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Operator: Greetings. Welcome to BOK Financial Corporation's First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press star followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star one. Thank you. As a reminder, this conference call is being recorded. I would now like to turn the presentation over to Heather King, Director of Investor Relations for BOK Financial Corporation. Please proceed. Heather King: Good afternoon, and thank you for joining our discussion of BOK Financial Corporation’s first quarter 2026 financial results. Our CEO, Stacy Kymes, will provide opening comments. Scott Grauer, Executive Vice President of Wealth Management, will cover our fee-based results, and our CFO, Martin Grunst, will then discuss financial performance for the quarter as well as our forward guidance. We refer you to the disclaimers on Slide 2 regarding any forward-looking statements made during this call. The slide presentation and press release are available on our website at bokf.com. I will now turn the call over to Stacy Kymes, who will begin on Slide 4. Stacy Kymes: Thank you, Heather. We appreciate you joining the call this afternoon. We reported earnings of $155.8 million, or EPS of $2.58 per diluted share, for the first quarter. What stood out this quarter was the consistency of execution across the company and how our teams continue to build on the momentum we established in 2025. During the quarter, total loans grew $536 million, or 2.1% sequentially. That growth was well distributed across the portfolio. We saw strong momentum last year, and we are encouraged to see that continue. Pipelines remain solid, and business activity across our footprint and customer base has been constructive, even with more macroeconomic uncertainty. Growth was also well balanced geographically across our franchise, with Texas growing $[inaudible] or 8% on an annualized basis, Oklahoma posting growth of $163 million or approximately 9%, and Arizona increasing by $236 million. Our fee-based businesses also performed well, even in an environment with elevated uncertainty and a rapidly changing macroeconomic backdrop. The revenue exceeded three of the past four quarters, reflecting the diversification and underlying strength of those platforms. Expenses declined meaningfully this quarter, reflecting our continued focus on managing our core cost structure. Over the past several quarters, we have worked to better align expenses with market opportunities and customer needs. This quarter illustrates that progress. Expenses were down $6.9 million and we posted an efficiency ratio of 63.2%. Importantly, this quarter provides a clean view of a more typical expense profile, with prior actions now embedded and temporary items less meaningful. Capital levels remain very strong, with tangible common equity at 9.3% and CET1 at 12.6%. Slide 6 provides a closer look at our loan portfolio. Total outstanding loans grew 2.1% this quarter, with strong growth across our core C&I portfolio, energy, and commercial real estate. Our core C&I loan portfolio, which represents our combined services and general business portfolios, grew 2.1% sequentially. This is the fourth consecutive quarter of growth in this portfolio, reflecting long-term, sustained customer relationships. Health care loans decreased 1.3%. Loan production in this segment remains at record highs with a very strong pipeline. This business has also supported our fee income lines with strong syndication fees generated during the quarter. The reduction in loan balances this quarter is primarily related to cyclical payoff activity. We believe we are well positioned to grow this portfolio throughout the remainder of the year. Energy loans grew this quarter, increasing 4.3%. This marks another reversal of the payoff trends we discussed last year. We are not currently seeing clients seeking to add production capacity yet. Our CRE business increased 3.7% compared to the prior quarter. We remain well within our concentration limits for this segment, which allows us to be selective about opportunities and deploy capital where structure, terms, and returns make sense. Mortgage finance loans totaled $228 million, an increase of $50 million from the fourth quarter. We are happy with the progress this business is making. It is important to note that the loan growth exhibited in the first quarter was driven by our existing businesses. Moving to Slide 7, I will keep my comments short again this quarter. Credit quality remains strong. NPAs not guaranteed by the U.S. government decreased $14 million to $52 million. The resulting nonperforming assets to period-end loans and repossessed assets decreased six basis points to 20 basis points. Committed criticized assets decreased this quarter, remaining very low relative to historical standards. We had net charge-offs of just $1.9 million during the quarter, averaging three basis points over the last twelve months. I will reiterate that the limited charge-offs we have seen show no patterns or concentrations that raise concerns about specific business lines or geographies. I would also note proactively we have virtually no exposure to private credit facilities. Over the long term, we do expect credit metrics to normalize. In the near term, we continue to expect net charge-offs to remain below historical average. No provision was required this quarter. Our provision benefited from the favorable impact of higher projected oil prices in our energy portfolio, offset by loan growth, improved overall credit quality, and a modest downward revision to economic forecast assumptions. Our combined allowance for credit losses is a healthy $323 million, or 1.23% of outstanding loans. Overall credit performance this quarter was exceptionally strong. With that, I will turn the call over to Scott. Scott Grauer: Thank you, Stacy. Turning to our operating results for the quarter on Slides 9 and 10. Fee income remained solid this quarter, despite the volatile market environment and macroeconomic backdrop. Fees declined $5.1 million sequentially following a very strong fourth quarter. Fee income totaled $209.8 million, exceeding three of the past four quarters and underscoring the underlying strength of our fee-based business in any market environment. Total trading revenue, which includes trading-related net interest income, increased modestly to $34.7 million from $34.1 million in the prior quarter. Customer hedging revenue grew $1.1 million as our energy customers predictably increased their hedging activity when higher short-term crude oil prices presented themselves. Investment banking revenue, which includes investment banking and syndication fees, decreased $4.1 million after delivering two outstanding quarters. Results reflect the normal seasonality of this business, with a quieter first quarter before activity begins to build in the second quarter. I would note that 2026 is the strongest first-quarter syndication activity on record. This result represents a 40% increase from the same quarter a year ago. Mortgage banking revenue grew $2.0 million linked quarter with higher production and refinance activity. Turning to Slide 10 to discuss our asset management and transactions business. Fiduciary and asset management revenue delivered strong results, contributing $66.5 million to revenue. This was the second strongest quarter on record, only surpassed by the prior quarter. As a reminder, the prior quarter included higher-than-usual transaction-related fees. AUMA declined $3 billion to $123.6 billion, driven by lower market valuations and normal seasonality. Transaction card revenue continued its trend of record-setting results, contributing $32.0 million to revenue. These results demonstrate the strength of this franchise, which has been created through sustained momentum and reliable execution. Taken together, our fee income performance this quarter reflects disciplined execution and the strength of these businesses, even amid shifting market conditions. The overall foundation remains solid and continues to support consistent fee generation. With that, I will hand the call over to Marty to cover the financials. Martin Grunst: Thank you, Scott. Turning to Slide 12. Net interest income decreased $2.7 million and reported net interest margin declined eight basis points. Excluding trading, core net interest income decreased $4.8 million and core margin decreased seven basis points. We continue to expect margin expansion over the course of 2026. Fixed-rate asset repricing and loan growth were positive drivers for this quarter and are expected to persist. However, we saw several small negatives impacting the quarter all at the same time. Noninterest DDA declined, with Q1 being the seasonal low point. Day count, of course, played a role. Loan fees were down sequentially. SOFR spreads were abnormally wide in Q4 and we benefited from that, but spreads returned to normal in Q1 and drove some compression sequentially. Funding costs for counterparty margin posted to exchanges for energy derivatives had a small negative effect. Lastly, we saw the full-quarter impact of the sub debt issued last November. Each of those items had a one or two basis point negative effect individually, which accumulated to overcome the positives of loan growth and fixed-rate asset repricing in the first quarter. Turning to Slide 13. Total expenses decreased $6.9 million, producing an efficiency ratio of 63.2% for the quarter. Personnel expenses were down $11.6 million. Normal increases from payroll taxes and merit increases were more than offset by lower incentive compensation as well as the benefits of the realignment we took in late 2025. Nonpersonnel expense increased $4.7 million; however, during the fourth quarter, we experienced a $9.5 million benefit from the updated FDIC special assessment. Excluding that prior-quarter benefit, nonpersonnel expense decreased $4.8 million, largely related to lower professional fees. Slide 14 provides our outlook for full year 2026. On loan growth, we continue to produce strong results. We expect to see loan growth near 10% for full year 2026. Our guidance for total revenue has not changed. We expect growth to be in the mid-single-digit range. The mix of that revenue between NII and fees is somewhat rate-curve dependent, as trading income can shift between the two. Our current forecast reflects no rate cuts in 2026 versus the two cuts reflected in our prior guidance. Our NII expectations for 2026 are now slightly lower at $1.42 to $1.45 billion, and our fee income expectations are now similarly higher at $820 to $845 million. We continue to anticipate the growth rate for expenses to be in the low single digits. This should result in a 2026 full-year average efficiency ratio in the 63% area. We expect 2026 provision expense to be in the $15 to $35 million range. Portfolio credit quality continues to be exceptionally strong, and we see no tangible evidence of credit normalization. Our guide does allow for some amount of normalization later in the year. Lastly, I will note that Visa announced on April 13 that its second exchange program for Visa Class B shares has officially commenced. This allows us to monetize 50% of our remaining Visa B shares. We currently hold the equivalent of approximately 190 thousand common shares, and monetizing half that position would equate to roughly a $29 million pretax benefit based on Visa’s April 13 closing price of $309 per share. While this potential gain is not reflected in our guidance, we expect to participate in the exchange and recognize a gain based on the market value at the time of the exchange or disposition. With that, I would like to hand the call back to the operator for Q&A, which will be followed by closing remarks from Stacy. Thank you. Operator: We will now open the call for questions. If you would like to ask a question, please press star one. Your first question comes from Michael Rose with Raymond James. Please go ahead. Michael Rose: Hey, good afternoon, everyone. Thanks for taking my questions. Maybe, Marty, if we can go back to the margin. It seems like there was just a confluence of factors this quarter that drove the compression, but I think if I heard you right, you would expect margin expansion from here. Can you give us some details behind that—what you would expect in terms of deposit betas as we move forward, loan pricing, and fixed asset repricing opportunities—just the puts and takes as we contemplate no rate cuts this year? And then as a follow-up, you mentioned the Visa Class B program has commenced. I think you said about half of that position would equate to roughly a $29 million pretax benefit. Is the plan to monetize half of that, and would you look to potentially repurchase shares with the proceeds? Martin Grunst: You bet. As you think about each of those factors, the one that has been durable and will continue to be durable is the fixed-rate asset repricing. You will see both the bond portfolio and fixed-rate loan portfolio continue to pick up spread there. On deposit betas, deposit competition in the market is kind of like it has been for the last few quarters. Without rate moves, I do not think you will see a lot in the betas. To the extent that we have incremental rate moves, our cumulative down beta has been 66% in deposits, and we would continue to see that play out as it would relate to future rate moves to the extent you have them. A couple of the things that affected this quarter were loan fees and DDA. What is typical is to see growth in those two components in the back half of the year, so you will see some support there as we get into the third quarter. Loan competition is always competitive. We have seen some incrementally competitive behavior at the high end of the credit size and the very strong end of the credit quality spectrum in investment-grade territory, but not enough to really move the needle this quarter. All those components give us confidence in the trajectory of margin. One thing I might add on margin: if you think long term, you can take our 2.90% margin that we printed this quarter and rerun both the available-for-sale and held-to-maturity securities portfolios at their mature rates—where we are replacing at about 4.50%—and that would recast our margin at just a little over 3.15%. While it will take some time to get there, that gives you perspective on the big picture and what the long run looks like for our margin expansion story. On Visa, our expectation is that the program will officially start transacting shares later this quarter, and we would be able to recognize that gain in Q2. We have not yet determined exactly what we will do with the proceeds, but all those avenues are on the table for us, including potentially repurchasing shares or paying down debt. At this point, we look forward to being able to capture that gain. Stacy Kymes: Michael, this is Stacy. We will let the year play out and see what may unfold to reinvest those gains. If you recall, when we did the Visa exchange before, there were attractive opportunities in our investment portfolio to get really good IRRs by selling securities at losses and using those gains to keep our run-rate earnings relatively flat. That equation is not as compelling this time. The IRRs are not very good relative to where they were before. Obviously, the unrealized losses in the portfolio are much smaller today than they were when we had this opportunity before. We have also looked historically at contributing those to our foundation, but changes to corporate tax policy make that a little more challenging to do and get the tax benefit. For now, it is an all-of-the-above set of options, including doing nothing. We will see as the year unfolds whether we want to invest that gain or if we do not see an opportunity that merits the return profile we should consider. Michael Rose: Alright. Appreciate the color and context. I will step back. Thanks. Operator: Your next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please go ahead. Jon Arfstrom: Hey, thanks. Good afternoon, everyone. Stacy, I wanted to ask you a little bit about the loan growth environment. Can you talk about the general business balance drivers? And then on energy, you used the term “not yet” in describing clients seeking to add production. What do you think needs to happen there for that to show more of a growth profile? And then for Marty, a follow-up on deposit costs—you had a nice step down in the interest-bearing deposit costs this quarter. How much more room do you think you have in an environment without any further cuts? Stacy Kymes: Sure. The loan growth was broad based by geography and by loan type. We have been exerting significant effort around core C&I and are really excited to see that expansion continue. We continue to invest there and are excited about the future. It has been nice to see a bounce back on the energy side. We troughed around this time last year and have been stable to increasing since then. For folks to continue to drill, you need to look at the strip. People often focus on the prompt month or spot price, but it is really the strip price out two to three years—really three years—that creates the incentive for people to drill for oil. If you look at three years, oil is below $70, and I think $70 is kind of a magic number. My view is you will not see folks drilling unless they can lock in a return with oil above $70 out that long. Things are volatile and the curve has moved a lot, but it is more important to look at the curve three years out than the prompt month in terms of driller behavior. The rig counts reflect that there is no impetus right now for folks to drill given the backwardation of the curve. That could change, but we are not seeing that today. Martin Grunst: On interest-bearing deposit costs, there is probably still a little bit of room, but as we have been chipping away at that over the quarters, it is a situation of declining returns. There is still a bit more there, but not as much as there was a year ago relative to where short rates are. Jon Arfstrom: Okay. Thank you very much. Operator: Your next question comes from the line of Peter Winter with D.A. Davidson. Please go ahead. Peter Winter: Thanks. Good afternoon. Stacy, there has been a lot of merger activity in your markets. Are you seeing opportunities for team lift-outs—something that you have done successfully in the past? And then, Marty, you have always maintained really strong capital levels. Could you quantify the estimated impact and benefits from the new regulatory proposals? Stacy Kymes: As you know, that is a strategy for us. Some of the periods of most rapid growth in our history have been when there has been broad dislocation created from mergers and acquisitions. You have both employees and clients of those institutions who did not choose to be a part of that institution, and they may select to go somewhere else. We see it, it is prevalent in our footprint, and you can assume that we are being very active in prospecting for both employees and customers in this environment. Nothing specific to report today. Martin Grunst: Peter, we do not have a number yet, but it is definitely going to be a benefit to us, both on the loan book—particularly in the real estate-secured loan book, given those LTV parameters—and in the trading book. You know how we underwrite. Because of where our LTVs and FICOs and so forth are, that is going to be a benefit to us on RWAs in the loan book. In the trading book, we will get a little benefit there too based on our read at this point. Operator: Your next question comes from the line of David Chiaverini with Jefferies. Please go ahead. David Chiaverini: Hi, thanks for taking my questions. Back on deposits, I think you mentioned that the noninterest-bearing DDA deposits should bottom in the first quarter. What is the driver of the rebound in the second quarter and potentially the magnitude? And should this rebound continue through the year? And then on mortgage finance, we saw balances grow nicely on a percentage basis. Previously, you mentioned getting to $1 billion in commitments by the end of this year. With a higher-for-longer environment, are you still comfortable with that commitment level? Martin Grunst: A little context on DDA. DDA was pretty steady for us last year, and that rate-seeking behavior you had seen in prior years had come to an end. We typically see a seasonal increase at the end of the fourth quarter, which we did see, and then a seasonal decrease in the first quarter, which we also saw. We also saw a little bit of our commercial middle-market customers deploy some of their cash into their businesses, which is healthy for business growth. It has been several years since you have had a nice “normal” DDA pattern to look at, but what is typical for us—and to some extent the industry—is to see DDA climb more in the back half of the year than the front half as people build cash flows. That is our expectation for the year. Stacy Kymes: On mortgage finance, I think what we talked about was being at $1 billion in commitments by the end of the year, with roughly 50% of that committed amount outstanding. Given where we are in the newness of the business for us, I still feel good about that. There will be some seasonality; the second and third quarters tend to be pretty good, and it will track the broader mortgage business. We will not be perfect on the timing, but I still feel good about the target. David Chiaverini: Very helpful. Thank you. Operator: Your next question comes from the line of Matt Olney with Stephens. Please go ahead. Matt Olney: Thanks. I want to go back to the liability side of the balance sheet. In the deck, you mentioned you moved from wholesale deposits into more wholesale borrowings this past quarter. Can you expand on that strategy? And as a follow-up, how should we think about funding the loan growth from here in terms of core funding, wholesale deposits, versus borrowings? Martin Grunst: Good question. If you go back to Q4, after a couple of rate cuts and some market dislocation, we were able to find some deposits—technically deposits, but wholesale in the way we source them—at prices that were actually better than wholesale funding, which is rare. We put on a little over $1 billion of those deposits in Q4. We mentioned on the last call that would probably run off in Q1, and it did. That run-off is the main driver of the deposit decline from Q4 to Q1; it was an opportunistic wholesale deposit trade we did in Q4 running off. Going forward, at the loan-to-deposit ratio we have, we certainly have flexibility in how we fund. Our expectation is to see loan growth consistent with our guidance and history. Deposit growth will probably be a little bit less than that, but we do expect deposit growth this year. We can end with a slightly higher loan-to-deposit ratio at year-end. Generally, loan growth and deposit growth will be somewhat aligned, while knowing we have flexibility to let that float around a bit. Matt Olney: Yep. Makes sense. Thanks, Marty. Operator: Your next question comes from the line of Jared Shaw with Barclays. Please go ahead. Jared Shaw: Hey, everybody. Thank you. Marty, can you give the dollar impact of the loan fee reduction quarter over quarter that you called out? Also, are the trends you are seeing in customer hedging activity as we go through 2Q staying pretty strong? And finally, on the provision guidance for the year, should we think about equal contribution over the next three quarters, or is it a little more back-end weighted with growth? Martin Grunst: The loan fee impact is basically two basis points quarter over quarter. There is always a bit of noise, but broadly speaking that is a good growth area for us year over year. On provision cadence, you do not want to get too cute with quarterly, but given how the portfolio looks today, it is logical to think there is a little back-end weighting. The portfolio looks very clean today. You can usually have a little visibility into the next quarter or two; after that it is harder. That is the right way to think about provision. Scott Grauer: On customer hedging activity, with the volatility in the global setting, we have seen spurts of activity on the energy side. We have seen less activity on interest-rate hedging given a relatively stable rate environment, but we continue to see good demand across hedging opportunities, with the biggest focus being on energy. Jared Shaw: Great. Thank you. Operator: Your next question comes from the line of Woody Lay with KBW. Please go ahead. Woody Lay: Hey, thanks for taking my question. On expenses, they are very well managed, and it was good to see the run rate come in following some of the actions you took in the fourth quarter. You touched on the efficiency ratio being down a little bit. Is there conviction that you could be on the lower end of the stated range, or is it too early to tell given some of the hiring question marks? And then one more for me: you mentioned oil prices factored into the ACL. Can you walk through how that is included in your CECL model, and is there any risk that if oil prices normalize lower, it could require a catch-up provision in the future? Martin Grunst: We feel really good about how Q1 turned out in terms of a clean run rate for expenses. Looking into Q2, you will have a little bit as the rest of the merit increase flows through, with an offset from how payroll taxes play out. We are always looking to hire producers, as you know, but those are the main puts and takes. We feel pretty good about the guidance of the efficiency ratio in the 63% area. On CECL and oil, higher oil prices are supportive for the energy loan book—both collateral valuation and borrower cash flows—so that is a positive. There is also the impact of higher input prices on parts of the broader C&I book, which we recognize as an offset. Those are natural offsets in how we manage CECL. There is not a lot of risk, on a net basis, of that being a driver of an adverse future outcome if oil normalizes lower. Woody Lay: Got it. Makes sense. Thanks for taking my question. Operator: Your next question comes from the line of Brett Rabatin with Stonex. Please go ahead. Brett Rabatin: Hey, good afternoon, everyone. Back to guidance on fee income. I get that the change is partly a function of interest rates and how you account for the income, but the $820 to $845 million range—given the seasonal investment banking in the first quarter—it seems like that could have been higher. Are there any other businesses you are expecting not to grow this year, or other factors in that outlook? And then, Stacy, you talked about producer adds and possibly adding people with disruption. Do you have a net producer add number for the quarter? Lastly, on the decrease in provisioning for the year despite slightly better loan growth expectations—does that reflect better visibility that 2026 will continue to be fairly benign? Martin Grunst: We feel very good about the fee businesses. The trajectory is really good, and we are confident in the history and outlook across the board. One thing to remember is that in the trading business, part of that revenue shows up in the fee line and part shows up in the NII line. You really have to combine those when you think about the strength of the fee businesses. If you are looking at multiyear trends, some of that revenue may move into the NII line; you should recombine that to evaluate the business. Stacy Kymes: On talent, that is not the way we think about it. We think about adding A-level talent. We do not have a goal around adding a set number of net new producers each quarter. We have a perpetual goal of adding the best talent in every market we are in. Those discussions have been ongoing for years in many cases. As we have an opportunity to add talent, we do it. If it is not the A talent in the market, then we do not. We do not track it that way, so I do not have anything to report. On provision guidance, the reduction is pretty small and really just a reflection that we have already got one quarter behind us now. When I was in credit, I used to say the crystal ball is pretty good for three to six months, and then it gets foggy. With one quarter in the bag, we have a little more visibility, so we brought guidance down just a bit. It is not that different, really. Brett Rabatin: Great. Appreciate the color, guys. Operator: That concludes our question and answer session. I will now turn the conference back over to Stacy for closing comments. Stacy Kymes: To wrap up, the first quarter has set the stage with solid core operating results. Diversified loan growth, resilient fee performance, excellent credit quality, and disciplined expense management have us off to a strong start in 2026, and we are well positioned for growth as the year progresses. We appreciate your interest in BOK Financial Corporation and your willingness to spend time with us this afternoon. Please reach out to Heather King if you have any further questions at h.king@bokf.com. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Atos Group Q1 2026 Performance Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Philippe Salle, Group Chairman and CEO. Thank you. Please go ahead, sir. Philippe Salle: Thank you very much. Good morning, everybody. I am today with Jacques-Francois, and we're going to talk about Q1. So let's go directly on Page 6, on the business highlights. So first point is solid financial performance. I think we are quite happy, let's say, with the start of the year. We have always said that's the lowest point of the year. And then we gradually, I would say, improve the growth. Further progress in the execution of the Genesis plan. So the Genesis is doing also very well. We will finish the first Genesis plan probably by mid of this year. And we have extended the plan, I would say, with another savings to be finished probably by the end of 2026. The idea, of course, is to have the full savings of the new, I would say, the extended plan in the course for the year 2027. We have a positive business momentum, and I will come back to this. With, I would say, book-to-bill that is the highest for the last 5 years. And so now, we have a clear focus on our strategic pillars. Agentic AI, we have launched a manifesto. Sovereign, we have launched also a manifesto internally, and it's going to be externally in the coming weeks. And, of course, Cyber, where we are #1 in Europe. So if we go on the key numbers on Page 7, order entry is EUR 1.5 billion. It's 89% for Atos. It's 87% with Eviden. And of course, as you can imagine, with Eviden, the order entry was a little bit low in Q1 with the war. We definitely think that it's going to be much better after, let's say, the war, but we don't know, unfortunately, when it's going to be finished. Revenue is EUR 1.7 billion plus. It's roughly EUR 1,640 million what we call with the go-forward perimeter, the go forward, it's without Build that we have sold on the 31st of March and Latin America, and we expect to close Latin America next week. If it's not next week, beginning of May, but we will try, I would say, to finish this transaction, let's say, next week, which means that the perimeter is roughly the perimeter going forward. There are still some countries we want to close, but are very small. But in terms, let's say, of sale, I think it's finished. Net change of cash, I think very good news. It's minus EUR 47 million. So you have to understand that we have EUR 71 million of restructuring. So it means that we have produced roughly EUR 24 million of cash. And also, we have the Build cash consumption. Unfortunately, we are not able to estimate that cash consumption for now. We will do this, in fact, when we're going to close H1 -- just for information, build EBITDA was around minus EUR 25 million; CapEx, minus EUR 30 million. So EBITDA minus CapEx is minus EUR 55 million. We estimate that probably there is a positive working cap, but it's possible, of course, that Build has an impact of, let's say, around EUR 10 million, EUR 20 million, EUR 30 million, we'll see. So it means, in fact, that the production of cash is much higher than, in fact, EUR 24 million. And then the liquidity EUR 1.7 billion, it's a little bit above last year, December 2025. And remember also that we have bought already EUR 62 million of the EUR 1.5 [indiscernible]. So of course, there is less cash, but we have also less debt. So let's go on the 3-year for the Genesis. So I'm not going to highlight -- remember that there were 7 pillars in Genesis. There are a lot of things that we are doing. So the first one, is the growth. So as I say, we have redesigned completely for me the engine of growth. And it's going to, I would say, produce a lot of, I would say, of course, results in the coming months now and years. So I would say the teams are in place, most of them. We have, I would say, also put a focus with Florin, the CTO on our 3 strategic pillars, so Agentic, Sovereign and Cyber. We have now launched this morning for 2 or 3 months campaign also in France, I would say, to, let's say, push the image of Atos. And I would say the main, I would say, message is that Atos is back. And as I say on the term, the target operating model, in fact, in sales is completely in place. You will see also, for example, that the pipeline has increased almost by EUR 1 billion in 1 quarter. And that's -- I would say that gives, of course, a very good signs for the rebound that we estimate that will happen, in fact, in Q3. In terms of country review, so we sold iDEAL, it's a company that was in Nordics. It's mainly, in fact, Norway and Finland. So we closed the deal on end of Jan. South America, as I say, next week, and Build was done also end of March. In terms of operational costs, I think we are continuing, I would say, the progress. The billability rate now is above 80%, and it's, in fact, close to 85%, the target that we have. We are now, let's say, recalculating a little bit differently this billability rate because we take into account the average salary of the people that are not billed versus, I would say, the salary of people that are billed. And then there is -- and we see that there is, of course, a discrepancy and there is no, I would say, magic, but usually the people that are more costly, unfortunately, are more on the bench than the people that are billed. So I would say we will not recalculate, I would say, this rate, but we will adjust it, I would say, to the salaries. Legal entities, we continue to simplify the number of entities. We want to shave, I would say, the number of entities by hundreds still. And then we are also putting some AI internally. And right now, for example, we are testing AI on the revenues. So in fact, we are looking at all the contracts that we have, it's several thousands, and we look also at the options I would say, the paragraph in the different contracts that we have signed where we can extend the pricing or bill a little bit differently. So it can give, I would say, some rooms of improvement in terms of margin and revenues for the teams. But Genesis is going very well. The Genesis, the initial plan will be finished mid-'26. So we estimate that the EUR 650 million saving plan is almost complete. And that's why we have extended now the plan to have, I would say, a plan that will finish end of '26. So it means it's a target above EUR 700 million. In terms of workforce on Page 9, as you can see, so we started the year at 63,000. We continue, I would say, the restructuring, and we also managed the levers versus hirings to be negative. So we finished at 61,000. You take out Build to 2,500. So we are now at a little bit below 59,000. If you take South America, we are probably close to 56,000. So that's probably where we will be probably at the end of next week. And I would say we will -- I definitely think that we can -- we will land around 55,000 when Genesis will be complete. So we are almost there. We go on Page 10 on the order book. So first, the book-to-bill is very strong, 89 for -- and in North America, it's above 100. Just for the analysts, that's the -- I always say that the book-to-bill is a proxy, unfortunately, of growth. And I think we have a very good example. The book-to-bill of North America is above 100. They continue to decrease, unfortunately, in terms of top line in Q1. The book-to-bill of U.K. is below 100 and now they are growing. So as I say, unfortunately, it's not an immediate, I would say, readings when you have a book-to-bill at below 100 that it means that we're not going to grow. I don't think that it's the case. We are still looking to find a better measure. It's not an easy one, but we are working on it. I hope that we can probably share some, let's say, results in H1 or at the end of the year. The qualified pipeline, as I say, is up roughly close to EUR 1 billion. We are now at EUR 13 billion roughly of qualified pipeline, so almost 2 years of revenues, a little bit less than 2 years, of course. The renewal rate also is 94%. The good news is that we don't have big renewals now going forward. So in fact, for this year, I think we are not going to lose any other contracts. It has been done, of course, in the course of '25. The 2 big contracts in the U.S. have been renewed. One has been signed, in fact, in end of March with CNA. It's a very big contract, $480 million. And we're also discussing probably to extend the contract to more than this $500 million. We will have probably -- we're still in negotiation in the course of Q2. And the second one also is in California. We have won the contract. It will be signed in the course of April or May. It's done. We are just waiting, I would say, the signature of the client. And then for the U.S., it's done. We don't have big renewals, in fact, in other parts of the world. There is a medium-sized contract, in fact, in BN right now. We are waiting the answer probably next week. And that's all, which I think is very good news. And that's why we are very confident on the rebound of the top line in Q3. And then as you can imagine, we have a good traction in cloud, in cyber and in data AI because we are growing, in fact, in these 3 service line, let's say. You can see below some contracts that we have renewed. So for example, CNA in the U.S., it's a very big contract. There is some CM&I, there is a digital workplace and cyber, and we are also now looking for digital applications and the data AI, in fact, for the client, and it's an insurance company. So I definitely think that Agentic has a big impact in fact, in this company. We have, for example, with Gigalis in France, renewed a 4-year plan with cyber. It's what we call framework agreement. So it means that we have after that the possibility, I would say, to tender, put people or put, I would say, new projects in place. Most of the work, in fact, are not in the book-to-bill. So we are very cautious on this. And that's why it doesn't -- I think probably the book-to-bill is a minor, I would say, minor of probably what is going to happen on the revenues going forward. In the U.K., we have won a very good contract with the Ministry of Housing at GBP 63 million 7 years for digital applications. And for example, in the Germany, Austria, in Austria, we have won also a very big contract with OBB, EUR 48 million for 9 years. But I think that there is good traction. I see that there is more and more, I would say, appetite. Doors are open from the clients. I think it's much better than last year. And definitely, I think now we need to win, I would say, the contract. So I would say we are back to a normal business. If we go on Page 11, this is the 3 pillars in terms of technology. This is where we're going to invest most of our R&D and push, I would say, very hard. So Agentic, sovereign, and cybersecurity. So Agentic, as I say, we launched already the manifesto. We have already studios in place in the 4 big countries, and we have now signed different clients. And there is an ecosystem around us of start-ups that will help us, I would say, deliver the Agentic and the agents in the different scenarios of our clients. Then with the sovereignty, so there is a manifesto also that we're going to produce. It has been already shared with the top 200 within Atos in fact, last week, and we're going to share it externally in the course of next week or probably beginning of May. There is a lot of appetite, as you can imagine, right now, especially in Europe. And then cyber, of course, there are a lot of things going with this. We see also some developments with Agentic there. And of course, we have a very strong position, as you can imagine, in Europe, and we are pushing now also cyber in North America. Now if I go to the next page. So the next section is the Q1 revenue performance. So I can go through, I would say, the main numbers. So first, as you can see, when we looked at the Q1 restated, it's roughly EUR 2 billion. We take out the scope and the foreign exchange, the divestitures. So in fact, the perimeter going forward, which is without Build and without IDL and of course, without Latin America was roughly EUR 1.8 billion. We finished at EUR 1,640 million, which is roughly minus 11%. And as I say, we were, in fact, anticipating, let's say, a weak Q1. It will be much better, in fact, in Q2, and we are still looking to make the rebound in Q3. If you look, in fact, on Page 14 by region, we were probably a little bit, let's say, not surprised, but North America probably is too weak, the sentiment, in fact, the economic sentiment is a little bit, let's say, challenging in this area. The rest is okay. As you can see, U.K. now is growing at plus 5%. We estimate also that Germany will be on positive growth in Q2. So we see, I would say, region by region that I would say we are coming back to a positive territory in the coming quarters. If I go, let's say, region by region, so I start with Germany on Page 15. I think Germany is doing quite well. As you can imagine, also the EBIT now is positive in Q1. It was negative last year. And by the way, just for information, the EBIT of the group has more than tripled with our bill in Q1 versus last year. We don't publish, of course, the EBIT -- we will do this, in fact, in H1. But I would say we see the benefits of Genesis now going -- falling through, I would say, the P&L already, of course, in the beginning of '26. Then you have, I would say, some contract wins. I'm not going to go over, but I would say we are stabilizing, I would say, Germany. And as I say, we estimate that the rebound will happen in the course of this year. Now North America is probably the most difficult, let's say, region. In fact, the start of the year was probably lower than anticipated, but we are signing, in fact, a lot of new contracts and the book-to-bill is 10 -- so it's big. And definitely, now we estimate that we're going to ease, let's say, this contraction of revenues in coming quarters. You can see some below some big wins. The biggest one, of course, is CNA. And also, we have another one on CM&I at $30 million, as you can see below on the bottom, I would say, of the page. 17% is France. So France is still also challenging. Remember also that we did not have a budget in January and February. So it freezes a lot of our public and defense customer and public and defense in France is 40% of the revenues. So we know that the start of the year is probably, of course, lower than anticipated in the budget for us. But we have some very good signs for example, with SNCF, SNCF when I arrived last year, they said that they want to stop to work with Atos. And finally, we work -- we won a very big contract with them. So it means that the doors are open, as I say, in many customers. Gigalis also, it's a big contract we have won also for cyber. And you can see also other, I would say, wins and qualifications. U.K. on Page 18. So that's the rebound of the U.K. and also the profitability also is skyrocketing, as you can imagine. So we are very happy. And there is more to come. I think we have win also a big contract in Q2 that will be probably public. So I would say we are quite confident right now in the U.K. And as I said, that's the first region to come back to growth, and there will be more, of course, in the coming quarters. Last, international markets on Page 19. So we have taken out the 28, 30 that's Latin America. So in fact, without Latin America, it's around EUR 220 million, so minus EUR 12 million. It's mainly, in fact, impacted by one client in Asia, in fact, that is stopping the CM&I contract because they want to manage internally, I would say, their data. The good news is that we suffered, in fact, in '25, and we continue to suffer in '26. But at the end of the year, this ramp down is completely finished. So it means that we are quite confident that we will restart growing, in fact, in the course of '27. You can see also some wins that we have in Singapore, Spain and Slovak governments. Last, in fact, and it's not -- it was not international, sorry, is, of course, at Benelux, so Benelux or BN, what we call with Atos. This is also a slow, let's say, start of the year, but we are, I would say, quite confident also that this region is doing very well. We have win also different with Eurocontrol with -- in the automotive sector with DAF and also in the financial services, as you can see. Now Eviden as you can see on Page 21. So without Build, in fact, the revenues were EUR 71 million, and we are roughly at EUR 69 million. It's roughly flattish. In fact, we have been impacted by the war because part, for example, for Vision AI, a big chunk of our business is in Middle East. So we definitely think that it will be much better after the war concludes, but when nobody knows. But I would say we have a good traction in terms of also contracts, and we are very confident that we will accelerate both in the book-to-bill going forward and also, I would say, in the top line. So that's it for me. I give the floor now to Jacques-Francois for the liquidity position. Jacques-François de Prest: Thank you, Philippe, and hi, everyone. So on Page 23, as a reminder, the publication of the quarterly liquidity position is part of our regular reporting requirements, which have been defined and agreed with the group's financial creditors. So the certificates are available on our website. Our liquidity position remains strong at the end of March, thanks to the limited estimated cash consumption over the last quarter. In Q1, the net change in cash is estimated to be approximately minus EUR 47 million, which includes EUR 71 million spent related to the restructuring. This figure is reported without any use of the account receivable factoring or without any specific optimization on trade payables. This number is also reflecting the results before the estimated impacts. So you can -- we take them from the left to the right on the slide. So a, the change in the unsolicited payments received in advance of the invoice payment due date during the year. So that's the minus EUR 115 million. Then you have the exchange rate fluctuation, which amounts to approximately minus EUR 2 million. You have the M&A impact, which is plus EUR 257 million, and you have the debt repayment of minus EUR 62 million. So these amounts are excluded from the net change in cash, which I announced is minus EUR 47 million. And that brings us as a result, as of the end of March '26 to have the Atos Group's liquidity at EUR 1.736 billion, which is to be compared with EUR 1.705 billion at the end of December '25. And this is more than EUR 1 billion above the minimum requirement of EUR 650 million set by the credit documentation. So with that, I'll now hand over to Philippe. Philippe Salle: Okay. So just for the outlook, just I give you the numbers now with the FX at the end of March. So it's a little change just because, of course, as you can imagine, the dollar is weaker. So it gives in euro, let's say, a smaller revenues at the end of '25 with the FX of March. So we are still at EUR 7.1 billion. So compared to EUR 7.1 billion, of course, at the end of '25, EUR 312 million as the EBIT. We are now close, as I said, to 56,000 people without. And we are now in 54, sorry, countries of operation. So as I say, we continue also to close some countries will below 50 by the end of the year. Now if I go on Page 26 for the guidance of this year. So remember that at the beginning of this year, we say we will try to touch a positive, let's say, organic growth with, let's say, the start of this year and, let's say, the economic sentiment, we estimate that it's not going to be possible. So we have narrowed, I would say, the range. It's between minus 1% and minus 5%. So we still keep, I would say, the worst case at minus 5%. We think we will do probably better than that. And the best case, let's say, to minus 1%, so roughly a flattish revenue. Operating margin confirmed at 7%. As I say, we have tripled -- more than tripled the EBIT, in fact, in Q1. So we are very confident on the profitability of this group for '26, of course, and a positive net change in cash. So in fact, you've seen that we have already spent EUR 70 million with Genesis in Q1. Genesis this year is probably between EUR 150 million and EUR 200 million. So we have, in fact, spent more than, I would say, the average that we should have by quarter, and it's normal because we are accelerating the plan. And of course, the EBIT of the Q1 is always the lowest. So it means that it's a good sign, I would say, for the cash going forward. And then I would say for 2028, next year and 2028, we are still looking for an acceleration of the top line, still targeting around 10% of profitability. And of course, the deleveraging will continue. In fact, I would say with this year, the deleveraging, in fact, will be seen already in fact, in '26. And in fact, with hundreds of millions of cash next year because, in fact, the Genesis in terms of cash outs next year will be very small. We will produce a lot of cash to either do M&A or deleverage, I would say, the balance sheet. With that, I can now, with Jacques-Francois, take any questions that you have on the Q1 results. Our Q1 performance, it's not really results because we don't produce the P&L. Operator: [Operator Instructions] Our first question comes from the line of Frederic Boulan from Bank of America. Frederic Boulan: If I can ask 2. Firstly, on demand. So you flagged a strong order book momentum, a number of big contract wins. Can you discuss a little bit the nature of discussions with clients, any impact on demand from the current macro? I mean you flagged that for Eviden, but would be keen to hear any broader impact on the overall demand environment? And then specifically around pricing, it would be good to understand where you see price points in the deals you've been signing recently, how it's comparing versus, let's say, a year ago? And is this pricing driven by any kind of competitive or AI factors? Philippe Salle: Yes. So on the second point, Frederic, for example, CNA, the margin is 25%, which is roughly in line with the former margin that we have with CNA. Remember that the goal we have is to be around 25%, 26%. It's very important. And I'm very adamant on this. So I think probably, and that's why also the book-to-bill also last year and this year is probably lower than what we can achieve because we are still watching very closely the margin that we want to produce. Profitable growth, remember, is the goal for us. It's not very difficult to buy some contracts, but I would say it's far-ridden, of course, as you can imagine, since now beginning of '25. In fact, in some contracts, for example, like CNA, and it probably goes with the sentiment of the clients. Everybody, of course, is talking about AI. Nobody probably understands the impact of AI because it's very difficult right now to see what is going to happen. There are a lot, of course, disappointments, in fact, with some clients trying to put some agents because it's not that easy. And my view is that Agentic is the new revolution. It's coming, but it will take probably 2 to 5 years to be really in force, probably more in the U.S. at the beginning and after in Europe. So we see that in these contracts, for example, for its 8-year contracts, we're going to give, for example, some savings after year 3 and 4 in terms of -- let's say, in terms of Agentic. But in fact, we -- as I probably said already, since we don't know exactly the number of savings, in fact, we're going to share part of the savings that we're going to produce. But it's difficult, in fact, for clients and even for us to see the impact -- the real impact, I would say, of the savings we're going to have. So there are a lot of studies, and I'm sure that you've read some of them saying that we can divide by 2 by 3 by whatever. Unfortunately, there is one cost that nobody knows, it's the price per token. And we definitely think that this will probably say out in the future. And so it means that, in fact, there is a price for agents. There is probably, of course, less people cost in the contracts going forward. But the sum of the 2 right now is still, I would say, unknown. So I would say everybody is talking about AI. Everybody wants to us, let's say, to give some rebates or not rebates, but I would say, to apply, let's say, Agentic in our delivery and then give, of course. But I would say it's too soon even with the big contracts we are signing right now. They understand that there will be an impact, but it's too soon to say that there is a big impact. And as I say, for us, we're going to protect the margin. So we estimate that the margin of '25 probably will be more after that. And then we can probably produce more output on a given framework. Now the sentiment, I would say, of clients, it depends on the sectors. I think there are some sectors that are probably more difficult than the rest. Automotive is one, transportation, luxury goods. And other sectors, we don't see, in fact, a big impact on right now, let's say, the economy, the banking sector, insurance sector, defense, of course, and public, where we are very strong health care. So I would say it's a mix of sentiment, but you know that in economy, unfortunately, the fact that we -- there is a lot of uncertainty, it doesn't give, I would say, the sentiment to clients that they can spend more, specifically with AI. So I would say that for the moment, probably there is a postponement of some contracts or projects. They are looking exactly probably waiting, let's say, to see how the economy is going to rebound after the war. So there is more wait and see in some clients, let's say, for some projects. And that's why -- that's what we see for the moment. My view is that the projects will happen. But in fact, if you, of course, extend or postpone, let's say, by 3 to 6 months, it has an impact, in fact, in the -- for the '26 year. And then, of course, it will be good news for, let's say, end of this year and of course, in 2027. Operator: [Operator Instructions] Our next question comes from Sam Morton from Invesco. Sam Morton: Two questions, please. The first is on the bond buyback. So I think you bought back EUR 62 million of the 1.5 lien. Certainly the last time we spoke, I think you've been buying back the second lien. So I'm trying to understand what's the change in strategy there? And then secondly, any update you can provide on the refinancing, that would be really helpful. Philippe Salle: Yes. I think Jacques-Francois is going to answer your 2 questions. Jacques-François de Prest: Sam. So yes, the change of strategy is more or less in line, I think, with what we announced in the Q4 publication call, where we said that at the end of fiscal year '25, we thought the second lien was really very low actually and bought opportunistically a little bit of that. So last year, this was EUR 2.5 million of second lien. Now when we look at the NPV, the second lien has gone up. And it's true that the EUR 62 million amount we have bought back on the market, on the open market was only 1.5 lien bonds. Again, we noticed that -- how can I say, this bond was momentarily trading below due to geopolitical situation, nothing to do with the performance of the company. So since we had a little bit excess of cash, we decided to take advantage of that. We signaled that, and we implemented this program, which is not finished, by the way. It might be pursued in the coming weeks or months. That's the first question. On the second question, the refi, well, we are monitoring the market. The company is ready. So we have nothing to announce today other than we are checking how the market is evolving. We have some banks advising us. And when we think there is a good window allowing for a good operation and a good pricing, you and investors might hear from us. Operator: Our next question comes from the line of Laurent Daure from Kepler Cheuvreux. Laurent Daure: I have 2 really quick questions. The first is on revenue trends during the year. I think if I take the midpoint of your guide minus 3%. How do you see the phasing from Q1 to Q4? And what are the main drivers of improvement? Do you still have some contract ramp-up that makes the revenue trend much better, maybe starting in Q2? Or is it comps impact? Any granularity on how you see the year shaping would be helpful. And my second question is on the bond buyback. To clarify, you made EUR 62 million. are you cautiously looking at your balance sheet? Could you do much more than EUR 62 million, like EUR 200 million, EUR 300 million? Is it a question of liquidity of those bonds? So anything on the strategy on that would also help. Philippe Salle: Yes. So in fact, for the -- we estimate Q2 will be around minus 6% and then positive in Q3 and Q4, the positive, then you calculate whatever you want. The central scenario, let's say, at minus 3% for me probably is okay. And of course, if you have minus 11%, minus 6%, then plus and plus, if you divide it after that by 4, you are probably around this minus 3%. So I would say the central is around minus 3%. The worst case is at minus 5%. Then for the bond buybacks, the question for us, of course, we have probably plenty of cash, as you can imagine. And also, in fact, we're going to produce some cash this year. So if we start at minus EUR 50 million, of course, we're going to produce EUR 50 million plus now in the coming quarters. We want to buy, in fact, 1.5L bond, in fact, and that's the one we are looking at that is below EUR 100 million. So I think it's a good, let's say, buy for the group because it's cheaper than, I would say, the par, in fact, on -- for the bonds. And remember that the bond is around 9% yield. We are -- remember that we are also looking at refinancing. So that's why we have to be a little bit cautious between the refinancing. And remember also that we have some repayments of the 1.5L with the proceeds of M&A that should occur, in fact, at the end of the year. So it's an equation, I would say, with all these variables. So we will see if we continue to buy back bonds or we refinance first and then we continue to buy back also, we will see. Laurent Daure: So at the end of this year, you have to pay back with this half of your proceeds from M&A. Is it right? Philippe Salle: Exactly. The proceeds of WorldGrid, the proceeds of Latin America of [indiscernible], of course, it's small amounts for the 2 and the proceeds of Bull, it could be EUR 500 million plus. So remember that we have this EUR 500 million plus cash out that will happen at the end of the year. Jacques-François de Prest: May I complement, Laurent, this is as part of the credit documentation. We have a couple of moments in time in the near future where we are going to do the liquidity test. There is a bar at EUR 1.1 billion of liquidity. At the end of June, we are testing that on a forward-looking basis meaning that the company will -- we will do our forecast internally and the amount which are above EUR 1.1 billion at the end of December, we will use them to reimburse as a mandatory early repayment the 1.5 lien tranche. That's the first test. And the second test is we take the liquidity position, the actual liquidity position at the end of December. And again, against the EUR 1.1 billion, the amounts coming from the M&A proceeds will be used to repay early some -- the EUR 1.5 billion lien capped at the amount, which leaves us above the EUR 1.1 billion position. I hope it's clear. Laurent Daure: To be even clearer, if you do all that, what is your best estimate in terms of interest savings in '27 versus 2026 at the group level? Jacques-François de Prest: I'm afraid there are too many unknowns in the question to give you a number. Philippe Salle: If we do the refinancing, there are a lot of things that could happen again in the course of this year. So it's too soon to give you already, let's say, guidance on interest rates for '27. We can probably give this with the Q3 results. So probably in October I think we will have a better view. Operator: Our next question comes from Benoit De Broissia from Keren Finance. Benoit De Broissia: I have just one very quick question. It's -- you had one black contract in the U.K. involving Aegon. I noticed that Aegon sold its U.K. subsidiary in the weeks -- in a few weeks ago. Do you think that you could renegotiate with the purchaser, the contract you have and that is set to terminate in a few years in 2034, '33, if I'm not wrong. Philippe Salle: It's a very good question. Yes, the end of the contract is 2034. Yes, you have noticed that Aegon U.K. has been sold. So we are talking now to the buyer. It will be in May. In fact, we need to wait. And of course, the buyer has already a platform. So the good news is that do they want to keep only one platform or not and then stop the platform of Aegon, which then, of course, will stop the contract. It's too soon because, of course, we haven't talked yet, I would say, to the buyer. So we will have, of course, a better view in the coming months. But I think for us, it's a good news because I definitely think that they will not keep -- in terms of economies of scale, it doesn't make sense for them, I would say, to have 2 platforms. I think that their platform also is very efficient. So we will see how they want to play this. So there is a possibility effectively that they ask us to stop the platform that we have and then transfer the data to their new platform. So it means that the contract can end in the course, for example, of 2027. We will see. I don't know yet. It's too soon. But it's a very good question. It gives a good opportunity for us, yes. Operator: Our next questions will come from the line of Ryan Flew from PVTL Point. Ryan Flew: Just one quick one for me. So you've given quite clear guidance on sort of the cash add-backs or the adjustments to net change in cash to get to a true sort of unlevered or pre-debt repayment cash generation. Can you just help steer us on your '26 guidance? And clearly, there's a range there, but it feels from the adjustments you've discussed that actually the net change in cash will be considerably better than just positive. So just any further sort of color you could give would be really helpful. Philippe Salle: Jacques-Francois? Jacques-François de Prest: Well, Ryan, thanks for your trust and your faith. At this stage, our commitment and our guidance is to be free cash flow positive. I'm sorry, I will not deviate from that. Bear in mind that we have -- Philippe mentioned, the Genesis cash out impact is between EUR 150 million and EUR 200 million. So that's not nothing. And we have all the other lines of the cash flow statement, which are still consuming some cash. So yes, we're shooting for more, but our commitment is to be free cash flow greater than 0. Philippe Salle: But as you say, it's probably a conservative guidance, let's say. Operator: Our next question comes from Derric Marcon from Bernstein. Derric Marcon: Two questions from me. The first one on the book-to-bill. I just want to understand if it's -- the 87% is applied to the reported figures or the fully planned scope. And in this book-to-bill, talking about in absolute term, what's the proportion between renewal and new business? That would be helpful to have this figure. And my second question is on the M&A, the EUR 257 million you mentioned, can you reexplain what is included in this figure? Philippe Salle: Okay. So the 87%, it's Atos and Eviden. Atos only is 89% because as I say, Eviden has suffered from the war more than -- I would say the impact is more influenced, I would say, than Atos. And Eviden is more Europe, Middle East, in fact. So that's why probably I think the impact is higher. We definitely think that the rebound will come, but of course, we need to have more, let's say, stability. Then the book-to-bill between renewables. Derric Marcon: Is it from the go-forward perimeter or on the reported perimeter? Philippe Salle: Yes, the go forward... Derric Marcon: EUR 1.7 billion or the EUR 1.6 billion. Philippe Salle: No, no, it's only on the perimeter without Latin America and Bull. So 87%, 89%. 87% is the go forward and 89% is only Atos, okay? And it's Atos without Latin America, 87% is with Eviden without Bull. Then the renewals versus -- we don't have this number available right now. I cannot tell you. So we will come back to you on this one. And remember also, you're right that with renewals, of course, as I said, it inflates also the book-to-bill. And that's why it's a proxy for the book-to-bill. Be careful on this. It's not because the book-to-bill is below 100 that we're not going to grow on the company. I definitely think that it's possible. And in fact, we have shown this in the U.K. Then for Bull. So Bull, in fact, remember, there is a lump sum of EUR 300 million at the beginning, plus 2 earn-outs. The EUR 300 million is the EV, the EUR 250 million is the equity. So in fact, we went from EV to equity without the provisions and the pensions, okay? So it means that the EUR 250 million was the equity check that we had for Bull without the 2 earn-outs. Then the EUR 250 million, we take out the carve-out cost. We estimate around EUR 50 million. A part of it was expense, I would say, in the course of '25, the rest, of course, in Q1. We estimate around EUR 50 million. So it means that the net cash for us is close to EUR 200 million, okay? Remember also that Bull has a negative cash flow in Q1. We don't know how much. So we need to take this also into account. So the EUR 200 million will be probably less, EUR 170 million, EUR 180 million. I don't know yet exactly how much. As I said, it depends on the working capital we're going to have on Bull, but it's quite tricky for us to calculate the working capital of Bull, because, in fact, for some of activities of they were on the same company as Atos or the other, Eviden. And that's why even on the bank accounts, unfortunately, we need to look line by line on the cash, I would say, to reconstruct, let's say, working capital. And that's why we're going to give you the figures with the H1 figure, in fact. So that's roughly EUR 200 million without carve-out cost and I would say, equity check, probably less with the cash outflow of Bull in Q1. And then we still have the earn-out. The first one is maximum EUR 50 million, and we estimate we can gain around, let's say, EUR 40 million plus. We will see, I would say, they need to close their accounts. And it's, I would say, linked to the gross margin of Bull. And then the second earn-out is on the EBIT of Bull in '26. But of course, as you can imagine, the EBIT of Bull in '26 is not in my hand, unfortunately. So it's difficult to see what is going to happen on the second earn-out. So we will see what happens on the first one. It's going to be a negotiation that will start, I would say, after the closing of the accounts. Unfortunately, Bull is not very, let's say, quick on the closing accounts. So we will have probably -- numbers probably after the summer. Derric Marcon: And so to get -- Philippe, to get to the EUR 257 million mentioned in the liquidity position. So you have Bull EUR 200 million after carve-out, if I understood correctly, plus other things like Scandi or Latin America... Jacques-François de Prest: So I can say the angle Philippe took was the angle of explaining the story for Bull. Now in the carve-out costs, some of that has been spent in '25 already, a little portion in Q1 '26, and there is a bit more to come in the rest of '26. The vast majority of the EUR 257 million you can see is coming from Bull, the vast majority of that. You have then a plus EUR 10 million and the minus EUR 10 million, which comes from the disposal of some other relatively small assets and some deduction for the carve-out cost for Cartier, but you can assume that 95% of that is Bull. Derric Marcon: Okay. And Latin America and Scandi will come later in the year? Jacques-François de Prest: Scandi has been closed. Scandi has been closed already. That's what I was referring to as other proceeds. That has been completed in Q1 already. And for Latin America, the closing is scheduled in the coming weeks. So there is not a penny yet of proceeds from Latin America in our Q1 numbers. Operator: We have no further questions from the line. Allow me to hand the call back to management for closing. Philippe Salle: Okay. Can you ask one more time if there are other questions or not, and then we can close. Operator: [Operator Instructions] Philippe Salle: Okay. If there are no more questions, then thank you, everybody, for this morning. We have some, let's say, a small road show, I would say, with some investors today and tomorrow. And we, of course, remain at your disposal if you have any questions. But overall, I would say we are very confident on the rebound of the company. I'm very pleased, I would say, on the results and very confident that this year of the rebound and in terms of cash flow, I think there is no surprise for us, neither on, I would say, the profitability and cash flow and the rebound will occur in the course of H2. So next time, I will talk to you end of July. So have a good day, and see you in 3 months. Bye-bye. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to Hanmi Financial Corporation's First Quarter 2026 Conference Call. As a reminder, today's call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Ben Brodkowitz, Investor Relations for the company. Please go ahead. Ben Brodkowitz: Thank you, operator, and thank you all for joining us today to discuss Hanmi's First Quarter 2026 results. This afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available on the IR section of the company's website at hami.com. . I'm here today with Bonnie Lee, President and Chief Executive Officer of Hanmi Financial Corporation; Anthony Kim, Chief Banking Officer; and Ron Santarosa, Chief Financial Officer. Body will begin today's call with an overview Anthony will discuss loan and deposit activities. Ron will provide details on our financial performance, and then Bonnie will provide closing comments before we open the call up for your questions. Before we begin, I would like to remind you that today's comments may include forward-looking statements under the federal securities laws. Forward-looking statements are based on current plans, expectations, events and financial industry trends that may affect the company's future operating results and financial position. Our actual results may differ materially from those contemplated by our forward-looking statements, which involve risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from these forward-looking statements can be found in our SEC filings, including our reports on Forms 10-K and 10-Q. In particular, we direct you to the discussion of certain risk factors affecting our business contained in our earnings release, our investor presentation and on our Form 10-Q. With that, I would now like to turn the call over to Bonnie Lee. Bonnie? Please go ahead. . Bonita Lee: Thank you, Ben. Good afternoon, everyone. Thank you for joining us today to discuss our first quarter 2026 results. Hanmi delivered strong financial results as key metrics in the first quarter as we consistently advanced our core initiatives and executed against our growth strategy. In the first quarter, a seasonally slower period for loan production, we delivered solid results, supported by strong C&I originations and ongoing expansion of a new full-service commercial banking relationships. At the same time, we maintained a disciplined underwriting and pricing standards. We also executed effectively on our deposit gathering initiatives, generating strong growth in total deposits while continuing to reduce our overall cost of funds. . Combined with the favorable spreads on new loan production relative to payoffs, we generated net interest margin expansion for the seventh consecutive quarter. This strong execution, combined with our disciplined expense management, led to robust growth in net income compared to the year ago period. Our performance highlights the success of our relationship-based banking model and the execution of our growth strategy. Now turning to some highlights for the first quarter. Net income for the first quarter was $22.6 million or $0.75 per diluted share, with a continued growth on both sequential and year-over-year basis. Net interest income increased from the prior quarter and net interest margin expanded by 10 basis points to 3.38% reflecting a lower cost of fund. Return on average assets and return on average equity during the quarter were 1.18% and 10.8%, respectively. Deposits grew 7% on an annualized basis and noninterest-bearing deposits remained healthy at approximately 30% of the total deposits. New loan originations were solid with the C&I loan production increasing by 64%. However, this was offset by higher-than-normal payoffs, which led to a slight decline in total loans. We continue to maintain excellent asset quality driven by focus on high-quality loans, disciplined underwriting standards and found credit administration. Nonperforming assets decreased by 38%, representing 0.6% of total assets. Our disciplined focus and risk management continues to produce positive outcomes. During the quarter, we successfully collected a sizable payment for nonaccrual loans and sold 2 OREO properties for net gain. Turning to our Corporate Korea initiative. The relationships our dedicated bankers have established have driven deposit growth from these customers, resulting in an increase of 10% this quarter. Due to ongoing uncertainty about the impact of tariffs, loan activity remained muted. Our focus on disciplined expense management continues. Noninterest expense decreased by 2% for the quarter primarily driven by the gain on the sale of real estate on lower salaries and benefits and advertising and promotion expenses. Importantly, our efficiency ratio further improved by 150 basis points to 53.5% from 55%. Our strong financial performance drove improvement in all capital ratios while we returned significant capital to shareholders in the form of dividends and share repurchases totaling $13.4 million this quarter. We remain well passioned to advance our growth strategy and deliver attractive shareholder returns. Clearly, geopolitical conflicts may have economic implications for the global economy. However, at this point, we have not seen any impact on our business nor our clients' businesses. We have had a strong start to 2026 and believe we are well positioned to build on this momentum in the months ahead. The strength and consistency of our operational performance underscores the effectiveness of our relationship-based banking model and reinforce our confidence in the strategy we are executing. I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss our first quarter loan production and deposit date. Anthony Kim: Thank you, Bonnie and thank you for joining us today. I'll begin by providing additional details on our loan production. First quarter loan production was $378 million, up $3 million or $0.08 from the prior quarter with a weighted average interest rate of 6.54% compared to 6.90% last quarter. The increase in loan production was primarily due to an increase in C&I and CRE while residential equipment finance and SBA declined from fourth quarter levels. Our disciplined underwriting approach ensures we only engage in opportunities that align with our conservative underwriting standards. C&I production was $135 million, an increase of $53 million or 64% from the prior quarter. The increase was primarily driven by the investment we made in our C&I teams and our strategic efforts to further expand the portfolio. CRE production was $131 million, an increase of $6 million or 4% CRE is now 61% of total loans, which is the lowest it has been in at least a decade. We remain pleased with the quality of our CRE portfolio. It has a weighted average loan-to-value ratio of approximately 47% and a weighted average debt service coverage ratio of 2.2x. SBA loan production declined $3 million from the prior quarter to $41 million, in line with historical ranges. The steady production reflects the strength of our key hires and the momentum we are building with the small business clients across our markets. During the quarter, we sold approximately $33 million of SBA loans. Total commitments for our commercial lines of credit were over 1.3 billion in the first quarter, up 3% or 14% on an annualized basis. Outstanding balances increased by 10% and resulting in a utilization rate of 43%, up from 40% in the prior quarter. Residential mortgage loan production was $29 million for the first quarter, down 59% or $41 million from the previous quarter. Residential mortgage loan represents approximately 15% of our total loan portfolio, down from 16% in the previous quarter. We sold 32 million residential mortgages during the first quarter, resulting in a gain on sale of $0.5 million. We'll continue to evaluate additional sales contingent on market conditions. Corporate Korea accounted for $28 million of total loan production. US KC loan balances were [ $88 million ], down $44 million or 5% from the prior quarter and represent approximately 12.5% of our total loan portfolio. Turning to deposits. In the first quarter, deposits increased 2% from the prior quarter, driven primarily by growth in interest-bearing deposits and a modest increase in noninterest-bearing demand deposits. Deposit balances for US KC customers increased by $107 million or 11%, surpassing $1.1 billion. At quarter end, Corporate Korea deposits represented 17% of our total deposits and 16% of our demand deposits. A little over a year ago, we opened a representative office in Seoul, South Korea marking a key milestone in Hanmi's USKC strategy. Through this office, we're deepening in relationships and supporting these customers as they expand into U.S. market. combined with our Korea desk across the major U.S. cities, this initiative has played an important role in growing our US KC deposits. The competition of our deposit base remained stable, reflecting the strength of our relationship banking model. At the end of first quarter, noninterest-bearing deposits remained healthy at roughly 30% of total bank deposits. Turning to asset quality, which remains strong. Delinquencies declined 25% to 0.20% of total loans from 0.27% in the prior quarter. Nonperforming loans declined 31% to 0.19% of total loans from 0.28% in the prior quarter, primarily driven by a $9.7 million payment received and $10.2 million nonaccrual loans. The performing assets declined 38% to 0.16% of total assets from 0.26% in the prior quarter reflecting the aforementioned payment and the sale of 2 properties that entered OREO status during the third quarter of 2025. These properties were sold for a net gain of $0.8 million in the first quarter. During the quarter, a $21.2 million was downgrade to special mention and a $5 million loan was downgraded to Class 5. These boundaries were borrower specific and not indicative of broader portfolio trends. Both loans remain current and are paying as agreed. Importantly, these actions reflect Hanmi's disciplined approach to early risk identification focused on achieving timely and optimal outcomes. And now I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more details on our first quarter financial results. Ron? Romolo Santarosa: Thank you, Anthony, and good afternoon. Pre-provision net revenue for the first quarter increased to $33.4 million or 4.1% from the fourth quarter, with all 3 components of PPNR contributing nicely to the growth. First, interest revenue increased 0.5% and net interest margin expanded by 10 basis points to 3.38%. Next, noninterest income was up 2.9% and noninterest expense declined by 1.9%. Looking closely at net interest revenue for the first quarter there was a $1.6 million net benefit from lower interest rates, offset by a $700,000 effect from a lower level of interest-earning assets and an $800,000 effect from 2 less days in the period. . Turning to net interest margin. It increased by 10 basis points, primarily reflecting a 16 basis point decline in the average cost of interest-bearing deposits. For the second quarter, we do not expect a similar decrease in the average cost of interest-bearing deposits. The April month-to-date average cost of money market and savings deposits is about the same as it was for the first quarter. The April month-to-date average cost of time deposits, however, is 10 basis points lower, bringing the average cost of all interest-bearing deposits to only about 5 basis points lower than that for the first quarter. Noninterest income increased 2.9% to $8.5 million, primarily from higher SBA loan sale gains with a higher volume of loans sold and higher trade premiums. Noninterest expense declined 1.9% to $38.4 million, principally due to the gain from the sales of 2 OREO properties where we had OREO expenses in the prior period. As expected, advertising and promotion expense declined from their fourth quarter seasonal high while professional fees and data processing charges increased due to higher activity in the quarter. Salaries and benefits declined as adjustments to performance and equity-based compensation plans more than offset the seasonal increase in employer taxes and benefits. The decrease in noninterest expense and the increase in revenues resulted in an efficiency ratio of 53.48% for the first quarter. Hanmi's effective tax rate for the first quarter was 26%, reflecting both the tax benefit from the first quarter's vesting of equity-based compensation and the lower California apportionment factor. We expect the effective tax rate to increase in future quarters, eventually bringing the annual effective tax rate to approximately 27% for the year. During the first quarter, Hanmi repurchased $4.8 million of common stock under the share repurchase plan, representing 185,707 shares at an average price of $25.89. At the end of the first quarter, 2.15 million shares were available under the plan. In addition, Hanmi bought $1.1 million of common stock from employees to satisfy their tax liabilities upon the vesting of their restricted stock and performance stock awards. Hanmi's tangible common equity per share increased 1.1% to $26.56 per share and the ratio of tangible common equity to tangible assets increased 12 basis points from 9.99% to 10.11%. With that, I will turn it back to Bonnie. Bonita Lee: Thank you, Ron. We believe the favorable trends that we have seen in our business positions as well to deliver strong shareholder results in 2026. Our priorities and expectations for 2026 remain unchanged from what we communicated on our last earnings call. We expect loan growth in the low to mid-single-digit range while continuing to prioritize further diversification across the portfolio. Our focus remains on growing deposits to support loan growth while preserving a stable well-balanced funding profile. Key priorities include deepening existing customer relationships, attracting new clients and further strengthening our core deposit base with a particular emphasis on growing noninterest-bearing deposits. We remain committed to disciplined expense management. While we are making selective investments in talent and technology to support our long-term growth strategy, we continue to operate efficiently emphasizing initiatives that enhance productivity and maintain cost discipline across the organization. Finally, we'll continue to take a prudent approach to credit management to preserve strong asset quality. Conservative underwriting practices, active portfolio oversight and rigorous risk analysis remains central to our operating philosophy and will guide our decision-making as economic conditions evolve. We are encouraged about the opportunities ahead and look forward to keeping you updated on our ongoing progress. Thank you. We'll now open the call to answer questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question is from Matthew Clark with Piper Sandler. This is Adam Kroll on for Matthew Clark. Adam Kroll: Yes. So maybe just starting out on loan growth, had solid loan production during the quarter, and I see the breakdown in the deck that just shows the strong growth in C&I during the quarter, I guess, -- was there any specific industry or geography driving that? And then do you expect C&I to be the main driver of the low to mid-single-digit growth for the year? Bonita Lee: Yes, sure. We do expect the C&I to be the focus, continuing with our portfolio diversification. but we expect the growth to come from other portfolios as well. As far as the C&I production during the first quarter, it's pretty fairly broad-based in terms of different business types and industry. Adam Kroll: Got it. I appreciate the color there. Maybe switching to credit. I was just wondering if you could provide any additional color on the retail loan that migrated to special mention or the hospitality loan that migrated to class during the quarter and maybe how you see the situation playing out? Bonita Lee: Sure. So first of all, we did have $1.2 million loans to the initiative and downgraded to special mention. This is a retail commercial real estate loan. First of all, loan is current with past due payment history. Loan was downgraded due to the loss of 1 of their major tenants. However, despite of the vacancy of this tenant, the property continues to generate sufficient income to service the debt. And further, this credit is supported by personal guarantees with a substantial network. So accordingly, at this time, we do not expect any loss from this particular credit. The second credit, which is a $5 million substandard credit. It is a C&I loan in the hospitality industry. . The subject business was impacted by extensive renovation construction of hote where the subject business is located. As the construction is complete, we expect performance to improve to support the stability during the slow period, the modification was granted, and we downgraded the loan. The sponsor on this credit has a substantial experience and the network. So loan is paying as agreed under the modification, and we do not expect the low fund coming from this credit at this time. Adam Kroll: Got it. I really appreciate the color there. Last 1 for me is just -- do you expect to remain active on share repurchases, just given your healthy capital levels and just where the shares trade today. Romolo Santarosa: Yes, Adam. I think looking at the strength of the balance sheet, the excellent asset quality, the trends of earnings. I think it's fair to anticipate the Board will continue probably in amount not too dissimilar from what we saw in the first quarter. Operator: Our next question is from Kelly Motta with KBW. . Kelly Motta: Thanks for the question. Maybe to kick it off on expenses, these were very well controlled in what's usually a seasonally higher quarter with payroll taxes and whatnot. As you look ahead with your strategic plan, can you remind us any planned investments you have for the year? And if there's any kind of puts in case of this $38 million level that we should be considering as we think through the run rate as we go ahead. . Romolo Santarosa: Kelly, I -- we do not have any, I would consider significant notions relative to expenditures. I would characterize them as ordinary. That said, in looking at the somewhat favorable counterbalancing of seasonal effects. I have a sense that we'll probably continue at the first quarter trend with some things that I know will happen, but I couldn't tell you which direction they're going to go in. But I would think the first quarter is a fairly indicative idea of how we may play out for the rest of the year. Kelly Motta: Okay. Okay. That's helpful. And how about the pipeline for SBA? I think there's been some rule changes there. Just wondering, it looks like it was a pretty solid quarter for gain on sale, but wondering if there's any anticipated impact from changes in kind of the pipeline there. Bonita Lee: Yes. So we gave a guidance of $45 million to $50 million. In certain quarters, the seasonally high quarters we give 50 million to 55 million per quarter. Given the guideline change and the eligibility for SBA loans, we're going to continue with the $45 million to $50 million range of SBA production. Kelly Motta: Okay. Very good. Got it. maybe lastly for me. I mean, you guys have had some migration into the special mention. And I think notably, as you did note, they're paying aired highlights our proactive nature. As you survey your customer base, like how are you feeling now versus say, a year ago? And any kind of notable changes in terms of what you guys are watching more carefully? And what gives you confidence in ultimately the low level of loss content in that book? Bonita Lee: Sure. As we proactively review and communicate and our loan customers, including what's coming for the renewal trade customers, in terms of overall trend, particularly on the small businesses or consumer loans like residential mortgage loans, we don't see the negative trend compared to last year -- last quarter. The migration that I have for us, this is really due to our very we're taking the initiative and look as we communicate with each individual customers and the lows that have migrated, it's very specific to to the customer, specific to this relationship, for example. As I had mentioned, the construction from the -- where the business is located at it's very unique to customer specific, not formation any type of trend. And as we proactively work on the renewals, some of the actually payoffs, the higher payouts, they experienced in the first quarter as we look at the trends, if we are concerned of a certain trends, we communicate to the customers early on. and we ask customers to pay up the loan. So that has been done that as well. So -- and we're looking at through across our entire portfolio. So that's why in terms of just at a high level trend, we don't see the trend that's happening. So where that's where the comfort it. It's very borrower specific. And in our past, if you look at our history, some of the loans that we put on the special mention category, at 1 time, it was higher than the level that we are. We had a resolution we had to successfully resolved the most of the loans in the history for the last couple of quarters as well. So we are very optimistic for the loans that are in the downgraded category that we will aggressively work on these loans to to come to a resolution as evidenced by 1 of the nonaccrual loan, $10 million, that was a noncosts, we had a successful collection of $9.7 million. of that $10 million nonaccrual this quarter. So we'll continue with the process. Operator: [Operator Instructions] Our next question is from Ahmad Hasan with D.A. Davidson. Ahmad Hasan: On for Gary Tanner here. First question is on NIM dynamics. I appreciate the detail on Slide 10. If I see correctly here, there's about $1 billion in CDs rolling off in the next quarter. Do you think that would be the key driver and that could potentially push NIM up further from here? Or this loan yields kind of offset that in the next couple of quarters? Romolo Santarosa: Yes, Ahmad. So what we tried to point out though, with the time deposit book being the percentage that it is of the total interest-bearing deposit book, the pickup that you would envision as those CDs are repriced at current rates, while by themselves, let's say, enticing as a percentage of the book, it becomes rather small. And that's why we're just not seeing as much of a benefit to the interest-bearing deposit costs month to date. But there is something there. I think the other 2 elements that would be more potentially of a positive buying to the NIM. But again, I have a sense it's going to be in a smaller contribution than we've experienced in the previous quarters is both the securities book and the loan book. I'll first touch on the securities book, and then I'll let Anthony talk about the loan book. But on the securities book, we have substantial cash flow occurring here in 2026. That will reprice into more of a current rate idea and let's just say 3% and whatever basis points you want to assign to the right of that whole number. So there will be some lift coming from the securities book. And then I'll let Anthony talk about the loan book. Anthony Kim: Yes, sure. We have CRE maturing for the next 12 months, totaling about $1 billion. It's weighted average rate of high. So we should be able to reprice these loans and renew this loan with a much higher rate. To give you more detail on the CD maturity on about $1 billion maturing with a weighted average of in second quarter and another -- let's say, $1.16 billion maturing in the second half of the year with medium to high 3s percentage that we have opportunity to reprice for the reference point of the first quarter about 800 million retail CD was matured at low 4s. We're able to retain 77% of that with 40 basis points lower. So it's not much, but we do have an opportunity to add some benefit to net interest margin. Bonita Lee: Just to add, just on the the $1 million maturing CRE loans, as Anthony said, it's currently priced at high 4%, let's say, close to 5%. And if you look at the first quarter, the new loan yield, it's coming in at 6.5% average, right? So there will be that pick up. So that's what we are expecting that may contribute to the expansion of the net interest margin going forward. Ahmad Hasan: Great. That is really helpful. And then maybe 1 more on -- you guys seem really excited about Corporate Korea initiatives, and that seems to be going really well. Just any color on client sentiment over there given the macro recently? Anthony Kim: Yes. Based on the conversation with some of the customers, they no longer see its tariff as an obstacle. I think it's beyond them. but ongoing economic uncertainty, rising energy price inflation related to water, making companies very cautious about taking on additional lines and loans. So they're opting to use their excess cash instead. So that part of the approach is contributing to subdued loan demand. So as economic certainty improves, we're hoping to see recoveries in loan demand. And then we continue to see influence of deposit coming from Korea for them to prepare for the investment in the U.S. So that's why we had a surge of deposit increase in first quarter. and an increase in U.S. KC portfolio. Ahmad Hasan: Great. That makes sense. And maybe last 1 for me. any kind of planned new hires for this year? I know you talked a little bit about you bringing on new people this quarter. Can you talk a bit more about the planned new hires for the next couple of quarters? Bonita Lee: Yes. I mean Talent investment is 1 of our key focus. So as we see the opportunity, definitely, we will pick up the talented bankers. But we do keep in mind that what we embed in and what we get in terms of return. So -- and for the last couple of years, we have managed investment tied to the the talent investment and then the performance coming up. So the timing, we always try to balance it. So it's not impacting the bank an overarching impact on the quarter. So it's a continuation of the continuing process for us. . Operator: Thank you. We have no further questions in the queue at this time. I will now turn the call back over to Ms. Bonnie Lee for concluding remarks. Bonita Lee: Thank you for joining our call today. We appreciate your interest in Hanmi and look forward to sharing our progress with you throughout the year. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.
