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Operator: Good morning, and welcome to United Airlines Holdings Earnings Conference Call for the First Quarter 2026. My name is Regina, and I will be your conference facilitator today. [Operator Instructions] This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed or rebroadcast without the company's permission. Your participation implies your consent to our recording of this call. If you do not agree with these terms, simply drop off the line. I will now turn the presentation over to your host for today's call, Kristina Edwards, Managing Director of Investor Relations. Please go ahead. Kristina Munoz: Thanks, Regina. Good morning, everyone, and welcome to United's First Quarter 2026 Earnings Conference Call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations and are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call, and historical operational metrics will exclude pandemic years. Please refer to the related definitions and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures at the end of our earnings release. Joining us today to discuss our results and outlook are Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Mike Leskinen. We also have other members of the executive team on the line available for Q&A. And now I'd like to flip the call over to Scott. Scott Kirby: Thanks, Kristina, and good morning, everyone. I'd like to congratulate the United team on a strong first quarter. We're building the #1 brand loyal airline in the world, and our financial results are indicative of the structural, permanent and irreversible changes that have happened at United and across the industry. Our first quarter results are just the latest proof point in our strategy to build a decommoditized brand loyal airline that's setting a new standard for what is possible for customers in air travel. We've proven that the winning strategy is to make travel easier and better for all customers, and while all of us at United are deservedly proud of the brand we've built, we aspire to go farther, and we want to set a new higher standard by revolutionizing air travel for our customers. More immediately, of course, we're managing through the impact of jet fuel prices that have doubled. Industry stress events seem to happen every 5 to 6 years. While we didn't know exactly what or when it would be, we knew something would happen. The best thing we could do was to prepare United in advance. To that end, we have, one, tripled our cash balance; two, moved to the top of the industry and profit margins; and three, strengthened our balance sheet. In fact, we ended 2025 with our highest credit rating in almost three decades. Advanced preparation allows us to stay focused on the long term while making near-term tactical adjustments to account for elevated fuel prices. At the moment, our goal is to do whatever it takes to recover 100% of the increase in jet fuel prices as quickly as possible and to achieve double-digit pretax margins next year. Oil is incredibly volatile right now, but because we think we're moving towards 100% pass-through, it allows us to have confidence in both our near- and medium-term earnings trajectory enough so that we can still provide guidance. For United, here's how we're thinking about our goals to get to 100% pass-through and achieve double-digit margins in 2027. One, to recover 100% of fuel costs, yields need to increase by about 15% to 20%, and we are assuming that fuel may remain higher for longer. Two, as yields increase, there will be an elasticity effect on demand that we're estimating will lead to less overall demand. While we haven't actually seen that decline yet, [ ECON 101 ] makes us believe it's coming. Three, less demand means that we should be supplying fewer seats to the market. For United, that means we're targeting capacity to be flat to up 2% for 3Q and 4Q on a year-over-year basis. It simply doesn't make sense to fly marginal flights that will lose cash in a higher fuel price environment. Mike will provide more details behind our 2026 outlook, but our view for 2027 is that we're targeting a pretax margin of at least 10%. We obviously have some time to see what happens, but if jet fuel remains elevated compared to our pre-war levels as we think it might, we'd once again expect to require less capacity growth in 2027 than we were planning just two months ago. Realistically, there probably isn't enough time to make up 100% of the fuel price increase this year. But I feel very good about 100% recovery and getting to double-digit margins in 2027. And because we've positioned United for success, we can make tactical adjustments to manage what we need to in the short term while also staying focused on our long-term plan. I'm also more convinced than ever that our decade-long strategy to build a great brand loyal airline that is obsessively focused on making travel easier and better for all customers is the winning strategy. Finally, there's been a lot of press coverage regarding consolidation rumors. We've not commented specifically on those reports and aren't going to start today. So you can ask me about it if you'd like, but you won't be getting anything new from me on it today. And with that, I'll hand it over to Brett. Brett Hart: Thank you, Scott, and good morning. During the first quarter of 2026, United carried a record number of passengers while also navigating a challenging operating environment. The quarter experienced elevated weather events and geopolitical disruptions, but our teams remain laser-focused on recovering from these events swiftly and delivering top-tier reliability for our customers. In the first quarter, we continued our streak of ranking first in on-time departures among the 8 largest U.S. carriers. During the quarter, United's per seat cancellation rate averaged 44% lower than the next two largest U.S. carriers. Solid operational performance is the backbone of the airline and helped drive our highest first quarter on-time Net Promoter Score since the pandemic. During the quarter, customers increasingly engaged with our self-service tools, allowing us to drive more personalization throughout their journey. Day of app usage reached a record 86%, supported by continued mobile enhancements such as improved bag tracking and live TSA wait times. Additionally, I would also like to take a moment to thank the TSA employees, who showed up to keep us safe during the government shutdown. We have also improved our disruption communications by embedding live maps directly within customer messages. These tools and redesign help us recover faster and make it easier for customers to navigate disruptions. Another reason United remains differentiated and why we continue to build brand loyalty. Late last week, the FAA issued an order regarding the summer 2026 schedule at Chicago O'Hare. We are currently reviewing the FAA order and we'll share additional information, including any next steps as soon as our review is complete. We are pleased to reach a tentative agreement during the quarter with our flight attendants represented by the Association of Flight Attendants. This agreement includes well-deserved industry-leading wages and other meaningful improvements for our flight attendants who play an essential role in caring for our customers and representing United every day. Voting concludes on May 12. On April 6, United celebrated its 100th birthday, a meaningful milestone for our airline, the generations of employees who have built it and our loyal customers who continue to choose to fly the friendly skies on United. I want to thank all of our employees for the care and commitment they bring each day to our customers and to one another. As we recognize this milestone, we remain firmly focused on the future and on building an even better airline through continued investment in our product, our people, our network and our operation. With that, I will hand it over to Andrew to discuss the revenue environment and our other industry-leading commercial initiatives. Andrew Nocella: Thanks, Brett. Consolidated total operating revenue in Q1 increased 10.6% year-over-year to a record first quarter of $14.6 billion. TRASM increased by 6.9% year-over-year. All regions had positive PRASM in the quarter. I'd like to -- I'd describe the start of the year as strong for all customer types and all regions. For January and February, prior to any impact from the war, we saw ticketing for business revenues up approximately 12%, while leisure was up a healthy 6%. Looking back at Q4, business ticketed revenues were up 6% and leisure was up only 2% year-over-year, creating a nice sequential increase in the first 2/3 of the quarter. Premium demand remains strong with Q1 premium revenues up 13.6% on 4.4% increase in capacity. Premium RASMs were up 8.9% year-over-year, leading main cabin by 4 points. It is clear that consumers continue to seek elevated experiences. Business demand was strong in Q1 with revenues up 14% year-over-year and strength across all verticals. Headlines about TSA wait times did suppress demand between March 23 and April 1, but they have fully recovered since. Our loyalty business continued to outperform and total loyalty revenue was up 13% in the quarter. Acquisitions and spend were both very healthy and supported by updates we made to the MileagePlus program. Late in the first quarter, we implemented 5 broadly successful price increases, along with an increase in baggage fees that began to offset the increase in the price of jet fuel. Price increases in response to the increase in jet fuel have been significant and across the board. However, global long-haul increases have been a bit stronger than domestic. In January and February, United's selling ticket yields were up 4% year-over-year. In the first half of March, that increased to 12% and further increased to 18% for the second half of March. So far in April, this trend has continued in the last week, sell-in yields for all future travel are now up 20% year-over-year. As you would expect, we sold 23% of our Q2 and 8% of our Q3 capacity at lower price points prior to the rise in jet fuel costs. We remain confident in our ability to fully recapture the fuel cost increases over time. And in 2Q, we expect to recover between 40% and 50% of the current increase. In response to higher fuel cost environment, we've begun to adjust capacity downward by approximately 5 points throughout the rest of the year. We now expect Q3 and Q4 capacity to be flat to up approximately 2%. Our adjustments removed marginal capacity on off-peak days and flight times such as red eyes, which we believe will fuel our recovery of fuel price increases in the second half of 2026. Our current sell-in schedule is up just over 4% in the summer, but those capacity adjustments will be loaded in the next week or so to get the capacity out there selling appropriately. On our January call, I hinted about new commercial initiatives that we believe will drive brand loyalty, choice and increase revenue for United over the medium and long term. We have now formally announced these initiatives, and I will summarize them today for you. To be clear, these changes have been in the works for years and they were made across all aircraft, all cabins and in many different areas of the commercial business. First and maybe of greatest importance, we've made the largest change in a decade to how we display and sell products on united.com and in our app. Internally, we described this change as nested selling. Nested selling took years to research, program and test and is now active in our digital channels. We can now properly merchandise our grown product lineup. We have already seen large increases in upselling because of these website changes. We simply were unable to show all of the products we had for sale easily on the old website display. Second, as part of the website evolution, we've introduced base fares in our premium cabins, Base fares come with less checked luggage, no early seat assignments and different club access features. To be clear, everyone on a base fare will be able to secure a seat assignment at any point via an ancillary purchase or for free during the check-in window. These base fares allow consumers more control over their experience by choosing what services they want to include on their journey and were a tremendous success in the economy cabin with basic economy. Third, we announced that 50 A321 Coastliners are planned to join our fleet. With the Coastliner, we can extend our award-winning Polaris brand for the first time on all United flights from New York to Los Angeles and San Francisco. Fourth, we unveiled United's new Airbus A321 XLR onboard products. These products on each XLR are consistent with the Coastliner. However, we've modified certain aspects of each XLR for the unique needs of an 8-hour Atlantic Crossing versus a transcontinental flight, including the larger snack bar, more lavatories, more galley space and less main cabin seating density. Combined between the Coastliner and the XLR, we expect to have a fleet of 100 A321s equipped with 20 lay flat beds and 12 premium plus seats, a commitment to this unique narrow-body platform unmatched by others. Premium plus seats will be for the first time deployed on domestic routes at scale. Fifth, to be a premium brand, we needed to have a consistent product no matter what plane you fly on or where you're going. United redefined service to smaller communities a few years back with the CRJ550, and we've now extended that idea into what we're calling the CRJ450. Sixth, we announced Relax Row, our latest product innovation for young families on global routes a few weeks ago. Relax Row is a main cabin product that transforms three seats into a flat surface and includes bedding and pillows. And seventh, we said we would change MileagePlus to accelerate United's earn-in, and we have. Members will now be awarded more miles when they fly if they hold our co-branded credit card versus members who do not hold the card. We also announced discounts for redemption only available to credit card holders. All these actions will increase the value of being a MileagePlus member and holding our credit card. While we continue to work under a long-term co-brand contract with our partners from Chase, we're making changes to what we can control today. In due course, we expect to have a new contract optimized for all stakeholders to the current market dynamics. Turning to our fleet. We have taken delivery of four high premium Boeing 787-9s with up to 16 more expected to be added in 2026 and a total of 33 planned over the next two years. The interior of our new 787-9 has something for everyone, and we believe further strengthens our premium brand. All of our commercial initiatives announced over the last few weeks have been years in the making, tested with countless customers and employee focus groups and are ready for prime time. Our launch plan is bold, quick and designed to increase customer choice, revenues and brand loyal customers. These new initiatives plus previous initiatives like Signature Interiors and Starlink are additions expected to be largely rolled out in two years. The future is now. United is now on final approach towards our product and premium vision that it completely transformed United versus pre-pandemic for all customers. I could not be more proud of the United team that has spent countless years and hours planning these product changes. These are the type of changes and product improvements across all cabins and for all customers that we believe genuinely differentiate United. We will continue to watch the demand and pricing environment very carefully in the coming weeks and quarter to refine as necessary our approach to this rapidly changing environment. With that, I'll hand it over to Mike to discuss our results and our outlook. Mike? Michael Leskinen: Thanks, Andrew. The first quarter has been a reminder that successfully managing the airline for the long term requires being prepared for short-term shocks. We've accomplished that at United by earning brand loyal customers. That strategy has led to margins at the top end of our industry and the best balance sheet we've had in almost 30 years. The financial strength that's created reinforces our ability to make the right long-term decisions. The latest challenge in our industry is the massive run-up in fuel prices created by the conflict in Iran. Fuel prices remain volatile, and we're monitoring the situation closely. We delivered resilient results with first quarter earnings per share of $1.19 within our initial guidance range of $1 to $1.50 and up 31% year-over-year, even with a $340 million higher fuel bill in the quarter. Our pretax margin was 3.4%, a 40 basis point expansion versus the first quarter of last year. Demand for the United product was already robust going into this heightened fuel environment. We believe we have the ability to pass on the increase in fuel due in large part to our brand loyal customers, continued demand strength and preference to fly United even at higher fares. In this elevated fuel environment, we began to swiftly adjust capacity in addition to pulling our Tel Aviv and Dubai flights, which together were 1.5 points of our capacity. These close-in cancellations from low CASM markets, along with significant storm-related capacity reductions throughout the quarter, pressured our unit costs. And as a result, our CASM-ex for the first quarter was up 5.9% year-over-year. As discussed, we are also proactively removing about 5 points of capacity for the rest of the year that we don't believe can cover the elevated cost of fuel. We expect capacity in the back half of the year to be flat to up 2%, several points lower than our original plan. That will continue to pressure our CASM-ex, but we expect it will improve profitability and cash flow for the remainder of the year. This is precisely why we don't manage to CASM-ex but to long-term profits and cash flow. Looking ahead, we expect second quarter EPS to be between $1 and $2, anchored by an all-in fuel average price of approximately $4.30 per gallon. For the full year, we are providing an updated and widened guidance range to encompass multiple scenarios. As we've experienced over the last two months, the world can change quickly, but in both higher and lower fuel price scenarios, we expect to recapture 40% to 50% of the increased fuel cost in the second quarter, 70% to 80% in the third quarter and 85% to 100% by the fourth quarter. We expect to deliver full year 2026 EPS in the $7 to $11 range. The demand environment to date remains strong, and we expect will support a double-digit increase in RASM in the second quarter and for the full year. If fuel prices remain on a downward trend, we expect to be in the upper half of the guidance ranges. And if fuel reescalates, we would expect to be in the lower half of the guidance ranges. With that said, United remains in a strong financial position. Our resilience in a high fuel price environment as well as our relative position in the industry provides further confidence in our long-term target of achieving double-digit pretax margins as soon as next year. Our proactive approach to managing the network in this environment is helping us achieve this outcome. Turning to the balance sheet. We continue to march towards our goal of being investment grade. In the quarter, we took actions to make further progress towards this goal and paid down more than $3.1 billion in debt, unencumbering more assets by accelerating our repayment of $2 billion of our notes that were secured by our slots, gates and routes while also prepaying $400 million of near-term maturity or higher cost aircraft debt. Additionally, the first quarter marked United's return to the unsecured market as we raised $2 billion across two unsecured bonds, our first unsecured issuance since 2019. The 5-year bonds priced at [indiscernible], while the 3-year bonds came in under 5% at [indiscernible]. We successfully reset the credit curve for United, compressing the gap in our credit spreads with investment-grade peers to historically low levels. This was the first high-yield bond issued with a coupon below 5% since Ford did it 4 years ago. Our execution exceeded our initial expectations as the market responded with incredible demand. This is the strongest evidence yet that the buy side appreciates that we're knocking on the door of investment grade. In the first quarter, we generated $2.9 billion in free cash flow. And while our free cash conversion in the near term will be pressured as fuel prices remain elevated, we remain committed to generating durable and growing free cash flow. To wrap up, our first quarter performance remained resilient. We are managing the business with the expectation that jet fuel remains elevated in the medium term. We're nimbly adjusting the network and cutting capacity that doesn't cover fuel costs, all while continuing to invest in our people and our hard product. As we look to the future, United is positioned to deliver stable double-digit pretax margins, strong free cash conversion and strong EPS growth on the other side of it. I'll now turn it to Kristina to kick off the Q&A. Kristina Munoz: Thanks, Mike. We will now take questions from the analyst community. [Operator Instructions] Regina, please describe the procedure to ask a question. Operator: [Operator Instructions] Our first question will come from the line of Jamie Baker with JPMorgan. Jamie Baker: So Scott, the CNBC interview where you articulated the idea of a larger brand that would capture passenger flows that are currently flying foreign competitors. It sounds like this is an idea that's still under development at United. But I'm curious, could you envision a world where United might operate its own hub in Europe the way that Pan Am once did? And second, do your existing partnerships with Star Alliance members, do those relationships factor in at all to your thinking in this regard? I mean, I think the idea of capturing foreign flows is fascinating. I'm just trying to think through how you might get there and maybe consolidation is the only way. Scott Kirby: Well, thanks, Jamie. I thought you were going to get through that without saying the C word. You almost. But first, I think it's extremely unlikely that we'll open a foreign hub anywhere in the [ foreign. ] Our Star Alliance partnerships are great. They enable global reach and breadth. They enable us to fly to lot -- give our customers the ability to fly to lots of cities around the globe that are never going to be big enough for United Airlines on our own to fly to and use frequent flyer miles to go to those kinds of places. And so those are all great. And really, everything that I've said today are -- I said on CNBC and Bloomberg this morning are all things that I've said in the past, I know people are now viewing it in a different light because of the rumors that came out last week. But everything that I said are things that I have said in the past. And it really comes from -- we've had this vision to build a great brand loyal airline, and it just worked incredibly well. Like you look at our first quarter results like with this kind of increase in fuel prices to deliver those kind of results to be able to look through to the full year with fuel prices doubling and still have reasonable confidence in $7 to $11 of earnings and stay focused on the long term. It's just -- it is dramatically different here at United than it was in the past. In the past, this would have been furloughing and deferring aircraft orders and cost-cutting exercises and just all kinds of stuff to try to manage through the near-term noise. And it's dramatically different. And we've won by winning customers in all classes of service, by the way. We invest nose to tail. Like most of our investments apply to all customers, Starlink, seatback entertainment and every seat, WiFi, the best app in the world. They apply to every single customer on the airplane. And because that strategy has worked, I thought it would work, but it's worked even better than I thought. And you can see in our financial results, you can see it in the market share data and in all of our hubs where we had big competitors, same things happened everywhere. It's not unique to competing with any one airline. It's happened everywhere. You can see it in the data. And it's worked even better than I thought, which -- because it's worked even better than I thought it would, it allows us to raise the bar on ourselves and aspire to something even bigger. And I think there is this big global trade deficit in the U.S. We compete with some really good airlines in the Middle East and Asia, and they have some advantages that we don't have. And like I actually haven't said what it takes to do it, and I don't even know the answer. Anything that it might be an answer comes with complications, and there's no certainty that any of them get there on their own. But it's an aspiration that we have at United. I've sort of talked about it and hinted at it at least in the past. It is an aspiration that I think United uniquely is in a position to take a run at. Dream big. That's the way you accomplish big things. Jamie Baker: Okay. And for my quasi-related follow-up, it's on the tape that the administration is readying a $500 million rescue package for Spirit. I've been with you for the last couple of years in terms of permanent and irreversible structural change. But how does the industry continue to evolve if the government chooses to prop up failing businesses whose failures have nothing to do with fuel? Scott Kirby: Yes. Well, first, I don't know what's going to happen there. And I think that we're proving right now that well-run airlines like United Airlines can even be profitable and certainly don't need bailouts in a time like this. And to your point, Spirit was -- I feel bad for the people of Spirit, but it's been pretty obvious that Spirit's business model was fundamentally flawed and the airline was not going to be able to make it or ever cover their cash operating costs. So I hope that doesn't happen. But if it does, we're going to keep focused on winning brand loyal airlines like -- this is brand loyal customers. For us, I don't think that this is nearly as big a deal as for others that are in the more commoditized space. If I was working at one of the airlines that depended on more commoditized travel, I'd be irate probably about this. But for us, like I think we've so distanced ourselves from the rest of the industry that I [indiscernible] policy. But I don't think it's going to have -- whether Spirit fails or keeps flying, I don't think it has much effect on United one way or another, to be honest. Operator: Our next question will come from the line of Conor Cunningham with Melius Research. Conor Cunningham: I'm pretty happy that I don't need to ask the Spirit question. In a world where fuel remains elevated for a long period of time, just curious on how that changes your management style of a hub or just like your general view on profitability to the overall system. I assume you're refreshing that analysis for yourself all the time. Are you doing that for your competitors as well as you look for opportunities more broadly? Andrew Nocella: Yes. I think the answer is affirmative on all the above. We look at this daily, weekly, quarterly, monthly, you name it. As fuel prices go higher, the question is how will demand react. And at this point, we can tell you that the price increases are going well and demand is hanging in there really strong. What we've done is proactively canceled flights, particularly on off-peak days and off-peak times, expecting that there could be some demand weakness in those channels. We'll see. So we think we're ahead of the curve here, and we'll continue to watch it and monitor it. But so far, so good, and demand is hanging in. Conor Cunningham: Perfect. And then maybe just on the demand destruction commentary a little bit. I'm trying to unpack it a little bit because in the past, you've talked about demand being somewhat inelastic to price. And I realize you're not seeing it fall off now, but there's a lot of speculation that may happen. So as you run your scenarios, like can you just talk a little bit about like how you expect premium, maybe the business traveler to change? Or I assume that the demand destruction really comes from the leisure side of the equation. So if you could just talk about how you -- how the scenarios kind of play out within your 2026 guidance. Andrew Nocella: I think we're a bit in uncharted territory. I think we can tell you right now that all types of customers remain particularly strong. Like just in the last week or so, our yields are now up 20% year-over-year. But even more importantly, the business part of our business, business traffic is over the last two weeks, up 25%, business revenue up 25%. And that's accelerated from up 16% in quarter one and 9% late last year. So these price points are being absorbed and passed through and volumes are increasing. And for United, you'll recall, we had the unique headwind last year related to [ Newark, ] which we're going to lap in about 10 days, I believe. So it will create easier comps for at least United and maybe harder comps for others. But the numbers look really fantastic over the last few weeks. Now we'll have to keep watching it, particularly as summer ends. And like in order to maintain these type yields at United, I felt like we needed less capacity on Tuesdays, Wednesdays and Saturdays and off-peak times, and we've done that. But look, business traffic is strong. Leisure traffic is bouncing in the mid-single digits right now, which I think I'm happy with. And so we'll continue to watch it. It is uncharted territory given the massive amount of changes we've done, but we've had 5 broadly successful price increases. And right now, we are passing on yields that are up 20% year-over-year. Michael Leskinen: Conor, this is Mike. I just want to pile on because you asked about the guidance policy. We've long had a guidance policy of building in an act of God into the guidance. And so we -- what you're hearing from Andrew, what you're hearing from Scott, there's nothing in our bookings that suggests there's demand destruction. But I believe it's prudent to be prepared for that. But we are not seeing it. We're hopeful that we won't see it. The economy seems robust. The stock market is indicating the economy is robust. And it may be that, that is an act of God we did not need to be prepared for. But that is our policy, and we need to be prepared for lots of scenarios. Operator: Our next question will come from the line of Ravi Shanker with Morgan Stanley. Ravi Shanker: Just on fuel, it appears -- the debate appears to be moving from fuel inflation to fuel availability. Just trying to get a sense of what kind of visibility you guys might have, especially out in Asia or Europe regarding potential fuel shortages and what the plan B might be in that case? Michael Leskinen: Ravi, it's a great question. We've got really good visibility for 4 or 5 weeks. And you are right to say that this issue is centered on Europe and Asia. It's much less of an issue in the U.S. We don't see a lack of availability being an issue at all in the U.S. It's a price issue. However, even in Europe and Asia, as we sit here today, we think it is a price issue, not an availability issue. We think that as prices rise, and you're seeing the price of jet rise much more than the price of Brent as crack spreads widen out. And so we think that price is going to be a rationing function. That means there will not be spot outages, but we're watching it closely. The longer the strait remains closed, the more that is a risk, and it is of risk in the regions you noted, Asia and Europe, not so much the U.S. Ravi Shanker: Great. That's very helpful color, Mike. And maybe as a quick follow-up, Scott, your first response, you said that you compete with some really good airlines in the Middle East. Obviously, they're having a little bit of an issue right now. Do you see any structural share gain opportunities in transatlantic or even longer haul from some of those challenges? Or vice versa, do you expect them to be aggressive when the situation settles down? Scott Kirby: I think it's temporary. And I think you look at like what Dubai, not just Emirates, but Dubai, City State of Dubai have accomplished is remarkable and impressive. And if I had to make a bet, I'd bet on Dubai. I think it's going to come back fully. It won't come back immediately. It's temporary, but we'll come back fully. Operator: Our next question comes from the line of Scott Group with Wolfe Research. Scott Group: So Scott, maybe this is a naive question, but why does the industry need a crisis to start pushing through such higher yields? Why can't we do it more sustainably? And then maybe just I'll lump it on to like one question. When I take your 10% pretax margin for next year, it sort of gets you to roughly $18 of earnings. I know you don't want to get into specifics, but just at a high level, as fuel hopefully starts to normalize lower, do you assume you hold on to this higher yield? Or do we have to give some of that back? Scott Kirby: So I will actually answer that first question. Maybe I'll try the second one. I've watched this for at least 25 years now and have come to the conclusion that -- I guess I'll start with the conclusion. Every airline CEO should have to have spent two years at a reasonably senior position in revenue management, understand it. And it's core, most of them haven't. That's the reason it's harder to get fares up. And I think what happens at airlines is the math geeks that are really smart that run revenue management. I'm looking at one of them in the room, sorry to call you geek, Dave, he's awesome. But I'm one of them, too, know that air travel demand is inelastic and that there's room to price more appropriately for our cost of capital and to return our cost of capital. But the people in marketing and government affairs are better at telling the CEO, like that's a bad message. And so they're much better communicators to CEOs. And so the pressure internally in the organization is really hard to raise fares. I mean it's even crazy right now. A couple of airlines that are raising fares like crazy and then they run a fare sale every week. Like just the marketing team disconnected from the revenue management team and the marketing team are better marketers. And so they tend to win is really what happens. And so you see it in a crisis. And by the way, like another like sure bet -- almost sure bet is in late October, November every year, there's going to be fare increases. And I eventually figured this out 20, 25 years ago that in October, the teams finished the budget and they rolled up to the CEO and the CFO who pound the table and say that's an unacceptable result. And they say, go raise fares, which they do. But it takes -- that's not exactly a crisis, but it takes something like that. And it's goofy to me that that's the way it happens. It's nonsensical. But I actually think that's the reason that it happens, and I thought that for a long time, and a crisis caused it to go up more. Now as to the question of does this hold next year? I think actually that this -- a situation like this at least has the potential to be different and for pricing to hold more. First, like as I said earlier, I think -- or I said somewhere today, I forget where I've talked, that airfares in real terms are down 27%, 2025 versus pre-pandemic. And that had put a bunch of airlines either losing a lot of money or sort of breakeven is really kind of only a couple of airlines returning their cost of capital. And everyone has to eventually return your cost of capital. And so I think it is more likely than not this time. And certainly, the longer this lasts, the higher the probability goes that the pricing increases hold. And we probably won't hold 100% if we normalize as I told the team earlier today, and it's just my guess that if things went back to mid-February normal, I think we get -- keep 20% of the price increase next year. And I think that's going to move towards 80%. And every day, it's ticking up longer as this goes on. So we're not going to give guidance for next year, but I do think that we'll be double-digit margins next year. And your analysis is not unreasonable. Operator: Our next question will come from the line of Brandon Oglenski with Barclays. Brandon Oglenski: Scott, I'm wondering if you could elaborate on winning brand loyal share and specifically as it equates to your Chicago O'Hare hub, especially now that there's a proposed FAA summer cap on operations there. I guess, A, how are you faring versus your competitor? And then, B, how do you anticipate complying with that? Scott Kirby: So I'm answering more questions today than I like, but I'll do it. In Chicago, we're still reviewing the order, but it does appear that we're not going to get to grow as much as we and our customers would like. But the real point is one you make, like we've won brand loyal share here in Chicago, and it's never been about the number of flights or the number of gates. Number of gates and flights were the output of what was happening with brand loyal customers. And we have by far the best technology. We have by far the best service, the best reliability, by far the best product. And customers have overwhelmingly voted -- not -- this isn't unique to Chicago, by the way. This has happened in all of our hubs. Customers in all of our hubs have voted overwhelmingly for United. We got three big hubs where we have three different big competitors. Each of which we've won about 20 points of market share. And here in Chicago, we've actually won 38 points of market share with business travelers. So customers care about quality. Quality really matters. And we give great value to all customers and so the brand loyal customers have switched. And absolutely nothing about that changes here in Chicago. But it does look like the FAA is going to not let us grow as much as we and our customers would have liked. And I wish we could grow more, but we can't. We've got other places we can grow, and I look forward to someday being able to grow more here. But nothing changes about the sort of structure here in Chicago and the decade that we've spent winning brand loyal customers by creating a great airline for them. Operator: Our next question will come from the line of Andrew Didora with Bank of America. Andrew Didora: Maybe changing gears a little bit, throw this one out for Mike. Just diving into cost a little bit more on the maintenance side. Just trying to think about how this kind of trends. I know it can be lumpy throughout the year, but particularly as it trends as you cut 5 points of capacity throughout the rest of the year. I would think you get some leverage on the maintenance side? Or am I not thinking about that the right way? And just from a long-term kind of maintenance cost perspective, is this something we should think about growing maybe a couple of points more than your capacity growth? Just curious on that line item. Michael Leskinen: Thanks, Andrew, for the question. And I'll make a few points. Firstly, you should broadly expect our CASM-ex trends to move inversely with the amount of capacity that we take out. I think that's maybe obvious, but that's what happened in Q1. That's what you should expect for the remainder of the year. Number two, the sooner you take out flights, the further out those flights are, the more you can variabilize the cost. There's no doubt about that. But at United, we're winning brand loyal customers by investing in this business. And nothing about this crisis is long term, and so you can expect us to continue to invest in the business. The final point I'll make, you made around maintenance. I think at United, we have some unique opportunities to fight that trend where maintenance cost is expanding as a percentage of our costs. Part of that is gauge, but part of that is what we're doing in global procurement and how we are working with the great tech ops team that we have. So I'm very optimistic we will not face that same trend that much of the industry faces. Andrew Didora: Got it. And then just my second question, certainly it seems like you were busy at the start of the year on the balance sheet. But just on the buyback, you had stepped it up this time last year in all the market volatility, but 1Q this year, very similar to the last few quarters. Just curious your thoughts on how you thought about the buyback. Michael Leskinen: Look, I think it's a great question, and it's valid. But we have two objectives with our buyback and our capital management. Number one, we are committed, absolutely committed to getting to investment grade. And so we need to balance our buyback and our opportunism around buying shares when they're below intrinsic value with our commitment to getting investment grade. And so what you saw in the first quarter was another example of how we're balancing that. I'm really proud of the team for what we did with the two unsecured offerings. And I just want to reiterate that we are going to get to investment grade in all scenarios. Operator: Our next question will come from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe another question for the revenue management geeks out there. You're removing 5 points of planned capacity through the end of the year. How do you think about what range fuel would need to settle in for United to return to that mid-single-digit capacity growth in the second half? And how do you think about irrational capacity coming back online? And how do you manage costs in that environment as well as you continue to invest? Andrew Nocella: That's a lot of questions. Sheila Kahyaoglu: Sorry. Just take one, if it's okay. Andrew Nocella: Look, I think we're going to watch demand really carefully. We know how price is created in the business, and we've cut this off-peak capacity because we want to make sure that we can sustain these type of yield increases that we see right now. And we'll continue to watch demand, and we're going to manage the business to hit the financial targets and margins that we have out there. And so if we can do that with more capacity, we'll gladly bring it back online. But where we are today would just -- and the economic lesson that Scott gave you at the opening would say that there should be some level of demand reduction related to a 20% fare increase. We haven't seen it yet. And if we don't, it's a really great outcome, but we're planning for that. If it doesn't turn out to be the case, we'll appropriately adjust our plans. Operator: Our next question will come from the line of Tom Fitzgerald with TD Cowen. Thomas Fitzgerald: I just want to ask a multipart question of Andrew about the commercial initiatives. If we bucket them into maybe merchandising, fleet and MileagePlus, would you mind just walking us through the margin uplift you're kind of contemplating over the longer term from some of these initiatives that they pan out? Like just in terms of thinking of putting some of those Airbus aircraft on those routes, like how they compare to the aircraft they're replacing, things like that? Andrew Nocella: Yes. I'll keep it really high level, but -- and I'm glad you asked the question because the current conditions are super interesting. But we've been working literally years on the 7 initiatives that I had in my script earlier, and we are really proud of all of them. We think all of them are material. But properly merchandising our products and being able to sell them, like we were unable to sell certain products is valued in hundreds of millions of dollars per year. And the new aircraft we bring on that are optimally configured for the premium demand that we're seeing is also a gigantic number. I'm going to avoid assigning values to each of them individually. Maybe we'll do an Investor Day someday where we can talk about it in more detail. But all of those initiatives, and there are 7 of them, and they're really all 7 of them were very, very significant, are about setting our future up to reach not only double-digit margins, but ultimately mid-teen margins as we've talked about. And we are well on our way. We've got it dialed in. We've, I think, figured this recipe out. We've segmented really effectively, and we're not done is also what I would tell you. We have other ideas in the works and plan another media day next year to talk about. Because we're really proud of all this. And the RM stuff, the segmentation stuff, the willingness to pay, all of it giving customers in all cabins more choices is incredibly effective, and we're winning share all the time. So hopefully, that answers your question appropriately, but I'm going to say it's just really materially significant to lay the proper foundation for the future. Operator: Our next question will come from the line of Michael Linenberg with Deutsche Bank. Michael Linenberg: Just one question here. Just on revenue recapture. I mean, thanks for outlining the progressions for the year. What gives you confidence that you're going to get to 100%? And do you actually need maybe outside help, whether it's other carriers cutting capacity? And maybe just give us a sense of how you recovered Russia, Ukraine, how quickly you were able to recover it back in 2022 when we had the last major fuel spike. Andrew Nocella: I'm not going to count on other airlines for anything, that's for sure. But from our perspective, the fact that we've already gotten to a 20% yield increase. And what we've done is we've cut off the capacity to make sure that we can sustain these higher yields. I feel really confident. And I would -- look, before this fuel situation happened, I would tell you, fuel is a pass-through. And so I feel really confident we're passing it through. Demand is hanging in there. We've made the appropriate capacity adjustments for United to make sure that we can get to full recovery by the end of the year, and we're well on our way already between 40% and 50%. And -- but the most optimistic thing is the fact that within a matter of 7 or 8 weeks, we went from yields being up 2% to 3% to yields being up 18% to 20%. It's pretty darn remarkable. Michael Leskinen: Mike, the underlying point is that for a growing portion of our customer base, this is a decommoditized business. The brand loyalty at United. You get a better experience, you get better value. And I think the results speak for themselves. Operator: Our next question will come from the line of John Godyn with Citigroup. John Godyn: I wanted to just follow up on the fuel pass-through. I think that commentary and that guidance was great. If we could maybe get a little bit of geographic color kind of how pass-throughs are evolving in your opinion, internationally versus in the domestic market. The capacity trends are very different. The fuel surcharge activity is very different. The hedging of the competitors is different. Maybe a little bit of color there would be helpful. Andrew Nocella: Look, I think the color I would add is I thought that the domestic would be quicker to move than international, and I was wrong. The international environment pricing -- well, both are strong. I want to be really clear. But the international environment is actually better than domestic that the price increases have been more substantial and are covering more of the fuel burden than they are domestically. And I think that's really remarkable. I think there's been changes in the overseas pricing behavior that have actually surprised me, quite frankly, given that -- I don't want to go into every detail, but given what I know about the industry. So I'm really pleased with that. And I do think these fares are going to be up. And as Scott said, depending on how long this lasts, the longer it lasts, the higher they'll be up and the longer it will stick, in my opinion. But the international environment is better than the domestic environment at this point. Michael Leskinen: John, I can't help myself, but you mentioned hedging by foreign carriers. If they hedge Brent, they're not hedging jet fuel. The biggest portion of the move in jet fuel has been crack spreads. So I think this experience has proven once again that hedging is a poor policy. John Godyn: That's great color, guys. And if I could just follow up with one more on the pass-through through the end of the year. It sounds like the assumptions embedded in that are status quo. Like you're not expecting all the other carriers to slash capacity or something like that driving your pass-through. Is it safe to say that? Or are there other kind of industry dynamics that you're looking for to kind of drive 100% pass-through by the end of the year? Andrew Nocella: Look, I can't speak for other airlines. We've engaged in self-help. We know what it takes to pass on these price increases by what we're going to fly. And we're out here to hit our financial targets and hit a double-digit margin next year, as Scott said. So I don't know what the goals and motivations and missions of the other airlines are. I won't speak for them, but that's ours, and we're going to manage our capacity to achieve our goals independent of what the industry does. Operator: Our next question will come from the line of Chris Wetherbee with Wells Fargo. Christian Wetherbee: Maybe just sort of sticking on the theme of the fuel pass-through and ultimately, retention rates. You talked about holding on to 20% and maybe that going to 80% over time. I just want to understand the mechanism behind that. Is it just simply duration? Is it the sort of competitive actions around capacity that others take? Is it other price actions you could use like bag fees or other ancillaries that kind of stick even when fuel prices come down? I just want to understand that dynamic of how you can hold on for longer. Andrew Nocella: Well, I think the longer the price of fuel remains in this range and the longer consumers pay these prices and airlines get used to this revenue stream, the more likely it is to stick. That's the simple perspective on it. I do think that international is running really well above domestic, as I said a few minutes ago. So it will be interesting to see if that normalizes. But the environment right now, I think airlines want to return their cost of capital and particularly here in the United States, most don't and that is unsustainable in the long run. So something had to change. It's unfortunate it had to be an oil crisis, but here we are. Operator: Our next question will come from the line of Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: Just on the mileage plan changes, which seem like they were motivated to get more people to sign up. Can you speak to the changes you're seeing in credit card uptake since you've made those? And I wonder if you could give us your current thinking about the time line for a new comprehensive agreement. Andrew Nocella: Look, we've been working on the MileagePlus changes for well over a year. We thought we would engage in whatever activities we could control outside of a new contract. And the numbers, the uplift, the spend has been incredible. We're really, really happy with that. Let's -- it's really new. So hopefully, in a few quarters, I can still describe it as incredible. I expect I will be able to do so. But these are changes that I think are really motivating for our frequent flyers, and we're at a record penetration rate of cardholders that are premier members at United. So I'm really happy with it. I think the details regarding our deal with Chase are largely confidential, but I think you can Google the expiration date and know that it's not tomorrow, but it's not that far off. And we're working with Chase. They're a great partner and run a really sophisticated program, which is required by United given the size and magnitude of our co-brand portfolio. We look forward to what the future brings. Operator: Our next question will come from the line of Michael Goldie with BMO Capital Markets. Michael Goldie: By the end of the year, your aircraft count will be up some 8%. How do you think about the operating leverage of these assets in a recovery versus the decremental drag if flight activity remains constrained? And then related, how are you thinking about managing labor requirements as you take on this new equipment while managing capacity? Michael Leskinen: Michael, I'll take the fleet question, and I'll try to answer the labor question. In an elevated fuel environment, it only exacerbates the advantage of new fuel-efficient equipment versus older equipment. And so you can see in our fleet plan, we expect to continue to take delivery. We're really pleased with Boeing increasing production rates on the narrowbody. They've been a great partner to us. It is financially advantageous to take the new aircraft, both from a margin and a return on invested capital standpoint. So you will see that. Now at the other end of the spectrum, our older aircraft. There's an opportunity to fly those aircraft in a capital-efficient way by managing the maintenance at the end of the life to maximize the value we get out of those aircraft. You can bring the utilization down, have extra spares and have additional flexibility to fly the golden hour and to manage peaks. So I think we're in an enviable position from a fleet standpoint. You shouldn't see us change anything. When it comes to managing labor and labor efficiency around that fleet, we've got a very sophisticated team, and we make sure we are hired across all work groups at the appropriate level to make sure that we're managing -- while we invest in the customer, we're investing in the hard product, we're investing in our people. We need to make sure that we manage the workforce very efficiently. And I think we do that very, very well here at United. Operator: And we will now switch to the media portion of the call. [Operator Instructions] Our first question will come from the line of Leslie Josephs with CNBC. Leslie Josephs: Just on the Spirit potential bailout, I guess, at this point, it looks like the administration is moving towards that. One, what's your comment on that? And two, does that change any of your assumptions for capacity? Or do you think there's going to be more capacity than you expected out in the market just because there was a liquidation risk earlier this year or in recent weeks? And then second, just had a demand question, if there's any geography where you are seeing a pullback. I think you mentioned that international was a bit stronger than domestic, at least on yield. So curious if there's been any softness in any area. Scott Kirby: Leslie, I'll briefly -- I just said earlier in the call, you may not have been on, but it's a more fulsome answer, I suppose. But in brief on Spirit, well-run airlines are still solidly profitable even in this environment. As you can see from United, I don't think this crisis is anywhere near big enough to cause the need for an airline bail out. And my record, you got lots of quotes from me over the past several years going back into the last administration that the Spirit business model is fundamentally flawed and it's going to fail. And I feel bad for the people. A lot of them will land jobs of the airlines every time that we have a new hire flight class and I go talk to them, I ask where people are from, and there's a lot of Spirit hands that get raised in the room. But I don't think it's necessary -- I also don't think it's terribly relevant to a brand loyal airline one way or another like United. Andrew Nocella: On demand, look, putting the Middle East aside, we're seeing strength everywhere. But what I'll point out is we're really seeing strength in premium cabins going forward into Q2, particularly across the Pacific and across the Atlantic. We're teeing up to, I think, a really strong performance. And United had already gone into the summer season with a pretty conservative global long-haul capacity number, I think, actually down year-over-year. So I think we're actually really set up to produce some very good numbers, and we have very good business demand going into the Polaris cabins is my answer. Operator: And I will now turn the call back over to Kristina Edwards for closing comments. Kristina Munoz: Thanks, Regina. As always, we don't control the environment, but we do control how we perform in it. I appreciate your interest today, and we will see you next quarter. Operator: Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.
