two, as you think about the steps that you need to complete to FID the project, would you say those are less difficult than completing the open season? Or do you still see a decent amount of risk of getting this project over the finish line? Kimberly Dang: Okay. With respect to the first question, no, it is not in our $10.1 billion backlog. We don't generally put any projects in there until they are approved/FID-ed, however you guys want to think about it. But -- and then I'll let Mike address whether -- what he thinks is the hardest. Michael Garthwaite: Yes. I think entering into these -- as you go out with an open season, there's just a lot to understand in the market. And I think that was probably the harder piece. As we look forward to executing and getting to FID, there's, of course, the regulatory aspects that we've got to look at. But we've got experience through all the states that we're operating in. We have experience with those regulators and have confidence in moving that forward. Jason Gabelman: Got it. Great. And my follow-up is just on the commentary around future growth and kind of the more constructive outlook for gas demand in this country and you're talking about seeing kind of aggressive in your growth in your pursuit of additional growth. Thinking back to the Permian pipeline going west that you didn't win, were there any lessons learned in that process that you're going to apply in competing for future growth opportunities in this country, particularly as you think about the competitive position of your asset base? Kimberly Dang: I think we approach that project the way we do all of our others. And so I don't think there was any specific lessons learned there. Operator: Our next question is from Zach Van Everen with TPH. Zackery Van Everen: Maybe when thinking through natural gas demand in the Gulf Coast. So I'm curious how much open capacity you guys have on NGPL Southbound if you guys were able to source more gas to that pipe? David Michels: So look, I mean, we are -- once again, you heard we're operating at very high load factors. I mean I think all the low-hanging fruit is pretty much off the table. We're looking at some expandability. You see some reservations that go out there. Clearly, we're working on an opportunity set that's pretty robust in both directions. As you think about the demand side, you think about power, you think about supply aggregation and you think about movement to get supply to kind of end-use markets, I think the opportunity set there is pretty strong. But as far as specific capacity, I mean, we've got -- there's so many pockets of capacity out there on the EBB. It's out there, if there is any, but I would be surprised if there's any significant capacity in the key areas that you need it. Zackery Van Everen: Got you. That makes sense. And then -- on KinderHawk, it seems like volumes continue to perform well there. Have you brought on a portion of that expansion project and maybe the cadence for the rest of the year, how you plan to bring that capacity on? David Michels: Yes. Look, so one, we're operating pretty much at our capabilities at capacity, and we're -- the volumes are there. We're still -- we still haven't brought on the expansion, but we plan on bringing it on as we layer it on through the balance of the year to add an incremental Bcf of processing capacity, and we're on track to do so. Operator: And at the time, I am showing no further questions. Richard Kinder: Okay. Thank you all very much. Operator: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.
Operator: Thank you for standing by, and welcome to the Paladin Energy Limited March 2026 Quarterly Results Call. [Operator Instructions] I would now like to hand the conference over to Paul Hemburrow, MD and CEO. Please go ahead. Paul Hemburrow: Good morning, everyone, and thank you for joining Paladin Energy's quarterly conference call. With me today is Anna Sudlow, our Chief Financial Officer; Scott Barber, our Chief Operating Officer; Alex Rybak, our Chief Commercial Officer; and Paula Raffo, Head of Investor Relations. On the call today, I'll cover a brief overview of the quarter, an update on Langer Heinrich, our FY '26 guidance revision, and progress in Canada at Patterson Lake South, and then we'll move into Q&A after that. So a couple of highlights from the quarter. Production at Langer Heinrich Mine was 1.29 million pounds for the quarter, up 5% on the prior quarter, supported by strong plant performance. Sales volume was 1.03 million pounds at an average realized price of $68.30 per pound. We increased Langer Heinrich Mine's 2026 production guidance to 4.5 million pounds to 4.8 million pounds. And in Canada, we received Saskatchewan government approval of the PLS EIS. And we've also continued exploration drilling focused on the Saloon East deposits. More specifically, at Langer Heinrich Mine, mining continued to ramp up with delivery and commissioning of the remaining mining fleet completed and activity was heavily focused on the G Pit. Total mined material was 6.17 million tonnes, up 12% from the previous quarter, and crusher throughput was 1.21 million tonnes at an average ore feed grade of 503ppm. We produced 1.29 million pounds of U3O8 at an average recovery rate of 92%. Ramp-up remains on track for completion by the end of FY '26. We're monitoring potential impacts from the events in the Middle East. Currently, inbound supplies to site and outbound shipments to customers are not impacted, and we're taking steps to maintain security of our key process inputs. On sales and cash, we sold 1.03 million pounds U3O8 at an average realized price of $68.30 per pound. Cost of production was $40.30 per pound, benefiting from utilization of the remaining MG3 stockpile. At 31 March, we held unrestricted cash investments of USD 219.5 million with an undrawn USD 70 million revolving credit facility. Quarterly sales revenue includes USD 47.3 million with cash receipts expected during the June 2026 quarter. And we made a scheduled $4 million payment on the term loan facility, reducing the balance to $36 million. On guidance, following year-to-date production of 3.6 million pounds, we revised Langer Heinrich's 2026 production guidance to 4.5 million pounds to 4.8 million pounds from the 4 million pounds to 4.4 million pounds previously announced. Sales guidance remains 38 million pounds to 42 million pounds (sic) [ 3.8 million pounds to 4.2 million pounds ], and cost of production remains in the same range at USD 44 to USD 48 per pound, while capital and exploration expenditure guidance was revised to USD 15 million to USD 17 million from USD 26 million to USD 32 million. The revised guidance is based on current operating conditions and assumptions and may be impacted by disruptions arising from the current geopolitical events, which we are closely monitoring. Turning to Canada and the PLS project. We received ministerial approval for our Environmental Impact Statement on the 20th of February. It is a really important regulatory milestone and a prerequisite for further permits and licensing leading to the construction and operating permits. On 31 March, we advised that the Metis Nation - Saskatchewan had applied for a judicial review to challenge the decision to approve the EIS, and we'll continue to actively engage in constructive conversations with local communities and indigenous people. We commenced an update of the front-end engineering design study during the quarter. We continue to work closely with the Canadian Nuclear Safety Commission as we progress towards the license to construct. On exploration, we drilled just over 11,000 meters across the PLS project during the last quarter. We're targeting the Saloon East deposit and resource conversion extension drilling at RRR. Assay results are still pending. Finally, at Michelin Project, there were no substantive mining exploration activities during the quarter with prospective and target assessments continuing, and we commenced the regulatory process to reduce project tenure by approximately 18% as part of the tenement rationalization program. So we've been really busy delivering pounds and building momentum across the company, and I'm pleased with the progress that we're making. I'm now happy to take questions. Operator: [Operator Instructions] The first question today comes from Alistair Rankin from RBC Capital Markets. Alistair Rankin: Paul, Anna, Scott, Alex and Paula, and congrats on another strong result. You seem to be making a habit of good quarterly results, so well done. Just first question is relating to your reagents. Can you just run through what your key reagents are for production? And if possible, just comment on how those contribute to the cost structure in dollars per pound? Paul Hemburrow: Thanks for the question, Alistair. What I might do is just sort of give you a very brief overview. So we're an alkaline leach process. So we don't use a lot of sulfuric acid. So our key reagents are typically things like sodium bicarbonate, sodium carbonate, sodium hydroxide, hydrogen peroxide, a little bit of sulfuric acid. A lot of flocculants for our CCDs, also HFO and diesel, of course. In terms of the contribution to production, we don't really go into that level of detail. But what I can say right now is at the moment, we do have between 3 and 10 months supply of all of our key reagents, I think, which is a really important factor at this time given global events. Alistair Rankin: That's really helpful. And just a follow-up on the Metis Nation challenge at PLS. Could you just run through how that challenge actually works? What happens now and what you're planning for? Paul Hemburrow: Yes. What you might find is you did a bit of a Google search is that -- this is not an infrequent occurrence. Now there have been other mining companies and projects that have had the same sort of challenge. This is really a challenge on the Saskatchewan government authority to give us -- to provide the approval for the project. There haven't been any successful challenges to date. More importantly, we need to maintain a long-term working relationship with the Metis Nation. And to date, the conversations have been really constructive and we'll continue to work closely with them. What we're doing right now is we're really focused on the FEED work and working with CNSC to get that license to construct. And at this point in time, there's nothing stopping us from continuing down that pathway towards receiving the license to construct. Operator: The next question comes from James Bullen from CGF. James Bullen: Congrats, Paul and team. Just a quick 1 around Orano's desal plant. There's been a bit of talk about sulfur blooms and potential downtime up there. Plus also, I think they have to do a maintenance shut normally in May. Can you just provide us with an update around water supply? Scott Barber: Thanks, James. This is Scott here. The desal plant is in full operation. We haven't had any major disruptions to the water year-to-date. There was a little bit of sulfur in the quarter, but nothing that really stopped us. Our bladders and TSFs evap ponds are all full. There was actually a little bit of rain through the quarter, and that actually topped up all of our water supplies. So for us, yes, water is not a major issue. There is a desal shutdown planned late in June, and we're just monitoring that, but we've got enough water to get through that. James Bullen: Great. And just hitting across to PLS and the mutual benefit agreements, I think you've got 2 First Nation agreements done. When NextGen went through this process, it took them well over 12 months longer than the others to get an agreement with Metis. Is this a risk to your FID timing at all getting an MBA with MNS? Paul Hemburrow: Thanks, James. It's not absolutely compulsory to have a mutual benefit agreement. But of course, it's what we want to do. We would like all of the stakeholders in the region to benefit from our presence there. So if it takes a bit longer, it takes a bit longer. The most important thing is the engagement and consultation process. So we'll continue to engage and consult with all of the First Nations group. And as you pointed out, we do have 2 MBAs in place with Clearwater River Dene Nation and Buffalo River. So we'll continue to work on those. The other 2 are close. We're in negotiations right now, and we'll just keep working towards that but it's not a prerequisite for receiving our permit to construct. Operator: The next question comes from Daniel Roden from Jefferies. Daniel Roden: Congratulations on the second quarter. Just wanted to, I guess, get a view on, I guess, Q4 run rates. It's a little -- I guess, the run rate is a little lower than your Q3 in the implied updated guidance. And so just a little bit of color around, I guess, what's going on and what's driving, I guess, the lower Q4? And then how should we think about that kind of as the run rate entering FY '27? Paul Hemburrow: Thanks, Dan. As I often say, it's an outdoor sport and all sorts of things can happen. So we've reset the guidance to that range of 4.5 million pounds to 4.8 million pounds. I think it's realistic and achievable. Our current rate is -- I think we're very satisfied with how we've gone. We've also moved to the back end of the G Pit, we're now moving into the next pit. So there's that sort of transition process where you can typically get slightly lower grades as we move into the main ore body. We can get different ore handling characteristics. So there's a few things that could happen. And in the meantime, we're trying to mitigate those risks with a number of different controls, our blending strategy for handleability, blending strategy for grade. And we plan on maintaining the positive performance that we've seen in overall recovery rate. So there's still a couple of months to go for this quarter, but we're very happy with progress to date. But there are a few things that could happen. Daniel Roden: Yes, excellent. And I guess just on the -- like when you're looking at Q4 and FY '27, your recovery in Q3 has been, I think, well above expectations, even at a bit of lower grade. So I guess just what's your assumption that you're using for your guidance on the recovery? And I guess is there a bit of upside potential there? Paul Hemburrow: No. We set our target range of 85% to 90%. That's typically the level at which this plant can operate. And I think the team at Langer Heinrich has done an exceptional job at tuning that performance throughout the consumption of G Pit. And -- but I certainly don't expect that we'll stay in that range. I think as long as we hit the target range, 85% to 90%, I'll be pretty happy. In terms of FY '27, I think we still plan to provide guidance in July. However, and I sort of caveat that now with a level of uncertainty around what's happening in the Middle East. And -- so I don't really want to provide too much of a look forward. Daniel Roden: Yes. Awesome. And if I could slip one last one in. Just -- you've provided a sensitivity on, I guess, realized pricing at various levels of spot pricing historically. I guess when we're looking forward to FY '27, '28, et cetera, is that a sensitivity analysis that you've provided? Is that still a fair indication of the sensitivity you would expect on, I guess, realized pricing at different spot pricing? Or I guess, if you're changing your contract book as that contract book matures, would you expect that sensitivity to change? Alexander Rybak: Yes. Thanks. Alex here. I think we'll provide an updated realized price sensitivity. I think generally speaking, we're very pleased with the way our book has performed this quarter and year-to-date. It's running pretty much bang on with that matrix that we provided, realizing just under $70 a pound for year-to-date at an average uranium price of $80. The next year is, again, without sort of getting into the look forward will be provided in due course. But obviously, the -- we've got 22 million pounds under contract, so you don't -- and that book has remained stable, so you don't expect to see massive shift in that. But as that opens, volumes open up, we do have more uncontracted and more market-related exposure. So we expect to realize that upside there. Operator: The next question comes from Dim Ariyasinghe from UBS. Dim Ariyasinghe: Just a question on the revision to CapEx expenditure, not big numbers, but I just wanted to expand on why that's been done in the context of, I guess, what's going on more broadly, please? Anna Sudlow: Sorry, Dim, was that in relation to the update of the guidance? Dim Ariyasinghe: Yes, yes, exactly for the CapEx. Anna Sudlow: So I think we obviously put the guidance together 12 months ago [Technical Difficulty] has progressed. There's been a reprioritization of those items, the deferral and then also the bringing forward of some other items. So it's really just a shifting of CapEx. Some of that CapEx will be deferred into FY 2027. Dim Ariyasinghe: Okay. And then I guess there was a question on reagent use and I understand you guys are alkaline leach. But can you -- do you guys have any more commentary on read-throughs more broadly? So on your competitors domestically use a lot of sulfur and then the big one. It does feel like that's -- yes, are you hearing anything either from your customers or the industry more broadly on sulfur shortages? Paul Hemburrow: No. We don't really comment on other people. As I said earlier in the call between 3 and 10 [Technical Difficulty], that's our area of focus right now is making sure that we have continuity in supply. So we're reasonably confident at least for the next 3 months. Dim Ariyasinghe: Yes. Sure. Cool. And then just last one. How has everything gone on the diesel front? Is that similar? Or what does that look like? Paul Hemburrow: About -- at least 80% of our diesel and HFO come from West Africa. And so there's a very, very good... Operator: Pardon me. Just confirming the speaker line is still connected. Paul Hemburrow: Yes. Operator: I'll move on to the next question. It comes from Glyn Lawcock from Barrenjoey. Glyn Lawcock: Paul, I just wanted to sort of talk a bit more about the guidance change. Obviously, you lifted production guidance by 11%, but you didn't change your cost guidance at all. And if you just do the mathematics, I mean, 1.2 million pounds production in the final quarter to get to the bottom end of your cost range means costs go up to $54 a pound in the final quarter when they've averaged $40 a pound to date. So you just didn't change your cost guidance? Or is there something materially going to change in the final quarter to get there? Anna Sudlow: So, Glyn, there's a couple of things. One, I think, as Paul mentioned, we will be mining for the final quarter. So there'll be no reliance on the medium-grade stockpile. So we were obviously getting a benefit from that in the prior quarters. We are starting to see some cost escalation as a result of the conflict in the Middle East. So I think there's some uncertainty around what that will look like. So I think there's a view that we would rather be conservative on what that may be for the final quarter as well. So I think we've done the analysis on the range, and we're comfortable with the range we've provided at this point. Glyn Lawcock: Okay. It's a big number. Maybe just staying on that same tack then. So if you look at the spend in the quarter that just gone Langer Heinrich cost, $52 million, the stockpile build $11 million, so $63 million, plus another $7 million for stripping. If you ignore the stripping, it should -- is that meaning that $63 million steps up a fair bit from a cash perspective in the final quarter then when you just say you'll be full mining for the fleet? Anna Sudlow: I think, the low-grade stockpile and the stripping, I think we're saying varies quarter-to-quarter. So I probably won't comment on what the forecast outlook for those is. But as far as the production costs, yes, we do expect them to be higher in the next quarter. Glyn Lawcock: In a dollar millions perspective, higher than the $52 million. Yes. And then if I could just ask just on the sales as well. I mean you've kept your sales guidance the same. If you sell what's left to sell to hit the top end of your range selling at the price you're probably going to receive, you're still probably not going to cover all your cash outflow in the quarter. Is there like -- can you sell more? Or are you choosing not -- so I'm just trying to understand why with the increased volume you're choosing not to cover your cash, it appears with sales, or is it because you're waiting for higher prices or what I'm just trying to... Paul Hemburrow: Glyn, I'll take this one. So our sales, as I said last quarter, we are trending towards the top end of the guidance range for our sales, all things being equal, shipping delays, et cetera, but we're pretty comfortable with that range. So we've left it unchanged. Obviously, there is a delay between production and sales. So even if you're producing more, you don't necessarily able to realize those sales in the same period. But we are seeing performance at the top -- towards the top end of that range. Operator: The next question comes from Branko Skocic from JPMorgan. Branko Skocic: Just first question on future product inventories. Can we expect a bit of an unwind strategy to progress into FY '27? Obviously, the current number seems a little bit elevated, probably unwind a bit in the fourth quarter, but just interested in your views over the next 6 to 12 months, please? Paul Hemburrow: Yes. Agreed, it is a slightly elevated level. Our inventories do fluctuate from quarter-to-quarter. Probably on a normalized average basis, we expect about 4 months of production to be our normal average inventory level. This quarter, that inventory level was impacted by shipping delay. So we had quite a large number of pounds on the water as of 31st of March. So that was the primary result. But yes, about 4 months of production on an average basis. Branko Skocic: That makes sense. And final question from me was just, I guess, critical path given the mine fully ramped up over the next 3 to 6 months. I guess what's the focus internally and what's something we can be watching for come June-July? Scott Barber: Yes, in terms of the mine, getting into G Pit and developing that, we're about 1.5 bench in currently and already touching ore. So that's going to start making its way to the ROM. Developing that pit, which is a little bit further away from the ROM than G Pit. So just optimizing the haulage, getting the equipment operating exactly as we wanted to. All of the equipment is in and operating, and the contract has done a really great job in getting all the people and everything up and running. But as we finish G Pit, move into [ next pit ], getting the blend rate and just really optimizing that through the mill as we see that new ore. So really, for the mine, the equipment is on site. It's just getting it on at the ROM and seeing how it performs through the mill. Operator: The next question comes from Matthew Hope from Ord Minnett. Matthew Hope: I was just wondering if you could give us a rough guide as to how much diesel makes up the cost of production? Paul Hemburrow: Yes. We typically don't go into that level of detail, Matthew. Anna Sudlow: Yes. I mean, I think, Matthew, what we can say is the mining contractor obviously has a portion of their costs related to diesel. There's a small amount of diesel used in the plant. Other than that, I'd say, it's fair to say it's sub 10%, 15% of the total cost of production. Matthew Hope: Okay. So with that, you don't expect a big impact from, obviously, the current global sort of diesel issues. You don't expect a huge impact on your costs? Anna Sudlow: Well, I think ultimately... Matthew Hope: Provided really no guidance on what is happening due to this conflict. Anna Sudlow: Yes. So look, obviously, we're monitoring that, but the ultimate impact is going to be dependent on what the price outcome is, right? So I think it's obviously not a significant cost. But to the extent there is a material increase, it will have some impact. Operator: The next question comes from [ Sara S from Ventum Financial ]. Unknown Analyst: Congrats on another quarter. I'll start with a question on PLS. What gives you optimism about a successful resolution of the legal issue with MNS? Paul Hemburrow: Thanks for the question. I've met with all of the chiefs and councils of the 4 parties that we're close to. And we have a really good relationship with them. And I think it's really just a matter of time to continue consultation. I think that it'd be unsurprising to say that everybody in the communities and in that region, I think would have some benefit of our presence there, and that's not an unreasonable expectation. And of course, the challenge is how do we find -- how do we find a resolution to this in a way that's economically sensible for us as well. And so we'll continue to consult with them and work through the process. And we've seen other mining companies, other projects in very close proximity to us work through that process and have successful outcomes. And what we've also seen is the timing of delivery of an MBA is completely independent of the EIS approval process and the CNSC process. So we'll just keep going as long as it takes. In the meantime, the most important thing for us right now is to consult effectively with them, but also to progress the project through the engineering works and satisfy the requirements of CNSC. So the project is -- the project economics are incredibly strong. It's a great project, and we have a lot of confidence in the team's ability to work through these issues as they come up. Unknown Analyst: All right. I'll just follow up on another question that was previously asked about run rates. If we were to extrapolate from, let's say, production in the month of June when hopefully, the ramp-up is done. Would that lead to, on an annual basis, 6 million pounds of production per annum? Or what would it lead to? Paul Hemburrow: So we're not going to provide guidance into next year until we get through this year. I think there's a level of uncertainty out there now with respect to what's happening in the Middle East, of course. And I think it's a difficult time for anybody to predict how that's going to unravel. What we can say though is we have reset our guidance range for the remainder of this year. I think that number is challenging but achievable. And what we'll do now for the remainder of the year is to continue to go through our budgeting process, assess the performance of Scott's optimization work. And then at an appropriate point in time, we'll provide guidance to give people an update on the basis of more well-informed view of '27. Unknown Analyst: Okay. I was just -- my question was, I think, motivated by a peak production rate outlined in the life of mine production plan that was put out earlier. But I look forward to the actual guidance. Paul Hemburrow: Yes, thanks. I think the peak production really depends on a number of factors and primarily as throughput rates through the mill, overall recovery rates and grade. And under different price scenarios, we might choose to do something quite different. So in a different new price scenario, we might do something different to what we would do in a high diesel price scenario. So the plan ultimately depends on how things play out over the coming months in combination with how our performance is over that same period. So it is a bit difficult to give you a more [ certain ] answer. Unknown Analyst: My final question would be maybe a possible comment from you on something that came up on Bloomberg a few days ago about the U.S. ambassador to Namibia saying that they were expecting to increase imports of uranium from Namibia to the U.S.A. I was wondering if you've been in discussions with -- of that nature with parties in the U.S.A. Paul Hemburrow: Yes. Look, there has been a lot of interest in the Namibian supply from across the globe. We were just at the World Nuclear Fuel Cycle Conference last week. There's a lot of interest from the U.S. utilities. I think generally the mood is getting -- the U.S. utilities are certainly getting more urgent in their request of supply. And I think they are being prompted by the U.S. government to secure supplies and secure inventories. We've obviously had direct interactions with the representatives from U.S. embassies as well. And -- but having said that, it's -- I guess, it's -- there isn't anything sort of concrete at this point in time. We do see also a very strong demand from other regions, specifically from China. The Chinese utilities continue to be very aggressive in their fuel purchasing driven by the reactor build-out programs, chasing supply across the region as evidenced by the Tango deal that CGN is in the process of completing. So we are in a very fortunate position in Namibia with that origin being highly sought after both by the Chinese, by the U.S. as well as the European counterparties that have lost some supply from [ Niger ]. And we'll aim to maximize the value of that Niger -- of our Namibian production for the benefit of our shareholders. Operator: At this time, we're showing no further questions. I'll hand the conference back to Paul for any closing remarks. Paul Hemburrow: Thank you very much. The progress across the portfolio of activities have been really positive. We continue to build momentum in both production and project progress at PLS. However, we maintain a close watch on the Middle East for any potential impact on our business over the coming months. Thank you for your questions, and thank you for your ongoing interest in Paladin, and have a good day.
Operator: Welcome to the Arjo Q1 presentation for 2026. [Operator Instructions] Now I will hand the conference over to President and CEO, Andreas Elgaard; and CFO, Christofer Carlsson. Please go ahead. Andreas Elgaard: Thanks a lot, and thanks everybody for dialing in and listening to Arjo's First Quarter of 2026. So we believe we have been able to pull together a stable first quarter and we're happy to share that with you. And also, we will talk a little bit on how we are progressing the work with shaping the future Arjo. So just to begin a little bit from my side. And to remind everybody of who we are and what we do because we are really very purpose-led in everything we do. This is something that is very strong in Arjo. We exist and are present at people's most vulnerable moments, and we help them to keep their integrity and dignity and really make sure that they have the best possible situation when they need it the most. We, as you know, we work across several product segments and categories. So from patient handling and hygiene to medical beds, the mattresses that goes on top often focused on helping to relieve pressure injuries. We work with VTE prevention, diagnostics and disinfection. So these are our product categories. We are about 7,000 people and with an annual turnover of approximately SEK 11 billion. And we are truly a global company with sales to more than 100 countries. So let me just start by fly over a summary of the first quarter of 2026. So we delivered solid growth in Q1, 3.8% is within our guidance. And it's really driven this year by a positive trend in U.S. in capital sales and strong sales in rest of the world. And also this year, as you saw in Q4, the flu season was not as strong as it usually is for us in U.S. and that has continued. So this is despite a somewhat weak flu season. So we are -- we think this is really a stable result that we deliver. The gross margin is slightly below last year, and we are, of course, put under continued pressure when it comes to currency and the tariffs in U.S. We are working with trying to compensate this through efficiencies and also to manage our costs in a good way and then looking into price adjustments, especially considering the situation that is in West Asia. So still uncertain how this will affect us, but we are preparing for making sure that we manage those effects. So just to also highlight, we had healthy cash flow in the quarter compared to last year, it's an improvement, and it follows the seasonal pattern. So this is also something to mention. The adjusted EBITDA came in at SEK 456 million. And maybe one thing to highlight is that we started in the quarter to work on our future strategy, and we've had very intense work and a lot of engagement across the company, and we are progressing in a really good way. And I will come back to this a little bit more towards the end. So if I zoom in a little bit on sales in North America, we had both in Canada and U.S., really strong end to the quarter. So month of March was really strong. In total, I would say that U.S. continued to grow in the quarter, and Canada came in slightly below last year. But they really met some very strong comparable number. So all in all, a really strong performance is what we have seen, meeting very strong comparable numbers. Of course, when you meet stronger numbers, the percentage growth is, of course, affected. And as I mentioned before, for U.S., the flu season was not as strong as it usually is but we compensated that through capital sales in Patient Handling. If you look at the rest of our sales beyond North America, in Western Europe, we were struggling a little bit and it's mainly U.K. that is helping us with it -- not helping us, but that stands with the decline. And most other markets are performing in a good way, and especially France and Italy have had a really good performance in the quarter. Rest of the world beyond Europe then and North America was really, really strong, and the growth was really carried through several markets performing, but the shout out, especially to South Africa that delivered a large medical beds order in their region. And I just want to hang on that topic just because it gives some flavor to what we're doing. So we have modernized 36 health care facilities in South Africa, this was a special product tailored for their needs. So 2,300 new, more than 2,300 new beds and mattresses. And this to us is not just -- it's a logistic exercise. It's an installation exercise. It needs to be done when it suits the hospital and it needs to be done with good margin and good cash conversion. And all of this came to life through really good strong teamwork from customer to back in supply chain. So by that, I hand over to Christofer. Christofer Carlsson: Thank you, Andreas. As Andreas stated, we had a stable start of the year. Overall, our gross margin came in at 42.6% compared to last year's 43.7%. Looking at the drivers. The growth in Patient Handling improved group margins, driven by strong development for our floor lift Maxi Move 5 and ceiling lift. Also, our Diagnostic business improved margins driven by higher volumes and a favorable sales mix. The Rental business gross margin slightly increased, driven by France, U.K. and Australia, while U.S. had a negative development due to weaker flu season and some capital conversion among customers. However, the main part of the gap came from an unfavorable product and country mix impacting the gross margin by minus 1 percentage point, mainly related to a large medical bed order in South Africa. At the same time, U.S. tariffs had a negative impact of SEK 10 million year-over-year, representing a 0.4 percentage point decline in gross margin. In addition, FX had a minor negative impact on gross margin but in absolute numbers, the gross profit and negative FX effect of SEK 123 million. Finally, our Service business margins were in line with last year when excluding U.S. tariffs. If we now move on to the EBIT slide. Next slide, please. As you can see, adjusted EBIT in Q1 came in at SEK 190 million compared to SEK 208 million last year. However, when excluding U.S. tariffs and FX, the result is in line with last year. Looking at the costs, OpEx declined in the quarter due to FX effects, at the same time, the organic OpEx increase was 2.8%. In addition, we had a positive effect from revaluation of accounts receivable and accounts payable of SEK 3 million in the quarter reported under other income and expenses. Last year, the equivalent amount was minus SEK 34 million, resulting in a delta of plus SEK 37 million year-over-year. So overall, the total FX impact on adjusted EBIT amounts, therefore, to a minor amount of minus SEK 7 million in the quarter. Moving to EBITDA. Adjusted EBITDA for the quarter was SEK 456 million compared to SEK 486 million last year. And adjusted EBITDA margin was in line with last year and came in at 16.9% versus 17.0% last year. The EBIT margin increased to 6.8% versus 5.9% last year. This improvement was supported by lower restructuring costs that came in at minus SEK 6 million in the quarter versus SEK 40 million last year. Now we move over to working capital and cash flow. Next slide, please. Operating cash flow improved in the quarter amounting to SEK 237 million. This was SEK 53 million higher year-over-year, mainly due to improved cash flow from working capital. Following our normal season pattern, the change in working capital were minus SEK 142 million versus minus SEK 180 million. Working capital days increased to 83, up from 81 in Q1 '25. Cash conversion in the quarter improved to 52.7% compared to 41.3% last year. For reference, our cash flow from investing activities was minus SEK 135 million compared to minus SEK 215 million in Q1 '25. The decrease is mainly due to SEK 48 million lower investment in rental assets. If we now move over to the net debt and leverage. Next slide, please. The decrease in net debt this quarter is driven by improved operating cash flow, lower investments and positive FX effects. Our financial net came in at minus SEK 36 million compared to minus SEK 43 million in Q1 '25. The improvement relates to some positive FX effects. Our cash position remains strong. Net debt to adjusted EBITDA stayed flat versus the year-end and came in at 2.2. Our equity ratio stood at 50.5%, up from 49.8% at year-end '25, mainly due to positive FX effects in equity. With that, I will now hand it back to you, Andreas. Andreas Elgaard: Thank you, Christofer. So I thought that it would be good maybe to just share a little bit on how the work of shaping the future of Arjo is going. And too early to reveal anything, but I can still try to give you a flavor on what we're doing. And we put the headline here, but it will be a story of untapped potential because being new now into Arjo soon, 4 months into the role, I see a lot of potential in the people, in our relationships with our suppliers and in the relationships with our customers. It's really -- it's not just an industry that has healthy growth expectations, but it also Arjo as an organization is really filled with potential. But this in order to be able to untap that, we really need to have clarity on where we're going and make sure that we build the capability to execute as well. So one way of doing that is by inviting leaders from across the organization to make sure that we build a common ground, we create alignment, we create understanding on where we are and where we need to be in the future. And by doing that, you don't just get the strategy that comes from top, you get a strategy that is well anchored across the organization, and that really helps you when it's time for execution. So our ambition is to go from strategizing straight into execution, that is the ambition. And creating a clarity in where we're going is really important for everything from product development to supplier relationship development and to product development. But it's also very important if we want to continue to grow also in new product segments or if we want to open new segments where care is moving. It will also be something that will guide us if we need to accelerate our growth or our strategic movement through acquisitions in the future. But strategy and talking too much about the future, sometimes can dilute the focus on here and now. And I, for one, is super focused on that we need to deliver two things. We need to deliver clarity for the future, so we know how to execute and build the future Arjo, but we also need to deliver results short term. So what you can expect from us is a strategy that will focus both on the here and now and how we lay the foundation for the future. so you will have both of it so to say. And our ambition is to get this strategy approved during summer and that we will be able to communicate that to you after the summer. That means the second half of 2026 so that's a little bit the status on where we are by in the work of creating the future Arjo. And by that, we hand over to the Q&A section. Operator: [Operator Instructions] The next question comes from Filip Wetterqvist from SB1 Markets. Filip Wetterqvist: I have a couple. First, can you quantify a little bit more on the contribution from the 36 facilities in South Africa to global sales organic growth? Like what would the underlying organic rate have been ex this order? And how does that inform into the exit run rate into Q2? The first one. Andreas Elgaard: Okay. Thank you for your question. I don't think we have communicated the size of the single order. And I do think that when we have orders of materiality, we will do press release and specify those things. So we have not done that. So we are not giving guidance on that because that will reveal information to competitors that we don't want to reveal. But 2,300 -- more than 2,300 beds to 36 care facilities. It is a substantial order, but we don't judge it being material. Filip Wetterqvist: And my second question, you mentioned Middle East cost pressure from Energy & Transportation as a fresh headwind here in the report. Did you see any impact already here in Q1? Or do you anticipate it in Q2? And what is the current run rate assumption for '26? Andreas Elgaard: Yes, thanks for the question. So we have seen a minor effect in Q1. But of course, we and everybody else in the world are very much aware of how much oil affects not just the energy sector, but every -- I would say every process industry and every food production farm in the world through the production of fertilizers. So of course, this will have effects. But we -- so we are preparing to try to mitigate that in the ways that we can. We don't give forecasts on what that might be because -- and I don't think Arjo is the best equipped to give forecast on the financial consequences of the crisis that is ongoing right now. But given that, of course, we are preparing us for the scenarios that we see internally. So I hope that answers your question enough. And I mean if this conflict becomes short term, hopefully, there will still be effects. That's for sure. But if it becomes short term, I also think it will be something that the world will be able to manage. And this is something that affects Arjo in the same way as it affects everybody else. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Andreas Elgaard: Okay. Thank you very much. So today is the Annual General Meeting. So we are super excited. There will be more than 120 shareholders that will come and listen to us, and we will give a similar message to them. But of course, we will focus on 2025. We'll give a short highlight of the first quarter this year, and we will also give some flavor on the strategy work. So we'll share a movie where different leaders from Arjo is talking about that. We are really excited about that. And by that, we say thank you for this call, and we remain at your disposal. Bye-bye. Christofer Carlsson: Bye-bye.
Operator: Hello, and welcome to the Randstad Q1 end 2026 Results Conference Call and Audio Webcast. [Operator Instructions] I will now hand the word over to Sander van 't Noordende, CEO. Mr. van't Noordende. Please go ahead. Alexander van't Noordende: Thank you very much, Barton, for that kind introduction. And good morning, everybody. I'm here with Jorge and our Investor Relations team to share our Q1 2012 results. Let me first say I'm proud of our team's continued execution of our partner for talent strategy, which is delivering a strong foundation for our growth ambitions. And as a result, our growth has broadened with 63% of Randstad now in growth, up from 50% in Q4, which equates to 0.4% growth for the quarter. Overall, volume in contingent work was resilient with strong momentum in the U.S. and Southern Europe, especially, of course, in Randstad operational business. We see further stabilization in industrial markets in Northwest Europe, while the permanent and professional markets remain challenging. APAC remains robust. Together with strong adaptability, this has resulted in a solid performance with revenues of EUR 5.5 billion and an EBITA of EUR 146 million, representing a 2.7% margin. Volume trends in early April have been encouraging. And so far, we have seen very limited impact from the geopolitical situation in the Middle East. As you would expect, we are monitoring the situation vigilantly and are in constant dialogue with our clients to understand the impact they are noticing on their business. However, the current trajectory of our business gives us confidence for the months ahead. As we move further into 2026, we continue to progress well on our partner for talent strategy. Our growth through specialization is fueled by the 10x10x10 initiative, 10 markets with each 10 opportunities of EUR 10 million or more. And [ Jorge ] and the team are doing a fantastic job here and secured over EUR 600 million of new wins in Q1. In operational, we saw an uptick of client activity across our industrial segments, particularly in manufacturing, including skilled trades in markets such as Germany and Italy. We saw strong growth in the logistics sector with increased hiring forecast in key markets such as the U.S., France and the Netherlands. In Professional, we saw momentum improving in engineering in the U.S., Italy and Japan, and we are growing in health care, primarily driven by the Netherlands and Italy. After a slow January in our enterprise business, we expect trends to sequentially improve from here as we secured a number of new clients this quarter across life sciences, semiconductors and energy. The health of our pipeline also bodes well for the rest of the year. We celebrated the rollout of our digital marketplace in the U.K. And once again, Talent loves it. Within 2 hours, we had 77% of the targeted talent on the app. We are now live in 9 markets. In March alone, we managed close to 600,000 self-service shift with around 240,000 monthly active users. We also went live into front and mid-office of our Randstad platform in Italy with our digital marketplace to follow later this year. On AI, 80% of our staff are now AI trained, working smarter and more efficiently is essential to continue driving down indirect cost as a percentage of revenue. So as we enter 2026, I'm proud of our teams as our partner for talent strategy and commercial success provides a strong foundation for our growth ambitions. Because the notes on your minds, let me say a few words about the role of AI in the labor market. Above all, we are AI optimist. In the context of an aging population and persistent labor mismatches, we view AI as a critical enabler for a very welcome productivity boost. And there are a few points I'd like to make here. First, studies show that the base case for the impact of AI is a job loss of 6% to 7% over the next 5 to 10 years, with a particular focus on clerical roles, customer service, marketing and design and software development, where our exposure as Randstad is currently limited. Then it looks like AI is more about task and team augmentation than outright job replacement. So roles will change over time, and we, at Randstad call this the great adaptation of the workforce. Finally, the phenomenon of jobs disappearing and new jobs emerging is of all ages. Of the jobs we cater for today, around 60% to 70% did not exist 65 years ago when we started Randstad. Our first times were mostly executive assistance, which today are a fraction of our business. So what does this all mean for Randstad? First of all, Randstad operational and health care are 2/3 of our business today. These are typically jobs that are human-centric and minimally impacted by AI. Think about maintenance technicians, welders and fabricators, HVAC specialists and, of course, nurses and care workers. Secondly, our strategy is to ensure that we are highly relevant where the future jobs are. That's why we have our 4 specializations, each with its own growth segments such as skilled trade, logistics, engineering, health care. As the Canadian say, we are skating where the puck is going to be. In summary, we're confident by taking the right actions for our partner for talent strategy, we can navigate and benefit from the impact of AI on the labor market over the next 5 to 10 years. I'm going to now hand over to Jorge to say a bit more about our financial results. Jorge? Jorge Vazquez: Thank you, Sander, and good morning, everyone. Let me start by saying that overall, we are happy to see that this quarter mostly came in line with our expectations. The trends are consistent, they are more stable and the changes we are doing are also more structural. We saw sequential improvement in growth rates across most of our markets, and we returned to organic revenue growth. This growth is led by our operational business, as Sander just highlighted, which grew 3% globally, including a strong 8% in the U.S., where our digital marketplace is driving tangible market share gains. But it's also positive to see manufacturing PMIs above 50 in most of our markets for the first time in many, many quarters. While remaining vigilant on geopolitics, we do balance momentum with strength discipline and investments in our road map, not only to protect the bottom line but also in growth to ensure we have the operational gearing ready for the coming quarters. Before we move on to the section in the markets, please a small note, we have simplified the reporting structure by removing the regional subsegments in Europe. Where applicable, the comparative figures are presented to align with this new structure. So let's dive in and let's start with North America on Page 9. In North America, we continue to build throughout the quarter with strong exit rates in our industrial sectors. The U.S. operational grew 8%, significantly outpacing the market and its double-digit profit growth validates our new model of central delivery and the digital marketplace. Professional is down 8% but improving sequentially with forms returning now to growth. Enterprise started slow, as mentioned already at the end of Q4, but ended with stronger exit rates, driven by major new wins and a solid pipeline. Digital faced muted Q1 demand but adapted well. Canada mirrors the U.S. with strong operational growth offsetting a slower enterprise starts. Overall, North American EBITA margin was 3% year-over-year, delivering a 78% recovery ratio. Now moving on to the major European markets on Slide 10. In Europe, momentum is improving across our major markets, though the split between a strong South and the slower North still remains. In the Netherlands, organic revenue returned to growth, driven by continued good performance in health care and solid positioning with large logistics and e-commerce clients. We spent Q1 implementing the new CLA together with our clients and while complex and not finished yet, we progressed well and expect this to be concluded in the next few weeks. Overall, profitability came in at 4.4%. In Germany, we are seeing early signs of recovery, down just 4%, driven by improving PMIs. Industrial pockets are returning to growth, and even automotive was still declining, it is clearly bottoming out. Public infrastructure spending has yet to materialize. In Germany, the transformation we started last year is paying off as the business pushes hard to return to growth at a more sustainable level of profitability. Now in Belgium, we still declined 6% with operations minus 4%. The weakness in the market is mostly around permanent hiring and office jobs. Now moving on to France. It remains still a 2 speed markets. On 1 side, our in-house and larger client portfolio is up 11%. On the other side, SME and skilled perm segments are currently lagging the market. Professionals here also declined 13% year-over-year, with volumes weighed down by the recent health care legislation. Overall profitability came in at 3.9%. Italy. In Italy, growth continued to accelerate on the back of a successful Olympics campaign with operational up 9% and Professional also growing now at 6% as our recent investment over 2025 payoff. Profitability came in at 5.1%, impacted this quarter by an Olympic brand awareness campaign and strategic investments for the platform. Iberia had a fantastic quarter, plus 9%, led by Spain, north of 10%, where we are firing on all cylinders, and we continue to invest in further growth, both in people and capabilities. Let's now move on to the international market slide on Slide 11. International markets are a bit of a mixed bag, as you can see. So let me quickly unpack in more detail. In Europe, we celebrated the go-live RDMP in the U.K., like Sander mentioned, and it's great to see our first talent using the platform over the last 2, 3 weeks. Poland is still growing at 2%; Switzerland 3% continue to grow and offsetting still the subdued Nordics still at minus 11%. In LatAm, we continue to see good momentum, particularly in Brazil. In Asia Pacific, Japan continued its solid growth at plus 5%, and we continue here to invest to capture structural opportunities, particularly in the digital area and in Tokyo. Australia and New Zealand declined 4% with some signs now of stabilization. India, growth accelerated to 16% as we continue to invest in growth segments. Overall, the EBITA margin for the region came at 3.6%, reflecting growth investments. And that concludes the performance of our key geographies. So let me now walk you through our combined financial performance on Slide 13. Looking at the revenue mix, we see the trends of the last few quarters continuing. Operational sees momentum now accelerating and is now growing 3%. Remember, it was flat on Q4. Professional also improved quarter-over-quarter due to strong demand in health care, particularly in the Netherlands and Italy, engineering in U.S. and Japan. Digital and enterprise started the year slowly and tougher comps certainly did not help. Pipeline deal wins and exit rates for enterprise look better as we enter into Q2. Now our gross profit and OpEx were well aligned, but we will talk more about it particularly later. Zooming into EBITA. EBITA margin was 2.7%. Underlying EBITA was EUR 146 million with an adverse steel FX impact this quarter of EUR 6 million, which will start leveling off from here. Integration costs and one-offs this quarter amounted to EUR 23 million, and they were mostly related to basically the Netherlands or Northern and Western Europe as we continue to drive structural change across our organization. Net finance costs are just a regular interest payments albeit lower, reflecting the lower net debt coming down. The effective tax rate for the first 3 months was 31%. We expect '26 ETR towards the higher end of 29% to 31% range, and this all led to an adjusted net income of EUR 91 million for the quarter. But with that, let's indeed now deep dive into the gross margin slides on Slide 14. And a few things about the margins. So gross margin was down 80 basis points to 18.5%. Within that, our temp margin is down 60 basis points and primarily with the points we had highlighted already in the previous quarter. On one hand, operational remains more resilient, if not even now in growth versus professional and digital specializations. Two, we continue to see geographical divergence with Northern Europe below group average and Southern Europe continuing to do better. The adverse FX impact following, let's say, liberation days, it still plays a role. And last but not least, as we mentioned in Q4, there were incidentals between Q4 and Q1 last year, which impacted a little bit the comparisons. Perm contribution was still down 20 basis points, is now somewhat stable at low level as key European perm markets still remain very challenging. In HRS and other, remember, here, we include RPO, outplacement and a lot of other fee businesses, MSP is still flat. Now this is the market at the moment and where the majority of the gross margin pressure is simply a reflection of the continued growth divergence across our portfolio. Albeit most of this pressure starts to annualize as we progress through the quarters ahead. Now let me bring you now in more details into Slide 15 on our OpEx bridge. Underlying operating expenses were EUR 873 million, moving in lockstep with gross profit as we've been doing in the previous quarters. Despite inflationary pressures we lowered core costs, excuse me, OpEx quarter-over-quarter, and we are building clear operational leverage. We're achieving this through delivery excellence, growing volumes in key markets and delivering to the most productive to service models without adding as much headcount. In fact, the correlation between volume and FTE is now at a 6-year low. We also continue to reduce indirect costs as a percentage of revenue through scale and technology. Overall, I think the important point about our OpEx is that the change in the past 3 years proved to be structural with, again, the last 4 quarters, ICR hitting close to 70% at 68%. What this means is that we are improving our ability to offset gross profit declines by reducing OpEx or to convert gross profit into EBITA as growth returns. And with that in mind, let's now move on to Slide 16, which contains our cash flow and balance sheet remarks. First, balance sheet, our underlying free cash flow for the quarter stood at minus EUR 98 million. We typically have the most seasonal negative working capital movements in this quarter such as VAT, wage taxes, commissions and prepayments. In addition, in particular, in Q1 this quarter, we had a delay in invoicing at the beginning of the quarter associated with the Netherlands following the implementation of the new regulatory framework of about EUR 40 million to EUR 50 million. This will obviously normalize now into Q2, and we expect the same cash trajectory for the full year. DSO came in at 57.4 days, up 0.7 days sequentially and reflecting exactly the mix and the delay in invoicing. Net debt decreased EUR 131 million year-over-year, and our leverage ratio stands now at 1.5. And that brings me to the outlook on Slide 17. So looking at the current momentum, we see the positive volume trends in February and March, continuing to April, and that gives us confidence for the months ahead. Now remember, Sander highlighted, we have seen no direct impact from the Middle East, but we remain vigilant. Gross margin in Q2 is expected to be slightly down sequentially, reflecting the normal seasonal step up into volume higher clients, but also the lowest working day quarter of the year. And we continue to still see as we enter ongoing reluctance in hiring or permanent hiring by clients and talent. On the other hand, operating expenses are expected to increase slightly quarter-over-quarter, but always again, with strict operational discipline. So to summarize, by sustaining our growth momentum, continue to drive productivity from how we run our business and structurally reducing the cost to support it, we are inherently building operational leverage into Randstad. And that concludes our prepared remarks, and we look forward now to take our questions. Operator: [Operator Instructions] The first question comes from Andy Grobler from BNPP. Andrew Grobler: Just the first one on the Netherlands, which was much stronger than it had been. And you talked about Zorgwerk impacting that. But I guess, Zorgwerk is relatively small. Can you just talk through the maths of what has changed and how much of that is due to Zorgwerk? How much of it is the rest of the business, please? And I have one follow-up. Just one. I'll go with that one, but I'll follow up later. Alexander van't Noordende: Okay. Well, a good question, Andy. Let me -- I'm going to first say that I think the team in the Netherlands has done an outstanding job in engaging with the clients and managing this -- through this whole situation. So that's phenomenal. We said it was manageable, and it turned out to be manageable. So I think that's very good. So I'm going to ask Jorge to say a few more words about the economics of all this. Jorge Vazquez: Yes. So I would say, Andy, at a very high level, probably the, let's say, step-up from Q4 into Q1, and in this particular in the Netherlands, I'd expect about half of it being connected to the good performance of Zorgwerk health care, I mean, it's not a small company to be clear. And that has also to do, of course, that now this makes part of our organic growth rate. So that's -- as we annualize basically the acquisition of this and the remaining 50% has to do with strong performance in e-commerce and logistics and in general legislation as well, now including the support into Q1. Follow-up question, Andy? Andrew Grobler: Just on a slightly different topic, given the rate environment, what are your expectations for finance costs through the remainder of the year, please? Alexander van't Noordende: Finance costs . Interesting. Jorge Vazquez: To basically continue down. I mean you can see -- we can see we start the year with already a lower [ FIF ] into the year, and we continue to expect trending net debt down year-over-year, especially towards the second half of the year, as we always have the positive side of operating working capital. Andrew Grobler: Okay. So that Q1 number is -- we can expect similar levels through the remainder of the year? Jorge Vazquez: Yes. We can expect similar numbers throughout the remaining of the year. Yes. Operator: The next question comes from Remi Grenu from Morgan Stanley. . Remi Grenu: Yes, my question would be on the momentum productivity, you're tagging that April was in line with March and I guess with the minus 2.4% in January and your organic growth through the quarter. It probably means that the current run rate is north of 1% organic growth in the later part in terms of exit rate in April. So if you could confirm that? And trying to think about how to how to think about the better momentum that you've experienced in the business and the potential negative from the environment. I'm trying to understand what's your -- what's the base case you're working on internally? Would it be like continued improvement in temp and maybe a little bit of weakness in permanent recruitment? Just a discussion around that, that better.. Jorge Vazquez: Thanks, Remi. So first of all, I mean, let me talk about the momentum. I think probably the most important comment is what Sander mentioned in the beginning. The step-up is broader. So it's across -- I think practically all markets have shown a better momentum, if not perhaps Belgium being the exception. The rest all our markets have stepped up. And that -- yes, that sustains our belief, okay. We made a step up. Two, you also see PMIs having improved significantly through -- atleast having been positive in most markets during Q1. So it is, let's say, something that we look at confidence, okay, what is at the basis of IT, at the core of it. If I look in the quarter, indeed, you will remember when we talked about January, we -- our exit rate was approximately minus 0.4% in January. We had a step-up in February, but I think I'll prefer given the amount of working days and the holidays between 2 months, then you should take step, let's say, Feb and March together. And that will probably bring you, let's say, between 0.5% to 1% as an exit rate. Remember, we say April productivities are in line. We are continuing to take that into Q2. There are adverse comp effects, but we also had them in Q1. So for now, basically, we just take it as it comes, but it gives us confidence into Q2. Remi Grenu: Okay. And just to follow up, the discussion on temp versus perm for the outlook. I mean we've heard some of your competitors being a little bit more cautious on permanent recruitment for the next few months. Is it something that you're looking at as well? And any insight from discussion with clients on that side? Alexander van't Noordende: Remi, what you probably have at the moment, if you look at the actual absolute amounts invoiced, they are quite stable. What you see is the critical roles are being replaced. When clients will have more confidence and talent to start changing jobs or organizing work with more permanent jobs, we don't know. We also have in the U.S. some green shoots in terms of permanent recruitment, perm. EU is still very weak. Now what I would argue is it's also a context where typically uncertainty will play out for any seasonal work to be primarily absorbed now by more temp or flexible solutions. And that's what we see at the moment. Operator: The next question comes from Rory McKenzie from UBS. Rory Mckenzie: It's Rory here. I wanted to ask about the digital marketplace, which you said did 1.45 million shifts in Q1. I just want to ask a lot more about the context for that number. So how much -- how many shifts did your business deliver in total in the quarter? And also just what kind of shifts are shifting to this marketplace? Is it more short-term one-off covers or are customers using the DMP to change how they staff entire businesses? And also, can you talk about is it changing your impact on the market in terms of new clients? Or is this about wallet share? Alexander van't Noordende: Yes. Very good questions, Rory. Let me sort of start from the top. Obviously, this is all about making sure that Randstad supplies or delivers what we call immediate talent availability. We -- I always say to the teams, we need to have the talent already there before the client even knows they need it. So that's one. You can only do that with digital technologies. And that means that in our operational business and our biggest example is, of course, in the U.S. in operational, but we also have marketplaces in health care, in France, in the Netherlands, in Australia. In operational, we are starting or have started in a number of countries, think Canada, also Australia, Japan. So this is becoming a widespread phenomenon and an integral part of our strategy as Randstad. So -- and why do we -- why do clients like this? Our clients like this because they get what they need. So the fulfillment is higher. It's easy to do business with. In some clients, we are directly connected to their operational system. So the shifts that they cannot fill, they put immediately onto the marketplace. Those shifts are filled within minutes or hours. Generally, 50% to 60% of the shifts is filled within 1 hour, which gives the client confidence that the people will show up. Another benefit for the client is because people have selected those shifts themselves, the no-show rates have basically gone in half, so have reduced by 50%. So there's all goodness in there for the client. For the talent, there's also goodness in there because talent can now decide when and where they work is one. They can do that at the moment as they like, and that's typically in the evening. They don't have to call one of our consultants to talk to that. They can decide by themselves. So again, the no-show rates increase. So this is clear benefits for clients and talents. Then all those benefits also add up to benefits for Randstad. Higher fill rate is more business. No shows reduced is more business. Fulfill rate up is happier clients, fill rate up is happier talent. Of course, efficiency productivity because there is no human intervention, client types in their own shift, talent selects their own shift. That means 0 marginal cost if there's more demand, meaning ramp-up is a lot easier because we have the talent there. The client decides that they need 10 or 20 people more the next day we put the shifts on the marketplace, it all works. And I'm absolutely convinced that our growth rate in U.S. operational this quarter is driven in part by the fact that we have a digital marketplace because when the market ramps up, you need to be quick. If you have the talent already there, and it's just a matter of filling shifts through the digital marketplace, it's all good. In terms of what does this mean for our business? So we have 15% of our business now on digital marketplaces, roughly EUR 4 billion. EUR 3 billion of that, you have to think about EUR 3 billion of that is operational and EUR 1 billion of that is in our professional space in Randstad Digital in North America. This year is going to be a year of rollout, so where we start in a number of new markets. I mentioned a few of them already. So that next year, we can scale. So by the end of the year, we're looking at 22% of our business through digital marketplaces. And last but not least, the excitement that this is creating within Randstad is quite phenomenal because our people see that they are differentiated in the marketplace. We have more and more clients saying, we want to do business with Randstad, because you have the digital marketplace. That's easy for us, but it also means it is access to talent because talent lives in the digital world, not in a branch or somewhere else. So it's exciting for our people because we have something new. We have something exciting. We're differentiated, and it works very well. So you can guess I'm really excited about all of this and cannot go fast enough as far as I'm concerned. Rory Mckenzie: Yes. That's a lot of detail and just one follow-up, if I can. It maybe to link this DMP to what you talked about on Slide 8. where you talked about AI in the world of work at a broad level, but maybe not about how AI could reshape the channel of connecting labor demand and supply. Do you think and do you hear that clients are engaging with maybe lots of different digital marketplaces for types of labor or channels? And what do you think happens to the kind of landscape of that labor supply as a result? Alexander van't Noordende: Yes, that's a good question. If you add up, Rory, the market share of all digital native companies combined in our space, the numbers that I've seen, they have a combined market share of around 5%, and that's the likes of professional marketplaces, freelance marketplaces and, let's say, operational marketplaces for your waiter or for your nurse. So the digital phenomenon in our industry is still relatively small. And that means there's a massive opportunity for us at Randstad to scale and to take share over time, because not all players will be able to implement a digital marketplace at the scale where we can. First of all, because it's hard work. But secondly, you meet the expertise. But secondly, it's also big investments. And we are fortunate enough to have a strong balance sheet so we can afford those investments. So it's going to be an interesting time in terms of digitizing the industry. Operator: The next question comes from Simon LeChipre from Jefferies. Alexander van't Noordende: Let's take the next one. Simon LeChipre: Can you hear me? Alexander van't Noordende: We were looking for you, but we couldn't hear you. Simon LeChipre: Sorry. First question on the gross margin for temp. I was a bit surprised to see the performance getting incrementally worse despite the better top line. So can you give us a bit more color on the different moving parts? And what does that mean about the drivers of this better top line? Jorge Vazquez: Thank you, Simon. So I think -- I mean, we had spent some time on Q4. We had already highlighted that we should look basically at the 2 quarters, Q4 and Q1 together. So we actually think our -- let's say, gross margin came in well right in the middle of our expectations and the temp margin as well. So I would say in Q4, we had 40 basis points. If you remember, in Q1, we now have 60. We said it was impacted by incidental items last year between Q4 '24 and Q1 '25. So I will take the underlying run between both about approximately 40 basis points. So -- and the good thing is it came within our expectations, and we now see it basically things stabilizing and many of these movements starting to annualize as we go into the later quarters of the year. Simon LeChipre: Okay. And a follow-up on Netherlands and obviously, quite a step-up in top line, but it seems like the drop-through was quite weak with margin declining year-on-year. So can you give us the details behind this performance, please? Jorge Vazquez: Yes. If you look at the 4.4%, that's probably quite the run rate also comparing to the last quarters. I just told as well that we had last year incidentals that were particularly in the Netherlands associated with sickness and now basically, we started normalizing for higher sickness rates over the last 2 to 3 years. So I think if we take that into account, I think things are pretty stable in the Netherlands and definitely even [ although ] versus Q4 is slightly up. Operator: The next question comes from Simon Van Oppen. Simon Van Oppen: Could you give us a little bit more color on your working capital in Q1? We saw free cash flow was a negative EUR 100 million versus EUR 60 million last year. And we understand that H1 is usually seasonally light in terms of cash inflow as staffing companies tend to absorb working capital as they grow. But we noticed that DSO increased year-on-year to 57.4 days versus 55 days last year, which is quite a step up, especially since one might assume you're dealing with broadly similar country mix effects as peers who seem to manage to bring DSO down while growing faster. Any thoughts on what's behind the difference would be helpful. Alexander van't Noordende: Thanks, Simon. So first of all, I mean, indeed, I mean, the fact that it is negative, I think it's been like EUR 218 million to EUR 219 million to probably [ EUR 220 million to EUR 224 million. ] So it is -- the Q1 is always a quarter heavily impacted by working capital typically investments. And that has to do, as I mentioned earlier on, with all wage taxes payments, VAT, but also commissions, bonus payouts and even especially as we have a lot of software licenses, prepayment of a lot of licenses. So that is the normal, let's say, impact. What we did have this year is we had a higher, let's say, a delay on invoicing in the Netherlands. So that especially compared to last year, takes an impact. In January, we were late by approximately EUR 40 million, EUR 50 million in invoicing, and that spills over into next quarter. That has to do with the implementation here in the Netherlands of the new CLA legislation that is sold. So basically, it will normalize now as we go into the year. And then if you ask compared to last year as well, you will remember, we had a quite, let's say, low free cash flow generation in Q4 2024. That came primarily because the week -- the end of the year had finished in the weekend. So we've got a lot of, let's say, payments that were late paid into the first days of January last year. So that plays a little bit the comparison versus last year. I think in terms of trajectory for cash, we remain unchanged throughout the year. Now comparing to our competitors, look, DSO is not an established metric. So everyone is their own definition. At the same time, I think what we do see is, of course, our divergence in mix is quite significant. So yes, if we have Italy and Spain outgrowing and growing more than the market, we will play a role in our DSO. But I mean, we see our overdues continuing to decrease. We see credit losses even at historical low moment. So to be honest, I'm quite confident on the DSO -- on the cash trajectory. Operator: The next question comes from Marc Zwartsenburg from ING. . Marc Zwartsenburg: I would like to ask a question about the margin, regional margins, a couple of regions. So first of all, the Netherlands, you just explained a bit that there is a bit of normalization with sickness rates and that the margin has been lower. But on the other hand, we also have the new regulation in place with better pricing, and we have software doing really well. So maybe a few thoughts on how we should look at the margin going forward for the Netherlands. And if I look then to Region North America, yes, with also weaker enterprise, and the benefits from the digital marketplace, should we expect at some point that you will see quite some positive operational leverage in North America? And then 2 other regions, France and Italy, they are growing very fast, but we don't see a drop-through thing. Maybe explain a bit why that is? Jorge Vazquez: Yes. So first of all, -- if I had a short answer -- good to speak to you, Mark, if I had a short answer, I'll say, yes. So it will be the short one. And what I mean by this is, clearly, I mean, we don't optimize for a quarter. There were a few timing events this quarter. Now as we go from the lowest seasonal quarter of the year into the higher seasonal quarters, Q2, Q3, it's very clear. Countries where we are growing, we're going to deliver operational gearing. That's basically what we can see happening from both, let's say, productivity that Sander alluded to before, plus everything else we've been doing in reducing structural costs. So I'm quite confident, let's say, that we're going to be delivering gearing in the countries where we have growth. On the ones where we're not, we're working hard to basically keep on improving, making them more agile, more resilient and making sure that they may also make a step up. So from that perspective is the short answer. In the Netherlands, I want to be a little bit clear. The regulation, I mean, from a gross margin perspective, might be dilutive as well. So I wouldn't call it -- I mean, there is a lot of additional costs that have to be passed [ through ] That's the end impact in our margin but let's say, the first pressure will be a dilutive pressure in margin. Now we've also been adjusting our cost base in the Netherlands. You saw the one-offs this quarter primarily related to the Netherlands. So we are also starting to see about how to basically step up in profitability. But for now, I would say this level of profit is as going 4% to 5%. Marc Zwartsenburg: Yes. And in Italy and Spain, where you're growing so far, what you... Jorge Vazquez: Good point. Marc Zwartsenburg: So we don't see really operational leverage there. Jorge Vazquez: Yes, I'll say watch this space. So again, I told you there were some timing issues this quarter. In Italy, in particular, we've been investing. We also been -- we had an important marketing campaign this quarter in completing Q1 associated with the Olympics. We've also been investing in our, let's say, the rollout of our platform that Sander just has been describing. In Spain, we can see we continue to add head count year-over-year. So we've been investing and we continue to grow ahead of markets. I'm quite confident these countries will be showing operational gearing throughout the year. Marc Zwartsenburg: That's very clear. And in U.S., is there any benefit at some point that we should see from the marketplace? Jorge Vazquez: U.S., I think the marketplace has some investments, but as we progress into Q2, the same. Partially, there was an impact on enterprise. We started the year somewhat subdued. Again, we talked about -- Sander talked about pipeline. We talked about client implementations. All in all, if I look ahead, it's about also showing operational gearing. Operator: The next question comes from James Rowland Clark from Barclays. James Clark: Two questions, please. On the marketplace that you're just discussing, do you think that's resulting in any new client conversations at this point or simply just better client conversations, more engagement? And then also on a similar topic, can you provide any color as to the profit line benefit from the marketplace at this point in Q1, maybe on an annualized basis, if possible? And then my second question is just on the gross margin that you sort of suggested should ease through the year. I'm just curious as to how you think that plays out because it looks like the lower margin regions in the temp business are set to continue to outperform the higher-margin regions. So just interested in your thoughts there and what it needs -- what you need to see in order for that mix effect to ease substantially? Alexander van't Noordende: Thank you very much, James. On the marketplaces, that's absolutely driving new client conversations. And in fact, I'm personally out there with [ Mickey Chen ] and our commercial team in North America to have those client conversations with some of the big logistics companies, some of the big service companies in catering, et cetera. So -- and they all are interested in hearing about what we call the digital talent supply chain because these clients generally are very much into digitization of their business, of their logistics, of their procurement, of their sales to clients, but the talent supply chain is sort of somewhat behind in terms of digitization, and that's what we offer. That means we talked about it, higher fulfillment, but also a lot more transparency, compliance and I would say, analytics and optimization opportunities in that workforce. So yes, benefits at the high level, and I'll ask Jorge to say a bit more detail, benefits at a high level, higher productivity because we have more employees working per FTE in Randstad. That's definitely one of the major benefits. The other benefit is higher fulfillment because higher fulfillment sooner means more business tomorrow. That's pretty much how that works. I think overall, it's hard to tell at this particular point in time. I will tell you that is a work in progress, and we are -- the team here is working hard on getting more insights into that because we want to start sketching the picture of the new asset, including the economics over the next couple of quarters. Jorge Vazquez: Yes. So James, just putting some numbers to it. I mean you see our fill rate has been, let's say, increasing 1%. This makes a difference in revenue. So it sustains more revenue growth. Our [ EWs per ] FTE, I talked about it at the beginning on my opening, but they are probably now up 6% to 7% year-over-year. We're now starting to prevalidate a lot of, let's say, the talent to talent centers, meaning when our talent advisers need talent, they are faster with clients. There's one point Sander highlight as well that I would like to highlight, if you actually spend time with the teams, redeployment because the beauty of self -- let's say, if you are in the Randstad family and you choose your next shift, your next appointment, your next job, then a lot of the redeployment we consider we have less setup costs in making, let's say, that transition from job to job, which also enables clients to plan better and organize themselves better. So overall, supportive and especially now as we move into the more, yes, seasonally rich quarters. Alexander van't Noordende: Let me break down a little bit because I think it's connected to the question of Simon, your second question, so on the margin. So if I look ahead, we finished Q1, we just talked about it with the temp margin down approximately 60 basis points or delta 80. If we look ahead, we're probably looking more as we can see, 50 basis points year-over-year in Q2. That will mean still 30 to 30 basis points down in Q2. Now remember -- or year-over-year, but remember, it is a seasonal quarter. So clearly, more volume clients trading. It's also a smaller quarter in terms of working days. But I mean, if I compare it to Q1, where I would say it's probably about 45 basis points plus 15 FX. The other impact here is we start analyzing FX. So this should now start stabilizing at 30 to 40 basis points. We still expect 10 basis points negative from HRS. So the volume in RPO is still weak. I mean, not strangely if you look at what's happening in perm, though we are counting on some new clients being activated as well, so to be seen. And perm remains -- I mean, for now, we have 10 basis points, but remains a bit of the wildcard in the equation. So overall, let's say, from the 80 today, we're now looking at 50. And then as we continue throughout the year, what is also obviously some of the bigger shifts we talked about, geographic shifts, client shifts, yes, this basically start annualizing. So basically start reducing throughout the year. Operator: Our next question comes from Virginia Montorsi from Bank of America. Virginia Montorsi: Just a quick one. Is there anything worth flagging in the quarter that has either surprised you or performed in a way that you didn't expect that you think it's worth keeping in mind? Or did everything kind of play out according to your expectations if we think about beginning of the year to where we are now? Alexander van't Noordende: Yes. I'm thinking deeply Virginia, it's a good question, but I'm afraid the answer is no. No. Let's say, we set out -- we said there was going to be a step-up in the quarter in last call, and that's what's happened. Of course, you have always a put and a take here and there, but nothing major to report here. Operator: [Operator Instructions] Our next question comes from Konrad Zomer from ABN AMRO, ODDO BHF. Konrad Zomer: A question on your productivity. You've made good progress over the last few quarters, and you're on the verge of actually capturing some operating leverage again. How much revenue growth do you think you could potentially achieve in the second half of this year if you were to decide to keep your headcount stable? Is that 1% or 2% or maybe 5%, particularly given what you are doing with AI and your digital marketplace? Jorge Vazquez: Konrad, good to speak to you. I'll say, first of all, I mean, second half of the year, you know the 6-week rule. First and foremost, I think we feel confident with the capacity we have now to support already the seasonal next big quarter, which is Q2. So I mean, we don't expect FTE investments to cope with that. And even in terms of investments that we make are more surgical about growth segments where we say we are clearly missing out opportunity if we don't invest in. Looking into Q2, we're quite comfortable in terms of capacity. Now Q3 and Q4 typically hang around the level. I mean, it depends. If growth really accelerates, we may need to look at it. Now what I have basically been saying for a few quarters is if I look at where we are ahead, we're deploying our strategy, both, let's say, on ability to structurally quarter after quarter, adding up another quarter of recovery ratio. So accumulated always 4 quarters close to 60%, 70%. That plays out in decline, but I also clearly see it playing out in scalability and growth. So basically counting on now much more scalability and gearing as we come back to growth. Operator: Thank you. And with that, I will now turn the call back over to Mr. Sander van't Noordende, for any closing remarks. Mr. Sander van't Noordende, go ahead. Alexander van't Noordende: Thank you, Barton, and thank you all for joining the call today. And as we wrap up the call, I mean, our people are doing a fantastic job day in, day out, and I would like to thank our more than 600,000 talent and Randstad team members for their hard work as they are truly the best team in the industry. Thank you. .
