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Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Friday, April 17, 2026. I would now like to turn the conference over to Brian Heller, Senior Vice President and Deputy General Counsel of Cohen Steers. Please go ahead. Brian Heller: Thank you, and welcome to the Cohen & Steers First Quarter 2026 Earnings Conference Call. Joining me are Joe Harvey, our Chief Executive Officer; Mike Donohue, our Interim Chief Financial Officer, and Jon Cheigh, our President and Chief Investment Officer. I want to remind you that some of our comments and answers to your questions may include forward-looking statements. We believe these statements are reasonable based on information currently available to us, but actual outcomes could differ materially due to a number of factors, including those described in our accompanying first quarter earnings release and presentation, our most recent annual report on Form 10-K and our other SEC filings. We assume no duty to update any forward-looking statement. Further, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund or other investment vehicles. Our presentation also contains non-GAAP financial measures referred to as adjusted financial measures that we believe are meaningful in evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the extent reasonably available. The earnings release and presentation as well as links to our SEC filings are available in the Investor Relations section of our website at www.cohenandsteers.com. With that, I'll turn the call over to Mike. Michael Donohue: Thank you, Brian, and good morning, everyone. My remarks today will focus on our as-adjusted results. A reconciliation of GAAP to as adjusted results can be found in the earnings release and presentation. Yesterday, we reported earnings of $0.79 per share as compared to $0.81 sequentially. Revenue for Q1 increased from the prior quarter by 0.3% to $144.3 million. The change in revenue from the prior quarter was driven by higher average AUM, partially offset by 2 less days in the quarter. In addition, and as we noted in last quarter's earnings call, there were $1.7 million of performance fees recognized in Q4 related to certain institutional accounts. We typically don't recognize such fees early in the year and we have few performance fee accounts. Our effective tax rate during the quarter was 58.2 basis points. Excluding nonrecurring items, our fee rate was 58.4 basis points which is slightly lower than the prior quarter. Operating income was $50.7 million during the quarter compared to $52.4 million sequentially. The and our operating margin was 35.1% compared to 36.4% in the prior quarter. Ending AUM in Q1 was $93.1 billion, which was up from $90.5 billion at the end of Q4. This end of period change in AUM was driven by positive net inflows during Q1, primarily related to open-end funds. In addition, end-of-period AUM was positively impacted by market appreciation of $2.7 billion during the quarter. As a result, average AUM increased during Q1 to $94.4 billion as compared to $90.8 billion in the prior quarter. Joe Harvey will provide additional insights regarding our flows and pipeline shortly. Total expenses were higher compared to the prior quarter primarily due to increased comp and benefits and distribution and service fees expense. Compensation and benefits was higher compared to prior quarter as a result of the year-to-date compensation accrual true-up to actual that reduced compensation expense in Q4. The compensation ratio for the quarter was 40%, which was in line with the guidance we provided. Distribution and service fee expense was up due to the increase in average AUM, and G&A expense remained consistent with the prior quarter. Regarding taxes, our effective rate was 25.5% for the quarter on an as adjusted basis. Our earnings material presents liquidity at the end of Q1 and prior quarters. Our liquidity totaled $343 million at quarter end, which represents a decrease of $60 million versus the prior period. This quarterly change in liquidity is in line with prior years and driven by the annual incentive compensation cycle for the firm, which occurs in Q1. Let me now touch on a few items regarding guidance for the remainder of 2026. With respect to compensation and benefits, we would expect our compensation ratio to remain at 40% as we experienced in Q1. We expect G&A to increase in the mid-single digits for the year as compared to the prior year. Lastly, regarding 2026 guidance, we expect our effective tax rate to remain consistent at 25.5% on an as-adjusted basis. I will now turn it over to Jon Cheigh, who will lead the discussion of our business performance. John Cheigh: Thank you, Mike, and good morning. Today, I'd like to cover three topics: our performance scorecard, our 2026 outlook given the recent geopolitical events, and last, our long-term structural view of the economy, the market regime and some asset allocation implications for investors. Beginning with our performance scorecard. We continue to build on our record of consistent, long-term outperformance. On a 1-year basis, 86% of our AUM has outperformed its benchmark, while our 3- and 5-year outperformance rates are both above 97%. 95% of our open-end fund AUM is rated 4- or 5-star by Morningstar, which is up from 90% last quarter. In short, we continue to meet our primary objective of providing outstanding long-term performance for our investors. Turning to the investment environment. Coming into 2026, we expected both an acceleration and a rebalancing of global growth with a corresponding broadening of market leadership. While that outlook was spot on early in the year, the current Middle East conflict may have brought that market leadership shift into question. U.S. and global REITs were both up about 10% through February, well ahead of flattish equity markets. As we saw market rotation into the relative laggards of the last several years. While events in March raised some of those gains, REIT still posted positive absolute performance for the quarter with U.S. and global REITs up about 4% and 1%, respectively. Listed infrastructure performance was resilient, up 8% for the quarter. Businesses such as utilities and midstream energy continue to demonstrate their criticality in the world of short-term energy scarcity and the continued power buildout, needed to serve increasing industrialization and AI-related demand. Diversified Real assets rose 12% for the quarter, with strong gains in commodities and natural resource equities. As we saw in 2022, real assets have been a clear winner and diversifier for a 60-40 stock bond portfolio. The asset allocation case for real assets continues to be made. Preferred securities and fixed income classes broadly declined slightly in the quarter as renewed inflation concerns indicate that monetary policy could be tighter for longer. So as we update our economic and market outlook for the rest of 2026, our expectation is that the Middle East military deescalation that began several weeks ago, and will continue, including just this morning over the coming -- over the course of the coming weeks and months. We know it will have its starts and stops. But as long-term investors, our focus is on the trajectory of where we are headed. As a result, our initial 2026 view of broadening economic growth and financial markets remains intact. Now thinking beyond 2026, we believe investors must see recent developments, not as a one-off or a surprise. But instead, as another chapter in a book, which will continue to shape markets for the next 10 years or more. For some time, we have stated that the global economy is undergoing a structural transition one that looks meaningfully different than the prior 30 years. And there are four major themes that we expect will serve as important drivers of asset allocation shifts. First, deglobalization or what we would call geopolitical fracturing. For 20 years, the global economy enjoyed friendly trading relationships and uninhibited delivery of just-in-time resources. In the 2000s, this drove a buildup of global supply chains, primarily in Asia, but a [ deindustrialization ] for much of the developed world. For nearly 10 years now, we've seen repeated reminders that this system, while leading to lower consumer goods prices and higher profit margins was fragile and exposed the global economy to tail risks. In the last 6 years, we've seen four consecutive supply shocks, the pandemic, followed by the War in Ukraine, then tariffs and now the conflict in the Middle East. These are not one-off events. But again, an outcome of shifts in global power dynamics and alliances. This geopolitical fracturing will drive significant fixed asset investment boom greater than what the 2,000 saw from China, driven by reindustrialization and remilitarization. The second major theme is AI and technological disruption. Artificial intelligence is a transformational force on its own. But importantly, it is not a software but rather a hardware story. AI leadership will ultimately be about compute capacity and the marginal cost will likely be about the cost and availability of power. The third theme is inflation uncertainty. In the last decade, inflation consistently undershot expectations. In contrast, inflation in recent years has consistently surprised to the upside, confounding forecasts that expected a quick return to the old normal of low and stable prices. Even as headline inflation has moderated from recent peaks, underlying pressures remain. As you all read in our forthcoming capital markets assumptions, Cohen & Steers forecast consumer inflation to average 3% annually in the U.S. over the next 10 years. Below recent peaks, but well above the 1.6% experienced in the last cycle and significantly higher than the Federal Reserve's long-term 2% target. While AI may produce a productivity boom, which could prove highly deflationary, the investment needed to produce that deflationary boom is highly inflationary. The job of any central banker over the next 10 years will be challenging. Our conclusion is that while inflation is likely to be higher than markets expect. The precise path and pace of inflation represents a major market uncertainty and risk factor. The final important trend is the end of low interest rates. Some of this is about inflation and some is about persistent fiscal deficits. Importantly, we also believe that the market continues to underestimate that we will live in a more capital-intensive world, we took interest rates and credit spreads wider. Hyperscalers shifting from being highly cash flow positive -- [ CASM ] of this shift. Given these four major themes in the next phase, some of last cycle's winners may remain winner, but areas of structural change tend to disrupt market leadership new faces emerge, incumbents decline and entirely different parts of the economy of these shifts are natural resources and the picks and shovels of the global economy. Notably energy, infrastructure and the plumbing that supports construction, transportation and power delivery. This represents a tremendous investment opportunity but also one that comes with challenges of higher and more volatile inflation, as I mentioned earlier. So for our clients, our advice is simple. First, diversification not just in terms of asset classes or listed versus private but instead diversification of investment exposure to different economic drivers, inflation regimes and factors. Second, hard assets, including real assets must be a meaningful allocation sourced from equity and fixed income as a diversifier and as a total return opportunity. Third, investors should use a broader toolkit with some private exposure when it provides unique exposure or an illiquidity premium. But in a highly uncertain world, where the old models may not work, the cost of illiquidity is very high and should be used thoughtfully rather than just for quarterly statement diversification. We believe the first quarter is the continuation of the market's recognition of this major turn in leadership, which will unfold with the remaining chapters of this book. And with that, let me turn it over to Joe. Joseph Harvey: Thanks, Jon. You may be able to hear a fire arm in the background, everything is okay, we're going to proceed. Today, I will review our key business trends in the first quarter and provide an update on our growth initiatives. While we started the year with accelerating fundamentals on February 28, the world changed with U.S. military operations and Iran. As is typical in these situations, business activity slowed for a period as investors attempted to calibrate how long the conflict will last and what the short- and long-term ramifications could be for economies, geopolitics and asset allocation. If the U.S. economy Pre-Iran was reflationary with an upward bias in growth, consensus post war is for stagflation with the key unknowables being how much and for how long. Not to be forgotten, prewar investors were very focused on the existential risk of AI on certain industry groups in addition to credit and liquidity risk and private credit. We believe our liquid real asset strategies fit the so-called halo trade very well, that is heavy or hard assets, low obsolescence with liquidity becoming a more valued investment characteristic. The first quarter's fundamental highlights include net inflows of $497 million a strong one unfunded pipeline of $1.7 billion, characterized by good velocity with continued fundings and new mandates, stable fee rates strong absolute performance and neutral relative performance, while 1-, 3- and 5-year relative performance continues to be excellent. We made good progress with our growth initiatives, including active ETFs, offshore SICAV open-end funds, our non-traded REIT and our recently launched listed private real estate for institutions. Flow highlights by investment strategy include: multi-strategy real asset inflows totaled $142 million, the best quarter since third quarter of 2022. Preferred Securities generated $133 million of net outflows for its strongest quarter since the fourth quarter of '21. And global listed infrastructure recorded its fifth straight quarter of net inflows totaling $96 million after a record year in 2025. The firm-wide net inflows of $497 million represent positive organic growth for 6 out of the past 7 quarters. We recorded our seventh straight quarter of net inflows into open-end funds, with U.S. open-end fund inflows of over $300 million and broad-based contributions of over $100 million into each of our U.S. real estate, preferred securities and our multi-strategy real asset strategies. Our active ETFs continued their momentum with $224 million of third-party net flows in the quarter. Our international SICAV continued their streak of net inflows in 25 of the past 27 quarters. The SICAV recorded $62 million this quarter across a range of countries most notably in the U.K. and South Africa. The most popular SICAV allocations were to our multi-strategy real assets and global listed infrastructure strategies. Looking at institutional trends, our advisory channel had its second consecutive quarter of net inflows with $210 million in the quarter, comprised of five new mandates totaling $287 million partially offset by $76 million termination. Sub-advisory experienced $269 million of net outflows in the quarter with $164 million in outflows from Japan. While we experienced net outflows in Japan sub-advisory for the past 2 quarters, as real estate flows have been challenged industry-wide amidst flows into local bond funds and equity funds, we have slightly improved our industry-leading market share in Japan. The other sub-advisory outflows were due to normal rebalancing by existing clients, partially offset by two new mandates funding $83 million. Looking through the Iran conflict, I like our core strategies as it relates to inflation, deglobalization, AI, rotation to heart assets, among other trends. As we continue to experience inflation, we believe our multi-strategy real assets portfolio is a great solution, which investors are increasingly recognizing. With the long-term criticality of energy back and focus our future of energy strategy, which invests in both conventional and renewable energy could be upgraded to more than just a tactical allocation. Resource equities probably have the best supply-demand future of any strategy I can think of. And the Iran conflict has clearly demonstrated the strategic importance of these businesses due to the profound impact that resource scarcity can have on resource pricing and markets. Real estate returns could be tempered by stagflation, but remember, valuations have reset versus normalized interest rates. The fundamental cycle has turned positive and investors are rotating into tangible assets. Our global listed infrastructure strategy has shown both strong absolute and relative performance and is a beneficiary of the capital investment cycle underway. In addition, we have all been watching the growing concerns in the private wealth channel about liquidity strengths in private vehicles and private infrastructure is probably the most illiquid private strategy being brought to wealth. We, therefore, see global listed infrastructure as a winner and wealth, either as a stand-alone allocation or as a complement to private with proper liquidity protection. Our corporate strategy for active ETFs is going very well. Total AUM for our first five ETFs is currently $675 million. Flows are strong, investment performance is good, and we are gaining traction and scale. Our platforming efforts for ETFs are accelerating. And in the first quarter, we received our first placement on a major broker-dealer platform. We announced the conversion of our future of Energy open-end fund to an ETF which should occur sometime midyear. We intend to launch a version of our multi-strategy real assets portfolio later this year, and we filed for ETF as a share class as many other managers have done. We want full optionality to deliver all of our core strategies in the ETF structure. Our nontraded REIT Coasters income opportunities REIT has established a portfolio of 11 properties owned or under contract totaling $650 million in assets and continues to provide investment performance at the top of the real estate peer group with 10.6% annualized returns since inception against a 4.3% peer average. Our focus on open-air shopping centers has helped drive performance as occupancies of 97% on average translate into very strong pricing power for landlords. A key question for CNS REIT short term is how redemption constraints in private wealth vehicles will affect investor appetite for evergreen vehicles generally. As an industry, we must position these allocations as private strategies with liquidity provisioning as available. And emphasize the importance of liquidity frameworks to protect investors and effectively deploy a long-term investment strategy. In the case of real estate, it is possible that since the return cycle has returned positive -- has turned positive, the category to garner allocations that previously were taken by private credit. The early data in March show increased redemption activity in private credit and an uptick in sales in real estate and infrastructure. Time will tell. We remain constructive on the long-term benefits of blending listed and private real estate and wealth portfolios. And believe we offer compelling solutions across the liquidity spectrum for investors. We've previously discussed the launch late last year of an LP vehicle that invests in core private property funds and listed REITs together. The goal is to deliver a better core allocation to institutional investors using an indexed approach to core funds, combined with listed reach to enhance returns without adding too much volatility and implying an asset allocation overlay. We now have $250 million of fundings or commitments and the strategy is earning the support of a growing list of asset consultants. I wanted to also comment on our short duration preferred strategy. We now have three open-end vehicles with the launch of a SICAV and an active ETF over the past year to complement our $1.9 billion open-end mutual fund and our $1 billion closed-end fund. Our open-end vehicles have yields just shy of 6%, durations of 2.5 years and investment-grade credit profiles of BBB-. Taxable investors in the U.S. realized an additional 100 basis points of tax equivalent yield. Relative to corporate bonds of similar duration, short duration preferreds provide nearly 300 basis points of additional tax equivalent yield to compensate for just three notches of credit quality moving from A- to BBB. As yields on cash and other fixed income allocations have declined, these strategies are starting to see more investor interest. Related in our core preferred strategies, we saw a return to positive flows in the quarter, perhaps as a substitute for private credit. I wouldn't be surprised to see investors accept a lower headline yield with tax benefits for a portfolio of strong, transparent credits dominated by banks, insurance companies and utilities, in the midst of greater uncertainty and less transparency around credit quality within private credit. I'll close with a brief update on distribution, which we've highlighted as a priority for 2026 and 2027. We've made great strides on our plan to invest in distribution, including increased coverage of RIAs and expanded international coverage. All key hires have been made, including a new Head of Japan, a newly created Chief Operating Officer for distribution and additional RIA sales roles. We also promoted [ Brad ] is path to lead wealth and brought in a wealth sales leader on [ Brad's ] team. Our approach to expanding the sales team from here will be success-based, meaning additions will be tied to organic growth. That concludes our prepared remarks. Julianne, please open the lines for questions. Operator: [Operator Instructions] Our first question comes from John Dunn from Evercore ISI. John Dunn: First on the advisory channel. You mentioned it's been 2 straight inflow quarters. Do you think you've moved to kind of a more sustainable place? And is it coming from more existing clients or new ones? And are you seeing potential for clients looking at multiple strategies? Joseph Harvey: Thanks, John. As we've been talking about for the past 3 or 4 quarters, we've seen an improvement in our institutional advisory business as broad conditions have become more favorable, more flexible in investor portfolios. An end toward upping allocations to fixed income and clients continuing to deal with liquidity in their private parts of their portfolio. But we now have a very strong pipeline, I think, for the third straight quarter at $1.7 billion. I talk about the velocity, meaning in the quarter, we were awarded $74 million of new mandates. There was another $45 million that was won and funded in the quarter. And then we also had another $490 million fund in the quarter. So that's good velocity and demonstrates that things have been loosening up in the institutional channel. We also just see more from an intangible perspective, increased activity by clients. It's not RFP business anymore, but we've seen a couple of large RFPs recently. So combined with the outlook that John laid out for our investment strategies, we're optimistic that the institutional advisory channel will continue to perform better and better. John Dunn: Got it. Maybe a little more on ETFs. I mean just -- could you give a flavor of how you're finding clients' acceptance of the vehicle? And are you seeing any cannibalization? And then maybe just could you describe kind of the demand of the different buckets in wealth management? And any potential for any activity for institutional down the road? Joseph Harvey: The tone in active ETFs is very good. You can see that as our flows ramp. And most importantly, it starts with delivering strong performance, which we have done. And the design of these ETFs are to present our core strategies. For distribution considerations, some of them have some slight differences versus our core strategies, but our performance has been very good. The so-called use cases make us very bullish on these vehicles. It starts with the RIAs, many of whom are converting their businesses to use exclusively ETFs compared with open-end funds. We're gaining scale, so that allows us to be placed into models. And as I mentioned in my remarks, with our real estate vehicle, which is now the largest and is what we're best known for, we've achieved platform placement on a major broker-dealer providers. So I would say I'm very bullish on this vehicle. Everything that we're seeing validates the decision to invest in this. And as I said, we're going to continue to get all of our core strategies in these vehicles. As it relates to institutional interest, they're going to need to scale up. We can see -- we've had discussions with different asset consultants about using the vehicles. So I think there are some use cases, but large institutions generally want to have a separate account. John Dunn: Right. Okay. And then you went through the component pieces of the private real estate effort. Are you seeing rising demand? And since you don't have a lot of legacy assets and you're entering or ramping up in a good part of the cycle. Is that a big part of the pitch? And maybe where do you expect demand to come from? Joseph Harvey: I'm not sure I understand the question, John. But as it relates to the private real estate business, when you look at private allocations in wealth, real estate has been the laggard. Private credit has been the leader, as I mentioned, that inflected in March, we'll see if that continues to play out. Infrastructure continues to have good growth. But we believe that based on our views and other views on the real estate cycle that you can see a rotation into the real estate strategies. We're seeing a little bit of that, but it's still early. Our approach to the wealth channel is that we believe that investors should have an allocation to both listed and private, and we're trying to coach our clients on how to do that and how to optimize those portfolios. With our nontraded REIT, as I mentioned, we have -- we're at the top of the leaderboard in terms of performance. And as we gain scale, we believe we'll have the ability to get platformed on more RIA as well as [ wirehouse ] platforms in the future. John Cheigh: Yes. Yes, that's what I was driving that. And then maybe just one more, thinking about the theme of rotation of some money moving to non-U.S. strategies. Global real estate was positive this quarter. Are you seeing any like interest in diversifying? And is that -- could that drive positive flows for global real estate in this year and next? Joseph Harvey: We have been seeing more of that. Go back 1 year, 1.5 years, there weren't a lot of flows into global strategies except for global infrastructure. So I'm talking primarily about global real estate. That was primarily related to U.S. exceptionalism and related stock market performance. But as the world has turned geopolitics have turned, and we've started to see better performance in international markets broadly. We've seen more interest and flows into our global real estate strategy. So I would expect that to continue. It's magnitude. I can't say, but I definitely would expect to see our global portfolios have more interest. Operator: [Operator Instructions] Our next question comes from Mac Sykes from Gabelli Funds. Macrae Sykes: Joe, I wish -- I wanted to ask a question about sort of historical context of shifts to real estate strategies. And I guess, as we think about some of the items you've mentioned this morning. When you're looking at educating capital allocators at some of these bigger platforms that do shifts in these models, what are some of the catalysts for that? Is it sort of adviser interest, is it returns that have just happened, so outperformance of the asset class interest rate. I guess, if you could just dig into some of the things we can watch for in anticipation of more sizable allocations to real estate. John Cheigh: Mac, this is Jon Cheigh. Well, first of all, of course, we're talking with all of the intermediaries about real estate. But of course, all of our asset classes, including infrastructure, preferreds and natural resources. But specifically to real estate, look, it's a combination of investors thinking about the interest rate cycle as well as the fundamental or supply and demand cycle. And so I've said a few times that when you look over the last 3 or 4 years, sometimes people would say, "Oh, well, real estate is done poorly because interest rates are higher." And that's really only half the story. The other reality is that we had too much new supply that got built. So fundamentals weakened. So over the last several years, REIT earnings have probably grown 2%, 3%, 4%, while the S&P was growing 10%, 11%, 12%. So yes, it's an interest rate story, but it's also a fundamental story. So when they revisit the story today, what they're looking at is the S&P is a lot more expensive from a valuation standpoint than it was 3, 4 years ago. It seems like the earnings growth is beginning to decelerate and we all know about the market concentration within the S&P and in some cases, concerns about the significant amount of CapEx that's occurring. So there's -- how is the S&P looking on a price-to-earnings basis versus on a free cash flow basis because you know just as well how capital-intensive the S&P 500 is becoming at the top end. So some of it is as far as real estate versus broader equities is valuations look better. The interest rate adjustment has happened. So being in this 4% to 5% -- 4% to 4.5% range is the new normal, as I talked about. But what we're also talking to them about is the reacceleration of earnings or fundamentals. So that 2% to 3% growth of REITs will probably be more like 5% or 6% this year, 7% or 8% next year. So I'd say that's I'd say the fundamental inflection is probably the bigger thing that our investors are focused on. And this kind of goes back to one of the earlier questions on shifts we're seeing on the advisory channel. We've had a lot of conversations with investors for the last few years. And I think they understood the valuation story, but they were focused on is today the right day? Why 2024, why 2025, why 2026? And real estate fundamentals are slow moving. They're not going to go from being below average to above average in 1 quarter. And so it's taken a couple of years. We've digested some of that excess supply. And that's why I think the story for 2026 to 2027 is about improving fundamentals and stable interest rates and attractive valuations. And that's why we're seeing some of those shifts, whether it's in the public markets but also within the nontraded REIT side, again, a lot of money went into private credit. But as Joe talked about, as that money is looking for the next opportunity you're beginning to see it in the flow data, but we're certainly starting to hear it of -- well, real estate lag, other things have gone up. It seems like a place to pivot back to. So I think we're early in that pivoting process. Macrae Sykes: Just one other question on the private credit side, as you compete, I think a lot of the sales channel adviser-driven component has been some of the fee structures with some of these products. coming with pretty large fee structures and incentives to the adviser. And with your products, actually much more rationally priced and compelling, I believe. But how do you sort of compete with that where the adviser centers? Maybe a more compelling yield perspective from you and liquidity and all that stuff, but yet they come with lower adviser incentives in terms of the sales component. Joseph Harvey: Well, I'm not too familiar with the adviser incentives that you're talking about. But what we think about every morning we would get up is delivering investment performance and managing risk. So we -- as it relates to the private real estate strategy need to deliver a good total return with a balance between current income and capital appreciation and not take undue risk. Unknown Executive: So as it relates to the fee structure for that vehicle, we've made it very investor-friendly compared with the peer group. Operator: [Operator Instructions] we have no more question [Audio Gap]. Joseph Harvey: Thank you, Julianne. We look forward to reporting our second quarter results in July. Meantime, if you have any questions, please reach out to [ Brian Meta ], and we'll talk to you soon. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning and welcome to the Regions Financial Corporation's quarterly earnings call. My name is Chris, and I'll be your operator for today's call. [Operator Instructions] I will now turn the call over to Dana Nolan to begin. Dana Nolan: Thank you, Chris. Welcome to Regions First Quarter 2026 Earnings Call. John and Anil will provide high-level commentary regarding our results. Earnings documents, which include our forward-looking statement disclaimer and non-GAAP reconciliations are available in the Investor Relations section of our website. These disclosures cover our presentation materials, today's prepared remarks and Q&A. I will now turn the call over to John. John Turner: Thank you, Dana, and good morning, everyone. We appreciate you joining our call today. Before we turn to the quarter, I want to take a moment and personally thank Dana for her service and leadership. After nearly 40-year credit regions, she's made the decision to retire. Dana has been a steady and trusted voice for our company and an important link between our leadership team and the investment community. Her deep understanding of our business, fair with her clear and straightforward communication style help strengthen our credibility with investors and are widespread respect across the industry. We're incredibly grateful for Dana's leadership and the standard she's set, and we wish her nothing but the very best going forward. Turning to our financial results. This morning, we reported strong first quarter earnings of $539 million or $0.62 per share. This represents an 11% and 15% increase, respectively, versus adjusted prior year results. Adjusted pretax pre-provision income was $805 million, up 4% year-over-year, and we generated a return on tangible common equity of 18%. The momentum we saw at the end of last year and carried into the first quarter. We grew loans and deposits on both an average and ending basis and our credit metrics continue to improve as we resolve our portfolios of interest. Conversations with customers suggest that despite recent volatility, sentiment remains generally optimistic. Businesses are continuing to manage their balance sheets and income statements prudently with strong liquidity and solid capital positions. On the consumer side, fundamentals remain relatively sound. Aggregate balance and spending trends for Regions customers are stable to mostly positive. The labor markets are not showing signs of material weakness. We are seeing some pressure among lower-income customers but larger income tax refunds compared to last year have helped to offset a portion of that impact. Importantly, our consumer loan portfolio continues to be primarily prime to super prime. We continue to make good progress on our core transformation, including investments in artificial intelligence. We are on track to deploy our commercial lending system and small business digital origination platform this summer and system testing on the core deposit system is also underway. We expect to launch a pilot in the third quarter and begin conversion in 2027. At the same time, we remain focused on near-term drivers of growth. Our strategic growth hiring initiative is on track, and we continue to make targeted investments in products and services across all 3 of our lines of business. There's a lot of internal energy and excitement around our technology enablement initiatives, and we're motivated to continue building on that momentum. I'll just conclude by saying that we're pleased with our first quarter results and are excited about the opportunities that lie ahead. With that, I'll hand it over to Anil to walk through the quarter in more detail. Anil? Anil Chadha: Thank you, John. Let's start with the balance sheet. Ending loans grew 2% while average loans increased approximately 1%. Growth was driven by broad-based C&I lending, including power and utilities, manufacturing, health care and asset-based lending. Roughly half of this quarter's growth came from higher line utilization with the balance driven by new loans, approximately 80% of which were to existing clients. Almost 2/3 of the growth was investment-grade credits with the majority of the remaining growth near investment grade for very high quality. While the macroeconomic outlook remains volatile, we experienced strong loan growth in the latter half of the quarter. As John noted earlier, client sentiment remains broadly positive. Loan pipelines and commitments remain strong, and overall lending activity remains at a good pace. An area that has not been a meaningful growth driver over the past year is NDFI-related lending. These lines reflect long-standing client relationships with predominantly investment-grade credits with nearly half of balances associated with our long-standing REIT business. Private credit exposure remains limited, less than 2% of total loans largely investment-grade, well enhanced and existing client paydowns exceeded draws during the quarter. With respect to our full year growth expectations, we continue to expect full year average loans to be up low single digits versus 2025. Turning to deposits. Average balances increased modestly, while ending balances increased approximately 1%, reflecting normal seasonal patterns associated with tax refunds and payments. Balances grew while total deposit costs continued to decline, supported by our strong deposit franchise and focus on customer acquisition and retention. Through deliberate product management, we continue to see a shift from CDs into money market accounts across both our consumer and wealth businesses with growth in the combined balances. Our noninterest-bearing deposit mix remained in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base. As a result, we continue to expect 2026 average deposits to be up low single digits versus the prior year. Let's shift to net interest income. As expected, net interest income was lower linked quarter, driven primarily by 2 fewer days in the quarter and the absence of nonrecurring items that benefited the fourth quarter. The net interest margin of 3.67% continues to evidence region's profitability advantage. That said, margin came in below expectations for the quarter, reflecting tighter asset spreads as a result of market conditions paydowns of higher-yielding loans and remixing into higher quality credits. The core balance sheet performed well during the quarter and provides a solid foundation for net interest income growth over the remainder of the year. Our neutral interest rate positioning once again performed as designed in the quarter with minimal impact to net interest income from the Fed's fourth quarter interest rate cuts. During the first quarter, interest-bearing deposit cost declined 13 basis points. The following cycle interest-bearing deposit beta stands at 35%, and we remain confident in the mid-30s beta with the potential to outperform over time. Net interest income also continued to benefit from fixed rate asset turnover with elevated long-term rates supporting pricing on term loans and securities. At current rate levels, we would expect balance sheet repricing to support margin expansion over multiple years. Finally, recent loan growth acceleration positions us well for future interest income growth. Subsequent to quarter end, higher interest rates created an opportunity to sell approximately $900 million of shorter duration of securities that no longer support our balance sheet management objectives at a $40 million loss, repositioning those into longer-duration product types. The transaction is also well aligned with our overall capital deployment priorities, carrying a short approximately 2-year payback period and enhancing overall securities yields. In the second quarter, we expect a strong rebound with approximately 2% net interest income growth, followed by additional expansion in subsequent quarters. Fixed rate asset turnover, seasonal average deposit inflows accelerating loan growth and continued discipline and funding costs will drive net interest income growth and a stable Fed funds environment. For full year 2026, we reiterate our net interest income expectation of between 2.5% and 4% growth and for the net interest margin to exit the year at low [ 3.70s ]. Now let's turn to fee revenue performance for the quarter. Adjusted noninterest revenue declined 2% on a linked-quarter basis as seasonally lower card and ATMs and a decline in other noninterest income were partially offset by higher capital markets revenue. Capital markets income increased 5% during the quarter, driven by improvements in commercial swap, loan syndication and securities underwriting activity partially offset by lower real estate capital markets and M&A fees. Despite ongoing headwinds associated with market volatility and elevated interest rates, we continue to expect Capital Markets quarterly revenue to increase within our $90 million to $105 million range, trending near the lower end of the range in the second quarter and moving higher thereafter. Wealth Management remains a good story for us, supported primarily by continued sales momentum with revenue up 9% year-over-year, and we expect this business to continue to be a steady contributor to fee revenue growth. Card and ATM fees declined 5% from the prior quarter reflecting typical seasonal patterns. We expect this line item to draw normal patterns peaking next quarter and moderating throughout the second half of the year. Other noninterest income declined 29%, driven primarily by commercial lease sales activity with $6 million of gains recognized in the fourth quarter and $7 million of losses recognized in the current quarter. Service charges remained stable during the quarter as record treasury management fees offset seasonally lower consumer revenue. Overall, treasury management grew 6% on a linked-quarter basis, including strong growth in core payments revenue. We continue to invest in talent and innovation within the treasury management space with a focus on embedded payments and digital client experiences. We expect this business to remain a source of growth within overall service charges. For full year 2026, we continue to expect adjusted noninterest income to grow between 3% and 5% versus 2025. Let's move on to noninterest expense. While we continue to make meaningful investments across the franchise to support long-term growth, we remain focused on maintaining a disciplined approach to expense management. Adjusted noninterest expense declined 4% linked quarter reflecting broad-based improvement across most expense categories. Salaries and benefits remained relatively stable as lower incentives and declines in market value adjustments for employee benefits liabilities offset the seasonal increases associated with payroll taxes, 401(k) match and merit. For full year 2026, we expect adjusted noninterest expense to be up between 1.5% and 3.5%, and we expect to deliver full year adjusted positive operating leverage. Annualized net charge-offs as a percentage of average loans decreased 5 basis points to 54 basis points, reflecting continued progress on resolutions within previously identified portfolios of interest, which we reserved for in prior periods. Business services criticized and total nonperforming loans remained relatively stable during the quarter as risk rating upgrades continue to outpace downgrades. The resulting NPL ratio declined 2 basis points to 71 basis points, and the business services criticized ratio declined 16 basis points to 5.15%. Allowance increases tied to loan growth and greater macroeconomic uncertainty were more than offset by meaningful progress in resolving loans within previously identified portfolios of interest sustained risk-rating upgrades, exceeding downgrades and continued improvement in the business services criticized and total nonperforming loan ratios. As a result, the allowance for credit losses declined $39 million. Strengthening asset quality across portfolios, combined with high-quality loan growth drove an 8 basis point reduction in the allowance ratio to 1.68%, while coverage of nonperforming loans remained solid at 238%. We expect full year 2026 net charge-offs to be between 40 and 50 basis points. Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.7% while executing $401 million in share repurchases and paying $227 million in common dividends. We are encouraged by the proposed changes to the regulatory capital framework, which will revise the definition of capital to include AOCI and implement broad updates to risk-weighted assets calculations under the standardized approach. Including AOCI reduces our reported CET1 ratio to an estimated 9.4%. However, based on our preliminary assessment, the proposed changes are also expected to result in an estimated 10% reduction in risk-weighted assets, contributing to an approximate 100 basis point increase in capital. Taken together, the proposed changes are expected to result in a fully implemented Basel III common equity Tier 1 ratio of approximately 10.4% on a pro forma basis. Importantly, our capital priorities remain unchanged. Once finalized, we expect to continue managing our fully implemented Basel III co-equity Tier 1 ratio around the midpoint of our established 9.25% to 9.75% operating range. Finally, liquidity remains stable and robust with ample capacity to support future growth. As John indicated, we are pleased with our quarterly performance, particularly given the evolving market dynamics and believe we remain well positioned to continue delivering consistent, sustainable, long-term performance for our shareholders. This covers our prepared remarks. We will now move to the Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from the line of Ryan Nash with Goldman Sachs. Ryan Nash: It was good to see that you reiterated the guidance across the board despite a slightly softer start. So I wanted to focus on revenues, whether it's NII or fees, given 1Q along with some of the 2Q commentary, maybe just give us a sense of how you're tracking relative to your ranges and what is your confidence in terms of reaching the middle or the upper part of the NII range? And what do we need to see that happen? I have a follow-up. Anil Chadha: So first of all, we're very confident in hitting the ranges. Let me start with net interest income. So I think importantly, exiting the quarter with the strong loan growth that we saw $2.3 billion point-to-point is really a great tailwind for us heading into the second quarter, our deposit performance. The growth that we saw during the quarter was also really strong. our ability to continue to bring down deposit costs. We exit the quarter on interest-bearing deposit costs of 1.69%. That's another good tailwind for us. And as we've talked about before, we still have fixed asset turnover that will benefit us over the course the remainder of the year. So all of those things coming together is really what gives us the confidence in terms of what we expect to see for NII, both in the second quarter and going forward through the year. And I'd say loan trends are still look good. So we're confident in what we're seeing will continue to persist. With respect to noninterest revenue, a couple of things there. So first, cyclically, the first quarter is typically low for some of the consumer fee items, consumer service charges, card and ATM fees tend to be lower in the first quarter. We expect that to rebound in the second quarter. So that will be a nice tailwind. We've talked about capital markets and gave our guide for the second quarter and for the rest of the year. And then treasury management wealth just continue to be good growth stories for us. We continue to expect to see growth there. It's great to see another record quarter on treasury management. Wealth Management, up 9% year-over-year. So -- so all these things are really pulling in the right direction. And so what we're seeing right now really gives us confidence that we'll operate within the range that we've given. Ryan Nash: And then I have a follow-up and a comment. First for my follow-up. You noted that you still expect to manage to the midpoint of your range on capital, but I think you noted that it creates meaningful flexibility. So just given the coming changes, maybe just talk about the potential to manage the low end or even below given that these changes are coming and maybe expand on the flexibility comment? What else do we see for leveraging the capital? That's my question. And then my comment Dana, I just want to say thank you for all the help over the years and enjoyed taking care of your grandchild and doing some traveling. Dana Nolan: Thank you, Ryan. Anil Chadha: Yes. Great question, Ryan. So we don't want to get too far ahead of the proposed rule. So as we indicated, based on the proposal when you include AOCI and then the expected benefit in risk-weighted assets, we expect to be around 10.4%. The timing of each component, the phase-in schedule things of that nature will matter a lot. And so we're not going to get -- we're not going to get ahead of that. We're going to continue to manage capital the way you've seen us. Our capital distribution priorities are unchanged. We'll monitor these proposals and once finalized, it will be our plan to continue to manage capital within that range. That is unchanged. But we don't want to get too far ahead of this. We're fortunate we generate enough capital to do everything we want today to grow the business. And so we don't have to distribute capital ahead of this. We'll take our time. But when we get final rules, our distribution priorities are unchanged, and we still believe our targets are where we should be. Operator: Our next question comes from the line of Scott Siefers with Piper Sandler. Robert Siefers: Maybe, Anil, I was hoping you could sort of address a little -- in a little more detail the moving parts in the margin outlook for the remainder of the year. I think you touched on combination of the tighter asset spreads and loan remixing as factors in the first quarter. Maybe just going forward, how much will those need to find relief? Or is there simply enough balance sheet repricing opportunity going forward that you can absorb continued pressure from those dynamics that hit the first quarter but still see both the margin and NII? Anil Chadha: Sure. So first of all, managing deposit cost is still the primary mechanism that we have to continue to meet our margin objectives for the year. As already alluded to where we exited the quarter from an interest-bearing deposit cost. So the opportunity there is still going to be a meaningful driver in terms of where we go over the balance of the year talked about the fixed asset repricing opportunities that we have, about $9 billion looking forward. So that will be helpful. We did see, as we alluded to, some investment-grade credit draws late in the quarter, we like that credit. It's lower credit risk, great returns. We also saw a good kind of middle market growth throughout the first part of the quarter. So we expect to see that over the course of the year, and that's going to benefit the margin as well as we look forward. So deposit growth that's going to continue to grow. I already mentioned, we had good growth this quarter. We're going to see seasonal uptick in the second quarter. So all those factors coming together really going to be positive in terms of where our margin goes from here over the course of the year. Robert Siefers: Terrific. Okay. And then, John, your commentary on customer sentiment sounded pretty good. And I think, Anil, you mentioned that about half the first quarter loan growth came from higher line utilization. Maybe where are utilization rates versus, say, 90 days ago, where would you hope to see those advanced to as the year unfolds? John Turner: Yes. So utilization rates are up about 200 basis points, I guess, across both the corporate banking markets or customer base and our middle market customers. And we'd expect to see a little more activity as the year goes along, it is based upon the constructive feedback we're getting from customers. I will say that we observe liquidity -- customer liquidity is up, at least in -- at Regions by about 7% year-over-year. So customers are still creating additional liquidity. At the same time, we are seeing borrowing activity, which is positive. Robert Siefers: And then just final, Dana, same thing, thanks for all the help. Best wishes. Dana Nolan: Thank you. Operator: Our next question comes from the line of John Pancari with Evercore. John Pancari: On the deposit backdrop. I know you had indicated some pretty good deposit dynamics. So I wonder if you can elaborate on the competitive backdrop that you're seeing in the Southeast. You've had a number of banks flag seemingly intensifying competitive pressures on the deposit front from not only some incumbents, but some newer entrants to the market. So what are you seeing in terms of deposit pricing dynamics, has that been impacting your expectation at all underlying the margin? Anil Chadha: Sure, John. Yes. So we've been in a highly competitive deposit backdrop, I'd say, for north of a year. The one thing I'd say that's been consistent is we are seeing banks and we are as well, offering promotional offers in certain key markets where everyone is looking to grow customers. What I'll also say is banks are also being prudent in terms of how they think about the back book of their deposit base to manage that in the context of their overall deposit cost. And so the strategies are very similar to what we've seen over the past year. We've adopted an approach that we think appropriate, where we can continue to grow new customers, especially in these high-growth markets. but also take advantage of our back book to price that in a way that's able to manage our deposit cost where we think it should be over time. We're seeing the same thing within our customer base -- sorry, amongst our peers. And so we think that dynamic will continue to hold as loans continue to grow, I'm optimistic in terms of what we're seeing in the capital markets, the debt capital markets where banks are accessing liquidity there. And so from what I see now, the way banks are managing their deposit base and other funding sources, I think, will continue as we all have opportunities to grow loans from here. John Pancari: Great. All right. And then on the margin, I know you cited the pressure from tighter asset spreads. If you can give us a little more color there on where spreads stand, what loan types are you seeing that compression? Is that competitive pressures? And you also mentioned the paydown of some higher-yielding loans. So if you can just give us a little more color on that? And is there any incremental actions you expect on the portfolio reshaping? Anil Chadha: Yes, really on the tighter spreads, it's primarily in larger C&I where we saw line utilization late in the quarter. That's a primary area. We also saw just earlier in the quarter broadly across the balance sheet in terms of tighter mortgage spreads for some of the actions the government is taking as well as retail [indiscernible] that we saw earlier in the first quarter. But primarily where we're seeing the tighter spreads is in IG within the C&I space. John Pancari: Got it. Okay. And then the portfolio reshaping efforts, anything incremental that you expect on that front? Anil Chadha: I think all that's proceeding just as planned. And as we alluded to last quarter, a lot of that is behind us. And so we're -- we'll continue going down that path as we have. John Pancari: Best of luck Dana on retirement. . Dana Nolan: Thank you, John. Operator: Our next question comes from the line of Manan Gosalia with Morgan Stanley. Manan Gosalia: You spoke about line draws. I mean it sounds like it's a good fundamental demand coming through. Just wanted to see if you've seen any defensive line draws any reason that utilization rates may flatten or even decline from here? Anil Chadha: Yes. The line draws that we saw were predominantly late in the quarter when there is volatility in the capital markets. So that's really where we saw most of that come in. I wouldn't call it defensive in nature. I would just say given where the [ counter ] markets were, as we saw uncertainty in the market, customers drew on bank lines. So I'd expect that to abate through time as capital markets reopen, but nothing defensive in terms of what we're seeing. . Manan Gosalia: Got it. And then maybe on the capital markets side, I guess your expecting that trend to the lower end given volatility in rates. Most of your comments in the environment have been fairly constructive. So I guess what market conditions would move you back towards $100 million-plus range on capital markets revenues? John Turner: Well, the primary business that's impacted is our real estate capital markets business, and it's been soft now for 4 or 5 quarters based on just the rate environment. So as rates -- longer-term rates come down, we would see, we believe, a benefit in the real estate capital markets business, which would be important. And that would more than offset any impacts on other parts of the business. . Manan Gosalia: And Dana, all the very best. Dana Nolan: Thank you, Manan. Operator: Our next question comes from the line of Gerard Cassidy with RBC. Gerard Cassidy: And Anil, in talking about the loan loss reserve, I think you pointed out that the increases were tied to loan growth, but also the macro uncertainty out there. If the conflict in the Middle East takes decided to turn for the better. The straits opened up today as you probably saw the headlines. What would that do for the second or third quarter allowance does that start to reduce the loans as that macro risk drops meaningfully and kind of surprises all of us that it's maybe going to be resolved sooner than expected? Anil Chadha: Yes. And if you look on the waterfall that we included in the appendix, we attributed about $17 million of growth quarter-over-quarter to macro uncertainty. That's primarily what we're seeing in the Middle East. So to the extent that gets resolved and the other kind of second order effects resolve in a positive to neutral way, we could see a modest release in the allowance of that. I wouldn't say it's overly material, but we did feel appropriate to put up a little bit in terms of macroeconomic uncertainty, but that's the part of the allowance that I'd point you to. Gerard Cassidy: Very good. And then to follow up on the commercial loan conversation, that you guys have presented, you're not really big NDFI lenders as a regional bank, you're down at the bottom of kind of the group, which lowers the risk, of course. But what -- I guess, why haven't you maybe pursue it as aggressively as some of your peers in terms of the different categories of NDFI lending. What do you guys see there that makes you maybe a little more cautious? John Turner: Well, I think we just generally are more cautious, Gerard. And as we think about our lending activities, they're principally based on relationships that are established within our footprint. We have some businesses where we have specialized capabilities, and we actually do lend out of footprint. This would be an area where we're getting our feet wet, learning a little more about it. Today, we have relationships with about 20 -- just in excess of '25 funds, and those funds are fairly broadly distributed in terms of the businesses, the sectors that they're lending into total exposure, I think just above $3 billion to those funds within private credit, about $1.8 billion. So we're just in exposure, I mean, in outstandings. I think we're just trying to learn to understand can we build relationships, can we gain deposits? Can we participate in capital markets activity? Because that's fundamental to how we want to operate our business. We can't do that, then it's just not an appropriate allocation to capital for us. Gerard Cassidy: And Dana, hopefully, you have tons of fun in retirement. Dana Nolan: Thank you, Gerard. Operator: Our next question comes from the line of Ken Usdin with Autonomous Research. Kenneth Usdin: It was good to hear about -- sorry, let me start it again. First quarter credit quality was exactly as expected, taking care of that already expected stuff and then your outlook for the year looks good and there was good stability in the NPAs and some of the other metrics. So just are you kind of through that piece of taking care of some of that legacy stuff? And just your general line of sight on some of those other portfolios that you've mentioned in the past. John Turner: Yes. I would say, Ken, we previously identified office, multifamily, transportation and communications as portfolios where we have some credits we're working through, working out. We have generally seen most of that activity has been completed, but we still have a few credits of some size that we're working on. And so while we are indicating that we expect charge-offs over the course of the year to be between 40 and 50 basis points of the timing of which we get back within that range is still not entirely clear, but we think credit quality is continuing to improve, as indicated, reflected in our metrics. Nonperforming loans down to 71 basis points, criticized loans continuing to decline charge-offs should follow as their trailing indicator of improving credit quality. Anil Chadha: And I'll just add, as all that happens, our 1.68% allowance ratio should approximate down to the 1.62% that we disclose or kind of day 1 that assumes we resolve the credits that John mentioned, and that assumes that the macroeconomic uncertainty gets resolved in a positive way. The timing of which that happens, we'll see. That's where we think we'll end up based on the composition of our loan portfolio. Kenneth Usdin: Understood. Okay. And then just second thing on -- Anil, you're starting right off of the back following David, on the hedging and securities portfolio repositioning activity. Is that at all any adjustment to that higher for longer? Or is that -- is this more just kind of a normal course of moving some stuff further out to later time periods? I'm just wondering if it's just like normal course or if any adjustments you're making because the environment? Anil Chadha: No, it's just normal course as security shorten. They don't accomplish our balance sheet management objectives as they once did. And so we'll extend duration on the new securities that we purchase. So just an extension of what you've seen us do before. Operator: Our next question comes from the line of Matt O'Connor with Deutsche Bank. Matthew O'Connor: I just wanted to follow up on the fees. I guess some of these categories, if you look year-over-year, the growth was a little bit less than I would have thought like the consumer service charges flat operate up a little bit, hard flat? And maybe just talk about kind of some of those dynamics, and I know you gave some guidance for card in 2Q, but just kind of thinking about those categories maybe more medium term. Anil Chadha: Yes. So I'd say in terms of medium-term guidance, they are cyclically lower in the first quarter. They tend to peak in the second quarter and then kind of hold flat from there. From a year-over-year comparison standpoint, we do have some kind of one-off items, if you just look quarter-over-quarter, in particular, in terms of how we treated certain expenses associated with some of those programs. So there are some onetime changes if you just look year-over-year, would mute the growth. But in terms of past from here, we expect to peak next quarter at hold at that level throughout the rest of the year. Matthew O'Connor: And that will be for the card and ATM fees, right, to the... Anil Chadha: And the consumer service charges portion. Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess first question, just around looking to your sort of messaging on the drawdowns towards the end of the quarter due to market, does that create a risk of payoffs? And I'm just wondering if some of the macro subsides markets are less volatile, do you see customers paying off and that credit then moves off balance sheet? And secondly, as we think about just capital markets, obviously, it's a more real estate bias. In your case, without getting any rate cuts for the year, do you think just CRE lending, real estate capital markets can still have a good year? John Turner: So maybe I'll answer the second question first. Yes, we continue to lean into that opportunity. We have actually a fairly significant portion of our portfolio is maturing towards the back end of the year. There will be some opportunities within that portfolio to help customers with permanent placement of those obligations. Additionally, we see other opportunities with customers who have debt and other places that will need to refinance. So I think the real estate capital markets business can still have a good year even if we don't get a lot of improvement in rate, but if we do, it gets materially better, we think. With respect to line utilization, about half of the increase in line utilization was attributable to our larger corporate customers. The other half to our market customers, who are continuing to invest in their businesses and grow. And while there is some risk that we'll see some paydowns amongst those larger corporate customers, we expect the middle market customers, again, to continue to borrow as they invest in their businesses. Pipelines are up for the year fairly significantly. And so we also expect new originations to overcome any paydowns that we might experience in the corporate space. So all in all, we feel still really good about our ability to deliver the loan growth that we've guided to. Ebrahim Poonawala: Got it. And then just maybe, Anil, for you or both of you and we think about the declining RWA density on the back of the capital proposals, how sensitive are you to managing to a certain level of tangible common equity ratio. Just any thoughts there? Anil Chadha: Yes. I wouldn't say that we're managing to a tangible common equity ratio. I'd say what we're thinking about really is, one, across all the changes that are being proposed, hey, we think they're positive. We'll continue to manage to a total CET1 ratio within that 9.25% to 9.75% range. We think it's appropriate. We'll manage through that through time as we get finalization of the rules, with respect to the proposed RWA changes themselves. We have to think about not just the regulatory implications, but other constituents as well and how they think about RWA and the capital that's needed on our balance sheet. Again, we think all of this is positive to what we can do to capital through time. But our caution will be one tied to finalization of the rules and two, just to make sure that we understand where each of the other constituents land as well when it comes to these proposed changes. Ebrahim Poonawala: Got it. And Dana, all the best, and I'm sure we'll stay in touch. Take care. Dana Nolan: Appreciate it. Thank you. Operator: Our next question comes from the line of Dave Rochester with Cantor Fitzgerald. David Rochester: Just want to go back to the credit discussion. I'm trying to figure out how you're thinking about the trajectory of the problem loan buckets from here. Just given all the work that you've already done, are you expecting to see more meaningful moves lower in NPAs and criticized assets as we get to the back half of the year? And then if you could just update us on your progress in the transportation book, that would be great. John Turner: Yes. We should see -- continue to see some improvement in credit quality and NPAs could come down a little further. I would say if you look back over time, NPAs have averaged closer to 1%, I think. And so I wouldn't expect them to come down too much further than 71 basis points. Maybe we get into the 60s, but I don't see a lot of movement beyond that. But I would tell you that we think credit is pretty well normalized in our book given the composition of our portfolio today, and we feel good about our ability to deliver on the 40 to 50 basis points of charge-offs as we indicated. With respect to transportation, we're still working through a couple of credits there. But generally speaking, I think we have identified and resolved most of the exposure. We provided some slides in the deck. I can't recall which slide it is exactly on transportation, 24, give you a little insight into our exposure there. And think of what you'd see is, one, we've had a fairly significant reduction in the size of the outstandings or commitments representing about 1.2% of total loans. NPLs have come down to about $51 million. And again, just look at our reserve against that portfolio, we think it's appropriately reserved for any losses that we might experience. David Rochester: So you're in the latter innings on that one [indiscernible]? John Turner: Yes, we are. David Rochester: Great. And then just back on the securities repositioning you did, just given today's rates, is there any more you could do there? Anything that's left on the table that you could potentially source at some point in the future? Anil Chadha: Yes, I'd say it's small. There's not much right now. What we'll continue to look at as securities as they get closer to maturity, that creates an opportunity, but we'll need to see where rates are to see if it makes sense to do. As you've seen from us in the past, we're very mindful of thinking about it through returns, payback period, really strong payback period on this trade we did 2 years. So we're disciplined when it comes to using capital in this way. David Rochester: Anil, welcome. And Dana, it's been great working with you. Good luck and enjoy. Anil Chadha: Thanks. Operator: Our next question comes from the line of Erika Najarian with UBS. L. Erika Penala: Anil, just a two-parter for you on CET1 first. Given your risk profile, what was the consideration? Or what are your considerations in terms of RSA, which you showed us versus ERBA? And you mentioned other constituents. A few of your peers have talked about the ratings agencies and perhaps because of the benefit to RWA, particularly for the regional banks that there might be a tendency for the rating agencies to look at unrisk-weighted assets. or sort of unrisk weighted capital measures. And so just wanted your comments on those 2 topics. Anil Chadha: Sure. So you really hit the second point. That is the other constituency that we need to be mindful of. And as you alluded to, some use direct regulatory risk-weighted assets and their approach. So we will need to see how they think about this. And we'll clearly work with them to share our thoughts on that, but you really hit the second piece there. On the first piece, just to walk you through our preliminary view of the 2 approaches. And so we communicated our 100 basis point expected impact under the standardized approach. We've looked at the ERBA approach. In particular, as you know, the 2 primary benefits that we would get through that approach are the incremental benefit of risk weights on investment-grade credits that we've talked about today. So that's meaningful. And then also other retail exposures where you could get an incremental lift in terms of risk-weighted assets. The counter to that for us is the operational loss add-on. And so our current oculation of that for us actually overwhelms the benefits from the other two. It's something we have to continually assess. We're fortunate that as proposed, you kind of have an evergreen option to opt in, which is beneficial. But for us right now, the operational loss component overwhelms the benefits, in particular, from investment-grade credits and retail exposures as currently proposed. L. Erika Penala: Got it. And just -- and Tom will follow up with you a little bit on capital during our catch-up call. But the second question I want to pose is, maybe just directly asking you mentioned that deposit costs are a big factor in terms of your net interest income outlook. And again, you must be very flat or that a lot of your peers, both money center and regional are coming into the markets that you've long dominated if the Fed doesn't cut, what is sort of the trajectory for deposit costs at regions? In other words, are you -- will you be able to keep deposit costs flat if the Fed isn't cutting this year? Anil Chadha: Yes. We will. And we think -- I talked about the 1.69% exit rate. We think that will continue into the second quarter, and it will decline modestly. Total deposit costs will decline modestly from there. Again, we think the competitive pressures banks are kind of performing as we'd expect in terms of how they're managing deposit costs, and we expect that to continue into the future. Operator: Our next question comes from the line of Chris McGratty with KBW. Christopher McGratty: Intra-quarter, you talked about living in the 16 -- the high end of the 16% to 18% return on tangible common equity range for the next 3 years. You were slightly above that next -- last year. I think the Street's got you a little bit over 18%. Is the outlook that those comments were made now that we have some clarity on regulatory how much does the numerator versus denominator play in maintaining that level of profitability? Anil Chadha: Yes. So looking forward, there's a couple of things to think about. One is with let's talk about the proposed capital changes first. If those go in as proposed and if the other constituents don't meaningfully impact how we think about capital, that in and of itself is a tailwind to returns to the extent we reduce the buyback shares from that. so that would prop up returns overall. But look, our -- the reason we frame up our guide of 16% to 18% is really because, as we've said before, we need to be top quartile when it comes to overall returns. We don't need to be #1. We need to make sure we make all the right investments into our business. And we believe that we can continue to do that. We do it this quarter in terms of the growth that we saw. But when we do that, we're going to continue to grow income and so returns will be increased from that as well. But the point of us making that statement is we want to reiterate that we are well positioned to grow we do not feel like we have to be #1 in our peer group. We're committed to invest capital as long as we get a good return out of it. But that's really why we positioned it the way we have. We'll continue to monitor the peer landscape Back to my earlier point, everyone is going to benefit to some degree from these capital proposals. Others are taking actions where they think they may be able to raise returns. And so we'll continue to reassess what the right levels are for us through time, but our goal is to remain top quartile amongst our peer set. Christopher McGratty: That's great color. And my follow-up would be just more capital beyond buybacks. You've been clear about inorganic not being a focus today. I guess, maybe remind us where you are with some of the projects internally. As you fast forward to the back half of the year, is that something where you may have to consider to be more flexible with inorganic growth if the right opportunity came about? John Turner: We'll deliver the loan system conversion. The end of May, we've got a fairly significant improvement in our digital offering to particularly small businesses that delivered over the course of the summer and then begin piloting our deposit conversion in the third quarter. And that project continues to progress on track. We feel really good about it. And so that will position us, we believe, to do a number of things, focusing on how do we continue to improve our business improve the customer and banker experience once we get that work done. So those are important areas of focus for us. In terms of what it means for inorganic growth, we're going to stay focused on executing our plan. We believe our plan will allow us to deliver top quartile results for our shareholders, consistent with the same good execution that we've experienced over the last 5, 6, 7 years, and we'll -- that will be our focus going forward. Operator: Final question comes from the line of David Chiaverini with Jefferies. David Chiaverini: Follow-up on deposit costs. There's been some discussion about how cash optimization by customers in an AI world, could pressure deposits at banks that have a lower cost of deposits relative to peers. Can you talk about your view on this and how Regions plans to protect its market share? Anil Chadha: Sure. No, it's a great question. And what could happen from AI is kind of proliferating several parts of the economy. When we think about the impact on deposits, we kind of start with the nature of our customer base. So our customer base average deposit is about $5,200. And when we think about the ability for customers to move money around what our customers are really using their account for is for ease of payments. And so we have to stay focused on making sure we're providing them the most efficient way to make payments across their daily lives, a much lower percentage of our customer base is really yield seeking. And so that, in my opinion, will be the first place where you will see the use of AI allow people to move funds around. I'd also say it's pretty easy to move funds around today. I mean it doesn't take too much effort to move cash in and out of accounts to get a higher yield. I'm sure AI can do it marginally quicker, but I'll just say, I think today, it's pretty efficient as well. So I think it's something that could play out. I think it will play out more severely for those customers that have larger balances seeking yield. We see them do it today. But as of right now for our customers, we need to make sure we're giving them all the payment capabilities they need to be done efficiently. And we'll continue to monitor this space, but that's kind of how we're thinking about it right now. David Chiaverini: Very helpful. And then shifting over to the hiring pipeline, how does that look given the M&A that's occurring in your footprint? John Turner: It's good. It's good. We have hiring plans in our commercial banking business, in our wealth banking business, in our branches. And we're moving along having accomplished more than 2/3 of the hiring that we hope to do as part of our plans, part of our 3-year plan. And so we feel really good about the quality of the bankers that we're hiring and the opportunities that we have associated with that. It takes a little while for those bankers to begin to generate new business once they get settled in. So we'd expect to see the impact of some of that hiring in the latter part of this year and into 2027, which is again another tailwind for growth, we believe. Anil Chadha: Yes. I'd just say even for our existing banker population, our platform is really delivering them the opportunity to grow their business. We're seeing a really nice decline year-over-year in attrition, even amongst our existing bankers. And so for us, we view that as a great lot of confidence that they have the platform they want to be able to deliver to their customers. David Chiaverini: All the best, Dana. Dana Nolan: Thank you. John Turner: Okay. Thank you very much. Well, I appreciate everybody's participation. And once again, congratulations to Dana. We appreciate her leadership, commitment, connectivity with all of you in the investment community. We will miss her, but we're confident Tom is going to do a great job. So thank you, and have a great weekend. Operator: This concludes today's teleconference. You may disconnect your lines at this time.
Operator: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Fifth Third Bancorp Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to [ Matt Curoe ], Director of Investor Relations. Please go ahead. Matt Curoe: Good morning, everyone. Welcome to Fifth Third's First Quarter 2026 Earnings Call. This morning, our Chairman, CEO and President, Tim Spence; and CFO, Bryan Preston will provide an overview of our first quarter results and outlook. Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of April 17, 2026, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim. Timothy Spence: Good morning, everyone, and thanks for joining us today. At Fifth Third, we believe great bank distinguish themselves based on how they perform in uncertain environments, not in benign ones. We prioritize stability, profitability and growth in that order. We deliver them by finding ways to get 1% better every day while investing meaningfully in the future. Today, we reported earnings per share of $0.15 or $0.83 excluding certain items outlined on Page 2 of the release. Results reflect the February 1 closing of the Chimeric acquisition. Revenue was $2.9 billion, up 33% year-over-year and adjusted net income was $734 million, up 38%. Credit performance was in line with expectations with net charge-offs at 37 basis points. Both NPAs and criticized assets improved modestly. In the quarter, we closed the largest M&A transaction in Fifth Third's history. We delivered an adjusted return on assets of 1.12% and an adjusted return on tangible common equity of 13.7%. Our tangible common equity ratio rose to 7.3% and tangible book value per share increased 1%. We are the only bank among our peers who have reported to date to increase both of these key metrics during the quarter. Fifth Third's legacy strategies are continuing to produce broad-based growth while we execute the [ Comerica ] integration on plan and on schedule. In commercial, legacy Fifth Third C&I loan balances grew 6% year-over-year. Production remained healthy with the strongest activity in manufacturing and construction supported by reshoring and infrastructure investments. [indiscernible] acquisition more than doubled, led by our Southeast markets, and 35% of new clients were fee led with no extension of credit. Importantly, our commercial loan growth continues to come from relationship-based lending and knock from nonrelationship sources. In commercial payments, Newline continue to scale with revenue up 30% and deposits up $2.7 billion year-over-year. During the quarter, [indiscernible] launched a new payment product built on Newline, joining other marquee clients like Stripe and Circle and we advanced preparations for the second quarter launch of the new Direct Express platform. In Consumer, the legacy Fifth Third franchise delivered 3% household growth and 4% DDA balance growth. Southeast households grew 8%, led by Georgia and the Carolinas, and we opened 10 additional branches in the region during the quarter. Consumer and small business loans grew 7%, led by auto, home equity and our Provide fintech platform. Now turning to Comerica. Thanks to timely regulatory approvals, we closed earlier and originally expected on February 1 and have continued to make progress at an accelerated pace. Our top priority is our people, and we're working hard to become 1 team. Since Legal Day 1, leaders have been on the ground in Comerica's major markets nearly every week, and we visited every branch in the Comerica network. We've also hosted product showcases to highlight the breadth of our combined capabilities. Organizational design and leadership decisions are complete, and I'm very excited about caliber of our combined team. On technology, we remain on track to convert all systems over Labor Day weekend with our first full [indiscernible] conversion later this month. As a result, we remain confident that we will deliver $360 million of net cost savings this year and reached an $850 million annual run rate by the fourth quarter. We're also already building a strong pipeline of revenue synergies. In commercial, we're seeing early wins by bringing capital markets, payments and specialty lending to existing relationships. In the first 60 days, our capital markets team completed fuels and metals commodity hedges and executed an accelerated share repurchase for Comerica clients. We also booked our first Comerica to Fifth Third loan win in asset-based lending while Fifth Third referrals helped to build the largest ever pipeline in Comerica's National Dealer Services business. Commercial Payments has presented our managed services solutions to over 100 Comerica clients with 65 of them interested in moving forward. In Consumer, we launched our first Comerica branded deposit campaign in Texas in February. Response rates and average opening balances were broadly consistent with the results that we generate in our legacy Fifth Third markets, and nearly half of new savings customers also opened to checking account. We've hired more than half of the mortgage loan officers and auto dealer representatives that we plan to add this year in Comerica's footprint and pipelines in each of those businesses [indiscernible] build. We'll open our first Fifth Third branded branches in Dallas and Fresno this month, and we now have letters of intent in place or in progress for 81 of our targeted 150 de novo branches in Texas. As I wrote in our annual letter to shareholders, the global economy is a complex adaptive system and such systems react to change in unexpected ways. We're closely evaluating the direct impact of the [indiscernible] on the energy and other commodities as well as the implications for prices, interest rates and customer activity. In an environment where we may not see the macro tailwinds that many expected at the start of the year, the Comerica merger expands Fifth Third's organic opportunity set, and we do not need a perfect backdrop to deliver on our commitments. Before I turn it over to Bryan, I want to take a moment to say thank you to our colleagues. Earlier this month, we surpassed $300 million in total assets for the first time an important milestone that reflects the work we do together to serve customers, support communities and show up for one another. I know many of you are putting an extra effort to support the integration, whether it adds helping customers, learning new products, meeting new teammates or navigating change. Your commitment to getting 1% better every day and your dedication to our clients and to each other is what gives me confidence in what we're building and the opportunities ahead. With that, Bryan will provide more detail on the quarter and the outlook. Bryan Preston: Thanks, Tim, and good morning. Our first quarter results reflect the strength of what we have built and the discipline with which we are executing. Results exceeded our March expectations, driven by stronger NII, disciplined expense management and integration execution on plan. Adjusted ROA was 1.12% and adjusted ROTCE excluding AOCI was 13.7%. The Comerica acquisition closed without tangible book value dilution and and TBV per share grew 1% sequentially and 15% year-over-year. The earnings power of the combined company is intact, and the integration is on track. Given the magnitude of the acquisition, standard year-over-year and sequential comparisons obscure more than they revealed this quarter. What matters is how we exit, a larger, more granular loan portfolio, a lower cost deposit base and larger diversified fee income businesses. Each of those is a deliberate outcome and each positions us to generate stronger and more durable returns as the integration delivers. Now diving further into the income statement, starting with NII and the balance sheet. Net interest income was $1.94 billion for the quarter, above our March expectations. Net interest margin expanded 17 basis points to 330 basis points, driven by the impacts of the Chimeric acquisition. That includes 7 basis points from securities portfolio marks and repositioning basis points from cash flow hedge termination and 2 basis points from purchase accounting accretion on the loan portfolio. A full quarter of these impacts will benefit NIM by a few additional basis points in the second quarter. End-of-period loans were $178 billion, up 2% sequentially from pro forma combined year-end balances. Average total loans were $158 billion, reflecting the February 1 close. The growth was broad-based, strong middle market production, a rebound in line utilization and continued momentum in home equity, auto and our Provide fintech platform. In commercial, line utilization ended the quarter at 40.7%, up approximately 120 basis points from the pro forma combined year-end level and notably held steady throughout the volatility in March. Clients are cautious, but active. On a legacy Fifth Third basis, commercial loans grew 6% year-over-year. Combined with the Comerica addition, shared national credits now represent only 26% of total loans, a deliberate and ongoing reduction in concentration risk. On the consumer side, first quarter auto originations were the highest in 2 years with average indirect secured balances up 10% year-over-year. Home equity balances grew substantially, supported by both the acquisition and strong underlying production. We achieved the #1 HELOC origination market share in our legacy Fifth Third branch footprint. With an average portfolio of FICO of 773 and average loan-to-value of 64%, the production strength is real, and the credit discipline behind it is equally real. Turning to deposits. Average core deposits were $207 million, and the end-of-period core deposits were $231 billion. Noninterest-bearing balances comprised 28% of core deposits at quarter end, up from 25% at the same point last year. That improvement reflects the combined benefit of Comerica's commercial DDA franchise and our continued organic consumer DDA growth. The household growth can strip is showing up directly in our funding costs. On a legacy third basis, consumer household growth of 3% over last year, supported 4% consumer DDA growth. Total deposit costs, including the benefit of noninterest-bearing balances were 158 basis points in the first quarter, a funding cost profile that compares favorably across the peer group. Interest-bearing deposit costs were 215 basis points, down 27 basis points year-over-year, reflecting both that organic deposit mix improvement and the benefit of the Comerica balance sheet. Despite the larger balance sheet, our approach to balance sheet management is unchanged. We prioritize granular insured deposit funding over large wholesale holds. We maintain strong liquidity buffers, and we proactively manage the overall cost of funds. That discipline showed up again this quarter. Average wholesale funding declined 3% year-over-year, even with Comerica balances included. That favorable mix shift lowered the cost of interest-bearing liabilities by 36 basis points. We also maintained full Category 1 LCR compliance at 109% and a loan-to-core deposit ratio of 76%. Now turning to fees. Adjusted noninterest income, excluding securities losses and the other items listed on Page 4 of our release was $921 million, slightly above the midpoint of our March expectations. The most significant milestone here is that both wealth and commercial payments are now generating fee income at the run rate necessary to deliver $1 billion each in annualized noninterest income. That outcome reflects years of consistent, disciplined investment in both businesses and the recurring nature of the revenue. Looking further at wealth, fees were $233 million and total AUM ended the quarter at $119 billion. Legacy Fifth Third AUM trends remained strong, up $10 billion or 15% over last year. Fifth Third Securities delivered strong retail brokerage results, with revenue up 15% year-over-year. These are businesses that we have been consistently investing in and the returns are compounding. Commercial payment fees totaled $218 million for the quarter. Direct Express contributed $14 million in fees for the quarter and approximately $3.7 billion in average deposits for the month of March. New line continues to drive strong fee growth of 30% year-over-year and related deposits reached $5.5 billion, up $2.7 billion from last year. Capital markets fees were $134 million, up 11% sequentially. Increased hedging activities and commodities and FX and strong bond underwriting fees combined with 2 months of [indiscernible] activity were the primary drivers of this growth. Turning to expenses. Page 5 of our release details certain items that had a larger impact on the noninterest expense this quarter, primarily $635 million in merger-related expenses. Adjusted noninterest expense was $1.77 billion, consistent with our guidance. The adjusted efficiency ratio was 61.9%, which reflects the addition of Comerica and normal first quarter seasonality associated with the timing of compensation awards and payroll taxes. On the synergy front, we remain confident in our ability to achieve the $850 million of annualized run rate cost savings in the fourth quarter of this year. Integration activities are progressing as planned against our established milestones and savings are being realized. The expense benefit will build steadily over the first 3 quarters of this year with a more significant increase in the fourth quarter. Once the system conversion and branch consolidations are completed in early September. Shifting to credit. The net charge-off ratio was 37 basis points for the quarter, in line with our expectations and the lowest level in 2 years. The NPA ratio was 57 basis points compared to 65 basis points last quarter. Commercial net charge-offs were 26 basis points, also a 2-year low with stable trends across industries and geographies. Consumer net charge-offs were 58 basis points, down 5 basis points from last year. The consumer portfolio remains healthy with nonaccrual and over 90 delinquency rates relatively stable across all loan categories. We have been deliberate about where we choose to grow. Our exposure to nondepository financial institutions represents only 7% of our total loan portfolio, well below the industry average. Our 3 largest categories are subscription lines supporting capital call facilities, corporate credit facilities to traditional institutions such as payment processors, insurance companies and brokerage firms, and secured lending to residential mortgage-related entities. These are long-standing portfolios. We have deep underwriting expertise in each of them, strong collateral visibility and structural protections where needed, including borrowing base requirements and advance rates that provide significant loss absorption before we would recognize $1 of loss. On private credit, we have chosen not to participate meaningfully in lending to private credit vehicles and business development companies, which combined represent less than 1% of total loans. That was a deliberate decision, not a missed opportunity. The structural complexity embedded in these exposures introduces risks that are harder to assess through a cycle. We would rather grow in categories where we have more transparency to the collateral and have direct relationships with the underlying borrowers. On software and data center lending, we have maintained that same disciplined posture. We believe in the long-term demand for AI infrastructure, but we have also seen how quickly these build cycles can overshoot. We have remained selective and our exposure is intentionally limited. Software-related exposures is less than 1% of total loans, with the portfolio performing in line with expectations with no material migration in the quarter. ACL as a percentage of portfolio loans and leases decreased to 1.79%, primarily reflecting the [indiscernible] acquisition. The ACL as a percentage of nonperforming assets increased to 316%. Provision expense included $83 million for merger-related day 1 ACL build. Our baseline and downside cases assume unemployment reaching 4.5% and 8.5%, respectively, in 2027. We made no changes to our macroeconomic scenario weightings during the quarter. though a qualitative adjustment was applied to reflect the direct impacts of the elevated energy and commodity costs as well as the broader implications for economic growth, inflation and unemployment in the current geopolitical environment. Moving to capital. CET1 ended at 10% and reflecting the impact of the Comerica transaction and strong RWA growth. Under the proposed capital rule, our estimated fully phased-in pro forma CET1 ratio is 9.6%. The RWA benefit to capital ratios associated with the new rule is nearly a 100 basis point improvement, primarily due to credit risk RWA reduction. The proposed rule recognizes the granular, well-secured and relationship-based nature of our loan portfolio. The same portfolio characteristics we have been deliberately building toward over the past several years. The [indiscernible] should expand the ability of the banking industry to support the economy through increased lending capacity. Additionally, our tangible common equity ratio, including the impact of AOCI and the Comerica acquisition increased to 7.3%. Over the last 12 months, the impact of unrealized losses included in the regulatory capital under the proposed rule has decreased by 16%, a 25 basis point improvement to the pro forma capital ratios despite an 11 basis point increase in the 10-year treasury rate. That is the direct result of our strategy to concentrate our AFS portfolio and securities that return principle on a known schedule, which represents approximately 55% of the fixed rate holdings within our AFS portfolio. We expect continued improvement in the unrealized losses as the securities [indiscernible]. Moving to our current outlook. Our outlook reflects the forward curve at the end of March, which assumes no rate cuts or hikes in 2026. Given the updated rate outlook and our more asset-sensitive balance sheet, we are updating our full year NII outlook to a range between $8.7 billion and $8.8 billion. We will continue to take actions to move the balance sheet to a more neutral rate risk position over time. which could include investment portfolio and/or other hedging actions. Our outlook for full year average total loans remains in the mid $170 billion range. Full year noninterest income is expected to be between $4.0 billion and $4.2 billion, reflecting continued revenue growth in commercial payments, capital markets and wealth and asset management. Full year noninterest expense is expected to be $7.2 billion to $7.3 billion, including the impact of $210 million of CDI amortization and $360 million of net expense synergies in 2026. This outlook excludes acquisition-related charges. In total, our guide implies full year adjusted PPNR, including CDI amortization, up approximately 40% over 2025. We remain on track to exit 2026 at or near the profitability and efficiency levels consistent with our 2027 targets. For credit, we expect full year net charge-offs