Operator: Good morning, and welcome to today's Amneal Pharmaceuticals Investor Call. I will now turn the call over to Amneal's Head of Investor Relations, Tony DiMeo. Anthony DiMeo: Good morning, and thank you for joining Amneal Pharmaceuticals investor call. This morning, we issued a press release announcing Amneal agrees to acquire Kashiv BioSciences and reporting preliminary Q1 results. The press release and presentation are available at amneal.com. Certain statements made on this call regarding matters that are not historical facts, including, but not limited to, management's outlook or predictions are forward-looking statements that are based solely on information that is now available to us. Please see the section entitled Cautionary Statements on Forward-Looking Statements for factors that may impact future performance. We also discuss non-GAAP measures. Information on use of these measures and reconciliations to GAAP are in the press release and presentation. On the call today are Chirag and Chintu Patel, Co-Founders and Co-CEOs; Tasos Konidaris, CFO; and Jason Daly, Chief Legal Officer. I will now hand the call over to Chirag. Chirag Patel: Thank you, Tony. Today is a defining moment for Amneal. This morning, we announced that Amneal agrees to acquire Kashiv BioSciences, creating a fully integrated global biosimilars leader and positioning Amneal to become the #1 affordable medicines company in the United States. We have long said this was our goal. And today, we're showing exactly how to get there. Turning to Slide 3. I'll begin the call by discussing the strategic fit of the acquisition and the remarkable biosimilar opportunity ahead. Chintu will share more about Kashiv, our combined capabilities and the robust biosimilar portfolio we will have. Tasos will discuss the transaction, our financial outlook and Amneal's very strong first quarter results, which we preannounced this morning. At a high level, Q1 marked another consecutive quarter of strong top and bottom line growth with revenue up 4%, adjusted EBITDA up 19% and EPS up 29%. Our strong start of the year, combined with growth of existing and new products, gives us confidence to raise our stand-alone guidance for 2026. This consistent performance is something investors have come to expect from Amneal and something we take great pride in. On Slide 4, we provide an executive summary of this combination. First, this is a highly strategic transaction that creates fully integrated global biosimilars leader. This unlocks direct access to more than $300 million of worldwide biologic loss of exclusivity over the next decade by bringing together Kashiv's deep R&D and manufacturing capabilities with our proven commercial scale. This combination builds on a longstanding partnership that significantly reduces execution risk. Second, this combination creates immediate scale in biosimilars. We expect multiple launches each year going forward, supported by a robust pipeline of more than 20 biosimilars programs. Third, this adds biosimilars as a key growth pillar within affordable medicines. The transaction further diversifies our business and extends our growth profile well into 2030s, while also creating a footprint to expand internationally over time. And fourth, the deal is structured to create value from day 1. With a balanced mix of upfront consideration, performance-based milestones, we expect significant financial synergies and we maintain a disciplined financial profile with a clear path to deleverage to below 3x by 2028. Let me turn it over to Chintu to share more about Kashiv. Chintu Patel: Thank you, Chirag. Good morning, everyone. Going to Slide 5. Today's acquisition announcement reflects our long-stated goal to be vertically integrated in biosimilars. I want to acknowledge the Amneal and Kashiv teams whose hard work made this possible. Kashiv is a biologics platform built over 12 years with more than $900 million invested, 600-plus employees and 4 R&D and manufacturing sites. It brings proven capabilities, a differentiated portfolio and a global operational footprint in U.S. and India, which provides reliable supply chain and cost efficiencies. Turning to Slide 6. Kashiv adds deep biosimilar development expertise and scaled U.S. and India manufacturing, enabling multiple programs to run in parallel with speed and cost efficiency. The platform can support 3 to 5 biosimilars developments annually and offers end-to-end biologics capabilities from clone development and protein characterization through clinical and regulatory execution. These expertise spans key modalities and the vast majority of biologics, including microbials, monoclonal antibodies, fusion proteins, bispecifics and cytokines. From a manufacturing perspective, drug substance capacity is expected to scale from 26,000 liter in 2026 to 75,000 liter by 2028. Combined with Amneal, this creates a fully integrated global biosimilar platform. I will hand it over to Tasos to share more on the transaction. Anastasios Konidaris: Good morning, and thank you, Chintu. Turning to the transaction overview on Slide 7. As you can see, we have purposely structured this deal to balance upfront value and success-based consideration to ensure alignment of interest. The upfront value of $750 million is a 50-50 mix of cash and equity. The equity portion translates to approximately $29 million of Amneal shares, representing 8% equity dilution. In addition to the upfront value, the deal terms include potential milestones of up to $350 million, contingent upon attaining certain regulatory approval milestones as well as potential royalties over 12 years contingent on achieving certain gross profit levels. Finally, Amneal will fund operations between signing and closing of the deal. We spent a lot of time structuring this transaction to ensure it aligns incentives with the large commercial opportunities ahead of us and doing it in the most balance sheet-friendly way. The transaction will be funded by cash on hand as well as some additional debt, and we expect the combined company's net debt leverage ratio at the end of 2026 to be 3.7x adjusted EBITDA, only a slight increase to the 3.5x adjusted EBITDA at the end of 2025. It is important to note that we expect to resume our deleveraging in 2027 and expect our net leverage ratio to be 3x below adjusted EBITDA -- net debt adjusted EBITDA by 2028. Finally, we expect this highly strategic transaction to close in a few months as we work through annual shareholder approval and customary closing conditions and regulatory approvals. Let me now share our expected combined financial growth profile on Slide 8. First, we're embarking on this acquisition from a position of strength. As you may have seen from our press release this morning, we announced record first quarter preliminary financial results, and we also raised our full year stand-alone guidance. Amneal's ability to deliver solid top line growth and double-digit adjusted EPS growth in a tumultuous macroeconomic environment is a testament to our strategic choices, strong execution and relevancy of our products. Consequently, on a combined basis, including Kashiv, our 2026 view remains largely unchanged aside from a small impact to cash flow related to near-term transaction and integration costs. Importantly, we're maintaining the higher adjusted EBITDA and EPS outlook, which we believe is a clear signal of the underlying momentum and confidence in the trajectory of our business. For 2027 and beyond, we expect the combined company to continue to grow both in terms of top and bottom line performance. And by 2030, we expect revenues to have grown by approximately $1.2 billion or 40% over 2026 and EPS up by approximately $0.70 or 70% over 2026. Finally, we expect substantial operating cash flow growth, which supports our continued deleveraging. While increased financial performance is important, I cannot emphasize enough the impact this acquisition is having in enhancing our diversification, providing us with access to large markets into 2030 and beyond, just like our GLP-1 deal with Pfizer. Let me now hand it back to Chirag. Chirag Patel: Thank you, Tasos. On Slide 9, this transaction fits squarely in our long-term strategy. It adds biosimilars as a key growth pillar and positions us higher on the value curve with greater scale and higher growth. So why now? In looking at Slide 10, it's because we are entering the golden era for biosimilars. The global market is expected to grow from about $40 billion today towards $200 billion by 2035, driven by the largest biologic loss of exclusivity in history over next decade. Advancing to Slide 11. Biosimilars represent the next major wave of affordable medicines, and we are at an inflection point. Physician adoption is accelerating, patient access is expanding and the U.S. regulatory advancements are lowering development time and cost. Today, about half of U.S. drug spend is concentrated in high-cost biologics. Furthermore, biopharma pipelines continue to shift towards biologics with most therapies in development being large molecules. Each biologic is a future biosimilar opportunity. With biosimilars, access expands and cost lowers, delivering meaningful value for patients and the health care system. In 2024, biosimilars were estimated to have saved the U.S. health care system $20 billion. There's a powerful opportunity to improve affordability and expand access because what is the point of innovation if it is not accessible. Turning to Slide 12. Despite this opportunity, there are only a handful of integrated global players. And today, there is no clear U.S. biosimilar leader. Most players have relied on partnerships to date. With Kashiv, we bring together development, manufacturing and commercialization, enabling faster execution, smarter and bigger portfolio choices and ability to capture full economics. We believe this level of vertical integration is a true competitive advantage. I'll pass it back to Chintu to share more on the combined capabilities and portfolio. Chintu Patel: Thank you. Chirag shared with you the strategy on why biosimilars. Let me share with you the clear reason why Amneal. Looking at Slide 13, since our founding, we have built a leading affordable medicine business. We are now #3 in U.S. retail generics with over 280 products across dosage forms with one of the most complex portfolio in the industry. This is a natural extension of our strategy, and we will execute with the same rigor and discipline in biosimilars. On Slide 14, we show how this combination brings together end-to-end biosimilar capabilities. Kashiv adds scientific expertise and in-house development from cell line through approval, along with scaled biologics manufacturing across a global footprint. Amneal brings a proven commercial engine, leveraging our leading affordable medicines business, long-standing customer relationships and the specialty branded infrastructure to drive market access and uptake. Built on a 10-year plus partnership with Kashiv, our capabilities are highly complementary and positions us to execute well. Next, let's look at Slide 15 and the combined portfolio. Together, we have a combined portfolio of 20-plus biosimilars that targets over $100 billion in U.S. opportunity and more globally. First, we expect to have 6 commercial biosimilars by 2027, including biosimilars for Avastin and Denosumab and a biosimilar for XOLAIR, which is pending approval. Second, we expect 6 or more additional approvals from our advanced pipeline by 2030. And third, in 2030 and beyond, we have a deep pipeline of future programs that extend our growth well into the next decade. Strategically, this is a balanced and durable portfolio mix. Many opportunities are biologics with less than 1 or 2 competitors expected and others are widely used products with large markets, creating a durable and scalable growth engine. On Slide 16, we have a clear line of sight to steady cadence of near-term catalysts from Kashiv. First, lanreotide is a high-value partner asset expected to be approved in quarter 3. Second, biosimilar XOLAIR follows with anticipated approval at year-end, which is another Kashiv partnered asset that we now capture full value for. After that, we see a pipeline of additional approvals in 2028 and 2029, including biosimilars for ORENCIA and CIMZIA, each representing meaningful future growth drivers. Let me now pass it back to Tasos. Anastasios Konidaris: Thank you, Chintu. I'm very pleased to share with you our exceptional first quarter preliminary results, our confidence in the strength of our business, which translates to increasing our full year guidance on a stand-alone basis. And finally, our proposed acquisition of Kashiv BioSciences, which positions Amneal as a leader in the large global biosimilars market. Let me first start with our first quarter preliminary financial results, which were characterized by robust top line growth, exceptional bottom line growth and continuing deleveraging. Moving to Slide 22 in the appendix. Total net revenues in the first quarter of $723 million grew 4%. Q1 Affordable Medicines revenue of $423 million grew 2%, driven by strong performance of key women's health and ADHD products due to high market demand and increased Amneal supply. These high-margin products drove Q1 segment gross margin to 47.3%, up 320 basis points versus Q1 of 2025. We continue to expect Affordable Medicines revenue growth of 7% to 8% this year, driven by the strength of new product launches and strong execution by our teams. Q1 Specialty revenue of $133 million grew 23%. First quarter CREXONT revenue of $21 million reflects continued strong market uptake. Earlier this week, we shared with you our additional Phase IV data, which showed CREXONT as having more than 3 hours good downtime versus RYTARY, reflecting the CREXONT's compelling clinical profile. In addition, we're also delighted with the strong launch trajectory of Brekiya for cluster headaches. Revenue in Q1 2026 was $4.6 million compared to $1.6 million in Q4 2025. This rapid adoption as well as feedback from patients and prescribers confirms the substantial market need and long-term revenue potential for Brekiya. Turning over to AvKARE, where Q1 revenues of $166 million declined by $6 million or 4% as strong growth in our government channel was offset by expected decline in the low-margin distribution channel. As you recall, this is part of our strategy to enhance profitability, and we're happy to report that AvKARE's gross margin in the quarter grew by 690 basis points versus first quarter last year. Moving to Slide 21. From a bottom line perspective, the strong growth of adjusted gross margins by approximately 500 basis points and thoughtful expense management translated to Q1 2026 adjusted EBITDA of $202 million, up 19% and Q1 adjusted EPS of $0.27, up 29%. Finally, our strong financial performance and discipline continue to reduce leverage and our net leverage ratio in March of 2026 declined to 3.5x adjusted EBITDA compared to 3.9x adjusted EBITDA in March of 2025. So in summary, and before I turn to our acquisition of Kashiv BioSciences, our business fundamentals, financial outlook and balance sheet have never been stronger, which positions us well to consider such a strategic deal. Turning back to the acquisition for a moment, as we outlined on Slide 17, this is a highly synergistic transaction, adding significant value to our commercial and operating business model and providing substantial financial benefits over the course of time. From an integration perspective, we're combining Kashiv's R&D and manufacturing expertise with Amneal's commercial engine. We're strengthening market access, expanding in hospitals and accelerating international growth. With our shared global platform, we accelerate time to market at lower cost. From a financial standpoint, we expect $400 million to $500 million in cumulative financial synergies over time. There are 2 key elements to this. First, we're now capturing full economics from partnered assets by eliminating milestones and profit-sharing obligations that existed as part of prior licensing deals. Second, we also expect to realize substantial tax benefits as well as incentives from the local Indian authorities. Importantly, this deal goes beyond traditional cost synergies. It creates strategic scale and durable value while also avoiding the significant time and capital needed to build a biosimilars platform organically. Let me now hand it back over to Chirag. Chirag Patel: Thank you, Tasos. On Slide 18, since 2019, we have built a stronger and more diversified Amneal, and delivered consistent top and bottom line growth each year. We have done this by executing well across our business. We launched 20 to 30 products annually, expanded especially with CREXONT and Brekiya, entered biosimilars with our first products, established a novel GLP-1 collaboration with Pfizer, expanded internationally and acquired and more than doubled the AvKARE business. That said, the opportunity ahead remains significantly greater than what we have achieved to date. We envision Amneal 2030 as a much larger, more diversified biopharmaceutical company with more than 400 retail and injectable medicines, mostly complex and differentiated, a large pipeline of 20-plus biosimilars and multiple specialty branded products advancing the standard of care, while Amneal fills hundreds of millions of U.S. prescriptions each year. In summary, the key takeaway from today's call are on Slide 19. Today marks a pivotal moment for Amneal, establishing a fully integrated global biosimilars leader, strengthening our diversified portfolio and extending our durable growth profile into 2030s. Our strategy remains clear to become America's #1 affordable medicines company and a leading global provider of essential medicines because innovation only matters when it reaches the patients. With that, thank you, and we will open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Matt Dellatorre with Goldman Sachs. Matthew Dellatorre: Congrats on the deal. I know this was a long time coming, so very exciting. Maybe 2 questions, if I may. First, just on the commercial strategy for the new expanded portfolio. I see you have both the mega blockbusters like OPDIVO and KEYTRUDA and also many sub-$5 billion assets in there. And then also, it's a healthy mix of pharmacy benefit and medical benefit drugs. So could you maybe just speak a bit on how you approach portfolio construction and what type of assets we should expect over time as you all disclose more and the pipeline expands? And then I realize you're primarily focused on the U.S. market, but can you just remind us how you are thinking about the international biosimilars business as well? And then maybe stepping back, a question for Chirag. When you look at this new kind of combined company you all have now, what would you highlight as maybe the 2 to 3 specific things that you're most excited about and which you think could drive upside to this long-term guidance that you're giving today? Chirag Patel: Thank you, Matt. So let me address the portfolio mix first, the Kashiv pipeline. So markets are shifting more towards PBM, as we know. We predict 70%, 75% market to be driven by private label, PBMs, specialty pharmacies and 25% or so percentages will be driven by buy and build. So it's a well-thought-out portfolio. If you look at the disclosed product, there are certain undisclosed product that just like what we did with small molecule, we want to be the big player, relevant player and mostly focused on niche products. So how do we achieve that? That is why we have some of the big products like KEYTRUDA, OPDIVO, DUPIXENT, but each has its own reason why we have selected. Just to give you an example, DUPIXENT requires such a large biologics capacity, we're building it. And at the right time, it will be ready to deliver. Then we have niche products, which we expect 2 to 3 competitors. So if you look at overall in the next 10 years, our portfolio would be probably 70% would be niche, about 30% would be the large molecule that we must have to offer a complete package to the customers. So that is how the portfolio makes very well and obviously, the IP driven, a lot of strategy work goes behind it for the last 10 years, what Kashiv has done, and we love the portfolio. And execution is going to be the key, which Kashiv has executed over the last 25 years. We will bring the same rigor to execute this big platform on the biologics. Your second question on how do I think about U.S. commercialize, I answered most of the products. We will be marketing Amneal directly. We already have a long-standing relationship with big buyers such as CVS, Express Scripts, Cigna, Optum, UnitedHealth. These three are about 80% of the market. We also enjoy a great relationship with smaller customers. So we're well set to commercialize products in the United States with a broad portfolio of small molecule. Don't forget that plays a role as well. It's the same people, same relationship, same trust that we have established. If you ask the Red Oak of the world or Walgreens of the world, they would rank Amneal as the most strategic, the best platform, best values, the most complicated products that we come up with and create a massive patient access at affordable prices. We intend to do the same with biosimilars. International, our strategy has been clear. India, we have started marketing on our own, mostly the unmet need on the branded side and biosimilars. Rest of the world, we enjoy great partnership, as Amneal, Kashiv has also built great partnership with companies as well, which will be disclosed in the near future. So I'm a big believer in a partnership model. So you can -- there is a biosimilar void. There's 118 biosimilars. How do we deliver as an industry on all of that. So partnership will make great sense, and we don't intend to have boots on grounds in Europe or South America or Canada, that's not where we are focused on. We are solely focused on delivering biosimilars at scale, staying in the molecule for a long time, be a champion in America as we have a stated, goal is America's #1 affordable medicines company, and we are on our way to get there, maybe 2030, '32, we have multi-decade strategy. So we are completely focused and internationally, great partners. We look forward to work with them. New -- the last one, I'm sorry, is a long answer, but I'm so excited. The new combined company, what is the most exciting thing. So let's go back. I mean, our core business is performing at a full throttle, it -- the women's health, the hormonal patches demand has gone up, the inhalation products demand, ophthalmic products demand, they're all at a high level. And also the small molecules LOEs are going to double in the next 5 years than it had for the last 5 years. So tremendous growth opportunity in core business by itself. Second, our specialty brands, very exciting. You saw the CREXONT data, amazing. I mean we're getting words from our partners in Europe and India that this would become a first-line therapy because they've been using 40 years old technology platform. The product was made 40 years ago, IR product, Sinemet, which gives you off time every 2 hours, 3 hours, you think of a life of a Parkinson's patient. CREXONT is the best therapy out there for maintaining the daily lives. So very excited about CREXONT and seeing a great outcome on Brekiya. It's a much needed product, useful product for cluster headache patients and severe migraine patients. The third, GLP-1 partnership with Pfizer. As we all know, GLP market is going to keep growing. It's going to become life setting. So tremendous capacity would be -- and capability would be required. This is what we are building with Metsera, then it's with Pfizer. We enjoy a great relationship with Pfizer, a win-win situation, global markets, global demand. We have 18 countries, emerging countries, including India, we've been given the rights to market. Pfizer's branded products, which came from Metsera portfolio. That's a completely unique strategy than fighting over the generics at such a low prices that's been out there in -- just started in India and rest of the world. And we believe this is consumer products, everybody would want less side effect, longer duration, which potentially Pfizer products delivers. And the last one, as we've been talking on this call, is all about biosimilars, huge growth. We've been saying that this is the inflection point. The providers are excited. The 80% now turns into biosimilars. The insurance company, the coverage is becoming better and better. CMS has keep pushing for it. FDA has reduced the regulatory requirements. So this is the perfect time that we integrate this platform and deliver 3 to 5 biosimilars develop and file and commercialize for many years to come. And it also opens up the opportunity for bispecifics, right, the fusion proteins and in the future, ADC as well. So if you -- this is why it's so important for Amneal to now have a complete platform, small molecule platform and large molecule platform. Long answer, but I hope it was helpful, Matt. Operator: Your next question comes from the line of Les Sulewski with Truist Securities. Leszek Sulewski: Congrats on the transaction. So you noted the capacity scaling from 26,000 liters to 75,000 liters. How does this compare to some of your peers? And what's the magnitude of dollar spend to get there? And separately, would you say this is rightsized for that business moving forward? And do you see a further need for capacity expansion beyond the 75,000 liters? And then second, on the gross margin profile, maybe just walk us through the puts and takes around 1Q and how does the remainder of this year look? And then over the long run, how should we think about the margin profile now that the biosimilars business will be integrated? Chirag Patel: Great. Chintu and I will take the first one and pass it to Tasos for the second one. So Kashiv has built the platform manufacturing sites over the last several years, which is -- which coincides with the product approvals timing. So XOLAIR being first, we will be in manufacturing Piscataway, New Jersey and also the backup site is India as well for global supply. So all key molecules will have 2 sites, U.S., which, as you know, we are a U.S. champion. We always believe in U.S. manufacturing. So we keep expanding U.S. manufacturing, and we only have a site in Chicago with Kashiv acquisition, which is for E. coli. So the current capacity is sufficient for first few launches. And then over '27, '28, '29, we're expanding to 75,000 liter, which is, again, matches with the pipeline execution and pipeline approval and launch timing. That is how we see the capacity expansion. And it will be a good problem to have from 2030, '31 to keep expanding. Once we have the infrastructure in the same site, we can expand another -- keep expanding 25,000 liter -- another 25,000 liters as we need, we are always smart about this. We'll keep expanding the capacity. So we never would have issue with capacity. I'll pass it to Chintu to give more lights to this. Chintu Patel: So we have perfectly sized the capacity, and it's not only about how many thousands of liters, it's also about how you design and the number of bioreactors because you need flexibility in your manufacturing and for the execution of the filing products. So I think that's a key differentiator that how we have thought through that on a long-term basis to cater to our goals of filing a few biosimilars every year and the same time also commercially to make sure that we have the excess capacity. And we are -- we have diversified our supply chain from U.S. and India perspective also. So if it's a cost sensitive product, we will have enough capacity in India and also in U.S. So I think we are positioned well to cater to all the 20 products that we have and we have also considered this as a global capacity. So it's not only U.S. specially, we are playing globally in this market. So we are pretty comfortable with the 20 products having 75,000 liters. It's all about the design and how we have thought through that. And we have taken under consideration good market share. So that's also there. About the spend, it's about $30 million, $50 million a year, we'll be spending for next 2, 3 years on the CapEx to get to the 75,000 liter. Anastasios Konidaris: And Les, this is Tasos. Around gross margin. So I'll just speak in annual terms. So if you think about our gross margin in 2025 full year total company, we were at 42.9%. So let's call it 43%, and my gut feel is I think we will finish 2026 at about 45%. So at least at 200 -- we're aiming at a 200 basis points expansion. And that's going to come -- that's going to be driven, a, by all the business units. So our affordable medicines margins will continue to expand as we have continued to evolve the pipeline to more and more complex products with higher price points, right? You've been hearing this from us for the last 6 years now, number one. Number two is we talked about our conscious decision to increase the gross margins in our AvKARE business, which has been -- that acquisition has been a spectacular success and by focusing more on the government, at the expense of the low-margin distribution business. So that continues to pay dividends. And then finally, in our specialty business, which already has low 80s, 81%, 82% gross margins kind of continue to drive that adoption. So those have been the drivers why our gross margin this year should be at about 45% compared to about 43% last year. As you think over the course of time, margins have more room to grow, more room to grow beyond the 45%. If you were here about 5, 6 years ago, you will have heard Chirag and Chintu talking about having gross margins in the old days, almost 50%. So this is where we are driving directionally over the next 10 years. So it takes some time to get there, but we see another -- over the next 3 to 4 years, we're looking at the 45% gross margin to be closer to, call it, 47% gross margin as the portfolio continues to be driven by biosimilars, which have a higher price point than the rest of the business. Operator: Your next question comes from the line of David Amsellem with Piper Sandler. David Amsellem: So I have a few. First, can you just comment and elaborate on the insider ownership of Kashiv? That's number one. Number two is why provide long-term revenue EBITDA targets, not just '27, but also out to 2030? What was the rationale there? And just remind us is the EBITDA margin expansion that you're factoring in between 2027 and 2030, is that -- how much of that is a function of just the elimination of the shared economics on biosims? And then the last question is how much of your revenue base by 2030 do you expect will be from biosims? Anastasios Konidaris: David, I'll take question #2 and #3. If you can just -- can you just repeat question number one for a second, if you don't mind? David Amsellem: Yes, the insider ownership of Kashiv. Anastasios Konidaris: Insider ownership of Kashiv. Okay. Got it. Okay. So well, I'll take the first one. I'll start with the first one. So insider ownership of Kashiv, you can see it essentially in our proxy, which has been owned by the Amneal Group, which has been also a big shareholders at Amneal since the beginning of time. So ownership includes of the Amneal Group, includes both our CEOs who've always been transparent of that as well as people who have been investors in Kashiv and -- investors of Kashiv and also at Amneal for a very long time, and key contributors to what we have built now, which is a great company. So that kind of thing addresses question #1, hopefully. Number two is no CFO that I know likes to provide long-term guidance because it's a Catch-22 as lot of things can happen over the course of time. Having said that, and you got to -- I think you know us long enough to know, we take our long-term guide and financial commitments incredibly, incredibly seriously. So for us to provide long-term guidance, we had to feel pretty confident on our ability to deliver on those commitments, number one. Number two, I think it speaks to the tremendous amount of diligence we have done in this acquisition, which probably expand at least a year's worth of work by tens of people in our R&D group, in our legal group, in our business development group, in our financial group and the commercial group to convince me and convince us as a management team to lay those numbers out for our investors. The final thing is, I would say, why provide long-term guide, to us, it provides a focal point by which we focus 8,000 employees at Amneal and now our brand-new colleagues at Kashiv. So everyone, all of our 8,000-plus employees are singularly focused to a set of financial metrics, so it eliminates ambiguity. So this is what's behind why provide those targets. And also you got to assume we're being prudently conservative, right? No management team, at least that I know, wants to put out numbers which they are at risk of missing. So that's kind of how we thought about and why we provide those long-term targets. Now in terms of revenue and EBITDA expansion, it's a combination. It's a combination of both. I don't have the exact percentages, right? A lot of how much of that is a new acquisition versus how much of that is the existing business. As I mentioned before, we have an existing business. You look at our affordable medicines, every part of our business is growing. So we are doing this deal, not because we need to, because we think this is the right deal to do at the right time with the right risk parameters to drive growth for this business in 2030 and beyond. So you look at our affordable business, and that business is growing this year. We expect it to grow 7% to 8%. That growth will continue, and you can model this and biosimilars will add to that, right? And then in terms of an EBITDA basis, Q1 EBITDA was up 19%, right? Last year's EBITDA growth was 10%, this year. So the base business that is growing at least adjusted EBITDA 10%. We expect this to continue and add on -- the additional add-on we expect to come on biosimilars. So that's how we think of it. It is a highly derisked long-term forecast that is based on the growth of the existing business plus the acquisition and it's conservative in nature. So hopefully, that addressed some of your questions. David Amsellem: Yes. How much of your business do you think is going to be biosimilars? Like what's the revenue base going to be in 2030... Anastasios Konidaris: So... David Amsellem: Footprint now, yes. Anastasios Konidaris: Yes. So if you think about 2030, for example, the guidance we're providing is between $4.3 billion and $4.5 billion, probably about $1 billion -- a little over $1 billion, $1 billion to $1.3 billion, that's going to be biosimilars. Operator: Your next question comes from the line of Chris Schott with JPMorgan. Christopher Schott: Just 2 for me. Maybe just first, a bigger picture question on biosimilars. Can you just talk a little bit more about how you see the competitive landscape evolving as we approach this very large cycle of biologic patent expirations? I know you mentioned there's no clear leader in the space, but do you anticipate there's going to be a more meaningful consolidation of share and there's going to just be a handful of players? Or will this remain a more fragmented market as a whole? And the second one for me is just on a specific product on lanreotide, the Somatuline Depot. Can you just talk a little bit about that opportunity as we think about 2026 in terms of market dynamics and competitive landscape and just how meaningful of a product that could represent for Amneal? Chirag Patel: Yes. Thank you, Chris. Competitive landscape on biosimilars, as we know, the vertically integrated players are taking more market share. Amgen, obviously, one brand company that is still investing in biosimilars. Rest of the brand companies have moved out of favor for biosimilars, as you know, they are more obviously back to the innovative medicines. So that leaves Sandoz obviously clear global leader at this point and a great company. Celltrion is coming in, is a -- from -- a South Korean company, which is expanding in the United States and globally and building a large vertically integrated platform. Samsung is doing both out-licensing mainly and concentrating also different division on biosimilars. India's Biocon has been in the biologics for over 40 years. So they're already in the United States market. And then Kabi with mAbxience ownership and their own, we see them as a vertically integrated player. So the way it would expand is -- this is why it's an inflection point that we, as Amneal got the platform or getting a platform with the manufacturing capacity, with the pipeline that we execute over the next 5 to 7 years. It requires a lot of manufacturing infrastructure, a lot of R&D infrastructure, number of years, even with FDA's Phase III gone, still will be 5-plus years from the timing of starting the clone development all the way to the filing and approval and then the IP negotiation settlement. All those things would take 5, 7 years. So -- and you can't see like in a small molecule, you have 50 companies jumping in from India and China. We don't see that. We see a few companies will come from India, a few maybe from China, but they all have to build these U.S.-oriented infrastructure or regulated markets, which is a different ball game than you've been producing biologics for the emerging markets, because the requirements of FDAs are much at higher standards than those other countries. And Amneal builds everything first with U.S. in mind. So yes, there will be more competitors. The large molecules like KEYTRUDA, OPDIVO, you will see 5 to 10 competitors. Some would be partnered, and niche, this is why we, Kashiv and Amneal will be focused on is in niche molecules where we will see 2 to 3 competitors. So that's how we see the competitive landscape, maybe 8 to 10 players. There are 118 molecules to go after. Big biosimilar void is there. So that is a large, large number of products to work on and not everybody can do every product. As we said, our capacity capability is 3 to 5 per year. Chintu, do you want to add anything? Chintu Patel: I mean there's a lot of high barriers of entry, and science, it's much more complicated than the small molecules. It will cost close to $50 million to $75 million per product. So there are lots of barriers. So I think it still will remain not that competitive plus as Chirag stated, it takes 5, 7 years for a new player to build this platform and have the manufacturing and development expertise and capacity. At Kashiv, we have a fantastic group of 600-plus people. And that experience, I think, gives us the confidence of this 3 to 5 biosimilar. So competition, as Chirag stated, would be these 4, 5 players might be vertically integrated, but still is largely a space for somebody to be a leader and the Amneal will be a leader by 2030. Chirag Patel: And lanreotide, Chris, is -- the market dynamics changed. There was -- Cipla was in the market, had some contract manufacturing issues, so they are no longer in the market. It leaves it only with brand and the product is in high demand. We're getting calls from everybody. So we have requested FDA to expedite the approval and they're working on it, and we could be the first, again, the -- I'm sorry, it's a small molecule, generic lanreotide in the market, and we will supply and create another access for the hospitals and clinics as soon as possible. Chintu Patel: And this is also a global. So we have a pending approval in Europe also, and it's a highly complex product. It's a drug device combination peptide. So we are looking forward to this product and its opportunity. Operator: Your next question comes from the line of Glen Santangelo with Barclays. Glen Santangelo: Just a couple for me. Chirag, I mean, I think everyone would generally agree strategically that a deal like this kind of makes sense. But I'm kind of curious to get your perspective on the operational complexities of sort of what's involved here. Because if you look at the -- we were just talking to Chris' question about the evolution of the competitive landscape. A number of the other players have decided to go more in the partnership licensing route versus the vertical integration route. And maybe that's a function of how complicated or operationally complex it is. And so I'm kind of curious if you worry at all about increasing the risk profile of the company in that way. And then maybe secondarily, I wanted to talk about the 2027 EBITDA guidance that you put out today. And I'm guessing you kind of realize that, that number is a decent amount below what the Street was already forecasting for fiscal '27 and kind of implies some deceleration in the EBITDA growth rate in '27 versus '26. And just sort of given the $400 million to $500 million in synergies we sort of talked about, you had a couple of partnership deals that seem like they're on track and maybe you'll have full ownership of them by the time they come to fruition. I'm just trying to reconcile all the pieces that you've laid out here as it relates to how soon we may see those synergistic benefits in '27 and beyond. Chirag Patel: Thank you, Glen. So let me take the first one. I'll pass it to Tasos for the second question. So the first one, partnering versus full economics or vertically means vertically integrated. Yes, it is complex. This is why it took 10 years for Kashiv to build this platform with significant investment. So this is why we believe it be competitive light compared to obviously the small molecule. And why you can take the large few molecules, right, who could stay in the market, who could take the leadership position and stay all the way until the molecule needs to be delivered and produced. So if we have -- first of all, it gives you full economics. So your margin expands, you have full freedom of selecting products and it's not easy to in-license 20 products. We have 20 products biosimilar basket, and we're going to add more in coming years. So that freedom, the full economics in the United States market, it makes sense to be completely vertically integrated. As I stated before, Glen, that it would -- the partnering would -- is great. And in international market, we look to partner and Kashiv already has partnership with the key players globally who are well set globally. So I see the combined model, but mostly the companies that would be successful if you look back in 2030 or '35 are going to be all vertically integrated. They will not be -- just like in small molecule, there are not any companies that have survived being just the marketing companies. We got to do a lot more than that because the real, real complications is the R&D, is the IP, is manufacturing. I think the PBMs and private labels are making the marketing and sales easier, which is how it should be. I hope that answers the first question. You can -- may have a follow-up, but let me pass it to Tasos. Anastasios Konidaris: Glen, I love financial modeling questions. So let's kind of put things in perspective. So the first point is guidance for 2027 on EBITDA of $820 million is kind of substantially below where the Street is. I'm not sure where the Street is, number one, I think that they are about $835 million. So us providing guidance of $820 million plus compared to $835 million, I don't think it's substantially less than that, kind of point number one. But also, obviously, we don't run our business to kind of satisfy anybody else other than us and our shareholders, kind of point number one. Point number two, this kind of notion of kind of deceleration. This year EBITDA, right, the midpoint is at $755 million is about 10% growth versus prior year. Even if you take the low end of what we gave you for next year of $820 million, that's about 9%. So 9% versus 10%, I don't think it's a big deceleration, number two. And number three, we feel great about growing EBITDA 9%, 10%, even absorbing a strategic deal, which is going to have some dilution next year until it becomes accretive in 2028. So we feel great about being able to give our shareholders a view about next year of adjusted EBITDA up of about at least 9%, number one. And at the same time, fund incremental R&D, right, to maximize the opportunity here of $300 billion plus of branded products going generic over the course of time. That's kind of how we thought of it, and try to give you guidance for 2027, that's a long time away. So I think it speaks to our confidence about telling you what we think we can -- the minimum we can deliver next year. So hopefully, that gives you some perspective. Operator: Your next question comes from the line of Ash Verma with UBS. Unknown Analyst: This is [indiscernible] from UBS. I'm just asking questions on behalf of Ash. So I have 2. The first one, and I apologize, this has been discussed before. So the first one, how do you think about the lanreotide market opportunity? It seems like there's just limited competition in this molecule. So I just wonder like how confident are you about the approval time line in 3Q? And what will be the gating items for the launch? And then my second question on gross margin. So I think like it was discussed before the annual -- like in annual term, it's about like 45%, but in 1Q, I think this quarter it is about 48%. Does that mean we're going to see some gross margin normalization later this year? If you can give some clarification on that, that would be helpful. Chirag Patel: Thank you, [indiscernible] The lanreotide, the gating item is only the FDA approval. We're ready to supply, and it's a great opportunity for Amneal. I'll pass it to Tasos on the gross margin. Anastasios Konidaris: Yes. Our Q1 gross margin follows for a while. It was just a record quarter, which was overall up 510 basis points versus Q1 of last year. So it's just to kind of be able the sustainability of 510 basis points is kind of hard to keep repeating quarter after quarter. So this is why I think we're being -- we have a little bit more modest gross margin expansion for the rest of the year. And this is why, though -- even though with a little, call it, a little bit more modest growth the rest of the year, we still feel confident that overall company gross margins this year in 2026 should be closer to 45%, 45%, maybe a little better compared to about 43% last year. Hopefully, that's helpful. Operator: There are no further questions at this time. I will now turn the call back to Chirag Patel for closing remarks. Chirag Patel: Well, thank you, everyone, and have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to SEI First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Brad Burke. You may begin. Bradley Burke: Thank you, and welcome, everyone, to SEI's First Quarter 2026 Earnings Call. We appreciate you joining us today. On the call, we have Ryan Hicke, SEI's Chief Executive Officer; Sean Denham, our Chief Financial and Chief Operating Officer; and members of our executive management team, including Michael Lane, Phil McCabe, Mike Peterson, Sneha Shah, Sanjay Sharma and Amy Sliwinski. Before we begin, I'd like to point out that our earnings press release and the presentation accompanying today's call can be found under the Investor Relations section of our website at seic.com. This call is being webcast live, and a replay will be available on the Events and Webcast page of our website. With that, I'll now turn the call over to Ryan. Ryan? Ryan Hicke: Thank you, Brad, and good afternoon, everyone. This was a defining quarter for SEI. Q1 was not simply a strong start to the year. We believe it is emphatic evidence that the strategic and operating changes we have made set a new standard for what SEI is capable of delivering on a sustained basis. Q1 adjusted EPS totaled $1.44. That's more than a 20% increase from last year, driven by both top line growth and margin expansion. We also delivered $67 million of net sales events in Q1, including $57 million of recurring revenue and $10 million of professional services. This is an outstanding outcome. It exceeds our prior quarterly record by more than 40%. The scale and quality of these sales events reflect demonstrable progress in our core growth engines rather than a single market tailwind or discrete event. This distinction matters. It gives us confidence that what we delivered in Q1 is not an anomaly. During our Investor Day last fall, we outlined 5 strategic pillars that guide how we run the company, how we allocate capital and how we show up for clients. Q1 was decisive validation of that strategy and our ability to consistently execute against it. Let me walk through those pillars, how they showed up in Q1 and why do we feel good about the trajectory ahead. First, we invest in proven great engines, most notably alternative investment managers and professional services. In IMS, demand for outsourcing remains strong, particularly among larger and more complex alternative managers. First quarter sales events reflect the initial phase of multiple enterprise-level mandates with first-time outsourcers, the "big deals" we've been talking about. These relationships are designed to expand over time as the clients deepen their partnership with SEI and as their fundraising and new product launches progress. These relationships also have the potential to grow into some of SEI's largest overall clients. The momentum in this business is incredible, giving us confidence that what we saw in Q1 is a starting point, not an end point. Professional services also continues to support growth. Clients are engaging SEI earlier and more strategically across a broader set of needs, which is improving win rates and increasing durability of relationships as evidenced by the previously announced Huntington Bank win. Second, reimagining asset management. I think we're actually now past the reimagining stage, and we are executing against our evolve strategy at pace. The strategy is showing meaningful results. Q1 represented our best quarter in several years with the improvement in flows that built through 2025 continuing into 2026. We saw progress across both the RIA and IBD channels where our strategy of delivering a broader SEI ecosystem to more scaled advisers is showing results. Engagement is improving every day, particularly with larger firms that value integrated solutions. Stratos integration is also well underway with multiple work streams focused on scalable infrastructure and building a centralized investment hub. We are encouraged by strong inbound interest from advisers seeking a long-term capital partner like Stratos. And in our institutional business, we remain on track towards net positive flows later this year while maintaining discipline around client fit and flow quality. Third is enterprise excellence. The partnership we recently announced with IBM reinforces and accelerates the direction we are taking around infrastructure modernization, automation and responsible AI deployment. As I have said in the past several earnings calls, we are applying AI and automation where it creates real impact, reduces friction, lowering unit costs and expanding capabilities and services for clients and employees. These initiatives are translating into margin expansion with Q1 delivering higher margins at the consolidated level. Enterprise excellence is about running the company smarter, not just tighter and with increased accountability. Our margin expansion reflects real progress against that priority. We view AI as a force multiplier of time, and our execution of these programs will create additional capacity and opportunity for our employee base. Fourth, we continue to focus on boosting international returns. We are taking a more disciplined approach to how we operate outside the U.S. with clear accountability for growth, margins and capital deployment. In Q1, we began to see traction across both Professional Services and Asset Management with more than 1/3 of Professional Services sales events generated internationally this quarter. We also continue to build out our Singapore presence as part of our global expansion priority. This remains an important opportunity as we apply a more integrated enterprise-wide operating model across our international platform. Fifth is strategic capital allocation. In Q1, we repurchased over $200 million of SEI stock. Given the strength of our operating performance and long-term growth outlook, we believe our shares represent an attractive use of capital at current levels. Share repurchases will remain a meaningful lever within our capital allocation strategy, especially when market pricing does not, in our view, reflect the trajectory of our business. Beyond share repurchases, we also activated several investments targeted for later in the year, which are reflected in Q1 results. This was also our first full quarter with Stratos, which is deepening SEI's participation in the advice value chain and strengthening the overall reach and relevance of our platforms. We remain committed to disciplined capital deployment that balances reinvestment, M&A and consistent returns of capital to shareholders. Before turning the call over to Sean, a brief word on AI. We believe AI strengthens our value proposition and supports continued margin expansion and growth. It is a clear positive and accelerant for SEI. Our combination of regulated infrastructure, proprietary data, mission-critical processes and talent positions us well to apply AI in ways that can improve client outcomes and productivity. We have been proactive, investing over the past 2 years in AI native capabilities, automation and AI-enabled expansions and extensions across our platforms. In parallel, we are selectively experimenting with more disruptive ideas that have the potentially to substantially expand our addressable markets that we can serve. Importantly, clients are increasingly turning to SEI as a partner to help them think through responsible, scalable AI adoption in complex regulated environments. Stepping back, we believe Q1 represents a statement quarter for SEI. The quarter reinforces our confidence in the scalability of our business and the demand for our capabilities. But finally, I want to thank SEI employees for an outstanding quarter. The results reflect their focus, execution and daily and unwavering commitment to our clients. With that, I'll turn the call over to Sean. Sean Denham: Thank you, Ryan. I'll begin on Slide 4 and to reiterate Ryan's comments, SEI delivered an outstanding first quarter. On a GAAP basis, EPS increased by 20% and operating profit increased 21% versus Q1 of last year. On an adjusted basis, EPS increased 21% year-over-year. The sequential decline in adjusted EPS from Q4 was expected and reflects items we discussed last quarter. Most notably, a higher effective tax rate and lower investment income and performance fees from LSV, which tend to be seasonal in nature. In total, our tax rate, LSV and other below-the-line items drove a combined $0.15 headwind to EPS relative to Q4 last year. Adjusted operating income, which excludes these items, increased by 6% from the fourth quarter. This quarter also marks our first period reporting adjusted financial metrics. We believe this enhanced disclosure aligns our reporting more closely with market practice and provides investors with a more effective basis for compares. For additional context, we have also included historical quarterly disclosures on an adjusted basis at the end of our press release. Turning to Slide 5. SEI's adjusted operating profit increased 6% sequentially and by 24% year-over-year. Performance was strong across the enterprise. Private Banking delivered a notable increase in revenue and more impactfully, operating margins. This reflects continued execution in deeper client engagement as banks increasingly partner with SEI earlier and across a broader set of strategic and operational needs, not just investment processing. For example, we are now playing a more active role in client implementations, resulting in less lag time between contract wins and revenue recognition. In addition, we were pleased to announce the Huntington win during the quarter, which underscores our relevance and credibility in the regional community bank market, especially at the higher end of that segment. Our Advisors segment had a healthy start to the year, but the first full quarter of our Stratos partnership reflected in the Advisors segment makes comparison with prior periods challenging. Given our 57.5% ownership, Stratos is fully consolidated in our results. Stratos contributed nearly $20 million of revenue and $3 million of operating profit to advisers in Q1 before considering noncontrolling interests. Excluding depreciation and amortization, primarily acquired intangible amortization, Stratos generated $8 million of EBITDA at the consolidated level. Several planned transactions also closed during the quarter, so the underlying run rate contribution is modestly higher than reflected in Q1 results. Excluding the impact of Stratos, all of SEI's businesses delivered year-over-year revenue growth, operating profit growth and margin expansion. This performance reflects execution against the strategic priorities Ryan outlined earlier, so I will not reiterate those themes here. Turning to Slide 6. Consolidated operating margins were very strong, continuing the improvement trend we've seen over the past several years. At a segment level, the improvement in Private Banking margins, both year-over-year and sequentially reflects continued execution against the 5-Point Plan Sanjay discussed during our Investor Day. Key contributors include Professional Services growth, increased adoption of our Asset Management offerings internationally and operating leverage against deeper engagement with our clients. For our IMS business, the modest sequential decline in margins versus Q4 was expected and primarily driven by the absence of the revenue accrual true-up we referenced last quarter, which accounted for approximately 150 basis points of the decline. The balance reflects onboarding costs associated with the substantial sales events delivered in the quarter. Advisors margins declined due to the inclusion of Stratos, which was weighed down by intangible amortization, as I just discussed. Absent the impact of Stratos, Advisors margins increased approximately 50 basis points relative to Q1 last year. At the consolidated level, adjusted operating profit margins improved versus both the prior quarter and the prior year on both a GAAP and adjusted basis. Slide 7 summarizes our sales events for the quarter. We debated opening the presentation with this slide, but decided it was best to remain consistent. Sales activity in the quarter was exceptional. Investment Manager Services led the business with more than $50 million of net sales events driven by the large enterprise mandates Ryan discussed earlier. Together, portions of these wins accounted for just over half of total IMS sales events. As Ryan noted, we expect these relationships to continue contributing to sales activity in IMS over the coming quarters and years. Before moving on from IMS, a brief comment on private credit and a broader market commentary. We are not seeing any slowdown in IMS demand. Our exposure to retail private credit, including public BDCs, currently remains limited and the vast majority of our private credit exposure is institutional. We continue to see strong pipeline activity across existing and prospective clients and with the launch of our registered transfer agency in Q3, we would expect our retail exposure to increase with evergreen fund launches. IMS led the quarter, but the strength of those results should not diminish the continued progress we have seen in both Private Banking and Asset Management. While the magnitudes differ, all 3 businesses are contributing positively to growth. Asset Management delivered its strongest sales events quarter in several years, driven by growing demand for ETFs, SMAs and our custody-only platform offerings. We are encouraged by the momentum in this business and expected continued progress as we expand our product lineup and distribution capabilities. Investments in new businesses generated approximately $4 million of net sales events, including engagements won in conjunction with Private Banking. This is another example of how our investment in Professional Services is supporting growth across the enterprise. Additionally, while not reflected in sales events, we successfully recontracted 8 Private Banking clients, renewing an average contract term of approximately 4 years and retaining $34 million of recurring revenue with no material impact to run rate profitability. Turning to Slide 8. We saw continued asset momentum during the quarter. In Asset Management, growth was led by the Advisors Business. Last quarter, Ryan mentioned that we're accelerating Investment Management product launches in ETF, SMAs, models and alts. This quarter, we are seeing progress against those initiatives, driving approximately $1.5 billion of net inflows. Institutional investors experienced less than $1 billion of net outflows, almost entirely attributable to a large defined benefit client annuitization following the achievement of funding objectives. This outflow is a result of SEI advising a client to successfully meet their long-term investment objectives. Based on current pipeline visibility, we expect improved flow performance in this business over the balance of the year. Regarding market impact. SEI's portfolios remain highly diversified across equities, fixed income, alternatives, cash and geographies with a relatively higher weighting towards value which mitigated market headwinds during March. And as you may have noticed, market performance in April has been pretty encouraging to put it lightly. LSV had a strong start to the year with key products in Global and U.S. Large Cap outperforming benchmarks by single-digit percentages in Q1, more than offsetting market weakness in March and approximately $2 billion of net outflows in the quarter. Assets under administration and on platform increased 4%, driven by strong new business wins and lower mark-to-market sensitivity. Turning to Slide 9 and building on Ryan's comments on capital allocation. In Q1, we repurchased $208 million of SEI shares. While repurchase activity was elevated during the quarter, we continue to maintain significant capacity intend to remain active buyers. We ended the quarter with $363 million of cash on the balance sheet and substantial financial flexibility. This balance sheet strength provides ample capacity to continue investing in the business while maintaining a disciplined and opportunistic approach to capital returns. Stepping back, the first quarter represents an amazing start to the year for SEI. We delivered meaningful earnings growth, improved margins and exceptional sales activity while continuing to invest to support the opportunities we are seeing across the business. The quality of our results reflect disciplined execution against the strategic priorities we outlined at Investor Day, and it reinforces our confidence on the path ahead. There are a lot of exciting things happening right now at SEI, and there's more to come. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Alex Kramm with UBS. Alex Kramm: Just maybe starting with the strong sales in IMS. I was hoping you can give a little bit more color around, I think you said multiple first-time deals, so maybe a little bit more about how competitive these wins were? And then most importantly, you said the pipeline remains very strong. So is this a run rate that we should be expecting in terms of new sales? Or is this going to be lumpy? Yes, just a little bit more color on how this year could shape up here given the recent strength here. Ryan Hicke: Sure, Alex. It's Ryan here. Thanks for the question. I think we'll turn that one to Phil. And then, Phil, if you want to kind of unpack them in a couple of different ways, we can add on. Phil McCabe: All right, that sounds great. Thank you for the question. A couple of quick highlights. So by every measure, we had a phenomenal quarter. We won 2 of the largest and most complex alternative managers in the entire industry. It was an extremely competitive bake-off that lasted over a period of a full year. Both of those managers who are moving from in-sourcing to outsourcing, one of them is in the top 5 globally and the other is in the top 15 globally alternative managers. So we believe there's meaningful room to land and expand, like we always do over the course of the next several years. Both of these clients will be in our top 5. But these deals are in addition to what we would normally sell on a quarterly basis. So from a pipeline perspective, we're really strong. We are supported by the enterprise mindset from Ryan and Michael and Sanjay, we're all out in the market selling together and we're probably talking to 20 of the top 50 alternative managers right now. So we expect sales events to continue to trend up year-over-year. And one last fun fact. We're actually now we are the third largest fund administrator in North America. So we're moving up the league tables. Ryan, anything to add? Anything I missed? Ryan Hicke: No. I think you nailed it. I think the appetite for outsourcing increases literally daily and the more effective we have been in helping our firms deploy capital in different areas for their growth acceleration, it has just increased the partnership and deepened our relationship. So as you said, I think if you're looking, Alex, from kind of an average quarterly basis of sales, we would expect those numbers to continue to grow. Some quarters will be a little bit lumpier than others based on size of deals and timing, but the pipeline and the market and our positioning in this space is extremely strong. Alex Kramm: Okay. And then maybe staying on the same topic, and you already addressed this somewhat proactively in terms of what's going on in private credit and private equity right now. But maybe we can go a little bit deeper there and not to lead the witness here too much, but we've seen in the past, for example, during the financial crisis on the hedge fund side, in particular, and made off, there was a lot of outsourcing demand that already all of a sudden came out of some of that stress and some scrutiny around that space. So again, not trying to paint to rosy of a picture here, but just curious how the discussions have changed given what's going on? Do you think this could actually be maybe an accelerant to saying, "Hey we need to open the kimono a little bit, and this will be maybe one of the ways to do it." So yes, just curious about what you're hearing live? Phil McCabe: So just to answer that real quick, this is Phil, the 3 of our largest clients are looking at launching flagship products this year. So we're not seeing any slowdown in demand, especially on the institutional side. And I do think as if the market was ever to get a little bit more interesting or challenged, we're playing in the very, very large end of the market, and these clients are really, really good at what they do. So -- and I know in the script, Sean said that we're a little lighter on the retail side of the market, but we expect that to pick up when we launch our registered transfer agency solution over the course of the next couple of months. Ryan Hicke: I think it's also really important to distinguish, when we talk about this business, 70% of IMS is driven by exposure to alternatives and 25% of that 70% is private credit. Operator: Ladies and gentlemen please standby. All right we'll move on to the next person. Our next question person -- our next question comes the line of Jeff Schmitt with William Blair. Jeffrey Schmitt: So in private banks, I know the margin can jump around, but it was up to 21% in the quarter. Professional Services growth is obviously helping. But how much of that was driven by the reduction in the workforce? Or were there any other onetime items that were in there? Ryan Hicke: So Jeff, can you hear me? It's Ryan. Jeffrey Schmitt: Yes, I can. Ryan Hicke: Okay. So I'll open up here for Sanjay. The reduction in workforce had little to no impact really specifically in banking. That was across the enterprise. That really was part of a Q4 initiative as we talked about. I mean, Sanjay can talk about, I mean, the execution against the 5 specific things that we discussed in New York in September, and we've been talking about the last couple of years, he literally continues to execute against that quarter-over-quarter. But Sanjay, do you want to highlight some of the specific things that drove kind of the increased margin this quarter? Sanjay Sharma: Yes, absolutely. That's a clearly good question. If you look at the 5 pillar strategy we talked about on September 18, 2025, 2 of those 4 pillars were Professional Services, was one of them. And then second was how we're going to market with the new logos. Professional Services events, we have significant events in third quarter and fourth quarter, and as you could see that our revenue realization is much faster for those kind of deals. And in Q1, that's a good reflection that, yes, we sold new Professional Services in third quarter, fourth quarter, and we realized that. And that is one dimension of it. Second is we are very judicious how we're going to market and the new contracts we are signing, they are coming with a higher margin. So it's a combination of those. Thus, of course, our GCC initiative is playing big role here. We are leveraging GCC. We talked about be judicious about our Software-as-a-Service expenses. So when you combine all those things together, you would see that -- and you will see in the coming quarters as well. We are continuously making progress on all those 5 pillars. Jeffrey Schmitt: Okay. Great. And then it sounds like transaction multiples for RIAs have been on the rise. Is that the case? Are you seeing that in the market? And do you think that would be -- do you see that as being a hindrance for your roll-up strategy for Stratos? Or are there still good opportunities out there? Ryan Hicke: Michael, did you hear the question? Michael Lane: I didn't. Ryan Hicke: Jeff said, it seems like EBITDA multiples are rising for RIAs or IBD roll-ups. Do we think that's impairing our strategy with Stratos and their M&A strategy? Michael Lane: No, not at all. We do see that the multiples on the high end definitely have been increasing. And if you look at the scaled firms, there was a report recently came out that the typical multiple would be between 22 and 24. And remember, we acquired Stratos that are much less multiple than that. And so you do see it at the very high end in the scale players. But when you go into the marketplace where you're looking at the $100 million RIAs up to about $1 billion RIAs, you still have a very reasonable multiple arbitrage opportunity between what you buy them at versus what they would then reprice at when they become part of the scale player. So we're not seeing any slowdown at all right now. Operator: Our next question comes from the line of Crispin Love with Piper Sandler. Crispin Love: I had some feedback issues earlier in the call. Just one follow-up on the IMS sales wins, you mentioned 2 of the largest and most complex alts being part of those wins. Can you discuss any concentration on the wins in the quarter? I mean how much of the $51 million came from those 2 or just any other concentrations worth calling out from the sales? Phil McCabe: I can take it. Crispin, this is Phil. Those 2 deals were less than 50% of the concentration for the quarter. So not even -- and we expect a lot more later. Crispin Love: Perfect. And then just on margins, 32% core margins in the quarter, commentary seems to be very positive. Can you just discuss the outlook for margins still expecting -- are you still expecting high 20s range? Or could there be a new run rate here, maybe high 20s to low 30s. And then just if there's anything onetime that impacted the core margin in the first quarter that's out of the ordinary? Sean Denham: Crispin, it's Sean. Thanks for the question. So the main driver for overall margin improvement really just the fact that revenue growth is up 2%. We're doing a much better job of managing our expense. We had nice sequential improvements in PB and institutional but primarily, it was driven from revenue growth. And so as we have large or improvement in revenue and sales and revenue growth, we expect margins to improve. So our fixed costs are pretty well fixed. There are some variable costs. But for the most part, you're seeing the appreciation of margin due to revenue. Operator: Our next question comes from the line of Ryan Kenny with Morgan Stanley. Ryan Kenny: Can you hear me? . Ryan Hicke: Yes. Ryan Kenny: All right. Great. So on the AI theme, you touched on it in the opening remarks a little bit, but can you just dig in a little bit deeper because I think there is a perception in the market that some of the businesses that you operate in, like fund administration maybe could be at risk of disruption or maybe you could see fee rates come down over time if you're expected to pass on efficiencies that you gain. So could you just dive a little deeper on how you view yourself as more protected from AI disintermediation? Ryan Hicke: Yes. I mean, we'll answer that in a few ways. Ryan, I hope you're doing well, and then I think Sneha's in the room if she wants to provide some color. I mean, the second half of your question, I think we really need to also continue to focus on continued productivity and efficiency through leveraging technology and process engineering has always been part of our strategy and has always been part of how we pass on and maintain margin expansion or pricing levels relative to the competitive market. So AI will definitely be a bit of an accelerant to that. But if you think about how we're looking at it right now, and I mentioned this a little bit earlier in the call, we really see this right now as a significant positive for SEI. And we're not naive. We know that there's disruptive possibilities out there. But when we look at our ability to provide a full suite of capabilities and platforms to our clients. Our clients are looking to SEI to figure out how to harness these capabilities to expand our services, potentially drive more scale and productivity, so we definitely see it as a positive. And when you look at the suite of capabilities that we provide, certainly, there will be organizations firms that try to go displace that brick by brick, if you will. And it's our job to maintain that positioning for that whole wall of our services. But right now, and just Sneha you can weigh in, we're really excited about what we see. And we definitely are excited, Ryan, around the engagement we have with clients looking to SEI to partner with them around how to harness and drive more growth here. Sneha Shah: Yes. I'll just add, Ryan, thank you for that. But I think that there's 2 elements of this. The one is the ability for us to do more with like the amount of resources that we have, which we're actively driving. We've got AI-enabled employee base, and they're using it actively in their database jobs. We're also seeing the way to deliver growth more efficiently. So [ Astil ] is winning, he is doing it without adding more cost, which I think is really helpful, which is why you're seeing a little bit of a margin expansion. And then we're seeing this adaptability of not just us but our client base as they become more efficient and we become more efficient, discovering new areas of growth. And so we're seeing, for example, in the banking client base a lot of interest in us helping them become more AI native. And so doing work with data cloud and professional services and helping secure their data through our security services. And on the IMS side, we're seeing a lot of interest to say what additional services can we provide those same clients as their growing that we wouldn't have done naturally because now AI is making that possible. So we see it really as a net driver of growth and both for our people and for our businesses and our clients. Ryan Kenny: And we get the question a lot on fee rate impact from AI. But as you mix shift into areas like alts, could your reported aggregate fee rate actually go up or stable? How should we think about fee rate in the various businesses? Ryan Hicke: Right now, we've seen a tremendous amount of stability in our fee rates, been able to continue to win new business at premium prices and deliver a premium service. So I don't know, anybody else wants to add anything to that? We just -- we haven't seen yet, Ryan. I mean we're certainly aware there's a tremendous amount of change happening in the market. We actually are excited about that. I mean if you think about our cultural posture, and the position that we have around leaning more into accelerating good ideas for good outcomes. That's just the way we think right now. I'm full of quotes that Sean likes to listen to, but a ship is safe in the harbor. That's not what ships were built for. So we are being aggressive with experimentation. We're being aggressive with innovation, and that's just the kind of mindset we want to bring here. But right now, specific to your fee rate question, we're actually really excited about our current position, and we don't plan to kind of lessen our focus and let that position get diminished or deteriorated? Phil, do you want... Phil McCabe: From an IMS perspective, we're not seeing a lot of fee pressure at all. But what we do expect from AI is faster NAVs, higher quality, adjacent markets that we're getting into. So our clients are expecting that from us. And they're -- again, we're in the higher end of the market and they just want things better, faster and perfect. Operator: Our next question comes from the line of Alex Bond with KBW. Alexander Bond: Another follow-up on the wins in the IMS segment this quarter and just the impact on the margin. In the past, you've spoken to the fact that through the onboarding processes for large wins like this, the IMS margin may dip slightly before reaching the full run rate once the implementations are completed. Can you just help us size up the timing and magnitude of these processes or processes on the IMS margin over the next few quarters? Phil McCabe: Sure. I'd love to. We're going to convert these clients in a few different tranches over the next year or so. We expect the revenue, it's going to increase more and more quarter-over-quarter over the next 15 months. From an event perspective, we're going to continue to land and expand as we always do. This year, revenue and expense will be flattish for those 2 deals, but we're going to get back to normal margins for those 2 deals in mid-2027, and we're going to start to see pretty significant revenue in that time frame as well. Alexander Bond: Got it. Great. That's very helpful. And then maybe just moving to the Professional Services suite. I think you all also made reference there previously to expanding that offering within other areas of the business like IMS and certainly appreciate the new breakout there this quarter. But can you maybe help us think about the opportunity set within IMS or other areas of business for the Professional Services offering maybe relative to -- within private banks where you've seen the majority of sales for Professional Services to date. And then also maybe just how sizable the international opportunities for Professional Services given the strength that you all noted there this quarter as well? Ryan Hicke: Yes, you're welcome. That's a great question. So I think if you think about kind of the breadth of the capabilities in Professional Services, some of the things that have the most momentum in demand right now across all the client bases. And some of this is early in some of the segments. But the AI-enabled data cloud platform is probably one of the most attractive capabilities we have, where we help our clients really harmonize ingest and create business intelligence off of their data sets off of our data cloud platform and Sanjay and his team really pioneered that really in the banking segment, but it absolutely has applicability in Phil's segment and as well as Michael Lane's when you're looking at larger RIAs and also kind of the more enterprise scale organizations. I would say integration services continues to have significant demand. Sean called that out around kind of truncating if you will, some of the lag time between signing and implementation because we're taking on more responsibility for other integration services and workflows, if you will, as part of the implementation. And I would say, coming back to, Alex question that Ryan had just asked a couple minutes ago, we're also starting to see demand for firms that want to think about how do they become more AI-enabled. How do they become an AI-native organization. So there are a variety of ways that we are able to add value from professional services. And we also had a tremendous quarter with our cybersecurity capabilities with SEI Sphere in there as well. So that's just some color. I mean, Sanjay you're a little bit closer to it, especially on the banking side, but also it's the -- Alex's question around international. Sanjay Sharma: Yes. So first of all, a great question. I really appreciate asking this question. On Professional Services side, Ryan and Sean, they also called out, but we are engaging with our prospects very early now. And we are changing our playbook a bit rather than just leading with our platform change initiatives. Now we are leading with enterprise capabilities, and that is creating a different growth opportunities for us. I would think about how many banks or institutions are looking for platform change every year, not many, but almost every financial institutions is looking for some professional services so that they can keep pace with the change. And that presents significant opportunity for SEI. And we are seeing that opportunity not just in here in the U.S. market but in the international market as well. That's like 1/3 of our Professional Services wins, they came in the U.K. market for last quarter. And we are seeing that momentum building up. And that's where I'm partnering with Michael Lane and Phil in terms of how we can continue to expand that at the enterprise level. Operator: Our next question comes from the line of Patrick O'Shaughnessy with Raymond James. Patrick O'Shaughnessy: Another AI question for you. How are you guys thinking about AI potentially disrupting the wealth management advice industry broadly in terms of disintermediating your clients, whether it's AI native software or something else? Ryan Hicke: Michael, do you want to take that one? Michael Lane: Sure. Good to talk to you, Patrick. So that -- it's interesting. This has been a topic of conversation that dates back 25 years from when the first robo-adviser came to play where they thought that coming out with a robotic advice to offer up the advice for 25 basis points or something in that ballpark that would disrupt the financial adviser business. And what they found over time was that the robo advice marketplace didn't work. It wasn't a good B2C. It needed to actually be a B2B fill or a B2C2B or whatever, but it was it didn't actually do what people expected it to do, which was to take over the financial adviser business. AI will supplement and make advisers more efficient. It will enable advisers to have I think, a greater ability to serve more clients in a more efficient way. And when you look at the statistics about what's happening in the wealth marketplace where there's going to be a shortage of financial advisers, we're going to need AI in order to be more efficient in the wealth space to serve more people. The demand for advice is increasing, the number of advisers is decreasing. And so we have to actually use AI in the wealth marketplace to serve more. So I don't see it disintermediating. I've been involved in that question for a long, long time. I think that at the end of the day, when people start to achieve a reasonable amount of wealth, they want to talk to a human being. It will supplement the advice that's given though. Patrick O'Shaughnessy: All right. Very helpful. And then institutional investors, it sounds like you guys are incrementally more optimistic there. Can you just give a little bit more color on kind of what sort of sales are in your pipeline there? And also kind of how to think about the fee rate impact as you get those new wins on board? Ryan Hicke: Institutional investors. Just your view on kind of the pipeline there, fee rates moving forward? Michael Lane: Yes. The thing that I love about the institutional business that we saw the first quarter, although you saw a negative revenue from the institutional business. It was driven by the fact that we helped -- as Sean said, we helped a significant client achieve a funding status that enabled them to derisk the portfolio and take it off to the books. I mean that's what we do in the institutional business on the defined benefits play is we -- if we're successful, we help firms actually achieve their goals that they can derisk. So largely, the first quarter, the event was a result of a single plan that derisked. When you look forward, where we're spending a considerable amount of time and energy is continuing to deepen our penetration in areas where there are demographical shifts that will grow the area of OCIO, for instance, endowment and foundation. With a great wealth transfer, not a portion of those assets that will transfer now the estimates are over $100 trillion. When that $100 trillion continues to transition from generation to generation, a portion of that is going to go to not-for-profits, it's going to go to foundation. That's going to grow that part of the business that's going to result in the need for more outsourcing of investment management. And so we are leading more and more into that space. And so we feel strongly that over the next few quarters, that the business -- our institutional business has growth opportunities. We will start to see a rising pipeline in areas like endowment and foundation, health care, and where we have an occasional defined benefit that derisks like we should be celebrating those wins as helping clients achieve their goals. They're going to happen once in a while in the DB space. But we feel good about where the market is going, the demographics are going and where we're positioned as one of the largest OCIO providers. Operator: Our next question comes from Alex Kramm. We have a follow-up question from him. He's with UBS. Alex Kramm: Just a very quick follow-up. I don't think this has come up, but can you just give a quick view on your integrated cash programs? I mean there's been a little bit more noise around brokers, investment managers and some of their cash programs and new offerings, some large banks have talked about this like optimizing cash program. So just wondering if you could outline? I know it's a relatively new program for you over the last few years, but how sticky do you think there is? And if there's any risk from those assets going out or that cash going out of the door at some point? Michael Lane: Absolutely. We have been reading the same headlines that you have about a certain large bank who came out and talked about how they were going to be looking to optimize cash across different programs. And so we are very aware of the cash management programs and the pressures on cash management programs, both from what's happened over the last couple of years -- last year in the reduction of interest rates and the reduction of yields to the firms that have these cash management programs. As you said, we -- ours is relatively young. It's only about 2.5 years old. Ours was structured differently than many of the competitors that are being discussed in the media. Ours was structured as a 1% operational [indiscernible] cash, which was meant to cover operational expenses. It wasn't a percentage of a portfolio. It wasn't a percentage of a model. It wasn't something that was more of a fiduciary percentage of somebody's portfolio. That's a huge differentiator. And from our perspective, what's very different as well is when you look at a lot of the different players in the custody business, their cash positions tend to be significantly higher. The average balance is being up to 4%, whereas if you look at our cash balances with a minimum of 1%, the aggregate in totality is still less than 2% that we tend to see across the entirety of our book. And when you also then look at because of being a diversified business, the total cash revenue from our suite programs is 3% of the gross revenue of SEI. Even in the Advisor business, it's still only 12% of the total revenues. And so from our perspective, yes, there is pressure that will come on those. It's not new. There are several companies out there that already have cash optimization programs. where they will take anything above the minimum required to be held and they'll sweep that into higher-yielding investments. So that's existed for years. I think we got a lot of news out of that because there was a large bank that came out and said they were going to use that. I think because AI was put in front of it, also signals something. But at the end of the day, it's been algorithmic for quite a while, and we haven't seen any impact on that. Operator: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Ryan for closing remarks. Ryan Hicke: Thank you again for the discussion today. We appreciate and we are encouraged by the execution and progress we've seen early in the year. Have a great evening. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Nathan Ryan: And welcome to the West African Resources Investor Webinar and Conference Call. [Operator Instructions] I'll now hand over to West African Executive Chairman and CEO, Richard Hyde. Thank you, Richard. Richard Hyde: Thanks, Nathan. Good morning, and thanks for joining us for West African Resources March 2026 quarterly call. It was a productive quarter for our gold operations at Sanbrado and Kiaka in Burkina Faso. But before I get into discussing our performance, I want to address the ownership structure changes at Kiaka in regard to the Burkina Faso government. This has been under discussion for a while now. And as we've announced this week, the Burkina government plans to acquire an additional 25% equity interest, in our subsidiary, Kiaka SA, who is the operator of the Kiaka Gold Mine. This will take the government's interest at Kiaka at 40% as it has an existing 15% free-carried stake already. This additional capital share in Kiaka SA has been valued by the government at XOF 70 billion, which roughly equates to AUD 175 million. There has been no discussion with the government regarding the ownership of Sanbrado or Toega and Toega is obviously on track to start producing later this year. And they were not referred to in the decree that was published in regards to Kiaka. We are working with the government to finalize the terms of the acquisition, the Kiaka, and we aim to have that completed by the end of this calendar year. At this stage, we plan to distribute any cash proceeds from the sale of the equity sale of Kiaka SA to our shareholders by way of a special dividend, and we'll keep you updated with any developments regarding this. Regarding our results for Q1, we achieved gold production of 107,728 ounces across both Sanbrado and Kiaka for the quarter at an all-in sustaining cost of USD 1,921 per ounce. We remain on track to achieve our annual production guidance of 430,000 to 490,000 ounces of gold, with all-in staining cost below USD 1,900 an ounce. Gold sales were steady compared with the previous quarter with 104,000, 145,000 ounces sold in the quarter, and we achieved this at a price of USD 4,945 per ounce. This is a strong result given our unhedged exposure to the higher gold prices, and we generated AUD 440 million from our operating activities in Q1. This took our cash balance to a record $847 million with $213 million in unsold gold bullion at the end of the quarter based at current prices. Looking at each operation in more detail. Sanbrado continued its steady performance in Q1 with 42,024 ounces of gold production, which is in line with the planned 2026 annual production profile. Sanbrado will see higher contribution of mine ounces from the M1 South underground over the remaining 3 quarters of 2026 as more stoping areas become available. We achieved Sanbrado's production at site sustaining cost at USD 2,034 per ounce and sold 42,428 ounces, an average realized price of USD 4,978 per ounce. Unsold gold bullion at Sanbrado at the end of the quarter totaled 11,794 ounces, rate at about USD 54 million. The Kiaka production continued to ramp up in the quarter, delivering 97,906 ounces from open pit mining operations, and we produced 65,704 ounces from processing operations. And this represents an 18% increase and 6% increase, respectively, over the previous quarter in mined and processed ounces. Kiaka deliver gold production at a site sustaining cost of USD 1,779 per ounce. We sold 61,717 ounces from Kiaka at an average realized price and USD 4,922 an ounce. With unsold bullion just over 20,000 ounces held at the end of the quarter, which is valued at about USD 92 million at the current gold price. While this production performance was impressive, we also delivered on several other fronts during the quarter. We released our updated Resources Reserves and 10-year Production Plan in the quarter, which demonstrated further increases to Kiaka and Sanbrado's production plan on the back of outstanding results from our 2025 drilling programs. We're now looking at delivering average gold production at 533,000 ounces of gold per year over a 10-year period, with gold production expected to peak in 2030, just short of 600,000 ounces. Sanbrado's mine plan has been extended out to 2036, with this production expected to peak in 2030 at 317,000 ounces. At Kiaka, we've also modeled higher production throughputs based on exceptional performance from the process plant since we started operations. Our unhedged mineral resources now stand at 13.6 million ounces of gold, while ore reserves totaled 7 million ounces. We see potential to improve annual production further through ongoing drilling programs and we plan to drill more than 100,000 meters annually targeting extensions at M5 South Underground and beneath the M5 North Open Pit and also targeting underground potential at Toega. This 10-year plan highlighted just what a strong and sustainable future our company has and our potential to continue generating value for stakeholders and host communities over the next decade and beyond. Speaking of the future, Toega, our development projects continues to progress well with open pit pre-stripping commencing later -- commenced late in the quarter and a total of 621,000 Bcm of material were stripped. Surface grade control drilling was completed during the quarter in preparation for first ore mining, which is on track for -- this quarter Q2 and delivery of that ore up to the Sanbrado process plant is expected to start in early Q3. In terms of exploration, we released impressive results from our in M5 South Underground drilling program, where high-grade gold mineralization was extended by 400 meters below the current mineral resource. Our resource conversion drilling program is also progressing on schedule. We also reported good results from our drilling programs at M5 North, which returned wide intersections and delivered consistent mineralization below the current open pit ore reserve and M1 North where results support potential for a cutback. In addition, 13,500 meter program targeting the Toega underground resource is ongoing. We plan to incorporate results from Sanbrado into an updated resource reserve and 10-year production plan into the coming quarter. With that overview of operational activities. I'll now hand over to Padraig to discuss the financial results. Thanks, Padraig. Padraig O'Donoghue: Thank you, Richard. So the WAF, as Richard mentioned, the strong gold sales, the WAF Group generated AUD 742 million of gold sales revenue combined in the quarter from an average gold price of USD 4,945 per ounce. And we generated AUD 440 million of operating cash flow in Q1 and ended the year with a record high cash balance of AUD 847 million. Looking at the notional net cash, which was calculated as cash plus bullion minus debt, we more than doubled the notional net cash in the quarter and ended the quarter with USD 450 million notional net cash position. Our capital investing activities in Q4 used $90 million cash, which was comprised of $38 million investment into Sanbrado, $23 million into Toega and $29 million at Kiaka. Financing activities in the quarter used $45 million cash in Q4, mainly comprised of $28 million of loan payments and $11 million of interest payments. I now hand back to Richard for his comments. Richard Hyde: Thanks, Padraig. Padraig O'Donoghue: Thanks, Rich. Richard Hyde: So as you can see, it's been another strong quarter for West African on the production front. In terms of our ESG performance, we're also tracking well with environmental activities such as seedling production and for donations giving back to our communities and we continue to invest strongly in areas such as education, health, economic development. We're working with our contractors to enhance these programs, leading to more support for local education facilities. We also supported local schools with donations of bicycles and school supplies during the quarter. Our community relations team coordinated education sessions on the risks associated with artisanal and small-scale mining, school absenteeism, and we handed over storage warehouses to 4 agricultural crops produce run by local residents who have been -- who received help training to help support their local communities. With our operations at Sanbrado and Kiaka performing well, we are pleased to be a positive contributor to the communities in which we operate, as well as Burkina Faso more widely. I'd like to thank our employees and contractors for their efforts as well as we wouldn't be able to achieve these results with the outlook. Thanks again for your interest in West African Resources and for joining the call today. I'll now hand over to Nathan to see if we have any questions. Nathan Ryan: [Operator Instructions] Your first question comes from Paul Howard at Canaccord. Paul Howard: A couple of questions from my end, if you don't mind. How does the Burkina Faso government intend to pay that $175 million? You mentioned any proceeds, cash proceeds perhaps being redistributed as a special divi. But is the government intending to actually hand you physical cash? Richard Hyde: Thanks, Paul. Yes, looking now extensive discussions with them. We've discussed the cash payment. The government's who will be seeing record high revenue from the current gold price from the operations that operating country. And then given the return that the government will get on this investment, it's something that's probably commercially attractive to banks as well. So we're expecting to be paid in cash. Paul Howard: Great. A couple more and perhaps more of Padraig's avenue is, what's the debt repayment schedule? So I was a little more debt expected to pay this quarter, but how should I look at that going forward. Richard Hyde: Padraig? Padraig O'Donoghue: Yes. I can't remember exactly debt repayment schedule, but it's over 3 years remaining, I think, and there's a large bullet at the end. So about $100 million bullet. Yes, in 2028, there's $100 million bullet. So we have fairly low debt repayments until we hit 2028. Paul Howard: Yes. It's the bullet I don't have, which makes sense. Awesome. And while I've got you then, no tax payments this quarter? And indeed, the subsidiary payment, that's normally that 3.9 in your cash flow report? Padraig O'Donoghue: Yes, we paid the tax installment for Sanbrado early. We paid it before the end of the year in 2025. So that's why it doesn't show up in Q1 2024. So Sanbrado installment was paid. Kiaka didn't pay tax installments in 2025 because this is first year of operation. So we have tax settlements coming up, though, in -- at the end of April where we'll larger tax returns and then have to pay the taxes due on those years on the 2025 year. Paul Howard: Right. And then that line in the cash flow, we have 3.9 of subsidiary minority interest profit distribution? Padraig O'Donoghue: Yes. So subsidiary minority distributions have been calculated now, we are looking at around AUD 68 million for both combined Sanbrado and Kiaka to be paid sometime in Q2. And on the income tax, they have been calculated as well. And we have about AUD 120 million that we'll be paying to clear the 2025 taxes payable balances. Paul Howard: Got you. So that's AUD 120 million, right? Padraig O'Donoghue: Yes. Paul Howard: Yes. And then that AUD 68 million you got to pay in April. Is that relating to March quarter? Padraig O'Donoghue: No, this is the priority dividend. So the priority dividend is paid annually. Related to 2025 earnings, but it will be paid, not in April, but sometime over Q2. Nathan Ryan: Your next question comes from Richard Knights at Barrenjoey. Richard Knights: Just hopping on the $175 million again. Just wondering if you have any insight as to how the government came up with that number? And in your opinion, is that within the bounds of the new mining code in Burkina? And I suppose where I'm going with this is, where do you see the risk then that this pops up again for Sanbrado down the line? Richard Hyde: Thanks, Richard. So look, the valuation mechanism used in the 2024 Mining Code is -- it's not an NPV-based calculation. It's government bases that a lot of costs required to sustain operations, so effectively a sustaining capital estimate for the life of mine. So it's unusual, but it's -- that's within the 2024 Mining Code. It still results in a substantial number. It's not 0. Now in our discussions with SOPAMIB, which is a government representative, we've addressed our other operations and they're not being -- for our understanding, they're not being targeted to have the same treatment. And we'll also be addressing that or we'll be looking to address that in our documentation process regarding the 25% equity interest for the government. So we'd like to see no further changes to our other operations and an issue that other fiscal financial terms for our other operations on our drilling. Yes. Richard Knights: Is there a way you can get surety around that or is that or... Richard Hyde: Yes, we're attempt to do that, and then we'll address that in our documentation process. Richard Knights: Okay. 6 Okay, fine. And then in that same announcement, I mean you did -- I think you mentioned in your comment that you're still looking or you held discussions around further collaboration on near mine sorry, near development assets. Is that something that we could potentially see more detail on this year? Richard Hyde: Yes, I think so. It will take a little while because we need to get our people involved and we need to do some technical reviews of what the projects that have been discussed. But there's -- I think it's a good chance that we'll advance that this year. And there are some assets that need a lot of drilling. I think that's -- we see that with a lot of older projects that they're underdrilled and there's definitely good potential and some of them when they're in reasonable locations in Burkina. So that's a process that we'll have to go through technically now and assess them and then pull a view on what we think we can move forward with. Nathan Ryan: Your next question comes from Mike Millikan at Euroz Hartleys. Mike Millikan: Yes. Excellent cash generation for the quarter, Richard, congrats. Just more very quick 1 on the paid consideration, should we expect that to be the day of the decree or when -- actually, when you receive the money, how should we think about that? Richard Hyde: No, under the law is, the benefits received until the shares are paid out. So we expect that, that will be later this year or when we receive payments. Mike Millikan: Yes, got you. So the effective change of ownership only once the funds are received? Richard Hyde: Correct. Mike Millikan: Yes. Obviously, a very quick question on the diesel in country. Obviously, it's regulated. How is your suppliers, stockpiles, should we -- any comments around that? Richard Hyde: Look, I was just in country. So we've typically got across both sides, something like 70 or 80 trucks in circulation, either heading to site or heading from a site to the port. So fuel comes from Benin and Togo, which is in the -- to the southeast of Burkina. We typically keep at least 2 weeks of storage in tanks on site. And then when I was there, there were another week or so of trucks sitting at the mine gate. And then we've also got trucks in circulation. So it's something that we've been aware of for a while. We were addressing this before the current crisis in the Middle East. We've definitely seen a drop off in availability, but I think it's something that we planned for and that we're dealing with. Mike Millikan: Cool. And also your stockpiles seem pretty high both operations, roughly 72,000 ounces at each, which is pretty impressive. Dividend policy, Richard, have you guys thought of one? Or what -- I mean, obviously, there's a lot of cash generation specialty becoming. What is -- is there a bit of a thought on a bit of a policy to publish? Richard Hyde: Look, as far as policy goes at this stage, we're obviously still -- Kiaka is still a new mine, so it's generating a lot of cash, but we've got a fairly big few months in finalizing the 2025 tax payments and dividends to the government. And then we'll be looking to bring as much cash up after that and -- we haven't set a policy at this point. We will pay -- I think what we've said is a substantial dividend. So I mean -- I think it's going to be a meaningful amount. Padraig, would you like to elaborate further? Padraig O'Donoghue: Yes. I mean when we say a meaningful amount, we're talking the hundreds of millions of dollars AUD. We just haven't decided on the amount yet. We'll do our cash projections and we need to forward project all of the government dividends and taxes and working capital needs for expansions, et cetera. We still have the Toega's stripping program going on, et cetera. So we will -- it's a bit early for us to have a dividend policy based on percentage of cash flow or profit at this stage. Mike Millikan: Yes, got you. And maybe a buyback versus paid dividends. Is it -- again, given that you just contemplating while both or either. Richard Hyde: Yes, correct. So look, I think we'd like to have the option to buy back our shares if we see weakness. And we'd like to be a strong dividend-paying company as well. So -- but having all those different tools in the shed would be pretty handy. Mike Millikan: And just finally for me. Just, Richard, you mentioned something -- are you talking another update for War Sanbrado in regards to resource growth. Is that what I heard? Richard Hyde: Well, there will be, yes, we've got a lot of infill drilling going on at M1 South. So while it might not move the needle on ounces overall it will certainly improve the category. It's not as meaningful, I think, as our last update, which was during Q1, in March. Mike Millikan: So mostly focused -- obviously, M5 South Underground some of those good extension was there. Got you. Nathan Ryan: Thank you. There are no further questions at this time. So I'll now hand back to Richard for closing remarks. Richard Hyde: Thanks, Nathan, and thanks to WAF team for another sensational quarter of production. I think it's quite impressive. I can probably say we're just ordinary people achieving extraordinary things, and I'm very proud of the team. And we look forward to another strong quarter for Q2. We've had a great start to Q2 production already, and then delivering on our plans for the rest of the year. So thank you very much for dialing in, and we look forward to keeping the market updated with our progress.
Operator: Good morning. My name is Samantha, and I will be your conference operator today. At this time, I would like to welcome everyone to the América Móvil First Quarter 2026 Conference Call and webcast. [Operator Instructions] I will now turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Daniela Lecuona: Good morning. Thank you all for joining us today to discuss our first quarter of 2026 financial and operating report. We have today on the line Mr. Daniel Hajj, our CEO; Mr. Oscar Von Hauske, our COO; and Mr. Carlos Jose Moreno, our CFO. Daniel Hajj Aboumrad: Thank you, Daniela. Thank you, everyone, for being in the call. Carlos is going to make a summary of the first quarter results. Carlos? Carlos Jose Garcia Moreno Elizondo: Thank you, Daniel. Good morning, everyone. Well, the downward trend on short-term dollar interest rates following the 25 basis points rate reduction of the policy rate by the Fed in December continued in the beginning of the first quarter as the market became increasingly concerned with a potential slowdown in economic activity in the U.S. The value of the dollar versus other currencies, including those in our region of operations declined throughout the first part of the quarter with the dollar falling 4.3% versus the Mexican peso, 3% versus the Chilean peso and 6.4% versus the Brazilian real by the end of February. With the major exception of the latter, U.S. dollar made up practically all its losses in the weeks after the initiation of the war with Iran. Throughout the period, the differential between short-term rates and 10-year rates widened significantly from 8 basis points to 64 basis points at the close of the quarter with investors eyeing both a slowdown in the pace of economic activity possibly even a recession and higher inflation rates. In this context, in the first quarter, we continue to observe a trend towards an acceleration of both postpaid subscriber growth and that of broadband accesses, as you can see in the slide. The base increased 8.8% and 6%, respectively, vis-a-vis the year earlier quarter. First quarter revenue was up 2.1% in Mexican peso terms to MXN 237 billion, with service revenue up 0.6%, equipment revenue 7.4% and other revenue 108%, including the proceeds of a favorable ruling in Chile on account of a dispute around certain TV rights. EBITDA increased at nearly twice the pace as revenue at 3.8% this year in Mexican peso. The figures cited above reflect the appreciation of Mexican peso versus practically all other currencies in our region of operations, having gained 16% versus the dollar 4.6% versus the euro, 4.5% versus the Brazilian real and 2.5% versus the Colombian peso with respect to the same period of 2025. So major appreciation of the peso first quarter of '26 vis-a-vis first quarter of '25. At constant exchange rates, revenue rose 6.1% on the back of a 4.6% increase in service revenue and 11.3% in equipment revenue, driving an 8% expansion in EBITDA. Adjusted for the extraordinary proceeds of the legal ruling, EBITDA was up 7.0%. The greater operating leverage is allowing for faster EBITDA growth with EBITDA now expanding more rapidly than service revenue and led our consolidated EBITDA margin to reach 40%, one of our highest margins that we've seen. At 6.4% year-on-year, a similar pace over the last several quarters, mobile service revenue growth has remained resilient with postpaid revenue growth at 7.3% and prepaid revenue at 5%, having expanded faster quarter after quarter over the last year. Mobile service revenue growth has been on an upward trend in Mexico and Colombia, as you can see in the slide, on the back of greater prepaid revenue, which has been recovering over the last several quarters. On the fixed line platform, service revenue growth was up 1.7% in the first quarter. Some regions, in particular, Eastern Europe, Central America, Peru and Ecuador registered very rapid growth driven by residential demand. As regards to our operating profit, it came in at MXN 50.5 billion, was up 12% in Mexican peso terms, while our comprehensive financing costs declined 9.9%, reflecting lower net interest expenses. These concepts brought about a 25% increase in our net income to MXN 23.4 billion, which was equivalent to MXN 0.39 per share and $0.44 per ADR. Our financial debt reached MXN 527 billion at the end of March, having increased by MXN 2.5 billion versus the one outstanding at the close of December. But this means that our net debt for the period at the end of March stood at MXN 437 billion and was equivalent to 1.41x EBITDA after leases. Our cash flow in the first quarter allowed us to cover MXN 21.6 billion in CapEx, MXN 1.4 billion in share buybacks, MXN 1.5 billion in labor obligations and further to reduce our net debt by MXN 1 billion, okay? So that you can see here in the slide. So with that, I thank you for listening to the presentation, and I will pass the floor back to Daniel for Q&A. Daniel Hajj Aboumrad: Thank you. Thank you, Carlos, and we can start with the Q&A. Operator: [Operator Instructions] Your first question comes from the line of Leonardo Olmos with UBS. Leonardo Olmos: Congrats on the results. I got a couple of questions here. The first on capital allocation and buybacks. With the reduction of net debt to EBITDA to 1.4, how should we think about the balance between continued deleveraging and a more visible acceleration in buybacks from here? What leverage would you make more comfortable stepping up capital returns? And the second one, still on leverage, but more on the M&A context. If operating trends and FX remain broadly stable, should we expect leverage to continue trending lower from here? And how do you think about M&A activity in that context, which -- how is going to impact your free cash flow concerning, I mean, the actual payments of the M&A? That's it. Daniel Hajj Aboumrad: Thank you, Leonardo. Well, a couple of -- what we need to see and what we want is some space because I think the region is in very good shape, okay? So the region is going to -- we're going to have some opportunities in the region, in Latin America and in Eastern Europe. So both we are growing good, and we're doing very good. So we think that in Eastern Europe and Latin America, there's going to be good opportunities, and we are looking for some of them. We already -- we -- just a few months ago, we closed Azteca, the network of Azteca in Colombia. We just closed Desktop. So there's going to be more opportunities on that. So as you said, we need to have a good balance between buybacks, between deleverage and the opportunities that we have. We are looking for some opportunities. And these opportunities are going to give us a very good competitive position in the places where we are looking. So -- these opportunities are going to make a very good fit and are going to allow us to grow more in -- or faster than where we are. So that's where we are, and that's the balance that we have. Carlos was saying, we want to have the debt to 1.3, more or less is what we want to have. We have more opportunities. And we are also -- we are increasing our -- We're increasing to MXN 10,000 million more to have MXN 21,000 million on the fund. We want to buy. We want to buy back more. We want to take the opportunities, and we want to deleverage, as you are saying, we want to have a good balance on that. Right now, I'm personally seeing good opportunities in some countries that makes very good fit for us, and we are looking and doing that. So that's where we are, Leonardo. Leonardo Olmos: Yes. You answered both of my questions in one answer. Just a quick follow-up. In the past, you used to talk about fiber opportunities in LATAM. Are we still on that? Or are you considering mobile or other type of network complementarity? Daniel Hajj Aboumrad: No, we're considering everything. We're considering fiber. I think there's a lot of fiber companies in the region that makes speed. Instead of putting fiber, they are already with fiber and some customers and also spectrum, you know that we buy last year some spectrum in Puerto Rico. There's a lot of things that you can see what we do in Desktop, the backbone that we do with Azteca, Colombia. And you are going to see all this year good opportunities, Leonardo. So we want to take those -- to have a chance to take those opportunities. Operator: Our next question comes from Marcelo Santos at JPMorgan. Marcelo Santos: I have 2. The first is if you could provide us an update on the CapEx plan for 2026. There was a lot of changes in currencies, the Mexican peso getting stronger. So just wanted to hear what you plan for CapEx this year and maybe the next couple of years? And the second one, you mentioned in the release some operational issues in Argentina. Could you please comment a bit on that? Just give a bit more color on that would be great. Daniel Hajj Aboumrad: Well, as you said, we have been having a lot of movements in the exchange rates. And we have been reviewing carefully what we're going to have in each country for the CapEx. You know that the CapEx is part in dollars, part in local currency. So we're reviewing that. But all overall, what we think and finalizing our CapEx, we think that the CapEx for this year is going to be $7 billion -- around $7 billion, depending to be a little bit more, a little bit less depending on, as we said, the exchange rates. And we think that for the next years will be around that. We are going to have our Investor Day in May, and we can finalize the numbers for the next years. But I can say that we are more or less in that number. And Argentina, I don't know what you are asking on Argentina. Marcelo Santos: I think you mentioned on the fixed line business in Argentina that you said the fixed line market has become more challenging because of the difficulties in assessing clients in the Buenos Aires metropolitan area. So just wanted to better understand. Daniel Hajj Aboumrad: We're doing very good putting fiber in Argentina, very difficult for us to do it in Buenos Aires as the capital city. So that's the only thing is where we're putting fiber, we're growing, we're putting broadband, we're giving TV and doing quad-play. It's been very good for us. We are growing very good in Argentina. And the only place where it has been difficult for us is Buenos Aires because I think we have permission, but there we don't it's difficult because they don't rent us the telephone posts and they don't allow all the competition to go there and difficult to do it underground. To go underground has been very difficult to do it there, but that's the main reason that we have. Where we have fiber, we're growing very good, penetrating the network, doing fiber, doing quad-play, doing excellent. So that's been good for us. With all of that, well, we're going to have a big competitor in Buenos Aires because the market share of our competitor Telecom buying Telefonica is going to be high. So let's see what is going to happen there. Operator: Your next question comes from Andres Coello of Scotiabank. Andres Coello: Daniel, as you know, Starlink said back in December that the direct-to-cell service is already available or could be available in Mexico. Obviously, users will appreciate that. And I'm wondering if América Móvil could work with Starlink? Daniel Hajj Aboumrad: I don't hear you so well. Can you repeat the question, please? Andres Coello: Sure. So Starlink said in December that direct-to- cell service is available in Mexico since December. So they could provide a service in Mexico. And this will be obviously very good for users, especially in remote areas. So I'm wondering if América Móvil could work with Starlink to provide direct-to-cell service. Daniel Hajj Aboumrad: Yes. I think the real direct to sell service, what I understand is going to be on 2027, something like that. They are going to launch a new satellite and that will be the direct to sell. Well, they have been successful selling broadband to the houses in Latin America, I think all around the world. We are open to do anything for them that makes sense for us, of course, and we're talking with them. And I think it's going to be a good technology. So for doing that, you need to have a spectrum. So I don't know if they already have a spectrum in some places. I understand that they buy spectrum in the U.S. and some in Europe, but I don't know if they have a spectrum in Latin America. So -- but we are open. If your question is, we want -- or we can do something with them, of course, we can -- I think it's a service that makes complement with us. And of course, we are open to do something with them. Andres Coello: Okay. As you know, Entel is doing direct to sell in Chile and Peru. And I understand that in Costa Rica, the service will be available soon. So you are saying that you will wait until 2027 for the service to be available in Mexico. Daniel Hajj Aboumrad: No, we're not waiting. We're talking with them, but I think the real and the orbits of satellites for cell is going to be available in 2027. They are doing something today in some countries, of course. But the one that is going to be big and it's going to be directly to sell is going to be -- I think they said -- is what they said is I'm not stating, but what they said is going to be in 2027. Of course, they already have -- the new constellation is going to be in 2027, but they already have a constellation that can do the fixed broadband. But we're not waiting to talk with them. We are talking with them and see what opportunities we can have. Operator: [Operator Instructions] Our next question comes from the line of Luca Brendan at Bank of America. Luca Bernardinelli: I have 2 from my side here. The first one, can you comment a little on how are you seeing the expansion of your partnership with NuCel? And how relevant it has been for the strong expansion we have seen in Brazil mobile this quarter in terms of new net additions? And then the second one, how do you see the potential impact of the recently announced M&A in Mexico Mobile and what the impact that this could have to the market and to América Móvil more specifically? Daniel Hajj Aboumrad: The second question is the announcement in mobile in Mexico, what? Luca Bernardinelli: Yes, the recent M&A that was announced at Telefonica selling their assets. Daniel Hajj Aboumrad: They buy -- the purchase from Telefonica, the sale of Telefonica in Mexico... Luca Bernardinelli: Yes, yes, that's it. Daniel Hajj Aboumrad: Okay. Well, I don't know if in Brazil, we are disclosing the numbers of number portability between what we have and what's NuCel. What I can tell you that we have been doing very well. In number portability, we have been gaining number portability for the last 4 years, 3, 4 years, gaining number portability in all the regions with all our competitors. So we have been doing well. And with NuCel we increased that number portability. So that's nothing that we have been doing bad and then with NuCel change and we're doing good. So we have been gaining in number portability because we have a very good 5G. We have customer care. We do combos with the fixed. So we have a lot of promotions, and we are, I think, in a very good shape in terms of technology, in customer care. We have been investing in Brazil, and that's giving us good results for the last year. So with NuCel, our portability expands. We are growing. I don't know -- I don't have the numbers here how much is in us and how much is in NuCel. I don't know if in Brazil, but if in Brazil, they disclose that, Daniela can give it to you. But it's something on top of what we have been doing very well. I'm not saying that NuCel, now it's doing very well. And we think that we can still grow more in Brazil in number portability. Since October, I think we're gaining more and more, and I hope we can do more, Luca. And well, how I can see in Mexico, I can say that the last years of Telefonica in Mexico has been shrinking a little bit in terms of technology, in terms of infrastructure, in terms of frequencies. So they are -- they start to be like an MVNO of, I think, Altán and the other of AT&T, they are buying that. So there's a good company, a good name, but not investing what they need to invest in Mexico. And I don't know what's going to be the strategy of this new buyers, and I don't know if they are going to still do and manage the company as an MVNO or they are going to put infrastructure and buy spectrum and compete. So let's see. Still right now, I don't know what they are going to do. Operator: Our next question comes from the line of Phani Kanumuri from HSBC. Phani Kumar Kanumuri: My first question is on Mexico Mobile. The growth seems to be accelerating. What are the major drivers behind the growth in Mexico Mobile? And can we expect this growth to continue in 2026? My second question is on working capital. It seems to have increased a bit in 1Q '26 compared to 1Q '25. What are the reasons behind the increase in working capital? Daniel Hajj Aboumrad: Well, on Mexico Mobile, I think we are growing. Part is I think that the economy in Mexico is getting better. The increase in the salaries, the minimum wages increased 12%, I think, and that gives us an increase also in the prepaid side. So as we have been saying, prepaid is very related to the economy. And if the economy is starting to be better, then the people starting to spend a little bit more. And that's what we have been seeing in the prepaid side. In postpaid, people like our promotions. We are increasing ARPU. And it's not new. I think in postpaid, the growth rate has been very good for the last 5 quarters. So our ARPU is growing. And we are growing in new customers and this -- and our actual customers are moving to better plans and consuming more. So that's more or less what you have been seeing. And I hope that will be -- but it's not in this quarter. I think for the last 5 quarters, 6 quarters, 4 quarters, the growth of postpaid has been doing good. And in prepaid, I think last year, we had a little bit of slowdown because of the slowdown of the economy, but I think the economy is getting better and the recovery is doing good. So that's more or less what we have. Carlos Jose Garcia Moreno Elizondo: And on the working capital, I think there's 2 things to note. One is that we are taking in a bit more inventory. We have been more cautious about availability of supply. If you look at equipment revenues, they've been extremely good, extremely solid this quarter and the last one. And if you look across countries, you will see certainly Mexico, Brazil are showing very, very strong sales of equipment. So that's partly reflected in the working capital. And then again, and it's partly linked to this, we are financing very successfully handsets. The consequence in Mexico, for instance, the way we do it is we are basically leasing the handsets and this basically entails some additional working capital. But it's been good sales and very, very successful these methods of selling the equipment. Daniel Hajj Aboumrad: And to add a little bit of what Carlos is saying, we all know that the memory chips has been increasing a lot, the prices. The price of the handsets is starting to increase. So we want to be sure that we have enough handsets to serve our base, our customer base. So that's really the reason why we increase on inventory. So prices are increasing. So -- and we don't know if only prices increasing or we're going to have a lack of handsets. So that's why we are taking that decision to increase a little bit our inventories. Operator: Our next question comes from the line of Emilio Fuentes De Leon from GBM. Emilio Fuentes De Leon: I have 2 questions regarding Mexico on the operating side. First, regarding the disconnections from the initiative from the digital transformation agency, could you give us a little more color on the nature of these clients? Were they mostly unactive lines? And my second question would be on the broadband side. Given that you're reaching 90% of customers connected through fiber, would this mean that we should expect the net adds to decelerate going forward? Daniel Hajj Aboumrad: Well, you know that since January 9, the registry of lines is -- we have to do it by law, we have to register the line and do a lot of things there. So maybe people is starting to activate less and churn less because they don't want to do it. But well, that is going to happen. So I think there's going to be a lot of cleaning the basis of subscribers and subscribers that they are not using at the end of the day, you need to cancel them because they are not going to be registered in the 1st of July. So there's going to be a lot of things. But all overall, it's only number of lines, not money and consumption and -- so for me, I don't know if -- I'm not looking on how many lines or how many new activations because if I activate a lot, but then they churn in the next 3 or 4 months, it's worse because it's cost for me and it's not a revenue for me. So that will make subscribers, the base of subscribers to be more clean and to really understand where we are in number of subscribers with this new register of lines. So let's see. It's been not as fast as all want, the register. All the new ones has to be registered and all the old ones has to be registered until July 1. So let's see what is going to happen there. But all overall, what I'm saying is a lot of people maybe it's not buying a new phone and staying with that because if they buy the new one, then they have to register. But that's going to finish maybe in July. So there's going to be a lot of things. All overall, the important is how many good subscribers and subscribers that are consuming are the ones that the company has, and that you see in the revenues, in the ARPU in all of that. So that's what is going to happen. [Foreign language] The broadband in what way? And what's the reason why the broadband will slow down? What's your second question? Emilio Fuentes De Leon: Yes. My question was regarding the broadband net adds. Should we expect this to slow down as you reach full penetration on your fiber network? Daniel Hajj Aboumrad: Well, still we have -- I don't think that our broadband will slow down because what we're doing is we're moving from copper to fiber. I think... Carlos Jose Garcia Moreno Elizondo: 93%. Daniel Hajj Aboumrad: 93% of our base is in fiber right now. Carlos Jose Garcia Moreno Elizondo: We have very good bundles in the market. We recently increased the speed almost 1/3 with the same price. So we -- I think we will continue with a good level of net adds... Daniel Hajj Aboumrad: We hope they don't slow down, and we can continue with that number. Operator: Our next question comes from David Lopez at New Street Research. David Lopez: Congrats on the results. A couple of questions, please. First one is a follow-up on Mexican broadband. I was wondering if you could comment on the competition recently, if there has been any changes? And if you could expand a bit on the reason why you've increased the speed on all the packages. And with Televisa upgrading to fiber, a large part of its business, does that mean it's going to be harder for your net adds? And the second question on Brazil. I was wondering if you could comment a bit on your plans for price increase this year. Daniel Hajj Aboumrad: Well, I'm going to start with the second question, and I'm going to let Oscar talk a little bit about the broadband in Mexico. Well, in Brazil, we don't have until now a plan of increasing prices at this moment. I don't know if there's going to be a chance to do it in the year. But right now, we don't have any idea on increasing prices in Brazil in anything in mobile, in broadband, in TV. So we don't have plans to increase prices. And on broadband in Mexico? Carlos Jose Garcia Moreno Elizondo: As we mentioned before, we already upgrade the network. We have a very good network. And you mentioned about the business. We want to differentiate ourselves in broadband, adding value to our small business connectivity. So we are bundled with cloud services, cybersecurity, productivity tools for small business. And really we have a team really focused just on small business to really penetrate not only broadband to bring value added to the small business as well on enterprise. So we believe that, that has been working very well, and the product has been very well adopted in the market. So we believe that we will continue with that. Daniel Hajj Aboumrad: And to talk a little bit about -- I want to do some other comments. I think all overall, América Móvil is doing very well in other countries. We're talking about Mexico a lot. We're talking a lot about Brazil. But I think the recovery in Colombia has been very good. We are increasing in broadband. We're doing much better in postpaid. So in Colombia, I think the market is performing well. We are performing well. We are cutting costs and doing a lot of things. So our revenues are growing, our EBITDA are growing... Carlos Jose Garcia Moreno Elizondo: In Peru. Daniel Hajj Aboumrad: No, in Colombia. In Peru, also, things are going okay with us. We have a tough competitor that has a lot of -- sorry, and in Colombia, we advanced in 5G, and we have the best 5G network until now. So we are doing okay. In Peru, also doing very good in broadband, growing our net adds and performing very well in revenue and in EBITDA. So if you see all the Central America has been doing also good. We talk also about Eastern Europe growing a lot, moving a lot. 5 years ago, we only have mobile. Today, we have mobile and fixed and doing a lot of convergence there. So I think the results and in almost all the countries, we are performing very well, cutting costs, digitalizing, that will help us for the future. We are putting a lot of money on the CapEx on digitalizing our processes, digital IT and doing that in also in big businesses, we are putting more and more cloud, selling more services. So all of that has been doing very strong in our region. And as we said, we want to speed up and take more opportunities there. So that's what I want to talk a little bit more on that. Operator: Our next question comes from the line of Ernesto Gonzalez with Morgan Stanley. Ernesto Gonzalez: And I wanted to ask exactly about Colombia, which you were commenting on a moment ago and a few of the other markets where Telefonica has recently left. Could you discuss a little bit of the trends you're seeing? For example, Colombia, we saw an acceleration in revenues. What is driven by your commercial strategy? What is driven by market consolidation? And any color you could give on these moves is greatly appreciated. Daniel Hajj Aboumrad: Well, in Colombia, we have been investing for a long time. We invest in 5G. We have the best 5G network. So our customers are happy. Our traffic is growing well. In terms of broadband, we have been decreased the last year a little bit, but we are increasing this quarter on the broadband side. We have a lot of competition in Colombia with these ISPs there. And consolidation has been also good. But I think consolidation in Latin America is also being good for all the competitors. So you need to invest. You need to take the opportunities. But all overall, we think the markets are looking better. Ernesto Gonzalez: That's really clear. And just one more question on Mexico. Margins improved, and they were the highest level in a long time. You continue expanding really, really well in fixed. What drove the margin improvement? And how sustainable is it? Daniel Hajj Aboumrad: Well, in fixed, what Oscar is saying is we increased the speeds to all of our customers. So we have fiber, and we're using that fiber. So customers are being -- the evaluation of our customers is that they are happy with the network, happy with the service, and we are going to still give what the market is giving. So we want to be very competitive there. And also in prepaid, as we said, prepaid, let's say, I think -- I don't remember exactly the number, but I think first quarter of last year, we have decrease in revenues in prepaid. And this quarter, we are increasing like 4%, 5% there. So economy is doing better. Customers are consuming more. So all overall, is what -- and we are very strict on the cost control, something that nobody see and is giving us a lot of good is the digitalization of all our process. So we are taking -- we are being much more productive, digitalizing all the process, doing better IT, using some AI and some processes that give us more knowledge of our customers. So all of that is helping us to perform better in each country. Operator: We have reached the end of the Q&A session. I will now turn the call over to Mr. Daniel Hajj for final remarks. Daniel Hajj Aboumrad: Daniela wants to. Daniela Lecuona: Just before we end the call, I just want to remind everyone that we're hosting our next Investor Day in New York City. It is on May 27. The save-the-date has been sent out, and that we will be sharing details on the agenda soon. We really hope to see you all there. And please don't hesitate to contact the team if you have any questions or need any help with the registration. Daniel Hajj Aboumrad: And thank you. Thank you very much. Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to GCC's First Quarter 2026 Earnings Results Conference Call. Before we begin, I'd like to remind you that this call is being recorded. [Operator Instructions]. Please also note that a slide presentation accompanies today's webcast. The link is available on the company's IR website at gcc.com. I would now like to turn the call over to your host, Sahory Ogushi, Head of Investor Relations. Please go ahead. Sahory Ogushi: Good morning, everyone, and thank you for joining. With me today are Enrique Escalante, our Chief Executive Officer; and Maik Strecker, Chief Financial Officer. The earnings release detailing this quarter's results was released yesterday after market close and is available on GCC's IR website. This conference call is also being broadcast live within the Investors section at gcc.com. And both the webcast replay of the call and transcript will be available on the same site approximately 1 hour after the end of today's call. Before we begin, I would like to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in yesterday's press release and in our quarterly report filed with the Mexican Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. With that, let me now turn the call over to Enrique. Hector Enrique Escalante Ochoa: Thank you, Sahory, and good morning, everyone. The first quarter was a strong start to the year and a good example of how GCC performs when market conditions and execution come together across the network. We delivered strong top and bottom line growth, supported by favorable weather and strong project activity across both the United States and Mexico. More importantly, the quarter reinforces the strength of our business model, a flexible network, diversified customer base and the ability to allocate volumes where demand is strongest while continuing to serve customers reliably. That execution begins with the capabilities we built across the organization. Our people strategy reinforces operations consistency, capability building and readiness that underpin the business. Safety remains our top priority, and we continue to make progress across the company with no serious injuries recorded during the quarter. This reflects the consistency of our safety culture and the discipline which is applied across the organization. We also continue to invest in developing our teams with training programs focused on strengthening operational capabilities across our cement and ready-mix operations. During the quarter, we advanced training plans across key areas such as maintenance, production, quality and raw materials with a wide range of topics within each of these teams. This focus strengthens stable day-to-day operations and ensures our teams are prepared to integrate new capacity as we move into the next phase of growth. Under our Planet strategy, we continue to make progress through a pragmatic approach focused on improving efficiency, strengthening operations and managing costs. During the quarter, we increased the share of biomass in our fuel mix and continue to expand the use of blended cement across our network. Blended cement production now represents approximately 76% of total cement volumes, reaching 84% in Mexico, reflecting steady progress in optimizing our product mix. We are also strengthening our fuel flexibility by building natural gas pipeline infrastructure at select cement plants, improving access to lower-cost energy sources and enhancing supply reliability. These efforts support a more efficient and flexible operating model and position us to manage fuel price volatility more effectively over time. Turning now to growth. This is where our focus on execution and network strength translates directly into competitive advantage and better performance across our key markets. The quarter in the United States benefited from favorable weather conditions in our regions, allowing the construction season to begin earlier than usual. This supported activity across our markets, where customers continue to report healthy backlogs, providing visibility into the coming months. By segment, infrastructure remains at a sustained level of activity. We continue to participate in multiple projects across our footprint. And during the quarter, we added an additional interstate highway project in Texas, further strengthening our position in this segment. Residential activity remains under pressure. Mortgage rates increased during the quarter and affordability continues to be a constraint, which is reflected in current activity levels. Ready-mix was again a key driver of performance in the quarter and continues to illustrate the strength of our integrated operating model. In energy-related construction, wind farm activity continues at a strong level this year. While we're comparing again an exceptional level of activity in 2025, we continue to participate in significant projects across Texas, Colorado and North Dakota. During the quarter, we no longer had the contribution from the SunZia project, which was completed last year, but activity in other segments allowed us to offset that volume, reinforcing the diversification of our demand base. We continue seeing growing interest in data center development across our markets. At this stage, we are supplying product for 2 projects and tracking a broader pipeline of opportunities. While most projects are still in early stages, we are following the segment closely and are well positioned to participate as activity advances. In oil and gas, customer sentiment is improving, supported by the current price environment. Customer conversations suggest a more constructive outlook, and they are accelerating activity that was originally planned for the second half of the year. We continue to monitor how conditions evolve, but remain prudent. And at this stage, we are not changing our full year outlook for the segment. Operationally, volumes also benefited from the contribution of our new terminal in Texas and Arizona, which were not present in the prior year period. These assets continue to enhance our ability to serve customers more efficiently and expand our reach across the network. From a commercial standpoint, pricing in the U.S. continues to reflect product, project and geographic mix dynamics, consistent with what we discussed last quarter. Pricing actions originally planned for the start of the year are now being implemented progressively through the second quarter. Overall, performance in the United States reflects the effectiveness of our commercial strategy and our ability to capture opportunities across multiple segments, supporting continued momentum into the year. Turning to Mexico. The first quarter showed a clear improvement compared to last year, with volume growth supported by stronger activity across segments on a normalized comparison basis. What we're seeing in the market is a broader recovery in activity, particularly in housing, self-construction and infrastructure, which gives us a constructive view of the year. In housing, private demand remains strong. The federal housing initiative has also started in certain regions. And while execution has progressed more gradually than initially anticipated, we are prepared to scale shipments as activity expands, particularly in key markets such as Juarez and Chihuahua, where a significant portion of the program within the state will be concentrated. Nonetheless, important projects already started in smaller cities like Delicias and Jimenez. Infrastructure is also showing solid momentum. We are currently participating in a broad set of bridge projects and additional paving projects have been announced at the state level, supporting a favorable outlook as execution accelerates through the year and into 2027. In the industrial segment, activity remains in the early stages of recovery, but customer behavior is moving in the right direction. Land preparation, permitting, and early development work continue to advance and confidence around activity in the coming months is improving. There are approximately 20 new industrial buildings and warehouses under planning and construction phase as we speak. And we continue to expect this segment to strengthen in the second half of the year as visibility improves. As discussed in our last call, a price increase was announced at the beginning of the year, and it has been successfully implemented mostly in every segment and region across the state. Overall, we are optimistic about the outlook in Mexico and are positioning the business to capture the opportunities that are developing across housing, infrastructure and industrial activity. Turning to operations and cost management. Fuel costs are increasing at some of our plants in line with our expectations. However, our flexible fuel strategy continues to be a key advantage in managing this environment. We actively optimize our fuel mix across operations to support cost efficiency. Turning to growth and capital allocation. The Odessa expansion is nearing completion. We are approaching the start-up phase with commissioning activities underway as we prepare to fire up the kiln and begin ramping up production. As we have discussed, 2026 represents a transition into the next phase. The ramp-up will introduce incremental freight cost during the second quarter as we ship additional cement from Pueblo and Samalayuca into the market to maintain uninterrupted supply and protect customer service as new capacity is brought online. This initial temporary increase will be offset by network permanent freight optimization in the latter part of the year. Our M&A approach remains focused and disciplined. We continue to evaluate cement opportunities in the U.S. while maintaining our strategic and financial criteria. In the current environment, our priority is to remain patient with greater emphasis on bolt-on opportunities that strengthen our downstream presence and expand our footprint in attractive markets. We also continue actively searching for aggregate opportunities, both organic and inorganic, to further grow and enhance our presence in this segment. During the quarter, we completed the acquisition of aggregates, asphalt, and ready-mix operations in El Paso, Texas and Southern New Mexico, reinforcing our presence in key markets and expanding our downstream capabilities. This transaction enhances our ability to serve customers more efficiently, supports long-term supply to high-quality reserves, positioning us better for opportunities in the data center space. These acquisitions are expected to contribute positively to cash flow generation during the second half of the year. In summary, the first quarter reflects a good start to the year, supported by favorable operating conditions, strong execution and improving activity across our markets. Our focus remains on delivering reliable service to customers, bringing Odessa online successfully and positioning GCC to capture the opportunities developing across our network. With that, let me now turn the call over to Maik for a review of financial results. Maik Strecker: Thank you, Enrique, and good morning to everyone. Starting with consolidated performance. We delivered sales of $295 million in the first quarter, an increase of 19.8% compared to the same period last year, reflecting strong activities across both the United States and Mexico. In the United States, revenues increased 15.9%, supported by favorable weather conditions and volume growth in both cement and concrete. Cement volumes increased 10.6%, while concrete volumes increased 15.9%. Cement pricing declined by 2.6%, consistent with the product, project and geography mix dynamics we discussed previously. Overall, the quarter reflects stronger activities, the contribution from new terminals and continued execution across multiple demand segments. In Mexico, revenues increased 28.2%, supported by volume growth in both cement and concrete. Cement volumes increased 12.8%, while concrete volumes increased 5.9%. Cement pricing decreased slightly, reflecting a lower share of specialty products, while ready-mix pricing increased 1.2%. Results reflect a stronger comparison base and improving activity across housing and infrastructure segments. From a cost perspective, cost of sales as a percentage of sales increased by 70 basis points, reflecting higher fuel and power costs, a lower contribution from our oil well segment and higher transfer freight associated with supporting the Odessa ramp-up as well as additional transfer freight associated with the new terminal. As Enrique mentioned, these logistics costs are part of deliberate efforts to maintain uninterrupted supply to customers while new capacity is brought online in a controlled manner and as we continue expanding our reach across the network. SG&A expenses increased by $3 million, driven primarily by the appreciation of the Mexican peso against the U.S. dollar and the annual salary adjustments. As a result, EBITDA for the quarter totaled $87 million, an increase of 18.3% compared to the prior year period with an EBITDA margin of 29.5%. As expected, margins declined slightly year-over-year, reflecting the cost and mix effects we discussed earlier. Free cash flow for the quarter totaled negative $10 million, primarily driven due to working capital requirements and higher cash taxes. In terms of capital allocation, we continued to fund strategic investments with capital expenditures totaling $38 million during the quarter related mainly to the Odessa expansion. We also returned $5 million to shareholders through our share buyback program. We ended the quarter with a strong balance sheet with cash and equivalents of $857 million and a net debt-to-EBITDA ratio of negative 0.47x, preserving flexibility to support growth investments and maintaining disciplined capital allocation. In summary, the quarter confirms that volume growth, expense discipline and capital deployment are supporting the next phase of growth. even as the Odessa transition introduces temporary cost pressure. With that, I will turn the call back to Enrique. Hector Enrique Escalante Ochoa: As we look ahead, our expectations for the full year remain unchanged. The first quarter was a good start to the year, and our forecast for 2026 continues to reflect the same market assumptions we outlined previously. Our focus now is on executing the priorities already in front of us with Odessa representing the most important operational milestone for the year, bringing this new capacity online successfully while continuing to support customers and manage the network. It's central to how we are building the next phase of growth. With clear levers within our control, we remain confident in our ability to execute through the remainder of the year. Thank you for your continued support. We will now open up the call for your questions. Operator: [Operator Instructions] Our first question comes from Marcelo Furlan with Itaú. Marcelo Palhares: Can you hear me? Hector Enrique Escalante Ochoa: Yes. We can hear you well. Marcelo Palhares: So I have 2 questions. The first is related to the -- if you guys could provide a little bit detail regarding the overall impact from the war that you guys have seen in the company -- in the company's fundamentals like potential higher costs and also the supply dynamics in Texas with expectations of maybe higher oil well cement consumption or maybe lower cement imports in the states the company operate in the U.S. So that's my first question regarding the overall impact from the conflict. And my second question is related to the free cash flow. So you guys still have the guidance of $200 million in growth for this year, but you guys disbursed $38 million in the first Q. So I'd like to understand if we could expect some acceleration for CapEx moving forward? And also if you guys could provide a little bit more detail regarding the accrual cash needs in the Q? So that's pretty much it from my end. Hector Enrique Escalante Ochoa: Thank you for your question. This is Enrique Escalante. Impact of the war, obviously, I mean, a little bit difficult to understand, I mean exactly what the visibility we have and the changing conditions every day. But I will say that, I mean, overall, yes, we are obviously experiencing some cost inflation, I mean, derived from it. As I mentioned, we have some fuel increase in some of the plants. Fortunately, our mix is still very adequate and very competitive. But concentration in other areas such as freight, it's obviously an impact. We implemented a fuel surcharge already for our ready-mix concrete deliveries. So we're trying to offset as much as we can all those fuel increases through fuel surcharges. On the imports side, obviously, we're in the center part of the state and a little less subject to imports. But ocean freight, of course, has been increasing significantly. I don't think that even though it's increasing, it will decrease significantly the imports into the country because obviously, I mean, freight is a good component of it. But I mean the FOB price in Asia is still very low compared to what we have in the U.S. So I don't see a lot of change there except for, I mean, availability of freight and vessels and delays on shipments. But I think as the war, concludes, I mean, the factor of imports is still going to be a part of the industry dynamics. I will turn the mic here to Maik for the -- to answer the second question on the CapEx. Maik Strecker: Marcelo. Regarding the CapEx, so no changes. Our guidance remains. We started on the maintenance side kind of as planned, a little bit timing effect. But overall, that guidance of $70 million in maintenance remains. And similar to the growth, as expected, it's a little bit slower this year because Odessa is coming to completion. Nevertheless, our guidance of the $200 million in growth remains. So no changes on that. Operator: Our next question comes from Alejandra Obregon with Morgan Stanley. Alejandra Obregon: I guess the first one is on the ready-mix front. The performance was clearly outstanding. And I was wondering if you can explain a little bit more what's behind it. Wondering if it's just a function of the portable ready-mix plants. Is it the diesel surcharge that you just mentioned, or simply downstream catching up on pricing after multiple years of pricing in aggregates and cement? If you can talk about this a little bit. And then on this surcharge for diesel, is this something that you're applying for all the products or only ready-mix? Do you think this is perhaps a practice all across the industry and something that perhaps is explaining why your guidance is unchanged, right? Like costs are up, but then your guidance change means that you're perhaps a little bit more constructive on the cost discipline front, volumes, pricing and everywhere. So those are my 2 questions. Hector Enrique Escalante Ochoa: Thank you for your question. This is Enrique. First, on the ready-mix, I mean, demand and the performance of our business, yes, as you mentioned, it's been a shining star for us last year and this year. And it's basically a result of demand for projects that we have been participating on. I mean wind farms, as we have said in the past, and we continue participating in 3 large projects this year. So this is one capability that we have developed for years in terms of shaping projects with this mobile ready-mix plant. So I just think that we have been at the right pace at the right time with these projects. Importantly, too, it's, of course, I mean, the paving projects that we have had in El Paso, Texas. There's a little bit less activity this year compared to last year, but still, we're going to a new phase, this year that has some significant volumes there. So it's obviously, I mean, an overall demand effect for both mobile plants and fix plants. The fuel surcharge, it's a practice that's well ingrained in the industry. Obviously, I mean, suppliers also pass on to us, I mean the fuel surcharges in the transportation of raw materials and other goods. And we, in turn, try to pass it along in the same way, I mean, to ready-mix and freight on projects. So that's, again, something that is well established and offset somehow at least partially the effect of diesel price increases. In terms of pricing in the U.S., we're going according to our guidance. Basically, if you remember last year, we said we were going to be basically flat, even though we are increasing -- we announced an $8 price increase for the first quarter of the year that's been delayed to the second quarter. It's going, I mean, okay, according to guidance. And the main reason for us ending up with a flat price is the mix of our product segments, geographies and of course, a lot more project work in our pipeline that carries a little bit lower price than cement that goes to, I mean, the permanent concrete producers. So again, I mean, we feel pretty comfortable with this, and we're going again according to guidance, and we don't see a big change in either direction here. So pretty stable. Alejandra Obregon: And if I may follow up on that last comment. So you mentioned that your expectations for a flat price mix for the year. But you also mentioned earlier in the call that you were seeing a shift in conversations and sentiment in oil well cement. So I guess the question is, what would you need to see to change your demand assumptions looking forward on the oil well cement front and therefore, on the price mix as well? Hector Enrique Escalante Ochoa: Yes. Thank you. Yes. And we also mentioned, yes, we're being prudent here in trying not to go too much ahead of time here with decisions on the overall industry segment. Operator: Our next question comes from Adrian Huerta with JPMorgan. Adrian Huerta: My question has to do with margins in the U.S. where we saw some pressure during the quarter. Would it be okay to assume that second Q should be -- we should expect somewhat the same given that probably the increasing prices from these surcharges is also impacting margins and also the expenses that you are having related to Odessa. So once you're in the second half that you have Odessa operating, et cetera, should we see margins -- does it make sense to assume margins should be at least flattish in the second half and down in the first half in the U.S.? Maik Strecker: Adrian, this is Maik. Thank you for your question. So regarding margins in the U.S., as we guided and explained, because of the introduction of the Odessa product and the early support that we have to give now to the network, again, where we support from Samalayuca where we support from Pueblo, we are increasing some of the cost aspects, specifically around logistics. And you will see that in the second quarter as well. And then starting in the third quarter, I think you see a little bit of a normalization. So that's kind of really the guidance we have. Nothing has changed on that. In addition, again, the product mix dynamics, we still see that. Although Enrique mentioned, we see some positive signals on oil and gas. We're cautious there, as you said, what that really means from an overall pricing perspective for that segment. So again, you see a little bit of that mix effect. And therefore, again, guidance remains the same. First and second quarter, some pressure on the margins and then kind of normalization during the second half of the year. Adrian Huerta: And just a follow-up on the ready-mix, is that strong increase that we saw in pricing pretty much related to these surcharges that you implemented in the quarter? Hector Enrique Escalante Ochoa: Yes. Ready-mix pricing is totally related to project work, Adrian. So yes, that's also included in our guidance. Operator: Our next question comes from Carlos Peyrelongue with Bank of America. Carlos Peyrelongue: Congratulations on the strong results. My question is related to capital allocation. As you mentioned, you've completed most of the CapEx for the Odessa expansion. You have close to $850 million in cash and the net debt, net leverage of minus 0.47. Free cash flow is likely to be growing double digits going forward. So the question is all the extra cash, you have ample room for acquisitions as well. Are there other potential uses of your capital, more dividends, buybacks? Just trying to get a sense of with the CapEx of Odessa behind us, are you going to focus on a similar dividend policy? Or are you considering potentially paying more dividends as cash flow keeps on coming in actually stronger going forward than in the last 18 months? Maik Strecker: Carlos, this is Maik. Again, thank you for the question. So regarding capital allocation, so we continue to be, of course, finishing with that, but there's still some capital to be spent. That's why you see that $200 million of growth for this year in the forecast. Also, we're continuing to work on network improvement. So we'll need a little bit of CapEx to take care of that. Then M&A, as Enrique mentioned, we were successful to close the deal in the first quarter, but we have a few more deals in the pipeline, and they look very promising that we can actually action them during that remainder of the year. And the goal would be to utilize the cash on hand to finance these. So that's part of the growth strategy. Then regarding the share buyback program, you saw us a little bit more active. Again, we see an opportunity with our valuation. So you will see us continue being proactive with the share buyback program, and we're going to allocate some capital there. And then finally, on the dividend policy, yes, so no changes. expect us being very consistent on that front as well as we've done it over the last couple of years. Operator: [Operator Instructions] Our next question comes from Yassine Touahri with On Field Investment. Yassine Touahri: I would just try to get an understanding of the volume that were absolutely excellent in cement in the first quarter. Is it fair to assume that you're trying to build a bit of market share in Texas ahead of the opening of your plants and you're maybe like selling cement a little bit further away, let's say, in the Dallas-Fort Worth area or in the San Antonio area. I see that, for example, your volume in Texas in Q1 were nearly 40% when the rest of competitors that have published, the volume only up 10%. So it looks like you're gaining market share. Is it fair that it's a strategy to prepare your market share for the launch of the Odessa plant? And my second question would be on your ready-mix pricing, which was amazing. Do you have a sense of what was the price excluding mix? So if you look at the price increase that you've announced, what was it approximately? I suspect it's not 20% plus. Hector Enrique Escalante Ochoa: This is Enrique Escalante. Let me answer first on the volume of cement in the U.S. increase. No, I mean, I would not say that this comes from market share gains. It's more directly related to what I explained on the project work. Yes, we are getting a little bit more volume in Texas, as I mentioned. But we're being very prudent in the way that we allocate the new volume from the startup of the Odessa plant. We know it's a difficult market situation. So we don't intend on trying to gain a lot of market share here and then have a negative effect on the overall business. It's more, again, related to project work, but it's where we have been loading up the pipeline, and it's been working pretty well for us. In terms of the ready-mix pricing, I will say, I mean, your question on the pricing, it's exactly the same. It's related to project work. If you exclude that project work, I would say that the prices in ready-mix are going according to precisely our guidance. So the effects that you see now are specific projects. Yassine Touahri: So according to guidance would be the prices in Q1 would be like up a little bit like 1%, 2% like-for-like. Is it the right way to look at it for ready-mix? Hector Enrique Escalante Ochoa: In cement plus in ready-mix a little bit around inflation. Yassine Touahri: Okay. And when you're saying that you're spending -- you have a logistical cost, isn't it that you're trying to sell cement a little bit further away, which means that you're entering market that you were not before? Maik Strecker: Yes, I can take this. This is Maik. Again, when Odessa comes online, we will be able to kind of optimize the network. So the additional logistics costs really come using suboptimal distribution link to feed those markets and to manage demand because we have product available in the Samalayuca and Pueblo plants and to reach those markets that in the future will be serviced by Odessa, it costs us a little bit more. And that's just the cost effect there. And as we explained, once Odessa comes online, then the task for the team is to optimize that and then to bring the network into an optimized stage, which then helps us in the later part of the year from a margin perspective. So that's kind of the context on the logistics cost. Yassine Touahri: And then the very last question. So I think price increase of like $5 to $12 have been announced by most cement producers all across the U.S. Do you have any -- I think it's like the negotiations have probably started because those prices were effective on the 1st of April. Do you have any sense of the realization, any pushback? Or is it easier to have those price increase being successful in a context where you've got a lot of oil-related inflation? Hector Enrique Escalante Ochoa: Yes. Our price increase was $8, if you remember for the first quarter. And as I mentioned, it's been delayed. And that delay a little bit part of that pushback and adjusting to what other competitors are doing in the market. But I would say, mostly speaking, it's going according to guidance. And yes, there's always some pushback, but there are other customers that are really aligned with us on the price increase. So overall, I mean, our mix effect, as I mentioned before, will result in a flattish, I mean, price for us, but that includes increasing the price to most of the customers in most of the regions, but the product mix, the geographic mix and the project mix is what is resulting in a flattish increase for us. Yassine Touahri: But I think you were mentioning that prices in Texas would not increase this year, but that it would increase maybe like $4, $5 elsewhere. Is that the right way to think about it? Hector Enrique Escalante Ochoa: No, I would say that, I mean, it's going again according to what I mentioned. I mean, there have been increases in Texas, too, but it's the overall mix that it's not showing it directly, I mean, probably in the specific areas. Yassine Touahri: And -- sorry, the very last one on Mexico, the outlook looks for the -- like we've seen a nice recovery in the first quarter. Is it weather related? Or is it something that could continue for the rest of the year as the activity picks up? Hector Enrique Escalante Ochoa: No. In Mexico, we are very pleased to see, I mean, more activity than what -- probably than what we expected, not enough to change our guidance yet, but it's -- we're certainly more optimistic than what we were at the last quarter about Mexico. We are seeing increases across all segments in volume. And so that has also helped our price increase implementation. So Mexico is looking, I mean, I would say, pretty good. Operator: Our next question comes from Francisco Suarez with Scotiabank. Francisco Suarez: Congrats on these great results. Two questions, if I may. The first one, is it fair to assume that overall drilling activity in the Permian is likely to remain flattish for the rest of the year? Is that a fair assumption? Hector Enrique Escalante Ochoa: Francisco, this is Enrique. Well, I mean, that's what we're assuming. I mean, so far, although as we mentioned, we are obviously staying very close to market dynamics there. We have talked to some customers in the area, of course, and from the beginning of the conflict and asking them what could we expect. And all of the answers we get it, I mean, they need time to see where things stabilize. more medium term because they are not going to, I mean, overreact also, and they are also seeing what -- how things evolve. So that's why we're cautious there. I'm not changing our guidance. But I mean, if you ask me, I mean, there may be the possibility of, I mean, a better outlook there if things continue as they stabilize and then we continue seeing a higher oil price compared to what we had last year, but consistent and with not a lot of swings in the market. So we need more time to see things -- how things stabilize in order to become a little bit more optimistic here. Francisco Suarez: Got you. The second question relates with the overall cost that we've seen for the year. And thank you very much for being very clear on the initial effect on the commissioning of the new kiln that is very, very helpful. But what I want to understand a little bit better is to what extent that increase in cost related with the new shipments coming from Pueblo and Samalayuca and so on, is likely to mask the overall potential benefits or cost reductions in your -- in energy that you may have this year because you have been mentioning that not only you are adding more projects and the ability to substitute fossil fuels in your plants in the U.S., but you are also investing in ways that you will be having a cheaper source of natural gas in some of your plants. So can you elaborate a little bit more on isolating the initial effects on logistics on the ramp-up of your new capacity in Odessa compared to the overall pathways on your on energy costs on the back of these initiatives that you are making this year? Maik Strecker: Francisco, this is Maik. Again, thank you for the question. So maybe a little bit on the production cost to give a little more context. It's a little bit dynamic there as well. So for example, on natural gas costs, they're relatively stable in some plants, slightly better than last year and other plants, slightly elevated. So there's a little bit of natural gas effect. On the power side, we see a little bit more pressure on increase in costs, and we see that specifically in the U.S. network. So it's a little bit too early to exactly say where we land on that, but it has some impact on the cost structure. And of course, we're trying to mitigate that with the small projects that we have in place, so we utilize solar power and so on. And again, it's a little bit too early probably to say here's the full segregation of the logistics impact versus the fuel and power impact. I think that's something as we're working through the year, we're going to continue to communicate around that and explain. Again, the big picture is in your models, think about the first half of the year with some pressure on the cost side, but really mainly driven by logistics, as already explained, and then kind of a normalization during the second half of the year. Operator: Our final question is from Daniel Rojas with Bank of America. Daniel Vielman: Looking at the backlog you have for wind farm construction for the rest of the year, it has been a very healthy source of construction work. I was wondering if this is going to tail off this year or maybe we're going to see that also into next year. And I just want to get a sense of how big the contribution is to your work in the U.S.? And my second question is on natural gas and maybe it's a follow-up from the last question. If you see the Henry Hub pricing, it's below $3 per million Btu and the Waha is even negative. So I'm trying to get a sense of if we extract and we take out all the logistic prices you've already talked a lot about, what would be the cash cost per tonne? And what will be the benefit of having this very low pricing for natural gas? Maik Strecker: Dan, this is Maik. So regarding the backlog, we have a good strong backlog across the -- specifically the ready-mix business for this year. And we're fortunate some of these projects actually start early with the weather conditions being nice. So backlog is solid and really for this year. It's probably too early to talk about 2027. So all the backlog we're talking is really reflected in 2026, and that one is very solid. Regarding the natural gas, like I mentioned, it's still a little bit too early. I think the early indication for us, when you look at the key plant like Odessa, our gas costs are slightly below last year in Odessa, mainly driven by -- there's a good amount of gas available. There's probably some challenges to get all that natural gas out of the country. So we're benefiting from that. But it's too early to say where the kind of the final year settles when it comes to natural gas across the network. Generally speaking, we're expecting kind of flat to maybe some slight increases when you normalize the full year, but nothing dramatic, nothing that puts -- is a concern at this stage for the natural gas for the plants. Hector Enrique Escalante Ochoa: And allow me to add a little bit on what Maik said, and I agree with him, it's difficult to forecast it exactly to the penny at this moment. But we have some positive, I mean, effects also from the natural gas in the form of power here in Mexico with lower power costs in Samalayuca definitely this year, precisely coming from a change of suppliers in power that are now passing on to us the savings on natural gas. And as we mentioned, with the Waha molecule sometimes being negative. So we're benefiting from all of those effects that are offsetting some of the increases that we may have in some parts of the U.S. And also, I mean, we're very actively hedging constantly part of our gas consumption, too. So I think that we will be, I mean, very close to, again, what we guided in terms of margin, and we're going to end up the year very close there. Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back over to Ms. Ogushi. Sahory Ogushi: Thank you again for your time and continued interest in GCC. We look forward to speaking with you again soon. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning. My name is Samantha, and I will be your conference operator today. At this time, I would like to welcome everyone to the América Móvil First Quarter 2026 Conference Call and webcast. [Operator Instructions] I will now turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Daniela Lecuona: Good morning. Thank you all for joining us today to discuss our first quarter of 2026 financial and operating report. We have today on the line Mr. Daniel Hajj, our CEO; Mr. Oscar Von Hauske, our COO; and Mr. Carlos Jose Moreno, our CFO. Daniel Hajj Aboumrad: Thank you, Daniela. Thank you, everyone, for being in the call. Carlos is going to make a summary of the first quarter results. Carlos? Carlos Jose Garcia Moreno Elizondo: Thank you, Daniel. Good morning, everyone. Well, the downward trend on short-term dollar interest rates following the 25 basis points rate reduction of the policy rate by the Fed in December continued in the beginning of the first quarter as the market became increasingly concerned with a potential slowdown in economic activity in the U.S. The value of the dollar versus other currencies, including those in our region of operations declined throughout the first part of the quarter with the dollar falling 4.3% versus the Mexican peso, 3% versus the Chilean peso and 6.4% versus the Brazilian real by the end of February. With the major exception of the latter, U.S. dollar made up practically all its losses in the weeks after the initiation of the war with Iran. Throughout the period, the differential between short-term rates and 10-year rates widened significantly from 8 basis points to 64 basis points at the close of the quarter with investors eyeing both a slowdown in the pace of economic activity possibly even a recession and higher inflation rates. In this context, in the first quarter, we continue to observe a trend towards an acceleration of both postpaid subscriber growth and that of broadband accesses, as you can see in the slide. The base increased 8.8% and 6%, respectively, vis-a-vis the year earlier quarter. First quarter revenue was up 2.1% in Mexican peso terms to MXN 237 billion, with service revenue up 0.6%, equipment revenue 7.4% and other revenue 108%, including the proceeds of a favorable ruling in Chile on account of a dispute around certain TV rights. EBITDA increased at nearly twice the pace as revenue at 3.8% this year in Mexican peso. The figures cited above reflect the appreciation of Mexican peso versus practically all other currencies in our region of operations, having gained 16% versus the dollar 4.6% versus the euro, 4.5% versus the Brazilian real and 2.5% versus the Colombian peso with respect to the same period of 2025. So major appreciation of the peso first quarter of '26 vis-a-vis first quarter of '25. At constant exchange rates, revenue rose 6.1% on the back of a 4.6% increase in service revenue and 11.3% in equipment revenue, driving an 8% expansion in EBITDA. Adjusted for the extraordinary proceeds of the legal ruling, EBITDA was up 7.0%. The greater operating leverage is allowing for faster EBITDA growth with EBITDA now expanding more rapidly than service revenue and led our consolidated EBITDA margin to reach 40%, one of our highest margins that we've seen. At 6.4% year-on-year, a similar pace over the last several quarters, mobile service revenue growth has remained resilient with postpaid revenue growth at 7.3% and prepaid revenue at 5%, having expanded faster quarter after quarter over the last year. Mobile service revenue growth has been on an upward trend in Mexico and Colombia, as you can see in the slide, on the back of greater prepaid revenue, which has been recovering over the last several quarters. On the fixed line platform, service revenue growth was up 1.7% in the first quarter. Some regions, in particular, Eastern Europe, Central America, Peru and Ecuador registered very rapid growth driven by residential demand. As regards to our operating profit, it came in at MXN 50.5 billion, was up 12% in Mexican peso terms, while our comprehensive financing costs declined 9.9%, reflecting lower net interest expenses. These concepts brought about a 25% increase in our net income to MXN 23.4 billion, which was equivalent to MXN 0.39 per share and $0.44 per ADR. Our financial debt reached MXN 527 billion at the end of March, having increased by MXN 2.5 billion versus the one outstanding at the close of December. But this means that our net debt for the period at the end of March stood at MXN 437 billion and was equivalent to 1.41x EBITDA after leases. Our cash flow in the first quarter allowed us to cover MXN 21.6 billion in CapEx, MXN 1.4 billion in share buybacks, MXN 1.5 billion in labor obligations and further to reduce our net debt by MXN 1 billion, okay? So that you can see here in the slide. So with that, I thank you for listening to the presentation, and I will pass the floor back to Daniel for Q&A. Daniel Hajj Aboumrad: Thank you. Thank you, Carlos, and we can start with the Q&A. Operator: [Operator Instructions] Your first question comes from the line of Leonardo Olmos with UBS. Leonardo Olmos: Congrats on the results. I got a couple of questions here. The first on capital allocation and buybacks. With the reduction of net debt to EBITDA to 1.4, how should we think about the balance between continued deleveraging and a more visible acceleration in buybacks from here? What leverage would you make more comfortable stepping up capital returns? And the second one, still on leverage, but more on the M&A context. If operating trends and FX remain broadly stable, should we expect leverage to continue trending lower from here? And how do you think about M&A activity in that context, which -- how is going to impact your free cash flow concerning, I mean, the actual payments of the M&A? That's it. Daniel Hajj Aboumrad: Thank you, Leonardo. Well, a couple of -- what we need to see and what we want is some space because I think the region is in very good shape, okay? So the region is going to -- we're going to have some opportunities in the region, in Latin America and in Eastern Europe. So both we are growing good, and we're doing very good. So we think that in Eastern Europe and Latin America, there's going to be good opportunities, and we are looking for some of them. We already -- we -- just a few months ago, we closed Azteca, the network of Azteca in Colombia. We just closed Desktop. So there's going to be more opportunities on that. So as you said, we need to have a good balance between buybacks, between deleverage and the opportunities that we have. We are looking for some opportunities. And these opportunities are going to give us a very good competitive position in the places where we are looking. So -- these opportunities are going to make a very good fit and are going to allow us to grow more in -- or faster than where we are. So that's where we are, and that's the balance that we have. Carlos was saying, we want to have the debt to 1.3, more or less is what we want to have. We have more opportunities. And we are also -- we are increasing our -- We're increasing to MXN 10,000 million more to have MXN 21,000 million on the fund. We want to buy. We want to buy back more. We want to take the opportunities, and we want to deleverage, as you are saying, we want to have a good balance on that. Right now, I'm personally seeing good opportunities in some countries that makes very good fit for us, and we are looking and doing that. So that's where we are, Leonardo. Leonardo Olmos: Yes. You answered both of my questions in one answer. Just a quick follow-up. In the past, you used to talk about fiber opportunities in LATAM. Are we still on that? Or are you considering mobile or other type of network complementarity? Daniel Hajj Aboumrad: No, we're considering everything. We're considering fiber. I think there's a lot of fiber companies in the region that makes speed. Instead of putting fiber, they are already with fiber and some customers and also spectrum, you know that we buy last year some spectrum in Puerto Rico. There's a lot of things that you can see what we do in Desktop, the backbone that we do with Azteca, Colombia. And you are going to see all this year good opportunities, Leonardo. So we want to take those -- to have a chance to take those opportunities. Operator: Our next question comes from Marcelo Santos at JPMorgan. Marcelo Santos: I have 2. The first is if you could provide us an update on the CapEx plan for 2026. There was a lot of changes in currencies, the Mexican peso getting stronger. So just wanted to hear what you plan for CapEx this year and maybe the next couple of years? And the second one, you mentioned in the release some operational issues in Argentina. Could you please comment a bit on that? Just give a bit more color on that would be great. Daniel Hajj Aboumrad: Well, as you said, we have been having a lot of movements in the exchange rates. And we have been reviewing carefully what we're going to have in each country for the CapEx. You know that the CapEx is part in dollars, part in local currency. So we're reviewing that. But all overall, what we think and finalizing our CapEx, we think that the CapEx for this year is going to be $7 billion -- around $7 billion, depending to be a little bit more, a little bit less depending on, as we said, the exchange rates. And we think that for the next years will be around that. We are going to have our Investor Day in May, and we can finalize the numbers for the next years. But I can say that we are more or less in that number. And Argentina, I don't know what you are asking on Argentina. Marcelo Santos: I think you mentioned on the fixed line business in Argentina that you said the fixed line market has become more challenging because of the difficulties in assessing clients in the Buenos Aires metropolitan area. So just wanted to better understand. Daniel Hajj Aboumrad: We're doing very good putting fiber in Argentina, very difficult for us to do it in Buenos Aires as the capital city. So that's the only thing is where we're putting fiber, we're growing, we're putting broadband, we're giving TV and doing quad-play. It's been very good for us. We are growing very good in Argentina. And the only place where it has been difficult for us is Buenos Aires because I think we have permission, but there we don't it's difficult because they don't rent us the telephone posts and they don't allow all the competition to go there and difficult to do it underground. To go underground has been very difficult to do it there, but that's the main reason that we have. Where we have fiber, we're growing very good, penetrating the network, doing fiber, doing quad-play, doing excellent. So that's been good for us. With all of that, well, we're going to have a big competitor in Buenos Aires because the market share of our competitor Telecom buying Telefonica is going to be high. So let's see what is going to happen there. Operator: Your next question comes from Andres Coello of Scotiabank. Andres Coello: Daniel, as you know, Starlink said back in December that the direct-to-cell service is already available or could be available in Mexico. Obviously, users will appreciate that. And I'm wondering if América Móvil could work with Starlink? Daniel Hajj Aboumrad: I don't hear you so well. Can you repeat the question, please? Andres Coello: Sure. So Starlink said in December that direct-to- cell service is available in Mexico since December. So they could provide a service in Mexico. And this will be obviously very good for users, especially in remote areas. So I'm wondering if América Móvil could work with Starlink to provide direct-to-cell service. Daniel Hajj Aboumrad: Yes. I think the real direct to sell service, what I understand is going to be on 2027, something like that. They are going to launch a new satellite and that will be the direct to sell. Well, they have been successful selling broadband to the houses in Latin America, I think all around the world. We are open to do anything for them that makes sense for us, of course, and we're talking with them. And I think it's going to be a good technology. So for doing that, you need to have a spectrum. So I don't know if they already have a spectrum in some places. I understand that they buy spectrum in the U.S. and some in Europe, but I don't know if they have a spectrum in Latin America. So -- but we are open. If your question is, we want -- or we can do something with them, of course, we can -- I think it's a service that makes complement with us. And of course, we are open to do something with them. Andres Coello: Okay. As you know, Entel is doing direct to sell in Chile and Peru. And I understand that in Costa Rica, the service will be available soon. So you are saying that you will wait until 2027 for the service to be available in Mexico. Daniel Hajj Aboumrad: No, we're not waiting. We're talking with them, but I think the real and the orbits of satellites for cell is going to be available in 2027. They are doing something today in some countries, of course. But the one that is going to be big and it's going to be directly to sell is going to be -- I think they said -- is what they said is I'm not stating, but what they said is going to be in 2027. Of course, they already have -- the new constellation is going to be in 2027, but they already have a constellation that can do the fixed broadband. But we're not waiting to talk with them. We are talking with them and see what opportunities we can have. Operator: [Operator Instructions] Our next question comes from the line of Luca Brendan at Bank of America. Luca Bernardinelli: I have 2 from my side here. The first one, can you comment a little on how are you seeing the expansion of your partnership with NuCel? And how relevant it has been for the strong expansion we have seen in Brazil mobile this quarter in terms of new net additions? And then the second one, how do you see the potential impact of the recently announced M&A in Mexico Mobile and what the impact that this could have to the market and to América Móvil more specifically? Daniel Hajj Aboumrad: The second question is the announcement in mobile in Mexico, what? Luca Bernardinelli: Yes, the recent M&A that was announced at Telefonica selling their assets. Daniel Hajj Aboumrad: They buy -- the purchase from Telefonica, the sale of Telefonica in Mexico... Luca Bernardinelli: Yes, yes, that's it. Daniel Hajj Aboumrad: Okay. Well, I don't know if in Brazil, we are disclosing the numbers of number portability between what we have and what's NuCel. What I can tell you that we have been doing very well. In number portability, we have been gaining number portability for the last 4 years, 3, 4 years, gaining number portability in all the regions with all our competitors. So we have been doing well. And with NuCel we increased that number portability. So that's nothing that we have been doing bad and then with NuCel change and we're doing good. So we have been gaining in number portability because we have a very good 5G. We have customer care. We do combos with the fixed. So we have a lot of promotions, and we are, I think, in a very good shape in terms of technology, in customer care. We have been investing in Brazil, and that's giving us good results for the last year. So with NuCel, our portability expands. We are growing. I don't know -- I don't have the numbers here how much is in us and how much is in NuCel. I don't know if in Brazil, but if in Brazil, they disclose that, Daniela can give it to you. But it's something on top of what we have been doing very well. I'm not saying that NuCel, now it's doing very well. And we think that we can still grow more in Brazil in number portability. Since October, I think we're gaining more and more, and I hope we can do more, Luca. And well, how I can see in Mexico, I can say that the last years of Telefonica in Mexico has been shrinking a little bit in terms of technology, in terms of infrastructure, in terms of frequencies. So they are -- they start to be like an MVNO of, I think, Altán and the other of AT&T, they are buying that. So there's a good company, a good name, but not investing what they need to invest in Mexico. And I don't know what's going to be the strategy of this new buyers, and I don't know if they are going to still do and manage the company as an MVNO or they are going to put infrastructure and buy spectrum and compete. So let's see. Still right now, I don't know what they are going to do. Operator: Our next question comes from the line of Phani Kanumuri from HSBC. Phani Kumar Kanumuri: My first question is on Mexico Mobile. The growth seems to be accelerating. What are the major drivers behind the growth in Mexico Mobile? And can we expect this growth to continue in 2026? My second question is on working capital. It seems to have increased a bit in 1Q '26 compared to 1Q '25. What are the reasons behind the increase in working capital? Daniel Hajj Aboumrad: Well, on Mexico Mobile, I think we are growing. Part is I think that the economy in Mexico is getting better. The increase in the salaries, the minimum wages increased 12%, I think, and that gives us an increase also in the prepaid side. So as we have been saying, prepaid is very related to the economy. And if the economy is starting to be better, then the people starting to spend a little bit more. And that's what we have been seeing in the prepaid side. In postpaid, people like our promotions. We are increasing ARPU. And it's not new. I think in postpaid, the growth rate has been very good for the last 5 quarters. So our ARPU is growing. And we are growing in new customers and this -- and our actual customers are moving to better plans and consuming more. So that's more or less what you have been seeing. And I hope that will be -- but it's not in this quarter. I think for the last 5 quarters, 6 quarters, 4 quarters, the growth of postpaid has been doing good. And in prepaid, I think last year, we had a little bit of slowdown because of the slowdown of the economy, but I think the economy is getting better and the recovery is doing good. So that's more or less what we have. Carlos Jose Garcia Moreno Elizondo: And on the working capital, I think there's 2 things to note. One is that we are taking in a bit more inventory. We have been more cautious about availability of supply. If you look at equipment revenues, they've been extremely good, extremely solid this quarter and the last one. And if you look across countries, you will see certainly Mexico, Brazil are showing very, very strong sales of equipment. So that's partly reflected in the working capital. And then again, and it's partly linked to this, we are financing very successfully handsets. The consequence in Mexico, for instance, the way we do it is we are basically leasing the handsets and this basically entails some additional working capital. But it's been good sales and very, very successful these methods of selling the equipment. Daniel Hajj Aboumrad: And to add a little bit of what Carlos is saying, we all know that the memory chips has been increasing a lot, the prices. The price of the handsets is starting to increase. So we want to be sure that we have enough handsets to serve our base, our customer base. So that's really the reason why we increase on inventory. So prices are increasing. So -- and we don't know if only prices increasing or we're going to