Operator: Good day, and thank you for standing by. Welcome to the Capital One Q1 2026 Earnings Call. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jeff Norris, Senior Vice President of Finance. Please go ahead. Jeff Norris: Thanks very much, Josh, and welcome, everyone. To access the webcast of this call, please go to the Investors section of Capital One's website at capitalone.com. A copy of the earnings presentation, press release and financial supplement can also be found in the Investors section of Capital One's website at capitalone.com by selecting financials and then quarterly earnings release. With me this evening are Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Officer; and Mr. Andrew Young, Capital One's Chief Financial Officer. Rich and Andrew will walk you through the presentation summarizing our first quarter results for 2026. Please note that this presentation may contain forward-looking statements. Information regarding Capital One's financial performance and any forward-looking statements contained in today's discussion and the materials speak only as of the particular date or dates indicated in the materials. Capital One does not undertake any obligation to update or revise any of this information, whether as a result of new information, future events or otherwise. Numerous factors could cause our actual results to differ materially from those described in forward-looking statements and for more information on those factors, please see the section titled Forward-Looking Statements in the earnings release presentation and the Risk Factors section of our annual and quarterly reports, which are accessible at Capital One's website and filed with the SEC. With that, I'll turn the call over to Andrew. Andrew Young: Thanks, Jeff, and good afternoon, everyone. I will start on Slide 3 of tonight's presentation. In the first quarter, Capital One earned $2.2 billion or $3.34 per diluted common share. Included in the results for the quarter were adjusting items related to the ongoing Discover integration and purchase accounting impacts, which are outlined on the slide. Net of these adjusting items, first quarter earnings per share or $4.42. Relative to the fourth quarter, revenue declined 2%, while noninterest expense declined 9%. Pre-provision earnings in the quarter increased sequentially by about $530 million or 8%. On an adjusted basis, pre-provision earnings increased about $430 million or 6%. Our provision for credit losses was roughly flat at $4.1 billion in the quarter. Included in the provision costs is about $3.8 billion of net charge-offs and an allowance build of $230 million. Turning to Slide 4. I'll cover the allowance in greater detail. The $230 million allowance build in the quarter brought the allowance balance to $23.6 billion. Our total portfolio coverage ratio increased 12 basis points and now stands at 5.28%. I'll cover the drivers of the changes in allowance and coverage ratio by segment on Slide 5. In our Domestic Card segment, the allowance balance was flat at $18.8 billion. Favorable observed credit in the quarter was offset by greater consideration to downside economic scenarios related to heightened geopolitical uncertainty. The coverage ratio increased 23 basis points to 7.4%, largely driven by the paydown of fourth quarter seasonal balances. In our Consumer Banking segment, we built $155 million of allowance. The allowance build was primarily driven by strong growth in the auto business, a slightly higher subprime mix in that growth. and a modestly lower outlook for vehicle values. The coverage ratio ended the quarter at 2.36%, 13 basis points higher in the fourth quarter. And finally, in our Commercial Banking segment, we built $83 million of allowance. The allowance build was primarily driven by a very small number of specific reserves in our real estate portfolio as well as a modest increase in our criticized rate. The commercial banking coverage ratio increased 7 basis points quarter-over-quarter to 1.7%. Turning to Page 6. I'll now discuss liquidity. Total liquidity reserves ended the first quarter at about $165 billion, up about $21 million from the prior quarter. Our cash position increased by $19 billion and ended the quarter at approximately $76 billion. The increase was driven by continued strong deposit growth in our retail banking business and the paydown of seasonal card balances. Our preliminary average liquidity coverage ratio was 166%. Turning to Page 7. I'll cover our net interest margin. Our first quarter net interest margin was 7.87%, 39 basis points lower than the prior quarter. The decline was driven by several factors. First, 2 fewer days in the quarter drove 18 basis points of the decline. Second, we had the normal seasonal effect of lower average card balances. And third, average cash levels were elevated due to a combination of the typical seasonal increase, strong deposit growth in the quarter and the full quarter impact of last quarter's sale of the Discover Home Loans portfolio. Turning to Slide 8. I will end by discussing our capital position. Our common equity Tier 1 capital ratio ended the quarter at 14.4%, 10 basis points higher than the fourth quarter. Income in the quarter and the seasonal decline in risk-weighted assets were partially offset by $2.5 billion in share repurchases. Before I pass the call over to Rich, I also want to highlight that we closed our acquisition of Brex shortly after the quarter closed. The consideration paid to shareholders was approximately $4.5 billion. As a reminder, the Brex transaction is expected to decrease the CET1 ratio by a little over 40 basis points in the second quarter. Given the recency of the close, we are still working through the purchase accounting marks and will provide a breakout of those impacts in the second quarter earnings call. With that, I will turn the call over to Rich. Rich? Richard Fairbank: Thanks, Andrew, and good evening, everyone. Slide 10 shows first quarter results in our credit card business. Credit Card segment results are largely a function of our domestic card results and trends, which are shown on Slide 11. In the first quarter, the domestic card business posted another quarter of top line growth and strong credit results. Year-over-year purchase volume growth for the quarter was 40% driven primarily by the addition of Discover purchase as well as continued strong growth in our heavy spender franchise. Excluding Discover year-over-year purchase volume growth was about 8%. Ending loan balances increased 69% year-over-year, also largely as a result of adding Discover card loans. Excluding Discover, ending loans grew about 3.9% year-over-year. . The legacy Discover card loans continued to contract slightly and will likely continue to face a temporary growth headwind in the near term due to Discovery's prior credit policy cutbacks and some additional credit policy changes we've made since closing the acquisition. We continue to see good opportunities to grow the Discover Card business on the other side of our tech integration, where we can implement growth expansions powered by our unique technology and underwriting. Revenue was up about from the first quarter of 2025, largely driven by the addition of Discover revenue. Excluding Discover, year-over-year revenue growth was about 6.8% driven by underlying growth in purchase volume and loans. Revenue margin for the quarter was 16.9%. The domestic card charge-off rate for the first quarter was 5.1%, up 17 basis points from the prior quarter, in line with normal seasonality. The charge-off rate improved by 109 basis points year-over-year. About half of this improvement is the result of incorporating Discover's card portfolio into our domestic card business. The rest is driven by the steady improvement of charge-offs we've seen over the past year for both the legacy Capital One and legacy Discover portfolios. Our domestic card delinquency rate was 3.7%, down 29 basis points from the prior quarter and down 55 basis points from a year ago. On a sequential quarter basis, the delinquency rate trend was a bit better than normal seasonality. Domestic Card noninterest events was up 51% compared to the first quarter of 2025, driven by the addition of Discover. Operating expense and marketing both increased year-over-year. Our choices in domestic card are the biggest driver of total company marketing, but choices in our consumer banking business have an increasing impact as well. Total company marketing expense in the quarter was about $1.5 billion, up 25% year-over-year driven by the addition of Discover as well as higher legacy Capital One direct marketing in our Domestic Card and Consumer Banking businesses, increased media spend and continuing investments in premium benefits. As is usually the case, first quarter marketing was seasonally low and that seasonal trend was amplified this year as the timing of some of our planned marketing investments for the year shifted out of the first quarter into the second quarter and subsequent quarters this year. Pulling up, our marketing continues to deliver strong new account originations to build an enduring franchise with heavy spenders at the top of the domestic credit card market and to grow checking accounts on a national scale in our consumer banking business. We expect to increasingly lean into marketing to take advantage of these compelling market opportunities. Slide 12 shows first quarter results in our Consumer Banking business. Global payment network transaction volume for the quarter was steady at about $174 billion as the typical seasonal decline was mostly offset by transaction volume growth related to the completion of our conversion of Capital One debit customers to the Discover Network. Auto originations were up 21% from the prior year quarter. Competitor activity in the quarter remained high, but we continue to be in a strong position to pursue resilient growth in the current marketplace. Consumer banking ending loan balances increased $8 billion or about 10% year-over-year. Average loans were up 9%. Compared to the year ago quarter, ending consumer deposits grew about 35%, driven largely by the addition of Discover deposits. Average deposits were up 34%. Looking through the Discover impact, our Digital First National Consumer Banking business continues to grow and gain traction. Consumer Banking revenue for the quarter was up about 37% year-over-year, driven predominantly by the addition of Discover operations as well as Discover revenue synergies and growth in auto loans. Noninterest expense was up about 26% compared to the first quarter of 2025, driven largely by the addition of Discover as well as by higher marketing to drive growth in our National Consumer Banking business, increased auto originations and continued technology investments. The auto charge-off rate for the quarter was 1.64%, up 9 basis points year-over-year and down 18 basis points from the sequential quarter in line with expected seasonality. Auto charge-offs have been stable at near pre-pandemic levels for the past year. The auto delinquency rate decreased seasonally from the linked quarter, down 102 basis points to 4.21%. On a year-over-year basis, our auto delinquencies improved by 72 basis points. Slide 13 shows first quarter results for our Commercial Banking business. Compared to the linked quarter, both ending and average loan balances were up about 1%. Ending and average deposits were both down about 1% from the linked quarter. The commercial banking annualized net charge-off rate for the first quarter decreased 14 basis points from the sequential quarter to 0.29%. The commercial criticized performing loan rate was 4.99%, up 31 basis points compared to the linked quarter. The criticized nonperforming loan rate was up 4 basis points to 1.4%. In closing, first quarter results continued to reflect solid top line growth and strong credit performance. We made expected progress on the Discover integration and synergies in the quarter, including the successful conversion of Capital One's debit customers to the Discover Network. We remain on track to deliver the expected synergies. Following the quarter, we achieved 2 important strategic milestones in April. We closed the Brex acquisition on April 7. Acquiring Brex accelerates our quest to build a banking and payments company that's positioned to win where the world of business payments is going. As we mentioned at the announcement, we will be leveraging Capital One assets and increasing investment levels to drive enhanced growth at Brex. And also in April, we brought the technology and capabilities that power Capital One travel in-house. We now fully own the technology that we have built in partnership with Hopper and the Hopper talent we've worked with will join Capital One. We also launched the new Capital One travel app and we're excited to bring our award-winning travel experience to more consumers and businesses as we continue to grow our travel business. Brex and Capital One travel are just two of the opportunities we are investing in. For years, we've been working backwards from the coming dramatic transformation of the business marketplace with modern technology, data and AI. We are in the 14th year of our technology transformation from the bottom of the tech stack up. This has involved going 100% into the cloud, building a modern data ecosystem and rebuilding the company in modern technology platforms that can handle big data and AI in real time. We are way down that path, but we are still investing in some very powerful capabilities. All companies will be able to take advantage of AI, but the leverage is vastly greater when AI is embedded in the company's ecosystem. Our entire technology is architected to enable these capabilities at scale embedded in our modern ecosystem. We continue to invest in building AI infrastructure and specific AI experiences. We also continue to invest in growing our heavy spender franchise at the top of the market including rewards, lounges, unique access to experiences and breakthrough digital capabilities. And we also continue to lean in through our unique quest to organically build a digital-first full-service national bank. Many of our opportunities are enhanced by the Discover acquisition, which, of course, also brings the new opportunity to grow and scale our own global payments network. We continue to invest in network acceptance brand and technology. As we've discussed, these investments will continue to be reflected in the efficiency ratio, but they are also the engine that powers long-term growth and returns. And of course, our numbers starting in the second quarter will include Brex and the in-sourcing of our travel business as well. Pulling way up, we continue to build momentum from the game-changing acquisition of Discover. Even though some individual variables in our deal model have moved since the announcement and we have acquired Brex and the hopper travel infrastructure. We still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the deal. And now we will be happy to answer your questions. Jeff? Jeff Norris: Thank you, Rich. We will now start the Q&A session. Remember, as a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to one question plus a single follow-up. And if you have any follow-up questions after the Q&A session, the Investor Relations team will be available. Josh, please start the Q&A. Operator: [Operator Instructions] Our first question comes from Terry Ma with Barclays. You may proceed. Terry Ma: Rich, I'm just curious to get your thoughts on the state of the consumer. There's obviously concern around the impact of higher energy prices of the consumer but your credit results are still very good across both card and auto. So maybe just talk about what you're seeing across your businesses? Richard Fairbank: Thank you, Terry. The U.S. consumer remained healthy, overall economy remained resilient through the first quarter. The unemployment rate improved slightly in the quarter despite some high-profile headlines about layoffs, the total volume of job losses and new jobless claims remains low and stable. Income growth continued to run ahead of inflation. Consumer spending remained robust. Because of last year's budget bill, tax withholdings are lower than a year ago and tax refunds are higher. In our Domestic Card business, our credit metrics continue to improve on a year-over-year basis in the quarter. On a sequential quarter basis, our charge-off rate moved in line with the seasonality, while our delinquencies improved relative to what we would expect from normal seasonality. Our auto credit metro -- as well. Auto losses were slightly higher on a year-over-year basis in Q1, but this was consistent with a modest increase in the subprime mix of that portfolio over the past year. Our auto losses have been back near pre-pandemic levels for over a year and our auto credit is supported by strong performance of recent originations and generally stable vehicle prices. Of course, the new conflict in the Persian Gulf represents a significant cloud on the horizon. We've already seen energy prices spike sharply over the past 6 weeks. Inflation moved higher in March, largely because of the higher gas prices. So if energy prices remain elevated for an extended period of time, that would be a real headwind for consumers and probably a drag on the overall macro economy. But so far, we've not seen any adverse effects on our portfolio even in our -- either in our credit or in our spend metrics. We've judgmentally incorporated elevated macroeconomic risk into our allowance through qualitative factors. But we continue to really feel very good about not only our portfolio performance, but good for the credit outlook of consumers and good for the opportunity to continue to lean in to origination and credit line growth in our business. So once again, it seems like every quarter, we're having a conversation just like this. There's a lot of noise in the external environment, but the consumer is showing quite a bit of resilience. And I want to comment for just 1 second back to the credit card delinquencies moving just a little bit better than seasonality. I don't think we're ready to declare that it's diverging from where it is, but it's certainly good to see that. Of course, there's little a little uncertainty in reading things in a world of tax refunds and other things. But certainly, we think our recent credit number is just another indication of the strength of the consumer and particularly the strength of our portfolio and some of the choices that we've made in credit. Operator: Our next question comes from Sanjay Sakhrani with KBW. Sanjay Sakhrani: I wanted to start with a question on expenses. The adjusted efficiency ratio came in a little under 50%, understanding that marketing was a little bit lighter than it typically would be I guess, as we look ahead, I know, Rich, you mentioned Brex and Hopper will come into the expense run rate. How should we think about that expense ratio sort of -- or the efficiency ratio sort of migrating over the course of the year? Richard Fairbank: So thank you, Sanjay. So as you mentioned, Brex and Hopper. Those are 2 investments that are not in the current efficiency ratio and not all of our investments are in the first quarter, certainly those being the biggest highlights of those that are not in there. But we also continue to lean into our investment imperative. Our expenses, of course, will be impacted by the synergies that grow as we get closer to the end of integration next year. So we'll have to keep that one in mind. . And as I mentioned in the opening remarks, marketing levels will be heavier over the course of the year as we lean in and the impacts of seasonality and marketing play through. But all of these investments are the engine that powers long-term growth and returns. So they will be reflected in the efficiency in multiple line items. Most importantly, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the deal, inclusive of the Brex and Hopper travel infrastructure. . Sanjay Sakhrani: Great. Just one follow-up on the NIM, Andrew. I know you mentioned the few items that sort of affected the NIM this quarter. I wanted to sort of 0 in on the liquidity, obviously, abnormally high understanding the paydowns and such. But as we think about how those liquidity levels trend into the second quarter and so forth, like does those come down to the fourth quarter level? It's not like how should we think about liquidity on a go-forward basis and its impact on NIM? Andrew Young: Sure, Sanjay. So let me just frame it in a broader NIM story and then I'll double-click into your point about the cash. If we take a step back and look at what happened to NIM over the last number of years, coming out of the pandemic growth in our card business significantly outpaced the rest of the balance sheet, and that pushed are gradually higher. We then closed Discover in the second quarter of last year, and that alone drove up our NIM by about 85 basis points. So when we got to the back half of last year, the card outpaced the rest of the balance sheet, at least at that moment in time, had largely played through and Discover was in our numbers. And so I would say what you saw in the back half of last year is what I would consider to be a new kind of structural level but there are always a seasonality that impacts NIM in any given quarter. So in Q1, as I said in my remarks, the first thing is we had 2 fewer days bringing down NIM by just under 20 basis points. We typically see higher fewer higher yield card loans in Q1 just as people pay down holiday spend. And then third, we typically see higher the low-yielding cash driven both by the same seasonal card paydown plus the tax refund and first quarter bonus dynamics even though the average effect of cash tends to be a bit more muted because it tends to be more back-loaded in the quarter. But this year, in the first quarter, we saw not only those seasonal effects, we did see a particularly elevated level of cash. We sold the home loan portfolio in late November, so we had the full quarter of that. We saw strong growth in our retail deposit franchise beyond what we normally see in tax season as we're getting great traction in the market. And then third, the net flows from taxes this year are a bit more favorable as you've seen publicly highlighted People are getting average refunds that are a bit higher and more people are getting refunds. And so as we look ahead, specifically in the second quarter, there's going to be one more day that's 9 basis points and the same 9 basis point jump as we head to Q3 and Q4. Specifically to your cash point, I do expect that, that cash position will trend down over time, given that it is particularly elevated this quarter. We have about $8 billion of debt maturities in Q2, we typically see a bit of tax payments in the second quarter. So the direction of travel for cash should be down from here. But if I just take a step back and look more broadly, absent any meaningful change in the balance sheet mix beyond the cash trending down, the structural level for NIM that we saw after we closed the Discover transaction, should persist. But of course, each calendar quarter is just going to be impacted by seasonal impacts. But if you look at the back half of the year, that on a seasonally adjusted basis is a pretty good indication of where you should expect NIM to kind of structurally be. Operator: Our next question comes from Ryan Nash with Goldman Sachs. Ryan Nash: I have 2 questions. I'll start with the first 1 and then I have a follow-up. Maybe the first 1 just a follow-up to Sanjay's question. I know, look, the discussion about efficiency and where it's headed has been the big talking point over the course of the last several months. Rich, you mentioned Brex and Hopper will enter the run rate. So that I think that will increase the pool of investments. But can you maybe just talk about sizing the magnitude of future investments? And -- what is really holding you back from putting out some efficiency parameters out in the future, kind of like what you did in 2019 when you gave us 42 in '21? And I have a follow-up. Richard Fairbank: Thank you, Ryan. So as I've been talking about for a number of quarters now, we have a significant investment agenda at Capital One. And in many ways, from the founding of this company. We built a company in a banking industry that is sort of the growth strategy involves buying other companies. Now it's ironic. I'm saying this in the wake of 2 acquisitions. But we build a company designed to be an organic growth company. All the financial -- the horizontal accounting we put in place, the information-based strategy, the investment in talent, really everything we've done is to build a company that creates value patiently and rigorously by a combination of really identifying strategic opportunities and then leveraging information-based strategy and testing and so on to enable ourselves to create unique growth opportunities. So that's kind of who we are. Along the way, we haven't really been the company that's been in the guidance business. I know that many companies -- most companies do that probably more than we do. And I know that there's a lot of benefit to investors. We're not trying to be difficult about that. But what I've really run to reinforce since the founding of this company, we really focus on identifying opportunities, validating the value creation and really leaning into those when the opportunity is there. As I've been saying recently, we have a really striking number of opportunities down the road, longer-term opportunities, some of them closer in opportunities. But the striking thing is the number of them and the striking thing is they all require investment. Now it's not an accident. We're in this position because we have patiently been working our way through our technology transformation. And as we get up to the top of the tech stack, the opportunities really start expanding. And also, by the way, the tech transformation of Capital One had as its objective function, being able to be an information-based company powered by AI itself. And of course, that's where the world is going. So -- and then we've got, of course, the Discover and the Brex acquisition. So we don't give -- not that we never do, but as a general matter, we like to share with our investors why we're excited about the opportunities we have and what we're investing in. But what we're -- and so we don't specifically guide to things like efficiency ratio as a general matter, but there is an important grounding that we give to you -- we've been giving to you every quarter related to the despite all the things that have moved since we announced the deal, that the earnings power and the upside of the Discover integration is consistent with what we expected at the time of the Discovery deal inclusive now of the Brex and Hopper acquisitions. So implicit in there, there needs to be an efficiency ratio that makes the numbers work. There's -- we try to power as much of our efficiency ratio through growth rather than just cutting costs. But the impression I really want to leave with investors is that we have exceptional opportunities. These opportunities have come to us because we have been the company that's been willing to invest in longer-term opportunities than maybe happens in the marketplace. And at the same time, through this game-changing Discover deal, we are really landing this integration in a way that collectively between the Discover deal and all the investment agenda of Capital One that we're landing this plane in a place where the earnings power is intact relative to the assumptions at the outset. And to be in that position and to be simultaneously investing in these various opportunities really puts our company and our investors in a strong place, longer run. Even though one of the things that comes with the territory is sometimes a little less guidance and a little more investment than maybe happens at the next company. Ryan Nash: Rich, if I can just squeeze a follow-up on to that. I appreciate the answer. I think the market appreciates that you've been saying that this is consistent with what you expected when the deal was announced. I think the challenge on the outside looking in is that we don't know the starting point of what it's relative to. And I think it's certainly weighed on the stock. So I appreciate you don't want to give guidance, obviously, you not have been following the company for a long time. But is there anything that you can share that actually helps the market understand what that means to give comfort that the earnings power is not too far off from market expectations. Richard Fairbank: So I don't have -- well, let me actually give a little more granularity on 1 point on a couple of things. When we say earnings power, now earnings power is -- can be lots of things. And I -- we've spent a lot of time -- our whole financial focus as a company, be sure we're building a company with robust earnings power. When we're talking in the form of this guidance when we say earnings power, we're talking about ROTCE. And in a sense, we're talking about ROTCE at a constant level of capital. Just a constant level of capital in the sense not that the capital would be exactly at the same at the beginning of the end, but just as a way to think about earnings power itself. . The capital level assumed in the deal model was 12.5%. So the guidance on earnings power is assuming that same level of capital. Now at the rate we are going -- the guidance would still hold at higher capital levels, but the actual guidance is based on the 12.5% number. even though that's not a projection of where our capital is going to be at that time. But I share with you that we normalize for the capital to calculate the earnings power, but the earnings power is in a strong position even with somewhat higher capital levels. Operator: Our next question comes from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Great. I wanted to talk about how to think about growth, particularly in your card business, obviously, the auto finance business has been growing quite nicely. It looks like -- I mean, you've had 3 months at which balanced growth had stepped up if you kind of add back the Discover volume spending looks like it's 200 basis points higher growth in Q1 than it was in Q4. And there have been some reports about Discover products, card products that you've been mailing. Could you talk a little bit about how we should kind of think about growth in the card business over the next year? Richard Fairbank: Thank you, Moshe. The legacy sort of go right to the core of Capital One, the legacy branded card business is powering along very strongly. We do a normalization, for example, of looking at the growth metrics of the booked up market part of Capital One. The best way to proxy what we -- if we had the sort of the score cutoffs that the major competitors do I think you'd be impressed if you saw the growth metrics of the branded card book, it would be basically at the top of the league tables. But not necessarily precisely apples and apples to the other competitors. My point is the branded card business and particularly the growth metrics of the sort of booked up market part of the business is showing a lot of strength. Even as the card business as an overall matter, is sort of slowing down, not that it's going slowly, but it had such ferocious growth for years. It's settling out into something probably more normal. A little bit the elephant in the room at the moment with respect to growth is the Discover brown out not to be at all interpreted it as anything alarming. But with respect to the math of that, let's just talk a little bit about this brown out. So following Discover's credit expansion in their card business in 2022 and 2023, they dialed back their origination programs and credit line management by a fair amount toward the end of 2023 and they basically largely sustained those dial backs. Since we took over, we've been trimming on the margins of Discover's credit policies in areas where we're a little less comfortable with the resiliency of the underlying customers. And it's basically in the high-balance revolver parts of the business. So as a result of these pullbacks, the portfolio contracted a bit in 2025, and it continues to face some headwinds to growth as these more recent smaller vintages mature. So in the first quarter, Discover Card outstandings were down 1.2% year-over-year and the brown out will increase a bit until we get to the other side of the tech integration with Discover. And it's Importantly, worth noting that the flip side of these pullbacks and the brown out has been strong credit performance, and we're very glad to see that playing through the system. And I sometimes use the phrase, we have to live with all the great credit performance from these choices that we think Discover made good choices and we certainly are happy with ours. As I've said on the other side of our integration, we believe there are good opportunities to grow the Discover business and you think about what do we mean by the Discover business? Because, of course, it's part of Capital One, but there will be -- we're going to be out there marketing Discover and marketing their flagship product and all of these things. And some of the great programs that they had. So we're going to have a flow into Capital One of a lot of interested prospects and people that apply. We believe that there is an opportunity to expand discovers on the origination side to expand the business above and below their historical focus on prime customers. And that's also, frankly, a point about the existing book that they've already originated over the years. So even as we continue to be more conservative on high-balance revolvers, we will lean into heavier spenders and also expand opportunities for emerging prime customers. So we are bullish about the opportunities to build on this Discover franchise, both the existing customers and the flow that comes to people seeking to get a Discover card. You mentioned the conversion timing. Let me talk a little bit about that. We have already started originating Discover cards on our platform. It's at relatively low levels we've been testing. I think we're up to like 8%. No, I'm not even scratched that number. I'm not exactly sure what the levels are, but we expect to have fully transitioned new originations by the end of Q3. In fact, I think it was 8% at this point. But think of by the end of Q3, basically in September, we will be fully transitioned to the Discover branded originations being booked on Capital One's technology and with Capital One's underwriting and strategies. Now with respect to the back book, we expect that the back book of existing Discover accounts will be fully converted onto our platform by the first quarter of next year. It will be a phased conversion starting late this year going in through the first quarter of next year. And as the customers get on our platform, we're going to be able to start leaning in more into originations and credit line management, leveraging the many credit policies and strategies and opportunities that we have while, by the way, still preserving some very amazing great things that we've learned from Discover and things they've taught us about exceptional things to do with certain customer segments. And then finally, when you think about that timing, just now that the loan growth benefits will be lagged by another couple of quarters just as the balances build. One other thing. In parallel to Discover's dial back of card loans, they also dialed back personal loans. Those loans are mostly cross-sell to the existing file. And those cross-sells have been further scaled back sort of for mechanical reasons during the integration process. So there is a brownout in personal loans also during this period, even as we like that business that they have built and do plan to lean into that on the other side. So pulling way up, these brownouts are a natural and temporary part of the deal and have been accompanied by a better credit and even some margin strength along the way. So we're very pleased with how the integration is going. Pleased with what we find about Discover and their franchise and their credit policies they've used but bullish about being able to bring that into the Capital One technology and credit policy. So kind of pulling way up on your question, their strength in our core branded card business, particularly the higher upmarket you go in terms of the growth metrics. And we'll be held back a little bit by the brown out and -- but we'll continue to lean into the opportunity on the other side. Moshe Orenbuch: I could just sneak in a follow-up. Just to kind of follow up on Ryan's question. Is there a way to think about, particularly with respect to Brex, way to think about kind of payback periods because it would seem that's not the longest kind of payback period. I would think that those customers kind of generate revenue relatively quickly. Is there a way to think about that for Brex? Richard Fairbank: Well, Moshe, we have been very struck as I'm sure many are from the outside with the rapid growth of this business, and we believe that they're not just growing but they're also growing value and they're growing earnings power along the way. So we like very much what they're doing. The one thing just to keep in mind is that what Capital One plans to do with Brex is to rather than rush to do a big integration, we are focused on enabling them to be able to grow rapidly. And so really, it's an enablement strategy of Capital One. And in fact, much of what really brought Brex to Capital One was the opportunity to leverage some of the resources and capabilities we had that could allow this amazing growth play to really be enhanced. So our focus is going to be on doing that. Now along the way, Moshe, that will mean increasing investments along the way. So that again has a little bit of a deferral of the vertical impact of these benefits but we -- when you think about some of the benefits of -- that we can bring to Brex along the way we bring substantially lower cost of funds. That's a benefit that sort of happens right away. The brand benefits are sort of a right-of-way thing once the word spreads, but the benefits of the Capital One, the credibility of the Capital One brand, they are already finding they're able to be in conversations that weren't available to them before just by the credibility of being part of Capital One. Over the coming months, as we test and learn, we're going to start leaning in with marketing dollars and sharing some of the high potential leads and the benefits of big databases that we have built and then a little bit more down the road. We will leverage the marketing machine of Capital One that requires a little more of a technical integration. We got to set up data pipelines. We've got to calibrate our models for Brex's customer base. So that's a little further down the road, then a little further beyond that. We see the opportunities for benefits on the travel side of the business, but we got to focus first on the Hopper build-out on our end. So what we're going to have here is a rolling set of -- I sometimes have used the phrase, just add water. It's a metaphor I use for a lot of the benefits that we can bring to Capital One are pretty easy to bring without a full integration and there are things that are very easy for them to capitalize in. That will happen on a phased basis. But from a financial point of view, the one thing we should all understand, the more traction we see will probably lean in more and invest more. So from a vertical impact point of view that in the sort of classic thing that happens with Capital One, sometimes the more success we see a little bit more delayed the current vertical financial benefit is. But we're very optimistic about the value creation here. Thank you. Operator: Our next question comes from Erika Najarian with UBS. L. Erika Penala: My first question is on capital. Clearly, you have plenty at 14.4% CET1. But Andrew, I'm wondering if you could give us your preview of how Basel III end game could play out for you. Clearly, with your current asset size, you have to be considering both RSA and ERBA. So I'm wondering if you could give us a preview on what the RWA impact could be and how that could potentially shift your thinking on capital allocation? Andrew Young: Sure, Erika. Well, let me start with the Category 2 reference you made. We're currently at roughly $680 billion of assets, so about $20 billion or so below the $700 billion cap, but our threshold. But recall that, that's triggered with a 4-quarter trailing average. So first of all, it's likely to be a fair amount of time before we trigger that threshold. And there's also uncertainty on whether the threshold remains at $700 billion or whether it's indexed up, given the GDP and other metric growth since the tailoring was first created nearly a decade ago. And so therefore, that would also delay us triggering category 2 if the threshold is indexed up. With respect then to the proposal, the punchline is the effect under the standardized approach for us if it were enacted on a fully phased-in basis today would increase our CET1 by something like 20 basis points. That is to somewhat offsetting forces, one is the RWA impact is roughly 8% to 9% decrease for us, and that's about a 140 basis point tailwind, and that 8% or 9% decrease by the way, is pretty similar under both standardized and IRBA. Given that IRBA does come with an ops risk charge. So that kind of offsets the slight benefit to risk-weighted assets there. With AOCI, that's the same across most standardized and IRBA, we had something like a $5.2 billion of AOCI and so fully phased in which, of course, the current proposal isn't. But if we were to fully phase it in, it's roughly 120 basis point headwind. And so that headwind as forward rates follow forwards, we would see some of that AOCI pull to par and I will note that you can be in today's disclosure. We also have begun using held to maturity in anticipation of these rules. So that may further help insulate capital ratios from some of the AOCI volatility. But again, fully phasing in AOCI where it stands today as a 120 basis point headwind, the 140 basis point tailwind from the RWA is modest is a modest good guy for us. And so the only thing that really differs would be under IRBA that the DTA threshold comes down from 25% to 10%, and so that's a modest decrease to our spot CET1. But again, we don't anticipate electing IRBA just given that it's a modest negative for us. The next part of your question then of what does that mean to capital actions. Look, we're sitting here today at 14.4%. There's a number of things we take into account when determining the pace of share repurchases, the current and projected capital levels, both as we sit today as well as incorporating in potential regulatory changes, the expected balance sheet growth, the regulatory environment more broadly, market valuations and very importantly, the macroeconomic environment. And so as we manage our balance sheet, our focus is maintaining a conservative posture to ensure resilience and have strong risk management, and we are acutely aware of the asymmetrical value of capital in certain environments. And so we considered all of these factors in the first quarter, and we repurchased $2.5 billion. Looking ahead, we'll continue to evaluate all of those factors that I just mentioned when determining our future pace. L. Erika Penala: And if I could squeeze one in, please give an expanding the ROTCE conversation, I just have to follow up to Ryan's million-dollar question on the starting point to EPS to which you responded you're talking about ROTCE at a constant level of capital. I just wanted to make sure we heard correctly. You mentioned you were talking about ROTCE at a constant level of capital and the capital level you assuming deal model was 12%. Now Rich, I think you said something to the effect of the guidance would still hold even at the current capital level of 14.4%, which means that perhaps the numerator is better. Did we misinterpret that? Richard Fairbank: So let me clarify. Thank you. I'm glad you raised it because these things matter. First of all, 12.5%, Erika, was the capital level assumed in the deal model. And so in terms of how we are sort of measuring earnings power, we are holding capital level constant in this particular exercise in this particular guidance. So the guidance on earnings power is assuming that same level of capital. Now my other point was that's not guidance itself on what the capital levels would be. And my thing was that, that -- we're in a pretty strong position here, and that guidance would still hold at some higher capital levels. I'm not going to precisely get into exactly what is the break point capital level for which it wouldn't. But my point because -- and every quarter, things change. But my point is that I wanted you to know that we normalized the calculation to be at 12.5%. Andrew just talked about our own capital choices. Of course, these days have been holding higher capital levels than that. But my other point was just that, that guidance does have some ability to hold at somewhat higher capital levels, but we're not going to quantify that precisely because each time we come back to you, I'm sure that breakeven point would be slightly different. But our point is, I think we're and quite pulling way up from the comment I said earlier, we bought this amazing company with Discover and at really the very same time partly because of Discover, but also because of the incredible number of the tech transformation we have been building. We just have a very significant number of investment imperatives and really the nice part of the story is that we're able we're able to lean into these investment imperatives and still deliver a the Discover integration with the earnings power that we assumed at the at the outset. And by the way, how is all but possible. It's possible a lot of different elements in the financial equation have moved in different directions along the way, but also at Capital One, we have worked really hard to manage the choices we're making the investments, the efficiency of everything else in the company even as we lean in so hard. And again, the tech transformation enables some of this to happen, this paradox that we can lean in so much into investment and still generate additional earnings power on 1 minus the investment areas, and that's part of the value creation equation that's driven us since the beginning of our technology transformation. So thanks for your question, Erika. Operator: Our next question comes from Don Fandetti with Wells Fargo. Donald Fandetti: Richard, I was wondering if you could talk a little bit about investors are very concerned around AI job loss risk and how you're thinking about that? Do you build anything into your credit underwriting as you think about unemployment from that factor alone. Richard Fairbank: Thank you, Don. So gosh, I don't know if I've ever seen it. Well, I suppose there are lots of other things in our world where there are so many different divergent and stated with great confidence points of view on a topic. But certainly, the impact of AI on jobs is one of them and people are -- people who know live deeply in the tech world are at all parts of this spectrum. I'll give you just a few comments and just get back to your credit point in a minute. It's really informative to go back as we have done at Capital One and look at how it felt. In periods really when the industrial revolution came in, actually, we've gone back and gotten some striking comments around when printing came in, but within the industrial revolution and how it felt then and then, of course, at the various stages of the digital revolution. And if you look at the quotes of what we said with great passion. It sounds like the conversation today. And then, of course, the reveal is, yes, that was in like 1860. And that's not to say it won't be different this time, but it is a reminder of what it feels like when things change so much. It's always so much easier to see what's going to change, what right in front of you might change relative to what might open up as an opportunity on the other side. So I think if I were to pull way up, just a personal view is I think that people are underestimating the dynamism in our economy. They're underestimating what happens when jobs get elevated, meaning that people doing those jobs powered by AI can do even more that in a lot of these areas, the demand actually goes up, not in all -- but in some, I think software development being a good example, you can really have demand go up quite a bit. So we are we are not here to prognosticate what's going to happen with respect to employment. I am absolutely here to prognosticate that AI is going to transform pretty much everything about how we live and how we work. I'm probably on the more optimistic side of the spectrum with respect to the implications on the economy and on employment. But so -- but we have to -- we will watch with great interest all of this. Now from a credit point of view, were there -- credit is very linked to employment. There's no doubt about it. So if anything that drives very significant changes in unemployment can have important credit consequences. So we will watch carefully. We certainly are not making credit policy choices now in anticipation of things like that. But one of the reasons that we are so focused in our underwriting on resilience and first of all, taking a 3- or 4-decade history in our modeling to see many things that have happened and then putting an important buffer of resilience in there, is to be in a position to adapt when the things we don't anticipate come to be. But pulling way up in spirit of your question, we are at an extraordinary time when I think that we are dealing with the transformation that we are -- have the privilege to live to is up there with fire and electricity. And all of us have great interest to see where it goes. And importantly, we're building a company to be at the forefront of that and our technology transformation that we began in 2013 -- what that transformation had as its objective function, was working back. Building a company that could deliver machine learning and AI-powered customized solutions in real time because that's where we saw the world going. And we didn't know back then about generative AI. We didn't know about agenetic AI, but it turns out had we known those things, we would have built what we're building because, in some ways, it's a continuous strategic thread way back from the founding of Capital One, which was all about -- which was building a company, an information-based company bringing customized solutions powered by technology, data, massive scientific testing and statistical modeling. And what's happened over time is that same quest has brought us from a batch to real time and brought us from regression models to neural net machine learning models to the modern world of AI and the amount of data has gone from things measured in terabytes to things starting to look at words like exabytes and -- but in some ways, what we are building and working backwards from has been -- it's all part of the same continuous journey, and we're very excited to be at the forefront of that. Thank you. Operator: Our next question comes from Mihir Bhatia with Bank of America. Mihir Bhatia: I wanted to start by asking about the Discover network integration. I think -- so maybe just any learnings from the debit conversions and updates on the timing of the credit conversion. I think you gave an update on when Discover originations will start on Capital One technology, but maybe just also an update on how you're thinking about Capital One originations and issuing on the Discover network on the credit side? And then just related to this integration, is that like when we start seeing some of the integration expenses start to wind down and some of the expense synergies come through. Richard Fairbank: So thank you here. Thanks so much. So the debit conversion, the debit conversion has -- we are very pleased with how that has gone. That conversion is completed. And we've learned a lot along the way and how we can get better and better as we do these conversions. But one thing that it has shown us is that it has reinforced our belief in the doability and the success that we can have with customers in doing these conversions. So we're very pleased with that. With respect to -- so on the card side, we right now are just in the early stages of testing on the origination side testing originating cards on the Discover network and then down the road really as more of a next year thing would be being able to -- moving credit cards over to the Discover network. And we -- of course, that is moving a portion of our book over. But what we're doing in -- we're trying to do a lot of things at once. And when I sort of wave my arms and say, Capital One has a pretty big investment imperative, this is an important part of it. We are trying to work backwards from what could create opportunities for us to move more of our business onto the Discover Network. And in addition to the mechanical aspects of conversion. Importantly, we are investing in acceptance, particularly international acceptance, sloping that effort toward the geographies that have the highest rate of travel by our customers. And we're also building the network brand and the brand credibility. And then along the way, we will do a lot of different testing. But if we pull way up, we continue to be -- as we were at the time of the deal announcement that we can move not only our debit business, but a portion of our credit card business there and continue and get the flywheel turning in a tremendously scale-driven business. And as the flywheel turns, I think that helps acceptance. It helps conversions. It helps the customer experience, and it helps our economics and enhances the opportunity to then move more business over time. So it's not an easy journey, and it's a long journey, but we're taking very important steps early on in this. Thank you, Mihir. Andrew Young: And then Mihir, I think you asked something about the expense synergies. So on the expense side, they are more back loaded relative to the revenue synergies since those expense synergies come from the conversion of the technology platforms and then sort of the associated processes and the decommissioning of applications that Rich just talked about. And so the expense synergies happen more iteratively over the integration window and just are more backloaded because they are highly dependent on those technology conversions. That said, we do make or are making some progress on the expense synergies along the way. But you should expect that we won't be fully at our expense synergies until the conversions are complete, and that will be in the first half of '27. And so on the revenue side, that is much more tied to the debit conversion that is substantially completed at this point. So we're seeing a meaningful portion of the revenue synergies already in our Q1 results and the at least full portion of the revenue synergies coming from debit will be in the Q2 results. But if we put those things together, we still feel very good about achieving the full $2.5 billion of synergies by the time we complete integration in the middle of '27. Mihir Bhatia: Got it. And then just on a different topic, just on the commercial segment and the reserve, the allowance build there. this quarter. Can you just provide a little more color on what that's related to and just your confidence that, that exposure is, I guess, bring fence now and we won't see continuing increases in the allowance build. Andrew Young: Yes. Mihir, you had a little over an $80 million reserve build. I believe the number was, and it's really just tied to a small number of borrowers across C&I. And if you look back through history, commercial losses, just tend to be a bit lumpy. And so to the allowance as we just have some higher criticized loans and then just worse performance across a handful of specific credits. So I don't think there's anything in particular to see here, and I think you should just expect that there's a little bit of lumpiness in the system as there always is. Operator: Our next question comes from John Pancari with Evercore ISI. . John Pancari: I'll just ask one question here in the interest of time. On the capital front, just the Brex deal was somewhat unexpected, albeit definitely additive to your longer-term goals. Can you just update us on any incremental M&A interest, how would you approach other opportunities that may arise either in your own active effort to pursue something? Or if something comes up that not by your doing, though, that would be additive to your franchise, would you consider it? Just want to get your interest in broader M&A. Richard Fairbank: Thank you, John. As I said, earlier, and I've been saying really since the founding days, our focus is on having an organic growth company and all the capabilities and talent and infrastructure and financial frameworks to be able to do that. We also are a company that works backwards is such a centerpiece of who we are is the way we approach strategy, and we always work backwards. We don't work forward from where we are. We work backward from where the world is going and where winning is and that has led us to many times declare we're 'going way over there' with respect to transforming our company, and it's an important reason we're here today. Along the way in those journeys, M&A has played sort of an interesting role for Capital One. I've often described it as the purchase of growth platforms. we have been much less focused on sort of buying companies and adding the earnings power of a company to ours, although it's not that we wouldn't do that. But being the growth company that we are. We're very focused on what are the enablers of us from a structural point of view to be able to win in the carefully selected marketplaces where we have said winning is so important. And Brex was just a classic example of that because we had already declared the commercial card was such an important part of our future. We already had a commercial card. We had already internally declared that we had to go very much in the direction Brex was. And so we were going down the path of building those capabilities and then this opportunity came along. So I share all that to give you a window that we will continue to be the company that is working backwards from where winning is. We will, of course, continue to look at the marketplace, and there will be times when opportunities, special opportunities align in ways that are a little hard to predict in advance. One other crucial thing that I would say is that most other banks are out there focusing on buying banks. We are not at all focused on buying banks. We bought banks in our history to transform the balance sheet of Capital One from a capital markets funded company to a FDIC insured deposit funded company but a defining thing about Capital One now is that we have built a modern tech stack and the alignment that we have technologically philosophically, strategically and in terms of talent, is sort of right there with tech companies, and it puts us in a position to be able to successfully do acquisitions of little tech companies that I think for big banks, it would be very, very hard to pull it off and make it work and have the talent stay and sort of all that all those challenges that come along the way. But I think Capital One's future is much more a future -- with respect to acquisitions, is much more a future of smaller tech companies and companies built very much like ourselves, and therefore, a very different strategy than all -- pretty much all other major banks are pursuing. Operator: And our final question comes from Saul Martinez with HSBC. Saul Martinez: Maybe a follow-up to Erika's question on capital. I mean, why not up the buyback from the $2.5 billion per quarter level. I mean you're fully loaded with the new standardized approach, including AOCI and even factoring in back you're kind of over that 14% to 14.5% CET1 range and fully acknowledging all the factors, Andrew, that you've highlighted, growth and uncertainty in regulations, it wouldn't seem like that's an optimal capital level. And just given the growth outlook, at least in the near term, why not be more aggressive in bringing that capital ratio down? Because you still have a comfortable capital position with a lot of excess capital. So just kind of wanted to get your thoughts on that. Andrew Young: Yes. So you highlighted the reasons that I shared with Erika. And so I would just, first of all say, we have nearly $12 billion of authorization that remains from the Board. We have flexibility under SEB, but the way we approach capital is we think about variety of things when making that -- making our decisions around repurchase pace, and we're always going to err on the side of conservatism and focus on resilience. And so we are well aware that capital has asymmetrical value in certain environments. And so like we're just going to use the flexibility in the moment to make a call of what level to repurchase at any given time. Richard Fairbank: And Andrew, I would just add that all of that sort of conservative speech, which, by the way, I would have said the same thing in answering that question. it is still also the case that share repurchases are a very important part of the value creation equation at Capital One. And we're -- we've worked really hard to be a company with the earnings power to be able to be able to create a lot of value, be able to buy back shares and still be -- take a very conservative philosophy with respect to capital. So thank you so much for your question. Saul Martinez: Fair enough. If I can squeeze in a follow-up. It's a very specific question. Loan and -- I noticed that you didn't give the outlook for loan and deposit fair value mark amortization this quarter, and I think there was like $1 million this quarter, which is -- and I think you had guided like $98 million for the full year and increasing in '27. But is there adjustment to the balance sheet that caused this? Or is this just -- do you just kind of feel like this is sort of a consequential number at this point, given the magnitude of the impact? Andrew Young: And Saul, are you referencing for Discover, I presume, right? Saul Martinez: Yes, yes, yes. Yes, for Discover exactly. Andrew Young: We finalized the measurement period and so we provided the final amortization schedule in the prior call. And so those are the numbers, I think, especially with respect to NIM, it was something like $1 million. So it was inconsequential in the quarter and it didn't move the metric at all, but I would just direct you back to the tables that we already provided because the measurement period is final and those are the numbers that are going to flow through the P&L going forward. Jeff Norris: Concludes our earnings call and the Q&A for this evening. I want to thank everybody for joining us on the conference call today. Thank you for your interest in Capital One. Have a great evening, everyone. . Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon. My name is Joe, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates First Quarter 2026 Earnings Conference Call. [Operator Instructions] And as a reminder, ladies and gentlemen, this call is being recorded today, April 21, 2026. I would now like to introduce you to your host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, please go ahead. Michael Bauer: Great. Thanks, Joe, and good afternoon, everyone. Welcome to Manhattan Associates' 2026 First Quarter Earnings Call. I will review our cautionary language and then turn the call over to our President and Chief Executive Officer, Eric Clark. During this call, including the Q&A session, we may make forward-looking statements regarding future events or Manhattan Associates' future financial performance. We caution you that these forward-looking statements involve risks and uncertainties are not guarantees of future performance, and actual results may differ materially from the projections contained in our forward-looking statements. I refer you to Manhattan Associates' SEC reports for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2025 and the risk factor discussion in that report and any risk factor updates we provide in our subsequent Form 10-Qs. Please note that the turbulent global macro environment could impact our performance and cause actual results to differ materially from our projections. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures to provide additional information to investors. We have reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules. You'll find reconciliation schedules in the Form 8-K we filed with the SEC earlier today and on our website at manh.com. Now I'll turn the call over to Eric. Eric Clark: Great. Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we review our first quarter results and discuss our increased full year 2026 outlook. Manhattan is off to a strong start to 2026, navigating a volatile global macro, reporting record better-than-expected results. On solid demand, our Q1 revenue growth accelerated, highlighted by 24% growth in cloud revenue and our services revenue growth also continues to steadily improve. Throughout 2025, we spoke about the strategic investments that we're making to improve our go-to-market effectiveness and accelerate our selling velocity. And while results from these initiatives will certainly not be linear, these investments have started to pay off in the first quarter and contributed to RPO increasing 24% to $2.35 billion. New customer bookings remained strong as over 55% of new cloud bookings were generated from net new logos with the largest Q1 deal influenced by Google Cloud Marketplace. We also experienced notable deal volume improvements across all deal types as well as a larger contribution from products beyond Active Warehouse, including Active Omni, Active Transportation and Active Planning. And we had strong bookings from all regions. Our win rate metric continues to be consistently above 70%, and our renewal performance was solid and supportive of the plan that we highlighted last quarter. All of this provides a glimpse into the large opportunity that we have across all of our industry-leading solutions. In summary, bookings momentum continued in Q1, aligning with our goal of accelerating both ramped ARR and cloud revenue growth. From a vertical sales perspective, our end markets are diverse, and we have healthy established footprints across numerous subsectors, which include retail, grocery, food distribution, life sciences, industrial, technology, airlines, third-party logistics and more. For example, Q1 deals included a global retailer that became a new logo Active Warehouse and Active Transportation customer, one of the world's largest retailers became a new logo Active Omni customer, a large auto parts distributor became a new logo active warehouse and active omni customer. An HVAC-focused distributor became a new logo active warehouse and active transportation customer, a global wellness retailer converted from on-prem to active warehouse and a multinational food distributor that was an existing active transportation customer expanded to become an active warehouse customer. In addition to several other impressive Q1 deals, our active agent pilot program is off to a better-than-expected start. As I mentioned last quarter, our active agent offering consists of 2 primary elements: a set of base agents ready to be activated immediately and our agent foundry offering, which enables our customers to quickly build and deploy their own agents within the Active platform. And because we build all these agents directly into the Active platform, our customers don't need to implement costly and complex external data lakes to make them work. Our unified cloud-native API-first architecture enables us to deploy agents with almost no configuration or additional upfront effort, embedding AI agents directly into the workflow, no data lakes, no latency, deployed in minutes, not months, creating value for our customers in real time. And although our AI product set has only been in the market for 1 full quarter, we have an impressive list of pilot and paying customers that stretches across our diverse end markets and include some of the world's most distinguished and identifiable organizations. For perspective, these customers include a global manufacturer and distributor of engineered components, a global 3PL, a global energy management and industrial automation company, a global manufacturer and distributor of beauty products, a global health care services company as well as several more Tier 1 retail brands, grocery chains and others. We're very excited that these existing active customers are interested in beginning their agentic journey with Manhattan, and we're focused on helping them drive higher productivity, ROI and improved levels of customer satisfaction as we expand active agents across our customer bases. For this quarter's product update, I'd like to go a bit deeper on our Active Agent foundry and some of the strong deployment results, which provide a bit more insight into why we believe AI is a significant opportunity for Manhattan and why we are uniquely positioned to win. Core to our Agentic AI philosophy is the concept of embedding both interactive and autonomous agents directly within the workflows of our key users. Rather than wave planners and shipping supervisors trying to incorporate stand-alone disconnected AI platforms, our active agents meet them where they live all day within our waving screens, within fulfillment progress monitors and within labor planning UIs. By making AI ever present and highly available, our AI capabilities feel natural. They're steeped in both domain expertise and real-time operational data, always making suggestions and ready to take action autonomously. Our teams of forward deployed engineers assist our customers to activate our base agents and to build their own agents using our agent foundry. As we look across the early success stories, we see an even balance in the value created by base and custom agents, and we believe that trend will persist. One of the real advantages of building with Foundry is the ability to quickly target specific pockets of opportunity within a particular customer operation. For example, one of our retail customers here in the U.S. saw a 5% improvement in order cycle times and reduced labor requirements in their largest distribution center via the use of a Foundry-developed custom agent. In this case, the agent dynamically reallocates resources to ensure replenishments are completed in time for orders to be fully picked and shipped. The continual matching of work to be completed within the requisite resources available is one of the most challenging issues a DC operator deals with nonstop each day. Unlike a manufacturing facility with a steady and predictable flow of work, DCs experience continuous peaks and valleys of different types of activity. This variability is driven by the inherent unpredictability of customer ordering and the high variability of what actually makes up those orders. In this case, the active agent looks both upstream and downstream, dynamically determining the work that needs to be done in each zone and continuously optimizes the assignments to ensure orders are complete and to maximize order shipment volume. The next example of a Foundry-created agent comes from one of our health care customers. From an operational standpoint, it's often just a few unfilled units which stand in the way of large orders being ready to ship. This customer worked with our forward deployed engineers to create an agent which actively seeks out these aging units, ensuring that tasks are created and prioritized to get shipments completed faster. The use of this agent resulted in a double-digit percentage reduction in loading times and improvement in on-time shipment departures. On the base agent front, a number of our customers are using our WAVE Coordinator Agent to make sure orders are effectively turning into executable tasks. This agent finds and repairs any data conditions within items, orders, tasks or users, which prevent the optimal flow of work to the floor, ensuring every unit on every line, on every order has a path to clean execution. Specifically, this agent resulted in improved on-time shipments for one of our food distribution customers as exceptions requiring triage were reduced by up to 75%. And for one of our industrial distribution customers, this very same agent increased line shipped by over 30% and improved order cycle times by over 25%. Now these are meaningful improvements that drive revenue and ROI for our customers. By leveraging case studies like this, in Q1, we saw strong demand for active agents. We now have dozens of customers in various stages of AI maturity, exploring and realizing benefits as we leverage our FDE teams to continue to build additional agents for these customers and introduce the Active Agent Foundry to more of our active customers. As you'd imagine, active agents will feature prominently at our Momentum user conference next month. Each of our product tracks will feature the latest in our Agentic AI capabilities, and we'll have a number of customers giving testimonials to the power of our embedded active agents. One of the important additions to this year's conference will be an active agent boot camp. The day before the conference begins, we'll host an interactive session where customers can get hands-on experience with Foundry. They'll choose a relevant issue from their own operations and work in a live sandbox guided by our FDE team to build and test their agents. This hands-on experience is key to moving quickly from interest to production use cases. We're happy to give as many customers as we can an opportunity to experience the ease and power of our active agent Foundry, we can't wait to see what they come up with in Las Vegas next month. I'll close out my product updates by providing a bit more detail on 2 important wins that I highlighted earlier. First, we closed a substantial new logo order management deal with one of the world's largest retailers. This deal represents our largest ever OMS bookings deal and speaks to the ongoing power of having the most capable and scalable OMS product in the industry. While historically, this customer chose to build their e-commerce tech stack in-house, their e-commerce business grew in scale and complexity to the point where they no longer believed it made sense to build the back-end intelligence layer on their own. So we're proud to welcome them into the Manhattan family. And finally, the power of solution unification continues to deliver for us. Both during the sales process and in our implementation results, we're bringing solutions to life only possible when warehouse and transportation are truly unified. We closed a large unified warehouse and transportation deal at a major retailer in Q1, in large part due to the power and simplicity of running a single application for distribution and logistics. That unified approach lowers integration complexity and accelerates time to value. This win adds to the growing list of customers recognizing the value of the unified active platform. Next month at Momentum, our customers and prospects will hear directly from one of our large retail customers as they share the valuable benefits they're already achieving from having warehouse and transportation live together on the Active platform. So with a strong pipeline across our product suite, numerous opportunities to drive growth and our unique ability to consistently deliver leading innovation to the supply chain commerce universe, we're very optimistic about our long-term growth opportunity. So that concludes my business update. And as you all know, we have a new CFO. So before I introduce Linda, I'd like to thank Dennis Story for all of his contributions over the past 20 years. And now I'd like to introduce you to our new CFO, Linda Pinne. As many of you know, Linda previously served as our Global Corporate Controller and Chief Accounting Officer. And with her 20-plus years of experience right here at Manhattan, she brings a wealth of company-specific industry and financial expertise that I'm sure all of you will appreciate. So with that, I'll hand it over to Linda to report on our financial performance and outlook, and then I will close out our prepared remarks before we open it up to Q&A. So Linda, over to you. Linda Pinne: All right. Great. Thanks, Eric. Before I jump into the numbers, I'd like to thank Eric and the Board for the opportunity to lead our talented finance team. I look forward to helping Eric and the rest of the team execute on the enormous opportunity in front of us. Regarding Q1, our global teams continued to perform well, delivering better-than-expected top and bottom line results in a volatile macro environment. FX volatility continues to impact us. In Q1, it was a 2-point tailwind to year-over-year total revenue growth, which was in line with the outlook we provided last quarter. However, it was an approximate $5 million headwind to sequential RPO growth and about a $25 million tailwind to year-over-year RPO growth. Now to our results. Our growth rates are reported on a year-over-year basis unless otherwise stated. For the quarter, total revenue was $282 million, up 7%. Excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue was up 13%. Cloud revenue increased 24% to $117 million. The better-than-expected performance was driven by a combination of strong execution, catch-up overage fees and lower-than-modeled churn rates of our renewal portfolio. Services revenue was also better than expected and increased 4% to $126 million. We ended Q1 with RPO of $2.35 billion, up 24% compared to the prior year and 5% sequentially. As Eric previously highlighted, the strong Q1 performance was driven by a good mix of both sales from new and existing customers. This includes renewals, which were in line with our 2026 annual plan that we discussed last quarter. Contract duration remains at about 5.5 to 6 years, resulting in 38% of RPO to be recognized as revenue over the next 24 months. Q1 adjusted operating profit was $91 million with an operating margin of 32.4%. The better-than-expected performance was driven by strong cloud revenue growth, which offset some of the increased go-to-market investments we highlighted in Q4. Turning to EPS. We delivered better-than-expected adjusted earnings per share of $1.24, up 4%. GAAP EPS was $0.82, down 4% and was adversely impacted by higher-than-expected tax expense due to a decrease of stock-based compensation benefits. Moving to cash. Q1 operating cash flow increased 12% to $84 million, resulting in a 28.3% free cash flow margin and 33.1% adjusted EBITDA margin. Turning to the balance sheet. Deferred revenue increased 20% year-over-year to $356 million. We ended the quarter with $226 million in cash and $0 debt. Accordingly, we leveraged our strong cash position and invested $150 million in share repurchases in the quarter and have $350 million remaining in the share repurchase authority we announced in March. Moving to our 2026 guidance. As noted on prior earnings calls, our goal is to update our RPO outlook on an annual basis. Also, as previously discussed, our bookings performance is impacted by the number and relative value of large deals we close in any quarter, which can potentially cause nonlinear bookings throughout the year. So with that, we continue to target RPO of $2.62 billion to $2.68 billion, which represents a range of 18% to 20% growth. Moving to the P&L. Our long-term and long-standing financial objective is to deliver sustainable double-digit top line growth and top quartile operating margins benchmarked against enterprise software comps. These are drivers to our best-in-class return on invested capital as we maintain a balanced investment approach to growth and profitability. As Eric highlighted, the macro environment remains volatile. While clarity from external variables remains limited, given our strong Q1 performance, we are raising our full year total revenue, operating margin and EPS outlook. This guidance is also provided in today's earnings release. For total revenue, we expect $1.147 billion to $1.157 billion, with the $1.152 billion midpoint, comparing favorably to our prior outlook and representing 11% growth, excluding license and maintenance attrition and 7% all in. This continues to include a 1-point tailwind from FX. For Q2, we continue to target total revenue of $285 million to $289 million. For the rest of the year, at the midpoint, our targets remain at about $296 million for Q3 and accounting for retail peak seasonality, $287 million for Q4. For adjusted operating margin, we are increasing the midpoint to 35%, up from our prior midpoint of 34.75%, which includes a 100 basis point headwind from our license and maintenance revenue attrition to cloud. At the midpoint, we continue to expect adjusted operating margin to be about 34.7% in Q2, 36.9% in Q3 and accounting for retail peak seasonality, 36.1% in Q4. Our full year adjusted EPS range is increasing to $5.29 to $5.37. On a quarterly basis, we are targeting Q2 EPS of $1.30, Q3 of $1.43 and accounting for retail peak seasonality, $1.36 in Q4. For full year GAAP EPS, our midpoint increases by $0.14 to $3.59, and we are targeting Q2 GAAP EPS of $0.86. So here are some additional details on our 2026 outlook. We are increasing our cloud revenue midpoint to $495 million, representing 21% growth and continue to target $121.5 million in Q2, $126 million in Q3 and $130.5 million in Q4. We expect services revenue to increase 3% to $518 million, which continues to assume $131.5 million in Q2, $137 million in Q3 and accounting for retail peak seasonality, $124 million in Q4. On attrition to cloud, we expect maintenance to decline 17% to about $108 million, and we continue to target $27 million in Q2, $25.5 million in Q3 and $25 million in Q4. We expect license to be about $1 million per quarter and hardware to range between $6 million and $6.5 million per quarter. Finally, we expect our tax rate to be about 22% and our diluted share count to be about 60 million shares, which assumes no buyback activity. In summary, a great start to the year and solid execution by the Manhattan team. Thank you, and back to Eric for some closing remarks. Eric Clark: Great. Thank you, Linda. We're very pleased with our strong start to 2026 and our continued business momentum. Manhattan's business fundamentals are solid, and we have numerous opportunities to continue to accelerate profitable growth and reduce time to value for our customers. Thanks to everyone for joining the call, and thank you to our global team for the great execution. That concludes our prepared remarks, and we'd be happy to take any questions. Operator: [Operator Instructions] And our first question comes from the line of Terry Tillman with Truist Securities. Terrell Tillman: Eric, Linda, Mike and Dennis. A nice job on the bookings. Good to see that. I'd be remiss if I didn't say something about Dennis though. I think that was almost 80 Manhattan calls that I think you've been on. Congrats to all your accomplishments and best of luck in retirement. And Linda, congratulations to you as well as the new CFO. Linda Pinne: Thank you. Terrell Tillman: Yes. I had two questions. First, I definitely wanted to ask about agent and Eric, you gave a lot of good color there. I appreciate that. My two part on Agentic is, if you look through the rest of the year, how do you see the progression from these pilots and POCs into potentially scaled revenue. And then the second part is, I saw a demo at NRF going back what seems like months ago. And there is the opportunity to actually let this run autonomously then, like WAVE Coordinator Agent. How many of these early adopters are actually just letting it ride and just operate autonomously? And then I had a follow-up. Eric Clark: Okay. Yes. So in terms of scaling and monetization, as you know, we launched in Q1, and our primary go-to-market is through a 90-day pilot. So that is a paid pilot. And at the end of that pilot, we have the conversation about converting to subscription. So in Q2, while we continue to sign up additional pilot customers, we'll also be having conversations with the Q1 customers about conversion to subscriptions. And in fact, those conversations have already begun with many of them. So we expect this to continue to scale as we go throughout each quarter. And I think we'll have more clarity on what that means as we go throughout each quarter. So we continue to take a conservative approach to the monetization, and we expect to have a bigger impact, obviously, in '27 than we'll have in '26. And then in terms of the second part of autonomous agents, all of our agents are designed to be -- well, I shouldn't say that. Most of our agents are designed to be autonomous if they so choose. So they can be working alongside a user and providing suggestions to a user. And then when the user feels comfortable, they can allow the agent to work autonomously. Again, you go back to our architecture that's all micro services, all API-driven. So this concept that's been kicked around in the AI space here recently about headless we're set up for headless. Our user interface can be the screens that we build or our unit of interface can be an AI agent. Terrell Tillman: Yes. Got it. That's helpful. Just my follow-up question -- follow-up question just on this, so I'll just -- I'll throw it out there. On cloud subscription revenue, it was 24% growth, that's acceleration. How much of that, though, was FX? I think you all called out total revenue had about 2-point benefit. But I'm just curious how much of the revenue acceleration is kind of core versus FX? And then for the full year, maybe an update on FX impact to subscription revenue. Linda Pinne: Yes. So for the quarter, it was a little bit over 1% tailwind on the cloud revenue. And for the full year, we're also expecting about a 1% overall tailwind on our revenue. Operator: [Operator Instructions] And the next question comes from the line of Brian Peterson with Raymond James. Brian Peterson: Congrats on the strong quarter. And Dennis, it's been really great working with you. So I wanted to ask on the RPO. Obviously, it was much stronger than we expected. The net new mix at 55%, it looks like that held steady. Is there any commonality in the deal timing or the deal sizes that drove some of that net new, Eric? I'd love for you to unpack that a little bit. Eric Clark: Yes. So I think one of the really good signs that we're seeing, and I mentioned it a bit in my prepared remarks, is the investments that we made and the strategy that we put in place last year to increase deal volume across all of those deal types is paying off. So our deal volume across all these types was up in Q1. So not nearly as dependent on large deals. In fact, the largest 2 deals we closed in the quarter came from Europe and APAC. So we saw a good variation of deal size. And that allows us to I think, to be more aggressive in that space as well. And when you look at the 55%, that kind of continues from the success that we had in new logo last year. But I've always said over a period of time, it's kind of going to go back to thirds. And we looked at that data. And if you go back 3 years, over the past 3 years, it is in thirds, but we've been really, really strong in the past 5 quarters of bringing in new logo. And we continue to see great pipeline, and we continue to have great win rates against our competitors. So we expect that to continue. Brian Peterson: That's great to hear. And Eric, I'd love to get an update on some of the fixed services aspects that you were talking about. I know last quarter, you mentioned there was some interest in that. Any update on the uptake there? And how should we think about that impacting services in 2026? Eric Clark: Yes. So -- and that kind of goes back again to increase in deal volume, just the number of deals that we closed in Q1 and also increase in deal volume and dollar volume across cross-sells and upsells. So we've got the team actively engaging looking for those opportunities to expand within our customer base, and we're seeing good success there. Operator: The next question comes from the line of Joe Vruwink with Baird. Joseph Vruwink: Great. And I'll also extend my congrats to Dennis and Linda. More of a thematic question maybe, but when it comes to software categories that still have a fair amount of on-prem deployments, there seems to be a growing appreciation that's maybe not well suited to take advantage of AI. And so we're starting to hear more anecdotes and feedback that modernization campaigns need to pick up. Obviously, Manhattan kind of has its own irons in the fire to accelerate conversion activity. But are you starting to see the customer mindset change and maybe their planning windows are shifting forward on this idea that they need to pick up the pace? Eric Clark: Yes. And we talked about that last year as well. We started to see some of the tone and the pace changing when we were able to go out and offer fixed fee, fixed time frame deployments when they saw a way to get there quicker. And then the fact that we can offer them -- once they get to the Active platform, we can offer them base agents that they can turn on and use day 1. So all of these are absolutely creating more interest. But I also agree with your point that we've moved up now to about 23% of our on-prem customer base has converted or started the conversion to the cloud, but we still have a large installed base and a large opportunity to go do additional conversions. And I agree with your point that those probably aren't ripe for AI takeover. Those are conversions that are going to happen within our ecosystem. Joseph Vruwink: Okay. Understood. And then just on the strong RPO addition in 1Q, and it seems like that was driven by the new logo performance, even though I appreciate a lot of good volume there, but I guess the dollars skewed more towards new logos. How much of that maybe relates to this dynamic around ERP upgrades still happening? And if you're on maybe an attach with your ERP vendor historically, you're starting to see that be a feeder and the conversion on that getting upgraded into a Manhattan solution being high? Eric Clark: Yes, that definitely continues to be a tailwind for us, and we see significant pipeline in that space. But I think same answer that I gave last year when we talked about this, an even bigger tailwind is some of our competitors in the industry that haven't made the investments in cloud and haven't made the investments in a unified platform. We continue to have just kind of off-the-chart win rates when we compete for their incumbents, and we're taking a lot of business from our competitors. Operator: And the next question comes from the line of Dylan Becker with William Blair. Dylan Becker: I'll echo congrats to Dennis and Linda here as well, too. But maybe, Eric, starting for you, if we kind of go back to the Agentic deployment conversation. I thought it was pretty impressive some of the statistics you disclosed and kind of value those early pilot customers are seeing. I guess, to one, maybe the first aspect, how that's maybe driving or fueling your expectation of scaling kind of that proof-of-concept cohort, if you will, right, just kind of tied to the value and referenceability that those customers are seeing as well as maybe layering in conviction on that conversion or their willingness to kind of pay for those agents over time. I understand kind of the conservatism in the framework, but how that's kind of layering confidence in the contribution here over, obviously, '26 and then '27? Eric Clark: Yes. So there's a lot of excitement about the opportunity here. And in terms of customers being willing to pay for it in some of the early conversations we've had around moving from pilot to subscription, there have been customers that have justified the entire ROI just by reduction in overtime. So when they look at all the different ways they can get value out of these AI agents, we aren't seeing customers have a problem justify the ROI of what they're getting. So that gives us pretty good confidence. But again, we're early. So we're still very conservative in what we're putting in, in terms of revenue for this year. But I think you look at what we did in terms of number and volume of deployments and agents that we put in, in Q1 in the very first quarter this was available, and I expect that to continue to grow and build as we go through the next 3 quarters. So I think when we start talking about outlook for 2027, there should be a meaningful impact from AI. Dylan Becker: Very helpful. And then if we do kind of stick on the topic of kind of accelerated deal volume and velocity attributable to a lot of the structural kind of changes that have taken place over the last year or so, if you will. I think it's impressive to see that the services piece is stepping up in light of kind of the fixed contract dynamic, I guess. How should we think about or how are you guys thinking about the implications of that relative to kind of the broader software or subscription and services kind of mix shift as you're layering on more cloud contracts and maybe those customers are realizing value faster, kind of that pull-forward implication, if you will, to subscription revenues? Eric Clark: No, thank you. And it's a great question because as we've talked about in previous calls, we've got a lot of focus and investment on speed and simplicity and making it faster and easier for our customers to deploy and faster and easier for them to recognize, reduce that time to value. And in doing that, obviously, that makes services projects shorter. So when you look at our revenue growth, it's because we're doing more services projects. And some of that is the active selling that we're doing into our installed base. Some of it is this newfound opportunity around forward deployed engineers. You look at what's happening in the AI space and some of these large foundation companies, and model companies are creating partnerships with all of the consultancies out there because they don't have forward deployed engineers. And even some of the large cloud companies that have very, very small services teams, they've got to go create partnerships with those same consulting companies to try to create interest in deploying their AI agents. So I think what we're seeing is this services team that we have here at Manhattan has become a massive advantage for us because we are skilling and tooling teams of forward deployed engineers that are made up of people from R&D and services engineers that can very quickly get these agents active and productive and adding value to our customers, and we can do that at scale. So I think, again, one of the things that our customers love hearing from us when we're having these AI conversations because, by the way, as you know, they're having AI conversations with every one of their partners and everybody else trying to get in the door. We're the only people that can come and say, we can turn these on and have you actively using them and getting value on day 1. Operator: And the next question comes from the line of George Kurosawa with Citi. George Michael Kurosawa: Okay. I wanted to touch on the cloud revenue upside, a lot stronger than what we've seen in recent quarters. You called out some components of that in terms of improving churn in the renewal book, I believe, and then something on the overages side. Maybe you could just double-click on some of those dynamics and how we should think about how sustainable those drivers are going forward? Linda Pinne: Yes. So as you mentioned, we mentioned 3 drivers. One, of course, was just strong execution in the quarter. We also did have some onetime cloud overage fees that would not be recurring. And then as you noted, we had lower than modeled churn on our renewals. But again, as far as going forward, we're continuing to take a conservative position on our outlook for Q2 to Q4, keeping those metrics in line with what we previously disclosed last quarter, just given the volatility in the macro environment right now. George Michael Kurosawa: Okay. That's great color and makes sense. I wanted to touch on this forward deployed engineer concept you just touched on, Eric. Maybe if you could talk about that's a concept you guys have been leaning into in the most recent quarters, if there's -- what you had to change kind of structurally, if there's any specific hiring that you had to do, just how you sort of put that group into place? And maybe if you could just talk a little more about the impact that you're seeing there? Eric Clark: Yes. So as I mentioned a quarter ago, we were hiring early in Q1. And to date, we've added about 120 headcount into our services team, and we've got another roughly 70 either pending start or open. So we continue to add talent into our services team. And really, that's just based on demand. But when you look at what we're doing with forward deployed engineers, the bulk of those FDEs are coming from people that have experience here at Manhattan across the services engineering team and the R&D team because we want people that are deep in our product and deep in understanding supply chain and deep in understanding our customers' needs so that we can quickly create those custom agents within the foundry. Operator: The next question comes from the line of Guy Hardwick with Barclays. Guy Drummond Hardwick: So a question on the pilots. So once the 90-day pilots are completed, what kind of uplift are you seeing in terms of percentage uplift to the SaaS subscription contracts? Eric Clark: Yes, it varies. We're not disclosing price list information on that, but it varies based on how they're using it, where they're using it. And all of AI has a cost, right? How many times are you hitting LLMs and how many APIs and et cetera, et cetera. So it's a unique conversation with each customer. Guy Drummond Hardwick: Okay. But I think I understand that you have guided to that the margins to be similar for SaaS. Is that correct? Eric Clark: Yes. Yes. We've modeled it so that the margin remains consistent. Guy Drummond Hardwick: Okay. And just sorry, my follow-up actually, in terms of the fixed fee deployments, what percentage of the services revenue is that now or what you expect it to be this year? Eric Clark: I don't have an answer for that. We haven't modeled that. But that's something that we'll continue to do more and more fixed fee because when -- as we put more and more automation and AI into the way we deliver services, that's part of how we sell the value of what we're delivering. So when you're using AI and automation, you don't want to sell services by the hour, you want to sell it by the outcome. Operator: The next question comes from the line of Parker Lane with Stifel. J. Lane: Eric, you talked about customers not really having any trouble justifying the ROI of agents. So maybe zooming in again on the pricing model here. What has been the reception to the more subscription-based arrangement for paying for agents versus a true consumption? And are you contracting in a similar fashion in terms of duration? Or are you giving smaller windows to sort of analyze that level of utilization and adoption over time and then go back and rework the subscription arrangement? Eric Clark: Yes. So the one thing that we have shared about pricing is that our intention here was to make it simple. Back to the speed and simplicity and easy to understand, easy to buy, easy to operate. So while all AI will be based on some kind of consumption because there is a cost to the consumption, we work with them to identify based on the POC and the pilot what kind of consumption are you using to do these tasks and automation that you want to do. And that's how we come to an uplift. And the reason that works is because a lot of these customers are somewhere along their journey in deployment. So they still have committed uplift. So rather than having to reprice the AI and talk about consumption all the time, we let it grow with them. Operator: The next question comes from the line of Mark Schappel with Loop Capital Markets. Mark Schappel: Really nice job on the quarter. Eric, I was wondering if you could just share some more details on the large deal completed through the Google Marketplace, including maybe how it originated, how it kind of grew during the quarter? And also, does it include your agents? Eric Clark: Yes. So if you go back to last year, I think the largest deal that we've ever closed in Europe went through Google Cloud Marketplace. And now this is the largest order management deal we've ever done and one of the largest deals we've done in APAC that's gone through Google Cloud Marketplace. So -- and I would say this one is similar to the other one. And there have been other smaller deals, too, but it's interesting that 2 of our largest deals in Europe and APAC have gone through the marketplace. And in both of those cases of the large deals, I wouldn't say that was the determining factor of why they did it, but it certainly reduced some of the friction because these customers have committed spend with Google, and this allows them to retire some of that committed spend as they work with us. So we view it more as an opportunity to help close deals and be a differentiator at this point, more so than creating net new pipeline. Is that the question you were looking for? Mark Schappel: Yes, I think that's sufficient. And then as a follow-up, of the base agents that you released, I believe, in January, I know it's still early, but which ones are generating the strongest customer interest so far? Eric Clark: Well, the one that I mentioned and kind of give some examples of -- we've got multiple customers getting different types of value using the exact same agent is the WAVE planning agent. We've also had a lot of success with our labor agent. I would say we've got probably a couple of agents in each product that tend to be the hot couple of agents. And then what customers use beyond those top 2, it varies by customer. And then everybody is adding custom agents. Operator: The next question comes from the line of Chris Quintero with Morgan Stanley. Christopher Quintero: Eric, Linda, great to speak with you again, and congrats on the CFO role. And Dennis, congrats on all your accomplishments over the years. I wanted to ask about the go-to-market changes. Really great to see that already impacting the results here with RPO. So maybe, Eric, just curious kind of which one of those are really the ones that are benefiting you today? And how do you think about the remaining ones impacting you later on in the year and into the future? Eric Clark: Yes. So I think we look at several things when it comes to how that team is building pipeline in terms of total pipeline dollars, but also volume of deals in the pipeline at different sizes, volume of deals of different sizes across cross-sell, upsell. The cross-sell and upsell that comes from renewal and all these different metrics. So what we're seeing is volume increases in all of these areas because we have specialists focused on all of those areas, and we have people focused on those areas that that's the only way they make money. So I think what we've done is we've created just more opportunities to find both subscription and services revenue across our new logo opportunities and our installed base. Christopher Quintero: Got it. That's helpful. And then I wanted to ask about services. Obviously, a bit more macro-sensitive part of the business. And we did hear about some services partners having some projects kind of getting delayed because of macro volatility and customer nervousness. But curious to get your sense on what you saw in the quarter and if you're even seeing any of that yourself on your services business. Eric Clark: Really haven't seen that, and I'm not aware of partners that have seen that. So typically, when partners see that, we hear about it. But no, I haven't seen that in the quarter. Operator: And the next question comes from the line of Lachlan Brown with Rothschild & Company, Redburn. Lachlan Brown: Congrats on the quarter. With the customers that have been on the pilot program for your agent solutions, how has the overall consumption been of these products? I guess listening to your remarks, it sounds like it's been pretty strong, but just any commentary on whether it's been over, under or in line with expectations? And has this changed any initial thinking around available consumption usage when they move to the subscription package? Eric Clark: No. Maybe what I'll start with is, I mentioned in the prepared remarks, we had -- when you think of product sales in Q1, the breadth of product sales was probably the most diverse that it's been since 2022. So we're really selling across every one of our products. We're also offering these AI agents across all of these products. So we've got customers actively using agents across every product. And as I mentioned before, it depends on how they use them and where they're using and how much consumption and that consumption is how we determine how we create that price with that customer. So no big challenges, big issues there. I think it's all been coming in as we expected. Lachlan Brown: Appreciate it. And maybe one for Linda. Just on the upward revenue guidance revision, quite a notable increase at the bottom end, but a small increase at the top end of the range. So could you just run us through the puts and takes in the outlook with the confidence to raise the lower end while being somewhat conservative at the top? Linda Pinne: Yes. I mean it's pretty much the same. I mean, basically, we took our beat from Q1, and we applied that to each one of our metrics. So we raised all 3 metrics. But as I mentioned before, we are keeping the Q2 to Q4 parameters, the same that we had mentioned on last quarter's call. Just again, we're executing well. We're very optimistic, but it is only the first quarter, and there's a lot of volatility in the macro environment. So we felt it was prudent to keep our out quarters the same as what we had previously communicated. Operator: This concludes the question-and-answer session, and I will turn it back over to Eric Clark for closing remarks. Eric Clark: Yes. Well, again, thank you all for joining. Really proud of the team and the execution from the team to deliver a really strong Q1 and position us very well for 2026, and we're excited about where we are and look forward to continuing to deliver. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Ladies and gentlemen, welcome to Hanmi Financial Corporation's First Quarter 2026 Conference Call. As a reminder, today's call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Ben Brodkowitz, Investor Relations for the company. Please go ahead. Ben Brodkowitz: Thank you, operator and thank you all for joining us today to discuss Hanmi's first quarter 2026 results. This afternoon, Hanmi issued its earnings release and quarterly supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website at hanmi.com. I'm here today with Bonnie Lee, President and Chief Executive Officer of Hanmi Financial Corporation; Anthony Kim, Chief Banking Officer; and Ron Santarosa, Chief Financial Officer. Bonnie will begin today's call with an overview. Anthony will discuss loan and deposit activities. Ron will provide details on our financial performance and then Bonnie will provide closing comments before we open the call up for your questions. Before we begin, I would like to remind you that today's comments may include forward-looking statements under the federal securities laws. Forward-looking statements are based on current plans, expectations, events and financial industry trends that may affect the company's future operating results and financial position. Our actual results may differ materially from those contemplated by our forward-looking statements, which involve risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from these forward-looking statements can be found in our SEC filings. including our reports on Forms 10-K and 10-Q. In particular, we direct you to the discussion of certain risk factors affecting our business contained in our earnings release, our investor presentation and on our Form 10-Q. With that, I would now like to turn the call over to Bonnie Lee. Bonnie, please go ahead. Bonita Lee: Thank you, Ben. Good afternoon, everyone. Thank you for joining us today to discuss our first quarter 2026 results. Hanmi delivered strong financial results across key metrics in the first quarter as we consistently advanced our core initiatives and executed against our growth strategy. In the first quarter, a seasonally slower period for loan production, we delivered solid results, supported by strong C&I originations and ongoing expansion of a new full-service commercial banking relationships. At the same time, we maintained a disciplined underwriting and pricing standards. We also executed effectively on our deposit gathering initiatives, generating strong growth in total deposits, while continuing to reduce our overall cost of funds. Combined with the favorable spreads on new loan production relative to payoffs, we generated net interest margin expansion for the seventh consecutive quarter. This strong execution, combined with our disciplined expense management led to robust growth in net income compared to the year ago period. Our performance highlights the success of our relationship-based banking model and the execution of our growth strategy. Now turning to some highlights for the first quarter. Net income for the first quarter was $22.6 million or $0.75 per diluted share with a continued growth on both a sequential and year-over-year basis. Net interest income increased from the prior quarter and net interest margin expanded by 10 basis points to 3.38%, reflecting a lower cost of funds. Return on average assets and return on average equity during the quarter were 1.18% and 10.86%, respectively. Deposits grew 7% on a annualized basis and noninterest-bearing deposits remained healthy at approximately 30% of the total deposits. New loan originations were solid with the C&I loan production increasing by 64%. However, this was offset by higher-than-normal payoffs, which led to a slight decline in total loans. We continue to maintain excellent asset quality driven by focus on high-quality loans, disciplined underwriting standards and sound credit administration. Nonperforming assets decreased by 38%, representing just 0.16% of total assets. Our disciplined focus on risk management continues to produce positive outcomes. During the quarter, we successfully collected a sizable payment for nonaccrual loans and sold 2 OREO properties for a net gain. Turning to our Corporate Korea initiative. The relationships our dedicated bankers have established have driven deposit growth from these customers, resulting in an increase of 10% this quarter. Due to ongoing uncertainty about the impact of tariffs, loan activity remained muted. Our focus on disciplined expense management continues. Noninterest expense decreased by 2% for the quarter, primarily driven by the gain on the sale of other real estate owned, lower salaries and benefits and advertising and promotion expenses. Importantly, our efficiency ratio further improved by 150 basis points to 53.5% from 55%. Our strong financial performance drove improvement in all capital ratios, while we returned significant capital to shareholders in the form of dividends and share repurchases totaling $13.4 million this quarter. We remain well positioned to advance our growth strategy and deliver attractive shareholder returns. Clearly, geopolitical conflict may have economic implications for the global economy. However, at this point, we have not seen any impact on our business nor our clients' businesses. We have had a strong start to 2026 and believe we are well positioned to build on this momentum in the months ahead. The strength and consistency of our operational performance underscores the effectiveness of our relationship-based banking model and reinforce our confidence in the strategy we are executing. I'll now turn the call over to Anthony Kim, our Chief Banking Officer, to discuss our first quarter loan production and deposit details. Anthony Kim: Thank you, Bonnie and thank you for joining us today. I'll begin by providing additional details on our loan production. First quarter loan production was $378 million, up $3 million or 0.8% from the prior quarter with a weighted average interest rate of 6.54% compared to 6.90% last quarter. The increase in loan production was primarily due to an increase in C&I and CRE, while residential, equipment finance and SBA declined from fourth quarter levels. Our disciplined underwriting approach ensures we only engage in opportunities that align with our conservative underwriting standards. C&I production was $135 million, an increase of $53 million or 64% from the prior quarter. The increase was primarily driven by the investment we made in our C&I teams and our strategic efforts to further expand the portfolio. CRE production was $131 million, an increase of $6 million or 4%. CRE is now 61% of total loans, which is the lowest it has been in at least a decade. We remain pleased with the quality of our CRE portfolio. It has a weighted average loan-to-value ratio of approximately 47% and a weighted average debt service coverage ratio of 2.2x. SBA loan production declined $3 million from the prior quarter to $41 million, in line with historical ranges. The steady production reflects the strength of our key hires and the momentum we are building with the small business clients across our markets. During the quarter, we sold approximately $33 million of SBA loans. Total commitments for our commercial lines of credit were over $1.3 billion in the first quarter, up 3% or 14% on an annualized basis. Outstanding balances increased by 10%, resulting in a utilization rate of 43%, up from 40% in the prior quarter. Residential mortgage loan production was $29 million for the first quarter, down 59% or $41 million from the previous quarter. Residential mortgage loan represents approximately 15% of our total loan portfolio, down from 16% in the previous quarter. We sold $32 million residential mortgages during the first quarter, resulting in a gain on sale of $0.5 million. We'll continue to evaluate additional sales contingent on market conditions. Corporate Korea accounted for $28 million of total loan production. USKC loan balances were $818 million, down $44 million or 5% from the prior quarter and represent approximately 12.5% of our total loan portfolio. Turning to deposits. In the first quarter, deposits increased 2% from the prior quarter, driven primarily by growth in interest-bearing deposits and a modest increase in noninterest-bearing demand deposits. Deposit balances for USKC customers increased by $107 million or 11%, surpassing $1.1 billion. At quarter end, corporate Korea deposits represented 17% of our total deposits and 16% of our demand deposits. A little over a year ago, we opened a representative office in Seoul, South Korea, marking a key milestone in Hanmi's USKC strategy. Through this office, we're deepening client relationships and supporting these customers as they expand into U.S. market. Combined with our Corporate Korea desk across the major U.S. cities, this initiative has played an important role in growing our USKC deposits. The composition of our deposit base remains stable, reflecting the strength of our relationship banking model. At the end of first quarter, noninterest-bearing deposits remained healthy at roughly 30% of total bank deposits. Turning to asset quality, which remains strong, delinquencies declined 25% to 0.20% of total loans from 0.27% in the prior quarter. Nonperforming loans declined 31% to 0.19% of total loans from 0.28% in the prior quarter, primarily driven by a $9.7 million payment received and a $10.2 million nonaccrual loan. Nonperforming assets declined 38% to 0.16% of total assets from 0.26% in the prior quarter, reflecting the aforementioned payment and the sale of 2 properties that entered OREO status during the third quarter of 2025. These properties were sold for a net gain of $0.8 million in the first quarter. During the quarter, a $21.2 million CRE loan was downgraded to special mention and a $5 million C&I hospitality loan was downgraded to classified. These downgrades were borrower specific and not indicative of broader portfolio trends. Both loans remain current and are paying as agreed. Importantly, these actions reflect Hanmi's disciplined approach to early risk identification focused on achieving timely and optimal outcomes. And now I'll hand the call over to Ron Santarosa, our Chief Financial Officer, for more details on our first quarter financial results. Ron? Romolo Santarosa: Thank you, Anthony and good afternoon. Pre-provision net revenue for the first quarter increased to $33.4 million or 4.1% from the fourth quarter, with all 3 components of PPNR contributing nicely to the growth. First, net interest revenue increased 0.5% and net interest margin expanded by 10 basis points to 3.38%. Next, noninterest income was up 2.9% and noninterest expense declined by 1.9%. Looking closely at net interest revenue for the first quarter, there was a $1.6 million net benefit from lower interest rates, offset by a $700,000 effect from a lower level of interest-earning assets and an $800,000 effect from 2 less days in the period. Turning to net interest margin. It increased by 10 basis points, primarily reflecting a 16 basis point decline in the average cost of interest-bearing deposits. For the second quarter, we do not expect a similar decrease in the average cost of interest-bearing deposits. The April month-to-date average cost of money market and savings deposits is about the same as it was for the first quarter. The April month-to-date average cost of time deposits, however, is 10 basis points lower, bringing the average cost of all interest-bearing deposits to only about 5 basis points lower than that for the first quarter. Noninterest income increased 2.9% to $8.5 million, primarily from higher SBA loan sale gains with a higher volume of loans sold and higher trade premiums. Noninterest expense declined 1.9% to $38.4 million, principally due to the gain from the sales of 2 OREO properties where we had OREO expenses in the prior period. As expected, advertising and promotion expense declined from their fourth quarter seasonal high, while professional fees and data processing charges increased due to higher activity in the quarter. Salaries and benefits declined as adjustments to performance and equity-based compensation plans more than offset the seasonal increase in employer taxes and benefits. The decrease in noninterest expense and the increase in revenues resulted in an efficiency ratio of 53.48% for the first quarter. Hanmi's effective tax rate for the first quarter was 26%, reflecting both the tax benefit from the first quarter's vesting of equity-based compensation and the lower California apportionment factor. We expect the effective tax rate to increase in future quarters, eventually bringing the annual effective tax rate to approximately 27% for the year. During the first quarter, Hanmi repurchased $4.8 million of common stock under the share repurchase plan, representing 185,707 shares at an average price of $25.89. At the end of the first quarter, 2.15 million shares were available under the plan. In addition, Hanmi bought $1.1 million of common stock from employees to satisfy their tax liabilities upon the vesting of their restricted stock and performance stock awards. Hanmi's tangible common equity per share increased 1.1% to $26.56 per share and the ratio of tangible common equity to tangible assets increased 12 basis points from 9.99% to 10.11%. With that, I will turn it back to Bonnie. Bonita Lee: Thank you, Ron. We believe the favorable trends that we have seen in our business positions us well to deliver strong shareholder results in 2026. Our priorities and expectations for 2026 remain unchanged from what we communicated in our last earnings call. We expect loan growth in the low to mid-single-digit range while continuing to prioritize further diversification across the portfolio. Our focus remains on growing deposits to support loan growth while preserving a stable, well-balanced funding profile. Key priorities include deepening existing customer relationships, attracting new clients and further strengthening our core deposit base with a particular emphasis on growing noninterest-bearing deposits. We remain committed to disciplined expense management. While we are making selective investment in talent and technology to support our long-term growth strategy, we continued to operate efficiently, emphasizing initiatives that enhance productivity and maintain cost discipline across the organization. Finally, we'll continue to take a prudent approach to credit management to preserve strong asset quality. Conservative underwriting practices, active portfolio oversight and rigorous risk analysis remains central to our operating philosophy and will guide our decision-making as economic conditions evolve. We are encouraged about the opportunities ahead and look forward to keeping you updated on our ongoing progress. Thank you. We'll now open the call to answer questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question is from Matthew Clark with Piper Sandler. Adam Kroll: This is Adam Kroll on for Matthew Clark. Yes. So maybe just starting out on loan growth, had solid loan production during the quarter and I see the breakdown in the deck that just shows the strong growth in C&I during the quarter. I guess, was there any specific industry or geography driving that? And then do you expect C&I to be the main driver of the low to mid-single-digit growth for the year? Bonita Lee: Yes, sure. We do expect the C&I to be the focus, continuing with our portfolio diversification but we expect the growth to come from other portfolios as well. As far as the C&I production during the first quarter, it's pretty fairly broad-based in terms of different business types and industry. Adam Kroll: Got it. I appreciate the color there. Maybe switching to credit. I was just wondering if you could provide any additional color on the retail loan that migrated to special mention or the hospitality loan that migrated to classified during the quarter and maybe how you see the situation playing out? Bonita Lee: Sure. So first of all, we did have $21.2 million loan we took the initiative and downgraded to special mention. This is a retail commercial real estate loan. First of all, loan is current with no past due payment history. Loan was downgraded due to the loss of one of their major tenants. However, despite of the vacancy of this tenant, the property continues to generate sufficient income to service the debt. And further, this credit is supported by personal guarantees with a substantial net worth. So accordingly, at this time, we do not expect any loss from this particular credit. The second credit, which is a $5 million substandard credit. It is a C&I loan in the hospitality industry. The subject business was impacted by extensive renovation construction of a hotel where the subject business is located. As the construction is complete, we expect performance to improve. To support the stability during the slow period, the modification was granted and we downgraded the loan. The sponsor on this credit has a substantial experience and the net worth. So loan is paying as agreed under the modification and we do not expect the loss coming from this credit at this time. Adam Kroll: Got it. I really appreciate the color there. Last one for me is just, do you expect to remain active on share repurchases, just given your healthy capital levels and just where the shares trade today? Romolo Santarosa: Yes, Adam. I think looking at the strength of the balance sheet, the excellent asset quality, the trends of earnings, I think it's fair to anticipate the Board will continue probably in amounts not too dissimilar from what we saw in the first quarter. Operator: Our next question is from Kelly Motta with KBW. Kelly Motta: Maybe to kick it off on expenses. These are very well controlled in what's usually a seasonally higher quarter with payroll taxes and whatnot. As you look ahead with your strategic plan, can you remind us any planned investments you have for the year? And if there's any kind of puts and takes of this $38 million level that we should be considering as we think through the run rate as we go ahead? Romolo Santarosa: Kelly, I -- we do not have any, I would consider significant notions relative to expenditures. I would characterize them as ordinary. That said and looking at the somewhat favorable counterbalancing of seasonal effects, I have a sense that we'll probably continue at the first quarter trend with some things that I know will happen but I couldn't tell you which direction they're going to go in. But I would think the first quarter is a fairly indicative idea of how we may play out for the rest of the year. Kelly Motta: Okay. Okay. That's helpful. And how about the pipeline for SBA? I think there's been some rule changes there. Just wondering, it looks like it was a pretty solid quarter for gain on sale but wondering if there's any anticipated impact from changes in kind of the pipeline there. Bonita Lee: Yes. So we give a guidance of $45 million to $50 million. In certain quarters, the seasonally high quarters, we give $50 million to $55 million per quarter. Given the guideline change and the eligibility for SBA loans, we're going to continue with the $45 million to $50 million range of SBA production. Kelly Motta: Okay. Very good. Got it. Maybe lastly for me. I mean, you guys have had some migration into the special mention. And I think notably as you take note, they're paying as agreement, highlights your proactive nature. As you survey your customer base, like how are you feeling now versus, say, 1 year ago? And any kind of notable changes in terms of what you guys are watching more carefully? And what gives you confidence in ultimately the low level of loss content in that book? Bonita Lee: Sure. As we proactively review and communicate -- and our loan customers, including what's coming for the renewal and maturity customers. In terms of this overall trend, particularly on the small businesses or consumer loans like residential mortgage loans, we don't see the negative trend compared to last year or last quarter. The migrations that had happened for us, this is really due to our very -- we're taking the initiative and look as we communicate with each individual customers and the loans that have migrated, it's very specific to the customers, specific to this relationship. For example, as I had mentioned, the constructions from the -- where the business is located, it's very unique to customer specific, not formation, any type of trend. And as we proactively work on the renewals, some of the actually payoffs, the higher payoffs they experienced in the first quarter, as we look at the trends, if we are concerned of certain trends, we communicate to the customers early on and we ask customers to pay off the loan. So that has been done, that as well. So -- and we're looking at through across our entire portfolio. So that's why in terms of just at a high-level trend, we don't see the trend is happening. So that's where the comfort is. It's very borrower specific. And in our past, if you look at our history, some of the loans that we put in the special mention category, at one time, it was higher than that, the level that we are at. We had a resolution. We had to successfully resolve the -- most of the loans in the history for the last couple of quarters as well. So we are very optimistic for the loans that are in the downgraded category that we will aggressively work on these loans to come to a resolution as evidenced by one of the nonaccrual loans, $10 million that was a nonaccrual status that we had a successful collection of $9.7 million of that $10 million nonaccrual loan this quarter. So we'll continue with the process. Operator: [Operator Instructions] Our next question is from Ahmad Hasan with D.A. Davidson. Ahmad Hasan: On for Gary Tenner here. First question is on NIM dynamics. I appreciate the detail on Slide 10. If I see correctly here, there's about $1 billion in CDs rolling off in the next quarter. Do you think that would be the key driver and that could potentially push NIM up further from here? Or does loan yields kind of offset that in the next couple of quarters? Romolo Santarosa: Yes, Ahmad. So what we tried to point out, though, with the time deposit book being the percentage that it is of the total interest-bearing deposit book, the pickup that you would envision as those CDs are repriced at current rates, while by themselves, let's say, enticing as a percentage of the book, it becomes rather small. That's why we're just not seeing as much of a benefit to the interest-bearing deposit costs month-to-date. But there is something there. I think the other 2 elements that would be more potentially of a positive going to the NIM but again, I have a sense it's going to be in a smaller contribution than we've experienced in the previous quarters is both the securities book and the loan book. I'll first touch on the securities book and then I'll let Anthony talk about the loan book. But on the securities book, we have substantial cash flow occurring here in 2026. That will reprice into more of a current rate idea and let's just say, 3% and whatever basis points you want to assign to the right of that whole number. So there will be some lift coming from the securities book. And then I'll let Anthony talk about the loan book. Anthony Kim: Yes, sure. We have CRE maturing for the next 12 months totaling about $1 billion. It's weighted average rated of high 4s. So we should be able to reprice these loans and renew this loan with a much higher rate. To give you more detail on the CD maturity, about $1 billion maturing with a weighted average of high 3s in second quarter and another, let's say, $1.16 billion maturing in the second half of the year with medium to high 3s percentage that we have opportunity to reprice. For the reference point, in the first quarter, about $800 million retail CD was matured at low 4s. We're able to retain 77% of that with 40 basis points lower. So yes, it's not much but we do have an opportunity to add some benefit to net interest margin. Bonita Lee: Just to add, just on the $1 billion maturing CRE loans, as Anthony said, it's currently priced at high 4%, let's say, close to 5%. And if you look at the first quarter, the new loan yield, it's coming in at 6.5% average, right? So there will be that pick up. So that's what we are expecting that may contribute to the expansion of the net interest margin going forward. Ahmad Hasan: Great. That is really helpful. And then maybe one more on -- you guys seem really excited about Corporate Korea initiative and that seems to be going really well. Just any color on client sentiment over there given the macro noise recently? Anthony Kim: Yes. based on the conversation with some of the customers, they no longer see tariff as an obstacle. I think it's beyond them. But ongoing economic uncertainty, rising energy price, inflation related to war making companies very cautious about taking on additional lines and loans. So they're opting to use their excess cash instead. So that part of the approach is contributing to subdued loan demand. So as economic certainty improves, we'll -- hoping to see recovery in loan demand. And then we continue to see influx of deposits coming from Korea for them to prepare for the investment in the U.S. So that's why we had a surge of deposit increase in first quarter and an increase in USKC portfolio. Ahmad Hasan: Great. That makes sense. And maybe last one for me. Any kind of planned new hires for this year? I know you talked a little bit about you bringing on new people this quarter. Can you talk a bit more about the planned new hires for the next couple of quarters? Bonita Lee: Yes. I mean talent investment is one of our key focus. So as we see the opportunity, definitely, we will pick up the talented bankers. But we do keep in mind what we invest in and what we get in terms of return. So -- and for the last couple of years, we have managed the investment tied to the talent investment and then the performance coming out. So the timing, we always try to balance it. So it's not impacting the bank in overarching impact in one quarter. So it's a continuation of the continuing process for us. Operator: Thank you. We have no further questions in the queue at this time. I will now turn the call back over to Ms. Bonnie Lee for concluding remarks. Bonita Lee: Thank you for joining our call today. We appreciate your interest in Hanmi and look forward to sharing our progress with you throughout the year. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.