Ilkka Ottoila: Good morning, and welcome to Nordea's first quarter 2026 results. I'm Ilkka Ottoila, Head of Investor Relations. As usual, we'll start with the presentation by Group CEO, Frank Vang-Jensen, followed by a Q&A session with Frank and Group CFO, Ian Smith. Please remember to dial in to the teleconference to ask questions. With that, Frank, please go ahead. Frank Vang-Jensen: Good morning. Today, we have published our results for the first quarter of 2026. It has been an unsettled start to the year once again. The conflict in the Middle East that escalated in March has created further geopolitical uncertainty and is driving volatility in the financial markets. It also has implications for short-term energy supply and inflation. Sustained disruption to global energy markets may dampen economic activity, including in the Nordic countries. While the situation continues to evolve, it's something we are monitoring closely. Fortunately, the Nordic countries have a strong track record in navigating uncertainty. The stability, fiscal strength and global competitiveness of our home markets make them some of the world's best places to live and do business. This is something I have talked about a lot in recent quarters. It is, in addition, worth noting that our region is also structurally well positioned in terms of energy resilience. This is due to its substantial renewable capacity and Norway's role as a major energy exporter. We clearly saw the benefits of that stability during the last energy crisis in 2022. As for Nordea itself, we are uniquely diversified across these attractive Nordic markets. Years of relentless strategy execution have made us stronger and more resilient than ever and leave us very well placed to support customers. That strength showed again in our first quarter performance with solid growth in business volumes and high profitability. Return on equity for Q1 was 15.4%. The implementation of our 2030 strategy has started well. One of our key strategic priorities is growth. And here, our agenda is focused on 6 distinct growth areas. We are seeing -- we are seeing good early momentum in Private Bank, Life & Pension, small businesses and cross-sales. We're also encouraged by the steady progress we are making in Sweden and Norway. Our two other strategic priorities are to strengthen our customer offering and make more effective use of our Nordic scale. And execution on these is likewise off to a good start. During the quarter, we launched a unified Nordic corporate credit and lending platform. We also took further steps in our deployment of a more scalable and resilient payments platform, all part of our drive to enable outstanding customer experiences and superior efficiency. Let's now take a look at the first quarter and some of the financial highlights. Our return on equity was strong at 15.4%. Earnings per share were EUR 0.36, up from EUR 0.35. We were especially active in our corporate customers, with our corporate customers increasing lending by 11%. Corporate deposits went up 2%. Households were active too though to a lesser extent. Mortgage lending was up 2% and retail deposits were up 5%. Asset under management increased by 9% to EUR 464 billion. Net fee and commission income was strong, up 6%, driven by growth across fee types. Net fair value result was down due to lower market making income. That followed the sharp increase in interest rate expectations during March as the Middle East conflict intensified, which led to exceptional losses across certain desks. Total income was resilient with a 2% decrease primarily reflecting lower net interest income due to policy rate reductions and lower market making income. We continue to manage cost with discipline. First quarter operating expenses were flat before foreign exchange effects. Our credit quality remains very strong. This quarter, we fully deployed the remaining portion of the management judgment buffer we created during the COVID-19 pandemic. We reallocated EUR 116 million to further strengthen our modeled provisions, and we released the remaining balance of EUR 160 million, which was deemed surplus provisioning. Excluding the release, net loan losses and similar net result for the quarter totaled EUR 61 million or 6 basis points. Our strong capital generation continued and our CET1 ratio was 15.7% at the end of the quarter, which is 1.9 percentage points above the current regulatory requirements. With a solid start to the year and despite the increase in uncertainty in the latter part of the quarter, our full year 2026 outlook is unchanged. We expect a return on equity of greater than 15% and a cost-to-income ratio of around 45%. Our Q1 net interest income was lower, as expected, reflecting the policy rate reductions and lower lending margins. Importantly, we moved beyond the low point in daily NII and returned to growth during the first quarter. This was supported by both higher business volumes and our deposit hedge. Among corporates, we increased lending by 11% year-on-year, with all countries contributing. This was the first time we have had double-digit year-on-year growth in any quarter since 2022, and it underlines how Nordic businesses are very adaptable to the changing environment and are showing willingness to invest. Corporate deposits were up 2%. That's modest growth, which we likewise interpret as a sign of increased risk appetite. Household customers also increased their activity with mortgage volumes up 2% from still muted levels. The housing market is picking up, though only gradually. As in previous quarters, households have been more focused on strengthening their savings and investments. Retail deposits were up 5%. The deposit hedge meanwhile, continued to provide support to our income year-on-year, improving NII by EUR 55 million. Our net interest margin for the quarter was 1.57%, unchanged from Q4. Net fee and commission income was up 6% year-on-year driven by growth across different fee types. The higher savings fee income was driven by the higher average assets under management and the positive net flows in investment products of EUR 1 billion, even with nearly EUR 2 billion of outflow related to dividend payments. In our Nordic channels, we continued to see very good customer intake in private banking with solid net flows. In our international channels, we delivered positive net flows again despite increased investor caution. Brokerage and advisory fee income increased, supported by stronger debt capital markets activity, and strong income growth, 11% from our secondary equities business. Higher customer activity also drove growth in payment and lending fee income, and we were particularly pleased to have driven good performance in the strategically important cash management area. After a strong start to the quarter, March brought extremely volatile market conditions driven in particular by the developments in the Middle East, the resulting sharp increase in interest rate expectations resulted in losses in our market making operations in March, undoing the strong start to the year. Consequently, net fair value result was down 22% year-on-year, reflecting the impact from those March market making losses, which we consider to be an isolated one-off. Customer activity was strong through most of the quarter, particularly in FX and interest rate hedging as clients actively manage risk. Activity in equities and securities financing also held up well. Cost development in line with our plan and were flat year-on-year, excluding foreign exchange effects. Our strategic investment spend was stable and we are managing costs with our usual disciplined approach, taking the market environment into account. Including FX, costs were up 2% year-on-year. The first quarter cost-to-income ratio was 45.5%, which was slightly higher than planned due to the exceptional market making losses in March. The underlying cost-to-income ratio was below 45%, and there is no change in our guidance that we expect to be around 45% for the full year. During Q1, as part of our 2030 strategy, we announced restructuring initiatives to change the composition of our workforce. With our Nordic scale and with the impact of AI and process optimization, we expect to have fewer employees in the future than today. The restructuring initiatives are set to affect around 1,500 employees across the group during '26 and '27 and from 2028 should deliver annual cost reductions of at least EUR 150 million. This is a part of our 2030 strategy and is in line with the target we communicated at our Capital Markets Day to deliver structural gross cost reductions of EUR 600 million by 2030. In connection with these initiatives, we booked restructuring costs amounting to EUR 190 million this quarter. This has been reported as an item affecting comparability and is excluded from our 2026 financial outlook. Our credit quality continues to be very strong. This quarter, we fully deployed the remaining portion of the management judgment buffer we established 6 years ago during the COVID-19 pandemic. Over this period, the buffer has been continuously assessed in light of the macroeconomic conditions and in the knowledge that our loan portfolio performance has been consistently strong. Risk has been assessed to be largely reflected in our modeled provisions without the need for additional management overlays. As a result, the buffer has been gradually reduced and is now fully deployed. On the remaining balance, we reallocated EUR 160 million in the quarter to further strengthen our modeled provisions, while EUR 160 million was deemed surplus and was released. Consequently, net loan losses and similar net results amounted to a reversal of EUR 99 million. Excluding the release, net loan losses and similar net result for the quarter totaled EUR 61 million or 6 basis points. We continue to have a strong capital position. At the end of the quarter, our CET1 ratio was 15.7%, 1.9 percentage points above the current regulatory requirements. Our strong capital position and continued robust capital generation support lending growth and continued shareholder distribution. During the quarter, our AGM approved a dividend of EUR 0.96 per share for 2025, which was paid to shareholders in early April. Additionally, the AGM granted the Board authorization to decide on the distribution of a midyear dividend in 2026, which would correspond to approximately 50% of the net profit for the first half of 2026. Turning to our business areas and starting with Personal Banking, where we maintained solid business volume momentum and customer activity. Despite the market volatility, customer savings and investment activity remained at high levels and household prioritized, strengthened their financial positions. As a result, deposits increased by 5% during the quarter. Net flows were EUR 0.2 billion, still positive despite the market turbulence, though lower than in the previous quarters. Housing market activity continues to gradually pick up but remains slow. Even in this environment, we increased mortgage lending by 2% year-on-year. In Sweden, we further strengthened our position in the quarter, capturing mortgage market growth well above our own back book market share. Customer engagement with our digital services continued to increase supported by our expanded offering of self services features in our mobile app and online. App users and log-ins were up 4% and 6% year-on-year. And we are also seeing a growing share of savings and investment activity through digital channels. One of the areas we are targeting for growth is cross-sales. And we are seeing good traction, supported by successful product launches in savings and by more automated processes for account opening and onboarding. Net fee and commission income increased by 6% driven by higher payment cards and savings income and net insurance result increased by 46%. Total income decreased by 5% year-on-year, driven by lower net interest income and the lower policy rate environment. Return on allocated equity with amortized resolution fees was 16%, and the cost-to-income ratio was 53%. In Asset & Wealth Management, we maintained solid business momentum and delivered a resilient investment performance in difficult markets. Customer acquisition remains strong, reaching record highs in both Denmark and Finland and supporting net flows of EUR 1 billion in Private Banking. In our international channels, we recorded positive net flows again in the first quarter despite increased investor caution due to the Middle East conflict. The wholesale distribution business has shown resilience since the middle of 2025 and positive flows in the current environment testify to the attractiveness of our product offering. Net flows in Life & Pension were EUR 1.7 billion. We maintained good momentum across our 4 markets and further reinforced our position as the Nordics' second largest player. Gross written premiums in the quarter amount to EUR 4 billion, up from EUR 3.7 billion a year ago. Assets under management increased by 10% year-on-year to EUR 185 billion. This was driven by market performance and the positive flows despite the sharp decrease in investor confidence in March. We continue to progress with our strategic ambition to offer an outstanding savings and investment experience across the region. Among other enhancements made in Q1, we are now using AI to provide timely and relevant information to our customers about their investments they hold. Total income was up 1% year-on-year, with net fee and commission income rising in line with the higher asset under management. Return on allocated equity with amortized resolution fees was 38%. The cost-to-income ratio improved by 1 percentage points to 43%. In Business Banking, we maintained good business momentum and drove strong volume growth. Lending volumes increased by 8% in local currencies year-on-year, led by continued growth in Sweden and Norway and stronger activity in Denmark. Deposit volumes also grew by 8% with all markets contributing. We continue to strengthen our digital offering across the Nordics, a key enabler of our growth ambition in the small business segment. In Q1, we launched a digital onboarding platform in Denmark and Norway, making it faster and easier for customers to get started with Nordea. A wider Nordic expansion is planned for the coming quarters. We also kicked off the Nordic rollout of our new Business Insights service, which helps small businesses manage liquidity and cash flows more effectively. In Sweden, this was fully launched in Q1. The launch was well received, and the service will next be rolled out in Finland and eventually to all countries. Total income was unchanged year-on-year, as higher volumes and ancillary income were offset by lower deposit income. Return on allocated equity was 18%. The cost-to-income ratio was 45%. In large corporates and institutions, we drove strong business volumes as we supported our customers in the volatile market environment. It was a solid quarter on most income lines, but extreme market volatility in March negatively impacted our market making result, driven by the unexpected sharp increase in interest rate expectations. That impact, which we consider to be an isolated one-off, led to a lower net result from items at fair value year-on-year, even though customer activity in advisory and risk management was otherwise strong. Lending was up 14% year-on-year with all markets contributing. Strong demand from our secondary equities offering and higher lending fees and bond issuance activity supported 14% increase in net fee and commission income. Deposit volumes decreased by 5% year-on-year, but increased by 2% compared with the previous quarter. Debt capital markets activity remained high despite the market volatility and we maintained our #1 position for Nordic bonds and Nordic loans year-to-date. We have arranged more than 190 debt capital markets transaction so far this year, so off to a strong start. Primary equity market activity remains subdued, but our secondary equities business grew by 11% year-on-year. Total income was down 9% year-on-year, driven by lower net interest income and the decrease in net fair value result. Return on allocated equity was 15%. The cost-to-income ratio was 41%. In summary, this was a solid start to the year despite challenging financial markets later in the quarter. While there is uncertainty around global growth, confidence among Nordic businesses has not wavered, underlining the resilience of our region. Resilience is a critical asset and one that Nordea also demonstrates. As a large and well-established group, we are continually investing in capabilities that makes us even stronger, including in digital services, technology, security and risk management. We're also very well equipped to support customers and all stakeholders, thanks to our unique market position and presence, leading offering and strong balance sheet. The higher business volumes in both lending and deposits are likewise encouraging and will support our income. Our outlook for the full year 2026 is unchanged. We expect to deliver a return on equity of greater than 15% and expect our cost-to-income ratio to be around 45%. Our vision is to become the undisputed best performing financial services group in the Nordics. Thank you. Ilkka Ottoila: Operator, we are now ready to take questions. Operator: [Operator Instructions] The next question comes from Gulnara Saitkulova from Morgan Stanley. Gulnara Saitkulova: So on NII, if we assume that Q1 marks the trough for NII, could you walk us through how do you expect the trajectory to evolve from here, particularly in a scenario where the rate hikes materialize, and the key drivers between the hedge contribution pricing and the volume growth? That's the first question. Ian Smith: Gulnara, thank you for the question. So let's set aside potential rate hikes for the moment. What we -- what's driven the, I guess, the -- moving on from the trough in NII is that we've been able to add volumes. And how we proceed from here for the rest of the year is really a question of volume development and margins. And we're pretty confident that we'll continue to add volumes over the course of the year and that's going to help move NII forward. Margins are a bit more difficult. We continue to see pressure on the margin side, particularly on household, and as we've said consistently, a return to confidence that drives higher volumes is most likely the answer to that. So we're pretty constructive on NII continuing to improve. I think the outlook for the full year is kind of in line, maybe slightly better than 2025. Now rate hikes, first of all, they've got to happen. So we need to see policy rates actually move before we see that impact our NII. So let's see if that happens. our latest market expectations are that these are going to impact the second half of the year rather than anything in Q2. And then in terms of hedge, let's -- we'll work that through in terms of the timing and extent of rate hikes, not expected to see anything dramatic in terms of impact in 2026. So overall, provided we don't see something untoward on the margin side, you can expect to see a gradual improvement in our NII. Gulnara Saitkulova: And a related question on the volumes. As we move through Q1 into Q2, have you observed any meaningful changes in the customer sentiment, particularly in the light of the geopolitical tensions in the Middle East? And given the current backdrop, how are you thinking about the loan and deposit growth across your markets into 2026? Frank Vang-Jensen: This is Frank speaking. So I think our customers in the Nordics and across the countries has -- they have acted quite calmly, pushed through the deals. They have been active. There might have been a couple of weeks where it was a bit surrealistic what happened and how the rate changes and so how dramatic it went. But there has been no change in behavior. And I would say that now we're talking about the, of course, the first quarter, but the end of the quarter and the beginning of Q2 has showed good activity. I think we have -- and we have been speaking about it quite a long time that there comes a point of time where you just have to accept as a business leader that we are living in times where we will have to cope with a lot of volatility and uncertainty and unpredictability, but we cannot wait for -- continue waiting for the perfect moment. We have to push now for growth our investments in the different strategic parts and whatnot. So I think that's what you see now. We -- of course, we are not forecasting 11% growth year-on-year on corporates rest of the year. But there's no indications that it will slow down significantly right now. Operator: The next question comes from Magnus Andersson from ABG SC. Magnus Andersson: Just a follow-up there on the -- I think the corporate lending growth is what is striking all of us. I mean, in Business Banking, adjusted for currencies, you grow by more quarter-on-quarter than the market is growing year-on-year. And on the large corporate side, I guess, the numbers are not -- it's actually not adjusted for FX, but still, I mean, Sweden is super strong. So could you say anything about sustainability of these growth rates on a quarterly basis. And also, I mean, you mentioned the new onboarding platform. It is Norway and Sweden growing, which you talked about at the CMD, but just the quarterly trajectory looks quite stunning. And my second question is just on capital and share buybacks. You didn't launch a new program now. Is it because the previous program, which was just finalized, was expected to run until the 8th of May. And therefore, we will have to wait until mid-May before potentially you launch another program. Frank Vang-Jensen: Thank you, Magnus. Let me take the first one and then Ian, the second one. So yes, of course, the growth rates of 11% within corporates is a high number, and I don't want to commit to that number each quarter going forward. But let me say in the following way. So when growth is higher than expected and when we have larger credits, I get an overview on who they are and what is the purpose. And it looks very stable, honestly. It's super strong names. It's customers that we have been working with for a long time. And then it can be -- you're just waiting for the opportunity to enter or we have agreed about doing something more together and so there's not really any silver bullet or any single deal that has pushed it very high. So that's one. The second one, which is very positive, is that in a more broad based business banking. It's actually 3 out of 4 countries that are growing quite significantly. And it's a lot of different deals. I think what we do see now as well is that we start to see some of the proof points of our Nordic scale. So we have implemented, as you alluded to, the credit platform. We are making progress on our global payment platform as well. These initiatives help in the speed, for example, on onboarding, and onboarding for the customers, especially the smaller ones on the corporate side, is super important. That is helpful. So we actually also have a data point we have not talked much about, but we have a data point now on our small businesses. We have, for years, struggled with some outflow. Last year, we turned it and this year has actually increased quite nicely. And so I think the momentum is good. There is no silver bullet. 11% is a high number. So don't put 11% in year-on-year or quarter-on-quarter all the time, but I cannot see why we should not continue to show nice growth within the corporate side this year with the information we have right now. Ian? Magnus Andersson: Yes. And you're not feeling that you're sacrificing anything in terms of margins to achieve this growth? Frank Vang-Jensen: I think that we are well positioned to continue to delivering greater than 15% return, and that goes for the corporate business as well, and we are not accepting any deviation to our return targets. And of course, the business knows that. So I guess, I'm answering -- I'm happy with what I see right now. Ian Smith: Magnus, it's Ian here. So you're all familiar with how we think about buybacks, and there's absolutely no change. And as I look at the market expectations for 2026 in terms of buybacks, they look -- it looks like a pretty sensible estimate versus how we're thinking about it. So no interruption to the progress there. You're right, the EUR 500 million program we launched before Christmas, which is -- we hand over the control of that to the broker in terms of levels of execution and things finished a little earlier than planned. Q1 was an interesting quarter from a capital perspective. As you see from our disclosures, we generated capital as normal, as you'd expect Nordea to do. And quite a lot of that was deployed into growth. And we saw a little bit of elevated market risk capital requirements, as you can imagine, emerging from what happened in March. So it's one of the first times where we've seen those dynamics where we've deployed the capital generated into growth. We're still really comfortable with our plans for the rest of the year in terms of capital return to shareholders, and I say, I think the market's got that right. We still see opportunities for growth out there. And so we'll work through Q2 and make our decision on the right time to do another buyback. And that's really when we've got excess capital that we're prepared to trim. So things are proceeding as normal. I don't expect anything in the very short term but you can expect us to continue with our regular, consistent buybacks during the rest of '26. Operator: The next question comes from Andreas Hakansson from SEB. Andreas Hakansson: Well, I really want to talk about capital, but since Magnus covered that, we could move on. I think it's quite refreshing that we are talking about growth rather than just capital distribution. But Ian, you mentioned that retail is still a bit tough on the margin side. Could you quickly because we -- in Q4, we were a bit worried about the NII in Norway and then we were a bit worried about retail asset quality in Finland. Could you just briefly go through the 4 countries, what you see in terms of volumes, margins and asset quality in each of the countries, please? Ian Smith: So let me start with -- and Andreas, let me start with asset quality, take that one off the table. No issues or concerns there at all. And so we can set that aside. I think the growth picture in each of our markets is, as always, a little bit different. We still -- as you see from the publicly available information, we're still the market leader in Sweden in terms of capturing front book share. And in our other countries, things are a little bit slow. We do see underlying growth in Norway, particularly towards the end of the quarter. So -- and this is really a function of the market and its slowness. Frank referred earlier in the conversation to the still reticent consumer, I guess. We had -- our economist certainly had high hopes towards the end of last year that, that consumer confidence would increase and that would lead to higher investment and consumption. We've had an unsettling end to the first quarter that I think holds that back a little bit. And then in terms of what we're seeing on margins, still intense competition for those smaller volumes throughout. So we're having to be very much on our game in terms of managing our pricing. We've seen some positive price moves in Sweden, but we will have to see if that feeds through into margin improvements. And then very competitive in Norway, particularly among the savings banks. And so it's tough to increase margins in there. When it comes to the Danish market, you'll have seen some of our pricing moves, which is in response to the competition there. I think we see a good response from customers. And we're hopeful that feeds through into the numbers and the performance, and then Finland, as market leaders there, we really want to see the market move a bit more in order to see whether we can improve our NII. So that's on the lending side. Deposit is going well. Deposit margins are stronger than we had planned for and deposit volumes are good, and that's a really helpful contributor to NII. But there's no doubt that it's a tough market on the retail side and people are fighting for every, I was going to say, penny, but we don't have those in this market, every krona. Andreas Hakansson: And I mean... Frank Vang-Jensen: Sorry, but the sentiment in Q1 is better than it was in Q3 and Q4. So it's going slower than we would hope, but it is building somewhat and there's -- we sense there's more activity across the board. But it's different, as Ian mentioned, between the countries. Andreas Hakansson: And even if we don't see central banks hiking across the board until maybe late in the year and next year, we've seen that the IBOR rates in all markets have moved up quite sharply. To what degree is that helpful for your NII in the near term? Ian Smith: So it helps a little bit on the treasury side. And I can imagine that it might encourage all of us to look at pricing because essentially that's what drives a big chunk of the cost of funds for us. So I can see that it might encourage a slightly positive development, but we really have to see the policy rate changes come through for it to start to move NII meaningfully. Operator: The next question comes from Martin Ekstedt from Handelsbanken. Martin Ekstedt: So first question, the staff reduction program that you've announced in Q1. So once implemented, this will deliver around EUR 150 million of annual cost savings, right, which is about 25% of the EUR 600 million of gross cost takeout that you mentioned that you see in November. So as such, I was just wondering, should we expect 3 more cost reduction programs of roughly the same size in the years leading up to 2030, i.e., the end of your CMD plan? Or will other parts of the EUR 600 million of gross cost takeout be less lumpy, say, and less noticeable and come from other areas? That's my first question. Ian Smith: Yes. Martin, thanks for the question. No, we're pretty clear that we don't expect to launch another restructuring program. We tested ourselves pretty hard before launching this one about whether it was the right thing to do, both in terms of the way we manage our workforce and other factors. The reality is that we will need to reshape the workforce, particularly in technology. And that's where the focus of the restructuring has been. And everywhere else, our cost reductions are expected to come from sort of regular management of FTE because we will see FTE come down, but that's not going to come through large restructuring programs and other initiatives such as infrastructure simplification and AI. And of course, the restructuring is big. It's a very important contributor. And those EUR 150 million of cost savings, yes, they're 25% of the EUR 600 million gross, but we think of it as almost 40% of the EUR 350 million net that we're committed to. So that's a long way of saying what I said at the beginning. No further cost restructuring programs. Frank Vang-Jensen: And for the remaining part -- Martin, it's Frank. So for the remaining part, of course, there are firm plans owned by a DLT member for each stream that will lead to these cost reductions needed to deliver on our promise of EUR 600 million gross, EUR 350 million net. So of course, there is an execution risk, but we know what to do, when to do it, how to do it, and we'll follow that development very, very thoroughly. Martin Ekstedt: Okay. Very clear. And then my second question then around the release of the management overlay buffer in full. That surprised at least me a little bit that you released it in full already in Q1 against the backdrop of increased geopolitical uncertainty. So could you tell us a bit more about how your thoughts went around provisioning in front of Q1? And what scenarios, if any, could prompt you then to start building up that buffer again? And additionally, perhaps, if I may, in what sectors or segments was collected provisioning strengthened by that portion of the management overlay that was used now rather than released? Ian Smith: Yes, it's an important question, Martin. So first of all, we wouldn't be releasing if we thought we had any prospect of having to restore it at any point. The key thing is having looked at what remained of a provision that was established for COVID 6.5 years or 6 years ago, we concluded that there was a portion that was clearly surplus. And clearly surplus, not just in respect of its original purpose, both from a thorough review of the portfolio, looking at stress scenarios, looking at our estimate of the impact of the energy prices caused by the escalated conflict in the Middle East. So we've looked at this from every angle exactly as you'd expect. And each time we came up with of those EUR 276 million of provisions, we would keep EUR 116 million and deploying those into our IFRS 9 model. So no longer a sort of separately categorized provision and that EUR 160 million was clearly surplus. And then in those circumstances we released. Now releasing provisions, we've been pretty clear, I think, that in 2026, we would take action on the management judgment buffer. We think it's now the right time to move on and we maintain healthy provision levels, good coverage and have addressed any small areas of concern in the portfolio but these have been small in terms of how we deployed that EUR 116 million. Martin Ekstedt: Okay. So the EUR 116 million was not earmarked for any particular part of the portfolio? Ian Smith: It has a number of different components. My point is that it's not -- the bulk of it is not targeted at anything specific. It was really a granular EUR 10 million here, EUR 15 million here, that kind of thing. So... Operator: The next question comes from Markus Sandgren from Kepler Cheuvreux. Markus Sandgren: So we've been talking a bit about cost savings. I was just curious, now it seems like there is new AI tools for cyber criminals. Is that something that you have -- that is changing your view on cost development? Or is that already taken care of, so to speak, in your program for IT development? And secondly, I was thinking about also credit losses, as Martin was alluding to. Now with the strengthening of the provisions, the 10 basis points that you have in your business plan, is that just a conservative number? Or is that what you actually think you will have in the coming years? Frank Vang-Jensen: This is Frank. Thank you for the question, Markus. So the first one regarding cyber. I would say there's nothing new here. It would be wrong to say that we fully understood the Anthropic question and understood what it will create. But we have been all the time, very clear about that AI will grow and it will accelerate the growth when it comes to quality, and also what it would be able to do for us, for our customers, for our efficiency, for our shareholders. And so -- but of course, misused, it can also be used again against any company, any organization, any country you want. And I think that what we see here is an example of that. That tool was not built for criminals, but it can be misused by criminals. And in wrong hands, it appears to be quite strong. We have always planned for that. And the way we see it is that you have to continuously improve and strengthen your skills and your defense within cybersecurity, information security, you have to believe that the counterparts or the criminals will have the same capabilities or even better than yourselves, which means that you have to continuously invest significantly and that is what we have in our plan. So I think no big change. I think it's just not a proof point how fast AI is developing and you must embrace it, you must deploy it. Doing so, you will get a tool that can be helpful for different purposes, and it can be defense, of course, as well. That's the best I can say. Ian, over to you. Ian Smith: Yes. Markus, so the way we think about credit losses is we have guided as 10 basis points as the, I guess, long-term expectation. I'll come back to what expectation means in a moment, but of the portfolio loan loss levels. Of course, within that, you have our household loan losses, which are much, much lower than that. And the corporate loan losses that from time to time are double digit, so between sort of 10 and 15 basis points. The reality is, over the last 6 years, we've always been well within our 10 basis points, which says that the portfolio has been performing well and largely due to much lower levels than normal of corporate losses. So the corporate portfolio has been extremely robust. At the Capital Markets Day last year in November, I said that despite that experience, I don't think I can stand here and say that we would always expect to see such low levels of losses and so renewed our guidance for 10 basis points. But we'll always strive to keep it well within that. So 10 basis points is the guidance. It's a composite for the full portfolio performance but our track record is much better than that. Operator: The next question comes from Shrey Srivastava from Citi. Shrey Srivastava: My first is if we do see 1 or 2 rate hikes materialize this year, how would you expect pass-through behavior would be to deposit customers relative to the much larger hiking cycle that we had a few years ago. And my second one is, we obviously saw the news about Avanza's Danish expansion citing 5 years to be profitable. Is this something you factored in to your business plan? And if not, how does it affect your outlook? Ian Smith: Shrey, it's hard to prejudge what banks will do when faced with rate hikes, but I know you're asking for my opinion rather than a prediction. I can't see why -- I mean, particularly at these levels where we've looked at what we saw in the last rate hiking cycle, there was a reasonably high level of pass-through on rates at these levels. When they were getting much higher sort of north of 350, that kind of thing, a much different story because I think you end up creating an unsustainable position. So I think it's reasonable to assume a fairly high level of pass-through at these levels. But we'll have to see when they actually happen. Frank Vang-Jensen: And in regard to Avanza, fully as expected, no surprises. We have been planning for more of the platform players coming, and we are investing heavily in that area already and will continue to do so. So I'd say that, no, and it doesn't really make any difference to us. Operator: The next question comes from Namita Samtani from Barclays. Namita Samtani: The first one, just on net interest income. Can you help me think about it beyond 2026, please? Because the rate sensitivity for 2027 on Slide 19 looks flat based on the first quarter, and consensus has net interest income going up 5% in 2027. So do you think the volume growth can more than offset margin pressure and the negative impact from the hedge? And my second question, I read this article in Borsen about Nordea's own employees opting out of having a pension with Nordea in Denmark citing IT issues related to integrating the acquisition of Topdanmark a few years ago. I just wondered what's being done to fix this? And why is the pension side in Denmark not as slick as what we can see, for example, in Sweden? Frank Vang-Jensen: Let me take the first question about the paper that you read in -- apparently in Copenhagen. So our acquisition of Topdanmark's Life & Pension business is fully aligned with our plan. That business is an SME business, and we wanted to be an SME business. It has taken some time to get it separated from the seller, which we knew, but it has been difficult from the seller to separate it as it should be delivered on its own legs and not integrated as the seller's systems. That was delivered, as I remember, 12 months ago, and since has the job been about integrating it fully into our systems, and raising the quality and, of course, of the interface, so it meets the Nordea standards. And they are high, much higher than what this company came from on digital capabilities, which we knew. So no change. Then there are some that are, for example, brokers that would like to see that we were attacking and more and more active on large corporates in Denmark. But that's not our focus, and it has never been our focus with this -- our intention with this company right now. So we're actually very happy with the acquisition, and it progressed well. It has taken longer due to the seller's problems by separating the company, but we have full control now and are working with the plan to get it up to the standard that you should expect from Nordea. Then it might be that we one day will go to the large corporate sector as well, is very competitive, profitability is low. It might be we will go there. And when we will potentially go there, of course, we should offer our own employees to be -- to put the pension scheme, which is a group scheme for Danish employees to that company. But it has been fine with the current company for many, many years. So -- and we are not going to change anything for the sake of our own pension scheme as we are happy with that. So that's the facts around that acquisition. I think it was -- it came out a little bit different in this paper. Ian, over to you. Ian Smith: Yes. Namita, so on 2027 NII, we're not ready to actively plan for NII improvements and rate hikes at the moment. So I think it remains a scenario. And I think our Slide 19 is a good way to model the impact of that scenario. We've always been, I think, fairly consistent in showing those, the impact in both the first 12 months and then beyond of a 50 basis points movement. So our guidance has always been based on how we thought about things at Capital Markets Day last year, which is that the drivers of net interest income will be volumes and margins. We were planning for volume growth, both on the asset and liability side and margin stability. So we weren't baking in improvements in margin and a fairly neutral position on the hedge. I think that's still the right way to look at it. We do see, as I talked about earlier, some quite sort of tough margin pressure on the household side and we're absorbing that at the moment. But I think when we look out to 2027, growth in volumes on both sides of the balance sheet and margin stability is probably the right way to think about it. Ilkka Ottoila: And operator, we'll take the last question now. Operator: The next question comes from Nicolas McBeath from DNB Carnegie. Nicolas McBeath: So I was wondering, given the more positive view on productivity improvements that you mentioned through Q1 from AI, I guess, in particular, in software development, do you see potential to speed up the Nordic scale initiatives for these processes that you talked about in lending and payments, for instance, as we went through at the CMD last year? And do you see potential then to reach the cost-to-income target for 2030 before the time line given that you seem to become more bullish on this technology? Frank Vang-Jensen: So it's a good question, right? So -- and I cannot give you a firm answer. But what I can say is that the quality of AI is increasing fast. And what also increased very fast is, I think, most companies understanding of where they can apply AI -- deploy AI. And when you look at the use cases we have as a foundation for delivering on our Nordic scale benefits, they are on -- we are on plan and we will keep being on plan. But I do think that we can do even more. It's very difficult not to conclude with what we see when it comes to quality and also different use cases we continue to learn more about. It's very difficult to conclude that we don't have more optionality than we had previously. So then the question is how fast can you deploy it and how fast can you take out the cost. That's still up to be concluded, I would say. But it clearly looks even more positive when I look at it and we look at it right now compared to just half a year ago. So we are leaning in. We also have to ensure that we understand the risks, and we are not taking too much risks, but we're leaning in and we are pushing now. And I think when I get questions about it, how I see it, my advice is embrace it, understand the risk, cope with the risk, but embrace it because it is quite impressive what it actually can do for you nowadays. Nicolas McBeath: All right. I appreciate that. And then just a quick final question, if I may. Given the improved market conditions so far you've seen in Q2 and the decline in interest rates, would you expect much of the market making losses that you mentioned in March to be reversed in the second quarter? Frank Vang-Jensen: Ian? Ian Smith: Yes. So Nicolas, what happened in March was very much a sort of isolated performance matter on a couple of specific bits of our market business. So we talked about desks in the euro and SEK area. We sort of closed out positions where we needed to and moved on. So I think the real question is are we back to normal levels of performance in our markets business following that pretty disruptive market incident, and the short answer is yes. So we're back to performing normally. Ilkka Ottoila: All right. Thank you all for participating. As usual, just come back to us if there's anything that we can do for you. So thank you. Have a nice day.
Hakon Volldal: Good morning from Oslo. Welcome to Nel's First Quarter 2026 Results Presentation. My name is Hakon Volldal, I am the CEO. With me today, I have our CFO, Kjell Christian Bjornsen; and our Head of IR, Marketing, Communications and Miscellaneous functions, Wilhelm Flinder. We have the following agenda. I'll skip the Nel in brief and jump straight to the highlights for Q1. We have a short commercial update covering the most important commercial events in the first quarter and one subsequent event, a short technology update and then we will, as usual, end with questions and answers. Quarterly highlights. Revenues came in at NOK 148 million. We had a negative EBITDA of NOK 100 million. Order intake at NOK 85 million. Order backlog ended at NOK 1.1 billion, and our cash balance ended at NOK 1.4 billion. A pretty quiet start to the year. First quarter is always a bit slow. What we are focusing on is the launch of the new pressurized alkaline platform that will happen at Heroya on May 6 this year. In connection with that, we have been busy in the first quarter testing out new pressurized alkaline production line technology that is progressing according to plan. We also opened Korea's first off-grid green hydrogen production facility. That was commissioned in late March. And in April, we received a $7 million purchase order for containerized PEM equipment. Looking at more detailed numbers. Revenue from contracts with customers down 5% year-on-year. Revenues from alkaline division increased by 6%, but we had a decline in the PEM division of 14%. The NOK 100 million negative EBITDA was a NOK 15 million improvement year-on-year, and it's, of course, driven by the fact that we continue to invest in next-generation technologies, and we need higher revenues in order to become profitable. Solid cash balance at the end of the quarter, and that does not include EUR 11 million in the EU grant linked to our pressurized alkaline industrialization, which we expect to receive in the next quarter or in this quarter, second quarter '26. Alkaline financials limited revenue recognition in the quarter. Despite that, revenue was up 6% year-on-year. EBITDA improved by NOK 35 million versus corresponding quarter last year due to positive impact of project deliveries. We have adjusted our cost base and capacity utilization to reflect lower market demand, but lower fixed costs will continue to negatively influence results until volumes pick up. As you can see from the chart, we do generate profits when we have good revenues. Turning to PEM. Revenue were down 14% year-on-year due to limited megawatt project deliveries in the quarter. We had mostly sales of industrial products. EBITDA was down NOK 16 million year-on-year, largely driven by delayed or canceled research grants in the U.S. We have historically received money from the Department of Energy to fund several research programs, and that has been under review and parts of the grants have not been paid out since late last year, and that reflects performance so far this year. We have a good hope that the grants will be reinstated and that money will continue to be paid out or resume -- we will resume paying money to Nel, but can't say exactly when that will happen again. We are also in the PEM division spending money on product development for next-generation PEM electrolyser with significantly lower levelized cost of hydrogen, and that development is progressing well. Order intake was NOK 85 million, was down year-on-year versus a strong quarter in '25. We expect the order intake to improve and have already booked the first order in the second quarter of roughly NOK 70 million. So the first quarter you see here did not reflect any big project wins, just, I would say, normal course of business related to aftersales and some industrial products. The order backlog at the end of the quarter ended at NOK 1.1 billion. Due to a declining order backlog and limited demand over the past few quarters, we have reduced our employee base. We will try to adjust our cost to change market expectations. We are down in terms of number of employees by 26% versus the peak and 19% versus the end of first quarter 2025. And we can see that this also then translates into a 21% reduction in personnel expenses in the first quarter of '26. We have done these adjustments to make sure that we spend our money responsibly, but it has largely affected our ability to manufacture at scale and deliver projects at scale. So that variable or that muscle has been reduced. We have kept more or less our R&D organization to make sure that we can progress and deliver the new technology needed to bring additional volumes back. And once we get new orders and we see that the market is coming back, we can add back the manufacturing and project execution capacity. But for now, we have reduced our staffing down to roughly 300 employees. On the commercial side, we do want to highlight this. Korea's first off-grid green hydrogen production facility has been commissioned, happened in late March. It's a 10-megawatt alkaline system from Nel supplied by a solar power plant, as you can see on the picture. There is no reliance on the power grid. And this project more or less validates large-scale off-grid hydrogen production as a model for future domestic and international projects. It's been a very interesting project together with Samsung C&T, where, of course, Samsung C&T acted as the EPC and Nel provided electrolysers and gas separation modules. In April, we received another order from -- for containerized PEM equipment from Measure Process. It's a second purchase order from this client. And we're quite proud to see that whenever we get an order now, very often, we can say that it's a repeat purchase. That means the quality we deliver is solid. Customers have good experience with the first products they have purchased and they come back for more when they need it. This equipment will supply hydrogen for refueling stations and industrial applications. And I think it's sort of confirms the story that the MC platform, the containerized PEM solutions, has strong momentum across a wide range of applications. It's a fully modular design and that enables rapid project execution. It's also a good way to build out capacity over time. You could add more modules if you need more capacity. That also fits nicely with the market perspective. We continue to see several of these promising smaller projects, 2.5 megawatt, 5 megawatt, 10 megawatt projects that are ideal for containerized PEM, but we also see some larger projects in the 50 megawatt to 150 megawatt range, and these are expected to take final investment decisions over the next quarters. Containerized PEM has strong momentum, as I said, and to elaborate a little bit on that. The reason is that projects have become smaller than we saw a couple of years ago than customers spoke about 100 megawatt, 200 megawatt, 300 megawatt, 400 megawatt. They now plan for something smaller, at least initially. They want a gradual approach to this where they build out capacity over time when an offtake materializes. If they start with the first step, that's usually in the 10 megawatt to 50-megawatt range, and that fits nicely with Nel's containerized PEM systems. Multiple containerized PEM systems offer a proven, efficient and standardized alternative to customized and tailored solutions. We have achieved significant CapEx reductions over the past few years, both on the stack itself and on the system design. And combined with the growing list of references that we have around the world, this has increased Nel's competitiveness in this market segment. Europe is currently the most active and promising region, but we also have projects and deliveries in North America and interesting prospects in the Middle East and Asia. Then I want to end the quarter with a comment on the energy resilience. We continue to see fossil energy shocks and we continue to see that we repeatedly subsidize fossil energy to manage these shocks, while investments into renewables face higher scepticism. Renewable energy can reduce exposure to certain price spikes and definitely help mitigate geopolitical dependency and vulnerabilities. The intermittency that we see from wind and solar, the wind doesn't blow all the time. The radiation from the sun is not constant, and that is a known challenge with the renewable energy systems. But electrolytic hydrogen enables long-term energy storage and system flexibility beyond what batteries can provide. As one example, a 200-megawatt plant in the United States has larger capacity than all the batteries currently linked to the electric grids in the United States, including the batteries from Tesla. So hydrogen is at another level when it comes to what kind of -- how the amounts of energy that we can store. Investing in renewable energy and green hydrogen is cheaper than repeat short-term subsidy programs for fossil energy. And it also, by the way, reduces emissions. So when we have debate about energy resilience and security of supply, I think hydrogen should increasingly be part of that. And we see an increasing interest among defense contractors and politicians to look at the role that hydrogen can play in distributed energy supply. To give you one example of how hydrogen can help basically flatten out the demand curve for electricity, we have a 20-megawatt Nel plant in Denmark. It's run and owned by Everfuel. They run this plant when there is excess energy in the system. So instead of then bringing prices down to a very low level, Everfuel will help prices stay more or less stable because they can also shut down the equipment when demand for electrodes is high. So this facility, the 20-megawatt facility helps balance out these peaks and low points that we see in electricity demand. Implementing this on a larger scale will, of course, help avoid periods where operators and generators get absolutely nothing for the electricity they produce, but also help consumers avoid periods when demand is high and electricity prices go through the roof. It basically helps flatten out the price curve for electricity. Shortly on the technology update. We have shown this slide before. And I just want to remind you that when we talk about pressurized alkaline in Nel, it's not that we haven't looked at that before. We used to have pressurized alkaline technology 20 years ago, but it did nothing that the atmospheric solution didn't do. We do, however, see benefits of having pressurized gas. And that's why we started back in 2018 to sort of reinvent our pressurized alkaline technology. In 2026, after years of testing this new technology, we are ready to commercialize it. It has taken 8 years. But now we're getting ready for the commercial launch. It will happen on May 6. We have invited customers, potential customers, partners, employees and a lot of people that might find this interesting to Heroya to take a look at a real physical installation, proving that this concept is more than a PowerPoint concept. It actually works. It's a physical thing and talk about the benefits that this solution brings to the world of hydrogen. We are truly excited to show the world what this technology can do. We will offer market perspectives by external speakers and of course, also dissect the solution and talk about the value proposition that we believe this solution has. Therefore, we will not go into a lot of details today on the technology. We will share our presentations with the public on May 6. Just want to give you a sneak peek of what is happening in parallel because we are truly proud of the solution that we have. And of course, we have to be able to deliver it at scale. And that's why we, in December, decided to invest in a production line for pressurized alkaline manufacturing capacity at Heroya. This is funded by the European Union. As I mentioned, the first milestone payment will happen shortly. CapEx per megawatt is significantly lower for this concept compared to the atmospheric alkaline or PEM. Ongoing tests confirm product quality and exceed prototype production results. We have clear improvements in yield and fewer critical defects and cycle times are coming down to support increased annual capacity and improved efficiency. We have a strong process understanding already, piggybacking on a century of experience producing alkaline systems, but there are new processes and new techniques that have to be mastered, and we're well into that. The goal is to have the first 500 megawatts of production capacity installed by the end of 2026. And that's why we commercially launched it now to have time to build the order backlog and for customers to understand the benefits of the concept and together with Nel start to work out the exact concrete and specific projects where we can apply this beautiful technology. And that brings me to the final page. This has been our value proposition for quite some time. I think Nel has an unrivaled track record. We have a century of experience. We have sold more than 7,000 electrolyzers globally, and we have a tonne of prestigious references. But to stay a leader in this industry, you have to demonstrate technology leadership. We do that by having multiple technology platforms. We have both PEM and alkaline. We have proven solutions for today, but we need new solutions for tomorrow. We need solutions that can bring the total cost of hydrogen down, and we don't develop that only here in Nel. We do it through a big network of world-class partners. What we will show in May is an example of cost and scale leadership. This concept will be an enabler for customers to realize projects that they could not previously realize because costs were too high. But Nel is a frontrunner in cost reductions. We take -- we make big leaps in terms of innovation and how we look at cost down opportunities and we combine that with market-leading production capabilities. So we will revert in May with more information about the new technology. And bear in mind, couple of years later, we will have the next-generation PEM platform also available. That concludes the presentation, and I will be joined by our CFO, Kjell Christian Bjornsen, to answer questions that you might have. Kjell Bjørnsen: Very good. Thank you, Hakon. Before we start the Q&A session, just a few practical points here. [Operator Instructions ]. If we don't get your questions, feel free to reach out to us at ir@nelhydrogen.com And as a reminder, we will not comment on outlook-specific targets, detailed terms and conditions for individual contracts, or questions about specific markets. Modeling questions are also best handled offline. And with that, I think we can get started. Kjell Bjørnsen: First question comes from [ Martin Klebert ]. Unknown Analyst: I'd just like you to give us some explanation of how long you can store the hydrogen for and what method you're using to store this? And then when it is released, do you turn it back into electricity through the use of fuel cells? Hakon Volldal: Yes. that's correct. There are different ways of storing hydrogen. You can store it in a buffer tank for large quantities of energy to be stored. You can even use a pipeline or you can use salt caverns. So there are different examples of how to do that. There are salt caverns used in Sweden for storage, there are pipelines being used with compressed hydrogen. You can liquefy it and store it in a tank. So there are different ways of storing the energy. And you're right, if you want to turn it back into electricity, you have to run the hydrogen through a fuel cell again to generate that electricity, which you can use on site or you can send it back to the grid. Unknown Analyst: And just before I let you go, how long can you store that hydrogen for? You have the normal storage at the moment of electricity, you can't store it for that long. Are you able to store it for a longer period? And what is the advantage of that? Hakon Volldal: Yes. So that's the big thing about hydrogen. You turn it into a molecule that you can store for a very long period of time, we're talking years, if necessary. There is always a little bit of a loss, what we call a boiloff, but that's a mickey mouse figure compared to the total amount of energy that you store. So whereas batteries can help you smoothen out short-term swings, it's very difficult with batteries to store large amounts of energy and use that to sort of, let's say, you need more energy during the winter, then it's difficult to store that in the summer and release it in the winter. Hydrogen, you can do that and you can even use it for long-term storage for multiple years. So that's where batteries and hydrogen serve different purposes, but I think both are needed to have an energy system that we can depend on. Unknown Analyst: And quickly, can you use existing infrastructure, existing tanks or do you have to get special new tanks? Hakon Volldal: So it depends on where you are. In some places, you have the infrastructure in place that you can leverage. In other places, you have to build that storage capacity. Kjell Bjørnsen: Next question comes from Elliott Geoffrey Peter Jones, [indiscernible]. Elliott Geoffrey Jones: Just -- I think just more on the macro side, just thinking about the -- obviously, the escalations in the Middle East and what's happened to like you mentioned, energy prices, we're seeing metals prices go through the roof as well. Are you seeing or hearing kind of any change in customer activity with regards to the potential for another bout of cost inflation when it comes to projects? Or have you not really seen any change in attitude from customers? Any color on that would be very helpful. Kjell Bjørnsen: So what we do see is that some of the projects that are in the Middle East are delayed or that further execution of those are somewhat hindered by the current circumstances. We do see some material price movements, but it's too early to see if that is a sustained movement or not. I would say with the beauty of what we are launching with the next-generation technology and also the next-generation PEM platform that we're working on is that we take down the labor cost on site, we take out down the engineering hours. So we take down a lot of these cost adders that would typically be influenced heavily by inflation. Hakon Volldal: And we reduce our dependence on platinum group metals significantly. Elliott Geoffrey Jones: That's a good point. That's helpful. And then just kind of follow up on that quickly. Just kind of putting it all together, looking at last year versus this year, obviously, we've talked about this year a lot of the pipeline being more kind of sensible and real. If you kind of add on the Middle East escalation, would you say the current market is more tricky than where you were last year? Or would you say given the maturity of the customers you're working with, actually, it's still -- you're still expecting more activity this year than last year? Hakon Volldal: I think we expect to see more FIDs this year than we saw in 2025. And then in a healthy market, there will be projects that are canceled and projects that are added. And I think that's what we see now. We don't see a big jump in our pipeline capacity. It's fairly constant, which I think is a good thing because then all the dreamers are gone and projects that don't make sense are stopped before we get too deep into the execution phase. So I would say we are slightly more optimistic about '26 than '25. And then we believe momentum will continue to build into '27 and '28. But we talk internally about a turning point that we've been down in the valley and slowly starting to climb back up the ladder. Kjell Bjørnsen: Next question comes from Arthur Sitbon. Arthur Sitbon: So I have two questions. The first one is we've seen some of your competitors announce large framework agreements with the defense sector. I was wondering -- I mean, you refer a bit more to energy security, the need of energy resilience in your presentation today. I was wondering if you're working on such type of framework agreements with that sector. And if we could see anything announced, anything meaningful announced on that in 2026? The second question, is just on the sequence of events for coming quarters and coming years. Your backlog is -- has been coming down. I was wondering how fast do you need order -- do you need to see orders come through in order to kind of bridge the gap between where your backlog is and maybe where consensus expectations are for revenues in 2027 and always with the idea that, well, I know you have that cash balance at the moment at a given level. I imagine that covers you for 2026. But for 2027, I suspect you need orders at a certain level for the cash to be enough. So any color on that would be helpful? Hakon Volldal: If I can take the first and maybe you will take the second question, Christian? We have a number of collaborations also with companies in the defense sector, but we don't announce these partnerships publicly because what we have been told is that the capital markets only appreciate hard purchase orders. And anything else, whether it's a FEED study or a frame agreement or this and that just creates noise. So I do see there's a lot of noise out in the market. A lot of agreements are presented as firm commitments, but they're not. So we are in the same type of discussions and with the same companies as you have seen announced recently, if that answers your question. Kjell Bjørnsen: Yes. And then just to add to that, we've been for years having grants from Department of Defense in the U.S. to work on hydrogen as part of an energy resilient infrastructure, and we're a defense subcontractor in the U.S. So yes, defense and resilience is definitely on the agenda. On the outlook, when Hakon talks about us seeing momentum in the market, it's obvious that with that, we see order intake coming near in time. And currently, we do not have enough to really fill meaningful utilization in 2027. But we have good reasons to believe that we will see order intake this year that will help us have meaningful activity levels in 2027. When it comes to cash balance, and we touched upon this in the presentation, we have taken quite some actions in addition to the personnel expenses that we talked about. We have worked a lot on other external spending. And I do believe that we can stretch that cash balance fairly long if it takes even longer to get orders. So we're not stressed with the size of our cash balance. Hakon Volldal: And I think we also said that the momentum for containerized PEM solutions is picking up. And the good thing about that solution is that we have a fairly short delivery time on that. We can deliver systems in less than 12 months. The order we booked in April will be delivered in '27. If we get orders now until year-end, I think we have an opportunity to deliver all of those or close to all of those in '27. So we are hopeful that we can book more containerized PEM solutions, and that will keep us float until we get the larger alkaline orders. Kjell Bjørnsen: I see we have a follow-up question from [ Martin ]. After that, I see no more questions in the queue. [Operator Instructions]. Unknown Analyst: My question is just when do you expect to launch the next-generation PEM? When is that likely? And what advantages will it bring? Hakon Volldal: If I could give you an exact date, I would. But if there's one thing we have learned is that technology development is uncertain. It takes time. I mean look at pressurized alkaline, we have worked on that for 8 years. The one -- you have a pretty good idea of what you want to do, and then there are always tricky things that you need to overcome. It could be pertaining to the concept design itself, could be pertaining to availability of materials or you end up with a cost that you don't like. So you have to reengineer it. With PEM, we have the ambition to build a full prototype stack this year. Then that has to be tested, and then we need to spend some time to get partners to help us industrialize it. So it will take, as I said, a couple of years. Whether that means we can launch it end of or mid-'28 or if we will launch it late '28 or in '29, I'm not able to say at the moment. When it comes to the benefits, the benefits of the new PEM platform is that our goal is to take the cost down by 70% on a stack level. And in the PEM system, the stack is the most expensive component. So that means we can significantly reduce CapEx. It will be a low CapEx, low OpEx solution. So that's the sort of the holy grail. You get the cake and you can eat it. It's compared to pressurized alkaline, it might have even better energy efficiency, and it has -- could have a smaller footprint at a lower cost. So it's -- and the response is, as always, with PEM, fantastic. So it's more dynamic than pressurized alkaline. Even though I have to say for larger pressurized alkaline systems, we also have a fantastic dynamic capabilities. But we believe that this is something that will be even more competitive than what we will launch now in May. And that's why we continue to work on it. If it's not, we will not launch it. Unknown Analyst: I'm from South Africa, I always promote platinum, platinum, platinum of platinum, but will it also contain platinum to read PEM equals PGM? Hakon Volldal: Yes, but it's the iridium loading and the platinum loading is very limited. So to all those who want to sell all of that platinum and iridium, I have to disappoint you because the reason we can get the prices or the cost down is because we will utilize much less iridium and platinum. It's on a very different level compared to what we see today. Unknown Analyst: I'm very happy with that, just go for volume. We don't worry about value, give us volume. Kjell Bjørnsen: Thank you, [ Martin]. It seems we're out of questions. So we'll end the Q&A session here. If anything comes up after the call, you're always welcome to reach us at ir@nelhydrogen.com and I'll hand the word back to management for any final remarks. Hakon Volldal: And no further comments. I think we look forward to the launch event on May 6. And as I said, we will release some material on May 6 that I think explains the new solution and the benefits that we see with that solution in more detail than what we have presented to the market so far. So I hope you take a good look at that material in just a couple of weeks. Thank you for voting.
Gustaf Meyer: Hello, everyone, and welcome to today's Live Q with Senzime. With me here, I have the CEO of Senzime, Philip Siberg. First of all, we will hear a presentation from him. And after that, we will have a Q&A session. And also, on our website, you can see that you can send in questions to the Q&A session. But first, we will hear the presentation from Philip. Philip Siberg: Okay. Good morning, pleasure to be here. I am pleased to announce the Q1 2026 report from Senzime. So just to start off with kind of a high-level summary. So Q1 2026 was a little bit of an outlier quarter. We reported a temporary dip on our growth journey, yet, at the same time, we reported strength in margins and good cash flow. And the full year targets remain intact. What kind of stuck out in Q1 was slower sales in the U.S., specifically of closing new monitor deals, and mainly driven what we've seen as delayed purchasing processes and a year starting with a bit of macro concerns in the U.S. Nevertheless, we reported 40% growth in our sensor sales, calculated in constant currencies. Our underlying gross margin continues to improve very nicely. And we also reported a good traction on our operating cash flow. So all in all, I remain confident in our full year targets despite the growth dip, and I will explain a little bit more on the background. So let's deep dive a little bit specifically on the U.S. market that I mentioned. If you look at the U.S. business, it grew 11% in local currencies in U.S. dollars. Specifically look at disposables, the sensors, it grew at 55%. But then we were affected by, of course, the strong Swedish krona and the weak U.S. dollar. So versus the first quarter of last year, it was about 15% lower. So this ultimately led to our reported sales decreasing with 5% in the U.S., which was about SEK 2.5 million (sic) [ SEK 0.75 million ]. But as I said, the growth, I would say, was predominantly delayed because of TetraGraph deals that were delayed and many of them moved into the second quarter. We do not see any of our deals that have been lost to competition. On the contrary, we've been secured with a number of verbal commitments, and we know that they are in the pipeline to close as they come. So during the quarter in the U.S., we shipped out 246 TetraGraphs, and I will tell you a little bit more about a new business model that we've launched as a complementary service. And of those 246, 120 of them were part of our new TetraGraph-as-a-Service model. So if we look at the TetraGraph-as-a-Service, this is a business model that we've introduced in the U.S. It's a little bit of copying what's been common typically in the robotic surgery world. So what we do is that we provide the TetraGraph monitors on subscription. So we own them and we place them with hospitals. And then we charge customers with a premium on the disposables that are used. So for hospitals, this is a compelling rationale, because it shifts kind of the capital purchasing process rather to operational processes and costs. So it simplifies and accelerates purchasing processes. And for us what it does is that it shortens sales cycles. The 2 deals that we have secured during the first quarter were closed at about half of the time versus a typical capital purchase. And if you look at the type of deals that we sell to customers, the value for us over time is about 90% of the revenues contribute from the sensors. So by having a variable sensor price, it creates strong margin enhancements for us over time. So the first 2 key wins in the U.S. were to 2 Ivy League hospitals on the East Coast, and we supplied them with 120 TetraGraphs to their hospitals. So we have had a tradition of focusing very hard on the U.S. market, because that's where the conversion to our technology is happening the fastest. This is a map that I've shown before. We've had a lot of announced and big hospital wins over the last 15 months. And if I now start to add up to that one, and I put in -- so what we've done so far this year? And I'm saying year-to-date April. So we've had a number of important accounts. We secured a big hospital extension in Florida. We recently announced a statewide IDN expansion deal. This is to become one of our larger customers with a run rate of about SEK 6 million a year. We announced an IDN entry. So we've entered into one of the largest IDNs in the world, secured a number of hospitals, both on the Central U.S., but also on the West Coast. And there's a huge potential for us to further leverage that opportunity. We've won a very important children's hospital in Texas and the Ivy League hospitals I already mentioned. So just to just give you a few of what's going on in the first 4 months of the year. So right now, in the U.S., we have about 250 hospitals as customers. Okay. So to wrap up the U.S. and try to conclude a little bit and comparing the numbers apples-to-apples. So if you look at what it was last year. So last year, in Q1, that was the time when we rolled out the new next-generation TetraGraph. Quite a few of the rollouts were demo monitors and some were upgrades to accounts we already had. So if I compare that and then I look at, okay, what happened this quarter. So I had my reported sales, and then I had about SEK 2.5 million in currency effects, and on top of that, I had the TetraGraph-as-a-Service where it did not have a capital revenue, rather the long-term enhanced margin revenue on sensors. So if we look at that all in all, and just compare these apples, just to explain, there's about 6.5 million, the ratio of difference here. So the underlying business in the U.S. is still moving in the right trajectory. Okay. So let's move on and look at, in general, the global business. So we continue to grow our installed base and grow our shipments of TetraGraph. So we've shipped over 5,500 TetraGraphs by now. In the quarter, we shipped out 376 in total versus 443 last year. And again, last year was a little bit boosted by upgrades and demo units that came out. If we look at our disposable sensors, remember, this is a razor-razorblade business where each patient connects to a sensor. We continue to grow the sensor business very nicely. We passed the milestone during the quarter of 1 million monitored patients. And this is an important milestone for us. Not only does it help to enhance margins, we get economies of scale, but it also provides kind of the reference base for further growth. So if you look at the rolling 12 months of the sensors, and sometimes go up and down in volume, it's a 66% (sic) [ 27% ] growth. So to sum up a little bit of sales numbers. We've talked about the U.S. here first in line. Europe has had a decent start of the year, almost 60% growth in terms of disposables. We also had a small currency negative effect because of the euro. The rest of the world had a little bit of weaker start of the year, still very strong belief in the opportunities in Japan and South Korea, and we will certainly catch up that during the year. So you can see, if you look at the spread of our business today, U.S. is a little bit less dependent and the sensor sales continue to be very strong as part of our company. Something that was announced during the quarter and that we have preannounced before, but during the quarter, the actual publication of the new pediatric guideline was published. So this is a guideline set that was created by the European Society of Intensive Care and Anesthesia. And really what it says is that children that receive neuromuscular blocking drugs as part of surgery should be monitored using a quantitative neuromuscular monitor and preferably use an EMG-based solution because of the higher accuracy and reliability, and that's exactly what we offer. So the pediatric opportunity is interesting. I mean it is a smaller part of our overall business. I would say it's about 5 million patients a year versus about 100 million in total for adults and all patients. But children are a specific group here. I mean, residual paralysis is common. And with residual paralysis, I mean that they wake up and they're still partly paralyzed. The consequences of this are serious. Children end up in postoperative care and they get all kinds of different respiratory issues. And the issue has been here, lack of available technology and a lack of kind of practice standards. So I think this is a very strong guideline, and we have had the fortune to work with a lot of the guideline authors. We've conducted a number of webinars and seminars, and I believe we have the support to really grow this business opportunity. And to look like where are we in this pediatric opportunity. It has been a small yet important part of our business, but it's a notable number to see that in Q1 -- the number should actually be here 2026, I can see -- we actually threefold increased the sensor units, and we sold 65 TetraGraphs specifically delivered to pediatric operating rooms. So definitely a trend shift here, yet from small levels. Another important news piece we had during the quarter is that we introduced what's called the TetraCom. The TetraCom is a novel technology that enables physicians and IT personnel to connect the Senzime TetraGraph directly to hospital health records, meaning directly into Epic and Oracle and other types of systems. And we do have a suite of partnerships where you can connect the data through providers such as Philips, Masimo, GE, and Mindray. But with the TetraCom, you can connect seamlessly, wirelessly directly into these systems. So it's a way for us to provide a service and also monetize on the data and the value to the customers. Let's look a little bit more about the numbers. So gross margin, I mentioned initially that the underlying gross margin continues to improve, and it does. So in the quarter, the underlying gross margin was 69.3% (sic) [ 69.2% ]. We continue to improve it versus end of last year and Q1 last year. We continue to have a number of effects on the gross margin that are, I would say, beyond the company's control. We have the U.S. tariffs. They are still hitting us. We will see where that ends up, and we have the currency effect. So we had quite a hit on the currency in Q1. So the reported gross margin was 63.1%. We continue to increase pricing. We are noting U.S. pricing levels now for us increasing. So I continue to iterate that the gross margin will improve over time. If we look at our operating expense level, I've iterated before, we continue to keep it very flat. So we try to grow this business rapidly with a flat operating expense curve. We were actually down 5% versus last year and almost 17.5% versus Q4 of last year. And this is important, because we continue to invest in sales, in marketing, in med affairs, and we continue to do a lot of science to be the industry leader in our field. If we then move down the profit and loss and look at the cash flow. So I think the cash flow stood out this quarter. It improved by 33%. Yes, we are still negative, but as we work diligently on optimizing working capital, we're starting to see that the burn rate is significantly getting down. EBITDA was slightly better than last year. Net earnings improved drastically, which was majority of focus or a result of currency effects. So we had SEK 55.3 million in cash by the end of the quarter, and then we have a credit facility of an additional SEK 42.5 million. So I think we're well funded for our venture. And to comment on the credit facility, this was something we announced in conjunction with our Q4 report, but just to iterate it again, we had a group of key shareholders and a bank, DBT, which is part of NOBA Bank Group, that provided us with a credit facility of SEK 50 million. This is to be used for working capital purposes to give us the flexibility to grow very fast. And there are no warrants, no dilutive instruments or any other type of special conversion rights. We have called for SEK 7.5 million of this, and that was part of a contractual obligation as part of the credit facility from DBT Group. If we look at our shareholder base, if we look at the kind of the top 10, it hasn't changed very much. There are some small changes, but the top 5 shareholders remain very strong and intact. We have 3,600 shareholders. There has been some good trading volumes. So definitely has been shares trading hands. I don't have the specifics of who's been buying or selling at this point. Okay. So a little bit back on the goals and where are we. As I've said so many times before, we're on a mission here to radically build and create the undisputed market leader within quantitative neuromuscular monitoring. We're targeting a very big market. There's a lot of hospitals, and there's a lot of operating rooms left to be converted. And the outlook for our business is that we're going to continue to grow in line with what we've done in the past. So if you look at our full year goal, it remains strong and intact despite this little dip in the growth rate of Q1. And we're going to make this happen by continued streamlining and optimizing the gross margin, continuing to scale down on the operating expense level and continue to grow our recurring base of revenues. So just a minute on what is it we do again. So remember, we have developed -- we're the first in the world to have pioneered a technology, make it available in operating rooms to make sure that people are intubated at the right time, that they get the right amount of these paralytic drugs and the reversals of them, and that they are extubated at the right time. Sophisticated technology. We have over 109 patents now, 40 years of research behind this, but a very smart real-time technology to assess and monitor the level of paralysis in the patient. And this is specifically important in operating rooms where, for example, you're doing robotic surgery. This is just an example picture from a Swedish hospital, a good customer of ours. But what's been seen in published research, if you use the type of technology we have, you can eliminate complications related to these dangerous drugs. And you can actually reduce the amount of these drugs by 70%. So you're not only saving the patient, but you're saving the hospital a lot of money on this. So to wrap up on the key takeaways. I mean, we are in a hyper growth journey. We've had a CAGR of almost 60% over the last 5 years. Yes, Q1 stuck out a little bit, but that curve is going to continue. Operating expenses and margins, we are improving. We're on the path to profitability. There is a strong demand for our products out there. The pipeline is strong. We have a lot going on and I think will materialize, and I'll come back to that. And again, the guidelines are there, the science is there, and the clinical need is there. And we have the people, we have the technology, and we have the funding to make it happen. So join us on our mission as we safeguard every patient's journey from anesthesia to recovery. Thank you. Gustaf Meyer: Perfect. Thank you very much for the presentation. Philip Siberg: Thank you. Gustaf Meyer: So we have received some questions, and I'll also have some questions by myself. First, maybe we can focus on the sales. Came in a bit lower than expected. You also stated that this is mainly due to FX, also a softer U.S. market. You also believe that this is temporary. What kind of arguments do you have for that statement? Philip Siberg: Yes. I mean, like I said, it was an outlier, a little bit of kind of a onetime quarter. I think we saw that so many of these opportunities have been working on for a long time. Just had a difficulty. I mean there's these budget processes, the year starts, and it was difficult this year to really get it to close as fast as we were hoping. So we just saw a general -- specifically in the U.S., that is like 60%, 70% of our business, which is pushed forward. And it was difficult to put a very, very sharp kind of excuse on it, but just hearing like, okay, macro level, we're a little bit concerned about what's going to happen in inflation rates in the U.S., et cetera. So it just kind of gently pushed. And I think we caught up a little bit here and some of the things that happened early April. And I feel that the market is kind of waking up. And I've noticed some industry colleagues and peers seeing similar types of -- a little bit of a whirlwind in the U.S. market in Q1. Gustaf Meyer: Because also, if we look at your press releases during Q2, it has been a better order flow. However, of course, you do not press release all of your orders. Philip Siberg: No, we don't. Gustaf Meyer: But you would say that, in general, it looks much better during Q2? Philip Siberg: I mean, so far, so good. We're just 3 weeks into April, but I feel more confident now than I did a couple of weeks ago. And I feel a different tonality, so definitely. Gustaf Meyer: Perfect. I was actually a bit surprised about the sensor sales during the quarter, because if you look at your installed base, it continues to increase. And I expect the sensor sales to increase quarter-by-quarter. What is the reason behind that? Is that delayed orders as well? Philip Siberg: Yes. I mean there's always a little bit of fluctuations between months. And some sensor orders came in on the 30th of December and then it kind of stocked up. So I think I don't see any -- there's no kind of worrying trends or differences. It just kind of comes and goes with a little bit of ordering patterns. But perhaps what I noted a little bit -- I was looking at the same thing, why it's a little bit -- it's just -- I mean, we had a number of big hospital opportunities and wins that we did last year. And it's just taking time for things to materialize. And for example, we were awarded this big NHS contract in the U.K. in December, and the hospital is still working to get everything installed and getting it planned as part of their operations. So we're a little bit tied in the hands behind the big hospital systems. Gustaf Meyer: And what about the rest of the world markets? It was also a little bit of a setback there as well. Philip Siberg: Yes. So if we start way to the East, so Japan, we announced in December that they got the regulatory approval for a new system. They started rolling it out early January. They've secured -- so we had a pretty good kind of volume shipment to them in December. They've now started to win deals. So they're on good progression. Japan is going to do the big kind of major launch in May in the Japanese market. South Korea keeps doing well. We're still struggling with the regulatory approval. It takes time in South Korea. So a couple of months left, I believe. And South Korea is on a good trajectory. It was just a little bit of phase between the quarters in terms of sensor shipments. So nothing really that stood out in any way. But South Korea is a little bit awaiting the new TetraGraph to be approved. Gustaf Meyer: But do you still expect a little bit of a bounce back? Philip Siberg: I do. I do. Yes. And I have -- I mean, in Asia, I have 2 very strong partners. They give me very clear, like accurate pipelines. So I feel more confident working with them. Gustaf Meyer: Perfect. Also, I received a question from an investor. You write that no deals have been lost and that several purchases were postponed into Q2. How much of these delayed deals have already materialized or been confirmed after the end of the quarter? Philip Siberg: Yes. I mean, good question. And the deals typically, specifically in the U.S., are always -- the larger ones are competitive in some way. So the hospitals invite 2 or 3 of us in the industry, they evaluate it and they test it. And so we always try to understand like did we win this competitive deal or not. And we continue to have very strong win rate when there's a competitive deal. Then there might be deals happening outside that we know of, of course, but others are winning. But as I noted, we've seen that a number of these deals, we typically get a verbal acceptance afterwards. They say, okay, we've chosen your system, there's been a vote, we like it, and now it goes to contracting purchasing. And that's the process that sometimes takes time, because you end up in a big bunch of contracts and sometimes it takes a week and sometimes it takes 9 months. But overall, some of these things that we knew about came in now and they keep on coming in. Yes. Gustaf Meyer: Perfect. Let's leave the sales for now and focus on the costs, because I also received a few questions about the cost development. OpEx during this quarter came in at SEK 35.6 million. It's a little bit of a decrease. What kind of level should we expect in the upcoming quarters? Philip Siberg: I mean, we're going to continue on that type of a level that we are now, potentially even a little bit lower. I mean, we've invested heavily in bringing out a new technology to market. But I think the larger we get, the bigger scale and the leverage we have. So as we're now inside IDNs, we're inside hospital systems, the cost of sales will reduce over time, because we can automatically get scale effects from where we are. And we've done a lot -- a lot of groundwork has been done. So that's why I keep on saying, we're foreseeing that we can keep this level potentially even a little bit lower, just being a lot more effective and a lot of the work done, so now it's just about execution. Gustaf Meyer: So when you also say that maybe OpEx can even go down a bit, is that mainly, if we talk about the specific line item, is it selling expenses and so on? Philip Siberg: Just always being super cost conscious and keeping everything under control. Gustaf Meyer: Yes. Also, if we talk about -- you changed your business model a bit when you're now offering the TetraGraph for free. So my question is, what has the market response been? Philip Siberg: Yes. We don't offer it for free. We offer it as a service. Gustaf Meyer: Yes. Philip Siberg: So I think the response has been very positive, because even the hospitals know that contracting purposes or process can take over 2 years. So by doing this, by coming in, it just changes the opportunity to be more a standard operational. And the deals that we announced were closed in just a couple of months. So it's a different shift. And I mean, some big hospital systems, they want to own the capital. They have the funding and that's part of their business. But many are used to this kind of just a service process. We take care of it. And we can control it. And if they don't deliver on the volumes that we want them to, we simply take them back and we move into the next hospital. So it's a flexibility for us. But again, the value is here in the premium price that we get on the sensors. And then we do a lot of other kind of compliance requirements in terms of training and other things that they should do. So I believe this -- I will come back in the next quarter to show that this is actually going to drive up utilization. Gustaf Meyer: But if you look at the number of monitors that were delivered during this quarter, it was 367 sic [ 376 ], if I'm correct. And was it around 250 in the U.S... Philip Siberg: Something like that. Yes. Gustaf Meyer: And 120 of them were as a service. Philip Siberg: Yes. Gustaf Meyer: Do you expect it to be like 50-50 between the... Philip Siberg: Roughly, probably a little bit lower on the service side, but somewhere around there. Gustaf Meyer: Yes. Great. Also, another investor wanted to know more about TetraCom. Also about that. Maybe you can -- what has the... Philip Siberg: Yes. I mean, as I presented it -- I mean, it's a platform technology offering connectivity of our systems directly into electronic health records. And when you sell this, you typically sell it under the IT budget. So the IT budgets, if I generalize them, there is a little bit more elasticity there, there's a little bit more funds available. They understand the cost. So by doing this, we can add a cost. We sell the TetraCom at a specific price point. And then we also charge for an annual service fee for this. So we kind of introduce both. We upscale the TetraGraph hardware device, but also get even more kind of recurring revenues on it. And then there's some other benefits to this is that we can actually pull out the data as well. We can use the data for continued product development, research purposes, and can help the customers to summarize the data and kind of AI-generated reports to see how are they doing, how are they progressing to guidelines and to best practices, et cetera. So there's a number of benefits. Gustaf Meyer: But it's always -- sometimes the rollout, it always takes some time and so... Philip Siberg: It does take some time. We're just about to wrap up the first big installation with the TetraCom. Gustaf Meyer: Okay. But when do you expect that we can see significant numbers in quarterly reports? Philip Siberg: I think, later this year. Gustaf Meyer: And you will disclose it separately or... Philip Siberg: I will try to, yes, hopefully. Gustaf Meyer: Great. Also, I wanted to talk to you about the contract that you signed with this major IDN in the U.S. So maybe you can just talk more about that, because it's a huge potential. Philip Siberg: It is. Yes, definitely. I mean, again, IDNs control a large part of U.S. health care. It's like big clusters of hospital systems. Some of the bigger ones have up towards 150 to 200 hospitals. So there's strong powerful kind of mechanisms. And getting in there, the benefit of them is that you can ultimately get centralized contracts, but it's a long path. And you need to work your way [ underwards ] and you need to win hospitals and then get key opinion leaders who drive and mandate for your technology and then get them to ultimately convince the C-suite on top. And we've been working on this big kind of umbrella IDN for a long time, and we've now made our way into different corners of this IDN, and we identified the champion who is driving this internally. So why I wanted to make a news announcement about it is just because I think there is an apparent opportunity to grow this and become kind of a centralized vendor within the IDN system. So that was one important. I mean the other one that we announced last week was also interesting because there, we're already in, and it shows just how we can expand within an IDN once you're in. Sales process is faster. It's already validated. And again, I can grow the business with limited expenses, because I'm already in the system. Gustaf Meyer: But what's the probability -- if I talk about the first IDNs, up to 150 or more than 150 hospitals, what is the probability that you will, let's say, a couple of years or a few years that you will have TetraGraph monitors on each of these hospitals? Philip Siberg: I think it's unlikely that we'll have it in 150 hospitals. But I think there's an opportunity to become a big supplier to the whole of the system, definitely. And as guidelines increase kind of the requirement of them, I think, yes, there is ultimately an opportunity to have it. I just want to be moderately careful in my expectations. Gustaf Meyer: Okay. Great. I'll turn to the next question actually about the U.S. market, about your whole addressable market. How much would you see that you are penetrating at the moment? Philip Siberg: We're just skimming the ocean here. Like I said in the presentation, we have about 250 hospitals as customers. The U.S. has roughly 5,500 hospitals. On top of that, you have a number of ambulatory surgery centers. So there's a lot left to be done. And the driving force is, again, references, the products, the guidelines. And one thing that stood out that I'm starting to hear, there's more and more legal lawsuits going on in the U.S. market, where hospitals have not had adequate monitoring, patients have had complications, and they're now saying that, okay, well, we need to have this type of technology, because we're not guidelines compliant. So that will ultimately help to drive our business and accelerate it. Gustaf Meyer: Great. And also, what would you say is the -- when you have these dialogues with hospitals, of course, you have a high win rate, but what are the biggest reasons why hospitals do not want to adopt TetraGraph? Philip Siberg: I've always said that the worst competitor I have is kind of the anesthesiologist who's been doing one way for 40 years and doesn't want to change. Gustaf Meyer: But now you have the guidelines. Philip Siberg: Yes, yes. So I mean, we have a target to have 80% compliance. That's what we see. And some of our best customers are up towards 90% compliance, but you will never get 100% compliance of any technology in a hospital despite guidelines or standard of care. There's always going to be discrepancy. So it's just hard work time and then getting -- we're trying to help every single hospital to adopt kind of protocolization and make it standard of care, so you get to that 80% to 90% compliance rate. Gustaf Meyer: Perfect. But if we look into the rest of this year, and maybe except the U.S., what other markets would you say will be extra interesting to follow in this year? Philip Siberg: I mean, we've always kind of tried to keep it focused on a couple of Asian countries, Europe and the U.S. We have some interesting outlier markets that are popping up. I mentioned last year, we got approval in Mexico, for example. We've had some notable deals won during the first 4 months here in Mexico. So that's an interesting market. Mexico kind of resembles a lot about U.S. Recently, we had market approval in Saudi and a couple of Middle Eastern countries. I think Saudi is a very interesting market. And I think that's going to be our major markets in the future. It's just a little bit disrupted down there right now, so it's delayed some of the things. But we have a great partner. They are working on getting the kind of local buy-in. So I think we're going to have traction in there. And then we continue to expand very carefully, very sharply without more expenses, but we got approval in Vietnam. We got approval in Taiwan. So we're expanding carefully with partners. Gustaf Meyer: Yes. Also, you stated in the report that you continue to have the objective to become cash flow positive at the end of this year. Looking into this quarter, a little bit of a setback, you expect a bounce back in upcoming quarters, also cost to maybe be flat or even decrease a bit. But how confident are you that you will be cash flow positive in Q4? Philip Siberg: Yes. So a number of things need to happen. One, we need to keep on growing. We have a strong pipeline, specifically U.S. market, but also together with our partners. So we need to continue to leverage on that. We need to see that the recurring revenues -- remember, the sensors are recurring revenues. And they were, what, 70%, 74% of the business. So that keeps growing up. The gross margin, I've talked a lot about before, it will continue to grow. There are some volume things happening here. We kind of celebrated this 1 million mark, and that triggered kind of a volume price component to it. So the gross margin has all the prerequisites to really increase. And we'll see about the tariffs. We just started the project yesterday. I was trying to get back. We have paid about roughly SEK 5 million in tariffs to the U.S. It would be fantastic if we get that money back. It's going to probably -- we're probably going to get a little bit back, I believe, now hearing, but it's going to take time. And then the third part is strict cost control. So these 3 things, plus working with working capital, getting paid faster and then being optimal there, all those stars aligned together, I still believe strongly that we have the opportunity to get to these goals. Gustaf Meyer: And as you mentioned, the gross margin, if we look at your numbers in the presentation, it was at minus 4.4% in currency effect. Do you have any plans for any actions to maybe reduce that? Because it's always difficult FX. Philip Siberg: Definitely. I mean, we increased the prices in the U.S. I'm seeing -- there was about 5% increase now that I saw on the average sales price. So it's started to kick in. I think we're trying to always get a higher price point, and we're building into every single contract that we are independent of tariffs, et cetera, that, that will -- so we've backed off to do kind of currency hedging, because there's always -- it's a lottery here, which way it will go, we do not know. And for now, we're just trying to stabilize the cost. Gustaf Meyer: And also your other, not objective, maybe it's more of a guidance that you have a sales growth in 2026 in line with previous years. Are you still that confident of that one? Philip Siberg: I am. And that's why I reiterated that the long-term targets remain intact, yes. We set up -- I mean, we haven't guided anyway this year in terms of quarter. We set a goal for the year, and we said that we want to continue to grow in the same pace as before. And that means in absolute terms to grow in the same kind of base that we have. And again, we do it by recurring base of business, winning new deals and getting more recurring on that one. And the further we progress as a company, the bigger the base is, and we're just -- we're getting scale. That's really the message here. Gustaf Meyer: And what about the cash situation? Yes, do you believe that it will be sufficient to... Philip Siberg: Yes. I mean, we were clear in the report and the annual report. I mean, we have the funds needed to do this. If we, for some reason, foresee that we need to accelerate things again or do differently, then things can change. But I have the support from strong shareholders. We did the credit line to have like a backup, and we're not foreseeing any low-priced rights issues or anything like that to happen. Gustaf Meyer: Perfect. Just one last question before we end. Or is there anything else that you would like to highlight? Philip Siberg: No, I'm just -- I mean, I wasn't -- when you're on a growth journey like we are, I've tried to kind of raise a warning signal in the past. Some quarters will have a little bit of a dip. You can't have -- but I've had the fortune to, every single quarter, quarter after quarter the last 3 years, always have a fantastic growth. So it hurts, and I'm annoyed when the growth curve takes a dip, but it just creates more energy and more confidence. We're going to get back. It's just about grit and delivery. Gustaf Meyer: Yes. I hope that we see a really good bounce back in Q2. Thank you very much. Thank you for being here. Philip Siberg: Thanks.