between 30 and 40 basis points. Turning to capital. With the release of the proposed capital rule, we are updating our CET1 operating target to a range of 10% to 10.5%. We expect to resume regular quarterly share repurchases in the second half of 2026 with the amount and timing dependent on the balance sheet growth and the timing of the remaining merger-related charges. Our capital return priorities are unchanged, pay a strong dividend, support organic growth and then share repurchases. For the second quarter, we expect average loans of $178 million to $179 million, driven by growth in C&I, home equity and auto, is projected to be $2.2 billion to $2.25 billion with NIM expanding another 3 to 5 basis points. Noninterest income is expected to be $1 billion to $1.06 billion, and noninterest expense is expected to be $1.87 billion to $1.89 billion. Finally, net charge-offs are expected to be 30 to 35 basis points. The first quarter established the foundation. NII above expectations, tangible book value per share growth intact credit at a 2-year low integration on track and early revenue synergies beginning to show. Those results matter, not just for what they are, but for what they signal. The core business is performing. The integration is delivering. And as we move through the year, the financial profile of Fifth Third will continue to improve in ways that are visible, measurable and consistent with everything we have committed to when we announced this combination. We have the balance sheet, the business mix and the team to get there. With that, let me turn it over to Matt to open up the call for Q&A. Matt Curoe: Thanks, Bryan. Before we start Q&A, given the time we have this morning, we ask that you limit yourself to 1 question and 1 follow-up and then return to the queue if you have additional questions. Operator, please open the call for Q&A. Operator: [Operator Instructions] We'll go to our first question from Mike Mayo at Wells Fargo. Michael Mayo: As you highlighted, this is the biggest acquisition in your firm's history. And it sounds like it's on track from your prior guidance with the Labor Day integration, $850 million run rate savings by the end of fourth quarter. I think we kind of knew that already, but what's incremental in the last 3 months or since your last presentation that you think is maybe going better than expected? Is that any of that higher NII guide due to the expansion in Texas and the promotions? And also, where are you seeing some of the snags? There's always issues with these things, what do you need to make sure you work out and doesn't kind of let down the progress? Timothy Spence: Yes. Mike, it's Tim. I'll take an initial crack at that one, and then I'll let Bryan clean it up. So yes, I mean, we think we did a pretty good job of summarizing the past. As you know, when it comes to these large transactions, the absence of any surprises is a positive, right? So getting 1 quarter closer to a point where we're operating on a single common platform is an important milestone unto itself. In terms of just the core integration, I think things have gone really well. There really haven't been big surprises. We have all the -- we completed the Walk-the-Wall planning exercise that we run all the customer day when deliverables have been locked. I think there are 46 new to Fifth Third applications, which, as we mentioned, from a technology perspective previously primarily support the Tech and Life Sciences business and the Dealer Services business. plus a couple of things in payments. I think the data strategy and the data conversion, that work is completed. All the risk-based process reviews we needed to get done which are essentially the click down from the work that got done in diligence have been completed, and we know where the product gaps are that need to get filled. The org charts are done, as I mentioned in my remarks, and we've selected the key leaders. I'm pleased it's very early days. So this is not by any stretch of the imagination declaration of success. But that sort of employee attrition is actually running a little bit below the historical levels. So we're not seeing any sort of elevation in attrition. I think the positive surprise is actually what is happening in Texas and then even more broadly across the Southeast, is it related to promotional activity. We got a lot of questions after we announced the deal about whether the playbook that's worked so well for Fifth Third and the Southeast would work in Texas and in the Southwest more broadly. So that initial mailing that I referenced in my prepared remarks was a test, right? It was the test and learn process so that we could reground our targeting and expected balance models on empirical data in Texas. We mailed 700,000 households. Response rates were good. The fact that more than half of customers open checking even in an environment where there are still -- all the legacy tech limitations that Comerica had are still in place. I think is very good. But maybe the more exciting thing is that having regrounded the models, we dropped the subsequent mailing on the 10 to 11 of this month to 6 million people and the very early results there are super positive. Like with the sort of reground of the analytic models, like we're getting 3x the response rate that we see at this stage in a campaign packets. And we actually expect that campaign alone to generate $1 billion in deposits across Texas, Arizona and California, which would be great. Now that is all incorporated in the guide to be clear. That's not above and beyond the guide. But it just speaks to a, the fact that the tactics that we are using in the Southeast are going to work in the Southwest and B, the fact that Comerica had not run any sort of external consumer marketing in 13 years. means it's a relatively unsaturated market for us. And therefore, if anything, I think my optimism about our ability to gain share there has improved. Then in terms of what what's not working. We got a little bit of an internal civil war here between people who like their Chile with beans, no beans or on spaghetti. So that we're going to have to solve before we can truly say we're one company. Michael Mayo: All right. That's kind of like my weakness as I work too hard. But okay, I'll [indiscernible] so just I guess is just interesting, like you guys said had very old last century, all these mailings and stuff, but 6 million mailings it sounds like you're getting $1 billion of deposits that will pay off. But how does -- this is all America accounts right now, right? And so after Labor Day, they're all going to become the third accounts. And so seems like that transition has some risk too, going from America to actually branded Fifth Third. How do you manage that transition? Timothy Spence: Yes. I mean the tech conversion, as you know, right, is the single largest point of risk in a transaction because I think we've got a very good employee value proposition here. we've got, on a combined basis, more capability than either company had to serve clients and those things are good for people that the Code Red event that could occur would be if you made a mistake on the tech conversion and either people couldn't access their accounts or you had service issues or processing issues or otherwise. So we're definitely always mindful of that. Assuming that we execute the conversion well, the way that we did with MD as an example, then I actually think the tech conversion is a positive. There'll be a bake-in period where people will need to learn to navigate new interfaces, whether that's the consumer mobile app or the commercial portals and otherwise. But the capabilities that are [indiscernible] in Fifth Third digital channels are much broader than exist inside Comerica's current channels. The point I made about the managed services, like those are software solutions that we offer in commercial payments. The fact that we've shown those things to 100 Comerica clients, we have 2/3 of them as qualified leads in the sales pipeline sort of speaks to the tech quality. What the conversion will allow us to unlock though, is all the digital marketing channels. Like the reason we're not doing digital marketing to support the Southwest markets today is because Comerica can't open consumer deposit accounts digitally. And therefore, there's no sense in using them. once we're under the Fifth Third brand and on the Fifth Third tax stack, the 50% of our direct marketing that gets done via digital today, all of a sudden then becomes viable in the Southwest and all the household growth tactics that we use in addition to the deposit growth tactics and the Southeast become viable as well. Operator: We'll move to our next question from Scott Siefers of Piper Sandler. Robert Siefers: Maybe Bryan hoping to start with you something you can speak to some of the underlying drivers in the core margin. I think I know you suggested the reported level should expand another few basis points in the second quarter due to the full quarter's impact of Comerica. But maybe you could sort of speak to dynamics such as overall rate positioning, which I think you touched on, but maybe competitive dynamics on the loan and pricing side, just those kinds of things that you're seeing? Bryan Preston: Yes. Absolutely, Scott. Thanks for the question. As I mentioned in my prepared remarks, we are asset sensitive today. That is certainly a factor that we are focused on as we think about trying to move to a more neutral position over time. We feel very good about how we're positioned, and that's obviously one of the things that's gone well for us with. The current volatility in interest rates, it's given us some opportunity to do some things in the investment portfolio and put a few positions on in the quarter at pretty attractive levels. So we do feel good about that. From a driver perspective, we do expect some additional improvement from fixed rate asset repricing over the remainder of the year. From a magnitude perspective, it's a little bit less impactful than it has been because 1/3 of our balance sheet was effectively repriced on the with the Chimeric acquisition. So we are still seeing some good trends there. on the legacy Fifth Third portfolio. But obviously, that's just a smaller percentage of the balance sheet now. That's probably 1 basis point, 1.5 basis points kind of pick up each quarter through the end of the year and feeling good about trajectory that gets us approaching to exiting the year closer to 340 from a NIM perspective. So a lot of things going well from a net trajectory perspective. The environment, obviously, it's competitive, we're in an industry that is always competitive, both on the lending side and on the deposit side. I would tell you that it is competitive but not irrational right now. Loan spreads have come in a little bit, but aren't crushing at this point. And we are just seeing normal deposit competition with the Midwest continues to be the most competitive deposit market that we're seeing from a consumer perspective, more competitive than the Southeast, and we're still trying to get a better sense of what Southwest looks like, but it does not look like it's going to be an outlier relative to other markets. Robert Siefers: Okay. Perfect. And then maybe a higher level question here. You all talked about the fourth quarter of this year, representing sort of the time when we really see the full run rate accretion, returns, efficiency. Basically, all the benefits from the Comerica transaction. Basically, all your numbers are going to be at or near best-in-class. As we start to look to a post sort of post Comerica time like into next year when those benefits have really become realized how will you sort of think about balancing additional improvement in profitability, returns, efficiency? Or will those at that point represent sort of steadier states as you do things like invest to just ensure that the levels you reach remain durable over time? Timothy Spence: Yes, that's a good one. And we've been getting a variant to that Scott, over the last, call it, 90 days about, hey, are the synergies durable? Or do they need to be reinvested? I have been telling people if you have to spend it in some other way, that's not an expense synergy. It's a capital application play. So we absolutely believe we can sustain the level of profitability that we expect to achieve in the fourth quarter and continue to improve it. I grew up in the cradle of distance runners and Nike posters as [indiscernible] on my wall going up. So the view here is like there's no finish line, right? We just have -- we've so much in front of us, right? So you want to generate a strong return on equity under any circumstances. But then you want to make the decision at the margin. So if we're at 19%, and we've got a 53% efficiency ratio, the decision on the margin should always be do we utilize continued strength in operating performance to drive higher profitability and boost the TBV the TBV multiple -- or do we focus on growing tangible book value per share or doing a little bit of both of those. I just think we're going to have the ability to continue to do both. Like when I got here 11 years ago, under [indiscernible] 1/4 of the U.S. population lives in our footprint. Today, more than half of the U.S. population does as Bryan mentioned in his remarks, 17 of the 20 fastest growing large metro areas in the U.S. are now in the footprint, and we have a credible as the top 5 market share in all of them. I think we have the freshest branch network. If you just look at it by age of any of the [indiscernible] 3 or 4 banks and maybe any of the LFI banks. We've got this payments business now that's benefiting when nonbanks actually take share from banks, which is great. And we have this huge influx of bankers from Comerica who have the shackles off of them, right, in terms of not being capital or liquidity constrained. And I'm proud of the track record we have for tech innovation. So we will continue always to invest in the core business with the expectation that at 19 -- like 19% ROTCE is great. And if we run out of ideas, then we'll focus on getting 19 to be 20 or 21 or 22. And otherwise, it will be about growing book value per share. Operator: Next, we'll go to Gerard Cassidy at RBC Capital Markets. Gerard Cassidy: Tim, did you have a [indiscernible] poster too with Steve's poster? Timothy Spence: I had Steve and Dick [indiscernible] At my height my lack of foot speed, you had to go with the field athletes as well. So [indiscernible] Gerard Cassidy: Got it. Good for you. When I look at your utilization trends that you gave us, and you touched on it in your prepared remarks, in the appendix, I think it was -- it jumped up nicely from 34.9% in the fourth quarter to 40.7%, and then you give it ex Comerica. Can you give us some color in 2 areas: one, legacy Fifth Third, what you're seeing there? And then also legacy Comerica what are they seeing? Bryan Preston: Yes. From a utilization perspective, Gerard, I would tell you, it's fairly consistent what we're seeing across the Fifth Third Platform and the Comerica platform. which is middle market customers, we're starting to see use a little bit more activity there. We also saw a nice rebound from a corporate bank perspective. I do think part of it was some of the activity that we were seeing from a capital markets perspective because we did see less pay down this quarter from a capital markets payoff perspective. But it was really a -- and we think it was the rebound that we were expecting associated with some of the tax bill benefits coming through, where we just saw some more active spending happening as customers were working through the environment. And then obviously, later in the quarter, obviously, some impacts associated with the situation in the Middle East. Timothy Spence: Yes. Maybe the one thing I'd add there, that is at least based on the cursory read I did other banks that have reported thus far as one thing we didn't see that a lot of other people size. We didn't get a lot of the loan growth from private equity or price capital. So if you look at the growth in loans, less than 10% of it, in our case, came from private equity or private capital. And my quick read through it may be as high as 80% of a lot of other places. One of the things that's comforting about the Comerica portfolio is, they're a lot like Fifth Third in the sense that we bank [indiscernible] businesses, right, primarily privately real economy businesses. People make things or move them or warehouse them or sell them or core services like health care. And otherwise, between the 2 of us, we were both on the low end of the as a percentage of total commercial loans tables. And it just hasn't been a growth focus for us. I think the other thing I might flag there since I know it's come up as we have less than $100 million of funded exposure to data centers, what we definitely have been on the more skeptical end of the spectrum on that front. We talk internally about the fact that we wouldn't underwrite an energy loan without a petroleum engineer looking at the projections. And I don't think there are a lot of us employing AI researchers the cost that they are to help underwrite data center facilities. It's just there's such a long history of overbuilding tech infrastructure anytime there's a platform shift. And the obligors are a little less clear than we personally would prefer. So that is where the growth wasn't coming from in our case. Gerard Cassidy: Very good. And then just one follow-up on the credit quality, which brand you pointed out, the guide for [indiscernible] is very good in the numbers in the quarter are good. One question in the commercial side of the portfolio. And I know this number moves around because of the nature of it. But the 30 to 89 delinquency numbers, even though low. When you look at the commercial and industrial going to 38 basis points of the CRE going up, any -- is it -- anything there that we should just keep an eye on? Or is it just because of the combination of the 2 companies and people maybe didn't know where to send payments. I know that sounds kind of strange, but any color there? Timothy Spence: Yes. It's not quite as basic as they didn't know where to send payments, but the majority of the increase there, Gerard, was 2 credits, and the payments got made on April 1. So if we could have reported all of this as of April 2, you wouldn't have seen the jump that materialize there. Operator: Our next question comes from Ebrahim Poonawala at Bank of America. Ebrahim Poonawala: I had a question first just on deposits. As we go through all these updates does feel like funding is a much bigger constraint for banks as we move forward than capital. Just talk to us around this Southeast strategy what seems like an intense environment. How we -- how are you converting clients acquired through promotions into core checking accounts. Is that happening? Just kind of remind us on where that stands? And maybe tied to the -- one of the previous questions, Tim, when you think about opening these branches in Texas 3 to 5 years from now, just a degree of confidence that branches will still be as relevant 5 years from now as a client acquisition tool as there today? Bryan Preston: Yes, good question. So Yes. I think your point is an important one, your ability to convert relationships into essentially new clients, right, whether you attract them through rate or cash bonus or because of the new branch opening or otherwise, in the primary long-tenured relationships. That's effectively the seed corn for everything that we do because we have an acquirer once and then maximize wallet share strategy. That's the reason we keep disclosing the household growth rates in the Southeast, like those are primary households. If accounts going active, they get washed out of that number. And so you could trust that the 3% overall and in this case, the in household growth in the Southeast, the sort of 7%, 8% range we've been running at as a real number. It's active accounts in 1 period divided by active accounts in the same period the year before, minus 1, right? Timothy Spence: So the population growth in the Southeast is 1.5% to 2% per year in any given market. Our growth rates have been 7% to 8%. So we're generating 3 to 4x the growth on a net basis that the market is experiencing on a net basis. which I think should be the sort of best proof point you can rely on that we're making the conversion. Savings promotions don't count in that number. anything we do with loan products, home equity, et cetera, that doesn't count in the number that's primary checking customers. In the Southwest and in Texas, that we have 81 or 82 of these properties locked up. We're going to have branches opening next year, not in 3 to 5 years, just to be clear. And I think the measure of their importance, like I actually like to think about branches, if you don't think about them as stand-alone mechanisms to generate new account growth, the other way to think about them is attributes, which boost response rates to direct marketing, whether that's digital or male. And there is a nonlinear decay function in response rates and expected value. The further you get away from a Fifth Third branch by drive time in our models today. It's 1 of the more powerful variables in dictating who gets a digital offer, like the IP range or the ZIP code in the case of a mailer actually drive whether or not you see Fifth Third promotions. And as long as that decay function exists, the branches are playing a role in driving our ability to grow the franchise. And I just don't expect human behavior to change that quickly. it certainly hasn't ever in the past. Ebrahim Poonawala: Got it. And just one quick follow-up. You mentioned this a few times in terms of do you mean anything between NBFI growth versus non-NBFI. One, like do you see -- like why do you not -- like do you see the embedded risks in that lending that you don't like? Just give us a sense of like when you evaluate why is it attractive for so many of your peers and not so much when you assess that for Fifth Third. Timothy Spence: Yes. I mean I'm not making a call on private credit and viability. I don't personally believe it's going to go away as a category. I think our view generally has been that the private credit industry is going to be much smaller in the future than people were worrying about like their 2 strategies for growth were retail money, which was always a bad idea and which has been demonstrated again to be a bad idea and by promising returns of 8% to 9%. And which we just viewed as being unrealistic, right? Banks run at like 8 to 10x leverage to get a 15% return. And we have loan revenue, deposit revenue, fee revenue in the mix. the idea that private credit could deliver 8% to 9% with, call it, 2x to 3x leverage with loan-only revenue, just always felt like it was unrealistic. So is there a place in the investment spectrum or on the efficient frontier for something that offers a return between corporate bonds and equities, like absolutely. It just doesn't feel like it's going to be anywhere near the size. Now we're not a very big player in this market. Comerica and Fifth Third together had somewhere around $1 billion of private credit or BDC activity. So I can't speak to the leverage points a lot of others are. The reason we avoided is because we couldn't figure out what total leverage was in these structures between the portfolio companies the back leverage and the NAV lending and the lending to the companies that were doing the NAV lending and the capital call and all the rest. And we don't like things that we don't understand. I think for me, at least, though, the bigger reason to avoid it is it's -- that is not an industry that like lending to is not a place where banks are going to build competitive barriers, which means the return profile is just eventually will gravitate to cost of capital. And we want to generate returns in excess of cost of capital. So when you let your line of business, get too addicted to getting growth from something that's going to be a cost of capital hurdle. It distracts them from focusing on the things that could generate excess returns like primary relationship lending, like managing wallet share, like establishing lead-left positions -- and so that is where we want to get the growth from. It's stuff that can generate a 19-plus percent return over time, not something that's going to generate 11%, 12%, 13%, 14% return over time. Operator: We'll move next to Manan Gosalia at Morgan Stanley. Manan Gosalia: I think in the prepared remarks, you mentioned that the proposed rules recognize granular, say, for well-collateralized loans. So I think you were pointing to opting into ERB. So first, I just wanted to clarify that. And then my main question, Tim, when you think about EBA given that it would allow banks to hold less capital against higher quality loans. Do you think it creates some sort of disincentive or negative credit selection for banks that don't opt in? Bryan Preston: It's Bryan. At this point, we're still evaluating whether or not we will opt in to era. It's not necessarily the driver of creating the big benefit for us. [indiscernible] is probably an incremental 10 or so basis points relative to the numbers that I quoted. And then obviously, there's some complexities associated with data and models and systems in place necessary to do some of the calculations. So that's something that we're still evaluating. There is always some regulatory arbitrage out there, whether it's within the existing capital rules and use of securitization style structures from just general lines or how private credit participates in in the regulatory landscape as well. So there is always that aspect of competition and ultimately, how you think about capital allocation across I don't think it will have ultimately [indiscernible] would have a really big impact ultimately on competitiveness across the industry and between the banks that opt in and those that don't. Timothy Spence: Yes. And I guess the only thing I'd just add there is it sort of depends on how you underwrite like not every bank, just at least 15 years ago when I was a consultant -- not every bank underwrote to the same binding constraints. Not every bank thought the same way about how they calculate returns. The binding constraint here. Obviously, we think about Red Cap and the return on Red Cap in terms of the performance of the company as a whole. But when we look at individual credits, we look at into the amount of economic capital that those credits should attract given the way that we risk rate the credits both in terms of default probability and loss given default. So if all you were looking at was the same capital charge for every loan you underwrite like in a non-urban environment. I think you run into that risk. But certainly the way that we approach it. The decision to opt in or out is going to get made at the macro level. and the individual underwriting decisions and the return calculations get done at an individual company level. Manan Gosalia: Got it. That's really helpful. And then now that we have the proposals for capital I think the focus has been turning to the liquidity rules. I guess the question for you is, what would you like to see there on the liquidity side? And is there something that you want to see that would cause you to manage your liquidity differently from what you're doing? Bryan Preston: Yes. I think the most valuable thing for the industry is some credit and the liquidity rules associated with your secured lending capacity at at places where you know the liquidity is going to be there. Think about your FHLB borrowing capacity against your securities, discount window or repo facilities like those will be areas where getting some credit associated with that off-balance sheet liquidity would be very valuable for the industry. That is probably one of the more significant. We would also like a little bit more rationality on deposit outflow assumptions. That is an area where there has been significant pressure on the industry across the old horizontal liquidity exams that were occurring. And I just think we've ended up in a spot where the assumptions that are embedded in most liquidity stress tests today are just absurdly high relative to some of the core banking relationships, in particular, the operational deposits that are attached to treasury management services. Operator: We'll go next to Chris McGratty at KBW. Christopher McGratty: Tim, I want to come back to the comment about the Midwest being more competitive in the Southeast. It seems somewhat contrary to where all the capital is being allocated from a lot of the banks. Can you unpack that a bit? Timothy Spence: Yes. I mean Chris, this has been true. It's like one of the interesting factors that just been true for a very long time. I think you had 2 dynamics in the Midwest that are a little bit unique relative to the rest of the country. One, historically, you've had a lot more regional banks headquartered in the Midwest, right, and less in the way of trillionaire market share and less consolidated markets tend to be more competitive. That's just -- that's not a blinding insight on my part. That's just economics 101. The second factor is credit unions play a much more prominent role in a lot of the Midwestern markets than they do other places elsewhere in the country. And credit unions tend to be optimizing for very different factors like do not help do a profit mandate and therefore, they tend to be optimizing around just absolute levels of liquidity needed or otherwise. And so the sort of combination of more fragmented markets and an actor that's optimizing around a different set of goals just produces higher levels of deposit competition. That, I think, for us has been 1 of the interesting things as we moved into the Southeast as we have this double benefit of both having a small existing share and, therefore, a low cannibalization cost of any new marketing campaign that we run, right, which is a little bit like Judo you're using your opponent's weight against them. And the fact that at the margin, the marginal dollar in the Southeast is still a little bit cheaper to raise than the marginal dollar in the Midwest. It means we can be more aggressive and still have a very nice impact on the franchise overall. Christopher McGratty: Great. Yes, definitely, with the Chicago being one of the more competitive markets and fragmented. Timothy Spence: I don't know that there's another state with 3 regional banks headquartered in it either the way that Ohio has [indiscernible] Fifth Third and [indiscernible]. Christopher McGratty: Sure. And then, Bryan, just on the full synergies, the cost saves mapping out, can you I guess, help with exit run rate on efficiencies. It feels like low 50s in this year and you kind of go into next year from a pretty good position. But just could you find in that for me? Bryan Preston: Yes. I mean we're -- the expectation is -- that we talked about as being in that 53% range in 2027. Our fourth quarter efficiency ratio is always our lowest efficiency ratio for the year. So I would expect us to be a good point, 2 points below that 53% in the fourth quarter. Operator: We'll go next to Peter Winter at D.A. Davidson. Peter Winter: I was just wondering -- when you first announced the Comerica acquisition, you were targeting a 27% EPS of 4.89. But now that you spent more time with the company, you're getting some early wins on the revenue synergy side, do you see upside to that number because it did not include any revenue synergies? Bryan Preston: Yes. I mean, obviously, that's something that's part of the deal that we would not contemplate any revenue synergies. So anything that we are seeing would be upside. So we do feel good about kind of the progress there. I think we will be striving to outperform what is there? Obviously, 2027 is a long time away and the environment, the rate environment and a lot of other things can change. But we certainly are more positive today about the opportunity in front of us, even though we were incredibly positive at the time of the acquisition. So a lot of things are going well, and we feel good about the trajectory of the company. Peter Winter: Okay. And then if I could just follow up, just -- if I think about Fifth Third, one of the strengths has been managing the balance sheet in different interest rate environments. But Bryan, where are you in the process of repositioning Comerica's balance sheet? You mentioned it's you're asset sensitive now, but how quickly do you want to get back to neutral? Or would you slow walk it just given the higher for longer rate environment? Bryan Preston: The higher for longer rate environment and our outlook and like we are very cautious around what could happen out the curve. So we are trying to make sure that we're balancing capital risk as well with a downrate risk. And all the things that's happened even over the last month or so when you think about what it's going to do to inflation and what is honestly still a fairly reasonably strong economic activity that we're seeing. We just see that there is more bias right now for the higher for longer outlook. So with that, we're probably moving a little bit slower. But as that outlook changes, we would have an ability to accelerate. There's probably in the neighborhood of $30 billion to $40 billion of kind of notional exposure that we could move out the curve as our rate environment out changes. That gives us a lot of flexibility as we navigate this environment. And we think even if you were to start to see some more significant cuts again that what you're likely to see is some amount of steepening that gives you some opportunity for us to deploy and maintain and even grow NII even in a falling rate environment. Operator: And next, we'll go to Erika Najarian at UBS. L. Erika Penala: Just one question because I know we're pushing the limits of length of time. But Bryan, given that there's no cuts in the curve, could Fifth Third maintain deposit costs even if there are no cuts Tim, your ears must be burning because even your money center peers are talking about your competitiveness in their markets. So just wondering what the deposit cost outlook is in an environment where the Fed is not cutting. Bryan Preston: Yes. We absolutely think we can maintain deposit costs even in an environment where the Fed is not cutting. The real wildcard there is ultimately what the balance sheet needs from a growth perspective. If we see a more aggressive loan growth environment, that is an environment that would put a little bit more pressure on deposit costs, but in a fairly rational kind of normalized growth environment, we think we could -- we think we have a lot of optionality to be able to maintain deposit costs where they are. Operator: And next, we'll move to John Pancari at Evercore. Unknown Analyst: This is [indiscernible] on for John. Just one on the fee side. Solid results in the quarter, healthy guide despite the volatility in headlines if this subsided at all, you see this driving much upside from the billion quarterly run rate. I think our wealth and capital markets like you mentioned, I think about how much conservative might be baked in the guidance now again versus potential upside? Bryan Preston: Yes. I mean there's always a little bit of conservatism we put in place relative to capital markets. which we've been talking about hoping for a kind of more stable productive environment now in the hedging environment for a couple of years. So we do think there's opportunity for that as a more stabilized environment to come out. Obviously, that will be helpful from an M&A perspective as well. The rest of the few businesses have been doing fairly well without or even with the uncertainty that we've been facing. So we feel like the tailwinds there and the investments we've been making from a sales force and a production perspective, positions those businesses to continue to grow as well as the investments from a payments perspective and just the categories that we're attached to. So certainly, we think that there is opportunity from a fee perspective to continue to see good outcomes. Operator: We'll take our next question from Ken Usdin at Autonomous Research. Kenneth Usdin: Just one question, just given that it's a partial close quarter. I just wanted to understand the moving parts a little bit. Can you help us understand the dollars of purchase accounting accretion that we're in what you're expecting for 2Q and just how that cascades in terms of the schedule? Bryan Preston: Yes. If you look at the -- we tried to lay that out in our slide deck and our NIM walk. So if you see, there was about $12 million of purchase accounting accretion associated with the loan portfolio in the first quarter. And I think the easiest way to think about that is it's really just 2 months of activity. And it will burn down relatively gradually over the next few years. Most of that is associated with combination of commercial portfolio. So that has a little bit shorter tail on it than if it were residential mortgage exposures. That is kind of the main piece from a purchase accounting accretion perspective. the securities, kind of what was embedded from a securities perspective is basically bringing those securities to current market rates. So the assumption there should there should just be based off of how you think about where market yields are going through the securities. Unknown Analyst: Okay. So basically, that if that's one line that you mentioned in your prepared remarks that [indiscernible] becomes a little bit more in the second quarter. So it's really just that 12% kind of run rating. Is that the only -- I just want to like understand the magnitude of how much of help that is going forward? Bryan Preston: Yes. Well, basically the 12 becoming probably closer to mid-teens when you think about adding a note [indiscernible] for next quarter. Unknown Analyst: Okay. And then just a real quick one. You mentioned also in your prepared remarks that you might get back into the buyback in the second half. Your CET1 with AOCI still on the lower end of peers. Any way to think about like what that looks like when you get to that point? Bryan Preston: Yes. I think in the normalized -- I think in a normalized environment, we would be talking about kind of $200 million to $300 million of buybacks is what our quarter was what our historical run rate has been. Obviously, it's going to be very dependent upon how much we need to support organic growth because being able to lean into lending is an area that is obviously a priority for us always because we'd rather deploy the capital. And earn a higher return, as Tim was talking about, our ability to attract customers and generate high-teens returns is we think, is the best outcome for shareholders. For this year, it's probably going to be a little -- it's going to be less than that as we get into the second half, but we still think there's going to be some opportunity to restart buybacks. Operator: Next, we'll move to David Chiaverini at Jefferies. David Chiaverini: Question on dividend finance. It looks like the deceleration you anticipated is starting to come through in the related uptick in NCOs there is beginning to occur as well. How high should we expect this NCO rate to trend so that we're not surprised given the slowdown is fully anticipated. Bryan Preston: Yes. I think -- it's a good question, and it's one that we think the range we're in right now is probably a reasonable range to expect for a period of time. Obviously, this is an industry that is facing a significant amount of disruption as a result of the tax bill and basically creating a war the leasing product is economically advantaged relative to the lending product. That was not an environment that when we did the original acquisition that we were expecting. We're having a -- we're working through it, and it's obviously not a growth asset for us anymore. But I think the range we're in right now from a charge-off ratio perspective is probably where [indiscernible]. David Chiaverini: Very helpful. And then shifting over to HELOC. The HELOC growth is off to a very strong start in the first quarter, and more than offsetting that headwind on dividend finance. What's driving the strong growth in HELOC? Is it Fifth Third's pricing? Or is it grassroots loan demand from customers? And what is the outlook for this business? Bryan Preston: Yes. The first quarter benefit some from the [indiscernible] acquisition as well. This -- of their consumer lending categories, HELOC was one of the categories that had some loan balance. So that is a driver of probably about half of the first quarter growth. But beyond that, what we're seeing is actually just good grassroots activities. We've made a lot of improvements to that business. and the customer experience in that business over the last couple of years. So it's put us in a spot where we have a really nice engine that's running right now. We're seeing good activity from a branch perspective. The improvements that we've made from a technology and underwriting experience perspective has made it a product that is easier for the bankers to sell. It has just been something that we're seeing a lot of good activity on, and we've also been able to actually lean in to a little bit of marketing in the space as well. And customer acquisition tactics. And honestly, when you just take a step back and think about the dynamics of the amount of home equity that is out there in the market right now and the lack of housing turnover that's occurring. It's just -- it's an area that we think you're going to continue to see significant growth in for some time. I mean we're 2 years -- 2-plus years in now seeing consistent growth equity perspective. Timothy Spence: Yes. The 1 thing I'd just add there is, I think, as Bryan said in his remarks, #1 in market share in our footprint in home equity originations and in the bottom half in terms of pricing. And there's very good pricing data available through aggregators. So we are not competing on lice. It's great originations volume effectively at better spreads than others. Operator: And we'll take our final question today from Christopher Marinac at Brean Capital Research. Christopher Marinac: I want to ask you and Bryan about the NBFI reserve allocation. Would that number necessarily not go up much this year because you're avoiding some of the higher-risk, lower-return pieces of [indiscernible] Bryan Preston: Yes. We're not seeing anything in our [indiscernible] portfolio that would cause us to have any need to build significant reserves related to what we're doing very well secured, very well performing, just not an area where we're seeing in [indiscernible]. Timothy Spence: Yes, absolutely. Before we wrap it, I just quickly want to say congratulations to Keith Horwitz on his retirement and on his 30 years in the community. -- my sense is that he's going to prove out the adage that old [indiscernible] never die. They just stop updating their outlook. So we appreciate Keith for all the years of coverage here and wish him the best in the next phase. Operator: And that concludes our question-and-answer session. I will turn the conference back over to Matt for closing remarks. Matt Curoe: Thank you, Audra, and thanks, everyone, for your interest in Fifth Third. Please contact the Investor Relations department if you have any follow-up questions. Audra, you may now disconnect the call. Operator: Thank you. And this concludes today's conference call. We thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us. Welcome to the Independent Bank Corp. First Quarter Earnings Call. Before proceeding, please note that during this call, we will be making forward-looking statements. Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statements. In addition, some of our discussion today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures, including reconciliation to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the Investor Relations section of our website. Finally, please also note that this event is being recorded. I would now like to turn the conference over to Jeffrey J. Tengel, CEO. Please go ahead. Jeffrey J. Tengel: Thank you. Good morning, and thanks for joining us today. I am accompanied this morning by CFO and head of consumer lending, Mark J. Ruggiero. When we last spoke in January, I highlighted several major areas of focus for Rockland Trust in 2026: organic growth, expense management, and capital optimization. Our first quarter results reflect progress in all of these areas. While reported loan and deposit growth were somewhat muted, I will talk later about why we remain encouraged with our ability to continue to grow organically. And we held the line on expenses and continue to proactively manage our capital. The first quarter also saw continued NIM improvement, increasing 13 basis points from the fourth quarter. This reflects pricing discipline across both our loan and deposit portfolios. Excluding loan accretion income, our adjusted NIM rose by 8 basis points. Mark will elaborate on our NIM during his comments. Excluding M&A charges, expenses were down 1.5% from the fourth quarter as we realized the impact cost savings from the Enterprise transaction, which was offset by seasonally higher employee and occupancy costs. Additionally, the quarter reduction benefited from the absence of certain outsized expenses incurred in the fourth quarter. With the investments we have made in people and technology over the past few years, we believe we have the scale to continue to grow without significant additions to our expense base. We returned $94 million of capital to shareholders in the first quarter, including the repurchase of 802,000 shares for $63 million. I would like to point out that despite our aggressive capital actions, tangible book value rose to $47.86. We also recently announced an 8.5% increase in our quarterly dividend. With expected further improvement in our profitability and moderate balance sheet growth, we expect capital management to remain a key priority for the balance of the year. There is a significant amount of work underway as we prepare to transition our core operating platform from Horizon to IBS, both part of the FIS ecosystem. The conversion is scheduled to take place in October. The new operating system will provide additional product capability and enhanced efficiencies that reflect the size and scale of our organization. This is an important milestone for Rockland Trust and will position us for future growth. Related, I would like to take a moment to talk about AI. This is obviously a topic on investors’ minds. In the first quarter, we established an office of digital innovation. We have established a governance framework around our AI activities to ensure we stay within the guardrails of our moderate risk profile and any actions are consistent with our award-winning culture. This governance framework includes a steering committee that will serve as a clearinghouse for AI use cases. This will allow us to make AI investments in those areas that have a meaningful payback and avoid the proverbial boiling the ocean. I expect us to start with some relatively easy use cases as we build muscle memory. Over time, this should enable us to gain confidence in our ability to execute and take on bigger, more impactful applications. I mentioned earlier that loan and deposit growth was somewhat muted in the quarter. Given the Iran war, the marked volatility in interest rates, and the lingering inflationary environment, it should be no surprise there is not a uniform consensus on the current business climate from our bankers and customers. The duration of the war and its impact on oil prices will dictate the ultimate effect on distribution companies, contractors with truck fleets, manufacturers, construction firms, and energy-intensive operators. Clients broadly expect prolonged energy and commodity price volatility to weigh on cost structures. While a notable share of our clients indicate that they have adjusted to the current rate environment, others suggest that the higher rates have delayed expansion plans. Lastly, inflation remains a dominant concern across sectors, particularly with respect to labor, health care benefits, materials, and utilities. Suffice to say, the environment is best characterized as somewhat challenging. I would summarize our customers’ mindset as cautious. Importantly, though, we have not seen any meaningful stress in our loan portfolios as a result of the current environment and our customers continue to manage through this very well. With that as a backdrop, our total commercial loans declined by $50 million from the fourth quarter. If we peel back the onion a bit though, underlying results were stronger than reported. For example, excluding the impact of the $39 million decrease in our dealer floor plan business, which we are exiting, our C&I loans rose at a healthy 7% on an annualized basis. In addition, we would note that the office portfolio contributed $56 million of the $94 million drop in commercial real estate balances for the quarter. Our CRE concentration now stands at 283%, and we believe we have achieved most of the targeted reduction in transactional CRE business. While we have reduced transactional CRE balances, we funded $179 million of relationship-based CRE loans in the first quarter and added $290 million of CRE commitments. We still like the CRE asset class and will continue to support our clients in this space the way we always have. This dynamic continues the rebalancing of our commercial lending business. C&I loans now represent 25% of total loans versus 22% at year-end 2024. It is important to note that our C&I growth is being driven by core relationship banking. We do not have any exposure to the NDFI or private credit segments that have driven much of the industry’s loan growth. In summary, we are optimistic about our market position. We have the product set and talent to drive commercial loan growth going forward. Our approved commercial loan pipeline totaled $313 million, up from $278 million at year-end. But importantly, we will not sacrifice credit structure or rate for new business. This is consistent with how the legacy Rockland Trust has always operated. On the funding side, period-end deposit balances were essentially flat. The 1.5% decrease in average deposits from the fourth quarter is consistent with prior years, as seasonality tends to adversely impact business operating balances in the first quarter of the year. DDAs represent 28% of overall deposits, and the cost of total deposits was 1.36% in the first quarter, highlighting the immense value of our deposit franchise. Similar to the loan portfolio, and as we have said many times, we will not sacrifice rate to show deposit growth with transactional one-product customers. With respect to asset quality, our net charge-offs were 11 basis points for the first quarter, and have averaged just 11 basis points over the last year. As we suggested last quarter, we are not out of the woods yet with respect to our office portfolio. This quarter, several office loans exited the bank while a couple of new office loans were added to criticized status. We continue to believe the challenges within our office portfolio are identifiable and manageable. As I have mentioned in the past, there is no quick fix here. We remain diligent in managing this portfolio segment. While we are confident the worst is behind us, we will continue to be transparent with the market as we work down this asset class. Our wealth management business continues to be a key fee income driver for us. Despite an incredibly volatile market, our AUA were essentially flat at $9.2 billion as positive net asset flows and strong relative portfolio performance mostly offset market-related declines. Importantly, we were pleased with the diversity of new client inflows. Revenues grew at an 11% annual rate driven by higher asset-based fee revenue and insurance commissions. We believe first quarter results represent another step forward in driving improved profitability at Rockland Trust. We remain focused on accelerating our organic growth, reducing our CRE office portfolio, and prudent capital management. These actions, coupled with our industry-leading deposit cost, disciplined expense management, and operational excellence, will return INDB to our historical market premium valuation. I feel particularly confident about Rockland Trust’s positioning across our markets, driven by the strength of our products, the dedication of our people, and the effectiveness of the strategies we put in place. I want to thank all Rockland Trust employees for their tremendous efforts in making the first quarter a success. Every measure of our success is a direct result of their commitment. On that note, I will turn it over to Mark. Mark J. Ruggiero: Thanks, Jeff. To summarize the quarter results, 2026 first quarter GAAP net income was $79.9 million and diluted EPS was $1.63, resulting in a 1.31% return on assets, a 9.02% return on average common equity, and a 13.67% return on average tangible common equity. Excluding $3 million of merger and acquisition expenses and the related tax impact, the adjusted operating net income for the quarter was $82.1 million, or $1.68 diluted EPS, representing a 1.35% return on assets, a 9.27% return on average common equity, and a 14.05% return on average tangible common equity. As Jeff alluded to in his comments, we maintained our robust CET1 capital ratio at 12.87% while repurchasing $63.3 million in capital during the quarter and increasing our common dividend 8.5% to $0.64 per quarter. With only $24 million left on the current repurchase authorization, we anticipate establishing another round here in the second quarter as we continue to prioritize capital return to shareholders amidst an uncertain economic environment. We saw this element of uncertainty play out during the quarter in a couple of areas. The first area I will note is in regards to pricing competition, particularly on the deposit side. As a bank that has never looked to lead with rate, we have seen some flow of excess customer funds leave for pricing that we are not willing to match. This dynamic, combined with seasonal volatility, led to the fairly flat deposit balances quarter over quarter. We operate with conviction that finding the right balance of pricing discipline while supporting our relationship customers is crucial. And we believe the Q1 results of flat deposit balances while reducing the cost of deposits 10 basis points is a strong outcome of this philosophy. On the lending side, we saw demand impacted in a few areas, as all of the macroeconomic uncertainty that Jeff just talked about is keeping some customers on the sidelines. Our largest commercial portfolio, multifamily, is one particular asset class where we have seen this impact. With the reduced CRE portfolio much more representative of our legacy relationship lending profile, and an overall concentration level now in the low-280% range, we are comfortable suggesting a forward growth strategy commensurate with our historical approach. While this CRE strategy continues to play out, we remain extremely optimistic over our near-term C&I growth prospects. Reiterating the $39 million decrease associated with our winding down of the dealer floor plan portfolio, other C&I balances increased $78 million during the first quarter, or 7% on an annualized basis. In addition, the rebuild of our approved total commercial pipeline should bode well for second-half growth in 2026. On the consumer side, typical seasonality drove reduced overall volumes in the mortgage business, but an increase in salable activity kept mortgage banking results relatively flat while absorbing runoff of lower-yielding portfolio balances. And home equity volume has remained consistently strong with the $10 million increase in balances despite continued lower utilization rates versus pre-COVID levels. Switching gears a bit, the combination of the deposit cost reductions that I just discussed along with loan and securities cash flow repricing dynamics drove a solid 8 basis point lift in the core margin. And with elevated purchase accounting accretion versus the prior quarter, the reported margin rose sharply to 3.9% for the quarter. The balance sheet remains very well positioned to continue to drive consistent improvement in the net interest margin, while providing flexibility to lever up or down as needed to stay neutral to any short-term rate changes from the Federal Reserve. Moving to asset quality, we highlight the following notable items for the first quarter. Total nonperforming assets increased to $98.7 million, or 0.52% of total loans, driven primarily by the downgrade of one office loan which has an approximately $2.8 million specific reserve established. Net charge-offs for the quarter were $4.8 million, or 11 basis points annualized, with $4 million related to a CRE relationship that was partially reserved for last quarter. And as a quick positive update, this $4 million charge-off loan was associated with a nonperforming office loan that actually repaid the full remaining balance subsequent to year-end, in fact, just a few days ago. The first quarter provision for loan loss was $5.5 million. And while total criticized and classified loans increased versus the prior quarter, Q1 levels of 4% of total commercial loans remain in the range we have experienced over the last year or so. The downgrades to criticized status during the quarter were primarily isolated to a few credits, with no identified loss reserve recognized at this point. Our fee income businesses performed in line with expectations for the quarter, coming in relatively consistent with the prior quarter results despite fewer days in the quarter. Jeff provided color on the positive momentum within our wealth management group, and we are also pleased with the continued expansion of our treasury management services as many of the newer C&I customers leverage the full suite of cash management products that we offer. On the expense side, I will first point out that we did have a final round of severance related to the Enterprise acquisition that made up the majority of the $3 million of M&A expenses for the quarter. Total core expenses of $139.9 million are slightly higher than our guidance due primarily to significant snow removal expenses, which were a little over $2 million for the quarter. We remain focused on analyzing all areas of the bank to ensure expenses are appropriate and justified as we move forward into an environment where we know technology will play a larger role. Along those lines, our work on the upcoming core conversion is ongoing, with approximately $1.1 million of expenses in the first quarter directly attributable to those conversion efforts. And lastly, as expected, the tax rate increased from the prior quarter to 23.38%. With that, I will now finish up by revisiting our 2026 guidance. First, we reaffirm our two primary profitability targets for 2026. The first is return on average assets of 1.4% and the second is return on average tangible capital of 15%. Regarding loan growth, we update our CRE and construction full-year estimates to now be flat to low single-digit percentage increases. All other loan and deposit estimates remain unchanged. For the net interest margin, we increase our estimate to suggest that 2026 fourth quarter margin will now be in the range of 3.9% to 3.95%, while still assuming a 10 basis point impact from purchase accounting accretion. All other guidance remains unchanged from the prior quarter. That concludes my comments. And with that, we will now open it up for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open. Please go ahead. Analyst: Hey. Good morning, everyone. Hi, Doug. Good morning. Was wondering if you could start off on loan growth. Tweaked the guide a bit lower on the CRE side, of course. So I was just curious if you could expand even a little more on what informed that decision. And then also if you could just give us a sense, you mentioned some caution on the borrower side, but just as far as demand, how you have seen borrowers respond with some of the heightened macro volatility and how long you think that could maybe persist. Jeffrey J. Tengel: Yeah. On the CRE side, it is interesting because the commercial real estate market has gotten very, very competitive. It is really competitive at the low end with a lot of the smaller banks and the mutuals, and we see it at the larger end too with some of the larger banks. And it is a space where, as I said in my comments, we are not going to stretch for structure or for rate, and so we think that the environment is really very, very competitive. So we are continuing to support our existing clients where we can. The other thing that I think is providing a little bit of a cloud over the commercial real estate business in Eastern Massachusetts anyways is the prospect of rent control. And so a lot of the multifamily projects—these would be mostly construction loans—really are not happening. A lot of the investors are on the sidelines and they are not commencing with any of the historical pace that they would have in the construction space in that multifamily asset class. So we have definitely seen a marked slowdown there. With respect to the second part of your question, it is kind of hard to pinpoint when that is going to turn. If you could tell me when the war is going to be over and when the price of oil is going to return to where it was prior to the war, I think I might have maybe a little bit better answer, or maybe in listening to our clients have a better sense for how they are thinking about it. But I think caution right now is definitely the word I would use to express how generally our middle market and lower middle market client base feels. It does not mean there is no activity at all. We still have clients that are very healthy and very strong and they will continue to invest where they think it is prudent. But it definitely is causing the owner-operators that we typically bank—it is just giving them pause, and it probably makes them think a little bit long and hard. You know, the phrase about measure twice and cut once I think is definitely something that they are running through their minds. Analyst: Okay. Got it. That is helpful. Mark J. Ruggiero: Sorry. I was just—from a guide standpoint, I think all of that uncertainty certainly has increased a bit over the first quarter. And I think just a bit of a positive element to it that, you know, the $40 million office loan we had a sense could come to fruition here in 2026. But having that play out in the first quarter and creating a little bit more of a drag on net loan growth was—those are probably the two primary drivers to just being practical around the expectations going forward. But I think in terms of opportunity and the pipeline growing, as Jeff alluded to, there is still a lot of optimism and positivity there. I think it is just, you know, a little bit more uncertainty with the war and the office payoffs, to be quite honest, driving the guide reset. Analyst: Okay. Understood. And then just flipping to, you know, on the credit side, you saw nonperformers up a bit and then had the criticized inflow. Can you provide a little more detail on the drivers there? I think you mentioned office is a factor, at least on the nonperforming side, a bit. I am not sure of the extent when you looked at criticized balances. And then I know it is pretty formulaic at this point, but just how do you call the input, how that gets you to an allowance that was pretty flat for the quarter, and just where you feel or how you stand on credit quality? Jeffrey J. Tengel: Yeah. I will take the first part of that, Justin, and then I will let Mark take the second part. With respect to the criticized assets, we really had three larger loans that moved to criticized status that make up the bulk of that increase. And all three are in different asset classes. Only one of those is in the office asset class, one of them is C&I, and the other one I think is the multifamily space, which is really the first multifamily loan that I think has been criticized in quite some time. And in that particular instance, it is just a little bit slower lease-up, which we are not overly concerned about. It is just taken a bit longer, and we were just being prudent in moving it to criticized status. But still feel really, really confident that things are going to work out. So that is the quick overview of the increase in criticized loans. And as Mark pointed out, we are still well within the historical levels of criticized loans that we have operated at in the past. I will let Mark address the second part of your question. Mark J. Ruggiero: Yeah, I think from a provisioning standpoint, it dovetails into a bit of that answer, which is obviously the downgrades on those loans Jeff talked about drive a bit higher allocation in the model as you would expect. But they are not at a point now where we have any reason to suggest there is a specific reserve or actual loss reserve that needs to be set. So as a—call it a risk-rated 7 loan versus a risk-rated 6 loan—there is a higher allocation in the model, but it will not move the needle too much. So that drove a little bit of the need for provision. I talked about the $4 million charge-off in the quarter. That was a couple million dollars higher than what we had reserved as of last quarter. So that required a couple million dollars in provision. And then, you know, we are tweaking the model a bit to have a bit more of a conservative macroeconomic environment factor playing through. I think on the consumer side, we feel really good about the credit picture right now, but I think you would be naive to suggest there is not a little bit more pressure on the health of the consumer. So, you know, $1 million or $2 million of added reserve on mortgage and home equity portfolios is appropriate. So those would be the three main drivers behind the $5.5 million provision. Obviously, there was not much loan growth, so that helps from a provision standpoint, but it was really the charge-off, the downgrades, and a little bit of build on the consumer side. Analyst: Great. And then just one last one. You know, a good chunk of the buyback in the quarter. Obviously, a lot of volatility in the market. But with average pricing coming in about where we are at today, just curious if you could speak a little more on the ability and appetite to keep this sort of a pace as you look to reduce excess capital. Mark J. Ruggiero: Yeah. I can tell you it will absolutely be a priority. You know, the goal high level would be to keep capital relatively flat. Now we can lever up and down a little bit from there, but I think that is the right level that will allow us and afford us to do a bit of management over holding company liquidity, CRE concentration, and obviously optimizing capital. So I would—we have not announced a new plan yet. I am very comfortable suggesting we will likely put one in place here in the second quarter. But the level of buybacks should be at a pace where we are going to try and keep capital relatively flat. Analyst: Great. I appreciate it. I will leave it there. Thanks for the time this morning. Jeffrey J. Tengel: Thanks, Michael. Operator: Your next question comes from the line of David Conrad with KBW. Your line is open. Please go ahead. David Conrad: Yes. Thanks. Just really a follow-up on the capital and the buyback. I mean, your CET1 level is about 12.09. Mark J. Ruggiero: And you started the buyback, and it really did not budge. And I think earnings power is going to improve even if loan growth improves a bit. So maybe balance the discussion of why you would want or desire to keep that flat instead of working that down a bit, and how you weigh the environment with, like, narrowing credit spreads and excess competition with potential—using that for a potential buyback to offset that. Chris O’Connell: Yeah. It is a fair— Mark J. Ruggiero: question. You know, I think we are still feeling like there is a growth path that we would like to leave some level of capital flexibility. You know, ideally—I have said this a few times now—ideally, we would grow into that excess capital position, but we also are being realistic and recognize, you know, we are talking a lot about uncertainty in the environment. That is going to keep loan growth somewhat at bay. So we absolutely are looking at a minimum to basically keep flat. Doing more than that, David, to be honest, some of the practical limitations there will be funding. So in a holding company–bank structure, the way you will typically fund that ideally would be through earnings and through bank-to-holding-company dividends. Doing that at a pace that exceeds earnings puts some pressure on the ability to rely on that as a funding base. So we would have to go to the outside market to borrow if we really wanted to ratchet that up. And I am not saying we would not do it, but we are still weighing that pro and con. And then we are still being cautious about keeping CRE concentration at a range that we think is appropriate and allows us to grow when the market turns. So that 280% to 290% range, we are very comfortable with. But the more we do on the buyback side, the more that constrains keeping that CRE ratio in that range. We are trying to find that right balance of, like I say, at a minimum keeping capital flat. That will not pressure funding and/or CRE concentration. But when you start to exceed that, we would just have to weigh sort of the pros and cons. David Conrad: Got it. Fair enough. And then maybe a follow-up. Just regarding the Fed’s proposal for Basel III, just want to get any thoughts on risk-weighted assets with any potential benefit in your mortgage or CRE portfolio, given their guidance? Mark J. Ruggiero: Yep. Yeah. We have done some rough modeling on that and think we would be comfortable suggesting our impact would be aligned with probably what you are seeing as sort of the industry expectation. Meaning, with 25% of our book in the consumer space—mortgage, home equity—where our LTVs are, I think you would expect to see somewhere around 15 basis points of risk-weighted asset relief there. And then on the commercial side, in general, 5 basis points of RWA relief. So that probably pencils out to 7% or 8% sized basis points. So 5% reduction in RWA, 15% reduction on the mortgage side. It is about a 7% to 8% reduction in risk-weighted assets, which gives you about $150 million to $160 million of capital relief when this comes to fruition, which certainly allows for an expectation for even more buyback or, obviously, just more capital flexibility. Chris O’Connell: Great. Perfect. Thank you. Operator: Your next question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead. Mark J. Ruggiero: Hi. Good morning, guys. Jeffrey J. Tengel: Hi, Steve. Chris O’Connell: Hey, Jeff. Mark. Mark J. Ruggiero: Maybe just— Analyst: you know, going back to the loan pipeline here and loan yields, just good to see the step up in activity and the organic growth there. Just kind of curious, where are you guys putting on loans these days? Mark J. Ruggiero: Yeah. On the commercial side, Steve, it is low 6s—probably 6.10% to 6.20% range. Runoff is in the 5% to 5.25% range on the commercial side, so you are still getting that 100 basis point lift or so on the churn. On the consumer side, there is not a lot of portfolio mortgage going in, but that is probably a little bit lower yield, call it 5.75% to 6%. Most of the home equity volume continues to be prime, so that is obviously at a better rate. But the biggest driver on the commercial side, call it, low 6s replacing low 5s. Chris O’Connell: Okay. Analyst: And then in terms of the securities cash flows here that you have coming off, just curious—Mark, you mentioned deposit pricing, obviously saw some things run off. Are you thinking of using some of those cash flows to continue to manage higher-cost deposits lower, or are you thinking about parking those in securities here or just what is the dynamic of thinking going forward? Mark J. Ruggiero: Yeah. I think from a balance sheet position and liquidity management perspective, we would be looking to keep the securities portfolio pretty flat where it is. I probably would not want it to get too much lower. Where we are—maybe down to 11%–12% we certainly would be comfortable—but I think I would expect to see the majority of the cash flow go back into the securities portfolio. We are seeing good yields there, and we are very conservative in terms of managing that portfolio. We are buying deep-discounted, fairly matured mortgage-backed securities. We are not stretching for yield in that portfolio, but we are getting, on average, 4%–4.25% rate. And that is replacing—in the first quarter, actually $100 million that came off was at a 1.50% rate. I would expect more of what is going to run off in the second half of the year to be closer to 2%. But that dynamic, giving you 200 to 225 basis points of lift on the securities book, is another big driver of the margin expansion you saw. But I would—long way of saying I would expect us to keep that portfolio relatively flat. Analyst: Okay. Appreciate that color. And then in terms of just the multifamily business in Massachusetts, you guys have about a $2.9 billion book. Just kind of curious, with the rent legislation here, are you guys going to tighten underwriting standards? Are there any thoughts of adjusting the way you operate on that front? And could that be a little more of a headwind beyond just this year if it passes? Jeffrey J. Tengel: Yeah. I mean, the—the most obvious headwind would just be the muted new business coming from construction loans in the multifamily space. As I mentioned in my comments, I think a number of investors—and I have spoken to several of them—they will tell me, look, we have choices. We do not have to invest in Massachusetts. We can invest in Connecticut or New York or wherever. And so I think until that issue gets—there is some clarity around it, I think there is going to continue to be muted demand on the construction side. Within the existing portfolio, our multifamily portfolio is—I would suggest—pretty seasoned. It has been underwritten consistent with historical Rockland Trust conservatism. We do not underwrite to trended rents or any of those sorts of things. So we feel really good about the existing portfolio of multifamily loans that we have because we have not seen any signs of stress as we move through these quarters. So I think the biggest challenge is going to be with new business as opposed to feeling like our existing portfolio is going to experience stress. Analyst: Okay. Fair. And then in terms of just going back to the office credit here, just want to clarify with regard to the payoff and the charge-off. Is it fair to—did I understand correctly that you charged off the $4 million and then the remaining balance, which I am assuming is the $13.07 million on the—in the deck—was paid off just a few days ago? Or is it just the recovery? I am just kind of— Mark J. Ruggiero: No. No. We charged it off to the P&L to what we knew was going to be the sale price, then that sale went through this week. Chris O’Connell: That is what I expected. I just was not quite sure I heard it right. Okay. Great. And then one more thing just on the noninterest-bearing dynamics for the quarter. Just kind of curious—they went down quite a bit but EOP was flattish. Was there anything seasonal that maybe we should have been thinking about? Jeffrey J. Tengel: On the deposit side? Particularly? Chris O’Connell: Yes. On noninterest-bearing. Mark J. Ruggiero: Yeah. Yeah. There is definitely seasonality, particularly in our business segment. When you look at the data in the reporting for the quarter, we are encouraged by a couple of things. The first is we still brought in new relationships and deposit dollars associated with new relationships that outpaced closed relationships. So where we saw some of that average deposit pressure is in existing balances being utilized. And I would attribute that to a couple of things. One is typical seasonality—tax payments, distributions, whatever it may be. We always see the low point of our deposits in the first quarter of a calendar year. Second is, I think there is some level of just inflationary pressure that is probably increasing to some modest degree a level of spend. I think that is putting a little bit of pressure on outstanding deposit balances. And then third, to be very candid, there is some money that we knew we let go due to just not a willingness to match some of the rates that we are seeing in our market. So you may see a customer with X amount of dollars in their account. They are carving out a small piece and looking for top rate, and we are going to—sometimes that answer is we price up and match. Sometimes, depending on the overall relationship, we have been willing to not match. So all three factors are in play in the first quarter, but I would say the biggest majority is your typical usage that we would look to see rebound in the second quarter. Chris O’Connell: Okay. Great. I appreciate all the color here, and I will step back in the queue. Thank you very much. Operator: Your next question comes from the line of Laurie Hunsicker with Seaport Research. Your line is open. Please go ahead. Laurie Hunsicker: Yeah. Hi, Jeff, Mark, and Jerry. Good morning. I wanted to stay where Steve was on office. So just to go back to office for a minute because I am just a little bit confused. When I am looking at your office nonperformers of $53.8 million, that $18 million that repaid is already out of those numbers, correct? Mark J. Ruggiero: It is the $13.7 million that is out of those numbers. Laurie Hunsicker: It was originally $18 million, charged down to $13.7 million, and that paid off in April. Correct? Mark J. Ruggiero: Correct. Laurie Hunsicker: Okay. Perfect. Right. So—and then you initially had a $2 million reserve on that in the fourth quarter, so you took another $2 million before you charged it off, and then this new one came on, you took a $2.8 million specific reserve. So if I look at your loan loss provision for the quarter, it basically was all office. Am I thinking about that the right way? Mark J. Ruggiero: The new nonperformer, the $17.7 million, that has a $2.8 million reserve. We had already reserved $2 million of that last quarter. So there is—the appraisal suggests a bit more of the cure, so to speak, that would be needed. So it was only another, call it, $800,000 of provision needed to establish that reserve. So I’d say modest reserve build. Laurie Hunsicker: Perfect. Perfect. Okay. And then the $17.7 million that is new, is that a Class A or B? And do you have any occupancy—can you give us any kind of color around that? Mark J. Ruggiero: The $17.7 million new? Yes. Jeff, do you have whether that is A or B? I do not. But it is basically—the issue with that is it is a single tenant, life science tenant that has represented to us they will be exiting the facility. It is probably Class B would be my—if I had to venture a guess. So we do not expect sponsor support when that happens. So we would likely be looking at a future foreclosure, and the reserve that was established is based on an appraisal kind of on an as-is basis. Laurie Hunsicker: Gotcha. Okay. And just remind me, your life sciences book—how big is that? Jeffrey J. Tengel: It is not very big, Laurie. I do not have it in front of me, but I would say it is $100 million, plus or minus. It is not very big, and it is a little bit lumpy. I know we have a couple of larger loans in there. One in particular that—it was a construction loan, and we may have spoken about this in the past, but it continues to lease up really well, which is kind of bucking a trend in that space. And so it continues to get better. Honestly, that larger loan that I am referring to is criticized, and we think it is likely to get upgraded sometime over the course of 2026. Mark J. Ruggiero: Yeah. That is a $28 million loan that is in the Q4 maturity bucket. So that is $28 million out of the $54 million—that is life science. If you recall, it was once an empty building when we first started talking about this, so it has been a very positive development. Jeffrey J. Tengel: With good sponsorship, I might add. Laurie Hunsicker: That is great. And actually that segues to my other question. By the way, I love the slide 10 details. Thanks for continuing to include that. So yes, you touched on the $54 million that is coming due in 2026. Is there anything—kind of looking between the third and the fourth quarter, you have got $20 million coming due and obviously of the $54 million you just touched on the $28 million. Is there anything, or I guess maybe how should we be thinking about that? Is there any color you can give us on those loans? Mark J. Ruggiero: Yeah. To be honest, some of them we probably talked about in the past. I mean, they each have their own story. Based on those stories, if there is any loss exposure, we have reserved for it. But as you know, I think that we have probably talked about most of the loans that have a specific reserve on, and a lot of these either do not have a reserve because we expect full resolution or they are pretty modest reserves. So we feel genuinely good about that. I think to provide maybe one notable update—so I believe it is a fourth—yeah, one of the fourth-quarter maturity items now. It is about a $10 million loan that was originally intended to mature here in the first quarter, so if you went back to our deck from last quarter, I believe you would have seen a $9.9 million—or it would have been part of what was set to mature in Q1. That was extended to Q4. But that is a participation deal. The sponsor is looking to refinance or sell. Cash flow is improving. We felt a short-term extension was the right call to get that to a resolution that we still feel would get us paid out in full. So that one is probably one worth noting. But in general, like I said, the rest of the short-term maturities we feel—knock on wood—pretty good about. Laurie Hunsicker: Okay. And then just switching over to the dealer floor plan loan. So you mentioned you are discontinuing that book. How quickly does that book run off? And can you give us the current balance and just any color behind your reasoning for discontinuing? Jeffrey J. Tengel: Yeah. So the reason we decided to exit was we felt like we did not have scale to compete. The segment that we are in tended to be smaller—I will say relatively undercapitalized used car dealers. That industry, as you know, has consolidated quite a bit, and the larger, more well-capitalized companies did not really fit our traditional profile. And so as we looked at it, we said to ourselves, we are not very big in this space, and we do not really feel great about the prospects to grow it in a meaningful way. And I am not a big fan of hobbies, and I tell our people all the time, if we like the business and like the space, then let us put resources against it and let us grow it. If we do not, then let us exit because otherwise we are going to make a mistake and it will come back to bite us. And so this was a good example of where we just did not feel good about the go-forward strategy and our ability to be a meaningful player, and so we decided to exit. I think it started with, maybe, $100 million–$150 million roughly outstanding, and we are down to, I think, $70 million or $80 million. It has actually gone quite well, to be honest with you. Our team has done just a terrific job of facilitating the placement of a lot of these relationships with other banks so that the client—we are very trying to be very client-centric—the client is not disadvantaged. They are able to get financing from another local bank that is interested in being in this business. And so I think we have done a nice job of doing this without a lot of customer disruption or negative implications in the market. Mark J. Ruggiero: I just looked it up. I think we are actually a little—it is only about $50 million, a little over $50 million, left. So I would imagine, Laurie, that will play out over the next year—probably nine to twelve months. Yeah. We will probably be substantially done by year-end. Laurie Hunsicker: Okay. That is great. Okay. And then expenses, obviously, great guidance that you gave on 05/15. But if I am just looking very high level, so you are at $143 million for this quarter—$3 million of merger dollars, $2 million of snow, and then $1 million of core conversion systems—that takes you down to $137 million. And then, obviously, this quarter had the FICA. How much was the FICA? Mark J. Ruggiero: Payroll taxes quarter over quarter are up $1.2 million. I would not suggest that goes back down. You know, that will gradually reduce over time. So if I had to predict, Laurie, it is probably—you get $300,000 or $400,000 of expense relief in Q2 versus Q1, if you follow me. Laurie Hunsicker: Okay. I mean, that is—yeah. I am just looking and—just seems like your core expenses, taking out that core, seems—I mean, you are running better, lower. Right? Am I thinking about that the right way? Or is there some other where—something that we do not know? Mark J. Ruggiero: You are. You are seeing the full cost save. There was a little bit here in Q1 that I admit we did not capture—a little bit left of M&A. So you actually had that in for half of the quarter in the expense base as well. We are also cognizant that April is when we do our annual merit increases. So you will see an uptick in salaries, all other things being equal, just from annual merit—call it 3% on average. So I think it is holding the line. That is the mentality we are talking about—hold the line in all the major areas. I would hope and expect to see kind of in that $138 million-ish, $139 million range. Jeffrey J. Tengel: And just as an anecdote, Laurie, we have talked a lot about the number of bankers that we have added over the last six to twelve months, mostly in the C&I space, and we have been able to do that without any net incremental increase in our FTEs in that commercial banking space. It has been people who either have retired or we have performance-managed out or whatever. So when you look at the totals of our salespeople in our commercial space, it is relatively flat despite the fact that we have added a lot of really talented people over the last twelve months. Laurie Hunsicker: Gotcha. Okay. That is great. And then, Mark, just one quick question. You flagged the outsized loan accretion income, and I appreciate that. But do you have a spot margin for March—maybe even a spot margin—core? Mark J. Ruggiero: Core spot for March was—it was 3.72%. So in line with the total quarter. February actually had a little bit of a lift. We saw some more securities accretion with a little bit elevated payoff. So I still expect it to increase, obviously, off of that number, but spot was 3.72%. Laurie Hunsicker: Okay. Great. And then, Jeff, last question for you. I know you have been penciled down on M&A. Any sort of refresh now that EBTC is fully digested and your core systems conversion is right around the corner? How are you thinking about that? Jeffrey J. Tengel: Yeah. So just to be clear—pencils down on bank M&A. We still remain interested in—if it was in the wealth space or if there were unique deposit opportunities, whether it was branches or other ways that we could improve the overall franchise. But I would say we are still pencils down on bank M&A. The conversion that we have coming up in October is really a big deal. And so we are pretty focused on getting that done and getting it done well. As I told a bunch of our people a few days ago, we have one chance to make a good impression through this conversion. So we have to get it right. And so we have been spending a lot of our time and energy making sure that we do that. We also feel like we have a lot of really positive momentum and a good path to growth in a number of our core businesses, whether it is the wealth business, which we talked about, the C&I business, which we have been talking about the last couple of quarters. So we feel like organic growth very much remains top of mind and one of the things that we are focused on in addition to getting the conversion done well. And that, coupled with the environment—the environment right now is, as you know, a little bit uncertain—but I would characterize our posture as pencils down. Laurie Hunsicker: Great. Thanks for taking my questions. Thanks so much. Jeffrey J. Tengel: You bet. Thanks, Laurie. Operator: Your next question comes from the line of Matthew Breese with Stephens Inc. Your line is open. Please go ahead. Analyst: Good morning, everybody. Mark J. Ruggiero: Morning, Matt. Jeffrey J. Tengel: Hey, Matt. Analyst: Mark, maybe to start with you. Can you provide, if you have it, the spot cost of deposits at quarter end and just maybe expand upon your commentary around competition? I would be curious in terms of where is the most aggressive—product-wise and competitor-wise? Are you seeing that mostly from the bigger banks or the mutuals? Mark J. Ruggiero: Yeah. Taking the latter—both, to be honest. Massachusetts is a bit of a unique environment. You still have a lot of mutuals at play that are good operators but can be a bit aggressive on pricing. And we are seeing offers even from larger banks, other typical similar-sized banks, a lot in the 4-handle on the deposit side. In some cases, even 4.25%. I think I saw a 4.50% offer out recently on a pretty large relationship. So it is very, very competitive. And it is those types of dynamics that I was alluding to where, of course, we are looking at the overall relationship, and if there is a portion of money that needs to be a 4-handle and the overall cost of deposits is where we would like it to be, that is the relationship we are going to continue to support. It is when you start to get the majority of a deposit looking for, in some cases, higher than 4% rates. That is a tough one to justify, in my opinion. So you are seeing some of that dynamic. And like I said, it is probably heightened by the level of mutuals. And I can appreciate in the markets where we—especially where we did the Enterprise deal—you have some competitors in that space that are going to look to be aggressive because they view it as an opportunity. The spot rate on the cost of deposits for March, I am pretty sure, was right in line, Matt, with the quarter—like around 1.36%. So we are at a point now where, you know, I think you are still seeing the Fed cut in December. We were able to make some reductions. You had a little bit of the CD book still giving us some benefit as that was repricing. You are basically at a point now where any CD maturities are going to be neutral to cost of deposits, and because of the competition, I would imagine new money coming on is going to challenge the 1.36% rate to some degree. But I think keeping deposits flat or slightly up in this environment will be a pretty successful profile. Analyst: Got it. And then maybe just transitioning that into the NIM and the NIM guide. The presentation suggests that you are going to end the year with a NIM in the 3.90% to 3.95% range. I am assuming that is the core NIM. Is that accurate? Mark J. Ruggiero: That is reported NIM with a 10 basis point accretion assumption. Analyst: So the 10 bps would be additive or—I am—is that all that is going to be—So let us work off of the low-3.70s core NIM this quarter. Expected, anticipated expansion is to 3.90% end of the year. Tack on another 10 bps, all-in NIM close to 4% or just over by the end of the year. That is the way to think about— Mark J. Ruggiero: No. I would suggest 3.72% core goes to, call it, 3.82% core. Tack on 10 to get you to the 3.90% to 3.95% range. Analyst: Got. Okay. So I guess with that in mind, just considering flat deposit costs, and then your roll-on versus roll-off dynamics are still accretive by, it sounds like, 100 or so basis points, it feels like the longer-term trajectory here is north of 4% on that NIM. Is that a fair—is that a fair assumption? Mark J. Ruggiero: I do think if the rate environment stays—if the longer term and longer part of the curve stays where it is and we could move the loan yield closer to 6%—then yes, I think a NIM above 4% is a realistic end goal. I think that the guidance now—call it, you know, 3 to 4 basis points of core expansion per quarter—does take into account the fact that we may see a basis point or two tick up in cost of deposits if we are being realistic. So I think that is a little bit of the development that I would suggest over the next three quarters—you are going to get the loan repricing benefit, you are going to get the securities repricing benefit. Our goal will be to keep deposits flat, but having the pricing pressure that is out there, I would say that is an area where you may see that eat into it slightly—where it is probably more like, as I said, a 3 to 4 basis point core margin expansion. Analyst: Got it. Okay. Jeff, maybe one for you. We talked about transactional commercial real estate a few times now. I am not sure I have ever seen a dollar amount put on it. What is the identified balance of transactional commercial real estate? Where was it? Where does it stand today? I think you said it is not as much of a headwind to growth. But maybe just characterize for us where you want it to be. Jeffrey J. Tengel: Yeah. That is a good question, Matt. I do not know that we have a specific number that I would point to in terms of what that is. We have actually talked about trying to get a bit more specific and then ring-fence it and be able to talk about our commercial real estate business as a core relationship, legacy Rockland Trust–originated business, and then a transactional book. But it is obviously less today than it was a year ago, year and a half ago. If I had to venture a guess, I would say it is probably somewhere between $300 million and $500 million—maybe towards the lower end of that, $300 million. But we have not really put pencil to paper to identify how much it is and then when it is running off. As you can imagine, some of the transactional real estate just has a maturity date that is well beyond the next year or two, and as long as it is performing, we are just going to have to continue to live with it. And that is not necessarily a bad thing because we are getting the income off of it as long as the credit profile is okay. It is really the ones where we feel like there is some stress that we have been a lot more proactive at addressing and looking to move off. Do not know if that answers your question. Analyst: No. That is great. The first one is just—I would love your view on which way the pendulum is swinging on the rent control. You know, just sort of kind of a quick Google search, it sounds like it is contested. I am just not sure to what extent. I would be curious what you think there. Is this, like, a likely outcome or not? Jeffrey J. Tengel: Yeah. I do not know. Maybe we need to go to the betting markets to see what they are saying about this. My own intuition—and this is not based on any inside baseball or anything like that—is I think there is a good chance it does not pass because there is so much research out there that would suggest that it is not a good thing for the economy or for commercial real estate. In general, it can have a muted impact on new affordable housing, new development, and that is clearly not what we would like. We want to continue to see investments in affordable housing and new development. But we are hopeful that that argument kind of wins the day, but I am no expert on this and my crystal ball is not all that precise. Mark, I do not know if you have— Mark J. Ruggiero: I was going to add—in terms of significant influence, our governor has publicly stated being against it. I think there is a lot of business community lobbyists, including a chamber that I am part of, that would likely start to weigh in and lean in on suggesting why this is not a good answer for the economy. So the question becomes whether those voices outweigh the voters—the consumers that on paper hear rent control and think that will help my pocket. So will the business community’s messaging of why, in the long term, this is not good help defend what probably has some consumer momentum to get it passed? But I think to Jeff’s point, there will be enough lobbyists and business offset to hopefully come against that. I think the other mitigant here, though, is even if it does get passed, Massachusetts—you look at the last decade historically—rent increases have been below 5%, which is the proposed cap of rent increases if this were to go through—greater of 5% or CPI. So this is a state where rent has been pretty well contained, and it is partly because there is so much demand and need for affordable housing. So I do think if this does get passed, there is a path forward here to suggest that it still works without a meaningful impact on our economy, but there is a lot of opposition against it. Analyst: Great. Last one. Jeff, you had mentioned at the onset some work into AI and putting some resources aside for it. Just curious what your initial impressions are—love your thoughts on impacts to the longer-term expense trajectory or maybe even revenue benefits. Just curious. That is all I had. Thank you. Jeffrey J. Tengel: It is probably a little too early to quantify what we think the benefits will be. I would say it is making—just for us, it is initially going to be around things like efficiencies, freeing up people’s time to reinvest in other activities if they are doing things that are very standardized and routine and we think can be easily accommodated through a chatbot or something like that. I am a believer in not trying to bite off more than we can chew, meaning I would like to get some wins under our belt here, which in my mind probably means a bit more modest use cases. And then once we get some wins under our belt, I think that will give us some confidence that we can continue to do this well. And I think, as I said in my comments, we can develop some muscle memory around how we roll this out. And then, as we think about use cases, the more confidence we get, the bigger the use cases we will take on, which will have a bigger impact on the company. My intuition would also be it is going to probably lean more towards the expense side of things versus the revenue side of things. But a lot of that is still TBD. Analyst: Appreciate it. Thank you. Jeffrey J. Tengel: Thanks, Matt. Operator: Your next question comes from the line of Jared Shaw with Barclays. Your line is open. Please go ahead. Analyst: Thanks. Good morning, guys. Just a couple quick ones to wrap up. So, Mark, I do not know if you have the securities accretion—you still called out some of the indirect impacts, but do you have the dollar of securities accretion this quarter, and maybe actually last quarter? Mark J. Ruggiero: I do not, only because it is basically just like any other discount on a bond is how we are capturing it. So I do not have the actual dollar amount, Jared. I would have to follow up on that just to give you—sort of the discount amortization, I guess, on the Enterprise bond is how I would quantify that. Analyst: Right. Okay. And then when you look at the—do you still feel that you can get to that 80% CD beta through the cycle? And then, I guess, how are you looking at staying active in the deposit space given the competition versus sort of the loan-to-deposit ratio? And how are you thinking about that dynamic? Mark J. Ruggiero: Yeah. I think on the CD beta—all-in, I think cost of CDs is right around 3.30%. Let me just triple-check my math here. Yeah, so right about 3.30%. So I think in terms of repricing down, as I mentioned in one of my earlier answers, we have probably seen the vast majority of that. So even though Fed funds are sitting around 3.60%—you know, one-month money, brokered CDs in the one-month space—probably closer to 4% now. So I think of it as we have sort of achieved that beta based on where we are today in our CD ladder. I would expect, because of the pricing pressure that is out there and the competitive dynamics, we still have a four-month 3.60% offer out there. That is the primary driver of any new CD money. So I think it is going to keep, like I said, cost of CDs somewhat at bay at where they are right now, if not maybe a little bit of an uptick. In terms of the overall deposit strategy, I would just reiterate what I was suggesting earlier, which is continuing to stay as competitive as we think is appropriate on what we value as total relationship funding, and continuing to do what this bank has done for such a long time in attracting new money. That is the branches. That is the retail network involved in their communities. It is working with nonprofits. It is the C&I wins that we have been having typically coming over with more deposits. We still have good CRE relationships that hold money with us. So a lot of those pieces are still in place that have been able to drive deposit growth for us in the past. And then we will just couple that with being really smart about our pricing strategy. Jeffrey J. Tengel: Only other thing I would add to that, because I agree with everything Mark just said about our deposit gathering, is we are trying to get a little bit more focused and a little bit more specific around some of the market disruption that is happening here. And we think that that is an opportunity for us because I think we are viewed as sort of the stable—not a lot of change going on—and that is not true with some of our competitors. And so we have been very focused on developing marketing programs and having both our commercial and our retail bankers—arming them with data—to help them try and take advantage of some of the market disruption that we are seeing. So we are really focused on deposits. We know that is an important part of the overall company and funding the loan growth that we hope to achieve. So it is a lot of the things Mark talked about, it is being more strategic with some of the market disruption that we are seeing, and then we have a number of businesses that are not credit-oriented businesses—they are just deposit verticals—that we are doubling back on and seeing if there are ways that we can accelerate the growth in some of those areas. Analyst: Great. Thank you. Jeffrey J. Tengel: Thanks, Jared. Operator: There are no further questions at this time. I will now turn the call back to CEO, Jeffrey J. Tengel, for closing remarks. Jeffrey J. Tengel: Thanks, everybody. Appreciate your interest in INDB and Rockland Trust, and have a great day. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to State Street Corporation's First Quarter 2026 Earnings Conference Call and Webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street Corporation. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street Corporation's conference call is copyrighted, and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street Corporation website. Now I would like to hand the call over to Elizabeth Lynn. Elizabeth Lynn: Good morning, and thank you all for joining us. On our call today are CEO, Ron O'Hanley, who will speak first, and then John Woods, our CFO, will take you through our first quarter 2026 earnings presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterward, we will be happy to take questions. Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the earnings release addendum. In addition, today's call will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those referenced in our discussion today and in our SEC filings, including the risk factor section in our Form 10-Ks. Our forward-looking statements speak only as of today; we disclaim any obligation to update them even if our views change. With that, let me turn it over to Ron. Ron O'Hanley: Thank you, Elizabeth. Good morning, everyone, and thank you for joining us. I will begin with a few broader observations before John walks you through our financial results in more detail. Reflecting on the first-quarter operating environment for a moment, several factors shaped investor sentiment in Q1, including the Iran war, divided views on the long-term impacts of artificial intelligence, and rising concerns on credit quality in certain parts of the financial system. Against this geopolitical and macroeconomic backdrop, we remain firmly focused on serving as an essential long-term partner to our clients and helping to deliver better outcomes for the world's investors and the people they serve. We continue to execute effectively on our strategy, supported by our distinctive capabilities, deep operational strengths, and a conservatively positioned balance sheet. That strategic positioning allowed us to deliver strong growth, underpinned by continued financial and strategic progress during the first quarter. Our results in the first quarter also underscore the inherent strength and diversification of our business model, which allows us to successfully navigate times of uncertainty and heightened market volatility, as we saw in Q1, with both FX trading and NII contributing meaningfully to our year-over-year financial performance. The scale, capabilities, and leading market positions of our core businesses, working together as one State Street Corporation, provide balance across varying market environments, reinforce the value of our platform for clients, and accrete value for our shareholders. Slide two of our investor presentation outlines our first-quarter highlights excluding notable items, which John will address shortly. We had a strong start to 2026, with broad-based positive year-over-year revenue performance across the franchise. Reported earnings per share increased 22%, while excluding notable items, EPS grew a very strong 39% year-over-year, supported by record quarterly fee revenue, NII, and total revenue. Importantly, substantial positive operating leverage in the first quarter drove another quarter of year-over-year pretax margin expansion. Quarter after quarter, the proof points continue to demonstrate that our strategy is delivering consistent, durable improvements in financial performance, with Q1 marking our ninth consecutive quarter of year-over-year positive operating leverage, excluding notable items. Stepping back from the quarter for a moment, I want to highlight some of the many growth opportunities we are realizing and see ahead at State Street Corporation. Through disciplined business investments and focused execution against a clear set of strategic priorities, we believe we are well positioned to continue to accelerate growth and deliver substantial and sustainable returns for our shareholders. We are drawing on deep, broad-based, technology-driven innovation and delivering digital platforms, compelling AI tools in AgenTx, and client solutions. Together, these capabilities help our clients succeed in a constantly evolving market while strategically pivoting State Street Corporation to faster-growing segments of the industry. In digital, we are focused on building the market infrastructure clients need to bridge seamlessly between traditional and digital finance. Following the recent launch of our digital asset platform, we are executing against a clear and comprehensive product roadmap that includes tokenization of assets, funds, and cash for institutional investors. These capabilities are designed to drive greater efficiency, enhance liquidity, and support new avenues of growth for markets, our clients, and for State Street Corporation. We are well advanced with clients to support their launch of tokenized fund strategies this year. Furthermore, State Street Corporation is deeply engaged in a number of digital asset-related industry initiatives, including DTCC's tokenization efforts, as well as Fnality's work to create an ecosystem of central-bank-connected, blockchain-based payment systems. These initiatives are key to the development of digital markets and consistent with our track record as a critical infrastructure provider and standard setter. Across alternatives, including private markets and hedge funds, we continue to see compelling long-term growth potential as the segment matures, with clients leveraging State Street Corporation to bring innovative solutions to markets. Our leadership positions across both investment servicing and investment management position us well to capture opportunities as we broaden access and simplify operations for clients, and our clients' clients. In wealth services, we are investing in leveraging Charles River's capabilities alongside our strategic partnership with Apex Financial Solutions to build a differentiated, fully digital, and globally scalable wealth custody and clearing solution. This positions us to serve wealth advisers and self-directed wealth platforms and unlock a new avenue for growth that leverages our strength across investment servicing and investment management. And finally, in State Street Investment Management, our strong track record of innovation, differentiated solutions, and scaled franchises in areas such as ETFs, cash, and retirement, to name just a few, create multiple avenues for growth. An illustration of our progress is the way we provide barbelled investment exposure at scale to serve distinct client needs. At one end, SPYM, our low-cost S&P 500 ETF, is gaining strong traction in retail and wealth channels. It ranked as the number one asset-gathering ETF globally in the first quarter, with $27 billion of inflows in that fund alone. At the other end, SPY continues to anchor institutional usage as the market's liquidity benchmark, with nearly $4 trillion of notional value traded in the quarter, representing roughly 17% of total U.S.-listed ETF volume. Together, this underscores the strength, breadth, and flexibility of our platform across client segments, and our abilities to successfully extend from our leading position in SPY to other high-growth ETF segments. Our scaled franchises within management also create a competitive advantage and will enable us to capitalize on several important global trends, including the shift from savings to investment, the move globally towards funded retirement systems, the expansion of digital assets, and the continued democratization of investing. For example, in digital, we are preparing to launch the State Street Galaxy Onchain Liquidity Sweep Fund, a tokenized private liquidity fund designed to support 24/7 on-chain liquidity for institutional investors. Together, these strategic initiatives underscore the broad range of opportunities ahead as we focus on driving near- and long-term growth, enhancing client capabilities, and strengthening our platform. At the same time, the next phase of our operating model transformation will strengthen our ability to deliver sustainable growth and long-term shareholder value. We are scaling AI-enabled capabilities, embedding more agile ways of working across the organization, and continuing to modernize our technology. With a continued emphasis on operational excellence, consistent execution of our strategy, and delivering for our clients, we are strengthening and improving our core end-to-end capabilities in technology, for the deployment of our AgenTeq platform and AI foundry to scale and accelerate AI in high-leverage areas, while also advancing capabilities in areas such as State Street Alpha and Charles River Development. These actions position us to operate more effectively, partner more deeply with clients, and help drive the next phase of industry evolution. To conclude, we are pleased with our strong start to 2026 while recognizing that our potential is even greater. We see broad-based strength across the franchise, and our first-quarter results reinforce that our strategy is translating into consistent and durable improvements in financial performance. At the same time, we continue to transform across the platform and accelerate the deployment of AI agents, which holds significant opportunity for State Street Corporation and our clients given the investment, operational, and technology intensity of what we do. In July, we will provide a detailed update on our strategic growth and transformation initiatives and how these position us to drive stronger performance over the medium term. We are encouraged by our progress, mindful of the environment, and confident in our ability to continue delivering as we move through the year. With that, I will turn it over to John to walk you through the first quarter in more detail. John Woods: Thank you, Ron, and good morning, everyone. We had an excellent start to 2026, with broad-based year-over-year growth across the franchise, driving record quarterly revenues and over 600 basis points of positive operating leverage in the quarter, excluding notable items. These results reflect disciplined execution alongside ongoing investment across our portfolio of strategic growth areas. Now let me dive into the details of the quarter, excluding notable items, starting on slide three. In the first quarter, total revenue increased 16% year-over-year to a record $3.8 billion. Fee revenue of $3 billion increased 15% year-over-year, driven by strong performance across investment management, investment services, and markets. Net interest income of $835 million increased 17% year-over-year, primarily reflecting continued net interest margin expansion. Expenses of $2.7 billion increased 9% year-over-year, driven by higher revenue, strategic investments, and the impact of currency translation, which was a headwind to expenses but a benefit to revenues. Taken together, this performance drove a significant improvement in profitability with 400 basis points of pretax margin expansion and a roughly four percentage point increase in ROTCE to 20%. Before moving on, let me briefly touch on notable items recognized in the quarter. Notable items totaled $130 million pretax in the first quarter, or $0.35 per share after tax, reflecting repositioning charges and the rescoping of a middle office client contract. Turning to slide four, servicing fees in the quarter increased 11% year-over-year to $1.4 billion, reflecting higher average market levels, the benefit of currency translation, and continued organic growth supported by net client asset activity, flows, and new business. AUCA ended the quarter at a record $54.5 trillion, up 17% year-over-year, primarily reflecting higher period-end market levels, positive client flows, and net new business. First-quarter servicing fee sales were $56 million. These were well distributed across regions and aligned with our strategic focus areas, particularly back office services and alternatives clients. Looking ahead, we continue to target $350 million to $400 million of sales in 2026. The pipeline remains healthy, with broad geographic and customer segment representation including APAC, EMEA, emerging markets, and alternatives. Additionally, we reported one new Alpha mandate win during the quarter, highlighting continued client engagement with our integrated front-to-back platform. Moving now to slide five. Management fees increased 23% year-over-year to $724 million in the first quarter, driven by higher average market levels and net inflows. Assets under management increased 20% year-over-year to $5.6 trillion, reflecting higher period-end market levels and continued client inflows. Net inflows totaled $49 billion for the quarter, led by strength across index strategies and solutions including ETFs and fixed income, as well as our cash franchise. Within ETFs, net inflows were $25 billion, driven by strong flows and market share gains in our U.S. low-cost suite. As Ron noted, SPYM, our low-cost S&P 500 ETF, was the largest asset-gathering ETF globally during the quarter. We also continued to advance product innovation and strategic partnerships, launching 57 new products and solutions during the quarter that are creating new avenues for growth. As a signpost of that progress, our State Street Bridgewater All Weather ETF surpassed $1 billion in assets under management during the quarter. We were also pleased to see our investment-grade public and private credit ETF, developed in partnership with Apollo Global Management, reach a new high watermark during January with AUM of over $800 million. Turning to slide six. Markets remains one of the key pillars of our One State Street strategy. It plays a key role in linking our investment services and investment management platforms, strengthening the connectivity across the firm and enabling more cohesive client-led solutions. FX trading revenue increased 29% year-over-year to $435 million in the first quarter, reflecting a strong 25% increase in client trading volumes, which reached a new record level as we supported clients amid a dynamic market environment. Securities finance revenue increased 2% year-over-year, supported by growth in client lending balances. Moving on to slide seven. Software services revenue increased 7% year-over-year in the first quarter, driven primarily by higher professional services and software and data revenues, reflecting continued SaaS go-lives and platform adoption across our client base. Software business momentum is also reflected in our annual recurring revenue, which increased 12% year-over-year, and our revenue backlog, which increased 11%. Turning now to slide eight. First-quarter net interest income of $835 million increased 17% year-over-year, primarily reflecting a 16 basis point expansion in net interest margin to 116 basis points, and average interest-earning asset growth of 1%. The year-over-year increase in NIM reflected improvements in funding mix, continued benefits from investment portfolio repricing, and runoff from terminated hedges, partially offset by lower average market rates. Growth in interest-earning assets was driven primarily by higher client deposits, partially offset by a reduction in short-term wholesale funding. Turning to slide nine. Expenses were up 9% year-over-year in the first quarter, excluding notable items. Currency translation accounted for approximately two percentage points of the increase. Of the remaining seven percentage points, approximately five percentage points reflected higher revenue-related costs, with the remaining balance of two percentage points driven by continued strategic investments and run-the-bank expenses, net of productivity savings. Moving now to capital and liquidity on slide 10. Our capital levels remain strong, enabling disciplined capital deployment aligned with our strategic priorities. At quarter end, our standardized CET1 ratio was 10.6%, down approximately 100 basis points from the prior quarter. The decrease primarily reflects higher risk-weighted assets associated with a normalization of RWA in our Markets business from episodically low levels in the prior quarter, along with the impact of U.S. dollar appreciation in March and, to a lesser extent, equity market appreciation on the final day of the quarter. Turning to capital return, in the first quarter, we repurchased $400 million in common shares and declared $233 million in common stock dividends, resulting in total capital return of $633 million, equivalent to a payout ratio of 90%. Before moving on, I would call your attention to a new slide 13 in the appendix on our NDFI loan portfolio. This lending remains disciplined and client-focused, primarily supporting investment services clients. In addition, this is a highly collateralized and diversified portfolio that has performed resiliently across cycles and continues to support durable client relationships. Turning to our full-year outlook, which, as a reminder, excludes notable items. We continue to assume that global equity markets are flat this year on a point-to-point basis from 2025, while remaining mindful of the potential for variability in the operating environment. Against this backdrop, we now expect fee revenue growth in the 7% to 9% range, an increase from our previous outlook of 4% to 6%, reflecting a stronger-than-expected Q1 along with continued organic growth and solid momentum across the franchise. Turning to net interest income, following our strong first-quarter performance, we now expect NII growth in the 8% to 10% range, representing an improvement from our previous outlook for low single-digit growth. We currently expect expenses to increase by 5% to 6%, up from our prior 3% to 4% outlook, primarily reflecting higher revenue-related costs. Finally, we continue to expect an effective tax rate of approximately 22% for the full year and a total payout ratio of roughly 80%, subject to board approval and other factors. We will now open the call for questions. Operator: At this time, we will open the floor for questions. You may remove yourself at any time by pressing star 5 again. Please note, you will be allowed one question and one related follow-up question. Again, that is star 5 to ask a question. We will pause for just a moment. Our first question will come from Glenn Schorr with Evercore. Your line is open. Please go ahead. Glenn Schorr: Hi. Thanks very much. I am happy about the pickup in NII, and I think the NIM expansion during the quarter was great. I find it interesting that average interest-earning assets were only up 1%, so I am interested if you could talk to the tug-of-war dynamic of better NIM but not a ton of earning asset growth. And does any of that change within your updated guidance? Thank you. John Woods: Thanks for the question, Glenn. I would say that we are very pleased to see our net interest margin progress, and as mentioned, much of that is coming on the funding mix side of the balance sheet. As we see growth in deposit levels, which surged in the first quarter, we are continuing the plans from the last couple of quarters of reducing our short-term wholesale funding. That is higher-cost, and we find that to be an appropriate rotation to higher-quality funding on the funding mix side. Interest-earning assets will be less of the story. Q1 was driven almost entirely by net interest margin. I think that is a similar story for our guide for 2026. The range that we talked about earlier is almost entirely driven by net interest margin as well. Interest-earning assets are really going to be something we keep an eye on, but not what is going to drive net interest income in 2026. Elizabeth Lynn: Operator, we can take the next question. Operator: My apologies. Our next question will come from Alexander Blostein from Goldman Sachs. Your line is now open. Please go ahead. Alexander Blostein: Hi. Good morning. Thank you for the question. I was hoping we could spend a minute on the goals you are trying to achieve from the next chapter of State Street Corporation's transformation. I know you alluded to the fact that you will provide a lot more detail in July, but since you opened that door, can you give us the overarching goals you are trying to achieve? Is that faster revenue growth, better profitability, or both? I believe your last official medium-term pretax margin target is somewhere in the low 30s. Is the goal to get that into a higher range over time? Any high-level framework would be helpful. John Woods: I will start off here. As you may have heard me comment on this in prior sessions, we had a goal to get to 30% pretax margin, which we delivered on in 2025 and again here in early 2026. You are seeing us meet that threshold, and the guide that we delivered today, if you play that through, implies in the neighborhood of 31% pretax margin. We think we are moving the platform forward from a profitability standpoint. The second big driver will be growth. In July, you will hear from us an updated view about what we think this platform can deliver over the medium term from a profitability standpoint. We feel there are extremely attractive opportunities to grow profitability metrics—pretax margin and other metrics—and we also believe we have very unique opportunities to grow this platform overall from a revenue standpoint. The building blocks of all of that will be the increasing business execution discipline that is emblematic of what you are seeing in organic growth across our fee line items. We will talk about what that can deliver for us. The other two big categories I would highlight: first, a distinctive portfolio of strategic initiatives that can drive unique, outsized benefits into the platform over the medium term; and second, transformation. Within transformation, there are several pillars. We will talk through our ongoing operating model transformation, embedding agile ways of working across the entire enterprise, and really solidifying a product-platform approach to delivering our services to clients. A second pillar will be the ongoing modernization of our technology and infrastructure, which we are excited about. And lastly, all things AI, where we have continued to make investments and make progress. We will wrap all of those building blocks together and what we believe they will contribute over the medium term in our commentary you will hear from us in July. Alexander Blostein: That sounds great. Looking forward to that. My follow-up: a question around ETFs, both in terms of growth and expense perspective. There has been increased focus on distribution platform fees that may come online towards the end of the year—Schwab is discussing that. Any early thoughts on the implications that might have on both ETF growth for State Street Corporation and incremental expenses that you might be willing to incur if you were to stay on the Schwab platform? Ron O'Hanley: Alex, it is Ron. We are very familiar with what some of the platforms are doing. Most of these platforms are close partners. In terms of our long-term strategy and performance, we are not concerned about this. If you have been following what we have done in ETFs, we have continued to broaden that platform, moving from where we started as an institutional provider to not only maintaining that institutional leadership but growing both in client segments in the low-cost wealth channel and in channels outside the U.S. You will see pockets of the kinds of things you are talking about, but we do not see it as any kind of substantial risk or headwind to our overall ETF business. Operator: Thank you. Our next question will come from Kenneth Usdin with Autonomous Research. Your line is now open. Please go ahead. Kenneth Usdin: Hi. Thanks. Good morning. This quarter, you showed the ability to put up meaningful operating leverage and also have a higher cost growth rate to even deliver that. Were you able to pull forward some spending, or was it mostly revenue-related costs? And as you look forward to the new 5% to 6% cost guidance, how are you balancing expected efficiencies, and how much FX translation are you including in the full-year guide after the hurt that it was in the first quarter? John Woods: A couple of comments. In the first quarter, there was about a 2% impact from currency. When you take that 9% expense growth, you are really starting with 7% ex-currency. That 7% is predominantly revenue-related; five percentage points of that would be revenue-related, which leaves a net 2%. Within that 2%, we have run-the-bank costs and our strategic investments. Those are in the neighborhood of, if you break that out, call it 6% of spend in running the bank and investing in exciting initiatives. We fund a lot of that through productivity, which is the net 4% of productivity that we delivered in the first quarter. We will continue to monitor our productivity trajectory, and the same storyline holds with the 5% to 6% full-year guide: the incremental growth you are seeing is majority revenue-related, and then there will be other costs as we continue to fund strategic investments, partially offset by productivity. The storyline for Q1 holds for the full year as well. Kenneth Usdin: Thanks, John. As a follow-up, with strong NII and strong FX trading, do you expect that to run-rate, or do you expect a natural come-off given the types of volatility and environment that we saw in the first quarter? John Woods: On FX, we had a strong quarter. Two things have to come together: first, you need the franchise in place to take advantage of opportunities and be there for clients. The investments in client acquisition, product extensions, and geographic expansion in Markets have served us well in Q1. Second, we had elevated but healthy volatility where liquidity was still good but there was a lot of turnover. Those combined to deliver Q1. For the rest of the year, when you think about our fee guide of 7% to 9%, we assume those FX conditions moderate gradually throughout the year. We are not depending on Q1’s highly favorable conditions being maintained to deliver 7% to 9%. For NII, our original guide was up low single digits; now it is 8% to 10%. We originally viewed NIM at 100 to 110 basis points; for 2026 you could see 110 to 115 basis points, slightly off from Q1’s 116. NIM is the main driver, with funding mix a larger tailwind. Overall deposits will be up, helping that funding mix. We previously said maybe $250 billion of deposits; probably in the range of $250 billion to $260 billion for the rest of the year. We will look to pay down some higher-cost debt and continue to optimize the funding mix to drive NIM. All of those building blocks are incorporated into the 8% to 10% NII guide. Ron O'Hanley: Ken, I want to underscore a point John made on FX. We have invested for years in expanding client volumes and ensuring we serve as much of our investment servicing clients as possible. We expanded geographic capabilities and, importantly, expanded the ways in which we can meet our clients technologically and how they can trade with us. We did that when there was not a lot of volatility, preparing for when normal volatility returned. We are seeing the benefits of those past and ongoing investments. Operator: Thank you. Our next question will come from James Mitchell with Seaport Global Securities. Your line is now open. Please go ahead. James Mitchell: Maybe just a follow-up on deposits. Up nicely with a big mix shift to noninterest-bearing deposits, which I think was a particular benefit quarter over quarter. How can any further optimization around pricing affect deposit growth from here, and how are you thinking about the mix in your guide? Thanks. John Woods: I mentioned the level of deposits; I would anchor to that $250 billion to $260 billion range. On mix, we originally talked about around 10% noninterest-bearing. That is still a good anchor over time, but in 2026 it appears we have a slightly higher noninterest-bearing opportunity than that 10%. For deposit drivers, there are external and internal drivers. Internally, we control continuing to grow our platform, serving clients, and growing AUCA—another record this quarter—which is where we source those deposits. Second, client segment growth: alternatives is growing faster than non-alternatives and, pound for pound, brings more deposits with a more attractive mix. Externally, deposits tend to rise when money supply and GDP are growing, when rates are stable or falling, and given our business, if volatility and risk-off rise, we tend to grow deposits. Broadly, our NII line is a bit of an offset to other line items, similar to what happens in Markets during higher volatility like in Q1. James Mitchell: Any thoughts on April from here—what you have seen so far? John Woods: I would say moderating from here. We had extremely positive conditions in Q1. Still very solid trends. I would stick with the $250 billion to $260 billion deposits and maybe slightly better than our 10% noninterest-bearing guide, as mentioned earlier. April trends are good in NII and deposits. James Mitchell: Great. As a follow-up on the wealth management business—across regions, EMEA was the largest contributor to net flows in the first quarter, I think $29 billion. What vehicles and asset classes drove that? Was it lumpy, and can that momentum in Europe continue? John Woods: On net asset flows, fixed income was very strong and led the way, followed by multi-asset. And you heard how well our low-cost suite did this quarter, and ETFs in general. Those were the bigger drivers, with fixed income one of the biggest. Operator: Our next question will come from Michael Mayo with Wells Fargo. Your line is open. Please go ahead. Michael Mayo: One short-term question and one long-term question. Short term, I think you said revenue backlogs are up 11%. If that is correct, can you size that a bit more in terms of the level of backlog versus history and where that is coming from? Long term, Ron, back to AI: some say they will remodel their entire business around AI; one bank has specified expected AI benefits; some say business models will be destroyed due to the AI scare trade; others say it is overrated. Where do you stand? John Woods: Thanks for the question, Mike. That 11% was with respect to the Software Services line alone, and that is correct. Uninstalled revenue is up 11%. Multi-year revenue growth in this space has been around that level, so that continues our expectation of around 10%—low double-digit growth—over the medium term, and as we continue investing, we may do better. ARR grew 12% as well. I will turn it over on AI. Ron O'Hanley: Mike, we are very positive on AI, and a lot of that has to do with the nature of our business, which is investment, operational, and technology intensive. Where are we? First, it is comprehensively embedded across the enterprise. We have broad access and accelerating adoption—virtually every employee where it makes sense has access to the tools, and usage is scaling rapidly, with repeat behavior indicating the tools are becoming part of daily workflows. Second, on development and technology systems, we are fully enabled there, and we are already realizing productivity gains. It is giving us the ability to do more, faster, and get to projects that previously would not have made the cut. All of our developers have access to AI development tools, and we are seeing acceleration in new technology development and modernization. Third, it is what you do with it after that. We have built a centralized AI hub with a deep use-case pipeline that is beginning to scale and will scale over the back half of 2026. This platform supports over 200 AI use cases now, with 70 already live. As they mature, we expect tangible business impact to begin emerging in the back half of 2026 and then accelerating. Fourth, agentic service delivery: given the operational intensity of what we do, the opportunities are significant. We have agent-enabled service delivery coming online in July, and our AI Foundry to repeat and scale this. Do we think AI destroys the business model? We do not. These are widely available tools; the advantage is in how you deploy them. The real power is not just operational improvement, but creating real agility in how the organization operates—how we face off with clients and organize work internally. We see more opportunity than risk. Michael Mayo: The three words “annual business impact”—can you dimension this in any way, starting late this year or next year? John Woods: It will start scaling in 2026, and we are going to dimension what the impact will be over the medium term. It will be very meaningful and a very important pillar of how we drive value and bottom-line impact, while also expanding resources to invest in our strategic roadmap. As we get later in the year and start looking at run-rate benefits exiting 2026 into 2027, we will come back and articulate the near-term benefit. Michael Mayo: So we will get this on the second quarter earnings call? John Woods: Earnings call. Operator: Our next question will come from Ebrahim Poonawala with Bank of America. Your line is now open. Please go ahead. Ebrahim Poonawala: You spent some time in your prepared remarks around tokenization and your digital asset platform. Should we think about all of this as mostly retaining the customer activity that you already have, just moving from analog to digital, or are there new revenue opportunities from tokenization and moving on-chain? Ron O'Hanley: It is both. Given our client base and market share with sophisticated clients, they expect the best the market has to offer. Some use cases are already very real. Tokenization of assets is a net new opportunity for us. Tokenized money market funds are a real use case—beneficial to the market and liquidity, and will result in core revenues for us. The on-ramp/off-ramp bridge from traditional finance to digital finance is also a real opportunity. Think of new railroads being laid; the interchanges are underdeveloped. Volumes are growing fast off a small base, and part of the reason is underdeveloped on- and off-ramps. Being part of that infrastructure is a second source of new revenues. We see both retention and new revenue. Ebrahim Poonawala: Are these capabilities built in-house, or are there targeted platforms where M&A or partnerships make sense? Ron O'Hanley: We always think about make versus buy. Even on make, partnerships are another lever. Our Galaxy product is a partnership with Galaxy. We are tied into emerging fintech platforms in the U.S. and hotspots in Europe and India. We will continue to explore M&A, but we also have confidence in our organic capabilities. It will be all of the above. Operator: Our next question will come from Brennan Hawken with BMO Capital Markets. Your line is open. Please go ahead. Brennan Hawken: Good morning. John, you gave clear color on deposit trends and how those feed into NII. I was curious about expectations around the euro and GBP deposits. The forward curve there has gotten hawkish with two hikes in the outlook. Are those hikes included in your updated outlook? And betas on those currencies were low during the recent rate cuts. Should we expect low betas when those rates move up? John Woods: In the guide, we assume one hike, with the Bank of England and the Fed on hold, and the ECB in for one hike. We acknowledge there could be more than one. From a sensitivity standpoint, it is not a huge quarterly driver—around $5 million per quarter. On betas, for U.S. dollar, betas were relatively symmetric in the tightening and easing cycles, around 75% to 80%. For the euro, a similar expectation but lower than the U.S., maybe in the 50% range, and relatively symmetric up and down. Brennan Hawken: Follow-up for Ron: you do not expect much impact to your ETF business from changes wealth firms are working on. Active ETFs are not big for you, but could you share your perspective on active ETF platform fees and why the impact would be manageable for SPDRs? Ron O'Hanley: Active ETFs are absolutely growing, and we are a beneficiary on the servicing side. One reason for growth is the vehicle often being better aligned with distribution trends—control over portfolios in wirehouses and the rise of independents. The buyer’s fee comparison is less about active ETF versus passive ETF and more around active mutual fund versus active ETF, which helps the value proposition. We can realize opportunity in ETF growth around the world. We were early in Europe as a sponsor and servicer; growth was slow at the beginning, but take-up is accelerating, and we think real growth is yet to come as distribution shifts from banks toward platforms that will deploy ETFs. Even in places like the Middle East, funds businesses are skipping over old mutual funds and going right to ETFs, building modern platforms. It is a vibrant, growing sector, and we are well positioned as both sponsor and servicer. Operator: Our next question will come from David Smith with Truist Securities. Your line is now open. Please go ahead. David Smith: Thanks. On the capital front, you have been running more at the high end of the 10% to 11% CET1 range for most of the last year, but you were in the middle this quarter. Are you now more comfortable running mid-range, or is this just a transitory move down given elevated balance sheet at March-end? Then any early impressions on potential impact of the new RWA and GSIB surcharge rules proposed last month? And is the 80% payout ratio target on a GAAP or adjusted basis? Thank you. John Woods: Our operating range is 10% to 11%, and we have articulated recently that we have been operating at the upper end. That has not changed. You can see some variability on quarter-ends based on the specific day’s activity. March 31 was an exceptionally active day, with larger movements that drove the 10.6%. If you look at the averages for Q4 and Q1, average CET1 was at the upper end of 10% to 11%, and that is how we continue to operate. On Basel III, we are constructive on the proposed approach. It delivers a more targeted view of credit risk RWA, and we expect a benefit on credit risk RWA that exceeds the additional RWA on operational risk. We will frame magnitudes as we continue to study and await final rules, but generally we see a net benefit. Lastly, the 80% payout is on a GAAP basis. Operator: Our next question will come from Analyst with Morgan Stanley. Your line is open. Please go ahead. Analyst: Hi. Good afternoon. On the private credit side, appreciate the incremental disclosure on the NDFI loans. It looks like the majority of those loans are non-BDC loans, and you also mentioned some of the safeguards on the BDC loans themselves. How are you thinking about growth in that NDFI portfolio going forward, and how do you assess safety around that portfolio? John Woods: These are our clients—non-depository financial institutions broadly are an important part of how we support the customer segment, primarily investment services clients. As part of the broad suite of services, we support them from a balance sheet standpoint. This is highly strategic lending for us. The categories are extremely well positioned from a risk-return standpoint. We have never had losses in subscription finance or in the triple-A CLO book, which comprise the large part of the NDFI book. On BDC lending, we are down to $1.6 billion, senior secured with substantial subordination—about 80%—behind our positions. It is diversified with ongoing structural protections. This will be a growth area for us; you could see low- to mid-single-digit growth, commensurate with continued penetration of this attractive segment. On private markets servicing, elevated redemption requests can have a marginal impact, but it is limited. The round trip is a net positive for us: redemptions may have a small impact on servicing fees but result in higher deposits. Net-net, very stable in terms of revenues and fees. We see this as a temporary flow-related issue rather than systemic. Ron O'Hanley: It is important to remember the attention is on a very small piece of private credit—those in semi-liquid fund structures. The vast majority of private credit is not in those structures, and there is no reason to believe private credit will not continue to grow. In regions like Europe or Asia, significant expansion of bank balance sheets is unlikely, yet credit appetite will continue to grow. In the GCC, for example, banks are highly profitable but do not have many places for balance sheets to grow; capital needs are significant and will be fulfilled by private credit. You will see careful examination of semi-liquid vehicles and expectations for retail and affluent investors, but that is a relatively small segment. John Woods: To tie back to the $1.6 billion on the slide, less than half of that is in the non-public, semi-liquid space that is getting attention. Overall BDCs are 4% of loans; less than half of that—around 2% or less—is in the space getting headlines, and well less than 1% of total assets. Operator: Our next question will come from Vivek Juneja with JPMorgan. Your line is now open. Please go ahead. Vivek Juneja: Thanks. First, you had a scoping charge of $41 million. This was the second one in the last 12 months. Can you give some color? Is it the same client? Same type of issue? What is driving these, and why have we seen two in the last 12 months? Second, on Schwab charging a fee for their distribution platform—will you absorb it, or pass it on? Lastly, on the charge-off jump this quarter—what type of loan was that? Ron O'Hanley: These are idiosyncratic. It is not the same client and not for the same reason. In this case, it was an existing Alpha client that will remain an Alpha client. It was one part of their insource-to-outsource journey within our middle office business. They intended to outsource more; we mutually agreed this was not the time to continue that outsourcing journey. It is within the middle office and is an insource versus outsource decision by the client. On Schwab, we do not have a concrete plan yet because we have not seen the final. We will decide once we see it and come back to you. John Woods: On the charge-off, this was a COVID-era commercial loan. Coming out of high-margin contracts from around 2021, when those rolled off, the name had pressure and went into nonaccrual. We took the opportunity to exit. It was substantially reserved, so not a big P&L impact; we crystallized it and moved on in Q1. It does not extend into other portfolios and has nothing to do with NDFI. Operator: Our next question comes from Analyst with Wolfe Research. Your line is now open. Please go ahead. Analyst: Hi. Good morning. This is actually calling in for Steven today. We appreciate the color on the drivers of expense growth, including the 4% from net productivity savings. Given headcount was down 2% year-on-year, how much did that contribute to overall efficiency savings? Looking ahead, do you see potential for further headcount optimization? John Woods: Headcount will be something we consider, but there are puts and takes. We are growing and investing in businesses, so we may add in some places. Gross productivity levers—automation, reengineering, zero-basing processes—reduce reliance on headcount where possible, and we use that capacity to hire in other areas. Round trip, we expect continuing contributions from headcount, but with puts and takes as we invest elsewhere. It is a meaningful portion of the 4% productivity. Operator: Our final question will come from Gerard Cassidy with RBC. Your line is now open. Please go ahead. Gerard Cassidy: John, you have had strong positive operating leverage—ninth consecutive quarter excluding notable items. How much of it is structural—your scalable platform and mix shift—versus cyclical tailwinds like FX volatility or rising market levels? And Ron, with investing in AI today, does scale become an even greater challenge for smaller players to compete against companies like yours and the large money center banks? How important is scale to successfully compete in this business? John Woods: Across the board, we have had organic growth in the quarter—durable, reflecting multi-year investments, business execution, and a sales culture that is paying dividends. We are seeing organic growth across all fee line items. In Markets, from a distance one might say environmental factors, but it is not only environmental. Long-term client relationships and platforms we have built are very attractive, and connectivity between Markets and our Investment Services and Investment Management clients is very strong. We believe we have a durable opportunity to drive attractive positive operating leverage that will reflect in pretax margin improvements over time. Environmental factors can help, but even without them, we believe we have a very attractive opportunity to grow pretax margin through positive operating leverage given the organic drivers. Ron O'Hanley: The importance of scale has not gone down. The investments required around technology and cyber just to stay where you are—forget about growth—are significant, imposed by regulators and increasingly by clients. Layer on the revolution we are seeing with AI—not just bringing in the technology but profiting from it—the scale around people and know-how is hard for smaller players. If we are moving toward true digitization of finance, that will take time; it is not just showing up with a new platform, but recognizing the long-term transition and building on- and off-ramps, which is where you make money, and which require scale. We do not dismiss innovators; we follow them, partner with them, and in some cases buy them. But we are not seeing one of them developing into a true scaled player to compete in our pocket of the market. Operator: There are no further questions. I will now turn the call back over to Elizabeth Lynn for closing remarks. Elizabeth Lynn: Thank you all for joining us today. Please feel free to reach out to Investor Relations with any follow-up questions. Thank you again, and have a nice day.