have a lack of handsets. So that's why we are taking that decision to increase a little bit our inventories. Operator: Our next question comes from the line of Emilio Fuentes De Leon from GBM. Emilio Fuentes De Leon: I have 2 questions regarding Mexico on the operating side. First, regarding the disconnections from the initiative from the digital transformation agency, could you give us a little more color on the nature of these clients? Were they mostly unactive lines? And my second question would be on the broadband side. Given that you're reaching 90% of customers connected through fiber, would this mean that we should expect the net adds to decelerate going forward? Daniel Hajj Aboumrad: Well, you know that since January 9, the registry of lines is -- we have to do it by law, we have to register the line and do a lot of things there. So maybe people is starting to activate less and churn less because they don't want to do it. But well, that is going to happen. So I think there's going to be a lot of cleaning the basis of subscribers and subscribers that they are not using at the end of the day, you need to cancel them because they are not going to be registered in the 1st of July. So there's going to be a lot of things. But all overall, it's only number of lines, not money and consumption and -- so for me, I don't know if -- I'm not looking on how many lines or how many new activations because if I activate a lot, but then they churn in the next 3 or 4 months, it's worse because it's cost for me and it's not a revenue for me. So that will make subscribers, the base of subscribers to be more clean and to really understand where we are in number of subscribers with this new register of lines. So let's see. It's been not as fast as all want, the register. All the new ones has to be registered and all the old ones has to be registered until July 1. So let's see what is going to happen there. But all overall, what I'm saying is a lot of people maybe it's not buying a new phone and staying with that because if they buy the new one, then they have to register. But that's going to finish maybe in July. So there's going to be a lot of things. All overall, the important is how many good subscribers and subscribers that are consuming are the ones that the company has, and that you see in the revenues, in the ARPU in all of that. So that's what is going to happen. [Foreign language] The broadband in what way? And what's the reason why the broadband will slow down? What's your second question? Emilio Fuentes De Leon: Yes. My question was regarding the broadband net adds. Should we expect this to slow down as you reach full penetration on your fiber network? Daniel Hajj Aboumrad: Well, still we have -- I don't think that our broadband will slow down because what we're doing is we're moving from copper to fiber. I think... Carlos Jose Garcia Moreno Elizondo: 93%. Daniel Hajj Aboumrad: 93% of our base is in fiber right now. Carlos Jose Garcia Moreno Elizondo: We have very good bundles in the market. We recently increased the speed almost 1/3 with the same price. So we -- I think we will continue with a good level of net adds... Daniel Hajj Aboumrad: We hope they don't slow down, and we can continue with that number. Operator: Our next question comes from David Lopez at New Street Research. David Lopez: Congrats on the results. A couple of questions, please. First one is a follow-up on Mexican broadband. I was wondering if you could comment on the competition recently, if there has been any changes? And if you could expand a bit on the reason why you've increased the speed on all the packages. And with Televisa upgrading to fiber, a large part of its business, does that mean it's going to be harder for your net adds? And the second question on Brazil. I was wondering if you could comment a bit on your plans for price increase this year. Daniel Hajj Aboumrad: Well, I'm going to start with the second question, and I'm going to let Oscar talk a little bit about the broadband in Mexico. Well, in Brazil, we don't have until now a plan of increasing prices at this moment. I don't know if there's going to be a chance to do it in the year. But right now, we don't have any idea on increasing prices in Brazil in anything in mobile, in broadband, in TV. So we don't have plans to increase prices. And on broadband in Mexico? Carlos Jose Garcia Moreno Elizondo: As we mentioned before, we already upgrade the network. We have a very good network. And you mentioned about the business. We want to differentiate ourselves in broadband, adding value to our small business connectivity. So we are bundled with cloud services, cybersecurity, productivity tools for small business. And really we have a team really focused just on small business to really penetrate not only broadband to bring value added to the small business as well on enterprise. So we believe that, that has been working very well, and the product has been very well adopted in the market. So we believe that we will continue with that. Daniel Hajj Aboumrad: And to talk a little bit about -- I want to do some other comments. I think all overall, América Móvil is doing very well in other countries. We're talking about Mexico a lot. We're talking a lot about Brazil. But I think the recovery in Colombia has been very good. We are increasing in broadband. We're doing much better in postpaid. So in Colombia, I think the market is performing well. We are performing well. We are cutting costs and doing a lot of things. So our revenues are growing, our EBITDA are growing... Carlos Jose Garcia Moreno Elizondo: In Peru. Daniel Hajj Aboumrad: No, in Colombia. In Peru, also, things are going okay with us. We have a tough competitor that has a lot of -- sorry, and in Colombia, we advanced in 5G, and we have the best 5G network until now. So we are doing okay. In Peru, also doing very good in broadband, growing our net adds and performing very well in revenue and in EBITDA. So if you see all the Central America has been doing also good. We talk also about Eastern Europe growing a lot, moving a lot. 5 years ago, we only have mobile. Today, we have mobile and fixed and doing a lot of convergence there. So I think the results and in almost all the countries, we are performing very well, cutting costs, digitalizing, that will help us for the future. We are putting a lot of money on the CapEx on digitalizing our processes, digital IT and doing that in also in big businesses, we are putting more and more cloud, selling more services. So all of that has been doing very strong in our region. And as we said, we want to speed up and take more opportunities there. So that's what I want to talk a little bit more on that. Operator: Our next question comes from the line of Ernesto Gonzalez with Morgan Stanley. Ernesto Gonzalez: And I wanted to ask exactly about Colombia, which you were commenting on a moment ago and a few of the other markets where Telefonica has recently left. Could you discuss a little bit of the trends you're seeing? For example, Colombia, we saw an acceleration in revenues. What is driven by your commercial strategy? What is driven by market consolidation? And any color you could give on these moves is greatly appreciated. Daniel Hajj Aboumrad: Well, in Colombia, we have been investing for a long time. We invest in 5G. We have the best 5G network. So our customers are happy. Our traffic is growing well. In terms of broadband, we have been decreased the last year a little bit, but we are increasing this quarter on the broadband side. We have a lot of competition in Colombia with these ISPs there. And consolidation has been also good. But I think consolidation in Latin America is also being good for all the competitors. So you need to invest. You need to take the opportunities. But all overall, we think the markets are looking better. Ernesto Gonzalez: That's really clear. And just one more question on Mexico. Margins improved, and they were the highest level in a long time. You continue expanding really, really well in fixed. What drove the margin improvement? And how sustainable is it? Daniel Hajj Aboumrad: Well, in fixed, what Oscar is saying is we increased the speeds to all of our customers. So we have fiber, and we're using that fiber. So customers are being -- the evaluation of our customers is that they are happy with the network, happy with the service, and we are going to still give what the market is giving. So we want to be very competitive there. And also in prepaid, as we said, prepaid, let's say, I think -- I don't remember exactly the number, but I think first quarter of last year, we have decrease in revenues in prepaid. And this quarter, we are increasing like 4%, 5% there. So economy is doing better. Customers are consuming more. So all overall, is what -- and we are very strict on the cost control, something that nobody see and is giving us a lot of good is the digitalization of all our process. So we are taking -- we are being much more productive, digitalizing all the process, doing better IT, using some AI and some processes that give us more knowledge of our customers. So all of that is helping us to perform better in each country. Operator: We have reached the end of the Q&A session. I will now turn the call over to Mr. Daniel Hajj for final remarks. Daniel Hajj Aboumrad: Daniela wants to. Daniela Lecuona: Just before we end the call, I just want to remind everyone that we're hosting our next Investor Day in New York City. It is on May 27. The save-the-date has been sent out, and that we will be sharing details on the agenda soon. We really hope to see you all there. And please don't hesitate to contact the team if you have any questions or need any help with the registration. Daniel Hajj Aboumrad: And thank you. Thank you very much. Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to the Perseus Mining Investor Webinar and Conference Call. [Operator Instructions] I'll now hand over to Perseus Mining Managing Director and CEO, Craig Jones. Thank you, Craig. Craig Jones: Yes. Thanks, Nathan, and welcome to the Perseus Mining quarterly webinar to discuss our March 2026 quarter report, and I'm joined on the call today by our Chief Financial Officer, Lee-Anne de Bruin. It was a good quarter for Perseus. And looking at our operating performance for the quarter, we produced 107,000 ounces of gold, which was up 18,000 ounces on the December quarter and the higher production was achieved from all 3 of our operating mines. The weighted average all-in site cost was USD 1,748 per ounce, which was lower than the previous quarter of USD 1,800 per ounce, and that's mainly due to the higher production. And we achieved a realized gold sale price of $4,143 an ounce, which was $706 an ounce more than the previous quarter. Our average cash margin for the quarter was USD 2,394 per ounce, and that gave us a notional cash flow of -- operating cash flow of USD 252 million from all of the operations, and we finished the quarter with $817 million of net cash and bullion and Lee-Anne will speak to that later on in the call. Given the current global market situation, I just want to address the diesel situation. We acknowledge there's a fuel supply uncertainty globally at the moment, and we continue to closely monitor our fuel supply availability and our consumption levels and our inventory positions to mitigate the risk of operational disruption in the short to medium term. We have fuel supply contracts with reputable fuel suppliers who provide us regular updates regarding our fuel stock levels and broader supply chain conditions. And at this stage, we don't have any foreseeable fuel restrictions. In terms of costs, diesel is approximately 10% of our group's all-in site cost. So if we see sustained higher diesel costs, there may be some limited impact on our cost base. This quarter, we made some important changes to our portfolio. But firstly, at our Nyanzaga project, our drilling program enabled us to deliver an updated ore reserve, which increased our ore reserve by 73% to 4 million ounces of gold since the Nyanzaga feasibility study was completed in April 2025. And that increase is underpinned by 83,000 meters of drilling that was completed since May '24. The increased ore reserve has extended Nyanzaga's mine life to 16 years from 11 years, including 14 years of production at greater than 200,000 ounces of gold per annum. In terms of the project itself, there's been good progress at site and the quarter -- and during the quarter, and it remains on track for first gold in January 2027. In another development last month, we announced our decision to sell our 70% interest in the Meyas Sand Gold Project in Sudan. And this followed a lengthy review of the project and consideration of both development and divestment options. We decided that divestment of the project was the best option for Perseus, and it allows us to reallocate internal resources to our existing internal development opportunities. And that transaction was completed yesterday and all funds have been received. We also made an investment of AUD 23.7 million in gold explorer, Aurum Resources. We participated in Aurum's recent strategic share placement, taking a 9.9% interest in the issued shares of the company. And Aurum is an emerging ASX-listed explorer with their key asset being the Boundiali Gold project, which is a 3 million-ounce predevelopment and prestudy project in Côte d'Ivoire and it's located to the south and just along the strike of our Sissingué gold mine and processing hub. And the northernmost tenements are adjacent to the company's current active mining area at Bagoé. At Yaouré, we achieved a strong quarter with increased gold production and notional cash flow. Overall, gold production for the Yaouré open pit and CMA underground was 36,000 ounces of gold at an all-in site cost of USD 2,049 per ounce. A key milestone for our CMA underground development at Yaouré was achieved in January with first ore coming from the Blika portal and 1,600 ounces of gold has been produced from the CMA underground during the quarter. Yaouré produced USD 68 million of notional cash flow during the quarter. So the underground is making great progress, and we'll commence stoping operations early in this coming -- in this quarter that we're in now. For Edikan, we've produced 45,000 ounces of gold at an all-in site cost of $1,539 per ounce. And whilst our AISC was stable for the quarter, the Government of Ghana has implemented a new royalty regime that came into effect in early March, introducing a sliding scale structure. And under this framework, royalty rates increased progressively in line with rising gold prices and are capped at a maximum of 12% when the gold price exceeds $4,500 per ounce. Some of the increase in royalty will be offset or has been offset by reductions in other levies. So the growth in sustainability levy rate was reduced from 3% down to 1% of gross revenue and this was implemented at the end of March, and a 6% levy on the supply of goods and services has also been removed, providing some relief. Edikan produced a notional cash flow of $124 million for the quarter, and notably, the Fetish and Esuajah North pit cutbacks made progress during the quarter with the approvals being received by the government, and mining has commenced at Fetish early in quarter 4. Our Sissingué operation saw a production increase with the ramp-up of the Bagoé Antoinette deposit and associated increasing grade and tonnes milled. The complex produced 25,000 ounces of gold during the quarter at a weighted average cost of -- all-in site cost of $1,708 per ounce. Production cost decreased by about 20%. And that was due to the higher proportion of the oxide material that's being mined at the Bagoé deposit. The notional cash flow generated by the complex for the quarter was $60 million compared with $25 million last quarter. So overall, it was a very good quarter for Sissingué. Looking ahead, we remain on track to deliver our FY '26 production and cost guidance with gold production between 400,000 and 440,000 ounces and all-in site cost between $1,600 and $1,760 per ounce. So I think now I'll hold it -- I'll hand over to Lee-Anne and she can talk to the financial aspects of our quarter. Lee-Anne de Bruin: Thanks, Craig. As Craig alluded to, the strong operational performance from our 3 sites and with our dedicated teams has delivered a solid financial quarter, assisted by our increased exposure to the gold price upside with the hedge book being rolled off. This has allowed for continued delivery against our stated capital management objectives. As Craig said earlier, we ended the quarter with cash and bullion of $817 million, which was up $62 million on the last quarter. And this is despite our strong investments in our growth projects, Nyanzaga, CMA Underground and ongoing exploration. Perseus' liquidity is growing and is sitting at USD 1.2 billion, and this includes a USD 400 million undrawn debt facility that was secured in December '25. And Importantly, this number of USD 1.2 billion excludes our USD 245 million of liquid investments in relation to Predictive Discovery and Aurum and excludes the $260 million that we will -- we've received in April in relation to the Meyas Sand Growth Project -- Gold Project, should I say. During the quarter, Perseus Board also then approved a $0.05 per share interim dividend equating to $46 million. So this is up 100% on the prior year period and interim period last year. Where available, trading opportunities existed. We continue to execute our buyback in the market. Our share buyback program did a total of $26 million in the quarter at an average price of $5.39. And as mentioned earlier, we continue to wind down our committed hedge position during the quarter with a further reduction from 11% to 9% of the 3-year forecast production. The increase in cash and bullion to $800 million gives consideration to the operational cash flows of $217 million that we delivered from our operations, capital investment in our growth projects. There was $63 million in the quarter invested in progressing in the Nyanzaga growth project -- or Gold Project. We then had $18.6 million invested in the development of the CMA underground. Exploration drilling at all of our assets equated to $8 million, and there was ongoing sustaining capital including numerous TSF works across all 3 of our sites. We purchased a 9.9% share in Aurum for AUD 24 million. And, importantly, we continued contributions to our host countries with $42 million in corporate and other taxes being paid. We also then returned, as you can see, and I mentioned earlier, we returned to our shareholders $64 million, which included the interim dividend paid and $26 million on the share buyback. We just flagged this to show that we're tracking the all-in site cost that we present, we always track to at Perseus versus the all-in sustaining metric, which the World Gold Council reports on. And the key difference here is really the produced versus sold metric that we use as the denominator. And then we had an accumulation of inventory movements, which was largely inventory buildups at Yaouré with increased mining and building up of stockpiles and an additional small impact as a result of a shipment timing at Sissingué. With that, I'll hand back to Craig to talk about our growth projects. Craig Jones: Thank you, Lee-Anne, and a great set of financial results as well for the quarter. So Nyanzaga Gold Project, as I mentioned earlier, remains on budget and schedule with first gold anticipated in January 2027. Overall, the project progress has reached 48% complete by the end of the quarter, and the total cost incurred to date is $220 million. As of the 31st of March, the project recorded over 5.4 million hours worked with no lost time injuries, and the workforce has increased to more than 3,162 personnel and continues to ramp up in line with construction activity. Significant progress was made over the period on all major procurement associated with the project -- so all major procurement is associated with the process plant is complete. The fabrication of the mills, the gyratory crusher and the thickeners have been completed and are in transit to site. Structural steel fabrication has reached 78% completion and progressive site deliveries are underway. The TSF construction has commenced, and it's ahead of schedule. The pre-strip mining activities have commenced, the carbon in leach tanks installation is ongoing with the first 4 tanks nearing their full strake height and the non-process infrastructure is also progressing well. So I look forward to continuing to provide more updates on this transformation project over the coming months. The CMA underground project at Yaouré is also progressing well. As mentioned earlier, we had our first ore mined out of the Blika portal in January, paving the way for production from the first stope, which will be early in the June quarter. At the end of the March quarter, nearly 1,600 meters of lateral development had been achieved and the high-voltage electrical power supply to the underground portals was also completed. So the project is making great progress. We've spent around USD 63 million and the stoping ore, which is coming out this quarter is an important feed for the Yaouré mill. And from a sustainability perspective, we've had a strong focus on vehicles and driving across the business with the implementation of a number of key initiatives. including a review of our vehicle and driving standards, delivering defensive driver training and progressive installation of vehicle and driver monitoring systems. And this effort reflects the reality that vehicles associated with mining and particularly remote operation remains our highest safety risk. So very key and very important focus for the business at the moment from a safety perspective. Our safety indicators remain strong with a TRIFR of 0.75. But as I've said before, our statistics only tell part of the story that true safety performance is measured in human outcomes, and we continue to drive ongoing safety improvements across our business. In terms of our economic contributions in the countries that we operate, our total economic contribution for the quarter was $282 million, including $179 million in local procurement, $91 million in taxes and royalties and $1.3 million in direct community contributions. And we maintain about 95% of our workforce coming from the host countries from which we operate, which really does reflect a genuine commitment to building local capability, just not for our operations today but for our future great opportunities as well. So this was a great quarter for Perseus. We delivered a strong operating performance and continued to build on our cash position whilst making meaningful progress on our strategic growth projects. We made some significant portfolio improvements and all whilst maintaining high sustainability standards. So with a strong balance sheet, high-margin operations and a clear growth path, we believe we are well positioned to continue to deliver strong long-term value for all our shareholders. So thank you, and I'll now open the floor up to questions. Operator: [Operator Instructions] Your first question comes from Richard Knights with Barrenjoey. Richard Knights: Just a couple of cost questions maybe to start with. Firstly, you mentioned that 10% of the all-in site cost was diesel. Is that an average over the past quarter? Or is that using current spot prices? Just trying to get a feel for where that sits. Lee-Anne de Bruin: Yes. So that would have been in our average for the financial year. So -- and it would have been with spot prices probably in about February. Richard Knights: Okay. And what are spot prices? What do they look like now relative to February? Lee-Anne de Bruin: It's slightly different for all the jurisdictions, which is hard to say. So for example, Côte d’'Ivoire is extremely regulated. So we're not seeing the massive increases. But for example, in Ghana, which is slightly less regulated, we are sort of seeing the roll-on of the spot effects there. So we're seeing sort of similar to what you're seeing in the Australian market in Ghana, where prices are going up probably 50%. Richard Knights: Got it. Got it. Okay. Okay, fine. And then Nyanzaga just in terms of procurement, I mean, I think you mentioned that you've finalized your -- everything is being procured basically. But is there any scope for cost escalation there? Or is that all -- is that pretty much complete now? Craig Jones: I think if you look at the -- what we've spent and committed, we're, I think, roughly 60-something-percent of the projects committed. Lee-Anne de Bruin: Yes. Correct. Craig Jones: So all the major items are covered there. So the short answer is we think it's manageable. We're running through kind of all of our definitive estimate work at the moment. And we'll obviously update the market when that's completed. But we're not seeing anything at this point in time that's giving us any concern. Lee-Anne de Bruin: Nothing material. I mean a large amount of our procurement was contracted and secured last year. So I'm not going to see -- I'm not seeing the major material items. Richard Knights: Yes. Okay. Great. And finally, just on Aurum, I mean I know you're limited in what you can say, but there's obviously some proximity to Sissingué. At a high level, do you see this as a sort of interesting stand-alone opportunity? Or is there potentially some synergy there with Sissingué coming to the end of its mine life? Craig Jones: Potentially. I think if you look at Aurum and they were running a placement in which we chose to participate in, I think it's a strategic investment on our behalf. I think that the -- as I said before, some of those northern tenements are nearby to where we're currently mining at Bagoé, but also Caigen and the team have done a great job of the exploration there, and we were keen to support that and see where things take this. But at this stage, it's really just a strategic investment. Operator: Your next question comes from Adam Baker at Macquarie. Adam Baker: Just firstly, maybe on -- I understand, pretty good outcome there, $260 million from the sale of that project, a valuation significantly above what market expectations were. So just flagging, is there any use for the cash here? Like have you given any consideration to further shareholder returns through a special dividend or whatnot or are you just going to bank the cash at this stage? Craig Jones: We'll consider all that. I think, obviously, as we come towards the end of the year and we start talking about dividends and make decisions on what we're going to pay as a dividend this year. Obviously, it all contributes to our cash position and contributes to that conversation, but no decisions have been made at this point in time. Adam Baker: Yes. Okay. And secondly, at Sissingué, just the difference between sales and production. Was this just a timing issue? Or could you just touch on the difference there? Craig Jones: Yes. It's just a shipping timing difference. That's all, Adam. Adam Baker: Okay. And then thirdly, just on the fuel supply situation. I mean you mentioned that you've got contracts with all the major suppliers. You're not seeing impacts at the moment from a supply point of view. Could you just maybe talk to what sort of inventories you generally tend to store on site? How many weeks of fuel supply that you have there? And you mentioned you're not seeing any angst, I guess, all okay from that perspective. But yes, maybe you could touch on that. Lee-Anne de Bruin: Yes, sure. So we generally have between 1 to 2 weeks of fuel on site for all of our sites. I think just stepping back towards the supply issue, the supply issue for us is slightly different to your Australian mines because a lot of the fuel is sourced out of Nigeria in those areas and Côte d'Ivoire specifically has its own refineries. So that said, we are continually looking at whether there's opportunity to increase our stock levels. In Ghana, we've got a long-standing relationship with Zen Fuel and they have got large quantums of fuel on -- actually in Ghana that they have set their stock up for just their mining companies. So we continue to manage the risk and looking at it. But all the work we've done in the last couple of weeks doesn't indicate anything around the supply issue. It's more just looking at the pricing issue. So -- but we will continue to monitor that on an ongoing basis. Operator: The next question is from David Radclyffe at Global Mining Research. He's -- I'll just read it out for David. He's asked for Yaouré specifically, can you provide some expectations for this quarter? And also if the guidance includes the CMA pre-commercial ounces or not? Craig Jones: The guidance for the quarter is that we remain within the guidance range that we have published. And as we mentioned in the last quarterly report at the lower half of that guidance, so that remains. And yes, the CMA underground ounces are an important part of that production for the final quarter. Operator: Thank you. There are no further questions at this time. So I'll now hand back to Craig for closing remarks. Craig Jones: Okay. Thanks, Nathan, and thanks, everyone, for your participation and interest. I really just want to make a call out to the great people that create the results that we presented today. Perseus has a dedicated team of people across the globe, and they show up every day and live the values of teamwork, integrity, commitment and achievement. And I just want to thank them all for their contributions and thank you for your attendance.
Operator: Good morning, and welcome to GCC's First Quarter 2026 Earnings Results Conference Call. Before we begin, I'd like to remind you that this call is being recorded. [Operator Instructions]. Please also note that a slide presentation accompanies today's webcast. The link is available on the company's IR website at gcc.com. I would now like to turn the call over to your host, Sahory Ogushi, Head of Investor Relations. Please go ahead. Sahory Ogushi: Good morning, everyone, and thank you for joining. With me today are Enrique Escalante, our Chief Executive Officer; and Maik Strecker, Chief Financial Officer. The earnings release detailing this quarter's results was released yesterday after market close and is available on GCC's IR website. This conference call is also being broadcast live within the Investors section at gcc.com. And both the webcast replay of the call and transcript will be available on the same site approximately 1 hour after the end of today's call. Before we begin, I would like to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in yesterday's press release and in our quarterly report filed with the Mexican Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. With that, let me now turn the call over to Enrique. Hector Enrique Escalante Ochoa: Thank you, Sahory, and good morning, everyone. The first quarter was a strong start to the year and a good example of how GCC performs when market conditions and execution come together across the network. We delivered strong top and bottom line growth, supported by favorable weather and strong project activity across both the United States and Mexico. More importantly, the quarter reinforces the strength of our business model, a flexible network, diversified customer base and the ability to allocate volumes where demand is strongest while continuing to serve customers reliably. That execution begins with the capabilities we built across the organization. Our people strategy reinforces operations consistency, capability building and readiness that underpin the business. Safety remains our top priority, and we continue to make progress across the company with no serious injuries recorded during the quarter. This reflects the consistency of our safety culture and the discipline which is applied across the organization. We also continue to invest in developing our teams with training programs focused on strengthening operational capabilities across our cement and ready-mix operations. During the quarter, we advanced training plans across key areas such as maintenance, production, quality and raw materials with a wide range of topics within each of these teams. This focus strengthens stable day-to-day operations and ensures our teams are prepared to integrate new capacity as we move into the next phase of growth. Under our Planet strategy, we continue to make progress through a pragmatic approach focused on improving efficiency, strengthening operations and managing costs. During the quarter, we increased the share of biomass in our fuel mix and continue to expand the use of blended cement across our network. Blended cement production now represents approximately 76% of total cement volumes, reaching 84% in Mexico, reflecting steady progress in optimizing our product mix. We are also strengthening our fuel flexibility by building natural gas pipeline infrastructure at select cement plants, improving access to lower-cost energy sources and enhancing supply reliability. These efforts support a more efficient and flexible operating model and position us to manage fuel price volatility more effectively over time. Turning now to growth. This is where our focus on execution and network strength translates directly into competitive advantage and better performance across our key markets. The quarter in the United States benefited from favorable weather conditions in our regions, allowing the construction season to begin earlier than usual. This supported activity across our markets, where customers continue to report healthy backlogs, providing visibility into the coming months. By segment, infrastructure remains at a sustained level of activity. We continue to participate in multiple projects across our footprint. And during the quarter, we added an additional interstate highway project in Texas, further strengthening our position in this segment. Residential activity remains under pressure. Mortgage rates increased during the quarter and affordability continues to be a constraint, which is reflected in current activity levels. Ready-mix was again a key driver of performance in the quarter and continues to illustrate the strength of our integrated operating model. In energy-related construction, wind farm activity continues at a strong level this year. While we're comparing again an exceptional level of activity in 2025, we continue to participate in significant projects across Texas, Colorado and North Dakota. During the quarter, we no longer had the contribution from the SunZia project, which was completed last year, but activity in other segments allowed us to offset that volume, reinforcing the diversification of our demand base. We continue seeing growing interest in data center development across our markets. At this stage, we are supplying product for 2 projects and tracking a broader pipeline of opportunities. While most projects are still in early stages, we are following the segment closely and are well positioned to participate as activity advances. In oil and gas, customer sentiment is improving, supported by the current price environment. Customer conversations suggest a more constructive outlook, and they are accelerating activity that was originally planned for the second half of the year. We continue to monitor how conditions evolve, but remain prudent. And at this stage, we are not changing our full year outlook for the segment. Operationally, volumes also benefited from the contribution of our new terminal in Texas and Arizona, which were not present in the prior year period. These assets continue to enhance our ability to serve customers more efficiently and expand our reach across the network. From a commercial standpoint, pricing in the U.S. continues to reflect product, project and geographic mix dynamics, consistent with what we discussed last quarter. Pricing actions originally planned for the start of the year are now being implemented progressively through the second quarter. Overall, performance in the United States reflects the effectiveness of our commercial strategy and our ability to capture opportunities across multiple segments, supporting continued momentum into the year. Turning to Mexico. The first quarter showed a clear improvement compared to last year, with volume growth supported by stronger activity across segments on a normalized comparison basis. What we're seeing in the market is a broader recovery in activity, particularly in housing, self-construction and infrastructure, which gives us a constructive view of the year. In housing, private demand remains strong. The federal housing initiative has also started in certain regions. And while execution has progressed more gradually than initially anticipated, we are prepared to scale shipments as activity expands, particularly in key markets such as Juarez and Chihuahua, where a significant portion of the program within the state will be concentrated. Nonetheless, important projects already started in smaller cities like Delicias and Jimenez. Infrastructure is also showing solid momentum. We are currently participating in a broad set of bridge projects and additional paving projects have been announced at the state level, supporting a favorable outlook as execution accelerates through the year and into 2027. In the industrial segment, activity remains in the early stages of recovery, but customer behavior is moving in the right direction. Land preparation, permitting, and early development work continue to advance and confidence around activity in the coming months is improving. There are approximately 20 new industrial buildings and warehouses under planning and construction phase as we speak. And we continue to expect this segment to strengthen in the second half of the year as visibility improves. As discussed in our last call, a price increase was announced at the beginning of the year, and it has been successfully implemented mostly in every segment and region across the state. Overall, we are optimistic about the outlook in Mexico and are positioning the business to capture the opportunities that are developing across housing, infrastructure and industrial activity. Turning to operations and cost management. Fuel costs are increasing at some of our plants in line with our expectations. However, our flexible fuel strategy continues to be a key advantage in managing this environment. We actively optimize our fuel mix across operations to support cost efficiency. Turning to growth and capital allocation. The Odessa expansion is nearing completion. We are approaching the start-up phase with commissioning activities underway as we prepare to fire up the kiln and begin ramping up production. As we have discussed, 2026 represents a transition into the next phase. The ramp-up will introduce incremental freight cost during the second quarter as we ship additional cement from Pueblo and Samalayuca into the market to maintain uninterrupted supply and protect customer service as new capacity is brought online. This initial temporary increase will be offset by network permanent freight optimization in the latter part of the year. Our M&A approach remains focused and disciplined. We continue to evaluate cement opportunities in the U.S. while maintaining our strategic and financial criteria. In the current environment, our priority is to remain patient with greater emphasis on bolt-on opportunities that strengthen our downstream presence and expand our footprint in attractive markets. We also continue actively searching for aggregate opportunities, both organic and inorganic, to further grow and enhance our presence in this segment. During the quarter, we completed the acquisition of aggregates, asphalt, and ready-mix operations in El Paso, Texas and Southern New Mexico, reinforcing our presence in key markets and expanding our downstream capabilities. This transaction enhances our ability to serve customers more efficiently, supports long-term supply to high-quality reserves, positioning us better for opportunities in the data center space. These acquisitions are expected to contribute positively to cash flow generation during the second half of the year. In summary, the first quarter reflects a good start to the year, supported by favorable operating conditions, strong execution and improving activity across our markets. Our focus remains on delivering reliable service to customers, bringing Odessa online successfully and positioning GCC to capture the opportunities developing across our network. With that, let me now turn the call over to Maik for a review of financial results. Maik Strecker: Thank you, Enrique, and good morning to everyone. Starting with consolidated performance. We delivered sales of $295 million in the first quarter, an increase of 19.8% compared to the same period last year, reflecting strong activities across both the United States and Mexico. In the United States, revenues increased 15.9%, supported by favorable weather conditions and volume growth in both cement and concrete. Cement volumes increased 10.6%, while concrete volumes increased 15.9%. Cement pricing declined by 2.6%, consistent with the product, project and geography mix dynamics we discussed previously. Overall, the quarter reflects stronger activities, the contribution from new terminals and continued execution across multiple demand segments. In Mexico, revenues increased 28.2%, supported by volume growth in both cement and concrete. Cement volumes increased 12.8%, while concrete volumes increased 5.9%. Cement pricing decreased slightly, reflecting a lower share of specialty products, while ready-mix pricing increased 1.2%. Results reflect a stronger comparison base and improving activity across housing and infrastructure segments. From a cost perspective, cost of sales as a percentage of sales increased by 70 basis points, reflecting higher fuel and power costs, a lower contribution from our oil well segment and higher transfer freight associated with supporting the Odessa ramp-up as well as additional transfer freight associated with the new terminal. As Enrique mentioned, these logistics costs are part of deliberate efforts to maintain uninterrupted supply to customers while new capacity is brought online in a controlled manner and as we continue expanding our reach across the network. SG&A expenses increased by $3 million, driven primarily by the appreciation of the Mexican peso against the U.S. dollar and the annual salary adjustments. As a result, EBITDA for the quarter totaled $87 million, an increase of 18.3% compared to the prior year period with an EBITDA margin of 29.5%. As expected, margins declined slightly year-over-year, reflecting the cost and mix effects we discussed earlier. Free cash flow for the quarter totaled negative $10 million, primarily driven due to working capital requirements and higher cash taxes. In terms of capital allocation, we continued to fund strategic investments with capital expenditures totaling $38 million during the quarter related mainly to the Odessa expansion. We also returned $5 million to shareholders through our share buyback program. We ended the quarter with a strong balance sheet with cash and equivalents of $857 million and a net debt-to-EBITDA ratio of negative 0.47x, preserving flexibility to support growth investments and maintaining disciplined capital allocation. In summary, the quarter confirms that volume growth, expense discipline and capital deployment are supporting the next phase of growth. even as the Odessa transition introduces temporary cost pressure. With that, I will turn the call back to Enrique. Hector Enrique Escalante Ochoa: As we look ahead, our expectations for the full year remain unchanged. The first quarter was a good start to the year, and our forecast for 2026 continues to reflect the same market assumptions we outlined previously. Our focus now is on executing the priorities already in front of us with Odessa representing the most important operational milestone for the year, bringing this new capacity online successfully while continuing to support customers and manage the network. It's central to how we are building the next phase of growth. With clear levers within our control, we remain confident in our ability to execute through the remainder of the year. Thank you for your continued support. We will now open up the call for your questions. Operator: [Operator Instructions] Our first question comes from Marcelo Furlan with Itaú. Marcelo Palhares: Can you hear me? Hector Enrique Escalante Ochoa: Yes. We can hear you well. Marcelo Palhares: So I have 2 questions. The first is related to the -- if you guys could provide a little bit detail regarding the overall impact from the war that you guys have seen in the company -- in the company's fundamentals like potential higher costs and also the supply dynamics in Texas with expectations of maybe higher oil well cement consumption or maybe lower cement imports in the states the company operate in the U.S. So that's my first question regarding the overall impact from the conflict. And my second question is related to the free cash flow. So you guys still have the guidance of $200 million in growth for this year, but you guys disbursed $38 million in the first Q. So I'd like to understand if we could expect some acceleration for CapEx moving forward? And also if you guys could provide a little bit more detail regarding the accrual cash needs in the Q? So that's pretty much it from my end. Hector Enrique Escalante Ochoa: Thank you for your question. This is Enrique Escalante. Impact of the war, obviously, I mean, a little bit difficult to understand, I mean exactly what the visibility we have and the changing conditions every day. But I will say that, I mean, overall, yes, we are obviously experiencing some cost inflation, I mean, derived from it. As I mentioned, we have some fuel increase in some of the plants. Fortunately, our mix is still very adequate and very competitive. But concentration in other areas such as freight, it's obviously an impact. We implemented a fuel surcharge already for our ready-mix concrete deliveries. So we're trying to offset as much as we can all those fuel increases through fuel surcharges. On the imports side, obviously, we're in the center part of the state and a little less subject to imports. But ocean freight, of course, has been increasing significantly. I don't think that even though it's increasing, it will decrease significantly the imports into the country because obviously, I mean, freight is a good component of it. But I mean the FOB price in Asia is still very low compared to what we have in the U.S. So I don't see a lot of change there except for, I mean, availability of freight and vessels and delays on shipments. But I think as the war, concludes, I mean, the factor of imports is still going to be a part of the industry dynamics. I will turn the mic here to Maik for the -- to answer the second question on the CapEx. Maik Strecker: Marcelo. Regarding the CapEx, so no changes. Our guidance remains. We started on the maintenance side kind of as planned, a little bit timing effect. But overall, that guidance of $70 million in maintenance remains. And similar to the growth, as expected, it's a little bit slower this year because Odessa is coming to completion. Nevertheless, our guidance of the $200 million in growth remains. So no changes on that. Operator: Our next question comes from Alejandra Obregon with Morgan Stanley. Alejandra Obregon: I guess the first one is on the ready-mix front. The performance was clearly outstanding. And I was wondering if you can explain a little bit more what's behind it. Wondering if it's just a function of the portable ready-mix plants. Is it the diesel surcharge that you just mentioned, or simply downstream catching up on pricing after multiple years of pricing in aggregates and cement? If you can talk about this a little bit. And then on this surcharge for diesel, is this something that you're applying for all the products or only ready-mix? Do you think this is perhaps a practice all across the industry and something that perhaps is explaining why your guidance is unchanged, right? Like costs are up, but then your guidance change means that you're perhaps a little bit more constructive on the cost discipline front, volumes, pricing and everywhere. So those are my 2 questions. Hector Enrique Escalante Ochoa: Thank you for your question. This is Enrique. First, on the ready-mix, I mean, demand and the performance of our business, yes, as you mentioned, it's been a shining star for us last year and this year. And it's basically a result of demand for projects that we have been participating on. I mean wind farms, as we have said in the past, and we continue participating in 3 large projects this year. So this is one capability that we have developed for years in terms of shaping projects with this mobile ready-mix plant. So I just think that we have been at the right pace at the right time with these projects. Importantly, too, it's, of course, I mean, the paving projects that we have had in El Paso, Texas. There's a little bit less activity this year compared to last year, but still, we're going to a new phase, this year that has some significant volumes there. So it's obviously, I mean, an overall demand effect for both mobile plants and fix plants. The fuel surcharge, it's a practice that's well ingrained in the industry. Obviously, I mean, suppliers also pass on to us, I mean the fuel surcharges in the transportation of raw materials and other goods. And we, in turn, try to pass it along in the same way, I mean, to ready-mix and freight on projects. So that's, again, something that is well established and offset somehow at least partially the effect of diesel price increases. In terms of pricing in the U.S., we're going according to our guidance. Basically, if you remember last year, we said we were going to be basically flat, even though we are increasing -- we announced an $8 price increase for the first quarter of the year that's been delayed to the second quarter. It's going, I mean, okay, according to guidance. And the main reason for us ending up with a flat price is the mix of our product segments, geographies and of course, a lot more project work in our pipeline that carries a little bit lower price than cement that goes to, I mean, the permanent concrete producers. So again, I mean, we feel pretty comfortable with this, and we're going again according to guidance, and we don't see a big change in either direction here. So pretty stable. Alejandra Obregon: And if I may follow up on that last comment. So you mentioned that your expectations for a flat price mix for the year. But you also mentioned earlier in the call that you were seeing a shift in conversations and sentiment in oil well cement. So I guess the question is, what would you need to see to change your demand assumptions looking forward on the oil well cement front and therefore, on the price mix as well? Hector Enrique Escalante Ochoa: Yes. Thank you. Yes. And we also mentioned, yes, we're being prudent here in trying not to go too much ahead of time here with decisions on the overall industry segment. Operator: Our next question comes from Adrian Huerta with JPMorgan. Adrian Huerta: My question has to do with margins in the U.S. where we saw some pressure during the quarter. Would it be okay to assume that second Q should be -- we should expect somewhat the same given that probably the increasing prices from these surcharges is also impacting margins and also the expenses that you are having related to Odessa. So once you're in the second half that you have Odessa operating, et cetera, should we see margins -- does it make sense to assume margins should be at least flattish in the second half and down in the first half in the U.S.? Maik Strecker: Adrian, this is Maik. Thank you for your question. So regarding margins in the U.S., as we guided and explained, because of the introduction of the Odessa product and the early support that we have to give now to the network, again, where we support from Samalayuca where we support from Pueblo, we are increasing some of the cost aspects, specifically around logistics. And you will see that in the second quarter as well. And then starting in the third quarter, I think you see a little bit of a normalization. So that's kind of really the guidance we have. Nothing has changed on that. In addition, again, the product mix dynamics, we still see that. Although Enrique mentioned, we see some positive signals on oil and gas. We're cautious there, as you said, what that really means from an overall pricing perspective for that segment. So again, you see a little bit of that mix effect. And therefore, again, guidance remains the same. First and second quarter, some pressure on the margins and then kind of normalization during the second half of the year. Adrian Huerta: And just a follow-up on the ready-mix, is that strong increase that we saw in pricing pretty much related to these surcharges that you implemented in the quarter? Hector Enrique Escalante Ochoa: Yes. Ready-mix pricing is totally related to project work, Adrian. So yes, that's also included in our guidance. Operator: Our next question comes from Carlos Peyrelongue with Bank of America. Carlos Peyrelongue: Congratulations on the strong results. My question is related to capital allocation. As you mentioned, you've completed most of the CapEx for the Odessa expansion. You have close to $850 million in cash and the net debt, net leverage of minus 0.47. Free cash flow is likely to be growing double digits going forward. So the question is all the extra cash, you have ample room for acquisitions as well. Are there other potential uses of your capital, more dividends, buybacks? Just trying to get a sense of with the CapEx of Odessa behind us, are you going to focus on a similar dividend policy? Or are you considering potentially paying more dividends as cash flow keeps on coming in actually stronger going forward than in the last 18 months? Maik Strecker: Carlos, this is Maik. Again, thank you for the question. So regarding capital allocation, so we continue to be, of course, finishing with that, but there's still some capital to be spent. That's why you see that $200 million of growth for this year in the forecast. Also, we're continuing to work on network improvement. So we'll need a little bit of CapEx to take care of that. Then M&A, as Enrique mentioned, we were successful to close the deal in the first quarter, but we have a few more deals in the pipeline, and they look very promising that we can actually action them during that remainder of the year. And the goal would be to utilize the cash on hand to finance these. So that's part of the growth strategy. Then regarding the share buyback program, you saw us a little bit more active. Again, we see an opportunity with our valuation. So you will see us continue being proactive with the share buyback program, and we're going to allocate some capital there. And then finally, on the dividend policy, yes, so no changes. expect us being very consistent on that front as well as we've done it over the last couple of years. Operator: [Operator Instructions] Our next question comes from Yassine Touahri with On Field Investment. Yassine Touahri: I would just try to get an understanding of the volume that were absolutely excellent in cement in the first quarter. Is it fair to assume that you're trying to build a bit of market share in Texas ahead of the opening of your plants and you're maybe like selling cement a little bit further away, let's say, in the Dallas-Fort Worth area or in the San Antonio area. I see that, for example, your volume in Texas in Q1 were nearly 40% when the rest of competitors that have published, the volume only up 10%. So it looks like you're gaining market share. Is it fair that it's a strategy to prepare your market share for the launch of the Odessa plant? And my second question would be on your ready-mix pricing, which was amazing. Do you have a sense of what was the price excluding mix? So if you look at the price increase that you've announced, what was it approximately? I suspect it's not 20% plus. Hector Enrique Escalante Ochoa: This is Enrique Escalante. Let me answer first on the volume of cement in the U.S. increase. No, I mean, I would not say that this comes from market share gains. It's more directly related to what I explained on the project work. Yes, we are getting a little bit more volume in Texas, as I mentioned. But we're being very prudent in the way that we allocate the new volume from the startup of the Odessa plant. We know it's a difficult market situation. So we don't intend on trying to gain a lot of market share here and then have a negative effect on the overall business. It's more, again, related to project work, but it's where we have been loading up the pipeline, and it's been working pretty well for us. In terms of the ready-mix pricing, I will say, I mean, your question on the pricing, it's exactly the same. It's related to project work. If you exclude that project work, I would say that the prices in ready-mix are going according to precisely our guidance. So the effects that you see now are specific projects. Yassine Touahri: So according to guidance would be the prices in Q1 would be like up a little bit like 1%, 2% like-for-like. Is it the right way to look at it for ready-mix? Hector Enrique Escalante Ochoa: In cement plus in ready-mix a little bit around inflation. Yassine Touahri: Okay. And when you're saying that you're spending -- you have a logistical cost, isn't it that you're trying to sell cement a little bit further away, which means that you're entering market that you were not before? Maik Strecker: Yes, I can take this. This is Maik. Again, when Odessa comes online, we will be able to kind of optimize the network. So the additional logistics costs really come using suboptimal distribution link to feed those markets and to manage demand because we have product available in the Samalayuca and Pueblo plants and to reach those markets that in the future will be serviced by Odessa, it costs us a little bit more. And that's just the cost effect there. And as we explained, once Odessa comes online, then the task for the team is to optimize that and then to bring the network into an optimized stage, which then helps us in the later part of the year from a margin perspective. So that's kind of the context on the logistics cost. Yassine Touahri: And then the very last question. So I think price increase of like $5 to $12 have been announced by most cement producers all across the U.S. Do you have any -- I think it's like the negotiations have probably started because those prices were effective on the 1st of April. Do you have any sense of the realization, any pushback? Or is it easier to have those price increase being successful in a context where you've got a lot of oil-related inflation? Hector Enrique Escalante Ochoa: Yes. Our price increase was $8, if you remember for the first quarter. And as I mentioned, it's been delayed. And that delay a little bit part of that pushback and adjusting to what other competitors are doing in the market. But I would say, mostly speaking, it's going according to guidance. And yes, there's always some pushback, but there are other customers that are really aligned with us on the price increase. So overall, I mean, our mix effect, as I mentioned before, will result in a flattish, I mean, price for us, but that includes increasing the price to most of the customers in most of the regions, but the product mix, the geographic mix and the project mix is what is resulting in a flattish increase for us. Yassine Touahri: But I think you were mentioning that prices in Texas would not increase this year, but that it would increase maybe like $4, $5 elsewhere. Is that the right way to think about it? Hector Enrique Escalante Ochoa: No, I would say that, I mean, it's going again according to what I mentioned. I mean, there have been increases in Texas, too, but it's the overall mix that it's not showing it directly, I mean, probably in the specific areas. Yassine Touahri: And -- sorry, the very last one on Mexico, the outlook looks for the -- like we've seen a nice recovery in the first quarter. Is it weather related? Or is it something that could continue for the rest of the year as the activity picks up? Hector Enrique Escalante Ochoa: No. In Mexico, we are very pleased to see, I mean, more activity than what -- probably than what we expected, not enough to change our guidance yet, but it's -- we're certainly more optimistic than what we were at the last quarter about Mexico. We are seeing increases across all segments in volume. And so that has also helped our price increase implementation. So Mexico is looking, I mean, I would say, pretty good. Operator: Our next question comes from Francisco Suarez with Scotiabank. Francisco Suarez: Congrats on these great results. Two questions, if I may. The first one, is it fair to assume that overall drilling activity in the Permian is likely to remain flattish for the rest of the year? Is that a fair assumption? Hector Enrique Escalante Ochoa: Francisco, this is Enrique. Well, I mean, that's what we're assuming. I mean, so far, although as we mentioned, we are obviously staying very close to market dynamics there. We have talked to some customers in the area, of course, and from the beginning of the conflict and asking them what could we expect. And all of the answers we get it, I mean, they need time to see where things stabilize. more medium term because they are not going to, I mean, overreact also, and they are also seeing what -- how things evolve. So that's why we're cautious there. I'm not changing our guidance. But I mean, if you ask me, I mean, there may be the possibility of, I mean, a better outlook there if things continue as they stabilize and then we continue seeing a higher oil price compared to what we had last year, but consistent and with not a lot of swings in the market. So we need more time to see things -- how things stabilize in order to become a little bit more optimistic here. Francisco Suarez: Got you. The second question relates with the overall cost that we've seen for the year. And thank you very much for being very clear on the initial effect on the commissioning of the new kiln that is very, very helpful. But what I want to understand a little bit better is to what extent that increase in cost related with the new shipments coming from Pueblo and Samalayuca and so on, is likely to mask the overall potential benefits or cost reductions in your -- in energy that you may have this year because you have been mentioning that not only you are adding more projects and the ability to substitute fossil fuels in your plants in the U.S., but you are also investing in ways that you will be having a cheaper source of natural gas in some of your plants. So can you elaborate a little bit more on isolating the initial effects on logistics on the ramp-up of your new capacity in Odessa compared to the overall pathways on your on energy costs on the back of these initiatives that you are making this year? Maik Strecker: Francisco, this is Maik. Again, thank you for the question. So maybe a little bit on the production cost to give a little more context. It's a little bit dynamic there as well. So for example, on natural gas costs, they're relatively stable in some plants, slightly better than last year and other plants, slightly elevated. So there's a little bit of natural gas effect. On the power side, we see a little bit more pressure on increase in costs, and we see that specifically in the U.S. network. So it's a little bit too early to exactly say where we land on that, but it has some impact on the cost structure. And of course, we're trying to mitigate that with the small projects that we have in place, so we utilize solar power and so on. And again, it's a little bit too early probably to say here's the full segregation of the logistics impact versus the fuel and power impact. I think that's something as we're working through the year, we're going to continue to communicate around that and explain. Again, the big picture is in your models, think about the first half of the year with some pressure on the cost side, but really mainly driven by logistics, as already explained, and then kind of a normalization during the second half of the year. Operator: Our final question is from Daniel Rojas with Bank of America. Daniel Vielman: Looking at the backlog you have for wind farm construction for the rest of the year, it has been a very healthy source of construction work. I was wondering if this is going to tail off this year or maybe we're going to see that also into next year. And I just want to get a sense of how big the contribution is to your work in the U.S.? And my second question is on natural gas and maybe it's a follow-up from the last question. If you see the Henry Hub pricing, it's below $3 per million Btu and the Waha is even negative. So I'm trying to get a sense of if we extract and we take out all the logistic prices you've already talked a lot about, what would be the cash cost per tonne? And what will be the benefit of having this very low pricing for natural gas? Maik Strecker: Dan, this is Maik. So regarding the backlog, we have a good strong backlog across the -- specifically the ready-mix business for this year. And we're fortunate some of these projects actually start early with the weather conditions being nice. So backlog is solid and really for this year. It's probably too early to talk about 2027. So all the backlog we're talking is really reflected in 2026, and that one is very solid. Regarding the natural gas, like I mentioned, it's still a little bit too early. I think the early indication for us, when you look at the key plant like Odessa, our gas costs are slightly below last year in Odessa, mainly driven by -- there's a good amount of gas available. There's probably some challenges to get all that natural gas out of the country. So we're benefiting from that. But it's too early to say where the kind of the final year settles when it comes to natural gas across the network. Generally speaking, we're expecting kind of flat to maybe some slight increases when you normalize the full year, but nothing dramatic, nothing that puts -- is a concern at this stage for the natural gas for the plants. Hector Enrique Escalante Ochoa: And allow me to add a little bit on what Maik said, and I agree with him, it's difficult to forecast it exactly to the penny at this moment. But we have some positive, I mean, effects also from the natural gas in the form of power here in Mexico with lower power costs in Samalayuca definitely this year, precisely coming from a change of suppliers in power that are now passing on to us the savings on natural gas. And as we mentioned, with the Waha molecule sometimes being negative. So we're benefiting from all of those effects that are offsetting some of the increases that we may have in some parts of the U.S. And also, I mean, we're very actively hedging constantly part of our gas consumption, too. So I think that we will be, I mean, very close to, again, what we guided in terms of margin, and we're going to end up the year very close there. Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back over to Ms. Ogushi. Sahory Ogushi: Thank you again for your time and continued interest in GCC. We look forward to speaking with you again soon. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Haj Narvaez: Okay. Good afternoon, ladies and gentlemen. Welcome to our earnings call to discuss BPI's results for the first quarter of 2026. I'm Haj Narvaez. I'll be your moderator for this session. We're conducting this briefing in a hybrid manner with our BPI speakers and panelists here in our headquarters at Tower 2 of Ayala Triangle Gardens, Makati City, while the rest of our participants are dialing in remotely. I'm pleased to introduce you to our speakers and panelists this afternoon. TG Limcaoco, our President and CEO; Eric Luchangco, our CFO and CSO. They will be joined in the panel for the Q&A by Tere Marcial, Head of BPI Wealth; Ginbee Go, Head of Consumer Banking; Louie Cruz, Head of Institutional Banking; Jenny Lacerna, Head of Mass Retail Products; Dino Gasmen, Treasurer and Head of Global Markets. We're also joined today by the rest of the BPI leadership team in this call. This afternoon's agenda will begin with opening remarks from our President and CEO, TG Limcaoco, followed by our CFO and CSO, Eric Luchangco, who will walk you through the first quarter performance highlights, and likewise provide updates on our digital platforms and strategic initiatives. The floor will then be open to questions from the audience. Please note, the call is being recorded and legal disclaimers apply. Now let me turn you over to TG for his opening remarks. Jose Teodoro Limcaoco: Thank you very much, Haj, and a nice afternoon to everyone joining us today. I see a lot of familiar faces here, and I'm sure there are a lot of familiar faces on the call. I look forward to a very engaging conversation after Eric's report. But let me start off by making a couple of points that despite the challenging conditions brought about by the Middle East crisis, the bank managed to report net income for the first quarter. That's 1.7% higher than last year and 4.9% higher than last quarter. This was really driven by our continued strong revenues that were up 13.9% despite and hindered by operating expenses that were up 15.8% versus last year. We can go into some of the details why the operating expenses were higher than expected but we continue to expect that they will be back to normal levels by year-end. All this led to pre-operating provisions that are up 12.4%. Due to the Middle East crisis, we increased provisioning to account for the increased risk in the consumer book arising, obviously, from the Middle East crisis, where we saw relatively larger jumps in the NPL in both the SME and the micro finance books. But despite increasing provisioning in our NPL, we saw a decrease -- sorry, despite the increased provisioning in our NPL coverage fell due to really the NPL increase in our corporate loan book, where the increases came from a number of corporate accounts that were substantially covered by collateral. Finally, I will talk a little about how this Middle East crisis is affecting our outlook on loan growth and the way we are provisioning. We are trying to provision ahead of that. But without really spending all of this conversation, all this time in the Middle East crisis, allow me also to talk a little about the progress we're seeing in our other businesses. Eric will go through some of those points. We're very happy to report that our agency banking initiative continues to grow. As of today, we have 1,320 stores where our customers can actually do deposit and withdrawal transactions outside of our branches and outside of our ATM and cash acceptance machines. Ginbee can talk a little about our digital branches and how we continue to roll this out to give a better selling and advisory experience to our customers. And then we'll also make a short presentation about the progress of our digital offerings, where we continue to believe that we have the leading mobile app, we have the leading business platform in BizLink and how we have updated that, and Louie can talk about that and how we've also updated our BPI Trade where we continue to make headways into equity trading for our customers. So with that, I'll turn this over to Eric and then looking forward to a wonderful engaged conversation later. Eric Roberto Luchangco: Thank you, TG, and welcome to everyone joining us on this call, both in-person and virtually as well. And so good afternoon to all, and we'll be presenting our first quarter results. These results showed more moderate growth compared to previous quarters but still reflects strong levels of operational performance that we believe will show continued outperformance versus our peers. The highlights are as follows: On profitability for the quarter, the bank generated net income of PHP 16.92 billion, a 1.7% increase year-on-year, supported by revenue growth despite higher operating expenses and provisions. Return on equity stood at 14.3% and return on assets at 1.9%. The balance sheet continued to expand with loans increasing 13.5% year-on-year and deposits rising 10.4%. The bank's capital position remained strong, supported by earnings generation with the CET1 ratio of 13.9% and CAR of 14.8%. NPL ratio stood at 2.42% with the year-on-year increase mainly driven by the shift in the loan mix and the quarter-on-quarter increase mainly driven by the institutional loan segment. NPL coverage declined to 87.15%, though this remains supported by underlying collateral. Meanwhile, ECL cover expanded to 103.5%. Bank further strengthened its customer franchise, expanding its customer base to 18.7 million. Agency Banking continued to drive scalable growth by extending its reach and deepening market penetration. At the same time, the integration of AI into the digitalization strategy is enhancing the bank's efficiencies and supporting long-term growth. First quarter net income reached PHP 16.92 billion, up 1.7% year-on-year with strong revenue growth moderated by higher operating costs and provisions. Net interest income stood at PHP 39.15 billion, up 13.7% year-on-year on loan growth of 13.5%, coupled with 7 basis points of NIM expansion. Trading and ForEx income rose 19.5%, anchored by a robust 32.6% jump in ForEx income. These combined to drive revenues 13.9% higher to a total of PHP 50.92 billion. Operating expenses rose 15.8% to PHP 23.5 billion, owing to higher business volume related technology and manpower costs. As we'll share shortly, much of the increase can be traced to timing issues related to booking of expenses as well as changes in the regulatory environment in the second half of 2025. Pre-provision income was at PHP 27.42 billion, up 12.4%. Provisions rose 83.3% to PHP 5.5 billion, reflecting normalization of credit costs and base effects as the first quarter of 2025 saw the continued drawdown of prior reserves. Compared to the prior quarter, net income increased 4.9%, driven by higher net interest income and lower operating expenses and provisions. OpEx declined 11.7% as costs normalized following the typical year-end expense build up in the fourth quarter. Provision operating profit expanded by 4.1% to PHP 27.4 billion. Earnings per share stood at PHP 3.2 per share at the end of the first quarter, up 1.5% year-on-year. Profitability remained healthy with an ROE of 14.3% and an ROA of 1.9%. Turning to the balance sheet. Total assets continued to expand, reaching PHP 3.7 trillion, up 13% year-on-year, driven by the expansion of the loan and securities book. Gross loans stood at PHP 2.61 trillion. It was slightly lower quarter-on-quarter, reflecting softer demand and our prudent origination of loans. On a year-on-year basis, however, loans grew 13.5%, with expansion recorded across all segments. Deposits increased to PHP 2.84 trillion, up slightly quarter-on-quarter and 10.4% year-on-year, driven by continued customer flows and a stable funding base. The CASA ratio eased marginally to 41 basis points quarter-on-quarter to 60.29% while the loan-to-deposit ratio climbed year-on-year to 91.95%. Versus last year, gross loans expanded 13.5% year-on-year to PHP 2.61 trillion, noninstitutional loans increased to PHP 829 billion, up 24.9% year-on-year. The increase in noninstitutional loans was led by SME loans, up 96.3% year-on-year. Credit card loans up 33.3%, personal loans up 26.9%. These personal loans include PHP 18 billion of teachers loans, which accounted for -- which increased by 72% year-on-year. Auto loans were up 19.3%. And these auto loans include PHP 5 billion in motorcycle loans, which increased 22% year-on-year. Mortgage loans was up 12.1% and microfinance loans up 16%. The loan mix continues to shift towards the higher-yielding segment with noninstitutional loans rising to 31.7% from 28.8% last year. This shift supported total loans growth of 13.5% year-on-year despite broadly flat quarter-on-quarter loan balances. In the first quarter of this year, NIM stood at 4.57%, remaining broadly stable quarter-on-quarter and improving 7 basis points year-on-year, mainly driven by lower funding costs. We'll delve into our perspective on asset quality in the later slides. But I wanted to show you here that even after accounting for the cost of credit, NIMs are still providing strong profitability to the bank. Adjusting NIMs for risk based on provisions, NIMs widened by 4 basis points to 3.92% quarter-on-quarter. If we look at risk-adjusted NIM based on the net NPL formation, we do see a sharper decline in margins by 42 basis points to 3.39% due to an outsized net NPL formation last quarter, and we'll discuss that a little further -- we'll discuss that further a little later. On the funding side, total funding stood at PHP 3.11 trillion, up 14.4% year-on-year and 1.7% quarter-on-quarter. Year-on-year, total deposits increased 10.4% and continues to be the primary source of funds, even though borrowings rose by 84.6%. CASA meanwhile is up 6.5%, which is faster than last year's pace. Key funding ratios remained stable with a loan-to-deposit ratio of 91.9% and loans to total funding at 84%. We continue to strengthen our deposit franchise, led by the mass market customer segment, which grew 60% year-on-year and continues to deliver the best CASA ratio across our customer segments. Institutional deposits also posted sustained momentum recording growth over the past 3 months in the high teens year-on-year. Fee income stood at PHP 10.54 billion, down 3.1% on the sequential quarter following a seasonally strong fourth quarter and fewer number of days in the current period. Year-on-year, fee income grew 13.9% on strong contributions from cards, wealth management, insurance, transaction banking, retail loans, business banking, corporate loans and investment banking. The Card segment saw a 13.7% increase, driven by higher billings, increased service charges from stronger cross-border fees, improved collections recovery, and higher SIP-related transaction volumes. Wealth management fees were up 11%, driven by a higher volume of assets under management, which rose 18.4% year-on-year and surpassed the PHP 2 trillion milestone to reach PHP 2.03 trillion. Income from insurance up 10%, was mainly driven by higher contributions from BPI AIA and BPI MS. Royalty fees and branch commissions further contributed to the overall increase. Transaction banking was up 26.9% mainly from higher supply chain fees, supported by increased invoice volumes and larger transaction values from our key clients. Securities brokerage and investment banking increased 80.2% attributable to higher deal activity, including the projects -- in the project finance space. These were partially offset by declines in asset sales, down 61.9% due to last year's one-off sale of a large bank property rental, which declined 27.7% at several bank premises and equipment were no longer leased. ATM and digital channels decreased 2.6% as higher fees led to lower transaction volumes and reduced usage. Total operating expenses amounted to PHP 23.5 billion, up PHP 3.2 billion or 15.8% higher year-on-year with increases recorded across all expense categories. Manpower costs reached PHP 8.1 billion, up 8.2% or PHP 621 million, driven mainly by salary adjustments and a higher headcount. Technology expenses reached PHP 4.7 billion, up PHP 660 million or 16.5% year-on-year due to higher spending on IT outsourced services, software subscriptions, and maintenance in line with the bank's digitalization initiatives. Other operating expenses increased to PHP 8.4 billion, up PHP 1.69 billion or 25.2% with volume-related expenses accounting for 41% of the increase. Overall, the key drivers of the year-on-year increase in OpEx were volume-related expenses followed by technology and manpower. As referenced earlier, booking delays relating to tech and other expenses as well as changes in the regulatory environment, particularly with that on digital services led to the sharp increase in cost this year versus last. Adjusting for these factors, operating expense growth would have been more moderate at 13.4% year-on-year. Notwithstanding that, the bank continues to demonstrate strong operating performance with efficiency gains translating to a cost-to-income ratio of 46.2% despite the customer count doubling to 18.7 million since 2022. The cost base has grown to add a considerably more measured pace supported by active headcount management and a pivot towards digital platforms and tech-enabled channels, including agency banking partner stores. CET1 capital stood at PHP 404 billion, up 0.4% from last quarter and 5.9% from last year. While the OCI volatility weighed on the capital in the first quarter, the bank's overall capital position remains solid. The CET1 ratio stood at 13.9% and CAR at 14.8%, both well above internal and regulatory thresholds despite the increase in risk-weighted assets and capital distribution as well as the lower overall other comprehensive income. Turning to asset quality. Nonperforming loans increased quarter-on-quarter to PHP 62.9 billion, with the NPL ratio rising by 24 basis points to 2.42%. Provisions which continue to be guided by ECL declined quarter-on-quarter to PHP 5.5 billion, equivalent to a credit cost of 87 basis points for the first quarter. This brings point-in-time NPL coverage of 87.15% under PFRS 9 and 112.4% when including the surplus reserves for performing loans in accordance with BSP Circular 941. This lower NPL cover is supported by collateral strength, expectations for recovery and risk absorption buffers. Asset quality pressure was mainly driven by institutional loans whose NPL ratio climbed 21 basis points quarter-on-quarter to 1.19%. While the increase in the NPL ratio was relatively small, it had an outsized effect on the overall NPL level and NPL ratio given the segment's high share of the overall book. This new NPL formation centered on a few institutional accounts, one of which we had anticipated to turn NPL and thus had provisioned for -- we had already provisioned for. The combined loss reserves and collateral coverage for this specific loan amount to 1.8x the value of the NPL, mitigating our downside risk. Other significant contributors to the higher NPL ratio were accounts with company-specific issues borne out of operational disruptions and collection challenges. On the flip side, we also have visibility on certain accounts currently classified as NPL that we expect to revert back into current status within the second quarter, which should offset much of the hits that we're taking from this current quarter. SME loans also saw a 98 basis point uptick on a quarter-on-quarter basis in the NPL ratio, driven by higher delinquencies in the 2025 and 2024 vintages. Delinquencies were most pronounced in companies in the wholesale and retail sectors, followed by construction and rental. Microfinance loans warrant some close to our attention as well as the NPL ratio increased 74 basis points with delinquencies observed across products and regions. In context, microfinance remains a relatively small portion of the total loan portfolio. For credit cards, the NPL formation is largely from the same group we had previously identified, which is clients aged 40 years and below, lower income borrowers earning less than PHP 40,000 per month and post-pandemic acquisitions booked between 2022 and 2024. Meanwhile, mortgage, auto and personal loans reported relatively stable or declining NPL ratios. We continue to maintain ECL coverage of at least 100% across all loan segments. This quarter's provisions, coupled with moderate ECL formation, widened the ECL cover quarter-on-quarter to 103.5% from 100.9% to end last year. The corresponding point-in-time NPL coverage levels are shown on the slide as well as the total cover compromising reserves and collateral. NPL remains well covered by a combination of these reserves and collateral with a total collateral coverage of 138%. Institutional, business banking, marketing, auto, credit cards, and credit card loans all post coverage ratios above 100%. Even the least covered segments, which are personal loans and microfinance, maintain a solid coverage of at around 93% even while representing just a small share of the total portfolio. Like in previous quarters, we will walk you through the performance of our lending businesses from the perspective of risk-adjusted revenues and margins. This table summarizes loan-related revenues for the first quarter of 2024, '25 and '26, alongside their corresponding net NPL formation by loan segment over the same period. From the first quarter of '24 to first quarter of 2026, revenues across the loan book increased by PHP 8.67 billion, approximately 6.4x the PHP 1.35 billion increase in net NPL formation. Looking at noninstitutional loans. We delivered strong growth in revenues at PHP 8.3 billion, which comfortably offset the PHP 390 million increase in net NPL formation. Overall, growth in the noninstitutional loans drove a sizable net revenue uplift even after factoring in the asset quality impact. The same dynamics can be observed in the last 2 columns comparing the first quarter of 2025 and first quarter of 2026. This highlights the thinking behind our commitment to growing the contribution of the noninstitutional loans and the benefits of a diversified portfolio in driving better performance. Looking at it from a margin perspective, loan yields for the noninstitutional segment have largely held firm at around 12.74%, providing a comfortable buffer against net NPL formation of 3.35%. Yields for the institutional business have seen a sharper drop versus last year's average as institutional borrower rates adjust in step with the lower BSP policy rates. The uptick in the institutional businesses' net NPL formation to 0.78% in the first quarter of this year due to select NPL accounts as discussed earlier. Aside from delivering wider risk-adjusted margins, the noninstitutional segment has fueled revenue growth given its robust expansion since in 2022. This segment has delivered a CAGR in gross loan ADB of 30.7% from 2022 to the first quarter of 2026. Moving on to our strategic initiatives update. In line with our commitment to digital leadership, the bank continued to enhance our 7 client engagement platforms. Starting from the left, the BPI app, which is our main operating app for retail clients now includes a new pay bills experience, InstaPay, B2B, non-QR billers, real-time payments, Ka-Negosyo Credit Line, eSOA, and partner store deposits, which broadened the roles -- the app's role in facilitating everyday financial transactions. We continue to enhance payments efficiencies through refinements of user interface to improve the overall ease of usage. Next, for our VYBE e-wallet, sign-ups have reached 2.7 million with 78% being VYBE Pro users. The BizLink facility for corporate clients introduced key upgrades such as Transfer to Own, pay bills, pay BPI and payroll to seamlessly migrate clients to the mobile app and provide ease of transaction approval. The BPI BizKo app for SMEs now serves more than 30,000 users, supported by continued enhancement of financial services, which strengthen client retention and drive platform usage. The BanKo app remains central to financial inclusion as it continues to empower our everyday masang Pilipino, C2D earners, and MSME entrepreneurs through accessible, reliable and digital-first financial solutions. For BPI Wealth Online, which serves high net worth client individuals maintained its active user base at 2,800, up 82% year-on-year through sustained activation initiatives. Finally, BPI Trade continues to strengthen engagement among equity investors with a higher transaction count in 2026 as it brings a new funding process with upcoming features on e-deposit and e-reserves, which will widen accessibility. Across all platforms, we continue to expand capabilities in open banking and improve the UI/UX for a more seamless experience. As of March, we have 129 API partners, up from 74 in 2019, supporting over 10,000 brands, up from only 749 in 2019. Contributing to the strong momentum from 2025, we now have 34 agency banking partners, more than 7,000 partner stores, which further strengthened our foothold in Visayas and Mindanao. Total products sold per quarter reached nearly 177,000, up 87% from last year and more than 20x from 2 years ago with deposits and insurance as the primary products sold. 20 agency partners equivalent to 1,320 partner stores are currently capable of deposit and withdrawal transactions, volume of which increased to 88,400 in the first quarter, up 5.2x compared to last year. Transactions are fast and convenient using a barcode-enabled feature on the BPI mobile app. Customers can initiate deposit transactions to a BPI account seamlessly, which are then fulfilled at participating partner stores. This completes a critical piece of the agency banking model, enabling both cash-in and cash-out transactions within retail environments without the need to visit a traditional branch. Moving on to reengineering and process automation initiatives. In the past 3 years, we implemented 149 projects, 82 in 2025 alone. These fall into 3 main types of projects, namely desktop automation tools, approved workflow automation and RPA bots. Moving forward, the projects already implemented will deliver an annual savings of PHP 139 million and reduced the headcount requirement by 181 headcount, helping our business units reallocate resources and reassign people to higher value-added rules. Highlighting some RPA achievements from some of our key business segments. In remittances, we implemented e-mail sending bots for InstaPay, PESONet and even foreign remittances to improve our customer experience, reducing complaints through this more proactive approach and avoiding the hiring of 25 additional manpower. In Agency Banking and BPI Wealth, we've implemented encoding bots to address system booking requirements and investment subscription upon opening for wealth builder, avoiding the hiring of 10 outsourced personnel. Moving forward, we will continue to introduce new RPA initiatives for running the bank, streamlining workflows and reducing operational inefficiencies, bridging the gap between our legacy processes and the demands of a modern digital-first economy. In the case of AI adoption, we take a disciplined use case-driven approach. For fraud, research and marketing, we're looking at AI machine learning-driven systems that will detect potentially fraudulent transactions and assist credit analysts in the review of loan applications to detect risks and malicious intent. We use AI to supplement knowledge gaps for clients with AI scanning for data and references to help craft targeted marketing strategies at various stages of our clients' life journey. AI also assists our marketing teams in developing competitive, relevant and hyperpersonalization campaigns. In operations, we're using intelligent document processing to automate manual, repetitive, low-risk works such as data capture and document review, so our teams can focus on higher-value activities and scale capacity without proportional increase in cost. For BPI customers, we have rolled out the AI in our branches to simplify access to policies and guidance, enabling more consistent high-quality service. Our data science team also builds advanced machine learning models to better understand individual customer needs and behaviors, helping us personalize products and offers in ways that can improve satisfaction and support revenue growth. Finally, beyond mainstream adoption, within IT, we are also evaluating additional AI use cases to further strengthen risk management and governance, enhancing real-time monitoring, improving decision support and helping us respond earlier to emerging risks. In its sustainability efforts, BPI remained busy. In the first quarter of 2026, we issued PHP 50 billion worth of SIGLA social bonds, funding projects with clear social impact under our 2025 Sustainable Funding Framework. We also expanded BPI's branches, offering EV charging stations to 10 branches nationwide. Our fraud awareness program completed 2 engagements in the first quarter of this year, reaching 155 participants. Following BPI's credit cards, which use 100% recycled PVC, BPI debit cards adopted the same innovation. Lastly, in line with our targeted interval of 5 to 6 years, BPI engaged an internal -- an external consultant for the bank's double materiality assessment, which shows the impact of ESG topics on stakeholders and on BPI's financial performance. The endeavor engaged over 7,000 stakeholders to assess and refine BPI's ESG priorities. We remain well recognized for these efforts and as of March this year, BPI has received 9 ESG-focused awards. Beyond just ESG, however, BPI has also been well recognized for its various initiatives and we list here various awards and recognitions received in the first quarter of 2026. In particular, we would like to highlight that in March, BPI led all Philippine companies on TIME and Statista's Asia-Pacific Best Companies of 2026 list, ranking 10th out of 500 companies in the region. BPI also placed seventh and was the only bank included in the top 20 companies recognized as a great place to work in the Philippines. Let me close with a summary. On profitability, our revenue-led net income growth was tempered by higher OpEx and provisions, but we remain to have a strong operational metrics. We continue to maintain a healthy balance sheet with ample liquidity and capital. Overall, asset quality remains within our risk appetite, supported by adequate buffers. And finally, we further strengthened our leadership in digitalization by scaling AI and data science. Thank you, and we will open the floor to questions in a couple of minutes after we get set up. Haj Narvaez: Thank you, Eric. Before we open the floor to your questions, please allow us a minute or 2 to set up at the venue. [Operator Instructions] For those on site, you may use any of the mics available at the floor or you may raise your hand, and we will have someone hand a mic to you. Please identify yourself by your name and company, so we can address you accordingly. For the benefit of everyone attending this call, whether in person or online, we would like to encourage you to ask your questions during the session as we will refrain from taking questions after we end this call. Okay, so just a reminder, joining us here in front with TG and Eric, are our senior leaders Tere Marcial, Head of BPI Wealth; Ginbee Go, Head of Consumer Banking; Louie Cruz, Head of Institutional Banking; Jenny Lacerna, Head of Mass Retail Products; and Dino Gasmen, Treasurer, and Head of Global Markets. So before we take questions from the Zoom link, we wanted to check first if anyone in the audience had questions. Go ahead, Gilbert. Unknown Analyst: I want to ask if you could discuss in greater detail what happened to the institutional book, why there was some asset quality issues? Jose Teodoro Limcaoco: You have to remember that NPL is 90 days. So we knew this was coming. The increase in the NPL in the institutional book versus the fourth quarter -- first quarter versus fourth quarter was really a net increase of about PHP 3.4 billion, driven by several accounts -- several meaning, 6 or 7, if I can remember right. But one of which was more than half of that. All of them with the exception of 2 were fully secured. The 2 have an NPL amount of about PHP 600 million or PHP 700 million, the rest are fully secured. The one big one is, as Eric said, was 1.89. So we think those will be resolved. In fact, we are -- the big one, we know, will be resolved because we think we should be able to take the property and we're in discussions with someone to take over the property. And that means that there is no reason to fully provide for that fully provisioned because you know the collateral. And that's one reason also why the coverage fell, right? So when we look at the coverage of 2.4 -- sorry, 94% versus 87%. We think if we didn't have that NPL growth and the lower coverage for those NPL book. That cost fall of 11%. So we would have fallen from 94% to 83%, I would refer that. So that's the effect of the NPL of the institutional bank is about 11 points. And the effect on the NPL rate is about 13 basis points. And then as Eric said, when we look at going forward, we have 2 accounts that will resolve themselves in the second quarter, totaling about PHP 3.3 billion. And we know because they've already been performing and just need 6 months... Unknown Analyst: Accounts of this sort that could -- for the balance of 2026? Jose Teodoro Limcaoco: Well, obviously, there will be accounts, but none as big as the one, that's large one. And this was unrelated to the economic conditions. Louie, maybe you want to give some color what you think? Unknown Analyst: Are you at liberty to talk about the industry they're in and whether or not they're connected politically? Jose Teodoro Limcaoco: No, they're not -- they're not connected politically. Luis Geminiano Cruz: Everything -- it's not. But for institutional accounts or accounts that we have, as TG mentioned, it will follow based on a certain restructuring. So if it falls 90 days, then it's within 90 days. And if they miss an amortization, then it falls naturally and it becomes NPL. So all these accounts that TG mentioned, we monitor this. This specific account that's quite large in terms of amount. Every time there's an amortization they miss, so we kind of see it. We can actually extend it. But the thing is if there's no clear path of doing a proper restructuring. We just don't do it, right? So that's a difference in terms of institutional accounts, in terms of restructuring. And it's not political. It has nothing to do with the issues that you're seeing. It's really an account that's quite unfortunate that they -- their cash flow is affected. But at the end of the day, you were fully covered. It's more of a timing of when we want to trigger it, right? So in fact, many are looking at it because it's -- this might -- it's perfect for a [ solar play ] there. Haj Narvaez: Thanks for your question, Gilbert. Thank you, TG and Louie. If there's anyone else from the audience who had a question. Rafa, go ahead. Unknown Analyst: I guess more moving forward with all the obviously, beyond the 1Q scope -- are you seeing any stress in SMEs consumers over the last 2 months since the Iran excursion? Jose Teodoro Limcaoco: Rafa, you'll have to expect it. I think you'll have to expect it. And that's why we have provisioned a little more aggressively in the first quarter with our ECL covers higher. And when really, a lot of the provision we did was not for the corporate because we didn't need because of the collateral but really for the consumer side. It's about natural with this crisis with higher fuel costs, people are predicting the food costs may go up, we will see some stress. And even when you look at our ECL models, payment behaviors are beginning to show themselves. So a couple -- 1 or 2 basis point slide in [ ECL ] numbers are indicative that something is coming down the road. So you need to provision that. Unknown Analyst: Are you seeing it more in the consumer or in the SME? Jose Teodoro Limcaoco: I think you'll see it in both sides. Ma Cristina Go: But you're talking about provisioning, right? So generally, provisioning would definitely require a lot more simply because of the model. The model has macroeconomic variables as part of [ PD ]. And so with deterioration in the macroeconomic variables, it's simply math. But certainly, we will remain to be very -- will closely monitor our recoveries. We are stepping up our collections and being very proactive about that, not to mention with the BSP regulations on the memo. It also helps that the BSP is being very proactive. Haj Narvaez: Thanks for that question, Rafa. We have a few questions on the Zoom chat. So I'll start off with that. The question is from Katrine Dolatre, Security Bank. She wanted to ask what do we consider our optimal LDR and she wanted to ask as well for our loan and deposit growth target? Jose Teodoro Limcaoco: I saw the question, Katrine, right? Haj Narvaez: Yes. Jose Teodoro Limcaoco: I think we have said it before, LDR is loan-to-deposit ratio. In modern banking day, given the ability of banks to access BSP borrowing, interbank borrowings and particularly the bond market where there is a substantial cost advantage going to the bond market. The real thing that we should be looking at is our loan to funding mix. And our loan-to-funding mix is about 84% at the end of the quarter. That's very comfortable. The other thing that you need to watch out for, I guess, is your CASA ratio. Our CASA ratio is about 60%. Now that I'll admit we'd like to get it higher because that's something that delivers cheap funding. But the reason we are able to run our loan to total funding at very aggressive levels, it's because BPI is fortunate to be one of the big 3 banks where we have a distinct advantage at being able to raise deposits when we need to. And the reason we don't want to -- sorry, the reason we are able to run high is because when we need to compete for deposits, we're able to price, and we don't really want to price very high in the market and cause our funding rates to be high just so that our loan-to-deposit or loan-to-funding mix will go down. So I think that's the way we should look at it. I don't know, Eric, you might want to give guidance on our loan growth and deposit growth. Eric Roberto Luchangco: So what we're looking at for this year is -- on the loan growth side is we're looking at some moderation from what we had planned on at the beginning of this year, which should come as no surprise given the weaker economic outlook that we have for this year. But we're still looking at something along the lines of kind of the low double-digit range for growth, maybe somewhere in the 10% to 12% range. But obviously, this will be subject to updating in the context of how the current situation evolves, right? I think at this point, nobody really has a crystal ball into how this thing is going to evolve every day, every week, the expectations are changing. So it's hard to really crystallize a new target at this point, but we are looking at some moderation because obviously, what you've seen so far is already putting a dampener on the economy, and we're -- the oil -- higher oil prices should stick around for quite a bit longer, which is going to place a constraint on the growth of the economy. On the deposit side, what we've seen in past situations similar to this, whenever we see a crisis, we tend to see deposits coming back to BPI. So our expectation is that we should -- the availability of deposits should be there. We don't think funding is going to be an issue for us. But of course, we are taking all possibilities under consideration. Haj Narvaez: Thank you, TG and Eric. [indiscernible] did you have a question? Go ahead. Unknown Analyst: Sorry. Just going back to asset quality. In light of the current development and stresses, have you guys run, I guess, scenarios or stress test on what part of the book is more exposed? And anything you can share with us along those lines. Jose Teodoro Limcaoco: Yes, every quarter, we run new economic variables. So we're doing that now for the -- we just finished a quarter. So our -- I guess our April numbers will show it to the Board. You won't see it till end of June. We do stress testing as part of our cap and as I told, Rafa -- as I mentioned to Rafa's question, I guess we'll see a lot of stress on the consumer. Because obviously, we have a substantial growth in our consumer book. And we have people, I guess, we have -- if you want to put it, we've basically gone a little down market relative to what we've always had. So we expect to see some higher ECL there which should eventually translate into NPL going forward, but the margins justify. One of the things that I ran was -- I was telling the team that if you look back at the last 4 years and look at our net interest income growth, our net interest income growth has surpassed or was about 9 to 10 percentage points faster than that of our competitor for the last 4 years. And that translated to approximately about PHP 36 billion in additional revenues over the last 4 years. So if you want us to get back to our provisioning to 100%, I just need PHP 8 billion more. So I think the trade-off has worked out. And I believe that the trade-off continues to work out going forward. Unknown Analyst: Any guidance on provisions this year given this outlook that you shared? Eric Roberto Luchangco: Well, our original projection for the year was somewhere in the 80s, right? So far for this quarter, we are looking at an annualized rate of 87 basis points. I think there is certainly the potential for this to grow, right? I mean, we don't really have a good grasp of how bad the situation gets moving forward. I'm sure if anybody asked you, you would say, can the situation get worse? I'm sure you would all agree that this situation has the potential to get worse. It has the potential also to stay where it is now. I don't think it quickly rebounds. But if it stays where it is, it probably our provisioning levels will probably be similar to where they are now, maybe a little higher. Obviously, if the situation deteriorates, well, we'd have to see how much worse it gets, right? Haj Narvaez: Okay. We have a question in the Zoom chat as well. It's actually from Eric Chan of Buena Vista, and it's probably going to be directed to Louie, perhaps. I noticed the institutional loans NPL is at 1.19%, which is quite similar to the historical average. And given the backdrop with the war and inflation, how are your delinquency buckets in the institutional loan portfolio? Luis Geminiano Cruz: Thank you for that. Thank you, Eric. Okay. How we monitor the institutional banking side. We also follow a certain -- start of the year -- we look at the industry weather [ chart ]. We're identifying clients: high, medium, low, in terms of risk. And with that, with the Middle East crisis now, we try to overlay that and see which clients will have a direct impact will be affected directly and indirectly. So versus -- I just have to mention versus the COVID situation, wherein, you look at the industry or the sector as a whole, now we're looking at it on a per account basis reviewed based on how we monitor the risk in the industry. So having said that, the good thing with the portfolio is quite healthy and very focused on projects. And when you say really project, it's really more cash flow is quite steady and the sponsors are quite reputable. Where we're monitoring is really on how it was structured originally in terms of interest rate. Some are already asking if we can do a little flex on doing a floater versus a fix. That's something that's where we will help given the -- where the crisis is. And the others are some flexibility in terms of prepayment if they have cash. So we will also try to support that. So overall, that's how we manage the portfolio to keep the NPL in the institutional banking within the range of where we are now. Haj Narvaez: Thank you, Louie. Thank you, Eric, for that question. Actually, Eric Chan likewise had another question in relation to the risk -- what we showed earlier, which is the risk-adjusted NIM net of provisions versus the risk-adjusted NIM, net of NPL formation. He's wondering if there's -- are we seeing any, I guess, divergence between the net NPL formation and the overall credit costs? Jose Teodoro Limcaoco: I think the only reason you're seeing that big difference in the last -- in the current -- I'm sorry, in the first quarter is because of the institutional book where -- because the NPL jumped up on the institutional book, and we did not necessarily need to provide for that because of the collateral. And therefore, when we deduct NPL formation, which was the institutional book, it didn't count into the provisioning. So that's the difference. I expect that to come back when the PHP 3.5 billion of the 2 loans in the second quarter that Louie promises may will come back in the second quarter comes back. Yes. Haj Narvaez: Thank you, TG. Jose Teodoro Limcaoco: Yes, the last point I wanted to make was, I think you also have to remember that when Eric shows provisioning as a cost or a deduction to the net interest margin or NPL formation, we're not adding back also the recoveries from ROPA sales. right? So that's something else that we're not considering into that factor. Obviously, when we make provisioning and provision gets eaten up by movements into ROPA, we're not counting the sale of the ROPA when it eventually materializes. Haj Narvaez: Thank you, TG. I wanted to check if anyone from the audience had any questions. Okay. If not, we'll continue. We have a question from [ Melissa Kuang ]. The questions are actually about OpEx. We mentioned that on OpEx, some of the sharper year-on-year growth was -- part of it was related to timing, but also some regulatory changes. Can you share a guidance in terms of what we expect for OpEx year-on-year for the full year of 2026? Eric Roberto Luchangco: Our original projection at the start of the year was that we would see OpEx growth of kind of around the 10%-ish level, right. This year, as the year has developed, we're obviously going to have to update that as we get greater certainty. But in some ways, there will be a need to maybe spend a little more in some areas, but there are also areas in which we can dial back in particular, we can dial back on some of the promotions or some of the marketing that we're doing in order to compensate for any increases that we're seeing in other areas as, for example, obviously, transportation costs, the logistics and logistics costs we incur. We're also subject to the same oil price increases that everybody else is. And so we could potentially see increases there. But again, we would look to manage that with potentially cutting back in certain areas as needed depending on how the year pans out. Haj Narvaez: Thank you, Eric. Actually, we have another question in relation to cost this time on the tech side. It's actually from Priya Ayyar of Consilium. She wanted to ask about what she saw as high digital spend. How soon do we expect cost to return to, I guess, normal growth levels? Or are we seeing a prolonged period of higher costs? Eric Roberto Luchangco: So maybe I can address that by saying, when you talk about the high spend, including on technology, our mindset is that actually, the investments that we've made in technology have allowed us to continue to become more cost efficient over time. And so if you look at where our cost-to-income ratio was in, for example, in 2022 versus where it is today, where we ended last year, where it is today. I think what you'll see is a continuing trend of improvements in the cost-to-income ratio. So when you say, hey, when is it going to come back down to a normalized level? Actually, we've been seeing improvements in this level. And we will continue to invest in areas that we believe will continue to pay dividends for us, not necessarily within the year, but down the road, and that's what we've been doing. And we believe that the investments that we've made in the past years have been critical to helping bring down that cost-to-income ratio over the last few years. Haj Narvaez: Thank you, Eric. I have another question actually from Eric Chan of Buenavista. This time, it relates to the personal loan segment. I think you noticed that if you exclude the teachers' loans, the overall growth of the personal loan portfolio appears slower than the teachers' loans. And given our success with the test portfolios and the drop in the NPL ratio, what explains the slower growth of the personal loans portfolio ex teachers loans? Jenelyn Zaballero Lacerna: Yes. So for teachers loans, it's really growing at about 71% rate. And for personal loan, it's about 10% year-on-year. So still a decent increase over last year. So in issuing loans, personal loans is really classified as a multipurpose loan. But as of late, we have really looked at the portfolio and determine which are really personal loans and which are used for capital. And you would see that the cross section between business banking in personal loans, actually, there are overlaps in customer. And therefore, that's now booked in business banking, which has grown by about close to 90%. And now with teachers loans in the personal loan books, which is really more of a personal loan. It actually is combined. It has a healthy growth. Given that -- sorry, teachers loan is really a lot of potential, now growing at 71% year-on-year. So it's really an alignment of the customer value proposition at this point. Haj Narvaez: Thank you, Jenny. We actually have, I think, some questions from those who dialed in. I think from Danielo Picache of AB Capital. Danielo Picache: Can you hear me okay? Haj Narvaez: Go ahead, Danielo. Danielo Picache: Okay. So yes, I have three questions, if you don't mind. So I know we are barely 2 months into this oil crisis. But are you seeing any changes in early bucket delinquencies say, 30 DPD in both insti and non-insti book. That would be my first question. Jose Teodoro Limcaoco: Let me turn the insti to Louie. And then I think the best one for -- if there's any significant change would be on the cards portfolio in the personal loan because that would be very, I guess, reactive. So maybe Jenny first and then... Jenelyn Zaballero Lacerna: So the answer if there are actually deterioration? Yes, we see deterioration on the ex days, 30 days delinquency buckets. And the score downgrade really is a movement from one stage to another. Having said that, we have tightened our risk acceptance criteria, looking at income, looking at age, looking at profile, looking at industry where they come from. So we've tightened that on the acquisition front. And on the collections front, we have intensified collections already. Pre-delinquency 30 days, be more aggressive in contacting customers prior to moving them to a later bucket. So yes, and I think that is quite expected given the Middle East crisis. So we see that both in personal loans and in credit cards. But we already have placed measures to be able to control those. Luis Geminiano Cruz: Okay. On the institutional side, it's not really a deterioration, but we've seen clients, especially in the middle market requesting for extension prior to the actual amortization itself. So we're seeing some of those. So before we actually do accept the request, we also have to monitor, is it really directly affected by the Middle East conflict? Or is it really a cash flow issue outside of the normal situation. So we look at those situations also. So at 30 days, we get those requests. So definitely, it will not reach the 60, 90 anymore because that's how we monitor to avoid cross because for institutional, if you read 60, that means there's really a missed an interest payment rate in the 30 days. So it's quite early detection of the institutional side. Danielo Picache: Okay. Got it. Just my second question and sort of a follow-up to that. So with the targeted relief measure offered under MB Resolution 296, so we all know that's different from Bayanihan. Can you give us a sense of how this will influence your NPL recognition, write-off policy and provisioning requirement? Jose Teodoro Limcaoco: Well, we're just going to follow the MB. But really what it is, it's discretion to the bank. So we are working on programs now looking at potential borrowers who might request it and seeing whether it is applicable to them. I don't think it will significantly change the way -- obviously, if the MB allows us to defer a payment without making it NPL, that will affect, but I don't think it will be a significant portion of our portfolio. Danielo Picache: Got it. And just my last question. So essentially, how should I think about the steady state credit cost of your non-insti book? And sort of at what point does incremental yield get offset by higher loss rates? Jose Teodoro Limcaoco: I think the guidance that Eric has given is sufficient. It's hard to predict where this war goes. If you can tell me when this war ends, I can tell you what the NPL will be. If you can tell me where oil ends up, we can give you a reasonable guess, but we don't know. And therefore, I believe the margins are still sufficient. The margins are pretty wide. I mean Eric has shown that against NPL formation, which to me is the most aggressive way of measuring it because there you're assuming all NPL is lost, no recovery, right? We're still very healthy. So to be honest, it will take a dramatic end of the world. for us to start losing money on this business. Now granted, it might not be as optimistic as it was when we said it was 2 years ago, but it's still worth the effort that we have done. Haj Narvaez: We now move on to someone who also wants to ask a question. It's Aakash Rawat of UBS. Aakash, go ahead. Aakash Rawat: Great. So TG and Eric, I think you shared some color on the NPL formation earlier. That was very useful. But apart from the big account, you said there were 5 or 6 other smaller accounts as well, which turn into NPLs. Can you share some more color on what industry is they are from? What is the nature of those problems? And is it in any way related to the Middle East contract or completely independent of that? Jose Teodoro Limcaoco: I think it is actually independent from the Middle East conflict, Aakash. I think the big one is just completely failed business, if you will, a failed business or the proponents thought they had something thing. Things just didn't work out over the past couple of years. And I think they're throwing in the towel. We've tried to work with them. It isn't working out. So we're looking at taking the property and then just there are potential buyers for the property. So we will be good on that. The rest are, I mean, small businesses -- I mean, not small because they're consumer businesses. Aakash Rawat: I see. And then you said that based on your current expectations, you're expecting recoveries and the NPL cover to go back up in the second quarter. Is it all the way back up to 95%, which it was pre Q1? Or do you see any risk that it might not happen in Q2, might get further delayed? Eric Roberto Luchangco: Sorry, the question is, if the recoveries come back that we expect to come back in the second quarter, if they come back, then -- I didn't get the rest of the question. Sorry. Aakash Rawat: Do you see the NPL coverage rising back all the way back to 95%? Or do you see there's a risk that this gets delayed to Q3 or Q4? Eric Roberto Luchangco: I think there's a very reasonable expectation for it to come back to about that 95%. Jose Teodoro Limcaoco: Yes. Actually, Aakash, if you take a look at the -- if you take a look -- as Eric, mentioned, if you take a look at the several accounts, corporate accounts that went bad, they went NPL in the first quarter and remove them and remove the provisioning we did on them in the quarter, our cover would be up 11 percentage points from where it is today. So that's 87%, should be at 95%. Aakash Rawat: Okay. Understood. And TG, you mentioned that you're doing this exercise to calculate ECL provisioning because of macroeconomic variables. So again, things are very uncertain, but you also said higher oil prices might persist and you're starting to see some stress on the consumer book already. Based on your best guess, what is that level of provisioning that you might need to make for the macroeconomic variables that might change on the back of this? Is it in the tune of 5 to 10 basis points? Or is it a higher number that we're looking at? Jose Teodoro Limcaoco: At this point, it's more of a guess than anything else, right? But I would see -- again, we would expect it to go up versus our initial projections at the beginning of the year. As I previously mentioned, our expectation for this year was somewhere in the range of the 80s. It could head up into the range of 90s, approaching 100. But the reality is that depending on the situation, it could go beyond that. That's certainly within the realm of possibility. But based on what we see for now something along the lines of in the 90s up to 100, I think, would not -- would be within the range of reasonable expectations. Aakash Rawat: Okay. Last question. Given the slight level of stress that you're seeing in the consumer book and given the uncertainty, are you scaling back this business? Should we expect slower growth in the consumer business in the coming quarters? And what about -- sorry, the same question for institutional business as well. Eric Roberto Luchangco: I think what I did mention is that we are scaling back loan growth expectations. Before the Middle East conflict happened, we were expecting loan growth in kind of the call it, 13% range around that level. And as it stands right now, we certainly think it's going to scale back somewhat. And our current outlook is somewhere in the 10% to 12% range. But again, it remains subject to update as we get more visibility on how things are going to evolve through the course of the year. Jose Teodoro Limcaoco: If I may, Aakash and lend some color to that, right? Obviously, with the crisis ongoing, we've got to realize that there will be stress on the consumer. And therefore, as Ginbee and Jenny have mentioned, we have tightened credit standards that should cause a little slower growth than what we had expected at the start of the year, as Eric has mentioned. The other thing that we need to do is step up the collection efforts, which we've done to make sure that we're proactive. We're calling them before their due dates and working with them to make sure that if anyone's got stress that we manage and work on solutions that allow them to promise to pay and keep those promises. But I think you need to look forward. The consumer business is always cyclical, right? And therefore, -- and that's why you price the high margins into the consumer business because there will be times, when there will be consumer stress where your margins will compress, right? And there will be times when the consumer will be good and your margins will expand. We cannot disappear from the consumer market because when the cycle turns, and it will, we need to be there. We need to be there in front of the consumer, we need to be facing consumer, we need our distribution and our products still front and center with the consumer. Otherwise, it will just always be feast and famine. We just need consistent earnings. We need consistent growth, and we need consistent interaction with the customer. Jenelyn Zaballero Lacerna: The other one that I think you need to consider Aakash, is not just that the bank is tightening credit standards. And I guess that's something that all banks will need to do from a proactive or prudent risk management standpoint, but also demand during crisis for high-ticket items is usually going to be more tepid. We see this in vehicle sales, in the industry other than EV ICE vehicle sales are down. We are still realizing strong growth simply because of EV. On home or housing loans mortgage, we also have seen a softening of real estate sales. And on the financing side, you can expect this because during the COVID years, which is now when most of these projects will be completed. There was hardly any project during that time. And so we'll see really a softening in demand for mortgage financing at this time. But do we see opportunities? Yes. Our branch channel sourced accounts remain to be very strong because of existing to bank clients who look for bargains. So the secondary market is still an existing market. There is still market for that. And most of the EV financing are branch-led sourced accounts. Overall, though these opportunities will not be adequate to compensate for the overall decline in the bigger dealer market or in the bigger broker real estate tie-up market? Haj Narvaez: Thank you, Aakash. We actually have a request -- we actually have [ Gaurav Jangale ] of Fidelity. Gaurav, go ahead with your question, please. Unknown Analyst: Can you hear me? Haj Narvaez: Yes, we can. Unknown Analyst: Yes. So my question was on the number you mentioned on credit costs, so 90 to 100 bps. Can you quantify the underlying assumptions or, say, the GDP growth and oil price based on which say you arrive at 90 to 100. And if the GDP growth is lower than what you're assuming? Oil price is higher than what you're assuming? At what level of those downgrades, then the COC goes above 100 bps. So just numbers on the underlying assumptions. Eric Roberto Luchangco: Sure. That was roughly based on an initial projection done by our Chief Economist, saying that we could see GDP growth fall down to the range of about 4%, just 3.9%, I think was a specific number. I realize that there have been projections there that are lower than that. But you have to base it off something and that was the projection that we got from our Chief Economist and the basis of which I gave that projection. Unknown Analyst: Okay. So do you have like any direction in terms at what level your credit cost goes above 100 bps. How bad it has to get? Eric Roberto Luchangco: I'm sorry, I can't really give you good guidance on that, unfortunately. The worse it gets, the worse the economy gets the higher it goes. And I don't have a strict I guess, client that follows, if GDP goes here, then this is where the credit cost goes. Unfortunately, I don't have that. We don't have that at this time. Haj Narvaez: Thank you, Gaurav. We have a question actually that was typed in from Vinayak Jain of MUFG. He asks, do you have any projection on NPL ratio by the end of the year? And what is the impact of expected write-offs, if any, on our capital position? Jose Teodoro Limcaoco: I would expect the NPL to be actually at about this level or even lower. If you look at where the bump has come from, from the fourth quarter, it's really come from the institutional book where we believe that will come down significantly. We are also looking at doing remedial action on our SME book, which is -- and the personal -- sorry, the micro finance book, which both have seen substantial jumps. And therefore, I would suspect that the NPL ratio should be at this level, if not lower by year-end. As to whether it affects the capital? I don't think it does. What happens is that we provision and that goes straight into earnings already. So if we're at the same level, then the capital really shouldn't be -- should just be a flow-through from our earnings. Haj Narvaez: Thank you, TG. And thank you, Vinayak for your questions. I wanted to check if anyone from the audience has other questions. Rafa, can you just go ahead. Unknown Analyst: Yes, sorry. Speaking of capital, how are you thinking about capital management at this stage? If loan growth slows and is less capital consumption, but do you want to keep building up capital in case of prudential risk, et cetera, et cetera. Eric Roberto Luchangco: So our initial expectation at the beginning of this year or early in this year before Middle East conflict broke out was that we really had the potential to return a little more capital to shareholders. At this point, it is kind of a balance, right? Like you mentioned, from a safety perspective, you would think that we want to maintain a little more capital. But at the same time, if loan growth is going to be weak, then we can afford to return more capital back. I think on balance, there continues to be the belief that this level of 13.9% in terms of our CET1 ratio is still a very comfortable level. We can continue to see it move down from here. If conditions, I think, would have to deteriorate significantly for us to say -- we have to retain all of that 13.9%. And so if we see slight deterioration in economic conditions, I think we can still afford to have a lower than 13.9% capital, but significant deterioration means that we would probably look to conserve a little more of that capital. Haj Narvaez: Thank you, Rafa. I think we have time probably for one more question. Anyone from the audience? I don't see anything else in terms of the Zoom chat box. So that actually concludes the Q&A session. We can -- I wanted to thank everyone, all the participants for your questions. Of course, we at BPI always welcome your feedback and take them into careful consideration. Before we end the call, I'd like to maybe call on TG for some final thoughts. Jose Teodoro Limcaoco: Again, thank you to everyone for joining us today. And I think we spent too much time talking about NPLs and credit costs. And none of you asked any questions about all our other initiatives that we're trying to do, to show, to ensure that the bank continues to grow and continue to serve more customers. I just want to end with the story. Over the weekend, we launched our deposit and our partnership on Boracay Island with Robinsons Supermarket on Boracay Island, and we introduced the ability to open an account, make deposits and do withdrawals at the Robinsons Supermarket in Boracay. And in over those 3 days, we opened 50 new accounts each day at the supermarket in contrast to our branch there, which opens less than 8 a day. So it shows you the power of our ability to show that BPI is everywhere. So our agency banking initiative will complement what we're building in the branches, where we're trying to build the branches to be more service and sales -- sorry, more sales and advisory-oriented and then complementing that with all the digital initiatives that we're doing, moving from wealth, all the way to our mass market and [ BanKo ]. So again, I want to stress that while we are going through some tough times as an economy, thanks to the Middle East crisis -- no thanks to the Middle East crises, the [ BanKo ] continued to be focused on promoting financial inclusion, continue to focus on our strategy, continuing to build our consumer book because the consumer is still a very untapped market in this country. It is a market that has strong potential. And we believe at BPI that we need to be there for the Filipino. We need to be there to ensure that they can continue to improve their lives as the economy turns -- as it will, BPI will be there to continue to help them with their journey. So thank you, everyone, for joining us today and see you next quarter. Haj Narvaez: So thank you, TG, Eric and the rest of the BPI senior leadership. Ladies and gentlemen, that ends today's earnings call. Thank you again for your participation. To those joining us online, you may now disconnect. But for those on site, please do join us for some refreshments. Thank you. Have a great one.