William Berman: Good morning, everyone, and welcome to our FY '25 results presentation. I'm Bill Berman, CEO, and I'm joined today by our CFO, Ollie Mann. 2025 was our second year as a stand-alone AI embedded automotive technology company, and I'm really proud of the progress we've made in that time. The past 12 months have been particularly significant for us due to a number of key transactions and important operational milestones. Ollie will take you through the headline financials shortly. But before that, I'm going to take you through an overview of our strategic and operational progress delivered in the period. We have grown our revenue by 30%, driven by strong growth among new customers, successful upselling to our existing customers and the revenue added from our Seez acquisition in March 2025. In July 2025, there were 2 events that were key to Pinewood's future. Firstly, we bought Lithia out of the share of the North American joint venture. This removed the competitive overhang that existed and risked impeding our growth prospects in the key market. Secondly, we signed a long-term $60 million contract with Lithia to implement our system in all their U.S. dealerships across the U.S. and Canada. Meanwhile, we've been carrying out testing on the system in North America, which is progressing well. The largest piece of work that we have been focusing on is the North America OEM integrations and is progressing as planned. Almost all of our OEM partners have now been engaged with and integration work is on target. Another key milestone in the period was the acquisition of Seez, the automotive AI company in March of this year. Since then, we have made great progress bringing Seez into the Pinewood Group and integrated the 2 tech stacks to significantly enhance our AI capabilities. The contract we signed in March 2025 with Global Auto Holdings included Lookers, one of the largest auto dealerships in the U.K. The system rollout with Lookers started in July 2025 and is progressing well and on schedule. It is due to complete in Q4 of 2026. I'll now hand over to Ollie to take us through the financial review. Ollie Mann: Thanks, Bill. Good morning, everyone. We delivered strong revenue growth of approximately 30% to GBP 40.5 million. This increase was due to a number of factors, including the impact from new customers, upsell to our existing customer base and the revenue added from our AI acquisition, Seez. We also saw the impact of FY '25 being a 12-month period and FY '24 being an 11-month period. Gross profit of GBP 34.7 million was 23% up on last year. The gross margin rate of 85.7% fell as expected and reflects Seez gross margins being slightly lower than the legacy Pinewood business. The key profit metric that we use both internally and externally is underlying EBITDA. In 2025, this was GBP 16.4 million, up 17.1% on FY '24. Our recurring revenue of 83.2% is a key metric for us. The slight drop from last year reflects the mix with revenue from Seez now included. Our net customer churn of 2.5%, while higher than FY '24 is still at a very low level and highlights how much customers value the Pinewood platform. A new metric that we've introduced is total contract value. This is the amount of incremental annual recurring revenue from signed customers that have not yet started their Pinewood system implementation. If the customer is partway through their implementation, the revenue included in total contract value is just the element from dealerships not yet implemented. Our total contract value of GBP 64.5 million on top of our existing revenue will deliver us the majority of our FY '28 EBITDA target of GBP 58 million to GBP 62 million. On to Slide 7, where I'll take you through the key movements in our cash flow during the year. During FY '25, we generated GBP 6.5 million of cash from operations. There was a significant gain of GBP 60.8 million on the buyout of Lithia's share of the North American JV that was noncash. Other key movements in cash included GBP 1.1 million of bank interest received in the period and GBP 10 million received from Lithia for the settlement of a tax debtor. The capital expenditure figure of GBP 11.4 million in FY '25 includes GBP 10.5 million of capitalized development spend. During the year, there was a net spend on acquisitions and reseller buyouts of GBP 13.5 million. This was made up of GBP 26 million spent on the Seez acquisition, GBP 2.5 million spent on the South Africa reseller buyout, offset by GBP 15 million of cash received as part of the U.S. JV buyout. Alongside the Seez acquisition was the equity raise that we undertook in March 2025, where we raised GBP 34.1 million of cash. All of these movements led to an end of December 2025 cash position of GBP 34.1 million. On Slide 8 is the end of December 2025 balance sheet. There were closing shareholders' funds of GBP 204.2 million, with the main driver of the increase from the end of 2024 being the March 2025 equity raise and the July 2025 North American JV buyout. We now have goodwill of GBP 51.5 million on our balance sheet due to the buyout of Lithia's share of the North American JV, the Seez acquisition and the South Africa reseller buyout. The increase in our other intangible assets from GBP 16.3 million to GBP 168 million was driven by the North America JV buyout and the Seez transactions with GBP 125 million of the year-end balance relating to the North America customer contract. The majority of the tax liability we have relates to the U.S. JV buyout and will unwind as the intangible assets are amortized. Finally, we have GBP 34.1 million in cash. In addition to this cash, we also have a GBP 10 million RCF facility, which remains undrawn. On to Slide 9, where we show the non-underlying items for FY '25. There was GBP 4.6 million of costs related to FY '25 acquisitions. Most of this expense was legal fees related to the North America JV buyout and the Seez acquisition. Following the buyout of Lithia's share of the North American JV in July 2025, we have incurred GBP 4.2 million of costs in our U.S. subsidiary. As guided previously, these costs will be treated as non-underlying until the Pinewood system is installed in 20 North American dealerships. Our share-based payment charge was GBP 3.6 million in FY '25, and there was a GBP 4 million amortization charge relating to intangibles arising on acquisition. The final item to call out is that there was a one-off gain of GBP 60.8 million that we recognized on the North American JV buyout. On Slide 10, it's confirmation that our current FY '28 guidance is unchanged. This is underlying EBITDA of GBP 58 million to GBP 62 million in FY '28. Approximately GBP 50 million of this figure is covered by existing customers and signed contracts. In terms of FY '26, 2 of the 3 analysts that cover us released notes following our recent business update on the 25th of March 2026. The consensus of their FY '26 underlying EBITDA numbers was GBP 21.3 million. We expect underlying EBITDA for FY '26 to be in line with this. I'll now hand back to Bill to run through the operating highlights and strategy. William Berman: Thanks, Ollie. I thought it would be helpful to take the opportunity to remind everyone about the fundamental strength of Pinewood.AI and what sets us apart from our competitors. Firstly, being 100% cloud-based with one code base is extremely unusual in our industry. Our customers are working on the same version of the Pinewood system, whether they're in the U.K., U.S., Europe, Asia or anywhere in the world. This gives us a number of big advantages. From a security point of view, it's much more secure being in a cloud-based platform than being self-hosted or using on-prem servers. Additionally, we are able to release multiple software updates a week during customer working hours with no disruption at all, which is certainly not the case for the majority of our competitors. Our customer churn is incredibly low with customers generally only leaving due to M&A or network consolidation. The majority of our revenue is recurring and is generally around 85%. The main part of our revenue that is not reoccurring is implementation income. Another key differentiator from our competitors is having a fully embedded AI solution as part of our customer offering. Although having an AI offering is now standard, in most cases, it is a layered app on top of the system or basic API. What we have achieved with Seez is very different from this and is a fully embedded AI offering across our entire system, whether you're in vehicle sales, after sales or back office accounting. With margins being squeezed across the auto retail industry, what we can offer with our AI-powered solution is incredibly powerful. While we continue to innovate and recruit new talent, our experienced workforce underpins what we offer. We have 40 years of experience in the automotive industry, which has made a huge difference in us developing the system we have today. Finally, our deep integrations with our OEM partners remains key to us. We remain committed to being among the best partner for OEMs through our cutting-edge technology and our ability to adapt to the ever-changing auto retail landscape. I'll now take you through the progress we've made against our strategy during 2025. In the U.K. and Ireland, we started their Lookers implementation in July 2025, and we'll continue the rollout through 2026 when we expect to be completed. The combined Pinewood and Lookers teams have done an excellent job on the rollout. At the request of Marshalls, we have moved the start date of their implementation from Q1 2026 to the second half of 2026. This is so they can align their timing of the Pinewood rollout with a number of other projects they are working on. In our international markets, the Japan Porsche implementation started successfully in December 2025 with the first dealerships going live. We look forward to getting all the Porsche Japan dealers onto the Pinewood system and then starting the Japan Volkswagen implementation. We continue to be in discussions with a number of potential Central European groups. The buyout of our South African and Netherlands reseller is now completed, and we are delighted to welcome their teams into the Pinewood team. These acquisitions enable us to fully control our sales and customer service functions in these markets and put us in a stronger position to drive our continued growth in both regions. The acquisition of Seez in March 2025 has made a huge difference to our customer upsell offering as well as diversifying our revenue streams. The Seez team put a huge amount of focus into the rollout of Seez products into the U.S. and U.K. dealers as well as growing their wider customer base. The final pillar of our strategy, North America is comfortably the largest automotive retail market in the world. And I'll take you through our progress on this on the following slides. On Slide 14, we set out our expansion plans into the North American market and the progress we have been making. With 20,000 franchise dealers in North America, this is comfortably the largest market in the world with a total addressable market of over $9 billion. We think we are in a strong position to scale across the U.S. and Canadian markets. As a reminder, we now have a significant foothold in the key market following the $60 million contract signed with Lithia to implement the Pinewood system in all of their dealerships in the United States and Canada. Testing on a number of areas of the system in the U.S. is well underway with the full rollout expected to start no later than in 2026. The largest piece of the development work that we have for North America is integrating our system into all the U.S. and Canadian OEMs. We have now engaged with the majority of the OEMs that Lithia represent and integration work is well progressed with a number of these. We are targeting to have the majority of the North American OEMs integrations completed by the end of 2026. Having now bought Lithia out of their share of the North American JV, we are well placed to now sign further customers in the U.S. and Canada and have a number of leads on our official U.S. launch at the February 2026 NADA conference that we are now currently working through. Moving on to Slide 15 and an update to our recent U.K. system implementation. Our team have done a brilliant job so far on the Lookers implementations, working alongside the Lookers team to ensure the Pinewood platform rollout goes as smoothly as possible. It started in mid-2025 and will continue through 2026. We are pleased that the Lithia U.K. team are seeing the benefits of having Pinewood.AI in all the dealerships, and we continue to work with them to help drive their business forward. We are looking forward to starting the Marshalls implementation in the second half of 2026. The Marshall and Pinewood teams have worked together extremely well in the planning phase of this project. We continue to expand our range of products and offer all of these to our existing customers to help them drive their business forward by both increasing productivity as well as increasing efficiencies by using the Pinewood products. On Slide 16, we set out our progress in our priority growth markets outside the U.K. and the U.S. We set out some key geographies in our strategy at our Capital Markets Day in 2024. Japan and Southeast Asia, Central Europe and South Africa. The Porsche Japan rollout started well in December 2025, and we are working well with the Japanese Porsche dealers to work through the rest of the implementations during 2026. Once the Porsche dealers are completed, we will move to the Volkswagen dealers in Japan. We have ongoing discussions with a number of European customers, most of which are based in Central Europe. We have fully integrated our South African business into the group following the buyout of our South African reseller in mid-2025, and we are looking at different ways to grow our revenue streams in South Africa. We bought out our final reseller in the Netherlands in February 2026, and we're currently in the process of integrating the team into Pinewood. To wrap things up on the operating highlights, I just want to repeat some of the characteristics that make our market so compelling. All car dealerships need not only a DMS, but also layered apps associated with it. At Pinewood, we offer all of this, and we are in a position to offer car retailers all the software they need. Our average customer tenure is 15 to 20 years is a testament to how embedded our system is within our customers' work streams. Switching DMS is a long process and works in our favor for existing customers. But for potential new customers, we offer something no one else does. Being part of an auto retail group for over 25 years has given us a competitive advantage over everyone else, something that no amount of money or investment can replicate. In addition, our now fully embedded AI features differentiated us from everyone else. We are in a unique position to help our valued customers navigate a time of increasing demanding environment from a security and compliance viewpoint. Pinewood.AI offers something no one else is capable of providing. Finally, on to Slide 19. In the U.K., we will continue to work closely with the Lookers team to manage the rollout through completion in Q4. We are also looking forward to starting the Marshalls rollout later this year. As we've talked through, we have made significant progress in North America on both OEM integrations and on testing the system in the U.S. The opportunity in North America is considerably larger than any other part of the world. So scaling here as quickly as possible remains a top priority for us. Finally, our FY '28 guidance is unchanged at an underlying EBITDA of GBP 58 million to GBP 62 million, which is underpinned by our strong visibility from existing contracts, including the $6 million contract with Lithia North America as well as a number of other signed contracts. Thank you, all members of the Pinewood team for driving us forward as a group. Thank you for joining us today. We welcome any questions. Operator: [Operator Instructions] Our first question this morning is coming from Oliver Tipping calling from Peel Hunt. Oliver Tipping: Can you hear me? William Berman: Yes. Oliver Tipping: I've got sort of 3 different questions. The first one relates to -- I think you said Lithia is going to sort of go live in terms of revenue at some point in 2026. So I just wanted to understand exactly how far through the capital investment being made to make that product sort of fit for market in North America we are and how we expect sort of CapEx to move over the next 2 or 3 years? And are there any tools internally you're using that's improving your development efficiency? The second question is that broadly my understanding is the U.S. is built on a per rooftop basis. in the U.K., there's a larger per user element. So I was just wondering what the rough split was for the Lookers and Marshalls deal between per rooftop and per user. And then lastly, I noticed that there was a court case. It wasn't involving you guys, but Asbury and CDK went to court about their switch to Tekion, and they won that court case. Tekion and Asbury won that court case. Do you think that precedent will make it easier for you to win share in the U.S. in the future from the sort of incumbent North American suppliers? William Berman: So Ollie, I'll kind of go in reverse order. So we really can't comment on somebody else's lawsuits and stuff like that. What I can tell you about that is -- and obviously, if you would assume the ruling is -- they're going to go at it again. So they're going to appeal it. But at the end of the day, the dealer owns their data. We manage our dealerships that way as well. So in our case, dealerships data is their data to do what they want, and we allow them to facilitate whatever they need to do on that piece. As far as being able to open it up, just because you have open access to the data that doesn't necessarily mean it's in an easily digestible way to move over. We have created technology more specifically through our AI offerings to be able to facilitate that real time, whether we're pulling from a dealer group's data cloud on their own data stack or directly from a different core system DMS provider. But I do think going forward, you're going to see more and more open data stacks and as such. On the pricing models, obviously, it varies greatly by which part of the world you're in. Europe still goes primarily off of SaaS-based pricing. All of our pricing is going to be going to a rooftop and modular basis over time. And there's multiple positive reasons for that. Some things are just specific to a brand, and there's no way to actually charge it out on a per user basis, OEM integrations, certain updates, certain facets of it. A lot of AI functionality wouldn't be charged in a typical SaaS pricing. So it would have to be a rooftop charge. And one of the key metrics that are key attributes that we bring into the marketplace is being able to help dealers reduce their cost. And oftentimes, that is by automating certain non-revenue-generating noncustomer-facing processes, and it is such lowering a per user count. And it would be counterintuitive to sit here and continue with a per user basis when one of your key tenets is to try to reduce the number of users that exist that way. As far as -- we're not disclosing the exact amount that we spend in one market for development. But I'll just keep in mind that we are on a single code base. And oftentimes, things we do for one market transition and go into another market. and/or it can just improve the current functionality to the system that exists today. So we've got some great accounting platforms and different things that we've used -- that we found up in the Nordic countries and that we use in different places of the world, dynamic accounting and as such. There's lots of different tech solutions in North America and the ways of doing business that we could -- we would think would help other parts of the world, and we'd like to bring that over. Obviously, going into North America is a big endeavor. So while our CapEx has grown to us, we've just replatformed over the last 24 months. We've now put hyperscaling in. We've got all the certifications in progress with the U.S. OEMs. That would be something specifically that would represent North America. But say that piece, I think our CapEx is going to be pretty much where it is with the exception of being opportunities to go into new markets and/or investments into new and more dynamic products as we go forward. Operator: Next, we go to Damindu Jayaweera of Peel Hunt. Damindu Jayaweera: Sorry, Peel Hunt is asking too many questions probably. The thing I wanted to ask you, Bill, is that, obviously, I think you guys have done the right thing by making that Seez acquisition at the right time. It's interesting to see Keyloop loop also making or trying to make a similar acquisition or has done so in Motortech.ai. And so obviously, everybody is kind of trying to move towards AI, embed AI. I was listening to your Full Throttle podcast when you were over in the U.S. for the NADA conference. In there, obviously, you were kind of reiterating the fact that you don't want to do what everybody else is doing, which is just putting chatbots on top and the AI has to be embedded deeply. And when you look at your product page, I saw there's a nice video about how Seez DNA is going to permeate through the full product stack. The thing that slightly kind of confused me not listening to you, but listening to Jay at Tekion is in their NADA conference, it almost felt like he was playing down kind of Whizbang AI functionality, and he was trying to talk to the core of the single truth, the security layer, trying to move from -- trying to preserve the importance of system of record I kind of remembering, but I'm just trying to get to how you are trying to position Pinewood when you are talking to potential target opportunities when everybody is just talking AI, AI, AI all the time from Nextlane to even the constellation assets. William Berman: Yes. So listen, I can't really going to comment what any of our competitors would say out there. I can tell you this, the one thing in automotive, whether it's on the retail side, the tech side or the OEM side, of things -- the best of ideas are often replicated. I will say this with Jay, I completely agree on system of record and the core data stack that goes along with that and the importance of that. To -- the statement that you made maybe are different things here. I look at AI being able to utilize that core data stack and then being able to do new and exciting things with it. So the one thing with a platform like ours is without having to have a plethora of layered apps and disjointed data stacks and disjointed functionality and having 20 windows open simultaneously and to the best state possible having the fewest number of non-OEM integrations to be able to facilitate a smooth and easy transaction for both the customer and the dealer, I think, is a real differentiator. Where I see AI coming into it is AI is going to be able to do things like a system of record, a core enterprise-level accounting platform. Even as simple as ours is to operate, they still could be very complex. And we've already embedded our AI into that. And now the AI can answer questions for a user and be able to show you how to use the system. Where I see -- I'm starting to use AI is being able to do predictive indexing, being able to help a customer be able to schedule an appointment to maybe get the car service, but be able to do it in a way where not only do we -- does the shop have the availability on the side of individual writing up the service adviser and as such, but also being able to make sure that we have a technician that's available that has the appropriate skill set to work on that car. Oftentimes, appointments are made because there's an hour open in the day, but that technician might not have the qualifications to work on an electric vehicle, for example. I'm starting to do things like that. Do predictive indexing to engage with the customer when their car is going to need their next servicing or being able to directly when it comes to recalls and as such without having to use phone rooms and operators and humans to see here and try to facilitate things like that. I can see it being able to sit here and assist the customer journey. But at the end of the day, that core data stack, that system of record, that enterprise-level accounting platform with full integrations into the OEMs is the nucleus for everything. And any AI is only going to be as good as the data that it has access to. And to your earlier point, that's why I'm not quite as big of a fan of the layered apps approach and sitting on top like a chatbot because at the end of the day, they're pretty similar and they're accessing the same data streams when you have a data set like we have and the plethora of information that goes along with that, it really changes the operations and the value proposition that AI can bring. But AI is going to be additive. I do think it will be transformative. And I think you're going to be pretty wow by what's going to come out over the next 12 to 18 months when it represents to that with Pinewood and Seez. Damindu Jayaweera: I just have a follow-up question. So obviously, your biggest opportunity is the U.S., but I'm also really interested in the European opportunity you have. I think you've always talked about the fragmented nature of the European market. There are a bunch of products that are coming to end of life. But now as you described, AI is actually making use of these tools a little bit more easier. So the learning curve of adopting a new piece of software might be easier. Then on top in the last couple of months, obviously, people are seeing scary headlines about cybersecurity. So do you feel like the ability for you to probably run harder into the European market is now stronger than it was 12 months ago. I mean you obviously bought in Netherlands the Dutch distributor. And I know you have hiring plans in place from Germany. Just some commentary around kind of competitive landscape and if it's become easier in your head to crack the European opportunity? William Berman: Well, I don't know if I'd say easier, but the demand coming out of Europe, Asia, Africa and South America is growing exponentially day by day. OEMs are looking to go about things in a different way. Several franchises that -- sorry, several OEMs that we've engaged with have talked where they have upwards of 200 different OEM integrations, and it's just impossible to manage all those effectively. OEMs want fewer integrations into DMS systems, and they want more advanced systems that are out there. Cloud-based systems like ours are definitely appealing to them. So they want fewer. They want people that can sit here and operate on a worldwide basis. And to your point about -- and we call it assist that's built into our system where you can really just ask the system how to operate itself is a big differentiator. Our system is also language agnostic. So you can work multiple languages within a single dealer group even within a single store. So yes, I do think that. I think into the example that you bring, the European market is very fragmented. You have lots of local players in there that solutions are built specifically for a geography, and I just don't think those are going to stand the test of time. And I think you're going to need -- kind of like you've seen with consolidation within the retail network within dealers, I think you're going to continue to see consolidation within the tech stacks that the OEMs are going to be willing to integrate with. And ultimately, I think that will help drive opportunities for platforms like Pinewood.AI to be able to engage into there. And more specifically within Europe, you're right, there are several burning platforms, end-of-life, unsupported systems out there. And I think that gives us a huge opportunity. Now that said, North America, by far, is the biggest automotive retail market, especially on the technology side. So it's going to be a key focus, but we're never going to forget our roots and the geographies we already operate in. And in a perfect world, we want to continue to grow in our key markets close to our head office, the opportunities in North America, but then to be able to continue to grow in Africa and Europe, Asia and maybe even with the timing right, maybe even into South America. Damindu Jayaweera: Well done on what you've achieved over the last 2 years. It's great to see a vertical software actually company thrive in the age of AI. Cheers. William Berman: I appreciate you saying that. The team has done an absolutely wonderful job. So Ollie and I get to stand upfront, but there's 400 people that are doing the heavy lifting. So I appreciate the kind words. Operator: [Operator Instructions] We'll now go to Andrew Wade calling from Jefferies. Andrew Wade: A quick one from me. You talked about sort of competitive moat versus generic AIs in your RNS there. Just be interested if you could flesh that in particular, you sort of talked about the benefits of 20-plus years of experience and you talk about the challenges of integrating with the OEMs. So if you could just talk a bit more about why that is a challenge and perhaps reference some of the -- some of what you had to go through in the U.S. to get it done to the extent you have out there. William Berman: Yes. So Andy, so it's a good question. So the weird thing is you would think that if you integrate with a certain OEM that, that integration would work anywhere in the world. And what you find is that's the farthest thing from the truth. You can be in parts of Central Europe and have 4 countries touching each other and have 5 different integration levels with a single OEM. And so what you find is like going into North America, we're going to probably end up running nearly 1,000 different integrations to get all of the key OEMs fully integrated. Now lots of them have multiple integrations. So it's not 1,000 different OEMs, obviously, but it can be quite complex. And there is a huge differentiation even in some cases, between Canada and the U.S. So it's not the difficulty of doing it. It's just the sheer volume of work. Currently, we're pacing to have by the end of this year, 90-plus percent of the volumes that exist within North America have to be fully integrated on the OEM side and already have the certifications. And that really opens up the pathway for us to be able to expand outside of the Lithia deal and add additional U.S. dealers on in a relatively short period of time. You talked about the moats, and I'm glad you brought that up because obviously, everyone saw kind of the SaaSpocalypse on February 4 with Anthropic and Cloud coming out there and kind of disrupting some of the legal platforms that exist out there. A platform like ours puts us in a really unique position. You talked about the OEM integrations. That's one of those things where as big of an advocate I am in the company is for AI, I don't see how AI is going to be able to sit here and build OEM integrations. If it's 1,000 integrations for the U.S. to replicate that one worldwide. I also don't see the OEMs open sourcing or letting AI agents come in and start doing integration work. Having an enterprise-level accounting platform once again that has the integrations with the OEMs that is multi-jurisdictional in 40-plus countries to be able to do that way. These are things that at least in the near to midterm future, there are just things that an agent, an AI agent just isn't going to be able to do. And we have quite a few moats that kind of work around us and protect us on that piece of it. But there are also competitive advantages as we engage with new potential customers as we continue to work with our OEM partners, and we continue to expand our footprint worldwide. Operator: We do have another question just came in, and it will be coming from Alex Short calling from Berenberg. Alexander James Short: Two questions from me. First one, obviously, some really useful new disclosures to help us understand how much of that GBP 60 million target is already underpinned. I guess my question is around capacity and what -- how much Pinewood has around current and future implementations. So on one side, has the delay to Marshalls made things tighter in FY '27? Or conversely, has that allowed you to get ahead on Lookers and in North America? And on the other side, there's obviously a lot more potential market share out there currently held by legacy peers. Would the company have the implementation capacity in the event of a new contract win, say, in a new region where you need new OEM integrations? William Berman: So it's a good question. Not specifically within Marshalls or Lookers, our implementation team that's based in the U.K. for -- at least for the U.K., we're able to flex our capacity and the ability to sit here and put additional dealer groups on. So while the delay in Marshalls doesn't really change that much, might free up a little bit of resourcing to sit here and go a little bit quicker with the Lookers. But we have other contracts, obviously, besides Marshalls, Lookers going on. So it just opens up capacity on that end. Normally, the biggest thing that limits the speed that we can do an implementation is normally on the customer side and working around their time lines. In the U.K., for example, you normally don't do integrations in March and September because they're big retail months. So in that case, we might take some of that resourcing in the U.K., maybe move it into Central Europe to help with implementations on that site. I'd say the one thing as we go forward and we continue to grow our business and our capabilities and our tech stack is how we've started to use AI to help simplify the implementation. So the biggest piece of implementation is actually transferring the first is laying out the accounting stack that the current group is working on. There are certain nuances to every group in the way they operate. And while not every group has a bespoke platform that we help build for them, but then at the end of the day, there are nuances. But the biggest piece is extracting the data out of their current system or systems and then putting it in. We've just now started to utilize AI to do something that used to take a couple of weeks to do to get it down to taking a couple of minutes to do. I talked to you about on the call at least about using Assist, our AI agent that's embedded in the platform that's able to help you operate the system where you can be asking a question, how do I stock in this car, and it will give you a detailed pathway to be able to go do that. And in the relatively near future, that same capability, the system will be able to do it for you with a handful of prompts, be able to do it that way. So it really reduces the training time down significantly on new implementations as well as the way the system has been designed. It's very intuitive. It's all menu driven. And if you've used any Microsoft products in the past, and can read use a mouse and use a menu, you can operate our system in a pretty short period of time. So we're using our experience, our current tech stack, some of the innovative things we're able to do with the Seez tech stack and get it where implementations can move very, very quickly. Alexander James Short: Great. Maybe one more, if you don't mind, perhaps, Ollie. We obviously have clarity around the FY '28 EBITDA target, but maybe you could run through in a bit more detail your expectations for how cash margins trend through to '28 and the sort of CapEx and working capital dynamics around that. I appreciate you don't want to get too specific on the CapEx side. Ollie Mann: No, no, that's right, Alex. Good to hear from you. So yes, from a working capital point of view, I think we've touched on it before, as we grow our customer base, we do get an advantage from this because we invoice our customers quarterly in advance. This is for the recurring revenue and the majority of our revenue is recurring. So we will get a benefit from that. So as we get into FY '27 and FY '28, there will be a significant working capital benefit. So in FY '28, we're talking GBP 12 million, GBP 13 million of benefit there in that year. From a CapEx point of view, I think Bill touched on this. The underlying CapEx or standard CapEx is very much being one code based as is. There is -- exiting this year, we have been doing the OEM integration work with the U.S., which we're in a good place with. I think we've mentioned that we're anticipating having the majority of that done during 2026 or by the end of 2026, which is great, and it allows us to effectively sign any U.S. customers. So we're in a good place with that. So they will once we annualize the CapEx, there will be a slight tick up for '26 and '27. But the net impact of those movements is of the GBP 58 million to GBP 62 million underlying EBITDA, we expect sort of high 40s of that to drop through from a net cash position. So we're talking GBP 45 million to GBP 50 million of cash in FY '28. Operator: As we have no further audio questions, I'll turn the call over to Henry Wallers to take any questions submitted by the webcast. Henry Wallers: Thanks, George. Yes, we've got 2 questions from Investec with regards to total contract value. So Roger says, thanks for the total contract value metric disclosure. What's the assumption being made on average customer lifetime, please? Presumably, this can end up being many years, if not decades. So what is the cutoff being used? And then the second question on TCV is, broadly speaking, what's the subdivision of total contract value number between subscription maintenance type businesses and implementation/service business? Ollie Mann: Yes. Thanks, Roger, for those questions. Yes, just going in reverse order. So in terms of the split between recurring and implementation revenue, it's all recurring revenue. So we don't put any implementation revenue into that figure. So it's from the contracts, the customers that we signed and they are not implemented. It's just the recurring element of that revenue. And in terms of a cutoff or lifetime, the assumption is we haven't put a lifetime on it. And the reason being for that is the only time we really lose a customer is generally through M&A activity. So if we've got a customer with, say, 5 dealerships and they get bought out by someone else with 50 dealers who are on a different competitor system, that tends to be the only time that we lose a customer. So we're working on the assumption that most of these customers in the total contract value are big enterprise size level customers, the majority. So the assumption is that they're sort of lifetime customers and there isn't a cutoff. We haven't put a 10- or 15-year lifespan on. Hopefully, that makes sense and answers the questions. Henry Wallers: I think that's it, Bill. So good to... William Berman: Perfect. Listen, thanks, everybody. Kind of like I said earlier, when I was talking to Andy, I just want to give a reminder that even though Ollie and I could sit here and take the lead here, this is all a testament to the hard work of the 400-plus employees that we have worldwide. And this is probably the oldest start-up ever, and we look forward to even better performance in the half years and the years to come. Thanks, everybody.
Operator: Good day, and thank you for standing by. Welcome to the Tele2 Q1 Interim 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 speaker today, Jean-Marc Harion, President and Group CEO. Please go ahead. Jean-Marc Harion: Thank you, and good morning, and welcome to Tele2's report call for the first quarter of 2026. With me here in Stockholm, I have Peter Landgren, our Group CFO; Nicholas Hogberg, our Chief B2C Officer and Deputy CEO; and Stefan Trampus, our Chief B2B. Please turn to Slide 2 for some highlights from the first quarter. In Q1, group end-user service revenue grew by 3%, whereas underlying EBITDA grew by 11%, marking the fourth consecutive quarter of double-digit growth. We also continue to generate strong equity free cash flow with SEK 2.2 billion in Q1, plus 7% versus last year. Our Baltic Tower transaction was completed by the end of February, generating cash proceeds of SEK 4.7 billion to Tele2. And we also opened 5 new stores in Sweden in Q1 and upgraded our fixed network to 2.5 gigabit per second, a record internet speed, which are already available across many of the largest cities, including in Stockholm. With our 5G already recognized as the fastest in Sweden, we now operate the fastest networks in the country. Please move to Page 3 for more details on our results. Our 3% growth in end-user service revenue was driven across all our operations and core services. Our 11% growth in underlying EBITDAaL was driven by both transformation and revenue growth. Our strong equity cash flow or free cash flow, which grew by 7% year-on-year was largely driven by the increase in our operating cash flow. Peter will go through the details. CapEx to sales declined seasonally, partly due to lower 5G rollout speed in Q1. Leverage fell to 1.5x due to the Baltic Tower transaction and organic cash generation. In Sweden Consumer, end-user service revenue grew by 1% with contribution from all main services. In Sweden Business, end-user service revenue grew by 5%, driven by mobile and IoT. Our Baltic operations grew end-user service revenue by 7% and underlying EBITDAaL by 15%. Let's move to Slide 5 for more details on Swedish Consumer. As commented in the CEO letter this quarter, we combined store expansion with rapid progress in AI and automation, improving customer experience, operational efficiency and our ability to anticipate customer needs. Mobile postpaid end-user service revenue grew by 3%. Total mobile revenue grew by 2%, partly offset by continued decline in prepaid and some temporary issues due to the move to our new logistics platform. Fixed broadband grew end-user service revenue by 1% due to ASPU growth. Digital TV once again improved sequentially, driven by healthy high single-digit growth in Tele2 TV end-user service revenue, more than offsetting the latest impact of Boxer TV switch off. Let's look at consumer KPI on Slide 6. Mobile postpaid RGUs remained unchanged in Q1 despite temporary negative impact related to 2G, 3G shutdowns. Mobile ASPU increased by 1% year-on-year, driven by price adjustments, while still negatively impacted by IFRS 15 fair value adjustments, which will gradually abate during the year. Fixed broadband RGU declined slightly in Q1, while ASPU grew by 1% due to price adjustments. As in previous quarter, we have remained selective in parts of the market due to continued aggressive competition, which hampered volume growth. TV RGUs increased by 4,000 in Q1 as the good growth momentum in Tele2 TV has continued. ASPU grew by 5% year-on-year, driven by pricing and cross-selling of sports content improving the success of our flexible offer. Please move to Slide 7 for Sweden business. Sweden business continued to deliver strong end-user service revenue growth, reaching 5% in Q1 despite strong competition. Mobile grew by 8%, largely driven by our IoT business, which is expanding in new industries such as the automotive sector and geographies, for example, in Latin America. Mobile RGUs increased by 3,000 in Q1, ASPU continued to be impacted by change in customer mix. B2B solutions grew by 3% in Q1, reflecting our decision to focus on a more targeted portfolio of services. Please move to Slide 8 for Sweden financials. In total, Sweden end-user service revenue grew by 2% in Q1, driven by both business and consumer. Underlying EBITDA grew by a solid 9%, driven by the end-user service revenue, workforce reduction, stricter prioritization and cost control. The cash conversion has improved to 73% over the last 12 months. Let's move to the Baltics financials on Slide 10. Baltics once again maintained strong top and bottom line growth in Q1. Total end-user service revenue grew by 7%, partly supported by previous price adjustments. Q1 was the fifth consecutive quarter in which all Baltic markets delivered double-digit organic growth in underlying EBITDAaL, delivering a total growth of 15% pro forma the Baltic Tower transaction. It is worth commenting that our Baltic operations started accounting the cost of Baltic Tower company in March 2026. Cash conversion based on the last 12 months stands at 80% despite the impact of the Tower transaction. As you know, a spectrum auction has already been announced and will take place in Lithuania in 2026. Let's move to Slide 11 for Baltic's operating KPIs. The total postpaid base in the Baltics increased by 17,000 RGUs in Q1, driven by all markets. Prepaid decline was due to regulation and migration to postpaid. Blended organic ASPU grew by a strong 10%, driven by price adjustments and continued prepaid to postpaid migration. With that, I hand over to Peter, who will go through the financial overview. Peter Landgren: Thank you, Jean-Marc, and good morning, everyone. Please turn to Page 13 and the group income statement for the quarter. Total revenue grew, thanks to organic service revenue growth of 3% with contribution from all operations. Underlying EBITDA grew by 10% organically or 11% after lease, thanks to the sharp cost control across the group and the contribution from service revenue. Items affecting comparability were mainly impacted by redundancy costs related to workforce reductions. Last year, the corresponding redundancy provisions were more significant as you might recall. The gain from sale of operations of SEK 5.1 billion refers to the capital gain from the Baltic Tower transaction completed at the end of February. Net financial items decreased year-on-year, mainly thanks to higher interest income and positive currency effects. In Q1, our average interest rate was 2.7% with a debt mix of 73% fixed rates and 27% floating rates. Income tax increased year-on-year due to higher taxable profits. Let's move to the cash flow on Slide 14. CapEx paid, excluding spectrum decreased compared to last year, mainly due to lower intensity in the Swedish 5G rollout and reduced workforce. The decline was also impacted by delayed hardware supply with an expected catch-up later in the year. Spectrum CapEx paid increased due to the first out of 2 payments for the Swedish spectrum secured in 2025. Changes in working capital contributed to the cash flow with around SEK 450 million, largely driven by seasonal decrease in equipment receivables. Taxes paid increased since last year included a tax refund of around SEK 280 million, while the corresponding tax refund this year was around SEK 50 million. In summary, Q1 equity free cash flow reached SEK 2.2 billion, which implies a 7% growth compared to last year, and this translates to around SEK 9 per share over the last 12 months. Please turn to Slide 15 for our capital structure. End of Q1, economic net debt was SEK 17.4 billion, a reduction of SEK 6.9 billion compared to end of 2025. This was driven by 2 things: the cash proceeds of SEK 4.7 billion from the Baltic Tower transaction as well as the SEK 2.2 billion generated in the business. And this brings down leverage to 1.5x underlying EBITDA after lease ahead of the proposed dividend distribution. And with that, I hand over to Jean-Marc for some comments on our 2026 guidance. Jean-Marc Harion: Thank you, Peter. Please turn to Slide 16 for 2026 guidance. As highlighted last quarter, we concluded 2025 by setting a high standard and establishing a new reference point for Tele2 profitability. Building on that momentum, we remain focused on consolidating the company's transformation further strengthening profitability and safeguarding revenue growth in the face of continued geopolitical uncertainty. We, therefore, maintain our full year guidance for 2026 with low single-digit organic growth of end-user service revenue, low to mid-single-digit organic growth of underlying EBITDAaL, CapEx to sales in the range of 10% to 11%. Note that the organic growth rates include the impact of the Baltic Tower transaction on a pro forma basis. And I hand back to Peter for some additional comments regarding 2026 before we open up for Q&A. Peter Landgren: Thank you. First, a reminder about the Baltic Tower transaction. As previously stated, the transaction is expected to have a negative impact on underlying EBITDAaL of around EUR 35 million on a 12-month basis. And in Q1, this only impacted March, while we'll see the full impact onwards. And then a few reminders on the cash flow for the full year 2026. On spectrum, we noticed that an auction has been announced in Lithuania expected to take place during 2026. On financial items, excluding leasing, we still estimate full year net payments of around SEK 650 million with a similar quarterly phasing to last year. And finally, on taxes, we still estimate full year payments of around SEK 1.4 billion. And with that, I hand over to the operator for Q&A. Operator: [Operator Instructions] And our first question comes from the line of Ondrej Cabejsek from UBS. Ondrej Cabejšek: I had a few questions on Sweden and specifically mobile, I guess, please. So I am looking at the mobile trends specifically in postpaid. And if you could please talk about -- I guess, you mentioned previously that you put through price rises this year about a month earlier than last year that the market has been kind of improving. So I think we would have maybe expected a bit more of an acceleration. You mentioned also that there has been some kind of legacy negative impacts on mobile. So if you can talk about the growth rates for postpaid Sweden specifically and how you see those throughout 2026. And second question, if I may, also related to this, but maybe from a different angle. You've obviously put with the new portfolio on mobile, you seem to have a very stable base in the quarter on postpaid against some price rises specifically on like family plans, which I think are very important. So how is the reception then and again, tied to how we should think about the service revenue kind of profile for the rest of the year? Jean-Marc Harion: Slight technical issue, but we continue the Q&A session. Just to answer your first question first, and then I will hand over to Nicholas to develop on the portfolio and the new pricing. But of course, the price adjustment that we implemented a little bit earlier this year, of course, has a progressive impact, and it's as always, mitigated by the BTL discount, the different segment that -- where these price adjustments are adjusted for. I believe that the second question is more relevant to be answered by Nicholas about the postpaid portfolio now and the positioning and how we see the competition, not only, I would say, with the other operators, but with the sales distributors as well. Nicholas Hogberg: So thank you, Jean-Marc. This is Nicholas. Yes, the new portfolio has been very well received. We have simplified the portfolio radically, which is good, and we have also continued to build Frank. And of course, as you know, we have started somewhat a repositioning of Comviq with Jattebra, very good, and it's actually working very good so far. So what we can see is that it's still a fierce competition and a challenging market. We have been restricted to engage in the price war, especially when it comes to the no-frills brands. They are pushing the market really hard. But we see that our new portfolio is working well and that we -- our position in the market becomes clearer and clearer. Then when it comes to our distribution, we have launched 5 new stores during the quarter, and they are working very well, and we think that, that's the way forward for us. And we also see that we are less dependent on third-party distribution. Ondrej Cabejšek: If I may maybe follow up on the last point. So is it a case of maybe you are -- as you kind of reposition the distribution channels, is it a case of maybe there will be slightly weaker volumes this year, but profitability will benefit as a result? Jean-Marc Harion: Yes. Let me -- Jean-Marc here again. To complete what Nicholas was commenting, of course, we are operating in a very competitive environment in Sweden on the consumer market. We like this kind of competition. We have 2 strong brands to compete with the others. One of the specifics, and this is a comment that I already made several times, one of the specifics of the Swedish market is that the competition is distorted by the behaviors of some sales channels, which are too important, overwhelming on the volumes, for instance, telemarketing. So that's probably what you were referring to. We made a very clear statement last week supporting stricter rules for telemarketing operators. But we believe that this stricter rules should apply as well to other channels, third-party retailers where we have as well received a lot of complaints from our customers. So this, in my view, is one of the focus -- one of the priorities for the industry in Sweden and, of course, for Tele2 in the coming few months. Operator: Our next question for today comes from the line of Fredrik Lithell from Handelsbanken. Fredrik Lithell: I would like to come back to your cost profile and the good cost control you are driving the company with. A little bit more on the sort of the software stacks. You alluded to that in the report that you're working your way through with automating the software stacks and all that stuff. How much of that upgrade, modernizing, automating your software environment will sort of trickle through in improved cost profile over time as well? Or is this that sort of you get into a modern state with your software and the cost will be pretty much the same to drive it. It would be interesting to hear a little bit more color on that. Jean-Marc Harion: Okay. Thank you for your question. It's a very complicated exercise to answer your question in a few minutes in this Q&A session because, of course, now, for one simple reason because it's an ongoing transformation process. We have a huge potential ahead. And I believe that Tele2 is leading the pack in the AI and automation initiatives. We received recently an international award for the automation of our processes. We have built -- in parallel, we were optimizing the organization in the company. We have created a dedicated data and AI team. Of course, one of the purpose is to help us better understand the customer behavior, anticipate their issues and make the support to these customers smoother and more faster and more transparent. But we have engaged into a huge transformation of all our processes. So we have a series of initiatives, internal initiatives that empower the managers and the employees to automate their own processes. So we have created a kind of library of tools and small internal academy to support automation and AI initiatives. And furthermore, and I believe that, that is more relevant with the content of your question. We started applying agentic coding in our development. And this, of course, is a huge opportunity because it accelerates the delivery and lower the cost of the development. We haven't seen all the potential of this initiative yet, but I'm personally very impressed by the first results that we are delivering. So far, we don't have any number to share with you. We are just trying to unleash the potential of agentic coding internally to accelerate our transformation. Fredrik Lithell: Very clear. Can I have a follow-up on that, Jean-Marc? Do you expect that you will see the biggest effect or maybe the earliest effects within your production. Or will you see it within your support systems or support functions, I should say. Where do you see the early signs? Jean-Marc Harion: No, we -- I believe that we already see it in the customer interaction because that's where, of course, we put our priorities. We want to improve our knowledge in order to better understand the needs and the issues faced by every single customer segment. But the automation and the development is evolving fast as well, including in the support of our B2B customers. And that's because, of course, I should have mentioned that the automation of our processes started in the B2B area last year when we started trying to automate the processes that we have in place in order to support our large accounts. And this is from there that we have developed this automation academy and so on. Operator: Our next question comes from the line of Andreas Joelsson from DNB Carnegie. Andreas Joelsson: Two questions from my side. First of all, Jean-Marc, your comment about the macro situation currently, how does that impact your growth plans and growth ambitions for the year. Has there been any changes to that given what you see around you? And does it also make you more eager to look further to the cost side and CapEx side? And secondly, just curious, given a quite strong start to the year with 11% EBITDA growth, how did you reason when you decided to keep the EBITDA outlook unchanged? Jean-Marc Harion: Okay. Thank you, Andreas. I believe that the 2 questions are linked. First, so far, the telecom industry has not been the one most impacted by the international situation. So that's good news. But in the meantime, we see a sharp increase in the price of the component of IT equipment. So this may impact our cost, CapEx and OpEx in the coming months. But so far, we can deal with the situation, but this price increase in the component is a concern for our industry, not only for the telecom industry. But of course, the major focus we have is about the consumer behavior. So far, the Swedish economy was recovering, but still lagging behind in terms of consumer consumption. The international situation will probably create some tension as well in the customer behavior and appetite to spend. We will see. We are just careful. And so far, so good. But if the situation lasts, then we will need to adjust. And this is why we are very happy to have transformed the company last year so that we are agile and reactive again. So we can react very fast. We have a much leaner cost structure that help us adjust if necessary. And that explains as well why for the time being, we are careful with our guidance. Operator: Our next question moment comes from the line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: Just a follow-up there on the guidance and given the strong Q1, what would you say needs to happen or not happen for you to reach the upper end of this EBITDAaL guidance or even beat it? Jean-Marc Harion: Just -- okay, Peter? Peter Landgren: Derek, thanks for the question. I think it will be a little bit of a repetition of what Jean-Marc is saying because I think we have elaborated on it. We have the geopolitical uncertainty, which is both on the component side, but also on things like energy costs and FX and things like that, but most of all, the customer sentiment. And to add to the customer sentiment, it's also about the competitive situation, which is, of course, we know where we stand now in April, but it's a long year and it's early days and how that evolves is, of course, critical for our top line evolvement. So that's something to add and that can bring things to upper or lower end, I would say. So that's what I would add. Derek Laliberte: Okay. Got it. And on competition there, has anything changed in terms of the Swedish competitive intensity in the consumer segment? Jean-Marc Harion: Nicholas? Nicholas Hogberg: Yes. We can see that it's a bit of an increased competition, and it has to do with all the product segments. So we can see it both on Voice, but also on broadband and entertainment TV. So we see that there is clearly higher competition in the market during Q1. Derek Laliberte: Got it. And finally, on TV in Sweden, how do you see the growth prospects from here on? Nicholas Hogberg: We have a positive view on the growth prospects for TV, and we feel that we have a strong offer, and we see a continuous growth in TV. Jean-Marc Harion: And the Swedish football team is qualified for the World Cup. So that's good for the business. Operator: Our next question for today comes from the line of Felix Henriksson from Nordea. Felix Henriksson: I have 2, both relating to capital allocation. Just want to hear your thoughts about why not distribute some proceeds from the Baltic Tower transaction given that your balance sheet is in an extremely healthy state at the moment? And secondly, in the report, you mentioned this proposal to regulate the Villafiber market by PTS. So I just wanted to pick your brain if that has changed your mind in either way about making M&A in fiber assets in the future in Sweden. Jean-Marc Harion: Peter will answer the first question. I will try to answer the second. Peter Landgren: On the capital allocation then, I would put it this way that there was a proposal then from the Board, as you know, along with the Q4 release of a quite appealing shareholder return of SEK 10.5 per share, which we assume will be approved by the AGM now in May. So it's sizable and it fits well into our updated financial policy stating that we want to secure appealing shareholder return while retaining our flexibility. On the Baltic Tower transaction, That's, of course, a sizable cash proceed we received now, SEK 4.7 billion. But as we have said before, that's not really turning the needle in terms of dividend capacity because it also affects which leverage we can allow based on our rating. But we, of course, fully agree. We have a strong balance sheet. We see that as something very positive and something that enables appealing shareholder return also in the future. And on top of that financial flexibility and, of course, good interest rates. So we see that we are in a quite good spot. And then, of course, it's up to the Board to conclude how to pay it going forward. Jean-Marc Harion: And as a reminder, the proposal from the Board to the general assembly consists in distributing 118% of 2025 equity free cash flow, which is partly an answer to your question. And regarding the -- your question about M&A and fiber infrastructure. I would say the comment we make is about the -- we made -- is about the progresses made by PTS, the Swedish regulator in the regulation of the SDUs. So this is, of course, a good news for the Swedish consumers. Let's remember that in Sweden, 1 out of 2 households is a villa, meaning that 1 of 2 villa owner today doesn't have access to competitive offer for the fixed Internet. So this will be a big opening and a big opportunity. And of course, we expect to play a key role in the opening of the market. We are waiting for the regulation to materialize, but at least the first publication by the PTS are a good sign, and we expect the regulation to materialize in the coming few months. Of course, the sooner the better. Regarding the M&A, we will see. I already commented that we don't exclude anything. But of course, the assets have to be available at a reasonable price. So far, we haven't any opportunity on the table. We are looking -- we are observing and scrutinizing the market, but nothing tangible, nothing concrete at this stage. Maybe it's interesting to comment that to remind ourselves that the Swedish market is very fragmented at this stage. Maybe some consolidation will happen in the coming few years. It's not the time yet. So let's wait and see. Operator: Our next question for today comes from the line of Keval Khiroya from Deutsche Bank. Keval Khiroya: I've got 2 questions, please. So last year, you made strong progress on renegotiated supply contracts and on the workforce reduction savings. Can you elaborate a bit more on how you think about the source and scope of additional OpEx cuts in 2026? I appreciate you did speak a bit about automation. And then secondly, in B2B, you've again shown strong revenue growth. Last year, you also talked about wanting to focus a bit more on profitability of some B2B contracts or segments. Are you now happy with the B2B profitability? And how do we think about the B2B revenue to EBITDA growth translation? Jean-Marc Harion: Peter will answer on the contract side. Peter Landgren: Yes. Thanks for the question, Keval. On the workforce and also the contracts, starting with the workforce, we had this big transformation last year, as you obviously recall with a reduction of 650 positions or 15% across the group. And that was completed, as you know, in last year. This year, we're moving rather from this transformation phase to more of an optimization where we will continue to stay disciplined in the workforce number and, of course, use the opportunities created by automation and AI, but it's a different phase than last year. And on the supplier contracts, the work continues. Of course, we had a strong start last year when a lot of contracts were reopened with a lot of potential. There is still a lot of potential, but it's not as obvious as last year. But the ambition is the same, the intensity in the supplier renegotiation is the same, and we reap benefit from it. But at the same time, we should, of course, also remind the inflationary pressure that we see in some pockets, especially around hardware, which Jean-Marc has called out. So we keep on working on this just like before, the discipline continues. Jean-Marc Harion: And maybe a short comment about the constant optimization of the organization. So once again, it's a never-ending exercise if we want to keep the company at the best of its efficiency. So we are moving pieces of the organization, [ permanent ] -- because of the -- we are close from the end of the rollout in Sweden. We reshuffled some team in the network organization. In the meantime, we are reinforcing our skills and capacities in AI and data analytics, but it's an investment in order to create more synergies, thanks to the automation. So that's why it's a permanent exercise. To answer your question about B2B, I will hand over to Stefan. But in a nutshell, yes, no, we are happy with the profitability of our B2B activities, Stefan? Stefan Trampus: Thank you, Keval, for the question and also Jean-Marc. Well, the efforts that we've taken in the B2B during last year, but also coming into this year is really broad-based in order to create a better profitability, which trickles down to bottom line, but we're not revealing in the numbers, but we see a significant improvement during last year, but also in this quarter. We have addressed vendor partner negotiations. We addressed organization where we changed the structure. We have done rightsizing of the organization, and it also continued into Q1. We've done some near-shoring of some resources as well during this quarter. We have outsourced some of our production of some of our platforms. We are working on IT modernization, automation, which Jean-Marc was alluding to earlier, which we kick started early last year. We're creating a center of excellence. And we are, as you know, working on the channel optimization in order to drive versus our internal challenge with one of the highlights during the autumn where we closed 60% of our external resellers. So it's really a broad-based approach on improving efficiency. Of course, one part of this is also addressing individual customers and customer profitability. That is something that we're scrutinizing and have a program in place to drive, and it has also yielded results. So hope that gives you some color, Keval, to what we're doing and it's paying off. Operator: [Operator Instructions] Our next question comes from the line of Andrew Lee from Goldman Sachs. Andrew Lee: I had just a couple of questions around some temporary drags on your customer numbers at the moment in Sweden. Just if you could give us a better sense of scale of those drags and what your service revenue growth might be anticipated to be excluding those. So first off, in Swedish mobile, I think you had a drag on postpaid customer numbers from the 2G, 3G switch off this quarter. What scale of drag is that? When should we anticipate that drag disappearing or dissipating? And where do you think your service revenue growth could be without that? And then similarly, you've talked a lot on the fixed broadband side about the drag from not competing in open networks areas at the moment. Your broadband net add number is negative at the moment. If you were competing in the open networks area with a viable wholesale price as you should achieve or at least hope to achieve post regulation, where would you expect your broadband net add number to be? Should it be still negative? Or would it be flat? And what kind of drag do you think that's placing on your Swedish service revenue growth? Those are the 2 questions, I mean, overarching is if you didn't have those temporary drags, where do you think your Swedish service revenue growth would be this quarter as an insight for how we should think about things going forward given that even with those drags, your Swedish service revenue growth was 2.4%. Jean-Marc Harion: Thank you, Andrew. I will try to answer the question together with Nicholas. But to make it clear, the 2G, 3G switch-off took place in December. It impacted some prepaid and low ASPU customers in January. So it was a temporary hiccup. We came with a number of solutions and proposals to support the customers who have the -- who were using noncompatible phone for VoLTE, 4G and so on. Unfortunately, we couldn't reach all the customers for obvious reasons, but it was a temporary hiccup. So it's behind us now. Maybe Nicholas want to complete and elaborate on FBB and competition in the open networks. Nicholas Hogberg: Yes, absolutely. Thank you, Jean-Marc. So what we see is that some of our competitors is actually quite aggressive now in the broadband space and in the open networks. We even see competitors are selling right now at below cost, which we are not participating in. So when the regulations come in place, we, of course, see an opportunity to expand more and hopefully take market shares. But we are waiting for the regulations to come in place, and then we can get back more on that matter. Andrew Lee: Okay. Can you give us a sense of how many customers you ended up losing from that 2G, 3G switch off? And I get your point on broadband that there's also intensified competition in the space that's also dragging on customers. But is there any sense of giving us -- is there any scope for you to give us a sense of the scale of drag from not being able to compete in the -- or not being able to compete in the open networks there at the moment? Jean-Marc Harion: No. But allow us not to answer the first question about the 2G, 3G drag because, of course, it's an information that we keep for ourselves. But once again, it's a temporary hiccup. It's behind us now. And regarding the FBB, we don't have any I would say, forecast or estimation to share either. Operator: Our next question comes from the line of Nick Lyall from Berenberg. Nicholas Lyall: Just coming back to the cost question, please, for 2026. I mean you mentioned about staff costs and procurement, I think in Keval's question there. But could you give us an idea of the scale of savings available to you? You've got roughly 3/4 of your staff savings done before the end of the first half in 2025. So it feels like the pull-through effect for 2026 is going to be minor. But also how far are you through the procurement process itself. Could you help us on that, please? Because some of the comments about inflation from maybe the geopolitical effects and others suggest there's not a lot to go. So could you help us with the absolute amount of savings you might see in '26 versus '25, please, so we can start to sort out the forecast. Jean-Marc Harion: Peter, can you take this one? Peter Landgren: Yes. Nick, we are not calling out specific numbers, but the flavor around 2025 and '26, of course, as we have said and the main impact or a larger impact was seen in 2025 when we kickstarted this exercise and had some quick wins as well. So we had sizable savings last year. We will see benefits from it this year as well. So it is a contributor, of course, partly flow-through effects, some of it from last year and additional efforts that are doing this year. But the magnitude is lower simply because it's getting tougher and tougher and because we have some cost avoidance to take care of as well. But we're not calling out specific numbers, but it's a high priority also in 2026. Nicholas Lyall: That's great. And the timing of any AI contributions. It sounds like maybe it's a benefit possibly to service revenue, predictability of consumers and things like that. There's nothing we need to think about sort of the AI contribution immediately is there? Peter Landgren: I think it's -- we have benefits from this in different places, obviously, on how we meet our customers and how we approach them. On the cost side, we have, of course, efficiencies to reap the benefits from on how we're working, and we will get savings from that. But it's gradual. We have seen some of it, and we keep working on extracting more savings there. Operator: Our next question comes from the line of Ajay Soni from JPMorgan. Ajay Soni: I've got 2. The first is around business growth, which was very strong, and you mentioned IoT. So I was just wondering, can this growth continue around this mid-single-digit level because obviously, B2B revenues can be somewhat lumpy. And if it is going to continue at that level, what is driving that growth? And then my second question is just back to the costs. So you still had pretty sizable redundancy costs in Q1. So could you tell us what your FTE reductions were in Q1? And I can understand maybe you don't want to give a number, but do you have a target for your FTE reductions for 2026? Jean-Marc Harion: Okay. So let's start with IoT. Stefan, do you want to answer it? Stefan Trampus: Yes. Ajay, thank you for the question. I think I'm going to answer it in a general perspective. And I mean, you're correct, and we talked about it before. We time to time have quarters with some swings due to larger wins, customer wins or larger rollout projects. So that can happen. Overall, I'm really happy that we have a well-diversified portfolio and that over time takes turns in driving the growth. We have a focused portfolio with some decisions that we did last year, but it's still a well-diversified portfolio, which gives us this ability to have growth from different sources. And this quarter, we basically have growth on all product lines and then the stabilization of the fixed part and the fixed connectivity that we saw some quarters ago has continued, driven by deals that we're doing in that domain. And also that we see that there's a need of modernization of networks, indoor networks, et cetera, for the customers. There's modernization in regards to cloud, more capacity that customer needs to bring to their businesses. So this is driving continuous, I would say, need of modernization for our customers, and that helps our growth overall. This quarter, IoT stands out. It's the highest growth driver, which we're happy to see. And it's driven by increased usage, which is a very positive sign. So not directly RGU. We have good RGU development as we've had before, but very much the usage part, which is good to see. And as I communicated before, I think we expect IoT to continue to grow on the basis of more deployments of IoT-enabled devices throughout the world. So that's overall what we see at the moment. Looking forward, I think I commented the profile for the year. I wouldn't say that you should take into account Q4 or Q1 as the level of growth for B2B. You should rather look at the full profile for 2024 when you look at the profile for the full year. You know that we had a really good ending of last year. It's going to be hard and the comps in end of this year will be high. So it's going to be hard to see the same growth rate that we've seen in the last couple of quarters. So look at it from a full perspective of 2025, I would say, going forward for this year. I hope that gives you some color, Ajay. Peter Landgren: And maybe I should -- Peter, I can continue with the second question around redundancies. Yes, you have probably noticed it in our notes that we have redundancy costs of around SEK 40 million in Q1. It corresponds -- to answer your question, that corresponds to roughly 45 people. We don't have any specific targets on downsizing this year. As we have said, last year, we had a big transformation with the 650 people reduction. This year, it's more about optimization. So it will be more of a gradual optimization never ending that will continue. And that's how you should probably look at the workforce side. Operator: Our next question comes from the line of Viktor Hogberg from Danske Bank. Viktor Högberg: Just a continuation on the Tower commitments and the rating agencies. Could you say anything if you got something new on the kind of leverage cap you're looking at following the Tower deal? Is it still 2.6, 2.7? And then another question on the cash flow. Just working capital, do you expect it to be neutral this year. And the CapEx, how much was the delayed hardware CapEx now in Q1 that is going to be caught up during the rest of the year? Jean-Marc Harion: Okay. Peter? Peter Landgren: Thanks for the questions. My favorite questions. Let's start with the leverage or the rating view on this. As you point out or as we've said before, we believe that the cap for our BBB rating is, as you said, around 2.6, 2.7, something like that based on the present context. On working capital, it's clear that this -- we have a clear seasonal effect. We have seen it before. We are, of course, in the holiday season in Q4 with Black Friday and Christmas, we -- and also sometimes also on Apple launch, we're selling a lot of equipment and then it's a bit of time lag before we can get it financed by our financing partner. And that's a very big piece of the working capital upside we see in Q1 and that one, all else equal, will, of course, normalize or bounce back for the remainder of the year. And yes, we see some delays on the CapEx side. I can debate exactly which number, let's call it around SEK 50 million that delay, but it's, of course, a matter of definition. Operator: Our next question comes from the line of Siyi He from Citi. Siyi He: I have 2 questions relating to your fixed business. The first question is really a follow-up on your answers to Andrew's question earlier that you mentioned the pricing competition is particularly intense in the SDU market. Could you just let us have a visibility who are the operators that you see being aggressive on pricing? Are they MNOs or they are more like the ISPs? And the second question is that I wonder if you can tell us if you have seen any changes on the cable trends after you have done the speed upgrades. I saw that landlord revenue are still declining by 4%. Just wondering why you are still seeing all these kind of rental revenues from MTU landlords are still coming down? Jean-Marc Harion: Okay. Thank you for the question. Nicholas is going to answer those. I'm not sure that we want to share information about competition, but Nicholas? Nicholas Hogberg: No, exactly. No. But we can see an overall competition in the market from all the players. So I won't comment that more. When it comes to our upgrade of the network, we see very positive reaction from our customers. And we see also that we have a strong offer in the market with the highest speed in Sweden in our network and with a very good footprint. So we, of course, are very optimistic about that going forward. So that's about it that I can comment right now. Operator: We will now take our final question. And this question comes from the line of Abhilash Mohapatra from BNP Paribas. Abhilash Mohapatra: Maybe just one on the Baltics. We've seen you continue to deliver very strong organic end-user service revenue growth in these markets. I think there was a perception that maybe the sort of price increases led revenue growth might slow in the future. So maybe just -- it would be helpful to hear your latest thoughts on the potential to use -- continue using pricing as a source for growth in these markets? And then secondly, just any color there on your sort of thoughts heading into the spectrum auction that you mentioned in Lithuania. Just any thoughts around the potential size or any context that you can give us there would be very helpful. Jean-Marc Harion: Okay. Thank you for your question. I would say that the way price adjustments are applied in each Baltic country takes, of course, into account the positioning of Tele2 in this country, meaning that we are not doing anything crazy. We are just adjusting when we see an opportunity. We remain very well positioning in terms of price points. And of course, in these markets, the largest part of the sales are done in our own stores. So based on conversation and in discussion with the customers. So I would say it's a kind of very smooth and more and more sophisticated price adjustment that we apply in the Baltic countries. So no risk that Tele2 loses clear position as the best value for money in these countries. Regarding the auction, the spectrum auction in Lithuania, I believe that the message that we wanted to convey here is that please don't forget about this auction in your computations. But so far, we don't have any indication of the price, and we cannot, of course, comment on the details of the auction. Operator: That was our final question for today. This concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.