Operator: Greetings, everyone, and welcome to the Calix First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nancy Fazioli, Vice President of Investor Relations. Nancy, please go ahead. Nancy Fazioli: Thank you, Alicia, and good afternoon, everyone. Thank you for joining our First Quarter 2026 Earnings Call. Today on the call, we have President and CEO, Michael Weening and Chief Financial Officer, Cory Sindelar. As a reminder, today after the market closed, Calix issued news releases, which were furnished on a Form 8-K along with our stockholder letter and were also posted on the Investor Relations section of the Calix website. Today's conference call will be available for webcast replay in the Investor Relations section of our website. Before I turn the call over to Michael for his opening remarks, I want to remind everyone that on this call, we will refer to forward-looking statements including all statements the company will make about its future financial and operating performance, growth strategy and market outlook, and that actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially are set forth in the first quarter 2026 letter to stockholders and in the annual quarterly reports filed with the SEC. Calix assumes no obligation to update any forward-looking statements which speak only as of their respective dates. Also on this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the first quarter 2026 letter to stockholders. Unless otherwise stated, all financial information referenced to this call will be non-GAAP. With that, Michael, please go ahead. Michael Weening: Thank you, Nancy. It was another incredible execution quarter for the Calix team. Record revenue with strong demand continuing into 2026 with customers. At the end of March, we completed the migration of all existing customers to the third generation of the Calix platform. Launching on Google Cloud, thereby enabling the expansion of our capabilities and the markets that we target. As important, those customers who expand their partnerships with Calix on Calix One begin to see the benefits rapidly as agent workforce and our AI native platform comes to life. The impact of AI will now start contributing to our customers' success by helping them transform their operations, allowing their teams to add capacity and capability with AI and accelerate experiences that they need to differentiate in the markets they serve, thereby enabling their teams to compete and win. Today's call is focused on the quarter and our 2026 outlook. Tomorrow at Investor Day, we'll go deeper on how Calix One expands the opportunity of our model with proof directly from customers who will attend the event and are ready to share. With that, I'll turn it over to Cory to walk through the results and guidance, and then we'll take your questions. Cory, over to you. Cory Sindelar: Thank you, Michael. In the first quarter of 2026, Calix delivered yet another quarter of record revenue of $280 million, marking a sequential increase of 3%, driven by continued strong demand for our platform. This quarter, we welcomed 14 new customers, reinforcing our ongoing efforts to grow our customer base, while supporting their expansion within the local communities they serve. Remaining performance obligations were $376 million, down 2% sequentially and up 11% year-over-year. The sequential decline related to a robust fourth quarter comparison and our focus on completing the migration of customers to the new third-generation platform. Current RPOs in the first quarter were a record $157 million, representing a 3% sequential increase and a 22% rise from the same period last year. We anticipate that RPOs will reaccelerate in the second half of 2026 as we gain momentum with Calix One, underscoring the strength of our business model as customers, focused on delivering exceptional experiences, adopt our platform, add incremental offerings and win new subscribers. Non-GAAP gross margin was 57.2%, down 80 basis points sequentially due to investment in our dual cloud environments as we migrated customers to our third-generation platform. Compared to last year, non-GAAP gross margin increased 100 basis points. Our balance sheet remains strong. DSO at the end of the first quarter was 36 days. Inventory turns remain steady at 3, reflecting continued inventory investments to address robust demand and building supply continuity, and we generated free cash flow in the quarter of $7 million. We also invested $171 million to buy back 3.3 million shares of our common stock at an average price of $51.34. Furthermore, the Board today authorized another $100 million to be added to this program. This investment speaks to our belief in the tremendous opportunity ahead and our commitment to creating lasting value for our stockholders. We finished the quarter with a strong cash and investment balance of $243 million. Turning to guidance. Our revenue guidance for the second quarter of 2026 is between $287 and $293 million, representing a 4% increase at the midpoint over the prior quarter. This reflects continued robust demand trends and a modest benefit from recapturing a portion of the higher memory costs via a memory surcharge. For the year, we expect revenue to grow between 15% and 20%. With demand/supply disconnect, so large related to memory components. There will inevitably be some companies that will come up short. Our first priority is to ensure that we have adequate supply such that our customers can continue to add subscribers and take market share. Our advanced purchasing had allowed us to avoid higher memory component costs during the first quarter. However, that advanced supply has run its course, and we now face market prices. We are partnering with our customers to share in the higher memory costs, by initiating a surcharge, albeit it is a partial cost recovery and without adding gross profit is one way we can help our customers in this unfortunate memory supply environment. Our gross margin guidance for the second quarter of 2026 is between 24 -- sorry, 54.25% and 57.25%. Reflecting the effects of higher memory component costs, the impact from surcharges and the customer and product mix. The decline in appliance gross margin is expected to be offset by improvement in software and service gross margin as the dual clog costs abate, and we optimize the current cloud environment. For the year, we expect our non-GAAP gross margin to decline between 50 and 150 basis points. For non-GAAP operating expenses, we forecast $128 million at the midpoint in the second quarter of 2026, which is a sequential increase of $1 million. This increase is mainly driven by our efforts to expedite AI functionality and enhancements to the Calix One platform. Importantly, we continue to expect to return to our target financial model for operating expenses by the end of 2026, improving our operating leverage and profitability. Tomorrow morning, we are excited to host our first Investor Day in 4 years at the New York Stock Exchange. The event will look -- will provide a look into our strategy, innovation roadmap and the long-term prospects that drive our confidence for the future. In addition, we will outline our key targets for growth, profitability and cash flow, giving investors benchmarks to track our progress and understand how we are positioning Calix for sustained success in the coming years. Nancy, let's open the call for questions. Nancy Fazioli: Operator, we're ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: I have a couple. Maybe if I can just start with you, Cory, on the gross margin guide here, just to fully understand the drivers. Once you put the surcharges through, are you expecting a recovery recovery in the back half of the year in relation to gross margins on the appliances as some of these surcharges flow through on your revenue line. And then as if memory does continue to sort of go higher memory costs continue to go higher, what's the plan here because you're not passing through the margin on the cost increase. So what prevents more downside on the margin percentage as you go through the year or if memory costs continue to increase? And I have a follow-up. Cory Sindelar: Yes. Thank you for the question. So our plan is to recover the costs. And so if there are further cost increases, we would adjust the surcharges accordingly, the effect of the surcharges by themselves, put a headwind to the gross margin. I estimate that in 2026, the effect of the surcharges for here to the end of the year, represent a 200 basis point headwind because you're adding a large amount of revenue at 0 points of margin through. Samik Chatterjee: Okay. Got it. And then maybe just on the demand side, you did mention sort of stronger demand from your customers. And I'm sort of trying to parse out, obviously, haven't been able to do the math yet in terms of you're raising the revenue guide from earlier talking about 10% to 15% growth on the top line to now 15% to 20% and you also are outlining stronger sequential growth for 2Q than you have in the last couple of quarters. How much of that is stronger customer demand that you're seeing in terms of orders versus the benefit from the price increase, which you're referring to as a sort of decently large price increase that's going to go through the revenue line as well. So just maybe help us break that down? And what are you seeing in terms of customer orders that's maybe giving you a bit more confidence as well. Cory Sindelar: Yes. Great question. The majority of the quarter-over-quarter increase is due to customer demand and a lesser portion is the surcharges. We are rolling out those surcharges now they'll take effect in May. So we're not getting a full quarter of recovery this current quarter. But -- so consequently, the majority of that increase in revenue is coming from increased demand and to a lesser extent, memory and price increases. Operator: Our next question comes from the line of Scott Searle with ROTH Capital Partners. Scott Searle: Just wanted to dive in on the gross margins related to the dual cloud cost. It looks like it was in the $3 million to $4 million range. Just want to clarify, does that go away completely by the second half? How should we think about modeling that? And then I had a follow-up. Cory Sindelar: Yes. Great question, Scott. That's the good news story is that -- we've got all the customers migrated onto the new cloud. And so yes, the dual cloud environment is done. So it's done. As we sit here today, it's done. So the penalty that we incurred happened in the first quarter. I think you got it sized about right. And so what you would expect to see on that line is for it to return back to levels that we're previously at I would expect for the next quarter or 2, we'll be back at record levels and continuing the progress that we've been making on that line. Scott Searle: So in terms of my follow-up, I've got a lot as it relates to the One platform, but I'd rather than preempt tomorrow, I'll save it for then. So maybe if I just could fiber availability in general, how is that impacting demand? And it's been interesting to see some of the Starlink numbers that have filtered to the marketplace where they've gotten some traction in places that I really didn't expect that they would in terms of more dense suburban environments than you would ordinarily think that they participate. I'm wondering what you're seeing in terms of your customer response on that front in terms of their demand, their rollout plans? Is this pushing them to accelerate? How is that kind of factoring into the calculus in terms of the overall market demand of your core customers? Michael Weening: I spent a lot of time with customers. It's Michael. And while the startling thing is there, you generally see it in real areas where there's -- when you have a 6-mile run to actually join a farm, obviously, Starlink is a good example there. I don't hear anyone saying I need to accelerate my rollout of fiber to compete. But for us, frankly, another competitive pressure is a good thing for Calix because if you think about which we'll talk about tomorrow, we try to think about the experience-based nature of what we're doing and how we help our customers differentiate and transform their business to win subscribers and grow revenue by delivering an amazing experience, whether it's a consumer small business or multi-dwelling units, frankly, that's good for our our business is because that gets them listening if in the past, they didn't feel that competitive threat. So it's all good. Scott Searle: Mike, and just fiber availability, what our customers saying? And maybe if I could sneak one other. I think you talked about guidance for 15% to 20% this year. 15% is really just kind of bumping along at the level you're at today. So what kind of visibility do you have in terms of deployments into the second half? Are you starting to feel pretty good about the lower end of that range? Michael Weening: I haven't heard anything with fiber availability have you? Cory Sindelar: There's been some talk, a little bit of like sub... Michael Weening: Yes. BEAD but we expected that as all that be money starts flowing, that there's going to be some supply right? So Cory, any comments on that? Cory Sindelar: Yes, Scott, I'm either more bullish or more negative on BEAD at the moment. I would say my temperature is about the same. It's progressing as we would expect. We've got tens of millions of dollars forecast in the second half of '26 related to BEAD. We're starting to see states actually start receiving their money. So things are kind of working its way out. We are not hearing that fiber shortage is causing a significant impact to BEAD demand as we're hearing it. Operator: Our last question comes from the line of Christian Schwan with Craig Cowen Capital Group. Christian Schwab: Congrats on the good quarter. Just for foot clarity, our previous guidance was 10% to 15% topline and near the high end. And now we've taken it to 15% to 20%, should we just assume that that's the surcharges that is going on there's incrementally better visibility and continued strong demand, but demand has been accelerating beyond what you thought 90 days ago is it? Or is it? Cory Sindelar: It's yes and yes to that, Christian. So clearly, the effect of surcharges is going to move us up into that higher part of the range. But we're also seeing some of the best demand that we've seen. Michael Weening: Yes. And that's we'll talk about tomorrow on Investor Day, right? So for us, as everybody knows, when you're rolling out the next stage in the platform going through that evolution, there can be unexpected challenges. We had gotten pretty hard for being done in Q1, and I'm really proud to say that the team got through it. So having gone through that and not facing any incremental delays that allows Cory and I had to sit on this call and be very bullish about the future for 2026 because this is what our team has worked towards for -- since November of 2023, we've been pounding away at this for over 2.5 years. And now our AI native platform is got 12 -- more than 1,200 customers loaded. And tomorrow, we're going to talk about how fast we're going to go and how we're going to go skiing out into that. And I think blue ocean of incremental TAM and compete aggressively to grow the company. So yes, you're hearing me be very bullish as you'll hear tomorrow during Investor Day. Christian Schwab: Great. And then my just quick follow-up question is, as it relates to BEAD, congrats on rightly getting some of that dollars generated for the company. I think you said tens of millions in the second half of calendar '26. What is the internal plan for what year you think will be the peak of that program? And what type of annual revenue number should we be thinking about? Cory Sindelar: So Christian, we've talked about that in the past. We've done some high-level math. I think that you'll start to see this thing ramp more significantly in 2027, probably peaks in '28. And I don't think that I would want to kind of put a number on it, but it's it's potentially high tens of millions. As we said about BEAD/see that as an accelerated on top of the core growth model, right? Operator: Our next question comes from the line of George Notter with Wolfe Research. Unknown Analyst: This is Karen on for George. Just a quick question. Any update on traction with Tier 1 customers on the cloud side? Cory Sindelar: None that we're willing to share. Unknown Analyst: Okay. Got it. And then -- any comments on the quarter-on-quarter uptick in appliances. I assume -- I think you guys have mentioned in the past that DVS takeouts are mostly done, if not all out. But what drove that is the quarter-on-quarter? Michael Weening: Customer demand for our products because of the fact that we're better than our competitors. Yes. And it was within our guidance that we provided/so there were no surprises in the quarter. We added customers, and we'll talk about that tomorrow on Investor Day when we walk through the core drivers of growth. Operator: Our next question comes from the line of Tim Savageaux with Northland Capital Markets. Timothy Savageaux: Maybe a couple of questions. First, I don't know if you mentioned it upfront, but if you can go through the BEAD commentary, again. Was it any more granular than tens of millions in the second half and maybe on a somewhat related note, there's been some news out of the FCC recently about foreign-made routers in the U.S. and some exemptions there. I wonder if any of that has any implications for Calix. Cory Sindelar: Yes, Tim, on the BEAD piece all we said is that we would we start to see revenue that I'm either more bullish or less bullish I'm even keeled through last quarter to this quarter. Things are progressing along as you would expect it to. We think that then translates into tens of millions of dollars in the back half of this year. And obviously, the ramp will start next year. In terms of FCC regulation it appears to be that the timing is fairly quick, kind of measured in weeks, not months. So we would expect to be receiving our conditional approval here soon. Calix has sought received various government approvals over Calix's 26-year history, expect no difference here. But I would also point out that FCC approval alone doesn't really differentiate your product at all, where Calix wins is after you deploy with automation and intelligence and subscriber experience that lowers OpEx and drive business outcomes. Michael Weening: Which we'll talk a lot about at tomorrow at Investor Day is that, as Cory said, in the last 26 years, we've done this frequently through a myriad of government programs and as a proud American company. And we're actually going to show you tomorrow what the power of it and Agentic and AI native, Agentic ready platform, how that's going to help us transform our customers' business, and that's going to drive outcomes. So press release on FCC is kind of irrelevant. We do it. Timothy Savageaux: Okay. But maybe just a quick follow-up there. I mean, is the timing of the conditional approval, having any impact on the business at all or others have... Michael Weening: Absolutely not. They're actually the -- the FCC is actually moving really quickly. So we anticipate no issues whatsoever. It's a nonevent. We will do this quickly because we're already well down the cycle. And so we won't press release it. We'll just -- well all of our customers we made aware quickly as that resolves itself. Cory Sindelar: So Tim to be a little bit more clear on it, any existing product that's shipping is not at risk. So there's not having any impact on current shipments. It is the next release in terms of new products coming into the marketplace. And so we have a number in the pipeline, and those are what we've applied for conditional approval. So expect to get those approvals. And it appears that the FCC is moving pretty fast, which is great, which we were surprised at how well how fast is the process is going. It's great. So we don't anticipate there being any problems as a result of that -- of those new rules. Operator: We have reached the end of our question-and-answer session. I would now like to turn the call back over to Nancy Fazioli, for closing remarks. Nancy Fazioli: Thank you. Calix will participate in several investor events during the second quarter, most importantly hosting our Investor Day at the New York Stock Exchange tomorrow as referenced. Information about these events, including dates and times and publicly available webcast will be posted on the Events page of the Investor Relations section of calix.com. Once again, thank you to everyone on this call and webcast for your interest in Calix, and for joining us. This concludes our conference call. Have a good day.
Operator: Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. And I would now like to introduce your host for today's conference, Kathryn Mistich, Investor Relations Manager. You may begin. Kathryn Mistich: Thank you, and good afternoon. During today's call, we may make forward-looking statements. We would like to remind everyone to carefully review the safe harbor language that was published with the earnings release and presentation and in the company's most recent 10-K and 10-Q, including the risks and uncertainties identified therein. You should keep in mind that any forward-looking statements made by Hancock Whitney speak only as of the date on which they were made. As everyone understands, the current economic environment is rapidly evolving and changing. Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions, but are not guarantees of performance or results, and our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock Whitney undertakes no obligation to update or revise any forward-looking statements, and you are cautioned not to place undue reliance on such forward-looking statements. Some of the remarks contain non-GAAP financial measures. You can find reconciliations to the most comparable GAAP measures in our earnings release and financial tables. The presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website. We will reference some of these slides in today's call. Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; Chris Ziluca, Chief Credit Officer; and Shane Loper, Chief Operating Officer. I will now turn the call over to John Hairston. John Hairston: Thank you, Kathryn, and thanks to everyone for joining us this afternoon. We are pleased to report a solid start to 2026. Our adjusted ROA was 1.43%, ROTCE was 14.64% and EPS was $1.52, all improved from prior quarter. Adjusted EPS compared to the same quarter last year increased over 10%. We are very excited to welcome 27 net new revenue producers to our strong banking team, and we expect to build on the momentum we have to generate meaningful balance sheet growth and profitability improvement over the rest of 2026. We achieved another quarter of solid earnings with NIM expansion an efficiency ratio of about 55%, consistent strong fee income and well-managed expenses. Net interest margin expanded 7 basis points this quarter due to higher securities yields following our bond portfolio restructuring and lower cost of funds that outpaced the impacts of lower loan yields in this rate environment. Loans grew $33 million or 1% annualized. Loan production totaled $1.2 billion, down from last quarter, but up $365 million compared to the same quarter last year. Historically, first quarter loan growth is seasonally softer, but average balances were up $250 million over fourth quarter. We anticipate average growth to improve as the year progresses with a strong pipeline and continued success in adding bankers. Our guidance of mid-single digits for the year for loan growth is unchanged. Deposits were down $198 million or 3% annualized due to seasonal public funds outflows. Interest-bearing public funds decreased $280 million and public fund DDAs decreased $75 million. Excluding the impact of public fund DDA outflows, DDAs would actually have been up $45 million. DDA mix ended the quarter at a very strong 36%. Interest-bearing transaction and savings accounts were up $261 million with higher balances driven by competitive products and pricing. Retail time deposits were down $149 million due to maturities during the quarter. We continue to enjoy a healthy CD renewal rate of about 85%. We have not changed our guidance on deposits as we still expect balances to be up low single digits from 2025 levels. This quarter, we continued to proactively return capital to shareholders through repurchasing 1.4 million shares of our common stock and increasing our quarterly cash dividend 11%, now standing at $0.50 per share. Additionally, we deployed capital through the previously announced bond restructuring effort, which was completed in January. We ended the quarter with a solid TCE of 9.93% and a common equity Tier 1 ratio of 13.3%. Despite market volatility and an emerging scenario of flat rates, we remain optimistic and confident for our growth prospects for the rest of 2026. We're closely monitoring macroeconomic trends and indicators, including both nationally and within our footprint. While the environment remains dynamic, our ample liquidity, solid allowance for credit losses of 1.43% and very strong capital keep us well positioned to navigate challenges and support our clients in really any economic scenario. With that, I'll invite Mike to add additional comments. Michael Achary: Thanks, John. Good afternoon, everyone. As John said at the onset, the company's performance in the first quarter was exceptional. Adjusted for the net loss in the bond portfolio restructuring, net income for the first quarter was $125 million or $1.52 per share compared to $126 million or $1.49 per share in the fourth quarter. As shown on Slide 20 of the investor deck, we remain confident in the guidance provided at the beginning of the year and have not made any changes this quarter. We are, however, now assuming no rate cuts throughout 2026 with no significant impact to NII or our NIM. PPNR for the company was down slightly from the prior quarter or about 1% to $173 million. Expressed as a return on average assets that continues to be a solid 1.98%. Net interest income increased 1% this quarter. Our fee income business continues to perform exceptionally and expenses were up but remained well controlled. Fee income adjusted for the net loss on the bond portfolio restructuring was essentially flat with last quarter, down only $1 million. The slight decrease was driven by lower specialty income, which tends to be somewhat unpredictable quarter-to-quarter. Expenses remained well controlled, only up 1% from last quarter. Much of this increase was from seasonal increases in payroll taxes and related benefits. We remain focused on making thoughtful investments in revenue-generating activities while balancing expense growth with top line revenue creation. As expected, our NIM was up 7 basis points this quarter to 3.55%, driven by a reduction in our cost of deposits and a higher yield on our bond portfolio, partly offset by lower loan yields following 2 rate cuts in the fourth quarter of last year. Our overall cost of funds was down 8 basis points to 1.44% due to a lower cost of deposits and a better funding mix. Our cost of deposits was down 10 basis points to 1.47% for the quarter with the cost of deposits down to 1.46% in the month of March. During the quarter, we reduced promotional rate pricing on our interest-bearing transaction accounts and retail CDs. In 2026, we expect CDs will continue to mature and renew at lower rates, although the rate advantage will diminish over the year in a flat rate environment. Our earning asset yield was down 1 basis point with loan yields down 13 basis points following the rate cuts in the fourth quarter. Our bond yields were up 25 basis points related to the quarter's restructuring transaction. Average earning assets were up $100 million, driven by higher average loans, partly offset by a lower level of a bonds. The yield on the bond portfolio, as mentioned, was up 25 basis points to 3.23% related to the quarter's restructuring transaction. The transaction contributed 4 basis points to our NIM expansion this quarter. As a reminder, the first quarter did not include a full quarter's impact from the transaction. We expect the full quarterly increase in bond yields will approach 32 basis points and the annual contribution to NIM will be about 7 basis points. Aside from the restructuring transaction, we reinvested $181 million back into the bond portfolio at higher yields. Loan yields, as mentioned, were down 13 basis points following the rate cuts in the fourth quarter of 2025. The total fixed rate was unchanged from last quarter at 5.28% and the total variable rate was down about 14 basis points. Total new loan rates were down 10 basis points quarter-over-quarter, but that was partly offset by an increase in average loans of about $250 million linked quarter. For the fifth consecutive quarter, our criticized commercial loans improved, decreasing $13 million to $522 million. Nonaccrual loans increased $6 million to $113 million. Net charge-offs came in at 19 basis points, so down from the prior quarter's 22 basis points. Our loan loss reserves are solid and unchanged at 1.43% of loans. We expect net charge-offs to average loans will come in at about 15 to 25 basis points for the full year. Lastly, a comment on capital. Our capital ratios remained remarkably strong, even with the proactive capital deployment we completed during the quarter through the bond restructuring transaction, share repurchases and an increase in our common cash dividend. We expect that share repurchases will continue at similar levels throughout the year. Changes in the growth dynamics of our balance sheet, economic conditions and share valuation could impact that view. I will now turn the call back to John. John Hairston: Thanks, Mike. Let's open the call for questions. Operator: [Operator Instructions] And our first question comes from the line of Michael Rose with Raymond James. Michael Rose: Maybe we can just start on loan growth. I think that's the one piece of the story that investors are really looking forward to seeing pick up here as we move through the year. Certainly understand the elevated paydowns. It looks like originations were still pretty good in what is typically a seasonally weaker quarter. But it does look like a lot of the growth was maybe driven this quarter by higher SNC balances. So maybe, John, is there a way to kind of map out what we should expect for loan growth in the back half of the year? I know you have the guidance, but more specifically, what gives you confidence that you can actually begin to see some real net growth and for it to pick up here because I think that's a big linchpin for investors. John Hairston: Sure, Michael. Thanks for the question. I'm going to let Shane tackle that question. D. Loper: Thanks, Michael. So our first quarter loan growth was $33 million, and that, I believe, reflects solid underlying momentum. We produced about $1.2 billion in loans, and that's up from $850 million from a year ago and really saw strength across business banking, commercial, middle market, health care, commercial finance and CRE. That net growth, as you articulated, was moderated though by some normal portfolio dynamics. So we had mortgage and consumer amortization and some planned paydowns in some of our larger credits across CRE, health care and our specialty lines. That all was anticipated. And from the outset, we've talked about indicating growth would be more weighted towards the mid and back half of the year. So if you look forward, I think we're positioned to deliver the mid-single-digit full year growth. Geographic markets are continuing to build momentum. Our CRE production is ahead of plan. Business banking is growing consistently and health care and commercial finance pipelines remain strong. Really importantly, though, we've hired 27 net new bankers, as John mentioned, with more coming in the second quarter. And our prior year hires are now ramping up to create a flywheel for production and growth. So I think if you take that together, the production, funding timing, banker productivity puts us in a good position for the balance of the year. And we're starting this first quarter in a positive place, even though it's not a significant number, but compared to last year, we were in a deficit in the first quarter. So we feel like we're in a really good position to be able to leverage production and new banker hires as we go through the back half of the year. Michael Achary: Michael, this is Mike. Seasonal perspective, you're right. The first quarter is usually the lowest quarter for production in terms of seasonal impacts. But again, as a reminder, as we go through the year, that production tends to pick up from a seasonal perspective and the fourth quarter is usually our best growth quarter. So we have that momentum that was started this quarter. And certainly, the intent is to build on that as we go through the year. Michael Rose: Okay. That's helpful. I appreciate it. And then maybe just as my follow-up, Mike, certainly hear you on the pace of buybacks here at least in the nearer term. Obviously, there's some Basel III endgame and G-SIB reforms that are out there for the larger banks, but I think a lot of banks are -- smaller banks are talking about maybe lower CET1 ratios than they might have contemplated before. Can you just give us an update on what the -- what your ultimate target is for CET1 and how we should think about maybe a year-end number as you balance repurchases and growth? Michael Achary: Well, the way we think about it is if you look at the slide that we have in there around our guidance and specifically the CSOs, we give some targets around certain profitability metrics, but as importantly, TCE. And as a reminder, those CSOs are styled toward achievement in fourth quarter of '28. So for TCE, we think that somewhere between 9% and 9.5% is a target that we can achieve at that point. And then if we look at CET1, that companion number is probably between 12% and 12.5% or somewhere in that range. So those are the levels that we think we can kind of aspire to by the end of '28. As you know, I mean, we're accruing a lot of capital as we kind of go through each quarter. But we are doing things to proactively manage that capital. Last year, we bought Sabal Trust Company for cash. We affected the bond restructure this past quarter. We've consistently increased the common dividend. As John mentioned on the opening comments, we increased by $0.05 per share per quarter, so 11%. So those kinds of efforts, especially around buybacks and addressing the common dividend will certainly continue going forward. And certainly, last but not least, the first and best use of capital is to provide for organic balance sheet growth. So as we grow our balance sheet going forward, we think we can have a pretty good shot at hitting the capital targets I mentioned. Operator: And our next question comes from the line of Matt Olney with Stephens. Matt Olney: Just want to follow up on the commentary around adding the new bankers. I think you mentioned there were 27 net new bankers. I would love to hear more about these new hires and their backgrounds and what type of lending they'll be focused on and what geographies? D. Loper: Sure, Matt. This is Shane. I'll give you some commentary on that. So based on what we consider from an internal benchmarking, these new bankers will typically begin contributing loan growth within kind of their first 24 -- 12 months and they really meaningfully additive in 12 to 24 and then strong productivity in 24 to 36. So this really is something that matters in 2 ways. The 27 net new bankers in the first quarter with additional hires planned in the second quarter supports incremental production as the year progresses. The bankers hired in '24 and '25 are now entering their prime growth years. So we feel like that's going to be a really nice compounding effect as the new hires ramp up. So when you think about where we've hired bankers from, it's really from all different types of entities. We've hired a number of bankers in Texas, probably the majority of the bankers are hired there. I think on the fourth quarter call, I talked about hiring or our target to be 60% business bankers and 40% being commercial and middle market. We've actually exceeded that 70% of these new bankers are in our business banking area, which is the much more granular and higher spreads, more deposits segment in our portfolio and 30% in commercial and middle market. So I feel like this gives us a real good flywheel as we go into '26 with bankers hired in '24 and '25 producing more significantly as the new bankers are coming on in '26. Our process is strong. It's leader-driven. We began that new process in the fourth quarter of '25 that's paid big dividends. And we're going to continue to add bankers looking towards that 50 net new for '26. Matt Olney: Okay. That's helpful. Appreciate all the color there, and it's great to see some good progress there. Follow-up question, I guess, on the -- more for Mike on the net interest margin. We saw some good expansion this quarter. You noted the securities restructuring, a big driver there. Any more color on the margin from here as we go throughout the year? Michael Achary: Yes. Thank you, Matt. So as we kind of talked about on last quarter's call for the year, we had talked a little bit about margin expansion in the range of 12 to 15 basis points, and that would be from fourth quarter of last year to the fourth quarter of this year. So based on where we are now and what we achieved in the first quarter and what we know we can for the last 3 quarters of the year, remaining 3 quarters, we're pretty confident about hitting that target and maybe even some upside toward the upper end of that range. Certainly, that is very dependent upon us hitting our targets around loan growth, so the mid-single-digit growth year-over-year. We also have obviously a head start, if you will, with the bond restructure. In addition to that, we have just under $1 billion of principal cash flow yet to come from the bond portfolio that will come off at about 3.76% and go back on at, let's just say, 4.25% or better. So year-over-year, we're looking at about a 51 basis point improvement in the yield on the bond portfolio. And again, that's fourth quarter of last year to fourth quarter of this year. And then finally, we still have some ability to reprice CDs lower across this year. We kind of talked last quarter about year-over-year about a 16 basis point drop in our cost of deposits. We were down 10 basis points in the first quarter. So 6 over the remaining 3 quarters certainly seems doable even without the benefit of any Fed rate cuts. So on the CD front, we have, over the course of the year, about $7 billion maturing, $5 billion for the last 3 quarters, coming off at around [ 3.48 ] going back on at about [ 3.10 ] or so. Now the benefit of repricing those CDs will diminish as we kind of go through the year. And as we move into next year, again, without any benefit related to any rate cuts, that option of continuing to reprice CDs lower will largely have kind of played out. But certainly, as we think about our balance sheet and the things we're doing to organically grow it, that's where the benefit of loan growth will kind of replace the benefit that we had from repricing CDs over the last couple of years. Operator: And our next question comes from the line of Catherine Mealor with KBW. Catherine Mealor: Just as a follow-up on the margin. As we think about loan yields. You feel like loan yields from this 5.61% level should be increasing as we move through the year, just given where new loan pricing is and kind of the back book repricing opportunities? Or is competition leaving that more flat and really the upside in your margins coming from the CD and the bond piece that you just talked about? Michael Achary: Yes. The benefit that we talked about, Catherine, related to the NIM is really coming from the 3 things I mentioned. So the loan growth, the bond portfolio contribution and then lower cost of deposits. Without any rate cuts or increases for next year, we're looking at the yield on the loan portfolio to largely remain kind of where it is right now, so in that 5.60% to 5.62% range. Certainly, we have to deal with competition. But certainly, our ability to grow loans and maybe improve the mix of the loans that we're growing, we think, is enough to kind of keep that loan yield more or less where it is now. Catherine Mealor: Great. And then would you say -- it was interesting to me that with taking rate cuts out, you didn't increase your NIM guide, but it feels like you're more just comfortable in hitting perhaps the high end of the range without any cuts. Is that a fair way to think about it? And did anything change? Michael Achary: Right. And it really is, Catherine, that's a great observation. And as we think about the guidance for this year, again, we're not changing any of the guidance, but I would certainly give a little bit of a bias toward the upper end of the ranges, certainly on the revenue component, so NII and fees and then expenses as well. So we're thrilled to hire the 27 net new revenue producers for this year. The goal for the year, as Shane mentioned, is still around 50. But certainly hiring those folks sooner rather than later probably puts us in a position where the guidance for expenses is also kind of in the upper end of that range. Operator: And our next question comes from the line of Christopher Marinac with Brean Research. Christopher Marinac: I wanted to ask about the new loan yield. I know you disclosed the figure in the back of the deck, but I was curious if that yield may, in fact, get higher given how rates had acted and perhaps a little bit of movement in spreads late in the quarter. Just thinking about where 2Q is going to go. Michael Achary: Yes, Chris, again, without any rate action contemplated, I mean, certainly, I think the new loan yield more or less should stay in the neighborhood of where it is right now. That's certainly going to be impacted by any changes in mix and any changes between the contribution of fixed loans versus variable loans. So kind of quarter-over-quarter, that total new loan rate was down about 10 basis points. The rate on fixed rate loans was up around 25. The rate on variable rate loans was down about that same level, and that was obviously because of the 2 rate cuts that happened in the fourth quarter of last year. So I think somewhere going forward in that same neighborhood is probably a good territory for modeling. Christopher Marinac: Okay. And then if we think about sort of possible upgrades from the criticized book, do you see some of that playing out? And could that be a further tailwind this quarter and next quarter? John Hairston: Yes. Thanks, Chris. What we've been seeing is a little bit less in the way of inflows, which has been really nice to see. And so as I think I mentioned on some earlier calls, it usually takes 4 to 5 quarters on average for a credit to kind of get to a point where either it refinances away or improves such that we can kind of upgrade it. And one of the things that I've been kind of watching is some of our lower pass categories. And what we're seeing is a little less inflow in the lower pass category, especially what we consider kind of watch credits. So I think what we'll see is probably a little bit more of a flattening of our criticized loans rather than continued improvement. I'd like to think that we can make some headway there, but we are still operating at a pretty low level in criticized loans. So I'm really pleased with the progress that we've made over the past several years in that regard. Operator: The next question is from Casey Haire, Autonomous Research. Casey Haire: I want to touch on the loan growth. Sorry, I may have missed this. But -- so Slide 9, I understand that the guidance is that loan growth builds from this pace in the first quarter here. But just wondering, the prepayments of $820 million in the first quarter, I'm not sure if I heard you guys talk about what you assume for prepayments going forward. D. Loper: Casey, in terms of unexpected prepayments or just planned. Casey Haire: Right. So you got like unexpected, right, that you have the scheduled payments and maturities of $473 million. The $820 million is what really hurt the loan growth this quarter. And I'm just -- I don't know if I heard you say what you expect that to be going forward to deliver your mid-single-digit loan growth. D. Loper: Yes. We have our production numbers kind of detailed out for the rest of the year. And in those production numbers, we have some contras in terms of what is expected in terms of payoffs. And I think I've said a number of times, we have a number that we kind of factor in for unexpected payoffs in terms of additional production. So we really kind of saw some payoffs at the end of the quarter, and we saw a little bit of production actually pushed to the second quarter. So we've got a really good start here in the second quarter, and that kind of impacted our numbers a little bit in the first quarter. But we -- I don't have a specific number to give you, but I can tell you that it's planned into our overall production reconciliation. John Hairston: This is John. I'll add a little bit more color. The horsepower behind the mid-single-digit loan growth number for the year is really production improvement. The unscheduled payments could certainly bounce around a little bit, but the expectation would be that they don't swiftly go way up or way down. So to be very clear, the expectation is all those factors, Shane and Mike comment on earlier leading to production going up in the range of the types of numbers we talked about mid last year when we discussed what to expect for '26 and then for '27. Did we answer your question? Or would you like toredirect? Casey Haire: No, that's good. Yes, that's great. Thank you. Operator: The next question is from Brett Rabatin from StoneX. Brett Rabatin: I wanted to ask on the fee income guide. I know that syndication fees and SBA and SBIC, I know those are somewhat hard to predict. But just thinking about the guidance for the full year of kind of that 5% range, that's fairly flat from the first quarter. So I was just curious if you could maybe walk through what you guys see as the drivers on the fee side this year as you're thinking about that? And if there's any additional momentum maybe to be gained on the trust and wealth management side? D. Loper: Yes. Thank you. Fee income is performing in line with our expectations, and I do believe that it supports that 4% to 5% growth for the full year of '26. Fees in the first quarter were -- treasury and business service charges were strong merchant. We had one of our best months in merchant, and I think that ties out to our business banking focus and the leadership and sales activities there. SBA continues to be strong. Syndication fees, I think, will have opportunities throughout the year to continue producing there, and we've got a great team that's focused on that. And you mentioned wealth management, I just see continued momentum there. I mean that's now 35% of our total noninterest income. We've got a lot of the pivots that we've made over the last number of years are really paying off. We've got some enhanced leadership in a couple of different areas that we believe are really going to make a difference as we go into the back half of the year. You got to look at the market, wealth management fees. We have a significant part of our wealth management fees are earned every month on assets under management. So if we get a good stable market or an upward tilted market, then we're going to see some additional fee income growth. But if we get some downward tilt to that market, it's going to put a little pressure on wealth management annuitized fee income. Michael Achary: Brett, this is Mike. The thing I would add to that and just call a little bit of attention to is -- so while the guide is up 4% to 5%, it's safe to say that the guidance is really toward -- or the bias is really toward the upper end of that range. And if you look at our performance against guidance and fee income over the years, we do tend to overperform, I think, a little bit. So you could call that guidance a little bit on the conservative side. So it would not surprise us if we came in maybe even a little bit above that range, but certainly not prepared right now to change the guidance as of yet. That's something we'll address as we go through the year. The other thing to call out is, I think we said this or called attention to it in the opening comments, is this notion of specialty income being somewhat difficult to predict and can be -- can vary a little bit quarter-to-quarter. And for us, specialty income is things like the syndication fees, BOLI, so the mortality gains there, derivative fees and SBIC income. So for example, last quarter, we had a pretty sizable gain in SBIC fees, sorry. And obviously, that didn't repeat in the first quarter. But as we go through the year, we would certainly expect SBIC fees to contribute to the overall growth. So that's just an example of something that can kind of create a little bit of volatility and unpredictability as we go through the year. So hopefully, that was helpful. Brett Rabatin: Yes. That was very helpful. And then maybe just housekeeping or maybe just a fundamental question around just the bond restructuring. One, just making sure that the guidance excludes or includes the bond restructuring for the full year. And then just thinking about the rationality going through, it's a little more than a 4-year payback, but it seems like things like that's where a lot of these things end up in terms of the payback. So I was just curious on your thought process. I know a lot of banks look at that every quarter, every week to think about. So just wanted to hear your thoughts on it. Michael Achary: Yes. So obviously, the bond structure is part of the guidance for the full year and a bit of a driver. So we were thrilled to be able to execute that transaction in the middle of January. And certainly, as I mentioned before, I think on one of the earlier questions, it's a great use of capital. So it is something that we look at from time to time. We did one a couple of years ago that did admittedly have a little bit of a shorter payback period. And it's just the fact now that the bonds that populate our portfolio are such that executing a transaction like this does give you a little bit longer payback. But we still think it's a smart use of capital, and we're glad to have executed the transaction certainly. Operator: And our next question comes from the line of Gary Tenner with D.A. Davidson. Gary Tenner: I had a couple of questions. Mike, I was curious on the CD repricing or the CD rolls as they renew. When we were going through the easing cycle initially, I know you were very focused on keeping those CD maturities pretty short, kind of 6-month focus, so you could turn them pretty quick. Has that approach changed at all in terms of given the unknown, whether -- which direction rates might go at some point in terms of what -- kind of how you're trying to ladder those CD maturities? Michael Achary: Yes. Great question, Gary. And it absolutely has. So what we're doing now or the way we're kind of modifying that -- those tactics or strategy is to the extent we can begin to kind of lengthen out some of those CD maturities. So for example, the best rate we have right now in terms of our promotional rates on CDs is 3.5% for 11 months. So the intent there, obviously, is to extend the duration of those a little bit going forward. Gary Tenner: Great. Appreciate that. And then just to clarify your comment on expecting a similar pace of buyback. So you used about 1/3 of your authorization in the first quarter, should -- is the kind of read on what you were saying that you might kind of use it all up earlier and then either just do nothing, let's say, in the fourth quarter? Or would the Board potentially approve an additional authorization ahead of when they usually do? Or is the remainder more ratable over the rest of the year? Michael Achary: Yes. So a great question. And I hate to say but kind of all of the above, kind of. So what I mean by that is if you look at the authority that we have in total for the year, that was about 4.1 million shares. And we did lean into the buyback pretty heavily this quarter. We saw an opportunity at some point during the quarter when the stock had pulled back a little bit and again, leaned in and bought the 1.4 million shares. So the intent absolutely is to exhaust the buyback as we go through this year, whether we do that early or whether we effect the buyback a little bit more on a pro rata basis for the remaining 3 quarters really remains to be seen. And I think more than anything else, we want to give ourselves some optionality and flexibility to react to what's going on in the market. So the catch-all caveat to that really is what's going on in the environment, our own valuation and then how much we're growing our own balance sheet. And again, the intent always is going to be to deploy capital to support organic balance sheet growth and then leaning into buybacks and common dividend increases will come after that. But -- so again, I think the pertinent point is the intent to exhaust the authority as we go through the year. If we do exhaust it early, then that will be a decision that we make with our Board, whether to re-up early or wait to maybe re-up at the beginning of next year. Operator: And our next question comes from the line of Jared Shaw with Barclays. Unknown Analyst: This is [ Jon Ra ] on for Jared. I guess, first, maybe just thinking about the conflict in the Middle East and higher oil prices. I know you're not a big direct energy lender, but just wondering how that dynamic impacts borrowers and I guess, sentiment in your market? John Hairston: We'll start with sentiment and then we'll -- maybe Chris can mop up if there's any credit tone for the question. Shane, you want to begin? D. Loper: Yes. We do a regular client survey a couple of times a year and really try to understand what's going on with clients, what are they thinking in terms of investments and those kind of things. At this point, I think the word is cautious. They are optimistic. I think that at this point, the Iran conflict and war has really kind of crept into energy cost. But on top of energy cost, folks are looking at labor cost, insurance cost across the markets that we serve as kind of some of the guidepost of when they're going to invest and how much they're going to invest. I would say at this point, we don't have clients that are giving us very specific reasons of why they will or won't invest that are centered around the current war. John Hairston: Chris? Christopher Ziluca: I mean I think that's spot on. I mean it's probably early to tell. I'm sure if it persists for a long time. I mean it will probably start to show up from a credit standpoint in various areas, especially those that don't have the ability to pass on some of those cost increases. Some have them built into their contracts if they have a contract in place. So it's probably easier to at least pass it on. But I think it's just too early to tell. It's certainly something that we're watching and we're mindful of. I think overall, operating costs for companies and individuals have risen probably faster than their income has. So there's probably a little bit of a squeeze going on, but it hasn't really shown up dramatically at this stage. Unknown Analyst: Okay. Great. That's helpful. And then just thinking about attracting new commercial customers and maintaining a competitive product set. Are there any capabilities in like treasury management or like payments or anything that customers are asking for that has led to any thought around further like investments in that platform? D. Loper: Yes. Thank you. This is Shane. Look, we aspire to be the best bank for privately owned businesses and business owners in the country, and we feel like we're on that path. And that really ties back to certainty of execution and quick credit decisions. great treasury and deposit products and then a sophisticated wealth management capability. So when it comes to treasury, we are continually updating our systems, continuing to interface with more third parties such that clients that are using accounting systems and other types of systems to manage their business that ties directly into our treasury products. We're continually investing in card products. We feel like we've got one of the best purchasing card programs in the country. And on top of that, we're working on real-time payments and new payment capabilities that will help facilitate and hopefully reduce cost and complexity for clients. Unknown Analyst: Okay. Perfect. That's helpful. And then sorry, just one last one for me. Could you -- do you have the total revenue producer number at the bank today, just to help get some context around the size of the new hires? D. Loper: The revenue producers, let's call it, north of 200. John Hairston: Yes. This is John. I think the number you're fishing for is a quarter or 2 ago, we suggested that we were going to raise the expectation for compounded annual revenue producers to go maybe towards 15% annualized versus the 10% we talked about a year ago. And the first quarter success with landing bankers certainly supports that thought process. Is that what you're looking for? Unknown Analyst: Yes. Yes, exactly. Operator: And that concludes our question-and-answer session. I will now turn the conference back over to Mr. John Hairston for closing remarks. John Hairston: Thanks, Abby, for moderating the call. Everything went well. Thanks, everyone, for your interest, and we look forward to seeing you on the road very soon. Have a great afternoon. Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Intuitive First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Daniel Connally, Vice President, Investor Relations. Sir, please go ahead. Daniel Connally: Good afternoon, and welcome to Intuitive's First Quarter Earnings Conference Call. Joining me today are Dave Rosa, our CEO; and Jamie Samath, our CFO. Before we begin, I would like to remind you that comments made on today's call may contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in our Securities and Exchange Commission filings, including our most recent Form 10-K filed on February 3, 2026. Our SEC filings can be found through our website at intuitive.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements. Please note that this conference call will be available for audio replay on our website in the Events section under our Investor Relations page. We are experiencing technical difficulties with distribution of today's press release. Note, you can find today's 8-K, including our press release, on our website or at the SEC's website. The Q1 2026 financial data tables have been posted to our website as well. Our format for this afternoon's earnings conference call is as follows: Dave will review business and operational highlights. Jamie will provide a review of our financial results and procedure highlights. I will review clinical highlights and discuss our updated financial outlook for 2026. And finally, we will host a question-and-answer session. With that, I will turn it over to Dave. David Rosa: Good afternoon, and thank you for joining us. Q1 was a solid start to the year for Intuitive, driven by 17% total procedure growth and broad-based adoption across da Vinci and Ion as customers continue to advance minimally invasive care. In Q1, da Vinci procedures grew 16% to 847,000, and Ion procedures increased 39% to 43,000. Performance was strong in the U.S. and Europe, with mixed results in Asia. In the United States, da Vinci procedures grew 14% year-over-year, led by strength in general surgery. Growth was supported by a 31% increase in after-hours procedures and higher overall utilization. da Vinci 5 utilization continues to exceed that of da Vinci Xi, driving U.S. utilization growth to 4%. Outside the U.S., da Vinci procedures grew 19%, led by continued strength in general surgery and gynecology as adoption expands beyond urology. The lower growth rate relative to prior quarters reflects ongoing challenges in China and Japan. In China, the environment remains largely consistent with recent quarters reflecting relatively low tender activity across the category, domestic competition and policy-driven pricing pressure. Given our belief in the long-term opportunity, we continue to make investments to improve procedure growth, establish favorable patient charge codes and support other market access activities. In Japan, procedure growth improved sequentially, but remained below historical levels following fewer system placements in 2025. We are encouraged by recent policy developments, including incremental financial support for higher-volume robotic programs and new reimbursement for 7 additional procedures. Both policies to be effective starting in June 2026. Jamie will describe these changes in more detail shortly. I have confidence in our ability to execute our international strategy. Investments in our organizational capabilities, clinical trials and research, and market access efforts are yielding supportive robotic surgery policies and reimbursements in many of the countries we serve. The arc of progress is evident with OUS procedures now representing 38% of total da Vinci volume, up from 25% a decade ago. We are well positioned to expand access and drive deeper adoption in these countries with the addition of XiR to our system portfolio, and our overall ecosystem of technologies, training and services. Turning to capital. We placed 431 da Vinci systems in Q1, including 232 da Vinci 5 systems, 34 SP systems and 34 XiR systems. We also placed 52 Ion systems in the quarter. As da Vinci 5 moves into broader clinical use globally, customer adoption and feedback remain very encouraging. Customers are building experience with the da Vinci 5 ecosystem, resulting in increased clinical throughput and expanded access to da Vinci surgery. At the recent annual SAGES conference, several clinical abstracts demonstrated objectively lower tissue forces using da Vinci Force Feedback instrumentation across multiple procedure types. We continue to believe that objective knowledge of applied forces in surgery will lead to improved surgical outcomes and are investing to demonstrate this at scale. In March, we received FDA 510(k) clearance for additional uses of our Force Feedback instruments. Five of 6 instruments are now cleared for 15 uses, while our Mega SutureCut Needle Driver is cleared for 10 uses. Combined with multiyear investments in supply chain and manufacturing, this clearance supports broader availability in Q2 that will increase over the rest of the year. We expect adoption of Force Feedback instrumentation to progress steadily through 2026 and beyond. Turning to our digital ecosystem. We continue to invest in the data and digital infrastructure that underpins our longer-term innovation road map. da Vinci 5 captures real-world surgical data at greater scale and fidelity, enabling deeper insight into how procedures are performed in practice. That insight paired with clinical context from connected electronic medical records, provides better understanding of variation, workflow and outcomes, and informs current and planned digital and AI-enabled capabilities. My Intuitive+ continues to play an expanding role in training and program support, with growing adoption of Intuitive Telepresence capabilities that enable proctoring, mentoring and collaboration across surgeons and sites. Collectively, these efforts are foundational to our long-term digital and AI road map where we expect to add telesurgery, deeper decision support and augmented dexterity, including aspects of future automation, all in pursuit of advancing the Quintuple Aim. I'm excited by the progress our development teams are making. Turning to our Single Port Platform. SP momentum continued in the quarter with procedures growing 68% year-over-year. Growth was driven by expansion in Korea and the U.S. and ongoing early adoption across select international markets. Recently, U.S. surgeons performed the first non-IDE nipple sparing mastectomy cases as we advance our measured rollout focused on training and support of our customers. We also moved our single-port stapler into broad launch, which will support deeper penetration in thoracic and colorectal procedures as customers expand their programs. Our teams are focused on new product and procedure launches, expanding our customer base and securing new geographic clearances. Over the midterm, SP will incorporate much of the da Vinci 5 ecosystem, including current and future digital and AI capabilities. We're excited about the potential of SP to drive meaningful improvement in the Quintuple Aim. Moving to Ion. We're pleased with the results and progress this quarter. Ion's North Star is to help physicians improve lung cancer patient survival. Clinical publications continue to reinforce progress here, including a recent Mayo Clinic publication of approximately 2,000 patients, which demonstrated that use of Ion supports earlier identification of malignancy with the potential to improve patient survival. Dan will walk through the study in more detail later in the call. Our teams are making progress on our rapid on-site tissue evaluation technology, or ROSE, and endobronchial ultrasound integration as we look to further streamline the time from detection to diagnosis. Looking ahead, our company priorities for 2026 are unchanged. First, the global expansion of our platforms, digital feature releases and ecosystem enhancements. Second, increased adoption for focused procedures by country through training, commercial activities and market access efforts. Third, building industrial scale, enhancing product quality and achieving manufacturing optimization. And finally, advancing innovation to reach more patients in current and new disease states. Before I turn the call over to Jamie, I want to recognize an important leadership transition at Intuitive. Dr. Myriam Curet is retiring this quarter after more than 20 years as Intuitive's Chief Medical Officer. I'd like to thank Myriam for all her efforts in advancing our mission as a physician, a patient advocate and a business leader. I'm also pleased to announce Dr. Jamie Wong's promotion to Chief Medical Officer and member of our executive leadership team. Jamie provides -- combines a deep clinical background as a practicing da Vinci urologist with his experience of more than a decade at Intuitive, leading a variety of functions. As CMO, he will lead our global medical office, overseeing customer training, clinical evidence generation and research, and reimbursement and market access efforts. And with that, I'll turn the time over to Jamie to take you through our finances in greater detail. Jamie Samath: Good afternoon. I will describe our performance on a non-GAAP basis, and I'll summarize our GAAP results later in my remarks. A reconciliation between our non-GAAP and GAAP results is available on our website. All references to total procedures and their related growth rates include both da Vinci and Ion procedures. Before detailing our quarterly results, I would like to briefly address the cyber incident that occurred during the first quarter, which resulted in unauthorized access to some customer business and contact information as well as certain Intuitive employee and corporate data contained in certain of our IT business applications. The incident did not disrupt our business or manufacturing operations and did not affect our products. It also did not have a significant impact on our first quarter financial results. We have contained the incident, notified customers and informed appropriate data privacy regulators. We are also taking additional steps to further strengthen our cybersecurity protocols. In Q1, total procedures grew 17%, reflecting 16% growth in da Vinci procedures and 39% growth in Ion procedures. Quarter 1 revenue increased 23% to $2.77 billion, with recurring revenue also higher by 23% to $2.4 billion, accounting for 86% of total revenue. On a constant currency basis, revenue growth was 22%. Non-GAAP operating margin was strong at 39%, primarily reflecting leverage of fixed costs. The strength of our financial results reflect the continuing global expansion and procedure adoption of our da Vinci 5, Ion and SP platforms. Turning to the clinical side of our business. In the U.S., total procedures increased 15%, reflecting 14% growth in da Vinci procedures and 37% growth in Ion procedures. For our da Vinci platforms, we continue to see strong growth in cholecystectomy and appendectomy procedures, which combined grew by 31%, driven in part by continued expansion of use of da Vinci during after-hours and on weekends. We are starting to see emerging evidence that a broad set of clinical outcomes for appendectomy are improved with da Vinci surgery as compared to laparoscopy. Over the last year, in the U.S. we've invested in incremental clinical support for surgeons performing benign gynecology procedures given the opportunity to improve patient outcomes. While total U.S. gynecology procedures grew 10% in Q1, investments in this area drove a 19% increase in non-hysterectomy benign procedures, including sacrocolpopexy, endometriosis, oophorectomy and myomectomy during the quarter. da Vinci bariatrics procedures in the U.S. continue to be impacted by the growth in use of GLP-1s and declined approximately 10%. da Vinci utilization in the U.S. increased 4% in Q1, higher than recent quarters, driven by a growing installed base of da Vinci 5 systems, where utilization is approximately 11% higher than Xi. With respect to the expiration of subsidies for enhanced premiums under ACA, while we did not see any significant impact on procedure volumes in Q1, at this time, we remain cautious as to what the potential impact, if any, might be. Outside the U.S., total procedures grew 20% with da Vinci procedure growth of 19%, reflecting strong results in India, Canada, the U.K., Korea and Taiwan, and solid growth in distributor markets, Italy and Germany. The market in China continued to be challenging. In Q1, procedure growth was below the corporate average, reflecting lower tenders and competitive and pricing pressures. There are ongoing discussions with provinces regarding potential new charge code and reimbursement policies in China for robotic procedures. We are actively engaged with policymakers but do not expect clarity on the outcome of these matters until 2027. Procedure growth in Japan was also below the corporate average, reflecting lower capital placements over the last several quarters. In Q1, the Japanese Ministry of Health, Labor and Welfare, or MHLW, recently introduced incremental reimbursement for hospitals that exceed robotic procedure volumes of 200 qualifying cases per year. In addition, 7 new procedures have been granted robotic reimbursements starting in June of 2026. Furthermore, rectal resection has been granted premium reimbursement when performed robotically. While we are encouraged by these steps, we remain cautious in our outlook for the Japanese market in the short term given the financial position of public hospitals in recent periods. Globally, we continue to see healthy procedure growth for our SP platform at 68% for Q1 with strength in Korea and continuing robust early-stage growth in Europe, Japan and Taiwan. In the U.S., SP's average system utilization continued to accelerate following recent additional clearances, growing 22% as compared to quarter 1 of last year. During the quarter, we moved our new SP stapler into broad launch in the U.S., where it was used in almost 40% of cases where we would expect a stapler to be used. We are planning to move the SP stapler into measured launch in Korea and Europe in Q2 as we expand manufacturing capacity. As a result of our clinical performance, total I&A revenue in quarter 1 grew 23% to $1.7 billion. da Vinci I&A revenue per procedure was approximately $1,880 compared to $1,780 last year, driven by customer ordering patterns, a higher mix of SP and da Vinci 5 procedures and FX, partially offset by lower bariatric and high cholecystectomy procedures. Turning to capital performance and starting with our da Vinci business. We placed 431 da Vinci systems in quarter 1, a 17% increase from the 367 systems placed in the same quarter last year. 232 of the 431 placements were da Vinci 5, including 40 in OUS markets. The installed base of da Vinci 5 is now almost 1,500 systems used by almost 13,000 surgeons since launch. Customers acquired 34 refurbished Xi systems in Q1 compared to 2 in the year ago period. 26 of the 34 placements were in OUS markets in segments where we see greater cost sensitivity. There were 119 trade-in transactions in quarter 1, up from 67 a year ago, primarily driven by U.S. customers upgrading to da Vinci 5. In the U.S., we placed 226 systems, up from 204 last year, driven by adoption of da Vinci 5. Outside the U.S., we placed 205 systems, an increase of 26% compared to the 163 systems placed last year. OUS placements included 117 systems in Europe, 62 in Asia and 26 in the rest of the world compared to 88, 52 and 23, respectively, last year. Relative strength in Europe was driven primarily by the U.K., where we placed 34 systems as the NHS closed out its budgetary year. We placed 13 systems in Japan and 4 systems in China, reflecting lower overall tender volumes. Within the 431 da Vinci placements, we placed 34 SP systems in Q1, higher than the 19 systems last year, driven primarily by increased placements in the U.S. and Taiwan. For our Ion platform, we placed 52 systems in Q1 compared to 49 systems last year. Q1 Ion placements included 13 systems in OUS markets. Given our capital performance, quarter 1 systems revenue grew 24% to $651 million. For our da Vinci business, leasing represented 56% of da Vinci placements as compared to 47% last quarter and 54% last year, driven primarily by customer preference. da Vinci leasing revenue increased 28%, reflecting a 14% expansion of the installed base under operating lease arrangements and a 12% increase in lease revenue per system, driven by a higher mix of da Vinci 5 systems and higher utilization for usage-based arrangements. The average selling price for purchased da Vinci 5 systems was $1.7 million in Q1 as compared to $1.6 million last year, driven both by a higher mix of da Vinci 5 systems and dual-console systems, partially offset by higher trade-ins. Lease buyout revenue was $51 million as compared to $39 million last quarter and last year. Quarter 1 service revenue increased 19% to $434 million, reflecting an increase of the da Vinci installed base of 12% and the Ion installed base of 22%. Service revenue per system for our da Vinci installed base increased 6% year-over-year, primarily reflecting a higher mix of da Vinci 5 systems. Turning now to the rest of the P&L. Non-GAAP gross margin for the quarter was 67.8%, an increase from 66.4% in Q1 of last year. The year-over-year increase reflects product cost reductions and fixed overhead leverage, partly offset by the impact of tariffs. While Q1 results were not significantly impacted by higher oil and memory prices, we do expect those to have a greater unfavorable impact in the remainder of the year. During the quarter, our da Vinci 5 system achieved contribution margins comparable with our Xi system, and our Ion platform achieved contribution margins that are close to the corporate average, reflecting significant efforts by our engineering and operations teams. Continuing initiatives to further improve gross margins, excluding the impact of tariffs, are focused on leverage of fixed overhead, improving product and service margins for da Vinci 5 and additional reductions to product costs for our SP and Ion platforms. Future gross margins will reflect our execution on these initiatives, competitive pricing dynamics, global tariff rates and product, regional and trade-in mix. Quarter 1 non-GAAP operating expenses increased 10% year-over-year, a little lower than our expectations due to the timing of certain expenses. The year-over-year increase was driven by higher headcount, increased variable compensation and higher facility costs, partially offset by lower legal expenses. We added 425 employees during the quarter, of which 230 were related to the acquisition of our distribution business in Italy, Spain and Portugal. Non-GAAP other income was $85 million for the quarter as compared to $86 million last quarter, reflecting lower interest income. Our non-GAAP effective tax rate for quarter 1 was 22%, consistent with our expectations. Non-GAAP net income for the first quarter was $901 million compared with $662 million last year. Non-GAAP earnings per share was $2.50 per share as compared to $1.81 per share in quarter 1 of last year. Now turning to our GAAP results. GAAP net income for the quarter was $822 million or $2.28 per share compared to $698 million or $1.92 per share in Q1 of last year. We ended the quarter with $8 billion in cash and investments, down from $9 billion last quarter, driven by stock repurchases of $1.1 billion, the acquisition of our distributor business in Italy, Spain and Portugal, and capital expenditures of $103 million, partially offset by cash generated from operating activities and proceeds from employee equity activity. Taking a moment to recap our recent financial performance, a core element of our strategy focuses on excellence in product innovation to launch highly differentiated products that drive the Quintuple Aim for the benefit of customers and patients. Revenue growth ahead of total procedure growth reflects, in large part, the differentiated value of da Vinci 5. As that new platform becomes a greater proportion of our business, revenue growth benefits from accretive pricing, higher levels of integration and incremental trade-in volumes. We see opportunities to continue to drive innovation-led revenue performance with our SP stapler, planned SP vessel sealer and growth in use of existing and planned AI and digital capabilities. We also have plans to increase the value of our Ion platform in the lung through our pursuit of a staging indication and the integration of AI-based ROSE technology. With that, I'll turn it over to Dan to discuss recent clinical publications and our updated outlook for 2026. Daniel Connally: Thank you, Jamie. Earlier this month, Dr. Sebastian Fernandez-Bussy from Mayo Clinic in Jacksonville, along with co-authors across Mayo Clinic sites in Jacksonville, Phoenix and Rochester, published a study in Mayo Clinic Proceedings titled 2000 Peripheral Pulmonary Lesions Sampled by Shape-Sensing Robotic-Assisted Bronchoscopy and Mobile Cone-Beam Computed Tomography: The Mayo Clinic Experience. In the study, which ran from July 2019 through August 2024, 12 proceduralists used Ion to biopsy 2,115 peripheral pulmonary lesions from 1,904 patients. Lesions biopsied were an average size of just under 18 millimeters, with more than half located in the upper lobes at a median distance of 17 millimeters from the chest wall. Diagnostic yield according to the recently published strict ATS/ACCP Consensus Statement definition was 79% with sensitivity of malignancy reported at 85%. Further, 74% of patients had concurrent endobronchial ultrasound lymph node staging with the authors noting, "The ability to perform diagnosis and staging within the same anesthetic event reduces the risk of repeated interventions, facilitating lung cancer diagnosis and advanced disease management." Additionally, results demonstrated a strong safety profile with a pneumothorax requiring intervention rate of 1.4% and severe bleeding defined as Nashville Grade 3 or higher of 0.3%. Notably, the rate of early-stage primary lung cancer diagnosis in the study increased by 23 percentage points from 46% in 2019 to 69% in 2024. The authors concluded, "In this high-volume multi-center 5-year study, shape-sensing robotic-assisted bronchoscopy has shown a consistently optimal diagnostic yield with low complication rates. To our knowledge, this is the largest cohort assessing shape-sensing robotic-assisted bronchoscopy following the recent strict consensus on diagnostic yield. The ability to sample multiple peripheral pulmonary lesions and include hilar and mediastinal staging within the same anesthetic event positions shape-sensing robotic-assisted bronchoscopy as the preferred method of choice over CT-guided thoracic biopsy for assessing suspicious peripheral pulmonary lesions." I will now turn to our updated financial outlook for 2026, starting with da Vinci procedures. In January, we forecast full year 2026 da Vinci procedure growth to be within a range of 13% to 15%. We are increasing our forecast and now expect full year da Vinci procedure growth within a range of 13.5% to 15.5%. We continue to expect primary growth drivers in 2026 to be generally consistent with those in 2025, including general surgery in the U.S. and procedures outside of urology internationally. Our updated range continues to consider the potential impact of changes to ACA premium subsidies and patient behavior in the U.S., capital pressure in parts of Europe related to macroeconomic impact and shifting governmental priorities, China's tender volumes and competitive intensity in that market, recent capital challenges in Japan and how long those persist in 2026, and pharmaceutical products for obesity management. Turning to gross profit. On our last call, we forecast non-GAAP gross profit margin to be within a range of 67% and 68% of revenue, which reflected 120 basis points of impact from tariffs. We are updating our estimate for non-GAAP gross profit margin to be within a range of 67.5% and 68.5% of revenue, which now reflects 100 basis points of impact from tariffs as well as higher input costs in other areas, including freight and semiconductor memory. Other factors for the year include faster growth of newer products in daVinci 5 and Ion, modest incremental depreciation from recent facility expansion and the impact from higher da Vinci system upgrades, partially offset by cost reductions. Our actual non-GAAP gross profit margin will vary quarter-to-quarter depending largely on product, regional and trade-in mix and pricing. In regard to operating expenses, we now expect non-GAAP operating expense growth to be between 11% and 14%. We continue to estimate noncash stock compensation expense between $890 million and $920 million. We now forecast other income, which is comprised mostly of interest income, to total between $315 million and $335 million due primarily to lower average cash balances following share repurchase activity in Q1. With regard to income tax, we continue to expect our non-GAAP income tax rate to be between 22% and 23% of pretax income. That concludes our prepared remarks. We will now open the call to your questions. Operator: [Operator Instructions] Our first question will come from the line of Travis Steed with Bank of America. Travis Steed: Congrats on a good quarter. Maybe to start, I kind of want to talk a little bit about some of the future. You talked a lot about data and digital infrastructure, augmented dexterity. Just kind of curious how you see the digital and data road map for Intuitive. And there's also some hints on biopsy and the ROSE acquisition. So I'd love to kind of hear your big picture view of how that kind of plays out and anything you can say on timing? David Rosa: Yes. Happy to do it, Travis. Thank you for the question. So I'll start with AI. And I'm really -- and you asked the question, but I'm going to speak specifically about AI as it shows up in our products and with our customers and not so much AI on the corporate side. And so if -- when we look at AI, it's like any other product, and it's really through the lens of the Quintuple Aim and will it advance outcomes and reduce variation, improve certain patient experiences, lower total cost, advance access for patients around the globe. And we believe, yes, that AI will be a contributor to moving the Quintuple Aim forward. And our approach here is what we've described in the past. And it's really to build kind of this layered capabilities. And it starts with high-quality data, and that data will exist in video data from surgeries. It will exist in robotic data streams like kinematic data and force data. It will exist in connected electronic medical records, where we're working with customers to do so. And once we have that high-quality data set, then the job of our AI and our data scientists is to turn that into meaningful insights. And once we have those, I think the critical part here is how do we deliver those to the customer and it has to be in a consumable fashion, it has to be at the right time in the moment that matters to the customer. So there are, I think, ways in which this will show up to the customer. Some will be as operational guidance and assistance as they look at their hospital robotic program and want to increase efficiencies or understand costs. Some of it may show up in the learning of a surgeon and/or a care team. But a lot of it will show up in the operating room and I think show up in the surgery itself. And an example of this kind of first phase might be AI-enabled anatomy identification where you can see AI showing critical structures in the surgical field, showing tissue planes to help assist the surgeon. Then, over time, what we expect is that many of those same foundations that are being established and built in kind of that first phase, if you will, will support more advanced assistance around augmented dexterity and it will include -- likely include aspects of automation. There, an example might be helping to control the camera as the surgeon is focused on the procedure. And so throughout this, every step, it's about clinical value, of course, and it's about safety and reliability, and not just doing this in a one-off but doing this in a scaled fashion. And so if I look at that as the layer that we're progressing through and I look to see where -- how do we sit, how do we exist within the AI ecosystem and how are we differentiated? I think part of that differentiation is around the installed base of systems that we have out there, including about the 1,500 da Vinci 5 systems, the 3 million and more procedures that are being done on an annual basis. And I believe that gives us the foundation to strengthen the differentiation over the next 3 to 5 years. If you look at the industry and you say, what is broadly available, broadly available to everyone, it's things like edge and cloud compute, the math that underscores much of this, some of the training algorithms. Our advantage, we believe, lies is in the unique data sets that are available to us today through something like Force Feedback and will be increasingly available to us as we add capability to da Vinci 5. And so all of that together creates this flywheel. It's a flywheel that starts with data, insights, actions. Advancing the Quintuple Aim, the flywheel spins, it becomes that virtuous cycle. And we have the teams focused on it, and we are investing to advance this in the future and look forward to updating you along the journey. Travis Steed: That's exciting. Can't wait. Maybe my follow-up question, Jamie, on margin. You highlighted some macro stuff, but still raised gross margin 50 basis points and tariffs only came down 20 basis points. So I guess the contribution margin of dV5 comparable to Xi, a nice positive for margins. But kind of curious kind of what you saw in the macro and what you kind of baked in on that front? And any color on kind of what percent of COGS you'd call chips and exposure to oil and resin? Jamie Samath: Yes. I'd just say for oil prices and the derivative impact that has on input prices and logistics costs and memory, based on what we know today, in the gross margin guidance, it has an impact, but it's relatively small. I think what you see in Q1, in particular, is relatively significant leverage from the 23% revenue growth and a really nice contribution from the product cost reductions that we've described. So the macro is having an impact. And obviously, we're watching it carefully and you also have to watch the potential supply constraints. But the macro is baked in and relatively small, just given the components of our product costs. David Rosa: So Travis, real quick, you had asked about ROSE and EBUS and just some color there. So both are known technologies. And the time lines are more short term, but they won't be this year. We do believe that they are bringing a truly significant differentiated value to the lung cancer diagnosis -- detection and diagnosis journey and expect to share that value with customers. And so as that gets closer, we'll let you know more about it. Operator: [Operator Instructions] Our next question will come from the line of Larry Biegelsen with Wells Fargo. Larry Biegelsen: Congrats on a good start to the year here. I had one on procedures, and then I had one follow-up for Jamie. So I'd love to hear you talk about the appendectomy opportunity. It looks like about 300,000 per year. It's one of the first times I've heard you call that out on an earnings call, 300,000 per year in the U.S. And if you could size the incremental Japan opportunity from those new procedures, that would be great. And I had one follow-up. Jamie Samath: Yes. We haven't sized appendectomy yet. I think there's a question of what makes sense in terms of the robotic portion of that overall TAM because we're so early in appendectomy, we're still kind of working through internally on what we think is the right opportunity. We called out the kind of emerging evidence on clinical outcomes just because over the quarter, actually, we've had a couple of engagements with surgeons that have kind of done work in their own institutions. And we saw several of those come together. And across the set of functional outcomes in the work that they did, da Vinci was better on all comparison points, which we thought was encouraging. We'd like to see that show up in clinical studies that have larger data sets in terms of number of patients, but we think that's super interesting for what is typically a relatively quick procedure with relatively low reimbursements. Larry Biegelsen: And Japan? Daniel Connally: On Japan, I think we noted MHLW added reimbursement coverage for 7 procedures across a couple of different categories. The largest of those is bilateral inguinal hernia repair. Reimbursement there is roughly $1,500 per procedure. I think in aggregate, it's too early for us to size the incremental procedure opportunity in Japan. But the impact is relatively modest, and like in prior periods where we've had incremental reimbursement, it will take time to develop. Larry Biegelsen: Jamie, I'd love to maybe flesh out more what you meant by innovation-led revenue growth. This is the first time I've heard you talk about that. Is there any way to frame how much faster revenues will grow versus procedures. In Q1, it was obviously 23% versus -- 17%, I'm sorry. Do you expect that delta to increase going forward? Maybe just talk about the implications of this innovation-led revenue growth. Jamie Samath: Yes. I really felt like it was worth describing because if we look back at last year, even revenue growth was 21%. And obviously, procedure growth was also lower than that last year. And then you see the numbers in Q1. The business framing we have is kind of what I described as a push and pull. We're very conscious about deploying our R&D to places where we can be differentiated and make a difference on the Quintuple Aim that's integrated in how we make R&D deployment decisions. And so where you can be differentiated and make a resale difference for customers, then -- and create value for them, then you get to sharing that value in the form of on the Intuitive side, accretive pricing or incremental pricing. And we see that in da Vinci 5, you see that actually in SP I&A and there are other areas where we have that opportunity. On the other side of it, if you look at the totality of our business, there, of course, are procedures and geographies that are more cost sensitive. And so we also then look for -- as we work on bringing our costs down, particularly our manufacturing and product costs, we also look for opportunities to then share that cost savings with our customers because they have economical cost sensitivity. And we do that particularly in mind with what can be the elasticity response when it's cost sensitive. And so we work on both of those. And therefore, that creates a mix dynamic between the 2. In terms of like how long does it sustain? I don't think I want to get into that just because we don't guide revenue, it's really our attempt to just describe what's happened in recent periods with respect to the difference between revenue growth and procedure growth. And I think we're just reemphasizing the fact that innovation is critical to our success. Operator: [Operator Instructions] Our next question comes from the line of Robbie Marcus with JPMorgan. Robert Marcus: I'll add my congratulations on a really nice quarter as well. Two for me. First, the utilization continues to just be really impressive, especially with the after-hours metrics and the utilization improvement on da Vinci 5, which is now becoming a pretty substantial part of the installed base. I was hoping you could just add a little more color there in terms of how much more is there to go? Because I think everyone knows that utilization and procedure volume growth ultimately is what drives placements. So how much more is there to go? And how do you think about that translating into unit growth down the road? How much and when, if you're willing to quantify? Jamie Samath: That's -- in some regards, that's the impossible question to answer in the following sense, Robbie. It really -- you have to be aware of the averages, and you have to look at it by market in terms of where is the distribution of utilization within any given market, what's the mix of systems they have in any given market. From a macro perspective, we are strategically aligned with customers that we want to increase robotic throughput because we think that serves them well economically and is good for Intuitive long term. So it's a difficult question to answer. There are markets where there's obviously room to improve utilization such as Japan and some of the European markets. In the U.S., I think utilization growth will mostly be driven by the rate by which the entire installed base in the U.S. switches over to da Vinci 5, which we think structurally has the ability given its feature set to run higher levels of utilization in Xi. For us, we'd like to keep utilization growth going because we think it's supercritical and differentiates us, I think, from competitors also. But I don't think we have the ability to call how long it goes and what the derivative impact is. Robert Marcus: I know it's a hard question. That's why I'm asking you. I'm hoping you could do my job for me a little bit. Maybe just a follow-up. We have more and more competitors trying to enter the market here, some in the U.S. from big surgical competitors, some in China, others in Europe, you now have the opportunity to offer a tiered pricing strategy with refurbished Xis. It'd be great just to get a refresh on how you're thinking about global competition at different price points in different markets and how you're feeling about your positioning there? David Rosa: Yes, Robbie. So I think we've -- competition is about, I think, meeting the needs of the customer at the right price point. And so it's really about the value that they're going to obtain for getting a robotic program established and treating patients and getting to great outcomes. And so what we know is that the basis of competition, we are wanting to make sure that people look at it not as the kind of the price you pay for the robot and the fact that now you have it in one of your ORs, but it's really the value of your program. How are patients being treated? Are you seeing the outcome improvements? Are you seeing a shift in the mix of open surgery to minimally invasive robotic procedures that you expected in any of the other strategic initiatives that a given customer might have? And so that's where and how we want to ensure that we are entering the conversations with customers and helping educate them around the globe about the questions they should be asking, what kind of data should they be looking for as they engage one or more robotic competitors from around the globe. And when it comes to those conversations and the data that are shared, I expect with our portfolio and now with XiR added, that will be a strong choice to lead in those value because of the demonstrated clinical output, the reliability of our systems, our ecosystem of services and training that can support them on their journey. And so that is, I think, the high-level picture of how we compete globally. Jamie, anything else you may want to add to that. Jamie Samath: I would just say we're still selling X, and actually, we sold 41 X systems in the quarter, 34 refurbished Xis. And then, of course, we have dV5, I think the segmentation there is really appealing. And in some sense, is a competitive advantage for us to be able to tier feature the capability and economics for various segments of our customers. The refurbished Xi like Dave said, if I'd just say it again, that is a very capable product. It has the full complete suite in the ecosystem and the economics for customers are really attractive. And so I think that's been a great kind of addition to the system portfolio. Operator: [Operator Instructions] Our next question will come from the line of Rick Wise with Stifel. Frederick Wise: Sorry for my scratchy voice here. One, a specific question for Jamie and then a bigger picture question for you, Dave. Jamie, just help us, if you could, better understand what dynamics internationally drove I&A at double the rate of procedure growth. I mean it's -- obviously, it's a big delta of 40% OUS I&A versus 19% OUS procedure growth. Was there anything onetime there or country specific? And is this dynamic -- should we imagine this dynamic continues? Jamie Samath: I have not looked at that deeply for OUS specifically, Rick. I do think the customer ordering pattern is likely a good chunk of that because all of our distributors obviously are international, and they can be pretty lumpy in terms of their kind of ordering patterns. They can place orders for several quarters. So I'd imagine that the greatest impact is that. And I think given the strong capital placements, we probably had a bunch of stocking orders that also benefited Q1. And finally, there is a benefit from FX. Frederick Wise: Got you. All right, Jamie. Dave, for you, just as we get ready for some upcoming robotic meetings and I reflect on some of the topics that are going to be discussed and presented. I was hoping you maybe would sort of step back and looking longer term, talk about a couple of initiatives that others are focused on. And to what degree is this important to Intuitive Surgical? Like telesurgery robotics. We saw the first promote procedure done recently. The value of robotics to stroke or a minimally invasive cardiovascular disease. And just again, at the highest level, your interest or passion or focus on areas like that, that might be future drivers of growth for Intuitive. David Rosa: I really appreciate the question, Rick. If I stand back and I think about adding incremental capabilities to our ecosystem, it is about where, one, number 1, we can drive the Quintuple Aim. Number 2, whatever it is, we think will be better in our hands. And so to -- for example, some of the things that you called out on telesurgery, I actually -- I really believe deeply in the collaboration capabilities of these telestration, telecollaboration tools. And we are seeing some pretty rapid utilization of our current platform with My Intuitive+, and we're seeing thousands of use cases a month. And so that is, I think, demonstrating stickiness and value with our customers. As we expand those capabilities and it will include telesurgery in the future, that is on our road map. We expect that to be a subset of those use cases. And I -- just yesterday, I was with a customer here and we were speaking to their expectation of how telesurgery will be deployed within their IDN, within their small set of hospitals, and I think there's real value there, though we do believe that a majority of the use cases when telecollaboration is warranted will likely be served by existing tools with telestration and audio/video interactions. And it will, if you will, kind of escalate to telesurgery in certain use cases. So I do think that's an important part of our future in what customers will find value in. Recently -- semi-recently, we've announced kind of our investment into cardiac and cardiac surgery. And there, again, I believe that there's going to be a set of patients who can benefit from minimally invasive cardiac surgery and a set of patients who will benefit from percutaneous transcatheter approaches. And the evidence shows that, in some cases, surgery is better, and in some cases, an interventional approach is better. And when surgery is warranted, then I think the investments we're making, capabilities of da Vinci 5 and our investments in training, in particular, will pay dividends and have an opportunity for surgeons to treat patients with a very minimally invasive cardiac approach to their disease. And there are others, you mentioned stroke. That is an interesting area. But there are plenty of areas that I think about in terms of adding capability and procedures and value to Intuitive and to the patients that our customers serve. One of the trends over the year that I've been just kind of fascinated by is how surgeons take the core capabilities of a platform like da Vinci and apply them into areas that we didn't envision that it wasn't an area that we investigated and that's been repeated over and over. And that -- and I believe, with da Vinci 5 capabilities that exist today and as we add more in the future, we're going to see that cycle continue. And we're going to see surgeons and we're seeing it already, say, hey, we think there is value in these areas that aren't currently served. And so I'm excited by some of those opportunities. We'll do the work to see if indeed there's true value there, and it can be scaled and repeatable and teachable. But it's an area that I look forward to updating you along the way. Operator: [Operator Instructions] Our next question will come from the line of David Roman with Goldman Sachs. David Roman: Maybe you could start on SP. And it looks like a lot of pieces are coming together here to support further adoption of that technology, whether that's additional clearances from a procedure standpoint or additional instrumentation. Maybe just give us a sense of kind of where we are in bringing SP to a point where that adoption curve can accelerate, whereby that becomes a more just meaningful percentage of places? And I guess, if you could also contextualize that, is that additive to the overall addressable procedure market? Or does it become a choice of a typical dV5 procedure or SP? Jamie Samath: Yes. I guess I would say, if you look at the kind of procedure growth over the last year or so, it's been strong, 68% this last quarter. And that strength has been in part driven by additional geographical clearances and additional procedure clearances, particularly in the U.S. And so I think that, that then continues over some period. It's not that it suddenly inflects and accelerates from where it is. I think we continue that kind of progression on some reasonable pace. If you look at the question of long term, what are the incremental opportunities that are different from multi-port? That multi-port is not going to serve and therefore, in effect are TAM expanding. I think those opportunities exist. Nipple-sparing mastectomy is a good example of that. And obviously, that's in an early stage. You have some work being done to see if SP is better than alternatives, including multi-port. And of course, that's been largely in exchange between one stream or one set of procedures that we have to another. There's work in our labs that's super interesting for additional disease states that aren't served today that TAM expanding. It's too early for us to discuss because our current focus is on the opportunity we have. We have still a long way to go in each of the markets where we're cleared and for the new indications that we've added. And so like the next year or 2 is -- that's where our focus is. But I think the long-term opportunity for SP is perhaps a little underestimated. David Roman: That's helpful. And I appreciate. It's hard to get into all the detail on a call like this regarding just your OUS strategy given the number of different geographies and moving pieces. But maybe just at a high level, you could help us think about the number of actions you've taken here. You acquired distributors in Europe. You have the XiR opportunity. You have a joint venture in China to go after that market. But how are you prioritizing markets outside the U.S.? And what is, broadly speaking, the strategy here just to ensure competitiveness as new lower-cost entrants approach the market, but also contrasted with things like favorable reimbursement clearances in the U.K., which occurred last year. Maybe just help think about how OUS evolves here a little bit over the course of '26 and how that contributes to your forward outlook here. David Rosa: David, for me, you sort of answered your own question, I think. It is all of the above, right? Our investments start with the people we have in the region and to ensure that they understand deeply, are well trained, of course. The investments we have in our products, including an expanding system portfolio, ensuring that the procedures that are being served in that geography have the right rest of the ecosystem cleared in that geography. That's another piece of the puzzle as we continue to innovate and bring new products to the market, we want to ensure those are available as well. So there are regulatory pathways. And so we have the portfolio of products that are required in a given geography. Then, what we want to do is ensure to the very best of our ability that they are priced appropriately for the value they bring. And so we have broad economic programs and pricing that we're able to tailor to the market. But what we want to do, and I mentioned this briefly before, is we want to ensure that the value that's being realized is able to be articulated and substantiated in a given geography. That is not just all about price. And so that's a piece of the market access effort that goes into ensuring our customers themselves understand the value, but also that the reimbursement in government agencies that drive the overall economics of a given country also understand the value. And that's a multiyear journey. So you get it from both sides, kind of the products and pricing, but also the value being realized by both customers and the government. And that is a geography-by-geography amount of work and that's years in the making around the globe. Jamie Samath: Maybe I'd just add. In each of the markets, we take a localized approach to how we engage, what our strategy is there. And each of those markets has a strict strategic plan, and that results in us investing differentially in each of those markets. For OUS, as you've seen, we'll go direct in markets already where we think the opportunity makes sense for us. And there may be instances where we start to look in large markets, some localized manufacturing, which is becoming increasingly important for some of those markets. I think the final thing I'd say is, we have ambitions internationally, just given we're earlier in penetration. And over time, there may be additional markets that we franchise with distributors that we don't do business in today. David Rosa: Okay. That was our last question. Thank you for all the questions. In closing, we continue to believe there's a substantial and durable opportunity to fundamentally improve surgery and acute interventions. Our teams continue to work closely with hospitals, physicians and care teams in pursuit of what our customers have termed the Quintuple Aim, better and more predictable patient outcomes, better experiences for patients, better experiences for their care teams, lower total cost of care and finally, increased access to care. We believe value creation in surgery and acute care is foundationally human. It flows from respect for and understanding of patients and care teams and their needs and their environment. At Intuitive, we envision a future of care that is less invasive and profoundly better, where diseases are identified earlier and treated quickly so patients can get back to what matters most. Thank you for your support on this extraordinary journey. We look forward to talking with you again in 3 months. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Operator: Thank you for standing by. Welcome to the Interactive Brokers Group First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference over to the Director of Investor Relations, Nancy Stuebe. Please proceed. Nancy Stuebe: Thank you. Good afternoon, and thank you for joining us for our first quarter 2026 earnings call. Joining us today are Thomas Peterffy, our Founder and Chairman; Milan Galik, our President and CEO; and Paul Brody, our CFO. I will be presenting Milan's comments on the business, and all three will be available at our Q&A. As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which by their nature, are not certain and are outside of the company's control. Our actual results and financial condition may differ, possibly materially, from what is indicated in these forward-looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC. In the first quarter, markets began with a strong January, supported by solid equity performance, optimism around corporate earnings, expanding market breadth and resilience despite geopolitical risks. However, that momentum did not persist. Most global market indices declined in February and fell further in March, broadly mirroring the kind of price movement we saw in the first quarter of 2025. The S&P 500 ended the quarter down 5%. Notably, each of the Magnificent 7 technology stocks declined by more than the broader market, resulting in relative outperformance by the rest of the index. Despite this backdrop, we continue to see strong interest from both institutional and individual investors globally in opening and funding accounts. Client engagement remained healthy, trading activity increased and clients gradually took on more risk since last year's tariff-driven market decline, as reflected in higher DARTs and increased risk exposure fees over the past several quarters. We continue to set records across key metrics, including net revenue, total accounts and account adds. Growth in new accounts has driven higher clients' uninvested cash balances, which increased 35% year-over-year to a record $169 billion. Client equity rose 38% to $789 billion and was up 1% sequentially, despite the 5% decline in the market as continued account funding offset market performance. Across products, stocks, options and futures all delivered double-digit year-over-year growth. Of note, futures contract volumes increased 20% to a quarterly record, driven by higher volatility and increased demand for hedging. Turning to our strategic initiatives. We have been incorporating AI across the organization. We had introduced investment themes and connections, tools which use AI to streamline research and visualize relationships among trends, companies and securities to give our clients actionable investment ideas. This quarter, we expanded international company coverage and integrated themes into market screeners, watch lists and news summaries. We continued enhancing our Ask IBKR tool, which enables clients to query their portfolios for insights such as sector exposure, performance, tax loss, corporate actions and fundamentals. It now provides more direct and relevant responses. We also expanded the number of new sources we are authorized to summarize using AI. Within client service, our AI-powered chatbot continues to improve, successfully addressing a growing share of client inquiries in multiple languages. We continue to increase its accuracy and coverage while enabling our reps to focus on more complex issues. We are also applying AI to further automate processes across areas like onboarding, compliance and other operational areas. Expanding the use of AI remains a priority across the firm, both to enhance the client experience and to improve internal efficiency. While we have made meaningful progress, we see significant opportunities to extend it further. Our efforts translated into strong financial performance. Quarterly commission revenue and total net revenues, both reached record levels. At the same time, we remain disciplined on expenses. Our pretax profit margin was 77%, maintaining our position as an industry leader and marking the sixth consecutive quarter with margins above 70%. In recognition of this and as a sign of confidence in the strength of our business model, its growth potential and of our capital base, we revisited our allocation of capital and decided to increase the amount of dividend we paid to $0.35 a year. Turning to our customer segments. Our introducing broker pipeline remains exceptionally strong. We continue to maintain a robust pool of prospects while onboarding a substantial number of new introducing brokers and supporting the growth of existing ones. For larger introducing brokers, we offer customized solutions and have made it easier for them to launch with a wide range of configurable features. Many international brokers require specialized functionality to address their local investment, tax and regulatory requirements. We have user interface enhancements and development that we look forward to discussing in future quarters. Within our hedge fund segment, our High Touch Prime Brokerage offering continues to gain traction, and we are particularly encouraged by referrals to new clients from existing clients. We've also received positive feedback on our ability to handle complex requirements, and several clients have launched additional strategies on our platform. We had a productive quarter for new product introductions. In cryptocurrency, we expanded our offering to clients in the EEA, significantly broadening our footprint. We also introduced crypto transferring capabilities, allowing clients to consolidate external holdings into their IBKR linked accounts. In addition, we launched access to the Coinbase Derivatives Exchange, providing trading in nanosized crypto contracts and perpetual style futures. Our prediction markets have been live in trading 24/7. In anticipation of increased interest ahead of the 2026 U.S. midterm elections, we introduced Election Board, a discovery and trading tool that helps clients browse and trade political event contracts. You may also have seen our client outperformance advertising campaign. As we shared previously, in 2025, the average account across each of our client segments outperformed the S&P on a net basis after fees and commissions. Our average individual account returned 19.2% versus 17.9% for the S&P, while our average hedge fund account returned 28.9%. The campaign began with digital channels and has since expanded into print and television globally. These outperformance results reflect our low-cost offering and high interest paid on client cash, the strength of our platform and our focus on best execution. This focus means that we seek to maximize client outcomes by routing orders directly to the venues offering the best price rather than selling order flow to third parties. We continue to see growth in overnight trading, which is increasingly important for our global customer base. Overnight trading volumes nearly tripled year-over-year in the first quarter, increasing to 8.1 million trades from 2.8 million, and up from 6.2 million in the fourth quarter. We remain highly active across all areas of the business with multiple initiatives underway across platforms and client segments. We look forward to sharing further updates in the coming quarters. With that, I will turn the call over to Paul Brody. Paul? Paul Brody: Thank you, Nancy, and good afternoon. Thanks, everyone, for joining the call. We will start with our revenue items on Page 3 of the release. We are pleased with our financial results this quarter as we again produced record net revenues and strong results in our key operating metrics. Commissions rose 19% versus last year's first quarter, reaching over $600 million for the first time. We saw robust trading volumes from our growing base of active customers across stocks, options and futures. Net interest income rose 17% year-on-year to $904 million, driven by higher balances and partially offset by lower benchmark interest rates. We saw strength from margin borrowing and from our segregated cash portfolio, partially offset by interest we paid on our customers' cash balances. Other fees and services generated $86 million, up 10%, primarily driven by higher market data and FDIC sweep fees, as well as higher payments for order flow from options exchange-mandated programs. Other income includes gains and losses on our investments, our currency diversification strategy and principal transactions. Note that many of these noncore items are excluded in our adjusted earnings. Without these excluded items, other income was $77 million for the quarter. Turning to expenses. Execution, clearing and distribution costs were $106 million in the quarter, down 12% over the year ago quarter, driven by lower SEC regulatory fees, which were set at 0 in last year's second quarter. Versus the fourth quarter, execution and clearing was higher due to exchange fees on greater futures trading volumes. Because they were largely passed through, these fees increased both our commission revenue and execution costs. Execution and clearing costs were 13% of commission revenues in the first quarter for a gross transactional profit margin of 87%. We calculate this by excluding from execution, clearing and distribution $24 million of nontransaction-based costs, predominantly market data fees which do not have a direct commission revenue component. As a reminder, for the upcoming quarters, the SEC raised its fee rate for securities from 0 to $20.60 per million effective April 4. For comparison, based on our volume in the first quarter of 2025, SEC fees then totaled $24 million and the fee rate was $27.80. And again, these fees are a pass-through for us, increasing both commission revenue and execution and clearing expense equally with no impact on the income we earn. Compensation and benefits expense was $167 million for the quarter for a ratio of compensation expense to adjusted net revenues of 10%, down slightly from 11% last year. Note, there are several calendar-based components that tend to increase comp and benefits expense modestly, such as additional U.S. FICA tax on salaries in the first quarter and on the vesting of stock incentive plan shares in the second quarter. Our headcount at March 31 was 3,232. G&A expenses were $68 million, up from the year ago quarter, mainly on expansion of advertising. Our pretax margin was 77% for the quarter as reported and as adjusted. Income taxes of $117 million reflects the sum of the public company's $56 million and the operating company's $61 million. This quarter, the public company's adjusted effective tax rate was 17.2%, within its usual range. Moving to our balance sheet on Page 5 of the release. The consistent strength of our business and our healthy balance sheet support our raising the dividend from $0.32 to $0.35 per year, returning capital to shareholders while still maintaining an ample capital base for the current business and future opportunities. Our total assets were 39% higher than in the prior year at $219 billion, with growth driven by higher-margin lending and segregated cash and securities balances. New account growth also helped drive our record customer credit balances. We continue to have no long-term debt and profit growth drove our firm equity up 23% to $21.3 billion. We maintain a balance sheet geared towards supporting growth in our existing business and helping us win new business by demonstrating our strength to prospective clients and partners while also considering overall capital allocation. Turning to the operating data. We had near record customer activity in options with our contract volumes up 16% over the prior year. Futures contract volumes rose 20% for the quarter to a new quarterly record and stock share volumes were up 25%, all were in line with the industry volumes. Stock share volumes generally increased versus last year as clients gravitated to larger, higher-quality names and traded relatively less in Pink Sheet and some other very low-priced stocks. Growth in the notional dollar value of shares traded in the quarter was significantly higher than the growth in share volumes. On Page 7, you can see that total customer DARTs were 4.4 million trades per day in the quarter, up 24% from the prior year. Commission per cleared commissionable order of $2.69 was up slightly from last year when the full SEC fee rate was being charged. Page 8 shows our net interest margin numbers. Total GAAP net interest income was $904 million for the quarter, up 17% on the year ago quarter. And our NIM table net interest income was $953 million, up 20%. We include, for NIM purposes, certain income that is more appropriately considered interest, but that for GAAP purposes is classified as other fees and services or as other income. Our net interest income reflects strong annual increases in balances as well as reductions in benchmark rates in most major currencies, including the full quarter impact of December's cuts in the U.S. The growth in balances resulted in a rise in interest income on margin loans and customer cash balances, partially offset by higher interest expense on customer cash balances. This quarter, central banks in most major markets held their benchmarks constant. Year-on-year, the average U.S. Fed funds rate fell 69 basis points or by 16%. Despite this decline, our margin loan interest was up 17%, and our segregated cash interest was up 3%, both bolstered by higher balances. The average duration of our investment portfolio remained at less than 30 days. During the quarter, U.S. dollar yield curve inversion from the short to medium term substantially flattened. So we continue to maximize what we earn by focusing on short-term yields rather than accept the uncertainty and higher duration risk of longer maturities. This strategy also allows us to maintain a relatively tight maturity mismatch between our assets and liabilities. Securities lending net interest was higher than last year, though we did not see as much activity in hard-to-borrow names as in the fourth quarter. Contributors to annual growth include several factors: our growing account base, which increases our inventory of attractive stocks to lend including international securities; the interest we pay on short cash balances, which makes us attractive to investors who utilize short selling; our fully paid lending program shares proceeds with clients generally on a 50-50 basis, which appeals to investors looking to maximize the return on their portfolios; and finally, more activity in some of the typical drivers of securities lending, including IPOs and M&A activity. A portion of what we earn from securities lending is classified as interest on segregated cash. We estimate that if the additional interest earned and paid on cash collateral were included under securities borrowed loans, then total net revenue related to securities lending would have been $270 million this quarter, up 45% over the prior year quarter. Fully rate-sensitive customer balances ended the current quarter at $27.8 billion versus $20.3 billion in the year ago quarter. Now for our estimates of the impact of changes in rates, we estimate the effect of a 25 basis point decrease in the benchmark Fed funds rate to be an $80 million reduction in annual net interest income. Note that our starting point for this estimate is March 31, with the Fed funds effective rate at 3.64% and balances as of that date. Any growth in our balance sheet and interest-earning assets would reduce this impact. About 1/3 of our customer interest sensitive balances is not in U.S. dollars, so estimates of the U.S. rate change exclude those currencies. We estimate the effect of a 25 basis point decrease in all the relevant non-USD benchmark rates would reduce annual net interest income by $35 million. In conclusion, we started the year with another financially strong quarter, reflecting our continued ability to grow our customer base and deliver on our core value proposition to customers while simultaneously scaling the business. Our business strategy continues to be effective, automating as much of the brokerage business as possible, continuously improving and expanding on what we offer while minimizing what we charge. And with that, we will turn back to the moderator and open up the line for questions. Operator: [Operator Instructions] One moment for our first question, please. It comes from the line of Patrick Moley of Piper Sandler. Patrick Moley: So last week, the SEC eliminated the Pattern Day Trader rule. It seems like it could be a pretty significant structural change for the industry and it will make more active day trading available to far more retail investors. So I was just curious how you're thinking about the strategic opportunity here. If you think that there's any avenue for increased account growth because of this and how you're just thinking about the overall opportunity to attract some of these smaller wallet retail investors? Milan Galik: Well, we welcome the change. The regulators are basically replacing an outdated concept of counting trades and an arbitrary equity threshold or account size with a risk-based system, real-time intra-day margin requirements. The expectation is that it will broaden the retail access, increase the trading frequency and engagement and also liquidity in the markets. The rule will probably speed up the outcomes. The disciplined participants who have experienced some well-tried trading methodology will probably end up growing their accounts faster, whereas those that trade in a more haphazard fashion will probably realize their losses faster. Patrick Moley: Okay. So you're viewing this as a opportunity for IBKR, I guess. Any color on the strategic opportunity here? Milan Galik: It is an opportunity in the sense that majority of our accounts are individual accounts. Many of these individual accounts are smaller accounts, and they will be able to trade frequently. So in that sense, it is an opportunity. Patrick Moley: Okay. All right. And then maybe just if you could help us break down the account growth that you saw in the first quarter, it seems like it's a pretty two-sided market for the business. On one hand, you have the war and you have an energy market volatility that I think is bringing people to the market and wanting to trade. And then on the other hand, I think that there's some concern about what this could mean for the rest of the year and whether it could create some frictions, I guess, in terms of the new account formation, particularly internationally. So any thoughts on just the current environment and just account growth through the storm here as we enter into the back half of the year? Milan Galik: No, I don't think we need to expect anything different from what we have seen in the past. What tends to happen is as the equity market prices are increasing, more and more of the public wants to participate on the run-up, and we see strong account openings. Whereas as the volatility increases, that may discourage newcomers from joining the market, but that gets offset by increase in the DARTs, increase in the trading. So as I said, the increased volatility is something that we have seen before for different reasons. So I would expect things to continue the way we have seen over the past several years. Operator: One moment for our next question, please. It comes from James Yaro with Goldman Sachs. James Yaro: I wanted to return to a topic discussed on last quarter's call on your focus on accelerating marketing spend to support account growth. Is there any way you could provide a bit more detail on what marketing spend trends might have looked like either historically or perhaps both historically and today? And maybe if you could just provide a little bit more color on how you would think about scaling marketing going forward? Thomas Peterffy: Well, we are hell bent on trying to increase our marketing spend, but we are also very strict about getting the required minimum return on every additional marketing dollar. So as a result, while we keep trying to increase the spend, it is going very slowly. So what we are really doing is we are trying to find additional marketing outlets that are going to hopefully give us more opportunity to spend more. James Yaro: That's very clear. As my follow-up, just there has been discussion among U.S. brokers and banks recently around potential AI-enabled cash optimization tools, which I think the idea is that they could ensure that customers receive yields on their deposits that are closer to Fed funds. I'm curious if you have any views on these sorts of tools. And I guess, is there any consideration that this could affect your pricing on deposits? Thomas Peterffy: So we're not happy about these tools because we have always been paying close to market rates. And if these tools force other brokers to do the same, then we're going to have more competition. But I don't think they will do that. Milan Galik: I mean it is somewhat ironic that we hear these noises about using the AI in the area of cash optimization from the banks, banks that have been paying very, very little on the uninvested cash. And if you think about it, there isn't that much that AI needs to do here. It's really the brokers' or the bank's decision of how much of the interest income they want the client to enjoy versus how much of it they want to keep for themselves. And we have historically been on the forefront of the industry. Our costs have been low, and that has helped us maximize the outcome for our clients. Operator: Our next question is from Ben Budish with Barclays. Benjamin Budish: Maybe to start following up on Patrick's second question. I'm just curious, I remember a year ago, the markets were selling off quite a bit in April, and you gave us an update on your margin balances, which tend to follow the S&P. It seems like there's -- we're seeing the opposite this month where the end of March -- since then, the markets are up fairly meaningfully. I'm just curious if you can give any more of a detailed update, what are margin balances looking like intra-month. Are we seeing this sort of S&P growth supported reacceleration of account growth? Particularly curious on the margins because that seemed to be such an interesting topic last year, and I would think you'd see a bit of a rebound, but just curious any details you could share there. Thomas Peterffy: So our margin loans are precisely at the end of the quarter, $86.6 billion. But that's part of our -- every month's end, we release our margin balances. So if anybody cares to look at that, they could see what's happening. Benjamin Budish: All right. Fair enough. And then maybe just a higher-level topic on prediction markets. Just curious, any updates you can share in terms of -- I know you've always framed this up as a very long-term opportunity. Any updates you can share in terms of conversations with institutions that may be interested in onboarding to ForecastEx, any progress there? Thomas Peterffy: ForecastEx is receiving more and more inquiries from people who have sworn months ago that they will never enter the prediction market. And now more and more of them are curious and are considering becoming members. Yes. So I think this is going to be a huge thing as I have said before, and it's going to be a lot of prediction trading. Operator: One moment for our next question, that comes from Brennan Hawken with BMO Capital Markets. Brennan Hawken: You touched on the non-U.S. dollar sensitivity to rates with 1/3 of those balances there. Is it possible to get a currency breakdown for those balances and maybe which of those currencies are growing the fastest? Paul Brody: Yes, we don't really get into it at that granular level, Brennan. But we make that differentiation between USD and non-USD because, of course, the bulk is in USD. But we want to make sure that in your mind that there's a differentiation when you see the benchmark rates change, what can you expect. Brennan Hawken: Okay. And then is it still fair to assume you framed the changes in rates as a drop in those policy rates, but are the upside and downside scenarios symmetrical? Or do they differ if rates are moving up? Paul Brody: They're roughly symmetrical. There are some low rate non-U.S. dollar currencies as we saw when rates here went near 0. There's a little bit of asymmetry when you go from positive to negative territory, but it's fairly minor. So other than that, they are pretty symmetrical. Operator: [Operator Instructions] Our next question is from Chris Allen with KBW. Christopher Allen: I just want to ask about crypto. You continue to build out capabilities there. You announced the transfer capabilities in crypto. I know it's just been a few weeks, but I'm wondering if you've seen any clients actively -- proactively transfer positions to IBKR since you offered that capability. Milan Galik: We indeed have released it only a couple of weeks ago. We do see amounts coming in. It's mostly United States, but internationally, we see that as well. And the other thing that we announced not long ago was launching our European offering. We have done that in cooperation with our partner, Zero Hash. We have so far been under soft release. We have issued a press release about it. We have sent an e-mail notification to existing clients. We have not yet been marketing it externally. Christopher Allen: Got it. And maybe just following up on that. Anything else you think you need to offer right now to increase or accelerate your digital asset penetration? Or you think you're kind of already there with your product solutions offering? I know you always add coins, things along those lines. Milan Galik: There are a couple of things we still need to do. We are not covering all the geographies. We are working on that in Singapore, for example. And the other thing that we need to work on is the staking. As you know, some of the currencies, cryptocurrencies use the proof-of-stay concept, which allows the holders of those currencies to earn very significant interest income. And our partner, Zero Hash is working on that capability. And as soon as they have it, we're going to integrate it into our offering. Operator: Our last question comes from [ Karim Assef ] with Bank of America. Unknown Analyst: Just one question actually on the crypto business. If you could talk a little bit more about that agreement or partnership that you've had with Coinbase Derivatives, maybe around like the client demand there and how we should kind of think about the potential revenue opportunity and any of the economics that you could share with us? Milan Galik: So the agreement that we have with them is very simple. The Coinbase Derivatives Exchange lists a number of cryptocurrency futures. Most of them are different in terms of size from what the large exchanges offer. They're significantly smaller contracts. So they are geared towards retail traders. There is one particular instrument type that is interesting to the traders. Those are the so-called perpetual futures. That was the main reason why we have decided to integrate that offering into ours. The perpetual cryptocurrency futures, they command very, very significant volumes, and that is why we joined the exchange and now offering it to our clients. Our clients trade. It's not a very large number of accounts yet, but the ones that are trading it are trading it in big numbers. Operator: Thank you. And ladies and gentlemen, this concludes our Q&A session, and I will pass it back to Nancy Stuebe for closing comments. Nancy Stuebe: Thank you, everyone, for participating today. As a reminder, this call will be available for replay on our website, and we will also be posting a clean version of our transcript on the site tomorrow. Thank you again, and we will talk to you next quarter end. Operator: And this concludes our conference. Thank you for participating, and you may now disconnect.