Operator: Ladies and gentlemen, welcome to the Q1 2026 Badger Meter, Inc. Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. As a reminder, today's conference is being recorded. It is now my pleasure to turn the conference over to Barbara Noverini of Investor Relations. Please go ahead, Ms. Noverini. Barbara Noverini: Thank you, operator, and thank you for joining the Badger Meter, Inc. First Quarter 2026 Earnings Conference Call. I am here today with Kenneth Bockhorst, our chairman, president, and chief executive officer; Robert Wrocklage, our executive vice president of North America municipal utility; and Daniel Weltzien, our chief financial officer. This morning, we made the earnings release, acquisition announcement, and related slide presentation available on our website at investors.badgermeter.com. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, most important of which are outlined in our news release and SEC filings. On today's call, we may refer to certain non-GAAP financial metrics. Our earnings presentation provides a reconciliation between the most directly comparable GAAP measure and any non-GAAP financial measures discussed. With that, I will turn the call over to Kenneth. Kenneth Bockhorst: Thanks, Barbara, and good morning. Before getting into the specifics of the quarter, I would like to start by setting the stage for a more detailed discussion on our Q1 results and how we are thinking about our metering business more broadly. We operate in a market supported by strong long-term macro drivers, recurring replacement cycles, and increasing adoption of advanced technologies ranging from our ultrasonic meters to industry-leading cellular AMI, beyond-the-meter solutions, and recurring software and analytics. These durable factors, combined with solid execution, have driven consistent value creation over time. At the same time, it has always been true that our business can be uneven quarter to quarter and year to year. Over the 2023 to 2025 time period, robust revenue growth driven by multiyear cellular AMI share gains and overlapping project activity reduced the visibility of this inherent unevenness. In mid-2025, we began to signal that the revenue contribution from certain historical AMI projects would decline as deployments concluded ahead of awarded but not yet started AMI projects. As a result of this project pacing and backlog normalization dynamic, we previously communicated that our 2026 revenues would be weighted toward the back half of the year. On page three of our earnings slide deck, you can see the impact from project pacing in our first quarter 2026 revenue. In addition, short-cycle order rates, for which visibility is always more limited, were weaker than we anticipated, resulting in approximately $15 million to $20 million of lower revenue versus our internal expectations. As a result of those combined headwinds, first quarter sales were down 9% year over year to $202 million. While our expectations for a solid second half have not changed, the softer start to the year prompts us to anticipate full-year 2026 organic revenue to be on balance with 2025. Normally, I would turn the call over to Daniel at this point to walk through the financial results in detail. However, in light of the below-expectation sales results, I am going to turn it over to Robert to walk through greater detail on this multilayered customer dynamic. In short, Robert will explain our view that this first quarter outcome is timing-related and does not reflect a structural change in either market demand, our broader competitive position, or the long-term market drivers of our business. Robert will walk through a subset of anonymized details related to several awarded but not yet started AMI projects that are expected to begin deployment in 2026. This is not the level of project detail we would normally provide each quarter, but these awarded projects, along with others in the funnel, help to inform our outlook for the rest of 2026 and support our expected momentum into 2027. With that, I will turn it over to Robert. Robert Wrocklage: Thanks, and good morning, everyone. Please turn to slide four. To put the first quarter results into context, it is helpful to briefly revisit the 2023 to 2025 time period. During this multiyear time frame, we consistently described backlog as elevated in 2023 and 2024, with normalization progressing through 2025. That backdrop supported strong but moderating revenue growth. As shown on the slide, four sizable AMI projects that began deployment in 2023 were meaningful contributors during the same time period, collectively representing nearly 800 thousand connections. These were not the only AMI projects ongoing or completed during this multiyear time frame; rather, this selected cohort of projects represents the most significant project revenue contributors for illustrative purposes. Two of these projects, JEA and OUC, were supply-only projects, with our involvement limited to the shipment of our meters, endpoints, and recurring BEACON SaaS revenue rather than full deployment execution. PCU and Galveston were turnkey projects for which the scope of work included Badger Meter, Inc. products and SaaS, plus installation labor and ancillary equipment such as meter boxes and lids. As previously noted, both project size and scope matter. Turnkey projects generate significantly greater revenue than equivalently sized supply-only projects. That relationship is illustrated in the stacked bar chart and is one of several drivers of revenue unevenness. These projects ramped in 2023 off a prior year consolidated revenue base of $566 million. They peaked in 2024 and declined through 2025 as the projects approached completion. Over the same period, our generalized order backlog moved from elevated to more normalized levels. Together, the size and scope of projects combined with backlog normalization supported strong results over this three-year period while muting the impact of underlying short-cycle order variability, which was always present, just not visible in our results against this positive backdrop. Within these four AMI projects, you can see the revenue contribution is uneven, with meaningful variability quarter to quarter based upon project and customer specifics that are not related to underlying demand, competitive dynamics, or long-term market drivers. We entered 2026 with these projects largely completed and a normalized backlog. Against this 2026 backdrop, short-cycle order rates, where we have the least amount of visibility, were weaker than expected and thus the below-expectation revenue outcome. Now to the facts that have and will continue to inform our forward revenue outlook. Slide five highlights our forward look at awarded AMI projects that are expected to begin deployment in 2026. Importantly, this is not a top-projects list but rather a snapshot that illustrates several important characteristics of our business, competitive positioning, and technology leadership. Many of these awards have been known to us for some time—in some cases, years—with typical lags between initial award indication and deployment driven by a number of factors. These timing differences are common in our industry and contribute to revenue unevenness, and they also represent just one layer of the multistage opportunity funnel that informs our view of future growth. This list also reflects a wide range of funding sources including capital budgets, rate cases, grants, WIFIA loans, and other financing, underscoring broad funding availability and sources. Also illustrated here is additional information on competitive conversions, diverse deployment types, and technology adoption across both municipal and investor-owned utilities. Most importantly, this project set represents between 2.6 million and 3.6 million connections over multiple years, meaningfully larger than the prior project cohort of 800 thousand connections that supported growth from 2023 to 2025. Turning to the PRASA project, we received the first significant purchase order for the project in the first quarter, and we expect the utility’s installation partners to begin deployment activity around midyear. PRASA, together with the successful completion of the projects previously discussed on the call and others not announced, underscores our continued AMI success with customers of any size and complexity. In summary, while the first quarter results stand out relative to recent history, we view 2026 as a short pause, not a break in our trajectory. As we move into the next phase of growth, we expect continued expansion of our AMI installed base, and this in turn will emphasize ORION cellular AMI as the market standard for AMI, which creates opportunities for further meter share gain, recurring software revenue, and broader adoption of our beyond-the-meter solutions. With that, I will turn the call back over to Kenneth. Kenneth Bockhorst: Thanks, Robert. In addition to the project awards described by Robert, we continue to see constructive market and customer activity across our extended opportunity funnel, including pending RFPs and early utility engagement with consultants, which remains healthy as utilities continue to prioritize modernization, efficiency, and visibility across their water networks. These long-term secular drivers remain intact. Despite the soft start to the year, I am encouraged by the consistency we have delivered in gross margin performance, overall SEA discipline, and cash flow, which speaks to the strength of our team’s execution around the world and the resilience of our business model. From a near-term cost perspective, we have implemented measured cost reduction actions, including a 10% salary reduction for our executives for the next six months, to maintain spending discipline and protect margin integrity as we navigate revenue pacing throughout the year. I will come back at the end to talk about our outlook and the exciting announcement we made this morning around the acquisition of UDLive, but before I do that, I will turn the call over to Daniel to talk more about the numbers. Daniel Weltzien: Thanks, Kenneth. The contrast between 2026 and 2025 is clear. So let us get into those details. Turning to slide six, total sales were $202 million, representing a 9% decline year over year. Utility water sales declined 10% year over year, reflecting the project pacing and weaker short-cycle order rates referenced by both Kenneth and Robert. Lower metering product revenue was partially offset by increased BEACON SaaS, SmartCover, water quality, and network monitoring product revenues. Collectively, beyond-the-meter product line growth was a bright spot in the quarter that should not be lost in the broader revenue headline. Sales for the flow instrumentation product line were down 4% year over year. Turning to profitability, gross margin was 41.7%, down 120 basis points against a record gross margin in 2025, primarily reflecting product and project mix. Gross margins remained robust and near the top end of our normalized range, which reinforces the durability of our pricing discipline and structural mix benefits, despite lower year-over-year volumes. Selling, engineering, and administrative expenses were $49.2 million, increasing $3.1 million year over year, driven primarily by $1.2 million in transaction costs associated with the UDLive acquisition, higher personnel costs, and an additional month of SmartCover SEA costs, offset by reduced incentive compensation expense based upon the first quarter results. SEA as a percentage of sales increased by 360 basis points year over year, primarily due to the deleveraging effect of lower volumes in the quarter, which we expect will be temporary. As a result, operating earnings were approximately $35.2 million and operating margin was 17.4%, compared to a record 22.2% in the prior-year period. As awarded projects begin in the second half, we expect operating leverage to improve while maintaining our typical level of cost discipline. The effective income tax rate was 24.8% compared to 24.4% last year. Diluted earnings per share were $0.93 compared to $1.30 in the prior-year period. Primary working capital as a percentage of sales decreased from 20.9% at year-end to 20% as of 03/31/2026. We generated strong free cash flow in the quarter of about $30 million, in line with 2025. As is normal, our first quarter reflected typical seasonality within incentive compensation and retirement plan contributions paid out for the previous year. In 2026, we repurchased 256 thousand shares for a total of $38 million and have $115 million left on our share repurchase authorization. With that, I will turn it back over to Kenneth. Kenneth Bockhorst: Thanks, Daniel. Before I give the outlook, I want to highlight the acquisition we announced this morning. Please turn to slide seven. We signed a definitive agreement to acquire UDLive for $100 million, funded with cash on hand plus contingent consideration. UDLive, a UK-based provider of hardware-enabled software solutions for sewer line monitoring, complements SmartCover by extending our sewer monitoring capabilities across a broader range of use cases, network conditions, and geographies. Much like SmartCover in the US, UDLive has built a leading position in the UK, pairing low-power, easy-to-install sensors with proprietary analytics software that delivers continuous, real-time insight into sewer network conditions. The value and differentiation of UDLive’s sewer line monitoring technology is evidenced by a 90% tender success rate since its inception and routinely high technology assessment scores from utilities and consultants. Please turn to slide eight. The combination of SmartCover and UDLive within our BlueEdge suite of solutions positions Badger Meter, Inc. as a global leader in sewer line monitoring, offering customers options across hardware-enabled software platforms and communications configurations, consistent with our choice-matters approach. For those familiar with our history, there is a clear parallel to our acquisitions of ATI and s::can, which together created a comprehensive water quality platform and extended our geographic reach. The strategic rationale for UDLive and SmartCover is similar within the sewer line monitoring market. In the trailing twelve-month period ended February 2026, UDLive generated approximately $22 million in revenue and delivered positive operating profit. The transaction will be accretive to EPS in year one, and we anticipate closing in April. We believe our global channels can further accelerate UDLive’s growth and enhance operating leverage over time. Now looking ahead, we continue to expect 2026 activity to be back-half-weighted as awarded AMI projects advance into deployment. As you are aware, we typically do not provide formal guidance; however, we recognize that investors are navigating this project pacing dynamic for the first time in several years. With that in mind, we are offering additional transparency to our current view, informed by today’s inputs of revenue pacing for the remainder of the year. As awarded projects enter deployment and short-cycle orders recover from first quarter levels, we expect sequential improvement in absolute quarterly revenue dollars as the year progresses, resulting in full-year 2026 revenue, excluding the UDLive acquisition, to be in line with 2025. More specifically, we expect second quarter 2026 organic revenue dollars to sequentially improve from the trough of Q1 but to be down year over year against the highest quarterly revenue figure in the company’s history. In the near term, our focus remains on discipline to manage near-term variability while building momentum throughout the year. Importantly, our financial model is built to support our capital allocation priorities across uneven operating conditions, enabling continued investment in the business, returning cash to shareholders, and value-enhancing M&A while maintaining a strong balance sheet. We will now open the call for questions. Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Nathan Jones with Stifel. You may proceed with your question. Good morning, everyone. Robert Wrocklage: Morning, Nathan. Morning, everyone. Kenneth Bockhorst: Hey. Good morning. Nathan Jones: I guess I will start with the short-cycle orders first. You talked about maybe $15 million to $20 million less than expected on that, which is, you know, half or more of the miss versus consensus during the quarter. I have been around with Badger Meter, Inc. long enough to remember the volatility in some of those. Is there any color you can give us on what underlying reasons for that were? I mean, there was some pretty bad weather in the Northeast during the quarter. Is it weather-related or something else? Any color you can give us on that? Kenneth Bockhorst: Yes. I think the key to remind the group—some people newer to the story—that the unevenness that you have recognized because you have followed us for a long time is not new, as we talked about, and there is really not one underlying thing. We are selling to 50 thousand utilities across the country through various different replacement cycles. The variability has always been there, and we have talked about this a few times. Sometimes the variability is there in an equal amount to the high side. But when it is to the high side, it does not really affect people’s view very much because that is all goodness. In this particular case, I would not limit it to one thing. It just happened at this particular time and with unfortunate timing given what Robert had just talked about on where we are in the midst of this air pocket, but not really one thing. It is relatively normal. Robert Wrocklage: I would just add that we are certainly not chalking it up to geographic weather by any means. While it is generalized, if we look at our customer segmentation of where the weakness came from, it is indicative more of timing aspects than anything related to our positioning in the market or share or other things. So this is absolutely timing-based. Nathan Jones: I guess I will ask one on PRASA. You talked about having got the first PO for that, which is great, and expecting the first installations to start midyear. Are you more confident today that the project will ramp up on time and ramp up in the second half? I guess investors have been concerned that the Puerto Rican government has not been exactly the most reliable in terms of getting things done, not for Badger Meter, Inc. specifically, but overall over the last few years. So just your level of confidence that it really does ramp up in the back half of the year. Kenneth Bockhorst: Yes. Robert will probably have something to add here as well since he is managing that very closely. The fact that we brought it up last month shows that we already had quite a bit of confidence in it. The fact that we have a PO and that we know installation partners are lined up—our confidence is higher today than it was before. Robert put his hand up, so he agrees. Nathan Jones: Okay. Fair enough. I will pass it on. Thank you very much. Kenneth Bockhorst: Alright. Thank you. Operator: Your next question comes from the line of Jeffrey Reeve with RBC Capital Markets. Your line is open. Please go ahead. Jeffrey Reeve: Hey. Good morning. I appreciate all the color thus far. For your updated guidance, what is the risk that some of the late second-half starts push into 2027, and is this outlook appropriately conservative now? Kenneth Bockhorst: I would call this additional transparency rather than guidance because, given the variability, it is hard to guide from quarter to quarter or year to year. As the year progresses and we get closer to each of these projects getting into deployment mode, we see more activity. Some of these that you can see on the list are turnkey, and we are actively engaged with them on the upfront planning. For those that are supply-only, in some cases, we have POs; in some cases, they are still planning. As we get closer and closer, our confidence level is better today than it was ninety days ago. Jeffrey Reeve: Appreciate that. Then can you remind us what specifically is in that short-cycle mix? Maybe what percent of sales? Is that muni budget-driven? Macro-driven? What drives that? Kenneth Bockhorst: A lot of people—even though we talk about short-term variability and why we do not necessarily size or talk much about backlog—is because the majority of the business is short cycle. Distribution is very short cycle. Individual utilities that we sell directly to that are just doing the ordinary buying and are not in an in-flight AMI project are often ordering, and those tend to be short cycle. Utilities order when they want them. Everybody in the industry is at normal lead times. We have basically reverted back to normalized lead times and backlog from before the supply chain constraints and COVID. Even when backlog was elevated, it moved from short visibility to slightly more visibility; it was not like we had a huge backlog that we were chunking through. Jeffrey Reeve: Got it. Appreciate that. I will pass it on. Operator: Your next call comes from the line of Analyst with Baird. Your line is open. Please go ahead. Andrew Krill: Hi. Good morning. Thanks for taking my questions. I wanted to build on your commentary about short-cycle order weakness being timing-related. Does the flat organic outlook contemplate any recovery opportunity relative to that $15 million to $20 million, or does it assume that short-cycle weakness persists here? Kenneth Bockhorst: By definition, because it is short cycle, we do not have a tremendous amount of hard order visibility. It is not like we have seen a few weeks of excess purchase orders coming through that would change our view. Our view is informed by talking to our distributors and hearing what they are seeing in the field because they are out talking directly to customers. It is also informed by the direct sales relationships that we have with our direct sales force. We are not getting from the market in any way that people are constraining budgets for the normal replacement demand that comes with metering. It just happens to be an air pocket at the same time that there is a project air pocket. Robert Wrocklage: The thing I will reinforce here is the variability that we are talking about specific to Q1 that is now more visible has always existed, inclusive of the 2023 to 2025 time frame. It was less visible in the revenue outcomes because of the backlog condition combined with the projects in flight. I just want to make it clear that this variability is and has always existed. It is just happening to be more visible in 2026. Andrew Krill: Okay. Then on the flat organic outlook for the year, can we dial in 2Q versus the second half a little bit more? Kenneth, you mentioned 2Q would be down year over year. Should we assume a similar decline to 1Q? Kenneth Bockhorst: Given the short-cycle nature of the largest portion of the business, I am not going to size it. I wanted to give enough detail to make sure everyone understands that we do not just snap back to growth on a year-over-year quarterly basis, especially against an all-time record quarter. We are just trying to be realistic. I am not looking to size it to a number in between, but we absolutely expect sequential growth that is likely below last year. Andrew Krill: Alright. Thank you very much. Operator: Your next question comes from the line of Andrew Krill with Deutsche Bank. Your line is open. Please go ahead. Andrew Krill: Hi. Thanks. Good morning, everyone. I want to ask about gross margin. They held up well in the first quarter considering. Is there anything you would call out there? Then could you give us some help on how they should trend the rest of the year? Do you think still near the higher end of your 39% to 42% target range, or could there be some sequential pressure as these projects ramp? Daniel Weltzien: The important thing to point out is a couple of things. One, the 39% to 42% range we still have confidence in, and that is where we anticipate operating for the rest of the year. In terms of the Q1 result, as we pointed out in the prepared remarks, some of the areas where we saw strength in the first quarter were around the meter technologies—of course, our BEACON SaaS revenue continuing to chug along with the recurring nature that it has—and all of those being above line-average margin, which helped us get to this blended rate in the first quarter. As we progress throughout the year, again, our expectation is to continue to operate within that range. We have talked previously about turnkey projects potentially having different margin profiles than sales through distribution, for example. So mix factors may exist. But, again, just reiterating that the range we talked about historically is still reasonable. Kenneth Bockhorst: To add to that, from an operating point of view, your question was what we see as these projects ramp. Our value-based pricing principles all remain intact, so we are extracting the price that we deserve for providing this value at a price that customers see the value to invest in. Whether it is a little lower on the front side on gross margin, it feels really good on the SEA leverage side and vice versa. So operating profit in any of these cases is something we are comfortable with. Andrew Krill: Thanks. That is helpful. Switching to Section 232 tariffs—it has been a big debate the past couple of weeks with some of the changes to how those are implemented. Can you give any color on how that impacts Badger Meter, Inc., in particular the Nogales facility? If most of what you are bringing into the US used to be excluded under USMCA, is that now a headwind you have to deal with, and how are you going about doing that? Daniel Weltzien: The team in Nogales and here in the US that is managing this for us continues to do a great job in managing the supply chain to optimize costs of our products, and that includes the tariff situation. The short answer is if we look at our tariff exposure over the last 12 months, it has not really changed even in light of recent news as we sit here on 04/17/2026. Always subject to change, but as we sit here today, I do not think about tariffs differently than I have over the last couple of quarters. Operator: Your next question comes from the line of Bobby Zulper with Raymond James. Your line is open. Please go ahead. Bobby Zulper: Thanks for taking the question. I had come to the conclusion that your overall volumes of meters might be in the neighborhood of 20% elevated versus pre-COVID. What are your thoughts on that statement? Kenneth Bockhorst: I do not have a lot of thoughts on that specific statement, and I do not mean that to be a snarky response. Our revenue is driven by many factors. When you look at what Robert just talked about on projects—turnkey versus supply-only—and the other dynamics that roll through, plus the new products we have added beyond the meter, I do not know how you would draw that conclusion. We have gained meter share over the past few years; I will agree to that. But in terms of specific sizing, I do not think I will get into that. Bobby Zulper: Fair enough. Appreciate it. One clarifying question on the Section 232 tariffs. Do they get applied to the full value of either the meter or the cellular device when they go in and out of Mexico? Daniel Weltzien: We do not talk about tariffs on individual product line-item levels. Any exposures that we do have are on the component side of our business as we are procuring materials, generally. Bobby Zulper: Okay. So I am assuming because you are getting your brass bodies in Milwaukee, those are not getting tariffs themselves. It would just be the electrical equipment that is going into the meter and the cellular devices. Daniel Weltzien: I will remind you the majority of the copper that we use is recycled brass, which is primarily in the US because you are not going to ship that around the world typically. So yes, that is not where we have exposures. It is on things like electronics and other components that may be sourced elsewhere in the world. But again, as we are shipping products in and out of Mexico, USMCA provides us protection from a tariff perspective. Bobby Zulper: Alright. Thanks very much. I appreciate it. Operator: Your next question comes from the line of Analyst with Jefferies Financial Group. Your line is open. Please go ahead. James Coe: Good morning. Thanks for taking questions here. I wanted to ask about the awarded projects that you put on the slide. It seems like seven out of nine awarded projects involved full or partial competitive meter conversions. That is pretty impressive. What do you think is driving that success given the strong incumbent bias in the industry? Have you experienced any meaningful losses of your incumbent positions to competitors? Kenneth Bockhorst: Thanks for the question. One of the dynamics we have explained over the past several years is that our portfolio—the resiliency of cellular AMI and the leadership position we have taken in software—has enabled us to convert market share. Looking at some of the projects we highlighted today, two of them are generation-one fixed network combo utilities that used to be someone else’s meter and someone else’s radio. During generation two, the water utilities decided that they no longer wanted to be on a fixed network, they went out to RFP, and we won that. After winning the AMI RFP—because it was not a full-product RFP—we then also converted the meters afterward. We have another project where we were the meter incumbent but someone else’s AMR radio was on it, and because of our relationship and our cellular technology leadership, we were able to convert from a competitive AMR drive-by to our ORION cellular with BEACON SaaS. We have others where we converted both meters and radios. For the most part, we have been a 121-year leader in the industry for meters; now we are also the leader in the industry for AMI, and we are pulling in both ways. James Coe: Got it. Very helpful. A clarification on the short-cycle orders: there is no particular reason that caused the slowdown—it is more inherent variability. If this inherent variability continues in a negative way throughout the year, does that pose downside risk to the outlook, or does the outlook assume improvement? I want to understand the dynamic better for the remainder of the year. Kenneth Bockhorst: The first thing to remember in the metering industry is that nothing gets canceled. Things only move right because eventually you have to replace your meter if you want to improve nonrevenue water or conservation. Frankly, about 80% of the market has a radio attached to it, and once the radio goes dark, you cannot read the meter at all without manual reads. The dynamics of the business are that it only moves right. We have this timing issue here. We do expect some recovery; we do not expect it to stay on the weaker side of uneven. It is still where we have the least amount of visibility, but we do expect some upside compared to the current quarter. Robert Wrocklage: Just to be clear, what we are saying for the whole year is flattish. Do not hear flattish as flat—hear flattish. There is some variability in that, not a wide degree of variability. We are giving you the direction, but know that there is some variability accounted for in that descriptor. Operator: Your next question comes from the line of Michael Fairbanks with JPMorgan. Your line is open. Please go ahead. Michael Fairbanks: Hey. Thanks for taking our questions. As we look at this new project-level disclosure, how should we think about the 800 thousand connections over the last three years relative to overall volumes? Then the same question as we look ahead to the 2.6 million to 3.6 million—overall expectations? Kenneth Bockhorst: Projects have variability between turnkey revenue being much higher than supply-only and other pieces, so we are not going to size the revenue of what they were, but you can see they were impactful. As you compare that, simple math says 2.6 million is more than three times 800 thousand. Do not take a ruler and draw up 300%, but we do expect the next three to five years of these projects to be more than the last three years of those projects. Daniel Weltzien: The other point is we provided this additional level of detail this quarter given the result, and we felt it was important for analysts and investors to understand what is informing our forward look and the high single-digit outlook that we have continued to talk about consistently across the business. Having had this visibility over the last number of years as we saw these projects moving throughout that multiyear funnel is what has informed our view. Michael Fairbanks: Great. Thanks. I will leave it there. Operator: Your next question comes from the line of Analyst with Barclays. Your line is open. Please go ahead. Analyst: Good morning. I appreciate the time here. Congrats on the UDLive acquisition. I wanted to focus on your thoughts and strategy in the connected sewer line market. Do you have a view on how penetrated that market is today? Could you elaborate on the driving forces underpinning adoption of those products? How do utilities think about the value proposition or typical paybacks? Kenneth Bockhorst: What we really liked about SmartCover, which we acquired slightly more than a year ago, is that it is the leader in the US market, which is a fantastic smart water market. Adoption is very early, but the problems are very real. By early, it is less than half a percent of the manhole covers in the US that have monitoring on them. The payback is quite simple. If you have experienced any of the rainfalls in the Midwest this week, combined sewer overflows are a significant and real problem that nobody wants. Inflow and infiltration is a real problem. Cleaning optimization offers the ability to save a lot of money, with almost an immediate payback by having monitoring in place. The dynamics are extremely real, and every utility understands the value of implementing this technology. In the UK, adoption is also very early. These two markets, in particular, are exactly where we want to be because they are already the largest—albeit early—and fastest growing at the same time. Within both markets, and in particular the UK, regulation is really driving this. Utilities are being mandated to do it. Inside the UK AMP8 spending cycle, there is a massive amount of investment allocated—and actually demanded—to be spent in this area. Acquiring the two premier brands in the two largest, fastest-growing, regulated markets with a clear understanding of why they are needed feels really good to us. Analyst: Thanks for that. One more on the project disclosure: once a project actually starts to ship, how predictable is the timing around deploying the rest of those units? Does it follow a fairly typical deployment timeline? Kenneth Bockhorst: I would refer you back to slide four. Even within the four projects, there is variability throughout those three years. Often it comes down to available labor, or a utility may find another priority for a few weeks. While over a three- or four-year period it can be fairly predictable, over a three-month period it is really not. Daniel Weltzien: That is an important reason why, for PRASA, for example, we point out it is prone to hurricanes. As a hurricane might come by, that might impact a quarter or two of shipments. So you cannot just draw a straight line on that project in particular, but it applies across the board. Analyst: Understood. Appreciate the color. That is all for me. Operator: Your next question comes from the line of Scott Graham with Seaport. Your line is open. Please go ahead. Scott Graham: Hey, good morning. Thanks for taking the question, and thanks for all the additional detail. I have one and then a follow-up. For incremental margin for the year, we can see what the decremental was for the first quarter and I would assume something similar in the second quarter. Does the second half, with implied top-line growth, get us back to that 25% to 30% level that we have seen from you for incremental margin, or does PRASA hurt that? Daniel Weltzien: On PRASA, because it is the largest project we have ever done in a competitively bid, very attractive opportunity, the gross margins on that are not at the line-average level as other projects we have been awarded. However, the SEA leverage on a project like that is still very interesting and gets us back to operating leverage that is in line with the rest of the business. Generally, as we think about the business and getting back to this flattish top-line result, we do not have a different view in terms of gross margins, and we are managing our SEA such that it should be flattish to where we were a year ago as well, which results in incrementals that look the way they do this year. That is more information than we have given historically—we do not give guidance—but I wanted to connect some of those dots we have tried to paint throughout the script. Scott Graham: When you say SEA flat, you mean in dollars? Daniel Weltzien: If you look over the last number of quarters, our SEA dollars have been relatively flat, and that expectation is not different moving forward. Keep in mind, we are closing the UDLive acquisition in April, so there is more SEA work to be done there. If you are asking on an organic basis, my answer was more to that. Scott Graham: Got it. Thank you. My quick follow-up: you have talked a lot about high single digits as the way to look at you long term. With 2026 rolling out the way it does and you indicating that you are going to exit the year with a lot more momentum—Q4 this year versus Q4 last year—can we get back to that high single next year or perhaps higher? Kenneth Bockhorst: I will talk to sentiment and what we think we know, stopping short of giving you a number. As we progress through the year and these projects head into deployment—while they may be uneven, they will be en route—we will certainly feel better coming into 2027 than we did coming into 2026. Our views on the long-term health of the market remain unchanged. I am not going to give you a number for 2027, but I do expect us to be back into a momentum period coming out of this. Scott Graham: Appreciate that. Thank you. Operator: Just as a reminder, if you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Barbara for closing remarks. Correction. Apologies. We have one more question from Bobby Zulper with Raymond James. Your line is open. Please go ahead. Bobby Zulper: Thanks for letting me jump back in. I just had a question on price and maybe related price/cost. In tracking some of the larger competitively bid projects, specifically Glendale, it seems like some of that pricing is below maybe what it was in 2022 and 2023. Does that look consistent throughout your business? Can I extrapolate that trend to the rest of the business? Kenneth Bockhorst: First of all, Bobby, we are not going to comment on price project to project because there are so many different variables. Out of respect for our customers, we will not talk about price from project to project either. Bobby Zulper: Alright. Thank you. I appreciate it. Kenneth Bockhorst: You are welcome. Operator: There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Barbara for closing remarks. Barbara Noverini: Thank you, operator. As a reminder, Badger Meter, Inc.’s inaugural Investor Day will take place on 05/21/2026 in New York City. Virtual participants may access the event through a live webcast accessible on the Badger Meter, Inc. Investor Relations website. During the event, we will provide greater color and tangible examples of the evolution of our BlueEdge portfolio along with a discussion of the key drivers enabling growth of our comprehensive suite of smart water management solutions. In addition, Badger Meter, Inc.’s second quarter 2026 earnings release is tentatively scheduled for 07/22/2026. Thank you for your interest in Badger Meter, Inc., and have a great day. Operator: This concludes today's call. Thank you for attending, and you may now disconnect.