Operator: Thank you for standing by, and welcome to the Paladin Energy Limited March 2026 Quarterly Results Call. [Operator Instructions] I would now like to hand the conference over to Paul Hemburrow, MD and CEO. Please go ahead. Paul Hemburrow: Good morning, everyone, and thank you for joining Paladin Energy's quarterly conference call. With me today is Anna Sudlow, our Chief Financial Officer; Scott Barber, our Chief Operating Officer; Alex Rybak, our Chief Commercial Officer; and Paula Raffo, Head of Investor Relations. On the call today, I'll cover a brief overview of the quarter, an update on Langer Heinrich, our FY '26 guidance revision, and progress in Canada at Patterson Lake South, and then we'll move into Q&A after that. So a couple of highlights from the quarter. Production at Langer Heinrich Mine was 1.29 million pounds for the quarter, up 5% on the prior quarter, supported by strong plant performance. Sales volume was 1.03 million pounds at an average realized price of $68.30 per pound. We increased Langer Heinrich Mine's 2026 production guidance to 4.5 million pounds to 4.8 million pounds. And in Canada, we received Saskatchewan government approval of the PLS EIS. And we've also continued exploration drilling focused on the Saloon East deposits. More specifically, at Langer Heinrich Mine, mining continued to ramp up with delivery and commissioning of the remaining mining fleet completed and activity was heavily focused on the G Pit. Total mined material was 6.17 million tonnes, up 12% from the previous quarter, and crusher throughput was 1.21 million tonnes at an average ore feed grade of 503ppm. We produced 1.29 million pounds of U3O8 at an average recovery rate of 92%. Ramp-up remains on track for completion by the end of FY '26. We're monitoring potential impacts from the events in the Middle East. Currently, inbound supplies to site and outbound shipments to customers are not impacted, and we're taking steps to maintain security of our key process inputs. On sales and cash, we sold 1.03 million pounds U3O8 at an average realized price of $68.30 per pound. Cost of production was $40.30 per pound, benefiting from utilization of the remaining MG3 stockpile. At 31 March, we held unrestricted cash investments of USD 219.5 million with an undrawn USD 70 million revolving credit facility. Quarterly sales revenue includes USD 47.3 million with cash receipts expected during the June 2026 quarter. And we made a scheduled $4 million payment on the term loan facility, reducing the balance to $36 million. On guidance, following year-to-date production of 3.6 million pounds, we revised Langer Heinrich's 2026 production guidance to 4.5 million pounds to 4.8 million pounds from the 4 million pounds to 4.4 million pounds previously announced. Sales guidance remains 38 million pounds to 42 million pounds (sic) [ 3.8 million pounds to 4.2 million pounds ], and cost of production remains in the same range at USD 44 to USD 48 per pound, while capital and exploration expenditure guidance was revised to USD 15 million to USD 17 million from USD 26 million to USD 32 million. The revised guidance is based on current operating conditions and assumptions and may be impacted by disruptions arising from the current geopolitical events, which we are closely monitoring. Turning to Canada and the PLS project. We received ministerial approval for our Environmental Impact Statement on the 20th of February. It is a really important regulatory milestone and a prerequisite for further permits and licensing leading to the construction and operating permits. On 31 March, we advised that the Metis Nation - Saskatchewan had applied for a judicial review to challenge the decision to approve the EIS, and we'll continue to actively engage in constructive conversations with local communities and indigenous people. We commenced an update of the front-end engineering design study during the quarter. We continue to work closely with the Canadian Nuclear Safety Commission as we progress towards the license to construct. On exploration, we drilled just over 11,000 meters across the PLS project during the last quarter. We're targeting the Saloon East deposit and resource conversion extension drilling at RRR. Assay results are still pending. Finally, at Michelin Project, there were no substantive mining exploration activities during the quarter with prospective and target assessments continuing, and we commenced the regulatory process to reduce project tenure by approximately 18% as part of the tenement rationalization program. So we've been really busy delivering pounds and building momentum across the company, and I'm pleased with the progress that we're making. I'm now happy to take questions. Operator: [Operator Instructions] The first question today comes from Alistair Rankin from RBC Capital Markets. Alistair Rankin: Paul, Anna, Scott, Alex and Paula, and congrats on another strong result. You seem to be making a habit of good quarterly results, so well done. Just first question is relating to your reagents. Can you just run through what your key reagents are for production? And if possible, just comment on how those contribute to the cost structure in dollars per pound? Paul Hemburrow: Thanks for the question, Alistair. What I might do is just sort of give you a very brief overview. So we're an alkaline leach process. So we don't use a lot of sulfuric acid. So our key reagents are typically things like sodium bicarbonate, sodium carbonate, sodium hydroxide, hydrogen peroxide, a little bit of sulfuric acid. A lot of flocculants for our CCDs, also HFO and diesel, of course. In terms of the contribution to production, we don't really go into that level of detail. But what I can say right now is at the moment, we do have between 3 and 10 months supply of all of our key reagents, I think, which is a really important factor at this time given global events. Alistair Rankin: That's really helpful. And just a follow-up on the Metis Nation challenge at PLS. Could you just run through how that challenge actually works? What happens now and what you're planning for? Paul Hemburrow: Yes. What you might find is you did a bit of a Google search is that -- this is not an infrequent occurrence. Now there have been other mining companies and projects that have had the same sort of challenge. This is really a challenge on the Saskatchewan government authority to give us -- to provide the approval for the project. There haven't been any successful challenges to date. More importantly, we need to maintain a long-term working relationship with the Metis Nation. And to date, the conversations have been really constructive and we'll continue to work closely with them. What we're doing right now is we're really focused on the FEED work and working with CNSC to get that license to construct. And at this point in time, there's nothing stopping us from continuing down that pathway towards receiving the license to construct. Operator: The next question comes from James Bullen from CGF. James Bullen: Congrats, Paul and team. Just a quick 1 around Orano's desal plant. There's been a bit of talk about sulfur blooms and potential downtime up there. Plus also, I think they have to do a maintenance shut normally in May. Can you just provide us with an update around water supply? Scott Barber: Thanks, James. This is Scott here. The desal plant is in full operation. We haven't had any major disruptions to the water year-to-date. There was a little bit of sulfur in the quarter, but nothing that really stopped us. Our bladders and TSFs evap ponds are all full. There was actually a little bit of rain through the quarter, and that actually topped up all of our water supplies. So for us, yes, water is not a major issue. There is a desal shutdown planned late in June, and we're just monitoring that, but we've got enough water to get through that. James Bullen: Great. And just hitting across to PLS and the mutual benefit agreements, I think you've got 2 First Nation agreements done. When NextGen went through this process, it took them well over 12 months longer than the others to get an agreement with Metis. Is this a risk to your FID timing at all getting an MBA with MNS? Paul Hemburrow: Thanks, James. It's not absolutely compulsory to have a mutual benefit agreement. But of course, it's what we want to do. We would like all of the stakeholders in the region to benefit from our presence there. So if it takes a bit longer, it takes a bit longer. The most important thing is the engagement and consultation process. So we'll continue to engage and consult with all of the First Nations group. And as you pointed out, we do have 2 MBAs in place with Clearwater River Dene Nation and Buffalo River. So we'll continue to work on those. The other 2 are close. We're in negotiations right now, and we'll just keep working towards that but it's not a prerequisite for receiving our permit to construct. Operator: The next question comes from Daniel Roden from Jefferies. Daniel Roden: Congratulations on the second quarter. Just wanted to, I guess, get a view on, I guess, Q4 run rates. It's a little -- I guess, the run rate is a little lower than your Q3 in the implied updated guidance. And so just a little bit of color around, I guess, what's going on and what's driving, I guess, the lower Q4? And then how should we think about that kind of as the run rate entering FY '27? Paul Hemburrow: Thanks, Dan. As I often say, it's an outdoor sport and all sorts of things can happen. So we've reset the guidance to that range of 4.5 million pounds to 4.8 million pounds. I think it's realistic and achievable. Our current rate is -- I think we're very satisfied with how we've gone. We've also moved to the back end of the G Pit, we're now moving into the next pit. So there's that sort of transition process where you can typically get slightly lower grades as we move into the main ore body. We can get different ore handling characteristics. So there's a few things that could happen. And in the meantime, we're trying to mitigate those risks with a number of different controls, our blending strategy for handleability, blending strategy for grade. And we plan on maintaining the positive performance that we've seen in overall recovery rate. So there's still a couple of months to go for this quarter, but we're very happy with progress to date. But there are a few things that could happen. Daniel Roden: Yes, excellent. And I guess just on the -- like when you're looking at Q4 and FY '27, your recovery in Q3 has been, I think, well above expectations, even at a bit of lower grade. So I guess just what's your assumption that you're using for your guidance on the recovery? And I guess is there a bit of upside potential there? Paul Hemburrow: No. We set our target range of 85% to 90%. That's typically the level at which this plant can operate. And I think the team at Langer Heinrich has done an exceptional job at tuning that performance throughout the consumption of G Pit. And -- but I certainly don't expect that we'll stay in that range. I think as long as we hit the target range, 85% to 90%, I'll be pretty happy. In terms of FY '27, I think we still plan to provide guidance in July. However, and I sort of caveat that now with a level of uncertainty around what's happening in the Middle East. And -- so I don't really want to provide too much of a look forward. Daniel Roden: Yes. Awesome. And if I could slip one last one in. Just -- you've provided a sensitivity on, I guess, realized pricing at various levels of spot pricing historically. I guess when we're looking forward to FY '27, '28, et cetera, is that a sensitivity analysis that you've provided? Is that still a fair indication of the sensitivity you would expect on, I guess, realized pricing at different spot pricing? Or I guess, if you're changing your contract book as that contract book matures, would you expect that sensitivity to change? Alexander Rybak: Yes. Thanks. Alex here. I think we'll provide an updated realized price sensitivity. I think generally speaking, we're very pleased with the way our book has performed this quarter and year-to-date. It's running pretty much bang on with that matrix that we provided, realizing just under $70 a pound for year-to-date at an average uranium price of $80. The next year is, again, without sort of getting into the look forward will be provided in due course. But obviously, the -- we've got 22 million pounds under contract, so you don't -- and that book has remained stable, so you don't expect to see massive shift in that. But as that opens, volumes open up, we do have more uncontracted and more market-related exposure. So we expect to realize that upside there. Operator: The next question comes from Dim Ariyasinghe from UBS. Dim Ariyasinghe: Just a question on the revision to CapEx expenditure, not big numbers, but I just wanted to expand on why that's been done in the context of, I guess, what's going on more broadly, please? Anna Sudlow: Sorry, Dim, was that in relation to the update of the guidance? Dim Ariyasinghe: Yes, yes, exactly for the CapEx. Anna Sudlow: So I think we obviously put the guidance together 12 months ago [Technical Difficulty] has progressed. There's been a reprioritization of those items, the deferral and then also the bringing forward of some other items. So it's really just a shifting of CapEx. Some of that CapEx will be deferred into FY 2027. Dim Ariyasinghe: Okay. And then I guess there was a question on reagent use and I understand you guys are alkaline leach. But can you -- do you guys have any more commentary on read-throughs more broadly? So on your competitors domestically use a lot of sulfur and then the big one. It does feel like that's -- yes, are you hearing anything either from your customers or the industry more broadly on sulfur shortages? Paul Hemburrow: No. We don't really comment on other people. As I said earlier in the call between 3 and 10 [Technical Difficulty], that's our area of focus right now is making sure that we have continuity in supply. So we're reasonably confident at least for the next 3 months. Dim Ariyasinghe: Yes. Sure. Cool. And then just last one. How has everything gone on the diesel front? Is that similar? Or what does that look like? Paul Hemburrow: About -- at least 80% of our diesel and HFO come from West Africa. And so there's a very, very good... Operator: Pardon me. Just confirming the speaker line is still connected. Paul Hemburrow: Yes. Operator: I'll move on to the next question. It comes from Glyn Lawcock from Barrenjoey. Glyn Lawcock: Paul, I just wanted to sort of talk a bit more about the guidance change. Obviously, you lifted production guidance by 11%, but you didn't change your cost guidance at all. And if you just do the mathematics, I mean, 1.2 million pounds production in the final quarter to get to the bottom end of your cost range means costs go up to $54 a pound in the final quarter when they've averaged $40 a pound to date. So you just didn't change your cost guidance? Or is there something materially going to change in the final quarter to get there? Anna Sudlow: So, Glyn, there's a couple of things. One, I think, as Paul mentioned, we will be mining for the final quarter. So there'll be no reliance on the medium-grade stockpile. So we were obviously getting a benefit from that in the prior quarters. We are starting to see some cost escalation as a result of the conflict in the Middle East. So I think there's some uncertainty around what that will look like. So I think there's a view that we would rather be conservative on what that may be for the final quarter as well. So I think we've done the analysis on the range, and we're comfortable with the range we've provided at this point. Glyn Lawcock: Okay. It's a big number. Maybe just staying on that same tack then. So if you look at the spend in the quarter that just gone Langer Heinrich cost, $52 million, the stockpile build $11 million, so $63 million, plus another $7 million for stripping. If you ignore the stripping, it should -- is that meaning that $63 million steps up a fair bit from a cash perspective in the final quarter then when you just say you'll be full mining for the fleet? Anna Sudlow: I think, the low-grade stockpile and the stripping, I think we're saying varies quarter-to-quarter. So I probably won't comment on what the forecast outlook for those is. But as far as the production costs, yes, we do expect them to be higher in the next quarter. Glyn Lawcock: In a dollar millions perspective, higher than the $52 million. Yes. And then if I could just ask just on the sales as well. I mean you've kept your sales guidance the same. If you sell what's left to sell to hit the top end of your range selling at the price you're probably going to receive, you're still probably not going to cover all your cash outflow in the quarter. Is there like -- can you sell more? Or are you choosing not -- so I'm just trying to understand why with the increased volume you're choosing not to cover your cash, it appears with sales, or is it because you're waiting for higher prices or what I'm just trying to... Paul Hemburrow: Glyn, I'll take this one. So our sales, as I said last quarter, we are trending towards the top end of the guidance range for our sales, all things being equal, shipping delays, et cetera, but we're pretty comfortable with that range. So we've left it unchanged. Obviously, there is a delay between production and sales. So even if you're producing more, you don't necessarily able to realize those sales in the same period. But we are seeing performance at the top -- towards the top end of that range. Operator: The next question comes from Branko Skocic from JPMorgan. Branko Skocic: Just first question on future product inventories. Can we expect a bit of an unwind strategy to progress into FY '27? Obviously, the current number seems a little bit elevated, probably unwind a bit in the fourth quarter, but just interested in your views over the next 6 to 12 months, please? Paul Hemburrow: Yes. Agreed, it is a slightly elevated level. Our inventories do fluctuate from quarter-to-quarter. Probably on a normalized average basis, we expect about 4 months of production to be our normal average inventory level. This quarter, that inventory level was impacted by shipping delay. So we had quite a large number of pounds on the water as of 31st of March. So that was the primary result. But yes, about 4 months of production on an average basis. Branko Skocic: That makes sense. And final question from me was just, I guess, critical path given the mine fully ramped up over the next 3 to 6 months. I guess what's the focus internally and what's something we can be watching for come June-July? Scott Barber: Yes, in terms of the mine, getting into G Pit and developing that, we're about 1.5 bench in currently and already touching ore. So that's going to start making its way to the ROM. Developing that pit, which is a little bit further away from the ROM than G Pit. So just optimizing the haulage, getting the equipment operating exactly as we wanted to. All of the equipment is in and operating, and the contract has done a really great job in getting all the people and everything up and running. But as we finish G Pit, move into [ next pit ], getting the blend rate and just really optimizing that through the mill as we see that new ore. So really, for the mine, the equipment is on site. It's just getting it on at the ROM and seeing how it performs through the mill. Operator: The next question comes from Matthew Hope from Ord Minnett. Matthew Hope: I was just wondering if you could give us a rough guide as to how much diesel makes up the cost of production? Paul Hemburrow: Yes. We typically don't go into that level of detail, Matthew. Anna Sudlow: Yes. I mean, I think, Matthew, what we can say is the mining contractor obviously has a portion of their costs related to diesel. There's a small amount of diesel used in the plant. Other than that, I'd say, it's fair to say it's sub 10%, 15% of the total cost of production. Matthew Hope: Okay. So with that, you don't expect a big impact from, obviously, the current global sort of diesel issues. You don't expect a huge impact on your costs? Anna Sudlow: Well, I think ultimately... Matthew Hope: Provided really no guidance on what is happening due to this conflict. Anna Sudlow: Yes. So look, obviously, we're monitoring that, but the ultimate impact is going to be dependent on what the price outcome is, right? So I think it's obviously not a significant cost. But to the extent there is a material increase, it will have some impact. Operator: The next question comes from [ Sara S from Ventum Financial ]. Unknown Analyst: Congrats on another quarter. I'll start with a question on PLS. What gives you optimism about a successful resolution of the legal issue with MNS? Paul Hemburrow: Thanks for the question. I've met with all of the chiefs and councils of the 4 parties that we're close to. And we have a really good relationship with them. And I think it's really just a matter of time to continue consultation. I think that it'd be unsurprising to say that everybody in the communities and in that region, I think would have some benefit of our presence there, and that's not an unreasonable expectation. And of course, the challenge is how do we find -- how do we find a resolution to this in a way that's economically sensible for us as well. And so we'll continue to consult with them and work through the process. And we've seen other mining companies, other projects in very close proximity to us work through that process and have successful outcomes. And what we've also seen is the timing of delivery of an MBA is completely independent of the EIS approval process and the CNSC process. So we'll just keep going as long as it takes. In the meantime, the most important thing for us right now is to consult effectively with them, but also to progress the project through the engineering works and satisfy the requirements of CNSC. So the project is -- the project economics are incredibly strong. It's a great project, and we have a lot of confidence in the team's ability to work through these issues as they come up. Unknown Analyst: All right. I'll just follow up on another question that was previously asked about run rates. If we were to extrapolate from, let's say, production in the month of June when hopefully, the ramp-up is done. Would that lead to, on an annual basis, 6 million pounds of production per annum? Or what would it lead to? Paul Hemburrow: So we're not going to provide guidance into next year until we get through this year. I think there's a level of uncertainty out there now with respect to what's happening in the Middle East, of course. And I think it's a difficult time for anybody to predict how that's going to unravel. What we can say though is we have reset our guidance range for the remainder of this year. I think that number is challenging but achievable. And what we'll do now for the remainder of the year is to continue to go through our budgeting process, assess the performance of Scott's optimization work. And then at an appropriate point in time, we'll provide guidance to give people an update on the basis of more well-informed view of '27. Unknown Analyst: Okay. I was just -- my question was, I think, motivated by a peak production rate outlined in the life of mine production plan that was put out earlier. But I look forward to the actual guidance. Paul Hemburrow: Yes, thanks. I think the peak production really depends on a number of factors and primarily as throughput rates through the mill, overall recovery rates and grade. And under different price scenarios, we might choose to do something quite different. So in a different new price scenario, we might do something different to what we would do in a high diesel price scenario. So the plan ultimately depends on how things play out over the coming months in combination with how our performance is over that same period. So it is a bit difficult to give you a more [ certain ] answer. Unknown Analyst: My final question would be maybe a possible comment from you on something that came up on Bloomberg a few days ago about the U.S. ambassador to Namibia saying that they were expecting to increase imports of uranium from Namibia to the U.S.A. I was wondering if you've been in discussions with -- of that nature with parties in the U.S.A. Paul Hemburrow: Yes. Look, there has been a lot of interest in the Namibian supply from across the globe. We were just at the World Nuclear Fuel Cycle Conference last week. There's a lot of interest from the U.S. utilities. I think generally the mood is getting -- the U.S. utilities are certainly getting more urgent in their request of supply. And I think they are being prompted by the U.S. government to secure supplies and secure inventories. We've obviously had direct interactions with the representatives from U.S. embassies as well. And -- but having said that, it's -- I guess, it's -- there isn't anything sort of concrete at this point in time. We do see also a very strong demand from other regions, specifically from China. The Chinese utilities continue to be very aggressive in their fuel purchasing driven by the reactor build-out programs, chasing supply across the region as evidenced by the Tango deal that CGN is in the process of completing. So we are in a very fortunate position in Namibia with that origin being highly sought after both by the Chinese, by the U.S. as well as the European counterparties that have lost some supply from [ Niger ]. And we'll aim to maximize the value of that Niger -- of our Namibian production for the benefit of our shareholders. Operator: At this time, we're showing no further questions. I'll hand the conference back to Paul for any closing remarks. Paul Hemburrow: Thank you very much. The progress across the portfolio of activities have been really positive. We continue to build momentum in both production and project progress at PLS. However, we maintain a close watch on the Middle East for any potential impact on our business over the coming months. Thank you for your questions, and thank you for your ongoing interest in Paladin, and have a good day.
Operator: Welcome to the Arjo Q1 presentation for 2026. [Operator Instructions] Now I will hand the conference over to President and CEO, Andreas Elgaard; and CFO, Christofer Carlsson. Please go ahead. Andreas Elgaard: Thanks a lot, and thanks everybody for dialing in and listening to Arjo's First Quarter of 2026. So we believe we have been able to pull together a stable first quarter and we're happy to share that with you. And also, we will talk a little bit on how we are progressing the work with shaping the future Arjo. So just to begin a little bit from my side. And to remind everybody of who we are and what we do because we are really very purpose-led in everything we do. This is something that is very strong in Arjo. We exist and are present at people's most vulnerable moments, and we help them to keep their integrity and dignity and really make sure that they have the best possible situation when they need it the most. We, as you know, we work across several product segments and categories. So from patient handling and hygiene to medical beds, the mattresses that goes on top often focused on helping to relieve pressure injuries. We work with VTE prevention, diagnostics and disinfection. So these are our product categories. We are about 7,000 people and with an annual turnover of approximately SEK 11 billion. And we are truly a global company with sales to more than 100 countries. So let me just start by fly over a summary of the first quarter of 2026. So we delivered solid growth in Q1, 3.8% is within our guidance. And it's really driven this year by a positive trend in U.S. in capital sales and strong sales in rest of the world. And also this year, as you saw in Q4, the flu season was not as strong as it usually is for us in U.S. and that has continued. So this is despite a somewhat weak flu season. So we are -- we think this is really a stable result that we deliver. The gross margin is slightly below last year, and we are, of course, put under continued pressure when it comes to currency and the tariffs in U.S. We are working with trying to compensate this through efficiencies and also to manage our costs in a good way and then looking into price adjustments, especially considering the situation that is in West Asia. So still uncertain how this will affect us, but we are preparing for making sure that we manage those effects. So just to also highlight, we had healthy cash flow in the quarter compared to last year, it's an improvement, and it follows the seasonal pattern. So this is also something to mention. The adjusted EBITDA came in at SEK 456 million. And maybe one thing to highlight is that we started in the quarter to work on our future strategy, and we've had very intense work and a lot of engagement across the company, and we are progressing in a really good way. And I will come back to this a little bit more towards the end. So if I zoom in a little bit on sales in North America, we had both in Canada and U.S., really strong end to the quarter. So month of March was really strong. In total, I would say that U.S. continued to grow in the quarter, and Canada came in slightly below last year. But they really met some very strong comparable number. So all in all, a really strong performance is what we have seen, meeting very strong comparable numbers. Of course, when you meet stronger numbers, the percentage growth is, of course, affected. And as I mentioned before, for U.S., the flu season was not as strong as it usually is but we compensated that through capital sales in Patient Handling. If you look at the rest of our sales beyond North America, in Western Europe, we were struggling a little bit and it's mainly U.K. that is helping us with it -- not helping us, but that stands with the decline. And most other markets are performing in a good way, and especially France and Italy have had a really good performance in the quarter. Rest of the world beyond Europe then and North America was really, really strong, and the growth was really carried through several markets performing, but the shout out, especially to South Africa that delivered a large medical beds order in their region. And I just want to hang on that topic just because it gives some flavor to what we're doing. So we have modernized 36 health care facilities in South Africa, this was a special product tailored for their needs. So 2,300 new, more than 2,300 new beds and mattresses. And this to us is not just -- it's a logistic exercise. It's an installation exercise. It needs to be done when it suits the hospital and it needs to be done with good margin and good cash conversion. And all of this came to life through really good strong teamwork from customer to back in supply chain. So by that, I hand over to Christofer. Christofer Carlsson: Thank you, Andreas. As Andreas stated, we had a stable start of the year. Overall, our gross margin came in at 42.6% compared to last year's 43.7%. Looking at the drivers. The growth in Patient Handling improved group margins, driven by strong development for our floor lift Maxi Move 5 and ceiling lift. Also, our Diagnostic business improved margins driven by higher volumes and a favorable sales mix. The Rental business gross margin slightly increased, driven by France, U.K. and Australia, while U.S. had a negative development due to weaker flu season and some capital conversion among customers. However, the main part of the gap came from an unfavorable product and country mix impacting the gross margin by minus 1 percentage point, mainly related to a large medical bed order in South Africa. At the same time, U.S. tariffs had a negative impact of SEK 10 million year-over-year, representing a 0.4 percentage point decline in gross margin. In addition, FX had a minor negative impact on gross margin but in absolute numbers, the gross profit and negative FX effect of SEK 123 million. Finally, our Service business margins were in line with last year when excluding U.S. tariffs. If we now move on to the EBIT slide. Next slide, please. As you can see, adjusted EBIT in Q1 came in at SEK 190 million compared to SEK 208 million last year. However, when excluding U.S. tariffs and FX, the result is in line with last year. Looking at the costs, OpEx declined in the quarter due to FX effects, at the same time, the organic OpEx increase was 2.8%. In addition, we had a positive effect from revaluation of accounts receivable and accounts payable of SEK 3 million in the quarter reported under other income and expenses. Last year, the equivalent amount was minus SEK 34 million, resulting in a delta of plus SEK 37 million year-over-year. So overall, the total FX impact on adjusted EBIT amounts, therefore, to a minor amount of minus SEK 7 million in the quarter. Moving to EBITDA. Adjusted EBITDA for the quarter was SEK 456 million compared to SEK 486 million last year. And adjusted EBITDA margin was in line with last year and came in at 16.9% versus 17.0% last year. The EBIT margin increased to 6.8% versus 5.9% last year. This improvement was supported by lower restructuring costs that came in at minus SEK 6 million in the quarter versus SEK 40 million last year. Now we move over to working capital and cash flow. Next slide, please. Operating cash flow improved in the quarter amounting to SEK 237 million. This was SEK 53 million higher year-over-year, mainly due to improved cash flow from working capital. Following our normal season pattern, the change in working capital were minus SEK 142 million versus minus SEK 180 million. Working capital days increased to 83, up from 81 in Q1 '25. Cash conversion in the quarter improved to 52.7% compared to 41.3% last year. For reference, our cash flow from investing activities was minus SEK 135 million compared to minus SEK 215 million in Q1 '25. The decrease is mainly due to SEK 48 million lower investment in rental assets. If we now move over to the net debt and leverage. Next slide, please. The decrease in net debt this quarter is driven by improved operating cash flow, lower investments and positive FX effects. Our financial net came in at minus SEK 36 million compared to minus SEK 43 million in Q1 '25. The improvement relates to some positive FX effects. Our cash position remains strong. Net debt to adjusted EBITDA stayed flat versus the year-end and came in at 2.2. Our equity ratio stood at 50.5%, up from 49.8% at year-end '25, mainly due to positive FX effects in equity. With that, I will now hand it back to you, Andreas. Andreas Elgaard: Thank you, Christofer. So I thought that it would be good maybe to just share a little bit on how the work of shaping the future of Arjo is going. And too early to reveal anything, but I can still try to give you a flavor on what we're doing. And we put the headline here, but it will be a story of untapped potential because being new now into Arjo soon, 4 months into the role, I see a lot of potential in the people, in our relationships with our suppliers and in the relationships with our customers. It's really -- it's not just an industry that has healthy growth expectations, but it also Arjo as an organization is really filled with potential. But this in order to be able to untap that, we really need to have clarity on where we're going and make sure that we build the capability to execute as well. So one way of doing that is by inviting leaders from across the organization to make sure that we build a common ground, we create alignment, we create understanding on where we are and where we need to be in the future. And by doing that, you don't just get the strategy that comes from top, you get a strategy that is well anchored across the organization, and that really helps you when it's time for execution. So our ambition is to go from strategizing straight into execution, that is the ambition. And creating a clarity in where we're going is really important for everything from product development to supplier relationship development and to product development. But it's also very important if we want to continue to grow also in new product segments or if we want to open new segments where care is moving. It will also be something that will guide us if we need to accelerate our growth or our strategic movement through acquisitions in the future. But strategy and talking too much about the future, sometimes can dilute the focus on here and now. And I, for one, is super focused on that we need to deliver two things. We need to deliver clarity for the future, so we know how to execute and build the future Arjo, but we also need to deliver results short term. So what you can expect from us is a strategy that will focus both on the here and now and how we lay the foundation for the future. so you will have both of it so to say. And our ambition is to get this strategy approved during summer and that we will be able to communicate that to you after the summer. That means the second half of 2026 so that's a little bit the status on where we are by in the work of creating the future Arjo. And by that, we hand over to the Q&A section. Operator: [Operator Instructions] The next question comes from Filip Wetterqvist from SB1 Markets. Filip Wetterqvist: I have a couple. First, can you quantify a little bit more on the contribution from the 36 facilities in South Africa to global sales organic growth? Like what would the underlying organic rate have been ex this order? And how does that inform into the exit run rate into Q2? The first one. Andreas Elgaard: Okay. Thank you for your question. I don't think we have communicated the size of the single order. And I do think that when we have orders of materiality, we will do press release and specify those things. So we have not done that. So we are not giving guidance on that because that will reveal information to competitors that we don't want to reveal. But 2,300 -- more than 2,300 beds to 36 care facilities. It is a substantial order, but we don't judge it being material. Filip Wetterqvist: And my second question, you mentioned Middle East cost pressure from Energy & Transportation as a fresh headwind here in the report. Did you see any impact already here in Q1? Or do you anticipate it in Q2? And what is the current run rate assumption for '26? Andreas Elgaard: Yes, thanks for the question. So we have seen a minor effect in Q1. But of course, we and everybody else in the world are very much aware of how much oil affects not just the energy sector, but every -- I would say every process industry and every food production farm in the world through the production of fertilizers. So of course, this will have effects. But we -- so we are preparing to try to mitigate that in the ways that we can. We don't give forecasts on what that might be because -- and I don't think Arjo is the best equipped to give forecast on the financial consequences of the crisis that is ongoing right now. But given that, of course, we are preparing us for the scenarios that we see internally. So I hope that answers your question enough. And I mean if this conflict becomes short term, hopefully, there will still be effects. That's for sure. But if it becomes short term, I also think it will be something that the world will be able to manage. And this is something that affects Arjo in the same way as it affects everybody else. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Andreas Elgaard: Okay. Thank you very much. So today is the Annual General Meeting. So we are super excited. There will be more than 120 shareholders that will come and listen to us, and we will give a similar message to them. But of course, we will focus on 2025. We'll give a short highlight of the first quarter this year, and we will also give some flavor on the strategy work. So we'll share a movie where different leaders from Arjo is talking about that. We are really excited about that. And by that, we say thank you for this call, and we remain at your disposal. Bye-bye. Christofer Carlsson: Bye-bye.
Juha Rouhiainen: Good afternoon, good morning, everyone. This is Juha from Metso's Investor Relations, and a warm welcome to our first quarter '26 results conference call where we have our President and CEO, Sami Takaluoma; and CFO, Pasi Kyckling, briefing you about the results. Sami will start with some of the highlights and then Pasi will walk you through our financials and cash flows in more detail. And after that, we are taking your questions. Before we start, a couple of reminders. First of all, we will have our forward-looking statements disclaimer in the presentation deck and today is our AGM. So it's a busy day, and that's why we are going to limit this call to 50 minutes. So please take that into account and ask as briefly as you can. We would appreciate that. With these words, Sami, over to you. Sami Takaluoma: Thank you, Juha, and good afternoon also from my behalf to everybody. Let's go through the Q1 performance. In a nutshell, strong orders and delivered solid margin during the first quarter of this year. Our orders received amounted EUR 1.555 billion. This is 6% growth year-on-year. And in organic constant currencies, it's 10%. Sales was EUR 1.252 billion, and this was also growth from last year, 3% or in organic constant currencies, 5%. Adjusted EBITDA EUR 203 million, growth 5% year-on-year and representing 16.2% margin relatively. Operating cash flow for the quarter was EUR 78 million. And in the rolling 12 months, it's representing EUR 856 million of operating cash flow. So as I said, the order intake for the year was strong and kicked off our year very well and nicely. Our book-to-bill for the period is 1.24, improvement from the last year when it was 1.21. Order growth was strongest in the Aggregates equipment and Minerals aftermarket. Our backlog went up by 6%, and this was heavily driven by the aftermarket in our backlog now. Sales growth that we delivered that was mainly led by the Minerals equipment where we continued to finish the projects and Minerals segment was the main contributor to adjusted EBITDA growth that we delivered in Q1. Our strategy, we go beyond that we launched Q4 last year and now under execution. It is focusing on the high-value growth elements. We are doing the investment in our rubber products plant in China. During the period, we also completed the acquisition of MRA Automation, Australian-based automation and software company. And one, I really want to highlight here is the partnership with Loesche, and we are introducing the vertical roller mill dry-grinding technology, ground breaking with a very efficient way of doing the grinding in the future. Completion of our divestments, both the Ferrous and our Loading and Hauling businesses, they were completed as planned during the period and creating further strength for our strategy execution, focusing on the right topics. We have also completed the ERP renewal project. Rollout is done. We have now a state-of-the-art software in use for the whole company the same way and the next phase is then to get the benefits of this investment in the coming quarters and years ahead of us. And also, I want to highlight that record-high engagement score and also noteworthy, the active co-creation that is strengthening the growth culture that we have. We are measuring the employee engagement 4 times a year, and it was a pleasure to see the all-time high scores now in the Q1 round. Regarding the outlook, we keep the outlook unchanged. We do see the market as a positive, meaning that it stays in the stable good activity level. Market activity in both Minerals and Aggregates are expected to remain at the current level. And I want to highlight also in the statement as well that the geopolitical turbulence could potentially affect the global economic growth and, therefore, also the market activity in our segments. And now if I give the microphone to Pasi to walk through the financials and the cash flow topics. Pasi Kyckling: Thank you, Sami, and good day, everyone, also on my behalf. Let's start by looking at our orders and revenue development. Order intake at EUR 1.555 billion, representing 6% year-on-year growth or 10% growth in constant currencies. The equipment side of the business grew 8% or 12% in constant currencies and aftermarket orders by 4% or 8% in constant currencies. And the order performance was especially good in Aggregate capital side and then Minerals aftermarket business. Aftermarket part of the overall orders was 66%. In this quarter, we also won the EUR 100 million greenfield copper project in Peru. And in the comparison period, we had EUR 60 million order from Almalyk project in Uzbekistan included. The order book at the end of Q1 totaled to EUR 3.6 billion, it's roughly 6% up year-on-year, and all that increase comes from Minerals aftermarket business. Then our revenue at EUR 1.252 billion was 3% up or 5% in constant currencies and it was driven by Equipment aftermarket was 1% down. And aftermarket represented 55% of our sales. Let's then look at our EBITDA development and earnings per share. Our EBITDA increased to EUR 203 million and then from a margin point of view, the increase was 0.3 margin points from 15.9% to 16.2%. The higher volumes contributed with EUR 13 million in a positive way and the gross margin increased by EUR 25 million or by 2 margin points. Then on the headwind side, we have increase in our SG&A by EUR 12 million. And then under other items, it's primarily currency where we had last year some tailwind and this year, some headwind and this relates primarily to hedges that we don't hedge, account and we need to mark to market at the end of each quarter. Overall, in Q1, both equipment businesses in Aggregates and in Minerals continued to deliver healthy margin levels. Then EPS is unchanged from a year ago at EUR 0.14. If we then move to our cash flow and cash flow from operations was lower than in comparison period at EUR 78 million. This was mainly due to inventory buildup and timing of the cash flows in our mineral capital project deliveries. In inventory, it's primarily work in progress inventory and it is in both Aggregate capital and then Minerals aftermarket. In Minerals aftermarket, it is especially upgrades and modernizations where we have had good order intake during last year and are now in the middle of delivering many of those activities. In Aggregates, it is Aggregates capital. It's more seasonal. We are preparing for the stronger equipment delivery season during the European or Northern Hemisphere summer period. Looking at the rolling 12-month cash flow from operations and then the cash conversion, we continue to be at a healthy level, and we expect to deliver also healthy cash flow throughout 2026. If we then move to our balance sheet and balance sheet continues to be strong and support fully our strategy execution. Net debt to EBITDA is unchanged at 1.2x. We continue to have Baa2, a long-term credit rating with positive outlook from Moody's and that continues to be a good support for us while we execute our strategy. Let's then look at our segments and start with Aggregates where we have all-time high order intake at EUR 440 million. And it's noteworthy that in this order intake, we see a clear pattern that some of the orders are placed not only for the second quarter, but also for the second half of the year. So sort of a pre-buying phenomenon visible in that regard. The equipment orders represent 20% growth and aftermarket is 14% down. Regarding the aftermarket development, I just want to highlight that we have done a minor adjustment in our presentation between capital and aftermarket when it comes to screens and that has a slight negative impact on the reported growth numbers in the aftermarket part, both in orders and revenue, and we have not adjusted the comparison periods. Then EBITDA in Aggregates was EUR 1 million down at EUR 48 million, with solid 16% margin and continued healthy margins in the equipment side of the business. If we then look at our Minerals, there, the orders increased by 5% or 8% in constant currencies to slightly above EUR 1.1 billion. Equipment orders were flat or 3% up in constant currencies. And again, I just want to highlight the major order that we won from Southern Peru Copper Corporation regarding their greenfield copper projects in Peru. Small- and medium-sized orders were at a good level and in average at the same level that we had during 2025. Then aftermarket orders increased 7% in reported currencies or reported numbers and 10% in constant currencies. And the upgrade and modernization part of the business from order point of view is up 14% year-on-year. So we continue to see a very healthy development there. And then spares and consumables are supported by the good high utilization in our existing customer mines. Aftermarket share of the total orders was 66%. Then sales increased 5% to EUR 953 million representing 6% organic growth. We had 3% currency impact and then also 2% positive impact from acquisitions that were concluded after the previous period. Equipment sales up 14% and aftermarket up 1%. And again, we continue to have a very strong order backlog when it comes to aftermarket and expect that to deliver also revenues during the coming quarters. Adjusted EBITDA at EUR 168 million with solid 17.6% margin, and this was supported by overall sales increase and then healthy profitability in our equipment part of the Minerals business. With that, I would like to hand back to Sami to summarize our quarter. Sami Takaluoma: Thank you, Pasi. As said already, a very solid start for the year and strong orders, creating a very good healthy backlog. We do see the heightened geopolitical uncertainty remaining as a risk and then our strategy execution is progressing very well at the moment. With that, to you, Juha. Juha Rouhiainen: Thank you, gentlemen. And operator, now it's time to open the Q&A lines. Operator: [Operator Instructions] The next question comes from Chitrita Sinha from JPMorgan. Chitrita Sinha: I have 3, please. Just firstly, to ask on the phasing of the aftermarket deliveries this year. I mean if I look at kind of the average orders over the last few quarters, it's been above 650, but then Q1 deliveries was weaker, it was below 600. So can we expect to pick up from Q2? How are you thinking about it? Sami Takaluoma: Yes. Thank you. Good question, and your logic is correct. So we do see that we have this good backlog that has been built up and the deliveries are starting from the Q2 onwards then. And that is something that you can expect to see from the Q2 sales point of view. Chitrita Sinha: Great. And then my second question is just if you could provide a bit more color on kind of the demand backdrop in Minerals. We've clearly seen a significant amount of volatility in commodity prices this year. Maybe by commodity would be really helpful. Sami Takaluoma: Yes. We have highlighted this also in the report that we do see this as a risk. We all remember what was the year '25 and how tariffs did impact partly for that demand. However, the indications of any major delays or postponing or even canceling the decision of the new capital projects are not really here. So we don't hear that from those customers that we discussed at the moment. But it's very clear that especially the energy price cost and how does the future look like is having an impact, and it needs to be calculated in for those projects. So that's why we do keep that as a potential risk at the moment. Pasi Kyckling: Just adding a little bit color from a commodity point of view. So like we have seen during the course of last year and early this year, we still continue to see high amount of activity in copper and gold driven projects. So don't see that those demand drivers have changed by any means. So it's the same market where we continue to operate. Chitrita Sinha: Okay. And then final question is just on the inventory buildup this quarter. I know you've provided a bit more color in terms of why that happened. But maybe if you could give a bit more detail in terms of what kind of range should we be thinking about? I mean, previously, we've spoken about maybe going towards the [ EUR 1,800 ] level. And now if I look at the Q1 inventory level, it's gone up back towards the [ EUR 2 billion ]. Is there maybe a range that we should be thinking about when looking at inventories? Pasi Kyckling: Yes. Thank you for that. And a fair question. At the same time, we're not -- we will not provide you sort of a range, but rather think that way that over time, the inventory efficiency. And as a matter of activity, working capital efficiency overall should not deteriorate. And while we don't have a formal target -- a financial target on working capital and inventory to be more specific, we see opportunities to improve the efficiency. And obviously, first quarter was not a proof point of that, but it's only one balance sheet point. And we are working with the underlying drivers there to improve the overall efficiency and then provide solid cash conversion. And when I talk about efficiencies, I'm referring to working capital over sales or then DIO, DSO, DPO type relative indicators. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: So my first one is on Section 232 and the changes to steel, aluminum and copper from April 6. I'm trying to understand the extent you're impacted. Will this increase your effective tariff rate and by how much? And can you remind us of the import share to the U.S. for the group and for the 2 divisions? And how much today of COGS is steel, aluminum and copper? I have a 50% input share for the group and about high single-digit share of COGS being raw mats, but any more sort of color here would be very, very helpful. Pasi Kyckling: Yes. Thanks, Klas, and good and current one. I'm not sure if I can provide all that detail to you. But if we start from the helicopter point of view, so Aggregate business continues to be excluded from 232 and we indeed recently saw the change in 232 when it comes to sort of the calculation basis for that earlier. It was the steel, aluminum content. And now it seems to be the total tariff value of the equipment in question. And then obviously, that's driving the tariff base up. From our point of view, we continue to work with the same approach as we have done during the course of last year. So we work with our customers with surcharges and the new surcharges based on this initial period seem to be higher, which makes sense from the calculation logic point of view, and that is what we are charging from our customers. So again, we are not making money out of those, but we are not suffering from those either. That's the approach we have taken and will continue to take on this. Klas Bergelind: You are -- you're basically seeing the reciprocal tariff, basically, you're not seeing anything on steel, aluminum and copper from Section 232 impacting the Aggregates business just to confirm if that's... Pasi Kyckling: That's correct. So to be more specific on Aggregates, and maybe I said it already, but screens and crushers are excluded from this tariff. And there was a speculation late last year that the exclusion would come to an end, but we haven't seen that happening, which is obviously positive. Klas Bergelind: Okay. No, that's good to hear. My second very quick one. I know we're only allowed to ask one question, but this is super quick. Just on aggregate, you're talking about pull forward of orders. Can we talk a little bit about like the reasons where there is some pull forward in? Because people were thinking that this could be a change for tariffs. Was this North America led? And also in Europe, are you seeing some hesitation? Obviously, Aggregates is -- and construction is quite sensitive to inflation rates and so forth, it's early days, but are we seeing any sort of customer discussions showing some hesitations in Europe? Just to get some more color on this pull forward and also European commentary. Sami Takaluoma: Yes. Thanks, Klas. So what we did see was this orders in U.S. for the Aggregates with the requested delivery date, not immediately, but later on the year. So we took that as a positive signal that the customers and our distributors do see the market as a very good and looking good also going forward. And these have been then reflecting these orders, the situation in the market. When it comes to the Europe, it still remains kind of like not one rule to apply for the whole continent, and it's more like a country-based approaches. We see activity in Southern and Eastern European side and then remain still quite slow from the perspective of so-called maybe even more traditional aggregate countries. And from that point of view, do we see elevated level of hesitation discussions? Not maybe really, Klas. So it's unchanged from the end of the year when it comes to the European side. Pasi Kyckling: Maybe then just from order book, Klas, still from order book point of view, I mean both Europe and North America had a healthy order growth. So this growth is coming from both of our main markets. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I want to start on the Middle East, if I may. Can you just confirm your percent sales exposure to the region maybe highlight any single country, context worth discussing? And then you mentioned in the release targeted measures to manage supply chain and operational risks. I appreciate it's fluid, but what's your current base case for the direct and indirect cost effects? Sami Takaluoma: Yes. To start from the region. So it represents something like 3% of the whole company sales. So that's the exposure. And of course, the situation has created certain activities also on our side, logistics is one clear one we have been quite good situation because many of our supply routes have already been going around Africa before the incident started. So from that perspective, the countries in question, obviously, Saudi is a big one for us. We got at the end of last year, the gold plant order, as an example. And then also, Oman has been a country that we have a lot of activity at the moment. As it is today, operations continue. Our work continues, but we, of course, need to very carefully all the time observe the situation and how it develops. But this is how we see the Middle East situation at the moment. Pasi Kyckling: Maybe still just to add a color. Obviously, logistics costs are up. We see some fossil fuel-related inflation. And the way we are approaching this is similar that we did during the COVID time. So playing inflation game in a way in both end of the supply chain in one hand with our suppliers and then in the other hand with customers to manage it -- manage it well. But just to confirm that we obviously see also some of those inflationary pressures that have surfaced after the crisis. Christian Hinderaker: Can I just come back to the Section 232 and also your comments on aggregates pre-buy. If a customer is ordering now, are they affected by the tariff, if it changes later, do you think the pre-buys are about that tariff's concern? Or do you think it's more about hopes for a demand improvement? Pasi Kyckling: Christian, it's a very good question. And when it comes to tariff speculation, obviously, should there be tariffs, we don't know how they are implemented, whether they are implemented on sort of new deliveries or everything that crosses the border after a certain point and so forth. So that's difficult to say. Our read is more that that's a sign of confidence to longer-term market development in the U.S. and sort of our partners, distributors, customers preparing for that, not only in imminent short term, but also looking towards the second half of the year. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: A few questions from me as well. I'll start with the demand on the Minerals aftermarket side. And I mean, good growth that you have had now 4 quarters of decent growth in the business. So could you maybe remind a little bit on kind of the growth potential going forward, the comparison, the timing of kind of when you started to see the modernization and retrofit business increasing. I mean, is it reasonable to now assume a bit of a normalization of the growth? Or do you think you can still accelerate on that one? Sami Takaluoma: Thanks, Antti. For the Minerals aftermarket side, it's one of those centerpieces of this growth strategy, and we do see potential to continue to deliver growth. And actually, the target as well is that we see the aftermarket products demand very, very good at the moment, market as well, and that makes us to see that strong single-digit growth numbers to be delivered also in the future. You know very well. And a reminder that we are having the widest portfolio of the technologies in the downstream of the minerals processing and that gives us a very good potential for the growth going forward as well. Modernization and upgrades, they are the one that have a certain cyclicity. And from that perspective, as Pasi was stating, we have seen good amount of these orders coming in the past few quarters already. How that looks going forward is that the funnel -- the pipeline for new orders is looking good. And then it's about the timing issue of the customers to make the actual decision to move forward with these opportunities. Antti Kansanen: Okay. Great. And then maybe a follow-up on the things that you said on what you expect from the decision-making and kind of the geopolitical uncertainties. So I just wanted to make sure because you've been quite optimistic on certain large orders and investment decisions. Have you seen any concrete evidence kind of in March or early April that some of your clients have been maybe slowing down some of the processes or are asking to recalculate some of the project items because of inflation? Or is this just a kind of a cautionary statement if the war lingers on and will have an additional impact? Sami Takaluoma: Yes, we have -- as I said already, many of the customers that we have discussions in a certain phase, they have not indicated any change of the time tables. But then on the other hand, yes, we do see also a recalculation need also coming to our direction to check certain project elements and the timing of them and also the price from our side of them. So it's an indication that the recalculation, it is happening. And for me, it makes sense also to do that, of course. But this is why we remain a little bit cautious of that, what will be the true impact of this for this greenfield and large brownfield projects going forward during this year. Antti Kansanen: Okay. And the very last for me is your exposure to LNG availability and prices through your foundry setup. Could you comment if there's any substantial risk that you see because of the... Sami Takaluoma: Yes, and that's coming mainly from the India side where the LNG was and is the main energy source. Yes, we did see the risks, especially in the beginning of the escalation of the situation and the incident in Qatar. So what we have seen is that the prices have increased, which is natural. But the biggest risk that we had in our hands was that do we have enough LNG to run the operations. That has not materialized. So we have been able to operate normally. But the cost level has increased and also our suppliers have been seeing the same and adjusting the prices. So as Pasi was saying, this is what we see logistics side and also then the component and supplier side. Antti Kansanen: And this will lead to price increases from your end going forward. Sami Takaluoma: This is the normal way to handle this. So as I said, we have taken this into account in our price increases that have been introduced in April and first of May, the next batch. Operator: The next question comes from Tore Fangmann from Bank of America. Tore Fangmann: Just 2 questions left for me, both on the aggregates side of the business. First one would be, so we do see now and for a while, a pickup in the equipment demand in aggregates. On the other side, the service part, the aftermarket side of things remains fairly low and weak. Could you just help me square this together? So there's need from customers for new equipment, but on the other side, the utilization still remains low. Sami Takaluoma: Yes. For the aftermarket question, so it is exactly, as you said, when the utilization of the machines is low. So then the demand and need for the aftermarket products is also low, and that's the reason for our aftermarket not yet in a growth mode in the aggregate side. And then our capital equipment business in aggregate is going through the distribution, especially in the U.S. And then the equipment is ordered and delivered and they don't always go directly for the end customers to use to generate the aftermarket either because during the '25, the distributor stock levels normalized, meaning that every month, they were in lower and lower levels. So now there is a need for restocking and having the machines available for the work for the end customers with the coming months and quarters. Tore Fangmann: Okay. I understand. Then maybe just a follow-up on this one. So when utilization is still low, it seems like the overall end market demand has still not really picked up. So the current growth in equipment and you also mentioned some prebuying already for the second half of the year. So is this all just distributor driven? Or is this actually end market demand driven the pickup that you see? Sami Takaluoma: I think the pickup is the end market driven, but you need to remember that this is very regional or let's say, even local business. So as an example, from the Europe, there might be good activity both in the new equipment orders and also utilization of the existing equipment in the country. And then the neighboring country might be on the quite opposite way. So this is what is highlighting also the dynamics of the aggregate industry in general. Tore Fangmann: Okay. Understood. And then just one last, just to understand the strength in Europe is largely driven by the Eastern European countries. Any sense around Germany or other Western European countries picking up again? Any impact from the infrastructure package from Germany? There's something you can share. Sami Takaluoma: Yes, there's a so-called traditional good market for us like Germany, France and so on. So they are not zero, but on a low-ish level and for the Germany-specific question. So our customers do not see yet any impact of that stimulus package that was announced. So that's why they have not been activating themselves either when it comes to the orders. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: My first maybe was to go back to the question about Minerals aftermarket and just dive into the discussion about the disconnect between the order intake and the revenue booking. Can you maybe provide a bit more color on what it is that has caused the lumpiness of orders and the disconnect for the revenue booking in aftermarket Minerals? And when we look into the Q2 to Q4 acceleration of revenue bookings, I mean, can you give a little flavor as to either the regions or the product segments which you expect to lead to that upturn in aftermarket, please? Pasi Kyckling: Yes, Will, thank you very much. A good question. I mean if we start from a lumpiness point of view, so especially the orders, we believe we have seen sort of a solid healthy, high single-digit growth from period to period like we saw also now. Maybe if you refer to with lumpiness to the revenue side. So indeed, the growth has not yet picked up in revenue. And that is simply a timing question for us. So the backlog is healthy. We discussed the upgrades, modernizations, retrofits, delivery times there are longer than in the transactional part of the business. Then you were also asking about regions. I don't know if we can point out a specific region. I mean, it's generally the mining regions. One area to highlight when it comes to upgrades and modernizations is, of course, Australia and the iron ore related modernization cycle that needs to happen and is happening there. But it's not only that. It's also in the other mining regions. Again, we believe we are in a very good position with the order book. Like I said, the full backlog growth is from Minerals aftermarket, order of magnitude, EUR 200 million year-on-year growth there, and that will realize the revenues during the coming quarters. William Mackie: Maybe the second or follow-up was that I wanted to go back to your medium-term goal of 20% margins in Minerals. I mean, if we look, you've made a great step forward to the 17.6%, but it's still 240 bps below your target and equipment seems to be rising as a share of mix, which is normally something of a headwind. So perhaps you could walk through, again, the levers to get us back to the -- or get to the 20% with regard to pricing or aftermarket efficiencies? And what sort of time frame to get there? Pasi Kyckling: If we start from the time frame, so our target is to deliver those margins, both in Minerals, Aggregates and as Metso by 2028. So that's the timing we are looking. Then when it comes to levers, it's about growth and specifically in aftermarket. We recognize that in capital side, it may be lumpier, especially orders to some extent, also revenue recognition, but even the big projects, the revenue spans over 6, 8, in some cases, even in 10 quarters. And then we'll -- to the point you are raising regarding the business mix between capital and aftermarket, not at all a major concern for us. And the reason is simply that the margins are good to start with. We have healthy capital business in Minerals. And if we see volumes going up, which we, by the way, don't currently see because the order book has been built with aftermarket focus, that will give us volume leverage. And then we are also working with the portfolio optimization to sort of grow the higher margin solutions or businesses that we have within Minerals and then improve profitability in the areas where we lack behind our targets. Finally, self-help is also something we are doing. And again, none of us will make miracles overnight. But the time horizon we have in mind is to deliver in line with these targets by 2028. Operator: The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I wanted to ask about SG&A costs. What was behind the increase we saw in Q1? And how should we think about ERP costs? So are the kind ERP implementation costs over? And should you actually get the benefit from the new ERP system going forward? Pasi Kyckling: Thank you, Panu. And the costs are up, order of magnitude, 3% in line with the inflation. Obviously, something we are not happy with. Our ambition is to offset the inflation. And then when it comes to -- and inflation is the main driver in the cost increases that we saw Q1 year-on-year. And then ERP specifically, like Sami said, as part of his summary, the implementation is over. We have closed the implementation projects. So the specific costs related to implementation. We had some still in Q1 second quarter, we will not have those anymore. So going forward, we have a clean ride from that point of view. And now is the time to start harvesting benefits from the investment. And it has been a massive project. It's a big change to our teams but we see those efficiencies coming through. But again, will not happen overnight. It requires dedicated work. Provides also opportunities to apply more new technologies and everybody is talking about AI. We are also thinking and working with AI, it relates to ERP, but it relates to other things as well. So a big investment. And indeed, you are right, we need payback for that. Panu Laitinmaki: Can I just ask -- can you quantify what was the ERP implementation cost in Q1? Pasi Kyckling: Well, I mean, in Q1, we talked about single-digit millions like we have had throughout the implementation phase. Second quarter last year, you may remember, we had a bit accelerated or increased cost because that was the biggest sort of a go-live that we had. But other than that single-digit millions that we have had in P&L from that better quarter. Operator: The next question comes from David Farrell from Jefferies. David Richard Farrell: I just wanted to circle back to one of the highlights of the period, which was the partnership with Loesche and the VRM product that you are pursuing there. Can you just give us a bit of an extra detail around that, kind of what is it looking to replace kind of what kind of market share? Do you think that kind of gives you -- just any extra color around that would be great, please? Sami Takaluoma: Thank you for that question. It's a very new technology for the mining circuit, but we chose to partner with the market leader in other industry, mainly in cement, the Loesche. So what is this technology doing? First of all, it is dry grinding and we all know that the new greenfield locations, they are quite challenging locations, not only with the infrastructure, but also when it comes to the supply of water and in that sense, this is going to be helping a lot for those future flow sheets in terms of not needing to have that amount of water in the mining -- minerals processing processes. Second clear benefit is that this is energy-efficient way of doing the grinding. We talk about 40% less compared to the conventional grinding operations. And then as a cherry on the cake, you can also optimize the flow sheet. So actually less equipment is going to be needed when the dry grinding is fully implemented in the flow sheet. So we see a lot of positive elements here for making a difference in the mining operations. David Richard Farrell: And just as a follow-up. When do you think we could perhaps see the first one of these orders be received by Metso? Sami Takaluoma: It's an excellent question. This typically is a slow process from the perspective. Of course, we are more than happy to take the orders immediately. We are ready for that. But it's a slow process because it first needs to get into the flow sheet and then the process starts from the customer side to develop the project, get the financing, get the cost base and so forth. So typically, it is some time from this kind of launch that we start to see the first orders. But the teams are very engaged and there is a good interest towards this technology. So we are waiting eagerly to see when we start to get the benefit of orders. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: Very briefly coming back to working capital. Just one question on that. So you talked about the reasons for the buildup there, but I'm just wondering if you have any comments on the full year? Do you expect that to reverse in the second half? Pasi Kyckling: Thank you, Mikael. And like I said, in relative terms, we have an ambition to be in par or improve our performance over time on sort of a rolling basis and not to repeat the working capital investment that we did in Q1. Then again, if the business continues to grow in a significant way, it may be that in absolute terms, we need to invest more. I guess that's really what we can say at this stage. Juha Rouhiainen: All right. Thank you, everybody. As a final question, I have received a question from Ed Hussey of UBS by e-mail, Ed is offline, but he wants to ask about operational leverage. So he says that Metso delivered strong drop-through margin in Q1 despite equipment being a bit higher in the mix. So what was the main driver of improvement in gross margins and what kind of drop-through should we think about going forward, specifically in Minerals? Pasi Kyckling: Okay. Thanks, Ed, for the question. I think we partly discussed this during one of the earlier questions, but the starting point is that we have healthy equipment margins. We had healthy equipment margins also in Q1. And even with this business mix, we're able to deliver a solid Minerals margin. The gross margin uplift there is, of course, a function of price work, cost work, and that continues. We don't guide on margins, so I can't give you an exact number there. But what we expect, like we have also discussed is the aftermarket order backlog to realize the revenues and aftermarket continues to have higher margin than the capital. So that will also support us going forward. Juha Rouhiainen: All right. Thank you, and we have spent exactly 50 minutes. So thanks for being efficient. Thanks for your questions. Thanks for participating. We conclude here. And just a reminder that half year review will be out on July 24, but we hope to see many of you in the meantime in various events. So thanks again, and goodbye. Pasi Kyckling: Thank you. Sami Takaluoma: Thank you.