Jeff Dick: Good afternoon, and thank you for joining our first quarter 2026 earnings webcast. My name is Jeff Dick. I am the Chairman and CEO of MainStreet Bancshares, Inc. and MainStreet Bank. With me today is our Chief Financial Officer, Alex Vari; and our Chief Lending Officer, Tom Floyd. Chris Marinac, Director of Research for Brean Capital, will join us at the end of the call today with his questions. [Operator Instructions] This is a private chat that won't be visible to anyone else on the call. We will address your questions at the end of the presentation. If we miss your question during the discussion, please reach out after the webcast. I'd like to take a moment to point to our safe harbor page that describes the context of forward-looking statements that we may make today. Please also note that we may use certain non-GAAP measures, which are identified as such within the presentation materials. The D.C. metropolitan area is much more than host to the federal government. With our major universities, tourism, data centers, world-class medical facilities and resident Fortune 500 companies, it continues to be a great place to do business. By the numbers, the median household income is up $10,000 year-on-year and is at $135,000. The average home listing price is $831,000 and the median days on market went from 29 days to 30 days, still a seller's market. Federal Reserve economic data from December 2025 indicates that we have 684,000 government employees in the D.C. metropolitan area. Our market remains vibrant, and we continue to see opportunities. We are, of course, tuned into local, national and global geopolitical activities. And when things happen, we determine the potential impact to our market and to our business strategy. Over the past 2 years, we've been hovering around that $2.2 billion total asset mark. We focused on smart balance sheet management, which has involved efforts to replace higher cost funding. We've made progress on that front, but we recognize that as a community business bank in the Washington, D.C. market, our ongoing funding costs may very well remain a little higher than our peers across the country. We opened our doors in May 2004 as a Virginia-chartered community bank. We've been rooted in the Washington, D.C. metropolitan community now for over 22 years. We often talk about having a branch-light strategy. It's worth a moment to frame how we got here. Many of you on the call today will remember that the check clearing for the 21st Century Act, also known as the Check 21 Act, gave us the ability to deposit a digital substitute check. That law was signed in October of 2003 and became effective 1 year later, which was shortly after we opened. We were purposeful with our put our bank in your office approach, but this was new and unfamiliar technology. Customer acquisition was a slog. Each customer that we acquired was both new to us and new to using this technology. The most common response we heard during those days was, well, we'll bank with you once you have a branch closer by. We solved this by strategically covering our market area with a small number of branches, as you can see from the inset on Slide 6. Today, we still host more customers on our remote deposit capture solution than any bank our size in the country served by our core processor. We recently expanded our footprint to Middleburg, Virginia, our seventh branch opened in early February, and the grand opening was held on April 8 with a good crowd of Middleburg business folk present. The team has been doing a phenomenal job building our market presence in the Middleburg community, having already accumulated over $100 million of low-cost core deposits. Slide 8 shows that MNSB is a small-cap stock that trades on the NASDAQ Capital Markets Exchange and is listed on the Russell 2000 Index. As of quarter end, we traded at 87% of tangible book value. During today's presentation, you'll see directional consistency on our net interest margin, expense control and earnings. Asset quality remains strong, and we are well capitalized. At this point, I will turn the presentation over to our CFO, Alex Vari. Richard Vari: Thank you, Jeff. On Slide 9, we summarize our financial performance over the last 5 quarters. The first quarter of 2026 was defined by execution. We increased earnings per share to $0.48 by combining disciplined share repurchases with a 5% increase in net interest income after credit provision. Our net interest margin improved to 3.47%, while our return on average assets and return on tangible common equity stand at 0.76% and 7.58%, respectively. It is important to note that these results include a nonrecurring $685,000 loss on an other real estate owned disposition. We continue to be focused on becoming more efficient and have positioned ourselves for earnings growth in future quarters. Page 10 highlights our intentional management of our loan-to-deposit ratio to maximize our net interest income. Liquidity remains a fortress with abundant funding sources. Our secured available line increased $76 million to $663 million during the first quarter. Our liquidity facilities now cover over 42% of our entire deposit portfolio. Moving to Slide 11. You will see our net interest margin has expanded. The core portfolio is resilient with the core net interest margin increasing to 3.54%. Over the last 4 quarters, we've recognized onetime events that appear in our reported net interest margin. So we thought it was important to show the net interest margin without these nonrecurring transactions. In Q2 2025, we recovered $1.3 million in interest from a nonperforming asset. And in each of the last 3 quarters, we reversed interest on a small handful of loans we are working through. In fact, the average reported net interest margin across the last 5 quarters is 3.50%, which trends closely to the core net interest margin. You can refer to our presentation of non-GAAP ratios at the back of the slide deck for additional details. Our credit culture is built on pricing for risk appropriately, which is evident in our resilient risk-adjusted yields. This calculated risk model allows us to absorb normalized credit fluctuations while still delivering margin expansion. On Slide 12, you will see we've effectively neutralized the interest rate risk on the balance sheet. This provides us the ability to maintain margin stability regardless of the rate cycle. You might be thinking, well, how can that be? So I'd like to share a little bit more detail on how we've achieved that. Over 1/3 of our loan portfolio is variable or will reprice in the next 6 months, giving us quick asset sensitivity if rates increase. And given that we are already operating in a highly competitive deposit pricing environment, we anticipate a lower deposit beta in response to any further rate hikes. You will see we are also positioned well for sharp decreases in rates. With 87% of our time deposits scheduled to reprice ratably over the next 12 months, we maintain the liability sensitivity that allows us to capture funding relief quickly. And when coupled with our aggressive repricing strategy for variable deposits and robust floors across the loan portfolio, we are well positioned for margin expansion should the rate environment sharply soften instead. It's important to remember that this is just one tool that gives us insight into earnings over the near term. Turning to Slide 13, you'll see a deposit mix that is a direct reflection of our disciplined business customer-focused strategy. Over the last 5 quarters, we have both grown our deposit base while simultaneously lowering the overall cost by 64 basis points. Our progress is not just tied to the Fed's rate decisions. In the past 12 months, the FOMC lowered rates by 75 basis points. However, we have increased our interest-bearing deposits to 42% of the portfolio, while the yield on these deposits dropped 79 basis points. We have been aggressively repricing our deposits as demonstrated by our 67% funding beta for this rate reduction cycle. With the Fed forecast shifting to a flat rate outlook, we still have opportunities to lower funding costs through reprice maturing CDs, as I mentioned on the previous slide. However, we do expect the pace of impact to slow from previous quarters given the highly competitive market we serve and uncertain economic conditions. Generally, as we've seen the yield curve start to steepen, we see opportunities for net interest margin expansion through our deposit optimization efforts on the short end, coupled with loan repricing and new loan growth, which tends to be on the 5-year part of the curve. Slide 14 lays out our estimated expense run rate for the remainder of the year. The company has been diligent with expense control throughout the first quarter and expect to maintain that momentum. Our loan growth expectations are 3% to 5% for 2026. On Slide 15, we demonstrate how our share repurchase program has positively impacted our existing shareholders. Over the last 2 quarters, we repurchased over 482,000 shares, resulting in $0.30 per share accretion. The Board will consider future buyback programs when appropriate. At this point, I'll turn the presentation over to Tom Floyd, our Chief Lending Officer, to discuss our loan portfolio and loan performance. Tom Floyd: Thank you, Alex. As we recap the first quarter of 2026, I'm proud of our team's unwavering commitment to being a consistent and reliable financial partner. That dedication is reflected in our first quarter results where we saw a continuation in loan growth in desirable categories. Perhaps most notably, we maintained our credit discipline, finishing the quarter with net charge-offs at $259,000. Over the next few minutes, I'm excited to delve into the details of our portfolio composition and trends that drove these results. Slide 16 highlights our portfolio diversification, where we continue to see growth in our owner-occupied commercial real estate concentration. This was a theme of our 2025 year, so we're glad to see this continue into 2026 as our energy remains focused on the strategic growth of owner-occupied commercial real estate, which we've grown by roughly $80 million over the last year. As of the end of the first quarter, our portfolio composition consists of 30% nonowner-occupied commercial real estate, 25% owner-occupied commercial real estate, 16% in construction, 13% in multifamily, 11% in residential real estate and 5% in commercial and industrial. Additionally, it's worth noting that nearly all of our construction portfolio has an interest reserve held at the bank. Slide 17 shows our trend in average new loan size remaining low as we have grown. This highlights that in the current environment, we're sticking to smaller-sized opportunities within our market, which is full of diverse opportunities of all types and sizes. Moving to Slide 18, you will see the trend in our stress test estimates over the past 5 quarters. While the estimated worst-case stress loss has increased this quarter to $69.5 million, I want to draw your attention to the strength of our balance sheet. Even under these heightened hypothetical scenarios, our pre- and post- stress test capital ratios remain very strong with a post-stress common equity Tier 1 ratio of 11%, well above the 7% threshold of well capitalized. It's important to contextualize this model against reality. While our stress testing remains conservative and rigorous, our actual net charge-offs have remained extremely low. This, coupled with our positive track record for navigating problem loans, gives us continued optimism about our future performance. To remind you of our rigorous methodology, we utilize loan level testing for all construction and investor commercial real estate. For other categories, we apply the worst ever historical loss rates to current balances, and we mark investments to market and bank-owned life insurance to the liquidation value. This comprehensive approach confirms that despite hypothetical pressures, our actual credit performance remains excellent with low charge-offs and our capital base remains solid, both pre and post stress test. In Slide 19, you will see our classified loans at 3.09% of gross loans, nonaccruals at 2.88% and other real estate owned at 0.06%. While we monitor these closely, the most important takeaway is our history of execution. We've broken out our nonaccrual loans there on the slide, and you can see that most of the nonaccruals are attributable to only 2 relationships. Our low net charge-offs demonstrate that even when loans move to nonaccrual, our team is highly effective at protecting principal. We remain diligent in our loan workout efforts and are confident in our ability to drive favorable outcomes for these specific credits. Slide 20 is a lens into our government contracting portfolio. And here, I'm thrilled to announce the appointment of Morgan Higgins to our bank Board. Morgan is formerly an Executive Director at JPMorgan Chase, where she successfully stood up a government contracting lending practice in Northern Virginia. Currently, Morgan is a partner of Blue Delta Capital Partners, a minority investor venture capital firm focused exclusively on the U.S. federal government market. We've already started experiencing the positive impact of her involvement, and I'm excited about the momentum we're building in this space. Currently, our portfolio has 30 asset-based lines of credit in place where all advances are supported by a borrowing base of billed receivables. As you can see, these 30 lines have balances of $8.8 million outstanding with total commitments of $71.7 million, which equates to a 12% utilization rate. Over the average line's lifetime, this is relatively consistent. Our entire government contracting book only has $1.1 million in outstanding term debt. These loans are amortizing rapidly with an average remaining term of 21 months. The highlight here is the average deposit relationships attributable to this portfolio is $104 million. The portfolio's very strong deposit to credit relationship provides a significant funding advantage with deposits averaging roughly 10x the outstanding credit. In summary, we're pleased to deliver a quarter of consistent disciplined performance marked by continuing growth in owner-occupied real estate and a strategic Board appointment. We have a well-maintained and diversified loan book actively managed across all categories. Crucially, our robust stress testing demonstrates that we remain strongly capitalized even in a worst-case scenario, and our classified and nonperforming assets are at manageable levels, supported by a proven historical track record of timely successful resolutions. We remain confident that our disciplined relationship-focused approach positions us to deliver consistent performance and long-term value for our shareholders and the communities we serve. That wraps it up for our loan presentation. Back to you, Jeff. Jeff Dick: Thank you, Tom. As you heard, the lenders have been busy working on new relationships, especially in the owner-occupied space. The team is also working with field precision on each loan requiring resolution to minimize the possibility of a downside. We've also shared good news about the directional consistency of our net interest margin, expense control and earnings. We'll address questions that are submitted through the portal after we hear from Chris Marinac, Director of Research at Brean Capital. Chris, good afternoon. Chris, are you with us? We may be having a slight technical difficulty with this new solution. Bear with us, please, for 1 minute. [Technical Difficulty] Yes, we got you. Thank you, Chris. Christopher Marinac: Great. Sorry, a couple of settings there. So I wanted to ask about customer behavior just in terms of if folks are more cautious or more optimistic and just kind of how that may or may not impact your new business pipeline in the next few quarters. Jeff Dick: Yes, that's a great question. I think I'll turn that over first to Tom Floyd on the loan side. Tom Floyd: Yes. Great question. I think that, generally speaking, in the real estate space, people are optimistic because they're able to take advantage of certain circumstances for expansion that they feel good about going forward. I think overall, our pipeline is still seeing lots of good opportunities, both that are related to some of the activity that comes along with some of the things that are happening at the national level in the government contracting space. But in real estate, I think we're continuing to see good opportunities. I think people -- it's hard to say if -- yes, I think we're definitely seeing a good amount of opportunities in the pipeline. Jeff Dick: And I think it's probably fair to say also that some of those opportunities might be coming at the risk of others who have struggled. And so from a pricing standpoint in the commercial real estate space, everybody loves a good deal. And so we're seeing a little bit of that as well. But mostly, everything stands on its own, and we haven't seen any real changes certainly in the quality of the folks that we're looking at for new opportunities. On the deposit side, it seems like we've been making a bit more of an inroad. And I don't know if it's a general change in where people are putting their money again, but it's -- the business bankers have been keeping busy. And so yes, we're not seeing anything that would lead us to believe things are slowing down any more than they perhaps already had. Christopher Marinac: Okay. Would the ability to get new accounts on the deposit side possibly accelerate if some of the external kind of distractions or uncertainty, I feel like that may benefit your marketplace more than others. Jeff Dick: Yes, I think so. And in the meantime, there's always that flight to quality and FDIC insured deposits are still seen as a very strong quality mark. So yes, I think as international certainly arena settles down, if and when it settles down, yes, we should see some more opportunities, I think, for deposit growth there, too. Christopher Marinac: Okay. And then the net interest margin still seems like it has some potential positive change as some nonaccrued interest shifts. Can you just talk about the puts and takes on that and perhaps just any new visibility on margin outside of that recapture of problem loans? Richard Vari: Yes. Yes, great question. As I mentioned in the slide deck, we are seeing good opportunities, both on the deposit side to continue lower funding costs. We have a set of time deposits that are repricing. And as the short end has come down, we're going to see funding relief there. And on the loan side, again, as the yield curve kind of steepens, we're going to be able to deploy those at a nice margin spread as our loans tend to fall around the 5-year. I think another thing to point out, we recently announced the appointment of a new Chief Banking Officer, who's really experienced in our market. And he's really bringing a lot of great ideas to the table to increase not only the wallet share of our existing customers, but really expand this result [indiscernible]. Christopher Marinac: And then I guess one follow-up for me. It just has to do with expenses. Do you have any efficiency goals, not just next quarter, but just kind of in the big picture of kind of where you would like to see the organization? Is this quarter a step in that direction? Richard Vari: Yes, absolutely. And if you go back to 2023, one of our best years that we've ever had, we are seeing efficiency ratios in the low 50s percent. And that's our target. That's where we're trying to get to. This quarter, we saw expense reduction, and so we saw our increases in efficiency going lower. And we're going to continue that momentum. And our target is to get back to those 2023 levels. Jeff Dick: Yes, which is somewhere between that 53% and 55%. We think it's absolutely doable. But one of the difficulties right now, if we do put a loan on nonaccrual, it generally means reversing 90 days of interest, which can be hurtful for the current quarter, which we saw a little bit of this quarter. But we can -- once we get to the bottom of that, being able to go forward, I think we'll see some good improvements in our efficiency ratio, and that's really a great focus. Christopher Marinac: Got you. Okay. And then last question for me just goes back to your new hire and the sort of expertise that she brings in the gov con area. Will that part of your business be a lot different as we look a year or 18 months from now? Just curious kind of big picture, how that will be impacted. Jeff Dick: So we're definitely focused on that. I'll turn the question over to Tom in just a second. But yes, from the Board level, we think bringing somebody in with Morgan's background and experience is going to help us to really get a better line of sight into some of the government contractors she -- Blue Delta and what she does as a minority equity investor, everybody wants to have time with that group, and there's other groups in that space as well. But -- so we -- our hope is to try to bring people together to host some events and things where she's speaking and really look at the opportunities. Having said that, the conversion rate on government contract borrowers is -- it's a little bit more of an effort. But Tom, I'll turn it over to you. Tom Floyd: Sure. A lot -- everyone in our market says that they want to be in the space, but I think I'm really excited about how we're approaching it because we're bringing someone on that is a known quantity in the space. And from a number of different perspectives, Morgan can help us with opening doors to new customers and prospects and also just making sure that from an internal perspective, we're doing everything we can to be as competitive as possible in the marketplace. And we are seeing some progress already with actual results. And so I think in terms of what we're going to look like in a few years, I do expect some meaningful growth out of where we stand currently. It's certainly a very strong funding source for us. I think it will remain to be a strong funding source because of the nature of the business. But I do think that overall, we expect to see growth on the lending and deposit side. Jeff Dick: Thank you. As always, Chris, it's great to hear from you. We do have just a couple of questions that came in through the chat. One is as a follow-on to Chris' question, is the bank actively working with the developments along the Route 50 corridor out to Middleburg, Tom? Tom Floyd: Our acquisition and development financing is mainly infill, which is closer in inside the Beltway and just outside the Beltway. We do have some exposure to some people that have data center plans. But in those data center opportunities, a lot of them are like covered land plays where there's an industrial component that still makes sense and there's some industrial current uses that are happening where there's future potential for data center development. So it's not fully dependent on that. But going out that way, there's certainly a lot of growth in development. But for us, we're mainly focused a little bit closer into the Beltway. Jeff Dick: Great. Yes, it's safer. I think it's always been -- when we look back to the Great Recession in 2007, prices of land and property inside the Beltway dropped 7%, while in Southern Virginia, you further out, it was 31%. So we've always focused trying to be close in as possible. The other question is a little bit harder to answer right now because we are in a blackout period, but does the bank intend to maintain an aggressive buyback so long as the stock price is below tangible book value. And so I don't think that you'll see any change in trends of what you've seen in the past, but I don't know that we can really speak to that anymore. Alex? Richard Vari: Yes. I'd just say we were very pleased with our current buyback plan, and the Board is always looking at ways to expand capital in ways that make sense for shareholders. So that won't change, and that will continue. Jeff Dick: So I think that's a safe answer to that question. And as looking at the website right now, there's no other questions in the queue. So I want to thank everybody that participated in the webcast today. We're optimistic with what we're seeing. And like Alex kind of referenced a little bit earlier, 2023 was a banner year for us. Our objective is to get back to that level and then some. But we're working diligently to make that happen. So if you find you have any questions once the call is done, please always feel free to reach out. We're happy to talk with you one-on-one and look forward to that opportunity. Thank you, everyone, and have a great rest [Audio Gap]
Operator: Ladies and gentlemen, welcome to the Temenos Q1 2026 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Takis Spiliopoulos, CEO and Interim CFO. Please go ahead, sir. Panagiotis Spiliopoulos: Thank you. Good afternoon, good evening. Thank you for joining our Q1 '26 results call. As usual, I will talk you through our key performance and operational highlights before updating you on our financial performance. Starting on Slide 6. We delivered a strong performance in Q1 '26 across all our key metrics and our product revenue continues to grow above market. This follows on from the strong performance in 2025, where we delivered above-market growth in product revenue in the first year of our strategic plan. The sales environment remained stable through the quarter. And in fact, we had a particularly good performance in the Middle East and Africa, signing a number of deals with new and existing customers. Importantly, we also saw good momentum in the U.S. As we discussed at our Capital Markets Day, we have a strong pipeline of deals in the U.S. and several of these are progressing nicely through the sales process and we fully expect to sign some of them this year. Of course, it is hard to give precise timings given the complexity of the deal process. But I'm confident we will convert the U.S. pipeline into revenue and this is one of our key measures of success for the business this year. We also delivered another strong quarter of growth for maintenance, again, largely driven by premium maintenance signings as we continue to upsell across our customer base. We have a well-funded investment plan in place for the year, with planned incremental investments of $28 million to $35 million partially offset by around $10 million of cost efficiencies. One quarter into the year, we are on track with our investment plan, and I would like to highlight that we made several senior hires in sales and product. I'm also pleased to announce the hiring of our new CFO, Daniel Schmucki, who will join us on August 3 this year. Daniel brings a wealth of experience, most recently as CFO of SIX Group and before that, as CFO of publicly listed Zurich Airport. Daniel has a strong track record in building and leading high-performance teams in complex international businesses and he will be an excellent addition and strong partner for Executive Committee and senior management. Turning back to the business. We delivered good operational leverage in the quarter with a cost base growth from investments we made last year, offset by strong revenue growth in Q1 '26. And lastly, we have reconfirmed our 2026 guidance and 2028 targets. Moving to Slide 7. I'd like to highlight some of the key deals with clients in the quarter across different geographies and peers. We had a number of expansion deals with existing clients, including a Tier 1 bank in Japan for new core and payments solution and a leading Swiss private bank expanding their payment suite across several geographies. In SaaS, we extended our partnership with a digital arm of a leading bank in GCC, and we signed with a leading bank in APAC for core, payments and FCM to support their launch of a new digital bank serving retail, corporate and wealth clients. The diversity of deals across customer tiers, geographies, business models, products, and delivery types demonstrates the breadth and depth of our banking domain knowledge, customer trust and product capability. Turning to Slide 8. I'd like to highlight the value we are delivering to our customers. Given all the focus on the Middle East, I'd like to show one success story from the region this quarter with Al Salam Bank in Bahrain going live on our core banking platform. They selected Temenos to future-proof their business as we were able to demonstrate our platform's scalability and support their future growth. They wanted a platform that could enable market-leading digital services, support their AI initiatives and help them meet their regulatory compliance requirements. In the implementation, we replaced multiple siloed legacy systems with 2 acquired banks migrating to our single platform, delivering a significant increase in capacity and throughput and enabling the bank to launch a new digital app for real-time integrated services, thus creating new revenue opportunities. This is a great example of what our platform can do for banks looking to scale with confidence and reflects the kind of partnership and execution that sets Temenos apart. Moving to Slide 9. We showed this slide at our Capital Markets Day in February, but I want to reiterate our positioning in the AI era. AI is clearly reshaping technology markets. But banking is not a typical technology environment, and that distinction matters. Banks operate at the intersection of 2 of the highest thresholds in technology, product complexity and customer risk aversion. This is not an environment where generic AI solutions can simply be dropped in. The requirements are fundamentally different, and that is where Temenos' competitive moat is strongest. On the product side, banks demand trusted domain expertise that handle highly complex workflows, proprietary data and platforms that can be extensively audited. These obligations do not shrink with AI. As banks automate more, these obligations become more concentrated in critical systems. From a customer risk perspective, our solutions are mission critical. Banks operate in one of the most highly regulated sectors and have 0 tolerance for errors or hallucinations. Every decision must be deterministic. The cost of getting it wrong is existentially high. That's why we sit in the upper right quadrant of this matrix, where both product complexity and customer risk aversion are highest as is the threshold for AI adoption. But the benefits of AI are real and adoption will increase over time, and Temenos provides the regulated backbone for banks globally. By embedding AI into our platform, it allows customers to automate, scale and innovate without compromising on compliance or reliability. We are not only protected from AI innovation from peers, incumbents and customers, it is increasingly foundational to our right to win. Turning to the next slide. We have a well-defined AI strategy to capitalize on our advantage across our products, our process and our people. Our strategy will lower total cost of ownership for our customers to embedding AI across our products, and it will speed up our software development life cycle and support customers with GenAI assistance. And lastly, it will empower our people to leverage AI and enable greater productivity. As I mentioned before, the adoption threshold for AI in the banking sector is very high, where there is high product complexity and significant risk aversion. This combined with deep customer trust and domain knowledge creates a strong competitive moat for Temenos and gives us the right to win in the AI era. Moving to Slide 11. I'd like to give you an update on the progress we made in the first quarter on executing our strategy. Our product teams have made good progress on the product road map and we are on track for several new product launches in the second quarter across core, digital, AI and composability while also increasing the range of AI capabilities embedded in our products. We have continued investing in the business, in particular with several senior hires in our global sales organization. These individuals bring significant expertise to Temenos to further support and drive our core banking sales pipeline as well as expanding our team responsible for delivering large complex deals with Tier 1 banks in particular, which requires a specific skill set and the ability to manage highly complex negotiation to a successful closing event. We also launched our new pricing and packaging in the first quarter, which will drive better value for our clients and for Temenos by simplifying our approach, especially for deals involving multiple modules or products. And lastly, we continue to roll out AI tools across the company, most notably including the rollout of Anthropic in our product teams to enhance our software development life cycle. I will now run through our Q1 '26 financial highlights, focusing on constant currency non-IFRS financials. On Slide 13, we delivered strong ARR growth of 13% and despite the headwind from the BNPL client that moved off our platform at the end of last year. For those interested, we have shown the underlying growth rates for all our key metrics this quarter in the appendix excluding the impact of the BNPL client. We had good growth this quarter across all our recurring revenue lines, both subscription and SaaS as well as maintenance. And this was also reflected in the strong product revenue growth of 14%, well above the market run rate growth. Turning to Slide 14. Subscription and SaaS grew 12% in Q1 '26 continuing the strong performance from the previous year. As I mentioned earlier, there has been so far no visible impact from events in the Middle East with the region having a strong quarter in terms of deal signings with a good performance in SaaS in particular. Outside of EMEA, we also saw broad-based growth across client tiers and products. This was complemented by strong growth in maintenance and also decent services growth, which together drove total revenue growth of 13% in the quarter. Moving to Slide 15. Both non-IFRS EBIT and EPS grew 20% in the quarter. The year-on-year increase in our cost base is reflecting the significant investments we made throughout 2025 in product, go-to-market and operations. However, this was more than offset by the strong revenue growth and benefits from efficiency gains in the quarter. Pro forma non-IFRS R&D costs were up 14% year-on-year in constant currency as we are accelerating our investments into product as communicated in February. All this together demonstrates the strong operational leverage in our business. Premium maintenance, in particular, attracts a high margin and continues to help drive the growth in profit. Let me highlight a few items on Slide 16. ARR stands at $860 million despite the headwind from BNPL giving us excellent visibility on future recurring revenue and cash flow. The 15% growth in maintenance revenue was largely linked to strong premium maintenance signings as our sales teams continue upselling to our existing client base. We continue to guide for maintenance growth of 7% to 8% for the full year as we are taking a prudent view on the remaining demand for premium maintenance across our customer base. On profitability, EBIT margin improved by 190 basis points to 32.7% year-on-year, reflecting strong operating leverage and some benefit from cost efficiencies. Moving to nonoperating items on Slide 17. Net profit was up 19% in Q1 '26 and EPS grew 20%. Our EPS continues to benefit from the strong growth in profit and the lower share count from the shares canceled at last year's AGM from prior buybacks. We saw an increase in net finance charges and taxes in Q1, partially offset by FX. We had a slightly higher tax rate this quarter with the expected full year tax rate unchanged at 19% to 21%. On Slide 18, free cash flow for the quarter came in at $60 million, growing 22% year-on-year, driven by strong ARR growth, good EBIT to cash conversion and our disciplined approach to capital allocation, which we outlined at our Capital Markets Day in February. Our strong growth in free cash flow is a key metric for us and is in line with our expectations, given we are now in the fourth year since introducing subscription contracts in 2022. We raised our 2028 target for free cash flow in February this year, reflecting our confidence in the strength of our operating model, balance sheet and cash generation. On Slide 19, we set out our changes in group liquidity in the quarter. We generated $204 million of operating cash and bought back $104 million worth of shares as part of the buyback launched in December. We ended the quarter with leverage at 1.3x comfortably within our target range of 1.0 to 1.5x. Turning to Slide 20, a few comments on our debt, leverage and capital allocation. We completed our share buyback program for a total of CHF 100 million in April 2026. With shares representing 1.9% of registered capital purchase to be used for general corporate purposes. This was the second share buyback we launched in 2025 with the first for CHF 250 million completed in August 2025. The shares purchased in that larger buyback are to be canceled at the AGM in May this year. Our reported net debt stood at $609 million at quarter end. We reiterated our disciplined approach to capital allocation at our Capital Markets Day in February. Our priority is to invest in our business, in particular, to accelerate our R&D road map and using share buybacks to ensure capital efficiency and enhance shareholder return while maintaining flexibility to support our growth levers through bolt-on acquisitions. We also have a progressive dividend policy, which reflects the recurring nature of our business model. Next, we have reconfirmed our 2026 guidance, which is non-IFRS and in constant currency, except for EPS and free cash flow, which are reported. The guidance reflects the strong performance in 2025 and the investments we made last year which we are now starting to benefit from. The guidance includes the headwind from the termination of a BNPL client in 2025, which we have given on the slide. There will be no further headwind from this beyond 2026. And lastly, we have reconfirmed our 2028 targets based on our strong first year of execution, confident in our strategic positioning and good visibility. Operator, please can we open for questions. Operator: [Operator Instructions] Our first question comes from Charlie Brennan from Jefferies. Charles Brennan: Congratulations on good results. Maybe I'll start just with a geographic question, if I can. If I've done the numbers right, it looks like most of the growth in the quarter has come from Middle East and Africa, perhaps maybe not what I would have expected given some of the news flow that we've seen. Can you give us a sense of whether you felt any disruption in March and could the numbers have been better? And I guess, aligned to that, it looks like the U.S. was broadly flat in the quarter. Was there any sense of disappointment for you in the U.S.? Panagiotis Spiliopoulos: Charlie, thanks for the question. So maybe first on, I think, the situation in the Middle East. And clearly, when they started at the end of February, we, like everyone else, were worried about the safety of our people. So we went into this like prepared from past events like COVID. So the company handled this really well and especially locally. So thanks to everyone. Now from a business perspective, I think it's worth taking a step back in Middle East and Africa. These are 2, let's say, large regions broadly balanced in terms of contribution. So both the Middle East and Africa, with Africa having seen, in the past, quite strong growth, stronger than the Middle East. We have, throughout the month and actually also into April, seen overall a stable sales environment and also specifically to the Middle East and Africa region -- or Middle East, no change. So I think this is important to note. And while there was some limited disruption of travel at times, we should note and if you look at the situation on the ground, governments are putting significant resources and everything they can to keep business operating as normal. This is what we saw throughout March. So yes, no impact seen in terms of -- no negative impact seen so far, either on pipeline generation or conversion rates, and this is what we have seen also in the first few weeks in April. Now looking at the other regions. I think on specifically the Americas, U.S. developed actually as planned, LatAm as well. Europe was probably also in line where we saw some, I think -- because we had a tough comparison base with Asia Pacific. But overall, I think the performance was pretty much in line what we expected. We didn't -- I think we didn't save deals or anything for Q2. So nothing actually specifically to call out in terms of the regional performance. Operator: The next question comes from Frederic Boulan from Bank of America. Frederic Boulan: If I can ask a question on the revenue guidance. So we have subscription and SaaS growth of 12% in Q1. You've kept full year guidance unchanged at around 9%. It would be good to discuss any specific phasing we should expect or specific points. And maybe we can also extend that question to the EBIT guidance, 20% in Q1, guidance of 9% for the full year. So here as well, I mean, any specific items we should have in mind? Or is just a guidance framework prudent at this stage? Panagiotis Spiliopoulos: Fred, so on guidance, I mean, we've never raised guidance after Q1. Q1 is like every year, the smallest quarter. There are still quite a number of uncertainties out there on the macro side. We don't know what's going to happen. So I think we having a good start is really helping with the full year guidance visibility. But at this point in time, I think it's the right approach to stay prudent. Also, if you look at the details, clearly, we had good performance in subscription and SaaS and maintenance and services. So across the board, we invested as planned. So the upside ultimately on the growth came really from stronger top line, demonstrating the operating leverage. Yes, we're tracking ahead on all KPIs. Q2 is a bit a more difficult comparison base. Let's see where we end up then. But for now, I think it's the right prudent approach. Operator: The next question comes from Toby Ogg from JPMorgan. Toby Ogg: Maybe just bigger picture one. We've obviously seen over the last couple of quarters, better momentum, and that's obviously been translating into upward revisions to expectations. When you take a step back what do you think are the key drivers that have been yielding that upward momentum? Panagiotis Spiliopoulos: Toby, good question. Overall, if you look at the track record over the last few quarters where we put a lot of effort into transforming Temenos across the organization, clearly accelerating on the product road map, putting a lot of investments into the company across go-to-market and also product and operations. All this on the back of, let's say, stable sales environment. We have seen an environment where banks were printing good results. And I think that's also the expectation going forward. It's also -- so that's -- if you want a stable sales environment, coupled with a more determined, more focused organization is clearly something that's helping us on top, and this is where we always believe it's worth and the first time we do upfront investments, we're reaping now the benefits of that. We -- if you go back early 2025, we said it's going to be an investment year. We've done the investments. We said in February, we're accelerating the investment because there is a very, very large revenue opportunity. And this is what we're seeing the benefit from. And the one element, what I mentioned, expanding what we call the large deal team. This is also driven because we see, as we've seen in the past years, more and more large deals coming into pipeline, which -- where we need -- where we want to have dedicated resources driving those deals end-to-end. And this is across the regions, and this is across the tiers, not just Tier 1s, so this is -- again, you need to invest ahead and reap them the benefits, and this is what we are seeing and obviously striving for more. Operator: The next question comes from Grégoire Hermann from Barclays. Grégoire Hermann: Maybe just I think you had clearly a good start into the year. But I think Q2 is maybe a very difficult comp. Can you tell us maybe how is the pipeline coverage looking like next quarter? Can you provide any indications on the level of growth we should expect for the second quarter, please? Panagiotis Spiliopoulos: Grég, so as we said at the start of the year, that was 2 months ago when we initiated -- when we issued the initial guidance for 2026, we said the pipeline coverage is there for delivering those numbers, also stating we want to be prudent. So 2 months down the road and as you would expect with more salespeople being onboarded and being now live and generating pipeline, the pipeline evolution has been very pleasant to put it like this. What we also said is there are a number of large deals embedded in our full year guidance, and we didn't sign any large deals in Q1. We had a good start in Q2. So we're always taking a risk-weighted approach to large deals, yes? Not all of them need to come. So we're confident that we can grow our SaaS and subscription as well also in Q2 despite the, yes, tougher comparison base. Operator: The next question comes from Mark Hyatt from Morgan Stanley. Mark Hyatt: Congrats on the results. I've just got 2, please. Firstly, if we just touch on the maintenance side of things. Obviously, you called out strong growth there, 15% and strong premium maintenance signings were a driver of that. Obviously, you've given some guidance and help around how we should think about the full year result. But could you just tell us a little bit more around how sustainable that tailwind is for the rest of the year? How should we think about the phasing? And if you can quantify how much of that upsell opportunity you've already worked through, that would be really helpful. And then secondly, maybe just a bigger picture question on AI. Could you talk about what you're hearing from bank's C-suite members today on the AI type priorities? Are they still mainly focused on productivity uplifts and customer-facing use cases? Or are they starting to think about AI more deeply being embedded in core banking and operations? How are they engaging with Temenos as a strategic partner for that at this stage? Panagiotis Spiliopoulos: Mark, so on maintenance, yes, 15% growth was a bit ahead of the full year growth rate we have envisioned, we said about 7% to 8%. But you need to think about it's Q1 '25, which posted a relatively benign comparison base, which is going to become incrementally more difficult to lap. And clearly, we see -- we're always positively surprised and continue to see a good uptake of our premium maintenance offerings on the one hand. But it's also we have -- we see very little downsell or attrition on that, yes? So that helps basically with the -- on the renewal of these maintenance offerings. Overall, I'm not going to -- I can't give you that level of detail how much opportunity there is still there. But clearly, we are -- it's still a very small part of our overall maintenance number. And therefore, I think the growth will continue. I think with 7% to 8% for the full year, clearly, growth rates probably coming down into single digits for the rest of the quarters. I think this is the phasing we would see. And then longer term, so '27 and beyond, we said about 6% -- 5%, 6% is the right number. Again, let's stay prudent because we've been positively surprised before, but I think we're now seeing really the tracking according to what I just said. On AI, there is -- basically, there are 2 areas where we see demand from our banking customers. On the one hand, is overall use cases around the core, if you want, whether it's in digital or something like FCM AI. And this is where we're going to launch a number of new ideas, a number of new products this year. What we do with our clients, with our banks is really develop those use cases in what we call a design partnership, we're trying to find ideas where we can basically take across our installed base. If something is very bank specific, we're not the ones to basically do the custom development of that. But if we find AI use cases like FCM AI, this is something we can then deliver to our installed base. The other area where I think clients are very keen to get AI expertise is -- and this is the main questions they're asking us, and we're developing some ideas, trialing some ideas, both ourselves, but also with partners is can you, with the help of AI, help us accelerate the implementation time line, the upgrade time because this is where they would save a lot of money. So far, we don't have discussions on AI in the core, but really those areas, specific use cases around the core in digital, in FCM and then can you help us accelerate the implementation and the upgrade time because this is where they spend a lot of money. And we have some ideas, but I think it's still early to talk about. Operator: The next question comes from Pavan Daswani from Citi. Pavan Daswani: Could you maybe come back to the EBITDA growth guidance question, given the strong start to the year. Are there any kind of phasing of costs that we should be thinking about for the rest of the year particularly, you mentioned some senior hires in the quarter? And are there any further investments needed to drive the pipeline conversion that you kind of aim for, for the rest of the year? Panagiotis Spiliopoulos: Pavan, so there is, I think, nothing unusual what we plan in terms of the phasing this year. As you heard, we have an investment budget of $28 million to $35 million, which is clearly something we're putting in place, especially in the first half of the year. There's also the exit cost. We exited 2025 with our fully invested cost base. There is clearly -- if we continue to see if there is upside on the top line, this will -- this shows the operating leverage on this. But again, as with the top line, I think we want to stay prudent. We want to see -- so far, we see the investments coming through. There is nothing extraordinary planned. The bulk of investments really go into product acceleration. So -- and this will continue throughout the quarter. So I think the cost base as you would expect, let's say, normal seasonality. And so let's say, Q2 will be maybe, I don't know, $12 million to $15 million higher as we had last year, yes, and then also increase slightly in Q3. And then in Q4, you have basically all the variable costs coming in, yes. So this is overall the $50 million cost increase year-on-year. Operator: The next question comes from Mohammed Moawalla from Goldman Sachs. Mohammed Moawalla: Congratulations on the quarter. I just wanted to concentrate a bit on North America. I know sort of 18 months back with regard to add more capacity, you've obviously been bringing some of that on. Can you give us a sense of sort of the pipeline? I know you touched on potentially some larger deal wins to come how is North America kind of a key part of that? And more importantly, obviously, in terms of the strategy more broadly for North America, are you focusing more on that kind of Tier 2 of regional banks and credit unions versus a very long sales cycle of kind of Tier 1 deals? Panagiotis Spiliopoulos: Mo, on the U.S., so we have seen and we continue to see good progress on a number of -- a lot of deals through the pipeline, as you would expect. Now given this is all new logos and new procurement, it's usually difficult to quantify the time until really you have -- from being selected until you have the contract signed. But this is what's driving the pipeline and where those deals stand, which is driving our confidence that they will get converted in 2026. Now if I look at the pipeline overall, and we always targeted those 150, 160 banks we have a very substantial number of these banks is in our pipeline, which shows also the effectiveness of building pipeline. We still have to convert those and maybe not all will turn into deals. But clearly, that drives our confidence on the -- in the U.S. Now what we see is given we hired a lot of salespeople, what we also see is the U.S. innovation hub is really making a difference for the U.S. pipeline because it's something which we didn't have before. It's a different approach, and it's resonating well with prospects. The other thing which we didn't do before is investing upfront in not just go-to-market, but also the support organization and the backbone. And this is something clients want to see there happening because these are long-term decisions they're taking in the core space. So I think where we still have opportunities is that, as you mentioned, in larger deals, and this is why we're expanding the teams. This is not specifically to the U.S., but clearly also in the U.S. We still haven't moved away from a target market in the U.S. It's still the lower Tier 2, Tier 3 market as occasionally, you get also Tier 1 opportunities. But clearly, again, we're taking a very risk-weighted approach on large deals, whether they are in the U.S. or in any other country. So overall, we're feeling very confident about execution of the pipeline. Operator: The next question comes from Justin Forsythe from UBS. Justin Forsythe: Congrats on a good start to the year. Just a couple of questions from my end, if you don't mind. The first one, I just wanted to unpack that Middle East and Africa number a little bit more. Understood that you said earlier in the Q&A that Africa is contributing a little bit more than the Middle East. I think you talked a little bit about that win in Bahrain as well. Maybe you could just be a little bit more specific on the countries within Africa, which you're seeing strength and the type of banks which you're working with and what types of products you're selling them? Is it the Islamic banking solution? I think you've talked about that in the past? Or is it something else? And maybe what degree of continued strength in the Middle East is baked into the guidance versus closing of some of those U.S. deals popping through the pipeline? And then just a broader high-level question for my second one. Can you just talk a little bit about the mix within core banking between some of these different factors? So for instance, retail side of core banking, corporate, LMS and wealth, clearly, it encompasses a lot of different types of products. And what is expected to be the go-forward driver of growth, the most material go-forward driver of growth within those? Panagiotis Spiliopoulos: Justin, thanks for the question. Let me start with Middle East and Africa. What I said is it's broadly balanced in terms of size, but Africa had the -- more recently, the faster growth rates, yes? So if you look at back some of the last few quarters, yes? We don't -- I think if I look at the pipeline across both the Middle East and Africa, it's very strong. It's very healthy. And Middle East and Africa has been a strong performance over the last couple of years, a lot of structural reasons. So we don't expect any change or we don't assume any change in conversion rates, neither an improvement nor a deterioration for the rest of 2026. As we've shown on one slide, the -- we're doing everything in Middle East, yes. It's also picking up in terms of SaaS. We signed this Tier 2 bank where basically they expanded the core banking partnership with their basically digital subsidiary in GCC. So that's just one example. In terms of products, it's really front to back for many banks, but also core, also digital. I think wealth, we're seeing quite some pickup as well. Islamic banking that remains a key pillar. So it's really across the products we see for Middle East. On your second question, it's quite an interesting one. So wealth, I think we see wealth for especially the larger banks. We're especially dominant and play in the high-end ultra-high net worth piece. So that's for the wealth opportunity. If you look at pure core, it's mainly retail and corporate. What I would say is the last few years, so post COVID, you saw a lot of demand for retail because this is where banks felt the pressure from basically the nonincumbents, yes, with price pressure. So they needed to lower the cost. So their investment was first and foremost in retail because they wanted to protect their offering, their profitability. I would say in the last 2 years because they basically fought off the nonincumbents to a large extent. Now their focus has turned more towards corporate. There is still very good profitability and banks want to protect and even expand profitability. And there is much less competition on the corporate side from non-incumbents, whether it's trade finance, treasury and so on. So this is where we see clearly -- from a pipeline perspective and from a demand perspective, this is clearly where we have seen the pickup in the last 2 years. Operator: The last question comes from Josh Levin from Autonomous Research. Josh Levin: Just 2 questions from me. Takis, you said there's no visible in -- can you hear me? Panagiotis Spiliopoulos: Yes, we can. Yes, Justin, yes, we can. Josh Levin: Yes, yes, yes, you said there's no visible impact so far from the war in the Middle East. But if the war resumes or oil prices stay high and we're heading towards sort of a global recession that some people are talking about, how do we think about how exposed Temenos is to that? How do bank executives think about sort of this as -- they're going to push through this because this is really a long-term project versus actually retrenching on spending on software because they are concerned about the recession? And then secondly, the Orlando investment hub, I think it's been open since June, so it's maybe a bit early, but any lessons so far, any successes, anything that's unexpected from that? I know it's a key part of the U.S. strategy. Panagiotis Spiliopoulos: Josh, yes, unfortunately, we don't have a crystal ball here at Temenos. So we take a prudent view on uncertainty and macro risks coming back to the Q1 performance and the guidance. So what we believe is -- and this is the lessons learned from the past, if you see -- as long as you see only a short-term disruption to anything, so short term being a few months, there is maybe a lower likelihood for a recession. If this keeps going and lasts into well into, I don't know, Q3, the second half, then probably you would expect to see an impact on overall GDP growth and maybe a higher risk for global recession. What we have seen, again, in the past is sometimes countries tipped into like technical recessions without any impact on demand for our software, yes? So we're not -- we have not been benefiting in upward cycles if economies were booming, but also being less affected in, let's say, more recessionary environments as long as there is no massive external event like GFC or COVID. So for now, the way we look at this is obviously being very alert on what's happening day-to-day. Again, the countries there, and we have most exposure is obviously Saudi and UAE, much less on the other ones. Clearly, the governments are doing everything to keep operating normally. They're open for business. And I think this is how we see the banks behaving so far, yes? So this is as much as we can say, again, taking an overall prudent view on what can happen and will happen. On Orlando, it's really a success story from different angles. It's on the one hand, we're getting very good, highly skilled people there. It's something we see resonating well also for our prospects. We have a lot of banks coming in, ideaizing, looking at what can be done. We have very interesting demos there. And it's really the hub where we keep investing and keep hiring as we do in India as well. It's -- we do a lot of 1 or 2, ultimately, a lot of U.S. product-specific development there, which is obviously also resonating well with clients. We're now about 70-plus people, and we'll keep expanding there because, yes, we have demand for U.S.-specific product, and we want to deliver, but clearly also have a strong pipeline in the U.S. So this will -- I'm very happy about the progress in Orlando. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Takis Spiliopoulos for any closing remarks. Panagiotis Spiliopoulos: Yes. Thanks, everyone, for joining us for this Q1 update. Looking forward to update you in July with our Q2 '26 results.