Operator: Welcome to the Alstom conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Martin Sion: Good evening, everyone. Thank you for joining us tonight at short notice. I'm Martin Sion, Group CEO of Alstom. Joining me is Bernard Delpit, Executive Vice President and Chief Financial Officer. We'll start with a few opening remarks on tonight's announcement, and then we'll open the line for Q&A. First, let me be very clear from the start. This is not the way I was expecting to start my mandate. The financial result on cash generation are not at the level you should expect from a market leader, especially with a EUR 100 billion backlog in a growing industry. After the last 12 months, we delivered strong organic sales growth of 7%, but this did not lead to margin improvement. And in a year of record commercial activity with EUR 28 billion of order intake, free cash flow generation should have been much stronger. Multiple factors are at play here. The production ramp-up of new rolling stock platforms has not been as steep as what we expected in the fourth quarter. On other projects that met challenges early in their life cycle, we've not been able to turn them around as planned. And fair to say that the current situation in the Middle East has been an additional constraint. Taken together, this factor will have knock-on effects on near-term financial performance. Over the last 2 weeks since my arrival, I've been visiting factories in Italy, France and Germany. I've got -- I went into the detail of financial reviews and processes. I met people that are highly committed and highly competent. I met teams on the shop floor. I met engineers, project leaders and obviously, the regional management. But one conclusion is very clear. Our ability to stick to planning is not strong enough. In a project business, sticking to planning is essential. And today, development, industrialization and manufacturing across multiple sites are not always aligned, creating complexity. In some cases, productions move ahead while homologation is still pending. That's why my priority is to drive deep operational changes and improve execution quality. In short, this means tighter day-to-day execution, stronger planning discipline and better coordination across engineering, supply chain and production. We will also start a broader reflections about adopting a more focused product and commercial strategy. Of course, in parallel, we will continue to further improve results in Services and Signaling, where I see more opportunities and we'll continue the work done in recent years to improve the quality and risk profile of the order intake across all product lines. As I'm new in the role, I will also be reviewing the portfolio and industrial footprint. This includes reviewing the industrial transformation plan already in place and assessing where adjustment or acceleration is required. Restoring performance in rolling stock is a major opportunity for the group. It is achievable with discipline. This is a necessary step to execute the backlog and prepare the group for sustainable cash generation and profitable growth. We will keep you informed on our progress, and we will outline our action plan later this fiscal year. And I now hand over to Bernard. Bernard-Pierre Delpit: Thank you, Martin. I will now comment on the preliminary unaudited figures for the fiscal year '25, '26 as well as the preliminary outlook for the next fiscal year. Starting with orders. Alstom recorded EUR 27.6 billion of orders in the fiscal year, representing a book-to-bill of 1.4. The second half saw a higher proportion of services contracts compared to the first half. Overall, order intake was well balanced by product line over the full year with both rolling stock and services at a book-to-bill of 1.4. Turning to operations with a particular focus on car production. The group produced 4,284 cars during the fiscal year, down 2% year-on-year. In the fourth quarter, car production came in below our January expectations as some rolling stock projects are ramping up more slowly than anticipated and homologations have shifted. Moving to sales. Alstom recorded EUR 19.2 billion of sales in the fiscal year, up 4% compared to last year. After adjusting for negative currency and scope effects, organic sales grew by 7%. All production lines contributed to organic growth with the exception of systems, which faced a tough comparison base. Turning to profitability. Adjusted EBIT margin for fiscal year '25-'26 lands at around 6%. At constant currency and scope, adjusted EBIT margin is broadly stable compared to the prior fiscal year. On the one hand, execution of contracts signed over the recent years and tight control over SG&A supported margins. On the other hand, this was more than offset by a slower-than-expected execution on some large rolling stock projects and therefore, with associated costs, all those most visibly in the fourth quarter, but also stronger-than-expected execution headwinds on a limited number of late-stage projects in rolling stock as well as higher R&D expenses, it has a negative impact on adjusted EBIT. Altogether, adjusted EBIT margin is coming lower than last year and to the guidance. Moving to free cash flow. Free cash flow for fiscal year '25-'26 amounted to around EUR 330 million. Despite execution challenge, adverse currency effects and effects of geopolitics on payments related to Middle East contracts, we've achieved free cash flow in the guided range. Contract working capital increase was offset by down payments, reflecting strong commercial momentum and by favorable trade working capital. This is not particularly satisfying having met cash guidance 2 years in a row that we are not reconfirming the cash plan for the next fiscal year. Financial net debt is coming as expected, around EUR 400 million at the end of fiscal year '25-'26. Liquidity is solid with a gross cash position of EUR 2.3 billion at the end of March '26, revolving credit facilities of respectively, EUR 2.5 billion and EUR 1.75 billion and a EUR 2.5 billion commercial paper program. Turning now to the preliminary '26-'27 outlook. Commercial activity should remain strong, and we guide for a book-to-bill ratio above 1. Organic sales growth should be around 5%. We expect the adjusted EBIT margin to return to around 6.5% in fiscal year '26-'27. With R&D expenses expected to increase as a percentage of sales, the improvement will be driven by a rebound in gross margin back to levels seen in fiscal year '23-'24. Gross margin in the backlog now stands at 18%. We expect positive free cash flow for year '26-'27. On the one hand, we expect commercial activity will be robust, driving solid down payments. On the other hand, lower margin than previously anticipated. CapEx to support the growth of services being put forward as well as trade working capital changes will weigh on the cash compared to what we previously planned. This concludes our introduction remarks. Now Martin and I will open the floor to your questions. Operator: [Operator Instructions] The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: I guess the first question is for Mr. Sion. I'm wondering if you had time to go through some of the projects yourself. I mean, if the project review, I guess, is not finalized, but I guess I'm trying to judge whether there will be a second round of adjustments potentially later in the year. So that's question number one. Question number two is around the free cash flow guidance, which apparently you expect to remain positive in the upcoming year, although with a negative free cash flow that is expected to be around EUR 1.5 billion in H1. So I don't really get how you hope to turn it into a positive free cash flow for the year given the pretty slow start. And then lastly, at the end, I mean, do you expect the group's net debt to decrease or increase by the end of the next fiscal year? Martin Sion: Bernard, maybe I take the first one and you take the two other. What did I do in the last two weeks? I shared my time between [Technical Difficulty] regional reviews and product line reviews. We were concentrating on the budget process, which was being achieved. So regions by regions, we had the concatenation of all programs and with an overview of all the challenges and also all the achievements of each program. So I did not do a specific program review for each of the programs, but it was regions by regions and product line by product line. The other half of my time, I was in the different sites in France, Germany, and Italy [ and other ] sites to confront what was assumptions -- operational assumptions, which will be behind the financial figure. If we look at today’'s situation, I acknowledge the situation that this is what I know today. It’s true that we have already identified areas where we can put in place immediate improvement in terms of operational excellence and our priority is to secure execution of the projects to deliver what is mentioned in this guidance. Bernard? Bernard-Pierre Delpit: Yeah. As you said, Gael, we expect a strong seasonality in the next year, both in H1 negative around EUR 1.5 billion, you spotted it well. In H2 with a very positive free cash flow expected. By the way, when you look at the track record of those last years, H2 has been stronger and stronger year-over-year. So yes, I confirm strong H2 expected, bringing the cash flow for the year in positive territories and regarding the debt, I expect it’s going to be stable or a slight increase. Operator: The next question comes from James Moore from Rothschild & Co Redburn. James Moore: I don't know if you can hear me because I couldn't hear your answer to the last question. There seem to be some distortion on the line, but I'll try anyway. I just -- it's a philosophical question really. And if we think about the last 20 years, free cash conversion has been about 50%, 60%. It's been a long-standing topic. And if we take the free cash, including your new guidance for the 7 years since the merger, you're talking about declaring EUR 1.2 billion of free cash, but probably closer to EUR 2.5 billion of free cash burn if we adjust for hybrid and lease payments and minorities. I have to confess to believing with a number of the managerial changes in the last couple of years that you would be able to change the free cash management of the company to deliver an improved outcome, which we now appear not to be able to achieve. I guess the question would be when you look at the last couple of years, Bernard, and you compare it to, say, your main competitor making a high single-digit free cash margin, what is it you think you've come to understand about the challenges of delivering an improved free cash flow? Bernard-Pierre Delpit: James, to make it very simple, execution makes a difference. And that's where we have -- we are facing some challenges here. So there is no magic trick here. We need to improve execution. So again, I said that I was not really happy with having met the guidance in the last years and semesters and not doing it again next year. I will not answer over the longer cash conversion because what was Alstom 20 years ago is totally different from what Alstom is today. And our plan is to have Alstom very different in the next years from what Alstom has been since the merger in 2021. So we are in this phase, true. And we'll discuss the bridge on free cash flow on the 13th of May when we will have some detailed analysis on what makes the gap to the EUR 1.5 billion that we planned 2.5 years ago. And so we'll make it clear that project execution -- simply project execution makes the difference. Martin Sion: And if I may complete, I mean, the project execution is really concentrated on rolling stock and among rolling stock in the part of the projects, which are -- significant part of the problems are in a part of the projects where we are developing new products, and there are a lot of new products which are being introduced in service. And the end of development, homologation and ramping up production, is a challenge in some sites. The good news is that when we are in serial production, the products are produced efficiently with a good quality and customer satisfaction. So I don't want to give the feeling that it's all the projects on all phases. There are some topics where we should concentrate the effort. James Moore: And Martin, maybe if I could follow up and very nice to meet you, but I noticed a huge improvement in the operational performance in your previous business, Arianespace. And I wondered if you could talk about some of the levers that you use to improve that performance and what you think is relevant for your current role? And from your early exploration of the company, what you identify as topics that could be changed in the way that you perhaps previously changed them in that position? Martin Sion: Yes, I was [ in just 3 ] previous years, CEO of ArianeGroup, which is also a project company with 2 big projects and the one you're mentioning is Ariane 6. And it's clear that one of the levers that we use on Ariane 6 was to really focus all the management in order to secure first as the first flight date and then the production ramp-up. There are levers which are, I would say, usual levers of improvement, which exist in all industrial company. And in a project company, we need to have a strong focus on planning adherence, which is clearly a key even more than in other companies. At the same time, one of the specificity of Alstom compared to Ariane Group is that we've got hundreds of projects. We have an industrial footprint which is very different. We are multi-local. And so it will not be a copy-paste from things we have done before. But I believe that with the people I met in the factories, on the site, we do have the resources in order to improve operational excellence. It will not be something which will be from day 1 to day 2, but there are things that we can start very rapidly. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I got 3 questions as well. My first one is a follow-up to previous question when you answered that the problems are in some rolling stock projects. So I mean, we have heard before that Alstom in a given year is working on hundreds of projects in a year. Can you quantify, are we talking about issues in just a handful of projects? Or is it more widespread across the organization, which means that it might take significantly longer to fix? So that's number one to quantify how many projects out of the total projects that you're working on are really this problem child. The second one is on balance sheet. So when you -- when we look at your cash flow guidance and you're guiding EUR 1.5 billion outflow in first half, when you speak to rating agencies, is your balance sheet strength enough to cope with this first half cash outflow? Or do you think that some action might be required to strengthen the balance sheet? And then the third and final one is on contract assets. When I look at your revenue for last fiscal year as well as guidance, I don't see any haircut on your revenues, which to me doesn't indicate that you are -- you have taken any haircut on contract asset or you are planning to take any haircut on contract asset. And can you confirm if that is really the case? Martin Sion: So what I can say is that there are several projects which are in difficulty, but it's obvious that there are some big projects. And when we are late, then you've got domino effect with significant consequences. But an addition of small projects which are late can have also consequences on the -- for the company. So what we really consider is that we have to improve execution throughout our rolling stock activity, and it's not a topic of solving 1 or 2 or 3 projects. It's more something that we have to address in general and concentrating on the critical phase, which is the ramp-up, which is the headwind that we had this year. By the way, you also know that we have also some projects which are at late stage of execution with low margin, but I think that has been already discussed in the past. Bernard-Pierre Delpit: Yes. Akash, I will take the next one. Yes, I believe the balance sheet is strong and robust enough to deal with the seasonality of H1. Credit metrics are estimated in line with previous fiscal year with solid cash position. The business plan confirms consistency with Baa3 rating expectations. And we are, of course, totally committed on investment-grade rating and further credit metrics improvement. We have an open dialogue with credit agency, but I would not -- and I cannot speak on behalf. But we have an open and transparent dialogue with the agency. And on your last question, contract assets, no indeed, no haircut on contract assets. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I have 2 as well. But I just wanted to actually understand in the last 3 months, since you had reiterated the 7% guidance before, exactly sort of like all of these -- was it just all of these projects coincided on that? Was it a bit of Middle East pause? Or is it pretty -- a very big chunk and with like 100% drop-through lost? How come you -- that everything just came now or you just found it out now and you had to do adjustments maybe to what was going on before just -- because it was fairly shortly that you've actually had reiterated the 7% margin guidance. Bernard-Pierre Delpit: I will take this one, Daniela. It's true that the operational situation was not the same at the end of December, at the end of Q3. And you remember that we said since the very beginning of the year that the ramp-up was back-end loaded and Q4 was key for volumes and for homologation, for project milestones. So it's true that what happened in Q4 has changed our view on the way to address project reviews that are happening, by the way, in February, March and beginning of April. So that's absolutely true. The situation has changed in the last quarter. But in a way, it was expected that the Q4 was kind of a critical time for the full year. Daniela Costa: Got it. And then just thinking about sort of like the margin guidance for next year and what you factored in, is it sort of the whole versus what you had before, just continuing to roll these problems for longer? Or how much have you factored in already from things like the new way the Section 232 is calculated in the U.S. where it seems like final products now get 25% and the USMCA is overwritten and just general inflation? And then how different are you in being able to deal with this general inflation versus what you were able to do like 2, 3 years ago when we had a similar situation? Bernard-Pierre Delpit: Frankly, Daniela, I don't see the inflation topic as totally crucial for the way we assess our margins going forward. I don't know if it's the time now to give you a proper bridge in terms of moving parts from gross margin in '25-'26 to '26-'27. But for sure, we see a strong improvement from last fiscal year to the next one. And on top of that, you have also to consider volumes. You need also to take into consideration some -- maybe some cautiousness in the way we assess next year challenges because as Martin said, we are in the ramp-up phase. We have not been able to be totally successful, the least we can say in Q4 this year. So the ramp-up continues, and it will be on our agenda -- top of the agenda for H1 this year. And that's why, by the way, we have this kind of seasonality. So inflation, I do not see that as a major topic because as [ you ] said before, we are -- we think, well protected. We look at -- very carefully at everything that happens on logistics and commodities. But I do not think that's the main point that we wanted to raise by updating the margin in '25-'26 and '26-'27. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: I have 2 groups of questions. I'll start with first on free cash flow. The guidance is up to EUR 1.5 billion cash outflow in the first half. But at the same time, you -- I understand plan to make some positive EBIT in the first half. So can I ask why this gap between cash flow and earnings just keeps widening. The other one, why swings between first half and second half cash flows are just getting bigger and bigger every year? And maybe finally, on cash flow, which component of trade working capital will be driving a big cash outflow in the first half? Is it contract assets or contract liabilities? Bernard-Pierre Delpit: I will try to answer to your question. So it's true that we have a strong seasonality. EBIT has also kind of seasonality. But let me take a step back. When I try to explain what is missing in the cash with the previous plan, it comes from FX, it comes from CapEx, but it comes also from EBITDA. So from that point of view, I think we have very good consistency with what we were saying on EBIT and margin and what we are seeing in terms of free cash flow. Now to your last question, what we see for the working capital, it has to do first with the seasonality in terms of contract liabilities. I mean we think that the phasing of down payments will be more pronounced with less in H1 and more again in H2. And we also have trade working capital in H1 that would be adverse with some payables increase in H1. So I don't know if you can -- it answers all your questions, but please that, that are the moving parts in the equation of free cash flow next year. Vladimir Sergievskiy: Can I also ask then on the balance sheet? It looks like you could have net debt in excess of EUR 2 billion in September and intra-period potentially even higher. Do you think in principle, this is the right balance sheet for a project business, which carries sizable multibillion prepayments? And also, just to clarify, did you manage to speak to Moody's already on those numbers or this conversation is yet to happen? Bernard-Pierre Delpit: Okay. So I say again what I said. We have an open dialogue with Moody's, but I will not share more on that with you. We speak, of course, with Moody's on regular occasions, so they are aware. And second, on the balance sheet, I keep saying the same for the last 2 years. We need to have a strong balance sheet. I think we need to be net cash considering the size of the backlog and the kind of activity that we have. It's not that different from other integrators with some seasonality in what they do. So I have not changed my mind. We need a strong balance sheet to operate in this business. But looking at it with another angle, our liquidity is ample today, and I do not see that at all as an issue. Operator: The next question comes from Jonathan Mounsey from BNP Paribas. Jonathan Mounsey: Just really thinking back to -- obviously, we had a -- we had to clear the [ decks ] exercise in, I think, 2024 and '25 rights issue, hybrid bond, as I remember it. And on the hybrid bonds, my remembering is that the plan was probably to redeem it at the first opportunity, which I think is like 5 years, isn't it 2029? And from memory, if you don't do that, it's almost 3% margin on top of the going rate. Do you think -- I mean, obviously, we're not going to generate at least EUR 1.5 billion to the end of '27. I don't know what comes after, but the starting point on the margin is only 6.5% now. It should have been somewhere in the 7s, high 7s by the end of '27. It's not going to be so now. So all points to less cash generation. What's going to happen to that hybrid now? I understand you've got liquidity for now, but your liquidity would be greatly reduced if you had to redeem that bond? Or is there a potential here that we're just going to turn it into equity? Bernard-Pierre Delpit: Jonathan, I mean, as you said, [ it's an uncalled 5 that we have -- an uncalled 5.25% ], by the way, that we have issued in May 2024. So that's not a question for the short term. And we have not discussed and we will not discuss free cash flow beyond March '27. So it's not a question for today. And the way we will deal with hybrid is something that we discuss at a later stage. But I take your point, but I don't think it's on the agenda for the coming, I would say, months and quarters. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Bernard-Pierre Delpit: Thank you very much. Just want to reiterate that we were dealing with preliminary figures and preliminary outlook. So we will talk to you next on the 13th of May with our fiscal year results and usual financial communication. Thank you very much. Good evening. Operator: The conference is now over. You may now disconnect.
Operator: Welcome to the Alstom conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Martin Sion: Good evening, everyone. Thank you for joining us tonight at short notice. I'm Martin Sion, Group CEO of Alstom. Joining me is Bernard Delpit, Executive Vice President and Chief Financial Officer. We'll start with a few opening remarks on tonight's announcement, and then we'll open the line for Q&A. First, let me be very clear from the start. This is not the way I was expecting to start my mandate. The financial result on cash generation are not at the level you should expect from a market leader, especially with a EUR 100 billion backlog in a growing industry. After the last 12 months, we delivered strong organic sales growth of 7%, but this did not lead to margin improvement. And in a year of record commercial activity with EUR 28 billion of order intake, free cash flow generation should have been much stronger. Multiple factors are at play here. The production ramp-up of new rolling stock platforms has not been as steep as what we expected in the fourth quarter. On other projects that met challenges early in their life cycle, we've not been able to turn them around as planned. And fair to say that the current situation in the Middle East has been an additional constraint. Taken together, this factor will have knock-on effects on near-term financial performance. Over the last 2 weeks since my arrival, I've been visiting factories in Italy, France and Germany. I've got -- I went into the detail of financial reviews and processes. I met people that are highly committed and highly competent. I met teams on the shop floor. I met engineers, project leaders and obviously, the regional management. But one conclusion is very clear. Our ability to stick to planning is not strong enough. In a project business, sticking to planning is essential. And today, development, industrialization and manufacturing across multiple sites are not always aligned, creating complexity. In some cases, productions move ahead while homologation is still pending. That's why my priority is to drive deep operational changes and improve execution quality. In short, this means tighter day-to-day execution, stronger planning discipline and better coordination across engineering, supply chain and production. We will also start a broader reflections about adopting a more focused product and commercial strategy. Of course, in parallel, we will continue to further improve results in Services and Signaling, where I see more opportunities and we'll continue the work done in recent years to improve the quality and risk profile of the order intake across all product lines. As I'm new in the role, I will also be reviewing the portfolio and industrial footprint. This includes reviewing the industrial transformation plan already in place and assessing where adjustment or acceleration is required. Restoring performance in rolling stock is a major opportunity for the group. It is achievable with discipline. This is a necessary step to execute the backlog and prepare the group for sustainable cash generation and profitable growth. We will keep you informed on our progress, and we will outline our action plan later this fiscal year. And I now hand over to Bernard. Bernard-Pierre Delpit: Thank you, Martin. I will now comment on the preliminary unaudited figures for the fiscal year '25, '26 as well as the preliminary outlook for the next fiscal year. Starting with orders. Alstom recorded EUR 27.6 billion of orders in the fiscal year, representing a book-to-bill of 1.4. The second half saw a higher proportion of services contracts compared to the first half. Overall, order intake was well balanced by product line over the full year with both rolling stock and services at a book-to-bill of 1.4. Turning to operations with a particular focus on car production. The group produced 4,284 cars during the fiscal year, down 2% year-on-year. In the fourth quarter, car production came in below our January expectations as some rolling stock projects are ramping up more slowly than anticipated and homologations have shifted. Moving to sales. Alstom recorded EUR 19.2 billion of sales in the fiscal year, up 4% compared to last year. After adjusting for negative currency and scope effects, organic sales grew by 7%. All production lines contributed to organic growth with the exception of systems, which faced a tough comparison base. Turning to profitability. Adjusted EBIT margin for fiscal year '25-'26 lands at around 6%. At constant currency and scope, adjusted EBIT margin is broadly stable compared to the prior fiscal year. On the one hand, execution of contracts signed over the recent years and tight control over SG&A supported margins. On the other hand, this was more than offset by a slower-than-expected execution on some large rolling stock projects and therefore, with associated costs, all those most visibly in the fourth quarter, but also stronger-than-expected execution headwinds on a limited number of late-stage projects in rolling stock as well as higher R&D expenses, it has a negative impact on adjusted EBIT. Altogether, adjusted EBIT margin is coming lower than last year and to the guidance. Moving to free cash flow. Free cash flow for fiscal year '25-'26 amounted to around EUR 330 million. Despite execution challenge, adverse currency effects and effects of geopolitics on payments related to Middle East contracts, we've achieved free cash flow in the guided range. Contract working capital increase was offset by down payments, reflecting strong commercial momentum and by favorable trade working capital. This is not particularly satisfying having met cash guidance 2 years in a row that we are not reconfirming the cash plan for the next fiscal year. Financial net debt is coming as expected, around EUR 400 million at the end of fiscal year '25-'26. Liquidity is solid with a gross cash position of EUR 2.3 billion at the end of March '26, revolving credit facilities of respectively, EUR 2.5 billion and EUR 1.75 billion and a EUR 2.5 billion commercial paper program. Turning now to the preliminary '26-'27 outlook. Commercial activity should remain strong, and we guide for a book-to-bill ratio above 1. Organic sales growth should be around 5%. We expect the adjusted EBIT margin to return to around 6.5% in fiscal year '26-'27. With R&D expenses expected to increase as a percentage of sales, the improvement will be driven by a rebound in gross margin back to levels seen in fiscal year '23-'24. Gross margin in the backlog now stands at 18%. We expect positive free cash flow for year '26-'27. On the one hand, we expect commercial activity will be robust, driving solid down payments. On the other hand, lower margin than previously anticipated. CapEx to support the growth of services being put forward as well as trade working capital changes will weigh on the cash compared to what we previously planned. This concludes our introduction remarks. Now Martin and I will open the floor to your questions. Operator: [Operator Instructions] The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: I guess the first question is for Mr. Sion. I'm wondering if you had time to go through some of the projects yourself. I mean, if the project review, I guess, is not finalized, but I guess I'm trying to judge whether there will be a second round of adjustments potentially later in the year. So that's question number one. Question number two is around the free cash flow guidance, which apparently you expect to remain positive in the upcoming year, although with a negative free cash flow that is expected to be around EUR 1.5 billion in H1. So I don't really get how you hope to turn it into a positive free cash flow for the year given the pretty slow start. And then lastly, at the end, I mean, do you expect the group's net debt to decrease or increase by the end of the next fiscal year? Martin Sion: Bernard, maybe I take the first one and you take the two other. What did I do in the last two weeks? I shared my time between [Technical Difficulty] regional reviews and product line reviews. We were concentrating on the budget process, which was being achieved. So regions by regions, we had the concatenation of all programs and with an overview of all the challenges and also all the achievements of each program. So I did not do a specific program review for each of the programs, but it was regions by regions and product line by product line. The other half of my time, I was in the different sites in France, Germany, and Italy [ and other ] sites to confront what was assumptions -- operational assumptions, which will be behind the financial figure. If we look at today’'s situation, I acknowledge the situation that this is what I know today. It’s true that we have already identified areas where we can put in place immediate improvement in terms of operational excellence and our priority is to secure execution of the projects to deliver what is mentioned in this guidance. Bernard? Bernard-Pierre Delpit: Yeah. As you said, Gael, we expect a strong seasonality in the next year, both in H1 negative around EUR 1.5 billion, you spotted it well. In H2 with a very positive free cash flow expected. By the way, when you look at the track record of those last years, H2 has been stronger and stronger year-over-year. So yes, I confirm strong H2 expected, bringing the cash flow for the year in positive territories and regarding the debt, I expect it’s going to be stable or a slight increase. Operator: The next question comes from James Moore from Rothschild & Co Redburn. James Moore: I don't know if you can hear me because I couldn't hear your answer to the last question. There seem to be some distortion on the line, but I'll try anyway. I just -- it's a philosophical question really. And if we think about the last 20 years, free cash conversion has been about 50%, 60%. It's been a long-standing topic. And if we take the free cash, including your new guidance for the 7 years since the merger, you're talking about declaring EUR 1.2 billion of free cash, but probably closer to EUR 2.5 billion of free cash burn if we adjust for hybrid and lease payments and minorities. I have to confess to believing with a number of the managerial changes in the last couple of years that you would be able to change the free cash management of the company to deliver an improved outcome, which we now appear not to be able to achieve. I guess the question would be when you look at the last couple of years, Bernard, and you compare it to, say, your main competitor making a high single-digit free cash margin, what is it you think you've come to understand about the challenges of delivering an improved free cash flow? Bernard-Pierre Delpit: James, to make it very simple, execution makes a difference. And that's where we have -- we are facing some challenges here. So there is no magic trick here. We need to improve execution. So again, I said that I was not really happy with having met the guidance in the last years and semesters and not doing it again next year. I will not answer over the longer cash conversion because what was Alstom 20 years ago is totally different from what Alstom is today. And our plan is to have Alstom very different in the next years from what Alstom has been since the merger in 2021. So we are in this phase, true. And we'll discuss the bridge on free cash flow on the 13th of May when we will have some detailed analysis on what makes the gap to the EUR 1.5 billion that we planned 2.5 years ago. And so we'll make it clear that project execution -- simply project execution makes the difference. Martin Sion: And if I may complete, I mean, the project execution is really concentrated on rolling stock and among rolling stock in the part of the projects, which are -- significant part of the problems are in a part of the projects where we are developing new products, and there are a lot of new products which are being introduced in service. And the end of development, homologation and ramping up production, is a challenge in some sites. The good news is that when we are in serial production, the products are produced efficiently with a good quality and customer satisfaction. So I don't want to give the feeling that it's all the projects on all phases. There are some topics where we should concentrate the effort. James Moore: And Martin, maybe if I could follow up and very nice to meet you, but I noticed a huge improvement in the operational performance in your previous business, Arianespace. And I wondered if you could talk about some of the levers that you use to improve that performance and what you think is relevant for your current role? And from your early exploration of the company, what you identify as topics that could be changed in the way that you perhaps previously changed them in that position? Martin Sion: Yes, I was [ in just 3 ] previous years, CEO of ArianeGroup, which is also a project company with 2 big projects and the one you're mentioning is Ariane 6. And it's clear that one of the levers that we use on Ariane 6 was to really focus all the management in order to secure first as the first flight date and then the production ramp-up. There are levers which are, I would say, usual levers of improvement, which exist in all industrial company. And in a project company, we need to have a strong focus on planning adherence, which is clearly a key even more than in other companies. At the same time, one of the specificity of Alstom compared to Ariane Group is that we've got hundreds of projects. We have an industrial footprint which is very different. We are multi-local. And so it will not be a copy-paste from things we have done before. But I believe that with the people I met in the factories, on the site, we do have the resources in order to improve operational excellence. It will not be something which will be from day 1 to day 2, but there are things that we can start very rapidly. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I got 3 questions as well. My first one is a follow-up to previous question when you answered that the problems are in some rolling stock projects. So I mean, we have heard before that Alstom in a given year is working on hundreds of projects in a year. Can you quantify, are we talking about issues in just a handful of projects? Or is it more widespread across the organization, which means that it might take significantly longer to fix? So that's number one to quantify how many projects out of the total projects that you're working on are really this problem child. The second one is on balance sheet. So when you -- when we look at your cash flow guidance and you're guiding EUR 1.5 billion outflow in first half, when you speak to rating agencies, is your balance sheet strength enough to cope with this first half cash outflow? Or do you think that some action might be required to strengthen the balance sheet? And then the third and final one is on contract assets. When I look at your revenue for last fiscal year as well as guidance, I don't see any haircut on your revenues, which to me doesn't indicate that you are -- you have taken any haircut on contract asset or you are planning to take any haircut on contract asset. And can you confirm if that is really the case? Martin Sion: So what I can say is that there are several projects which are in difficulty, but it's obvious that there are some big projects. And when we are late, then you've got domino effect with significant consequences. But an addition of small projects which are late can have also consequences on the -- for the company. So what we really consider is that we have to improve execution throughout our rolling stock activity, and it's not a topic of solving 1 or 2 or 3 projects. It's more something that we have to address in general and concentrating on the critical phase, which is the ramp-up, which is the headwind that we had this year. By the way, you also know that we have also some projects which are at late stage of execution with low margin, but I think that has been already discussed in the past. Bernard-Pierre Delpit: Yes. Akash, I will take the next one. Yes, I believe the balance sheet is strong and robust enough to deal with the seasonality of H1. Credit metrics are estimated in line with previous fiscal year with solid cash position. The business plan confirms consistency with Baa3 rating expectations. And we are, of course, totally committed on investment-grade rating and further credit metrics improvement. We have an open dialogue with credit agency, but I would not -- and I cannot speak on behalf. But we have an open and transparent dialogue with the agency. And on your last question, contract assets, no indeed, no haircut on contract assets. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I have 2 as well. But I just wanted to actually understand in the last 3 months, since you had reiterated the 7% guidance before, exactly sort of like all of these -- was it just all of these projects coincided on that? Was it a bit of Middle East pause? Or is it pretty -- a very big chunk and with like 100% drop-through lost? How come you -- that everything just came now or you just found it out now and you had to do adjustments maybe to what was going on before just -- because it was fairly shortly that you've actually had reiterated the 7% margin guidance. Bernard-Pierre Delpit: I will take this one, Daniela. It's true that the operational situation was not the same at the end of December, at the end of Q3. And you remember that we said since the very beginning of the year that the ramp-up was back-end loaded and Q4 was key for volumes and for homologation, for project milestones. So it's true that what happened in Q4 has changed our view on the way to address project reviews that are happening, by the way, in February, March and beginning of April. So that's absolutely true. The situation has changed in the last quarter. But in a way, it was expected that the Q4 was kind of a critical time for the full year. Daniela Costa: Got it. And then just thinking about sort of like the margin guidance for next year and what you factored in, is it sort of the whole versus what you had before, just continuing to roll these problems for longer? Or how much have you factored in already from things like the new way the Section 232 is calculated in the U.S. where it seems like final products now get 25% and the USMCA is overwritten and just general inflation? And then how different are you in being able to deal with this general inflation versus what you were able to do like 2, 3 years ago when we had a similar situation? Bernard-Pierre Delpit: Frankly, Daniela, I don't see the inflation topic as totally crucial for the way we assess our margins going forward. I don't know if it's the time now to give you a proper bridge in terms of moving parts from gross margin in '25-'26 to '26-'27. But for sure, we see a strong improvement from last fiscal year to the next one. And on top of that, you have also to consider volumes. You need also to take into consideration some -- maybe some cautiousness in the way we assess next year challenges because as Martin said, we are in the ramp-up phase. We have not been able to be totally successful, the least we can say in Q4 this year. So the ramp-up continues, and it will be on our agenda -- top of the agenda for H1 this year. And that's why, by the way, we have this kind of seasonality. So inflation, I do not see that as a major topic because as [ you ] said before, we are -- we think, well protected. We look at -- very carefully at everything that happens on logistics and commodities. But I do not think that's the main point that we wanted to raise by updating the margin in '25-'26 and '26-'27. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: I have 2 groups of questions. I'll start with first on free cash flow. The guidance is up to EUR 1.5 billion cash outflow in the first half. But at the same time, you -- I understand plan to make some positive EBIT in the first half. So can I ask why this gap between cash flow and earnings just keeps widening. The other one, why swings between first half and second half cash flows are just getting bigger and bigger every year? And maybe finally, on cash flow, which component of trade working capital will be driving a big cash outflow in the first half? Is it contract assets or contract liabilities? Bernard-Pierre Delpit: I will try to answer to your question. So it's true that we have a strong seasonality. EBIT has also kind of seasonality. But let me take a step back. When I try to explain what is missing in the cash with the previous plan, it comes from FX, it comes from CapEx, but it comes also from EBITDA. So from that point of view, I think we have very good consistency with what we were saying on EBIT and margin and what we are seeing in terms of free cash flow. Now to your last question, what we see for the working capital, it has to do first with the seasonality in terms of contract liabilities. I mean we think that the phasing of down payments will be more pronounced with less in H1 and more again in H2. And we also have trade working capital in H1 that would be adverse with some payables increase in H1. So I don't know if you can -- it answers all your questions, but please that, that are the moving parts in the equation of free cash flow next year. Vladimir Sergievskiy: Can I also ask then on the balance sheet? It looks like you could have net debt in excess of EUR 2 billion in September and intra-period potentially even higher. Do you think in principle, this is the right balance sheet for a project business, which carries sizable multibillion prepayments? And also, just to clarify, did you manage to speak to Moody's already on those numbers or this conversation is yet to happen? Bernard-Pierre Delpit: Okay. So I say again what I said. We have an open dialogue with Moody's, but I will not share more on that with you. We speak, of course, with Moody's on regular occasions, so they are aware. And second, on the balance sheet, I keep saying the same for the last 2 years. We need to have a strong balance sheet. I think we need to be net cash considering the size of the backlog and the kind of activity that we have. It's not that different from other integrators with some seasonality in what they do. So I have not changed my mind. We need a strong balance sheet to operate in this business. But looking at it with another angle, our liquidity is ample today, and I do not see that at all as an issue. Operator: The next question comes from Jonathan Mounsey from BNP Paribas. Jonathan Mounsey: Just really thinking back to -- obviously, we had a -- we had to clear the [ decks ] exercise in, I think, 2024 and '25 rights issue, hybrid bond, as I remember it. And on the hybrid bonds, my remembering is that the plan was probably to redeem it at the first opportunity, which I think is like 5 years, isn't it 2029? And from memory, if you don't do that, it's almost 3% margin on top of the going rate. Do you think -- I mean, obviously, we're not going to generate at least EUR 1.5 billion to the end of '27. I don't know what comes after, but the starting point on the margin is only 6.5% now. It should have been somewhere in the 7s, high 7s by the end of '27. It's not going to be so now. So all points to less cash generation. What's going to happen to that hybrid now? I understand you've got liquidity for now, but your liquidity would be greatly reduced if you had to redeem that bond? Or is there a potential here that we're just going to turn it into equity? Bernard-Pierre Delpit: Jonathan, I mean, as you said, [ it's an uncalled 5 that we have -- an uncalled 5.25% ], by the way, that we have issued in May 2024. So that's not a question for the short term. And we have not discussed and we will not discuss free cash flow beyond March '27. So it's not a question for today. And the way we will deal with hybrid is something that we discuss at a later stage. But I take your point, but I don't think it's on the agenda for the coming, I would say, months and quarters. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Bernard-Pierre Delpit: Thank you very much. Just want to reiterate that we were dealing with preliminary figures and preliminary outlook. So we will talk to you next on the 13th of May with our fiscal year results and usual financial communication. Thank you very much. Good evening. Operator: The conference is now over. You may now disconnect.