Operator: Hello, and welcome to the Akzo Nobel Q1 Results 2026 Earnings Call. My name is Alex. I'll be coordinating today's call. [Operator Instructions] I will now hand it over to Jan Willem to begin. Please go ahead. Jan Willem Enhus: Good morning, and welcome to Akzo Nobel's investor update for the first quarter of 2026. I'm Jan Willem Enhus, Head of Investor Relations. Today, our CEO, Gregoire Poux-Guillaume; and CFO, Maarten de Vries, will take you through our results. We'll refer to the presentation, which you can follow by webcast or download from our website at akzonobel.com. A replay of the webcast will also be made available following the event. There will be a Q&A session after the presentation. For additional information, please contact our Investor Relations team. Before we start, a reminder of our forward-looking statements disclaimer on Slide 2. Please note, this also applies to the conference call and answers to your questions. I'll now hand over to Greg, who will start on Slide 3 of the presentation. Gregoire Poux-Guillaume: Thanks, Jan Willem. Good morning to everyone on the call. In Q1, we delivered a clear beat with EBITDA of EUR 345 million, coming in 7% ahead of the EUR 323 million consensus. Organic sales were 1% lower year-on-year with a 1% pricing gain offset by 1% declines in both mix and volumes. Profitability improved meaningfully. Adjusted EBITDA was up 7% at comparable scope, while adjusted EBITDA margin rose to 14.5%, up 80 basis points. This marks the fourth quarter of margin expansion year-on-year, driven by disciplined pricing and strong execution on our cost actions in soft end markets. Operationally, our industrial transformation will be completed by year-end. We closed a further 3 sites in Q1, bringing the total to 15 since the program's inception. We've done all of this without business interruption. We also delivered a key milestone to our ongoing portfolio review in Deco Asia, signing the sale of our business in Pakistan at 14x EBITDA for an enterprise value of about EUR 50 million. Close is expected in the second half of the year. It's not a very large transaction, but it's another proof point after India that Deco assets are valuable, particularly to the right owner. On financing, we issued a EUR 1.1 billion bond dual tranche in March, extending our maturity profile and reinforcing liquidity ahead of the proposed Axalta merger, which is on schedule. We enter the rest of the year from a position of strength, well equipped to navigate the raw material headwinds ahead. Turning to Slide 4. In Q1, volumes were down 1% year-on-year, reflecting a mixed regional picture. We saw strong growth across Asia and South America, while North America and Europe remains slow. In Coatings, volumes declined 2% in Q1 against the backdrop of continued macroeconomic uncertainties. Powder, specifically, Powder demand improved in both architectural and automotive. And the strong momentum in Asia continued. Marine, Protective delivered a lower quarter driven by project phasing and tougher comps in Marine, while Protective continued to grow, particularly in Asia. Automotive and Specialty remained sequentially flat. Aerospace is a clear growth engine, while Refinish grew in Asia and stayed at trough levels in North America as expected. Industrial Coatings declined low single digit with growth in coil, more than offset by lower volumes in packaging. Moving to Deco, Q1 was a solid quarter. Volumes grew strongly across Asia and South America, offset by lower volumes in Europe, Middle East and Africa, where the season started more slowly but accelerated through March and is also doing well in April. Latin America volumes were low single digits up, driven by Brazil's return to growth together with Colombia. In Asia, growth accelerated sequentially with continued outperformance in China and Vietnam, while Indonesia is showing signs of recovery. I'd add as a comment in reaction to some of the questions we got this morning and some of the headlines that we saw that we don't see a whole lot of evidence of prebuying in either Deco or Coatings. I mean they're very different businesses. But once again, there's no evidence of significant prebuying in any part of our business at this point. Take us to the next page, Maarten. Maarten de Vries: Yes. Thanks, Greg, and good morning, everybody. At group level, organic sales declined by 1%. Volumes were down 1%, while 1% price was offset by a negative mix impact of 1%. The divestment of India had a negative 3% impact on revenue. Finally, FX translation reduced revenue by 5%, resulting in a reported revenue decline of 9%. Coatings were impacted by geopolitical uncertainty with volumes down 2%. Growth in Asia and South America was more than offset by lower volumes in North America and Europe. Deco delivered strong price mix of 2% on flat volumes. Group adjusted EBITDA was EUR 345 million, representing a 7% increase at comparable scope excluding our India disposal and in constant currencies. The EBITDA margin improved to 14.5%, up 80 bps year-on-year. This improvement was driven by 300 bps margin expansion in Deco on strong pricing and structural cost savings. In Coatings, softer volumes and negative mix weighed on profitability. Next slide. We delivered another quarter of free cash flow improvement by EUR 39 million at minus EUR 144 million versus minus EUR 183 million in Q1 last year. The first quarter is seasonal quarter with inventory build and related outflows. Working capital also improved, ending the quarter at 16.8% and 20 bps below prior year. Notably, this was achieved while we closed 3 sites as part of our industrial transformation program, which requires inventory buildup to support volume redistribution. Return on investments rose to 13.6%, up from 13.1% last year. And finally, supported by the improved cash generation, we maintained our leverage ratio at around 2x. Now handing back to Greg. Gregoire Poux-Guillaume: Thanks, Maarten. Moving to Slide 7, I think, tensions in the Middle East have pushed oil prices higher and caused significant disruption across the chemical value chain, driving expected high-teens raw material inflation for the remainder of the year. In response, we moved decisively to protect margins and have announced price increases ranging from the mid-single digits to the low teens. The announced price increases will fully offset raw material and logistics inflation based on current market conditions. We'll execute further pricing actions if conditions worsen. So once again, these price increases have been announced, they've been discussed with customers, they're being implemented. The last cycle demonstrated the strength of our ability to pass through inflation. If you think back to that time, '21, '22, EUR 2.3 billion of cumulative pricing to fully offset the EUR 2 billion of raw material inflation, although pricing took time to catch up. This time around what we're building on that experience and we've acted faster, bringing pricing and inflation into closer alignment in the early stages of the cycle. We're not executing at pace with the P&L impact of our pricing actions ramping up in Q2 and the full effect visible in Q3. Beyond pricing, we're actively managing input cost inflation contractual terms and competitive sourcing are limiting cost increases from suppliers, while our regional-for-regional sourcing model keeps supply continuity and act and provide resilience against further destruction. In short, we've navigated this before, our response is in motion, and we believe we have the track record to back our confidence. Turning now to our outlook on Page 8. Looking ahead, our 2026 adjusted EBITDA target of at or above EUR 1.7 billion remains unchanged. The EUR 100 million step-up continues to be driven by what we control, EUR 90 million of net savings from our industrial program, with SG&A carryover and productivity offsetting inflation. We remain firmly focused on completing the industrial program by year-end while maintaining strict cost discipline. Although the Middle East conflict has limited impact in the first quarter, raw materials and logistics costs will ramp up throughout the year. The exact impact is still evolving, but additional pricing has been announced, as I said, and we'll fully offset this inflation we see. And therefore, we believe that the actions that we have in place have neutralized that impact and we'll take further actions if needed. For Q2, we expect adjusted EBITDA of around EUR 400 million. Volumes are forecasted to be broadly flat against comps that are less challenging than in Q1. And pricing will build progressively throughout the quarter, offsetting raw material inflation, while OpEx savings will be delivered as per plan. Moving to Slide 9, the merger preparations with Axalta are progressing as planned with three critical work streams running in parallel. On integration, the management office is up and running with a strong cooperation between the teams, focus is on day 1 readiness and accelerating synergy capture. The shareholder preparations continue to advance. The PCAOB audit is complete. The confidential F-4 filing was submitted end of March, and the EGM is expected to be held in early July. Separately, the regulatory process is underway with active dialogue across many jurisdictions, including the U.S., the EU and the U.K. We remain firmly on course to close by the end of the year or early next year. I'll now hand over to Jan Willem, who will close with information about upcoming events, and then we'll start the Q&A session. Jan Willem? Jan Willem Enhus: Yes. Thank you, Greg. Before we start the Q&A session, I would like to draw your attention to the upcoming events shown on Slide 10. Our AGM that will be held tomorrow, April 23, the ex-dividend date on our 2025 final dividend, April 27, and the record date is April 28, followed by payment on May 6. This concludes the formal presentation, and we'll be happy to address your questions. [Operator Instructions] Operator, please start the Q&A session. Operator: [Operator Instructions] Our first question for today comes from Thomas Wrigglesworth of Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. Firstly, around the volume outlook that you have I mean clearly an evolving picture, but obviously, you've kept the volume picture flat and you're pushing through pricing. Are you expecting to see some demand erosion? Or do you think that is too early to tell or there are mitigating factors within there that mean that, that doesn't -- that shouldn't arrive this time around? And secondly, just on the -- you successfully -- you very successfully passed through pricing in the previous cycle. But one of the issues we found was in the coatings industry, less so Akzo, was kind of unique components that were missing or became short. Just in terms of your total inventory picture, how does that vary by region? How many weeks, how many days of inventory do you have in terms of visibility and in terms of lead time to get -- to enable you to get prices up? Gregoire Poux-Guillaume: Thanks, Thomas. I'll take the first question. Maarten will take the second. From a volume perspective, we've kept the outlook flat. When we look at -- so when we look under the hood, we're not really seeing -- we didn't see any prebuying of any significance, we are not seeing a slowdown either. We're essentially seeing a trend that is -- seems to be fairly stable. So will -- if we stay in a world of higher inflation because that [indiscernible] inflation creates price inflation and creates inflation overall, would that have an impact on demand overall? I mean I think economic theory would tell you it would. But it's -- one, it's not visible today. Two, it's too early to tell. Three, we're playing against easier comps starting in Q2. You have to remember, you had Liberation Day last year and all sorts of things that made our life exciting. So I'd say so far, so good. And March was healthy. April was healthy, too. We announced price increases that we discussed with our customers without seeing them ramp up their orders or -- I think there's a view in the market that there's potentially a resolution on the horizon. But whether that's correct or not, we're not seeing anything that would lead us to change our volume outlook for the time being. Maarten, do you want to take the second question? Maarten de Vries: Yes, on the pricing dynamics and maybe a few points to make. First of all, this is really a very abrupt price increase. But of course, there is a different picture per region and also per business or per business segment. So we use differentiated pricing, of course, in that context. And on your question on lead time, what you see in general that in Asia and particularly in China, supply chains are significantly shorter compared to, for instance, Europe. So that's why in Asia, within shorter supply chain, but also a more material increase, you see also there a faster reaction to compensate. Gregoire Poux-Guillaume: It's really interesting, by the way, because Asia structurally has a higher impact from what's happening in the Middle East and the Strait of Hormuz just because where these oil and some of these refined products go. And as Maarten said, it's a shorter supply chain. So you should say, well, there's going to be more of an impact in Asia and that impact will be felt earlier. But actually in Q1, what really pulled the performance is Asia. So it's holding up well at this point in terms of demand, once again, to link Maarten's answer on the second question to the first question. Operator: Our next question comes from Laurent Favre of BNP Paribas. Laurent Favre: Greg, how much of the pricing that you're targeting for the rest of the year is underlying pricing rather than surcharges, which I guess is a way of trying to understand how much carryover we get into 2027 as things are now? And then the second question is on the Asia disposals in Deco. So you did Pakistan and obviously at a good valuation, but I guess the process there started before the war. So I'm wondering, to what extent you think the current Middle East situation is just going to push back all your, well, I guess, expectations around announcing more deals either from a valuation standpoint or just because just too much uncertainty and people don't want to [ move ] capital now? Gregoire Poux-Guillaume: Yes. Thanks, Laurent. I'll take your questions in reverse order. You're right, Pakistan, we started discussions before the war in Iran. But the war in Iran did not lead to a value erosion of that process or a fragilization of that process. So there was no time when potential buyers try to use that as a reason to either take down the price or push things back. And if you look at what we have in mind for the rest of Asia, it's really interesting. I mean we're in this world where people WhatsApp you stuff all the time. And while we were getting ready for this call, I got a WhatsApp from a senior executive of a well-known company that asked me about the availability of one of our Deco businesses in Asia. So this is like real-time stuff. So I -- what that tells you is that people look through the crisis. These are really good businesses. Nobody is trying to figure out whether -- what's the impact for 3 to 6 months. They're buying for the long term. And these are franchises, these are well-known brands with entrenched positions in countries. And I don't want to be cynical that things -- this too shall pass, but that's not how buyers look at assets. And once again, a few data points, no change on Pakistan despite events and people actively knocking on our door pretty much in real-time for anything else that we might have in mind in Deco in Asia. Your question on the price versus surcharges is -- I think it's a really good one. And we've explained in the past that about 25% of our business -- 25% of our revenue is based on formula indexes. So take Akzo overall, there's about 25% of our revenue where prices adjust based on the formula. In Industrial Coatings, for example, that's a significant part of it, but there's other places, too. Those formulas, they're not very effective for small variations, but they're really effective and really impactful for big variations. And we're in big variation land. So essentially, I was touching base with the Industrial Coatings business. And essentially, they told me yesterday that these formulas have already been agreed to the impact, and it's already being passed on. So that's being rolled out in invoices in April, in May. I think the tail end of that is things that go in on the 1st of June, no later than that. So it's kind of actually spread out between 1st of April, 1st of May, 1st of June. So that's about 25% of our revenue base. And everywhere else, in some cases, we have longer-term contracts, but a lot of it is spot essentially. And there, you have the option of going with price increases or surcharges. Our preference is to go for price increases because these -- the surcharge stuff is -- you're right, it's less sticky, but it has an advantage, though, that usually you can implement it faster. So overall, we've gone proportionally more for price increases, but there are certain areas of the business where we've gone for surcharges, usually in areas where that's the acceptable or accepted practice. But once again, that's not our preference, but that's something we do when that's the market practice and when we believe that speed is the essence. Operator: Our next question comes from Matthew Yates of Bank of America. Matthew Yates: A couple of questions. The first one just around cash flow and working capital management. If I think back to the prior cycle, you ended up consuming the best part of EUR 1 billion in additional working capital. Can you talk about sort of how you're thinking about the impact this time around and any lessons learned? I think with the benefit of hindsight, I think you yourselves were prioritizing security of supply that then led to quite a prolonged effort to unworking that. How are you engaging with your raw material suppliers at the moment to balance what you need versus not buying too much at perhaps what is the top of the market? And the second question, I'd like to follow up on what Laurent was asking around the process for Asia, and I'm a bit confused as to what the strategy here. I was under the impression that you were reviewing positions where you did not have a pathway to being a market leader. Based on recent press reports, it suggests that you're taking a more holistic look at whether keeping any Asian business would be worthwhile if it has a lack of scale. And I'm just curious, how you're thinking about this process? Is it going to be piecemeal? Or are you looking at a total exit of your Asian Deco franchise? Gregoire Poux-Guillaume: Matthew, I'll take the second question. I'll start with that, and then Maarten will take the first one. To clarify, our strategy hasn't changed. We love our Deco businesses, we believe that our capital is better allocated to leadership positions. And if you take Deco specifically, the part of the world where we don't always have a leadership position is actually Asia. So hence, the fact that in September, I think, 2024, we announced a review of our Deco Asia position. So it's not coatings at all, it's just Deco Asia. We sold India. India was a great business with 5% market share. We sold Pakistan. And we're looking at some of these other positions. And to your question of is that wholesale or retail, is that -- are we looking at potentially selling as a package? Or are we looking at assets individually? Right now, we're just having discussions in general. We're not -- we haven't decided anything, but we've been clear that if we're not the leader and we don't have a path to leadership, we will consider options. And that -- these are the options that we're talking about. By the way, that discussion does not include China. China is a really good business that is recovering ahead of the market that we're excited about for the years to come. But it's -- the scope that we are looking at from a strategic perspective is essentially the rest of Asia, which once you've taken out India and Pakistan is about EUR 300 million of business at a profitability, which is a little bit higher than the Deco average. So hopefully, that answers the question. But I don't have anything else to communicate on this at this point beyond the fact that we're continuing with the exact same strategy, taking a critical look at these assets, and we are having a bunch of conversations because it's not like we've been discrete about it. So people are calling up or to allude to my answer to Laurent's question, people are WhatsApping me. We're very modern. Maarten, do you want to take the first question? Maarten de Vries: Yes. Yes, Matthew, it's a very good point. And obviously, we have taken the lessons learned from the previous cycle. We are operating at the moment end of Q1 at an inventory level, which sits just above 100 days and is in line with last year Q1, by the way, despite the massive transformation we are doing as part of our industrial footprint. Clearly, we will -- and we are and we will manage our inventories at a tight level because it doesn't make sense to start to buy when prices of raw material have spiked already because the spike is already there in terms of raw material prices. So we manage it tightly, not buying at the highest level to make sure that we manage our working capital in a proper way. And as you know, yes, in value, inventory goes up, but payables will also go up. So that compensates each other, and that underpins kind of the trajectory we see from -- for working capital throughout the year. Gregoire Poux-Guillaume: But Matthew, you're correct. Last time around in '21, '22, we did really well in terms of pricing to mitigate the impact. We did really badly in terms of anticipating raw material prices and availability, and we had a tendency to hoard. And when the situation started normalizing, we had 2 or 3 quarters of relative underperformance because we were still working down higher-priced inventories. So in terms of lessons learned, that's lesson learned, which is we're going to keep a very close eye on days of inventories. And we haven't given our people relief, we haven't told them that target of getting under 100 days of the [ IO ] is suspended. Let's go out and buy whatever we can. That's absolutely not what we're doing. It's business as usual, but it's business as usual in a more dynamic way because the market is a little bit stretched. Operator: Our next question comes from Katie Richards of Barclays. Katie Richards: Two questions from me, please. The first, I just want to understand, to what extent the positive margin momentum in the Deco side was driven by the higher inventory backlog you've been describing? Because you were talking about ahead of site closures, you are building inventories ahead of that. And secondly, you mentioned earlier that now the market has a view that there's a resolution on the horizon, so I'd just be interesting to understand whether you're finding it more difficult to push through price increases now that the news headlines are focused on a ceasefire. Gregoire Poux-Guillaume: Thanks, Katie. The second question is -- I'm not trying to be a geopolitical commentator. I was explaining why -- I was giving a reason or an explanation of why we're not seeing a lot of prebuying. People are fairly calm in the value chain. But I think we all understand that even if there's resolution tomorrow, oil prices will remain at a higher level for the quarters to come and the chemical value chain will take some time to resorb. The moment you open the Strait of Hormuz, in all likelihood, the ships that will be given priority are the VLCs, the very large crude carriers. And all the stuff that has chemicals on them will be at the back of the queue. So I think we all understand that whatever happens, this impact is going to be carried for the rest of the year. There's no magic wand to go back to pre-Iran quickly. So no, whatever is happening is not impacting our price discussions. And also, I think people have gotten used to the fact that those discussions are a roller coaster. So no specific impact from that perspective. Your point on Deco margins, you saw that our margins were up 300 basis points in Q1. And actually, your question is a really good question because you're essentially -- if I phrase it differently, you're asking whether that performance is supported by positive inventory revaluations. And the answer is that it's not. The inventory revaluations have not impacted Q1. And therefore, that performance was achieved the old-fashioned way. And the old-fashioned way has been specifically to this, this industrial transformation that we undertook where we're closing a lot of factories, we're streamlining the business, we're taking out some of the overheads. Over time, it pays off. And what you're seeing is those actions paying off. You're not seeing any kind of weird one-off accounting impact of raw [ mats ] go up and therefore, we do an inventory revaluation that's positive that underpins the Q1 performance. That's not the case. I can confirm that. Operator: Our next question comes from Tony Jones of Rothschild & Co. Tony Jones: I've got two. On site closures, you have reported you've taken out 3 in this quarter, and I think you said that's 15 in total. Could you remind us what the target is for this calendar year and how that might split by division and region, if that's possible? And also, what are the criteria now with -- we're at the end of April, you have the Axalta merger hopefully on track for the next 6 to 12 months. Is that also starting to take effect? And then in terms of the divestments, sort of circling back to early questions, how much of the divestment strategy, particularly Asia, is now starting to also consider the combined footprint with Axalta? Or is that just not relevant at this point? Gregoire Poux-Guillaume: Thanks, Tony. The site closure question, we said we've done 15. We never gave an overall target. But if you go back to where we were last year, we were at 12. And we said that we've done 6 for the year, and we said there were at least as many in 2026 as in 2025. So at least as many, it means above 18. I'm sorry to be coy and to -- but you understand these things are sensitive. But roughly 18 plus, and all of those are going to happen. And none of that is changed by the impending Axalta merger. These are all things that we believe makes sense regardless of whether we merge with somebody else or the market environment. So we're going ahead with those. And there was a divestment question, I think, Maarten? Maarten de Vries: Yes, there was a divestment question. And again, we are going ahead, as we mentioned earlier. And there is no relationship to the Axalta merger, also not related to the footprint. We are executing our stand-alone strategy. And we are focusing on this year, and the merger will come from early next year onwards. Gregoire Poux-Guillaume: And I think if I may add something to what Maarten said, it ties to a question we've been asked multiple times by investors, which the merger, there's really good investor support. But if they have one gripe, it's -- this pushes returns out into the future because a lot of people look at this and go like, "Well, you're going to be busy with regulatory until closing. So that takes care of 2026. And in '27, you're going to spend $600 million to generate EUR 600 million of synergies. So that means that the earlier I can start seeing returns is 2028." But the reality, if you read the merger agreement is that we've maintained the right to monetize some of our assets in Deco Asia. And as you can tell from what we're saying, we're continuing, which means that some of those returns are being brought forward by whatever we do with those assets specifically. And once again, no change, no change because of Axalta and no change because of the market. If anything, that those processes are generating quite a bit of interest. Operator: Our next question comes from Chetan Udeshi of JPMorgan. Chetan Udeshi: The first question I had was, Greg, you mentioned the local sourcing for local region strategy. But I mean, correct me if I'm wrong, I sort of remember in Europe, about 12% to 30% of your raw material requirement is actually typically imported from China. And I'm just curious, is this going to change how you look at importing from China in the future? Of course, the prices from China tends to be much lower. But then if you have these sort of supply shocks like COVID, wars, does that make sense or does it make sense in your view to double down on local sourcing in Europe or rest of Asia, even if that means you have to pay higher prices to local suppliers? The second question, just going back to the pricing, it seems to me at least that these are the price increases that you are pushing through. Can you give us any color on how the acceptance has been so far from your customers? Are they -- do they understand? Are they pushing back? Is it a kind of war? Because we all take the price increases on the face value, but of course, what matters is how much will stick. Maarten de Vries: Let me take the first question on regional or local sourcing. In fact, what happened post-COVID, we have focused more and more on local sourcing. And if you look at specifically Europe, and our local sourcing versus what we source from Asia, particularly China; that is, in fact, a very low piece. So it is significantly lower versus what you are mentioning. Currently, we are more or less at a 10% level. So our model has more change to regional/local sourcing. Gregoire Poux-Guillaume: Which, by the way, we talked about, I think, maybe 18 months ago or 2 years ago because the question was, are we taking advantage of the exceptionally low prices in China at a time, if you remember, it was when Europe was passing on tariffs on Chinese [ TiO2 ], antidumping. And what we said at the time is that we had derisked our flows. We realized that there's a geopolitical risk associated to having too many eggs in the same basket and that we were willing to absorb a little bit more cost to have more certainty. So it's exactly what Maarten said. And if you kind of go back to what we said at the time, you'll see that it's very consistent. The second question, Maarten? Maarten de Vries: It's on the price increases and customer acceptance. Gregoire Poux-Guillaume: Customer acceptance. It's -- I go back to my answer to Laurent's question. There's about 25% of our revenue, which is formula-based, and then that takes away a lot of the emotion. On the B2B side, so the other coating businesses, it's been -- the industry reaction has been fairly kind of consistent across the board. If you look at the announcements that came out from different players, we're all pretty much saying the same thing. And our customers are also B2B players. So they're also looking to see how they pass on. So those discussions have been constructive. On the Deco side, it really depends. In some Deco markets, we are still on the tail end of discussions for the annual price increase for 2026 because these things have -- they have a tendency to be settled at the beginning of the high season, and the beginning of the high season is essentially now. So it puts a lot of things on the table at the same time, but everybody understands that this phenomenon is something that has to be mitigated. And actually, a lot of our customers are -- have already increased their prices in Deco. And any discussion that they have with us is more about margin expansion for them than it is about whether there's a logic to the price increases. But I'd say so far, so good, Chetan. Operator: Our next question comes from Georgina Fraser of Goldman Sachs. Georgina Iwamoto: I wanted to just ask a bigger-picture question, just revisiting the strategy to shrink Deco and consolidate and get bigger in the Coatings business. Are there actually any dis-synergies to owning both of these businesses? Or how do you present the value-creation strategy behind this idea to shareholders? Or is the disposal strategy in Deco just about the fact that you haven't been able to delever organically? Looking at the balance sheet, it's -- we're kind of just stuck and have been for some time. Gregoire Poux-Guillaume: Thanks, Georgina. It really is not about the balance sheet at all. Our cash flow generation was really solid last year. We are delivering at a higher level also in Q1. We're -- we've been actively managing working capital. We're not worried about our ability to generate cash, and we're certainly not worried about the balance sheet. And it's not at all about wanting to shrink Deco. It's about wanting to make sure that we are fighting battles that we can win, meaning that we have -- we want to focus in Deco on businesses, on countries where we have a leadership position because Deco is a local game, and it's a relative market share gain. We're very strong in Latin America. We're the market leader in Colombia, we're the market leader in Argentina. The impact of having Colombia on Argentina is pretty much zero and vice versa. These are not different brands, the products don't travel from one country to the next, production is local. So the way you win in Deco is by having the strongest brand and the best distribution. So it's a relative market share gain. So once again, if you look at the profitability of our businesses in Q1, I mean, Deco is at like 17.3%. It's 400 basis points higher than Coatings almost. Now it's a moment in time, Coatings is more impacted than Deco by what's happening in the world. But these businesses are really good businesses. But once again, we want to be in the countries where we have a winning hand. And we are -- we've also demonstrated with India and Pakistan that in countries where we're not necessarily the leader, these businesses are way more valuable to people other than us. So I don't know that any investor will look at me strangely if I sell a business where we have 5% market share and the market leader has 50%, and we sell that business at 24x EBITDA, which is exactly the situation in India. So once again, not about the balance sheet, it's about focus, it's about making sure that we are not to -- spread too thin. And to your question of are there dissynergies to owning both? Not really. I mean, I think the -- there's complexity, which is that it makes -- it forces investors to have conversations ranging from the weather in the U.K. to aerospace travel to whether people are crashing their cars in North America. So it makes the story a little bit more complex. And from a management perspective, we're essentially within Akzo, we're running a B2B business, and then we're running a smaller version of Unilever. Deco is essentially an FMCG business, although it's -- the F is a small F, but it's very similar to those businesses and -- which means that you manage them and you allocate capital to them in a very different way as you would for the Coating businesses. So that's all it is. It's not -- it's pretty straightforward, not about balance sheet, a little bit about complexity and a lot about capital allocation and value. Operator: Our next question comes from Sebastian Bray from Berenberg. Sebastian Bray: There on the Refinish business, please, can you give an idea of the geographic distribution of sales at Akzo Nobel within Refinish? And any comments on both the underlying market development, given that volumes have been weaker in recent quarters? And the relative performance of Akzo's own business would be welcome. Gregoire Poux-Guillaume: I don't think we've ever given the geographical split of the Refinish business. What I would say is that we're top 4 in the U.S. and in Europe. We have a stronger position in Asia. Our Refinish business in Asia did very well in Q1. Refinish in the U.S., as you know, was impacted by that sort of tension between higher insurance premiums and lower disposable income, and that stabilized at a trough, but it hasn't picked up yet. And Europe was less impacted, but is not rebounding yet. So if you run a Refinish -- if you own a Refinish business these days, what you have is growth in emerging markets, you have -- you're stabilized at a trough in Europe and the U.S. And -- but with an impending rebound that the bigger guys, PPG and Axalta, we're forecasting for the second half of the year, which might shift a little bit if gas is $4 per gallon at the pump in the U.S., maybe that has an impact on driving season. But it's a business that continues to have significant pricing power because it's a business that differentiates on technology. For the body shops, the cost of the paint is not a big cost item. What makes a body shop profitable or not is essentially throughput and labor costs. So if you offer a product that achieves a better result in less time, you're going to make good money and you're going to have pricing power. Hopefully, I've answered your -- I didn't give you percentages, but hopefully, I gave you some color. Operator: At this time, we currently have no further questions. So I'll hand it back to Greg for any further remarks. Gregoire Poux-Guillaume: Thank you. Well, look, strong Q1 in a market that is a little bit distracted by what's happening in the world. The market was soft in the first place that is always a source of concern. But as we look at how our business unfolded, January, February, small months; March was actually a good month, April is looking pretty good, too. There doesn't seem to be any signs of panic or significant disruption in the market, no significant prebuying, no changes in consumer patterns that we can see at this point. Once again, we're keeping a close eye on that for the rest of the year. But keep in mind that we're forecasting flat and our comps get easier. Our cost structure is really under control. We continue to take cost out, and it continues to have a positive impact, as you can see from the performance of Deco in Q1 as just one data point. And then we were pricing up before Iran, and we've stepped up one level because of the raw material impact, once again, in the high teens in our basket for the rest of the year, but mitigated by already announced price actions that we believe will neutralize the effect. So that gives us some level of comfort for the rest of the year. Once again, volumes are always the question mark, but so far, so good. We expect EBITDA to be about $400 million in Q2. And once again, you'll see progressively, you'll see the raw material impact materializing in our P&L, but you'll also see the corresponding price increases making their way through our P&L at the same time. And our aim is not to capitalize to expand margins. Our aim is really to price to neutralize the impact. Merger is making good progress. And we thank you for your time and your attention today. Thanks. Operator: This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
Operator: Hello, and welcome to the Randstad Q1 end 2026 Results Conference Call and Audio Webcast. [Operator Instructions] I will now hand the word over to Sander van 't Noordende, CEO. Mr. van't Noordende. Please go ahead. Alexander van't Noordende: Thank you very much, Barton, for that kind introduction. And good morning, everybody. I'm here with Jorge and our Investor Relations team to share our Q1 2012 results. Let me first say I'm proud of our team's continued execution of our partner for talent strategy, which is delivering a strong foundation for our growth ambitions. And as a result, our growth has broadened with 63% of Randstad now in growth, up from 50% in Q4, which equates to 0.4% growth for the quarter. Overall, volume in contingent work was resilient with strong momentum in the U.S. and Southern Europe, especially, of course, in Randstad operational business. We see further stabilization in industrial markets in Northwest Europe, while the permanent and professional markets remain challenging. APAC remains robust. Together with strong adaptability, this has resulted in a solid performance with revenues of EUR 5.5 billion and an EBITA of EUR 146 million, representing a 2.7% margin. Volume trends in early April have been encouraging. And so far, we have seen very limited impact from the geopolitical situation in the Middle East. As you would expect, we are monitoring the situation vigilantly and are in constant dialogue with our clients to understand the impact they are noticing on their business. However, the current trajectory of our business gives us confidence for the months ahead. As we move further into 2026, we continue to progress well on our partner for talent strategy. Our growth through specialization is fueled by the 10x10x10 initiative, 10 markets with each 10 opportunities of EUR 10 million or more. And [ Jorge ] and the team are doing a fantastic job here and secured over EUR 600 million of new wins in Q1. In operational, we saw an uptick of client activity across our industrial segments, particularly in manufacturing, including skilled trades in markets such as Germany and Italy. We saw strong growth in the logistics sector with increased hiring forecast in key markets such as the U.S., France and the Netherlands. In Professional, we saw momentum improving in engineering in the U.S., Italy and Japan, and we are growing in health care, primarily driven by the Netherlands and Italy. After a slow January in our enterprise business, we expect trends to sequentially improve from here as we secured a number of new clients this quarter across life sciences, semiconductors and energy. The health of our pipeline also bodes well for the rest of the year. We celebrated the rollout of our digital marketplace in the U.K. And once again, Talent loves it. Within 2 hours, we had 77% of the targeted talent on the app. We are now live in 9 markets. In March alone, we managed close to 600,000 self-service shift with around 240,000 monthly active users. We also went live into front and mid-office of our Randstad platform in Italy with our digital marketplace to follow later this year. On AI, 80% of our staff are now AI trained, working smarter and more efficiently is essential to continue driving down indirect cost as a percentage of revenue. So as we enter 2026, I'm proud of our teams as our partner for talent strategy and commercial success provides a strong foundation for our growth ambitions. Because the notes on your minds, let me say a few words about the role of AI in the labor market. Above all, we are AI optimist. In the context of an aging population and persistent labor mismatches, we view AI as a critical enabler for a very welcome productivity boost. And there are a few points I'd like to make here. First, studies show that the base case for the impact of AI is a job loss of 6% to 7% over the next 5 to 10 years, with a particular focus on clerical roles, customer service, marketing and design and software development, where our exposure as Randstad is currently limited. Then it looks like AI is more about task and team augmentation than outright job replacement. So roles will change over time, and we, at Randstad call this the great adaptation of the workforce. Finally, the phenomenon of jobs disappearing and new jobs emerging is of all ages. Of the jobs we cater for today, around 60% to 70% did not exist 65 years ago when we started Randstad. Our first times were mostly executive assistance, which today are a fraction of our business. So what does this all mean for Randstad? First of all, Randstad operational and health care are 2/3 of our business today. These are typically jobs that are human-centric and minimally impacted by AI. Think about maintenance technicians, welders and fabricators, HVAC specialists and, of course, nurses and care workers. Secondly, our strategy is to ensure that we are highly relevant where the future jobs are. That's why we have our 4 specializations, each with its own growth segments such as skilled trade, logistics, engineering, health care. As the Canadian say, we are skating where the puck is going to be. In summary, we're confident by taking the right actions for our partner for talent strategy, we can navigate and benefit from the impact of AI on the labor market over the next 5 to 10 years. I'm going to now hand over to Jorge to say a bit more about our financial results. Jorge? Jorge Vazquez: Thank you, Sander, and good morning, everyone. Let me start by saying that overall, we are happy to see that this quarter mostly came in line with our expectations. The trends are consistent, they are more stable and the changes we are doing are also more structural. We saw sequential improvement in growth rates across most of our markets, and we returned to organic revenue growth. This growth is led by our operational business, as Sander just highlighted, which grew 3% globally, including a strong 8% in the U.S., where our digital marketplace is driving tangible market share gains. But it's also positive to see manufacturing PMIs above 50 in most of our markets for the first time in many, many quarters. While remaining vigilant on geopolitics, we do balance momentum with strength discipline and investments in our road map, not only to protect the bottom line but also in growth to ensure we have the operational gearing ready for the coming quarters. Before we move on to the section in the markets, please a small note, we have simplified the reporting structure by removing the regional subsegments in Europe. Where applicable, the comparative figures are presented to align with this new structure. So let's dive in and let's start with North America on Page 9. In North America, we continue to build throughout the quarter with strong exit rates in our industrial sectors. The U.S. operational grew 8%, significantly outpacing the market and its double-digit profit growth validates our new model of central delivery and the digital marketplace. Professional is down 8% but improving sequentially with forms returning now to growth. Enterprise started slow, as mentioned already at the end of Q4, but ended with stronger exit rates, driven by major new wins and a solid pipeline. Digital faced muted Q1 demand but adapted well. Canada mirrors the U.S. with strong operational growth offsetting a slower enterprise starts. Overall, North American EBITA margin was 3% year-over-year, delivering a 78% recovery ratio. Now moving on to the major European markets on Slide 10. In Europe, momentum is improving across our major markets, though the split between a strong South and the slower North still remains. In the Netherlands, organic revenue returned to growth, driven by continued good performance in health care and solid positioning with large logistics and e-commerce clients. We spent Q1 implementing the new CLA together with our clients and while complex and not finished yet, we progressed well and expect this to be concluded in the next few weeks. Overall, profitability came in at 4.4%. In Germany, we are seeing early signs of recovery, down just 4%, driven by improving PMIs. Industrial pockets are returning to growth, and even automotive was still declining, it is clearly bottoming out. Public infrastructure spending has yet to materialize. In Germany, the transformation we started last year is paying off as the business pushes hard to return to growth at a more sustainable level of profitability. Now in Belgium, we still declined 6% with operations minus 4%. The weakness in the market is mostly around permanent hiring and office jobs. Now moving on to France. It remains still a 2 speed markets. On 1 side, our in-house and larger client portfolio is up 11%. On the other side, SME and skilled perm segments are currently lagging the market. Professionals here also declined 13% year-over-year, with volumes weighed down by the recent health care legislation. Overall profitability came in at 3.9%. Italy. In Italy, growth continued to accelerate on the back of a successful Olympics campaign with operational up 9% and Professional also growing now at 6% as our recent investment over 2025 payoff. Profitability came in at 5.1%, impacted this quarter by an Olympic brand awareness campaign and strategic investments for the platform. Iberia had a fantastic quarter, plus 9%, led by Spain, north of 10%, where we are firing on all cylinders, and we continue to invest in further growth, both in people and capabilities. Let's now move on to the international market slide on Slide 11. International markets are a bit of a mixed bag, as you can see. So let me quickly unpack in more detail. In Europe, we celebrated the go-live RDMP in the U.K., like Sander mentioned, and it's great to see our first talent using the platform over the last 2, 3 weeks. Poland is still growing at 2%; Switzerland 3% continue to grow and offsetting still the subdued Nordics still at minus 11%. In LatAm, we continue to see good momentum, particularly in Brazil. In Asia Pacific, Japan continued its solid growth at plus 5%, and we continue here to invest to capture structural opportunities, particularly in the digital area and in Tokyo. Australia and New Zealand declined 4% with some signs now of stabilization. India, growth accelerated to 16% as we continue to invest in growth segments. Overall, the EBITA margin for the region came at 3.6%, reflecting growth investments. And that concludes the performance of our key geographies. So let me now walk you through our combined financial performance on Slide 13. Looking at the revenue mix, we see the trends of the last few quarters continuing. Operational sees momentum now accelerating and is now growing 3%. Remember, it was flat on Q4. Professional also improved quarter-over-quarter due to strong demand in health care, particularly in the Netherlands and Italy, engineering in U.S. and Japan. Digital and enterprise started the year slowly and tougher comps certainly did not help. Pipeline deal wins and exit rates for enterprise look better as we enter into Q2. Now our gross profit and OpEx were well aligned, but we will talk more about it particularly later. Zooming into EBITA. EBITA margin was 2.7%. Underlying EBITA was EUR 146 million with an adverse steel FX impact this quarter of EUR 6 million, which will start leveling off from here. Integration costs and one-offs this quarter amounted to EUR 23 million, and they were mostly related to basically the Netherlands or Northern and Western Europe as we continue to drive structural change across our organization. Net finance costs are just a regular interest payments albeit lower, reflecting the lower net debt coming down. The effective tax rate for the first 3 months was 31%. We expect '26 ETR towards the higher end of 29% to 31% range, and this all led to an adjusted net income of EUR 91 million for the quarter. But with that, let's indeed now deep dive into the gross margin slides on Slide 14. And a few things about the margins. So gross margin was down 80 basis points to 18.5%. Within that, our temp margin is down 60 basis points and primarily with the points we had highlighted already in the previous quarter. On one hand, operational remains more resilient, if not even now in growth versus professional and digital specializations. Two, we continue to see geographical divergence with Northern Europe below group average and Southern Europe continuing to do better. The adverse FX impact following, let's say, liberation days, it still plays a role. And last but not least, as we mentioned in Q4, there were incidentals between Q4 and Q1 last year, which impacted a little bit the comparisons. Perm contribution was still down 20 basis points, is now somewhat stable at low level as key European perm markets still remain very challenging. In HRS and other, remember, here, we include RPO, outplacement and a lot of other fee businesses, MSP is still flat. Now this is the market at the moment and where the majority of the gross margin pressure is simply a reflection of the continued growth divergence across our portfolio. Albeit most of this pressure starts to annualize as we progress through the quarters ahead. Now let me bring you now in more details into Slide 15 on our OpEx bridge. Underlying operating expenses were EUR 873 million, moving in lockstep with gross profit as we've been doing in the previous quarters. Despite inflationary pressures we lowered core costs, excuse me, OpEx quarter-over-quarter, and we are building clear operational leverage. We're achieving this through delivery excellence, growing volumes in key markets and delivering to the most productive to service models without adding as much headcount. In fact, the correlation between volume and FTE is now at a 6-year low. We also continue to reduce indirect costs as a percentage of revenue through scale and technology. Overall, I think the important point about our OpEx is that the change in the past 3 years proved to be structural with, again, the last 4 quarters, ICR hitting close to 70% at 68%. What this means is that we are improving our ability to offset gross profit declines by reducing OpEx or to convert gross profit into EBITA as growth returns. And with that in mind, let's now move on to Slide 16, which contains our cash flow and balance sheet remarks. First, balance sheet, our underlying free cash flow for the quarter stood at minus EUR 98 million. We typically have the most seasonal negative working capital movements in this quarter such as VAT, wage taxes, commissions and prepayments. In addition, in particular, in Q1 this quarter, we had a delay in invoicing at the beginning of the quarter associated with the Netherlands following the implementation of the new regulatory framework of about EUR 40 million to EUR 50 million. This will obviously normalize now into Q2, and we expect the same cash trajectory for the full year. DSO came in at 57.4 days, up 0.7 days sequentially and reflecting exactly the mix and the delay in invoicing. Net debt decreased EUR 131 million year-over-year, and our leverage ratio stands now at 1.5. And that brings me to the outlook on Slide 17. So looking at the current momentum, we see the positive volume trends in February and March, continuing to April, and that gives us confidence for the months ahead. Now remember, Sander highlighted, we have seen no direct impact from the Middle East, but we remain vigilant. Gross margin in Q2 is expected to be slightly down sequentially, reflecting the normal seasonal step up into volume higher clients, but also the lowest working day quarter of the year. And we continue to still see as we enter ongoing reluctance in hiring or permanent hiring by clients and talent. On the other hand, operating expenses are expected to increase slightly quarter-over-quarter, but always again, with strict operational discipline. So to summarize, by sustaining our growth momentum, continue to drive productivity from how we run our business and structurally reducing the cost to support it, we are inherently building operational leverage into Randstad. And that concludes our prepared remarks, and we look forward now to take our questions. Operator: [Operator Instructions] The first question comes from Andy Grobler from BNPP. Andrew Grobler: Just the first one on the Netherlands, which was much stronger than it had been. And you talked about Zorgwerk impacting that. But I guess, Zorgwerk is relatively small. Can you just talk through the maths of what has changed and how much of that is due to Zorgwerk? How much of it is the rest of the business, please? And I have one follow-up. Just one. I'll go with that one, but I'll follow up later. Alexander van't Noordende: Okay. Well, a good question, Andy. Let me -- I'm going to first say that I think the team in the Netherlands has done an outstanding job in engaging with the clients and managing this -- through this whole situation. So that's phenomenal. We said it was manageable, and it turned out to be manageable. So I think that's very good. So I'm going to ask Jorge to say a few more words about the economics of all this. Jorge Vazquez: Yes. So I would say, Andy, at a very high level, probably the, let's say, step-up from Q4 into Q1, and in this particular in the Netherlands, I'd expect about half of it being connected to the good performance of Zorgwerk health care, I mean, it's not a small company to be clear. And that has also to do, of course, that now this makes part of our organic growth rate. So that's -- as we annualize basically the acquisition of this and the remaining 50% has to do with strong performance in e-commerce and logistics and in general legislation as well, now including the support into Q1. Follow-up question, Andy? Andrew Grobler: Just on a slightly different topic, given the rate environment, what are your expectations for finance costs through the remainder of the year, please? Alexander van't Noordende: Finance costs . Interesting. Jorge Vazquez: To basically continue down. I mean you can see -- we can see we start the year with already a lower [ FIF ] into the year, and we continue to expect trending net debt down year-over-year, especially towards the second half of the year, as we always have the positive side of operating working capital. Andrew Grobler: Okay. So that Q1 number is -- we can expect similar levels through the remainder of the year? Jorge Vazquez: Yes. We can expect similar numbers throughout the remaining of the year. Yes. Operator: The next question comes from Remi Grenu from Morgan Stanley. . Remi Grenu: Yes, my question would be on the momentum productivity, you're tagging that April was in line with March and I guess with the minus 2.4% in January and your organic growth through the quarter. It probably means that the current run rate is north of 1% organic growth in the later part in terms of exit rate in April. So if you could confirm that? And trying to think about how to how to think about the better momentum that you've experienced in the business and the potential negative from the environment. I'm trying to understand what's your -- what's the base case you're working on internally? Would it be like continued improvement in temp and maybe a little bit of weakness in permanent recruitment? Just a discussion around that, that better.. Jorge Vazquez: Thanks, Remi. So first of all, I mean, let me talk about the momentum. I think probably the most important comment is what Sander mentioned in the beginning. The step-up is broader. So it's across -- I think practically all markets have shown a better momentum, if not perhaps Belgium being the exception. The rest all our markets have stepped up. And that -- yes, that sustains our belief, okay. We made a step up. Two, you also see PMIs having improved significantly through -- atleast having been positive in most markets during Q1. So it is, let's say, something that we look at confidence, okay, what is at the basis of IT, at the core of it. If I look in the quarter, indeed, you will remember when we talked about January, we -- our exit rate was approximately minus 0.4% in January. We had a step-up in February, but I think I'll prefer given the amount of working days and the holidays between 2 months, then you should take step, let's say, Feb and March together. And that will probably bring you, let's say, between 0.5% to 1% as an exit rate. Remember, we say April productivities are in line. We are continuing to take that into Q2. There are adverse comp effects, but we also had them in Q1. So for now, basically, we just take it as it comes, but it gives us confidence into Q2. Remi Grenu: Okay. And just to follow up, the discussion on temp versus perm for the outlook. I mean we've heard some of your competitors being a little bit more cautious on permanent recruitment for the next few months. Is it something that you're looking at as well? And any insight from discussion with clients on that side? Alexander van't Noordende: Remi, what you probably have at the moment, if you look at the actual absolute amounts invoiced, they are quite stable. What you see is the critical roles are being replaced. When clients will have more confidence and talent to start changing jobs or organizing work with more permanent jobs, we don't know. We also have in the U.S. some green shoots in terms of permanent recruitment, perm. EU is still very weak. Now what I would argue is it's also a context where typically uncertainty will play out for any seasonal work to be primarily absorbed now by more temp or flexible solutions. And that's what we see at the moment. Operator: The next question comes from Rory McKenzie from UBS. Rory Mckenzie: It's Rory here. I wanted to ask about the digital marketplace, which you said did 1.45 million shifts in Q1. I just want to ask a lot more about the context for that number. So how much -- how many shifts did your business deliver in total in the quarter? And also just what kind of shifts are shifting to this marketplace? Is it more short-term one-off covers or are customers using the DMP to change how they staff entire businesses? And also, can you talk about is it changing your impact on the market in terms of new clients? Or is this about wallet share? Alexander van't Noordende: Yes. Very good questions, Rory. Let me sort of start from the top. Obviously, this is all about making sure that Randstad supplies or delivers what we call immediate talent availability. We -- I always say to the teams, we need to have the talent already there before the client even knows they need it. So that's one. You can only do that with digital technologies. And that means that in our operational business and our biggest example is, of course, in the U.S. in operational, but we also have marketplaces in health care, in France, in the Netherlands, in Australia. In operational, we are starting or have started in a number of countries, think Canada, also Australia, Japan. So this is becoming a widespread phenomenon and an integral part of our strategy as Randstad. So -- and why do we -- why do clients like this? Our clients like this because they get what they need. So the fulfillment is higher. It's easy to do business with. In some clients, we are directly connected to their operational system. So the shifts that they cannot fill, they put immediately onto the marketplace. Those shifts are filled within minutes or hours. Generally, 50% to 60% of the shifts is filled within 1 hour, which gives the client confidence that the people will show up. Another benefit for the client is because people have selected those shifts themselves, the no-show rates have basically gone in half, so have reduced by 50%. So there's all goodness in there for the client. For the talent, there's also goodness in there because talent can now decide when and where they work is one. They can do that at the moment as they like, and that's typically in the evening. They don't have to call one of our consultants to talk to that. They can decide by themselves. So again, the no-show rates increase. So this is clear benefits for clients and talents. Then all those benefits also add up to benefits for Randstad. Higher fill rate is more business. No shows reduced is more business. Fulfill rate up is happier clients, fill rate up is happier talent. Of course, efficiency productivity because there is no human intervention, client types in their own shift, talent selects their own shift. That means 0 marginal cost if there's more demand, meaning ramp-up is a lot easier because we have the talent there. The client decides that they need 10 or 20 people more the next day we put the shifts on the marketplace, it all works. And I'm absolutely convinced that our growth rate in U.S. operational this quarter is driven in part by the fact that we have a digital marketplace because when the market ramps up, you need to be quick. If you have the talent already there, and it's just a matter of filling shifts through the digital marketplace, it's all good. In terms of what does this mean for our business? So we have 15% of our business now on digital marketplaces, roughly EUR 4 billion. EUR 3 billion of that, you have to think about EUR 3 billion of that is operational and EUR 1 billion of that is in our professional space in Randstad Digital in North America. This year is going to be a year of rollout, so where we start in a number of new markets. I mentioned a few of them already. So that next year, we can scale. So by the end of the year, we're looking at 22% of our business through digital marketplaces. And last but not least, the excitement that this is creating within Randstad is quite phenomenal because our people see that they are differentiated in the marketplace. We have more and more clients saying, we want to do business with Randstad, because you have the digital marketplace. That's easy for us, but it also means it is access to talent because talent lives in the digital world, not in a branch or somewhere else. So it's exciting for our people because we have something new. We have something exciting. We're differentiated, and it works very well. So you can guess I'm really excited about all of this and cannot go fast enough as far as I'm concerned. Rory Mckenzie: Yes. That's a lot of detail and just one follow-up, if I can. It maybe to link this DMP to what you talked about on Slide 8. where you talked about AI in the world of work at a broad level, but maybe not about how AI could reshape the channel of connecting labor demand and supply. Do you think and do you hear that clients are engaging with maybe lots of different digital marketplaces for types of labor or channels? And what do you think happens to the kind of landscape of that labor supply as a result? Alexander van't Noordende: Yes, that's a good question. If you add up, Rory, the market share of all digital native companies combined in our space, the numbers that I've seen, they have a combined market share of around 5%, and that's the likes of professional marketplaces, freelance marketplaces and, let's say, operational marketplaces for your waiter or for your nurse. So the digital phenomenon in our industry is still relatively small. And that means there's a massive opportunity for us at Randstad to scale and to take share over time, because not all players will be able to implement a digital marketplace at the scale where we can. First of all, because it's hard work. But secondly, you meet the expertise. But secondly, it's also big investments. And we are fortunate enough to have a strong balance sheet so we can afford those investments. So it's going to be an interesting time in terms of digitizing the industry. Operator: The next question comes from Simon LeChipre from Jefferies. Alexander van't Noordende: Let's take the next one. Simon LeChipre: Can you hear me? Alexander van't Noordende: We were looking for you, but we couldn't hear you. Simon LeChipre: Sorry. First question on the gross margin for temp. I was a bit surprised to see the performance getting incrementally worse despite the better top line. So can you give us a bit more color on the different moving parts? And what does that mean about the drivers of this better top line? Jorge Vazquez: Thank you, Simon. So I think -- I mean, we had spent some time on Q4. We had already highlighted that we should look basically at the 2 quarters, Q4 and Q1 together. So we actually think our -- let's say, gross margin came in well right in the middle of our expectations and the temp margin as well. So I would say in Q4, we had 40 basis points. If you remember, in Q1, we now have 60. We said it was impacted by incidental items last year between Q4 '24 and Q1 '25. So I will take the underlying run between both about approximately 40 basis points. So -- and the good thing is it came within our expectations, and we now see it basically things stabilizing and many of these movements starting to annualize as we go into the later quarters of the year. Simon LeChipre: Okay. And a follow-up on Netherlands and obviously, quite a step-up in top line, but it seems like the drop-through was quite weak with margin declining year-on-year. So can you give us the details behind this performance, please? Jorge Vazquez: Yes. If you look at the 4.4%, that's probably quite the run rate also comparing to the last quarters. I just told as well that we had last year incidentals that were particularly in the Netherlands associated with sickness and now basically, we started normalizing for higher sickness rates over the last 2 to 3 years. So I think if we take that into account, I think things are pretty stable in the Netherlands and definitely even [ although ] versus Q4 is slightly up. Operator: The next question comes from Simon Van Oppen. Simon Van Oppen: Could you give us a little bit more color on your working capital in Q1? We saw free cash flow was a negative EUR 100 million versus EUR 60 million last year. And we understand that H1 is usually seasonally light in terms of cash inflow as staffing companies tend to absorb working capital as they grow. But we noticed that DSO increased year-on-year to 57.4 days versus 55 days last year, which is quite a step up, especially since one might assume you're dealing with broadly similar country mix effects as peers who seem to manage to bring DSO down while growing faster. Any thoughts on what's behind the difference would be helpful. Alexander van't Noordende: Thanks, Simon. So first of all, I mean, indeed, I mean, the fact that it is negative, I think it's been like EUR 218 million to EUR 219 million to probably [ EUR 220 million to EUR 224 million. ] So it is -- the Q1 is always a quarter heavily impacted by working capital typically investments. And that has to do, as I mentioned earlier on, with all wage taxes payments, VAT, but also commissions, bonus payouts and even especially as we have a lot of software licenses, prepayment of a lot of licenses. So that is the normal, let's say, impact. What we did have this year is we had a higher, let's say, a delay on invoicing in the Netherlands. So that especially compared to last year, takes an impact. In January, we were late by approximately EUR 40 million, EUR 50 million in invoicing, and that spills over into next quarter. That has to do with the implementation here in the Netherlands of the new CLA legislation that is sold. So basically, it will normalize now as we go into the year. And then if you ask compared to last year as well, you will remember, we had a quite, let's say, low free cash flow generation in Q4 2024. That came primarily because the week -- the end of the year had finished in the weekend. So we've got a lot of, let's say, payments that were late paid into the first days of January last year. So that plays a little bit the comparison versus last year. I think in terms of trajectory for cash, we remain unchanged throughout the year. Now comparing to our competitors, look, DSO is not an established metric. So everyone is their own definition. At the same time, I think what we do see is, of course, our divergence in mix is quite significant. So yes, if we have Italy and Spain outgrowing and growing more than the market, we will play a role in our DSO. But I mean, we see our overdues continuing to decrease. We see credit losses even at historical low moment. So to be honest, I'm quite confident on the DSO -- on the cash trajectory. Operator: The next question comes from Marc Zwartsenburg from ING. . Marc Zwartsenburg: I would like to ask a question about the margin, regional margins, a couple of regions. So first of all, the Netherlands, you just explained a bit that there is a bit of normalization with sickness rates and that the margin has been lower. But on the other hand, we also have the new regulation in place with better pricing, and we have software doing really well. So maybe a few thoughts on how we should look at the margin going forward for the Netherlands. And if I look then to Region North America, yes, with also weaker enterprise, and the benefits from the digital marketplace, should we expect at some point that you will see quite some positive operational leverage in North America? And then 2 other regions, France and Italy, they are growing very fast, but we don't see a drop-through thing. Maybe explain a bit why that is? Jorge Vazquez: Yes. So first of all, -- if I had a short answer -- good to speak to you, Mark, if I had a short answer, I'll say, yes. So it will be the short one. And what I mean by this is, clearly, I mean, we don't optimize for a quarter. There were a few timing events this quarter. Now as we go from the lowest seasonal quarter of the year into the higher seasonal quarters, Q2, Q3, it's very clear. Countries where we are growing, we're going to deliver operational gearing. That's basically what we can see happening from both, let's say, productivity that Sander alluded to before, plus everything else we've been doing in reducing structural costs. So I'm quite confident, let's say, that we're going to be delivering gearing in the countries where we have growth. On the ones where we're not, we're working hard to basically keep on improving, making them more agile, more resilient and making sure that they may also make a step up. So from that perspective is the short answer. In the Netherlands, I want to be a little bit clear. The regulation, I mean, from a gross margin perspective, might be dilutive as well. So I wouldn't call it -- I mean, there is a lot of additional costs that have to be passed [ through ] That's the end impact in our margin but let's say, the first pressure will be a dilutive pressure in margin. Now we've also been adjusting our cost base in the Netherlands. You saw the one-offs this quarter primarily related to the Netherlands. So we are also starting to see about how to basically step up in profitability. But for now, I would say this level of profit is as going 4% to 5%. Marc Zwartsenburg: Yes. And in Italy and Spain, where you're growing so far, what you... Jorge Vazquez: Good point. Marc Zwartsenburg: So we don't see really operational leverage there. Jorge Vazquez: Yes, I'll say watch this space. So again, I told you there were some timing issues this quarter. In Italy, in particular, we've been investing. We also been -- we had an important marketing campaign this quarter in completing Q1 associated with the Olympics. We've also been investing in our, let's say, the rollout of our platform that Sander just has been describing. In Spain, we can see we continue to add head count year-over-year. So we've been investing and we continue to grow ahead of markets. I'm quite confident these countries will be showing operational gearing throughout the year. Marc Zwartsenburg: That's very clear. And in U.S., is there any benefit at some point that we should see from the marketplace? Jorge Vazquez: U.S., I think the marketplace has some investments, but as we progress into Q2, the same. Partially, there was an impact on enterprise. We started the year somewhat subdued. Again, we talked about -- Sander talked about pipeline. We talked about client implementations. All in all, if I look ahead, it's about also showing operational gearing. Operator: The next question comes from James Rowland Clark from Barclays. James Clark: Two questions, please. On the marketplace that you're just discussing, do you think that's resulting in any new client conversations at this point or simply just better client conversations, more engagement? And then also on a similar topic, can you provide any color as to the profit line benefit from the marketplace at this point in Q1, maybe on an annualized basis, if possible? And then my second question is just on the gross margin that you sort of suggested should ease through the year. I'm just curious as to how you think that plays out because it looks like the lower margin regions in the temp business are set to continue to outperform the higher-margin regions. So just interested in your thoughts there and what it needs -- what you need to see in order for that mix effect to ease substantially? Alexander van't Noordende: Thank you very much, James. On the marketplaces, that's absolutely driving new client conversations. And in fact, I'm personally out there with [ Mickey Chen ] and our commercial team in North America to have those client conversations with some of the big logistics companies, some of the big service companies in catering, et cetera. So -- and they all are interested in hearing about what we call the digital talent supply chain because these clients generally are very much into digitization of their business, of their logistics, of their procurement, of their sales to clients, but the talent supply chain is sort of somewhat behind in terms of digitization, and that's what we offer. That means we talked about it, higher fulfillment, but also a lot more transparency, compliance and I would say, analytics and optimization opportunities in that workforce. So yes, benefits at the high level, and I'll ask Jorge to say a bit more detail, benefits at a high level, higher productivity because we have more employees working per FTE in Randstad. That's definitely one of the major benefits. The other benefit is higher fulfillment because higher fulfillment sooner means more business tomorrow. That's pretty much how that works. I think overall, it's hard to tell at this particular point in time. I will tell you that is a work in progress, and we are -- the team here is working hard on getting more insights into that because we want to start sketching the picture of the new asset, including the economics over the next couple of quarters. Jorge Vazquez: Yes. So James, just putting some numbers to it. I mean you see our fill rate has been, let's say, increasing 1%. This makes a difference in revenue. So it sustains more revenue growth. Our [ EWs per ] FTE, I talked about it at the beginning on my opening, but they are probably now up 6% to 7% year-over-year. We're now starting to prevalidate a lot of, let's say, the talent to talent centers, meaning when our talent advisers need talent, they are faster with clients. There's one point Sander highlight as well that I would like to highlight, if you actually spend time with the teams, redeployment because the beauty of self -- let's say, if you are in the Randstad family and you choose your next shift, your next appointment, your next job, then a lot of the redeployment we consider we have less setup costs in making, let's say, that transition from job to job, which also enables clients to plan better and organize themselves better. So overall, supportive and especially now as we move into the more, yes, seasonally rich quarters. Alexander van't Noordende: Let me break down a little bit because I think it's connected to the question of Simon, your second question, so on the margin. So if I look ahead, we finished Q1, we just talked about it with the temp margin down approximately 60 basis points or delta 80. If we look ahead, we're probably looking more as we can see, 50 basis points year-over-year in Q2. That will mean still 30 to 30 basis points down in Q2. Now remember -- or year-over-year, but remember, it is a seasonal quarter. So clearly, more volume clients trading. It's also a smaller quarter in terms of working days. But I mean, if I compare it to Q1, where I would say it's probably about 45 basis points plus 15 FX. The other impact here is we start analyzing FX. So this should now start stabilizing at 30 to 40 basis points. We still expect 10 basis points negative from HRS. So the volume in RPO is still weak. I mean, not strangely if you look at what's happening in perm, though we are counting on some new clients being activated as well, so to be seen. And perm remains -- I mean, for now, we have 10 basis points, but remains a bit of the wildcard in the equation. So overall, let's say, from the 80 today, we're now looking at 50. And then as we continue throughout the year, what is also obviously some of the bigger shifts we talked about, geographic shifts, client shifts, yes, this basically start annualizing. So basically start reducing throughout the year. Operator: Our next question comes from Virginia Montorsi from Bank of America. Virginia Montorsi: Just a quick one. Is there anything worth flagging in the quarter that has either surprised you or performed in a way that you didn't expect that you think it's worth keeping in mind? Or did everything kind of play out according to your expectations if we think about beginning of the year to where we are now? Alexander van't Noordende: Yes. I'm thinking deeply Virginia, it's a good question, but I'm afraid the answer is no. No. Let's say, we set out -- we said there was going to be a step-up in the quarter in last call, and that's what's happened. Of course, you have always a put and a take here and there, but nothing major to report here. Operator: [Operator Instructions] Our next question comes from Konrad Zomer from ABN AMRO, ODDO BHF. Konrad Zomer: A question on your productivity. You've made good progress over the last few quarters, and you're on the verge of actually capturing some operating leverage again. How much revenue growth do you think you could potentially achieve in the second half of this year if you were to decide to keep your headcount stable? Is that 1% or 2% or maybe 5%, particularly given what you are doing with AI and your digital marketplace? Jorge Vazquez: Konrad, good to speak to you. I'll say, first of all, I mean, second half of the year, you know the 6-week rule. First and foremost, I think we feel confident with the capacity we have now to support already the seasonal next big quarter, which is Q2. So I mean, we don't expect FTE investments to cope with that. And even in terms of investments that we make are more surgical about growth segments where we say we are clearly missing out opportunity if we don't invest in. Looking into Q2, we're quite comfortable in terms of capacity. Now Q3 and Q4 typically hang around the level. I mean, it depends. If growth really accelerates, we may need to look at it. Now what I have basically been saying for a few quarters is if I look at where we are ahead, we're deploying our strategy, both, let's say, on ability to structurally quarter after quarter, adding up another quarter of recovery ratio. So accumulated always 4 quarters close to 60%, 70%. That plays out in decline, but I also clearly see it playing out in scalability and growth. So basically counting on now much more scalability and gearing as we come back to growth. Operator: Thank you. And with that, I will now turn the call back over to Mr. Sander van't Noordende, for any closing remarks. Mr. Sander van't Noordende, go ahead. Alexander van't Noordende: Thank you, Barton, and thank you all for joining the call today. And as we wrap up the call, I mean, our people are doing a fantastic job day in, day out, and I would like to thank our more than 600,000 talent and Randstad team members for their hard work as they are truly the best team in the industry. Thank you. .