Michael George McLintock: Good morning, everybody. Just before we go on to the results, a couple of minutes on the demerger of Primark. We've -- since last November, as a Board and as a group, we have reviewed sort of all angles every which way on this potential transaction. And I think it's fair to say that as a Board, we are -- we have a deeper conviction even than before that the restructuring and the split is the right way to go. Just to emphasize, this is not an exercise in financial engineering. We feel that each of these businesses, because of their very distinct dynamics, deserve and need separate oversight from separate dedicated boards and accountability to separate groups of shareholders, each of whom have chosen to invest in either food or retail because of a clear choice. So we are absolutely focused now on delivering this transaction. The timing, we've talked about the end of 2027. That's to give us maximum flexibility. I suppose there's probably a sweet spot between June and October. The costs, I hope very much that we're conservative in the numbers that we put in the release. Obviously, nothing is final until it's final, but we've tried to put a top estimate there for the costs. Wittington are fully supportive, and it's all systems go. So we are excited to be proceeding with the transaction. I suggest if there are any questions, I take them at the end rather than now, and we just move straight on with the results. George? George Weston: Michael, Thank you. It's actually quite a big day for those of us who've grown up with Primark. I think it is a moment to celebrate the success of that business over the 57, 58 years, that's been part of ABF during which time it has benefited hugely from the governance that ABF has provided often in fairly idiosyncratic, but always very effective ways. Secondly, though, congratulate -- I thought I was just going to be talking to empty chairs today, and congratulations and thank you for making in person, but I guess there are a number of you who are enthusiastic cyclists and good luck getting home in that mode of traffic -- of transport. So I'd just like to take a moment to add to what Michael has said with a few words on why we think Primark and Food are going to be two really good separate businesses. And let me start with Primark, which is -- it's a global disruptive leader in apparel. And I think during Eoin's remarks today, you'll start to feel again some of the excitement around the business and what it is capable of. But we really do offer clear price leadership, great quality and exciting fashion in prime location stores. And it's the combination of those three that I think together that make this such a unique business. The business has got a really top class product engine. The buying team in Dublin is absolutely amazing. We have sustainability and ethical sourcing in any discount business you need to -- I think, to overindex on your capabilities in the supply chain to convince the skeptical that actually, you are very responsible citizens and that you care about the people, in particular, in the supply chain. We know we've got multiple levers still for long-term growth. Continued investments in value, better investor availability, increased digital enablement, more locally tailored execution. That's all stuff that we can -- Eoin and the teams can still get there. The business has really exceptional brand strength, and we've seen that most recently in the Gulf states. It has just reemphasized to those of us who've watched the first 3 store openings, what an amazing brand Primark really is. We have provable, scalable growth model for international expansion, both of our own stores. And inevitably, when you open a franchise and that just goes off like a firecracker, you think, well, I wonder what else we can do with franchise. And again, Eoin is thinking through that. We have a highly productive store estate. These big stores give us cost efficiencies. We have an efficient supply chain, one that is capable of further improvements, but it's good already. And we have a lean overall cost base behind the store and the supply chain as well. We have an experienced team. We have a very deep team. The capability goes a long way down through the organization, both in store management but also in Ireland. We have a solid balance sheet. We are even more disciplined in our capital allocation. It's inevitable that when you put a finance guy on top of the business that you get to see more finance discipline quite early on. And we -- I personally just have huge confidence in the sustainable long-term value creation of this business, but what Michael says, I absolutely fundamentally believe it's time to have more specific governance and oversight of the business into the future. It's not about the next year or 2 years. It's 5 years, 10 years, 20 years out, the right governance will help the growth -- help us deliver the growth potential and ambitions for years and years to come. So that is Primark. And then to Food, we've built a differentiated, really quite different global food group that operates across multiple parts of the food supply chain. It gives us resilience. It positions us well for long-term structural growth trends that we see in food demand. Food demand is always changing. If you're right across the food supply chain, I think you're going to have insights into that change, which are quite privileged. At the heart of the business, our strong brands and ingredients platforms, we've inevitably, because we just do, have a well-invested asset base. These characteristics will allow us effectively to compete and to grow. In turn, it will enable us to deliver attractive, sustainable returns to shareholders. We have a deliberately devolved operating model, which, again, is quite different from other food companies, and we think it's a key strength. You put decision-making close to customers and markets. You have strong central oversight. We have a strong network of connection across the business. That putting of authority down the organization into lower levels in the organization helps us to move faster, it helps us to stay relevant locally and food is always a local business. And it also allows us to attract and retain high-quality talent. We have any number of people who've spent very large amounts of their career in the food business, and it's a key strength. And I just refer to one, which is we are on to the third Chief Executive of Twinings, Ovaltine in 60 years. we've just got a wealth of knowledge of hot beverages markets. And then finally, the balance sheet, cash generation gives us the flexibility to keep on investing for the long term. It allows us to keep building better businesses, stronger brands over time, none of that will change once the businesses have been separated. And finally, and again, sustainability is part of what we operate. I think it's actually knowledge that food is -- wherever you're operating food is part of the supply chain, has given us over the years some of the insights into the Primark supply chain, you are not unique. You have responsibilities up and down the supply chain. And that we will take with us in food. The businesses, both businesses have very strong fundamentals. Primark will be the largest retail -- international retail clothing business, this is on the FTSE. And I believe that food will be the only pure-play food company on the FTSE 100, so quite distinct and worthy businesses. Let me now turn with that to the half year results. We're here this morning to review the last 24 weeks ending the 28th of February. And let me just take you briefly through some of the highlights. We knew that the first half was going to be challenging, and that's been borne out in the numbers on this slide with group adjusted operating profit down 18%, adjusted EPS being down 15%. The difference is the benefit from the share buybacks. The half 1 performance was broadly in line with our expectations, and there's currently no change to the full year outlook despite challenges that are clearly emerging and present from the Gulf. And the exception to what I've just said is Sugar, and I'll come back to that in some detail later on. We've kept our interim dividend in line with last year. We have confidence in the future performance of the group. We have confidence actually in the second half. We completed GBP 187 million of buybacks in the year-to-date. We'll have completed the announced GBP 250 million by the end of this financial year. Joana will go through the financial results in some detail in a moment, but let me just give you some overview. In Primark, we made good progress. We really did in reengineering the customer proposition. That's across product, across price perception and in our digital engagement with our customers. In the U.K., these initiatives began in the autumn. And as a result, performance in H1 in the U.K. was much better. We really do have the answer, I think, to our lackluster trading of the last few years. We delivered like-for-like growth. We gained market share in the U.K. all within a challenging consumer backdrop. Trading in Europe was weak. The initiatives and investments to drive the improvement in the U.K. are clear. We know what we have to do, and it resembles what we're currently doing in the U.K. But we've started in the unapologetically as Eoin will take you through in the U.K. In Food, profit in Grocery & Ingredients business was impacted by the weakness that we had expected in the U.S. consumer in certain categories, particularly cooking oils and bakery ingredients. Mazola is its largest customer. Consumer franchise is Hispanic. And as you all well know, the spending in that community is well down under the -- as a result of the challenges that they face. The rest of these food portfolios in Grocery & Ingredients generally performed well. In Sugar, the results were below our expectations. The adjusted operating loss was mainly due to prolonged low average selling prices in Europe. The crop last year was sadly better than we'd expected. Acreage was down, but yields were up. The market is still long sugar in Europe. And I'll talk about the dynamics beyond that later on and what I think it means for the outlook, both the second half and also into next year. The last 6 months have been another period of intense activity, lots of good progress made in all sorts of places. Obviously, the two key leadership appointments when we met in November, Joana and Eoin were both are very ably filling their roles on an interim basis as a consequence of what they showed us in those interim positions, we appointed them to the substantive. We appointed them for the long term. And I'm actually delighted that we're able to do that. We've made good progress with the acquisition of Hovis. The CMA issued an interim report at the end of March. It provisionally cleared the transaction in Great Britain, which is great. But as noted, the competition concerns in Northern Ireland, and we'll continue to work constructively with the CMA over the next few months. We expect to reach -- them to reach a final decision in the summer. Across the group, we invested GBP 534 million of capital expenditure in the first half. These are investments very largely in growth opportunities. They have good attractive returns. And it's been exciting to see a number of the multiyear projects reach completion over the last 12 months and others will be finished later this year. And as well as investing in our businesses, we've continued to make strong capital returns to shareholders through dividends and through share buybacks. The balance sheet remains strong with 1.2x leverage. It's worth just spending a little bit of time on the Middle East conflict and what it means for our business. From a cost perspective, the primary direct impact is energy costs, but there are others, including freight, fabric, packaging and agrichemicals. Given what we know today and given the hedges that we have in place, we expect to be able to manage the cost impacts that we're seeing through the rest of 2026. The longer-term cost impact is not yet clear, and we need to remain agile as things evolve. We're not seeing shortage of raw materials, we're just seeing the likelihood of inflation in them. We're also focused on the impact on consumer spending, particularly for Primark. We've seen what we think is an impact in just the last couple of weeks in Primark sales really across the whole of Europe. And there must be a risk that if the conflict persists, consumer spending will keep on being subdued. And with that, Joana? Joana Edwards: Thank you, George. Good morning, everyone. So let me take you through the results in more detail. Group revenue was GBP 9.5 billion, which is flat compared to last year at actual rates, with a net benefit from foreign exchange translation of GBP 76 million. At constant currency, the group revenue was 2% below last year, as George just said. Primark sales grew 2%, while overall sales of our food businesses declined by 3%. Group adjusted operating profit was GBP 691 million, a decrease of 18% at constant currency. The majority of this was due to the lower profit in Primark, Grocery and Sugar compared to the first half of 2025. There was a small impact from foreign exchange translation, a net benefit of GBP 4 million. So let me take you through the detailed performance by segment. Starting with Primark, and looking first at sales, which grew 2% to GBP 4.7 billion. While Primark's like-for-like sales declined overall by 2.7%, the performance by market was very different. In the U.K., Primark had good sales with growth of 3% and like-for-like sales growth of 1.3%. And Primark gained market share in a difficult U.K. clothing market. This was a strong improvement driven by actions to reenergize Primark's customer proposition, and Eoin will take you through those later. In Continental Europe, sales declined 1% and like-for-like sales declined 5.6%. The consumer environment remained weak, and while similar initiatives to the U.K. are being implemented, they're at an earlier stage. Our store rollout contributed 4% to growth with good execution across our key growth markets in the U.S. and Europe and through our new franchise model in the Middle East. Primark's adjusted operating profit margin was 10.1%, as we expected. Gross margin was lower due to the higher level of markdowns, as we effectively managed inventory levels. This impact was partially offset by favorable foreign exchange and supplier efficiencies. The margin also reflects a significant step-up in the investment across product, brand, digital and technology, as we focus on like-for-like sales growth and the business growth in scale. We maintained a strong focus on cost optimization and efficiencies, which helped to offset cost inflation. Our full year guidance for Primark is unchanged with adjusted operating margin expected to be approximately 10%, so similar to what we had in the first half. As George said, given what we know today, we expect the cost impact from the Middle East conflict to be manageable in 2026. We remain alert to potential further deterioration in consumer spending and to the longer-term impacts. Moving to Grocery. Sales of GBP 2.1 billion were in line with H1 2025. Growth in international brands was offset by lower sales of U.S. oils. Adjusted operating profit decreased 20% at constant currency as expected and primarily due to the lower profit in our U.S. oil businesses, both from our retail brand, Mazola and from our joint venture, Stratas. Grocery profit was also impacted by the effects of higher cocoa costs and U.S. tariffs on our international brands. Our grocery guidance for the full year is unchanged with adjusted operating profit expected to be moderately below last year. We are positioned to deliver a strong improvement in grocery profit in H2 compared to H1 and George will set out some of the building blocks that underpin that shortly. Ingredients performance in the half was as expected. Sales and profit in our yeast and bakery ingredients business, AB Mauri declined primarily due to the lower customer brand for bakery ingredients in the U.S. I had flagged that already as well. There was also subdued demand for our specialty yeast for using alcohol beverages. AB Mauri's other markets and categories were relatively resilient. In Specialty Ingredients, ABFI, we had good growth overall and across most of our businesses. We accelerated investment in product innovation and commercial capabilities to drive long-term growth. Our ingredients guidance for the full year is unchanged. As with Grocery, we expect cost impact for the Middle East conflict to be manageable in 2026. It does not reflect the indirect consequences or the longer-term impact. Sugar sales declined 9% with adjusted operating loss of GBP 27 million. In the U.K., sales and profit declined significantly due to the lower average selling prices, reduced export sales and as such, a reduction in the estimated net realizable value of our sugar inventories. This impact was only partially offset by lower negotiated beet prices. Spain was also impacted by lower European prices, although the operating loss was lower than the first half of 2025 due to the restructuring actions that started last year. Turning to Africa. Overall profit was down due to lower sales in South Africa and Eswatini and lower production in Tanzania. Overall, for sugar, based on our view of the current market dynamics, we do not expect to offset H1 operating loss in the second half. And so we now expect sugar to deliver an adjusted operating loss for the full year in 2026. George will talk through the market dynamics and the outlook in more detail shortly. Agriculture adjusted operating profit was GBP 6 million compared to GBP 12 million last year. This reflects two main factors: compound feed declined due to the loss of a large customer, and we are adjusting our cost base accordingly. We also had a lower profit contribution from our joint venture, Frontier, where grain trading business was impacted by unfavorable market conditions and a small crop size. Our specialty feed and additives businesses delivered strong growth. Following their H1 performance, we expect agriculture adjusted operating profit in 2026 to be below 2025. Moving to adjusted earnings and adjusted earnings per share. A couple of points to highlight here. Firstly, tax. The adjusted effective tax rate was 24.5% in the first half which is similar to the tax rate in the first half of 2025 of 24.1%, and we continue to expect the group's effective tax rate in 2026 to remain broadly in line with 2025. Secondly, you can see that the adjusted earnings per share have continued to benefit from the share buybacks. Free cash flow was GBP 71 million compared to GBP 27 million last year. While operating profit was lower, there was a reduced working capital outflow because of reduced inventory levels in Primark since the 2025 financial year-end. As a reminder, we have a seasonal peak in working capital at the end of the first half, and net cash balances are always at the lowest at this point in the year. You can see as well that capital expenditure at GBP 0.5 billion was broadly in line with last year, and I'll come on to some of the details of that spend shortly. Our balance sheet remains strong and continues to support investment and shareholder returns. A few points of note. Firstly, you can see that overall working capital was broadly in line with last year. Inventory levels in Primark was slightly higher than last year. However, seasonal inventories were well managed by markdowns in the period. Secondly, the lower net cash position compared to prior year reflects the shareholder returns we made in the year, both in dividends and share buybacks. Finally, the pension surplus continues to grow and is a very significant asset at GBP 1.7 billion. Turning now to cash and liquidity. Our half year net debt position, including lease liabilities, was GBP 3 billion compared to GBP 2.1 billion (sic) [ GBP 2.772 billion ] in H1 2025. This is due to the cash reduction I just explained. Our leverage ratio was 1.2x and is an increase on last year, but well within our capital allocation policy. Total liquidity was GBP 2.2 billion, which includes total committed credit facilities of GBP 1.8 billion. This robust position underpins our ability to continue investing in growth while maintaining resilience and flexibility. Our capital allocation policy prioritizes disciplined investment to drive long-term growth. In the first half, we invested GBP 534 million across the group. Around 40% of this was in Primark where we continue to roll out stores, invest in our depot network, including automation, investing digital and new technology. The remaining 60% was in our food businesses. A large amount of the spend was in multiyear projects, a number of which completed in 2026. George will talk more in detail about some of these investments shortly. Across ABF, we continue to spend around GBP 100 million per annum on technology investments, including automation to drive efficiency in our supply chains and new ERP systems to strengthen efficiency and decision-making in the businesses. We still expect CapEx to be around GBP 1.2 billion for the full year in 2026, similar to last year. Our capital allocation approach is to return excess capital to shareholders, both through dividends and share buybacks, as I said before. Our interim dividend is 20.7p, which is in line with last year. That's a reduced level of dividend cover, but as George said, reflects our confidence in the outlook for the group. In terms of share buybacks, we expect to complete GBP 250 million in this financial year. We've completed GBP 187 million of buybacks in the year-to-date with the remaining GBP 63 million left to complete. And these shareholder returns, alongside with our continued investment in capital in the businesses demonstrate our commitment for delivering long-term value for shareholders. I'll finish on the group's full year outlook for 2026. The phasing of group profit was always expected to be weighted to the second half of 2026. For the group overall this year, we continue to expect adjusted operating profit and adjusted EPS to be below last year. For the segmental guidance, there is currently no change to our previous expectations for 2026 with the exception of sugar. This slide sets out the additional detail that I covered during the presentation. And with that, let me hand you back over to George. George Weston: Okay. Let me just introduce the section on Primark, which Eoin will take over from me after this first slide, and then I'll come back for food after that. And I think it's my job to really to share some color as to what has been going on. I said at the outset, how delighted I am that Eoin is permanently enrolled as Primark's Chief Executive. He's also only the third Chief Executive in Primark nearly 60 years of history so his appointment is a very significant one. Over the last 12 months, Eoin has taken a hard look at several elements of Primark's strategy. He's taken a hard look at the customer proposition and he's taken a hard look at the company's operational effectiveness. He has really thought about Primark's value proposition and how to refine it starting with price and price perception, which are at the heart of Primark. We now, as well as that, have a deep insight into Primark's customers across Europe, the U.K. and the U.S. We have a clear picture of who or which customers we're going after and then customer strategy because of that, knowledge can be increasingly targeted for each market. There's been strong progress on the product offering, starting with womenswear and Eoin will tell you more about that. There's been a refocus on digital -- an increased focus on digital and how we continue to build on what is already in place. We remain excited about the white space opportunities in the U.S. and Europe. The introduction of our new franchise partnership model in the Middle East, as I was saying earlier, I think is a real game changer. Importantly, also, though Eoin has accelerated the work to improve supply chain effectiveness and significantly reduced costs, there are loads of cost opportunities available to us. And of course, we have Filip Ekvall joining later in the year, joining Eoin's team as the Chief Commercial Officer. It will be a great addition given to his experience, plays into a lot of the opportunities that we've been identifying and that I've mentioned. That's enough of a summary for me of the significant areas of focus in a very energized business. There's a lot to go after, and the business is really moving very fast. So with that, Eoin, over to you. Eoin Tonge: Well, that's quite an intro. Thank you. Good morning, everyone. Great to see you all, as always. Look, I am conscious as it's my first time seeing you guys since being appointed, and I'm delighted, I'm honored to be officially taking up the reins and being the third CEO for Primark. I don't think we wasted any time, as George said, during the interim period. It allowed me to really get under the skin of the business, as George said, get out to the markets and really get to grips with our customers in each market. And I'll talk more about that in a moment. It means I am coming into the role very clear about what the job has to be done and how we're going to grow. So let me remind you of Primark's key strategic priorities and how I feel we're progressing against them. We need to reenergize Primark's customer proposition to drive like-for-like sales. This is firstly around sharpening our price and price perception. Price leadership is and always will be our DNA, and we're doubling down on that. Major Finds has been a good start here. It's really resonated to remind people that Primark is the place for knockout value. Prices are given, but it's quality and style we deliver at those prices that will set us apart. So we strengthened our product offer, starting with significant developments in womenswear, and I'll come back to that. We're working on getting better integrated in our customer engagement across channels, supported by a step-up in marketing investment and we're investing in the digital capabilities to enable this, building on the momentum and learnings we have from our Click & Collect rollout in the U.K. Now I recognize the focus of reenergizing the customer proposition has been, as George said, unapologetically in the U.K. and actually unapologetically in the womenswear category also. There's a reason for that. Look, it's our largest market. It's our largest and most strategic category, womenswear. However, we focus on H1 also on getting deep insights in our customers in some of our core markets in Europe and the U.S. also and how best to bring our offer to each market. And by the way, we did that also in the U.K. The opportunity now is to roll out more activity in more markets and in more categories into spring, summer and into autumn, winter. All of the key product initiatives will be delivered across the store estate, including more in-store activation in Europe. We also have more Major Finds across the U.K. and in Europe in H2 alongside increasing marketing activity in Europe as well. Look, we recognize it's going to -- it might take more time to implement the same level of digital customer engagement in these markets, but our richer customer and our market understanding of Europe has given us confidence that, as we begin to dial up the local marketing activity, including local influencer partnerships, more targeted digital marketing and greater use of CRM, these initiatives will have an impact. And that goes for the U.S., too, similar story. We've taken a stand back to work on the target consumer and are now seeking to execute a step-up in more tailored products and customer engagement activity. Moving on from the customer proposition, I still feel very excited about the significant white space opportunities in both existing and new markets. We've been focusing on how best to unlock this with a clear lens again on the local customer opportunity. This now includes the new franchise model, which I'll speak to in a moment. Underpinning all of this is really an overall transformation of the Primark business. We've talked about this for a while with our investment in technology, in supply chain, in digital and in cost optimization. There really is a lot of activity going on here. And we spent the last number of months organizing ourselves for success here to deliver on the investment case that George laid out at the beginning. I think despite the near-term headwinds and uncertain environment, that's the overall medium-term and long-term message, roll out more of the reenergized customer proposition, attack the white space and transform business for the future. So let me now give you a little bit more color on the progress to date in the U.K. and the customer proposition, including digital engagement in the white space development and in the transformation. We've definitely made progress in reinforcing our value proposition and price leadership in the U.K. and our brand metrics shows that, that is the case. As I said, our focus has been on womenswear and activation of womenswear in the U.K. which, again, our biggest market, our biggest category, and it's actually central, really, to our brand strength. In the U.K., we now have had Major Finds drops pretty much every month, every few weeks, actually, since September, all in womenswear and they're achieving their objective, which is to remind core customers of what Primark is all about. So firstly, helping to tackle the price perception, but they're also selling out and driving footfall into stores with attachments buys. And finally, they are working very well for us online in terms of sales and in digital engagement. Moving on to Denim. Denim has been a focused category for us in H1 with a lot of product in store and customer activity. I'll come back to the customer activity in a moment. On the performance, we've invested significantly in the performance wear category. This is Primark value in action and innovative fabrics delivering quality comparable to product costing many more times, unlocking an entire new category for us and democratizing it for our customers. We maintained a strong focus on unbeatable value in everyday essentials. Primark absolutely dominates nightwear, and we have seen good like-for-like growth across underwear and nightwear. We're becoming more strategic with our curation and coordination in our fashion lines and stores, which is resonating well with customers. It wasn't in the half, but our Shockingly Chic campaign, which is nicely modeled by our CFO today and that some of you may have seen launched. It launched a new design-led womenswear main range that sees us return to our fashion roots, offering incredible style at Primark prices. This curation alongside continued ongoing partnerships, including our newest with Coleen Rooney, which has been very successful, means our womenswear fashion offer is broader and better than ever. And finally, we've expanded our offer with a new youth label, The Scene, which targets a discerning and different younger customer who is looking for trend-led fashion prices that they can afford. It's early days, but the initial response has been very encouraging. Our product engine is working well. And I think the trick is -- as I said, is to broaden the focus from womenswear into other categories such as menswear, kidswear and lifestyle and be clear on our focus, including what we don't do. Okay. So let me move on then to -- where am I? So I should just say, overall, the focus on womenswear and with the focus on the activation in the U.K. as a result in the good like-for-like sales growth and the strong market share gain in the U.K., which it was in the slide before, but anyway, I missed my chance. Okay. So then moving on to -- on the activation, particularly in the U.K., let me talk about two things. One, better integration of our approach; and two, using our digital flywheel more effectively. Again, it's got a U.K. lens. We significantly stepped up our marketing investment in the U.K. but critically driving more integrated customer engagement and reach. A couple of examples to illustrate this. In September, we launched our fully -- first fully integrated U.K. campaign, In Denim We Can which is followed by the Shockingly Chic campaign, the more recent one. Both are multichannel spanning in-store, TV, paid social, CRM, out-of-home plus Primark's typical strong organic reach. These are very first full funnel activations for Primark. The denim campaign delivered strong ROI and improved brand health and early results from our latest Shockingly Chic campaign are also encouraging. We are also really exploring the potential within influencer marketing markets. Our collaboration with Perrie Sian at the end of last year, Perrie's Primark Picks delivered strong sales, particularly online with our first launch delivering our highest ever Click & Collect performance. On overall digital capabilities, we're continuing to invest in the customer experience and functionally on our website. Our website traffic was up 37% across the business in H1. We are rapidly growing our CRM customer database with a further 1 million customers added during H1 to now reach over 5 million across our markets and 3.5 million in the U.K. alone. We are seeing the benefits of having this data. We know e-mail engagement is contributing to healthy store traffic, particularly again in the U.K. Of course, our digital flywheel in the U.K. is strengthened by the usage and the sales of Click & Collect, which is nationwide in Great Britain and continues to grow. In the U.K., we've just launched our app which includes the ability to purchase through Click & Collect and the app is now available in Ireland and Italy and will be rolled out in Spain and Portugal in the second half. So moving on to our expansion. It's a new space contributed 4% to sales in the first half. We opened 11 owned stores in the half, 4 of these were in Europe, including in growth markets such as Italy and Poland. Five stores were in the U.S. where we now have 38 stores in total. I remain very confident about our proposition being differentiated and highly attractive to U.S. customers. As I said earlier, the detailed work to deepen our understanding on our target consumer in the U.S. will allow us to be laser-focused on how we grow, better tailoring our product, our customer activation and indeed our store footprint. Awareness is still the big opportunity, which is the main reason why we're looking forward to our Manhattan flagship opening in a couple of weeks on May 8th. The prime location puts us on the map for millions of New Yorkers and U.S. stores, and it's going to be a big moment for the U.S. brand. As George said, our new franchise model is incredibly exciting and a real game changer, as he said. Our first store in Kuwait has traded better than expected. In March and April, we opened our first two stores in Dubai, which, despite the circumstances, have also traded well above expectations. And we've got an exciting pipeline ahead, even again, despite the circumstances including opening in Bahrain and Qatar this calendar year. And fundamentally, we just believe over time that this new franchise model creates opportunities for new market entry. And then finally, moving on to transformation. George and I have talked a lot about the activity to invest in the business in the future. We've stepped up our overall approach to transformation, which we will update you on over time. I'm going to talk to you just to three elements today: cost optimization, supply chain effectiveness and overall technology investment. On cost, let me give you three examples of delivery in the first half. Firstly, the rollout of self-checkouts. We now have self-checkout in 250 stores. It's great progress, but it's still only half of our store estate. So plenty more to go after. I remind you, the self-checkouts typically reduce labor in stores by about 10% and improve the customer experience. Secondly, continuous improvement in our store labor model has also delivered ongoing cost reduction. And thirdly, in the period, we've now moved some of our transactional central functions to a third-party business service model, which will deliver efficiencies over time. So all very good progress. On the second pillar today, supply chain effectiveness, there's a lot of activity going on. We see this as a big unlock for growth and efficiency. In H1, we neared completion of our new depot in Northern Italy and continued with other automation projects. And then there's a lot going on in the third pillar. Again -- I mean if there wasn't a lot going on in technology, you'd be wondering what's going on and again, we made good progress on the overall technology agenda. Some of this is in fundamental core systems to modernize our business as we scale. Some of this is in more technology and systems to enable us to drive growth and productivity. Again, I will provide more updates on this in the coming months and indeed years. Overall, Primark's transformation agenda, it is a multiyear project which will underpin the acceleration of top line growth and drive cost reduction. With that, I'll hand you back to George. George Weston: Thank you. Let me move on to an update of our food businesses, which will be all I talk about in the years to come. As I said at the outset, the food businesses have made good progress in the half across a number of areas despite the damp financial results. We continue to invest in marketing, innovation technology and capacity, all to drive growth. And this has set us up well, I think, for a strong improvement in profit in the second half. The first half performance was broadly as we expected to be with the exception of Sugar. And with that introduction, let me now go through the different sectors. Starting with Grocery where profit in H1 was below last year. And the primary reason for that was weakness in U.S. oils, both in our retail brand, Mazola and also in our joint venture, Stratas. Stratas predominantly serves food service customers and the lower-end food service market in America is quite restrained at the moment. And Mazola is clearly navigating a headwind. Its core consumers are the Hispanic population, as I've said. We've continued to see those consumers significantly reduce their spending in a difficult environment. They're not entertaining each other and they're reusing oil. And their spending is well down. We have responded where we can. We've improved affordability through promotions, and we've focused on smaller formats. It's important that we don't give up on our customers here. So we've retained our advertising share of voice. Something like 80% of the branded marketing spend in this category is ours. These high spend is what has underpinned our steady increase in market share and sales over a number of years now. We remain the #1 brand. In fact, I think our branded market share is about the same as the next two combined. We really are strongly placed in the category, and we want to remain so. As we go into H2 in Mazola, we're annualizing the reduction of sales that began in H2 last year. So the year-on-year comparator becomes a bit easier. For Stratas, the reduction in out-of-home eating by those consumers and lower procurement margins led to a reduced profit contribution in the first half, and we expect more normal margin levels to improve profit in the second half, and we've got some of that baked in already. If those were the two problem children, let me go on to better areas of performance. So the international brands, led by Twinings and Ovaltine, but also with the World Food brands and Chatham and others really did -- really had a good year. Twinings had showed good volume-led growth supported by strong innovation. The innovation pipeline and the pace of innovation in -- across Primark -- sorry, across Twinings has accelerated markedly in the last couple of years. And then the marketing has all been excellent. The advertising campaigns are all best in class. So good growth in the U.S. And that was also driven by an expansion of our e-commerce business there. I think Twinings now is the largest brand on Amazon in the United States. But there have been other highlights as well. Blue Dragon, part of the World Foods portfolio saw volume-led growth across the U.K. and across international markets. We had some really good exciting new product launches, particularly in Korean, which we supported with strong in-store merchandising. I don't know any of you have seen the World Foods section of Tesco in the U.K., it's really strong. Patak's also had a good year of innovation-led progress. Jordans showed good growth. It was helped also by new products like the protein boost granola. Mazzetti, the balsamic vinegar brand, double-digit sales growth in H1 with good performance across a number of its markets. Good sales growth in the first half in the international brands didn't translate in the half into profit growth. And there are a couple of reasons for that, and they both relate to Ovaltine. The first one was the effect of higher cocoa prices. They peaked in the first half of 2026. It is our certainty that those prices have come down and some of our positions that we've taken with lower sugar prices -- sorry, lower cocoa prices, which again gives us confidence of that improvement in half 2. It's as close to being baked in as it can be. And then Secondly, we started up the new factory in -- Ovaltine factory in Nigeria, which is an incredibly exciting long-term prospect for us with 7 million babies born every year in that market. But there have been -- but start-up costs a reality of any commission. Commission has actually gone well. So I'm not flagging disaster and things breaking, but there are just inevitable start-up costs, which are first half related. Second half, they don't repeat. Now I've gone slightly off-piste. This is a new slide, but I think it's quite an important illustration of some of what we're about in food. In future conversations, we do want to -- particularly over the next 18 months, we do want to shine a light on some of the less known parts of the food portfolio. And I've given you four here, their brands that are small, but very successfully accessing niche categories of food and niches where there are good growth project -- growth prospects. So for example, they don't include Gentleman's Relish. The sales growth in our Sports Nutrition business was over 30% in the first half, led by hydration brand, High5, explosive growth in that category, and we're in it in the U.K. and in it at scale. Anthony's Goods had another year of sales growth in the high teens. Anthony's, and I think I've mentioned in the past, is a leading U.S. brand of organic ingredients and superfoods. Essentially, if you're California and you make smoothies in the morning, you're going to be using some of Anthony's products. And that trend is growing very quickly and spreading across the states. And again, we've got the #1 position in a number of those ingredients and exciting future. At the moment, it's just online delivered through Amazon in time, we hope it will become -- getting to bricks and mortar and then the growth becomes several X times -- the potential market becomes several X times what it is at the moment. And then we had good strong growth, again, within World Foods in two more recently acquired brands, Al'Fez and Capsicana which are used for Middle East and in Latin American cooking. And again, good market characteristics in both those. If you take all those businesses together, they only have sales of about GBP 100 million, but it's still GBP 100 million. And so they're small. Their combined sales growth in H1 was about 20%. We like these categories and we can manage these sorts of businesses because of how we are organized. And so we can be in the smaller scale, but fast-growing areas of the food market, and we will be. If I look ahead to the second half in grocery, we will see that strong increase in profit that Joana mentioned. Firstly, we -- this is a typically seasonal business. First half is always weaker -- the sort of profit flow-through is often -- it's always, I think, second half weighted. Part of that actually is the crumpet season in Australia, but that's just a kind of anecdote for you. There are a few reasons why the shape of first half, second half is deeper at this time around. And I've mentioned the cocoa costs are there. the Nigerian facility is up and running. There will be -- there are some other costs which have come down in the second half. So U.S. tariffs have come off a bit, both in tea and also in [indiscernible]. Interested to see that you now have a route to getting your money back on overpayment of tariffs, and I hope that Eoin is on it. And then there have been some go-live costs for new ERP systems. So ACH in the states has gone live. There were some start-up costs on that. The project has gone very well, but there have been costs that are being borne in the first half. The same, I think, is true of Twinings, Ovaltine, which is nearing the end of its ERP journey. As I noted earlier, we do expect more normal margins in Stratas. We're already seeing it in the future book and that will increase our profit contribution. In Australia, we'll benefit from the new capacity at Tip Top, so the new bakery or the bakery extension and rebuild in Western Australia. In Australia, and then this is just a comment about the Gulf, we've seen steep increases in fuel costs. We have a really big distribution task in Australian bakery. We have had a fuel surcharge accepted by most of our customers already. It's part of what gives me confidence that the second half profit that we can cope with the Gulf on the cost side. And finally, in Twinings. We have a bunch of new products hitting in the market, particularly in Australia around cold in the second half, and that will drive stronger profit in the second half. But it's the only one where we, I think, still got a lot of work to do. The rest of these causes of profit increase in the second half, I think, are more or less locked and loaded. Let me go on to Ingredients and start with Mauri which is our yeast and bakery ingredients business. The key driver in bakery ingredients now is product innovation, I think, particularly in the era of GLP-1s. We develop products that meet very specific consumer needs in each local market. And we've just called out on this slide some of the product innovation for the U.S. market. So lower fat content donuts, egg-free cake mixes and so on and so forth. We've installed the new sourdough capability in the U.K. It's now up and running and is filling up fast. We've commissioned, and we're supporting our customers innovation with sourdoughs. So it's not just being able to sell them product that's relevant, it's also giving them the technical expertise to turn -- to enter into the sourdough market. And again, that is going well. Bakery ingredients technologies can replace fat, eggs and without compromising on taste and texture. Some of the -- they showed us some of these solutions the other day, and they were really compelling. Donuts with 30% reduced fat which still tasted extraordinarily indulgent. But in the first half, the ingredients profit was -- sorry, in AB Mauri was impacted by a weaker demand in the U.S. market and also by reduced demand for specialty yeast. We have a very good strong position in specialty yeast for an alcohol manufacturer. And we're inevitably at the receiving end of some of the shutdowns to distillation capacity, which have occurred in the States and in Scotland. Some of the distilleries are turning back on again now, so it's picking up. But there's been a marked step down in specialty consumption. ABFI, which is the Specialty Ingredients portfolio, most of the business in that portfolio delivered good and in some case, really good growth in the first half. In Pharmaceuticals, our excipient, actives and vaccine-related products all grew well. And lipid sales, which again is part of the pharma portfolio, they were lower. They're expected to recover in the second half. In Food & Beverage and in Health & Nutrition, we had good growth, driven by yeast extract growth, enzyme growth, botanicals growth and extruded protein crisps, which also grew. We do continue to invest. We're strengthening our teams and capabilities across R&D, commercial and business development. And we have a number of ongoing strategic capital projects. In first half, we commissioned new capacity for the yeast extract business in Germany, and there's more -- there's another project there that we'll be completing hopefully in the second half, which, again, will increase unlock capacity and sales. One of our businesses in March, SPI Pharma, agreed to acquire a German company called Elementis Pharma. That's a business that will strengthen SPI and our position in pharmaceutical actives. These are antacids in particular, and it will expand its offer in digestive health. Let me turn now to Sugar and starting with Europe. Remember, we have two very different businesses. We have two European sugar businesses for the U.K. and Spain, and then we have a lovely portfolio of sugar businesses in Sub-Saharan Africa. We firmly believe that the European sugar businesses are capable of generating a lot of cash in years to come, even in a market with long-dated trend of volume decline. And they've demonstrated this over years. Sugar consumption in the U.K. and not every kind of health commentator recognize this fact, sugar consumption per head of population in the U.K. peaked in 1965 and has been going down since. We've also had some step-change reductions in demand, particularly when the sugar tax was introduced to the beverages category. So we've coped profitably with reductions in demand, industries, which are in decline, can nonetheless generate a lot of cash, and that's what we firmly believe sugar will do. We have in the U.K. a highly efficient business in British Sugar. We are one of the lowest cost producers in Europe, if not the lowest cost producer. The assets are well invested. The only CapEx that we're investing and have been investing for the last few years has been about reducing our energy costs. They've been good projects with good short-term paybacks. The one that is underway now to put steam drying into Wittington is partly funded by -- with taxpayers' money. These are nice fast payback projects. There is no other significant CapEx requirement for British Sugar into the future. In the U.K., the market share -- our market share is over 50%. We are really well placed. We have a super industrial brand. We are well known for being a very reliable, high-quality supplier of sugar. The customer relationships are in good shape. And then lastly, producing in the U.K. gives us the added protection, that it's probably worth GBP 10 a tonne, maybe GBP 15 of the English Channel. And so our U.K. business is just potentially a great business in a market that's declining albeit, but the European sugar industry is more than capable of coping with reducing supply -- reducing demand. So why are we losing money, again? The answer is that the European prices have been low for a couple of years. The market remains oversupplied. The surprise this year, sorry about it, was that yields from a reduced acreage across Europe were very good. Some of the best sugar yields in Northern Europe prevented the acreage reduction from turning into -- turning Europe into deficit. The other thing that's worth mentioning is that the surplus is actually quite small. It's just that, that surplus has driven very aggressive pricing. So that aggression will go away once the surplus goes away, but I can't help but feel that we've overdone the price reaction given the level of surplus. There needs to be a rebalancing of supply and demand. If you look at sowing intentions, they are well down across most of Europe. If those reduced sowings combined with a more normal yield outcome, then I think there's a good chance that the market will be in deficit will be short sugar. There's stock still in the system, which will flow through. So I think the -- we can't expect price reaction to be very early and very strong. And we haven't seen it starting yet. Hence, the warning today about the second half and about next year. We just haven't seen prices reflecting an anticipated shortage of sugar. Maybe we'll get there, maybe we won't. We don't know at this stage. But I think it's right to call out that right now, sugar prices remain subdued. In Spain -- so that's U.K. But in Spain, there are some of these similar characteristics around market pricing. The restructuring we did last year, though, has changed the business significantly. We were predominantly a beet processor and now we're predominantly a cane processor. As a cane processor, you can back-to-back sales contracts, which you can't do in beet. So we've derisked it. Now that Spanish business will never have the same scale to be at the level -- the cost level of British Sugar, but it's largely a beet business -- sorry, it's largely a cane business now and a trading business. So we think that -- I mean there's more to do, but the heavy lifting and the cost associated with any restructuring in Spain, in particular, we've taken all that. So we think Spain is in a much better place. There's also new leadership in place to take quite a different business forward. I think I've gone through most of the characteristics of the second half. Our own sugar production, since those have been -- we're not playing our part in taking sugar full capacity. We produced 8% less sugar in the harvest just completed than what we produced in the year before. And next year's -- the sowing intentions in the U.K. are off another 8%, 9%. British Sugar in the old days, you'd have thought 1.25 million tonnes, maybe 1.3 million was normal. We produced 1 million last year. We'll be under that this year. We're playing our part in coping with industry demand reduction. We will have another trading update in July. We will give you more information about how the crop has progressed. At that stage, we will also tell you more about the start-up in Africa, which is -- the timing of the start-up determines how much of the profit in their campaign falls into this year and how much will spill into next year. And so with that, let me move to Africa, which is now over half of the sugar revenues. Now this is half the sugar business and more. The fundamentals are really strong, growing population, very high market shares, very well-branded sugar business with very good routes to market in a place where that is quite difficult to achieve. We're always going to get some weather-related events, but the long-term fundamentals are intact. At this stage of the year, again, the start-up crop risk is still ahead of us. So when we come back in July, we'll be able to say, look, Malawi, Eswatini got away on time. We think Tanzania might be late. We think Malawi is going to be late. As I say, it tips money into next year from this year, and we'll tell you as much as we can about it. We have increased the -- the last thing to say about Africa is that very big investment in Tanzania, the new factory is complete. We had quite a lot of wrestling to do with it before the rains came and we had to shut it down for the rainy season. We've done a lot of very good work in the off-crop, and we have a fair degree of confidence that when it starts up again, probably in June, it will run much better than it did. It will take a while to ramp up to its full capability. I remind you; we built it because there's a significant shortage of sugar in Tanzania, that's a supportive government and sugar demand is growing every year. There's also a project there, which is -- will be complete around about the same, around about June, I think, to build a new distillery to produce high-quality potable ethanol. It will be the second distillery we've got from that site. That second site is almost sold out, already. So these are lovely economic opportunities that we face into -- in Africa. So finally, on to agriculture. The focus is on growing our portfolio of value-added specialty products. We've still got some of the old stuff, but it's reducing in importance. The new premix plant in Vietnam is near complete also in China. The integration of the full-service offer for dairy farmers in the U.K. continues to progress, and we're beginning to look offshore to see where that model is relevant. Our compound feed sales were well down. I noticed in November that we lost our largest customer in the U.K. It's allowing us to adjust our cost base accordingly, and that work is well underway. And then finally, I do feel for our good folks at Frontier, the JV because they've had a horrible combination to cope with of a very small crop that goes all the way back to the wet autumn in 2024, and then -- which led to small U.K. harvest, they merchant that harvest. And then actually, even despite the volatility in some commodities that the Gulf situation has caused, there's been very low soft commodity volatility, lowest in kind of 10-year period. And you need that -- as a trading business, you need that volatility to trade on. So it will come back. It will come back and -- but just not in the first half. Let me finish on the group outlook. The financial year, the outlook is unchanged with the exception of sugar, where I think we've told you what's going on. That outlook does take into account the expected cost impact of the Middle East conflict, which we have good reason to think is manageable. It doesn't reflect the risk that if the conflict persists, there's a further -- that's accompanied by a further deterioration in consumer demand. That's a risk that remains out there. Primark has made very strong progress to reenergize the customer proposition, albeit in a consumer environment that's challenging across all our markets. The food business is positioned for strong improvement in profit in the second half of the year. The businesses are all well invested for long-term growth. There are a number of multiyear projects completing this year. That's a very good thing. And our strong balance sheet supports whatever resilience we have to display. We're confident in the long-term fundamentals and growth projects -- prospects of both the retail and food businesses. Today is the day to reconfirm that. And with that, let me stop and open up for questions. William Woods: William Woods from Bernstein. Three questions, if I may. The first one is just on Primark. Primark is an independent business. Do you think it changes your approach to long-term growth and capital allocation or enables you to do anything differently? The second question is looking at H1. Obviously, you had some quite significant margin compression year-on-year. Did you buy too much or get the buy wrong? And would you aim to get more stability into your margin going forward? And then the third and final one is you obviously completed a massive review of the business and its structure. Do you want to conduct more portfolio review in the Foods business? George Weston: Do you want to take the first two? Eoin Tonge: Yes. Yes. Look, I -- well, actually, I mean, George, you might comment on, I don't think it changes much. Look, I mean, the style, obviously, Primark has been part of ABF for, well, forever. And it's been kind of a long-term approach. So I think fundamentally, that's the culture. I don't think it changes the long-term outlook and thinking and so on. But more to the point around governance and focus and all that sort of thing, a slightly different point. And that's my personal view. If we didn't think that this change in governance -- governance wouldn't accelerate long-term growth in Primark, we wouldn't be doing this. That is essentially what we're trying to do. And it's just an increasing belief that if you get the right expertise in the room, you will take better decisions. And we've reached the stage where with that complexity in the business and the scale, we need that. I'll do the margin one. I mean, yes, look, I mean, inevitably, we did buy too much. I mean, hindsight is a great thing, of course, isn't it? And the markdown -- the level of -- higher level of markdowns in the first half reflect that. Buying too much is a feature of trading as well, right? So I think, obviously, as we look into the current period, obviously, we've got to be very, very thoughtful about the buy and all that sort of thing, but we wouldn't be expecting the same level of markdowns to repeat themselves. George Weston: And then no, this review has been about where Primark governance essentially. But we've been doing a lot of portfolio work in food. Vivergo has gone. Chinese sugar has gone. Mozambique sugar has gone. Spain has changed into refinery business. Bakery, we hope we'll own Hovis and that will address the problem. We've been buying some of these smaller positions. I think we'll see more in ingredients over the next few years. I think Elementis is just the start of a very attractive acquisition. So that food portfolio, if you're going to access as we want to, new markets, new growth opportunities, M&A has got to be part of it. And then the existing holding, you've got to be sure that it really is a cash cow, otherwise, there's kind of no point to it. We've got a couple of -- we've got Australian meat; we still need to do something with. It's not the biggest thing out there, but it neither ticks the cash cow box nor the growth box. So yes, what are we going to do? But I think most of the other -- what people would fairly harshly describe as bleeders. I think we're well on with doing something with. William Woods: And can I just follow up, George, very quick -- Eoin, very quickly on the product, you're confident that you're getting product right. It's just the allocations that were maybe wrong into this year. Eoin Tonge: Yes. Joana Edwards: Well, don't forget that the weather was very benign. So we also had a lot of winter product that we need to shift, and it's better to do so. George Weston: We've reequipped a lot of families with coats at 70% off in January. Eoin Tonge: Which is partly to do with the allocation around of last year... Joana Edwards: Yes. George Weston: Yes. Yes. Yes. That's right. Richard Chamberlain: It's Richard Chamberlain from RBC Capital Markets. Also three for me, please, if that's okay. So I mean just following up on the margin point on Primark. I wonder if you can give a little bit more color on your expectations or sort of impacts on digital and marketing initiatives on the margin and what you've seen so far and what you're expecting in H2? On the sugar side, George, can you maybe just walk us through a little bit more on the change in guidance? Is that all sort of EU pricing related? Or is there also a change in expectation for Illovo? Are you also saving still is it GBP 30 million from the Vivergo shutdown from last year? And then just finally, on the demerger plans, any sort of updated thoughts or initial thoughts on the capital structure for both businesses, where will be -- what sort of balance sheet will you be looking to run for both sides? Just any sort of high-level thoughts on that? George Weston: We haven't said anything officially about balance sheet structure. I think you can look through to the Wittington majority control of both and assume that there's a degree of conservatism that's going to characterize the balance sheets of both companies. But let me not say anything more on that. Joana Edwards: We did say that it's going to be both of them will have very strong balance sheets... George Weston: Yes. Joana Edwards: Both businesses as stand-alone. George Weston: Yes. Yes, those savings from Vivergo are there. We've still got some people on site making sure that the site doesn't deteriorate too fast while we wait to make a decision about whether there's a buyer or whether we dismantle it or whether the U.K. falls out so spectacularly with the Americans that the trade deal is undone. And then we'll see where we go. I think we sort of moved on from Vivergo. Illovo, there are a couple of headwinds. So the delay in the Tanzania start-up or the difficulty of the Tanzania start-up has delayed the ramp-up, and that will affect the profitability of the second half in Tanzania. Actually, pricing, which we were worrying about in Tanzania has come back reasonably well. And then we've had too much sugar coming into the South African market, which -- where there is a -- there should be an automatic tariff adjustment mechanism, which hasn't been working very well. So there's been -- I wouldn't describe it as a flood, but quite a lot of third world sugar, third-party sugar come into Africa and depressed margins in South Africa and in Eswatini. So there are some headwinds, but they would fall into the camp of kind of normal stuff. Joana Edwards: Yes. And Africa is second half. So... George Weston: Yes. Joana Edwards: We'll need to see how the campaign goes because it's just starting in some of our markets. George Weston: Do you want me [ to have a ] go? I mean you might comment on it as well on the margin on the digital and marketing and margins. I mean you would obviously expect us to say this, we're quite judicious in how we think about the spend in both and the returns that we're generating from both. So I don't think there's anything to really say for this financial year. I think your question was more medium term, is this, or is it? Richard Chamberlain: Yes, I think you mentioned Europe... George Weston: Yes. No, there will be a step up. There will be a step-up in the second half of the year, but we're expecting it to return, but it's not material to the overall group margin. Joana Edwards: No, I think when we gave guidance in January, we had assumed those investments, in fact, that they were in place as well in the first half. It is to drive the growth, and that's what we always said. It wasn't about the margin. So the guidance that we're giving is confirming what we said in January is as we are here today with the minus 2.7% like-for-like, the margin would -- the resulting margin would be at around 10%, including the investments which we had already identified for driving top line growth. Adam? Adam Cochrane: It's Adam Cochrane, Deutsche Bank. Just a couple on Primark, please. Can you just outline the sort of any time line for the improvements and changes that you're going to make in the European business? I'm assuming it's as quickly as you can go. But what -- when can we expect these various bits you've seen in the U.K. to come into Europe? And secondly, on the price and value perception study or whatever is you've undertaken, can you just give us some color on where you see the consumer, what they're thinking about your brand? And with the improvements that you've seen in the U.K., is that more related to the price investments that you've made, the marketing side of things? What do you think or have you asked what has actually driven that change in price perception in the U.K.? And from that, is price perception the main issue in Europe from your study? Or is it something else? Eoin Tonge: Good questions, Adam. Why don't I kind of start with that second question first to lead into the first one. Yes, look, I think the color we're seeing on the consumer improvement in the U.K. isn't just on price. It's price, it's quality, it's style and fit. And in fact, the brand metrics demonstrate that. We already actually do score very highly in price actually in our brand metrics. So it'd be hard to move them higher. But remember, price perception is a very -- it's a kind of a complex thing, right? Like it's not just straight lowest price always. It's kind of are you getting the best value really for that product. So I think everything that we're doing around sharpening our price, sharpening our product, more engagement, telling people more about it, that's all going to improving that overall picture. So -- and indeed, the metrics we're actually seeing in the U.K., we're not seeing those take-up metrics actually in Europe, right? So we're not seeing them. So that's what gives us kind of confidence to a certain extent. So the barriers are the same that we have to kind of go through. We have to remind people of the incredible price. And some of that's about shouting about it, some of that's about showing about it. And then we've got to make sure people come back because the quality that they get is stands out. I think that's all very doable in the markets in the European markets that we're operating in. So that's the answer to your second question, I think. And on the timing, look, we're -- notwithstanding, of course, the world is kind of sort of obviously a bit of a tricky world out there. I think we were seeing really good green shoots actually before kind of conflict, if you will. And I think we're pretty confident that a lot of what we're trying to do is going to impact certainly a little bit in spring/summer, but certainly more into autumn/winter into next year. I would say -- and as I said before, it will take more time. Digital will take more time in Europe because we don't have the infrastructure, but it will take more time. And so that's, I think, the way to think about it. Alexander Richard Okines: Warwick Okines from BNP Paribas. Two on Primark, if I may. Firstly, could you give us a sense of the steepness of slowdown that you've experienced in recent weeks? And secondly, if we've already seen a slowdown in Primark, why aren't you assuming this continues? I mean is it because you don't think there'll be a real inflationary pressure on the consumer? Just seems odd to me. Eoin Tonge: That's a good question. I mean like the -- the slowdown was marked, but not dramatic, right? I would tell you the best way to describe it since middle of March. Joana Edwards: Weeks really. Eoin Tonge: Yes. Yes. So -- and I guess the consumer probably -- I think, well, like all of us, we hoped it was going to be short and then when we realize it's not going to be short, and you can see the sort of inflation is going to impact, the consumers start to think that's -- we all know what's happened. I'll let Joana reconcile the guidance point. But the one thing I'd say is that, first of all, it's very early days. And secondly, like we win and lose in this environment, right? So it's very hard for us to kind of say exactly with precision as exactly how it's going to go as to how long and prolongs. We've seen in the past that people do drop out of the market, but we've also seen trading down, right? So we just have to see how this all develops. Joana Edwards: Yes. Yes. And it is early days. We know that we're comping against Easter last year. So reading the figures is not as straightforward as sometimes it could be. We're confirming the guidance, which for the second half is based on negative like-for-like. So there is a degree of we thought conservatism when we issued in January. The green shoots we saw in March were good. So we feel that there's something that's working there. How much of a decrease we will see in the consumer, it's still too early days, Warwick. Eoin Tonge: You may have seen the BRC numbers of 2 weeks ago, which were minus 12. We beat that, but it was still a pretty shocker of a week. Joana Edwards: Yes. And that was U.K. I think it is important to say this is not just the U.K., which again links to we've got comps against Easter last year, Mother's Day in March, at different dates, Carnival and some. So we know there is always a little bit of a bumpy read into the figures into the second half. And as I say, the guidance is on the basis of continuation of what we had seen before, the negative minus 2.7%. Eoin Tonge: The other thing I would add just to it -- just [ to add ] that the activity we just talked about plays very well into the environment that we're going into. So we'll have to see how that all plays out. Gary Martin: Gary Martin here from Davy. Just a couple of quick questions from my side. Just the first one on the demerger, and I appreciate the color given on the balance sheet, but would it be possible to get maybe a bit more granularity just around the free cash flow generation dynamics of both of the businesses post separation? That's my first question. And then just around the outlook, just on the sugar side, how do you expect just the various moving parts around the Middle East conflict and the, I'll say, the inflation across the energy side, potential inflation across the distribution side, how does that feed into your 2027 outlook on sugar and sugar pricing? George Weston: Yes. Again, we'll have a lot more to say about cash flows in both businesses. Again, one of the things that we had a very hard look at actually before we had made the announcement in November was to ensure that both parts could fund their own ambitions. Primark -- under normal circumstances. Primark has always been cash generative. The only time it wasn't was obviously when we were shut down during COVID. And food, food CapEx probably won't fall in '27 because there are payments still to be made, but it will fall in '26... Eoin Tonge: '28. George Weston: '28. And that, combined with the eventual return of sugar cash flows will make that business a good solid cash generator, able to fund its -- as I say, its ambitions and also deliver shareholder returns. Joana Edwards: The free cash flow was definitely one of the key areas that we spent a lot of time with the whole team of Rothschild there. Thank you. We supported all those 23 and 11 scenarios of stress that we put through the models. But as you say, George, they both standalone from a free cash flow perspective. And for that matter, in terms of capital allocation, the assumptions going forward at the moment we've taken are similar to [indiscernible]... George Weston: And the separation of the balance sheet is actually -- well, none is ever completely straightforward. But the leases obviously go to Primark. The pension surplus mainly applies to plc. And... Joana Edwards: Yes. George Weston: That's more to say. Joana Edwards: Sorry, Gary asked about the Middle East as well. George Weston: Okay. Gary, sorry. Thank you, [ Joana ]. There's one potential bit of upside, which is there are some very big sugar refineries blockaded at the moment in and around Dubai and that supply well over 1 million tonnes of white sugar into the area. Well, Europe has got a fair amount of white sugar available if some of these markets want it. Energy, look, these are energy-intensive businesses, and the growing of the crops is an energy-intensive business. Costs, if they don't come down soon, will have to flow through into pricing. It's not as if there is a high level of profitability in European sugar, which can just absorb these cost increases. So that has to be passed on. Joana Edwards: We're not alone in that. George Weston: Yes, it's everyone. Joana Edwards: Clive. George Weston: Clive. Clive Black: Clive from Shore Capital. Two, if I may. And I know you're going to teach us about the demerged entities down the lines. But George, you used the word specific governance as a benefit. I just wondered if you could just flesh that out a bit more because it sounds like a very important part of your thinking. And then on the food side, you touched on quite a lot of themes, and I think it was characterized best by you saying food is a very dynamic industry. Why do you think or how do you think AB Foods is well positioned for whatever ahead is in food markets? I mean you touched on GLP and food security just the two, but yes... George Weston: Specific governance, I think there are 2 slightly different benefits for the 2 different businesses. In Primark, it's about getting industry expertise around international, around digital, around marketing onto the Primark Board. I think the scrutiny of the business, a lot of you here are already retail analysts, will remain properly intense and valuable for the challenge that you provide. But it's getting that richer wisdom across a business, which has so many more complexities than it would have a few years -- would have had to cope with a few years ago that will bring the better decision-making and thus the growth. I think in food, I think it's -- the issue is more the market scrutiny and pressure, which we, quite frankly, I haven't really felt for a long time for 2 reasons. Firstly, because you're great at retail, but you don't know the questions you should be asking me sometimes on food. And secondly, because Primark growth has given us such great top cover in food, we just haven't been exposed enough. And I remind you that the ownership model is about the -- about Wittington providing the long-term focus and wherewithal and the market exposure keeping our feet to the fire. So I think having our feet put to the fire will be a good thing. Maybe it will be more for my successors than for me. But nonetheless, that's what we hope -- that's what we're aiming for. And then, of course, for individual shareholders presented with these individual investors presented with the biggest international retailer on the FTSE and the only largely pure-play food company on the FTSE, we'll have, I think, really interesting things that they might want to invest in where at the moment, the combination of the two hold some investors back. So that's really the governance story. Let me answer, sort of get at this kind of food is an interesting place, isn't it, through a couple of anecdotes. The first one is that the fastest growing scale brand in ABF last year was not Twinings. It was Fleischmann's home baker's yeast. We are selling in the States more home baker's yeast than we were to American consumers than we were at the height of COVID, and it's all the increase is to the under 35s, and some of you will be aware -- more aware than me of the return of whichever gen it is to those sorts of activities. There are more knitting circles, crocheting clubs, book clubs, food preparation activities going on than you would have ever expected to see. And we are seeing it rather wonderfully in Fleischmann's yeast, where we have a 70% share of the entire U.S. market. If you'd ask me 10 years ago, would you get more growth out of Twinings international brand kind of health credentials scalable across all sorts of markets or Fleischmann's yeast, I have thought you were pretty stupid people to be asking the question. But you just never know. Food changes the whole time because the consumer changes the whole time. And I think that there is, in that ABF willingness to not think that focus is the only good thing, but to think that actually involvement in lots of different places with teams that know those places and an organizational model that can support those teams. I think that makes us unusual and a bit special. I can look at Anthony's Goods and go, where is all that growth coming from? Well, it's a lovely Managing Director, Brittany England, who lives in California and knows that world, makes movies every morning and is just all over the specialty ingredients, being supported by a really commercial boss, Imad, who's telling her all sorts of things that she wouldn't have found out for herself. And that's -- the combination of the 2 drives, I think, our right to be there and has turned Anthony's into the biggest player in that specialty ingredients market in place. So we do like the diversity because we can't anticipate the future. We can see certain trends, and we can be as agile as we can possibly be in exploiting those trends. But you've kind of got to be in it to play. Now there are certain things that we believe the population growth, for example, is a really good place to be. This is why we like Africa, why we built a factory in Nigeria and why we like Australia, for instance. And there are certain trends like foodservice, like premiumization, like healthfulness now, which I think are going to persist and where I think we are fairly well exposed already, but with much more to do. Does that sort of get at some of what you've... Clive Black: Good stuff. George Weston: That's a stuff. There'll be more. I can rant forever on other stuff. Joana Edwards: Sreedhar. George Weston: Sreedhar. Sreedhar Mahamkali: Sreedhar Mahamkali from UBS. Maybe hopefully, the last 3. One on grocery, a couple on Primark, please. Mazola, you've talked about the challenges, George, but can you talk about market share trends for Mazola? Are you still holding the leadership? And also, what are you doing to attract a different customer? How do you grow it again? First one. Secondly, I think, Eoin, you talked about price leadership in Primark, sharpening it. Can you expand a bit more, which markets, categories? How broad is this, price sharpening? Or is it very sort of specific products in specific markets? And is it being done with margin investment or kind of slightly different by almost altogether? And thirdly, also on Primark, you've talked about self-help technology investments driving productivity. Does that give you confidence enough to say Primark can sustain a double-digit margin medium term? George Weston: Let me answer the Mazola question and then Eoin can pick up the second one. Well over half our sales of Mazola are to the Hispanic population. That population consumes 3 or 4x as much oil, vegetable oil, cooking oil as the rest of the population. So when that population starts to reduce oil consumption, you inevitably lose market share. It's not that we're losing relevance to that population. It's just they're buying less and they're such big consumers. We've been working on a heart healthy campaign probably for about 10 years. It's relevant to the Hispanic population, but it's also relevant to the broader population. And actually, our share gains over the last few years have come from that broader population. But they're more -- that other population -- the Anglo population, if I can call it that, use more different oils. They've gone into olive oil in a bigger way. They use more own label. They're a bit indifferent about whether it's corn oil or whether it's rapeseed oil or whether it's soy-based oil. So it's not such an attractive market. But we have been chipping away at it with a degree of success, but it's a little bit every year and based on that heart healthy positioning of the brand. It won't replace the volume losses in the Hispanic population because we have such a big share of that. They're so loyal to the brand and they consume so much. Eoin Tonge: Yes. Look, I mean, I think I'm not going to give specifics about where we're going to do -- where -- I mean we have price leadership now, right? Like we check our price leadership every single day in every single market. We have price leadership now. So we're pretty comfortable where we are today. But we've got to keep on making sure we're on it, and we're leading. So I'm not going to talk more about that. I mean, look, it's too trite to always say you're just doing simple margin investments because you might have a gross margin investment, but obviously, you're looking for volume pickup that ultimately will be overall operating margin neutral. So I think it's just too tight to say that. And obviously, it goes to your second question is sort of how you might kind of fund elements of that market investment, which comes down to how you do self-help, et cetera, and so on. So I think it's -- we believe in the medium to long-term, to answer your second question, we're pretty clear we can go after what you're going to call double-digit margins, but like healthy margins in the context of driving growth, continuing to invest in the proposition, and that's not just price, but it's also marketing as well and digital. There will be moments in time where digital will be a drag on margin because when you have undercapacity, particularly, you will have points in time with that. But -- and then the self-help to go after that. So there's a lot to go after. I talked about cost, cost in stores, cost in depots, cost in further across the supply chain and including centrally, there is -- the supply chain effectiveness is not just about cost also, it's about making sure that as we grow, we're getting the product into the right place, which also goes to growth. I've talked about the digital opportunity, areas like data and technology, there's lots to go after there that will both inform cost and growth. So yes, I've kind of give a rambling answer, but I think I got your question. There you go. Unknown Analyst: It's [indiscernible] from Citi. Just two from me on Primark, if you could. So firstly, according to your typical FX hedging patterns, we think there may be some quite material tailwinds just from the dollar sourcing hedges that you've done coming your way sort of next fiscal year. First of all, is that correct? And secondly, if that does end up being the case, given you've said you're happy with your price position today, does that get -- help you get towards, let's say, investing in your marketing or anything else? Or do you just simply give it back in price to maintain that? And secondly, I don't know if you'll answer this, but just as you've done a deep dive at Primark, have you had any discussions about like what a steady-state margin could look like and whether there's any room for potentially a home delivery online channel if the unit economics of that could work? Eoin Tonge: Do you want to talk about FX? Joana Edwards: Yes. [indiscernible] you're right, tailwinds every cloud, there's a silver lining. And certainly, as we continue to see the dollar move, we have got a tailwind on FX. I think what we said before is we're using that to drive top line growth. Now is that going to be through investment? Is that going to be through price investment, technology investment, all the different things, all the levers that Eoin has just gone through as we were talking to Sreedhar's question. It is not something that we're going to be using to orchestrate the margin or to manage the margin. It is to drive the top line growth. And it's good to have some tailwinds because to your second question about steady-state margin. I think as we sit here, talking about steady state feels quite difficult because of all the uncertainties that we've got. But what we said around the margin is that it is a resultant of what we're doing and the initiatives we are taking to drive top line. Do you want to talk about? Eoin Tonge: Yes. I mean one thing just to clarify, when I say happy, like we have price leadership. There's always opportunities to continue to invest. I think on -- yes, look, obviously, as we've done lots of thinking about the future, we've done both the kind of thinking of the growth and indeed the cost side of life. And I mean, actually, I would say it's predominantly been focused on the growth side, as you can imagine. Look, home delivery, it's still a return dilemma for us. Our position hasn't changed there. We've got loads to go after in digital. We're doing, I think, some really exciting stuff there. And -- yes. look, I mean, I think we're pretty clear that we can go back to [indiscernible] first question, I think I'm pretty clear that we can continue to drive good margins, but more importantly, strong cash with the growth opportunities ahead of us. George Weston: Thank you all. Again, congratulations on getting here. This has gone on a while. You've got an hour and 13 minutes to get back on the underground. And thank you very much for your continued involvement in our lives. And it really is -- I just sort of go back to -- this is quite a big day for us. It's quite a big day. And we have to remember that. But thank you very much. Joana Edwards: Thank you. Eoin Tonge: Thank you.
Operator: Good afternoon, and welcome to the Beta Bionics First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, please be advised that today's conference is being recorded. I would now like to hand the conference over to Blake Beber, Head of Investor Relations. You may begin, sir. Blake Beber: Good afternoon, and thank you for tuning into Beta Bionics First Quarter 2026 Earnings Call. Joining me on today's call are Chief Executive Officer, Sean Saint; and Chief Financial Officer, Stephen Feider. Both the replay of this call and the press release discussing our first quarter 2026 results will be available on the Investor Relations section of our website. Information recorded on this call speaks only as of today, April 21, 2026. Therefore, if you are listening to the replay, any time-sensitive information may no longer be accurate. Also on our website is our supplemental first quarter 2026 earnings presentation and updated corporate presentation. We encourage you to refer to those documents for a summary of key metrics and business updates. Before we begin, we would like to remind you that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's expectations about future events, our product pipeline, development time lines, financial performance and operating plans. Please refer to the cautionary statements in the press release we issued earlier today for a detailed explanation of the inherent limitations of such forward-looking statements. These documents contain and identify important factors that may cause actual results to differ materially from current expectations expressed or implied by our forward-looking statements. Please note that the forward-looking statements made during this call speak only as of today's date, and we undertake no obligation to update them to reflect subsequent events or circumstances, except to the extent required by law. With that, I'd now like to turn the call over to Sean. Sean Saint: Thanks, Blake. Good afternoon, everyone, and thank you for joining. We're pleased to share with you all today our financial results for the first quarter as well as positive updates to our full year guidance for 2026. In Q1, the company continued to progress rapidly across our key initiatives, both commercially in terms of driving adoption of the iLet and expanding pharmacy channel access and developmentally in terms of advancing our Mint patch pump program and our bihormonal program. Our teams continue to execute relentlessly to deliver life-changing solutions to the diabetes community today and over the long term. Diving into a brief overview of our Q1 performance, we delivered $27.6 million in net sales, which grew 57% year-over-year. Q1 revenue growth was driven predominantly by growth in new patient starts as well as our growing installed base of users who continue to access their monthly supplies for the iLet through the pharmacy channel and who we continue to retain at a high level. The percentage of new patient starts that were reimbursed through the pharmacy channel grew to a high 30s percentage compared to a low 30s percentage in Q4 and a low 20s percentage in Q1 2025. Our gross margin was 59.5%, expanding over 860 basis points year-over-year. Stephen will discuss our gross margin dynamics shortly in more detail, but I wanted to highlight this exceptional performance as evidence that the pharmacy business model is working as is our ability to drive leverage in manufacturing costs as we scale. I'm proud of these results and eager to build on them as we progress throughout the year. With that, I'll hand the call over to Stephen to provide some additional color on our first quarter performance and our full year 2026 guidance. Stephen? Stephen Feider: Thanks, Sean. Our Q1 performance exceeded our expectations across the board. Revenue performance was mainly driven by new patient starts and the recurring revenue generated from our growing pharmacy installed base. Q1 revenue saw a modest contribution from pharmacy and DME stocking, but the stocking benefit in Q1 declined relative to Q4 in both channels. I'd now like to highlight some of our Q1 commercial metrics. New patient starts declined more than 10%, but less than 20% compared to Q4 2025, consistent with our expectations given typical seasonal demand patterns from Q4 to Q1. A high 30s percentage of our new patient starts in Q1 accessed iLet through the pharmacy channel. The increase compared to the prior quarter exceeded our expectations. It is important to note that most pharmacy plan changes occur at the beginning and midpoint of the calendar year. Thus, we do not expect an uptick from Q1 to Q2. Our pharmacy strategy continues to deliver strong financial results for the business, driven by the advantaged recurring revenue model, low out-of-pocket cost for patients, a streamlined process for health care providers and our ability to retain patients utilizing the product. Lastly, we continue to expand the insulin pump market as approximately 70% of our new patient starts came from people with diabetes using multiple daily injections prior to starting the iLet. Moving on to gross margin. Q1 gross margin was 59.5%, representing an increase of 52 basis points relative to the prior quarter and an increase of 864 basis points relative to the prior year. The primary driver here is our pharmacy installed base, which generates high-margin recurring revenue and where we continue to see strong user retention. Previously, I've shared a simple way to think about how the pharmacy channel impacts our overall gross margin. The framework I introduced was that when our pharmacy installed base in a given quarter exceeds 3x the number of new patient starts through pharmacy in that same quarter, the pharmacy channel generates higher gross margin than the DME channel and becomes accretive to our overall gross margin. We crossed that threshold in Q1, and we expect further gross margin expansion as our pharmacy installed base continues to grow. The other key driver of strong margin performance this quarter was lower cost of materials for the iLet relative to the prior quarter and year. We also benefited from a couple of onetime gross margin tailwinds in the quarter, including higher-than-planned iLet production and modest contribution from pharmacy iLet revenue. While we don't expect those onetime tailwinds to repeat, I expect our core gross margin to remain a key area of strength going forward and an important driver of our ability to generate free cash flow at an earlier stage as compared to our diabetes peers. Total operating expenses in the first quarter were $40.7 million, an increase of 47% compared to $27.6 million in the first quarter of 2025. The increase in sales and marketing expenses relative to the prior year was driven by expansion of our field sales team, which we made excellent progress on in Q1 towards our previously stated goal of expanding by at least 20 sales territories in 2026. Newly onboarded territories generally take at least a quarter to begin contributing meaningfully to sales. So we're excited for those additions to take shape throughout the year. On R&D expenses, the increase relative to the prior year is driven by the Mint and bihormonal projects. The increase in G&A expenses relative to the prior year is driven by continued efforts to scale the company in support of commercial growth and pipeline initiatives. As of March 31, 2026, we have approximately $240 million in cash, cash equivalents and short- and long-term investments. We believe we are sufficiently capitalized to fund all of our key initiatives and remain well positioned to generate free cash flow well ahead of historical diabetes peers. We feel that all of the key indicators that we monitor suggest we are building a sustainably successful and profitable business, including strong product market fit, solid sales force productivity, growing pharmacy traction, healthy gross margins and continued operational discipline. I'd now like to discuss our revised full year 2026 guidance, which we're raising across the board. We now project total revenue for the year to be $131 million to $136 million, up from our prior guidance of $130 million to $135 million. On pharmacy mix, we now expect 37% to 39% of our new patient starts to be reimbursed through the pharmacy channel versus our prior guidance of 36% to 38%. Our increased revenue and pharmacy mix guidance reflects our higher expectations for new patient starts, driven by strong Q1 performance and the success we've had in onboarding new sales territories, where we're on track toward our goal of adding at least 20 territories in 2026. On gross margin, we are raising our outlook to 57.5% to 59.5% for the full year versus our prior guidance of 55.5% to 57.5%. Our gross margin outlook reflects the strong performance in Q1 normalized for onetime tailwinds and our expectation of continued contribution from our pharmacy installed base, along with increasing leverage from manufacturing scale over the course of the year. To briefly comment on operating expenses, we expect year-over-year growth to accelerate for the remainder of the year compared to Q1, driven by continued expansion of the sales force, increased investment in brand and direct-to-consumer marketing and spending related to Mint and our bihormonal programs. With that, I'll hand the call back over to Sean. Sean Saint: Thanks, Stephen. To wrap up the call, I'll briefly touch on our remediation efforts regarding the FDA warning letter we received in late January and then highlight the progress we're making in our innovation pipeline. Regarding the warning letter, the company is continuing to take this matter very seriously. Our teams and leadership are conducting thorough systemic reviews of our quality management system and instituting corrective actions that we believe address the agency's observations. The company is responding quickly to the agency's concerns, and we've been providing periodic updates to the FDA regarding changes to our processes and documentation that we believe address many of the FDA's concerns as stated in the warning letter. One example of our progress thus far is our efforts to remediate old complaints under our new complaint handling system and definitions for reportable complaints. We recently completed that work well ahead of schedule, which we believe is a good representation of our organization's commitment to resolving the warning letter in an effective and timely manner. We still have work to do in other areas to fully address the agency's concerns, and we look forward to continuing to work together with the FDA to resolve this. Now for the pipeline. Let's start with a quick update on Mint, our patch pump in development. In Q1, we continued to advance Mint toward our goal of an unconstrained commercial launch by the end of 2027. We remain confident in our ability to gain FDA clearance for Mint, manufacture the product at scale and ultimately realize the opportunity to make Mint the market-leading product in automated insulin delivery that we believe it has the potential to be. For our bihormonal system in development, in Q1, we initiated a Phase IIa feasibility trial to stress test and iterate the system. Our Phase IIa trials have helped us to identify further areas for system optimization and preparation for the more advanced stages of development, inclusive of a Phase IIb feasibility trial and Phase III pivotal trials. I'm excited by our continued progress with the bihormonal system as it represents what we believe has the potential to be a transformative innovation for people with diabetes. Our industry talks a lot about moving toward fully closed-loop algorithms, which the industry generally defines as algorithms that don't require any engagement from the user. Another topic that's always top of mind for the industry is health outcomes. The ADA's glycemic goals for most nonpregnant adults with diabetes is less than 7% A1c and greater than 70% time and range, which the vast majority of people with diabetes aren't achieving today. When we look at the body of evidence of insulin-only fully closed-loop algorithms, we believe that they will not enable the majority of people with diabetes to achieve the ADA's glycemic goals, but bihormonal may be different. We believe that the existing body of evidence of bihormonal fully closed-loop algorithms shows the potential for the majority of people with diabetes to achieve the ADA's glycemic goals. That is such a big reason why bihormonal has game-changing potential for the industry at large and why our commitment to the program has never been stronger. At the end of Q1, we also launched a key new feature called Bionic Insights within our health care provider portal. This is a one-of-its-kind intelligent data analytics and reporting feature within the industry. Bionic Insights surfaces clinically relevant indicators, user activities and system events and packages them into actionable insights that help health care providers make more informed and personalized treatment recommendations for their patients. Early feedback on the feature has been overwhelmingly positive, and we're extremely excited by its potential to further improve experiences and outcomes with iLet. Lastly, on our innovation pipeline, I want to cover type 2 diabetes. In Q1, we continued to see some health care providers prescribe iLet to their type 2 patients off-label. We estimate that 25% to 30% of our new patient starts in Q1 were from type 2. While we're not committing to a specific time line, we remain eager to pursue the type 2 diabetes indication through the FDA. I want to leave you all with one key message from today's call. We are building a business that we believe is uniquely positioned to succeed over the short, medium and long term, fueled by our exceptional commercial product, pharmacy channel strategy, operational efficiency and what we believe to be the most innovative pipeline in the diabetes industry. We're excited and motivated to deliver. Thank you all for joining today's call. We'll now open up the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Mike Kratky with Leerink Partners. Michael Kratky: Congrats on the strong quarter. I guess to start, it was really encouraging to see the high 30s percent of new starts through the pharmacy channel, but your updated guidance of 37% to 39% seems to suggest it could hang out there over the next few quarters. So is there any fundamental reason driving that assumption or anything you're seeing from a competitive standpoint that may be tempering expectations there? Stephen Feider: Mike, I appreciate the question, and happy belated birthday, by the way. I forgot that I missed that. So nothing notable about the calendar year other than the biggest step-ups in pharmacy coverage happened at the start of the year and at the middle of the year, so January and July. And the other thing that's important to note about pharmacy reimbursement is that while we feel like the business is highly predictable in areas like revenue, this particular area isn't perfectly predictable. It's B2B sales, long sales cycle. And so our guidance acknowledges both of those factoids that I just shared there. In terms of competitive pressure that we're feeling as it relates to the pharmacy channel, none at all that's dampening guidance in any way. Actually, if anything, the move from our competitors, our tubed pump competitors to the pharmacy channel makes payers and PBMs more inclined to want to move insulin pumps or tubed insulin pumps in particular, to a pharmacy reimbursement. So we actually don't see that move that we're seeing from our competitors to be bad at all. Michael Kratky: Awesome. Very much appreciate that. And maybe just separately, in terms of the ongoing sales force expansion, any additional color you can provide in terms of what inning we're in there or how far along you are there? Stephen Feider: Yes. I don't want to speak specifically to the number as you can imagine based on the prepared remarks. We are not in the ninth inning, meaning there's more expansion to happen. But most of the expansion of the field sales force will happen in the first half of the year. So a lot of it happened in the first quarter, and then you'll see some in the second quarter as well, and that will round out most of what we expect to expand by. Operator: Our next question comes from the line of David Roman with Goldman Sachs. David Roman: Maybe I'll just start with the ADA guideline changes that I think went into effect in December regarding AID therapy. And could you give us some perspective on what you're observing in the field as it relates to prescribing patterns? I know you talked about in your prepared remarks, Beta contributing to expansion of the overall pump market. But help us understand a little bit more what you're seeing both on the type 1 and type 2 side from an underlying demand perspective. Sean Saint: Yes, David, this is Sean. Good question. I don't think that the ADA guideline changes, while helpful, are really impacting prescribing patterns on a daily basis. Things like that take time to filter out. I don't think we've ever seen the industry just react to a shift. And I think also the guideline evolutions were relatively subtle. Beyond that, I'm really not sure what I can add in terms of evolutions. I mean I think the last quarter has been relatively stable in terms of prescribing patterns, narrative, et cetera. I just don't have anything to add at the moment. David Roman: Okay. Maybe just to clarify there. We obviously continue to get a ton of questions around GLP-1s, especially given the oral dynamic. So maybe just any perspective there? And then just for my follow-up here, you talked, Stephen, I think, about accelerating OpEx growth through the year. How are you thinking about just overall investment in cost to serve here? Because as we look across the space, you have one of your competitors very aggressively going down the DTC path. You have a lot of people out there hiring reps, but it looks like, generally speaking, revenue expectations are pretty similar for most of the players here. So are you just seeing a higher customer acquisition cost as the market becomes more competitive? And how you're thinking about just that OpEx versus growth trade-off? Sean Saint: Well, let me take the first part of that, the GLP-1-based question. And I'll just say that, look, I mean, I think in many ways, this is sort of an asked and answered point on GLP-1s. I think they're a phenomenal class of drugs. I think they are helping a ton of people. I think when you talk about certainly type 1 and also insulin-dependent type 2, intensive insulin managed type 2 specifically, not really a huge impact there. Obviously, orals, I think, are a continued evolution of that drug class. It's a great evolution for those. But when you consider that we were going from a once-a-week injectable to an oral, probably not the thing that kicks it over into a class of drug that people taking 4 injections per day or on a pump are utilizing. That's not the reason it wasn't helping them is my point. I don't think oral is going to be the change there. But again, another evolution of that drug class that's helpful for them. I'm going to let Stephen take the second half of that investment question. Stephen Feider: Yes, sure. So first thing, David, I'm going to comment on is with regards to our sales and marketing growth for the rest of the year and what we're expecting in OpEx. So as I just alluded to in Mike's question, you'll see our sales and marketing spend grow here into the second quarter because of expansions of our field sales team, and that's why you saw the uptick in sales and marketing in Q1 '26 relative to Q4 '25. So that's what we're anticipating. And this also embeds some investment that we're making in direct-to-consumer advertising, not at the same level as some of our competitors, but we are making notable investments there. In terms of the customer acquisition cost, I think that's a really good point. And I think when you look at our P&L, for example, our sales and marketing costs in Q1 '26 are 75% of our revenue. That's not an efficient business at scale, of course. And so our sales and marketing costs or our customer acquisition cost needs to go down, and it will. And the ways that it will go down primarily are building an installed base, in particular, in pharmacy, where we generate a high gross margin recurring revenue from selling supplies in the pharmacy. And then the second one is that we are readying this business in terms of the brand recognition and building a customer first or customer go-forward brand in anticipation of the Mint product. And yes, for those two reasons, I'm comfortable that we are building a profitable business in the medium, long term that will start generating free cash way earlier than what we've seen in -- sorry, I got a little feedback there. But earlier than any diabetes peers. But I acknowledge that the customer acquisition cost today for a business like us, acknowledging we're getting most of our new -- a lot of our new patients from pharmacy channel, and we're building a brand that it doesn't look like a perfectly economical sales and marketing model at this exact moment. Operator: Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: I wanted to start with one on gross margin. Obviously, a really strong performance in Q1. I was hoping maybe you can help quantify some of the benefits you called out related to the higher iLet production and anything else that you mentioned on what may have contributed to Q1? And then extrapolating that out to -- it feels like gross margin is trending kind of toward the higher end of the guided range today. Is there something in there kind of tempering that expectation? Stephen Feider: Frank, I appreciate the question. So with gross margin, yes, there were -- as I mentioned in the prepared remarks, there were onetime tailwinds that we had in Q1 that brought the gross margin up from what its current run rate is. I don't want to quantify specifically what that impact was, but it was relatively small but notable. So that is the first point. And then the second thing you asked about is kind of relative to our guidance, doesn't your Q1 actual performance look -- these are my words, not yours, but you're kind of alluding to like doesn't this look like sort of conservative based on what the Q1 performance is? And I would say, maybe, but I just want to acknowledge two key points. Number one is just reiterating that Q1 did have some onetime favorability in it. And then the second point is that cost of sales generally has sometimes discrete and semi-unpredictable onetime charges that can happen unfavorably in any given quarter. And in short-run periods makes gross margin semi-difficult to predict. And so acknowledging that similar to how we had a favorability of a onetime charge in Q1, I'm not at all forecasting any future result of that nature for us, but I am saying that we're -- our guidance embeds the openness to that. But I think, look, gross margin is a very high point for our business. There is massive room for upside in gross margin in the medium -- in the long term for the company. And I hope what you're seeing in just the results even this quarter is that we're demonstrating cost favorability in our ability to manufacture costs more and more efficiently quarter-over-quarter. And then the pharmacy business model is absolutely working. I even alluded to today that pharmacy -- the pharmacy business unit or the pharmacy revenue model has a higher gross margin as of this quarter than even the DME revenue model, and this is in its early state. So more upside to come in gross margin in the long term, but they're sort of your answer to on why guidance is set the way it is. Frank Takkinen: Got it. Very helpful. And then maybe just for my second one, related to cash burn, any seasonal considerations we should think about with the cash burn from Q1, Q2, Q3 and Q4? You saw a little higher cash burn in Q1. Just kind of trying to understand how we should model the burn profile throughout the end of the year. Stephen Feider: For sure. Yes, I think cash burn for us is going to sort of approximate adjusted EBITDA for the rest of the year. The reason Q1 cash burn exceeded -- we did -- we burned about $25 million in Q1. That was higher than what our adjusted EBITDA was of around $17 million. And the reason for that is we paid -- transparently, we paid cash bonuses in Q1. So there was a big change in our accrued expenses. And then the second thing is there were some working capital differences between Q4 quarter end and Q1 quarter end, notably inventory, accounts receivable and accounts payable. So those totaled about $4 million of impact, and that will kind of get you to where closer to bridging the gap between that $25 million of burn and the adjusted EBITDA number. Operator: Our next question comes from the line of Jon Block with Stifel. Jonathan Block: Maybe I'll go with a couple of modeling questions. But the first one, Stephen, I think the Street was about 44%, 45% of 2026 sales in 1H prior to the [indiscernible] print. It sort of landed around $31 million for 2Q '26. And just curious, is that -- you mentioned this year would be more front-end weighted relative to 2025 for a handful of reasons. But when we look at that 1H weighting or maybe even more specifically, the $31 million for 2Q, is that the right cadence to think about for the model or anything else to call out as we think about the balance of the year on the top line? Stephen Feider: Yes, I'll reiterate the guidance that I gave on the last call that you just alluded to, Jon, which is that -- or the first half of 2026 we'll have more revenue in terms of weighting for the calendar year period than what we saw in the first half of 2025 -- than what we saw in the first half of 2025. I'm sorry, I'm not going to specifically comment on the number you shared in terms of Q2 guidance. That's not a number -- we don't want to give quarterly revenue guidance. But based on what I just told you, I think you can kind of get a really good sense as to what that number is or at least a tight range for it. So I'll leave it there. Jonathan Block: Yes. Fair enough. So maybe I'll take a different shot and go to gross margin. Going into this year, I think what you alluded to was gross margin would increase sequentially throughout 2026. And obviously, there was material upside to 1Q '26, right, sort of like a good problem to have. You don't want to quantify the one-timers. But just help us out like when we think about gross margin going forward, now that you're already at the upper band of your revised guidance for GM, what are the like the, call it, the upside or downside for GMs or COGS from here as we think about the next handful of quarters? Stephen Feider: Yes. So Again, I'm not -- well, I appreciate the question, and I'm not quantifying the extent of the one-timer that we saw or the one-timers that we saw in Q1 to give you the run rate Q1 gross margin. But relative to the run rate Q1 gross margin, we are still expecting an uptick quarter-over-quarter in gross margin. So there's no -- there was nothing, I guess, else notable about Q1, and we're not calling down gross margin or a different slope for the rest of the year in terms of the outlook. It's just that Q1 had a big number for reasons that I've now explained. Jonathan Block: Okay. Sorry, if I can just clarify there. So we're still -- we're up sequentially off the normalized 1Q '26 GM number. You're not going to quantify it. But logically, it's got to be about a 200 bp tailwind if you're up sequentially and still get to the range, the revised range. Stephen Feider: Yes. Without commenting on specifically the 200 bps tailwind, bingo. Operator: Our next question comes from the line of Richard Newitter with Truist Securities. Felipe Lamar: It's Felipe on for Rich. Just a follow-up on the pharmacy channel. I think you had mentioned that more competitors trying to enter with durable pumps into the channel is potentially going to accelerate the shift over. So I'm just wondering if you could dig into that and maybe give any context on the conversations that you've been having with your [ PBM ] partners? And then just one follow-up. Sean Saint: Yes, Felipe, it's Sean. Really beyond just saying that the more companies that are accessing this channel, the more normal it becomes, the more -- the less one-off these conversations are, the more of us that have success through this channel, the more future people accessing it will also have that success. And that success brings more success with other payers. And the more payers that start to pay, the more that the ones who choose not to become outliers. So I think this is definitely a snowball rolling down a hill and multiple players accessing this channel are a positive for all of us. And yes, so we're more than happy to see that. And I think it ultimately makes our entire industry quite a bit more healthy. Frankly, we're happy to have started that snowball rolling in the durable pump space. Felipe Lamar: And then if you could just remind us why you expect economics in the channel to hold over the long term? I think there are a lot of misconceptions around multiple players in the channel and potential trends downward in economics. Just any clarity around that would be helpful. Sean Saint: Yes, that's a good question. The primary reason for the moment is that insulin pumps are a non-commoditized market. And when you look at the pharmacy channel, there are plenty of examples of commoditized markets getting into a race to the bottom because you're in a situation where a particular payer really only needs to offer one of those products because they're easily switchable. And in fact, you'll see situations where scripts can be changed between different products without the approval of the health care provider. That is not the case in insulin pumping. When you write a script for an iLet, the payer -- well, whoever must deliver an iLet specifically, you need to get a new script for something else. It is the definition of a non-commoditized market. So there's really -- there really limits the ability to create downward price pressure in a situation -- in a market like we have today. Because of the nature of automated insulin delivery and the unique algorithms that we're all providing, that really isn't going to change anytime soon given the clinical trials, et cetera, et cetera, that are required to go into these pumps. And as of today, anyway, we are still looking at a very differentiated market. And of course, we think iLet being one of the more differentiated products out there. Does that help? Felipe Lamar: Super helpful. Operator: Our next question comes from the line of Jeff Johnson with Baird. Jeffrey Johnson: Yes. So Sean, just maybe staying on that pharmacy point. I think any updated thoughts you have on rebates maybe and how you're thinking about rebate dollars you might provide the channel here over the next few years, handful of years anyway? And how do you balance kind of staying at Tier 3 in some of your contracts and buying down the co-pay versus maybe trying to move up to a Tier 2, but having to chase some added rebate dollars as you compete against maybe one of your biggest -- or one of your bigger peers in the pharmacy channel there. So just rebates versus buying down co-pays and that, just what's your outlook there over the next few years? Sean Saint: Yes. Great question, Jeff. And you're absolutely right. That is very much building on Felipe's question. I would start with when you just look at the non-commoditization of the market, limiting the ability generally of payers to create the downward price pressure. We see a lot of durability of pricing here for the foreseeable future. So that's one aspect of your question. But the second, frankly, is very different, and that's the Tier 2 versus Tier 3 argument or -- well, argument. So let me just be clear on that. Tier 2 versus Tier 3 has two fundamental differences and really only the two. They are the rebate required to obtain Tier 2 versus Tier 3 and the co-pay that the user is asked to pay when their particular product is covered at either Tier 2 or Tier 3. So most companies, Beta Bionics, certainly included, we have co-pay assistance programs, which are transparent to the user, which ensure that we control that co-pay at a particular level. Currently, I believe we're at $25 or less per month. What that means, though, is that it's a math problem for us. We just balance the rebate required to move between tiers with the reduction in co-pay that we would get when we do it. And out of that, it's a very simple math problem to tell us whether or not a Tier 2 or a Tier 3 positioning would be more advantaged for Beta Bionics. We will always pick that, keeping in mind that our patients will always pay the $25 co-pay that -- or less that we control. So it's really a win-win for us and our users. Operator: Our next question comes from the line of Matthew O'Brien with Piper Sandler. Matthew O'Brien: The first one is a little convoluted, so forgive me. But I don't have perfect information here. But as I look at the model, it looks like the type 2 growth that we saw in Q1 was meaningfully higher than on the type 1 side. And so I'm just wondering, is the math there about right? Type 2 is really kind of carrying you right now as far as overall patient growth on a year-over-year basis. Are you still growing type 1 somewhere in the double-digit range? And then are you exposed in the intermediate term by not having a type 2 indication, just given how well you're doing there? And then I do have a follow-up. Stephen Feider: All right. Yes. So is type 2 growth driving the growth for the business? Look, type 2 has been -- I have to be a little careful here because, of course, we don't have the indication. So you're going to always hear Sean and I when we're talking about type 2, a little hesitant to say too much. But yes, the fact that 25% to 30% of our new users are coming to us with type 2 diabetes, that is a large part of our growth. But does it -- is our type 1 growth shrinking? Or is the type 1 market or the applicability for our product in type 1 shrinking? No, it is not. So the math will show that, yes, type 2 is a growth contributor for us, and it's a larger growth contributor than what type 1 in this particular quarter was, but it's not because the market for our product in type 1 is dwindling or anything of that nature. We're as confident as we've ever been. Are we exposed by not having a type 2 indication? I do think health care providers will prescribe what they want. That said, the fact that we cannot promote our product for type 2, and we do not and we -- of course, legally, we cannot. That is -- that does hinder our growth, yes. It's an indication that we desire, that we'll ultimately need in order to win at the level that we desire to in the medium and long term. But the fact that the product is prescribed the way that it has been in type 2 is really just a product of doctors being educated about what insulin pumps are out there. But if we had the ability to market ourselves for the -- for that particular area, absolutely, it would help us. Matthew O'Brien: Got it. And apologies for that long question, and I think here comes another long one. But just the R&D spike that we saw in Q1 versus Q4, and I know there's some timing issues there. But is it fair to say -- I still think the bihormonal work is still kind of earlier stage versus Mint. Is it fair to say the big bump that we saw is much higher than what we were modeling was really related to Mint? And then do you -- are you sensing that your Mint timing is -- you don't have to give it to us, but just it's on track versus what you were expecting or maybe even potentially a little bit earlier than what you were expecting internally? Sean Saint: Yes. Thanks for the question, Matt. It's Sean. Look, I'm not going to comment on the split between where we're spending our money between bihormonal and Mint. What I will say is that both products continue or both projects continue to move forward and both will see upticks in spending over the next period of time. So I think at some level, that was true on both, but I'm not going to quantify where the lion's share fell. And then in terms of Mint, not really a lot I can share right now. I think the notable point that maybe I'll sort of reiterate is that we've been sharing the time line we've been sharing for quite a while, and it hasn't slipped. And we've been continually reiterating it now forever, I think. And I think that's what you want to see from us, right? We're not moving it all around. We're just -- we want to be predictable, and that's what we've been. But with that being said, no really additional updates, except reiterating our time line unconstrained launch by the end of '27. Operator: Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann & Company. Jeffrey Cohen: So I guess, firstly, you did call out lower cost of materials in Q1 that was onetime favorable. But anything related to deflation or scale as a function of that or too small to tell? Stephen Feider: Can you say the last part of your question related to inflation or scale? Or what did you say? Jeffrey Cohen: So Q1 cost of materials was some of that deflationary in a sense? Or was some of that scale related as sheer scale? Stephen Feider: Yes. The primary driver of the lower cost per unit and the cost of materials is simply just volume. So yes, scale. The more components we're able to purchase at a larger scale, the lower cost per component. Jeffrey Cohen: Okay. Got it. And then secondly, I want to follow up on the bihormonal. What might we see during 2026 as far as any data or publications related to the IIa or the IIb trials, feasibility studies? Sean Saint: Yes, Jeff, that's a great question. Frankly, I don't think we really intend to publish a lot of this information. There's not really a benefit to us to do that. So what we will do is -- I don't know about publishing, but as things complete, our cadence here has been to let you know that things are done, not so much to tell you what's coming up. We'll continue to follow that path. '26 should bring some meaningful updates, but I'm not going to call out exactly what those are at this point. But I will reiterate now we probably won't publish the results of these trials for various reasons. I just don't think there's a benefit. What I will say, and I alluded to this in our prepared remarks, is that in the past, we really have published data on this. There's been quite a few studies published by Beta Bionics on our formative studies over the last 20-odd years on this product. And there's a lot there, and there's some really, I think, phenomenal results to be looked at. So that I think sets a line as to kind of where we'd like to see things sort of at a minimum. But there I don't know to say they're great outcomes from my perspective. So I would encourage you to go take a read of some of the stuff we published in the teens. Operator: Our next question comes from the line of Mathew Blackman with TD Cowen. Mathew Blackman: Maybe start, and I apologize, I've been jumping around calls. But Stephen, I just want to get a feel for the new disclosure on new patient adds. I know we can pick whatever number we want, but would you have us be sort of in that middle of that range? Is that a reasonable sort of launching point to model off of that greater than 10%, but less than 20% Q-over-Q decline? Is being in the middle of that a fair point to sort of model that new patient number off of? Stephen Feider: Totally appreciate why you want to know that. Unfortunately, what we said in the prepared remarks is what we'd prefer to disclose in terms of the extent. So I'm sorry, Matt, but I won't comment any further. Mathew Blackman: Okay. And then just remind us again on the sales force expansion, I know we talked a little bit about it, but we know you're adding 20 territories. But just relative to the expansions you've done over the last several years, how similar or how different is this versus those expansions? Is this a lot of white space that you're filling in? Or are you now sort of splitting territories going deeper into areas, geographies so that you can really pound away at accounts? And if so, is the execution of the sales force expansion any different than what you've tackled successfully in prior years? And that's all I had. Sean Saint: Yes, Matt, this is Sean. I'm not going to comment on size of the expansion, but -- and this is probably an unsatisfying answer, but I'm going to say yes. And of course, it's both of those things. I would say technically, white space would be an area that you kind of consider you don't have a rep. And we don't really have white space. There's a rep covering everywhere in the country. That being said, there are absolutely areas of the country that get essentially no rep visiting. We never actually put a foot on the ground in that area. So we are putting reps in those spaces. So it's not technically white space, but for all intents and purposes, it is. But then also, we're -- they're replacing people at some stage. We're adding people in areas that we're well covered. It's just all those things. We tend to take people that -- we tend to find good people and put them where we can at some level. You're not just going to say, well, I'm going to take whoever is available and, I don't know, pick a particular MSA and just find a person. We want to make sure that we get good people in every place. So that governs to some extent, where and when we add. Operator: Our next question comes from the line of Travis Steed with Bank of America. Unknown Analyst: This is Grace on for Travis. I just wanted to start the first one, maybe about the 2026 revenue guidance. I think it's implying about $33 million of year-over-year dollar growth. You did like $35 million in 2025. Just wondering if this is sort of a level of conservatism in the guide or what sort of do you think it takes from the pipeline or other parts of the business to accelerate revenue growth going forward on a dollar basis? Stephen Feider: Yes, understood. This is Stephen. Thanks for the question and for dialing in. Yes, your math is correct in terms of what the guidance kind of implies year-over-year growth-wise. The puts on what could go right for the business that would allow us to exceed the revenue guidance, which we do set, of course, that -- we have confidence in what we guide to is the iLet builds confidence from the health care providers that are -- from endocrinologists around the country and the clinical results that we get from our product, they continue to resonate with health care providers. Patients have unique and great experiences on the device, tell their health care providers -- other health care providers about it or their health care provider about it, and we start to build confidence and traction in same-store sales. The other thing that's put on the business is the new store sales. So as Sean just alluded to, we added a lot of new sales territories already. We'll continue to add more of them in the second quarter. And most of the places where these new sales reps are going do not prescribe the iLet today. And so turning on those particular health care providers by making them aware of the benefits of automation, the great clinical outcomes that we have from our product, if that exceeds our expectations or what's embedded in the guidance, that would be another upside to the numbers that we've guided to. Unknown Analyst: Awesome. And then maybe just a follow-up on any directional color that you can sort of help with on new patient starts relative maybe to 2025 or seasonally throughout the year of 2026 and maybe how that DTC advertising spend is going to help leverage the new patient starts in 2026. Stephen Feider: Of course. The only -- we don't guide to new patient starts specifically, but the only point I'll kind of communicate to you all is just to reiterate that Q1 is the weakest quarter seasonally. And we absolutely expect an uptick in new patient starts and then, of course, revenue to coincide in the second quarter. And other than that, I think I'll just kind of leave it to our full year guidance as it relates to revenue, which I think kind of embeds what our expectations are on new patient starts. But the Q1 to Q2 jump is the largest seasonal step change that we think happens in the calendar year, and you'll see that, we believe, in our results. Operator: Our next question comes from the line of Ryan Schiller with Wolfe Research. Ryan Schiller: Just one for me on competition. There was a competitor who did a recent IPO and another competitor who launched a nationwide product launch. Have you seen any changes in the competitive environment? And maybe where do you see the most opportunity today? Sean Saint: Yes, good question. No, I mean, IPOs don't really have any bearing whatsoever on the actual market dynamics as far as we're concerned. So yes, we're well aware of that, of course, but no impact from our perspective. On the nationwide product launch of the other competitor, look, sure, at some level, you hear about it. There's definitely news out there. I would point out that, that particular product is -- while being a very good product is quite similar to some of the other products on the market. And I do believe it's increasing competition with those other products quite a bit, quite a bit different from what we offer. And in general, you're -- the same person who's looking at a product like ours is not looking at that one. So I would say more muted impact to us, however. It's true that increased competition always at the margin is going to dilute everybody just a little bit. So I'd say that's unfortunate, but I wouldn't say that it impacts us all that much. Beyond that, and then that product, of course, has been known and available at some level for a while. Nothing really that's changed the narrative out there. There hasn't been a big product launch, a meaningful product launch that we're aware of for quite a while at this point. Things are relatively stable. So for a company like Beta Bionics, our job is to continue to get the word out. We are offering a meaningfully differentiated product. That also means it's new. That also means it's different. It also means health care providers are not nearly as familiar with it as some of our competitors. So that's our job today. We've been doing it historically with a smaller sales force. And frankly, we've been doing it in a -- I don't want to call it a niche exactly, but a smaller portion of the market, meaning the tubed pump market. And with all that being said, I think we really -- we like where we're at. We've taken meaningful share of the new patient starts every quarter, especially when considering our sales force, especially when considering the smaller portion of the market that we play into, which is doing exactly what we need to do now. It's getting the information on our differentiated iLet system with our new algorithm out there, getting the health care providers familiar and setting us up to then bring that more nationally with an added sales force and then ultimately to the entire market with our Mint program. So I think we're doing the right things to set ourselves up for long-term success here. But those are long-term statements, and I suppose I started with, yes, no recent evolution of the market that we're aware of. So thank you. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. And that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to NEXGEL's Shareholder Update Conference Call. I will now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications for introductions. Please go ahead. Valter Pinto: Thank you, operator. Good afternoon, and welcome, everyone, to NEXGEL's Shareholder Update Conference Call. I'm joined today by Adam Levy, Chief Executive Officer. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors. For a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I refer you to our filings with the SEC filed periodically. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by law. With that, it's my pleasure to turn the call over to Mr. Adam Levy. Adam, please go ahead. Adam Levy: Thank you, Valter, and thank you, everyone, for joining. On today's call, I will discuss our announcement this morning regarding the closing of our transaction to acquire Celularity's degenerative wound segment. This is a transformational step forward for our company, marking our evolution into a more scalable, diversified medical technology business, tripling our revenue run rate and immediately contributing to profitability. To close on the transaction, we successfully secured capital on more favorable terms led by Sequence LifeScience, a strategic partner with deep expertise in regenerative medicine, manufacturing, development and commercialization. Their lead investment of $5.5 million not only strengthened the financing structure of the transaction, but also aligns us with a partner that enhances our capabilities across all of the aforementioned verticals. The financing was done through convertible notes at a $0.60 conversion price and 50% warrant coverage with a strike price of $0.80. We are excited to announce the formation of a new division, BioNX Surgical, a dedicated division focused on advanced biomaterials for tendon repair, soft tissue reconstruction, bone regeneration and of course, wound care. The acquired portfolio includes 6 established regenerative biomaterial products spanning these key areas, positioning us squarely within one of the fastest-growing segments of health care. These are not early-stage assets. They are commercial stage products with more than a decade of clinical use, demonstrated real-world utility and existing reimbursement pathways. These products are already approved in approximately 500 hospitals and represent a large opportunity for BioNX in non-orthopedic surgical specialties. In addition to these commercialized products, there are currently 3 existing 510(k) devices in our pipeline. These 3 products have $4.6 million in paid-in capital and are scheduled for 2026, 2027 and 2028. Beyond the products themselves, we are also gaining an experienced commercial and scientific team. This is an important aspect of the transaction as it meaningfully expands our internal capabilities and strengthens our ability to develop and market NEXGEL's own medical devices as well. This transaction will be transformative, not only from a strategic standpoint, but also financially. On a pro forma basis, we expect it to approximately triple our annual revenue to roughly $35 million and be immediately accretive to profitability upon closing. The strategic partnership with Sequence LifeScience is incredibly important to NEXGEL. In addition to providing the crucial capital for us to close on this transaction, Sequence brings an enormous wealth of expertise and skills. Sequence will act as backup manufacturer for the existing products, help us develop new products and aid with distribution channels of their own to further expand our reach. I cannot think of a better partner for the journey we are about to take. Taken together, the acquisition and our strategic partnership with Sequence represents a step change in NEXGEL's trajectory. We are combining a proven hydrogel platform with a portfolio of commercial regenerative products supported by a strategic manufacturing partner, occurring on favorable financing terms. This positions us to accelerate product development, broaden our commercial footprint and pursue new opportunities within the regenerative medicine landscape. Our focus is now on execution and successfully integrating these assets and driving commercial growth. We will continue to build a platform that can generate sustained long-term growth and profitability. With that, I'd like to open the call for questions. Operator? Operator: [Operator Instructions] We'll take a question from Naz Rahman of Maxim Group. Nazibur Rahman: Congrats on the transaction. I actually have a few. First, I want to clarify the structure of the deal. So you received $5.5 million from your strategic partner, but it looks like you have to pay $8.3 million in total. So was the entire $8.3 million on converting that includes the $5.5 million? Or is it $5.5 million directly in cash and then the remaining being a convert? I just want -- could you clarify the transaction also, like you also gave a $5 million note to Celularity, right? Could you clarify all the terms of transaction? I just want to be clear on this. Adam Levy: Sure. So -- good to hear from you, Naz. There was no note. So basically -- and it's a little confusing, but we paid $5.3 million at closing to Celularity. And we assumed and are going to pay out the $2.9 million that is owed to the sales reps in back commissions. Those sales reps are then reinvesting some of that back into NEXGEL. Of the $5 million convertible note, we also gave Celularity $5 million of this convertible note. They then gave $2.5 million or half of that note to Sequence to settle a pre-existing debt that they had with Sequence. Sequence then wrote a check for $3 million in cash into this deal, thereby bringing their total investment between the debt -- the existing debt, the compensation they took for their debt as well as the cash they wrote directly into NEXGEL to $5.5 million. So it's a little bit -- it's kind of like one of those 4-way baseball trades, but I hope that explains it for you. Nazibur Rahman: Got it. Okay. So the note, what are the terms of the note? When is it due? And what is the maturity on that note -- I mean interest rate, I'm sorry. Adam Levy: Yes. So the note is an 18-month note, and it's a convertible note, obviously, and it matures in 18 months. It pays a 10% coupon. Nazibur Rahman: Got it. Okay. So now that you have the transaction closed, how long do you think it will take you to, I guess, integrate the assets into NEXGEL? And you're saying it will be immediately accretive. But I guess like how -- are you expecting like any initial restructuring costs or anything along those lines? Adam Levy: No. What's nice about this transaction is that this was always a separate segment with its own people within Celularity. In fact, they reported as a separate segment. So we took the key people that we wanted from that segment. We sublet some space in the actual, same building that Celularity is in. So most of the operations kind of move over seamlessly. What there also is to integrate, however, is some of the synergies. So I've been asked by, including yourself, many times like, well, why don't you ever sell SilverSeal or these other medical devices, why aren't you developing them? Because they require really a medical sales force, which we never had. So we're looking forward to because we will now have reach through all the independent sales reps that we're planning on putting on and the ones that are returning to us, to be able to not only fully commercialize these existing products, but the new products in the pipeline as well as some of the NEXGEL products where appropriate within hospitals. Nazibur Rahman: Got it. And just on that point, with the integration of these new products, what do you think happens to the company's gross margins for 2026? And what do you think EBITDA could potentially be in 2026? Adam Levy: So in the case of this company doing the same business that they did last year, our models, if we did $22 million to $23 million, shows about $4 million to $4.5 million of EBITDA, assuming that's the number we hit, we were hoping to do better than that. The gross margins are -- and I know you and I have had many conversations about NEXGEL's gross margins being complicated because you have both the medical device and the consumer products and now they skew each other. There's a little bit of that within Celularity. So they really have 3 buckets of margins. There's the lower margin with higher cost of goods distributor model, where there's no commissions paid. Then there's the wound care area, which is only about 15% to 20% of the business, where the commissions are modest, but there's also a little more margin, but still less. And then there's surgical where the margins are exceptionally good, but the sales commissions can go as high as 30% to 35% to almost 40% sometimes. So when you talk about the blend, we expect to get a contribution margin of roughly 52%, but it's made up of 3 different components. Nazibur Rahman: Got it. That was helpful. Okay. So Adam, we're also basically past 1Q. Could you potentially provide some color on how do you think 1Q is going to develop or look like for NEXGEL? Like 4Q obviously came in relatively light below your guidance. Just curious if you could provide some context on what 1Q is going to look like. Adam Levy: Yes. Q4 was surprisingly light for us. Some of the new products didn't really do what we thought they were going to do. Silly George had sort of a setback quarter, but we're seeing a nice recovery in Q1. We're not going to see a drop off, especially in consumer in Q1. And I don't want to get too detailed because we obviously haven't reported it yet. But we're seeing a return to normality in Q1. Q4 seemed to be on the consumer product side, a little bit of anomaly for us. Operator: [Operator Instructions] We'll move on to [ Mike Andrews ]. Unknown Analyst: You mentioned in the press release the ongoing development of products as this partnership matures. Where does NexGelRx play in the dynamics of this deal? Adam Levy: It doesn't. NexGelRx is specifically the drug delivery program that was spun out to be developed separately, which includes our apremilast program. So that is a separate spinout that NEXGEL owns 20% of, but has really very little to do with this transaction. It's not affected at all by this transaction. Operator: We'll move next to [ Brett Derekson ]. Unknown Analyst: Congratulations on your purchase. Just a quick question. If you could talk to the -- what the dilutive outstanding shares is going to look like now? And then also when the warrants and the other items come into the strike price, could you talk a little bit about that? Adam Levy: Sure. So if you take basically the conversion price of $0.60 and you also take 50% warrant coverage and assume that all the warrants are going to be exercised, you come up with a formula that for about every $1 million, there's 2.4 million shares. The deal will probably between the purchase price and a little bit of working capital be somewhere in the $12 million to $14 million range total raised. So if you do the math, you're somewhere in the 30 million share area. We'll give more details as the rounds close -- our filings will certainly -- our 8-Ks and everything will certainly lay that out in great detail as soon as we know what the exact numbers are. Operator: [Operator Instructions] We'll move on to [ David Blocker ]. Unknown Analyst: I got a quick question. If you've modeled like what do you expect the revenue to be like 2, 3 years out? Adam Levy: So this was a business that had scaled all the way up to $50 million as recently as 2024. Celularity ran into some financial challenges. And in 2025, did not pay their sales reps. And that's why you see in the deal that one of the things that had to come out of proceeds immediately was getting those sales reps back and reengaged. As I said in my opening, these products are approved in over 500 hospitals, and there was nobody walking into them. So it's our job to sort of reinvigorate that, get the sales force working again. We've identified and we'll soon be hiring a new national sales manager. And we hope to get back to that level and beyond, especially some of the new products, the product that we currently call Project SPARK which is a tendon wrap. It will be the first FDA 510(k) constructed out of human tissue. It's made of placental material. The reason placental material has not been used previously extensively for wraps like this is because of the tensile strength. This has about the highest tensile strength on the market. It's thin as a piece of paper. And of course, because it's made of placental material, has tremendous anti-inflammatory properties. So we think that could be a game changer. We think that product could potentially be a $40 million to $70 million product on its own. That's potential. But we have -- we're very excited about the new products, and we think we can get back to, close to what they were doing in 2024, hopefully, in that 2-year span that you're talking about. Operator: [Operator Instructions] Actually, we do have a question. We'll take that from [ Ves Mahallov ]. Unknown Analyst: Adam, this is Ves. I wanted to ask you about the intellectual property being acquired in this transaction. Is NEXGEL going to be paying any royalties to anybody on these products going forward? Adam Levy: So the only royalties -- it's a great question. The only royalties are because the new products that we're getting in the pipeline that have the $4.6 million paid in capital. We have a 5% royalty to Celularity on the SPARK project. We have a 3% royalty on the ORCHID project and a 1% royalty on the FUSE project. And that's just sort of a, hey, you guys have a lot of money tied up in this. They obviously have the most money tied up in the one that's coming out this year. So that's got a little bit higher royalty. But when you look at the sale price of these products that -- and the margins on these products being surgical products, that's a very easy to handle single digit, low single-digit royalty. And that's it, there's no other royalties. Unknown Analyst: Do they sunset at any point or for the life of the product? Adam Levy: The royalties? Unknown Analyst: Yes. Adam Levy: Yes, they sunset, I think, after 7 years, I want to say. Unknown Analyst: Okay. Now I wanted to ask you about -- when you say that -- I understand that these parts will be accretive to the corporate finances. But in previous conference calls, I think you mentioned that it will make the company profitable. So at the operating line. I'm asking the following question is under GAAP financing, let's go into Q2, the first quarter fully integrated, fully reporting under the NEXGEL brand. So quarter ending in September, under safe harbor and everything else, will this be a profitable company on an operating margin basis or at least an EBITDA basis overall, not just this division, but including the existing business of NEXGEL when you combine them together. What should we expect for, let's say, the third quarter, the one ending in September? Adam Levy: Right. So our third quarter, you're talking about the second quarter in which we own these products? Unknown Analyst: I'm talking about the quarter that starts July 1 and ends on September 30... Adam Levy: Yes, our third quarter. Yes. The company will be -- on an EBITDA basis for certain will be profitable. Remember, this is a seasonal -- this came to me by surprise as well. This is a seasonal product line. So Q1 is generally the weakest. It gets a little stronger in Q2, and Q3 and Q4 is sort of where you kind of make hay. And Q4 particularly is the strongest product. And that's because of these new high reimbursement insurance plans. A lot of people wait for these procedures until the end of the year when the reimbursement is better. So Q4, to give you an example, in many of the historical years, Q4 was as big as the rest of the year put together. Unknown Analyst: But on a rolling 12-month basis, company should be both EBITDA and operating -- EBITDA profitable. Adam Levy: Yes. And that's a great -- I was going to embellish on that. I was just going to say that's really one of the things that made this kind of one of the things, amongst others that made this an attractive proposition for us is that, look, NEXGEL has made some acquisitions. And each of those acquisitions from CG Labs to Silly George to Kenkoderm, each one is profitable in and of its own. But the plant is still underutilized and the public company expenses are still considerable. So what we really lacked was the ability to scale because this is a very long onboarding process when we talk about NEXGEL's medical device business. So this is a nice way for us to accelerate and get enough revenue and volume and scale so that we can immediately become profitable. And that was a big motivator in why we did this. Unknown Analyst: Okay. Next question, and I'm sorry, there are quite a few, but I think they're enlightening. When you speak about contribution margin, I get a little confused. Because for me, contribution margin from my accounting days were delta in operating margin under GAAP. And so when you say 52% contribution margin, could you translate that for us, for me, what is the delta or the contribution margin at the operating line under GAAP or at the EBITDA line? So 52% is obviously very high for an EBITDA. So obviously, that's not what you mean. But if you translate what you said, it was 52 percentage points... Adam Levy: Sure. And we kind of get that from the -- we do the same thing in the commercial products. So really all we -- what I just called -- and I'll clarify, contribution margin is essentially cost of goods plus commissions and sales commissions and direct sales costs. So it does not include any of the fixed overhead. That's what I consider as being contributed to cover the fixed overhead, which gives you a good way to analyze things, right? We know we do -- we have 52% margin, and we know our fixed cost, payroll, rent, all of those things are x. We have to do some multiple of revenue to get to where we cover that. And after that, we become profitable. So that's what I mean when I say contribution margin. Unknown Analyst: So COGS, cost of goods sold plus sales commissions. And then what basically goes into corporate overhead and before? Adam Levy: So all of the other things, rent, salespeople, we have a fixed overhead that's pretty easy to quantify. And so it's going to be probably around the $6 million to $6.5 million range. And in that, we also have the budgets for things like demonstrations and travel and it covers everything else that's below the line in the SG&A line. So the contribution margin really is the gross profit that goes into the SG&A line. Unknown Analyst: Okay. Okay. And last question here. So going forward, will NEXGEL basically have an R&D department for this division such that it develops the new products? When you say we're developing new products, is NEXGEL developing them and retaining the intellectual property? Or is somebody else doing the R&D and then there is some sort of an arrangement? So who's going to get basically the margin from any future -- all the margin from any future R&D being performed with these product lines? Adam Levy: So the short answer is NEXGEL will, but it's going to be done in a series of different ways, okay? So first of all, this is a great opportunity for NEXGEL to move forward with some programs we kind of put to the side like our Drape programs and NEXDerm, things that we really said we can't really make these right now because the only real opportunity for us is to hope we can sell them to somebody else, and we have other things to do right now. But now we have a sales force. So we can begin to continue to develop those because there's not a lot of cost needed for those. Number two is the continued development of the programs that are already in Celularity, and those are done within our offices. The space that we took has its own development lab. So we have a budget built in to continue to do R&D on those types of products and get -- continue to get labels on those products. And the third one, which is really exciting, is that our new strategic partner, Sequence also develops products. They have a full development team in their facility in San Antonio, and they're very excited about combining technologies with us, finding uses for the hydrogel, helping us distribute the hydrogel. They have some ideas on how our hydrogels could be used in wound care in the new landscape that's out there. So we'll be getting products from multiple different sources. Unknown Analyst: Okay. But at least for these product lines, you're acquiring an R&D team and space. And so therefore, any intellectual property developed under NEXGEL's roof remains within NEXGEL? Adam Levy: Yes. We own, for example, on Project FUSE and Project ORCHID, we will own all the patents on those. Unknown Analyst: And that means, obviously, higher margins go to NEXGEL's shareholders or stakeholders, let's put it that way. Adam Levy: Yes. And -- but again, the margins are the same on -- I mean the other products don't have really patent protection anymore, BIOVANCE, Interfyl. These products have been on the market since 2012, 2013, 2014. So really, what makes them valuable is the fact that they're approved in 500 hospitals, is the fact that they have great clinical data to support their sale, the fact that they're reimbursed by Blue Cross. That's what really makes those products interesting to us, not patent protection. They're off-patent. Unknown Analyst: Okay. Okay. But my point was if it gets developed under NEXGEL's roof, so to speak, any future products, I presume developed by NEXGEL, there will be no royalties... Adam Levy: 100% our plan is to own the patent ourselves. Unknown Analyst: Okay. Okay. And really last question here. You mentioned on a previous conference call that there may be some contemplation about doing a stock buyback provided the company is on solid financial footing and generating cash flow and obviously has some cash on the balance sheet down the road. Do you still believe that may be the case or not? Adam Levy: Well, that also depends on where things are. I mean what's always been critical to us, and we haven't been able to achieve it yet, but it's always been very important is that when you switch a company from -- to being profitable, it then switches on to offense. So at that moment, when you're at offense, you don't have to do anything because you're making money. So if you feel your stock is getting unfairly treated or beaten up, then it's absolutely a time for stock buybacks to protect your shareholders and increase their value. If you feel your stock has gotten ahead of itself, then sometimes it's good to take a little money off the table. But you have the ability to do those things on a decision-making basis as opposed to we need to raise money basis because we can't stay out -- stay afloat. So that's the goal. That's one of the reasons why this transaction is so important to us. So I can't particularly say what the circumstances are going to be. But yes, that would certainly be one of the tools in the toolkit would be a stock buyback should the right circumstances present themselves. Operator: [Operator Instructions] We'll move on to [ Robert Gotlieb ]. Unknown Analyst: What a great update. A couple of questions. When will the Celularity products start having sales under the NEXGEL banner, the ones that came over? Will it be at the end of the quarter, mid-quarter or earlier? Adam Levy: Yesterday, Robert. Unknown Analyst: Okay. Excellent. Adam Levy: Yes. The effective date was Monday. And so as of Monday, all sales -- remember, these are products that are used in hospitals every day. So as of Monday, it will begin to generate revenue. Unknown Analyst: Okay. And then as you've modeled things out, if you're able to share any -- I don't want to put you on the spot of making exact predictions, but how do you model sort of a middle case versus best case scenario for the convertible note in terms of -- do you think that the note will be paid back? Do you think the note will be issued as equity? How do you game that out? Adam Levy: Well, obviously, if we do well and we're successful and we stay above the conversion price of note, it would certainly convert and therefore, we would not have to pay the money back. If we do poorly and nobody can convert, well, then we better find a way to get the money back to the folks. And that's why it is so critical that we turn profitable as one of the previous callers said in Q3 and Q4 and Q1 and maintain that profitability because if we have that kind of strength, then all those things are very easy to do. If you can't do that, if something goes horribly wrong, it's convertible notes. I'm not going to sugarcoat it, it can turn ugly. But we have a very high confidence level here. We know sort of the space, the area. It's interesting because when we announced this deal, The Street clearly didn't like it. And there were times that we thought about abandoning it. And I kept talking to more and more people and going, so what am I missing here? Like why does The Street hate this deal? And a lot of really smart people said, we think The Street is wrong. We like this deal. We like what it does for NEXGEL. And then eventually, I asked Sequence, and they confirm not only do we think The Street is wrong and do we like this deal, but we'd like to get involved in a meaningful way. So sometimes you have to kind of do what you believe is the right call and take an opportunity that's there, and we're pretty confident this is going to turn out very, very well. Unknown Analyst: And if it is profitable, let's say it does convert rather than require payment. What other debt is on the books that is of relevance? Adam Levy: None. This is senior secured debt. There's nothing else on the books. We, NEXGEL never had debt before this. Unknown Analyst: And then it basically seems like an acquisition of a commercial line that really places you as a different company than a hydrogel company. It's more of a regenerative medicine. How do you see the branding working in that regard? Adam Levy: Well, we're branding it as BioNX. The brands are really already established in terms of BIOVANCE and Interfyl. Those brand names are what the doctors recognize. It's what the hospitals recognize. So that part is done. We have a great deal of familiarity with these products. The original iteration of BIOVANCE and I think it was 2012, was released by Alliqua Biomedical in a partnership with Celgene. Well, Alliqua Biomedical was our parent. I've talked about this before. The person that runs and is the President of Celularity's degenerative wound segment is Dr. Stephen Brigido, who is coming over with us and is already on the Scientific Advisory Board, has been for 4 years, did all the SilverSeal studies. So this is kind of what NEXGEL was always sort of thinking about being. We're always going to be a medical device company. The whole branded thing sort of happened and commercial products happened because of the pandemic. And so we ended up with something that is now profitable. It's lucrative. And so we're going to continue it. But this is really our roots. This is really our core. Unknown Analyst: And thinking back to your -- in terms of the synergies that you mentioned about other wound care products. I know you mentioned SilverSeal. At the inception of going public, there was talk shortly thereafter of the NEXDrape program. If you have sales folks selling BioNX, I guess that's the term products that were acquired from Celularity. Do you see an opportunity that would -- instead of developing something like NEXDrape for external sale to an external distributor, do you see ever the possibility of distributing it using that same sales force? Adam Levy: Yes, we do because -- and that's really important. Now whether they prefer the sales force, we have to start talking to them and talk to the independent reps and see which products they think are most viable. I think the so far has been more interest in the NEXDerm just because that's an easier sell in hospital. But what's the old saying, you kind of want to always be in the bag of whoever is carrying metal in the hospital is carrying the devices because they have access to the entire hospital. Those are the sales reps that we want to be, the biologic in their bag. And if we can do that, it opens up putting other things in their bag. And so yes, we're going to identify those. And the important thing is no longer we're only making this product and we can't possibly hope to commercialize and maybe we could sell it to somebody. Now we can say, you know what, we think it's a good product. We think it's a viable product. Let's try and sell it ourselves. And if we sell it ourselves really well, then maybe we can sell it then or maybe we'll just keep it. But it opens up a lot more opportunities for us. Operator: And it appears that we have no further questions at this time. This does conclude our question-and-answer session as well as our conference call for today. We appreciate your time and participation. You may now disconnect.