Haj Narvaez: Okay. Good afternoon, ladies and gentlemen. Welcome to our earnings call to discuss BPI's results for the first quarter of 2026. I'm Haj Narvaez. I'll be your moderator for this session. We're conducting this briefing in a hybrid manner with our BPI speakers and panelists here in our headquarters at Tower 2 of Ayala Triangle Gardens, Makati City, while the rest of our participants are dialing in remotely. I'm pleased to introduce you to our speakers and panelists this afternoon. TG Limcaoco, our President and CEO; Eric Luchangco, our CFO and CSO. They will be joined in the panel for the Q&A by Tere Marcial, Head of BPI Wealth; Ginbee Go, Head of Consumer Banking; Louie Cruz, Head of Institutional Banking; Jenny Lacerna, Head of Mass Retail Products; Dino Gasmen, Treasurer and Head of Global Markets. We're also joined today by the rest of the BPI leadership team in this call. This afternoon's agenda will begin with opening remarks from our President and CEO, TG Limcaoco, followed by our CFO and CSO, Eric Luchangco, who will walk you through the first quarter performance highlights, and likewise provide updates on our digital platforms and strategic initiatives. The floor will then be open to questions from the audience. Please note, the call is being recorded and legal disclaimers apply. Now let me turn you over to TG for his opening remarks. Jose Teodoro Limcaoco: Thank you very much, Haj, and a nice afternoon to everyone joining us today. I see a lot of familiar faces here, and I'm sure there are a lot of familiar faces on the call. I look forward to a very engaging conversation after Eric's report. But let me start off by making a couple of points that despite the challenging conditions brought about by the Middle East crisis, the bank managed to report net income for the first quarter. That's 1.7% higher than last year and 4.9% higher than last quarter. This was really driven by our continued strong revenues that were up 13.9% despite and hindered by operating expenses that were up 15.8% versus last year. We can go into some of the details why the operating expenses were higher than expected but we continue to expect that they will be back to normal levels by year-end. All this led to pre-operating provisions that are up 12.4%. Due to the Middle East crisis, we increased provisioning to account for the increased risk in the consumer book arising, obviously, from the Middle East crisis, where we saw relatively larger jumps in the NPL in both the SME and the micro finance books. But despite increasing provisioning in our NPL, we saw a decrease -- sorry, despite the increased provisioning in our NPL coverage fell due to really the NPL increase in our corporate loan book, where the increases came from a number of corporate accounts that were substantially covered by collateral. Finally, I will talk a little about how this Middle East crisis is affecting our outlook on loan growth and the way we are provisioning. We are trying to provision ahead of that. But without really spending all of this conversation, all this time in the Middle East crisis, allow me also to talk a little about the progress we're seeing in our other businesses. Eric will go through some of those points. We're very happy to report that our agency banking initiative continues to grow. As of today, we have 1,320 stores where our customers can actually do deposit and withdrawal transactions outside of our branches and outside of our ATM and cash acceptance machines. Ginbee can talk a little about our digital branches and how we continue to roll this out to give a better selling and advisory experience to our customers. And then we'll also make a short presentation about the progress of our digital offerings, where we continue to believe that we have the leading mobile app, we have the leading business platform in BizLink and how we have updated that, and Louie can talk about that and how we've also updated our BPI Trade where we continue to make headways into equity trading for our customers. So with that, I'll turn this over to Eric and then looking forward to a wonderful engaged conversation later. Eric Roberto Luchangco: Thank you, TG, and welcome to everyone joining us on this call, both in-person and virtually as well. And so good afternoon to all, and we'll be presenting our first quarter results. These results showed more moderate growth compared to previous quarters but still reflects strong levels of operational performance that we believe will show continued outperformance versus our peers. The highlights are as follows: On profitability for the quarter, the bank generated net income of PHP 16.92 billion, a 1.7% increase year-on-year, supported by revenue growth despite higher operating expenses and provisions. Return on equity stood at 14.3% and return on assets at 1.9%. The balance sheet continued to expand with loans increasing 13.5% year-on-year and deposits rising 10.4%. The bank's capital position remained strong, supported by earnings generation with the CET1 ratio of 13.9% and CAR of 14.8%. NPL ratio stood at 2.42% with the year-on-year increase mainly driven by the shift in the loan mix and the quarter-on-quarter increase mainly driven by the institutional loan segment. NPL coverage declined to 87.15%, though this remains supported by underlying collateral. Meanwhile, ECL cover expanded to 103.5%. Bank further strengthened its customer franchise, expanding its customer base to 18.7 million. Agency Banking continued to drive scalable growth by extending its reach and deepening market penetration. At the same time, the integration of AI into the digitalization strategy is enhancing the bank's efficiencies and supporting long-term growth. First quarter net income reached PHP 16.92 billion, up 1.7% year-on-year with strong revenue growth moderated by higher operating costs and provisions. Net interest income stood at PHP 39.15 billion, up 13.7% year-on-year on loan growth of 13.5%, coupled with 7 basis points of NIM expansion. Trading and ForEx income rose 19.5%, anchored by a robust 32.6% jump in ForEx income. These combined to drive revenues 13.9% higher to a total of PHP 50.92 billion. Operating expenses rose 15.8% to PHP 23.5 billion, owing to higher business volume related technology and manpower costs. As we'll share shortly, much of the increase can be traced to timing issues related to booking of expenses as well as changes in the regulatory environment in the second half of 2025. Pre-provision income was at PHP 27.42 billion, up 12.4%. Provisions rose 83.3% to PHP 5.5 billion, reflecting normalization of credit costs and base effects as the first quarter of 2025 saw the continued drawdown of prior reserves. Compared to the prior quarter, net income increased 4.9%, driven by higher net interest income and lower operating expenses and provisions. OpEx declined 11.7% as costs normalized following the typical year-end expense build up in the fourth quarter. Provision operating profit expanded by 4.1% to PHP 27.4 billion. Earnings per share stood at PHP 3.2 per share at the end of the first quarter, up 1.5% year-on-year. Profitability remained healthy with an ROE of 14.3% and an ROA of 1.9%. Turning to the balance sheet. Total assets continued to expand, reaching PHP 3.7 trillion, up 13% year-on-year, driven by the expansion of the loan and securities book. Gross loans stood at PHP 2.61 trillion. It was slightly lower quarter-on-quarter, reflecting softer demand and our prudent origination of loans. On a year-on-year basis, however, loans grew 13.5%, with expansion recorded across all segments. Deposits increased to PHP 2.84 trillion, up slightly quarter-on-quarter and 10.4% year-on-year, driven by continued customer flows and a stable funding base. The CASA ratio eased marginally to 41 basis points quarter-on-quarter to 60.29% while the loan-to-deposit ratio climbed year-on-year to 91.95%. Versus last year, gross loans expanded 13.5% year-on-year to PHP 2.61 trillion, noninstitutional loans increased to PHP 829 billion, up 24.9% year-on-year. The increase in noninstitutional loans was led by SME loans, up 96.3% year-on-year. Credit card loans up 33.3%, personal loans up 26.9%. These personal loans include PHP 18 billion of teachers loans, which accounted for -- which increased by 72% year-on-year. Auto loans were up 19.3%. And these auto loans include PHP 5 billion in motorcycle loans, which increased 22% year-on-year. Mortgage loans was up 12.1% and microfinance loans up 16%. The loan mix continues to shift towards the higher-yielding segment with noninstitutional loans rising to 31.7% from 28.8% last year. This shift supported total loans growth of 13.5% year-on-year despite broadly flat quarter-on-quarter loan balances. In the first quarter of this year, NIM stood at 4.57%, remaining broadly stable quarter-on-quarter and improving 7 basis points year-on-year, mainly driven by lower funding costs. We'll delve into our perspective on asset quality in the later slides. But I wanted to show you here that even after accounting for the cost of credit, NIMs are still providing strong profitability to the bank. Adjusting NIMs for risk based on provisions, NIMs widened by 4 basis points to 3.92% quarter-on-quarter. If we look at risk-adjusted NIM based on the net NPL formation, we do see a sharper decline in margins by 42 basis points to 3.39% due to an outsized net NPL formation last quarter, and we'll discuss that a little further -- we'll discuss that further a little later. On the funding side, total funding stood at PHP 3.11 trillion, up 14.4% year-on-year and 1.7% quarter-on-quarter. Year-on-year, total deposits increased 10.4% and continues to be the primary source of funds, even though borrowings rose by 84.6%. CASA meanwhile is up 6.5%, which is faster than last year's pace. Key funding ratios remained stable with a loan-to-deposit ratio of 91.9% and loans to total funding at 84%. We continue to strengthen our deposit franchise, led by the mass market customer segment, which grew 60% year-on-year and continues to deliver the best CASA ratio across our customer segments. Institutional deposits also posted sustained momentum recording growth over the past 3 months in the high teens year-on-year. Fee income stood at PHP 10.54 billion, down 3.1% on the sequential quarter following a seasonally strong fourth quarter and fewer number of days in the current period. Year-on-year, fee income grew 13.9% on strong contributions from cards, wealth management, insurance, transaction banking, retail loans, business banking, corporate loans and investment banking. The Card segment saw a 13.7% increase, driven by higher billings, increased service charges from stronger cross-border fees, improved collections recovery, and higher SIP-related transaction volumes. Wealth management fees were up 11%, driven by a higher volume of assets under management, which rose 18.4% year-on-year and surpassed the PHP 2 trillion milestone to reach PHP 2.03 trillion. Income from insurance up 10%, was mainly driven by higher contributions from BPI AIA and BPI MS. Royalty fees and branch commissions further contributed to the overall increase. Transaction banking was up 26.9% mainly from higher supply chain fees, supported by increased invoice volumes and larger transaction values from our key clients. Securities brokerage and investment banking increased 80.2% attributable to higher deal activity, including the projects -- in the project finance space. These were partially offset by declines in asset sales, down 61.9% due to last year's one-off sale of a large bank property rental, which declined 27.7% at several bank premises and equipment were no longer leased. ATM and digital channels decreased 2.6% as higher fees led to lower transaction volumes and reduced usage. Total operating expenses amounted to PHP 23.5 billion, up PHP 3.2 billion or 15.8% higher year-on-year with increases recorded across all expense categories. Manpower costs reached PHP 8.1 billion, up 8.2% or PHP 621 million, driven mainly by salary adjustments and a higher headcount. Technology expenses reached PHP 4.7 billion, up PHP 660 million or 16.5% year-on-year due to higher spending on IT outsourced services, software subscriptions, and maintenance in line with the bank's digitalization initiatives. Other operating expenses increased to PHP 8.4 billion, up PHP 1.69 billion or 25.2% with volume-related expenses accounting for 41% of the increase. Overall, the key drivers of the year-on-year increase in OpEx were volume-related expenses followed by technology and manpower. As referenced earlier, booking delays relating to tech and other expenses as well as changes in the regulatory environment, particularly with that on digital services led to the sharp increase in cost this year versus last. Adjusting for these factors, operating expense growth would have been more moderate at 13.4% year-on-year. Notwithstanding that, the bank continues to demonstrate strong operating performance with efficiency gains translating to a cost-to-income ratio of 46.2% despite the customer count doubling to 18.7 million since 2022. The cost base has grown to add a considerably more measured pace supported by active headcount management and a pivot towards digital platforms and tech-enabled channels, including agency banking partner stores. CET1 capital stood at PHP 404 billion, up 0.4% from last quarter and 5.9% from last year. While the OCI volatility weighed on the capital in the first quarter, the bank's overall capital position remains solid. The CET1 ratio stood at 13.9% and CAR at 14.8%, both well above internal and regulatory thresholds despite the increase in risk-weighted assets and capital distribution as well as the lower overall other comprehensive income. Turning to asset quality. Nonperforming loans increased quarter-on-quarter to PHP 62.9 billion, with the NPL ratio rising by 24 basis points to 2.42%. Provisions which continue to be guided by ECL declined quarter-on-quarter to PHP 5.5 billion, equivalent to a credit cost of 87 basis points for the first quarter. This brings point-in-time NPL coverage of 87.15% under PFRS 9 and 112.4% when including the surplus reserves for performing loans in accordance with BSP Circular 941. This lower NPL cover is supported by collateral strength, expectations for recovery and risk absorption buffers. Asset quality pressure was mainly driven by institutional loans whose NPL ratio climbed 21 basis points quarter-on-quarter to 1.19%. While the increase in the NPL ratio was relatively small, it had an outsized effect on the overall NPL level and NPL ratio given the segment's high share of the overall book. This new NPL formation centered on a few institutional accounts, one of which we had anticipated to turn NPL and thus had provisioned for -- we had already provisioned for. The combined loss reserves and collateral coverage for this specific loan amount to 1.8x the value of the NPL, mitigating our downside risk. Other significant contributors to the higher NPL ratio were accounts with company-specific issues borne out of operational disruptions and collection challenges. On the flip side, we also have visibility on certain accounts currently classified as NPL that we expect to revert back into current status within the second quarter, which should offset much of the hits that we're taking from this current quarter. SME loans also saw a 98 basis point uptick on a quarter-on-quarter basis in the NPL ratio, driven by higher delinquencies in the 2025 and 2024 vintages. Delinquencies were most pronounced in companies in the wholesale and retail sectors, followed by construction and rental. Microfinance loans warrant some close to our attention as well as the NPL ratio increased 74 basis points with delinquencies observed across products and regions. In context, microfinance remains a relatively small portion of the total loan portfolio. For credit cards, the NPL formation is largely from the same group we had previously identified, which is clients aged 40 years and below, lower income borrowers earning less than PHP 40,000 per month and post-pandemic acquisitions booked between 2022 and 2024. Meanwhile, mortgage, auto and personal loans reported relatively stable or declining NPL ratios. We continue to maintain ECL coverage of at least 100% across all loan segments. This quarter's provisions, coupled with moderate ECL formation, widened the ECL cover quarter-on-quarter to 103.5% from 100.9% to end last year. The corresponding point-in-time NPL coverage levels are shown on the slide as well as the total cover compromising reserves and collateral. NPL remains well covered by a combination of these reserves and collateral with a total collateral coverage of 138%. Institutional, business banking, marketing, auto, credit cards, and credit card loans all post coverage ratios above 100%. Even the least covered segments, which are personal loans and microfinance, maintain a solid coverage of at around 93% even while representing just a small share of the total portfolio. Like in previous quarters, we will walk you through the performance of our lending businesses from the perspective of risk-adjusted revenues and margins. This table summarizes loan-related revenues for the first quarter of 2024, '25 and '26, alongside their corresponding net NPL formation by loan segment over the same period. From the first quarter of '24 to first quarter of 2026, revenues across the loan book increased by PHP 8.67 billion, approximately 6.4x the PHP 1.35 billion increase in net NPL formation. Looking at noninstitutional loans. We delivered strong growth in revenues at PHP 8.3 billion, which comfortably offset the PHP 390 million increase in net NPL formation. Overall, growth in the noninstitutional loans drove a sizable net revenue uplift even after factoring in the asset quality impact. The same dynamics can be observed in the last 2 columns comparing the first quarter of 2025 and first quarter of 2026. This highlights the thinking behind our commitment to growing the contribution of the noninstitutional loans and the benefits of a diversified portfolio in driving better performance. Looking at it from a margin perspective, loan yields for the noninstitutional segment have largely held firm at around 12.74%, providing a comfortable buffer against net NPL formation of 3.35%. Yields for the institutional business have seen a sharper drop versus last year's average as institutional borrower rates adjust in step with the lower BSP policy rates. The uptick in the institutional businesses' net NPL formation to 0.78% in the first quarter of this year due to select NPL accounts as discussed earlier. Aside from delivering wider risk-adjusted margins, the noninstitutional segment has fueled revenue growth given its robust expansion since in 2022. This segment has delivered a CAGR in gross loan ADB of 30.7% from 2022 to the first quarter of 2026. Moving on to our strategic initiatives update. In line with our commitment to digital leadership, the bank continued to enhance our 7 client engagement platforms. Starting from the left, the BPI app, which is our main operating app for retail clients now includes a new pay bills experience, InstaPay, B2B, non-QR billers, real-time payments, Ka-Negosyo Credit Line, eSOA, and partner store deposits, which broadened the roles -- the app's role in facilitating everyday financial transactions. We continue to enhance payments efficiencies through refinements of user interface to improve the overall ease of usage. Next, for our VYBE e-wallet, sign-ups have reached 2.7 million with 78% being VYBE Pro users. The BizLink facility for corporate clients introduced key upgrades such as Transfer to Own, pay bills, pay BPI and payroll to seamlessly migrate clients to the mobile app and provide ease of transaction approval. The BPI BizKo app for SMEs now serves more than 30,000 users, supported by continued enhancement of financial services, which strengthen client retention and drive platform usage. The BanKo app remains central to financial inclusion as it continues to empower our everyday masang Pilipino, C2D earners, and MSME entrepreneurs through accessible, reliable and digital-first financial solutions. For BPI Wealth Online, which serves high net worth client individuals maintained its active user base at 2,800, up 82% year-on-year through sustained activation initiatives. Finally, BPI Trade continues to strengthen engagement among equity investors with a higher transaction count in 2026 as it brings a new funding process with upcoming features on e-deposit and e-reserves, which will widen accessibility. Across all platforms, we continue to expand capabilities in open banking and improve the UI/UX for a more seamless experience. As of March, we have 129 API partners, up from 74 in 2019, supporting over 10,000 brands, up from only 749 in 2019. Contributing to the strong momentum from 2025, we now have 34 agency banking partners, more than 7,000 partner stores, which further strengthened our foothold in Visayas and Mindanao. Total products sold per quarter reached nearly 177,000, up 87% from last year and more than 20x from 2 years ago with deposits and insurance as the primary products sold. 20 agency partners equivalent to 1,320 partner stores are currently capable of deposit and withdrawal transactions, volume of which increased to 88,400 in the first quarter, up 5.2x compared to last year. Transactions are fast and convenient using a barcode-enabled feature on the BPI mobile app. Customers can initiate deposit transactions to a BPI account seamlessly, which are then fulfilled at participating partner stores. This completes a critical piece of the agency banking model, enabling both cash-in and cash-out transactions within retail environments without the need to visit a traditional branch. Moving on to reengineering and process automation initiatives. In the past 3 years, we implemented 149 projects, 82 in 2025 alone. These fall into 3 main types of projects, namely desktop automation tools, approved workflow automation and RPA bots. Moving forward, the projects already implemented will deliver an annual savings of PHP 139 million and reduced the headcount requirement by 181 headcount, helping our business units reallocate resources and reassign people to higher value-added rules. Highlighting some RPA achievements from some of our key business segments. In remittances, we implemented e-mail sending bots for InstaPay, PESONet and even foreign remittances to improve our customer experience, reducing complaints through this more proactive approach and avoiding the hiring of 25 additional manpower. In Agency Banking and BPI Wealth, we've implemented encoding bots to address system booking requirements and investment subscription upon opening for wealth builder, avoiding the hiring of 10 outsourced personnel. Moving forward, we will continue to introduce new RPA initiatives for running the bank, streamlining workflows and reducing operational inefficiencies, bridging the gap between our legacy processes and the demands of a modern digital-first economy. In the case of AI adoption, we take a disciplined use case-driven approach. For fraud, research and marketing, we're looking at AI machine learning-driven systems that will detect potentially fraudulent transactions and assist credit analysts in the review of loan applications to detect risks and malicious intent. We use AI to supplement knowledge gaps for clients with AI scanning for data and references to help craft targeted marketing strategies at various stages of our clients' life journey. AI also assists our marketing teams in developing competitive, relevant and hyperpersonalization campaigns. In operations, we're using intelligent document processing to automate manual, repetitive, low-risk works such as data capture and document review, so our teams can focus on higher-value activities and scale capacity without proportional increase in cost. For BPI customers, we have rolled out the AI in our branches to simplify access to policies and guidance, enabling more consistent high-quality service. Our data science team also builds advanced machine learning models to better understand individual customer needs and behaviors, helping us personalize products and offers in ways that can improve satisfaction and support revenue growth. Finally, beyond mainstream adoption, within IT, we are also evaluating additional AI use cases to further strengthen risk management and governance, enhancing real-time monitoring, improving decision support and helping us respond earlier to emerging risks. In its sustainability efforts, BPI remained busy. In the first quarter of 2026, we issued PHP 50 billion worth of SIGLA social bonds, funding projects with clear social impact under our 2025 Sustainable Funding Framework. We also expanded BPI's branches, offering EV charging stations to 10 branches nationwide. Our fraud awareness program completed 2 engagements in the first quarter of this year, reaching 155 participants. Following BPI's credit cards, which use 100% recycled PVC, BPI debit cards adopted the same innovation. Lastly, in line with our targeted interval of 5 to 6 years, BPI engaged an internal -- an external consultant for the bank's double materiality assessment, which shows the impact of ESG topics on stakeholders and on BPI's financial performance. The endeavor engaged over 7,000 stakeholders to assess and refine BPI's ESG priorities. We remain well recognized for these efforts and as of March this year, BPI has received 9 ESG-focused awards. Beyond just ESG, however, BPI has also been well recognized for its various initiatives and we list here various awards and recognitions received in the first quarter of 2026. In particular, we would like to highlight that in March, BPI led all Philippine companies on TIME and Statista's Asia-Pacific Best Companies of 2026 list, ranking 10th out of 500 companies in the region. BPI also placed seventh and was the only bank included in the top 20 companies recognized as a great place to work in the Philippines. Let me close with a summary. On profitability, our revenue-led net income growth was tempered by higher OpEx and provisions, but we remain to have a strong operational metrics. We continue to maintain a healthy balance sheet with ample liquidity and capital. Overall, asset quality remains within our risk appetite, supported by adequate buffers. And finally, we further strengthened our leadership in digitalization by scaling AI and data science. Thank you, and we will open the floor to questions in a couple of minutes after we get set up. Haj Narvaez: Thank you, Eric. Before we open the floor to your questions, please allow us a minute or 2 to set up at the venue. [Operator Instructions] For those on site, you may use any of the mics available at the floor or you may raise your hand, and we will have someone hand a mic to you. Please identify yourself by your name and company, so we can address you accordingly. For the benefit of everyone attending this call, whether in person or online, we would like to encourage you to ask your questions during the session as we will refrain from taking questions after we end this call. Okay, so just a reminder, joining us here in front with TG and Eric, are our senior leaders Tere Marcial, Head of BPI Wealth; Ginbee Go, Head of Consumer Banking; Louie Cruz, Head of Institutional Banking; Jenny Lacerna, Head of Mass Retail Products; and Dino Gasmen, Treasurer, and Head of Global Markets. So before we take questions from the Zoom link, we wanted to check first if anyone in the audience had questions. Go ahead, Gilbert. Unknown Analyst: I want to ask if you could discuss in greater detail what happened to the institutional book, why there was some asset quality issues? Jose Teodoro Limcaoco: You have to remember that NPL is 90 days. So we knew this was coming. The increase in the NPL in the institutional book versus the fourth quarter -- first quarter versus fourth quarter was really a net increase of about PHP 3.4 billion, driven by several accounts -- several meaning, 6 or 7, if I can remember right. But one of which was more than half of that. All of them with the exception of 2 were fully secured. The 2 have an NPL amount of about PHP 600 million or PHP 700 million, the rest are fully secured. The one big one is, as Eric said, was 1.89. So we think those will be resolved. In fact, we are -- the big one, we know, will be resolved because we think we should be able to take the property and we're in discussions with someone to take over the property. And that means that there is no reason to fully provide for that fully provisioned because you know the collateral. And that's one reason also why the coverage fell, right? So when we look at the coverage of 2.4 -- sorry, 94% versus 87%. We think if we didn't have that NPL growth and the lower coverage for those NPL book. That cost fall of 11%. So we would have fallen from 94% to 83%, I would refer that. So that's the effect of the NPL of the institutional bank is about 11 points. And the effect on the NPL rate is about 13 basis points. And then as Eric said, when we look at going forward, we have 2 accounts that will resolve themselves in the second quarter, totaling about PHP 3.3 billion. And we know because they've already been performing and just need 6 months... Unknown Analyst: Accounts of this sort that could -- for the balance of 2026? Jose Teodoro Limcaoco: Well, obviously, there will be accounts, but none as big as the one, that's large one. And this was unrelated to the economic conditions. Louie, maybe you want to give some color what you think? Unknown Analyst: Are you at liberty to talk about the industry they're in and whether or not they're connected politically? Jose Teodoro Limcaoco: No, they're not -- they're not connected politically. Luis Geminiano Cruz: Everything -- it's not. But for institutional accounts or accounts that we have, as TG mentioned, it will follow based on a certain restructuring. So if it falls 90 days, then it's within 90 days. And if they miss an amortization, then it falls naturally and it becomes NPL. So all these accounts that TG mentioned, we monitor this. This specific account that's quite large in terms of amount. Every time there's an amortization they miss, so we kind of see it. We can actually extend it. But the thing is if there's no clear path of doing a proper restructuring. We just don't do it, right? So that's a difference in terms of institutional accounts, in terms of restructuring. And it's not political. It has nothing to do with the issues that you're seeing. It's really an account that's quite unfortunate that they -- their cash flow is affected. But at the end of the day, you were fully covered. It's more of a timing of when we want to trigger it, right? So in fact, many are looking at it because it's -- this might -- it's perfect for a [ solar play ] there. Haj Narvaez: Thanks for your question, Gilbert. Thank you, TG and Louie. If there's anyone else from the audience who had a question. Rafa, go ahead. Unknown Analyst: I guess more moving forward with all the obviously, beyond the 1Q scope -- are you seeing any stress in SMEs consumers over the last 2 months since the Iran excursion? Jose Teodoro Limcaoco: Rafa, you'll have to expect it. I think you'll have to expect it. And that's why we have provisioned a little more aggressively in the first quarter with our ECL covers higher. And when really, a lot of the provision we did was not for the corporate because we didn't need because of the collateral but really for the consumer side. It's about natural with this crisis with higher fuel costs, people are predicting the food costs may go up, we will see some stress. And even when you look at our ECL models, payment behaviors are beginning to show themselves. So a couple -- 1 or 2 basis point slide in [ ECL ] numbers are indicative that something is coming down the road. So you need to provision that. Unknown Analyst: Are you seeing it more in the consumer or in the SME? Jose Teodoro Limcaoco: I think you'll see it in both sides. Ma Cristina Go: But you're talking about provisioning, right? So generally, provisioning would definitely require a lot more simply because of the model. The model has macroeconomic variables as part of [ PD ]. And so with deterioration in the macroeconomic variables, it's simply math. But certainly, we will remain to be very -- will closely monitor our recoveries. We are stepping up our collections and being very proactive about that, not to mention with the BSP regulations on the memo. It also helps that the BSP is being very proactive. Haj Narvaez: Thanks for that question, Rafa. We have a few questions on the Zoom chat. So I'll start off with that. The question is from Katrine Dolatre, Security Bank. She wanted to ask what do we consider our optimal LDR and she wanted to ask as well for our loan and deposit growth target? Jose Teodoro Limcaoco: I saw the question, Katrine, right? Haj Narvaez: Yes. Jose Teodoro Limcaoco: I think we have said it before, LDR is loan-to-deposit ratio. In modern banking day, given the ability of banks to access BSP borrowing, interbank borrowings and particularly the bond market where there is a substantial cost advantage going to the bond market. The real thing that we should be looking at is our loan to funding mix. And our loan-to-funding mix is about 84% at the end of the quarter. That's very comfortable. The other thing that you need to watch out for, I guess, is your CASA ratio. Our CASA ratio is about 60%. Now that I'll admit we'd like to get it higher because that's something that delivers cheap funding. But the reason we are able to run our loan to total funding at very aggressive levels, it's because BPI is fortunate to be one of the big 3 banks where we have a distinct advantage at being able to raise deposits when we need to. And the reason we don't want to -- sorry, the reason we are able to run high is because when we need to compete for deposits, we're able to price, and we don't really want to price very high in the market and cause our funding rates to be high just so that our loan-to-deposit or loan-to-funding mix will go down. So I think that's the way we should look at it. I don't know, Eric, you might want to give guidance on our loan growth and deposit growth. Eric Roberto Luchangco: So what we're looking at for this year is -- on the loan growth side is we're looking at some moderation from what we had planned on at the beginning of this year, which should come as no surprise given the weaker economic outlook that we have for this year. But we're still looking at something along the lines of kind of the low double-digit range for growth, maybe somewhere in the 10% to 12% range. But obviously, this will be subject to updating in the context of how the current situation evolves, right? I think at this point, nobody really has a crystal ball into how this thing is going to evolve every day, every week, the expectations are changing. So it's hard to really crystallize a new target at this point, but we are looking at some moderation because obviously, what you've seen so far is already putting a dampener on the economy, and we're -- the oil -- higher oil prices should stick around for quite a bit longer, which is going to place a constraint on the growth of the economy. On the deposit side, what we've seen in past situations similar to this, whenever we see a crisis, we tend to see deposits coming back to BPI. So our expectation is that we should -- the availability of deposits should be there. We don't think funding is going to be an issue for us. But of course, we are taking all possibilities under consideration. Haj Narvaez: Thank you, TG and Eric. [indiscernible] did you have a question? Go ahead. Unknown Analyst: Sorry. Just going back to asset quality. In light of the current development and stresses, have you guys run, I guess, scenarios or stress test on what part of the book is more exposed? And anything you can share with us along those lines. Jose Teodoro Limcaoco: Yes, every quarter, we run new economic variables. So we're doing that now for the -- we just finished a quarter. So our -- I guess our April numbers will show it to the Board. You won't see it till end of June. We do stress testing as part of our cap and as I told, Rafa -- as I mentioned to Rafa's question, I guess we'll see a lot of stress on the consumer. Because obviously, we have a substantial growth in our consumer book. And we have people, I guess, we have -- if you want to put it, we've basically gone a little down market relative to what we've always had. So we expect to see some higher ECL there which should eventually translate into NPL going forward, but the margins justify. One of the things that I ran was -- I was telling the team that if you look back at the last 4 years and look at our net interest income growth, our net interest income growth has surpassed or was about 9 to 10 percentage points faster than that of our competitor for the last 4 years. And that translated to approximately about PHP 36 billion in additional revenues over the last 4 years. So if you want us to get back to our provisioning to 100%, I just need PHP 8 billion more. So I think the trade-off has worked out. And I believe that the trade-off continues to work out going forward. Unknown Analyst: Any guidance on provisions this year given this outlook that you shared? Eric Roberto Luchangco: Well, our original projection for the year was somewhere in the 80s, right? So far for this quarter, we are looking at an annualized rate of 87 basis points. I think there is certainly the potential for this to grow, right? I mean, we don't really have a good grasp of how bad the situation gets moving forward. I'm sure if anybody asked you, you would say, can the situation get worse? I'm sure you would all agree that this situation has the potential to get worse. It has the potential also to stay where it is now. I don't think it quickly rebounds. But if it stays where it is, it probably our provisioning levels will probably be similar to where they are now, maybe a little higher. Obviously, if the situation deteriorates, well, we'd have to see how much worse it gets, right? Haj Narvaez: Okay. We have a question in the Zoom chat as well. It's actually from Eric Chan of Buena Vista, and it's probably going to be directed to Louie, perhaps. I noticed the institutional loans NPL is at 1.19%, which is quite similar to the historical average. And given the backdrop with the war and inflation, how are your delinquency buckets in the institutional loan portfolio? Luis Geminiano Cruz: Thank you for that. Thank you, Eric. Okay. How we monitor the institutional banking side. We also follow a certain -- start of the year -- we look at the industry weather [ chart ]. We're identifying clients: high, medium, low, in terms of risk. And with that, with the Middle East crisis now, we try to overlay that and see which clients will have a direct impact will be affected directly and indirectly. So versus -- I just have to mention versus the COVID situation, wherein, you look at the industry or the sector as a whole, now we're looking at it on a per account basis reviewed based on how we monitor the risk in the industry. So having said that, the good thing with the portfolio is quite healthy and very focused on projects. And when you say really project, it's really more cash flow is quite steady and the sponsors are quite reputable. Where we're monitoring is really on how it was structured originally in terms of interest rate. Some are already asking if we can do a little flex on doing a floater versus a fix. That's something that's where we will help given the -- where the crisis is. And the others are some flexibility in terms of prepayment if they have cash. So we will also try to support that. So overall, that's how we manage the portfolio to keep the NPL in the institutional banking within the range of where we are now. Haj Narvaez: Thank you, Louie. Thank you, Eric, for that question. Actually, Eric Chan likewise had another question in relation to the risk -- what we showed earlier, which is the risk-adjusted NIM net of provisions versus the risk-adjusted NIM, net of NPL formation. He's wondering if there's -- are we seeing any, I guess, divergence between the net NPL formation and the overall credit costs? Jose Teodoro Limcaoco: I think the only reason you're seeing that big difference in the last -- in the current -- I'm sorry, in the first quarter is because of the institutional book where -- because the NPL jumped up on the institutional book, and we did not necessarily need to provide for that because of the collateral. And therefore, when we deduct NPL formation, which was the institutional book, it didn't count into the provisioning. So that's the difference. I expect that to come back when the PHP 3.5 billion of the 2 loans in the second quarter that Louie promises may will come back in the second quarter comes back. Yes. Haj Narvaez: Thank you, TG. Jose Teodoro Limcaoco: Yes, the last point I wanted to make was, I think you also have to remember that when Eric shows provisioning as a cost or a deduction to the net interest margin or NPL formation, we're not adding back also the recoveries from ROPA sales. right? So that's something else that we're not considering into that factor. Obviously, when we make provisioning and provision gets eaten up by movements into ROPA, we're not counting the sale of the ROPA when it eventually materializes. Haj Narvaez: Thank you, TG. I wanted to check if anyone from the audience had any questions. Okay. If not, we'll continue. We have a question from [ Melissa Kuang ]. The questions are actually about OpEx. We mentioned that on OpEx, some of the sharper year-on-year growth was -- part of it was related to timing, but also some regulatory changes. Can you share a guidance in terms of what we expect for OpEx year-on-year for the full year of 2026? Eric Roberto Luchangco: Our original projection at the start of the year was that we would see OpEx growth of kind of around the 10%-ish level, right. This year, as the year has developed, we're obviously going to have to update that as we get greater certainty. But in some ways, there will be a need to maybe spend a little more in some areas, but there are also areas in which we can dial back in particular, we can dial back on some of the promotions or some of the marketing that we're doing in order to compensate for any increases that we're seeing in other areas as, for example, obviously, transportation costs, the logistics and logistics costs we incur. We're also subject to the same oil price increases that everybody else is. And so we could potentially see increases there. But again, we would look to manage that with potentially cutting back in certain areas as needed depending on how the year pans out. Haj Narvaez: Thank you, Eric. Actually, we have another question in relation to cost this time on the tech side. It's actually from Priya Ayyar of Consilium. She wanted to ask about what she saw as high digital spend. How soon do we expect cost to return to, I guess, normal growth levels? Or are we seeing a prolonged period of higher costs? Eric Roberto Luchangco: So maybe I can address that by saying, when you talk about the high spend, including on technology, our mindset is that actually, the investments that we've made in technology have allowed us to continue to become more cost efficient over time. And so if you look at where our cost-to-income ratio was in, for example, in 2022 versus where it is today, where we ended last year, where it is today. I think what you'll see is a continuing trend of improvements in the cost-to-income ratio. So when you say, hey, when is it going to come back down to a normalized level? Actually, we've been seeing improvements in this level. And we will continue to invest in areas that we believe will continue to pay dividends for us, not necessarily within the year, but down the road, and that's what we've been doing. And we believe that the investments that we've made in the past years have been critical to helping bring down that cost-to-income ratio over the last few years. Haj Narvaez: Thank you, Eric. I have another question actually from Eric Chan of Buenavista. This time, it relates to the personal loan segment. I think you noticed that if you exclude the teachers' loans, the overall growth of the personal loan portfolio appears slower than the teachers' loans. And given our success with the test portfolios and the drop in the NPL ratio, what explains the slower growth of the personal loans portfolio ex teachers loans? Jenelyn Zaballero Lacerna: Yes. So for teachers loans, it's really growing at about 71% rate. And for personal loan, it's about 10% year-on-year. So still a decent increase over last year. So in issuing loans, personal loans is really classified as a multipurpose loan. But as of late, we have really looked at the portfolio and determine which are really personal loans and which are used for capital. And you would see that the cross section between business banking in personal loans, actually, there are overlaps in customer. And therefore, that's now booked in business banking, which has grown by about close to 90%. And now with teachers loans in the personal loan books, which is really more of a personal loan. It actually is combined. It has a healthy growth. Given that -- sorry, teachers loan is really a lot of potential, now growing at 71% year-on-year. So it's really an alignment of the customer value proposition at this point. Haj Narvaez: Thank you, Jenny. We actually have, I think, some questions from those who dialed in. I think from Danielo Picache of AB Capital. Danielo Picache: Can you hear me okay? Haj Narvaez: Go ahead, Danielo. Danielo Picache: Okay. So yes, I have three questions, if you don't mind. So I know we are barely 2 months into this oil crisis. But are you seeing any changes in early bucket delinquencies say, 30 DPD in both insti and non-insti book. That would be my first question. Jose Teodoro Limcaoco: Let me turn the insti to Louie. And then I think the best one for -- if there's any significant change would be on the cards portfolio in the personal loan because that would be very, I guess, reactive. So maybe Jenny first and then... Jenelyn Zaballero Lacerna: So the answer if there are actually deterioration? Yes, we see deterioration on the ex days, 30 days delinquency buckets. And the score downgrade really is a movement from one stage to another. Having said that, we have tightened our risk acceptance criteria, looking at income, looking at age, looking at profile, looking at industry where they come from. So we've tightened that on the acquisition front. And on the collections front, we have intensified collections already. Pre-delinquency 30 days, be more aggressive in contacting customers prior to moving them to a later bucket. So yes, and I think that is quite expected given the Middle East crisis. So we see that both in personal loans and in credit cards. But we already have placed measures to be able to control those. Luis Geminiano Cruz: Okay. On the institutional side, it's not really a deterioration, but we've seen clients, especially in the middle market requesting for extension prior to the actual amortization itself. So we're seeing some of those. So before we actually do accept the request, we also have to monitor, is it really directly affected by the Middle East conflict? Or is it really a cash flow issue outside of the normal situation. So we look at those situations also. So at 30 days, we get those requests. So definitely, it will not reach the 60, 90 anymore because that's how we monitor to avoid cross because for institutional, if you read 60, that means there's really a missed an interest payment rate in the 30 days. So it's quite early detection of the institutional side. Danielo Picache: Okay. Got it. Just my second question and sort of a follow-up to that. So with the targeted relief measure offered under MB Resolution 296, so we all know that's different from Bayanihan. Can you give us a sense of how this will influence your NPL recognition, write-off policy and provisioning requirement? Jose Teodoro Limcaoco: Well, we're just going to follow the MB. But really what it is, it's discretion to the bank. So we are working on programs now looking at potential borrowers who might request it and seeing whether it is applicable to them. I don't think it will significantly change the way -- obviously, if the MB allows us to defer a payment without making it NPL, that will affect, but I don't think it will be a significant portion of our portfolio. Danielo Picache: Got it. And just my last question. So essentially, how should I think about the steady state credit cost of your non-insti book? And sort of at what point does incremental yield get offset by higher loss rates? Jose Teodoro Limcaoco: I think the guidance that Eric has given is sufficient. It's hard to predict where this war goes. If you can tell me when this war ends, I can tell you what the NPL will be. If you can tell me where oil ends up, we can give you a reasonable guess, but we don't know. And therefore, I believe the margins are still sufficient. The margins are pretty wide. I mean Eric has shown that against NPL formation, which to me is the most aggressive way of measuring it because there you're assuming all NPL is lost, no recovery, right? We're still very healthy. So to be honest, it will take a dramatic end of the world. for us to start losing money on this business. Now granted, it might not be as optimistic as it was when we said it was 2 years ago, but it's still worth the effort that we have done. Haj Narvaez: We now move on to someone who also wants to ask a question. It's Aakash Rawat of UBS. Aakash, go ahead. Aakash Rawat: Great. So TG and Eric, I think you shared some color on the NPL formation earlier. That was very useful. But apart from the big account, you said there were 5 or 6 other smaller accounts as well, which turn into NPLs. Can you share some more color on what industry is they are from? What is the nature of those problems? And is it in any way related to the Middle East contract or completely independent of that? Jose Teodoro Limcaoco: I think it is actually independent from the Middle East conflict, Aakash. I think the big one is just completely failed business, if you will, a failed business or the proponents thought they had something thing. Things just didn't work out over the past couple of years. And I think they're throwing in the towel. We've tried to work with them. It isn't working out. So we're looking at taking the property and then just there are potential buyers for the property. So we will be good on that. The rest are, I mean, small businesses -- I mean, not small because they're consumer businesses. Aakash Rawat: I see. And then you said that based on your current expectations, you're expecting recoveries and the NPL cover to go back up in the second quarter. Is it all the way back up to 95%, which it was pre Q1? Or do you see any risk that it might not happen in Q2, might get further delayed? Eric Roberto Luchangco: Sorry, the question is, if the recoveries come back that we expect to come back in the second quarter, if they come back, then -- I didn't get the rest of the question. Sorry. Aakash Rawat: Do you see the NPL coverage rising back all the way back to 95%? Or do you see there's a risk that this gets delayed to Q3 or Q4? Eric Roberto Luchangco: I think there's a very reasonable expectation for it to come back to about that 95%. Jose Teodoro Limcaoco: Yes. Actually, Aakash, if you take a look at the -- if you take a look -- as Eric, mentioned, if you take a look at the several accounts, corporate accounts that went bad, they went NPL in the first quarter and remove them and remove the provisioning we did on them in the quarter, our cover would be up 11 percentage points from where it is today. So that's 87%, should be at 95%. Aakash Rawat: Okay. Understood. And TG, you mentioned that you're doing this exercise to calculate ECL provisioning because of macroeconomic variables. So again, things are very uncertain, but you also said higher oil prices might persist and you're starting to see some stress on the consumer book already. Based on your best guess, what is that level of provisioning that you might need to make for the macroeconomic variables that might change on the back of this? Is it in the tune of 5 to 10 basis points? Or is it a higher number that we're looking at? Jose Teodoro Limcaoco: At this point, it's more of a guess than anything else, right? But I would see -- again, we would expect it to go up versus our initial projections at the beginning of the year. As I previously mentioned, our expectation for this year was somewhere in the range of the 80s. It could head up into the range of 90s, approaching 100. But the reality is that depending on the situation, it could go beyond that. That's certainly within the realm of possibility. But based on what we see for now something along the lines of in the 90s up to 100, I think, would not -- would be within the range of reasonable expectations. Aakash Rawat: Okay. Last question. Given the slight level of stress that you're seeing in the consumer book and given the uncertainty, are you scaling back this business? Should we expect slower growth in the consumer business in the coming quarters? And what about -- sorry, the same question for institutional business as well. Eric Roberto Luchangco: I think what I did mention is that we are scaling back loan growth expectations. Before the Middle East conflict happened, we were expecting loan growth in kind of the call it, 13% range around that level. And as it stands right now, we certainly think it's going to scale back somewhat. And our current outlook is somewhere in the 10% to 12% range. But again, it remains subject to update as we get more visibility on how things are going to evolve through the course of the year. Jose Teodoro Limcaoco: If I may, Aakash and lend some color to that, right? Obviously, with the crisis ongoing, we've got to realize that there will be stress on the consumer. And therefore, as Ginbee and Jenny have mentioned, we have tightened credit standards that should cause a little slower growth than what we had expected at the start of the year, as Eric has mentioned. The other thing that we need to do is step up the collection efforts, which we've done to make sure that we're proactive. We're calling them before their due dates and working with them to make sure that if anyone's got stress that we manage and work on solutions that allow them to promise to pay and keep those promises. But I think you need to look forward. The consumer business is always cyclical, right? And therefore, -- and that's why you price the high margins into the consumer business because there will be times, when there will be consumer stress where your margins will compress, right? And there will be times when the consumer will be good and your margins will expand. We cannot disappear from the consumer market because when the cycle turns, and it will, we need to be there. We need to be there in front of the consumer, we need to be facing consumer, we need our distribution and our products still front and center with the consumer. Otherwise, it will just always be feast and famine. We just need consistent earnings. We need consistent growth, and we need consistent interaction with the customer. Jenelyn Zaballero Lacerna: The other one that I think you need to consider Aakash, is not just that the bank is tightening credit standards. And I guess that's something that all banks will need to do from a proactive or prudent risk management standpoint, but also demand during crisis for high-ticket items is usually going to be more tepid. We see this in vehicle sales, in the industry other than EV ICE vehicle sales are down. We are still realizing strong growth simply because of EV. On home or housing loans mortgage, we also have seen a softening of real estate sales. And on the financing side, you can expect this because during the COVID years, which is now when most of these projects will be completed. There was hardly any project during that time. And so we'll see really a softening in demand for mortgage financing at this time. But do we see opportunities? Yes. Our branch channel sourced accounts remain to be very strong because of existing to bank clients who look for bargains. So the secondary market is still an existing market. There is still market for that. And most of the EV financing are branch-led sourced accounts. Overall, though these opportunities will not be adequate to compensate for the overall decline in the bigger dealer market or in the bigger broker real estate tie-up market? Haj Narvaez: Thank you, Aakash. We actually have a request -- we actually have [ Gaurav Jangale ] of Fidelity. Gaurav, go ahead with your question, please. Unknown Analyst: Can you hear me? Haj Narvaez: Yes, we can. Unknown Analyst: Yes. So my question was on the number you mentioned on credit costs, so 90 to 100 bps. Can you quantify the underlying assumptions or, say, the GDP growth and oil price based on which say you arrive at 90 to 100. And if the GDP growth is lower than what you're assuming? Oil price is higher than what you're assuming? At what level of those downgrades, then the COC goes above 100 bps. So just numbers on the underlying assumptions. Eric Roberto Luchangco: Sure. That was roughly based on an initial projection done by our Chief Economist, saying that we could see GDP growth fall down to the range of about 4%, just 3.9%, I think was a specific number. I realize that there have been projections there that are lower than that. But you have to base it off something and that was the projection that we got from our Chief Economist and the basis of which I gave that projection. Unknown Analyst: Okay. So do you have like any direction in terms at what level your credit cost goes above 100 bps. How bad it has to get? Eric Roberto Luchangco: I'm sorry, I can't really give you good guidance on that, unfortunately. The worse it gets, the worse the economy gets the higher it goes. And I don't have a strict I guess, client that follows, if GDP goes here, then this is where the credit cost goes. Unfortunately, I don't have that. We don't have that at this time. Haj Narvaez: Thank you, Gaurav. We have a question actually that was typed in from Vinayak Jain of MUFG. He asks, do you have any projection on NPL ratio by the end of the year? And what is the impact of expected write-offs, if any, on our capital position? Jose Teodoro Limcaoco: I would expect the NPL to be actually at about this level or even lower. If you look at where the bump has come from, from the fourth quarter, it's really come from the institutional book where we believe that will come down significantly. We are also looking at doing remedial action on our SME book, which is -- and the personal -- sorry, the micro finance book, which both have seen substantial jumps. And therefore, I would suspect that the NPL ratio should be at this level, if not lower by year-end. As to whether it affects the capital? I don't think it does. What happens is that we provision and that goes straight into earnings already. So if we're at the same level, then the capital really shouldn't be -- should just be a flow-through from our earnings. Haj Narvaez: Thank you, TG. And thank you, Vinayak for your questions. I wanted to check if anyone from the audience has other questions. Rafa, can you just go ahead. Unknown Analyst: Yes, sorry. Speaking of capital, how are you thinking about capital management at this stage? If loan growth slows and is less capital consumption, but do you want to keep building up capital in case of prudential risk, et cetera, et cetera. Eric Roberto Luchangco: So our initial expectation at the beginning of this year or early in this year before Middle East conflict broke out was that we really had the potential to return a little more capital to shareholders. At this point, it is kind of a balance, right? Like you mentioned, from a safety perspective, you would think that we want to maintain a little more capital. But at the same time, if loan growth is going to be weak, then we can afford to return more capital back. I think on balance, there continues to be the belief that this level of 13.9% in terms of our CET1 ratio is still a very comfortable level. We can continue to see it move down from here. If conditions, I think, would have to deteriorate significantly for us to say -- we have to retain all of that 13.9%. And so if we see slight deterioration in economic conditions, I think we can still afford to have a lower than 13.9% capital, but significant deterioration means that we would probably look to conserve a little more of that capital. Haj Narvaez: Thank you, Rafa. I think we have time probably for one more question. Anyone from the audience? I don't see anything else in terms of the Zoom chat box. So that actually concludes the Q&A session. We can -- I wanted to thank everyone, all the participants for your questions. Of course, we at BPI always welcome your feedback and take them into careful consideration. Before we end the call, I'd like to maybe call on TG for some final thoughts. Jose Teodoro Limcaoco: Again, thank you to everyone for joining us today. And I think we spent too much time talking about NPLs and credit costs. And none of you asked any questions about all our other initiatives that we're trying to do, to show, to ensure that the bank continues to grow and continue to serve more customers. I just want to end with the story. Over the weekend, we launched our deposit and our partnership on Boracay Island with Robinsons Supermarket on Boracay Island, and we introduced the ability to open an account, make deposits and do withdrawals at the Robinsons Supermarket in Boracay. And in over those 3 days, we opened 50 new accounts each day at the supermarket in contrast to our branch there, which opens less than 8 a day. So it shows you the power of our ability to show that BPI is everywhere. So our agency banking initiative will complement what we're building in the branches, where we're trying to build the branches to be more service and sales -- sorry, more sales and advisory-oriented and then complementing that with all the digital initiatives that we're doing, moving from wealth, all the way to our mass market and [ BanKo ]. So again, I want to stress that while we are going through some tough times as an economy, thanks to the Middle East crisis -- no thanks to the Middle East crises, the [ BanKo ] continued to be focused on promoting financial inclusion, continue to focus on our strategy, continuing to build our consumer book because the consumer is still a very untapped market in this country. It is a market that has strong potential. And we believe at BPI that we need to be there for the Filipino. We need to be there to ensure that they can continue to improve their lives as the economy turns -- as it will, BPI will be there to continue to help them with their journey. So thank you, everyone, for joining us today and see you next quarter. Haj Narvaez: So thank you, TG, Eric and the rest of the BPI senior leadership. Ladies and gentlemen, that ends today's earnings call. Thank you again for your participation. To those joining us online, you may now disconnect. But for those on site, please do join us for some refreshments. Thank you. Have a great one.