Unknown Attendee: [Presentation] Ladies and gentlemen, please put your hands together for our CEO, Graham Lee. Graham Lee: Good morning, everyone. Thank you. It has been a strong year, 25 actually, 25 years of meaningful innovation, 25 years in which we have continued to earn and deepen the trust of what is now more than 26 million active clients. And that's because of you. So thank you. Thank you to you, all of our people, wherever you are. It is your energy, the energy that you bring and the ownership that you take and your client obsession, which brings these results, which makes our business strong. Thank you. We want to make a meaningful difference. We want to make a real difference in people's lives, and our role is enabling them to grow. All of the building that we do, the new solutions we bring to market, they unlock growth. They provide economic opportunity, and they are based on the same founding principles that we've always had. Our fundamentals, our fundamentals are clear, and they speak to how we treat our clients, to how we design for them. And of course, our CEO culture, 25 years in, our culture is still our most important competitive advantage. The CEO is how we show up, how we make decisions. And it starts with the client. It starts with putting the client first, obsessing for the client and understanding what they need. Our results come by putting our clients first. We put our clients first over and above short-term profits because we know that creating shareholder value comes from creating client value, not the other way around. It does feel a little bit like every year, as we're giving our annual results presentation, something significant has just happened in the world, whether it is a war, a special operation, a global pandemic. There always seems to be some curveball that has just about happened. And the truth is it will always be volatile. Our environment is always going to be uncertain around us, and there will be ambiguity out there in the world. But here at Capitec, we are not uncertain. Together, what we need to work on together, that's not ambiguous. We are a resilient company, and we are resilient by design. We build resilience each and every year, and we make our choices deliberately to build that resilience. We built our business model to be able to take on all shocks and still serve our clients well despite, and that continues from here. It feeds into how we look at our financial statements and the prudency with which we provide. It speaks to how we train our people to how we develop our systems because this environment will always be our reality. South Africa started the year really strongly from a global macro perspective. And of course, that -- we've seen that upended by the recent supply chain shocks, the recent oil price shocks. But that resilience that I talked about, that resilience that we built, that will bring us through and will bring us through strongly. Consumers and businesses in South Africa will remain under pressure, and we will support them through that pressure. Clients vote with their feet. And we've continued to grow our client base despite it already being so large. So 26 million clients now across all of our ecosystem, including Avafin. Even more pleasing than that total growth number is our growth in active app clients. That's up 19%. That's 15 million clients who are active on our app in the last 30 days. 15 million adults actually. And if you look at Stats SA, which shows that adults have a population around 45 million. That means roughly 1/3, more than 1 in 3 of all adult South Africans used our app to bank in the last 30 days. Fully banked clients continue to grow and business and entrepreneurs, that's up 71%. The big number, quite literally, the big number in the middle, is 23%. Our headline earnings is up 23% to ZAR 16.8 billion. And this comes from balanced growth. As you can see, that growth is balanced in both the net interest income as well as the noninterest income, what's coming from transactions and Connect and VAS and insurance. If you look at the balance between those, the proportions, just over 2/3 of all of our income from operations comes from the noninterest side. And the strong growth in credit is at good quality. The 8.1% credit loss ratio did tick up slightly, but that was within our plan, within our expectations, and it's a result of our book growth and the change in mix, particularly in business bank, in lending more on the scored unsecured side. It's been really pleasing growth across all of Capitec Connect, insurance and value-added services. All of this was done investing in the future with discipline, with cost control discipline, which meant that our operational expenditure grew by only 12%. And that positive jaws that, that creates means that our ROE grew to 31%. If you look at the detail of the income statement a little bit further, we're not going to go through everything. I just want to point out 3 things. So firstly, under the credit impairment charge, overall, the company had went up 21%, but that was lifted quite a lot by Avafin. And the reason for that is the nature of the business, the nature of the business model, which is short-term unsecured lending in which those loss ratios are expected planned for and priced for. If you exclude them, then the credit impairment charge for South Africa grew by 13%. Then there are 2 big numbers, total net insurance income up by 38% and the taxation up by 34%. This was the first full year in which we sold all of our new policies on our own license. And previously, in previous financial years, there was -- in the sale, there was a net out of the tax and the income. And so what you really see here is a grossing up of both, which is why both of those percentages are so high. And then overall 23% growth. That's true both with and without Avafin, if you see it across the board. The sources of our income are increasingly diversified. The Personal Bank remains our biggest contributor, both in terms of earnings contribution, but also because that's the launch pad. That is the launch pad from which all of our other businesses fly. Value-added services, connect and insurance, that now makes up more than 50%. But I want to make the really important point again, that only comes from the data, the brand, the distribution and the clients of the personal bank. And then business banking and Avafin are still early in their growth journeys. They are our big opportunities for the future. I'm going to let that big number sink in with you all for a second. Our business model is one that scales because of our clients. That scale creates economies, and we share those economies back with our clients. In the last financial year, the total amount that was given back to our clients is ZAR 1 billion in client savings. Now that breaks down like this. In the fees we dropped from last year to this year, we gave back ZAR 228 million in reduced fees. That left ZAR 228 million real rands in all of our real clients' real pockets. In addition to that, we reduced the prices of our card machines. We made our discount rates, not just transparent but lowered them significantly. And that gave back ZAR 213 million. We dropped our international card fees, and we charged 0 Forex margin. That contributed another ZAR 61 million. Then if you look to Connect, Capitec Connect and the data that it brings is one of the most valuable rewards our clients can receive. We lowered our Connect prices from the last financial year, and that saved our clients ZAR 330 million. And in the rewards that we gave, it summed to ZAR 108 million. Then finally, our 1% giveback on our credit card. That saved ZAR 107 million. All of that totals to really quite a significant number. The Personal Bank is our heart. And that also has diversified income. The earnings in Personal Bank are well diversified between both the net interest income and the net transaction income. Overall, both are up just over -- well, one's up 16%, one's up 17%. And you can see the steady growth over the course of the last couple of years, both great growth on top of a really, really large base. One of the reasons -- one of the drivers of that was the continued acceleration in digital payments, digital transactions. As you can see on the left-hand side, cash volumes are only up 10%, and a driver of that was cash send. I'll come back to that in a second, whereas card and digital volumes are up much more significantly. Digital alone, the lighter blue is up 25% in the year. There is steeper growth in send cash. And one of the reasons for that is that it's increasingly being used as a mechanism for the clients to do a cardless cash withdrawal. If you unpack the noncash payments, looking at the noncash payments in total, digital payments now make up more than half. The strongest growth you see in the pay wallets, that is Apple Pay. Google Pay, Samsung Pay. But you also see really pleasing growth in every single mechanism by which clients make payments. E-commerce is up 32% international and cross-border, our clients transacting outside of South Africa. That's up 29%. The lowest is in traditional plastic. Connectivity has become a utility. It's a basic human need really to live, to learn, to connect, obviously, but also to bank in this world. And with Capitec Connect, we've designed a mobile solution, a mobile connectivity solution that stays true to the Capitec fundamentals. If you look at our active 3 client base, that's up by 67% in the last year. That's incredible growth. And the usage is up even more. It's up 3x, 40.5 petabytes. I know in the past, we've played with how many songs and movies and that is, but I mean, the number bytes itself is just astounding. What's also really great to see is our voice calls are also going up significantly. And the reason why that's so important is that's an indicator. It's an indication of the client using that SIM as their primary SIM. We've also just launched right now free Connect to Connect calling. So one Connect client will be able to call another to Connect client completely free of charge. And then -- you guys can feel free to jump in with the applause at any time. It works for me. And then just looking at part of that giveback, the 78 million of free data, that was 3 petabytes that we gave to our clients. We couldn't just stop at bringing connectivity. You have to put the device itself into our clients' hands. And so we've launched Connect devices. A highly curated, carefully chosen set of devices, which we know have the highest quality, but which come entry, mid and upper end. And we've made that incredibly simple to use, incredibly simple to order and a great experience to receive. It's available in cash, but it's also available on credit, and our credit pricing is transparent. There isn't a deposit. There isn't that first payment due after 7 days, just very simple, easy to understand, ZAR 181 a month at its lowest. And we back that up, not just with the free calling. So all of your voice Capitec to Capitec is free, but also 5 gigabytes free a month. So pretty much it's your first year of connectivity taken care of with no network locking. Credit is at the heart of our business, and we manage the associated costs and risks prudently. If you look at our credit loss ratio, it's where we want it to be. We have good growth off a large base at good quality. The book growth this year was 9.4% in Personal Bank credit, but the real growth story is in the credit card, which was 32%. If you look at the disbursements, 27% to ZAR 68.7 billion. That's driven both by applications from new clients as well as annuity disbursements. And I think there's a really important point to make. What's most important is that this is driven by the quality of the data that we have. It's driven by the sophistication of our models. And we are saying yes to more clients, not because we've lowered the bar, but because we know them better. We've continued to diversify where clients get that credits and who those clients are. Purpose lending has been a real success in the last couple of years, and FY '26 was no exception. It's up 94%. And this speaks to the great experience clients get when they are able to fund what they need in the place that they are buying their car, or buying the materials that they're going to use to build their home and increasingly their education. More and more of it has done self-service on the app by making it more available, more accessible, that in itself leads to growth. And because of those -- because of those interventions, innovations and more, we also continue to increase the number of clients who choose to bank with us, including with credit. Clients earning more than ZAR 50,000 who took credit with us. That value went up by more than 50%. That robust growth came on the back of robust credit card growth. So new limit sales and annuity disbursements are pretty evenly matched from a percentage growth perspective. And we've created access to more than 120 -- sorry, 110,000 new credit clients through changing how we look at them, how we look at repayments and how we look at their exposure, which means that we've been able to bring in young adults, 147,000 of them to help them grow their credit score and grow credit disciplines. And that credit card really is the best one for travel. Why? Because there are no international fees, there are no Forex margins or commissions, and that means that when you travel with our card, it's the best rates in the market. We, of course, give the normal package of other rewards that goes along with that, but that 1% cash back on top of the 0 international fees or margin means that our clients save a great deal when they use our card to travel rather than another. We encourage and support savings. We have a deliberate pricing strategy to encourage clients to be more deliberate, more purposeful in how they save. And that deliberation has led to a growth in our market share. So we now have 13% market share across all fixed and notice deposits. And that really came because of our strategy, how we communicate it, how we communicate with our clients, why it's better for them to be -- to plan for their savings, to be deliberate in their savings. And that means that all of our savings plans grew by ZAR 15 billion. Mostly that was supported by the really strong growth in the notice deposit. This is new to us. And what you can see is really strong growth across both, but particularly in that 7-day product. When we first discussed launching this, there was a lot of questions about the value of that product. And clearly, clients are voting with their feet again. This creates a real ability for clients without a long-term commitment to save more, earn more interest and make their money safer. And because of that, we paid ZAR 858 million interest to our clients just for notice accounts in the year. Insurance is deeply embedded in our business now. This is the first full year in which all of our sales have been on our own licenses, and it has been an incredible effort, an incredible journey by probably most of the people in this auditorium right now. Lives assured in funeral cover is the best way, I think, to look at the organic growth. So we've had a great year, and we need to unpack that, but there are a lot of moving parts. Lives insured, there are now 16.6 million, and that's clear and easy to understand. The total sum assured is now more than ZAR 508 billion, and all of our policies sold now. All of the new policies are on our own license. And with the transition, 43% of everything is now on our own license. The net insurance result for funeral cover grew really significantly. 58%. But as I said, there are a lot of moving parts to that. So this is one of the more complex slides in the deck, but it's really important to understand that this waterfall helps us break down all of those moving parts. So in moving from the ZAR 1.8 billion that we had in FY '25 to the ZAR 2.9 billion that we have for FY '26, you can see the left-hand side together. That 33% growth is the business being better. That is in growing our book, growing the number of clients, growing their lives assured but it's also improvement. It's also improvement in our operations, in our claims and in our collections, which makes that business more profitable. If you look more to the right-hand side, those are the moving parts that are largely in the income statement itself. That reinsurance, a very significant number. That is the description of what -- of the additional earnings we've gained in taking over control of funeral cover, the whole book of funeral cover from Sanlam. That was largely canceled out by yield curve moves later in the year. And we've been looking carefully at what the impact of the yield curve is in the years looking forward. But just in the first month, we've seen a significant reverse of that as a result of changes in the interest rates. Moving on to Life cover. This is still young for us. But already, we are over ZAR 100 billion in sum assured. And if you look at how clients choose to use that, and remember, we give our clients choice. Our clients can choose when they set up their policy, how it's going to be paid out to their beneficiaries, whether it's going to be paid out in a lump sum, whether their children's education and needs is going to be taken care of through a trust or whether it's going to create a monthly income for their family to keep taking care of their family after they're gone. And as you can see from that pie chart, a little over half is in the lump sum with the rest spread between the children's needs and the monthly income. Moving on to Business Banking. The byline says it all. We were debating as we prepared these slides that, that appeared to be a little bit wordy, but I really like it. It says what we need to. We are empowering business. That's our goal. That's our purpose. And we're doing it with a very simple combination of more affordable, better service. faster credit. And the market has responded well to that offering. If you look back 2 years to February '24, we had 174,000 active clients, and that was when we rebranded. We rebranded from Mercantile to Capitec business. And we grew on the back of that to 266,000, 1 year ago. That's when we simplified our pricing, but we didn't just simplified it. We didn't just simplify it. We made it the same as personal banking. That's a dramatic change, a very significant cost in the fees we charge, in the fees that our clients pay and it is a first and only in the market. Every business pays just the same as what a personal bank client pays, and we saw the strong growth in that. Then in December, we launched our entrepreneur account. More on that in a second. And there you can see the tick up from there so that we ended the year with 456,000 active clients split between established businesses, entrepreneurs, merchants and Forex clients. All of those savings, focusing just on Business Bank, saved ZAR 217 million for our clients, and 172,000 of those 15 million app clients are now businesses. That entrepreneur account, so excited about this because what we have here is a bridge between our Personal Bank and our Business Bank. This is the account that we've launched for sole proprietors and people with a hustle, and people who want to do something meaningful with that hustle, maybe even more than one. So that's free. We charge a client fee. We don't charge an account fee. We charge a client fee, and this is part of what you get as a client in order to be able to manage your various different hustles, clearly, well with transparency, you can open up to 4. There's no paperwork. You can run your business off it, including acquiring, and our clients have taken to it with all of the passion that we knew that they would. If you look now at lending, that ZAR 30.4 billion book, that's a decent book now. Karl Kumbier, the CEO of our Business Bank, he was very deliberate in making sure that we highlighted that. And it is worth highlighting, up 30%. The most exciting part, so we've grown our intuitive and more traditional secured book very significantly in the year. But I'm not focusing on that. I'm focusing on what's more transformational, which is the score lending book. Our scored lending book. Scored lending is automated, quick, fast. It is more accessible through our scored overdraft on app. It's available to more people. Those everyday earners through our pay-as-you-trade, small amounts taken every day and that creates more accessibility. It creates more access to funding for small businesses who use that funding to grow their businesses. If you look back, ZAR 738 million in Feb '24, and then we launched in December, the pay-as-you-trade, and you can see the kick there so that we ended the year with a book of ZAR 3.1 billion, and we're not stopping there because this is one of the ways in which we grow the country around us. Our merchant acquiring business is also growing fast. In the last year, we've grown significantly so that we now have 112,000 active merchants because we have the best machines. They're the fastest, wherever you go and you ask a vendor, they will tell you. But it's also transparent pricing, easy to understand and the lowest. Across the whole year, merchants trading on our merchant acquiring devices, our POS devices did turnover of almost ZAR 100 billion. Moving on to Avafin. I really am excited by the work being done in Avafin and the work being done by the management at Avafin. Avafin gives us a solid foothold in all of the markets in which we're established. And I know that it has significant potential to create so much value for clients in all of those markets. If you look at the last year and focus on the profit, it will appear as if we had a year that went backwards, and you shouldn't see that because what you should see is that we are investing in the future. When we acquired Avafin, one aspect which was obvious immediately was that the rates were too high, and we needed to rethink our product from the perspective of our clients. We need to increase the tenor and reduce prices and that we have done in FY '26 across all markets. Now there have been mixed results to those experiments and to those new products, but we iterate, and we improve. And we start to see real benefit coming, particularly in Latvia, where the book has doubled. And I think we've created a blueprint for what we can do in the rest of the European markets. On the back of that, growth in the actual loan disbursements was very strong, EUR 629 million just in the year, and we continue to invest in the future. An additional key challenge that we identified is the overreliance on third-party online websites and API partners in order to bring us our distribution. It's a limiting factor. It's not good for the client, and it pushes up prices. So our focus in the year ahead, in addition to continuing to change the product for our clients and reduce prices is also increased distribution and to take control of direct distribution, direct distribution through digital, which you will see, for example, in Poland with the launch of the app that's coming. It's also physical distribution. Our engagement with Latvia Post in Latvia, our branches in Mexico, our cooperation with retailers in Mexico to give us the physical presence that we need to be able to serve our clients directly and break that overreliance on API partners and websites. And all of this we do, leveraging the platform and the infrastructure that Capitec has so that when Avafin does it, we are able to execute more effectively, more efficiently and more securely. Focusing now on group OpEx. We always reinvest in our future, and we also always remain disciplined as we do so. Our total expenses increased by 12% to ZAR 20.2 billion. If you split that out, what you can see is that ZAR 7 billion of that is salaries. That's up by 12%, growing and investing in people. If you look at all of our IT expenses, including salaries, that's up by 18% with all others up by 10%. Now all of these numbers are the whole group, including Avafin. If you take Avafin out and look just at South Africa, salaries, excluding Avafin are up 11%, and that other is up by only 7%. We are proud of the positive impact on communities and people. Through the Capitec Foundation, we are working inside 33 public high schools with our whole school approach. And that whole school approach is -- those are not one-off workshops or days away. They are sustained, deliberate multiyear efforts in which we have touched and improved the lives of nearly 23,000 learners and made a meaningful difference, a meaningful lift, particularly in maths, maths results. And those maths outcomes, they come at scale. All of you, our employees show up too, 3,400 people contributed to early childhood education in more than 1,000 interventions. And then MoneyUp. Since its launch, South Africans have taken more than 3.7 million MoneyUp courses and micro lessons. Free mobile practical financial education open and available everywhere, anytime. And this means something because the better you understand the money, the better you're going to be able to manage your life and for you to be as more resilient. What makes me personally most proud is when our people grow in their careers. If you look at all of the interventions we put in place in the last couple of years, particularly learning and development and training people to not just do the job that they're doing really well, but to be able to take the next step in their careers and the step after that and the step after that, if you look at what we've done on wellness and the opportunities we create through internal mobility, what that's led to, amongst other things, is a really significant drop in our attrition rate to 8.89%. That internal mobility program, the deliberate support and reaching out for people to be able to take the next step in their careers, even if that step is completely different to what they're doing today, has led to promotions. And that means an internal hire rate of more than 2/3. We continue to invest in hiring youth, 87% of all of our external are youth, and we invest in their training with more than 1,000 learnerships, bursaries, graduate development programs. Changing gear. I would like to share with you some of the creative solutions that are enabling us to serve our clients better and to protect them better. So fraud prevention, making sure that our clients are safe, their money is safe, their data safe is our top priority, and we've made significant strides. More than 650 of our best people, people in this room work on this. That's how important it is to us. We've made significant strides and our interventions saved our clients ZAR 673 million in fraud that was stopped before it happened in the last year. Looking at what we've either just launched or is coming soon. Additional simple solutions that create value in our clients' lives available on our app. We have Capitec Pay live in third-party apps, including Checkers Sixty60. You will soon in the next day or 2 or 3, see bus tickets, Intercape bus tickets live on our app for the first time, our next value-added service, bringing the affordability, simplicity to our clients when they travel. This is the first of our travel offerings. And you can now send money through our cross-border remittances to 26 countries. We recently have spent a lot of time talking about the Smart ID process that we've launched together in partnership with the Department of Home Affairs. And this application process in our branches, I think, is an excellent example of the public and private sectors working together brilliantly for the benefit of South Africans. We are live now in 86 branches, and we will soon be in 100. The plan we're working towards is to be in over 350 by the end of the year. We've had 71,000 successful applications to date. And that is going to grow and grow as we roll out more branches and word gets out. Looking at what we're doing with respect to AI. I think there are so many important points on this one. But firstly, the most important point to lead with is this is not a future aspiration. This is real in our lives now, and it is already at work, at work for us. We've invested significantly, and we have active and valuable implementations across the whole business that create value by personalizing service for our clients, by protecting them, protecting from fraud in all manner of financial crime and protecting them in the moments that need it. and empowering them, empowering all of us. Almost every single person working at Capitec, touches a Gen AI tool every day, whether it's in the branches or the BSC through Neo and Pulse, those abilities to understand our clients in context and serve them more quickly, more thoroughly more correctly. But also directly, almost 5,000 people are using these Gen AI tools split across Claude Copilot and Microsoft 365 Copilot and ChatGPT. All of those 5,000 people on average using it 4 times a day. And we're not stopping clearly now. More and more and more will happen. And there's a very important message. What we are not trying to do here is save costs. Our strategy is not to save or reduce headcount. Our strategy is to use these tools to make all of us so much more, to be able to serve all of our clients so much more and get to that big vision in the future without scaling costs. Looking at that big vision in the future. The next 25 years starts as always, every day. And we first protect and grow what has made us strong. We protect and grow our personal bank, and we do so by making sure that we prioritize those things which make our system stable and keep our clients secure and develop, deliver beautiful client experiences to them in the moments that really matter to them. Looking slightly further on, we are acting now significant action today, significant execution today to accelerate our key businesses that will create so much of our growth in the 1- to 3-year time horizon. Slightly further into our earning future, we are delivering and growing embedded finance and our enterprise payments businesses that will then kick up our growth significantly in 3 to 5 years. And then looking even further beyond that, we have already started to build and capacitate our new businesses. What Capitec means outside of South Africa in addition to Avafin as well as a data and media business and insights and media business really that can bring new value to all of our clients, especially our business clients. And all of it, of course, is built on that foundation that we started with, our culture, who we are, the platforms that we use and our business model, our approach to seeing and serving the whole person that is our client. And so I would like to end as I began with very sincere gratitude. Thank you to all of our teams, all of our people. Again, it is through you that we've delivered these results, and I'm very privileged to be able to stand here with you to deliver them. Thank you also to our Board members for your excellent guidance, to our shareholders for your support and to our clients, thank you for continuing to trust us. Thank you. So we have covered a lot in a short space of time. And so Grant has joined me up on stage, and we will together do our very best to answer any questions that you might have. Unknown Attendee: Can you hear me? Is it on? Grant Hardy: Sorry, you can just send the mic on, yes, for Lange, please. Unknown Attendee: The first question is from Harry Botha, Bank of America. Can you unpack the net interest income growth in the second half of '26? Were there any noteworthy headwinds, particularly in interest expense? And then the second question, do you want me to do it after. Second question is what percentage of your business bank relationships are likely primary relationships with consistent transactional account activity? Grant Hardy: Okay. So the first question, we did address partly at half year. What we did at the start of this year is on our main accounts, we had a tiered balance in the prior financial year. So we used to pay interest based on the amount that was in your account. And we moved that from, let's say, a tiered approach to a flat rate, which is currently 2%. What that then allowed us to do is to pay a higher interest on the various savings pockets. So anytime access accounts, notice deposits as well as fixed. So that drop in the interest expense has effectively been caused by moving the main account balance to a flat rate. We didn't see any further acceleration of people moving balances faster in the second half of the year than the first half of the year. Graham Lee: Then answering the second question. By client number, the significant majority of small businesses have their primary relationship with us. And that is something that we expect to continue to see growing as a proportion. Grant Hardy: Yes. Just to add to that, I mean the accounts that we highlight on the business bank side, those are active clients who are using those accounts. So there will be cases where they may or may not have credit elsewhere. And obviously, we then try to bring them across to be fully banked with Capitec from a business banking perspective. Unknown Attendee: And then the next set of questions are from Charles Russell at Standard Bank. First question, can you unpack the 9% higher deposits and funding versus the 8% lower interest expense? Grant Hardy: Okay. I think that touches back to Harry's first question. So it is moving that main accounts to a flat rate. Remember that 2% is 2% more than the majority of the market is paying on many accounts, where it's actually closer to 0. And then -- yes. Graham Lee: And then, of course, we also did have a declining interest rate trend in the year. Unknown Attendee: And then do you have a sense of the size of the addressable market for the simple life product, for the life? Graham Lee: It's a really interesting question that we consider really carefully ourselves all the time. When we're talking about simplified life, what we're not trying to do particularly is swap-outs with people who've already got existing life cover elsewhere. What we're looking to do is grow a brand-new market. And exactly what that market is, it is quite hard to get your hands around exactly the size of it. But what we do know is significant. It's significantly bigger than what we have today. Unknown Attendee: A few questions from Ross Krige at Investec. First question, are there any more major fee giveback plans in the pipeline for the coming year? Grant Hardy: I think Graham highlighted in his presentation, giving back to our clients in growth work hand in hand. So we're consistently asking ourselves, are we giving back enough? We want to make sure that the value we provide for our clients gets better and better. And the scale that we have, we continue to pass that benefit back. So I don't think that is something that never stops. Graham Lee: Yes. And then just to add to that, if you don't mind. We do have some plan, but even more importantly than that, the way that we're set up both in terms of how we run the business, but also how we think is we're going to continue to look for more opportunities, and we'll be agile in those opportunities to give back. Unknown Attendee: And then please comment on how you see the personal bank credit loss ratio evolving in the coming year in the face of rising macro uncertainty. Grant Hardy: Well, look, I mean, that's a very, very tough one to answer. The unsecured lending book is really based on how the economy performs. There's a lot of, let's say, fluidity in that and what's happening globally. We, as always, try to be prudent and very agile in our approach to unsecured credit. I spend over 40% of my time, specifically on let's say, the unsecured credit side. So we keep our ears to the ground and make changes as we can. At the moment, we think the book is well placed. But obviously, as the year plays out, we'll have to adjust to that and see how that plays out. Graham Lee: Absolutely. And if you look at the drivers of that credit loss ratio this year and think through how it's going to unfold in the year ahead, one of the drivers is strong book growth. We are still growing that book strongly, and you can expect it to tick up slightly as a result of that. One of the other drivers is the change in mix to more scored and unsecured lending in the business bank side, and that empowers small businesses. So we're going to grow that book even faster, and it will tick up slowly as a result of that in addition to, I think, the context of the question, which was the global uncertainty. That will also add some upside, I think, to that number, but we definitely see it growing within our appetite and as per our plan. Unknown Attendee: And then a few questions from James Starke. First question is on the expected credit loss coverage ratio, a decline from 25.5% -- declined to 25.5% from 27%, partly reflecting the release of the forward-looking overlays. Could you outline the macroeconomic assumptions embedded in the provisioning model? And what triggers could prompt a rebuild of overlays if the conditions deteriorate? Grant Hardy: Thanks, James. So I think firstly, it's also if you look at that Stage 3 book for the personal bank, you saw the percentage of the book in Stage 3 actually decrease. So you are seeing the book looking healthier, which is driving, let's say, a portion of that release. It was quite interesting because the U.S. Iran conflict broke out on the 28th of Feb, which was in the day of our year-end. So we have built in a fourth severe scenario, where we allocated probability to. That scenario specifically had oil being over $100 for an elongated period of time. So interest rates increasing as well as inflation and devaluation in the rand. We adjust that as we -- things move. I mean even in March, we've changed the weightings again and applied more to our severe scenario as well as our low scenario. So I think that situation is fluid, and we manage it as we have more information. Unknown Attendee: And then another question from James. Business banking, loan and deposit volume growth has been impressive. How should we think about the tempo of growth in this area going forward? Grant Hardy: Look, we haven't provided guidance specifically on it. If you see it's grown at 30%, I think that should continue into the foreseeable future. We really focus on the product, making sure that it's right, making sure that the client is getting the best product and the outcome then takes care of itself. But I think we should be able to continue the run rate that you're seeing come through at the moment. Unknown Attendee: Graham, I think this 1 is for you. On international expansion and acquisitions, please, can you expand on the nature and extent of this ambition, touching on market segments, geographies and lines of business? Graham Lee: Sure. So where we are right now is still properly planning for the future. What we knew is that in order to be able to take the second, third and fourth steps we had to take the first step. And that first step is creating and filling a team of the best to focus only on developing the strategy that we've started doing. And part of the initial work is really filtering the world, filtering the world for what the opportunities are that are available to us, looking for both territories that suit us in our future strategies as well as overlay what our strengths are compared to what are the gaps in the market. We're right at the beginning of that still. But what the step we've taken forward is a dedication of really excellent people to that strategy. Unknown Attendee: And then the last question from James. This is about Avafin and its trajectory. Avafin contributed ZAR 128 million to headline earnings with a credit loss ratio of 53.2%. Please discuss the expected profitability growth path forward. Grant Hardy: So the focus with Avafin is about building the foundations of which to take the business forward. The business is profitable, but we're not focused on profitability in the short term. It's about making sure we set the business up right in the long term. Graham mentioned some of the challenges we face in terms of API partners and how we currently acquire clients. So we are trialing things in some of the countries, for example, partnerships with retailers in Mexico, opening a few branches to see how those go in Mexico. So don't think about short-term profitability. For us, it's all about the long term and making sure we set the business up for success. Unknown Attendee: Perfect. And then a few questions, one from Muneer Ahmed. Can you comment on the recently announced partnership with Wise? What benefit does the partnership bring that you didn't bring before in international payments? Graham Lee: So really, what we're looking at is serving our clients better always, including being able to bring down prices, increased speed and so forth. In the international payment space, there is a lot of drag. There's a lot of drag in both time and in cost. And so one of the solutions is multiple rails and redundancy in those rails, making sure that we can select the best rail to bring that international payment to our clients' account the fastest, and at the lowest cost. And what you can expect is to continue to see an expansion in those choices available to us so that we can make the right decision for our clients. Unknown Attendee: And then the last question from Ross Krige, Investec. Please elaborate on the data and media solutions within future growth -- in the future growth slide in terms of what that offering might look like? Graham Lee: Sure. So this is really far out. And thinking about it in the context of income is really much too early. But what we do know is this. We do know there will be significant power, significant value created when we bring together the strengths of our personal bank and our business bank. To some -- to a very large extent, we are doing that together already with a single service model with serving entrepreneurs across both. One of the other ways that we bring additional momentum to the flywheel is bringing insights to our business clients, help -- giving them the insights to enable their businesses to grow. We see ability to lower friction in their processes, saving them time and cost through properly curated data services and in helping them grow their business through getting to the right media, getting their messages out to the right audience. Unknown Attendee: And that is the last of the questions. Graham Lee: Thank you. Grant Hardy: Thank you very much. Graham Lee: Thank you. So thank you very much, everybody. We are now going to cut the external feed, and we'll move across to a town hall just with Capitec people. Thanks a lot.
Operator: Welcome to BONESUPPORT Q1 2026. [Operator Instructions] Now I will hand the conference over to CEO, Torbjorn Skold; and CFO, Hakan Johansson. Please go ahead. Torbjorn Skold: Thank you, operator. Welcome, everyone, to BONESUPPORT's Q1 2026 Results Call. My name is Torbjorn Skold, CEO of BONESUPPORT. With me here today is our CFO, Hakan Johansson. And together, we will use the next 25 minutes to guide you through the Q1 presentation and then open the line for questions. Before starting the presentation, I would like to draw your attention to the disclaimers covering any forward-looking statements we will make today. So let's look at the financial and operational highlights of the quarter. Q1 was another strong quarter with solid execution across the business. Net sales came in at SEK 324 million, corresponding to a growth at constant exchange rates of 31% versus Q1 2025. Reported growth was 14%, showing that there was a continued strong currency impact on our figures for the quarter. Our adjusted operating result, excluding incentive program effects, was SEK 85 million, corresponding to an adjusted operating margin of 26%. Reported operating result was SEK 72 million. We saw another quarter of solid cash generation with operating cash flows reaching SEK 75 million, resulting in a cash position of SEK 455 million at quarter end. We continue to see strong traction for CERAMENT G in the U.S. with sales reaching SEK 222 million for the quarter compared with SEK 178 million in Q1 2025. The sequential CERAMENT G growth quarter-over-quarter of USD 2.6 million was the strongest ever. In Europe and Rest of the World, we saw strong momentum across all markets with a growth of 16% at constant exchange rates compared to a very strong Q1 2025. Notable was also that our first CERAMENT sales in India were achieved during the quarter. During the quarter, the regulatory process for CERAMENT V progressed according to plan within the framework of the De Novo process. As communicated in early December, the FDA submission for CERAMENT V was transferred from a 510(k) pathway to the De Novo process in close dialogue with the FDA. If granted market authorization, CERAMENT V will constitute an entirely new product category like CERAMENT G did in 2022. Just as in the review of the De Novo application for CERAMENT G, both CDER, FDA's Center for Drug Evaluation and Research and CDRH, Center for Devices and Radiological Health are involved and the lead review team, which sorts under CDRH remains the same as during the 510(k) process. BONESUPPORT has received questions within the scope of the De Novo process and is working purposefully to address the requested details and clarifications. Responses are to be submitted no later than end of August. We are progressing with the early-stage launch of CERAMENT BVF for spine in the U.S. in line with plan. The introduction in spine is an important step as we continue expanding our portfolio of indications and applications. Now let's move on to the sales development. Next slide, please. The chart shows total last 12 months reported sales in Swedish krona by quarter since 2019 in stacked bars per region and product category. As you can see, the launch momentum for CERAMENT G in the U.S. is exceptionally strong. Given that we keep bringing new strong clinical studies and opening up new market segments and new indications, a product like CERAMENT G will remain in launch phase for many years to come. However, throughout 2025 and in the first quarter of 2026, we have seen strong influence from the U.S. dollar to Swedish Krona depreciation, which influences the optics of the graph, but not the end market performance, as you will see in Hakan's slides later in the presentation. Last 12 months growth in Q1 of 22% in the graph corresponds to an even stronger 35% at constant exchange rates. So the quarter-over-quarter slowdown in last 12-month sales is mostly due to strong currency impact. U.S. CERAMENT BVF last 12-month sale was flat year-over-year at constant exchange rates. In total, antibiotic eluting CERAMENT grew with 48% last 12 months in the quarter at constant exchange rates. Next slide, please. In U.S., sales amounted to SEK 267 million, representing growth of 35% at constant exchange rates. We continue to experience strong growth of CERAMENT G, driven by both increased access through new accounts and new surgeons as well as wider adoption among existing users. We see growth from all 3 prioritized platforms, foot and ankle, trauma and arthroplasty. At the American Academy of Orthopedic Surgeons Congress in March, presentations and discussions confirm the strong clinical interest in the CERAMENT platform and the commercial momentum in the U.S. Dialogues with surgeons and distributors show that CERAMENT G is perceived as a clinically relevant and practically useful solution in a broad range of procedures where there is a need for combined bone healing and effective infection control. During the quarter, clinical evidence was further strengthened through the publication of positive data for CERAMENT G. In February, the first U.S. clinical pilot study in trauma was published describing surgical technique and treatment results with CERAMENT G. The study conducted at the U.S. Level 1 Trauma Center and published in OTA International provides practical and real-world insights into how CERAMENT G is used in clinical practice in the U.S. Additional support was added in March through the first U.S. clinical case series focused on infection prevention in open fractures. By demonstrating how local antibiotic release can be combined with existing surgical techniques, the study highlights the clinical relevance CERAMENT G has within a segment with a high risk of infection. Despite the limited scope of the studies, they are of great practical importance as they provide concrete support regarding application techniques and expected outcomes for surgeons introducing CERAMENT G into their daily clinical practice. As part of our ambition to modernize an outdated standard of care in the U.S., we have successfully opened one market segment after another, starting with foot and ankle, followed by trauma and now moving into arthroplasty. Interest continues to grow for CERAMENT G in revision arthroplasty and periprosthetic joint infections, 2 areas where the clinical needs remain substantial and where the evidence supporting our antibiotic eluting technology has resonated strongly with surgeons. We have built a solid foundation for our spine strategy over the past quarters by establishing distributor coverage and preparing the market. In Q1, we continued the early-stage launch of CERAMENT BVF in spinal procedures with distributors now actively engaging spine surgeons across both existing and new partnerships. The surgeon access and early stages of adoption in spine follow plan and indicate the strength and potential of this segment. As this is a new clinical segment for us, more clinical data is needed to support broader market penetration. Importantly, the performance of CERAMENT BVF in spine will help confirm the value proposition for the CERAMENT platform, which will pave the way for the future antibiotic eluting CERAMENT launch. We've made strong progress in evaluating and preparing the regulatory pathway, and we'll share more on the path forward at our Capital Markets Day this spring. After Q1, U.S. CMS, Center for Medicare and Medicaid Services announced a proposed ruling, full year '27 IPPS in-patient prospective payment system, including changes that improve payments for the use of CERAMENT G in the treatment of complex orthopedic infections, such as periprosthetic joint infection, fracture-related infections and diabetes-related bone infection. In parallel, CMS proposes the introduction of more specific procedure and identification codes for CERAMENT G and CERAMENT V consistent with the company's submission. CMS also proposes new technology add-on payment, NTAP reimbursement for CERAMENT V effective October 1, 2026, provided that FDA grants the company's De Novo application by April 30, 2026. If FDA approval is obtained at a later point in time, we plan to submit a new NTAP application with a potential for additional payment from October 1, 2027. Although this is a proposed ruling, this is very positive for BONESUPPORT as it validates the uniqueness and value CERAMENT brings and reduces the potential financial barriers for using CERAMENT in daily clinical practice. The company intends to submit additional clarifications to the CMS during the ongoing 60-day public comment period. A final decision from CMS is expected in late summer 2026. Now let's turn to Europe. Next slide, please. Sales in EUROW came in at SEK 57 million, representing 16% growth at constant exchange rates. This is compared to Q1 2025, where we saw strong growth in EUROW, thus a very strong comparative quarter. We saw strong development across our 3 market structures, direct, hybrid and distributor markets. In our direct markets, the U.K. continued the recovery we saw during the fourth quarter of 2025. Our investments in hybrid markets developed well, underlining clear continued potential ahead. In our distributor markets, CERAMENT was launched as planned in India with a focus on the private market. We note some uncertainty in the Middle East, where geopolitical unrest is affecting market presence and logistics in the short term. Now I'll leave a deep dive into the numbers to Hakan. Håkan Johansson: Thank you, Torbjorn. Net sales improved from SEK 284 million to SEK 324 million, equaling a growth of 14% in reported sales growth or 31% in constant exchange rates. Torbjorn has already spoken about the solid performance in especially the U.S. and the major drivers behind the sales growth. But as the large movement in U.S. dollars compared with the first quarter last year somewhat hides a continued strong trajectory in the U.S., I would like to share the U.S. sales performance in U.S. dollars. CERAMENT V is the growth driver in the U.S. and this slide shows the quarterly CERAMENT V sales in the U.S. in U.S. dollars. And what we can note is an all-time high sequential growth resulted in accelerated growth in sales per workday. The contribution from the U.S. segment improved by SEK 25.5 million versus Q1 2025 and amounted to SEK 122.7 million. The improved contribution relates to increased sales after the effect of increased costs. Selling and marketing expenses during the quarter amounted to SEK 128.4 million compared with SEK 121.6 million previous year, of which sales commissions to distributors and fees amounted to SEK 85.1 million compared with SEK 78.8 million in the same quarter last year. From the graph at the bottom of the screen, showing net sales as bars and gross margin as the orange marker, it can be noted that the gross margin remains stable and strong at 94.5% with a minor decline in the period following a gradual impact from tariffs. In Europe and Rest of the World, a contribution of SEK 12.7 million was reported to be compared with SEK 15.4 million previous year. Selling and marketing expenses increased by SEK 6 million, mainly related to the previously communicated commercial investments in the so-called EUROW Booster program. From the lower graph and the orange marker, a minor improvement in gross margin can be noted, mainly impacted by market mix. Selling expenses, excluding sales commission and fees, increased by SEK 11.6 million, following commercial investments in both the U.S. and Europe, but also related to high intensity in terms of marketing activities. Research and development remained at a stable level and focused on the execution of strategic initiatives such as the application studies in spine procedures and the market authorization submissions for CERAMENT V in the U.S. And finally, administrative expenses, excluding the effects from the long-term incentive programs, remaining stable with an increase of SEK 1.4 million in the period. The adjusted operating result amounted to SEK 84.9 million with only minor currency effects impacting. I will come back to this on a later slide. The newly introduced tariffs in the United States had gradual impact on costs in the quarter. The full effect of a 15% tariff will equal an impact of 0.8 percentage points on U.S. gross margins, and this will come gradually with full effect later in '26. The difference between adjusted and reported operating results are costs regarding our long-term incentive programs amounting to an expense of SEK 12.8 million in the quarter compared with an expense of SEK 10 million previous year, as you could see on the previous slide. The increase in expense include SEK 1.6 million related to the long-term incentive program approved by the AGM in May '25, which was included in the accounts for the first time this quarter. Operating cash flow was strong in the period, partially supported by inflow of customer payments deferred from December to after the holiday season. During the period, the Swedish krona has experienced volatility against the U.S. dollar with a minor weakening towards the end of the period and with only minor exchange gains and losses reported as other operating income and expenses. The graph on this slide shows with gray bars how the relationship between the U.S. dollar closing rate and the Swedish krona has varied over time. This is read out on the right I axis. The blue dotted line read out on the left I axis shows adjusted operating result. The adjusted operating result, excluding translation exchange effects is the orange line and gives a more comparable view on the underlying trend in operating results. In the table below the graph, you can see that the FX adjusted operating margin of 25.5% in the period compared with 22.6% in the same quarter last year. In the shorter term, the operating margin is impacted by the commercial investments made in both EUROW and in the U.S. A gradual return to improvement in operating margin is expected as these investments are assumed to have positive impact on future sales growth potential. The relation between the U.S. dollar and Swedish krona has been stabilizing over the last 4 quarters, which becomes visible when comparing the adjusted operating result, including and excluding translation exchange effects on a rolling last 12-month basis. By the reported figures in Q1 this year, it is noticeable that the difference between including and excluding translation exchange effects is becoming narrower following a more stable relation to the U.S. dollar. The strengthening of the Swedish krona over time impacts both net sales and operating results as visible in the graph. A solid cash conversion has been reported continuously since third quarter 2024 with an average cash conversion of 81%, visible as the dotted line in this graph. Q1 this year reported ahead of the average, mainly due to the previously mentioned timing effects from customer payments. And with this, I hand back to you, Torbjorn. Torbjorn Skold: Thank you, Hakan. So to summarize Q1 2026, sales grew by 31% at constant exchange rates, reflecting steady and consistent progress. Highlights were sequential CERAMENT G growth in U.S. of USD 2.6 million, EUROW growth versus a strong prior year of 16% at constant exchange rates and record strong cash flow of SEK 75 million, underscoring the strength of the business and its scalability. I'm convinced that the most exciting part of our journey in BONESUPPORT still lies ahead of us. And as I said, to provide a clearer view of what that journey will look like, we will host a Capital Markets Day in Stockholm on the 26th of May this year, which you are, of course, all welcome to join. Now with that, we're opening the line for questions. Thank you. Operator: [Operator Instructions] The next question comes from Kristofer Liljeberg from DNB Carnegie. Kristofer Liljeberg-Svensson: Three questions. First, on the increased selling expenses here in the quarter. Would you say that you have reached a new level now? Or should we expect them to continue to increase sequentially? And related to that, how you think about the operational leverage here going forward? I noticed underlying EBIT has been more flat here sequentially. So would you expect it to pick up again here in coming quarters? My second question relates to the sales commission in the U.S. that seems to be down as a percent of sales. I noticed they are flat sequentially despite higher sales. If you could explain that? I know there's other variable costs included in that maybe as well. And then when it comes to the De Novo process for CERAMENT V in the U.S., if you could maybe explain a little bit what type of questions that FDA has and why you sound so confident that the product will eventually be approved and the risk of not receiving an approval? Håkan Johansson: Thank you, Kristofer. I will start answering the first 2 questions, and then I will hand over to Torbjorn to answer the question on the De Novo process. So let's start with the increased selling expenses. And again, as we have communicated also previously, we will continue to do gradual commercial investments if we believe that this is beneficial to sales growth. And on that theme, we have been both investing in the so-called EUROW Booster program, but we have also continued to strengthen our U.S. organization in terms of medical education activities, national accounts management and also more sales-related functions, et cetera, to continue supporting the growth and the aspirations in the 3 main segments in the U.S. So again, a gradual increase can be expected. But as we also mentioned in the call, we expect this to have beneficial impact also on sales and sales growth going forward, and we also expect that to come back with a gradual improvement in operating margins. When it comes to sales commission and fees, I'm glad that you noted that there is a reduction in the percentage to sales in Q1. And there is one main driver in this, and that is an activity that we've been running in the U.S. in the theme of balance sheet and process efficiency. And it's been a program to move customers from paying with credit cards to pay electronically over our bank systems. And this is an activity that has resulted in a lower cost for credit card fees and that is moving down sustainably, the fee is down with a percentage point. So that's the main driver by the reductions. There are some other reductions in the quarter, but they are more seasonality driven than anything else. But the main impact comes from reduced credit card charges. Kristofer Liljeberg-Svensson: And what did you say that impact as a percentage of sales? Håkan Johansson: It's 1% saving. Kristofer Liljeberg-Svensson: Okay. So this is a sustainable effect? Håkan Johansson: Yes. Torbjorn Skold: Okay. And then to the third question that you had around De Novo. So the way that we look at this and interpret this is, first of all, the De Novo process compared to a 510(k) process. It sets a higher bar. It sets a higher standard. That is not only a negative. It's actually also a positive, meaning that it strengthens the moat. What we also see is the pattern that we see from the FDA is very, very similar to the De Novo process that we had for CERAMENT G. What I said on the call, and I think it's also important to highlight is that as part of the 510(k) process, the department of the FDA that was involved was the CDRH, so the Center for Devices and Radiological Health. They were involved. They are still involved and they are still leading the audit. As we move to a De Novo process and as this product is a combination product, so it's a device with drug-eluting properties, then the CDER, so the Center for Drug Evaluation and Research is also involved. They're brought into the process. The questions that we have received are more of the nature of being explanatory, clarifying rather than anything else. The 3 areas, which is also fully expected and planned for are in the areas of preclinical, clinical and biocompatibility. Now we're working on these questions diligently, and we want to answer them in a disciplined and robust way to make sure that we properly inform, educate, if you will, the FDA to understand what this technology does with CERAMENT V, what it already does with CERAMENT G, which is FDA approved. And also this is a product. CERAMENT V is a product that has been approved outside of the U.S. for many, many years. It is used every day in patients. So with that, I feel comfortable that it's more of not so much if we get approval, it's more of when we get it. And having said that, we control what we can control, how FDA reacts and responds that is outside of our control. But I feel comfortable that we're on the right path, and we will get it to market. It's more a question of when. Kristofer Liljeberg-Svensson: Could I ask -- sorry, but just it's not that they're requesting more data similar to what happened with CERAMENT G. Torbjorn Skold: So far, it's more explaining and more details of the existing data that we have already provided. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have a few. So I think, as you pointed out, a solid quarter-over-quarter sales growth for CERAMENT G in the U.S. So if you could just tell me if there is something nonrecurring or extraordinary supportive in the quarter or if this is purely better penetration? And if so, what are the key contributors? You mentioned all of the areas, but anything to point out there? That's the first one. Torbjorn Skold: Okay. So boring answer. No, it's no one-timers. It's no nonrecurring. It is more of the same that we've seen in the past. And the growth comes from all the 3 segments: foot and ankle, trauma and arthroplasty. And in absolute numbers, all 3 contribute positively. Of course, there's a lot of excitement internally and externally in our 2 newer segments, so trauma and arthroplasty, but all 3 segments contribute in a meaningful way in the quarter. When we look at existing and new accounts, it's very much the same trend that we saw in 2025 throughout the year and also at the end of the year, meaning that we get meaningful growth from both existing accounts increasing their adoption as well as we see meaningful growth coming from shifting from awareness to access with access on many different layers. So yes, unfortunately, there's no -- there's nothing more exciting than that, Mattias, to your first question. Mattias Vadsten: That helps. My next one -- or can I just follow up in terms of working days, were they the same in Q1 vis-a-vis Q4? And what do you see here in the second quarter coming up? Håkan Johansson: So it's correct. So it's on the same level as Q4. So it's 61 days. And the number of work days is increasing in Q2, despite now starting with Easter holiday and with the risk of remembering wrong, but I believe it is 63 days in Q2. Mattias Vadsten: I have a few more. In terms of CMS proposing changes that improve the payment for using CERAMENT G, as you mentioned also in the presentation here, can we say anything on magnitude? And can you refresh us just how important the CMS exposure is for both [indiscernible] and so on? Torbjorn Skold: Yes. No. So first of all, it is a proposed ruling. So it is not -- it has not been approved. It's not been decided on yet. That's one piece. Number two, this full year '27 IPPS document, fully public, so all of you can go ahead and read it, knock yourself out. It's 1,600 pages of text of a very small portion of that, but still quite a bit of text related to CERAMENT. As it's complex, as it's many different codes impacted and several indications impacted. And when we look at it and when we also have advisers looking at it, it also -- there is a bit of interpretation in it. So we don't want to draw too many conclusions and too many specific conclusions yet. However, on a total level, on a high level, it is very, very positive. And pretty much everything that we requested in our submission pretty much went through. We have a couple of clarifications on how we should interpret it. But overall, it's very, very positive. And there are many layers in this proposed rule. And I think some of them you can sort of peel out or take out separately. One is the proposed NTAP for CERAMENT V. It's pretty standard. We would have been disappointed if we didn't get it. So that's one thing. The other thing is the extension of NTAP for CERAMENT G for open fractures. That is also sort of expected and you can strip out. What remains -- so if we strip those out, and those are very positive for us, what remains still is, in my mind, even more sort of strategically important for BONESUPPORT because it highlights a couple of things. Number one, it highlights that CMS continues on the path to pay more for outcomes rather than activities. Why that is important for BONESUPPORT is that, yes, we have a very expensive product. But the whole value proposition with CERAMENT is to avoid infections, avoid revision surgery, avoid readmissions. It is clear, not specifically only to CERAMENT, but in general, in this proposed rule that CMS is going in that direction. So that is very positive. And then you can see in diabetic foot infection, you can see it in also fracture-related infection and also periprosthetic joint infection. CMS proposes to incentivize technologies like CERAMENT and also, to a certain extent, almost use CERAMENT as a trigger point for a higher reimbursement because CERAMENT is very much linked to cases that have higher complication, higher comorbidities. So -- and I know you guys want a specific number, how much will sales go up? We cannot provide that. We don't know yet. It's complex material. We're analyzing it. But we're very, very pleased and satisfied with the proposed ruling and look forward both to the clarifications that we expect in the next couple of weeks and also the ruling to come into effect later this year with full effect next year. Mattias Vadsten: But that's helpful. Lastly, I have a follow-up to Kristofer's question regarding CERAMENT V in the U.S. So if I catch this correctly, the 150-day review period will pause and it will resume when you submit your answers or call it, clarifications. So with this in mind, what kind of delay do you think we're looking at here in the process? Is it a couple of months or and also August, is that sort of a formal last date, not necessarily means that BONESUPPORT will resubmit in August, I guess. Torbjorn Skold: So I'll answer it. Number one, Yes, you're correct in your first statement about the timing and the clock there. That's number one. Number two is knowing how and what -- how FDA and what CERAMENT -- what FDA will do is impossible for us to guess. So whether it's the delay or not, it depends on who you ask. Now what we want to do and want to make sure is that we answer the questions in a disciplined, robust way so that we get the approval in a way that we wanted to, not only as fast as possible, but in as a robust way as possible. So that's what we're doing. But again, you never know with the FDA. Now the end August time line that we communicate, that's the formal deadline. I mean, we will use that if we feel that it is necessary and we feel that it is good for the process. If we feel that we can submit it faster than end August without risking the quality of the material and the outcome of the process, we will, of course, do that. But end August is the latest formal deadline that we have. Mattias Vadsten: But it's still reasonable to expect it to be cleared in 2026 with all of this in mind. Torbjorn Skold: Well, it's always difficult to guess what FDA does. I feel comfortable that we're on a good path. It's not so much a question. If it could be in '26, that's my best guess. But if it needs to be extended to '27, it's worth waiting for, for sure, if we put it that way. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: Just sorry for going back to this CERAMENT V. I'm not sure if I got it right here, but could you please confirm that you do not need to carry out any additional clinical studies in order to be able to answer the questions from FDA. Is that correct? Torbjorn Skold: That is our current hypothesis and current assumption. So yes, that's correct. Sten Gustafsson: Perfect. My second question is regarding sort of the -- if you look at the sales split of CERAMENT G and CERAMENT V in Europe, is it possible for you to see in how many cases you use both products at the same time, i.e., where there's a super broad infection, whether doctors use it in combination? Torbjorn Skold: So just so I understand the question, are you referring to OUS? Sten Gustafsson: Yes. I mean in Europe, for example, where both products are approved and being used CERAMENT G and CERAMENT V, do you have a feeling for how many procedures doctors use both products at the same time? Håkan Johansson: We know anecdotally that it happens, but we have no somehow data-driven substance that we can lean towards, et cetera. But we know anecdotally that it happens. By that, it is not extensive somehow in terms of using both. Sten Gustafsson: I get it. Excellent. And the sort of the split do you have a feeling for that in terms of procedural usage? Håkan Johansson: With some volatility, it's somewhere between 25%-75%, 20%-80%, where some of the largest use is on CERAMENT G. So roughly 25%-75%. Sten Gustafsson: Okay. Perfect. My last question is regarding Germany. I'm not sure if I missed it in the report, but are there any comments on how Germany is developing for you? Håkan Johansson: So Germany is, in a way, somehow positive because it's stable. And what do I mean with that is that somehow it feels like somehow it's trending on the same level as previous quarter, meaning that we don't see a decline. And I think that's a first good sign that again, as we have commented, we're still focusing on Germany. We still have strong relations to German hospitals and German surgeons, et cetera. And I think that for Q1, we're glad that we see that the development is stabilizing. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: I wanted to focus a bit on the trauma centers in the U.S., which you gave figures for in last quarter. I mean, penetration rate was obviously quite high. But is it possible to now that -- I mean, they've done pilots potentially up to a year ago to talk a bit about the current, say, conversion rates from pilots to continued use? And then also if you can say anything on how high, say, the continued use is as of now and how many of those are still in sort of an evaluation phase? Torbjorn Skold: Okay. Thank you, Erik. I mean we don't provide -- we will not provide any numbers to answer your questions, but we can provide a bit more color on your question related to trauma in the U.S. So as I mentioned, we saw that all 3 segments contributed in a meaningful way for the quarter. That includes also trauma. So we see that the journey that we're on in trauma follows the plan and follows the expectations. I also said that there's a lot of excitement internally as well as externally around trauma and arthroplasty. That speaks to it. I think what creates internal and external excitement and helps us on this journey that you referred to are the 2 studies that we talked about earlier. I know that actually, you didn't really -- you quoted that those were not really meaningful studies. I would argue against that and say that they are very meaningful for us from a commercial perspective, and they get traction because it's a great way for us to talk about our product in a practical evidence-based way. So we're seeing in trauma, there's continued excitement. We continue to move from awareness to adoption -- sorry, from awareness to access to adoption. So now we're becoming more in the access and adoption phase with many, many more years to come in trauma, partly supported by the evidence that we provided. But we don't really give on a quarterly basis any data that you're asking for, Erik. Erik Cassel: Okay. That's fair enough. And then I also wanted to sort of repeat a question from Kristofer and see if we can get a bit more detail on it. I mean, you said in the report that the commercialization costs are going to peak this year sort of. But is it possible to maybe quantify or frame it in a bit more detail the implied cost ramp we're going to see this year and how that also transitions into '27? Because it makes it sound like the incremental margins this year might be a bit worse than what we normally see. So I just want to make sure that we get the expectations right on this. Håkan Johansson: It's a fair question, Erik. And again, I think that has been a repeated theme from our side is that we will -- and I promise you, we will continue to do commercial investments if we believe that this will be beneficial for continued sales growth. And on that team, we have the EUROW Booster as we've communicated, I think it's more than a year ago. And that the EUROW Booster is adding SEK 10 million in incremental cost, and it will take at least 18 months until that program is returning somehow sales that covers the cost. In the U.S., we have been gradually strengthening the organization. And if we just look at current plans, that means that from during second half of last year and going into this year, we are adding 10 heads into our U.S. organization because we believe that this will be beneficial for the U.S. sales growth. That will create in the shorter term, a reduced positive trend in terms of operating margin. But as we said on the call, we are strong in our view and believe that this will come back to continued gradual improvements in the operating margins. Torbjorn Skold: Absolutely. And on top of that, I mean, if we look at this case on a more of a couple of years basis, there's plenty of operational leverage in this business with what we're doing. We've taken quite substantial investments, both in EUROW as well as in the U.S. So if you take a more longer-term perspective, there's no change in the potential of the operational leverage of this business on the contrary, when we look at that internally and strategically in the more longer-term horizon. Erik Cassel: Okay. And then I wanted to touch upon the U.S. BVF sales. That was, I guess, a soft point in this report. Previously, you've more talked about the BVF products perhaps becoming an add-on to CERAMENT G, so that you get new accounts doing CERAMENT G and then they also start to use the BVF product. Now it more looks like that there's cannibalization on the BVF product. Have you changed the -- what you're seeing for BVF and sort of the, say, longer-term implication of that? Or are you actually seeing any CERAMENT G accounts also picking up BVF? Håkan Johansson: So I think that in the longer term, we stay firm with that view because again, we continue to see that surgeons that has been -- that we're bringing on somehow thanks to CERAMENT G are also using the BVF product for surgeries that -- where there is none to very low infection risks. I think that what we've seen in the first quarter is, in a way, not negative for the longer term because what we've seen that somewhat explains some of the softer sales of the BVF in the U.S. is surgeons that has been traditional and solid BVF users have converted and increased its use of CERAMENT G. We believe that is positive, even though it may have a short-term impact on the BVF sales. But again, statistics shows that somehow with CERAMENT G as a growth engine, bringing in new surgeons, we also see that those surgeons are using BVF. So over time, we believe the BVF first will stabilize, but then we will see low-digit annual growth coming back. Erik Cassel: Okay. But on the timing of that, it now looks like it's cannibalization. Do you think that will continue? Or is this sort of a stable rate do you think for that product? Håkan Johansson: I think it's too early to say because it was really visible this quarter in a stronger way than what we've seen, et cetera. So Erik, I'm sure let's come back to that question after Q2 and see somehow if that trend remains. Erik Cassel: Okay. Just the last one, if I may. On the gross margin headwind from tariffs, I understand that as you're, of course, manufacturing the products with contract manufacturers. Is it possible to say in the medium term, transfer production locally to the U.S. to sort of offset this? Or is the relative cost in the U.S. basically too high, so it wouldn't be enough of an offset to actually do that? Håkan Johansson: From a purely practical point of view, that could be a consideration. But from a regulatory point of view, to move production is a very timely and costly process. So we will continue to -- as the business in the U.S. grows to look at various options when it comes to manufacturing. But here and now and to offset tariffs, somehow, it's not a helpful strategy. Operator: The next question comes from Oscar Bergman from Redeye. Oscar Bergman: Thank you for very interesting report as always. I have a few questions left. I think maybe the first one, if you could just sort of clarify the constant exchange rate growth for CERAMENT G in the U.S., I think it would be helpful. Håkan Johansson: Yes. So explaining in terms of? Oscar Bergman: The constant currency exchange growth for U.S. CERAMENT G in Q1. Håkan Johansson: So again, as we showed in the graph, somehow, the sequential growth of CERAMENT G in the U.S. was USD 2.6 million. And that is somehow what's supporting the statement and the numbers reported and made. So sorry, maybe it's too early morning for me, but I think you have to clarify really what you're after, Oscar. Oscar Bergman: Yes, I was just thinking -- okay, maybe I have to check the report again, those numbers maybe was too early morning for me as well. I think we can just move on to the other question instead. Håkan Johansson: Yes. Oscar Bergman: I know CERAMENT BVF for spine is still very early stage, and you don't report this separately. But could you just give some sort of ballpark figure or anything that helped me sort of decipher the sales contribution so far? Torbjorn Skold: Yes. So the spine BVF launch follows plan. And the plan, just to remind everyone, but this is very important. It is that we take a very, very focused approach on spine BVF. And we've said that from a revenue perspective, it will not have any material impact on the overall numbers on the total or even on the BVF side. So we're really -- it's really small numbers for spine BVF. And the reason for that is simply we're not in spine. We're not going after spine to sell BVF. Our hypothesis on spine is that it's a very attractive segment for us offering a product that does the 2 things that CERAMENT does perfectly, meaning healing bone and in a very controlled, predictable way, elute antibiotics. So from a sales point of view, spine BVF, I wouldn't put any material numbers in that, if that's what you're going after. However, what is very positive to see in Spine is that our hypothesis and assumptions about that segment in terms of the strength of the value proposition is being confirmed in the quarter. So -- but also just to manage expectations, to come with a product, an antibiotic eluting product into spine is a couple of years out. We need the clinical evidence. We need the regulatory approval. So that still remains the same. So no change really. But Q1 in spine with BVF confirmed at least what we see that we're on the right track and our assumption and hypothesis so far remain valid. Oscar Bergman: But can you share any numbers on maybe a number of customers that have tried out the product or...yes. Torbjorn Skold: I mean, no, we don't provide any specifics on that. But these are -- we have wanted to keep it low. That's how we want it, and we're being very selective in which accounts we're going after. And to be fair, we could have gone for more accounts if we wanted to and actively promoted it more, but we want to keep it very strict, very disciplined, very controlled so that we do it in the right steps for the long-term case of CERAMENT in spine. Oscar Bergman: And I guess it's a fair assumption that you are targeting customers where you already have some experience with CERAMENT G for extremities? Or are you going for hospitals outside your sort of current customer base? Torbjorn Skold: We're doing both, to be honest, because, I mean, again, it comes back to that you want the right surgeon, you want the right hospital that believes in our hypothesis of CERAMENT in spine, that believes and acknowledges the fact that infection is an issue and that also believes and buys into the characteristics of CERAMENT. Sometimes they come in already existing partnerships with our independent sales reps in extremities. Sometimes they come outside. So we're not fundamentalistic that they have to come from the existing distributors. But -- so we see a combination of both. Oscar Bergman: And I know you have a CMD in about a month's time. And I guess we'll hear more about the Spine segment there. But do you still expect it to be registered as a medical device and not having to go through a drug registration process? Torbjorn Skold: Yes. I mean -- so our approach here is that we're a medical device company. We want to remain a medical device company, similar to what we have done with CERAMENT G and CERAMENT V. And that's also our plan and thinking on spine. Oscar Bergman: Okay. And just maybe a final question. The launch in India, I'm very happy to hear that you have first sales there already, but I suspect it's very small numbers still. Can you give some words on the progress here and maybe what we should expect for the full year? Torbjorn Skold: Yes. No, absolutely. I mean, I sit here next to our CFO. He's super excited because it's not like we've only launched and we've only also sold it. We've actually done cash collections. So for once, Hakan is on good mood when it comes to India. So that's great, which is positive. But you're absolutely right. It's just the start. And in Q1, it's small numbers. And it's going to be small numbers as it always is when we enter a new country. With India, it's very exciting for a couple of reasons, meaning that if you look at the size of the total population, it's massive. We're not going after that. We're going after a niche segment of that population. So private pay and closely sort of managed with private hospital chains where we have a good collaboration and good trust. But even in our smallest estimates, the segment that we're entering, it's a sizable country in -- or it corresponds to a sizable country in Europe with margins that are similar to distributor margins in Europe. So that's why we are excited. But it's early days. It takes time, but so far, very pleased with what the team has done there and the progress that we've seen. But again, small numbers in Q1. And hopefully, we'll work to make those numbers grow fast in the couple of years. Operator: There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments. Torbjorn Skold: Okay. We have a couple of minutes left, and we still -- we also have a couple of questions on the chat. And then we'll just quickly read through. One question is -- and I'll leave this to Hakan. So I will read Hakan and then you'll prepare. So Hakan, could you please help us on the R&D spend for 2026? Should we expect a similar ratio versus sales as seen in Q1 and 2025? Håkan Johansson: So again, I think that what we've seen is a very stable run rate the last 4 quarters. And I think that's a good baseline to start from. The uncertainty that we have is some pending the discussions with the FDA and the regulatory pathway to get an antibiotic eluting product approved for spine. And we believe that, that will include and involve clinical studies and the absolute cost levels and the timing of these costs remains to be clarified, and that will add to the run rate. Torbjorn Skold: Okay. Good. Another question we have is around dividends and capital allocation. And I'm going to read it and then Hakan, you will answer it. So why do you not consider a dividend appropriate at this time? What do you intend to do with the assets and the cash position of nearly SEK 500 million? Håkan Johansson: It's a good question. And again, some, it is good to have a solid underlying cash flow because that builds also confidence in the business for any future investments, et cetera. But also saying that, we understand and we see that we are generating more cash than the business needs in short to midterm. And there is also a good reason why the Board proposed to the AGM, the upcoming AGM in early May to get a mandate to buy back shares in the market as one way to allocate the funds that the business is generating. Torbjorn Skold: Okay. And then we have another question related to CERAMENT V on the chat, and it goes like this. Do you expect that you will reply to FDA's questions regarding CERAMENT V before summer? So what we've said is that we -- the deadline that we have end August, we will reply to the FDA questions before end August. So we confirm that what we already said. And then I believe there's one last question on the chat, and it relates to the SOLARIO study. And it says, when will the full report of the SOLARIO study be fully published? Or won't it be? So we -- I mean, again, we don't manage the submission to the scientific journal. This is done by the lead authors. But we have good reasons to believe that the SOLARIO study will be published in the near term, exactly when and exactly which journal remains to be seen, but we have good reasons to believe that it will be published as per plan, and we also have we believe that it will confirm this paradigm shift that we see and hear about related to using systemic antibiotics versus local antibiotics. So we feel we have a good and positive outlook on the SOLARIO study. So hope to see something there in the short to medium term. I believe that is it. That concludes. That concludes. So with that, right on time. Thank you all for dialing in. And again, a warm welcome to the Capital Markets Day in Stockholm on May 26. Thank you very much.