Jane Brunton: Good morning. Good morning, everyone. Apology for the delay. We had a bit of a technical issue. Thank you for joining the 2026 March Quarter Results webinar. I'm joined by CFO, Luke Anderson. [Operator Instructions] I will now hand over to Mr. Bob Fulker, CEO and Managing Director at Hillgrove Resources. Robert Fulker: Thanks, Jane, and good morning, everyone. Sorry for that slight technical hiccup. I'm hoping everyone can hear us now. Thanks for joining the Hillgrove Resources 2026 March Quarterly Results webinar. I'm joined on the call today by Luke Anderson, our CFO. Certainly living in interesting and changing times, with global uncertainty and pressure on both commodity price, exchange rate, and our cost base. These have not adversely affected us as of today, but we are closely monitoring the fuel situation and the Middle East events, like I'm sure most others are. Of importance, with all the uncertainty, is that the Australian copper price remains strong. Operationally, the March quarter delivered a strong start to the year, with key highlights being 3,120 tonnes of copper delivered, a fourth quarter-on-quarter increase. Mine generated $14.6 million of operating mine cash flow and a net mine cash flow of $6.6 million after capital and rehabilitation expenses. Our cash balance increased by $4.6 million, increasing the group cash balance by 22% to $25.2 million at quarter end. On costs, Kanmantoo delivered an all-in sustaining cost of $6.20 per pound of payable copper sold, within the guidance range of 2026. Adjusting for sales timing, the all-in sustaining cost on a produced basis was $5.65 per pound, which better reflects our underlying cost performance and ongoing cost reduction initiatives. Overall, we're on track to deliver the 2026 production and cost guidance. As mentioned last quarter to you'll start to hear us referring to copper equivalents more frequently. This number has become more relevant as we increase Nugent mining, which has higher gold and silver grades. During the March quarter, we delivered 872 ounces of gold and over 24,000 ounces of silver, bringing our copper equivalent produced tonnes to 3,671. Mining is advancing through the interpreted pinch zone. Both stope volumes and grades are showing improvements. Ore mined was stable above 400,000 tonnes, making March the second consecutive quarter at a 1.6 million tonne per annum run rate. We'll have the third production driller arriving during the June quarter, enabling the next planned increase in run rate to 1.7 million to 1.8 million tonnes by the end of the June quarter. This rig is part of the program to insource our production drilling, which is expected to reduce our ongoing operating costs. Processing plant performance remains steady with our copper recovery at 95%. To date, we have not experienced any diesel supply constraint. Being close to Adelaide and the port material reduces our supply chain risks, and our processing plant operates on grid power, also reducing our exposure to fuel costs, as well as giving us access to over 70% renewable energy. During the quarter, the first stage of the Emily Star exploration drive was completed, enabling shorter and more targeted holes to close out information gaps within the Emily Star mineralization. The 2026 diamond drill program at Emily Star commenced shortly after the quarter end on the 4th of April. We also commenced the development of the Kavanagh North exploration drive in preparation for the planned 2027 diamond drilling program. Both Emily Star and Kavanagh North form important parts of the pathway for Kanmantoo to become a 2 million tonne plus operation. Underground diamond drilling continued to progress according to plan with over 17,000 meters completed by quarter end. Underground diamond drilling at Nugent has intercepted copper-gold mineralization with core intercepts of 8.5 meters at 3.28% copper and 5.8 meters at 1.4% copper. We also received the assay results for the final two Emily Star drill holes from the 2025 drilling program, and these notable results were 7.25 meters at 1.6% copper and 4.6 meters at 1.57% copper. These results continue to demonstrate the continuity and grade of the Emily Star system. Surface drilling targeting the depth extension of the Kavanagh system is also progressing well, with over 1,400 meters drilled during the quarter. On our broader tenement holding, we relinquished over 2,000 square kilometers of ground during the quarter, allowing us to focus on the high priority prospects within our portfolio. One such target is the Kanappa target, located approximately 50 kilometers northeast of Kanmantoo. Last week, we defined a Kanappa exploration target and received regulatory approval to commence drilling. I'll now pass on to Luke to discuss the financials. Luke Anderson: Thanks, Bob, and good morning, everyone. I'll now walk you through the financial performance for the March quarter. All amounts I refer to are in Australian dollars and all unit cost metrics are calculated on a copper payable pound sold basis unless otherwise stated. As Bob has mentioned, the March quarter marked a strong start to the year and reflects several ongoing activities to improve the mine and its financial performance. The headline results include record underground quarterly copper production of 3,120 tonnes was achieved at an all-in sustaining cost of $6.20 per pound, within the upper end of the 2026 guidance range of $5.75 to $6.25. 2,842 tonnes of copper payable was sold at an average realized price of $16,629 per ton. Also, Kanmantoo generated $14.6 million of operating mine cash flow, contributing to net group cash flow of $4.8 million for a cash balance of $25.2 million at quarter end. Before turning to the detail, I would note that with the reclassification of Hillgrove to a producing entity by the ASX, we are no longer required to produce an Appendix 5B and have included a full cash flow table in the quarterly for the first time. Revenue increased 5% for the quarter to $53.8 million, reflecting higher copper and by-product pricing. This was also achieved despite an increase in concentrate inventory to 1,105 tonnes due to the timing of concentrate sales. Operating costs increased by 2% quarter-on-quarter to $39.3 million, reflecting higher fuel and transport costs, and with Nugent now classified as an operating asset with more costs to expend. The operation spent $2.3 million on major growth capital, with $1.4 million spent on Emily Star and $600,000 on Kavanagh Drilling to identify the fifth swell zone. Overall, mine operating cash flow for the quarter increased 16% to $14.6 million to generate total group net cash flow of $4.8 million. This has seen the company's cash balance increase to $25.2 million at March 31, with a trade and other receivable balance of $6.5 million and unsold concentrate of $4.3 million. The copper market remains strong despite some volatility due to the current geopolitical situation. Copper prices have continued to increase this year, closing at USD 12,160 per tonne at March 31. The increasing price levels have been driven by some important short-term developments, including supply disruptions at several major mines and a buildup of U.S. copper inventories due to tariff uncertainty. They have also been underpinned by some underlying factors, such as challenges in developing new copper mines and the anticipation of strong demand growth from electrification and artificial intelligence. These dynamics contribute towards a structurally tighter market for copper concentrate and Hillgrove is well positioned to benefit from the current market environment as we grow production. Higher copper prices saw the average realized price for copper sold during the quarter of $16,629 per ton, which included delivery into a number of lower priced hedges. On hedging, the company closed out 1,650 tonnes of copper hedges at an average price of $14,390 per tonne during the quarter. As the hedge price was below prevailing spot prices, these settlements tempered the revenue benefit from the stronger copper market. At March 31, the company had 2,200 tonnes of copper hedges outstanding at a weighted average price of $14,559 per ton, which is scheduled for delivery from April 26 to September 26. No new hedges were entered into during the quarter. Now moving to costs. All-in sustaining costs for the quarter decreased slightly to $6.20 per pound compared to the December quarter. The unit all-in sustaining cost base was skewed by concentrate shipment timing, as tonnes of payable copper sold were lower than the December quarter. All-in sustaining cost on a payable copper produced base was $5.65, which is more reflective of the cost reduction initiatives realized despite increasing fuel and transport costs. Unit mining costs increased to $4.16 per pound of payable copper sold, driven by lower payable copper sales and a higher proportion of operating development at Nugent ahead of the planned production ramp up and some impact from higher fuel costs. Higher diesel prices have not had a material impact on site operations as diesel only accounts for around 3% of operating costs, given our relatively short underground mine hauls and the processing plant operating on grid power. We have, however, experienced some concentrate transport costs increasing in line with broader fuel pricing environment. On the corporate front, a binding tailings processing agreement was executed with Heavy Minerals for the extraction and sale of garnet from the Kanmantoo process tailings and tailings storage facility. An initial payment of $50,000 was received at the signing of the agreement. If Heavy are successful in their project to extract garnet, the agreement will see Hillgrove benefit from an ongoing royalty stream. The transfer of our standing rehabilitation liabilities to Heavy upon the closure of the mine. In summary, a good quarter. Record copper production. An increase in cash balance of $25 million from strong cash flow generation. Costs within guidance, and on track to continue to grow the operation. I'll now pass back to Jane for any questions. Jane Brunton: [Operator Instructions] First question comes from Carlos. Carlos, please go ahead. [Operator Instructions] Our second question come from Chris. Chris, please unmute and go ahead. Christopher Drew: Thanks, Jane. Can you hear me, guys? Robert Fulker: Yes, we can, Chris. It's Bob speaking. Christopher Drew: Nice quarter, guys. Well done on that. Just a couple of questions from me. Can you talk through a little bit more where you're at in terms of the pinch-and-swell zone, the understanding there, and perhaps what we should be thinking about in terms of grade over the next quarter or two, please? Robert Fulker: Yes, no worries. Thanks, Chris. We are working through it. As we said last quarter, it will be the first two quarters of this year. We are starting to see the grades lift and the zones getting wider as we actually develop down through it. We're pretty comfortable that the second half of the year, as we talked about earlier in the year, will be better. The grades this quarter will be commensurate with what we got last quarter, and then they'll start lifting again in the third quarter. Our tonnages will go and will start to lift, though. This third production drill rig will give us the ability to start boring and firing stopes up to that 1.7 million to 1.8 million tonne rate. We should start to see our production rate lift. That production drill rig is due in the next couple of weeks. Christopher Drew: That's helpful. A second question, and I note the comments on the diesel supply. That's really helpful. Certainly doesn't look like a major cost risk, but are you able to elaborate at all on the supply side from the sound of it? It sounds like you're good in the shorter term. Do you have any visibility beyond that sort of availability from suppliers and things like that? I appreciate that might be a bit tricky to answer, but appreciate any thoughts you might have on that at the moment. Robert Fulker: Yes, I'll answer a question you didn't ask. Fuel is around about 3%, Luke, of our total costs, 2.5% to 3%. It's not a big percentage, but it is a percentage that we keep an eye on. We're sort of focused on the delivery on a daily and a weekly to make sure that our supplies on site don't diminish. We haven't seen any constraint to the delivery to date. It seems from Luke, the supply seems to be constant coming into Adelaide. Up till now, it's been okay. We do have and we do get updates from SACOME, which is our industry body here in the government, on a weekly basis. On site, they track it on a daily and a weekly basis of deliveries. We're very focused on it, but we haven't seen any issues to date. Christopher Drew: Great. Thanks very much, Bob. That's all from me. Thanks. Robert Fulker: No worries. Carlos, can you go off mute yet? Carlos Crowley: Yes. Thanks, Bob. Sorry about that. Look, just a brief question on Emily Star. Can you just elaborate a bit more on timing and, yes, there's a reference to considering two options for a portal at surface as well, in addition to the underground access. Robert Fulker: Yes. Carlos Crowley: Are you obviously trying to finalize that before June or what's the timing for that and can you just give us a bit more color on that comment, please? Robert Fulker: Yes. No problems, Carlos. We've finished the first stage of the drilling. Sorry, the first stage of the development. We've started diamond drilling of that upper section. That's commenced. We've actually started assessing multiple decline/portal accesses to get a surface access into Kanmantoo and to Nugent. It will give us access to Emily Star as well. We're just assessing that at the moment because we're doing studies on the geotech regimes and the best location from a closeness to the plant. We are doing those now in preparation for decision still in the third quarter, so post-June this year. We will have the drilling completed. We will have the data ready to make a decision, an FID decision, for Emily Star towards the end of this quarter, beginning of next quarter. That's what our plan has been. The reason for the two locations is we've got two locations that from our initial assessment came out as being potentially acceptable. We're just doing further assessments from a geotech and a track route/TKM perspective. We're just doing those assessments now in preparation. Carlos Crowley: Yes. Thanks, Bob. Robert Fulker: Anything else? Carlos Crowley: No, that's it from me. Cheers. Jane Brunton: Next question coming from Paul. Paul, please unmute and go ahead. Robert Fulker: Paul, can you hear me? Can you go off mute? Jane Brunton: [Operator Instructions] Robert Fulker: Paul, did I hear you come online? Paul Hissey: Yes. Sorry. I got a phone call, which kicked me off this conference call just as you asked me the question. Just to follow up Carlos's question on Emily Star, and we're just, I guess, unpacking that a little bit more over the medium-term, can we expect that to operate in parallel to existing ore feed or sequentially so you'll move on to this mining area exclusively over the medium term? Robert Fulker: The idea, Paul, is that we use Emily Star to supplement the feed from Kavanagh and Nugent. That's how we go above that 2 million tonne per annum rate. In Kavanagh North, I would expect the same. The diamond drilling is showing that the Kavanagh system continues to go down at depth. I'm not expecting that to stop anytime soon. The drilling into that fifth ore zone has started to hit mineralization. We haven't got any assays back yet, but as soon as we do, we'll get it out. These additional ore zones will supplement the current. It won't replace it. I guess what I'm trying to say is this helps us go above that 2 million tonne rate. Paul Hissey: Yes. In terms of paying for it, would I be right to assume that the CapEx guidance you've provided is for the ongoing studies of these only? If and when the time arrives to properly commit, you'll disclose an incremental level of expansionary capital to bring them online? Robert Fulker: Correct. What we said earlier was that the major capital that we put in there was just to get to FID for Emily Star. Paul Hissey: Yes. Robert Fulker: As well as some other minor, major capital. Once we make that decision, then we'll come out and say how much it was. If you remember back last year, we delivered Nugent production for $21 million. We said we estimated that Emily Star would be in that $23 million to $25 million. We don't know what that is yet, but that's the sort of range of numbers that we're thinking about for Emily Star to come online. Paul Hissey: Great. Just a couple of other ones. Just to clarify the costs, and I think everyone's sort of quite focused on diesel, but Luke, did I hear you say it was 3% of the mining cost? Bob, you said it was 3% of the total cost. Can I just clarify which one of those it is? Is that 3% at $1 a liter where it was four months ago? Or is it 3% at, I don't know, probably $2 and change you're paying now? Luke Anderson: Yes, it's 3% of our total cost. It's reflective of the increase, but not over a full period. Fair to say, we could see that sort of percentage increase a bit more if the price stays where it is, over a consistent basis. Robert Fulker: If you'd asked me. Paul Hissey: Yes. Robert Fulker: In January, Paul, what it was, I would've been saying 2% to 2.5%, so. Luke Anderson: Yes. Paul Hissey: Yes. I thought I read yesterday that Rio bought diesel last year for AUD 0.80 a liter, which is quite remarkable. Anyway, all right. We clarified that. Just one last question, if I may. Just on the deal around the garnet. It does seem at the margin, but maybe there's some benefits there around rehab and your obligations at the end of the mine life. Can you just expand a little bit more on, Luke, the comments you made about perhaps some of that obligation being passed on to the other party? Just in practical terms, what does that all mean? Luke Anderson: Yes, look, for us, there's obviously a bit more work that they need to do, to get the project up and going. For us, it just gives us a bit of a revenue stream. As you rightly point out, importantly, it would allow us to hand over our rehab liabilities when we close the mine. It would provide a long-term future for the Kanmantoo operation beyond our activities. Yes, they're the main benefits. Robert Fulker: I guess from my perspective, Paul, there's the royalty through our operation, which is, it's not significant. It's a small amount, but it's nice. It's not our main game in town. Our main game is copper and copper production at Kanmantoo. But that ability to hand over the lease for a couple of reasons. One is long-term economic benefit to the community. It's demonstrating that a mine can have a life after what was originally thought the primary reason for it to be there. It does actually give the rehab liability to Heavy Minerals, because they will be operating the mine through their life of whatever they manage to get their life to be. As Luke said, there's still some way to go for them to get into production, but it's a nice sort of way to look at how mining can actually help the community, help the environment, and work together to get a better outcome for the long term. Paul Hissey: Yes. Just to follow up, did I hear or read correctly that via them reprocessing some tails, it will sort of create some incremental capacity for you guys, so potentially negate some of the need for future TSF lifts? Robert Fulker: I'll answer it, but I might not answer it. If I don't answer it, tell me and I'll try and answer it. Our tailings stream has 30% of garnet in it. They aren't taking all of that out of our tailings stream. They're taking somewhere around 5% to 10% of the garnet out of our tailings stream. That will obviously be a reduction in our deposition on the TSF or tailings storage facility. It changes over time depending on how much they draw of our tailings stream and how much they actually recover. It does have some beneficial benefits to us. I wouldn't call them material at this stage, but it does have a little bit. Jane Brunton: [Operator Instructions] There are no further questions at this time. I will now hand back to Mr. Fulker for closing remarks. Robert Fulker: Thanks, Jane. In closing, the March quarter was a strong start to the year, with consistent operating performance and an improved balance sheet. We remain focused on creating shareholder value through safe and cost discipline operations, continuing the production profile ramp-up and advancing Emily Star as a potential third ore source. Finally, investing our capital prudently. We are on track to increase the mine run rate to a 1.7 million to 1.8 million tonnes per annum by the end of June, and to deliver the 2026 production and cost guidance. Our next goal is to develop a pathway to beyond 2 million tonnes per annum. That concludes our webinar today, and I'd like to thank everybody for listening in, and you may now disconnect. Thank you, everyone.
Jessica Smith: Good morning, and welcome to BOQ's financial results presentation for the half year ended 28th of February 2026. My name is Jessica Smith. I am the General Manager, Investor Relations and Corporate Affairs at BOQ. On behalf of the management team, I would like to acknowledge the traditional custodians of the land we are meeting on today, the Gadigal people of the Eora Nation. We pay our respects to elders past and present. I'm joined in the room today by BOQ's Managing Director and Chief Executive Officer, Rod Finch; and our Chief Financial Officer, Racheal Kellaway, who will present the results. We are also joined by BOQ's executive team. Following the briefing, there will be an opportunity for questions. I will now hand over to Rod. Rodney Finch: Thank you, Jess. Good morning, everyone, and thank you for joining us today. Our first half 2026 results reflect disciplined execution against our strategy and ongoing delivery of the group's transformation. Over the half, with strength and resilience across the bank and work to position BOQ to deliver more sustainable earnings through the cycle. We continue to deliver against the milestones and initiatives we have previously outlined, making further progress, simplifying the group, strengthening our operational foundations, advancing our digitization agenda and reshaping the balance sheet to optimize returns. At the same time, our focus on customers and communities remain central. In an environment that continues to test households and businesses, we provided targeted customer support, invested further in fraud prevention and financial crime capability and maintained a strong and visible presence in our core markets, particularly Queensland. The operating environment remains complex with geopolitical uncertainty weighing on consumer and business sentiment. That said, our approach has not changed. We continue to prioritize resilience and sustainability of earnings while progressing our transformation to improve returns and ensure the bank is well positioned for future growth. From a financial resilience perspective, BOQ remains in a strong position. Capital and liquidity levels are robust, asset quality remains sound and our balance sheet provides the flexibility to support customers, navigate uncertainty and continue investing through the cycle. I'll now turn to performance for the half, beginning with our financial results. For the first half, cash earnings were $176 million, down 4% on the prior comparative period. Underlying profit increased by 2%, reflecting revenue and expense growth associated with the completion of the branch network conversion in March 2025. Loan impairment expense was $20 million compared to $3 million in the prior comparative period, which contributed to the 4% decline in cash earnings. We have maintained a strong capital position, which remains well above our management target range. This provides the group with flexibility to support future growth and capacity to absorb potential economic shocks. Reflecting this position, the Board has declared a fully franked interim dividend of $0.20 per share, representing a 75% payout ratio for the half. Racheal will provide more detail on the financial performance shortly. Turning now to the key drivers of our strategy and the strong execution during the half. The digital platform remains a core enabler of our retail strategy, supporting customer growth, improving customer experience and progressively enhancing the economics of the retail bank. Following the launch of term deposits during the half, the core build is now complete, and our focus is shifting to ongoing enhancements that further extend our proposition. To date, we have migrated more than 300,000 customers with over 70% of active retail customers on the platform. Growth and engagement are particularly strong across younger demographics, which was a key strategic objective of the digital bank. From a funding perspective, the digital bank is supporting lower cost deposit growth. The majority of new personal deposits are now originated digitally, supporting higher transactional balances and stronger customer engagement than our legacy platforms. This is also translating into improved lending outcomes. The platform is scaling mortgages in line with plan, with 75% of group home lending originations processed through the platform in March, supporting lower origination costs. Scale increases and enhancements are delivered through the second half of '26 and into FY '27, we remain confident in achieving an improved time to decision and a 50% reduction in origination costs. Overall, this progress reinforces our confidence that the digital bank is delivering on its role, materially improving customer experience, enabling scalable growth and improving retail banking economics. Our productivity program remains a critical enabler of our strategy, reducing complexity, strengthening operational resilience and reducing our cost to serve. Since FY '23, we delivered tangible productivity benefits through a simpler operating model, exits from noncore activities, technology rationalization, a reduced property footprint and continued simplification of our distribution and processing environment following the branch conversion. Our strategic partnership with Capgemini is delivering efficiency through the business processing arrangement. More broadly, we continue to evolve the use of AI across the business with the establishment of a central AI hub to drive adoption and deployment of use cases, including near-term opportunities in the contact center, commercial lending and technology development. When we set out to deliver the $250 million program, we recognized it was ambitious and that the pathway to delivery was unlikely to be linear. As priorities and initiatives have evolved, we expect the full run rate benefits to be achieved of FY '26. With the decommissioning of ME heritage systems and our Capgemini partnership key drivers of that outcome. Importantly, productivity improvements have been sustainably embedded into the way BOQ operates. We have reduced complexity, improved efficiency and created capacity to absorb cost pressures while continuing to invest in our transformation. We expect that on exit of FY '26, we will have generated simplification benefits equivalent to more than 20% of our cost base compared to when the program commenced in FY '23. This is an important outcome in what has been a complex operating environment and reinforces our focus on embedding sustainable efficiency into the way the bank operates. Looking beyond FY '26, we acknowledge there is more work to do. Continued simplification alongside the increasing use of data, automation and AI provides a pathway to drive further productivity and to support operational leverage over time. The capital partner with Challenger announced earlier this month represents an important evolution in our approach to balance sheet optimization and capital efficiency. Our strategic intent is to deliver sustainable returns through shifting asset and funding mix to optimize risk-adjusted returns and grow capital-light income. The capital partnership supports is providing balance sheet optionality and the opportunity for scalable noninterest income growth without the need for capital or funding. The partnership includes a sale of approximately $3.7 billion of our equipment finance back book alongside the establishment of a forward flow arrangement. This structure supports scalable growth in equipment finance without increasing balance sheet concentration or funding requirements while maintaining customer relationships. Under the whole of loan sale, the assets are fully derecognized from BOQ's balance sheet. Risk funding and ownership transfers to Challenger, enabling BOQ to reduce approximately $3.4 billion of higher cost funding, strengthening shareholder returns and further reinforce capital resilience. The forward flow agreement enables us to continue originating new lending using our existing capabilities while scaling the customer offering without increasing balance sheet intensity or concentration risk. Over time this model generates capital-light income through origination and servicing fees, while Challenger provides funding and absorbs credit risk. For BOQ, this supports returns and the ability to do more with our customers. As announced, our intention is to return capital release from this transaction to shareholders with the objective of optimizing return on equity and EPS over time. We are planning to do so through a combination of a fully franked special dividend and an on-market share buyback subject to regulatory and board approvals and market conditions. We expect the transaction to be completed by the end of May. Turning now to progress on our remedial action plans. Delivery of our remedial action plan meeting our regulatory obligations remains a key focus for our management team. We continue to make strong progress across both programs. At the end of the half, 61% of total activities were complete with both Program rQ and AML First transitioning from implementation into the embed phase. This reflects not only delivery against milestones but also a clear shift towards embedding changes into day-to-day business as usual processes. The program remains well governed and appropriately resourced, and we continue to progress in line with regulatory expectations, further strengthening BOQ's risk governance and control frameworks. Turning now to our Retail Bank. Our priority in retail banking remains clear, to reset the economics of home lending and improve returns by scaling a lower cost-to-serve digitally enabled model. We have made considerable progress in reshaping the Retail Bank, including reducing origination costs through the digital platform, delivering term deposits on the platform, which completes the product suite with all deposit products now available on the digital bank and optimizing distribution following the branch conversion. We've also been deliberate in allowing portfolio runoff where returns were uneconomic while improving funding efficiency at the same time. We are now at a key phase as the digital bank scales. More than $23 billion of home lending sits on the platform with approximately 75% of flows originated digitally. The branch conversion has stabilized on a smaller, more efficient footprint and distribution is now better aligned to evolving customer preferences. Foundationally, operating on a modern, cloud-enabled digital platform is also creating a strong underlying capability for the deployment of AI and automation. This has allowed us to explore introducing AI-driven automation across customer operations, particularly in the contact center with further opportunities to improve customer experience and reduce cost to serve. As noted at our full year results last October, the rate of home lending decline has moderated. While we will continue to prioritize returns over short term volume, we expect home lending to return to growth in FY '27, supported by lower origination cost and improved customer experience. Moving to our Business Bank. We are seeing the benefits of focused execution in targeted higher returning specialist segments. Over the half, commercial lending grew above system by 7%, driven primarily by health care, agribusiness and well-secured commercial property. This reflects deliberate portfolio positioning in a sector where we have deep expertise. Housing contraction within the business division reflects targeted runoff where returns were less attractive. The branch conversion continues to support this strategy, enabling banker deployment into key growth corridors and regional SME markets while maintaining strong customer relationships and attracting experienced bankers aligned to our specialist focus. Banker capacity is being further augmented by AI within commercial lending to free up bankers to spend more time with their customers and grow their portfolios. Overall, the Business Bank remains well positioned to deliver sustainable growth, underpinned by strong relationships, quality bankers and deep industry expertise in our key segments. I'll finish by reinforcing the importance of our purpose and values. As a bank with more than 150 years of Queensland heritage, supporting our customers, communities and people remain central to how we operate and make decisions. Across the half, we continue to invest in regional and SME communities and strengthen partnerships supporting vulnerable Australians. At the same time, we remain focused on our people, strengthening the leadership capability, investing in learning and development, including the launch of an AI Academy and sustaining a strong risk culture that supports discipline execution and long-term performance. Together, this underpins the transformation we are delivering, building a stronger and simpler BOQ for our customers, communities and people. I'll now hand over to Racheal to talk more about the financial results in more detail. Racheal Kellaway: Thank you, Rod, and good morning, everyone. The first half 2026 result reflects a steady and continued delivery of our strategy, including bold choices and the disciplined allocation of capital. We delivered cash earnings of $176 million in the half, down 4% against the prior comparative period and 12% against the second half 2025. When compared with the second half of 2025, total income reduced 4% driven by margin compression, fewer days and lower asset balances. There was an uplift of 4% in noninterest income, and we delivered another period of strong cost management, holding expenses flat. Loan impairment expense increased 11% to $20 million. This was primarily driven by one specific provision within the asset finance portfolio, and at 5 basis points to GLA remains below historical levels. Against the prior comparative period, total income increased 5%, primarily driven by revenue uplift from the branch conversion. Expense growth of 6% included bringing on the cost of operating the branch network and is down 2% excluding these costs. Pleasingly, underlying profit increased 2%. Higher loan impairment expense compares to $3 million in the prior comparative period, which included a write-back in commercial lending. The progress we have made on executing against our strategy, including positive lead indicators of success in the digital bank, growth in our Business Bank and our capital partnership and multiyear proof points on cost discipline leave us well positioned as we enter the second half. As outlined to the market earlier this month, there was a $31 million post-tax impact driven by the equipment finance portfolio being recognized as held for sale. Further changes to number will primarily be driven by market movements in swap rates. The impacts of which will be known at completion. There was a further period of amortization relating to the branch strategy with $8 million incurred this half. This program has been delivered on time and on budget as announced in 2024, adding in a small impact from hedging and fair value changes resulted in statutory net profit after tax for the first half of $136 million. I will now spend some time looking closer at the net interest margin given the number of moving parts. On mortgages, we saw ongoing competition, and we experienced slightly higher-than-expected retention discounting, particularly to support branch customers early in the half. Commercial lending competition was in line with expectations and came with strong growth in our Business Bank. We have seen acquisition spreads stabilize through the half. We saw a 1 basis point benefit from continuing mix shift from higher margin -- towards higher-margin business. Outside of these underlying lending drivers, cash rate movements contributed a 4 basis point headwind, driven materially by the non-repeat of benefits in the second half result as rates reduced. Funding contributed a 3 basis point uplift with equal contribution across term deposit optimization, wholesale pricing and funding mix benefits. Liquidity and other was a negative 1 basis point. This included higher HQLA balances, impacting margin by 2 basis points, replicating portfolio, benefiting margin by 1 basis point. However, this was offset by unhedged exposures where the average cash rate in the half was lower than the prior period and less exposure to basis risk and improved basis cost provided a small benefit. Finally, we had a 2 basis points -- we had 2 basis points of a nonrecurring benefit. This is made up of an adjustment to brokerage GST. And as our fast-growing novated leasing portfolio matured, we have an updated view on the average life of that portfolio. Net interest margin for the period was 1.67%. We exited the half with a stronger second quarter margin than the first. Looking to the second half, we will see the benefit from the February and March cash rate movements. Retention activity is expected to continue to feature as households and businesses look to manage their budgets in a rising rate environment and as inflation persists, continuing the trend on underlying price competition. We expect to see ongoing benefit from reshaping the balance sheet toward business lending. We anticipate increasing funding cost benefits from current favorable term deposit spreads, retail deposit optimization and funding mix benefit. Replicating portfolio will continue to be a positive with higher attractive rate. We will optimize liquidity following the sale of the equipment finance portfolio, while impacts from the sale across lending and funding will be broadly neutral to net margin. The 2 basis point benefit one-off I described in our first half will not reoccur. Despite there being somewhat uncertainty and volatility in our outlook, there are more tailwinds than headwinds for margin as we enter the second half. This half, we delivered another period of strong expense management with costs flat on the prior half against a backdrop of high inflation. We are in the final period of our 2023 simplification program, which since its commencement has almost entirely offset annual inflation and new costs to operate the branch network from conversion. This period, inflation and investment across technology, risk and business banking were offset by productivity benefits, seasonality in employee leave and a modest reduction in group investment spend. Whilst we have seen early success in our business processing partnership, we are experiencing some delays in the transition of our technology outsourcing, which is contributing to the multiyear $250 million productivity target and our 2026 cost guidance. The full $30 million of annualized benefits remains on track for 2027. I do want to take this opportunity to reiterate our commitment to sub-inflation cost growth for the full year 2026 against the prior year. This requires a planned reduction in our cost base into the second half. Our guidance on costs remains unchanged. We have continued to invest in the business at a sustainable level with $77 million invested in the first half. As outlined at the full year result, we are moving to a more sustainable level of investment for our business, following a number of years of high investment, including the integration of ME Bank, investment in the Business Bank, the build and scale of the digital bank and risk and regulatory uplifts. 85% of our software intangible assets are now in use and amortizing following the successful delivery of the digital bank and as we acquire and migrate customers and see more features released. Moving now to portfolio quality, and we remain strongly provisioned at 39 basis points to GLA. Impaired assets reduced on last half to $84 million. This includes a reduction in commercial lending and housing impaired balances and an increase in asset finance. Loan impairment expense increased to $20 million or 5 basis points to GLA, remaining at a low level. Looking at each portfolio in more detail over the half. Home lending remains supported by strong underlying asset prices and a decrease in 90-day arrears. There was a $7 million credit to loan impairment expense, driven by the improvement in arrears and house price increases over the period. Commercial lending 90-day arrears saw a slight increase with 2 single name exposures, contributing to a 5-basis-point increase off a low base. Specific provision equity remained low. Total loan impairment expense on the commercial lending portfolio was $3 million. A modest increase in asset finance arrears was largely driven by seasonality with loan impairment expense of $24 million, impacted by a single name exposure, contributing almost half of the expense. BOQ remains well provisioned for a change in the cycle. We hold $298 million in provisions, which is $68 million above the base scenario. We had a reduction in the total collective provision due to the sale of a noncore credit card portfolio, which occurred in the period. Our weightings remain unchanged in the period. However, we have adjusted downwards the economic assumptions, underpinning the base and downside scenarios. We continue to hold collective provision overlays for unique portfolio factors, including specific industries. If we were to enter a 100% downside scenario, a provision increase of $24 million would be required. Our downside scenario assumes residential house prices declining, negative GDP growth and an unemployment rate of 5.6% this calendar year. Whilst we consider our provisions to be appropriate, with current volatility in the broader economic environment, we are remaining vigilant. In a period of sustained lower home lending growth, as we recycled the balance sheet, there was a reduction in total funding. We continue to focus on deposits as a primary source of funding with runoff in less stable deposits and held deposits as a percentage of total funding at 72%, with a broadly stable deposit-to-loan ratio of 85%. There was targeted runoff in term deposit portfolios of 6%. This was both a strategy around optimization for cost of funds but also as we migrated customers onto our new digital platform. Customer deposits remained broadly flat outside of this. Our average LCR remained strong at 141%. As we near completion of the whole of loan sale, we are prudently managing down our liquidity position. We will then see a temporarily elevated LCR before managing this to normalized levels through the second half. Our optimization plan will take the opportunity on our long-term wholesale maturity through our short-term wholesale portfolio and on retail deposits more broadly. Capital ended the half above our target management range at 11.18%, a 24-basis-point increase was driven by earnings, net of dividends. Business lending growth increased underlying risk-weighted assets. However, this was more than offset by a reduction in deferred acquisition costs, adding 2 basis points. Investment consumed 2 basis points. And lastly, other movements increased CET1 by 13 basis points, including mark-to-market gains in the available-for-sale reserve of 9 basis points, deferred tax assets in excess of deferred tax liabilities benefiting 6 basis points and equipment finance portfolio sale impacts of 3 basis points. Our strong capital position supports our planned capital return following the sale of the equipment finance portfolio and as we enter a period of higher uncertainty. As announced earlier in April, we have entered the partnership -- into a partnership with Challenger on the sale of our equipment finance portfolio and the establishment of a forward flow arrangement. Today, we have provided some further detail on the expected impact on our '26 outlook. These impacts do remain subject to change through to completion date, which is on track to occur ahead of initial expectations by early May. In addition, the ranges provided include assumptions on the key moving parts, including the expected benefit from what loan impairment expense would have been without a sale and movements in swap rates. Lastly, while we won't comment further on the detail of the capital management plan, which is subject to Board and regulatory approvals and market conditions, we intend to complete this in an efficient way to support current shareholders and to provide an enduring benefit to both ROE and EPS. In closing, this period saw our focus on costs and capital management did the positive results for the group. 2026 is a key year of delivery against our 4 strategic pillars, in particular, our digitization initiatives, which, in addition to simplifying our business, enables us to grow customer deposits, supporting our commitment to return to asset growth in 2027. We have shown that we will be bold and disciplined in how we deploy capital. With heightened volatility and uncertainty in our environment and how this may in particular, impact funding, margins and losses, commitment to our transformation is even more critical. We continue to remain sharply focused on improving returns over the long term. I'll now hand over to Rod for closing comments and outlook. Rodney Finch: Thanks, Racheal. The external environment remains highly unpredictable with geopolitical uncertainty continuing to increase risks to the economic and financial outlook. We will continue to support customers through these conditions while maintaining disciplined risk settings and strong balance sheet resilience. We will maintain focus on optimizing our balance sheet settings and growing in specialist segments. Growing at system in business lending remains our target heading into the second half, while home lending contraction is expected to continue easing with a return to growth anticipated in FY '27. On the funding side, potential market volatility and further increases in the cash rate will influence competition for deposits. As Racheal outlined, we anticipate tailwinds to margin in the second half through expected funding benefits. We are targeting sub-inflation cost growth, including the full year impact of branch conversion and higher amortization while continuing to progress productivity and simplification initiatives. Loan impairment expense is expected to remain below long-run average loss rates in the near term, though downside risks are clearly present given the global environment. We expect the capital partnership to complete as planned and remain open to further partnerships. We have not changed our management target for CET1 or dividend payout ratios. Overall, we remain focused on disciplined execution, resilience and sustainability as we continue to progress the transformation of BOQ. I want to close by stepping back to where we are in the group's transformation. Our strategy to become a simpler specialist bank has been clear and consistent: strengthening foundations, simplifying the organization, digitizing the retail bank and improving returns. Since resetting the strategy in 2023, we have made tangible progress against each pillar and embedded new capability across the group. We are now entering an important next phase with several near-term milestones approaching, completing the ME retail customer migration and materially decommissioning the legacy ME Bank environment over the next half is the culmination of several years of foundational work. These milestones represent a further step in unlocking lower costs, better customer experience and improved returns over time. They reinforce our confidence in the strategic direction and our continued focus on sustainable performance. On a personal note, when I stepped into the CEO role 8 weeks ago, I reflected on the responsibility that comes with leading a bank with more than 150 years of history. It is a privilege to be a custodian of a brand that generations of Australians have trusted. I'm leading a committed team with a strong focus on the next phase of our transformation with a continued priority of improving returns and supporting customers, in particular, improving our cost of funding as we scale deposits on our digital bank, extend relationships in the business bank and leverage our capital partnership to support a sustainable return to growth. We face into this coming period of uncertainty from a financially resilient position with strong capital, liquidity and asset quality. As I look ahead, our focus is on the continued disciplined execution of our strategy to deliver a better experience for our customers and increased returns for our shareholders. I will now hand to Jess for Q&A. Thank you. Jessica Smith: Thank you, Rod. We will now move to questions. [Operator Instructions] Operator, may we have the first question, please? Operator: First question today comes from Ed Henning from CLSA. Ed Henning: The first one is just on asset growth and mortgages and thank you for your comments today and talking about returning to growth. And I understand continuing to focus on profitability. But can you just talk about as you move forward, both in the near and the medium term, are you willing to continue to lose market share on housing? At what point do you have to step back into the market? Or do you just don't think you need to, if you continue to see margins contracting like you are, are you willing to grow below system in mortgages. Rodney Finch: Yes. Thanks, Ed. So in terms of the mortgage portfolio, the focus is really on returning to growth in '27. If we think about the economics of the mortgage portfolio. The key areas we've been focused on is first is really scaling the digital bank. That's a really critical capability in terms of reducing cost to serve and providing a better experience for both customers, brokers and our bankers. We've talked today to some of those metrics. That platform is scaling to plan. We had around 75% of the originations flow through that in March. So we are well progressed. There's more work to do. I think that also combined with the branch network is really shifting the economics for us in that channel and in that mortgage portfolio. So for us, we're not going to chase short-term returns. We're really focused on the pathway back to returns above our cost of capital, starting with writing business that's accretive to current ROE and then making sure we're contributing to the fixed cost base and being really disciplined as we continue to step our way back to return to growth in '27. Ed Henning: And just on that, I understand the return to growth, but growth doesn't mean growing at system, I would imagine, or is your plan to be at system in '27? Rodney Finch: We're not putting a target on growth relative to system. I think our positioning is returned to growth from a book perspective. I think the priority there, Ed, is making sure that the growth that we are achieving is within the return profile that we're comfortable with. Ed Henning: Okay. And then just a second quick question. And again, thank you for your comments on the cost outlook and growing below inflation. As you move forward, you've made some significant changes in your cost base and you talk about the reducing investment spend. Over the next few years, in the medium term, do you still think you can grow below system or around system in costs? Is that your goal that we should be thinking about? Rodney Finch: We won't give long-term guidance on cost. I think for us, we have worked really hard on the productivity program. As I said, it was an ambitious target when we set it. We're making progress against that. I certainly think leveraging the investments we've made in technology and seeing further opportunities there around automation, digitization, there's continued work that we can do there. We have the benefits of the partnership with Capgemini also flowing through. So for us, we really think that's a key aspect of how we want to organize the business and run it. We think being disciplined on cost management and driving operational leverage in the business, given the investments we made will be a key focus for us into the future. Operator: Our next question comes from Andrew Triggs from JPMorgan. Andrew Triggs: Racheal, a question for you, please. Just on your exit NIM commentary, which you said was higher than the average for the half. Does any of that apply to -- or is any of that driven by lower liquid assets? I'm wondering if the same comment would apply on an ex liquid asset basis? Racheal Kellaway: There is benefit, Andrew, for the liquids portfolio. And so there's 2 elements of that. One is lower HQLAs and the second is a high yield on that portfolio. But it would still hold excluding the sort of comments around it being higher would still hold excluding the specific liquidity impacts. Andrew Triggs: And presumably, that 2 basis points of nonrecurring brokerage and amortization adjustment actually turned into -- does that reverse in the next half? Or just is it -- it will be a non-event in the walk for next half? Racheal Kellaway: It will be -- you'll see it as a negative 2 basis points because it's a non-repeat. So there won't be a P&L. There'll be -- it would come out of P&L, yes. Andrew Triggs: So what moving parts sort of moved in the right direction, therefore, to drive that to cycle that headwind, please? Racheal Kellaway: Yes. So I mean, there's a couple of things in the second, in the first half result, that will not repeat that are negative. And so the first of that really is, if you think about the timing of our end of half, it was the 28th of February. So our half actually saw the negative impacts of cash rates reducing. So there was 3 basis points of negative in this half from the non-repeat of benefits we saw in the second half last year that we called out. If I step back from that, the tailwinds into the second half are cash rate related. So we have seen February and March cash rate increases, that gives us a benefit, both the timing benefit sort of -- but also on the unhedged portfolio. So that is a benefit into the second half. And we have expectations that it is most likely that we will see more cash rate increases through the period as well. The other big driver is really on funding costs more broadly. And so currently, term deposit spreads, for example, are positive. We are expecting that to continue through the half. We're seeing favorability in terms of savings, repricing and then also some funding mix benefits both on an underlying basis, but then also as we optimize from the proceeds of the equipment finance sale. Operator: Our next question comes from Andrew Lyons from Jefferies. Andrew Lyons: Just a first question just on your provisioning. Geopolitically, a significant amount has changed in your result in October, your second half result in October, which appears broadly negative for the economy and your outlook comments appear to confirm this. However, your provision assumptions imply lower dollar value provisioning for each of your scenarios and you've also made no changes to any of your weighting. This does seem a bit at odds with the evolving macro conditions the economy is faced with and also what your peers are doing. Can you just explain why that is the case? Racheal Kellaway: Yes. Look, I mean, as you can imagine, we have thought a lot about our provisioning levels and continue to do so. A couple of comments. The weighting of our collective provision is 45% weighted to downside and severe downside economic scenarios. We have got a worsening outlook within those scenarios. So whilst the weightings haven't changed, the economic assumptions within those scenarios have. If I then step back just more broadly as to your comment around the collective provision in dollar terms reducing, there are 2 idiosyncratic kind of things happening for BOQ in that number. The first is, we did sell a credit card portfolio. That was all settled in the half. It's very small from a balance sheet perspective, but it did mean a reduction in the ECL of $8 million. So that was a step down. The second factor underlying here is our reduction -- overall reduction in assets. And so as our GLA balances have declined, that is also a driver. If you then take those and take those out of the impact, we have increased our CP balance by about 3%. That is actually in line with what we've seen really recently, some of our peers also do. So it's about a 3% increase in the CP. We're very focused there on specific overlays for industries. To call out accommodation in food services, construction, transport, particularly. And so from an overall provisioning perspective, excluding those movements that I called out as sort of one-offs, then we feel that at 39 basis points, we're well provisioned for what could come. But obviously, this is not an area we are really, really comfortable with, and we will remain super vigilant on this. Andrew Lyons: Great. That's really helpful. And then just a second question on costs. On PCP, software assets are up about 86% and yet your amortization charge is up just 23%. Now I realized your FY '26 expense guidance does take account of higher amortization in the second half. But can you perhaps talk to the extent to which the P&L faces a headwind into FY '27 from amortization? Or maybe as an alternative, where do you expect the amortization charge to ultimately peak? At what level and exactly when versus the $43 million 1H '26? Racheal Kellaway: Yes. So we have, as you just called out, we have been really clear that we expect amortization to increase and that is one of the key drivers into the second half that is requiring an offset from our productivity initiatives. So we'll see an increase into the second half. We'll then see quite a similar increase actually into the first half of '27 and again in the second half. So if you look into 2027, we will have higher amortization again, so effectively another half. It will then largely stabilize. So sort of through the end of FY '27 into financial year '28, you can expect our amortization profile to sort of normalize and flatten out at that point. Andrew Lyons: And can I hazard the question as to what that peak level will be in '27/'28? Racheal Kellaway: Look, I mean, we'll end this year close to $100 million. You can sort of expect that to increase by 20% to 25% through until that peak period. Operator: Our next question comes from Matt Wilson from Jarden. Matthew Wilson: Matt Wilson, Jarden. Just look broadly, the balance sheet shrinking and you're only yet -- you're only getting a small amount of capital being released, you hope to return the loan sale capital to shareholders, but at the same time next year, you want to return to system growth, your returns are very low. Do you need that capital to fund that future growth? And given the uncertainty in the macro environment, would it be better to hold on to that capital? It would be a shame if you had to raise capital next year because we went through a credit cycle. And I've got a second question, as per Slide 27, you highlight the impact of the loan sale. If we take the impact on your net interest income, it implies the loss spread of selling those loans, impacts your margin by about 7 basis points. Could you confirm that? And then how do you offset -- that's a lot of work to do by reducing liquids? Rodney Finch: Yes. Thanks, Matt. I'll respond to the first question and I'll just pass to Racheal on the question on the capital sale -- sorry, the capital partnership. Look, in terms of our capital level, we're, as to Racheal's comment, the way we've approached provisioning for the half, she’s going to give an outline of how we're viewing. We note that within the result, we've returned to CET1 well above our management target range of 11.18%. We -- in considering how we approach dividends and shareholder return the capital management plan, we obviously factor into how we're looking to grow and how we want to continue to deploy capital in a really disciplined way. And so when we look into that future scenario into '27, from our perspective, it accommodates how we want to grow within the Business Bank, where we think we have an opportunity to do that in a sustainable way with returns that we're comfortable with, and also in the mortgage portfolio as well as we talked to earlier, which is a pathway to returning growth within the mortgage portfolio. So from where we sit today, recognizing there is some uncertainty in the outlook. We sit here with a strong capital position. We have some flexibility of how we approach it. We have clear plans of where we want to grow, but we are going to be kind of continuing to watch really closely as the market evolves and respond accordingly. But Racheal, I'll pass to you on that. Racheal Kellaway: Yes. So look, on the capital partnership, I will answer your specific question, but I do want to just take the opportunity to step back and talk about the overall P&L impact because I think that is really important and also the sort of capital impacts of that as well. The impact on our 2026 NIM, so the end of this year, is broadly neutral. And so that is a reduction in the net interest income as you described and by sort of 1 or 2 basis points and then that will be offset by funding, largely offset by funding benefits by about the same amount, so broadly neutral to NIM specifically. I think what's really important in this structure is that whilst we recognize there is lost net interest income, we are generating noninterest income, which is capital-light revenue. And so that is the really key thing to look to here. It is also a cyclical business, so you can remove the loan impairment expense that we would have otherwise had. And so this is not a partnership or an arrangement or a structure that really is driving cash earnings impacts in a material way. It is about capital partnership. It is about capital release and then the ability to grow the business, scale the business and to generate more noninterest income capital-light fees without having -- without taking that onto our balance sheet. Matthew Wilson: Just to follow that up, it's -- if you do the math, you're generating 150, 160 basis points of spread on those assets that you've sold. You don't -- that spread you've given up, so that captures the less funding, et cetera. And then when you look at the origination side of the business, 90% of it comes through the broker channel, yet your call out an origination capability, the economics don't make sense either because you're obviously paying brokers. Rodney Finch: Yes. Look, Matt, in terms of the way we think about this business, obviously, it has driven the portfolio. It is a broker-driven industry as well, but there's also significant opportunities within our proprietary franchise as well. We see it as a really core need for many of our customers. If you think about our sector specialization in health care, it's a core need set of those customers as well as wider portfolio. So we see growth not just through the broker channel. We also see work within our proprietary channels as well. As we talked about when we announced this, we see an opportunity to scale growth in this portfolio. And this capital partnership gives us the foundation to do that, driving capital-light income. Matthew Wilson: And on the spread? Racheal Kellaway: Look, I don't think you've quite got the spread. We can go through the detail this afternoon, Matt, if you like. I mean I think I just need to really take you back again though, like we will absolutely be reducing our NIM as a result, of this, but we are looking at this much more broadly than just looking at the NIM. We will be generating noninterest income, as I said, and we will not see a cyclical portfolio and the impacts that, that tends to have on our earnings profile. And so there is a much more benefit to this structure than just the impact on margin. Operator: Our next question comes from Jon Mott from Barrenjoey. Jonathan Mott: I just got a question on the commercial portfolio. Obviously, this is a part of the book, which is growing very rapidly. So if I turn you over to Slide 42 of the presentation, which goes through this in a bit of detail, when we look at it, we can see the commercial book by industry. Property is now at 41% of the book. And if I look at that same slide from last half, it was about 37% of the book. So you work the math out and expand by the growth of the book. The commercial property book is growing at close to 20% half-on-half. This is the commercial properties, so it's growing 20% half-on-half and 40% versus the previous corresponding period. And then you sort of work the rest of the portfolio out, healthcare is pretty flat, agriculture is up a touch, and there's really no growth at all. And then if we look by state, nearly all of this is coming in New South Wales. So a couple of questions about what's driving this. Are you participating in any syndicated facilities that could come through? Can you continue? Are you comfortable with this rapid growth in New South Wales commercial property? And why is the rest of the book not growing? Rodney Finch: Thanks, Jon. So just a couple of comments. What you're seeing in terms of growth in the business portfolio is really the deliberated and targeted approach we've taken to growth corridors. So we have invested in bankers in New South Wales. We thought there was an opportunity to grow there. We were underpenetrated. And so that is really coming through. And more broadly than that, when we look at the types of loans that we're doing, we're really comfortable with the security that we're taking over it, these are quality assets that we're lending. We're well secured on that lending as well. We're operating in industry and sectors that we know well, and that's the experience of our bankers and the credit policy we're applying. So look, that is the composition of the portfolio. We are kind of continuing to focus on growth in the key sectors from a specialist perspective that we're looking at. But as we stand today, we're comfortable with the quality of the growth that's coming through as well. Jonathan Mott: Why so heavily in the commercial property and no growth in health care and all the other sectors, a little bit in agri, but everything else looks flat? Rodney Finch: Yes. Look, I think it's a reflection of where we've targeted growth. And so obviously, as we bring on bankers, they will build their portfolios and that is reflected, I think we take a really balanced approach to where we want to go. I think, obviously, we are well diversified across industries and geographies overall, and we're going to continue to kind of plan that out in terms of how we construct the portfolio. So I would view this as the lending we have done. It's really reflective of where we've looked to invest from a sector and geography perspective. But we're going to continue to take a really balanced approach as we think about growth in business banking. Jonathan Mott: Okay. And finally, is any of this syndicated or is this all purely originated by those banker teams? Rodney Finch: Look, there's some elements of syndication in there as well. From a syndication approach, our philosophy there is really following our customers and supporting our existing customers through that. So there is elements of it, but our really key core focus is on -- is working directly with customers on lending facilities. Operator: Our next question comes from Sally Hong from Morgan Stanley. Sally Hong: I just have 2 questions. The first being on the margin. For the outlook commentary on the deposit pricing and mix sounds quite favorable, and you talked about benefits from higher cash rates. It does sound like margins are going up in the next half. Is that a reasonable assumption? Racheal Kellaway: Yes, Sally, that's absolutely reasonable. We don't usually go into as much detail on, in particular the quarterlies, but we thought it was important for the market to understand that we have a stronger second quarter than the first quarter and that we are seeing tailwinds into the second half. Sally Hong: Great. And you guys -- on costs, you guys reiterated that FY '26 cost growth should remain below inflation, and you've also talked to further benefits from Capgemini, decommissioning the ME Bank platform and as well as broader productivity actions. As we think about the medium term, how should we frame the cost outlook for FY '27? Should we assume that will come down again? Rodney Finch: Look, we're not giving guidance on FY '27, Sally. The way I think about it is, as I said earlier, we think we have more opportunity and more to do in terms of how we simplify the organization and creating the operational leverage, building on the investments we've made, particularly in technology. So coming into next year, we obviously have the decommissioning benefit and Capgemini coming through, as we called out. I think over the medium term, as we've completed the ME migration, we're turning our attention to the BOQ legacy environment. That will again be something that we work on over the kind of medium to longer term given the time it takes to safely migrate customers over time. So we've built really strong execution capability in that regard. We are redirecting the team to that as we close out ME migration. So that, combined with scaling the platform and leveraging the kind of leverage it allows you with the digitization and AI opportunities starting to emerge, we think this is going to be a key priority for us going forward as well. Operator: Our next question comes from Brian Johnson from MST. Brian Johnson: I have 2 questions, if I may. The first one is just on the agreement with Challenger. Two aspects of this. You speak about ROE and EPS growth. You've actually got about $600 million in surplus franking credits. You've got a share register skew very much towards retail shareholders who get a disproportionate benefit from the franking. I get the fact from a management perspective. ROE and EPS growth makes a lot of sense. But Rod, I'd just be interested, how should we be thinking about the fact that your share register is skewed to the group that get a disproportionate benefit from the massive balance in the surplus franking accounts that have not been able to be distributed thus far? Rodney Finch: Thanks, Brian. In terms of the capital management plan, as we've indicated, we're looking at a combination of a special dividend fully franked and an on-share market buyback, still subject to regulatory and Board approvals. And obviously, the conditions in the market in a buyback scenario. For us, the priority is really thinking through, as you said, the composition of our book, but also the efficiency in returning capital to shareholders, and it's really -- that principle that's driven how we're thinking about returning the capital post the transaction completing. Racheal Kellaway: I might just add... Brian Johnson: But Rod, just going back to that point, why isn't it all 100% of special dividend? Rodney Finch: Yes. Look, I think it's a combination of recognizing the shareholder, as you say, we do have a lot of retail shareholders today and they will benefit from the dividend. We want to reward shareholders who have stuck with us over the last few years, and certainly, that's a component. But we also recognize there's benefit for them going forward in a reduced share count in a buyback as well. So it's a combination of the 2 that we're looking at. Brian Johnson: Okay. The second one is, if we have a look at home loan profitability, and I appreciate the amazing efforts that you guys have made to digitize everything, but the operating costs in originating a home loan somewhere between $600 and $700 versus the net interest income is about $6,000. If we have a look at it, Patrick Allaway have been telling us that front book mortgage pricing was below the cost of capital. I'd nearly go so far as suggesting that Macquarie is still pricing the way they are, both deposits and home loans. Even with the digitization benefits that we get, can we just get a feeling about what your view is on front book mortgage pricing relative to the cost of capital regardless of whether it's done through, or through the 3 channel, digital, branch and broker? Rodney Finch: Yes. So I think just in terms of the way we've designed and built the digital platform, it is multichannel. So we'll support -- supporting brokers at the moment through our ME brand. We will roll it out over the next 12 months to our proprietary channels, both banker and direct as well. And so those benefits will kind of flow through across all channels. When we think about mortgage profitability, there's obviously the cost and the cost to serve and cost to originate funding cost is another element as well. I think the branch conversion also helps the economics in terms of that margin returning to us overall. Brian, for us, I think our priority is really the walk back up to returns above the cost of capital. Our focus is on returns above our current ROE and making sure we're contributing to the cost base of the wider group or the fixed cost base of the wider group. We're getting to a position where that is the case. And so for us, it's really continuing to work through that. We feel as though, that is a clear pathway for us. Obviously, it's subject to competition in the market. But I think the investments we've made and those priorities we'll called out are the right combination of activities to get us to where we want to be. Brian Johnson: So Rod, it's still below the cost of capital there, even through the 3 channels when you put all this through? Rodney Finch: Look, in terms of what's recent acquisition, I think we're above our current returns, and it's contributing to our fixed cost base with the pathway to get back up to the cost of capital. Operator: Our next question comes from Carlos Cacho from Macquarie. Carlos Cacho: I just wanted to get a bit more detail around those cash rate impacts you mentioned on the margins. You call out 3 bps to the non-repeat benefits in the second half. I'm guessing that's the timing benefit of taking a little bit longer to pass on the lower rates to some products. Is that going to work in reverse? Are you going to get a timing headwind with the rate cuts we've just seen the 2 in Feb, and March and potential if we look at market pricing and another 1 or 2 in the -- to come still in this half? Racheal Kellaway: Yes, Carlos, it's a great question. We, so the 3 basis points is exactly for the reason you outlined. So you're absolutely right. As you can see in the walk, we've called out a negative 4, which is cash rate timing. Negative 3 relates to the non-repeat of the benefit in the second half '25 and negative 1 actually does relate to the February cash rate increase. So yes, there is an opposite effect that happens as cash rates increase. I think though, if you step back, there are other benefits, obviously, in a cash rate environment, cash rate increasing environment for margin and particularly on the unhedged component of our low-cost deposits. Carlos Cacho: Great. And the second one, I just wanted to ask about provisions. I understand the economic forecast might be the product of the -- of your economist, but if I compare your economic forecast for a downside scenario versus major bank peers. They look to be quite a bit more optimistic. And unemployment rate that's in a downside scenario 1 to 2 percentage points less fall in house prices and commercial property prices, that's 20% small. Only 10% versus 30%. It looks to me like the downside scenario, the very modest downside and not quite as severe, how comfortable are you with those forecasts? Or take it that you're provisioning top-up to get your downside scenario is not significant, but it seems like the downside scenario itself is quite a bit more optimistic than what peers are forecasting their downside scenarios, which is more like 10% unemployment and 30% fall in property prices. Racheal Kellaway: Yes. Look, we -- what we haven't shown you here, and we do at the full year result is actually what the severe downside scenario looks like as well because we have a 45% weighting from a downside and severe downside and the kind of some of the measures that you just called out, the economic assumptions that you called out, actually, are much more aligned to our severe downside scenario, which has a weighting on the overall collective provision. I think if you were to take a view that we would get to 100% downside in this calendar year, so a fairly quick worsening of the economy, you would be taking an extra $68 million above the base scenario. And so that's the kind of -- that is one of the ways we look at this. I think as you can expect, we would obviously also look at and peers as a sort of outside-in-view on our provisioning levels, and as I called out earlier, if you take out the 2 one-off kind of benefits that we're getting from a CP perspective, we are increasing our collective provision, largely in line with the rest of the industry. And so we are tracking to industry metrics more broadly. And one of the ways we've done that this period is in the form of some specific industry overlays. I think just to summarize, our view is that we are -- as we sit here today, well provisioned, but we have definitely got a cautious bias when looking ahead. We are remaining very vigilant. Things are moving quickly. And so I think whilst we are well provisioned as of today, this is an area that we will closely monitor. Operator: Our next question comes from Brendan Sproules from Goldman Sachs. Brendan Sproules: Congratulations on the appointment to CEO role, Rod. Look, I just want to get a bit of a medium-term view of Retail Banking division. Obviously, as you've stated that you're resetting the economics here and the return you're scaling through lower cost and digital to serve. Slide 35 shows us. And in the last 12 months, the pre-provision profit has dropped around 20%, and this is despite the branch conversion. So a couple of questions for me on this. Firstly, on the deposit side, when do you think we'll start to see growth in lower-cost transaction deposit accounts? And I guess what is the medium-term outlook in terms of how much will that type of product fund the loan book. I mean you have one of the lowest funding in terms of mortgages from those particular products? And then I have a second question. Rodney Finch: Thanks, Brendan. So look, retail banking, I talked to this earlier just in the presentation. The economics of this has really been driven by a couple of factors. One is moving to a modern digital core. We're making great progress on that. We're really comfortable with the metrics that we're seeing both from the customer response. So it's a much stronger proposition than our legacy environment and customers are responding well to it and also the economics of the platform in terms of cost to serve and cost to originate. We do see a real opportunity to grow more transactional deposits on that platform. That is a long slow burn in this industry. I think our view is we've got the right product portfolio on that. We want to compete in that space. One of the key things that we've been looking for to really help that growth is bringing mortgages onto the platform. And what we actually see is mortgage customers are a good source of transactional deposits over and above what sits in their offset account just in the transaction account on balance, they tend to higher -- carry a higher average float than non-mortgage customers, mortgage customers. So from our perspective, that is the real focus with the build now completed and migration of ME. That gives us the capacity to really drive that growth. I would also say over the last 12 to 18 months as we've made the portfolio choices, the funding profile has really been reflected in the growth that we've required of what we needed from a funding perspective. So that is a big priority for us. I would also say outside of the Retail Bank, if we think about those lower cost deposits, we think there's a big opportunity in our Business Bank. We know that the proposition there has some gaps in it, and that's a priority for us in the near term to address that. And we think we can do more with our business banking customers and help meet their needs on the deposit side of the portfolio as well. So for us, we think we've got the right proposition. We want to get out there and compete and win more of those balances into the future. And we think that's really key to supporting growth for us in the longer term. Brendan Sproules: That's a very detailed answer. And just my second question is on the cost-to-income ratio, which is now moved into the mid-80s and a few years ago, particularly prior to the ME Bank acquisition, it was more like 50s or 60s. To what extent will this move to the lower cost to serve materially move that ratio? Or is there other initiatives that you have to put in place to really get that back to what has been the longer-term cost-to income within that business over a very long period of time? Rodney Finch: Yes. Thanks, Brendan. It's certainly not where we want it to be today. For us, the pathway back is a combination of factors. One is it's moving on to a simpler digitally enabled modern core, as I talked to, and that's -- we're seeing the metrics that we want in that space. I think more broadly, we still have complexity in the business that we obviously -- these numbers today still contain the ME legacy environment and the BOQ legacy environment as well as the digital bank. Our intent is to move all of our Retail Bank onto that modern core. I think the other element is what that provides is operational leverage. And so we see this is about returning to growth as well. As we talked to earlier, in response to other questions, we've been really thoughtful about planning for a return to growth in mortgages, what we want to see from a returns profile and how we work our way back to it. So I think it's 2. It's -- one, it's a combination of the operational leverage we're looking for from the platform, but also returning to growth through obviously our BOQ brand and the other brands that we have in the Retail Bank as well. Operator: Our next question comes from Nathan Lead from Morgans. Nathan Lead: Just 3 questions, if you don't mind. First one is about the digital bank. Your Chairman at the 2025 AGM seems to suggest that the Heritage Bank customers would be migrated across onto the digital bank platform starting in sort of 2027. And then your previous CEO also said there was a very large prize from that migration. So I just wanted to know whether you can sort of give us a bit more of a definitive target on that migration and if you can sort of firm up what the quantum of that benefit could be? Rodney Finch: Thanks, Nathan. So look, the way I would think about the migration of legacy. There's actually 2 legacy environments we talk about. There's the ME legacy environment, which we're kind of 80%, 85% done with final migration events planned for later this half and then we move into decommissioning. And then our attention, as I mentioned earlier, will turn to the BOQ legacy environment. I would be thinking towards what we've done on the ME migration is a good guide to how we'd approach it for the BOQ side. They are long exercises. There's obviously risk to migration. We've developed a great amount of experience on how to do that. We need to support customers through the friction that's caused with migration, and we also need to do this in the context of running the wider business. So we've got good capability in this space. We think our intent is to start migrations for BOQ in '27 and then work our way through it there. Obviously, as we've done with ME, we will take a really thoughtful approach to making sure we just manage the risk of that. But the types of benefits we see from decommissioning that environment, I think the ME is a good guideline to think about how we view the benefits you'll get from that as well. Nathan Zaia: Okay. Great. Second question is just the comment about returning to home lending growth in FY '27. Is that an intention that you expect the end of year balances to be higher than the start of the year? Or is it just some point within FY '27, you're going to start to see growth again? Rodney Finch: Look, our focus there is, we really want to do it in a way that we're not chasing short-term volume. We really want to prioritize returns. And so I think what we've established over the last couple of years is a really disciplined approach where we won't deploy capital if the returns aren't meeting the levels that we're looking for. So I won't put a data or a timing on it. It's really about us making sure we've got the capability in place, which, as I said, there's a little bit more work we need to do, but then really stepping back into the types of lending that we want to do, getting the balance across the composition of growth and making sure it meets the return profile and then over the course of the year, our return to balanced growth. Nathan Zaia: Okay. Great. And then final one for me. Just Slide 22 with the investment spend. Could you give us an indication now about what you're sort of thinking in terms of like where steady-state is in terms of that investment spend and the expensing rate attached to it? Racheal Kellaway: Yes, Nathan, we have clearly peaked in terms of investment. And so the way that we think about the overall envelope is we are looking to rightsize that investment to our earnings profile. However, we will always look for opportunity to go after investments if there is an appropriate benefit profile. And so we don't give specific guidance. It is about disciplined management of that portfolio just to ensure that we are getting appropriate returns for what we are investing in. And pleasingly, as we've described today, we are starting to see some of the benefits emerge from the investments that we've been making over the past few years. Operator: Our next question comes from Matt Dunger from BofA Securities. Matthew Dunger: Yes. I just wanted to follow up on the deposit growth. You've called transaction deposit growth a slow burn, and we've seen about $2.5 billion runoff in the term deposits year-on-year. Rod, are you able to give us a sense of how you'll fund the return to growth? Rodney Finch: Yes. Look, I think there's -- Matt, I come back to we have built a great proposition on the retail bank. We want to see growth there. Look at transactional growth -- transactional banking growth is important, but I would say -- would call as well and pricing discipline in that space, that all helps build that stable retail funding base. I would call out, I think we can do more in business banking, a real opportunity to get our fair share of our customers' deposit business. And so that's something we're going to be focusing on over the next period as well. I'd also say if we think about the funding stack and optimizing that overall, we also have the capital partnership is an important element of that, not needing to fund growth in asset finance with the capital partnership allows us to think differently around how we optimize that stack. And so it's really a combination of both growth in retail deposits, and I would call out both across our consumers and our Business Bank but also having the opportunity to optimize the funding stack with capital partnerships is another tool that we have available going forward. Matthew Dunger: And just a follow-up on that, if I could. On the branch conversion, are you able to share with us what impact they have had on deposit funding? Is there a future headwind from those OMB conversions? Rodney Finch: Look, we've worked through that over the last 12 months. We've reset onto a kind of optimized network. We've got a strong team in place now, and we're working to really grow the productivity through the branch network and customers. So we're comfortable with where we're at. We think with the digital bank available in deposit sense through the BOQ brand, there's a great opportunity here to continue to grow through the branches as well, and it's part of our thinking going forward. Operator: Our next question comes from John Storey from UBS. John Storey: Appreciate it's been a long call. I just wanted to ask you, Rod, last year, so you go look at your presentation last year and BOQ obviously called out the fact and have done a lot of work, I guess, ultimately to bring across the owner-managed branches, and you're pretty excited about proprietary channels, right? If you go and have a look at your flow rates during the course of this year in mortgage flows from brokers have gone from 60% to 70%. Just wanted to get your insight into why the proprietary channel is not yielding the expected benefits that you guys laid out last year? Rodney Finch: Yes. Thanks, John. Look, I think we've worked through -- it was a big transition the branch network in terms of part of what we had to do as part of that is go out and hire the existing teams from the franchisees to work into our branch network. So look, the change journey that we've been through, that change program has taken some time to work through. We've obviously optimized the footprint as part of that as well. We do have some stats in the back of the pack. We are starting to see the productivity we would expect on that network. That is, again, more work to do there, but we think we've got the right, as I said, the right team in place and the right focus on productivity. And going forward, it's a key part of our thinking of the proposition that we've got. And I think one of the other aspects of the OMB conversion is, it's really allowed us to think about where we want to invest from a geography perspective, not just for home lending managers or from a retail perspective, but able to put our business bankers in key growth corridors where we see an opportunity to grow as well. So we've got more work to do in the branches, but we think we've got the right set of activities to lift productivity over the near term. John Storey: And then just on the 2 half trading and obviously, results for the end of Feb, right, but maybe if you could just give a little bit of color on some of the trends and trading conditions that are starting to evolve through March and I guess, into April, interested to get your insights into things like mortgage applications, business activity. Have you seen any kind of increased flows into arrears? Just general kind of trends that you can comment on, particularly over the last kind of 2 months, March and April? Rodney Finch: Sure. Thanks, John. So look, at this stage, we're not seeing anything material. And we're being really -- we're looking hard, we're looking very closely to see the impacts. In terms of the mortgage portfolio, you'll note that the arrears are down. I think that we reported for the half. We're seeing hardship levels remain consistent with what we expect. We are starting to see some impacts come through probably that transport sector with fuel prices. Again, that's probably more a compounding factor than a factor in its own right that's driving some of the deterioration there. I think in agri, we are conscious of the agri sector where they're getting both the fuel price impacts as well as fertilizer. But again, we're staying very close to our customers and working through it with them. So at this stage, we're not seeing anything significant emerge, but we are staying really close to our customers, as you'd expect and being vigilant. Racheal Kellaway: I might, John, just take a perspective on market more broadly as well, which is we have seen absolutely sort of a higher volatility experienced due to those energy-led inflation risks, but functioning is still remaining intact actually, and conditions are how we would describe as orderly. We are starting to see some spreads repricing quite selectively. We think that is largely driven by kind of underlying valuation as opposed to any sort of significant market disruption or funding disruptions, but it is certainly a little bit more volatile out there. We have seen sort of a slowing in overall market activity. Operator: Our next question comes from Tom Strong from Citi. Thomas Strong: Just a follow-up, on the capital partnership numbers on Slide 27. In terms of the FY '26 noninterest income guide of $8 million to $10 million, to what extent is there seasonality from an origination perspective in that in terms of -- and how to extrapolate those, that run rate into '27? And then, I guess, more broadly, how are you thinking about the origination opportunity in '27 versus FY '26 just given the potential slow? Racheal Kellaway: Yes, I think I caught the question, just cut out there at the end. But look, noninterest income in that portfolio, there's 2 elements of the numbers that you're seeing on the page. The first is the servicing fee that we will receive on the sale of the back book. So that is broadly stable. We will see some runoff in that portfolio. As an asset finance portfolio, it is a bit shorter, but that is one driver of the fee income coming through there. And then the second is the new originations as you've called out. And so that is the establishment of the forward flow partnership. This is a really exciting development for us. From our perspective, we have the opportunity to do more in this market. We are a strong player in asset finance across the industry, but we certainly think there's opportunity to do more. That's obviously subject to conversations with Challenger, but there is the intent certainly for this partnership to be not only long term but to do more business over time as well. And so this is something that we think even despite sort of a slight downturn in the market, we would be able to pick up more volume. Thomas Strong: So you think that the arrangement with Challenger would allow you to do more business that you wouldn't have otherwise done on balance sheet? Is that the implication? Racheal Kellaway: Well, look, I think the way to sort of think about that is we have concentration of it as a balance sheet. And so that was certainly going to be something that we were going to find a constraint at some point. And so we are absolutely looking to do more business. We have a very strong SME business in our Business Bank, this is a core product for those customers. And so the ability to do more of that, to generate income and do more with those customers that we have and then also to kind of get more customers as well, I think, is really exciting. The parameters are really clear with Challenger, but there is certainly opportunity for us to do more business in this space. Operator: Thank you very much. I will now hand back to Jessica. Jessica Smith: Thank you for joining today's call. That's the last of the questions. If you have any further questions, please reach out to the Investor Relations team. We look forward to connecting with many of you over the coming days.