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the HCSG 2026 First Quarter Earnings Call. [Operator Instructions] Thank you. The matters discussed on today's conference call include forward-looking statements about the business prospects of Healthcare Services Group, Inc. For Healthcare Services Group, Inc.'s most recent forward-looking statement notice, please refer to the press release issued this morning, which can be found on our website, www.hcsg.com. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors, MD&A and other sections of the annual report on Form 10-K and Healthcare Services Group, Inc.'s other SEC filings, and as indicated in our most recent forward-looking statements notice. Additionally, management will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release. I would now like to turn the call over to Ted Wahl, CEO. Please go ahead. Theodore Wahl: Good morning, everyone, and welcome to HCSG's First Quarter 2026 Earnings Call. With me today are Matt McKee, our Chief Communications Officer; and Vikas Singh, our Chief Financial Officer. Earlier this morning, we released our fourth (sic) [ first ] quarter results and plan on filing our 10-Q by the end of the week. Today, in my opening remarks, I'll discuss our Q1 highlights, share our perspective on the general business environment and discuss our strategic priorities for Q2. Matt will then provide a more detailed discussion on our Q1 results, and then Vikas will provide an update on our liquidity position and capital allocation progression. We will then open up the call for Q&A. So with that overview, I'd like to now discuss our Q1 highlights. We delivered strong first quarter results across revenue, earnings and cash flow, and we have carried that positive momentum into the second quarter. New client wins and high retention rates drove our year-over-year top line growth and our field-based team's operational excellence led to quality service outcomes and consistent margins. We also returned $24 million of capital through our share repurchase program and ended the quarter with a strong balance sheet and ROIC profile, underscoring our focus on value-creating capital deployment. I'd like to now share our perspective on the general business environment. Industry fundamentals continue to gain strength, highlighted by the multi-decade demographic tailwind that is now beginning to work its way into the long-term and post-acute care system. In 2026, the first baby boomers will turn 80 years old. And by the year 2030, all 70 million-plus boomers will be over the age of 65, with the oldest being in their mid-80s, the primary age cohort for long-term and post-acute care utilization. We expect that the demand and opportunities for service providers in this space, especially for those with compelling value propositions, durable business models and market-leading positions to only increase in the months and years ahead. The most recent industry operating trends remain positive as well, highlighted by steady occupancy, increasing workforce availability and a stable reimbursement environment. We remain optimistic that the administration will continue to prioritize the rationalization of regulations and policy to better align with the changing and expanding needs of our nation's most vulnerable and the provider communities we service. Beyond our core industry trends, we are closely monitoring the broader macro landscape, including the volatility in global energy and supply markets resulting from ongoing geopolitical conflicts. Our role as financial stewards for our clients remains a nonnegotiable priority and serves as our North Star as we navigate this environment. To that end, while we have not observed direct on-invoice impact from these global events, our purchasing and procurement teams are actively monitoring the landscape and surveying our supply chain to stay ahead of any developing trends. Fundamental to these efforts is the depth of our long-standing vendor partnerships, which provide critical visibility and stability necessary to navigate market volatility with confidence. In the event that specific supplies or food items experience outsized inflationary or cost pressure, we are prepared to pivot our sourcing strategies to mitigate direct exposure. Ultimately, the rigorous work we have done to enhance our contractual frameworks allows us to pass through unavoidable cost increases, ensuring we preserve our margins while continuing to deliver market-leading service. Looking ahead to Q2, our top 3 strategic priorities remain driving growth by developing management candidates, converting sales pipeline opportunities and retaining our existing facility business. Managing cost through field-based operational execution and prudent spend management at the enterprise level and optimizing cash flow with increased customer payment frequency, enhanced contract terms and disciplined working capital management. We are confident that continuing to execute on our strategic priorities, supported by our robust business fundamentals will enable us to drive growth while delivering sustainable, profitable results. So with those introductory comments, I'll turn the call over to Matt. Matthew McKee: Thanks, Ted, and good morning, everyone. Revenue was reported at $462.8 million, a 3.4% increase over the prior year. Segment revenues and margins for Environmental Services were reported at $208.3 million and 12.1%. Segment revenues and margins for dietary services were reported at $254.5 million and 9%. Our 2026 growth plans are oriented around mid-single-digit revenue growth with Q2 revenue in the $465 million to $475 million range and sequential revenue growth in the second half of the year compared to the first half of the year. Cost of services was reported at $386.9 million or 83.6%. Cost of services benefited from strong service execution, workers' comp and general liability efficiencies and lower bad debt expense. Our goal is to manage cost of services in the 86% range. SG&A was reported at $42 million. After adjusting for the $1.6 million decrease in deferred compensation, SG&A was $43.6 million or 9.4%. Our goal is to manage SG&A in the 9.5% to 10.5% range based on investments that we've made and spoken about in previous quarters with the longer-term goal of managing those costs into the 8.5% to 9.5% range. Our effective tax rate was reported at 24.6%. We expect our 2026 effective tax rate to be approximately 25%. Net income and diluted earnings per share were reported at $26.1 million and $0.37 per share. I'd now like to turn the call over to Vikas. Vikas Singh: Thank you, Matt, and good morning, everyone. Starting with our liquidity and cash flows. Our primary sources of liquidity are cash flow from operating activities, cash and cash equivalents and our revolving credit facility. Cash flow from operations was reported at $43.7 million. After adjusting for the $20.3 million increase in the payroll accrual, cash flow from operations was $23.4 million. We wrapped up the first quarter with cash and marketable securities of $214.6 million, and our credit facility of $300 million was undrawn with utilization limited to LCs only. On April 7, we amended our existing credit agreement to extend the maturity of our $300 million revolving credit facility to 2031. In tandem, the SOFR-based pricing grid has been favorably modified and covenant flexibility has been enhanced. Our capital allocation plans remain unchanged from what we outlined last year, and we are on track to execute. Our capital allocation across organic growth, M&A and share repurchases continues to be grounded in discipline and consistency. Our enhanced liquidity provides us the flexibility to pursue all of these priorities without trade-offs. In February 2026, we announced plans to further accelerate the pace of our share buybacks and repurchase $75 million of our common stock over 12 months. In the first quarter, we repurchased $24 million of our common stock. We now have 9.2 million shares remaining under our current share repurchase authorization. With that, we will conclude our opening remarks and open up the call for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Ryan Daniels with William Blair. Matthew Mardula: This is Matthew Mardula on for Ryan. So in your prepared remarks, you touched up on this, but I want to dive deeper into it. So we saw strong results in cost of services as a percentage of revenue being at 83.6% this quarter, better than the guidance. Was there any one-time benefits this quarter? And what exactly drove that strong performance in the first quarter? Also, as we look for the rest of the year, with you reiterating the 86% cost of services as a percentage of revenue, how should we think about the rest of the quarter given the strong Q1 performance? Matthew McKee: Matt, this is Matt McKee. As we've previously discussed, the primary driver of managing cost of services within that targeted range and overall margin consistency for us is really service execution. And the recent positive service execution trends in customer experience, systems adherence, regulatory compliance and budget discipline, all of which are near-term margin drivers carried over into Q1. And the expectation is that, that carries forward throughout 2026 as well. So that's why we remain confident in our ability to continue to manage costs in that 86% range. And it's worth noting, Matt, that service execution is not something that happens on autopilot, right? There are no elements of it that are given. Our field-based management teams are working very diligently to deliver on our expectations, and they deserve a lot of credit for that execution. So that said, there are always going to be some movement month-to-month, quarter-to-quarter and the timing of certain items can have a positive impact, and that was the case in Q1 results as well in that work comp and general liability efficiencies continue to be driven by our focus and commitment to training and safety protocol that we've implemented in the facilities and lower bad debt expense. That's been favorably impacted by our strong cash collection efforts and the scarcity of bankruptcies or reorgs during Q1. Vikas Singh: Yes. And Matt, this is Vikas. If you want to unpack the outperformance in different buckets, what we would say is, look, we've outperformed the 86% by, call it, 2%. Out of that, 1% is coming from workers' comp and general liability. Those efficiencies contributed about $4.7 million to the favorable cost of sales outcome for the quarter. Now while that reflects the ongoing efforts that Matt just talked about, what I would remind you is that this impact can be lumpy. And the fact that we got that number in one quarter may not necessarily lead to similar benefits in subsequent quarters because that benefit is based on the frequency and the size of claims. It's based on the insurance and actuarial model. And while it's indicative of how we've been performing, it does not guarantee similar repeat performances in subsequent quarters. So that's about 1% of that 2% outperformance. I would say the remaining outperformance this quarter, as Matt has already alluded to, came from bad debt and service execution. On the bad debt front, you'll see this number in the Q that we'll file later this week, but that number for the quarter is $3.8 million. That's less than 1% of revenue. If you look at where we've been in the recent past, we've been at 2% plus. If you look at a more normalized historical average, we are between 1% to 1.5%. So it's really those two factors plus the operational excellence that's driving the number this quarter. But that said, we still feel that 86% is the right way to go because these events, while favorable, can be lumpy and are not guaranteed to be repeated in subsequent quarters, although we'll try our best to do what we can. But I think it takes us back to 86% being the goal and the target for us. Matthew Mardula: Great. That's extremely helpful. Now how has the development of managerial candidates trended recently? And with the continued addition of new clients this quarter and with expectations of that continuing in the upcoming quarters, how are you planning to be able to keep pace with having enough managerial candidates? And I know it probably varies by region, but any updates on growth and I'm ensuring you have enough manager candidates would be great to hear about. Matthew McKee: Yes, that's exactly right, Matt. The benefit that we have is that our expectations relative to management development are all grounded in the localized efforts within not only our regions, but more specifically down to the district level, where we have our 12 facility districts and the expectation is that each district will be executing their own management development efforts through their certified training facilities. So the expectation is that the recruiting efforts, the hiring, the training, the development, ultimately, the retention and placement of those management candidates is very much an exercise that's executed within that district structure. So it's very much those bottoms-up ground-up efforts that aggregate to total company top line growth opportunities. And it is that marriage of management development with business development, but again, executed locally that when it's rolled up and executed properly, yields that mid-single-digit growth for the company. Correctly noted as well, Matt, in the way that you asked the question is that, of course, there are regional variabilities, whether that's a market dynamic or it's simply a management issue. Some folks are further ahead of that curve. Others will struggle because, of course, we don't compromise our standards relative to service execution and performance per our previous comments relative to cost of services if there is a local team that's not executing on client satisfaction, delivering that customer experience, adhering to our operational systems, delivering regulatory compliance and, of course, executing with budget discipline as stewards -- financial stewards for our clients, we won't let them grow the business in their area. They have to demonstrate that they're capable of appropriately managing their business in their current portfolio before we'll allow them to grow. So there will always be problem children, and that's the beauty of having invested in that middle management structure is that, number one, we can quickly identify areas of concern and some folks who may need extra attention and then quickly be able to insert those management resources, appropriately reskill, train, develop those managers such that they can get back on track and then reengage into that critical focus for us, which would be management development, very much tied to business development efforts. But when you roll it all up when we look at that landscape right now, Matt, we're very pleased with where we are, and we don't have any limitations or obstacles relative to achieving total company growth objectives in light of the strong environment relative to management development. Operator: Your next question comes from the line of A.J. Rice with UBS. James Kurek: This is James on for A.J. First of all, congrats on the strong start to the year. Could you potentially give us an update on how the campus segment did in terms of year-over-year growth? And then I think you've also expressed interest around potentially exploring more M&A opportunities, particularly potentially in campus. And maybe just an update on the capital deployment as it relates to M&A. Matthew McKee: Yes. James, as we discussed last quarter, the campus business represents over $100 million of annualized revenue in 2025 and still a relatively small base at less than 10% of total company revenues, but we do see continued growth of that base. We're not going to report or call out specific growth in that segment at this point. But we've mentioned the synergies that exist between the environmental offering or the brand that we're executing for environmental services and our dining brand and those offerings. So as we sit here, if you think about the academic calendar, as many, if not most, of our campus clients right now are schools, we're in the selling season, right, as administrators begin to plot out their plans for the end of this academic year, the summer and then thinking ahead to next year's academic year. So from a business development and a pipeline development perspective, those folks are very much in the thick of orienting towards growth objectives from an organic perspective. And perhaps Vikas would make a comment or two just as far as how the inorganic opportunities could potentially supplement that in the campus opportunity. Vikas Singh: Yes. And as we've talked about, we remain focused on building that M&A pipeline. We continue to evaluate incremental opportunities every quarter. And as I said earlier, our approach will continue to be grounded in discipline and consistency. And we are looking for deals that will be small, $20 million, $25 million, $30 million of purchase price such that while they look and feel like inorganic growth on day 1, they serve as an organic growth platform on day 2, so more of a land and expand. So we are busy looking at opportunities and evaluating the right fit that we will move forward with over the course of the year, but that continues to be an ongoing focus area for us. James Kurek: Got it. Appreciate the color there. Maybe just one more on adjusted EBITDA, it was a really strong quarter at almost $39 million. I know you don't guide to that, and I appreciate some of the comments around the benefits you saw the cost of services this quarter. But is there any directional color you can give us with the starting point of $39 million just on seasonality considerations or how to consider or view that from a quarter-to-quarter basis from here? Vikas Singh: Yes. You're right. Look, we've not been getting into projecting out EBITDA. But as we've mentioned in the past, the model remains very consistent and in some ways, easy to understand, which is, from our perspective, 86% cost of sales, SG&A short-term target of 9.5% to 10.5%, so call it 10% at the midpoint. And we've got a 25% tax rate, right? That puts you in the ZIP code of 4% pretax income. Our stock-based compensation and D&A typically runs at about 1.5%. I think that's the best we can do in terms of providing you a sense of where it will be. Now this quarter, EBITDA was strong, as we talked about. The results, cost of sales came out more favorable than the 86%. SG&A came out more favorable than the 10%. That said, that's not what we are projecting as the overall year outcome. So I'll let you project out EBITDA within those metrics, and there will be quarters where we do better than those and maybe not. But I think if you look at how we look at the business on an annual or a 3- to 5-year growth trajectory basis, those are the metrics that we are holding ourselves accountable to. Operator: Your next question comes from the line of Sean Dodge with BMO Capital Markets. Sean Dodge: Maybe just going back to the cost of services, Vikas, you mentioned the benefits in the quarter from workers' comp, general liability, bad debt. I know you've also been working on some initiatives aimed at improving engagement with employees at the hourly level and using that to improve retention and lower turnover. Maybe if you could just share some more on what specifically you're doing there? And then any impact you've seen from that yet on margins and maybe how much runway is left from initiatives like that, that have a little bit more kind of durability over the long term? Matthew McKee: Yes. Sean, I would say, without a doubt, that continues to be an area of focus for us engaging with our employees at every level within the organization, right? It's a newer area of focus for us to identify with and engage with our line staff employees who historically, we would have thought associated more with the facility rather than with Healthcare Services Group. But as we've formalized and really kind of adopted as a North Star, our company's purpose, our vision and our values in order for us to achieve all of those, we have to have high levels of buy-in and engagement with the employees throughout the continuum. And as you can imagine, being a service-based sort of decentralized organization with the bulk of our employees executing those line staff level positions such as housekeepers and pot washers and dishwashers, food service employees, it is rather challenging to communicate with them. They're not users of e-mail, and we have limited opportunities to connect with them. So we have really explored and identified creative ways to connect with them via company intranet, establishing a proprietary app technology through which we can communicate with folks leveraging our time clocks to be able to push messages to our employees and to better understand where they are in their company experience and journey such that we can really connect with them and drive improved connectivity and outcomes. So qualitatively, without a doubt, we are seeing improved connectivity, higher levels of employee satisfaction. And from a quantitative perspective, Sean, harder to pinpoint it running through cost of services explicitly. But without a doubt, we are seeing improvement in employee retention as a result of those levels of engagement and ultimately satisfaction. So obviously, that yields greater operational outcomes by way of the customer experience, having longer-term employees in the facility. It reduces the management's requirement to be out there conducting interviews and trying to hire and replace employees who are turning over. So there's a cascade of benefits that come from that, some of which are qualitative, but without a doubt, quantitatively yielding improved employee retention data. Sean Dodge: Okay. Great. And then on the revenue outlook, your guidance for the first half of the year implies kind of low single-digit year-on-year growth. I guess the mid-singles for the full year means you got to do something kind of like high singles year-over-year for the back half. Just anything on what's driving that? Is it just simply implementing more facilities over the year and those kind of ramping? And then just any more color on how much is coming from new clients on the housekeeping side versus dining cross-sells? Theodore Wahl: Thank you for the question, Sean. Look, I would start with the fact that the demand for our services is stronger than it's ever been. You look at our pipeline, it's robust. It's growing in terms of new business opportunities, each of which are at various stages of development, but we have a highly managed sales -- highly managed and structured sales process from the beginning stages of cultivation all the way through closing. So I think that bodes well for future, not just over the next 6 to 12 months, but beyond. And we continue in the current year to successfully execute on the organic growth strategy by developing management candidates, as Matt highlighted, that fund new business opportunities, all while retaining our base business. To the question you asked, the key drivers for us in delivering mid-single-digit growth at either the higher end of the range like we saw in 2025 or even the lower end of the range like we saw this past quarter is timing. It's the timing of HCSG management capacity and the timing of client start date preference. And I know we've talked about this before, but timing can be fluid quarter-to-quarter, knowing there's always going to be a subset of intra-quarter opportunities that may be pushed out or pulled forward depending on those two key drivers. And to help put that dynamic in perspective or context, the difference between us starting a new opportunity on April 1 as opposed to September 1 is insignificant in the context of the 3- to 5-year growth outlook we put forth, but could be impactful in a given quarter or even in a year depending on the size and scale of the opportunity. So again, our 2026 growth outlook is a range that's based on annual growth expectations, whereas the quarter-to-quarter estimates are really intended to provide additional near-term visibility. In terms of the segment breakdown, our new business pipeline is split fairly evenly between EVS and dietary, although from a revenue contribution perspective, a dietary account is typically 2x or so of that of an EVS account on a same-store basis. So as we're onboarding a comparable number of facilities, dietary and EVS revenue will increase proportionately. And just as a reminder for you and for the group, we're still 50% or so penetrated in dietary services. So you have the remainder of that to pursue relative to our EVS customer base. So that cross-selling of dietary to our existing EVS customer base remains that ultimate low-hanging fruit. Sean Dodge: Okay. And then just last on Genesis. Any updates you can share there? Are you still providing services to them? And then just any better visibility you have at this point into where those facilities end up kind of from an operator standpoint? Theodore Wahl: Yes, continuing to provide services to the Genesis facilities without operational or payment disruption. And we continue to expect that to be the case throughout the duration of the post-petition period. In terms of updates, in January, the bankruptcy court did approve the sale of Genesis to 101 West State Street, which is a group of well-organized, well-known operators in the space who we have a relationship with. From a timing perspective, those revised bid procedures from the second auction called for a late April financing commitment letter. So that process is unfolding as we speak. And then an early summer close, although from a practical standpoint, I think there's a strong belief that, that will likely be pushed out. I know there's an option at either the buyer or the seller, purchaser or the debtor to exercise that option. So we're likely looking at a closing date later in the summer, assuming 101 West State Street can provide that financing commitment. But again, in the meantime, our priority is providing the high-quality services to Genesis, and we don't expect any disruption in operations or payment between now and the sale date. Operator: Your next question comes from the line of Ryan Halsted with RBC Capital Markets. Ryan Halsted: I guess I know you mentioned that the industry fundamentals remain strong. But I was curious if you had seen any shift or any change in the occupancy trends with your SNF customers, especially those with kind of the shorter stay Medicare residents starting in 2026. And I think just the basis of my question is one of the large managed care companies talked about increasing their clinical reviews on SNF admissions. So I was just wondering if you had any comments or visibility on kind of those trends. Theodore Wahl: Ryan, look, overall, and I mentioned it in my opening remarks, the industry fundamentals continue to gain strength and that demographic tailwind really is beginning, at least the early stages of it are working its way into the long-term and post-acute care system. So that fundamentally is a huge positive for today and for the next few decades. It's really that continued interplay that we see at the local level between staffing availability and occupancy that remains the key for any facility success. I think more than any other factor, labor availability is the key to occupancy growth and occupancy growth is the key to consistent financial outcomes. And the most recent occupancy data are positive. They continue to be in and around 80%. And what we're seeing, to your question, is really steady across not just geographies, urban, suburban, rural, but also facility types and population, long-term short stay, et cetera. So from our perspective, we haven't relative to occupancy, seen anything other than stability and generally speaking, upward trend. Ryan Halsted: Got it. That's helpful. And then you made comments about strong momentum carrying over into Q2. And looking at your guidance for the quarter, the midpoint to the low end are for low single-digit growth. Can you maybe just help to square those comments in terms of what is the momentum you're seeing and maybe how that could be swing factors into your guide? Theodore Wahl: Yes. And look, from a momentum perspective, the most significant indicator we look at is pipeline and then obviously assessing the various stages of development of that pipeline. And our pipeline continues to grow. It continues to be robust, meaning strength across all different segments and business lines, inclusive of the campus division. And that's a real positive. And so we feel good about not just the next 6 months, but the next 3 to 5 years. From a variability perspective quarter-to-quarter, I touched on this earlier, Ryan, but it's really the timing. And it's difficult to be able to pinpoint with precision what a specific quarter will look like, not because we don't have fantastic visibility into the pipeline and the stages of development, but because it's that timing of HCSG management capacity and the timing of client start date, which can be fluid up until a scheduled or originally scheduled start date. So that is -- that's always been the case. That's not a new dynamic for HCSG or the industry for that matter. But we have an organization that's built to be highly nimble, to be able to react when we need to, be able to be proactive when we need to in those situations. So it really does come down to timing in terms of what puts us at the higher end or the lower end of that mid-single-digit range in any given quarter or in any given year. Ryan Halsted: Got it. That's very clear. Maybe just last one for me on your capital allocation priorities. You've obviously put forth a strong share repurchase authorization and have been aggressive with that so far. How should we think about how aggressive you expect to be on the repurchases, certainly as your shares further strengthen? Vikas Singh: Yes. So from our perspective, the approach would be to maintain a more uniform cadence. And as you think about the $24 million number, not all of it this quarter falls under the program, right? If you think about the split of that $24 million because we made the announcement of our $75 million program in tandem with our Q4 earnings, that was middle of Feb. Only $15.3 million of these repurchases were made after the new program was announced. So from our perspective, we're trying to spread it out. We are not trying to front-load it. We are not trying to time the market or be selective. We want to be consistent. And I think that's the approach we'll take over the entire duration of the 12-month program. Operator: Your last and final question comes from the line of Rohan Vasudeva with Baird. Rohan Vasudeva: I think most of my questions have been asked, so I'll keep this brief. But I just wanted to confirm that there was no ERC benefit to cost of sales in this quarter, correct? Vikas Singh: That is correct. There were no ERC receipts and no ERC impact to our P&L and financial statements this quarter. Rohan Vasudeva: Okay. And then you briefly touched on it in the last question to keep a consistent cadence for repurchases. It looks like you'll run through your authorization or finish your authorization in about two quarters. Can we expect that you'll re-up your authorization after that? Or would you guys consider another way of returning capital to shareholders? Vikas Singh: Yes. So Rohan, what we were doing, again, just going back to that $24 million number, as I said, $15 million and change, so to be precise, $15.3 million of those repurchases were made after the announcement of the new program in middle of Feb. So if you think about what we spent under the program, it's $15 million. You do an annualization of that, and it is under the $75 million number. The additional numbers within that $24 million were pertaining to the previous program and our regular open market repurchases. So yes, the number of $24 million seems elevated in that context. It's elevated in the context of our total repurchases last year being $61 million, but we are not trying to rush through the program by any stretch. From our perspective, we want to keep it uniform and present over the course of the year. Now if there are any reasons to accelerate down the road, we will be open to that, but that's not the intent and that's not how we will -- we've structured the program at this point of time. So we would rather be consistent than lumpy. Operator: I will now turn the call back over to Ted Wahl for closing remarks. Theodore Wahl: Thank you. As we prepare for the remainder of 2026, our 50th anniversary, the company's underlying fundamentals are more robust than ever. Our leadership and management team, our enhanced value proposition, our business model and visibility we have into that business model, our training and learning platforms, our KPIs and key business trends and our strong balance sheet and ROIC profile. And with the industry at the beginning stages of a multi-decade demographic tailwind, we are incredibly well positioned to capitalize on the abundance of opportunities that lie ahead and deliver meaningful long-term shareholder value. So on behalf of Matt, Vikas and all of us at Healthcare Services Group, thank you, Rebecca, for hosting the call today, and thank you, everyone, for joining. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, everyone, and welcome to GAP's First Quarter 2026 Conference Call. [Operator Instructions] Now it's my pleasure to turn the call over to GAP's Investor Relations team. Please go ahead. Maria Barona: Thank you, and welcome to GAP's First Quarter 2026 Conference Call. Prior to introducing GAP's management team, I'd like to take a few moments to mention the forward-looking statements as described in the financial disclosure statements. Please be advised that any statements made today may not account for future economic circumstances, industry conditions, the company's future performance or financial results. As such, any information discussed is based on several assumptions and factors that could change causing actual results to materially differ from current expectations. For a complete note on forward-looking statements, please refer to the quarterly report issued on Monday. Thank you for your attention. Our speakers today from GAP are Mr. Raul Revuelta, Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer. At this time, I'll turn the call over to Mr. Revuelta for his opening remarks. Raul Musalem: Thank you, Maria. Good morning, everyone, and thank you for joining us today. I'm pleased to report that GAP delivered a solid start to the year on results as I discuss the company operational and financial highlights for the first quarter of 2026. Despite the challenging traffic environment, our performance remained strong, supported by the resilience of our aeronautical revenues as well as the continued growth of the non-aeronautical business, which helped to offset the more complex traffic environment. Let me begin by discussing passenger traffic. Total passenger traffic across GAP's 14 airports decreased by 5.5% in the first quarter compared to the same period of 2025. This decrease reflects various factors that impacted the Mexican as well as the Jamaican operations. In the Jamaican operations, we continue to face headwinds from the Hurricane Melissa. Despite this, the recovery of hotel capacity has been better than expected along the main TUA corridor. It is important to note that while as today, passengers volume have not yet reached pre-storm levels. Trends indicate that we will regain this level by the fourth quarter of this year. Traffic declines in Mexico were largely driven by temporary disruptions such as the security incident in Jalisco during the last week of February. This event negatively affected the perception of safety and key leisure destinations in Mexico, such as Puerto Vallarta and Los Cabos, thereby softening demand at these airports. These dynamics to the typical high season month of March affecting the spring break traffic and causing demand to decline. Tijuana was also impacted given its stronger reliance on cross-border travel as roughly 75% of CBX users are U.S.-based passengers accessing domestic flights to Mexican tourist destination. Additionally, global macroeconomic volatility impacted operations. This included geopolitical tension and fuel prices, which pressure airlines operation costs, prompting a realignment of capacity to maintain efficiency, as well as the possibility of economic downturn. Now moving on to the revenues. Total revenues increased by 2.8% compared to the first quarter of 2025. Aeronautical revenues for the group grew by 3.9%, but in Mexico, the increase was 9.3%, primarily driven by the implementation of the maximum tariff for the 2025-2029 regulatory period in Mexico, which are linked to the highest level of the CapEx investments in the history of the company. Aeronautical revenues increased by 6.1%, supported by strong performance in our Mexican operations, reaching 10.7%, particularly in business operated directly by GAP. This includes the bonded warehouse business, which represents around 21% of total non-aeronautical revenues. This performance underscores the resilience of our business model and the continued success of our increasingly diversified revenue base. Cost of service increased by 6.5% compared to the same period last year, mainly due to the higher personnel costs, increased security and maintenance expenses and the expansion of operational areas. We work hard to offset this pressure by maintaining rigorous cost control throughout the organization. As a result, EBITDA increased by 6.4%, reaching MXN 6 billion with an EBITDA margin of 68.3%, reflecting both revenue growth and operational efficiency. This despite the reduction of additional concession fee in Montego Bay Airport due to the decrease in passenger traffic and revenues, which is a temporary effect. Regarding our financial position, GAP maintains a strong liquidity position with a cash and cash equivalents of MXN 23.2 billion during the first quarter of 2026, mainly due to the historic bond issuance of MXN 10.7 billion on March 31. The proceeds we allocate towards our strategic acquisition of 25% of CBX, as well as capital expenditures. Furthermore, during the quarter, we refinanced existing debt, optimizing our balance sheet and strengthening our overall financial flexibility. In terms of CapEx, we continue to advance our investment program under the current Master Development Plan, deploying during the quarter MXN 1.8 billion, focusing on enhancing capacity as well as the passenger experience across all of our airports. I would like to briefly update you on our strategic initiatives. As you know, in December 2025, our shareholder approved the business combination related to the CBX as well as internalization of the technical assistance services. This transaction is still in the process of being formalized. Once completed, it will be consolidated in our financial statements, and we expect the conclusion of this process to take place during the second quarter of this year. We believe this initiative will strengthen our long-term growth platform, specifically by promoting our market cross-border passenger profile as well as unlocking additional commercial opportunities. As we move into the rest of the year, we remain mindful of the macroeconomic environment and short-term traffic volatility. Despite this, we believe structural demand remains strong, supported by the solid fundamentals of our market. We remain confident that our diversified asset portfolio, strong financial position and disciplined execution to strategically position GAP well to navigate near-term challenges while continuing to generate long-term shareholder value. Later today, we will hold our ordinary shareholders' meeting, in which we will propose a dividend payment of MXN 20.8 per outstanding share during the following 12 months, among others. Thank you again for your time. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question over the telephone comes from Rodolfo Ramos of Bradesco BBI. Rodolfo Ramos: My question is on the aeronautical part of the business, perhaps a 2-parter here. After this tariff implementation, can you let us know what your current maximum tariff compliance is? And how should we think about it towards year-end? And secondly, on the traffic outlook that you have, there's a host of domestic global factors at play negatively impacting demand for air travel. Just can you frame it a little bit in terms of your 2% to 6% guidance? I mean, how you think about it? And when do you think we could see a more meaningful recovery there? Raul Musalem: Thank you, Rodolfo. First, related with maximum tariff, we are between 92% and 93% of the fulfillment. We are still having to implement additional passenger fee changes for the summer in 2 of our airports, Vallarta and Cabos. So we're still on the track of what we said originally will be close to 95% for the end of the year. For sure, what is related with maximum tariff, we need to take in account the churn rate that at the end of the day, an important part of that of the revenues are denominated in dollars for the case of passenger tour. The other part related with traffic, I would say that today is difficult to what could happen on the traffic in terms of the Iran war and the fuel prices. I would say that it's difficult to have today a more clear view of what could happen in the coming months and how big could be the decrease or the possible decrease of the adjustment on offer seats in the market. But the other part that at least we are still seeing is a summer that will come at least on the leisure with some additional seats. While we are expecting that on past years during some of this kind of geopolitical crisis, the U.S. passengers tend to fly more over the neighbor in the area of the neighbor could be Cabos or Vallarta rather to go to Europe or other kind of more long-haul travel. So what we are expecting in some way is some additional seats for the summer on those markets. But in general terms, for the moment, we keep without variance what we saw in the pretty first moment as our guidance for the year. we think that some of the temporary effect that could the security could bring in terms of decrease of passengers will be completely behind for the summer. And also, we are seeing better than we expected recovery of Montego Bay hotel capacity. But for sure, for the second quarter, we will review if that is the case, our guidance for the traffic. Operator: Next, we'll move on to Alan Macias of Bank of America. Alan Macias: Just a question on the CBX and TA transaction. What is pending for it to be completed? And I guess, should we expect it to be consolidated in May or in June? Raul Musalem: Thank you, Alan. We are doing our best for consolidating the results during May. So yes, we are just in the middle of that but yes, that will be our target. Operator: Next, we have Guilherme Mendes with JPMorgan. Guilherme Mendes: Two questions, the first one being on the commercial front. First of all, congrats on the strong results during the first quarter of the year. Just wondering what is behind the very strong cargo performance, if there's anything in particular to GWTC or something else? And if we can assume these numbers as sustainable going forward? And the second question is on the capital allocation. So now following the upcoming conclusion of the CBX transaction, I understand the Turks and Caicos was put on hold as well, if there's anything else that you'll be evaluating on the inorganic side of growth opportunities? Raul Musalem: Thank you, Guilherme. I mean related to the results and specific to the bonded warehouse business, is important to have in mind that this business is mainly moved by the cargo. And in the case of Guadalajara and all the central area of Mexico, we are seeing a really important more than 20% increase of cargo of high value on the area related mainly by electronics. Foxconn, for instance, has a really big movement on Guadalajara for additional plant. So what we are seeing for the last year is after the announcement of specific tariffs for China and for some different countries of Asia, we see like a shift on production on some electronic parts from Asia to Guadalajara area mainly. So we are seeing this really important increase in volumes of cargo but on real volumes, but value of the cargo. For this bonded warehouse business, you need to take into account that revenue comes from a mix of volume and value of the cargo that you are moving. So what we are seeing is that at the end of the day, all these change of tariffs bring some or shift some of the production from Asia to the Central Mexico and mainly to Jalisco and Guadalajara area. Saúl García: Hi, Guilherme. In terms of capital allocation, as you know, we are looking for opportunities all the time. So far, we don't have nothing more important or relevant than CBX conclusion and integration to the consolidated financial statements. So for now, we don't have any other project or major projects. We will let know to the market as soon as we have something on the table. For Turks and Caicos, it was canceled by the government so we will not continue on that anymore. And so far, we don't have any other relevant project. Raul Musalem: Yes. But complementing just the answer of Saul, for sure, we have an important focus on the development of new business in our airports. I will say we are working in 2 different projects for hotels in airports of Mexico of our efforts in our net. And for sure, the big focus on continue working on the efficiency of the margins in all of our directly operated by us business. So for sure, we will continue to see and review different kind of opportunities to M&A, but also we have like a big focus on how to increase the efficiency of our directly operated by us business. Operator: From Itau Unibanco, we have Pablo Ricalde. Pablo Ricalde Martinez: I have one question on the cost side. So we saw depreciation expense remained flattish year-over-year. So I just want to understand why despite all the CapEx you made last year, depreciation remains stable year-over-year. Saúl García: Pablo, this is Saul. Well, basically, we are aligned. We don't have any other major projects capitalized and depreciated. Also, as you may know, we have more than 25 years of concession. So the major projects that were capitalized and were depreciated within the last years were interrupted due to the term of the depreciation period. That the net effect of the offset of the increase in depreciation, net of those assets that were already 100% depreciated. Operator: Next, we have Gabriel Himelfarb of Scotiabank. Gabriel Himelfarb Mustri: Two quick questions. First, are you seeing any meaningful capacity movements from airlines, mainly domestic or perhaps low-cost U.S. airlines, given the rise of fuel prices and perhaps what happened in Jalisco in the past months? And my second question is about the CBX. I think it was financed 25% in pesos, Mexican pesos. Why was the logic of being financed in pesos rather than in U.S. dollars? Saúl García: Thank you, Gabriel. First, the size of the seat capacity of airlines, it is important to separate the 2 possible effects. The first one related with the security concerns, I would say that we are not seeing any kind of a structural change on the seat capacity on that area. But related on the fuel cost and what would be the possible reaction of capacity movement of airlines, for sure, it's something that's still on the table in some way. For the moment, we are seeing some decrease in capacity, at least not so relevant today, but we are seeing the cut of some services. For instance, Interjet just announced the cut of some services on Guadalajara. We are seeing some decrease on services on Tijuana, also in Cancun. So I would say that it's early to have a perfect view of what could happen on this level of close to $110 per barrel of oil. I would say that if you see, for instance, the price on 2022, it was just close of the same level, and we don't see at that moment decrease on capacity. What's still happening is the openings of these different routes, for instance, Volaris announced the new routes to Guadalajara to Mazatlan or Guadalajara to Zacatecas, Guadalajara to San Luis. So we are still seeing additional capacity. But for sure, it's the moment of decrease of capacity due to the cost of the fuel is still on the table. We need to, in some way, understand how long could take to, in some way, normalize the price, the price of the fuel and on the other hand, how important could be the resilience and the demand for the pass-through of the price of this peak of fuel into the ticket, to the airfare. So yes, I mean, at least for the moment, we are not seeing an important decrease of capacity. I would say that we are still seeing an increase due to the fact of new routes. Raul Musalem: Related to your second question, we decided to take advantage of the level of the exchange rate. As you may know, we are in the lowest levels in the exchange rate. The appreciation of the peso is playing out in our favor. So the idea is to take a long-term debt and trying to finance these assets in Mexican pesos. That avoids some volatility in our balance sheet in the long-term view. As you may know, the effects of this exchange rate will be affecting our P&L. So in this way, we have a little bit higher interest rate, but we have certainty about our long-term view balance sheet. Operator: From Barclays, we have Pablo Monsivais. Pablo Monsivais: Just one question in terms of the traffic expectations for next year, I know we're very early. But have you had any contact or new information of Viva and Volaris? Any color on that or how the potential merger will shape the domestic travel and especially on the routes they overlap, any intel there or something that you would like to share? Raul Musalem: Thank you, Pablo. I would say in terms of the merger or the group of airlines with Viva and Volaris, for the moment, we are not seeing any particular change. We are still, I mean, in talks with them and having communication, direct communication with both airlines, they still talk about there will be 2 different companies. And for the moment, they are not talking about the overlapping. But once antitrust authorities in Mexico has a specific view about the transaction, we could have more color about how going to be this transaction in some way out. But at least with the communication that we are having with the airlines, at least for the moment, they are not communicating anything related with overlapping and they are just talking about the operations for these 2 different companies as still is today. Operator: And we'll move on to Andres Aguirre of GBM. Andrés Aguirre Campillo: Congrats on the results. We noticed that accounts payable increased sharply to around MXN 2 billion in the cash flow statement. Could you please elaborate on what is driving this increase? Saúl García: Andres, yes, we have a significant increase in the effective cash position because the issuance bond at March 31 that was for the proceeds will be used for the acquisition of 25% of CDX, which will be in cash and additionally for CapEx committed into the MDP. So that's basically why we have this significant increase, it was MXN 10.7 billion more in cash that will be used for the CBX and MDP committed. Operator: And we'll move on to Alberto Valerio of UBS. Alberto Valerio: The first one a follow-up on CapEx. How should we be modeling the CapEx during the year? We know that seasonally, we start a little bit weaker and then increase the CapEx during the year. How should we expect that? And the second one about the jet fuel, anything that concern you guys? We know that different airlines, if I'm not mistaken, have not hedged their fuel. I know that it's not our usual year, but how do you see the supply of seats for Mexico during 2026, which is current price of oil price? Raul Musalem: Alberto, Related with the seats in Mexico, I mean, for sure, as you said, the hedging different routes have different levels of hedging. But I would say the important thing to see what's going to happen is the resilience and the specific demand for the pass-through of the tariffs of the cost of this fuel into the airfare. So that will be the first part. And second is going to be the kilometers that, that specific route could bring. So let me put it this way. I would say that in the first stage, we're going to see some kind of more or additional decrease on seats on some specific routes that have more kilometers when you talk about, for instance, domestic market. This is why we are expecting seeing some kind of effect on Tijuana, for instance, where their shorter flights has like 2.5 hours and their average time in the plane for a Tijuana flight is more around with 3 hours. So on the kind of routes where the demand is not enough resilience to get all the full impact of the fuel cost, we're going to see some decrease of passengers. But in the other hand, there are some specific routes that has like less than 2 hours of flying that could be Los Angeles to Cabo, 2.5 hours; Cabos to Vallarta, Vallarta to Los Angeles, Florida. All the short, really short routes could be Mexico to Guadalajara, Mexico to Vallarta, Mexico to Cabos, that will be interesting on the mix of the demand that we expect to be resilient on the increase on airfares and in some way, short flights or short kilometer -- short in terms of kilometer flight. So the mix of both parks and the expected of additional leisure passengers not flying long haul from the U.S. and flying or switching to Mexico beaches all these effects together make us think that our original guidance is still in place for the year. But for sure, it is difficult today to have like the complete crystal ball of what's going to happen in terms of the fuel. But if in general terms, the conditions on the price of the barrel is still, we could say that we're still seeing the same level of guidance for the end of the year. Saúl García: Alberto, this is Saul. Related to your second or third question, the CapEx will be deployed during the following months. As you may know, our economic cycle in terms of CapEx is more concentrated in the last quarters of the year. In the first months, we are in the process of the bidding process for all these projects. So we are in the middle of that. So we would be more intensive in terms of deployment during the following months. Operator: [Operator Instructions] Next, we have Abraham Fuentes of Santander. Abraham Fuentes Salinas: Recently, we have seen some pressure in terms of traffic in Tijuana. I wonder if you can give us more color about what you expect going forward and maybe the main dynamics behind this expectation. Raul Musalem: I mean in terms of Tijuana, what we are seeing, Abraham, is for sure, we have like a mix of different things happening over there. The first related that we still lack of capacity related of the Pratt & Whitney in Tijuana, mainly from Volaris are still being there. We think that for the summer, we will begin to see more of these planes flying. That is the first part. And second, what is related or what we thought that's going to be completely temporary that was related with all these security matters after the major capture operation that in some way going to be, I mean, in the past and we will, in some way, recover fully for that effect on the summer. In general terms, what we are seeing for Tijuana is that on the summer, we will see a more important revenue and recovery of traffic related for, first, additional seats coming back to the airport. And second, I would say, a softer base of comparison versus last year. But in general terms, I would say that we feel optimistic that Tijuana at the end of the year is going to have a positive result or it will grow in terms of passengers. Operator: There are no further questions at this time. I'll turn the call back over to Mr. Raul Revuelta for closing remarks. Raul Musalem: Thank you once again for joining us today. Before concluding, I would like to invite you all to join us on May 13 for GAP Day 2026. The event will start in San Diego at the CBX facilities and will continue at Tijuana International Airport and will include a series of strategic management presentations followed by a guided tool for our airports and the CBX facilities. We believe this is an excellent opportunity to learn more about our strategy, operations and long-term growth outlook. For registration and further details, please reach out to our Investor Relations team. Thank you, and we look forward to seeing you there. Have a great day. Operator: Thank you. This concludes GAP's conference call for today. Thank you for your participation, and you may disconnect.
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