Operator: Good day, and welcome to the Wabtec First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Kyra Yates, Vice President of Investor Relations. Please go ahead. Kyra Yates: Thank you, operator. Good morning, everyone, and welcome to Wabtec's first quarter 2026 earnings call. With us today are President and CEO, Rafael Santana; CFO, John Olin, and Senior Vice President of Finance, John Mastalerz. Today's slide presentation, along with our earnings release and financial disclosures were posted to our website earlier today and can be accessed on the Investor Relations tab. Some statements we are making are forward-looking and based on our best view of the world and our business today. For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully, as you consider these metrics. I will now turn the call over to Rafael. Rafael Santana: Thanks, Kyra, and good morning, everyone. At Wabtec, we are focused on advancing mission-critical transportation and industrial technologies. We are committed to building a more efficient, high-performing global platform that drives and compounds long-term value for our customers, shareholders and for our employees. We are inspired by the progress we are making, and we remain dedicated to executing this strategy as we report out our first quarter results. With that, let's move to Slide 4. I'll start with an update on our business, my perspectives on the quarter and progress against our long-term value creation framework, and then John will cover the financials. The team delivered a strong first quarter with operational results ahead of our expectations. EPS also benefited from nonoperational benefits driven by currency fluctuations and taxes. The momentum that we had as we exited 2025 was clearly advent in our first quarter operational execution, pipeline conversion and our overall financial results. Sales were $3 billion, which was up 13%, and adjusted EPS was up 19% from the year ago quarter. Total cash flow from operations for the quarter was $199 million. Backlog remains a key strength. 12-month backlog was up 13% from the prior year, while the multiyear backlog exceeded $30 billion, up 38%. This backlog results provides strong visibility and reflects continued momentum across our businesses positioning us well as we execute against our strategy. Our financial position remains strong. We continue to execute against our capital allocation framework and expect to continue to compound long-term value for our shareholders. Shifting our focus to Slide 5. Let's talk about our 2026 end market expectations in more detail. While key metrics across our Freight markets remain mixed, we continue to be encouraged by the overall strength and resilience of our business. We are seeing solid momentum in our international markets and the pipeline of opportunities across geographies remain strong. In North America, carload traffic was up 2% in the quarter. Despite the [ static ] growth, the industry's active locomotive fleet was down slightly, while Wabtec's active fleet trended up when compared to last year's first quarter. Internationally, carloads continued to grow at a robust pace across core markets such as Kazakhstan, Latin America, Africa and India. Significant investments to expand and upgrade infrastructure are supporting our international orders pipeline. Looking at the North American railcar build, demand for new railcars is down compared to the prior year and is projected to be approximately 24,000 cars for 2026, which is down 22% from 2025. The industry forecast remained unchanged from last quarter. Finally, turning to the Transit sector. We continue to see positive underlying indicators for growth. Ridership continues to increase in key markets such as Europe and India, and we are seeing strong backlogs at car builders supported by higher levels of public investments for fleet expansions and renewals. Next, let's turn to Slide 6 and highlight several recent business wins. During the quarter, we secured a multibillion-dollar, multiyear mining order for drive systems and aftermarket parts. This win reflects our close collaboration with our customers and the strength of our differentiated technology and life cycle support offerings. In North America, we secured a $210 million multiyear modernization with [indiscernible] BTA that highlights our ability to innovate and deliver fleet scale upgrades that improve reliability, efficiency and life cycle value for our customers. We also continue to make progress on innovation as we are executing the first EVO Modernization build to support our commercial rollout of this new product. This represents an important milestone as we transition from development to commercialization and begin to scale this technology across our installed base for years to come. Moving to our Transit segment. We signed a $54 million brake and couplers order with Kawasaki for the New York City Transit, further validating the positive impact of the recent Dellner acquisition in enhancing our Transit portfolio. Overall, these successes continue to demonstrate our leadership in the markets we serve, the strength of our pipeline and the commitments of the Wabtec team to deliver meaningful results for our customers and for our business. Moving to Slide 7. Before turning it over to John, I want to briefly discuss our acquisition strategy and history. Our strategy remains disciplined, targeted and focused on driving long-term value creation. Since 2020 we have deployed over $4.5 billion of capital across many acquisitions, largely centered on bolt-on and year-end adjacent opportunities that enhance our portfolio and further strengthens Wabtec's position as a leading industrial technology company. These transactions are highly strategic. They expand our capabilities, they deepen customer relationships and they deliver strong synergy potential while meeting our financial objectives. Capital deployment has been highly focused on the quality of the assets purchased and on their investment returns for our shareholders. We have remained patient and selective in an effort to improve portfolio resilience and position us for profitable growth over time. With regard to our most recent acquisition of Inspection Technologies, Frauscher and Dellner, these businesses are off to a great start with Wabtec. While still early, they are delivering ahead of our acquisition plan. On integration of these acquisitions, we continue to execute very well. Currently, our teams are making solid progress where our integration plan is firmly in place and early synergy realization is also tracking as expected. We're already seeing early benefits and expect synergy run rate savings to scale meaningfully over the coming years. Overall, our approach to M&A is to execute, targeted high ROIC acquisitions supported by repeatable integration model aimed at delivering sustained profitable growth as we accelerate the compounding of value for all of our stakeholders. With that, I'll turn the call over to John to review the quarter, segment results and our overall financial performance. John Olin: Thanks, Rafael, and hello, everyone. Turning to Slide 8. I'll review our first quarter results in more detail. As a reminder, last quarter, we expected first half of this year to be characterized by robust revenue growth behind continued organic growth, coupled with the revenue benefit from our recent acquisitions. Furthermore, we expect our margins to expand modestly in the first half of 2026 as we lap very tough comps from the first half of 2025 and experienced significant headwinds from tariffs. As Rafael mentioned, our first quarter operational results came in slightly better than expected. This performance included the impact of an exit from a low-margin Digital project, which was fully reflected in the quarter. In addition to the better-than-expected operational results, we experienced better-than-expected nonoperational results. This favorability was generated in two areas. First, other income was significantly favorable on a year-over-year basis, which resulted primarily from the impact of currency fluctuations on our international assets and liabilities. Next, we experienced favorable timing and our effective tax rate. In the quarter, our adjusted effective tax rate was 22.2%. Our expectations for the full year remain at approximately 24.5%. Having said that, Sales for the first quarter were $2.95 billion, which reflects a 13.0% increase versus the prior year with strong contributions from both the Freight and Transit segments. Excluding the impact of currency, Q1 sales were up 10.4%. Organic growth in the quarter reflects the Digital portfolio exit. Excluding the impact, organic growth was in line with our expectations for the first quarter. For the quarter, GAAP operating income was $517 million. The increase was predominantly driven by higher sales. GAAP operating margin was down in the quarter due to a noncash purchase accounting adjustments resulting from our recent acquisitions. Adjusted operating margin for Q1 was 21.9%, up 0.2 percentage points versus prior year. This modest improvement was achieved despite the year-over-year tough comps, tariff-related headwinds and Digital portfolio exit. GAAP earnings per diluted share was $2.12, which was up 12.8% versus the year ago quarter. During the quarter, we had net pretax charges of $41 million for purchase accounting adjustments and transaction costs associated with our recent acquisitions as well as restructuring costs, which were related to our integration and portfolio optimization initiatives to further integrate and streamline Wabtec's operations. In the quarter, adjusted earnings per diluted share was $2.71, up 18.9% versus the prior year. Overall, the quarter reflects the strength of our execution, the resilience of the business and solid momentum as we move through the year. Turning to Slide 9. Let's review our product lines in more detail. First quarter consolidated sales were up 13.0%. Equipment sales were up 52.5% from last year's first quarter. This was driven by higher locomotive deliveries and increased mining sales. Our Services sales were down 17.3% due to lower modernization deliveries as we expected, which was partially offset by core Services sales growth. In Q2, we expect to post another quarter of strong Equipment growth and lower year-over-year Services revenues driven by lower modernization deliveries. Component sales were down 6.3% versus last year due to the industry's decline in the North American railcar build and due to lower revenue from our portfolio optimization efforts partially offset by increased industrial product sales. Digital Intelligence sales were up 75.7% from last year. This was driven by contributions from the Inspection Technologies and Frauscher acquisitions. In our Transit segment, Sales were up 17.8%, driven by a partial quarter of the Dellner acquisition and growth across our Products and Services businesses. Foreign currency exchange had a favorable impact on sales in the quarter of 6.8 percentage points. Moving to Slide 10. GAAP gross margin was 36.0%, which was up 1.5 percentage points from first quarter last year. Adjusted gross margin was up 2.3 percentage points during the quarter. GAAP operating margin was 17.5%, which was down 0.7 percentage points versus last year. Adjusted operating margin improved 0.2 percentage points to 21.9%. Operating margin was positively impacted by cost recovery from contractual price escalation, increased productivity and iteration savings, partially offset by rising manufacturing costs, higher year-over-year tariff costs, unfavorable mix and the Digital portfolio exit. Adjusted and GAAP SG&A expenses were higher year-over-year due largely to the SG&A expense associated with our acquisitions. Engineering expense was $56 million, $10 million higher than first quarter last year, primarily due to acquisitions. We continue to invest engineering resources and current business opportunities, but more importantly, we are investing in our future as a leading industrial tech company focused on improving our customers' fuel efficiency, labor productivity, capacity utilization and safety. Now let's take a look at segment results on Slide 11, starting with the Freight segment. As I already discussed, Freight segment sales were up a strong 11.3%. GAAP segment operating income was $450 million, driving an operating margin of 21.3%, down 0.8 percentage points versus last year. GAAP operating income included $24 million of purchase accounting adjustments resulting from our recent acquisitions and restructuring costs for our integration and portfolio optimization initiatives. Adjusted operating income for the Freight segment was $550 million, up 12.7% versus the prior year. Adjusted operating margin in the Freight segment was 26.0% up 0.3 percentage points from the prior year. The increase was driven by higher gross margin of 2.1 percentage points, partially offset by an increase of 1.8 percentage points of our operating expense as expressed as a percent of revenue. The key driver of this is due to the mix of higher gross margin businesses as a result of our acquisitions of Inspection Technologies and Frauscher. Finally, the Freight segment's 12-month backlog was $6.68 billion. Our 12-month backlog was up 10.1%, while the multiyear backlog of $25.18 billion was up 41.0%. Turning to Slide 12. Transit segment sales were up 17.8% at $835 million. When adjusting for foreign currency Transit sales were up 11.0%. The acquisition of Dellner added a partial quarter of revenue, adding approximately 5.8 percentage points of sales growth. GAAP operating income was $121 million, which reflected the quarter's robust revenue growth and operating margin expansion. These strong results were partially offset by $6 million of restructuring costs and the costs associated with our acquisition of Dellner in the first quarter. Adjusted segment operating income was $138 million. Adjusted operating income as a percent of revenue was 16.6%, up 2.0 percentage points from prior year, driven by increased gross margin, which was partially offset by higher operating expenses as a percent of revenue. Finally, Transit 12-month backlog for the quarter was $2.57 billion. Our 12-month backlog was up 20.7%, while the multiyear backlog was up 26.4%. Now let's turn to our financial position on Slide 13. First quarter cash flow generation was $199 million, resulting in a cash conversion of 40%. We are off to a solid start for the year, with cash flow up slightly versus last year's first quarter cash flow of $191 million. Our balance sheet and financial position continues to be very strong as evidenced by: first, our liquidity position, which ended the quarter at $2.09 billion, and our net debt leverage ratio, which ended the first quarter at 2.3x. Our leverage ratio remained in our stated range of 2x to 2.5x, even after funding the purchase of Dellner during the quarter for approximately $1 billion. We continue to allocate capital in a disciplined way to maximize returns with an expectation of compounding our earnings for our shareholders. During the quarter, we repurchased $242 million of our shares and paid $53 million in dividends. With that, I'd like to turn the call over to Rafael to talk about our 2026 financial guidance. Rafael Santana: Thanks, John. Now let's turn to Slide 14 to discuss our 2026 outlook and guidance. Overall, the team delivered a strong first quarter with operational results ahead of our expectations. EPS also benefited from nonoperational favorability driven by currency fluctuations and taxes. Importantly, we continue to see underlying demand for our products and solutions across the business. That demand is reflected in a strong pipeline and both our 12-month and multiyear backlogs provide clear visibility into profitable growth ahead. Our team remains fully committed to driving top line growth, margin expansion and executing with discipline. With that backdrop, we are increasing our previous adjusted EPS midpoint guidance and we now expect adjusted EPS to be in the range of $10.25 to $10.65, representing approximately 17% growth at the midpoint. Our revenue guidance remains unchanged. Now let's wrap up on Slide 15. As you heard today, our teams continue to execute against our value creation framework and our 5-year outlook driven by strength of our resilient installed base, world-class team, innovative technologies and our customer-focused approach. With solid underlying demand for our products and continued focus on operational discipline, we feel strong about the company's future and our ability to deliver profitable growth and long-term shareholder value. Additionally, our recent acquisitions are running ahead of plan and strengthening our financial position. I believe Wabtec is well positioned as a leading industrial technology company with the capabilities and foundation to drive sustainable, profitable growth for years to come. With that, I want to thank you for your time this morning. I'll now turn the call over to Kyra to begin the Q&A portion of our discussion. Kyra? Kyra Yates: Thank you, Rafael. We will now move on to questions. But before we do and out of consideration for others on the call, I ask that you limit yourself to one question and one follow-up question. If you have additional questions, please rejoin the queue. Operator, we are now ready for our first question. Operator: [Operator Instructions] The first question comes from Ken Hoexter with Bank of America. Jonathan Sakraida: Great. So just maybe, John, a little bit of update on the tariff mitigation given the recent 232 updates. What -- talk about the impact. We've got a lot of questions over the last few days, the impact that you see on the business. Rafael, if you want to talk about if it's affected orders or slowed down things just what's gone on and maybe the cost implications for you? Rafael Santana: Let me start, and I'll let John go into the details. Number one, as we look into tariffs, any tariffs that have been announced up to this point are included in the guidance. The other comment I would make, we're not seeing any impact with regards to revenues. We continue the guidance as per the same time, last time. What we are seeing is we are executing better in the business, and that's reflected with the guidance on higher profit rate for the year. But, John? John Olin: Thanks, Rafael. Ken, when we look at all the activity that's been in the market with regards to the tariff regime change of the Section 232, as we look at the way it was and the way it will be, two things come to mind. Number one, is there, is no difference. We're largely indifferent between that from a financial standpoint. The second thing is, from an administrative standpoint, the new tariff regime is certainly much easier to administer. But again, no overall impact to that. As Rafael had mentioned, as you look at our guidance, everything that we know with regards to tariffs is built in there and really business as usual. We continue to pull the levers on our four-pronged approach, while, as Rafael had mentioned, this is a heck of a headwind on a year-over-year basis from a gross perspective. The team is doing a fantastic job at mitigating these tariffs. As we've talked, we're going to see timing of this. We're going to feel margin pressure in the first half of the year because of tariffs and that pressure will dissipate in the back half as we start to lap a more steady tariff cost and lap some of the costs that were in last year. But we're moving fine with regards to our plan to cover the tariffs, Ken. Ken Hoexter: Great. And if I can get my follow-up on just the outlook and the long-term outlook sounds great, still everything on track and great backlog growth. But in the near term, I just want to understand the messaging here. So you've taken the midpoint up about $0.20. I guess you had a huge tax benefit this quarter. You had the below-the-line gain John, you talked about. So if you add the two together, is that the $0.20? Or is there something going on on the cost side that you're trying to tell us is getting better? And I don't know, tax normalizes itself. And so that's not the guide. I just want to understand maybe more details on that messaging for that outlook. John Olin: Sure, Ken. When we look at the $0.20 increase. It's reflecting two things. And the way to think about it is roughly half of it, call it, $0.10 is due to the operational side of things and the other $0.10 is due to the nonoperational. So let's take a look at both of those, Ken. As we look at the operational, as Rafael had said, we came in slightly favorable to our expectations and we manage an exit of a Digital project. So we went back and looked at that and how much of that was structural versus timing and all those types of things. And we're doing a better job even though our costs are rising quite a bit. We're doing a good job of managing them through all the levers that we commonly pull. And so we took that across the remainder of the year. And then we netted out that against higher costs that we're seeing, and that's largely Ken, in terms of inflation. And while we do have price escalators, the timing of that and the fact that 40% are not covered by price escalators has our costs rising. And this is largely behind metals. We're seeing copper, aluminum, steel up. We're seeing precious metals up, silver impacts us as well, and transportation costs are up as well as we're seeing some pressure on memory chips in our Digital business. So when we take all of that in aggregate with the structural improvement that we had in the first quarter and that we think will extend to the remainder of the year, that nets out to a $0.10 increase to the overall EPS guidance. The second piece, as you pointed out, Ken, and you're thinking about it exactly the right way, is $0.10 is nonoperational. That is driven by two pieces and one is the currency fluctuations. Ken, we don't know if currencies are going to go up or down from here. But what we've said is that other income, which was up on an adjusted basis, $23 million is largely going to stick. Now that could be right or wrong, but that's the way we're thinking about it. In terms of the tax piece is we had favorability in the quarter, but actually, it will be a little bit of a headwind for the remainder of the year as we still expect the 24.5% full year rate. So again, very good news. We are holding our revenue forecast. We came in right where we expected to on revenue. And so I think the way to think about this is that we're holding revenue and it will be a little bit more profitable as we go forward and as we run the company in a better fashion. Operator: The next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: I just wanted to maybe talk a little bit more about the revenue part of the guidance. So you had a -- I guess if you could talk a little bit about why that was unchanged? I guess when I look at the backlog and the strength in that continuing of strong book-to-bill kind of 3 quarters back to back of strong growth in that sequentially and year-over-year. Just curious if there's any offsets to the degree of confidence you're seeing of maybe how much of your revenue is perhaps [ cover ] from fiscal year '26 or just how we should think about that unchanged guide in light of the backlog? Rafael Santana: Angel, let me start here with a few comments in terms of potential headwinds and [ ops ] drivers as we think about the year. On the headwinds, I think we would probably highlight the Freight car deliveries potentially being further down than what it is. Certainly, what John mentioned in terms of the inflation in our input cost, electronics continue to be one that is certainly a headwind and obsolescence as well. On the flip side of that, I'll probably start with obsolescence because that can drive, I think, some upside for us in terms of the opportunity to continue to modernize subsystems for our customers. The strong momentum on acquisitions being ahead of plan for the quarter. I think that's also a positive. I think we're seeing really -- we're gaining traction on new product introductions and that's really across more than a couple of businesses, and we're seeing incremental demand on existing projects. Maybe midterm, longer term is North America CapEx recovery. But what I would say is despite of these dynamics, I mean we're faced right now with probably the most significant financial headwind this business has had since '19, which is the tariffs. We're executing well. We've been able to mitigate those. The business momentum is strong. And we feel we're ready to deliver on both the guidance that we've given and the long-term projections. Angel Castillo Malpica: That's very helpful. And maybe just, I guess, clarify on that tariffs point, I think it sounds like the Section 232 is essentially neutral to your tariff expectations, but on a net basis. But I think previously, you talked about the first half as being kind of peak pain from a tariff standpoint and first quarter gross profit margin was very solid. So just curious, as we think about the cadence of the incremental tariffs or any of these changes or your assumptions and the cost you mentioned or inflation, is gross profit margin in 1Q, should we view that as kind of a low point for the year? Or how should we think about the cadence of the quarters? John Olin: Yes. Second question has got several of them in there, Angel. The first part of it is on tariffs. As we've talked about, and I think our team has forecasted them very well, right? A tariff comes in, it's got a flow through inventory and then it comes out of inventory. And we saw our tariff obligation grow through the beginning of last year and through August as the 232s really began to take hold. So what we've said all along is that it's going to be about 3 quarters out as we start to see this stuff rise. We saw a significant rise in the absolute level of tariffs moving from Q3 to Q4, an exponential gain, right? And we're seeing a similar thing as we move into Q1. Now in Q2, we're going to start to see a plateau in terms of the absolute, and again, the 232s was largely neutral. So we don't expect a big change to that. And as that now plateaus in the back half in terms of overall tariffs, we're going to see the base kind of creep up here, not a ton in the third quarter, but we'll see some more of that in the fourth quarter in which we paid tariffs in the previous year. So again, we feel we got them forecasted. But as I mentioned, Angel, it will provide headwinds on our margins, squeeze our margins in the first half, and that will dissipate in the back half as we start to lap the year-ago piece. The second thing is when you talk about the cadence, last quarter, we spoke very much about -- we're going to see higher revenue growth in the first half than the second half, and that's largely due to how we lap the acquisitions that we have, and in particular, Inspection Technologies. I think you're seeing exactly that in the first quarter. We're right on what we planned in terms of revenue growth. The second piece is we said we would see modest operating margin growth. And we saw that in the first quarter of the 0.2 of a percentage point gain. So we're feeling really good about where we're sitting, again, with a little bit of underlying favorability that we're extending and taking our guidance up for. When we look at the second quarter, the remainder of the half, we haven't changed our perspective of that at all. I think as you look at the second half, you should think about it's going to mirror pretty closely the -- I'm sorry, the second quarter is going to pretty closely mirror the first quarter in terms of revenue growth, in terms of margin growth, and in terms of EPS less the operational benefit that we had in the first quarter. Operator: The next question comes from Scott Group with Wolfe Research. Scott Group: So on the backlog strength, how much, if any, is just assuming backlog of some of the acquisitions? Or is this all sort of net new orders? And ultimately, I'm trying to just understand like how to think about this backlog translating into revenue. It's up like 13% exiting Q1. Like is there a path to as we look ahead, like sort of high single-digit type organic in rest of the year? John Olin: Great, Scott. I'll take the first part of that. And then I'm sure Rafael, have something to say with regards to the backlog in general. When we look at our first quarter backlog, we're very happy we're seeing momentum, underlying momentum in that backlog. But on the face of it, we are being favored by the Dellner acquisition in particular. Dellner's backlog is very similar to the remainder of the companies. So when we look at the 12-month backlog, Scott, we posted a 12.8% growth rate. But Dellner accounts for about 3 percentage points of that on an enterprise-wide basis. And on a -- just a Freight basis, when you look at the 12-months, it accounts for about 12 percentage points of that backlog growth that we -- I'm sorry, in Transit that we saw in the Transit group. Transit was up 20.7%, 12% of that was driven by Dellner. Multiyear is very similar. When we look at the multiyear backlog, we were up 38.1% on an enterprise-wide basis, and about 3.5 percentage points of that is driven by Dellner, and Transit was up 26% in terms of their backlog and about 15.5% of that was Dellner. Rafael Santana: Scott, the only thing I would add is, I mean, we've talked a while now and about this very strong pipeline of opportunities we have. And we're continuing to convert that into backlog. This is really strong momentum across both geographies and a number of sizable opportunities that we're advancing. I think a piece of it is really anchored in our installed base. So think about Service agreements that really drive recurring revenue for those fleets. They're going to be running out there. So that service, parts, upgrades. So that's a positive. At the same time, on the Equipment front, we are continuing to expand on existing agreements. And as we extend this technology differentiation in the market, we're seeing customers investing and extending some of these agreements. So our overall installed base continues to grow in that regard. Internationally, we will continue to see strength here. We see it certainly in Freight across Africa, Australia, Brazil and East Asia, in Transit it's predominantly, as I think about India and Europe. And in North America, which would be my last comment, while the overall fleet renewal remains muted, we continue to see very specific customers investing for cost reduction, efficiency, service and reliability, and that continues to provide, I think, a strong opportunity to that. Scott Group: Okay. Helpful. And then maybe just, John, I just want to clarify your comment about Q2, similar with 1Q. When you say similar to 1Q, what you're talking about the $270 million or more like the $250 million, if you exclude the tax and the other income or some -- I wasn't sure exactly what you're trying to say? So I just -- hopefully, you can just clarify. John Olin: Just in general, Scott, the second quarter is going to look a lot like the financial performance of the first quarter in terms of revenue growth, in terms of margin growth and in terms of absolute EPS, with the exception of the nonoperational items, we don't expect to repeat. So it would be in the same range as the first quarter. Operator: The next question comes from Ben Mohr with Citigroup. Benjamin Mohr Mok: I wanted to just ask about your 12-month versus multiyear backlog and get a sense from you in terms of the 12-month backlog being up 13% in 1Q. Do you get a sense that they should normally convert to organic growth in, say, roughly 1 to 2 quarters? And then the greater than 12-month backlog is up 50% year-over-year. How should we see that converting to revenues flowing into 2027? Should we see a lot of that flowing in 1Q '27? John Olin: This is Ben -- I'm sorry, Ben, this is John. Looking at, in particular, on the 12-month backlog in the multiyear, what we always stress is there is a fair amount of volatility in these. It's not straight and direct line to that. And I'd love to share an example with you of that on the 12-months. In the prior 2-years ending in the December quarter, we had a low growth in our back -- 12-month backlog of 1.4% and a high growth of 14.5%. And when you average those about 8%, that's exactly what we had in revenue growth over that 2-year period of time. I would not say that it translates on a 1-month lag or a 2-month lag. But over time, it is going to emulate what our revenue growth is or at least 70% of that coverage in the revenue growth. But I do think that there is volatility in it, and we're not always going to see that straight line or that straight connection. Where we're at today, we feel real good about it. In terms of the multiyear, that is a really tough equation to answer when you're talking of some contracts that are 1.5 years long or 2-years and some that are 7-years and so on and so forth. I think the takeaway with regards to the multiyear is we've seen very good growth on it. And this is what Rafael has been talking about for the last year in terms of that international pipeline. And I think the takeaway is that we're seeing markets around the world and the replacement market in North America being very strong, and they're looking and seeking our Equipment, and we're supplying it, and we've got good visibility into the future now, certainly with the multiyear at over $30 billion. Benjamin Mohr Mok: Great. Maybe as a follow-up, you mentioned the organic growth in 1Q was actually in line if we exclude the Digital portfolio exit. And so we'd imagine that should be roughly kind of the mid-single digits, roughly around 5%. Can you talk to cadence of organic revenue expectations through the rest of '26 to meet your mid-single digits. Any other expected exits that can drive it differently? And then maybe as a second part, we've been getting asked a lot about the [ Alstom ] recent guide pull on their internal and supplier bottlenecks and affecting the ramp up, including the [ Coradia ] platform, where you have a door and HVAC contract in Norway. Any outlook and thoughts from you on possible delays of payment from that? John Olin: I'll take the first part of your question, and Rafael will talk about [ Alstom ]. So Ben, no, there's -- we don't provide cadence in terms of our organic growth. And this is largely a function of our large equipment and when it's planned to go out. And we've got quarters that we're expecting a little bit under the average. As you aptly pointed out, we expect our organic growth to be in the mid-single-digit range on a full year basis. But that isn't to be taken that every quarter is at 5%. And they move around depending on how we're delivering it. We do not see any other exits that we're showing in the first quarter outside of a portfolio optimization program, right? And -- so we're going to continue to do the things that strengthen this company's foundation to reduce complexity and to improve profitability and invest in the things that require our focus. This Digital project was not one of those, and it was exited in the first quarter, and we feel great that it's behind us. But overall, organic growth in the quarter was on track when you exclude that, and we still expect organic growth to be in the mid-single-digit range on a full year basis. Rafael Santana: Ben on [ Alstom ], your specific question. Number one, I'm not going to comment on any customer specifics. What I will tell you is that most of our business in Transit is done with transit operators. We provide what I'll call mission and safety-critical systems. Those are things like brakes, couplers and doors, and we're continuing to see strong demand and commitment from governments that continue to invest in public transportation there. The project delays, that has been a reality, which it's been amplified during COVID. I think our teams continue to manage that well. With that being said, we're continuing to see record backlogs there for our customers, and we're continuing to partner with them to improve on-time delivery, improve quality, improve costs. So that's very much -- that continues to be how our teams are progressing and managing that well. Operator: And the next question comes from Jerry Revich with Wells Fargo Securities. Jerry Revich: Good morning, everyone. Over the past couple of years, you've had a nice ramp-up in international orders. Can you just talk about, based on outstanding bids, tenders, your expectations? What do you expect the bookings opportunity to look like for your international business over the balance of this year? Rafael Santana: Thanks for the question. I think that's -- if I have to look at some of the opportunities. I mean, international looks quite strong, and it's connected back to my early comments on really some of that being anchored into the installed base. Think about some of the fleets that we've added and the need to service, the need to provide really support from those services. So that's recurring revenues quite strong from that perspective. It's, of course, tied to some of the geographies I have mentioned here, and I do expect the continued conversion of some of that. But it's not limited to that. If you think about the Equipment front, it's what I also mentioned, which it's really connected to expanding some even existing agreements, on customers interested on taking additional units. And as we provide here really more technology differentiation, I think we're also advancing it there. So -- but I think what's important to highlight here is this pipeline of opportunities continue to be strong despite of the fact that we are really staring right now and at a backlog that's an all-time high. We continue to expect strong conversion here. It's now very completely balanced. It goes with kind of called the lumpiness of some very sizable orders, but it's positive. It's reflected in the 12-month backlog, and it's reflected really on greater visibility than we've had since '19 here for the future year. So that gives us really, I think, a strong ground to continue to improve the footprint. Jerry Revich: And Rafael, on that note, obviously, shipments can be lumpy, but it looks like based on contract ramps in Kazakhstan, Guinea, a couple of large miners. It looks like on paper, your deliveries in the international markets should still be up '27 versus '26, even though this is a big delivery year just based on existing contracts. Is that the right way to think about it? Or is India production coming down or any other moving pieces that we need to keep in mind as we think about deliveries in '27 given your backlog comments and what looks like a step-up in contract time for shipments? Rafael Santana: Yes. It's early to start self providing, I'll call comments in '27, but what I'll tell you the way we manage the business, it's really on -- based on what I'll call a multiyear coverage. And it's really looking at our visibility across 12, 18, 24 and 36 months, and that has continued to strengthen, which really reinforces our confidence on really -- on our ability to continue to deliver sustained profitable growth over time, very much aligned with the guidance we've provided, not just for the year, but the long-term guidance we've provided. So that's the strongest visibility we've had. Operator: And the next question comes from Tami Zakaria with JPMorgan. Tami Zakaria: My question is not related to rail per se. Can you remind us whether you have any LNG or natural gas variations of your marine engines or even locomotive could be used for non-rail power generation. The reason I ask, we've seen recently some industrial [indiscernible] marine engine makers to power data centers, for example. So just curious, are you receiving any business credits that might be looking to use your locomotive, the marine engines for power generation for industrial purposes? Rafael Santana: Let me make a couple of comments. I'll start with Marine. We certainly have an engine that fits into marine. It's Tier 4 compliant. It's one that really plays on the niche and we're continuing to support customers there. When it comes down to the power gen, we do have an engine that's, of course, able to generate power in that regard. We've seen a very specific and limited opportunities connected to that, Tami. But well, if you think about a locomotive, it's really a generator on wheels providing power to the traction motors that really make that train move. So -- but we've seen, I'll call it, very specific and limited opportunities there. Tami Zakaria: Understood. That's helpful. And one quick follow-up. Your Equipment revenue is up more than 50% in the quarter. Could you provide some color how to think about the rest of the year? Would growth be lumpy through the next 3 quarters? Or how should we sort of think about it as we try to model it? John Olin: Yes. Tami, this is John. Remember, this is a function of the fact that our new locomotives go through the Equipment Group and Modernizations go through the Service Group. So -- and when we do a run of locomotives, we like to stick with the same customer in the same model. And so from time to time, you're going to see this flip, right? A year ago, in the first half, we saw Services running very much favorable and Equipment was down. And that was just a function of during the first 2 quarters of last year, we were running more of the mods than in the back half of the year, and we saw that flip in the back half. And the way to look at our first half is going to be stronger growth in our Equipment Group as we do more new locomotives and a little bit less on the Service side. and that will somewhat temper in the back half. But overall, we've talked about we expect the combined mods and locos on a worldwide basis to be up and versus in North America, we would expect the combined mods and locals to be down a little bit on a full year basis. And -- but you're going to see this lumpiness, as Rafael mentioned earlier, between our groups and Equipment and in Services and really need to look at those more together. Rafael Santana: I mean the only thing I would add here is on modernization when we've made that comment before, that's down. It's down significantly. It's down double digit, and it's largely driven by the North American market. Operator: And the next question comes from [ Steve Volkmann ] with Jefferies. Unknown Analyst: I sort of Yes, I had the same question, but I want to ask it slightly differently. When you look at the backlog, actually the 12-month backlog, it sounds like what you're saying is the services kind of recovers in that scenario. And I'm trying to figure out how I should think about that impacting margins? I assume that would be a tailwind, but any color there would be great. John Olin: So Steve, by and large, as we look across our backlogs, the backlog typically has more profit in it today than it did yesterday. So with regards to that, yes, we see higher profitability in the backlog that we're generating today versus in the past. And then that's what we wake up to do every day, and that's the value that we add to our Equipment that we're able to reflect in that backlog. Again, we're going to see movement and variation in the 12-month backlog. But as we look in the first quarter, we're very pleased to see it at 12.8%. When you take out currency is about 1 percentage point, when you take out the Dellner piece, that's about 3 points. So we're still in that 8%, 8% to 8.5% range and feel good as we look forward. Unknown Analyst: Okay. Great. And then maybe just slightly differently. You seem to be getting some good improvement in gross margins, but also making some investments, I guess, on operating expenses. And what's the outlook for that? When should we start to expect sort of more leverage on SG&A? John Olin: So let's talk a little bit about that. So during the quarter, we had a gross margin up to 2.3 percentage points, and we saw SG&A as a percent of revenue up 1.2 percentage points, Steve, and that netted out to 20 basis points that we were off. So what's driving the gross margin is our continual and significant focus on productivity, lean propagation. Certainly, Integration 3.0 has been running favorable. Portfolio optimization and being more selective. So that is helping our top line across the company. The other piece that we're seeing in gross margin is the fact that M&A is coming in at a higher level than the average. So we're getting a benefit on that in the year. And then the third piece, Steve, is what I would call acquisition mix. Right? We are mixing in across the year about $800 million of revenue and the mix -- the revenue that's coming from both Inspection Technologies and Frauscher their margin structure is more one of higher gross margin but also higher SG&A. And so when we mix that in, that's driving some of that lift that we're seeing in gross margin, but it's also driving the lift that we're seeing in SG&A as a percent of revenue. I think we've got another strong quarter in the second quarter because we'll have evident in on still a year-over-year very good comparison. We purchased -- I'm sorry, Inspection Technologies at the beginning of the third quarter. And so we'll start to see that growth dissipate a little bit, and it will really just be Frauscher that will be driving it. So that's just more of a structural change in the overall P&L. Operator: And the next question comes from Harrison Bauer with Susquehanna. Harrison Bauer: Just taking a step back, I'm curious if either Rafael or John, if you could assess maybe some of the competitive dynamics for both new and mod locomotives in both North America and internationally, particularly if there's any competitive pressures from any of your competitors? And how maybe the North American rails are looking at their options as they need to pivot to potential growth in the future? Rafael Santana: Think number one, competition is very active out there. I do want to highlight that. I'm not going to go into any specific comments with regards to specific competitor, but we are continuing to win share of wallet with our customers at large. And it's really a function of us really continue to extend this technology leadership that we have on our platforms. It's not only the technology in new products but also the ability to continue to extend the life of some of these assets with really increased efficiency, increased safety, increase availability, and that's continuing to provide that. But it's a very active in the marketplace. We're having to work hard to make sure we continue to drive our win rate up. Harrison Bauer: And maybe as a follow-up, do you think that with some of the help of the commercialization of your EVO platform later this year that you could see some benefit to your Services revenue growth and in the second half and potentially if whether or not you can grow Services revenue on a full year basis this year versus last year? Rafael Santana: So here's still a way we ought to approach it. We're very happy and encouraged with what I'm seeing across our technology stack. This includes, as you described, the EVO Advantage program. We do expect that to unlock significant opportunities here in terms of modernization for us, not just to continue what you saw on the modernization story, but continue to amplify that. I think the advancement we're making on what I'll call automation and digital does include things like [ 0:0 ], which we're on track to get approval this year. And if you connect that to the next generation of positive train control, I think we're redefining and we're expanding our addressable market which will further support profitable growth ahead. The only one -- I want to highlight to you here just in the sense of technology is we're making strong progress in hybrid battery electric programs. I think you've heard from us last quarter on the recent extension of the agreement we had with New York City Transit, which is opening not just new opportunities for us, that's really, I'm going to say, redefining and expanding addressable markets that we can go after. So that's a positive for the business. It will support services. But we'll redefine the opportunities we have about the business at large. Operator: The next question comes from [ Steve Barger ] with KeyBanc Capital Markets. Steve Barger: Just a couple of quick ones for me. following up on 232, you said there was no real financial impact from the rule change. Is that because you've shifted to more local for local in terms of how you're supplying final production? Or is that just how the math works for your product mix crossing the border. John Olin: I think it's a little bit of both, Steve. I mean, mix is neutral. But we've done a lot of work on mitigating those tariffs, right? And the gross tariffs are pretty burdensome, but on a net basis, our operations and folks have done a fantastic job -- but on the face of that, that doesn't change. It doesn't change dramatically with the tariff regime change. But overall, when you net the two together, both the mitigants as well as the change in the 232 top line or gross tariffs were neutral. Steve Barger: Got it. And then now that you've had Dellner for a couple of months, can you talk about what it brings you in terms of ability to sell Transit deals and how we should think about any margin impact on Transit over time? Rafael Santana: So I'll start with #1 products on where they play. So very positive from that perspective. It's a function of the technology it has, the reliability it brings -- and I think what we're seeing here is an opportunity to amplify on where we win share of wallet with customer share. So we're already penetrating with a couple of customers that we would have traditionally done last business, so that's a positive there. And we're on track to execute on the cost synergies. So it's really an opportunity on both [indiscernible] of this spectrum to operate the business, better execute for the cost synergies which we had planned for on the other side, on the flip side of that, drive growth synergies, which we had not planned for in this context. So we remain very positive about some of this. And I think we also have the opportunity to continue to expand on building on that pipeline of opportunities and converting that into orders, multiyear orders in the case of those. John Olin: And Steve, it will certainly bring up the Transit margin. Remember, we bought Dellner at higher than the company average, and the company average is higher than transits. So this will have a positive impact on Transit margins. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Kyra Yates for any closing remarks. Kyra Yates: Thank you, Dave, and thank you, everyone, for your participation today. We look forward to speaking with you again next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Boston Scientific First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead. Lauren Tengler: Thank you, Bailey, and thanks to everyone for joining us. With me today are Mike Mahoney, Chairman and Chief Executive Officer; Jon Monson, Executive Vice President and Chief Financial Officer. During the Q&A session, Mike and John will be joined by our Chief Medical Officer, Dr. Ken Stein. We issued a press release earlier this morning announcing our Q1 2026 results, which included reconciliations of the non-GAAP measures used in this release. The release as well as reconciliations of non-GAAP measures used in today's call can be found on the Investor Relations section of the website. Please note that on the call, operational revenue excludes the impact of foreign currency fluctuations, and organic revenue further excludes certain acquisitions and divestitures for which there is less than a full period of comparable net sales. Guidance excludes the previously announced agreement to acquire Penumbra, which is expected to close in 2026, subject to customary closing conditions. For more information, please refer to the Q1 financial and operating highlights deck, which may be found in the Investor Relations section of our website. On this call, all references to sales and revenue are organic and relative growth is compared to the same quarter in prior year, unless otherwise specified. This call contains forward-looking statements regarding, among other things, our financial performance, business plans and product performance and development. These statements are based on our current beliefs using information available to us as of today's date. and are not intended to be guarantees of future events or performance. If our underlying assumptions turn out to be incorrect or certain risks or uncertainties materialize, actual results could vary materially from those projected by the forward-looking statements. Factors that may cause such differences are discussed in our periodic reports and other filings with the SEC, including the Risk Factors section of our most recent annual report on Form 10-K. Boston Scientific disclaims any intention or obligation to update these forward-looking statements, except as required by law. In addition, this call does not constitute an offer to sell or the solicitation of any offer to buy any securities or solicitation of any vote or approval in connection with the proposed transaction with Penumbra. Boston Scientific has filed with the SEC a registration statement on Form S-4 containing a proxy statement of Penumbra and a prospectus of Boston Scientific that contains important information about Penumbra, Boston Scientific, the proposed transaction and related matters. At this point, I'll turn it over to Mike. Michael Mahoney: Thanks, Lauren, and thank you to everyone for joining us today. The first quarter represented a solid quarter for Boston Scientific with total company organic sales growth of 9.4% versus our guidance range of 8.5% to 10%. First quarter adjusted EPS of $0.80 grew 6%, achieving the high end of our guidance range of $0.78 to $0.80 and Q1 adjusted operating margin was 28%. Turning to our outlook. 2026 has proven to be a more challenging year than we initially expected. And to that end, we are guiding to organic growth of 5% to 7% for the second quarter and reducing our full year guidance to 6.5% to 8%, reflecting unanticipated headwinds and changing business patterns that I'll cover in more detail on this call. Our second quarter '26 adjusted EPS guide is $0.82 to $0.84, and we now expect our full year adjusted EPS to be $3.34 to $3.41, representing growth of 9% to 11%. I and our company does not take this change lightly. As in Boston Scientific take great pride in ourselves and consistently executing against the guidance and goals we provide. Importantly, we remain convicted in the future of Boston Scientific. We have a strong global team committed to high performance, and we continue to invest in key new and existing markets which we believe will enable us to deliver on our fundamental goal of driving differentiated performance over the LRP. I'll now provide some additional highlights of our first quarter, along with some comments on our outlook. Regionally and on an operational basis, the U.S. grew 11% with double-digit growth in five out of our eight business units. Europe, Middle East, Africa grew 1% operationally. Growth in the quarter was driven by FARAPULSE, coronary and vascular therapies in Neuromod, offset by the discontinuation of ACURATE and POLARx, largely impacting the EMEA region. Last year, we did announce our intent to discontinue POLARx Cryo catheter but have accelerated that timing given some recent safety events and the availability of nonthermal ablation technologies. As we look forward, we expect that growth in demand will continue to improve with the annualization of the ACURATE discontinuation in 2Q and ongoing momentum from FARAPULSE, WATCHMAN and other key products. Asia Pac delivered a strong quarter and grew 12% operationally, led by double-digit growth in a number of countries, including Japan and China. First quarter growth in Japan was led by our differentiated PFA ecosystem with OPAL, FARAVIEW and FARAPULSE as well as strong reception of WATCHMAN FLX Pro. But within the quarter, we're pleased to have received PMDA approval for the de novo indication of our coronary drug-coated balled agent DCB can expanding the patient population eligible for this differentiated technology. China also delivered strong growth, inclusive of the impact of the VBP led by our Interventional Cardiology portfolio, particularly our imaging technologies. We are making consistent progress against our FARAPULSE goals in a competitive market in China and received NMPA approval within the quarter for OPAL HDx Mapping system with FARAVIEW, further building out the PFA platform. Now some commentary on our business units. I'll start with urology. Urology did have a difficult quarter in Q1 as sales grew 1% organically, falling short of our expectations, driven primarily by the stone management and single neuromodulation businesses. Within Stone, underperformance was driven by China VBP as well as some key product gaps in the core Stone portfolio. We expect the recent FDA approval for insurers to unlock value within our StoneSmart ecosystem alongside LithoVue Elite and we also anticipate launching additional new products in 2026 and including insulin [ urethoscope ] later this year. Our sacral neuromodulation business continue to see impact on commercial model disruption. And importantly, within first quarter, we have hired and trained a significant number of new sales and clinical reps we do anticipate improvement in the Pelvic Health franchise throughout the year as S&M commercial organization capability stabilized, along with the addition of Ecoin Tibial Nerve stem with the closure of Valencia Technologies in April. We expect our Urology performance to improve throughout the year. However, we now expect our full year uro growth to be low to mid-single digits in 2026. Endoscopy sales grew 7% organically, with strong results across the business and better-than-anticipated performance from AXIOS as we're able to ramp supply and available product sizes. As we look to the second quarter, we will continue to see some impact from AXIOS while also navigating other transient supply chain disruptions in endoscopy. Importantly, we expect improvement in the second half of 2026 as the underlying business is very strong, and we anticipate resolution of the supply chain issues. Neuromodulation had a strong quarter with organic sales growing 15% with our comprehensive portfolio growing low double digits, excluding the impact of the outlook. Our paint business grew mid-teens, inclusive of a strong quarter of outlook, as I mentioned, which closed at the end of January. Intercept continues to perform well, supported by compelling 5-year data demonstrating the long-term efficacy and cost effectiveness of this treatment for clinic low back pain. In DBS, we saw continued adoption of the Cartesia X leads an accelerating uptake of the Illumina 3D programming algorithm in the U.S. Cardiovascular delivered organic sales growth of 11%. Within those businesses, we'll start with ICVT, Interventional Cardiology Vascular Therapies grew organic sales of 8%. This business grew 9% organically, driven by double-digit growth in our ordinary therapies franchise, with strength in agent and ongoing momentum with our Imaging portfolio. And earlier this year, we completed enrollment in our fracture trial, studying the size of the IVL device in coronary arteries with data to be presented at EuroPCR on May 19 and we continue to expect launch in the U.S. in the first half of '27. Our Vascular Therapies business had a nice quarter, growing 7% organically driven by double-digit growth in TCAR and [ Bartina ] and this is offset by a large VBP impact on their arterial business in China, which is expected to annualize in second quarter. We expanded our launch with our seismic peripheral IVL for above the knee with positive physician feedback on performance. We expect to ramp our manufacturing supply chain over the course of the year and continue to anticipate launching our below-the-knee indication in the second half. In first quarter, positive data from [ Hipyto ] was presented at [ ACC ] evaluating eco clot anticoagulation versus anticoagulation alone, providing new clinical evidence that can help physicians make more informed decor patients with acute pulmonary embolism. We remain excited about the opportunity to ask the number team and highly differentiated portfolio of Boston Scientific. We anticipate that the deal will close in the second half of '26, subject to the Penumbra shareholder vote on May 6 and the receipt of the remaining regulatory clearances. Our Interventional Oncology business had a nice quarter with organic sales growing 15% driven by our broad offering of cancer therapy technologies. Within the quarter, we received FDA clearance of any day dosing and niche limited market release. Any day dosing is enabled by the TheraSphere 360 management platform line positions to schedule treatments on more days of the week and offering more streamlined ordering and operational efficiencies. Cardiac Rhythm Management sales declined 3% in the quarter. Our low-voltage business saw some impact in the quarter as we navigated our physician advisory and came up against a tough comp within our first quarter of 2025 change-outs. On the high-voltage side, we saw some impact from the Middle East complex impacting this particular business. In first quarter, our diagnostics franchise grew low double digits with continued strength across our broad diagnostic portfolio. And overall, we anticipate that our CRM business to return to growth in the second quarter and expect low single-digit growth in the year, supported by our full launch of the [ Lutroin ] second quarter within the U.S. Turning to WATCHMAN. WATCH grew 19% organically in the first quarter, which was below our expectations, with pressure on volumes in the U.S. as the quarter progressed, we believe this reflects the annualization of the initial concomitant adoption tailwind and a softening in stand-alone WATCHMAN cases driven by hospital capacity related procedure prioritization and evolving reimbursement dynamics. Importantly, we remain focused on expanding physician and patient education within the approximately 5 million patient indicated population today. And we expect data from CHAMPION to support a return to 20% market growth over the LRP. In late March, CHAMPION data was presented as a late breaker ACC with the trial achieving all primary and secondary endpoints, reinforcing the safety and efficacy of WATCHMAN and highlighting the high burden of clinically relevant bleeding on oral anticoagulation. As the next step, in addition to submitting for a label update, we are working with medical societies to support consideration of changes to LAAC guidelines using the totality of WATCHMAN clinical evidence ahead of any update to the National Coverage Determination. We also have additional data being presented at [ HRS ] this weekend, a champion post-ablation analysis which will provide further insights on this patient population. Across the globe, the results from CHAMPION provide important evidence to support the expansion of the patient population eligible for WATCHMAN over time in large markets including the U.S., Japan, China and Europe. For full year '26, we now expect global WATCHMAN growth to be mid-teens, with low to mid-teens in the U.S. In the U.S., while concomitant demand continues to strengthen, we anticipate overall WATCHMAN growth to decelerate with tougher comps and expect stand-alone WATCHMAN procedures to improve over the course of the year as it takes time for the totality of this clinical evidence to translate into [indiscernible] practice. We remain very confident in the long-term outlook of the business, supported by great clinical evidence, market development and new product innovation. Turning to EP. Organic sales grew 22%, 18% in the U.S. and 30% internationally. International growth was driven by our innovative portfolio, including our expanded OPAL Mapping footprint in catheter utilization with strong double-digit PFA growth in Europe in a highly competitive environment supported by the launch of FARAPOINT. U.S. growth was driven by continued expansion of the OPAL, strong catheter utilization in FARAPOINT, our PFA focal point catheter, which is performing ahead of our expectations and has moved into full launch. Looking ahead, we now expect our global EP business to grow approximately 10% in 2026. And within the U.S., we are updating our full year expected growth to be in the mid-single-digit range. with continued strength internationally at plus 20%, inclusive of full year impact of approximately $35 million from the discontinuation of POLARx. This outlook is the change from previous commentary but we feel is prudent and reflects ongoing competitive dynamics, offset by strength in our evolving FARAPULSE PFA catheter and mapping portfolio. We are highly confident in our ability to maintain our leadership position in PFA both in the U.S. and internationally through investment in commercial capabilities, ongoing clinical evidence, our expanding mapping footprint, in an impressive next-generation catheter watches included our FARAWAVE Ultra in the first half of '27. And this weekend, AVANT GUARD cited FARAPULSE new patient population of drug-naive persistent a patients will be presented as a late breaker at HRS. Additionally, we will see data from our first-in-human ELEVATE PFA study setting FANAFLEX, which is our large global map in a blade catheter for more complex arrhythmias. We anticipate initiating in our IDE later this year and continue to expect launching FANAFLEX in the U.S. in 2028. We've in closing, I'd like to share again my confidence in our team and the future of Boston Scientific. While this year has proven to be more challenging than we anticipated, we believe Boston Scientific is competing in the right markets, with a WAMGR growth of approximately 8%, we continue to be uniquely positioned to drive differentiated top line growth. We will continue to do this through strategic internal innovation, clinical evidence, external DC and M&A investments, along with our disciplined approach to expanding operating margins. All of which have resulted in our track record of delivering double-digit adjusted EPS growth. I'm very grateful to our talented team of global employees who work every day to advance financial life and I'm confident in the sustainability of our top-tier financial performance. With that, I'll hand it over to Jon. Jonathan Monson: Thanks, Mike. First quarter consolidated revenue of $5.203 billion represents 11.6% reported growth versus first quarter 2025 and includes a 220 basis point tailwind from foreign exchange, which was in line with our expectations. Excluding this $104 million foreign exchange tailwind, operational revenue growth was 9.4% in the quarter. Organic revenue growth was also 9.4%, in line with our first quarter guidance range of 8.5% to 10%. Q1 2026 adjusted earnings per share of $0.80 grew 6% versus 2025, achieving the high end of our guidance range of $0.78 to $0.80. And results include an approximate $0.01 headwind from FX. Adjusted gross margin for the first quarter was 70.5%, which represents a 100 basis point decline versus the first quarter of 2025 and primarily driven by tariffs as well as inventory charges related to the discontinuation of our POLARx Cryoablation system. We now expect full year 2026 adjusted gross margin to be slightly below full year 2025, largely driven by lower-than-expected product mix benefit and incremental investments in our global supply chain and quality systems. First quarter adjusted operating margin was [ 28.8% ]. We continue to expect full year 2026 adjusted operating margin expansion of 50 to 75 basis points, driven by OpEx leverage as we drive strong spend controls and continue to implement efficiency initiatives and optimize our organizational structure. On a GAAP basis, first quarter operating margin was 21.2%. Moving to below the line. First quarter adjusted interest and other expenses totaled $112 million, in line with expectations. And our adjusted tax rate for the first quarter was 11.7% and which was in line with expectations and includes a benefit from stock compensation accounting. Fully diluted weighted average shares outstanding ended at 1.495 billion shares in the first quarter. And free cash flow for the first quarter was $170 million with $348 million from operating activities, less $177 million in net capital expenditures. We now expect full year 2026 free cash flow to be approximately $4 billion. As of March 31, 2026, we had cash on hand of $1.453 billion and our gross debt leverage ratio was 1.8x. Our top capital allocation priority remains strategic tuck-in M&A, followed by share repurchase. In alignment with this strategy, we recently closed the acquisition of [ Valencia ] Technologies, which complements our Urology business, and we expect our announced acquisition of Penumbra to close in the second half of 2026. In addition, as previously disclosed, our Board of Directors recently approved an additional $4 billion under our existing share repurchase program bringing our total authorization to $5 billion. While we have been restricted from being in the market, we intend to repurchase approximately $2 billion of our shares during the second quarter subject to market conditions and applicable securities loss. I'll now walk through guidance for Q2 and full year 2026. We now expect full year 2026 reported revenue growth to be in a range of 7.0% and to 8.5% versus 2025, excluding an approximate 50 basis point tailwind from foreign exchange based on current rates, we expect full year 2026 operational and organic growth to be in the range of 6.5% to 8.0%. We expect second quarter 2026 reported revenue growth to be in a range of 5.5% to 7.5% versus second quarter 2025 excluding an approximate 50 basis point tailwind from foreign exchange based on current rates, we expect second quarter 2026 operational and organic growth to be in a range of 5.0% to 7.0%. We continue to expect full year 2026 adjusted be line expense to be approximately $440 million and under current legislation, including enacted laws and issued guidance we now expect a full year 2026 adjusted tax rate of approximately 12.0%. We now expect full year 2026 adjusted earnings per share to be in a range of $3.34 and to $3.41, representing growth of 9% to 11% versus 2025, including an approximate $0.04 headwind from foreign exchange. We expect second quarter adjusted earnings per share to be in the range of $0.82 to $0.84. In closing, we recognize that revising our guidance is a significant decision and not one that we made lightly. We believe our updated guidance appropriately reflects the unanticipated headwinds, and we remain highly focused on executing our full year 2026 guidance of 6.5% to 8% organic revenue growth 50 to 75 basis points of adjusted operating margin expansion and 9% to 11% adjusted earnings per share growth. For more information, please check our Investor Relations website for Q1 2026 and financial and operational highlights, which outlines more details on first quarter results and 2026 guidance. And with that, I'll turn it back to Lauren, who will moderate the Q&A. Lauren Tengler: Thanks, Jon. Bailey, let's open it up for questions for the next 35 minutes or so. In order for us to take as many questions as possible, please let yourselves to one question. Bailey, please go ahead. Operator: [Operator Instructions] Our first question comes from Robbie Marcus with JPMorgan. Robert Marcus: Great I wanted to ask whether Mike or Jon, came 3 months ago on the fourth quarter call and provided the guidance. And I think a lot of people were expecting a lowering today based on some of the third-party data we've seen, so it's not that surprising. But I guess the question is really what happened during first quarter that really prompted it? When did you realize it? And what gives you the confidence given there's going to be some deceleration throughout the year that the LRP is still valid and that growth can improve in 2027 here. Michael Mahoney: Yes. Thanks, Robbie. I would say first quarter, we're overall, we're pleased with that result. The 9.4% growth and on track for our margin and EPS. Essentially, what we saw, there's really three main contributors to the takedown of the guy, which is not in my happiest moment and very disappointed in that. as we're a company that consistently delivers on our commitments. So this is a guide down that we quite think are not proud of, but we think it's the right thing to do. And that reflects the current environment and the loss of the proper prudent guided deal. But we can talk about the future of the company, but speak and then at the time the takedown particularly, it's really focused on the three areas: primarily EP, WATCHMAN and Urology. And if we start with WATCHMAN, we saw a very, very excellent growth engine on 2025, we grew almost 30%. We saw a really strong consistent volume trends in January. So there is no signal to any WATCHMAN weakness until we leased out the early days of kind of early to mid-February, we started to see declining WATCHMAN volume for the first time. And as we did the analysis on that, we can talk more about it. Essentially, it is a strong increase in concomitant growth in a deceleration of stand-alone WATCHMAN. And we go through all those details now. That's the first primary one. So we see a declining WATCHMAN trend growth throughout fourth quarter, the first quarter and therefore, in our guide, we think it's prudent to assume that in that guidance range. We can talk more about the rationale and reasons for that. The second primary reason is EP, our EP business had a very nice first quarter. we are absolutely confident that we will remain the PFA market leaders in the U.S. and globally in '26. And we have a very rich cadence, just an R&D review last week with the team. The launch of the next 2.5 years, that's very impressive. But that being the case, even though the market is strong, we didn't lose a bit more share than we anticipated. So again, what we did in this guide anticipated greater share erosion than we're particularly seeing and still allows us to be the market share leader in PFA, but we're guiding globally to approximate 10% [ NEP ]. And the last reason making up is urology, which I mentioned that difficult first quarter, [ Neuro Mine ] had a real tough year a couple of years ago, and that business is growing double digit. I'm not saying euro is going to return to double digit right away. But right now, we're suffering in our core stone business and in the [indiscernible] neuromodulation area. We have very active execution plans in place to fix sickle neuromodulation, which we believe will be better as the years that the quarters go on. And then, of course, now we have some key product launches that will impact that business and help it quite in 2027. But it's essentially going to be a below market year in urology. So those are the three contributors overall to the guide down. Never all done very objectively. We think it's prudent. And we think it's the best guide to provide, to give shareholders confidence and to set up the business the right way. As you look forward in the LRP, we're not going to make a comment on the LRP top line growth at this point. We feel that will be under some slight pressure clearly given the 2026 guide. We will update that more in the future when we go through our strat plan process. We are comfortable with the 150 basis points of margin improvement in LRP, and we're comfortable with delivering double-digit EPS growth of the LRP. And I guess, lastly, that the long answer I'm giving you is we compete in a 8% WAMGR market. We almost always grow at or above this WAMGR. And this setup for '26 would show us at market at the high end of our guide or below that WAMGR. This is not Boston Scientific, it's not what we do. And in '27, we have a number of key product launches, we'll have far easier comps than we do this year. And we're very bullish about '27 and '28, we can detail that more. But start from long response, hopefully, that helped a little bit. Operator: Our next question will come from Joanne Wuensch with Citi. Joanne Wuensch: Mike, I think you just summarized what everybody needed to hear in that answer. Can you sort of walk us through a little bit how you're thinking about the quarters over the next couple of quarters, particularly for EP, WATCHMAN and Uro I'm sort of trying to think about the gist of Robbie's question. How do we get from first quarter to fourth quarter and then the jumping off point into 2027. And I just want to make sure those are somewhat set up appropriately. Michael Mahoney: I'll take a shot and Jon you can clean up the part of the math here. So we think second quarter is our toughest quarter of the year. We had a nice first quarter. Second quarter, we had very challenging dollar sequential quarterly growth comps on a dollar basis, in particular with EP and WATCHMAN. So that's our toughest quarter there. And so we also think with some of the impacts of some transient trends and [ EP and endo ] and some other areas that will be fixed for the second half of the year. So we think second quarter is our toughest quarter, that's the guide, [ 5% to 7% ] and the full year guide, as you know, is 6.5% to 8%. Jon, do you want to touch on any sequence and more. Jonathan Monson: Yes. Thanks, Joanne. So maybe stepping through WATCHMAN and EP. So you heard Mike mentioned in his prepared remarks, we expect global EP to grow mid-teens for the year. So that would imply Joanne low double-digit growth for the rest of the year for our global WATCHMAN business. So that's how you should think of WATCHMAN for the rest of the year. Global EP at 10% for the year implies mid- to high single-digit growth for the rest of the year. So if you then think of the rest of the business, as mid-single-digit growth. That's about where we landed in the first quarter. Expect to see some acceleration there within urology, CRM to pick up. So that's how you should expect the phasing as we go through the year, say, relatively consistent, slight uptick in the second half. They call it roughly 7%. And as we see Uro and CRM drive better growth as we move through the year. Operator: Our next question comes from Larry Biegelsen with Wells Fargo. Larry Biegelsen: I guess on EP, just maybe a little bit more color on the market and share assumptions, how they've changed. Where is the share pressure coming from Mike? And on U.S. EP, sales have been flattish for the past 3 or 4 quarters. Should we expect relatively flat U.S. EP sales for the rest of the year? And what does that mean for 2027, I think people are trying to understand when you can get back to market growth in EP? Michael Mahoney: Yes, I think John gave some of those numbers for the year, we expect Global to be approximately 10%. In the U.S. particularly, we expect mid-single-digit growth for the U.S. business, which implies a flat 2Q to 4Q. That's a low single digit -- in international about 20%. So call it flat to low single-digit U.S. mid-single digit for the year. . And then -- so that's the story there. What's different about it from our previous commentary where we've said we were a growth at market. We're disciplined and we're disappointed to bring that guide level down, but we think it's appropriate. The aim to be and we have high comments that will maintain PFA leadership in the U.S. internationally, globally in '26 and throughout the LRP. And we are very excited about the product launches that we have, in particular, the three big ones coming up, '27 are third generation FARAPULSE, differentiate [indiscernible] platform, and we think a very disruptive FANAFLEX platform all in the next 2.5 years. But today, we are seeing increased competition. There's three other large players in the marketplace. We've made commentary before Medtronic continues to be a solid competitor, J&J is enhancing their footprint in PFA and Abbott is early stages of launch in the U.S. In Europe, we really proud of our European performance for all three of those companies are performing, and we continue to grow that a 20%-plus clip where we quite frankly have a quite advanced mapping capability and platform and doing very well there. So we do expect a little bit more share [ erosion ] than we've anticipated in the past in previous guidance, but we think this is the appropriate guide to do and allows us to continue that PFA market leadership while we're bringing that platform forward. And importantly, our makers, which we've made a massive investment over the past 2.5 years continue to get stronger and stronger every quarter. We continue to install more and more OPAL mapping platforms. Our maps get more sophisticated, and we continue to add new catheters to the mix along with FARAPOINT, which we recently launched. So we'll continue to grow the Matthew platform, continue to invest in that commercial capabilities, you'll see more direct investments in WATCHMAN in particular. So we'll invest both commercially and marketing, and they're both our WATCHMAN and our EP businesses. But we're confident we'll maintain PFA leadership, but we are going to see a bit more share than we anticipated earlier in the year. Operator: Our next question comes from Rick Wise with Stifel. Frederick Wise: I was hoping you would might talk a little bit more about the WATCHMAN outlook in more detail. I mean, CHAMPION data, obviously, was excellent. But perhaps there was more controversy about the data, the reaction to the data than I expect didn't perhaps than you expected. How are you addressing some of the concerns that you were left how are you changing the narrative about the risk of WATCHMAN? And maybe how specifically are you going to tackle the growth rate factors that impacted this quarter? Michael Mahoney: Yes, I'll ask Ken to add comments here. First on some of the factors. And first of all, we're very proud that we essentially created this category, leading clinical science created a concomitant category. And this category grew 30% last year, and we expected mid-teens growth this year. And we're seeing the evolving practice patterns as this product continues to evolve with great clinical data and changing practice patterns. So with that extraordinary growth in [ AF ] ablations and WATCHMAN, we are seeing some practice pattern changes that I highlighted that we saw really become more acute in February. We're seeing terrific concomitant demand. Bottom line, we are seeing pressure in kind of the stand-alone WATCHMAN implant business, which historically has not been a challenge for us. Those challenges with a stand-alone WATCHMAN area a bit multifactorial. You've seen a bit more switch to the EP from the interventional cardiologist as the venture cardiologist is less exposed to the concomitant procedure. They've got more structural art procedures to do and there's been the reimbursement cut in that area. But you're seeing strengthening amongst the EP physician group. So those are some of the trends that have really moved it just recently more towards -- a bit more towards EP, a bit more towards concomitant and less than stand-alone. And that's also -- our customers are also adapting to operational workflow. They're adding new labs. They're moving to ASCs because they've experienced multiyear growth of, call it, 25% in WATCHMAN, multiyear growth of 20%, 25% in ablation. So there's significant demand and pull plus the approval of new structure of our procedures. So the hospitals themselves are investing in labs, particularly concomitant AFib are money winners for hospitals. So they're making the investments, but they're also moving through their own workflow challenges. You've seen a consistent backlog for WATCHMAN, which I guess which is good and high demand for super AFib. So on what are we doing to make it better? We're doing a lot right now to make it better. The most impactful thing quickly is commercial investments. We are putting more focused commercial investments directly at the WATCHMAN business. Today, we have a lot of strength because the same territory rep in many cases, is serving both the EP customer EP and WATCHMAN, where we're going to augment them with additional focus on WATCHMAN specifically, and put a little more emphasis and focus directly at that interventional cardiology call point. And we'll be making quite a bit of marketing investments to really highlight the outstanding data that we believe the first study of its kind that met its primary endpoints and champion that can get detail. So commercial investments, Medicare investments, marketing investments, position activation investments to all to leverage CHAMPION. It's also important to note that Ken can talk and sorry, too much coffee. Today, 25% of all watchword procedures are oncoming. We do expect that to grow to 50% over the LRP. So that view hasn't changed. What we've seen is an offset a bit in standalone watchman procedures. Ken, do you want to talk more about that? Ken Stein: Yes. I don't know too much to add,. Again, I think the first thing I'd say it, in terms of question, it just takes time to disseminate data and to educate physicians on the results of things like CHAMPION. And of course, we were not able to get out and pre-promote ahead of the data release and ahead of the publication in the New [ Northera ] Journal of Medicine. Having said that, the trial at all of its primary safety and efficacy and end points and all of the important secondary endpoints, we do still anticipate that we will get a big labeling, updated guidelines and eventually an updated national coverage determination. It just takes time for that to play through. I think the other thing just to reiterate what Mike said, in parallel with that, we see the opportunity to continue to improve some of the operational efficiencies that are required just to unlock more operational capacity for handling these procedures. We see hospitals building out more dedicated to these procedures, the move of simple relations to ASCs will further unlock capacity. And again, just a high level [ like stay ], not only see a very large opportunity for continued growth in concomitant procedures. And maybe the one statistic I'd add to what Mike said, just to remind everyone, roughly 50% of ablation for AFib in the U.S. today are done in patients who are at high risk for stroke, [ Chagas ] score of 3 or higher and who are potentially candidates for the common procedure. Operator: Our next question comes from David Roman with Goldman Sachs. David Roman: I wanted maybe just to toggle over to the other 70-plus percent of the business that's non-EP in WATCHMAN. And I appreciate some of the dynamics that you walked through on the call. But maybe you could unpack a little bit for us in more detail kind of where you see that cohort of the business going, some of the specific product launches that you expect to see in '26 and '27 in that we should be watching? And the extent to which that piece of the business can get back towards kind of an 8% growth level where it was, call it, before the accurate discontinuation. Michael Mahoney: Sure. Thank you for the question, David. The area that's not getting the spotlight on it is ICVT, [indiscernible] Cardiology Vascular Therapies Group, which again has a one-timer accurate, which will anniversary thankfully in May, which will help that business. But that business is extra very high level, driving the double-digit growth in China despite VBP, a very global business. Agent is continuing in our imaging businesses, in particular, continue to exceed our internal expectations, which is terrific. And we're excited about the seismic launch that it's really been in the small scale thus far within our [ Copal ] Vascular business has been very well received by physicians and that fracture trial will read out at PCR in a month or so. And we expect to have that coronary approval as we enter 2027. And we're focused right now on building up the manufacturing supply chain to enable a meaningful launch for seismic for both coronary and below the knee and above the knee applications in '27. So they also have a number of kind of singles than doubles key product launches in vascular to continue to widen that portfolio out. The Interventional Oncology business grew mid-teens and I talked about a key workflow launch that they additionally had along with some second M&A that they're executing on. And hopefully, the shareholder vote goes positive for us with Penumbra on May 7. And we're really excited about that team, which is extremely talented and brings a really differentiated portfolio and gaps that we have across Boston Scientific in that category. So particularly in combination, stand-alone, but [indiscernible] that business did extremely well in the future, ideally with Penumbra, that's a very unique, powerful growth driver for the company over this LRP period. And I think a lot of the discussion will still be on WATCHMAN EP, but much more will pivot to that area given the launches and momentum in that area. Lastly, I would just try to summarize the MedSurg overall. Some EP, we've had some challenges right now in Urology. We're not happy with the 1% growth in the quarter. We have clear line of sight to how we're going to adjust and to fix that as that business will improve in 2026, but not the level that we expect our business to perform at. And we'd be highly disappointed if we were closer to market growth for that business in 2027. Endoscopes doing well. They've got a nice set of product launches coming over the next 9 months. And our erode business is growing double digit. So overall, MedSurg is a tick lighter in '26 that we anticipate. And we see that business will improve as the kind of quarters move on and '26 we'll have a stronger '27. Operator: Our next question comes from Travis Steed with Bank of America. Travis Steed: On the WAMGR, I think there was a slight change to the WAMGR from 9% to 8%. I wanted to touch on that. And on the LRP, was the message more were not achieving at 10%? Or was it more we'll kind of wait and see how it all plays out because I'm thinking about '27, you sound pretty bullish on '27, no headwinds, you have product launches. So just kind of curious... Michael Mahoney: On the WAMGR drivers, I think we're pretty clear at the Investor Day that we were 8% moving to 9% over the LRP. So that's -- I believe that was the message in the WAMGR. So we call it 8% moving towards 9% because we're in the right high-growth markets. So I think that's consistent. LRP, I mentioned it in the previous commentary. So what we are confident in giving you now is we're confident in our ability to continue to have the discipline to improve margins up about 150 basis points. We're confident in our ability to execute double-digit EPS over this LRP period. And on the sales side, obviously, with the guide at 6.5% to 8%, that puts pressure on the 10% plus guide we gave in LRP. So that -- I would say that's likely an upside scenario at this point. But it's premature for us to give you an LRP organic revenue growth number at this point and let us work through our strategic plan. and launch cadence, and we'll update that over the course of this year. Operator: Our next question comes from Josh Jennings with TD COWEN. Joshua Jennings: I just wanted to touch on the EPS guidance revision. I think some may be concerned that with the deceleration in high-margin products, U.S. EP franchise and WATCHMAN franchise, there may be incremental pressure there. But any more details you can share just on any offsets or the impact on profitability with the revised outlook for U.S. EP and WATCHMAN? Michael Mahoney: Yes. Thanks, Josh. So we will see less mix benefit than what we expected at the start of the year. So that's why we expect our gross margins now will be slightly lower than 2025. But what we're doing is really driving leverage across OpEx. So most immediately, we put in much more restrictive spend controls across the company. So what we're doing is we're reducing spend that isn't correlated to revenue generation or that isn't pointed at our key product pipeline programs that we have in place. We also had more broadly a number of or structure optimization initiatives in place that includes scaling our centralized shared services. We've got a number of AI automation, other initiatives already in place, Josh, that drive cost efficiency and productivity. And so we're looking at those for what we can accelerate. And then as it relates to the R&D portfolio, we're looking across each of the businesses there, ensuring that we're appropriately fueling and appropriately focusing on the most impactful programs. But then those that are less impactful, we're looking at how we can trim those. So we've got a number of initiatives, Josh, focused on how do we drive our OpEx toward the most impactful areas of the business and revenue generation and then everything else we're squeezing. Operator: Our next question comes from Marie Thibault with BTIG. Marie Thibault: I wanted to double back to urology. I think you mentioned you have some active execution plans in place for improving the sacral neuromodulation business. Can you just dive a little deeper into that? I know that, that's something you've been focused on for a couple of quarters. Maybe it's going a little bit slower than hoped. So if you can just give us an update on how that is going. Michael Mahoney: Yes, it's definitely gone slower than we anticipated. We had we just had too much commercial turnover is the bottom line over the course -- take it over the course of the last 6 to 9 months. And we certainly learned from that. We made adjustments to it. But at this point in time, we feel we have the right leadership structure in place from region managers on out that are so key to driving a business like this. We have quite a bit of turnover at the manager level, clinical rep level and territory level. And so a lot of learnings from that as we look forward to Penumbra. But I would say on the management side, that's all been filled up on the region of managers, which is important. And we've had nearly 100 people that have been hired in our various stages of training, both clinical reps and territory reps to really strengthen that commercial team, which is really needed not only for case coverage, but also to drive the appropriate patient activation events and pull-through to appropriate procedures, which is really part of the business and an area that [ Axonics ] did really well. So we're also leveraging a lot of the internal capabilities from WATCHMAN and others. But it's primarily been a commercial disruption issue that has lingered farther than we wanted it to. But at this point in time, we have made the appropriate hires, the appropriate training, the appropriate investment, and we are confident that we'll see an improvement in that business as the quarters progress. Operator: Our next question comes from Vijay Kumar with Evercore. Vijay Kumar: Mike, I just -- I had one question on this buyback. Generally, when we see companies announced large deals like Penumbra, $15 billion deal, we generally see buybacks being suspended. So my question is, is the $2 billion buyback in 2Q, is that signaling anything on the deal in -- Jon, I think you mentioned you had $1.5 billion of cash on hand. How you're funding this $2 billion buyback? Are you going to raise any debt? Why now? Jonathan Monson: Thanks, Vijay. So we intend to -- the $2 billion, we've got $1.5 billion on the balance sheet now, and we project our cash over the second quarter. We'll fund that through cash on hand. We've been restricted from trading. We will be restricted at least through the Penumbra shareholder vote on May 6. But as soon as we're not restricted, we intend to repurchase are $2 billion worth of shares, as I've mentioned. And why now is we look at the stock price. We look forward at the outlook for the company that we have, our confidence in the company, the pipeline. We think that's a great use of our capital. Operator: Our next question comes from Matthew O'Brien with Piper Sandler. Matthew O'Brien: I was hoping to talk a little bit about the Penumbra. I know the vote is coming up here in just a few weeks. Just curious about Boston's comfort level in adding additional cash to that transaction, if required, just given the pullback in your stock and the degradation in the value of the overall transaction. If that were to be the case, would you still be committed to the deal at the current -- or the previous valuation if a higher cash component is required? Michael Mahoney: Yes, I would just comment on the numbers in general. We've gotten to know their leadership team extremely well. We really focused on the way spirit of the momentum of the ICT team we have and the potential addition to Penumbra, we think is a very, very powerful business in combination over time. We've said many, many times that we essentially plan to run a number of as a business unit consistent how we do Boston Scientific, global presidents, keeping their strong commercial team intact, keep an R&D pipeline. So we have a very solid way to maintain and enhance the Penumbra momentum post closing. We had the shareholder vote on May 7. We're hopeful and confident that, that will be approved as planned. Operator: Our last question will come from Matt Taylor with Jefferies. Matthew Taylor: I just wanted to follow up on some of the comments that you made about the outlook for WATCHMAN and PFA. Was wondering for more clarity on WATCHMAN in terms of how stand-alone was growing. You mentioned it was decelerating. Was it actually declining in Q1? And what's the outlook for stand-alone this year and next? Michael Mahoney: Yes. I'm not going to call out the specific number for outlook on concomitant specific and what stand-alone a little bit. I think we gave a pretty good guide as to what we see as the appropriate guidance for the full year on WATCHMAN, which is global mid-teens U.S. low to mid-single digits in cash. Low to mid teens, sorry. Low to mid-teens for U.S. WATCHMAN and international plus 20%, mid-teens growth globally. So that's our outlook, which is obviously a slower outlook than what we saw in first quarter, but it reflects what I mentioned earlier on a overcoming some very, very strong comps, overcoming some efficiency issues that we see that I highlighted before. and more of a trend towards stronger and stronger concomitant and a less strong weakening trend in stand-alone. Now over time, we aim to try to improve that based on the CHAMPION results, investments we're making. But as I mentioned, you have concomitant strengthening stand-alone currently less strong. Lauren Tengler: Thank you for joining us today. We appreciate your interest in Boston Scientific. If we were unable to get to your question or you have any follow-ups, please don't hesitate to reach out to the Investor Relations team. Before you disconnect, Bailey will give you all the pertinent details for the replay. Thank you, everyone. Operator: Please note, a recording will be available in 1 hour by dialing either 1 (877) 344-7529 or 1 (412) 317-0088 using the replay code 45-39-327 until April 29, 2026 at 11:59 p.m. Eastern Time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Zurn Elkay Water Solutions Corporation First Quarter 2026 Earnings Results Conference Call with Todd Adams, Chairman and Chief Executive Officer; David Pauli, Chief Financial Officer; and Bobby Belzer, Vice President and Corporate Controller for Zurn Elkay Water Solutions. A replay of the conference call will be available as a webcast on the company's Investor Relations website. At this time, for opening remarks and introduction, I'll turn the call over to Bobby Goldner. Unknown Executive: Good morning, everyone, thanks for joining call today. Before we begin, I'd like to remind everyone that this call contains certain forward-looking statements, which are subject to the safe harbor language outlined in our press release issued yesterday afternoon and in our filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them and why we believe they're helpful to investors and contain reconciliations to the corresponding GAAP information. Consistent with prior quarters, we will speak to certain non-GAAP metrics as we feel they provide a better understanding of our operating results. These measures are not a substitute for GAAP. We encourage you to review the GAAP information in our earnings release and our SEC filings. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn Elkay Water Solutions. Todd Adams: Thanks, Bobby, and good morning, everyone. I'll start on Page 3. 2026 is off to a decent start as first quarter sales grew 11% organically. EBITDA grew 18% to $116 million, and our margins expanded 160 basis points to [ 26.8% ]. In the quarter, we generated $43 million of free cash flow and repurchased $50 million of Zurn Elkay at roughly $47 a share. We're very comfortable with our full year outlook for free cash flow of approximately $335 million and anticipate revisiting that along with the rest of our outlook after Q2. Just a couple of thoughts from me before I turn it over to Dave. From a market perspective, we generally see the same market conditions we outlined when we provided our outlook in February. The same is very much true for the pricing environment. Next, there's been a lot of announcements in moving parts related to tariffs over the course of the quarter. The Supreme Court ruling on the [indiscernible] tariffs and subsequent refunds, the implementation of 122 tariffs changes to the 232 tariff scheme and the opening of new studies on future Section 301 tariffs. We've also continued to advance our own supply chain footprint initiatives. And what I will say here is that we are very much on track to meet or beat the objectives we set out to achieve at the beginning of the year. As it relates to all these tariff changes and potential changes in our outlook, our view is that assuming some of the known changes to 232 tariffs, and projecting some likely net adverse changes stemming from the potential 122 and 301 changes, we are highly confident that without receiving any refunds or implementing any future price increases, the discrete impact of tariffs within 2026, which we said was to be price/cost positive remains unchanged. This leads me to my final point on our full year outlook. I think the way to describe the way we think about our outlook is to be both deliberate and conservative. As you can see with our first quarter results and second quarter outlook, we're running ahead of what was likely assumed for the first half of 2026. As I just discussed, we have high confidence that we will continue to manage through the tariff dynamics extraordinarily well. Second, as of now, there isn't anything I can point to that would make the second half worse than what we had anticipated. So I think it's safe to say our first half outperformance flows through to the year. That's where the deliberate methodology enters into our approach. The reality is that there's 8 months left in the year. And depending on today, there's simply a lot going on in the world. So rather than try to change a bunch of digital assumptions day by day that frankly will become more clear as the year goes on, we're simply going to update the second half after Q2. So with that, I'll turn it over to Dave. David Pauli: Thanks, Todd. Please turn to Slide #4. Our first quarter sales totaled $433 million, which represents 11% core and reported growth year-over-year. In the first quarter, we generally saw our end markets perform in line with the guidance we provided 90 days ago. Growth in our nonresidential end markets was partially offset by softness in residential. We've had solid execution on our growth initiatives and those initiatives helped drive our sales performance to the higher end of the outlook we provided 90 days ago. . In addition, during the first quarter, portions of the U.S. experienced some unusually cold weather. This resulted in some incremental break fix activity that we think plays out to about 1 point of growth over the first half. Turning to profitability. Our first quarter adjusted EBITDA was $116 million, and our adjusted EBITDA margin expanded 160 basis points year-over-year to 26.8% in the quarter. This continues a trend of year-over-year margin expansion that we have delivered since the Elkay merger. The strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives, leveraging our Zurn Elkay Business System and continuous improvement activities across the organization as well as mix as our higher profit margin products are growing the fastest. Please turn to Slide 5, and I'll touch on some balance sheet and leverage highlights. With respect to our net debt leverage, we ended the quarter with leverage at 0.5x. Our 0.5x leverage is inclusive of the $50 million we deployed to repurchase shares in the quarter. During the quarter, we also upsized and extended our revolver. We transitioned from a $200 million revolver to a $550 million revolver that extends 5 years. This gives us even more liquidity as we move forward. Balance sheet, leverage, liquidity and cash flow generation are in a great spot as we continue to evaluate our funnel of M&A opportunities. I'll turn the call back to Todd. Todd Adams: Thanks, Dave. And I guess I'll move to Page 6. I think the takeaway here could be [indiscernible] your work and work your plant, which when you boil it all the way down is the essence of the Zurn Elkay Business System. When you look at some of these attributes of our business, most of these have been cultivated through focus and intentional actions to build a business with a wide competitive moat that is flexible, repeatable and scalable and even when the external environment or circumstances aren't optimal. Stemming from our strategic planning process, all the way through to our strategy deployment process, being disciplined and intentional on playing the game, we can win consistently at a high level as our ultimate priority, whether it's our geographic focus, the product categories we're in, the end markets we prioritize are the actions we take on product or market exits or even more importantly, the new product development and adjacencies we're entering. It's all connected. If you followed us, one slight change that you may notice here is the slight change in our mix towards retrofit replace which 5 years ago was 45%. But as we deployed our strategic plan with an emphasis on growing drinking water and filtration, coupled with growth in our water and safety control products, and portions of our genetic and environmental business were now evenly split, which over time, only makes the business more resilient and in aggregate is margin mix positive for us. We're really excited about the trajectory and future of Zurn Elkay, and it stems from the culture we've established and the people we have. Throughout this year, we're going to expose everyone to more of our team on these calls, so investors gain a further appreciation of the management depth and passion that exists here and the appreciation for the people who really make all this happen each and every day. Now I'll turn it back to Dave. David Pauli: Thanks, Todd. I'm on Slide 7. Todd just talked about the focused and intentional decisions that led to the business we have today in Zurn Elkay. Slide 7 helps to illustrate the results in the form of profit. These decisions have produced over the last several years. On a trailing 12-month basis, our adjusted EBITDA margins have improved 630 basis points from Q1 of 2023 to Q1 of 2026 and on a point-to-point basis, our adjusted EBITDA margins are up 730 basis points over the last 13 quarters. That starts with 19.5% margins in Q1 of 2023 compared to this quarter's adjusted EBITDA margins of 26.8%. The foundation of our EBITDA margin improvements all center on our Zurn Elkay Business System, the belief in continuous improvement and the focus on getting just a little bit better each and every day. The margin improvement over the past 3 years is a combination of a number of drivers that I'll walk through. First, part of the Zurn Elkay Business System is sharing ideas and wins across the organization so that we can replicate successes. We've highlighted our #CI for continuous improvement process in the past. But as a reminder, these are associate-led and submitted ideas that save time, eliminate waste and improve day-to-day processes across the organization. While no single #CI on its own is material, they do become material when we have thousand submitted across the organization each year. The second item I'd point out is our unit volume growth in the most profitable areas of our business. Water Safety and Control, Flow Systems and Drinking Water have all seen growth over the last several years, while we've exited via 80/20, the lowest margin products within the portfolio. Third, after delivering on over $50 million of synergies associated with the Zurn Elkay, we continue to make positive structural changes beyond those identified in the synergy case. Consolidating our footprint to reduce overhead, introducing and sustaining the Zurn Business System lean tools into the Elkay manufacturing facilities and continuing to challenge our strategy around internal manufacturing versus sourcing. And lastly, our supply chain has been a clear competitive advantage that has allowed us to improve profitability while successfully navigating the tariff environment. Now to the guidance on Slide 8. For the second quarter of 2026, we are projecting core sales growth to increase 8% to 9% over the prior year, and we anticipate our adjusted EBITDA margin to be in the range of [ 27% to 27.5% ]. which is 50 to 100 basis point expansion year-over-year. Within Slide 8, we've included our second quarter outlook assumptions for interest expense, noncash stock comp expense, depreciation and amortization, adjusted tax rate and diluted shares outstanding. As Todd mentioned earlier, our first quarter actual results and second quarter guidance puts us ahead of our expected first half performance, and our plan is to revisit the second half of 2026 outlook when we announce our Q2 results. One other comment on guidance. Our full year outlook does not take into account any potential tariff refund benefits and assumes that the current tariff structure in place as of today remains in place throughout 2026. We will now open the call up for questions. Operator: [Operator Instructions] Our first question comes from the line of Bryan Blair with Oppenheimer. Bryan Blair: Great start so far to the year. I was hoping you could offer a little more color on drinking water trends. Pro filtration has obviously been in the market for another quarter. Any updates on adoption and the impact on overall platform growth or detachment rate would be very helpful. And with consolidated progress at 11%, I assume drinking water growth was quite robust in the quarter. Are you willing to share top line performance in Q1? Or how your team is thinking about . David Pauli: Sure, Brian. It's Dave. So Drinking Water in the quarter performed very well, in line with where we thought it would be going into the quarter. The installed base continues -- the installed base of filtered bottle fillers continues to grow at double digit. The filtration piece of the business continues to grow above double digit. You mentioned Pro Filtration. We've seen really nice adoption of Pro Filtration. That product was developed around feedback that we received from customers, end users, facility managers. And so seen really great adoption of that and the attachment rate associated with that is very high, just given some of the technology changes. So overall, drinking water had a really nice first quarter and we see that Pro Filtration continuing to accelerate as we go. As you know, we have a dominant share of specs, and our team is currently working just to update those specs. So legacy product to Pro Filtration. So in a good spot with Drinking Water. Bryan Blair: All good to hear. And I guess a level setting question as a follow-up. You just walked through the drivers of rather impressive EBITDA margin expansion over the last 3 years. And if we set aside Elkay synergies as kind of onetime structural lift. The rest of it is #CI in one form or another. Given the level of profitability that you now have and assuming that mix does not meaningfully shift or continues to positively transition. You've spoken to low 30s, maybe a step up to 35% as normalized incremental margins for the business. Are we at a point now where it would be reasonable to speak to a higher figure going forward? Todd Adams: Yes. Brian, look, I think Dave mentioned it in his comments, we while we had a nice quarter in drinking water, I think it's also important to recognize water safety and control in our Drains business is growing just as fast. And so when you think about those 3 categories, the margin profile in each of those is really good. And I think the combination of CI, obviously, the Elkay synergies, all the work we're doing on supply chain helps. But I think there's another thing to think through, which is a lot of the new products that we're introducing come at margins replacing the old products or the new products are even better. So it's a really nice dynamic where we've got an operational sort of lever that we're continuing to work at to all those things. But then as we introduce and launch new products, those are coming to market at attractive margins. And so I think in time, we may modify that. But for the time being, I think it's a good framework to think through as we invest in some of these new products to bring them to market. But I get your point, and we'll revisit it when we feel like we're ready to. Operator: Our next question comes from the line of Andrew Krill with Deutsche Bank. Andrew Krill: I wanted to dig in, I guess, more on the change of OE versus retrofit up to 50-50 split. Just -- is there any way you can quantify like a target over time where you think this can go? Many other industrials, they can be 2/3, 75% more aftermarket. Like is there any reason you can't get to that over time? Todd Adams: Yes. I think, Andrew, a good portion of our business is still new construction, an important part that actually ultimately feeds the retrofit replace. So I think I think it's unlikely that we'll get to a 75 retrofit replace sort of percentage. But I do see in the coming years that has the opportunity to drift higher. 55% I think is a reasonable next way point to think about for us. And as we point out, as Filtration grows, [indiscernible] our installed base for all of our products grows we see that opportunity to grow a little bit higher. . Andrew Krill: Great. And then on the weather comments of the Northeast, I believe Dave said it till about 1 point of a good guy from the first half. Can you just break down what this was in the first quarter, is there any chance it was flattish or down? Like any help on how that impacts 1Q for 2Q would be great? David Pauli: Yes. Even between the 2 quarters, Andrew, nothing oversized in Q1. Operator: Our next question comes from the line of Nathan Jones with Stifel. Good morning, everyone. Nathan Jones: I guess I'll ask some of the dumb tower questions. There's obviously been newly implemented tariffs and you guys are talking about contemplating some additional tariffs after that. Could you -- is there any color you can give us on what you think the incremental growth impact to the business in terms of increased cost is? I think everybody understands that you're very, very good at passing that through to customers. But just any color you can give us on what you think the gross impact is? Todd Adams: Yes, Nathan, there's obviously a lot of to be determined moving parts as 122 likely expires and then the studies from 301 come back and potentially get implemented. What I can say is we're not counting on passing any future price increases through a combination of all the work we've done on products substitution materials, obviously, some of our footprint things, we think hold that steady with some, I will say, conservative assumptions. And I also think it's important to point out that over the last 2 or 3 years as they function of the work we've done, our largest sourcing comes from the U.S. So out of all the countries that we source from, the U.S. is the largest by a decent margin at this point. So in many ways, we've insulated ourselves from it. But I think our working view is that Net-net, it's about the same as we started the year. The assumptions around 122 rolling off, 301 coming in. That's sort of where we see it today. That's what's embedded in our view. Nathan Jones: Okay. Fair enough. I'm going to ask a lot about capital allocation. It's been quite some time since Zurn acquired Elkay. The balance sheet is in great shape. Certainly has plenty of available capacity for M&A. Maybe talk about the maturity of the pipeline, the appetite for more M&A and priorities for capital deployment? Todd Adams: Yes, as we, I think, pointed out routinely on these calls, we run a proper funnel. So we're not -- we don't participate in auctions in a meaningful way. We continue to do some of that cultivation work, I think. Obviously, some of the work we're doing around new products is informing new targets as well. So I would say we're in late stage to mid-stage to early stage on a number of cultivations. We do have an appetite to do those only to the degree that they make sense strategically and then obviously meet the return hurdles that we set out for ourselves. In terms of capital allocation, we've obviously bought back shares routinely. We're going to continue to do that more when we feel like the intrinsic value relative to what we see is understated or less than what we think is fair value. And obviously, we pay a nice dividend. And so those are going to continue to be the priority. So no change. But certainly, optimistic that over the coming quarters, we're going to get some of these things over the finish line. Operator: Our next question comes from the line of Michael Halloran with Baird. Michael Halloran: So first question, just to clarify your comments familiar. So it doesn't sound like you're expecting incremental pricing. Just confirm that 1 way or another. And then the follow-up is when you talk to your customer base, what's the sense of fatigue on the pricing side of things? What concerns would you have if you had to go back to the market with price? Or do you still feel pretty good all else equal. Obviously, you have a value proposition you're pitching and people are pretty aware of the inflation that's out there. So just kind of curious on the puts and takes from the customer base at this point? Todd Adams: Well, Mike, I think when you take a giant step back, in aggregate this year, we're talking about 3 points of price, incremental. So it's not like we've gone out with egregious price increases above and beyond what our competitive set has done. We've got different competitors across all of our different product lines. So some people have been more aggressive than us. Some people have been less aggressive than us in certain spots. So taken as a whole, I think, stability would be a great thing. And I think that's sort of what we see in our outlook, which is the things that we're doing put us in a great spot to not sort of have to put these big digital price increases through that we're going through last year. But that being said, we've got to stay diligent because inflation of commodities and freight. And obviously, this conflict in the Middle East are all sort of bubbling. And so I think we're going to be smart about it. I don't see any meaningful fatigue. But I think it's something that we're just watching very carefully category by category, region by region. And I think we've done a really nice job of staying close to it and expect to continue to operate the same way. Michael Halloran: That makes sense. And then maybe the follow-up question is just any thoughts on the growth adjacencies you've been talking about and some of the growth initiatives that you're highlighting have an impact late this year and into next year. Just kind of any thoughts on some deeper color on what those might be or target areas or anything you might be going to share? Todd Adams: Yes. I mean nothing that we're going to share at this point. Obviously, these are going to be new entrants in the categories that competitors have or maybe even some new competitors. So I think we're making great progress there. I think it's really exciting. I suspect that by the time we get to Q3, we'll be in a spot to share some of those and obviously, as more roll out over Q4 and into the first part of next year, when we're ready, we'll talk about it, but I think very much on track with what we thought as we started the year. but great work by our teams. And I think it's going to be exciting for us moving forward, not just in '26 and not just in '27, but really starting to stack these year in, year out, which will be helpful to our long-term growth rate. . Operator: Our next question comes from the line of James Cole with Jefferies. Unknown Analyst: I guess I wanted to touch on this growth adjacencies a little bit more here. I just wanted to understand the rationale behind it. Like should we think about these initiatives as additive to your like current long-term mid-single-digit growth outlook or more as a way to kind of sustain that level if like other end markets slow or -- yes. Todd Adams: I think it could be both. Clearly, we're not going to predict what the market conditions are in '27 or point. So if they're weaker, this could clearly boost some of that maybe lower market growth. If the market is what it is, I think it would ultimately end up being additive. So I think it could serve both, James. And it really is something that we've done historically. I think given where we are from a balance sheet perspective, a strategic focus perspective, we see a dual-pronged approach here, right? We're going to enter new categories, develop new products, open up additional available market. And as a function of that, I think it's going to aid in some of our cultivation. So I think long term, it can be both. It can support what we have in the event of a weaker-than-expected market. And to the degree the market is okay, it should enhance is sort of the way to think about it. Unknown Analyst: Great color. And I guess as a follow-up, I just wanted to touch on 1Q outperformance like. Can you talk about the primary kind of drivers of the outperformance since growth came in stronger than expected even accounting for a favorable impact from weather. So can you kind of break that by core sales growth into like volume and pricing and potentially mix? David Pauli: Sure. So if you look at the 11%, 5% price in the rest volume, you mentioned the weather thing. That was about 1 point in the quarter. And then just in terms of the outgrowth we've talked about it a little bit just in terms of our Water Safety and Control business, our Drains business, our Drinking Water business, growing very nicely in the quarter. I think if you look at some of the initiatives that we set out and have talked about last year into this year, looking at areas of the U.S. where there is maybe a little bit more construction activity over resourcing those. So we've seen some nice wins from a regional growth perspective in terms of areas that we've intentionally deployed resources to and focused on. So I think that's helping to deliver some of the over performance we saw in Q1. . Operator: Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. . Jeffrey Hammond: Just had a couple kind of end market question. So in the Q, it looks like commercial bucket kind of accelerated. I didn't know if there's anything to parse out there if that captures more of the brake fix. And then I know it's small, like 8% Waterworks, but there's been some peer companies with some short-cycle noise. I didn't know if you could just comment on what you're seeing in that business and if you're seeing anything to that extent. Todd Adams: Yes. Again, I think when you look at commercial, it's a lot of different things. I'm staring at a pipeline chart here from our manufacturer's rep and just in New York, right? I mean, you've got the Core Weave data center. You've got the West Point football stadium. JFK Airport, the U.S. open stadium and parking garages on the come. You've got things like Major League Soccer Stadium in New York, the Brooklyn Borough jail. So I think there's a lot of activity out there, and I think it's representative of being hyper local and finding pockets of growth even in a geography where you may not assume that there's a lot of growth. In terms of Waterworks, nothing abnormal for us in Waterworks at all. So hopefully, that's the color you were looking for. . Operator: Our next question comes from the line of Brett Linzey with Mizuho. Unknown Analyst: Congrats on the quarter. This is Peter Kasson, for Brett. And maybe just 1 more about end markets. Can you kind of talk through your outlook by end markets? You're talking to flat to slightly positive market in total with institutional low singles, commercial flat and resi a little bit tougher. Do you have any updates to that given the 1Q outperformance? David Pauli: No. I'd say if you go back to the guidance framework we gave 90 days ago from a pure end market, we call institutional low single digits, Waterworks, low single-digit growth, the commercial market, we said would be flat and resi down low single digits. And I think we've generally seeing those end markets play out. In Q1, the commercial market might have a little bit better than flat. But I'd say from a long term, how we see 2026 play out, no change to that guidance framework we gave initially. . Unknown Analyst: Awesome. And then maybe just could you give us a sense of the margin differential between some of these lower-margin products you're walking away from and then some of the higher unit volume growth areas that you called out, like the safety and control the flow systems in the drinking water? David Pauli: So in terms of the stuff that we walked away from, intentionally, that would have been substantially lower margin. So think back to the Elkay merger when we exited some low-margin noncore residential sinks that were primarily sold through big box. We're largely out of those types of products at this point. The things that are growing faster that have some incremental margin would be think about filtration within drinking water. Think about some of our water safety and control and drains products that carry a really nice margin that would be ahead of the fleet average. . Operator: [Operator Instructions] Our next question comes from the line of Jeffrey with RBC. Jeffrey Reive: I appreciate all the color thus far. So if we think about the puts and takes around pausing the full year outlook, what are the key variables you're waiting to see it resolved by the time you report 2Q. Is it just tariffs? Is it something else? Todd Adams: Jeff, I honestly don't think it's that deep. I think we had a really nice Q1. We're projecting a nice Q2. I think that certainly, there's going to be more clarity on some of these tariff issues as we get through the summer. But quite honestly, we just are electing like we have in the past to sort of wait and see. I can't point to anything that would say at this point, the market is worse. We're concerned about the tariff issue. So it's really just, I think, being very deliberate about modifying the full year outlook. It's probably not going to foot across in your model. But I think we're sort of really trying to dial in a better view for the full year once we get through the second quarter. Michael Halloran: Got it. I only ask because I think when you see a company kind of paused guidance, it's usually a cause for concern, but obviously, you're doing it from a position of strong 1Q and a better 2Q outlook. Maybe just on visibility into the second half. Can you maybe talk to that the line of sight do you have your backlog? Just any comments there? Todd Adams: Yes. When you look at contractor backlogs as they sit today, as we talk to our third-party reps on activity that is likely to come to fruition in the second half. It's very much consistent with the kind of market growth that Dave talked about. And obviously, some of the outgrowth in terms of regional focus, new product launches, I don't see anything that would derail that at this point. So you're using the word pause. I think we're going to use the word deliberate. But needless to say, I think we're going to end up in a good spot for the year. And we're really just focused on the next 90 days and doing the work to make the second half as good as it can be. Operator: I will now turn the call back over to Bobby Belmar for closing remarks. Unknown Executive: Thanks, everyone, for joining us on the call today. We appreciate your interest in Zurn Elkay Water Solutions, and we look forward to providing our next update when we announce our second quarter results in late July. Have a good day. . Operator: This concludes today's conference call.
Operator: Welcome to the CME Group First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Adam Minick. Please go ahead. Adam Minick: Good morning, and I hope you're all doing well today. Earlier this morning, we released our earnings commentary, which provides extensive details on the first quarter 2026, which we will be discussing on this call. I'll start with the safe harbor language, then I'll turn it over to Terry. Statements made on this call and in the other reference documents on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statement. Detailed information about factors that may affect our performance can be found in the filings with the SEC, which are on our website. Lastly, in the earnings release, you will see a reconciliation between GAAP and non-GAAP measures following the financial statements. With that, I'll turn the call over to our Chairman and CEO, Terry Duffy. Terrence Duffy: Thanks, Adam, and thank you all for joining us this morning. I'll make a few brief comments about our record quarter before turning it over to Lynne to provide an overview of our financial results. In addition to Lynne, we have other members of our management team present to answer questions after the prepared remarks. I'm proud to announce that CME Group has achieved a record-breaking start to 2026. Our outstanding performance in the first quarter reflects the essential role we play in the global economy and the trust our clients place in our markets to manage risk during periods of significant economic transition. The first quarter average daily volume of 36.2 million contracts was the highest quarterly average daily volume in CME Group's history and represented an increase of 22% compared to the same period last year and 6 million contracts a day higher than any previous quarter. For the first time in our history, we achieved simultaneously record volume across every 1 of our 6 asset classes: rates, equities, energy, agricultural products, metals and foreign exchange. In aggregate, our commodity sector volume grew by 38% and our financial products volume grew by 18%. Building on the momentum of our record 2025, our global expansion continues to accelerate. International average daily volume reached a record 11.4 million contracts, a stunning 30% increase in 2025. The EMEA, APAC and Latin American regions all posted record highs. Remarkably, our international business also saw a record volume in all 6 asset classes simultaneously, proving that our value proposition is resonating globally. We aren't just growing volume, we're growing client value. We delivered record levels of capital efficiency, saving our customers an average of over $85 billion in margin per day. Additionally, open interest ended the quarter up 11% over the past year and up 19% since the beginning of 2026. During the quarter, U.S. treasury open interest reached an all-time high of 36.3 million contracts, driven by unprecedented demand for U.S. treasury futures and options. This growth reinforces CME Group's role as the deepest and most efficient liquidity pool in the world. We continue to innovate and provide the tools our clients need, and in an environment that is always risk on. These include last week's CME FICC, or Fixed Income Clearing Corporation, cross-margining agreements received approval from both the SEC and CFTC to expand to our end user clients beginning on April 30. 24/7 crypto trading scheduled to go live on May 29. Also, we're excited to announce that we will be filing to change our Micro Equity Index options to be financially settled to better serve the users of those products. Our new environment in Dallas is on track to open this summer, and we will provide a critical testing ground for our clients in advance of 2 of our agricultural products migrating to the cloud by the end of the year. As we look to the rest of 2026, we are confident in our ability to continue to deliver value to our clients and shareholders. Our strong performance, coupled with our ongoing investments in technology and product innovation, provides a solid foundation for future growth. With that, I'll now turn the call over to Lynne to review our financial results in more detail. Lynne Fitzpatrick: Thanks, Terry, and thank you all for joining us this morning. As Terry mentioned, the first quarter was record-breaking across the board. This included growth in our clearing and transaction fee revenue of 15% year-over-year. The average rate per contract for the quarter was $0.652. Our pricing strategy includes volume tiering, which results in decreasing rate for contracts at higher levels of volume. With volume records in every single asset class this quarter, this volume tiering encouraged incremental trading, providing risk management benefits to our customers and driving highly profitable incremental volume to the exchange. The combination of our volume growth and pricing structure resulted in an increase of $205 million in clearing and transaction fees for the quarter. Market data revenue also reached a record level, up 15% to $224 million, marking 32 consecutive quarters of year-over-year market data revenue growth. In aggregate, CME Group generated record revenue of $1.9 billion, up $238 million or 14% from the first quarter of 2025. Adjusted expenses were $512 million for the quarter and $405 million excluding license fees. Our adjusted operating income was $1.4 billion, or a 72.8% adjusted operating margin, the highest in our history. Adjusted net income and adjusted diluted earnings per share came in at a record-setting $1.2 billion and $3.36 per share, 20% higher than Q1 2025. This represents an adjusted net income margin for the quarter of 64.9%, with $200 million of the $238 million increase in revenue accruing to adjusted net income. We returned $3.2 billion to shareholders during the quarter, with $2.7 billion in variable and regular quarterly dividends and $536 million in shares repurchased. This quarter delivered the highest volume, revenue, operating income, adjusted net income and diluted earnings per share in the history of CME Group. These results are a reflection of our position as the world's premier risk management destination. As our clients continue to navigate uncertain times, we remain fully committed to meeting their evolving needs through continued innovation and deep liquidity. We'd now like to open up the call for your questions. Operator: [Operator Instructions] The first question in the queue is from Patrick Moley with Piper Sandler. Patrick Moley: Terry, you mentioned that you've received regulatory approval to expand the DTCC cross-margining agreement to end user clients. At the same time, the DTCC has been running a pilot program to tokenize U.S. treasuries as collateral. So as you think about the intersection of these 2 initiatives, I'm curious how you see enhanced collateral mobility impacting CME's clearing business. And then more specifically, with customers having the ability to move tokenized treasury collateral in real time, just what that could mean for the industry write large? Terrence Duffy: Thanks, Patrick. Suzanne Sprague is here, and she's been working very closely with both FICC and folks at DTCC and the regulator. So I'm going to ask her to opine on that question to start, and then I'll go. Suzanne Sprague: Yes. Thanks, Patrick. We are continuing to work with FICC as well as internally on various tokenization efforts. So we think that there is a benefit for the industry to be able to reduce friction moving collateral, especially for collateral that does not settle naturally same day. Treasuries is a good example of that. So we will continue to explore what we could do together with FICC as well as other initiatives that we're pursuing at CME, including the tokenization of cash and our partnership with Google, as well as looking at other assets that might be of interest in the ecosystem today to be able to reduce some of those frictions and free up liquidity by moving those assets on digital technology. Terrence Duffy: Patrick, just to add on to that, I have said and the team has said, we're looking at potentially our own stablecoin here. We're looking at multiple different ways to make that $85 billion a day of margin efficiencies continue to grow, and not only just the margin efficiencies, but the capital efficiencies about how we move money back and forth each and every day and what's the best interest of every single client. So whether it's through tokenization, stable, using cash and treasuries, other forms of margin that they use with us today, we want to make it as effectively for them and efficiently for them. So I think it's an exciting time for us, and we look forward to informing you more as we continue to roll out these proposals. Patrick Moley: Okay. That's great color. As a quick follow-up, we've seen some pretty interesting developments in the perpetual future space this year. The S&P Dow Jones JV recently granted an exclusive license for the S&P 500 perpetual futures to a relatively lesser-known company [indiscernible] blockchain. And on that platform, we've seen volumes explode in commodity perps. So just with your goal to try and attract more and more retail eyeballs to CME's product suite, I'm curious how you're thinking about perpetual futures as a product structure that could eventually become a more meaningful driver of [ retail ] engagement. And then just if you could maybe talk about some of the regulatory or market structure hurdles that I guess would need to be cleared before we get there. Terrence Duffy: So thanks, Patrick, and I'm glad you raised that. There's a couple of things I want to unpack there. First, we'll talk about the JV venture, then I want to talk about some of the commodities, and Derek can address that, and what the true volumes are associated with that. It looks very large in the way they're trading, but remember, those are in notional value, not in contract terms the way we calculate our business. So, and who's on those platforms, how those platforms work, what's the risk management associated with it and why would that institution potentially want to participate in something the way those are structured. First of all, perpetuals are against the law in the United States of America. That's first and foremost. That is where it's at today. They are not allowed under the Commodity Exchange Act of 2000. The centerpiece of that act was how do you define what a futures contract is. It wasn't a bunch of other things in the act. The centerpiece was what is a futures contract. And it was defined as a contract for future delivery. It was not designed as a contract that never ended. So I really believe that for perpetuals, I think convergence is massively important to the commercial producers and other participants that these contracts are designed for. Contracts are not designed, not, I repeat, not designed for speculators or hedgers or not to design for speculators or just a pure retail. They're designed for hedgers, commercials and producers. That's the way they -- you have to have a natural buyer, a natural seller. And they need to have convergence between cash and futures in order to run their business, which benefits the participants, not only in the United States, but globally. You need to have these markets. As the great Dr. Milton Friedman said to me in 2002, if we did not have futures contracts today, we would need to invent them in order to move forward and progress. But that -- the way the market works between cash and futures is critically important. So the decisions that people want on perpetuals, they seem to me more of they're trying to create a contract for the speculator. That's not the mission of the commodity exchange. That's not the definition of it. So I -- that's something that I'm very much involved with as it relates to perpetuals. Your other part about the volume going into some of these products, I assume you're referring to some on silver, some on oil, and so let's talk about that for a second. When they listed those on [ XYZ on hyper liquid], as you know, the way that market works, if in fact they were to have a tip-over in [ the auto ] liquidation, they've been very fortunate to have an orderly market for the most part, but if in fact, you had an auto liquidation, the money from the losers, it comes from the winners. It's a very difficult proposal for any institutional hedger to use a product such as that where if they're due $1 and they get $0.45 back because the other side of the trade just got beat up and so that's where they got the money from. So I am concerned about some of those rules, and those are done on a perpetual basis. I think the agricultural communities, the energy communities and others are not completely pleased with some of the pricing of those products. But I'll let Derek talk about that. But what's important, before he mentions it, we have to think about the timing of when those products were listed. You got to remember, silver went from $50 to $118, I believe, Derek, is that about right? High, and then back to $86. Oil went from $50 a barrel for almost 4 years to north of $100, and then back down $86. So that was where that activity kind of caught. Now the question will be, is that sustainable? So I'll let Derek comment on those particular products. Derek Sammann: Yes. I appreciate it, Terry. I think if you look at the results of this last Q1 and even continuing into Q2 of this year, you're seeing exactly what Terry talked about. The purpose of futures contracts are to enable hedgers to be able to know that they can identify the forward curve. These products then converge to physical delivery and physical markets, whether it's corn, whether it's livestock, whether it's oil, whether it's gold, all come to physical use. So we look at the end-user commercial need of these customers. When you look at the growth and record activity in our commodities portfolio as a whole, you'll see that every single portion of our client segments grew with double-digit growth in every single group led by commercial, corporate banks buy side and [ prop firm ]. So retail is a part of that, but financial customers will follow where the end user manages and hedges their underlying risk, and that's in our futures market. Terrence Duffy: And so on the first part of your question with the S&P listing on that, we were not made aware of that, even though we own 27% of the index business. We were not made aware of that decision. We got made aware once they listed it, literally several hours before their press release went out. Their press release went out, and which coincided with the opening of that market. We've been engaged with conversations, as you can imagine, with our partners. We both have a deep respect for intellectual property. We've made our points very aggressively on that, and I think they understand that now. And so we are continuing to work with our partners at S&P to make certain that, as we go forward, we're all on the same page. Operator: And the next question in the queue is from Dan Fannon with Jefferies. Daniel Fannon: So Terry, I wanted to follow up on your comments about the Micro Equity Index option to change. I think you finally are making to be more financially settled. So just wanted to talk about why now and what you see is the opportunity going forward with that. Terrence Duffy: I'll let Tim chime in, but I will tell you why now is -- maybe we should have done it a little bit sooner, but why now is because the client base continues to go across multiple different versions of the equity complex, whether it's the larger [ E-mini ], whether it's the micro or something smaller, and how they participate. This client base in the micros seem to be more of a retail focus. They really don't want to deliver their options into a future where the people that are trading the larger clients do want to deliver their options into the future. So we felt very strongly that the micro contract would make more sense for that constituency. But at the same breadth, we didn't think it made sense to change all of our equity contracts to deliver into cash settled. Basically we'll keep them as deliverable into a future. But Tim, you can add to that. Tim McCourt: Great. Thanks, Terry, and thanks, Dan. And I think part of it is, as Terry said, as CME Group is the comprehensive leader in risk transfer for the S&P 500 and the NASDAQ complexes. It's important for us to continue to evolve our products to meet the risk management and market access needs of our customers. And that's the feedback that we're receiving. When we look at the micro-size products and how those strategies are deployed, to hedge other parts of their either stock portfolios or ETF portfolios, or looking to access the market, that they prefer the financially settled mechanisms where they could have the options expire against the futures daily settlement price. And that is the change we're looking to file. It will then, as Terry said, be different than the institutional-grade E-mini offerings and options on those products, which serve a very specific and highly utilized function of the market of delivering the underlying futures, which is a benefit to the institutional community and the hedgers out there, particularly when they're looking to access the almost $40 billion per day of capital efficiencies in our equity complex at CME Group. We've actually seen continued adoption of our E-mini products by clients where several large buy-side clients are also switching some of their structured product strategies to utilize the efficiencies and the benefits of trading futures-based options at CME Group on the S&P 500. So we think this will further grow the complex as we remove some of the barriers to entry for clients and give them a better tool that serves the risk management needs of their portfolio. Terrence Duffy: And just so you not think I'm talking [indiscernible] my mouth, in this particular contract, we didn't design it as a financially settled in the micro because it's just for retail or speculation. It's not. You have to look at the value of the S&P 500 and who uses that contract today. For your historians that may or may not know this, we started with an S&P 500. And then we cut the multiplier of the 250. As the contract continues to go up and value, participants, even the large ones, need to trade a smaller contract or they need to trade a bigger contract, depending on what their needs are. So we are trying to take these pools of liquidity for the constituents to across the entire spectrum of CME's equity products. And it's basically the decisions are being made for the value of the index itself, not for just the constituents who are trading in. So I think that's a really important distinction. Operator: The next question in the queue is from Ken Worthington with JPMorgan. Kenneth Worthington: Can you talk a bit about the evolution of WTI and how you see the ongoing growth of U.S. Gulf oil playing into the dominance of the Cushing's settled product? And secondly, how do you see the changes in Venezuela and the conflict in Iran changing global supply chains? And how might this feedback into CME energy activity and CME oil market share? Terrence Duffy: Ken, that's a really good question. I think a lot of people like to have the answer to that one, especially in the industry for sure. I'll let Derek talk a little bit about the TI because I think it's important. But when we get into geopolitical, like what it means for Venezuela, I mean, we know what has been said publicly by the administration, but we don't ultimately know what's going to happen. So I think we'll stick with what we think on TI right now, Derek. Derek Sammann: Yes. I think that's a great question, Ken. It's certainly timely in light of what we've been seeing in terms of restrictions and constrictions of [indiscernible] supply. 20% of the crude oil market, as you know, comes from the Middle East, flows out in the global network. That has been disrupted. We've been talking for years about the ways in which we have continued to evolve WTI as a global benchmark. Ever since the export ban was lifted in 2014, U.S.-produced WTI, and nat gas, in fact, have been flowing out into global markets. So I think that to us, this is just another confirmation point of the absolute essential nature of U.S. produced energy products, both WTI and Henry Hub, that is now being produced and exported at record levels outside the U.S. And this is just another marker of adoption globally of the -- what these markets mean and what these products mean to risk management across the board. We have seen outsized growth for 4 years in a row now of global adoption of commercial end-user customers in Europe and Asia as both the Russian conflict with Ukraine disrupted supplies, this is another supply disruption, meaning a greater reliance on another provider of last resort. And that is the U.S. right now. As it relates to your specific question on the crude grades, we launched these contracts back in 2018, 2019, fully expecting a global adoption of WTI. When you have a physical contract that delivers in Cushing as we see record amounts flowing out into the U.S., we needed to provide a risk management tool to get physical in Cushing down to the Gulf Coast enter the export market. I think what you're seeing in the record volume in open interest and our crude grade contracts, it's really solidifying WTI as a dependable supplier of oil to the world. We think that continues to reinforce WTI's importance globally. And you look at the dependability of physical deliveries, we continue to dependently deliver those barrels month after month. In fact, our GME -- our state in the GME Global Mercantile Exchange in Dubai, which delivers the [indiscernible] crude contract, also physically delivered outside the Strait of Hormuz, has been uninterrupted in delivering 15 million to 20 million barrels a day as well. So the market needs to find dependability of supply. They found that in WTI. That's the reason why we're exporting not only record amounts of WTI and Henry Hub, but also [ RBOB ] gasoline and HLR diesel contract as well. So it confirms the importance of that in global products for global customers that we are the dependable provider, and we continue to ramp up exports, and that further solidifies U.S. energy products in the portfolios of global customers. Terrence Duffy: And Ken, I don't want to be dismissive, so I want to go back to the beginning of your question on Venezuela. Can you ask that question now separately so maybe I can address it? But I may not be able to. Kenneth Worthington: So it was just about how the changes in Venezuela impact global supply chains and what it means for CME activity and share? Terrence Duffy: So I think for -- not quite sure what that's ultimately going to mean with Venezuela. I think that the verdict is still out about how that country is going to run. As everybody knows, I think that their production got run way down. Their infrastructure in Venezuela was not doing what it was at peak. So those are all issues that they need to have addressed going forward. And then there's going to be a lot of politics and other people trying to deal with that particular issue. So as far as our share goes, I think what is important, and Derek touched on it, WTI is no different than Brent, another one, these are global markets. Whether it's produced in the United States or it's produced in Saudi Arabia or UAE or Qatar, these are global markets and people are going to sell to the highest bidder. And that's just how the oil market has worked. So I think sometimes people here in the United States think that we have this massive supply of WTI so our gas prices should be a lot lower. Our producers sell all over the world. And that's the way this market is, it's global. But the good news is, I think what Derek is saying, is the benchmark at WTI is getting a much higher visibility, and I think that will continue, which will bode well for CME's risk management [indiscernible]. Derek? Derek Sammann: I think one little last piece that's worth noting on the share piece here is that Venezuelan crude is extremely [ heavy ]. It's going to take a long time to rebuild the infrastructure in Venezuela, import that and then actually resource some of the refineries in the U.S. to adopt that. So we think that's a term impact. If you look at the forward curve of the oil market, you'll see a backwardation, lower prices [indiscernible] expecting more U.S. flow in. The last point I want to note is on the share piece of that. I think if you've seen record amounts of activity in global energy markets, we have seen share increases back in CME WTI north of 79%, 80%. And that's just confirmation that when markets are going through times of undue stress, market retrenches to core liquidity on the home exchange. We've seen that in WTI futures and options over this last 3 to 4 months. Operator: And the next question is from Ben Budish with Barclays. Benjamin Budish: I wanted to maybe start with market data. It looked like this quarter's recurring revenue growth was the fastest I think you've seen in several years. I'm just curious if there's anything you can share there. To what extent are these contracts volume based? To what extent are these from new FCMs kind of joining the platform? And how sustainable do you think this growth is over the near term? Terrence Duffy: Thanks, Ben. We'll turn it over to Julie Winkler, who heads up this area for CME. Julie? Julie Winkler: Thanks for the question, Ben. Yes, it was a great quarter. We had record $224 million in revenue. So we are up 15% from Q1 of 2025. And I'd say one of the biggest shifts that we've seen is really a surge in the simulated trading environment. So what's happening there is really strong growth, and I would say maturity among these platforms. And so these environments are really allowing new traders access to our market data. They're learning how futures products work. And they're taking advantage of the educational resources provided within these platforms. And really using it as part of the customer journey become successful new active retail traders. And so we've seen very strong year-over-year growth in these participants utilizing these sim environments to begin their trading journey in futures, that we believe is really going to be additive over the long term to the retail ecosystem. So sim participation was up significantly. And so that is really kind of driving that retail or nonprofessional participation in our market data business. We've also made -- we continue to make policy changes, right, in thinking about data feed licensing and how that all needs to work. That has contributed to some of that recurring revenue growth that you're seeing. And then lastly, subscriber growth has continued on the professional side as well. We were up about 1% from Q4 and up about 2.45% from the number of professional subscribers we had a year ago. So I'd say it's a number of fronts. A lot of this is relatively sticky revenue in that sense. And we continue to work with our customers to ensure that our benchmark data is provided and they're getting the data in the way that they want it. Lynne Fitzpatrick: If I could just reinforce a little bit of what Julie said, I mean I think what we're really pleased with is kind of broad-based growth. So we're seeing that subscriber growth. We're seeing the new product growth as well as some of the changes just with pricing. But this is a really healthy ecosystem that we're seeing across the market data business. Benjamin Budish: All very helpful. Maybe just a follow-up, maybe sticking with the retail team. You mentioned in the earnings commentary that on the prediction market side, you've now seen it looks like about 15% of volumes are kind of markets related. So curious if there's any further details you can share, what, if you have any visibility on, what types of customers are trading those contracts rather than sports? I would imagine all this is happening within your 2 current FCMs. But just curious what that customer base looks like. And maybe any color you can share in terms of the pipeline of potential additional FCMs would be helpful. Terrence Duffy: Thanks, Ben. Tim, do you want to address that? Tim McCourt: Yes. Thanks, Ben. So when we went live with our prediction markets and event contracts offering back in December, we've seen strong growth both in terms of adoption and volume where we recently surpassed the $220 million contract mark. And then when we look at the participation across those contracts, we started a marketing effort in the middle of March with our partners at FanDuel. And since then, the actual participation or the distribution of volume towards the market-based contracts across equity, crypto, energy and metals actually exceeded 30%. That's a shift that we're pleased with. And I think it speaks to the attractiveness of the offering where we're looking at attracting these next-generation traders to our markets. They're coming in through the apps through our FCM partners, and they're trading all types of the event contracts, both sports and the market space contracts. And that's something I think that reinforces the value prop of CME, that we have some of the world's leading benchmark products at CME Group and now we're making them more approachable and more accessible to the individual and next-generation trader through the fully funded or fully collateralized event contracts and prediction markets offering at CME. And the other thing that we're pleased to see is since December, we've had over 150,000 new accounts trade at CME Group in these products, which is off to a fantastic start. We're continuing to work with our partners that are currently trading, and we have a pipeline of FCMs we're still working to get on board and offer these products to their end users. So optimistic about the future, but a first few good months here out at CME Group in our prediction market offering. Terrence Duffy: So Ben, just to emphasize a little something, when we originally negotiated this deal with FanDuel, our goal and objective was it had nothing to do with sports. Our goal and objective was to do with markets and distribution. And that is exactly what we're starting to see happen. Even though it's very, very early innings, to say the least, for baseball season, Tim is absolutely right, what's going on here. And that's exactly what we were hoping to see. And if, in fact, both our partner, if FanDuel wanted to have [indiscernible] so we were accommodating to them, but that was never our goal and objective. Our goal and objective were markets, on events, on markets, for their participants and ours. And that's what we're starting to see. And for me, that's exactly what we wanted to see happen. Operator: The next question in the queue is from Alex Blostein with Goldman Sachs. Alexander Blostein: I had a follow-up on the energy markets. And just curious to get your thoughts on the health of the underlying customer. Obviously, we've seen extreme volatility, which feels like it might continue for some time. There's always a debate about good vol, bad vol. This doesn't feel like great vol. So if you think about what's happening with the underlying users and the durability perhaps of the customer base on the go-forward basis, I'd love to hear your comments on that. Terrence Duffy: Derek? Derek Sammann: Yes, it's a great question. I think that when you look at markets in times of stress, as I mentioned before, you're going to see liquidity retrench back to home markets. And we've absolutely seen that. When we think about healthy markets, we think about a couple of different markets. Number one, we want to see health across the entire breadth of the portfolio. So we saw record activity not just in WTI futures, but options. We saw record activity and open interest being held in the crude grade contract, as I mentioned before. We're seeing record uptake and actually fastest uptake in Europe and Asia. And we're seeing options set records, particularly in the short-dated part of the curve as well. So broad-based activity across all products. We're not seeing activity spikes in one. We're also seeing, despite the fact that we're seeing some pretty unprecedented volatility times and uncertainty, open interest in energy has been extremely resilient. If you look at open interest since the deck 31, our open interest in energy is up 14%. Even on a year-on-year basis, open interest is up 1%. So open interest is a marker of the sustainability and health of activity, and that is still holding in well. One of the other markers we look at is the breadth of activity across client segments, and every 1 of our client segments continues to perform up double digits across the board, led by our commercial customers, not surprisingly, in markets like this. Retail has returned over this last quarter as we saw in the metals markets as well, very much wanted to be actively involved in our micro contracts. But I would say the growth and the sustainability in the open interest holdings continue to be -- show positive trends. And we're seeing sustained activity. We are not seeing activity that we saw immediately following COVID, which was a spike in activity closing open interest and reduction in activity across client segments. So we are seeing a healthy amount of activity. I would attribute at least a portion of that strength in these markets to the growth in our options business, particularly with the short-dated options business that are giving customers the ability to discretely manage event risk like we're seeing right now. And that's why we're seeing records in weekly options that I think customers are using to manage short-dated risk around longer-term core exposure. So at this point, we're seeing into April a strong participation, open interest holding there, and good participation across clients. Terrence Duffy: And just to add to that, Alex, I think you got to look at the entire industry, and it's not just oil, it's the shipping industry. These are billion-dollar ships that are sitting out there that need to be insured. Insurance companies are very nervous about extending insurance to some of these billion-dollar ships that could be blown up in a heartbeat. So they are looking to offset some of their risk on the insurance side, whether they're creating a swap or trading futures against it. So I think the client base will continue to expand because this -- even though, whenever this gets resolved, people are still going to be very concerned. So I think we'll get a new constituency of participants, not too dissimilar from the mortgage industry and others, from insurers and reinsurers from the energy business using our products and others in order to manage that risk going forward. These are very expensive vessels that they cannot afford to have being sunk in the Strait of Hormuz or anywhere else. So I think it's a very interesting what's going on. You mentioned good vol and bad vol, Alex. I want to touch on that for a second. So good vol is the volatility that market kind of goes orderly in a direction and it maybe goes into a different direction. When you see pockets of volatility with not much [indiscernible] that to me is bad volatility. But that's headline volatility. And headline volatility can be very disruptive to the marketplace. And there's a lot to that, but that normally is short-lasting as well on the bad volatility. So we'll see how that continues to proceed going forward. Alexander Blostein: Got it. Yes. No, super helpful. One quick follow-up just on the numbers. Obviously, with a lot of volumes coming through, RPCs came down a bit. And I was hoping you could maybe frame how to think about near-term RPC across, particularly the energy markets where we're seeing the bigger decline. Terrence Duffy: Thank you, Alex. Lynne? Lynne Fitzpatrick: Yes. So I would keep in mind a few things when you look at the energy volume and the RPC in this quarter. First, as Derek touched on, we obviously had record volume there. But you also had some real spikes in short periods of time. So March, the level of activity we saw there is certainly impacting the numbers. So if you look at the total volume growth, you would expect additional usage of volume tiering. You also saw a mix shift towards crude, which tends to be lower priced than things like our nat gas. And Derek also touched on one other thing, the micro business really grew significantly. So we saw about 315,000 micro energy contracts a day this quarter. That was up from about 80,000 contracts a day in the same quarter last year. So that is going to have a dampening effect on the weighted average. Those are at about $0.52 a contract. So I think those 3 factors really are what weighed in on the energy RPC. The last one that's a little bit harder to see is just the shift towards more member trading. So that's really where we saw that impact. So going forward, I would look at that overall level of volume in terms of volume tiering. And then I would look at those mixes in terms of crude versus nat gas, and then the micro versus full-sized products. Operator: The next question is from Michael Cyprys with Morgan Stanley. Michael Cyprys: I was just hoping you could update us on your partnership with Google, including tokenizing cash, what the time frame and key milestones are there, how you see this playing out? And if you could also update us on the prospects for CME stablecoin as well. Terrence Duffy: Yes. Thanks, Michael. I'll have Suzanne and Lynne touch on both, because they're both working on those projects. So Suzanne, why don't you talk a little bit about the tokenized Google and timing and things of that nature? Suzanne Sprague: Yes, thanks for the question. So we are working with the settlement banks in our ecosystem as well as clearing members to be able to advance stages of tokenizing cash. You may have seen a press release from Bank of Montreal in the last few weeks, announcing publicly that they have been working with us and Google on the tokenization project. And so the goal there really is to be able to increase the testing capabilities within the settlement bank ecosystem as well as start integrating clearing members into that testing process this year, with the goal of being able to go live by the end of this year. And again, the tokenization of cash really for us enables movement of value outside of traditional banking hours, especially looking at 24/7 trading activity, as Terry mentioned in his opening remarks. It's a key component to being able to enable the movement of value in the off hours, as well as allow us to build upon other tokenized assets using the Google Cloud Universal Ledger. On stablecoin, we also continue progressing that effort with regulatory engagement. And as Terry mentioned there, we are looking to be able to seek a license to be able to issue stablecoin. And we're exploring technology partners that can help us do that as well. We plan to be able to advance that effort this year, although we can't opine on the regulatory engagement time line. Happy to have Lynne add anything else as well for stablecoin. Lynne Fitzpatrick: Yes. I'll actually add 2 things that are a little further afield related to Google. So first, you heard Terry mentioned that we are getting close to opening our Dallas facility for testing with our clients with the goal of ultimately operating markets in the cloud. So we're excited about that progress that we've made with Google. That was something that has been several years in the making. We're also -- that was a big part of the investment that Google originally made in CME. So I just want to make sure you all noted that the Google shares, which were preferred shares, the only difference between those shares and common was that they did not have voting rights. Those did convert into common during this quarter. So you will see that in the basic and diluted share count rather than seeing that separate class of preferred stock. So going forward, you will also see just that earnings that was allocated to the preferred stock, it will show up just in the basic and diluted. So you won't see that differentiation going forward. I just want to make sure you captured that. Terrence Duffy: Do you have anything on stablecoin, we'll get -- Michael, hopefully that addresses your question? Michael Cyprys: Yes. Just a quick follow-up, if I could, on the cloud. So with the contracts migrating to the cloud. I was hoping you could maybe elaborate on the benefits that you see the steps that you're taking to help facilitate that. How do you see the scope and path for migrating other contracts eventually to the cloud or what that might look like and how you sort of evaluate that and what the benefits could be? Terrence Duffy: Well, I'm a big believer that this is the future. And I think if you were to start an exchange or any other business today, you would be in the cloud. We are 175 years, 200 years old at this stage of our proceedings. I think this is the future of markets, having access to be in the cloud. I think the efficiencies that a hyperscaler like Google will be able to provide to CME and its clients will be second to none. And I think that is really exciting. You have to start somewhere. We wanted to start with our less latency-sensitive products, which are the agricultural complex and that commodity side. So I think this will be the catalyst that show people how the benefits of having markets in the cloud and the redundancy that they will have with 20 other centers just in the United States alone, if in fact we needed to go there. So it's pretty exciting from my standpoint. This was our vision going way back during the pandemic in '20 and '21 to do this with a big partner like Google. And I think the future, not only it was looked at, is starting to be realized. So I think it's exciting and I'm looking forward to this progressing forward, and I'm looking forward to every single product being in the cloud, as long as, and I'll say it again, as long as Google's technology and facilities are better than what we have right now. And I believe they will be. Operator: The next question in the queue is from Bill Katz with TD Cowen. William Katz: Maybe, Terry, one for you. if you can update us on your thinking on capital allocation at this point in time. Obviously, you have the dividend, but I'm sort of curious of what your thinking is on M&A. In particular, it seems like there's a lot of different vectors of growth in the industry, both de novo and inorganic, and how that might shape your views on priorities. Terrence Duffy: I missed the latter part. But on the capital allocation, Bill, I think is what your question was, the first one, and I'll let you take the second one. But on capital allocation, I think from the beginning, Bill, going back to '02, I was a big proponent of paying a dividend at CME when everybody else said you shouldn't do that. But I thought it served our interest really well. I still think it does, and I think returning capital to shareholders is really important. But at the same time, I don't want to be stuck in a situation where we're afraid to do something that we think can grow the business, whether it's through M&A or something else, if the opportunity presents itself. So I think instead of putting myself in a box or the company in a box about capital allocation, right now, we are in a really strong position with our dividend, we're in a strong position on repurchasing shares, as you heard Lynne talk about earlier. But again, if there's an opportunity that we see that makes sense for our shareholders, without going out too far outside of the scope of what we do, we will be evaluating those, and that might change our capital allocation at that time. But right now, we're pretty committed to where we're at on the allocation of dividend and share repurchase for now. And what was that the latter part of your question? William Katz: It was all the same question. And then maybe just a quick follow-up, one for Lynne. If I look at your adjusted expenses, excluding licensing fees, it looks like it was up about 7% year-on-year, if I did the math correctly. I think the -- I think you affirmed your guidance for $1.695 billion for the year. Can you sort of unpack what the growth was in Q1 and how we should think about maybe the -- just sort of the pacing as we look through the rest of the year? Lynne Fitzpatrick: Yes. So certainly, and your numbers are correct, so we saw about a 7% growth rate in Q1. Obviously, with a high level of activity, you saw some of the variable expenses come in a bit higher. So you'll see that in compensation, you will also see that in technology where we did see more activity going across the system. So we'll continue to monitor as we go forward. We sometimes see these spikes in activity. We're seeing a little bit of softer activity so far here in April, but it tends to be different periods of time over the course of the year. So we'll continue to look at that guidance as we move forward. But at this point, we're comfortable with where we're at. I would point out that we do expect the occupancy cost to continue to grow over the course of the year as we do things like opening the Dallas facility. You will expect technology to continue to grow as we move more into the cloud environment. The others don't have as many specific drivers that I'd call out. Operator: Next question is from Craig Siegenthaler with Bank of America. Craig Siegenthaler: We were looking for an update on your prediction markets FCM JV with FanDuel just given FanDuel's announcement earlier this month that they will launch a new FCM. So I assume they're going to favor the new venture where they can keep 100% of profit. So are there any major differences in the offering? Terrence Duffy: Yes. Thanks for the question, Craig. And I think there's a bit of confusion on what they can and cannot do with that potential application process. I'll let Lynne describe it to you so we're all on the same page. Lynne Fitzpatrick: Yes. So certainly, this is something that we were aware of, that they were going to make this application. I think it's important to note the difference between an application and a launch. So similar to the way we started an application process, and it took several years to get that approval, they want to be prepared for any future changes and registration requirements or the like. So this actually doesn't signify any change in our relationship or the partnership going forward. And as Terry mentioned, and as you would expect, there are some contractual restrictions in terms of operating alternative venues during our partnership. Terrence Duffy: And I think that's really important, Craig, they can't just get an FCM license, apply for one or buy one and compete with the JV that we put together with them. That is obviously contractually against what we originally stated with them. So I think it was a bit confusing to begin with at best. Craig Siegenthaler: That's helpful. And just one follow-up on prediction markets. Any update on the DCM side and volumes where there's multiple entities hooked up to, including DraftKings? Terrence Duffy: Is there any volume up there with DraftKings? Tim McCourt: No, I think, Craig, just sort of to my earlier comments when we were speaking about prediction markets, we just recently crossed the $220 million contract volume threshold since going live in -- back in December of 2025. I think the notable thing from volumes is, again, as we were covering, is that the percentage of volume in market-based contracts across the CME Group benchmark products in equities, cryptocurrencies, energy and metals is in excess of 30% since mid-March when we -- with our partner at FanDuel increased the marketing efforts, and we've had 150,000 accounts trade at CME Group. So those are the sort of numbers-based updates for prediction markets. And we would say off to a great start and optimistic about the continued growth from here. Terrence Duffy: Craig, what I think is also important is there's a lot of activity, for lack of a better term, going on around the sports prediction markets between the states and the providers. Where there's not a lot of noise, and nor should there be, is around the market event contracts or prediction markets on financial products. And I think that's why we're seeing them grow. And I think that's a very good sign for the future. And I think you're going to start to see other people probably leaning that direction more than just looking at the pure sports itself. So we'll have to wait and see, but I think that bodes very well for CME if in fact that goes there because potentially the offsets you can be looking at against our multiple asset classes that we have here at CME Group that others don't. So I'm pretty interested to see how this all plays out in the future investments going into prediction markets on the sports side of the equation. Operator: The next question is from Brian Bedell with Deutsche Bank. Brian Bedell: Maybe just staying with that very line of your answer on the prediction markets, good to see that market side rising as a mix of the percentage of volume. What is your view on potentially creating company KPI types of contracts, like financial KPI contracts? And I know -- I believe, maybe you can weigh in on this, but I believe they most likely would need to be SEC regulated. So maybe your view on any kind of time line of that, if that is something that is -- that you're interested in developing. And then also if you could just confirm, I think the rate capture on the contracts for you guys is about $0.01 a contract. I just wanted to confirm that. Terrence Duffy: Okay. Thanks, Brian. So do you want to address the first on that. Tim McCourt: Yes, sure. Brian, and thanks for the question, we're certainly seeing a lot of interest in other economic or market-based contracts where we've seen good growth in the economic indicators as well as the benchmark products at CME Group. I think with respect to anything that is financial or KPI or individual stock related, that is something that we continue to engage with customers on. But as you noted, there are some regulatory questions and clarity required about how those products would be brought to market and what the security versus commodities-based offering might be. So that's something we continue just to engage with the regulators. So I'd say stay tuned on that, but no imminent plans or a path forward for those just yet. Lynne Fitzpatrick: And in terms of pricing, we don't break out entirely, there's obviously different pieces depending on where the volume comes from either through the various channels. Obviously, the clearing and transaction fee is transparent. But again, for us, this is about getting the traction with the potential customer base and getting the eyeballs in that distribution and getting kind of that community exposure to our products, which we're seeing good uptake on that right now. Brian Bedell: Great. And then maybe if I can ask Lynne, if you could just talk about the April collateral balances that you're seeing so far and if that's -- if you're still managing about a 30 basis point spread in those balances. I said 30 basis points -- 10 basis points on the noncash, I think, and 30 on the other, on the cash. Lynne Fitzpatrick: Sure, Brian. So in Q1, we did show an average of balances for cash of about $149 billion. That is up a bit so far here in April at $153 billion. In Q1, we averaged about 33 basis points on the cash. I don't -- typically don't disclose for the partial period how we're doing so far in April, but that held steady at about 33% versus last quarter. Then on the noncash in Q1, we had $171 billion on average at that 10 basis points. So far in April, we're averaging $174 billion. So both up slightly in terms of the average balances. Operator: The next question in the queue is from Ashish Sabadra with RBC Capital Markets. William Qi: This is Will Qi on for Ashish Sabadra. I appreciate you guys squeezing us in. Just wanted to maybe follow up on some of the comments around market data and information services. I think last year you guys had some data license changes in regards to the introduction of the end-of-day data category versus real-time delayed and historical. It seems like clients are still kind of generally building out the infrastructure to kind of track that data and they've been back-billed for that charge. How much of a contributor is that license change to the market data and information services growth? And are there any other policies that we should be aware of that are notable as well? Terrence Duffy: Julie? Julie Winkler: Yes. Thank you for the question. Certainly, that was a change in policy. And part of it, right, is just to protect what we believe is a strong intellectual property of our data assets and just changing business practices within the space. So it has in the past and will continue to be of real-time professional subscribers being the core of that market data revenue line. And so while data licensing such a end of day is adding to the growth of the business. It is not a significant driver of that revenue that we talk about each quarter. That continues to be that real-time professional subscriber. I'd say policies in general though, I mean, this is where -- and Lynne mentioned it earlier, right, there's this blend of utilizing policies, introducing things like enterprise pricing with our core partners, simulated trading environments, things like that, that we are going to continue to do, [ Term SOFR ] is another great example of our build-out of our benchmark space. So these are all things that the team is actively working on as this space continues to evolve and change. And I think it's working given the 32 consecutive quarters of year-on-year growth. So we'll continue to update you on that. But I think, again, strategic and pricing-related initiatives as well as new product development is going to be a core of us continuing to drive this growth going forward. Operator: The next question in the queue is from Simon Clinch with Rothschild & Co. Redburn. Simon Alistair Clinch: I was wondering if I could just ask about [ BrokerTec ] and BrokerTec Chicago in particular. I was wondering if you give us an update on how that's progressing. Any benefits you're seeing also what kind of behavioral changes you're seeing across that treasury complex? And I guess, how we might think that could impact the overall treasury performance of BrokerTec in the future? Terrence Duffy: Thanks, Simon. Mike? Michael Dennis: Yes, Simon, thanks for the question. While still early innings, adoption of BrokerTec Chicago is expanding as clients leverage the platform's value proposition of smaller tick sizes, and co-location alongside our core futures and options markets in Aurora. What I like about BrokerTec Chicago is it gives our clients choice and execution venue, depending on their trading strategy and market conditions. We have over 35 clients connected to the platform already. And that includes several participants from the derivative space who exclusively trade U.S. cash treasuries on BrokerTec Chicago. ADV grew 93% month-over-month in March, and we saw a record day of $1.2 billion on April 8. So additionally, we view BrokerTec Chicago as an important foundation in a larger effort to deliver unique new trading efficiencies by bringing our cash and futures markets closer together. So we're pleased with BrokerTec Chicago so far, and we'll keep you updated on new features as it progresses. Simon Alistair Clinch: Great. And just a follow-up on prediction markets. Terry, could you expand a little bit more about on the -- I think you said 150,000 new contract -- new accounts that sort of started trading on CME's platform, having come through that predicting market funnel. I was wondering if you could talk about just what you're seeing, the early behaviors of those kinds of accounts, what -- how you think it might evolve as you sort of try and graduate those kind of customers across the actual traditional futures [indiscernible]? Terrence Duffy: So I'll let Tim comment, Simon. But I think when you look at those new accounts coming in to trade that particular product, it's really difficult to predict what the next 6 months or a year is going to look like with that constituency. It could be a whole new group of them. The market can get a little bit stale or could get exciting. You just don't know what's going to happen that would drive the growth of those new accounts or take it away from it. So I hate to try to make a prediction on that. I would rather try to create efficiencies for each and every client and build the business that way. But I'll let Tim talk more about it. As I said earlier, when we originally did this deal with FanDuel, it was about distribution and having people look at our products and then participating, and then hopefully they would be graduating into the other parts of our industry, which we think they are and they will. So to me, that's the long game here, and we are going to continue to stay focused on the new client acquisition, as we talked about for many, many years. And this is just an extension of the new client acquisition through our FanDuel partnership. Tim, do you want to expand? Tim McCourt: Yes. Thanks, Terry. I think the one thing I would expand on that is when we think about the original thesis of why we're trying to attract the next generation of trader to our markets, it's because we want to get our benchmark products and these benefits and the value prop of CME Group into the traders earlier in their life cycle as a market participant. So when we think about what is exciting about the prediction market is prior to the introduction of the full value margin of event contracts that make it easier to access some of these markets at CME Group. We were on the life cycle of perhaps a trader started in other markets, whether it was single stocks or ETFs or options and then eventually cross over to CME Group to open a futures account, work with our futures brokers and start trading either full size or micro-sized contracts at CME Group. What's exciting though we don't know the exact motivation of all those 150,000 traders at CME Group is with the smaller-sized, full value margin contract, we now have the opportunity to perhaps be their first trade in the financial markets. And that is something that is evolving and transformational for our opportunity here at CME Group, that we can meet these clients earlier in their journey. And then as you noted, Simon, once they are then in the ecosystem at the CME Group, we're optimistic they will look at other products. But hard to say exactly what that graduation or life cycle will look like. But capturing them earlier in that journey is one of the things that we find attractive about this opportunity. And it's great to see that bear fruit this early on in the endeavor. Operator: And the next question in the queue is from Chris Allen with KBW. Christopher Allen: Just a quick one following up on the capital discussion from earlier. I just want to ask about the buyback philosophy. So the buyback level doubled this quarter versus the prior quarter, even with the stock improving materially this quarter. So I'm just kind of curious how you're thinking about it from a -- you view it as opportunistic buyback or is it -- is there anything related to the preferred conversion to common shares? Any color there would be helpful. Terrence Duffy: Thanks, Chris. Lynne? Lynne Fitzpatrick: Yes, sure. So Chris, one thing that you are saying is we did comment that we will be using the OSTTRA proceeds and putting those to work in the repurchase. So we will continue to be opportunistic with repurchases, but we also will be using that $1.55 billion that we received from the OSTTRA sale and putting that towards repurchases. So between last quarter and this quarter, we've completed about half of that. So we had about $758 million remaining in cash from the OSTTRA proceeds at the end of Q1. Operator: And the last question in the queue is from Michael Cyprys with Morgan Stanley. Michael Cyprys: I was just hoping to circle back to the cross margining where you see the regulatory approval to launch the expanded treasury cross-margining to end clients in the coming weeks. So I was hoping you could help quantify the impact of that in terms of added margin and collateral efficiency for customers, how you see the scope for expanded client engagement, velocity and what that path might look like? Terrence Duffy: That's a good question, Mike. And I don't know if we're going to have complete visibility into what it's going to look like ultimately. But we are excited by the beginning of it. I'll let Suzanne talk about from her end, what she's seeing. Suzanne Sprague: Yes. Yes, thanks for the question. We are excited to be bringing those 2 big liquidity pools together in the interest rate space. We think that just as we've seen in the House program, we do have the ability to offer a pretty compelling savings the 2 clearing houses. We anticipate the savings can be upward of 80% for the client book just like we've seen on the House side of the program today. We are at about 22 clearing members today that have signed the agreements for the House program. And although we've just announced the approval, we do already have 1 clearing member that signed the agreement for the customer program scheduled to go live at the end of this month, and are engaging with a number of other clearing members to offer the client program as well. . So hard to speculate on the dollar savings, but we do anticipate the ramp-up will be similar to what we saw on the health side and that we'll be able to deliver significant savings for customers, just like we have so far on the House program. Lynne Fitzpatrick: And I would just add that this is a unique benefit that they're able to get those offsets between their activity at CME and at FICC. So it does help reinforce the value proposition of our offering. Michael Cyprys: And what were the savings on the House side? Suzanne Sprague: Max savings have been about $1.5 billion. Average daily is closer to just over $1 billion. Operator: And showing no further questions. I will now turn the call back over to management. Terrence Duffy: Well, thank you. Our record-breaking start to 2026 underscores the importance of our risk management ecosystem. I want to harp on one thing that Lynn talked about earlier. We have continued to grow this business, exponentially grow the client base globally and bring more participants in here to mitigate and manage risk. The rate per contract is always something that's difficult to figure out. And I think when you look at that, you need to focus on that just a little bit more as we continue to grow our business because we actually think this is a really good thing as we continue to grow. So this is not new. We're growing the business and we're really excited about that because it allows multiple participants to continue to grow their business here at CME and pay a price that makes sense for them and for us and for more importantly for you. And we're seeing unprecedented engagement across all of our global asset classes today. We remain focused on disciplined execution and delivering superior value to our shareholders. Once again, I want to thank you all for joining this call today. Operator: This concludes today's call. Thank you for your participation. You may disconnect at this time.