Michael George McLintock: Good morning, everybody. Just before we go on to the results, a couple of minutes on the demerger of Primark. We've -- since last November, as a Board and as a group, we have reviewed sort of all angles every which way on this potential transaction. And I think it's fair to say that as a Board, we are -- we have a deeper conviction even than before that the restructuring and the split is the right way to go. Just to emphasize, this is not an exercise in financial engineering. We feel that each of these businesses, because of their very distinct dynamics, deserve and need separate oversight from separate dedicated boards and accountability to separate groups of shareholders, each of whom have chosen to invest in either food or retail because of a clear choice. So we are absolutely focused now on delivering this transaction. The timing, we've talked about the end of 2027. That's to give us maximum flexibility. I suppose there's probably a sweet spot between June and October. The costs, I hope very much that we're conservative in the numbers that we put in the release. Obviously, nothing is final until it's final, but we've tried to put a top estimate there for the costs. Wittington are fully supportive, and it's all systems go. So we are excited to be proceeding with the transaction. I suggest if there are any questions, I take them at the end rather than now, and we just move straight on with the results. George? George Weston: Michael, Thank you. It's actually quite a big day for those of us who've grown up with Primark. I think it is a moment to celebrate the success of that business over the 57, 58 years, that's been part of ABF during which time it has benefited hugely from the governance that ABF has provided often in fairly idiosyncratic, but always very effective ways. Secondly, though, congratulate -- I thought I was just going to be talking to empty chairs today, and congratulations and thank you for making in person, but I guess there are a number of you who are enthusiastic cyclists and good luck getting home in that mode of traffic -- of transport. So I'd just like to take a moment to add to what Michael has said with a few words on why we think Primark and Food are going to be two really good separate businesses. And let me start with Primark, which is -- it's a global disruptive leader in apparel. And I think during Eoin's remarks today, you'll start to feel again some of the excitement around the business and what it is capable of. But we really do offer clear price leadership, great quality and exciting fashion in prime location stores. And it's the combination of those three that I think together that make this such a unique business. The business has got a really top class product engine. The buying team in Dublin is absolutely amazing. We have sustainability and ethical sourcing in any discount business you need to -- I think, to overindex on your capabilities in the supply chain to convince the skeptical that actually, you are very responsible citizens and that you care about the people, in particular, in the supply chain. We know we've got multiple levers still for long-term growth. Continued investments in value, better investor availability, increased digital enablement, more locally tailored execution. That's all stuff that we can -- Eoin and the teams can still get there. The business has really exceptional brand strength, and we've seen that most recently in the Gulf states. It has just reemphasized to those of us who've watched the first 3 store openings, what an amazing brand Primark really is. We have provable, scalable growth model for international expansion, both of our own stores. And inevitably, when you open a franchise and that just goes off like a firecracker, you think, well, I wonder what else we can do with franchise. And again, Eoin is thinking through that. We have a highly productive store estate. These big stores give us cost efficiencies. We have an efficient supply chain, one that is capable of further improvements, but it's good already. And we have a lean overall cost base behind the store and the supply chain as well. We have an experienced team. We have a very deep team. The capability goes a long way down through the organization, both in store management but also in Ireland. We have a solid balance sheet. We are even more disciplined in our capital allocation. It's inevitable that when you put a finance guy on top of the business that you get to see more finance discipline quite early on. And we -- I personally just have huge confidence in the sustainable long-term value creation of this business, but what Michael says, I absolutely fundamentally believe it's time to have more specific governance and oversight of the business into the future. It's not about the next year or 2 years. It's 5 years, 10 years, 20 years out, the right governance will help the growth -- help us deliver the growth potential and ambitions for years and years to come. So that is Primark. And then to Food, we've built a differentiated, really quite different global food group that operates across multiple parts of the food supply chain. It gives us resilience. It positions us well for long-term structural growth trends that we see in food demand. Food demand is always changing. If you're right across the food supply chain, I think you're going to have insights into that change, which are quite privileged. At the heart of the business, our strong brands and ingredients platforms, we've inevitably, because we just do, have a well-invested asset base. These characteristics will allow us effectively to compete and to grow. In turn, it will enable us to deliver attractive, sustainable returns to shareholders. We have a deliberately devolved operating model, which, again, is quite different from other food companies, and we think it's a key strength. You put decision-making close to customers and markets. You have strong central oversight. We have a strong network of connection across the business. That putting of authority down the organization into lower levels in the organization helps us to move faster, it helps us to stay relevant locally and food is always a local business. And it also allows us to attract and retain high-quality talent. We have any number of people who've spent very large amounts of their career in the food business, and it's a key strength. And I just refer to one, which is we are on to the third Chief Executive of Twinings, Ovaltine in 60 years. we've just got a wealth of knowledge of hot beverages markets. And then finally, the balance sheet, cash generation gives us the flexibility to keep on investing for the long term. It allows us to keep building better businesses, stronger brands over time, none of that will change once the businesses have been separated. And finally, and again, sustainability is part of what we operate. I think it's actually knowledge that food is -- wherever you're operating food is part of the supply chain, has given us over the years some of the insights into the Primark supply chain, you are not unique. You have responsibilities up and down the supply chain. And that we will take with us in food. The businesses, both businesses have very strong fundamentals. Primark will be the largest retail -- international retail clothing business, this is on the FTSE. And I believe that food will be the only pure-play food company on the FTSE 100, so quite distinct and worthy businesses. Let me now turn with that to the half year results. We're here this morning to review the last 24 weeks ending the 28th of February. And let me just take you briefly through some of the highlights. We knew that the first half was going to be challenging, and that's been borne out in the numbers on this slide with group adjusted operating profit down 18%, adjusted EPS being down 15%. The difference is the benefit from the share buybacks. The half 1 performance was broadly in line with our expectations, and there's currently no change to the full year outlook despite challenges that are clearly emerging and present from the Gulf. And the exception to what I've just said is Sugar, and I'll come back to that in some detail later on. We've kept our interim dividend in line with last year. We have confidence in the future performance of the group. We have confidence actually in the second half. We completed GBP 187 million of buybacks in the year-to-date. We'll have completed the announced GBP 250 million by the end of this financial year. Joana will go through the financial results in some detail in a moment, but let me just give you some overview. In Primark, we made good progress. We really did in reengineering the customer proposition. That's across product, across price perception and in our digital engagement with our customers. In the U.K., these initiatives began in the autumn. And as a result, performance in H1 in the U.K. was much better. We really do have the answer, I think, to our lackluster trading of the last few years. We delivered like-for-like growth. We gained market share in the U.K. all within a challenging consumer backdrop. Trading in Europe was weak. The initiatives and investments to drive the improvement in the U.K. are clear. We know what we have to do, and it resembles what we're currently doing in the U.K. But we've started in the unapologetically as Eoin will take you through in the U.K. In Food, profit in Grocery & Ingredients business was impacted by the weakness that we had expected in the U.S. consumer in certain categories, particularly cooking oils and bakery ingredients. Mazola is its largest customer. Consumer franchise is Hispanic. And as you all well know, the spending in that community is well down under the -- as a result of the challenges that they face. The rest of these food portfolios in Grocery & Ingredients generally performed well. In Sugar, the results were below our expectations. The adjusted operating loss was mainly due to prolonged low average selling prices in Europe. The crop last year was sadly better than we'd expected. Acreage was down, but yields were up. The market is still long sugar in Europe. And I'll talk about the dynamics beyond that later on and what I think it means for the outlook, both the second half and also into next year. The last 6 months have been another period of intense activity, lots of good progress made in all sorts of places. Obviously, the two key leadership appointments when we met in November, Joana and Eoin were both are very ably filling their roles on an interim basis as a consequence of what they showed us in those interim positions, we appointed them to the substantive. We appointed them for the long term. And I'm actually delighted that we're able to do that. We've made good progress with the acquisition of Hovis. The CMA issued an interim report at the end of March. It provisionally cleared the transaction in Great Britain, which is great. But as noted, the competition concerns in Northern Ireland, and we'll continue to work constructively with the CMA over the next few months. We expect to reach -- them to reach a final decision in the summer. Across the group, we invested GBP 534 million of capital expenditure in the first half. These are investments very largely in growth opportunities. They have good attractive returns. And it's been exciting to see a number of the multiyear projects reach completion over the last 12 months and others will be finished later this year. And as well as investing in our businesses, we've continued to make strong capital returns to shareholders through dividends and through share buybacks. The balance sheet remains strong with 1.2x leverage. It's worth just spending a little bit of time on the Middle East conflict and what it means for our business. From a cost perspective, the primary direct impact is energy costs, but there are others, including freight, fabric, packaging and agrichemicals. Given what we know today and given the hedges that we have in place, we expect to be able to manage the cost impacts that we're seeing through the rest of 2026. The longer-term cost impact is not yet clear, and we need to remain agile as things evolve. We're not seeing shortage of raw materials, we're just seeing the likelihood of inflation in them. We're also focused on the impact on consumer spending, particularly for Primark. We've seen what we think is an impact in just the last couple of weeks in Primark sales really across the whole of Europe. And there must be a risk that if the conflict persists, consumer spending will keep on being subdued. And with that, Joana? Joana Edwards: Thank you, George. Good morning, everyone. So let me take you through the results in more detail. Group revenue was GBP 9.5 billion, which is flat compared to last year at actual rates, with a net benefit from foreign exchange translation of GBP 76 million. At constant currency, the group revenue was 2% below last year, as George just said. Primark sales grew 2%, while overall sales of our food businesses declined by 3%. Group adjusted operating profit was GBP 691 million, a decrease of 18% at constant currency. The majority of this was due to the lower profit in Primark, Grocery and Sugar compared to the first half of 2025. There was a small impact from foreign exchange translation, a net benefit of GBP 4 million. So let me take you through the detailed performance by segment. Starting with Primark, and looking first at sales, which grew 2% to GBP 4.7 billion. While Primark's like-for-like sales declined overall by 2.7%, the performance by market was very different. In the U.K., Primark had good sales with growth of 3% and like-for-like sales growth of 1.3%. And Primark gained market share in a difficult U.K. clothing market. This was a strong improvement driven by actions to reenergize Primark's customer proposition, and Eoin will take you through those later. In Continental Europe, sales declined 1% and like-for-like sales declined 5.6%. The consumer environment remained weak, and while similar initiatives to the U.K. are being implemented, they're at an earlier stage. Our store rollout contributed 4% to growth with good execution across our key growth markets in the U.S. and Europe and through our new franchise model in the Middle East. Primark's adjusted operating profit margin was 10.1%, as we expected. Gross margin was lower due to the higher level of markdowns, as we effectively managed inventory levels. This impact was partially offset by favorable foreign exchange and supplier efficiencies. The margin also reflects a significant step-up in the investment across product, brand, digital and technology, as we focus on like-for-like sales growth and the business growth in scale. We maintained a strong focus on cost optimization and efficiencies, which helped to offset cost inflation. Our full year guidance for Primark is unchanged with adjusted operating margin expected to be approximately 10%, so similar to what we had in the first half. As George said, given what we know today, we expect the cost impact from the Middle East conflict to be manageable in 2026. We remain alert to potential further deterioration in consumer spending and to the longer-term impacts. Moving to Grocery. Sales of GBP 2.1 billion were in line with H1 2025. Growth in international brands was offset by lower sales of U.S. oils. Adjusted operating profit decreased 20% at constant currency as expected and primarily due to the lower profit in our U.S. oil businesses, both from our retail brand, Mazola and from our joint venture, Stratas. Grocery profit was also impacted by the effects of higher cocoa costs and U.S. tariffs on our international brands. Our grocery guidance for the full year is unchanged with adjusted operating profit expected to be moderately below last year. We are positioned to deliver a strong improvement in grocery profit in H2 compared to H1 and George will set out some of the building blocks that underpin that shortly. Ingredients performance in the half was as expected. Sales and profit in our yeast and bakery ingredients business, AB Mauri declined primarily due to the lower customer brand for bakery ingredients in the U.S. I had flagged that already as well. There was also subdued demand for our specialty yeast for using alcohol beverages. AB Mauri's other markets and categories were relatively resilient. In Specialty Ingredients, ABFI, we had good growth overall and across most of our businesses. We accelerated investment in product innovation and commercial capabilities to drive long-term growth. Our ingredients guidance for the full year is unchanged. As with Grocery, we expect cost impact for the Middle East conflict to be manageable in 2026. It does not reflect the indirect consequences or the longer-term impact. Sugar sales declined 9% with adjusted operating loss of GBP 27 million. In the U.K., sales and profit declined significantly due to the lower average selling prices, reduced export sales and as such, a reduction in the estimated net realizable value of our sugar inventories. This impact was only partially offset by lower negotiated beet prices. Spain was also impacted by lower European prices, although the operating loss was lower than the first half of 2025 due to the restructuring actions that started last year. Turning to Africa. Overall profit was down due to lower sales in South Africa and Eswatini and lower production in Tanzania. Overall, for sugar, based on our view of the current market dynamics, we do not expect to offset H1 operating loss in the second half. And so we now expect sugar to deliver an adjusted operating loss for the full year in 2026. George will talk through the market dynamics and the outlook in more detail shortly. Agriculture adjusted operating profit was GBP 6 million compared to GBP 12 million last year. This reflects two main factors: compound feed declined due to the loss of a large customer, and we are adjusting our cost base accordingly. We also had a lower profit contribution from our joint venture, Frontier, where grain trading business was impacted by unfavorable market conditions and a small crop size. Our specialty feed and additives businesses delivered strong growth. Following their H1 performance, we expect agriculture adjusted operating profit in 2026 to be below 2025. Moving to adjusted earnings and adjusted earnings per share. A couple of points to highlight here. Firstly, tax. The adjusted effective tax rate was 24.5% in the first half which is similar to the tax rate in the first half of 2025 of 24.1%, and we continue to expect the group's effective tax rate in 2026 to remain broadly in line with 2025. Secondly, you can see that the adjusted earnings per share have continued to benefit from the share buybacks. Free cash flow was GBP 71 million compared to GBP 27 million last year. While operating profit was lower, there was a reduced working capital outflow because of reduced inventory levels in Primark since the 2025 financial year-end. As a reminder, we have a seasonal peak in working capital at the end of the first half, and net cash balances are always at the lowest at this point in the year. You can see as well that capital expenditure at GBP 0.5 billion was broadly in line with last year, and I'll come on to some of the details of that spend shortly. Our balance sheet remains strong and continues to support investment and shareholder returns. A few points of note. Firstly, you can see that overall working capital was broadly in line with last year. Inventory levels in Primark was slightly higher than last year. However, seasonal inventories were well managed by markdowns in the period. Secondly, the lower net cash position compared to prior year reflects the shareholder returns we made in the year, both in dividends and share buybacks. Finally, the pension surplus continues to grow and is a very significant asset at GBP 1.7 billion. Turning now to cash and liquidity. Our half year net debt position, including lease liabilities, was GBP 3 billion compared to GBP 2.1 billion (sic) [ GBP 2.772 billion ] in H1 2025. This is due to the cash reduction I just explained. Our leverage ratio was 1.2x and is an increase on last year, but well within our capital allocation policy. Total liquidity was GBP 2.2 billion, which includes total committed credit facilities of GBP 1.8 billion. This robust position underpins our ability to continue investing in growth while maintaining resilience and flexibility. Our capital allocation policy prioritizes disciplined investment to drive long-term growth. In the first half, we invested GBP 534 million across the group. Around 40% of this was in Primark where we continue to roll out stores, invest in our depot network, including automation, investing digital and new technology. The remaining 60% was in our food businesses. A large amount of the spend was in multiyear projects, a number of which completed in 2026. George will talk more in detail about some of these investments shortly. Across ABF, we continue to spend around GBP 100 million per annum on technology investments, including automation to drive efficiency in our supply chains and new ERP systems to strengthen efficiency and decision-making in the businesses. We still expect CapEx to be around GBP 1.2 billion for the full year in 2026, similar to last year. Our capital allocation approach is to return excess capital to shareholders, both through dividends and share buybacks, as I said before. Our interim dividend is 20.7p, which is in line with last year. That's a reduced level of dividend cover, but as George said, reflects our confidence in the outlook for the group. In terms of share buybacks, we expect to complete GBP 250 million in this financial year. We've completed GBP 187 million of buybacks in the year-to-date with the remaining GBP 63 million left to complete. And these shareholder returns, alongside with our continued investment in capital in the businesses demonstrate our commitment for delivering long-term value for shareholders. I'll finish on the group's full year outlook for 2026. The phasing of group profit was always expected to be weighted to the second half of 2026. For the group overall this year, we continue to expect adjusted operating profit and adjusted EPS to be below last year. For the segmental guidance, there is currently no change to our previous expectations for 2026 with the exception of sugar. This slide sets out the additional detail that I covered during the presentation. And with that, let me hand you back over to George. George Weston: Okay. Let me just introduce the section on Primark, which Eoin will take over from me after this first slide, and then I'll come back for food after that. And I think it's my job to really to share some color as to what has been going on. I said at the outset, how delighted I am that Eoin is permanently enrolled as Primark's Chief Executive. He's also only the third Chief Executive in Primark nearly 60 years of history so his appointment is a very significant one. Over the last 12 months, Eoin has taken a hard look at several elements of Primark's strategy. He's taken a hard look at the customer proposition and he's taken a hard look at the company's operational effectiveness. He has really thought about Primark's value proposition and how to refine it starting with price and price perception, which are at the heart of Primark. We now, as well as that, have a deep insight into Primark's customers across Europe, the U.K. and the U.S. We have a clear picture of who or which customers we're going after and then customer strategy because of that, knowledge can be increasingly targeted for each market. There's been strong progress on the product offering, starting with womenswear and Eoin will tell you more about that. There's been a refocus on digital -- an increased focus on digital and how we continue to build on what is already in place. We remain excited about the white space opportunities in the U.S. and Europe. The introduction of our new franchise partnership model in the Middle East, as I was saying earlier, I think is a real game changer. Importantly, also, though Eoin has accelerated the work to improve supply chain effectiveness and significantly reduced costs, there are loads of cost opportunities available to us. And of course, we have Filip Ekvall joining later in the year, joining Eoin's team as the Chief Commercial Officer. It will be a great addition given to his experience, plays into a lot of the opportunities that we've been identifying and that I've mentioned. That's enough of a summary for me of the significant areas of focus in a very energized business. There's a lot to go after, and the business is really moving very fast. So with that, Eoin, over to you. Eoin Tonge: Well, that's quite an intro. Thank you. Good morning, everyone. Great to see you all, as always. Look, I am conscious as it's my first time seeing you guys since being appointed, and I'm delighted, I'm honored to be officially taking up the reins and being the third CEO for Primark. I don't think we wasted any time, as George said, during the interim period. It allowed me to really get under the skin of the business, as George said, get out to the markets and really get to grips with our customers in each market. And I'll talk more about that in a moment. It means I am coming into the role very clear about what the job has to be done and how we're going to grow. So let me remind you of Primark's key strategic priorities and how I feel we're progressing against them. We need to reenergize Primark's customer proposition to drive like-for-like sales. This is firstly around sharpening our price and price perception. Price leadership is and always will be our DNA, and we're doubling down on that. Major Finds has been a good start here. It's really resonated to remind people that Primark is the place for knockout value. Prices are given, but it's quality and style we deliver at those prices that will set us apart. So we strengthened our product offer, starting with significant developments in womenswear, and I'll come back to that. We're working on getting better integrated in our customer engagement across channels, supported by a step-up in marketing investment and we're investing in the digital capabilities to enable this, building on the momentum and learnings we have from our Click & Collect rollout in the U.K. Now I recognize the focus of reenergizing the customer proposition has been, as George said, unapologetically in the U.K. and actually unapologetically in the womenswear category also. There's a reason for that. Look, it's our largest market. It's our largest and most strategic category, womenswear. However, we focus on H1 also on getting deep insights in our customers in some of our core markets in Europe and the U.S. also and how best to bring our offer to each market. And by the way, we did that also in the U.K. The opportunity now is to roll out more activity in more markets and in more categories into spring, summer and into autumn, winter. All of the key product initiatives will be delivered across the store estate, including more in-store activation in Europe. We also have more Major Finds across the U.K. and in Europe in H2 alongside increasing marketing activity in Europe as well. Look, we recognize it's going to -- it might take more time to implement the same level of digital customer engagement in these markets, but our richer customer and our market understanding of Europe has given us confidence that, as we begin to dial up the local marketing activity, including local influencer partnerships, more targeted digital marketing and greater use of CRM, these initiatives will have an impact. And that goes for the U.S., too, similar story. We've taken a stand back to work on the target consumer and are now seeking to execute a step-up in more tailored products and customer engagement activity. Moving on from the customer proposition, I still feel very excited about the significant white space opportunities in both existing and new markets. We've been focusing on how best to unlock this with a clear lens again on the local customer opportunity. This now includes the new franchise model, which I'll speak to in a moment. Underpinning all of this is really an overall transformation of the Primark business. We've talked about this for a while with our investment in technology, in supply chain, in digital and in cost optimization. There really is a lot of activity going on here. And we spent the last number of months organizing ourselves for success here to deliver on the investment case that George laid out at the beginning. I think despite the near-term headwinds and uncertain environment, that's the overall medium-term and long-term message, roll out more of the reenergized customer proposition, attack the white space and transform business for the future. So let me now give you a little bit more color on the progress to date in the U.K. and the customer proposition, including digital engagement in the white space development and in the transformation. We've definitely made progress in reinforcing our value proposition and price leadership in the U.K. and our brand metrics shows that, that is the case. As I said, our focus has been on womenswear and activation of womenswear in the U.K. which, again, our biggest market, our biggest category, and it's actually central, really, to our brand strength. In the U.K., we now have had Major Finds drops pretty much every month, every few weeks, actually, since September, all in womenswear and they're achieving their objective, which is to remind core customers of what Primark is all about. So firstly, helping to tackle the price perception, but they're also selling out and driving footfall into stores with attachments buys. And finally, they are working very well for us online in terms of sales and in digital engagement. Moving on to Denim. Denim has been a focused category for us in H1 with a lot of product in store and customer activity. I'll come back to the customer activity in a moment. On the performance, we've invested significantly in the performance wear category. This is Primark value in action and innovative fabrics delivering quality comparable to product costing many more times, unlocking an entire new category for us and democratizing it for our customers. We maintained a strong focus on unbeatable value in everyday essentials. Primark absolutely dominates nightwear, and we have seen good like-for-like growth across underwear and nightwear. We're becoming more strategic with our curation and coordination in our fashion lines and stores, which is resonating well with customers. It wasn't in the half, but our Shockingly Chic campaign, which is nicely modeled by our CFO today and that some of you may have seen launched. It launched a new design-led womenswear main range that sees us return to our fashion roots, offering incredible style at Primark prices. This curation alongside continued ongoing partnerships, including our newest with Coleen Rooney, which has been very successful, means our womenswear fashion offer is broader and better than ever. And finally, we've expanded our offer with a new youth label, The Scene, which targets a discerning and different younger customer who is looking for trend-led fashion prices that they can afford. It's early days, but the initial response has been very encouraging. Our product engine is working well. And I think the trick is -- as I said, is to broaden the focus from womenswear into other categories such as menswear, kidswear and lifestyle and be clear on our focus, including what we don't do. Okay. So let me move on then to -- where am I? So I should just say, overall, the focus on womenswear and with the focus on the activation in the U.K. as a result in the good like-for-like sales growth and the strong market share gain in the U.K., which it was in the slide before, but anyway, I missed my chance. Okay. So then moving on to -- on the activation, particularly in the U.K., let me talk about two things. One, better integration of our approach; and two, using our digital flywheel more effectively. Again, it's got a U.K. lens. We significantly stepped up our marketing investment in the U.K. but critically driving more integrated customer engagement and reach. A couple of examples to illustrate this. In September, we launched our fully -- first fully integrated U.K. campaign, In Denim We Can which is followed by the Shockingly Chic campaign, the more recent one. Both are multichannel spanning in-store, TV, paid social, CRM, out-of-home plus Primark's typical strong organic reach. These are very first full funnel activations for Primark. The denim campaign delivered strong ROI and improved brand health and early results from our latest Shockingly Chic campaign are also encouraging. We are also really exploring the potential within influencer marketing markets. Our collaboration with Perrie Sian at the end of last year, Perrie's Primark Picks delivered strong sales, particularly online with our first launch delivering our highest ever Click & Collect performance. On overall digital capabilities, we're continuing to invest in the customer experience and functionally on our website. Our website traffic was up 37% across the business in H1. We are rapidly growing our CRM customer database with a further 1 million customers added during H1 to now reach over 5 million across our markets and 3.5 million in the U.K. alone. We are seeing the benefits of having this data. We know e-mail engagement is contributing to healthy store traffic, particularly again in the U.K. Of course, our digital flywheel in the U.K. is strengthened by the usage and the sales of Click & Collect, which is nationwide in Great Britain and continues to grow. In the U.K., we've just launched our app which includes the ability to purchase through Click & Collect and the app is now available in Ireland and Italy and will be rolled out in Spain and Portugal in the second half. So moving on to our expansion. It's a new space contributed 4% to sales in the first half. We opened 11 owned stores in the half, 4 of these were in Europe, including in growth markets such as Italy and Poland. Five stores were in the U.S. where we now have 38 stores in total. I remain very confident about our proposition being differentiated and highly attractive to U.S. customers. As I said earlier, the detailed work to deepen our understanding on our target consumer in the U.S. will allow us to be laser-focused on how we grow, better tailoring our product, our customer activation and indeed our store footprint. Awareness is still the big opportunity, which is the main reason why we're looking forward to our Manhattan flagship opening in a couple of weeks on May 8th. The prime location puts us on the map for millions of New Yorkers and U.S. stores, and it's going to be a big moment for the U.S. brand. As George said, our new franchise model is incredibly exciting and a real game changer, as he said. Our first store in Kuwait has traded better than expected. In March and April, we opened our first two stores in Dubai, which, despite the circumstances, have also traded well above expectations. And we've got an exciting pipeline ahead, even again, despite the circumstances including opening in Bahrain and Qatar this calendar year. And fundamentally, we just believe over time that this new franchise model creates opportunities for new market entry. And then finally, moving on to transformation. George and I have talked a lot about the activity to invest in the business in the future. We've stepped up our overall approach to transformation, which we will update you on over time. I'm going to talk to you just to three elements today: cost optimization, supply chain effectiveness and overall technology investment. On cost, let me give you three examples of delivery in the first half. Firstly, the rollout of self-checkouts. We now have self-checkout in 250 stores. It's great progress, but it's still only half of our store estate. So plenty more to go after. I remind you, the self-checkouts typically reduce labor in stores by about 10% and improve the customer experience. Secondly, continuous improvement in our store labor model has also delivered ongoing cost reduction. And thirdly, in the period, we've now moved some of our transactional central functions to a third-party business service model, which will deliver efficiencies over time. So all very good progress. On the second pillar today, supply chain effectiveness, there's a lot of activity going on. We see this as a big unlock for growth and efficiency. In H1, we neared completion of our new depot in Northern Italy and continued with other automation projects. And then there's a lot going on in the third pillar. Again -- I mean if there wasn't a lot going on in technology, you'd be wondering what's going on and again, we made good progress on the overall technology agenda. Some of this is in fundamental core systems to modernize our business as we scale. Some of this is in more technology and systems to enable us to drive growth and productivity. Again, I will provide more updates on this in the coming months and indeed years. Overall, Primark's transformation agenda, it is a multiyear project which will underpin the acceleration of top line growth and drive cost reduction. With that, I'll hand you back to George. George Weston: Thank you. Let me move on to an update of our food businesses, which will be all I talk about in the years to come. As I said at the outset, the food businesses have made good progress in the half across a number of areas despite the damp financial results. We continue to invest in marketing, innovation technology and capacity, all to drive growth. And this has set us up well, I think, for a strong improvement in profit in the second half. The first half performance was broadly as we expected to be with the exception of Sugar. And with that introduction, let me now go through the different sectors. Starting with Grocery where profit in H1 was below last year. And the primary reason for that was weakness in U.S. oils, both in our retail brand, Mazola and also in our joint venture, Stratas. Stratas predominantly serves food service customers and the lower-end food service market in America is quite restrained at the moment. And Mazola is clearly navigating a headwind. Its core consumers are the Hispanic population, as I've said. We've continued to see those consumers significantly reduce their spending in a difficult environment. They're not entertaining each other and they're reusing oil. And their spending is well down. We have responded where we can. We've improved affordability through promotions, and we've focused on smaller formats. It's important that we don't give up on our customers here. So we've retained our advertising share of voice. Something like 80% of the branded marketing spend in this category is ours. These high spend is what has underpinned our steady increase in market share and sales over a number of years now. We remain the #1 brand. In fact, I think our branded market share is about the same as the next two combined. We really are strongly placed in the category, and we want to remain so. As we go into H2 in Mazola, we're annualizing the reduction of sales that began in H2 last year. So the year-on-year comparator becomes a bit easier. For Stratas, the reduction in out-of-home eating by those consumers and lower procurement margins led to a reduced profit contribution in the first half, and we expect more normal margin levels to improve profit in the second half, and we've got some of that baked in already. If those were the two problem children, let me go on to better areas of performance. So the international brands, led by Twinings and Ovaltine, but also with the World Food brands and Chatham and others really did -- really had a good year. Twinings had showed good volume-led growth supported by strong innovation. The innovation pipeline and the pace of innovation in -- across Primark -- sorry, across Twinings has accelerated markedly in the last couple of years. And then the marketing has all been excellent. The advertising campaigns are all best in class. So good growth in the U.S. And that was also driven by an expansion of our e-commerce business there. I think Twinings now is the largest brand on Amazon in the United States. But there have been other highlights as well. Blue Dragon, part of the World Foods portfolio saw volume-led growth across the U.K. and across international markets. We had some really good exciting new product launches, particularly in Korean, which we supported with strong in-store merchandising. I don't know any of you have seen the World Foods section of Tesco in the U.K., it's really strong. Patak's also had a good year of innovation-led progress. Jordans showed good growth. It was helped also by new products like the protein boost granola. Mazzetti, the balsamic vinegar brand, double-digit sales growth in H1 with good performance across a number of its markets. Good sales growth in the first half in the international brands didn't translate in the half into profit growth. And there are a couple of reasons for that, and they both relate to Ovaltine. The first one was the effect of higher cocoa prices. They peaked in the first half of 2026. It is our certainty that those prices have come down and some of our positions that we've taken with lower sugar prices -- sorry, lower cocoa prices, which again gives us confidence of that improvement in half 2. It's as close to being baked in as it can be. And then Secondly, we started up the new factory in -- Ovaltine factory in Nigeria, which is an incredibly exciting long-term prospect for us with 7 million babies born every year in that market. But there have been -- but start-up costs a reality of any commission. Commission has actually gone well. So I'm not flagging disaster and things breaking, but there are just inevitable start-up costs, which are first half related. Second half, they don't repeat. Now I've gone slightly off-piste. This is a new slide, but I think it's quite an important illustration of some of what we're about in food. In future conversations, we do want to -- particularly over the next 18 months, we do want to shine a light on some of the less known parts of the food portfolio. And I've given you four here, their brands that are small, but very successfully accessing niche categories of food and niches where there are good growth project -- growth prospects. So for example, they don't include Gentleman's Relish. The sales growth in our Sports Nutrition business was over 30% in the first half, led by hydration brand, High5, explosive growth in that category, and we're in it in the U.K. and in it at scale. Anthony's Goods had another year of sales growth in the high teens. Anthony's, and I think I've mentioned in the past, is a leading U.S. brand of organic ingredients and superfoods. Essentially, if you're California and you make smoothies in the morning, you're going to be using some of Anthony's products. And that trend is growing very quickly and spreading across the states. And again, we've got the #1 position in a number of those ingredients and exciting future. At the moment, it's just online delivered through Amazon in time, we hope it will become -- getting to bricks and mortar and then the growth becomes several X times -- the potential market becomes several X times what it is at the moment. And then we had good strong growth, again, within World Foods in two more recently acquired brands, Al'Fez and Capsicana which are used for Middle East and in Latin American cooking. And again, good market characteristics in both those. If you take all those businesses together, they only have sales of about GBP 100 million, but it's still GBP 100 million. And so they're small. Their combined sales growth in H1 was about 20%. We like these categories and we can manage these sorts of businesses because of how we are organized. And so we can be in the smaller scale, but fast-growing areas of the food market, and we will be. If I look ahead to the second half in grocery, we will see that strong increase in profit that Joana mentioned. Firstly, we -- this is a typically seasonal business. First half is always weaker -- the sort of profit flow-through is often -- it's always, I think, second half weighted. Part of that actually is the crumpet season in Australia, but that's just a kind of anecdote for you. There are a few reasons why the shape of first half, second half is deeper at this time around. And I've mentioned the cocoa costs are there. the Nigerian facility is up and running. There will be -- there are some other costs which have come down in the second half. So U.S. tariffs have come off a bit, both in tea and also in [indiscernible]. Interested to see that you now have a route to getting your money back on overpayment of tariffs, and I hope that Eoin is on it. And then there have been some go-live costs for new ERP systems. So ACH in the states has gone live. There were some start-up costs on that. The project has gone very well, but there have been costs that are being borne in the first half. The same, I think, is true of Twinings, Ovaltine, which is nearing the end of its ERP journey. As I noted earlier, we do expect more normal margins in Stratas. We're already seeing it in the future book and that will increase our profit contribution. In Australia, we'll benefit from the new capacity at Tip Top, so the new bakery or the bakery extension and rebuild in Western Australia. In Australia, and then this is just a comment about the Gulf, we've seen steep increases in fuel costs. We have a really big distribution task in Australian bakery. We have had a fuel surcharge accepted by most of our customers already. It's part of what gives me confidence that the second half profit that we can cope with the Gulf on the cost side. And finally, in Twinings. We have a bunch of new products hitting in the market, particularly in Australia around cold in the second half, and that will drive stronger profit in the second half. But it's the only one where we, I think, still got a lot of work to do. The rest of these causes of profit increase in the second half, I think, are more or less locked and loaded. Let me go on to Ingredients and start with Mauri which is our yeast and bakery ingredients business. The key driver in bakery ingredients now is product innovation, I think, particularly in the era of GLP-1s. We develop products that meet very specific consumer needs in each local market. And we've just called out on this slide some of the product innovation for the U.S. market. So lower fat content donuts, egg-free cake mixes and so on and so forth. We've installed the new sourdough capability in the U.K. It's now up and running and is filling up fast. We've commissioned, and we're supporting our customers innovation with sourdoughs. So it's not just being able to sell them product that's relevant, it's also giving them the technical expertise to turn -- to enter into the sourdough market. And again, that is going well. Bakery ingredients technologies can replace fat, eggs and without compromising on taste and texture. Some of the -- they showed us some of these solutions the other day, and they were really compelling. Donuts with 30% reduced fat which still tasted extraordinarily indulgent. But in the first half, the ingredients profit was -- sorry, in AB Mauri was impacted by a weaker demand in the U.S. market and also by reduced demand for specialty yeast. We have a very good strong position in specialty yeast for an alcohol manufacturer. And we're inevitably at the receiving end of some of the shutdowns to distillation capacity, which have occurred in the States and in Scotland. Some of the distilleries are turning back on again now, so it's picking up. But there's been a marked step down in specialty consumption. ABFI, which is the Specialty Ingredients portfolio, most of the business in that portfolio delivered good and in some case, really good growth in the first half. In Pharmaceuticals, our excipient, actives and vaccine-related products all grew well. And lipid sales, which again is part of the pharma portfolio, they were lower. They're expected to recover in the second half. In Food & Beverage and in Health & Nutrition, we had good growth, driven by yeast extract growth, enzyme growth, botanicals growth and extruded protein crisps, which also grew. We do continue to invest. We're strengthening our teams and capabilities across R&D, commercial and business development. And we have a number of ongoing strategic capital projects. In first half, we commissioned new capacity for the yeast extract business in Germany, and there's more -- there's another project there that we'll be completing hopefully in the second half, which, again, will increase unlock capacity and sales. One of our businesses in March, SPI Pharma, agreed to acquire a German company called Elementis Pharma. That's a business that will strengthen SPI and our position in pharmaceutical actives. These are antacids in particular, and it will expand its offer in digestive health. Let me turn now to Sugar and starting with Europe. Remember, we have two very different businesses. We have two European sugar businesses for the U.K. and Spain, and then we have a lovely portfolio of sugar businesses in Sub-Saharan Africa. We firmly believe that the European sugar businesses are capable of generating a lot of cash in years to come, even in a market with long-dated trend of volume decline. And they've demonstrated this over years. Sugar consumption in the U.K. and not every kind of health commentator recognize this fact, sugar consumption per head of population in the U.K. peaked in 1965 and has been going down since. We've also had some step-change reductions in demand, particularly when the sugar tax was introduced to the beverages category. So we've coped profitably with reductions in demand, industries, which are in decline, can nonetheless generate a lot of cash, and that's what we firmly believe sugar will do. We have in the U.K. a highly efficient business in British Sugar. We are one of the lowest cost producers in Europe, if not the lowest cost producer. The assets are well invested. The only CapEx that we're investing and have been investing for the last few years has been about reducing our energy costs. They've been good projects with good short-term paybacks. The one that is underway now to put steam drying into Wittington is partly funded by -- with taxpayers' money. These are nice fast payback projects. There is no other significant CapEx requirement for British Sugar into the future. In the U.K., the market share -- our market share is over 50%. We are really well placed. We have a super industrial brand. We are well known for being a very reliable, high-quality supplier of sugar. The customer relationships are in good shape. And then lastly, producing in the U.K. gives us the added protection, that it's probably worth GBP 10 a tonne, maybe GBP 15 of the English Channel. And so our U.K. business is just potentially a great business in a market that's declining albeit, but the European sugar industry is more than capable of coping with reducing supply -- reducing demand. So why are we losing money, again? The answer is that the European prices have been low for a couple of years. The market remains oversupplied. The surprise this year, sorry about it, was that yields from a reduced acreage across Europe were very good. Some of the best sugar yields in Northern Europe prevented the acreage reduction from turning into -- turning Europe into deficit. The other thing that's worth mentioning is that the surplus is actually quite small. It's just that, that surplus has driven very aggressive pricing. So that aggression will go away once the surplus goes away, but I can't help but feel that we've overdone the price reaction given the level of surplus. There needs to be a rebalancing of supply and demand. If you look at sowing intentions, they are well down across most of Europe. If those reduced sowings combined with a more normal yield outcome, then I think there's a good chance that the market will be in deficit will be short sugar. There's stock still in the system, which will flow through. So I think the -- we can't expect price reaction to be very early and very strong. And we haven't seen it starting yet. Hence, the warning today about the second half and about next year. We just haven't seen prices reflecting an anticipated shortage of sugar. Maybe we'll get there, maybe we won't. We don't know at this stage. But I think it's right to call out that right now, sugar prices remain subdued. In Spain -- so that's U.K. But in Spain, there are some of these similar characteristics around market pricing. The restructuring we did last year, though, has changed the business significantly. We were predominantly a beet processor and now we're predominantly a cane processor. As a cane processor, you can back-to-back sales contracts, which you can't do in beet. So we've derisked it. Now that Spanish business will never have the same scale to be at the level -- the cost level of British Sugar, but it's largely a beet business -- sorry, it's largely a cane business now and a trading business. So we think that -- I mean there's more to do, but the heavy lifting and the cost associated with any restructuring in Spain, in particular, we've taken all that. So we think Spain is in a much better place. There's also new leadership in place to take quite a different business forward. I think I've gone through most of the characteristics of the second half. Our own sugar production, since those have been -- we're not playing our part in taking sugar full capacity. We produced 8% less sugar in the harvest just completed than what we produced in the year before. And next year's -- the sowing intentions in the U.K. are off another 8%, 9%. British Sugar in the old days, you'd have thought 1.25 million tonnes, maybe 1.3 million was normal. We produced 1 million last year. We'll be under that this year. We're playing our part in coping with industry demand reduction. We will have another trading update in July. We will give you more information about how the crop has progressed. At that stage, we will also tell you more about the start-up in Africa, which is -- the timing of the start-up determines how much of the profit in their campaign falls into this year and how much will spill into next year. And so with that, let me move to Africa, which is now over half of the sugar revenues. Now this is half the sugar business and more. The fundamentals are really strong, growing population, very high market shares, very well-branded sugar business with very good routes to market in a place where that is quite difficult to achieve. We're always going to get some weather-related events, but the long-term fundamentals are intact. At this stage of the year, again, the start-up crop risk is still ahead of us. So when we come back in July, we'll be able to say, look, Malawi, Eswatini got away on time. We think Tanzania might be late. We think Malawi is going to be late. As I say, it tips money into next year from this year, and we'll tell you as much as we can about it. We have increased the -- the last thing to say about Africa is that very big investment in Tanzania, the new factory is complete. We had quite a lot of wrestling to do with it before the rains came and we had to shut it down for the rainy season. We've done a lot of very good work in the off-crop, and we have a fair degree of confidence that when it starts up again, probably in June, it will run much better than it did. It will take a while to ramp up to its full capability. I remind you; we built it because there's a significant shortage of sugar in Tanzania, that's a supportive government and sugar demand is growing every year. There's also a project there, which is -- will be complete around about the same, around about June, I think, to build a new distillery to produce high-quality potable ethanol. It will be the second distillery we've got from that site. That second site is almost sold out, already. So these are lovely economic opportunities that we face into -- in Africa. So finally, on to agriculture. The focus is on growing our portfolio of value-added specialty products. We've still got some of the old stuff, but it's reducing in importance. The new premix plant in Vietnam is near complete also in China. The integration of the full-service offer for dairy farmers in the U.K. continues to progress, and we're beginning to look offshore to see where that model is relevant. Our compound feed sales were well down. I noticed in November that we lost our largest customer in the U.K. It's allowing us to adjust our cost base accordingly, and that work is well underway. And then finally, I do feel for our good folks at Frontier, the JV because they've had a horrible combination to cope with of a very small crop that goes all the way back to the wet autumn in 2024, and then -- which led to small U.K. harvest, they merchant that harvest. And then actually, even despite the volatility in some commodities that the Gulf situation has caused, there's been very low soft commodity volatility, lowest in kind of 10-year period. And you need that -- as a trading business, you need that volatility to trade on. So it will come back. It will come back and -- but just not in the first half. Let me finish on the group outlook. The financial year, the outlook is unchanged with the exception of sugar, where I think we've told you what's going on. That outlook does take into account the expected cost impact of the Middle East conflict, which we have good reason to think is manageable. It doesn't reflect the risk that if the conflict persists, there's a further -- that's accompanied by a further deterioration in consumer demand. That's a risk that remains out there. Primark has made very strong progress to reenergize the customer proposition, albeit in a consumer environment that's challenging across all our markets. The food business is positioned for strong improvement in profit in the second half of the year. The businesses are all well invested for long-term growth. There are a number of multiyear projects completing this year. That's a very good thing. And our strong balance sheet supports whatever resilience we have to display. We're confident in the long-term fundamentals and growth projects -- prospects of both the retail and food businesses. Today is the day to reconfirm that. And with that, let me stop and open up for questions. William Woods: William Woods from Bernstein. Three questions, if I may. The first one is just on Primark. Primark is an independent business. Do you think it changes your approach to long-term growth and capital allocation or enables you to do anything differently? The second question is looking at H1. Obviously, you had some quite significant margin compression year-on-year. Did you buy too much or get the buy wrong? And would you aim to get more stability into your margin going forward? And then the third and final one is you obviously completed a massive review of the business and its structure. Do you want to conduct more portfolio review in the Foods business? George Weston: Do you want to take the first two? Eoin Tonge: Yes. Yes. Look, I -- well, actually, I mean, George, you might comment on, I don't think it changes much. Look, I mean, the style, obviously, Primark has been part of ABF for, well, forever. And it's been kind of a long-term approach. So I think fundamentally, that's the culture. I don't think it changes the long-term outlook and thinking and so on. But more to the point around governance and focus and all that sort of thing, a slightly different point. And that's my personal view. If we didn't think that this change in governance -- governance wouldn't accelerate long-term growth in Primark, we wouldn't be doing this. That is essentially what we're trying to do. And it's just an increasing belief that if you get the right expertise in the room, you will take better decisions. And we've reached the stage where with that complexity in the business and the scale, we need that. I'll do the margin one. I mean, yes, look, I mean, inevitably, we did buy too much. I mean, hindsight is a great thing, of course, isn't it? And the markdown -- the level of -- higher level of markdowns in the first half reflect that. Buying too much is a feature of trading as well, right? So I think, obviously, as we look into the current period, obviously, we've got to be very, very thoughtful about the buy and all that sort of thing, but we wouldn't be expecting the same level of markdowns to repeat themselves. George Weston: And then no, this review has been about where Primark governance essentially. But we've been doing a lot of portfolio work in food. Vivergo has gone. Chinese sugar has gone. Mozambique sugar has gone. Spain has changed into refinery business. Bakery, we hope we'll own Hovis and that will address the problem. We've been buying some of these smaller positions. I think we'll see more in ingredients over the next few years. I think Elementis is just the start of a very attractive acquisition. So that food portfolio, if you're going to access as we want to, new markets, new growth opportunities, M&A has got to be part of it. And then the existing holding, you've got to be sure that it really is a cash cow, otherwise, there's kind of no point to it. We've got a couple of -- we've got Australian meat; we still need to do something with. It's not the biggest thing out there, but it neither ticks the cash cow box nor the growth box. So yes, what are we going to do? But I think most of the other -- what people would fairly harshly describe as bleeders. I think we're well on with doing something with. William Woods: And can I just follow up, George, very quick -- Eoin, very quickly on the product, you're confident that you're getting product right. It's just the allocations that were maybe wrong into this year. Eoin Tonge: Yes. Joana Edwards: Well, don't forget that the weather was very benign. So we also had a lot of winter product that we need to shift, and it's better to do so. George Weston: We've reequipped a lot of families with coats at 70% off in January. Eoin Tonge: Which is partly to do with the allocation around of last year... Joana Edwards: Yes. George Weston: Yes. Yes. Yes. That's right. Richard Chamberlain: It's Richard Chamberlain from RBC Capital Markets. Also three for me, please, if that's okay. So I mean just following up on the margin point on Primark. I wonder if you can give a little bit more color on your expectations or sort of impacts on digital and marketing initiatives on the margin and what you've seen so far and what you're expecting in H2? On the sugar side, George, can you maybe just walk us through a little bit more on the change in guidance? Is that all sort of EU pricing related? Or is there also a change in expectation for Illovo? Are you also saving still is it GBP 30 million from the Vivergo shutdown from last year? And then just finally, on the demerger plans, any sort of updated thoughts or initial thoughts on the capital structure for both businesses, where will be -- what sort of balance sheet will you be looking to run for both sides? Just any sort of high-level thoughts on that? George Weston: We haven't said anything officially about balance sheet structure. I think you can look through to the Wittington majority control of both and assume that there's a degree of conservatism that's going to characterize the balance sheets of both companies. But let me not say anything more on that. Joana Edwards: We did say that it's going to be both of them will have very strong balance sheets... George Weston: Yes. Joana Edwards: Both businesses as stand-alone. George Weston: Yes. Yes, those savings from Vivergo are there. We've still got some people on site making sure that the site doesn't deteriorate too fast while we wait to make a decision about whether there's a buyer or whether we dismantle it or whether the U.K. falls out so spectacularly with the Americans that the trade deal is undone. And then we'll see where we go. I think we sort of moved on from Vivergo. Illovo, there are a couple of headwinds. So the delay in the Tanzania start-up or the difficulty of the Tanzania start-up has delayed the ramp-up, and that will affect the profitability of the second half in Tanzania. Actually, pricing, which we were worrying about in Tanzania has come back reasonably well. And then we've had too much sugar coming into the South African market, which -- where there is a -- there should be an automatic tariff adjustment mechanism, which hasn't been working very well. So there's been -- I wouldn't describe it as a flood, but quite a lot of third world sugar, third-party sugar come into Africa and depressed margins in South Africa and in Eswatini. So there are some headwinds, but they would fall into the camp of kind of normal stuff. Joana Edwards: Yes. And Africa is second half. So... George Weston: Yes. Joana Edwards: We'll need to see how the campaign goes because it's just starting in some of our markets. George Weston: Do you want me [ to have a ] go? I mean you might comment on it as well on the margin on the digital and marketing and margins. I mean you would obviously expect us to say this, we're quite judicious in how we think about the spend in both and the returns that we're generating from both. So I don't think there's anything to really say for this financial year. I think your question was more medium term, is this, or is it? Richard Chamberlain: Yes, I think you mentioned Europe... George Weston: Yes. No, there will be a step up. There will be a step-up in the second half of the year, but we're expecting it to return, but it's not material to the overall group margin. Joana Edwards: No, I think when we gave guidance in January, we had assumed those investments, in fact, that they were in place as well in the first half. It is to drive the growth, and that's what we always said. It wasn't about the margin. So the guidance that we're giving is confirming what we said in January is as we are here today with the minus 2.7% like-for-like, the margin would -- the resulting margin would be at around 10%, including the investments which we had already identified for driving top line growth. Adam? Adam Cochrane: It's Adam Cochrane, Deutsche Bank. Just a couple on Primark, please. Can you just outline the sort of any time line for the improvements and changes that you're going to make in the European business? I'm assuming it's as quickly as you can go. But what -- when can we expect these various bits you've seen in the U.K. to come into Europe? And secondly, on the price and value perception study or whatever is you've undertaken, can you just give us some color on where you see the consumer, what they're thinking about your brand? And with the improvements that you've seen in the U.K., is that more related to the price investments that you've made, the marketing side of things? What do you think or have you asked what has actually driven that change in price perception in the U.K.? And from that, is price perception the main issue in Europe from your study? Or is it something else? Eoin Tonge: Good questions, Adam. Why don't I kind of start with that second question first to lead into the first one. Yes, look, I think the color we're seeing on the consumer improvement in the U.K. isn't just on price. It's price, it's quality, it's style and fit. And in fact, the brand metrics demonstrate that. We already actually do score very highly in price actually in our brand metrics. So it'd be hard to move them higher. But remember, price perception is a very -- it's a kind of a complex thing, right? Like it's not just straight lowest price always. It's kind of are you getting the best value really for that product. So I think everything that we're doing around sharpening our price, sharpening our product, more engagement, telling people more about it, that's all going to improving that overall picture. So -- and indeed, the metrics we're actually seeing in the U.K., we're not seeing those take-up metrics actually in Europe, right? So we're not seeing them. So that's what gives us kind of confidence to a certain extent. So the barriers are the same that we have to kind of go through. We have to remind people of the incredible price. And some of that's about shouting about it, some of that's about showing about it. And then we've got to make sure people come back because the quality that they get is stands out. I think that's all very doable in the markets in the European markets that we're operating in. So that's the answer to your second question, I think. And on the timing, look, we're -- notwithstanding, of course, the world is kind of sort of obviously a bit of a tricky world out there. I think we were seeing really good green shoots actually before kind of conflict, if you will. And I think we're pretty confident that a lot of what we're trying to do is going to impact certainly a little bit in spring/summer, but certainly more into autumn/winter into next year. I would say -- and as I said before, it will take more time. Digital will take more time in Europe because we don't have the infrastructure, but it will take more time. And so that's, I think, the way to think about it. Alexander Richard Okines: Warwick Okines from BNP Paribas. Two on Primark, if I may. Firstly, could you give us a sense of the steepness of slowdown that you've experienced in recent weeks? And secondly, if we've already seen a slowdown in Primark, why aren't you assuming this continues? I mean is it because you don't think there'll be a real inflationary pressure on the consumer? Just seems odd to me. Eoin Tonge: That's a good question. I mean like the -- the slowdown was marked, but not dramatic, right? I would tell you the best way to describe it since middle of March. Joana Edwards: Weeks really. Eoin Tonge: Yes. Yes. So -- and I guess the consumer probably -- I think, well, like all of us, we hoped it was going to be short and then when we realize it's not going to be short, and you can see the sort of inflation is going to impact, the consumers start to think that's -- we all know what's happened. I'll let Joana reconcile the guidance point. But the one thing I'd say is that, first of all, it's very early days. And secondly, like we win and lose in this environment, right? So it's very hard for us to kind of say exactly with precision as exactly how it's going to go as to how long and prolongs. We've seen in the past that people do drop out of the market, but we've also seen trading down, right? So we just have to see how this all develops. Joana Edwards: Yes. Yes. And it is early days. We know that we're comping against Easter last year. So reading the figures is not as straightforward as sometimes it could be. We're confirming the guidance, which for the second half is based on negative like-for-like. So there is a degree of we thought conservatism when we issued in January. The green shoots we saw in March were good. So we feel that there's something that's working there. How much of a decrease we will see in the consumer, it's still too early days, Warwick. Eoin Tonge: You may have seen the BRC numbers of 2 weeks ago, which were minus 12. We beat that, but it was still a pretty shocker of a week. Joana Edwards: Yes. And that was U.K. I think it is important to say this is not just the U.K., which again links to we've got comps against Easter last year, Mother's Day in March, at different dates, Carnival and some. So we know there is always a little bit of a bumpy read into the figures into the second half. And as I say, the guidance is on the basis of continuation of what we had seen before, the negative minus 2.7%. Eoin Tonge: The other thing I would add just to it -- just [ to add ] that the activity we just talked about plays very well into the environment that we're going into. So we'll have to see how that all plays out. Gary Martin: Gary Martin here from Davy. Just a couple of quick questions from my side. Just the first one on the demerger, and I appreciate the color given on the balance sheet, but would it be possible to get maybe a bit more granularity just around the free cash flow generation dynamics of both of the businesses post separation? That's my first question. And then just around the outlook, just on the sugar side, how do you expect just the various moving parts around the Middle East conflict and the, I'll say, the inflation across the energy side, potential inflation across the distribution side, how does that feed into your 2027 outlook on sugar and sugar pricing? George Weston: Yes. Again, we'll have a lot more to say about cash flows in both businesses. Again, one of the things that we had a very hard look at actually before we had made the announcement in November was to ensure that both parts could fund their own ambitions. Primark -- under normal circumstances. Primark has always been cash generative. The only time it wasn't was obviously when we were shut down during COVID. And food, food CapEx probably won't fall in '27 because there are payments still to be made, but it will fall in '26... Eoin Tonge: '28. George Weston: '28. And that, combined with the eventual return of sugar cash flows will make that business a good solid cash generator, able to fund its -- as I say, its ambitions and also deliver shareholder returns. Joana Edwards: The free cash flow was definitely one of the key areas that we spent a lot of time with the whole team of Rothschild there. Thank you. We supported all those 23 and 11 scenarios of stress that we put through the models. But as you say, George, they both standalone from a free cash flow perspective. And for that matter, in terms of capital allocation, the assumptions going forward at the moment we've taken are similar to [indiscernible]... George Weston: And the separation of the balance sheet is actually -- well, none is ever completely straightforward. But the leases obviously go to Primark. The pension surplus mainly applies to plc. And... Joana Edwards: Yes. George Weston: That's more to say. Joana Edwards: Sorry, Gary asked about the Middle East as well. George Weston: Okay. Gary, sorry. Thank you, [ Joana ]. There's one potential bit of upside, which is there are some very big sugar refineries blockaded at the moment in and around Dubai and that supply well over 1 million tonnes of white sugar into the area. Well, Europe has got a fair amount of white sugar available if some of these markets want it. Energy, look, these are energy-intensive businesses, and the growing of the crops is an energy-intensive business. Costs, if they don't come down soon, will have to flow through into pricing. It's not as if there is a high level of profitability in European sugar, which can just absorb these cost increases. So that has to be passed on. Joana Edwards: We're not alone in that. George Weston: Yes, it's everyone. Joana Edwards: Clive. George Weston: Clive. Clive Black: Clive from Shore Capital. Two, if I may. And I know you're going to teach us about the demerged entities down the lines. But George, you used the word specific governance as a benefit. I just wondered if you could just flesh that out a bit more because it sounds like a very important part of your thinking. And then on the food side, you touched on quite a lot of themes, and I think it was characterized best by you saying food is a very dynamic industry. Why do you think or how do you think AB Foods is well positioned for whatever ahead is in food markets? I mean you touched on GLP and food security just the two, but yes... George Weston: Specific governance, I think there are 2 slightly different benefits for the 2 different businesses. In Primark, it's about getting industry expertise around international, around digital, around marketing onto the Primark Board. I think the scrutiny of the business, a lot of you here are already retail analysts, will remain properly intense and valuable for the challenge that you provide. But it's getting that richer wisdom across a business, which has so many more complexities than it would have a few years -- would have had to cope with a few years ago that will bring the better decision-making and thus the growth. I think in food, I think it's -- the issue is more the market scrutiny and pressure, which we, quite frankly, I haven't really felt for a long time for 2 reasons. Firstly, because you're great at retail, but you don't know the questions you should be asking me sometimes on food. And secondly, because Primark growth has given us such great top cover in food, we just haven't been exposed enough. And I remind you that the ownership model is about the -- about Wittington providing the long-term focus and wherewithal and the market exposure keeping our feet to the fire. So I think having our feet put to the fire will be a good thing. Maybe it will be more for my successors than for me. But nonetheless, that's what we hope -- that's what we're aiming for. And then, of course, for individual shareholders presented with these individual investors presented with the biggest international retailer on the FTSE and the only largely pure-play food company on the FTSE, we'll have, I think, really interesting things that they might want to invest in where at the moment, the combination of the two hold some investors back. So that's really the governance story. Let me answer, sort of get at this kind of food is an interesting place, isn't it, through a couple of anecdotes. The first one is that the fastest growing scale brand in ABF last year was not Twinings. It was Fleischmann's home baker's yeast. We are selling in the States more home baker's yeast than we were to American consumers than we were at the height of COVID, and it's all the increase is to the under 35s, and some of you will be aware -- more aware than me of the return of whichever gen it is to those sorts of activities. There are more knitting circles, crocheting clubs, book clubs, food preparation activities going on than you would have ever expected to see. And we are seeing it rather wonderfully in Fleischmann's yeast, where we have a 70% share of the entire U.S. market. If you'd ask me 10 years ago, would you get more growth out of Twinings international brand kind of health credentials scalable across all sorts of markets or Fleischmann's yeast, I have thought you were pretty stupid people to be asking the question. But you just never know. Food changes the whole time because the consumer changes the whole time. And I think that there is, in that ABF willingness to not think that focus is the only good thing, but to think that actually involvement in lots of different places with teams that know those places and an organizational model that can support those teams. I think that makes us unusual and a bit special. I can look at Anthony's Goods and go, where is all that growth coming from? Well, it's a lovely Managing Director, Brittany England, who lives in California and knows that world, makes movies every morning and is just all over the specialty ingredients, being supported by a really commercial boss, Imad, who's telling her all sorts of things that she wouldn't have found out for herself. And that's -- the combination of the 2 drives, I think, our right to be there and has turned Anthony's into the biggest player in that specialty ingredients market in place. So we do like the diversity because we can't anticipate the future. We can see certain trends, and we can be as agile as we can possibly be in exploiting those trends. But you've kind of got to be in it to play. Now there are certain things that we believe the population growth, for example, is a really good place to be. This is why we like Africa, why we built a factory in Nigeria and why we like Australia, for instance. And there are certain trends like foodservice, like premiumization, like healthfulness now, which I think are going to persist and where I think we are fairly well exposed already, but with much more to do. Does that sort of get at some of what you've... Clive Black: Good stuff. George Weston: That's a stuff. There'll be more. I can rant forever on other stuff. Joana Edwards: Sreedhar. George Weston: Sreedhar. Sreedhar Mahamkali: Sreedhar Mahamkali from UBS. Maybe hopefully, the last 3. One on grocery, a couple on Primark, please. Mazola, you've talked about the challenges, George, but can you talk about market share trends for Mazola? Are you still holding the leadership? And also, what are you doing to attract a different customer? How do you grow it again? First one. Secondly, I think, Eoin, you talked about price leadership in Primark, sharpening it. Can you expand a bit more, which markets, categories? How broad is this, price sharpening? Or is it very sort of specific products in specific markets? And is it being done with margin investment or kind of slightly different by almost altogether? And thirdly, also on Primark, you've talked about self-help technology investments driving productivity. Does that give you confidence enough to say Primark can sustain a double-digit margin medium term? George Weston: Let me answer the Mazola question and then Eoin can pick up the second one. Well over half our sales of Mazola are to the Hispanic population. That population consumes 3 or 4x as much oil, vegetable oil, cooking oil as the rest of the population. So when that population starts to reduce oil consumption, you inevitably lose market share. It's not that we're losing relevance to that population. It's just they're buying less and they're such big consumers. We've been working on a heart healthy campaign probably for about 10 years. It's relevant to the Hispanic population, but it's also relevant to the broader population. And actually, our share gains over the last few years have come from that broader population. But they're more -- that other population -- the Anglo population, if I can call it that, use more different oils. They've gone into olive oil in a bigger way. They use more own label. They're a bit indifferent about whether it's corn oil or whether it's rapeseed oil or whether it's soy-based oil. So it's not such an attractive market. But we have been chipping away at it with a degree of success, but it's a little bit every year and based on that heart healthy positioning of the brand. It won't replace the volume losses in the Hispanic population because we have such a big share of that. They're so loyal to the brand and they consume so much. Eoin Tonge: Yes. Look, I mean, I think I'm not going to give specifics about where we're going to do -- where -- I mean we have price leadership now, right? Like we check our price leadership every single day in every single market. We have price leadership now. So we're pretty comfortable where we are today. But we've got to keep on making sure we're on it, and we're leading. So I'm not going to talk more about that. I mean, look, it's too trite to always say you're just doing simple margin investments because you might have a gross margin investment, but obviously, you're looking for volume pickup that ultimately will be overall operating margin neutral. So I think it's just too tight to say that. And obviously, it goes to your second question is sort of how you might kind of fund elements of that market investment, which comes down to how you do self-help, et cetera, and so on. So I think it's -- we believe in the medium to long-term, to answer your second question, we're pretty clear we can go after what you're going to call double-digit margins, but like healthy margins in the context of driving growth, continuing to invest in the proposition, and that's not just price, but it's also marketing as well and digital. There will be moments in time where digital will be a drag on margin because when you have undercapacity, particularly, you will have points in time with that. But -- and then the self-help to go after that. So there's a lot to go after. I talked about cost, cost in stores, cost in depots, cost in further across the supply chain and including centrally, there is -- the supply chain effectiveness is not just about cost also, it's about making sure that as we grow, we're getting the product into the right place, which also goes to growth. I've talked about the digital opportunity, areas like data and technology, there's lots to go after there that will both inform cost and growth. So yes, I've kind of give a rambling answer, but I think I got your question. There you go. Unknown Analyst: It's [indiscernible] from Citi. Just two from me on Primark, if you could. So firstly, according to your typical FX hedging patterns, we think there may be some quite material tailwinds just from the dollar sourcing hedges that you've done coming your way sort of next fiscal year. First of all, is that correct? And secondly, if that does end up being the case, given you've said you're happy with your price position today, does that get -- help you get towards, let's say, investing in your marketing or anything else? Or do you just simply give it back in price to maintain that? And secondly, I don't know if you'll answer this, but just as you've done a deep dive at Primark, have you had any discussions about like what a steady-state margin could look like and whether there's any room for potentially a home delivery online channel if the unit economics of that could work? Eoin Tonge: Do you want to talk about FX? Joana Edwards: Yes. [indiscernible] you're right, tailwinds every cloud, there's a silver lining. And certainly, as we continue to see the dollar move, we have got a tailwind on FX. I think what we said before is we're using that to drive top line growth. Now is that going to be through investment? Is that going to be through price investment, technology investment, all the different things, all the levers that Eoin has just gone through as we were talking to Sreedhar's question. It is not something that we're going to be using to orchestrate the margin or to manage the margin. It is to drive the top line growth. And it's good to have some tailwinds because to your second question about steady-state margin. I think as we sit here, talking about steady state feels quite difficult because of all the uncertainties that we've got. But what we said around the margin is that it is a resultant of what we're doing and the initiatives we are taking to drive top line. Do you want to talk about? Eoin Tonge: Yes. I mean one thing just to clarify, when I say happy, like we have price leadership. There's always opportunities to continue to invest. I think on -- yes, look, obviously, as we've done lots of thinking about the future, we've done both the kind of thinking of the growth and indeed the cost side of life. And I mean, actually, I would say it's predominantly been focused on the growth side, as you can imagine. Look, home delivery, it's still a return dilemma for us. Our position hasn't changed there. We've got loads to go after in digital. We're doing, I think, some really exciting stuff there. And -- yes. look, I mean, I think we're pretty clear that we can go back to [indiscernible] first question, I think I'm pretty clear that we can continue to drive good margins, but more importantly, strong cash with the growth opportunities ahead of us. George Weston: Thank you all. Again, congratulations on getting here. This has gone on a while. You've got an hour and 13 minutes to get back on the underground. And thank you very much for your continued involvement in our lives. And it really is -- I just sort of go back to -- this is quite a big day for us. It's quite a big day. And we have to remember that. But thank you very much. Joana Edwards: Thank you. Eoin Tonge: Thank you.