Walter Hess: Good morning, everyone, and welcome to our Q1 '26 trading update. I'm Walter Hess, the CEO, and I'm joined today by our CFO, Daniel Wuest. In line with what we announced at the full year conference, we will provide transparent quarterly insights into our path to EBITDA breakeven, which is why we are hosting today's call. Just a few weeks ago, during our full year '25 results, we outlined our strategic evolution from an online pharmacy player to the leading digital and AI health platform, the engine for our profitable expansion at scale. Today, we will show you the facts that validate our successful development. Let's move straight to the Q1 highlights on the next slide to demonstrate how well this engine is now accelerating. Overall, we achieved a strong revenue growth of 10.7% year-over-year. Our Rx business showed outstanding momentum with a 30.4% growth year-over-year alongside a strong 7.6% sequential growth compared to the previous quarter. The growth was fueled by accelerating month-over-month with a remarkable uptick in March, which also continues in April. Our high-margin Digital Services business continues to scale rapidly, achieving an impressive 63.1% growth rate while consistently increasing margins. In Q1 '26, we successfully expanded our ecosystem platform, growing our active customer base by 1 million year-over-year, whereas 0.4 million in Q1 '26, to a total of 12.6 million, which is a great achievement. And most importantly, and as you know, our main priority, we improved our adjusted EBITDA by CHF 10 million year-over-year to minus CHF 6 million, proving we are on track to achieve our breakeven target in the course of 2026. Let's move to Slide #5 now. The 30.4% year-over-year Rx growth clearly proves that our strategy to capture the potential of the Rx market is highly effective. It shows that the patients are more and more familiar with our Digital Services and increasingly value the comfort of home delivery. We saw a growth in Rx orders from month-to-month with a significant uptick in March, rounding off a very successful first quarter and also continuing into April. And this acceleration comes together with a more and further optimized channel mix, which pleasingly increased RAS, return on advertising spend, and decreased our customer acquisition costs even further. Ultimately, this is a strong start into the year, and it demonstrates the growing stickiness of our health platform. Our non-Rx business remains a reliable driver of value, delivering continuous and profitable growth of 6.5% year-over-year to fuel our broader ecosystem. We managed our OTC and BPC business according to plan to a growth rate of 4.4%. Our Digital Services, including TeleClinic, Retail Media and our Marketplace grew further by an outstanding 63.1%. These digital business lines are not just growing top line, they are delivering increasing margins and therefore, a significant EBITDA contribution. And on top of it, the strong platform performance and expansion also forms an excellent basis for our Retail Media business. And now I would like to hand over to Daniel. Daniel Wüest: Thank you, Walter. And also from my side, a very warm welcome to all the participants. Let's move to Slide #7, where you see the EBITDA bridge, which we also provided to you during the full year figures in March. And I want to start this with the following comments. We closed Q1 with an adjusted EBITDA, as Walter already said, with minus CHF 6.3 million, representing a substantial improvement of almost CHF 10 million, exactly CHF 9.8 million compared to the quarter of last year. That's proving our continuous path to profitability. The adjusted EBITDA margin improved by over 360 basis points from minus 5.7% to minus 2.1% in Q1 compared to the previous year's quarter. If you look at the chart and you see since Q1 '25, we have seen an ongoing quarterly EBITDA improvement driven by basically 3 factors: Better operational performance, focus on marketing efficiency and also very important to mention, disciplined cost management. Amongst other, you remember, we have closed the Heerlen Logistics operations last year. And this year, we have announced the closing of Ludwigshafen, the warehouse and their respective logistics operations, which have already contributed substantially on the cost side, but will further contribute during '26. And I can also confirm that with the closure of Ludwigshafen, we are very well on track. We will see first positive operational effects there in the second half of '26. We continue to be very transparent, and you see with this minus CHF 6.3 million in Q1 '26 in the chart on Page 7 that we expect the quarter result almost on the same level for Q2. And then as already mentioned in March, we aim for getting close to EBITDA breakeven in Q3 and there will be definitely EBITDA breakeven in Q4. And I think that's what the management team is kind of aiming to achieve. All in all, our Q1 results demonstrate that our measures are working and will further work because it's not yet done, and bet DocMorris is very well on track to achieve EBITDA breakeven in the course of the year. We are relentlessly executing our plan with precision, knowing that our strategy, the evolution from a leading online pharmacy to a leading digital and AI health platform will pay off. With that, I would like to go to Slide #8. There, nothing new. Backed by our strong Q1 performance and our current trading, where we see an ongoing positive trend from March, we are fully confirming our short and midterm guidance as laid out on the full year presentation in March. That means we confirm our '26 adjusted EBITDA target in the range of minus CHF 10 million to minus CHF 25 million, strongly supported by the improvements we have already seen and delivered in Q1. We are confident to achieve EBITDA breakeven even if we would be at the higher end of the guided external revenue growth guidance. And just for your memory, we guided mid-single-digit to low teens percentage range. And as you have seen in Q1, we can deliver on the EBITDA target even if we are at the upper end of the overall revenue guidance. All in all, we firmly reiterate our commitment to reaching EBITDA breakeven during '26 and achieving positive free cash flow in the course of '27. And with that, I hand over to Walter. Walter Hess: Yes. Thank you, Daniel. So before we move to Q&A, I want to briefly address the upcoming Annual General Meeting and the future Board composition proposals. Our Board proposes 3 independent nominees, Thomas Bucher, Nicole Formica-Schiller and Dr. Thomas Reutter. Together with our existing Board members, this composition brings targeted expertise across the areas most critical to further execute on our strategy. Management's clear preference is for continuity and stability. We are at a pivotal point in our development. Consistent, focused execution requires a Board that is aligned, experienced and ready to act, not one in transition. All proposed new nominees are fully independent and stand for the interest of all shareholders. We believe this is the right team to take DocMorris forward, and we encourage shareholders to support these nominations at the AGM. Let me conclude the call with a clear message. Our vision of health in one click is not just a concept. It is fully operationalized through our integrated digital and AI health platform. However, a strategy is ultimately defined by its execution. Our Q1 results deliver strong proof that our measures are working and DocMorris is firmly on track. We are not just making promises for the future, we are delivering today. This is clearly demonstrated by our strong Rx growth and the 63% expansion in Digital Services and our continuous EBITDA improvements. My clear statement to you is that the transition to a profitable digital health ecosystem is fully underway and is yielding tangible financial results. We have the right strategy. We have the right management team and the operational proof is in place. We are executing with absolute focus, and we are pairing the necessary sense of urgency with a clear commitment to long-term value creation. And with that, we would like to move over to the Q&A part of this call. Operator: [Operator Instructions] And we have already some questions. The first question comes from Mr. Koch from Deutsche Bank. Jan Koch: My first one is on Rx. Encouraging to see that the growth rate has accelerated again in Q1. If I analyze your Q1 number, I'm already quite close to your full year guidance. So is there anything we should consider here? Or is your full year guidance just a bit more conservative than in recent years? Then secondly, on profitability, could you confirm that the loss in Q2 is not expected to be higher than in Q1? And if so, the upper end of the EBITDA loss range looks quite unlikely as well. Any comments here? And then lastly, are there any upcoming regulatory changes that we should keep in mind? There have been some headlines on the potential changes to the cold chain requirements. So any color here would be helpful. Walter Hess: Yes. Thank you, Jan, for your questions. Let me take the first and third question. And then the second one, I would like to hand over to Daniel. On the Rx, what I just can confirm that we continuously improve the marketing mix, the performance of the marketing. And with that, we just see a really good development. And yes, so let's meet again in August, and then I can further -- or we can further give you more details about the growth and what you can expect also in the second half year and for the full year. About profitability, maybe Daniel? Daniel Wüest: Yes. I think that's always the backside of being very transparent and you did the right math or measuring up on the scale. I think it would be -- if you already would know how Q2 would come in, especially on the bottom line, then my life would be much easier, and we would now go out and [indiscernible] join with the fun. No, but on a more serious note, definitely, we aim for EBITDA -- quarterly EBITDA in the area of Q1 and knowing that Q1 and Q2 are usually the weakest quarters and with acceleration in Q3 and Q4. However, having said this, as Walter already mentioned, we see very good traction coming from March and also has been transferred into April, even that basically, we had 2 slower weeks due to the Easter time and related vacation. And therefore, I would kind of confirm your view that you could assume that it will be roughly on the level of Q2. But of course, we have -- the management has a higher ambition to maybe improve it to the upper end of the midpoint of the shaded bar, which you see in the chart. Walter Hess: Okay. And then coming to your third question about the regulatory development, and you mentioned the cold chain. So as you all know, there is a draft of regulation, which has been issued by the Ministry of Health. And now the EU Commission intervened and basically said that it's a violation of EU law again, we have to say. For us, it's a positive signal because we see it equally. So now the ministry has to adjust this draft. And it's really just a draft, and it's only on the regulation level. So we see it as a really positive sign as I think also the market has seen. Operator: The next question is from Mr. Kunz from Research Partners. Urs Kunz: I have just one question regarding Digital Services. If I calculated correctly, you had a growth rate of 110% in Q3 and then 95% in Q4. Now you have 63% in Q1. And this is a rather steep deceleration. Is that something we have to think about that it's going further down in the coming quarters? Or is it going to stabilize? Because you have your guidance or your inofficial guidance of mid-double-digit percentage range for the whole year, which would translate to, I guess, 40% to 60%. Daniel Wüest: Thank you, Mr. Kunz, for the question. I think your calculations of the last year and the quarterly development are, let's say, more or less right. And as mentioned, we indicated when we guided for Digital Services that we are aiming for mid-double-digit growth, which we would also translate into 40% to 60%. And with the -- we are now actually at the upper end. And I think in relation to TeleClinic, there, the TeleClinic was slightly below the average, but we have kind of disclosed for Q1. But as mentioned, you have to remember that last year, TeleClinic has won the TK tender, which is by far the biggest insurer in Germany. And there you have seen a huge increase in volume starting in December, but mainly in Q1. And you can expect and assume that there will be kind of a leveling out, i.e., that the base effect will then, from Q2 onwards, play in favor of TeleClinic. And having said this, TeleClinic has several tenders outstanding where we expect to get feedback rather sooner than later and which could then also basically, if they would go into the right direction, give some additional top line growth, which was not reflected in the initial guidance, which we had put out in March. I think just to add there, I think top line growth is one, and we also explained in March that in -- with TeleClinic, we always have years where with high growth, but let's say, stable profitability, margin development, which was last year because the growth was 3 digit, but the margins more or less were stable. And this year, and that deliberately, we see already in the Q1 that the growth is a little bit lower, but the margins have substantially improved, and we expect that this will continue during the year, meaning that we are not talking kind of a 3, but rather kind of a 4 as the first number in the margin profile. Urs Kunz: Okay. But all in all, you're quite confident that the growth rate in Digital Services in the next few quarters stabilize somewhere in this double-digit percentage range, mid-double-digit percentage range and then not kind of constantly going backwards? Daniel Wüest: No, no. I think we hope it will be the other way around, but let's see. But we are very confident that this 40% to 60% is for the time being that the wide range and not any -- adjustments to the downside are definitely not a topic for this year. Operator: [Operator Instructions] And the next question comes from Guillaume Galland, I hope I pronounced your name correctly, from Barclays. Guillaume Galland: See, I have one question maybe on the non-Rx and OTC side. So yes, could you give us a bit more color on what you're currently seeing in German OTC? And -- so your peers have flagged some softness in the market, which was seen in Q4. [indiscernible] in Q1. It seemed that OTC has slowed in Q1 for DocMorris. So keen to hear a bit more on the consumer demand and if you've seen any changes on the competitive intensity. Walter Hess: Thank you, Guillaume. Happy to answer that one. So obviously, the market is going on more or less the same level and pace as also the Q4. For us, it's important. We have a plan to grow mid-single digit with OTC and BPC, and this is the level where we manage growth in that part. And yes, so as you might remember, generating OTC growth would not be really difficult. So we could grow further, but it comes with a price. And our priority is very clearly on profitability. And this is why we decided also to soft guide OTC on mid-single digit, what works well in Q1 and also in Q2, the start in April. Guillaume Galland: And then regarding -- sorry, Rossmann and dm, any change here in terms of competition? Walter Hess: Sorry, I didn't understand your question. Guillaume Galland: Have you seen any switch in competition from Rossmann and dm in the market on the OTC side? Walter Hess: No, we don't feel additional competition at all. Daniel Wüest: Guillaume, so to make it very clear, I think on the OTC, we have compared from Q1 -- Q4 to Q1 this year, we have not changed anything. We have exactly the same amount of marketing spend, marketing ratio and everything. And that's the reason -- you do not have to ask us why in Q4, we all of a sudden got to a double-digit OTC growth. But I think that was somehow exceptional. But Q1 is really according to plan and budget and to guidance, which we provided this mid-single digit and this 4.6%, we are perfectly on track to -- in this respect. Walter Hess: Okay. So as there are no further questions... Operator: Yes, one more question. It just came in. I'd like to interrupt you. So the next question is from Gian-Marco Werro. The floor is yours. Yes, we can't hear you, Mr. Werro. I'm sorry. Walter Hess: But we can answer your question off the call at any time. So we are, of course, achievable -- available. Okay. So let's end this call. Thank you very much for taking part, for spending the time. I just can confirm we are really well on track. The management, the company needs stability and consistency, and we are strongly executing and fully focused on delivering the guidance that we have promised to you and to the market. I wish you a wonderful day and looking forward to seeing you and meeting you in August latest. Thanks a lot. Daniel Wüest: Thank you.
Operator: Good day, everyone, and welcome to today's Flexible Solutions International's Full Year 2025 Financials Conference Call. [Operator Instructions] Please note, this call is being recorded, and I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Dan O'Brien. Please go ahead. Daniel O’Brien: Thank you, Jen. Good morning. This is Dan O'Brien, CEO of Flexible Solutions. The safe harbor provision of the Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Certain of the statements contained herein, which are not historical facts, are forward-looking statements with respect to events, the occurrence of which involve risks and uncertainties. These forward-looking statements may be impacted, either positively or negatively by various factors. Information concerning potential factors that could affect the company is detailed from time to time in the company's reports filed with the Securities and Exchange Commission. Welcome to the full year conference call for 2025. I'd like to discuss our company condition and our product lines first, along with what we think might occur in Q1 and Q2 2026. I'll comment on our financials in the second part of the speech. NanoChem division. NCS represents the majority of FSI's revenue. In 2022, NCS started food-grade operations. And by the end of 2026, we expect that NCS will be 100% focused on food-grade products. Growth in the NCS division will be in food and nutraceuticals only. The Panama division. This division makes polyaspartic acid, called TPA for short. It's a biodegradable polymer with many valuable uses. Panama also manufactures SUN 27 and N Savr 30, which are used to reduce nitrogen fertilizer loss from soil. Panama is taking over production of all the legacy industrial and agricultural products historically made at NCS. This is a step-by-step process that is intended to be complete by the end of 2026. TPA is used in agriculture to significantly increase crop yields. TPA is also a biodegradable way of treating oilfield water for scale prevention. It's also sold as a biodegradable ingredient in cleaning products and as a water treatment chemical. Nearly all of our product for international sales will be made in Panama using materials sourced without the U.S. tariffs. There will also be shipping advantages. The new plant is 30 minutes from the Port. Inbound raw materials and outbound finished goods will not have to be shipped across the U.S. to and from Illinois for our international customers. Delivery times will be shortened by many days. Reduced shipping times and no exposure to U.S. tariffs on international sales would allow us to increase sales to existing customers and obtain new customers over the next 2 years. We're already engaging with potential new customers. NCS food products. Well, our Illinois plant is FDA and SQF certified. We have commercialized two food products. The first was our wine additive based on polyaspartates that was developed in-house. Last August, we announced our second major food grade contract of 2025 and our third overall. As noted in the news release, it's a 5-year contract with protection from tariffs and inflation. It has a minimum revenue of $6.5 million per year and a maximum if the customer requests it, of greater than $25 million per year. The August contract has reached full production. It's running 24 hours per day and is now our second food grade product after the wine product. We're reviewing methods of increasing production quickly if the customer requests it. Production utilizes equipment we've been buying and installing over the last 2 years, but did not have a customer for. Therefore, little CapEx will be needed to reach -- about $15 million per year in sales for this contract and mild CapEx in the $2 million to $3 million range to reach $25 million. In January 2025, we announced another larger food grade contract. Actual production at small volumes started this week and will be increased weekly until full production is achieved. Significant revenue from this contract may be visible in our Q2 financials. Growing these two food contracts to the estimated maximum revenues of greater than $50 million per year, it's our critical goal for the next 4 to 6 quarters. We hope to execute this to the customers' absolute satisfaction and obtain all their business before taking on additional major projects. It does not mean that we're not looking for more customers. We're already doing R&D work in certain areas. However, it does mean that several quarters are likely to elapse before other major customers are announced. We would also like to be clear regarding margins in the Food division. In order to obtain such large contracts from a very low base and in order to negotiate tariff and inflation protection clauses, we have lower margins than we prefer. We hope to be in the 22% to 25% range before tax. Future customers will be selected in order to increase our average margins now that we have a strong base in place. The ENP division. ENP represents most of our other revenue and is focused on sales into the greenhouse, turf and golf markets. ENP grew in 2025 and growth is expected again in 2026. Q1 is the weakest quarter for this division, followed by Q2. And growth is usually concentrated in the second half of the year for ENP. The Florida LLC investment, the LLC had a small profit for the 2025 year. It's focused on international agriculture sales into multiple countries. Its management has advised us that they estimate a return to growth in 2026, which should translate into increased revenue for FSI. However, the international agricultural markets like the U.S. market are stressed. So we expect the growth rate to be low. Agricultural products in the United States remain under extreme pressure. Crop prices are still not increasing at the rate of inflation and extreme uncertainty is present due to tariff changes, energy costs and fertilizer scarcity. Growers are facing a conflict between rising costs and low crop prices, aggravated by political actions and war. In some cases, sales are being lost for the whole season. As a result, we saw a weakness in agriculture throughout 2025 and expect 2026 to be another difficult year. Tariffs. The current tariff on all our imports of raw materials from China into the United States is between 15% and 58.5% depending on the material. We are very careful not to import materials unless destined for U.S. customers who are guaranteed to purchase from us and are aware that the tariffs will be added to their invoices. We did not manage our transition to Panama perfectly and have had to import some raw materials into the U.S. in the second half of 2025. Some of this tariff costs will be passed on to customers, some will qualify for the rebate program and some reduced our 2025 margins. Moving most agriculture and polymer production to Panama has freed space in the Illinois plant so that food grade production in the U.S. can be optimized and expanded substantially as more U.S. customers are found. Shipping and inventory. Shipping prices are not stable. Shipping times are longer than usual on the routes we use. These issues are caused by the Iran war and are expected to subside if the war does. Raw materials prices are unstable and increasing to account for the oil prices caused by the Iran war. We have significant inventory of most raw materials, but we estimate that we will have to raise prices to our customers in third quarter unless there's a significant -- reduction in the price of oil that also reduces our raw material costs. The highlights of the financial results. Sales for the year were unchanged compared to 2024, $38.51 million versus $38.23 million. Profits. 2025 reported a gain of $787,000 or $0.06 a share compared to a gain of $3 million or $0.24 a share in 2024. Many costs incurred to prepare for the potential new revenue from the food grade contracts announced in January and August, negatively affected 2025 profits because they were expensed as they occurred. Substantial costs for the Panama factory were also expensed quarter-by-quarter. This will continue in first half 2026 for Panama and for food products in Illinois, but at much lower levels. We anticipate some profits in Q1 and Q2 2026, followed by rapidly increasing profits in the second half of the year. We've done our best to maintain profitability as we built the new factory and repurposed the existing one for the new revenue streams in food products. For 2025, we achieved these goals. We did so while reducing net debt and avoiding any equity financing. This should be considered very significant for shareholder value. Operating cash flow, this non-GAAP number is useful to show our progress, especially with noncash items removed for clarity. For 2025, it was $5.54 million or $0.44 a share, down from $7.08 million or $0.57 a share in 2024. Cash flow has been reduced by the same cost as noted for profits, and it's expected to rebound similarly in 2026. Long-term debt. We continue to pay down our long-term debt according to the loan terms. The loan we used to buy our ENP division was paid in full in June 2025. Our 3-year note for equipment was fully paid in December 2025. This has freed up more than $2 million in cash flow per year for other purposes. Only one small term loan and the mortgage on our Illinois factory remain. Working capital is adequate for all our purposes. We have lines of credit with Stock Yards Bank for ENP and NCS subsidiaries. We're confident that we can execute our plans with our existing capital and without resorting to any equity actions. The text of this speech will be available as an 8-K filing on www.sec.gov by Monday, April 20, and e-mail copies can be requested from Jason Bloom, jason@flexiblesolutions.com. Thank you. The floor is open for questions. Jen, will you set that up for us, please? Operator: [Operator Instructions] And our first question will come from [ Ron Richards ]. Unknown Attendee: I was just wondering on that $800,000 payment due from the Florida LLC. Do you expect them to pay that this year? Daniel O’Brien: We are negotiating the payment, and we don't know which way it will go. So that one, I can't answer you explicitly other than to say that we are doing our best to obtain that cash. Unknown Attendee: Okay. And that second nutraceutical contract, when do you think it will be at full production? Daniel O’Brien: We're hoping for end of second quarter or the very earliest part of third quarter. So -- that's what appears to be feasible at this point, but without a guarantee, of course. Operator: And our next question will come from Tim Clarkson with Van Clemens. Timothy Clarkson: Dan, nice to meet you a month or so ago. Just wanted to ask what would be a reasonable after-tax net margin by -- forget about third quarter, even, let's say, by fourth quarter. I mean, are we looking at a company that can at 10% net or 5% net or 15% net? What would be a reasonable net margin once those new revenues start coming in? Daniel O’Brien: I would suggest -- and I got a calculator open because that was an unexpected question, Tim. It was good to meet you, too. I think we're looking at [ '22 ] -- yes, probably a 15% net margin after tax. Timothy Clarkson: Okay. Great. And then this is sort of a nerdy agricultural question, but it seems to me that with the price of nitrogen fertilizer exploding some of your products that add value and allows the nitrogen fertilizer to stay in the soil longer. I mean those should be really valuable products and benefit the fertilizer situation. Daniel O’Brien: Yes. In theory, you're correct. On the ground, it's not quite as clear. Remember that if the grower isn't expecting to make a profit from his land, he not only cuts back on our products, but he cuts back on his nitrogen as well. And in the farm industry, it's known as fertilizer mining. They -- in order to cut their costs, they actually -- especially with phosphates, but to a certain extent with nitrogen as well, they cut back their usage of everything and accept a lower crop yield per acre because it's one of the ways to keep their doors open. So -- my analysis of this is that it's not going to affect us this year. But if nitrogen prices continue to be high and crop prices rebound, then we will do very well. Timothy Clarkson: Right. Right. Well, great. And yes, I'm excited, and it doesn't sound like you need to be raising any additional money from stock issues or anything like that. Daniel O’Brien: No, definitely not. It's -- as everyone knows, who's been paying attention, we have a shelf registration in place, but that is not for use at today's prices. Timothy Clarkson: Okay. Okay. Well, I know one cynical observer was commenting on that, but I know that you're a large shareholder -- the largest shareholder, so you're not interested in diluting yourself. So with that, I'll pass. Operator: And our next question will come from William Gregozeski with Greenridge Global. William Gregozeski: Dan, on ENP, with the sales down in the fourth quarter relative to the third, should we be looking at ENP more as a first half against first half, second half against second half kind of thing? Daniel O’Brien: Yes, that would be fair, Bill. What's happening in the turf and ornamental market appears to be a general movement towards early buy programs. And the best value on the early buy programs typically are in third quarter because that's when the people we sell to are trying to book next year's sale. They drift into fourth quarter, and we don't really control this process. So my feeling would be lump Q4 and Q3 together and lump Q1 and Q2 together to give you a better analysis whether we're doing a good job or not. William Gregozeski: Okay. And then are you guys -- what kind of growth are you expecting from ENP this year just year-over-year for the full year? Daniel O’Brien: Very much in line with historical numbers, low double digits, 10%, 12%, certainly not greater than that. It's not a great environment in America right now. William Gregozeski: Okay. With the Florida LLC, their -- it looks like their margins were up quite a bit in the quarter. Is there anything going on there where they're somehow getting better margins from customers? Or was that more of a onetime thing? Daniel O’Brien: I would say that's a onetime thing. And in relation to earlier question from Ron, we are working with the Florida LLC to get them better organized and receive our payment tranche. I think that you should treat Q4 as an aberration. And let's look at that company going forward more than going backward. And as I get clarity on that particular topic, we'll probably be making actual news release announcements to keep the transparency going. William Gregozeski: Okay. On the January food contract, the big one that you mentioned is kind of going up slow. Should we be looking at kind of lower than the margins you disclosed what you expect for this as it ramps up just because of the low base and just starting it up? Daniel O’Brien: It's -- let me explain that further for everybody. We're carrying a substantial number of employees who are drawing nice salaries and installing equipment and testing equipment and learning how to run the equipment, that's where all the pressure on our profits and EBITDA is coming from is people and large numbers of small value purchases that don't qualify as CapEx and end up on the expenses. So this is slowing down. And as the production ramps up, the amount of employee and operational expenses that are covered by the sale of the product increases. So throughout this quarter, as we ramp up we will go from making a loss on every employee that's working on this project to breakeven and then onwards to making a profit on each of them. The margin is not going to ever exceed the 22% to 23% level because that is contractually limited. So where we are aiming for is full production in Q3 at full margin because each of the employees is properly utilized. Is that a useful explanation? William Gregozeski: Yes. Yes, absolutely. Last question was on Panama. You mentioned it's not -- the shift hasn't gone as well as you planned. I mean, are you -- are we going to see lower margins as that shift happens over the course of this year from where you initially thought? Or how should we look at that? Daniel O’Brien: It's going to be similar margins to our legacy products in the past. We're not going to increase our margins. But what is happening there is identical to the food grade plant. We are employing people and building out a factory where the volume of sales doesn't match the cost of expenses and people at this time. And as the sales increase, the employees will be properly utilized for making stuff and selling it instead of building the factory, learning their jobs and doing and putting things in place. So it's happening at the same -- roughly the same rate. We're expecting that by third quarter, most of the legacy business will be coming out of Panama. There will still be some until the end of the year coming out of Illinois. But again, margins in Panama will creep upwards as we utilize the factory properly and the employees properly. They will creep up to historical margin levels for our legacy products. Operator: [Operator Instructions] And Mr. O'Brien, it appears there are no further questions at this time. Daniel O’Brien: Well, thank you, Jen. Everybody, thanks very much. Sorry, we were delayed for audit and [Audio Gap] Operator: And Mr. O'Brien has disconnected. This will conclude today's conference call. Thank you for attending.
Walter Hess: Good morning, everyone, and welcome to our Q1 '26 trading update. I'm Walter Hess, the CEO, and I'm joined today by our CFO, Daniel Wuest. In line with what we announced at the full year conference, we will provide transparent quarterly insights into our path to EBITDA breakeven, which is why we are hosting today's call. Just a few weeks ago, during our full year '25 results, we outlined our strategic evolution from an online pharmacy player to the leading digital and AI health platform, the engine for our profitable expansion at scale. Today, we will show you the facts that validate our successful development. Let's move straight to the Q1 highlights on the next slide to demonstrate how well this engine is now accelerating. Overall, we achieved a strong revenue growth of 10.7% year-over-year. Our Rx business showed outstanding momentum with a 30.4% growth year-over-year alongside a strong 7.6% sequential growth compared to the previous quarter. The growth was fueled by accelerating month-over-month with a remarkable uptick in March, which also continues in April. Our high-margin Digital Services business continues to scale rapidly, achieving an impressive 63.1% growth rate while consistently increasing margins. In Q1 '26, we successfully expanded our ecosystem platform, growing our active customer base by 1 million year-over-year, whereas 0.4 million in Q1 '26, to a total of 12.6 million, which is a great achievement. And most importantly, and as you know, our main priority, we improved our adjusted EBITDA by CHF 10 million year-over-year to minus CHF 6 million, proving we are on track to achieve our breakeven target in the course of 2026. Let's move to Slide #5 now. The 30.4% year-over-year Rx growth clearly proves that our strategy to capture the potential of the Rx market is highly effective. It shows that the patients are more and more familiar with our Digital Services and increasingly value the comfort of home delivery. We saw a growth in Rx orders from month-to-month with a significant uptick in March, rounding off a very successful first quarter and also continuing into April. And this acceleration comes together with a more and further optimized channel mix, which pleasingly increased RAS, return on advertising spend, and decreased our customer acquisition costs even further. Ultimately, this is a strong start into the year, and it demonstrates the growing stickiness of our health platform. Our non-Rx business remains a reliable driver of value, delivering continuous and profitable growth of 6.5% year-over-year to fuel our broader ecosystem. We managed our OTC and BPC business according to plan to a growth rate of 4.4%. Our Digital Services, including TeleClinic, Retail Media and our Marketplace grew further by an outstanding 63.1%. These digital business lines are not just growing top line, they are delivering increasing margins and therefore, a significant EBITDA contribution. And on top of it, the strong platform performance and expansion also forms an excellent basis for our Retail Media business. And now I would like to hand over to Daniel. Daniel Wüest: Thank you, Walter. And also from my side, a very warm welcome to all the participants. Let's move to Slide #7, where you see the EBITDA bridge, which we also provided to you during the full year figures in March. And I want to start this with the following comments. We closed Q1 with an adjusted EBITDA, as Walter already said, with minus CHF 6.3 million, representing a substantial improvement of almost CHF 10 million, exactly CHF 9.8 million compared to the quarter of last year. That's proving our continuous path to profitability. The adjusted EBITDA margin improved by over 360 basis points from minus 5.7% to minus 2.1% in Q1 compared to the previous year's quarter. If you look at the chart and you see since Q1 '25, we have seen an ongoing quarterly EBITDA improvement driven by basically 3 factors: Better operational performance, focus on marketing efficiency and also very important to mention, disciplined cost management. Amongst other, you remember, we have closed the Heerlen Logistics operations last year. And this year, we have announced the closing of Ludwigshafen, the warehouse and their respective logistics operations, which have already contributed substantially on the cost side, but will further contribute during '26. And I can also confirm that with the closure of Ludwigshafen, we are very well on track. We will see first positive operational effects there in the second half of '26. We continue to be very transparent, and you see with this minus CHF 6.3 million in Q1 '26 in the chart on Page 7 that we expect the quarter result almost on the same level for Q2. And then as already mentioned in March, we aim for getting close to EBITDA breakeven in Q3 and there will be definitely EBITDA breakeven in Q4. And I think that's what the management team is kind of aiming to achieve. All in all, our Q1 results demonstrate that our measures are working and will further work because it's not yet done, and bet DocMorris is very well on track to achieve EBITDA breakeven in the course of the year. We are relentlessly executing our plan with precision, knowing that our strategy, the evolution from a leading online pharmacy to a leading digital and AI health platform will pay off. With that, I would like to go to Slide #8. There, nothing new. Backed by our strong Q1 performance and our current trading, where we see an ongoing positive trend from March, we are fully confirming our short and midterm guidance as laid out on the full year presentation in March. That means we confirm our '26 adjusted EBITDA target in the range of minus CHF 10 million to minus CHF 25 million, strongly supported by the improvements we have already seen and delivered in Q1. We are confident to achieve EBITDA breakeven even if we would be at the higher end of the guided external revenue growth guidance. And just for your memory, we guided mid-single-digit to low teens percentage range. And as you have seen in Q1, we can deliver on the EBITDA target even if we are at the upper end of the overall revenue guidance. All in all, we firmly reiterate our commitment to reaching EBITDA breakeven during '26 and achieving positive free cash flow in the course of '27. And with that, I hand over to Walter. Walter Hess: Yes. Thank you, Daniel. So before we move to Q&A, I want to briefly address the upcoming Annual General Meeting and the future Board composition proposals. Our Board proposes 3 independent nominees, Thomas Bucher, Nicole Formica-Schiller and Dr. Thomas Reutter. Together with our existing Board members, this composition brings targeted expertise across the areas most critical to further execute on our strategy. Management's clear preference is for continuity and stability. We are at a pivotal point in our development. Consistent, focused execution requires a Board that is aligned, experienced and ready to act, not one in transition. All proposed new nominees are fully independent and stand for the interest of all shareholders. We believe this is the right team to take DocMorris forward, and we encourage shareholders to support these nominations at the AGM. Let me conclude the call with a clear message. Our vision of health in one click is not just a concept. It is fully operationalized through our integrated digital and AI health platform. However, a strategy is ultimately defined by its execution. Our Q1 results deliver strong proof that our measures are working and DocMorris is firmly on track. We are not just making promises for the future, we are delivering today. This is clearly demonstrated by our strong Rx growth and the 63% expansion in Digital Services and our continuous EBITDA improvements. My clear statement to you is that the transition to a profitable digital health ecosystem is fully underway and is yielding tangible financial results. We have the right strategy. We have the right management team and the operational proof is in place. We are executing with absolute focus, and we are pairing the necessary sense of urgency with a clear commitment to long-term value creation. And with that, we would like to move over to the Q&A part of this call. Operator: [Operator Instructions] And we have already some questions. The first question comes from Mr. Koch from Deutsche Bank. Jan Koch: My first one is on Rx. Encouraging to see that the growth rate has accelerated again in Q1. If I analyze your Q1 number, I'm already quite close to your full year guidance. So is there anything we should consider here? Or is your full year guidance just a bit more conservative than in recent years? Then secondly, on profitability, could you confirm that the loss in Q2 is not expected to be higher than in Q1? And if so, the upper end of the EBITDA loss range looks quite unlikely as well. Any comments here? And then lastly, are there any upcoming regulatory changes that we should keep in mind? There have been some headlines on the potential changes to the cold chain requirements. So any color here would be helpful. Walter Hess: Yes. Thank you, Jan, for your questions. Let me take the first and third question. And then the second one, I would like to hand over to Daniel. On the Rx, what I just can confirm that we continuously improve the marketing mix, the performance of the marketing. And with that, we just see a really good development. And yes, so let's meet again in August, and then I can further -- or we can further give you more details about the growth and what you can expect also in the second half year and for the full year. About profitability, maybe Daniel? Daniel Wüest: Yes. I think that's always the backside of being very transparent and you did the right math or measuring up on the scale. I think it would be -- if you already would know how Q2 would come in, especially on the bottom line, then my life would be much easier, and we would now go out and [indiscernible] join with the fun. No, but on a more serious note, definitely, we aim for EBITDA -- quarterly EBITDA in the area of Q1 and knowing that Q1 and Q2 are usually the weakest quarters and with acceleration in Q3 and Q4. However, having said this, as Walter already mentioned, we see very good traction coming from March and also has been transferred into April, even that basically, we had 2 slower weeks due to the Easter time and related vacation. And therefore, I would kind of confirm your view that you could assume that it will be roughly on the level of Q2. But of course, we have -- the management has a higher ambition to maybe improve it to the upper end of the midpoint of the shaded bar, which you see in the chart. Walter Hess: Okay. And then coming to your third question about the regulatory development, and you mentioned the cold chain. So as you all know, there is a draft of regulation, which has been issued by the Ministry of Health. And now the EU Commission intervened and basically said that it's a violation of EU law again, we have to say. For us, it's a positive signal because we see it equally. So now the ministry has to adjust this draft. And it's really just a draft, and it's only on the regulation level. So we see it as a really positive sign as I think also the market has seen. Operator: The next question is from Mr. Kunz from Research Partners. Urs Kunz: I have just one question regarding Digital Services. If I calculated correctly, you had a growth rate of 110% in Q3 and then 95% in Q4. Now you have 63% in Q1. And this is a rather steep deceleration. Is that something we have to think about that it's going further down in the coming quarters? Or is it going to stabilize? Because you have your guidance or your inofficial guidance of mid-double-digit percentage range for the whole year, which would translate to, I guess, 40% to 60%. Daniel Wüest: Thank you, Mr. Kunz, for the question. I think your calculations of the last year and the quarterly development are, let's say, more or less right. And as mentioned, we indicated when we guided for Digital Services that we are aiming for mid-double-digit growth, which we would also translate into 40% to 60%. And with the -- we are now actually at the upper end. And I think in relation to TeleClinic, there, the TeleClinic was slightly below the average, but we have kind of disclosed for Q1. But as mentioned, you have to remember that last year, TeleClinic has won the TK tender, which is by far the biggest insurer in Germany. And there you have seen a huge increase in volume starting in December, but mainly in Q1. And you can expect and assume that there will be kind of a leveling out, i.e., that the base effect will then, from Q2 onwards, play in favor of TeleClinic. And having said this, TeleClinic has several tenders outstanding where we expect to get feedback rather sooner than later and which could then also basically, if they would go into the right direction, give some additional top line growth, which was not reflected in the initial guidance, which we had put out in March. I think just to add there, I think top line growth is one, and we also explained in March that in -- with TeleClinic, we always have years where with high growth, but let's say, stable profitability, margin development, which was last year because the growth was 3 digit, but the margins more or less were stable. And this year, and that deliberately, we see already in the Q1 that the growth is a little bit lower, but the margins have substantially improved, and we expect that this will continue during the year, meaning that we are not talking kind of a 3, but rather kind of a 4 as the first number in the margin profile. Urs Kunz: Okay. But all in all, you're quite confident that the growth rate in Digital Services in the next few quarters stabilize somewhere in this double-digit percentage range, mid-double-digit percentage range and then not kind of constantly going backwards? Daniel Wüest: No, no. I think we hope it will be the other way around, but let's see. But we are very confident that this 40% to 60% is for the time being that the wide range and not any -- adjustments to the downside are definitely not a topic for this year. Operator: [Operator Instructions] And the next question comes from Guillaume Galland, I hope I pronounced your name correctly, from Barclays. Guillaume Galland: See, I have one question maybe on the non-Rx and OTC side. So yes, could you give us a bit more color on what you're currently seeing in German OTC? And -- so your peers have flagged some softness in the market, which was seen in Q4. [indiscernible] in Q1. It seemed that OTC has slowed in Q1 for DocMorris. So keen to hear a bit more on the consumer demand and if you've seen any changes on the competitive intensity. Walter Hess: Thank you, Guillaume. Happy to answer that one. So obviously, the market is going on more or less the same level and pace as also the Q4. For us, it's important. We have a plan to grow mid-single digit with OTC and BPC, and this is the level where we manage growth in that part. And yes, so as you might remember, generating OTC growth would not be really difficult. So we could grow further, but it comes with a price. And our priority is very clearly on profitability. And this is why we decided also to soft guide OTC on mid-single digit, what works well in Q1 and also in Q2, the start in April. Guillaume Galland: And then regarding -- sorry, Rossmann and dm, any change here in terms of competition? Walter Hess: Sorry, I didn't understand your question. Guillaume Galland: Have you seen any switch in competition from Rossmann and dm in the market on the OTC side? Walter Hess: No, we don't feel additional competition at all. Daniel Wüest: Guillaume, so to make it very clear, I think on the OTC, we have compared from Q1 -- Q4 to Q1 this year, we have not changed anything. We have exactly the same amount of marketing spend, marketing ratio and everything. And that's the reason -- you do not have to ask us why in Q4, we all of a sudden got to a double-digit OTC growth. But I think that was somehow exceptional. But Q1 is really according to plan and budget and to guidance, which we provided this mid-single digit and this 4.6%, we are perfectly on track to -- in this respect. Walter Hess: Okay. So as there are no further questions... Operator: Yes, one more question. It just came in. I'd like to interrupt you. So the next question is from Gian-Marco Werro. The floor is yours. Yes, we can't hear you, Mr. Werro. I'm sorry. Walter Hess: But we can answer your question off the call at any time. So we are, of course, achievable -- available. Okay. So let's end this call. Thank you very much for taking part, for spending the time. I just can confirm we are really well on track. The management, the company needs stability and consistency, and we are strongly executing and fully focused on delivering the guidance that we have promised to you and to the market. I wish you a wonderful day and looking forward to seeing you and meeting you in August latest. Thanks a lot. Daniel Wüest: Thank you.
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Concurrent Technologies Plc (COTGF) Q4 2025 Earnings Call Transcript
"High inflation and a weak labor market would be very complicated for a policymaker," the central banker said for a speech in Alabama. "If I face this situation, I'll have to balance the risks to the two sides of the Fed's dual mandate to determine the appropriate path of policy, and that may mean maintaining the policy rate at the current target range if the risks to inflation outweigh those to the labor market," Waller added.