Jessica Smith: Good morning, and welcome to BOQ's financial results presentation for the half year ended 28th of February 2026. My name is Jessica Smith. I am the General Manager, Investor Relations and Corporate Affairs at BOQ. On behalf of the management team, I would like to acknowledge the traditional custodians of the land we are meeting on today, the Gadigal people of the Eora Nation. We pay our respects to elders past and present. I'm joined in the room today by BOQ's Managing Director and Chief Executive Officer, Rod Finch; and our Chief Financial Officer, Racheal Kellaway, who will present the results. We are also joined by BOQ's executive team. Following the briefing, there will be an opportunity for questions. I will now hand over to Rod. Rodney Finch: Thank you, Jess. Good morning, everyone, and thank you for joining us today. Our first half 2026 results reflect disciplined execution against our strategy and ongoing delivery of the group's transformation. Over the half, with strength and resilience across the bank and work to position BOQ to deliver more sustainable earnings through the cycle. We continue to deliver against the milestones and initiatives we have previously outlined, making further progress, simplifying the group, strengthening our operational foundations, advancing our digitization agenda and reshaping the balance sheet to optimize returns. At the same time, our focus on customers and communities remain central. In an environment that continues to test households and businesses, we provided targeted customer support, invested further in fraud prevention and financial crime capability and maintained a strong and visible presence in our core markets, particularly Queensland. The operating environment remains complex with geopolitical uncertainty weighing on consumer and business sentiment. That said, our approach has not changed. We continue to prioritize resilience and sustainability of earnings while progressing our transformation to improve returns and ensure the bank is well positioned for future growth. From a financial resilience perspective, BOQ remains in a strong position. Capital and liquidity levels are robust, asset quality remains sound and our balance sheet provides the flexibility to support customers, navigate uncertainty and continue investing through the cycle. I'll now turn to performance for the half, beginning with our financial results. For the first half, cash earnings were $176 million, down 4% on the prior comparative period. Underlying profit increased by 2%, reflecting revenue and expense growth associated with the completion of the branch network conversion in March 2025. Loan impairment expense was $20 million compared to $3 million in the prior comparative period, which contributed to the 4% decline in cash earnings. We have maintained a strong capital position, which remains well above our management target range. This provides the group with flexibility to support future growth and capacity to absorb potential economic shocks. Reflecting this position, the Board has declared a fully franked interim dividend of $0.20 per share, representing a 75% payout ratio for the half. Racheal will provide more detail on the financial performance shortly. Turning now to the key drivers of our strategy and the strong execution during the half. The digital platform remains a core enabler of our retail strategy, supporting customer growth, improving customer experience and progressively enhancing the economics of the retail bank. Following the launch of term deposits during the half, the core build is now complete, and our focus is shifting to ongoing enhancements that further extend our proposition. To date, we have migrated more than 300,000 customers with over 70% of active retail customers on the platform. Growth and engagement are particularly strong across younger demographics, which was a key strategic objective of the digital bank. From a funding perspective, the digital bank is supporting lower cost deposit growth. The majority of new personal deposits are now originated digitally, supporting higher transactional balances and stronger customer engagement than our legacy platforms. This is also translating into improved lending outcomes. The platform is scaling mortgages in line with plan, with 75% of group home lending originations processed through the platform in March, supporting lower origination costs. Scale increases and enhancements are delivered through the second half of '26 and into FY '27, we remain confident in achieving an improved time to decision and a 50% reduction in origination costs. Overall, this progress reinforces our confidence that the digital bank is delivering on its role, materially improving customer experience, enabling scalable growth and improving retail banking economics. Our productivity program remains a critical enabler of our strategy, reducing complexity, strengthening operational resilience and reducing our cost to serve. Since FY '23, we delivered tangible productivity benefits through a simpler operating model, exits from noncore activities, technology rationalization, a reduced property footprint and continued simplification of our distribution and processing environment following the branch conversion. Our strategic partnership with Capgemini is delivering efficiency through the business processing arrangement. More broadly, we continue to evolve the use of AI across the business with the establishment of a central AI hub to drive adoption and deployment of use cases, including near-term opportunities in the contact center, commercial lending and technology development. When we set out to deliver the $250 million program, we recognized it was ambitious and that the pathway to delivery was unlikely to be linear. As priorities and initiatives have evolved, we expect the full run rate benefits to be achieved of FY '26. With the decommissioning of ME heritage systems and our Capgemini partnership key drivers of that outcome. Importantly, productivity improvements have been sustainably embedded into the way BOQ operates. We have reduced complexity, improved efficiency and created capacity to absorb cost pressures while continuing to invest in our transformation. We expect that on exit of FY '26, we will have generated simplification benefits equivalent to more than 20% of our cost base compared to when the program commenced in FY '23. This is an important outcome in what has been a complex operating environment and reinforces our focus on embedding sustainable efficiency into the way the bank operates. Looking beyond FY '26, we acknowledge there is more work to do. Continued simplification alongside the increasing use of data, automation and AI provides a pathway to drive further productivity and to support operational leverage over time. The capital partner with Challenger announced earlier this month represents an important evolution in our approach to balance sheet optimization and capital efficiency. Our strategic intent is to deliver sustainable returns through shifting asset and funding mix to optimize risk-adjusted returns and grow capital-light income. The capital partnership supports is providing balance sheet optionality and the opportunity for scalable noninterest income growth without the need for capital or funding. The partnership includes a sale of approximately $3.7 billion of our equipment finance back book alongside the establishment of a forward flow arrangement. This structure supports scalable growth in equipment finance without increasing balance sheet concentration or funding requirements while maintaining customer relationships. Under the whole of loan sale, the assets are fully derecognized from BOQ's balance sheet. Risk funding and ownership transfers to Challenger, enabling BOQ to reduce approximately $3.4 billion of higher cost funding, strengthening shareholder returns and further reinforce capital resilience. The forward flow agreement enables us to continue originating new lending using our existing capabilities while scaling the customer offering without increasing balance sheet intensity or concentration risk. Over time this model generates capital-light income through origination and servicing fees, while Challenger provides funding and absorbs credit risk. For BOQ, this supports returns and the ability to do more with our customers. As announced, our intention is to return capital release from this transaction to shareholders with the objective of optimizing return on equity and EPS over time. We are planning to do so through a combination of a fully franked special dividend and an on-market share buyback subject to regulatory and board approvals and market conditions. We expect the transaction to be completed by the end of May. Turning now to progress on our remedial action plans. Delivery of our remedial action plan meeting our regulatory obligations remains a key focus for our management team. We continue to make strong progress across both programs. At the end of the half, 61% of total activities were complete with both Program rQ and AML First transitioning from implementation into the embed phase. This reflects not only delivery against milestones but also a clear shift towards embedding changes into day-to-day business as usual processes. The program remains well governed and appropriately resourced, and we continue to progress in line with regulatory expectations, further strengthening BOQ's risk governance and control frameworks. Turning now to our Retail Bank. Our priority in retail banking remains clear, to reset the economics of home lending and improve returns by scaling a lower cost-to-serve digitally enabled model. We have made considerable progress in reshaping the Retail Bank, including reducing origination costs through the digital platform, delivering term deposits on the platform, which completes the product suite with all deposit products now available on the digital bank and optimizing distribution following the branch conversion. We've also been deliberate in allowing portfolio runoff where returns were uneconomic while improving funding efficiency at the same time. We are now at a key phase as the digital bank scales. More than $23 billion of home lending sits on the platform with approximately 75% of flows originated digitally. The branch conversion has stabilized on a smaller, more efficient footprint and distribution is now better aligned to evolving customer preferences. Foundationally, operating on a modern, cloud-enabled digital platform is also creating a strong underlying capability for the deployment of AI and automation. This has allowed us to explore introducing AI-driven automation across customer operations, particularly in the contact center with further opportunities to improve customer experience and reduce cost to serve. As noted at our full year results last October, the rate of home lending decline has moderated. While we will continue to prioritize returns over short term volume, we expect home lending to return to growth in FY '27, supported by lower origination cost and improved customer experience. Moving to our Business Bank. We are seeing the benefits of focused execution in targeted higher returning specialist segments. Over the half, commercial lending grew above system by 7%, driven primarily by health care, agribusiness and well-secured commercial property. This reflects deliberate portfolio positioning in a sector where we have deep expertise. Housing contraction within the business division reflects targeted runoff where returns were less attractive. The branch conversion continues to support this strategy, enabling banker deployment into key growth corridors and regional SME markets while maintaining strong customer relationships and attracting experienced bankers aligned to our specialist focus. Banker capacity is being further augmented by AI within commercial lending to free up bankers to spend more time with their customers and grow their portfolios. Overall, the Business Bank remains well positioned to deliver sustainable growth, underpinned by strong relationships, quality bankers and deep industry expertise in our key segments. I'll finish by reinforcing the importance of our purpose and values. As a bank with more than 150 years of Queensland heritage, supporting our customers, communities and people remain central to how we operate and make decisions. Across the half, we continue to invest in regional and SME communities and strengthen partnerships supporting vulnerable Australians. At the same time, we remain focused on our people, strengthening the leadership capability, investing in learning and development, including the launch of an AI Academy and sustaining a strong risk culture that supports discipline execution and long-term performance. Together, this underpins the transformation we are delivering, building a stronger and simpler BOQ for our customers, communities and people. I'll now hand over to Racheal to talk more about the financial results in more detail. Racheal Kellaway: Thank you, Rod, and good morning, everyone. The first half 2026 result reflects a steady and continued delivery of our strategy, including bold choices and the disciplined allocation of capital. We delivered cash earnings of $176 million in the half, down 4% against the prior comparative period and 12% against the second half 2025. When compared with the second half of 2025, total income reduced 4% driven by margin compression, fewer days and lower asset balances. There was an uplift of 4% in noninterest income, and we delivered another period of strong cost management, holding expenses flat. Loan impairment expense increased 11% to $20 million. This was primarily driven by one specific provision within the asset finance portfolio, and at 5 basis points to GLA remains below historical levels. Against the prior comparative period, total income increased 5%, primarily driven by revenue uplift from the branch conversion. Expense growth of 6% included bringing on the cost of operating the branch network and is down 2% excluding these costs. Pleasingly, underlying profit increased 2%. Higher loan impairment expense compares to $3 million in the prior comparative period, which included a write-back in commercial lending. The progress we have made on executing against our strategy, including positive lead indicators of success in the digital bank, growth in our Business Bank and our capital partnership and multiyear proof points on cost discipline leave us well positioned as we enter the second half. As outlined to the market earlier this month, there was a $31 million post-tax impact driven by the equipment finance portfolio being recognized as held for sale. Further changes to number will primarily be driven by market movements in swap rates. The impacts of which will be known at completion. There was a further period of amortization relating to the branch strategy with $8 million incurred this half. This program has been delivered on time and on budget as announced in 2024, adding in a small impact from hedging and fair value changes resulted in statutory net profit after tax for the first half of $136 million. I will now spend some time looking closer at the net interest margin given the number of moving parts. On mortgages, we saw ongoing competition, and we experienced slightly higher-than-expected retention discounting, particularly to support branch customers early in the half. Commercial lending competition was in line with expectations and came with strong growth in our Business Bank. We have seen acquisition spreads stabilize through the half. We saw a 1 basis point benefit from continuing mix shift from higher margin -- towards higher-margin business. Outside of these underlying lending drivers, cash rate movements contributed a 4 basis point headwind, driven materially by the non-repeat of benefits in the second half result as rates reduced. Funding contributed a 3 basis point uplift with equal contribution across term deposit optimization, wholesale pricing and funding mix benefits. Liquidity and other was a negative 1 basis point. This included higher HQLA balances, impacting margin by 2 basis points, replicating portfolio, benefiting margin by 1 basis point. However, this was offset by unhedged exposures where the average cash rate in the half was lower than the prior period and less exposure to basis risk and improved basis cost provided a small benefit. Finally, we had a 2 basis points -- we had 2 basis points of a nonrecurring benefit. This is made up of an adjustment to brokerage GST. And as our fast-growing novated leasing portfolio matured, we have an updated view on the average life of that portfolio. Net interest margin for the period was 1.67%. We exited the half with a stronger second quarter margin than the first. Looking to the second half, we will see the benefit from the February and March cash rate movements. Retention activity is expected to continue to feature as households and businesses look to manage their budgets in a rising rate environment and as inflation persists, continuing the trend on underlying price competition. We expect to see ongoing benefit from reshaping the balance sheet toward business lending. We anticipate increasing funding cost benefits from current favorable term deposit spreads, retail deposit optimization and funding mix benefit. Replicating portfolio will continue to be a positive with higher attractive rate. We will optimize liquidity following the sale of the equipment finance portfolio, while impacts from the sale across lending and funding will be broadly neutral to net margin. The 2 basis point benefit one-off I described in our first half will not reoccur. Despite there being somewhat uncertainty and volatility in our outlook, there are more tailwinds than headwinds for margin as we enter the second half. This half, we delivered another period of strong expense management with costs flat on the prior half against a backdrop of high inflation. We are in the final period of our 2023 simplification program, which since its commencement has almost entirely offset annual inflation and new costs to operate the branch network from conversion. This period, inflation and investment across technology, risk and business banking were offset by productivity benefits, seasonality in employee leave and a modest reduction in group investment spend. Whilst we have seen early success in our business processing partnership, we are experiencing some delays in the transition of our technology outsourcing, which is contributing to the multiyear $250 million productivity target and our 2026 cost guidance. The full $30 million of annualized benefits remains on track for 2027. I do want to take this opportunity to reiterate our commitment to sub-inflation cost growth for the full year 2026 against the prior year. This requires a planned reduction in our cost base into the second half. Our guidance on costs remains unchanged. We have continued to invest in the business at a sustainable level with $77 million invested in the first half. As outlined at the full year result, we are moving to a more sustainable level of investment for our business, following a number of years of high investment, including the integration of ME Bank, investment in the Business Bank, the build and scale of the digital bank and risk and regulatory uplifts. 85% of our software intangible assets are now in use and amortizing following the successful delivery of the digital bank and as we acquire and migrate customers and see more features released. Moving now to portfolio quality, and we remain strongly provisioned at 39 basis points to GLA. Impaired assets reduced on last half to $84 million. This includes a reduction in commercial lending and housing impaired balances and an increase in asset finance. Loan impairment expense increased to $20 million or 5 basis points to GLA, remaining at a low level. Looking at each portfolio in more detail over the half. Home lending remains supported by strong underlying asset prices and a decrease in 90-day arrears. There was a $7 million credit to loan impairment expense, driven by the improvement in arrears and house price increases over the period. Commercial lending 90-day arrears saw a slight increase with 2 single name exposures, contributing to a 5-basis-point increase off a low base. Specific provision equity remained low. Total loan impairment expense on the commercial lending portfolio was $3 million. A modest increase in asset finance arrears was largely driven by seasonality with loan impairment expense of $24 million, impacted by a single name exposure, contributing almost half of the expense. BOQ remains well provisioned for a change in the cycle. We hold $298 million in provisions, which is $68 million above the base scenario. We had a reduction in the total collective provision due to the sale of a noncore credit card portfolio, which occurred in the period. Our weightings remain unchanged in the period. However, we have adjusted downwards the economic assumptions, underpinning the base and downside scenarios. We continue to hold collective provision overlays for unique portfolio factors, including specific industries. If we were to enter a 100% downside scenario, a provision increase of $24 million would be required. Our downside scenario assumes residential house prices declining, negative GDP growth and an unemployment rate of 5.6% this calendar year. Whilst we consider our provisions to be appropriate, with current volatility in the broader economic environment, we are remaining vigilant. In a period of sustained lower home lending growth, as we recycled the balance sheet, there was a reduction in total funding. We continue to focus on deposits as a primary source of funding with runoff in less stable deposits and held deposits as a percentage of total funding at 72%, with a broadly stable deposit-to-loan ratio of 85%. There was targeted runoff in term deposit portfolios of 6%. This was both a strategy around optimization for cost of funds but also as we migrated customers onto our new digital platform. Customer deposits remained broadly flat outside of this. Our average LCR remained strong at 141%. As we near completion of the whole of loan sale, we are prudently managing down our liquidity position. We will then see a temporarily elevated LCR before managing this to normalized levels through the second half. Our optimization plan will take the opportunity on our long-term wholesale maturity through our short-term wholesale portfolio and on retail deposits more broadly. Capital ended the half above our target management range at 11.18%, a 24-basis-point increase was driven by earnings, net of dividends. Business lending growth increased underlying risk-weighted assets. However, this was more than offset by a reduction in deferred acquisition costs, adding 2 basis points. Investment consumed 2 basis points. And lastly, other movements increased CET1 by 13 basis points, including mark-to-market gains in the available-for-sale reserve of 9 basis points, deferred tax assets in excess of deferred tax liabilities benefiting 6 basis points and equipment finance portfolio sale impacts of 3 basis points. Our strong capital position supports our planned capital return following the sale of the equipment finance portfolio and as we enter a period of higher uncertainty. As announced earlier in April, we have entered the partnership -- into a partnership with Challenger on the sale of our equipment finance portfolio and the establishment of a forward flow arrangement. Today, we have provided some further detail on the expected impact on our '26 outlook. These impacts do remain subject to change through to completion date, which is on track to occur ahead of initial expectations by early May. In addition, the ranges provided include assumptions on the key moving parts, including the expected benefit from what loan impairment expense would have been without a sale and movements in swap rates. Lastly, while we won't comment further on the detail of the capital management plan, which is subject to Board and regulatory approvals and market conditions, we intend to complete this in an efficient way to support current shareholders and to provide an enduring benefit to both ROE and EPS. In closing, this period saw our focus on costs and capital management did the positive results for the group. 2026 is a key year of delivery against our 4 strategic pillars, in particular, our digitization initiatives, which, in addition to simplifying our business, enables us to grow customer deposits, supporting our commitment to return to asset growth in 2027. We have shown that we will be bold and disciplined in how we deploy capital. With heightened volatility and uncertainty in our environment and how this may in particular, impact funding, margins and losses, commitment to our transformation is even more critical. We continue to remain sharply focused on improving returns over the long term. I'll now hand over to Rod for closing comments and outlook. Rodney Finch: Thanks, Racheal. The external environment remains highly unpredictable with geopolitical uncertainty continuing to increase risks to the economic and financial outlook. We will continue to support customers through these conditions while maintaining disciplined risk settings and strong balance sheet resilience. We will maintain focus on optimizing our balance sheet settings and growing in specialist segments. Growing at system in business lending remains our target heading into the second half, while home lending contraction is expected to continue easing with a return to growth anticipated in FY '27. On the funding side, potential market volatility and further increases in the cash rate will influence competition for deposits. As Racheal outlined, we anticipate tailwinds to margin in the second half through expected funding benefits. We are targeting sub-inflation cost growth, including the full year impact of branch conversion and higher amortization while continuing to progress productivity and simplification initiatives. Loan impairment expense is expected to remain below long-run average loss rates in the near term, though downside risks are clearly present given the global environment. We expect the capital partnership to complete as planned and remain open to further partnerships. We have not changed our management target for CET1 or dividend payout ratios. Overall, we remain focused on disciplined execution, resilience and sustainability as we continue to progress the transformation of BOQ. I want to close by stepping back to where we are in the group's transformation. Our strategy to become a simpler specialist bank has been clear and consistent: strengthening foundations, simplifying the organization, digitizing the retail bank and improving returns. Since resetting the strategy in 2023, we have made tangible progress against each pillar and embedded new capability across the group. We are now entering an important next phase with several near-term milestones approaching, completing the ME retail customer migration and materially decommissioning the legacy ME Bank environment over the next half is the culmination of several years of foundational work. These milestones represent a further step in unlocking lower costs, better customer experience and improved returns over time. They reinforce our confidence in the strategic direction and our continued focus on sustainable performance. On a personal note, when I stepped into the CEO role 8 weeks ago, I reflected on the responsibility that comes with leading a bank with more than 150 years of history. It is a privilege to be a custodian of a brand that generations of Australians have trusted. I'm leading a committed team with a strong focus on the next phase of our transformation with a continued priority of improving returns and supporting customers, in particular, improving our cost of funding as we scale deposits on our digital bank, extend relationships in the business bank and leverage our capital partnership to support a sustainable return to growth. We face into this coming period of uncertainty from a financially resilient position with strong capital, liquidity and asset quality. As I look ahead, our focus is on the continued disciplined execution of our strategy to deliver a better experience for our customers and increased returns for our shareholders. I will now hand to Jess for Q&A. Thank you. Jessica Smith: Thank you, Rod. We will now move to questions. [Operator Instructions] Operator, may we have the first question, please? Operator: First question today comes from Ed Henning from CLSA. Ed Henning: The first one is just on asset growth and mortgages and thank you for your comments today and talking about returning to growth. And I understand continuing to focus on profitability. But can you just talk about as you move forward, both in the near and the medium term, are you willing to continue to lose market share on housing? At what point do you have to step back into the market? Or do you just don't think you need to, if you continue to see margins contracting like you are, are you willing to grow below system in mortgages. Rodney Finch: Yes. Thanks, Ed. So in terms of the mortgage portfolio, the focus is really on returning to growth in '27. If we think about the economics of the mortgage portfolio. The key areas we've been focused on is first is really scaling the digital bank. That's a really critical capability in terms of reducing cost to serve and providing a better experience for both customers, brokers and our bankers. We've talked today to some of those metrics. That platform is scaling to plan. We had around 75% of the originations flow through that in March. So we are well progressed. There's more work to do. I think that also combined with the branch network is really shifting the economics for us in that channel and in that mortgage portfolio. So for us, we're not going to chase short-term returns. We're really focused on the pathway back to returns above our cost of capital, starting with writing business that's accretive to current ROE and then making sure we're contributing to the fixed cost base and being really disciplined as we continue to step our way back to return to growth in '27. Ed Henning: And just on that, I understand the return to growth, but growth doesn't mean growing at system, I would imagine, or is your plan to be at system in '27? Rodney Finch: We're not putting a target on growth relative to system. I think our positioning is returned to growth from a book perspective. I think the priority there, Ed, is making sure that the growth that we are achieving is within the return profile that we're comfortable with. Ed Henning: Okay. And then just a second quick question. And again, thank you for your comments on the cost outlook and growing below inflation. As you move forward, you've made some significant changes in your cost base and you talk about the reducing investment spend. Over the next few years, in the medium term, do you still think you can grow below system or around system in costs? Is that your goal that we should be thinking about? Rodney Finch: We won't give long-term guidance on cost. I think for us, we have worked really hard on the productivity program. As I said, it was an ambitious target when we set it. We're making progress against that. I certainly think leveraging the investments we've made in technology and seeing further opportunities there around automation, digitization, there's continued work that we can do there. We have the benefits of the partnership with Capgemini also flowing through. So for us, we really think that's a key aspect of how we want to organize the business and run it. We think being disciplined on cost management and driving operational leverage in the business, given the investments we made will be a key focus for us into the future. Operator: Our next question comes from Andrew Triggs from JPMorgan. Andrew Triggs: Racheal, a question for you, please. Just on your exit NIM commentary, which you said was higher than the average for the half. Does any of that apply to -- or is any of that driven by lower liquid assets? I'm wondering if the same comment would apply on an ex liquid asset basis? Racheal Kellaway: There is benefit, Andrew, for the liquids portfolio. And so there's 2 elements of that. One is lower HQLAs and the second is a high yield on that portfolio. But it would still hold excluding the sort of comments around it being higher would still hold excluding the specific liquidity impacts. Andrew Triggs: And presumably, that 2 basis points of nonrecurring brokerage and amortization adjustment actually turned into -- does that reverse in the next half? Or just is it -- it will be a non-event in the walk for next half? Racheal Kellaway: It will be -- you'll see it as a negative 2 basis points because it's a non-repeat. So there won't be a P&L. There'll be -- it would come out of P&L, yes. Andrew Triggs: So what moving parts sort of moved in the right direction, therefore, to drive that to cycle that headwind, please? Racheal Kellaway: Yes. So I mean, there's a couple of things in the second, in the first half result, that will not repeat that are negative. And so the first of that really is, if you think about the timing of our end of half, it was the 28th of February. So our half actually saw the negative impacts of cash rates reducing. So there was 3 basis points of negative in this half from the non-repeat of benefits we saw in the second half last year that we called out. If I step back from that, the tailwinds into the second half are cash rate related. So we have seen February and March cash rate increases, that gives us a benefit, both the timing benefit sort of -- but also on the unhedged portfolio. So that is a benefit into the second half. And we have expectations that it is most likely that we will see more cash rate increases through the period as well. The other big driver is really on funding costs more broadly. And so currently, term deposit spreads, for example, are positive. We are expecting that to continue through the half. We're seeing favorability in terms of savings, repricing and then also some funding mix benefits both on an underlying basis, but then also as we optimize from the proceeds of the equipment finance sale. Operator: Our next question comes from Andrew Lyons from Jefferies. Andrew Lyons: Just a first question just on your provisioning. Geopolitically, a significant amount has changed in your result in October, your second half result in October, which appears broadly negative for the economy and your outlook comments appear to confirm this. However, your provision assumptions imply lower dollar value provisioning for each of your scenarios and you've also made no changes to any of your weighting. This does seem a bit at odds with the evolving macro conditions the economy is faced with and also what your peers are doing. Can you just explain why that is the case? Racheal Kellaway: Yes. Look, I mean, as you can imagine, we have thought a lot about our provisioning levels and continue to do so. A couple of comments. The weighting of our collective provision is 45% weighted to downside and severe downside economic scenarios. We have got a worsening outlook within those scenarios. So whilst the weightings haven't changed, the economic assumptions within those scenarios have. If I then step back just more broadly as to your comment around the collective provision in dollar terms reducing, there are 2 idiosyncratic kind of things happening for BOQ in that number. The first is, we did sell a credit card portfolio. That was all settled in the half. It's very small from a balance sheet perspective, but it did mean a reduction in the ECL of $8 million. So that was a step down. The second factor underlying here is our reduction -- overall reduction in assets. And so as our GLA balances have declined, that is also a driver. If you then take those and take those out of the impact, we have increased our CP balance by about 3%. That is actually in line with what we've seen really recently, some of our peers also do. So it's about a 3% increase in the CP. We're very focused there on specific overlays for industries. To call out accommodation in food services, construction, transport, particularly. And so from an overall provisioning perspective, excluding those movements that I called out as sort of one-offs, then we feel that at 39 basis points, we're well provisioned for what could come. But obviously, this is not an area we are really, really comfortable with, and we will remain super vigilant on this. Andrew Lyons: Great. That's really helpful. And then just a second question on costs. On PCP, software assets are up about 86% and yet your amortization charge is up just 23%. Now I realized your FY '26 expense guidance does take account of higher amortization in the second half. But can you perhaps talk to the extent to which the P&L faces a headwind into FY '27 from amortization? Or maybe as an alternative, where do you expect the amortization charge to ultimately peak? At what level and exactly when versus the $43 million 1H '26? Racheal Kellaway: Yes. So we have, as you just called out, we have been really clear that we expect amortization to increase and that is one of the key drivers into the second half that is requiring an offset from our productivity initiatives. So we'll see an increase into the second half. We'll then see quite a similar increase actually into the first half of '27 and again in the second half. So if you look into 2027, we will have higher amortization again, so effectively another half. It will then largely stabilize. So sort of through the end of FY '27 into financial year '28, you can expect our amortization profile to sort of normalize and flatten out at that point. Andrew Lyons: And can I hazard the question as to what that peak level will be in '27/'28? Racheal Kellaway: Look, I mean, we'll end this year close to $100 million. You can sort of expect that to increase by 20% to 25% through until that peak period. Operator: Our next question comes from Matt Wilson from Jarden. Matthew Wilson: Matt Wilson, Jarden. Just look broadly, the balance sheet shrinking and you're only yet -- you're only getting a small amount of capital being released, you hope to return the loan sale capital to shareholders, but at the same time next year, you want to return to system growth, your returns are very low. Do you need that capital to fund that future growth? And given the uncertainty in the macro environment, would it be better to hold on to that capital? It would be a shame if you had to raise capital next year because we went through a credit cycle. And I've got a second question, as per Slide 27, you highlight the impact of the loan sale. If we take the impact on your net interest income, it implies the loss spread of selling those loans, impacts your margin by about 7 basis points. Could you confirm that? And then how do you offset -- that's a lot of work to do by reducing liquids? Rodney Finch: Yes. Thanks, Matt. I'll respond to the first question and I'll just pass to Racheal on the question on the capital sale -- sorry, the capital partnership. Look, in terms of our capital level, we're, as to Racheal's comment, the way we've approached provisioning for the half, she’s going to give an outline of how we're viewing. We note that within the result, we've returned to CET1 well above our management target range of 11.18%. We -- in considering how we approach dividends and shareholder return the capital management plan, we obviously factor into how we're looking to grow and how we want to continue to deploy capital in a really disciplined way. And so when we look into that future scenario into '27, from our perspective, it accommodates how we want to grow within the Business Bank, where we think we have an opportunity to do that in a sustainable way with returns that we're comfortable with, and also in the mortgage portfolio as well as we talked to earlier, which is a pathway to returning growth within the mortgage portfolio. So from where we sit today, recognizing there is some uncertainty in the outlook. We sit here with a strong capital position. We have some flexibility of how we approach it. We have clear plans of where we want to grow, but we are going to be kind of continuing to watch really closely as the market evolves and respond accordingly. But Racheal, I'll pass to you on that. Racheal Kellaway: Yes. So look, on the capital partnership, I will answer your specific question, but I do want to just take the opportunity to step back and talk about the overall P&L impact because I think that is really important and also the sort of capital impacts of that as well. The impact on our 2026 NIM, so the end of this year, is broadly neutral. And so that is a reduction in the net interest income as you described and by sort of 1 or 2 basis points and then that will be offset by funding, largely offset by funding benefits by about the same amount, so broadly neutral to NIM specifically. I think what's really important in this structure is that whilst we recognize there is lost net interest income, we are generating noninterest income, which is capital-light revenue. And so that is the really key thing to look to here. It is also a cyclical business, so you can remove the loan impairment expense that we would have otherwise had. And so this is not a partnership or an arrangement or a structure that really is driving cash earnings impacts in a material way. It is about capital partnership. It is about capital release and then the ability to grow the business, scale the business and to generate more noninterest income capital-light fees without having -- without taking that onto our balance sheet. Matthew Wilson: Just to follow that up, it's -- if you do the math, you're generating 150, 160 basis points of spread on those assets that you've sold. You don't -- that spread you've given up, so that captures the less funding, et cetera. And then when you look at the origination side of the business, 90% of it comes through the broker channel, yet your call out an origination capability, the economics don't make sense either because you're obviously paying brokers. Rodney Finch: Yes. Look, Matt, in terms of the way we think about this business, obviously, it has driven the portfolio. It is a broker-driven industry as well, but there's also significant opportunities within our proprietary franchise as well. We see it as a really core need for many of our customers. If you think about our sector specialization in health care, it's a core need set of those customers as well as wider portfolio. So we see growth not just through the broker channel. We also see work within our proprietary channels as well. As we talked about when we announced this, we see an opportunity to scale growth in this portfolio. And this capital partnership gives us the foundation to do that, driving capital-light income. Matthew Wilson: And on the spread? Racheal Kellaway: Look, I don't think you've quite got the spread. We can go through the detail this afternoon, Matt, if you like. I mean I think I just need to really take you back again though, like we will absolutely be reducing our NIM as a result, of this, but we are looking at this much more broadly than just looking at the NIM. We will be generating noninterest income, as I said, and we will not see a cyclical portfolio and the impacts that, that tends to have on our earnings profile. And so there is a much more benefit to this structure than just the impact on margin. Operator: Our next question comes from Jon Mott from Barrenjoey. Jonathan Mott: I just got a question on the commercial portfolio. Obviously, this is a part of the book, which is growing very rapidly. So if I turn you over to Slide 42 of the presentation, which goes through this in a bit of detail, when we look at it, we can see the commercial book by industry. Property is now at 41% of the book. And if I look at that same slide from last half, it was about 37% of the book. So you work the math out and expand by the growth of the book. The commercial property book is growing at close to 20% half-on-half. This is the commercial properties, so it's growing 20% half-on-half and 40% versus the previous corresponding period. And then you sort of work the rest of the portfolio out, healthcare is pretty flat, agriculture is up a touch, and there's really no growth at all. And then if we look by state, nearly all of this is coming in New South Wales. So a couple of questions about what's driving this. Are you participating in any syndicated facilities that could come through? Can you continue? Are you comfortable with this rapid growth in New South Wales commercial property? And why is the rest of the book not growing? Rodney Finch: Thanks, Jon. So just a couple of comments. What you're seeing in terms of growth in the business portfolio is really the deliberated and targeted approach we've taken to growth corridors. So we have invested in bankers in New South Wales. We thought there was an opportunity to grow there. We were underpenetrated. And so that is really coming through. And more broadly than that, when we look at the types of loans that we're doing, we're really comfortable with the security that we're taking over it, these are quality assets that we're lending. We're well secured on that lending as well. We're operating in industry and sectors that we know well, and that's the experience of our bankers and the credit policy we're applying. So look, that is the composition of the portfolio. We are kind of continuing to focus on growth in the key sectors from a specialist perspective that we're looking at. But as we stand today, we're comfortable with the quality of the growth that's coming through as well. Jonathan Mott: Why so heavily in the commercial property and no growth in health care and all the other sectors, a little bit in agri, but everything else looks flat? Rodney Finch: Yes. Look, I think it's a reflection of where we've targeted growth. And so obviously, as we bring on bankers, they will build their portfolios and that is reflected, I think we take a really balanced approach to where we want to go. I think, obviously, we are well diversified across industries and geographies overall, and we're going to continue to kind of plan that out in terms of how we construct the portfolio. So I would view this as the lending we have done. It's really reflective of where we've looked to invest from a sector and geography perspective. But we're going to continue to take a really balanced approach as we think about growth in business banking. Jonathan Mott: Okay. And finally, is any of this syndicated or is this all purely originated by those banker teams? Rodney Finch: Look, there's some elements of syndication in there as well. From a syndication approach, our philosophy there is really following our customers and supporting our existing customers through that. So there is elements of it, but our really key core focus is on -- is working directly with customers on lending facilities. Operator: Our next question comes from Sally Hong from Morgan Stanley. Sally Hong: I just have 2 questions. The first being on the margin. For the outlook commentary on the deposit pricing and mix sounds quite favorable, and you talked about benefits from higher cash rates. It does sound like margins are going up in the next half. Is that a reasonable assumption? Racheal Kellaway: Yes, Sally, that's absolutely reasonable. We don't usually go into as much detail on, in particular the quarterlies, but we thought it was important for the market to understand that we have a stronger second quarter than the first quarter and that we are seeing tailwinds into the second half. Sally Hong: Great. And you guys -- on costs, you guys reiterated that FY '26 cost growth should remain below inflation, and you've also talked to further benefits from Capgemini, decommissioning the ME Bank platform and as well as broader productivity actions. As we think about the medium term, how should we frame the cost outlook for FY '27? Should we assume that will come down again? Rodney Finch: Look, we're not giving guidance on FY '27, Sally. The way I think about it is, as I said earlier, we think we have more opportunity and more to do in terms of how we simplify the organization and creating the operational leverage, building on the investments we've made, particularly in technology. So coming into next year, we obviously have the decommissioning benefit and Capgemini coming through, as we called out. I think over the medium term, as we've completed the ME migration, we're turning our attention to the BOQ legacy environment. That will again be something that we work on over the kind of medium to longer term given the time it takes to safely migrate customers over time. So we've built really strong execution capability in that regard. We are redirecting the team to that as we close out ME migration. So that, combined with scaling the platform and leveraging the kind of leverage it allows you with the digitization and AI opportunities starting to emerge, we think this is going to be a key priority for us going forward as well. Operator: Our next question comes from Brian Johnson from MST. Brian Johnson: I have 2 questions, if I may. The first one is just on the agreement with Challenger. Two aspects of this. You speak about ROE and EPS growth. You've actually got about $600 million in surplus franking credits. You've got a share register skew very much towards retail shareholders who get a disproportionate benefit from the franking. I get the fact from a management perspective. ROE and EPS growth makes a lot of sense. But Rod, I'd just be interested, how should we be thinking about the fact that your share register is skewed to the group that get a disproportionate benefit from the massive balance in the surplus franking accounts that have not been able to be distributed thus far? Rodney Finch: Thanks, Brian. In terms of the capital management plan, as we've indicated, we're looking at a combination of a special dividend fully franked and an on-share market buyback, still subject to regulatory and Board approvals. And obviously, the conditions in the market in a buyback scenario. For us, the priority is really thinking through, as you said, the composition of our book, but also the efficiency in returning capital to shareholders, and it's really -- that principle that's driven how we're thinking about returning the capital post the transaction completing. Racheal Kellaway: I might just add... Brian Johnson: But Rod, just going back to that point, why isn't it all 100% of special dividend? Rodney Finch: Yes. Look, I think it's a combination of recognizing the shareholder, as you say, we do have a lot of retail shareholders today and they will benefit from the dividend. We want to reward shareholders who have stuck with us over the last few years, and certainly, that's a component. But we also recognize there's benefit for them going forward in a reduced share count in a buyback as well. So it's a combination of the 2 that we're looking at. Brian Johnson: Okay. The second one is, if we have a look at home loan profitability, and I appreciate the amazing efforts that you guys have made to digitize everything, but the operating costs in originating a home loan somewhere between $600 and $700 versus the net interest income is about $6,000. If we have a look at it, Patrick Allaway have been telling us that front book mortgage pricing was below the cost of capital. I'd nearly go so far as suggesting that Macquarie is still pricing the way they are, both deposits and home loans. Even with the digitization benefits that we get, can we just get a feeling about what your view is on front book mortgage pricing relative to the cost of capital regardless of whether it's done through, or through the 3 channel, digital, branch and broker? Rodney Finch: Yes. So I think just in terms of the way we've designed and built the digital platform, it is multichannel. So we'll support -- supporting brokers at the moment through our ME brand. We will roll it out over the next 12 months to our proprietary channels, both banker and direct as well. And so those benefits will kind of flow through across all channels. When we think about mortgage profitability, there's obviously the cost and the cost to serve and cost to originate funding cost is another element as well. I think the branch conversion also helps the economics in terms of that margin returning to us overall. Brian, for us, I think our priority is really the walk back up to returns above the cost of capital. Our focus is on returns above our current ROE and making sure we're contributing to the cost base of the wider group or the fixed cost base of the wider group. We're getting to a position where that is the case. And so for us, it's really continuing to work through that. We feel as though, that is a clear pathway for us. Obviously, it's subject to competition in the market. But I think the investments we've made and those priorities we'll called out are the right combination of activities to get us to where we want to be. Brian Johnson: So Rod, it's still below the cost of capital there, even through the 3 channels when you put all this through? Rodney Finch: Look, in terms of what's recent acquisition, I think we're above our current returns, and it's contributing to our fixed cost base with the pathway to get back up to the cost of capital. Operator: Our next question comes from Carlos Cacho from Macquarie. Carlos Cacho: I just wanted to get a bit more detail around those cash rate impacts you mentioned on the margins. You call out 3 bps to the non-repeat benefits in the second half. I'm guessing that's the timing benefit of taking a little bit longer to pass on the lower rates to some products. Is that going to work in reverse? Are you going to get a timing headwind with the rate cuts we've just seen the 2 in Feb, and March and potential if we look at market pricing and another 1 or 2 in the -- to come still in this half? Racheal Kellaway: Yes, Carlos, it's a great question. We, so the 3 basis points is exactly for the reason you outlined. So you're absolutely right. As you can see in the walk, we've called out a negative 4, which is cash rate timing. Negative 3 relates to the non-repeat of the benefit in the second half '25 and negative 1 actually does relate to the February cash rate increase. So yes, there is an opposite effect that happens as cash rates increase. I think though, if you step back, there are other benefits, obviously, in a cash rate environment, cash rate increasing environment for margin and particularly on the unhedged component of our low-cost deposits. Carlos Cacho: Great. And the second one, I just wanted to ask about provisions. I understand the economic forecast might be the product of the -- of your economist, but if I compare your economic forecast for a downside scenario versus major bank peers. They look to be quite a bit more optimistic. And unemployment rate that's in a downside scenario 1 to 2 percentage points less fall in house prices and commercial property prices, that's 20% small. Only 10% versus 30%. It looks to me like the downside scenario, the very modest downside and not quite as severe, how comfortable are you with those forecasts? Or take it that you're provisioning top-up to get your downside scenario is not significant, but it seems like the downside scenario itself is quite a bit more optimistic than what peers are forecasting their downside scenarios, which is more like 10% unemployment and 30% fall in property prices. Racheal Kellaway: Yes. Look, we -- what we haven't shown you here, and we do at the full year result is actually what the severe downside scenario looks like as well because we have a 45% weighting from a downside and severe downside and the kind of some of the measures that you just called out, the economic assumptions that you called out, actually, are much more aligned to our severe downside scenario, which has a weighting on the overall collective provision. I think if you were to take a view that we would get to 100% downside in this calendar year, so a fairly quick worsening of the economy, you would be taking an extra $68 million above the base scenario. And so that's the kind of -- that is one of the ways we look at this. I think as you can expect, we would obviously also look at and peers as a sort of outside-in-view on our provisioning levels, and as I called out earlier, if you take out the 2 one-off kind of benefits that we're getting from a CP perspective, we are increasing our collective provision, largely in line with the rest of the industry. And so we are tracking to industry metrics more broadly. And one of the ways we've done that this period is in the form of some specific industry overlays. I think just to summarize, our view is that we are -- as we sit here today, well provisioned, but we have definitely got a cautious bias when looking ahead. We are remaining very vigilant. Things are moving quickly. And so I think whilst we are well provisioned as of today, this is an area that we will closely monitor. Operator: Our next question comes from Brendan Sproules from Goldman Sachs. Brendan Sproules: Congratulations on the appointment to CEO role, Rod. Look, I just want to get a bit of a medium-term view of Retail Banking division. Obviously, as you've stated that you're resetting the economics here and the return you're scaling through lower cost and digital to serve. Slide 35 shows us. And in the last 12 months, the pre-provision profit has dropped around 20%, and this is despite the branch conversion. So a couple of questions for me on this. Firstly, on the deposit side, when do you think we'll start to see growth in lower-cost transaction deposit accounts? And I guess what is the medium-term outlook in terms of how much will that type of product fund the loan book. I mean you have one of the lowest funding in terms of mortgages from those particular products? And then I have a second question. Rodney Finch: Thanks, Brendan. So look, retail banking, I talked to this earlier just in the presentation. The economics of this has really been driven by a couple of factors. One is moving to a modern digital core. We're making great progress on that. We're really comfortable with the metrics that we're seeing both from the customer response. So it's a much stronger proposition than our legacy environment and customers are responding well to it and also the economics of the platform in terms of cost to serve and cost to originate. We do see a real opportunity to grow more transactional deposits on that platform. That is a long slow burn in this industry. I think our view is we've got the right product portfolio on that. We want to compete in that space. One of the key things that we've been looking for to really help that growth is bringing mortgages onto the platform. And what we actually see is mortgage customers are a good source of transactional deposits over and above what sits in their offset account just in the transaction account on balance, they tend to higher -- carry a higher average float than non-mortgage customers, mortgage customers. So from our perspective, that is the real focus with the build now completed and migration of ME. That gives us the capacity to really drive that growth. I would also say over the last 12 to 18 months as we've made the portfolio choices, the funding profile has really been reflected in the growth that we've required of what we needed from a funding perspective. So that is a big priority for us. I would also say outside of the Retail Bank, if we think about those lower cost deposits, we think there's a big opportunity in our Business Bank. We know that the proposition there has some gaps in it, and that's a priority for us in the near term to address that. And we think we can do more with our business banking customers and help meet their needs on the deposit side of the portfolio as well. So for us, we think we've got the right proposition. We want to get out there and compete and win more of those balances into the future. And we think that's really key to supporting growth for us in the longer term. Brendan Sproules: That's a very detailed answer. And just my second question is on the cost-to-income ratio, which is now moved into the mid-80s and a few years ago, particularly prior to the ME Bank acquisition, it was more like 50s or 60s. To what extent will this move to the lower cost to serve materially move that ratio? Or is there other initiatives that you have to put in place to really get that back to what has been the longer-term cost-to income within that business over a very long period of time? Rodney Finch: Yes. Thanks, Brendan. It's certainly not where we want it to be today. For us, the pathway back is a combination of factors. One is it's moving on to a simpler digitally enabled modern core, as I talked to, and that's -- we're seeing the metrics that we want in that space. I think more broadly, we still have complexity in the business that we obviously -- these numbers today still contain the ME legacy environment and the BOQ legacy environment as well as the digital bank. Our intent is to move all of our Retail Bank onto that modern core. I think the other element is what that provides is operational leverage. And so we see this is about returning to growth as well. As we talked to earlier, in response to other questions, we've been really thoughtful about planning for a return to growth in mortgages, what we want to see from a returns profile and how we work our way back to it. So I think it's 2. It's -- one, it's a combination of the operational leverage we're looking for from the platform, but also returning to growth through obviously our BOQ brand and the other brands that we have in the Retail Bank as well. Operator: Our next question comes from Nathan Lead from Morgans. Nathan Lead: Just 3 questions, if you don't mind. First one is about the digital bank. Your Chairman at the 2025 AGM seems to suggest that the Heritage Bank customers would be migrated across onto the digital bank platform starting in sort of 2027. And then your previous CEO also said there was a very large prize from that migration. So I just wanted to know whether you can sort of give us a bit more of a definitive target on that migration and if you can sort of firm up what the quantum of that benefit could be? Rodney Finch: Thanks, Nathan. So look, the way I would think about the migration of legacy. There's actually 2 legacy environments we talk about. There's the ME legacy environment, which we're kind of 80%, 85% done with final migration events planned for later this half and then we move into decommissioning. And then our attention, as I mentioned earlier, will turn to the BOQ legacy environment. I would be thinking towards what we've done on the ME migration is a good guide to how we'd approach it for the BOQ side. They are long exercises. There's obviously risk to migration. We've developed a great amount of experience on how to do that. We need to support customers through the friction that's caused with migration, and we also need to do this in the context of running the wider business. So we've got good capability in this space. We think our intent is to start migrations for BOQ in '27 and then work our way through it there. Obviously, as we've done with ME, we will take a really thoughtful approach to making sure we just manage the risk of that. But the types of benefits we see from decommissioning that environment, I think the ME is a good guideline to think about how we view the benefits you'll get from that as well. Nathan Zaia: Okay. Great. Second question is just the comment about returning to home lending growth in FY '27. Is that an intention that you expect the end of year balances to be higher than the start of the year? Or is it just some point within FY '27, you're going to start to see growth again? Rodney Finch: Look, our focus there is, we really want to do it in a way that we're not chasing short-term volume. We really want to prioritize returns. And so I think what we've established over the last couple of years is a really disciplined approach where we won't deploy capital if the returns aren't meeting the levels that we're looking for. So I won't put a data or a timing on it. It's really about us making sure we've got the capability in place, which, as I said, there's a little bit more work we need to do, but then really stepping back into the types of lending that we want to do, getting the balance across the composition of growth and making sure it meets the return profile and then over the course of the year, our return to balanced growth. Nathan Zaia: Okay. Great. And then final one for me. Just Slide 22 with the investment spend. Could you give us an indication now about what you're sort of thinking in terms of like where steady-state is in terms of that investment spend and the expensing rate attached to it? Racheal Kellaway: Yes, Nathan, we have clearly peaked in terms of investment. And so the way that we think about the overall envelope is we are looking to rightsize that investment to our earnings profile. However, we will always look for opportunity to go after investments if there is an appropriate benefit profile. And so we don't give specific guidance. It is about disciplined management of that portfolio just to ensure that we are getting appropriate returns for what we are investing in. And pleasingly, as we've described today, we are starting to see some of the benefits emerge from the investments that we've been making over the past few years. Operator: Our next question comes from Matt Dunger from BofA Securities. Matthew Dunger: Yes. I just wanted to follow up on the deposit growth. You've called transaction deposit growth a slow burn, and we've seen about $2.5 billion runoff in the term deposits year-on-year. Rod, are you able to give us a sense of how you'll fund the return to growth? Rodney Finch: Yes. Look, I think there's -- Matt, I come back to we have built a great proposition on the retail bank. We want to see growth there. Look at transactional growth -- transactional banking growth is important, but I would say -- would call as well and pricing discipline in that space, that all helps build that stable retail funding base. I would call out, I think we can do more in business banking, a real opportunity to get our fair share of our customers' deposit business. And so that's something we're going to be focusing on over the next period as well. I'd also say if we think about the funding stack and optimizing that overall, we also have the capital partnership is an important element of that, not needing to fund growth in asset finance with the capital partnership allows us to think differently around how we optimize that stack. And so it's really a combination of both growth in retail deposits, and I would call out both across our consumers and our Business Bank but also having the opportunity to optimize the funding stack with capital partnerships is another tool that we have available going forward. Matthew Dunger: And just a follow-up on that, if I could. On the branch conversion, are you able to share with us what impact they have had on deposit funding? Is there a future headwind from those OMB conversions? Rodney Finch: Look, we've worked through that over the last 12 months. We've reset onto a kind of optimized network. We've got a strong team in place now, and we're working to really grow the productivity through the branch network and customers. So we're comfortable with where we're at. We think with the digital bank available in deposit sense through the BOQ brand, there's a great opportunity here to continue to grow through the branches as well, and it's part of our thinking going forward. Operator: Our next question comes from John Storey from UBS. John Storey: Appreciate it's been a long call. I just wanted to ask you, Rod, last year, so you go look at your presentation last year and BOQ obviously called out the fact and have done a lot of work, I guess, ultimately to bring across the owner-managed branches, and you're pretty excited about proprietary channels, right? If you go and have a look at your flow rates during the course of this year in mortgage flows from brokers have gone from 60% to 70%. Just wanted to get your insight into why the proprietary channel is not yielding the expected benefits that you guys laid out last year? Rodney Finch: Yes. Thanks, John. Look, I think we've worked through -- it was a big transition the branch network in terms of part of what we had to do as part of that is go out and hire the existing teams from the franchisees to work into our branch network. So look, the change journey that we've been through, that change program has taken some time to work through. We've obviously optimized the footprint as part of that as well. We do have some stats in the back of the pack. We are starting to see the productivity we would expect on that network. That is, again, more work to do there, but we think we've got the right, as I said, the right team in place and the right focus on productivity. And going forward, it's a key part of our thinking of the proposition that we've got. And I think one of the other aspects of the OMB conversion is, it's really allowed us to think about where we want to invest from a geography perspective, not just for home lending managers or from a retail perspective, but able to put our business bankers in key growth corridors where we see an opportunity to grow as well. So we've got more work to do in the branches, but we think we've got the right set of activities to lift productivity over the near term. John Storey: And then just on the 2 half trading and obviously, results for the end of Feb, right, but maybe if you could just give a little bit of color on some of the trends and trading conditions that are starting to evolve through March and I guess, into April, interested to get your insights into things like mortgage applications, business activity. Have you seen any kind of increased flows into arrears? Just general kind of trends that you can comment on, particularly over the last kind of 2 months, March and April? Rodney Finch: Sure. Thanks, John. So look, at this stage, we're not seeing anything material. And we're being really -- we're looking hard, we're looking very closely to see the impacts. In terms of the mortgage portfolio, you'll note that the arrears are down. I think that we reported for the half. We're seeing hardship levels remain consistent with what we expect. We are starting to see some impacts come through probably that transport sector with fuel prices. Again, that's probably more a compounding factor than a factor in its own right that's driving some of the deterioration there. I think in agri, we are conscious of the agri sector where they're getting both the fuel price impacts as well as fertilizer. But again, we're staying very close to our customers and working through it with them. So at this stage, we're not seeing anything significant emerge, but we are staying really close to our customers, as you'd expect and being vigilant. Racheal Kellaway: I might, John, just take a perspective on market more broadly as well, which is we have seen absolutely sort of a higher volatility experienced due to those energy-led inflation risks, but functioning is still remaining intact actually, and conditions are how we would describe as orderly. We are starting to see some spreads repricing quite selectively. We think that is largely driven by kind of underlying valuation as opposed to any sort of significant market disruption or funding disruptions, but it is certainly a little bit more volatile out there. We have seen sort of a slowing in overall market activity. Operator: Our next question comes from Tom Strong from Citi. Thomas Strong: Just a follow-up, on the capital partnership numbers on Slide 27. In terms of the FY '26 noninterest income guide of $8 million to $10 million, to what extent is there seasonality from an origination perspective in that in terms of -- and how to extrapolate those, that run rate into '27? And then, I guess, more broadly, how are you thinking about the origination opportunity in '27 versus FY '26 just given the potential slow? Racheal Kellaway: Yes, I think I caught the question, just cut out there at the end. But look, noninterest income in that portfolio, there's 2 elements of the numbers that you're seeing on the page. The first is the servicing fee that we will receive on the sale of the back book. So that is broadly stable. We will see some runoff in that portfolio. As an asset finance portfolio, it is a bit shorter, but that is one driver of the fee income coming through there. And then the second is the new originations as you've called out. And so that is the establishment of the forward flow partnership. This is a really exciting development for us. From our perspective, we have the opportunity to do more in this market. We are a strong player in asset finance across the industry, but we certainly think there's opportunity to do more. That's obviously subject to conversations with Challenger, but there is the intent certainly for this partnership to be not only long term but to do more business over time as well. And so this is something that we think even despite sort of a slight downturn in the market, we would be able to pick up more volume. Thomas Strong: So you think that the arrangement with Challenger would allow you to do more business that you wouldn't have otherwise done on balance sheet? Is that the implication? Racheal Kellaway: Well, look, I think the way to sort of think about that is we have concentration of it as a balance sheet. And so that was certainly going to be something that we were going to find a constraint at some point. And so we are absolutely looking to do more business. We have a very strong SME business in our Business Bank, this is a core product for those customers. And so the ability to do more of that, to generate income and do more with those customers that we have and then also to kind of get more customers as well, I think, is really exciting. The parameters are really clear with Challenger, but there is certainly opportunity for us to do more business in this space. Operator: Thank you very much. I will now hand back to Jessica. Jessica Smith: Thank you for joining today's call. That's the last of the questions. If you have any further questions, please reach out to the Investor Relations team. We look forward to connecting with many of you over the coming days.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the W. R. Berkley Corporation First Quarter 2026 Earnings Call. This conference call is being recorded. [Operator Instructions] The speakers' remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including without limitation, beliefs, expects or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will, in fact, be achieved. Please refer to our annual report on Form 10-K for the year ended December 31, 2025, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W. R. Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise. I would now like to turn the call over to Mr. Rob Berkley. Please go ahead, sir. W. Robert Berkley, Jr.: Alexandra thank you very much, and good afternoon to all. Thank you for finding time in your calendars to join us. My colleagues and I, we appreciate your interest in the company. So speaking of colleagues joining me on this end of the phone, we also have Executive Chairman, Bill Berkley, as well as our Group Chief Financial Officer, Rich Baio. We're going to follow a similar path to what we have used in the past. Where I'm going to offer a few more quick comments. Then Rich is going to provide us a summary on the quarter. I will follow behind with a few additional thoughts. And then we will be very pleased to take your questions and the conversation in any direction you wish to take it. Before I do hand it over to Rich, just a couple of observations for me, perhaps a bit stating the obvious. One is let there be no confusion. This continues to be very much a cyclical industry. As we've discussed in the past, the cycle is driven by two human emotions, greed and fear. And without a doubt, these days, it would seem as though the fear is fading and the greed is fully percolating in many of the corners of the marketplace today. One of the things that we've talked about in the past couple of quarters is where is some of this competition coming from or much of this competition coming from. We've talked about MGAs and MGUs delegated authority, a lot of that capacity coming from a variety of different sources, in particular, the reinsurance market as well as we talked about Lloyd's as a marketplace providing a lot of capacity to delegated authority. One of the things that we've taken note of over the past 90 days or so is a notable shift in the appetite of the standard market, in particular, national carriers who seem to be broadening their appetite and having reached a new level of, I would suggest, competitive nature that we haven't seen in some number of years, though it tends to be focused in certain pockets. A couple of other comments on the marketplace, focusing on the reinsurance market for a moment. I think no surprise, property and property cat within the reinsurance space it has been more and more competitive. We're not surprised with it directionally, but we have been taken aback a bit by the pace of change and how that level of competition has really taken hold at an accelerating pace. In addition to that, the casualty market or the liability market within the reinsurance space never seemed to have gotten much of the bounce that we saw in the property market. Nevertheless, it remains very competitive. And we remain concerned for the health and well-being of that marketplace over time, as there is more competition in the property market, that will undoubtedly, at least history would suggest, create more irrational behavior that will be plentiful in both the property cat market as well as the liability market. A couple of thoughts on the insurance marketplace, speaking of property and how it can turn into a marketplace that quickly erodes. We are definitely seeing that, particularly with cat exposed property on the insurance side. GL and umbrella, I would suggest are areas where rate is still available with good reason. Professional, as we've talked about in the past, continues to be a mixed bag. D&O remains one that we are very focused on and seems to be continuing to flirt with the bottom. On the other hand, EPLI in certain jurisdictions is an area from our perspective to be very cautious. I would call out California, particularly Southern California, as one that we are paying close attention to. Speaking of California as it relates to workers' compensation, we've talked about in the past, and we remain convinced that California this time around is out in front of much of the broader workers' comp market. And without a doubt, all eyes remain on the WCIRB, and what is to come in the not-too-distant future. And at the possibility of, I guess, finishing on a bit of a low note, I guess, auto would continue to be an area of great concern from our perspective. It's unclear to us that the marketplace has really wrapped their head around loss cost trend and what action needs to be taken. Looking at the punchline before I hand it over to Rich, is that at the intersection of a cyclical industry, a focus on risk-adjusted return, undoubtedly is a concept that we subscribe to and hopefully, others do, known as cycle management. The good news for us, as we exercise cycle management, the decoupling of product lines as to where they are in the cycle, combined with the breadth of our offering allows us to be more resilient than many of our peers that have a narrow offering. So why don't I pause there and speaking of resilient, Rich, over to you, please. Richard Baio: Great. Thanks, Rob. Good afternoon, everyone. First quarter marked an excellent start to 2026 with record net investment income and strong underwriting profits contributing to a return on beginning of year stockholders' equity of 21.2%. Net income for the quarter was $515 million or $1.31 per share, while record operating income was $514 million or $1.30 per share. Other drivers benefiting the quarter compared to the prior year included lower catastrophe losses and an improved effective tax rate. Starting with underwriting performance, current accident year combined ratio, excluding cat losses, was 88.3%, and the calendar year combined ratio was 90.7%. The difference was current accident year cat losses of 2.4 loss ratio points or $76 million compared with the prior year of $111 million or 3.7 loss ratio points. Unlike last year, which was heavily influenced by California wildfires in the first quarter, this year, the industry experienced significant winter storm activity occurring in January and February. The current accident year loss ratio ex cats for 2026 was 59.7% compared with 59.4% for the prior year which reflects a shift in business mix as we look to maximize profitability. The insurance segment's current accident year loss ratio ex cat increased 10 basis points to 60.9%, while the reinsurance and monoline access segment increased to 51.1%. The expense ratio of 28.6% is comparable to the recent sequential quarters and reflects a small impact from the decline in net premiums earned from the reinsurance and monoline access segment. We continue to believe that the 2026 expense ratio will be comfortably below 30%, barring any material changes in the marketplace. On top line production, despite heightened competition in certain pockets of the market, the insurance segment grew gross premiums written by 4.5% to $3.4 billion and net premiums written by 3.2% to $2.8 billion. As you can see from the supplemental information on Page 7 of the earnings release, net premiums written grew in all lines of business, apart from workers' compensation. The reinsurance and monoline access segment reported net premiums written of $395 million, reflecting decreases in property and casualty lines of business. Net investment income increased 12.2% to a record $404 million driven by growth in the core portfolio of 11.8% to $354 million and an increase in investment fund income of 46.3% to $40 million. As a reminder, we report the investment funds under 1 quarter lag and an average quarterly range for investment fund income is $10 million to $20 million. We expect that strong operating cash flow of $668 million in the current quarter should continue to contribute to the growth in that investment if some. The duration of our fixed maturity portfolio, including cash and cash equivalents increased during the quarter to 3.1 years, which remains below the average life of our insurance reserves. The credit quality of the investment portfolio continues to improve to a very strong AA-. The effective tax rate in the first quarter was lower than our normalized run rate of 23%, plus or minus which is usually attributable to higher taxes on foreign earnings and the ability to utilize such foreign tax credits. In the current quarter, we reflected a net nonrecurring tax benefit, reducing our effective tax rate from 22.8% to 16.3% as reported. We expect the remainder of 2026 will return to our normalized run rate. During the quarter, we repurchased approximately 4.5 million common shares amounting to $302 million and paid regular dividends of $34 million. Stockholders' equity increased to approximately $9.75 billion despite the significant capital management. In summary, another positive quarter with meaningful growth in earnings and 21% plus return on beginning equity. Rob, I'll turn it back to you. W. Robert Berkley, Jr.: Thank you, Rich. A little disappointed that this isn't our new run rate on the tax front. I guess you got a whole quarter to figure that out. Richard Baio: Yes. W. Robert Berkley, Jr.: So let me just offer a couple of more quick sound bites and then we'll move on to Q&A. First off, you would have taken a note on the rate came in reasonably healthy at the 7.2% ex comp just as another perhaps relevant data point. The renewal retention ratio continues to sit at around 80% and that thing fluctuates between 78.5% and 81.5%. It doesn't move very much. And I look at it as one barometer to really understand whether we are turning the book or not in our efforts to get rates. So that's an encouraging sign from my perspective. Just another quick sound bite on the topic of rate. And we touched on this briefly when we had our fourth quarter call, and I think you're going to see it come into more and more focus. We've taken a tremendous amount of rate over not just the past couple of quarters, the past few years. I think there are many pockets of the organization we're feeling very good with what the margin is. And the -- I guess, the need for rate is perhaps not going to be as strong going forward. So what's the punchline? We are actively rethinking what the balance is between rate versus growth. And over the coming quarters, you may see us take our foot slightly off the rate pedal and look to push harder on the growth in particular lines where we see the margin is particularly attractive and exposure growth is of more interest to us than rate. Rich talked about the top line overall growth. It was obviously some pretty separate and distinct pieces, and it does map back at least in my mind, to the topic of cycle management. You would have seen, we took a pretty firm position, which, quite frankly, given our comments in the Q4 call and earlier last year, shouldn't have surprised anyone. We all know what's been going on with the rate. We've been very transparent about our view on the casualty or liability lines. And the discipline that we'll be exercising there and kudos to our colleagues that are actually putting that discipline into practice. The other side of the coin, as Rich pointed out, we are still finding opportunities to grow within the insurance space, clearly, a bit of a mixed bag. I think the note between the gross versus net, again, highlights, hopefully, in the eyes of those that are observing that this is probably a moment, generally speaking, where it's better to be a buyer of reinsurance than a seller of reinsurance, hence the delta between the gross and the net. I do think -- just a final quick comment on the top line. In the insurance space, there is a reasonable chance that we will see a bit more growth as the year unfolds, and we are revisiting this notion of balance between growth and rate. Pivoting over quickly to the loss ratio. I think in a nutshell, it's winter storms. We had more exposure to that than some. That having been said, we think it is still a good trade. The comments on the expense ratio. I share very much Rich's view that we'll be keeping it below 30. The movement that you would have seen in the reinsurance and excess segment, was primarily a result of a reduction in premium on the reinsurance front. Switching over to the investment portfolio for a moment. And Rich flagged for you all the strength of the quality with a very strong AA- almost flirting with a AA. But a couple of other points that I would flag is that the book yield on the portfolio is about 4.7%. New money rate is 5% plus. So we still got some room there for improvement. In addition to that, the duration, as Rich pointed out, is sitting at 3.1 years. As a friendly reminder, the average life of our loss reserves, which is a big part of what we're investing is a hair inside of 4 years. So what's the punchline? The punchline is a couple of things. One, the quality is high. There's opportunity with the book yield moving up and we have flexibility around pushing that duration out which is a plus as well. So even if you discount the growth in the portfolio due to the strength of the cash flow that Rich was referencing, which is there, is real and you see it quarter after quarter. But even if you put that aside, there is meaningful upside on the -- depending on whether you look at the overall including cash, $28 billion or if you want to back out the cash $25.5 billion, there's meaningful upside from there, both because of growth of investable assets as well as the new money rate, which, again, with the duration we have, flexibility. On the topic of flexibility, and I promise last topic for me, at least for the moment, is capital. And I know it's not something that we spend a lot of time talking about on these calls, but I did want to draw folks' attention to it. And that is our financial leverage, which is sitting at about 22.6% these days, which is a -- I don't know if it's an all-time low, but it's an all-time low in my some number of decades at the organization. I think it's important to take note of that for a couple of reasons. Number one, when you look at the returns that we're generating, we're generating it with a much higher level of capital or equity for that matter, more specifically in the business. Number two, I would draw your attention to the fact that we, as an organization, do not have an expectation for 22.6% to keep going down from here. This is a very comfortable place. We think we've got lots of room if an opportunity presented itself. So what does that mean? That means if you look at this business that's earning, I don't know, between $1.750 billion and $2 billion and something a year, give or take. And you think about where our leverage ratios are, what that means is we are generating capital significantly more quickly than we can consume it and that we will have significant amounts of capital to return to shareholders for the foreseeable. And to that end, even with us doing that, we still have a tremendous amount of flexibility to take advantage of whatever unforeseen opportunities may be coming our way. So I flagged that because what you saw in the quarter with the repurchase, what you've seen us do with special dividends and recognizing the earnings power of the business and how we see the growth opportunities before us that we are going to, in all likelihood, have large amounts of capital to continue to return to shareholders and what we believe is the most effective and efficient way that is in the best interest of our shareholders. So I know we talk about repurchase every now and then. People talk about special dividends, but I just wanted to put those data points out there. And again, we can talk more about it during the Q&A if people wish to, but it seemed like that was a relevant topic of the day. So why don't we take a pause there, Alexandra, if we could please open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question, I guess I'm just trying to, Rob, square away your comments, right? You started off by saying just pointing to greed and fear in the market and then you were talking about standard market carriers especially national carriers, right, that brought in appetite and pointing to the market getting more competitive. But then you also right, ended your comments by saying that there's perhaps some better opportunities to push for a little less price and show better growth. So can you just help me square what felt like introductory comments that it is tough... W. Robert Berkley, Jr.: Thank you for the question, Elyse. And what I perhaps was not as clear as I should have been with my opening comments is that I think there are still pockets where there is good opportunity. I think a lot of those pockets tend to be more casualty related. We, as an organization, have a bent towards casualty as opposed to shorter tail lines, particularly property where the competition is most pronounced. So do I think overall, the market is a bit more competitive today than it was yesterday? Yes, I do. Do I think there are still pockets of the marketplace that we are a meaningful participant that offer opportunity? Yes, I do. Elyse Greenspan: Okay. And then as we triangulate that in terms of just thinking about premium growth? And I guess, my comment is more focused on the insurance segment, right? It got slightly better this quarter. But I think from your comments on last quarter's call, right, I think you had insinuated growth in January might have been within range of 7%, right? So we could see the things -- it seems like slowed in February and March. So how are you thinking about just the level of pickup of growth that we could see -- and do you expect that in the Q2... W. Robert Berkley, Jr.: I don't know -- you're right, [ Anthony ], there's a lag. Sorry to interrupt you, Elyse. I beg your pardon, there's a bit of a lag on the line. But I think to answer your question, and maybe we confused the situation, if we did, apologies. But we actually saw the top line improve as we made our way through the quarter as opposed to the other way around. So January was not our -- it did not prove to be our best month. Elyse Greenspan: Okay. But then -- so for your comments about growth getting better, I guess, my last question, is that a Q2 comment? Is that more maybe Q3, Q4, just based on how you see that today. W. Robert Berkley, Jr.: We are hopeful that we will be able to do better in Q2, but I can't promise that right now. What I can tell you is that we, as an organization, oftentimes are quoting 90 days out, sometimes 60 days out, sometimes even longer than 90 days out. So the -- as we identify pockets where we are willing to make a trade as far as maybe a bit less rate in order for a bit more growth, it takes a little bit of time for that to come into focus. How that will play out, I can't promise that. I know what I've talked to my colleagues about, and I hear from them how they're thinking about things, and that's what I'm trying to share with you. So I can't promise that in Q2, we will grow x amount more. We'll have to see how it unfolds. But I am trying to give you a little bit of a flavor as to what the dialogue is within our clubhouse. Operator: Your next question comes from the line of Rob Cox with Goldman Sachs. Robert Cox: Just first question on property. I hear your comments this quarter and in recent quarters that the property dynamics are repeating themselves. I'm curious where you think property is from a price adequacy perspective, whether it's ROE or whatever metric, and how you would bifurcate across insurance, reinsurance and maybe by geography? W. Robert Berkley, Jr.: So I think that's a pretty big question from my perspective. I think that there's still margin in a lot of places, but it's fallen off pretty quickly. I think it's fallen off most quickly in the reinsurance marketplace. I think then it would waterfall down into cat exposed or E&S property and probably the place where there's been the least level of sea change would be the admitted or standard risk property market overall. That having been said, that part of the market probably got the least bounce. But in my mind, the reinsurance market led the way up and the reinsurance market is leading the way down. Robert Cox: Okay. That's helpful. And then I just had a follow-up. Professional lines, you mentioned pricing trying to bottom there? Looked like your strongest growth at Berkley since the first quarter of 2022 in professional lines this quarter. I don't think a lot of that was pricing. It seems like exposure grew. Do you anticipate seeing further opportunities in professional lines? And is there any other color you could provide on the quarter? W. Robert Berkley, Jr.: Sure. So I think professional is a pretty broad category. I tried to fashion my comments around two areas that gave us reason for pause. D&O, particularly public D&O and certain components of the EPLI market. That having been said, a lot of the growth that you saw on the professional front, much of it came from outside of the United States. My earlier comments were really focused on the U.S. market. So that's really what I can offer on that. As far as the places specifically where we think it's the best opportunity, that's not something we're going to unpack publicly. Operator: Your next question comes from the line of Alex Scott with Barclays. Taylor Scott: First one is on reinsurance. I know you mentioned better to be a buyer than a seller at the moment. So I just wanted to take your temperature on what to expect there for the full year. And when we look at the growth numbers for this quarter, is there anything funky in there around like restatement premiums or anything like that, that we should consider? I just want to make sure I understand the right kind of run rate to that business. W. Robert Berkley, Jr.: Nothing funky, to use your words, in the reinsurance numbers. And I think it's just a reflection of market conditions from our perspective, and you're seeing a combination certainly of a more competitive market. And simultaneously, you're seeing a couple of signs of cedents struggling to get their top line where they want it. So they're increasing their net. And that may feel good in the short run, we'll see how it works out in the long run. Taylor Scott: Makes sense. Okay. I wanted to come back to the casualty reserves a little bit. I know this is sort of old news because you guys put out the triangles and so forth with the 4K results, sorry, the 4Q results. But would be interested if you have any comments you'd share on the other liability and just what we see in there related to some of the earlier years releasing on shorter tail casualty versus some building the reserves on longer tail. I mean what would you say to us to help us kind of wrap our arms around that and get more comfortable with the trends we see? W. Robert Berkley, Jr.: As far as that goes, I think that's probably a bigger conversation than probably makes sense to hold up everyone's time on it. We have put a fair amount of information out and supplements out. In addition to that, I think some of our folks in an effort to help piece it all together, have reached out to yourself and to others. And if you'd like to further the conversation, we're happy to help you piece together the public information. Obviously, there's a bit of a constraint as to how far we can go, but we'd be very happy to pick that up with Alex offline, but I think that's not going to be a quick answer. Operator: Your next question comes from the line of Andrew Kligerman with TD Cowen. Andrew Kligerman: The first question is around the capital management, Rob. I'm trying to frame your appetite in terms of what's bigger? Is it the buyback, the onetime big dividend, special dividend? Or is it growth in a challenged market. Because as I look at what you did in the first quarter, $302 million, that's a lot of buyback as much as you did in all of 2024 when the stock price was about 20% lower and the earnings were very similar to what we're seeing today. So yes, where do you do a big dividend like you did in '24 or '25? And then where should that leverage ratio be? You said 22.6% is too low, where would you like it to level out? So sorry for the long wind on this one, but why the big buyback in the quarter? And what's the appetite buyback versus dividend and where will the leverage be? So a lot to unpack. W. Robert Berkley, Jr.: Okay. Well, thank you for the question, Andrew. I guess a couple of things there. First off, as far as the 22.6%, I did not suggest or if I misspoke, shame on me, but I didn't suggest that we wanted to go lower or higher. I think what I tried to suggest to you is that we didn't see it going much lower than that. I'm not suggesting that we want it to go considerably higher. It really depends on the circumstances at any moment in time, and how we're positioning the business for what we see today and what we envision for tomorrow. Number two, the point that I was trying to articulate earlier is that the opportunity for growth for the organization today and what we see in all likelihood tomorrow is, we think we'll be able to grow, but it's not going to be the growth rate that we enjoyed some number of years in the past or for some number of years. So that's just a reality of market conditions. So again, will there be growth? Yes. Was there going to be the kind of growth we saw in the past? Probably not. So with that all having been said, the reality is with the company generating, call it, 20-plus percent returns or said differently, call it, flirting with $2 billion of net income that is a lot of capital that we need to figure out if we don't need it, how we're going to return it to our shareholders. And that's just the reality. As far as what levers we utilize to return capital to shareholders, that's something that we grapple with every day and we think about what is in the best interest of all shareholders as far as -- whether it's special dividend, whether it's repurchase, whatever it may be. As far as what we did in the past and when we bought back, I'm not -- we can take it offline and try and unpack what we did this quarter versus that quarter. A lot of it has to do with valuation at the moment in time. A lot of it has to do with how we see growth opportunity. So there's a lot of things that we consider. If you're looking for more guidance as to what we're specifically going to do to be returning this surplus of -- significant surplus of capital that we're generating at this today and expect to be generating tomorrow. I don't have a particular road map to share with you but it's certainly something that we will continue to be transparent about on a quarterly basis. Andrew Kligerman: Okay. And with regard to the gross versus net written premium, the net being 3.2% against the gross at 4.5%. Any read through there with the lower net? Any color that you can share on why that net was materially lower? W. Robert Berkley, Jr.: It's a combination of mix of business. And in addition to that, as we tried to flag earlier, there were opportunities to buy some reinsurance of what we believe to be attractive terms. Andrew Kligerman: Got it. And just to sneak one last one. Prior year development, anything unusual in the casualty lines, plus or minus? W. Robert Berkley, Jr.: Nothing particularly exciting. If you want to do a deeper dive at least to the extent we're able -- we'll share with you whatever we're allowed to share with you on that. And obviously, there'll be more detail available in the queue. Operator: Your next question comes from the line of Michael Zaremski with BMO Capital Markets. Michael Zaremski: First question kind of pivoting back to social inflationary lines. Rob, loud and clear, we heard your comment, I think most would agree with you that the industry is still getting their hands around loss cost trend. Industry is doing very well, though overall. Would you be willing to kind of paint a broad brush on kind of how Berkley views loss trend in GL, umbrella, commercial auto, because like back to Alex Scott's questions, we all do see Berkley like peers adding truing up your loss picks a bit higher as well. So curious if you could add any color there. W. Robert Berkley, Jr.: If you're asking me to share with you what our trend assumptions are by product line, that's not something that we put out, generally speaking, for public consumption. As it relates to our loss picks, we are constantly looking at our data. And what is it telling us? We're constantly looking at industry data, and we're looking at other data sets as well, both traditional and nontraditional and trying to respond to that. We put it all into our sausage maker and then a lot of folks sit around and try and apply our judgment to the best of our ability. So I'm not sure what more I can add, Mike, at this stage other than we are very focused on making sure that our picks are appropriate. And based on what we conclude on that front, we are looking to actively respond from a rate perspective, terms and conditions. And I think one of the points I should have made earlier that we tend to not always focus on as much as we could or should is the role that jurisdiction or territory plays as a component of selection. So anyways, I suspect there's not a satisfactory answer amongst my commentary to you. But the long and the short of it is, we just don't get into that level of detail by product line, what our view around trend is. But I can assure you, we are very focused on it, and we are responding in what we believe is a timely manner, not just for the picks, but the action that, that would suggest we should be taken from a selection and pricing perspective. Michael Zaremski: Got it. That's fair. Yes, I just thought worth asking some of your peers have reluctantly, I guess, disclosed some broad-brush trends. Just kind of pivoting back to the debt-to-cap discussion. And maybe I'll try it another way, you gave the context earlier, but we can see, as you kind of alluded to, your very long-term average, debt-to-cap escalates, low 20s, mid-30s, but it's averaged 30 plus. So can you maybe remind us, are there like circumstances when you are increasing your leverage, is it when you feel there's -- you're very bullish about the marketplace, or any additional context you think worth mentioning? W. Robert Berkley, Jr.: The answer is that when we see opportunity in the market, we are very happy to, in the short run, flex that leverage up. But quite frankly, we are very comfortable where we are today, but we certainly have the ability to flex it up if the opportunity presented itself. Operator: Your next question comes from the line of Bob Huang with Morgan Stanley. Jian Huang: So my first question is also on the capital side in a different way, right. I think you talked about willingness to grow your business, you clearly have capital. Is there some way to think about the balance between growing inorganically versus buyback and dividends? Are there lines with... W. Robert Berkley, Jr.: When you say, Bob, what -- to make sure I'm following, when you say inorganically as opposed to organically, are you talking about like M&A? Jian Huang: Yes, sir. Yes, sir. Yes. So like if we think like it does M&A make sense for you guys? Are there lines where you think M&A makes sense? W. Robert Berkley, Jr.: It's certainly some -- most things at investment bankers are out trying to sell, we get a phone call on. Most of the time when you hear about a transaction, we're already somewhat aware of it because we got the phone call. But as we've shared with some, we tend to err on the side of being cautious and cheap. And we recognize that most M&A transactions in this industry, not all but most. If folks could do it all over again, at least the buyers, they probably wouldn't. So I would never say never. We certainly look at things from time to time, but we are very comfortable with the organic growth model. We are pretty disciplined in how we operate the business, and we are willing to be patient because of this philosophy around risk and return. But again, you never know what tomorrow will bring, but there's a reason why we have not been historically active on that front. Jian Huang: Really appreciate that. My second question is on the growth side of things, right? And this is something that's been asked somewhat. And I'm just curious, in the beginning of the call, you kind of talked about the market is in a greedy environment, so to speak, right? And as you think about pivoting to growth, are there areas where you feel the market maybe is too greedy and then you just kind of have to avoid. Are there areas where you think maybe the market is too cautious, and it represents a very big opportunity for you or a semi big opportunity for you, just maybe if you can give us a little bit more of a breakdown there. W. Robert Berkley, Jr.: So the answer is -- and again, maybe I created more confusion than clarity with my opening comments and apologies for that. There is no doubt that if we want to use a broad brush, the market is overall more competitive today than it was a year ago, let alone 2 years ago or 3 years ago. That having been said, there are still pockets particularly within certain aspects of the liability space that offer some what we believe is attractive opportunities as far as available margins. It is not as broadly available as it once was, but it is still there. The shorter tail lines, not all, but much of them have become notably more competitive and certain aspects of the liability lines have become more competitive. But because of the breadth of our offering, we are still able to find opportunities where we still think that there are attractive margins that are available. And attractive enough to the point that we are willing to take our foot off of the rate pedal a little bit, which is why I'm suggesting as our colleagues are contemplating that and pivoting their behavior, there is a likelihood that you will see some level of growth that is coming from these niche opportunities. And we saw our colleagues pivoting more and more throughout the quarter, which is why I was suggesting to -- I believe it was a lease earlier that January, the growth was less relative to March, and that was primarily a result of our colleagues pivoting, reminding you and others that we are oftentimes quoting 90 days out in advance. So it takes time for that pivot to convert into binders or written premium. What does that mean for Q2? Honestly, I can't promise anything. I can only share with you what the narrative is that's going on within our organization, and how we are seeing in the marketplace, and how we are adjusting our approach. Operator: Your next question comes from the line of Tracy Benguigui with Wolfe Research. Tracy Benguigui: Since casualty reinsurance never got the same bounce as you saw on property reinsurance, I'm curious, is this business rate adequate now, or is it approaching rate inadequacy? W. Robert Berkley, Jr.: So I think you would have heard for some number of quarters or beyond us bitching and moaning about the casualty reinsurance marketplace, and how we didn't think ceding commissions made sense, and that's a pretty broad brush that I'm using there. So if we're writing the business, we believe that it's an acceptable margin. But as you would have seen, our casualty portfolio within reinsurance was down considerably in the quarter. And that is not just because -- not because we're charging less for the same exposure, it's because that book of business is shrinking. I can't speak to the broader market. I can only talk to what our colleagues are doing as I understand it. Tracy Benguigui: Understood. Also, you mentioned potential upside from net investment income, and you also noted certain insurance pockets like casualty, you might prioritize growth over rate. So are you taking more of a total return approach when setting combined targets for your underwriters, maybe putting more weight on net investment income, which will allow you to grow? W. Robert Berkley, Jr.: The answer is no. We have a view on loss ratios. And to take your comment to an extreme, we, as an organization, have never subscribed to the notion of cash flow underwriting or anything akin to that. Are we conscious of what the contribution is from the investment portfolio? Of course, we are. We are acutely aware of that, but we are not willing to throw the underwriting discipline out the window because of where interest rates are today. We look to each component of our economic model to stand on its own 2 feet and justify the capital that it utilizes. Operator: Your next question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: Rob, you mentioned that -- yes, you mentioned that the large standard carriers are ramping up their appetite, you saw a step up in competition. Is that largely on the casualty side you're referring to? Is that influencing the balance in the E&S and standard markets? A little more on that would be interesting. W. Robert Berkley, Jr.: They are active on the property side and to the extent that it's on the casualty side, ironically. It's been in pockets of the casualty market that are okay, but not great. So it's really bizarre. They're not going after the good stuff. They're going after the marginal stuff. And in some cases, I mean, they're taking it for 30% off, which is bizarre because they could have had it for 10% off. So as we say around here, and certainly, my boss over here has reminded us, even long-tail business, you write it cheap enough tail business. So they'll -- they can keep going with 30% off, and we'll look forward to seeing it back in a couple of years. Mark Hughes: Yes, very good. And then to the extent that you're so successful in pivoting to growth here in the second quarter, does that have a meaning for your loss picks? Could we potentially see loss picks a little higher? W. Robert Berkley, Jr.: Sorry, Mark, you broke up a little. Could you please repeat that? Mark Hughes: Yes. The question was if you do -- Rob, can you hear me now? W. Robert Berkley, Jr.: Yes. Thank you. Mark Hughes: Okay. Well, very good. If you're successful in generating some better growth in the second quarter, does that have a meaningful loss picks, could you possibly see loss picks go a little bit higher if you're not pushing as much on rate? W. Robert Berkley, Jr.: I don't think that, that would be something that I would lead to, in my view. I think what we're really seeing is that there are pockets of the business where we've been very, very focused on rate, and we think we have room, and maybe it will prove to be that the picks were -- had more room in them than we had originally anticipated. But we'll have to see with time. Operator: Your next call comes from the line of David Motemaden with Evercore ISI. David Motemaden: Can you guys hear me? W. Robert Berkley, Jr.: Yes. Thank you. David Motemaden: Great. So just back on the topic of just maybe letting up a little bit on the rate increases in some lines. And I may have missed this, so I apologize in advance. But is there any like broad class of business that you had referred to? Is that short tail, is it casualty, is it professional lines? I'm not looking for like specific sub lines within those, but I was hoping you could elaborate on like a little bit just which broad area you think that you guys might have opportunities to let up on price and maybe we can see growth accelerate? W. Robert Berkley, Jr.: Yes. We just haven't put that detail out there. We'll think about if there's something we can tuck into the queue. That could be helpful along those lines. But at this stage, we just haven't put anything out there yet, thank you. David Motemaden: Got it. And then the growth in the insurance business in the short-tail lines continues to tick along at 5%. I was a little surprised at that, just given the pricing pressure on the commercial property side. So I was hoping maybe you could unpack that a little bit more for us and just how we should think about the durability of the growth there. W. Robert Berkley, Jr.: I think that you're focusing on it through the lens of commercial, and I would encourage you to broaden your lens to incorporate our A&H business that we've spoken of in the past as well as our private client business. David Motemaden: Got it. And then maybe just one more, maybe just a high-level question. I think you talked about the average life of your reserves at about 4 years. I was a little surprised that it hasn't really changed that much. I think it's been there around like the last few years. But I guess I was wondering, it does feel like claims durations are extending. So I was hoping maybe just philosophically, just taking a step back, what you guys are seeing. Do you think we're seeing more stability here in claims payment patterns as we think about looking through the reserves? W. Robert Berkley, Jr.: I think that at this stage, we feel pretty comfortable that -- maybe just taking half a step back, David. I think that we all know that the industry got caught a bit flat-footed with inflation, particularly social inflation, and it's been a bit of a process of catch-up. I think that picture, as we've all discussed ad nauseam was clouded by COVID for us to a great extent. And I think at this stage, the industry and ourselves included, have adopted and adapted to the new reality of the claims environment and what we see coming out of the legal environment. Operator: Your next question comes from the line of Joshua Shanker with Bank of America. Joshua Shanker: So I guess I want to talk about your go-to-market strategy or maybe the opposite go away from market strategy. As I see the decline in the reinsurance book. I'm trying to understand the complexion of your book. Sometimes people participate on syndicates. Sometimes you have some unique one-off deals. I know your program business is in the -- program management business in that reinsurance bucket, and that's probably seeing some competition from MGAs. Can you talk about as the business is leaving, are you walking away? Is it being competed away? What's the process? And what exactly are you losing? W. Robert Berkley, Jr.: A lot of -- the lion's share of what we're losing would be a treaty reinsurance business. And it's due to how we think about appropriate pricing. And it seems -- go ahead... Joshua Shanker: I mean, on that, or are those are one-off deals that you're managing? W. Robert Berkley, Jr.: No. They tend to be a subscription market, if you like, or a treaty that has multiple participants. Joshua Shanker: And so someone else is coming with the capital, you're walking away and there's plenty of... W. Robert Berkley, Jr.: Someone else either coming with the capital or the cedent is looking for better terms than we're prepared to offer and maybe they choose to keep it. Certainly, a trend that we're starting to see more of is cedents in some cases, if they can't get far better terms are looking to keep it as a way to bolster their own top line. Joshua Shanker: And then switching to the competition from MGAs right now. It's obviously something we talked about in past calls. I mean the insurance growth looks fairly healthy. Are you seeing less competition in the past, or is it as steady as ever? W. Robert Berkley, Jr.: No, we are not seeing the delegated authority model, MGA, MGU et cetera. We're not seeing that subside in any way at this time. Joshua Shanker: And then one last one. As you're thinking about deployment of capital, obviously, returning capital is a big deal, but you've liked the yields in the market. Is there anything attractive in the alternative spaces compared to past quarters where you might be deploying money into more illiquid products? W. Robert Berkley, Jr.: We certainly have a participation in the alternative space. I would add that we do not have a participation in the private credit space, just to make sure there's no question about that. But right now, given what the public fixed income market is offering as far as yield, we don't feel much need to look beyond that. Operator: Your next question comes from the line of Katie Sakys with Autonomous Research. Katie Sakys: Really quickly, how do you describe your approach to managing commercial auto exposures today versus your comments last quarter on shrinking exposures. I think with your very frank description of the auto liability market today, I'm just kind of curious as to what's giving you confidence in the growth that you're still showing in that book, but it's not resulting in adverse selection. W. Robert Berkley, Jr.: Well, just to be clear, the growth that we are experiencing is premium, not unit growth or exposure growth. So the rate that we are taking far exceeds the growth rate. So the exposure is shrinking and the rate is increasing. So the growth that you saw on page, whatever it is of the release, it's all rate and then some. Katie Sakys: Yes. Makes sense. And then any new news on Berkley Embedded. I realize it's only been a couple of months, and I might be ahead of my skis here. But are there any products that have gone live with that? And if so, how are you guys thinking about channel conflict with your traditional distribution partners there. W. Robert Berkley, Jr.: So as far as Berkley Embedded, they are off to a great start, and they do have one product offering that is chugging along in the consumer space. And as it relates to channel conflict, right now, the type of business that we are entertaining through that avenue is really not something that we would be accessing in any other way. That having been said, there is a reality, as we've talked about in the past, once upon a time, there was a defined swim lane for carriers, and there was a defined swim lane for distribution. And I think what we're seeing more and more of is those lines are getting somewhat blurred. And while we are very committed to our traditional distribution, ultimately in the end, our focus also has to be on the insured, and we need to be willing to meet insured where they wish to be met. Operator: Your next question comes from the line of Andrew Andersen with Jefferies. Andrew Andersen: Just on workers' comp, growth has been a little bit lighter there the last couple of quarters. To what extent is there an opportunity for that to pick up again, or is there may be a binding constraint here you're thinking about with regards to price or medical trend uncertainty? W. Robert Berkley, Jr.: Yes. We're just -- I can't tell you exactly what the next quarter will be, but generally speaking, directionally, we have had somewhat of a defensive posture with much -- not all, but much out of the comp market that we participate in. And we're looking forward to that market, experiencing some type of firming at some point. And when it does, I think you will see us expand. And hopefully, the opportunity will be there for us to expand dramatically. Andrew Andersen: Got it. And I know we've touched on this a bit, but just kind of high level here. When you're talking about the standard or national carriers taking back some business, would you describe this as more of normal ebb and flow, or are the standard national carriers may be going deeper into E&S and more into lines of business that have been stickier in the E&S channel historically? W. Robert Berkley, Jr.: I don't think that they are going to derail the E&S marketplace, certainly not today and likely not tomorrow. But we certainly do see them more present in the market with an appetite that is seemingly a bit broader today than it was yesterday. And at times, it would appear as though they are misclassifying risks. I don't know how else you could get to some of the rates that they are entertaining. And we'll have to see how it unfolds. I think it's, again, more pronounced in some of the shorter tail lines. It exists, but less visible in some of the liability lines. Operator: Your next question comes from the line of Meyer Shields with Keefe, Bruyette, & Woods. Meyer Shields: I appreciate you taking my call. First question, I guess, Rob, last quarter and this quarter, you talked a little bit about taking the collective foot off the gas in terms of pricing in some lines. Should we think of that as a top-down directive or is that bubbling up from the various underwriters? W. Robert Berkley, Jr.: Look, we, just to be clear, are not a top-down organization in that sense. We certainly pay attention, we ask lots of questions. We want to understand. But we are not top-down directing our colleagues throughout the operations as to what they should or shouldn't charge. We look at the data and grapple with them. But again, this is an organization where those types of decisions are driven by our colleagues that run the various businesses, and that's just part of our philosophy. That having been said, we do use group data that gets aggregated and other data sources to bring it to bear and put it in the hands of our colleagues running the businesses, so they have as good an information set as possible to make their decisions. Meyer Shields: Okay. That's very helpful. And then very briefly, whether it's Lloyd's or Reinsurance business, does Berkley have any exposure to the Middle East conflict? W. Robert Berkley, Jr.: Nothing of consequence and to our -- we're just not a big player in the war space. We're a very modest player in certain aspects of the marine market, and we are very active users of war exclusions. Alexandra, anything else? Operator: There is one final question. This comes from the line of Brian Meredith with UBS. Brian Meredith: Rob, l will keep it to just one question here. I'm just curious, in your growth thoughts for the year here. Is any of that related to perhaps your incubator type businesses transitioning in the segments. And I'm thinking something like the Berkley Edge. Maybe you can talk a little bit about Berkley Edge, and how is that doing so far? W. Robert Berkley, Jr.: So I think that some of the new ventures are off to a good start, but relative to the overall size of the group, while we look forward to their meaningful contributions, it's not likely in the short run that they are going to get enough traction to move the needle for the group on their own. I think the opportunity is certainly going to come from their contributions, but will come from many others throughout the organization. As far as Berkley Edge, they are up, they are running, and they are off to a good start. But just to level set expectations, it was a standing start that they've begun from, but we're very pleased with the progress that they're making, and we think it's an outstanding group of people that are going to bring value to distribution customers and certainly to capital. Operator: There are no further questions at this time. I will now turn the call back to Mr. Rob Berkley for closing remarks. W. Robert Berkley, Jr.: Alexandra, thank you very much for your assistance this evening. Thank you to all who tuned in for, again, your interest in the company and the questions. As I hope people would have gathered by any measure, a very solid quarter and perhaps equally, if not more exciting, how well positioned the business is to continue to grow, prosper and generate value for stakeholders. We look forward to speaking with you over the summer. Thank you very much. Have a good evening. Operator: This concludes today's call. Thank you for attending. You may now disconnect.